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Porsche Offices Raided in Stock Scandal

Aired August 20, 2009 - 14:00:00   ET


RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Raided. Tonight, Porsche enmeshed in a scandal involving share price manipulation. Bubble or trouble? A top investment banker tells us a perspective on China.

I'm Richard Quest. I'm in Hong Kong. And yes, I mean business.

Good evening. Offices are raided, documents have been seized. Tonight, the corporate drama involving Porsche and Volkswagen, and the manipulation of VW shares. German prosecutors are investigating exactly what went on over the merger talks between the two German car giants.

Volkswagen shares have experienced extreme ups and downs over the last year. At one point, a sensational short squeeze caused Volkswagen to briefly become the most valuable company in the world.

Porsche has rejected these allegations. It says it is cooperating with the authorities. All of this happened very late in the Thursday day. Jim Boulden in London is following events for us.

Jim joins me now. Extraordinary, this, Jim. What is it all about?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Well, we know we thought maybe this was all over when the two companies announced that they would be finally getting together. But it hasn't ended.

And as you say, the stock market regulators in Germany say that they're charging Porsche with, quote, "disclosure rule violations," and, quote, "market manipulation." And after that, the German prosecutors moved into those two offices on Thursday.

Now the prosecutors won't say what this is about, but we do know what this is about. This is about that incredible share price rise last October. It caught the short sellers off-guard.

This is when Porsche made that shock announcement that it had collected more than 70 percent of Volkswagen's shares. That's when it was still attempting to take over Volkswagen. Now of course, the executives from that time are out and now VW is taking over Porsche.

Now we should also mention that the German prosecutor's office has said they will informally also be looking at the share price movements of the last few days. VW shares are down some 40 percent since Friday.

That's the common shares, though the preferred shares are up 15 percent. And so the prosecutors are saying they're going to look into that movement as well.

Now we don't know exactly who is being investigated, though it is very clear from German media that it is the two former executives of Porsche who were pushed out after this VW takeover was announced -- Richard.

QUEST: Jim, trusting me luck here, because details are few and far between. Is it thought -- and you may not know the answer to this, but I'll give it a go. Is it thought that any alleged manipulation was for the purpose of private gain, or for the purpose of, if you like, ensuring the successful takeover and merger? A Guinness affair, if you like, of many years ago?

BOULDEN: Yes. Of course, the prosecutors won't tell us that. What we do know, of course, is that Porsche and its executives did have a very large stake in VW before this shock announcement last October. They had taken a majority stake.

And the fact that the German prosecutors have raided the Porsche offices, not the Volkswagen offices, it should be pointed out, shows that they are looking very specifically at what may or may not have happened allegedly at Porsche when it came to this announcement last October.

And then we saw that the share price, such an incredible, isn't it, Richard? I don't think this should be a surprise to anybody. We had never seen a share of big old boring company jump that quickly in one day, catching so many people off-guard.

QUEST: Jim Boulden, who is in London, with his extraordinary story happening late during the Thursday. Jim, many thanks, indeed.

Let me put multi-perspective for the Euro bourses, and shares in Volkswagen ended the day more than 1 percent lower in Frankfurt, most stocks in Europe rallied on the session. Investors were taking heart from a strong rebound in Chinese shares. I'll get to that in just a moment.

London's FTSE, as you can see, up just 1.5 or so percent. Mining sector, lots of support, energy, banking. Daimler and BMW were big in Frankfurt. In Paris, the CAC-40 performed well, boosted by shares in Alcatel-Lucent, and Arcelor-Mittal. The SMI in Zurich ended the day with some strong gains.

Let's take you to New York where there has been more ups -- I was going to say ups and downs, but the market was moving all in one direction when it came to AIG shares. Now the company just about went bust before, of course, the federal government stepped in and gave a massive $100 billion or so bailout.

Susan Lisovicz is in New York at the New York Stock Exchange. What caused a massive run-up in AIG shares?

SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Right. Richard -- well, Richard, AIG shares are up more than 18 percent right now. Why? Because the brand new CEO, Robert Benmosche, says that the company will be able to repay the government. And it is a massive amount that AIG owes, in excess of $100 billion.

There is no company that I can think of that has received more assistance from Uncle Sam. To read you the quote in an interview: "At the end of the day, we believe we will be able to pay back the government. And we hope we will be able to do something for our shareholders as well."

So no specifics, but the outgoing CEO, Ed Liddy, has said he thought that the company would be able to repay the government within three to five years. It's not going to come from quarterly profit, Richard, as you know.

QUEST: And remind me where we stand with the markets tonight in New York. It's a -- we might be in the days of August -- the dog days and the hot days of August, Susan, but still, market news.

LISOVICZ: Well, you know, the market news is, on Monday, you were talking about volatility. And we thought that maybe this was it. We were going to see a change in sentiment. But the fact is, it looks with less than two hours to go in trading that we've had straight -- three straight days of rallies.

We did get a few economic reports, a couple of them seem to indicate that, yes, the U.S. economy is stabilizing. But we got a big disappointment on initial jobless claims. And let's face it, any sort of sustainable or dramatic improvement in the economy is going to have to have assistance from the jobs front.

QUEST: All right. Susan Lisovicz, who joins us from the New York Stock Exchange. And I'll be with you, Susan, next week, next Monday and Tuesday.

LISOVICZ: Can't wait.

QUEST: . in New York. We look forward to that. We can give each other a good -- well, we can get (INAUDIBLE) with the markets.

Now look, over the course of the week, we've been talking about these lights behind me, persistence pays. It's a woman called Anna (ph) who has been persistent in our Hong Kong bureau.

I don't think the owners of these lights ever stood a chance once we set Anna on them. One by one they've all come in -- remember on Monday that was absolutely dark? But now look at it, more lights than you can shake a stick at.

Joining us now, Max Foster, he's at the CNN news desk in London.

MAX FOSTER, CNN INTERNATIONAL ANCHOR: Richard, the only man convicted in the Lockerbie bombing is on his way back home to Libya this hour. Scotland's justice secretary ordered Adbelbaset Al Megrahi freed on compassionate grounds on Thursday.

The 57-year-old Al Megrahi is said to have only months to live. He was convicted in 2001 for his involvement in the 1988 bombing of Pan Am Flight 103 in which 270 people were killed.

Election workers in Afghanistan have begun counting the millions of ballots cast in today's second presidential election there. Taliban threats dampened voter turnout in some parts of the country. Insurgents killed 26 people in scattered attacks. Officials extended voting hours to make sure all of those in line got to vote. Initial results aren't expected for several days, though.

The Iraqi government is beefing up security after the worst day of violence in Baghdad since U.S. forces left the cities. Nearly 100 people were killed and hundreds more wounded in a string of bombings on Wednesday. More roadblocks and tougher searches have been ordered, and 11 high-ranking police and army security officers have also been detained for investigation.

Track and field's ruling body is awaiting results of a gender test to confirm whether South African runner Caster Semenya is a woman. The 18- year-old won the 800 meter gold medal at the World Athletics Championships on Wednesday. The concern is that Semenya's masculine build and dramatic improvement in running times.

Those are the headlines, Richard. Back to you in Hong Kong.

QUEST: Thank you, Max. Max Foster, we'll see you again about 15 or 20 minutes when you rejoin us here at the 16th Floor of the InterCon in Hong Kong.

We'll be talking about Rio Tinto, diamond shares that lose their luster. We've got plenty of mining to talk about. And Chinese shares in just a moment. This is CNN, live tonight from Hong Kong.


QUEST: Welcome back to Hong Kong. The global financial crisis has taken a large bite out of Rio Tinto's profits. The mining giant has reported and says half-year net income fell by 65 percent, $2.5 billion. It blames sharp falls in prices of key minerals and metals. Copper, aluminum prices now selling for half what they were a year ago. That might be good for industry, but not good for Rio Tinto.

Diamonds also hit by the crisis. Rio said it's confident demand will recovery. Chief exec says he is working to improve relations with China. You're aware, of course, the row with the Chinese government over spying for Rio execs are still detained and charged with bribery and stealing commercial secrets.

Chinese shares roared back from the precipice this session. The Shanghai Composite soared more than 4.5 percent. It lifted the index clear out of the bear market territory. You remember, they fell far enough. They fell 6 percent on Monday. The rebound helped power gains elsewhere in China.

Look at the numbers, you can make of them what you will, all of the major indices in this part of the world were higher. (INAUDIBLE) put perspective into what's going on, Glenn Maguire joins me, the chief economist, Asia Pacific, Societe Generale.

I was going to say, good evening to you, but it's good morning.


QUEST: Very good. Thank you for staying up this late.

MAGUIRE: That's OK. No problem.

QUEST: We need to put perspective into what on earth is going on in China. The Shanghai Composite down 6 percent on Monday, up -- down 4.5 yesterday, up 4.5 today. Why?

MAGUIRE: I think at the moment you're seeing basically the market split between, are we going to have a risk rally or are we going to have a risk correction? And the sentiment, the guidance we're getting from the government on this is very, very unclear at this stage.

So it's important to remember Asia is a fairly illiquid market. Movements in and out of the market can trigger fairly volatile moves in it. But the interesting thing is why China is suddenly a barometer for the rest of Asia.

It's the market that doesn't have direct linkages to other share markets given the close capital account.

QUEST: I can answer that question, because it's the largest economy and it is the engine of economic growth. All the products -- or a large number of them, I should say, come through the rest of Asia in and out, whether it's commodities or finished goods.

MAGUIRE: It definitely is perceived to be. And at this stage, I think we've gone from a period of extreme skepticism about China and whether it could salvage its own economic recovery, to one of extreme optimism, that China is somehow going to drag the rest of the world along with it. And that won't be the case. China.

QUEST: Is this -- now (INAUDIBLE), because this is crucial, this is crucial, and it's one thing we've been talking about again and again this week. We're basically saying, even though it's the world's second-largest economy -- but that's a slight misnomer bearing in mind the size of the country.


QUEST: But you are basically saying that it can't do that in a way that the U.S. can drag everybody else out. China cannot.

MAGUIRE: Absolutely. And if you look, in 2007 the U.S. consumer was $10 trillion. The Chinese consumer was $1 trillion. Even if Chinese consumption doubled, it's not going to make up for a shortfall in Western consumption, which we're seeing at the moment.

QUEST: So where is this growth coming from in Asia? How is Hong Kong getting 3 percent? How is Singapore up 20-odd percent? Although that's an aberration of Singaporean delight. How are all of these countries getting growth?

MAGUIRE: Well, the first point to make is they are coming back after a very, very big fall last year. And what we are seeing is really we are in a positive feedback loop at the moment where you are seeing demand in some sectors.

Autos is clearly one. And autos is a sector that has lots of backward linkages in the Asian economy. And that's basically where you're seeing the restocking and the inventory recovery coming from.

QUEST: When we price this into stock markets, you and I have heard many -- a million times, leading indicators. I'm afraid it's starting to look like they've led so far -- they've led over the edge.

MAGUIRE: Well, they could be misleading indicators at this point. But.

QUEST: Are they?

MAGUIRE: Look, I think the momentum of equity markets is prices in a recovery dependent on a stronger Western consumer in 2010. I think de- leveraging is going to be an impairment to consumption in the high-income economies. And I think we need to take a more somber assessment of 2010.

QUEST: Glenn, as we come to an end, I just need to get a perspective, because how long have you been in Hong Kong?

MAGUIRE: It will be nearly five years.

QUEST: Right. The one thing that struck me since I've been here this week is there is an optimism. Would you agree?

MAGUIRE: There is. And it's in Asia in General, not just Hong Kong.

QUEST: Right. Now coming from (INAUDIBLE) Europe, where people are still crying into their beer and weeping about their whiskey, there is something going on here that people over there really don't understand.

MAGUIRE: Look, I think this really is going to be the center of a growth dynamic, not a terribly strong growth dynamic, but it will be a regional one. China is definitely throwing enough money at its own economy to have some tangible spillovers to those economies in Asia which are lucky enough to have some leverage off of it.

And you can probably count them on one hand. They're Hong Kong, Japan, South Korea, Taiwan, and some of the commodity exporters like Australia and Brazil. So you're in the right spot at the right time.

Definitely I agree, Europe, depressed, U.S., depressed. Asia is the place to be if you want to be optimistic.

QUEST: We'll leave it there, Glenn, on that -- I was going to say, well, I suppose, you know, this is classic glass-half-full/glass-half- empty. While I'm here, it's looking rather half-full. Again, many thanks indeed.

MAGUIRE: Thank you, Richard.

QUEST: . for joining us.

Glenn mentioned about one country, Australia. The airline Qantas, now of course, it made a full-year profit, a horrible half-year loss. When we come back, the chief executive of Qantas discusses what it's like performing down under.


QUEST: Welcome to -- and welcome back to Hong Kong. I'm Richard Quest, QUEST MEANS BUSINESS.

If there are stories that I take a particular interest in, it always concerns aviation and airlines. So the chance to hear the views of one of the newest CEOs in the business, Alan Joyce of Qantas, was much and well- received.

There has never been a more volatile and challenging time for the world's aviation industry. So said Mr. Joyce as he announced his airline's loss, and also considered what will be the future. The comments came as Qantas battles the downturn.

The airline of Australia posted an 87 percent drop in annual profits, 150 million U.S. dollars, it's falling demand and air travel during the global recession. Qantas is a fascinating carrier for this reason: It is ultra-long-haul, out of Sydney up to the United States, across the Pacific, where it is facing new competition.

And of course, the "Kangaroo Route" via Hong Kong, Singapore, or Bangkok, onto London. These were all issues I discussed with Alan Joyce. How are things performing.


ALAN JOYCE, CEO, QANTAS: No, Richard, we're not giving an outlook for next year because of the uncertainty in the environment of which we're operating: the uncertainty around the fuel prices and foreign exchange rates makes it very difficult for us to forecast with certainty. So we're not going to give and outlook statement.

And you were right. I mean, the performance was a very good performance given that the aviation industry is expecting to lose $9 billion as a whole this year. Qantas was one of the few airlines making money in that environment.

QUEST: When we look at your routes' structure, you are under pressure, if you like, particularly on one of your most profitable routes: out of Australia, across the Pacific to the United States.

Has it been difficult bearing in mind new entrants on the route who are basically eating into your most profitable market?

JOYCE: Yes. The U.S. route has been one of the most profitable routes for Qantas in the past. And we have seen a 30 percent increase in capacity. With America, it's shrinking by around 10 percent. So it's a recipe for all of the players on the routes to lose money.

But we believe Qantas is the best-performing airline on that route, where we still are by far the largest airline operating from Australia to the U.S. And we've had a long history. We've been operating the route for over 50 years. We've seen competition come and go. And we believe it will eventually rationalize as it has been in the past.

And Qantas will be there for the long haul.

QUEST: Do you subscribe to the view that there might actually be something structural taking place in terms of business and premium traffic, and the traffic that you're losing now may never actually come back?

Willie Walsh, as you'll be aware, believes that some of his trans- Atlantic traffic may never return to the premium cabins.

JOYCE: Well, we're of the belief, Richard, that a -- you know, similar statements have been made in previous recessions and previous downturns, and the market has been very robust. When the economy is doing well, the business traffic in our case is always -- always returns.

And our research is showing that here we're of the belief that that will occur, meaning Australian economy hasn't been as impacted as much as other economies around the world.

But either way, from a Qantas perspective, we believe we have a bet either way, because we now have a very large low-cost division that had a record year in terms of its profitability. And our diversity as a company will really help us cope with whatever circumstances exist out there.

QUEST: Let's talk about Jetstar, because you seem to be to have done what no airline has done, which is to run an airline within an airline. Now in other places in the world, that has created confusion of message between the low-cost carrier and the mainline carrier.

Why do you think you have been more successful? Is it a uniquity (ph) of the -- of your route structure? Or are you destined, do you think, to discover that maybe it's not going to work as well in the future?

JOYCE: Yes, well, it has now been operating for us for five years. And it has worked fairly well during that length of time. People, when we first did it, said it would never work. And what we basically decided to do was try to avoid the mistakes that were made in the past.

And we designed two very different brands. The Qantas brand here in Australia is clearly the business leader. And when asked who the preferred the business carrier is, Qantas has a significant lead over the competition.

On the other end, Jetstar is the clear market leader in low-fare air fares. They're very different brands, people know that they're owned by the same entity. People expect very different product, a very different delivery, and they know the customer proposition is very different on each airline.

In addition to that, what we had an absolute commitment to in Jetstar was making sure it was the lowest-cost provider. And its cost base now in Australia is 40 percent below Qantas's, around 15 percent below Virgin Blue, our other competitor, and those unique characteristics are getting the branding right and getting the cost base right was something that made the strategy, and it's working very effectively for us today.


QUEST: That was Alan Joyce, the chief executive -- new chief exec at Qantas, talking to me earlier.

Now we have a lot more ahead on QUEST MEANS BUSINESS. We're going to get very fast -- well, hopefully Usain Bolt is going to get fast, running in Berlin. If and when he breaks the 200-meters, we will bring those pictures to you after that event has taken place.

Also, the shape of a recession, V, U, (INAUDIBLE)? You make your mind up, a jargon-buster. QUEST MEANS BUSINESS in Hong Kong.


QUEST: Persistence pays off. The skyline in Hong Kong this evening. Just think about it. When we started on Monday here in the city, it was all dark. Make a few phone calls, and ask people to leave the lights on, and now suddenly let there be light. I think there is a parallel for that one.

Welcome back. I'm Richard Quest, QUEST MEANS BUSINESS. We are Hong Kong, part of our "Nylon (ph) Kong" series as we look at how these major financial centers have weathered the "Great Recession."

There is one country above all that is dominant in this region. It is, of course, China. But the tentacles of economic activity go into all regions. It was with real pleasure then I sat down with Victor Chu (ph), the chairman and chief executive of First Asia (sic) Investment.

Victor knows a thing or two about doing business in this part of the world. When we talked about China, he made it clear where the priorities lay.


VICTOR CHU, CHAIRMAN AND CEO, FIRST EASTERN INVESTMENT GROUP: I think things are going to plan so far. In the medium term, China does have capacity to respond to the crisis, because one has to remember that China has huge reserves, it has real money to pay for the stimulus packages.

And being a top-down command economy, things can happen very quickly. So this time round, that structure has served China rather well. And we are looking forward to around 8 percent GDP growth, as they have hoped.

QUEST: But does that mean that this entire region is predicated on the potential of China's strong growth? Is that the main engine?

CHU: Well, to some extent it is. But I don't think people should have too much expectation on China. What China is able to do is to keep its own economy relatively stable, to keep employment going.

You have to understand that every year, for example, China is producing over 6 million new (INAUDIBLE). And this time round, for example, the Po River Delta has been very badly hit, these migrant workers, millions, as we now have at work, the stimulus package has been able to rescue some of the least damages.

But the spillover effect to the rest of the region will be limited.

QUEST: Putting that into its context though, the fear is that China starts to withdraw some of that stimulus, or at least tightens up on its liquidity to try and obviously -- at some point it has got to start cutting back.

CHU: I don't think China will fall back on the stimulus as such. What is happening is a balancing act, Richard. There are now signs that the huge liquidity being put in the system, as the result of the stimulus package, is beginning to produce bubbles.

So either you choose bubbles or you choose troubles. So it is a balancing act, particularly next year is the 60th anniversary of the founding of the People's Republic. So stability is the key. They will release credit and yet when there are signs of trouble, they are going to tighten in the regulation a bit and reduce it.

So there is going to be -- we are going to have two steps forward, one step back, probably, in the next 12 to 18 months.

QUEST: Let's turn to the huge war chest of U.S. government debt and reserves that China sits upon. What is the game there do you think?

CHU: Chinese relationship with the U.S. is extremely strategic and increasingly interdependent. Somehow we need to average (ph) down the war chest so that imbalances could be addressed.

QUEST: That question of imbalances bedevils the whole structure of international economics at the moment. The inability of the U.S. to save more, the inability of the Chinese to spend more and increase domestic demand. Until that imbalance is addressed and fed through, we are destined for the same.

CHU: It's so true. These changes of cultural and spending and saving habits, to change it is easier said than done. It is something that would take, in my view, a generation to change. For Chinese savers to stop saving and spend where the safety net is not quite there and a lot of them are still questioning what is going to be my future tomorrow, so they're not going to spend until they're comfortable.

QUEST: To get back to trend growth in this part of the world, do we have to wait for the U.S. to come back on stream?

CHU: I think they're game in the short to medium term. There are certain things that this part of the world can keep going. But in the long term, again, the U.S. is the single largest buyer of Asian products.

QUEST: What would you say is the one lesson that you learned as a result of the crisis of last year?

CHU: I think it's the culture of debt. I think that is a model which I hope will have gone over to win it over for good. And so I think debt is there in order to propel investment returns. And investment returns tend to create greed amongst some players and so on and so forth. And we really have to make sure that the root of the problem, the debt problem, the debt culture, is going to be taken care of.


QUEST: Fascinating to listen to the First East Investment Group chairman and chief executive, that's Victor Chu joining me earlier and it is always interesting to listen to Victor's perspective, particularly on issues like China and economic growth.

We need to go to London. We need to update you with these headlines. Max Foster is standing by. Good evening, Max.

MAX FOSTER, CNN CORRESPONDENT: Hi, Richard. A setback in the search for answers in the plane crash that killed 228 people. French investigators have called off their search, at least for now for the flight deck recorders from the Air France jet that went down off Brazil's Atlantic Coast. Flight 447 disappeared in stormy weather on June 1st en route to Paris from Rio de Janeiro. Investigators say they'll now analyze data they gathered and discuss how to proceed next.

Two Chinese smelting plants will shut down after the government says they poisoned more than 2,000 children. In the Shanxi Province, more than 850 children who lived near a lead and zinc company are being treated for excessive lead levels in their blood. Meanwhile, in Hunan Province, 1,300 children who live near a Manganese plant are also being treated for lead poisoning.

Russian authorities are hoping to get some answers to the mystery of the hijacked ship today. Most crew members of the Artic Sea are weak after the freighter was reported hijacked off the coast of Finland. The eight alleged hijacking suspects were also brought to Moscow in handcuffs.

British police have arrested two men in one of the country's biggest jewel heists. The armed robbery was caught on tape. Two weeks ago, the thieves got away in broad daylight with around $65 million in jewels from a store in central London. No word if the two people in suits on the video are the same ones as are in custody. Those are the headlines, Richard, back to you in Hong Kong.

QUEST: We thank you for that, Max. We're still waiting for that race to be run, the 200 meters, whether or not Usain Bolt does actually break the world record. Be assured, when it happens, as soon as we know for a fact that he has broken it, we will bring that information to you. We'll also talk about that shape of that recession, is it a "V," "U," or what is a saxophone? I'm back in a moment.


QUEST: Welcome back, it's "Quest Means Business." We're live to you from Hong King this evening. We are still waiting for that 200 meters race to be taking place in Berlin where we're waiting to see if Usain Bolt actually does break the world record for that. And I'm being told that we do have a world record, 19.2 seconds. Mark McKay is at the CNN Center. Mark joins me now to talk about this and put it into perspective, 19.2 seconds. Mark, how does that compare, what's being shaved off?

MARK MCKAY, CNN CORRESPONDENT: 19.30 Richard is what he did exactly a year ago at the Beijing Olympic Games, so Usain Bolt goes out and ties his own record or breaks his own record in the 200 meters. It was just run minutes ago. Here it is, 70,000 in Berlin, this night at Olympic Stadium, watching Bolt get off to a perfect start. Watch him, everyone behind him, just watching Bolt bolt for the finish line, 19.30 was his record a year ago in the 200 meters, Richard. He hits the line at 19.20, it's his fifth world record set in a year. Usain Bolt, Sunday, setting a new world record, beating his own record in the 100 meters, 9.58. So now he is a two-time gold medalist at the world championships in Berlin. The world record in the 200 meters set just minutes ago, Richard.

QUEST: 19.2, many thanks Mark McKay, joining us from the CNN Center. Mark, bring us more analysis on that later in the evening, 19.2 seconds. It took me longer to tell you about the world record in the 200 meters than it actually took him to run the 200 meters.

Continuing with out business coverage tonight, you will have heard many letters being used to describe the shape of a potential recovery. Sometimes we talk about a "V" shape, another time it's a "U" shape. Some people want to talk about a "W" shape. But my origami isn't quite up to showing you what that would look like. Luckily for us, Jim Boulden has decided to explain with one of his jargon busters, "U," "V," "W's" and bathtubs.


JIM BOULDEN, CNN CORRESPONDENT (voice-over): The story so far has been all about the downward slide of the economy. Here in the U.K., we've had five consecutive quarters of negative growth. We're sitting somewhere down here. There are signs that the tide is turning. France, Germany and Japan announced they were coming out of a recession. The overall shape of this recession will be defined by the speed of the recovery. And that's where economists turn to the alphabet.

Relatively painless is the "V" shape, with a rapid return to normal rates of growth. But there may already have been too many job losses and too much damage to public finances for a "V" shape recovery. More worryingly, you might be sitting in the trough of a classic "U" shape. This is when the downturn is followed by a long period of slow growth. Now if it's really drawn out, it could be more like the shape of a bathtub. "V's" and "U's" may not be so bad, but many hardened economists are talking about a much more pessimistic outcome. The most feared of all the "L" shape.

(voice-over): Reminiscent of Japan in the 1990s. Years of crawling along the bottom of the recessionary pit, unable to recover.

(on camera): With the (INAUDIBLE) chips leading the way and a few so- called green shoots poking through, L might be a little too doomsday.

(voice-over): There is another worst case scenario that is starting to emerge as the frontrunner. For the past 12 months, economies have been kept alive by fast stimulus packages. Like a shot of adrenaline, money is being injected into the system, running up huge budget deficits. Such drastic measures can only be temporary. As governments are forced to reign in spending, economies may fall again.

(on camera): This lays the foundations for the letter W -- a double dip recession.

(voice-over): What looks like the start of a recovery is merely the cue for rising inflation, higher interest rates, cuts in spending and, ultimately, a second downturn.

(on camera): When the full recovery does happen, the W is formed.

(voice-over): Whatever shape this recession turns into, we won't know until the recovery is complete. Before then, you'll hear talk of all kinds of shapes -- the saxophone, the lighting bolt, an inverted square root -- all variations on a theme.

But for now, I'm afraid, it's all just educated guesswork.

Jim Boulden, CNN, London.


QUEST: Jim Boulden as only Jim can with one of his jargon busters explaining the shape of the recovery. And at the moment here in Asia, it certainly seems to be more V than U.

Talking about U and what they're seeing in India, a rising consumer confidence has given hope there that the economy will certainly take a boost.

Sara Sidner now reports from Delhi on the shape of that economic growth.


SARA SIDNER, CNN CORRESPONDENT (voice-over): A family outing with one goal in mind -- find something dazzling to take home.

UNIDENTIFIED FEMALE: This is the one I think I'm going to buy.

SIDNER: Those words music to the ears for the owners of Khanna Jewelry in New Delhi. The global recession has been especially bad for the jewelry business. The World Gold Council says globally, gold jewelry demand declined 22 percent in the second quarter this year.

VIKRAM KHANNA, OWNER: Everything was like a mixed (INAUDIBLE) confusion and everything was pretty -- pretty bad, actually. Very confusing.

SIDNER: Owner Vikram Khanna says the combination of gold prices shooting up and consumers shying away from buying was enough to keep him up at night.

KHANNA: You are scared. Of course you're scared.

SIDNER: But he says the fear is finally wearing off and things seem to be looking up in India.

(on camera): The latest survey out by the Nielsen Consultancy Group that looks at 28 countries shows that India is actually the second most optimistic nation in the world when it comes to consumer confidence right now.

CHANDANA BANERJI, THE NIELSEN: India is the second compared -- you know, just -- just after Indonesia. And, actually, we're neck and neck. So the big countries and the many (INAUDIBLE) are leading out of the top 10 globally.

SIDNER: From the markets to job prospects, those surveyed in India said they are confident the worst is over.

UNIDENTIFIED FEMALE: We are spending and we are kind of buying stocks, as well.

SIDNER: Back at the jewelry counter, customer Gurjeet Lotay is all smiles. She dips in and out of two economies -- India's when she visits and Canada's, where she lives. Comparing the two, she says India's economy seems to be shining.

GURJEET LOTAY, CUSTOMER: You go to the jeweler's shop and it's full. You go to the restaurants, they are full. You go to the markets, everybody is buying. I don't see any signs of recession here.

SIDNER: But the businesses know there has been a downturn. So the Khannas are being cautious -- not stocking up on as much product and waiting to see if the optimistic attitudes turn into real profits.

Sara Sidner, CNN, New Delhi.


QUEST: And while we've been on air, we have been hearing and we've learned, but we can't confirm, that al-Megrahi, the man convicted of the Lockerbie bombing but who has since been released by the Scottish government today, his plane, which left Scotland earlier, has now landed in Tripoli. It's been reported, but we can't yet confirm, that the plane carrying al-Megrahi has arrived in Tripoli. Obviously, when we have independent confirmation on that story, we will bring it to you.

The weather forecast now.

And Guillermo is at the CNN World Weather Center.

GUILLERMO ARDUINO, CNN METEOROLOGIST: I see that it's fairly dry. Also, I see that it's quite warm in Hong Kong. Of course, as I was talking to Fionnuala before, you know, in that -- in a big city, sometimes within the city, you can have two different kinds of weather conditions.

But it should stay quite stable with the, as they say in Hong Kong, the Hong Kong Observatory, the isolated rain shower possible. So it's fairly dry and also very warm indeed. We're talking about like 33 degrees or so -- 34. Look at this -- 34 Friday, Saturday and then on Sunday, we may see some humidity over there.

But overall, it's very dry -- very dry for Hong Kong. You see north of it, in Guangzhou and Shenzhen, maybe we see some more humidity, all the way up into Shanghai, the same thing that Hong Kong proper dry.

No delays at the airports. Everything appears to be fine. Tokyo Haneda Airport may see some rain showers but they are not anticipating delays. I'm talking about a weather-induced delay.

So, right, it's not information coming from the airport. In this case, it's the weather and the impact that it may have on traffic operations.

And Kuala Lumpur with daytime heat and we may see some thunder.

Well, imagine, a lot of it is going on within Hurricane Bill. Still, the eye is very clearly defined, but it's weakening. It's encountering cooler waters now in the Atlantic and, also, wind shear. So the winds are going down significantly -- 193 kilometers per hour right now.

The indirect impact on the United States and on Bermuda is in the form of surf. And then we may see some landfall in Nova Scotia or in Newfoundland here in Canada later on, but it's going to be a much weaker system. It's going to bring some winds and also rain, of course.

We saw some rain showers -- some spotty rain showers north of London - - in Manchester, actually, not in London. But we see most -- most of the activity going on in the northern sections. A system is going through Britain and moving into Germany. The extremely hot conditions will prevail in Germany.

You see a change in London, if you are watching from there. Tomorrow it's going to be cooler with respect to today and the -- and the day before.

Paris still warm, but much better shape than what we've seen so far. But the south continues to be extremely warm, as you see. So watch for that.

Remember, watch for the elderly and the young kids, because they need to have plenty of water for hydration. And avoid expoise -- exposing them to the sun -- the sunlight directly.

Well, we see Amsterdam with some rain showers. Some winds in Ireland, windy conditions. And Copenhagen also with some rain showers.

That's about it -- Richard, have a nice night.

QUEST: All right, Guillermo.

Many thanks to you.

Let me update you now. There are reports that al-Megrahi, the man convicted of the Lockerbie bombing, convicted in 2001, served eight years in prison and released today by the Scottish government on compassionate grounds. The (INAUDIBLE) has now arrived. The plane has landed in Tripoli. These are pictures of al-Megrahi boarding the plane at Scotland about six hours ago.

He's what -- he was on his way to the airport literally within minutes after the Scottish justice minister announced that he was being released on compassionate grounds. Al-Megrahi is said to have just months to live -- less than three months to live, suffering from prostate cancer.

When we get pictures of that plane in Tripoli on the ground, we will, of course, be watching to see the reaction and response he receives once he gets back to his home country.

But as I say, reports now that Al-Megrahi's plan has arrived in Tripoli.

We'll be back with more -- it's QUEST MEANS BUSINESS in just a moment.


QUEST: Welcome back.

Women at the top of their game -- the latest list by "Forbes" -- the world's most powerful women. The list is out.

Angela Merkel from Germany, the bundes (ph) chancellor, number one for the fourth year in a row. Perhaps no surprise there. She became the first female chancellor of Germany four years ago. You'll be aware that she is fighting for reelection in just a month or so.

Sheila Bair is number two, at the FDIC. She has a lot on her plate. The FDIC bailed out the banks and deposited all the depositors in the United States.

And at number three, Indra Nooyi, the chief exec of PepsiCo, one of the world's largest food and beverage companies. You didn't need me, necessarily, to tell you that fact. PepsiCo has nearly 200,000 people worldwide.

The chief executive of PepsiCo was joined by Matthew Chance last month to a discussion on where PepsiCo and where Indra hopes to take it in the future.


MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: You've amassed this $1 billion investment in -- in Russia with this new bottling plant.

How much of that, though, do you think is going to go into the pockets of corrupt bureaucrats in this country?

INDRA NOOYI, CEO, PEPSICO: We're an American company. We operate under very strict guidelines in terms of the Foreign Corrupt Practices Act. So from PepsiCo's perspective, we don't line the pockets of anybody.

CHANCE: But isn't that just how business is done in Russia?

NOOYI: Maybe. I don't know. But from PepsiCo's perspective, that's not the way we've done business in Russia. And believe it or not, we've had many plants built in Russia. We have eight plants in Russia already. And the investment climate in Russia is pretty damned good.

Now, like any growth market, it does have its bureaucracies. And there are delays -- unexplained delays. But to PepsiCo, for some reason, all local governments and the central government has been pretty good to us.

CHANCE: Because Transparency International, as you well know, in its most recent report on corruption, had placed Russia as 147th on its list of -- of corrupt countries out of -- out of 180 countries. It's one of the most corrupt countries in the world. Are you...


CHANCE: Are you telling me that PepsiCo has not encountered this corruption, hasn't paid any of these bribes, whereas other companies have?

NOOYI: In PepsiCo's list, Russia is very up there in terms of getting permits quite easily without having to pay to get these permits. And the Russian government has been good to us.

And PepsiCo Worldwide complies with FCPA and we have not paid any money to anybody to get the permits.

CHANCE: You might know that the -- the head of Ikea Russia recently suspended future investments in Russia because of what he called the unpredictability of administrative processes here. The founder of Ikea went further, saying in a radio interview that Ikea had decided not to solve problems by slipping money under the table in Russia.

What does PepsiCo do differently?

NOOYI: We take the delays. And that's the thing. Look, patience -- if you have patience and you have time on your side, you don't have to pay off anybody. And so, you know, if we have a plant that has to -- if we've scheduled for the opening in August and it slips to October, so it slips to October.

So we've just been very careful about following all the rules and regulations that applied to an American-based global company. And what we have to give up is some of the schedules that we'd normally like to adhere to and (INAUDIBLE).

CHANCE: Is it really the right time to make such a substantial investment in this very unpredictable economy?

NOOYI: There's no question that the Russian economy has declined. There's no question about it. But I think even in a downturn, people have to eat and drink. So our categories are relatively insulated. I would not say we're completely insulated, but relatively insulated.

One of the big lessons we've learned is that, as a company -- as a big global company, you should invest whether there's a downturn or not, because we are in the corporation for the long long-term. And in a downturn in particular, you get much better deals on construction. You get people hungry for you, so they accelerate the permitting process. Land is available cheaper and all contractors are available for business.

So the right time to build plants is in a downturn.


QUEST: The chief executive of PepsiCo talking to Matthew Chance, our Moscow correspondent. And they were talking last month in Russia.

Finally, tonight's Profitable Moment. It was a wonderful line that you heard from Victor Chu on earlier this evening -- bubbles or troubles?

And it properly summed up the dilemma facing China at the moment in its economic policies. It doesn't matter which way we look at this, all roads eventually lead back to China and how the economy there is going to perform. Every discussion, every forecast, every consideration -- what is China going to do?

How is China going to spend?

When is China going to pull back and start withdrawing some of the stimulus?

We are watching an economic revolution taking place and it is happening before our very eyes.

And with all that -- a revolution, things get very messy and they get messy quickly. This week alone, China's main index in Shanghai, the Shanghai Composite, has moved to a 14 percent range when other major markets have barely budged.

Victor Chu reminded us that China has real money to spend, unlike debt-ridden economies of the West.

And while exposure to China is certainly risky, it's pretty much demanded by any investor that demands half decent returns. After all, leaving the money in the bank these days simply isn't an option. China has to be part of your game, wherever you may be playing.

And that is QUEST MEANS BUSINESS for this -- well, this Thursday night here in Hong Kong -- Friday morning already.

Hala Gorani is with us at the International Desk. And we'll be with Hala in just a moment or three.

I'm Richard Quest in Hong Kong.

Wherever you may be up to and whatever you may be doing, I hope it's profitable.

I'll see you tomorrow.