Don’t blame China for global economic jitters; China contributed >25% global growth

‘There has never been a real recovery in North America and western Europe since 2008.’ Photograph: Kai Pfaffenbach/Reuters

The US stock market has just had the worst start to a year in its history. At the same time, European and Japanese stock markets have lost around 10% and 15% of their values respectively; the Chinese stock market has resumed its headlong dash downward; and the oil price has fallen to the lowest level in 12 years, reflecting (and anticipating) worldwide economic slowdown.

According to the dominant economic narrative of recent times, 2016 was the year when the world economy would recover fully from the 2008 crash. The US would lead this recovery by generating growth and jobs via fiscal conservatism and pro-business policies. Reflecting the economy’s robust growth, the US stock market reached new heights in 2015, although disrupted by the mess in the Chinese stock market over the summer. By last October, US unemployment had fallen from the post-crisis peak of 10% to 5%, bringing it back close to the pre-crisis low. In a show of confidence, last month the US Federal Reserve finally raised its interest rate for the first time in nine years.

Not far behind the US, the story goes, have been Britain and Ireland. Hit harder than the US by the financial crisis, they have, however, recovered handsomely because they kept their nerve and stuck to the right, if unpopular, policies. Spending cuts, focused on wasteful welfare spending, accelerated job creation by making it more difficult for people to live off the taxpayer. They sensibly didn’t give in to the banker-bashers and chose not to over-regulate the financial sector.

Even the continental European economies have been finally picking up, it was said, having accepted the need for fiscal discipline, labour market reform and cutting business regulations. The world – at least the rich world – was finally set for a full recovery. So what has gone wrong?

Those who put forward the narrative are now trying to blame China in advance for the coming economic woes. George Osborne has been at the forefront, warning this month of a “dangerous cocktail of new threats” in which the devaluation of the Chinese currency and the fall in oil prices (both in large part due to China’s economic slowdown) figured most prominently. If our recovery was to be blown off course, he implied, it would be because China had mismanaged its economy.

China is, of course, an important factor in the global economy. Only 2.5% of the world economy in 1978, on the eve of its economic reform, it now accounts for around 13%. However, its importance should not be exaggerated. As of 2014, the US (22.5%) the eurozone (17%) and Japan (7%) together accounted for nearly half of the world economy. The rich world vastly overshadows China. Unless you are a developing economy whose export basket is mainly made up of primary commodities destined for China, you cannot blame your economic ills on its slowdown.

The truth is that there has never been a real recovery from the 2008 crisis in North America and western Europe. According to the IMF, at the end of 2015, inflation-adjusted income per head (in national currency) was lower than the pre-crisis peak in 11 out of 20 of those countries. In five (Austria, Iceland, Ireland, Switzerland and the UK), it was only just higher – by between 0.05% (Austria) and 0.3% (Ireland). Only in four countries – Germany, Canada, the US and Sweden – was per-capita income materially higher than the pre-crisis peak.

Even in Germany, the best performing of those four countries, per capita income growth rate was just 0.8% a year between its last peak (2008) and 2015. The US growth rate, at 0.4% per year, was half that. Compare that with the 1% annual growth rate that Japan notched up during its so-called “lost two decades” between 1990 and 2010.

To make things worse, much of the recovery has been driven by asset market bubbles, blown up by the injection of cash into the financial market through quantitative easing. These asset bubbles have been most dramatic in the US and UK. They were already at an unprecedented level in 2013 and 2014, but scaled new heights in 2015. The US stock market reached the highest ever level in May 2015 and, after the dip over the summer, more or less came back to that level in December. Having come down by nearly a quarter from its April 2015 peak, Britain’s stock market is currently not quite so inflated, but the UK has another bubble to reckon with, in the housing market, where prices are 7% higher than the pre-crisis peak of 2007.

Thus seen, the main causes of the current economic turmoil lie firmly in the rich nations – especially in the finance-driven US and UK. Having refused to fundamentally restructure their economies after 2008, the only way they could generate any sort of recovery was with another set of asset bubbles. Their governments and financial sectors talked up anaemic recovery as an impressive comeback, propagating the myth that huge bubbles are a measure of economic health.

Whether or not the recent market turmoil leads to a protracted slide or a violent crash, it is proof that we have wasted the past seven years propping up a bankrupt economic model. Before things get any worse, we need to replace it with one in which the financial sector is made less complex and more patient, investment in the real economy is encouraged by fiscal and technological incentives, and measures are brought in to reduce inequality so that demand can be maintained without creating more debts.

None of these will be easy to implement, but we know what the alternative is – a permanent state of low growth, instability, and depressed living standards for the vast majority.

By Ha-Joon Chang, Guardian Economics News

China Should Take Advantage of Industry 4.0 to Shift Economy: Bill Gates

Philanthropist and co-founder of Microsoft, Bill Gates attends a panel "Preparing for the Next Pandemic" at the World Economic Forum in Davos, Switzerland, on January 22, 2016. [Photo: Imagine China]

Microsoft founder Bill Gates has urged China to take advantage of the Fourth Industrial Revolution so as to face the challenge of transforming its economy.

He made the remarks on the sidelines of the ongoing World Economic Forum Annual Meeting in Davos.

"Well China's obviously got a lot of people, a lot of smart people. It's moved to not only have more people college educated, but lots of engineers, to raise the quality of those engineering skills. It's created a recognition that if people invent something that they can be rewarded for that, which is leading to all new sorts of companies. Not just the IT space, although that's the most visible, but also more and more in biology, robotics, those things, so China's going to carry its weight. "

Gates also expressed his optimism about China's economic future.

"There are a lot of great talents in China. You know, building up the educational system, you know, I think China has got a very bright future. I have a lot of confidence in China partly because they take long-term view; they look at what other countries are doing. You know China is going to contribute more and more to the world's innovation."

Figures from China's National Bureau of Statistics showed that the country's Gross Domestic Product in 2015 registered an annual growth rate of 6.9 percent, the lowest level since 1990.

Though slowing, China still contributed to more than 25 percent to global economic growth.

The Fourth Industrial Revolution, also termed as Industry 4.0, is marked by convergence of smart technology including artificial intelligence with the industrial sector.- (CRI Online)

China to Contribute More to World's Innovation: Bill Gates

With a strong ambition to promote science and research, China is going to contribute more and more to the world's innovation, Microsoft's founder Bill Gates has said.

In an interview on the sidelines of the World Economic Forum (WEF) Annual Meeting 2016, Gates said China would probably become a huge participant in the Fourth Industrial Revolution, which is already under way and bringing a fast and disruptive change for most industries.

Talking about the new revolution, Gates believed the digital revolution, something he spent most of his life working on, was a huge factor.

The Fourth Industrial Revolution refers to the ongoing transformation of our society and economy, driven by advances in artificial intelligence, robotics, autonomous vehicles, 3D printing, nanotechnology and other areas of science.

A key enabler of much of these new technologies is the Internet where Microsoft and Gates has been a leading contributor to the progress.

"An industrial revolution is coming to increase productivity very dramatically," Gates said, "It creates opportunities, and it creates challenges."

New technology changes would free some labor, so that people can do more in culture sector, according to Gates.

He said China had built some advantages in science and technology through its educational system, and the country had a strong will to promote its contribution in different sciences sectors.

"China obviously has a lot of people and a lot of smart people," Gates said, "Not only a lot of people college-educated, but also a lot of engineers with the quality of engineering skills. "

"With the recognition that people have done something that they can be rewarded for that, many experts have been leaded to have new companies, in IT sector, biology, robots and other those things."

"China is going to carry its weight," he said.

In recent years, the former internet elite has been dedicating to driving innovation in global health and development. As the Co-chair of the Bill & Melinda Gates Foundation, Gates decided to join force with China's Tsinghua University to establish the Global Health Drug Discovery Institute(GHDDI) in Beijing during his Davos visit.

"China has made incredible progress in reducing poverty and shares the foundation's commitment to harnessing advances in science and technology to address the critical health challenges affecting the world's poorest people," Gates said.

"We are excited about GHDDI's potential to drive innovation in global health research and development, and look forward to partnering with Tsinghua University on our continued work to address the world's most pressing global health challenges."

In an article released during WEF, Gates pledged his foundation would invest more in innovation in the coming years. He told Xinhua that the investment that went to China's innovation was expected to increase gradually.

Asked whether he worried about China's economic slowdown, which may hinder innovation progress, Gates said he was quite optimistic about China's economic outlook.

"I have a lot of confidence in China, partly because they take a long-term view, and partly because they look what other countries are doing," he said.

Faced with a challenge of turning the economy into new directions, Gates said China had great talent to achieve its goal.

"Most countries would envy a 6.9 percent growth, I think China has a bright future,"he said, adding "China is going to be contributing more and more to the world's innovation." - Xinhua Web Editor: Zhang Peng

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Healing through hiking mountains

The arduous Pacific Crest Trails offered the author of The Girl In The Woods the chance to take back control of her life after being raped.

The first time I heard of the Pacific Crest Trail was at the recent George Town Literary Festival, when a friend expressed interest in hiking it. Stretching across mountains running along the western coast of the United States, it is a challenging trail that should be attempted by only the hardiest of hikers.

My own experience with hiking is limited to beginner trails in national parks and forest reserves. Hiking is fun, but I know well enough of its dangers – years ago, another friend of mine had gone hiking and disappeared. The friend at the festival who wanted to hike the Pacific Crest is a man in his 30s. In Girl In The Woods, the hiker, who goes by the name “Wild Child”, is a young woman of 19 and a survivor of rape.

Wild Child grew up as Deborah “Debby” Parker, a sheltered child who lived under the wing of her protective mother and influential, high-achieving brother. On the second night of her stay at college, she was raped.

The emotional and psychological effects of the rape, compounded with the lack of empathy from her college and her family, became the catalyst for her decision to hike the entire Pacific Crest Trail.

For Wild Child, the hike was both a method of escaping a society that made her feel vulnerable and of confronting danger and, through that, regaining her sense of control and trust.

Author: Aspen Matis Publisher : William Morrow/HarperCollins, non-fictionNature and the wilderness is often portrayed as a place of peace and isolation, but any illusion that the wilderness of the Pacific Crest Trail is isolated and peaceful is proven false in Wild Child’s experiences along the trail. The Pacific Crest Trail hiking line is a male-dominated environment, peopled with strange men and women, and offers very little protection from physical or verbal violence stemming from racism, misogyny, or sheer sadism.

Following Wild Child’s journey along the trail brings us to very close intimacy with her personality, her decisions, and her pain. Although survivor accounts and articles on the way rape affects psychology exist in abundance, Girl In The Woods vividly shows how rape shatters one’s sense of safety, trust, and control over one’s body and environment; more importantly, the book allows readers to witness the challenges of regaining that lost sense of security and control.

As we follow her journey, we are also made to confront rape culture – both when it is perpetrated by the people around Wild Child and when we are tempted to criticise her lack of self-preservation. Wild Child exposes herself (at times literally) to strangers and dangers, and readers may find themselves finding fault and blaming her for “tempting rape”. We are made to confront and encouraged to unshackle from our own preconceived, perhaps subconscious, perpetuation of victim blaming and rape culture.

The topic of rape may frighten some readers away from the book, but the harsh desert beauty of the Pacific Crest Trail and Wild Child’s own personal resilience tames its violence, so the experience of reading the book is not unpleasant.

Girl In The Woods is a powerful testament of nature’s healing qualities and an intimate examination of surviving rape.

It is an elegant narrative of loss of innocence, regaining of strength, and finding love and self-acceptance.

It is not merely an account of a survivor but an adventure book, a record of a coming-of-age, and a story of personal growth as the protagonist transforms from the insecure Debby Parker to Wild Child the hiker, before finally emerging as Aspen Matis (the name that she answers to now, and the pseudonym used to pen the book), a fully fledged survivor.

The only arguable weakness of Girl In The Woods is that the description of the landscape along the Pacific Crest Trail is rather sparse.

Perhaps this was omitted because it was unnecessary to the narrative, but I would have appreciated more details on the desert, mountains and forests that were traversed.

I tend to notice the beauty of natural landscapes when I travel, and keenly felt the omission of detailed descriptions on the beautiful American rural landscape.

But this is a minor complaint in an otherwise outstanding memoir.


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AIIB attracts nations from East, West; its fate connects to Chinese economy

AIIB’s fate connects to Chinese economy

The Asian Infrastructure Investment Bank (AIIB) officially opened for business on Saturday. In the past two years or so, the bank has been a subject of heated discussion as a symbol of change in the world order. However, its significance hinges on a number of factors in future, rather than the founding itself.

There are many advantages in terms of the bank's operation and management. Infrastructure construction in Asia, which the AIIB is centered on, is virgin territory that has huge potential to be tapped. There is ample scope for the bank to find its role.

With 57 countries as founding members, the starting point of the bank is high. Besides, China as the initiator has abundant capabilities of infrastructure construction, and its experience is applicable to developing countries.

Nonetheless, disadvantages also exist, among which the biggest is the adverse attitude of the US over the bank. It will be more costly for the AIIB to overcome problems than for the World Bank and the Asian Development Bank at critical moments. Therefore, the AIIB must be operated with superb management, leaving no room for any opponents.

The further development of the Chinese economy will provide indispensible strategic support for the AIIB to increase its heft.

The reason why the AIIB could be founded, despite obstructions from the US and Japan, is that the growth of the Chinese economy has shored up the confidence of the participants.

Since its founding, the AIIB has been connecting its destiny to the Chinese economy. The confidence the world has in the Chinese economy will be projected onto the AIIB.

The AIIB touches a nerve of major global powers of the US and Japan. Its inclusive nature enables its smooth start. China has its own interests, but it cannot put its interests above those of the other countries. We should avoid a zero-sum situation, but integrate Chinese interests with others', and make achieving a win-win result a goal rather than a slogan.

With the changing times, China can't expand its power through coercion. It must integrate into the world system and develop in a way that is acceptable to the majority of the world's states.

The AIIB represents China's taking of global responsibilities as a big power. The US, as the world No.1, can capriciously vandalize the rules it makes at some critical moments. But China cannot do so. It has to be well-disciplined in serving the world so as to be recognized and accepted as a rising power in the world. - Global Times

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Video: http://t.cn/R48wSTA China’s economy posted a 6.9 percent GDP growth in 2015, which is within people’s expectations. Faced with suspicions, the National Bureau of Statistics (NBS) emphasized that the figure – 6.9 percent – is real.

On the one hand, with an increasing number of “struggling” companies, the economic downturn has become a heated subject of public opinion. On the other hand, other fields, for instance, tourism, railways and online shopping, are seeing robust growth. So, taken together with the affirmation by the NBS, we can have confidence in the accuracy of the figure.

It is safe to say that people still have much confidence in the economy. Despite an economic downturn, people’s willingness to spend is witnessing an upward trend. Consumption is contributing more to GDP growth. Compared with some pessimistic comments, an increase in consumption can better reflect public confidence. In addition, citizens’ plans for their families and their futures are positive as a whole. Admittedly, the loss of confidence in the stock market has exerted negative effects. Society has varying degrees of confidence in the economy.

The 6.9-percent increase in GDP will not strike a blow to the confidence of Chinese society. Even if the figure were slightly lower, there is still a lot to sustain people’s confidence. In fact, different from Western society, politics carries some weight in how confident Chinese people feel.

There are a number of factors contributing to the public’s confidence in the economy. First of all, people believe in the government. As long as the government’s determination and confidence to develop the economy can be seen, the public will be reassured. The government has made many commitments regarding economic development and people's living standards. It is becoming increasingly honest about the difficulties as well. The government’s backbone is not weakening. Yet, there is increasing dissatisfaction with the laziness of some officials. This new phenomenon is worth paying attention to.

The Chinese people are confident about the country’s market potentials. They know that the country lags behind in many aspects and that great efforts are needed. People tend to believe that it will be an arduous task to narrow the gap of people’s livelihood between China and developed countries. Despite the long road ahead, few people believe the process will break down.

Since the Communist Party of China launched the anti-graft drive and pushed forward reforms, many people expected the country to make greater achievements. But China is in a full-fledged transitional period. Its 1.4 billion population is to China’s advantage.

Complaints can be heard in China, and many concerns are well grounded. Some people try to seek a sense of security by applying for a foreign green card and transferring their assets overseas. But China’s status as the world’s biggest emerging market and potential for opportunities is as significant as ever.

China has plenty of tasks. Many cities still lag behind in basic infrastructure. Many roads need to be rebuilt. The key for change is economic growth. In addition, medical care cannot meet public demand. Many parents have sent their children abroad due to the low quality of education. The Chinese people’s concept of consumption is changing fundamentally and people long for improved living standards. These will all serve as a robust foundation for sustainable economic growth.

There should not be any fear that the 6.9 percent growth will upset Chinese society. The Chinese people will remain confident. The government needs to achieve concrete results and need not rush to adjust its policies. Many problems will be solved as long as China is on the right path. - Global Times

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Era of financial vulnerability

 The stock market crash in China and around the world shows how developing countries like Malaysia are increasingly vulnerable to financial shocks, including outflows of foreign funds


THE year 2016 started with a big bang, but the kind we would rather avoid. The Chinese stock market plunged for several days, causing panic around the world, with the markets also falling in many countries, East and West.

This is another wake-up call to alert us that finance has become inter-connected, indeed much too inter-connected, globally.

Many developing countries like Malaysia have been drawn into the web of the global financial system in manifold ways, and that has made them more vulnerable to adverse developments and shocks.

We are now in an era of financial vulnerability, which easily turns into vulnerability in the real economy of GDP growth, trade and jobs.

An immediate issue is whether the rout in China’s stock market will affect its real economy, in which case there will be serious effects.

One view is that it would contribute to a “hard landing” as the Chinese economy already has many problems.

Another view, more realistic in my view, is that the spillover to the real economy will not be significant. A paper by Brookings-Tsing­hua Centre shows that the inter-connection between the stock market and the economy is limited in China.

In the United States, half the population own stocks and corporations rely heavily on funds raised in the stock market, but in China less than 7% of urban Chinese invest in the stock market and corporations rely much less than American companies on the stock market to raise funds.

Nevertheless, China’s economy is expected to slow down this year. Other factors also add to a pessimistic outlook for developing countries.

These include continuing weak conditions in Europe and Japan, that may offset the US’ more steady recovery; the expected interest rate rises in the US, which will draw portfolio funds out from developing countries; and weakening of commodity prices.

Already many developing countries are suffering on the trade front. In Malaysia, exports in November 2015 grew only 6.3% from a year earlier. More worrisome, Malaysia’s industrial production, also in November, grew by only 1.8% from a year earlier.

Other Asian countries fared worse. Korea’s exports for the whole of 2015 fell 8%. Taiwan’s exports are also expected to have fallen 10% last year and Singapore’s manufacturing sector declined 6% in the most recent quarter.

China’s exports in December fell 1.4% from a year earlier but imports fell more, by 7.6%, which is bad news for other countries as China has less demand for their exports.

But of equal if not more concern is how, in the financial area, emerging economies like Malaysia have in new ways become more dependent and vulnerable in recent years.

Foreign presence in these countries’ domestic credit, bond, equity and property markets has reached unprecedented high levels, and thus new channels have emerged for the transmission of financial shocks from global boom-bust cycles, according to a South Centre paper by its chief economist Yilmaz Akyuz. (http://www.southcentre.int/research-paper-60-january-2015/)

During a boom, there is a rush by yield-seeing investors to place their global funds in emerging economies. But when perceptions or conditions change, the same funds can exit quickly, often leaving acute problems and crises in their wake.

Malaysia is among the vulnerable countries. Firstly, the fall in the prices of oil (on Jan 12 reaching below US$30 a barrel) and other commodities has affected export earnings.

The balance-of payments current account used to enjoy a huge surplus, but this has been shrinking.

In 2010–13 there were very high inflows of foreign funds into Malay­sia, averaging over 10% of GDP. But by 2015 there was a sharp reversal, with foreign funds flowing out from the equity and bond markets.

Malaysia is vulnerable to large outflows as foreigners in recent years have built up a strong presence in the domestic bond and equity markets. Foreign holdings of bonds (public and private) peaked at RM257bil in July 2014. And the share of foreign holdings in the stock market was 23.5% at the end of 2014, indicating a foreign-holding value then of around RM400bil.

Many billions of ringgit of foreign-owned bond and equity funds have been leaving the country in the past couple of years, especially 2015.

Due partly to this, Malaysia’s foreign reserves have fallen from US$130 bil in September 2014 to US$95.3bil at end-December 2015.

Although the present reserves are adequate to cover imports and short-term external debt, they are also vulnerable to further outflows of foreign-owned funds in equity and bonds.

Debt held by Malaysians is also high compared to other countries, according to another paper by Akyuz. Debt by households was estimated at 86% of GDP in first quarter 2015 by Merrill Lynch. Public debt is near to 55% of GDP (compared to an average 40% for developing countries covered in a McKinsey report). And corporate debt is estimated to be about 90–96% of GDP.

The overall local debt is thus very high, probably exceeding 200% of GDP, one of the highest ratios among developing countries. Thus, the country has financial vulnerabilities at both the external and domestic fronts.

What the country faces is part of a trend among emerging economies that is likely to last for some time. Many other countries are in far worse shape than Malaysia.

In an article last week, Martin Wolf of the Financial Times highlighted the important shift in perception by investors of the prospects for emerging economies, that has resulted in capital flowing out.

Global investors withdrew US$52bil from emerging market equity and bond funds in the third quarter of 2015, the largest quarterly outflow on record. The most important reason for this is the realisation of the deteriorating performance of the emerging economies, according to Wolf.

Thus, developing countries are in for a tough time this year. Of course the vulnerabilities may not translate into actual adverse effects, if global or local conditions improve. But it is better to prepare for the probable difficulties ahead.

By Martin Khor Global Trends

Martin Khor (director@southcen tre.org) is executive director of the South Centre. The views expressed here are entirely his own.