Reuters blog archive

from Breakingviews:

Asia’s top-down corporate reforms vary in promise

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Asia is in the throes of a top-down corporate reform drive. Newish leaders in China, India, South Korea and Japan are pushing to overhaul the way companies work. Their efforts to increase corporate efficiency are welcome. But investors eyeing better returns will find not all reforms are equal.

The need for intervention is clear. The spread between the return on invested capital and the weighted average cost of capital for non-financial corporations in Asia, excluding Japan, has sunk from 3 percentage points in 2010 to just 0.6 percentage points last year, according to CLSA.

Graphic: Company returns are languishing

In China, historical emphasis on growth and employment over profitability at state-owned entities – combined with a lack of effective checks and balances - has led to inefficient capital allocation. In an effort to solve the problem, President Xi Jinping has promised to bring in more private investors. Officials have already engineered a backdoor Hong Kong listing of state-controlled CITIC Group, one of the country’s largest conglomerates. Energy giant Sinopec is evaluating offers for a 30 percent stake in its retail business.

from MacroScope:

France flatlining

We get a flood of EU GDP reports today. Germany’s figure, just out, has marginally exceeded forecasts with quarterly growth of 0.8 percent but France is underperforming again and stagnated in the first three months of the year, missing estimates of 0.2 percent growth.

Robust German growth has been driven largely by domestic demand, which could help its European peers with their exports. Where all that leaves the overall euro zone figure, due later, remains to be seen. The bloc is predicted to have expanded by 0.4 percent.

from Breakingviews:

Hollande finally gets it. Can he do it?

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Not that long ago a French socialist president talking about the need for supply-side reforms would have represented an intellectual revolution. After six years of financial crisis, the euro zone’s near-death experience and with the French economy stalling, it simply sounded like a long-overdue admission of reality when it came from François Hollande at his Jan. 14 press conference. Still, the slow learning doesn’t take anything from the intention to “accelerate,” as he chose to put it, economic reform.

from The Edgy Optimist:

What America won in the ‘War on Poverty’

In an unabashed endorsement of government action to alleviate the plight of the poor, this week President Obama commemorated the 50th anniversary of the War on Poverty with his own call for new policies to address the continued struggles of tens of millions of Americans.

In his official statement, Obama remarked that, “In the richest nation on earth, far too many children are still born into poverty, far too few have a fair shot to escape it, and Americans of all races and backgrounds experience wages and incomes that aren’t rising... That does not mean… abandoning the War on Poverty.  In fact, if we hadn’t declared ‘unconditional war on poverty in America,’ millions more Americans would be living in poverty today. Instead, it means we must redouble our efforts to make sure our economy works for every working American. “

from Breakingviews:

Four ways to tell China is serious about markets

By John Foley 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s new buzzword is “decisive”. That’s how the ruling party described the role it wants markets to play in the economy. It’s hard to see whether it’s more than just talk. But there are four visible ways to tell whether China means business.

from Edward Hadas:

A call for radical financial reform

The governments of developed countries have the power to rescue economies from defective finance. There is a radical solution. It would be relatively easy and at least as fair as the current slow generation-long recovery from the 2008 financial collapse.

I have been suggesting massive “start from scratch” financial reform for several years. The response is usually a mix of incredulity (it’s too hard to do) and indignation (it would be unjust). A thought experiment might help deal with those objections. Pretend that the current situation - excessive debts and deficits, unprecedented and risky monetary policy, overly powerful banks, slow GDP growth and unacceptably high levels of unemployment - was the result of a recent war.

from MacroScope:

Amnesty for undocumented immigrants would not burden U.S. economy – Levy Economics Institute

The recently passed Senate bill - S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act - that would take significant steps toward comprehensive reform, is being held up in the Republican-controlled House of Representatives, with a “path to citizenship” for undocumented immigrants the apparent sticking point.

A recent report from the Congressional Budget Office estimated the following:

All told, relative to the committee-approved bill, the Senate-passed legislation would boost direct spending by about $36 billion, reduce revenues by about $3 billion, and increase discretionary costs related to S. 744 by less than $1 billion over the 2014-2023 period.

from MacroScope:

France under the spotlight

An IMF team will conclude its annual review of the French economy and hold a news conference this morning.

It’s a safe bet that the Fund’s prescription will be similar to that of the EU and most other interested observers – the two extra years France has been given by Brussels to meet its debt-cutting targets must be used to liberalise and reform its economic structures. That was certainly Angela Merkel’s message to President Francois Hollande last week and also implicit in the Franco-German position paper which is intended to lay the ground for an EU summit at the end of the month.

from MacroScope:

Reform hue and cry

Spanish Prime Minister Mariano Rajoy meets labour union and business leaders to discuss reforms to pensions and public institutions. After some fairly brutal cutting, Rajoy has grown more cautious. He is negotiating a new formula for calculating pension payoffs but is wary of going further for fear of sparking greater protest. And all the time, recession put the country’s debt targets further out of reach.

There’s still some pretty serious stuff on the table. Rajoy's cabinet has proposed a "stability factor" for the pension system, which would periodically adjust pay-outs and retirement age based on economic performance, demographics and other factors. The government is also studying a major reform to public administrations that could mean numerous job cuts in the public sector at a time when unemployment is at 27 percent.

from Breakingviews:

Chinese reforms could trigger domino effect

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

What does China want? Sustained growth, and happier citizens. How will it get there? Through economic reform. It sounds simple enough.