BRIC-a-BRAC: Sid Harth
Sid Harth
http://www.idc.com/prodserv/maps/bric.jsp
Brazil, Russia, India and China, commonly referred to as BRIC,
consumed $65 billion of information technology in 2005 and combined IT
spending in BRIC is expected to reach nearly $110 billion by 2009.
Although they are often described as a group, Brazil, Russia, India,
and China are a diverse and complex set of economies and cultures.
Today these economies account for just 6% of global IT consumption,
but by 2009 the BRIC emerging group will account for 8% of global
technology spending, making it equal in size to the Japanese IT
market. This is this reason why BRIC is becoming an important
strategic focus for many global technology companies.
Monitoring developments in technology markets in these countries is a
difficult and time-consuming task. IDC has over 110 employees in the
BRIC countries, and its broad research coverage is designed to meet
the tactical needs of country sales and marketing managers as well as
the more strategic requirements of regional and global executives.
...and I am Sid Harth
Sid Harth
From Wikipedia, the free encyclopedia
Brazil
President: Luiz Inácio Lula da Silva
In economics, BRIC or BRICs is an acronym that refers to the fast-
growing developing economies of Brazil, Russia, India and China. The
acronym was first coined and prominently used by Goldman Sachs in 2001.
[1][2] Goldman Sachs argued that, since they are developing rapidly,
by 2050 the combined economies of the BRICs could eclipse the combined
economies of the current richest countries of the world. The four
countries, combined, currently account for more than a quarter of the
world's land area and more than 40% of the world's population. [1] [2]
Goldman Sachs did not argue that the BRICs would organize themselves
into an economic bloc, or a formal trading association, as the
European Union has done.[3] However, there are strong indications that
the "four BRIC countries have been seeking to form a 'political club'
or 'alliance'", and thereby converting "their growing economic power
into greater geopolitical clout".[4][5] On June 16, 2009, the leaders
of the BRIC countries held their first summit in Yekaterinburg, and
issued a declaration calling for the establishment of a multipolar
world order.[6]
The BRIC thesis
São Paulo, Brazil.Goldman Sachs argues that the economic potential of
Brazil, Russia, India, and China is such that they may become among
the four most dominant economies by the year 2050. The thesis was
proposed by Jim O'Neill, global economist at Goldman Sachs.[7] These
countries encompass over 25% of the world's land coverage and 40% of
the world's population and hold a combined GDP (PPP) of 15.435
trillion dollars. On almost every scale, they would be the largest
entity on the global stage. These four countries are among the biggest
and fastest growing emerging markets.
However, it is not the intent of Goldman Sachs to argue that these
four countries are a political alliance (such as the European Union)
or any formal trading association, like ASEAN. Nevertheless, they have
taken steps to increase their political cooperation, mainly as a way
of influencing the United States position on major trade accords, or,
through the implicit threat of political cooperation, as a way of
extracting political concessions from the United States, such as the
proposed nuclear cooperation with India.
(2003) Dreaming with BRICs: The Path to 2050
Moscow, Russia.The BRIC thesis[8] (defended in the paper Dreaming with
BRICs: The Path to 2050) recognizes that Brazil, Russia, India and
China[9] have changed their political systems to embrace global
capitalism. Goldman Sachs predicts China and India, respectively, to
be the dominant global suppliers of manufactured goods and services
while Brazil and Russia would become similarly dominant as suppliers
of raw materials. Cooperation is thus hypothesized to be a logical
next step among the BRICs because Brazil and Russia together form the
logical commodity suppliers to India and China. Thus, the BRICs have
the potential to form a powerful economic bloc to the exclusion of the
modern-day states currently of "Group of Eight" status. Brazil is
dominant in soy and iron ore while Russia has enormous supplies of oil
and natural gas. Goldman Sachs' thesis thus documents how commodities,
work, technology, and companies have diffused outward from the United
States across the world. Following the end of the Cold War or even
before, the governments comprising BRIC all initiated economic or
political reforms to allow their countries to enter the world economy.
In order to compete, these countries have simultaneously stressed
education, foreign investment, domestic consumption, and domestic
entrepreneurship. According to the study, India has the potential to
grow the fastest among the four BRIC countries over the next 30 to 50
years. A major reason for this is that the decline in working age
population will happen later for India and Brazil than for Russia and
China.
(2004) Follow-up report
Mumbai, India.The Goldman Sachs global economics team released a
follow-up report to its initial BRIC study in 2004.[10] The report
states that in BRIC nations, the number of people with an annual
income over a threshold of $3,000, will double in number within three
years and reach 800 million people within a decade. This predicts a
massive rise in the size of the middle class in these nations. In
2025, it is calculated that the number of people in BRIC nations
earning over $15,000 may reach over 200 million. This indicates that a
huge pickup in demand will not be restricted to basic goods but impact
higher-priced goods as well. According to the report, first China and
then a decade later India will begin to dominate the world economy.
Yet despite the balance of growth, swinging so decisively towards the
BRIC economies, the average wealth level of individuals in the more
advanced economies will continue to far outstrip the BRIC economy
average. Goldman Sachs estimates that by 2025 the income per capita in
the six most populous EU countries will exceed $35,000, whereas only
about 500 million people in the BRIC economies will have similar
income levels.
The report also highlights India's great inefficiency in energy use
and mentions the dramatic under-representation of these economies in
the global capital markets. The report also emphasizes the enormous
populations that exist within the BRIC nations, which makes it
relatively easy for their aggregate wealth to eclipse the G6, while
per-capita income levels remain far below the norm of today's
industrialized countries. This phenomenon, too, will affect world
markets as multinational corporations will attempt to take advantage
of the enormous potential markets in the BRICs by producing, for
example, far cheaper automobiles and other manufactured goods
affordable to the consumers within the BRICs in lieu of the luxury
models that currently bring the most income to automobile
manufacturers. India and China have already started making their
presence felt in the service and manufacturing sector respectively in
the global arena. Developed economies of the world have already taken
serious note of this fact.
(2007) Second Follow-up report
Shanghai, China.This report compiled by lead authors Tushar Poddar and
Eva Yi gives insight into "India's Rising Growth Potential". It
reveals updated projection figures attributed to the rising growth
trends in India over the last four years. Goldman Sachs assert that
"India's influence on the world economy will be bigger and quicker
than implied in our previously published BRICs research". They noted
significant areas of research and development, and expansion that is
happening in the country, which will lead to the prosperity of the
growing middle-class.
"India has 10 of the 30 fastest-growing urban areas in the world and,
based on current trends, we estimate a massive 700 million people will
move to cities by 2050. This will have significant implications for
demand for urban infrastructure, real estate, and services."
In the revised 2007 figures, based on increased and sustaining growth,
more inflows into foreign direct investment, Goldman Sachs predicts
that "from 2007 to 2020, India's GDP per capita in US$ terms will
quadruple", and that the Indian economy will surpass the United States
(in US$) by 2050.[11] It states that the four nations as a group will
overtake the G7 in 2032.
Sid Harth
31 Jul 2009, 0550 hrs IST,
Shikha Sharma & Vivek Sinha, ET Bureau
India Inc has begun the new financial year on a pleasant note, with
four out of five companies making profits in the first quarter.
Analysts see
better earnings for the rest of the year on falling cost of
operations.
An ETIG study of 850 listed companies saw their net profits rising 13%
over the year-ago period after three dismal quarters, helped by
falling raw material costs, lower cost of borrowing and modest growth
in wage bills. The study did not include banks and public sector oil
companies as their fortunes are directly linked to government
policies.
Among the 22 Nifty companies that have declared quarterly results—
Nifty is the benchmark stock market index that comprises 50 firms—the
earnings story is even more gripping. These firms together reported a
25% increase in standalone net profit for the quarter over the year-
ago period after witnessing modest earnings growth ranging between
3-8% in the previous four quarters.
Some companies that announced spectacular results include cementmaker
ACC, which saw 85% higher net profit, M&M (152%), Grasim (61%), Dr
Reddy’s (120%) and Hero Honda (83%).
Also Read
→ India to maintain growth amid global slump: Mukherjee
→ India to clock near 7% growth this fiscal: Deutsche Bank
→ Profits, share prices mask uncertain India economy outlook
→ India economy to grow faster than RBI's target: Morgan Stanley
This could set the tone for better earnings in the coming months, with
companies and analysts seeing lower cost of operations going forward.
“We can expect continued increase in profits as companies are unlikely
to see input costs going up in the near term,” said DR Dogra, deputy
managing director of credit rating agency CARE.
The bottom-line performance was boosted by lower raw material costs,
which declined 3% for the first time in the last four quarters. In
addition, wage bill went up by a modest 10% compared with an average
15-25% during the previous four quarters. With softening interest
rates, borrowing costs of companies grew moderately at 20%, compared
with over 30% growth over the previous few quarters.
Overall, 82% of companies covered by the study reported net profits
compared with 70-72% in the previous three quarters. Companies that
came out of the red after reporting losses in the March quarter
include SpiceJet, Balaji Telefilms, Mcleod Russel and Advanta India.
Some other firms saw their profits going up due to one-time foreign
exchange gains or sale of investments. Such companies are Ranbaxy
Labs, Tata Motors, L&T, Jubilant Organosys and JSL.
During the quarter, a number of companies beat analyst estimates and
reported blockbuster quarterly results. “Dalal street is surprised by
the upsides in earnings. Despite top line being under pressure last
quarter, we have seen good growth in net profits due to expansion in
operating margins,” said Sarabjit Kour Nangra, vice-president
(research) at Angel Broking.
Sid Harth
31 Jul 2009, 1001 hrs IST, ET Bureau
MUMBAI: Equity benchmarks sharply higher on Friday buoyed by
optimistic signals from international markets. Metals and energy
stocks fronted the Volatility in the stock markets
Bombay Stock Exchange's Sensex was trading at 15603, higher by 215
points while National Stock Exchange’s Nifty surged 60 points to
4631.
“We are beginning the series with Rs 58,900 crore, the highest since
January 2008. With an overall roll over of 80%, a record in itself,
the series looks buoyant. Two stocks that we like are GSPL and Tech
Mahindra. Technology as a sector is better placed than others.
Tonight, the US will get to know the first reading of its Q2 GDP
growth. The expectation is of a 1.5% GDP de-growth. A better than
expected reading could trigger a new round of bullishness in the
global markets. The next resistance for the Nifty is 4700,” said
Anagram Stock Broking in a note.
US stocks rose on Thursday as solid corporate profit reports and a
drop in the number of Americans on jobless benefits gave investors
reasons to buy equities following the
S&P 500's two days of losses.
The Dow Jones Industrial Average added 83.74 points, or 0.92 per cent,
to close at 9,154.46. The Standard & Poor's 500 Index rose 11.60
points, or 1.19 per cent, to 986.75.
The Nasdaq Composite Index gained 16.54 points, or 0.84 per cent, to
1,984.30.
Stocks across Asia climbed Friday tracking a rally in commodity prices
and on the back of encouraging earnings reports. The Nikkei rose 1.37
per cent, Topix jumped 1.1 per cent, Hang Seng advanced 1.65 per cent
and Straits Times picked up 0.39 per cent.
bademiyansubhanallah
1 Aug 2009, 0033 hrs IST, ET Bureau
A wider set of corporate results have confirmed the trend established
by the early announcements. Most companies have done better than
expected and
markets have responded with enthusiasm to the way firms have countered
the financial crisis and slowdown.
However, the 4% topline growth, well below the 10.5% nominal GDP
growth expected in 2009-10, reported by the 850 results (excluding
banks and oil companies) analysed by ETIG is a stark reminder that
demand still continues to be sluggish.
Besides, the 13% bottom line growth is overstated to some extent by
one-time transactions reported by a number of companies, including
some big ones such as Tata Motors and Ranbaxy. What is it about the
results that excites the markets? Companies have responded by cutting
costs, restructuring, taking a close look at their expansion plans and
selling their non-core businesses.
Such purging after a period of excesses improves balance sheets and,
in general, magnifies performance when business improves. The
experience with the post 1997 slump bears this out. Faced with
overcapacity, unproductive investments then, Indian companies
restructured aggressively. An encore is very likely, making the case
for equities very strong. This time around, the upcycle may come much
quicker than it did after the slump in the late nineties.
This optimism, however, stands tempered by the lack of clarity on how
long the slowdown will last. Eurozone is for sure going to take long
to recover, and evidence in the US is mixed with better outlook for
housing negated by the sluggish consumption data.
Asia looks good with China, India and Indonesia expected to do well.
But recovery could be marred if central banks are forced to tighten
policy if excess liquidity fuels asset prices and inflation becomes a
concern. The RBI has already warned of a higher 5% inflation by the
fiscal end, and asset bubble concerns caused a big hiccup in the
Chinese stock market recently. Lastly, increase in commodity prices,
as recovery takes hold, would knock-off some of the margin gains made
by corporates. But as of now, things look better than anytime since
the crisis began.
bademiyansubhanallah
31 Jul 2009, 0440 hrs IST,
Anil Gupta & Haiyan Wang,
In the first in a series of articles on how Indian companies should go
after market opportunities in China, Anil Gupta and Haiyan Wang
present six key factors that characterise the dragon
Notwithstanding its rapidly growing importance , for most Indian
companies, China remains a poorly-understood mystery and, as Wipro’s
Joint Chief Executive Girish Paranjpe noted recently to an American
newspaper, “a hard nut to crack.” Over the coming decade, an inability
to crack the China market is likely to emerge as a serious handicap
for any large Indian company. The time to begin addressing this
challenge is now, not five years from now.
Biggest Economy by 2025
China is almost certain to become the world’s largest economy (thus,
the largest market for most products and services) by 2025. This will
happen even if, over the next seventeen years, China’s GDP grows at
only a 6-7 percent average annual rate accompanied by a 2-3 percent
average annual appreciation in the yuan vis-à-vis the US dollar. Thus,
China is destined to become the most important economy for India – as
a market, as a competitor, and as a partner. Ignoring China is and
will not be a viable option.
Activist Government + Market Logic
China represents an unusual mix of both “big government” as well as
“big market.” Through its broad regulatory powers and ownership of
enterprises in most key sectors including banking and insurance , the
Chinese government plays a bigger role than is true for any other
large economy, except perhaps Russia. At the same time, in most
industries, the domestic market in China is more brutally competitive
than is true in the US, Europe, Japan, or India.
China is home to about 100 car companies, 1000 steel companies, and
about 5000 cement producers . The top 10 cement companies in China
account for only 14 percent of the market. In contrast, in India, the
top 5 companies account for about 50 percent of the market. The three
telecom operators in China - China Mobile, China Telecom, and China
Unicom – are all state-owned .
Yet, the marketplace skirmishes between the three tend to be at least
as brutal as those between H-P and Dell or Coke and Pepsi. In short,
we misunderstand China if we overlook the role of the government. At
the same time, we also misunderstand China if we overlook the
brutality of domestic market competition, even among state-owned
enterprises.
Government Not A Monolithic Entity
Despite its major role in the economy, the Chinese government is not a
monolithic entity. According to a centuries-old Chinese proverb, “The
mountains are high and the emperor is far away.” As in any large
country, decision-making power is widely dispersed across the various
ministries at the centre as well as between the centre and the various
provincial and local governments. The different entities do not always
see eye-to-eye .
The implication for companies , both domestic and foreign, is that one
needs to keep track of policies and regulations at all levels. Getting
clearance at one level does not in any way guarantee that you will not
run afoul of regulations at another level. Another implication is that
it can be extremely beneficial to align the company’s strategic agenda
with the local government’s policy goals.
Business First, Ideology Second
While exceptions can always be found, for the past two decades, the
modus operandi in China has been “business first, ideology second.” As
Deng Xiao Ping famously observed, “It does not matter if it is a black
cat or a white cat; as long as it catches mice, it is a good cat.”
Chinese pragmatism manifests itself in numerous ways. Look at China’s
relationship with Japan. Notwithstanding the historical enmity
(indeed, hatred) between the Chinese and the Japanese, economic ties
between the two countries are extremely robust. Look also at the
metrics that drive performance assessment for provincial governors and
city mayors. GDP growth is the single most important factor in these
assessments. The implication for Indian companies is that, in
designing a strategy for the Chinese market, it is important to focus
first on what will appeal to Chinese pragmatism and only then on what
may appeal to Chinese ideology.
Mega-Market with Micro-Customers
Like India, China is a mega-market with micro-customers . This makes
the Chinese economy rich and poor at the same time. As the world’s
third-largest economy (that is over three times as large as India’s ),
China is rich in macro-economic terms. However, its per capita income
is less than one-fifteenth that of the US or Germany. Thus, China is a
poor country in microeconomic terms. For Indian companies, this
similarity can be a competitive advantage vis-à-vis western
multinationals . Indian companies are rapidly becoming masters at the
art and science of frugal innovation. Many of these innovations are
likely to have a large market opportunity in China also.
Dominance in Manufacturing
China is far ahead of India in the manufacturing sector and the
quality of infrastructure. Even though China’s GDP is about three and
a half times as large as India’s , China’s manufacturing sector is
almost six times as large.
Also, over the last twelve years, China has spent about five times as
much as India has on building up its infrastructure. These scale,
experience, and infrastructure advantages give Chinese companies an
overwhelming edge over many Indian companies in manufactured goods –
an advantage as large as the Indian companies enjoy over their Chinese
counterparts in the global IT services market. The implication for
Indian companies wanting to crack the China market is that they need
to think not just in terms of exporting from India but also in terms
of manufacturing in China to serve the market there.
In our next article, we outline the key elements of a strategic
roadmap that Indian companies can adopt to design strategies for
cracking open the China market.
Anil K. Gupta is the Ralph J. Tyser Professor of Strategy at the Smith
Business School, The University of Maryland. Haiyan Wang is Managing
Partner of the China India Institute. They are the co-authors of
Getting China and India Right and The Quest for Global Dominance
bademiyansubhanallah
26 Jul 2009, 0502 hrs IST,
Vikas Agarwal, ET Bureau
There has been a spectacular pull-back in the markets after the
consolidation and correction a couple of weeks ago. Huge buying was
witnessed
across all the sectors led by the information technology sector where
the quarterly results of blue-chip companies surprised analyst
expectations.
Both the key indices recovered all their losses as the Nifty crossed
the 4,500 mark and the Sensex crossed the 15,000 mark this week.
Market data shows the market was pushed up by huge buying activity
from all segments of investors - foreign institutional investors
(FIIs), domestic institutional investors as well as individual
investors.
Short-term technical charts indicate bullishness in the market and
analysts believe higher levels in the market are possible if there are
no major negative surprises in the coming weeks. The strategy for
small investors should be to accumulate fundamentally-strong large-cap
and midcap stocks at every correction and keep booking part profits at
every significant market rally.
Here are some significant developments in the markets the last week:
Global developments
The stock markets across the globe remained quite upbeat throughout
the week as many blue-chip companies continued to report profits that
are better than market expectations. Many of these companies have even
raised their earnings outlook for the rest of the year. The indices of
many stock markets across the globe are trading at higher levels since
October last year (before the global stock markets melt-down started).
All this gives a very strong indication of the investor confidence in
the global markets.
Corporate results
In line with the global corporate results, good earnings have been
reported from large-cap companies here. The results of almost all the
large-cap companies declared so far have beaten expectations. The out-
performance that started with the results of IT majors continued last
week with the results of auto, cement, telecom and FMCG majors.
The early bird announcements have increased the expectations from the
first quarter of the financial year 2009-10 's results season.
However, experts opine that small investors should remain cautious and
keep booking profits at regular intervals. Many large companies will
declare their quarterly results in the next couple of weeks and a few
bad results may turn the mood in markets downwards, at least for the
short to medium terms.
Monsoons
According to the Meteorological Department, the rainfall for the month
of July remained quite normal. The forecast says rainfall in August
should be near normal across all the regions. The north will remain in
a net deficit of 15-20 percent this year. The improved monsoon
situation in the country has certainly come as a relief to the
markets.
However, late or deficit rains in the north will result in a delayed
and somewhat deficient Kharif crop this year. Therefore, inflation in
food prices will continue to rule high in the medium term.
Inflation
The Wholesale Price Index (WPI) based inflation was reported at minus
1.17 percent for the week ended July 11. The marginal rise in
inflation from the last week is mainly due to higher prices of primary
food articles such as marine fish, fruits and vegetables. This is the
sixth consecutive week of negative inflation. The negative inflation
is mainly due to higher base effect of last year - inflation for the
corresponding week last year was at 12.13 percent.
bademiyansubhanallah
China: Speculations About a Power Struggle
Four events, which took place in China in the very recent period, have
given rise to speculations, especially abroad, on a power struggle
developing in the country. Given the opaque Chinese political system,
such a phenomenon should not come as a surprise to anybody. Said to be
involved in the struggle is the Chinese Communist Party (CCP) Chief
and the country’s President, Hu Jintao, perceived as a leader trying
to further consolidate his leadership position through weeding out the
remaining supporters of former President Jiang Zemin from positions of
power.
In chronological order, the events, all seemingly unrelated, are the
following – the arrests of Shenzhen Mayor Xu Zongheng and some senior
Guangdong officials on corruption charges (June 2009), the eruption of
ethnic unrest in Xinjiang (5 July 2009), the reported figuring of Hu
Jintao’s son Hu Haifeng in a corruption investigation started by the
authorities in Namibia (17 July 2009) and the promotion of four senior
military officials as full generals of the Chinese People’s Liberation
Army (PLA) (20 July 2009).
Taking first the developments in Shenzhen, notable is a speculative
analysis in the overseas Chinese website Bo Xun (21 June 2009) to the
effect that the arrests of Xu Zongheng and the Guangdong Provincial
People’s Consultative Conference Chairman Chen Shaoji along with at
least six other provincial officials, are a continuation of Hu
Jintao’s drive against Jiang-loyalists which began in 2006 with the
ouster of the former Shanghai Mayor, former Politburo member and a
Jiang protege Chen Liangyu from his positions on corruption charges.
It has conveyed a sense that Hu Jintao is implementing his anti-Jiang
manouvres in Guangdong through his protégé, He Guoqiang, presently the
Secretary of Party’s Central Discipline Inspection Commission.
Next, the riots in Xinjiang are being viewed, at least by some, as
reflecting a factional fighting in China. For e.g., the well known
Chinese dissident in exile Wei Jingsheng
(www.asianews.it, 27 July 2009) has seen the hand of Jiang faction in
the unrest in Xinjiang as part of its fight back against Hu Jintao.
Wei has felt that the Jiang faction, which still controls China’s
legal system and courts, deliberately fuelled tensions in both
Guangdong and Xinjiang and that in the latter, it has been successful
in demobilising the police force during Urumqi riots, creating an
opportunity to Uighurs to kill the Han Chinese. He has added that
feeling a loss of face under such situation and in order to re-secure
his position at home, Hu Jintao was compelled to return to Beijing
cutting short his G-8 engagements in Italy and that the World Uighur
Congress was not the real reason for the ethnic unrest in Xinjiang.
The third event concerns the reported intention of the Namibian
authorities to question Hu Haifeng, the son of Hu Jintao, on a
corruption case involving supply of port and airport scanners to
Namibia by the Chinese company NucTech of which the junior Hu remained
as CEO till 2008; prima facie it appears unconnected with a power
struggle. But whether or not the Jiang faction would try to exploit
the case in order to weaken Hu Jintao’s position is likely to remain
as a question for speculative analysts. They may argue that NuTech
officials, including Hu jintao’s son, if found corrupt, should be
treated in the same way as it was done in the cases of Shenzhen and
Shanghai mayors. This being so, official efforts which are being made
to cover up the developments relating to Hu Haifeng, speak for the
current nervousness of the Hu regime over the issue (for e.g. the ban
order of the CCP Propaganda Department on all domestic and internet
media including Sina and Netease, from reporting on NuTech episode,
issued immediately after the exposure of Hu Haifeng’s case in the
international media like the Telegraph, 17 July 2009, www.news.yahoo.com,
www.time.com).The full Chinese language text of the government
instructions ( “show no search results for key words like Hu Haifeng,
NuTech, Namibia etc”) was promptly picked up in full by the bloggers
in the West.
The fourth event pertains to the promotions of three PLA officers to
the full rank of General on 20 July 2009. Again a speculative question
touching the power struggle aspect, has immediately surfaced; an
overseas Chinese analyst (Victor Shih, http://faculty.wcas.northwestern.edu)
has raised a question whether Hu Jintao is trying to shore up support
in the Army, in the backdrop of a possible Namibian probe of his son.
The three promoted officers were –
Ma Xiaotian, who is a Central Committee member and so far Deputy Chief
of the PLA General Staff. He has an Air force background and took part
in the Sino-US Defence Consultation talks, besides meeting US Defence
Secretary Robert Gates. He is against US military alliances in the
Asia Pacific. Ma led the Chinese Observers Group to the First Sino-
Indian counter-terrorism exercise held in Kunming in end 2007. His
father was Ma Zaiyao, a former instructor in the PLA Political
Academy.
Liu Yuan, is the son of the former Chinese President, Liu Shaochi, a
Central Committee member and so far, the Political Commissar of the
Academy of Military Sciences. Liu is supposed to be hawkish on
sovereignty issues particularly on Taiwan.
Zhang Haiying, so far Political Commissar, Chengdu Military Region,
son of General Zhang Zhen, a former CMC Vice Chairman and Politburo
member.
It is obvious that the three promoted officers are all “princelings”,
meaning children of Party elders or retired Generals. A widely
prevalent view overseas is that Hu Jintao who has no military
background, is using such promotions of the sons of first and second
generation revolutionaries to senior PLA posts, for consolidating his
base in the military. Hu had done so in the past also, for e.g. in
July 2004, he promoted six top military officers as generals. A point
worth noting in this connection is the importance now being given in
China to Hu Jintao’s command over the military, for e.g. his call to
integrate the requirements of the PLA and the people (Beijing, 25 July
2009) is being compared with the one made by Mao Zedong in the past
for setting up an army based on the concept of ‘military-people
unity’. (www.71.people.com.cn, 27 July 2009)
As actions intended to quell such speculations on factional infighting
in the Party, the nine Politburo Standing Committee members, have
appeared together several times in a show of unity (Politburo meeting
on 9 July 2009 to discuss Xinjiang, the Shanghai 2010 World Expo
ceremony on 15 July 2009 at Beijing, Hu Jintao’s address to the
country’s diplomats on 20 July 2009 and the Politburo meeting in
advance of the 82nd PLA founding anniversary on 25 July 2009).
To come to a judgment on a topic like power struggle in China, no
scholar can afford to rely on speculations only, unless they are
backed by facts. However, the prevailing closed system in China does
not provide any opportunity for analysts to impartially analyse facts
concerning sensitive political subjects. The only alternative
available to them is to read between the lines of open official
records and speculate, as in the foregoing.
So how do we read the speculative comments appeared so far? The least
that can be said is that they, emanating from some knowledgeable
observers, deserve enough attention, as tools for further research. In
an overall sense, at the same time, it can not be denied that the
internal political situation in China remains stable, based on a
policy consensus between the existing two informal factions with in
the CCP top leadership (Knowledgeable experts like Cheng Li of John
L.Thornton China Centre recognize a ruling ‘team of rivals’ in China,
consisting of a ‘populist’ faction led by Hu Jintao and an ‘elitist’
faction consisting of leaders like Wu Bangguo and ‘Princeling’ leaders
like Xi Jinping, who is widely expected to succeed Hu Jintao). If
there are internal differences, care is being taken for not airing
them in public.
Currently, the real threat to the political stability in China does
not seem to come from potential intra-party conflicts over issues, as
the ruling ‘collective’ leadership functions under the basis of a
consensus and mechanisms exist to iron out differences. But Hu Jintao
is only first among equals in contrast to the positions enjoyed by his
predecessors; if his leadership fails to effectively address the
emerging economic, social and even ideological issues in the country
within a reasonable period of time, the consequence will be a
beginning of nationwide unrest, which could be detrimental to the
legitimacy of the CCP as a ruling party. Some signals of unrest have
already emerged and if it goes unchecked, there could be chances of a
struggle between factions with Hu Jintao as target.The 1989 student
demonstrations are a case in point, which witnessed the fall of the
then Party chief Zhao Ziyang.
What are the urgent issues facing the Chinese leadership now? The
first and foremost among them is economic in character - the rural-
urban income disparity and the development imbalance between advanced
coastal regions and poor interior areas in the country. They have come
to stay despite the investment-export led high-speed growth model
followed in the post-1978 period, bringing in general huge benefits to
the middle class. The government’s response to the imbalance has been
in the form of a shift from its erstwhile GDP-centric policy to one
aimed at achieving a ‘balanced development’. To understand the impact
of this shift on the country, one has however to wait further. The
latest worry for the leadership is on how to reduce the impact from
the global financial crisis. A very recent official estimate has
acknowledged the challenge in this regard by noting that though the
Chinese economy has rebounded, uncertainties still exist in the face
of falling export demands and sluggish industrial growth. (People’s
Daily online, 27 July 2009).
As social factors, corruption, labour unrest and unemployment have
become the government’s serious concerns. A nation-wide anti-
corruption campaign has now been launched (He Guoqiang’s speech,
Beidaihe, 27 July 2009), hinting that Shenzhen-type counter-measures
are likely through out the country. If not handled properly, this may
turn out to be another exercise, which can be exploited to settle
political scores. On reducing unemployment and social unrest, various
remedial measures are being implemented. (In the second half of 2008,
10 million rural migrants lost their jobs and 1 million graduates
became unemployed). The CCP has announced a 5-year educational plan to
cover the period of 2009-2013, aimed at enhancing the working
abilities of grassroot cadres and facilitating acquiring of alternate
skills by migrant and laid-off workers as well as retired army
personnel. Also, ‘Patriotic education’ is being stressed as a tool to
build social stability. A patriotic “double hundred” education
campaign was carried out in May-June 2009 to select by voting 100
model heroes and 100 Party cadres who made contributions to New
China). Nevertheless, factors responsible for social unrest are yet to
disappear as can be seen from the large-scale violent protest by 30,
000 workers in Tonghua city (Jilin, 24 July 2009) against the merger
of their steel company with a private enterprise in Beijing, during
which the manager of the enterprise was killed. The merger proposal
has since been withdrawn.
Not to be ignored is the situation in the ideological front; the
leadership is confronted with divergent opinions in the country, which
if not managed well, may have implications for China’s future politics
and governance. The official policy seems to be allowing such
viewpoints (from ‘neo-liberalists’ like those from the ‘Yan Huang Chun
Qiu’ magazine group, ‘neo-leftists’ like Professor Wang Hui of Qinghua
University and ‘ultra-leftists’ such as the Maoflag group) as a
balance against each other and as policy inputs to the government
whenever necessary (some neo-left view points were incorporated in the
11th Five Year Plan). Interesting in this context, is the revival in
China of the old formula of “letting hundred flowers bloom and letting
hundred schools of thought contend”, but with a proviso that the
interests of stability and unity in the country should not get
jeopardized while implementing it (Qiu Shi, 16 July 2009). Setting the
limits at the same time to the ‘blooming’ are some top level
prescriptions, for e.g the firm rejection by China People’s Political
Consultative Conference Chairman Jia Qinglin of ‘neo-liberalism’ and
Western-style democracy for China in his article in the CCP
theoretical organ (Qiu Shi, 16 January 2009).
During the scheduled 18th party congress in 2012, the fifth generation
of leadership is to take over China replacing the Hu-Wen regime. In
all probability, the new set of leaders will be Xi Jinping (as Party
General Secretary and President) and Li Keqiang (as Prime Minister).
What needs to be watched carefully at this juncture is the scenario
leading up to the forthcoming party Plenum in September 2009 which is
expected to adopt a crucial roadmap on party building and economic
development. In a broad sense, however, it would be important to pay
close attention to the likely nature of impending power transfer in
2012. Jiang Zemin’s handing over of reins to Hu Jintao had been
smooth; one can only hope that the situation will be the same during
the next CCP conclave, with no place for a power struggle.
(The writer, D.S.Rajan, is Director, Chennai Centre for China Studies,
Chennai, India. email: dsr...@gmail.com)
Sid Harth
TTChina shares hit 14-month high as manufacturing up
Chinese shares hit a 14-month high Monday after two surveys showed the
country's manufacturing is expanding.
The benchmark Shanghai Composite Index rose 50.53 points, or 1.5
percent, to close at 3,462.59 -- the highest since May 19, 2008. The
Shenzhen Composite Index, China's second exchange, was up 2 percent to
1140.54.
The rebound from a steep one-day drop last week showed that the forces
driving the current rally are undiminished, analysts said. Shares fell
Wednesday on concerns that government efforts to control bank lending
might constrain liquidity but quickly recovered after the central bank
assured investors its easy credit policy would continue.
Investors were encouraged Monday by separate surveys released by
brokerage CLSA Asia-Pacific Markets and a Chinese industry group that
showed manufacturing expanding in July.
"The latest better-than-expected U.S. economic data also gave hope for
China's export industries," said Zhang Gang, an analyst for Central
China Securities in Shanghai.
Nonferrous and steel, sectors linked to overall economic performance,
rose.
Yunan Copper Ltd. rose 4.7 percent to 37.18 yuan, while Jilin Ji'en
Nickel Industry Co. rose by the daily 10 percent maximum to 35.10 yuan
on higher nickel prices.
Baoshan Iron & Steel Co., China's biggest steel producer, was up 4.9
percent to 10.10 yuan, while Angang Steel Co. was up 8.9 percent to
18.9 yuan.
Power companies extended gains on expectations the government might
raise electricity prices, which would give them fatter profit margins.
Datang International Power Generation Co. jumped 10 percent to 11.52
yuan, while Huadian Power International Corp. added 6.7 percent to
6.66 yuan.
In currency markets, the yuan strengthened to 6.8322 to the U.S.
dollar, up from Friday's close of 6.8420.
Sid Harth
Thu Aug 6, 2009 12:07pm EDT
Wall Street slips; telecom woes offset data Goldman Sachs' Cohen says
new bull market has begun Huntsman Q2 lags Wall St view, shares slip
More Business & Investing News... Featured Broker sponsored link
(Adds detail from Mantega's presentation to investors)
WASHINGTON, Aug 6 (Reuters) - The Brazilian economy was already
growing at a pace of 4 percent at the beginning of the third quarter,
Finance Minister Guido Mantega told investors in Washington, according
to a copy of his presentation on Thursday.
Answering investor concerns about the fiscal impact of stimulus
measures adopted by the government, Mantega forecast Brazil's net
public debt will decrease to 38.5 percent of gross domestic product in
2010, after swelling to 41.9 percent of GDP this year.
Sid Harth
outlook
Published: 06 Aug 2009 20:02:01 PST
Just before the National Bureau of Statistics will release July's
macro-economic data on August 10, several global financial
institutions raised their forecasts for China's economic growth.
Standard Chartered Bank Ltd (SCB) had projected a 7.4 percent economic
growth this year and 8.0 percent next year in June. But because of the
economic data of the second quarter released July 16 which shows signs
of a rebound, on Tuesday SCB raised its forecast to 8.5 percent this
year and 8.9 percent next year.
Earlier, the World Bank has raised its forecast for China's economic
growth from 6.5 percent to 7.2 percent in June, and JP Morgan lifted
its forecast from 7.2 percent to 7.8 percent in June and then to 8.4
percent in late July.
They believe China's economic expansion has achieved positive results.
Further economic restructuring and stimulating consumption are key
factors for global economic growth.
Nicholas Kwan, Chief Economist and Regional Head of Research, Asia at
SCB noted that China's exports are unlikely to rally in a short time,
but its imports are recovering. Domestic consumption will increase
dramatically, serving as a drive for the economic recovery.
However, China is also faced with challenges of inadequate private
investments, insufficient development of small- and medium-sized
enterprises and improper industrial structure, he added. The main
problem is that liquidity is not equally distributed in China.
Kwan said, at present, the question is not how much China's economy
recovers but how well it recovers
Sid Harth
SIC: investment to drive China's economy to 8% growth in 2009
+ - 10:49, August 07, 2009
The State Information Center, under the National Development and
Reform Commission, predicted that China's economy would grow by about
8 percent in 2009, with investment as the major driving force.
However, overcapacity will remain one of the major problems in the
economy, according to the report issued by SIC on August 6.
The growth of the first, second and tertiary industry will reach 3.5
percent, 8.5 percent and 8.6 percent respectively.
The SIC estimated that urban fixed investment for the whole year would
reach about 30 percent. As the inventory adjustment will mainly happen
in the first quarter, investment demand will play an even bigger role
in boosting China's economy and will stand at a high level in the
remaining days of the year.
The rise of the Procurement Managers Index (PMI) for six consecutive
months indicates that the rebound of industrial output will continue.
It is estimated that the added value of China's "over scale"
enterprises, that is, state-owned enterprise and private companies
with annual sales of more than 5 million yuan, will increase by 8.5
percent for the whole year, which is 1.5 percentage points higher than
that of the first half of the year but lower than the lowest level in
the last 20 years, the 8.9 percent growth rate in 1999.
However, the overcapacity, combined with weak external demand,
shrinking profits and expected slowdown in new bank loans, will hinder
investment growth.
Shrinking external demand, in turn, results in more serious
overcapacity. And the overcapacity also makes it more difficult to
nurture new growth points and improve structure.
However, the overcapacity will also help contain inflation when the
new loans surge in the first half of the year and the rebound of
international commodity prices fuel the inflation expectation.
The SIC thinks that both the CPI and PPI will still go down in the
third quarter. But CPI may resume growth by the end of the year and
will decrease by about 0.5 percent for the whole year.
The growth of PPI is unlikely within the year. It will slump by about
5 percent for the whole year compared with 2008.
By People's Daily Online
bademiyansubhanallah
18:04, July 21, 2009
Major media in Europe and the US hailed China's economic performance
in the first half of the year driven by the country's massive stimulus
package.
China's economy grew by 7.1 percent over the first half of the year
and the rebound in the second quarter was particularly significant,
reaching 7.9 percent, compared with the 6.1 percent growth rate in the
first quarter.
Major foreign media regards that as a signal that China's economy is
on course for an earlier recovery than any other economy in the world
and will meet its target of eight percent growth for the whole year
2009.
"That made China the world's best-performing big economy", said Times.
Bloomberg pointed out that China is "the only one of the 10 biggest
economies that is expanding". The Associated Press commented that
China's strong growth in the second quarter boosted hopes of the
countries emerging from the global downturn.
They all recognized the effectiveness of China's stimulus package,
attributing China's better-than-expected performance to the government
funded spending and surging bank lending.
"That's (China's earlier than expected economic recovery) largely due
to the government's massive economic stimulus package unveiled last
November, but the private sector is doing its part too", said BBC.
They also hope that the recovery of the world's largest economy would
lead the world economic recovery. Washington Post expects China's
recovery could boost its imports, which is a boon for American and
European producers.
Bloomberg believes China's growth is "highlighting the role the nation
may play in easing the worst global recession since the Great
Depression".
Emerging economies, led by China, are set to regain growth momentum in
the remainder of this year, helping the world to recover from the
worst slump since World War II, the IMF said.
But there are also concerns. The Economist sharply points out cautions
for China's economy, "Despite the recent lending boom, Chinese banks'
mortgage lending is still very conservative compared with that in
America—at the peak of America's housing bubble it was easy to get a
mortgage for 100% or more of the value of a home. Nevertheless, the
lesson of America's financial crisis for China's government is plain:
overly loose lending should never be ignored."
Ben Simpfendorfer, China economist at RBS in Hong Kong, told the Times
that over-reliance on the stimulus package could have negative
consequences. "The important message here is that while the pace of
growth is accelerating, the quality is deteriorating. Growth is too
reliant on public investment and residential investment. It's not
sustainable."
New York Times warned that "China's growth also holds serious risks
because of an explosion of bank lending that could eventually lead to
non-performing loans, overly aggressive infrastructure spending that
could be wasteful, and policies that do not favor private businesses."
CNN indicts that the record rate of lending in China is particularly
troubling, saying some market watchers fear it could fuel speculation
and create asset bubbles.
Some economists remain concerned about private businesses' continued
reluctance to invest, especially as industrial profits continue to
fall, according to Wall Street Journal.
Given all of those good signs and looming risks, there will be "debate
about the proper course for policy in coming months", as the Wall
Street Journal put it.
bademiyansubhanallah
Venkatesan VembuTuesday, August 4, 2009 20:50 IST Email
this columnGeorge Bernard Shaw once famously said that even if all the
economists were laid end to end, they would not reach a conclusion.
That statement, said only half in jest, reflects a widely held view on
the general incapacity of practitioners of the dismal science to
arrive at unanimity or even a broad consensus of opinions.
Indicatively, for every economist who believes that the current
recovery in investor sentiment in stock markets around the world
represents that the worst of the financial meltdown and the global
recession is over, there is another who holds -- with equal vehemence
-- that this is irrational exuberance, and that the recession still
has some way to go.
But increasingly, reflections on economic conditions and investor
sentiments in Asia have managed to help forge the nearest thing to a
consensus among economists: that an 'asset price' bubble is building
up, particularly in the property and stock markets, and that
governments in the region are nowhere near as concerned about it as
they should be. This holds ominous portents for a region that, quite
remarkably, never really felt the cruel impact of the global credit
crunch in the same way that economies in the West did.
In particular, the froth that is building up in China is giving
economists cause for deep disquiet. The Shanghai stock market index
has doubled since November and, with officials signalling that their
stance of adopting a loose monetary policy will continue, that
feverish burst is likely to be kept up for a while. And in recent
months, there has been a stampeding of buyers of real estate in
Chinese cities, driving up prices; auction of property units is being
telecast on television, evidently in a show of transparency, but this
has only served to trigger a frenzy of me-too buying.
Economist Andy Xie, formerly of Morgan Stanley, goes so far as to say
that Chinese asset markets have become "a giant Ponzi scheme" where
prices are driven by expectation of appreciation, which draws in more
people,which in turn drives up prices.
In November 2008, China, which experienced a sharp contraction in
exports as a consequence of the global recession, unveiled a 4
trillion yuan ($585 billion) stimulus package to boost its
infrastructure investments and stimulate domestic consumption.
Additionally, China's banks have extended nearly 7.5 trillion yuan
(over $1 trillion) in new loans, with more lending expected for the
rest of the year. An astounding 50% of those new loans have found
their way into the property and stock markets for speculative
purposes.
It is evident that policymakers, in China and elsewhere in Asia, are
being swayed by what is called 'bubble economics': the argument runs
that rising asset prices, primarily for property and stocks, creates a
"wealth effect" by raising the net worth of households and
corporations, which in turn encourages them to spend and invest.
Some economists see this as a repeat of what happened in the US in the
run-up to the collapse of the sub-prime housing market, which in turn
led to the financial meltdown of 2008. The parallels aren't quite the
same -- economic fundamentals in Asia today, for instance, are vastly
superior to what they were in the US -- but there is enough in common
to unsettle all but the most die-hard practitioners of 'bubble
economics'.
The situation has been compounded by a flood of liquidity into Asia as
perceptions of a sustained recovery in the US, however premature, are
prompting an embrace of greater risk. One way to avert a more serious
effect would be for Asian economic managers to decouple their monetary
policy from that of the West, where low economic growth will mean low
interest rates, and focus more aggressively on pricking the bubbles
that have built up.
In other words, the economists appear to have reached a consensus.
It's now time to lay Asia's monetary policymakers end to end and get
them to reach a conclusion.
Sid Harth
Is China a Potemkin Economy?
Economists have long suspected China's official economic data was
worthless. Now the official numbers have gotten so out of sync that no
one believes them anymore. From Reuters:
The Global Times, controlled by the People’s Daily, the Communist
party mouthpiece, reported that the public reacted with “banter and
sarcasm” to NBS figures showing average urban wages in China rose 13
per cent in the first half to $2,142.
It quoted an online poll showing 88 per cent of respondents doubted
the official numbers.
An editorial on Tuesday in the China Daily, the government’s English-
language mouthpiece, quoted another survey that found 91 per cent of
respondents skeptical of official data, up from 79 per cent in 2007.
While China consistently reports 8% growth, at least one expert on
China's markets sets the real number closer to 2%. An asset bubble is
inflating in China's financial sector; the Communist Party has already
forced banks to slow down lending. They also admit the jobs picture
looks bleak, but their official figures don't include migrant workers
or college graduates:
Wang said around 147 million migrant workers had moved to cities for
jobs by June but more than four million had yet to find one.
Moreover, three million university graduates, including those who had
left last year, were still unemployed, he said.
Will the global economic downturn force real disclosure on China? It
remains to be seen. If it happens, it will be because international
investors get spooked by the lack of transparency.
Sid Harth
for Emigration?
Friday, Aug 07 2009, 4:00PM
No doubt the elephant in the room at last week's U.S.-China Strategic
and Economic Dialogue was the dramatic shift in economic momentum
between the two powers: the most recent economic reports from each
nation confirm that China's economy grew by a startling 7.9 percent in
the second quarter of 2009, while the American economy has contracted
by 1 percent.
To some, these numbers are a sure sign that the U.S. is slipping from
its perch atop the global economy. But aggregate macroeconomics is an
incomplete lens through which to assess China's potential displacement
of the U.S. as the world's economic superstar. A society can truly be
said to be the world's most prosperous when it becomes an
international destination for those seeking a better life, not just a
favorite of economists and investors. And by that metric, at least,
the U.S. still retains its clout.
Consider the statistics surrounding Chinese migration to the U.S.
According to the Department of Homeland Security, in 2008 Chinese
immigrants comprised the second-largest proportion of legal permanent
residents flowing into the U.S. (7.3 percent) and almost one-quarter
of asylum seekers in 2008 - more than 3.3 times as much as Colombia,
the next largest source nation.
The reality behind these numbers - particularly the large number of
asylum-seekers - speaks to the fact that it takes more than a growing
GDP to ensure the socioeconomic and political conditions we associate
with a high quality of life. In The Snakehead: An Epic Tale of the
Chinatown Underworld and the American Dream, author Patrick Radden
Keefe confirms as much: chronicling the story of the snakehead, a
human smuggling ring run out of New York City, Keefe shows that
migrants from China's Fujianese province are willing to risk life and
limb - and pay thousands of dollars - to pile into a cramped, leaky
boat and sail to the U.S.
Importantly, these dramatic escapes became increasingly common during
the 1980s and 1990s, a period of economic transformation in China.
Indeed, the snakehead trade had grown into a $3.5 billion a year
industry by the mid-1990s. According to Keefe's research, the
immigrants' motivations lay beyond simplistic measurements: they came
for the opportunity to earn incomes in U.S. currency, for freedom from
political corruption and repression, and to escape China's one-child
policy.
Economic growth is not likely to affect these motivating factors any
time soon. Though China is making moves to internationalize its
currency through measures such as currency swap agreements with banks,
it's unlikely that the Communist Party will be comfortable loosening
its control of capital to the extent necessary for the renminbi to
become a reserve currency. Indeed, in an economy such as China's it is
impossible to consider economics independent of politics. For example:
consumption in China remains so low that it threatens economic
recovery in part because workers do not trust the integrity of the
public social security system and thus save for retirement at high
rates.
Further, economic growth may in fact hasten the outflow of Chinese to
the U.S. Research by Mette Thuno of the University of Copenhagen
suggests that economic development increases migration in developing
countries by connecting them to global markets as well as increasing
inequality, which introduces a sense of "relative deprivation" to
those who are left behind and drives them to seek out new lives
abroad. Perhaps ominously then, while the Chinese economy has grown,
household incomes have steadily declined as a share of national
income, meaning families are seeing less and less of China's economic
boom.
Lastly, China's one-child policy, another impetus for many asylum
seekers, is actually an important part of China's economic growth
strategy in that it helps to maintain manageable population levels.
Thus government officials insist that the policy will remain in place
for at least another decade, despite protests from Chinese citizens -
which means it will remain a motivation for people to leave China.
For these reasons, the U.S. will retain much of its economic standing
in the global imagination, even if China beats it out in certain raw
metrics. While observers may laud China's GDP gains, the average
Chinese citizen may well continue to praise people like Sister Ping,
the colorful New York-based smuggler who is both the central character
in Keefe's account and - as noted by author Alex Kotlowitz - a Harriet
Tubman folk hero among certain Chinese populations.
-- Niko Karvounis
Sid Harth
By Stabroek staff | August 7, 2009 in World News JOHANNESBURG,
(Reuters) –
A presidential visit followed by U.S. Secretary of State Hillary
Clinton’s African tour cannot conceal a stark reality: China has
overtaken the United States as Africa’s top trading partner.
That is one of the main problems facing Clinton on a seven-nation
jaunt meant variously to spread Washington’s good governance message
and shore up relationships with its key oil suppliers on the
continent.
U.S. officials are keen to trumpet a 28 percent jump in 2008 in trade
with sub-Saharan Africa to $104 billion, even if the increase is
attributable mainly to the high price of oil, which accounts for more
than 80 percent of U.S. imports from Africa.
However, there is another statistic that says more about the
direction of development on the poorest continent: this decade’s
tenfold increase in trade with China to $107 billion last year,
narrowly eclipsing the United States.
The financial and then economic crisis that has pushed U.S. and
European economies into recession and forced their companies to crimp
overseas expansion is only likely to accelerate the trend, analysts
say, despite the regional goodwill towards U.S. President Barack
Obama, whose father was Kenyan.
“Obama has had some sort of effect, but that’s waning pretty
quickly,” said Martyn Davies of Johannesburg-based regional
investment consultancy Frontier Advisory.
“Reality is heading back in and the reality is that the crisis is
accelerating the geo-economic shift of Africa towards Asia, centred
largely around China,” he said.
In contrast to Obama’s one day, one country (Ghana) trip to Africa
last month, in February Chinese president Hu Jintao was in Mali,
Senegal, Tanzania and Mauritius — none of them rich in oil or
minerals — offering a shoulder to lean on as world recession started
to wash up on African shores.
Elsewhere, Chinese companies have shown little let up in their push
for African minerals, with Zonghui Mining Group signing a $3.6
billion copper agreement with Zambia in July.
Industrial and Commercial Bank of China (ICBC) is also working on up
to 60 deals with Africa’s biggest bank by assets, Standard Bank, in
which it bought a 20 percent stake for $5.6 billion in 2008.
Nor is China the only emerging economy seeking a slice of a continent
estimated to hold a third of the world’s mineral resources, and a
billion people slowly finding they want — and can afford — things
like life insurance and iPhones.
The $23 billion bid by mobile phone firm Bharti Airtel to tie up with
South Africa’s MTN Group, Africa’s biggest operator by subscribers,
is the latest and biggest example of an Indian company on the prowl
in the region.
Brazil is also making its presence felt, with offers of technology
and know-how to boost food and biofuels production in Africa, where
only a fraction of potential arable land is under cultivation.
In June, Russian President Dmitry Medvedev flew in to Egypt, Namibia,
Angola and Nigeria — the last two being Africa’s biggest oil
producers — to underscore Moscow’s intentions not to be left out in
the cold.
For sure, the increased competition does not mean the world’s biggest
economy is throwing in the African towel, especially given that
Angola, for instance, accounts for 7 percent of its oil imports.
It is more likely that U.S. companies will have to fight harder to
get what they want, to the benefit of African countries now offered a
wider range of potential sources of investment, said Razia Khan, head
of Africa research at Standard Chartered in London.
“There is some sense of the U.S. having to do more to underscore its
relevance in the continent,” Khan said.
“But it is difficult to argue that the influence of one power is
rising at the expense of the other. Africa’s policymakers prefer a
more multilateral approach, with a number of development partners and
a number of options open to them.”
Clinton’s trip takes in Kenya, South Africa, Angola, Democratic
Republic of Congo, Nigeria, Liberia and Cape Verde.
Sid Harth
Posted Aug 07 2009, 09:35 AM by admin
By Vitaliy N. Katsenelson
Now we are learning how China has achieved its "miracle growth." The
country showed positive GDP growth while its electricity consumption
declined in the beginning of 2009 -- creative accounting that makes
Enron’s accountants appear as dilettantes. A paper published by John
Makin at the American Enterprise Institute explains it well:
"Once China had announced its 8 percent growth target, it began to
disburse funds directed at a sharp increase in public works spending.
It is important to understand that the disbursal of funds is recorded
as GDP growth. So the government can easily control the pace of growth
by the pace at which it releases funds that have already been
allocated in the stimulus package to the creation of higher production
or growth numbers. Funds disbursed for fixed-asset investment by state-
owned enterprises or provincial governments are counted as having been
spent when they are disbursed. In fact, the funds go out to the state-
owned enterprises and provincial governments and may be held until
actual projects are identified and undertaken." (Emphasis is mine.)
Bing: Search for more on China's economy
But wait, it gets worse:
"...Ambitious planners count shipments [consumer products] as retail
sales while end-use demand may be absent. In such cases, the “sales”
are made to happen by virtually giving away the products that have
already been produced and counted as GDP growth."
I am not convinced China will have inflation in the long-run. It
appears that deflation is a more likely scenario as China is ridden
with overcapacity -- the country was geared for much higher global
growth. I can, however, see inflation erupting in a very short time
frame as money has been thrown at consumers and companies.
We are seeing this in the stock market and real estate. But in the
long run, inflation appears an unlikely outcome: overcapacity and
slower demand from the US and Europe will force Chinese producers to
cut prices to increase utilization and stimulate demand.
Currency capers
Lately, we've started hearing whispers of the Chinese renminbi
contending for the status of the world’s reserve currency. On the
surface, it more or less makes sense. The U.S. is struggling and
Europe has structural problems. John Mauldin correctly put it, the “EU
was designed for prosperity not for adversity." It will be hard for
the EU experiment to survive in the long run. But that's a topic for a
different discussion.
China, on the other hand, is chugging along. I have heard (though not
confirmed) the Chinese stock market now has a greater market
capitalization than Japan’s. Though the Chinese economy has the size
of a global currency contender, it lacks one not-so-little element
that the global economy will require for renminbi to become the
world’s currency -- political stability. We forget that China is still
not a democracy. I am not sure what to call the political system of
the People’s Republic of China, but I don’t think it's the “people’s”
nor is it a "republic." The rule of law is a nascent concept in China.
Something is only legal if the government thinks it is legal.
And finally, I'm sure China doesn’t want the renminbi to be the
world’s currency as it would drive up the value -- suicide for an
export-based economy.
Vitaliy N. Katsenelson, CFA, is director of research at Investment
Management Associates in Denver, Colo., and he teaches a graduate
investment class at the University of Colorado at Denver. He is the
author of "Active Value Investing: Making Money in Range-Bound
Markets" (Wiley 2007).
Sid Harth
Brasilia, Brazil
COGwriter
The following news item was of interest:
Brazil’s Coming Rebound
Consumers are spending and banks are sound. Is the Latin giant finally
growing up?
By Geri Smith
São Paulo – For years, Edilson dos Reis Rodrigues dreamed of owning a
home. But the public school teacher and his wife together earn just
$710 a month, so he could never set aside a down payment. Now, he’s
finally getting the chance.
Thanks to a new government program called My House, My Life, Rodrigues
will soon own a two-bedroom apartment near São Paulo. He’ll get a cash
grant covering a quarter of the $52,000 price and a discounted 30-year
mortgage, so he’ll pay just $220 a month—half what a conventional loan
would have cost. “This is an incredible opportunity,” the 31-year-old
says, smiling broadly as he hands in paperwork to seal the deal.
My House, My Life is just one of the stimulus measures that Brasilia
has implemented to keep Latin America’s biggest economy from stalling.
As a result, Brazil will likely be one of the first countries to
emerge from the slump: The economy may grow slightly this year and by
as much as 4.5% in 2010, helping lift millions of Brazilians out of
poverty. “Brazil is emerging from the crisis, and next year we are
going to have surprising growth,” President Luiz Inácio Lula da Silva
said proudly in a July 28 speech.
Lula has reason to be proud. The former union activist, who never
finished elementary school, has been a surprisingly careful steward of
Brazil’s economy. In a country long plagued by hyperinflation,
devaluations, and defaults, Lula last year won investment-grade status
for Brazil’s sovereign debt. And he did it while expanding social
programs that have dramatically reduced poverty rates and spurred
expansion of the middle class.
Veteran Brazil watchers say the country’s resilience is due to a
combination of abundant natural resources, an embrace of globalization
after decades of looking inward, and resilient businesspeople and
policymakers who have learned to survive difficult times. So as soon
as the economy started to contract last year, Brasilia trimmed income
taxes and cut levies on key consumer goods, helping manufacturers
boost sales and avoid layoffs. “Brazil has proved it can govern itself
and keep the economy on track in very difficult times,” says Riordan
Roett, a professor at Johns Hopkins University’s School of Advanced
International Studies.
Although the economy fell into recession in the first quarter,
consumer confidence and spending quickly rebounded owing to the
stimulus and sound domestic finances. A comfortable $212 billion
cushion of foreign reserves and a decade of budget surpluses have
allowed the central bank to slash interest rates to a record low of
8.75% from 13.75% in seven months while pouring liquidity into the
market to keep credit flowing. And private banks are well regulated
and have healthy balance sheets. “Brazil’s fundamentals are very strong
—we don’t have any of the problems that created the bubble in the
U.S.,” says central bank President Henrique Meirelles.
Just as important, though, is Brazil’s huge domestic market. While
outsiders focus on the country’s shipments of iron ore, steel, and soy
to China, exports are just 12% of Brazil’s $1.5 trillion economy. It’s
the 190 million people and the fast-growing middle class—now more than
half the population—that drive growth. In the past seven years a
government program called Bolsa Família has helped nudge 24 million
Brazilians above the poverty line. And 8 million jobs have been
created since 2003, while the minimum wage has increased 45%.
That’s not to say Brazil isn’t still a tough place to do business. Its
highways, railroads, ports, and electric grid are outdated and
congested. The government collects 36% of gross domestic product in
taxes, similar to Europe, but delivers Third World services. Political
corruption and a nightmarish bureaucracy can hobble growth. And
government spending is starting to rise in the runup to next year’s
elections, which will mark the end of Lula’s eight-year presidency.
But there’s mounting evidence that Brazil is really changing.
http://www.businessweek.com/magazine/content/09_33/b4143042830503.htm
Brazil has had ups and downs with its economy, but in the last decade
the trend has tended to be up. And according to the above report, its
“banks are sound”. This differs from that of the USA as I believe
that its indebtedness will prevent it from being ever to truly
recover.
The reality is that because of its resources and biblical prophecy, I
am convinced that Brazil will prosper during until the coming
“Babylon” falls (Revelation 18) and then it will not do well. But
this does not mean that it may not have a lot of ups and downs until
then.
But Brazil will ultimately have an even better rebound during the
time of the millennium. There will be peace, prosperity, and equity
everywhere, including in Brazil.
Sid Harth
Moon
Written by Cristovam Buarque
Friday, 07 August 2009 07:02
We commemorated two anniversaries on the same day, July 16. In the
United States, it was the 40th anniversary of the departure of the
first humans bound for the moon; in Brazil, the first anniversary of
the sanction of the Law of the National Salary Floor for teachers.
When he stepped on the lunar surface, the first astronaut said that he
was taking one step for himself but a giant leap for mankind. In fact,
in order for that step to be taken, centuries of education and science
and technology research were necessary.
North American science and technology carried the first men to the
moon, a consequence of centuries of investments in education. While
the USA has invested in education since the first colonizers arrived,
Brazil went the opposite direction.
Forty years after the conquest of the moon and the space voyages
beyond the solar system, Brazil still does not have its children in
schools of the necessary quality. Consequently, it has not achieved a
scientific and technological level capable of competing
internationally.
Only in 2008, decades after the conquest of the moon, did the
Brazilian government create a salary floor for the teachers. Even so,
that floor has not yet been reached because five governors have
petitioned the Justice Department to declare it unconstitutional.
Little has been done by education in the country since colonization.
Enrollment has increased - but not attendance. Funds like Fundef and
Fundeb were created, but the annual investment in public school
continues to be 1,500 reais (US$ 816) per student.
The salary floor was created a year ago, set at 950 reais (US$ 517)
per month when it should have been between 3,000 and 4,000 reais (US$
1,630 and US$ 2,170 thousand). Schools were constructed but they were
not equipped - 20 thousand of them even lack electricity or running
water.
In these 40 years, the Brazilian economy leaped from that of a poor
country to that of a potency with national revenue of 2.889 trillion
reais (US$ 1.571 trillion). Brazil, nevertheless, continues to occupy
one of the world's last places in education.
At this rate, we will be commemorating the 100th anniversary of man's
arrival on the moon before we have all our children in schools that
are attractive and well equipped, schools that operate in full-days
sessions with teachers among the most well paid and respected
professional categories.
Without a satisfactory floor, a decent salary and good preparation for
the professors, the schools with quality will not be possible. And,
without this, we will not have a good university system and,
consequently, we will not have the science and technology that the
country needs to achieve its development.
Thirty years ago, India and China occupied a position inferior to
Brazil's in terms of economic potential and possibilities for
scientific and technological development. Today, China has already
placed men in space and India has now sent an unmanned spaceship into
lunar orbit.
This July we are also commemorating 15 years of the Plan Real. In
1994, few people believed that the country was going to halt the
inflation that had persisted for decades. With a good plan and the
involvement of the population, nonetheless, Brazil defeated inflation.
In 2010, Brazil will commemorate the 50th anniversary of Brasília.
Other countries, including the USA, created capital cities, but no
other country succeeded in constructing the capital so far from the
population centers or in making it grow at the speed that Brazil has
achieved.
When the North Americans placed the first men on the moon, Brasília
was nine years old and still a work in progress. In those forty years,
we left behind a village with an urbanist design and we constructed a
metropolis.
From the point of view of the physical and economic effort, the
consolidation of Brasília is not an achievement any less than that of
sending a man to the moon, but, from the point of view of intellectual
effort, there is no comparison between the two achievements.
Like Turkey, Nigeria, Kazakhstan, any country with the collective will
can create a new capital in a few decades. For the scientific and
technological development needed to send a manned spaceship to the
moon, however, what is necessary is the intellectual effort that
begins with quality education for all children. Brazil has still
refused to make this leap.
We are lagging behind because we have still not vigorously shown the
will to make a revolution in elementary and secondary education and to
make the necessary investments in science and technology. At this
rate, we will continue only witnessing, from a distance, the
commemorations of other countries that, having invested in education,
have conquered the moon.
Cristovam Buarque is a professor at the University of Brasília and a
PDT senator for the Federal District. You can visit his website -
www.cristovam.org.br - and write to him at cris...@senado.gov.br
This e-mail address is being protected from spambots. You need
JavaScript enabled to view it .
Translated from the Portuguese by Linda Jerome LinJ...@cs.com This e-
mail address is being protected from spambots. You need JavaScript
enabled to view it .
Sid Harth
Outside Edge: Learn to love that statistical feeling
August 8, 2009 6:11pm
Maligned and misunderstood, statisticians have at last found a
spokesman: the Chinese author of a poem celebrating a life swimming in
data.
“Why is it that statistics/Put a calm smile on my face?” the poet
writes, responding to a morale-boosting campaign dubbed “Statistical
Feelings” organised by China’s National Bureau of Statistics. “Because
of statistics/ I can rearrange the stars in the skies above.”
Hmm. Slightly awkward, that one. In a week when China’s economic
statistics have earned more scepticism than usual, it might not be
wise to talk about astronomical manipulation.
Even the state-controlled Chinese media have admitted that 91 per cent
of citizens do not believe official Chinese statistics. Statistically
speaking, that may not be too bad. Another survey, published in
Insight China, reckoned that 7.9 per cent of respondents think
prostitutes are trustworthy. This figure seems low, but places
prostitutes as the third most trusted group in China, well above
politicians and scientists, let alone what China Daily describes as
“the least credible category which consists of real estate developers,
secretaries, agents, entertainers and directors”.
If you are following the statistical argument, Chinese statisticians
are more trusted than its sex workers. Or perhaps I am relying on one
of the 82 per cent of statistics invented on the spot. Or one of the
46.79842 per cent of statistics that claim an unjustifiable level of
precision.
China’s official statisticians are not the only ones facing
scepticism. In the UK, only 36 per cent of people believe that
official figures are generally accurate. This is, however, an official
figure, so 64 per cent of us would hesitate before placing much
confidence in it.
“Some mock me for doing statistics/ Some loathe me and statistics”,
writes China’s poet-statistician, but our relationship with statistics
is more complex. We feel that no argument is complete without a
gesture towards the data, yet few of us understand how they are
compiled. We sense – rightly – that statistics are often abused
through ignorance, or manipulated.
I am a non-statistician who deals with statistics and statisticians
frequently, and in my view statisticians are unsung heroes. Statistics
are essential to understanding the world, but statisticians get little
credit. We accept the numbers in the news as fact, without considering
the skill in producing them from small, non-representative samples.
The most striking statistical story I came across this year was that
adding statistical information to a charitable appeal reduces
donations. It seems that merely reading a statistic makes us meaner.
This is the kind of obstacle statisticians must overcome. So sing out,
poet-statisticians of China. Bean-counters of the world, unite!
The writer is an FT columnist and presenter of BBC Radio 4’s
statistical programme, More or Less. His new book, ‘Dear Undercover
Economist’ (Little Brown) was published on Friday
August 8, 2009 6:11pm in Everyday economics, Something different |
Comment
Sid Harth
The first time I saw an article headed “State Capitalism and the
Crisis” in McKinsey Quarterly (free, but registration required) I
thought I had slipped into an alternate reality. But even when I
pinched myself it was still there. In it, the political risk analyst
Ian Bremmer argues that one of the results of the financial crisis is
a resurgence of political economy (although he doesn’t use the
phrase). Markets are now far more influenced by national politically
influenced decisions than at any time in the last thirty years; this
is not a temporary phase but a permanent shift; and as a result the
‘globalised markets’ paradigm is no longer the dominant model, even if
some politicians and corporations haven’t caught up with this yet.
Bremmer defines state capitalism as “an economic system in which
governments manipulate market outcomes for political purposes.” He
charts this trend to before the crisis, since most of the ‘emerging
market’ economies had used public investment and public enterprise to
foster their development. The difference – post-crash – is that these
states have more global influence and a greater share of the available
global capital, and the ‘globalised markets’ model has been severely
discredited.
The energy markets are a case in point:
The world’s 13 largest oil companies, measured by the reserves they
manage, are now controlled by governments. … Exxon Mobil, the largest
of the multinationals, ranks 14th in the world and collectively,
multinational oil companies produce just 10 percent of the world’s oil
and gas and hold about 3 percent of its reserves. State-controlled
companies now are in charge of more than 75 percent of global crude
oil reserves. …
The story extends well beyond energy. Across a broad range of economic
sectors, China and Russia are leading the way in the strategic
deployment of state-owned enterprises, and other governments have
begun to follow their lead. In defense, a growing number of emerging-
market governments—power generation, telecom, metals, minerals, and
aviation—not content with simply regulating markets, are moving to
dominate them.
All of this is supported by the emergence of sovereign wealth funds,
overwhelmingly held by governments in emerging markets. And while Ian
Bremmer is largely talking his consultancy book here, the implication
is that watching political fundamentals is as important economic
fundamentals; China and Brazil probably good, Russia, Ukraine, and
Pakistan less so.
There are likely to be second order effects as well; restrictions of
access to some markets; high risks of protectionism; subsidies (as in
Russia); and a reframing of regulation.
Early on in the article, Bremmer argues, “Governments embrace state
capitalism because it serves political as well as economic purposes—
not because it’s the most efficient means of generating prosperity”,
and there are other points where he says much the same thing. The
implication, spelt out elsewhere, is that this needs open globalised
markets. Of course, he may need to say this sort of thing so as not to
scare his clients, but it really depends on what you mean by
‘generating prosperity’, and for whom. Certainly state capitalism – in
his definition – has been the most reliable way of developing an
emerging economy, ever since Britain did it in the 19th century. In
the recent boom, the only globally poor group pulled out of poverty by
the late 20th century boom were the millions of Chinese who benefited
from their government’s version of managed capitalism. In the US, it’s
clear that few of the middle class and none of the working class
prospered from those globalised markets.
And – of course – we know now how big the cost of the collapse has
been – and (although I can’t find the reference for this) that
regional financial crises had been increasing in scale and severity
over the last twenty years. It is not coincidence that the most
developed ’state capitalist’ sectors are in energy. State capitalism
isn’t just about local political elites protecting their patronage and
influence. In the coming world of resource competition and likely
shortages, it may be the only way to ensure that prosperity is
reasonably well spread,
Explore posts in the same categories: China, business, economics,
energy, global, politics
Sid Harth
Updated: 2009-08-09 16:31
BEIJING: Chinese Premier Wen Jiabao said the government's mix of
active fiscal policies and relaxed monetary settings must stay in
place while economic growth faces domestic and external weaknesses,
media said on Sunday.
Visiting east China's Jiangsu province over recent days, Wen stressed
the government's continued commitment to these policies, indicating
that no shift is looming.
"We are persisting with implementing active fiscal policies and
appropriately relaxed monetary policies because we still face many
hardships and challenges, the international economic outlook remains
unclear, and pressure from falling external demand remains heavy,"
said Wen, according to the central government's website (www.gov.cn).
"The impetus for self-sustaining growth in the economy is still not
strong...Therefore, the direction of macro-economic policy cannot
change."
Chinese officials face domestic and foreign investors jittery over the
direction of policy, and Wen's words add to a recent drum beat of
comments stressing that the policy recipe remains unchanged.
Senior Chinese economic officials on Friday also quashed market
speculation that Beijing might be starting to unwind its loose
monetary policies introduced to prop up growth in the world's third-
largest economy.
The Shanghai stock market fell 4.4 percent this week, its biggest loss
in five months, as investors fretted that the central bank was being
less generous in flooding the banking system with cash to support
spending and investment.
Figures for July out next week are likely to show that China's
recovery is on course. Gross domestic product grew 7.9 percent in the
second quarter from a year earlier.
But China is leaving nothing to chance as long as the global economy
remains in the doldrums, depriving it of the export demand that has
been a big driver of growth in the past few years.
"Some industries and businesses are still in some hardship, and the
problem of excess production capacity is extremely striking," said
Wen.
...and i am Sid Harth
bademiyansubhanallah
By Bloomberg News
Aug. 9 (Bloomberg) -- China will maintain its current macroeconomic
policy stance aimed at bolstering domestic spending as the nation
continues to experience fallout from the global recession, Premier Wen
Jiabao said.
The effect of some of China’s stimulus policies will weaken over time,
and the economy is still under pressure from declining demand for
exports, Wen said in a statement on the central government’s Web site
today.
China’s 4 trillion yuan ($586 billion) stimulus plan, which is funding
the construction of roads, railways and airports, coupled with record
lending helped the economy recover in the second quarter from the
slowest growth rate in almost a decade. Government spending and the
credit boom have countered a collapse in trade and aided global
businesses from Semiconductor Manufacturing International Corp. to
General Motors Co.
“The reason that we are sticking to the proactive fiscal policy and
moderately loose monetary policy is because we are facing many
difficulties and challenges,” Wen said. The comments were made during
a three-day trip to east China’s Jiangsu province that ends today.
The world’s third-biggest economy expanded 7.9 percent in the second
quarter from a year earlier, accelerating from a 6.1 percent pace in
the first three months of 2009. In contrast, exports fell for an
eighth month in June as the global recession cut demand, highlighting
the economy’s dependence on stimulus spending to revive growth.
Official View
Today’s statement by Wen follows comments by three economic officials
at a joint press conference two days ago, and may help to ease concern
that China could remove stimulus efforts adopted last year amid a
rebound in stock and property prices and a surge in lending. The
Shanghai Composite Index of shares has climbed 79 percent this year.
Zhu Zhixin, vice chairman of the National Development and Reform
Commission, said domestic demand in China is still weak and
consumption is dependent on government stimulus. The People’s Bank of
China doesn’t see any inflationary pressure in the economy and assets
prices are not a factor taken into consideration when setting
policies, deputy governor Su Ning said at the same briefing.
“The main message is the government will keep the policy stance loose,
at least for now,” Goldman Sachs Group Inc. economists Yu Song and
Helen Qiao wrote in a report dated Aug. 7.
“This should clear the recent confusions in the market about the
government’s policy stance and preclude the possibilities of hikes to
interest rates, reserve requirement ratios in the near term,” they
wrote.
China’s central bank has kept interest rates and reserve requirements
for banks unchanged this year after cutting them in the final four
months of last year to counter the effects of the global credit
crisis. The People’s Bank of China, in an Aug. 5 statement, reiterated
its pledge to keep the yuan stable at a “reasonable and balanced”
level.
The central bank scrapped quotas limiting lending in November 2008 to
support the government’s stimulus package.
--Zhang Dingmin. Editors: Victoria Batchelor, Alex Devine.
To contact the Bloomberg News staff for this story: Zhang Dingmin in
Beijing at Dzha...@bloomberg.net
Last Updated: August 9, 2009 04:03 EDT
bademiyansubhanallah
Business week on the expanding Brazilian middle class
by johnbaeyens on August 8, 2009
This week’s Business Week features an article on the expanding
Brazilian middle class.
Some quotes:
Just as important, though, is Brazil’s huge domestic market. While
outsiders focus on the country’s shipments of iron ore, steel, and soy
to China, exports are just 12% of Brazil’s $1.5 trillion economy. It’s
the 190 million people and the fast-growing middle class—now more than
half the population—that drive growth.
The country’s improving prospects create huge opportunities for
entrepreneurs small and large. “Brazil has had so many crises over the
years, people got used to them,” says David Neeleman, the founder of
JetBlue, who last December started a low-cost Brazilian airline called
Azul (Portuguese for “blue”). “I don’t think they’re at all fazed by
this crisis—everyone seems to be focused on buying their first car,
getting their first credit card.
A beauty salon in Rio de Janeiro highlights the new middle-class
buying power. Despite its location in the posh Ipanema neighborhood,
the clientele is mostly housemaids, hospital clerks, and other women
from relatively modest circumstances. The salon is the creation of
Heloisa Assis, known as Zica. One of 13 children, she grew up in a
slum supported by her laundress mother. Like many Brazilians of
African descent, she had brittle, kinky hair that she says hobbled her
chances of getting a decent job. Zica tested homemade potions to tame
her unruly Afro and finally came up with a formula that created
flowing ringlets. She patented her discovery and in 1993 opened a
salon, calling it Beleza Natural, or “Natural Beauty.” She soon had
customers lining up at 5 a.m.
That revived auto sales, which in June hit 300,000 vehicles—an all-
time high. Even hapless General Motors is enjoying fat times in
Brazil, where it’s investing $1 billion through 2012 to develop a new
small car. Whirlpool, which has a 40% share of Brazil’s appliance
market, has benefited, too. Sales jumped 20% in May and June compared
with a year earlier.
If you really want to understand the Brazilian middle class, you
should visit with your wife one of the Beleza Natural beauty salons
and talk with some women there, ask them about their job, what they
earn, what their earning growth was the last years, how they see the
Brazilian economy evolving,…
We wrote previously on the Brazilian middle class, but the below graph
of Business Week summarizes it best: today, more than 51% of the
Brazilian families earn between 616 and 2.579 US$ monthly, consider
that Brazil counts 191.200.000 habitants and that the vast majority of
the middle class is geographically concentraded in the zone Belo
Horizonte - Rio de Janeiro – Curitiba – Porto Alegre, Sao Paulo and
you realize what a massive buying power this represents.
The article refers to Whirlpool in Brazil (Brazilian brand name:
Brastemp), which has a 40% share of Brazil’s appliance market and
who’s biggest manufacturing plant is in Joinville. Sales of Whirlpool
jumped 20% in May and June 2009 compared to the previous year which
was already a record-breaker.
Neeleman’s Azul started flying end 2008, now has a 70% seat occupancy
and expects profit for 2009.
Many people are now jumping on the MSCI Brazil (EWZ) bandwagon. We
bought in early March and yielded a 47% rise, yet we took our profit
last week and converted into BRF; more on this later.
bademiyansubhanallah
August 5, 2009 - Chinese women (R) walk by shopping malls in Shanghai.
With booming retail sales, record lending and a soaring stock market,
China accounted for nearly all of the world's growth last quarter, but
experts warn not to expect a China-led global recovery. (PHILIPPE
LOPEZ/AFP/Getty Images)By Tyler Bridges, Kevin G. Hall and Tom
Lasseter
MCCLATCHY NEWSPAPERS
08/09/2009
As Wall Street rebounds and the U.S. economy shows signs of life,
stock prices in the world's four largest developing economies have
climbed even faster.
In the BRIC nations — Brazil, Russia, India and China — they've soared
by an average of 64 percent so far this year, according to investment
blog Seeking Alpha. That's led many observers to think the four are
poised to power the global economy out of recession.
Don't bet on it.
The global economy this year will still suffer its steepest
contraction in trade and industrial production since the Great
Depression. Despite their growth, the BRIC nations aren't powerful
enough to fuel a global rebound, and all four face their own economic
problems.
The U.S. and the European Union each account for 23 percent of global
economic activity and, "There's no way that 15 percent is going to
pull 46 percent," said Jay Bryson, a global economist for Wells Fargo
Securities.
This year's outlook remains grim for rich and poor nations alike. The
World Trade Organization in July revised downward its global trade
forecast, now projecting a contraction of 10 percent for 2009.
Around the globe, industrial production fell 28 percent from January
to March. U.S. manufacturing plants in June were operating at about 64
percent of their capacity, the lowest since records have been kept.
Excess capacity is reflected across the major industrialized
economies.
CHINA
China, which grew by 7.1 percent in the first half of this year,
remains the lone bright spot of global significance. For China and its
1.3 billion people, however, that's subpar growth, and it's sparking
fear that a rapid expansion in lending may bring the world's most
populous country and the global economy new problems just over the
horizon.
China seeks to boost domestic growth, partly by massively expanding
bank lending. The nearly $1 trillion in loans granted by Chinese banks
or guaranteed by the government in the first half of 2009 is more than
50 percent more than bank lending was for all of 2008.
"The fact that it took the government taking all the risk away from
the banks means the quality of that lending is probably dubious," said
Daniel Rosen, a partner in the Rhodium Group, a New York-based
economic advisory group specializing in China.
However, although the lending boom may spark growth, it may not
produce sustainable growth.
"Anybody could have high (economic growth) if they simply take the
vault doors off the banks and let the money flow on out. It's what we
called subprime lending in the U.S.," he said.
BRAZIL
Putting the world's idled factories back to work is no easy task. Take
aircraft manufacturer Embraer, one of Brazil's largest private-sector
employers. Dependent on trade and exports, it shed 4,300 workers in
February, a fifth of its labor force, posting a $23 million first-
quarter loss.
Brazil, with a population of nearly 200 million, accounts for about
1.2 percent of global economic activity, and after a five-year boom,
its job growth today is at a crawl. Tax collection fell 6.3 percent
through June compared with the first six months of 2008.
"I really don't see any sector doing well other than autos," said
Pedro Ferriera, an economist at the Getulio Vargas Foundation, a Rio
de Janeiro-based economic research organization.
Brazil's auto sector saw record sales in June, thanks to a federal
sales tax holiday, but exports of Brazilian-made cars declined 48
percent in the first half of 2009 from the year-earlier period, the
National Association of Car Manufacturers in Sao Paulo reported.
RUSSIA
If the "B" in BRIC is struggling, the "R" is in deep trouble. Russia's
problems have some suggesting the bloc of developing nations should be
renamed BIC.
Most forecasters think the Russian economy will contract at least 7
percent this year. The International Monetary Fund projected that
Russia's gross domestic product will increase by 1.5 percent next
year, below Brazil's projected 2.5 percent growth and well below
China's 8.5 percent.
The Russian economy lives and dies by global energy prices. The least
populous of the BRIC countries at 140 million, Russia is the world's
second-largest oil exporter after Saudi Arabia, and its economy grew
by 8.1 percent in 2007 before falling on hard times last year.
"An underdeveloped judicial system, corruption, lack of proper
guarantees for the rights of investors and the overall dependence of
everything on oil and gas prices" are holding Russia back, said
Vladimir Tikhomirov, chief economist at UralSib bank in Moscow.
INDIA
The "I" in BRIC is also a question mark. India's economic growth,
which averaged 9 percent annually from 2005 to 2008, has been less
driven by global trade than Russia's, Brazil's and China's have been.
Free-market reforms led to improvements in the standard of living in
the nation of 1.1 billion, the world's second most populous after
China, fueling strong growth.
India's per capita income growth rate is thought to be 5.6 percent in
the 2008-2009 fiscal year, which ended on March 31, according to
India's Ministry of Statistics. That's atop 7.6 percent growth in the
2007-2008 fiscal year.
India is expected to grow by at least 6 percent in calendar year 2009,
but it has a new government and an old problem of too much government
spending. Its 2008 government deficit was equal to 6.2 percent of its
broad economy, a gap that will surely widen this year because India,
like many nations, is trying to stimulate its economy with public
works spending.
"We know from the U.S. experience that high budget deficits can
produce concerns about crowding out future growth," said Philip
Suttle, chief economist for the Institute of International Finance.
bademiyansubhanallah
India, India's Economy, Global Economics, Financial Institutions
Eswar Prasad, Senior Fellow, Global Economy and Development
The Financial Times
August 09, 2009 —
Prime minister Manmohan Singh’s government has been blowing hot and
cold on economic reforms. The present political and economic
circumstances in India – a stable political coalition and a rebound
from the global recession – give Mr Singh a chance to deliver real
reforms, which are crucial for sustained growth that does not leave
behind much of the population. Marginalism on reforms now would be a
colossal wasted opportunity.
India's Prime Minister Manmohan Singh speaks with India's ruling
Congress party Chief Sonia Gandhi.
View Larger
Reuters/B Mathur
Why bother with reforms? After all, India’s economy has weathered the
global financial crisis quite well. This is testimony to the country’s
tremendous potential – exemplified by a young labour force, a dynamic
entrepreneurial class and an improving financial system. But India
will always punch well below its weight if it does not remove barriers
that keep it from fully tapping that potential.
The list of needed reforms is long. India’s labour laws, which
constrain large enterprises in particular, have hurt productivity
growth. Shackles on the educational system are keeping India from
reaping the full benefits of its young workforce. The dilapidated
physical infrastructure is hurting growth in all sectors.
Above all, financial sector reforms will determine the pace and
quality of India’s growth. Loss of momentum in this area could be very
costly, for finance is the thread that runs through all other reforms
and will determine their ultimate impact.
The reform agenda is about the basics of financial development rather
than sophisticated innovations. It is tempting to draw the lesson from
the global financial crisis that a closeted economy with a state-
dominated banking system is the best and safest option for India. But
the financial system should be evaluated against a broader set of
criteria.
The basic purpose of a financial system is to channel domestic savings
and foreign capital into productive investment. On this criterion,
which is how the financial system can contribute to growth, there is a
long way to go. Indian banks may have held up well during the crisis
but that does not make them efficient intermediaries that are
channelling credit to its most productive uses. Many sectors of the
economy, especially small and medium-sized enterprises, are still
starved of credit.
The banks should be freed of their role as instruments of social
policy through government-directed lending programmes. This would
allow them to channel credit to enterprises that could effectively
convert financial capital into productive physical capital and
generate desperately needed job growth. “Priority sectors” identified
by the government, including agriculture, should get direct budget
financing rather than subsidies through the financial system. A dose
of private ownership would force public banks to become more
efficient, especially some of the smaller ones that are unviable in
their present form.
The opening up of corporate bond markets is also a priority to give
firms an alternative way of raising finance, especially for long-term
projects such as infrastructure investment.
While the crisis shows that weakly regulated exotic derivatives can
wreak havoc, not all derivatives should be tarred with the same brush.
Indeed, India has made progress on basic derivatives that enterprises
use to hedge against various types of risk. For example, there is a
huge demand from exporting and importing firms for derivatives to
hedge currency risk and that market has flourished. Opening these
markets to more participants, including foreign investors, and
improving trading systems would make them more robust.
India’s strong growth over the past decade has reduced poverty but
much of the population remains at the margins of subsistence. A better-
functioning and broader financial system would help entrepreneurs to
generate jobs. Wider access to banking products would help households
save more efficiently and build up a buffer for a rainy day. The
government has made it easier for banks to set up cashpoints but a lot
more could be done to push forward initiatives such as mobile banking
using cell phones and provision of basic banking services through
retail outlets.
Mr Singh should seize this chance to rejuvenate the process of
financial development and reforms. His legacy, and India’s future path
to sustained and inclusive growth, depends on it.
bademiyansubhanallah
bademiyansubhanallah
Initiative Event
Brazil in the Global Crisis: Still a Rising Economic Superpower?
Event Summary
In the past decade, Brazil’s role in the world economy has changed in
important ways; today, the country occupies key niches in global
energy, agriculture, service and some high-technology markets. Brazil
could play an important role in helping the global economy recover.
However, Latin America’s largest nation still struggles with endemic
inequality issues and deep-seated ambivalence toward global economic
integration.
Event Information
When
Monday, July 13, 2009
2:00 PM to 3:30 PM
Where
Saul/Zilkha Rooms
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC
Event Materials
Contact: Brookings Office of Communications
E-mail: eve...@brookings.edu
Phone: 202.797.6105
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On July 13, the Latin America Initiative at Brookings hosted a
discussion on the recently released book, Brazil as an Economic
Superpower? Understanding Brazil’s Changing Role in the Global Economy
(Brookings Institution Press, 2009), edited by Brookings Political
Economy Fellow Leonardo Martinez-Diaz and Lael Brainard, former vice
president and director of Global Economy and Development at Brookings.
Panelists—including Martinez-Diaz, Jose Guilherme Reis of the World
Bank and Paulo Vieira da Cunha, former director of International
Affairs at the Central Bank of Brazil—discussed the impact of the
global financial crisis on Brazil’s economy and how the country’s
economic prospects might be affected by the slump in global demand and
the changes in the international financial system.
Mauricio Cárdenas, senior fellow and director of the Latin America
Initiative at Brookings, provided introductory remarks and moderated
the panel discussion. After the program, panelists took audience
questions.
Transcript
LEONARDO MARTINEZ-DIAZ: As you will notice, this book was written in
very happy times. It was written during the twilight of the economic
boom. When the conference actually gathered here in Brookings next
door in April of 2008, Brazil had just been promoted by Standard and
Poors. Its rating and several bonds had been rated finally “investment
grade.” There was a sense of optimism, of dynamism, in the world
economy and in the Brazilian economy as well. The Brazilian economy
had been growing since 1993 at a rate of around 3 percent on average.
There was, of course, it slowed then in ‘98 and ‘99, but on the whole,
the performance was quite healthy. Certainly slow perhaps, as the
naysayers were bound to say, compared to China or even compared to
Brazil’s own economic miracle from ’68 to ’72. But nonetheless, it was
seen as a healthier, better quality type of growth. It was growth that
was not highly inflationary in nature. It was growth that was not
based on high levels of foreign indebtedness as it had been in the
‘70s. And it was growth that was based or took place in the framework
of fiscal discipline. And, therefore, there was a sense that this kind
of growth could be more sustainable and was built on stronger
foundations.
Also in 2003, Goldman Sachs famously anointed Brazil as one of the
BRICS, one of the poor economies destined to become one of the truly
economic superpowers by the middle of the 21st century. This, of
course, led to lots of debate as to which countries ought to be part
of that group or should not be part of that group. But there was a
clear sense that Brazil – there was something special about Brazil,
something that the BRICS label captured and, therefore, ought to be
perhaps analyzed in greater detail.
So this was the context in which the conference took place, but the
fortunate thing from the shelf life of the publication was that the
conference papers and our analyses didn’t focus only on the drivers of
growth, per se, but it was actually trying to find out more about the
foundations of that growth and understand the dynamics behind what was
making Brazil special. And that was not only about growth rates, it
was something about the role of Brazil in the global economic system.
And that’s what we try to capture in the subtitle. There was something
special and shifting in the role that Brazil was playing.
View Full Transcript »
Participants
Introduction and Moderator
Mauricio Cárdenas
Director, Latin America Initiative
Panelists
Leonardo Martinez-Diaz
Political Economy Fellow, Global Economy and Development
Jose Guilherme Reis
Lead Economist, Finance, Private Sector and Infrastructure Group in
Latin America and the Caribbean
The World Bank
Paulo Vieira da Cunha
Head of Emerging Markets Research, Tandem Global
Former Director of International Affairs, Central Bank of Brazil
bademiyansubhanallah
G-20 Summit, India, India's Economy, Global Governance, Global
Economics
Eswar Prasad, Senior Fellow, Global Economy and Development
FT.com
April 02, 2009 —
There are times when a country has the calling to step forward on the
world stage and transform its role from that of a passive follower to
that of a leader. That time has come for India—it must seize the
moment.
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Monday, March 30, 2009
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Washington, DC
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The reordering of the global economic power structure, with the G20
now taking a prominent role, has created a leadership void among
emerging markets.
There is the risk that the emerging market agenda could be taken over
by countries that are seen as advancing just their own narrow
interests. This would heighten tensions with advanced economies and
work against global cooperation.
India’s innate economic dynamism and a few years of solid growth with
low inflation have put it firmly at the centre of the world economic
stage. The global crisis has nicked India but so far has not set back
its growth greatly.
India’s response to the crisis has been far more mature than that of
many developed economies, without reflexive moves towards financial
protectionism or a reversal of initiatives towards financial market
development. This gives India credibility that should allow it to
punch beyond its weight class.
Circumstances and personalities are of course both essential to make
things happen. Prime Minister Manmohan Singh and the de facto leader
of his economic team, Montek Ahluwalia, are highly respected around
the world as intelligent and pragmatic economists with excellent
pedigrees. They can provide an intellectual vision for the emerging
markets to coalesce around and for advanced countries to accept as
being for the common good.
How can India advance the G20 agenda? Not only has India aligned
itself with countries like the US, Japan and China in calling for more
macroeconomic stimulus but it has backed up words with concrete
actions.
The government’s economic adviser Arvind Virmani notes that India’s
actual stimulus measures this year will amount to nearly 5 per cent of
gross domestic product. In leading by example, India has gained the
moral clout to aggressively push for additional measures by countries
that haven’t yet done their bit for coordinated global stimulus,
especially if macroeconomic conditions should deteriorate further.
There is clearly a need for a rethink of regulatory principles and
frameworks and for global coordination of regulatory efforts. However,
the European approach of rushing to regulate may result in an outcome
that is not favourable to emerging markets, which have less
sophisticated financial markets.
India, which has considerable expertise and intellectual firepower on
this matter, should articulate a clear position on how emerging
markets can contribute to the development of global regulatory
standards.
India should also lead the charge against financial protectionism and
promote the free flow of goods, services and labour. This is of
particular interest to India as some of its large cash-rich firms seek
to invest in companies abroad and its highly-skilled workforce adds to
the global talent pool.
Global governance is another priority. The joint communiqué issued by
Brazil, China, India and Russia at the time of the G20 finance
ministers’ meeting two weeks ago tied together the issue of more
resources for the IMF with governance reforms — giving emerging
markets their due weight in the fund’s voting structure.
Japan, the EU and the US are pushing for resources to be added to the
IMF’s capital pool, with promises of undertaking quota reforms by 2013
or perhaps a year or two earlier. There is no reason for these reforms
to take so long. At a time of crisis, many dramatic changes are being
made practically overnight.
India should lead the emerging markets’ charge in pushing for quota
reform to be done now, with the increase in resources explicitly tied
to those reforms.
India’s leaders have a lot on their minds — the economy is fragile,
the global crisis may worsen and buffet the economy further, as
national elections loom. Still, they have an obligation to step up and
provide intellectual leadership to the international community at this
critical juncture.
bademiyansubhanallah
bademiyansubhanallah
India's Economy, India, Global Financial Crisis, Global Economics,
Financial Markets
Arvind Panagariya, Nonresident Senior Fellow, Global Economy and
Development
January 2009 —
Editor's Note: Originally thought to be immune to effects from the
U.S. economic slowdown, many emerging economies have been hard hit.
However, India has escaped the worst of the financial crisis, but how
long can it last? In an article in Foreign Policy Magazine, Arvind
Panagariya examines ways in which the Indian economy has not remained
entirely immune to the tremors in the world economy.
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Although it may now seem a lifetime ago, it has only been a few months
since the so-called "decoupling" hypothesis dominated media coverage
of the global economy. The dominant view held that emerging markets
were growing independently of the United States and therefore were
immune to a U.S.-born economic slowdown. Yet the second half of 2008
was not kind to this hypothesis. Indeed, the orthodox view that
countries must prosper and perish together in today's interconnected
world has returned with vengeance.
In the immediate aftermath of the fall of Lehman Brothers and the
takeover of AIG, countries such as South Korea, Mexico, Brazil, and
even normally well-governed Singapore found their internationally
exposed banking systems in shambles. The U.S. Federal Reserve was
forced to open $30 billion worth of swap lines of credit to these
countries' central banks. South Korea had to even put together a
megapackage worth $130 billion to rescue its banks in October 2008.
But one emerging economy managed to defy the trend. More than four
months after the fall of Lehman, India's banks remain in sound
financial condition. They have required no bailouts or
recapitalization. The country's economy is expected to grow at a rate
of 7 percent this year. Although this figure represents a nontrivial 2
percent decrease from its five-year average, it is hardly the disaster
one would predict going by the gloomy news and forecasts for the U.S.
economy. How did India manage to beat the odds?
One key reason is its tight regulation of banks and external capital
transactions, largely the result of the sound management and foresight
of one man: Yaga Venugopal Reddy, the former governor of the Reserve
Bank of India (RBI).
Interestingly, India's central bank lacks the independence from
government that the Federal Reserve enjoys. It is administratively
subservient to the Finance Ministry. Yet, by sheer force of his
personality, Reddy, who served as RBI governor from 2003 until the end
of his term in September 2008, successfully resisted government
pressure to deregulate banks and hastily open India to external
capital account transactions. In contrast to former U.S. Federal
Reserve Chairman Alan Greenspan who believed in the fundamental
integrity of market agents, Reddy is reported to have held the view
that if bankers were given the opportunity to sin, they would.
As a result, whereas banks and financial institutions around the world
were massively lured into investing in assets and derivatives backed
by U.S. subprime mortgages, banks and financial institutions in India
were largely kept out of them. Under the watchful eye of Reddy, only
$1 billion out of India's total banking assets of more than $500
billion slipped into toxic assets or related investments. When the
crisis came and financial institutions around the world found
themselves writing off almost $1 trillion in assets from their books,
Indian banks had at most a few hiccups.
Nevertheless, the Indian economy has not remained entirely immune to
the tremors in the world economy. Investment in toxic assets
represents only one (albeit the most lethal) of the three ways that
the crisis in the U.S. economy has infected the rest of the world. The
other two are the withdrawal of investments by U.S. firms abroad and
the sharp decline in U.S. demand for foreign goods and assets. India
might not be able to escape these tremors quite so easily.
The drying up of liquidity within the United States led U.S. investors
to withdraw their investments in the Indian economy at lightning
speed. In October alone, India saw its foreign exchange reserves
decline a staggering $39 billion, leading directly to a tightening of
liquidity in India. These withdrawals also indirectly caused a
precipitous fall in equity prices, adding to the liquidity crunch.
Finally, Indian corporations, which had been able to borrow at
attractive rates in the United States and other markets in the past,
could no longer do so and returned to borrow in the domestic market.
The global fall in demand for Indian goods is also beginning to bite.
India's merchandise exports tripled between 2002 and 2008. Even
between April and September 2008, exports rose more than 30 percent
over their level during the corresponding period of the previous year.
But since October, exports have started to fall.
The story on the foreign investment front is similar. Between 2002 and
2007, annual direct foreign investment and portfolio investment
together rose 10-fold from $6 billion to $62 billion. But between
April 1 and Oct. 31 of 2008, this figure stands at $10 billion. The
figure for the corresponding period in the previous year was $37
billion.
The Indian government has acted to unfreeze liquidity by aggressively
cutting interest rates, the cash reserve ratio, and the statutory
liquidity ratio. It has also announced fiscal stimulus in two stages,
though on a much smaller scale than in many other countries. This is
appropriate for two reasons: India already has a very large fiscal
deficit on top of a massive debt-to-GDP ratio of more than 80 percent.
Also, the forthcoming national elections, expected in May 2009, are
bound to accelerate government spending independently of the stimulus
package.
Can India's good fortune continue? The jury is still out on how the
economy will perform in 2009 and beyond. Some pessimists see India
returning to the 5 to 6 percent growth rate of the early 2000s. I do
not share this view. Even with the global financial crisis, India is
likely to sustain growth of 8 to 9 percent in the coming decade thanks
to its top-class entrepreneurs, more competitive markets, high savings
rate, and increasingly younger population. But as India toasts its
continued economic success, it would be unwise to overlook the careful
regulation of financial markets that at least partially protected it
from the worst effects of the financial crisis.
bademiyansubhanallah
Arvind Panagariya, Nonresident Senior Fellow, Global Economy and
Development
Hindustan Times
February 18, 2008 —
Until as recently as 1990, India was essentially insulated from the
world markets. With foreign trade and foreign investment amounting to
a tiny proportion of the GDP, ups and downs in the world economy
mattered little. Movements in the Indian economy were even less
consequential for the world economy — India accounted for negligible
proportions of world trade and investment.
A shepherd herds his cows on a road in the western Indian state of
Rajasthan.
View Larger
Reuters/Amit Dave
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But the reforms undertaken during the last two decades have
dramatically transformed the policy regime with the result that the
fate of the Indian economy is now intimately linked to that of the
world economy. In the reverse, the world economy has also come to
depend on the Indian economy, though to a lesser extent. This is
because India is still small relative to the world. But this too is
changing rapidly.
To grasp the transformation that has taken place, consider just a few
facts:
Trade in goods and services as a proportion of the GDP has risen from
16 per cent in 1990-91 to 49 per cent in 2006-07.
Direct foreign investment has risen from less than $100 million in
1990-91 to $19.5 billion 2006-07. Alongside, portfolio investment has
risen from $ 6 million in 1990-91 to $7 billion in 2006-07.
Remittances have risen from $2 billion in 1990-91 to $28 billion in
2006-07.
Acquisitions by Indian companies abroad, which have included such
steel giants as Arcelor and Corus, amounted to almost $35 billion last
year.
India grew 13 per cent per annum in real dollars during the four-year
period spanning 2003-04 to 2006-07. If this rate is maintained and the
US economy grows at 3 per cent per annum, India will become two-fifths
of the US economy in just two decades.
These statistics testify to the rapidly growing importance of the
world economy to India and vice-versa. They also bring into question
the complacency on the part of many that India remains immune to the
events in the world economy. Those arguing that China is far more
dependent on the world economy, especially the US, are technically
correct but underestimate its importance for India. The US remains by
far the largest export destination of Indian goods. Therefore, a
slowdown in the US economy is bound to have an adverse impact on
India’s exports. Equally, a slowdown in the Chinese economy induced by
the slowdown in the US will have an adverse second-round effect on
Indian exports since China too has emerged as a major and fastest
growing market for Indian goods.
What should be India’s response to the possibility that the slowdown
in the world economy may cost it 1 percentage point or so in growth?
There is a great temptation to argue that a decline in the growth rate
from 9.5 per cent to 8.5 per cent is not a catastrophe so that we can
go about business as usual. But that will be a mistake. Our objective
has to be to accelerate growth to the 10-11 per cent range to further
speed up the elimination of poverty. And that calls for acceleration
of reforms that have been behind the current surge in growth.
One reform on which the Finance Minister has already delivered and for
which he must be applauded is further trimming of the small-scale
industries (SSI) reservation list. On February 8, he de-reserved
another 79 items leaving 35 items on the list. The de-reservation is
bound to pave the way for the expansion of efficient firms in these
sectors, turning some of them into successful exporters.
One further area in which the Finance Minister has continued to move
forward is the trimming of the top industrial tariff. Last year, he
brought this rate down to 10 per cent from 12 per cent. He must
continue this process bringing the rate down by 2-5 percentage points.
With the recent appreciation of the rupee, pressure has built up
against further trade liberalisation. But bowing to this pressure will
be a mistake: trade liberalisation must continue with rupee
depreciation providing the short-run cover against import surges. The
Finance Minister has a unique opportunity to finally deliver on the
promise, made in the 1997-98 budget and earlier, to bring industrial
tariffs down to the Asean (Association of Southeast Asian Nations)
levels.
The UPA government is, of course, pre-committed not to undertake some
of the most important labour-market reforms. So calling for it is
fruitless at this juncture. But one extremely important non-
controversial area with an unusually high payoff is the building of
all-weather rural roads connecting villages to the mainstream economy,
thus, enabling rural folks to convert their entrepreneurial talents
into effective incomes. It is an embarrassment for a nation that has
now learnt to build world-class national highways — you only need to
drive on the six-lane Jaipur-Kishangarh highway or the recently built
Gurgaon-Delhi highway to be convinced — to utterly fail in the
delivery of reliable rural roads.
The failure is to be squarely traced to policy. Unlike national
highways, rural roads are contracted out to small entrepreneurs via
projects ranging from 10 to 50 million rupees. These small
entrepreneurs have little experience building all-weather roads.
Simultaneously, the government lacks resources to monitor a large
number of small entrepreneurs. What the government needs to do is to
bundle these tiny projects into a large project making it attractive
to the firms engaged in building national highways. On the one hand,
these firms are better equipped to build all-weather roads and, on the
other, the government can monitor them more closely if it has to
monitor only a handful of them.
Other non-controversial areas of reform are agriculture and
electricity, both of which fall under the jurisdiction of the states.
Here some officials argue that the central government can induce
reforms only through conditionality whereby it makes the availability
of funds to the states conditional on reforms. But this becomes
politically difficult when it comes to poor states — how can the
central government deny assistance to the poor?
Once again, this line of defence begs the question why the government
mixes up its assistance to the poor with instruments to affect
reforms? What it must do is to decouple its assistance to the poor
from other expenditures. Assistance to the poor must be given through
direct, unconditional transfers rather than regressive subsidies such
as those in fertiliser, food procurement, electricity and water (who
but large farmers can reap these subsidies in large chunks?). Once
this is done, disbursement of other funds can be made conditional on
reforms in areas such as electricity and agriculture without the risk
that the denial of such funds will be seen as anti-poor.
In concluding, let me note that India has been growing 8-9 per cent
per year even in the presence of very large inefficiencies. This is a
reason for great optimism. If we can keep clearing the sources of
inefficiency as we have done to-date, pushing the growth rate to the
10-11 per cent range is entirely feasible.
bademiyansubhanallah
bademiyansubhanallah
The benchmark Shanghai Composite Index takes a dive today before
recovering to close at a 0.3% drop-off as notoriously jittery
investors react to tightening credit.
By David Pierson
6:28 AM PDT, August 10, 2009
Reporting from Beijing -- Investor fears over tightening credit sunk
Shanghai's overheated stock exchange for a fourth consecutive day
despite recent assurances by top government officials that Chinese
banks would continue their loose lending.
The benchmark Shanghai Composite Index recovered from steep declines
today to settle at a 0.3% decline. It marked the exchange's longest
losing streak of the year, extending a downward trend that began
Wednesday.
The continued drop-off came a day after Chinese Premier Wen Jiabao
said there would be no reversal of the government's aggressive
stimulus policy, echoing remarks made by leading financial
policymakers in Beijing on Friday that China would continue its
moderately easy monetary policy.
The announcements were made amid concerns that a portion of the
country's record $1.1 trillion in new loans in the first half of 2009
had fueled bubbles in stocks and real estate, analysts said.
The Shanghai index has risen about 80% this year. Meanwhile, the
government announced today that property prices in major Chinese
cities had increased 1% in July from a year ago after only a 0.2%
increase in June. Prior to that, real estate had fallen for six
months.
"The amount of excess liquidity available to the stock market is now
more abundant than at any time from the early '90s onward," wrote
analysts at international financial services group Credit Suisse.
"Without either monetary tightening and/or a sharp rise in nominal
economic growth, it could be very difficult to prevent a huge and
damaging bubble from emerging."
The combination of ballooning assets and massive liquidity has placed
the pressure squarely on Beijing to guard against inflation and a
surge in nonperforming loans. At the same time, economic planners must
maintain China's unexpected growth in the face of a global financial
crisis. The nation's gross domestic product grew by 7.9% in the second
quarter -- by far the fastest of any major economy.
"I think they have to fine tune the economy," said Sherman Chan, an
economist at Moody's Economy.com. "Earlier in the year, they didn't
care. All they wanted was to stimulate growth and protect jobs. Now
the economy has recovered really well. They have to maintain the
momentum without curbing the recovery."
That means closer oversight of lending to ensure money is getting into
the real economy, Chan said.
Beijing already had tipped its hand that it was worried about the rise
in delinquencies by asking banks to set aside more money to safeguard
against a surge in unpaid loans.
Recent numbers indicate such concerns may not be realized until later.
State media reported Sunday that nonperforming loans at commercial
banks declined from 2.4% to 1.8% of total loans the first six months
of the year.
Analysts say part of the recent sell-off was influenced by the belief
that most of the credit already had been loaned. China traditionally
lends about 70% of its annual totals of new credit the first half of
the year.
China's National Bureau of Statistics is expected to release more
economic data Tuesday that could further influence the country's
traditionally fickle stock market investors.
Chan of Moody's said the Shanghai index isn't always the most reliable
bellwether for trends in the larger Chinese economy. Investors tend to
react strongly on the smallest news item or rumors, playing the market
like a casino table.
Sid Harth
By Fabio Alves
Aug. 10 (Bloomberg) -- Brazil’s interest-rate futures yields fell as
lower inflation estimates increased bets the central bank will keep
interest rates at a record low until the second half of 2010.
In the overnight interest-rates futures market, the yield on the
contract due July 2010 dropped two basis points, or 0.02 percentage
point, to 9.04 percent at 9:20 a.m. New York time, according to
Bloomberg data. The yield on the contract due January 2011 fell one
basis point to 9.86 percent. The real fell 0.4 percent to 1.8278 per
U.S. dollar, from 1.8203 on Aug. 7.
Brazil’s consumer price index will slow to 4.4 percent this year, down
from a previous forecast of 4.5 percent a week earlier, according to
the median forecast in an Aug. 7 central bank survey of about 100
economists published today. They also predict inflation will end 2010
at 4.32 percent, compared with an earlier estimate of 4.35 percent.
The central bank has an inflation target of 4.5 percent in 2009 and
2010.
“Lower inflation forecasts have prompted the market to reassess their
previous view that there could be a surprise interest-rate hike in the
beginning of 2010,” said Pedro Tuesta, an economist at 4Cast Inc., in
a telephone interview from Washington. “Any interest-rate increase
would only happen in the fourth quarter of 2010, after the Brazilian
presidential election in October.”
Policy makers, led by central bank President Henrique Meirelles,
lowered the benchmark lending rate by a half-point to a record 8.75
percent on July 22. They have slashed borrowing costs five times in
2009, bringing rates down from 13.75 percent at the beginning of the
year in a bid to pull Latin America’s largest economy from its first
recession since 2003.
Policy makers will probably keep the benchmark rate unchanged at 8.75
percent by year-end, before boosting it to 9.25 percent at the end of
2010, the central bank survey showed.
The yield on Brazil’s zero-coupon bonds due January 2011 fell one
basis point to 9.95 percent.
To contact the reporter on this story: Fabio Alves in New York at
fal...@bloomberg.net
Last Updated: August 10, 2009 09:31 EDT
Sid Harth
Written by Newsroom
Monday, 10 August 2009
Brazil is going through a "non-inflationary economic recovery," says
the Brazilian Central Bank. Brazil inflation slowed for the third
month in a row in July with annual inflation slowing to 4.5%, the
lowest since December 2007.
Consumer prices as measured by the IPCA index rose 0.24% in July from
0.36% in June, according to a release from the national statistics
agency.
Three of nine categories saw prices fall in July, led by a 0.1% drop
in the cost of communications equipment. Food costs that fell 0.06%,
compared with a 0.7% rise in June, also helped contain prices.
Annual inflation slowed to 4.5%, from 4.8% in June.
Brazil's central bank last month cut its overnight interest rate for a
fifth straight time, by a half-point, to a record low 8.75% from 9.25%
and signaled it was prepared to keep borrowing costs unchanged.
Policy makers last month said that the current level of the benchmark
rate was "consistent" with a "non-inflationary economic recovery,"
according to the minutes of the Central bank's July 21-22 meeting
posted on the Central bank's website.
Brazil fell into recession in the first quarter for the first time
since 2003, as GDP had its second straight quarterly contraction,
shrinking 0.8%. According to a Central bank survey of 100 analysts
published this week Brazil's economy will shrink 0.38% this year
before rebounding 3.6% in 2010.
Inflation is expected to end 2009 at 4.5%, the midpoint of the
government's target range, according to the Central bank survey. The
same survey shows the bank leaving the so-called Selic rate unchanged
this year.
Sid Harth
Oil is sharply lower than it was a year ago
Russia's economy shrank at an annualised pace of 10.9% in the three
months to 30 June, Federal State Statistics figures have shown.
The fall was greater than forecast and more than the 9.8% contraction
seen in the first quarter.
But compared with that first quarter, the Russian economy expanded
7.5% between April and June.
Russia has been hit by the sharp fall in energy prices compared with a
year ago, when oil peaked at $147 a barrel.
Russia, which is heavily reliant on oil exports, now expects the
economy to shrink as much as 8.5% in 2009.
bademiyansubhanallah
Ten years on, Russia's Putin has gone from 'nobody' to unshakeably
powerful
He has used a vigorous image and ruthless political strategy to
recentralize state power. Some analysts expect he will soon formally
return to the presidency.
By Fred Weir | Correspondent of The Christian Science Monitor
from the August 11, 2009 edition
Moscow - Ten years ago this week Vladimir Putin, a diminutive former
KGB agent with an enigmatic smile, made his first appearance on
Russia's political stage. He was Russia's fifth prime minister in
barely a year, a virtual unknown plucked from bureaucratic obscurity.
He was appointed to a thankless job by an ailing and increasingly out-
of-touch President Boris Yeltsin, whose stumbling, corruption-plagued
regime appeared to be swiftly falling apart.
The press at the time was filled with surprise and widespread derision
at Mr. Yeltsin's "latest mistake." No one expected the new guy to last
more than a couple of months. "Everybody thought Putin was a nobody,
with zero chances," says Sergei Strokan, a columnist for the liberal
daily Kommersant. "The Yeltsin regime was seen as a sinking ship that
had been abandoned by everyone with ability."
What a difference the hindsight of a decade makes. Yeltsin
unexpectedly resigned on New Year's Eve 1999, making Mr. Putin the
acting president. He won a convincing electoral victory a few months
later and has never looked back.
Putin, back in the prime minister's job after two successful terms in
the Kremlin, is now regarded as Russia's indispensable leader. He has
consistently higher public approval ratings – averaging a celestial 74
percent over the past 10 years – than his handpicked successor,
President Dmitry Medvedev. Many experts believe it is Putin who
actually rules Russia and, thanks to constitutional amendments rushed
through parliament last year, he might well be back for a much longer
presidential term in 2012.
Beloved KGB tough guy
Retrospectives in the Russian press have pointed to Putin's blend of
KGB-style tough-talking; his patriotic commitment to rebuilding
Russian state power; and his often engaging, undeniably articulate
public personality as the secrets to his success.
When he came to power, Putin brought good health, sobriety, and an
active lifestyle – he is a black belt in judo – that proved a
political tonic for Russians weary of the doddering and sometimes
incoherent Yeltsin. Putin's action-man image still serves him well.
Last week Russian newspapers featured full-page photos of a
vacationing Putin fishing bare-chested in a rushing Siberian stream,
riding horseback up a steep mountain path, and preparing to dive to
the bottom of Lake Baikal aboard a Mir-2 submarine.
He also had a clearly articulated vision of where he wanted Russia to
go. Early in his Kremlin tenure, Putin posted a statement of goals
online, in which he declared himself a "statist" who aimed to
modernize Russia by harmonizing its national traditions with European
democratic values. A lot has since fallen between the cracks of that
promise, say experts.
"Putin's main idea was to create a strong, united Russian state, and
to do this through a strict, top-down system of power staffed by
people loyal to himself," says Alexei Mukhin, director of the
independent Center for Political Technologies in Moscow. "He tried to
position himself in the public mind as a 'good czar,' according to
Russian tradition, and he's been pretty successful at that. But his
objective of making the state an effective instrument to promote
national development has not turned out at all as advertised."
Mr. Strokan of the Kommersant daily says Putin was the "proverbial man
on horseback." He says Putin "came at a time when democracy seemed to
be failing, and he had the image of a soldier with clean hands and a
firm heart, and that appealed to people ... but it was all a PR
operation, of course. Once he had power, he took control of the major
media to ensure that no one could use that method against him."
Within a few years, the Kremlin effectively controlled all national TV
outlets and the owners of some of those stations that had dared oppose
him – tycoons like Boris Berezovsky and Vladimir Gusinsky – had fled
the country.
But as the space for public dissent contracted under Putin, the
economy expanded – rapidly. That was in large part due to skyrocketing
oil prices. But prosperity trickled down and many Russians appeared
content to set aside demands for political freedoms as living
standards swiftly rose.
Political opponents? Crushed
Not everyone, of course, has a rosy view of his leadership. Putin's
years in power have been punctuated by wars and terrorist strikes,
which he used to crush political opponents and ratchet up Kremlin
control.
Just weeks after Putin became prime minister, Russia was rocked by a
series of still-unexplained apartment bombings that killed 300 people,
panicked the country, and led the Kremlin to launch a new war against
rebels in the separatist republic of Chechnya. In that atmosphere,
voters stampeded to support the pro-Putin party in December 1999
parliamentary elections.
The ongoing war in Chechnya, as well as a harrowing attack that led to
the poison-gas deaths of 120 people at a theater in the heart of
Moscow and another that killed hundreds of schoolchildren in the
southern town of Beslan, led to dramatic political shake-ups from
which the Kremlin and security services emerged with more power than
ever.
"To every crisis, Putin responded with consolidating his control,"
says Masha Lipman, editor of the Pro et Contra journal published by
the Carnegie Center in Moscow. "Public politics in Russia are now 100
percent controlled from the top. No other figure can emerge, in any
political capacity, without the approval of the Kremlin," she
contends.
Putin also stacked the Kremlin with KGB veterans and arrested Russia's
wealthiest man – oil tycoon Mikhail Khodorkovsky – on charges of
fraud, tax evasion, and embezzlement to enforce his new order. Critics
say that the "new men" Putin brought with him from the security
services to clean up the country have actually spawned more corruption
than ever.
"Putin brought these security people in, because it was thought they
were the only ones who could be trusted," says Andrei Soldatov, editor
of Agentura.ru, a website that reports on the security services. "But
in fact Putin created a state where there is a convergence between big
business and the state. The secret services now work more on behalf of
corporations than they do for the interests of the country," he says.
As Russia's oil-fueled prosperity fades amid the global economic
crisis, Putin may be trapped in the system he created, says Ms.
Lipman.
"He stepped down from the presidency last year, while staying on as
prime minister, because he cannot afford to leave," she says. "He is
essential to the working of the system. If he disappeared, it would
quickly become unstable."
bademiyansubhanallah
market pulse
Aug 11, 2009, 9:24 a.m. EST
Russia's economy contracts by 10.9% in Q2 Story Comments Screener (2)
Alert Email Print ShareBy Polya Lesova NEW YORK (MarketWatch) --
Russia's economy shrank by 10.9% in the second quarter compared with
the same period a year ago, according to media reports Tuesday that
cited initial data from the Russian statistics office. In the first
quarter, gross domestic product declined by 9.8% year-on-year. The
U.S. dollar rose 1.2% against the Russian ruble to 32.222 in Tuesday
trading. The data suggests that "despite CBR [Russia's central bank]
rate cuts, currency devaluation in Q1, a huge fiscal stimulus underway
(likely around 10% of GDP), and a doubling in oil commodity prices
since Q1, the Russian economy is facing some pretty serious structural
impediments to growth," said Timothy Ash, head of CEEMEA research at
Royal Bank of Scotland, in a note to clients.
bademiyansubhanallah
Tuesday, August 11, 2009
Updated at 11 August 2009 22:54 Moscow Time.
The Moscow Times » Issue 4208 » Top Stories
Vladimir Filonov / MT
GDP expanded a nonseasonally adjusted 7.5 percent this quarter after
falling 23 percent in the first three months.
GDP Falls 10.9% in Surprise Drop
12 August 2009
By Paul Abelsky, Alex Nicholson / The Moscow Times
The economy contracted the most on record last quarter as rising
unemployment sapped consumer demand, bank lending stalled and the
government failed to approve a stimulus package until just two months
ago.
Gross domestic product contracted an annual 10.9 percent in the second
quarter, the State Statistics Service said Tuesday, citing preliminary
data. The median estimate in a Bloomberg survey of seven economists
was for output to shrink 10.2 percent. The service’s data go as far
back as 1995.
The economic decline is worsening after output contracted 9.8 percent
in the first quarter, ending 10 years of expansion that averaged close
to 7 percent.
The ruble erased earlier gains against the dollar, weakening 1.4
percent to 32.2, the lowest in almost a month. The currency lost 1
percent against the euro to 45.5. Those movements left the ruble at
38.25 against the Central Bank’s target currency basket.
Russia failed to free itself of its reliance on commodities during
Prime Minister Vladimir Putin’s tenure as president between 2000 and
2008, said Natalya Orlova, chief economist at Alfa Bank.
“Because of high oil prices, capital came in; banks transferred this
capital into the economy,” she said. “Rising wages fed consumer
growth, so there was no reason to invest or create new production.
Now, capital has stopped coming in, and consumption has stopped. This
model has ceased to exist. We don’t have a new one.”
GDP expanded a nonseasonally adjusted 7.5 percent from the previous
quarter after contracting 23 percent in the first three months, the
office said.
“The economy approached the bottom in the second quarter, basically it
hit the bottom around May, June,” said Tatyana Orlova, an economist at
ING Groep. “We should see some better-looking data” in the coming
quarters.
Russian stocks maintained earlier gains as the 30-stock MICEX Index
closed down 2.9 percent to 1069.31, adding on to Monday’s 1.3 percent
retreat. The RTS Index lost 2.9 percent to 1033.72 on Tuesday.
Russian stock market moves are showing record correlations with oil
futures traded in New York, based on daily changes over the past 90
days, according to data compiled by Bloomberg. The MICEX Index, which
is mostly made up of energy companies, slipped into a bear market in
June after falling more than 20 percent from its high on June 1, on
concern that a prolonged recession will cut demand for fuel. It gained
8.4 percent in July and is up 79 percent this year.
The world’s biggest energy exporter may run a budget deficit as wide
as 9.4 percent of GDP this year, the country’s first shortfall in a
decade, as plummeting demand for commodities threatens to cut revenue
by a third, according to the Finance Ministry.
Sid Harth
August 11, 2009
China's industrial output rises, prices fall
Joe Mcdonald
China's industrial output, trade and retail sales improved in July,
data showed Tuesday, in positive signs for Beijing's multibillion-
dollar effort to restore stable growth in the world's third-largest
economy.
Consumer prices fell, possibly damping fears that stimulus spending
might trigger a rise in inflation that could disrupt the rebound.
The flurry of data suggested China's recovery is making progress,
which could help to drive a global rebound from the worst economic
downturn since the 1930s. But private sector activity is weak and
economists say growth is still dependent on stimulus spending.
"The Chinese economy has shown some positive changes," said a
spokesman for the National Bureau of Statistics, Li Xiaochao, at a
news conference. However, he said, "profits of some enterprises still
are in great decline."
Industrial production rose 10.8 percent from a year earlier, the third
straight monthly increase in growth, the statistics agency said.
Retail sales climbed 15.2 percent, while investment in factories and
other fixed assets also rose.
"These are mostly good signs," said Citigroup economist Ken Peng.
"With improving external conditions, we should see growth pick up in
the second half of the year."
Imports and exports showed improvements over June, though both fell
compared with a year earlier, according to customs data. Imports
dropped 14.9 percent from the same month in 2008, while exports fell
22.9 percent. But total trade was up $17.5 billion from the previous
month.
"That's pretty solid improvement, even if the year-over-year
comparisons continued to be ugly," Peng said. He said July declines
were due in part to the fact that the month was being compared with a
peak in trade last year.
China's economic growth accelerated to 7.9 percent in the latest
quarter, up from 6.1 percent the previous quarter, though officials
warn that a recovery is not firmly established and have called for
continued vigilance. The The biggest gains have been in construction
and other stimulus-financed activity, while private sector growth has
lagged.
Beijing's 4 trillion yuan ($586 billion) stimulus is aimed at
insulating China from the global downturn by boosting domestic demand
through massive spending on construction of highways and other public
works. Most of the money has gone to state-owned companies but some is
starting to flow to the private sector.
Regulators worry that too much of the soaring lending by Chinese banks
has been diverted to speculation in stocks and real estate. That has
prompted worries among investors that Beijing might rein in lending,
though Premier Wen Jiabao promised last weekend that easy credit will
continue.
Also Tuesday, the central bank reported that total borrowing from
Chinese banks plunged in July to 355.9 billion yuan ($51.9 billion),
down sharply from June's record 1.5 trillion yuan ($223 billion).
A deputy central bank governor said last week that lending should
decline in the second half of the year even without government
intervention. He said developers have received most of the money they
need and are turning to completing projects.
June's 1.8 percent fall in consumer prices from a year earlier was the
sixth month of decline, the statistics bureau said. Wholesale prices
fell even more sharply, dropping by 8.2 percent from a year earlier
and reducing pressure for producers to pass on higher costs to
consumers.
Such a decline was expected, especially because prices are being
compared with a period of high inflation in 2008. But prolonged
declines can cause economic problems.
"Deflation is still deepening," said Citigroup's Peng. "So demand is
still not very solid, economy-wide."
National Bureau of Statistics (in Chinese): http://www.stats.gov.cn
Sid Harth
Will endless wars save the dollar?
by Javed Zamir
(Tuesday, August 11, 2009)
"Since 1945, the US dollar has been the world reserve currency. As its
value depreciates, countries holding huge dollar reserves begin to
worry. China in particular has expressed grave concerns since it holds
nearly $2 trillion in US currency reserves, mostly in the form of US
treasury bonds. According to some reports, it is drawing down its
dollar reserves by purchasing gold and stocks of raw materials and
energy."
Capitalism and capitalists have no religion and no loyalty to anything
or anyone except their personal financial interests. Profit margin is
what drives them. Workers may not withdraw their labour in certain
critical industries — health, food and so on — for fear of being
branded as irresponsible but capitalists are free to move their
capital wherever and whenever they want to maximize profits. This is
what has happened to the US. When wages increased in the US, the
corporate elites took their capital to other parts of the world where
labour was cheap — Indonesia, Philippines, India, China and Mexico,
for instance — to manufacture goods cheaply and sell them at
exorbitant prices in the US. Walk into any Walmart store in the US and
you will find 90 to 95 percent of goods are manufactured in China,
Taiwan, Singapore or even India and Bangladesh.
This may be the nirvana of globalization but it also means the US now
lives in a virtual economy. Its real economy was shipped abroad when
its manufacturing jobs disappeared under the rubric of globalization.
The US created a “New Economy”, based on services. This economy was
sustained on the life-support system provided by the Federal Reserve
Bank — not a real bank but a private institution that has the right to
print as many dollars as it wants to keep itself afloat and its
shareholders happy. This is precisely what the Fed, as it is called,
is doing. It is printing one trillion dollars — yes a trillion dollars
with a ‘t’, not underpinned by any real assets. This is the bubble
economy that the Wall Street gangsters have created.
Following the attacks of 9/11, as consumer confidence plummeted and
deep uncertainty took hold, US President George Bush encouraged
Americans to go out and shop. To facilitate this binge, he lowered
interest rates so that people could borrow money and those not
eligible to buy houses could do so. This led to an artificial boom in
the housing market but reality soon caught up and the bubble burst
when mortgages came due and people could not afford to renew them. The
Americans’ wealth in real estate, pensions, and savings collapsed
dramatically while their jobs disappeared.
In September 2008 when the economic downturn finally caught up with
them and Wall Street executives could no longer sustain their Ponzi
schemes, then Treasury Secretary Henry Paulson and Federal Reserve
Bank Chairman Ben Bernanke went to a select group of congressmen
telling them if they did not agree to provide an immediate bailout
package of $750 billion to failing banks, the economy would collapse.
US President George Bush even threatened to declare martial law —
think of a third world banana republic — if congress did not approve
the money they demanded. Paulson was given vast powers to dispense the
money as he deemed fit with few oversights or questions asked. But
even the $750 billion was not enough. In fact, American International
Group (AIG), the insurance giant that had been caught in the Ponzi
scheme by underwriting bad mortgage loans, needed more than what was
doled out. The most criminal of these bailouts has been to Goldman
Sachs, the investment bank, as Paul Krugman pointed out in his column
in the New York Times (July 16). Goldman executives are to get huge
bonuses from money doled out by the government; it is American
taxpayers’ money who have lost their jobs and life’s savings.
While ordinary Americans cannot finance their homes to prevent
foreclosure, Goldman executives are chomping on cigars. Ordinary
people neither have equity nor jobs to survive. America’s consumer
economy, approximately 70 percent of the Gross Domestic Product (GDP),
is dead. Those Americans that still have jobs are saving against the
prospect of job loss. Millions are homeless. Some have moved in with
family and friends; others are now living in tents; others will soon
join them. Welcome to the Banana Republic of America!
The problem is not confined to the US or Americans alone. America’s
appetite for money is so huge that other countries, mainly China and
Japan, have been pumping in hundreds of billions of dollars annually
into its economy to keep it afloat. This has now mushroomed to $2
trillion a year. The global financial meltdown, however, means other
countries need the money for their own markets and can no longer
afford to dole out to the US that in any case has little capacity to
repay. Beside, they see the effect of massive printing by the Federal
Reserve that will further erode the value of the dollar. This in turn
will affect its ability to pay for oil imports and manufactured goods.
US domestic prices will shoot up while people’s earnings will decline
and their purchasing power will disappear.
Since 1945, the US dollar has been the world reserve currency. As its
value depreciates, countries holding huge dollar reserves begin to
worry. China in particular has expressed grave concerns since it holds
nearly $2 trillion in US currency reserves, mostly in the form of US
treasury bonds. According to some reports, it is drawing down its
dollar reserves by purchasing gold and stocks of raw materials and
energy.
Naturally other countries are not sitting idle in the face of such
financial calamity brought by gangster capitalism. Brazil, Russia,
India and China have pooled their resources in what is referred to by
the acronym, BRIC, to override the financial meltdown. China and
Brazil have already agreed to trade in each other’s currency. The BRIC
quartet holds about 40 per cent of the world’s hard currency
reserves.
Three of the four (China, Brazil and Russia) worry that US inflation
might either erode their dollar-denominated investments or interfere
with their export businesses. All four want a bigger say in
organizations, such as the International Monetary Fund, that direct
the world economy. Russia, Brazil and China have also taken symbolic
steps to shift $70 billion worth of their reserves from dollars into
IMF-issued multi-currency bonds prompting such headlines as ‘Throwing
BRIC at the dollar’.
China has taken other step as well. It has moved aggressively to
invest in Africa and has made major energy investments in Venezuela,
Russia, Sudan, Iran and Iraq. It has also attempted to create new
outlets for trade such as with Japan and India.
How the US government has responded to the financial crisis so far?
Since the oligarchs that control America are heavily dependent on wars
to make profit, they are creating new killing fields globally. The war
from Afghanistan has now been extended into Pakistan with the Pakistan
army being used against its own people. There is danger that the war
in Iraq would be extended to Iran as well as recent threatening
postures from US and Israeli officials indicate. Far from winding down
the wars in Afghanistan and Iraq that are primarily responsible for
creating the current financial turmoil, President Obama wants to
launch more wars. He is, after all, a slave of the establishment even
if he sleeps in the White House.
Source:
by courtesy & © 2009 Javed Zamir
bademiyansubhanallah
Reuters
TABLE-China's economic indicators - Aug 12
08.12.09, 02:59 AM EDT
CHINA-ECONOMY/INDICATORS:TABLE-China's economic indicators - Aug 12
BEIJING, Aug 12 (Reuters) - Following are China's economic indicators.
1. Real GDP growth (yr/yr % change) YEAR 2008 2007 2006 2005 2004 2003
2002 2001 2000 1999 1998 1997 PCT 9.0 13.0 11.6 10.4 10.1 10.0 9.1 8.3
8.4 7.6 7.8 9.3 QTR* Q209 Q109 Q408 Q308 Q208 Q108 Q407 Q307 Q207 Q107
Q406 Q306 PCT 7.9 6.1 6.8 9.0 10.1 10.6 11.2 11.5 12.6 11.7 10.4 10.6
Trade balance (in billions of dollars) MONTH Jul09 Jun09 May09 Apr09
Mar09 Feb09 Jan09 Dec08 Nov08 Oct08 Sep08 Aug08 EXP 105.4 95.4 88.8
91.9 90.3 64.9 90.5 111.2 115.0 128.3 136.4 134.9 IMP 94.8 87.2 75.4
78.8 71.7 60.1 51.3 72.2 74.9 93.1 107.1 106.2 BAL 10.6 8.2 13.4 13.1
18.6 4.8 39.1 39.0 40.1 35.2 29.3 28.7
3. Export and import growth (yr/yr % change) MONTH Jul09 Jun09 May09
Apr09 Mar09 Feb09 Jan09 Dec08 Nov08 Oct08 Sep08 Aug08 EXP -23.0 -21.4
-26.4 -22.6 -17.1 -25.7 -17.5 -2.8 -2.2 19.2 21.5 21.1 IMP -14.9 -13.2
-25.2 -23.0 -25.1 -24.1 -43.1 -21.3 -17.9 15.6 21.3 23.1
4. Money supply growth (yr/yr % change) MONTH Jul09 Jun09 May09 Apr09
Mar09 Feb09 Jan09 Dec08 Nov08 Oct08 Sep08 Aug08 M2 28.4 28.5 25.7 26.0
25.5 20.5 18.8 17.8 14.8 15.0 15.3 16.0 M1 26.4 24.8 18.7 17.5 17.0
10.9 6.7 9.1 6.8 8.9 9.4 11.5 M0 11.6 11.5 11.2 11.3 10.9 8.3 12.0
12.7 9.0 10.6 9.3 10.9
5. Yuan loans (in trillions of yuan and yr/yr % change) MONTH Jul09
Jun09 May09 Apr09 Mar09 Feb09 Jan09 Dec08 Nov08 Oct08 Sep08 Aug08
Level 38.1 37.7 36.2 35.6 35.0 33.1 32.0 30.4 29.6 29.8 29.7 29.3
Change 33.9 34.4 30.6 29.7 29.8 24.2 21.3 18.8 16.0 14.6 14.5 14.3
Overall fixed-asset investment growth (yr/yr % change) YEAR# 2008 2007
2006 2005 2004 2003 2002 2001 2000 1999 PCT 25.5 24.8 24.0 25.7 26.6
26.7 16.1 12.1 9.3 5.2
Fixed-asset investment in urban areas, year to date (yr/yr % change)
MONTH Jul09 Jun09 May09 Apr09 Mar09 Jan-Feb09 Dec08 Nov08 Oct08 Sep08
Aug08 PCT 32.9 33.6 32.9 30.5 28.6 26.5 26.1 26.8 27.2 27.6 27.4
7. Industrial output growth (yr/yr % change) YEAR 2008 2007 2006 2005
2004 2003 2002 2001 2000 1999 PCT 12.9 18.5 16.6 16.4 16.7 17.0 12.6
9.9 11.4 8.5 MONTH Jul08 Jun09 May09 Apr09 Mar09 Jan-Feb09 Dec08 Nov08
Oct08 Sep08 Aug08 PCT 10.8 10.7 8.9 7.3 8.3 3.8 5.7 5.4 8.2 11.4 12.8
8. Retail sales growth (yr/yr % change) YEAR 2008 2007 2006 2005 2004
2003 2002 2001 2000 1999 PCT 21.6 16.8 13.7 12.9 13.3 9.1 8.8 10.1 9.7
6.8 MONTH Jul09 Jun09 May09 Apr09 Mar09 Jan-Feb09 Dec08 Nov08 Oct08
Sep08 Aug08 PCT 15.2 15.0 15.2 14.8 14.7 15.2 19.0 20.8 22.0 23.2 23.2
9. Consumer price index (yr/yr % change) YEAR 2008 2007 2006 2005 2004
2003 2002 2001 2000 1999 1998 1997 PCT 5.9 4.8 1.5 1.8 3.9 1.2 -0.8
0.7 0.4 -1.4 -0.8 2.8 MONTH Jul09 Jun09 May09 Apr09 Mar09 Feb09 Jan09
Dec08 Nov08 Oct08 Sep08 Aug08 PCT -1.8 -1.7 -1.4 -1.5 -1.2 -1.6 1.0
1.2 2.4 4.0 4.6 4.9
10. Producer price index (yr/yr % change) YEAR 2008 2007 2006 2005
2004 2003 2002 2001 2000 1999 PCT 6.9 3.1 3.0 4.9 6.1 2.3 -2.2 -1.3
2.8 -2.4 MONTH Jul09 Jun09 May09 Apr09 Mar09 Feb09 Jan09 Dec08 Nov08
Oct08 Sep08 Aug08 PCT -8.2 -7.8 -7.2 -6.6 -6.0 -4.5 -3.3 -1.1 2.0 6.6
9.1 10.1
11. Actual FDI inflows (in billions of dollars, MOFCOM measure~) YEAR
2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 VALUE 92.4 74.8 63.0
60.3 60.6 53.5 52.7 46.9 40.8 40.4 MONTH Jun09 May09 Apr09 Mar09 Feb09
Jan09 Dec08 Nov08 Oct08 Sep08 Aug08 Jul08 VALUE 9.0 6.4 5.9 8.4 5.8
7.5 6.0 5.3 6.7 6.6 7.0 8.3
12. Foreign exchange reserves (in billions of dollars) End-Jun09 End-
Mar09 End-Dec08 End-Sep08 End-Jun08 End-Mar08 End-Dec07
2,131.6 1,953.7 1,946.0 1,905.6 1,808.8 1,682.2 1,528.2
13. Foreign debt (in billions of dollars) End-Mar09 End-Dec08 End-
Sep08 End-Jun08 End-Mar08 End-Dec07 End-Sep07
336.7 374.7 442.0 427.4 392.6 373.6 345.7
14. Purchasing managers' index (official) MONTH Jun09 May09 Apr09
Mar09 Feb09 Jan09 Dec08 Nov08 Oct08 Sep08 Aug08 Jul08 POINT 53.2 53.1
53.5 52.4 49.0 45.3 41.2 38.8 44.6 51.2 48.4 48.4
15. Bank interest rates
One-year yuan deposit rate One-year yuan lending rate
2.25 pct 5.31 pct
One-year dollar deposit rate One-year HK dollar deposit rate
3.00 pct 2.625 pct
Notes:
(1) China's GDP growth is inflation-adjusted. Growth in fixed-asset
investment, industrial output and retail sales is nominal.
(2) # The government's monthly fixed-asset investment figures are
based on urban areas only; it gives overall investment on a quarterly
basis.
(3) ~ The Commerce Ministry FDI figures exclude investments in the
financial sector. The monthly FDI figures are in some cases calculated
by Reuters based on cumulative data released by the Commerce Ministry.
(4) * Quarterly GDP growth figures for 2006 and 2007 do not reflect
revisions to full-year growth issued by the National Bureau of
Statistics. (Reporting by Beijing Economics Team; editing by Ken
Wills)
Copyright 2009 Reuters, Click for Restriction
bademiyansubhanallah
Asia Currencies Fall, Led by Won, Rupee, on Recovery Concerns
By Lilian Karunungan and Bob Chen
Aug. 11 (Bloomberg) -- Asian currencies fell, led by South Korea’s won
and the Indian rupee, as concern a global economic recovery is losing
momentum deterred investment in emerging- market assets.
The won dropped the most in four weeks and the rupee slid to its
weakest level this month after China, the world’s biggest developing
economy, reported slides in exports and new lending for July. Bank of
Japan Governor Masaaki today said any pickup in Asia’s largest economy
is likely to be weak and the Bank of Korea left its benchmark interest
rate unchanged at a record-low 2 percent for a sixth consecutive
month.
“There was disappointment on the China data,” said Daniel Hui, a
foreign-exchange strategist at HSBC Holdings Plc in Hong Kong. “The
riskier currencies have come off some.”
The won fell 0.9 percent to close at 1,239.20 per dollar in Seoul,
according to data compiled by Bloomberg. It earlier touched 1,243.95,
the weakest level since July 30. The rupee slid as low as 48.045
before trading down 0.3 percent at 47.9375 as of 2:22 p.m. in Mumbai.
China’s exports dropped 23 percent from a year earlier last month, a
ninth straight decline, the government reported today. Central bank
data showed new lending totaled 356 billion yuan ($52 billion), less
than a quarter of June’s 1.53 trillion yuan total and short of the 500
billion yuan forecast by economists in a Bloomberg News survey.
“The loan growth was quite a bit less than what the market was
expecting,” said Craig Chan, a Singapore-based strategist at Nomura
Holdings Inc., Japan’s largest brokerage. “The other softer Chinese
data out this morning may also add to any sell- off in the region.”
‘Change of Tune’
The yen rose for a second day after China’s economic data spurred
demand for Japan’s currency, a perceived safe haven. It climbed to
96.79 per dollar from 97.15. The Bloomberg-JPMorgan Asia Dollar Index,
which tracks the region’s 10 most-used currencies excluding the yen,
slipped for a second day, after climbing in each of the last four
weeks.
“There appears to be a slight change of tune in favor of caution,”
said Suresh Kumar Ramanathan, a currency strategist at CIMB Investment
Bank Bhd. in Kuala Lumpur. “The region is still reliant on exports and
the authorities may want to keep their currencies on the neutral-to-
weaker side.”
‘Shaky’ Prospects
India’s rupee fell after foreign funds sold more Indian equities than
they bought for the third day in a row on Aug. 7, the longest stretch
of net sales in six weeks. The rupee also declined on concern local
refiners will boost dollar purchases after crude oil prices rose,
according to Sanjay Arya, treasurer at state-owned Bank of
Maharashtra.
“Growth prospects in the region appear to be shaky, which is why
investors are refraining from long-term commitments,” Mumbai-based
Arya said. “The preference is for stronger investments and the rupee
at present is not part of that.”
Malaysia’s ringgit dropped 0.1 percent to 3.5092 per dollar, having
last week reached a two-month high of 3.4840. Nor Mohamed Yakcop, head
of the country’s Economic Planning Unit, yesterday predicted economic
growth will be “anemic” as a global recession abates.
The baht was little changed at 34.03 after overseas investors
yesterday sold 724 million baht ($21.3 million) more of Thai equities
than they bought, the first day of net sales this month.
Intervention Risk
Taiwan’s dollar dropped for a fourth day as foreigners trimmed their
holdings of the nation’s stocks today by NT$3.2 billion ($97 million).
The currency has retreated since reaching a two-month high last week
on concern the Central Bank of the Republic of China (Taiwan) will
intervene to prevent appreciation that may prolong an export slump.
“We’ve been seeing profit-taking in the Taiwan dollar in the past few
days,” said Gerrard Katz, head of foreign-exchange trading at Standard
Chartered Plc in Hong Kong. “Possible central bank intervention could
also move the Taiwan dollar weaker.”
The Taiwan dollar slipped 0.1 percent to NT$32.855 versus the
greenback, according to Taipei Forex Inc. Central banks can try to
influence exchange rates by buying or selling foreign currency.
Elsewhere, Indonesia’s rupiah dropped 0.1 percent to 9,943 against the
U.S. currency in Jakarta. The Philippine peso was little changed at
47.710 and the Singapore dollar fell 0.2 percent to S$1.4442, dropping
for a fifth straight day.
To contact the reporters on this story: Lilian Karunungan in Singapore
at at lkaru...@bloomberg.net;
Last Updated: August 11, 2009 05:24 EDT
bademiyansubhanallah
Indian 7% Growth Threatened as Rain Gods ‘Play Hooky’ (Update1)
By Kartik Goyal
Aug. 12 (Bloomberg) -- India’s 7 percent economic growth target may be
jeopardized as the weakest monsoon rains in five years threaten
harvests, according to economists.
The India Meteorological Department on Aug. 10 lowered its monsoon
forecast for a second time this season, saying showers in the June-
September season will be 13 percent below average, compared with a 7
percent shortfall estimated in June.
Deficient rains may reduce crops as India, where more than half the
arable land isn’t irrigated, relies on the monsoon to produce food for
its 1.2 billion people. Lower farm output may erode the purchasing
power of 742 million Indians who live in the countryside, hurting
Prime Minster Manmohan Singh’s efforts to revive growth in order to
create jobs and cut poverty.
“The rain gods continue to play hooky,” said Rajeev Malik, a regional
economist at Macquarie Group Ltd. in Singapore. A poor monsoon that
results in a sizeable shortfall in farm production would “definitely
reduce economic growth,” he added.
State governments have declared drought in a total of 167 of India’s
626 districts, the farm ministry said today. Areas under rice
cultivation have declined 20 percent to 22.82 million hectares, the
farm ministry said yesterday.
A below-average monsoon may shave as much as one percentage point off
India’s growth in the year to March 2010, Raghuram Rajan, a former
chief economist at the International Monetary Fund said on Aug. 10.
India’s economy, the third-largest in Asia, may expand 6 percent in
the current fiscal year, Rajan said.
2002 Drought
A drought in 2002 pared economic growth to 3.8 percent, the lowest in
11 years. The following year, the pace of expansion accelerated to 8.5
percent, the fastest since 1989, as sufficient rains returned.
A 20 percent rain shortfall may chop 2 percentage points off India’s
economic growth, according to Philip Wyatt, a senior economist at UBS
AG in Hong Kong. A 2 percent drop in farm output may lower gross
domestic product by 1 percentage point, said economist Robert Prior-
Wandesforde of HSBC Group Plc.
“We think rural demand will be negatively impacted and this is a
significant negative shock,” said Tushar Poddar, an economist at
Goldman Sachs Group Inc. in Mumbai. Industries catering to rural
consumers will be the hardest hit, he said. Poddar estimates GDP
growth would be reduced by 0.3 percentage point in the case of a 2
percent decline in farm production.
Insufficient rain has caused acreage of all major crops to lag behind
year-ago levels, denting prospects for bigger harvests of rice,
oilseeds and sugar cane. India, the world’s second-biggest rice
producer, planted monsoon paddy crops on 5.8 million hectares less
area this year because of scant rain in the main growing regions,
according to the farm ministry.
Food Prices
Reduced harvests this year may also have an inflationary impact on
food prices in the coming months, Prime Minister Singh said Aug. 8.
Consumer prices paid by farm workers jumped 11.52 percent in June from
a year earlier after gaining 10.21 percent in May. Prices paid by
industrial workers rose 9.26 percent in June from a year earlier,
according to the latest government data.
The showers in June-September period are critical as abundant rains
boosts farm output, putting more money in the hands of rural consumers
to spend on goods such as tractors made by Mahindra & Mahindra Ltd.
and soaps and personal-care products from Hindustan Unilever Ltd.
“As food prices go up, this will have a significant negative impact on
rural demand,” Poddar from Goldman Sachs said. “Additionally, the
summer rains prepare the ground for the winter crop, which may also be
affected due to the shortfall.”
Cars, Tractors
Indian stocks have declined more than 2 percent since the weather
office lowered its rain forecast on Aug. 10, on concern shortfalls in
agricultural production may slow the country’s economic growth.
Mahindra & Mahindra, the nation’s largest maker of sport-utility
vehicles and tractors, sank 9 percent and Hindustan Unilever Ltd.
declined 0.2 percent today.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 152.35,
or 1 percent, to 14,922.24 at 10:26 a.m. in Mumbai.
Still, economists such as Macquarie’s Malik said accelerating
industrial output and higher government spending on rural jobs and
infrastructure may help offset the impact of lower farm output on the
economy.
“The share of agriculture in India’s GDP has declined to 17.5 percent
from 34 percent in 1980,” Malik said. “Hence minor variations in farm
output increasingly matter less for overall GDP growth.”
Rural Jobs
Malik has kept his economic growth estimate unchanged at 7 percent,
saying he’ll make a final call on the forecast after a more complete
report of the sowing season through August.
Finance Minister Pranab Mukherjee in his July 6 budget speech raised
spending on a guaranteed-rural jobs program by 144 percent to 391
billion rupees ($8.15 billion) in the year to March 2010 and promised
to provide rice and wheat to the poor at 3 rupees a kilogram.
Deficient rainfall may pose a problem to India’s economic recovery but
there is no need to “press the panic button,” Mukherjee said. The
government has contingency plans to deal with the situation, he
added.
To contact the reporter on this story: Kartik Goyal in New Delhi at
kgo...@bloomberg.net
Last Updated: August 12, 2009 01:23 EDT
Sid Harth
Can Dr Singh do a Robert Peel?
In 1846, Robert Peel, the British PM, removed the import ban on corn.
Food prices in Britain fell sharply from then onwards. The choice
before the Government is clear: High import dependence or high food
prices, says T. C.A. SRINIVASA-RAGHAVAN.
India is faced with the prospect of persistently rising food prices or
food inflation. Even the Supreme Court thinks so.
Some of this increase has to do with the failure of the monsoon. Only
about 40 per cent of the gross cropped area is irrigated.
Some if it has to do with low agricultural productivity. Small
holdings are an almost insurmountable obstacle to raising
productivity. Some of it is because of profiteering by intermediaries.
However, an efficient distribution network requires a lot of
intermediation, with commissions at each stage which all add up.
Rising demand
But, most of all, it is because the demand for food is increasing
faster than its supply. Demand is increasing because there is more
money now in the hands of people than ever before.
Both rapid economic growth and half-baked programmes such as the NREGA
are responsible. If supply doesn’t keep pace, prices will go up, as
indeed they have done. That is all there is to it. You don’t need to
be an Adam Smith or a John Keynes to figure this out.
High food prices are leaving people poorer, even though they have more
money to spend now. In spite of all the growth of the last 10 years,
the poor are actually eating less. This is specially true of the last
two-and-a-half years because the average increase in food prices has
been 50 per cent while wages for unskilled and semi-skilled labour
have remained more-or-less constant.
Role confusion
This poses a moral problem, as Amartya Sen never fails to point out.
But it is also an economic problem, as the Marxists never fail to
point out.
Dr Manmohan Singh is an economist-turned-politician. So he faces a
huge problem now because he seems to have reached an advanced stage of
role confusion.
He lacks the uni-dimensionality of economists and the multi-
dimensionality of politicians. This stymies him almost completely.
As an economist, he would like to increase supply. But the politician
in him stays his hand. He is forced to ask: Which way will the
millions of farmer vote if prices fall?
The economist in him knows that the number of those who buy their
food, instead of growing it, includes millions of the landless who
also vote. So do urban food buyers. Taken together their number is now
about the same as the number of those who grow food and take care of
their own needs.
The grain merchant
Indeed, it is possible that the number of net-buyers of food is now
higher than the number of net-sellers. This is because not all those
who grow food have a surplus to sell in the market because they can’t
even grow enough for their own needs. The politician in Dr Singh also
has to cater to another constituency, namely, the grain merchant,
whose profits come from high prices.
Dr Singh, the politician, can’t afford to annoy him because his party
needs a portion of those profits to finance one sort of election or
another, as indeed do other parties such as the BJP.
Net-net: The political establishment in India tends to see the food
prices problem more as a producer issue than a consumer issue. That is
why it will not increase supply via free or virtually free imports.
Increase supply
It will, instead, try to trap domestic supplies at home by banning
exports. Indeed, this is why the UPA-I pumped in Rs 87,000 crore into
farmers’ pockets last year through the increase in minimum support
prices. It won the election as a result.
But if the politicians continue to see it in this way, and do nothing
about rising food prices, we could have food riots soon. The time has
come to stop worrying only — note, only — about the producer and start
worrying about the consumer also. About 70 per cent of net buyers of
food are abjectly poor and live in the rural areas, so there is a
moral dimension as well.
The Government thinks food subsidies are an answer. In a limited way,
they are. But the final answer lies in increasing supply now, and not
waiting for productivity to increase at some distant date. And there
is only one way to do this: Import.
Import ban
In a way, therefore, the Prime Minister has to do what a British Prime
Minister, Robert Peel, did exactly 150 years ago — he repealed that
infamous corn laws that had been enacted in 1815 to protect British
corn prices against cheap imports from America.
This import ban had caused millions to become poorer even as their
incomes rose because of industrialisation.
In the years after the repeal of the corn laws, that is between 1850
and 1900, food prices in Britain fell continuously, as did the land
under corn. Import dependence went from only 2 per cent in 1830 to 75
per cent by the end of the century. That had other adverse
consequences, mainly for India and China, but food in Britain became
cheap.
Buy cheap food
In the past when foreign exchange was a problem, we needed charity.
But today with enough forex reserves, we can buy grains from the US
and Australia because they are subsidising their farmers.
We can, and should, buy this cheap food. It is silly not to do so.
What holds for industrial goods holds for agriculture also.
The choice before the Government is thus clear: High import dependence
or high food prices. It is a political decision. It needs not just
courage but also the wisdom to see that the buyer-seller balance in
food has changed.
It costs Rs 6 to reach Re 1 to the poorest
The only way to improve efficiency in lending to the poor is by
promoting healthy competition and increasing the freedom of the
borrowers to shift from one agency to another based on the interest
charged.
SWARNA S. VEPA, AUTHOR, ‘BEARING THE BRUNT: IMPACT OF RURAL DISTRESS
ON WOMEN’.
While agricultural technology is scale-neutral, profitability favours
those who have the capacity to hold the stocks and sell at high
prices, reduce the cost of production and forge market tie-ups,
probably in commercial crops. And mainly they contribute to
agricultural growth.
Thus observes Swarna S. Vepa, author of Bearing the Brunt: Impact of
Rural Distress on Women (Sage), and Visiting Professor, Madras School
of Economics, Chennai, during a recent lunch-hour interaction in
Business Line. She rues that the debt burden of the poor is
increasing.
“The debt-asset ratio of the poor is 20 per cent as against 2 per cent
for the rich. We find pauperisation of the farming community due to
high cost of inputs including seeds, highly volatile prices,
fluctuating yields and low profitability.”
The trend is spreading to animal husbandry as well as poultry, where
the enterprise is decisively shifting into the hands of the big
farmers owning more than four hectares, Vepa finds. “Commercial
interests play a very big role in commissioning crops, providing
inputs and credit and buying the farm produce cheap and sell at high
prices and reap the benefit of agricultural growth.”
Increasingly, Indian agricultural growth is benefiting the commercial
interests rather than family farms, bemoans the author-economist. The
National Sample Survey of 2003 has shown that 40 per cent of the
farmers want to quit agriculture if they find a viable alternative,
she informs.
Excerpts from the interview:
What are the challenges in reaching finance to the poorest in the
economy?
As per the report on ‘Performance evaluation of targeted public
distribution system’ by the Planning Commission in 2005, for one rupee
worth of income transfer to the poor, Government of India spends Rs
3.65. This is the average cost. The cost of reaching a poorest man in
the remote tribal areas could be even higher: at almost Rs 6. It means
that Re 1 of budgetary consumer subsidy is worth only 27 paise to 13.5
paise to the poor.
No doubt it is partly due to the inefficiency of the system. Yet, one
has to realise that the organised sector and the government
administrative machinery cannot effectively reach the poverty groups
at low cost.
The poor buy in small quantities and more frequently, thus increasing
the transactional cost. Most of the poor also buy on credit. Selling
on credit to the poor also has the risk of default. There is always a
risk premium and the higher transactional cost is extracted from them
by the local moneylenders and traders.
National Sample Survey data analysis has shown that the implicit
prices (expenditure divided by the quantity consumed) paid by the
lower expenditure groups on food items is higher than the implicit
price paid by the higher expenditure groups.
Are there ways in which we can achieve greater efficiencies in the
delivery of credit?
The only way to improve efficiency in lending to the poor and bringing
down the interest rates for the poor is by promoting healthy
competition and increasing the freedom of the borrowers to shift from
one agency to another based on the interest charged. At present, most
of the poor are stuck with one agency and there is not enough
competition in the market even though the interest rates are high.
Micro-credit is much more expensive than bank credit, even when the
former is backed by banks. Reaching the target group is expensive. The
cost of organising them as groups and monitoring the disbursement and
repayments are borne by non-governmental agencies and micro-credit
institutions. This cost is often added to the interest paid by the
poverty groups.
Further the risk premium of lending without collateral makes the
credit more expensive than bank credit. The local moneylender with
more information about the borrower has a low risk as well a monopoly
in the market. He also has the leverage to apply moral pressure and
force repayments. It is the monopoly that makes the credit by the
moneylender more expensive.
Self-help groups (SHGs) are an alternative to the local moneylender
and exert moral pressure on the members to repay; they can also
provide micro-credit effectively. Yet, members of the SHGs also get
stuck with the group and they have to save and pay high interest
rates. If they do not follow the group discipline they lose the line
of credit and hence members abide by it, though it would be cheaper to
borrow against savings directly from the bank. The best thing is to
allow as many institutions as possible to enter the market and compete
against each other.
Is the contribution of women to GDP measured properly?
Though a lot has been said about gender budgeting, it is difficult to
find any reliable estimate of contribution of women to GDP and the
share of the budgetary allocations that effectively reach women. GDP
of contribution of rural and urban women who work from home is missed
out now.
The economic activities of women who are recognised as non-workers are
quite substantial. The purpose is not just to recognise the high
contribution of women and low share of the budget allocation, but to
make the government pursue policies and programmes that reduce the
burden that women bear now.
The major burden borne by women is the burden of additional work due
to the failure of the government to provide effective public
services.
http://www.thehindubusinessline.com/2009/08/13/stories/2009081350290900.htm
For example, if there is no drinking water in the vicinity of the
home, women will have to walk long distances. If affordable cooking
fuel is not available, many women use fire-wood and the smoke affects
their eyes; some may end up with blindness.
If affordable healthcare is not available, the old and the sick are
nursed at home by women. If community work of natural resource
conservation and micro-credit is promoted only with women SHGs,
without proper attention to benefit-sharing, women end up contributing
free labour and pay the loans used by men.
There are numerous examples leaving alone the more obvious ones such
as low wages for women and glass ceiling in promotions. A much more
systematic policy-oriented research is necessary in this area.
Do you find that the economic crisis/slowdown impacts the women more?
It is common knowledge that a crisis situation does impose higher
burden on women. Yet it is difficult to prove in statistical terms. It
is because family or a household is a unit of reference. Intra-family
differences in work burden (economic and non-economic work),
differences in food intake, differences in incidence of disease,
healthcare expenditure, education expenditure, etc., are not
available. Some aspects are difficult to measure and others are not
collected. Time series data are needed for this purpose to prove the
point.
The adverse impact is more apparent indirectly in the levels of
unemployment faced by women in the labour market compared to men, the
larger number of women marginal workers compared to men, and higher
levels of self-employment for employed women compared to men.
While most of the self-employed men control the enterprises and the
income from the enterprise, most of the women self-employed are only
workers in the family enterprise, with hardly any control over the
enterprise or the income from the enterprise.
The fact that the number of the women unemployed, and self-employed
had gone up with the rural distress at the turn of the century, points
to the fact that the burden is more for women. The relative wage gains
are also less for women than men in recent years.
Women are counted as workers as they are involved in the economic work
and contribute to GDP. The occupational distribution also shows that
there are fewer women in highly-paid occupations and more women in
less-paid occupations as the economic crisis deepens. The fact is
economic crisis affects both men and women, but it affects the women
more.
D. MURALI
http://www.thehindubusinessline.com/nic/ecosurvey09/ecosurvey1.htm
Sid Harth
Asia stocks down on China data doubts, Wall Street
By ELAINE KURTENBACH (AP) –
SHANGHAI — Asian markets tumbled Wednesday with Chinese shares falling
nearly 5 percent on renewed jitters over the economic outlook after
Wall Street suffered its biggest loss in five weeks. European markets
were mixed.
Analysts said the sell-off, particularly in China, was partly a
correction of Tuesday's rally when markets overreacted to data showing
Beijing's massive stimulus spending was adding momentum to the world's
third-biggest economy. After sifting the slew of figures, investors
decided the signs of improving growth weren't as impressive as hoped
for.
"The momentum of the economic recovery is not very good, because it's
not as fast as expected," said Huang Xiangbin, an analyst for Cinda
Securities in Beijing. "Not so much private investment is following
the government investment."
U.S. stock markets fell Tuesday as the Federal Reserve started a two-
day policy meeting that may provide a fresh assessment of how the
world's largest economy is faring. The U.S. central bank is expected
to hold interest rates steady at near zero when it ends its meeting
Wednesday.
European shares were mixed in early trading, with Britain's FTSE 100
slipping 0.2 percent while Germany's DAX index gained 0.4 percent and
France's CAC-40 edged up 0.1 percent.
Asia's biggest benchmark, Tokyo's Nikkei 225 stock average, retreated
from a 10-month high, losing 150.46 points, or 1.4 percent, to close
at 10,435.00. A stronger yen hurt exporters' shares.
Fnancial stocks came under pressure after influential banking analyst
Richard Bove of Rochdale Securities wrote in a research note that bank
earnings won't improve in the second half of this year and that many
companies will post losses.
"His report came in just as investors were looking for leads to sell
shares," said Masatoshi Sato, market analyst at Mizuho Investors
Securities Co. in Tokyo.
Hong Kong's Hang Seng Index fell 638.97, or 3 percent, to 20,435.24 on
heavy selling of shares in big mainland Chinese companies and weakness
in mainland-traded shares.
Shanghai's Composite Index tumbled 4.7 percent to 3,112.72, with
financial and steel companies like Baoshan Iron & Steel and China Life
Insurance leading the decline.
Figures released Tuesday in China showed improvement in trade, retail
sales and industrial production, adding to spreading signs of a global
recovery. But some said the gains were not as big as hoped for, and
corporate profits remain relatively weak.
Australia's benchmark S&P/ASX 200 index edged up 0.3 percent to
4,343.10, helped by stronger bank shares.
Elsewhere, shares fell in South Korea, Taiwan and the Philippines.
In the U.S. Tuesday, investors dumped financial shares, shifting to
safer havens like consumer staples companies and government debt. The
Dow Jones industrial average fell 96.50, or 1 percent, to 9,241.45.
The broader S&P 500 index fell 12.75, or 1.3 percent, to 994.35. It
was the biggest drop for both the Dow and the S&P 500 index since July
7.
U.S. stock index futures turned lower, with Dow futures down 12
points, or 0.1 percent, to 9,204.
Oil prices hovered above $69 a barrel after the U.S. and OPEC said
global crude consumption will slump this year as economies struggle to
emerge from recession. Benchmark crude for September delivery was down
26 cents to $69.19 a barrel by midday in Singapore in electronic
trading on the New York Mercantile Exchange.
In currency dealings, the dollar fell to 95.57 yen in Tokyo late
Wednesday from 95.94 yen in New York late Tuesday. The euro fell to
$1.4126 from $1.4145.
Associated Press Researcher Bonnie Cao in Beijing and Associated Press
Writer Shino Yuasa in Tokyo contributed to this report.
Copyright © 2009 The Associated Press. All rights reserved.
Sid Harth
Daily Forex Report - USD and JPY pare gains as stocks rally, FOMC
awaited
Written by Michael J. Malpede
Wednesday, 12 August 2009 12:17 GMT
USD: Lower, trade deficit widens less than expected, Chinese officials
downplay credit tightening fears
JPY: Lower, wholesale goods prices fall at a record annual rate of
8.5%, tracking risk sentiment
EUR: Higher, EU industrial output falls, supported by gains in cross
trade to the RUB and GBP
GBP: Higher, dovish BOE inflation report, unemployment rises to 14
year high, tracking equities
CAD and AUD: AUD lower & CAD higher, recoup overnight losses, Chinese
overcapacity, crude prices rise
Overview
The markets were faced with a lot of negative news this morning and FX
price action was volatile in pre-FOMC trade. USD and JPY started the
session higher then turned lower as US equity markets rally and risk
aversion swings back to risk appetite. The shift in risk appetite and
improvement in US equity market trade was attributed to comments from
Chinese policymakers trying to downplay the risk of credit tightening
in China. The USD and JPY opened higher supported by a spike in risk
aversion sparked by a 3% decline in the Shanghai index. The Shanghai
index was pressured by concern about overcapacity in China and a
report in the Daily Telegraph warning that credit tightening in China
threatens the Chinese economy. The spike in risk aversion was also
attributed to report that CIT was nearing bankruptcy and Atticus
Capital closed two large funds. GBP was initially pressured by the
BOE's quarterly inflation report which was seen as dovish. The BOE
expects inflation to fall below 1% and that the UK recovery will be
slow. UK unemployment rose to a 14 year high. GBP turned higher in US
session tracking a rebound in US equities. GBP downside was also
limited as the BOE upgrade of its GDP forecast. EUR traded firm
despite report of weak EU industrial output with downside limited by
gains in cross trade to the GBP and the Russian ruble. The Russian
ruble declined to a six month low versus the EUR pressured by concern
about the Russian economy. Russian Q2 GDP the fell the most on record.
The commodity currencies opened sharply lower pressured by concern
about global growth outlook. The commodity currencies rebounded in US
trade tracking a sharp rally in the price of crude and recovery in US
equities.
The FOMC policy statement will be announced at 1:15 CST. The FOMC is
expected to hold monetary policy unchanged. The trade will be looking
to see whether the Fed makes any decision on exiting quantitative ease
and for the Fed's view of the US economic outlook. The USD would
likely fall if the FOMC unexpectedly follows last week's BOE action to
expand quantitative ease. The key issue is whether the Fed views the
recent improvement in US economy nearing a sustainable recovery which
would open the door for the Fed to consider a rate hike. The Fed is
widely expected to dampen rate hike speculation.
Today's US data:
June trade deficit was 27.01 bln, the trade was expecting the trade
balance to widen to 28.4 bln. Exports rose 2% and imports were up
2.3%. The May trade deficit was 25.9 bln.
Upcoming US data:
On August 13th initial jobless claims for week ending 08/08 will be
released expected at 535k compared to 550k last week. July retail
sales and June business inventories will also be released on August
13th. Retail sales are expected to rise 0.3% compared to 1% last
month. On August 14th July CPI will be released expected at 0.1%
compared to 0.7% last month along with July industrial production and
capacity utilization and August Michigan consumer sentiment.
Industrial production is expected flat compared to -0.4% last month.
Capacity utilization is expected to improve to 68.1 from 68 last
month. University of Michigan consumer confidence is expected to
improve to 68 from 66 last month.
JPY
JPY traded mixed initially supported by a spike in risk aversion
sparked by declining Asian equity markets and concern about the
outlook for China's economy. The Shanghai index declined 3% and the
Nikkei closed 155 lower. The Daily Telegraph reports that credit
tightening and overcapacity in China threatens the Chinese economy.
Reuters reports that China faces overcapacity in a number of
industrial sectors. Tuesday China reported that exports and lending
fell in July and industrial production rose less than expected. JPY
upside was limited by report that Japans wholesale goods prices fell
at a record 8.5% annual pace in July and a rebound in US equities. The
drop in Japan's wholesale prices reflects weak demand and falling
energy prices and increases the risk of deflation in Japan. The
growing risk of deflation in Japan will likely prevent the BOJ from
ending quantitative ease any time soon and force the BOJ to maintain
steady monetary policy. Tuesday the BOJ elected to hold rate policy
steady as expected and left its economic assessment unchanged. The BOJ
said it would maintain its purchases of corporate bonds and commercial
paper and gave no insight into when the BOJ will exit quantitative
ease. The outlook for the Japanese economy is mixed but may be
improving. BOJ Governor Shirakawa said that the Japanese economy has
stopped worsening. Shirakawa went on to say that exports and
industrial production have improved but warned that the recovery will
be weak. JPY price continues to maintain a close correlation to the
direction of equity markets and risk sentiment. Today's report on
China's economy and news from Russia suggests that the outlook for
equity markets and the global economy remains uncertain. Risk
sentiment quickly improved in the US session as the Dow posts triple
digit gains.
On August 14th June tertiary activity will be released expected at
-0.3% compared to -0.1% last month.
Key technical levels to watch in USD/JPY include support at 95.05 the
August 7th low with resistance at 97.15 the August 11th high.
EUR
EUR traded mixed to higher in pre-FOMC trade with gains limited by
report of a sharp drop in EU industrial output. EU June industrial
output declined 0.6%, a 0.3% rise was expected. The decline in EU
industrial output raises concern about the EU economy. Tuesday,
Germany reported that its annual inflation rate fell the most since
1995. The decline in German CPI suggests that the EU economy may be
vulnerable to the risk of deflation. The ECB's Liikaken said the next
two months will show whether the worst has passed for the EU economic
crisis. ECB officials do not see deflation risk in the EU and expect
inflation to turn positive as the EU economy recovers in 2010. If the
trend in EU inflation continues on a downward path deflation risk may
force the ECB to consider additional monetary policy measures to boost
liquidity. The ECB elected to hold rate policy steady last week at 1%
and maintain a neutral bias. EUR downside was limited by gains in
cross trade to the GBP and versus the Russian ruble and a triple digit
rise in the Dow. GBP was pressured by the release of a dovish BOE
inflation report and report that UK unemployment rose to 14 year high.
The Russian ruble traded at its lowest level in six months versus EUR
pressured by concern about weakening growth in Russia. Russia reported
its biggest quarterly GDP loss on record. The Russian central bank was
reported to be intervening selling the EUR to support the Russian
ruble. Focus turns to Thursday's release of EU GDP. EU GDP is expected
to confirm that the EU economy contracted at a slower pace than in Q1.
EU Q2 GDP is expected to have contracted by 0.5% compared to -2.5% in
Q1. The GDP report will be important to the debate over whether the
ECB is correct in its optimism that the EU economy will gradually
recover into 2010.
On August 13th EU Q2 flash GDP is due for release expected at -0.5%.
On August 14th EU July HICP will be released expected at 0.1% compared
to flat last month.
The technical outlook for the EUR is turning negative as the EUR
struggles to hold above 1.4200. Expect EUR support at 1.4065 July 31st
low with resistance at 1.4330.
GBP
GBP opened lower pressured by a dovish BOE inflation report and report
that UK unemployment rose to 14 year high. In its quarterly inflation
report the BOE said that inflation may fall below 1%. The BOE went on
to say that they expect a slow UK recovery. UK June unemployment rate
rose to 7.8%. The combination of continued job losses in the UK and
risk of falling inflation opens the door to possible further extension
of the BOE's quantitative ease. GDP has weakened since last week's
surprise announcement that the BOE has elected to expand quantitative
ease. Last Thursday, the BOE elected to extend quantitative ease by
£50 bln to a total of £175 bln and elected to hold rates steady at
0.5%. The Telegraph carried a report Tuesday which says that UK may be
facing a Japanese style decade of deflation. UK inflation outlook will
become very important to future BOE policy decisions. How UK inflation
data influences BOE decisions on whether to begin expand quantitative
ease with the key to the direction of the GBP. GDP downside was
limited as the BOE is more optimistic about GDP outlook for the UK.
The BOE expects GDP to rise to 2.9% over the next two years. GBP
turned higher US session tracking the rally in US equity markets.
The technical outlook for GBP is mixed as GBP rebounds to trade above
1.6500. Expect near-term support at 1.6340 the July 30th low with
resistance at 1.6610.
CAD
CAD continued to weaken to start the day trading at a three-week low
versus the USD pressured by a spike in risk aversion and uncertainty
about the global economic outlook. CAD turned higher tracking a rally
in US equities and crude. Chinese officials warn about overcapacity in
the industrial sector and analysts fear that credit tightening in
China could pop the latest growth bubble. Tuesday, China reported that
imports and exports declined for the ninth straight month, that
lending also declined in July and industrial output rose at a slower
than expected pace. China's growth outlook is key for the global
economic recovery. Chinese economic data generates concern that the
global economic recovery will be weak. CAD was also pressured by
report of weaker than expected new home price index. Canada's new home
price index declined 0.2% in June. The trade had expected a reading of
unchanged. Tuesday, Canada reported that Canadian housing starts
declined 4.1% CAD downside was partly limited by report of better than
expected Canadian trade balance and a recovery in US equities. CAD
turned higher for the day supported by rally in crude prices above $71
a barrel. Canada's trade deficit was C$55 mln in June, the trade had
expected a deficit of C$800 mln. Exports rose 2.3% and imports
declined 1.3%. CAD direction will remain closely correlated to
speculation about the global recovery and risk sentiment. Trade awaits
the FOMC announcement later today to see whether the Fed extends
quantitative ease.
This week's Canadian economic calendar includes the August 14th
release of June manufacturing shipments expected to rise 0.5% compared
to -6% last month.
The technical outlook for CAD is negative as USD/CAD rises back above
1.1000. Look for near-term support at 1.0791 the August 11th low with
resistance at 1.1115 the July 21st high.
AUD
AUD traded lower as China's Commerce Ministry warned that overcapacity
in Chinese industry is pronounced. Concern about overcapacity in China
sent Asian equity markets lower with the Shanghai index closing down
3%. AUD was pressured by concern about China's growth outlook. China
is a major export destination for Australia and the Chinese economy is
key to the potential for strength of the global economic recovery.
Tuesday China reported that bank lending fell 77% in July and
industrial production expanded at a slower rate than had been
expected. These reports generate concern that China's economic
recovery is beginning to stall. Uncertainty about the growth outlook
in China is a key short-term driver for AUD price direction. Most
analysts suggest that China's growth is moderating but the recovery
remains on track. AUD traded lower despite report that Australia is
August consumer confidence rose to a two-year high up 3.7% and that
wage price index rose 0.8%. The wage increase was in line with market
expectations. AUD was also pressured by continued liquidation of
AUDJPY cross as investors seek safety in the JPY. AUD/JPY turned
higher US session tracking the rebound in US equities. AUD selloff
appears to be overextended and reaching oversold on the RSI. Last week
the RBA elected to hold monetary policy steady at 3% and dropped its
easing bias. When the slide in Asian equity markets stocks the AUD
should regain its rally with support from steady RBA policy outlook.
AUD price direction remains closely correlated to risk sentiment and
the direction of equity markets.
The technical outlook for the AUD is mixed as AUD falls below 8300.
Expect AUD support at 8181 the August 12th low with resistance at 8390
the August 11th high.
Sid Harth
China's stimulus working – perhaps too well
Bank loans and state-led investment have reenergized the economy, and
people feel more secure about their jobs. But the government has
boosted spending so fast that economists are warning of stock and real-
estate bubbles.
By Simon Montlake | Correspondent of The Christian Science Monitor
from the August 12, 2009 edition
Beijing - Late last year, as a global recession snapped at China's
heels, Tomer Rothschild's sales team began to sweat. Selling gym
membership to white-collar workers had suddenly gotten harder.
Today, the treadmills are humming again. "Back then, people were
worried about their jobs. There's much less of that now," says Mr.
Rothschild, CEO of Ozone Fitness, which owns 10 clubs in Beijing.
As goes the fitness boom in Beijing, so goes China's economy. While
Washington argues over the impact of its stimulus package, China's
government has ramped up spending so rapidly this year that economists
are warning of stock and real-estate bubbles. Beijing argues that
supporting the recovery remains its priority.
One reason for caution is that China's exports continue to slide. Data
released Tuesday showed that exports in July fell 23 percent year-on-
year, the ninth straight month of decline.
But on the back of record bank lending and state-led investment,
China's economy is accelerating: It grew by 8 percent in the second
quarter, snapping a period of slowdown.
What recession? Malls, restaurants are packed.
Far from being felled by the global slump, many Chinese consumers
believe that the good times are still rolling. Nearly 5.4 million cars
were sold in the year to July 31, up 30 percent over last year.
Leisure travel – seen as a luxury only a few years ago – is growing
rapidly. Many restaurants and malls in Beijing are packed.
More robust Chinese spending holds out promise for other struggling
economies. Domestic consumption has long lagged in China, where
households save much of their income and the government runs huge
trade surpluses that are ploughed into foreign-currency reserves,
mostly US government debt.
"It's not the big adjustment we'd all like to see in China away from
investment and towards consumption. But if you have relatively strong
[economic] growth, you still end up with strong consumer growth," says
Michael Buchanan, an economist for Goldman Sachs in Hong Kong.
Economists say it's unwise to expect Chinese consumers to pick up the
slack from debt-saddled Americans, as growth is still driven largely
by state-led investment. But open Chinese wallets point to an eventual
rebalancing of trade flows, so that Asian countries consume more of
what they produce.
Massive spending on infrastructure
China's stimulus has soaked up demand for industrial output, giving
relief to sectors hit by slowing exports. Huge spending on
infrastructure projects like roads and public works have jolted the
economy.
The downside, however, is that heavy industries like steel aren't
rationalizing, says Arthur Kroeber, managing director of Dragonomics,
an economic consultancy in Beijing. "The risk is that producers will
expand capacity," he says.
One contentious trade issue is China's currency, which the US Congress
has criticized as undervalued. A stronger currency would increase the
purchasing power of Chinese consumers and discourage excessive
investment. But the Obama administration has not pushed publicly for
revaluation, which is strongly resisted by China.
Fuzzy statistics
Gauging the extent of China's recovery is complicated by the
reliability of its data. Some state-owned media have ridiculed
National Bureau of Statistic (NBS) figures, particularly on incomes.
Analysts say aggregate national data doesn't always match that
reported by individual provinces, where much of the stimulus spending
is concentrated.
"As long as [the NBS] is part of the government, they have to listen
to their bosses," says Xu Xiaonian, a professor at the China-Europe
International Business School in Shanghai, who favors an independent
bureau.
Mr. Xu and others warn that China's economy is fragile, as private
investment remains tepid. As a result, growth may falter, even as the
US begins to pull itself up. "I'm feeling less and less confident
about China's recovery," he says.
'Excellent' job prospects
Others feel differently. In a survey taken in June, Nielson found that
confidence was rising in urban China, as it was elsewhere in Asia.
The key driver in China was job security: More than half of the 3,500
people surveyed said their job prospects would be good or excellent
over the next 12 months. In March, only 22 percent of respondents felt
that way.
That optimism matters to Beijing's private gyms, which have mushroomed
as more Chinese pay attention to fitness and health. In 2001, the city
had only five gyms, excluding luxury hotels. Now there are about 400,
says Rothschild.
The pace of new openings has slowed. But the blame doesn't lie
primarily with the economy, says Liu Gang, CEO of O.E. Gymnasium Club.
The industry resorted to cutthroat pricing and turned off consumers
with poor service.
"So many gyms have closed in Beijing because the management didn't do
a good job," he says.
Back in 2004, when Mr. Liu opened his first club, it was different.
"As long as you opened the door, you could earn money," he says.
Then in 2007, a rival chain in Beijing began a price war. Annual dues
dropped below $100, down from more than $400, says Ding Bo, a branch
manager. Consumers shopped around for deals. "Lots of people think
gyms are an easy business to run. Lots of people want to invest. It's
chaos," he says.
Rothschild says the price war is a symptom of the gym industry's focus
on chasing new members, rather than hanging onto existing ones. As a
result, only 15 percent of members chose to renew, compared to 60
percent in the US.
Gyms are feeling the pinch more in Guangzhou, the southern city where
fortunes are tied closely to exports, says Liu, who operates two clubs
there. He has put expansion plans on hold.
Beijing is protected from the storm by its employment profile, making
it an imperfect yardstick for economic resilience. Young professionals
who work out in private gyms here are more likely to work for the
government or state companies. "We're in a self-contained economic
sphere in Beijing," says Rothschild.
bademiyansubhanallah
Brazil economy seen on track for recovery
Live Currency Rates
Currency
EUR / USD
USD / JPY
GBP / USD
USD / CHF
AUD / USD
USD / CAD
EUR / JPYBid / Ask
1.42045 / 20796.173 / 1981.64966 / 9961.07642 / 6760.83354 /
3861.08863 / 918136.627 / 658
Central Bank Rates
JPY 0.1%
CHF 0.25%
EUR 1.0%
USD 0.25% CAD 0.25%
AUD 3.0%
NZD 2.5%
GBP 0.5%
2009-08-12 21:23 (UTC)
By Vanessa Stelzer and Paula Laier
SAO PAULO, Aug 12 (Reuters) - Brazil is emerging from recession and
will likely outperform most other major economies despite a mild
contraction this year.
Last year, Brazilian President Luiz Inacio Lula da Silva was mocked by
his critics when he said that Latin America's largest economy would
feel only a ripple from the global crisis.
But with indicators pointing to positive economic growth in the second
quarter and to around zero growth for the year, Lula's already high
approval ratings of around 80 percent could be bolstered.
Among the world's major economies, only China and India are expected
to grow more than Brazil this year, according to a July forecast by
the International Monetary Fund.
Industrial production grew 3.4 percent in the second quarter after a
7.8 percent slump the previous quarter.
The labor market is improving after hard-hit industries laid off
workers early this year, and in July business confidence hit its
strongest level since October.
'While other countries are still contracting, Brazil will already see
strong growth in the second quarter,' said Julio Callegari, economist
at JPMorgan Chase.
The median forecast of 15 economists in a Reuters poll is for growth
of 1.5 percent in the second quarter compared to the first, when
contraction of 0.8 percent tipped Brazil into recession.
In part, Brazil's large domestic consumer market helped cushion the
global slump in demand for the country's products. But Lula can also
take some credit for the quick recovery, analysts said.
Government tax breaks to key automobile, construction and home
appliance industries and an aggressive reduction of interest rates
have helped fuel consumer demand while the central bank has helped
ensure liquidity in credit and currency markets.
Brazil's government forecasts 1 percent growth this year, and Finance
Minister Guido Mantega recently said the economy was expanding by 4
percent at the beginning of the third quarter.
Private economists are more skeptical but have also improved their
outlook. They bet the economy will shrink 0.35 percent this year,
according to a weekly central bank survey.
Investment bank Morgan Stanley now foresees a 0.5 percent contraction
in 2009, from a previous call for a 4.5 percent slump.
It would be the first annual contraction since 1992.
PITFALLS
Some economists warn Brazil could still trip on the path to recovery.
BNP Paribas said in a recent research note that the worst for the
labor market was still to come. That would hurt personal consumption,
which is already likely to suffer as government stimulus measures
wane, the bank said.
The government plans to keep spending in check in coming months to
meet the target for the primary budget surplus, which excludes
interest payments. Investors use it as a gauge for a country's ability
to service its debt.
Public finances have deteriorated from last year as tax revenue
tumbled and the government boosted spending to pull the economy out of
recession.
The government already revised down its primary budget surplus target
earlier this year to 2.5 percent of gross domestic product from 3.8
percent.
(Writing by Ana Nicolaci da Costa; editing by Raymond Colitt and
Leslie Adler)
(ana.nicol...@thomsonreuters.com; Reuters Messaging:
ana.nicolacidac...@reuters.net; +55-61-3426-7027)
COPYRIGHT
Copyright Thomson Reuters 2009. All rights reserved.
The copying, republication or redistribution of Reuters News Content,
including by framing or similar means, is expressly prohibited without
the prior written consent of Thomson Reuters.
bademiyansubhanallah
Brazil Real Rises After Fed Says U.S. Economy Is ‘Leveling Out’
By Fabio Alves
Aug. 12 (Bloomberg) -- Brazil’s real rose for the first time this week
after the Federal Reserve kept interest rates unchanged and signaled
the worst of the recession in the U.S. is over.
The currency advanced 0.6 percent to 1.8388 per U.S. dollar at 5:03
p.m. New York time, from 1.8490 yesterday. The real has strengthened
26 percent in 2009, the best performance against the dollar among 26
emerging-market currencies tracked by Bloomberg.
U.S. policy makers today left the benchmark interest rate between zero
and 0.25 percent, and said the rate will stay “exceptionally low” for
an “extended period.” Policy makers acknowledged signs that the worst
recession since the 1930s may be ending, saying that data “suggests
that economic activity is leveling out.”
“Emerging markets recouped recent losses as investors took heart in
the Fed’s brighter outlook for the economy triggering a decline in
risk aversion,” RBC Capital Markets strategists wrote in a note to
clients today.
In Brazil, the central bank sees no need to take positions in the
currency swaps market given current capital flows, Monetary Policy
Director Mario Toros said today in Brasilia. The central bank may
return to the swaps market if necessary, he said.
To contact the reporter on this story: Fabio Alves in New York at
fal...@bloomberg.net
Last Updated: August 12, 2009 17:18 EDT
bademiyansubhanallah
Tosunyan: Russian economy is chronically ill and the crisis is just an
aggravation of this illness
13.08.2009 - NOVY REGION/ banki.ru
Tosunyan: Russian economy is chronically ill and the crisis is just an
aggravation of this illness
Lending rates which are currently valid in Russia could kill the
national economy, president of the Association of Russian Banks
Garegin Tosunyan said at a press conference Wednesday. The banker
believes this is the result of a poorly thought-out monetary policy
and the crisis, as the aggravation of a disease, should help the
Russian financial system acquire a new form and get rehabilitated. As
Tosunyan noted, the Russian Federation has been in the crisis
condition for years already. And this in no way stems from the crisis
that broke out in the West.
“Russia’s been permanently in the state of the crisis. Two-digit
figures of lending rates and inflation, aren’t these signs of the
crisis? There is a problem of infrastructure, obsolete funds and so
on. The crisis came to Russia ages ago. Simply everything looked
fairly stable and we enjoyed the state of goodness, regarding this
state of affairs as quite normal, we just got used to it. And when the
acute phase of the crisis broke out, everybody came to reality. The
Russian economy is chronically ill and there is no way panicking, but
we should treat this illness," the ARB president is confident.
According to him, the Russian banking system has overcome the acute
phase of the crisis. But lending is recovering very slowly. Despite
four refinancing rate cuts made by the Central Bank of the Russian
Federation, the market reacts to these measures with a time lag of
several months. “Lending rates are such that there is no wish to talk
about them. They are extremely high, 15—16% in dollars and 20% in
rubles. This is abnormal. Nonetheless, cash is lent and borrowed.
Deposit products offering 20% interest are an absurd. Whipping up
interest rates is the result of a specific lending policy, as lending
rates should be 10% as the highest. Otherwise the economy will sink
into stagnation. Lending rates should not be treated this way under no
circumstances. Available credits should exist for the real sectors of
the economy. Lending rates should be such that an individual or a
business which took credits is not driven into a corner. Lending rates
should no longer be two-digit," Tosunyan said.
To achieve this, as the ARB president noted, it’s essential to launch
a gradual policy aimed at lowering the refinancing rate, buoy
competition and not to give specific banks with huge volumes of state
support to the detriment of their rivals. Furthermore, the “ultimate
ability to forecast” the economic and financial environment is
extremely important. Bankers should be confident what tomorrow will
be. Only in this case they will be able to do business the way it
should be.
“The result of the ill banking system is problems and underdevelopment
in industry expansion and business. We’re harvesting crops of the hit-
or-miss monetary policy. This disease is not to be fixed by witching
forces within a day. It is necessary to cool the lending market on a
permanent and steady basis. But this should be done not using
administrative methods or orders, but by pursuing a well-thought-out
monetary policy. I hope the crisis will urge the Russian government to
revise this policy," Tosunyan noted.
Sid Harth
Russia's Slowdown Trickles Down To US Consumer Companies
August 12, 2009: 12:23 PM ET
NEW YORK -(Dow Jones)- The Russian economy has turned into a soft spot
for U.S. consumer manufacturers and multinationals, a contrast with
other major developing markets that have helped shore up the results
of these companies during the global economic downturn.
Between January and June, Russia's economy contracted around 10% from
a year earlier amid falling commodity prices and tight credit
conditions. The effects of that contraction have trickled down to U.S.
companies, which in recent years have sought to cash in on a boom in
consumer spending in the region.
Companies ranging from toothpaste maker Colgate-Palmolive Co. (CL) to
cigarette seller Philip Morris International Inc. (PM) have in their
recent quarters felt the effects of Russian consumers cutting back.
Philip Morris saw shipments of its flagship high-end Marlboro brand
slip 19% in Russia as more smokers traded down to cheaper cigarettes.
Colgate saw second-quarter sales fall 4.5% in its Greater Asia and
Africa operations as volume gains in India and China failed to offset
declines in such markets as Russia and Ukraine. These companies don't
disclose profit numbers for Russia.
Consumer companies aren't the only ones feeling the pressure. Xerox
Corp. ( XRX) said its second-quarter sales were hurt in part by
weakness in its Russia operations as tight credit conditions weighed
on business spending there.
Most multinationals don't publicly disclose sales from Russia and the
region accounts for just one slice of their international earnings.
But in recent years, the fast-growing market has become increasingly
important owing to strong consumer spending.
"The pressure to buy is there and there is a lot of money sloshing
around. It's an important market," says Marvin Zonis, a professor at
the University of Chicago Booth School of Business.
As the U.S. plunged into recession, some of the largest American
companies have relied on international growth to shore up their
profits, but not all developing markets have held up equally. The
contraction in the Russian economy is at odds with what consumer
multinationals are seeing in the key Asian developing markets, with
the Indian and Chinese economies still on track to grow this year,
though at a slower pace.
Still, U.S. companies continue to push investment dollars toward
Russia in the hopes of a longer-term payoff.
In July, PepsiCo Inc. (PEP) along with a bottler announced plans to
invest $1 billion over three years in Russia to expand its snacks and
beverages business. The company takes a "long-term view" of its
investments, said spokesman Dick Detwiler. As in the U.S., the company
has made a push to offer Russian consumers more affordable products -
like smaller snack packs that sell for 8 to 15 rubles.
"The Russian economy is a proxy on the price of oil and gas. The fate
of the consumer market in Russia is dependent on the price of oil and
gas," says Zonis. By contrast, he points out that countries like India
and China have far more diversified economies.
As the global economy improves and as demand for commodities picks up,
the Russian economy is expected to pick up steam as well. Colgate said
last month that macroeconomic conditions in the region are improving.
Manufacturing and other data have pointed to potential improvements
later in the year. Still, this year is expected to be tough and the
International Monetary Fund sees the Russian economy shrinking 6.5% in
2009.
"The crisis is not over in Russia yet," said Philip Morris
International's Chief Financial Officer Hermann Waldemer on a recent
conference call with investors, pointing to high levels of
unemployment. Russia, which has a large smoking population, is an
important market for the cigarette giant. A Philip Morris spokesman
said via email that the company continues to invest in improving its
products and business there. The company's cheaper cigarette brands
like Bond Street and Optima saw sharp volume growth of 35% and 23% in
the second quarter in Russia, helping offset declines in higher price
brands like Marlboro.
Global food giant Kraft Foods Inc. (KFT), which in recent years has
named Russia a "priority" international market, acknowledges that
weaker consumer spending has hurt that market. But the food maker says
it is still expanding market share and sales, and is on schedule to
open a new biscuit manufacturing facility in Russia this October.
-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200;
anjali.cordeiro@ dowjones.com
bademiyansubhanallah
Robert Amsterdam International Lawyer on emerging markets, politics of
business, and rule of law
Posted: August 12, 2009 06:11 PM
Russia Huffs and Puffs as the House Comes Down
It really is impressive the level of tolerance we've built up when it
comes to Russia's confrontational antics. Take for example the move in
early August to deploy two Akula II-class nuclear attack submarines
off the East Coast of the United States. The Pentagon quickly
discarded any potential threat from the stunt, which was only slightly
more diplomatic than the response to the resumption of bomber patrols:
"If Russia feels as though they want to take some of these old
aircraft out of mothballs and get them flying again, that's their
decision," a State Department rep quipped back in 2007.
It's the same story with the Europeans. At the end of the G8 Summit,
Russian President Dmitry Medvedev resurrected his threat to place
Iskander missiles in the Kaliningrad enclave, shortly followed by
Ukrainian police stopping a Russian military convoy hauling missiles
around Sevastopol streets. What can they do but shrug before this kind
of behavior? Back in 2008 the Polish Defense Minister politely pointed
out how often these threats come from Moscow: "Of course we don't like
it when the Russian president or Russian generals threaten us with
nuclear annihilation. It is not a friendly thing to do, and we have
asked them to do it no more than once a month."
Meanwhile, inside Russia, a type of bloody anarchy is beginning to
reign. On July 15th, the award winning human rights journalist and
advocate Natalia Estemirova was brutally kidnapped, shot, and dumped
by a roadside outside of Chechnya. Not even a month later, the husband
and wife human rights workers Zarema Sadulayeva and Alik Djabrailov
were found murdered, stuffed into the trunk of their car. This week,
Construction Minister of Ingushetia Ruslan Amerkhanov was shot dead in
his office. At some unknown date, human rights worker Andrei Kulagin
was also murdered - his body discovered later on at the bottom of a
quarry. That's all just from the summer so far.
So the question is why Russia bothers to go through the motions -
sending Soviet era submarines of a rapidly degrading naval fleet,
flying bombers which belong in a museum, or otherwise huffing and
puffing in anger with all their aging military toys? They know that we
know that actual military capabilities do match the hostility of the
rhetoric, and they can predict our response. With these growing
problems at home, how does the muscle flexing serve Russian interests?
Among the competing theories to explain this conduct, I find that
deflection is the most convincing. By creating manageable
confrontations, especially with Europe, the United States, and the
former Soviet states, the Kremlin is attempting to govern outwardly,
diminishing pressures for greater accountability in their domestic
shortcomings, and helping to stir up nationalism and support for the
regime. The impunity of murder in Chechnya is out of their control and
beyond the limits of their political will, the embarrassing failure of
the Bulava missile, the prize military technology of the New Russia,
is unacceptable to the brass, and the poor management of the economy
is becoming widely palpable among citizens.
When Medvedev launched a sharp personal attack against the unpopular
Ukranian president Viktor Yushchenko, perhaps we are less likely to
pay attention to the fact that the economy shrank by 10.9% in the
second quarter, that the state is running a budget deficit of 9.4% of
GDP this year, or that both the IMF and World Bank are raising red
flags. As the Duma prepares to pass an ominous new legislative bill
which will give the President the authority to deploy Russian troops
abroad to defend interests from third party states, that's just one
less headline reporting on the rumors of a 30-40% devaluation of the
ruble. When Russia signs deals to send more tanks to Venezuela, and
small arms for a government now strongly linked to FARC terrorists, we
can safely ignore how their ten-year long campaign to join the World
Trade Organization was scuppered by an ill-advised customs union
stunt.
Whatever tensions are available to stoke, Russia may see an advantage
in reinforcing their own portrayal as a besieged fortress, drawing
attention away from the rule of law fiasco that is the second trial of
Mikhail Khodorkovsky, or the official grand corruption highlight by
the William Browder/Hermitage lawsuit alleging a $250 million fraud
with participation from the Interior Ministry (disclosure: I am a
member of the Khodorkovsky defense team).
One of the most frequently quoted lines from Joe Biden's candid
interview with the Wall Street Journal was that the Russian leadership
finds itself "in a situation where the world is changing before them
and they're clinging to something in the past that is not
sustainable." That's exactly what we can see behind the submarines,
the verbal attack on the Ukraine, and the guns for FARC, the
Abkhazians, and anyone else who wants them. The nature of the Putinist
authoritarian model is not order and stability, but anarchy and
unpredictability. The enormous level of corruption and business
participation by government officials has blurred the line between
national interests and personal bank accounts, with policymaking
rationality as the first victim.
Resorting to the old Cold War script presents an artificial but
familiar political dynamic within which the panicked leadership is
comfortable working. As more blood is spilt in Chechnya, we can expect
more and more chest thumping and aggression. Unfortunately for the
siloviki, however, this elaborate performance of deflection and
misdirection is quickly becoming unsustainable and less believable.
Let's just wait and see what comes next.
bademiyansubhanallah
In the current financial crisis, the world has pinned its hopes on
Brazil, Russia, India, and China – known as the BRICs – to lift the
global economy out of its funk. And while some of these countries may
have more positive growth prospects than the developed world, there’s
more to economic strength than GDP and stock market indices, according
to Professor John Frankenstein. Indeed, on many metrics these
countries underperform: they rank low on corruption, “ease of
business”, global competitiveness, and social stability. Plus there
are a host of other hurdles – from demographic challenges like
dwindling populations to an imbalanced composition of the economy.
Moreover, thinking of the BRICs as a bloc is faulty in that the only
common ground appears to be their desire to see the US dollar lowered
a peg. At a recent meeting of the four countries, little was
accomplished in terms of a single agenda, and the currency issue
remained vague. In the end, lumping the BRICs together as a single
engine of growth may have outlived its usefulness as much as the
acronym itself. – YaleGlobal
What About the BRICs?
More mortar is needed to make the BRICs stick together
John Frankenstein
YaleGlobal, 13 August 2009
Despite a market rebound, corruption and instability still plague
Russia
NEW YORK: The current economic crisis has provided fresh fuel to the
debate over the feared decline of the West and rise of the East. The
so-called BRICs – Brazil, Russia, India, and China – are often touted
as the putative economic winners. A look behind the numbers, though,
suggests proclaiming these countries victors may be premature.
The numbers aren’t encouraging. The World Bank’s gloomy forecasts see
global GDP falling a record 2.9 percent in 2009, along with
deteriorating current account balances, increased debt, soaring
unemployment, gyrating stock markets and tumbling business confidence.
Yes, there may be a few “green shoots” of recovery. China’s stimulus
efforts – a rapid expansion of fixed investment and credit to the
state sector fueled by massive foreign reserves – seem to have had a
predictable positive, if likely short-term, effect. Perhaps broader,
but still modest, recoveries in 2010 and 2011 are in the cards.
But the way to full recovery is unclear. The global economy is at some
kind of tipping or inflection point, a moment of paradigm shift. If
the Anglo-American model of finance capital is yet another god that
failed, so too the alternatives: Japanese networked capitalism, Euro-
dirigisme, or various flavors of state capitalism (perhaps combined,
as in China, with authoritarian politics) have not been widely
embraced.
At this point, enter the BRICs. Before the severity of the looming
economic storm was clear, the BRICs were the darlings of the
investment class. They were first lumped together in an influential
Goldman Sachs research report in 2001. Goldman forecast that their
continuing GDP growth could outpace the rest of the world, with the
GDPs of China and India surpassing those of the major Western economic
powers before mid-century. To be sure, these “emerging markets” were
not seen as risk free, but with their scale – continental powers with
large populations and records of substantial economic growth – they
looked attractive. Especially to punters playing the markets. If
Goldman liked them, how could you go wrong? The economic press loved
it.
But there’s more to economic prowess than GDP statistics and stock
market indices. This is not to gainsay the BRICs’ – especially China
and India’s – economic momentum and remarkable development. Visitors
to China cannot be but wowed by what metropolitan colossi Beijing and
Shanghai have become. India’s IT prowess dominates. But sustainable
growth and economic leadership will ultimately have to be based on
business environment fundamentals. International metrics that go
beyond GDP suggest the BRICs have a long way to go.
Take, for starters, corruption, the capricious acid that eats away at
business confidence, rule of law and fair dealing. None of the BRICs
rank very high in the 180-country survey published by Transparency
International. Brazil and India come in at 80th and 85th place,
roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia is
almost at the bottom, ranking 147th – Kenya and Syria are neighbors.
China does best, at 72nd place – right down there with Mexico. And if
the current murky scandal involving China’s steel industry which has
ensnared executives from Australia’s Rio Tinto shows anything, it’s
that corruption and the opacity of China’s legal system can rust
business confidence away.
If there’s corruption, then it’s not so easy to do business there. The
World Bank studies “the ease of doing business” in 181 countries.
Brazil, Russia and India stand between 120 to125 in those league
tables. China comes in somewhat better, in 83rd place – a little
higher than Belarus, a little lower than Kenya. The most difficult
issues? Dealing with the local authorities in Russia and China (maybe
a little additional “help” is required?); enforcing contracts in
India’s clogged legal system, and, interestingly enough, taxes in
Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global
Competitiveness Report” (GCR). This sophisticated survey pulls
together a large range of business environment variables, including
social and political stability, economic concerns, technological
sophistication and management quality. Of the 134 countries ranked,
China comes in at 30th place (comparable to Spain); India and Russia
land at 50th and 51st places respectively (about the same as Italy);
and Brazil checks in at 64th place, close to Turkey and Kazakhstan.
The GCR points out that all of these environments are plagued by
bureaucracy, corruption, changeable business policies and problems
with finance. (Not that the G-8 countries are 100% clean here
either!).
And if social stability is a metric, then the fires that have fueled
tragic communal violence in India and, more recently, China (which
also suffers from tens of thousands “mass incidents” of citizens
protesting corruption) have to be a concern. You don’t push too hard
against entrenched interests in Russia, where arbitrary arrest and
even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs
don’t look that strong. These countries are all, in one way or
another, still developing. Brazil, India and China have large problems
of income distribution (more unequal than even the US), issues
exacerbated by large but low productivity agricultural sectors and
urban squalor. Brazil and Russia rank at midpoint in the 179 country
United Nations’ Human Development Index; China is just slightly below
and India, alas, is almost at the bottom. And Russia and China face
demographic challenges. China is aging. Russia has even more severe
population problems – it’s disappearing.
But could they be considered a bloc? Their economic, social and
political systems differ considerably: Brazil’s economy is based on
agriculture; India’s on services; Russia’s on price-sensitive energy
resources, and China on manufactures for export. China and Russia have
had problematic political relations; the disputed borders between
China and India are still hot (and let’s not forget New Delhi’s
concerns about the cozy relationship between Beijing and Islamabad).
What do they share? Growth potential. And a desire to take the Yankee
dollar down a peg. Is that sufficient to suggest that the answer to
the world’s woes be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20
meeting in London they pushed their own agenda, calling for new
international finance rules, reform of the IMF and the World Bank, and
resurrection of the Doha round. Overall, they are pushing for a multi-
polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF
SDRs (Special Drawing Rights) – an idea also picked up by Brazil and
China. Indian Prime Minister Manmohan Singh said that the eyes of the
world were on India in the “hope that India would be an engine of
growth for the world economy.” Chinese officials touted their own
“stimulus package” and quick action, noting the superiority of China’s
command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less
fire – a BRIC agenda did not surface. Still, the idea of a new
international reserve currency hasn’t gone away.
We raise these matters not to criticize the BRICs individually but
rather to put a little realism into the crucial discussion of world
economic recovery. First, they can hardly be considered a cohesive
group. Second, sustainable leadership requires a sound business
environment. On that score, the BRICs have a way to go.
To be sure, their equity markets seem to be doing well enough (though
China’s appears to be a bubble). But there’s more to an economy than
GDP projections and speculative bets about the future of a few leading
companies. It’s time to retire what after all is a snappy acronym
invented by an investment bank.
John Frankenstein teaches courses on Asia and international business
at Brooklyn College/City University of New York.
Rights:
© Copyright 2009 Yale Center for the Study of Globalization
Sid Harth
Posted Thursday, August 13, 2009 10:00 AM
A Crisis Fluke: Brazil's Shrinking Wealth Gap
Mac Margolis
Finding good news in the global financial crisis takes dedication and
a microscope, but a small light now shines from an unlikely place at
an even more unlikely time. It’s one of the givens of development that
general economic woe is the enemy of the poor, who are, by definition,
society’s weakest link. All the more so in a global economic meltdown
that has, in a matter of months, erased decades of savings, destroyed
jobs, and reversed poverty alleviation across the world. Now Brazil,
known for its gnawing poverty, may be challenging this grim rule.
It’s not that the last are now first. But the distance between the
penthouse and the poorhouse in one of the developing world’s most
skewed societies has stopped growing and, by optimistic measures, may
even be shrinking. Recent numbers from the Brazilian economy show
that, thanks to a surprisingly resilient internal market and
aggressive government stimulus spending, the poor have fared less
miserably in the recession than might have expected and less terribly
in Brazil than elsewhere.
A study just out from the government’s Institute for Applied Economic
Research (IPEA) makes a bolder claim. IPEA reports that the gini
coefficient, the official scale that ranks national income gaps on a
three-digit index like baseball scores (the bigger the country’s gini
coefficient, the more unequal), has improved even as the global
economy tanks. Since last June, on the eve of the financial crisis,
the gini score in the country’s main metropolitan regions fell from .
544 to .526 today. A trifling, for sure, but in country where favelas
abut mansions, it’s a landmark nonetheless.
So what’s behind the rise of the poor? Brasília claims credit for
having rescued the economy, and especially the neediest, with a mixed
bag of tax breaks, consumer credit from public banks, and generous
increases in cash transfers to the poor. But a decade of basic, brick-
and-mortar economic reforms also helped, allowing Brazil to sail into
the crisis in far better shape than many emerging markets, with a
solid banking system, low inflation, and a hawkish monetary policy
that allowed the government to prime the economic pumps by
aggressively lower lending rates while other countries were
practically giving money away. “Brazil had fat to burn,” says Marcelo
Neri, an economist at the Fundação Getúlio Vargas, a Brazilian
business school.
Neri, an expert on social policies, agrees that Brazil has achieved a
landmark in poverty busting. Fact is, he says, inequality in Brazil
had been plummeting since the mid 1990s, when the country ended
hyperinflation (the worst tax, which especially punishes the poor) and
began to open its bell jar economy to world trade. The sluggish
economy grew, expanding by 6 percent last year to $1.5 trillion.
Brazil created 8 million jobs between 2003 and June 2009. A decade of
cash transfers to the poor proved a cheap and effective way to help
those at the bottom, spending less than half a percent of GDP to aid a
quarter of the country’s 190 million population. The result: the gap
between haves and have-nots has plunged from nearly African levels in
the 1980s, bottoming out in July 2008, when Brazil’s gini dropped to .
0561, the lowest level on record. By contrast, the U.S. gini is
around .380, while in China (where everyone is poorer) it’s around .
470. A few months later, disaster struck. Brazil followed the world
into recession and society fell out of kilter. In January, gini spiked
again to .577, wiping out two years of progress for the poor.
The good news—and on this both the government and Neri agree—is that
the poor are no longer falling behind. “Inequality is not growing,”
says Neri, “and in a global downturn, that is an excellent result.”
That may sound like faint praise. But not to the Brazilians. Through
most of the last century, this underachieving developing country
earned a reputation as one of the most scandalously lopsided societies
on earth. Brazil, the story went, was two nations jammed into one: a
petite and prospering Belgium surrounded by a sprawling and miserable
India. Until late last century, the income gap was an international
national disgrace, with the gini score peaking at .625 in 1989.
Just this decade, the country has seen some 27 million rise from
poverty to the middle class. The number of those living below the
poverty line has plummeted from nearly 30 percent in 2002 to around 19
percent today, slightly higher than it was when the crisis hit.
No one is popping champagne corks. The poor are closer to the rich in
Brazil, at least in part, because the wealthy have fallen further. And
there are dangers lurking. Instead of typical anti-cyclical spending,
Brazil is goosing its economy through generous wage increases,
entitlements, and tax incentives, which are nearly impossible to
reverse, and which can quickly turn from a tide of stimulus to a sea
of public deficit. But for now, at least, Brazil has put the dark gini
back in the bottle
Sid Harth
The Boom From The Bottom
Isolated from world trends, India's aspiring middle will help it grow
through the credit storm.
Noah Seelam / AFP-Getty Images
Bare Necessities: While the affluent cut back, lower-income people are
still spending
By Jason Overdorf | NEWSWEEK
Published Feb 14, 2009
From the magazine issue dated Feb 23, 2009
Though it may not look it on the ground at times, India is one of the
few bright spots in a global economy with decidedly dim prospects in
2009. It is forecast to grow at 5 to 6 percent this year—which is more
than it averaged in the 1990s. Yes, its stock market has crashed,
unemployment is spiking, swaths of the real-estate market have more
than a passing resemblance to Miami Beach and it now turns out that
Satyam Computer Services—one of the country's top five IT companies—
has been cooking its books. But a one-off incident of fraud in the
flagship IT sector won't knock the country off the rails. India boasts
an unlikely growth driver all its own: legions of poor whose incomes
have risen just enough in recent years to create powerful demands for
basic goods and services.
The rise of India's aspiring middle—a group that lives above the
poverty line but hasn't yet attained true membership in modern
consumer society—is hardly a new story. But what's surprising is the
resilience of this cohort, and the extent to which it has
counterbalanced the global credit crisis and the slump in the global
export economy of which India is a key player. In part, this is a
consequence of New Delhi's past failures; policymakers were never able
to make India the export powerhouse that China has become over the
past three decades, so now they don't rely nearly as heavily on growth
driven by demand from foreign markets.
The idea that Indian backwardness is a plus may sound absurd. But it
is always easier to grow from a poor base, so the fact that India is
not yet a major economy is an advantage in a downturn. Such a large
population subsisting at so low an economic base is a powerful
economic driver if it can be mobilized—and for India this group is
proving resilient to the prevailing headwinds in the global economy.
"It's kind of a self-sustaining process," says Subir Gokarn, chief
economist at Crisil, the Indian arm of Standard & Poor's. "There's a
huge underpenetration of most commodities and services, and you have
enough people at the bottom experiencing enough of an increase in
income to sustain growth."
So even as middle-class consumption wanes in India—signified by a
sharp drop in auto sales, airline travel and fine-restaurant dining
since mid-2008—demand for basic goods and services remains strong
thanks to aspiring consumers, many still tied to the farms, who spend
their rupees on essentials like soap, medicine and the shoes and
clothing that they wear to work. As Gokarn puts it: "If you go back to
the economic textbooks, they will tell you that the poorer you are,
the stronger your propensity to consume."
The contrast with China, Asia's other economic giant, is stark.
Domestic demand makes up three quarters of the Indian economy,
compared with less than half for China, which is "why, relative to
East Asian economies, India is somewhat insulated from the global
trade slowdown," says Shankar Acharya, a former chief economic adviser
to the government. Another Indian mainstay—agricultural growth—should
remain steady this year, and the services sector, which now accounts
for about 55 percent of India's GDP, is expected to be "more
resilient" than manufacturing, says Acharya. And despite the financial
crisis, the nation's IT sector managed to grow some 20 percent in
2008, according to India's National Association of Software and
Services Companies, and IT firms have already extended 100,000 job
offers for 2009. "China has been highly focused on the export market,
while Indian businesses have been highly focused on the domestic
market, and their exports have been incidental," says Saumitra
Chaudhuri, chief economist at ICRA, an Indian creditratings agency
affiliated with Moody's. That makes India, more than China, a master
of its own destiny.
The biggest risk to India in 2009 at this point may not be the global
economy but domestic politics. Prime Minister Manmohan Singh's United
Progressive Alliance will see its term expire in May, and India's
election rules mean that he can no longer enact any significant
policies—a measure adopted to prevent incumbents from stacking the
deck with populist sops. That means as much as five months of
paralysis, precisely when speedy, creative action is the order of the
day. Moreover, though the nemesis of Singh's Congress party—the
Bharatiya Janata Party—mostly favors similar policies, a change in
government would likely result in some further slowing of
infrastructure projects that are already running behind schedule. And
elections in India can be tricky. In the last one, the BJP-led
National Democratic Alliance lost despite rapid economic growth,
because poor voters rejected the BJP's campaign claims of an "India
Shining."
With the light bulb flickering, Singh's Congress may face an even
bigger challenge winning them over. The poor don't care how much
faster than other nations India is growing, only whether their lives
are better than they were five years ago.
© 2009
bademiyansubhanallah
Putin’s Russia is another
August 13, 2009 — gabrielaionita
At the end of last week have reached the 10th anniversary of Vladimir
Putin’s rise up as leadership position at the Kremlin and in policy of
the world. From his appointment as prime minister (8 August 1999),
Russia experienced a sinuous evolution from the unstable and semi-
democratic state to sovereign democracy of today. Thus, between two
working visits, Russian Prime Minister Vladimir Putin has celebrated
the anniversary of ten years of successful political career through a
new series of photos worthy of a pictorial in FHM. Unfortunately, for
a country at the sinister top of deaths caused by heart disease or
AIDS, that the Premier is in excellent physical form does not
constitute a solution to problems of health system that the Russian
Government tries without much success to solve. But that is another
discussion altogether.
Returning to the “putinist decade” in post-Soviet history, of the
popularity of Vladimir Putin is due to the fact that, beyond
constantly propaganda efforts, most Russians agree that after the
“nightmare” during Elţîn time, in the “Putin Era” their life improved.
In reality, improving socio-economic position of the middle class and
ensuring the “survival threshold” for one third of the population was
the interface behind that huge resources of Russia have been
redistributed from oligarchies “evil” to the “good” and close new
political structure. This aspect that made also tolerable and
acceptable reduction the rights of citizens. Which, in turn, allowed
the political system reform in accordance with their interests,
without major obstacles from the opposition groups (now almost
entirely reduced to silence). Despite Western concerns about democracy
and human rights, Putin remains wildly popular and his power goes
effectively unchallenged.
Russia’s post-Soviet downward slide has been slowed, if not reversed,
since 2000 by President Vladimir Putin’s recentralization of power.
But, beetwen re-painted declarative ideology, sketch by Vladislav
Surkov & comp., and ideology practical for preferential sharing of the
wealth of Russia discrepancies have become increasingly visible in
time. And as ironic of destiny, the government of Prime Minister Putin
was in a delicate position because the current economic crisis
stressed how malignancy has been the stagnation of reforms, stagnation
patronage of Vladimir Putin in time as was president. Since 2003, the
Kremlin has aggressively reconsolidated state control over its energy
sector, and has demonstrated an increasing willingness to use energy
as a tool to manipulate the behavior of the states that depend on it.
It became clear what economic analysts have observed much ago: an
economy based mostly on the export of raw materials, particularly
fuel, is a giant with feet of clay. And when it signs of collapse is
difficult recovered in a bureaucratic system in which the power
decision is ultracentralizate. In addition, the annihilation of
political competition and limiting the rights of the press have
deprived Vladimir Putin of a essential fact: information nuda,
real,without makeup so necessary to decide learnedly. Thus the
stability preached of the ideologies’s Kremlin, turns out to be,
paradoxically, a neuralgia point of “Putin Era.” Overall, the power
vertical system is fragile and mediocre worked. As for the future, the
ideologist of Putin Doctrine have to working. Theoretically, Russia
must exceed the economic crisis until the next presidential election.
If you will happen or not remains to be seen.
In foreign policy, Russia was able to return to the great mass of
decision makers in the world and make allies of basic on international
stage (Italy, Germany, France). Moreover, strengthening the sphere of
influence in the Asian and re-opening partnerships with Latin America
and Africa have gone unnoticed partly because heated discussions among
EU supporters of Russian Prime Minister and his opponents, following
the repeated crises of gas generated by Russia and Ukraine. The way in
which Russian officials have directed capital to areas where Russia
has interests in the long term, the close relations between Kremlin
and the Russian companies with large investments abroad, also how they
have sought to gain political and mass-media influence in the
“adoptive” country demonstrates good coordination between economic
policy and external. Instead, the steep ups and downs, Russia has
registered with the U.S. relationship, and the default with NATO,
which was expected as a result of Russia revival globally. Overall,
slightly better than domestic plan.
In competition with 10-year anniversary of the “Putin Era”, the top
posts of Blogosphera was in those days the first anniversary of the
Russia-Georgia war. On this occasion, the Russian Premier avoided to
avoided with certainly the possibility of a new intervention, stating
instead his hope that Georgian authorities have learned the lesson and
that the situation will continue to be stable. But he is contradicts
to the recent press release of the Russian ambassador in Bucharest, HE
Alexander Churilin: “At the border between South Ossetia and Georgia
again smell of a powder”. Also the two movies recently sent to the
romanian press from Embassies of Russia and Georgia in Bucharest, in
that the two parties accuse each other of the terrible tragedies of
immortalized by the eye of video camera, are most handy evidence that
media war continues, tensions accumulate steadily and situation is far
from being considered definitively resolved.
In bird’s-eye view, Russia is a country located in the top of
contrasts and controversy. A huge expanse, with resources as huge, and
ever more regions where the Russian population is a population
minority. With regions where poverty and lack of perspective is at her
home. Putin’s Russia is another. Much glamour, expensive cars and
luxurious offices of the top companies. And much, much propaganda.
Maybe it’s time as loyal advisers of Vladimir Vladimirovich to tell
him that “Putin’s Russia” is becoming more in the eyes of russian
people only Moscow and St. Petersburg. Despair of Russia and the
problems (normal, in fact) of Russia’s Putin are two different
agendas.
Published in Top Business Weeklypaper, no. 778/ 13-19 august 2009
Sid Harth
China Stocks Fall, Capping Worst Weekly Decline Since February
By Bloomberg News
Aug. 14 (Bloomberg) -- China’s benchmark stock index fell to the
lowest in more than six weeks, completing the worst week since
February, on concern this year’s rally has overvalued the prospects
for earnings growth.
Industrial & Commercial Bank of China Ltd., the nation’s biggest
listed lender, sank 3.2 percent. PetroChina Co., No. 1 in the world by
market value, dropped 2.1 percent, losing 7.1 percent in its worst
week since December. China Merchants Bank Co. slid 2.4 percent after
saying its board approved a plan to sell 18 billion yuan ($2.6
billion) of shares to boost capital.
The Shanghai Composite Index, tracking the bigger of China’s
exchanges, slumped 93.59, or 3 percent, to 3,046.97 at the close, the
lowest since July 1. It slid 6.6 percent this week, the most since the
five days ended Feb. 27 and paring this year’s rally to 67 percent, on
concern a slump in exports and new loans will damp economic growth.
“The market has formed the expectation that liquidity will become
tight for the rest of the year as the government is set to fine-tune
its monetary policy,” said Zhao Zifeng, who helps oversee about $10.2
billion at China International Fund Management Co. in Shanghai. “A
slower-than-expected economic recovery is also hurting investor
confidence.”
The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen,
declined 2.8 percent to 3,344.46.
The Shanghai index this week entered a correction after its retreat
from this year’s high on Aug. 4 surpassed 10 percent. The gauge, which
ended the week 12 percent below the peak, trades at 33 times the
reported profit of its companies, compared with a price-to-earnings
ratio of 18 times for the MSCI Emerging Markets Index.
ICBC, PetroChina
Industrial & Commercial Bank of China dropped 3.2 percent to 4.83
yuan. PetroChina lost 2.1 percent to 13.94 yuan. China Minsheng
Banking Corp., the nation’s first privately owned bank, fell 4.6
percent to 7.47 yuan, bringing its loss to 7.3 percent this week.
Merchants Bank, the nation’s fifth-biggest lender by market value,
retreated 2.4 percent to 17.26 yuan after saying late yesterday it
will sell as many as 3.8 billion shares to owners of existing Shanghai-
listed A-shares and Hong Kong-listed H- shares.
Mark Mobius, executive chairman of Templeton Asset Management Ltd., on
Aug. 10 said global stocks may drop as companies take advantage of the
rebound to sell more shares.
Billionaire Li Ka-shing, who predicted China’s stock-market bubble
would burst in 2007, yesterday said the global economy won’t recover
this year and told investors to be “cautious” about buying shares,
especially with borrowed money.
‘Worst Is Over’
“The worst is over for the global economy,” Li, Asia’s second-richest
man, said in Hong Kong. “Yet, it’s too optimistic to say the global
economy has reached a turning point. The degree of decline has shrunk
but that doesn’t mean it has stopped shrinking.”
Chinese equities will resume their rally as economic growth
accelerates and earnings recover, Citic Securities Co., the nation’s
biggest brokerage by market value, said in a report yesterday. Recent
stock market declines may be “overdone” as the government is unlikely
to substantially tighten monetary policy, JPMorgan Chase & Co.’s Jing
Ulrich said in a Bloomberg Television interview today.
Prime Minister Wen Jiabao said Aug. 9 the government will maintain its
current macroeconomic policy stance aimed at bolstering domestic
spending as the nation continues to experience fallout from the global
recession.
Exports, Investment
Exports fell 23 percent from a year earlier, the government said on
Aug. 11, while urban fixed-asset investment rose a less- than-
estimated 32.9 percent in the first seven months from a year earlier.
New loans plunged to 355.9 billion yuan in July, less than a quarter
of advances in June, according to the central bank.
“The economy is recovering, but at a very slow pace,” said Zhang Qi,
an analyst at Haitong Securities Co. in Shanghai. “Share price gains
have far more than reflected that.”
Yanzhou Coal Mining Co., the listed unit of China’s fourth- biggest
coal miner, added 3.7 percent to 20.72 yuan after announcing a
takeover of Australia’s Felix Resources Ltd. for about A$3.5 billion
($2.9 billion) to secure supplies.
--Zhang Shidong. Editor: Reinie Booysen, Linus Chua
To contact Bloomberg News staff for this story: Zhang Shidong in
Shanghai at +86-21-6104-7014 or szh...@bloomberg.net
Last Updated: August 14, 2009 04:25 EDT
Sid Harth
Headlines
Russia’s economy – normal remedies won’t work
Written by Dmitri Travin
Why is Vladimir Putin not following the West's example and pumping
cheap money into the failing Russian economy? Because he fears the
fall of the ruble more than he does his political opponents.
At the end of July, Vladimir Putin made an unusual move in his
economic policy. He criticized Russian bankers harshly for providing
loans to entrepreneurs at excessively expensive rates, and even
indicated a specific interest rate that the Russian government
considers normal for modern conditions.
The obliging bankers immediately responded to the criticism. Two of
the country's major financial institutions - Sberbank and
Vneshtorgbank (VTB) - announced that they were prepared to reduce
their interest rates. At least, for borrowers they described as
strategic.
In economic terms, this was an extremely debatable decision. Banks had
been keeping interest rates high not only out of greed, but because
the crisis makes it very difficult to distinguish between good and bad
borrowers, i.e. those who are able to pay back their loans and those
who will soon go bankrupt. So if the interest rate on loans is kept
high, the inevitable losses from unpaid debts are to some extent
covered.
In theory, these losses could be covered by selling mortgaged property
on the market. But in practice this gives rise to serious problems.
For example, property prices have fallen drastically during the
crisis: at current prices it is impossible to sell anything, as
potential buyers are waiting for houses and apartments to become even
cheaper. So when property is transferred from a debtor to a bank, it
is practically impossible to convert it into money.
Second phase of the crisis?
Experts are currently talking more and more about the imminent so-
called second phase of the crisis, when bad debts on a massive scale
will lead to the collapse of the banking system. And on top of this
bankers are being asked to give favourable interest rates to industry
and construction projects. Might the major banks who have decided to
please Putin by being so obliging not actually collapse as a result?
No, unlike the small banks, they will not collapse. The Russian
economy has one little trick up its sleeve. The government always
helps its chosen few. It supports Sberbank, VTB and Gazprombank. It
finds money for Gazprom, Rosneft, the Volga Car Works and a few other
companies. So in responding to Putin's call for them to reduce their
interest rates, the bankers are sure to know that the Central Bank is
prepared to provide them with the necessary liquidity in the event of
a second phase of the crisis.
Sberbank holds the savings of tens of millions of Russians. If it
were to collapse, Vladimir Putin would have far greater problems with
angry depositors than with the head of the bank, German Gref. So
Sberbank will not collapse. If it gets into difficulties, it will be
"fed" using Central Bank loans or budget funds. And until that moment
comes, it will be asked to "feed" borrowers.
In general, the actions of leading bankers are not mysterious . Their
motives are clear, although if one is not aware of the little tricks
of the Russian economy, it may seem that they are acting against their
own interests.
Putin's pressure on banks is interesting for another reason. It shows
what the Russian leader most fears today. However, in order to
understand the logic of Putin's actions, one must take a look at the
general state of affairs in the Russian economy.
The end of the era of prosperity
The economic crisis in Russia has proved much more serious than was
expected in the autumn of 2008, when the first signs of a serious
downturn became apparent. At that time officials only talked about a
slowing down in growth rates. Later they began to predict a small
slip. But in the end, the situation has proved to be truly
catastrophic. According to a recent assessment by the Ministry of
Economic Development, GDP dropped by 10.1% in the first half of 2009
compared with the first half of 2008.
Russia has not seen a slump like this since the early 1990s, when
radical economic reforms were under way. However, that was a so-called
transformation slump. It was unavoidable, as the country was having to
abandon a whole range of goods which were manufactured before under
the state plan, and which proved to be completely unnecessary in a
market environment.
Russia has no need of such extensive reforms today. On the contrary,
the oil and gas markets have brought in so much money in recent years
that this could be used to strengthen the Russian economy
significantly. But alas, the scale of the slump shows that the economy
is still weak. The period of the so-called Putin prosperity has been
replaced by one of even deeper crisis.
Can the Russian government headed by Vladimir Putin carry out an
effective anti-crisis policy? Economists are discussing this all the
time, but perhaps it is only now that the logic of the government's
actions has become clear. It is clear what Putin is afraid of, and
what he is prepared to do to save the country's economy.
The ruble doesn't obey the government
Many Russian experts and political figures advise Putin to pump money
into the economy more energetically. For example, to reduce the
Central Bank's discount rate and thus expand the credit facilities of
commercial banks. The logic of these proposals is quite clear. The
Central Bank, by giving out money left right and centre, will
compensate for the lack of funds in the economy caused by the drastic
reduction in the petrodollar revenue. By creating money, the Russian
authorities will create a real demand for goods. Supply will
inevitably react to this demand. Enterprises will begin to expand
their production that was closed down after the crisis began. And as a
result, the Russian economy will begin to emerge from the crisis.
Supporters of this approach point to foreign experience. They say that
in the United States and in European countries, the state spends large
sums supporting the economy. Accordingly, Russia should also take this
path.
But Putin does not want to do so. Although the Central Bank is
gradually lowering the bank rate, the government is avoiding a sharp
increase in money supply. Many are surprised by this. Putin is known
as a populist politician. During the period of prosperity he regularly
increased the incomes of the public sector and pensioners. In the 00s
real incomes have grown faster than GDP, and GDP itself increased
significantly (6-8% per year on average). Why is the Russian Prime
Minster now refusing to pursue a policy of pumping cheap money into
the economy?
No faith in the ruble
The problem is that in Russia, even after a decade of economic growth,
there is no faith in the national currency, the ruble. In the autumn
of 2008, faced with the growing crisis, banks and individuals began
actively offloading rubles and investing in dollars and euros, which
meant that the Central Bank was forced to resort to a slow devaluation
of the national currency. And this devaluation in its turn provoked a
further flight from the ruble.
By the spring there had been some growth in international oil prices
which stabilised the Russian currency. But in Russia everyone
understands full well that at any moment organizations and individuals
may once more be forced by unpropitious circumstances to start
offloading their rubles.
What might trigger a new round of panic buying of dollars and euros?
It might happen if oil prices fall. For this will mean another
reduction in the flow of foreign currency into Russia. Everyone
realizes that if Russia did not have oil and gas, the American dollar
would be as rare in Russia as the Australian kangaroo.
Alternatively, it might happen if the Central Bank starts pumping
money into the economy. Russians are used to cataclysms and will
immediately fear devaluation. To put it simply, everyone will start
buying currency simply because they will expect others to do the same.
They will understand that when everyone invests in foreign currency,
the ruble falls, and so they should also hurry to buy dollars and
euros to avoid being caught out.
Thus, in Russia today, the policy of actively pumping money into the
economy is more likely to have different consequences than in
countries with a strong national currency. Instead of stimulating the
work of the economy, this money will descend on the currency market
and undermine the ruble's position. And if the ruble falls, banks will
stop lending money to industry, construction and retail, as it will be
much easier for them to make money from currency speculation.
Putin is very afraid of this. He is far more afraid of a disobedient
ruble than a disobedient opposition. For the political opposition in
Russia does not yet have the support of the people, while Russians
like their savings very much, and will not keep them in rubles, even
if the Russian national leader Vladimir Putin would like them to.
The corruption effect
A similar scenario applies to the possibility of using budget funds to
prop up the economy. Recent months have shown that the government
actively spends money on pursuing social policy, ignoring major state
investments, which some experts and politicians think could create a
demand for goods and stimulate the economy.
The fact is that every ruble spent on paying public sector salaries,
or pensions to the elderly, probably does create a demand: for
groceries, clothes and medicine. But a ruble spent on state
investments will probably not reach its goal and will go to the
currency market, where it will be spent on buying dollars or euros.
This can be explained by the high level of Russian corruption. The
government is incapable of controlling how the money it allocates is
spent. Even if after some time it really is spent on building roads or
supporting industrial enterprises, in the short-term perspective banks
will probably play with money on the currency market. And this will
become a serious threat to the stability of the ruble.
So all in all, Vladimir Putin is just not in a position to pursue an
anti-crisis policy. He can only hope that as the world economy emerges
from the crisis demand for oil will rise, restoring the flow of
petrodollars into Russia and strengthening the ruble. If this happens,
the Russian economy will gradually recover.
But so far all Putin can do is order bankers to give loans to the
economy, and not play the currency market. Who knows, Sberbank and VTB
loans might just be able to give a bit of a boost to production.
This article is published by Dmitri Travin, and openDemocracy.net
under a Creative Commons licence.
bademiyansubhanallah
Hong Kong Lifts GDP Outlook For 2009 On Strong Q2 Growth
08/14/09 08:25 am (EST)
(RTTNews) - Hong Kong's economy emerged from the worst recession in
the second quarter, prompting the government to raise the outlook for
this year.
Gross domestic product or GDP rose 3.3% sequentially in the second
quarter after falling 4.3% in the first three months of the year, a
preliminary report released by the Census and Statistics Department
showed Friday. That was the first increase following declines in four
consecutive quarters. Economists had forecast GDP to grow 1.2%.
On an annual basis, the economy contracted 3.8% in the second quarter,
significantly slower than the 7.8% decline in the first quarter and
the expected 5.3% fall.
Hong Kong's Financial Secretary, John Tsang said the strong and
forceful stimulus measures by the Mainland Authorities helped the
Chinese economy regain faster growth momentum, thereby benefiting the
Hong Kong economy.
China's economy grew at a faster pace in the second quarter after
rising at the slowest pace on record in the first quarter. GDP grew
7.9% year-on-year in the second quarter, faster than the 6.1% growth
in the first quarter.
He added that the confidence exhibited by the Hong Kong people despite
the tremendous shocks of the global financial tsunami has been very
important for the recovery.
"I am glad that the strategy of the government to stabilize the
financial system, support enterprises and preserve employment has
yielded positive results in supporting the economy and helping to slow
the rise in unemployment," Tsang said.
Private consumption recovered by growing 4% in the second quarter from
the first quarter. Government expenditure rose 1.5%. Exports of goods
grew 11.6% and imports climbed 10.9%.
Asian economies are apparently emerging strongly from the recession.
Singapore grew 20.7% in the second quarter, reversing a 12.2%
contraction in the first quarter.
In Europe, preliminary reports showed that Germany and France exited
recession in the second quarter, while Spain and U.K. continued to
shrink. Meanwhile, the 16-nation Eurozone remained in contraction in
the second quarter.
Given the strong rebound in the second quarter, the gradual bottoming
out in the global economy, and also taking into account the boost from
the stimulus measures announced in May, the government revised its
economic outlook for 2009. It now predicts the economy to contract by
3.5%-4.5% in real terms this year, up from 5.5%-6.5% decline forecast
in May. Most private sector analysts are currently projecting the
economy to contract by 3.5%-5.5%.
"We are seeing encouraging signs of an economic recovery and the
economy will hopefully improve further in the second half of the
year," Tsang said.
However, he pointed out, "As the global economy is still subject to
uncertainties, we cannot afford to be complacent. While continuing
with the strategy of stabilizing the financial system, supporting
enterprises and preserving employment, the government will remain
vigilant and make timely moves in response to the evolving external
situation."
The government forecast underlying consumer price inflation at 0.9%,
same as in May. Taking into account the effects of the relief measures
announced in May, the headline consumer price inflation for 2009 is
forecast at 0.5%, revised down from 1% predicted in May.
Hong Kong's economy emerged from the worst recession in the second
quarter, prompting the government to raise the outlook for this year.
http://www.google.com/hostednews/ap/article/ALeqM5h36lP6sgZ0div2UtLJo1JFou__DQD9A2L4K00
Hong Kong recession ends as economy grows 3.3 pct
By JEREMIAH MARQUEZ (AP) – 1 hour ago
HONG KONG — Hong Kong's economy broke out of a yearlong recession in
the second quarter as the territory benefited from strong growth in
mainland China and better conditions in the West, the government said
Friday.
The pickup adds to the list of economies in Asia and beyond to emerge
from recession or shrink at a less-dismal pace since the banking
crisis sent global production and demand plunging last year. Both
Germany and France resumed growing last quarter.
The southern Chinese territory's economy, slammed four straight
quarters by free-falling world demand for exports, grew by 3.3 percent
on a seasonally adjusted quarter-to-quarter basis, the government
said. The economy contracted 4.3 percent in the first quarter.
With the global economy starting to level out, Hong Kong made a less
pessimistic forecast for all of 2009, saying gross domestic product
was set to contract between 3.5 percent and 4.5 percent rather than
5.5 percent to 6.5 percent.
"While we are seeing some light at the end of the tunnel, I should
warn that the outlook remain highly uncertain because the situations
in the United States and Europe are still very weak," said government
economist Helen Chan.
Higher demand for Hong Kong's exports, particularly from mainland
China, where massive stimulus spending and relaxed monetary policy is
driving growth, helped explain the turnaround.
Exports dropped 12.4 percent in the second quarter compared to the
same period last year, the government said. That was tamer than the
nearly 23 percent drop-off in the first quarter.
Hong Kongers were also more willing to spend. Private consumption was
up 4 percent from the previous quarter, though still down 1 percent
from the same period last year.
Hot money has been flooding Hong Kong over the last year, chasing
equities, real estate and other assets, ever since central banks began
freeing up funds and governments spent more to help their economies.
The southern Chinese trading and financial center, Merrill Lynch said
in report, has become a "dumping ground for global liquidity" — helped
by China's hunger for non-dollar assets, lower U.S. interest rates and
global demand from investors for all things China.
Copyright © 2009 The Associated Press. All rights reserved.
...and I am Sid Harth
Sid Harth
Associated Press
Merkel-Medvedev talks to focus on energy, economy
By MICHAEL FISCHER , 08.14.09, 10:18 AM EDT
SOCHI, Russia -- Russian President Dmitry Medvedev promised visiting
German Chancellor Angela Merkel on Friday that authorities will bring
to justice the killers of two rights activists slain this week in
Chechnya.
Merkel visited Medvedev in the Black Sea resort of Sochi to discuss
energy, business and Russia's human rights record.
Yahoo! BuzzMedvedev said tracking down the killers of activist Zarema
Sadulayeva and her husband - and perpetrators of earlier attacks - was
the "most important task for all law-enforcement organs."
He said the killings were meant to destabilize Russia's Caucasus, and
were a challenge to the Kremlin-backed regional president of Chechnya,
Ramzan Kadyrov.
"The Chechen president should do everything in his power to find and
punish these killers," Medvedev said after his talks with Merkel.
The two leaders also discussed possible Russian investment in
struggling German shipbuilder Wadan. German papers reported earlier
this week that Russia's former energy minister Igor Yusufov is among
the potential buyers.
Comment On This StoryIn another deal, Canada's Magna and Russian
Sberbank announced Thursday that they had reached general agreement
with GM to buy German unit Opel.
The exact details of the deal have not been disclosed. It was reported
earlier that Sberbank insisted that the deal would allow it to use
Opel's intellectual property - something the German producer was
reluctant to give away.
The Russians, however, hope Opel's technology will finally get the
Russian car industry out of its deep slump.
Medvedev said the deal can help modernize Russia's economy. Analysts
say Russia is in a deep recession because its economy is chiefly
commodities-based, and not sufficiently diversified.
Germany is Russia's key partner in the Nord Stream project, a pipeline
to deliver Russian gas under the Baltic Sea directly to Europe. As an
increasing number of Germany's EU neighbors have raised environmental
concerns about the project and say that the pipeline would increase
Europe's dependence on Russia for gas.
Following this year's dispute between Ukraine and Russia, which
resulted in a two-week suspension of Russian gas to much of Europe,
concern about Russia's reliability has risen. The Kremlin is likely to
push Germany to boost its backing of Nord Stream.
Associated Press Writer Nataliya Vasilyeva contributed to this report
from Moscow.
Copyright 2009 Associated Press. All rights reserved. This material
may not be published broadcast, rewritten, or redistributed
A Moment Of Truth
Andre Glucksmann, 07.28.09, 05:47 PM EDT
The financial crisis has brought to light three global political
realities.
Today's global financial crisis is an existential one for those thrown
out of work, but it is also a moment of truth in other areas. The
crisis reveals synergies unrecognized for decades and uncovers
fractures that have not healed over a century or two. Three long-term
geopolitical realities have become apparent.
First, apocalyptic prophecies are flourishing again. Anticapitalism
has the wind in its sails. "There will one day be a day of wrath such
as has never been seen: all European industry will be wrecked, all
markets will be congested, the bourgeoisie will be utterly bankrupt
and war and depravity will spread everywhere."
This prophecy comes not from a contemporary anticapitalist, such as
France's Olivier Besancenot, but from an 1856 letter from Friedrich
Engels to Karl Marx, which concluded: "For my part, I too believe all
this will come about in 1857." So there is nothing new in today's
condemnations of the "rule of the dollar"; religious and revolutionary
critics alike have long assailed the golden calf and Babylon, driven
the moneylenders from the temple and condemned what they saw as usury
and excessive profit-making. The 19th century simply transformed these
vituperations, as old as the world itself, into political strategies,
which in the 20th century led a good part of humanity into hell.
Political nihilists, of both the red and black varieties, have always
been obsessed with the idea of a clean slate. Consider Trotsky, Lenin
and their successors in the Soviet Union on the one hand, and then
listen to Goebbels in Germany a few days before the end, exulting as
bombs fell around him: "The last obstacles to the achievement of our
revolutionary mission are falling, along with the monuments of
civilization. Now that all is in ruins, we are forced to rebuild
Europe. In the past, private property has imposed bourgeois
restrictions on us."
Such a politics of disaster is akin to bin Laden's joy as he sat in
front of a television watching the fall of the Twin Towers, those
symbols of advanced capitalism. The European Union, as well as unions
and syndicates of both left and right, may show little enthusiasm for
destruction for its own sake, but nuisance strategies are popular
elsewhere--and not only with Third World dictators like Mugabe and
Chávez. The recent bellicosity of the Medvedev-Putin team (in Georgia,
for example) does not augur well for the solidarity of the "great
powers."
Second, China and the U.S. will only be drawn more tightly together by
mutual interests. The partnership oversees current anti-crisis
strategies, just as, unawares, it prepared the way for the crisis over
the last three decades. When Deng Xiaoping, beginning in 1979,
embraced globalization, he launched a de facto alliance that would
eventually become more conscious and organized: the U.S. is the main
purchaser of Chinese products, while China has become America's main
creditor.
Comment On This StoryThe crisis has only reinforced this connection.
Beijing hoards U.S. Treasury bonds, and Washington resists
protectionism and allows Chinese capital to establish itself in South
America and Africa. Such complicity has caused Hillary Clinton to
forget her customary vocabulary of freedom; we hear no more from her
about human rights. Chinese society, burdened by a corrupt government
unchecked by any counterweight, even the simple power of information,
must fend for itself. Barring a revolt of oppressed, unemployed
workers in China's vast interior, this cozy arrangement between the
largest developing nation--practically a continent unto itself--and
the center of global finance should result in a shared position of
dominance after the crisis passes.
Third, the European Union is a wreck. Behind the smiles, it's every
man for himself. The Franco-German alliance strains visibly to sustain
its role as the locomotive of European cooperation. A case in point is
the recent affair in which the German engineering firm Siemens
withdrew from a joint venture with Areva, the French nuclear-energy
company, and forged a partnership with Areva's Russian competitor,
Rosatom.
Only a few years ago, the French and German governments intervened to
patch things up among the managers of EADS, the Airbus concern in
which the two nations play leading roles. No such cooperation was
forthcoming this time, though a huge, trillion-euro future market was
at stake and the new German-Russian consortium would undermine Areva's
premier status as well as the equilibrium of Europe. The Areva affair
is just one point in a long trajectory. Another point came back in
2005, when former German chancellor Gerhard Schröder bypassed Ukraine,
Poland and the Baltic States and opted (at great expense) for a direct
Russo-German pipeline under the Baltic Sea, and when--shortly after
having left the chancellery--he received a Gazprom chairmanship.
Whether the issue at hand is gas, oil or nuclear power, the European
"community" is not up to the challenge. Berlin and Moscow are
cementing an alliance; the German preference for Russia is a long-term
trend, both in the industrial sector and in public opinion. The
projected way out of the crisis is the economic modernization of
Greater Russia by Greater Germany. Is this a renewal of 19th-century
efforts to rationalize the czarist empire under German leadership?
More cynically than ever, the Kremlin makes use of and manipulates the
Germans' famous Gründlichkeit--their efficient attention to detail--
and their nostalgic and neocolonial aspirations. The crisis may spell
the end of past German and French cooperation: the days of Adenauer
and de Gaulle, Mitterand and Kohl, are over. Beneath the pleasant
demeanor of Angela Merkel lurks a furiously ambivalent Germany.
Meanwhile, the European Union is falling apart.
André Glucksmann is a French philosopher. His article was translated
from the French by Alexis Cornel. Adapted from the Summer issue of
City Journal.
Sid Harth
New Asia
India's China Problem
Gordon G. Chang, 08.14.09, 12:01 AM EDT
As it catches up to its neighbor and arch-rival, India finds its
safety compromised.
China and India wrapped up their 13th round of border talks on
Saturday in New Delhi. The meeting produced agreements on various
matters, such as the installation of a hot line between the Chinese
and Indian capitals and plans to celebrate 60 years of diplomatic ties
next year. The two nations also agreed to expand bilateral trade,
hoping to meet their target of $60 billion for 2010, a substantial
increase over last year's $51.8 billion.
Yet there was no progress when it came to the main subject for
discussion--competing territorial claims in Arunachal Pradesh and
Aksai Chin. Beijing and New Delhi are no closer to settling disputes
that led the two giants to war in 1962 and that have, in recent years,
hampered relations. Chinese officials see their nation on the rise and
feel no need to compromise. The number of incursions by China's troops
into Indian-controlled territory appears to be increasing.
Yahoo! BuzzIndia, generally acknowledged as the weaker of the two, has
tried to maintain cordial ties, often following former Prime Minister
Nehru's "Hindi-Chini bhai-bhai" slogan, promoting the notion that the
two Asian nations are brothers. Beijing, for its part, has been under
no such delusions, playing a hard game. In the middle of the 1970s, it
began helping Pakistan build a nuclear weapon to keep arch-rival India
off balance. Since then, the Chinese have supported Islamabad's
campaign of terror against the Indian state.
The terrorists attacking Mumbai hotels last November used Chinese
equipment--the distinctively blue Type 86 grenades, manufactured by
China's state-owned Norinco, which has continually supplied parties
working with militants inside India. China has given Pakistan most of
the ordinance that its notorious Directorate for Inter-Services
Intelligence--better known as ISI--gives to terrorist groups. Almost
all of the sophisticated communications equipment used by terrorists
in India, especially Kashmir, is Chinese-made and was routed through
the Pakistani army. The training the Chinese give to Pakistani
personnel is, with Beijing's knowledge, leached to terrorists.
Furthermore, in April and May 2006, May 2007 and August 2008, China
blocked U.N. sanctions against and censure of Lashkar-e-Taiba and its
front, Jammat-ud-Dawa, the organizations responsible for the horrible
hotel attacks.
No wonder the Indians are starting to reassess their ties with
Beijing. Although it is unlikely the Chinese will attack India before
2012, as Bharat Verma, editor of India's leading defense journal,
predicted last month, the Indians can expect tougher Chinese actions
in the years ahead.
This month, Zhan Lue, a Chinese analyst connected to China's Ministry
of National Defense, suggested that Beijing try to divide India into
as many as 30 states. The article, unfortunately, appears to represent
the thinking of Chinese strategists and has been widely circulated
inside China.
China is aligned with Pakistan because it remains a member of the
unofficial but powerful Marxist-Islamic Alliance, united by opposition
to free thought. Now that China has embraced capitalism, its
Read All Comments (3)Comment
Comments for Comments 1-3 of 3
India's China Problem
Gordon G. Chang
As it catches up to its neighbor and arch-rival, India finds its
safety compromised.
Posted by laoqiao | 08/14/09 07:56 AM EDT
China is aligned with Pakistan because it remains a member of the
unofficial but powerful Marxist-Islamic Alliance, united by opposition
to free thought. Now that China has embraced capitalism, its policy is
Marxist capitalism, which means that it still believes in suppressing
freedom in order to make all people think alike.
China's one-child policy has had a destructive side effect, the ever-
increasing gender imbalance. It will soon have a second side effect, a
rapidly aging population. On the other hand, India's growing number of
people is not an asset. India has fewer natural resources than China,
and it will have to import more and more food. Perhaps both India and
China could ease their demographic problems by enouraging more
homosexuals to come out of the closet..
Posted by kanbo | 08/14/09 06:25 AM EDT
I don't think India and the US care about China, because Mr. Chang has
already pointed out that China will collapse in the first decade of
this century, so there is only about 500 days left for China.
Posted by savodjukic | 08/14/09 05:54 AM EDT
Wishful thinking - if Chinese and Indians kill each other it is good
for us.
Some equipment used by terrorists is made in China, I am sure China
did not give it to them. They are not helping any mujahedins and
similar, as some other countries do.
You will be 'surprised' when in a couple of years, China and India
sign an agreement about borders.
Soon India will have to introduce 2 child policy, if they want to
survive as a state.
On This StoryBreaking up India is about the only thing Beijing can do
to keep pace with its subcontinent rival. The Chinese today are proud
they inhabit the most populous state on earth, but, due to their
brutally enforced one-child policy and other factors, the Chinese
population will level off sometime around 2030, according to official
Beijing estimates. India, at about that time, will take over the top
ranking. And thanks to an extreme gender imbalance, the number of
Chinese citizens will plummet soon thereafter.
Demographic trends are not the only problem for China. As India's
population nips at China's heels, its economy is also taking off.
Starting liberalization later than China, India has appeared to be a
laggard. But now India is consistently posting big increases in gross
domestic product. In the most recently concluded fiscal year, the
country's GDP growth came in at 6.7%. Beijing's National Bureau of
Statistics claims higher growth, but its numbers are overstated.
Moreover, the Chinese have an export-led model that is particularly
ill-suited to current global conditions while the Indians have a more
balanced economy bound to outperform China's in the years ahead.
There are other reasons for the Chinese to feel nervous. India,
turning away from Nehru's "non-aligned" orientation, is finding
powerful new friends, such as the U.S. The growing partnership between
the world's largest democracy and its most powerful one suggests an
enormous setback for Chinese plans to destabilize New Delhi. The
democracies in Asia may not yet be ready to formally create an "arc of
freedom" to defend themselves, but nations in the region are
increasingly concerned about Beijing's hostility and aggressiveness.
We can expect, therefore, the states to China's south and east to
continue to grow closer together. The Indians do not want to be
anyone's pawn in containing an apparently rising China, but they are
beginning to find common cause with Beijing's neighbors nonetheless.
Whether or not the Chinese teach India "the final lesson" by launching
an attack, Verma's advice about strengthening the country's northern
border seems prudent. Just three days after the border talks with New
Delhi ended in failure, the Chinese started the two-month long
"Stride-2009," their "largest-ever tactical military exercise."
Designed to improve the country's "long-range force projection," the
massive war game is sending a message to India, especially because it
appears troops will be sent to bordering Tibet. In 1962, China's
People's Liberation Army surprised India with its ability to fight in
hostile terrain far from its bases. Now, the PLA wants to improve its
ability to do so.
The real danger to India is not the heightened readiness of the
Chinese army or even the improvement in its capabilities. In May, Fali
Homi Major, then India's air force chief, said China posed more of a
threat than Pakistan to his country. He was widely criticized in New
Delhi and forced to retract his remarks. The Indian government,
however, will not be able to defend its borders until its officials
can start talking in public about the dangers it faces. India and
China should be friends and brothers, but at this moment they are not.
Gordon G. Chang is the author of The Coming Collapse of China. He
writes a weekly column for Forbes.
Sid Harth
Lessons of 1998 remain with the Russian economy
14 August, 2009, 19:13
Monday marks the anniversary of the 1998 shock when Russia defaulted
on its debt. The Rouble's devaluation then set the stage economic
growth but this time around, Economists forecast years of slow growth
for Russia.
The crisis of 1998 was homegrown with a large government deficit
financed by short term loans. 10 years later Russia became a part of a
global financial crisis – with slumping oil price and high corporate
debt sinking Russia's economy.
After years of high oil prices the government had accumulated reserves
and a welfare fund worth more than $600 Billion.
That provided enough money for the Government to recapitalise the big
banks, bail out the biggest companies, and support the currency,
according to Yaroslav Lissovolik, Chief economist at Deutsche Bank
Russia.
“I think Russia learned the main lesson of 1998 – namely that it
preserved the oil wealth that it is now using to combat the crisis.
It's not enough to deal expeditiously with this crisis. However more
should be done, more restructuring at the micro level.”
A decade ago. the rouble lost 2/3 of it's value overnight, but that
allowed Russia's economy to resume growth within three months. Both
the crisis – and the recovery – are already lasting much longer this
time.
Claims made in the summer of 2008, that Russia was a "save haven" were
clearly incorrect. The long time it took to recognise the depth of the
crisis – may cost Russia's economy, but no one can say – how much.
Political slogans – that Russia could emerge stronger from the crisis
– don't convince economists like Sergey Aleksashenko, Head of
Macroeconomic Research at the Higher School of Economics.
“This crisis did not require Russian business to pay the full price
for its mistakes. The system is not trying to punish businesses which
made mistakes. Banks can't get back their money – it means there is no
market discipline.”
Russia continues to see dire economic statistics. Some experts suggest
the economy has reached bottom, but fewer dare to forecast recovery.
Almost everyone agrees that systemic changes and diversifying away
from an oil based economy is essential. But with the price around $70
a barrel – much higher than needed for Russia's budget – there may not
be the political will.
bademiyansubhanallah
India to soon return to 9 per cent growth path: PM
15 Aug 2009, 0939 hrs IST, IANS
NEW DELHI: Prime Minister Manmohan Singh Saturday expressed confidence
that the Indian economy will rebound by the end of this year and once
again India celebrates 62nd Independence Day
enter a high growth path.
'Going back to a 9 percent growth path is our greatest challenge. For
this, we will take whatever steps that are required,' the prime
minister said in his Independence Day address to the nation from the
majestic Red Fort.
'By the end of the year, I am confident there will be a major change.
But till then, we all have to cope with the situation,' he said in his
sixth straight address laying down the agenda for the United
Progressive Alliance (UPA) government in the coming year.
'I appeal to business leaders to work together in this endeavour and
meet their social obligations and responsibilities.'
According to Manmohan Singh, it was because of his government's
policies that the country was able to grow at 6.7 percent in the last
fiscal when the world was facing one of the worst downturns in eight
decades.
He said steps will be taken to ensure adequate spending on development
projects to boost growth further and capital will be sought not only
from domestic sources but from overseas as well.
'India can progress only when each Indian makes a contribution. Our
endeavour has been to reach the fruits of development to every
citizen. I know we have a long way to go.'
The prime minister said he was also aware that high commodity prices
were causing hardship to citizens, especially the poor. 'We have
enough food stocks. Every possible step will be taken to bring down
prices,' he said.
At the same time, he appealed to all state governments to use all
administrative and legislative measures at their disposal to ensure
that prices of essential commodities like cereals an pulses are
brought down.
bademiyansubhanallah
Chinese Capitalism and the Myth of “Market Socialism”
Posted by Mike E on August 15, 2009
This piece digs into the results of capitalist restoration in China,
and challenges the view (promoted by the government parties in
countries like Cuba and Vietnam) that the Chinese events have created
an enviable example of development.
Posting this piece here on Kasama does not imply agreement with all
its details of analysis, but certainly there is a great deal here to
learn from.
This essay appeared in Against the Current.
The Realities of China Today
By Martin Hart-Landsberg
INTEREST IN THE post-1978 Chinese market reform experience remains
high and for an obvious reason: China is widely considered to be one
of the most successful developing countries in modern times. The
Chinese economy has recorded record rates of growth over an extended
time period, in concert with a massive industrial transformation.
Adding to the interest is the Chinese government’s claim that this
success demonstrates both the workability and superiority of “market
socialism.”
There are those on the left who share this celebratory view of the
Chinese experience, believing that it stands as an effective rebuttal
to the neoliberal mantra that still dominates economic thinking.
Therefore, they encourage other countries to learn from China’s
gradual, state controlled process of marketization, privatization, and
deregulation of economic activity. A small but significant number
share the Chinese government’s view that China has indeed pioneered a
new type of socialism.
Many on the left also believe that China may soon be capable of
anchoring an alternative international economic system, thereby
offering other countries the opportunity to reduce their dependence on
the current U.S. dominated system and pursue their own independent
development strategies.*
Unfortunately, as argued below, there is no justification for this
positive perspective on the Chinese experience. First, regardless of
what Chinese leaders say, China is not pioneering a new form of market
socialism – rather the reforms have led to the restoration of
capitalism. As a result, Chinese internal dynamics are clearly hostile
to the creation of any anti-capitalist alternative. Second, the
reforms have produced an increasingly exploitative growth process, one
that is generating considerable wealth for a small minority at
unacceptably high cost for the great majority of Chinese working
people.
Finally, China’s growth process is now structurally enmeshed in, and
dependent upon, the operation of a broader process of regional and
international restructuring, one controlled by transnational capital.
As a result, China is not only incapable of serving as an anchor for
an alternative global economy, its accumulation dynamics actually
contribute to the strengthening of existing international structures
of power and the global imbalances and tensions they generate.
The stakes are high in this engagement over the nature and
significance of the Chinese experience. For example, left support for
the Chinese reform experience encourages, consciously or
unconsciously, the mistaken belief that socialism can be built through
the use of markets and a closer integration with global capitalist
accumulation dynamics. At a minimum, this leads to confusion about the
nature of socialism, and of capitalism as well.
This is more than a theoretical concern: one finds in many countries –
including Cuba, Venezuela, South Africa and Brazil — advocates for
socialism who argue that their respective governments should implement
Chinese style market reform policies.
Chinese workers, in growing number, are beginning to challenge Chinese
state policies, not just in response to the exploitation they
experience but also because of their renewed interest in socialism
itself. It is therefore vital that we develop an accurate
understanding of the Chinese experience, both to provide support for
those seeking socialist renewal in China and to ensure that efforts at
social transformation in other countries are not compromised by false
understandings of the dangers of markets and capitalist imperatives.
China’s Structural Transformation
In 1978, two years after the death of Mao Zedong, the leadership of
the Chinese Communist Party, led by Deng Xiaoping, decided to
radically increase the economy’s reliance on market forces. The
leadership claimed that such a step was necessary to overcome the
country’s growing economic problems which were alleged to be caused by
Mao’s overly centralized system of state planning and production.
Political and economic changes were definitely desired by the majority
of Chinese. Deng and his followers, however, greatly overstated the
severity of existing problems and, more importantly, ignored popular
calls for an exploration of other, non-market reform responses.
Once begun, the market reform process quickly became uncontrollable.
(1) Each stage generated new tensions and contradictions that could
only be resolved (given the leadership’s opposition to worker-
community centered alternatives) through a further expansion of market
power. The “slippery slope” of market reforms thus led to an eventual
privileging of market dynamics over planning, private ownership over
public ownership, and foreign enterprises and markets over domestic
ones.
Economic transactions are now overwhelmingly shaped by market prices.
The share of retail sales made according to market determined prices
rose from 3% in 1978 to 96.1% in 2003. For producer goods, the share
rose from zero to 87.3% over the same period.(2)
The growing industrial dominance of the private sector is also clear.
In 1978, state owned enterprises accounted for all value added in
China’s industrial sector (defined as mining, utilities, and
manufacturing). By 2003, the private sector share was larger than the
state sector share: 52.3% to 41.9%.(3) But even this diminished state
share overstates the actual “economic weight” of state production.
Recognizing that many state enterprises are now jointly owned by
private interests – either through joint venture or stock ownership –
the Organization of Economic Cooperation and Development (OECD)
classifies state firms as either directly or indirectly controlled,
depending on whether the state share of paid-in capital is greater
than 50% of the total. In 2003, directly controlled state enterprises
accounted for only 22.9% of industrial value added – less than a
quarter of the total.
The declining strategic importance of the state sector becomes even
clearer if we narrow our focus to manufacturing. The OECD has divided
China’s manufacturing sector into two groups. The first includes the
five industries that continue to be dominated by state production:
petroleum processing and coking, smelting and pressing of ferrous
metals, smelting and pressing of non-ferrous metals, tobacco
processing, and transport equipment.
The second and larger group (which accounts for over 75% of
manufacturing value added) is dominated by private enterprise. This
group is made up of 23 different manufacturing industries, including
food processing, textiles, garments, chemicals, medical and
pharmaceuticals, plastics, ordinary machinery, special purpose
machinery, electrical equipment, and electronic and telecom equipment.
As the OECD explains:
In 1998 the private sector produced the higher share of value added in
only 5 out of these 23 . . . manufacturing industries. By 2003, this
was true for all 23 of these industries. Moreover, in half of them,
private firms produced more than three-quarters of output. Overall in
these 23 industries, the private sector employs two-thirds of the
labor force, produces two-thirds of these industries’ value added and
accounts for over 90 percent of their exports.(4)
State-owned enterprises do remain important and the Chinese state
still exercises control over critical sectors of the economy, but
these areas of strength are now largely limited to finance and
activities supported by state ownership of natural resources. Thus, in
2006, three state oil companies accounted for half of the earnings of
the 160 largest “state owned monopolies and oligopolies.” In fact, “Up
to 80 percent of the year-on-year increase in profits realized in 2006
by all Chinese enterprises were attributable to . . . monopoly
financial groups or monopoly firms in the areas of oil and
petrochemicals, electricity, coal and metals.”(5)
Foreign capital also enjoys a greatly strengthened role in the Chinese
economy. The share of foreign manufacturers in China’s total
manufacturing sales grew from 2.3% in 1990 to 31.3% in 2000.(6)
Perhaps more revealing, a 2006 government report concluded that
foreign capital holds a majority of assets in 21 out of 28 of the
country’s leading industrial sectors.(7)
One consequence of this development is that China’s economic growth
has become increasingly dependent on foreign produced exports. Foreign
firms dominate China’s export activity: their share of China’s total
exports grew from two percent in 1985 to 58% in 2005 (and stands at
88% for high tech exports.(8)
Moreover, these exports are increasingly being produced by 100%
foreign owned firms. A case in point: the share of computer related
exports produced by 100% foreign-owned firms increased from 51 to 75%
over the period 1993-2003.(9) As a result of these trends, the ratio
of exports to GDP has climbed from 16% in 1990 to over 40% in 2006.
In sum, while state planners and enterprises continue to play an
important role in China’s economy, state power has been used to shape
an accumulation process that is now dominated by private (profit-
seeking) firms, led by foreign transnational corporations, whose
production is largely aimed at markets in other (mostly advanced
capitalist) countries.
Regardless of how one might evaluate the performance of the Chinese
economy, it is hard to imagine how this development can be viewed as
laying the foundation for an alternative to capitalism, at either
national or international levels. Rather it points to the conclusion
that capitalism itself has been restored in China.
Social Consequences of Market Reform
Many on the left are no longer interested in the debate over whether
China is socialist. Rather, they are concerned with whether China’s
growth and transformation has led to “successful” economic
development. For a majority, the answer is an unequivocal “yes.” This
answer appears largely based on a consideration of a limited but
important set of indicators: rates of growth of foreign investment,
exports, and GDP.
If we broaden our notion of development, however, to include measures
of working-class well-being, the answer tragically changes. The
reality is that China’s market refor m polices have created a growth
process underpinned by increasingly harsh working and living
conditions for the great majority of Chinese.
Perhaps most surprising is the fact that the country’s rapid growth
has failed to generate adequate employment opportunities. According to
the International Labor Organization (ILO), total urban (regular)
manufacturing employment actually declined over the period 1990-2002,
from 53.9 million to 37.3 million.(10) And while there was a small
increase in total urban employment, almost all the growth was in
irregular employment, meaning casual-wage or self-employment –
typically in construction, cleaning and maintenance of premises,
retail trade, street vending, repair services or domestic services.
More specifically, while total urban employment over this 13-year
period grew by 81.7 million, 80 million of that growth was in
irregular employment. As a result, irregular workers now comprise the
largest single urban employment category – much as in Africa and Latin
America where such an outcome is blamed on stagnant capital
accumulation. In addition, the ILO reports declining labor force
participation rates and double digit unemployment rates for urban
residents.
The reform process has taken an especially heavy toll on state
workers. According to Chinese government figures, state-owned
enterprises laid off 30 million workers over the period 1998-2004. As
of June 2005, 21.8 million of them were struggling to survive on the
government’s “minimum living allowance” – the basic welfare grant
given to all poor urban residents. In June 2005, this allowance was
approximately $19 a month.(11)
Of course there has been job growth in the private sector, especially
at firms producing for export. But most of the new jobs are low paid
with poor working conditions. “Even after doubling between 2002-2005,
the average manufacturing wage in China was only 60 US cents an hour,
compared with $2.46 an hour in Mexico.”(12)
A recent report on labor practices in China by Verite Inc., a U.S.
company that advises transnational corporations on responsible
business practices, found that “systemic problems in payment practices
in Chinese export factories consistently rob workers of at least 15%
of their pay.”(13) Workplace safety is an even greater problem.
According to official Chinese government sources, about 200 million
workers labor under “hazardous” conditions. “Every year there are more
than 700,000 serious work-related injuries nation-wide, claiming
130,000 lives.”(14)
One critical but often overlooked explanation for China’s
manufacturing competitiveness is that approximately 70% of
manufacturing work is done by migrants. Over the last 25 years, some
150-200 million Chinese have moved from the countryside to urban areas
in search of employment.
Although the great majority of these migrant workers have moved
legally, they suffer enormous discrimination. For example, because
they remain classified as rural residents under the Chinese
registration system, not only must they pay steep fees to register as
temporary urban residents, they also have no rights to the public
services available to urban born residents (including free or
subsidized education, health care, housing and pensions). The same is
true for their children, even if they are born in an urban area.
As a consequence migrant workers are easily exploitable. They
typically work 11 hours a day, 26 days a month. Most receive no
special overtime pay and commonly earn one-quarter to one-half of what
urban residents receive.(15)
The overall effectiveness of Chinese labor policies (which are
primarily designed to boost export competitiveness) is well
illustrated by recent trends in wages and consumption. Chinese wages
as a share of GDP have fallen from approximately 53% of Gross Domestic
Product in 1992 to less than 40% in 2006. Private consumption as a
percent of GDP has also declined, falling from approximately 47% to
36% over the same period. By comparison, private consumption as a
share of GDP is over 50% in Britain, Australia, Italy, Germany, India,
Japan, France, and South Korea; it is over 70% in the United States.
(16)
As the Economist states, “the decline in the ratio of consumption to
GDP . . . is largely explained by a sharp drop in the share of
national income going to households (in the form of wages, government
transfers and investment income), while the shares of profits and
government revenues have risen.” In fact, according to the Economist,
“Many countries have seen a fall in the share of labor income in
recent years, but nowhere has the drop been as huge as in China.”(17)
A vicious cycle is at work here: the lower the share of income going
to workers, the more economic forces reinforce the export orientation
of the Chinese economy, which encourages the implementation of new
policies to suppress worker standards of living.
To be sure, China’s growth and industrial transformation has also
generated great wealth – leading to an explosion of inequality and the
formation (or solidification) of new class relations. An Asian
Development Bank study of 22 East Asian developing countries concluded
that China had become the region’s second most unequal country,
trailing only Nepal. This is not surprising considering that over a
roughly ten-year period (from the early 1990s to the early 2000s)
China recorded the region’s second highest increase in inequality,
again trailing only Nepal.(18)
While the results of the Asian Development Bank study are significant,
they do not adequately convey the real concentration of wealth that
has accompanied and motivated China’s market reform program. According
to the Boston Consulting Group, China had 250,000 U.S. dollar
millionaire households (excluding the value of primary residence) in
2005, the sixth greatest national total in the world. Although this
group made up only 0.4% of China’s total households, it held 70% of
the country’s wealth.(19)
According to a yearly listing of China’s richest people, the number of
U.S. dollar billionaires has grown from one in 1999 to 106 in 2007
(more than any other country except the United States).(20) China’s
nouveau riche have not been shy about spending their money: “LVMH Moët
Hennessy Louis Vuitton, the world’s largest luxury goods maker, plans
to open two to three stores a year in China, where sales are rising
50% annually. Financièr Richemont, the world’s second-biggest, expects
to quadruple sales in China within five years by selling more Cartier
jewelry and Piaget watches.”(21)
more in the next post.....
bademiyansubhanallah
> http://mikeely.wordpress.com/2009/08/15/chinese-capitalism-and-the-my...
>
> Chinese Capitalism and the Myth of “Market Socialism”
> Posted by Mike E on August 15, 2009
>
U.S. dollar billionaires has grown from one in 1999 to 106 in 2007
(more than any other country except the United States).(20) China’s
nouveau riche have not been shy about spending their money: “LVMH Moët
Hennessy Louis Vuitton, the world’s largest luxury goods maker, plans
to open two to three stores a year in China, where sales are rising
50% annually. Financièr Richemont, the world’s second-biggest, expects
to quadruple sales in China within five years by selling more Cartier
jewelry and Piaget watches.”(21)
There are clear signs that the Communist Party is becoming concerned
that widening income (and consumption) inequalities are adding fuel to
growing popular anger over deteriorating employment, health, housing,
environmental and retirement conditions. And with good reason: the
number of large scale “public order disturbances” has grown from
58,000 in 2003, to 74,000 in 2004, 87,000 in 2005, and an estimated
94,000 in 2006.(22) Particularly worrisome to the leadership is the
increasingly effective and militant strike activity at foreign-owned
export factories (despite the fact that strikes remain illegal in
China).
As repression has failed to stem the rising tide of protest, the Party
has also begun to initiate a number of reform efforts. These are
designed to ameliorate the worst excesses generated by China’s growth
strategy without radically changing its orientation. For example, the
central government approved a new Labor Contract Law which came into
force on January 1, 2008.(23) Both the European and U.S. Chambers of
Commerce bitterly opposed this effort and intervened heavily during
the drafting stage in a successful effort to reduce its scope.
The approved law requires, among other things, that all employers
provide their workers with a written contract (something that a
majority of workers either do not have or have never seen) that
specifies the terms of employment and includes pension and insurance
benefits. The new law also requires that companies pay a premium for
overtime and weekend work.
While the new law has generated a sharp increase in arbitration cases
(most of which involve non-payment of wages and overtime premiums),
its impact on employment conditions appears limited (even in the areas
it was intended to address).(24) Many companies are circumventing the
law by reducing their employment of “regular” workers (some did so
before the law went into effect), relying instead on workers provided
by labor dispatch companies or increasing their use of subcontracting
relationships.
Some companies now pay workers their contracted salaries and respect
vacation and overtime standards, but then undermine worker gains by
increasing what the same workers must pay for company-provided
dormitories and canteen meals. Some foreign-owned companies are
threatening to shift production to a different location within or even
outside of China if workers press their demands too aggressively.
In addition, the many-layered official dispute resolution process
remains slow and costly, making it difficult for workers to force
unwilling companies to comply with the higher standards contained in
the new law. Finally, and most importantly, the new law still allows
local governments, and thus employers, to differentiate between urban
born and migrant workers; the latter continue to be denied
unemployment and other employment-based social security benefits.
A major reason that many in the leadership of the Communist Party
remain unwilling to support fundamental changes in China’s current
growth strategy, despite its devastating effects on working people, is
that they have been among its biggest beneficiaries. Their ability to
shape the reform process has enabled them to use state assets for
personal gain, place family and friends in lucrative positions of
authority in both the state and private sector, and ensure that the
rapidly growing capitalist class remains dependent on the Party’s good
will.
This, in turn, has led to a fusion of party-state-capitalist elites
around a shared commitment to continue the advance of a capitalist
political economy with “Chinese characteristics.”
The results of this development are easy to see. Many of the children
of leading party officials (known as the “princelings”) were appointed
to key positions in “China’s most strategic and profitable industries:
banking, transportation, power generation, natural resources, media,
and weapons. Once in management positions, they get loans from
government-controlled banks, acquire foreign partners, and list their
companies on Hong Kong or New York stock exchanges to raise more
capital. Each step of the way the princelings enrich themselves – not
only as major shareholders of the companies, but also from the
kickbacks they get by awarding contracts to foreign firms.” Not
surprisingly, more than 90% of China’s richest 20,000 people are
reported to be “related to senior government or Communist Party
officials.”(25)
China’s elite has been willing to share the fruits of the country’s
production with international capital – although struggles over
distributional issues are growing sharper as international capital
strengthens its position within China – because international
capital’s participation has been critical to the establishment and
continued growth of China’s new political economy. China’s elite,
however, appears determined to ensure that they will be the primary
national claimant.
Thus, at the same time that the “Chinese Communist Party has opened up
an unprecedented number of sectors for foreign-equity
participation . . . the authorities have . . . tightened control over
other aspects of the economy. This has resulted in the truncation, if
not atrophy, of thousands of [small and medium sized] private firms.
These are in danger of being edged out by powerful monopolies and
oligopolies that are controlled either by the party-and-state
apparatus or by senior cadres and their offspring.”(26)
In sum, it appears that those driving China’s economic strategy have
been remarkably successful in using the reforms to shape an
accumulation process responsive to their interests. And consistent
with the underlying capitalist nature of this process, their gains
have come at ever greater cost to the majority of Chinese working
people.
As a result, Chinese leaders must now contend with an explosion of
strikes and demonstrations. It remains to be seen whether such actions
will threaten future foreign investment and export production, two of
the most important pillars upholding China’s growth strategy.
Regardless of what happens, it is difficult to see on what basis
progressives would want to celebrate and promote China’s reform
experience.
Market Reforms and Transnational Accumulation
Many on the left believe that the combination of China’s size and
pattern of growth along with the (self-proclaimed) socialist (or at
least anti-imperialist) orientation of the leadership of the Chinese
Communist Party mean that China will soon be capable of anchoring a
new, more progressive international economic order.
This belief tends to be buttressed by the following reasoning: China
has maintained (and can be expected to sustain) high rates of growth
for decades. Because this growth is highly import dependent, it
supports the export production and thus economic growth of China’s
trading partners (especially in East Asia but also in Latin America
and Africa).
Moreover, China’s export success has enabled the country to build up
its own huge foreign exchange holdings, which the government is
increasingly using to help its Latin American and African trading
partners finance needed (infrastructure) modernization.
This vision of China as a powerful and positive agent for
international change is attractive but flawed. In most cases, it is
the result of using a nation-state lens to understand Chinese
accumulation dynamics. The reality is that China’s economic
transformation is not occurring in a vacuum or solely in response to
Chinese initiatives.
Rather, East Asia’s economies, including that of China, are being
linked and collectively reshaped by broader transnational capitalist
dynamics, in particular by the establishment and intensification of
cross-border production networks organized by transnational
corporations. As a result, China’s own accumulation dynamics are
increasingly being tied to dominant patterns of investment and trade,
thereby reinforcing rather than offering an alternative to them.
Most immediately, the expansion of cross-border production networks
has led to a significant increase in the trade dependency of all East
Asian economies. One indicator of this trend: the region’s export/GDP
ratio grew from 24% in 1980 to 55% in 2005. By comparison, the world
average in 2005 was only 28.5%.(27) Further, a growing share of this
activity is now under the control of transnational corporations; for
example, they account for 73% of Malaysia’s and 86% of Singapore’s
exports of manufactures.(28)
More significantly, as a consequence of the operation of these
networks, a rising share of East Asia’s trade in manufactures is now
in parts and components. This is illustrated by the changing trade
composition of leading Southeast Asian countries (Indonesia, Malaysia,
Philippines, Singapore, Thailand, and Vietnam).
The share of parts and components in the group’s total exports of
manufactures grew from 27.5% in 1992-3 to 40.3% in 2004-5.(29) The
import share of parts and components also grew substantially over the
same period, from 32.6% to 48.5%. Trends are similar for Taiwan and
Korea. For example, the export share of parts and components for
Taiwan grew from 21.2% to 43.5%.
In addition, almost all the parts and components being traded by East
Asian countries come from the same three industrial categories (with
identical national rankings of importance): electronics machinery,
office machines and automatic data processing, and telecommunications
and sound recording. Moreover, these parts and components are
increasingly being traded from one developing East Asian country to
another; the intra-regional share of parts and components trade rose
from 37.8% in 1992-3 to 55.6% in 2004-5.
In short, East Asian export production (itself a growing share of
total national production) is increasingly narrowing not only to parts
and components, but also to a select few operations in a select few
industries in response to the needs of transnational corporate-
controlled production networks.
China was not only pulled into this process of regional restructuring,
it has become central to its functioning. In the words of the Asian
Development Bank, “the increasing importance of intra-regional trade
is attributed mainly to the parts and components trade, with the PRC
functioning as an assembly hub for final products in Asian production
networks.”(30)
China’s unique position as the final production platform in this
transnational structured regional production system is highlighted by
the fact that it is the only country in the region that runs a
regional trade deficit in parts and components.
As a consequence of this restructuring, East Asia’s overall export
activity has shifted away from the United States and the European
Union and towards East Asia, and in particular China. On the other
hand, China has shifted its export emphasis away from East Asia and
towards the United States and the European Union.
Between 1992-3 and 2004-5, the East Asian share of China’s final goods
exports declined from 49.5% to 26.5%, while the OECD share (excluding
Japan and Korea) increased from 29.3% to 50.1%.(31) In fact, China is
now the region’s largest exporter to the United States and the
European Union in absolute and relative terms. Thus, the mirror image
of China’s surplus in trade with the United States and the European
Union is its deficit in trade with East Asia.
As a result of this regional restructuring, China has become the first
or second most important export market for almost all East Asian
nations. This development has, as noted above, encouraged the belief
that China’s import dependent production will enable East Asian
countries (and those in Latin America and Africa that also export to
China) to “uncouple” from the U.S.-dominated international economic
order.
However, since this trade activity largely involves an intra-regional
trade of parts and components culminating in China-based production
with final sales largely directed to the United States and the
European Union, East Asia’s overall dependence on developed capitalist
markets has actually grown stronger rather than weaker. According to
various estimates cited by the Asian Development Bank, it appears that
the percentage of Asian exports consumed within Asia ranges from a
high of 22% to a low of only 11%.(32)
This regional perspective enables us to see more clearly the
problematic nature of Chinese growth dynamics (for working people both
inside and outside China). The most obvious problem is that China’s
continued growth (and thus the region’s production) is now dependent
on the ability of the United States to run ever greater trade
deficits. Since it is doubtful that the U.S. economy can continue to
sustain such large and growing deficits, it is difficult to see how
China (and by extension the East Asian countries that provide China
with parts and components) can avoid painful adjustments involving
lower rates of growth and a further worsening of majority employment
and living conditions.
Chinese growth dynamics remain problematic even if international trade
imbalances can be sustained. For example, China’s position as final
assembly hub within numerous cross-border production chains has
significantly weakened Chinese efforts at technological upgrading.
Surveying China’s situation five years after the country’s 2001
accession to the WTO, the Chinese economist Han Deqiang recalls that
he had “argued the greatest damage [of membership] would be to China’s
capacity to control its industrial and technological development
autonomously. I think it’s safe to say these last five years have more
than proven that true. In China, any industry that wants to develop
its own technology or markets has encountered increasingly great
barriers.”(33)
More problematic still is the fact that in order to maintain the
country’s key regional position in the face of competition from other
countries seeking to improve their own position within cross-border
value chains, the Chinese state has had to ensure that wages are kept
low and productivity high.
One consequence of China’s success is that transnational corporations
throughout East Asia (and elsewhere) have been shifting their
production to China to take advantage of its more profitable
production conditions. This has led to lower rates of investment and
growth throughout the region and the implementation of new labor
regimes designed to weaken labor protections. As a result, workers
throughout East Asia (and elsewhere) have become pitted against each
other in a contest to match the level of labor exploitation achieved
in China.(34)
The problems for China’s main Latin American and African trade
partners are somewhat different but also serious. These countries
supply China with primary commodities rather than manufactured parts
and components. And China’s large and growing need for these
commodities has certainly boosted Latin American and African foreign
exchange earnings and growth. These gains, however, come at
significant long-term cost. Trade agreements with China, sometimes
supported by Chinese financial assistance and foreign investment,
reinforce existing structural imbalances by further strengthening the
dominance of the primary commodity sector.(35)
At the same time, Latin American and African efforts to build up
manufacturing (and diversify exports) tend to be undermined by China’s
own export offensive. For example, close to 95% of all Latin American
high technology exports face competition from China-based exporters.
These threatened high technology exports represent almost 12% of all
Latin American exports.(36) Finally, of course, Latin American and
African trade with China can also be expected to suffer if Chinese
growth falters.
In sum, the market logic driving China’s reform strategy promoted an
economic transformation that allowed Chinese economic dynamics to
become enmeshed in a broader process of transnational restructuring,
one that accelerated the reforms in ways guaranteed to ensure the
dominance of capitalist imperatives in China.
As a result, far from opening up new possibilities for working people,
China’s reform strategy has actually strengthened a transnational
accumulation process that is generating serious national and
international imbalances and tensions that will eventually require
correction at considerable social cost.
Final Thoughts
Several conclusions emerge from the above examination of the Chinese
experience. First, China’s market reform process has led not to a new
form of (market) socialism, but rather to the restoration of
capitalism (although “with Chinese characteristics”). Concretely, the
Chinese growth process has given rise to a new political economy that
is hostile to the goals of socialism, the promotion of all-rounded
human development, solidaristic relations, cooperative planning and
production for community needs, and collective or social ownership of
productive assets.
Thus, the Chinese experience stands as a clear warning: socialism
cannot be built through the use of markets and a closer integration
with global capitalist accumulation dynamics. In fact, the confusion
within the left over the nature of the Chinese experience suggests
that there has been a loss of clarity about what constitutes socialism
and appropriate criteria for evaluating progress towards building it.
Second, China’s economic experience reveals much about contemporary
capitalism. China is considered a model developer; the country has
achieved a sustained and rapid rate of growth, attracted massive
inflows of productive capital, and is exporting ever more
sophisticated manufactured goods. Yet these accomplishments have not
translated into meaningful gains for growing numbers of Chinese
workers.
In fact, workers in China face labor and working conditions
increasingly similar to those in Latin America and Africa, regions
where most countries are considered development failures. Therefore,
it appears that the answer to worker problems in Africa, Latin America
and elsewhere for that matter, is not to be found in supporting
policies designed to achieve “successful” capitalist development,
especially those designed to replicate the Chinese experience.
Third, China’s growth trajectory has become tied to and dependent upon
existing accumulation processes shaped by transnational capitalist
dynamics. As a result, China cannot be counted on to assist in the
creation of a radically new economic system.
This does not mean that trade with China is to be avoided. It also
does not mean that Chinese elites and western (especially U.S.) elites
see eye to eye on all geopolitical issues. Capitalist competition is
real and differences between these elites can and often does create
openings that are helpful for the third world, especially for those
countries under threat from the United States.
At the same time, since Chinese elite interests are structurally
shaped by capitalist imperatives, there are limits to the types of
changes that Chinese leaders can be expected to support. Caution is
also in order, given the expected consequences from the imbalances and
tensions generated by the above described transnational dynamics.
This critical perspective on the Chinese experience should not be
taken as support for those analysts (many of whom write in the United
States; some of whom are close to the U.S. labor movement) who view
China as the primary cause of most economic problems. Their often
repeated claim is that if only the Chinese government were forced to
“abide” by the “free-market” rules of acceptable capitalist
competition, all would be well in the world economy (and by extension
for working people).
An implied assumption is that Chinese workers are enjoying real
benefits from their country’s “unfair” state interventions, and their
employment and income gains are coming at the expense of workers in
other countries, especially in the advanced capitalist countries
(which are the main market for Chinese exports).
Tragically, this line of argumentation encourages workers outside of
China to mistakenly believe that their enemy is China, rather than the
system of capitalism that shapes their country’s economic relationship
to China and pits them against Chinese workers in a destructive
competition. In fact, as we saw above, Chinese growth is increasingly
dependent on the export activities of transnational corporations, many
of which come from the advanced capitalist countries.
Moreover, despite – or in fact because of – their country’s rapid
growth, Chinese workers, like workers everywhere, are facing hard
times. Decent jobs are scarce, social services are disappearing,
inequality is growing, and competitive pressures demand ever greater
sacrifices.
As noted above, growing numbers of people in China are openly and
directly challenging their country’s growth strategy. Even more
noteworthy, these challenges are now fueling political discussions and
debates (many of which are taking place on electronic chat rooms and
bulletin boards) about the nature and significance of Mao era
experiences and socialism.(37) To this point, farmer and worker
participants appear focused on refuting the false claims of ruling
elites that the Mao period was both a social and economic disaster by
drawing on their own life experiences to illustrate the
accomplishments of that period, in particular employment and social
security and a sense of national purpose.
This process of political renewal is taking place under very difficult
conditions due, most importantly, to the ongoing repression of
grassroots organizing and activism by the Communist Party. Additional
challenges include tensions between immigrant and urban born state
workers over jobs and access to social services; confusion caused by
Chinese Community Party claims to be building socialism; and the fact
that the strongest resistance to Party policies comes from those who
continue to uncritically praise Maoism, despite the fact that Mao
generally opposed farmer and worker self-organization and direct
participation in political and economic decision-making.
Despite their current limitations, these struggles, discussions and
debates represent a promising development, one that we can learn from
and hopefully contribute to by finding ways to share our own
understandings of socialism and experiences in movement building with
Chinese participants. It makes our own efforts to better understand
the nature of the Chinese reform experience ever more important.
* While a majority of those on the left are now critical of China’s
market reform strategy, a significant number of defenders remain.
People want to believe that there are workable alternatives to
neoliberalism, and belief in the progressive nature of China’s social
transformation is no doubt encouraged by the fact that China continues
to be demonized by the U.S. government; China makes loans to, invests
in, and trades with Cuba and Venezuela; and the Chinese Communist
Party still rules and publicly proclaims its commitment to socialism.
More specifically, I have participated in international conferences
and meetings where Cuban and Venezuelan economists have supported the
Chinese market reform strategy and argued for adoption of similar
policies in their own countries. Defenders of the Chinese growth
process also continue to argue their position on numerous left
internet discussion lists. The journal Critical Asian Studies had no
trouble in organizing a roundtable in which several editors of the
journal took issue with Paul Burkett and my critique of China’s market
reform experience as expressed in our book China and Socialism, Market
Reform and Class Struggle (New York: Monthly Review Press, 2005). The
criticisms and then our response were published in the journal
(Critical Asian Studies, September 2005 and December 2005). In
addition, well known scholars such as Giovanni Arrighi, David
Schweickart, and Immanuel Wallerstein continue to publish articles and
books in which China’s rise as a non-capitalist/socialist power is
celebrated. For a recent example of such writings see Giovanni
Arrighi, Adam Smith in Beijing: Lineages of the Twenty-First Century,
London: Verso, 2007.
Notes
For a discussion of the reform process see Martin Hart-Landsberg and
Paul Burkett, China and Socialism, Market Reforms and Class Struggle
(New York: Monthly Review Press, 2005), especially Chapter 2.
back to text
OECD, OECD Economic Surveys: China, OECD Economic Surveys, 2005, 29.
back to text
Data in this and the following paragraph come from Ibid, 133.
back to text
Ibid, 82.
back to text
Willy Lam, “China’s Elite Economic Double Standard,” Asia Times
Online, 17 August 2007.
back to text
UNCTAD, World Investment Report 2002: Transnational Corporations and
Export Competitiveness, New York: United Nations, 2002, 17.
back to text
Eva Cheng, “China: Foreign Capital Controls Three-quarters of
Industry,” Green Left Weekly, 18 May 2007.
back to text
John Whalley and Xian Xin, “China’s FDI and non-FDI Economies and the
Sustainability of Future High Chinese Growth,” National Bureau of
Economic Research, Working Paper Series, Number 12249, 2006; Tom
Miller, “Manufacturing That Doesn’t Compute,” Asia Times Online, 22
November 2006.
back to text
Enrique Dussel Peters, Economic Opportunities and Challenges Posed by
China for Mexico and Central America, Bonn, Germany: German
Development Institute, 2005, 102.
back to text
Ajit K. Ghose, “Employment in China,” International Labor
Organization, Employment Analysis Unit, Employment Strategy Papers,
2005.
back to text
China Labor Bulletin, “Subsistence Living for Millions of Former State
Workers, 7 September 2005.
back to text
John S. McClenahen, “Outsourcing,” IndustryWeek.com, 1 July 2006.
back to text
Craig Simons, “New Labor Movement Afoot in China,” Statesmen, 4
February 2007.
back to text
China Labor Bulletin, “Migrant Workers in China,” June 2008.
back to text
Ibid. In 2005, the central government gave local governments the
authority to reform the registration system, including ending
distinctions between rural and urban residents. The great majority
have refused to make any changes; most local officials are closely
allied with local business interests and do not want to jeopardize
enterprise (or their own personal) profitability.
back to text
The Economist, “A Workers’ Manifesto for China,” 11 October 2007.
back to text
Ibid.
back to text
Asian Development Bank, Inequality in Asia, Key Indicators 2007,
Special Chapter Highlights, Manila: Asian Development Bank, 2007, 3,
6.
back to text
Wu Zhong, “China’s ‘Most Wanted’ Millionaires,” Asia Times Online, 19
September 2007.
back to text
Robin Kwong, “China’s Billionaires Begin to Add Up,” Financial Times,
22 October 2007.
back to text
Samuel Shen, “For China, A Full Embrace of Luxury, High-end Retailers
Take Aim at Mainland’s Monied Class,” International Herald Tribune, 16
October 2006.
back to text
Bruce Einhorn, “In China, A Winter of Discontent,” Business Week, 30
January 2008.
back to text
Ariana Eunjung Cha, “New Law Gives Chinese Workers Power, Gives
Businesses Nightmares,” Washington Post, 14 April 2008.
back to text
International Trade Union Confederation, “China: Some Steps Forward,
but Trade-Related Worker Exploitation Persists,” 21 May 2008; Kinglun
Ngok, “The Changes of Chinese Labor Policy and Labor Legislation in
the Context of Market Transition,” International Labor and Working
Class History, Spring 2008.
back to text
Peter Kwong, “The Chinese Face of Neoliberalism,” Counterpunch, 7/8,
October 2006.
back to text
Lam, “China’s Elite Economic Double Standard.”
back to text
Asian Development Bank, Asian Development Outlook 2007: Growth Amid
Change, Hong Kong: Asian Development Bank, 2007, 68.
back to text
Asian Development Bank, Asian Development Outlook 2006, Hong Kong:
Asian Development Bank, 2006, 273.
back to text
Data in this and the following paragraph come from Prema-chandra
Athukorala and Nobuaki Yamashita, “Production Fragmentation in
Manufacturing Trade: The Role of East Asia in Global Production
Networks,” in Filippo di Mauro, Warwick McKibbin and Stephane Dees
(eds.), Globalization, Regionalization and Economic Interdependence,
Cambridge: Cambridge University Press, forthcoming.
back to text
Asian Development Bank, Asian Development Outlook 2008, Workers in
Asia, Hong Kong: Asian Development Bank, 2008, 22.
back to text
Prema-chandra Athukorala, “The Rise of China and East Asian Export
Performance: Is the Crowding-out Fear Warranted?” Australian National
University, Division of Economics, Working Paper No. 2007/10,
September 2007.
back to text
Asian Development Bank, Asian Development Outlook 2007, 70.
back to text
Stephen Philion, “The Social Costs of Neoliberalism in China,
Interview With Economist Han Deqiang,” Dollars & Sense, July/August
2007. For a more detailed discussion of the negative consequences of
the reforms on China’s technological capacities see Martin Hart-
Landsberg, “The Chinese Market Reform Experience, A Critical
Assessment,” forthcoming.
back to text
Asian Development Bank, Asian Development Outlook 2007, 32-3; Martin
Hart-Landsberg and Paul Burkett, “China, Capital Accumulation, and
Labor,” Monthly Review, May 2007.
back to text
He Li, “Red Star Over Latin America,” NACLA, September-October 2007;
Eva Cheng, “Is China Africa’s New Imperialist Power?” Green Left
Weekly, 2 March 2007.
back to text
Kevin P. Gallagher and Roberto Porzecanski, “Climbing up the
Technology Ladder? High-technology Exports in China and Latin
America,” Center for Latin American Studies, University of California,
Berkeley, Working Paper 20, 2008, 14.
back to text
For a discussion of this development see Mobo Gao, The Battle for
China’s Past, Mao and the Cultural Revolution. Ann Arbor, MI: Pluto
Press, 2008.
back to text
...and Sid Harth
Sid Harth
Indian Stocks Fall Most in Six Weeks; Sterlite Leads Declines
By Rajhkumar K Shaaw
Aug. 17 (Bloomberg) -- India’s benchmark Sensex stock index fell the
most in six weeks, led by Sterlite Industries (India) Ltd., after
metal prices dropped on concerns a recent rally in commodities isn’t
justified by economic prospects.
Sterlite, the nation’s biggest copper producer, retreated 7.1 percent
as the metal declined for a second day in London, extending its slide
from a 10-month high. Tata Steel Ltd., the largest maker of the alloy,
lost 6.8 percent. Hindalco Industries Ltd., the No. 1 aluminum
producer, retreated 7.5 percent. The Sensex tracked falls across Asian
markets.
“Today the Indian stock market imitated the global markets,” said
Manish Sonthalia, a fund manager who helps oversee $100 million of
equities at Motilal Oswal Securities Ltd. in Mumbai. “China’s economy
is primarily commodity based. So, a decline in the Chinese market led
to a decline in commodities prices.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 626.71,
or 4.1 percent, to 14,784.92, the steepest decline since July 6. The
gauge has dropped 5.7 percent so far this month on concerns the
poorest monsoon rains in seven years will cut farm output and dent
economic growth.
The S&P CNX Nifty Index on the National Stock Exchange lost 4.2
percent to 4,387.90. The BSE 200 Index decreased 4.1 percent to
1,812.57.
Sterlite fell 7.1 percent to 617.9 rupees. Tata Steel declined 6.8
percent to 437.95 rupees. Hindalco slid 7.5 percent to 100.25 rupees.
Copper Falls
Copper for three-month delivery fell $212, or 3.4 percent, to $6,033 a
metric ton on the London Metals Exchange, leading declines in
industrial metals, as stockpiles expanded and on concern that the
doubling in prices since January no longer reflected the outlook for
demand. Copper prices reached $6,480 on Aug. 14, the highest since
Oct. 1.
July imports of copper into China, the world’s biggest consumer,
shrank 15 percent from a month earlier, according to the Beijing-based
customs office, and foreign direct investment into Asia’s second-
largest economy fell for a 10th month.
“Metal prices have run ahead of fundamentals,” said Niraj Shah, a
Mumbai-based analyst at Centrum Broking Pvt. “The demand for metals is
not as great as anticipated. Even in India, demand is likely to come
down due to the weak monsoon rains.”
Among other LME metals for three-month delivery, nickel fell 5.4
percent to $18,510 a ton, aluminum slid 2.5 percent to $1,940 a ton,
and tin dropped 2.4 percent to $14,150 a ton. Lead fell 3.1 percent to
$1,795 a ton and zinc declined 2.5 percent to $1,779 a ton.
Asia Declines
Asian stocks fell, dragging the MSCI Asia Pacific Index to its biggest
drop in almost five months, on speculation economic growth in Japan
and China will fail to meet investors’ expectations.
Hero Honda Motors Ltd., the nation’s biggest motorcycle maker, lost 6
percent to 1,389.75 rupees on concerns the weak monsoon will slash
spending in the nation’s agricultural regions. Forty percent of Hero
Honda’s sales come from rural demand. Mahindra & Mahindra Ltd., the
largest maker of tractors, lost 5.4 percent to 747.45 rupees.
Jaiprakash Associates Ltd., the biggest maker of dams, declined 6.4
percent to 202.7 rupees.
Overseas funds bought a net 9.37 billion rupees ($194.7 million) of
Indian stocks on Aug. 13, the Securities & Exchange Board of India
said on its Web site. The funds have bought 365.7 billion rupees of
Indian stocks this year to date, compared with record net sales of 530
billion rupees for the whole of 2008.
The following stocks were among the most active on the exchange:
Bharti Airtel Ltd. (BHARTI IN) fell 2.5 percent to 398.75 rupees. MTN
Group Ltd. is pushing India’s largest mobile-phone operator to raise
its offer for the South African company by more than $1 billion, the
Wall Street Journal reported on Aug. 14, citing people familiar with
the situation.
Indian Oil Corp. (IOCL IN) climbed 0.3 percent to 569.45 rupees. The
nation’s largest refiner increased jet fuel prices by 4.55 percent
from Aug. 16, a company official said. The price in Mumbai, home to
the country’s busiest airport, was raised to 39,830 rupees a kiloliter
from 38,097.77 rupees, the official said.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at
rsh...@bloomberg.net.
Last Updated: August 17, 2009 07:34 EDT
Sid Harth
Chinese Stocks Trading in U.S. Fall Most Since March on Economy
By Allen Wan
Aug. 17 (Bloomberg) -- Chinese stocks trading in the U.S. fell the
most in five months as a plunge in foreign direct investment raised
concern domestic spending won’t be enough to shelter the economy from
the global recession.
Aluminum Corp. of China, the nation’s largest producer of the metal,
slid the most this month after Yunnan Copper Industry Co. said there
were “no clear signs” of a recovery. China Life Insurance Co. dropped
the most in three months after smaller rival Ping An Insurance (Group)
Co. reported net income that missed estimates. E-House China Holdings
Ltd., a Shanghai-based provider of real estate services whose shares
have more than doubled this year, dropped 17 percent, the most since
January.
The Bank of New York Mellon China ADR Index slumped 5 percent to
356.74, the most since March 2. The Shanghai Composite Index, tracking
the bigger of China’s exchanges, fell 5.8 percent, the most since Nov.
18, to 2,870.63. The gauge has slid 17 percent from this year’s high
on Aug. 4 on concern a slump in exports and new loans will damp
economic growth.
“A-share valuations look fully priced,” said Van Eck Associates’ David
Semple, whose emerging-markets fund is beating 99 percent of its peers
this year. “There is some froth to be taken out.”
The Shanghai index last week entered a so-called correction after its
retreat from this year’s high on Aug. 4 surpassed 10 percent. The
gauge, which ended the week 12 percent below the peak, trades at 31
times the reported profit of its companies, compared with a price-to-
earnings ratio of 17.5 times for the MSCI Emerging Markets Index.
Chalco Drops
The American depositary receipts of Aluminum Corp. of China, known as
Chalco, slid 7.3 percent to $27.94 in New York Stock Exchange
composite trading. The shares plunged 10 percent to 15.03 yuan in
Shanghai after Yunnan Copper posted a first- half net loss of 126.3
million yuan ($18 million).
Yanzhou Coal Mining Co., China’s fourth-biggest coal producer, slid
6.3 percent to $14.52. PetroChina Co. and China Petroleum & Chemical
Corp., the nation’s biggest oil refiners, declined more than 4
percent.
China Life, the nation’s biggest insurer, declined 4.6 percent to
$61.10. Ping An Insurance, the second-largest, plunged 6.8 percent to
$15.75 after net income declined 45 percent to 5.22 billion yuan ($760
million) as expenses from expanding market share climbed and greater
tax provisions were recorded in the period.
E-House plunged 17 percent to $17.89.
About 160 stocks slumped by the 10 percent daily cap on the 897-member
Shanghai index after foreign direct investment in China fell for a
tenth straight month in July as companies stalled expansion plans.
Investment declined 36 percent from a year earlier to $5.36 billion,
the Commerce Ministry said. That compared with a 6.8 percent drop in
June.
‘Optimistic’
Exports fell 23 percent from a year earlier, the government said on
Aug. 11, while urban fixed-asset investment rose a less than-estimated
33 percent in the first seven months from a year earlier. New loans
plunged to 355.9 billion yuan in July, less than a quarter of advances
in June, according to the central bank.
“I’m still optimistic about the Chinese economy,” Semple, who helps
manage about $13 billion in equities and commodities at New York-based
Van Eck, said in a phone interview. “There’s been a healthy switch
from short-term lending into longer-term lending.”
To contact the reporter on this story: Allen Wan in New York at
aw...@bloomberg.net
Last Updated: August 17, 2009 16:24 EDT
bademiyansubhanallah
Sensex takes 626-point blow on China meltdown
17 Aug 2009, 1722 hrs IST, Surya R Kannoth, ET Bureau
MUMBAI: Equity benchmarks saw their worst intra-day decline in a month
on Monday dragged down by the weakness across the globe. Traders
pressed the Volatility in the stock markets
panic button after weak US consumer data shook sentiment on worries
that the economy is far from recovery.
“Meltdown in Chinese markets led to a sharp fall in our markets.
Traders were seen unwinding long positions and creating new shorts. At
the moment, Nifty has strong support at 4280 and if it breaches this
level then it will head lower to 3900,” said Arun Mewawalla, associate
vice president, derivatives & technicals, Quantum Securities.
Bombay Stock Exchange’s Sensex tumbled to 14,784.92, down 626.71
points or 4.07 per cent. The index touched an intra-day low of
14,740.63 after opening at a high of 15284.23.
National Stock Exchange’s Nifty ended at 4387.80, down 192.25 points
or 4.2 per cent. The broader index plunged to an intra-day low of
4374.60 after starting trade at 4578.80.
Chinese stocks plunged to their lowest on fresh jitters over the
economic outlook and government policy. Investors were nervous over a
possible tightening of bank lending policies, which could crimp
liquidity.
Also Read
→ Sensex bettered returns after poor rains in 21st century
→ Chinese stocks tumble 5.8% on economic outlook and government
policy
“Chinese market was overbought and a correction was expected. The
short term trend is negative but medium term looks positive. The US
and Chinese markets are nearing their supports and in about a week’s
time global markets may bottom out. On the domestic front, we are
likely to receive heavy rainfall and this may act as another positive
trigger for our market,” Mewawalla added.
The current drought condition has also been playing on investor
sentiment. To add to this, Nomura Securities said that India's
economic growth could slow to around 5.5 per cent in 2009-10 hurt by a
poor monsoon.
Rainfall across India was 29 per cent below normal as of Aug 12,
according to government data. This is a concern for agriculture
production as only 40 percent of India's farmland is irrigated. Nomura
said it was too early to assess how much growth will be affected as it
depends on the severity of damage done, farmers' ability to shift to
shorter-duration crops and post-monsoon showers that will determine
soil moisture. It has therefore retained its 2009/10 growth forecast
of 6.3 percent and 2010/11 estimate of 7.5 percent, said Sonal Varma,
economist at Nomura.
However, Indian Meteorological Department has forecast that, “the
upper air cyclonic circulation over west Uttar Pradesh and
neighbourhood persist Volatility in the stock markets
and now extends up to lower tropospheric levels. Under its influence,
fairly widespread rainfall activity with isolated heavy to very heavy
fall is likely over Uttar Pradesh, Uttarakhand, Haryana, and Himachal
Pradesh during next 48 hours.”
The broader market suffered deep cuts as well. The BSE Midcap Index
was down 3.9 per cent and BSE Smallcap Index fell 3.13 per cent.
Amongst the sectoral indices, BSE Realty Index slumped 7.58 per cent,
BSE Metal Index declined 6.15 per cent and BSE Auto lost 4.77 per
cent.
Sugar companies took a beating on anticipation that the government
would increase the amount of sugar it gets at below market prices from
millers. Traders expect the limit to be increased to 20 per cent from
the current 10 per cent, which could dent profits. Shree Renuka Sugars
lost 3.4 per cent, Bajaj Hindusthan shed 2.1 per cent and Balrampur
Chini ended down 3 per cent.
Shares of aviation companies were under pressure as state-run oil
firms hiked jet fuel prices by 4.5 per cent in line with firming
international oil rates, the second time in a month. This move comes
at a time when airline companies, which have been reeling under severe
losses, are demanding a bailout from the government. Kingfisher
Airlines slumped 8.58 per cent, Spicejet declined 3.97 per cent and
Jet Airways tumbled 7.26 per cent.
Among frontline stocks, DLF (-7.75%), Hindalco Industries (-7.35%),
Tata Steel (-6.82%), Sterlite Industries (-6.69%) and Tata Motors
(-6.67%) were the worst hit. None of the stocks in the 30-share index
managed to brave the tide.
Market breadth was extremely negative on the BSE with 1,929 declines
and 674 advances.
bademiyansubhanallah
Sensex bettered returns after poor rains in 21st century
17 Aug 2009, 1106 hrs IST, Kumar Shankar Roy, TNN
CHENNAI: A poor monsoon is rattling markets, raising fears it could
hurt economic prospects of corporates and consequently result in lower
stock Investing for long term prices. But while the markets have most
likely dipped in the important period of July-September when the
monsoon rains have been less, sentiment has always improved, prompting
sensex to give better gains in October-December period once the
reality of deficient monsoon sets in.
Monsoon brings nearly three-fourth of the country's annual rainfall.
Since 1950, India has experienced 12 drought years, with average
annual real agricultural output falling 3.3%. However, an analysis of
monsoon deficient years since 1979 — the base year of sensex —
suggests there is limited correlation between a poor monsoon and stock
markets.
Since 1979, there have been six drought years, according to the Indian
Institute of Tropical Meteorology. The good news is that in the 21st
century, once investors became aware of the poor monsoon situation the
30-share benchmark bettered returns.
For instance, in 2001 — when the monsoon rainfall was 92% of the
normal — sensex fell 18.7% to 2,800 by September-end from 3,400 at the
beginning of July. After consensus of deficient rains was out, sensex
delivered a return of 16% in the October to December period.
In 2002, when the rains were 19% below normal, sensex shed 8% in the
July-September period but returned 13% in the October-December
quarter. In 2004, when summer crop fell 12% after a drought, sensex
gained 16.4% in the crucial July-Sept period but gave even higher
18.3% returns during the threemonths starting October.
All these indicate that stock markets are not much scared of the
looming drought, experts feel. "Taking all years in the
consideration , the correlation between sensex and rainfall is low at
0.13. Clearly, the direction of the market is driven by other factors
such as investment and consumption growth. The index leads investment
growth by one year and consumption growth by six months," Vivek Ranjan
Mishra, strategist at HSBC Bank, said in a note.
In 2009, the benchmark has so far given about 7% gains from July but
monsoon worries have clouded investor sentiment . Consumer sentiment
too may be dampened but FMCG stocks may still survive , say analysts.
But poor monsoon is negative for rupee as food imports could rise and
a weaker outlook maylead to lower foreign inflows, point out
marketmen.
bademiyansubhanallah
Chinese stocks tumble 5.8% on economic outlook and government policy
17 Aug 2009, 1648 hrs IST, AGENCIES
SHANGHAI: Chinese stocks plunged to their lowest level in two months
on Monday, tracking regional losses on renewed jitters over the
economic Volatility in the stock markets
The benchmark Shanghai Composite Index shed 176.24 points, or 5.8
percent, to close at 2,870.63 the lowest since June 18 while the
smaller Shenzhen Composite Index sank 6.6 percent to 955.87.
Analysts say investors are nervous over a possible tightening of bank
lending policies, which could crimp liquidity.
But the decline also reflected growing worries over the broader
economic outlook after a report Friday showed American consumer
confidence was weaker than expected in early August, which could mean
less demand for Chinese exports.
Monday's losses extended declines that took the Shanghai benchmark 6.6
percent lower last week.
After running share prices up by more than 90 percent this year by
early August, investors turned cautious on expectations of weaker bank
lending for the remainder of the year after a surge in the first
half.
Recent data showing that retail sales, trade and investment rose in
July, but not as fast as some had hoped, have further darkened buying
sentiment.
``It might be that the market is overreacting and too sensitive,''
said Mao Sheng, an analyst for Huaxi Securities in the western city in
Chengdu. ``After all, there is no solid data showing Chinese economy
is doing badly.''
Property shares were among the biggest losers, with China Vanke
falling by 9.95 percent to 11.50 yuan and Poly Real Estate slipping
7.4 percent to 24.94 yuan.
The long rally in share prices had begun to raise worries that loose
credit was fueling an unsustainable bubble in a market long prone to
such gyrations.
``Property shares have gained too much recently, so they should drop
on huge profit-taking. You can see that developers are just as anxious
as investors,'' said Que Feng, an analyst with Citic Securities in
Beijing.
But he added, ``I think the tumble is rather irrational.'' Other
factors are also at play. Among the bigger decliners Monday were
steelmakers, who were hurt, Huaxi Securities analyst Mao said, by news
of an iron ore supply deal Monday with Australian miner Fortescue
Metals Group, which agreed to a price about 3 percent below what
global producers have been seeking from Chinese mills.
Baoshan Iron & Steel fell 7.6 percent to 7.44 yuan, Angang Steel
Company limited fell 9.97 percent to 13.90 yuan and Wuhan Iron and
Steel Group Corp. dropped 8.9 percent to 8.8 yuan.
Industrial & Commercial Bank of China, the nation's biggest bank, lost
2.9 percent to 4.69 yuan.
Resource shares were hit by weakening oil and metals prices. Aluminum
Corp. of China fell by the daily 10 percent limit to 15.03 yuan while
PetroChina lost 6.1 percent to 13.09 yuan. China Petroleum & Chemical
Corp., also known as Sinopec, shed 5.8 percent to 12.18 yuan.
In currency dealings, the yuan was at 6.8345 to the U.S. dollar,
nearly even with its close Friday of 6.8344.
Sid Harth
Will the recession really go away?
24 Aug 2009, 0321 hrs IST,
N N Sachitanand,
Most analysts have attributed the current recession in the developed
countries to the greed and impropriety of leading financial
institutions.
However, a broader review of international economic trends during the
last three decades would reveal that the recession was inevitable and
the subprime mortgage crisis only hastened its arrival.
The recession stems from two basic trends in the developed economies.
The first is a near saturation of demand for new manufactured goods
because most households have the basic appliances, automobiles,
apparel, etc, that they need.
This has been a consequence of the steadily growing consumer affluence
over the post-War decades with increasing wage levels. This
deceleration of demand growth has brought in its wake a stagnation of
industrial growth. This is best illustrated by the trends in steel
consumption, since steel is a constituent of a host of modern
manufactured products.
Steel consumption in the US rose in the post-War boom years from 50
million tonnes in 1946 to peak at 110 million tonnes in 1975 and then
started declining to reach around 90 million tonnes last year. More
significantly, employment in the US steel industry has gone down from
over 500,000 in 1974 to less than 150,000 now.
The second fundamental structural change has to do with a decline in
the cost competitiveness of western manufactured goods arising from a
steady increase in the wage costs. This has caused a shift to low wage
countries in the east, first of manufacturing and, later on, even of
services. Ironically, the unionised labour in the west, which was
responsible for the high wage spiral, has been the worst hit by job
losses in the current slowdown.
Sid Harth
Reuters Summit - Don't write off Russia from BRIC
Tue Sep 15, 2009 11:14am IST
By Dmitry Zhdannikov and Darya Korsunskaya
MOSCOW (Reuters) - Sceptics who say the BRIC idea is dead because the
Russian economy has fallen much sharper than its emerging market peers
will be proved wrong as Russia will show solid growth in the long-
term, Russia's Finance Minister said on Monday.
"The whole BRIC idea emerged as a result of an analysis of long-term
trends... If you analyse long-term trends, Russia remains a country
with a solid growth due to many factors... and will rise to the sixth
place among top world economies," Alexei Kudrin told the Reuters
Russia Investment Summit.
"Therefore the BRIC countries will remain the main locomotives of the
global economy in the coming decades."
Russia's GDP shrank by a tenth in the first half of 2009 as
commodities prices collapsed and capital outflows skyrocketed.
The sharp fall came in deep contrast with the performance of the other
BRIC nations - Brazil, China and India - a term invented by Goldman
Sachs earlier this decade for a club of top emerging market countries.
Although Russian officials expect modest growth to resume in 2010, the
economy is unlikely to return to pre-crisis levels before 2012, which
prompted many analysts to say Russia does not deserve a place among
the elite club anymore.
Kudrin said the oil price collapse and extreme overheating of the
economy before the crisis were the key reasons for the economic
contraction, but added he believed the economy would resume growth
with an average of around 3.5 percent a year until 2050.
"Even 3.5 percent makes Russia a major locomotive of the world's
economy," Kudrin said.
"This should be achievable," he said. "Russia has shown its
vulnerability. The factors are clear to us and if we have good post-
crisis policies and restructure our economy, then Russia's positions
will not change much in long-term forecasts," he said.
He said to avoid another crisis authorities needed to manage state
spending carefully, encourage efficiency, reduce state presence in the
real economy and increase its regulatory role.
Budget spending could be cut as much as 20 percent through increased
efficiency, and only if Russia fails to do that in the next three
years would it be forced to raise taxes.
The much feared second wave of the crisis would be more likely to come
from abroad, not from the domestic banking sector, where bad loan
portfolios are seen as one of the main risks.
"We expect that the main risks won't come from the Russia economy but
from the global one, and in particular from the United States," he
said. "If the U.S. financial sector's struck by a second wave of the
crisis, it could also reach us."
Another big risk would be a sharp fall in energy prices, as Russia
needs oil at $50 per barrel to make its budget balanced. But even if
that happens, it would not be the end of Russia, he said.
"Russia had a more serious crisis in the 1990s than the global economy
right now. During the 1990s, Russia lost 50 percent of its GDP --
something unimaginable for a big country or developed economy," he
said.
"Now (we have lost) 10 percent. So for some countries - the United
States or Great Britain - it probably happens for the first time since
the Great Depression. In Russia we, in general, sailed well through
the crisis... We were ready for it".
© Thomson Reuters 2009 All rights reserved
Sid Harth
China wants specific moves on IMF voting - c.banker
Tue Sep 15, 2009 1:51pm IST
BEIJING (Reuters) - China wants to play a bigger role in governance of
the International Monetary Fund (IMF) and hopes the upcoming G20
summit in Pittsburgh will try to reform its management, a top central
banker said on Tuesday.
Guo Qingping, assistant governor with the People's Bank of China, told
a briefing that the summit should "set further specific goals for
transferring voting rights from developed countries to developing
countries" in international financial institutions.
Brazil, Russia, India and China have proposed a 7 percent shift in IMF
quotas in favour of developing countries, more than the 5 percent the
United States is proposing.
bademiyansubhanallah
It’s time to count costs
Hindustan Times
September 18, 2009
First Published: 22:09 IST(18/9/2009)
Last Updated: 22:14 IST(18/9/2009)
The world is stepping out of the deepest recession since World War II
within a year of being plunged into it, thanks to the largest
coordinated bailout in history. The composite leading indicators
tracked by the Organisation for Economic Co-operation and Development
(OECD) are showing stronger signs of recovery in the seven richest
countries (G7) and in the four advanced emerging economies: Brazil,
Russia, India and China (BRIC). The governments of 20 countries that
produce 90 per cent of the world’s GDP have committed nearly $2
trillion to crisis-related discretionary spending, which, an
International Monetary Fund (IMF) study reckons, could add 1.2-4.7
percentage points to the bloc’s output in 2009 and 0.1-1 percentage
point in 2010. But this process is not painless — the public debt in
the G20 will climb from 62 per cent of its GDP in 2007 to 82 per cent
in 2010.
The cost of servicing this debt will be the single most important
input in decisions to roll back fiscal stimuli. Premature withdrawal
of government spending risks nipping the recovery in the bud. On the
other hand, if governments continue to pump more money than is needed,
rising interest rates will undermine whatever revival has been
achieved. Since countries are at different points on the turnaround
graph, fiscal rollbacks will occur at different times. When they do,
they will have to be large: to regain its 2007 position, the world
needs to bring down its fiscal deficit from 7 per cent to under 1 per
cent, a process, the IMF paper says, that could drag on beyond 2016.
The worst may be behind us, but it is a hard climb out of the fiscal
hole the world has dug itself into. And it is harder for an India that
went into the slump with an inordinately high debt-GDP ratio of 80 per
cent and an ambitious social spending programme. Recession-induced
discretionary spending is only 14 per cent of India’s overall fiscal
expansion in 2009. Scaling down this component counter-cyclically does
not address the issue of burgeoning subsidies and income transfers.
Being among the first major economies to shrug off the recession,
India must also be among the first with a plan to reconstruct its
exchequer over the next five years. The central bank, with an eye on
an explosive inflation situation, has been flagging an exit strategy
for a while now. It is time North Block caught the signal from Mint
Road.
bademiyansubhanallah
Prime Minister Dr. Manmohan Singh's prescription for G-20
2009-09-20 14:30:00
Buoyed by the successful firefighting at home with global financial
crisis, Prime Minister Dr. Manmohan Singh will have much to prescribe
and advice to the developed countries, which are still in the
stranglehold of economic meltdown.
Dr. Singh will be participating in G-20 Pittsburg Summit on September
24-25.
Foreign Secretary Nirupama Rao told reporters here on Saturday that
India would advocate reforms of the international financial
institutions like the World Bank and the International Monetary Fund
(IMF) to keep pace with the ground realities of the changing world.
India is demanding from the developed world to increase its vote share
in the World Bank and the IMF respectively.
Last year, the IMF has proposed raising India's quota and vote share,
which would push its position up to 11th among the 184 member
nations.
In fact, BRIC nations-Brazil, Russia, India and China-are together
increasing the pressure on the developed world to reform and take a
common position on the increase of vote share in the international
financial institutions, which presently gives sweeping powers to the
US.
Dr. Singh, who has been an ardent advocate of democratization of
international financial institutions, has voiced India's stand on all
multilateral forums.
In wake of signs of fast recovery from meltdown shown by the
developing countries, Dr. Singh is likely to be more vociferous in his
demands this time.
India is going to make strong objections to protectionism in all its
forms covering trade and goods and services and investment.
Introduction of tax cuts on the outsourcing by the Obama
administration, which has hit India's BPO sector hard, is also likely
to crop up when India will present its point of view in the plenary
session.
Deputy Chairman of Planning Commission Montek Singh Ahluwalia and
National Security Advisor MK Narayanan will accompany Dr. Singh.
Economic crisis have hurt India as well. Its growth rate had sunk from
8-9 per cent to 5-6 per cent. But the country is still doing better
and recovering faster than its western counterparts.
Climate change is expected to remain another hot topic of debate in
G-20, which is seen as precursor to the much talked Copenhagen Summit
on climate change slated to take place in December this year.
Some even say that climate change is going to hijack the G-20 Summit,
which is organized to assess the developments and measures taken to
tackle the economic crisis in the previous Washington and London
Summits respectively.
India will be demanding for technology and monetary support from the
developed countries to tackle climate change.
While Dr. Singh will be attending G-20 in Pittsburg, Foreign Minister
SM Krishna will be making India's case at high-level event on climate
change in New York as a representative of the Indian Prime Minister.
Emphasizing that climate change is a historical responsibility of the
developed countries, Nirupama Rao told reporters that developing
countries like India, which are vulnerable to and are already
suffering from the impact of climate change, have an important stake
in establishment of a truly global, transparent, rule-based and
equitable climate change regime based on the principles of the UNFCCC.
India will also be asking the UNGA for concluding comprehensive
convention on terrorism proposed and prepared by India and
restructuring of UNSC permanent and non-permanent membership.
India is claiming its stake for the permanent membership at the United
Nations Security Council and Rao told reporters that India is in touch
with friendly countries.
G-20, which is formed in 1999 in the wake of East Asia financial
crisis, is a mighty group, which is made up of 90 per cent of global
GDP, 85 per cent of world trade and two-thirds of humanity. By Naveen
Kapoor (ANI)
bademiyansubhanallah
http://www.russiatoday.com/Top_News/2009-09-06/g20-finance-ministers-agree.html
Finance Ministers agree to keep applying stimulus measures
permalinke-mail story to a friendprint version06 September, 2009,
18:03
Following the G20 ministerial meeting in London, Russia’s Finance
Minister Aleksey Kudrin held a press conference where he talked about
bonuses for banks and other financial reforms.
Q: Now all these issues you’ve talked about – the bonuses, the quotas
– it sounds from what you are saying that they haven’t actually
hammered out the final decision. Is there any kind of feeling of
disappointment that nothing was actually decided?
Aleksey Kudrin: I know there were high expectations about bonuses, but
I think to have those expectations is not entirely fair to the
meeting. 80% of the meeting was dedicated to absolutely different
issues to bonuses.
They were expecting some sort of limitation of the bonuses, but I
repeat that that was not the problem. The problem is to tackle a
system where risk-taking is rewarded. But if we change that, the risk-
taking is no longer rewarded.
So the collective decision at today’s meeting was to keep applying the
stimulus measures and to keep working together – this is a very
tangible achievement too.
And my second result that I’d like to talk about is that we have
agreed that we need to think through, we need to determine and
elaborate on our exit strategies, and that too is an achievement.
And the third point is that if today we now know that everybody’s
position is very clear on the IMF quotas, that means that we can talk
on the basis of that knowledge, which also is a tangible result.
And the fourth is the work on the rules and regulations for financial
services. We must establish rules and regulations where bonuses are
not the basis on which bankers are rewarded.
And again I repeat that the media have over-exaggerated the importance
of bonuses in our discussions.
Bankers and analysts are already joking that crisis is already over,
but there is still the issue of bonuses being unsolved. I think in all
these areas we’ve worked out the basics, and now our specialists will
take the results of our work and elaborate them further.
Q: About the environment and climate change. If we’ve understood it
correctly, some of the developed countries wanted to discuss this, but
the BRIC countries and the developing countries didn’t want to. Could
you comment?
AK: There has been a serious discussion on this, and the fact that we
had this discussion is a result on its own.
Some of the participants were of an opinion that we need to have a
serious discussion on this matter, and that we should consider the
possible increase of resources required to address the changes in the
global climate.
Another group of participants thought that major discussion and any
decision-making on this issue should be made within the framework of
the UN Convention, and it all should take place in Copenhagen.
Therefore today we are not ready to make any decisions, as our meeting
today did not have all the participants required for this. For
example, there were no Ministers of Environment and Natural Resources
present here.
That is why we have not arrived at a final decision on this. Our
discussion is a preliminary stage to what is going to take place in
Copenhagen.
http://www.russiatoday.com/Top_News/2009-09-06/russia-overcoming-recession-kudrin.html
Russia is overcoming the recession – Finance Minister Kudrin
permalinke-mail story to a friendprint version06 September, 2009,
17:30
If Russia spends the money it made from oil and gas sales in 2009,
there would be no safety net in the economy. No net means a higher
risk of inflation, says Russia’s Finance Minister Aleksey Kudrin,
speaking to RT.
RT: Only this week a government source said that the economy will
reach pre-crisis levels as early as 2012. Do you subscribe to that
view?
Aleksey Kudrin: Our new forecast for the economy allows us to say that
by the end of 2012 – i.e. it’s expected to be the outcome of 2012 –
Russia’s GNP will get back to pre-crisis levels.
RT: You said on Thursday that you’re against spending more on bailouts
for Russians. Are you happy with the agreement that’s been reached
here between the G20 Finance Ministers?
AK: What we were talking about was that if Russia’s income were to
start growing significantly this year thanks to oil revenue, the
question is whether we should use this income to increase this year’s
expenditure as well. And I was saying that this year we cannot afford
to increase the budget’s expenditure as this may trigger new inflation
risks. As for next year, we have prepared an offer where it is
advisable not to use the surplus oil income, as large as it can be in
the most positive forecast, to cover direct expenditure items, but we
should rather use it to cut down on using our reserve funds; which
should help us avoid inflation risks next year.
RT: You’ve said just now that BRIC countries are going to give 80
billion dollars to the IMF. What do you expect to achieve with this
money?
AK: These funds will not be allocated to the IMF right now at the time
we sign the agreement. The IMF has a right to claim these funds from
us within two years as the need arises with the countries qualifying
for support. So the IMF is going to follow its own procedure of
working out support programs for the countries requesting help and use
these funds accordingly. This money will be used to support countries
impacted by the crisis.
RT: Could you just say again what the relationship between that money
and the reforms that you hope the IMF will undergo is?
AK: At present we are preparing a new stage of the International
Monetary Fund quota reform. That means that the International Monetary
Fund quotas in budgets of different countries will be re-divided. As a
result, there will be an increase in the quota of the developing
markets which have become bigger, and fast growing economies will be
able to have greater influence on the world economy.
They should have bigger quotas and more votes in the International
Monetary Fund decisions. So once the new quotas are created, we think
we should increase the International Monetary Fund assets in
accordance to the new quotas. And we are ready to allocate more money
in proportion to the new quotas. Of course, in this case, the
International Monetary Fund will get bigger resources. Thus the
International Monetary Fund reform brings in new resources.
At present we provide the International Monetary Fund with resources
by means of obligations or new loan agreements. That means that we
have to provide temporary resources before reform. The fact that we
provide the resources does not prevent the course of reform. We are
worried that if a huge amount of resources is gathered, it may
postpone the reform, may make it less needed. Our task is to provide
the resources right now, when they are badly needed, but at the same
time we are to prevent the reform from being postponed because of
that. We precondition that the terms are to be fulfilled and the
reform is necessary.
RT: Two more questions. Are you satisfied with the time frame that has
been decided for the reform of the IMF and the World Bank?
AK: Yes, I think that the terms of the reform are quite adequate and
there is enough time to prepare and settle the most difficult
problems.
RT: And the last question: You are predicting that Russia will come
out of recession. When exactly will it happen? In the third quarter of
this year? Are you a v-shape recession or a w-shape recession man?
A: Our estimate is that July and August’s figures suggest that in the
third quarter of this year we’ll see a GDP increase in comparison to
the second quarter.
That means that we are overcoming the recession. Accordingly, the
trend is good and we hope that it will be constant so that we will
have an L-shape or v-shaped recovery.
But at the same time, there are many risks that have emerged in the
world economy, which in my opinion and in our opinion have not been
settled yet. At the moment nobody can say whether they will cause
further recession or when they will be solved. That’s why many
politicians and analysts still say that the situation is unclear. When
you hear such a statement you should understand that despite
indications of recovery, everybody is afraid of the new wave of the
crisis. That’s why I can’t tell you for sure what the scheme of the
recovery will look like. We all are worried now, and we all hope that
it won’t happen.
Vladimir Kremlev for RT
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that....ROAR: Russian Opinion and Analytics Review, Apr.13
permalinke-mail story to a friendprint version13 April, 2009, 13:28
This Monday, ROAR presents an article on the future of Moldova, a
series of opinions on the G20 anti-crisis policies, and a sketch on an
unexpected global threat to democracy.
KOMMERSANT publishes an article by Andrey Fedorov, the former Russian
Deputy Foreign Minister, now Director of political programs with the
Council for Foreign and Defense Policy, who sums up the recent events
in Moldova, and gives a forecast for the future of the republic.
The former diplomat writes that the ‘revolution’ in Moldova turned out
to be just a short-term political action of the opposition, aimed at
testing the limits of the government’s and the president’s patience;
their goal was never an actual attempt to seize power, but to
discredit the government, to make it overreact, and use lethal force
against the youth and children sent forth to throw stones and burn
buildings.
But, says Fedorov, rather unexpectedly for the opposition, the
government of Moldova has shown enough wisdom to stay within the
limits of law; president Voronin even agreed to re-count the votes. He
did it because he was sure that the victory of his party at the
election had clearly been legitimate.
Read more
However, says Fedorov, from now on, the question of a merger with
Romania raised by the opposition last week will become a permanent
fixture in the Moldovan political arena. There will definitely be more
street actions in the future, and there will be a lot of clandestine
action as well, he says.
Opposition rally in Chisinau, Moldova on April 12, 2009 (AFP Photo /
Viktor Drachev)
The former diplomat concludes that stability in Moldova is now a thing
of the past. He writes that it doesn't matter whether Romanian
intelligence was behind the events, or whether it was the Moldovan
opposition. What matters is the fact that now Russia and the West
share another major headache in Europe. What happened in Moldova,
writes Fedorov, was no ordinary local event. It was one of the last
elements in the global political game in which, willingly or
unwillingly, we have all have been involved after the disintegretion
of the Soviet Union.
IZVESTIA publishes a round table discussion of the G20 summit and its
decisions. Russian academics and practitioners of international
relations and economics speak their minds about the summit:
Iosif Diskin from the Council for National Strategy says that the main
result of the G20 summit is the institutionalization of the regulatory
mechanisms of the global economy. The G20 achieved the maximum
possible of what it was supposed to do: it managed to expose all
offshore havens, and the Americans let go of the IMF they used to
control totally before.
And President Medvedev has achieved the maximum of what he could have
expected: he bargained high, suggesting to set up a separate global
currency, and as a result, the idea was entered as a matter for
further discussion. Meanwhile, Medvedev’s other offer regarding hedge
funds went into the final document verbatim.
Dmitry Orlov from the Agency of Political and Economic Communications
says that the main difference between the Washington and London
summits of the G20 is the fact that the latter made some decisions,
while the former produced none. He says the derivative bubble
supported the well-being of the poorer strata of society and the
middle class; after it exploded, the well-being of these classes was,
and still is, in danger, and that is the main reason for the reform of
the global financial system.
Vladimir Zhirikhin of the Institute of the CIS Nations says that
there’s no sense in claiming that the twenty leaders gathered in
London changed the world. That didn’t happen. What happened, and what
is much more interesting, is the conspiracy around the offshore havens
masterfully conducted and completed by France and Germany. In other
words, German and French anti-Globalism has nearly triumphed on the
global scale. Offshore capital often works against national interests
of the nations from which it is deposited, and so France and Germany
decided to get rid of it.
AFP Photo / RIA Novosti / Kremlin pool / Vladimir Rodionov
Maxim Dianov of the Institute of Regional Problems says that the G20
summit failed to answer the two main questions: who is to blame and
what is to be done? We are still in the dark about the origins of the
crisis. There are many ideas about it, but no firm and well-founded
opinions – which means that there cannot be any prescription for
curing it: how can we cure an illness of which we do not know the
nature?
Valery Khomiakov, the co-chairman for the Council for National
Strategy says the expectations for the G20 were high – everyone hoped
for some decision that could change things quickly. Those expectations
partially failed to materialize, but there still is a significant
result: if not the burial, at least the last rites for the Anglo-Saxon
model of globalization.
In NEZAVISIMAYA GAZETA, well-known political scientist and Head of the
Effective Policies Fund Gleb Pavlovskiy writes that modern democracy
is in crisis worldwide. He writes that nearly all the forms of modern
democracy, of which there are many, have a common flaw: they are so
over-organized, based on the ‘agreement’ between the local elites with
the local powers-that-be that not much space is left for the real
expression of will by the people. Globalization has made the problem
worse, says Pavlovskiy, largely nullifying the role individual
citizens or groups of citizens can play in politics.
This new undemocratic trend inside democracy deprives the masses of
citizens of their basic right to affect the workings of a democratic
state, and that often leads them to street protests, along with
various degrees of violence, says Pavlovskiy, such as has already
happened in countries as diverse as Latvia, Greece, and Thailand.
bademiyansubhanallah
Welcome from the United Kingdom
The United Kingdom is honoured to chair the Group of Twenty in 2009.
Since 1999, the G-20 has contributed to strengthen the international
financial architecture and to foster sustainable economic growth and
development. The G-20 now has a crucial role in driving forward work
between advanced and emerging economies to tackle the international
financial and economic crisis, restore worldwide financial stability,
lead the international economic recovery and secure a sustainable
future for all countries.
The financial markets and the world economy continue to face serious
global challenges and the severity of the crisis and ongoing
uncertainties demonstrate the need for urgent action. During the
United Kingdoms Chair, the immediate priority will be to gain further
agreements for a concerted, co-ordinated international response.
The G-20 will need to send a strong signal that it is prepared to take
whatever further actions are necessary to stabilise the financial
system and to provide further macroeconomic support. At the same time,
the G-20 must commit to maintaining open trade and investment, to
avoid a retreat to protectionism, and direct necessary additional
support to emerging markets and developing countries.
The G-20 should also lay the foundations to move beyond the crisis to
a sustainable recovery. In 2009, it will be important to understand
the roots of the international financial crisis and identify the
lessons that we can learn to ensure that a crisis of this kind does
not happen again. The G-20 should develop proposals that will restore
global growth in the medium term, including the unwinding of emergency
measures taken in response to the crisis.
In addition, we should also make progress on long-term issues such as
climate change and international development.
In line with usual practice, the organisation of the G-20 events
during the year will be shared between the Ministry of Finance and the
Central Bank. We are looking forward to working closely and drawing on
the valuable experience of our Troika colleagues, Brazil and South
Korea, and the other G-20 members.
http://www.g20.org/pub_communiques.aspx
http://www.g20.org/Documents/FM__CBG_Comm_-_Final.pdf
http://www.g20.org/Documents/FM__CBG_Declaration_-_Final.pdf
http://www.g20.org/Documents/20090905_G20_progress_update_London_Fin_Mins_final.pdf
http://www.g20.org/Documents/final-communique.pdf
http://www.g20.org/Documents/Fin_Deps_Fin_Reg_Annex_020409_-_1615_final.pdf
http://www.g20.org/Documents/Fin_Deps_IFI_Annex_Draft_02_04_09_-__1615_Clean.pdf
http://www.g20.org/Documents/FINAL_Annex_on_Action_Plan.pdf
http://www.g20.org/Documents/2009_communique_horsham_uk.pdf
http://www.g20.org/Documents/2009_communique_annex_horsham_uk.pdf
http://www.g20.org/Documents/g20_washington_actionplan_progress_140309.pdf
http://www.g20.org/Documents/g20_summit_declaration.pdf
http://www.g20.org/Documents/2008_communique_saopaulo_brazil.pdf
http://www.g20.org/Documents/2007_communiqu_kleinmond_capetown_southafrica.pdf
http://www.g20.org/Documents/2006_australia.pdf
http://www.g20.org/Documents/2005_china.pdf
http://www.g20.org/Documents/2004_germany.pdf
http://www.g20.org/Documents/2003_mexico.pdf
http://www.g20.org/Documents/2002_india.pdf
http://www.g20.org/Documents/2001_canada.pdf
http://www.g20.org/Documents/2000_canada.pdf
http://www.g20.org/Documents/1999_germany.pdf
bademiyansubhanallah
http://www.pittsburghsummit.gov/about/index.htm
The Pittsburgh Summit 2009
About the SummitThe Group of Twenty (G-20) was formally established
in 1999 to bring together major industrialized and developing
economies to discuss key issues in the global economy.
The members of the G-20 are the finance ministers and central bank
governors of 19 countries: Argentina, Australia, Brazil, Canada,
China, France, Germany, India, Indonesia, Italy, Japan, Mexico,
Russia, Saudi Arabia, South Africa, South Korea, Turkey, the U.K. and
the U.S., as well as the European Union, represented by the rotating
council presidency and the European Central Bank.
In November 2008, as a response to the global economic crisis, the
G-20 held its first Leaders meeting, the Washington Summit on
Financial Markets and the Global Economy. The heads of state and
government were joined by the Secretary-General of the United Nations,
the President of the World Bank, the Managing Director of the
International Monetary Fund, and the Chairperson of the Financial
Stability Forum (reconstituted at the London Summit as the Financial
Stability Board).
At the Washington Summit, the Leaders committed to an Action Plan
which was reviewed and renewed at the London Summit held in April
2009. The G-20 Finance Ministers were tasked from the Washington
summit to take forward work in the following five areas: strengthening
transparency and accountability; enhancing sound regulation; promoting
integrity in financial markets; reinforcing international cooperation;
and reforming the international financial institutions.
The London Summit built on the work in those areas, as Leaders reached
agreement on six pledges: to restore confidence, growth, and jobs; to
repair the financial system to restore lending; to strengthen
financial regulation to rebuild trust; to fund and reform our
international financial institutions to overcome this crisis and
prevent future ones; to promote global trade and investment and reject
protectionism; and to build an inclusive, green, and sustainable
recovery.
In London, the Leaders also called for another meeting to be held
before the end of 2009. After consultation with his G-20 counterparts,
President Obama agreed to host the next meeting in September and chose
Pittsburgh, Pennsylvania, as the site. With governments and
international organizations now hard at work to reach the objectives
set out at the Washington and London Summits, the meeting in
Pittsburgh will give Leaders the opportunity to take stock of the
progress made and discuss further actions to assure a sound recovery
from the global economic and financial crisis.
http://www.pittsburghsummit.gov/resources/125137.htm
The Pittsburgh Summit 2009
20 Summit on Financial Markets and the World Economy
Washington, DC
November 15, 2008
Action Plan to implement principles for reform
This Action Plan sets forth a comprehensive work plan to implement the
five agreed principles for reform. Our finance ministers will work to
ensure that the taskings set forth in this Action Plan are fully and
vigorously implemented. They are responsible for the development and
implementation of these recommendations drawing on the ongoing work of
relevant bodies, including the International Monetary Fund (IMF), an
expanded Financial Stability Forum (FSF), and standard setting bodies.
Strengthening transparency and accountability
Immediate actions by March 31, 2009
•The key global accounting standards bodies should work to enhance
guidance for valuation of securities, also taking into account the
valuation of complex, illiquid products, especially during times of
stress.
•Accounting standard setters should significantly advance their work
to address weaknesses in accounting and disclosure standards for off-
balance sheet vehicles.
•Regulators and accounting standard setters should enhance the
required
disclosure of complex financial instruments by firms to market
participants.
•With a view toward promoting financial stability, the governance of
the international accounting standard setting body should be further
enhanced, including by undertaking a review of its membership, in
particular in order to ensure transparency, accountability, and an
appropriate relationship between this independent body and the
relevant authorities.
•Private sector bodies that have already developed best practices for
private pools of capital and/or hedge funds should bring forward
proposals for a set of unified best practices. Finance Ministers
should assess the adequacy of these proposals, drawing upon the
analysis of regulators, the expanded FSF, and other relevant bodies.
Medium-term actions
•The key global accounting standards bodies should work intensively
toward the objective of creating a single high-quality global
standard.
•Regulators, supervisors, and accounting standard setters, as
appropriate, should work with each other and the private sector on an
ongoing basis to ensure consistent application and enforcement of high-
quality accounting standards.
•Financial institutions should provide enhanced risk disclosures in
their reporting and disclose all losses on an ongoing basis,
consistent with international best practice, as appropriate.
Regulators should work to ensure that a financial institution’
financial statements include a complete, accurate, and timely picture
of the firm’s activities (including off-balance sheet activities) and
are reported on a consistent and regular basis.
Enhancing sound regulation
Regulatory regimes
Immediate actions by March 31, 2009
•The IMF, expanded FSF, and other regulators and bodies should develop
recommendations to mitigate pro-cyclicality, including the review of
how valuation and leverage, bank capital, executive compensation, and
provisioning practices may exacerbate cyclical trends.
Medium-term actions
•To the extent countries or regions have not already done so, each
country or region pledges to review and report on the structure and
principles of its regulatory system to ensure it is compatible with a
modern and increasingly globalized financial system. To this end, all
G-20 members commit to undertake a Financial Sector Assessment Program
(FSAP) report and support the transparent assessments of countries’
national regulatory systems.
•The appropriate bodies should review the differentiated nature of
regulation in the banking, securities, and insurance sectors and
provide a report outlining the issue and making recommendations on
needed improvements. A review of the scope of financial regulation,
with a special emphasis on institutions, instruments, and markets that
are currently unregulated, along with ensuring that all systemically-
important institutions are appropriately regulated, should also be
undertaken.
•National and regional authorities should review resolution regimes
and bankruptcy laws in light of recent experience to ensure that they
permit an orderly wind-down of large complex cross-border financial
institutions.
•Definitions of capital should be harmonized in order to achieve
consistent measures of capital and capital adequacy.
Prudential Oversight
Immediate actions by March 31, 2009
•Regulators should take steps to ensure that credit rating agencies
meet the highest standards of the international organization of
securities regulators and that they avoid conflicts of interest,
provide greater disclosure to investors and to issuers, and
differentiate ratings for complex products. This will help ensure that
credit rating agencies have the right incentives and appropriate
oversight to enable them to perform their important role in providing
unbiased information and assessments to markets.
•The international organization of securities regulators should review
credit rating agencies’ adoption of the standards and mechanisms for
monitoring compliance.
•Authorities should ensure that financial institutions maintain
adequate capital in amounts necessary to sustain confidence.
International standard setters should set out strengthened capital
requirements for banks’ structured credit and securitization
activities.
•Supervisors and regulators, building on the imminent launch of
central counterparty services for credit default swaps (CDS) in some
countries, should: speed efforts to reduce the systemic risks of CDS
and over-the-counter (OTC) derivatives transactions; insist that
market participants support exchange traded or electronic trading
platforms for CDS contracts; expand OTC derivatives market
transparency; and ensure that the infrastructure for OTC derivatives
can support growing volumes.
Medium-term actions
•Credit Ratings Agencies that provide public ratings should be
registered.
•Supervisors and central banks should develop robust and
internationally consistent approaches for liquidity supervision of,
and central bank liquidity operations for, cross-border banks.
Risk Management
Immediate actions by March 31, 2009
•Regulators should develop enhanced guidance to strengthen banks’ risk
management practices, in line with international best practices, and
should encourage financial firms to re-examine their internal controls
and implement strengthened policies for sound risk management.
•Regulators should develop and implement procedures to ensure that
financial firms implement policies to better manage liquidity risk,
including by creating strong liquidity cushions.
•Supervisors should ensure that financial firms develop processes that
provide for timely and comprehensive measurement of risk
concentrations and large counterparty risk positions across products
and geographies.
•Firms should reassess their risk management models to guard against
stress and report to supervisors on their efforts.
•The Basel Committee should study the need for and help develop firms’
new stress testing models, as appropriate.
•Financial institutions should have clear internal incentives to
promote stability, and action needs to be taken, through voluntary
effort or regulatory action, to avoid compensation schemes which
reward excessive short-term returns or risk taking.
•Banks should exercise effective risk management and due diligence
over structured products and securitization.
Medium-term actions
•International standard setting bodies, working with a broad range of
economies and other appropriate bodies, should ensure that regulatory
policy makers are aware and able to respond rapidly to evolution and
innovation in financial markets and products.
•Authorities should monitor substantial changes in asset prices and
their implications for the macroeconomy and the financial system.
Promoting integrity in financial markets
Immediate actions by March 31, 2009
•Our national and regional authorities should work together to enhance
regulatory cooperation between jurisdictions on a regional and
international level.
•National and regional authorities should work to promote information
sharing about domestic and cross-border threats to market stability
and ensure that national (or regional, where applicable) legal
provisions are adequate to address these threats.
•National and regional authorities should also review business conduct
rules to protect markets and investors, especially against market
manipulation and fraud and strengthen their cross-border cooperation
to protect the international financial system from illicit actors. In
case of misconduct, there should be an appropriate sanctions regime.
Medium-term actions
•National and regional authorities should implement national and
international measures that protect the global financial system from
uncooperative and non-transparent jurisdictions that pose risks of
illicit financial activity.
•The Financial Action Task Force should continue its important work
against money laundering and terrorist financing, and we support the
efforts of the World Bank - UN Stolen Asset Recovery (StAR)
Initiative.
•Tax authorities, drawing upon the work of relevant bodies such as the
Organization for Economic Cooperation and Development (OECD), should
continue efforts to promote tax information exchange. Lack of
transparency and a failure to exchange tax information should be
vigorously addressed.
Reinforcing international cooperation
Immediate actions by March 31, 2009
•Supervisors should collaborate to establish supervisory colleges for
all major cross-border financial institutions, as part of efforts to
strengthen the surveillance of cross-border firms. Major global banks
should meet regularly with their supervisory college for comprehensive
discussions of the firm’s activities and assessment of the risks it
faces.
•Regulators should take all steps necessary to strengthen cross-border
crisis management arrangements, including on cooperation and
communication with each other and with appropriate authorities, and
develop comprehensive contact lists and conduct simulation exercises,
as appropriate.
Medium-term actions
•Authorities, drawing especially on the work of regulators, should
collect information on areas where convergence in regulatory practices
such as accounting standards, auditing, and deposit insurance is
making progress, is in need of accelerated progress, or where there
may be potential for progress.
•Authorities should ensure that temporary measures to restore
stability and confidence have minimal distortions and are unwound in a
timely, well-sequenced and coordinated manner.
Reforming international financial institutions
Immediate actions by March 31, 2009
•The FSF should expand to a broader membership of emerging economies.
•The IMF, with its focus on surveillance, and the expanded FSF, with
its focus on standard setting, should strengthen their collaboration,
enhancing efforts to better integrate regulatory and supervisory
responses into the macro-prudential policy framework and conduct early
warning exercises.
•The IMF, given its universal membership and core macro-financial
expertise, should, in close coordination with the FSF and others, take
a leading role in drawing lessons from the current crisis, consistent
with its mandate.
•We should review the adequacy of the resources of the IMF, the World
Bank Group and other multilateral development banks and stand ready to
increase them where necessary. The IFIs should also continue to review
and adapt their lending instruments to adequately meet their members’
needs and revise their lending role in the light of the ongoing
financial crisis.
•We should explore ways to restore emerging and developing countries’
access to credit and resume private capital flows which are critical
for sustainable growth and development, including ongoing
infrastructure investment.
•In cases where severe market disruptions have limited access to the
necessary financing for counter-cyclical fiscal policies, multilateral
development banks must ensure arrangements are in place to support, as
needed, those countries with a good track record and sound policies.
Medium-term actions
•We underscored that the Bretton Woods Institutions must be
comprehensively reformed so that they can more adequately reflect
changing economic weights in the world economy and be more responsive
to future challenges. Emerging and developing economies should have
greater voice and representation in these institutions.
•The IMF should conduct vigorous and even-handed surveillance reviews
of all countries, as well as giving greater attention to their
financial sectors and better integrating the reviews with the joint
IMF/World Bank financial sector assessment programs. On this basis,
the role of the IMF in providing macro-financial policy advice would
be strengthened.
•Advanced economies, the IMF, and other international organizations
should provide capacity-building programs for emerging market
economies and developing countries on the formulation and the
implementation of new major regulations, consistent with international
standards.
http://www.pittsburghsummit.gov/resources/125136.htm
The Pittsburgh Summit 2009
20 Summit on Financial Markets and the World Economy
Washington, DC
November 15, 2008
1. We, the Leaders of the Group of Twenty, held an initial meeting in
Washington on November 15, 2008, amid serious challenges to the world
economy and financial markets. We are determined to enhance our
cooperation and work together to restore global growth and achieve
needed reforms in the world’s financial systems.
2. Over the past months our countries have taken urgent and
exceptional measures to support the global economy and stabilize
financial markets. These efforts must continue. At the same time, we
must lay the foundation for reform to help to ensure that a global
crisis, such as this one, does not happen again. Our work will be
guided by a shared belief that market principles, open trade and
investment regimes, and effectively regulated financial markets foster
the dynamism, innovation, and entrepreneurship that are essential for
economic growth, employment, and poverty reduction.
Root causes of the current crisis
3. During a period of strong global growth, growing capital flows, and
prolonged stability earlier this decade, market participants sought
higher yields without an adequate appreciation of the risks and failed
to exercise proper due diligence. At the same time, weak underwriting
standards, unsound risk management practices, increasingly complex and
opaque financial products, and consequent excessive leverage combined
to create vulnerabilities in the system. Policy-makers, regulators and
supervisors, in some advanced countries, did not adequately appreciate
and address the risks building up in financial markets, keep pace with
financial innovation, or take into account the systemic ramifications
of domestic regulatory actions.
4. Major underlying factors to the current situation were, among
others, inconsistent and insufficiently coordinated macroeconomic
policies, inadequate structural reforms, which led to unsustainable
global macroeconomic outcomes. These developments, together,
contributed to excesses and ultimately resulted in severe market
disruption.
Actions taken and to be taken
5. We have taken strong and significant actions to date to stimulate
our economies, provide liquidity, strengthen the capital of financial
institutions, protect savings and deposits, address regulatory
deficiencies, unfreeze credit markets, and are working to ensure that
international financial institutions (IFIs) can provide critical
support for the global economy.
6. But more needs to be done to stabilize financial markets and
support economic growth. Economic momentum is slowing substantially in
major economies and the global outlook has weakened. Many emerging
market economies, which helped sustain the world economy this decade,
are still experiencing good growth but increasingly are being
adversely impacted by the worldwide slowdown.
7. Against this background of deteriorating economic conditions
worldwide, we agreed that a broader policy response is needed, based
on closer macroeconomic cooperation, to restore growth, avoid negative
spillovers and support emerging market economies and developing
countries. As immediate steps to achieve these objectives, as well as
to address longer-term challenges, we will:
•Continue our vigorous efforts and take whatever further actions are
necessary to stabilize the financial system.
•Recognize the importance of monetary policy support, as deemed
appropriate to domestic conditions.
Use fiscal measures to stimulate domestic demand to rapid effect, as
appropriate, while maintaining a policy framework conducive to fiscal
sustainability.
•Help emerging and developing economies gain access to finance in
current difficult financial conditions, including through liquidity
facilities and program support. We stress the International Monetary
Fund’s (IMF) important role in crisis response, welcome its new short-
term liquidity facility, and urge the ongoing review of its
instruments and facilities to ensure flexibility.
•Encourage the World Bank and other multilateral development banks
(MDBs) to use their full capacity in support of their development
agenda, and we welcome the recent introduction of new facilities by
the World Bank in the areas of infrastructure and trade finance.
•Ensure that the IMF, World Bank and other MDBs have sufficient
resources to continue playing their role in overcoming the crisis.
Common principles for reform of financial markets
8. In addition to the actions taken above, we will implement reforms
that will strengthen financial markets and regulatory regimes so as to
avoid future crises. Regulation is first and foremost the
responsibility of national regulators who constitute the first line of
defense against market instability. However, our financial markets are
global in scope, therefore, intensified international cooperation
among regulators and strengthening of international standards, where
necessary, and their consistent implementation is necessary to protect
against adverse cross-border, regional and global developments
affecting international financial stability. Regulators must ensure
that their actions support market discipline, avoid potentially
adverse impacts on other countries, including regulatory arbitrage,
and support competition, dynamism and innovation in the marketplace.
Financial institutions must also bear their responsibility for the
turmoil and should do their part to overcome it including by
recognizing losses, improving disclosure and strengthening their
governance and risk management practices.
9. We commit to implementing policies consistent with the following
common principles for reform.
•Strengthening transparency and accountability: We will strengthen
financial market transparency, including by enhancing required
disclosure on complex financial products and ensuring complete and
accurate disclosure by firms of their financial conditions. Incentives
should be aligned to avoid excessive risk-taking.
•Enhancing sound regulation: We pledge to strengthen our regulatory
regimes, prudential oversight, and risk management, and ensure that
all financial markets, products and participants are regulated or
subject to oversight, as appropriate to their circumstances. We will
exercise strong oversight over credit rating agencies, consistent with
the agreed and strengthened international code of conduct. We will
also make regulatory regimes more effective over the economic cycle,
while ensuring that regulation is efficient, does not stifle
innovation, and encourages expanded trade in financial products and
services. We commit to transparent assessments of our national
regulatory systems.
•Promoting integrity in financial markets: We commit to protect the
integrity of the world’s financial markets by bolstering investor and
consumer protection, avoiding conflicts of interest, preventing
illegal market manipulation, fraudulent activities and abuse, and
protecting against illicit finance risks arising from non-cooperative
jurisdictions. We will also promote information sharing, including
with respect to jurisdictions that have yet to commit to international
standards with respect to bank secrecy and transparency.
•Reinforcing international cooperation: We call upon our national and
regional regulators to formulate their regulations and other measures
in a consistent manner. Regulators should enhance their coordination
and cooperation across all segments of financial markets, including
with respect to cross-border capital flows. Regulators and other
relevant authorities as a matter of priority should strengthen
cooperation on crisis prevention, management, and resolution.
•Reforming International Financial Institutions: We are committed to
advancing the reform of the Bretton Woods Institutions so that they
can more adequately reflect changing economic weights in the world
economy in order to increase their legitimacy and effectiveness. In
this respect, emerging and developing economies, including the poorest
countries, should have greater voice and representation. The Financial
Stability Forum (FSF) must expand urgently to a broader membership of
emerging economies, and other major standard setting bodies should
promptly review their membership. The IMF, in collaboration with the
expanded FSF and other bodies, should work to better identify
vulnerabilities, anticipate potential stresses, and act swiftly to
play a key role in crisis response.
Tasking of ministers and experts
10. We are committed to taking rapid action to implement these
principles. We instruct our Finance Ministers, as coordinated by their
2009 G-20 leadership (Brazil, UK, Republic of Korea), to initiate
processes and a timeline to do so. An initial list of specific
measures is set forth in the attached Action Plan, including high
priority actions to be completed prior to March 31, 2009.
In consultation with other economies and existing bodies, drawing upon
the recommendations of such eminent independent experts as they may
appoint, we request our Finance Ministers to formulate additional
recommendations, including in the following specific areas:
•Mitigating against pro-cyclicality in regulatory policy;
•Reviewing and aligning global accounting standards, particularly for
complex securities in times of stress;
•Strengthening the resilience and transparency of credit derivatives
markets and reducing their systemic risks, including by improving the
infrastructure of over-the-counter markets;
•Reviewing compensation practices as they relate to incentives for
risk taking and innovation;
•Reviewing the mandates, governance, and resource requirements of the
IFIs; and
•Defining the scope of systemically important institutions and
determining their appropriate regulation or oversight.
11. In view of the role of the G-20 in financial systems reform, we
will meet again by April 30, 2009, to review the implementation of the
principles and decisions agreed today.
Commitment to an Open Global Economy
12. We recognize that these reforms will only be successful if
grounded in a commitment to free market principles, including the rule
of law, respect for private property, open trade and investment,
competitive markets, and efficient, effectively regulated financial
systems. These principles are essential to economic growth and
prosperity and have lifted millions out of poverty, and have
significantly raised the global standard of living.
Recognizing the necessity to improve financial sector regulation, we
must avoid over-regulation that would hamper economic growth and
exacerbate the contraction of capital flows, including to developing
countries.
13. We underscore the critical importance of rejecting protectionism
and not turning inward in times of financial uncertainty. In this
regard, within the next 12 months, we will refrain from raising new
barriers to investment or to trade in goods and services, imposing new
export restrictions, or implementing World Trade Organization (WTO)
inconsistent measures to stimulate exports. Further, we shall strive
to reach agreement this year on modalities that leads to a successful
conclusion to the WTO’s Doha Development Agenda with an ambitious and
balanced outcome. We instruct our Trade Ministers to achieve this
objective and stand ready to assist directly, as necessary. We also
agree that our countries have the largest stake in the global trading
system and therefore each must make the positive contributions
necessary to achieve such an outcome.
14. We are mindful of the impact of the current crisis on developing
countries, particularly the most vulnerable. We reaffirm the
importance of the Millennium Development Goals, the development
assistance commitments we have made, and urge both developed and
emerging economies to undertake commitments consistent with their
capacities and roles in the global economy. In this regard, we
reaffirm the development principles agreed at the 2002 United Nations
Conference on Financing for Development in Monterrey, Mexico, which
emphasized country ownership and mobilizing all sources of financing
for development.
15. We remain committed to addressing other critical challenges such
as energy security and climate change, food security, the rule of law,
and the fight against terrorism, poverty and disease.
16. As we move forward, we are confident that through continued
partnership, cooperation, and multilateralism, we will overcome the
challenges before us and restore stability and prosperity to the world
economy.
http://www.pittsburghsummit.gov/resources/125131.htm
The Pittsburgh Summit 2009
Communiqué: Global Plan for Recovery and ReformG-20 Summit
London, England
April 2, 2009
1. We, the Leaders of the Group of Twenty, met in London on 2 April
2009.
2. We face the greatest challenge to the world economy in modern
times; a crisis which has deepened since we last met, which affects
the lives of women, men, and children in every country, and which all
countries must join together to resolve. A global crisis requires a
global solution.
3. We start from the belief that prosperity is indivisible; that
growth, to be sustained, has to be shared; and that our global plan
for recovery must have at its heart the needs and jobs of hard-working
families, not just in developed countries but in emerging markets and
the poorest countries of the world too; and must reflect the
interests, not just of today’s population, but of future generations
too. We believe that the only sure foundation for sustainable
globalisation and rising prosperity for all is an open world economy
based on market principles, effective regulation, and strong global
institutions.
4. We have today therefore pledged to do whatever is necessary to:
•restore confidence, growth, and jobs;
•repair the financial system to restore lending;
•strengthen financial regulation to rebuild trust;
•fund and reform our international financial institutions to overcome
this crisis and prevent future ones;
•promote global trade and investment and reject protectionism, to
underpin prosperity; and
•build an inclusive, green, and sustainable recovery.
By acting together to fulfil these pledges we will bring the world
economy out of recession and prevent a crisis like this from recurring
in the future.
5. The agreements we have reached today, to treble resources available
to the IMF to $750 billion, to support a new SDR allocation of $250
billion, to support at least $100 billion of additional lending by the
MDBs, to ensure $250 billion of support for trade finance, and to use
the additional resources from agreed IMF gold sales for concessional
finance for the poorest countries, constitute an additional $1.1
trillion programme of support to restore credit, growth and jobs in
the world economy. Together with the measures we have each taken
nationally, this constitutes a global plan for recovery on an
unprecedented scale.
Restoring growth and jobs
6. We are undertaking an unprecedented and concerted fiscal expansion,
which will save or create millions of jobs which would otherwise have
been destroyed, and that will, by the end of next year, amount to $5
trillion, raise output by 4 per cent, and accelerate the transition to
a green economy. We are committed to deliver the scale of sustained
fiscal effort necessary to restore growth.
7. Our central banks have also taken exceptional action. Interest
rates have been cut aggressively in most countries, and our central
banks have pledged to maintain expansionary policies for as long as
needed and to use the full range of monetary policy instruments,
including unconventional instruments, consistent with price stability.
8. Our actions to restore growth cannot be effective until we restore
domestic lending and international capital flows. We have provided
significant and comprehensive support to our banking systems to
provide liquidity, recapitalise financial institutions, and address
decisively the problem of impaired assets. We are committed to take
all necessary actions to restore the normal flow of credit through the
financial system and ensure the soundness of systemically important
institutions, implementing our policies in line with the agreed G20
framework for restoring lending and repairing the financial sector.
9. Taken together, these actions will constitute the largest fiscal
and monetary stimulus and the most comprehensive support programme for
the financial sector in modern times. Acting together strengthens the
impact and the exceptional policy actions announced so far must be
implemented without delay. Today, we have further agreed over $1
trillion of additional resources for the world economy through our
international financial institutions and trade finance.
10. Last month the IMF estimated that world growth in real terms would
resume and rise to over 2 percent by the end of 2010. We are confident
that the actions we have agreed today, and our unshakeable commitment
to work together to restore growth and jobs, while preserving long-
term fiscal sustainability, will accelerate the return to trend
growth. We commit today to taking whatever action is necessary to
secure that outcome, and we call on the IMF to assess regularly the
actions taken and the global actions required.
11. We are resolved to ensure long-term fiscal sustainability and
price stability and will put in place credible exit strategies from
the measures that need to be taken now to support the financial sector
and restore global demand. We are convinced that by implementing our
agreed policies we will limit the longer-term costs to our economies,
thereby reducing the scale of the fiscal consolidation necessary over
the longer term.
12. We will conduct all our economic policies cooperatively and
responsibly with regard to the impact on other countries and will
refrain from competitive devaluation of our currencies and promote a
stable and well-functioning international monetary system. We will
support, now and in the future, to candid, even-handed, and
independent IMF surveillance of our economies and financial sectors,
of the impact of our policies on others, and of risks facing the
global economy.
Strengthening financial supervision and regulation
13. Major failures in the financial sector and in financial regulation
and supervision were fundamental causes of the crisis. Confidence will
not be restored until we rebuild trust in our financial system. We
will take action to build a stronger, more globally consistent,
supervisory and regulatory framework for the future financial sector,
which will support sustainable global growth and serve the needs of
business and citizens.
14. We each agree to ensure our domestic regulatory systems are
strong. But we also agree to establish the much greater consistency
and systematic cooperation between countries, and the framework of
internationally agreed high standards, that a global financial system
requires. Strengthened regulation and supervision must promote
propriety, integrity and transparency; guard against risk across the
financial system; dampen rather than amplify the financial and
economic cycle; reduce reliance on inappropriately risky sources of
financing; and discourage excessive risk-taking. Regulators and
supervisors must protect consumers and investors, support market
discipline, avoid adverse impacts on other countries, reduce the scope
for regulatory arbitrage, support competition and dynamism, and keep
pace with innovation in the marketplace.
15. To this end we are implementing the Action Plan agreed at our last
meeting, as set out in the attached progress report. We have today
also issued a Declaration, Strengthening the Financial System. In
particular we agree:
•to establish a new Financial Stability Board (FSB) with a
strengthened mandate, as a successor to the Financial Stability Forum
(FSF), including all G20 countries, FSF members, Spain, and the
European Commission;
•that the FSB should collaborate with the IMF to provide early warning
of macroeconomic and financial risks and the actions needed to address
them;
•to reshape our regulatory systems so that our authorities are able to
identify and take account of macro-prudential risks;
•to extend regulation and oversight to all systemically important
financial institutions, instruments and markets. This will include,
for the first time, systemically important hedge funds;
•to endorse and implement the FSF’s tough new principles on pay and
compensation and to support sustainable compensation schemes and the
corporate social responsibility of all firms;
•to take action, once recovery is assured, to improve the quality,
quantity, and international consistency of capital in the banking
system. In future, regulation must prevent excessive leverage and
require buffers of resources to be built up in good times;
•to take action against non-cooperative jurisdictions, including tax
havens. We stand ready to deploy sanctions to protect our public
finances and financial systems. The era of banking secrecy is over. We
note that the OECD has today published a list of countries assessed by
the Global Forum against the international standard for exchange of
tax information;
•to call on the accounting standard setters to work urgently with
supervisors and regulators to improve standards on valuation and
provisioning and achieve a single set of high-quality global
accounting standards; and
•to extend regulatory oversight and registration to Credit Rating
Agencies to ensure they meet the international code of good practice,
particularly to prevent unacceptable conflicts of interest.
16. We instruct our Finance Ministers to complete the implementation
of these decisions in line with the timetable set out in the Action
Plan. We have asked the FSB and the IMF to monitor progress, working
with the Financial Action Taskforce and other relevant bodies, and to
provide a report to the next meeting of our Finance Ministers in
Scotland in November.
Strengthening our global financial institutions
17. Emerging markets and developing countries, which have been the
engine of recent world growth, are also now facing challenges which
are adding to the current downturn in the global economy. It is
imperative for global confidence and economic recovery that capital
continues to flow to them. This will require a substantial
strengthening of the international financial institutions,
particularly the IMF. We have therefore agreed today to make available
an additional $850 billion of resources through the global financial
institutions to support growth in emerging market and developing
countries by helping to finance counter-cyclical spending, bank
recapitalisation, infrastructure, trade finance, balance of payments
support, debt rollover, and social support. To this end:
•we have agreed to increase the resources available to the IMF through
immediate financing from members of $250 billion, subsequently
incorporated into an expanded and more flexible New Arrangements to
Borrow, increased by up to $500 billion, and to consider market
borrowing if necessary; and
•we support a substantial increase in lending of at least $100 billion
by the Multilateral Development Banks (MDBs), including to low income
countries, and ensure that all MDBs, including have the appropriate
capital.
18. It is essential that these resources can be used effectively and
flexibly to support growth. We welcome in this respect the progress
made by the IMF with its new Flexible Credit Line (FCL) and its
reformed lending and conditionality framework which will enable the
IMF to ensure that its facilities address effectively the underlying
causes of countries’ balance of payments financing needs, particularly
the withdrawal of external capital flows to the banking and corporate
sectors. We support Mexico’s decision to seek an FCL arrangement.
19. We have agreed to support a general SDR allocation which will
inject $250 billion into the world economy and increase global
liquidity, and urgent ratification of the Fourth Amendment.
20. In order for our financial institutions to help manage the crisis
and prevent future crises we must strengthen their longer term
relevance, effectiveness and legitimacy. So alongside the significant
increase in resources agreed today we are determined to reform and
modernise the international financial institutions to ensure they can
assist members and shareholders effectively in the new challenges they
face. We will reform their mandates, scope and governance to reflect
changes in the world economy and the new challenges of globalisation,
and that emerging and developing economies, including the poorest,
must have greater voice and representation. This must be accompanied
by action to increase the credibility and accountability of the
institutions through better strategic oversight and decision making.
To this end:
•we commit to implementing the package of IMF quota and voice reforms
agreed in April 2008 and call on the IMF to complete the next review
of quotas by January 2011;
•we agree that, alongside this, consideration should be given to
greater involvement of the Fund’s Governors in providing strategic
direction to the IMF and increasing its accountability;
•we commit to implementing the World Bank reforms agreed in October
2008. We look forward to further recommendations, at the next
meetings, on voice and representation reforms on an accelerated
timescale, to be agreed by the 2010 Spring Meetings;
•we agree that the heads and senior leadership of the international
financial institutions should be appointed through an open,
transparent, and merit-based selection process; and
•building on the current reviews of the IMF and World Bank we asked
the Chairman, working with the G20 Finance Ministers, to consult
widely in an inclusive process and report back to the next meeting
with proposals for further reforms to improve the responsiveness and
adaptability of the IFIs.
21. In addition to reforming our international financial institutions
for the new challenges of globalisation we agreed on the desirability
of a new global consensus on the key values and principles that will
promote sustainable economic activity. We support discussion on such a
charter for sustainable economic activity with a view to further
discussion at our next meeting. We take note of the work started in
other fora in this regard and look forward to further discussion of
this charter for sustainable economic activity.
Resisting protectionism and promoting global trade and investment
22. World trade growth has underpinned rising prosperity for half a
century. But it is now falling for the first time in 25 years. Falling
demand is exacerbated by growing protectionist pressures and a
withdrawal of trade credit. Reinvigorating world trade and investment
is essential for restoring global growth. We will not repeat the
historic mistakes of protectionism of previous eras. To this end:
•we reaffirm the commitment made in Washington: to refrain from
raising new barriers to investment or to trade in goods and services,
imposing new export restrictions, or implementing World Trade
Organisation (WTO) inconsistent measures to stimulate exports. In
addition we will rectify promptly any such measures. We extend this
pledge to the end of 2010;
•we will minimise any negative impact on trade and investment of our
domestic policy actions including fiscal policy and action in support
of the financial sector. We will not retreat into financial
protectionism, particularly measures that constrain worldwide capital
flows, especially to developing countries;
•we will notify promptly the WTO of any such measures and we call on
the WTO, together with other international bodies, within their
respective mandates, to monitor and report publicly on our adherence
to these undertakings on a quarterly basis;
•we will take, at the same time, whatever steps we can to promote and
facilitate trade and investment; and
•we will ensure availability of at least $250 billion over the next
two years to support trade finance through our export credit and
investment agencies and through the MDBs. We also ask our regulators
to make use of available flexibility in capital requirements for trade
finance.
23. We remain committed to reaching an ambitious and balanced
conclusion to the Doha Development Round, which is urgently needed.
This could boost the global economy by at least $150 billion per
annum. To achieve this we are committed to building on the progress
already made, including with regard to modalities.
24. We will give renewed focus and political attention to this
critical issue in the coming period and will use our continuing work
and all international meetings that are relevant to drive progress.
Ensuring a fair and sustainable recovery for all
25. We are determined not only to restore growth but to lay the
foundation for a fair and sustainable world economy. We recognise that
the current crisis has a disproportionate impact on the vulnerable in
the poorest countries and recognise our collective responsibility to
mitigate the social impact of the crisis to minimise long-lasting
damage to global potential. To this end:
•we reaffirm our historic commitment to meeting the Millennium
Development Goals and to achieving our respective ODA pledges,
including commitments on Aid for Trade, debt relief, and the
Gleneagles commitments, especially to sub-Saharan Africa;
•the actions and decisions we have taken today will provide $50
billion to support social protection, boost trade and safeguard
development in low income countries, as part of the significant
increase in crisis support for these and other developing countries
and emerging markets;
•we are making available resources for social protection for the
poorest countries, including through investing in long-term food
security and through voluntary bilateral contributions to the World
Bank’s Vulnerability Framework, including the Infrastructure Crisis
Facility, and the Rapid Social Response Fund;
•we have committed, consistent with the new income model, that
additional resources from agreed sales of IMF gold will be used,
together with surplus income, to provide $6 billion additional
concessional and flexible finance for the poorest countries over the
next 2 to 3 years. We call on the IMF to come forward with concrete
proposals at the Spring Meetings;
•we have agreed to review the flexibility of the Debt Sustainability
Framework and call on the IMF and World Bank to report to the IMFC and
Development Committee at the Annual Meetings; and
•we call on the UN, working with other global institutions, to
establish an effective mechanism to monitor the impact of the crisis
on the poorest and most vulnerable.
26. We recognise the human dimension to the crisis. We commit to
support those affected by the crisis by creating employment
opportunities and through income support measures. We will build a
fair and family-friendly labour market for both women and men. We
therefore welcome the reports of the London Jobs Conference and the
Rome Social Summit and the key principles they proposed. We will
support employment by stimulating growth, investing in education and
training, and through active labour market policies, focusing on the
most vulnerable. We call upon the ILO, working with other relevant
organisations, to assess the actions taken and those required for the
future.
27. We agreed to make the best possible use of investment funded by
fiscal stimulus programmes towards the goal of building a resilient,
sustainable, and green recovery. We will make the transition towards
clean, innovative, resource efficient, low carbon technologies and
infrastructure. We encourage the MDBs to contribute fully to the
achievement of this objective. We will identify and work together on
further measures to build sustainable economies.
28. We reaffirm our commitment to address the threat of irreversible
climate change, based on the principle of common but differentiated
responsibilities, and to reach agreement at the UN Climate Change
conference in Copenhagen in December 2009.
Delivering our commitments
29. We have committed ourselves to work together with urgency and
determination to translate these words into action. We agreed to meet
again before the end of this year to review progress on our
commitments.
bademiyansubhanallah
What is the G-20
The Group of Twenty (G-20) Finance Ministers and Central Bank
Governors was established in 1999 to bring together systemically
important industrialized and developing economies to discuss key
issues in the global economy. The inaugural meeting of the G-20 took
place in Berlin, on December 1516, 1999, hosted by German and Canadian
finance ministers.
Mandate
The G-20 is an informal forum that promotes open and constructive
discussion between industrial and emerging-market countries on key
issues related to global economic stability. By contributing to the
strengthening of the international financial architecture and
providing opportunities for dialogue on national policies,
international co-operation, and international financial institutions,
the G-20 helps to support growth and development across the globe.
Origins
The G-20 was created as a response both to the financial crises of the
late 1990s and to a growing recognition that key emerging-market
countries were not adequately included in the core of global economic
discussion and governance. Prior to the G-20 creation, similar
groupings to promote dialogue and analysis had been established at the
initiative of the G-7. The G-22 met at Washington D.C. in April and
October 1998. Its aim was to involve non-G-7 countries in the
resolution of global aspects of the financial crisis then affecting
emerging-market countries. Two subsequent meetings comprising a larger
group of participants (G-33) held in March and April 1999 discussed
reforms of the global economy and the international financial system.
The proposals made by the G-22 and the G-33 to reduce the world
economy's susceptibility to crises showed the potential benefits of a
regular international consultative forum embracing the emerging-market
countries. Such a regular dialogue with a constant set of partners was
institutionalized by the creation of the G-20 in 1999.
Membership
The G-20 is made up of the finance ministers and central bank
governors of 19 countries:
Argentina
Australia
Brazil
Canada
China
France
Germany
India
Indonesia
Italy
Japan
Mexico
Russia
Saudi Arabia
South Africa
South Korea
Turkey
United Kingdom
United States of America
The European Union, who is represented by the rotating Council
presidency and the European Central Bank, is the 20th member of the
G-20. To ensure global economic fora and institutions work together,
the Managing Director of the International Monetary Fund (IMF) and the
President of the World Bank, plus the chairs of the International
Monetary and Financial Committee and Development Committee of the IMF
and World Bank, also participate in G-20 meetings on an ex-officio
basis. The G-20 thus brings together important industrial and emerging-
market countries from all regions of the world. Together, member
countries represent around 90 per cent of global gross national
product, 80 per cent of world trade (including EU intra-trade) as well
as two-thirds of the world's population. The G-20's economic weight
and broad membership gives it a high degree of legitimacy and
influence over the management of the global economy and financial
system.
Achievements The G-20 has progressed a range of issues since 1999,
including agreement about policies for growth, reducing abuse of the
financial system, dealing with financial crises and combating
terrorist financing. The G-20 also aims to foster the adoption of
internationally recognized standards through the example set by its
members in areas such as the transparency of fiscal policy and
combating money laundering and the financing of terrorism. In 2004,
G-20 countries committed to new higher standards of transparency and
exchange of information on tax matters. This aims to combat abuses of
the financial system and illicit activities including tax evasion.
The G-20 also plays a signficant role in matters concerned with the
reform of the international financial architecture.
The G-20 has also aimed to develop a common view among members on
issues related to further development of the global economic and
financial system and held an extraordinary meeting in the margins of
the 2008 IMF and World Bank annual meetings in recognition of the
current economic situation. At this meeting, in accordance with the
G-20s core mission to promote open and constructive exchanges between
advanced and emerging-market countries on key issues related to global
economic stability and growth, the Ministers and Governors discussed
the present financial market crisis and its implications for the world
economy. They stressed their resolve to work together to overcome the
financial turmoil and to deepen cooperation to improve the regulation,
supervision and the overall functioning of the worlds financial
markets.
Chair
Unlike international institutions such as the Organization for
Economic Co-operation and Development (OECD), IMF or World Bank, the
G-20 (like the G-7) has no permanent staff of its own. The G-20 chair
rotates between members, and is selected from a different regional
grouping of countries each year. In 2009 the G-20 chair is the United
Kingdom, and in 2010 it will be South Korea. The chair is part of a
revolving three-member management Troika of past, present and future
chairs. The incumbent chair establishes a temporary secretariat for
the duration of its term, which coordinates the group's work and
organizes its meetings. The role of the Troika is to ensure continuity
in the G-20's work and management across host years.
Former G-20 Chairs
1999-2001 Canada
2002 India
2003 Mexico
2004 Germany
2005 China
2006 Australia
2007 South Africa
2008 Brazil
Meetings and activities
It is normal practice for the G-20 finance ministers and central bank
governors to meet once a year. The last meeting of ministers and
governors was held in São Paulo, Brazil on 8-9 November 2008. The
ministers' and governors' meeting is usually preceded by two deputies'
meetings and extensive technical work. This technical work takes the
form of workshops, reports and case studies on specific subjects, that
aim to provide ministers and governors with contemporary analysis and
insights, to better inform their consideration of policy challenges
and options.
Towards the end of 2008 Leaders of the G-20 Countries meet in
Washington. See the Declaration and action plan from the Washington
Summit (PDF 72KB) . This meeting remitted follow up work to Finance
Ministers. In addition to their November meeting in order to take
forward this work in advance of the Leaders summit in London on 2nd
April Finance Ministers and Central Bank Governors will also meet in
March 2009. A deputies meeting will be held in February 2009 to
prepare for the Ministers meeting.
G-20 Events
Deputies Meeting 1st February 2009
Officials Workshop Financing for Climate Change 13th & 14th February
2009
Deputies Meeting 13th March 2009
Finance Ministers and Central Bank Governors Meeting 14th March 2009
Officials Workshop on Global Economy 25th 26th May 2009
Deputies Meeting 27th & 28th June 2009
Officials Workshop on Sustainable Financing for Development July 2009
Deputies Meeting 3rd & 4th September 2009
Finance Ministers and Central Bank Governors Meeting 4th & 5th
September 2009
Finance Ministers and Central Bank Governors Meeting 6th & 7th
November 2009
Interaction with other international organizations
The G-20 cooperates closely with various other major international
organizations and fora, as the potential to develop common positions
on complex issues among G-20 members can add political momentum to
decision-making in other bodies. The participation of the President of
the World Bank, the Managing Director of the IMF and the chairs of the
International Monetary and Financial Committee and the Development
Committee in the G-20 meetings ensures that the G-20 process is well
integrated with the activities of the Bretton Woods Institutions. The
G-20 also works with, and encourages, other international groups and
organizations, such as the Financial Stability Forum, in progressing
international and domestic economic policy reforms. In addition,
experts from private-sector institutions and non-government
organisations are invited to G-20 meetings on an ad hoc basis in order
to exploit synergies in analyzing selected topics and avoid overlap.
External communication
The country currently chairing the G-20 posts details of the group's
meetings and work program on a dedicated website. Although
participation in the meetings is reserved for members, the public is
informed about what was discussed and agreed immediately after the
meeting of ministers and governors has ended. After each meeting of
ministers and governors, the G-20 publishes a communiqué which records
the agreements reached and measures outlined. Material on the forward
work program is also made public.
bademiyansubhanallah
Thousands join London G-20 protestStory Highlights
20,000 people expected at Put People First march ahead of G-20 summit
Police say protest expected to be peaceful
Authorities have warned of unprecedented demonstrations in week ahead
Read VIDEO
LONDON, England (CNN) -- Thousands of people have converged in the
center of London for the first major protest ahead of next week's G-20
summit.
Up to 20,000 people are expected to join Saturday's protests in
London.
Despite fears of violence in coming days that have prompted a major
security operation in the British capital, Saturday's demonstration
has so far been peaceful.
As many as 20,000 people were expected at the Put People First march,
organized by trade unions but backed by some 120 other groups
including environmentalists, church groups, and political campaigners.
Authorities are bracing for possible violence as anti-capitalist and
environmental protesters to converge on the Bank of England next
Wednesday -- April 1 -- for a "mass street party" dubbed "Financial
Fools Day."
Protesters gathering on Saturday were calling for jobs, fair
distribution of wealth, and a low-carbon future.
They carried banners and posters reading "Climate Emergency," "Gaza:
End the Blockade," "Planet Before Profit," "We Won't Pay for Their
Crisis," and "Jobs not Bombs."
Some groups turned out to march in bright-colored rain ponchos or hard
hats.
The day began with a church service in central London. The Salvation
Army, which helped organize the service, said it was a "perfect
opportunity to ask the G-20 to consider the world's most vulnerable
people."
Those at the service sang "We are blessed to bless a world in pieces."
They asked for freedom from debt and justice to profit, the Salvation
Army said.
After gathering along the Thames River and marching along its banks,
marchers moved past Trafalgar Square to Hyde Park for a mass rally in
the afternoon. Speakers at the rally include trade union bosses,
environmentalists, and global justice campaigners, along with
musicians and a comedian, according to march organizers.
Jake Corn, from Cambridge, told the UK's Press Association he was
taking part to show support for a more sustainable future.
"We feel this is an important moment with the G-20 coming here," Corn
said.
"We want to get our message across to as many people as possible."
Watch scenes from march, interviews with protesters »
Italian trade unionist Nicoli Nicolosi told PA he had travelled from
Rome to take part. He said: "We are here to try and make a better
world and protest against the G-20."
The G-20 summit next Thursday brings together leaders and financial
chiefs from the top 20 industrialized and emerging economies, along
with leaders from non-G-20 nations.
Hundreds of other officials will also be there, including the heads of
the International Monetary Fund and the World Bank.
chhotemianinshallah
Posted: Sun, Sep 20 2009. 9:44 PM IST
Columns
G-20, India and its global ambitions
From India’s point of view there is one additional factor underlying
G-20 is a key to its long cherished ambitions for a more dominant role
at the global level
Capital Calculus | Anil Padmanabhan
Later this week Prime Minister Manmohan Singh will join the heads of
19 other countries and a regional grouping to participate in the
deliberations of the so-called Group of Twenty (G-20) countries, in
Pittsburgh, US. From all available indications, the meeting will be
much more than just a tête-à-tête.
The outcome of the deliberations will, to a large extent, not only
determine whether these countries, with diverse interests and economic
stature, can continue to think as a collective, but will also set the
contours of the ongoing global negotiations to hammer out new trade
and climate deals. The latter has a sense of immediacy since the date
for the climate change discussions have been set for early December in
Copenhagen and at the moment the key interlocutors are merely
posturing.
From India’s point of view there is one additional factor underlying
G-20—it is a key to its long cherished ambitions for a more dominant
role at the global level. G-20 is the first forum of which India has
been an active and key participant from the very beginning, having for
long been used to looking from the outside into the inside when it
came to a seat on the high table in key multilateral forums such as
the United Nations Security Council and regional trade groupings.
The G-20 forum of finance ministers and central bank governors was
established in 1999 with the intent of creating a regular dialogue
with a constant set of influential partners. These are a mix of
developed countries and emerging economies, such as Brazil, China and
India. On an ex-officio basis, the head of the International Monetary
Fund as well as the World Bank also participate in the deliberations.
The clout of this group comes from the fact that together they account
for around 90% of global gross national product, 80% of world trade
and two-thirds of the world’s population.
The legitimacy of the body has grown exponentially in the wake of the
unprecedented economic crisis triggered by the financial sector
meltdown. And since India and China, which account for about $4
trillion of global economic output, escaped relatively unscathed from
the crisis, their status at the high table got a leg-up.
However, with growing evidence that the worst is behind the world—and
some quarters assiduously promoting the “green shoots” argument—there
are growing concerns that most members of G-20 would retreat to a
business-as-usual stance. If indeed this does happen then it will be a
return to status quo, something that is strategically not appealing to
India—especially since it is still in the waiting list for other
groupings, with key insiders such as China strongly opposing its
entry.
As a result, India has a vested interest in keeping the grouping
alive. But it should be careful about what it wishes for or at least
guard against being led into a trap. Especially since the developed
world’s desire to keep the grouping alive is premised on entirely
different reasons, most of which are not altruistic. The developed
countries, unlike in the past, haven’t had it easy at either the
United Nations Framework Convention on Climate Change (UNFCC) talks or
the World Trade Organization (WTO) negotiations. The moral hazard of
bulldozing their point of view is far less at G-20 as opposed to other
multilateral forums, which have a large number of impoverished
countries on board.
A visiting dignitary from the older and powerful block of Group of
Seven (G-7) countries recently disclosed that most developed countries
were keen to continue with the G-20 formulation. It is not surprising,
therefore, that there are efforts to load the G-20 agenda with fresh
items such as trade and climate change. Once these countries arrive at
a broad understanding, it will become infinitely easier to thrash out
a consensus at WTO and UNFCC.
That is precisely why India has to be careful. Being part of the high
table comes at a price—other members will not take kindly to
obstructionist tactics. It is easier for it to be isolated and it will
not have the leverage of the poor countries to use to its advantage.
Neither will the camaraderie of developing nations hold true at G-20.
This is all the more true because the Chinese, who have already spun
an alliance of convenience with the US, have the cunning habit of
running with the hares and hunting with the hounds. (See what China is
doing to India in its own backyard in the subcontinent by increasing
its naval presence in the Indian Ocean, steadily striking commercial
and political deals with Sri Lanka and Nepal to add to its already
established equations with a dangerous and near basketcase neighbour
such as Pakistan.)
Not surprising, therefore, that India has been assiduously going in
for an image makeover in the last few months. By hosting a mini-
ministerial of WTO this month, it signalled that it was not
obstructing more forward movement on trade negotiations. Similarly, it
unilaterally announced its intent to put in place emission standards
even while it argued that it was not altering its negotiating stance,
suggesting in the process that its principle was not a fig leaf to shy
away from commitments to curb global warming.
On the face of it, therefore, the government seems to have a game
plan. But like they say all plans are good till the battle begins.
Anil Padmanabhan is a deputy managing editor of Mint and writes every
week on the intersection of politics and economics. Comments are
welcome at capital...@livemint.com
Sid Harth
India, China most optimistic about economic recovery: EIU
Press Trust Of India / Mumbai September 29, 2009, 19:22 IST
Executives in India and China are the most optimistic about
sustainability of economic recovery, with six out of ten people
reposing their faith on the turnaround in the economy, says a survey.
"Companies in Asia are ambivalent about the apparent economic recovery
and India and China are the bright spots, where six out of ten believe
the recovery underway in their country is sustainable," the Economist
Intelligence Unit said in a report.
Across Asia, about one-third of respondents believe they are seeing a
sustainable rebound in their country. A sizable 27 per cent do not
even think there is a recovery, as per the report titled 'From
hindsight to foresight: Improving business transparency in the wake of
the financial crisis'.
However, Japanese executives were the most pessimistic, as 44 per cent
of respondents there have an opinion that the recovery will falter,
while another 44 per cent say there is no recovery in the country at
all.
The survey was conducted across 258 senior executives from Asia, in
the months of June and July 2009.
Faced with the ripples of the global economic downturn, executives in
Asia are focusing towards streamlining their internal operations in
order rather than investing in new markets or hiring new staff.
"Businesses should aim to take advantage of the downturn by acquiring
quality talent and assets, improving focus on innovation, reinventing
business models and looking for new markets," Economist Intelligence
Unit director of research Manoj Vohra said.
Half of the respondents said that their priority would be to
streamline existing operations and systems, only 24 per cent are
willing to hire new staff and only 31 per cent of respondents are
likely to make an acquisition over the next 12 months.
The survey further said that a majority of respondents are optimistic
that the changes they are making now would result in big gains when
the recession ends.
Seven out of ten respondents see a rise in revenues, 63 per cent
predict improvements in operational efficiency, and 59 per cent expect
increased market share.
They also believe that the various initiatives will improve risk
management capabilities (55 per cent) and transparency and reporting
(54 per cent), the report said.
Sid Harth
connect rural India and have all Panchayats connected with broadband'
Leslie D'monte & Kirtika Suneja / New Delhi July 7, 2009, 12:33 IST
One of the few young members of the UPA government, Sachin Pilot --
Minister of State for the Department of Information Technology (DIT)
-- has taken charge of this portfolio at a time when there are great
expectations from the information, communications and technology (ICT)
industry. In a chat with Leslie D’monte and Kirtika Suneja, the young
minister broadly outlines his vision for the industry even as he's
learning the ropes.
Edited excerpts:
How do you go about the task of sharing responsibilities in this
ministry?
A Raja oversees everything as cabinet minister. Gurudas Kamat is a
senior member and looks after telecom and I oversee IT along with
Project Arrow, the flagship programme of the postal department. So,
it's a team which requires collective effort.
So what's your vision for the IT sector?
IT refers to taking technology to untouched areas and making it
palatable to all. So, people across regions should have access to
technology-enabled quality services. We must make an effort to make
the life of the common man easy and less cumbersome. Though the
economic slowdown in many countries has impacted the Indian IT
industry, IT can still be a tool to combat that. The IT sector is
still employing people, and that is helpful.
Our aim is to connect rural India and, in three years, to have all
Panchayats connected by broadband besides achieving a rural density of
40 per cent (today it's just around 4-5 per cent). My idea of IT is
that a common man should be able to pay his bills and access his
records, among other things. The concept of IT should not remain
elitist or urbane.
How do you plan to go about this task?
There is a digital divide in our country and through the efforts of
the Centre for Development of Advanced Computing (CDAC), we are trying
to brigde it by making IT more accessible and amiable to localised
societies. For instance, our language initiative for making available
free software will end this year when these softwares will be availabe
in our 22 official languages. The rollout of 100,000 Common Service
Centres (CSCs) by next year is another initiative.
Till now, 40,000 CSCs have already been rolled out. Another initiative
relates to the interlinking of research and educational institutes
through the National e Governance Plan (NeGP). These are backed by the
government and are part of the objective to have all stakeholders on
board. These services make the entire process transparent and the life
of the poorest man better. However, the support of the state
governments is important here.
The CSC initiative is a Public Private Partnership (PPP) one and
requires local entrepreneurs. So local entrepreneurship gets a boost.
For instance, there are popular services that were not envisioned
before. The government provides the logistics support and bandwidth
for these projects but it's the entrepreneur who is finally
responsible for running the CSCs. We have discovered that most of
those who run the CSCs are local graduates besides small firms that
have take the task of running these centres.
But you surely need broadband for such services. Why is the government
slow in responding?
Yes. You surely need good highways for passenger traffic to move
smoothly. The rollout of broadband services can happen in 6-9 months
keeping in mind the interest of all stakeholders. This has to be quick
else most agendas will face some problems. Also, we have to make sure
that there is healthy competition and the government is having
deliberations on this.
But delays can affect India's status as an IT superpower...
I agree. India has talented human resources and that makes it a
superpower. However, more than being called a superpower, we must also
remain a superpower. With the (US and UK) protectionist policies, we
need to remain competitive by moving away from commoditisation of
services by offering services that the others can’t. This can happen
by more innovation and training.
Another way of remaining competitive is by having a large portfolio of
export destinations. We are looking at other markets like East Asia,
Japan, China, Africa and Europe. The government is fully committed to
ensure a conducive environment for investments, job creation and
growth as IT comprises around 5.8 per cent of GDP.
And what about the hardware industry which lags the software sector?
True. The hardware industry gives more opportunities for employment of
semi-skilled people. Hence, our focus is on creating a larger hardware
industry. We are on the job.
On the semiconductor policy front, have we given up on the idea of
having fab plants?
Not at all. The market conditions are important for this and we are
actively looking at the policy to encourage players in this space. The
global slowdown did affect the decisions of certain players as far as
investments, which are very high, are concerned. But I see matters
improving. Moreover, we have the technical expertise, so we will
surely look at India having semiconductor fabs. If Taiwan and China
can have these fabs, why not India?
Is the DIT pushing for an extension of the tax holiday under the STPI
scheme?
The STPI was a fruitful and successful initiative and the government
will ensure that growth takes place. It will provide all the
legislative and regulatory support to ensure growth.
Where does the domestic market feature in this scheme of things?
The domestic market is at $12.5 billion while the exports are $48
billion. Requirements at the domestic level are different from those
at the global level.
What are the other issues that you plan to tackle?
The Universal Service Obligation (USO) Fund is huge and can be
deployed at in many places like hilly areas and places where the
market couldn’t suffice. The roadmap for this is there but there are
delivery problems. Otherwise, there were issues in the border areas
for telecommunications but now, we have deployed towers on the border
areas of Kashmir and the North East till 500 metres.
The draft rules of the IT Act smack of internet censorship that may
not be all that desirable...
We are working on the draft rules and there will be a comprehensive
legislation to explain the law and best practices of foreign
countries. The laws are exhaustive and dynamic so that they can
incorporate the latest technological changes. It covers areas like the
security of strategic data, cyberterrorism and online fraud. Of
course, we are always open to feedback.
chhotemianinshallah
China faces 'big' uncertainties: World Bank chief
29 Sep 2009, 0321 hrs IST, AGENCIES
WASHINGTON: China faces major uncertainties even though it rebounded
strongly from the latest financial crisis aided by its huge treasure
chest, 10 most trade-friendly economies
World Bank President Robert Zoellick said on Monday.
"China's future is not yet determined," he said even though the Asian
giant effectively pump primed its huge economy and used various
monetary polices to weather the crisis that plunged the world into
recession.
Noting that China's rapid recovery was fuelled by an expansion of
credit, he said "this flood is now easing, and authorities are likely
to limit it further for fear of effects on asset prices, asset
quality, and eventually general inflation."
Credit expanded at a red hot pace of 26 percent of China's gross
domestic product (GDP) in the first eight months of 2009 and last
month, the stock market slumped partly due to concerns that banks had
been ordered to rein in aggressive lending.
"China still faces big uncertainties in 2010," Zoellick told a
Washington forum of the Johns Hopkins University.
He said Chinese leaders recognized the risks of the continued
dependence of China and other emerging economies on export-led
growth.
"It will not be easy for China to shift to increasing reliance on
domestic demand, especially to greater consumption that could help
balance world growth while contributing to China's goal of a more
'harmonious society,'" he said.
Zoellick cited China's protected service sector, including financial
services, saying it "limits opportunities for entrepreneurs and
increases in productivity."
But he pointed out that China's rapid recovery, on the back of more
than two trillion dollars of reserves -- the world's largest -- had
assisted other nations, underscoring its growing influence.
China also holds more than 800 billion dollars in US Treasury bond
investments.
The country's leaders have expressed concern over the status of the
dollar as a key reserve currency as the greenback weakened on mostly
ballooning deficits and debt.
Zoellick said China was moving towards gradual internationalization of
its yuan currency by making it easier for trading partners to do
business in it, for example, through currency swaps.
"We are likely to see this shift in the world of investment as well:
for the first time this month, China issued sovereign bonds in
Renminbi (yuan) to offshore investors," he said.
China on Monday launched the sale of six billion yuan (879 million
dollars) in government bonds in Hong Kong, the Chinese finance
ministry said, marking the first such offer outside the mainland.
China also recently announced that foreign companies will be able to
list their stocks in China, a step toward making Shanghai an
international financial center.
"As a major importer of commodities, one can imagine new benchmark
indices established at Shanghai or other Chinese ports, eventually in
Renminbi," he said.
But Zoellick felt Chinese leaders would be "cautious" as most of them
want to retain the control that came from a closed capital account.
"Financial and banking markets are likely to continue to be subject to
various tools of intervention and control," he said.
"Yet I expect China will be inevitably drawn outward. Over 10 to 20
years, the Renminbi will evolve into a force in financial markets.
chhotemianinshallah
China's 60th anniversary stirs pride, also unease
1 Oct 2009, 1316 hrs IST, AGENCIES
BEIJING: China celebrated its rise to a world power over 60 years of
Communist rule Thursday, staging its biggest-ever parade of military
hardware with over 100,000 marching masses in a display that stirred
patriotism and some unease.
Police blocked off a wide area around central Beijing's Tiananmen
Square for the 60th anniversary of the People's Republic. People were
told to stay away and watch the events on television, though that did
not dampen a festive air as residents gathered in homes and alleys.
President Hu Jintao, dressed in a gray Mao tunic instead of the
business suit he usually wears, reviewed the thousands of troops and
hundreds of tanks and other weaponry, shouting ``Hello, comrades''
while riding in an open-top, domestically made Red Flag limousine.
During the two-hour-plus festivities, more than 100 helicopters,
communication airships and Chinese-made fighter jets flew over the
city in formation.
After the armaments, 60 floats celebrating last year's Beijing
Olympics, China's manned space program and other symbols of progress
rolled by as tens of thousands of students flipped colored cards in
unison to make pictures of lucky symbols and spell out political
slogans.
The events were meant to underscore what Hu called the ``great
rejuvenation of the Chinese nation.''
We ``have triumphed over all sorts of difficulties and setbacks and
risks to gain the great achievements evident to the world,'' Hu later
said standing atop Tiananmen gate in a speech that referred to his
Communist Party predecessors and China's success. ``Today, a socialist
China geared toward modernization, the world and the future towers
majestically in the East.''
The feel-good, if heavily scripted moment tapped into Chinese pride
surrounding the country's turnaround from the war-battered,
impoverished state the communists took over on Oct. 1, 1949 to the
dynamic, third-largest world economy of today.
``This shows the world that we are now strong, not only in living
standards but that our military power has also improved,'' said Peng
Jinzhi, a 79-year-old retired hairdresser who was listening to the
parade on the radio in an alley north of Tiananmen.
The buoyant mood glossed over the country's gut-wrenching twists _ the
ruinous campaigns of revolutionary leader Mao Zedong that left tens of
millions dead _ as well as its current challenges: a widening gap
between rich and poor, rampant corruption, severe pollution and ethnic
uprisings in the western areas of Tibet and Xinjiang.
Security in Beijing has been intensifying for weeks over worries that
protests, which are common in China, or an overexuberant crowd might
mar the ceremonies. Parts of central Beijing were sealed off and
businesses were told to shut down beginning Tuesday. Flights in and
out of Beijing's international airport were suspended Thursday
morning. An intensive cloud-seeding operation helped clear away the
smog that had shrouded Beijing for two days.
``How many hundreds of millions are being spent on the National Day
troop review? Can you tell the taxpayers?'' prolific blogger Li
Huizhi, a small businessman in southern Guangzhou city, wrote on his
popular blog Sunday. ``Aren't the possibly tens of billions in money
spent perhaps a bit of a disservice to the people? Because in today's
China, there are countless places more in need of this money.''
Explanations vary for why such elaborate festivities are being staged.
Sixty is an auspicious number that plays well with Chinese who say it
traditionally represents the full life of a person. The country's
leadership has avoided mention of anything to do with superstition,
though.
The government has customarily held military parades on 10th
anniversaries. With China riding high in the world and feeling good
about itself after the Beijing Olympics, the 60th was the Hu
leadership's chance to score popularity points.
Early this year, before China's economy rebounded from the global
downturn, authorities promised only a modest celebration in keeping
with the gloomy times.
The parade is now billed by state media as China's largest-ever
display of weaponry, reminiscent of the Soviet Union, and came with
the mass synchronized performances usually associated with North
Korea. Alongside the 80,000 card-flippers, another 100,000 civilians
accompanied the floats, many of them with kitschy displays of
computers and signs of industry. Floats carried huge portraits of the
communist pantheon: Mao, reform architect Deng Xiaoping and even Hu _
an unexpected appearance for a normally reserved leadership.
Some 5,000 goose-stepping troops who rehearsed for as long as a year
accompanied the armaments _ new unmanned aerial drones, amphibious
fighting vehicles and new DH-10 land-based anti-ship cruise missiles.
``I wonder what Chinese leaders are thinking? For more than 15 years
they have been denouncing those who call China's rise a threat. Now
they put on this display of military hardware, with goose-stepping
soldiers to match. Aren't they confirming the China Threat?'' said
Minxin Pei, a professor of government at Claremont McKenna College in
California.
The People's Liberation Army in its newspaper early this year said the
event's meaning was clear: ``This military parade is a comprehensive
display of the Party's ability to rule and of the overall might of the
nation.''
Geremie Barme, a China scholar at Australian National University who
has studied past National Day parades, said the displays are typically
aimed at the domestic audience _ Communist Party officials and
ordinary Chinese. ``It is meant to educate, excite, unite and
entertain. If a tad of 'shock and awe' is delivered around the world,
all well and good,'' he said.
bademiyansubhanallah
Obama puts Russia on threat list_ Cold war is back?
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chhotemianinshallah
Jason Bush
October 2nd, 2009
Russia’s pensions timebomb
This week, Russia submitted its annual budget for next year to
parliament. Although finances are tight, there’s one group of Russians
that has reason to celebrate. Pensioners are set to receive a dramatic
50 percent increase in the average pension, which will rise to around
$280 a month by end-2010, on top of a 25 percent increase this year.
While welcome news for the elderly, who have long scraped by on tiny
pensions, the generous hikes will only serve to exacerbate a looming
problem. Russia already faces a gaping hole in its pensions budget,
and this is set to mushroom alarmingly.
Next year, Russia’s State Pensions Fund will officially run a deficit
of some $40 billion (2.4 percent of GDP), but the Fund’s actual drain
on the budget will be more than double that (5.3 percent of GDP),
because many categories of expenditure are not included when
calculating the deficit.
Longer-term, the outlook is even more alarming. Russia’s population is
shrinking, so there are fewer young people joining the workforce than
retirees leaving it. The ratio of workers to pensioners is expected to
decline from 1.7:1 today to 1:1 by 2030. The rising pensions burden
means that the years of healthy Russian government finances may
already be history. In a recent report, investment bank Merrill Lynch
predicted that “a chronic budget deficit,” averaging 3-4 percent of
GDP, would remain for the next decade.
The only long-term solution is radical reform of the pensions system.
If Russians could be encouraged to save more in privately-managed
pensions funds, that would take some of the pressure off the
overstretched state budget. The development of private funds would
also perform another vital function: providing stable long-term
funding for Russia’s fragile capital markets.
The good news is that Russia’s policy-makers have long acknowledged
these arguments, and pension reform is once again coming under the
political spotlight. The bad news is that, as is often the case in
Russia, translating theory into practice is a lot easier said than
done.
The irony of the present debate is that Russia has already tried once
before to carry out a radical pension reform. In 2002 it introduced
the so-called “three-pillar” model, based on Chilean experience,
whereby the state pension is supplemented by privately-managed funds,
both mandatory and voluntary. But the reform can only be described as
a disappointing flop.
To date, private pensions funds have only accumulated around $25
billion — a drop in the ocean compared to future pension liabilities.
Only around 5 percent of Russians who had the option have chosen to
transfer part of their mandatory pension contributions to private
management.
The problems are partly cultural: Russians traditionally distrust
financial institutions and are reluctant to make long-term savings.
But the disappointing results also reflect a lack of supporting
measures, which suggests a lack of political will.
Very little has been done to promote the reform, or explain its
advantages to the Russian public. Meanwhile private asset managers
complain that the regulatory framework makes it too difficult to build
a profitable business. For example, fees are capped at 15 percent of
annual investment income (on average the figure is closer to 40
percent in the West ). Anybody who opts to transfer their mandatory
pension contributions to private management faces an average
bureaucratic delay of 18 months, according to the Association of
European Businesses in Moscow.
Major international providers of financial services, whose presence
would add credibility to the reform, are also deterred from entering
Russia by restrictions such as 25 percent cap on foreign capital in
the insurance sector. The majority of Russia’s 169 non-state pension
funds are instead tiny local players that don’t inspire public trust.
A recent poll showed that 41 percent of Russians believe that private
pension funds are “thieves”.
It’s encouraging that Russia’s politicians are at least talking about
kick-starting the stalled reform. The trouble is, when Prime Minister
Putin refers to “pension reform”, he most often seems to mean the
hugely popular (or populist?) hikes in the state pension, which only
add to the underlying problem. Without measures to boost the ailing
private pensions industry, Russia will eventually have good cause to
rue its recent generosity.
chhotemianinshallah
Now raising intellectual capital
13:18 September 21st, 2009
Why Russia needs America
Posted by: Jason Bush
In the wake of President Obama’s decision to scrap the U.S. missile
defence shield in eastern Europe, many are pondering Russia’s
response. The relationship will remain in the spotlight this week,
when President Medvedev heads to the U.S. for the G20 summit. Although
the precise nature of Russia’s reaction remains to be seen, it has a
big incentive to improve relations. It badly needs American investment
and co-operation to help solve serious economic problems at home.
Critics of Obama’s decision worry that it will “embolden” Russia,
causing more aggressive behaviour abroad. Yet they forget that the
Bush administration’s antagonistic policies failed to provide security
to Russia’s neighbours. These policies didn’t prevent Russia’s war
with Georgia, the repeated gas disputes with Ukraine, and a serious
cooling of relations with countries such as Poland. Far from being
restrained, Russia’s confrontational attitude had a lot to do with its
perception that the U.S. was busy encircling the country with missile
bases and alliances.
The critics also imply that Russia is preoccupied with external
expansion, but that hardly seems appropriate today. Russia’s GDP is
set to plummet by 8 percent this year. Russian analysts estimate that
the country needs up to $2 trillion to renovate its dangerously
clapped-out infrastructure. In major industrial cities, Russia’s
dilapidated factories are mulling huge job losses. For the foreseeable
future, Russia’s leaders are likely to be preoccupied with thorny
domestic problems.
Faced with such daunting challenges, it’s entirely logical that both
Medvedev and Putin say they are keen to kick-start American trade and
investment. Responding to Obama’s decision — which he described as
“brave and correct” — Putin immediately linked it to economic issues.
He called for the U.S. to back Russia’s entry into the World Trade
Organisation (WTO), and scrap Soviet-era trade restrictions against
Russian companies, especially those that regulate technology transfer
to Russia.
On the same day, at an investment summit in Sochi, Putin held well-
publicized meetings with the CEOs of General Electric, Morgan Stanley
and Texas Pacific Group — all major U.S. companies. When it comes to
the economic sectors that Russia says it is most eager to develop,
American investment will be especially crucial. The crisis has
underscored the need for Russia to wean itself off dependence on
natural resources, and develop new high-technology sectors, such as IT
and nanotechnology, where U.S. companies are at the cutting edge.
This means that the U.S. still has plenty of bargaining chips left as
it seeks to gain Russia’s cooperation on global issues. The bigger
problem could be persuading U.S. investors to come. No matter how much
Russia’s leaders appear to welcome foreign investment, there remain
huge obstacles, including corruption and bureaucracy, which they seem
largely powerless to deal with.
Nor does the tentative thaw mean an end to diplomatic tensions.
Russia’s relations with its immediate neighbours may well remain
stormy, potentially causing renewed strains with Washington. Still,
it’s hard to argue that by extending his olive branch to Russia, Obama
increases the likelihood of such upsets. The evidence of the last few
years implies just the opposite. The frostier Russia’s relations have
been with the U.S., the more determined Russia has been to resist U.S.
encroachment in nearby countries, increasing regional tensions.
Now, Obama’s gesture has opened up the possibility of a fresh start,
creating prospects for mutually beneficial economic cooperation. The
Russians would be foolish not to jump at that opportunity.
September 24th, 2009
9:52 pm GMT
Let’s remember…..Russia invaded Poland with the Nazi’s. Let’s remember
that and if we ignored the Soviet Union…it may have been from these
“compulsions:”. And just as a side note…how many of his own people did
Stalin kill?
- Posted by 300grm
September 24th, 2009
9:40 pm GMT
It’s hard to change your ways when everyone involved grew up in the
Cold War.
- Posted by Matt K
September 23rd, 2009
12:23 pm GMT
Dear friend, good and an interesting article from you. Whatever you
said is partially true. Please go back to second world war history,How
Russia,U.K.and America had joined as a powerful allies for elimination
of Hitler!s world occupations.
America and U.K.had ignored Russia in the initial stages of world war
second, then due to compulsions, they have included Russia into their
allies.
Then, power of influences have changed and indirectly shared by
stronger economic,social and political set up. I do not think
that,Russia wants America for greater extents. Of course,Russia is
facing some domestic economic pressures on account of poor patronage
to modern IT and latest communication sectors. Russia has huge energy
resources,some disciplined labor power,and America have tremendous
advantages in IT and Communication latest updates.
Now,American President wants to try of his new,latest approaches for
world burning problems with Russia and other super powers. This is
like barter system in old schools of thought,mutual understanding and
mutual cooperation in modern school words for both either maintaining
or enlarging or for world eyes.
- Posted by krishnamurthi ramachandran
September 22nd, 2009
9:27 pm GMT
I don’t beleive that the US changed their strategy (by deciding
against the old system and putting a mobile system in place) with much
of a thought to the Russians except maybe what their reaction would
be. They changed the strategy to better address what needed to be done
against rogue missiles.
The fact the Russians like the idea is a side-effect.
Even if the US were to disappear into a black hole, the remaining NATO
members would remain the most powerful military block in the world.
Russia, with a large shared border with China to stare at and internal
problems galore does not seem an aggressive threat - though it
certainly seems to defend its assumed interests aggressively.
Ongoing border and business issues with former members of the old
Soviet Empire are my prediction.
The best the Russian military could do in a large conflict is to hold
together long enough to fling catastrophic missile damamge on its
enemies before collapsing… and who wants to have a lose-lose war
unless you have to?
- Posted by corvus
September 22nd, 2009
5:58 pm GMT
I am also Alex and lived in Russia 35 years and also against my will.
Spent 11 years trying to leave the country, hated its politics and
hated when they won’t allow me to leave.
BUT.
1. That does not make me a blind. I distinguish between my personal
attitude toward the country and my ability to see how the West
stupidly breaks its own promises and pushed Russia back toward the its
authoritarian past. I blame Daddy Bush, because in early 1990-ies when
Russia was well on the way out of its past he made the country suffer
economically and basically wanted to show the Slavs their place… I
think his Germanic roots and the fact that Bush family had major stake
in Nazi economy that was destroyed by Russian military at th eend of
WW2 played major role in the emotional make up of such decision on his
part, but I have no proof to that.
Russia is a land power, not sea power like England and the US, it is
not surrounded by a natural barrier against invasion like sea powers
and naturally has a completely different attitude toward the security
of its borders. That is their biggst concern, was is and always will
be, as log as dichotomy between land powers and sea powers exist.
With Gorbachev trusting Reagan and his promises not to bring NATO
closer to Russian borders a new situation was created where Russians
dropped their suspicions and opened up almost overnight. But the West
stupidly broke its promise for a quick political gain and Russia’s
worst nightmare having NATO right on its borders did happen. So, do
not blame them for rebuilding their defensive and oversuspicious
stance.
They are 100% justified not to trust the West - you hear it from me, a
man spent good part of his life fighting and hating commies and who
was arrested in 1980 for sending Reagan a congratulatory telegramm
from Main Post office in Leningrad (now Saint Petersburg).
Alex Chaihorsky (my real name)
Reno, Nevada.
- Posted by Alex Chaihorsky
September 22nd, 2009
11:20 am GMT
I have a question in return: when did Russia ever receive anything in
return for its services to US foreign policy? USA and NATO behave like
the alpha male who jealously guards its entitlement to the best bits
and pieces, and meets any challenge to its position with aggression.
Let’s not fool ourselves: Russia does not need anybody when it manages
to get organized.
From times immemorial the Germanic nations - these days called “The
West” and the Slavic nations are hereditary arch foes. Synergy between
the two antagonists simply does not exist. Which does not imply that
trade relationship are impossible. In fact, Russia has always been a
reliable supplier - even in dire times and shortly before one of the
Germanic nations launched an attack. There are plenty examples in
history. I hate to say, that for Russia any alliance with any Germanic
nation forebodes a new war. If it keeps its defenses up - it is the
only thing that makes sense. Temptations to conquer Russia’s natural
resources are simply too big.
- Posted by cloggy
September 22nd, 2009
8:48 am GMT
It is good to see participation from other continents. If Russia is
allowed into NATO, it would not be NATO anymore. We are already living
in World War 3: terrorism, rebels, warlords and gangsters.
Is Russia really not part of the WTO ? That would be odd.
- Posted by Casper Lab
September 22nd, 2009
7:55 am GMT
I understand the russians. their situation repeats everywhere in the
world these days. The recession left us lots of half-broken companies
and bad-payers. The already problematic corruption in business is
increasing. You can’t trust anyone!
I invite you to register in http://www.company-info.biz where
companies from all around the world are trying to create a more
transparent B2B environment by ranking each other according to their
liability, respect for payments, common business experiences, and so
on. I think it’s a good way to promote fair companies and unmask bad
payers, and make your business known at the same time.
- Posted by Lidiana Moldovan
September 22nd, 2009
2:26 am GMT
The Soviet Union may have collapsed.
But the same people are still in charge of Russia. The same government
forces control the economy. The same nationalism is portrayed by the
media. The same cult of personality is held by a ‘fearless leader’.
Reporters still fall out of buldings. And the same old ‘threat
diplomacy’ which started back in 1950 is used today.
Those who think Russia should be in NATO have completely lost the
point. NATO was created to protect Europe from Russia and it’s allies.
And this is why NATO still exists today.
Of course, there is little chance that Russia and NATO will duke it
out in Europe. Instead, the battles are subtle. Like Russian anti-air
missiles and nuclear material heading to Iran. Or armed terror groups
somehow getting their hands on a cashe of sophisticated anti-tank
missiles. And of course, the ever present VETO vote in the security
council which protects Iran and North Korea from global action.
Georgia was the wake-up call. When Russia just happened to have a
whole army on Georgia’s border, ready to respond within 24 hours of
initial Georgian movement.
Make no mistake, Russia is not a friend. Any cooperation between it
and the West is simply a frosty charade, put on to keep people from
thinking the cold war is back.
- Posted by Anon
September 22nd, 2009
12:45 am GMT
I agree with Dr. Gonzo.. having been in the US military establishment
for about 20 yrs, I have to admit that bringing or at least the offer
of allowing Russia admittance to NATO would definitely be something to
see.
If Russia completed the process of gaining admittance to NATO, that
would certainly shift power in the world. Of course it would also
lessen the power that the US would be able to wield within NATO and
the US defense crazies would never stand for it. They need someone to
make the US general population fear out of stupidity. They have had
over 40 years to try to prove that the Russian people are ‘bogey
men’.
The Russian people are no more ‘bogey men’ than Americans are ‘bogey
men’ to Russians.
But… hey, if politicians would stop telling everyone that someone
hates them, politicians would have to do teh really hard work… like
fixing the things that have broken down in this country for the past
40 or so years.
And, everyone knows how AMericans never want to fix something or
repair something, but we sure as hell can give our money away for war
in a ‘new york minute’ and send an new generation of young Americans
off to die in stupid wars like we have done in both ‘gulf offenses’.
yeah, I called offenses, not wars because it’s a siumple fact of US
law that ONLY the US congress can declare WAR. our pres can call it
whatever he wants to call it but it’s still war and the last 3 wars we
havent gotten anything good from it.
- Posted by acer18
September 21st, 2009
9:59 pm GMT
The author’s argument that the Russian Government needs American help
to help the Russian People live better sounds hilarious if you have
ever lived in Russia. The only thing the Russian Government cares
about is the Russian Government. The Russian Government has killed
more Russian People than all external forces combined, but always
manages to direct the anger of the mobs at a mythical monster which is
currently called the “American Jews who rule the world”. Diplomacy my
foot.
- Posted by Dr Chernobyl
September 21st, 2009
9:37 pm GMT
It is funny to read about Russia needing American or foreign
investment for development. The economies of all the countries of the
world are suffocating from overcapacity and consumer demand is not
coming back any time soon, so what is anybody going to develop and
invest into? US does not need more development and neither does Russia
or Japan for that matter. We need to deflate.
- Posted by Sammy
September 21st, 2009
9:36 pm GMT
Alex’s view is completely outdated. 33 years ago that might have been
the case.
Things in the world have change a bit since then. Nations to be feared
have changed.
- Posted by Alfonso
September 21st, 2009
9:30 pm GMT I
second Alex and Nina.
Author is so naive in his analisis and lack of udersanding of Russian
history and mentality.
I would recommend watching/reading some Russian language media for
start.
- Posted by PwlM
September 21st, 2009
9:12 pm GMT I
second Alex.
- Posted by Nina
September 21st, 2009
8:48 pm GMT
The article seems to confuse technology investment and technology
products. Today, there are plenty of places where Russia can source
technology products besides the U.S., such as Europe or several
countries in APAC. This is an easy one because Russia has plenty of
cash. In terms of technology investment, Russia needs make its
corporate law enforceable so that long-term investments can be
protected. This type of change cannot be ‘imported’ - it has to come
from within.
- Posted by Sergei
September 21st, 2009
8:18 pm GMT
Russia has the best refinery gas in the world and provide to the whole
of european union. USA is only loser with bernard madoff and allen
standford
- Posted by Hilbar Choen
September 21st, 2009
8:16 pm GMT
Naive author could spend some quality time learning Russian history
before appealing to cooperation with that country. Nothing has and
nothing will ever change for the country brilliantly called once an
Evil Empire. Just give them the technology they want and help them
revive their economy - in no time half of the Europe will be under
their boot again. I know what I am talking about - I lived there for
33 years (against my will).
- Posted by Alex
September 21st, 2009
8:13 pm GMT
Russia don’t need USA, because them reach their economy growht bases
in the socialism
- Posted by Eric Patton
September 21st, 2009
7:57 pm GMT
surely its America who needs Russia? after all, they purchase large
percentages of US debt, not vice versa…if Russia decided tomorrow that
they wanted it back, it would be America not Russia on the ‘under-dog’
bench.
- Posted by Rob
September 21st, 2009
7:56 pm GMT
Keep your friends close … and your enemies closer. Want to stop Iran
from developing a nuke, want to get Korea to behave for once; invite
into the fold. Economic imperialism is more cost effective and more
persuasive then any threats we might make. And lets be honest, the US
is not about to engage in a 3rd war.
- Posted by Juls
September 21st, 2009
7:25 pm GMT
We are missing the point here about Russia (I’d still like to call
them the Soviets, but they are not.)
They have a big missile pointed towards them in the way of NATO.
That’s what scares them. Though not many in the present government
over there are old enough, there is still the stigma of WW2 hanging
over their head; how a small nation like Germany, properly motivated,
really decimated their country. Which was the reason Stalin took so
many buffer nations (the Balkans, East Germany, etc.) They lost 20
million people in that conflict and messed up their economy big time.
How can they not be wary?
Then here comes the West, after the Cold War, and sets up a missile
shield that they probably think is offensive. Do they believe us? Did
they believe Adolph back in 1940?
The Russians are not a threat anymore. At least not in Cold War way.
We have way more to worry about the Chinese, the Iranians, Korea and
the like. Mind you, they are bankrupt and corrupt, but they sure as
hell don’t want to lock it up with the West.
Why not invite them into NATO? What would tickle them more and put
them at ease than that? It would also open up their borders more and
any weirdness they might be contemplating would be easier to identify.
Putting the Russians in NATO would be a big threat to Iran, Pakistan
and the Chinese. It would scare the hell out of me!
I believe this is where we must go. But it seems our industrial-
defense companies still expect us to see a boogie man in the Russians.
We wouldn’t have to spend billions of dollars on their hardware, and
they’d have to sell something else to someone else.
Dr. Gonzo
- Posted by Dr. Gonzo
September 21st, 2009
7:23 pm GMT
Russia has a long and storied history of doing the things foolish.
- Posted by Rick Wood
chhotemianinshallah
China’s September Car Sales Rise 84%, Top 1 Million (Update3)
By Bloomberg News
Oct. 13 (Bloomberg) -- China’s monthly passenger-car sales passed 1
million units for the first time, signaling that the government may
ease stimulus measures in the world’s largest auto market so far this
year.
September sales of cars, sport-utility vehicles and multipurpose
vehicles climbed 84 percent to 1.015 million, the China Association of
Automobile Manufacturers said in an e- mailed statement today. Overall
vehicle sales, including trucks and busses, rose 78 percent to 1.33
million units.
General Motors Co. Chief Executive Officer Fritz Henderson said today
that China’s auto sales will continue growing at “a very significant
pace” as the nation’s recovering economy spurs demand. The pace of
growth may prompt the government to halt tax cuts and subsidies to
prevent overcapacity.
“It may end them to prevent the industry from growing too quickly,”
said Chen Liang, Nanjing-based analyst of Huatai Securities Co. The
government is “probably worried that strong auto demand would put
pressure on energy and raw-material supplies.”
The government cut vehicle taxes and introduced auto subsidies in
rural areas earlier this year after demand plunged on the global
recession. Industrywide car sales have now risen more than 35 percent
for six straight months, including a 90 percent jump in August.
GM Sales Double
GM, the largest overseas automaker in China, more than doubled
September sales from a year earlier to 181,148 vehicles. In the first
nine months, it sold 1.29 million, surpassing the tally for the whole
of 2008.
“I don’t think for a second that it’s a blip,” Henderson told
reporters today in Shanghai, referring to the overall market growth.
“China will continue to grow at a very significant pace.”
Bayerische Motoren Werke AG’s sales in China rose 32 percent to 62,394
during January-September, with the BMW brand’s deliveries reaching
59,400 and the Mini division’s sales reaching 2,934, according to a
company statement. China is now BMW’s biggest market after Germany,
the U.S. and the U.K., it added.
A credit boom and a 4 trillion-yuan ($586 billion) stimulus package
helped China’s economy grow at a 7.9 percent annual rate in the second
quarter. The country will stick to a “moderately loose” monetary
policy and guide reasonable loan growth to further cement its economic
recovery, the People’s Bank of China said in a Sept. 29 statement. It
will also continue to implement stimulus measures to boost domestic
demand, the bank said.
Full-year vehicle sales may rise 28 percent to 12 million, based on a
forecast made by Chen Bin, chief director of the industry coordination
department at the National Development and Reform Commission, last
month.
Chen also said that carmakers should “keep their heads” to prevent
overcapacity as it was unclear whether growth was sustainable in the
longer term.
For the first nine months, China’s passenger-vehicle sales rose 42
percent to 7.2 million units, while industrywide vehicle sales rose 34
percent to 9.7 million. By contrast, U.S. sales fell 27 percent to 7.8
million vehicles.
Last Updated: October 13, 2009 07:32 EDT
Sid Harth
Sponsored Link:
7 Reasons China Will Lead the Global Economic Recovery
By Sid Riggs
Contributing Editor
Money Morning
The recent 21% tumble in the Chinese markets had investors around the
world bailing out of China as fast as they could. But, this sell-off
actually created one of the biggest buying opportunities of a
lifetime. Here’s why China is poised to take off – and how to cash in
as China leads the global economic recovery.
August 2009 was one of the worst months ever for the Chinese stock
market, with stocks dipping 21%. But the major sell-off wasn’t based
on any fundamental news – it was a case of frightened investors
worried that China is the next bubble.
The truth is, China’s fundamentals are sound. Chinese consumers are
accelerating their purchases, exports are growing and Chinese GDP is
on track to grow 7.9% by year-end. This is no bubble – Chinese stocks
don’t have anywhere to go but up.
Don’t let western bias fool you. It is not the U.S. that will lead the
global recovery – it is China and other emerging economies.
China’s markets are for real – and so are the returns. Over the last
five years, China’s markets have returned over 100% – even after the
massive sell-off caused by the global financial meltdown. Over the
same time period the S&P has actually lost money.
This is just the beginning. This report will show you seven reasons
the Chinese economy has nowhere to go but up – and how to profit.
1. Incredible GPD Growth Driving Returns
On July 15, 2009, China’s National Statistics Bureau affirmed what
we’ve expected all along. China’s 2nd quarter GDP came in at an
impressive 7.9%. Recently, HSBC China economist Qu Hongbin went a step
further, forecasting that the Chinese economy will grow 8.1% this year
and expand to 9.5% in 2010. The increasing GDP numbers reflect that
China’s recovery is much broader and more robust than most western
analysts originally gave the red dragon credit for. This impressive
growth comes not only from China’s massive $586 billion fiscal
stimulus package, but from strong growth in consumer demand.
2. China Can Stimulate Its Economy Without Going into Debt
While the U.S. has had to print trillions of dollars to attempt to
stimulate its economy, China’s story is much different. With $2.3
trillion dollars in reserves, China has been able to strategically
stimulate their economy -without having to deficit-spend to do it.
Even though the $586 billion Chinese stimulus package passed in
November 2008 represents a whopping 16% of the country’s GDP, China
hasn’t had to go into debt or print money like the U.S. did. This
gives China an incredible opportunity to shore up the economy without
damaging its future economic prospects.
3. China is Funding Global Growth
When the International Monetary Fund (IMF) announced they were
considering issuing $50 billion in bonds to better finance aid to
countries struck by the global financial crisis, they turned to China
to purchase them. How times have changed. Two decades ago, the IMF
would have been calling the U.S. to help fund the recovery. But with
the U.S. economy crippled, China is the only industrial economy in the
world that has enough reserves to actually do anything. Of course,
China’s willingness to assist the IMF is both humanitarian and
shrewd. As IMF Managing Director Dominique Strauss-Kahn said, “The
crisis is certainly an opportunity to reshuffle the IMF’s governance,
to see the new balance of powers in the world.” Clearly, China’s
extensive reserves give the country the opportunity to exert its power
over the entire new world economy.
4. China is Moving the World Away from the U.S. Dollar
Not only is China taking advantage of its economic strength to gain
leverage in the IMF, it is also pushing for a move away from the U.S.
Dollar as the world reserve currency. As the largest holder of U.S.
dollar reserves in the world, China has a lot of reasons to be
concerned with the value of the U.S. dollar. Chinese officials are
watching very closely as Washington desperately spends to resuscitate
the U.S. economy. In an effort to diversify away from the U.S. dollar,
China has been buying gold, oil, and other dollar denominated
commodities necessary for its growth. If the value of the U.S. dollar
declines, the value of China’s new assets will increase. In one easy
step, China has not only helped its strategic growth, but it also
created a hedge against Washington’s shenanigans.
5. China is Creating a Marketplace for its Currency
Since December 2008, China’s central bank has signed bilateral
currency swap agreements with six different countries – including
Argentina, South Korea and Indonesia – worth $95 billion dollars. The
countries that participate in these swap agreements can use Chinese
yuan to buy goods and services in China. With these agreements, China
has created a market for its currency without ever having to put it
into the open market. China will likely continue to extend these swap
agreements with as many countries as it can, until one day the world
wakes up and realizes China has created a global marketplace for its
currency without playing by the rules.
6. China Has Room to Grow
While we in the West grapple to keep up our inflated standard of
living, China still has plenty of room to grow. Annual per-capita
income in China is only $6,000 – compared with $47,000 in the U.S.
The sheer size of China (1.3 billion people) and its increasing
prosperity is an enormous force that can’t be ignored. Remember,
China is not some backward third world economy. It is currently the
third largest economy in the world. China’s economy will surpass that
of the United States by 2035 and be twice its size by mid-century,
according to the Carnegie Endowment for International Peace.
7. Global GDP Growth is Shifting East
As the global markets begin to mend themselves we will see global GDP
share move from the west to Asia – led by China. The U.S., Canada, and
Europe will only account for 49.4% of global economic output in ‘09,
according to the Center for Economics and Business Research. Not only
that, Western economies will decline to just 45% of global economic
activity by 2012 – far ahead of the original estimates that predicted
the West wouldn’t fall below 50% until 2015.
As China’s share of global GDP rises, so does its share of the global
markets. From the end of 2003 to the end of July 2009, the NYSE’s
share of global market cap shrunk 29%, according to the World
Federation of Stock Exchanges. Over the same time, the Shanghai Stock
Exchange increased its share of global market cap by 636%. In
addition, by 2020 – just 11 years from now – China’s share of global
consumption will be equal to that of the United States. That’s what
happens when you introduce a prosperous economy to a population of 1.3
billion people.
How to Invest in China:
Not all Chinese companies are created equal, so we prefer using ETF’s
to play the entire trend instead of choosing any individual
companies. Remember, the ride won’t be straight up – China will have
hiccups. But, we are staring at the leading edge of the investing
opportunity of a lifetime and you don’t want to be left on the
sidelines.
One of the most popular ways to invest in China is through iShares
FTSE/Xinhua China 25 Index (FXI), but I prefer PowerShares Golden
Dragon Halter USX China (PGJ). PGJ has a more broadly diversified
portfolio of companies and sectors, with no more than 28% of the
entire holdings in any one sector, and no more than 5.46% of the
entire holdings to any one company. FXI on the other hand, has
concentrated 51% of their entire holdings in the financial sector, and
as much as 9.3% of the entire holdings in one company (China
Construction Bank Corporation). That may prove be to genius over time,
but as a measure of the entire Chinese market, we feel PGJ offers
better diversification.
If you like income, take a look at Templeton Dragon Fund Inc. (TDF)
which is yielding 6.8%. Managed by legendary emerging markets fund
manager Mark Mobias, TDF is a closed end fund focusing mainly on China
(58.4% of holdings), but also on neighboring Hong Kong and Taiwan
(29.9% and 11.4% of holding respectively).
If you have the stomach for more a little more risk, look at Claymore/
AlphaShares China Small Cap (HAO). The name “small cap” may be a
little misleading. This fund is more of a blend between mid-cap and
small-cap stocks. The fund is very well diversified between the
different critical sectors in China and no single company represents
more than 2.6% of the entire funds holdings.
Sid Harth
China Surprisingly Strong GDP Growth 7.9%
Posted by: Frederik Balfour on July 16
China’s GDP growth clocked an impressive 7.9% in the second quarter,
surpassing economists expectations about the Chinese economic
recovery. There is even now talk of a V-shaped recovery, which just a
few months ago looked at best like a U-shaped rebound after 6.1%
growth in the first quarter, the worst performance in a decade. No
doubt the latest economic good news published by China’s National
Statistics Bureau on July 15 will lead to yet another flurry of GDP
upward revisions of China’s growth path.
HSBC China economist Qu Hongbin wasted no time in upgrading his
figures: he reckons the Chinese economy will grow 8.1% this year and
GDP expansion will accelerate to 9.5% in 2010. Previously he called
for 7.8% and 8.1% in 2009 and 2010. His bullish upgrade for next year
suggests the Chinese recovery will be far broader and deeper than most
expected, evidence that growth will be sustained not just by the
massive $586 billion fiscal stimulus package, but by strong growth in
consumer demand.
Jing Ulrich, chairman and managing director of China Equities at JP
Morgan (JPM) said in a note to clients today that “Despite the global
economic downturn, China’s economic recovery will continue in the
second half on the strength of the government’s fiscal stimulus and
loose monetary policy. Recovering property investment and buoyant
consumer spending suggest that these policies are proving effective at
bolstering domestic demand at a time when exports remain structurally
fragile.”
Officially, the Chinese government is still forecasting 8% growth for
2009, down from last year’s 10.6%, but still a remarkably strong
performance given the plunge in exports, a key growth driver in the
past. But there’s mounting evidence that China’s long cherished goal
of on the back of local consumption. Take the auto market. At the
beginning of the year the industry association was predicting a
contraction in auto sales on the back of an anemic (for China) 6.7%
growth last year. Instead, the China Association of Automobile
Manufacturers on July 7 reported a whopping 17.7% increase in sales to
6.1 million vehicles, and is predicting this year’s sales could even
top 12 million. For instance, General Motors sales through its joint
ventures rose 38% in the first half to 814,442 vehicles.
The strength of the property sector has been another big surprise.
Property sales were up 53% in the first six months from a year
earlier, according to a survey commissioned by the statistics bureau
and published in the China Information News, while nationwide prices
averaged across 70 cities climbed year on year in June. This masks the
fact that in second and third cities prices have been strengthening
much more. Property normally accounts for about 25% of fixed asset
investment in China and is a key form of wealth holding for most
Chinese. Optimism about housing prices will translate into greater
consumer confidence.
However China’s stimulus efforts still carry risks. New lending was up
a whopping 201% during the first half of more than $1 trillion, equal
to nearly one quarter of GDP, part of the reason why the Shanghai
stock market is up nearly 75% this year. Easy money means some
marginal investment projects that commence when interest rates are low
may run into difficulties down the road when monetary policy tightens.
TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/14956.1284812340
Reader Comments
Cooked economic data
July 16, 2009 07:53 AM
Do you know that the numbers are cooked? Electicity use droped 4%!
While industrial production rose 5% and GDP 6%. Do you belive the
stats!
gabe, san diego
July 16, 2009 05:22 PM
back to selling cheap, defective trinkets to the world! go China!
Grast
July 16, 2009 09:18 PM
If you talk with some economists or ordinary people in private, you
may find it is difficult to believe the data is true. Even under the
high-growth, the risk is high since the GDP is driven bu bubble, but
the economy is not improving. To make things worse, the people's
consumption is beginning to decline.
LI
July 16, 2009 09:51 PM
Please ignore any positive economic news from China and everyone here
will happily live ever after because:
Chinese government data: 11% GDP growth in 2008. Response: Oh it's
overheating.
Chinese government data: 6.1% GDP growth in 1Q 2009. Response: Oh it's
collapsing.
Chinese government data: 7.9% GDP growth in 2Q 2009. Response: Oh it's
faking.
md3
July 16, 2009 11:06 PM
Are you guys tired of saying 'fake growth data' from China? It has
been going on since the year 2000. If China really had been faking the
data, where the huge foreign exchange reserve would come from?
you know what
July 16, 2009 11:50 PM
expanding domestic demand together with balancing domestic development
and opening wider to the outside world really worked！just the macro-
control ways.
T-Bird
July 17, 2009 02:01 AM
As an ordinary Chinese, I deeply doubt the figure. My salary is the
same as last year, and I have been spending less during this recession
time. Price of everything is going up, gas,food,transportation, etc,
and the country is charging more tax than before, so are the banks.
Some doemestic bank just increses some service fee by 100%, can you
believe that? No? But it's 200% ture. After all, having less or same
amount of money, paying more tax, spending less, all these mean the
life is not getting better, people are not getting richer. So what
does GDP growth mean? I don't know, but who cares.
RodgerRafter
July 17, 2009 02:55 AM
Funny how so many people just don't want to believe that China is
doing well.
Go to China and you'll see that it is an amazing country with an
extremely optimistic and hard working workforce. Take a close look at
what the Government is actually doing and you'll realize that they are
taking all the right steps to turn the global economic slowdown into
an opportunity to make Chinese industry even stronger and more
competitive. All the while, the government remains focused on
maintaining full employment and improving the people's quality of
life.
Then invest in Chinese companies because it's the only way you'll make
a decent return. US policy makers continue to sell us out to the big
banks and just about anything you invest in here is either overpriced
or will lose ground to inflation.
Joe
July 17, 2009 03:17 AM
I see a lot of sour grapes.
Frank
July 17, 2009 07:08 AM
WHY IT WORKS!?
China has a very different system than US. Chinese government has huge
power to create business, such as, lower auto purchase tax; lower
lending requirement from 30%-40% down payment to 20%; start many new
infrastructures, such as, railroad, highway, airports, etc. The
government can act in weeks. But, in US, government doesn't have such
power, and economic policy has to be passed by the congress then take
effect in a year. Even a good policy, you may not see it soon.
Frank
July 17, 2009 07:10 AM
WHY IT WORKS!?
China has a very different system than US. Chinese government has huge
power to create business, such as, lower auto purchase tax; lower
lending requirement from 30%-40% down payment to 20%; start many new
infrastructures, such as, railroad, highway, airports, etc. The
government can act in weeks. But, in US, government doesn't have such
power, and economic policy has to be passed by the congress then take
effect in a year. Even a good policy, you may not see it soon.
stupid american
July 17, 2009 08:18 AM
watch the data your broken GM's revived by China. let's see your auto
icon how misery in US. no one want to buy these craps. so you
amercicans invented massive cheating financial tool to grab money of
world. play with sword, die by sword. we all see your mess situation,
which will continue.... for long long time.
shunsui kyouraku
July 17, 2009 11:17 AM
7.9 still it is a very conservative number. i guess 9 is the true
figure. we all know that china never show their true prowess. remember
that sun tzu is a Chinese and his work is embedded to their economic
policy.
Dietrich
July 17, 2009 12:43 PM
COOKED DATA? How about the AAA rated financial toxic products being
criminally sold worldwide from the land of rising bailouts. How about
international speculative attacks on other currencies around the world
being launched from the same crime scene called Wall Street. The
biggest heist ever. Jesse James blesses America and its coalition.
Morr
July 17, 2009 12:53 PM
" Live by the swords , die by the swords " Enjoy the video and learn
the lesson: http://www.youtube.com/watch?v=Q6l1rwQJjYg
Jeff
July 17, 2009 08:18 PM
China selling cheap things is true dun blame ppl simply for saying it.
accept it.
however one also has to realize why China can get rich by selling
cheap stuff is becoz in this world there are more poor ppl than rich
ppl. this poor ppl including the middle class with alot of commitment.
this including everyone.
if you want this issue to go away let see if your almighty country can
have the power to bring all of humanity to rich class level. then
china will change, china always change as according to how the world
change.
can you?, again we cannot as in the end we are all human that lives
within and limit our selves to the concept of yin and yang. :)
Shunjing
July 20, 2009 09:03 PM
The only way US knows how to compete is through threats , intimidation
and espionage. They sell lies and toxic stuffs. Chinese can blame
corrupt officials. Who can the Americans blame.
Shunjing
July 20, 2009 09:08 PM
The only way US knows how to compete is through threats , intimidation
and espionage. They sell lies and toxic stuffs. Chinese can blame
corrupt officials. Who can the Americans blame.
T Bird
July 21, 2009 02:04 AM
In China, rich people are getting even richer, and poor are getting
even poorer . Price of house is skyrocketing because rich ones are
trying to by a second house, and the stock marketing is doing well
becoz this where the stimulus money actually goes. For 95% of people,
life is not getting better.
C. H. Ng
July 21, 2009 03:11 AM
Sure...the rich people are getting richer and the poor are getting
poorer. This is not only happening in China but everywhere in this
world. But to claim that 95% of the Chinese people are not having
better lives, I do not agreed with you, Mr or Ms T Bird.
I have been to China many times over the past several years and the
latest was only last week. I was at the northern cities of Changchun
and Tianjin where at shopping malls and eatery joints, I can see many
were packed with people shopping & eating. At niche shops where
branded goods such as LV & Gucci bags are being sold at several
thousand yuan, customers were just buying & paying like nobody's
business. Normal meals at restaurants for 4 persons easily cost well
over one to two hundred yuan. And mind you, you need to queue to be
seated.
From what I can see, I would put the figure as around 60% and not 95%
as you claimed, @T Bird.
T Bird
July 21, 2009 09:44 PM
Hi C.H.Ng, if you are comparing data of 10 ,or maybe even 5 years ago
to now, no doubt that you are right.I personally earn about twice as
much as I did 5 years ago. But what I am talking about is the most
recent two years, since when the economic crisis happened. In the town
where I work, about 3 or 4 hotels have shut down their business, and
another 3 new hotels have been completed from a construction
standpoint, for more than 1 year, but still haven't open yet. And the
small car service company for my company, which used to have 7 or 8
cars, now only has 3. These are real data I can see and sense, and
that is why I don't understand the 8.1 GDP growht.
C. H. Ng
July 22, 2009 05:07 AM
Wow..at least you are earning twice as much as you did 5 years ago.
Over here I don't think many of us can earn 50% more than we did
during this 5 years period, if we are to take into consideration of
the miserable 3% to 5% average yearly salary increment.
Therefore Mr T Bird, you shouldn't be complaining here in the first
place. In fact I would say you are lucky your government is very
proactive in redressing the economic situation in your country. And
also doing it in the right & forceful manner. Just look at other
countries or just my country for the matter. We are now feeling the
pinch of a slowing economy which I think we would not be able to
recover maybe until 2nd half of next year. I am in the construction
industry and should know better as this industry supports many other
industries down the line. Currently you can see not much activities
going on here unlike what I can see while I was in China last week.
So bear with it, my friend, your government is leading your country in
the right direction.
T Bird
July 22, 2009 08:48 PM
You are right, to some extent. I am trying to vent, while seeing so
much corruption happen every day, and every time when some government
related case happens, you will see some ridiculous but some how
creative explanation from them,and it be comes hot topic on the
internet. And that is one of the main reason that so many of us don't
trust the data from government. But I have to admit that generally
China is going in the right direction. One major reason: we export
goods at a lower price, and salary here is much lower than US and
Europe. Under this circumstances,it's hard for China to not grow.
PS: It's just reported the industry electricity usage of the 1st half
of this year is 5.9% lower than the same period of last year. Again,
that make it more difficult to understand the 8.1% growth.
China Rock
July 29, 2009 06:22 PM
Yes, we know the whole world hates China. We love our country. China
was invaded by Japan, Russia and other Civilized countries, Red China
never lost 1 inch of land. No foreign countries can put their troop on
our land, no foreign countries can set up colonial ruling in our
cities. we have human rights problem, but we are working on it. That
is still better than be murmured by foreign soldiers. Our laws are not
perfect, but it is still better than "no Chinese and dog allowed"
colonies set up by foreign countries in our land. That's the biggest
achievement for us just to become a country with self-sovereignty!
Sid Harth
News : International Last Updated: Apr 24, 2009 - 5:31:05 PM
China’s economy will surpass the US by 2035 and be twice as large as
the US by midcentury
By Finfacts Team
Jul 9, 2008 - 3:02:44 PM
Shanghai - the commercial capital of China
China’s economy will surpass that of the United States by 2035 and be
twice its size by midcentury, a new report by Albert Keidel of the
Carnegie Endowment for International Peace, concludes. China’s rapid
growth is driven by domestic demand—not exports—and will sustain high
single-digit growth rates well into this century.
In China’s Economic Rise—Fact and Fiction, Keidel examines China’s
likely economic trajectory and its implications for global commercial,
institutional, and military leadership.
Key Conclusions:
Potential stumbling blocks to sustained Chinese growth—export
concerns, domestic economic instability, inequality and poverty,
pollution, social unrest, or even corruption and slow political reform—
are unlikely to undermine China’s long-term success.
China’s financial system, rather than a shortcoming that compromises
growth potential, is one of the strengths of what the report calls
“China’s money-making machine,” in part because of its ability to
support the financing of infrastructure and other public investments
necessary for sustained rapid growth.
A Chinese economy that eclipses the U.S. by midcentury has both
commercial and potential military implications. China will be the
preeminent world commercial influence. China’s military capabilities
are a small fraction of the United States’ today, so there is time to
prepare for a very different world in fifty years, says the report.
American policy makers should take this opportunity to enact wide-
ranging domestic reforms and rethink their concepts of global
order.
“China’s economic performance clearly is no flash in the pan. Its
growth this decade has averaged more than 10 percent a year and is
still going strong in the first half of 2008. Because its success in
recent decades has not been export-led but driven by domestic demand,
its rapid growth can continue well into the twenty-first century,
unfettered by world market limitation. China’s likely continued
success will eventually bring an end to America’s global economic
preeminence, requiring strategic reassessment by all major economies—
especially the United States, the European Union, Japan, and even
China itself."
The World Bank said last December that China remains is the world's
second-biggest economy.
Keidel, says the rise of China to the world's biggest economy will
happen regardless of the method of calculation.
Under current market-based estimates, China's gross domestic product
is about $3 trillion compared to $14 trillion for the US. Based on
purchasing power parity (PPP) measure used by the World Bank and
others to correct low labour-cost distortions, he said China's GDP is
roughly half of that of the US but, in terms of per capita gross
domestic product, it is only 9.8 per cent of the size of the US.
Keidel's calculations suggest that using the PPP method, China will
catch up with the US as an economic power by 2020, with an equivalent
GDP of $18 trillion. Based on the more commonly accepted market
method, the turning point will come by 2035. By 2050, he estimated
Chinese GDP at some $82 trillion compared with $44 trillion for the
US.
However, the Chinese standard of living will remain lower - with per
capita GDP in China between half and two-thirds the level of that in
the US in 2050, according to the report. Keidel said poverty will
remain a significant problem in China for decades despite
considerable progress.
Sid Harth
News : International Last Updated: Oct 14, 2009 - 11:13:20 AM
China reports decline in exports/imports slowed sharply in September
By Finfacts Team
Oct 14, 2009 - 8:57:22 AM
Chinese Premier Wen Jiabao (c) chairs the eighth prime ministers'
meeting of the Shanghai Cooperation Organization member states at the
Great Hall of the People in Beijing, Wednesday, Oct. 14, 2009. Photo:
Xinhua
China on Wednesday signalled an acceleration in its economic recovery
with data showing that the fall in exports and imports slows sharply
in September. However, as importers were told that there would be no
shipments in the first two weeks of October because of the National
Day holidays, that factor may have also had an impact.
The September trade figures were also boosted by a larger number of
working days compared with the same month last year.
The General Administration of Customs announced in Beijing that
exports had fallen by 15.2 per cent in September compared to the same
month last year, against a 23.4 per cent decline in August.
The total value of imports and exports for September was US$218.94
billion, down 10.1 per cent from the same month last year, but an
increase of 14.2 per cent from August.
Imports amounted to $103.01 billion down by 3.5% from September last
year and up 17% from August.
Exports in September while falling 15.2 per cent from the same month
last year to $115.93 billion, they were up 11.8 per cent from
August.
For the first three quarters, China's foreign trade was down by 20.9
per cent from the same period last year to $1.56 trillion.
Exports dropped by 21.3 per cent from the same period last year to
$846.65 billion. Imports were $711.17 billion, representing a decrease
of 20.4 per cent from the same period last year.
The total trade surplus was $135.48 billion from January to September,
a decrease of 26 per cent from the same period last year.
In the first three quarters, the European Union remained China's
leading trade partner, with a total trade volume of $260.05 billion, a
fall of 19.4 per cent over the same period last year.
The trade volume between China and the United States, China's second
largest trade partner, dropped 15.8 per cent from a year earlier to
$211.88 billion.
bademiyansubhanallah
China Is Close to Oil Deal in Gulf of Mexico
Published: October 16, 2009
HOUSTON — Trying to acquire a foothold in the American oil patch, a
Chinese company is closing in on a deal to buy stakes in a few
drilling leases in the Gulf of Mexico from a Norwegian company, an
executive close to the talks said.
Go to Blog » The prospective purchase would not do much to quench
China’s huge and growing thirst for energy, which makes it the second-
leading consumer of oil after the United States. But such an oil
acquisition would be symbolically important as the first by China in
the United States, coming four years after the Chinese company’s $18.5
billion bid for the American oil company Unocal collapsed under
pressure from Congress.
Executives at StatoilHydro, the Norwegian national oil company, would
neither confirm nor deny their negotiations with the Chinese, which
were first reported Friday by Dow Jones Newswires. Officials of the
state-owned Chinese company, best known by its acronym Cnooc, were not
available for comment.
But the negotiations between the companies are at an advanced stage,
and a formal announcement could be made in soon, according to the
executive close to the talks, who said it was company policy not to
discuss the negotiations. The executive cautioned that the talks were
at a delicate stage.
The deal would only include around 20 of StatoilHydro’s 451 leases in
the Gulf of Mexico. But oil analysts said they saw symbolism in the
move, particularly when Chinese companies are striving to acquire much
larger oil reserves in Africa and Latin America.
“By dipping their toe, they are attempting to see if it’s politically
safe to get into our waters,” said Larry Goldstein, a director of the
Energy Policy Research Foundation. “There’s still a hangover from
Unocal.”
With an expanding economy and a car fleet mushrooming with its middle
class, China has been searching far and wide for oil reserves. In
recent years China has formed alliances and joint ventures in
Venezuela, Russia and Brazil to produce oil, and Chinese companies are
competing to obtain large-scale contracts for exploration and
development of fields in Nigeria and elsewhere in Africa.
Cnooc has increased its capital expenditures for exploration,
development and production from $3.8 billion in 2007 to $5.7 billion
in 2008 to a planned $6.8 billion this year, according to the
company’s 2009 strategy preview report.
Several large American oil companies, including Chevron,
ConocoPhillips and Devon Energy, have wide-ranging investments in
China, from exploration and production offshore to marketing fuels and
lubricants to Chinese consumers.
But China has had a rocky time investing in the United States energy
patch. Cnooc, China National Offshore Oil Corporation, tried to make a
$18.5 billion offer to buy Unocal Corporation in 2005. The Bush
administration did not oppose it, but an array of powerful Democratic
and Republican members of Congress strongly objected on national
security grounds.
The purchase of a small stake in the Gulf from a Norwegian company is
not likely to produce as large a reaction, especially when the Obama
administration is trying to strengthen economic ties with the Chinese.
China National Petroleum Corporation held talks in March with Chevron
to buy a minority interest in the Big Foot oil field in the Gulf of
Mexico, but the Chinese company dropped out of the talks, apparently
unhappy with the terms the American company offered.
The Gulf of Mexico accounts for about a quarter of the nation’s oil
production, and its deepwater potential makes it the most exciting
arena for oil exploration in the United States. Foreign oil companies
like BP, Shell, StatoilHydro and the Brazilian company Petrobras have
been investing heavily in the area.
Areas in the Middle East and Africa have more oil, but they can be
challenging to explore because of political upheaval and because oil-
rich countries are reluctant to cede control of their resources.
Amy Myers Jaffe, an energy specialist at Rice University, said it made
sense for the Chinese to enter a partnership with a more experienced
Western oil company in the Gulf to learn the advanced seismic and
drilling technologies required to work in deep waters. She predicted
little or no political opposition.
“It’s completely unthreatening,” she said. “There is no reason why any
American should be concerned about a Chinese company taking a small
stake in the Gulf of Mexico.”
bademiyansubhanallah
Yuan Forwards Post Biggest Weekly Gain in Six Months on Exports
By Bloomberg News
Oct. 16 (Bloomberg) -- China’s yuan forwards had the biggest weekly
gain in more than six months on speculation the central bank will
allow appreciation as exports and inflation pick up.
The U.S. Treasury Department yesterday criticized China for the “lack
of flexibility” in the yuan and a buildup of foreign-exchange
reserves, while stopping short of branding the nation a currency
manipulator. China’s exports declined 15.2 percent in September from a
year earlier, the least in nine months, the government reported this
week.
“Given the recovering Chinese economy and the return of inflation,
China will need to allow the currency to appreciate,” said Nizam
Idris, a strategist at UBS AG in Singapore. The yuan will probably
appreciate 5 percent to 6.5 against the dollar in 2010, he said.
Twelve-month non-deliverable forwards rose 0.3 percent to 6.6205 per
dollar as of 5:30 p.m. in Shanghai. The contracts rose 0.94 percent
this week, the biggest increase since March. Forwards are agreements
to buy and sell assets at current prices for delivery at a specified
time and date. Non-deliverable contracts are settled in dollars.
In the spot market, the currency was at 6.8268 from 6.8287 yesterday,
according to the China Foreign Exchange Trade System. The People’s
Bank of China halted gains against the U.S. dollar from July 2008 to
protect exporters after a 21 percent appreciation in the previous
three years.
Reserves
“The recent lack of flexibility of the renminbi exchange rate and
China’s renewed accumulation of foreign-exchange reserves risk
unwinding some of the progress made in reducing imbalances,” the U.S.
Treasury said in its semiannual report to Congress. The yuan is a
denomination of the renminbi.
China’s foreign-exchange reserves, the world’s largest, surged to a
record $2.27 trillion at the end of September.
“China’s exchange-rate policy will be based on internal fundamentals,”
said Fang Ming, an analyst in Beijing at Bank of China Ltd., the
nation’s largest foreign-currency trader. “It’s too early to talk
about appreciation when the crisis hasn’t ended yet.” The yuan will be
little changed over the next 12 months, he said.
A Bloomberg News survey shows consumer prices declined 0.8 percent in
September from a year earlier, the smallest since the current run of
declines began in February. The statistics bureau is scheduled to
release the data on Oct. 22.
Chinese banks extended 516.7 billion yuan ($75.7 billion) of loans
last month, a second monthly increase, the central bank said on Oct.
14.
Loan Growth
“Massive loans will go back into positive inflation,” said Chris
Ruffle, who helps oversee $3.5 billion as co-chairman of Martin Currie
Investment Management Ltd.’s China unit in Shanghai. “Bankers will be
able to justify to the politicians to resume renminbi appreciation,
pushing up the reserve ratio and interest rates.” He said the yuan may
appreciate 5 percent next year.
Government bonds declined this week on concern the central bank will
allow yields on so-called sterilization bills to rise to curb growth
in money supply and bank loans. M2, the broadest measure of money
supply, increased a record 29.3 percent in September from a year
earlier, the central bank said.
The People’s Bank of China drained 73 billion yuan from the money
market in open-market operations this week, after net injections in
the previous six weeks, data compiled by Bloomberg show. The monetary
authority kept the yield on one-year and three-month bills unchanged
for a seventh week at 1.7605 percent and 1.328 percent, respectively.
Bonds Slide
“People are betting that the PBOC may take some action soon in the
open-market after loan growth last month exceeded expectations,” said
Jiang Chao, a fixed-income analyst at Guotai Junan Securities Co. in
Shanghai, China’s largest brokerage by revenue. “The one-year PBOC
bills are traded at higher yields than that in the auction.”
The yield on the 3.44 percent note due September 2019 climbed 18 basis
points to 3.78 percent this week. The price of the security dropped
1.47 per 100 yuan face amount to 97.21, according to the National
Interbank Funding Center. A basis point is 0.01 percentage point.
--Judy Chen, Belinda Cao. With assistance from Chua Kong Ho in
Shanghai. Editors: Shanthy Nambiar, James Regan
To contact Bloomberg News staff for this story: Judy Chen in Shanghai
at +86-21-6104-7047 or Xch...@bloomberg.net; Belinda Cao in Beijing
at +86-10-6649-7570 or lc...@bloomberg.net.
Last Updated: October 16, 2009 05:56 EDT
bademiyansubhanallah
China’s Economic Recovery Drives Up Home Prices (Correct)
By Bloomberg News
Oct. 15 (Bloomberg) -- China’s home prices rose at the fastest pace in
a year in September and inflows of foreign direct investment quickened
as a recovery gathered pace in the world’s third-biggest economy.
Home prices in 70 cities climbed 2.8 percent from a year earlier, the
National Bureau of Statistics said on its Web site today. Foreign
direct investment jumped 18.9 percent to $7.9 billion, the Ministry of
Commerce said at a briefing in Beijing.
China may report next week that its economic growth accelerated to 8.9
percent in the third quarter, a Bloomberg News survey of economists
shows. A record 8.67 trillion yuan ($1.27 trillion) of new loans this
year, reported by the central bank yesterday, has added to the risk
that the rebound is at the cost of asset bubbles, bad loans and
resurgent inflation.
“There’s been a very impressive acceleration of growth,” said Dariusz
Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong
Kong. “Policy makers will gradually begin to be more concerned about
asset-price inflation and the overall inflation outlook.”
China may raise interest rates and banks’ reserve requirements in the
first quarter of 2010, Kowalczyk said.
The Shanghai Composite Index rose 0.3 percent as of 1:06 p.m. local
time, taking this year’s gain to 63.8 percent.
Export Decline
Export declines slowed in September and the nation’s foreign-currency
reserves swelled to a record $2.273 trillion, reports showed
yesterday. China’s accelerating economic growth and expectations for
the yuan to rise are encouraging investment from abroad.
“Foreign investment may remain at a relatively high level in the
coming months as China’s recovery continues to lure investors,” said
Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai.
Foreign investment started to rise in August after falling all year.
For the first nine months, direct investment from abroad declined 14.3
percent to $63.8 billion from a year earlier, the commerce ministry
said today.
In the house price data, the southern export hub of Shenzhen led the
gains, with an 11.1 percent increase in September from a year
earlier.
Home sales jumped 73.4 percent in the first nine months of 2009 from a
year earlier to 2.75 trillion yuan, the statistics bureau said.
Investment in property development accelerated to growth of 17.7
percent.
--Li Yanping, Paul Panckhurst, Chia-Peck Wong. Editors: Paul
Panckhurst, John McCluskey.
To contact Bloomberg News staff for this story: Li Yanping in Beijing
at +86-10-6649-7568 or yl...@bloomberg.net
Last Updated: October 15, 2009 21:31 EDT
bademiyansubhanallah
China Reports Second 2009 Monthly Budget Deficit in September
By Bloomberg News
Oct. 16 (Bloomberg) -- China, which forecast a 950 billion yuan ($139
billion) budget deficit this year, reported a 97 billion yuan gap in
September, only the second monthly shortfall this year, figures from
the Ministry of Finance show.
Fiscal revenue rose 33 percent in September from a year earlier, the
second-fastest pace this year, to 561 billion yuan due to accelerating
economic growth and increases in fuel and tobacco taxes, the Ministry
of Finance said on its Web site today. Expenditure rose 32.9 percent,
the biggest growth this year, to 658 billion yuan.
The ministry last reported a deficit in March, of 60.5 billion yuan.
The surplus for the first nine months of the year was 632 billion
yuan, Ministry of Finance data showed today.
Fiscal spending in the first nine months of the year surged 24 percent
to 4.52 trillion yuan as the government implemented its 4 trillion
yuan stimulus package to sustain growth amid slumping exports. Revenue
growth lagged behind, rising 5.3 percent to 5.15 trillion, as income
from import tariffs dropped and the government boosted tax subsidies
for car and home appliance purchases.
In September, central government spending increased by 46 percent to
144 billion yuan and local government spending rose by 29.6 percent to
513 billion yuan, today’s statement from the ministry showed.
The Ministry of Finance said this week it will let local governments
use land-sale proceeds to fund stimulus projects because many regions
were finding it difficult to secure money amid the economic slowdown,
the official China Daily newspaper said today.
The ministry has issued 200 billion yuan of bonds on behalf of
provincial governments to help them fund their share of the fiscal
stimulus, completing the sale on Sept. 4.
For Related News and Information: Top China news: TOP CHINA <GO> China
economy news: NI CHECO <GO> Finance ministry news: MOFZ CH <Equity> CN
<GO>
Last Updated: October 16, 2009 00:43 EDT