20/02/2008 - 22:00

China stays in the main game

20/02/2008 - 22:00

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This week’s big economic and commercial news has highlighted the increasing importance of China to Western Australia’s future prosperity, and the relative decline of the US.

China stays in the main game

This week’s big economic and commercial news has highlighted the increasing importance of China to Western Australia’s future prosperity, and the relative decline of the US.

On this side of the country, the big news was the 65 per cent increase in iron ore prices negotiated by Brazilian producer, CVRD Vale.

On the east coast, the big news was yet another bank revealing its exposure to the US credit crisis.

The contrast could not be more extreme.

WA’s resource-rich economy keeps on getting stronger, driven fundamentally by demand from China, while elsewhere the news is dominated by the mounting problems facing a raft of finance and investment groups.

Centro Properties, Allco Finance and MFS are all battling to cope with the global credit crisis, which has made it harder for companies to borrow money and, where it is available, made loans more expensive.

The credit crisis is starting to flow through to Australia’s banks, which it must be said are in very good shape after years of record profits.

ANZ Banking Group shocked the market this week when it announced a $360 million increase in bad debt provisions, following a similar but less extreme move by Commonwealth Bank last week.

ANZ disclosed a $200 million provision to cover its exposure to a US-based ‘monoline’ insurer – something most of us had never heard of until recently.

Monoline insurers provide insurance coverage to issuers of corporate bonds, effectively giving the bond issuer a higher credit rating and therefore a lower cost of funds.

The banking sector’s problems in Australia are far short of those experienced in the US, where multi-billion dollar losses have been racked up, and in the UK, where the government has been forced to nationalise Northern Rock, once the country’s fifth-biggest mortgage lender.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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