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QUEST MEANS BUSINESS

European Financial Crisis?; Interview with CEO of Harley-Davidson

Aired June 25, 2012 - 14:00:00   ET

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


MAX FOSTER, CNN INTERNATIONAL ANCHOR: Hello to you, Spain and Cypress go to Europe for handouts and Greece's Finance Minister bails out and investors are running out of faith that European leaders can do anything to help.

Now stock markets tumbled, even before the day's news from Cypress and Greece, the Athens Composite finished down more than six percent (ph) two percent while Spanish banks took a hammering, reports say they are heading for downgrade even though there is no confirmation on that just yet. Expectations of this week's Summit of EU leaders later this week are pretty low to say the least.

Now, the Euros' own bail out club has a fifth new member, Cypress has officially said it is going to ask the European Union for assistance. It has been warning it might need help for several weeks now, and today it confirmed it needed a bailout. Quote, To contain the risks to the Cypriot economy notably from the negative spillover effects through its financial sector due to its large exposure in the Greek economy.

Bernard Musyck is a university professor at the Frederick University and he joins us from the Cypriot capital via Skype. Thank you very much for joining us. Just outline the problems, I presume these are very close ties it has to Greece?

BERNARD MUSYCK, ASSOCIATE PROFESSOR, FREDERICK UNIVERSITY: Yes, good evening to you. And the problem paying through the banks because our banks have high exposure to (ph) private sector also, but I believe the problem goes far way back, and maybe it is a long term problem that has been looming, it is a stressful problem of the economy.

The economy, faces very severe structural problems and have not been addressed by several governments in Cypress and now the time has come where were cannot continue to live with those structures that ware completely inappropriate for the situation especially the financial situation in which we are. And what do I mean? Basically the country is inefficient and expensive since --

FOSTER: Thank you very much for joining us. The sound isn't fantastic but thank you very much indeed for joining us. It is now official that Spain has gone cap in hand to the EU on behalf of its banks as well. It is all about bail outs today. Lets go to Al Goodman, he is in Madrid. So what did they say today, Al?

AL GOODMAN, MADRID BUREAU CHIEF: Hi Max, they didn't say very much, they asked for what they called financial assistance but everyone else is calling it bail out and the Spanish government doesn't like that word bailout because of its political implications, now, in this brief letter r to the Euro Group, which was received, the Euro Group said they did receive the letter, Spain says that they want enough money to be able to cover the capital needs of the leader banks and then some safety margin, but they didn't give the key details, they still haven't given the key details, they say that need to be worked out in the next two weeks, they hope to have it all ready for the Euro Group meeting on July 9 . Max?

FOSTER: There is talk of another downgrade of those banks, so there is a constant market pressure on them So time is of the essence, isn't it?

GOODMAN: It is, but yet this Spanish Government wants to set its own pace and it has been doing that for the six months that it has been in office, almost defying Europe, almost saying they want to do it their own way, here is what analysts are saying why the Spanish government are playing for time right now, because they want to make sure that whatever amount they ask for, remember, Europe is offered a hundred billion euros, the (inaudible) reports that came out last week saying Spanish banks might need sixty two Million, the government here has several points that hey want to negotiate, that is where we are going to be in the next couple of weeks. They want this money to come in to the banks directly from Europe, so it doesn't count as part of the sovereign debt, they want to make sure that the payment period is extended so the banks aren't crunched, right now they are dealing with the interest rates which might be three or four percent, there is a whole series of issues there. Europe has its own series of issues, and that is where we are heading into the Euro Group meeting in two weeks and before that, we have the European Union Summit where this will surely be somewhere, either in the hallways or on the agenda. Max?

FOSTER: Yeah, and it is all going to be about banking at the summit, isn't it at this point because that is the first thing that needs to be addressed. The stage shows, whenever banks get affected, everyone, each economy gets affected.

GOODMAN: And Spain is trying, the auditors pointed out that some of the Spanish banks, the biggest ones are healthy, and it is the ones that are linked to the Regional Savings Association that got so exposed on the real estate debt that were run not by professional bankers but by politicians, that is where this money might be going, but you have e the news out of Cypress that you have been talking about, you have this expected downgrade now according to reports, Moody's which downgraded the Sovereign earlier now going after the banks, the same thing as the other major two rating agencies have done, so until there is some clarity to the markets outside, you can expect there will be continued turbulence here in Spain.

FOSTER: Al, thank you for that. Well Wall Street hasn't escaped the fall out, stocks are tumbling there too, we will have live coverage for you from the NYSE right after this break.

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FOSTER: Let's have a look at the Dow, currently down more than one percent, so much uncertainty around the world economically speaking. Europe largely the focus, of course, 12,494 points, we will be following that for you as we head towards the close. Didier Duret is the Chief Investment Officer of ABN AMRO. You have so much to deal with right now, don't you, wherever you look around the world there are issues. But the primary one, the primary focus must surely Europe right now, the next stage in that is the Summit, am I correct?

DIDIER DURET, CHIEF INVESTMENT OFFICER, ABN AMRO: Yes, all eyes on that, and in particular, when we see what happened to Greece today this is really the top of the iceberg because they have to deal with the governments in the coming days

FOSTER: Government of the financial systems?

DURET: -- of the financial system, but of the EU itself. To go and solve the problem of the debt, how the debt should be financed, what are the mechanisms that can make a physical union. The first steps, the genuine steps in favor of the physical union and I think there might be some interesting proposal on the table for instance, the European Redemption Fund which is made by the German, not for the German, but for the rest, and that can be a bed rock for, let's say a good debate on how to deal with the government of the EU.

FOSTER: And the immediate requirement is some sort of stability for the banking sector across Europe, isn't it? So what can they do there to reassure the markets?

DURET: I think the mechanism of recapitalizm is the bank has to become and it has to become a wide mechanism because what does that state, to break the vicious cycle between the government and the banking sector, and that is one way to address this issue. A positive perhaps at the moment is that you are seeing a much lower oil price and that has made some relief in the soft patch that we are seeing at the moment, the issue of the European crisis and the (inaudible) is very detrimental.

FOSTER: But you want to hear again I presume., restatements of commitments to the Euro from all the leaders, is that correct?

I think we can count on that, if the Greek (ph) kind of a popular agreement in favor and if the Greek are okay with it, you expect other countries to ---

FOSTER: But neither the Finance Minister or the Prime Minister are going to make it to this Summit, we are told.

DURET: But they will have representatives .

FOSTER: So you don't think that is going to be a huge problem?

DURET: I don't think that will be a problem, the problem, really, is it find a common ground (ph) agenda and a road map.

FOSTER: And some firm steps towards fiscal union which seems to be the consensus.

DURET: Yes, and I think this European Redemption Fund is a good way to address this issue of the fiscal discipline and the fiscal union because it has a conditionality which is embedded in Europe.

FOSTER: Okay. Thank you very much for joining us. Didier Duret.

Now, a currency conundrum for you, why people in Sri-Lanka tore this note in two in the 1940s, was it a, Disdain for the government, was it to tear it in two to make two notes or was it a note with no tears (ph) we will have the answer for you later in the program.

The Euro meanwhile is hovering around a two week low, traders are waiting to see if the Euro (ph) will come up with any fresh ideas to the debt crisis. Now, in the meantime, they are choosing safe havens like the Yen and the Dollar the U.S. currency is trading higher against most alternators today.

(COMMERCIAL)

FOSTER: Greece's Finance Minister has resigned from his post. Head of the National Bank of Greece had not yet been sworn in, new Greek Prime Minister Antos Samros has accepted his position has not yet been sworn in.

Petros Doukas is a former Deputy Minister for the Economy and Finance, he joins us now from Athens.

Thank you so much for joining us. This just goes to show, things couldn't get worse for Greece, you have this sort of chaos in the Cabinet, so what do you make of the loss of the Finance Minister, how is the government going to move ahead from here?

PETROS DOUKAS, FORMER GREEK DEPUTY FINANCE MINISTER: We will sort our problems, we did have a medical problem, the Finance Minister will not be sworn in, there is going to be a replacement announced, probably tonight. We need to deliver more than is expected of us, we have delivered less than what was expected of us, Greece is only two percent of the European Economy, it is a salvageable situation, it pays for Europe to have a little bit more patience with us. We intend to deliver. We had some mishaps in the formation of the mew government, we haven't been very lucky at it, but we will deliver, we need to stop any talks about returning to the Drachma, that has been very, very damaging, not only to Greek people taking their money out, an d nobody investing in the country, but it has spread over to Italy and Spain and now to Cypress. So we need to help Greece sort the problems out and Greeks understand we need to deliver much more than we have delivered so far.

FOSTER: In terms of the Finance Minister you had a very respected figure going into that job, it is tough getting someone that can get the confidence, not only just of Greeks, but of international markets as well. Who do you think is most likely to get the position now?

DOUKAS: Well it has been rumored that the former Prime Minister can fit the job or the current Development Minister can fit the job. There are two or three other names floating about, I think by the end of this evening we will have a name fully announced and they are going to start working tomorrow first thing in the morning. The whole cabinet is at work, we are trying to get things moving as fast as possible.

FOSTER: Unfortunately, the Prime Minister, due to illness cannot go to European Summit, presumably the Finance Minister will be able to go, but you are pretty confident that without the Prime Minister there, Greek will have a full roll to play in those discussions?

DOUKAS: Absolutely, the President of the Republic is going to be joining the Heads of State and is going to be escorted by the current Finance Manager from the previous government who has not left office yet, and a couple of very, very senior economic people, so we will have a full force there, but we know the message, you don't really need to be in the Summit to understand what is really going on, we have said what we need to say, I.e. we need to stop talking about the Drachma, we will deliver, but Europe needs to be a little bit softer on us because people have really seen their income slashed by forty percent, the economy is sinking by 6.5 percent per annum. This is a world record, and this is the fourth year in a row that we are rapidly sinking. Most of the stores are empty, we need to see a little bit more encouragement from Europe, without trying to blame anybody, the biggest share of the blame is on us, we will deliver, but Europe needs to understand that it needs to support us to avoid things like what is happening today. All stock markets are falling, the American and European stock markets have lost one and a half trillion in value, similarly the bond market, because Europe doesn't seem to be able to tackle the Greece problem.

So we are all in the same boat, we need to think positively, we need to do what we need to do to balance our budget, we are almost close to a primary balance, I mean, taking off interest payments, we are very close to capping the deficit so we are reducing the size of that public sector.

FOSTER: Okay, Thank you very much for joining us. Obviously he referred there to the U.S. markets falling sharply, that is certainly a true statement, Alison can help us explain. Hi Alison.

ALISON KOSIK, CNN CORRESPONDENT: Hi Max. So it is about Europe. Renewed fears about the lack of solutions in Europe, that is taking over the trades today and really the big reason we are seeing stocks fall. They have actually been deep in the red since the opening bell today. As you see the DOW falling over 134 points. Spain's official bailout request kicked off the selling today, it was short on details and now Cypress is in the mix, requesting a bailout of its own and receiving a downgrade, so what you see happening here are traders saying, Here it goes again and becoming fearful of this crisis washing up on U.S. shores. One glaring example of this, the so called Fear Index,. Known as the VIC. Here on Wall Street, it is jumping up to eleven and a half percent, that is a huge move, the VIC gauges how volatile trading is going to be over the next thirty days so that is predicting quite a wild ride. Max?

FOSTER: Thank you very much for that indeed, Alison. Now, a quarter of a century ago Harley Davidson made a coming of age road trip, it rolled up at the NASDAQ and became a publicly traded company, and to commemorate the event, the motor bike maker executives will ring Wall Street's closing bell tonight and from Route 66 to Australia's Great Ocean Road,. Harley riders are coming together for the first time ever, for a Harley Davidson world ride, starting last Sunday and continuing today and hitting the road together and logging their journeys online. And right now, the odometer has clocked up more than three million kilometers.

Keith Wandell is Harley Davidson's CEO. He told me why the 109-year- old brand still has that star quality.

KEITH WANDELL, HARLEY-DAVIDSON CEO: I think we are seen as an American brand, but quite honestly, as we travel around the world and we extend our reach globally, because we have dealers in over 75 countries today, I think it is nearly 83 actually, you know, the brand is revered by people around the world and really stands for independence and freedom in almost every region of the world that we are in.

FOSTER: Am I allowed to say it is an older person's brand because older people tend to buy it whereas younger people tend to go for those Japanese brands, the faster brands?

WANDELL: Well, I think that is one of the misperceptions obviously. We do have a strong, what we call, core customer base, but, if you look at our market share, in America as an example, we have the youngest share of young riders, aged 18 to 34 of motorcycles of all displacement sizes. So we have made great inroads in penetrating the young rider market.

FOSTER: You have also got a very strong dealer base, haven't you as well, and that is one of your advantages. Is that because they are committed to the brand as well? How have you managed to create that dealer base?

WANDELL: Well, that is one of the things that, since I joined the company I have been tremendously impressed with, is our dealer base, not only in North America but everywhere in the world. Our dealers are extremely passionate about the brand.

FOSTER: And when other companies look at your brand and are a bit jealous of how loyal your customers are to it, they just won't move away from it, will they, what do you tell them, what is the secret to getting someone so loyal to one brand?

WANDELL: Well, I think it has been something that has evolved over the last 110 years. Our company will be 110 years old next year, and our company has always stood for freedom and independence, and sort of the ability to rebel, if you will. And we were one of the first companies to really have sort of a social networking capability, if you will, back in the early `80s, when we started what was called the Hog Chapters, the Harley Owners Group Chapters, and we have about 1.2 million HOG members around the world, and it has just been a really strong force in building the brand. All of our customers are really ambassadors of the brand, and they stand behind the brand, and they support it a hundred percent.

FOSTER: Now, Sofitel says its transition from lodging chain to luxury brand is complete. The hotel brand has honed its portfolio in the last five years. It has cut nearly 100 hotels and used big name architects and designers to help build 28 more and refurbish the rest. Sofitel says it is paying off with most properties profitable since 2010 and room prices have been on the rise. Now, to stand out in the fairly crowded luxury hotel market, Sofitel needed a certain je ne sais qua. Chief Executive Robert Gaymer-Jones told me they found a certain inspiration in Sofitel's French origin.

ROBERT GAYMER-JONES, CEO, SOFITEL LUXURY HOTELS: The idea is really to position the brand from being in the upper (inaudible) tier to luxury, so that is really what we have done. And really at the same time of focusing on one brand, we have created two new labels, one is Legend, which is Sofitel Legend, which is historical palaces like the old Catract (ph) in Assuan (ph) where Agatha Christie wrote "Death on the Nile." Or SO -- and our SO brand, where the first one was developed in Mauritius (ph) with Kenzo, the fashion designer, and we have just launched Bangkok with Christian Lacroix.

FOSTER: You don't really, well the company doesn't release financial data for individual brands, does it?

GAYMER-JONES: No.

FOSTER: But can you give us a sense of how financially you have been doing since--

(CROSSTALK)

GAYMER-JONES: Well, the positioning of Sofitel is really quite incredible, because it has created value for Accor, and Accor realizing this is where they want to go. They want to go into luxury and they want to be economy. Everybody knows Accor is the economy leader of the economy segment, so they said let's see how the luxury -- if we can really turn around the luxury brand of Sofitel, let's continue investing in luxury.

FOSTER: Is there any sense of the value of the success?

GAYMER-JONES: If you look at where we are, using 100 points as kind of the base line, we have actually seen our Revpar, which is revenue available per room, increase by about forty percent.

FOSTER: Which is an incredible figure, isn't it?

GAYMER-JONES: It's incredible.

FOSTER: So you are in this segment now, the top end segment, and there are other established players there. How have you differentiated yourself from them? I know you have been selling your French identity, but what does that mean?

GAYMER-JONES: Everything is done through French lens of French elegance. So we spent a lot of time working with other brands like Chanel, and Louis Vuitton and Hermes and asking them what makes you successful.

FOSTER: And what is French?

GAYMER- JONES: What is French. What is essence of French? Is it fashion, is it design, is it flowers, is it sense of smell.

FOSTER: What is it?

GAYMER-JONES: It is all of those. It is all of those. And I think to be able to get all of that and to create a brand around it, from the uniforms that we used designed by Jean-Luc Sharet (ph) or the Hermes toiletries that we put into the bathrooms, all of those elements are important, but it is also the visual of, do we have the flowers properly arranged in the vases in the hotel lobbies and the make-up of our employees who we call ambassadors -- we went to Chanel and we looked at the Chanel human resources organization, and they were able to give us -- show us what they have is their look book, so we created our look book, and what is the style we want to create for our ambassadors. And we did the training around attitude and appearance, but not just about Sofitel uniforms, we said, OK, what do you look like in jeans? What is the right kind of jeans you should wear, what kind of shirt, what for men, what kind of tie goes with what certain jacket? And the idea is once they understand what their personal grooming is, they took it into their uniforms, and they were very proud to be wearing the Sofitel uniform, and it is all very much part of the style of what we wanted to create.

FOSTER: Well next, as Egypt ends its new era of democracy, we will look at how the end of uncertainty is bringing economic advantages.

(COMMERCIAL BREAK)

FOSTER: Welcome back, I am Max Foster, these are the news headlines this hour. Howard Morsi says he will respect all international agreements and represent all Egyptians as President. The long time member of the Muslim Brotherhood will be sworn in July the 1st. But what sort of authority he'll have as president is still unclear, since Egypt's new constitution still hasn't been written.

Cyprus has officially asked the European Union for assistance, the fifth Eurozone member to do so. Cyprus says it had made the request for funds to help shore up its banks, which are heavily exposed to the Greek economy.

The U.S. Supreme Court has struck down key provisions of a state's immigration law. The high court upheld the part of Arizona's law that requires police to check immigration status of people they stop for other reasons. But it struck three other provisions. The ruling is expected to affect similar laws in other states.

Syria announced today that it was acting in self-defense when it shot down a Turkish fighter jet similar to this one on Friday. A foreign ministry spokesman says Turkey violated Syria's sovereignty and he says the plane was in Syrian airspace when it was fired upon. Turkey says the jet was downed over international waters.

Russian President Vladimir Putin is making his first visit to Israel since 2005. He discussed the violence in Syria and Iran's disputed nuclear program with Israeli leaders. The trip is widely being seen as a diplomatic mission. Mr. Putin will also visit the West Bank in Jordan.

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FOSTER: Egypt's new democratically elected president will be sworn in this Sunday, July 1st. President-Elect Mohammed Morsi has resigned his membership of the Muslim Brotherhood and vowed to represent all Egyptians. And as revolutionaries celebrate in Tahrir Square, traders in Cairo stall markets are celebrating, too. The benchmark Egyptian index finished up more than 71/2 percent on Monday. It's up more than 20 percent so far this year. Ben Wedeman is in Cairo for us.

And, Ben, I guess the thing that's encouraging investors initially is the fact that at last they've got some political stability.

BEN WEDEMAN, CNN CORRESPONDENT: Yes. I don't think that the -- what we saw in the Cairo stock exchange today was really a reflection of confidence in Mohammed Morsi, because I know from speaking to business leaders, many of them have their doubts about the Muslim Brotherhood and its relationship with the private sector.

However, I think what it is is a reflection of the fact that many people are very relieved that this period of instability seems to have finally come to an end with the naming of a president-elect, Mohammed Morsi.

What we've seen over the last 2-3 weeks is this uncertainty as to whether the elections would be peaceful or not; whether the loser would accept the results. What we've seen is that there was a big celebration in Tahrir Square last night, not just there, in fact, all around the city. And today people are clearly much relieved that the situation has been resolved.

Of course, now Mr. -- Dr. Morsi has the challenge of trying to address some of the very serious problems of this country, of which the economy is one of the biggest. But there's a question as how he can do that, given the limited powers he's been granted by the Supreme Council of the Armed Forces, the real rulers of Egypt at the moment, Max.

FOSTER: Yes, that's what I wanted to ask you a bit more about. Who will control the economy? What authority will he have? Do we know yet?

WEDEMAN: Well, he does have the authority to name and dismiss members of the cabinet, which in theory would include the minister of defense. But really his powers are fairly limited. And there's so much ambiguity because, as you mentioned, there is no constitution.

Now the Supreme Council of the Armed Forces is supposed to name a constituent assembly which, within three months, must come up with a constitution which will be put to a referendum. Until that happens, it's all going to be very much a question of feeling out by Dr. Morsi what he can actually achieve under these circumstances, Max.

FOSTER: OK. Thank you very much indeed for joining us. And we're going to follow that, of course and just swearing in is going to be particularly interesting moment for that country.

Now China was once the boom destination, destination for big foreign companies. Now they're not getting such an easy ride any more. We'll explain after the break.

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(COMMERCIAL BREAK)

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FOSTER (voice-over): Now for the answer to our "Currency Conundrum," why did people in Ceylon, now Sri Lanka, tear this note in two in the 1940s? The answer is B, the notes could be torn into two separate notes, one a 2 cent and one a 3 cent. It was used to tide over shortages for more denomination coins. Very clever idea at the time.

(END VIDEO CLIP)

FOSTER: Now India's central bank has moved to prop up its sliding currency, has announced that overseas investors can now buy up to $20 billion of its Indian bonds. That's a $5 billion rise. On Friday, the rupee fell to a record low against the U.S. dollar, continuing a decline that's wiped off 21 percent of its value. Over the last 12 months alone. That makes it the worst performing currency in Asia.

Now while the Indian government attempts to revive the country's ailing fortunes, businesses are feeling the ill effects of the rupee's record slump. CNN's Mallika Kapur now reports.

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MALLIKA KAPUR, CNN CORRESPONDENT (voice-over): This factory outside Mumbai makes yarn -- cotton, clothes and engineering equipment. Everything is exported. So owner Ashish Sarafaf keeps a close eye on exchange rates and watched the rupee slide 20 percent versus the dollar over the last year. Usually when the rupee weakens, Indian exports become cheaper, so buyers overseas order more.

ASHISH SARASHISH SARAFAF, TECHNOCRAFT INDUSTRIES: No, it's not the guess (ph).

KAPUR (voice-over): Because, Sarafaf explains, the European crisis has wiped out demand for his goods.

SARAFAF: Last year was one of the worst periods we've ever had in our 15 years of existence in this industry. And, I mean, in spinning, especially in the spinning sector, where every hour our production downs (ph), we had to actually shut down complete shifts for a whole month to cope (ph) up with the low demand. We just could not sell what we were producing.

KAPUR (voice-over): During the overall exports from India fell, (inaudible) slow demand and rising import costs. TATA Steel imports 50 percent of the coal it uses to produce steel for the local as well as export markets. Its chief financial officer says he's feeling the heat.

KOUSHIK CHATTERJEE, CFO, TATA STEEL: On the import side, we do import coal to a certain extent, and that's been costlier than before because of the depreciation. But on a net basis, I think it's still on a positive side, because of the price of steel having remained firm on account of the dollar depreciation.

KAPUR (voice-over): India's fiscal and current accounts deficit have worsened recently, but experts say the country is not likely to face a balance of payment crisis like it did 20 years ago.

INDRANIL PAN, KOTAK MAHINDRA BANK: The 1991 crisis we went down only to a few weeks of import covered from the foreign exchange side. But today we are still about a 7- to 8-months of import cover. So I think it's still not a very distressing scenario to look at.

KAPUR (voice-over): Unless the global economy becomes significantly worse, then, Pan says, the rupee could slide further. The lower it goes, the better it is for Akshay Gupta's business. He exports spare parts for engines to five continents.

AKSHAY GUPTA, AGRAEXPORTS: We are in the replacement market. We aren't in the original equipment market. So in the aftermarket, the need for replacement parts has just increased, because people are refusing to go in for original parts, and they want a replacement part. So that's, again, worked for us in our favor.

KAPUR (voice-over): At the moment, he's still getting orders.

GUPTA: This is a natural honeymoon period for us. I mean, I just -- I don't know how long it'll last.

KAPUR (voice-over): Probably as long as the rupee stays weak -- Mali KAPUR, CNN, Mumbai.

(END VIDEO CLIP)

FOSTER: Well, foreign companies in other powerhouse China worried the honeymoon may be over. There as the government comes up with new taxes and regulations specifically directed at them. Eunice Yoon finds out why China is less welcoming than it used to be.

(BEGIN VIDEO CLIP)

CLAUDIA MASUGER, WINE IMPORTER, CHEERS: So, Iris (ph), can you show me the newest orders which --

EUNICE YOON, CNN CORRESPONDENT (voice-over): Claudia Masuger takes plenty of orders for Chinese customers. Her company imports and sells wines in China, racking up 50 percent sales growth every year for the past four years. But her company is Swiss-owned and her latest plan to expand the business here has hit an unexpected snag.

MASUGER: The business environment gets more and more difficult. I think the laws are changing, regulations are changing, especially on imports.

YOON (voice-over): She isn't the only one disturbed about the tougher business climate in China, after decades of being courted by Beijing to set up factories, more international firms are feeling unwelcome. Sentiment is worsened by the economic slowdown.

BILL RUSSO, CHINESE CONSULTANT: If you're already in, it's a great time. If you're not in, the window's going to, I believe, close very rapidly.

YOON (voice-over): That perception is fed by a raft of fresh taxes on expatriate employees, recent penalties on foreign businesses and policies set by Chinese authorities that seem to favor local labels.

MASUGER: I think they try to find out the perfect way how they want to do it in future, because they want to open up somehow, but still want to be very strict and still controlling.

YOON (voice-over): Beijing, which joined the World Trade Organization in 2001, says it plays fair in this maturing market.

LIU WEIMIN, SPKSMAN, FOREIGN MINISTRY (through translator): I don't think foreign companies have been treated unfairly. Instead, they have had preferential treatment. Now they have to adapt to a more even playing field with Chinese companies.

YOON: Because of the increased competition from Chinese companies and a rise in wages here, some foreign firms have started to move part of their business out of the country. In fact, already this year, European companies have brought in 30 percent less capital compared to a year ago.

DAVIDE CUCINO, PRESIDENT, E.U. CHAMBER OF COMMERCE: They believe they are even more discriminated and according to the feeling of the companies, probably this would be always even worse in the future.

YOON (voice-over): Despite the challenges, Masuger is not mulling a move.

MASUGER: China is the place to be for business. And of course, more and more companies want to invest in China because China is really strong, but not as strong as like a year before.

YOON (voice-over): Dampening spirits among an increasingly frustrated international business company -- Eunice Yoon, CNN, Beijing.

(END VIDEO CLIP)

FOSTER: And the China space program hit a milestone over the weekend. Astronauts on board the Shenzhou 9 successfully docked their spacecraft to an orbiting space lab for the first time. China's state-run news agency says Beijing plans to invest nearly $3 billion in space missions this year and next.

While China was making news up high, it was also making news down below. Some thousand meters below the sea, to be exact. When a Chinese submarine dove deep into the Mariana trench as Jaime Florcruz explains the achievements are just as much about pride as they are about innovation.

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UNIDENTIFIED MALE: (Speaking foreign language).

JAIME FLORCRUZ, CNN CORRESPONDENT (voice-over): It's been a big week for Chinese explorers. In a Chinese-made spacecraft docked with an orbiting laboratory module. It was China's first-ever manual space docking, making China only the third nation in the world after the U.S. and the former Soviet Union to complete the mission. It also brings China one step closer to its plan to build its own space station by 2020.

The three astronauts have been orbiting space for days, conducting experiments in zero gravity. Among them is Liu Yang, China's first female astronaut, seen working out on a stationary bicycle and playing the Rubik's Cube as part of physical and mental tests. China's been single-mindedly pursuing an ambitious space program bankrolled by a booming economy.

As ever, this is as much about national prestige as scientific advances. While China may still be behind the United States for now, experts say the rapid improvement of its space program could give cash- strapped NASA a reality check. China's success, they say, reminds the U.S. that it will have to continue spending to keep its leading role in space.

Also on Sunday, China's oceanographers set another record, maneuvering a deep sea submersible vessel some 7,000 meters below the surface of the Pacific Ocean. Their mission is paving the way for future exploration in the deepest places on Earth.

FLORCRUZ: Chinese officials say these breaks in research as part of China's peaceful rise. But critics say China needs to be more open and clear of its long-term intentions. Now that its influence stretches not just on land but also in space and under the sea -- Jaime Florcruz, CNN, Beijing.

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FOSTER: And (inaudible) back to Europe now, weather conditions to be precise. Jennifer joins us from the Weather Center.

Hi, Jennifer.

JENNIFER DELGADO, AMS METEOROLOGIST: Hi, Max. How are you? You're right. We are going to start off talking about weather conditions in Europe, and it's been fairly quiet over towards the west. But over towards the east, we've been seeing a bit more action there. As I'll show you on the radar, we are dealing with some rain.

You can see moving into parts of France as well as into areas including you could see up towards Germany. But the heaviest rainfall is going to be later today over towards eastern Europe, and that's because we have a strong low up towards north.

You can see for yourself, really nice looking system here, trailing all the way down towards the south, bringing some scattered showers, even for areas including Romania as well as in Ukraine and as well into Macedonia.

We'll continue to see weather conditions being kind of really tricky over towards the east, but everybody's kind of wondering what's it going to be like for the Wimbledon? Of course, that kicks off in -- for the next couple of days, there is that increased chance for showers out there. For your Tuesday, we have a 40 percent chance of rain moving in.

That's because we have a little disturbance working in from the west. As for Wednesday, I notice those temperatures are going to rebound with a bit more sunshine out there and the same for Thursday.

So while today was pretty nice, Tuesday looks like it's going to be the down day of the work. Now high temperatures down towards southern parts of Europe are quite warm for Madrid, looking at 39 degrees, 22 in Paris, 31 in Rome and then up towards the north, where we have that big low, you can see for Stockholm as well as in Berlin, a rush of cooler air there with a high right now expect only 18 degrees for Tuesday for Berlin.

But we talk more about Madrid, with the reading being 39, that's well above average for this time of the year. And for Tuesday, it's going to be even hotter out there. That means it's going to be the possibility of dangerous conditions. You need to make sure you're staying hydrated, staying out of the sun and trying to get some relief.

But look at your numbers, roughly 10 to 13 degrees above average for this time of the year. Now as we looked across parts of Europe, still some action happening through southern parts of the U.S. and the Gulf of Mexico.

We do have a tropical storm. I know it's not been impressive to you, but you can see that center of circulation. It's going to be moving very slowly over towards the east. The winds right now at 74 kilometers per hour, and we're not expecting much strengthening of it.

The problem is, it's going to be hugging that coastline, and that's going to lead to problems with some flooding out there. It's very likely to make landfall. It's a tropical storm or a tropical depression on Thursday.

And let me show you some video of what it looks like already through parts of Florida, some locations have already picked up more than 200 millimeters of rainfall.

And that includes Tampa, though wet conditions there, but, Max, the good news is it looks like it is not going to have much more development out of this system. We're hoping it will continue to weaken. But it is still going to be quite a mess down there (inaudible).

FOSTER: Yes, you need the right car for that kind of weather.

DELGADO: You do.

FOSTER: Thank you very much, Jennifer.

Now the world's busiest single-use runway is about to become busier. We'll hear how London's Gatwick plans to expand, next.

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FOSTER: The passenger numbers are on the rise in the U.K. second- largest airport, 33.8 million people pass through Gatwick in the year to March, an increase of nearly 7 percent, that helped push revenue up nearly 9 percent, reducing Gatwick's pre-tax loss by some $21 million.

Now operating profit rose 21 percent to $180 million. Gatwick's chief financial officer says the airport hopes to have 40 million passengers a year by the end of the decade. Nick Dunn told CNN's Ayesha Durgahee Gatwick plans to achieve that with just the one runway.

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NICK DUNN, CFO, GATWICK AIRPORT: This year, as we're looking out at the challenges the industry faces, whether it's Eurozone crisis, whether it's oil price, APD at record levels, we're taking a far more cautious view about the outlook.

We are on the -- in the midst of a sort of six-year $1.6 billion investment program at the airport. And we're spending almost $300 million a year in terms of -- in fact, more than that in terms of investment at the airport to transform sort of facilities that are there.

AYESHA DURGAHEE, CNN CORRESPONDENT: Are you essentially trying to change the image of Gatwick Airport?

DUNN: Gatwick has a history of being an airport that served U.K. outbound leisure passengers. It has been changing. There's 15 percent of our passengers across the year on average are business passengers.

EasyJet are offering -- increasingly offering business packages, flexibility around their offering. We've also been successful in winning business from some short-haul carriers and long-haul carriers overseas. So Norwegian, Air Berlin, have all started operating into Gatwick from their home regions. And that's brought a lot more overseas passengers through our doors.

DURGAHEE: Your strategy is almost a three-pronged attack, where you still have the local (inaudible). You're appealing to business travelers and also developing your long-haul network, almost becoming a gateway to leisure.

DUNN: I think, you know, in this current economic environment, cost- effective travel, whether you're a U.K. leisure passenger, or whether you're a business passenger is very important. You see a lot more flexibility in the offering of (inaudible) low-cost airlines in terms of seat allocation and flexibility in tickets.

DURGAHEE: And Gatwick is the world's busiest single runway. Do you need a second?

DUNN: We've got the ability to drive the number of movements per hour higher, we believe. We're also seeing a trend towards larger aircraft operating at the airport. As we've incentivized or changed our pricing policies to try and drive a more rational economic behavior, we're seeing the number of passengers on each plane rising, so load factors rising, but also the size of those aircraft rising .

So we've got the capability to handle many more passengers without needing an expansion to our runway capacity. And in fact, we're expecting to grow from around 34 million passengers today to around 40 million passengers by end of the decade. And by to about 45 million passengers by the middle of the next decade. And that's all off one runway, two terminal.

DURGAHEE: And are you trying to poach traffic from Heathrow? Can you compete?

DUNN: You shouldn't underestimate the draw of London in its own right to overseas passengers. We've already seen over the last year Vietnam (ph) Airlines, Korean Airlines, China Airlines all starting service to Gatwick, demonstrating it can be done, even if you're not a true hub.

Competition wasn't something anybody at the airport really thought about when it was part of the B.A. monopoly. So we are unashamedly competing with all the other airports in London, and that includes Heathrow, to deliver better passenger experience and better passenger outcomes, rather than regulation. So unashamedly, we're competing. And it's the biggest thing that we've changed.

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FOSTER: Well, there you are. We'll be back in a moment with a look at the Dow, still falling.

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FOSTER: These are the main business headlines this hour.

Greece's incoming finance minister has resigned from his post due to ill health. Vassilis Rapanos is head of the National Bank of Greece; had not yet been sworn in. The new Greek prime minister, Antonis Samaras, has accepted his decision.

Cyprus has officially asked the European Union for assistance and Spain formally requested European aid for its indebted banks on Monday. The lack of detail offered by Spain's government has rekindled doubts about its financial sector hours before Moody's was expected to cut the ratings of all Spanish lenders.

And a reminder of how the major indices in Europe closed the day on all of that news. London's FTSE fell 1 percent; Paris CAC 40 fell 21/2 percent and Frankfurt's DAX lost 2 percent and the Madrid index was almost 4 percent lower, a grim day on the markets and getting grim in the U.S., too. Stocks also down over 1 percent. Investors lowering their expectations for a key summit of European Union leaders later this week.

Now Tower 4 of the new World Trade Center has reached a new milestone. Today the final 8-ton steel beam covered in an American flag was raised and placed on the building. World Trade Center 4 will be the first office tower to open on the original World Trade Center site and assures us it'll have 72 floors, a quarter of which will house the Port Authority of New York.

The design for the building was unveiled six years ago. The first steel beams were erected in late 2009, a true moment in New York history.

That is QUEST MEANS BUSINESS, thank you for watching. I'm Max Foster.

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FOSTER: Cyprus has officially asked the European Union for assistance, the fifth Eurozone member to do so. Cyprus says it had made the request for funds to help shore up its banks, which are heavily exposed to the Greek economy. The news has added to market nerves ahead of an E.U. summit on Thursday.

NATO will meet on Tuesday to discuss the shooting down of a Turkish fighter jet by Syria. Syria says the plane, similar to this one, was in its airspace and it was acting in self-defense. Turkey says the jet was downed over international waters and was one of two fired upon.

Egypt's president-elect, Mohammed Morsi, says he'll respect all international agreements and represent all Egyptians. The long-time member of the Muslim Brotherhood will be sworn in on July the 1st. But what sort of authority he'll have as president is still unclear, since Egypt's new constitution still hasn't been written.

Russian President Vladimir Putin is making his first visit to Israel since 2005. He discussed the violence in Syria and Iran's disputed nuclear program with Israeli leaders. The trip was widely seen as a diplomatic mission. Mr. Putin will also visit the West Bank in Jordan.

And that's a look at some of the stories we're watching for you here on CNN. "AMANPOUR" is next.

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