Since China’s rise to the rank of second world economy in 2014, there is no country or industry on the planet that is not affected, in one way or another, by the political and economic decisions taken behind the closed doors of the Chinese Communist Party (CCP).
A good example is new title that was bestowed upon Xi Jinping last week, who will now be known as the “core of the Chinese Communist party.” This highly symbolic title was granted during the 6th plenum of the 18th Central Committee of the CCP and effectively makes President Xi Jinping not just the first among equals, but the clear leader of his generation.
Newly invested with the title, we can expect Xi Jinping to intensify his zeal in the fight against corruption and economic reform. This move has been seen in China as a clear message for both local and provincial officials – now with more power than ever, the Chinese President will be able to stand up to rival groups and to those who seek to protect their vested interests, such the powerful state enterprises and their associated political patrons.
It is too early to tell if this new title will in fact help President Xi Jinping’s “supply-side reform”, which aims to transform the Chinese economy from a high growth export-based regime to an average growth model based on domestic consumption. But one thing is sure: the effects of this reform – described by Prime Minister Li Keqiang as “painful” – will continue to be felt throughout the world, even more so in the European and North American aluminum industry.
While the slowdown in Chinese growth is making headlines in the Western press, it is worth recalling that China’s services sector is undergoing “explosive growth”, as described by macroeconomic research firm BCA. The real problem is that this tertiary growth is not yet strong enough to offset the hardships affecting heavy industry and large state companies – the real losers of the economic slow-down.
Indeed, China’s massive investment in heavy industry during the 90s have created problems of production overcapacity that are visible today, as well as becoming the main obstacle for the sector to reform itself and transit toward to a new growth regime. It is therefore not surprising that Xi Jinping’s supply-side reform has been greatly hampered by the inertia and conservatism of China’s heavy industry, among which figures prominently the aluminum industry.
President Xi finds itself prisoner of a precarious balance where he needs to reconcile its goal of economic reform with the entitlements of Chinese aluminum smelters. If Xi wants to go ahead with his reform, he has no other choice but to adopt mitigation measures, even though such measures may hurt the initial objectives of his reform. His recently upgraded title may change things, but for now, one does not go without the other.
This is how Beijing came to strongly encourage Chinese aluminum companies to look for solution abroad, i.e. solve overproduction through what most industry insiders do not hesitate to call dumping. The overproduction was therefore dumped on the world market, with the tacit approval of Beijing – always anxious to ensure social stability by reducing the discontent among its industrial giants.
While aluminum production in China has doubled since 2005 (totaling 54.4% of world production), its exports rose by 250% from 2.6 million tons in 2005 to 6.7 in 2015. This trend undeniably contributed to the 40% drop in prices of the light metal over the past five years, raising the ire of foreign producers.
The problem with encouraging large aluminum producers to clear their extra stocks by flooding foreign markets is that, although it can seem an attractive solution on the short term, it remains counter-productive in the long term and controversial abroad.
Given the sheer size of China’s aluminum industry, accounting for more than 50% of the world aluminum production, immediate and disastrous effects of such policy abroad were unavoidable.
In reaction, foreign political and industrial leaders have multiplied admonitions toward Beijing, insisting on two points: the damage created by aluminum dumping and the risk of a too rapid production restart.
This is precisely the message that US Treasury Secretary Jack Lew communicated to his Chinese counterparts during his visit to Beijing in June, calling for a substantial reduction of Chinese aluminum production to stabilize world markets.
“Excess capacity is not just a domestic issue in China,” the US Treasury Secretary said. “The question of excess capacity is one that literally has an enormous effect on global markets for things like steel and aluminum, and we’re seeing distortions in global markets because of excess capacity.”
Before that, in February, European authorities also made known their dissatisfaction, emphasizing that the problem is primarily of political nature.
Joerg Wuttke, President of EU Chamber of Commerce in China, explained that this is partly the result of the inability to Beijing to fully control some well-established industrial giants who are very jealous of their prerogatives. “Local protectionism is very strong,” he said, “and the current role of the Chinese government in the economy is part of the problem.”
“China has not followed through on the attempts it has made over the last decade to address overcapacity,” Joerg continued. “Overcapacity has been a blight on China’s industrial landscape for many years now, affecting dozens of industries and wreaking far-reaching damage on the global economy in general, and China’s economic growth in particular. ”
This comes at a time where new anti-dumping probes into Chinese steel imports are being launched, with EU Trade Commissioner Cecilia Malmstroem warning: “We cannot allow unfair competition from artificially cheap imports to threaten our industry.”
These statements echo those of Russian aluminum giant UC Rusal last May, which warned Beijing against a too quick restart of production that could endanger the slight recovery seen in recent months, indicating that doing so would imperil global aluminum prices.
According to Oleg Mukhamedshin, UC Rusal’s Deputy Chief Executive, China’s smelters should exercise better control and have stricter discipline when it comes to their production to “ensure gradual improvement in prices and profitability.”
Chinese overproduction in the aluminum sector has thus managed to accomplish a feat at which many of the best diplomats have failed countless times – to reach unanimity in Moscow, Brussels and Washington.
A precarious balance
Despite difficulties, Aluminium Insider analyst Chistopher Clemence noted some signs pointing to positive developments. According to his information, Chinese banks are more and more recalcitrant to finance new projects in the aluminum sector, which is now increasingly known for its losses. This may very well calm the ardor of overly ambitious entrepreneurs wanting to build new smelters.
In addition, the aluminum domestic consumption is growing at a faster rate than expected – an increase of 9.9 million metric tons in the first quarter of 2016, a year-on-year increase of 8.1%.
But other signs point instead to a worsening of the situation, indicating that warnings coming from western capitals did not have the desired impact. Just a few weeks ago, Zhang Bo, CEO of China Hongqiao – one of the largest aluminum producers in the world – categorically denied fears of overproduction, while emphasizing that Chinese smelters had made significant progress in term of “self-discipline.”
This denial worries Paul Adkins, President of the consulting firm AZ China, who remains skeptical about the underlying desire of Beijing to genuinely proceed with economic reform. In view of the mantra of “supply-side economics” of the Chinese government, he asks, how can Beijing still allow restarts and capacity additions in the aluminum sector?
“Ultimately, the rhetoric on supply-side reform is nothing but empty words,” he wrote.
Adkins is also pessimistic about future price trend. He explained that China’s aluminum production record – 91,900 tons per day – was reached in June 2015, after which production began to slowly decline. With recent restarts and capacity additions, this production record may well be broken shortly (if it is not already the case). Once this psychological barrier has been broken, nothing will stop the pressure pushing down the price of the light metal to grow stronger and stronger.
Record high remittances to low- and middle-income countries in 2017
Remittances to low- and middle-income countries rebounded to a record level in 2017 after two consecutive years of decline, says the World Bank’s latest Migration and Development Brief.
The Bank estimates that officially recorded remittances to low- and middle-income countries reached $466 billion in 2017, an increase of 8.5 percent over $429 billion in 2016. Global remittances, which include flows to high-income countries, grew 7 percent to $613 billion in 2017, from $573 billion in 2016.
The stronger than expected recovery in remittances is driven by growth in Europe, the Russian Federation, and the United States. The rebound in remittances, when valued in U.S. dollars, was helped by higher oil prices and a strengthening of the euro and ruble.
Remittance inflows improved in all regions and the top remittance recipients were India with $69 billion, followed by China ($64 billion), the Philippines ($33 billion), Mexico ($31 billion), Nigeria ($22 billion), and Egypt ($20 billion).
Remittances are expected to continue to increase in 2018, by 4.1 percent to reach $485 billion. Global remittances are expected to grow 4.6 percent to $642 billion in 2018.
Longer-term risks to growth of remittances include stricter immigration policies in many remittance-source countries. Also, de-risking by banks and increased regulation of money transfer operators, both aimed at reducing financial crime, continue to constrain the growth of formal remittances.
The global average cost of sending $200 was 7.1 percent in the first quarter of 2018, more than twice as high as the Sustainable Development Goal target of 3 percent. Sub-Saharan Africa remains the most expensive place to send money to, where the average cost is 9.4 percent. Major barriers to reducing remittance costs are de-risking by banks and exclusive partnerships between national post office systems and money transfer operators. These factors constrain the introduction of more efficient technologies—such as internet and smartphone apps and the use of cryptocurrency and blockchain—in remittance services.
“While remittances are growing, countries, institutions, and development agencies must continue to chip away at high costs of remitting so that families receive more of the money. Eliminating exclusivity contracts to improve market competition and introducing more efficient technology are high-priority issues,” said Dilip Ratha, lead author of the Brief and head of KNOMAD.
In a special feature, the Brief notes that transit migrants—who only stay temporarily in a transit country—are usually not able to send money home. Migration may help them escape poverty or persecution, but many also become vulnerable to exploitation by human smugglers during the transit. Host communities in the transit countries may find their own poor population competing with the new-comers for low-skill jobs.
“The World Bank Group is mobilizing financial resources and knowledge on migration to support migrants and countries with the aim of reducing poverty and sharing prosperity. Our focus is on addressing the fundamental drivers of migration and supporting the migration-related Sustainable Development Goals and the Global Compact on Migration,” said Michal Rutkowski, Senior Director of the Social Protection and Jobs Global Practice at the World Bank.
Multilateral agencies can help by providing data and technical assistance to address adverse drivers of transit migration, while development institutions can provide financing solutions to transit countries. Origin countries need to empower embassies in transit countries to assist transit migrants.
The Global Compact on Migration, prepared under the auspices of the United Nations, sets out objectives for safe, orderly and regular migration. Currently under negotiation for final adoption in December 2018, the global compact proposes three International Migration Review Forums in 2022, 2026 and 2030. The World Bank Group and KNOMAD stand ready to contribute to the implementation of the global compact.
Regional Remittance Trends
Remittances to the East Asia and Pacific region rebounded 5.8 percent to $130 billion in 2017, reversing a decline of 2.6 percent in 2016. Remittance to the Philippines grew 5.3 percent in 2017 to $32.6 billion. Flows to Indonesia are expected to grow 1.2 percent to $9 billion in 2017, reversing the previous year’s sharp decline. Stronger growth in transfers from countries in Southeast Asia helped offset lower remittance flows from other regions, particularly the Middle East and the United States. Remittances to the region are expected to grow 3.8 percent to $135 billion in 2018.
Remittances to countries in Europe and Central Asia grew a rapid 21 percent to $48 billion in 2017, after three consecutive years of decline. Main reasons for the growth are stronger growth and employment prospects in the euro area, Russia, and Kazakhstan; the appreciation of the euro and ruble against the U.S. dollar; and the low comparison base after a nearly 22 percent decline in 2015. Remittances in 2018 will moderate as the region’s growth stabilizes, with remittances expected to grow 6 percent to $51 billion.
Remittances flows into Latin America and the Caribbean grew 8.7 percent in 2017, reaching another record high of nearly $80 billion. Main factors for the growth are stronger growth in the United States and tighter enforcement of U.S. immigration rules which may have impacted remittances as migrants remitted savings in anticipation of shorter stays in the United States. Remittance growth was robust in Mexico (6.6 percent), El Salvador (9.7 percent), Colombia (15 percent), Guatemala (14.3), Honduras (12 percent), and Nicaragua (10 percent). In 2018, remittances to the region are expected to grow 4.3 percent to $83 billion, backed by improvement in the U.S. labor market and higher growth prospects for Italy and Spain.
Remittances to the Middle East and North Africa grew 9.3 percent to $53 billion in 2017, driven by strong flows to Egypt, in response to more stable exchange rate expectations. However, the growth outlook is dampened by tighter foreign-worker policies in Saudi Arabia in 2018. Cuts in subsidies, increase in various fees and the introduction of a value added tax in Saudi Arabia and the United Arab Emirates have increased the cost of living for expatriate workers. In 2018, growth in remittances to the region is expected to moderate to 4.4 percent to $56 billion.
Remittances to South Asia grew a moderate 5.8 percent to $117 billion in 2017. Remittances to many countries appear to be picking up after the slowdown in 2016. Remittances to India picked up sharply by 9.9 percent to $69 billion in 2017, reversing the previous year’s sharp decline. Flows to Pakistan and Bangladesh were both largely flat in 2017, while Sri Lanka saw a small decline (-0.9 percent). In 2018, remittances to the region will likely grow modestly by 2.5 percent to $120 billion.
Remittances to Sub-Saharan Africa accelerated 11.4 percent to $38 billion in 2017, supported by improving economic growth in advanced economies and higher oil prices benefiting regional economies. The largest remittance recipients were Nigeria ($21.9 billion), Senegal ($2.2 billion), and Ghana ($2.2 billion). The region is host to several countries where remittances are a significant share of gross domestic product, including Liberia (27 percent), The Gambia (21 percent), and Comoros (21 percent). In 2018, remittances to the region are expected to grow 7 percent to $41 billion.
A bio-based, reuse economy can feed the world and save the planet
Transforming pineapple skins into product packaging or using potato peels for fuel may sound far-fetched, but such innovations are gaining traction as it becomes clear that an economy based on cultivation and use of biomass can help tackle pollution and climate change, the United Nations agriculture agency said on Friday.
A sustainable bioeconomy, which uses biomass – organic materials, such as plants and animals and fish – as opposed to fossil resources to produce food and non-food goods “is foremost about nature and the people who take care of and produce biomass,” a senior UN Food and Agriculture Organization (FAO) official said at the 2018 Global Bioeconomy Summit in Berlin, Germany.
This means family farmers, forest people and fishers, who are also “holders of important knowledge on how to manage natural resources in a sustainable way,” she explained.
Maria Helena Semedo, FAO Deputy Director-General for Climate and Natural Resources, stressed how the agency not only works with member States and other partners across the conventional bioeconomy sectors – agriculture, forestry and fisheries – but also relevant technologies, such as biotechnology and information technology to serve agricultural sectors.
“We must foster internationally-coordinated efforts and ensure multi-stakeholder engagement at local, national and global levels,” she said, noting that this requires measurable targets, means to fulfil them and cost-effective ways to measure progress.
With innovation playing a key role in the bio sector, she said, all the knowledge – traditional and new – should be equally shared and supported.
Feeding the world, saving the planet
Although there is enough food being produced to feed the planet, often due to a lack of access, estimates show that some 815 million people are chronically undernourished.
“Bioeconomy can improve access to food, such as through additional income from the sale of bio-products,” said Ms. Semedo.
She also noted its potential contribution to addressing climate change, albeit with a warning against oversimplification.
“Just because a product is bio does not mean it is good for climate change, it depends on how it is produced, and in particular on much and what type of energy is used in the process,” she explained.
FAO has a longstanding and wide experience in supporting family farmers and other small-scale biomass producers and businesses.
Ms. Semedo, told the summit that with the support of Germany, FAO, together with an international working group, is currently developing sustainable bioeconomy guidelines.
Some 25 cases from around the world have already been identified to serve as successful bioeconomy examples to develop good practices.
A group of women fishers in Zanzibar are producing cosmetics from algae – opening up a whole new market with sought-after niche products; in Malaysia, a Government programme supports community-based bioeconomy; and in Colombia, a community is transforming pineapple skins into biodegradable packaging and honey into royal jelly – and these are just a few examples of a bioeconomy in action.
“Together, let’s harness the development for sustainable bioeconomy for all and leave no one behind,” concluded Ms. Semedo.
Belarus: Strengthening Foundations for Sustainable Recovery
The speed of economic recovery has accelerated in early 2018, but the foundations for solid growth need to be strengthened, says the latest World Bank Economic Update on Belarus.
The economic outlook remains challenging due to external financing needs and unaddressed domestic structural bottlenecks. Improved household consumption and investment activity, along with a gradual increase in exports, will help the economy to grow, but unlikely above three percent per annum over the medium term.
“The only way for ordinary Belarusians to have better incomes in the long run is to increase productivity, which requires structural change. While macroeconomic adjustment has brought stability, only structural change will bring solid growth to the country,” said Alex Kremer, World Bank Country Manager for Belarus. “Inflation has hit a record low in Belarus, driving the costs of domestic borrowing down. However, real wages are now again outpacing productivity, with the risks of worsening cost competitiveness and generating cost-push inflation.”
A Special Topic Note of the World Bank Economic Update follows the findings of the latest World Bank report, The Changing Wealth of Nations 2018, which measures national wealth, composed of produced, natural, and human capital, and net foreign assets. Economic development comes from a country’s wealth, especially from human capital – skills and knowledge.
“Belarus has a good composition of wealth for an upper middle-income country. The per capita level of human capital exceeds both Moldova and Ukraine. However, the accumulation of physical capital has coincided with a deterioration in the country’s net foreign asset position,” noted Kiryl Haiduk, World Bank Economist. “Belarus needs to rely less on foreign borrowing and strengthen the domestic financial system, export more, and strengthen economic institutions that improve the efficiency of available physical and human capital.”
Since the Republic of Belarus joined the World Bank in 1992, lending commitments to the country have totaled US$1.7 billion. In addition, grant financing totaling US$31 million has been provided, including to programs involving civil society partners. The active investment lending portfolio financed by the World Bank in Belarus includes eight operations totaling US$790 million.
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