Markets have retreated recently. The DOW is testing the 10,000 area and the Shanghai Index is testing the 3,000 area. Markets are a measure of economic strength but they also reflect the behavior of investors who are prone to overreactions. Commodity markets can provide another perspective on economic strength and development.

Copper is used as a measure of the developing strength of an economy. It is a foundation industrial metal for many basic economic processes. The behavior of the sustained rise in the price of copper suggests a sustained rise in economic demand fuelled by a global recovery. The weekly chart shows the underlying trend.

The modern economy is more sophisticated than the foundation copper economy. A useful way to track the growth of the modern economy is by following the price and trend activity of precious metals such as platinum. This gives a platinum standard of economic measurement.

Platinum is the most valuable of precious metals because it is necessary for many industrial applications. About one-fifth of everything used in advanced economies either contains platinum or requires platinum in its manufacture. Most of the annual platinum production is used in catalytic converters in car exhaust systems and fine jewelry. These two applications consume more than 70 percent of the world’s supply of platinum. The third most common use is in computer hard drives. Platinum-enhanced magnetic alloy allows data to be stored at much higher densities.

Platinum is essential for advancing economies. Economic recovery, shown by the copper price, is important. Continued modernization, shown by platinum takes economic recovery to the next level. Platinum is more sensitive to changes in the economy. When the economic times deteriorate, people buy fewer cars, they buy less expensive jewelry and cut back on computer purchases. The demand for platinum, reflected in the price, provides an early warning for the quality of the economic recovery.

The weekly platinum chart shows a steadily rising trend that is defined by two features. The first is the development of a parallel trading channel. The second is the strength of investor support for the trend.

The rising trend channel is best seen on a weekly chart. The lower edge of the trading channel starts with the January 2009 breakout and is confirmed with price rebounds from the area in May 2009. The lower edge of the channel was broken in July 2009, but the following price activity confirmed the strength and stability of the channel support.

The upper resistance level of the channel line starts in February 2009 and it runs parallel to the lower support line. However, this resistance level is relatively weak. The breakouts in April and June suggest a more appropriate position for the upper trend line. The most important conclusion from this is that although support for the trend is strong, the weak channel resistance suggests the bullish bias in the trend is even stronger. This is an indication of the economic strength of modernization.

This bullishness is confirmed with a rapid break above the historical strong resistance level near 1,330. This caused barely a pause in the new rising trend. Weaker historical resistance near 1,450 also offered little resistance to the new uptrend. This area may be retested in the near future. The next significant historical resistance level is near 1,820 and this suggests an extended upside for platinum and for economic growth.

The strength of investor support for the trend is shown on the weekly chart, but it is more clearly seen on the daily chart using a Guppy Multiple Moving Average indicator.

The author is a well-known international financial technical analysis expert and is known as “The Chart Man”.

Toyota is likely to face a trust crisis in China following a massive recall of several models over problems with sticking accelerators in the United States, Europe and China, industry analysts have said.

Tianjin FAW Toyota Motor Co Ltd will recall 75,552 RAV4 sport-utility vehicles from Feb 28 due to a potential flaw in their accelerator pedals, the Sino-Japanese joint venture announced on Jan 28.

The recall follows similar announcements by Toyota in the United States and Europe, where sales of eight popular models have also been suspended. The Japanese automaker has already announced the recalls of 2.3 million vehicles in the United States, 1.8 million in Europe, and 270,000 in Canada over faulty gas pedals.

The automaker is meanwhile recalling some 5.55 million vehicles in the United States and Canada over problems with loose floor mats, of which a large proportion are believed to overlap with those recalls for the gas pedal problem.

As a result, the actual number of vehicles subject to recalls over faulty gas pedals or floor mats is estimated at more than 7 million around the world, topping Toyota’s global sales of 6.98 million units for 2009.

Credit crisis

Shares of Toyota have posted huge losses due to the massive recalls worldwide, dealing a heavy blow to its fame for safety and reliability.

Analysts said the credit crisis could be the most severe one since Toyota entered the Chinese market.

The automaker got a nickname of “King of Recall” in China after it launched at least four recalls last year, involving 1 million vehicles including best-selling models such as Camery and Carola.

He Kaiming, a senior engineer at the China Automotive Technology and Research Center, said it is normal to make recalls, but frequent recalls have sparked doubts over its quality control and management mode.

At the Kaida Toyota Automobile Sale and Service Co Ltd, a Toyota’s dealer in Tianjin, dozens of customers have inquired for recall details and some even said to cancel the purchase contracts.

The company’s deputy general manager, surnamed Zhao, said she had to spend more time explaining to customers as the company has not received instructions from Toyota to cancel purchase contracts.

“How could Toyota face consumers’ distrust after a series of recalls in China?” car owner Wang Xiaosong said.

“What we consumers care most now is whether Toyota could turn out safe cars in the future?” he said.

Sales of RAV4, debuted in Chinese market last April, amounted to 68,000 units. Almost all the RAV4 models in China would be recalled, heightening fears that car buyers could cancel purchase contracts.

A media liaison at the Tianjin FAW Toyota Motor Co Ltd said he would not comment on the recall as all executives have not returned from business trips to other countries.

A staff surnamed Shi at the joint venture’s customer service center said Toyota is working to fix the defects, but testings and supply of auto parts could take one month before repairs.

The staff said the company will improve technologies to provide better vehicles. “We believe the recall would not affect our sales,” she said.

The Tianjin FAW Toyota Motor Co Ltd has set 2010 sales target at 500,000, an increase of 60,000 from a year earlier.

Sales of Toyota, which has 18 subsidiaries in China, grew 21 percent annually to 709,000 units last year. The strong growth came on the heels of government’s economic stimulus package despite earlier recalls.

“It looks like the frequent recalls are testing the limit of our tolerance,” said a car owner surnamed Zhang in Tianjin.

A survey on Sina.com, a popular Internet portal, showed 23 percent of respondents are very disappointed with the RAV4 SUVs. Another survey on Ifeng.com indicated that 66 percent of netizens said the recall will affect their choice of car purchases.

Analysts also blamed the recall on Toyota’s rapid and massive expansion in China since 2005.

The rapid expansion has exerted a huge pressure on quality control, said Wang Hao, partner of Zhong Lun W&D Law Firm.

Analysts also blamed the unified auto parts strategy on cost reduction as the measure added risks to auto parts while reducing cost.

China, the only bright spot as the world auto industry struggled amid the world financial crisis, overtook the United States as the world’s largest auto market last year.

The China Association of Automobile Manufacturers announced on Jan 11 that 2009 auto sales rose 46.15 percent year on year to 13.64 million units.

Behind all the confusing news reports and questions about bank lending and a credit freeze, we think what markets are really worried about are the fundamentals of growth and inflation. Has inflation become a bigger concern and will the government be forced to lower its growth target to fight it? What really motivated the early credit control and will much tighter credit and lower growth lead to a quicker realization of non-performing loans? How to navigate through the policy uncertainty and market confusion in the months ahead?

Our answer is that despite the recent pick-up in the Consumer Price Index (CPI), we see inflation remaining moderate and within the government’s target in 2010, at 3 to 4 percent.

Our 9 percent gross domestic product (GDP) forecast for the year may have to be adjusted upward even with the ongoing policy tightening, although growth in the second half is expected to decelerate to about 8.5 percent year-on-year.

The credit control has been triggered more by banks’ aggressive credit expansion in the first two weeks of 2010 than a rebound in December CPI. With continued robust credit expansion and activity growth, we do not see non-performing loans rising earlier than originally expected. With a persistent tightening headwind, slowing sequential momentum in headline growth, and an increase of share supply, the good macro outcome may not necessarily lead to good equity performance this year.

GDP and inflation outlook

We expect GDP to grow by 9 percent in 2010 and our next revision is more likely to be upward. The tightening measures are meant to prevent runaway lending growth rather than representing a sudden shift in policy stance, and we believe the 7.5 trillion new lending, an export rebound, and the continued push for urbanization will lead to real GDP growth of at least 9 percent.

Inflation has indeed come up more quickly than expected, but this was mainly driven by weather-affected food prices. Fresh vegetable prices alone contributed to half of the increase in December CPI because of unusually cold weather. We think overall CPI inflation could still be 3 to 4 percent due to the lack of price pressure from core manufacturing goods. The government may also delay and slow down some of the planned price adjustment in resources and utilities.

Of course, a prolonged period of excessive lending growth tends to lead to a rise in inflation sooner or later. In the case of China, lending growth actually had been below nominal GDP growth for a few years, before the massive re-leveraging happened in 2009 when credit expanded by 33 percent. The surge in credit growth was meant to be short-lived, anti-deflationary, and the bulk of lending had gone to investment aimed at increasing future capacity (through infrastructure) rather than consumer demand. Most importantly, consumer demand globally remains weak, resulting in spare capacity worldwide, including in China.

Credit tightening’s trigger

If inflation is not going to be a big problem this year, why is the government so quick in starting to control bank lending (some say freezing lending altogether), the toughest monetary tightening method used in China?

We think the credit control and daily monitoring of lending have been triggered mainly by banks’ aggressive credit expansion in the first two weeks of the year. According to news reports, banks issued a total of 600 billion yuan of loans in the first week and 1.1 trillion yuan in the first two weeks of January, a pace certainly far too fast in comparison with the annual target of 7.5 trillion, but also compared with the normal front-loading pattern. If this pace were allowed to continue, total lending would far exceed the 18 percent growth that had been deemed “appropriately accommodative”. The runaway lending and investment could result in much higher inflation and a big asset bubble down the road.

We expect continued debate and uncertainty about the speed and methods of policy tightening in the coming months, constantly weighing on market sentiment.

We expect the government to continue to implement its intended policy adjustment – more reserve requirement ratio hikes in case of persistent foreign exchange inflows; at least two interest rate hikes starting in the second quarter (after the National People’s Congress meeting in mid March) to manage rising inflation expectations; and credit control to ensure lending growth does not get out of hand.

The author is an economist with UBS Investment Research

When the Chinese government issued the long awaited third generation (3G) license to three domestic telecom operators a year ago, few imagined the number of the country’s 3G users would reach nearly 15 million within one year.

Industry analysts predict, if the momentum continues this year, there would be an “explosive” growth in the world’s largest mobile phone population, with 3G users expected to hit 170 million.

“To be frank I didn’t expect the number of China’s 3G users would grow as much in its debut year as it did because it often takes eight to 10 months for the telecom operator to finish its network deployment,” said Yang Hua, secretary-general of TD-SCDMA Alliance.

He said Chinese telecom carriers had been very quick to finish establishing 3G networks in major Chinese cities in the first three quarters of last year and the 3G user numbers started to take off in the fourth quarter.

As part of its efforts to stimulate the economy, the Chinese government issued licenses for 3G mobile networks to three telephone operators, paving the way for an investment of around 280 billion yuan ($41 billion) in upgrading and expanding the network over the next two years.

According to government figures, Chinese telecom operators showed unprecedented aggression in deploying 3G networks in 2009. The total investment in network upgrading and expansion was 160.9 billion yuan last year.

It was the biggest and fastest network construction in the global telecommunications industry.

“Compared with our foreign competitors, which are more market-oriented firms, Chinese telecom operators are State-owned enterprises that are more generous in making investments,” said Pang Jun, an analyst with research firm GFK.

He predicted 3G users would number 170 million this year in China.

The battle of standards

Compared with 2G and 2.5G services, 3G allows simultaneous use of speech and data services and higher data rates. This gives telecom operators a great chance to cash in on the use of data traffic to counter their declining revenue from traditional voice services.

In China, however, the 3G market is unique in that different telecom operators have adopted different 3G standards to deploy their networks.

The country’s largest cell phone operator China Mobile, for example, was mandated to adopt the country’s home-grown 3G standard Time Division Synchronous Code Division Multiple Access (TD-SCMDA) technology. Smaller carriers China Unicom and China Telecom have adopted the WCDMA and CDMA2000 technologies respectively.

The government hopes that by adopting the more mature technologies, China Unicom and China Telecom could challenge the domination position of China Mobile, thereby increasing competition in the country’s telecom market.

According to company figures, China Mobile’s market share in the new user market has fallen from 78.2 percent in January to 47.63 percent, although the company still far outpaces its two rivals in total user numbers.

GFK figures show that China Mobile picked up less than half of the country’s 3G market last year.

“Judging by the current figures, the Chinese government’s plan to increase competition is working well,” said Wang Yuquan, a senior consultant with research firm Frost & Sullivan.

During the past few quarters, Chinese telecom carriers have launched huge marketing campaigns to promote their 3G services. The fees charged by every carrier have also significantly reduced because of intensified competition.

In order to attract users, the carriers have also promised a huge subsidy plan for 3G handsets makers. This sparked a wave of new 3G handsets being launched in the market.

Three companies have been found selling milk products tainted with melamine, the industrial chemical responsible for the deaths of six children and injuring 300,000 in 2008.

Three batches of milk products have been ordered off shelves by the health department in Guizhou province because they contain melamine, local media reported.

These products are: A batch of products produced by the Shandong Zibo Lusaier Dairy Company Ltd on April 25, 2009; a batch of popsicles produced by the Liaoning Tieling Wuzhou Food Company Ltd on April 9, 2009; and a batch of popsicles produced by the Laoting Kaida Refrigeration Plant at Tangshan, Hebei province on March 19, 2009.

It follows the country’s most notorious food scandal in Sept 2008, when the chemical melamine was found in the milk products of 22 dairy companies around the country. The industrial chemical causes kidney stones and kidney failure among children.

The National Business Daily reported that melamine-tainted products were found and banned in Sichuan province and Jiangsu province last December.

An official who participated in the investigation in Mianyang of Sichuan said a government body in Beijing ordered the investigation.

Wang Dingmian, former chairman of the Guangdong Provincial Dairy Association, said the products likely contained tainted milk recalled after the 2008 scandal but which somehow made its way back into the market.

“After the 2008 scandal, most tainted milk products were recalled. However there were still some leftovers in the dealers’ hands that nobody cared about. The problems were not totally solved. From this point, it’s inevitable to see new problems popping out,” he said in an interview yesterday

According to local media reports, the three companies said their products contain melamine because they bought milk powder as a raw material to use in their products.

“The companies were just shirking their responsibilities. The companies should have been required to test each and every batch of milk powder they bought,” Wang said.

Wang said the latest scandal exposed weak government regulation of the market because it involved leftover tainted milk.

“The government should be more responsible and avoid bureaucracy. You can’t just assume that everything is fine,” he said.

Funds for overseas investment run by qualified domestic institutional investors (QDII) in China are still having a hard time attracting customers who seem happier to focus on the more appealing domestic market.

E Fund Management Co Ltd, the country’s fifth largest mutual fund company by asset, has raised 600 million yuan ($87.8 million) for its Asia-focused QDII fund but it was much less than the $1 billion quota it received last October.

“The amount we raised is within the expectations. The market for QDII products needs to be re-cultivated after the boom in 2007 and the failing performance during the financial crisis that brought huge losses to investors,” said E Fund Management in a statement.

The low enthusiasm for QDII products is a result of low investor confidence following previous unhappy experiences in overseas investments.

“The short-term market demand will remain weak because the past failing performance of the fund companies has greatly damaged investors’ confidence in overseas investment,” said Liu Mingjun, an analyst at Cinda Securities.

The State Administration of Foreign Exchange suspended the issuance of QDII quotas in May 2008 after heavy losses on the products, which approached 80 percent in some cases, as the financial crisis sent global markets tumbling.

The regulator lifted the ban last October when it was judged the global economy had passed the worst of the financial crisis and granted a combined $7.4 billion in QDII quotas to nine fund houses. However, the sales performance of the QDII products for 2010 is not yet known.

China’s rapid recovery combined with a strong rebound of the stock market in 2009 and the high expectation the appreciation of the yuan also made QDII products less appealing to Chinese investors.

The benchmark Shanghai Composite Index surged nearly 80 percent in 2009 as one of the world’s best performing markets. The tuan is also expected to appreciate by at least 3 percent in 2010.

“China is going to sustain the momentum of its fast recovery. Why would I invest abroad when the real investment opportunities are in the home market?” said Zhang Jian, a 45-year-old investor from Beijing.

China introduced the program in 2006 to allow domestic funds to be invested abroad. It is seen as a strategy to encourage capital outflow in order to ease the pressure on the appreciation of the yuan and hot money inflows.

Analyst said the year 2010 is poised to be a testing year for QDII products but fund management companies remain optimistic about the prospects.

Guotai Asset Management Co and China Merchants Fund Management Co are likely to launch new QDII products soon. Guotai Asset Management has said it planned to launch in March China’s first index-tracking overseas fund, which is pegged to the NASDAQ 100 Index.

However, China’s fast recovery aroused concerns among investors about inflationary risk and asset bubbles in the economy and many are rethinking the investment opportunities abroad.

A recent Bloomberg survey showed that China is viewed as a bubble by 62 percent of investors. One third of investors said China posed the greatest downside risk. Meanwhile, sentiment toward the US investment climate has flipped with nearly 60 percent respondents feeling optimistic about it.

“The QDII product is a tool to diversify risks so I will probably consider investing in some of the funds when the global financial market, especially the US economy, shows signs of solid recovery,” Zhang said. 

For those who expect recent government measures to stanch rising home prices, the jury is still out.

Two things point to why the measures are not yet working: The newly released data on home prices stating that China’s property prices rose at the fastest pace in 18 months in December, and the fact that the government has yet to map out a feasible and fundamental strategy to stabilize housing prices.

The country’s residential and commercial real estate prices in 70 cities climbed 7.8 percent year-on-year, the National Development and Reform Commission said yesterday. Prices hiked 5.7 percent in November. Prices of new homes shot up 9.1 percent after it grew 6.2 percent in the previous month.

The consistent skyrocketing in prices shown in the official data is out of sync with what the public believes prices have risen to.

In Beijing, for example, housing prices rose by 9.2 percent in December year-on-year while new home prices jumped by 11.3 percent, according to official data. But anecdotally, housing prices could have risen by more than 50 percent or even doubled in 2009 in some corners of the city.

Admittedly, there must be a gap between official statistics and anecdotal information. But it has to be pointed out that the misunderstanding of the public perhaps comes from their practice in mainly eyeing on the prices of commercial housing and failing to take the price of affordable housing into account.

The government seems to have noticed the seriousness of soaring home prices, which has led to discontent among many people who cannot afford a home, and the rising possibility of bursting asset bubbles. It sent an unequivocal signal of preventing speculative deals by announcing a slew of policies to stabilize prices since early December.

But the recent measures taken by the government, be it a sales tax increase or the ban on land hoarding, are much like the measures enforced two years ago, when the first round of home-price increases prompted the government to take action. People are justified in asking whether government measures will really work this time.

While those measures are necessary, the country needs to reassess its development strategies if it is to tame housing prices.

Since the country’s recovery from the Asian financial crisis at the turn of the century, the government has gradually taken the real estate sector, together with the auto industry, as major pillars of its economic expansion. The government believes that these two sectors can stir up activities in a number of related industries to grow within the overall economy.

Today, real estate investment contributes to about 10 percent of China’s economic output, according to Capital Economics Ltd. If housing prices drop, it will dampen investment in the sector and many other related industries as well.

Early last year, the country’s home prices dropped briefly. But the fear that current home prices will trigger another economic recession is believed to have made policymakers take new measures, such as tax cuts, to bail out the industry.

Therefore, the country needs to accelerate its pace in restructuring its investment-centered economy, making it more consumption-driven, so that it can reduce dependence on sectors such as real estate for its more balanced economic expansion.

Is Google’s exit threat a matter of censorship and human rights?

If it is, the move should have come much earlier or the Web giant should have never entered the Chinese market in the first place.

The statement posted by Google says that disputes with the Chinese government on Internet regulation and major cyber attacks on the company that allegedly originated from China have forced the company to consider leaving the nation.

We don’t yet know about its real intention to quit China. But reasons in its statement are not convincing. And it is too early and overly sensitive on the part of Western media outlets to play it up as a political issue and portray Google as a guardian of human rights and freedom of speech.

Every country has its own rules to censor particular kinds of information on the Internet. We spare no efforts in cracking down on pornographic content on the Internet, which we believe and numerous examples have shown are detrimental to the healthy development of young people.

Google should have been quite clear of the Chinese government rules on the management of the Internet even before it entered the Chinese market. In the four years since it was launched in China in 2006, the Internet has been improving rapidly. It has become an important channel for Chinese people to vent their grievances against corruption and whatever possible wrongs committed by the government at all levels.

If Google considered it feasible to develop its Internet business under Chinese law four years ago, it would be ridiculous for it to feel otherwise when the Internet environment here in China has improved tremendously in terms of censorship.

As far as the cyber attacks are concerned, such attacks happen everyday and there are no Internet portals that have not been attacked by hackers. And the Chinese government has always considered such attacks as an online crime and has made strides in cracking down on such offenses.

Wherever Google operates, attacks from hackers will be a problem it has to deal with. So this is undoubtedly not a plausible reason for the Internet giant to quit a market.

Whatever the real cause for Google’s possible move, this case is purely business in nature and it should have nothing to do with political ideology. If this Internet giant has political values, it should never have been involved in such a business.

Nevertheless, this case provides some Westerners, who are biased against China’s political system, with an opportunity to point their fingers at the Chinese government and even play it up as a political debate in Sino-US relations. Having turned a blind eye and deaf ear to the changes that have taken place in China, they grab any opportunity to do so.

If anything, this case will and should not have any impact on China-US relations. Neither will it negatively impact the political openness the Internet has helped to create for this country in its steady advance to further democracy.

General Secretary Hu Jintao placed considerable emphasis on ensuring that anti-corruption measures work during his address to a plenary session of the Communist Party of China’s Central Commission for Discipline Inspection. He envisioned the nation’s mechanism against corruption as effective and practical.

It was an incisive point in the authorities’ recent rhetoric in the fight against corruption. Years have now passed with a number of new vows and decrees on building a clean government. But people mostly have been hearing similar promising slogans that have done little more than state and restate the national leaders’ resolve to keep corruption under control.

The result is an increasingly “complete” package of rules spelling out the “do’s and don’ts” for the CPC and government officials. It’s been so complete that some discipline watchdogs are reportedly planning to oversee Party and government functionaries’ about after-work activities. So we are not complaining when authorities brag about their achievements in the high-profile crusade against corruption.An embarrassing contrast is that the seemingly tightening grip on corruption has not hindered the rampant spread of corruption in some public offices. And the public is getting the impression that corruption might be becoming more pervasive in some areas from the frequent media exposure of scandals.

We have no intention of discounting the achievements of our corruption busters through the years. The Central Commission for Discipline Inspection has done a wonderful job in investigating charges of corruption against high-ranking officials. Without the commission, we would not have had so many top leaders disgraced for their misuse of power.

But we believe that the Central Commission for Discipline Inspection would not have been so overburdened with individual cases if all our current rules against corruption worked right. We do not mean the current framework of anti-corruption laws are even close to being perfect. But the most daunting challenge to the CPC’s clean-government initiative is no longer the lack of rules. Instead, it is that many laws, though impressive on paper, have been rendered nominal, or simply aesthetic.

General Secretary Hu, as he has done before, accentuated the education of leading officials. Education has an important supporting role in curbing corruption. Yet we strongly feel that the spotlight must be focused on adding teeth to existing measures.

Hu appealed for instilling the principle that nobody should be above and beyond the rules and laws into leading officials. To achieve that, the most efficient approach is to place them under rigorous scrutiny in accordance with stricter standards.

An allegedly fatal defect in the design of anti-corruption measures is the unspoken assumption that CPC and government officials are morally sound, or at least more so than the average citizen. That might give the rule violators the false idea in expecting forgiveness when being caught, and thus make them become bolder and more abusive before being caught.

To correct that, all officials must be taken as what they actually are. Truth is they are as fallible as, if not more fallible than, the common person. So they do not deserve the illusionary moral high ground.

PASADENA, California – NBC said Sunday it decided to pull the plug on the Jay Leno experiment when some affiliate stations considered dropping the nightly prime-time show, and the network is waiting to hear if Leno and “Tonight” host Conan O’Brien accept its new late-night TV plans.

“The Jay Leno Show,” which airs at 10 p.m. EST, will end with the Feb. 12 beginning of the Winter Olympics, said NBC Universal Television Entertainment Chairman Jeff Gaspin. Leno would return to his former 11:35 p.m. slot after the Olympics ended under the network’s new plan, which also calls for O’Brien to retain his job with “Tonight” but at the later hour of 12:05 a.m. EST.

Jimmy Fallon and his “Late Night” would be pushed a half-hour later as well, to 1:05 a.m. EST.

“My goal is to keep Jay, Conan and Jimmy as our late-night lineup,” Gaspin said, adding later that they “have the weekend to think about it” and discussions with them will resume Monday.

NBC had moved Leno to prime-time last year in order to keep him from leaving the company and keep a promise it had made to give O’Brien the “Tonight” show. The change was one of the most dramatic in prime-time television in a generation. It was also a roll of the dice at a time NBC was suffering in prime-time. It didn’t even last six months.

Gaspin said the new proposal gives Leno what’s important to him — telling jokes at a later hour — and O’Brien his top priority, retaining “Tonight.”

“I hope and expect that before the Olympics begin, we’ll have everything set. I can’t imagine we won’t have everything in place before then,” Gaspin told a meeting of the Television Critics Association.

Gaspin said that despite lower ratings for NBC at 10 p.m. compared to last year, the network was making money off the show.

But affiliates were upset that it was leading fewer viewers into their late news programs, costing them significant advertising revenue. Some affiliates told NBC in December they would go public soon about their complaints if a change wasn’t made, or even take Leno’s show off the air.

Gaspin said about one-third of the affiliates were really hurt by the Leno show, although he wasn’t clear on how many said they might pre-empt his show.

“I asked them (the affiliates) how many are they talking about, because I could have lived with one or two. But I got the sense that it was more than one or two,” he said.

Michael Fiorile, chairman of the NBC Affiliate Board, said it was a great move for NBC stations, the networks and viewers.

“We admire their willingness to innovate, and their willingness to change course when it didn’t work for us,” Fiorile said.

Gaspin said he pondered combinations of possible schedule changes before the holidays and then called his boss, NBC Universal Chairman Jeff Zucker, for approval to act.

“I don’t want to wait anymore. Now is the time,” Gaspin recounted telling Zucker.

Both Leno and O’Brien made comedic hay out of the issue last week. Leno joked in his monologue that NBC was working on a solution in which all parties would be treated unfairly, while O’Brien wisecracked that he and Leno would be thrown by the network into a pit to fight and “the one that crawls out gets to leave NBC.”

Gaspin said he’s “perfectly fine” with their on-air remarks “if that’s how they blow off steam and that’s how they’re comfortable.”

NBC’s “Saturday Night Live” and its “Weekend Update” with Seth Meyers also got into the act.

“It was reported Thursday that in the wake of poor ratings for `The Jay Leno Show,’ NBC will move his show back to the 11:35 time slot, and then start Conan O’Brien’s `Tonight Show’ at midnight — though it’s a little weird to start the `Tonight Show’ at a time when it’s no longer tonight,” Meyers said Saturday.

Asked if O’Brien and Fallon expressed anger at his proposal, Gaspin said both men were professional and understanding when they talked. “Beyond that, it was a private conversation,” Gaspin said.

O’Brien reportedly has a contract that guarantees him a multimillion-dollar payment if “Tonight” is moved later than 12:05 a.m. EST.

But Gaspin, asked if a contractual penalty weighed into the decision to bump O’Brien’s show a half-hour rather than a full hour, replied, “No, not at all.”

As for reports that Fox may be considering courting O’Brien for a late-night program, Gaspin repeated his desire to keep him, Leno and Fallon at NBC.

The decision to shift Leno will leave a gaping hole in NBC’s prime-time schedule, at a time the network is already struggling. A mix of reality programming, “Dateline NBC” and at least two hours of scripted shows will be added to fill in the five hours taken up by Leno’s prime-time show each week.

Looking ahead to the 2010-11 season, NBC announced seven drama pilots under development, including an updated version of “The Rockford Files” from “House” executive producer David Shore; “Undercovers,” a husband-wife spy drama from producer J.J. Abrams (”Lost”) and “Prime Suspect,” based on the BBC series about a female detective.

The network’s heavy development slate is a reversal of its most recent approach of attempting to make series without pilots.