Thursday, April 16, 2015

Dramatic change in China's growth drivers; Europe dithers in the face of migrant wave; Belied expectations and the xenophobia in South Africa

1 Dramatic change in China’s growth drivers (Linda Yueh on BBC) Probably the least surprising thing about China's GDP growth rate for the first three months of the year is that it slowed to 7%. What's more surprising are the drivers: consumption more than investment, services outpacing manufacturing, and domestic demand rather than exports. The full year picture for 2014 shows that China's growth drivers are changing.

Consumption contributed 3.8 percentage points to 2014's 7.4% growth rate, which is more than investment which accounted for 3.6 percentage points. Net exports - so exports minus imports - contributed nothing. Consumption has risen to account for more than 50% of GDP, which is a sizeable increase from 2009's 35%, and finally places China in the realm of market economies where consumption is between half to two-thirds of GDP.

It mirrors the rise of the services part of the economy, which includes non-tradeables like haircuts, becoming larger than manufacturing that included many exported goods. Indeed, industrial production in March expanded by 5.6%, the slowest on record, which was significantly outpaced by retail sales, which grew at over 10%.

This is what China has been trying to achieve - a re-balancing of its economy away from excessive reliance on exports and investment and more on its own middle class consumers and expanding services. Growing more through consumption and services is similar to the growth drivers of developed economies such as the US and Europe. So, China's re-balancing also marks the beginning of the end of a period of rapid growth that is based on industrialisation.

Still, any slowdown poses risks. For China, it is notably in terms of real estate and investment which may be slowing down too quickly and poses a risk for banks. Commercial developers are leveraged and there are reported difficulties in leasing office space. House prices have fallen across the country and requirements have been loosened for mortgages. The US growth engine looks like it's coming back, and it's certainly not too soon as the era of rapid growth in China comes to an end.


2 Europe dithers in the face of migrant wave (San Francisco Chronicle) An unprecedented wave of migrants has headed for the European Union's promised shores over the past week, with 10,000 people making the trip. Hundreds — nobody knows how many — have disappeared into the warming waters of the Mediterranean.

Amid these scenes of desperation, none of the 28 nations from the world's wealthiest trade bloc has pledged a single ship, a single plane or a single cent to add to the rescue efforts. With the spring crossing season kicking off, the EU has no relevant legislation in the works, and no emergency meeting on the agenda.

Instead, the EU says it will unveil a migration agenda for discussions by the end of May and draw up a report by Christmas. The EU acknowledges it doesn't have a plan for the humanitarian catastrophe. There is no appetite to launch an emergency operation, like Italy did in 2013-14 when migrants started drowning in big numbers.

The 28 EU nations have long argued about how to share the burden that migration places on the continent. Italy, Greece and tiny Malta are bearing the brunt of the influx. Germany and Sweden are accepting large numbers of asylum seekers. The EU's own institutions, so often the first target of scorn, are hamstrung unless the member nations agree that forceful action should be taken.

According to the UN's refugee agency, 219,000 refugees and migrants crossed the Mediterranean last year, and at least 3,500 died trying. The numbers crossing in the first two months of 2015 were already up by a third over the same span the previous year, according to the EU's Frontex border agency. The EU has of course spent money on defending its borders — it spends 90 million euros ($96 million) a year on its Frontex border agency.


3 Belied expectations and the xenophobia in South Africa (Johannesburg Times) When the economy heads south, the first targets are foreigners, who are blamed for job losses, crime and an assortment of other societal challenges that locals can rattle off.

In 2012, Nigerians cried xenophobia when Ghanaians closed their businesses in that country amid claims that they took jobs from locals. In Libya, black Africans have come under attack from locals who accuse them of flooding their cities with cheap goods. Things became worse when the West imposed sanctions on the Gaddafi regime and the economy took a dive. African migrants were the first to be targeted and driven out of the country.

Today South Africa finds itself in the same space. The poor are fighting for economic space and the situation is getting worse as the economy falters. Although there can be no excuse for the violence meted out against foreigners the tension on our streets should be viewed holistically.

Why are these xenophobic incidents happening in areas that are mostly poor? Why are only Africans targeted? The answer lies in the economic mess the poor find themselves in. The scramble for resources and the naked class divide lies at the root of what we see today. Immigrants who live in affluent suburbs and who can afford decent housing rarely become targets of xenophobia.

King Goodwill Zwelithini, who has been accused of sparking the xenophobic outbreak through a reckless comment, holds the key today. The pattern these attacks have taken suggests that his leadership is more urgent than that of other politicians. President Jacob Zuma and his ministers must come up with real solutions and stop their egg dance.

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