Author Archives: Lily Fleur

Japan to Double Investment in India in 5 years.

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Japanese Prime Minister Shinzo Abe will tell his Indian counterpart Narendra Modi that Japan aims to double its direct investment in India in five years from some US$2 billion last year, the Nikkei business daily reported.

Modi, on his first major foreign visit since a landslide election win in May, arrived for a five-day trip aimed at capitalising on a personal affinity with Abe to bolster security and business ties in the face of an assertive China.

The two leaders are also likely to agree to speed up talks on a nuclear energy pact, the Nikkei said, although hopes of striking a similar accord to one reached with the United States in 2008 had faded in the run-up to the visit.

Japan wants explicit guarantees from India, which has not signed the nuclear non-proliferation treaty, to limit atomic tests and allow closer inspection of its facilities to ensure that spent fuel is not used to make bombs. Japanese firms also want clarity on nuclear disaster compensation, especially in the wake of the March 2011 Fukushima catastrophe.

In a sign of their close ties, the two leaders greeted each other with a bear hug when they met on Saturday in Japan’s ancient capital of Kyoto for an informal dinner. Modi is one of three people that Abe follows on Twitter, while the Indian leader admires Abe’s brand of nationalist politics.

Also under discussion will be a proposal to formalise a ‘two-plus-two’ format for talks bringing together the foreign and defence ministers of both countries, and the possible sale of an amphibious aircraft to the India navy.

India and Japan will also likely agree to hold regular joint training exercises in maritime defense, some of which will involve the United States as well, the Nikkei said.

India, Asia’s third-largest economy after China and Japan, needs faster economic growth to create work for the one million young people who enter the workforce every month.

In early steps, Modi has allowed foreign investors to own 100 percent of railway projects with an eye to drumming up interest in building India’s answer to Japan’s high-speed ‘bullet’ trains. He is also courting Japanese investment in an ambitious industrial “corridor” to run between Delhi and Mumbai.

Japan’s Honda Motor Co Ltd, Suzuki Co Ltd, Sony Corp and Toyota Motor Corp are household names in India. Yet, India accounts for only 1.2 percent of Japan’s total outward foreign direct investment.

Modi and Abe

Ending Crony Capitalism in Hong Kong

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Nisid Hajari writes:  When they meet on Sunday, legislators from China’s rubber-stamp National People’s Congress are expected to disregard even modest proposals to open up Hong Kong’s political system. In all likelihood the decision will provoke street protests, drive moderates into the more radical pro-democracy camp and call into question the former British colony’s standing as a global financial center and bastion of free enterprise. And for what? The good of Hong Kong, of course.

Wang Zhenmin, a Chinese law professor who sat on the committee overseeing Hong Kong’s constitution, laid out the case most blatantly on Thursday: the interests of the city’s powerful tycoons had to be safeguarded from unchecked democracy. “If we just ignore their interest, Hong Kong capitalism will stop,” he said. “Democracy is a political matter and it is also an economic matter.”

On the face of it, Beijing’s intransigence makes little sense. Pro-democracy groups proposed a system of open nominations with a much lower threshold — about 5 percent of the voting population. Even if some anti-Communist radical were able to get on the ballot, the chances of him or her winning would still be negligible. In addition, any victor would be sworn into office with an oath that acknowledges China’s suzerainty over Hong Kong; a leader could be ousted for violating it.

Compromise proposals supported by moderates would have entailed even less risk. For example, China could have expanded the nominating committee, adding more members directly elected by the public, while lowering the nominating threshold. Thus the choices available to voters would have expanded beyond a tight circle of pro-Beijing cronies without threatening China’s hold over Hong Kong.

According to Credit Suisse, a few wealthy businessmen now account for 60 percent of the city’s wealth. Those who have prospered most are engaged in sectors such as banking and real estate, where political connections matter. Hong Kong recently topped the Economist’s “crony capitalism index” just ahead of oligarch-ridden Russia. Frustration over Hong Kong’s yawning wealth gap is rising dangerously. While gross domestic product has grown about 50 percent in the past decade, median household income has only risen 10 percent.

The cost of defending the plutocrats is high. A Chinese government has raised doubts about the continued independence of Hong Kong’s judiciary and the city’s commitment to the rule of law, which have been pillars of its success.  Raids this week on high-profile opposition supporter Jimmy Lai were hardly more reassuring. Perhaps leaders in Beijing feel they are defending a principle greater than the pocketbooks of Hong Kong’s elite. They have long feared that showing leniency toward Hong Kong would encourage other disgruntled parts of China, such as Tibet and Xinjiang, to demand greater autonomy.

Sooner or later, Chinese leaders are going to have to get more comfortable with the idea of autonomy in outlying regions.  So far Beijing is failing.

Hong Kong Bright Lights Dim

 

Gender Balance on EU Commission

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The EU member states are meeting to pick a new President and Foreign Minister.  Frederica Mogherini the possible pick to be Foreign MInister, is thought by some to be too close to Russia.  If Donald Tusk, President of Poland, is chosen as President, this may assuage fears.  Martin Schulz, the president of the European Parliament, made comments about the gender balance of the next Commission: “if there are fewer women elected to Commission than the current nine, there is a risk of receiving not enough support in the European Parliament.” Schulz also said he is a “Mogherini-fan”. “I know her very well and she is experienced enough for the job [of High Representative].”  Biography

Frederica Mogherini

Update:  Tusk and Mogherini Get the EU Jobs:

Donald Tusk is to leave the prime ministership of Poland to become president of the European Council in succession to Herman Van Rompuy.  His appointment balances the choice of Federica Mogherini, Italy’s foreign minister, as the European Union’s high representative for foreign policy. The decisions were announced by Van Rompuy, who said that they had “the full support of all” members of the European Council.

“You have the full endorsement of the European Council and this full endorsement was very important to me,” said Van Rompuy, adding that he had spoken several times to each government leader “to make sure we made the right choice”.

The announcement came two and a half hours into an EU summit that was convened specifically to discuss the appointments – after Van Rompuy deemed the matter not ripe for decision at an earlier summit on 16 July. Agreement on Tusk and Mogherini was apparently painless, and the greater work of the summit may prove to be discussion of how to respond to Russia’s incursions into Ukraine.

Tusk, who has been prime minister since 2007, will take up his EU post on 1 December for a two-and-a-half year term. Mogherini will take up her post – which also includes a vice-presidency of the European Commission – when the new Commission to be led by Jean-Claude Juncker takes up office, which is scheduled to be on 1 November for a five-year term.

At a press conference at which Van Rompuy presented the two anointed EU leaders to the television cameras, Tusk addressed directly questions about whether he has the linguistic skills necessary for the Council presidency, announcing (in English) that for the moment he would answer questions in Polish, but in December he would speak in English. “Nothing is good enough for Europe – including my English. I will polish my English. I will be ready in December – 100%.”

Mogherini was questioned about the charges that she lacked experience and that her candidacy had been supported by Vladimir Putin, the Russian president. She rejected the first charge, responding that she was the foreign minister of a G7 country and that she had been involved in European and foreign affairs for 20 years. She stressed her experience of parliamentary institutions and of politics.

On alleged sympathy towards Russia, she said that her first trip abroad after Italy took on the presidency of the EU’s Council of Ministers had been to Kiev. After two days there, she had gone on to Moscow. She had been trying, she said, “to co-ordinate efforts to facilitate a form of dialogue”. Tusk said he was confident that he and Mogherini would work well together. “I am very serene about our co-operation,” he said.

Van Rompuy, in his opening remarks, had identified three challenges that the new leaders of the EU would have to address: the EU’s stagnant economic performance; the Ukraine-Russia crisis; and “Britain’s place in Europe”.

Tusk picked up this reference to the UK, saying that he had discussed with Prime Minister David Cameron his ideas for reform of the EU.

“No reasonable person can imagine the EU without the UK and I cannot imagine it myself,” he said. He also stressed that he did not want divisions to open up between the eurozone and the rest of the EU. As well as being president of the European Council, Tusk will be president of the euro summit – the meetings of government leaders  of the eurozone – a post that was given formal recognition by the 2012 fiscal compact treaty. Such eurozone summits are to happen twice a year and some meetings may be attended by all countries that are signatories to the fiscal compact treaty (currently 25 member states). That Tusk comes from a country that does not belong to the eurozone was not a barrier to his taking the euro summit presidency, despite some earlier objections from France.

 

 

 

Is Constraining Debt Leverage Ratios the Answer in China?

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Yu Yongding writes:  Earlier this year, rumors of China’s impending financial doom – triggered by either a housing-market crash or local-government debt defaults – were rampant. But, in recent months, the economy has stabilized, leaving few doubts about China’s ability to grow by more than 7% this year. Given that the Chinese government had ample scope for policy intervention, this turnaround should come as no surprise. But the moment of financial reckoning has merely been postponed, not averted.

The fundamental problems that triggered alarm bells in the first place – including real-estate bubbles, local-government debt, rapid growth in shadow-banking activity, and rising corporate leverage ratios – remain unresolved. Of these, the most immediate threat to China’s economic and financial stability is the combination of high borrowing costs, low profitability for nonfinancial corporations, and very high corporate leverage ratios.   Waiting for market-oriented reform in China

China's finances

China and Thailand Back on Track

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Thailand is seeking more opportunities to collaborate with China, especially in the areas of rail transport, agricultural products and tourism, after months of political turmoil.

Phaichit Viboontanasarn, commercial minister at the Thai embassy in Beijing, said that plans for a high-speed rail line linking Chiangmai and Bangkok have been modified by the new Thai government, led by former army head Prayuth Chan-ocha.  The railway will instead be a conventional line connecting Nong Khai in northeast Thailand with the capital. Phaichit said the country will gradually improve its national railway network and work closely with Chinese companies that have mature technology at prices lower than those of many international competitors.

Many parts of Thailand’s rail network are still single-track lines, and the government wants to improve the basic rail system first by building double-track lines and related facilities.  Thailand is a large member economy of the Association of Southeast Asian Nations, which has 600 million consumers.

“With stable economic growth driven by tourism, modern manufacturing and agricultural development, Thailand will build its own high-speed railway system when the time is ripe, which will help us further enhance trade. China surely will be a big contributor to our high-speed railway sector,” Phaichit said.

Bilateral trade surged from $26 million in 1975 to $70 billion in 2013, and this growing trade has improved the service sectors including aviation, tourism and hotels.  Bangornrat Shinaprayoon, director of the Tourism Authority of Thailand’s Beijing office, said: “Thailand is doing its best to reduce the negative impact of the political chaos and has shifted the government’s top priority to economic development, especially the tourism, agricultural processing, transportation, electronics and vehicle industries.”  In the first seven months of this year, 2.22 million Chinese visited Thailand.

Bangornrat said that Thailand expects 4.3 million Chinese tourists this year.  “Thailand has waived visa fees for Chinese tourists from August 9 to November 8 and opened eight customs channels for Chinese visitors at airports in Thailand,” Bangornrat said.

Thailand Tourist Destinations

How China Will Take Anti-Graft Campaign Forward

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The Chinese media and the Internet are full of speculations on how the top leadership will continue the anti-corruption campaign after putting former security chief Zhou Yongkang under investigation. A former member of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, Zhou is the highest-ranking official facing investigation for corruption since the launch of reform in the late 1970s. As Chinese often say, Zhou is the “biggest tiger” to be trapped in the anti-corruption net.

Although people have welcomed the probe against Zhou, they are asking what turns will the anti-corruption campaign and the overall political development take now? Will the campaign taper off? And what long-term effects will the anti-corruption campaign leave?  The official press is busy trying to answer these questions. Shortly after Zhou was put under investigation, a commentary on gmw.cn went on to say hunting down a “big tiger” cannot be the ultimate goal of the crackdown on corruption. Instead, the goal should be to use the opportunity to deepen government reforms, and to wipe out bad officials’ influence in ways prescribed by the law. After hunting down Zhou, China still has three major battles to fight.

The first battle is to use the Fourth Plenum of the 18th CPC Central Committee, scheduled for October, to expedite the country’s legal development and strengthen the rule of law. In fact, the natural continuation of the anti-corruption campaign is to design effective institutions to prevent the distortion of law in implementation.
The second battle is to redress the inequality in wealth and status in the market, which can be done through reform of State-owned enterprises, which have de facto monopoly over of natural resources, and make them face effective competition.
The market should be strictly regulated to curb what the author of the article in People’s Daily calls “feudal capitalism”, or crony capitalism. Authorities must make serious efforts, even if they are not more serious than the anti-corruption drive, to encourage “true entrepreneurship” while battling “bureaucratic capitalism” and “barbarian capitalists”.  The third battle has to be fought on the international relations front to earn China a larger space for its peaceful rise.

It is still too early to claim victory over corruption. People could feel disappointed again if there aren’t more effective methods to deal with the problems mentioned above. Therefore, the leadership has to show more tangible results to the people.

Wiping Out Corruption in China

Most US Companies Still Pay US Taxes When They Move (Inversion)

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Matt Levine makes brilliantly clear how the US tax system works when companies are international.

The most recent story on the Burger King press page remains “Burger King Restaurants Bring Back Chicken Fries,” but events have overtaken the chicken fries. After many media reports, Burger King and Tim Hortons have put out a press release confirming that they’ve been holding merger talks, and imagine what the catering is like. This announcement has set off a frenzy of condemnation, since any merger would be what is called an “inversion,” turning the combined Burger Tim into a Canadian company and thus freeing it from its harsh but patriotic duty to pay U.S. income taxes.

This condemnation is a bit confused, so I thought it might be helpful to explain very simply (too simply!) how the U.S. corporate income tax system works. There is nothing new here, lots of people know this, but weirdly lots of people don’t, too. It works like this.   Matt Levine Explains Inversion

US Tax Consequences of Inversion

 

US Fed is Not Able to Solve Employment Problems.

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Although employment is one of the Fed’s central missions and the current chair, Janet Yellen has a passionate commitment to employment for all willing workers, the shape that unemployment takes in much of the developed world can not be altered by monetary policy although it can perhaps be changed by tax policy.  Writing from Jackson Hole, Daniel Altman looks at some tacts that might help.

The private sector in the United States has been consolidating rather than expanding in the past few decades. The average payroll at an American company is about 50 percent higher now than in 1977, as I have written. In other words, there have been progressively fewer businesses per worker, and those business have gotten much bigger. This hinders innovation too, since bigger organizations tend to have more vertical hierarchies. The more layers in the organization, the tougher it is for new ideas to percolate to the top.

In this environment, low interest rates may not be enough to boost employment. Some firms could find it easier to replace and renew old capital, and new firms may find the cost of raising money more bearable. But stricter lending policies among banks have dulled this effect, stifling the growth of small businesses. Overall, however, the case for hiring in the United States — or, indeed, for any major expansion of their production here — is clearly a difficult one to make for many American companies.   The US Fed is Not Going to Solve the Employment Problem

Employment

Money Transfers in Somaliland

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Barclays was one of the last major international banks to still accept accounts held by money-transfer operators (MTOs), whose activities are seen in the West as open to abuse. But a record $1.9 billion fine slapped on HSBC by U.S. authorities for conducting business with banks in Mexico and Saudi Arabia with possible links to drug trafficking and terrorism appears to have tipped the balance for Barclays. The profit margins no longer seem worth the reputational risk. Now, ironically, Barclays finds itself in the role of “bad guy” by dint of its slowness in pulling out of the MTO sector.

“At the end of the day, the money will still come in, but at much higher transaction cost and with less transparency,” says Shire, Somaliland’s minister of planning. “So who do you punish by doing this? Is it the pirate, the terrorist, or the poor man?”  Money Transfers in Somaliland

Money Transfers in Africa

Women’s Equality Day in the US

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August 26th is celebrated as Women’s Equality Day in the US,  The not-so-popular President issued a proclamation

“From classrooms to boardrooms, in cities and towns across America, and in the ranks of our Armed Forces, women are succeeding like never before. Their contributions are growing our economy and advancing our Nation. But despite these gains, the dreams of too many mothers and daughters continue to be deferred and denied. There is still more work to do and more doors of opportunity to open. When women receive unequal pay or are denied family leave and workplace flexibility, it makes life harder for our mothers and daughters, and it hurts the loved ones they support. These outdated policies and old ways of thinking deprive us of our Nation’s full talents and potential. That is why this June we held the first-ever White House Summit on Working Families to develop a comprehensive agenda that ensures hard working Americans do not have to choose between being productive employees and responsible family members. We know that when women and girls are free to pursue their own measure of happiness in all aspects of their lives, they strengthen our families, enrich our communities, and better our country. We know that when women succeed, America succeeds.”

It is the hope of the founders of W-T-W.org, women and finance, that knowledge and interconnected networks across the world makes a small contribution to women as they step out into the world and take their deserved places.

We Can Do It!