Tag Archive for news

China Moves to the Slow Lane

No economy can grow at the rate of the China forever, it’s simply unfeasible and a slowdown is an inevitable result at some point.  The growth story has been huge and some measure of rebalancing is not only inevitable it is desirable too.   China has followed the tried and tested growth template pioneered by other Asian economies, Japan, South Korea and Taiwan are just a few examples.  These countries were always described as ’tigers’ in global economic terms however China is much, much bigger than these.

The worry of course for the rest of the world is simply the scale of the Chinese economy now.  The tigers had far less of an effect on the global markets than China did and many of these economies have suffered in the downturn particularly the Japanese.  The issue in a world beset by recession is of course that all these growth stories were focused on exports.  The extensive investment in manufacturing, education and infrastructure created the funnel to supply an export driven market.

This strategy raises huge amounts of foreign currency, which is essential to purchase the raw materials to supply the manufacturing plants.  However this growth model is simply unsustainable in the current climate particularly due to heavy subsidisation required to manipulate exchange and interest rates, plus keeping wages low to minimize costs.

The problem is that the market for the goods China produces is falling, growth cannot come from outside any more whilst the recession hits it’s main markets – saturation point has been reached.  The difficulty China has is moving to a new model, it needs to be genuinely competitive not just at the expense of it’s own people.  Investment in infrastructure can help but the unused developments and white elephants strewn across China demonstrate that this is not the long term answer.

China faces many problems with being genuinely competitive in a global market. It’s difficult for entrepreneurs to prosper in such a tightly controlled and monitored society.  Just taking the internet as an example – the infrastructure available should mean the country is a world leader.  However this isn’t the case as the country is handicapped by surveillance, internet filtering and censorship.

The IT tools and infrastructure used by many  global companies simply don’t work in China.  Whilst individuals worry about the lack of online anonymity – see this for instance – secure proxy, especially in a heavily monitored network, companies have extensive difficulties in simply operating.  The numerous stories of paid hackers and state sponsored industrial espionage also make many of the biggest brands wary of setting up at least on the Chinese mainland.

The restrictions that are put in place obviously are primarily targeted at the Chinese citizens themselves.  But they too are becoming well used to bypassing these, by using technology freely available on the web.  Take for instance accessing specific media sites, this video for example illustrates a method used by people to access Netflix a popular media streaming site.

These problems will severely hamper the Chinese economy, as it seeks to modify it’s model.  The problem is that the World needs China to succeed to some extent, and in many ways Chinese domestic demand could be a great boost to Western economies too.

 

Egypt and the Economic Challenge

Throughout revolutions and uprisings there’s normally one very common fundamental cause – economics.  A dictator or government with an agenda can get away with a lot with a background of prosperity.  Many of the Middle East countries have virtual dictatorships but money buys acceptance at least to a certain degree.  But any poor or dictatorial ruler had better watch out if poverty, unemployment are rising. All the other problems are magnified when people have trouble feeding their families – and things are pretty bleak in Egypt at the moment.

As we stand now, Mursi has sufferred the cost of the failing economy as much as any other issue.  There is lots of talk about Islamisation, lack of freedom and the poor record of the security in the last year but ultimately the economy is nearly always the tipping point.  In a country like Egypt with many factions not least the religious and secularists – the economy effects them all.

The sad fact is that in the 12 months of the Muslin Brotherhood’s rule – unemployment, poverty and debt have all risen.  To an outsider there seems to have been little effort to solve these problems and too much focus on creating an Islamic state.  One things for sure, political unrest has only one economic consequence and it’s not a good one.

Any continued unrest and political instability is going to hit Egypt hard, any ruler wherever he is found is going to have a very difficult time if the fighting and discord continues.  Egypt is a country that relies heavily on it’s tourist industry and people don’t visit political hotspots for their holidays.

If you walk down the streets of Luxor and round the Valley of the KIngs you’ll see the problems.  There are simply no tourists in a town almost entirely dependent on them, Egyptians are sitting around with nothing to do except perhaps blame their leaders.

But it’s not all bad news, in some senses Egypt was not really recovering under the current rulers.  They seemed to lack both experience and the will to tackle Egypts real economic problems instead appearing to focus on their religious agendas.  Incredibly stock markets in Egypt have actually started to rally in the face of political change, the market seems to want it.  As long as an experienced and less divisive leader can be found then perhaps there is some hope.  There are some great articles and reports on the crisis from the BBC from their foreign correspondents if you want to get an impartial view.  For those living outside the UK you can access these reports on the BBC Iplayer and other UK Television shows by shielding your real IP address – more information here.