Market Advisory Features

Rivals More Than Ever : Hongkong and Shanghai
China's Suspended Politics
Bush Signs Compromise Economic Stimulus Bill
Free trade : Tangled Up in Textiles

Ready to Party?


Hong Kong and Shanghai

Rivals More Than Ever

The Economist

Which city, Hong Kong or Shanghai, will prosper most in the new century?

COASTAL China's pre-eminent city, Hong Kong, has a great disadvantage. It is more than 1,500km (940 miles) from the capital, Beijing, and its leaders do not belong to the Communist Party's ruling elite. This remoteness from China's political pulse leads to a nagging, nervous question: will Shanghai, 1,200km away and much nearer to Beijing, recover its pre-communist status as China's greatest city, and once again outshine Hong Kong as a business and financial centre? Worse, isn't that what China's leaders, especially President Jiang Zemin and his powerful “Shanghai clique”, secretly want?

As Hong Kong's economy struggles to recover from the battering it suffered in the Asian financial slump of 1997 and the recent global slowdown, the mood is glum. While the former British colony still teeters on the brink of recession, the Chinese mainland's economy grew by 7.3% last year, and Shanghai's by more than 10%. If average growth rates over the past decade continue, Shanghai's GDP will match Hong Kong's in 15 years. In 20 years, its GDP per person will catch up too. China's growth figures are of course exaggerated, and double-digit growth will be very hard for Shanghai to sustain. But that is not much comfort to Hong Kong.

As the biggest outside investors in Shanghai, Hong Kong's business community knows Shanghai's swagger well. Since the early 1990s, the city has built an expansive financial district of towering skyscrapers, with its own international airport, on land that a decade ago was farmland and factories. Pudong, as the area is known, is about to see what Shanghai planners hope will be the world's tallest building. Plans are under way to build a 30km bridge over the sea to a huge, largely artificial, island on which a deep-water container terminal will be built. The world's first commercial magnetically-levitated train service is already under construction in Pudong. It is supposed to be ready for service next year.

Fuelling this growth is a surge of foreign investment. Now that China has joined the World Trade Organisation (WTO), Shanghai is the obvious focus for companies hoping to benefit from the opening of China's markets. Hong Kong, of course, will benefit from that too. But many in the territory worry that Hong Kong's once-unique role as an intermediary in China trade will fast be eroded by Shanghai.

Hong Kong's lack of dynamic, forward-looking leadership does not help. At the end of February, the highly unpopular chief executive, Tung Chee-hwa, was handed another five-year term. This was not because he had done a great job, but because China's leaders wanted him to stay in office. An electoral college packed with Hong Kong business leaders and politicians fearful of opposing China's wishes therefore re-elected him nem con. Replacing Mr Tung would have been tantamount to admitting that he had failed, and no Chinese leader could admit that. This is unfortunate, because maintaining Hong Kong's pre-eminence will require vision and political courage to stand up to vested business interests.

The Taiwan wrinkle

China is not deliberately trying to hold Hong Kong back. Shanghai's recently deposed mayor, Xu Kuangdi, was fond of saying that Hong Kong and Shanghai are “two strikers on the same team”. Chinese leaders would find it hard to suggest otherwise. A Hong Kong relegated to the second division would do little to convince the world, and especially Taiwan, that China's “one country, two systems” formula for reunifying the country has much to commend it. But Hong Kong cannot lean on this political crutch indefinitely.

At present, Hong Kong is the entrepot for much of Taiwan's China trade, and Shanghai's growth as a shipping hub is largely to meet the needs of the Yangtze River delta. But once direct links are established between Taiwan and the mainland, this will change. Shanghai, not Hong Kong, may become Taiwan's first port of call. Already some 300,000 Taiwanese live in and around Shanghai, and Taiwan's bookshops are full of books about how to settle and do business there. Increasingly it will be that city's performance, not Hong Kong's, that determines Taiwan's view of the mainland and its ideas of what its own political future may be.

Already, in the past year or two, Shanghai and its hinterland have become the hot new favourite for Taiwan investors

This change will hurt not only Hong Kong, but the whole Pearl River delta where much of Taiwan's $60 billion investment in China is based. Already, in the past year or two, Shanghai and its hinterland have become the hot new favourite for Taiwan investors, even though Taiwan's current ban on direct trade and transport with the mainland makes getting to Shanghai a time-consuming chore.

Hong Kong officials play down the potential impact of direct cross-strait links between China and Taiwan. They argue that this will boost the economies of both parties and therefore increase the size of the cake for all, including Hong Kong, to share. But there is a danger that Taiwan's investment in high-tech industries will make the Yangtze River delta, with its cheaper land and workforce, the hub of China's IT economy, with Beijing providing much of the R&D. This could leave less room for Hong Kong and its ambitious plans to turn itself into a regional centre of IT development. Hong Kong's Cyberport project, a science park for high-tech ventures due to be completed next year, may find itself in the wrong part of China.

The trials of separateness

Despite his unpopularity, Mr Tung should not be made a scapegoat for all this. The Asian financial slump and the bursting of the IT bubble in 2000 have battered the territory. Property prices have plummeted to less than half their worth at the time of Hong Kong's transfer from Britain to China in 1997. Unemployment has risen to 6.8%, its highest level since the 1980s. Last year the stockmarket plunged 22%. Mr Tung could have done little to prevent this.

The property-market slump is the natural flip-side of soaring property prices in the 1990s caused by tightly restricted land sales. For that, blame China, which insisted that the colonial Hong Kong authorities keep government land sales to a minimum in the run-up to the territory's handover. China feared the squandering of a valuable government asset. It ended up creating a bubble market, which has now burst.

Both the Hong Kong and mainland governments want to prevent the territory from being deluged with mainlanders eager to settle

Hong Kong is also fundamentally weakened by its physical separation from mainland China. Although most of Hong Kong's manufacturing sector has relocated in the past 20 years to its hinterland, the Pearl River delta, it is cordoned off from it by one of the world's most closely guarded borders. Many Chinese complain that it is more difficult now for a mainland Chinese to get a job in the territory than a non-Chinese expatriate. This is because both the Hong Kong and mainland governments want to prevent the territory from being deluged with mainlanders eager to settle.

The trip from central Hong Kong to the Chinese border city of Shenzhen, only 20 miles away, can take longer than 1˝ hours, with as much as half of that time spent at immigration and customs. (This may improve next year, when the territory introduces “smart” identity cards that can be checked by machine.) The two border crossings for non-commercial traffic are closed from midnight to 6.30am. “We have a very strong fortress mentality,” complains Shiu Sin-por, director of a Hong Kong think-tank with links to the Chinese government. “Shanghai doesn't have this problem of relating to its hinterland. They don't have this wrestling with political reservations. They are moving ahead with leaps and bounds.”

Hong Kong's immigration restrictions make it difficult for the territory to attract an educated elite from mainland China. Such people are needed, however, if the territory is to become, as it hopes, a fund-raising and R&D centre for China's high-tech industries. The government is loosening restrictions for some mainland workers, but Shanghai will long remain a far easier place for well-qualified job-seekers in China to launch their careers. Shanghai also has the advantage of being culturally more familiar to mainland Chinese.

The government is working towards 24-hour border-crossing arrangements, but these may not come for as long as five years. Hong Kongers worry that a more open border will make it easier for the territory's young people to get cheap (and often impure) mainland drugs. It might also encourage the practice, already common among Hong Kong's men, of having mistresses on the other side. More than anything, however, people worry about the effect easier crossings might have on Hong Kong property prices. If Shenzhen were to become an attractive place from which to commute into Hong Kong, property prices in the territory could fall yet further.

The courage to integrate

Such worries are overblown. For one thing, property prices in Hong Kong are not too low. If anything, they are still too high—higher than in Singapore and much higher than in Shanghai. For another, Hong Kong's increasing population will ensure sustained demand for residential property, and many cities elsewhere in the world boast property prices much higher than those of their hinterlands.

To stay competitive, the territory needs to let property prices find a more natural equilibrium with those of the mainland. That will take political courage on the part of Mr Tung. Since the government draws 30% of its revenue from land sales, shifting from that source of money would oblige it to look hard elsewhere. Raising taxes would be the obvious answer, and Hong Kong may have to give up the luxury of exempting nearly half of the population from income tax. But in his budget speech this month Hong Kong's financial secretary, Antony Leung, avoided committing himself to tax reform.

Hong Kong at least knows it has to change and integrate itself further with the economy of the Pearl River delta

Hong Kong at least knows it has to change and integrate itself further with the economy of the Pearl River delta. A big psychological barrier was removed in January last year when the territory's chief secretary, Anson Chan, resigned, citing the less-than-convincing reason that she wanted to spend more time with her family. (The real reason: she did not get on with Mr Tung.) Mrs Chan was an ardent promoter of the idea that, as she put it, “our strength lies in the separation which is fundamental to the success of ‘one country, two systems'.”

Mrs Chan's successor, Donald Tsang, says that since taking up his job he has tried to develop much closer ties, and as quickly as possible, between the city and the Pearl River delta. Hong Kong officials now say they want to establish a “strategic relationship” with other cities there. “Member cities should not think of themselves in isolation. In the old days we did stop our planning at the boundary,” says Kitty Choi, who heads an office responsible for cross-border co-ordination set up by Mr Tsang. The old mindset, at least, is beginning to change.

Cross-border co-operation is crucial, because Hong Kong does not have to look as far as Shanghai to find competition. Shenzhen's ports are developing fast and are far cheaper to use (though less efficient) than Hong Kong's. Shenzhen talks of complementing Hong Kong's facilities, but cooperation is patchy. The volume of cargo handled by Shenzhen ports now amounts to about a quarter of that passing through Hong Kong. Five years ago, it was only 4%. Hong Kong officials admit this is a challenge, even as they proceed with massive port-expansion plans.

The shadows over Shanghai

But for all Hong Kong's floundering, Shanghai is by no means certain to emerge the clear favourite for companies in search of a regional or China headquarters—even in ten or 20 years' time. Shanghai's great disadvantage is the mirror-image of Hong Kong's: it is an integral part of China, but steeped in its political traditions and way of life. Its property markets are ill-regulated and chaotic. It lacks the sound financial structure that keeps Hong Kong afloat. Its legal system is arbitrary. A senior western diplomat in Shanghai laments that some foreigners “are seduced by the skyline, and tend to switch off important bits of their brain when making business decisions.”

The unexpected departure of Mayor Xu Kuangdai last December was a sobering reminder of the city's murky politics. Mr Xu was ousted peremptorily and in secret, presumably at the instigation of the city's shadowy Communist Party secretary, Huang Ju, who is the real power in Shanghai and who did not get on with him. “That explains the difference between Hong Kong and Shanghai—the system and the freedom of speech and all that,” says a senior Hong Kong official, reacting to the news. “Don't be dazzled by the light.”

“Freedom of speech and all that” does indeed remain Hong Kong's strong suit. Under the mini-constitution, or Basic Law, by which Hong Kong has been administered since 1997, the territory has its own legal system (based on Britain's) that provides far better protection and a fairer environment for business than that of mainland China. In general, despite some wobbly moments, Hong Kong's courts have remained impressively independent.

Even if Shanghai were to fulfil its ambitions, Hong Kong would not necessarily suffer as a result. China's external trade will produce enough business for several ports. And until China's currency, the yuan, becomes fully convertible, which may take as long as one or two decades, China will need Hong Kong to tap international finance.

Hong Kong is beginning to take the right steps. On January 1st, it lifted restrictions on the number of mainland tourists allowed to visit the territory. Though fear of a tidal wave of illegal immigrants is still pervasive, this decision could help to break down mental barriers. It is certainly good news for Hong Kong's suffering retail and leisure sectors. More dubious are Hong Kong's plans to attract mainland tourists with a Disney theme park. This is due to open in 2005, despite the failure of many theme parks in China.

After much urging from businessmen, Hong Kong also favours the establishment of a free-trade area embracing itself, the nearby former Portuguese territory of Macao and the mainland. This might give Hong Kong companies (which are currently given the same treatment as foreign businesses) a head-start in the rush to exploit the markets being opened up by China's entry into the WTO, especially in services. China has responded to the idea with polite curiosity, but may not bite.

Hong Kong's quality of life—boosted by good education and health services, while China's public services crumble—will help to ensure that it remains China's first entrepot for several years to come. But the pace of change in Shanghai, and the excitement the city generates among foreign investors, could quickly narrow the gap. If Hong Kong is to remain superior to both Shanghai and Shenzhen, it will have to reinforce both its strengths: its legal independence, and its economic interdependence.


Free trade : Tangled Up in Textiles

The Economist

Does the Bush administration favour free trade? Not in the Carolinas

GEORGE BUSH spent much of last weekend in Peru and El Salvador, touting the virtues of free trade. The message was rather different at a regional summit to discuss the plight of America's beleagured textile firms in Gaston County, North Carolina. “The textile industry has been offered up on the mantle of free trade,” intoned the governor of South Carolina to loud applause. “Textiles have been nothing but a pawn in US foreign policy,” roared a textile titan. “We need to be king.”

Rhetorically, at least, the Bush administration seems happy to oblige. “Know that you have a friend in us. Know that you can trust us,” Don Evans, Mr Bush's commerce secretary, told textile lobbies last week. Speaking at the Gaston summit, a man from Mr Bush's trade office said nothing about freer trade; instead he acknowledged similarities between global textile markets and steel ones. Small wonder the assembled textiles honchos agreed that Mr Bush's people offered their best hope of help for years.

At one level, the contradiction between Mr Bush's words in Latin America and his officials' tone at home is hardly surprising. Commerce secretaries are paid to offer soothing words to American businesspeople. But after Mr Bush's decision to slap tariffs on steel and now lumber (see article), the president's commitment to free trade is already in question. Will textiles expose it as a complete fraud?

No one doubts that the American textile industry, which employs just over 400,000 people, mainly in the south-east, is in deep trouble. A gradual decline over the past two decades has become a headlong rout since the Asian currency slump of 1997. Over 180,000 textile workers have lost their jobs since then—more people than the entire steel industry still employs. The strong dollar and the domestic slowdown have proved a lethal combination. Last year alone, 116 mills closed.

Unemployment in Gaston County, for instance, has doubled to 10%, and the towns are dotted with empty mills. Those factories that survive have replaced workers with machines. In the Gastonia plant of Parkdale Mills, a leading yarn maker, a handful of people now oversee the robots. The factory employs 75 people today; a decade ago it had three times as many.

And it will get worse. Just as the American shoe-making industry has disappeared, so the American textile industry (apart from a few high-tech producers) will have limited prospects, if freer trade becomes a reality. It survives only because in America, as in most rich countries, textiles are heavily protected. The average American tariff on textile and clothing imports is 17%; the top tariff is much higher. Textiles are the only big manufacturing industry that still follows global quota rules. That quota regime is due to end in January 2005. The question is what happens then.

As well as supporting freer trade in the Americas, the Bush administration was a driving force behind the Doha agenda for global trade talks. There it was agreed that rich countries would cut their remaining tariffs, “in particular on products of export interest to developing countries”. Rich countries are supposed to cut their duties (relatively) more than poor countries. Doha also commits America to reviewing international anti-dumping rules. This could be important for textiles, because once the quotas go, the American mills could well follow the steelmen and use anti-dumping rules to stop imports.

Already Mr Bush's people are backtracking. His main textile-trade negotiator is currently mulling the introduction of textile quotas on Vietnam, a country not covered by the global quota system. Mr Bush recently refused to increase quotas or cut tariffs for Pakistani textiles. After frantic lobbying from the Carolinas, all he could offer Pakistan was the possibility of switching quotas to allow an extra $142m-worth of imports this year (less than a tenth what his ally had asked for). And the White House has not objected to demands from Republicans in textile areas for Congress to tighten rules in agreements with Caribbean countries.

Mr Bush's defence is that, individually, each of these actions is fairly small (which is certainly true when compared with slapping tariffs of up to 30% on steel). Also it is claimed that helping the textile industry in the short term is necessary for the broader goal of freer trade. In particular, the administration only managed to get Trade Promotion Authority (TPA) through the House of Representatives by one vote. That vote came from a textile Republican from North Carolina, Robin Hayes, who extricated many of these commitments as the price for his vote. Until TPA has passed the Senate, the Bush administration cannot risk upsetting the textile lobby.

The realpolitik does not end there. The Republicans' slender hold on the House of Representatives is threatened in the November elections, and a few textile Republicans look vulnerable.

Such calculations bode ill for America's willingness to open up its textile industry. The elimination of global quotas, after all, is due in January 2005, just after the next presidential election. Worse, all this muttering about helping the troubled mills masks the fact that the administration is actually dragging its feet over offering more help to displaced textile workers.

The textile industry is one of the biggest beneficiaries of Trade Adjustment Assistance, a federal programme that helps retrain and support workers whose jobs have disappeared as a result of import competition. Around 20% of all adjustment money over the past two decades has gone to textile workers.

As part of the trade-promotion package, Senate Democrats are keen to expand adjustment assistance from the $400m a year it costs today to $1.2 billion. The idea is to include explicitly “secondary workers” (those who lose their jobs because their factory supplies another firm that has gone under) and also expand the adjustment assistance to last longer and include a subsidy for health-care cover.

Both expansions matter hugely to the textile industry. In Gaston County many of the bankruptcies have been yarn makers, machine-tool makers and other suppliers to the textile mills. Longer-term assistance is important too. Four out of ten people in Gaston County do not have a high-school diploma. Retraining such people takes time. Yet rather than expand, and improve, trade adjustment, the Bush administration last week offered a proposal that ignored the issue of secondary workers entirely, and offered nothing on health care. Advocates for trade adjustment dubbed it “a disgrace”.

Mr Bush may eventually be forced to accept more adjustment assistance as a price for getting TPA. But in textiles at least, this administration is too keen on petty protectionism and too stingy to pay the price of truly freer trade.


China's Suspended Politics

Mar 15th 2002
The Economist Global Agenda

As China grapples with the impact of joining the World Trade Organisation, fast-rising unemployment, slowing economic growth and a technically insolvent banking system it desperately needs bold political leadership. But the just-concluded National People’s Congress indicated that there will not be much boldness until power passes to a new generation of leaders

Zhu: Lack of will

THE Chinese constitution describes the legislature, or National People’s Congress, as the highest organ of state power. Yet its just-concluded session was overshadowed by a far more crucial forthcoming event, the ruling Communist Party’s congress, held just once every five years.

The party congress this autumn will be particularly important because it will see the retirement, or at least semi-retirement, of those who have led the country since the crushing of the Tiananmen Square protests in 1989. The leadership changes coincide with a period of growing potential instability, as China grapples with the impact of joining the World Trade Organisation, fast-rising unemployment, slowing economic growth and a technically insolvent banking system, to name but a few of its problems.

Until the new line-up emerges, no Chinese leader is likely to champion innovative solutions to these pressing issues. Even at the best of times the annual parliamentary gatherings are not known for their political vigour, but this latest one was singularly lacking in imaginative proposals. “Everyone is waiting for the party congress”, said a Chinese economist.

At the end of the session the prime minister, Zhu Rongji, told a news conference that his “biggest headache” was how to raise incomes of rural residents, which have stagnated since he took office in 1998. One obvious answer would be to put a stop to the levying of numerous (mostly illegal) fees from farmers by local officials. These sometimes amount to 30-40% of peasants’ incomes and are a main cause of growing rural discontent. Yet efforts to replace these fees with a low, uniform tax would plunge already overspent rural governments deeper into bankruptcy. Resolving this problem will require enormous political will. Mr Zhu does not appear to have it.

At the age of 73, he is all but certain to step down as prime minister at next year’s session of the legislature, although there is no constitutional reason why he should not be appointed for another five-year term. At his news conference, Mr Zhu refused to comment on his own future or those of his colleagues. “How can I answer if I don’t know the answer myself?” he said. It is entirely possible that Mr Zhu does not yet know. Although he is one of a tiny handful of leaders who will secretly decide in advance who gets the top appointments, bargaining among these leaders over the allocation of positions could continue well into the summer.

Many analysts believe Mr Zhu’s likely successor as prime minister is his deputy, Wen Jiabao. One of Mr Wen’s biggest strengths is that he is widely liked-—so much so that he survived the purges that followed the Tiananmen unrest even though he was an ally of the chief scapegoat, the then party chief Zhao Ziyang. Even after hardliners had all but toppled Mr Zhao, Mr Wen appeared with his boss in an unscheduled visit to the demonstrators on the square.

But is Mr Wen the man for the job? Since the late 1990s, he has been nominally in charge of agricultural and financial reforms, but has made no great headway with either. This is probably not his fault alone. The chief obstacle to reform is the leadership’s abhorrence of social unrest—even small-scale protests. Any significant change in the agricultural or financial sectors is bound to upset large numbers of people—whether they are civil servants in the countryside, laid off to reduce the tax burden on peasants, or factory workers unemployed because their inefficient enterprises are no longer kept afloat by indiscriminate bank loans.

Wen is the future?

A critical problem with China’s political system is that leaders guard their powers jealously and are reluctant to give subordinates free rein. What worries many Chinese officials is that younger politicians, such as the 59-year-old Mr Wen or his contemporary Hu Jintao, who is being groomed to take over as party chief, may prove unequal to the task of taking over leadership of such a vast country at such a potentially turbulent time.

A Beijing-backed magazine in Hong Kong, the Mirror, argued this month that Jiang Zemin should stay on as party chief after this autumn’s congress to ensure the country remains stable through the next three to five years of “exceptionally severe challenges”.

What is likely to emerge is some form of power-sharing between the retiring leaders and their younger protégés. Mr Jiang himself was overshadowed for several years after he assumed the top party, state and military posts alongside the nominally retired Deng Xiaoping. But this will be no guarantee of stability. China needs bold leadership and, at least until the new power structure is decided, it is unlikely to get it.


Bush Signs Compromise Economic Stimulus Bill
Saturday March 9, 2002
By Patricia Wilson

WASHINGTON (Reuters) - President Bush Saturday signed a package of extended unemployment benefits and business tax breaks, ending a political battle over recession relief even as the economy picks up on its own.

Although the stimulus bill is closer to what Democrats proposed last year than what the Republican president sought and despite signs of economic recovery, Bush embraced the legislation saying the government could not just hope for the best.

``Today we are acting to help workers, we're acting to create jobs, and we're acting to strengthen our economy,'' the he said. ``We're seeing some encouraging signs in the economy but we can't stand by and simply hope for continued recovery.

``We must work for it, we must make sure our recovery continues and gains momentum.''

The Job Creation and Worker Assistance Act of 2002, which would cost the federal government $42 billion over 10 years, extends regular 26-week unemployment benefits by 13 weeks and allows additional automatic extensions in states with high jobless rates.

It includes a host of noncontroversial, targeted tax breaks aimed at boosting business investment and helping companies ease the pain of operating losses. The legislation also contains $5 billion in economic help for New York.

Bush said the stimulus bill he signed in the White House Rose Garden during live broadcast of his weekly radio address was necessary to help the country recover from the Sept. 11 attacks on the World Trade Center and Pentagon.


``The terrorist attacks of September 11 were also an attack on our economy and a lot of people lost their jobs,'' Bush said, adding that the legislation would allow those who lost their jobs in the aftermath or in the recession ``to pay their bills and support their families while they look for work.''

The legislation was passed on Friday by the Democratic-led Senate, 24 hours after the Republican-controlled House of Representatives overwhelmingly approved it.

House and Senate leaders, Democratic and Republican, were at Bush's side for the signing ceremony.

It came after five months of partisan wrangling in which Democrats sought more help for the unemployed. Republicans, anxious to see a strong economy going into the November elections in which both parties will be battling for control of Congress, had pressed for more far-reaching tax breaks for businesses and individuals.

Three previous economic stimulus bills containing much bigger tax cuts backed by Bush were passed by the House but languished in the Senate.

The White House and its Republican allies gave up two priorities -- repealing the corporate alternative minimum tax and accelerating the personal income tax cuts approved by Congress last year.

The stimulus package comes on the heels of comments by Federal Reserve Chairman Alan Greenspan that additional help was not necessary to pull the world's richest economy out of the year-long slowdown.

Recently released economic data pointed to a recovering economy. Government statisticians last month revised figures for gross domestic product, the broadest measure of the economy, to show growth of 0.4 percent in the fourth quarter of 2001 -- up from the initial estimate of 0.2.

The unemployment rate fell in February to 5.5 percent from 5.6 percent in January and 66,000 new jobs were created, the first rise in seven months.


Ready to Party?

Mar 1st 2002
Economist Global Agenda

As more evidence emerges that America's economic recovery may have started, hopes are rising that the worst may also be over for the world economy. But it may still be too soon to uncork the champagne

IS it time to open the champagne? As the evidence starts to mount that America's economic recovery is under way, there are sighs of relief all round. Figures released on March 1st showed an unexpected surge in manufacturing activity: it grew in February for the first time in 19 months. On the same day, new data for January revealed the biggest rise in construction spending for a year. And on February 28th, it emerged that, even in the final quarter of last year, the American economy was expanding more rapidly than realised. It grew at an annual rate of 1.4%, a significant upward revision from the first estimate of 0.2% growth, and well above the forecasters’ consensus guess of 0.8%.

After a grim year for the American economy, made worse by the events of September 11th, the temptation to celebrate is understandable. But it might be wise to keep the champagne on ice just a little longer. Besides all the good news, March 1st also saw the release of figures which should moderate the optimism a little. The respected University of Michigan consumer sentiment survey fell by more than expected in February; and although house prices continued to rise in the last quarter of 2001, they did so at the slowest rate for five years.

Mixed signals often signal an economy on the cusp, and on February 27th, Alan Greenspan, the powerful chairman of the Federal Reserve—America’s central bank—acknowledged that the economy appeared close to a turning-point. But Mr Greenspan, who was testifying before Congress, also warned that the recovery could be modest—more modest than previous recoveries from recession, partly because the downturn has, so far, been mild by historical standards. This has important implications both for America and the global economy as a whole: 2001 marked the first time in decades that the three largest economies stumbled at the same time. Japan is certainly not close to a turning-point; and though Germany might be on the verge of recovery, neither it nor the eurozone as a whole has shown any capacity for acting as a powerful engine of global growth.

The American Bureau of Economic Analysis and the Institute for Supply Managament provide, respectively, GDP and purchasing figures. The Conference Board posts more statistics on the US economy. The Bureau of Labor Statistics provides a snapshot of the American economy in figures. Alan Greenspan's testimony is published online. The Federal Reserve posts monetary-policy information. Japan's Cabinet Office, Ministry of Finance and the Bank of Japan give economic and monetary-policy information. The Ifo Insitute for Economic Research publishes its recent business confidence survey. English-language information on Germany's economic policies can be found via the homepage of the Federal Ministry of Economics. The ECB and the European Commission provide euro-area information. The National Bureau of Economic Research tracks business activity.

Yet that is what the world economy needs right now. Across the globe countries heavily dependent on the fortunes of the rich industrial countries have experienced a downturn in their fortunes. Hong Kong, Malaysia, Taiwan, Mexico, Argentina and Turkey are among the countries to have seen their economies shrink in the past year. On February 28th, the Singapore government confirmed that last year the former Asian tiger turned in its worst economic performance since independence in 1965. GDP fell by 2% during the year, and industrial production shrank by 22% in the 12 months to last December: though there are some signs that even the beleaguered Singaporean economy is over the worst.

Of course, emerging-market economies cannot justify blaming others for the the problems they have experienced—or at least not entirely. Many of them, for instance, were too dependent on high-tech exports, especially to America. The collapse of the dotcom boom and the sharp downturn in computer and telecommunications markets hit them especially hard. Economic restructuring is essential if these economies are to cope better with external shocks in the future. In the short term, though, their best hope is a sharp upturn in demand from the industrial countries—and that probably means America.

Any hope that Japan could contribute to a global upturn was dashed long before the latest government economic recovery plan, launched on February 27th. The new package did nothing to change minds: it was widely seen as disappointing, even by senior members of the ruling Liberal Democratic Party, one of whom described the measures as “certainly not sufficient”. Japan’s problems are daunting: the country is in its third, and deepest, recession in a decade. Prices have been falling for three years, unemployment is at a record 5.6% and new figures published on February 27th showed retail sales down for the tenth straight month in January. The Organisation for Economic Co-operation and Development, a rich country think-tank, isn’t expecting a Japanese recovery to start until next year—and even then it is expected to be very sluggish.

Recovery in Europe is also likely to be sluggish, though most economists now reckon it has already started. Some European countries have enjoyed healthy growth in recent years, but Germany, the biggest economy in the euro area (and the world’s third largest) had two quarters of negative growth in the second half of last year, according to figures released on February 27th: as a rule of thumb, that is how economists judge whether a country is in recession. Even Britain, which is not in the euro area and which had been coping with the global downturn better than most economies, had zero growth in the final three months of 2001, according to figures out on February 27th.

A new survey published by Ifo, a Munich research institute, on February 26th showed a marked increase in German business optimism about the future—though assessments of current business conditions remain worse than before September 11th. But nobody expects a sudden surge of growth in Germany, or in Europe, for that matter. America’s downturn followed a decade of often spectacular economic growth, the longest peacetime expansion on record; the German economy took a dive after a period of sluggish growth. A combination of structural problems, which European politicians talk about tackling but (often for electoral reasons) never quite get around to, and a cautious policy response from the European Central Bank (only four interest-rate cuts in 2001, compared with 11 in America) does not encourage hopes of a rapid pick-up in European growth rates.

So it all comes back to the prospects for America. Although the Fed’s Mr Greenspan urged caution, he did observe that the American economy had displayed remarkable powers of recuperation. Many of the statistics published in the short time since Mr Greenspan went to Capitol Hill have certainly been reminders of the economy's resilience. The Fed’s policymakers are expecting the economy to grow by around 2.5%-3% this year: that is perhaps better than might have been expected just a few months ago but, as Mr Greenspan noted, is significantly slower than at similar stages in past economic cycles.

The price for a very mild recession—possibly the mildest on record, Mr Greenspan suggested—will be a much more modest recovery. Any upturn in America will be welcome to the rest of the world; but a subdued one could leave the global economy in a fragile state.