MacroScope

Will China make the world green?

Workers remove mine slag at an aluminium plant in Zibo, Shandong province December 6, 2008. REUTERS/Stringer

Joschka Fischer was never one to mince words when he was Germany’s foreign minister in the late ’90s and early noughts. So it is not overly surprising that he has painted a picture in a new post of a world with only two powers — the United States and China — and an ineffective and divided Europe on the sidelines.

More controversial, however, is his view that China will not only grow into the world’s most important market over the coming years, but will determine what the world produces and consumes — and that that will be green.

Fischer, who was leader of  Germany’s Green Party, reckons that due to its sheer size and needed GDP growth, China will have to pursue a green economy. Without that, he writes in his Project Syndicate post, China will quickly reach limits to growth with disastrous ecological and, as a result, political consequences.

This will have serious consequences on the the way the West lives.

Consider the transition from the traditional automobile to electric transport. Despite European illusions to the contrary, this will be decided in China, not in the West. All that will be decided by the West’s globally dominant automobile industry is whether it will adapt and have a chance to survive or go the way of other old Western industries: to the developing world.

This is not the usual view of China. Many greens have long feared the impact of a huge leap in Chinese growth on the global environment — refrigerators in a billion homes, cars in a billion garages etc.

Investment Week: From the Trenches…

Early September skirmishes turned this week into full-scale “currency wars”, to use Brazil’s terminology. Dramatic language, but not unwarranted. The markets have taken Fed signals of preparation for further money printing as an effective attempt at a dollar devaluation, allowing the country export its deflationary pressures overseas via capital outflows to higher-yielding developing countries.

GERMANY-IFO/

The major developing nations, for all the arguments favouring currency revaluations of 20-25% over the next couple of years, are not going to stand idly by and watch that happen overnight. But their attempts to offset the impact of soaring local currencies and attendant asset bubbles merely floods local economies with cash at a time when fighting inflation — not deflation — is their priority. Brazil has raised the red flag, but the likes of Turkey and Taiwan are also registering fears about the impact of another bout of US monetary pump priming. Meantime, the gloves are off in the US-China yuan row; possible trade measures are being invoked in DC; and there is little chance of cooler heads prevailing this side of the US mid-term elections. This story will run.

What’s certain is the G20 finance meeting in South Korea on Oct 22 has significant work to do. Next week the battle lines are already drawing up at the Asia-Europe summit in Brussels (and China’s PM Wen and Japan’s PM Kan both travel) and then the annual IMF/G7 meetings in DC. The key US September payrolls report on Friday, for good measure, may be the deciding data set for the Fed to pull the trigger on QEII. And also meeting next Thursday is the Bank of England, itself back in a QE frame of mind if you listened this week to one of its policymakers Adam Posen  

Live video: Geithner testifies on China and the Yuan

Live video of Timothy Geithner’s testimony to the U.S. Senate Banking Committee today.

from Jeremy Gaunt:

The rule of three

It is beginning to look like financial markets cannot handle more than three risks. First we have, as MacroScope reported earlier,  Barclays Wealth worrying about U.S. consumers, euro zone debt and Asian overheating.

Now comes Jim O'Neill and his economic team at Goldman Sachs, with three slightly different notions about risks in the second half, this time in the form of questions. To whit:

1) How deep will the U.S. economic slowdown be and what will  the policy response be? (That's two questions, actually, but let's not nitpick).

What are the risks to growth?

Mike Dicks, chief economist and blogger at Barclays Wealth, has identified what he sees as the three biggest problems facing the global economy, and conveniently found that they are linked with three separate regions.

First, there is the risk that U.S., t consumers won’t increase spending. Dicks notes that the increase in U.S. consumption has been “extremely moderate” and far less than after previous recessions. His firm has lowered is U.S. GDP forecast for 2011 to 2.7 percent from a bit over 3 percent.

Next comes the euro zone. While the wealth manager is not looking for any immediate collapse in EMU, Dicks reckons that without the ability to devalue, Greece and other struggling countries won’t see any great improvement in competitiveness. Germany, in the meantime, has sped up plans to cut its own deficit.  It leaves the Barclays Wealth’s euro zone GDP forecast at just 1 percent for next year.

Some good econ reads from the Blogosphere

From the econ blogosphere:

UK BUDGET
– The libertarian Adam Smith Institute says here that the UK government should look at every government job, programme and department, and ask whether they are really needed. “Do we really need new school buildings….? Should taxpayers really stump up for free bus passes, or winter fuel and Chistmas bonuses for wealthy pensioners?”

CHINESE FX
– VOX publishes this post from senior research fellow Willem Thorbecke of the Asian Development Bank on China’s latest move on the dollar peg. “China’s action may facilitate a concerted appreciation in Factory Asia, helping the region redirect production away from western markets and towards domestic consumers.”

U.S. JOBS
– Karen Dynan, vice president for economics studies at Brookings, looks here at the latest U.S. jobs data and argues that Congress needs to extend unemployment benefits. “Reinstating the benefits would … help the broader public by contributing to overall demand in goods and services and thereby mitigating the risks of a double dip in the economy.”

Unlocking the Yuan

Reuters’s top news and innovation teams have put together a web site on the yuan and the debate over its revaluation. Particularly worth a look after the weekend’s statement by China that it would allow more flexibility in its currency exchange. You can access it here, but it looks like this:

Yuan2

from Global Investing:

What fund managers think

Bank of America-Merrill Lynch's monthly poll of around 200 fund managers had a few nuggets in the June version, aside from the usual mood-taking.

Gold is too expensive.  A net 27 percent of respondent thought it overvalued, up from 13 percent in May. Then again, the respondents to this poll have reckoned gold is too pricey since September 2009.

The fall in the euro should be tailing off. A net 14 percent reckon the single currency is still overvalued, but that is way down from the net 45 percent who thought so in the May poll.

Spend Save Man Woman

Far from being lauded as a virtue, China’s high savings rate has been blamed for the economic imbalances underlying the global financial crisis. The criticism being that the Chinese spend too little and rely too much on exporting to Western consumers.

The IMF and World Bank have long called for Beijing to ramp up social spending so its citizens will feel less need to save for a rainy day and instead consume more.

But in their intriguingly named paper,  ‘A Sexually Unbalanced Model of Current Account Imbalances‘, New York-based researchers Du Qingyuan and Wei Shang-Jin suggest China’s gender imbalance could also be a significant factor in the persistence of its high savings rate. spendsavemanwoman

from Sebastian Tong:

Stop pushing and we’ll do it

The growing acrimony in the international debate over China's currency policy has led some to warn that Beijing could dig in its heels if pushed to hard to let its yuan rise. crybaby

But Barclays Capital says Beijing could let its currency strengthen as early as next month, notwithstanding its public resolve against Washington's threat to label it as a currency manipulator.

"They do have a 'If you stop pushing, we'll do it' attitude, which is kind of childish, really. But it will happen because they are the only country in the world, besides India, where there is a whiff of inflation," says Barclays' asset allocation head Tim Bond.