China Slowdown Adds to Worries on Recovery

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

Hello to our viewers all over China.

You're watching “Asia Market Daily”, co-produced by CCTV business channel and CNBC, first in business worldwide.

I am Saijal Patel and here are the top stories across Asia today.

A sea of red for Asian markets in the first day of the second half of 2010.

Regional markets were dragged down by news that Chinese manufacturing growth has slowed and reports that Moody's investors’ service may cut Spain’s credit rating.

In Japan the benchmark Nikkei 225 closed more than 2 percent lower. The index hit a 7-month low despite better than expected results from the Tankan survey.

Traders say the Nikkei may test the 9-thousand level next, and then move even lower.
Ed Rogers of Rogers investment Advisors explains the negative sentiment towards Japanese.

(SOT) Ed Rogers, CEO, Rogers Investment Advisors:

"I think that people are, investors globally, are so used to selling Japan and having negative reactions to Japan that it's really hard for them to get religion again on the subject of investing in Japan and I think I’d have to add, particularly in the long-only space, it's been horrific for the last 5 years, and I’d like to differentiate that from hedge funds returns, which we've seen very positive numbers, and in fact, in the Japanese hedge funds space you've some of the best performances in the world this year is in Japanese hedge funds."

Meantime, South Korea's KOSPI also finished in the red, finished down 7-tenths of a percent, even after latest export figures show a record trade surplus. Hyundai shares fall on reports it will bid for Hyundai engineering and construction. The company says no decision has been made.

In Australia, the S&P ASX 200 also slid, closing down 1-point-4 percent, the index hit fresh 6 weeks low after china PMI data failed to impress the market.

Heavyweight financial and materials sectors were the biggest losers of the day.
Now on to one of our top stories today.

Bank of Japan’s closely watched quarterly Tankan survey exceeded market expectations, bringing with it a ray of hope for economic recovery. Japanese manufacturers turned optimistic on business conditions for the first time in 2 years. That pushed the headline index for large manufacturers up 15-points in June to plus-1, from minus-14 in the previous survey. The report also showed that big firms would up their capital spending by more than 4 percent in the current fiscal year.

Richard Jerram, Chief Economist at Macquarie Securities explains.

(SOT) Richard Jerram, Chief Economist, Macquarie Securities:

"Profits are rising, so they're just the sorts of conditions where you usually see an improvement of capital spending, and improvement in hiring. I think we're starting to see that in fact, in the machinery orders, that the manufacturing companies are becoming quite a lot more positive in terms of their investment intentions. I think the Tankan increasingly will pick this up over the next two or three quarters."

Although the survey points to signs that the export-driven economic recovery is finally taking hold, there are still worries the rebound in exports may be moderating.

Martin Schulz, Senior Economist at Fujitsu Research Institute shares his concerns.

(SOT) Martin Schulz, Senior Economist, Fujitsu Research Institute:

"The economy is probably cooling up, a bit cooling in the second half, but we're not going into recession 075155 and companies are quite optimistic in the meantime. They're working overtime and they're sitting on piles of cash. This is extremely helpful. But they're not optimistic enough to really expand business, especially domestically."

Today Hong Kong celebrates its 13th year since the former British colony's handover to china.
While the territory has thrived economically from the closer association with the mainland, hopes for universal suffrage haven't.

And that's recently taken a more urgent tone.

CNBC’s Bernie Lo reports.

(PACKAGE)The end of an era, as the sun set on Britain’s stewardship. For the more than a century and a half, under British rule the idea of universal suffrage was hardly contemplated.

You could blame this man for planting the democracy seed - the last British governor Chris Patten who pushed to give Hong Kong people a say in his final year in office.

Since the handover, grass roots supporters say the road to universal suffrage has been far too long. But recently, the democracy push has taken center stage again after Beijing and the Hong Kong legislative council approved modest moves to more public say in how the chief executive and lawmakers are chosen.

That's caused a split between the hard-line dems and their more moderate peers.

(SOT) Christine Loh, CEO, Civic Exchange:

“I am afraid this was a long coming, there's got to be a reshuffling of the cards, in terms of how they want to pursuit democracy and how other policies that have their route in social economic ideologies.”

This all comes at a time of economic uncertainty.

Hong Kong’s rule of law, its economic freedom and its reputation as the doorway to china have until recently made it a corporate stronghold. But earlier this year - Shanghai's economy catapulted past Hong Kong’s - for the first time in decades. Sparking a debate about the relevance of Hong Kong and its capital markets.

(SOT) Tai Hui, Regional Head of Economic Research, SE Asia, Standard Chartered:

“I think in the case of Hong Kong it is not becoming less relevant per se but obviously in terms of market share going forward vis-a-vis Shanghai that is going to decline over time because the prominence of Shanghai will continue to grow.”

(SOT) Benjamin Collett, Head of Equities, Louis Capital Markets:

“Late in I think with the growth in the Shanghai market, we are going to see a corresponding growth, released growth of interest in the Hong Kong market. Don't forget of course, that china is not an open market, there needs to be a destination for foreigners who want to take plays in the china trade.”

The one issue that could tip the balance - liberalization of the yuan. Until it becomes fully convertible...Its of limited use globally, while here in Hong Kong, still sports zero capital controls.

(SOT) Marshall Mays, Emerging Alpha - Wallbanck Group:

“Hong Kong is still the experimental market for china and it needs experiments from the good decade, we'd expect to have a couple of markets that works, without political interference from the machines in Beijing, and elsewhere it needs Hong Kong to work as it works right now. Shanghai will not fill that function for another decade."

Before the handover, an issue of Fortune magazine infamously blared on its cover, "the death of Hong Kong", 13 years have passed since then while most agree the answer to that question today is "no", the worry now is whether Hong Kong will become just another Chinese city. Bernard Lo, CNBC, Hong Kong.

The landmark U.S. financial overhaul finally makes headway.

Earlier this morning, the U.S. House of representatives approved the financial-overhaul bill.
It's the biggest overhaul of the U.S. financial system since the great depression in the 1930s.
The legislation creates a new federal agency to police consumer lending.

It also sets up a warning system for financial risks, and will have the authority to force failing companies to liquidate.

The bill needs to be approved by the senate in mid July before going to president Obama for him to sign into law.

The overhaul comes almost two years after a Wall Street meltdown that devastated the domestic and international economy.

Roman Scott, Managing Director, Calamander Capital on how Asian financial markets may benefit from the legislation.

(SOT) Roman Scott, Managing director, Calamander Capital:

“You will see global movement and places in Asia and Singapore will be beneficiaries, but overall, I think it's a good thing they need to get that extra vote in the senate because I still believe that they got off lightly, this will be no more than a 10-15% cost in the industry rather than a 30-50% cost and it will remove a huge amount of uncertainty.”

Well, that wraps up today's business highlights.

I'm Saijal Patel and you're watching a co-production by CCTV and CNBC - first in business worldwide.

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