Sunday, January 31, 2016
China factory output shrinks most in three years; Drone schools spread in China; 'World's best chef' dies at 44
1 China factory output shrinks fastest in three years (The Guardian) Activity in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, an official survey has shown.
The official purchasing managers’ index (PMI) stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012.
The PMI marks the sixth consecutive month of factory activity contraction, underlining a weak start for the year for a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy.
Zhou Hao, an economist at Commerzbank, said: “The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors. In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time.”
The slowdown was underlined by figures showing that South Korea’s exports suffered their worst downturn in January since the depths of the global financial crisis in 2009. The trade ministry in Seoul said sluggish demand from China helped exports to fall to a worse-than-expected 18.5% from a year earlier, extending December’s slump of 14.1% and marking the 13th straight month of declines. It was the biggest drop since August 2009 when shipments tumbled 20.9%.
2 Drone schools spread in China (San Francisco Chronicle) Joysticks at their fingertips, the mostly male students packing the classroom lift their virtual helicopters into the air, part of a new cottage industry that's sprung up in China: drone pilot schools.
China is already the world's biggest drone manufacturer, churning out remote-controlled flying machines that range from 3-D urban mappers to tear-gas spraying models for police. But it lacks qualified pilots to fly them. Young men in particular are flocking to drone schools such as TT Aviation Technology Co., one of more than 40 in China, hoping to land a potentially lucrative job in an exciting new field.
TT Aviation offers a two-week intensive course for $1,200 where students learn regulations and how to pilot using simulators and real drones. At the end of the course, they can try to earn the license required by China's Civil Aviation Administration to operate drones that are heavier than 7 kilograms (15 pounds) and fly higher than 120 meters (400 feet).
The opportunities appear promising. More than 10,000 new pilots are needed this year across all industries in China, but only 1,000 pilots now hold licenses, said Yang Yi, the general manager of TT Aviation, which also manufactures and sells drones to private and public sector customers. Drones are touted as game-changers in a range of industries, including agriculture, logistics, film production and law enforcement.
Baidu, the Beijing-based search engine, is developing a self-driving car while DJI, a Shenzhen-based drone maker valued by US investors at $8 billion, has cornered more than half the world consumer drone market.
So far, more than half of TT Aviation's products are used in agriculture. China has vast farmlands, and there is a high demand for drones to be used in pesticide spraying because the labor force is shrinking even as labor costs rise. The company said police will use drones for patrols, while utilities use them for maintaining electricity infrastructure or mapping pipelines.
3 ‘World’s best chef’ dies at 44 (BBC) Chef Benoit Violier, whose Swiss restaurant was named the best in the world in December, has been found dead at his home. Mr Violier, 44, ran the Restaurant de l'Hotel de Ville in Crissier, near the city of Lausanne.
It earned three Michelin stars and came top in France's La Liste ranking of the world's 1,000 best eateries. Swiss police said Mr Violier, who was born in France, is believed to have killed himself.
The Swiss news website 24 Heures said (in French) that Mr Violier had been due to attend the launch of the new Michelin guide in Paris on Monday. His death comes some six months after that of Philippe Rochat, his mentor and predecessor at the Restaurant de l'Hotel de Ville.
Having worked at the restaurant since 1996, Mr Violier took it over along with his wife Brigitte in 2012, before obtaining Swiss nationality. A keen hunter, he was known for signature dishes including game and produced a weighty book on game meat last year.
Swiss chef Fredy Girardet, who also received three Michelin stars, told 24 Heures that he was "dumbfounded" by the news. "He was a brilliant man," he said. "Such talent, and an amazing capacity for work. He was so kind, with so many qualities. He gave the impression of being perfect."
Saturday, January 30, 2016
Spanish economy grows most since financial crisis; Zika could be bigger threat than Ebola; Technology will effect more top-down change
1 Spanish economy grows fastest since financial crisis (Khaleej Times) Official figures show the Spanish economy grew by a strong 0.8 percent in the fourth quarter compared with the previous three months.
The National Statistics Office said the economy grew 3.2 percent for all of 2015, its strongest expansion since before its economic crisis started in 2008. Spain only emerged from recession in late 2013. It's now one of the European Union's fastest growing economies but still has a 21 per cent unemployment rate, the second highest in the 28-nation bloc after Greece.
Acting conservative Prime Minister Mariano Rajoy had hoped the recovery would help him be returned to office in last month's election. His Popular Party won most seats but lost its parliamentary majority and is struggling to win support from other parties to stay in power.
2 Zika could be bigger threat than Ebola (Robin Mckie in The Guardian) The Zika virus outbreak in Latin America could be a bigger threat to global health than the Ebola epidemic that killed more than 11,000 people in Africa.
That is the stark claim of several senior health experts ahead of an emergency meeting of the World Health Organisation on Monday which will decide whether the Zika threat – which is linked to an alarming rise in cases of foetal deformation called microcephaly – should be rated a global health crisis.
There is no prospect of a vaccine for Zika at present, in contrast to Ebola, for which several are now under trial. “The real problem is that trying to develop a vaccine that would have to be tested on pregnant women is a practical and ethical nightmare,” added Mike Turner, head of infection and immuno-biology at the Wellcome Trust.
With at least 80% of those infected showing no symptoms, tracking the disease is extremely difficult. The mosquito species that spreads Zika, Aedes aegypti, has been expanding its range over the past few decades.
3 Tech to effect more top-down change (Martin Wolf in Gulf News) Every technique human beings have invented, from the stone axe onwards, is “technology”. The ability of humans to invent technologies is their defining characteristic. Furthermore, new general purpose technologies, such as the computer and the internet, have effects that fall far outside the technology sector, narrowly defined.
We need to assess contemporary innovations in their broader context. Here are some points about these changes. First, the penetration of recent innovations in communications technology has been astonishingly rapid. At the end of 2015, there were more than 7 billion mobile phone subscriptions, a penetration rate of 97 per cent, up from around 10 per cent in 2000. Penetration of internet access grew from 7 per cent to 43 per cent over the same period.
Economically, this has led to the rise of eCommerce, the transformation of industries whose products can be converted into “bits” (music, film and news media, for example) and the rise of the “sharing economy”. Socially, it has altered human interactions. Politically, it has affected relationships between the rulers and the ruled.
Second, a substantial “digital divide” exists. In 2015, 81 per cent of households in the developed world had internet access, the proportion in all developing countries was 34 per cent and the proportion for the least developed countries was a mere 7 per cent.
Third, the arrival of the internet and mobile phones has failed to generate a sustained upturn in the growth of productivity. Output per hour worked in the US grew at rate of 3 per cent a year in the 10 years up to 1966, after which the growth rate declined, falling to just 1.2 per cent in the 10 years to the early 1980s. After the launch of the World Wide Web, the moving average rose to 2.5 per cent in the 10 years to 2005. But it then fell to just 1 per cent in the decade to 2015.
Fourth, the new technologies have reinforced tendencies towards greater inequality, in at least three respects. One is the rise of “winner-takes-all” markets in which a few successful people, businesses and products dominate the world economy. Another is the rise of globalisation. A last is the explosion in financial trading and other rent-extracting financial activities.
Fifth, the rise of global communications, of our reliance on cyberspace, of behemoth technology-enabled corporations and of “big data” raises difficult questions about privacy, national security, the ability to tax and, more broadly about the relationship between governments, corporations and individuals.
Technologies are tools. They offer opportunities and dangers. What we make of them is, as always, up to us.
Sunday, January 24, 2016
Japan exports tumble most in three years; Oil 'a blessing and curse for Russia'; Plastic now pollutes every corner of the earth
1 Japan exports tumble most in three years (Straits Times) Japan's exports fell the most in more than three years in December from a year earlier, stoking fears of economic contraction in the final quarter of 2015 as a slowdown in China and emerging markets takes its toll on the export-reliant economy.
Ministry of Finance data showed exports fell 8.0 per cent in the year to December, down for the third straight month, marking the biggest drop since September 2012. An annual decline of 6.8 per cent was expected by economists in a Reuters poll.
Such weak data should keep the Bank of Japan under pressure to act as early as at its Jan 28-29 review, as the collapse in oil prices weighs on inflation expectations while worries over a China-led global slowdown and a stock market rout sap business morale.
Exports to China, Japan's biggest trading partner, fell 8.6 per cent in December from a year earlier, down for a fifth straight month, dragged down by shipments of chemicals and electronics parts. Shipments to Asia, which accounts for more than half of Japan's exports, declined 10.3 per cent in the year to December.
Exports to the US, another key market for Japanese goods, fell 3.4 per cent year-on-year in December, led by shipments of mining machines and steel and metal processing machinery. EU-bound shipments grew 3.1 per cent. Imports fell 18.0 per cent in the year to December, versus the median forecast for a 16.4 per cent annual decline, bringing the trade balance to a surplus of 140.2 billion yen.
Japan's economy narrowly dodged a recession in July-September, and analysts have flagged the risk of a contraction due to weakness in private consumption and capital expenditure. The International Monetary Fund cut its global growth forecasts for the third time in less than a year last week, as Beijing estimated China's 2015 growth at the slowest in 25 years.
2 Oil ‘a blessing and curse for Russia’ (Gulf News) Abundant oil and gas deposits have been a blessing for Russia, but they now feel like a curse as low prices propel the country into a deep economic crisis that shows no signs of abating.
The rouble fell to a record dollar low this past week as global crude prices slumped to 12-year lows, highlighting at once Russia’s vulnerability to changing oil prices and the fact President Vladimir Putin’s government has squandered opportunities to diversify the economy.
Calls to develop long-neglected sectors of the economy come as the government faces increasing pressure to react to a crippling economic crisis that has seen inflation soar and Russians’ purchasing power shrink dramatically. Booming oil prices in the 2000s when Putin came to power helped fill state coffers and ushered in an era of prosperity.
But for the past decade, the International Monetary Fund has urged Russia use its oil revenues to support revamping the economic sectors that have been overlooked since the collapse of the Soviet Union. “Oil is both a blessing and a curse,” IMF mission chief to Russia Antonio Spilimbergo warned in 2012, urging Russia to improve its business climate and fight corruption to attract foreign investment.
High oil prices in fact enabled the authorities to adopt a wait-and-see policy and prop up the rouble, which in turn made Russian companies less competitive on the international stage. The financial crisis of 2008 and 2009, accompanied by an oil price slump, had sounded alarm bells among Russian authorities.
Russia pumped a record 534 million tonnes of crude oil in 2015, even as it reeled from a fall in oil prices. The state has reinforced its presence in the sector, turning state oil company giant Rosneft into a global goliath and developing ambitious plans for the Arctic. But this time, authorities expect no quick rebound in oil prices, finance minister Anton Siluanov said.
3 Plastic now pollutes every corner of earth (Robin McKie in The Guardian) Humans have made enough plastic since the second world war to coat the Earth entirely in clingfilm, an international study has revealed.
The research, published in the journal Anthropocene, shows that no part of the planet is free of the scourge of plastic waste. Everywhere is polluted with the remains of water containers, supermarket bags, polystyrene lumps, compact discs, cigarette filter tips, nylons and other plastics. Some are in the form of microscopic grains, others in lumps. The impact is often highly damaging.
“The results came as a real surprise,” said the study’s lead author, Professor Jan Zalasiewicz, of Leicester University. “We were aware that humans have been making increasing amounts of different kinds of plastic – from Bakelite to polyethylene bags to PVC – over the last 70 years, but we had no idea how far it had travelled round the planet. It turns out not just to have floated across the oceans, but has sunk to the deepest parts of the sea floor. This is not a sign that our planet is in a healthy condition either.”
The crucial point about the study’s findings is that the appearance of plastic should now be considered as a marker for a new epoch. Zalasiewicz is the chairman of a group of geologists assessing whether or not humanity’s activities have tipped the planet into a new geological epoch, called the Anthropocene, which ended the Holocene that began around 12,000 years ago.
Most members of Zalasiewicz’s committee believe the Anthropocene has begun and this month published a paper in Science in which they argued that several postwar human activities show our species is altering geology. In particular, radioactive isotopes released by atom bombs left a powerful signal in the ground that will tell future civilisations that something strange was going on.
Zalasiewicz argues that the humble plastic bag and plastic drink container play a far greater role in changing the planet than has been realised. “Just consider the fish in the sea,” he said. “A vast proportion of them now have plastic in them. They think it is food and eat it, just as seabirds feed plastic to their chicks. Then some of it is released as excrement and ends up sinking on to the seabed. The planet is slowly being covered in plastic.” In total, more than 300 million tonnes of plastic is manufactured every year, states the paper.
“In 1950, we virtually made none at all. It is an incredible rise,” added Zalasiewicz. “That annual total of 300 million tonnes is close to the weight of the entire human population of the planet. The total amount of plastic produced since the second world war is around 5 billion tonnes and is very likely to reach 30 billion by the end of the century. The impact will be colossal.”
Saturday, January 23, 2016
UAE may scrap subsidies on power, gas; Why low oil prices hurt the markets; Storks shun migration for junk food
1 UAE may scrap subsidies on power, gas (Francis Matthew in Gulf News) The UAE is looking at removing subsidies on both electricity and on gas sold to companies generating power, said Energy Minister Suhail Al Mazroui, speaking at the World Economic Forum in Davos.
“Consumers need to pay the real price. They already do so for petrol and diesel, and electricity is still to come, and we will look at the subsidised sale of gas to power providers,” he said. Mazroui said that the impact on removing subsidies on domestic electricity would not be that great to the consumer as it only really applies at the higher levels of use at present.
Al Mazroui also added that once subsidies were removed and the prices were at standard world levels, the source of the fuel would cease to matter and providers could use UAE gas or import it. He pointed out that this process of subsidy reduction is part of a much wider strategy to make the government budget independent of oil revenues.
Reinvesting the subsidy into areas like building a world class infrastructure, modern schools and up to date hospitals is an opportunity for the government, but it is not the whole story said Al Mazroui. “We need to work across all our GCC partners, and we need to tell the people what is happening so they understand what we are doing and appreciate it”.
Al Mazroui also took the opportunity to point out that diversity was not just about developing new non-oil industries (that the UAE has been developing for decades), but was also about building a diverse population and he hoped that this sense of inclusion would increase and act as a guide for the whole Arab world.
2 Why low oil prices hurt the markets (The Guardian) Wall Street is drowning in oil. Stocks are having their worst start to a year in history in part because of a rapid plunge in the price of oil. The price of crude is down 28% this year already, which in turn has dragged down energy company shares in the Standard & Poor’s 500 index by 13%, which has helped pull the overall index down 9%.
The drastic drop in oil and stock prices stands in contrast with a US economy that, on the whole, is doing pretty well. US employers created 252,000 jobs in December, and few economists see the economy sliding into recession. Here’s what experts think is going on.
Oil is so low because there is so much of it. A long run of high oil prices inspired drillers to develop new techniques and to go to new places to find more oil, and they succeeded. US stockpiles are at their highest level in at least 80 years, and the International Energy Agency predicts that during the first half of this year global oil supply could outstrip demand by 1.5m barrels per day.
Why do low oil prices hurt the stock market? Oil company profits are plummeting, so oil company shares are plummeting, and that is dragging down the whole market. Analysts estimate that profit for all S&P 500 companies in total are on track to be down a recession-like 5.8% for 2015. But if energy companies were removed from that figure, S&P 500 profits would be up a very healthy 5.7% for the full year.
That profit drop directly leads to lower share prices that drag down entire indexes. Two of the biggest oil companies in the world, Exxon and Chevron, are part of the 30-member Dow Jones industrial average. Of the 20 biggest share price losers in the S&P 500 this year, 13 are energy companies.
Aren’t lower oil prices a good thing for the economy? It depends on why prices are lower. If they fall because new supplies have been found, it usually helps the broader economy, and markets held up fairly well during oil’s big slide from over $100 a barrel in 2014 to under $50 a barrel last year.
But this latest plunge in prices to under $30 a barrel has investors worried that oil prices are falling because global growth is slowing, as businesses and consumers in many developing countries, particularly China, cut back on spending. Bruce Kasman, chief economist at JPMorgan Chase, says that steep drops in oil prices have historically been a sign of a weakening global economy.
3 Storks shun migration for junk food (Helen Briggs on BBC) Storks feeding on rubbish dumps instead of migrating are more likely to survive the winter, research shows. The bird is among a growing number of migratory species that have changed their behaviour due to human influences, says an international team.
Until recently, all white storks in Europe migrated south for the winter, but now more are flying shorter distances to snack on food on dumps. The white stork breeds from Europe to north-west Africa and western Asia. White storks in Europe have traditionally flown south to spend the winter in Africa but in recent decades an increasing number have stayed closer to home, drawn to the food discarded at landfill sites.
A team lead by Dr Andrea Flack of the Max Planck Institute for Ornithology in Germany used GPS devices to study the migratory habits of 70 young storks from eight different countries during their first migration. The research tracked birds hatched in Armenia, Greece, Poland, Russia, Spain, Germany, Tunisia and Uzbekistan.
The study found that storks from Russia, Poland and Greece followed the traditional migratory route of flying south as far as South Africa. However, birds from Spain, Tunisia and Germany lingered north of the Sahara; birds from Armenia flew only a short distance; and, surprisingly, birds from Uzbekistan stayed in their home country.
The scientists say that most of the birds that stayed north of the Sahara survived by feeding on rubbish dumps, enabling them to obtain food without the added energy expenditure of long-distance flight. Meanwhile, the birds staying in Uzbekistan probably obtained food from fish farms, suppressing their usual migratory habit of flying to Afghanistan or Pakistan for the winter.
Thursday, January 21, 2016
'Don't blame China for global economic jitters'; Oil firm Schlumberger cuts 10,000 jobs; Kuwait proposes income and sales taxes
1 ‘Don’t blame China for global economic jitters’ (Ha-Joon Chang in The Guardian) The US stock market has just had the worst start to a year in its history. At the same time, European and Japanese stock markets have lost around 10% and 15% of their values respectively; the Chinese stock market has resumed its headlong dash downward; and the oil price has fallen to the lowest level in 12 years, reflecting (and anticipating) worldwide economic slowdown.
According to the dominant economic narrative of recent times, 2016 was the year when the world economy would recover fully from the 2008 crash. Those who put forward the narrative are now trying to blame China in advance for the coming economic woes. George Osborne has been at the forefront, warning this month of a “dangerous cocktail of new threats” in which the devaluation of the Chinese currency and the fall in oil prices (both in large part due to China’s economic slowdown) figured most prominently.
China is, of course, an important factor in the global economy. Only 2.5% of the world economy in 1978, on the eve of its economic reform, it now accounts for around 13%. However, its importance should not be exaggerated. As of 2014, the US (22.5%) the eurozone (17%) and Japan (7%) together accounted for nearly half of the world economy.
The truth is that there has never been a real recovery from the 2008 crisis in North America and western Europe. According to the IMF, at the end of 2015, inflation-adjusted income per head (in national currency) was lower than the pre-crisis peak in 11 out of 20 of those countries.
To make things worse, much of the recovery has been driven by asset market bubbles, blown up by the injection of cash into the financial market through quantitative easing. These asset bubbles have been most dramatic in the US and UK. They were already at an unprecedented level in 2013 and 2014, but scaled new heights in 2015.
Thus seen, the main causes of the current economic turmoil lie firmly in the rich nations – especially in the finance-driven US and UK. Having refused to fundamentally restructure their economies after 2008, the only way they could generate any sort of recovery was with another set of asset bubbles. Their governments and financial sectors talked up anaemic recovery as an impressive comeback, propagating the myth that huge bubbles are a measure of economic health.
We have wasted the past seven years propping up a bankrupt economic model. Before things get any worse, we need to replace it with one in which the financial sector is made less complex and more patient, investment in the real economy is encouraged by fiscal and technological incentives, and measures are brought in to reduce inequality so that demand can be maintained without creating more debts.
2 Oil firm Schlumberger cuts 10,000 jobs (BBC) Oilfield services giant Schlumberger has cut 10,000 jobs in the last three months amid the plunge in oil prices. News of the near-10% jobs cull came as the firm unveiled a net loss for the last three months of $1bn - its first quarterly loss in 12 years.
Revenues fell 39% to $7.74bn, with chief executive Paal Kibsgaard warning that there was "no signs" of an oil price recovery on the horizon. Schlumberger also announced a $10bn share buy-back programme. The profit figures were better than many analysts had expected, helped by heavy cuts to offset the slump in oil prices.
The latest jobs cuts added to the 20,000 redundancies the company had already announced earlier in 2015. Mr Kibsgaard warned that there were "no signs of pricing recovery in the short to medium term."
The dramatic fall in prices "prompted customers to make further cuts to already significantly lower investment levels," Schlumberger said, pointing to "unscheduled and abrupt activity cancellations." Oil prices have dipped below $28 a barrel in a drawn-out slump since mid-2014.
Many analysts have slashed their 2016 oil price forecasts, with Morgan Stanley analysts saying that "oil in the $20s is possible." Economists at the Royal Bank of Scotland say that oil could fall to $16, while Standard Chartered predicts that prices could hit just $10 a barrel.
3 Income, sales taxes proposed in Kuwait (Gulf News) Kuwait’s Emir Shaikh Sabah Al Ahmad Al Sabah has said that the country plans to cut heavy subsidies on fuel and power in a bid to offset a fall in oil revenues.
“We will lift subsidies and will raise the prices of petrol, electricity and water” and reduce subsidies for other services, a Kuwaiti daily quoted the Emir as telling editors of local newspapers. Kuwait is the only member of the six-nation Gulf Cooperation Council (GCC) that has not hiked the prices of petrol and power after income from oil plunged.
Saudi Arabia, the UAE, Qatar, Oman and Bahrain have either hiked or liberalised fuel and power prices, saving billions of dollars. In other steps to compensate for revenue lost from the plunge in oil prices to their lowest level since 2003, Kuwait’s Finance Minister Anas Al Saleh said the country should consider introducing income, corporate and sales taxes.
The Emir on Wednesday said that belt-tightening was in his country’s future when he urged parliament to cooperate with the government to pass laws to reduce the budget deficit. In Saudi Arabia, the Shura Council is considering proposals to revise the investment strategy of the kingdom’s social insurance fund in order to raise returns.
Wednesday, January 20, 2016
Fear grows about a 2008 repeat; UK car manufacturing at 10-year high; China's responsibility is no more just domestic
1 Fear grows about 2008 repeat (Phillip Inman in The Guardian) Fears that the global economy could be heading for a repeat of the 2008 financial crash have sent shockwaves through financial markets – prompting a rush to safe havens by investors.
Oil prices fell to a fresh 12-year low on Wednesday and metal prices tumbled in response to warnings that China’s slowdown could derail the global recovery at a time when central banks, which came to the rescue in the credit crunch, have only limited firepower.
The FTSE 100 was gripped by panic selling, especially of mining and oil companies that have been hit hard by the global slowdown in manufacturing and trade. Earlier this week, China recorded the slowest rate of economic growth for 25 years. In New York, shares on the Dow Jones Industrial Average closed 249 points down (1.56%), while Brent crude dropped to $27.78 a barrel – down by about 70% from its summer 2014 level of $115 a barrel.
Stock markets in Russia, Brazil and Saudi Arabia also dived as concerns mounted that countries already badly hit by the fall in oil prices could be forced to dip further into reserves to prevent an economic crisis. Global equities have had their worst start to a year on record.
William White, a former chief economist of the Bank for International Settlements (BIS), the central bankers club, warned that central bankers had “used up all their ammunition. The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up. Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief”.
2 UK car manufacturing at 10-year high (BBC) Car manufacturing in the UK has hit a 10-year high, with more vehicles exported than ever before, according to the industry's trade group. The Society of Motor Manufacturers and Traders said almost 1.6 million cars were built in 2015, up 3.9% on 2014.
Nearly four out of five cars were exported, up by 2.7% on 2014, despite falls in sales to China and Russia. But this was offset by economic recovery in Europe, where demand for UK-built cars increased by 11% in 2015.
SMMT chief executive Mike Hawes: "Despite export challenges in some key markets such as Russia and China, foreign demand for British-built cars has been strong, reaching record export levels in the past year. Europe is our biggest trading partner and the UK's membership of the European Union is vital for the automotive sector in order to secure future growth and jobs."
3 China’s responsibility is no more just domestic (Mohamed A. El-Erian in Gulf News) For years, China’s government sought to broaden equity ownership, thereby providing more Chinese citizens with a stake in a successful transition to a market economy. But, like the US’ effort to expand home ownership in the years preceding the 2008 crisis, Chinese policies went too far, creating a financially unsustainable situation that implied the possibility of major price declines and dislocations.
As a result, the adjustment challenge has grown dramatically. With Chinese companies no longer able to sell a rapidly increasing volume of products abroad and support further expansion of productive capacity, the economy has lost some important growth, employment, and wage engines. The resulting economic slowdown has undermined the government’s capacity to maintain inflated asset prices and avoid pockets of credit distress.
In an effort to limit the detrimental impact of all this on citizens’ wellbeing, Chinese officials have been guiding the currency lower. A surprise devaluation last August has been followed by a number of lower daily fixes in the onshore exchange rate, all intended to make Chinese goods more attractive abroad, while accelerating import substitution at home.
But in pursuing its domestic objectives, China risks inadvertently amplifying global financial instability. Specifically, markets worry that renminbi devaluation could “steal” growth from other countries, including those that have far more foreign debt and far less robust financial cushions than China, which maintains ample international reserves.
This concern speaks to the even more challenging balancing act that China must perform as it seeks to play the role in global economic governance that its economic weight warrants. After all, China is now the world’s second-largest economy (and, by some non-market measures, the largest).
There will come a time when China’s domestic and international responsibilities will again be relatively well aligned. But that time is not now; and, given the country’s tricky ongoing structural transition, it probably will not come anytime soon.
In the meantime, it seems likely that China will continue to feel compelled to place its domestic obligations first, but in a nuanced way aimed at avoiding large disruptive tipping points for the global economy. Whether that will be enough to avoid disorderly outcomes, however, is not totally assured.
Sunday, January 17, 2016
Top 62 billionaires as wealthy as half the world population; As sanctions go, Iran's foes fear the worst; Tennis match-fixing evidence revealed
1 Top 62 billionaires as wealthy as half the world population (Larry Elliott in The Guardian) The vast and growing gap between rich and poor has been laid bare in a new Oxfam report showing that the 62 richest billionaires own as much wealth as the poorer half of the world’s population.
Timed to coincide with this week’s gathering of many of the super-rich at the annual World Economic Forum in Davos, the report calls for urgent action to deal with a trend showing that 1% of people own more wealth than the other 99% combined.
Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn to $1.76tn. The charity said that, in 2010, the 388 richest people owned the same wealth as the poorest 50%. This dropped to 80 in 2014 before falling again in 2015.
Leading figures from Pope Francis to Christine Lagarde, the managing director of the International Monetary Fund, have called for action to reverse the trend in inequality, but Oxfam said words had not been translated into action. Its prediction that the richest 1% would own the same wealth as the poorest 50% by 2016 had come true a year earlier than expected.
Oxfam said a three-pronged approach was needed: a crackdown on tax dodging; higher investment in public services; and higher wages for the low paid. It said a priority should be to close down tax havens, increasingly used by rich individuals and companies to avoid paying tax and which had deprived governments of the resources needed to tackle poverty and inequality.
Oxfam cited estimates that rich individuals have placed a total of $7.6tn in offshore accounts, adding that if tax were paid on the income that this wealth generates, an extra $190bn would be available to governments every year. The charity said as much as 30% of all African financial wealth was thought to be held offshore.
2 As sanctions go, Iran’s foes fear the worst (San Francisco Chronicle) As the nuclear deal with Tehran goes into effect, many Middle Eastern countries fear a newly emboldened Iran, flush with cash and international recognition, will grow more aggressive with what they see as meddling in conflicts across the region.
The deal forced Iran to dismantle most of its nuclear program, a step that proponents say will prevent it from gaining the capability to make a bomb for well over a decade. The International Atomic Energy Agency has certified that Iran had met its obligations, paving the way for Western sanctions to be lifted and giving Iran access to $100 billion in frozen assets.
While the US, which led the negotiations, has tried to promote the deal as the beginning of a new chapter in relations with the Islamic Republic, the agreement has been greeted with suspicion and trepidation across much of the Middle East. For Israel and Sunni states such as Saudi Arabia, Shiite Iran is seen as a destabilizing force.
On the other hand, Iran's hostility to the Islamic State group has since 2014 put it in effect on the same side as the US-led coalition battling the group in Iraq, where Iranian-backed Shiite militias have proven to be effective ground forces against the Sunni extremists. Improved relations between Washington and Tehran could allow for greater coordination. Iraq's Shiite-led government has welcomed the nuclear deal, suggesting it could help resolve the region's many conflicts.
3 Tennis match-fixing evidence revealed (Simon Cox on BBC) Secret files exposing evidence of widespread suspected match fixing at the top level of world tennis, including at Wimbledon, can be revealed by the BBC and BuzzFeed News.
Over the last decade 16 players who have ranked in the top 50 have been repeatedly flagged to the tennis integrity unit over suspicions they have thrown matches. All of the players, including winners of Grand Slam titles, were allowed to continue competing.
The Tennis Integrity Unit - set up to police the sport - said it had a zero-tolerance approach to betting-related corruption. The cache of documents include the findings of an investigation set up in 2007 by the organising body, the Association of Tennis Professionals (ATP).
Its job was to look into suspicious betting activity after a game involving Nikolay Davydenko and Martin Vassallo Arguello. The two players were cleared of violating any rules but the investigation developed into a much wider enquiry looking into a web of gamblers linked to top-level players.
The documents we have obtained show the enquiry found betting syndicates in Russia, northern Italy and Sicily making hundreds of thousands of pounds betting on games investigators thought to be fixed. Three of these games were at Wimbledon.
Saturday, January 16, 2016
1 Walmart to close 269 outlets (Jana Kasperkevic in The Guardian) Walmart is closing 269 stores, more than half of them in the US and another big chunk in its challenging Brazilian market. The stores being shuttered account for a fraction of the company’s 11,000 stores worldwide and less than 1% of its global revenue, but according to workers’ group Making Change at Walmart, this announcement will affect 10,000 US employees.
More than 95% of the stores set to be closed in the US are within 10 miles of another Walmart. The Bentonville, Arkansas, company said it is working to ensure that workers are placed in nearby locations. The store closures will start at the end of the month.
In 2011, Walmart Express marked the retailer’s first entry into the convenience store arena. The stores are about 12,000 square feet and sell essentials like toothpaste. But the concept never caught on as the stores served the same purpose as Walmart’s larger Neighborhood Markets: fill-in trips and prescription pickups.
The announcement comes three months after Walmart CEO Doug McMillon told investors that the world’s largest retailer would review its fleet of stores with the goal of becoming more nimble in the face of increased competition from all fronts, including from online rival Amazon.com.
Walmart operates 4,500 in the US. Its global workforce is 2.2 million, 1.4 million in the US alone. Walmart has warned that its earnings for the fiscal year starting next month will be down as much as 12% as it invests further in online operations and pours money into improving customers’ experience.
2 Venezuela declares economic emergency (BBC) The Venezuelan government has announced a 60-day economic emergency to deal with the country's worsening crisis. President Nicolas Maduro will govern by decree for two months. The edict includes tax increases and puts emergency measures in place to pay for welfare services and food imports.
The government's move came as official figures released by the central bank showed that the Venezuelan economy had contracted by 4.5% in the first nine months of 2015. The decree also instilled more state controls on businesses, industrial productivity and on electronic currency transactions.
Venezuela has the world's biggest known oil reserves but the huge fall in oil prices in the past 18 months has slashed its revenues by 60%. Annual inflation up to September 2014 is said by the Venezuelan Central Bank to have reached 141%. Oil exports account for as much as 95% of Venezuela's revenue.
On Thursday (Jan 7), the People's Bank of China cut its reference rate for the yuan by 0.5 per cent, the most since August's 2 per cent devaluation and the eighth straight day that the PBOC has guided the yuan lower. Here's why this matters:
A It raises fears about how bad is the slowdown in the world’s second-largest economy. Markets fear that Beijing, in a bid to help its exporters, is allowing the yuan's rapid depreciation to accelerate, which would mean China's economy is even weaker than had been imagined, or that official figures show.
B It hits Asian exporters. A weaker yuan is bad news for export-oriented economies like Singapore, Hong Kong, South Korea and Taiwan as their exports will be more expensive to Chinese buyers. Their exports to other countries will also have to compete against Chinese rivals who have the advantage of a weaker currency.
C The resulting capital outflows hits Asian currencies and commodities. China is the world's biggest user of energy, metals and grains and the yuan's sharp fall exacerbated the slump in the currencies of big commodity suppliers like Australia, New Zealand and Canada. Fears of a sharper slowdown in China's economy and market turmoil are also triggering a selloff in emerging-market assets by risk-averse investors.
D It could reignite an Asian currency war. Yuan devaluation will put pressure on Asian emerging economies like Vietnam, Malaysia and Indonesia to push down their own currencies to help their exporters and to prevent destabilising capital flows. As it did in the 1997 Asian financial crisis, a competitive spiral of currency devaluations could result.
E It hurts Asian banks.The more the yuan weakens against its trading partners' currencies, the greater the risk that corporate profits will be hurt and affect the region's banks. DBS CEO Piyush Gupta has warned that a yuan depreciation could lead to more corporate defaults by Chinese companies who have borrowed heavily in US dollars but have not hedged their loans. Servicing such debt has become much harder because of the yuan's sharp fall.