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The nuclear talks involving Iran and the P5+1 countries – the US, the UK, France, Russia, China and Germany as well as the EU – are heading into their second stretch of overtime. The announced intention is to resume talks on Iran’s nuclear programme, producing the outlines of a pact by March 1 and a complete accord by the end of June 2015.
The last time China got serious about reforming its state-owned enterprises (SOEs) was nearly two decades ago when hundreds of firms were privatized or liquidated annually under the mantra of “grasp the large and release the small”. But with the turnover in leadership to Hu Jintao in 2003, Beijing became less willing to close poor performers and relied on the newly created State-Owned Assets Supervision and Administration Commission (SASAC) to instil a stronger commercial orientation among those not let go. SASAC, however, only served to protect their existence through cross subsidization of loss markers by the more profitable firms, who benefited from their monopoly positions in key sectors. Under pressure, Beijing has now proposed a new strategy of mixed ownership to improve SOE performance, but this will not solve the problem.
Profitability differences between private firms and SOEs mattered less before the global financial crisis, when return on assets was increasing steadily for both groups. But since 2008, returns for private firms have surged to 11 per cent while those for SOEs have fallen and stagnated at around 5 per cent (Figure 1). Policy makers and academics point to this widening gap as evidence of the poor performance of SOEs. Few, however, have noticed that the firms’ profit margins, another commonly used measure of profitability, have converged in recent years. Prior to the crisis, SOEs were actually more profitable than private firms (Figure 2). Read more
President Barack Obama’s recent trip across Asia was something of a whirlwind. He went to China for an important bilateral engagement with President Xi Jinping and for the multilateral trade gathering in APEC, to Myanmar to reinforce the nascent reforms that have still not taken firm hold in the country and to highlight the continuing relevance of ASEAN, and to the G20 in Australia to underscore the importance of the Asia Pacific economies in sustaining global growth. Despite the whistlestop nature of his tour, it looks like it was worth it: having left Washington beaten down and beleaguered by the recent midterm elections and by a noticeable dip in his public standing, the president returned to the nation’s capital with concrete accomplishments in hand.
The tour itself showed that the US pivot to Asia continues and is gathering pace – despite the necessary preoccupations in the Middle East, West Africa, and Ukraine. Indeed, one of the more important elements was in reminding an Asian audience that how the US fares in the rest of the world has critical implications for its long term role in Asia. Any effort to cut and run from the hard times that currently hang over the Middle East, for instance, would have negative consequences for US staying power and security commitments in Asia as a whole. Read more
With a clear majority in both houses, Republicans face a difficult choice about whether to compromise with President Barack Obama on a series of issues. Mr Obama has already made it clear that he will not wait for their decision. Instead, he will spend his final two years in office exploring the frontiers of executive power.
Last week bought two expressions of this new posture: the secretly negotiated agreement on emissions Mr Obama announced with Chinese President Xi Jinping, and a statement on net neutrality that advocated regulating internet service providers as “common carriers”. Read more
There are a lot of crowded trades in world markets today, but the most crowded of all is probably a bet on the dollar. The sheer breadth of the consensus is the best reason to be worried about a rising greenback; we do not want all of the world’s money flowing in the same direction. But a more or less orderly rise in the dollar could be good news for the global economy and for investors.
It is not hard to see why the dollar has risen 9 per cent on a trade weighted basis since early July 2014. The US is growing faster than most of the rest of the developed world, and its central bank looks like it might finally succeed in raising interest rates next year at a time when the Bank of Japan and the European Central Bank are still heading in the opposite direction. Read more
During the past two months, the leaders of India, Pakistan and Afghanistan have met with China’s powerful president Xi Jinping. All three south Asian states wanted and achieved with mixed results the promise of greater economic investment from China.
In addition, they want Beijing to leverage its position of economic authority to help end the decades-old India-Pakistan-Afghanistan rivalry that is allowing a plethora of terrorist groups including the Taliban to flourish. The danger of the Islamic State of Iraq and the Levant, or Isis, gaining a foothold in the region, in addition to the hundreds of fighters it has already recruited from central and south Asia, has increased concern.
In return, according to Asian and western diplomats who work closely with China, Mr Xi has demanded a harsh crackdown on the Uighur Muslim militants from the western Xinjiang province who receive training and battle experience in Pakistan and Afghanistan. China’s repressive campaign against the Uighurs as it tries to make its culture more Han Chinese than Muslim has bred resentment, leading hundreds of Uighurs to travel south in search of militant groups. In fact, the Uighurs’ own East Turkestan Islamic Movement is largely based in Afghanistan and often crosses the border into that country. Read more
On the eve of this year’s Group of 20 summit, Europe is once again at the forefront of risks to the global economy. Uncertainty over the future of the eurozone and the fever of the euro crisis in 2012 have given way to stability. But this stabilisation has now virtually morphed into quasi-stagnation. While third-quarter gross domestic product data in France surprised somewhat on the upside, Germany narrowly avoided sliding into a recession. From there things could easily get worse as debt overhangs keep growing, the global environment becomes less forgiving and radical political forces gain ground within the EU.
Monetary policy alone cannot be the answer. The European Central Bank is already “all-in”, in intention if not yet fully in practice, and has been creatively deploying one new instrument after another. Arguably, at this point monetary policy is overburdened and it is not at all clear how full-blown quantitative easing would support a European recovery. Something more must be done. But what? Read more
Today’s US-China joint announcement on climate change and energy is the most important advance on the climate change agenda in many years. While the full ramifications will only be known at the climate summit in Paris in December 2015, the two largest C02 emitters have finally spoken, and most importantly, they’ve spoken together. What they’ve said gives the world a fighting chance – and no doubt the last one – for climate safety.
The situation is stark. While the world’s governments agreed back in 2009 that we need to keep global warming below 2 degrees Celsius (relative to the pre-industrial era), in order to avoid massive damages from droughts, floods, extreme heat waves, and rising ocean levels, the brutal fact remains that the world is on course for a catastrophic rise of some 4 to 6 degrees by the end of the century. To avoid catastrophe, and stay below the 2 degree upper limit, CO2 emissions from energy use need to fall very sharply by mid century, and to reach net-zero emissions (“decarbonization”) by around 2070. Read more
Epidemics and pandemics are like earthquakes. Tragic, inevitable and unpredictable. It starts as a random event. A virus jumps species from a bird, bat, or other animal to “Patient Zero” – who passes it on to other human beings. More likely than not, over the course of this century we will face an influenza pandemic similar to the one in 1918 that killed 50m people.
President Barack Obama’s first chief of staff, Rahm Emanuel, said in the wake of the global economic meltdown that “you never let a serious crisis go to waste”. Crises are opportunities to learn. They point to measures that will prevent the collapse of institutions when they are under extreme pressure. Read more
Since Barack Obama took office, the congressional wing of the Republican party has had impressive success with a simple strategy: oppose everything the president supports, blame him for every problem and make him the central issue in each election.
In 2010, this approach returned the House of Representatives to Republican control with a gain of 63 seats. In 2014, it delivered the Senate, which the GOP will now control by a majority of at least 52-48.
One might assume that the latest Democratic rout means that polarisation in Washington is about to get even worse. Read more