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(generated from captions) This Program Is Captioned Live. Good morning. Welcome to

Business Today for Australia Network. I'm Whitney Fitzsimmons. Coming up on program - crunch point. Fitzsimmons. Coming up on the

Concerns grow that the EU

summit won't deliver reforms to

solve the debt crisis.

Confidence issue. US stocks Confidence issue. US stocks tum be on poor corporate reports

and worries about Europe. And bitter taste. Foster's shareholders still angry about

the SAB Miller takeover deal. Those stories shortly, but

markets. first, a quick look at the first, a quick look at

What's in store on the

markets today? It looks like

our market will open lower this

morning, the spy futures is

pointing down .9 of a per cent

or around 37 points. Markets

continue to tread water as we

await this euro summit meeting

market was the stand-out tonight in Brussels. Chinese

performer yesterday across

Asian markets and locally

yesterday was our materials

sector which was a stand-out

sector after we saw sector after we saw higher metal prices. We could struggle

a bit today as Rio and BHP did

fall in London trade However, Fortescue Metals will fall in London trade overnight.

be one to watch as they've

secured a $1.5 billion bond

issuance instead of raising

further equity to fund their

expansion of their operations.

But uncertainty and nerves will

certainly be weighing on our

market today. Tim, let's move

to the US. There was some

home-price news there. What did

it show? The S & P index of 20

US cities showed for the month

of August, there was a decline

of 3.8% in housing values this

was little changed from the

July read where housing values

federal finance agency also fell 4%. Other numbers from the

showed that housing values fell

4% in the month of August. As

the US housing market continues to struggle post GFC and to struggle post GFC and the

housing market does still

continue to be a

continue to be a significant

hurdle on the US recovery.

Staying in the US, it was a

negative day. What sectors were the biggest losers there ? It

was a negative day. It ended a

three day rally for US marks.

It was the cyclical sectors

most tied to economic growth

which were the worst performers, including construction services. United transportation, banking and


Parcel Services dropped 2.1%

and 3M Co dropped 6% after

cutting profit forecasts A

disappointing night on the disappointing night on the US

reporting season. US consumer

confidence dropped overnight to

a two year low. It was those

Lower Housing prices which is

weighing on consumer confidence

at the moment. If we just move over to Europe, it was also a downbeat day on

downbeat day on the markets

there? It was a downbeat day on

the euro markets. It fell ahead

of this euro crisis meeting we

have tonight in Brussels 3am

our time. Now, there is still

some nerves ahead of this

meeting. We saw a ministers' meeting which was meeting. We saw a finance

due to due to convene before the

summit. That was cancelled, so

that's added into some nerves on the market. There continues

to be some division over the

plan, whether the euro should

secondary continue buying bonds on the

secondary market and also

whether they should be

expanding this stability Consumer confidence numbers expanding this stability fund.

across Europe were also mixed

overnight. They came in quite

good from Germany and good from Germany and France

but very disappointing from

Italy. Tonight is the big

night. 3am our time is night. 3am our time is when

this euro summit meeting will

convene in Brussels. The market

will be looking for clarity and a concrete plan a concrete plan from this meeting. Thanks for joining

us. Thanks, Whitney. Now a

closer look at what's happening with currencies and


Raz we heard there's increasing concern about whether tonight's crucial summit of EU summit of EU leaders will deliver the xre hebsive package

of reforms that markets and

investors are looking for. The most likely outcome now is an agreement on the broad

principles for the euro zone

rescue plan, but the details are expected to be finalised in

the days afterward. As yet,

there is no clear agreement on

how to sort out the Eurozone

crisis. And the clock is ticking. And new problems keep

emerging. Today, the focus was on Italy. Silvio Berlusconi may

be all smiles but he is in

trouble. France and Germany

have demanded he draw up a

detailed plan on how he intends

to slash spending and to

deliver it no later tomorrow's summit. Silvio deliver it no later than

Berlusconi being told what to do but Berlusconi bitterly resents

France and Germany both know that for any deal to be convincing it has to explain what would happen to a big economy like Italy if it ran

into difficulty. Sure the main

bail-out fund may be increased

to as much as 1 trillion euros

but even that wouldn't be

enough and that is why Italy is

being told to make radical

reforms. This is the Italian

problem. It has debts of 1.8

trillion yur rogues. Its debt

as a percentage of GDP is over

118% and its growth is 118% and its growth is flat.

But the papers in Italy are

full of the bad blood between

the Italian leadered and his

French and German counterparts.

It stems from this moment at

the weekend, when the two

leaders were asked whether they

felt reassured by having met Mr

Berlusconi. The glances and

smirks insulted many Italians

and even the Italian President

has complained. It led to this

Brussels official having to

insist no insult was intended

towards Italy. People are using

the words demands, requirement, humiliation, but no, there is

no Silvio Berlusconi suggested no humiliation involved. When

raising the retirement age to

67, as part of the reforms, his

coalition partner said it

impossible. For a while to threatened to bring down

government and it's still

uncertain whether Italy will

commit to sufficient reforms satisfy France and Germany. commit to sufficient reforms to

Tomorrow the Tomorrow the German Parliament will vote on increasing the firepower of the EU's main

bail-out fund. But even here,

there are outstanding fears

that any deal could lead to

pressure on the European

Central Bank. We mustn't allow

a misunderstanding to develop

where politicians come to expect something from the ECB.

And even if the EU gets over all these hurdles by tomorrow,

the question is whether any

deal will work in the long

term. The aim. Measures to be

introduced over the next few

days is to create in a year oar

possibly two years' breathing

space but the underlying still

have to be resolved. As the

deadline approaches not only

are new difficulties emerging but officials are struggling to reach agreement on reach agreement on the most

basic questions. How to reduce

Greek debt and how to boost the

firepower of the main bail-out fund. The Commonwealth Business Forum opened in Perth with

Europe dominating the agenda.

The Prime Minister has joined

calls for leaders of the G20 to

take decisive action when they meet next month in the French

city of Cannes. As concerns

grow Italy will be next to be drawn into Europe's spiralling debt crisis, Julia Gillard's

message to her counterparts in Europe was blunt. We

acknowledge the steps Europe has taken and how painful they have been, but more needs to be

done. And it needs to be done

fast. Because as the Prime Minister told Commonwealth

political and business leaders

in Perth, it's not just the future of Europe that's at

stake. All of us as

Commonwealth member nations

stand to suffer if the correct

response is not forthcoming.

Next week , Ms Gillard will be

in the French city of Cannes,

where leaders of the G20 will

also be trying to find a

solution. For the economist known as Dr Doom, though, the

problems in Europe are a major

reason why he thinks there's a

more than 50% chance of another

world recession. It is orderly exit of a number of member

states from the Eurozone and eventually

eventually break-up, the shock

that could occur because of

this disorderly situation in

the Eurozone could be as large

as the collapse of Lehmann in

the fall of 2008. At the

forefront of trying to deal

with the fallout from Europe are the world's central banks,

and in Sydney, Reserve Bank

Deputy Governor Ric Battellino

also had Europe on his mind

when he speak to a Citigroup investment conference. The situation in Europe is

particularly disturbing since

the authorities there need to

agree on policies that deal simultaneously with excessive

government debt, weak banking

systems, soft economic activity

and sharp differences and sharp differences in competitiveness amongst the various European countries.

Ric Battellino shares Ric Battellino shares the Prime Minister's view that downside

risks to Australia can't be

ruled out but he says the

recent performance of the global economy outside Europe

gives reason for hope. Economic

data in the United States over

the past month or two have more

often than not surprised on the

upside. Asia is also continuing

to do well overall. And even some of the local economic news

here in Australia has been more

positive of late. On the

issue of Asia Ric Battellino remains confident the strength in the

in the region will help shield Australia from any Eurozone fallout and he added he's not

concerned by the slowing in China's economic growth. I

think it's in everybody's

interests, including for

Australia, for growth in China

to slow to a more sustainable

rate. A rate of 8 to 10% is

better for us than a rate of 10

to 12%. Of course watching

world economic events unfold closer than most is the investment community. Billions

of dollars of cash have been

stockpiled since the start of the global financial crisis, but according to the Australian

head of Citigroup's operations,

in recent weeks there has been

a change in the mood of the people charged with managing

that money. Technically it

seems to me that the market's looking for a reason to buy.

We've had so many years of bad news, going back obviously to

2006-07. And we're just getting

the impression from investors

that they're looking to find

reasons to employ their capital again. Looking and doing are

two different things, though. A

lot hinges on the solution to

the mess in Greece. Foster's

has faced anger from shareholders, it's what's expected to be its final AGM with institutional shareholders

backing SAB Miller's takeover,

December's vote on the deal is

effectively done and dusted. A century old company has had

what's likely to be its final

AGM and Foster's has left a bad

taste in many shareholders's

mouths. I'm sick to death of

the way the company has been

going. If we had going. If we had better

quality management we wouldn't get in these predicaments. Predicaments like

the expected takeover by SAB

Miller for $10.7 billion. I think selling Foster's is

wrong way to go. Not only do

the shareholders miss out, the nation misses out. But the

takeover does have wide support

from institutional investors.

At a meeting due in early

December, 75% of all Foster's

shareholders will have to vote

in favour for it to go ahead.

The Foster's Chairman is recommending shareholders

accept SAB Miller's latest

offer, saying it offers the certainty of cash in a volatile

global environment. Your board believes that this significantly improved offer from SAB Miller is compelling

and represents the inherent

value in your great company,

its brands and people. In's

also the predicament of whether Foster's CEO John Pollares

deserves a nearly $5 million long-term performance bonus after spending less than a year

in the job. Shareholders voted

in favour of the incentive plan

but not by much, 57% for and

42% again. He wants to get his

big money and then go, I think.

He may not be there next year. So many shareholders aren't very happy with him. This

upfront protection of

executives is obviously a bit

out of control. In response

the Chairman claims such

protection is required in times

of ownership uncertainty to

ensure the CEO remains with the


A new report by the Lowy

Institute has cast some doubt

on the international community's overwhelming confidence in China's rise

throughout the region. Obviously China along with

India are key economic powers

in the region, but does it

necessarily follow necessarily follow that economic strength then translates into strategic and

diplomatic strength? China

expert John Lee who is an Associate Professor at the University of Sydney is

sceptical of China's position

and its future and he joins me

now. John Lee, welcome to the program Always good to be here,

thank you. Now, China's growth

over the past 30 years has been

very rapid. It's given strength to the people's Liberation

Army. So why is it the case

that economic might doesn't

necessarily translate into

strategic power or diplomatic

power? The size of China's

economy obviously gives more

resources to its resources to its army. So that's one thing. But when it

comes to real leverage arising out of the economy, it's really

about the size of the messy

consumption market and also

about the degree to which you

give foreign firms access to

that market. Now China's domestic consumption market is

fairly large. It's about US $1.5 trillion. But compare that

to America's which is $10.5

trillion and Europe's which is

$11.5 trillion, the western

consumer is still far more

important to Asian firms and

therefore Asian governments

than the Chinese market. And in

addition to that, the Chinese

Communist Party, they don't

actually give great access to

foreign firms. So China is all

about potential, but it doesn't

actually give great rewards to

outside firms at the moment in

contrast to America and Europe.

And hence, they lack the

leverage you would expect of

Asia's largest economy. If Asia's largest economy. If we

just stay on the domestic consumption point - consumption point - many analysts I've spoken to have

said that China's actually

tackling that problem. You're not of this not of this view? You have to look at the facts on the

ground. Yes, the last two five

year plans have said raising

domestic consumption is a

priority. But let's look at

what's been done in China. Fixed investment has actually

increased not decreased. You direct a lot of the direct a lot of the resources towards infrastructure building rather than domestic consumption. And in a sense, the CCP, the Chinese Communist

Party, have little option and few alternatives but to pump

money into fixed investment to

drive growth. Hence domestic consumption as a proportion of GDP has been falling over the

past 10 years. Why is it they

have little choice

there? Private domestic firms have been suppressed. Is that because the central government

wants to keep control

politically? That's correct.

There is an explicit policy of

the CCP. It's not the

capitalism you have when you're

not really having

capitalism? It's a state

corporate kal tillism, it's not

a private sector led

capitalism. But the

distribution of income and the

fruits of the economic fruits of the economic growth

go through to a small sector of

the domestic economy. How long

is it then until China I is it then until China I guess

the central government faces the tipping point where many of

its citizens are sick to death

of living in a situation where they're impaired economically hand they do something hand they do something about

it? It's very hard to predict a

tipping point but I think a

tipping point coming. That's

even by admission of Chinese economists themselves. China

has become the most unequal

company by distribution in all

of Asia. In order to rek I tiff

guy that, you need to offer

private domestic countries private domestic countries a lot more of the country's capital. Now, when the tipping point comes I'm not sure, but

there are a few structural problems. There is a

non-performing loan problem.

Because domestic con sum

is so low the people aren't getting

getting the fruits of economic growth. Clearly those decision

have been made but we're not

quite sure when the CCP will

make them, if ever. You say

that Chinas are failing weak states like North Korea,

Pakistan and Burma. This makes

China one of the loneliest

rising powers in history. rising powers in history. How so? I I know it's a so? I I know it's a very dramatic phrase. It dramatic phrase. It is. It

seems rather dramatic. But it's actually not at all actually not at all an exaggeration. As we know

China's the largest economic

power in Asia. The power in Asia. The large

economic powers tend to exert

some sort of gravitational pull

on smaller countries round them. You look at every major

country in Asia, Japan, South Korea, the South East Korea, the South East Asian

countries, even former enemies

of the United States, Vietnam

and India, they have all moved

closer to Washington and closer

to each other as a hedge

against China's rise. Even as

trade deepens with China, the strategic operation between

America and these countries actually advances. That's a very

very frustrating and actually a

unique situation for a rising

power such as China. It's an interesting situation. China

has been so successful at trade

relations with countries,

relations with so many

countries, but it really hasn't

been able to transfer this into

diplomatic ties as you say, or

military ties? It comes down to

the structure of trade with China. China's a No. 1 trading

partner for Japan, South partner for Japan, South Korea, most of the South East most of the South East Asian countries, even in India. But

the problem is that most of the

trade is processing trade. That

is parts being shipped into

China, assembled in China and

shipped out again. Most of

these products are going to western consumers in western consumers in America

and the EU. That comes down to

that the western consumer

market is still far more

important until the Chinese consumer market. Until that's

the case China will act the

economic leverage that its size

suggests it should suggests it should have. Many

have said for some time China

and the United States have this strange co-dependent relationship that really hinges

on US consumption of on US consumption of China's exports and China's holdings of

US Treasuries. So recently,

China's been selling off its US

assets. Do you see this

changing the complexion of the relationship

relationship between the two? China has been selling off

some US assets but not to some US assets but not to the

degree ... Some say that this

is the start of a trend for

China to be getting out of US

assets? Well, have to go back

to why China buys US assets.

It's a direct result of the

trade surpluses they have with

the US. What can they do with

those trade surpluss? They can

transfer it back to the Chinese economy. If they do economy. If they do that the

whole currency pegging policy

falls apart and it hurts your

exports. What else can they buy outside China? They'll outside China? They'll hardly

buy euros or more yen. The US

dollar asset is about the only

thing in the world you can buy

at the moment and the only

market big enough to absorb the kind of surpluss that China

has. The capacity for China to

do a lot of damage to the US is

fairly limited. John Lee we'll

have to leave it there. Thanks

for joining us. Thanks for

having me. India's Central Bank has

raised interest rates by a

quarter of a percentage quarter of a percentage point.

The 13th hike since March last

year. But the Reserve Bank

India has given a strong signal

this could be its last rate

increase for the year which

will hopefully calm the nerves

of business leaders concerned about their investment and

growth. Food inflation is even

higher at 10.6%. The Reserve Bank is saying that it needs to be

be seen to be credible

fighting inflation and that's

the reason why it's raised

rates by 3.5% since March rates by 3.5% since March last

year. The problem for year. The problem for the Reserve Bank is that the kind

of inflation it's fighting by

and large is beyond its control. So there are higher

global commodity prices which

is obviously beyond the Reserve

Bank's purview and also within India, there are India, there are major inefficiencies in the system so

there are huge infrastructure

bottlenecks. Very poor roads, rail and ports, and these are adding considerably to the

costs of production. If you

look at food alone, around one

third of all food is wasted

because of inefficiencies from the

the farm gate all the way to

the home. Half the week the

government conceded that growth

this year is more likely to

come in around 8%. come in around 8%. The Reserve

Bank is even more pessimistic,

saying around 7.5% and there

are economists out there that

say even that may not be met.

So we're looking at something

from 9% last year, something

towards 7% this year. And for

India itself, that means that

at 9% they were bringing around 10 million people a year out of

poverty. Obviously that

poverty. Obviously that means

fewer people will come out of

poverty if you have slower

growth. That will mean pressure

for the government. for the government. The

world's biggest steel maker has

pulled out of its joint

purchase of Australia's

Macarthur Coal. The steel giant

says the deal required it to

invest too much capital in a

business it wouldn't fully

control. On Monday, US coal company Peabody energy

announced it would acquire

nearly 60% of Macarthur Coal. Analysts

Analysts say the other company

decided $1.2 billion was too

much to outlay for its stake in

Macarthur. Peabody will push

ahead with the purchase on its

own. Two new gas fired power

stations will be built in Queensland in the next three

years. The plants in Gladstone

and Ipswich are expected to

boost Queensland's electricity

generation by 20%. But critics

say the state should be looking

at renewable energy options

instead. Earlier this year

there were fears Queensland

could be running out of steam.

But a booming south-east of the

state and central Queensland

were given a power

boost. Without these power

stations, we'll start to see

shortages in electricity supply

across Queensland. So these are

very important in terms of

maintaining that reliable power

supply across this growing

state. The Hong Kong state. The Hong Kong based business consortium will spend

$3.5 billion to give the state

an extra 3,000 megawatts of

power in just three years. The

clean green energy clean green energy tag doesn't wash with everyone. It's

disappointing to see such large scale investment in

non-renewable electricity

generation in generation in Queensland, particularly when we have such good renewable resources

available to us. But Ipswich

authorities are welcoming authorities are welcoming the

investment in an energy source

which emits 50% less carbon than than coal fired plants. This

will back a modern Swanbank will back a modern Swanbank all based on sustain blt, the new

kind of power station that is gas generated gas generated and the pipeline's already in

place. Both in Queensland and

elsewhere in the market, we see

gas as being the fuel of the

future. But opponents say the

future of the Sunshine State

should be powered by gas. That's not really the

direction we need to be heading

in if we're serious about acting on climate change. The

premier says the new project

proves there's still confidence after the Federal Government's

introduction of the carbon tax. And expects the projects to

generate around 1,000 jobs. generate around 1,000 jobs. Now let's take a look at what's

making headlines around the region. The 'Financial Times' says India is set for one of

the biggest commercial banking

industry shake-ups in decades

after the Reserve Bank of India

deregulated interest rates on

the country's saving accounts. The 'Wall Street Journal' reports the Obama

administration is using

negotiations over negotiations over a multilateral trade deal in Asia to reduce preferential treatment of state-owned

companies. And the 'Standard'

says Hong Kong's exports fell

last month for the first time

in nearly two years on weak demand from China and the

United States. That's all for this edition of Business Today.

Thanks for joining me. Enjoy your day. Closed Captions by CSI

This morning - remarkable rescues. Two week mother and grandmother pulled

alive from the rubble of the

Turkey earthquake. This Program Is Captioned

Live. Also today, his final

resting place. Muammar Gaddafi buried

buried in an unmarked desert

grave in Libya. Whirlwind

visit. Queen Elizabeth set to

open the new billion dollar Royal Children's

Royal Children's Hospital in Melbourne. And the body of Moto

GP rider Marco Simoncelli arrives home in Italy. Good morning. You're watching ABC News 24. I'm Joe O'Brien. Taking a quick look at the weather first in the weather first in the capital cities around the nation today: