Hot Stories to Watch in 2010

Boom in China, recession everywhere else

1. The booming Chinese

2. Big questions remain for U.S. economy

3. Mobile wars

4. Plan to save newspapers?

5. Credit crisis

6. Red tape poses threat for banks’ recovery


The booming Chinese economy is the envy of the world. The country might be the world’s fastest growing economy, with a nearly 9 percent economic increase in the third quarter. While governments around the world struggle to see a bit of growth and reduce the rising number of un­employment during this time of economic heal­ing, the Chinese are forging ahead.

For the first time, the Chinese are spend­ing more than Americans. In fact, demand is so high for cars and electronics that consumers are putting their name on waiting lists. As ex­perts watch the Chinese economy plow through full tilt, others are looking a little closer with reasonable concern.
 
The so-called Chinese bubble is worrying experts about the borrowing frenzy and bidding; in other words, when and if prices crash, it will be time to pay up.

Currently, the U.S. government’s $7.2 tril­lion in debt as of June represented 50 percent of gross domestic product. The Chinese govern­ment officially disclosed $840 billion in public debt, which represents less than 20 percent of its GDP. But according to a report in Forbes.com, the People’s Bank of China and the trea­sury are also on the hook for potentially $1.5 trillion in off-balance-sheet debt owed by cities, provinces and other entities that they control. Then there’s also the obligation to backstop ap­proximately $1 trillion, both in loans that “policy banks” were directed to issue, even when they made no economic sense, and nonperforming loans that the government removed from the books of state-owned commercial banks over the past decade, according to the same report from Forbes.com.

If you do the math, the national govern­ment is responsible for debt equal to over 70 percent of this year’s GDP. However, that sta­tistic doesn’t count loans generated this year that might go sour amid an increasing number of debt balances nationwide. According the Forbes.com, the American government, in addi­tion to its debt, is also responsible for co-signing mortgage borrowers’ obligations. China’s ratio of outstanding credit (both public and private) to annual GDP currently stands at 160 percent and could potentially rise to 200 percent by 2011. For these reasons alone, the Chinese bubble remains ABJ’s top stories to watch in the New Year.

Big questions remain for U.S. economy

When asked for predictions, U.S. economists are asking questions rather than answering them. The most pertinent ones: what is to be expected of consumer and business spending? What will we see happen in with trade and with the federal government?

Consumer spending

Interestingly enough, the economic stimulus pack­age has provided a feel-good boost to household spending, however, the question of whether the slight increase will continue remains. Experts suspect that large vehicle purchases will plummet, especially with the increase in gasoline prices.

Corporate and consumer spending

On the corporate end of spending, experts are predicting businesses will need to transition at some point from a “cash preservation” strategy to a growth strategy as the economy changes course. Meanwhile, as the demand for resi­dential developments declines in the U.S., it is suspected that there will be a contraction in the construction market, despite a recovering hous­ing market, according to BusinessWeek.

Outlook for trade

A greater uncertainty lies in the future of U.S. imports, which largely depends on the growth in the national GDP, but there is positive outlook for growth in U.S. exports, according to Business­Week. Despite signs of global growth in general, the U.S. economy is not seeing as much growth as it has experienced in the past.

Federal government

There are good, if not limited, prospects for growth in the public sector, despite the legislated stimulus package which was announced a few months ago. But experts say there is reason to believe we are on course with growth in govern­ment spending in 2010. The wild card, of course, is the 2010 mid-term elections that could throw the public sector off track. Perhaps the more pressing question is how will Congress position itself for the mid-term elections and what that af­fect that will have on the economy.
         
Mobile wars

To Bing or not to Bing, that is the question. The search engine war has intensified between ri­vals Microsoft and Goggle. The battle for mobile phone space is what is expected to be fought over, say industry experts. Google has become a fixture on many users’ desktop-based searches and currently holds an 80 percent global market share. Microsoft’s recent launch of Bing, its own version of a search engine, has approximately 17 percent of the U.S. market and has seen little presence in other markets, according the IT Web, an industry-based publication.

Since the launch of OneApp, there has been a growing number of people using Bing, as it becomes synonymous with mobile searches, es­pecially as Facebook and Twitter are “hook and anchor” for users. Experts are predicting Micro­soft will come out with a more dominate share in the mobile search engine market.

Google is reportedly focusing on its efforts to get a bigger piece of mobile pie. Internet geeks have long touted the superiority of FireFox’s search engine for quality and privacy reasons.

Plan to save newspapers?

German newspaper publishing business owner and founder, Axel Springer, has announced plans to save the newspaper by exploring options on cyberspace.

Springer, who publishes Bild, the largest daily in Europe, , says publishers should get paid for their work on the Internet. In the U.S., Rupert Murdoch, the chief executive of News Corp., says he, too, plans to erect so-called pay walls for his company’s newspaper Web sites. Other publishers, including The New York Times Co., which owns the International Herald Tribune, have also said they are considering charging for online access.

Currently, Springer’s plans are based on co­operations with Google, a company that Murdoch has accused of “theft,” saying it earns billions of dollars of advertising revenue on the back of newspapers’ journalistic endeavors, according to a report in the New York Times. But apparently, Springer is pleased to be partnering with Google because he says publishers could not match its expertise in monetizing digital content. While remaining copyright issues remain unresolved, perhaps the more pressing issue that remains is which new business-sales model will be adapted and replace the traditional one?
         
Credit crisis

As we recover from post-holiday shopping and burning holes in our pockets, experts will be watching the credit crisis. As there were signs in December of a slight recovery in the debt mar­kets, domestic loans are expected to be limited and harder to come by, unless the government legislates funding especially for small business­es. Meanwhile, mortgage rates remained low towards the end of the year. Experts say a con­tinued unemployment high and fear of job loss could curb people’s enthusiasm for borrowing and housing purchases despite favorable interest rates, according to a report in Reuters.

Red tape poses threat for banks’ recovery

Despite positive signs of a recovery, a roundtable of banking leaders are not yet convinced that the tough ride is over in their industry. According to the American Banker, there are still obstacles that can hinder recovery, including the rate of consumer banking, trends in housing, losses experienced in the industry and the threat of failing institutions. Some experts are suggesting a predicted range of 600 to 1,200 banks to fold, according to American Banker. Time will only tell, it seems.

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