Western propaganda is burying the Chinese economy at the exact moment that BRICS is expanding, is it a coincidence? ‘Experts’ have been predicting the collapse of the Chinese and Russian economies for years, but the reality is invariably different.
The Economist has put out another cover story on China’s supposed economic decline. I wonder when they’ll all get tired of this theme? It’s even become a meme. In 2001, Gordon Chang, a famous American lawyer and political commentator with Chinese roots, wrote a book called ‘The Coming Collapse of China’. In fact, it was this book that made him famous. In it, the ‘expert’ argued that the country’s collapse was imminent. He even named the year – 2011. When the predicted events did not happen, Chang said he was wrong, but only by one year. In an article for Foreign Policy (FP) magazine, Chang claimed that the end of China was already near, and that everything would happen in 2012. He even urged readers to bet on it. But those promises never came to pass. Then, in 2016, the indefatigable Gordon again announced the coming collapse of China, but wisely did not give a date. Amusingly, in another FP piece, Chang urged people not to believe the IMF’s prediction that China’s economy would overtake that of the US by 2016. And in 2016, he wasn’t deterred by the fact that China had overtaken the US in terms of GDP converted into dollars at purchasing power parity. “Rising tensions within the regime, economic turmoil, and a more vibrant society. China appears to be entering a new period of extreme political instability,” wrote the perennially wrong expert in the National Interest. The Economist, continuing Chang’s glorious work, waits from cover to cover for the collapse of the Celestial Empire. It’s reminiscent of Jehovah’s Witnesses waiting for Armageddon, and seems oblivious to the fact that its content is detached from reality. But there is no creativity at all – just pandas and dragons. The West has been burying China’s economy for decades, in the same way it decided Russia’s economy was dead after the start of the military operation in Ukraine. A strong Beijing and Moscow is the United States’ worst nightmare. Only a close alliance between Beijing and Moscow could be more frightening – and today that not only exists, but is gaining more supporters. Thus, it is impossible to judge the new wave of ‘forecasts’ and ‘analyses’ about the imminent decline of China in isolation from the latest BRICS summit, where it was announced that six more countries will join the format. The Wall Street Journal now says that the decision to include new players in BRICS is a victory for China and Russia. That doesn’t really fit with the new cover of The Economist, does it?
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Both the White House and the US Treasury Department raised objections on Tuesday to the decision by credit rating company Fitch to downrank the long-term US rating from AAA to AA+.
We strongly disagree with this decision,” White House press secretary Karine Jean-Pierre told reporters, claiming it “defies reality” because President Joe Biden has led the American economy to a “robust recovery.”Treasury Secretary Janet Yellen also “strongly disagreed” with Fitch’s decision, arguing it was “arbitrary and based on outdated data” and that US Treasury securities remained the world’s “preeminent safe and liquid asset.” Fitch is one of the big three US credit rating agencies, next to Moody’s and Standard & Poor’s. On Tuesday afternoon, it announced that Washington’s “long-term foreign-currency issuer default rating” would be downgraded, citing issues with governance, rising deficits, and a looming recession, among other things. The decision “reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance” relative to other countries with the similar rating over the past 20 years, “that has manifested in repeated debt limit standoffs and last-minute resolutions,” Fitch said. The company predicted a growing government deficit, noting that the US debt-to-GDP ratio was currently at 100.1%, two and a half times higher than the AAA-rated countries’ median of 39.3%. Fitch also cited the Federal Reserve’s recent credit rate hikes, “weakening business investment, and a slowdown in consumption” to predict a “mild recession” in the fourth quarter of 2023 and the first quarter of 2024. Going green and adopting environmentally friendly practices are important steps towards sustainability and mitigating climate change. However, it is true that some aspects of going green can have potential toxic costs. Here are a few examples:
It is crucial to acknowledge these toxic costs and strive for sustainable solutions that minimize or eliminate such risks. Constant research and development are essential to improve the environmental performance of green technologies and ensure that they are produced and disposed of responsibly.
Chinese carmakers sold 1.76 million vehicles in foreign countries in the first five months of 2023, marking growth of 81.5% compared to the same period last year, according to statistics from the China Association of Automobile Manufacturers (CAAM).
Industry experts highlighted that the Chinese vehicle market has begun to accelerate since April, but cautioned that challenges remain for carmakers to achieve sales growth for the entire year. Statistics released by the CAAM on Friday showed that passenger vehicles accounted for the majority of exports from China. From January to the end of May, sales increased by 96.6% and totaled 1.46 million units. Meanwhile, exports of commercial cars amounted to 291,000 units, marking growth of 30.9%. Exports of new energy vehicles – including electric vehicles, plug-in hybrids and hydrogen vehicles – increased by half to 457,000 units in the first five months of the year. The CAAM noted that the year-on-year growth rates are mostly attributed to lower comparative bases in 2022, which resulted from the considerable impact of the Covid-19 pandemic on production and sales. Car sales in China totaled 26.86 million units in 2022, marking modest growth of 2.1% compared to the previous year. Vehicle sales and production began to bounce back in June 2022, following Covid-19 outbreaks which effectively disrupted supply chains for almost two months and led to a shortage of components across the country, especially in Shanghai, which faced the most severe lockdowns. Iran is seeking to create a gas hub in cooperation with the country’s Eurasian trade partners, Oil Minister Javad Owji announced on Wednesday. The move is part of Tehran’s efforts to strengthen regional cooperation and enhance its position on the global energy market.
Iran is one of the largest oil and gas producers in the world, selling most of its energy to Asian markets despite the threat of US secondary sanctions. The new project is planned for the Asaluyeh region of the southern Bushehr province. “Having 33 trillion cubic meters of gas reserves and thanks to the cooperation of Turkmenistan, Russia and Qatar, we are trying to become a gas hub,” the minister told reporters, insisting that the conditions were in place to achieve that goal. The statement comes as Tehran has stepped up energy purchases from neighboring Turkmenistan, with the capacity to import between 40 and 50 million cubic meters of gas daily. Iran’s major gas fields are concentrated in the south, necessitating imports from its northern neighbor, particularly in the winter. Iran has also strengthened energy cooperation with Russia, which, according to Owji, could assist in the Islamic Republic’s energy hub ambitions. The two countries have joint investments in exploration and production, technology swap agreements, and a deal to jointly build oil pipelines from Iran to Oman and Pakistan. Last month, Tehran and Moscow sealed two major cooperation agreements and eight memorandums of understanding covering everything from energy and technology to the creation of a joint market. America’s chances of paying its bills after June 1 are “quite low,” US Treasury Secretary Janet Yellen warned on Sunday in an interview with NBC’s ‘Meet the Press’. According to Yellen, if Congress fails to reach an agreement on raising the country’s $31.4 trillion borrowing limit by that time, it will be forced to default on “some bills” shortly after.
“There’s always uncertainty about tax receipts and spending. And so it’s hard to be absolutely certain about this, but my assessment is that the odds of reaching June 15, while being able to pay all of our bills, is quite low… My assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid,” Yellen said. The treasury secretary did not say which ‘bills’ she had in mind, but noted that the government’s most immediate obligations range from paying interest on outstanding debt to “obligations to seniors who count on social security, military, contractors who’ve provided services to the government.” She added that “there can be no acceptable outcomes if the debt ceiling isn’t raised.” The administration of US President Joe Biden and Republicans led by House Speaker Kevin McCarthy have been at an impasse over raising the debt ceiling for several months, despite warnings that the US could face its first-ever default unless it is raised by June 1. Republicans are refusing to agree to the move unless Biden agrees to government spending cuts and curbs on social programs.
Along with other EU members, Italy has been caught up in rising tensions between the US and China that have been exacerbated due to Beijing’s close ties with Moscow. “Given the state of relations between the US and China, we cannot remain an ally of the US and at the same time remain in the BRI,” Stefano Stefanini, Italy’s former ambassador to NATO, was cited as saying by the FT. “We have to try to negotiate a peaceful — or [the] least damaging possible — exit with the Chinese.” Bloomberg reported last month that Italian Prime Minister Giorgia Meloni intended to make an announcement on Italy’s participation in the BRI before the G7 summit in May, but was still undecided as to whether the memorandum of understanding should be scrapped or renewed. Reports earlier this week claimed that the Italian premier had previously assured US House Speaker Kevin McCarthy that her government was in favor of an exit. The purported plans have triggered deep concern in Italy’s business community, already reeling from sanctions on Russia, as the post-Covid reopening of the Chinese market is viewed as offering significant prospects. Italian exports to China saw a year-on-year surge of 92.5% in the first quarter of 2023, mostly boosted by a short-term increase in sales of pharmaceuticals.
“A possible withdrawal would lead to a cooling of bilateral relations at a historic moment in which companies and professionals are experiencing a frenzy and a desire to return to the Chinese market,” Mario Boselli, president of the Italy China Council Foundation, told the FT. The Belt and Road Initiative, unveiled by Chinese President Xi Jinping in 2013, envisages linking China with Africa, Asia, Europe, and the Americas through a network of seaports, railways, roads, and industrial parks. It is expected to provide effective connectivity and boost China’s cooperation with more than 80 countries around the world. The main goal of the project is stated as promoting peace through trade and development. Eurozone inflation surged to 7% in April in the first increase in the last five months, data released by the European Union’s statistics office Eurostat on Tuesday showed. Consumer prices rose from 6.9% in March, driven by food prices that soared 13.6% year-on-year last month. Food, alcohol and tobacco are expected to have the highest annual rate in April, followed by non-energy industrial goods, which picked up 6.2%.
Services climbed by 5.2% in April, compared with 5.1% the previous month. Energy prices were up again by 2.5% after a slight decline by 0.9% in March, according to the report. Core inflation – excluding food and energy prices – declined from 5.7% in March to 5.6% in April. The figures are closely watched by European Central Bank policymakers, who will decide whether to continue raising interest rates to curb inflation when they meet on Thursday. Latvia continues to struggle with the highest inflation at 15%, followed by Slovakia, Lithuania and Ireland — all dealing with a double-digit surge in consumer prices among the 20-member eurozone. Inflation in Germany, the EU's biggest economy, declined to 7.6% in April from 7.8% in March. In France, however, consumer prices rose 6.9% last month up from 6.7% in March, Eurostat said. While the ECB has not committed to a new rate hike, the latest figures make it more likely, economists warn. The key deposit rate in the eurozone stands at 3%. The International Monetary Fund (IMF) recently said that taming inflation while avoiding a recession was the biggest challenge the EU will face in the months to come. Russia is ready to increase settlements in yuan in its foreign trade, President Vladimir Putin said on Tuesday during talks with his Chinese counterpart Xi Jinping, who is in Moscow on a three-day official visit.
“We are for the use of Chinese yuan in settlements between Russia and the countries of Asia, Africa, and Latin America. I am sure that these forms of settlements in yuan will be developed between Russian partners and their counterparts in third countries,” Putin said. Two thirds of current trade between Moscow and Beijing is carried out in national currencies – the yuan and the ruble, the Russian president noted. China’s trade with Russia hit a record high in 2022, growing by nearly a third amid Western sanctions against Moscow. Bilateral trade is on pace to hit over $200 billion this year. The latest data from the Bank of Russia shows the yuan has become a major player in Russia’s foreign trade, with its share in the country’s import settlements jumping to 23% by the end of last year from only 4% in January 2022. The yuan’s share in export settlements also surged, from 0.5% to 16%.“It is important that national currencies are increasingly used in mutual trade. This practice should be further encouraged, and the mutual presence of financial and banking structures in the markets of our countries should be expanded,” Putin added. Meanwhile, the share of the US dollar and euro in Russia’s export settlements last year dropped substantially, from 65% in January 2022 to 46% in December. In February, the Chinese currency overtook the dollar as the most traded currency on the Russian stock market for the first time ever, according to data from the Moscow Exchange. It is early days yet to assess if the collapse of Silicon Valley Bank (SVB) will turn out to be a Lehman moment for the global financial system. SVB’s failure was triggered by factors different from the ones that precipitated the Lehman collapse or for that matter, India’s bad loan crisis. If those crises were about banks piling on credit risks on their loan books, SVB’s failure can be traced to mis-management of rate risks in its investment book.
Running an asset-liability mismatch to earn a spread is central to any banking business. But SVB stretched this concept much too far in deploying its copious deposit flows into long-dated treasuries and mortgage securities, which it parked mainly in its held-to-maturity (HTM) portfolio. As inflation rose and the US Fed raised interest rates by 450-475 basis points, SVB’s portfolio racked up large losses. The advent of the funding winter, which prompted start-ups to draw down their deposits, forced SVB to liquidate not just its Available For Sale bonds but also its HTM ones. The resulting $1.8 billion write-off followed by a failed attempt to raise capital, spooked the closely-knit start-up community to launch a run on SVB’s deposits. When interest rates shoot up in a short span, no bank can shield its investment book from losses. But SVB was more vulnerable to a run than a vanilla bank, because of its over-reliance on big deposits from a closed ecosystem — start-ups, their founders and VCs. The Federal Deposit Insurance Corporation has been quick to take over SVB, halting the run. But its ability to shore up dented depositor confidence in US banks, may depend on whether SVB’s uninsured depositors (who make up 90 per cent of its $175 billion book) will need to take haircuts. To prevent a snowballing effect on the start-up ecosystem, SVB’s clients may need to be thrown a liquidity lifeline to meet emergency payouts. As SVB had limited inter-linkages with other banks, a contagion effect on the US or global banking system from its failure, appears unlikely. But its collapse does call for stricter regulatory vigilance on other counts. With the previous crisis stemming from lending, the current global regulatory framework for banks focusses a lot on proactive accounting of bad loans and stress-testing their impact on capital adequacy. But the SVB crisis highlights that in a scenario of rapidly rising rates, banks’ investment books need an equal degree of scrutiny and stress-testing. The present expedient of allowing banks to sweep their bond losses under the carpet by owning large HTM portfolios, can lead to blow-ups. In India, the RBI may need to scrutinise bank books for depositor concentration. The SVB saga also offers a salutary lesson to global central banks that when they switch from extended ultra-loose monetary policies to uncalibrated, sharp rate hikes to quell inflation, they can inflict damage not just on growth, but also on financial system stability that they strive so hard to protect. US stocks have soared to unsustainable highs and could crash 26% within months, Morgan Stanley's top strategist has warned. In an analyst note the bank's chief US equity strategist, Mike Wilson, said that the current level of stock valuations could be compared to the “death zone,” a term in mountaineering describing an altitude so high that climbers do not have enough oxygen to breathe. “Many fatalities in high-altitude mountaineering have been caused by the death zone, either directly through loss of vital functions, or indirectly by wrong decisions made under stress or physical weakening that lead to accidents,” Wilson wrote. “This is a perfect analogy for where equity investors find themselves today, and quite frankly, where they've been many times over the past decade,” he added.
The metaphor indicates the excessive levels that stock prices have climbed to since the start of this year. Wilson suggested the S&P 500 could tumble to 3,000 points within months, down about 26% from current levels, saying that “it’s time to head back to base camp before the next guide down in earnings.” The grim forecast follows what many analysts have called the worst year for the stock market since the 2008 financial crisis. All three indexes tumbled in 2022 with the Dow Jones Industrial Average ending the year down 8.8% while the S&P 500 sank 19.4% and the Nasdaq Composite plunged 33.1%. “The bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn't coming,” Wilson’s latest note said. The strategist has repeatedly warned that the market rally won’t last as he expects inflation to prove stickier than many other economists forecast, forcing the US Federal Reserve to hike rates in order to bring soaring prices under control. China’s population has decreased for the first time in more than 60 years, official data shows — a historic turn for the world’s most populous nation that is now expected to see a long period of population decline.
The country of 1.4 billion has seen birth rates plunge to record lows as its workforce ages, a drop that analysts warn could stymie economic growth and pile pressure on the country’s strained public finances. The mainland Chinese population stood at approximately 1,411,750,000 at the end of 2022, Beijing’s National Bureau of Statistics (NBS) reported on Tuesday, a decrease of 850,000 from the end of the previous year. The number of births was 9.56 million, the NBS said, while the number of deaths stood at 10.41 million. Men also continued to outnumber women in China by 722.06 million to 689.69 million. The new figures mark the first fall in China’s population since 1961, when the country battled the worst famine in its modern history, caused by Mao Zedong’s disastrous agricultural policy known as the Great Leap Forward. The decline in population could have significant economic consequences for China. The country's workforce is shrinking, and the proportion of elderly people is increasing. This could lead to a decline in economic growth and a strain on the country's social security systems. The Chinese government has implemented a number of measures to address the population decline, such as the two-child policy and measures to support families with children. Additionally, the government has also emphasized the importance of increasing the birth rate and has called for more support for families with children. China has long been the world’s most populous nation, but is expected to soon be overtaken by India, if it has not already. Estimates put India’s population at more than 1.4 billion. The head of the NBS, Kang Yi, said people should not worry about China’s population decline as the country’s overall labour supply still exceeds demand. China’s population could reduce by 109 million by the year 2050, more than triple the decline of their previous forecast in 2019. Taiwan plans to give cash payouts of nearly $200 to every citizen this year, Premier Su Tseng-chang has announced, saying the island’s economic growth will be shared by everyone. The export-reliant economy, a global tech powerhouse for products including semiconductor chips, grew 6.45 percent in 2021, the fastest rate since it expanded 10.25 percent in 2010.While economic growth is expected to slow in 2023, the government has made plans to plough an extra T$380 billion ($12.4bn) in tax revenue from last year back into the economy to help protect the island from global economic shocks, including subsidies for electricity prices and labour and health insurance.
Su said a total of T$140 billion, part of the tax revenue, would be spent as cash payouts and each citizen would get T$6,000 ($195.61). “The fruit of economic achievements will be shared by all citizens, from young to old,” Su told reporters on Wednesday, adding the potential payout requires approval from parliament, where the ruling Democratic Progressive Party has a majority. “We wish to give all citizens a New Year blessing after the beginning of the Lunar New Year,” Su told reporters, referring to the week-long holiday that starts on January 20. He did not give details of how the government would deliver the payouts. Taiwan is a major producer of semiconductors used in everything from cars and smartphones to fighter jets. Its economy continued to grow stably during the COVID-19 pandemic in recent years helped by strong chip demand for consumer electronics as more people worked from home. Taiwan’s central bank in December cut its 2022 estimate for gross domestic product (GDP) growth to 2.91 percent from its previous forecast of 3.51 percent in September. For 2023, it projected GDP would grow by 2.53 percent. The economy grew 4.01 percent in the third quarter from a year earlier. The issue of the creation of a BRICS reserve currency has taken on particular significance in recent months after President Putin declared that the creation of such a currency was in the process of discussion. This was followed by a series of statements coming from Russia’s legislative branch on the expediency of creating a new reserve currency — most recently from the Federation Assembly speaker Valentina Matvienko. While the debate on the possibility of creating such a reserve currency is only starting in Russia and more broadly across the global economy, the implications of such a move on the part of the BRICS could have transformational consequences for the global financial system.
Initially, the proposal to create a new reserve currency based on a basket of currencies of BRICS countries was formulated by the Valdai Club back in 2018 — the idea was to create an SDR-type currency basket composed of BRICS countries’ national currencies as well as potentially some of the other currencies of BRICS+ circle economies. The choice of BRICS national currencies was due to the fact that these were the among the most liquid currencies across emerging markets. The name for the new reserve currency — R5 or R5+ — was based on the first letters of the BRICS currencies all of which begin with the letter R (real, ruble, rupee, renminbi, rand). The recent debates concerning the prospects for the creation of a new reserve currency focused more on the risks, fragilities and outright impossibility of the R5 project. Less attention has been accorded to estimating the benefits (including in terms of hard figures) to BRICS economies and EM more generally. There has also been scant attention with respect to the actual modalities of launching the BRICS reserve currency. What is clear at this stage is that the BRICS reserve currency will not be created to replace the national reserve currencies of the BRICS economies — rather it will complement these national currencies and will serve to improve the possibilities for more EM currencies to attain reserve status. Accordingly, the attainment of high trading shares among the BRICS economies is a desirable but not altogether an indispensable condition for launching the new reserve currency. In fact, the new BRICS currency does not have to service all trade transactions among BRICS economies in the very near term. Initially, the new BRICS currency could perform the role of an accounting unit to facilitate transactions in national currencies. In the longer run, the R5 BRICS currency could start to perform the role of settlements/payments as well as the store of value/reserves for the central banks of emerging market economies. Within the composition of the R5 currency basket the share of the Chinese renminbi may be initially set at a relatively high level in order to take advantage of the already advanced reserve status of the Chinese currency. This share may be reduced progressively in stages later on along with the inclusion of new EM national currencies. Outside of the BRICS economies some of the potential candidates that with time could be included into the R5+ currency basket may feature the Singaporean dollar or the UAE’s dirham. One of the potential risks associated with the use of EM currencies in reserves is their high volatility. The basket mechanism of the BRICS reserve currency will allow for reducing some of this volatility via averaging out the exchange rate dynamics of currencies that follow different market trends — if the currencies of Russia, South Africa and Brazil follow the commodity cycle, the opposite is true with respect to commodity importers such as India and China. Importantly, the scope for employing the new reserve currency in the world economy is sizeable given the tremendous potential for de-dollarization. The new BRICS reserve currency can act in concert with the stronger role performed by BRICS national currencies to take on a greater share of the total pie of currency transactions in the world economy. This greater role can be gradually extended from servicing foreign trade transactions to investment flows across the developing world. In line with the original R5 concept developed by Valdai Club in 2018 one of the possible venues for boosting the use of national currencies and the BRICS reserve currency could be the creation of a platform for regional development banks in which BRICS economies are members. Such a platform could develop a portfolio of common/integration projects that may be financed in national currencies. In the end, the launching of a new reserve currency if successful will impart a transformational effect on the international financial system. The Central Banks in the global economy are experiencing a notable shortage of reserve currencies in managing their reserve holdings. In this respect, the emergence of additional reserve currencies from among the EM economies will serve to expand the possibilities for diversifying reserve holdings and reducing the vulnerabilities associated with the dependence on a narrow range of currencies. The R5 project can thus become one of the most important contributions of emerging markets to building a more secure international financial system. |
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