Author Archives: Adela Rogers

What’s Up with the Chinese Economy?

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CHina is not implementing long-term solutions.  The country’s extraordinary economic difficulties will result in a collapse or a long-term decline, and either outcome suggests China will return to the ranks of weak states if they don’t face facts.

Gordon G. Chang writes:  As an initial matter, China’s current situation is far worse than the official National Bureau of Statistics reports. The NBS maintains that the country’s gross domestic product rose 6.9 percent during the third calendar quarter of this year after increases of 7.0 percent during each of the first two quarters.

Willem Buiter, Citigroup’s chief economist, suggests the rate was closer to 4 percent, and growth could be as low as the 2.2 percent that people in Beijing were privately talking about mid-year. The most reliable indicator of Chinese economic activity remains the consumption of electricity, and for the first eleven months of the year electricity consumption increased by only 0.7 percent according to China’s National Energy Administration.

Other statistics confirm extremely slow growth. For instance, imports, a sign of both manufacturing and consumption trends, fell 8.7 percent in November in dollar terms, marking a record thirteen straight months of decline. Exports were down 6.8 percent, the fifth straight month in the red.

Especially disturbing is price data. In Q3, nominal GDP growth of 6.2 percent was less than the officially reported real growth of 6.9 percent. China, therefore, looks like it is now caught in the deflationary trap of falling prices. Deflation, in turn, suggests a 1930s-style crash is increasingly possible. China has too much debt—perhaps as much as 350 percent of GDP at the moment—which becomes impossible to service in an era of rapidly declining prices. The country over the last year has seen a number of “first” defaults. So far, the central and provincial authorities have managed rescues for many of the obligors, but at some point they will have no choice but to let failing borrowers go under in far greater numbers.

In these circumstances, the best case scenario for China is several decades of recession or recession-like stagnation, much like Japan experienced in the 1990s and the first decade of this century. China’s leaders won’t say the goal of the just-completed Work Conference was to avoid the sudden adjustment of a collapse, but that appears to be the case.

To their credit, however, Beijing has been more candid. Chinese technocrats see consumption saving the economy, but that’s unlikely to be the case. Consumer demand is not high, despite what unnamed officials told the media at the conclusion of the Work Conference. Indicators, such as the corporate earnings of retailers and consumer products companies, paint a picture of spending in China growing at an anemic pace.

At the same time, manufacturing, the heart of the economy for decades, looks like it is contracting quickly, and services growth, despite official numbers, is low. Both these developments have implications for consumption. In China, consumption has been the result of growth, not the cause of it, and it is unlikely spending can power the economy on its own for long.   What’s Up with the Chinese Economy

 China's Slowdown

 

 

Money Flows in Malayasia

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Tom Wright writes: Malaysian Prime Minister Najib Razakwas fighting for his political life this summer after revelations that almost $700 million from an undisclosed source had entered his personal bank accounts.

Under pressure within his party to resign, he called together a group of senior leaders in July to remind them everyone had benefited from the money.

The funds, Mr. Najib said, weren’t used for his personal enrichment. Instead, they were channeled to politicians or into spending on projects aimed at helping the ruling party win elections in 2013, he said, according to a cabinet minister who was present.

It still isn’t clear where the $700 million came from or where it went. But a six-month Wall Street Journal examination revealed that public entities spent hundreds of millions of dollars on a massive patronage machine to help ensure Mr. Najib’s United Malays National Organization stayed in power.

The UMNO has led every Malaysian government since the country’s independence from Britain in 1957, making it one of the world’s longest-ruling political parties. Its extraordinary grip on power has delivered economically for Malaysia, boosting living standards and establishing the country as a fast-growing emerging market and U.S. ally in Asia.

But its dominance of the vote, its critics contend, has prevented Malaysia’s democracy from maturing in a similar fashion, instead leaving a system riven by patronage and vote-buying that analysts say has consistently skewed results in UMNO’s favor.

The effort relied heavily on the state investment fund Mr. Najib controlled, 1Malaysia Development Bhd., according to minutes from 1MDB board meetings seen by The Wall Street Journal and interviews with people who worked there.

The prime minister, who is chairman of 1MDB’s board of advisers, promised repeatedly that the fund would boost Malaysia’s economy by attracting foreign capital. It rolled up more than $11 billion in debt without luring major investments.

Yet Mr. Najib used the fund to funnel at least $140 million to charity projects such as schools and low-cost housing in ways that boosted UMNO’s election chances, the Journal investigation found.

Board members wondered aloud if they would get in trouble. In a meeting on Dec. 20, 2014, they discussed what to do about police who came to investigate allegations of financial irregularities, according to the minutes.

The 1MDB fund also transferred hundreds of millions of dollars to politicians through Ihsan Perdana Bhd., a company formed in 2011 to carry out 1MDB’s corporate social responsibility programs, said a person involved with setting up the fund. Ihsan Perdana is exempt from filing financial statements, according to Malaysian company records.

Malaysian investigators believe the cash that ended up in Mr. Najib’s personal accounts moved through government agencies, banks and companies linked to 1MDB. At least $14 million flowed into his accounts via Ihsan Perdana, according to documents from a Malaysian government investigation.

The source of that $14 million was SRC International Bhd., a company controlled by Malaysia’s finance ministry, which Mr. Najib also heads, the documents show.

The prime minister signed checks from his personal accounts to lawmakers, who used the money as they saw fit, according to the Malaysian cabinet member interviewed by the Journal and another lawmaker who said he accepted the money.

Mr. Najib declined multiple interview requests. He has denied wrongdoing or taking money for personal gain, while defending 1MDB spending as good for Malaysia. He hasn’t explained where the $700 million in his accounts came from or how it was used..  Money Flows in Malayasia

 Money Flows

 

Entrepreneur Alert: Ethnic Specialties?

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Entrepreneur Alert: Cow Dung cakes a holiday hit.  Used for religious rituals and even heating, these cakes are popular in urban areas for nostalgic migrants to cities.

With the holiday season in full swing, Indians are flocking to the online marketplace in droves. But one unusual item is flying off the virtual shelves: Online retailers say cow dung patties are selling like hot cakes.

The patties — cow poop mixed with hay and dried in the sun, made mainly by women in rural areas and used to fuel fires — have long been available in India’s villages. But online retailers including Amazon and eBay are now reaching out to the country’s ever-increasing urban population.

Some retailers say they are offering discounts for large orders. Some customers are asking for gift wrapping.

“Cow dung cakes have been listed by multiple sellers on our platform since October and we have received several customer orders” since then, said Madhavi Kochar, an Amazon India spokeswoman.

The orders come mostly from cities where it would be difficult to buy dung cakes, she said.

In India, where Hindus have long worshipped cows as sacred, cow dung cakes have been used for centuries for fires, whether for heating, cooking or Hindu rituals. Across rural India, piles of drying cow dung are ubiquitous.

Radhika Agarwal of ShopClues, a major online retailer in India, said demand for the cow dung cakes spiked during the recent Diwali season, a time when Hindus conduct prayer ceremonies at their homes, factories and offices. On a recent day, ShopClues’ website showed that the patties had sold out.

“Around Diwali, when people do a lot of pujas in their homes and workplaces, there is a lot of demand for cow dung cakes,” said Agarwal, referring to rituals performed during the popular festival.

“Increasingly, in the cold weather, people are keeping themselves warm by lighting fires” using them, she said, adding that people who grew up in rural areas find the peaty smell of dung fires pleasant.

“It reminds them of the old days,” she said.

The cakes are sold in packages that contain two to eight pieces weighing 200 grams each. Prices range from 100 to 400 rupees ($1.50 to $6) per package.

Dung cakes are also used as organic manure, and some sellers are marketing them for use in kitchen gardens.

Cow Pies

 

New Program Teaches Finance to Mumbai Women

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Women’s financial literacy in India.  Reliance Foundation, the corporate social responsibility (CSR) arm of Reliance Industries, has tied up with Crisil Foundation, the CSR arm of ratings major Crisil, to raise financial literacy among women in Mumbai’s slums.

These women, from marginalized sections of the society, are usually kept out of the financial decision making process by men. Even the employed women hand over their salary to their husbands or fathers who manage the money. Psychologically these women do not feel adept at handling finance. While in reality they are much better at managing finances, a majority of them know nothing even about the basics of banking,” the Reliance Foundation release added.

The program aims to empower these women from slums to make informed financial decisions and get them to inculcate a habit of saving. Based on the Crisil study, a module has been put in place which will educate these women in basics of banking and also help them take advantage of government sponsored programmes like Jan Dhan Yojna, Rashtryia Swastha Bhima Yojna and Pradhan Mantri Suraksha Bhima Yojna. Reliance Foundation will also help every women open a bank account under Jan Dhan Yojna, as well connect older women to the Atal Pension Yojna, the release said.
Under the joint initiative, the aim is to impart basic financial literacy to about 5 lakh women living in the slums in Mumbai. The initiative is under Prime Minister’s Beti Bachao Beti Badhao program.

 

 

 

 

Are Comfort Women a Thing of the Past?

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Comfort women of Korea:  The agreement to finally settle the “comfort women” row between Japan and South Korea drew divided reactions from surviving Korean women who were forced into the brothels run by the Imperial Japanese military before and during World War II.

In a statement issued after the agreement was reached Monday in Seoul between the Japanese and South Korean foreign ministers, one of the surviving victims, Yu Hui-nam, said she was not satisfied with the accord but will accept it.

Yu said one factor in favor of accepting it is the efforts by government officials to resolve the issue before the end of the year that marks the 50th anniversary of the normalization of diplomatic ties between the two countries.

But another former comfort woman, Lee Yong-soo, told a news conference that Japan still needs to make legal compensation to the women to resolve the issue. She stressed that she will ignore the agreement.

A support group for the survivors, the Korean Council for the Women Drafted for Military Sexual Slavery by Japan, which installed a statue of a girl symbolizing comfort women on a sidewalk in front of the Japanese Embassy in Seoul in December 2011, issued a statement denouncing the agreement.

The group criticized the South Korean government for exceeding its authority by affirming the matter is completely resolved, and for deceiving the victims of Japanese wartime prostitution system as well as the South Korean people.

Observers said it is not yet known how many surviving comfort women will approve of the deal, adding that the accord may become a major issue dividing public opinion in South Korea.

The ruling Saenuri Party welcomed the agreement, praising Tokyo’s explicit expression of responsibility.

In stark contrast, the leading opposition New Politics Alliance for Democracy criticized Japan for failing to take responsibility and stressed that the agreement is unacceptable.

The party claimed that President Park Geun-hye deviated from her basic promise to resolve the issue in a way acceptable for both the victims and the public.

Comfort Women

Foreign Investment in the US Over $140 Billion

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It is not surprising that foreigners invest in the US.  The US is about as good as it gets in terms of reliability and performance.

Total expenditures in manufacturing were $139.1 billion in 2014, the largest among major industries. Within the manufacturing sector, expenditures were largest in pharmaceuticals and medicines at $75.9 billion. Outside of manufacturing, expenditures were notable in publishing industries and in real estate.

By country of ultimate beneficial owner (UBO), the largest source country was Ireland, with first-year expenditures of $42.5 billion. Expenditures from Canada, Germany, and Japan were also notable. The largest source countries for new investment were most often countries that already have a large foreign direct investment presence in the United States. Of the eight largest countries by foreign direct investment position in the United States—Canada, France, Germany, Ireland, Japan, Netherlands, Switzerland, and the United Kingdom—seven were also among the top eight source countries for new investment.

By U.S. state, the largest expenditures, $48.9 billion, were for U.S. businesses in California. The four largest U.S. states in terms of expenditures by foreign direct investors—California, New Jersey, New York, and Texas—together received over half of all new investment. These four states accounted for 35 percent of private industry GDP in the United States in 2014.

In this release, BEA is presenting statistics on Greenfield investments for the first time. Greenfield investment expenditures—expenditures to either establish a new U.S. business or to expand an existing foreign-owned U.S. business—totaled $16.6 billion in 2014. Total planned greenfield expenditures, which include both first-year expenditures and spending in other years, was $39.2 billion.

By U.S. industry, 2014 Greenfield expenditures were largest in real estate, at $4.7 billion. In manufacturing, expenditures for 2014 Greenfield investments were $2.8 billion and expenditures were particularly large in primary and fabricated metals and chemicals. By country of UBO, the largest source of first-year greenfield expenditures was Canada at $4.0 billion. Including expenditures from other years, the largest source countries for greenfield expenditures were China and Japan. By U.S. state, California and Texas attracted the largest expenditures for Greenfield investments, with first-year expenditures of $3.2 and $2.7 billion respectively, and planned total expenditures of $7.7 billion for each state.

 

India & Pakistan Accord Now Possible?

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Common economic interests may be the basis of the thaw between Pakistan and India.

Abbas Nasir writes:  Indian Prime Minister Narendra Modi visited Pakistan recently. Modi said he greatly appreciated Pakistan’s leader Sharif for personally receiving and seeing him off at the airport – on a non-state, unofficial visit.  Relations between the two countries have been dogged by the dispute over the Kashmir region, which dates back to the partition of India in 1947 after the British decided to leave.

Nearly 1.4 billion people inhabit the two traditional South Asian rival countries alone, and with their growing economies and energy needs, and the need for newer, more diverse markets and trading opportunities, the future of the troubled region once defined by conflict may well be defined by common economic interests.

Since then, several attempts to restart the stalled process have come to naught.

Even when images of the two leaders caught in a brief yet seemingly intense chat appeared in the media from the Paris Earth summit last month, few would have imagined the pace at which efforts towards normalisation would proceed.

Just three weeks ago, on December 7, the national security advisers to the two prime ministers met in Bangkok for a meeting that took the media by surprise. Their five-hour meeting took matters forward as three days later the Indian Foreign Minister Sushma Swaraj arrived in the Pakistani capital to attend a conference between Kabul and Islamabad on Afghanistan.

Analysts are asking what will happen if another terrorist attack on Indian soil is traced to militants across the border.

On the flip side, what is fuelling optimism is the huge peace dividend. Just this month the two countries joined Turkmenistan and Afghanistan in the ground-breaking ceremony of a natural gas pipepline called TAPI which will bring Turkmen natural gas via Afghanistan and Pakistan to India.

Then, the Iran leg of the Iran-Pakistan-India oil pipeline had already been built, and the rest is likely to be completed within a couple of years once United Nations sanctions on Tehran are lifted.

Pakistan has also concluded a $46bn China-Pakistan Economic Corridor aimed at connecting the underdeveloped western region of China to Gwadar Port on Pakistan’s Balochistan coast just south of the Hormuz Straits.

The pro-business Indian prime minister, addressing the opening of the parliament building in Kabul, called upon Pakistan to serve as a bridge between South Asia and Central Asia.

The future of the troubled region once defined by conflict may well be defined by common economic interests.

It appears that even Pakistan’s military, which has traditionally taken a tough, hard line on India, has begun to understand this.

Has Oil Run Its Course?

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Anatole Karetsky writes:  Now that oil prices have settled into a long-term range of $30-50, energy users everywhere are enjoying an annual income boost worth more than $2 trillion. The net result will almost certainly accelerate global growth, because the beneficiaries of this enormous income redistribution are mostly lower- and middle-income households that spend all they earn.

Of course, there will be some big losers – mainly governments in oil-producing countries, which will run down reserves and borrow in financial markets for as long as possible, rather than cut public spending. That, after all, is politicians’ preferred approach, especially when they are fighting wars, defying geopolitical pressures, or confronting popular revolts.

The managements of leading energy companies must face economic reality and abandon their wasteful obsession with finding new oil.

But the monopoly has fallen on hard times. Assuming that a combination of shale development, environmental pressure, and advances in clean energy keep the OPEC cartel paralyzed, oil will now trade like any other commodity in a normal competitive market, as it did from 1986 to 2005.

In a normal competitive market, prices will be set by the cost of producing an extra barrel from the cheapest oilfields with spare capacity. This means that all the reserves in Saudi Arabia, Iran, Iraq, Russia, and Central Asia would have to be fully developed and exhausted before anyone even bothered exploring under the Arctic ice cap or deep in the Gulf of Mexico or hundreds of miles off the Brazilian coast.

Of course, the real world is never as simple as an economics textbook. Geopolitical tensions, transport costs, and infrastructure bottlenecks mean that oil-consuming countries are willing to pay a premium for energy security, including the accumulation of strategic supplies on their own territory.

For Western oil companies,the rational strategy will be to stop oil exploration and seek profits by providing equipment, geological knowhow, and new technologies such as hydraulic fracturing (“fracking”) to oil-producing countries. But their ultimate goal should be to sell their existing oil reserves as quickly as possible and distribute the resulting tsunami of cash to their shareholders until all of their low-cost oilfields run dry.

There are two reasons why this has not happened – yet. Oil company managements still believe, with quasi-religious fervor, in perpetually rising demand and prices. So they prefer to waste money seeking new reserves instead of maximizing shareholders’ cash payouts. And they contemptuously dismiss the only other plausible strategy: an investment shift from oil exploration to new energy technologies that will eventually replace fossil fuels.

Redirecting just half the $50 billion that oil companies are likely to spend this year on exploring for new reserves would more than double the $10 billion for clean-energy research announced this month by 20 governments at the Paris climate-change conference. The financial returns from such investment would almost certainly be far higher than from oil exploration. Yet, as one BP director replied when I asked why his company continued to risk deep-water drilling, instead of investing in alternative energy: “We are a drilling business, and that is our expertise. Why should we spend our time and money competing in new technology with General Electric or Toshiba?”

As technology continues to improve and environmental restrictions tighten, it seems inevitable that much of the world’s proven oil reserves will be left where they are, like most of the world’s coal.

OPEC seems finally to have absorbed this message and realized that the Oil Age is ending. Western oil companies need to wake up to the same reality, stop exploring, and either innovate or liquidate.

End of Oil?

 

Entrepreneur Alert: Saudi Arabia Looks to the Future

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Gassan al Kibsiver writes:  Over the past few weeks, the government of Saudi Arabia has been engaged in an unprecedented strategic policy review that could have ramifications for every aspect of the country’s social and economic life.

There are two reasons why change has become urgent. The first is the dramatic drop in global oil prices, from above $100 per barrel in the middle of 2014 to below $40 today.

The second reason is demographic. In the next 15 years, some six million young Saudis will reach working age, putting enormous pressure on the labor market and potentially doubling its size.

The new Saudi leadership’s recognizes the challenge and the possibilities that addressing the future can create.

Saudi Arabia has the potential to double its GDP and create six million additional jobs by 2030, enough to absorb the influx of young men – and, increasingly, young women – entering the labor market. To accomplish this however, the kingdom will have to dramatically reduce its unhealthy dependence on oil.

Saudi Arabia has many sectors with strong potential for expansion. The country has substantial untapped deposits of metals and non-metallic minerals, including phosphate, gold, zinc, bauxite, and high-quality silica. Its retail sector is already growing quickly, but it lags behind in areas like e-merchandizing and supply-chain efficiencies.

The country’s tourism sector could be developed and upgraded, not only for the millions of Muslim pilgrims who visit the holy sites of Mecca and Medina every year, but also for leisure tourists. Saudi Arabia has a long coastline on the Red Sea. Exploiting these opportunities will require trillions of dollars in investment, radical improvements in productivity, and the government’s firm, sustained commitment. Attaining this level of investment will require radical policy reforms. Transforming the economy will require large improvements in productivity.  Jump-starting productivity growth will require reworking the kingdom’s restrictions on business and labor practices. For now, the Saudi economy relies heavily on low-wage and low-productivity foreign workers on limited contracts; indeed, such workers hold more than half the jobs in the country.

The most important priorities include boosting the efficiency of government spending and developing new sources of revenue to replace oil exports.

Weaning Saudi Arabia’s economy off oil will not be easy, and the kingdom has an uneven track record in this regard. But there are encouraging early signs about the government’s focus, energy, and determination.

Why Manipulate Rice Production?

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Crop subsidies may aid farmers, but they can often hurt consumers.

Asia consumes 90 percent of the world’s rice.  Political tensions in the area often drive governments to become self-sufficient producers.  This can drive the local price of rice up and cut off the supply of imported rice.

When governments manipulate the rice market through subsidies, taiffs and other support for domestic producers, prices are raised for consumers and the poorest people suffer.

Rice is used for all kinds of food by people of all ages in Asia.  Babies and the elderly eat ric gruel.  Rice porridge is eaten by the wealthy.  Sake made from rice is sipped in karaoke bars.

Rice is also cultural and religious symbol.  This makes the food politically charged.  Yet raising the price of rice is not good for countries whose poor and moderately poor people depend on it.

Does rice have to be grown locally in Asia to be readily available?