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CNN Live Event/Special
CNN International's World Business Today
Aired March 29, 2011 - 04:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, CNN INTERNATIONAL ANCHOR: Good morning, from CNN London, I'm Nina Dos Santos.
PAULINE CHIOU, CNN INTERNATIONAL ANCHOR: And good afternoon, from CNN Hong Kong, I'm Pauline Chiou, and this is WORLD BUSINESS TODAY. The top stories on this Tuesday, march 29th.
(BEGIN VIDEO CLIP)
CHIOU (voice-over): U.S. President Barack Obama tries to explain his country's intervention in Libya, but his critics are counting the cost of the operation.
Shares in TEPCO sink further in Tokyo trading. Small amounts of plutonium have been found around the company's stricken Fukushima Daiichi plant.
And all of the news that's fit to print. The question is how much you'll pay for it. The "New York Times" pay wall is now up and running.
SANTOS: So let's take you straight to the stock market action here in Europe. We're about an hour and two minutes into the trading session and as you can see some of these markets really taking a bit of a nose dive after yesterday's mix.
We've got the FTSE 100 down by about 2/10th of 1 percent after company earnings dominated the agenda there for some companies that Natively Woolsey and also (inaudible) that is the copper miner and Woolsey is the plumbing and building company. Those shares up over about 4 percent and 1.3 percent following earnings, but that's not enough to counter the general market trend.
Also the CAC 40 down by 4/10th of 1 percent despite gains for the French banks and the Dax still down by 6/10th of 1 percent despite the fact that we've got shares in some of the car makers up like BMW up by 1.5 percent.
Let's turn our attention towards the currency markets. Now, the euro and the pound both gaining against the U.S. dollar and as you can see, the yen is losing ground against that currency. When it comes to the euro, that currency is trading at $1.4133 and the pound at $1.60 versus the U.S. dollar and the Japanese yen, though, currently trading at 81.68, Pauline.
(END VIDEO CLIP) CHIOU: Well, Nina, the markets here in the ASIA-PAC region finished mostly lower this session. The Nikkei in Tokyo was down for the second straight day on more concerns about Japan's nuclear crisis and after a lower growth forecast from Goldman Sachs.
Now Tokyo Electric Power or TEPCO said traces of plutonium have been found in the soil at the Fukushima Daiichi nuclear power plant. So the company's shares tumbled further on that news, plunging nearly 18 percent by the close.
Meanwhile, Japan's National Strategy minister appeared not to rule out nationalizing TEPCO either fully or partially when asked about the government's plans for the company.
And elsewhere in the region, Nina, you can see the negative sentiment found echoes with energy stocks finishing lower in Sidney, as well.
SANTOS: Let's turn our attention toward the U.S. stock markets. They managed to snap their three-day winning streak on Monday dropping in some negative territory in just the final hour of trading. Here's how the numbers settled then.
The Dow dropped 1/5th of 1 percent. The Nasdaq fell about half of 1 percent, and when it comes to the Nasdaq specifically, eBay shares weighed heavily on that tech-heavy index following the company's move to acquire GSI Commerce.
When it comes to the broad S&P, that index lost about a quarter of a percent by the close. Now U.S. markets set for a higher open at least at the moment when trading begins later on today. This is where we stand in terms of the pre-market action on the futures and as you can see most of those markets up to the tune of about 0.3 percent to 0.4 percent.
Of course, things could change rally before these markets do open, as we've seen on the FTSE and also some of the European markets starting off the day perhaps on a more positive note and then falling further, Pauline.
CHIOU: Let's update you now on the situation in Northern Africa. Libyan leader Moammar Gadhafi is calling on international powers to end what he calls their barbaric offensive.
(BEGIN VIDEO CLIP)
CHIOU (voice-over): But the coalition airstrikes keep coming clearing the way for a major advance by Libyan rebels. Still there was some resistance on Monday by forces loyal to Colonel Gadhafi.
This exclusive CNN video shows opposition fighters being forced to retreat near Colonel Gadhafi's hometown of Sirte. Rebels have seized control of the coast as far west as the oil town of Ras Lanuf.
They say they also now control Nafalia, but it's unclear who's in charge in Misrata. The opposition forces are trying to fight their way to Libya's capital of Tripoli. U.S. President Barack Obama is defending the multinational intervention in Libya arguing that it's a unique opportunity to stop a wave of violence. He says NATO will take control of the allied operation from Wednesday and that America's role will be limited.
BARACK OBAMA, PRESIDENT OF THE UNITED STATE OF AMERICA: It's true. That America cannot use our military wherever repression occurs. Given the costs and risks of intervention, we must always measure our interests against the need for action. But that cannot be an argument for never acting on behalf of what's right.
(END VIDEO CLIP)
CHIOU: Risks and costs. Those are two words the president used often in his speech on Monday night, but he wasn't very specific. And he didn't put a price tag on the coalition's air strikes. So our Lisa Sylvester is doing that and she shows us how it's adding up fast.
(BEGIN VIDEOTAPE)
LISA SYLVESTER, CNN ANCHOR AND CORRESPONDENT (voice-over): The cost of U.S. military involvement in Libya is more than $500 million and continues to climb. One hundred ninety two U.S. Tomahawk missiles fired in the Libyan military campaign. Each one costs $1.4 million, for a total of more than $268 million.
Nine hundred eighty three combat flying missions, one hour of flying those fighter jets costs $10,000. Then there's the down strike Eagle fighter to replace it with the latest generation joint strike fighter costs between $100 million to $150 million.
TODD HARRISON, CENTER FOR STRATEGIC AND BUDGETARY ASSESSMENTS: The country's a bit war wary. You know, this is the third conflict we're in right now. Also, you know, we're talking about dollars here. We're talking millions and hundreds of millions and perhaps a billion or more.
And this comes at a time when, you know, we have a $1.5 trillion deficit in our federal government. So, you know, people are becoming much more conscious of the cost of operations like this.
SYLVESTER: The White House insists the costs are under control. The money is coming from the existing Pentagon budget.
JAY CARNEY, WHITE HOUSE PRESS SECRETARY: What we have said is that we feel confident given the nature and the limitations on the mission that it can be paid for within existing budget appropriations because there are funds that exist for that purpose.
SYLVESTER: But that's drawing skepticism from critics of the Obama administration. Among them, former House Speaker Newt Gingrich who says if this campaign extends six months to a year to even two years, the White House will have to ask Congress for a war supplemental.
NEWT GINGRICH, FORMER U.S. HOUSE SPEAKER: The word from the White House yesterday that they were going to take this out of the current Pentagon budget, I think is impossible. I don't think the Pentagon can sustain a war within its current budget.
SYLVESTER: The U.S. military has done the lion share of enforcing the no-fly zone over Libya because of the United States' unique capabilities with planes like the Stealth fighter, able to easily take down the Libyan regime's military targets.
(END VIDEOTAPE)
SYLVESTER: The White House does not envision this being a long-term commitment. White House spokesman Jay Carney has said the next phase is providing resources to the international coalition.
And with others joining the fight, theoretically it'll limit the amount the U.S. spends on the conflict. Lisa Sylvester, CNN, Washington.
CHIOU: The conflict is still affecting oil. But the price of oil continues to retreat from those record highs it reached earlier in the month when it spiked on concerns about the turmoil in Libya and other parts of the Arab world.
Let's take a look at the price of Nymex right now. Nymex crude is down 50 cents, but still going for more than $103 a barrel in electronic trade. And Brent crude from May delivery is down a little bit less trading at more than $114 a barrel.
Oil prices may be dropping, but petrol prices are continuing to move higher. CNN's Piers Morgan asked former U.S. Energy Secretary Bill Richardson about prices across the United States.
(BEGIN VIDEO CLIP)
BILL RICHARDSON, FORMER U.S. ENERGY SECRETARY: The decline in Libyan oil supply has affected gasoline prices in the United States and what happens is OPEC and Libya's a member of OPEC. When that supply declines, that affects oil prices.
What we need to get oil prices to happen in terms of OPEC is by increasing that capacity. It is possible that oil prices in the United States will go down. So you can't dismiss Libya's connection with American gasoline prices.
(END VIDEO CLIP)
CHIOU: The former U.S. energy secretary also says America must shift to newer, cleaner, renewable sources of energy and reduce the dependency on OPEC and fossil fuels. Nina --
SANTOS: Well, Pauline, let's turn our attention back towards the situation in Libya because here in London, diplomats from more than 30 countries are gathering for a meeting about the crisis in Libya.
(BEGIN VIDEO CLIP)
SANTOS (voice-over): U.S. Secretary of State Hillary Clinton and other attendees will be looking at ways to force Moammar Gadhafi out of power.
And in Syria's state television broadcast, this particular video of what it called, quote, "a demonstration of loyalty for the union of the country." Pro-government rallies are reportedly taking place in Damascus and also in Kalab.
The images come from state television broadcast yesterday after witnesses said that government troops used water cannon and also gun shots to scatter demonstrators. That confrontation reportedly took place in the southern town of Daraa where government forces and demonstrators have been clashing sporadically over the past two weeks. Syria's government denies that any clashes took place on Monday.
(END VIDEO CLIP)
CHIOU: Just ahead, Japan's deepening nuclear crisis as officials scramble to avoid a meltdown. They're trying to figure out what to do with radioactive water.
SANTOS: Also coming up, new era for "New York Times." The future shape of newspapers.
(COMMERCIAL BREAK)
CHIOU: Shares in Tokyo Electric Power sunk nearly 18 percent for a second day on Tuesday after the company said it found plutonium in the soil near the Fukushima Daiichi nuclear power plant.
(BEGIN VIDEOTAPE)
CHIOU (voice-over): Also in a press conference today, Japan's National Strategy minister said the government is considering nationalizing TEPCO to help it handle the nuclear crisis.
We're getting more information now on the situation to Japan's damaged nuclear power plant. The country's chief cabinet secretary says the containment structure surrounding the number two reactor is in bad condition and may be leaking radioactive material.
He says the challenge is to pour enough water to cool the damaged reactors without letting contaminated water spill over. Regulators say there's no sign that's happening so far.
HIDEHIKO NISHIYAMA, JAPAN'S NUCLEAR AND INDUSTRIAL SAFETY AGENCY: As of today, we have been reporting that the trench is filled with water. This trench is not directly connected with the outer ocean. And after the detection, every half of day, visual monitoring has been conducted and there's no evidence of overflow observed yet.
CHIOU: Meanwhile, the facility's owner confirms that small amounts of plutonium have been found around the plant, and that has raised a lot of concern.
GARY WAS, UNIVERSITY OF MICHIGAN: The finding of plutonium is a concern. Certainly when -- it means that we have a greater or more severe damage to the fuel, whether it's in the pools or the core. If it's just the zirconium cracking, we wouldn't expect to see fuel particles. But this is coming from the fuel, so it means there's more serious degradation.
If melting has been suspected then this just adds more support to the idea there's been at least partial melting of the fuel.
(END VIDEOTAPE)
CHIOU: Tokyo Electric Power Company says crews have restored electrical power to the number three reactor as they work to restore its cooling system.
SANTOS: Well, Pauline, Sendai Airport was once a busy transport hub for northern Japan carrying business travelers and also tourist. Now, of course, all that has changed with the tsunami.
(BEGIN VIDEOTAPE)
SANTOS: But at the moment, the airport seems to have a new mission. Martin Savidge took a look at how it's playing a key role in the relief efforts.
MARTIN SAVIDGE, CNN CORRESPONDENT: If you remember some of the most amazing images that came out in the first hours after the tsunami, one of them would have to be the airport in Sendai.
Just so amazing to see this massive airport overrun with water and debris. Now we're going back to see how it looks today. But first, we have to avoid Japan's ongoing nuclear disaster. This is the Fukushima reactor, the 25-mile restricted area. This is our airplane here.
(voice-over): Colonel Rob was aboard the first plane to land at Sendai after the tsunami.
(on camera): I think anything that you see on TV you can't put in perspective the amount of destruction that was down on the airfield the day that we arrived.
Sweeping in for landing ourselves, we see none of that. You can probably see for the most part behind us, it looks great. It really does.
(voice-over): The transition is amazing given what happened here the day of the disaster. But get away from the runway, and you see the reminders, which a literal army of 240 U.S. airmen, soldiers, and marines alongside Japanese civilians frantically work to clear.
By just damn luck there were no passenger planes here when the waves hit, but the hundreds of smaller mostly private aircraft weren't so lucky. They look as though they fell from the sky even ones in the hangars weren't spared.
(AUDIO GAP)
SAVIDGE: Martin Savidge, CNN, Sendai, Japan. (END VIDEOTAPE)
CHIOU: The internet has been siphoning revenue away from newspapers for years now.
SANTOS: But when we return, we'll be looking at how the world's top paper is fighting back.
(COMMERCIAL BREAK)
SANTOS: Welcome back. You're watching WORLD BUSINESS TODAY live from CNN Hong Kong and London.
CHIOU: The "New York Times" is now charging for access to its website. One of the web's busiest newspaper sites is no longer completely free. Instead, it's behind a pay wall. Allan Chernoff explains how the gray lady is looking for some green.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice-over): The "New York Times" is trying to harness a force that's been wrecking the newspaper business, free access on the internet.
Executives here plan to walk a fine line to generate subscription revenue from avid readers willing to pay while still retaining casual customers who boost advertising revenue with their clicks.
After much research, "The Times" believes that fine line is 20 articles every four weeks.
MARTIN NISENHOLTZ, SENIOR VICE PRESIDENT, NEW YORK TIMES: We're as confident as we can possibly be in a research setting. Obviously whenever research hits the real world, there are changes.
CHERNOFF: Whatever the right number of clicks is, "The Times" intends to become the largest general interest newspaper to emulate with business papers, the "Wall Street Journal" and "Financial Times" have done. Collect subscription fees from online customers.
JILL ABRAMSON, MANAGING EDITOR, NEW YORK TIMES: When I say it's a bet on the future, we want to maintain the most robust kind of newsroom full of talented journalists. And in order to do that, it seems sensible to begin asking some readers to pay for it.
CHERNOFF: As newspapers have given away their product for free online, paper subscriptions and advertising have dropped. The prestigious "Time" is no exception. It's online readership and web advertising have steadily grown, but that hasn't -
(AUDIO GAP)
EMILY REUBEN: So how much of a barrier for content will the "New York Times" pay wall really be? We're looking at the "Wall Street Journal," which also charges for its content. But here in London, we can view pretty much all of the articles for free. The "Financial Times" is another newspaper that charges for its content. They have a pay wall, but if you copy and paste the headline into a search engine, well, then you can read the article for free, there's no charge.
And we've been able to do that for one or two pieces. However, there is a limit you can view on the financial times, it's free, and you're presented again with a pay wall. It's pretty confusing picture. This is technology for a new way of reading newspapers and clearly some way to go.
CHIOU: That's Emily Reuben there revealing all of our secrets in the newsroom right now.
Coming up next, in India, big athletes command big money and no more so than in Cricket. But the big bucks aren't only made at the cricket. When we come back, we'll find out how lucrative it is to be a corporate pitch man.
(COMMERCIAL BREAK)
SANTOS: From CNN London, I'm Nina Dos Santos.
CHIOU: And I'm Pauline Chiou at CNN Hong Kong. Welcome back to WORLD BUSINESS TODAY.
SANTOS: Let's take another look at how the European markets are faring about an hour and a half into the trading session. FTSE 100 down by about a quarter of 1 percent. Similar situation for the SMI Zurich and after starting the day on a positive note, markets also in Paris and also Frankfurt also down by about half of 1 percent at the moment.
Well, rising demand for high-end handbags and shoes gave Prada a big boost in the year 2010. The Italian fashion had said its profit more than doubled in the fiscal year in January. Prada made almost $352 million.
The surge was led by growth in the Asia/Pacific region and helped by rising sales in other places such as the United States, Europe, and the Middle East. The report comes ahead of a highly anticipated IPO in Hong Kong Prada, which is expected to take place in May.
CHIOU: Markets here in Asia, Nina, finished mostly lower this session. The Nikkei in Tokyo was down for a second straight day on more concerns about Japan's nuclear crisis and after a lower growth forecast from Goldman Sachs. We'll get to that in just a moment.
Now TEPCO was the biggest loser there plunging nearly 18 percent after it said had traces of plutonium were found at the Fukushima Daiichi nuclear power plant.
Meanwhile, Japan's National Strategy minister appeared not to rule out nationalizing TEPCO either fully or partially when he was asked about the government's plans for the company. Now this negative sentiment in Japan was echoed elsewhere across the region. As you can see the Hang Seng and the Shanghai composite both down with energy stocks also finishing lower in Sidney, but the main Aussie benchmark was able to pull up a gain ending the session around half a percent higher.
Shares of mining giant, Rio Tinto closed half a percent higher in Australia on Tuesday on reports it's trying to buy a majority stake in Australian miner Riversdale. Rio already owns about 41 percent of the company.
The reports say it's in talks with Brazil's CSN, which owns 20 percent. That would be Rio's latest attempt to gain control of the Africa-focused miner. Rio Tinto already has a $4 billion bid on the table.
As I mentioned earlier, Goldman Sachs downgraded Japan's growth forecast for the year, and the bank's new forecast was announced as the economic cost of the country's twin natural disasters comes into clearer focus.
Now, the latest cost estimate is $309 billion, that's from the Japanese government. So it's a downgrade that many analysts say was just a matter of time. Our Asia business analyst Ramy Inocencio has more of the numbers. What did you found out, Ramy?
RAMY INOCENCIO, ASIA BUSINESS ANALYST: Pauline, thanks. You know, Goldman Sachs has indeed lowered its growth forecast for Japan's GDP. Gross domestic product was expected to come in at 1.3 percent for this year. Not a great pace to say the least, but better than the last three quarters when it was less that.
But that number, right here, came out before the natural and nuclear crises, which have now shattered that growth momentum. Now Goldman expects Japan's GDP to grow at an anemic 0.7 percent. Now I spoke with Lee Chiyung, he's a senior economist at Goldman Sachs.
And he said this downgrade really shouldn't be a surprise to anyone taking into account three major things. Hits to production, capacity, continue to supply chain shock and rolling power outages. Chiyung also said GDP growth would continue to be lower for the rest of this year.
CHIOU: Ramy, there's also the question about how to pay for this huge reconstruction effort that's still ahead. I mean, with damages at around $309 billion, it's going to be a huge bill. What's being discussed as options?
INOCENCIO: You know, abandoning the proposal to cut taxes on corporations, that's the big buzz right now. Japan's corporate tax rate is actually the highest in Asia at 40.69 percent. Now, the government had been considering cutting that number to keep Japan's growth going.
But now with money badly needed for quake reconstruction efforts, there's talk from politicians that proposal to cut taxes may actually be shelved. However, the analysts I spoke with earlier, they all agreed that would not be good for Japan's recovery.
For example, our Goldman Sachs analyst, Lee Chiyung said it could be a good excuse, actually, for companies to move more production to companies with lower tax rates. For example, China and Korea both have about 24 percent corporate tax rate, compare with that with Japan, as I just mentioned, 40 percent there.
We're talking about big moves from big names. Imagine household names like Toyota or Sony putting most of their production in some places other than Japan. And one other possibility to help pay for reconstruction, an increase in Japan's consumption tax or VAT, right now it's at 5 percent and there's an idea that could be actually be raised to 7 percent.
Now to offset that, though, a subsidy could be offered to quake and tsunami victims worst hit by the disasters. So, you know, Pauline, a lot of options being bannered about. Interestingly, they may be politically savvy for Prime Minister Kan to abandon those corporate tax cuts.
A survey out from Kyoto news said a good 67.5 percent of the public support that, but the last time Kan even mentioned abandoning those tax cuts. His party lost control of the upper house of Japan's legislative body.
CHIOU: All right, that was a big blow there. So today it's still a lit bit of a chess game there. Ramy Inocencio, thanks so much for that update. Nina, back to you.
SANTOS: Thanks so much, Pauline.
Let's go back and turn our attentions toward the markets, and U.S. stock markets in particular because they fell into negative territory in the last hour of trading on Wall Street on Monday. Here's how the numbers finally settled.
The Dow fell by 1/5th of a percent, the broader S&P index, as you can see there, lost around a quarter of percent and the tech-heavy Nasdaq closed the day half of 1 percent lower as you can see by the figures there.
Well, speaking of those companies listed on the Nasdaq, the online auction site eBay is buying e-commerce marketing firm GSI Commerce. The price tag $2.4 billion, represents a 51 percent premium over GSI's stock price.
The company handles e-commerce services such as payment processing and also customer service in addition to operating a sports merchandising business. You can imagine, Pauline, perhaps some synergies there between those two companies.
CHIOU: Yes, absolutely.
Well, we move now to India, to India's 1.2 billion people. Cricket is more than just a sport. It's an obsession and top athletes there command big money. Not just to bowl, but to pitch products as brand ambassador. Mallika Kapur explains from Mumbai.
(BEGIN VIDEOTAPE)
MALLIKA KAPUR, CNN INTERNATIONAL CORRESPONDENT (voice-over): Early in the morning, Mumbai's largest park is bursting with energy. Students come here before school to bat, to bowl, to do what India's top cricketer did in this very field as a young boy.
YAJURVINDRA SINGH BILKHA, INDIAN FORMER TEST CRICKETER: At times -- on top of the stump, and if anyone bowled him, the bowler would get that. And he didn't want to let his coach down, so he never let that happen.
KAPUR: Singh used to play test cricket for India in the late 1970s. He says a lot has changed since those days, but one thing remains the same, cricket is still a religion in India and fans worship their favorite players.
UNIDENTIFIED MALE: I think (inaudible) because of the way he plays. He's definitely the god of cricket.
KAPUR: The passion is palpable. You see it in the streets when India plays a match and even when it doesn't. Making cricketers ideal brand of ambassadors for companies wanting to promote themselves.
(on camera): Here in Mumbai, cricket players appear on billboards just as often as Bollywood stars endorsing everything from sportswear to food and drinks to phones to bikes.
Indian cricket team captain endorses 23 brands. According to estimates, that gets him anywhere from $18 million to $30 million a year, making him the world's richest cricketer.
BUNTY SACHDE, CORNERSTONE SPORT AND ENTERTAINMENT: I think it's the money that's come into cricket. If you look at the sponsorships for a team, or the sponsorship valuation, valuation of a team of a series on-air, or on ground, the values have quadrupled over the last eight years.
KAPUR: According to Sachde, this is just the beginning.
SACHDE: I think we're still far off from what a Kobe Bryant does, for example, for the U.S., for basketball, for himself.
KAPUR: Singh prefers to look at how far cricketers have come from his time.
BILKHA: In our time, I remember we were trying to -- all of us love having -- so we thought it was a nice band for them to sponsor us. And we asked them would you mind, you know, we would like you -- if you would like to endorse. They said we can give you a discounted price.
KAPUR: A lot more money and a lot more at stake. Mallika Kapur, CNN, Mumbai.
(END VIDEOTAPE)
CHIOU: Inflation continues to plague the world's second biggest economy, but it's not just about rising food costs. We'll tell you what else may be driving China's consumer price index even higher. That's coming up next on WORLD BUSINESS TODAY.
(COMMERCIAL BREAK)
SANTOS: The price of gold is still falling today following some steep profit-taking in Monday's session. Right now it's currently trading down $3 at more than $1,417 an ounce. And welcome back to WORLD BUSINESS TODAY" here on CNN.
CHIOU: Well, tackling high inflation remains a top priority for China as the government tries to prevent overheating in the world's second biggest economy. The country's consumer price index, which is a key measure of inflation came in at 4.9 percent in both January and February.
It's still pretty high above Beijing's annual target of 4 percent. So far, the central bank has raised interest rates three times since October and analysts say more tightening measures may be on the way. Most economists have pointed to high food prices as the main driver behind China's inflation.
But Credit Suisse says there's a secondary source of inflation that is surging, and that is services inflation, which includes rent and non- manufacturing services like restaurant, wage bills, and pay for domestic help and there are some other sub-indexes there like health care and education.
Well, in its latest report, Credit Suisse also estimates that China's consumer price inflation will soar to 5.6 percent this year higher than any other forecast. Dong Tao wrote that report and he's the chief regional economist for credit Suisse.
He joins us now live in our Hong Kong studios. Great to see you. Thanks for coming in. It's a fascinating report because it really goes against a lot of market consensus. First, let's talk about services inflation. What is driving that up?
MR. DONG TAO, CREDIT SUISSE: Well, when the salaries continue to go up, inflation is bound to happen. There are two sides. One is the manufacturing sector. Obviously, the salary increase affects them as well, but they don't have the pricing power because of overcapacity.
In the service sector however first, it's much harder to improve productivity and secondly, they don't have the overcapacity problem. So the restaurant owners, nannies, education providers, health care providers can raise the prices and they will raise the prices.
And the key difference between us and the market at this moment is we don't believe that in the second half the inflation will come down. The food inflation may come down a little bit. A service inflation, the second source of inflation is coming. CHIOU: And you also say that despite all these trends that you're seeing, people should not be alarmed if inflation in China reaches above 5 percent. Why shouldn't they worry?
TAO: Well, that's the second part of the problem. First off, we do think inflation will be higher, and we want to warn people. But on the other hand, people must realize. For a fast-growing economy like China, 5 percent is not really high.
It's instead deflation times in the past were stretched. What we're seeing now is normalization of salaries followed by normalization of inflation. And after that, you'll continue to see the normalization of monetary condition, interest rates. So the new norms are gradually being set now because of the salary increase.
CHIOU: If this is the new norm, how do you feel about food inflation reaching even higher in the double digits? Because you believe that food inflation will peak in the middle of this year.
TAO: Well, food inflation is a little bit different issue. It involves weather, involves psychology, and involves -- there's a wide range of issues involved. Assume that the food supply's going to be back to normal around mid of year where the new crop start to get into the supply, then we do anticipate that the inflation will come down a little bit, especially with much higher participation.
But we're seeing a shift of the source of inflation. When people's expectation of salary changes, actually inflation's going to stay with us for a much longer time it's the new norm. It's a structural in comparison to food inflation.
CHIOU: In this new norm, in the big picture, does this mean Chinese consumers will have more purchasing power or less purchasing power?
TAO: It depends who you are. If you can manage to benefit from the rising inflation, if you have investment that's going to enhance your wealth, you're well-positioned. If your salary increase beats inflation, congratulations.
But on the other hand, if you have retired, if you have no other sources of income other than salary and your salary cannot beat inflation, then you will be a loser. Inflation's always a tax. Different people would get different amount from that.
CHIOU: Fascinating. Dong Tao, Chief Regional Economist from Credit Suisse, thank you very much.
TAO: Thank you.
CHIOU: Nina, back to you in London.
SANTOS: Thanks so much, Pauline.
Well, the final reading for the U.K.'s fourth quarter GDP has just come out and slightly better than expected. The Office for National Statistics says that the U.K.'s economy contracted half a percent in the last quarter of 2010.
Preliminary estimates were for a contraction of 0.6 percent so that figure coming in slightly better than expected. British pound still trading at 1.6028 versus the U.S. dollar.
From a low number to a hotel that reaches for the skies. After the break, we're going to be taking you to a place where living large also means living tall.
(COMMERCIAL BREAK)
CHIOU: This is a foggy, but beautiful panoramic shot of central of the business district of Hong Kong island there. Welcome back, live from CNN Hong Kong and London. This is WORLD BUSINESS TODAY.
For the luxury traveler, the name Ritz Carlton is synonymous with high living and now the chain's newest addition raises that expectation literally. It occupies the 102nd through the 118th floors of the Hong Kong International Commerce Center.
And as Manisha Tank took a tour with the general manager of the world's highest hotel, this is what she found.
(BEGIN VIDEOTAPE)
MARK DECOCINIS, GENERAL MANAGER, RITZ-CARLTON HONG KONG: This is our 12th hotel in Asia we've opened in the last five years. It really shows the planning in the last 15 years in these strategic locations where our customers are traveling, and our customer base is very important to us. When we open Tokyo and we opened seven hotels in China from one hotel just 12 years ago.
MANISHA TANK, CNN CORRESPONDENT: How much does it cost to create a hotel in Hong Kong that can keep up with what is a very vibrant sector here?
DECOCINIS: Right. The final cost, I don't know, I'd say over $1 million per room, U.S. dollars. But certainly you have to create something for the long-term, something that is not only relevant today, but you have to plan for the future.
And as we see, as I said, the Chinese customer is very important to us, about 35 percent of our business will come from China. We have to be relevant and take care of those guests in addition to European and North America and from within Asia.
TANK: When we walked into the hotel, my producer said, wow, it's very big isn't it and I said, it's very Hong Kong.
DECOCINIS: It is, but also very classic and tasteful. Bling is a fun word and we are, but it's done very tastefully.
TANK: Because I would never put that word with Ritz-Carlton. Normally you have a very different look.
DECOCINIS: Yes, but we also want to be relevant, tasteful, classic. TANK: This is floor 111, room 32.
DECOCINIS: Yes.
TANK: All right, so tell me about this.
DECOCINIS: This room is our junior suite and it has spectacular views. It's made for the comfort of the guest traveling on business or leisure.
TANK: How much do you have to pay for something like this?
DECOCINIS: It's a great value.
TANK: Come on, I heard your rack rate $770 U.S., is that not the most expensive in Hong Kong?
DECOCINIS: We're right there with the other luxury hotels here in Hong Kong. Yes, because of course you have these beautiful views and want to enjoy it. But here we can have a cocktail, a little breakfast and have a little chat together and enjoy the views at the same time.
(END VIDEOTAPE)
SANTOS: Certainly seems tempting to me. Now let's go from the world's highest hotels to one of the coldest places on earth, the Arctic Circle.
Meteorologist, Jennifer Delgado has more on that. Jennifer, tell us all because interestingly enough, being British it seems as though Prince Harry's there for the next five days. What's the weather going to be like?
JENNIFER DELGADO, CNN METEOROLOGIST: You know, of course, you could imagine it's going to be cold there, temperatures in the 20s. It's going to feel like minus 29 at times. But as mentioned, yes, we are tracking what's happening up in the Arctic.
And I want to go over to some video for you. We are following what's happening with melting sea ice. We sent a crew there along with environmentalist and you're looking at some photos coming out of Resolute Bay, and they're up there with these scientists.
And these scientists are actually researching how this melting sea ice could affect climate change, very interesting. This is actually the third year they've done this. They're actually at the Arctic survey ice space. And this is where the big research is going.
I'll take you over the graphic here and you saw the video. This is the area that our crew was actually stuck at. This is at Resolute Bay. I shouldn't really say stuck at because it was a nice little town there. They enjoyed the cold temperatures.
They finally made it up to their final destination, the ice base, that's located about 560 kilometers to the north of Resolute Bay and that's where they're actually taking part in this big survey in trying to figure out exactly how this melting ice could affect global warming. The problem is getting there.
Our crew as I said was stuck at Resolute Bay and let's go back to the photos and you could see the town there of roughly 250 residents throughout the region. They documented this. The problem is, the jet stream was cut out of from this low and we had nothing to push this low out of the way.
You can see looks like very chilly conditions indeed, but the weather is rather cold. You should typically see minus 24. They're there in a warm period. Temperatures right now peeking around minus 17 to minus 19 on Thursday, but if you want to file an expedition, really exciting as I said, our CNN crew is there.
For the next several days they'll be tracking this and you can follow them on Twitter, and they're going to show you what's going on with this expedition. Here are the names here. And that's exactly what it is, a nice arctic survey. You can't complain about the cold temperatures when you have minus 21, minus 22.
SANTOS: Beautiful pictures.
DELGADO: Beautiful.
SANTOS: They are, aren't they? It doesn't communicate the cold from the warmth.
DELGADO: You ever can.
SANTOS: Jennifer Delgado -- even Britain's Prince Harry will be spending time in the North Pole, as well.
So let's talk another look at the stock markets in Europe and it seems as though the FTSE 100 has edged back into positive territory after much of the first part of the trading session in the red alert.
Notice the story, Pauline, some of the other markets, in particular the Dax in Germany, which is down by about a third of 1 percent. Also, banks in Paris rising, that's not helping the CAC 40 up either. Some of these markets showing mixed fortunes. Yet another day, Pauline.
CHIOU: Yes, another day, very optimistic there, Nina. We struggled here a little bit in the Asia/Pacific region, the Nikkei down 2/10th of a percent. Now it's down because of ongoing concerns with the nuclear power plant and also Goldman Sachs downgraded Japan's growth forecast for the year.
The Hang Seng and the Shanghai composite also down. It was the main Aussie benchmark that up by about half a percent today. And that's it for this edition of WORLD BUSINESS TODAY. Thanks for joining us. I'm Pauline Chiou in Hong Kong.
SANTOS: And I'm Nina Dos Santos in London. We'll be back at 2 p.m. London time that's around 9:00 p.m. in Hong Kong and 9 a.m. in New York. For the moment, "WORLD ONE" is next here on CNN.
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