Fed’s Fischer: Volatile Path for Rate Hikes

IThe Federal Reserve’s pace of interest-rate hikes the next few years will be far more volatile than in previous cycles in part because of unpredictable shocks, with the central bank sometimes lowering rates, the Fed’s vice chairman said at the Economic Club of New York.

“A smooth path upward in the federal funds rate will almost certainly not be realized, because, inevitably, the economy will encounter shocks — shocks like the unexpected decline in the price of oil, or geopolitical developments that may have major budgetary and confidence implications, or a burst of greater productivity growth, as the Fed dealt with in the mid-1990s, ”

Citing the 2004 to 2007 rate increase cycle, when the Fed raised its benchmark rate at nearly every meeting, Fischer said, “I know of no plans for the (Fed’s policymaking committee) to behave that way.”

The Fed last week dropped an assurance to be “patient” as it considers its first rate increase since 2006, opening the door to a hike from the near zero rate as soon as June. But with inflation and wage growth stubbornly weak, Fed officials’ interest-rate forecasts indicate an initial increase is more likely in September.

Fischer reaffirmed that liftoff “likely will be wanted before the end of the year.”

Fed policymakers’ projections showed the pace of rate increases is likely to be unusually slow, with the fed funds rate rising to just 0.625% at the end of this year and 1.875% by the end of 2016.

But Fischer said the path of increases will be unpredictable. “There is considerable uncertainty about the level of future interest rates,” he said. “As monetary policy is normalized, interest rates will sometimes have to be increased, and sometimes decreased.”

The only certainty, he added, is that future rate increases will be based on the Fed’s goals of maximizing employment and keeping prices stable, and on economic data.

Women in Sharia Judiciary!

Ahmad Melhem writes: For centuries, men in the Arab world have dominated important state positions, such as in the Sharia judiciary — which settles status issues, such as orphan care, divorce, custody and inheritance among others, based on Islamic legislation. Then Palestinian attorney Kholoud al-Faqih defied the “norms” and decided to open that closed door, becoming the first woman to occupy the position of Sharia judge and to walk down that ambitious path.

On Feb. 15, 2009, a huge surprise was in store for Palestine. President Mahmoud Abbas issued a presidential decree appointing Faqih to the Sharia judiciary. This constituted an unprecedented move in Palestine and the Arab world, as the position was generally monopolized by men.

In 2001, Faqih  received her license from the chief justice’s office, which granted Faqih her license to practice Sharia law, and she also received her license to practice civil law from the Palestinian Lawyer’s Union. She then worked as an adviser in several women’s organizations and as a defense attorney for women in legal and Sharia courts.
Regarding her interest in becoming a Sharia judge, Faqih said that she noticed during her work the absence of women in the Sharia judiciary. This prompted her to search for the underlying reason and prepare a legal and Sharia study regarding the obstacles, according to the 1976 Jordanian personal status law applicable in Palestine since the West Bank was administratively affiliated with Jordan. She could not find any legal or Sharia text forbidding women from working in the judiciary. So, she moved forward in her endeavors.
Faqih added that the judiciary position was restricted to men due to social norms that favor men over women in Arab societies. She submitted the study she had conducted to then-Chief Islamic Judge Sheikh Taysir al-Tamimi.  “When I told him I wanted to become a Sharia judge, he looked shocked at first,” she said, “but I immediately showed him proof that there is nothing in law or Sharia forbidding me from practicing this job, according to the four schools of thought in Islamic jurisprudence or fiqh and as per the Jordanian law applicable in Palestine.”

Regarding her ambition to become a Sharia judge, Faqih said, “I have noticed throughout my work the absence of women in the Sharia judiciary, which prompted me to investigate the reasons behind this and to carry out legal and Sharia research about the obstacles in this regard as per the Jordanian law in force in Palestine. I did not find any legal or Sharia law that prevents women from taking part in this process, which encouraged me to move on in my research.”
In 2008, Faqih participated in a judicial competition that the Sharia judiciary had launched to appoint judges. She saw this as a golden opportunity, saying, “I was the only woman among 45 men taking the Palestinian female judges gavel down taboos test, and I passed with a high score.”    Interview with Faqih

Judge Kholoud Al-Faqih

Women Inherit Their Fathers’ Businesses in the Middle East

Melissa Tabeek writes:  In the workshop of the Barchini family, science and art collide. Dana Barchini, 26, and her father Joseph Barchini, 80, both potters and sculptors, work alongside each other, whether it be in the family workspace or testing clay in the Bekaa Valley to be used for their pieces. Joseph, educated in France at the Ecole des Metiers d’art, returned to Lebanon after also receiving his doctorate at the Sorbonne, where he studied the technical aspects of the ceramics the potters created in his native country, as well as their socio-economic situation. He returned to Lebanon to use his knowledge to improve the potters’ situation and to help modernize their work process. Joseph opened his first workshop in 1965 in his parents’ home in Beirut, but when the civil war began, he had to move north. Now he spends nearly every day in his second workshop he built in Ain Saade in 1980, a village eight miles north of Beirut, testing different aspects of the pottery craft and creating new glazes through chemical reactions.

Dana is one of the many female artisans in Lebanon who are continuing a patriarchal family tradition from their fathers or grandfathers as their full-time job, despite the growing difficulties of maintaining craftsmanship traditions. The number of potters in the mountains that Joseph works with, for one, has greatly declined since he began when he was 25. He talks about a time when there were more than 100 — a number that has dwindled to fewer than 30 in the past few years.

Fatima Tartoussi, 37, is a woman working in a man’s world of metal in Lebanon’s northern city of Tripoli. From stalls in Tripoli’s market to a multiple-room workshop in Bab al-Rmeil, Tartoussi works with metal as well as manages the family business. She learned this craft from her father, who despite not having sons to pass the business onto did not initially want her going into this type of work because of the physical demands of the job.
“I was 7 years old when after going to school I would see my father and his workers doing this. I wanted to do the same, but my father would not allow it. So after school, I would steal wood, copper and iron, anything I could find,” Tartoussi told Al-Monitor, as she skillfully makes a stainless steel nameplate, the smell of iron hanging heavy in the air in her workshop. When her father saw her talent, he eventually relented.

Maya Hassun shares this concern in passing the soap-making tradition in her family to her two children. Hassun, 34, has a bachelor’s and master’s degree in law, but the pull of soap proved too strong. Her grandfather used to cook olive oil and bay leaf soap in Kfarhata, a village north of the southern city of Sidon. Before he died, he left his notebook of recipes and instructions from his lifetime of work with soap to Hassun, who had spent much time in his atelier as a child. Since then, she has come far from experimenting in her kitchen 18 years ago, now operating a thriving business, Sabbouna, with her husband, which includes a showroom in Sidon and a large workshop in the Chouf region.

There are many obstacles to overcome, Dana conceded, including a lack of government support, technical schools, an easy market and an availability of cheaper goods. But she is still hopeful for the future.
“It is good that I was persistent and that I didn’t give up because look what I’m trying to continue. Imagine I did not do this and those were left behind,” Dana said, pointing to her father’s ceramic pieces on a shelf behind her, “I am carrying on something very beautiful to show people something extraordinary.”

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The Mystery of Egypt’s Disappearing Cotton?

Walaa Hussein writes:  Despite the importance of this unique Egyptian crop, successive Egyptian governments have failed over the last 20 years to reform its production. Cities such as El-Mahalla el-Kubra and Kafr el-Dawwar depend entirely upon this sector, for which former President Gamal Abdel Nasser set up large textile factories that have now stopped operations, such as the Misr Beida Dyers and Misrayon & Polyester Fiber Co. This crisis threatens 1.2 million Egyptians and has led to losses of 1.8 billion Egyptian pounds ($235 million) in 2014.

Several unions, like the Textile and Weaving Union in Egypt, assert that there is a global conspiracy to ruin the Egyptian textile industry in order to benefit the imported clothes industry. Yet successive Egyptian governments’ policies have abandoned support for cotton farmers, while many countries, such as India and Turkey, provide up to 30% subsidies to this industry.

The Egyptian government currently aims to limit the cultivation of Egypt’s extra-long staple cotton, which Egypt used to boast globally as the best type of cotton. To justify its decision, the Egyptian Ministry of Industry claims that the demand for this type of cotton has dropped and accounts for only 3-5% of the global market’s needs.

Egypt is well aware of this reality and that the United States subsidizes each cotton acre with $700 and stands watching. Meanwhile, Egyptian farmers have a million quintals of cotton that they cannot sell because of dumping.

Is it possible that 51 million Egyptian farmers were threatened to be thrown out of the field of agriculture because of the Ministry of Agriculture’s failed policies, which spell disaster in the Egyptian food security sector in the coming period? Egyptian gins that separate cotton from its seeds are being sold. As a result, 60% of lands accommodating these gins have been transformed into spaces for real estate.”

Qalyoubi, former head of the Chamber of Textile Industries, said harvesting cotton crops mechanically requires the introduction of genetic engineering into cultivation and the use of developed irrigation methods. The crops should all be at an equal height from the ground so as not to waste any cotton when harvesting.

He explained that the fragmentation of agricultural land that began in President Nasser’s days led to a decrease in production because the use of modern agricultural systems and irrigation requires large spaces.  “The Egyptian cotton deterioration, be it in production itself or in the high cost of production, has largely impacted the textile and yarn industry in the absence of an imported alternative. In the event that cotton is imported, the price will be set by the Ministry of Agriculture and won’t represent its global price,” Qalyoubi said. Egypt has grown accustomed to exporting long staple, high-quality cotton and importing cotton of poorer quality for textile companies.

Qalyoubi said that Egypt’s textile industry faces stiff competition from India, Bangladesh and China.  “Officials should know that the cultivation of cotton and the textile industry are two issues with social and economic dimensions. The textile industry employs many workers. Therefore, failure to resolve its problems may lead to serious social consequences,” he added.

Pharaohs called Egyptian cotton “white gold.” Meanwhile, nobody knows how long their descendants will keep up the global conspiracy theory to avoid facing their failure to reform Egypt’s cultivation system and the agricultural policies in the country as a whole.

Egyptian Cotton Disappears?

Greek Drama Continues

Germany’s Angela Merkel does not expect talks on Monday with Greek Prime Minister Alexis Tsipras to resolve his differences with the euro zone over Greece’s bailout but she does want to hear from him in person about his reform plans, an aide said.

The German chancellor and Greek leader have played down expectations that he would use his first official visit to Berlin to present a brand new list of reform proposals which he promised European Union leaders at a summit last week.

Tsipras’ talk of coming up with a new reform package within days to unlock the cash that Greece needs to avoid crashing out of the euro has met deep-seated scepticism in Germany, the currency zone’s largest economy.

“Greece has an agreement with the Eurogroup, not a bilateral one with Germany. So if there is a reform list shortly as Greece has promised, it will be presented to the Eurogroup, not to individual governments,” said Seibert.

But although the meeting was no “rival” to Eurogroup talks, “of course it’s interesting for the chancellor to her from the Greek prime minister’s mouth what his ideas are”, Seibert said.

News that Tsipras wrote to Merkel last week warning that it would be impossible for Greece to make debt payments in the next few weeks without more financial help provided an unpromising backdrop for talk that already promised to be tense.

“It’s not a threat, it’s reality,” a spokesman for the Greek government, Gabriel Sakellaridis, told Mega TV when asked if the March 15 letter was meant to make it clear Athens would choose paying wages over replaying its debt.

“It was a letter which said more or less what we have been saying since last week – that there is a liquidity problem and that what at is needed is political initiatives,” he said.

Tsipras blamed European Central Bank limits on Greece’s ability to issue short-term debt as well as euro zone bailout authorities’ refusal to disburse any cash before Athens adopts new reforms, according to the Financial Times newspaper.

Mistrust and scepticism among Merkel’s allies have spawned portrayals of the talks as a Wild West-style showdown, with the German media casting Tsipras as the outlaw and the chancellor as a sheriff fighting to keep the euro zone together.

Although Merkel acknowledged last week that she and Tsipras would talk “and perhaps also argue”, she said it would not be a defining moment in the standoff over the terms of Greece’s 240 billion euro ($260 billion) bailout.

The mistrust felt by Merkel’s conservatives towards Tsipras’ leftist government – and especially his Finance Minister Yanis Varoufakis – was unlikely to be improved by Tsipras’ plans to meet leaders of Germany’s radical Left party on Tuesday.

Berlin also pre-empted any Greek attempt to link the bailout debate to Athens’ revival of reparation claims from the Nazi occupation of Greece in World War Two. This issue “is a closed chapter for us”, said a German foreign ministry spokesman.

Merkel and Tsipras

 

Competition for Central Asia Heating Up?

Arthur Guschin writes:  Until recently, Central Asia played only a modest role in world politics, a reflection of its economic weakness, domestic problems, and distrust of integration. Russia’s presence in the region as the primary political mediator and economic partner was incontestable. In the last few years, though, China’s growing economic interest in Central Asia has come to be seen in Moscow as a threat to its influence. Russia is watching the Silk Road Economic Belt Initiative,  which would give Beijing the dominant role and could supplant the Eurasian Economic Union.  With Kazakhstan the core state in any integration project in the region, it looks set to become the frontlines of the tussle between China and Russia for regional influence.

Driving Russian policy in Kazakhstan are the activities of four major Russian energy companies: Gazprom, Lukoil, Transneft and Rosneft. These companies allow Moscow to keep Astana within the sphere of Russian interests and help prevent Beijing from dominating Kazakhstan’s economy. Their participation in local energy projects gives Russia access to oil and gas reserves, while binding the two countries in the energy, transport, space and agriculture sectors.

This stable energy partnership is also evident in the gas sector. Two crucial gas pipelines – Central Asia-Center and Bukhara-Ural – that run through Kazakhstan territory let Gazprom expand its resource portfolio and guarantee an uninterrupted gas supply abroad.

As a result of Russian investment over the last fifteen years, Moscow has developed a robust position in Kazakhstan fuel and energy, and guaranteed a consistent transit of energy resources.

Apart from oil and gas, Russia is also competitive in the nuclear industry, and here as well Moscow is seeking to expand its footprint in Kazakhstan.

The Kazakh uranium market is competitive, with France, China, and Japan also involved.

Russia is also investing in the development of Kazakhstan’s traditional power economy, starting with a reconstruction project involving Ekibaztuz-2 coal regional power station, which will add two energy units and increase the overall output to 4.6 billion kWh per year

At this stage, economic collaboration between China and Kazakhstan is backed by Beijing’s efforts in oil and gas field development, as well as in constructing or renovating the pipeline network to meet China’s demand for resources.

China’s national strategy of replacing coal with gas is driving it to diversify its gas supply routes.

However, China is not focusing on oil-gas negotiations alone; it has its eyes on other sectors of the Kazakhstani economy. For instance, China is an important end market for uranium.

China has also extended substantial loans to Kazakhstan, with Astana currently owing Beijing 15.8 billion dollars, almost four times the amount it owes Moscow.

Cooperation between China and Kazakhstan will grow, with both states eager to develop ties in the logistics, communications, and aviation sectors.

The advantage of Russia policy in Kazakhstan lies in the shared heritage in the form of the Soviet Union.

The weakness in Russian policy towards Kazakhstan applies to its Central Asian policy in general: Moscow’s quest for influence in the former Soviet lands comes up against Central Asian states’ insistence on their sovereignty and their unwillingness to accept satellite status. In this case.

The most pressing problem in the Kazakhstan-China-Russia triangle is competition for uranium resources.

The second significant moment in the China-Russia rivalry in Kazakhstan is the question of the next stage of SCO development, in particular, its economic component.

Kazakhstan has a difficult path to walk. On the one side, Russian and Kazakhstani leaders historically have strong ties, which the Eurasian Economic Union seeks to enhance. On the other, Astana is keen to attract Chinese money.  China, Russia and Central Asia

Everyone Competes for Central Asis

Iran Looks to Central Asia for Trade Relations

Alex Vatanka writes:  President Hassan Rouhani’s recent trip to Turkmenistan cannot be dismissed as a one-off. Since coming to office in August 2013, the Rouhani administration has prioritized relations with the Muslim states of the former Soviet Union. Given the potential for economic ties and trade, Tehran’s aspirations are fully understandable.
Meanwhile, the Central Asian states are largely receptive. But for this latest momentum to gain enduring traction, Tehran has to be smart about its appeal to the Central Asians. For them, Iran is a very familiar civilization and a much-needed bridge to world markets. On the other hand, any attempt by Tehran to interject its Islamist ideology into relations will very likely give the famously cautious secular Central Asian governments reasons to once again pull away.

Rouhani has said that Iran and Turkmenistan have decided to increase trade from $3.7 billion to $60 billion per year in 10 years time. There was not much detail about how such a 16-fold increase can be achieved for two countries that each rely extensively on exporting oil and natural gas.

Rouhani and his counterpart, President Gurbanguly Berdimuhamedov, signed 17 cooperation agreements in political, economic and cultural fields as well as a pledge to collaborate in tackling environmental issues.  Both Iran and Turkmenistan are neighbors of warn-torn Afghanistan. Iranian-Turkmen cooperation about ways to prevent a spillover from Afghan instability and to combat the flow of Afghan drugs makes plenty of common sense. In that context.

In early December, Iran, Kazakhstan and Turkmenistan launched a much-awaited railway that will link Central Asia to Iran’s southern ports. The first cargo of Kazakh wheat has already been shipped through this new route. The new 930-kilometer (577-mile) rail link is promoted by Tehran as a critical part of a regional transit hub that Iran considers itself best suited to undertake. At the same time, geography alone makes Turkmenistan Iran’s inevitable “bridge to the rest of Central Asia,” a point made by a former Iranian ambassador to the region.

The Central Asian states are clearly open to more economic and infrastructural linkages with Iran. Much of the new infrastructure put in place since they gained independence in 1991 has been eastward orientated with the aim of linking up to the Chinese market. That has so far worked well but there is always a danger of overreliance on China. Russia, on the other hand, the traditional route for much of Central Asian oil and natural gas exports, is experiencing deep political and economic challenges thanks to its fallout with the West.

These security and economic realities facing Turkmenistan and the other Central Asian states are providing a new impetus for the Iranian option to be reconsidered. That Rouhani is committed to return Iran to the international mainstream economy, and is pushing ahead to resolve Tehran’s nuclear file with the international community, only encourages Central Asian confidence in looking for ways to work with Iran.

Iran's Economy?

Banks Still Too Big to Fail?

Mark Roe writes: Headlines about banks’ risks to the financial system continue to dominate the financial news. Bank of America performed poorly on the US Federal Reserve’s financial stress tests, and regulators criticized Goldman Sachs’ and JPMorgan Chase’s financing plans, leading both to lower their planned dividends and share buybacks. And Citibank’s hefty buildup of its financial trading business raises doubts about whether it is controlling risk properly.

These results suggest that some of the biggest banks remain at risk. And yet bankers are insisting that the post-crisis task of strengthening regulation and building a safer financial system has nearly been completed, with some citing recent studies of bank safety to support this argument. So which is it: Are banks still at risk? Or has post-crisis regulatory reform done its job?

The 2008 financial crisis highlighted two dangerous features of today’s financial system. First, governments will bail out the largest banks rather than let them collapse and damage the economy. Second, and worse, being too big to fail helps large banks grow even larger, as creditors and trading partners prefer to work with banks that have an implicit government guarantee.

Too-big-to-fail banks enjoy lower interest rates on debt than their mid-size counterparts, because lenders know that the bonds or trading contracts that such banks issue will be paid, even if the bank itself fails. Before, during, and just after the 2007-2008 financial crisis, this provided an advantage equivalent to more than one-third of the largest US banks’ equity value.

Bailouts of too-big-to-fail banks are unpopular among economists, policymakers, and taxpayers, who resent special deals for financial bigwigs. Public anger gave regulators in the United States and elsewhere widespread support after the financial crisis to set higher capital and other safety requirements. And more regulatory changes are in the works.

New studies, including important ones from the International Monetary Fund and the US Government Accountability Office, do indeed show that the long-term boost afforded to too-big-to-fail banks like Citigroup, JPMorgan Chase, and Bank of America is declining from its pre-crisis high. This is good news. The bad news is that US bank representatives cite these studies when claiming, in the financial media and presumably to their favorite members of Congress, that the too-big-to-fail phenomenon has been contained and that the time has come for regulators to back off.

This is a dangerous idea, for several reasons. For starters, the IMF’s research and similar studies show that the likelihood of a bailout over the life of the bonds already issued by banks is indeed now lower. But the studies do not specify why.

Lower bailout risk could reflect the perception that the regulation already in place is appropriate and complete. Or bond-market participants may expect that new regulations, like the stress tests, will finish the job. The studies could be telling us that investors believe that regulators are on the case and have enough political support to implement further safeguards. Or they could think that the economy is currently strong enough that the banks will not fail before the bonds are paid off in a few years.

The second reason why such studies should not deter regulators from continued intelligent action is that the research focuses on long-term debt. But that is not the right place to look nowadays, because regulators are positioning long-term debt to take the hit in a meltdown, while making banks’ extremely profitable – and far more volatile – short-term debt and trading operations more certain to be paid in full. As a result, traders choose too-big-to-fail banks, rather than mid-size institutions, as counter-parties for their short-term trades, causing the large banks’ trading books – and, hence, their profits – to surge.

Measuring the boost to short-term debt is not easy. But it is most likely quite large. The major banks’ recent effort, led by Citigroup, to convince the US Congress to repeal a key provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that would have pushed much of their short-term trading to distant affiliates (which are not too big to fail) reinforces this interpretation. The banks know that they will receive more business if they run their trading desks from the part of their corporate group that has the strongest government backing.

The third reason to be wary of bankers’ confidence that the regulatory job is complete is that once they believe it, they will behave accordingly – less frightened of failure and thus willing to take on more risk.

Regulators must not be deterred by bank lobbying or studies that measure neither the short-term boost afforded by a bank’s too-big-to-fail status nor how much of the perception of increased safety can be attributed to the regulations in place and the expectation of additional good regulation. In the absence of such studies, regulators must use their own judgment and intelligence. If “too big to fail” also means “too big to regulate,” the perception of increased safety will not last long.

 Too Big to Fail?

China’s Ability to Change and Adapt

Andrew Sheng and Geng Xiao write: China’s leaders are taking action to support the shift to more sustainable growth models. The finance ministry has raised the central-government budget deficit from 1.8% of GDP in 2014 to as much as 2.7% in 2015, and will allow highly leveraged local governments to swap CN¥1 trillion ($161.1 billion) of debt maturing this year for bonds with lower interest rates.

Likewise, the People’s Bank of China (PBOC) has provided monetary support, gradually lowering interest rates and reserve requirements. Because wages are still rising, the inflation target for 2015 has been set at 3% – higher than the actual 2014 inflation of 2%, even though producer-price inflation has been negative for 36 months. The PBOC also has projected a stable exchange-rate environment for this year – despite the steep depreciation of the Japanese yen, the euro, and emerging-economy currencies against the dollar – thereby promoting global stability.

These policies reflect a remarkable determination to continue on the path of structural reform, despite strong headwinds from the deteriorating external environment and domestic structural adjustments. In short, China’s government seems to have a clear long-term vision.

The claimby some that China’s economic and political development is in jeopardy seems to ignore the country’s adaptive learning process, which shapes every economic, diplomatic, military, and social policy. This process – characterized by experimentation, assessment, and adjustment – emerged from the CCP’s military experience of the 1930s, was applied by Deng Xiaoping to his reform program in the 1980s, and has been refined by subsequent Chinese leaders. Because no economy had ever experienced such rapid growth on such a large scale, the only way to manage China’s development was, as Deng put it, to “cross the river by feeling the stones.”

Some experiments have had less clear results, making, say, a positive contribution to GDP growth, but also contributing to problems like excess industrial capacity, pollution, corruption, and the creation of ghost towns.  The mere fact that problems have emerged in no way suggests that China is headed for disaster; that would be the case only if these problems were allowed to persist.

China’s “new normal” needs to go beyond policies intended to sustain economic growth. Reforms must aim to bolster inclusivity, advance environmental sustainability, promote innovation, and boost competitiveness. And this is precisely the four-pronged approach that China’s leaders seem to be taking.

Indeed, from slashing coal consumption to address air pollution to plans for integrating information technologies with modern manufacturing, the government has shown time and again that it recognizes its reform imperatives. And, by remaining dogged in its efforts to root out official graft, it has demonstrated its will to do what is needed to ensure that China succeeds..

Market forces will benefit from the growth in households’ spending power. Indeed, continued real-wage growth is forcing inefficient industries that relied solely on cheap labor out of the market, while bolstering the competitiveness of producers that appeal to the evolving tastes of China’s increasingly potent consumers. To support this process, China is now implementing deposit insurance, for example.

At the same time, China is reforming its inefficient approval-based system of initial public offerings to one based on registrations. A more active and efficient IPO market will allow companies to meet their financing needs without bank intermediation – a step that is vital to helping firms eliminate their debt overhangs.

Despite the recent rebound, China’s stock-market capitalization amounts to only 40% of GDP, while banking assets total 266% of GDP. Meanwhile, only 10% of total social funding comes from the equity market.

Improved bankruptcy procedures for failed borrowers must be implemented.  Unless failed borrowers and projects exit the system quickly and smoothly, the market will be saddled with bad debt and incomplete projects, undermining its performance.

China has repeatedly proved its durability and adaptability. Now, it must do so yet again, by ensuring that its “new normal” is as stable, sustainable, and inclusive as possible.

Failure may be the mother of success – but only if one makes the effort to learn from it. Fortunately, China’s leaders seem intent on doing just that.

China's Economy

Pay Ratios in American Corporations

Jim Lardner of Americans for FInancial Reform writes: Out-of-control compensation played a big part in the cycle of reckless lending, opaque securitizing and systematic offloading of responsibility that led to the financial and economic meltdown of 2008. In one very modest response, the Dodd-Frank Act directed banks and other public companies to reveal more about their pay practices.

More specifically, the statute said to companies: tell us how much money your CEO makes, how much your median employee makes, and the ratio of the first number to the second. It’s one of the simplest of all of Dodd-Frank’s provisions. And yet, more than four-and-a-half years after the law’s enactment, the Securities and Exchange Commission has yet to put this requirement into effect.

Investors deserve more information about pay practices, both to guard their pocketbooks against self-seeking executives and to better evaluate the long-term soundness of companies in light of evidence that runaway pay at the top inhibits teamwork and reduces employee morale and productivity.

Wall Street and the Chamber of Commerce have raised a preposterous hue and cry about the supposed burden of compiling the data. But a number of large companies have done so without difficulty. It is time – past time – for the SEC to finalize a strong pay-ratio rule, and one that includes part-time and overseas workers.

In January 2013, when Mary Jo White was nominated to lead the SEC, she pledged to make this rule a priority. Last fall, she spoke of getting the job done by the end of 2014. Now that it is March 2015, we are writing again about the pay-ratio rule. The SEC commissioners should  get on with it and, once the rule is in place, to work with their fellow regulators on other legally mandated steps to combat questionable corporate pay practices.

Pay Ratio in Corporations