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Reshaping Business: New Business Trends Emergence in Covid-19

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As per the recent reports, over 15.4 million people across the globe have been diagnosed positive with Covid-19. The novel coronavirus pandemic has now killed more than 631,000 people worldwide. The actual numbers are believed to be much higher due to testing shortages. The virus has been detected in nearly every country and it has affected almost all sectors of a country including the health sector, education sector, international trade, corporate sector, and banking sector, etc.  ultimately hitting the world economies badly. In this whole scenario, there have been seen a few positive changes in business trends. It is expected that in the future these new emerging trends in business will reshape the way of business and will play an important role in the flourishing businesses in the competitive world.

1. Payments Through Mobile Phones “Mobile Commerce” and alternative “Non-Touching” ways of Payment

During the pandemic situation, one major area that has been witnessed to bring innovation drastically is how customers pay for goods and services while shopping either in malls or online. Customers adopted the non-touching way of payments by paying either from their mobile phones or using other payment applications provided by different telecom companies and financial institutions. Here it is important to discuss that not only customers adopted these methods for their safety and ease but also businesses whether operating in physical onsite stores or providing products and services online also put efforts to adopt new ways of payments and providing their customers with different options in the payment methods to make them realize that customers and employees ease and safety is most important for them.

2.Competition among Businesses as Customers Demand for Faster Delivery 

For the e-commerce brands selling physical products whether working at a large scale or working with limited resources, there are few challenges worth taken into consideration than shipping products to their customers. So, providing free shipping may not be a problem for e-commerce brands but the demand of customers to get their orders fast is a real challenge to deal with. Many e-commerce brands were offering different shipping options to satisfy their customers but to provide faster delivery to the customers only a few e-commerce brands had been successful because of the availability of resources. E-commerce brands with limited resources were trying to meet the customers’ expectations to flourish their business. In the pandemic situation, many e-commerce brands working at large scale or small scale considered this matter and availed the opportunity to grab the customers by providing faster delivery to their customers.

3.Work from Home and Popularity of Cloud service

Before the pandemic situation, it has never been a normal practice in any country to Work from home because it is considered that work efficiency meets the expectation levels when employees of a certain company regularly come to their workplace and perform their duties and tasks under the observation of their seniors and also most of the bosses prefer to have employees work in the office rather than working in their homes. But Covid-19 situation has changed this whole scenario in a wat that companies now encourage employees to work from home and advise them to send the work done through a cloud service. In the education institutions, usage of cloud service has been noticed more as teachers and students are sharing reference materials, books, assignments, etc. through a cloud service.

4.Increasing Opportunities for Online-Education Apps and Games

Before the pandemic situation, all the routine life matters were normal but in the pandemic normal routine life matters have also faced the great change and in the present situation where people are required to stay indoors for such a long time, they probably have to figure out how to spend their time in this situation. In February, there has been observed an increase of 40 percent in app downloads weekly as compared to last year in the same time frame as per reports published. Gaming, education apps and entertainment apps are among the most popular downloads that has been done in this period according to the statistics published by different app companies. Although downloading of games is at the top, still the online-education apps are more considerable because nearly all schools, colleges and universities were closed due to safety reasons and students were required to take online courses.

Ahsan Siraj is Admin Officer in The University of Lahore and pursuing his PhD from School of Management Engineering, ZZU, Henan, China. He is author of various research articles and papers and has previously written poetry for “The Spectacle”. His research interests include Consumer Behavior, Customer Satisfaction, E-Commerce and Branding. He can be reached at: ahsan.sehar4[at]gmail.com

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Economy

The Assembly Lines of Grand Eurasia

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The changing landscape of the global economy in recent years is increasingly characterized by a more active role of developing economies in building their own platforms for economic cooperation. In the process of assembling these platforms for the Global South one of the key issues is the algorithm of the aggregation process in Eurasia — the two other continents of the Global South already have their pan-continental platforms, namely the African Union and the African Continental Free Trade Area (AfCFTA) in Africa as well as CELAC in Latin America. In case a comprehensive pan-Eurasian platform for developing economies were to be formed this would open the gateway to the completion of the assembly of platforms that span the entire expanse of the Global South.

As is the case with the expansion of the BRICS grouping, the building of the Grand Eurasia as a platform for the region’s developing economies can proceed either along the formation of a core and its gradual expansion or via an “integration of integrations” route, whereby all of the main regional integration blocs of the Global South in Eurasia are brought together. There is also the possibility that both these tracks could be pursued simultaneously.

In the scenario involving the formation of the Eurasian core for the Global South, the main question is its composition and the resulting scenarios of further expansion. One possible modality would be the RIC (Russia-China-India) serving as a core, with further additions focusing on the largest Eurasian economies such as the G20 countries from Eurasia — Saudi Arabia, Indonesia or Turkey. This route would clearly result in the assembly process being slow and lacking connectivity to other smaller developing economies of the continent.

Another possible format for the Eurasian core could be the Shanghai Cooperation Organization (SCO) or its more extended version of SCO+. Such a core would have the benefit of comprising all of the largest economies in Eurasia (Russia, China, India), while leaving open the possibility of smaller economies joining this Eurasian “circle of friends”. Despite the more inclusive approach to forming the Eurasian platform, the country-by-country approach to expansion would still leave the assembly process too slow and ad hoc.

The only real way to expedite the construction of Grand Eurasia is via the “integration of integrations” scenario that may involve the aggregation of Eurasia’s leading regional integration arrangements (and their developing institutions) represented by developing economies.

Such a platform of developing economies across the expanse of Eurasia can bring together such regional arrangements as: South Asian Association for regional Cooperation (SAARC), ASEAN, Gulf Cooperation Council (GCC), Eurasian Economic Union (EAEU) as well as the Shanghai Cooperation Organization (SCO). In the case of SCO there may be the possibility to resort to an extended SCO+ format which would involve the addition to SCO of those Eurasian economies that are outside of the main regional integration arrangements. The resulting SAGES platform may represent the main assembly line for economic cooperation among the Eurasian developing economies that is based on the mechanism of “integration of integrations”.

Still another possibility would be an assembly process modelled on the UN, which would involve the creation of a forum for all the developing economies of Eurasia with a Eurasian Security Council represented by the largest economies of the continent (G20 members (China, India, Russia, Saudi Arabia, Indonesia, Turkey) as well as possibly Iran). Another possibility in this UN-type scenario is the SAGES Economic Council that brings together the main regional blocs of Eurasia as a more inclusive version of the UN Security Council.

In the end, there are multiple possible trajectories for the assembly process of the Grand Eurasia — the most attractive appears to be the “integration of integrations” track as it appears to be more expeditious and inclusive. At the same time, there are also risks and challenges involving this scenario as the domain of “integration of integrations” remains largely unexplored across the terrain of the Global South. In this respect, there may be important synergies in the innovation process of “integration of integrations” along the Eurasia track as well as the BRICS+ route that represents a global rather than regional platform for the cooperation across regional integration arrangements. The Global South is approaching a crucial point in its economic development, whereby a common platform for cooperation across all developing economies may represent the most important gateway to economic modernization in decades.

From our partner RIAC

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Economy

Policy Support Indispensable for China’s Economic and Financial Recovery

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According to the latest statistics from the People’s Bank of China (PBoC), monetary and financial data showed a return to growth in June. At the end of June, the balance of broad money (M2) was RMB 258.15 trillion, a year-on-year increase of 11.4%, and the growth rate was 0.3 and 2.8 percentage points higher than that at the end of last month and the same period of the previous year respectively. Meanwhile, the balance of narrow money (M1) was RMB 67.44 trillion, a year-on-year increase of 5.8%, where the growth rate was 1.2 and 0.3 percentage points higher than the end of last month and the same period of the previous year respectively. The balance of currency (M0) in circulation was RMB 9.6 trillion, a year-on-year increase of 13.8%.

In the first half of the year, the net cash investment was RMB 518.6 billion. At the end of June, the stock of social financing was RMB 334.27 trillion, up 10.8% year-on-year, and the growth rate was 0.3 percentage points higher than that in May, though still lower than the 11% growth rate in the same period last year. The growth rates of the M2, M1 and social financing scales have all shown the tendency of increase simultaneously. Researchers at ANBOUND believe that this reflects that driven by the intensification of macroeconomic policies, the overall financial and economic situations are showing an upward recovery trend.

Figure: Monthly Monetary & Social Financing Growth Rates and Price Level Change (in percentage)

Source: People’s Bank of China & National Bureau of Statistics, chart plotted by ANBOUND

However, in terms of credit growth, which accounts for the main part of social financing and currency, the balance of RMB loans at the end of the month was RMB 206.35 trillion, a rise of 11.2% year-on-year, and the growth rate was 0.2 percentage points higher than that at the end of last month and 1.1 percentage points lower than the same period last year. In June, RMB loans rose by RMB 2.81 trillion, being a year-on-year increase of RMB 686.7 billion. This shows that despite the substantial growth of RMB credit in June and that the overall recovery has been achieved, the upward momentum remains insufficient. Continued support from macro policies will still be needed to enable China’s finance and economy to recover comprehensively. In addition, at the end of June, the balance of RMB deposits was RMB 251.05 trillion, a year-on-year increase of 10.8%, and the growth rate was 0.3 and 1.6 percentage points higher than that at the end of the previous month and the same period of the previous year respectively. In June, RMB deposits increased by RMB 4.83 trillion, a year-on-year increase of RMB 974.1 billion. The rapid growth of deposits is consistent with the previous survey results of the Chinese central bank, indicating that under the continuous impact of the COVID-19 pandemic, the market still lacks confidence in consumption and investment, which affects credit demand to a certain extent.

On the other hand, the stock of social financing at the end of June was RMB 334.27 trillion, a year-on-year increase of 10.8%. Among them, the balance of RMB loans issued to the real economy was RMB 205.09 trillion, a year-on-year increase of 11.1%. The balance of foreign currency loans issued to the real economy was RMB 2.33 trillion, a year-on-year increase of 0.5%. Entrusted loans decreased by 0.5% year-on-year, trust loans fell by 29.6% year-on-year, and undiscounted bank acceptances fell by 19.2% year-on-year. The corporate bond balance was RMB 31.48 trillion, an increase of 10.1% year-on-year. The government bond balance was RMB 57.72 trillion, up 19% year-on-year. The domestic stock balance of non-financial enterprises was RMB 9.96 trillion, a year-on-year increase of 14%.

The cumulative increment of social financing in the first half of 2022 was RMB 21 trillion, which was RMB 3.2 trillion more than the same period last year. Among them, RMB loans issued to the real economy increased by RMB 13.58 trillion, a year-on-year increase of RMB 632.9 billion. Foreign currency loans issued to the real economy increased by RMB 45.8 billion, a year-on-year decrease of RMB 182.3 billion. The entrusted loans decreased by RMB 5.4 billion, which was a year-on-year decrease of RMB 109.1 billion; while trust loans decreased by RMB 375.2 billion, making it a year-on-year decrease of RMB 348.7 billion. Undiscounted bank acceptance bills decreased by RMB 176.8 billion, a year-on-year decrease of RMB 171.4 billion. Corporate bond net financing was RMB 1.95 trillion, a year-on-year increase of RMB 391.3 billion. The net financing of government bonds was RMB 4.65 trillion, an increase of RMB 2.2 trillion year-on-year. Additionally, the stock financing of non-financial enterprises in the country was RMB 502.8 billion, an increase of RMB 7.3 billion year-on-year.

These data changes reflect that the scale of social financing in May and June has increased significantly under the circumstance that monetary policy easing has intensified since the second quarter. The increase in the scale of social financing in June reached RMB 5.17 trillion, an increase of RMB 1.47 trillion year-on-year. The stock of social financing has basically filled the gap left by the sharp decline in social financing in March and April, and the overall social financing has seen a recovery to the long-term trend. In realizing the incremental recovery of the social financing scale, it should be pointed out that government bond financing has played a major role, and its incremental growth has reached RMB 2.2 trillion. In fact, this was essentially driven by the massive issuance of local government bonds in May and June. It has been estimated that in June alone, the incremental scale of government bond financing reached RMB 1.6 trillion, which is a significant continuous increase from RMB 1 trillion in May. This has played a major role in the RMB 3.3 trillion increase in the scale of social financing. Furthermore, the decline in non-standard financings such as entrusted loans, trust loans, and bank drafts is due to the substitution effect brought about by credit easing on the one hand, and this is closely related to the effect of the shrinking real estate market on the other hand. In the first half of the year as a whole, the rise of RMB 13.58 trillion in credit to the real economy, which was an increase of RMB 632.9 billion year-on-year, also means that the central bank’s sustained goal of maintaining credit growth has been achieved.

For the growth rate of the social financing scale to be 10.8%, this would signify that China’s timely adjustment of monetary policy in the first half of the year has a positive effect on stabilizing the country’s finance and on promoting stable growth. This may be the basis for the PBoC to emphasize the return to stabilization policy. As far as the second half of the year is concerned, the scale of social financing is still under great pressure to maintain the growth rate. This is especially true when the peak of local bond issuance has passed and the quota has been exhausted. The issuance of government bonds, which played a supporting and bottom-up role for social growth in the first half of the year, will then see a decline in its effect. This, in turn, will increase the reliance on RMB loans or other direct financings for social financing growth. Promoting the growth of bank loans will remain the main task in the future. In other words, China’s macroeconomic policies such as monetary and fiscal policies still need to provide continuous support for economic recovery through total easing and structural adjustment.

Final analysis conclusion:

In June, the growth rate of monetary and social financing in China showed a simultaneous increase, indicating that the overall financial and economic situations of the country are showing a recovery trend. This, all in all, is driven by the intensification of macroeconomic policies. Nonetheless, under the circumstance of the withdrawal of local government bond issuance, there will still be pressure to maintain the continued growth momentum of monetary and social financing in the future. Hence, the ongoing support from macro policies will become indispensable.

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The Real Estate and Banking Crisis in China Is Spreading to Other Aspects of the Chinese Economy

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The continuing real estate and banking crisis in China is starting to spread to the other aspects of the Chinese economy.  With the real estate market in trouble, with many contracted apartments and homes not being finished, and contracted owners refusing to pay on their mortgages until the apartments are finished, the economic consequences of this crisis are starting to leak into the other parts of the Chinese economy.

One of the main pillars of the Chinese economy has been the steel industry.  For decades the Chinese domestic economy has depended on the real estate industry to provide an outlet for the tremendous amount of steel produced by China each year.  For the last two decades the huge amount of construction on skyscrapers, factories, huge apartment complexes, and dwellings have been able to soak up the oversupply of steel produced by the Chinese steel industry.  Steel has also been the feedstock for the manufacture of the budding Chinese auto industry, as well as manufacturing key parts for the autos produced overseas.

A key indicator of the health of the Chinese steel industry has always been China’s purchase of iron ore from overseas.  In the year 2020, at the height of the Covid epidemic, China imported 1.17 billion tons of iron ore.  In 2021 the amount decreased to 1.1 billion tons.  In the first 5 months of 2022 China only imported 447 million tons of iron ore.  This figure is down 5.1 percent from the same period in 2021.  Some of these imports can be attributed to panic buying because of the Russian invasion of Ukraine. 

Li Ganpo, founder and chairman of Hebei Jingye Steel Group, has warned that a third of China’s steel mills could go into bankruptcy this year.  According to a transcript seen by Bloomberg…”The whole sector is losing money and I can’t see a turning point for now…”

Along with the decrease in the manufacture of finished steel products, is the increase in the inventory of finished steel products which increased by 20.5 million tons in a snapshot taken of Chines steel inventory in June 1 2022,to June 10 2022.

Chinese Thoughts on Money

In the West, and throughout most of the world, money is an economic good.  Money in the West is governed by the philosophy of a return on investment which creates more wealth.  Money is used as an intermediation between buyer and seller.  In China, according to the geopolitician Peter Zeihan, money is considered by the CCP as a political good.

According to Mr. Zeihan “Investment decisions not driven by the concept of returns tend to add up. Conservatively, corporate debt in China is about 150% of GDP. That doesn’t count federal government debt, or provincial government debt, or local government debt. Nor does it involve the bond market, or non-standard borrowing such as LendingTree-like person-to-person programs, or shadow financing designed to evade even China’s hyper-lax financial regulatory authorities. It doesn’t even include US dollar-denominated debt that cropped up in those rare moments when Beijing took a few baby steps to address the debt issue and so firms sought funds from outside of China. With that sort of attitude towards capital, it shouldn’t come as much of a surprise that China’s stock markets are in essence gambling dens utterly disconnected from issues of supply and labor and markets and logistics and cashflow (and legality). Simply put, in China, debt levels simply are not perceived as an issue.”

In China, money is a political good, and only has value if it can be used to achieve a political goal. That political good is maximum employment.

The concepts of rate of return or profit margins do not exist in China, and therein lies the danger; eventually the law of supply and demand will win out, and the Chinese economy will have to face a correction. The longer it takes to face this economic correction, the greater damage that the inevitable correction will cause to the Chinese economy.

China is Not Capable of Non-Steady State Economic Growth

Lacking an impartial judiciary system, the Chinese economy is incapable of “Non-Steady State Growth.”  Non-Steady State Growth occurs when a new technology increases production of a good or service which expands the economy at a rapid clip.  Non-Steady State Growth can only occur in a business environment where an impartial judicial system is able to fairly adjudicate contract disputes.  With the heavy hand of the Chinese Communist Party (CCP) interfering in judicial conflicts, and favoring members of the  CCP in contract disputes, this type of constraint inhibits research into new and promising technologies.

This means that the Chinese economy is stuck in Steady-State Growth.  Steady state growth depends on a constant amount of inputs to help the economy grow.  However, at a certain point, inputs do not result in growth as marginal utility becomes saturated and has a zero growth rate.

A Domino Effect Seems to be Forming in the Chinese Economy

A domino effect is defined as “…how one action can have a knock-on effect to related subjects. Knock one domino over, and you don’t just affect the first domino, but all the ones who stand in its path…”

In economics a domino theory can be used to explain how economic weakness, or loss, can spread to other areas of the economy causing a recession or depression.

In the current economic environment in China, the Evergrande implosion has begun to infect other areas of the real estate market in China, which in turn has infected the Chinese banking system.  With Chinese buyers of homes and apartments refusing to make any more mortgage payments until stalled construction on apartment complexes are completed, the economic damage has spread to the Chinese banking system.

In July, thousands of Chinese depositors were protesting the freezing of their money in rural banks in central China.  In the city of Zhengzhou, the protestors had gathered at the main branch of the Chinese central bank demanding their money back.  Officials sent police, disguised in civilian clothes, to break up the demonstration using violence and arresting the protesters.

With construction stalled on numerous unfinished apartment building and complexes, the demand for steel has collapsed, which will inevitably lead to higher unemployment levels for Chinese steel workers, many who are employed by State Owned Enterprises.

With a total of debt that exceeds 300 percent, the Chinese government is sitting on a mountain of debt which many economic analysts say is a disaster waiting to happen.  Some analysts say since the debt is state owned, there is little chance of default. 

With the Chinese real estate market imploding, which is leaking into the Chinese banking system, which in turn is affecting the Chinese steel industry, China faces a hurricane of economic problems all happening at the same time.

It is not inconceivable, that these accumulating crises may lead to a sudden economic collapse of the Chinese economy.

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