Posts tagged ‘World Bank’

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02/05/2014

Maybe China’s Currency Isn’t Undervalued After All – China Real Time Report – WSJ

Note to rest of the world: Stop bugging China on undervaluation of its currency.

The World Bank’s re-estimation of global pricing is leading to a second day of questioning of economic verities. Yesterday, a number of publications used the new numbers to pronounce that the U.S. would next year lose its century-long ranking as the world’s number one economy. (China Real Time came to a more nuanced—and skeptical—conclusion.)

Today, two economists at the Peterson Institute for International Economics, perhaps the world’s top econ think tank, used the numbers to conclude that the Chinese yuan was no longer undervalued, as it has been for decades.

“This estimate is of potential historic significance,” conclude Martin Kessler and Arvind Subramanian. “The end of Chinese mercantilism—and relief for the rest of the world—may be in sight,” they write in a Peterson blog post.

To review, the World Bank re-estimated the size of different economies using a calculation known as purchasing power parity (PPP), which tries to estimate relative wealth by looking at differing prices in different countries for the same goods or services. Such comparisons usually show that developing countries aren’t as poor as they seem.  For instance: A haircut in Beijing costs far less than a haircut in Boston, which means the wealth of a Chinese person with a full head of hair –- let’s call him Mr. Wang—is greater than usually understood.

Cheaper in China: haircuts. Not cheaper: iPhones, BMWs and other imports. Reuters

But Mr. Wang doesn’t buy things in PPP; he buys them using actual currency. When he leaves the hair salon and buys an import, say a U.S. iPhone or a German car, his yuan are converted into dollars or euros at the current exchange rate. Given that Chinese earn far less money than Americans or Germans on average, exchange rate comparisons accentuate the gap between developing and developed nations. Most comparisons of international power are done using the prevailing exchange rate, not PPP.

Now, back to the value of the yuan.

Messrs. Kessler and Subramanian use the new PPP calculations to estimate that between 2011 and March 2014 China’s per-capita GDP grew about 13 percentage points faster than the U.S., which they say should translate into a currency appreciation of around 3.2%. Since the actual appreciation was 7%, that suggests the yuan appreciated too rapidly during that period and made up for some of the time when the yuan didn’t strengthen rapidly enough.  “The renminbi in 2014 is thus fairly valued,” they conclude.

Any estimate of a currency’s valuation is a black art. Different economists use different methods and come up with different conclusions, especially if there isn’t an obvious undervaluation or overvaluation.

It’s hardly surprising that many countries accuse the others of deliberately undervaluing their currencies, and use estimates of currency valuation to make their point. Nearly every government has the same strategy for growth — export more — and a cheap currency helps exporters.

via Maybe China’s Currency Isn’t Undervalued After All – China Real Time Report – WSJ.

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01/05/2014

The U.S. Is Big and Rich. China Is Just Big – Businessweek

Let’s assume, for the sake of argument, that China’s economy is on the verge of surpassing the U.S. economy in size. (By one measure, anyway—purchasing power parity as calculated by the World Bank’s International Comparison Program.) What does it mean?

Start with what it doesn’t mean. It doesn’t mean China is rich. All that gross domestic product has to be spread around more than a billion people. On a per-capita basis, the highest-income country in the world in 2011 was the oil-soaked and lightly populated Gulf monarchy of Qatar, at $146,000 per person. The U.S., as this chart shows, was No. 12, at just under $50,000.

China? China was No. 101, at a little less than $10,000 per capita. It’s not labeled on the chart, but if it were, it would appear between Serbia and Dominica.

via The U.S. Is Big and Rich. China Is Just Big – Businessweek.

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01/05/2014

Will ‘Mega-Trader’ China Turn Into a Free Trader? – China Real Time Report – WSJ

For more than a decade, China has been accused of one protectionist move after another: subsidizing state-owned firms, blocking imports, manipulating currency. Just yesterday, the U.S. Trade Representative put China, once again, on its “Priority Watch List” for ripping off intellectual property.

But if Standard Chartered is right, all that may soon be changing. China depends so much on global trade, the bank argues in a new report, that Beijing will likely become a “champion of free trade.”

Here’s the logic: China has become the world’s first “true mega-trader” since Britain in the 1800s, the report says, borrowing mega-trader terminology coined in a report last year by two Peterson Institute for International trade researchers.

As the Peterson Institute researchers describe it, a country qualifies as a mega-trader if it is has a big share of global trade and also if its economy depends greatly on trade. By that definition, the U.S. hasn’t really made the cut even though the U.S. and China both had about 12% of global merchandise exports at their height. That’s because the U.S. economy is far less dependent on exports than China’s is.

Once a country reaches such an exalted status, Standard Chartered reasons, it recognizes that its interest lies in opening markets overseas and at home.

“Our view is that because China is a highly competitive exporter and also needs substantial imports, it will increasingly recognize that it is in its self-interest to encourage global free trade,” said John Calverley, the bank’s head of economic research in an email. He adds that China’s reform agenda “would be well-served by increasing opening, including closer to a free-trader position on issues like services, intellectual property, competition policy” and other areas.

Well, maybe.

via Will ‘Mega-Trader’ China Turn Into a Free Trader? – China Real Time Report – WSJ.

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17/04/2014

Non Residents Are Stakeholders in India’s Future Too – India Real Time – WSJ

Conversations in Mumbai are usually about the elections these days – be it at roadside food stalls or in the boardrooms of India’s financial capital.

The stakes, after all, are high: following a period of robust growth, the country’s economy has slowed considerably in the past few years – largely because of (depending on who you talk to) the global crisis, policy paralysis, corruption and such. Inflation too is a massive concern.

The need of the hour, most agree, is a secular, stable and investment-friendly government that helps create prosperity for India’s multitude, and not just for a few seen close to the powerful.

That in essence is also the main topic of discussion some 2000kms to the west of the city – for non-resident Indians in Dubai, a fast growing regional financial hub.

Back in the 70s and 80s, hordes of Indians left the country in search of better opportunities – many of whom came to the oil-producing Middle East countries. The tech boom of the 90s provided them another global opening, though by then economic reforms at home were also taking effect – helping drive growth and creating more and better-paying jobs in the next decade.

Many Indians still look abroad for livelihood, but have increasingly channelled a big chunk of their earnings back home in search of returns. And why not? Even global investors are happily betting on the country’s future.

India topped the global list for remittances in 2013 – receiving some $70 billion, according to a World Bank report last week, underscoring its importance as an important source of foreign exchange. To be sure, remittances last year were “more than the $65 billion earned from the country’s flagship software services exports,” the World Bank noted.

That the country has been among the leading recipients of remittances over the past few years is not surprising, given that some 25 million Indians (variously classified) live abroad and, in several cases, continue to have strong familial ties back home.

The importance of Indians living overseas and their contribution to the country has been recognised on various platforms – such as the Pravasi Bharatiya Divas, which has been held every year since 2003 to “mark the contribution of Overseas Indian community in the development of India,” according to the Ministry of Overseas Indian Affairs.

The ministry says these conventions facilitate the overseas Indian community to engage with the government and people for “mutually beneficial activities”. Simply put, Indians living overseas are increasingly participating more actively back home.

But they – the millions of NRIs – still can’t vote from foreign locations and choose a government of their liking in the country’s general elections.

via Non Residents Are Stakeholders in India’s Future Too – India Real Time – WSJ.

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07/04/2014

Two Visions for India’s Economy, Sort Of – India Real Time – WSJ

India’s national election, which kicked off Monday, is a contest of old-fashioned socialism versus market liberalism, of handouts to the poor versus pro-growth reforms that will benefit all. Right?

Sort of. At least judging by the two main contenders’ official platforms.

The Bharatiya Janata Party — out of power for a decade — looks set to win big this year, helped by its popular prime ministerial candidate Narendra Modi, who promises to reboot India’s economy with a combination of smart policy and able administration.

But now that the BJP has at last released its election manifesto after multiple delays, it’s easier to see where exactly its economic policy ideas differ from the incumbent Congress party’s – and, perhaps more interestingly, where they don’t.

Both parties promise to revitalize India’s manufacturing sector, long a laggard amid the country’s economic rise. Both say they will implement a national goods and services tax, known elsewhere as a value-added tax. Both want to create a “single-window system” to expedite land, environmental, power and other approvals for investors. Both back the current system of food subsidies, though the BJP highlights that the program should be efficient and corruption-free.

And both parties want to build high-speed rail, stem inflation, modernize infrastructure, make housing affordable, create jobs, expand cities and make taxation more predictable. (Though the BJP wins style points for referring to retroactive taxes as “tax terrorism.”) The BJP even matches the splashiest item in Congress’s manifesto — a commitment to providing “universal and quality health care for all Indians” — with its own call for universal health care.

All of that said, the manifestos alone do give the BJP an edge in terms of structural reforms that many economists, businesses and investors have long craved from India’s government.

The party’s manifesto speaks of addressing “over-regulation” in business and “bottlenecks” in the delivery of public services. Its section on developing agriculture focuses more on investing in productivity-enhancing technology than on increasing government subsidies, which the Congress manifesto notes as a major achievement of its decade in office.

The BJP says it will “rationalize and simplify the tax regime,” which the party calls “currently repulsive for honest taxpayers.” The Congress manifesto merely reiterates its support for the Direct Tax Code, an earlier legislative effort to eliminate tax distortions and improve compliance that has stalled in Parliament’s lower house.

The BJP also says it will review India’s creaking labor laws, which it decries as “outdated, complicated and even contradictory.” The Congress manifesto, meanwhile, “recognizes the need for creating flexibilities in the labor market” while redoubling its commitment to “protecting the interests of labor through more progressive labor laws.” The World Bank said in a report last year that India’s “cumbersome and complex” labor policies “have unambiguously negative effects on economic efficiency.”

via Two Visions for India’s Economy, Sort Of – India Real Time – WSJ.

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26/03/2014

A $6.8 Trillion Price Tag for China’s Urbanization – Businessweek

China has finally put a price tag on its massive plan for urbanization, and it’s a big one. The cost of bringing an additional couple of hundred million people to cities over the next seven years? Some 42 trillion yuan ($6.8 trillion), announced an official from China’s Ministry of Finance last week.

Shanghai's potential future development modeled at the Shanghai Urban Planning Exhibition Center

“The flaws in the previous model, in which urban construction mostly relied on land sales and fiscal revenue, have emerged in recent years, and the model is unsustainable,” warned Wang Bao’an, vice minister of finance, on March 17. His comments came one day after China’s State Council and the Central Committee of the Communist Party released the “National New-type Urbanization Plan (2014-2020),” which aims to lift the proportion of Chinese living in cities to 60 percent by 2020, from 53.7 percent now.

A timely report issued by the World Bank and the Development Research Center of the State Council provides suggestions as to how to pay the big bill. Released today, Urban China: Toward Efficient, Inclusive and Sustainable Urbanization, is the second joint effort by the two organizations, coming just over two years after the publication of an earlier report on economic reform called China 2030.

via A $6.8 Trillion Price Tag for China’s Urbanization – Businessweek.

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13/02/2014

Labor Issues Prompt Inquiry into Tata’s Tea – India Real Time – WSJ

Nearly a year after human-rights groups complained about working and living conditions on tea plantations run by Amalgamated Plantations Private Ltd., the World Bank has ordered an inquiry.

APPL, a joint venture of Tata Global Beverages Ltd.500800.BY -1.67% and the International Finance Corp., the private-sector lending arm of the bank, employs around 30,000 people on 20 plantations in the northeastern state of Assam.

Tata Global Beverages owns the Tetley Tea brand.

Rights groups, including People’s Action for Development and Nazdeek, told the bank’s Compliance Advisor Ombudsman that the plantations weren’t adhering to Indian laws.

Many tea workers earn less than $2 a day and it “is impossible to properly feed themselves and their family with this amount of money,” the complaint said. “As a result, many workers suffer from malnutrition.”

Ashoke Bordoloi, chief financial officer of APPL said, “We look after our workers and are compliant with the law.” He said the company would extend “full cooperation” to World Bank auditors.

In 2009, Tata Global Beverages received an investment of $8 million from the IFC to address issues concerning workplace and community health and safety.

But civil rights groups allege that the money hasn’t been used.

“Facilities like living quarters, safe drinking water and toilet facilities and proper education for them, have not yet been provided by the management,” Barnabas Kindo, social activist working with PAJHRA, a group working for improving living conditions of tribal people in the northeast told India Real Time Wednesday.

via Labor Issues Prompt Inquiry into Tata’s Tea – India Real Time – WSJ.

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27/01/2014

* Nearly 100 mln people suffering from poverty in China – Xinhua | English.news.cn

The latest statistics show there are still nearly a hundred million people suffering from poverty in China. Officials in charge of China\’s poverty alleviation work said in a briefing that China has made remarkable progress in terms of poverty reduction.

Under the international standards of poverty relief, China has helped more than six hundred million people out of poverty. China will promote rural poverty alleviation through an innovative mechanism. Officials said that China has now decided to set up a precise poverty reduction mechanism, and make sure those in need will receive adequate support.

China also plans to establish a complete database covering all poverty-stricken people by the end of this year. Officials also pointed out that there are still challenges facing China\’s poverty reduction work, including a detailed monitoring of the allocation of poverty-relief funds.

via Nearly 100 mln people suffering from poverty in China – Xinhua | English.news.cn.

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20/10/2013

China’s State Press Calls for ‘Building a de-Americanized World’ – Businessweek

“It is perhaps a good time for the befuddled world to start considering building a de-Americanized world.” As nations around the world fret over the U.S. budget impasse, that is the conclusion of a not-so-subtle commentary published by China’s official Xinhua News Agency on Oct. 14.

Key among its proposals: the creation of a new international reserve currency to replace the present reliance on U.S. dollars, a necessary step to prevent American bumbling from further afflicting the world, the commentary suggests.

“The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising the debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized,” says Xinhua. “The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites,” it adds.

It’s not a new refrain: Back in March 2009, China’s central bank governor, Zhou Xiaochuan, also called for the creation of a new reserve currency, albeit in less heated language. The world needs a new “super-sovereign reserve currency” to replace the current reliance on the dollar, Zhou wrote in a paper published on the People’s Bank of China’s website (Zhou still heads the bank). The goal, he wrote, is to “create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.”

Toppling the dollar isn’t enough today, however: “Several cornerstones should be laid to underpin a de-Americanized world,” explains the Xinhua piece. Along with a greater role for developing-market economies in both the World Bank and International Monetary Fund, “the authority of the United Nations in handling global hot-spot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate” (all quite reasonable propositions, it must be said).

“A self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies,” the commentary continues.

“Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.”

via China’s State Press Calls for ‘Building a de-Americanized World’ – Businessweek.

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11/09/2013

Changing China set to shake world economy, again

In my view, this is a ‘must read’ article for anyone interested in how China will impact their own countries and lives in the foreseeable future. It complements another recent article – https://chindia-alert.org/2013/09/11/reading-li-keqiangs-tea-leaves-at-the-world-economic-forum/

Reuters: “Long after concerns about tightening U.S. monetary policy have faded, a more profound issue will still dog global policymakers: how to handle the second stage of China’s economic revolution.

A view of the city's skyline from the Beijing Yintai Centre building at sunset is seen in Beijing, August 29, 2013. REUTERS/Jason Lee

The first phase, industrialization, shook the world. Commodity-producing countries boomed as they fed China’s endless appetite for natural resources. Six of the 10 fastest-growing economies last decade were in Africa.

China’s flood of keenly priced manufactured goods hollowed out jobs in advanced and emerging nations alike but also helped cap inflation and made an array of consumer goods affordable for tens of millions of people for the first time.

The second stage of China’s development promises to be no less momentous.

Consumption will take over the growth baton from investment. Services will grow as a share of the economy, while industry shrinks. Commodity-intensive mass manufacturing based on cheap labor will give way to greener, cleaner ways of making things.

More of the value added by a better-educated, more productive workforce harnessing new technologies will stay in China instead of going to multinational companies.

That’s the plan, anyway.

China will remain the most powerful engine of global growth for the next couple of decades, but it will no longer be just processing imported raw materials and components for re-export, said Li Jian with the Chinese Academy of International Trade and Economic Cooperation, the Commerce Ministry‘s think tank.

“China has realized that it cannot blindly rely on investment and exports as the main drivers of growth. So China’s demand will be more balanced,” Li said.

HIGH STAKES

To show it is serious about more sustainable growth, China deliberately engineered the first-half slowdown that unnerved markets in order to address these longer-term structural priorities, according to President Xi Jinping.

Xi and the other new leaders of China’s Communist Party are expected to approve a blueprint for reform at a plenum in November. Overcoming vested interests opposed to the new economic model will be a stern test of their credibility.

A lot is at stake for the global economy too.

Philip Schellekens, an economist with the World Bank in Washington, said the importance of the reforms Beijing intends to make cannot be overstated. As China changes, so will the rest of the world.

“The structural transformations that we think are going to happen in China over the next two decades will matter far more than the near-term vulnerabilities,” he said.

On balance, commodity-exporting developing economies stand to be affected more than rich nations – an obvious exception being Australia, where the end of a China-driven mining boom was a big issue in Saturday’s election. China buys a third of Australia’s exports.

Commodity demand should stay strong, especially as China’s capital stock per head is only 10 percent that of America’s and urbanization has a long way to go. But rebalancing will favor commodities more closely tied to consumption than to investment.

Economists fret that too many emerging markets spent their windfalls from surging raw material prices instead of sloughing them into infrastructure and other investment. As a result, growth is slowing now that China’s demand is softening.

China’s appetite for agricultural commodities and energy should hold up well but Capital Economics, a London consultancy, said it was concerned about large metals exporters that have not saved their extra income and so are running current account deficits.

It singled out South Africa, Zambia, Chile and Peru as being particularly vulnerable.

via Insight: Changing China set to shake world economy, again | Reuters.

See also: https://chindia-alert.org/economic-factors/china-needs-to-rebalance-her-economy/

Posted in China alert, commodity, Consumer, Economics, employment, energy, exports, Import, Manufacturing, Market economy, Re-balancing the economy, Service industry | 1 Comment »

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