Financial News

The drugmaking arm of Johnson & Johnson said late Thursday that it is laying off hundreds of workers at the manufacturing plant at the center of a recall of millions of units of children’s Tylenol, Motrin and other over-the-counter drugs.

Johnson & Johnson’s (JNJ, Fortune 500) McNeil Consumer Healthcare division said 300 of more than 400 positions at the Fort Washington, PA facility will be eliminated as the company conducts a complete quality overhaul at the facility.

McNeil halted all production at the Fort Washington plant in early May this year after it recalled about 135 million bottles of children’s and infant’s Motrin, Tylenol, Benadryl and Zyrtec drugs made at the plant, due to quality concerns. The facility is the company’s only plant that makes its liquid pediatric non-prescription drugs.

McNeil is also currently under investigation by the Food and Drug Administration and lawmakers over a string of recalls of its products over the past year, including the latest recall of children’s drugs.

McNeil, which submitted what it called its "comprehensive action plan on quality improvement" for the Fort Washington plant to the FDA on Thursday, also said it will make a "significant investment in re-fitting its Fort Washington manufacturing facility with new equipment, and will reorganize the plant’s operations." As a result, the company anticipates that the plant will be out of service for a "protracted period of time."

The company said it is taking steps to expedite production of many of the products that were previously produced at Fort Washington by utilizing other Johnson & Johnson plants.

However, McNeil had previously announced that most of the products made at the Fort Washington plant will not be available in stores before the end of the year. 

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MINNEAPOLIS — United Airlines plans to demonstrate new fuel-saving methods on two flights between the U.S. and Europe on Saturday.

The airline says it expects to save about 940 gallons, about 3 percent of the fuel it would usually burn, on the flights. The testing includes a trip from Frankfurt to Chicago on a United 777, and a return trip on the same plane. Both are regular flights with paying passengers.

Several airlines have been testing ways to cut their fuel bills. United and its regional partners burned 564 million gallons of jet fuel last year, costing almost $1.19 billion.

Commercial flights usually stay at a precise altitude. But this flight will drift up and down as much as 3,000 feet. That way the pilots won’t need to burn extra fuel maintaining a precise altitude. It also lets them choose the best altitude depending on wind and other conditions, said Joe Burns, a United captain and managing director of technology and flight tests.

He said those small adjustments wouldn’t make much difference on a short domestic flight, but they add up on an eight- or 10-hour overseas flight.

The flight has clearance from the Federal Aviation Administration as well as air traffic authorities in Canada and Europe. One issue that keeps airlines from using some of those fuel-saving practices all the time is that they can make it harder for air traffic controllers to keep the required minimum distances between planes.

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The economy has made a sharp U-turn in the past couple of months, and better days for American businesses and workers are around the corner.

But don’t take my word for it. Take Warren Buffett’s. And Jamie Dimon’s. And Jack Welch’s. All three tell me that in the past four to eight weeks, they’ve seen a real change in their businesses, and that indicates better news for the nation’s economy. They should know.

Warren Buffett has been focusing on the data from BNSF Railway, which he recently acquired. At the start of the recession three years ago, Burlington Northern felt the pain early when retailers stopped ordering goods, automakers stopped shipping cars, and homebuilders stopped needing so much lumber. The railroad started storing thousands of idle railcars; now those cars are being called back into service. And that’s an incredibly important sign.

But that’s not his only hint.

Buffett’s Berkshire Hathaway (BRKA, Fortune 500) conglomerate encompasses some 80 different businesses, and he’s seeing strength everywhere: from the number of hours customers fly at NetJets to the amount (and cost) of jewelry they buy at Borsheim’s.

But the most important place he’s seeing it is at Iscar, an Israeli-based manufacturer of metalworking tools he bought in May 2006. Iscar’s cutting tools are used on aircraft, auto, and other assembly lines, and the company’s sales volume is popping. "You can just feel the pulse of industry quickening," Buffett says.

Jamie Dimon, whose J.P. Morgan Chase (JPM, Fortune 500) was the fortress that withstood the great financial disaster, counts millions of Americans as customers. And he’s seeing a turn in the very recent data as well. After soaring to a record high of 9.3%, credit card charge-offs for the industry are dropping to more normal levels of 5% to 6%.

But his most important indicator may be the anecdotal evidence that a hiring boom is on the horizon. Dimon travels the country constantly for lunches or dinners with business leaders, meeting with groups of 20 to 250 people at a time. They may be people who run small or large businesses, they may be venture capital investors, they may be clients of the firm’s massive private banking group.

But everywhere lately, the reaction is the same. When he asks how many of them are going to be hiring in the next 12 months, a third of the hands in the room go up. That’s from virtually none a year ago. "The strength and resilience of the American economy may surprise people," Dimon says. "The odds of a potential upturn are stronger than people think."

And then there’s Jack Welch, who spent 20 years at the helm of the nation’s largest industrial conglomerate, General Electric (GE, Fortune 500). These days Welch is a special partner at private equity firm Clayton Dubilier & Rice, which has investments in everything from Hertz rental cars to TruGreen, a lawn service company.

He told Squawk Box recently that customers across the board are flooding back. "People who have jobs are now feeling more secure about keeping them and are therefore spending," Welch says. "And people who don’t have jobs are becoming more hopeful as they see glimmers of hiring."

So if these business leaders are that confident, why are there still so many doubters out there? Americans are still reeling from the economic collapse, and some fret that another crisis is lurking. Call it a case of post-traumatic financial crisis syndrome.

"When fireworks go off now, people are expecting that it’s a nuclear bomb," Buffett says. It’s a natural reaction, but a dangerous one. That mentality exacted a painful cost for investors who followed their gut and got out of stocks as the Dow fell below 9000, then 8000, then 7000. Since then stocks have rebounded 65% off their lows. And if you were waiting on the sidelines until things looked more stable, then you missed the party.

It’s a lesson to us all. While there are still plenty of concerns out there — from a stubbornly high unemployment rate to continuing commercial real estate land mines — I’ll follow the lead of those on the economic frontlines. And I can’t think of three better generals than Buffett, Dimon, and Welch.  

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Although gas prices continued to push upward as the price of crude oil grew to more than $87 a barrel, don’t expect to see too much of an increase in the price of retail gasoline this week, AAA said.

That’s because by April 9, crude oil closed at $84.92 on the New York Mercantile Exchange after peaking at $87 a barrel earlier in the week, and U.S. stockpiles of crude oil are now above 355 million barrels, a sign that demand needs to increase significantly to support its high price.

“Finally, the basic fundamentals of supply and demand are being acknowledged by investors. As crude prices increased throughout the week, investors realized there was too little demand and too much supply to support such a price,” said Jessica Brady, AAA spokeswoman. “Although, the price of crude closed five cents higher than last week, we shouldn’t see too much of an increase in the price of retail gasoline, and we could actually see retail prices decline.”

The national average price of unleaded regular gasoline is $2.86 per gallon, up 4 cents from last week. Florida’s average price is $2.88 per gallon, also a 4-cent increase.

In metro Orlando, a gallon of self-serve regular currently averages $2.82, also up 4 cents from a week ago.

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St. Louis Mayor Francis Slay presented the Mayor’s Spirit of St. Louis Award Thursday to AgraForm, a chemical processing plant and packaging company.

The Mayor’s Spirit of St. Louis Award recognizes businesses that make major expansions or improvements to their existing locations, open or relocate to the city.

When Bayer CropScience decided to close its south St. Louis insecticide processing plant last year, a former Bayer employee and his business partners bought out the operations and started a new company, AgraForm.

AgraForm now counts Bayer as its largest customer and retained 12 jobs, along with seven contract positions at the plant, located at 133 E. Krauss St. in the Carondelet neighborhood. The company hopes to add employees as the business grows with new clients and additional products, the mayor’s office said.

The company’s owners are Doug Baskett, a former mechanical and process controls engineer with Bayer’s Kansas City plant; Ron Cunningham, who spent 18 years with Procter & Gamble in process controls and automation; and Bill McVeagh, an engineer and principal with Flourtown, Pa low interest rate personal loans.-based Engineering Support Systems.

The owners obtained at least $2.35 million in financing.

The company’s public/private financing package included assistance from the St. Louis Development Corp., the city’s economic development agency, in the forms of revolving loan funds and a Small Business Association 504 loan for start-up costs, inventory, equipment, working capital and other needs.

Southern Commercial, a local community bank, secured $1.1 million in private financing. Additional working capital assistance came from the St. Louis Minority Business Council.

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Australian manufacturing expanded at the fastest pace in more than two years, adding to evidence of economic rebound that may prompt the central bank to boost borrowing costs tomorrow for the fourth time in five meetings.

The performance of manufacturing index rose to 53.8 points in February from 51.0 in January, according to an Australian Industry Group and PricewaterhouseCoopers survey released in Canberra today.

A reading above 50 signals manufacturing is expanding and gives central bank Governor Glenn Stevens more scope to increase the benchmark lending rate tomorrow by a quarter percentage point to 4 percent, as forecast by 14 of 19 analysts surveyed by Bloomberg News. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, a separate analysts’ survey ahead of a report on March 3 shows.

“While there is a lot of ground lost over the past two years still to be recovered, overall, conditions do appear to be improving,” AIG Group Chief Executive Officer Heather Ridout said payday loans. “The combination of rising new orders and production augers well for the industry in coming months.”

The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.

A gauge of production rose 4.2 points to 55.7, the sixth increase in seven months, today’s report shows. Growth was strongest among manufacturers of textiles and paper, as well as publishing companies. An index of orders was little changed at 56 in February.

Today’s survey also shows that companies related to consumer spending have weakened.

“The impact of the strong Australian dollar and higher interest rates are posing formidable headwinds to growth while high interest rates are also dampening demand,” Ridout said.

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The euro zone economy jumped out of recession in the third quarter, data showed on Friday, but with slightly less spring than expected after growth in the area’s top three economies fell short of market forecasts.

Gross domestic product in the 16 countries using the euro rose 0.4 percent quarter-on-quarter after five consecutive quarters of shrinking output, but was 4.1 percent lower year-on-year, the European Union’s statistics office said.

Economists polled by Reuters had on average forecast quarterly growth of 0.5 percent and a 3.9 percent annual decline.

“The euro zone exited recession at a trot rather than a canter in the third quarter,” said Howard Archer, economist at IHS Global Insight.

For graphics on growth see:

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Germany, France and Italy all reported a third-quarter increase in economic output, but the German 0.7 percent quarterly growth was below expectations of 0.8 percent, the French 0.3 percent increase only half of what was expected and the Italian 0.6 percent fell short of the 0.7 percent consensus.

Italy and the Netherlands returned to growth, but Spain continued to contract albeit at a significantly reduced pace.

A more detailed breakdown of the data will only be available on December 3 but economists said net exports and inventory build-up added to growth, while household consumption was weak and investment remained in recession payday loan companies.

“In other words, domestic demand remains the big weak spot,” said Aurelio Maccario, economist at UniCredit Group.

END OF EUROZONE RECESSION

The growth ends the deepest economic downturn in Europe since World War Two, brought on by a global financial crisis, but economists say recovery is likely to remain fragile.

The European Commission expects that fourth-quarter growth would slow to 0.2 percent quarter-on-quarter and then to 0.1 percent in the first two quarters of 2010.

“This loss of momentum is expected to be the consequence of the withdrawal of some stimulus measures, including car scrappage schemes and employment support measures,” said Archer.

Economists said restocking at companies, which could be helping growth now, would also be less of a factor toward the middle of 2010. A strong euro, rising unemployment and still tight credit conditions will also dampen growth prospects. 

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AIG is expected to report its second profitable quarter in a row early Friday, but the troubled insurer still faces a large uphill battle in its attempt to return to solid footing.

Analysts surveyed by Thomson Reuters expect AIG to have earned $254 million, or $1.20 per share, for the third quarter ended Sept. 30. Analysts are forecasting AIG’s revenue will total $23 billion. In August, AIG reported that it had returned to profitability after six straight losing quarters, logging a profit of $1.8 billion, or $2.30 per share, on revenue of $29.5 billion.

Another quarter in the black would be an encouraging sign for AIG, which will likely show some hefty restructuring charges for the past three months as it continued to sell off its assets to pay back the almost $90 billion it owes taxpayers.

Insurance experts say a profitable quarter would be partly a result of the housing market recovery that started during the past few months. As the mortgage market comes back, the value of the volatile credit-default swap insurance that AIG’ wrote on mortgage-backed securities will continue to increase.

AIG’s financial products division, which still holds more than $1 trillion in credit-default swaps, stands to gain about $2.5 billion from the recent housing market upturn, wrote Credit Suisse analyst Thomas Gallagher in a recent note to clients. With asset sales still slow-moving, that gain would likely more than offset the restructuring charges AIG faced in the quarter, he argued.

AIG isn’t out of the water yet. The company has yet to follow through with its commitment to break off two enormous foreign life insurance units, which it said would be spun off before the end of the year. In the first half of the year, AIG sold just $2.6 billion worth of assets to pay down its sizeable debt to the government.

To get the ball rolling a bit faster, the company has agreed to sell stakes in the two subsidiaries to the government. In exchange, the Fed will forgive $25 billion of its roughly $45 billion loan to the insurer. AIG also still owes the Treasury $44.8 billion.

As a result, AIG has said that it won’t likely string together a long run of profitable quarters, as it writes down the value of its sold-off assets. Analysts expect AIG to return to the red in the current quarter.

In addition to paying back the government, the company is also struggling to wind down its financial products division’s sizeable credit-default swap portfolio. Last quarter, AIG said it had managed to reduce the portfolio by 17% in 2009, but it still stands at $1.3 trillion. Though the company likely benefited from those mortgage-backed assets in the past three months, housing market analysts expect a slow and bumpy recovery.

The company also still has to deal with $198 million in retention payments owed to its financial products unit. Though the troubled division nearly brought the company to its knees more than a year ago, AIG continues to insist that it pay those employees what’s owed to them. The company has maintained that it needs those employees to wind down the division’s portfolio to put the company in a better position to repay the government.

The Obama administration pay czar Kenneth Feinberg has told AIG the full $198 million should not be paid in full, but there has been no ultimate decision made by either party.

It may have been a good quarter for AIG, but new CEO Robert Benmosche still has his hands full. 

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Treasury Secretary Timothy Geithner’s plans to lock in near record-low borrowing costs in 2010 may mean a second year of losses on longer-term bonds.

After selling $1.9 trillion of short-term securities to finance President Barack Obama’s efforts to end the worst recession since the 1930s, the Treasury plans to lengthen the average due date of its outstanding debt to 72 months from a 26- year low of 49 months. That may mean boosting sales of 10- and 30-year bonds by 40 percent over the next year to $600 billion, according to FTN Financial in Memphis, Tennessee, driving down prices of longer-term securities.

“We should be trying to term it out,” said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management who oversees $22 billion, and not expose “this burgeoning debt issuance that we’ve got ahead of us to potentially higher interest rates.”

Replacing bills with bonds may drive up the so-called yield curve as the Federal Reserve keeps its target rate for overnight loans between banks unchanged near zero percent until the second half of 2010, according to the weighted average of 67 forecasts in a Bloomberg survey. The gap between yields on 2- year and 10- year notes widened to 2.49 percentage points last week, compared with an average of 0.8 point since 1977.

While a so-called steeper yield curve is usually a sign of diminishing demand from investors anticipating faster economic growth and inflation, coupons on bonds near the lowest on record show there’s no lack of appetite for government debt following this year’s record sales. Bond investors are on track for the biggest annual loss since at least 1978, according to Merrill Lynch & Co. index data.

Falling Interest Expense

Treasury has sold $1.6 trillion in notes and bonds to finance a budget deficit that reached a record $1.4 trillion in fiscal year 2009 that ended Sept. 30. Debt amounted to 9.9 percent of the nation’s economy, triple the size of the 2008 shortfall.

At the same time, interest paid by the U.S. dropped $67.8 billion even as outstanding debt rose 34 percent to $7 trillion from $5.21 trillion, government data shows. Yields on 10-year Treasuries ended last week at 3.48 percent, less than half the average of 7.31 percent over the past 40 years.

The steeper yield curve will help banks recapitalize after $1.66 trillion in losses and writedowns since the start of 2007 as they borrow shorter-term and invest in the longest-maturity debt, profiting from the difference in yields.

Bank Earnings

JPMorgan Chase & Co., the second-largest U.S. bank by assets, said Oct. 14 that third-quarter profit rose almost sevenfold to $3.59 billion from a year earlier, as the New York company’s fixed-income revenue surged. A day later, Goldman Sachs Group Inc., also in New York, said net income more than doubled to $3.19 billion on trading gains and investments with the its own money.

Yields on 10-year Treasuries, up from 2.04 percent in December, will jump to 4.19 percent by 2011, according the weighted average estimate of 57 economists and strategists surveyed by Bloomberg News. Two-year yields are 1 percent, compared with 0.76 percent at the end of 2008.

U.S. government securities due in 10 years or more are on pace to lose 12.7 percent in 2009, compared with a loss of 1.4 percent for shorter-maturity notes, including reinvested interest, Merrill Lynch bond indexes show.

Payden & Rygel, BlackRock Inc. and Fifth Third say the extra supply may cause returns on longer-maturity Treasuries to lag behind shorter-term debt for a second consecutive year, the first time that has happened since at least 1988, according to the Merrill Lynch indexes.

Consumer Borrowing Costs

An investor with $100 million in 10-year notes would lose almost $1 million if yields rise to the survey target by the end of 2010, according to Bloomberg data.

Higher yields may also hinder the Fed Chairman Ben S. Bernanke’s efforts to cap consumer borrowing rates, his goal at the start of 2009 to lift the economy from its worst slump since the Great Depression.

The Libor-OIS spread, a gauge of banks’ lending reluctance, has narrowed to 0.12 percentage point from as high as 3.64 percentage points in October 2008. Borrowing costs for individuals have fallen, too, with 30-year fixed mortgage rates declining to 5.15 percent on Oct. 22 from 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.

“Rates moving up dramatically at this time would be the last thing they would want to see,” said James Sarni, senior managing partner at Los Angeles-based Payden & Rygel, which manages $50 billion. “The outlook for rates is higher because of this supply demand issue.”

Difficult to Tighten

Concerns that rising supply will push yields higher are overblown, said Thomas Atteberry, who manages $3.5 billion in fixed income assets at First Pacific Advisors in Los Angeles.

Without economic growth, an improving outlook for employment and rising consumer prices it will be difficult for the Fed to justify raising borrowing costs, he said. Ten-year note yields may stay within their present range of 3 percent to 4 percent, he said.

The U.S. has lost 7.2 million jobs since the recession began in December 2007, including a 263,000 drop in September payrolls. The difference between yields on 10-year notes and Treasury Inflation Protected Securities of the same maturity, which reflects the outlook among traders for consumer prices through 2011, ended last week at 2 percentage points. The rate of inflation rose 2.87 percent on average between 2002 and 2008.

A report from the Federal Reserve Bank of Cleveland last week said the yield curve suggests growth of 2.3 percent over the next 12 months.

Faster Growth

Gross domestic product increased at a 3.2 percent annual rate from July through September, according to the median estimate in a Bloomberg News survey, after shrinking 6.4 percent in the first quarter and 0.7 percent in the second. Growth will slow to 2.4 percent this quarter and 2.5 percent in the first three months of 2010, according to the median estimate of economist surveyed by Bloomberg.

The average maturity of U.S. debt fell to 49 months in the fourth quarter, the lowest since reaching 48 months in the second quarter of 1983. About 23 percent, or $1.63 trillion of the Treasury’s $7 trillion in outstanding public debt, will mature next year, Bloomberg data shows.

“Extending the average length at this time to bear the brunt of longer term structural shifts in the deficit while increasing capacity in the front end of the curve to address unexpected borrowing needs is prudent,” Karthik Ramanathan, the Treasury’s acting assistant secretary for financial markets, said in an Oct. 1 speech in Boston. The average maturity “is expected to stabilize at six to seven years,” he said.

Average Maturity

The government may reach the average maturity of six years by doubling sales of 30-year bonds to $250 billion and raising 10-year notes by a third to $350 billion, according to FTN. Those maturities would need to account for 32 percent of all auctions to achieve an average maturity of 6.5 years, up from 18 percent currently, FTN estimates.

“There’s going to be a lot of Treasury supply,” said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $539.6 billion in debt. “The easy money has been made.”

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Prime Minister Vladimir Putin arrives in China today bidding to strengthen a relationship forged by Russian oil exports to Asia’s largest energy consumer.

Russia, which this year sealed Chinese oil contracts valued at $100 billion, is now negotiating an agreement that would make China OAO Gazprom’s biggest customer for natural gas. Its communist neighbor currently buys no Russian gas.

The two countries, which were on the brink of war 40 years ago despite a shared ideology, are deepening ties based on mutual economic gain. Bilateral trade totaled a record $56 billion in 2008, a six-fold increase in six years, according to Russia’s Federal Customs Service.

“Political ties are very good, probably the best since China’s communist revolution in 1949,” said Fyodor Lukyanov, the editor of Moscow-based Russia in Global Affairs magazine. “There’s never been such closeness in position on major international issues, and there are no more territorial disputes.”

China and Russia, the world’s third- and ninth-largest economies respectively, hold two of the five permanent seats on the United Nations Security Council as well as membership in the nascent BRIC group that also includes India and Brazil. The former foes, which share a border more than 4,000 kilometers (2,500 miles) long, broke a three-decade diplomatic deadlock in 1989 when then Soviet leader Mikhail Gorbachev visited Beijing.

Putin, 57, is set to meet with Chinese President Hu Jintao and Prime Minister Wen Jiabao in two days of talks that start tomorrow. He’ll also attend a meeting of the Shanghai Cooperation Organization, a regional group that also includes four former Soviet republics in Central Asia.

Oil Deal

Russia agreed in February to supply China with oil for 20 years in return for a $25 billion credit to state oil company OAO Rosneft and the government’s oil pipeline monopoly OAO Transneft. The total value of oil accords signed with Chinese companies this year amounts to about $100 billion, the Russian government said in a statement released before Putin’s trip.

Transneft plans to finish the first segment of its East Siberia-Pacific Ocean pipeline this year, enabling Russia to begin sending the fuel directly to China. Oil and other mineral products account for 56 percent of trade, with Russia currently making fuel deliveries by rail and through a pipeline that passes through Kazakhstan.

Gazprom, which aims to become a global energy company beyond its traditional markets in Europe, plans to build two gas pipelines to China that might one day deliver as much as 80 billion cubic meters annually, or more than half its current European exports. Gazprom and China National Petroleum Corp. last month initialed an accord in advance of Putin’s visit.

‘Ideal Outcome’

“The ideal outcome would be a similar deal to that agreed between China and Russia for oil,” Chris Weafer, chief strategist at UralSib Financial Corp low interest payday loans., said in a note to clients. “We could see a timeline not only for the pipelines but also for the development of the Kovykta gas deposit.”

Gazprom has not yet completed a deal to buy oil producer TNK-BP’s stake in Kovykta, an east Siberian field that holds enough gas to supply Asia for five years.

China, in its drive for new energy sources to fuel the world’s fastest-growing major economy, is also reaching out to landlocked Central Asian producers that until recently were dependent on Russia’s pipeline systems to bring their oil and gas to market. CNPC plans to finish building a gas pipeline to Turkmenistan, Central Asia’s largest gas producer, this year.

“Russia sees this as a foray into its traditional zone of interests,” Lukyanov said. “Russia tries to compensate its economic weakness with political initiatives. But China is hard to attract if it doesn’t see their necessity.”

Shanghai Group

The Shanghai Cooperation Organization, whose prime ministers meet in Beijing on Oct. 14, is at risk of becoming irrelevant unless it takes on a greater economic role, said Alexander Lukin, director of the East Asian Studies Center at the Moscow State Institute of International Relations.

“SCO doesn’t have the image of an organization that can make any economic difference,” Lukin said. China may lose interest in the group as a forum for doing business and give priority to developing bilateral relations, he said.

At the organization’s last meeting in June, Hu said China would supply member countries with $10 billion in credits to help weather the financial crisis. Besides Russia and China, the group comprises Kazakhstan, Uzbekistan, Kyrgyzstan and Uzbekistan.

North Korea

Putin comes to China a week after Wen, on a visit to Pyongyang, won a conditional agreement for North Korea to return to six-party negotiations, which include Russia, aimed at eliminating North Korea’s nuclear weapons program. Russia and China have been the reclusive regime’s closest partners during the past six decades.

While Russia and China face a “delicate balance” where their interests overlap in Central Asia, the two former Cold War rivals have more that binds than divides them, said Zhu Feng, a Beijing University professor who specializes on international security issues.

“The two countries are cautiously but passionately pushing ahead for greater cooperation,” Zhu said. “Oil shipments are a very strong economic bond.”

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