Opinion

The Great Debate

from Anatole Kaletsky:

The case against a Chinese financial crisis

A severe slowdown in China is viewed as among the greatest risks facing the world economy this year, and Thursday’s dismal news on Chinese manufacturing output exacerbated these fears. But the really important news from Beijing pointed in the opposite direction: Bank lending in China, instead of slowing dramatically as many economists had expected, accelerated in January to its fastest growth in four years.

This means China is unlikely to act as a brake on the global economy in the months ahead -- despite the recent weak manufacturing figures. It also suggests that predictions of a credit crunch or financial crisis in China will likely prove wrong -- or at least premature.

To welcome stronger bank lending in China is not to deny that credit growing at double the gross domestic product growth is unsustainable and will ultimately have to be curbed. The Chinese authorities themselves clearly believe this. The government and the central bank want to reduce credit growth and to replace the unregulated, opaque “shadow lending” system with properly supervised, well-capitalized modern banks.

The government has two other economic objectives, however, that it sees as equally or more important.

The three priorities were clearly set out at the Communist Party Third Plenum last November. First, the Chinese economy must be restructured away from over-dependence on infrastructure investment and exports, toward private businesses that increase the quantity and quality of consumer goods and services.

Where does Britain stand in the global economic race?

Following the international financial crisis of the late 2000s, the world’s financial leaders have been working towards a standardized banking system that will strengthen banks at an individual level, and thus improve the banking sector’s ability to survive stress when it occurs.

In 2010 the Basel Committee produced a third accord outlining a set of regulations, with the goal of solving the banking system’s ongoing problems. Since then the conversation has yet to cease over whether enough has been done, since the peak of the crisis in 2008, to ensure a stable financial environment that supports growth on an international scale.

The importance of Basel III lies not only on an inter-continental scale, but for individual countries to maintain the required standard regulations to a point of sustainability. In Europe, the debate over the role Britain will play in Basel III has yet to be resolved. During early Basel III discussions in May 2012, Michel Barnier, the French European commissioner for financial regulation, clashed with British Chancellor of the Exchequer George Osborne over the suggestion of higher leverage ratios in the UK, stating that a distortion of competition within the EU had the potential to cause a continental disadvantage.

China’s air defense zone: The shape of things to come?

China’s announcement of an air defense identification zone (AIDZ) that covers substantial portions of the East China Sea has unleashed a storm of concern among China’s neighbors — as well as in the United States.

For China’s action reflects the deeper challenge now posed by its growing military capability and international activism. Vice President Joe Biden was on solid ground when he objected strenuously to this new air defense zone during his recent trip to the region.

Washington and Beijing each insists it wants to build a “new kind of major power relationship.” If they are to succeed, however, and enhance peace and stability across the region, they must develop new strategies to manage their growing tensions.

Human Rights Day: Still pursuing religious freedom

December 10 marks Human Rights Day, the 65th anniversary of the landmark Universal Declaration of Human Rights (UDHR), signed by 48 nations — with just eight abstentions.

Sixty-five years ago, naysayers insisted it was nobody else’s business how governments behaved within their borders. The declaration confronted this cynical view — and continues to do so today. Human rights abuses and their consequences spill beyond national borders, darkening prospects for harmony and stability across the globe. Freedom of religion or belief, as well as other human rights, are essential to peace and security. They are everyone’s business.

Each signatory nation pledged to honor and protect these rights. For example, the declaration provides the foundation for much of the agenda of the U.S. Commission on International Religious Freedom, on which we serve.

A shifting global economy brings Australia to a crossroads

Australia is no longer immune to the stagnation in the West. Despite a resilient housing market, Australia’s economy is slowing. With a worsening labor market, consumption is eroding, along with business confidence.

In the past two years, the benchmark interest rate has been almost halved to 2.5 percent. Still, Australia’s real GDP growth is likely to decrease to 2.4 percent during the ongoing year and will remain barely 2 percent until the mid-2010s.

Australia is at a new crossroads.

In the past decade or so, exported commodities fueled Australia’s terms of trade, thanks to rising commodity prices. While agriculture and natural resources each account for barely 3-5 percent of GDP respectively, they contribute substantially to export performance. True, the service sector of the economy, including tourism, education, and financial services, continues to account for some 70 percent of GDP. However, the country’s abundant and diverse natural resources attract substantial foreign investment.

Looking to diplomacy with Iran

President Barack Obama has decided to test whether Iranian President Hassan Rouhani’s “charm offensive” is a legitimate effort to reach an agreement on a more constricted and transparent Iranian nuclear program. With this decision, he embarks on the most transformative and important diplomatic initiative of his presidency.

The closest historical analogy is President Richard M. Nixon’s opening to China in 1971. Nixon had recognized a major adversary’s new willingness to change course and he seized the opportunity to further vital U.S. national security interests.

This China analogy, however, has some flaws. Most important, Nixon and his national security adviser Henry A. Kissinger began their quest in secrecy to avoid a divisive public debate that could have scuttled the initiative. Obama’s public commitment to test an opening to Iran, though, will be subjected to fierce scrutiny by domestic and foreign opponents.

Amid environmental destruction, China is battling to protect wildlife

Recently my family and I went through photos we had taken in Scotland. These images brought back memories of my fascination with the pristine Scottish natural environment. There are the breathtaking highlands, the sparkling lochs, the magnificent glens and the abundant wildlife. All these reminded me of Liaoning, my home province.

I spent my childhood in Liaoning in northeast China. It resembles Scotland in many ways. It is a vast landscape with spectacular mountains and rivers. Equally well-known is its abundant wildlife. Roe deer and hares are a common sight. Unfortunately, in recent years some wild animals have become a rarity, in some areas, due to overdevelopment and depletion of natural resources.

However, when I was on home leave back in Liaoning earlier this month I was delighted, and greatly encouraged, by the vigorous efforts of local government and people to create a sustainable environment.

China’s commitment to growth will drive the global economy

From outside China, the Bo Xilai trial looks like the Chinese news event of the year, one of the preoccupations of Western media, along with corporate corruption and the clampdown on American and European companies. Yet these issues are no more than sideshows to the most important economic event of recent times, the unveiling and ratification of a major program for reforms for the next decade, which will occur at the Chinese government’s third plenum in November. The reforms promise to bring another great leap forward in China’s dramatic ascent.

Chinese officials will reveal how long China will need to make the transition from an investment-led, middle-income country to an innovative, consumer-driven, high-income one — and thus when it will become the world’s largest economy. Can China circumvent what we know as “the middle-income trap” that has for decades denied high-income status for Latin America and Asian countries like Malaysia and Thailand?

The challenges that China’s new leadership faces in pushing for rising levels of innovation, entrepreneurship and skills will be the main discussion points this week at the New Champions summit in Dalian, China, organized by the World Economic Forum under the leadership of executive chairman Klaus Schwab. The summit recognizes the important truth that China’s degree of success will determine global growth: it will determine whether the twenty-first century will be the Asian century, and whether by mid-century Asia — which not long ago represented just 10 percent of the world economy — will represent half or just a third.

China’s real problem with Bo Xilai’s legacy

In China, the political lens is focused on Bo Xilai, the disgraced former commerce minister and party chief of megalopolis Chongqing. While Bo’s contestation of the charges of bribery and abuse of power gripped the attention of the social media this week, Bo will probably not be a free man again and certainly not a public figure.

What the trial can’t undo is Bo’s legacy—which opened new channels for popular and elite dissent that is likely to haunt China’s new leadership.

The recent focus on Bo’s crimes and his ultimate punishment is vastly misplaced. In assessing China’s Bo problem, the real story is not bribery or corruption in the Communist Party. The leadership, which will surely be tested on that issue, at least will be undertaking a public campaign to address it and is making important progress.

The short and long of emerging markets

Fickle investors have spurned emerging markets in recent weeks, but this rout has obscured a more alluring vista out on the horizon.

Developing economies now account for 50 percent of global output and 80 percent of economic expansion and are projected to continue growing far faster than developed nations. They are expected to possess an even larger share of global growth, wealth and investment opportunities in years to come. So much so that the labels investors use to classify some of these nations will change as the developing develop and the emerging emerge into more potent economic powers

But this long-term view has been lost on many of those who look to emerging market assets for a higher yield in the short term. Their ardor cooled when the Federal Reserve signaled it may soon ease the stimulus that has kept credit cheap, signaling higher interest rates ahead. That was coupled with signs of slower growth in key emerging markets like China and Brazil.

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