Arguably the most revealing English translation of the French verb ‘étonner’ – at least in the context of Napoleon’s famous quip about China – is ‘to astonish’. “Ici repose un géant endormi, laissez le dormir, car quand il s’éveillera, il étonnera le monde” so the Corsican is said to have noted. “Here lies a sleeping giant, let him sleep, for when he wakes, he will astonish the world.”
Some 200 years later, that giant has awoken and Napoleon was right: China is now astonishing the world. In the past three decades, it has roused itself from a slumber to a state of almost unimaginable vibrancy. The roll-call of economic trophies it now claims is daunting: largest exporter, importer, foreign exchange reserve owner, commodity consumer, luxury goods market, most car sales, most internet users, even (in purchasing power parity terms) biggest economy. Read more
Imagine you’re a policymaker from an emerging economy, and you’re comfortable with the idea that your exchange rate needs to weaken. Maybe that’s because you’re a commodity exporter, and prices have fallen; or because global trade growth isn’t what it used to be, and your exports are weak; or because the prospect of higher US interest rates could make external financing less plentiful. Now, the question is, what would you rather see: a quick-and-nasty currency collapse? Or a fall in your currency’s value that’s smooth and sedately spread over time?
That’s the difference between Brazil and Russia. In the 12 months following February 2014 the rouble fell 30 per cent in trade-weighted, inflation-adjusted terms. But it took Brazil almost four years to achieve that same 30 per cent gain in competitiveness. What works better? Read more
Austria’s refusal to extradite Dmitry Firtash to the US is confirmation that Europe holds two contradictory positions on corruption. While the European Union urges Ukraine to fight corruption, some of its member states – such as Latvia, Cyprus (still the largest ‘foreign investor’ into Ukraine), the UK, Austria, France, Monaco and Switzerland, along with Caribbean offshore zones such as the Virgin Islands – continue to enjoy the fruits of corrupt proceeds that are laundered abroad.
Firtash, a Ukrainian gas mogul and former partner of Gazprom, had been charged in the US with involvement in an international racketeering conspiracy that allegedly paid $18.5m in bribes to government officials in India in exchange for permits to mine titanium for export to Boeing in Chicago. Read more
Margrethe Vestager is one of the most influential women in Danish politics but it was her recent decisions as European Commissioner for Competition to take on both Google and Gazprom that turned her into a globally recognised figure.
The two cases are very different. Google’s dominance may be a fleeting one and its alleged ability to impose on its customers an inferior service – search algorithms favouring its own products – is limited by the availability of competing search engines. Gazprom, in contrast, fits better the textbook idea of a monopolist: switching to alternative energy sources is a considerably less trivial exercise than making Bing your new homepage. Read more
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A stark dichotomy has emerged between Indian economic data and the reality on the ground. In the latest example, the Reserve Bank kept interest rates unchanged at its last monetary policy review earlier this month and issued a dovish statement. Signs of an investment revival are meagre and consumption demand remains weak – in strong contrast with the GDP growth estimates of the government and the Central Bank.
Despite general optimism following the election of the Narendra Modi government last May, the pace of economic revival has been slow as both investment and consumer demand remain weak. Read more
In the last six to eight months, most emerging and frontier currencies have weakened against the US dollar. One explanation is the likelihood of the US Federal Reserve raising rates at its September policy meeting, making US assets comparatively attractive. Meanwhile, the possibility of a ‘Grexit’ is exacerbating the need for investors to buy safe haven assets, of which dollar assets are among the most sought after.
However, some EM currencies have bucked this trend. The Malawian kwacha is one. Indeed, it is the only African currency to have strengthened this year, as shown in the bar chart below: Read more
One of the most interesting solar projects around, TuNur, hopes to generate two nuclear power plants’ worth of renewable electricity in the Tunisian desert, export it to Italy via a 1,000km high-voltage DC cable and connect it to European grids as far afield as the UK, where it could power over 2m homes.
Three developments are helping and could set a precedent for further projects: strides in the cost-effectiveness both of undersea transmission cables and solar power, the EU’s Energy Union and climate packages, and the new Tunisian government’s liberalisation of its energy laws. Read more
Over many years, China has gained acclaim as the world’s manufacturing powerhouse. But today, innovation is flourishing in the world’s most populous nation, which is rapidly becoming a trendsetter with the potential to disrupt business models globally.
On a recent research trip to China, we were struck by the huge enthusiasm for locally developed smartphones and the entrepreneurial spirit sweeping the country. Indeed, the number of patents filed by Chinese residents has surged in recent years, both locally and abroad, to exceed the world’s largest developed economies. Read more
The ever ingenious Chinese financial system has developed a new kind of shadow bank – insurance companies.
China’s $586bn stimulus package in 2009 caused a flurry of lending through the country’s financial arteries. Some of this money ended up leaking out of the banks into unofficial channels, including the country’s state banks and the giant provincially-owned pseudo banks called Trust Companies. By the end of 2014, these off-balance sheet loans accounted for 18 per cent of all financing, up from less than 2 per cent a decade earlier. Read more
It seems to be getting harder and harder to find a news story about the Middle East and North Africa (MENA) that doesn’t fall within the narrow narrative of disorder and political violence. From state collapse in Libya and the tragic conflict in Syria to the geopolitical flashpoint in Yemen, the headlines from the broader region make for bleak reading indeed.
These challenges are real and they are significant, but there is another story about the region that remains under-reported. It is a story of dynamism and entrepreneurship, and it’s one of how private capital is playing a critical role in creating new realities for the region and its people. Read more
How worried should you be when the US Federal Reserve goes ahead with its first interest rate hike? After all, following years of close to zero policy rates and three rounds of quantitative easing, this will be a significant change in policy.
Financial markets do not appear too concerned. One could even say that they are being complacent. Nevertheless, the usual commentators are once again stating that Fed hikes will bring the end of the world and of emerging markets.
So who is right, the complacent markets or the doomsayers? We think neither. Read more
A lot has been made of the IMF’s recent warning that potential growth has fallen dramatically in emerging markets (EMs). Many have correctly pointed out that potential output is expected to fall from to a yearly average of 5.2 per cent in the 2015-20 period while developed markets (DMs) are expected to see potential growth increase to 1.6 per cent. This has, in turn, caused renewed cries of concern about emerging economies. It is, however, possible to draw a dramatically different conclusion using the same data set. The IMF predicts that the growth differential between EMs and DMs will be higher in the 2015-20 period than it was in 2001-07, a period when EMs were very much in favour. Read more
With a decision due next year, the process of choosing the next United Nations Secretary General is already under way against a background of tectonic international change. The incumbent, Ban Ki-moon, was appointed in 2006 when the world was still very much in the midst of a “unipolar moment”. The US may have been bogged down in Iraq, but the desire and capacity of the Bush administration to project power on a global scale was beyond doubt. The context in which Ban’s successor takes office will be very different. It will be one still grappling to come to terms with the aftermath of a global economic crisis and a reordering of world power that has accelerated the rise of China and other developing nations, weakened the eurozone, forced the US to retrench and encouraged Russian to challenge the post-Cold War settlement with force. Read more
The increased tensions between Russia and the west, the continuing problems in the global economy and the rising threat from extremism have rightly caused concern in capitals around the world. The crisis of confidence in international relations has further weakened the abilities of all states to deal with modern challenges and threats. Viewed from Kazakhstan and Central Asia, however, these shadows over our collective hopes seem even more menacing.
Ukraine is a country with which we have deep historical and personal ties. The continuing conflict there has had a deep impact on us and the wider region. We have responded by working tirelessly to help settle the Ukrainian crisis. The Minsk agreements have created conditions for a long-term solution. Read more
Saudi Arabia is making all the headlines at the moment. Firstly, it convinced the OPEC oil cartel to maintain production levels at its November 2014 meeting, helping to trigger the oil price crash. It has also overseen the smooth accession of King Salman after King Abdullah’s death in January, and intervened in the conflict in Yemen during the last month.
Last week, Saudi Arabia announced it is pressing ahead with plans to open up the stock market directly to foreigners, giving a precise date of 15 June, ahead of its original deadline of the end of June. The final ‘rules’ will be published on 4 May, giving foreign investors a few weeks to get organised. Read more
As the Chinese economy posts its slowest growth in six years, major reforms to China’s state-owned enterprises are now in the final planning stages. The Xi Jinping administration has pledged to overhaul and consolidate the state-owned economy to tackle widespread inefficiency and corruption.
A wave of mega-mergers among state-owned firms has already been announced in railways, nuclear power and other industries. Consolidation may be easier politically than market reforms, but it’s not the right way forward. China’s crown jewel firms don’t need to be bigger; they need to be better. Read more
One year on since new trade mark laws took effect in China and there is little evidence to show it is becoming any easier for global brands to enforce their rights in the country. The new laws and practices were intended to make it easier to enforce trade mark rights and provide greater levels of transparency and accountability surrounding intellectual property (IP) infringement.
It’s easy to understand why an increasing number of western companies are looking to take advantage of the Chinese market as e-commerce sales have recently rocketed, outpacing the US. However, some companies are still finding it difficult to protect their brands in China. Read more
The first whispers of worry about a Chinese property bubble surfaced in late 2009. Since then, the local real estate market has quickened and slowed in line with government measures to stoke or cool the market, but has never crashed. Nonetheless, some market watchers insist that the Chinese property bubble will burst one day. Recent sector weakness has given them further ammunition, as has the near collapse of Kaisa, a mid-sized Shenzhen-based developer.
Until December 2014, Kaisa’s finances were perceived to be strong and sales were rising. Now its survival is at the mercy of lenders and rivals. Its woes started when the government halted some of its Shenzhen projects in December without giving a reason. The chairman abruptly resigned, while debts to banks and bondholders have gone unpaid and the firm is in the process of being acquired by its competitor. It has yet to reach a consensual solution with its creditors. Read more
I have just returned from abroad. It felt like déjà vu from a distant past. Explaining Brazil has become complex again. “I read about corruption accusations, popular protests, deficits and crises; what is happening in Brazil?” I was asked by an important investor. The answer inevitably tends to be long and full of Buts and Ifs.
Nevertheless, I will make an effort to summarize it here in a straightforward way. Brazil did not invest enough during the favorable commodity cycle. Policymakers did not recognize the end of the cycle in time. When they did, they tried to go back to a past that no longer existed. Now, Brazil must adjust everything at once to avoid a worse crisis. But markets are dynamic: with the recent depreciation of the real, there are already investors looking for opportunities. That is the reason Brazilian assets rebounded lately. Read more