Made in China.
The label that has defined the outsourcing boom of our generation can be seen on articles of clothing, toys, or even unnoticed in our juice in the form of concentrate. Continually, economists are monitoring the growth of China and the rest of the Asian countries; the behemoths of the continent are India and China. As the year progresses, Chinese and Indian economies will be wrestling with politics, as the problems of overextended bureaucracy, political power plays, freedom, and censorship begin to trickle in these nations to slow growth.
To begin, India is probably a good place to start. With the title of the world`s largest democracy, India has often been associated with call centers in the Western world. Yet, like Western politics, India`s democracy is far from functional. Corruption scandals, calls for resignation of Mamohan Singh (India`s Prime Minister), power failures have all damaged India’s economic growth prospects. With 2013 seeing the prospect of a snap election being called by the coalition allies, campaigning has already gotten underway. Already, the Bharatiya Janata Party (BJP) will challenge for control of the country as Nahendra Modi will most likely challenge for Prime Minister should an election occur as scheduled in 2014, if not earlier.
Politics are changing in India as the middle class are less likely to define their role in society by caste or religion. However, this does not mean increased political decency. Since Pranab Mukherjee became President of India, the first execution in eight years occurred. Ajmal Kasab was a Pakistani sentenced to death for being part of the Mumbai terrorist attack. This has opened the gate to the people calling for death sentences for rapists, while some suggesting vigilante squads to patrol streets. Intolerance from religious leaders such as banning books by Salman Rushdie as it has been deemed anti – Islamic. Additionally, a Kashmir band consisting of teenage girls ended their performances as the Grand Mufti stated the band was “unislamic”. It is not just Islamic offensive remarks that are publicly condemned, as marked with the case of Sanal Edamaruku who is facing three years of prison for criticizing the Catholic Church. This has followed with a more bizarre episode of police arresting for a woman for a Facebook post criticizing Mumbai being closed due to the funeral of Bal Thackery, and then arresting a friend who liked the comment.
These actions by the state are often justified by the blasphemy law, or 295(a) of the Indian Penal Code prohibiting “
|Does Rahul Gandhi have the fortitude to|
make it in Indian politics?
It will be interesting should Rahul Gandhi face off against Narendra Modi in a race for Prime Minister of India.
Economically, India has a growing service sector. However, it has been predicted that Indian banks are set to worsen by Standard & Poor’s, citing a reduction in economic activity, higher interest rates resulting in a decline in corporate performance. Agreeably, Moody’s has stated their negative sentiments on Indian are banking industry for the next 18 months. Already, India lowered its expectations for the economy stating growth would hit 5%, the lowest in 10 years.
India’s economy has grown due to low labour costs resulting in manufacturers outsourcing their operations to India; according to Deloitte India will be the second largest manufacturer in the next five years and has a favourable tax climate. According to Grant Thornton, India is the fifth best country globally for growing business’s as increased domestic consumption begins to drive economic growth. In addition to a new found middle class spending their money driving domestic consumption, investment has been one of the other drivers of growth. Interestingly, GPS services are assisting in driving Indian growth as the Geography industry collected $3 billion in revenue in 2011 and counted for 135 000 jobs (2% of the national workforce).
However, the continuance of Indian economic growth is very much dependent on political reforms. Private sector investment has recently slowed, but better policies to attract companies are being introduced. Budget targets are not being met, there’s a 8% deficit this year while oil subsidies have become more costlier due to the rising price of oil.As shown earlier, Indian politics is in a dire state. In the coming days, Finance Minister Palaniappan Chidambaram is expected to announce a plan to slash the deficit and reel in on government expenditures. This is worrisome for short term predictions, as growth in GDP largely relied on government spending. Additionally, a two day strike reflects the expected cuts taken place last week by a million Indian public sector employees.
Mr. Chidambaram does not have an easy job. Improving the Indian economy is more so about improving their political system. Corruption is common, as 158 Parliamentary members have faced criminal charges relating to corruption, while almost a third of all lawmakers in India facing criminal charges including rape, murder, extortion, robbery, and kidnapping.
It would be nice if the individuals responsible for upholding the law would actually obey it as well.
In addition to corruption, the more than 300 political parties in India often make elections an interesting circus that result in coalitions and deals, and less to do with getting correct policies through that would advance the country’s interests. In addition to this, Mr. Singh has failed to raise any backing to elicit the reforms needed due to not only BJP opposition, but also Sonia Gandhi and her party not providing any robust support. Although a small decrease in diesel subsidies took place in September, it was hardly enough to prevent increased debts due to oil bills. Mr. Singh is attempting to make the correct economic changes, but it is imperative that the Indian National Congress support him along with Mr. Chidambaram in execution of new policies that will increase Indian economic activity.
Opposite to India, China does not have 300 political parties; they have one ruling political party. The Communist Party of China has a new leader, Xi Jinping. He will be formally elected in March, in a mostly ceremonial procedure. Yes, China does not have conflicting political parties; they have one party that controls the state. Yet, this does not keep human nature from manifesting. There are many different interests in the Communist Party, and balancing those interests will again make Mr. Xi`s career interesting. The Prime Minister will be replaced by Mr. Li Kequiang, who has a reformist outlook that will be restricted by those who control state industries of finance and telecommunications.
Chinese philosophy has always been that of continuity, and Mr. Xi is not expected to change this as 12th five year plan has already shaped the economic goals of the country. Politically, Mr. Xi is expected to attempt to heal the problems of the Party caused by the trial of Mr. Bo Xilai, who has been put on trial on charges of corruption.
|Little has been mentioned in this article about Chinese|
colonialism in Africa, but has been mentioned in this blog
before. China is rapidly expanding their influence in
Africa to keep a steady supply of raw resources.
Economically, Chinese export growth was at a seven month high in December, as the value of China’s exports grew by 14.1% when compared to the same month of the previous year. Chinese authorities expect 2013 to be a better year export wise, stating that exports should grow 8% this year. Chinese banks lent 8.2 trillion yuan in 2012, while alternative loan sources to bank have become more popular in China. Ting Lu, an economist at Merrill Lynch has stated that Chinese GDP growth could “rebound to 7.8% year on year in the fourth quarter”, which would counter the economic downturn that China has been experiencing. Two hundred million jobs are supported by the trade sector, which has seen an increase in December 2012 by 9.6% of shipments to the United States – which is now the world’s largest consumer of Chinese products. This title was formerly held by Europe.
Around half of China’s provinces are setting economic growth targets to lower levels as Mr. Xi attempts to tackle rising debt through lowering the speed of growth. While the government will keep their growth target to 7.5% for 2013, the general attitude has changed in China from fast growth to “sustained and healthy development”. However, not many news outlets have mentioned the potential of a Chinese debt crisis. A Barclays Capital report suggests that while the probability of a crisis is low, it is a threat. However, the Chinese government remains in a relatively strong fiscal position with increased revenue from taxation and assets higher than liabilities. The main reason for the Barclay report was pension plans for government workers, “as the one child policy has led to less workers supporting more retirees”.
|Empty streets, buildings are the indicators of a Chinese|
ghost city. Quite eerie.
According to the IMF there will be a 9% growth in 2013. The five key issues will be fighting inflation, a Chinese Housing bubble, and exports falling due to external influences, corruption, and the manipulation of the Yuan. These key issues will all be in the news over 2013. In terms of sensationalism; ghost cities and cancer cities, along with Chinese government sanctioned hacking of American institutions will occupy the news outlets. Ghost cities are a result of the rapid growth that China has experienced. The reason behind the quick construction is China includes these new developments in their GDP, which artificially inflates growth. However, some cities such as Ordos are empty, when they are supposed to house around a million people. Twice as much square footage was built in China in 2013 than was sold, while many Chinese families are buying second homes and leave them empty as an investment. It is widely known that the Chinese have built far too much, and the existence of empty cities are material to assessing the Chinese economy.
It is interesting to note cancer cities. Recently, a Chinese environmentalist challenged a Chinese official to swim in a much polluted river, and was subsequently beaten. Pollution is a serious problem in China, as the Yangtze turned red this year and the Chinese government admitted that 90% of their groundwater supply is severely polluted in some cities. Beijing has seen an explosion in demand for masks, as it is difficult to breathe in the city. Interestingly, this affects the advocates for organic foods in America. For example, the USDA ensures that Chinese foods are organically certified. However, local certifiers don’t look at the water being sprayed on the crops, which are usually heavily polluted. It is possible a food product form China can contain 500 ppm of mercury and still be certified organic. Ketchup production is the latest industry China has entered, might want to be careful.
|The Chinese military has been attacking the United States|
Mr. Xi will have a tough fight against corruption in his own party, and this fight will be a theme for 2013. Already Mr. Xi has launched a clampdown on spending by government officials, while China’s Central Military Commission has suspended serving alcohol at military events. Anti-waste campaigns are being administrated by charging an extra fee for reserving private rooms in restaurants, while government ads are recommending less luxurious lifestyles as China begins to see the beginning of a wealth gap similar to America.
Chinese relations with Mongolia will be interesting to watch in 2013. Due to large foreign investment in mining by companies such as Rio Tinto, the economy grew 17.3% in 2011, and the IMF suggested that 2013 could offer 12.2% GDP growth. These are astounding numbers brought about by gold, silver, coal, copper and uranium as Mongolia modernizes. Oyu Tolgoi is a mine in the Gobi Desert that will come into production this year, accounting for a third of the nation’s GDP. China will watch in interest as they sell electricity to Mongolia to assist the Oyu Tolgoi project and most suspect that China will demand high payments taking advantage of the promising resource extraction. Additionally, the project is owned 34% by Rio Tinto, which angers Mongolian Nationalists.
Last year a new Mongolian government was elected into Parliament. It will be interesting to see how they respond to popular opinion of dislike of international exploitation of Mongolian resources. In contrast to Mongolia’s exploding growth, the Singapore government is “cautiously positive” for 2013, based on fiscal cutbacks in the United States and “no outright crisis in the Eurozone”. This assessment is rather dire, as America has remained in political deadlock not making proper reforms and the Euro crisis is still a spark away from explosion. The Singaporean central bank will keep fiscal policy tight while the government slows the influx of foreign works, as total trade grew 1.1% in 2012. In opposition to Singapore’s western reliant economic predictions, Bangladesh has experienced 5-6% annual economic growth as the Guardian published a report stating global economists suggest that Bangladesh may overtake Western economies by 2050.
Proper investments in education, infrastructure and youthful populations are the main reasons behind these reports stating that countries such as Bangladesh, Vietnam, The Philippines, Turkey, and South Korea all will outpace the BRIC’s (Brazil, Russia, India, China). Included in these countries is Pakistan. The World Bank has estimated the Pakistani growth to be around 4% in 2013 and 2014, as the agriculture industry revamped production in 2011. With a fiscal deficit of 7% of GDP, high prices for their imported oil, Pakistan has increased trade with Sri Lanka as they enhance diplomatic ties exporting cement, fruits, vegetable, rice, spices and teas and have created a website to assist Pakistani’s in trading with Sri Lanka. However, according to former state governor of the State Bank of Pakistan Dr.Ishrat Husain, “bad governance is the root cause of all economic ills". This is not a new thought. Censorship, mismanagement of core industries such as energy, lack of education, religious rifts all can be named as causes for falling foreign investment. Not many Pakistanis pay taxes, resulting in Syed Shabbar Zaidi, former President if ICAP, suggesting the Pakistani government would enter a new arrangement with the IMG for dealing with a dollar shortfall of $10 billion. According to him, the government has not taken measures to resolves the rupee shortfall or the fiscal deficit.
This is not surprising. Pakistan has been in the news for mostly negative events lately. The latest event was a nine year old Pakistani girl raped by three men in the Punjab province. This is an addition to internet censorship of sites such as Youtube for a few videos insulting the Prophet Mohammed. Instances of rape in Pakistan have increased from 778 in 2008 to 928 in 2010, and there is little justice being offered. Mukthar Mai was gang raped in 2002, and the trial went all the way to the Supreme Court. Of the 14 men who raped her, 13 of them were acquitted while the one received life in prison.
|Pakistan needs reform to counter religious extremism that|
is preventing economic growth.
These are symptoms of a declining society. Education is not respected in the country, being replaced with religious fervor Exemplifying this is Nobel laureate Abdus Salam who helped lead the discovery of the “God Particle”, but was been banned from Pakistan and shunned from textbooks because of the discovery. Additionally, his entire family was persecuted. The irony of the matter is the “God Particle” is just a nickname of the Higgs Boson, the particle simply completes the Standard Model of Physics and confirms the foundations of our understanding of physics. Large class sizes, low student to teacher ratios, lack of teachers and teacher training all hamper Pakistani’s attempts to create an educated population.
Pakistan does not have a proper learning environment in their schools, as students are trained to obey authoritarian leadership, instead of think for themselves in a democracy. The syllabus is quite outdated and can be described as bigoted by some. In a US government sponsored study, teachers were found to not know that non-Muslims could become citizens of Pakistan, and often regarded as other religions as evil. Yes, the United States staging unwanted military operations in the country fosters a dislike for the West and other religions. However, this feeling could be dispelled through proper education and cooperation in the international community.
Extremism has crept into Pakistan over the last decade and is further cementing itself. The fact this nation has nuclear weapons makes the situation even more serious, given the instability of the government. The latest event was the dissolution of the Baluchistan assembly, after 86 members of the Hazara (Shia) religious/ethnic minority were killed in Quetta. Sunni groups such as Lashkar – e – Jhangvi regard Shia Muslims as heretics.
These actions are symptoms of a deteriorating society that must wrestle with extremism before considering economic growth. A competitive economy cannot be fostered under Pakistan’s current conditions, and as The Economist states "democracy just for show is not democracy at all".
Overall, Asia will once again be one of the heavier indicators of global economic growth. There are many countries and events to mention, including the recent anti-deflation efforts of the Japanese central bank or a decline in the South Korea’s GDP growth, but that could be a separate article. Overall, it is expected the following will occur in 2013 for Asia:
- Japan will battle deflation through 2013 as already seen in the news, with full support from Western countries. This will not be an easy task, and Japan most likely will see increased volatility as the Central Bank struggles for control
- China will have to introduce more sustainable policies under Mr. Xi, resulting in lower growth targets. Additionally, the abysmal environmental conditions will have to be addressed by the Chinese government instead of silencing whistle blowers.
- Indian politics leading to the election of 2014 will prevent progressive policies from being introduced by Mr. Singh, and as a result hinder foreign investment leading to a failure in meeting growth targets.
- Worries of Pakistan instability will increase around the world as the country’s rulers slowly lose control of the divisive factions of the country. Extremism will drive continual violence preventing economic growth, and could force the IMF to introduce sanctions should Pakistan’s government not be able to control their population.
Asian is an extremely large continent to address in one article, as one country’s analysis could result in 20 pages or more, let alone the whole continent. However, the mentioned predictions are expected to be the headlines of the continent over 2013. There are many opportunities for the Asian economies, but expect a slowdown in Chinese and Indian economies. Instead, look at the smaller countries with freer governments and less regulations welcoming foreign investment to lead the way in terms of economic growth. There is a high chance of high reward for investment, but there is still risk to be considered. Not exactly high risk, but not as low as other continents. Asia should have a relatively successful year.