THE DISTILLERY: China wobbles

A jotter finds evidence China's miracle economy may hit a speedhump, while Coles gets proactive on alcohol.

When Kevin Rudd was bumped from the top job 20 months ago, Julia Gillard handed him the foreign affairs portfolio at the expense of the well regarded Stephen Smith in an effort to keep the peace. Smith graciously stepped aside for the good of the party, even though all knew he was a widely respected and developing foreign minister. Now that Rudd’s gone, Gillard should reinstall Smith, because Australia’s largest trading partner, China, is showing yet more signs of troubles. The Australian’s Michael Sainsbury says hopes of a strong second half to 2012 are fading, while The Age’s Peter Cai discovers some rare and alarming inequality statistics from a country that guards such data closely. Elsewhere, Coles is remixing its approach to liquor, while another commentator looks at the inspiration of James Packer by media billionaire Kerry Stokes.

But first in this morning’s Distillery, The Australian’s China correspondent Michael Sainsbury says the optimism that China’s economy would rebound in the second half of 2012 has taken a back seat.

"China’s top government think tank has warned of risks that the country's economic growth will slow down and cast doubts over longer-term expansion, as export growth continues to fall and a property bubble deflates. The latest in a string of high-profile warnings comes as the clamour for economic reform escalates in the lead-up to the annual National People's Congress next week. Li Wei, director of the Development Research Council, which advises China's State Council, or cabinet, said that export growth could slump to 10 per cent this year from 20.3 per cent last year."

The Age’s Asian affairs reporter Peter Cai says researchers from the Beijing Normal University – as opposed to the less revered Beijing Slightly Unusual University – have filled in the gap for those interested in Chinese inequality. The last time China officially published its Gini co-efficient – a respected guide to inequality where anything upwards of 0.4 on a scale of zero to 1 is considered a threshold for social unrest – in 2000, it was 0.412.

"The finding for 1988 was a respectable 0.382 but a rather scary reading of 0.48 for 2007. However, Samsung Economic Research Institute, an influential South Korean think tank, believes even that figure underestimates the true state of inequality in China. The Samsung Institute's chief macro-economist Li Muqun argues that Chinese researchers' surveys failed to include the so-called "hidden incomes" from high-income earners in their calculations. "Hidden incomes," or grey incomes as they are also known in China, refer to illicit fund streams gained from bribery or other rent-seeking behaviour, for example, bribes for officials or kickbacks for doctors.”

Meanwhile, The Age’s Adele Ferguson says change is coming to Coles, which has made serious inroads on rival Woolworths over the last few years, in regards to its stalling liquor unit.

"Coles heard the wake-up call when its latest results showed that liquor is slicing at least 0.5 per cent off its supermarket revenue. In sharp contrast, Woolworths is getting a lift of at least 0.5 per cent from its liquor business. To this end, it has rejigged management, it plans to roll out some big-box stores, sell off non-performing smaller liquor stores and revisit terms with some of its suppliers. It is also believed to have hired a broker to offload three hotels and is believed to be keen to find a joint-venture partner for its national hotels and pubs business. If there is a change in government in Queensland and the legislation is changed, the talk is that it would get out of hotels completely.”

And fourthly, The Australian’s John Durie finds shades of Kerry Stokes in James Packer through his quest for control of Echo Entertainment.

"James Packer's thoughts on corporate governance are probably best left unsaid, given they cloud an already confused public stance towards listed gambling stocks. For starters, any company chief wanting to build widespread shareholder support is probably best advised to stop publicly endorsing Kerry Stokes's questionable tactics in winning control of companies like WAN and Seven without paying minority shareholders a premium. Hopefully, Echo Entertainment chairman John Story will play the game better than Peter Mansell at WAN and the folks at Seven some years earlier.”

Staying with company news for the rest of this morning’s Distillery, The Sydney Morning Herald’s Malcolm Maiden says his sources indicate the stake taken in Goodman Fielder by UBS on behalf of a client is a blocking stake. The Australian Financial Review’s Chanticleer columnist Tony Boyd interprets Julian Segal’s concession that the "status quo" is no longer an option for Caltex Australia and its refineries business as the beginning of the end. Fairfax’s Insider columnist Ian McIlwraith has seen some of Shaw Stockbroking’s accounts and it doesn’t make for good reading, while The Australian’s Tim Boreham wonders whether Billabong can ride the TPG Capital wave to a higher bid, given that private equity rarely pin all their hopes on any one deal.

Elsewhere, The Sydney Morning Herald’s Ian Verrender gives the ratings agencies an easy kick for their recent jumping at shadows.

And finally, the Herald Sun’s Terry McCrann argues the Business Council's Tony Shepherd needs to be more specific about the business community's expectations of the Gillard government.


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