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POLITICAL ECONOMY
Japan factory output jumps but deflation remains
by Staff Writers
Tokyo (AFP) May 31, 2013


S. Korea to open third stock market in July: official
Seoul (AFP) May 31, 2013 - South Korea will open a third stock market in July focused on small business ventures looking to raise capital, market operators said Friday.

The Korea New Exchange (KONEX), part of President Park Geun-Hye's plan to foster a "creative economy" that encourages innovation and entrepreneurship, will open on July 1, Korea Exchange vice chairman Choi Hong-Sik said.

"We expect that the KONEX market will make a significant contribution to developing the creative economy," Choi said.

Some market watchers have voiced scepticism over the future of the KONEX, citing problems encountered by other countries in opening and maintaining a third stock exchange.

Only viable venture firms with growth potential will be selected for a KONEX listing, Choi said, urging foreign investors seeking a "high risk and high return" opportunity to take a close look.

Various incentives would be offered, with angel investors receiving tax cuts and allowed to defer tax payments as long as they reinvest their returns in fresh business ventures.

Public funds will initially be encouraged to invest in the new market.

Choi said the government would ease regulations to bring in companies that are not ready to list on the tech-heavy KOSDAQ market, and to promote mergers and acquisition of KONEX-listed firms.

Between 20 and 30 firms will be listed when the exchange opens, but Choi predicted a swift expansion to around 1,000 companies.

Those that perform well will be allowed to graduate to the two main stock exchanges, he added.

China manufacturing rebounds in May
Beijing (AFP) June 01, 2013 - Manufacturing activity in China unexpectedly rebounded in May from the previous month, official data showed on Saturday, pointing to a stabilisation in the world's second largest economy.

The purchasing managers' index (PMI) grew to 50.8 in May, from 50.6 the month before, according to the National Bureau of Statistics.

The PMI is a widely watched indicator of the health of the Chinese economy, with a reading above 50 indicating expansion while anything below that pointing to contraction.

The reading was higher than an average forecast of 49.8 by analysts polled by Dow Jones Newswires.

"The modest rise of the manufacturing PMI shows that the economy has been stabilising," said Zhang Liquan, an analyst with CFLP, the firm that compiles the index for the statistics bureau.

Manufacturing had slowed in April from 50.9 in March but still showed expansion with May's figures indicating an eighth consecutive month of increasing manufacturing activity.

British bank HSBC, whose own PMI survey focuses more on smaller enterprises, said last week that its preliminary manufacturing index for May fell to 49.6 from a final 50.4 in April.

It was the lowest figure since October's 49.5, according to the bank's data, and the first time it had been below 50 since then.

HSBC's final figure for May is due out on Monday.

China's economy expanded 7.8 percent in 2012, its slowest pace for 13 years, in the face of weakness at home and in key overseas markets.

Analysts had hoped the economy would rebound this year and drive growth globally after expansion of 7.9 percent in the last three months of 2012, snapping seven straight quarters of slowing expansion.

But the government in mid-April announced a surprisingly weak economic growth rate of 7.7 percent for the first quarter, below market expectations and fuelling fears the recent pick-up is faltering.

The International Monetary Fund this month cut its 2013 growth forecast for China to "around 7.75 percent", while Beijing in March kept its growth target for 2013 at 7.5 percent, unchanged from last year.

Japanese factories churned out a better-than-expected performance in April, but the upbeat data Friday was tempered as the export powerhouse remained mired in deflation.

Economists were combing through a string of data -- including factory output and inflation -- for signs an economy-boosting plan by Prime Minister Shinzo Abe and his hand-picked team at the Bank of Japan was taking hold.

The policy prescription of big government spending and aggressive central bank easing to stoke the world's third-largest economy, dubbed "Abenomics", has helped push the yen into a steep decline which benefits Japan's exporters.

Investors cheered as the benchmark Nikkei 225 stock index soared nearly 60 percent since late last year before jaw-dropping volatility in the past week sent the headline Nikkei plunging more than five percent Thursday.

It bounced back on Friday, rising 1.37 percent, as markets reacted to a weakening yen and economy ministry figures which showed an April factory output rise of 1.7 percent over a month earlier.

Japan's April jobless rate was flat at a multi-year low of 4.1 percent.

"There has been a clear recovery in demand for labour in manufacturing likely on the back of stabilisation in exports and thus industrial production," said Credit Agricole economist Yoshiro Sato.

Huge infrastructure projects following Japan's quake-tsunami disaster two years ago were helping prop up demand for workers, Sato added.

On Friday the International Monetary Fund kept its 1.6 percent growth forecast for Japan's economy this year, giving Abe's plan a thumbs up. The economy expanded again in the first quarter, confirming its exit from recession.

But the IMF also warned of "considerable downside risks" if Japan doesn't chop its massive national debt -- the worst among industrialised nations at more than twice the size of the economy.

A manufacturer survey on Friday showed Japanese producers remain cautious, expecting May factory output to be flat before slipping 1.4 percent in June.

Household spending was also weaker than expected while consumer prices fell 0.4 percent on-year in April, underscoring the tough task in reversing years of deflation that has crimped private spending and business investment.

A small 0.1 percent increase in Tokyo-area prices for May, the first in about four years, offered some hope amid reports that luxury brands including Chanel and Germany's Montblanc were set to raise their local prices by about 10 percent in response to the yen's drop against the dollar.

Apple was reportedly boosting the price of iPads sold in Japan by as much as 20 percent.

"There are signs that price drops are coming to a halt," said Masahiko Hashimoto, an economist at Daiwa Institute of Research.

But "it is still difficult to say this is thanks to 'Abenomics' as it usually takes time for a pick up in the economy to be reflected in prices."

Deflation is a key target of Abe's measures, as the Bank of Japan works to hit two-percent inflation within two years, but some observers -- including several BoJ board members -- have cast doubt on the ambitious target.

The BoJ's huge monetary easing measures -- similar to the US Federal Reserve's bond-buying programme, known as quantitative easing -- have driven down the yen, which traded around 101 against the dollar Friday, about 25 percent lower than late last year.

A weaker currency makes exporters more competitive overseas and inflates repatriated foreign income which, in turn, tends to lift their shares.

But it also makes imports more expensive and has sent Japan's energy bills soaring as Tokyo turned to pricey fossil-fuel alternatives after shutting nuclear reactors following the Fukushima atomic crisis two years ago.

Yen weakness was partly to blame for Japan earlier this month posting its worst April trade deficit on record.

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