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Stimulating the economy sustainably after coronavirus

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Authors: Yao Zhe and Wu Yixiu*

As the Covid-19 outbreak stabilises in China, the central government is starting to talk about protecting the economy as well as mitigating the virus.

On 3 February, the politburo standing committee called for China to “tackle the epidemic with one hand, and develop the economy with the other”, and continue working “to realise the year’s economic and social goals”. It reiterated this approach on 12 February.

This year marks the end of the 13th Five Year Plan, which includes the goal of creating a “moderately prosperous society”. Over the plan period (2016-20), national GDP and average incomes were meant to double compared to 2010. For that to happen, GDP would need to grow around 6% this year. There is no doubt the government will produce a stimulus package to help. But a programme focused on infrastructure such as railways and roads will hamper the country’s transition to a sustainable economy.

Heavy industry on the mend

Covid-19 led to the extension of the Chinese New Year holidays to almost a month, which affected all parts of the economy. For heavy industry, the biggest uncertainty was demand. Downstream manufacturers and property developers have been slow to get back to work and the economy in general is sluggish. With demand not yet recovered, output of the raw materials produced by heavy industry, such as steel and aluminium, has fallen, though not precipitously. Steel mill utilisation rates remain at a normal level of about 70%, with no major reduction in output. First quarter steel output is expected to be down about 3%.

The return to work has picked up since 10 February. Coal consumption at six major power plants has increased slowly but steadily, indicating industry is getting back on track. Work on key infrastructure projects such as roads and bridges resumed on 15 February, with considerable fanfare. Experts answering questions online for the Ministry of Ecology and Environment said that despite widespread stoppages in construction, services and labour-intensive manufacturing, the heavy industries that supply these sectors continued to operate through the Chinese New Year and beyond. It’s not economical, for example, to stop furnaces in a steel factory for a week or two, so these continued to burn while producing less steel.

The analyst Lauri Myllyvirta pointed out that China has excess heavy industrial capacity and the sector will be able to ramp up to meet any increased demand, with industrial output and power consumption soon recovering. Experts have said the epidemic will mean a significant but short-term drop in energy consumption by heavy industry in the first quarter of the year, until the epidemic is brought under control.

Signs of an infrastructure-focused stimulus

Covid-19 is a new challenge for a Chinese economy already facing a slowdown. The government’s usual response to economic pressure is to use public spending to promote investment, particularly in infrastructure, and there are signs this will again be the case.

Tens of trillions of yuan of investment is planned in major projects across China this year, according to figures in the Economic Information Daily. The latest figures indicate that among the batch of special-purpose bonds (SPBs) issued by local governments earlier in the year, about 67% are to the infrastructure sector. SPBs are designed to help local governments inject funds into specific projects, such as irrigation and toll roads, to help boost their economies. Since January, local governments have issued about 950 billion yuan (US$136 billion) of SPBs, accounting for about 73.6% of the front-loaded SPB quota for this year.

Transport and energy infrastructure – including gas pipelines, oil refineries and nuclear power plants – are well represented in the project lists that some provinces have published. For example, Jiangsu province plans to invest 220 billion yuan (US$30 billion) in infrastructure out of the 540 billion yuan that is going into 240 major projects. Of the 233 major projects listed by Shandong province, 25 are road or rail construction and 16 are building projects. Meanwhile, Yunnan province announced an infrastructure construction plan at a recent press conference on Covid-19, including 100 billion yuan for high-speed rail.

Economic analysts expect to see infrastructure investment in China climb by as much as 8% to 9% this year.

Lauri Myllyvirta has calculated that the extended holiday cut China’s carbon emissions in the first two weeks of the lunar new year by a quarter year-on-year. These climate savings may be offset by a government stimulus package favouring infrastructure projects. According to Zhang Shuwei, director of the Draworld Environment Research Center: “If the government eases monetary policy and boosts infrastructure construction, we may see a nationwide increase in the energy intensity of the economy. It’s likely that energy consumption will not be affected, or will even jump quite a bit.”

If an economic stimulus is unavoidable, it should at least be targeted and not run contrary to China’s efforts to improve the structure of the economy. The service sector, which has been rocked by Covid-19, accounts for 54% of China’s GDP and provides huge numbers of jobs. Support tailored to it will be crucial for rebuilding resilience and confidence, and is in line with China’s economic transition.

Sustainable stimulus?

Chinese economists often debate how best to direct public finances in order to stimulate the economy. The coronavirus has brought something new to that discussion, by highlighting that public services like hospitals and schools suffer from a lack of resources and capacity to respond to emergencies.

Former mayor of Chongqing, Huang Qifan, wrote that government spending has long favoured transportation and construction, while overlooking public facilities and services. Huang believes spending on the latter would be a more effective way to boost GDP while also meeting public needs. He thinks government spending should incentivise consumption of public goods and services “to promote sustainable and high-quality economic growth.”

Heilongjiang and Jiangsu provinces are adding public health and other “catch-up” projects to their list of major projects, with funding support for those chosen. Nationally, the decision on whether to make improving the public health and emergency response systems a key target for government investment will be a test for policymakers.

Covid-19 is believed to have spread to humans via wild animal consumption. The public is now more aware of the importance to health of living in better harmony with the natural world. What is less recognised is that as well as bringing us disease, the overexploitation of nature also brings systemic risks that could cause disastrous “black swan” events. Four of the five major risks listed in the World Economic Forum’s 2020 Global Risks Report are environmental: climate change, biodiversity loss, extreme weather and the water crisis. As these risks interact rather than stand alone, they could cause a chain reaction.

If we are to increase our resilience, we need to fully understand these risks and ensure the facilities and mechanisms to respond are in place to prevent incidents escalating catastrophically. Environmental risks, like public health risks, need major investment to guard against. There are two aspects to this investment: one is spending on restoring our damaged environment and minimising further damage; the second is investment in environmentally-friendly technologies and industries that can change our mode of economic growth – to increase the “compatibility” of our society and economy with the environment.

How will we restore the economy once the epidemic has passed? If we direct government spending to high-carbon infrastructure construction and heavy industry, as usual, we will place ourselves at huge climate risk. This kind of investment is clearly not sustainable.

According to Zhang Shuwei: “The key is what we see when we look back at the lessons of the epidemic. Will we focus solely on the joy of victory, or acquire an awe at how nature, society and ourselves rely on each other? Our answer will lead us down different paths.”

From our partner chinadialogue

*Wu Yixiu is team leader of chinadialogue’s Strategic Climate Communication Initiatives. Before joining the team she was campaign manager with Greenpeace East Asia responsible for international policies. She also worked as a reporter at the English Service of China Radio International. Yixiu holds a B.A. in History in Fudan University and a master’s degree in Journalism from University of Westminster, London.

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Virtual-Reality Leaderships Await Digital-Guillotines

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When national leadership starts acting more as if Virtual-Reality based illusionary leadership games, it calls immediate testing to ensure digital future of the virtualized economies of the nation. Just as billion mile highways need cars, trillion-node digital highways need smart digitized enterprises. Just as highways and transportation need qualified Ministries dedicated to control national mobility, similarly digital platforms economies need virtualization; layers of platforms, hyper-interactive, live in action, motion and execution, floating on global digital arenas and creating mini-micro-mega trade opportunities and serving the common good of the world. Futurism demands futuristic literacy.

If there are some 200 nations outside a miniscule number, most nations along with their ministries and government departments already crushed under the weight of their own bureaucracies. Translated into simple language; when a single piece of urgent and serious business-trade query enters any government office building, decked with thousands desks and many thousands of filing cabinets, expecting quick response within a few days, if lucky may get some broken answer in many months. Those who slowly circumnavigate the world, require no proof on this, those educated exclusively on social media allowed screaming in denial. There are many such office buildings, each with many floors, in each city, in each nation. Some billion people occupy such global bureaucracies, strangling their own nations and stealing their own future from their next generations. Visible in open daylight, the barren landscapes, untapped resources, wasted talents lingering as wasted over a century. Today, against tidal waves of almost free technologies and digitalization, we need quick do or die solutions.

The cruelty of incompetence fermenting on mahogany furniture in dark offices now needs digital-guillotines.

The Paper-Processing-Age created Bureaucracies, Rubber-stamps glorified and corner offices mesmerized the fermentation process of incompetency and guaranteed permanence of seniority as gold standard. Like a tsunami, “digitization” is now bureaucracy free, office-free and tantrum free, only measured precisely in right columns with right amounts and ‘true’ numbers to evaporate filing cabinets and desks. Productivity, performance and profitability are what have been missing the last few decades bringing nations to their knees. The future of governments now measured by meritocracy will rule and manage future economies; the rest will stay hidden in the fog of confusion.

Over a century ago, H.G. Wells wrote about aircrafts and Jules Verne, the submarines. Now, we live in a time where digitally floating enterprises and virtually accessible national economies must thrive. Now, is the turn of our times to optimize our ‘mental powers’ functioning way above automation, performing our intellectualism over mechanical robotization and achieve superior commercialization while considering diversity, tolerance and common good? Now is the time to claim our rights, design our economies and better sustainable lifestyles. A brighter future waits.

Nevertheless, within the coming years, elimination of bureaucracies, digitization of enterprises and virtualization of economies will quadruple performance on a national basis for most nations; unfortunately, getting this thinking may take another decade for many other nations. Observe their starving children.

 As a crude and only available measurement, amongst the 190 nations of the world, there are only top 20 nations where *GDP Per-Capita-PPP is about USD$50,000 and more. Everyone else is lower, as an example, a sample of 50 nations, where their per capita is USD$5000 or $13.00 per day. Now observe their governments, their Ministries, Institutions, Trade Associations, Chambers and various government agencies are deeply stuck in the last century, robbing their own future. Disconnected with global age, now clearly visible all across their front line teams points to continued financial calamites.  Any 10% to 90% elimination of bureaucratic ponderings, indecisive floor-by-floor rubber stamp approval dances will quadruple their national performances. Nation-by-nation, strangulations due to the lack of decisive skills now make bureaucracies the most backward frontier left in critical need of upskilling and reskilling realignments, to stand up to global standards of productivity. Therefore, across the board, national economies must qualify at specified speed and accuracy with due diligence to attract FDI, collaborations and alliances to survive in global-age. Local political parties scared of their own re-elections will never tackle such issues. Immediate testing of any frontline management team of any top departments will expose the gravity.

The biggest tragedy is that all of these nations have unlimited talents, great minds and great skills potential, but crushed by bureaucracies, in darkness mode, where sun never rises, where digitization is feared for fears of exposing competency levels. The Covidians of the new post-vaccinated world with new thinking now have a real chance to ride out the storms, bring mega changes, and create highly efficient economic models. No country without national mobilization of hidden talents of entrepreneurialism on digital platforms of upskilling to foster exportability and outbound exposure will survive. This is what Silicon Valley did; study slowly to deeply appreciate the process.

Upskilling as a mandatory testing requirement drowning in crypto-economies and fictionalized as success ignoring tent cities, nation’s biggest losses hidden in the untapped entrepreneurialism of the national citizenry. Study more on Google, how business education actually destroyed businesses across Western economies.

Rules of economic revolutions:

Do not fix, just break it, and start on a new page.
Do not fire, upskill them, bring a brighter future closer.
Do not fumble, upskill yourself, become a lifelong learner.
Do not fail, there is no plan B, economic damage now commonplace.
Do not runaway, take a stand; there is no other way out.
Do not deny the bright future to your next generations.

There are some 100 national elections scheduled within the next 500 days… national leadership must demonstrate their literacy to read futurism. Identify their local teams with the right expertise to address national challenges, urgently respond with right answers, and develop clear narrative to address realities. Expothonis tabling a new agenda, in a global debate series with global experts on such bold issues to advance the discussions on such mega-change processes.

The strategy: The Covidians, survivors of bankruptcies, body bags have little or no tolerance for bureaucracies and with free rains of technology have no patience for paper-based-sluggish and dysfunctional economies. Citizens will vote for real and pragmatic truth. National leadership must face the music and learn to tango: Eliminate bureaucracies, virtualized economies and carve straight paths for climate control protocols.

Is this a perfect storm in the making or a new sunrise of the early spring?

The rest is easy

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Suez Canal Shutdown revealed the importance of the Middle Corridor

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On March 23 of 2021, a container ship called the “Ever Given” ran aground in Suez Canal, one of the most important waterways in the world, and blocked other vessels from using it. This human-made waterway is one of the world’s most heavily used shipping lanes, carrying over 12% of world trade. This canal is also responsible for the transportation of 7% of the world’s oil and 30% of daily container shipments.  Therefore, the blockage of the canal has considerably affected global trade.  According to Lloyd’s List, a London-based shipping news journal, the estimated daily value of cargos passing through the canal is $9.7 billion, with $5.1 billion traveling westward and $4.6 billion traveling to eastward directions. The incident forced some ships to use the alternative route around Africa’s southern tip, which is dangerous and increases the transportation costs and time.

Shipment delays because of the incident in the Suez Canal also negatively affected the already-disrupted global supply chain. Since the start of the pandemic, shipping delays and shortages have considerably strained the global supply chain. As the commodities become increasingly difficult to obtain and produce for the companies, customers face limited options and higher prices. Several big companies such as Nike, Honda, and Samsung have already expressed that supply-chain issueshavesignificantly impeded production volumes. Thus, the blockage of the canal made the supply chain crisis even worse.

Almost a week after the “Ever Given” halted the canal, on March 29, it became possible to free the vessel and the Suez Canal opened for business again; tugboats managed to refloat the stuck vessel away from the canal’s sandy bank. During the blockage, at least 367 vessels were left waiting for the canal to be unblocked. However, it remains unclear when the traffic in the canal will return to normal, as it will take a couple of days to clear the backlog of ships. Some experts have estimated that it could take more than 10 days.

Despite the fact that the canal was freed, it has raised questions on the risks of the world’s overreliance on this route. The economic damage of the blockade of the Suez Canal proved the fragility of global transportation architecture. This in turn brought up the issue of the development of alternative land or maritime transport routes. Hence, after the incident, Russia and Iran have called for the need to find alternative shipping routes, especially recalling potentials of the Northern Sea Route (NSR) and International North-South Transport Corridor (INST).By explaining the reasons for considering the NSR, on its official social media account Russian state company Rosatomflot declared that rapid melting of the Arctic and the existence of powerful Russian icebreakers improve the accessibility of the North Sea, which could become an alternative to the Suez Canal. Iranian officials, on other hand, called for the activation of the INSTC as a reliable and “low risk” alternative.

The other alternative route that has the potential to become one of the mainland routes for the transportation of goods between Asia and Europe is the Trans-Caspian East-West-Middle Corridor Initiative, shortly called “The Middle Corridor”. This corridor is considered as one of the most important routes in reviving the ancient Silk Road. The Middle Corridor begins in Turkey, passes through the territories of Azerbaijan and Georgia, crosses the Caspian Sea, reaches Central Asia, and extends to China through the Turkmenistan-Uzbekistan-Kyrgyzstan or Kazakhstan routes. 

The formation and development of the Middle Corridor began after the November of2013, when as a part of the II International Transport and Logistics Business Forum “New Silk Road” in Astana, the leaders of JSC “National Company” of Kazakhstan, CJSC “Azerbaijan Railways” and JSC “Georgian Railway” signed the agreement on the establishment of Coordination Committee for the development of the Trans-Caspian International Transport Route. In December 2016, the participants of the Coordinating Committee decided to establish the International Association”Trans-Caspian International Transport Route”, which started its activities in the following year. The main goal of this project is to increase the volume of freight transportation between East Asia, Central Asia, the Caspian and Black Sea basins and European countries by creating alternative or complement to the traditional land routes that go through the territory of Russia.

Middle Corridor has several advantages in comparison to traditional transportation routes. Compared with the Trans-Siberian Railway, which is also called the “Northern Corridor”, it is 2 thousand km shorter and has more favorable climate conditions. Compared with the traditional sea route, it shortens the travel time of goods between Europe and China by about three times, making it only 15 days. In 2015, the first pilot shipment took place and a container train, which started its trip from Western China reached Baku through Kazakhstan and the Caspian Sea in 6 days. Besides, the Middle Corridor creates great opportunities for cargo transportation within Asia and to Africa. Using this corridor, cargos from east and south-east Asia could be easily transported to the Middle East, North Africa and the Mediterranean regions using port infrastructures of participating states.

The Middle Corridor initiative is also supported by Afghanistan and Tajikistan as this route creates new transportation opportunities for them. By integrating the “Lapis Lazuli” corridor, an international transit route that links Afghanistan to Turkey, to the Middle Corridor, these countries could easily transport their goods in all directions in Asia. Integration of these corridors is also advantageous for the participating countries of the Middle Corridor. The agreement on the establishment of the Lapis Lazuli corridor was signed by Georgia, Afghanistan, Turkmenistan, Azerbaijan and Turkey in November 2017, which added a new artery to the Middle Corridor in the southern direction.

Along with the mentioned advantages, the Middle Corridor also holds precedence in comparison to other proposed alternatives, which have obvious shortcomings. In the case of NSR, most of the year it is covered in snow and for transportation of goods through this road ships of special nature and capabilities are required. So, the competition of NSR with the Suez Canal could only be of seasonal nature. The INSTR on the other hand, despite its advantages, cannot become the direct competitor to the Suez Canal as it serves for the connection of the Indian Ocean and the Persian Gulf with Northern Europe, not for the connection of east and south-east Asia like the Suez Canal. It could compete with the Suez Canal only if it is integrated into the Middle Corridor. Hence, the advantages of the Middle Corridor and shortcomings of other alternatives reveal the importance of the Middle Corridor and make it the best alternative for the transportation route that goes through the Suez Canal.

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Connectivity now. Boosting flows of people, information, energy, goods and services

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Northern Dimension

On April 8, St Petersburg hosted the 12th Northern Dimension Forum. This forum, established in 2007, is a major annual corporate business event for cooperative policy and brings business directors and potential investors from Russia and the European Union including the Baltics, and Scandinavia.

The forum was organized by the Northern Dimension Business Council in cooperation with the Association of European Businesses, the Graduate School of Management at St Petersburg State University and the Skolkovo Moscow School of Management.

This forum was devoted to the theme: “Connectivity now. Boosting flows of people, information, energy, goods and services.” It was attended by over 400 representatives of Russian and foreign business circles, government agencies and scientific, education and non-governmental organizations.

Leading business experts of the partnerships of the Northern Dimension, the Institute and the Association of European Businesses discussed topical issues and opportunities for promoting cooperation in environmental protection, the circular economy, energy efficiency, transport and logistics, healthcare digitization, efforts to overcome the aftereffects of the coronavirus pandemic and creative industries.

As expected, the forum helps to take another major step forward in discussing many strategic spheres of business between Russia and those regions. There were plenary meetings as well as sessions working groups. Despite the contradictory signals between Russia and the European Union, it was another opportunity to have some fruitful dialogue, especially in the current difficult conditions, – develop solutions on a wide range of cooperation issues in the North of Europe.

On the other hand, business institutions and the entire system of economic relations are still evolving for these years, indicating that there is no alternative to reasonable cooperation. It is however necessary to find common business language in the fields and other spheres of crucial importance for international cooperation.

Russian Foreign Ministry’s report pointed out to a diversified and multifaceted nature of regional cooperation in Northern Europe. It said the important components include the programs of cross-border and interregional cooperation between Russia and EU countries (Poland, Lithuania, Latvia, Estonia, Finland and Sweden), plus Norway.

There are programs underway within the framework of the current budget cycle that involves over 500 Russian project partners, and new programs are being prepared for the next seven-year period.

They reaffirmed their willingness to broaden versatile and mutually beneficial cooperation for the sustainable development of Europe. It emerged from a number of reports during the forum that trade and economic relations are now remarkably expanding between the European Union and Russia.

Over the years, the business growth has been driven by the efforts of the business community. This has also to do with the quality of economic exchanges and investment, businesses’ interest in expanding to new markets, and their confidence that these markets provide drivers for economic growth. Admittedly, trade decreased for various reasons since 2013, it then reached $417 billion, but later shrank to a mere $200 billion.

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