Marketplace Middle East - Blog
10/3/08
Uncle Sam on the line

It was a surreal experience, standing outside a brand new conference center in the spruced up port city of Tianjin, China preparing for live cut-in.

In my earpiece I could hear what many people around the world were watching. U.S. Congressional leaders lined up in front of a "political scrum" to tell everyone that they were making progress on a $700 billion rescue package. They wanted to both illustrate their unity while at the same time declare their disdain for having to go to their constituents for money. This interplay came before the first bill was voted down in the U.S. House of Representatives.

My eavesdropping followed a thirty minute plenary speech and Q&A session with Chinese Premier, Wen Jiabao at a gathering of the so-called New Champions of the World Economic Forum. If one wanted to find a starker contrast of ascent and decline, you saw it in person and heard it through the earpiece. Washington legislators were crunching together a package to restore confidence while at the same time the next president with massive debt burden.

Mind the growth gap

These are the new realities of today’s economy. The Chinese Premier hosted a meeting in his hometown, while the U.S. begins a hard road back after years of borrowed time after bankers sold products few understood. In the halls of the vast conference center, many were talking about the "tilt to the east."

CNN cameraman Charlie Miller and I travelled from Tianjin to Beijing to capture the post-Olympic mood and reaction to the banking legislation that was stalling on Capitol Hill. We went to Tiananmen Square on Chinese National Day to tape a segment. Visually the energy of the economic expansion underway hits you.

The U.S. is still growing a respectable 2.8 percent; Europe a less respectable 1.5 percent and the Middle East to Asia 7 percent. China is worried about slowing down to 9 percent. This growth is the primary reason business leaders from this new belt of growth are looking to each other for opportunities. It is why Airbus, for example, which unveiled its assembly plant in Tianjin during the meeting, has an operational support hub in Dubai and is building a plant in Tunisia.

While this is the future, the New Champions cannot divorce themselves from the past. In a panel that I chaired, business leaders talked about financing infrastructure in the Gulf, while raising the sensitive issue of co-dependency with the United States. All told, foreign investors and governments have an estimated $3 trillion invested in U.S. assets -- bonds, buildings and banks. As the dollar has sunk over the past three years, so too did their portfolios.

These investors want the rescue package to help restore confidence, but at the same time, they are not eager to jump bank into the U.S. market in pursuit of value. In an interview, Sameer Al Ansari, Executive Chairman of Dubai International Capital said he has held reservations about the financial sector in the U.S. for months. In his words, “It just feels to us that things are going to get even worse, so it is time to be careful.”

The bottom line? Many who do not need to add political considerations into their investment decision making are keeping their powder dry.

Super-nationals

This leads us to the role of the sovereign funds. They have an estimated $2.5 trillion to invest. That is a vast liquidity pool that could buffer the downturn coming on both sides of the Atlantic. Victor Chu of First Eastern Investment Bank called them the super-nationals, government funds that have to look well beyond their borders to, in some cases, serve as lenders of last resort.

“They are the people with the capacity. They can act with speed and they can act with financial and strategic returns,” Chu said, “Sovereign wealth funds have a super-national interest to try to make sure that international markets are back on the right track otherwise we will see a domino effect of major failures,” he continued.

We all know the worn out phrase, "money makes the world go around." It is fitting today as we witness how interconnected everyone is at this level.

As one Gulf banker concluded in our session, if Uncle Sam calls, they will have to pick up the phone.

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ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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