Posts tagged ‘Gross domestic product’

28/01/2016

Grossly Deceptive Plans (GDP) | The Economist

ON JANUARY 19th China declared that its gross domestic product had grown by 6.9% in 2015, accounting for inflation—the slowest rate in a quarter of a century.

It was neatly within the government’s target of “around 7%”, but many economists wondered whether the figure was accurate. Online chatter in China about dodgy GDP numbers was fuelled a week later by the arrest of the man who had announced the data: Wang Baoan, the head of the National Bureau of Statistics. The country’s anti-graft agency accused him of “serious disciplinary violations”, a euphemism for corruption. But beyond all the (justifiable) doubts about the figures lies another important question. That is: why does China have a GDP target at all?

It is the only large industrial country that sets one. Normally central banks declare specific goals for things like inflation or unemployment. The idea that a government should aim for a particular rate of output expansion, and steer the economy to achieve that, is unusual. In the case of China, which is trying to wean its economy off excessive reliance on GDP-boosting (but often wasteful and debt-fuelling) investment, it is risky. It is inconsistent with the government’s own oft-repeated mantra that it is the quality of growth that matters, not the quantity.

In the past, setting a target may not have made much difference. For all but three of the years between 1992 and 2015, China’s growth was above target, often by a big margin. A rare period when targets seemed to affect the way officials tried to manage the economy was from 2008 to 2009, when growth fell sharply (see chart). It would be hard to argue that targets themselves have been responsible for China’s overall (impressive) record of growth in recent decades.

Now, however, the economy is slowing. This is inevitable: double-digit growth is no longer achievable except at dangerous cost (total debt was nearly 250% of GDP in the third quarter of 2015). But the government is worried that the economy may slow too fast, and that this could cause a destabilising surge in unemployment. So it has been ramping up investment again, and goading local governments to do the same by setting a high growth target.

For a while there were signs that the leadership itself had doubts about the merits of GDP target-setting. In 2013 Xinhua, an official news agency, decried what it called the country’s “GDP obsession”. By the next year, 70 or so counties and cities had scrapped their targets. In 2015 Shanghai joined them, becoming the first big city to break with orthodoxy (each level of government sets its own GDP target, often higher than the national one). Liu Qiao of the Guanghua School of Management at Peking University says the central government ought to follow suit.

Last year there were hints that it might. The prime minister, Li Keqiang, said the government would not “defend [the target for 2015] to the death”. And in October, talking about the government’s work on a new five-year economic plan (which will run from 2016 to 2020), President Xi Jinping avoided mentioning a number. That raised expectations that targets might at least be downplayed, if not abandoned.

They have not been, however. An outline of the five-year plan, unveiled in November, contained the usual emphasis on growth. And Mr Xi appeared to change his tune, saying expansion must average at least 6.5% a year until 2020. Many economists believe that will require yet more debt-inducing stimulus. A GDP target for this year is all but certain to be announced, as usual, at the annual session of the legislature in March (when the five-year plan will also be adopted). It will probably be higher than 6%. Speculation that the government might set a target range in order to give itself more policymaking flexibility (as the IMF and the World Bank have urged) has ebbed. In December some national legislators complained that local governments were busting their debt ceilings because there was “still too much emphasis on GDP”.

So why is there still a target? The reasons are political. In a country so large, central leaders are always fearful of losing their grip on far-flung bureaucrats: setting GDP targets is one means by which they believe they can evaluate and control those lower down. Local officials are also judged by environmental standards, social policies and what the Communist Party calls “virtue”—that is, being uncorrupt and in tune with the party’s latest interpretation of Marxist doctrine. But GDP is usually the most important criterion, having the attraction of being (roughly) measurable.

Source: Grossly Deceptive Plans | The Economist

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06/01/2016

What might happen in China in 2016? – McKinsey

Abbreviated from McKinsey: http://www.mckinsey.com/Insights/Strategy/What_might_happen_in_China_in_2016?cid=other-eml-alt-mip-mck-oth-1601

What’s in store for China in 2016?

The reality is that China’s economy is today made up of multiple subeconomies, each more than a trillion dollars in size. Some are booming, some declining. Some are globally competitive, others fit for the scrap heap. How you feel about China depends more than ever on the parts of the economy where you compete. In 2015, selling kit to movie theaters has been great business, selling kit to steel mills less so. In your China, are you dealing with a tiger or a tortoise? Your performance in 2016 will depend on knowing the answer to this question and shaping your plans accordingly.

Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In this piece, as usual, I won’t spend much time on the most familiar things. Instead, I will highlight what I believe will become the more important and more visible trends in 2016, either because they are now accelerating to scale or a discontinuity may become a tipping point. (For a quick summary, see sidebar, “The China Orr-acle: Gordon’s predictions for 2016.”) I hope you find my ideas valuable.

The 13th five-year plan—few surprises

Much of China’s 13th five-year plan will seem pretty familiar, as it has been flagged in advance at the Fifth Plenum and elsewhere. Perhaps the only challenge will be to interpret the plan’s intent clearly through the new “party speak” now coming to dominate government pronouncements.

The GDP growth target will still be 6 percent–plus, which will be softened a bit but not eliminated by parallel quality-of-life goals: the environment, health, income, and the like. Achieving the growth target will remain the core objective of fiscal and monetary policies, so expect lower interest rates and pressure on the exchange rate versus the US dollar in 2016. Financial reforms aimed at moving more of the economy toward a market-based allocation of capital will continue.

Meanwhile, there will be more progress on interest-rate deregulation, on the IPO process (registration rather than approval), on permitting new entrants (especially from the tech sector and from abroad) into financial services, and on reimplementing laws suspended in the summer of 2015. The plan will promote decentralization, but the reality is likely to be greater centralization. More infrastructure will be built, mainly to enhance intraregional development—for example, around Greater Beijing.

Green initiatives, reinforced by December 2015 commitments made in Paris and the “red alert” in Beijing that same month, will take center stage. The central government will make such big and visible commitments to its citizens that local authorities will have to mount a serious effort to deliver. There will be tougher emissions standards and more spending to support the development of nonfossil fuels. Green finance will be available. Both private-sector and state-owned companies will rebrand their ongoing initiatives as green. China will explicitly build new export engines from its emerging global leadership in green products; for example, expect to see lots of Chinese-made air-filtration products in Delhi and the rest of India in 2016. Beyond green initiatives, going global will remain a key theme, as detailed in the One Belt, One Road program.1

 

Finally, the plan will recognize China’s success in raising labor productivity over the past decade and prioritize the acceleration of productivity growth, for both capital and labor, from 2016 to 2020. The plan will raise the implications of higher productivity for workers: the disappearance of many traditional well-paying jobs and the need for increased labor mobility and for the lifetime renewal and development of skills. But I am concerned that implementation will be left to local administrators and that the regions requiring the most help will have the lowest amounts of money to invest in reskilling the workforce and the least impressive actual skills to deliver.

Fewer jobs, flatter incomes—and, potentially, less confidence

The workplace in China is already changing dramatically in ways that will create many individual losers—for example, workers in industry sectors in secular decline (such as steel or textiles) or in industries where technology is rapidly displacing people even as output grows (like financial services or retailing). The government must help these workers reskill themselves to deliver on its commitment that all parts of society will benefit from economic growth and to keep people actively engaged in the economy. It will not be enough for officials to visit major local employers, as they did during the global financial crisis, and press them to retain all their current workers.

The maturing of investing: More options for Chinese investors and foreign investment managers

Chinese investors today remain dependent on bank deposits and property. Yet after the volatility of the property and stock markets in 2015, investors want to diversify into more stable vehicles. The number of wealth managers seeking to address this need has increased massively. Often, their main challenge is not finding clients but rather credible products to sell. The main challenge for investors is to find advisers they can trust; most simply push the products that give them the largest commission.

Manufacturing in China is changing, not disappearing

The closely watched manufacturing purchasing manager’s index (PMI) remains below 50, which indicates deterioration, leading to talk that the country may be nearing the end of its time as a manufacturer for the world. Let’s be clear: manufacturing is not about to become irrelevant in China. However, the country is evolving toward extremes of performance: the truly awful and the genuinely competitive.

 

Agricultural imports are rising and rising

In 2016, China’s growing food needs will drive agricultural imports to record highs in both volume and value. A wider range of countries than ever before will find agricultural-export opportunities there.

More centralization

The Chinese media, especially during President Xi’s increasingly frequent trips abroad, made it clear that economic decision making has been centralized over the past two years. China will become still more centralized in 2016, rolling back decentralization where it had unintended outcomes. For example, after local governments received authority to approve new power plants, more than 150 new coal-fired ones were green-lit in the first nine months of 2015—more than three times the number approved in 2013, under the old centralized decision-making process. Unsurprisingly, coal-producing areas granted the largest number of approvals for plants that weren’t required under any realistic demand projection, even setting aside the question of whether any new plants at all should be coal fired. State-owned enterprises are behind most of these projects and would expect to be bailed out if they fail. Thus, for multiple reasons, such decisions will be recentralized.

Moving people at scale—the middle class, not peasants

Despite prodigious investment, many Chinese cities cannot build enough quality infrastructure to avoid massive day-to-day congestion. Even though the new five-year plan will commit the country to build more of it, that will not solve these problems; growth has simply outstripped potential solutions. For example, Beijing’s population officially grew by 60 percent, to 21 million, in just the past 14 years—and unofficially by significantly more.

Movies in China: $$$

A Chinese movie will gross $500 million domestically in 2016. As a benchmark, the highest-grossing movie of all time on US domestic screens is Avatar, at $760 million. This year’s leading domestic productions in China were Monster Hunt (which has grossed $380 million as of September) and Lost in Hong Kong (more than $200 million). The leading international movie, Furious 7, grossed almost $400 million in China. The country’s box office has been set to grow by almost 50 percent in 2015, and new screen additions alone should deliver 20 percent–plus growth in 2016. More than half of the top-ten movies for 2015 (as of late November) are domestic productions, and 60 percent of the box office comes from Chinese movies. The country’s producers and directors have clearly tapped into what excites local moviegoers (and what censors permit).

China continues to go global, with the United Kingdom as a new focal point

China’s outbound investment will accelerate in 2016, with One Belt, One Road–related initiatives driving much of it. A second driver will be distressed-asset acquisitions in basic materials and related sectors: Chinese acquirers may plan not to extract the assets in the near term but simply to stockpile them as long-term insurance. Finally, a growing share of the acquisitions will come from private-sector companies that aspire to global leadership. These companies are increasingly sophisticated buyers, conducting quality due diligence, working with traditional advisers, and focusing on countries where they think that warm political relations will make it easier to do deals.

And finally . . .

My enduring prediction that big business would embrace soccer in China has finally been realized, even if that happened more slowly than I expected. Footballer Sergio Agüero, of Manchester City Football Club, took what became one of the world’s most shared selfies, with President Xi and British Prime Minister David Cameron. It seemed only a matter of time before Chinese capital (specifically, China Media Capital and CITIC Capital Holdings) invested in Manchester City and its global network of teams, which includes the New York City Football Club. Other leading teams are exploring how to participate in China. Arsenal Football Club has a multiyear grassroots program in place, as does Real Madrid. And outbound investment in soccer is growing, highlighted when Wanda Group bought into Atlético de Madrid in 2015.

As always, don’t overfocus on short-term noise about Chinese GDP growth. Try to identify the medium-term direction of the parts of the economy relevant to your business. Enjoy China in 2016!

Gordon Orr is a director emeritus of McKinsey and senior external adviser.

10/12/2015

Aging population could shrink workforce by 10% in China|Society|chinadaily.com.cn

The graying of the population could shrink the number of working-age adults by more than 10 percent in China by 2040, a report from the World Bank said on Wednesday. It means a net loss of 90 million workers in the country until that time, according to the report named “Live Long and Prosper: Aging in East Asia and Pacific”.

“Developing middle-income countries in East Asia, such as China, are already aging quickly and face some of the most pressing challenges in managing aging,” it said. East Asia, as the Word Bank’s research showed, is aging faster than any other region in history. Nearly 36 percent of the world’s population aged 65 and over, or 211 million people, live in this region, which is the largest share among all regions in the world.

The bank warned that the rapid pace and sheer scale of aging in East Asia raises policy challenges, economic and fiscal pressure, as well as social risks. “Without reforms, for example, pension spending in the region is projected to increase by eight to 10 percent of GDP by 2070.”

Axel van Trotsenburg, regional vice-president of the World Bank‘s East Asia and Pacific Region, said on Wednesday that “East Asia Pacific has undergone the most dramatic demographic transition we have ever seen, and all developing countries in the region risk getting old before getting rich.” He suggested a comprehensive policy approach across the life cycle to enhance labor-force participation and encourage healthy lifestyle through structural reforms in childcare, education, healthcare, pensions, long-term care and more.

The report also recommends a range of pressing reforms in China, including removing incentives in pension systems that have encouraged some workers, especially urban women, to retire too early. Developing countries in the region can take steps to reform their existing pension schemes, including considering gradual increase in retirement age, it said.

Source: Aging population could shrink workforce by 10% in China|Society|chinadaily.com.cn

02/11/2015

The power of parity: Advancing women’s equality in India | McKinsey & Company

India has a larger relative economic value at stake from advancing gender equality than any of the ten regions analyzed in a recent McKinsey Global Institute report, The power of parity: How advancing women’s equality can add $12 trillion to global growth.

If all countries were to match the momentum toward gender parity of the fastest-improving countries in their region, $12 trillion a year could be added to global GDP. What’s more, India could add $700 billion of additional GDP in 2025, upping the country’s annual GDP growth by 1.4 percentage points (exhibit).

Our new report, The power of parity: Advancing women’s equality in India, reveals that about 70 percent of this “best in region” potential would come from raising women’s participation in India’s labor force by ten percentage points between now and 2025, bringing 68 million more women into the labor force—70 percent of them in just nine states. This will require bridging both economic and social gender gaps. To determine this, we have created a measure of gender equality for Indian states: the India Female Empowerment Index, or Femdex. Our analysis shows that scores vary widely, and India’s challenge is that the five states with the lowest gender inequality account for just 4 percent of the female working-age population; the five states with the highest inequality account for 32 percent.

Eight priority actions can help accelerate progress, including education and skill-building, job creation in key sectors, corporate policies to promote diversity, and programs to address deep-rooted mind-sets about the role of women in work.

Source: The power of parity: Advancing women’s equality in India | McKinsey & Company

01/11/2015

Gauging the strength of Chinese innovation | McKinsey & Company

The events of 2015 have shown that China is passing through a challenging transition: the labor-force expansion and surging investment that propelled three decades of growth are now weakening.

Gauging the strength of Chinese innovation

This is a natural stage in the country’s economic development. Yet it raises questions such as how drastically the expansion of GDP will slow down and whether the country can tap new sources of growth.

New research1 by the McKinsey Global Institute (MGI) suggests that to realize consensus growth forecasts—5.5 to 6.5 percent a year—during the coming decade, China must generate two to three percentage points of annual GDP growth through innovation, broadly defined. If it does, innovation could contribute much of the $3 trillion to $5 trillion a year to GDP by 2025.2 China will have evolved from an “innovation sponge,” absorbing and adapting existing technology and knowledge from around the world, into a global innovation leader. Our analysis suggests that this transformation is possible, though far from inevitable.

To date, when we have evaluated how well Chinese companies commercialize new ideas and use them to raise market share and profits and to compete around the world, the picture has been decidedly mixed. China has become a strong innovator in areas such as consumer electronics and construction equipment. Yet in others—creating new drugs or designing automobile engines, for example—the country still isn’t globally competitive. That’s true even though every year it spends more than $200 billion on research (second only to the United States), turns out close to 30,000 PhDs in science and engineering, and leads the world in patent applications (more than 820,000 in 2013). Video   McKinsey director Kevin Sneader discusses global innovation trends at a recent World Economic Forum event.

When we look ahead, though, we see broad swaths of opportunity. Our analysis suggests that by 2025, such new innovation opportunities could contribute $1.0 trillion to $2.2 trillion a year to the Chinese economy—or equivalent to up to 24 percent of total GDP growth. To achieve this goal, China must continue to transform the manufacturing sector, particularly through digitization, and the service sector, through rising connectivity and Internet enablement. Additional productivity gains would come from progress in science- and engineering-based innovation and improvements in the operations of companies as they adopt modern business methods.

To develop a clearer view of this potential, we identified four innovation archetypes: customer focused, efficiency driven, engineering based, and science based. We then compared the actual global revenues of individual industries with what we would expect them to generate given China’s share of global GDP (12 percent in 2013). As the exhibit shows, Chinese companies that rely on customer-focused and efficiency-driven innovation—in industries such as household appliances, Internet software and services, solar panels, and construction machinery—perform relatively well. Exhibit Enlarge However, Chinese companies are not yet global leaders in any of the science-based industries (such as branded pharmaceuticals) that we analyzed. In engineering-based industries, the results are inconsistent: China excels in high-speed trains but gets less than its GDP-based share from auto manufacturing. In this article, we’ll describe the state of play and the outlook in these four categories, starting with the two outperformers.

Source: Gauging the strength of Chinese innovation | McKinsey & Company

01/11/2015

China Pessimism Is Overblown, IMF Says, Citing Booming Services Sector – China Real Time Report – WSJ

Recent Chinese economic data is stoking fear the world’s second largest economy is decelerating at pace that could pull the global economy into a recession. But the International Monetary Fund’s top Asia economist, Changyong Rhee, says such pessimism may be unwarranted.

A booming services sector—such as shipping and retail—is offsetting the collapse in manufacturing, he argues. Advertisement “We don’t think there’s enough evidence based on the manufacturing sector that there will be a hard landing,” Mr. Rhee said in an interview. “They definitely have a manufacturing slowdown, an overcapacity problem. But other parts of China are actually growing faster.” If Beijing relies too much on monetary policy to stimulate growth, it could fuel China’s economic problems rather than fix them, the IMF official cautioned. His warning came as the People’s Bank of China on Friday cut interest rates again in a bid to revive growth.

Old ways of measuring China’s economy—such as looking at electricity consumption—are outdated because they don’t accurately reflect the changing nature of growth, Mr. Rhee said. Services now account for more than 50% of the country’s economy and there is a good chance their contributions are being underestimated, he said. On first glance, China’s trade data appears to support worries about the economy. But digging a little deeper into the numbers may actually show the country’s move towards a growth model more reliant on consumer demand is already bearing fruit.

Although the value of imports has fallen, volumes tell a different story. By adjusting for the fall in commodity prices and the appreciation in the yuan, the IMF calculates imports actually grew in July by 2%. And while the amount of goods imported has declined, imports of services are in double digits.

China’s real-estate sector has also fomented concerns. But Mr. Rhee said there are signs property prices are stabilizing. That is not to say the IMF believes there is no cause for apprehension. Beijing fueled its stellar growth rate over the last two decades through cheap credit. Souring global growth prospects revealed a country vastly overinvested in manufacturing capacity, particularly by state-owned enterprises. The IMF estimates overinvestment totals nearly 25% of the country’s growth domestic product. That means government-owned firms will struggle to pay their loans on mountains of credit. “If they mismanage the financial market, then they could have a hard landing,” Mr. Rhee said.

Beijing is facing a daunting task. Winding down the amount of credit in the system too quickly could stall growth. But failure to cut corporate debt levels and deal with bad loans quickly could create a bigger credit crisis over the next couple of years. “One question is whether China can manage this transition with the current governance system,” the senior IMF official said. “That is a critical issue.” Beijing will need to ensure government agencies take greater responsibility for their respective areas of oversight and state-owned companies will need to have stronger budget constraints, he said. China’s recent market turmoil revealed a weak regulatory structure. And overhauling a political system that relied on state-owned firms to boost growth and enrich regions is also expected to be a challenge.

That’s why, even though the IMF is backing more stimulus by Beijing to prevent too much deceleration in the economy, fund officials are concerned the government may depend too much on the old system of juicing the economy through credit. Counting on monetary policy, rather than using the budget to stimulate the economy, could exacerbate the problem of overcapacity.

“If they rely on monetary policy too much, then they would continue the classic credit expansion,” Mr. Rhee said. Besides fueling bad investments by state-owned enterprises, it could also “drag on necessary structural and governance reforms.”

Source: China Pessimism Is Overblown, IMF Says, Citing Booming Services Sector – China Real Time Report – WSJ

20/10/2015

Survey Shows China Passes U.S. in Stuff Built – China Real Time Report – WSJ

China is the world’s No. 2 economy by most measures, but by one it has surpassed the U.S. China has overtaken the U.S. as the world’s wealthiest nation in terms of built assets in 2014, and is likely to double that of the U.S. by 2025, according to the Arcadis Global Built Asset Wealth Index.

The study compares 32 countries in terms of their buildings and infrastructure – homes, schools, roads, airports, power plants, malls, rail tracks  and other structures. In fact, China’s stock of built assets will exceed the next four economies combined in the next 10 years, according to the index.

The firm calculates the data at purchasing-power-parity rates, which adjusts the figures to account for differing costs in each country. That measure tends to boost the size of figures from developing countries. China has the largest stock of built assets at $47.6 trillion in 2014 and the U.S. came in second at $36.8 trillion, according to the study released Monday. In the last report, the U.S. was ahead at $39.7 trillion in 2012 compared to China’s $35.4 trillion. China’s rapid asset building came alongside soft investment in the U.S. to replace old machinery, equipment and buildings, the report said.

The index is billed as an alternative economic indicator to measure a country’s performance. the index quantifies the value of a country’s infrastructure as well as its public and private property.

Policymakers have been trying to direct the Chinese economy to rely more on consumer spending rather than investment. Still,  the pace of economic rebalancing has been slow, leading to softer growth despite some positive signs in China’s consumer sector.

The transition “is encountering difficulties, as the government has repeatedly used fiscal stimulus to try to meet its growth targets,” said the report. “The proportion of the economy accounted for by investment is falling only very slowly.  This keeps China’s built asset stock growing rapidly.”

China’s economy grew at 6.9% in the third quarter this year, falling below 7% for the first time since 2009. In the past two years, Beijing has been struggling to turn to more sustainable drivers of growth amid mounting concerns about manufacturing overcapacity and an oversupplied property market.

“There is also likely to be significant underutilization of assets in China given growth is so rapid and much asset creation is pre-emptive, also known as ‘build it and they will come,’” said the biennial report. Since 2000, China has invested $33 trillion in built assets, with its investment in infrastructure at 9% of GDP, dwarfing the U.S.’s current 2%said the report. In per capita terms, however, populous China appears far from being overbuilt.

China’s built asset wealth per person stood at $34,100, which ranks it No. 24 worldwide, unchanged from its previous ranking in 2012, according to the index. The latest figure is slightly less than a third of the U.S. per capita figure of $114,100. The countries at the top of this ranking are disproportionately made up of smaller nations by population or area, hence the density of built asset stock is much greater per resident, the report said.

Source: Survey Shows China Passes U.S. in Stuff Built – China Real Time Report – WSJ

26/08/2015

The World Struggles to Adjust to China’s ‘New Normal’ – China Real Time Report – WSJ

China’s leaders have warned their people they need to accommodate a “new normal” of economic growth far slower than the rate that propelled the economy into the world’s second-largest in the past two decades. As WSJ’s James T. Areddy and Lingling Wei report:

Now, the rest of the world also needs to get used to the new normal: a China in the midst of a tectonic shift in its giant economy that is rattling markets world-wide.

The slowdown deepening this year is part of a bumpy transition away from an era when smokestack industries, huge exports and massive infrastructure spending—underpinned by trillions in state-backed debt—powered China’s seemingly unstoppable rise. Today, debt has swelled to more than twice the size of the economy, and some of those industries, such as construction and steel, are reeling.

Instead of them, China is pushing services, consumer spending and private entrepreneurship as new drivers of growth that rely less on debt and more on the stock market for funding.

via The World Struggles to Adjust to China’s ‘New Normal’ – China Real Time Report – WSJ.

09/07/2015

Angolans resentful as China tightens its grip | Reuters

When a halving of oil prices left a gaping hole in Angola’s finances this year, it became clear sub-Saharan Africa‘s third largest economy needed help fast – and President Jose Eduardo dos Santos knew exactly where to turn.

A Chinese worker walks past a construction site in Lubango, Angola March 5, 2014. REUTERS/Herculano Coroado

But the multi-billion dollar loans he signed with China last month have angered Angolans who say they have been left behind as politicians and China share the spoils and Africa’s second-largest oil producer becomes ever more reliant on Beijing.

China has lent Angola around $20 billion since a 27-year civil war ended in 2002, according to Reuters estimates.

Repayments are often paid with oil or funds go directly to Chinese construction firms that have built roads, hospitals, houses and railways across the southern African country.

This means, however, dollars don’t end up entering the real economy, increasing costs for ordinary Angolans.

“I think the president humiliates Angolans,” 35-year-old cook Marisa told Reuters as she bartered with a street trader over peanuts and bananas in the capital. “The agreements with China are a benefit for them and the president and not for us.”

Police visibility has increased in the streets of Luanda in response to public suspicion and dissent over how much the government would concede to Chinese interests in its bid to revive an economy hit by low crude prices.

More than a dozen people were arrested on June 20 for allegedly planning protests threatening “order and public security” in response to dos Santos’ China trip.

FLEC, a militant group that wants independence of the northern oil-rich exclave of Cabinda, demanded China repatriate all its citizens from the region within two months or risk being “severely punished”.

Angola has the best-funded military in sub-Saharan Africa and dissent is usually quelled quickly and ruthlessly, making any significant public backlash against the government unlikely, security experts say.

“IN A PICKLE”

Apparently aware of unease at home, dos Santos, a Soviet-educated petroleum engineer who has been in charge for 36 years, kept the details of the latest deals secret and stressed the “cooperation” and “mutual benefits” from his Beijing visit.

Chinese Premier Xi Jinping hinted at a much more lopsided relationship, saying he had agreed to “assist” Angola, China’s largest supplier of crude after Saudi Arabia.

It is almost impossible to miss Beijing’s influence in Angola, from construction site signs in Chinese script to expensive Chinese restaurants and seedy “Asian-only” massage parlors in the capital’s alleyways.

Despite reservations from jobless Angolans, economists see China’s dominant role in Angola as necessary.

Angola, which relies on oil sales for 95 percent of foreign exchange revenues, slashed a third off its budget and said it would need to borrow $25 billion this year – $15 billion domestically and the rest abroad.

“Lower oil prices have put Angola in a bit of a pickle and the most obvious place to turn is China,” said Cobus de Hart, an analyst at NKC African Economics. “If China can help Angola get out of the fiscal hole then it could be a positive step.”

Despite this, many Angolans are distrustful of the relationship, pointing to the millions who still live on less than $2 a day and World Bank studies that rank the country 169 out of 175 countries in terms of income equality.

Beijing’s role in Africa has often been criticized by Western governments and some African leaders who call it neo-colonial – taking resources in return for infrastructure that supports China’s construction industry.

“CHINA THE MASTER”

There are around 50 Chinese state companies and 400 private companies operating in Angola. They are supposed to use 30 percent Angolan labor but industry sources say this is rarely observed and Angolans tend to get the lowliest positions.

“Always the Chinese will be the master and the Angolan the helper,” said Paulo Nascimento, a 29-year-old Luanda taxi driver. “This is our country. We should be in charge.”

Chinese firms strongly deny accusations of exploitation, arguing that they have done more to rebuild Angola since the war than Western critics sitting on the sidelines.

“I think Angola does not have too much money so China is a very good choice for them,” Pascal Wang, 36, marketing manager at Chinese telecom company ZTE, told Reuters. “We don´t come here just to do business. We want to help Angolans.”

With the exception of investment from former colonial power Portugal and offshore oil drilling by U.S. and European oil majors, Western governments, donors and investors have focused their attention elsewhere in Africa.

There are signs this may be changing.

France’s AccorHotels, the world’s fourth-largest hotelier, sealed a deal last week with Angolan insurance and investment company AAA Activos to open 50 hotels by 2017. The deal coincided with a visit to Luanda by French President Francois Hollande.

The World Bank, meanwhile, agreed to $650 million in financial support this month, the first funding from the Washington-based lender since 2010.

Until the benefits of investment reach the masses rather than the elite, resentment against foreign investors and the government is likely to fester.

“We have always been slaves,” Nascimento said. “We are lost in the world. We are the leftovers.”

via Angolans resentful as China tightens its grip | Reuters.

18/05/2015

India beats own target to contain fiscal and revenue deficits | Reuters

The government said on Sunday it managed to better its target for containing the fiscal and revenue deficits in the last financial year.

A money lender counts rupee currency notes at his shop in Ahmedabad, May 6, 2015. REUTERS/Amit Dave/Files

The fiscal target was 4 percent of gross domestic product for the year ending March 31, compared with a goal of 4.1 percent, the government said in a statement. The revenue target was 2.8 percent, compared with the aim of 2.9 percent.

Over the past year, Prime Minister Narendra Modi has taken a slew of measures to stabilize the economy and attract investment. But while inflation has cooled, in large measure due to the dramatic fall in global oil prices, recovery in India’s domestic demand-driven economy remains sluggish.

via India beats own target to contain fiscal and revenue deficits | Reuters.

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What's wrong with the world; and its economy

continuously updated blog about China & India