Industrial Production Falls Across Europe

Industrial production fell sharply in a number of European nations during September, an indication that the continent's economy is on the brink of a sharp downturn.
A downturn would not come as a surprise to policy makers, with the European Commission slashing its growth forecasts for the European Union and the euro zone for 2012 and 2013 on Wednesday and the European Central Bank indicating Thursday that it would cut its forecasts next month.
"Overall, there will be a noticeably weaker economic dynamic in the winter half-year," the ministry wrote. 
In its monthly note on the economic outlook, Germany's finance ministry Friday warned that Europe's largest national economy will weaken "noticeably" during the winter months as companies hold back on investments because of the euro zone's fiscal and banking crisis.
In France, figures released Friday showed industrial production fell 2.7% from a month earlier, while in Italy production fell by 1.5% in seasonally-adjusted terms. The data followed the release of figures Wednesday that showed industrial production in Germany fell by 1.8%, and figures from Ireland Tuesday that showed output fell by a staggering 13.9%.
In both the euro zone and EU economies, the provision of services is by far the largest economic activity. But industrial production is more volatile, and tends to have a greater influence on the rate at which economies are growing or contracting.
The widespread decline in September comes after modest expansions in July and August, and suggests production in the third quarter as a whole was down, an indication that figures to be released Thursday will show the euro zone's economy contracted again in the third quarter.
The European auto industry is one of the largest employers in Europe with about two million direct jobs and another 10 million in related manufacturing including other sectors such as steel, chemical and textile. Auto makers produce more than 17 million cars, trucks, vans and buses in Europe annually, which is roughly 24% of global vehicle production, according to data from industry association ACEA.
The European Commission plans to bring together auto makers, trade union representatives and industry ministers by the end of November to discuss measures to tackle the deepening crisis in the region's car industry and take coordinated action to improve competitiveness.
Europe isn't alone in experiencing an industrial slowdown. Figures compiled by the Netherlands Bureau for Economic Policy Analysis show global industrial output was flat in August, with contractions in the U.S. and Japan, while surveys of purchasing managers indicate output fell again in October. While outside the euro zone there are signs that new orders are picking up, within the currency area orders continued to fall, indicate output will too during coming months.

Investing in China Real Estate: What It Really Takes to Succeed

Of all the U.S. companies and private equity real estate funds that have invested in real estate assets and real estate operating companies in the People’s Republic of China (PRC), few have achieved demonstrable, positive returns above investor thresholds. Attendees of a recent U.S real estate conference underscored the point: only one of the more than 150 participants admitted to having made money in China. Past results, however, are not necessarily reliable indicators of future performance. Particularly at a time when real estate investment firms are sitting on billions of dollars in capital and foreign investors are increasing inflows to the region, China presents enormous potential for real estate investment growth. Distinguishing the winners from the losers moving forward will be planning and execution.

Like most countries, China is reluctant to let profits be repatriated and has a tax system and foreign currency regulations that can stifle investors – particularly those looking for quick returns. The PRC currency, the RMB (renminbi or yuan), remains closed and the government tightly controls cash and the ultimate repatriation of equity, which is likely subject to numerous taxes. As a result, it is important to understand investment lifecycles and create contingency plans to mitigate inherent risks throughout the process. Only investors committed to building long-term local relationships and trust will succeed. As one executive recently suggested: “It is not about making money, but preserving wealth” and waiting for the currency legislation to change.

To operate sustainable and profitable real estate platforms, investors must rely on local partners and established foreign entities with western ties, such as investment firms, banks and professional services firms to help navigate an economy governed by different ideals, cultures, economic status and history. The complexity of venturing offshore requires extensive project and risk management experience including:

• Experienced leaders who are proven managers of international companies
• Strong financial management (including the people, processes and technology)
• Proven operational management teams and well-formed corporate structures
• Thoroughly addressed entity and legal issues
• Trusted partners in the PRC who are well connected in government and banking circles 

Investors should consider using proven interim management with PRC experience until the operating platform reaches stabilization. This provides a chance to assess management before locking in costly executive (often expatriate) compensation packages. Then, over time, highly experienced change management teams can be transitioned to more operationally focused, growth-oriented leaders.
All “C-level” executives, whether interim or permanent, should be versed in functional and industry matters, familiar with cross-border funding and government issues and good cultural fits. There should be no compromise leadership recruiting. Compensation packages should be highly competitive (with equity provisions) and potentially expatriate conditions (including tax equalization, immigration and relocation costs).
 For successful growth, corporate infrastructures must be scalable, flexible and sustainable. Since it is often difficult to predict resource needs, interim strategies for people, office space, technology and other overhead considerations can play an important role. Management teams and employees must be cohesive and support scalability and sustainability. In addition, the corporate services infrastructure (IT / HR / Office) must be flexible, as the speed of growth is often uncertain. All of these factors will be particularly important when exiting the operating platform.
In addition to having in place strong leadership that combines financial, operational, industry, local and international expertise, cash management must be paramount. Enabling efficient currency movement through various methods (e.g., offshore currency hedging, cross-collateralized loans, transfer pricing and other forms of onshore / offshore offsetting reinvestment) is often necessary. When undergoing significant capital investment, including land purchases, development and large leases, rigorous government processes that approve the injection of capital onshore must be followed. (Government processes are even more difficult when withdrawing capital.) Finally, the need for strong financial systems and controls is critical for providing timely and transparent reporting to international and local investors.
Policy risk in China is always a major concern and can change without warning. For example, in the wake of recent inflation and an over-heated residential economy, the government developed restrictions, including lending rates and taxes, to curb investor purchases of homes. These restrictions and others have effectively flattened market-rate house pricing and illustrate the government’s ability to control market forces. As a result, the more closely aligned investors are with the government’s agenda, the easier business becomes.

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