Google has run a music search engine in China since last August. It is the only country where it has such a service (or at least for now). It does so in direct competition with Baidu, which has 60% of the search market in China and gets a substantial portion of its traffic from searches for MP3s.
Many of the MP3s Baidu links to are illegal, which is where Google sees its opportunity, in legal, higher quality downloads. Initially it had some 350,000 songs but now, Reuters reports, it has signed licensing deals with the four major Western record labels, EMI, Sony Music, Warner Music Group and Universal Music, that will expand the catalogue to 1.1 million songs. The labels will share ad revenue around the free downloads with Google and Top100.cn, a music website co-founded by basketball star Yao Ming.
Because of piracy, Western record labels have made as near to no money in China as makes no difference. Annual sales are a derisory $76 million, according to the International Federation of the Phonographic Industry, the industry’s trade organization. The Google deal is the first serious attempt to change that. “I can’t overestimate how important this is,” Lachie Rutherford, president of Warner Music Asia Pacific, tells Reuters. We’ll see.
Much attention is being paid to China getting a bigger formal role in the International Monetary Fund. But there is one international financial institution it has already quietly joined: the Inter-American Development Bank.
China became the 48th member of the regional multilateral institution in January, subscribing $350 million dollars to the agency that promotes economic development in Latin America and the Caribbean. During this weekend’s 50th annual meeting, the first China is attending, IDB president Luis Alberto Moreno signed the Bank’s first co-financing agreement with a Chinese financial institution, the Export-Import Bank of China (the money will be used for Chinese-backed infrastructure projects in Colombia); a second program with China Development Bank Corporation, will follow, as will greater cooperation with the People’s Bank of China.
Given China’s growing trade and investment in the region, IDB membership and absorption into the region’s formal infrastructure seems logical. A similar argument could be made with the IMF and the world economy.
Beijing is not the biggest buyer of U.S. government debt, though you would scarcely believe it from reading the public prints. U.S. money market funds bought three times as much of U.S. Treasuries and Agencies last year as China, $942 billion vs $283 billion, according to Brad Setser at the Council On Foreign Relations. “I am waiting for a round of stories pondering whether money market funds will continue to buy Treasuries and Agencies at their 2008 pace,” he wryly notes.
The comparison may be an anomaly. The credit crisis has disrupted the markets for money market funds’ usual fare, CDs and commercial paper. The oversubscription of this week’s U.S. Treasury auctions suggest that the forced flight to safety is continuing.
Despite misgivings about the dollar, China is also continuing to buy U.S. debt though it is buying only Treasuries now. At some point, Setser reckons, “the reallocation of China’s portfolio toward Treasuries will eventually run its course – and China’s Treasury purchases will start to track its reserve growth”. The bigger question for the U.S. will be whether Americans will stop buying Treasuries.
Of the three outstanding Chinese investments in Australian mining companies facing government review, one has just bitten the dust. China Minmetals Group’s A$2.6 billion offer for OZ Minerals has been blocked on national security grounds. One of OZ’s main mines is close to Woomera, Australia’s weapons testing site. The deal would have to be rejigged without that mine to get approval, which is unlikely.
Canberra still has to decide on Hunan Valin Iron and Steel’s plan to take a 17.6% stake in Fortescue Metals Group for $770 million, and — the big one — Chinalco’s $19.5 billion investment in Rio Tinto. That faces opposition both in the country and the Senate, where the government does not control a majority and whose economic committee last week opened an inquiry into Australia’s foreign-investment laws.
A decision by Treasurer Wayne Swan on the advice of the Foreign Investment Review Board has been pushed out till June. Question is whether that gives time for the opposition to blow itself out, or to build itself up.
Our man in New York tells us that U.S. Treasury Secretary Timothy Geithner was caught off guard by a question at a Council On Foreign Relations discussion there on China’s recent trial balloons about the need for a global reserve currency that wasn’t the dollar. This was odd, our man reports, as Geithner’s boss, the U.S. President, had emphatically dismissed the idea the evening before when asked something similar at a White House press conference.
We recall there was a bit of a flap when Geithner said during his confirmation hearings earlier this year that his boss believed China to be a currency manipulator. So there is some previous for the two not being on the same page, and the Treasury secretary does have quite a bit to occupy his mind at the moment. But that all sent this Bystander to re-read recent speeches of People’s Bank of China Governor, Zhou Xiaochuan, who has been one of those promoting the the idea of a new reserve currency based on the International Monetary Fund’s Special Drawing Rights, as we previously noted.
What caught our eye in his speech on reforming the international monetary system, was not so much that, or even China’s apparent willingness to buy SDR-denominated bonds, which would certainly help the evolution of SDRs into a recognizable currency, but Zhou’s notion that some countries’ foreign exchange reserves should be managed by the IMF.
Now it would be an extraordinary step for any country, especially China and the U.S., to give up sovereign control over part of their reserves — extraordinary to the point of incredible to our minds — though we can see how it would help provide an element of stability to world financial markets and also create the kernel of the wherewithal for something any new global reserve currency would need, a lender of last resort. That is the intriguing aspect of Zhou’s speech.
There is growing support for a increase in SDR allocation as a way quickly to lift the reserves of countries suffering balance of payments strain in the current crisis, and even to do so each year. The use of SDRs in a wider range of financial instruments and transactions is also more or less a mainstream idea among economists now. But the very airing of the idea that the IMF could play the role of global central banker, and that China would suggest it given the harsh words it has had for the Fund in the past, is a sign of something shifting deep down.