Wednesday, January 21, 2015

The new normal of Chinese growth

22 January 2015

Author: Wang Yong, Peking University

The Chinese economy is widely perceived to have entered a ‘new normal’ — annual GDP growth has slowed to between 7 per cent and 7.5 per cent from the double-digit levels of previous years. This was something that policymakers expected: an inevitable result of economic restructuring.

Following the global financial crisis of 2008, the Chinese government moved quickly to implement a large-scale stimulus package of as much as 4 trillion yuan (about US$586 billion). This involved ambitious investment in infrastructure and manufacturing, as well as loose monetary policy. As a result, the Chinese economy — which became the world’s second largest after the US in 2010 — grew at a fast pace until 2012.

Women work at a garment factory in Huaibei in central China's Anhui province on 20 January 2015. China's economic growth slowed to below 7.5 per cent in 2014, the weakest expansion in more than two decades. (Photo: AAP).

But the large stimulus package also had numerous negative effects on the Chinese economy. It created overcapacity in labour-intensive traditional industries and also in high value-added emerging industries. The stimulus also led to an oversupply of liquidity, which created a huge bubble in the real estate market. Local governments worry that if prices start to drop rapidly, the proportion of nonperforming debt held by commercial banks and financial institutions will sharply increase. And the stimulus spending, combined with the oversupply of money, has sent local government debt soaring. If this debt is not properly managed, a regional banking crisis could eventually destabilise the national banking system.

The combined effects of these three factors have dented the dynamic growth of the Chinese economy in recent years. But while the Chinese economy is slowing, there are factors that will help maintain growth of at least 7 per cent a year.

China has great scope for expansion in both production and consumption. The rise of e-commerce in China has greatly aided the transformation of the Chinese economy to a model based on domestic consumption and services. Rapid urbanisation and the growth of the middle class will continue to provide a big boost. The central government is able to mobilise adequate resources to deal with a crisis or systemic risk caused by bad debt or shadow banking. The US economy is getting stronger, giving an extra boost to the global economy and the Chinese economy. And crude oil prices are dropping; if they fall below US$60 a barrel (which seems likely), the Chinese economy will benefit from lower production costs. Meanwhile, President Xi Jinping’s government has strengthened China’s economic diplomacy. China’s ‘New Silk Road’ initiatives (named China’s Marshall Plan by Western media) aim to tap the growth potential of other countries in the region, which will further boost the Chinese, regional and global economies.

The Chinese leadership under Xi announced a 60-point reform program at the 18th Party Congress in late 2013. Though some progress has been made, implementation of the reforms has been difficult. The mode of growth and governance has not changed very much over the past year.

There has been a lot of discussion about the reforms that need to be undertaken. The government needs to speed up deregulation and limit government approval for investment in order to let the market allocate resources. The government should be limited to the role of regulator and not an investor; investment should be governed by market forces. The government must also reform SOEs and cultivate a truly mixed economy by attracting private capital into SOEs. They should push financial reforms, including the marketisation of interest rates and exchange rates. Since oversized SOEs have privileged access to bank loans, privately-owned enterprises hope that these reforms can reduce their own financing costs.

If market-oriented reforms like these are implemented smoothly, they would give a powerful push to the economy. So far, progress has been limited, and the reforms need more momentum. The leadership in Beijing recognises that it needs to move quickly to achieve its goals in order to deal with external competition (such as the US-led Trans-Pacific Partnership) and domestic pressure to sustain growth. As in past cases of reform, balancing economic goals (the rise of the private sector) and political goals (keeping the Chinese Communist Party in power) will continue to pose a challenge for Chinese leaders.

In 2015, China’s economic growth will be shaped by two opposing forces. Given the circumstances of the new normal, it is unlikely China will be able to manage growth of 7.5 per cent or above. But we can be cautiously optimistic that 7 per cent growth is possible and sustainable. At the same time, we should watch carefully for the risks that could be a barrier to growth: overcapacity, a drastic fall in property prices, and a worsening international environment.

2015 will likely see the Chinese economy achieving slower but steady growth of about 7 percent or even a little bit higher, which is still higher than other major economies, despite the downside pressures. In short, welcome to the new normal.

Wang Yong is a professor at the School of International Studies, Peking University, and director, the Center for International Political Economy, at the university. He is also a member of Global Asia’s editorial board.

The full version of this essay was originally published in the journal of Global Asia, Vol.9, No.4, Winter 2014.

<ins class="adsbygoogle"

style="display:inline-block;width:250px;height:250px"

data-ad-client="ca-pub-9205484028477356"

data-ad-slot="1299304822"></ins>

(adsbygoogle = window.adsbygoogle || []).push({});

</script>

ECB QE Bond Buys Reportedly Will Hit $1.3 Trillion

BY ANDREA RIQUIER, INVESTOR'S BUSINESS DAILY

04:36 PM ET

President of European Central Bank Mario Draghi is expected to speak on Thursday about a speculated $1.3 trillion bailout plan for the stalling... View Enlarged Image

The European Central Bank is poised to inject $1.3 trillion into the stalling eurozone, according to media reports Wednesday, while other central banks took surprise steps to address their own economic anxieties.

The ECB reportedly will announce Thursday that it will buy 50 billion euros of sovereign bonds per month, with a total quantitative easing (QE) program of as much as 1.1 trillion euros, or $1.3 trillion. Still unclear is how the purchases would be structured.

Separately, the Bank of Canada unexpectedly cut interest rates 25 basis points, citing the impact of plunging oil prices on growth. That followed the Swiss National Bank's shocking end last week to its currency cap vs. the euro.

The euro, which has tumbled to multiyear lows vs. the dollar on weak economic growth, and inflation and QE expectations, rose Wednesday. U.S. stocks moved up and down before closing modestly higher as investors mulled whether the ECB's looming decision has been priced in.

If reports are correct, the ECB program will top the 500 billion euros that investors have assumed, said Jacob Funk Kirkegaard at the Peterson Institute for International Economics. It would also make QE's structure less of an issue, he said.

The design of an ECB bond-buying scheme has been hotly debated and deeply politicized as eurozone leaders and central bank policymakers grapple with the realities of member states that have only diverged further since the eurozone debt crisis arose.

Germany strenuously opposes having the ECB purchase the debt of its weakest members, which have avoided hard structural reforms needed to bolster long-term growth. Other reports have suggested German policymakers have convinced the ECB to have separate national central banks buy the bonds.

"Whether purchases are mutualized or not is a little bit of a sideshow," Kirkegaard said. No matter how the buys occur, he said, the ECB balance sheet expands.

More important, he added, such a decision likely would get unanimous support from ECB's Governing Council. "It sends a strong signal that the path chosen by ECB has ultimately the political backing of not just Germany but all the euro-area members."

For David Rosenberg, chief economist at Gluskin Sheff, nothing is certain until ECB President Mario Draghi speaks Thursday.

"We're moving out of the comfort zone of years where central banks were ultra-transparent and triggered an extended period of low volatility and complacency," he said. "What we see happening in the last week tells us those days are long gone. The ECB is going to find a way to surprise tomorrow, we just don't know in which direction."

For all the angst over QE, analysts expect it to have little effect on the eurozone economy. Inflation was negative in December for the first time since 2009. Unemployment is still 11.5%, with youth joblessness nearly 24%.

Bond buying can spark financial markets' animal spirits, but not much else, Rosenberg said.

"The problems plaguing the euro area are not financial," he said. "There's nothing monetary policy can do except continue to buy time until they get their fiscal house in order."

<ins class="adsbygoogle"

style="display:inline-block;width:250px;height:250px"

data-ad-client="ca-pub-9205484028477356"

data-ad-slot="1299304822"></ins>

(adsbygoogle = window.adsbygoogle || []).push({});

</script>

Think the aid system can cope? It can’t

AGENDA

Economic Growth and Social Inclusion

Global Challenges

Human Rights

Think the aid system can cope? It can’t

By Antonio Guterres

Jan 18 2015

Over the past decade, a chorus of experts has warned that the world’s humanitarian aid system is fast approaching its limits.

After the many terrible crises of the past three years, we have now surpassed that breaking point. The international humanitarian community no longer has the capacity to respond. Multiplying and protracted conflicts, growing environmental disasters and failed states are trapping millions of people in an accelerating cycle of crises.

Unprecedented levels of human misery

UNHCR has never had to address so much human misery in its 64-year history. At the end of 2013, more than 51 million people were uprooted from their homes due to conflict and persecution. The numbers are not yet in for 2014, but there will be many more. And with every year that passes, more people are spending a longer time in exile, and taking longer to recover.

Today’s humanitarian emergencies are beyond anything we have experienced in living memory. Unless we urgently change the way we tackle them, the world will become an increasingly difficult place to live for millions of people who have already lost almost everything.

In the countries neighbouring Syria, the refugee situation has taken on a dimension beyond any I have previously encountered. Host communities and public services have been brought to their knees by an influx of people. More than a quarter of the population of Lebanon – a small country, beset by its own internal difficulties – is now Syrian. Here, like in Jordan and Turkey, local people face financial ruin, as rents and prices are skyrocketing, salaries falling and employment becoming increasingly scarce as a result of the Syria crisis.

In mid-December, the United Nations launched an appeal for $8.4 billion to assist 18 million people in and around Syria, underlining the spiralling effect of the crisis on the entire region. The appeal reflects a strategic shift, in which we aim to bring together humanitarian assistance with longer-term programmes to boost the economies of the region. But even so, if we are honest with ourselves, it still only covers the basics of what people need to survive, pick up the pieces, and start to rebuild.

And if previous appeals are any guide, there is a significant risk that even this minimum will be substantially underfunded. Last year’s Regional Refugee Appeal for Syria received only 59% of what was needed, and that was far from the lowest of the many international crises we face. According to UN figures, no appeal got more than 75%, and several struggled to raise even a third.

A broken system

So how do we break through this vicious cycle? The challenge is manifold. First, we need to start admitting the full scale of what we are dealing with. The humanitarian aid system is built on a concept that when disaster strikes, outside agencies provide a temporary helping hand, until people can take back control of their own lives.

But across the world we see millions of people caught in semi-permanent crises. As each year goes by, they are less and less likely to break free. As populations continue to increase, and the climate continues to deteriorate, and as people flock in ever increasing numbers to large underdeveloped cities, the threat of multiple protracted mega-emergencies has become reality.

The aid architecture we built after the Second World War is no longer fit for purpose. And to that extent, Syria is the canary in the coalmine. Already the biggest humanitarian crisis of our era, it is a harbinger of potentially far worse to come. Unless we fix this system, things are going to get much, much more difficult.

In the case of refugees, we see a number of deeply worrying trends. As crises multiply around the world, some countries build up new barriers, making asylum more difficult to achieve. The harder it gets to seek refuge through legal channels, the more desperate people have to put their lives into the hands of unscrupulous smugglers to make it to safety. The number of people travelling in unsafe, overcrowded boats across the Mediterranean, the Indian Ocean or the Gulf of Aden has grown enormously, and over 4,200 have died this year alone.

At the same time, the neighbouring countries of those in crisis are being asked to shoulder an increasing portion of the burden. Today, almost nine out of ten refugees are living in developing countries – up from 70% a decade ago.

We need a new aid architecture that links support to refugees with far greater support for the communities who host them. This year’s Syria appeal takes a step in the right direction, but it is still only a drop in the ocean.

Global long-term development funding exceeds by eight times the limited humanitarian resources spread across the world’s crises. This development aid should also be made available to countries dealing with large refugee influxes – even if, as in the case of Lebanon and Jordan, they are considered to be middle-income, and therefore not normally eligible.

But this requires a cultural change in donor governments, agencies and international financial institutions, and a much wider base of support.

Finding a new model for humanitarian aid

At present, the multilateral humanitarian system is built on three major pillars. Aid agencies, host populations and donors. Ultimately, taxpayers are footing the bill, and host communities are shouldering the burden.

This is no longer enough. In a world of tightening public budgets, and growing private wealth, business leaders must also become a major part of this picture. The squeezed middle classes of the West, and the desperate host communities of the neighbouring countries, are unable to pay for this alone. We need to initiate a massive scaling up of private sector involvement, both in terms of shared expertise and funding support.

There are many ways to do this. Direct contributions will remain essential. But there is also a huge role to play in providing opportunities for employment in host countries, to benefit both local people and refugee populations. To provide training and education, technology, and logistics. To offer hope, and a signal that our society’s winners are also willing to play their part in its long-term health.

If more private corporations invest and create local jobs, governments in refugee-hosting countries have indicated they would be ready to lift restrictions on refugee employment. Access to livelihoods helps break the vicious cycle of underfunded humanitarian appeals, increases self-reliance and helps create the skills that sow the seeds for an eventual rebuilding back home.

In other words, there are solutions on offer. In a world where the latest app can sell for billions of dollars, there are plenty of ways to provide a minimum of humanity for those caught in conflict, who never had the opportunity to reach their potential in the first place. As a global society, we have the technology, resources and the know-how to make a massive difference to living standards everywhere, including for refugees.

But this will not happen until the private sector steps up and becomes not just a bit player, but a driving force in fixing the global emergency that is upon us. Syria has left no doubt that the old approach no longer works. It’s time to get serious about building a new one.

Author: Antonio Guterres is UN High Commissioner for Refugees.

Image: internally displaced people, fleeing a military offensive in the Swat valley, reach for food rations at the UNHCR (United Nations High Commission for Refugees) Jalozai camp, about 140 km (87 miles) north west of Pakistan’s capital Islamabad May 31, 2009. REUTERS/Ali Imam

Posted by Antonio Guterres - 02:22

All opinions expressed are those of the author. The World Economic Forum Blog is an independent and neutral platform dedicated to generating debate around the key topics that shape global, regional and industry agendas.

<ins class="adsbygoogle"

style="display:inline-block;width:250px;height:250px"

data-ad-client="ca-pub-9205484028477356"

data-ad-slot="1299304822"></ins>

(adsbygoogle = window.adsbygoogle || []).push({});

</script>

How bitcoin mining works

The Economist explains

How bitcoin mining works

AS THE bitcoin price continues to fall, sceptics have started to wonder what will happen to the industry underpinning this digital “crypto-currency”. Around the world, hundreds of thousands of specialised computers have been built to create (or “mine”) bitcoins and, in the process, validate transactions and protect the system. How does bitcoin mining work?

The aim of bitcoin—as envisaged by Satoshi Nakamoto, its elusive creator—is to provide a way to exchange tokens of value online without having to rely on centralised intermediaries, such as banks. Instead the necessary record-keeping is decentralised into a “blockchain”, an ever-expanding ledger that holds the transaction history of all bitcoins in circulation, and lives on the thousands of machines on the bitcoin network. But if there is no central authority, who decides which transactions are valid and should be added to the blockchain? And how is it possible to ensure that the system cannot be gamed, for example by spending the same bitcoin twice? The answer is mining.

Every ten minutes or so mining computers collect a few hundred pending bitcoin transactions (a “block”) and turn them into a mathematical puzzle. The first miner to find the solution announces it to others on the network. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution to the puzzle is correct. If enough of them grant their approval, the block is cryptographically added to the ledger and the miners move on to the next set of transactions (hence the term “blockchain”). The miner who found the solution gets 25 bitcoins as a reward, but only after another 99 blocks have been added to the ledger. All this gives miners an incentive to participate in the system and validate transactions. Forcing miners to solve puzzles in order to add to the ledger provides protection: to double-spend a bitcoin, digital bank-robbers would need to rewrite the blockchain, and to do that they would have to control more than half of the network’s puzzle-solving capacity. Such a “51% attack” would be prohibitively expensive: bitcoin miners now have 13,000 times more combined number-crunching power than the world’s 500 biggest supercomputers.

Clever though it is, the system has weaknesses. One is rapid consolidation. Most mining power today is provided by “pools”, big groups of miners who combine their computing power to increase the chance of winning a reward. As mining pools have got bigger, it no longer seems inconceivable that one of them might amass enough capacity to mount a 51% attack. Indeed, in June 2014 one pool, GHash.IO, had the bitcoin community running scared by briefly touching that level before some users voluntarily switched to other pools. As the bitcoin price continues to fall, consolidation could become more of a problem: some miners are giving up because the rewards of mining no longer cover the costs. Some worry that mining will become concentrated in a few countries where electricity is cheap, such as China, allowing a hostile government to seize control of bitcoin. Others predict that mining will end up as a monopoly—the exact opposite of the decentralised system that Mr Nakamoto set out to create.

Dig deeper:
Minting digital currency has become a big, competitive business (Jan 2015)
How do bitcoin transactions work? (Jan 2015)

<ins class="adsbygoogle"

style="display:inline-block;width:250px;height:250px"

data-ad-client="ca-pub-9205484028477356"

data-ad-slot="1299304822"></ins>

(adsbygoogle = window.adsbygoogle || []).push({});

</script>

www.google.com/+EricAu118

Wednesday, January 21, 2015

The new normal of Chinese growth

The new normal of Chinese growth

ECB QE Bond Buys Reportedly Will Hit $1.3 Trillion

ECB QE Bond Buys Reportedly Will Hit $1.3 Trillion

Think the aid system can cope? It can’t

AGENDA

Think the aid system can cope? It can’t

By Antonio Guterres

How bitcoin mining works

The Economist explains

How bitcoin mining works

728 X 90

336 x 280

300 X 250

320 X 100

300 X600

Search This Blog