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QUEST MEANS BUSINESS

The View From Asia; Cargo Ships Sitting at the Docks; World Markets Down Sharply; Japan Out of Recession

Aired August 17, 2009 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, CNN ANCHOR: Bound at the rising economy, Japan pulls itself out of recession. But stock markets aren't impressed. Around the world, they're falling sharply. It's a start on a new week. I'm Richard Quest and yes, I mean business.

Good evening, I'm Richard Quest coming to you tonight live from Hong Kong. As you can see, middle of the night in Asia. But it's in this part of the world that on Monday, we learned Japan had pulled itself out of recession, joining France and Germany as G7 countries now enjoying economic growth.

It emerged from recession the first quarter of growth after 15 months of dismal numbers. Don't get completely carried away. The economic growth was perhaps insipid at best, and certainly less than analysts had been expecting. And look at this, talk about a sea of red. Markets in Asia are absolutely sinking across the board on concerns that Iranian share prices have outpaced the recovery. The largest losses being in Shanghai, where the market fell nearly six percent. Whether it was Hong Kong, Singapore, even South Korea or here in Hong Kong itself, it didn't matter.

Now if you're a regular viewer, you'll want to escape your notes that we've taken "Quest Means Business" onto the road. Good evening, as you can see, from Hong Kong. Unfortunately, they do seem to switch most of the lights off behind me. Perhaps it's an environmental move designed to save a bit of money.

It is nearly a year, after all, since the worst moment of the global financial crisis. This is a good time for us to take QMB out to meet you in Ny-Lon-Kong. New York, Hong Kong and London, the truly international city, so all this week, you'll see me out and about, first of all here in this vibrant city of Hong Kong, finding out what's changed in the year since the world's financial system all about collapsed.

Let's begin tonight's coverage though with Japan. The country announced that it's out of recession, expanded in the April to June quarter. It grew by nearly 1 percent in the three months. Now that would be equivalent to an annual growth of 3.7 percent. But of course, the numbers won't be anything like that probably because of the first quarter. The turnaround came after more than a year of steep economic decline.

Let's get some reaction and some insight into what took place. First of all, to Tokyo. Morgan Neill reports on the numbers that had Japan joining the small club of countries growing.

(BEGIN VIDEOTAPE)

MORGAN NEILL, CNN CORRESPONDENT (voice-over): It didn't take long for Japan's first positive economic news in months to become politicized. "Since I became prime minister, I put my best efforts into improving the economy," say Japanese leader Taro Aso. "As a result, we're finally seeing some bright spots."

Not surprisingly, the front runner in the August 30th elections, Democratic Party leader Yukio Hatoyama had a different spin. "There is so much disparity of wealth in terms of income, education, health care and the work place. Who made Japan like this?" he said. Adding, "the people aren't feeling much recovery.

A new report out Monday shows Japan's GDP grew by 0.9 percent in the second quarter, the first time the country's economy has grown in 15 months.

RICHARD JERRAM, MACQUARIE CAPITAL SECURITIES: I think in general, what you're seeing is just that Japan had a worse recession than other developed economies in the past two quarters. The export sector really was hammered, and all that's happening now is that it's recovering, the exports are bouncing, so the growth coming out of Japan is stronger than out of most other developed economies.

NEILL: Leading exports were sales to China, Japan's biggest overseas market. But still a worry for analysts? Falling consumer prices and unemployment is at a six-year high. All of which made the news surprising to some. "Really?" said this man. "In Japan?"

Others say the report wasn't unexpected. "I can feel on a daily basis that business is picking up, so it's good news," says this salesman.

(on camera): With the general election campaign kicking off Tuesday, the question now becomes, has the turnaround come too late for Prime Minister Taro Aso and his party, currently training in the polls? Morgan Neill, CNN, Tokyo.

(END VIDEOTAPE)

UNIDENTIFIED FEMALE: Well, we'll be back with Richard in Hong Kong in a moment. But earlier, he asked Morgan Neill to tell him more about how people in Japan are reacting to news of the upturn.

(BEGIN VIDEO CLIP)

NEILL: Well, I would say there's two people we're talking about here. One is the public on the whole, which from the people we talked to today, certainly were surprised. In fact, one of the guys that we talked to, his first reaction was, "Are you sure you're talking about Japan?" But others said they had seen signs of this in their own day to day business. But on the other hand, you've got analysts who do this for a living and this was expected by most analysts. In fact, most analysts expected this to be -- GDP growth in the second quarter to be a little greater than what we actually saw today here, Richard.

QUEST: The question of course becomes whether it is sustainable. Is this just as a result of fiscal stimulus and engineering of the economy, or is there a real turnaround? And what are people there saying on that?

NEILL: Well, that's exactly the question and it's one we've been raising a lot today as well, because it's not only in terms of Japan's export growth that we have to worry about that question. Indeed, some of the only few -- the only positive signs we've seen here domestically raise that same issue, because Japan has a massive stimulus package. It's involved straight up, one-time payments, as well as incentives to buy things like eco-cars and electronics, some of the things that really drive this country's economy.

Similar things have been happening as far as Japan's exports, has helped their exports of cars and electronics there. So what will happen in two ports, a lot of analysts say we can expect to see more of that stimulus-led growth next quarter as well. What will happen the next quarter after that?

Well, what we're going to be looking for are some second-round effects, stabilization of the labor market, and an increase in corporate investment. Too early to say whether or not we're going to see that, but there have been signs that that is on the way over the last two months, Richard.

QUEST: Morgan, financial world aside, are ordinary Japanese saying they feel better off? Do they feel that the economy has turned around? Because we always thought an export-led economy like Japan was totally dependent on exports to other Western countries. What do ordinary people feel like?

NEILL: Well no, in short, no. They don't feel it. That's because the country is experiencing its worst unemployment in the last six years. That unemployment doesn't even count in the people who would rather than being laid off, are simply seeing their hours cut. So that's going to be reflected in some of these other figures we see, as well. Obviously if your salary is down, you're not out spending as much. So no, people are not seeing that. That was reflected in the surprise we got from some people that we talked to out on the streets today. Surprise because all of the indicators they see are negative indicators. While this growth figure does indicate the recession is at an end, analysts we talk to say it's going to be awhile everyday people start to see that reflected in their own lives. There's going to be a lag in unemployment turning around of anywhere from three to six months to even longer, from what we're hearing, Richard.

QUEST: Morgan...

(END VIDEO CLIP)

QUEST: Now, onto the market where we're seeing a major sell-off that has spread from the trading floors in Asia through to the European forces and is now residing in New York, where the Dow Jones is more than 1.5 percentage points low. We'll get to the Dow in a moment.

One of the reasons, of course, what it is about consumer confidence and the ability of the consumer to play their part in this nascent recovery. Let me update you. This is how the European markets closed. In London, mining stocks were deep in the red as traders started questioning their assumptions about future demand for raw materials. In Frankfurt, the Xetra Dax with Volkswagen shares lost nearly 10 percent. VW, despite its deal with Porsche down some 10 percent. Look at that, off 2 percent to the market. Daimler also bound today and the CAC quarante down 2.16 percent.

So, as the globe and the sun turns, we now turn to the New York market. Down more than 1 percent, Susan Lisovicz is in New York. Susan, we know the news is grim. The question is, why?

SUSAN LISOVICZ, CNN CORRESPONDENT: Well, we've had a huge run-up. The three major averages up 40 percent at least since the March lows and there's reason to be concerned, even with all this hoopla about huge economies growing, you can see weak support. In Japan, there's a sense that exports may be -- the demand for exports will dry up when the stimulus programs dry up. Just think of cash for clunkers here. And if you're going to talk about demand, we have to talk about consumers. And in the last few days, Richard, we started to hear from big retailers. When Wal- Mart says that its quarterly sales are down and that's the retailer that has been stealing market share in a recession, I think that's when you start to open your eyes. And we have consumer confidence down and then we had another big retailer reporting its sales were down.

Remember, sales, you can massage the earnings by cost cutting and virtually companies in every sector are doing that, but you can't do it with sales. And we've been seeing sales down and that speaks to consumers.

QUEST: Susan Lisovicz in New York, where its a down day on the market. We thank you for that.

We'll update you of course as the market moves towards its close, which is just about an hour and change or 45 minutes away from now. You're up to date with what's been a torrid day of trading. Now let's bring you up to date with the news headlines. Fionnuala Sweeney is at the CNN News desk in London.

FIONNUALA SWEENEY, CNN INTERNATIONAL: Thanks, Richard. We begin in Afghanistan where Monday was the last official day of campaigning ahead of the crucial presidential election.

Incumbent President Hamid Karzai is the front runner followed by former foreign minister, Abdullah Abdullah. Seventeen million voters are slated to go the polls on Thursday. Security is still a major issue. The Taliban have threatened to attack polling stations.

Now to neighboring Pakistan, where a truck bomb rips through a gas station in the troubled northwest region. At least six people including three children were killed in the attack near Peshawar. Police say the timed explosive was packed in a parcel and labeled as medicine.

A suicide bomber rams a truck into a police station in the Russian republic of Ingushetia. At least 19 people were killed, dozens wounded. It happened in the town of Nazran in the republic which borders Chechnya in the north Caucasus. Ingushetia's president blames the attack on Islamist rebels trying to destabilize the republic.

Russian officials say the crew is safe after a freighter missing for nearly three weeks was found. The Arctic Sea's owners say the ship was located off the African island nation of Cape Verde. Officials say the crew has been taken aboard a Russian navy vessel. The Arctic Sea had not been heard from since July 31st. There had been reports it was hijacked.

And those are the headlines. Back to you Richard, in Hong Kong.

RICHARD QUEST, CNN INTERNATION: And we thank you Fionnuala. We'll be back for more CNN news in about 15 or 20 minutes. In just a moment it's Quest Means Business continues.

Sticking close to home, when foreign markets decided they didn't want to buy their products, what did the Chinese do? Simple. They had a billion consumers on their own doorstep. We'll be in China after the break. This is CNN. Quest Means Business.

(COMMERCIAL BREAK)

QUEST: Welcome back to Hong Kong. Now shares in China slid to their lowest levels on Monday. It's their lowest levels in two months. You've only got to look at what happened in the Shanghai market, down 176 points. That's nearly 6 percent.

It was all to do with concerns over what's been happening in the Chinese banking sector, whether or not the numbers are accurate and whether or not they are continuing to lend money to small and medium-sized businesses.

Let's put a face on today's market fall. Shanghai has been one of the world's best performing stock markets. The composite index has shot up nearly 60 percent and you can see on that graph this 6 percent fall and how it is now going to be factored in.

Should we be concerned about this because China had been thought of as being the engine of growth, at least one that will prevent a bad recession turning into a major depression, one of the reasons that China has held up so well - stimulus.

The government in Beijing has made every effort to boost domestic demand, pouring hundreds, literally of billions of dollars into the economy. As Emily Chang now reports from China, it seems to be paying dividends. The Chinese are buying.

(BEGIN VIDEOTAPE)

EMILY CHANG, CNN INTERNATIONAL REPORTER: At this car factory in Chongqing (ph), China, assembly lines are on the move pumping out more vehicles every month. ChangAn is China's fourth largest automaker and growing, selling 34 percent more cars so far this year than last year.

"China's market is huge," says a sales manager. "It has a bright future so we have a number of prospective customers." Vans like this are perfect for rural farmers, but it's just one vehicle in the carmaker's diverse group of models.

Part of China's strategy is to target emerging customers like first time buyers in the villages and a growing middle class in the city that may want to buy low emission cars like these as part of an ambitious long-term plan to sell more than 4 million vehicles a year within a decade.

It's the economic story of Chongqing (ph) and so many other cities in central and western China. They are booming despite the financial crisis because they rely on domestic consumption rather than falling foreign demand. Chongqing's (ph) biggest industries are autos, motorcycles, steel and agriculture, primarily for domestic consumers.

UNIDENTIFIED PARTICIAPNT: I'm going to use the word decoupling. I'm not talking about China decoupling from the rest of the world, but I am talking about the internal economy in central China, in western China decoupling from the coastal region.

CHANG: Growth is sagging in coastal areas where exports account for 80 to 90 percent of GDP. In Shanghai GDP grew just 3.1 percent in the first part of this year, Guangdong (ph) Province, 5.8 percent. But in Chongqing (ph) where exports account for only 10 percent of the economy, GDP grew an impressive 9 percent, about 3 percent above the national average.

It's also thanks to stimulus efforts focused on the west. Government spending has grown 46.5 percent in western provinces compared to about 33 percent in the east, so even the Chinese government is counting on inland cities like Chongqing (ph) to keep China's economy moving in the economic downturn and to help the nation make a difficult transition from an export- driven to a domestic market economy.

"Demands in China are surely and continually growing," says ChangAn's CEO. "This is also an important way to power the country, enrich citizens and create more job opportunities." He says ChangAn will focus on extending its global reach when the global economy recovers. But for now it's all about capturing the promising market right here at home.

Emily Chang, CNNI, Chongqing (ph), China.

(END VIDEOTAPE)

RICHARD QUEST, CNN INTERNATIONAL: David Webb joins me now, former investment banker, years of experience at doing business here in Hong Kong. Now he shares his reflections on the Web site webbsite.com. David, many thanks. Look, let's start first of all with this idea that China, Japan, Hong Kong, Singapore, all growing now ...

DAVID WEBB, EDITOR, WEBBSITE.COM: Yes.

QUEST: ... all showing growth. Is it - the key question is it sustainable?

WEBB: Probably not, I mean not continuously. China, of course, is coming from very low base so their secular uptrend will continue. They're still way poorer than people in the West, but Chinese - the Chinese economy is very different still.

It's still on transition from central planning to market economy and the government of course started off owning all the banks, whereas the West is just becoming (INAUDIBLE).

QUEST: Now when you see these growth numbers coming through, are they based do you believe on perhaps something happening intra-Asian demand taking up the slack from say, for example, consumers in Europe and the United States?

WEBB: Well it is the case that as economies develop their consumers can spend more domestically rather than just exporting everything. I mean for years China's just been a giant exporter of toys and shoes and clothes and so on. Now they are starting to buy cars of their own and so that is helping. And of course the government is stimulating that in the last few months.

QUEST: Is it all about stimulus these growth numbers that we saw today from Japan and for example what we've seen from China? How much of the 8 percent would actually be realistically there without the governments?

WEBB: See, that is a big question ...

QUEST: You see, that's the ...

WEBB: ... because of course the government statistics have been questioned many times by observers. But it's undoubtedly the case that when you throw that much credit into the banking system, and of course China commands the banks to do that. They control them all from the get-go, then you do create that stimulus effect.

QUEST: Is it feasible, this argument that Asia has now decoupled from the rest of the world?

WEBB: No. No. We're all deeply dependent on each other. There's still massive amounts of exports coming out of Asia to Europe and the U.S. and that will continue.

QUEST: So what is different about this part of the world now than say ...

WEBB: Well ...

QUEST: ... a year ago before Lehman Brothers?

WEBB: Well one thing that Asia didn't have a lot of was over-innovation in financial industry. For example here in Hong Kong, you still had to put down 30 percent when you bought a property. You could borrow the other 70 percent and you could possibly insure 20, but we didn't have these 125 percent mortgages here.

QUEST: But nor had they bought the derivatives, sliced, diced, the toxic assets, if you, like from Fanny Mae and Freddie Mac and those.

WEBB: Yes.

QUEST: And they hadn't come into this economy. But has business changed over here in the last year?

WEBB: Business has certainly changed. Exports are down about 20 percent year on year for all (ph) manufactures. Thousands of factories just north of the boarder here in mainland China have shut down. The air pollution has gone in Hong Kong. That's one of the benefits of it. That's -- we have cleaner air now. But certainly things have changed and there's been a hollowing out of the financial services sector because we have this big mini-bomb (ph) scandal here as well.

RICHARD QUEST, CNN INTERNATIONAL ANCHOR: David, you're going to be around, the kind gentlemen he is, is staying around until nearly 3:00 a.m. in Hong Kong to talk to us more. We're going to talk more about the changes in the business environment and the culture over here when we come back later in the program.

David Webb joining me.

Now, when we come back in a moment, a life on the ocean waves. Hong Kong is one of the largest natural harbors in the world. But working on cargo carriers means more waiting than going and less sailing. In a moment, the recession in Hong Kong Harbor.

(COMMERCIAL BREAK)

QUEST: Welcome back to QUEST MEANS BUSINESS. I'm Richard Quest.

Tonight, live overlooking the Victoria Harbor here in Hong Kong. Enjoy your day. What a spectacular sight this water is. Hong Kong, of course, one of the largest harbors. Absolutely (INAUDIBLE).

Let me tell you this little tale. If you go over that way and keep going across the peak down to the other side to Harbordean (ph) Bay, if you go over there, you see shipping of a different kind. Shipping going nowhere fast.

(BEGIN VIDEOTAPE)

QUEST (voice-over): Hong Kong Harbor, a stretch of deep water that offers safe haven for ships flying (ph) the Asian seaways. Today, though, many are here sitting and waiting. The DD Master (ph), for instance, a bulk carrier built in 1983. It's arrived in Hong Kong around three weeks ago. And like all the other ships in this channel, it doesn't seem to have much to do.

Arthur Bowing is the managing director of the Hong Kong Ship Owners Association.

ARTHUR BOWING, HONG KONG SHIP OWNERS ASSOCIATION: We can see them on the Hong Kong radars and we can see that there's probably 80 to 90 ships out here on a daily basis, but we don't know if they're coming or going or how long they might be here.

QUEST (on camera): OK. So why would it be better just to leave ships out here doing nothing? Surely it must be extremely expensive.

BOWING: Because it's the least loss calculation. You're trying to calculate how little or how much you can lose by keeping them here or by trading the ship. And it might -- you might lose less by keeping the ship at anchor than you would by trading it.

QUEST: Arthur, is it likely that some of these ships will not sail again with cargo loads for some time?

BOWING: It's quite likely some of them will not sail again with any cargo loads for any amount of time. They could say here for maybe a year, two years, maybe even three years and then be taken off to the recycling yard.

QUEST: What's fascinating about this journey is each time we go a bit further out, we see more ships just sitting here doing nothing.

BOWING: It's saying that there is a downturn. We do have a large number of ships being delivered at the moment, so it's not an accurate reflection of the volume of trade, but we have more ships coming into service, bigger and better ships coming in. So this ship could actually be subject (ph) to requirements (ph) as well.

QUEST: But you could agree with me, two years ago, they'd all be steaming around . . .

BOWING: They'd all be, yes.

QUEST: And all be around (ph).

BOWING: The audabuxfum (ph), huge. We were ordering ships like crazy and we couldn't build enough ships to cope with the volume of trade.

QUEST (voice-over): There are some areas of shipping that are causing eyebrows to be raised, especially the large amount of iron ore still being funneled into China. Experts like Arthur Bowing say it's very difficult to understand what's happening.

BOWING: Either they're stocking iron ore or they're stocking steel products or there's something going on that we don't fully understand to be able to use this iron ore. Our worry is that if we can't see the reason for this, if we can't really see why its happening, it could well be a bubble. And we've been through bubbles before. And when you start getting to the top of a bubble, people talk about the rules being rewritten. You talk about decoupling. You talk about economic changes.

QUEST: Another bubble or market distortion, this time in commodities like iron ore, will be the last thing the shipping industry needs.

BOWING: It reminds me of the very early '80s when we were laying up ships as well. But what this does is it tells me that we've got this perfect storm at the moment in shipping where we just don't have the terminal (ph) demand to employ these ships and we're building to many ships as a reaction to the demand that we had last year and the year before. We don't see the goods being shipped trans Atlantic, trans Pacific. We don't see this stuff being moved to the western consumer, who were the ones keeping up the markets before. We just don't see that happening in the volumes that we'd really need to continue.

QUEST: So they sit, week after week, waiting for business.

QUEST (on camera): These ships are a good indication of what's happening in the wider economy. Only when they start moving again, probably can we say sustainable recovery is underway.

(END VIDEOTAPE)

QUEST: Now look at that. Just a few hours ago, all this was a blaze of lights. They say they turn the lights off in the middle of the night to try and save electricity and to save energy. And all to the good. But a little plea, if you own one of these buildings and one of these advertising sites over here, would you mind leaving the lights on tomorrow night? It's very pretty for us to look at.

QUEST MEANS BUSINESS. We're back with more from Hong Kong after the break.

(COMMERCIAL BREAK)

QUEST: Good evening. I'm Richard Quest, coming to you tonight live from Hong Kong, as we have our coverage "Nine (ph) on Kong." Hong Kong, New York and London. Looking at how the world's major financial capitals are fairing one year after the big crash, so to speak.

We couldn't be here at a better time. Today, of course, Japan, the world's second largest economy, announced it was out of recession. The stock market shrugged it off. And at this moment the New York market is down more than 1.6 percent. CNN's chief business correspondent, Ali Velshi, is in New York, joins me now.

Ali, how can the market be shrugging off such good news that Japan is growing?

ALI VELSHI, CNN CORRESPONDENT: Well, there are a couple of other things going on here. And part of this, Richard, is that for so many months, as we were in the depths of this recession, everything was relative. Everything was relative to the year before and how things had been going. So it was all about the comparison.

Now that we know that we're coming out of a recession, we know from Japan, we know from several noted economists in the U.S. and the Federal Reserve saying, we're bottoming out either this summer or later this fall. Now we have to move from relatives to absolute. Are we able to sustain growth in the future, and there's a lot of evidence, Richard, that that may not be the case, that we might be coming out of the doldrums, but the future doesn't look all that gangbusters.

We had the consumer confidence -- consumer sentiment index on Friday, which was not very good, coming off of July retail sales in the United States, which were not very good. And together, that's got investors worried that will the companies that they're investing in while they'll be doing better than they were a year ago, are they doing well enough to sustain this remarkable rally that the stock market has had since March 9th.

And the answer is not uniform on that one. This is just a break in that remarkable rally for at least the time being.

QUEST: But you see Ali, just about everybody, their dog, their brother, and their wife said that the market was being overbought and was rising to frothy heights. So I can't help feeling there's a good old dose of hypocrisy when everybody starts wondering why it's coming back a bit.

VELSHI: And we've got -- you know, we've got numbers from Lipper, which follows people's -- or even from Fidelity, which handles 401(k)s here in the United States, investment retirement accounts and they're saying more people are putting in money than taking out money. So this is what happens. You see, this market has had a run-up of more than 40 percent since March and now everybody is deciding, oh, I think I'll get into the market. And of course, that often signals a top. I mean, that's a 40 percent run. That's better than typically happens after most bare markets. So a lot of people are saying this is expected. This isn't a sign of a bad economy, that markets are pulling back. These markets were up ahead of the recession and that's what's expected to be. But Richard, we're not going to see home prices improving very quickly or job numbers very quickly, and that's the problem.

QUEST: Ali, you must get similar e-mails that I get and there's one particular that's doing the round at the moment, which is a graph of what's happening now, super imposed, on what's happening -- happened in 1929, a sharp run-up followed by a sharp fall, which really was the tanking of the economy, the stock market down 14 percent.

Ali, why are those people wrong in saying this isn't 2930 again?

VELSHI: Well, for a couple of reasons. One is because Ben Bernanke and the Treasury secretary in the United States are both students of this. They both watched very carefully what happened in the Great Depression and they feel that this government has intervened earlier and more deeply than happened at the time. That was over 10-year period, there was sort of massive invention, but this one was earlier and they feel that they have avoided the second leg of this downturn. But that opinion is not shared by everybody. There are a lot of analysts who think there may be another leg down in this market and it may be triggered by commercial real estate, which didn't get affected in the first round, but may be up next. So there's a lot of people who think be ready for another down turn in this market. Most people don't, most people think this is just a rest from what we've been seeing.

QUEST: Ali Velshi joining us from New York. Ali, I've got to say, there's very few business correspondents who can throw the Great Depression of 1929 and get such an astute answer coming back. Many thanks, indeed, Ali Velshi joining us from New York.

You're up to date as always with what's happening in the business world. It's been an extremely interesting day, not just on growth and economic numbers, but also what's happening in the markets. Now let's factor in the news agenda. Fionnuala Sweeney is at the CNN news desk in London.

SWEENEY: Special envoy to Pakistan says the country has made great strides in fighting terrorism. Richard Holbrooke is on his fifth visit to Pakistan this year. He praised Pakistan's military offensive in swath valley and nearby regions.

(BEGIN VIDEO CLIP)

RICHARD HOLBROOKE, U.S. SPECIAL ENVOY: I don't think there' s any question that the operations have been a success and combined with the removal of Batula Massud (ph), the worst of the worst of the Pakistani Taliban from the scene, I think we've seen a great improvement of the security situation. At the same time, we don't know yet whether this is the destruction of the Taliban and Swath or just the dispersal. It will take a while to find that out.

(END VIDEO CLIP)

SWEENEY: Meanwhile, the Taliban claimed responsibility for two weekend suicide bombings in Swath Valley. They tell the "Associated Press," the blasts were timed to coincide with Holbrooke's visit.

Member of Iraq's security forces have been accused of taking part in a brutal campaign against homosexuals. Human Rights Watch says hundreds of gay men have been tortured and executed within the past few months. Iraqi officials acknowledge that the nation's culture stigmatizes homosexuality, but said the government doesn't condone attacks.

Small villages across southern Taiwan are still digging out a full week after Typhoon Morakot blew across the island. Officials say hundreds are still trapped in rural villages. Torrential downpours and dense fog have slowed rescue efforts. The president has taken responsibility for the government's slow response to the storm.

It is a surprise move that could ease tensions on the Korean peninsula. North Korea says it will allow reunions for families separated since the Korean War and restart tourists to a scenic mansion resort. It follows Sunday's meeting between Leader Kim Jong-il and the chairman of Hyundai Group, the biggest South Korean investor in the North.

And Richard, before I go, take a look at this heartwarming story. Not your typical mother in China, but a dog has reared a piglet on a farm in Gansu province. State media says the baby was one of 13 little pigs that the sow was unable to produce enough milk for the litter. Twelve piglets died, this one survived because the dog provided the milk. Wait until that pig gets a little bit bigger, I don't think it will be carried in the dog's mouth that much longer.

Those are the headlines. Richard, back to you in Hong Kong.

QUEST: I'm not making any jokes about something ending up as bacon if things carry on like that. Fionnuala Sweeney, many thanks indeed.

You want to crack the Chinese market, a bit like that dog has with the pig? You don't know where to start? It's as easy as A-B-H. When we come back, Eunice Yoon will explain the letters of the Chinese alphabet in stock trading.

(COMMERCIAL BREAK)

QUEST: Today's "Biz Clinic" of course concerns investing in China. One of the numbers you need to see before you even think about popping your toe into those waters is what's happening in New York at the moment. The Dow Jones Industrial's having a very grim session. The index is off more than 1.7 percent, down 160 with just an hour and 20 to go -- 9,100 is looking ok, 9,000 is certainly seeming to be safe for today.

If you think that was bad though, in China, the Shanghai composite fell to its lowest level in two months. Despite the near 6 percent fall, it is still one of the world's best performing stock markets in 2009. And China is on cause to hit 8 percent growth throughout the course of the year. You'd be very tempted to get into this market, but it's not as easy as it sounds. There's an alphabet of shares that can be bought, but only certain people can buy certain shares at certain times. This is one truly for Eunice Yoon and "The Biz Clinic."

(BEGIN VIDEOTAPE)

EUNICE YOON, CNN CORRESPONDENT (voice-over): With much of the world burned by the global downturn, many investors are hungry for China. Here, cars clog the road, shoppers crowd the street and the national bird is the crane. The Chinese economy is cooking, so investors are speculating on what the locals call stir-frying stocks.

YOON (on camera): With so much growth, investors like these want to get a piece of the action. But if you don't live here in China, how do you invest? It turns out it's a bit of a letters game.

YOON (voice-over): A shares are stocks of Chinese companies listed in mainland China, in Changan and Shanghai. The shares are sold in Chinese yuan, largely to local investors.

YOON (on camera): If you're a foreign investor and you're on your own, you can't buy A shares directly. You have to go to a bank or mutual fund.

PETER ALEXANDER, Z BEN ADVISORS: China has a very restrictive policy in terms of allowing foreign investing into the local stock market. They don't actually need foreign investors because there's an enormous amount of demand locally.

YOON (voice-over): Banks and mutual funds also help offset the risks of trading in a country where brokerages can sometimes feel like betting parlors. B shares are a second option. B shares were originally meant for foreign investors, though the government has loosened the rules to let more Chinese in. The stocks are sold in U.S. and Hong Kong dollars. The B share market only has a small pool of companies and has never really taken off.

If you want to try your own luck at trading Chinese stocks, best to take transport out of town.

ALEXANDER: The best place is Hong Kong. The reason for this is that over the past decade, a number of companies that are -- Chinese companies have begun to list on the Hong Kong market.

YOON: They're called H shares.

YOON (on camera): H shares are traded in Hong Kong dollars and are governed by international standards. So buying and selling here is much more transparent.

ALEXANDER: All sorts of companies, such as banks, petroleum companies, every type of industry, big companies, very liquid and, in fact, you can get some information on these companies on the Internet and other places.

YOON (voice-over): Individuals can also purchase ADRs, or American Depository Receipts, of Chinese companies in New York. So the selection isn't as wide. Yet experts say, don't get trapped into thinking trading Chinese stocks directly is a synch. Information is scare, spotting and is often in Chinese.

ALEXANDER: really, unless you've been in the market and have an understanding of how the ups and downs are going to take place, it can be very, very nerve-wracking for the average individual.

YOON: In other words, you need a stomach of steel.

Eunice Yoon, CNN, Shanghai.

(END VIDEOTAPE)

RICHARD QUEST, CNN INTERNATIONAL ANCHOR: The former investment banker -- I don't know why we call you that because you certainly know what's happen . . .

DAVID WEBB, HONG KONG BUSINESS ACTIVIST: Reformed, I am, yes.

QUEST: Reformed, yes.

WEBB: I haven't had a banking deal in 10 years. Yes.

QUEST: But you certainly know where the bodies are buried in terms of what's happening at the moment.

WEBB: Yes.

QUEST: Webb-site.com, joins me again.

Now, let's talk about buying of shares here. If you do want to -- and who wouldn't want to take part in the Chinese boom, if you'd like, in share prices, what is the best and safest way to do it?

WEBB: Well, if you don't have the time or resources to look at individual companies, then look for a very broadly based fund available to foreign investors -- an exchange traded fund, for example -- that will give you low management fees year after year, because they can eat away at your returns, and buy the whole index. But, bear in mind that if you buy the whole index of companies that exist today, those might not be around in 10 or 20 years time when the economy has grown.

QUEST: It's -- the other issue, of course, is transparency throughout the whole (ph) Chinese and the Asian financial system because -- I'm not suggesting corruption or dodgy (ph) deals, although some would, but there's no question that it doesn't -- the markets here to not enjoy the same transparency as others do (ph).

WEBB: That's right. And one of the things I keep pushing for in Hong Kong, for example, is quarterly reporting because when you have all these companies controlled by major shareholders, they don't have any incentive to report, like widely held companies in the U.K. do. And so you're constantly pushing them for more information and they can take four months to get their annual results out and it's just not enough to -- for investors to make good decisions. So you want more of that information. It's even harder in mainland, although they do have quarterly reporting, it's a state controlled media and information flow is not always good.

QUEST: The reality, of course, is that as long as times are good, the Chinese market will continue to rise. It's what happens in times of bad (ph). And companies . . .

WEBB: Yes. Well, it's . . .

QUEST: I mean the ownership rules. The -- you know, you . . .

WEBB: It's a very young market. Has lots of state controls still. The government decides who can do an IPO and when, from example. And the government decides how much credit should be let into the system by it controls all the banks. And so a lot of these . . .

QUEST: Are you saying that it's best to be avoided?

WEBB: You need to know what you're doing, I think. And don't put a lot of your life savings, especially if you're getting older, into emerging markets because they can be very volatile.

QUEST: And yet, you know, I'll be quite blunt about this, my broker says to me about my pension fund, he says, you've got to be in emerging Asia. You've got to be in emerging Asia. So is he . . .

WEBB: Have a piece of it. Have a little bit. You know, five, 10, 15 percent of your portfolio, but not 55, 65, otherwise it will all end in tears eventually. We have these big cycles here and . . .

QUEST: You're being very pessimistic.

WEBB: No. I think if you know what you're doing. If you've got -- I invest in small caps in Hong Kong, which is some of the riskier stocks, but I do my homework.

QUEST: But you stay busy at night.

WEBB: I stay busy at night, but I only hold about 30 out of 1,200 stocks that I could own. I have to reject one in -- 29 out of 30 stocks in order to find the good ones.

QUEST: So if -- assuming your eligible to buy the underlying security and you don't wish to buy an exchange traded fund . . .

WEBB: Yes.

QUEST: Would you recommend then, for example, Hong Kong, Singapore, South Korea, all the other emerging markets or (INAUDIBLE) robust markets in some cases, would you actually recommend buying the companies? The underlying securities?

WEBB: If you understand the companies, of course. You know, if you really understand what they're worth and how long they've been around and what their prospects are, it's just like any other market, you have to do your homework. You need to get the annual reports out and read them properly and understand also how honest the people are because the financials might look good, it might look very cheap on paper, but it might actually be fraudulent.

QUEST: David, I've got to ask you one last time, this issue of decoupling, because I happen to think there might be something going on here, that actually there might be a decoupling of Asia to the west. You're looking at me as if to say, I'm mad.

WEBB: Well, define decoupling. I mean, is, for example, China going to stop buying iron ore from South American and Australia? No, they're not. They need it. And is China going to stop exporting toys to Europe and Christmas trees and so on, no they're not. They -- that is what they do. So we're increasing the integration in the world. We can't ignore each other. We have to learn to live (ph) each other. And I think, you know, one of the biggest things that has to get done this year or every soon is the WTO round (ph). We've got to get all these agricultural subsidies out of the way.

QUEST: Right. The moment you mentioned the WTO round, that's time for me to say, thank you very much because we're starting to sound like a G-8 communique where we commit ourselves to a successful conclusion of the Doha round.

David, many thanks indeed. Go home and get a good night's sleep.

WEBB: Appreciate it.

QUEST: All right, the weather forecast. It is -- I dare not take my jacket off. It would be a most unpleasant sight for you dear viewer. You can imagine it's hot and humid on this balcony here at the Intercontinental Hotel on the 16th floor. What a great view.

Guillermo is at the world weather center.

GUILLERMO ARDUINO, CNN INTERNATIONAL METEOROLOGIST: Pretty nice. I think we need to tell your neighbors on your back to turn on the lights soon, especially for tomorrow and the upcoming days.

(WEATHER REPORT)

(COMMERCIAL BREAK)

QUEST: Bankers in Nigeria today have some idea of how Wall Streeters felt just a year ago, of course, during the Bear Stearns and Lehman debacle as they all stood on the brink of collapse.

The Nigerian Stock Exchange says its frozen the share prices of five ailing banks to protect the economy and to protect investors. The government of Nigeria is to inject $2.5 billion of emergency funds after Nordic (ph) showed that the banks were in financial jeopardy. The banks affected are - - forgive me, I'll read, so I'll get them absolutely right. Afribank Nigeria, Intercontinental, Oceanic Bank, Finbank and Union Bank. They are the major banks that are responsible. The shares have been suspended. As Christian Purefoy explains from Nigeria's financial center in Lagos, as the central bank fired the chief just last week.

(BEGIN VIDEOTAPE)

CHRISTIAN PUREFOY, CNN CORRESPONDENT (voice-over): What was an ocean of possibilities is now a stormy sea for Nigerian banks now that the global economic crisis has shored up Nigeria and the Central Bank has been forced to pump in $2.5 billion into five major banks and remove the five managing directors of those banks, who may even face prosecution. This drastic bank, the Central Bank says, was triggered by chronic mismanagement. We caught up with the Central Bank governor to discuss the bailout and how he's managing the crisis.

(on camera): Here's the government taking over five banks and maybe more. What does this mean for private investment in Nigeria? Are we going backwards or are we progressing?

LAMIDO SANUSI, GOVERNOR, CENTRAL BANK OF NIGERIA: I think we are having a setback, but I don't think we're going backwards. We discovered huge amounts of bad loans that had not been disclosed. There had been all sorts of financial engineering and we basically unraveled all of that and decided and concluded that in this point in time, the banks are in a grave situation.

PUREFOY: What does that say about the way business is done in the banking sector and why you are having to do what you're doing now?

SANUSI: Well, it's hard to say that some bankers have not been doing business professionally and ethically. And in the next few weeks, we'll gather the evidence and if we need to try, if we find any evidence that would put people in jail, we'll put them in jail.

PUREFOY: Are these banks that you're concerned about now becoming just another political commodity?

SANUSI: I don't think so. I don't think there's been any kind of politicization. All the banks have, (INAUDIBLE). Last year, credit to the private sector exceeded government spending for the first time in the history of the country. So we'll see the banks, we'll fund them, we'll give them the management, we'll support them, but we will not save individuals. I will not protect them.

(LOSS OF SIGNAL - A LITTLE OVER ONE MINUTE IN DURATION)

QUEST: ... they claim is marching to its own economic beat. A new paradigm, a fresh philosophy, a new way of thinking, or merely something of the same and similar? Can we say that Asia is at least on its own? I don't think we can. I think at the end of the day, the jury is still out, the "D" word needs to be back in the cupboard for the time being. And that is "Quest Means Business" for this evening, live from Hong Kong. I'm Richard Quest. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you tomorrow.

END

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