BRICS Summit to Focus on Global Developments

An upcoming summit of emerging economic powers will focus on global developments, financing and cooperation the attending countries, a senior Chinese diplomat said in Beijing on Saturday.

The meeting of BRICS, or Brazil, Russia, India, China and South Africa, will be held in Sanya on south China's tropical island of Hainan Province on April 14.

China's fear of economic weakness carries new risks

China's main contribution to world peace has been its own development. Chinese leaders proudly maintain that economic growth has brought stability to almost a quarter of the world's population and generated new opportunities for collaboration with other nations.

This is true, but it might not be the entire truth. For all the opportunities, China's current course of harmonious development might not always be compatible with the prospect of a harmonious world.

China has never had a very harmonious view of the global economic order. It used to feel rather vulnerable when facing strong industrial markets and assertive suppliers of raw materials.

Recent history has painfully showed how economic weakness produces political vulnerability. It doesn't come as a surprise that the Chinese government has been seeking to remedy its political vulnerability through "economic security."

China has attempted to retain the commanding heights of growth, to build a league of strong Chinese industries and to gradually unfold a web of international production networks that are dominated by innovative Chinese national champions.

Yet this attempt to address economic vulnerability will cause more political insecurity. While China's industrial overcapacity has traditionally been generated mostly by foreign investors, China's expanding aid for national champions is only making things worse.

Overproduction in basic industries is now also complemented by excess capacity in high-tech like clean energy and semiconductors.

This renders China dependent on the unreliable consumer markets abroad, but also leads to growing trade frictions with other countries.

In faltering Western markets, people are starting to fear that State support for Chinese national industries is distorting competition.

But even in developing countries, there is growing concern about the terms of trade with China. China won't offset these concerns by means of checkbook diplomacy.

It is one thing to win some political goodwill by bailing out struggling governments or handing out loans to purchase Chinese products and services.

Source: http://opinion.globaltimes.cn

Idea of the Day: United States and China Have Different Ideas About Global Responsibility

Chinese President Hu Jintao arrives in Washington for a state visit later this month, with hopes high in both capitals that his trip may serve to smooth out the edges of a U.S.-China relationship that has frayed over the past year. Clashes over security, the global economy, and differing political values challenge the relationship today. At the heart of many of these disputes are conflicting understandings about how a great power should act in the 21st century.

Washington and Beijing have different conceptions of global responsibility. Washington has spent decades since World War II investing in an international architecture of economic and security accords that delivered stability and enabled China’s growth. Now Washington wants Beijing to play by the rules, help improve the international system, and contribute to solving urgent global problems—many of which China helps to create, among them economic imbalances and global warming.

The United States believes China’s incredible growth rate, astronomic foreign currency reserves, and track record of making successful investments in its national priorities means it is more able than most nations to contribute to the needs of the global community. In contrast, China suspects America’s desire to see it play a larger global role is part of a strategy designed to stifle its growth and challenge its autonomy. Beijing wants to remain highly focused on its domestic problems and argues that it is being internationally responsible in many ways, whether or not it is fulfilling America’s wishes.

Reconciling the Chinese and American ideas about global responsibility involves questions of sovereignty as well. This is because China is now a “systemically important” player in many areas. In the international economy, global climate concerns, Asian regional security, cyber security, space, pandemic prevention, and other arenas, China today is more than a regular “stakeholder.” China has become, like the United States, a country on whose actions the health of the whole system depends.

Source: http://www.americanprogress.org

EDITORIAL: A remedy for Japan's ills

This is really a bleak year-end for the nation.

Just one year and four months since the Democratic Party of Japan came to power in a historic regime change, Japanese politics is in an unimaginable and distressing shambles.

Amid the prolonged economic malaise, the nation faces a deepening fiscal crisis, a rapidly aging population and an alarmingly low birthrate.

While many industrialized nations are struggling to recover from the global recession, emerging countries have returned to the growth track.

The security environment around Japan is beginning to change significantly. But the politics in this nation is failing to address these serious policy challenges. The political paralysis is spreading the strong sense of hopelessness among the people.

A historically bad situation

What should be done to dig the nation out of its hole? We can't expect much from our politicians, who appear rudderless and adrift.

The fate of this nation rides on whether it can deal effectively with two key challenges: integrated wholesale reform of the tax and social security systems and the promotion of free trade agreements (FTAs) with major partners.

Although Japan's overall population began to trend down in 2005, the working-age population had already started shrinking in the mid-1990s.

The steady decline in the number of Japanese who work, pay taxes and spend money is at the root of the lengthy economic stagnation.

Meanwhile, the number of retirees is growing fast. According to demographic calculations, there are currently slightly less than three working-age people for every retired person. Two decades down the road, there will be less than two. By that time, the working-age population will have contracted by more than 14 million.

Such a harsh demographic situation is probably unprecedented in human history.

Japan's public pension and health-care insurance systems were basically designed during the era of high economic growth, when young people of postwar generations led by baby-boomers kept joining the national work force every year.

Now, the nation's economy is sputtering as the labor force shrinks, meaning the burden on generations still working is getting heavier.

An unbiased, straightforward look at the nation's economic and demographic realities, which are totally different from those in the high-growth era, makes it glaringly obvious that the social security system cannot be maintained without a major overhaul.

State finances at breaking point

Adding to the nation's woes is the colossal budget deficit, the largest as a percentage of gross domestic product among industrialized nations.

The dire state of state finances is a result of decades of financing social security and public works expenditures with debt in the form of government bonds. The government finances are on the brink of collapse.

It is necessary to rein in growth in the budget deficit while raising new money to finance social security programs and fix the system. This is a formidable challenge that requires the public to brace for a significant increase in their burden.

Revving up the FTA strategy is vital for the fate of Japan, which depends on trade for its economic well-being.

China and other Asian nations are marching vigorously toward a wealthier future. The robust economic growth of these countries offers a great economic opportunity for Japan by increasing the number of potential customers for Japanese businesses in the region.

Japan has every reason to try to capitalize on the economic vigor of these neighboring countries by eliminating its barriers to trade.

Prime Minister Naoto Kan has decided to consider Japan's participation in the Trans-Pacific Partnership agreement.

However, the Kan administration is waffling on the issue in the face of strong opposition from the farm lobby, which warns that the step would "destroy Japanese agriculture."

But the government should take this opportunity to shift its policy and focus on making Japanese agriculture competitive enough in the international market to thrive on exports.

Japan is not alone in struggling with thorny problems. One challenge common to industrialized nations is how to maintain social security benefits and economic growth in a matured society.

Over the decades, European nations have built up a high-welfare, high-burden society through a trial and error process.

Many European countries are now wavering over whether to lower the level of welfare benefits in the face of a fiscal crisis.

In reality, though, there aren't many plausible policy options available despite high-profile public debate on these issues. There is no magic solution to the woes.

Still, political parties tend to exaggerate and play up the differences of their policy agendas from those of their rivals during election campaigns. That's because they cannot hope to win elections unless they convince voters that they have different plans to solve the problems.

But this strategy raises unwarranted expectations among the public, which inevitably turn into disillusionment. The evils of election politics are a common problem for industrialized nations.

And Japan is no exception.

The DPJ came to power by making many alluring promises to voters, claiming the money to finance its policy proposals could be raised easily by eliminating wasteful government expenditures and reforming the budget.

It is no longer possible for the ruling party to deny that its financing plan was not based on reality.

Bold compromise possible?

The ideas of integrated reform of the tax and social security systems and promotion of free trade agreements were once explored by the government of the Liberal Democratic Party.

The LDP kept dragging its feet on these ideas because it feared these proposals would cause it to lose elections.

The proposals now being considered by the DPJ-led government are not that different from the LDP's ideas.

Both initiatives represent long-term reforms requiring 10 or so years of political efforts. If so, the only way forward for Japanese politics is cooperation between the two major parties with the ability to win a public mandate on these reforms.

The LDP is bent on forcing the DPJ-led government to dissolve the Lower House for a snap election as early as possible. But public support for the LDP shows no signs of rising.

If the nation faces a general election under the current political situation, a huge number of voters will not know what to do with their ballots because there is no party they want to support. Such a prospect raises grave concerns.

Even if the LDP regained control of government, it would not be able to implement effective reform without gaining the cooperation of the opposition parties.

If Kan is truly seeking deliberations with the opposition parties, he should be prepared to take major steps toward compromise that would be required of both the ruling and opposition parties by, for example, returning the party's campaign promises to a clean slate and proposing a drastic rewriting of the budget proposal.

Japan's export potential is still very strong. Japan's technology and brand appeal still receive high praise. Even as the economy stagnates, Japanese society has maintained stability and it is also blessed with abundant nature. If politicians can only make the effort to resolve the various issues facing the nation, the fog that clouds the future will surely be swept away.

During these New Year's holidays, there will likely be many occasions when family members and relatives who live far away can again gather together. We hope this occasion can be used to think about what can be done in the future to stop placing a further burden on our children and grandchildren as well as how to preserve a prosperous Japan.

Source: http://www.asahi.com

Population Changes Accelerate Global Economic Shift to Asia, Census Shows

A global economic power shift is being accelerated by population growth in Asia’s emerging markets, while the U.S. will be buoyed by a relatively youthful populace, according to analyses of international figures.

Germany, Europe’s biggest economy, is poised to see its population contract at a 0.2 percent rate in 2015 after expanding at a 0.3 percent in 1995, data from the U.S. Census Bureau yesterday showed. China, the world’s most populous country, is projected to grow at a 0.4 percent rate and India will expand at a 1.2 percent rate in 2015.

Changes in population help determine a country’s economic prospects. Slowing growth rates, and even contracting populations, in advanced economies had been offset by migrating workers in the past decade. That trend has fallen off in recent years as a result of the global recession.

“There will be a difficult adjustment period ahead as advanced economies, particularly the smaller ones, have to cede their dominant positions on the world economic stage to the dynamic emerging markets,” said Eswar Prasad, a professor of international trade policy at Cornell University.

“Emerging markets will have to grow into their role as major economic powers and shoulder their responsibilities to contribute to the collective global good,” he said.

U.S. Count

The latest count of the U.S. population shows the nation’s population grew 9.7 percent to 308,745,538 in the 2010 Census, the slowest pace of growth since 1940. The government estimated the growth rate in 2015 would be 1 percent.

The Census Bureau estimates that 194 of 227 countries are seeing growth accelerate, yesterday’s figures showed. Germany, the world’s fourth-largest economy, and Japan, ranked second by gross domestic product, are the only Group of Seven nations with contracting populations.

“One of the concerns when you have slow growth is the aging of the population,” said Peter Johnson, special assistant for international demographic and economic studies at the U.S. Census Bureau. “That to some extent can be mitigated by immigration, particularly by able-bodied people who can work and contribute to the support of the elderly.”

The U.S. has the lowest median age -- 36.6 years -- of the Group of Seven nations, according to United Nations’ estimates for 2010. Youthfulness is one variable for future growth because younger people tend to have more children.

Aging China

The population in China, the world’s third-largest economy, will become older than that of the U.S. by 2025, the U.N. estimates show. China’s median age now is 34.2 years, and will rise to 38.9 in 2025 compared with 38.7 for the U.S., the U.N. data shows.

“For two decades, fertility in China has been below the level for the population to replace itself,” said Feng Wang, a senior fellow at the Brookings Institution in Washington. “Demographic changes as such are creating new imperatives for changing its model of economic growth, moving away from a heavily labor-intensive pattern and creating a comprehensive social safety net before it is too late.”

Slower population growth can be a drag on economic expansion. Higher fertility rates mean more potential workers and consumers -- who can both stoke economic growth with tax revenue and spending.

Chinese industrial companies’ profits rose 49.4 percent in the 11 months through November from a year earlier, putting pressure on the central bank to add to this year’s two interest- rate increases.

Profits in China

Net income climbed to 3.88 trillion yuan ($585 billion), the statistics bureau said in a Dec. 27 statement on its website. That compared with a 7.8 percent gain in the same period in 2009 and an increase of 55 percent in January through August.

“In the decade to come India and China are going to be the center of international trade,” said Laishram Ladu Singh, professor and head of the Department of Mathematical Demography & Statistics at International at the International Institute for Population Sciences in Mumbai. “Unless there is a big U-turn in the outsourcing policies of these developed countries, the world economy is going to be concentrated in these two countries.”

While there is evidence of a so-called brain drain, in which educated residents seek employment in another country, Singh said that about 2 percent of India’s annual $1.3 trillion GDP comes by way of remittances from workers abroad.

Migration’s Influence

China has the smallest share of net migrants -- the difference between the number of migrants entering and those leaving a country -- and the U.S. has the biggest, according to yesterday’s figures.

Some demographers say China and India are decades away from becoming advanced economies.

“Both countries are still very, very poor,” said Jane De Lung, president of the Princeton, New Jersey-based Population Resource Center. “China is growing by leaps and bounds, but the majority of the Chinese still live in very poor and poverty- stricken areas. You don’t have widespread economic growth outside the cities in either country.”

By Timothy R. Homan and Catherine Dodge

Source: BLOOMBERG

http://www.bloomberg.com

Why don't Chinese spend more money?

If anyone on the planet can afford to head down to the neighborhood mall and indulge in a shopping spree, you'd think it would be the Chinese. After all, they live in an economy that routinely posts growth rates of 9% or higher, resulting in surging incomes and boundless job opportunities. While much of the world experienced GDP contractions and dramatic spikes in unemployment during the Great Recession, China, supported by massive stimulus programs, barely missed a beat. In theory, as income increases, and the prospects for future earnings become brighter, families should be more willing to postpone savings and spend now.

But in China, just the opposite is happening. It's still proving difficult to convince the average Chinese to part with his or her money, even though his or her stash of cash is bigger than ever. Sure, Chinese consumers are spending more and more each year on items like cars and appliances. But simultaneously, the urban Chinese household saves twice as much of its income today as 20 years ago – from 15% in the early 1990s to over 30% in recent years. Oddly, as Chinese incomes have grown, so has their propensity to save.

The fact that Chinese are saving more is of great importance to all of us. Getting the Chinese to spend is necessary to restore the global economy to true health. If the world is to “rebalance” – or eliminate the massive surpluses and deficits that underpinned the Great Recession – consumers in surplus nations like China need to spend more. If they did, China would import greater quantities of stuff from the rest of the world and reduce its giant trade surplus, while simultaneously shifting China's sources of growth away from its unhealthy dependence on investment (in sectors like property). However, the role of consumer spending in China's economy has been heading in the wrong direction. Private consumption accounted for 46% of GDP in 2000; by 2009, that ratio had fallen to about 35%. Very simply, the sources of Chinese growth aren't rebalancing, and without that, the entire global economy can't rebalance either.

Why won't the Chinese loosen their wallets? A new study by economists Marcos Chamon, Kai Liu and Eswar Prasad sheds some light on the financial calculations of the average Chinese. After studying Chinese statistical surveys of household incomes dating back to the 1980s, they conclude that even though Chinese incomes have increased, so has the uncertainty Chinese feel about their income, due to the market-oriented nature of Chinese reforms. And as a result of that heightened uncertainty, Chinese are more inclined to save a larger proportion of their income even in a rapid-growth economy.

This study shows just how much more spending power the Chinese have gained over the years. From 1989 to 2006, average annual household income almost tripled, from RMB12,830 to 32,040 in real terms. (To give you an idea, at current exchange rates, that's a jump from about $1,900 to $4,800.) That increase in income is without question a result of the dismantling of the Communist command economy in China, a process started by Deng Xiaoping in the late 1970s. Those reforms expanded the role of the private sector, gave the average Chinese more freedom over how they work, and opened up the economy to the world through foreign investment and trade.

But those same capitalist reforms have also made the life of the average Chinese riskier. Instead of permanent employment at state-owned or collective enterprises (SOCEs), Chinese workers are more likely to have jobs in the private sector where job security is not as guaranteed. In the sample used in this study, the proportion of workers employed in the SOCE sector fell dramatically from 81% in 1989 to 64% in 2006. Even for those workers still employed by SOCEs, the terms of employment are not as secure as they used to be. State companies in China have gone through their own painful process of market reform, to make them more competitive with private firms and more profitable. Jobs in those state enterprises are no longer locked in for life either, while wages are linked more to performance and productivity. Here's a bit from the study:

The transition from a centrally planned economy to a market economy may have resulted in an increase in firm-level volatility related in part to state enterprise restructuring and an increase in the link between wages and firm-level performance. Wages paid to workers may be increasingly tied to firm performance and more reflective of individual productivity due to tightening of budget constraints on SOCEs, increased competition and more openness to foreign trade.

On top of that, Chinese workers have also had to adjust to a new pension scheme. Pensions were once paid by enterprises, but in 1997, a national system was introduced with “individual accounts” that hold retirement contributions from both employer and employee. This new system seems to have caused Chinese workers to fret that they won't have enough of a nest egg for their golden years – and likely with good reason. Retired workers are probably seeing reduced pension payments compared to their pre-retirement income in the new system compared to the old.

The result of these changes to the Chinese economy is a U-shaped savings pattern. Savings rates are higher among younger people – who feel the need to set aside a “buffer” of savings for protection against greater income uncertainty – and older folks – who are beefing up savings for their retirement. Here's more from the study:

Higher income uncertainty and pension reforms can together explain much of the rise in average savings among urban households in China…Moreover, the calibrated response to saving rates implies changes to the cross-section of savings over time that are sharper among households at the two ends of the age distribution of household heads. Even 10 years after the initial increase in uncertainty and pension reform, we estimate the youngest and the oldest households save 5 percentage points more than before those changes, compared to only 2.5-3.5 percentage points more for those in their late thirties-early forties.

The Chinese government is fully aware of the impact market reform has had on income security, and thus on the country's efforts to rebalance its economy, and policymakers are striving to address it by building up the confidence of the Chinese consumer. The government, for example, is undertaking a massive investment in healthcare to convince Chinese they don't have to save as much to cover possible medical bills. But the process of making Chinese feel secure enough to spend will be slow. Whatever Chinese policymakers do, they can't eliminate the greater degree of risk inherent in an economic system based on free enterprise. Short of returning to the old socialist system of worker protection, the average Chinese family is going to have to adjust to the new realities of a market-oriented economy – both the potential upside (greater income potential, more job choice) and the downside (less job security, fewer automatic benefits). Remember, many of these market-based reforms are still very new to the Chinese (10-15 years old), so they're just not accustomed to the level of uncertainty that comes with capitalism. In other words, the Chinese are in the process of dealing with the kind of risks that Americans have faced for centuries.

The Chinese are thus saving more to protect themselves. That may be wise for their own personal security, but not necessarily all that great for the world economy. Confidence in the future, even one as bright as China's, won't be created overnight, whatever Chinese policymakers attempt to do. So don't expect the Chinese consumer to swoop in and save the world economy, and least not these days, when it badly needs saving.

Source: Time

http://curiouscapitalist.blogs.time.com

Yearender: Economic growth helps India sit on high tables in int'l community

By Liu Yanan

MUMBAI, Dec. 18 (Xinhua) -- India, the third largest economy in Asia, has managed to sit on high tables like G20 in international community and eyes one permanent seat at United Nations' Security Council, bolstered by its near 9 percent gross domestic product (GDP) growth in 2010.

Indian top decision makers have played an active role in global economic governance, reform of international monetary system and climate change so far this year.

INDIA'S GROWTH STORY CONTINUES

Indian officials and businessmen often said that India's economy was almost insulated from horrible global financial tsunami since 2008, which is still playing out at corners of the globe.

Indian economic growth rebounded from 6.7 percent in fiscal year 2008-2009, and 7.4 percent in fiscal year 2009-2010 thanks to the dominance of domestic consumption and monetary stimulus policies.

The GDP growth even could rise to 9 percent in fiscal year 2010- 2011 starting from April 1, 2010, according to the mid-term economic analysis by the Ministry of Finance.

Earlier this year, Indian Prime Minister Manmohan Singh said he hoped that the country's economy could see 9 to 10 percent growth in the coming 25 years.

Standard Chartered Bank released a report in November, saying that India could grow faster than China as early as 2012 and turn into an economic entity with 30 trillion U.S. dollars by 2030 as the third largest economy in the world.

The Indian government has mapped out a blueprint to channel one trillion U.S. dollars of investment into infrastructure sector within 12th five-year plan period starting from April 2012 in order to reap demographic dividends and improve its productivity.

The impressive economic growth has drawn record-setting 38.27 billion U.S. dollars of investments from foreign institutional investors into its equity and debt market by Dec. 14 this year.

EYEING ACTIVE ROLE IN INT'L COMMUNITY

India pays great importance to the G20 summit and wants to interact with more powers in comparison with smaller club of BRIC countries including Brazil, Russia, India and China, said Kaushik Basu, chief economic adviser at the Ministry of Finance, prior to G20 summit held in Canada's Toronto in June 2010.

Afterwards, India sought to reconcile the tensions between China and the United States on the exchange rate of Chinese currency RMB by calling for dialogue and against protectionism at G20 Summit in Seoul, South Korea, in November this year.

India held a mild but clear stance at the meeting and strived to force ahead Doha Round trade talks despite the lack of enthusiasm from developed economies in the time of recession.

"Now that we've arrived at the 'high table', what is it that we want the 'high table' to do," said Raghuram G. Rajan, an honorary economic advisor to Prime Minister Manmohan Singh.

Rajan called for India to play more proactive role at G20 again from the largely reactive one and resume its role in the era of Non-Aligned Movement in the 1950s.

India also successfully leveraged the BRIC forum to push forward the reform of the international financial bodies and lifted its quota shares from 2.44 percent as the 11th shareholder to 2.75 percent as the 8th one.

India won support from the United States and France for its pursuit of permanent membership of an expanded Security Council when U.S. President Barack Obama and French President Nicolas Sarkozy visited India at the end of 2010.

During the recent visit by Chinese Premier Wen Jiabao to India, Wen stressed that China and India have shared interests and common views on the issue of U.N. Security Council reforms.

"We both maintain that priority should be given to increasing the representation of developing countries," Wen said, "Closer cooperation between our two countries on Security Council reform will help uphold the interests of developing countries and promote democracy in international relations."

Wen said China understands and supports India's desire to play a bigger role in the United Nations, including its Security Council.

"As a fast-growing big country with over one billion people, India should and can play an increasingly important role in international affairs," Wen said.

INFLATION HAUNTS "AAM AADMI"

Although India's economy has been growing rapidly in recent years, its high inflation at home threatens to derail the prospects of near double-digit economic growth in addition of laggard progress in infrastructure both physically and socially.

Inflation tax could plague India's "aam aadmi" (common people) in the coming years due to dependence on imported commodities, vulnerable agricultural sector and structural problems in the economy.

Meanwhile, the India government has caught in between socialist policies for economically weak people and market guidelines in the coming years in a bid to fight inflation, win ballots, lift the poor from poverty and maintain political stability.

Inflation is the most distorted part of India's economy with complex underlying forces, said a retired official at a conference in Mumbai.

Though the wholesale price index has come down to 7.48 percent in November as the lowest so far this year, inflation is still very high and close to economic growth rate.

High inflation has triggered nationwide protests in India in July and marred the credibility of incumbent government's ability to govern the country.

India will have 5 to 5.5 percent of inflation in the medium term resulting from structural causes, said recently Chetan Ahya, a well-known economist in India and South East Asia.

India's inflation will be very high in the next two or three years due to the inflows of cheap money printed in the developed economies, associate director with Angel Commodities Naveen Mathur said recently.

Naveen Mathur estimated that India's inflation will range from 6 to 7 percent next year even domestic fundamentals are fine. "We're bullish on crude oil prices with world economy in recovery and crude oil will be traded above 75 U.S. dollars per barrel even up to pre-crisis levels next year," said Kamlesh Jogi, an analyst with Fortune Equity Brokers in India.

India now imports around 75 percent of crude oil consumption and relies heavily on imported cooking coal and edible oil products.

Additionally, India has to tweak existing rigid labor laws and provide efficient training so that the promising demographic dividend will not become a nightmare to the economy.


Source: Xinhuane
www.xinhuanet.com