China has revalued its currency, the yuan, and linked it to a basket of currencies—though it is not yet clear how far it will be allowed to rise. The move may ease trade tension with America, though China's slowing economy, which is boosting its trade surplus, may reignite the spat

SOONER or later, it was going to happen, and on Thursday July 21st it did. China abandoned the 11-year-old peg of its currency, the yuan, at 8.28 to the dollar. From now on, the yuan will be linked to a basket of currencies, the central parities of which will be set at the end of each day. And the currency has been revalued, although by nothing like as much as America and others have been demanding: the yuan's initial central rate against the dollar was shifted by just 2.1%, to 8.11.

So far, it is not clear exactly how the new system will operate. The Chinese called it a “managed floating exchange-rate regime”, which may well imply more management than floating. Neither the currencies in the basket used to set the level of the yuan, nor their weights, have been disclosed. The fact that the Chinese have acted at all is important. But the eventual economic and political effects of the revaluation will depend on how far and how fast the yuan moves from now on. In Friday's trading it barely budged—and in fact closed a fraction below 8.11 to the dollar, suggesting the authorities are keen to damp down market expectations of further rises.

Such a slight initial revaluation is unlikely to do much to slow China's fast-expanding economy. The day before the currency regime changed, the country's official statisticians said that GDP in the second quarter of 2005 was 9.5% higher than a year before—more than most pundits had forecast and only a shade less than the figure for the same period of 2004 (see chart below). Growth rates of industrial production, ahead by 16.8% in the year to June, and investment in fixed assets, up by 25.4% in the first half, year on year, have both eased from their levels at the end of 2003, but remain strong. Inflation, as measured by the consumer-price index, is mild. It slid to 1.6% last month, down from 5%-plus a year ago.

In truth, the economy is slowing more markedly than these (highly suspect) official figures suggest. Many economists say that China has an institutionalised bias to over-reporting growth at the bottom of a cycle and under-reporting it at the top, to reduce the volatility of the numbers. Judged by physical indicators, such as electricity consumption or freight volumes, GDP growth probably peaked at over 12% in 2003 and should slow to 8% by 2006. Since China's macroeconomic growth is driven more by fixed investment than by household consumption (which dominates in the West), it is especially vulnerable to any slowing of corporate investment or public spending on infrastructure.

“In investment cycles,” says Andy Xie, Asia economist at Morgan Stanley, “the leading indicators are profit margins, product prices and property prices, which forecast corporate cash flow or ability to borrow.” These three indicators are slowing. For the past five years, Chinese industrial firms have enjoyed record profit margins as revenue growth has outpaced the increase in wages and raw-material costs. In 2003 and 2004, industrial production and sales grew at an annual rate of nearly 30% in real terms, analysts estimate, but in 2005 the pace has slowed to around 15%. With commodity prices high, companies' margins are being squeezed: overheated industries such as cars, steel, cement and basic materials are suffering especially.

Property prices are also moderating after a period of extraordinary growth, particularly in big cities. Shanghai house prices, up by half since 1998 and by almost 10% in the first quarter of this year, have fallen back by 10-20% since mid-April. Transaction volumes in most urban centres have also dropped, because the government has imposed a property-sales tax and tightened mortgage requirements.

Overall, however, China seems to be managing the soft landing that it wants. The authorities have acted earlier and more decisively than they did in the mid-1990s, curbing growth before it gets out of hand. Policymakers have also been more sophisticated, targeting selected sectors with administrative restrictions while shifting to market-based measures, including last October's increase in interest rates, to rein in money and credit growth. A dearer yuan—but much dearer, probably, than after this week's move—would give the economy another downward nudge.

In addition, the economy is looking better balanced: there are signs that consumer spending is doing more to support the economy, alongside fixed investment and exports. Rising incomes are boosting households' spending power, lifting retail sales by 13% in the first half of the year, compared with the same period of 2004. And the countryside is finally playing a part: after six years of lacklustre growth, rural incomes rose by 12.5% in the first half.

That said, China's policymakers cannot afford to rest on their laurels. On the one hand, there is a risk that the economy will steam away again as spending for the Beijing Olympics in 2008 takes off. On the other, the vast amount of manufacturing capacity built up over the past few years means that a slightly sharper slowdown, perhaps triggered by lower growth in America, could tip the country back into deflation. Already, a staggering nine-tenths of manufactured goods in China are thought to be in oversupply.

In the short term, the biggest worry is that China becomes a victim of its own international success. Until recently China has been a powerful engine driving the world economy. If it slows, existing political and trade tensions could still worsen. Thus an unfortunate side effect of China's attempts to cool its domestic economy has been an exploding trade surplus, because import growth has softened while exports have remained robust. In June, China's exports rose by 30.6%, year-on-year, while imports grew by just 15.1%, widening the monthly trade surplus to $9.7 billion. The cumulative surplus for 2005 is now nearly $40 billion, more than for the whole of last year. This year's current-account surplus could reach 9% of GDP. “Just one year ago, China was the world's fastest-growing importer of heavy industrial products,” says Jonathan Anderson, chief Asia economist at UBS. “Today, the mainland is actually a growing net exporter, with shipments of not only textiles but also steel, other metals and chemicals accelerating visibly.”

Slowing imports (of everything but commodities) are bad news for international companies, at a time when those doing business in China are already suffering from increased competition and oversupply. And mainland firms are becoming aggressive exporters of everything from textiles and steel to electronics and even cars. Ningbo Bird, based in Zhejiang province, is flooding Asia with cheap mobile-phone handsets it cannot sell profitably at home.

Revaluing the yuan should make some of the tensions created by all this less acute. American politicians, in particular, have been demanding a step in this direction—President George Bush's spokesman welcomed the move. However, some congressmen have been demanding a much bigger stride. And investment is becoming as touchy an issue as trade has been. China is no longer using its huge stock of foreign-exchange reserves—over $700 billion—merely to buy American Treasury bonds, but to snap up physical assets too. The $18.5 billion contested bid by CNOOC, a big Chinese oil company, for America's Unocal is causin
g an uproar in Washington, DC. China's currency move may dampen calls for trade protection and revaluation for a while. But if its domestic economy slows and thus becomes less supportive of global growth, such calls are likely to return soon.

The state-controlled China National Offshore Oil Corporation has bid $18.5 billion for Unocal, an American energy company, in the latest sign that China is looking overseas for natural resources and brands. Controversially, acquisitive Chinese firms are getting a lot of help from their government

OTHER than capturing the mood of cold-war paranoia, the 1960s film “Battle Beneath the Earth” has little to recommend it. But the message that Communist China was set to take over America by sending an army through a set of tunnels dug beneath the Pacific Ocean played on popular fears. Nowadays it is China’s economic might that has the world in a tizzy, and the Chinese are coming armed with money to buy assets, not guns.

China’s biggest strike so far is an offer for Unocal, a California-based oil and gas firm. On Thursday June 23rd, the state-controlled China National Offshore Oil Corporation (CNOOC) made a cash bid of $18.5 billion for Unocal ($20.6 billion including assumed debt and a break-up fee), trumping a $18 billion share-and-cash offer (including the debt) from Chevron, America’s second-largest oil company. Opponents in America have based their hostility to CNOOC’s bid on national-security issues. The Chinese firm has promised to preserve American jobs and keep Unocal’s products on sale in the country to assuage nationalist sentiment. Unocal said it will evaluate the bid but that its board’s recommendation of Chevron’s offer “remains in effect”.

China’s move for Unocal neatly sums up the two forces driving the country’s ongoing bid to acquire foreign assets: the thirst for raw materials to feed and maintain its booming economy, and the desire to obtain western brands to help market Chinese exports.

Last year China’s economy grew by 9.5%, and the pace does not appear to be slowing much. The economy is in the throes of a gradual transition from state control to the free market. Much of Chinese industry is government-controlled, and some years ago China’s authorities concluded that to challenge the rest of the world they needed to build up to 50 of the country’s better firms into globally competitive multinationals—helping them along the way with tax breaks, free land and all-but-free financing through state-owned banks. The eventual aim was to create national champions that could take on the world’s leading companies while remaining under the watchful eye of the state.

To this end, Chinese firms have made deals to gain access to natural resources. Buying Unocal would give CNOOC fresh oil and gas reserves (many of which are located in Asia) at a time when energy prices are high and China’s appetite is strong. Last year Baosteel, China’s leading steelmaker, entered into joint-ventures in Australia and Brazil to assure supplies of iron ore. PetroChina and Sinopec, the two biggest state oil firms, have also shopped abroad. But this quest for commodities has not always proved successful. Last year China Minmetals, the country’s biggest base-metals firm, failed in a $7 billion attempted takeover of Canada’s Noranda, an ore producer. Fears that Minmetals still harbours ambitions spurred Canada’s government to introduce a bill this week intended to block foreign takeovers on national-security grounds.

As well as securing the natural resources necessary to keep output bubbling, Chinese firms are looking around the world for struggling but globally recognised brands. This is because Chinese companies, while enjoying cost advantages thanks to a vast pool of cheap labour, have an image problem. Foreign consumers think of Chinese goods as admirably cheap but lacking in quality. As Chinese firms move up the “value chain”, they are keen to buy foreign brands that they can attach to their more promising products.

Late last year Lenovo, China’s leading PC-maker, which is connected to the government through its ownership by the Chinese Academy of Science, bought the PC business of IBM for $1.75 billion. Under the terms of the deal, Lenovo acquired the right to use the IBM name on its computers for five years. And this week Haier, China’s leading appliance maker, teamed up with two American buy-out firms to bid $1.3 billion for Maytag in an effort to make a substantial move beyond China, where it has a market share of up to 70% for some products. The ailing American maker of Hoover vacuum cleaners had previously agreed to a $1.1 billion offer from a domestic private-equity firm. In early 2004, China’s TCL bought the television-making business of France’s Thomson, making it the world’s leading volume manufacturer of TV sets.

Undoubtedly, it is quicker (and possibly cheaper) to buy a well-known brand than to build one from scratch. But the Chinese are not throwing money at any and every firm with a well-known name. Shanghai Automotive Industry Corp (SAIC), which last year trumped a South Korean rival to buy Ssangyong, Korea’s fourth-largest carmaker, recently pulled out of a deal to buy MG Rover, a foundering British car company that has since folded. In fact, SAIC had apparently acquired much of the intellectual property that it wanted from Rover and was unwilling to foot the bill to keep the firm going. In this case, the Chinese were as keen to get their hands on useful technology as they were to secure the rights to a western brand.

The Chinese government’s coddling of its state-owned firms is another force behind the current wave of overseas expansion. While officials want to see markets develop at home, up to a point, they fear the fallout from the collapse of hundreds of large, communist-era basket-cases. So the government props these enterprises up with ultra-cheap loans through the banking system and other favours, which have the effect of creating overcapacity and nurturing unfair competition. This, in turn, pushes the more successful state firms, and private companies like Haier, to seek opportunities in markets abroad.

China’s favoured companies, with their access to cut-price funding, will usually be at an advantage compared with overseas rivals when bidding for assets, and may be prepared to pay over the odds. Critics suggest that CNOOC is paying too high a price for Unocal and that the money is coming from China’s government, which has let its desire to create global businesses cloud commercial logic. CNOOC has said it will borrow $16 billion from its government-owned parent and banks to finance the offer.

Shareholders of target firms like Unocal may well be pleased by this readiness to splash out, but their workers might worry. Jobs often go as Chinese buyers shift production to lower-cost plants at home. This fuels opposition to such takeovers in the targets’ countries. But for now at least, the spread of Chinese business around the world is set to continue.

Apple has announced that it will switch its computers from microprocessors supplied by IBM and Freescale to those made by Intel, the world’s biggest chipmaker. Emboldened by the success of its iPod music player, this is Apple’s latest move in an attempt to return to the mass market

ASK people to describe their computers. Most, with a shrug, will mention a couple of grey-coloured (or is that cream?) boxes, and software that crashes occasionally. But the sliver of the population who own one of Apple’s products are more likely to enthuse about the cool design of their hardware and the robustness and user-friendliness of their software. It is a surprise, then, that more people don’t chose the American firm’s computers. This is what Steve Jobs, its chief executive, hopes to put right.

On Monday June 6th, Mr Jobs used the platform of Apple’s annual developers conference to announce that the firm will switch from the chips supplied for over a decade by IBM and Freescale (which was spun off from Motorola last year) to products from Intel, the world’s biggest chipmaker. The first products with Intel chips should be available next year. Most observers suggest that the move is part of a strategy dedicated to returning Apple to the mass market for computers, which it dominated before the advance of Microsoft and Intel in the 1980s.

There are several suggestions about what prompted the change. Apple blamed its current chip suppliers for slow delivery last year, which held up production of some lines. And chip development has not lived up to promises Apple made for improvements in processing speed. Intel’s chips are faster and run cooler than Apple’s current chips. And cooler chips are important for the production of better laptops, a market growing considerably faster than that for desktop PCs. But there is much speculation that Intel can simply supply chips more cheaply than IBM and Freescale, and that Apple can use the saving to cut the retail price of its computers.

Apple’s problems in increasing its market share are, to a large extent, a result of the high prices it charges for its computers compared with similar products from the likes of Dell or Hewlett-Packard. Apple sold only around 2.3% of new desktop and laptop computers worldwide in the first quarter of 2005, according to IDC, a research firm. Dell commanded 18.9% of the market, HP 15.4%. But Apple is concentrating hard on ways to improve its market share and is banking on the huge success of the iPod, its digital music player, to create a “halo effect” and speed the revival of Apple as a force in world computing.

The firm’s recovery has been apparent for 18 months, after several years in the doldrums. In 2004, Apple’s net profits were four times higher than the year before, at $276m, and in mid-April the firm announced another blistering set of quarterly results: revenues up by 70% compared with the same period the year before, and net profits 530% higher, at $290m; Apple shipped over 1m computers (a 43% rise) and a staggering 5.3m iPods (over six times more than the year before).

The iPod has done wonders for Apple, providing not only profits but a positive brand image to a swathe of new young consumers. Though the iPod was derided by some as exorbitantly expensive at the time of its launch in 2001, it has amassed some two-thirds of the world market for hand-held music devices. And not content with anything less than total domination, in January Apple introduced the iPod shuffle, a flash-memory player, which is naturally smaller and better looking than anything the competition can yet muster. No wonder iTunes, Apple’s online music store, leads the field.

But Apple still makes most of its cash from computers, and to extend its product range it introduced the Mac mini at the beginning of the year. This small, relatively cheap computer comes without “peripherals”—customers can add their own keyboard, mouse or screen. This helps to keep costs low and so, it is hoped, will nudge more users of Microsoft’s Windows to switch to Apple. Mr Jobs hopes to spread the Apple message further still through a network of Apple retail stores. There are now over 100 around the world in prized locations.

The lead that the iPod has in the hand-held music player market looks unassailable for the time being. That said, Bill Gates is touting Microsoft’s own software format, Windows Media, to several online music services and hardware firms, hoping to set a rival standard with greater interoperability. At present, iTunes offerings only work with the iPod. Mr Gates suggests that the convergence of mobile phones and music players (using his software, of course) could threaten the iPod’s dominance. Apple should take the threat seriously. Nokia recently announced that it was preparing to launch a handset with a hard drive. Sony Ericsson will unveil its first Walkman phone later this year. To counter these threats, a deal between Motorola and Apple is expected to spawn phones with iTunes included in a couple of months.

If Apple is to make the most of the halo effect from the iPod to push its upmarket computers on greater numbers of customers, it would be well to do so as soon as it can. Such is the importance of the iPod to Apple that on June 3rd the firm’s shares fell by 4.5% after analysts suggested that sales of the device may be flat in the current quarter. If the halo slips, Apple may have to content itself with selling its wares just to the select, fashion-conscious bunch who presently make up the company’s loyal fan base.

A new channel named "Niao Yu" contains some excellent articles from Economist.com. The sentences in the topic "Pretty Sentences" are all picked from the Economist.com as well.
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As Paul Otellini prepares to take charge at Intel next week, is the giant chipmaker heading in the right direction?

WHEN it was confirmed last November that Intel’s new boss would be Paul Otellini, the firm’s chief operating officer and heir apparent for several years, nobody was surprised. The firm’s succession-planning is famed for being as clean and efficient as the factories where it makes its chips, and Craig Barrett, the retiring chief executive, who steps down on May 18th, has long seen Mr Otellini as his right-hand man. But Mr Otellini is Intel’s right-hand man in another sense, too. For he is the architect of the firm’s new strategy—a change of direction that Mr Otellini calls a “right-hand turn”. The world’s largest chipmaker now faces three big challenges—but Mr Otellini believes his plan can address all of them at once. Is he right?

The first challenge is technical. For years, Intel has consistently improved the performance of its chips by making them run at higher and higher clock speeds (measured in MHz or GHz). But it has now hit a wall. As chips get faster, they consume more power and generate more heat. It also becomes harder to keep all the parts of a chip marching in step.

Intel, along with its rivals, is embracing a new approach to chip design, in which performance is improved not through higher clock speeds, but by adding further processing “cores” to its existing chips. A “dual-core” chip can, at least in theory, deliver twice the number-crunching performance of a single-core chip, but at the same clock speed. In practice, the software on the chip must be rewritten to exploit multiple cores, but such software is becoming increasingly common.

The second challenge is that the personal computer (PC) market has matured. Intel still makes most of its money selling the processor chips at the heart of PCs. Mr Otellini’s predecessors, who ran the firm when the PC was in the ascendant, could rely on an expanding market to provide double-digit growth for Intel. Mr Otellini cannot, and must find new sources of growth, in the PC market and beyond it.

The third challenge is the growing competitiveness of Intel’s main rival, Advanced Micro Devices (AMD). In recent months Intel has suffered a string of embarrassments, some self-inflicted (such as the cancellation or delay of several new products), but others at the hands of AMD. Notably, AMD devised a clever way to enable chips to handle data in both 32-bit and 64-bit chunks, which improves their performance. Having spent years developing an entirely new 64-bit chip, Itanium, Intel was loth to undermine its prospects by adding 64-bit support to its 32-bit Pentium and Xeon chips. But last year it did just that, to remain competitive with AMD. As a result, Itanium is probably doomed.

Mr Otellini’s response to all of these challenges is the “right-hand turn”. First, Intel must change how it designs chips. As well as switching to a dual-core (and then multi-core) approach, the firm is starting to integrate other functions, such as security and networking features, on to its chips.

That points the way to the second part of Mr Otellini’s plan: “platformisation”. Rather than just selling processing chips to PC-makers, Intel intends to offer them entire “platforms”—bundles consisting of a processor, its ancillary chips and networking components, and the software needed to tie them all together. By doing this, Intel hopes to sell more components, thereby taking a larger cut of the selling price of each PC. It also hopes to boost demand by devising specific platforms for several promising new markets, such as home entertainment, mobile devices and health care.

This strategy, it hopes, will also enable Intel to outflank its rivals, which specialise in particular kinds of chips, such as processors (as in the case of AMD) or networking (Broadcom). PC-makers, goes the theory, would rather buy a single integrated package from Intel than assemble components from several other suppliers.

A man with a plan

This all sounds good in theory. But will it work in practice? When asked, Intel executives invariably cite the success of Centrino, the firm’s laptop platform, which combines a processor with a Wi-Fi networking chip, software and other supporting components. Centrino, launched in 2003, is the model for how Intel intends to sell chips in future. Rather than ask for “Intel inside”, laptop buyers can now demand “Centrino inside”. This encourages PC-makers to buy the entire platform.

Intel is now working on two similar platforms for home and office desktop machines, nicknamed “Desktrino”, due to be launched later this year. In January Mr Otellini reorganised Intel into platform-specific divisions, including digital home (for consumer PCs), corporate (business PCs and servers), mobility (laptops and mobile devices) and health care, which Intel regards as a promising new market.

Will it work? Consider Centrino. When it was launched, several laptop-makers initially turned their noses up at Intel’s Wi-Fi chip, and decided to buy only Intel’s laptop processor chip, which they combined with Wi-Fi chips bought from other vendors. Only when Intel’s Wi-Fi chip came up to scratch did laptop-makers opt for the whole Centrino package. “It took a while for the Centrino model to work,” says Dean McCarron of Mercury Research, a market-research firm. The platform model will only succeed, he says, if all the components are competitive in their own right.

While Intel has a good chance of getting the platform model to work in desktop PCs, breaking into new markets may prove much harder. Intel has yet to make any headway in the mobile-phone market; indeed, merging its laptop and mobile businesses into a single “mobility” division means that continuing losses in communications chips are helpfully obscured by the bumper profits from Centrino. Its prowess in processors is unquestioned, but Intel is still to prove itself when it comes to radio chips. It must do so if it is to realise its high hopes for new markets such as smartphones and wireless broadband (Intel is the main cheerleader for WiMax, a new wireless broadband technology). “They don’t have a significant technological advantage over the incumbents in the cell-phone business,” says Kevin Krewell of Microprocessor Report, an industry journal. “Until they come up with something truly unique, they’re just going to be a me-too player.”

There are other worries too. Dell, the world’s top PC-maker and one of Intel’s closest allies, has hitherto chosen not to use AMD’s chips. But Kevin Rollins, Dell’s chief executive, admitted in February that his firm came close to changing its mind last year, following product delays and other problems at Intel. Dell is careful never to rule out abandoning its Intel-only policy. If Dell ever changes its mind, Intel’s market share in PC processors, which has exceeded 80% for years, could come under threat. Intel rewards Dell and other PC-makers with generous discounts, in the form of marketing subsidies, to keep them loyal. Dirk Meyer, the number two at AMD, says that Intel has a “stranglehold” over PC-makers. He points out that Japanese antitrust regulators recently ruled that Intel’s business practices in that country, which are similar to those used elsewhere, were unfair. Mr Krewell, however, says that Intel had worse practices in the past, and has cleaned up its act.

As Mr Otellini takes the helm, Intel is already starting to move in the direction he has charted. The origins of the new strategy can be traced back to a speech he made in late 2001. Since then he has been gently steering the firm
into its right-hand turn. He is the first boss of Intel to have a business and marketing rather than a technical background (though, as a 31-year veteran at the firm, he is hardly a technological novice). As Intel faces the challenges not just of designing chips in new ways, but of selling them in new ways too, Mr Otellini would seem to be the right man for the job. He has mapped out where he wants to take the company: now he must get it there.

The nationalist genie, once unbottled, could prove hard for China to restrain.

Those protests, initially condoned by the authorities, fizzled out after three or four days, when the government made it clear that enough was enough (used to say that something that is happening should stop).

PHYSICISTS who meddle with (乱动) cold fusion, like psychologists who dabble in (涉猎) the paranormal, are likely to be labelled quacks by their peers.

By comparison (比较而言) , the company’s latest set of troubles must seem somewhat (有些) trivial.

Partly this is a result of the fall-off in demand after the bursting of the dotcom bubble (网络泡沫) , as companies reined in spending on information technology (IT).

In 1945, America, Britain, France, the Soviet Union, China and dozens of other countries stood shoulder to shoulder (肩并肩,一起) to defeat Nazi Germany and Japan.

America will lead, with “coalitions of the willing” where possible, but the grimness of the terrorist threat, combined with fears that weapons of mass destruction are falling into the wrong hands, means that alliances like NATO and international bodies like the UN will not hinder its freedom of action.

As Paul Otellini prepares to take charge at Intel next week, is the giant chipmaker heading in the right direction?

Having spent years developing an entirely new 64-bit chip, Itanium, Intel was loth to undermine its prospects by adding 64-bit support to its 32-bit Pentium and Xeon chips. But last year it did just that, to remain competitive with AMD. As a result, Itanium is probably doomed.

Instead of being a bit it is, in the jargon, a qubit.

There is an old saying "After pride, comes a fail."(骄兵必败)

First and foremost, …

Luck may play a role, but there are also inherent and inherited(天赋和遗传) differences between individuals that can account for some or all of the variation in response.

Shanghai has been developing rapidly into a city full of vigor and vitality and showing a great promise.