NEWS
do, are there certain accommodations
that need to be made with the Russians
to protect them?”
What about the White House’s plans
for a pipeline to ship natural gas to Eu-
rope? The proposed pipeline depends
for its success on Turkmenistan, which
has the fourth-largest natural gas
reserves on the planet, an estimated 3
trillion cubic meters. The Turkmens
are cautious: Under then-President
Saparmurat Niyazov, they refused
to defy the Russians and support the
construction of the Baku-Ceyhan
pipeline. “[Niyazov] thought about it,
and probably decided he didn’t want to
wake up dead,” Wolf said.
The assault on Georgia will make the
Turkmens even more wary of the new
pipeline. They will instead probably
cut a deal with the Russians, who are
vigorously pursuing new gas pipelines
of their own. “A new Iron Curtain is
descending around the periphery of
Russia,” says Execution’s Ruppel. Rus-
sian domination of the region’s energy
industry may be one result. ^
Links
The Gipper Saw It Coming
In the mid-1980s, European
leaders, led by Germany, moved to
boost energy imports from Russia
as a way to curb the Continent’s
dependence on energy from the
strife-prone Mideast. Yet as
Marshall I. Goldman, an old Russia
hand and author of the book
Petrostate: Putin Power and the
New Russia tells it, plans to build a
pipeline linking Russian gas fields
to countries in Western Europe met
with stiff resistance from one
Ronald Reagan. Remember the
Berlin blockade, warned Reagan,
who grasped early on the
geopolitical risks that the pipeline
would create. To drive home his
point, the U.S. President banned
General Electric from exporting its
leading-edge compressors and
PETER PARKS/AFP/Getty Images
pumps for use in the project.
Reagan also lobbied British Prime
Minister Margaret Thatcher to
institute a similar ban on British
companies. But in a rare disagree-
ment between the two, Maggie
refused.
china’s post-game
reality check
Slowing global demand and rising costs will cool
growth as exports and profits slow to hot from sizzling
Cleaning up the
media center
after the Beijing
Games’ opening
ceremony
By Dexter Roberts in Beijing
and Frederik Balfour in Hong Kong
China spent some $43 bil-
lion and the better part of
a decade preparing for the
Beijing Olympics. But now, like a party
host surveying the house as the revelry
winds down, the nation is contemplat-
ing what comes after the Games wrap
up on Aug. 24. Toymaker Shanghai
Haixin, for instance, has sold millions
of Fuwa, cuddly versions of the five
mascots for the Games. “It’s pretty un-
likely that people will buy these things
after the Olympics,” says Shanghai
Haixin executive Shan Yingkun. “Or-
ders will be few and far between.”
AUG UST 25 I SE PTE M B E R 1, 2008 I BUSINESSWEEK
019
But the demise of the
Fuwa is far from Shan’s only
worry. Like companies across
China, Shanghai Haixin is
grappling with rising labor
costs, high fuel prices, and
the strengthening Chinese
currency. Indeed, while the
country may heave a collec-
tive sigh of relief after the
Games, “China’s economic
and financial-market chal-
lenges have little to do with
the Olympics, and more
to do with slowing global
demand, rising input costs,
and domestic imbalances,”
says Jing Ulrich, chairman of
China Equities at JPMorgan
Securities.
That’s not to say the Chi-
nese economy is on the brink
of collapse. Gross domestic
product growth this year will
fall to 9.9% from 11.9% in
2007, Standard Chartered
Bank predicts. Next year,
growth is expected to cool to
8.6%—slow for China, but a miracle in
most countries. And despite the bil-
lions plowed into infrastructure for the
Games, the investment represents less
than 1% of China’s nationwide spend-
ing on bridges, roads, and factories last
year. So the “Olympics effect”—where
a host country’s economy slows
following the binge of construction
for the Games—is unlikely in China.
That’s a good thing, since growth in the
mainland is one of the few bright spots
for the world economy.
Still, global problems are starting
to bite in China. Exports expanded by
22% in the first half, down from 28% in
the same period of 2007 (though they

020
were up a surprising 27% in July). Cor-
porate profits grew by 21% in the first
five months of this year, half the rate of
the same period of 2007. The Shanghai
stock market is down 60% since Octo-
ber. And one-third of the office space
in Beijing’s central business district is
vacant, according to real estate consul-
tant Jones Lang LaSalle.
The U.S. slowdown is a big part
of the problem. China’s $80 billion
furniture industry, for instance, got
an Olympics boost, selling chairs,
beds, and tables to the Olympic Village
and hundreds of new hotels. But that
business was tiny compared with lost
orders from the U.S., which typically
buys about 40% of the country’s $23
billion in furniture exports. “Because
of the subprime lending crisis in the
U.S., American merchants are reduc-
ing their orders or not paying on time,”
says Zhu Changling, vice-president of
the China National Furniture Assn., a
trade group.
POST-OLYMPIC BLUES?
12
PERCENT
GDP GROWTH
IN CHINA
8
4
0
'04 '05 '06 '07 '08
Data: Standard Chartered Bank
So once the athletes pack up and go
home, China’s leadership will surely
step up measures aimed at keeping the
economy expanding fast. Already on
Aug. 1, Beijing trimmed export taxes
imposed on garment manufacturers,
and the central bank has eased limits
on lending by banks to boost invest-
ment. And while inflation was a worry
earlier this year, peaking at 8.7% in
February, consumer prices grew by a
relatively modest 6.3% in July. With
prices coming under control, Beijing is
likely to step up government spend-
ing again to kick-start growth, says
Huang Yiping, chief Asia economist at
Citigroup. “They are more worried,” he
says, “about growth than inflation.”
-With Chi-Chu Tschang in Beijing
BUSINESSWEEK I AUG UST 25 I SE PTE M B E R 1, 2008
NEWS
apple34 version
dolor consec
Deck goes here volumsan etue magna consectetum
illaoreet numsan volumsan etue magna
By Olga Kharif
Andre Charland just bought
an iPhone 3G, the phone from
Apple that hit the market
on July 11. But the Canadian
software executive isn’t giv-
ing up his BlackBerry Pearl.
He says that the BlackBerry is
a “workhorse” for e-mail and
phone calls, while the iPhone
isn’t as reliable. “I’ve just had
dropped calls and issues like
that,” says Charland. “I have
the iPhone mostly for fun,” like watch-
smoothly with other phones, including
ing video or browsing the Web. those from Samsung. The Apple sourc-
The iPhone has been a huge financial
es say they expect to be able fix the
success for Apple, with sales outstrip-
problem by sending a software upgrade
ping most expectations. But some wirelessly to each iPhone.
users like Charland have found that the
It’s too late for Ryan Shaw. The
iPhone, for all its benefits, isn’t that
salesman bought the new iPhone
great a phone. In recent days, people
shortly after it came out. But he says
have filled blogs about Apple and the
he couldn’t get service in his house in
company’s own site with complaints of
a suburb of Cleveland, and that 40%
'09
EST.
'10 dropped calls and failed attempts to get
of his calls were dropped. His wife is
connections for their iPhones. On Aug.
expecting a baby, so he couldn’t afford
12, Nomura Securities analyst Richard
to miss a phone call. He ultimately
Windsor flagged the issue in a research
switched back to a BlackBerry and
note, calling it a “worrying sign.”
Verizon Wireless. “[The iPhone] was a
He said the development would givecool toy,” says Shaw. “But it’s a phone,
breathing room to rivals like Nokia and
and that’s what I needed it to be first.”
BlackBerry maker Research In Motion. Plenty of people are taking Char-
The reason for the iPhone’s recep-
land’s route out of the dilemma. chart by ray vella/bw; illustration by david gibson
tion problems is in dispute. Two sourc-
They’re buying the iPhone as a stylish
es close to Apple say the issue appears
pocket computer to surf the Web,
to be with a chip from Infineon that
watch video, and listen to music. But
manages wireless communication. But
they carry a second phone to make
a spokesman for Infineon, Guen- calls. “People use the iPhone as a PC
ther Gaugler, says the chip performs
in their pocket,” says Trip Chowdhry,
an analyst at Global
Equities Research.
l iniam, sum ex esto conum velisit “[Apple] should
amconsed dolorerit praesen issendre change the name to
iTablet. It’s slightly
modit accum iniamco mispositioned.” ^