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  • Blankfein on a Stronger China

    Lloyd Blankfein spent an hour with Charlie Rose earlier this week, and gave as comprehensive a take we've seen him give on his approach to leading one of the world's most powerful financial institutions, Goldman Sachs. In this excerpt, he explains why he believes that an economically stronger China is something to be embraced and encouraged, rather than demonized and feared: Watch the full interview here .
  • Evan Osnos on 'The Age of Ambition' and Chinese Economic Reform

    If you want to understand China today, you have to understand the economic reform started in 1978 by Den Xiaoping's government. According to The New Yorker 's Evan Osnos , that reform touched off the "age of ambition" that we see today. Not coincidentally, Osnos has a new book out, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China . He spoke about the book and the "new China" at the Carnegie Council . In this excerpt, he discusses Deng's "re-imagination" of the Chinese economy. Watch more from the event here .
  • Frankel: China's Economy Improving, But Not Yet #1

    Jeffrey Frankel is concerned that some analysts are misreading a new report from the World Bank that, among other things, touts China's increasing economic power. Yes, Frankel notes, China is getting more powerful economically by the day. But it will still take some years before it is the top economy. And it is not appropriate to call it a rich country. From Project Syndicate : Looking at per capita income, even by the PPP measure, China is still a relatively poor country. Though it has come very far in a short time, its per capita income is now about the same as Albania’s – that is, in the middle of the distribution of 199 countries. But Albania’s economy, unlike China’s, is not often in the headlines. That is not only because China has such a dynamic economy, but also because it has the world’s largest population. Multiplying a middling per capita income by more than 1.3 billion “capita” yields a big number. The combination of a large population and a medium income gives it economic power, and also political power. Similarly, we consider the US the number-one incumbent power not just because it is rich. If per capita income were the criterion by which to judge, Monaco, Qatar, Luxembourg, Brunei, Liechtenstein, Kuwait, Norway, and Singapore would all rank ahead of the US. (For the purposes of this comparison, it does not matter much whether one uses market exchange rates or PPP rates.) If you are shopping for citizenship, you might want to consider one of those countries. But we do not consider Monaco, Brunei, and Liechtenstein to be among the world’s “leading economic powers,” because they are so small. What makes the US the world’s leading economic power is the combination of its large population and high per capita income. It is this combination that explains the widespread fascination with how China’s economic size or power compares to America’s, and especially with the question of whether the challenger has now displaced the long-reigning champion. But PPP exchange rates are not the best tool to use to answer that question. Read China is Still Number Two here .
  • IMF Releases Positive Economic Outlook Report on Asia and Pacific

    If uncertainty in Western developed economies has taught us anything this last decade, it is that the global economy depends on robust growth in Asia. So the latest projections from the IMF will be seen by many as welcome. Hitting these projections depends on Asia's policymakers staying on course. The IMF report suggests the risks are not as great as they were a year ago, but there are still clear risks: Risks to the outlook have become more balanced. Global growth has strengthened and overall global prospects have improved (especially in advanced economies). But Asia still faces new and old risks (geopolitical uncertainty, exit from unconventional monetary policy in the United States and low inflation in the euro area). The main external risk remains an unexpected or sharp tightening of global liquidity. Rapid movements in global interest rates could lead to further bouts of capital flow and asset price volatility. Pockets of high corporate leverage in some Asian economies could magnify the effects of higher interest rates and lower growth on balance sheets, and weaken domestic demand. Asia is also facing various risks emanating from within the region. Growth in China and Japan could also fall below expectations, with negative spillovers for the rest of the region. In China, a gradual slowdown as a result of reforms would be welcome as it would put growth on a more sustainable path. However, a sharp fall in growth—which remains a low risk—would adversely affect those regional trading partners that are most dependent on Chinese final demand. In Japan, Abenomics could be less effective than envisaged, resulting in lower inflation and weaker growth, with spillovers to economies that have strong trade and foreign direct investment linkages with Japan. Strong intra-regional trade integration, which is shown to have contributed to greater business cycle synchronization and spillovers over the years, could transmit geopolitically related disruptions along regional supply chains. Read the full report here .
  • Ideas@davos: 'Scenarios of the International Monetary System'

    The global economy is tied together by the international monetary system. It is quite a dynamic system, but one that has been through a lot of changes in the last decade. And the all knowing voice in this World Economic Forum video says "the existing system has reached a breaking point." Whether you agree with that conclusion or not, the video makes a compelling argument at least about strains on the system:
  • A New Primer on China From McKinsey

    Do you have an hour for China? That is, do you have an hour you can spare to understand the leading economic story of the century? McKinsey's Jeffrey Towson and Jonathan Woetzel have written The One Hour China Book in an effort to bring us all up to speed on the key pieces to understanding what is happening in the world's most populous country and the impact of activity there on life everywhere. If you can't spare an hour just yet, here are the "six big trends" from the book, as shared at McKinsey Insights : Here's a little more on trend number 3: The American middle class was the world economy’s growth engine throughout the 20th century. Now, the engine is the Asia–Pacific region, which will account for two-thirds of the world’s middle class by 2030. While Chinese consumers’ focus on “value for money” has driven the rise of companies such as apartment builder China Vanke and Tingyi Holding Company—the business behind China’s dominant instant-noodle brand—buying habits are changing. As urbanization accelerates, consumer spending is becoming more like that of the West’s middle class. Urban Chinese are shopping to meet emotional needs, driving a skyrocketing demand for middle-class goods, food, and entertainment. As an example, China consumed more than 13 million tons of chicken in 2012—more than the United States. Tyson Foods’s China operations has facilities able to process more than three million chickens per week, and Chinese chicken consumption, which grew by 54 percent from 2005 to 2010, is expected to grow an additional 18 percent annually during the next five years. For additional evidence, look no further than the fact that the largest Chinese acquisition of a US company had nothing to do with technology, cars, or energy. In 2013, Chinese Shuanghui International spent $7.1 billion to buy American Smithfield, the world’s largest pork producer and processor. It’s not surprising, then, that agribusiness is one of China’s hottest new industries. Almost every aspect needs to be improved, from land and water use to logistics and retail. Legend Holdings, the parent company of Lenovo, now lists modern agriculture as one of its five core areas, with a portfolio that includes kiwi and blueberry farming. Read All you need to know about business in China here .
  • Raghuram Rajan on Global Impact Uncoventional Monetary Policies

    The monetary policies of central banks in the world's largest economies have a significant impact not only on the residents of those nations, but on people and businesses around the world. This is especially true of the Federal Reserve's monetary policy moves. With the Fed looking to scale back its quantitative easing program, the Brookings Institution invited India's top central banker, Raghuram Rajan , to speak about the impact of the Fed's unconventional monetary policies on emerging economies. Here are two excerpts from that speech, in which Rajan discusses his concern that central bankers in emerging and developed economies are not adapting quickly enough to a changing global economy: Read more about Rajan's visit to Brookings here .
  • China's Premier Says No to Stimulus Measures

    If you are waiting on China's government to make some policy moves to jump-start growth, you may want to find something to do with your time. As Aileen Wang and Adam Rose report for Reuters , Chinese Premier Li Keqiang has quashed any rumors of pending fiscal and/or monetary policy shifts. The almost unabated run of disappointing data this year has fuelled investor speculation the government would loosen fiscal or monetary policy more dramatically to shore up activity. But authorities so far have resisted broad stimulus measures. On Wednesday, the top economic planning agency said the government had less room to underpin growth because it did not want to inflate local debt risks. Still, authorities have take some steps to bolster growth. Earlier this month, they announced tax breaks for small firms and plans to speed up some infrastructure spending, including the building of rail lines. The national railway operator now plans to raise its annual investment by 20 billion yuan (1.9 billion pounds) to 720 billion yuan in 2014. There have also been moves to cut down on bureaucracy and to open up state-dominated sectors to private investors. In his speech, Li said China was positioned to sustain a reasonable level of growth over the long term. "We have set our annual economic growth target at around 7.5 percent," he said. "It means there is room for fluctuation. It does not matter if economic growth is a little bit higher than 7.5 percent, or a little bit lower than that." Read the full article here .
  • Angus Deaton on Global Quality of Life, Health, and Wealth

    In his latest book, Princeton economist Angus Deaton argues that the world is a much wealthier and healthier place today than it was a half century ago, but that progress has not come without some setbacks, and a danger of "vast inequalities." Deaton has an introduction to the book, titled The Great Escape: health, wealth, and the origins of inequality , at Vox , where he shares this graph: The figure plots life expectancy at birth (for both sexes together) against per capita GDP in price-adjusted international dollars. Each point is a country, shown as a circle whose area is proportional to population; the lighter circles are for 1960, and the darker circles for 2010. The arrow points in the direction of progress, where both per capita incomes and life expectancy increase over time. The 2010 line is above the 1960 line so that, for a typical country, life expectancy has increased by more than would have been expected given a movement along the 1960 line. Preston suggested that movement along the curve was the effect of income on health, while the upward movement of the line could perhaps be attributed to technical progress. Death 'ages' as we move along each curve; this is the epidemiological transition. In the poorest countries, parents still live with the agony of watching their children die from long-conquered maladies like pneumonia, diarrhea, or vaccine preventable diseases like measles. In the rich countries, where disease has moved out of the bowels of children and into the arteries of the elderly, death comes from chronic diseases – heart disease and cancer – and comes to the old, not to the young. The aging of death recapitulates what happened in history, though poor countries today have achieved comparable health at much lower levels of per capita income than was the case in the rich countries in the past. When I was born in Edinburgh in 1945, life expectancy in Scotland was lower than it is in India today; when my father was born in the Yorkshire coalfield in 1918, child mortality in England was higher than it is in sub-Saharan Africa today. Progress has been repeatedly interrupted by horrors, not all of which are safely locked up in a historical museum. The Figure shows the huge increase in life expectancy in China between 1960 and 2010, most of which happened, not slowly over time, but immediately after 1960. In fact, this is not a story of progress, but of the unwinding of the disaster of the great Chinese famine. Mao’s demented attempt to catch up with rich countries in a few years, to assume leadership in the Communist world, and to preserve his own political position at home, led him to ignore the mounting evidence that millions were dying. Eventually, perhaps 30 million people died, Yang (2013). This is far from the first time in history that toxic politics has brought human catastrophe. It is sometimes hard to see the benefits that good policies bring, but the Great Leap Forward is a spectacular example of what bad policies and bad politics can do. Read the full post here .
  • China Investment in French Milk Production

    One Chinese company is looking to some French cows for a little assistance. Apparently, China, which seems to have more of everything than other countries these days, does not have enough suitable dairy cows to keep up with demand for milk. So Synutra is building a fancy new milk factory in Brittany. The story of these French cows and China's need for milk presents an interesting case study into how the global marketplace works today. Wall Street Journal 's Ruth Bender reports:
  • McKinsey Quarterly: The Next Trend in Manufacturing

    There was massive growth in "offshoring" in the years before the global economic crisis. Then some manufacturing jobs returned to the U.S. and we called it "reshoring." Are you ready for "next-shoring"? In the McKinsey Quarterly , Katy George , Sree Ramaswamy , and Lou Rassey take stock of the economics of manufacturing for today and the coming years, and they make the case for that new technologies are making labor costs less of a factor in choosing where to set up factories. More than two-thirds of global manufacturing activity takes place in industries that tend to locate close to demand. This simple fact helps explain why manufacturing output and employment have recently risen—not only in Europe and North America, but also in emerging markets, such as China—since demand bottomed out during the recession following the financial crisis of 2008. Regional demand looms large in sectors such as automobiles, machinery, food and beverages, and fabricated metals. In the United States, about 85 percent of the industrial rebound (half a million jobs since 2010) can be explained just by output growth in automobiles, machinery, and oil and gas—along with the linkages between these sectors and locally oriented suppliers of fabricated metals, rubber, and plastics (Exhibit 1).2 The automotive, machinery, and oil and gas industries consume nearly 80 percent of US metals output, for example. In China too, locally oriented manufacturers have contributed significantly to rising regional investment and employment. The country has, for example, emerged as the world’s largest market and producer for the automotive industry, and many rapidly growing manufacturing sectors there have deep ties to it. As automotive OEMs expand their capacity in emerging markets to serve regional demand, their suppliers have followed; the number of automotive-supplier plants in Asia has tripled in just the past decade. Read Next-shoring: A CEO’s guide here .
  • Eichengreen: Lessons Learned From the Decade of Concern Over Global Imbalance

    At Project Syndicate , Barry Eichengreen declares the "era of imbalances is over." Ten years ago, Eichengreen notes, leading economies had rising current-account deficits--the U.S.'s rose to 5.8% of GDP--or current-account surpluses--China's hit 10% of GDP. But now, those surpluses and deficits are mostly under control. Eichengreen tries to sort out some lessons from the decade. Back in 2004, there were two schools of thought on global imbalances. The Dr. Pangloss school dismissed them as benign – a mere reflection of emerging economies’ demand for dollar reserves, which only the US could provide, and American consumers’ insatiable appetite for cheap merchandise imports. Trading safe assets for cheap merchandise was the best of all worlds. It was a happy equilibrium that could last indefinitely. By contrast, adherents of the Dr. Doom school warned that global imbalances were an accident waiting to happen. At some point, emerging-market demand for US assets would be sated. Worse, emerging markets would conclude that US assets were no longer safe. Financing for America’s current-account deficit would dry up. The dollar would crash. Financial institutions would be caught wrong-footed, and a crisis would result. We now know that both views were wrong. Global imbalances did not continue indefinitely. As China satisfied its demand for safe assets, it turned to riskier foreign investments. It began rebalancing its economy from saving to consumption and from exports to domestic demand. The US, meanwhile, acknowledged the dangers of excessive debt and leverage. It began taking steps to reduce its indebtedness and increase its savings. To accommodate this change in spending patterns, the dollar weakened, enabling the US to export more. The renminbi, meanwhile, strengthened, reflecting Chinese residents’ increased desire to consume. There was a crisis, to be sure, but it was not a crisis of global imbalances. Although the US had plenty of financial problems, financing its external deficit was not one of them. On the contrary, the dollar was one of the few clear beneficiaries of the crisis, as foreign investors, desperate for liquidity, piled into US Treasury bonds. Read A Requiem for Global Imbalances here .
  • WSJ: Other Economies Not 'Riding the Coattails' of Rebalanced U.S. Economy

    We're kicking ourselves for not buying stock in the phrase "this time is different," back in 2008. Coverage of the global economic crisis, the recession, and the meandering recovery has included that phrase frequently (even if not always with enough perspective to use it accurately). Well, here we go again. Conventional wisdom suggests that economic recovery in the U.S. has a direct positive effect on other players in the global economy--especially Asia where so many consumer products for the U.S. market are produced. While the current recovery underway in the U.S. may not be as fast as we'd like, it should be helping out China, for example. But this time is different. The Wall Street Journal 's Mike Casey tells us why:
  • Economist Intelligence Unit Projects These Five Economies Will See Fastest Growth in 2014

    Want your economy to be fast-growing in 2014? It doesn't hurt to have some sort of direct line to the world's most populous economy: China. A gas pipeline or shipping line for minerals will do. Or even a line of wealthy Chinese at your booming casinos. The Economist Intelligence Unit has put out its top five nations for projected growth in the coming year. Numbers 2 through 5 all have economies where growth is tied to China. #1's growth depends more on its ability to stabilize politically, but then it too depends greatly on China.
  • SF Fed President on the Challenge of Rebalancing Economies in China and US

    Speaking to community leaders in Los Angeles, San Francisco Fed President John C. Williams compared the challenges for U.S. policymakers to those of their counterparts in China. While the details in each economy are rather different, the overall challenges are similar. Both countries need to rebalance their economies for future growth. But that is no small undertaking, and it is made more difficult by short-term challenges. From the speech: Unsurprisingly, economists can’t agree about the primary reason China’s domestic consumption is so low and what should be done about it. One possibility is the population’s focus on saving—in large part to cover the cost of health care, education, and preparation for old age. This is exacerbated by China’s massive and rapid urbanization; as it currently stands, most social services, such as education and health care, are administered in one’s home city. This means that much of the migrant workforce can’t access these services in their new cities, and is forced to save to cover those expenses. While local authorities may balk at paying more for social services, there is a trade-off: addressing such structural barriers would free up workers’ income that could be spent locally, stimulating host cities’ economies. Another issue is increasing income inequality—something we in the United States can relate to. What money is flowing to households is concentrated largely in the expanding class of wealthy citizens, rather than in rural and middle-class families. The final and perhaps most important factor is that, while corporate profits have risen, a comparable rise in individual income has not followed. Again, something that has happened in the United States as well. Low borrowing costs for state-supported firms, combined with low wages for many workers, have helped business profits at the expense of households. If China is to rebalance the economy away from exports and towards domestic consumption, there must be an increase in household incomes. That means higher wages and dividend payments from firms. Further liberalization of the financial system will also help, as higher deposit rates and more investment options would boost spending power. Furthermore, China’s citizens must feel a sense of stability and certainty regarding their future. When we’re worried about the future, the natural response is to want to save more. So, even if these steps were to be taken, the question remains whether China’s middle- and rural-class citizens are willing to become bigger spenders anytime soon. Turning to the United States, over the longer run we need to increase investment in education, physical capital, technology, and infrastructure. We will also need to put federal fiscal policy on a sustainable path, which involves making some tough decisions about taxes and spending. Importantly, spending less on current consumption will free up resources for investment areas that foster greater production and will increase the size of the economy over the long term. However, to succeed at these longer-run goals, we first need to get our economy working at its full potential. That’s where the Federal Reserve and monetary policy come in. Since the early days of the crisis and recession, the Federal Reserve’s monetary policy body, the Federal Open Market Committee (FOMC), has been taking strong actions to foster economic recovery and get people back to work. We lowered short-term interest rates to near zero almost five years ago. The goal was simple: With very low interest rates, households and businesses are more willing to spend. This increase in demand for goods and services leads businesses to hire more workers. Read Rebalancing the Economy: A Tale of Two Countries here .
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