The second cut in China’s interest rates in three months reveals key elements in Beijing’s thinking as it tries to reconcile an economic policy agenda beset with conflicting priorities, analysts said on Monday.
The task before China requires some delicate maneuvers. It aims to wean the country off an extraordinary debt binge (see Martin Wolf ) while keeping GDP growth fairly robust. It hopes to combat disinflationary pressures while preventing the renminbi from sliding too sharply against the US dollar. It wants to curb a dangerous slump in industrial profits without resorting to another round of investment pump-priming. It needs to keep domestic liquidity levels buoyant in spite of a surge in capital flight. Read more
Gulzar Ahmed is one small link in the human bridge between Dharavi, one of India’s largest shanty towns, and the fashion boutiques of Milan.
The master tailor in a small workshop run by Italian designer Viola Parrocchetti, Ahmed is one of thousands of skilled craftsmen that live and work in Dharavi, providing tailoring and embroidering services to India’s thriving fashion industry, much of it destined for export. Read more
For centuries, street vendors across southeast Asia have hacked open fresh coconuts, selling their refreshing water to thirsty passers-by to drink through a straw. For just as long, teenage girls have doused their hair in the coconut’s fortifying oil.
More recently, western consumers have discovered the benefits of coconut products thanks to diet fads and celebrity endorsements — but will those benefits extend to producing countries? Read more
Narendra Modi, India’s pro-business prime minister, swept to power last year offering a new efficient form of government and a crackdown on the high-level corruption that has weighed on growth for decades.
But in a new report, analysts at Ambit Capital, a Mumbai-based brokerage, suggest that this otherwise positive shift may be negative for India’s rural economy – if only in the short-term. Read more
By Sanjeev Prasad, Kotak Institutional Equities
The Indian government’s annual budget – to be announced on Saturday – will be intensely scrutinised for clues about the evolving policy priorities of Narendra Modi, the prime minister.
But while many will be focused on expenditure and revenue plans, Indian business will be looking in a somewhat different direction. It is hoping that the budget will further reforms to bring about a lower ‘visible’ role of the government in the economy, under which it relinquishes or reduces its multiple roles of financier, manager, owner, policy-maker and regulator.
The budget is an ideal opportunity for the government to re-evaluate its role in the economy at a time when the private sector, states and local governments are playing an increasingly larger role in economic and social development. A greater ‘invisible’ role of the government simply as a facilitator of private sector investment is required. Read more
By Bibhas Saha, Durham University Business School
When Narendra Modi, the India prime minister, assumed office in May 2014 everybody knew big changes were coming, but very few could foresee that labour reform would be one of them. Modi knows that if India wants to export more it has to take China on at its own game by creating a more flexible labour market and upgrading skills in a vast pool of potential labour supply.
India is far behind on both, with low literacy and complex labour laws. The laws are archaic (one dating back to 1926) and among the most rigid in the world. Of particular concern is the job security law, which was first introduced in 1976 and then further stiffened in 1982. At that time the objective was to improve job security in private sector firms so they were in line with the public sector. Read more
By Guonan Ma, Bruegel
The Chinese economy is simply too big to remain tied to the once useful monetary anchor of the renminbi-US dollar peg. It is time to let it go.
The Chinese renminbi depreciated 2.5 per cent against the US dollar in 2014, the largest annual fall since 2005 when Beijing timidly started loosening its tight dollar peg. Recently, the Chinese currency has repeatedly tested the weak side of its daily trading band, despite attempts by the People’s Bank of China (PBoC) to signal a steadier bilateral renminbi-US dollar rate via its daily fixing (see chart below, left panel).
What has led to the changing fortunes of the renminbi? What lies ahead for the currency in 2015? Read more
By Ying Staton, Global Counsel
Jakarta is often called the world’s Twitter capital. Its digital citizens generate more tweets than any other city worldwide. Twitter has prioritised Indonesia as a key growth market and their executives take pride in quoting a McKinsey research paper that shows a 10 per cent increase in the number of internet users in a country leads to a 1 per cent rise in that country’s GDP growth.
But the relationship between social media buzz and economic prosperity is far from linear in Indonesia. The Indonesian digital phenomenon is the result of a several factors including demographics (about half the population is under 29), a robust climate of political debate and a culture in which ‘affiliative’ instincts – the desire to belong to a community rather than stand out from a crowd – are regarded as pronounced. Read more
By Ronald Man, HSBC
The Japanese yen has lost almost 50 per cent of its value against the US dollar since late 2012. Few economies are as affected by a weaker yen as South Korea, given the strong trade competition between the two countries. Monetary easing in Japan may not have pushed its close neighbour into outright deflation just yet, but deflationary pressures in Korea are certainly rising.
Manufacturers in Korea have chosen to hold their prices over the past three years for two main reasons. First, global consumers are more price sensitive in a weak, rather than strong, growth environment. Second, the quality of exports from Korea has increased significantly and has converged with those from Japan. Korea’s pricing strategy has arguably been successful, as indicated by export growth of 1.1 per cent in 2014, despite an 8 per cent strengthening of the won against the yen during that year. Read more
Being born under the dragon sign of the Chinese zodiac is considered to be the luckiest start in life one can have. Dragon babies were so sought after in 2012 – the most recent window of opportunity – that some would-be parents went to extraordinary lengths to make sure they had one.
Evidence suggests those endeavours could yet pay off. According to a (not very) scientific piece of research from Wealth-X, dragons are indeed more likely to end up sitting on (or rather earning) vast piles of gold. Read more
By Marty Sun, Goldman Sachs
The launch of the Shanghai-Hong Kong Stock Connect last November has made it easier for international investors to access China’s equity markets.
The link got off to a smooth start largely thanks to the money from hedge funds worldwide flowing into Shanghai.
But unlike their hedge fund cousins, less than one-third of Hong Kong’s long-only fund managers (who buy stocks hoping their prices will rise) are using the link to buy Shanghai-listed shares, according to a recent survey by the Hong Kong Investment Funds Association (HKIFA). Access from Europe has been even more measured, with only a few Luxembourg funds approved for the programme, even though a fast track application process has been put in place. Read more
Pressure for a devaluation of Kazakhstan’s beleaguered currency is building as the country adjusts to weaker oil prices and a crumbling Russian rouble, analysts said.
Futures markets are pricing in a sharp depreciation, with the 6-month forward contract trading at over 225 tenge per US dollar – almost 40 tenge above the official fluctuation corridor of 170 to 188 tenge per US dollar. The 12-month contract changes hands at 240 tenge per US dollar.
The mounting pressure on the tenge is echoed in other oil-rich post-Soviet states. Azerbaijan is planning to abandon its currency peg to the dollar as the oil price tumble strains its energy-dependent economy, the central bank governor told the Financial Times. Read more
Abdul Halim removes an envelope from the inside pocket of his fake leather jacket and slides it carefully across the counter at MTB Exchange, a money transfer shop on Whitechapel, in London’s East End. Within hours, the £500 it contains will be picked up by his father, a chicken farmer in a remote part of northern Bangladesh. “He needs it very much,” says the impeccably mannered 30-year-old.
Every other month, Halim sends home nearly a month’s worth of wages, earned in a 20-hour-a week job as a kitchen porter in a Knightsbridge restaurant. He would like to earn more, he says, but the terms of his visa require his presence at a north London college, where despite his almost non-existent English, Halim is studying business management. Read more
Ever fancied a holiday from the internet? Complete peace of mind, a world away from the hyperreality of tweets, email, hashtags, likes, blogs and the other trappings of an ICYMI world?
Welcome to China, where, ensconsed behind the Great Firewall, you can relax, maybe shop on Alibaba, send the odd Wechat message, or fight little bug eyed jumping dragon thingies with a Kung Fu laser sword. But that’s it. No Gmail, no YouTube, no Facebook or Twitter. You’re guaranteed a relaxing disconnect from being a beast of online burden.
But it turns out not everyone appreciates the opportunity. Read more
China faces a monetary policy “wall of worry” as its economy slips towards a deflationary spiral driven by structural forces that are simultaneously dragging prices lower and depressing economic growth, analysts said on Tuesday.
The important insight, the analysts said, behind a decline in consumer price inflation (CPI) to a five year low of 0.8 per cent in January was that it was caused not by isolated or temporary factors but by a confluence of mutually-reinforcing trends that will require a concerted and accelerated easing in monetary policy if China is to avoid a deflationary cliff. Read more
By Ali Wyne, Wikistrat
This September will mark the ten-year anniversary of two documents that have been highly influential in framing contemporary analysis of America’s relationship with China: an essay by Zheng Bijian in Foreign Affairs explaining how China would achieve a “peaceful rise,” and a speech by Robert Zoellick advising China to serve as a “responsible stakeholder” in the evolution of world order.
Today the two countries are struggling to define a framework of partnership that reconciles the imperative of enduring cooperation with the inevitability of mutual suspicion. Meanwhile, initially shared enthusiasm over adopting a “new type” of great-power relations has waned, in part because of the difficulties in bringing such an abstract and ambitious ideal into existence. Read more
China’s currency policy dilemma sharpened on Monday as the country announced a record January trade surplus in spite of falling exports and reported dismal imports in spite of a strong appreciation of the renminbi against the euro and yen.
Exports contracted 3.3 per cent year on year in January, down from an increase of 9.7 per cent in December. Meanwhile, imports also declined 19.9 per cent, falling from a 2.4 per cent contraction in December. This produced a record merchandise trade surplus of $60.0bn, up from $49.6b a month ago (see chart). Read more
By Achilles Risvas, Dromeus Capital Management
Could changing tides in “carry trade” capital flows suddenly drain value from Chinese property and equities, causing the renminbi to depreciate rapidly and darken investor perceptions of China’s prospects?
Such an outcome is more likely than generally realised.
China has undeniably boomed in recent decades, thus engendering a general bias that Chinese state planners will prevail or triumph – as suggested by the more than 60 per cent run-up in the Shanghai Composite Exchange Composite Index since mid-2014. Read more
As global oil prices have crashed, central bankers around the world have had to deal with new disinflationary pressures. For some, like Thailand and Korea, this may be bad news but for Raghuram Rajan, the governor of the Reserve Bank of India (RBI) who has been battling with spiraling inflation, the recent trends are a welcome relief.
Rajan began loosening policy in the new year – but is there any risk, beyond rebounding oil prices, that inflation could pick up pace again in India? Read more
Developed country central banks that see quantitative easing as a route to recovery are merely inflating bubbles, driving up the prices of assets held by rich people and failing to deliver growth on the ground. So says Atiur Rahman, governor of the central bank of Bangladesh.
“QE will lead to bubbles and overheating,” he said during a visit to beyondbrics on Friday. “They are creating liquidity in the air and never really touching the ground.” Read more