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

What does putting the yuan in the basket mean?   Very little except a recognition of the importance of China’s economy on the world scene.

Most things are not priced in SDRs, the Special Drawing Rights basket of currencies used by the International Monetary Fund as its units of account.

Yet because its been put in the basket, there is an expectation that China will let the market decies the yuan’s exchange rate.  If China maintains a rate that is in fact pegged to the dollar, it will boost the dollar’s weight in the basket, which is not the point of the inclusion.

The Federal Reserve has begun to raise interest rates, which will put pressure on the yuan in any case.  It’s unlikely that China will give the market free rein, but China has to be aware of its new responsibilities as part of the SDR.

Are China’s Big State Owned Firms Credit Worthy?  There was a time when China’s biggest state-owned enterprises were seen as the country’s crown jewels. The government cleaned up the balance-sheets of the best of the firms, and listed their shares on stockmarkets at home and abroad. The firms were dubbed “red chips”, the supposed blue chips of state capitalism, by fawning analysts.

Pavel Alpeyev and Grace Huang write:  Toshiba Corp. is embarking on a revamp that will leave the one-time technology pioneer a shadow of its former self. An accounting scandal has left the conglomerate in tatters, facing record losses, thousands of job cuts and potential spinoffs that may include the consumer electronics unit that made it a global player.

President Masashi Muromachi is being forced to make tough decisions after the company projected a loss of ¥550 billion for this fiscal year. Toshiba’s bond ratings were cut to junk, with restructuring costs seen outpacing previous estimates and dragging on earnings.

A household name known for making the first DVD player and the first popular laptop computer, Toshiba has clung to legacy consumer-electronics businesses that are wilting under pressure from Samsung Electronics Co. and Chinese manufacturers. As Panasonic Corp., Mitsubishi Electric Corp. and other Japan-based competitors shift away from domestic products, Toshiba has lagged behind, relying on profit from semiconductors and power generation to subsidize its TV and computer units.

Muromachi, who took over in July after the accounting irregularities were revealed, plans to announce by the end of the year far-reaching changes that may include the sale of one or more consumer-products businesses. The company said Monday it will seek a buyer for its health care unit, which makes diagnostic imaging systems such as MRI and X-ray equipment. And Toshiba is considering combining its PC operations with those of Fujitsu Ltd. and Sony Corp. spinoff Vaio, Muromachi said this month.

While such a restructuring will leave the Tokyo-based electronics manufacturer much smaller, it will give Toshiba enough breathing room to funnel more money into its mainstay memory chip division.

The chip business has been Toshiba’s most profitable, accounting for more than 100 percent of operating income in the year ended March 2015. Its lifestyle segment, which includes PCs, televisions and home appliances, yielded an operating loss of about ¥110 billion that year.

The company is also considering the sale of property and investments after earlier selling its holding in elevator-maker Kone Oyj. Other plans include accounting training, corporate governance reviews, management seminars and an evaluation system for the president and chief executive officer.

The company’s weaknesses are greater than Moody’s Investor Service and Standard & Poor’s had anticipated and may deepen in the coming months, the agencies said.

Toshiba’s earnings announcement “reflects a deterioration of business results not only in weak businesses” — including digital and white goods and home appliances and also semiconductors — “but also in the company’s core businesses,” Standard & Poor’s wrote in a statement. As a result it expects Toshiba’s earnings margin before interest, taxes, depreciation and amortization for fiscal

Still, shedding its consumer electronics unit and spinning off the power and real estate businesses could help make Toshiba an attractive chipmaker. With some ¥1.68 trillion of revenue in the latest fiscal year, the semiconductor arm as a standalone company would be a top-10 global chipmaker, data show.

Toshiba’s semiconductor business is a major player in flash memory — increasingly popular as fast, energy-efficient storage in phones, tablets and laptops.

Russian oil keeps pumping in Siberia, despite crash in oil prices.

Stephen Bierman writes:  In the fight for market share among the world’s oil producers this year, Russia wasn’t supposed to be a contender.

But the world’s No. 3 producer has been pumping at the fastest pace since the collapse of the Soviet Union, adding to the flood on an already-swamped market and helping push prices to the lowest levels since 2009.

Russia’s unexpected oil bounty this year is the result not of a new Kremlin campaign but of dozens of modest productivity improvements across the sprawling sector. Even pressured by plunging prices, as well as U.S. and European Union sanctions that cut access to much foreign financing and technology, Russian companies have managed to squeeze more crude out of some of the country’s oldest fields. They have also brought new projects on line, offsetting steady declines in its core producing region of West Siberia.

 Bashneft, with some of the oldest reserves in Russia, has been the biggest single contributor to increased crude output this year, thanks largely to low-cost efforts to squeeze more oil out of regions that have been in production for decades. The results have helped make Bashneft’s shares among the best performers on Russia’s stock market in the last 12 months.

One side effect of falling oil prices — the 52 percent plunge in the ruble over the last two years — has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.

Relatively high taxes on oil have actually sheltered the industry from much of the impact of the drop in prices.  Bashneft and other Russian companies working fields in the Volga River basin — some of the first to be discovered in Russia early in the last century — are benefiting from Soviet inefficiency.

Custom-designed pumps — made locally and thus not affected by sanctions — help draw oil out of narrow holes, he added.  Every month, the company ranks potential drilling and other projects by the minimum oil price needed to make them profitable. Only the above-water ones make the grade, a kind of flexibility and discipline typically associated with western companies.

Across the industry, companies have boosted production drilling to increase output. While the country’s biggest west Siberian fields are showing declines, smaller new projects have more than offset them this year.

Gainers include Irkutsk Oil Co. in Siberia and Exxon Mobil Corp.-led Sakhalin-1 in the Sea of Okhotsk.

In the Arctic, Novatek started production at the Yarudeyskoye oil field this month. The field will “rapidly reach” planned output of about 70,000 barrels a day, the company said early this month.

Though only about 0.7 percent of total Russian oil output, that gain is likely to be enough to keep the record pace going, said Alexander Nazarov, an oil and gas analyst at Gazprombank.

Koffi Alle writes:  Terrorism on the scale witnessed in Paris last month is nothing new in Africa. In Nigeria, Cameroon, Chad, and Niger, the extremist group Boko Haram – famous for its kidnapping of 276 school girls in 2014 – has inflicted thousands of casualties with suicide bombings and assaults on civilians. In Kenya, the Somali group Al-Shabaab has carried out two major attacks, on Nairobi’s Westgate shopping mall in 2013 and on Garissa University in 2015, as well as many smaller acts of terror.

Meanwhile in Tunisia, the Islamic State has targeted tourists – orchestrating attacks on a museum and a beach resort. And in Mali, shortly after the attacks in Paris, gunmen belonging to an Al Qaeda affiliate stormed the Radisson Blu hotel in Bamako, killing 22 people. Terror, it seems, has become part of the new normal in Africa.

These attacks, and others, have cast a dark shadow across the continent’s long-awaited economic rise. It is not difficult to see why. Terrorism risks derailing Africa’s economic and political development in six important ways.

For starters, there is the sheer scale of the humanitarian catastrophe. Since 2009, Boko Haram alone has killed more than 10,000 people in Nigeria and has driven nearly a half-million from their homes.

Second, terrorism is undermining GDP growth and weighing down overall economic performance in affected countries; the economy of northern Nigeria, for example, has been devastated by the ongoing violence.

Already, economic indicators in these countries have been revised downward after terrorist incidents.

Third, the fight against terrorism is sucking up scarce financial resources. Scaling up military missions is costly, and the unpredictability of terror strikes often requires extra spending on security, which sometimes causes governments to miss their fiscal targets.

In Central and West Africa, the fiscal pressure has been especially intense. In addition to the outlays required to equip the armed forces engaged against Boko Haram, Nigerian officials estimate that billions of dollars will be needed to rebuild ravaged infrastructure in the north. Similarly, Chad’s soldiers fought alongside French troops against terrorists in Mali, and now they have coalesced with those of Nigeria and Cameroon in fighting Boko Haram. In April, the country was granted $170 million in debt relief – the payoff for years of economic reform. But now it is being forced to use part of its hard-won fiscal space to finance the fight against terror.

Fourth, the countries at risk are among the most promising frontier markets. In Nigeria, which recently became Africa’s largest economy, a dynamic private sector has been diversifying an economy that has long been dominated by oil production.

Fifth, terrorism is undermining state building.

Finally, the risk that fighting terrorism poses to civil liberties is especially acute in Africa, where institution building is still an ongoing process.

Most of the civil conflicts that held back Africa’s development for decades have finally come to an end. But terrorism risks undermining the continent’s hard-won stability and strong GDP growth.