Posts tagged ‘World economy’

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

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27/08/2015

Why India Stands to Benefit From China Slowdown and Global Reaction – India Real Time – WSJ

India’s economy has been insulated from the turmoil in emerging markets by a long-standing handicap: It isn’t an export powerhouse. For years, growth in India has been fueled more by domestic demand—not, as in China, by manufacturing goods for sale abroad. Now India’s resilient consumer spending is an advantage as demand decelerates almost everywhere else. It is luring companies to produce in India and, the government hopes, can help spark a belated industrial revolution in the country of 1.2 billion.

Jayant Sinha, India’s minister of state for finance, said this week the Chinese slowdown and its world-wide fallout could provide a chance for India to “take the baton of global growth.” Mumbai’s benchmark stock index ended Wednesday down 1.2%, having slid 8.5% in total since the People’s Bank of China moved to devalue the yuan on Aug. 11. The rupee has lost 3.4% since then. India hasn’t been rattled as badly as Brazil, Russia or South Africa. Its international reserves are ample, and it isn’t highly dependent on foreign capital to fund imports.

Source: Why India Stands to Benefit From China Slowdown and Global Reaction – India Real Time – 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.

20/01/2015

5 Takeaways From China’s GDP – WSJ

1 THE SLOWEST PACE IN MORE THAN 20 YEARS

For much of the last two decades, China has been working overtime to drive the growth of the world economy. Now, it’s slowing to suborbital speeds. Last year’s growth of 7.4% was the slowest since 1990, a year when China was reeling from out-of-control inflation and the sanctions that followed the Tiananmen Square massacre.

2 IT’S ONLY GOING TO GET WORSE

The slowdown of 2014 is unlikely to be a blip, and probably presages an extended deceleration of growth. The often bullish International Monetary Fund has penciled in 6.8% growth for 2015, as has investment bank UBS. Others are even more downbeat. Oxford Economics predicts 6.5%–and says this will be the last time China’s growth exceeds 6%.

3 COMMODITY EXPORTERS WILL BE THE BIGGEST LOSERS

China is a huge importer of raw materials, from oil to soybeans. Much of last decade’s commodity boom was premised on the idea of insatiable Chinese demand. As the extent of the slowdown crystallizes, prices for key goods are tumbling, and commodity-dependent economies like Russia, Brazil, Venezuela and Angola are already in trouble. Expect more of the same.

4 HOUSING IS THE WILDCARD

The only thing that could lift the fortunes of commodity producers would be a revival of China’s housing market. House prices were down 4.5% on year as of December, according to the National Bureau of Statistics. Construction has ground to a halt on many sites as developers wait to see if the market will turn around. Prices could stabilize this year, said Haibin Zhu, an economist at J.P. Morgan, but that is far from certain. If moves to introduce a property tax end up killing confidence in the market, prices could keep falling.

5 THESE FIGURES NEED TO BE TAKEN WITH A PINCH OF SALT

Economists say it is daft to get hung up on changes of a few tenths of a percentage point in the official growth rate. The statistics bureau’s methodology is “not so scientific,” as Harry Wu, a skeptic at Hitotsubashi University in Japan, puts it. And even if statisticians at the central government level are immune to political pressure, few doubt that the local bureaus underneath them are capable of fudging the numbers to produce a more flattering picture.

Still, the general trend seems to be clear. If the government says the economy is slowing down, you can bet the slowdown is real.

via 5 Takeaways From China’s GDP – WSJ.

03/01/2014

China is No. 1 risk for world economy: George Soros – The Tell – MarketWatch

Don’t worry too much about the U.S. or Europe, says George Soros.

The major uncertainty facing the world today is China, writes the billionaire investor in a column for the Project Syndicate website. He says: “There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years.”

The People’s Bank of China moved to rein in debt in 2012, but then the world’s No. 2 economy experienced “real distress,” Soros writes. So China’s Communist Party reasserted its supremacy, ordering steelmakers to restart their furnaces and bankers to ease credit.

China’s economy turned around, and party leaders also announced major reforms in November. “These developments are largely responsible for the recent improvement in the global outlook,” Soros says.

What happens next? The 83-year-old Hungarian-American sees two possibilities:

“A successful transition in China will most likely entail political as well as economic reforms, while failure would undermine still-widespread trust in the country’s political leadership, resulting in repression at home and military confrontation abroad.”

Beyond China, Soros argues that a lack of proper global governance is the “other great unresolved problem.” That could continue indefinitely, while the Chinese conundrum will come to a head in the next few years, he says.

via China is No. 1 risk for world economy: George Soros – The Tell – MarketWatch.

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01/08/2013

Analysis: China risks following Japan into economic coma

Let us hope that this analysis is incorrect.  Because if it is then the world economy will experience a tailspin that will make the 2008 recession seem like a picnic!  Any of you, my readers, have a strong view one way or the other?

Reuters: “After decades of emulating Japan‘s export-driven economic miracle, China appears in danger of following it into the same kind of economic coma that Japan is trying to wake up from 20 years later.

A salesperson, dressed as the Chinese god of fortune, hands out leaflets for a jewellery shop at a shopping district in Beijing July 26, 2013. REUTERS-Kim Kyung-Hoon

China is struggling to wean itself off a habit picked up from its more advanced neighbor: relying for growth on exports and credit-fuelled investment. That has left its economy lopsided, economists say, with massive over investment in property and industries rapidly losing their cost advantage, from mining and electronics to cars and textiles. Wages are rising, the return on investments falling.

With growth slipping, China’s President Xi Jinping and Premier Li Keqiang seem determined to avoid a U.S.-style financial crisis, complete with widespread bankruptcies and job losses.

Preventing such a crisis though could embalm diseased sectors, stifling efforts to make growth more sustainable and instead create the kind of “zombie” banks and companies that sucked the life out of Japan’s economy, economists say.

Add a population graying faster than Japan’s did, and economists worry China may be attempting the impossible.

“There is a huge amount of denial. People think that demographics don’t matter,” said Chetan Ahya, chief Asia economist at Morgan Stanley in Hong Kong. “I’m worried about the deflationary risk.”

Deflation may seem unlikely in an economy still growing at a 7.5 percent clip and where consumer prices are rising 2.7 percent a year. But economists warn that China in many ways resembles Japan in 1989, two years before its crash.

Like Japan, China relied on banks to funnel investment into export industries to create jobs and finance development. In return, interest rates were regulated to ensure banks a healthy profit. Because the most profitable loans were those to the least-risky borrowers, banks concentrated their lending on big state-owned companies.

As Japan did in the 1980s, China tried to remedy this by partially liberalizing the financial sector, creating new avenues of finance, a bond market and other non-bank lending. But as in Japan, this encouraged banks to lend more, not more wisely, helping fuel a property bubble. Things got worse in 2009, when China launched a 4 trillion yuan, credit-powered stimulus to ward off the global crisis.

While Japan saw credit expand from 127 percent of GDP to 176 percent between 1980 and 1990, China’s credit rose from 105 percent in 2000 to 187 percent of GDP last year, JPMorgan Chase in Hong Kong says.”

via Analysis: China risks following Japan into economic coma | Reuters.

23/01/2013

! My other two blogs

In case you have not noticed before, I am the author of two other blogs (unrelated to Chindia, China or India):

This blog is about the Law of Unintended Consequences. It will report on occurrences of the Law of Unintended Consequence and also of Murphy’s Law and other inconsequential matters. I hope that my readers will add their stories that illustrate these, and similar, laws. One of the most clear examples of this law in operation is “How the war in Iraq strengthened America’s enemies” – Peter W Galbraith.

This blog is a layman’s view of what’s wrong with the world economy and, perhaps, how to correct them. Included in this blog will be renewables, green, sustainability and other such topics. I hope some of these will be “good news”.

If you enjoy my Chindia Alert blog, you may find these of interest as well.  ENJOY  😉

02/03/2012

* Chinese manufacturing continues to expand

China Daily: “Manufacturing bounced back to a five-month peak in February, supported by stronger exports, easing concerns about a possible contraction.

The purchasing managers’ index, an indicator of manufacturing activity, hit 51 last month, 0.5 points higher than January, the National Bureau of Statistics and the China Federation of Logistics and Purchasing revealed on Thursday.

It has stayed above the 50-point level for three consecutive months after it dropped to a 32-month low of 49 in November. A reading higher than 50 means expansion, while below 50 shows contraction.

“The continually increasing PMI proves the nation is undergoing an economic rebound,propped up by industrial production,” Zhang Liqun, a research fellow with the DevelopmentResearch Center of the State Council, said.”

http://www.chinadaily.com.cn/china/2012-03/02/content_14735838.htm

Fears of a ‘hard landing’ for the Chinese economy recedes. Good news for global economies!

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