Opinion

The Great Debate

Global imbalances: out with a bang?

jamessaft1.jpg(James Saft is a Reuters columnist. The opinions expressed are his own)

The simplest way to end the imbalances in the world’s economy is also sadly perhaps the most likely: for the Chinese to stop buying U.S. debt.

This is not going to happen anytime soon, for one thing deleveraging in the U.S. will for a time make U.S. Treasuries look good value, but a buyer’s strike is a heck of a lot more likely than the orchestrated rebalancing the U.S. will push at this week’s G-20 meeting of leading nations.

The U.S. plans to advance a plan at the Pittsburgh summit to fundamentally change the balance of the global economy, which over the past 15 years or so has been characterized by over-borrowing and consumption in the West provided and financed by savers and workers in Asia.

That state of play kept going, as is the way of these things, until it stopped, or rather until one of its wheels fell off. It wasn’t that Asians stopped saving or buying U.S. debt but that speculators, usually in Europe, stopped buying securities, often minted in London, which were being created to front run the flow of capital from Asia to the west.

That popped the asset price bubble and the flow of finance to consumers in the U.S. who, with much gnashing of teeth, began to save again and consume more guardedly.

For Chinese exporters, grass is greener abroad

WeiGucrop.jpg- Wei Gu is a Reuters columnist. The opinions expressed are her own. -

The U.S.-China tire dispute threatens to spill into other sectors and squeeze Chinese exporters’ already razor-thin margins further. It might seem mind-boggling to many that Chinese manufacturers are still hanging on to weak overseas markets even though the domestic economy looks much healthier and surely offers more potential.

But there are structural reasons why the grass is greener outside China. The risk of not getting paid, or getting paid late, is significantly lower when dealing with foreign buyers. The cost of international shipping has dropped so much that it can be cheaper to send goods over the Pacific Ocean than across the country.

In addition, selling to large buyers such as Wal-Mart creates volumes large enough to compensate for weak margins. Moreover, Chinese exporters get all sorts of export rebates and local government incentives which help to lower their costs.

China’s coming magnificent bubble

jamessaft1.jpg–James Saft is a Reuters columnist. The opinions expressed are his own–

If and when China makes its currency convertible and opens its financial system the stage will be set for a bubble that should make the dotcom and housing booms look tame.

China has recently signaled its key aspirations: for a greater international role for the renminbi and for Shanghai to become a great financial capital. Neither is imminent, but both imply, if not require, a series of steps that, taken in combination with China’s legitimately great potential for growth, could lead to a bubble of magnificent and dangerous proportions.

Five overlooked global risks

Rafael Ramirez is James Martin Senior Research Fellow in Futures at Oxford University's Institute for Science, Innovation and Society. His latest book is "Business Planning for Turbulent Times: New Methods for Applying Scenarios" edited with John W. Selsky and Kees van der Heijden. — Rafael Ramírez is the James Martin Senior Research Fellow in Futures at Oxford University and author of “Business Planning for Turbulent Times: New Methods for Applying Scenarios” edited with John W. Selsky and Kees van der Heijden. Ramírez attended a session at the World Economic Forum’s gathering in Dalian, China, on managing global risks.

Reuters asked Ramírez to elaborate on five overlooked risks the world is confronting as it works its way through the current recession. His response is below. The views expressed are his own.

Risk one: Confusing risk with uncertainty

The first — and perhaps most important risk — is confusing categories of ignorance. This most centrally is about confusing risk with uncertainty. It entails pretending that probability (with data sets of past events with distributions of occurrence which are relevant for the future) is relevant for both “known unknowns” one cannot model with probability as well as unknown unknowns in one’s plausible futures where no data set is available, such as those of unique events.

Sit back and enjoy the Kabuki trade show

jamessaft1.jpg–James Saft is a Reuters columnist. The opinions expressed are his own.–

Financial markets have plenty to be worried about but their latest concern — a trade war between the United States and China — should not be on the list.

Aligned self interest and a knowledge on both sides of the causes of the Great Depression should limit matters to a kind of trade war Kabuki, a highly stylized piece of theatre in which the United States shakes its fist and China responds in kind but no blows land.

Collaboration is the key to economic growth

aron-cramer– Aron Cramer is president and CEO of BSR, a global business network and consultancy focused on sustainability. The views expressed are his own. —

As the World Economic Forum’s “Summer Davos” meeting in Dalian, China, gets underway, it is a bit chilling to think back to how the financial crisis was unfolding in real time during last year’s event.

As the 1,000 leaders gathering for this year’s event spend three days debating how to restore economic growth and social stability, the need to focus on a long-term transition to a more sustainable economy is clearer than ever.

Forget Microsoft, Yahoo’s value is overseas

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

eric_auchard_columnist_shot_2009_june_300_px2The fate of Yahoo Inc has become intertwined in the public’s imagination with the success or failure of its dealings with Microsoft Corp in recent years.

That’s despite the fact that as much as 70 percent of the value investors put on Yahoo’s depressed shares are tied up in its international assets or cash holdings — factors that have nothing to do with Microsoft.

China’s banks, running hard to stand still

wei-gu.jpg– Wei Gu is a Reuters columnist. The opinions expressed are her own —

Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.

For now things still look fine. China Banking Regulatory Commission (CBRC) this week claimed that Chinese banks were managing credit risk sagely, pointing to record low non-performing loan ratios. Given the massive increase in the number of loans outstanding — up 24 percent since the start of the year — it’s not surprising that the proportion of them that are non-performing at large commercial banks, which accounts for 60 percent of the lending, has declined from 2.4 percent to 1.8 percent in the past six months.

BYD investors, fasten your seatbelts

Wei Gu– Wei Gu is a Reuters columnist. The opinions expressed are her own –

China’s bubbly stock market is making heroes out of some unlikely companies. And none more so than BYD Co. , in which Warren Buffett plans to take a 10 percent stake.

BYD has a much-hyped project to manufacture electric vehicles. Its shares have surged 140 percent in the past three months and 440 percent in the past year. They now trade at 74 times of current year profit and 54 time of next year earnings. That is double the level of capital goods companies and four times the multiple on which Chinese automakers trade.

China and the world economy

gerard-lyons Dr. Gerard Lyons is chief economist and group head of global research, Standard Chartered Bank. The views expressed are his own.

The world is witnessing a shift in the balance of power, from the West to the East. This shift will take place over decades, and the winners will be:
- Those economies that have financial clout, such as China
- Those economies that have natural resources, whether it be energy, commodities or water, and will include countries, some in the Middle East, some across Africa, Brazil, Australia, Canada and others in temperate climates across, for instance, northern Europe
- And the third set of winners will be countries that have the ability to adapt and change. Even though we are cautious about growth prospects in the U.S. and UK in the coming years, both of these have the ability to adapt and change.

China is at the center of this shift.

The scale and pace of change in China is breathtaking. Against this backdrop of dramatic change, let me look at China’s impact on the global economy, especially in the aftermath of the financial crisis.

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