Tag Archives: india

The big question for the world: is China growing, slowing, or in recession?

Summary: China is both the key driver of the world economy and the least well known of the major nations. With unreliable economic statistics, a rapidly evolving economy that defies easy analysis, and deep corruption, it defies analysis. But its growth or recession might determine the course of the world economy during the next decade. This post provides a realistic outlook, debunking the dreamy consensus expecting continued rapid growth.

“God takes care that trees do not grow to the sky.”
— Ancient German proverb.

From Evercore: China might already be in a recession (red line)

Evencore: estimate of real China GGP

This graph is from a report by Evercore ISI), founded by Roger Altman (Asst Secretary of Treasury for Carter and Deputy Secretary for Clinton) — Excerpt…

“Our proprietary Synthetic Growth Index (SGI) fell 1.1% m/m in July, and was also down 1.1% y/y. No wonder global commodities are so weak. The most recent 18 months have been much weaker than the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% y/y. And, it is not improving, Most worrisome to us; the ‘equipment’ portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.”

A recession under way in China would explain the collapse of most industrial commodity prices (especially oil), and raise the risk of a global “recession” (usually defined as GDP growth slower than 2%). Fortunately, they are probably wrong about China’s current GDP. Such a fast slowing from 7% to -1% would create economics shocks impossible for even China’s government to hide. Like massive layoffs.

I believe their index shows the rising stress in China’s economy. See this anecdotal evidence in The Guardian: “China’s workers abandon the city as Beijing faces an economic storm. Labour disputes are rising and some workers are leaving for the country amid fears a crashing economy could cause political and social unrest.” However, I believe their underlying story is almost certainly correct: most estimates of China’s future growth are delusionally optimistic.

A recent paper by two eminent Harvard economists provides a more realistic forecast of much slower growth — which implies real recessions (falling GDP) for China, instead of just growth slowdowns. This is also likely for India. That would remove the steady wind that has helped power the world economy since 1990, with no obvious candidates to replace them as economic locomotives.

The top line in the below graph shows the common forecast that China will rule the 21st century, as its 6% or 7% GDP growth makes them number one. US GDP is almost $17 trillion, and growing at 2 – 3%, so China will equal us in roughly 10 years — if they can sustain such a high rate of growth. A transition to a slower rate of growth would change the world; doing so (as often happens) by a recession would rock the world.

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Stratfor: ISIS & the rise of Warlord Entrepreneurs

Summary: This analysis by Stratfor discusses the adoption of modern business methods by insurgents, something long discussed here. It’s progress that mainstream geopolitical analysts are finding more analytically useful perspectives on jihadists rather than the usual hackneyed labels. It’s learning, that if continued might make us a threat to them.  {1st of 2 posts today.}

Stratfor

The Rise of Warlord Entrepreneurs

By Jay Ogilvy at Stratfor, 24 June 2015

As the Islamic State digs in after its conquest of Ramadi, U.S. President Barack Obama has been candid about his lack of a strategy to deal with the group, in part because he is waiting for commitments from the Iraqi government, but in part because the Islamic State is poorly understood. We know it is “nimble,” “aggressive” and “opportunistic.” But there is much about it we don’t know.

If you Google “books on the Islamic State,” you might be surprised at how many have jumped off the press in the past year, a phenomenon all the more remarkable given how little we actually know about the group. One book you will not see among your search results, since it does not have “Islamic State” in its title, is the recently published Warlords, Inc: Black Markets, Broken States, and the Rise of the Warlord Entrepreneur, edited by Noah Raford and Andrew Trabulsi. It is an anthology and therefore unlikely to be widely noticed, but I would like to draw on the insights of a few of its authors.

Together with Philip Bobbitt’s analysis of the nation-state’s decline and the market state’s rise, Warlords, Inc. provides geopolitical context for understanding the rise of the Islamic State. Though their prescriptions differ, Bobbitt and several Warlords, Inc. authors define the edges of a white space that the Islamic State is trying to fill by referring to the group’s geopolitical context. By looking at what’s outside the outline rather than what’s inside it, they may be giving us a more accurate picture of the Islamic State than those who claim to be peering directly into the group’s dark and secretive interior.

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BRIC building: the future of Brazil, Russia, India and China

Summary: Today we have a follow-up by Paul Schulte to Does corruption limit China’s growth, or pose a threat to its existence? He looks at the leading emerging nations, comparing them to the US and UK at similar point in their evolution to greatness.

20121213-BRICs

BRIC building: the future of Brazil, Russia, India and China

By Paul Schulte
Institutional Investor magazine, in press
Republished here with his generous permission.

The challenge of the BRICs

The November/December 2012 edition of Foreign Affairs Magazine had an article called “How the BRICS Are Crumbling” by Ruchir Sharma (head of Emerging Markets at Morgan Stanley). The tone of the article seems off the mark. The BRICs {Brazil, Russia, India, China} are slowing because they are trying to slow credit growth due to the links of their currencies to the US dollar. They are trying to slow down credit growth while the West desperately uses zero interest rates to accelerate credit growth. So, the West and the BRICs are operating at cross purposes.

The BRICs countries have dollar-linked currencies, so when interest rates are zero in the West and high in BRICs countries they will be bombarded with capital seeking a higher return. This causes their currencies to appreciate, jeopardizing growth. Or, the BRICs countries must intervene domestically to force banks to slow credit growth as these banks fill with cash. Either way they encounter forces which cause their currencies to rise and credit growth to accelerate. This is a classic cocktail for a real estate bubble and accelerating inflation.

Brazil and China are experiencing the same phenomenon now. Both are essentially trying to slow down their respective economies, although China has been more successful.

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