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 “deliberate and malicious acts, intended to
outrage religious feelings or any class by insulting its religion or religious
beliefs.”
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| 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.
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| 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”.
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| 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.
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| The Chinese military has been attacking the United States through hacking. |
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.
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| 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. 
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