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Lateline Business -

View in ParlView

(generated from captions) website. Virginia Trioli will

be in this chair tomorrow

night. For now it's over to

Lateline Business with Ali

Moore. Thanks, Tony. Tonight

- boom or doom? How sustainable

is the galloping growth of

China's economy? We're not

predicting doom for China.

What I'm saying is that the

current model has reached the

end of the road. The heir

apparent - BHP Billiton announces its new chief

executive. And, investing in

property - Morgan Stanley buys

one of Australia's largest

property trusts. Investor

property group owns and manages

commercial offices right across

Sydney and Melbourne's CBD. It

also owned project home builder

Clarendon Homes.

To the markets, and buoyed by

an overnight rally on Wall

Street, Australian shares

clawed back yesterday's losses.

The All Ordinaries rose by over

1%, led by property investment

trust. The benchmark ASX200

did the same. In Japan the

Nikkei closed a 3-month high.

Hong Kong's Hang Seng jumped

over 1.5% as investors shrugged

off concerns over China. And

the positive sentiment has

spread to London where the FTSE

is 32 points higher. BHP

Billiton has gone in-house for

its next chief executive.

Marius Kloppers, one of eight

candidates who made the short

list for the yob is currently

head of BHP's biggest division

non-ferrous metals. While the

internal appointment is

considered safe, it signals a

change of strategy for the

world's biggest miner. Andrew

Robertson reports. Outgoing

CEO Chip Goodyear was all

smiles as he welcomed Marius

Kloppers to the top job in a stage-managed presentation.

The stock market was also happy

with BHP Billiton shares up 2%

at one point today, ending the

session 1.5% higher. I think

it's very conducive to the

smooth management of BHP

Billiton to have an insider

appointed to the top job within

the biggest company listed on

the Australian market. Indeed

it's much less traumatic I'd

say for the staff. I think in

a lot of ways it's a very

exciting appointment, too, he's

a relatively young man with

experience in marketing and in

minerals and in engineering. 44-year-old Marius

Kloppers was born in South

Africa and has spent his whole

career in the resources industry, joining BHP Billiton

in 1993. He played a key role

in the merger of BHP and

Billiton and as head of the

non-ferrous metals decision is

responsible for nearly 60% of

the company's revenue.

According to BHP Billiton

chairman Don Argus it was Mr

Kloppers' vast experience in

the sector and his strategic

ACTs which got him the job.

Thanks to the China-driven

global resources boom, BHP

Billiton is in great shape,

with net profit up 63% last

year to $10.5 billion. Gavin

Wendt covers BHP Billiton for

research house Fat Prophets and

believes despite those rosy

conditions, the appointment of

Mr Kloppers will signal a

change in strategy. I think

Marius's task will be similar

to Tom Albanese who recently

took over at Rio Tinto. Both

mining guys, both going to be

more aggressive. In recent

weeks BHP has been linked to a

takeover of Rio Tinto its

largest rival and the world's

number two rival. Gavin Wendt

has doubts about such a big

play. In the case of BHP it

wouldn't be an acquisition that

they would be acquiring

companies. Maybe like Rio

Tinto they'll concentrate on

project development and project

acquisition. Maybe looking at

high-risk parts of the world

such as Africa, South America and central Asia

perhaps. Michael Heffernan is a

veteran of the stock market and

says one issue Marius Kloppers

should not be focusing on is

BHP's share price. With a

price earnings ratio of around

12 BHP is very cheap compared

to leading industrial stocks,

but Michael Heffernan believes

a simple explanation is that

despite the current boom mining

is a cyclical industry. The

share price will follow the

profitability of the company.

If the board and top management

look at what they can best do

to make the company even more

profitable on a growth footing

over the coming years, that'll

flow on. Current chief

executive Chip Goodyear will

step down on 30 September and

will leave BHP Billiton at the

end of the year after taking

the helm at a tumultous time in

the company's history. He had

the legacy of the Magma copper

days in terms of rebuilding

investor profile with the

markets. He had to bed down

the merger between BHP and

Billiton. He's built the

company into a powerhouse with

a tremendous balance sheet.

The company's in a fantastic

position now for Marius to take

it forward. Marius Kloppers

will officially become CEO on 1

October. The bright lights of

Los Angeles continue to catch

the eye of James Packer with

publishing and broadcasting

announcing its second move into

the gambling mecca. It's

entered into a joint venture to

develop, construct and operate

a new casino on the famous Los

Angeles strip. The resort in

which PBL will hold a 37.5%

stake will be named Crown Las

Vegas. The casino hotel will

be operated by Crown Ltd the

gaming company soon to be split

from PBL. PBL shares today

gained 2.5%, closing at $21.70.

And still in the US, Rupert

Murdoch's audacious $6 billion

takeover bid for Dow Jones has

won the support of a key

investor. Brian Rogers who

controls 15% of Dow shares has

called on the Bancroft family

to sell its controlling stake

in the publisher. He described

News Corporation's offer of $60

US as attractive and worthy of

consideration. He also

criticised the Bancroft family

for having no plan of their own

to lift Dow's stock price.

Property stocks soared today on

the back of the news Morgan

Stanley's real estate arm wants

to buy investor property group.

The property group has an extensive commercial and

residential portfolio. The

investor's share price rise rest of the market followed

today on the back of

speculation there'll be more

takeover activity. Brigid

Glanville reports. If banking

giant Morgan Stanley has its

way, it will add the

award-winning Deutsche Bank

building in Sydney to its

property portfolio. The

building's current owner the

investor property group has

recommended shareholders accept

a $6.6 billion takeover offer

from Morgan Stanley. The

business continuity

arrangements are that MSRE is a

global real estate business and

it's a key component of

expanding its fingerprint in

Australia. It's a very nominal

footprint at the moment. Its

ongoing focus will be on

growing the business and the

quality of the assets we have

in our portfolio. Investor

property group owns and manages

commercial offices right across

Sydney and Melbourne's CBD. It

also owns project home builder

Clarendon Homes. Morgan

Stanley's offer of $3.08 per

share is 14% higher than

yesterday's closing share

price. We think they're paying

around 15 times for corporation

businesses and 5.1 to 3.3 for

the property assets that's a

full price. The bid follows

worldwide activity in the

property market. In the United

States, commercial property

stocks have been rising 3-4%

this week on the back of merger

activity. So in the US for

instance we've seen I think a

trillion dollars worth of

takeover activity. So there's

basically an excess of savings

in the world and that savings

is being redeployed into

existing offers. The takeover offer triggered a rally today.

Analysts say more

consolidation in the market

shouldn't be ruled out. With

an expected turnaround in the

residential and commercial property sectors, there could

be many more takeovers to

come. So the market's clearly

speculating that they could be

the ones in line for further

consolidation, given the deals

that have been happening in the

US and the fact that commercial

properties been changing hands

in the US at record high

valuations. Morgan Stanley

needs 50% of the shareholders

for the deal to go through.

But some questions are now

being asked about the company's

disclosure policy. Investor

share price has risen 20% since

the beginning of March from

$2.35 to $3. The company today

revealed Morgan Stanley made an

offer in March but it didn't

feel it was necessary to

disclose the information to the

market and says there are other

reasons for the share price

rise. There is probably a very

strong period for office rents

coming up, particularly in the

Sydney market in the next few

years: There was also the fact

that we had lagged a lot of the

other property stocks in the

earlier part of the year. The

investor property group says it

hasn't been approached by other

firps with a takeover bid. For

a quick look at the other major

movers on our market today:

Economic news out today has

once again highlighted and

strength of the Australian

economy. Last month our

international trade deficit

fell 40% to $962 million. The

turnaround was driven by

stronger exports, primarily of

minerals. And with consumers

buying fewer foreign goods,

imports fell 2%. Reinforcing

the economy's growth has been

rising business activity. In

the three months to March,

capital expenditure climbed a

better than expected 9%. The Northern Territory and Federal

Governments have both been

touting Darwin's prospects as a

uranium export hub for south-east Asia.? their

comments came at a major

conference for the offshore oil

and gas industry and the

Federal Resources Minister has

warned LNG could lose out to

nuclear energy if State

governments take too long to

approve new projects. Rick

Hind reports. The offshore oil

and gas industry decided to

hold their annual conference in

Darwin hard on the heels of

this week's APEC meeting of

Energy Ministers. They had

high praise for the Territory

Government's efforts to attract

projects to the Top End. We

believe the Australian

Government must think and act

more strategically in relation

to downstream gas industry. And

Clare Martin departed from the

ALP's party line to include

nuclear energy in the mix of

future technologies to reduce

greenhouse gas

emmissions. Greater use of our

natural gas resources must be

part of our planning, together with current and future

technologies for renewables,

clean coal and nuclear

energy. Fresh from this week's

APEC forum the Federal

Resources Minister warned that

State Government delays in

environmental approvals for

Australian LNG projects could

open the door to other

countries and other

technologies. And buyers may

look at sourcing supplies from

elsewhere and may even look for alternative energy sources

altogether, such as

nuclear. The Australian

petroleum production and

exploration association says

Australia could become the

world's third largest LNG

exporter in the next ten years

but noted that no final

investment decisions were made

in the world last year and none

this year. Margaret Jackson

says she's delighted and Qantas

share price has soared. The

company's outgoing chairman was

making one of her first public

appearances since Airline

Partners Australia's offer was

rejected. In March she said shareholders had a mental

problem if they didn't think

Qantas's share price would fall

if a takeover bid fald. Since

then it's climbed to a record

high and Margaret Jackson says

she's not embarrassed to be

proven wrong. Not at all, I'm

absolutely thrilled. As the

chairman what you want is your

share price to be as high as

possible for your shareholders.

My concern was that in the

event of the bid failing that

the share price may fail which

is really what a lot of the

commrnts and the advisers

thought, as well as

myself. She's confirmed the

Qantas board is looking at a range of capital management

strategies, including buybacks

and special dividends. And the

airline today quietly upped the

price of its domestic airfares,

the 3% rise which is not linked

to higher oil prices, should

boost Qantas's coffers by at

least $20 million this year.

Australia and global markets

may have shrugged off jitters

from China's market. That

doesn't mean we're less reliant

on China's booming industry to

drive our growth. The

question, as always, is lounge

that boom can last with the

World Bank estimating growth of

10.5% this year. Will Hutton

is a best-selling author and

columnist for London's 'The

Observer' newspaper. In his

latest book he argues the

system created by the

communists is structural

unstable. Will Hutton is in

Sydney for the Local Writers'

Festival. He joined me earlier

this evening. In your latest

book you write that China's

current economic model is "

unsustainable" , in your view

is China doomed? Not doomed.

Under Mao China grew 4.5% per

annum. It'll fall from 10 to

5, 6, to 7%. That's what we're

talking about. But I'm not predicting doom for China.

What I'm saying is that the

current model has reached the

end of the road. Mobilising

hundreds of billions of dollars

worth of peasant saving and

pouring it into State no

questions asked and actually

that being the locomotive of

the Chinese economy. It's no

longer working. The building

up foreign exchange reserves

now at the rate of $50 or $60

billion a month. Analysed $600

million. That's on top of

reserves of $1.3 billion. When

you start this rate of foreign

reserve rate acquisition which

is a quarter of GDP every year,

the counterpart of which is a

quarter of GDP in cash and you

try to insulate that from your

domestic economy even the

commiens with their raft of administrative measures can't

do that insulation. What's the

crisis point? What's the

trigger? What changes to tip

them? What's going to trigger

the crisis is some combination

of inflation rising because

they just can't carry on

acquiring reserves at this rate

and upward movement because

they have to stop pegging their

market to stop buying their

reserves. The currency forcing

a lowering of domestic food

prices and a slowdown rate of

export growth, announcing a

rise in unemployment. That's

going to cause that conjuncture

is going to be the proximate

cause of the crisis. Until

then I think the Chinese

markets are going to go up.

There's a kind of an emergent

bubble. I think there's going

to be moments in which the

markets spike downwards when

the authorities try to control things by administrative intervention. But actually the

underlying genesis of this is

like a pressure cooker, a

runaway train which is

generating enormous internal

pressure and they've got to

change the configuration. You

can't tell when that's going to

take place. It could be 3-5

years away, but it will take

place. You seem very confident

about that. People have been

predicting doom and gloom for China for many years and

they've had three decades of

extraordinary growth and they

have been changing, albeit at

their own pace and in their own

way. But when you look at

those things, I mean, foreign

investment is increasing. You

can invest in banks, home

ownership is increasing. You

don't think that there is one

argument that they could keep

changing at their own pace and

avoid this crisis? You can't -

it doesn't matter who you are

whether you're the Chinese

economy, the United States

economy, the Australian economy

you can't acquire a quarter of

GDP in a year and actually

expect to do it without there

being knock-on consequences on

your domestic credit growth,

your domestic lending growth,

your asset prices. You can

have all the controls that

China has, but that is actually one area where actually the

pressure is becoming intense.

Ultimately in economics what is

not sustainable isn't

sustained, even in China. Let

me ask you about the market.

You talked about the market.

How do you see that fitting in.

We have seen extraordinarily

rise in that market, it is

extraordinarily volatile?

What's the political risk? The

political risk is acute. The

authorities know that actually

the number of Stock Exchange

accounts opened in April were

equivalent to all Stock

Exchange accounts opened since

there was a Stock Exchange in

China. The turnover in

Shanghai is equivalent to all

put together less Japan. It's

big potatoes. Actually I think

the Chinese market may look top

heavy on the PE basis but if

you look at the underlying monetary growth in China

actually there's more to go.

They haven't scratched the

surface of people who want to

open accounts in China, it's a

place of 1.3 billion people.

The authorities in China are

going to want to close this

down. They don't want an

enormous bubble. Indeed Alan

Greenspan seems to think

there's a bubble. We haven't

begun to see it. This is the

beginnings of a bubble. If it

moves to correct say 20-30% do

you think that could be the

start of a system

meltdown? Yes. I think the big

risk for China is one, that they can't control the bubble

and two, they can't manage the upward pressure on the exchange

rate. Remember if they had an overnight revaluation of the

exchange rate of 30% which the

Americans want there would be a

capital loss on their foreign

exchange service of $400

billion. They're not going to

do that? Of course they can't.

That's the problem they've got

themselves into. That's what

they need to do to take the

pressure off. If they could

get the exchange rate up by 30%

they wouldn't have the foreign

exchange rates of acquisition

they could hold rates at the

current level. The exchange

rate is pegged too low. They

need to get it up. How they're

going to manage that is the

story of our times. While it's

pegged at this level the upward

price of asset levels is going

to remain with all the concerns

about there being a

bubble. Where does any optimism

come from? What do you think

the Chinese Government can do

without at the same time

calling into question their own political legitimacy? What can

be done to avoid the crisis? I

think they must widen the bands

still further in which the

currency trades, reach the

upper limit, operate seriously

a crawling peg for their currenciesy. That's got to

happen now. They've got to

diversify their foreign

exchange portfolio fast. They've been doing it actually

for over a year. They've been

almost stopping buying dollars

and buying euro and yen and

sterling. Diversify out of

bonds and bills into equity and

property assets which carry

more capacity to kind of have

underlying growth and so offset

the kind of risk of capital

loss when the exchange rate

appreciates. They can do that.

I think they've got to really

drive forward with the

liberalisation of the capital

markets. They've got to put

all shareholders on an equal

basis and start to promote independent shareholders to

hold managements to account in

China. There's a number to

have things they can do. It's a

long list assuming, of course,

if all these things if they do

happen are not going to happen

quickly. What do you think is

the ramifications of that for a

country like Australia which so

depends on growth? All that

demand which is driving our

economy, what happens to that

if this crisis happens? I

actually think - you keep

talking crisis. What you've

got is you've got a kind of

unfolding series of

contradictions in China which

are going to be very clumsy and

difficult to manage. What

you're going to have is a very

volatile spiky period, upward

spikes and downward spikes in

the markets. Underlying growth

probably deaccelerating, but

not to a cataclysmic level.

From Australia's point of view

the upward appreciation of the

currency is good news for Australia. But cat let me ask

you this Mick change, massive

upheaval is not? Is not. What

I think the Australian

political system has to do and

actually there's been one or

two first-order political

mistakes, I don't think it's

right for Australia to join

with India, America and Japan

in this quadrilateral kind of

deal, kind of trying to

encircle China. I think the

correct policy towards China is

actual, is openness, engagement

and to try and persuade

Washington off this rhetoric of

" if you don't allow the

exchange rate to appreciate,

we're going to slam import

tariffs on Chinese exports

which are going to be severe

and singeing" , all that rhetoric in Washington is extraordinarily unhelpful. Actually it's Australian

politicians getting off the

plane and talking in Congress

in English, friends of the

United States who are more

likely to be listened oto than

almost anyone else outside

America. But it's a delicate

game, isn't it, and China

always resists any interference

in internal affairs, persuading

them is no easy task? They are

set on pride. You've report

there had, you know the story.

Enormous pride, enormous

unwillingness to accept any

foreign influence has had any

impact on them whatsoever. You

have to be really subtle. We

have to be as subtle as how we

engage with China as they are

in how they engage with us and

we're not. Will Hutton, I could

talk to you all night, but

we're out of time. Many thanks

for joining us. Thank you. Now

a look at tomorrow's business

diary.the Reserve Bank publishes its monthly commodity

price index:

A look at what's making news

in the business sections of

tomorrow's papers. The 'Age'

looks at Marius Kloppers's

appointment as the new boss of

BHP. The 'Australian' leads on

the same story. The 'Sydney

Morning Herald' does likewise.

But the 'Australian Financial

Review' finds a different

story. That new minimum wage

rates of pay could cut the real

wage for one million workers.

That's all for tonight. The

FTSE is up 23 and the Dow

Futures are up 12 minutes or

seconds before the opening.

I'll be back on Monday night.

If you want to review any of

the stories from tonight or

earlier programs you can visit

our website. I'm Ali Moore,

goodnight. Closed Captions by CSI