MacroScope

A grand bargain to solve global imbalances

Michael Pettis, a professor and China expert at the Carnegie Endowment for International Peace, has put together a thorough and informative look at all things U.S.-China trade. It’s well worth reading and watching the entire thing, but here’s a few highlights that jump out:

* We’re likely to see a significant increase in global trade tensions

* China will probably allow the renminbi currency to rise, but not by a lot

* There is a way to resolve those huge global imbalances but it will be painful and the chances of mustering the political will — in China, the United States and Europe — look slim.

A bit more on that last point: Pettis thinks that those three players need to “come to some kind of grand agreement.”

“China needs to recognize that the trade surpluses it needs to absorb its excess capacity are politically unacceptable in countries suffering from high unemployment.

“Europe and the United States need to understand that China simply can’t adjust quickly enough. In an ideal world, the leadership of the three economies would get together and work out a plan—six years, eight years, however long it took—in which China committed to taking the necessary steps. 

from Global Investing:

It’s the exit, stupid

Ghoul

Anyone wondering what ghoul is most haunting investors at the moment could see it clearly on Tuesday -- it is the exit strategy from the past few years' central bank liquidity-fest.

Germany came out with a quite positive business sentiment indicator, relief was still there that Greece had managed to sell some debt a day before, and Britain formally left recession -- albeit in a limp kind of way.

But what was the main global market mover? It was China implementing a previously announced clampdown on lending.

from Davos Notebook:

Davos Man turns 40

Davos Man2 Many happy returns or midlife crisis?

The annual talkfest in the Alps records its 40th birthday this year but the rich and powerful will hardly be in celebratory mood as problems pile up in the post-crisis world.

How to withdraw the trillions of dollars in stimulus that helped the world avoid a rerun of the Great Depression, without spooking markets all over again?

What to do in the face of the world's lukewarm response to the hot topic of climate change?

from Global Investing:

What worries the BRICs

Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.

MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.

This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.

from Global Investing:

Time to kick Russia out of the BRICs?

It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach's famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.

Åslund, who is also co-author with Andrew Kuchins of "The Russian Balance Sheet", reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China  in the list of blue-chip economic powerhouses. He writes:

The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.

Women and economics, an online exhibit

A new exhibit called Economica: Women and the Global Economy is offering up an online look at how half the world’s population is making it through the current economic turbulence, in which, it says, women are “uniquely impacted”.

Presented by the web-based International Museum of Women, it consists of a series of slide shows looking at issues ranging from the impact of the U.S. mortgage crisis on families to survivng in Egyot with a shortage of bread to Middle East businesswomen redefining roles.

It also looks at credit for women in Latin America, growing debt in India and “Womb Economics”, which questions whether women are paying for China’s economic prosperity with policies that encourage abortion.

Instant View Video: Rebalancing global trade

Reuters correspondent Sumeet Desai talks about the G20 draft communique and what it means for rebalancing the world’s economy.

Instant View Video: The G20 communique

Reuters correspondent Emily Kaiser analyzes the G-20 draft communique.

from Changing China:

Starbucks and the overvalued yuan

 

 

 

 

 

 

 

 

 

 

Is latte at Starbucks in China overpriced or is the local currency, the yuan, unexpectedly overvalued? The former is certainly more plausible, but it might be equally true that the yuan, if not overvalued, is at least not as undervalued as other measures suggest.

This conclusion would come from my proposed Grande Latte index, the caffeinated equivalent of The Economist's Big Mac index. The Grande Latte index, like its burger brother, is a light-hearted attempt to find a basket of goods that can be compared across countries to assess purchasing power parity (PPP) and, by extension, fair currency value. There are serious flaws, but I will save these for, ahem, the bottom of this blog.

The cross-country cost comparison of grande (i.e. medium in Starbucks-speak) lattes shows that the Seattle-based coffee chain's brew is rather dear in China. A grande latte costs $3.75 in the United States but $4.10 in China in dollar terms. It is even more expensive in Japan. The conclusion, that the yen is currently overvalued by 23 percent, accords well with the views of many analysts. But the idea that the yuan might be overvalued by 9 percent flies in the face of pretty much all conventional wisdom. It is also a drastically different perspective than that of the Big Mac index, which in its latest edition showed the yuan to be 49 percent undervalued.

from Global Investing:

Another nail in the Malthusian coffin?

All the talk of addressing the global imbalances throws a spotlight on contrasting demographic trends in the world's two most populous nations -- China and India.

Prior to the financial crisis, India's annual growth rate of about 9 percent seemed positively moribund next to China's double-digit economic expansion. But purely on demographics, the dimming power of the US consumer could give India an edge over its neighbour in the longer run.

That's what India's trade minister Anand Sharma seemed to suggest last week when he reminded the audience at a London conference that the country had "20 percent of the world's children":