What Do China’s Targets of Economic and Market Stability Signify?
Recently, a series of changes in situations both domestically and internationally have brought direct and indirect impacts on the Chinese economy and stock market, dragging the A-shares and Hong Kong stock market into a continuous decline. Such market volatility not only brings panic to the capital market, but is also not conducive to the stability of the real economy. The country’s Financial Stability and Development Committee under the State Council has held a special meeting on March 16 to study the current economic situation and capital market issues and put forward some targeted policy frameworks, which are of positive significance to stabilize the stock market and the economic situation. After the disclosure of relevant meeting information, both A-shares and the Hong Kong stock market reacted positively with a sharp rebound, reflecting the stock market’s recognition of the policy.
According to ANBOUND’s researchers, the special feature of the meeting is not only to respond to the market’s concerns in a timely manner and enhance the level of communication between the policy and the market, but also to highlight that the stability and development of the capital market are as important as the overall goal of stabilizing the economy. This will play an important role in the construction and development of the multi-level capital market including the stock market.
In retrospect, the disruptions brought by the deterioration of the external geopolitical environment, the change of domestic macro policy expectations, the outbreak of long-term conflicts in China concepts stocks, and problems in the internet platform and real estate sectors all contributed to the previous decline in the stock market. The substantial and persistent decline in the stock market indicates a significant change in market expectations, while the distortion between macroeconomic data and micro-market perceptions has also increased fear of future uncertainty. These changes in market expectations not only bring about valuation adjustments in asset prices, but also affect the real economy and magnify risks in economic operation. Therefore, timely policy response and communication are of short-term practical significance for guiding market expectations and maintaining the stability of the capital market. The meeting held by the Financial Stability and Development Committee has responded to the concerns of the capital market, not only a aimed at “maintaining stability” of the capital market, but also expected to be followed by a series of targeted measures that will play a significant role in economic development and stability.
In terms of long-term development, ANBOUND has repeatedly stressed the role and importance of the capital market in China’s economic development. First, when the economy develops to a certain extent, the capital market will constitute an important part of the financial market and become one of the most active parts and the key platform of financial resources in the credit era; an open capital market is crucial for the allocation of global financial resources. Second, capital market is indispensable for corporate financing, an important channel for financial resources to inject into the real economy, and an important mechanism for capital to stimulate market innovation and scientific and technological innovation, which are extremely important to enterprises. Third, it is a place where investors can earn investment returns, allocate their assets and generate wealth. Developing capital markets to allow more people to benefit from economic development is an important means to achieve common prosperity. If the capital market continues to develop poorly, it will increase the burden on the country. It is therefore, particularly salient for the Chinese economy to develop the capital market well and maintain its stable and positive expectations. This is also a kind of politics, and the embodiment of politics. From this perspective, “stabilizing the market” is equivalent to “stabilizing the economy”.
Although the reform and development of the Chinese capital market have indeed seen obvious progress in recent years, it should also be noted that it is still far from mature, and requires the protection of the policy to ensure its “stable development”. Such kind of protection should be on the basis of respecting the capital market and the operation rules of the financial market.
On the one hand, regulatory policies need to be proactive in the construction of the market and the maintenance of market order, as well as actively solve existing issues, instead of dealing with them perfunctorily. As far as the current situation is concerned, the problems of China concepts stocks, including audit disputes and VIE structure risks, are not short-term problems and should be dealt with before the contradictions become intensified. Regulatory policies will need to be guided by the goal of “long-term and stable development”, proactively communicating with the market, and improving policy transparency. Only in this way can market investors form accurate perceptions and avoid the spread of market panic. The capital market has its own rules of operation. The authorities’ passive response will certainly cause the market to worry about policy uncertainty, which will lead to market overreaction. Therefore, the foresight and continuity of regulatory policies are highly critical.
On the other hand, for the long-term development of the capital market, excessive intervention in some specific areas should be avoided. In particular, for a period of time, some policy measures issued by relevant authorities to deal with the disorderly expansion of capital and risks often lack considerations, bringing great interference to the normal operation of the capital market. Although these frequent policy measures play a certain role in capital operation, they have also caused interference to the normal operation of the capital market. This makes enterprises and investors unable to form stable expectations for the development of businesses and have to withdraw from the capital market, thus affecting the stability of the market.
The meeting held by the Financial Stability and Development Committee particularly emphasized that the relevant departments should effectively assume their responsibilities, proactively introduce policies that are beneficial to the market, cautiously introduce contractionary policies, and respond to market concerns in a timely manner. For any policy that has a significant impact on the capital market, the relevant departments should coordinate with financial authorities in advance to maintain the stability and consistency of policy expectations. Researchers at ANBOUND believe that these positive responses also indicate that a consensus is being formed in policy implementation on the general trend of capital market development. This is the main factor behind the current positive market response.
To stabilize the economy, the stability and development of the capital market also require consideration of stability with development as a precondition. Relevant policies should not excessively intervene in the ups and downs of the stock market. Instead, they should maintain the fairness of the market, avoid panic and speculation in the market, and truly achieve “stable expectations” and thereby create a “healthy market”. The so-called “stable expectations” refer to the smooth upward development and stability of the market environment. “Healthy market” here means a capital market that is able to develop steadily in the medium to long-term, allowing investors to earn reasonable returns.
How getting dollars from IMF, World Bank would make the borrower country’s situation worse off
As globalisation and international trade continue to increase, countries are becoming increasingly dependent on one another for economic support. While the idea of receiving financial assistance from other countries may seem beneficial, it is essential to consider the long-term consequences of relying on foreign funding. In this article, we will explore the reasons why obtaining dollars from other countries may not improve a nation’s situation.
One of the major issues with relying on foreign aid is the potential for a cycle of dependency. When a country becomes reliant on external aid, it can lead to a situation where it is unable to sustain its own economy without outside support. This is a dangerous situation because it can create a vicious cycle where the country continually needs more and more aid just to stay afloat.
For example, if a country receives aid in the form of a loan, it will need to repay the loan with interest. This can be difficult if the country is not generating enough revenue to meet its existing financial obligations, like the case with Pakistan where IMF has given $6.52bn as per 2019 according to al Jazeera news.
accepting foreign aid can result in a loss of autonomy for the recipient country. When a country accepts financial aid, it must adhere to the stipulations of the donor country or organization. These stipulations can range from structural adjustments to changes in the recipient country’s policies or systems. These changes may not necessarily align with the values or beliefs of the recipient country and can have unintended consequences.
For instance, a country that accepts aid from another nation may be required to implement specific economic policies to align with the donor’s interests. While the donor may have good intentions, these policies may not be suitable for the recipient country’s unique economic conditions. This loss of autonomy can have significant long-term consequences for a nation’s economic and political stability.
Furthermore, foreign aid can also create an incentive for the recipient country to focus on producing goods that are exportable to the donor country. This focus can lead to the neglect of domestic industries that could potentially contribute to the country’s long-term economic growth.
when a country relies on foreign aid and loans, it can create a cycle of dependency that is hard to break. Instead of developing its own economy, a country that is dependent on foreign aid becomes trapped in a cycle of always needing more aid to survive. This can lead to a lack of innovation and productivity, as well as a lack of incentives for the government to implement necessary economic reforms.
For example, many African countries have been receiving foreign aid for decades, but their economies remain stagnant, and their people continue to live in poverty. The reason for this is that the aid has created a culture of dependency that has prevented these countries from developing their own economies and becoming self-sufficient. As a result, they continue to rely on foreign aid, and the cycle of dependency continues.
Secondly, foreign aid and loans can also lead to the creation of a debt trap. When a country borrows money from other countries or international institutions like the World Bank or IMF, it is required to pay back that money with interest. If the country is unable to pay back the debt, it can become trapped in a debt cycle that can be difficult to break.
For example, many developing countries have borrowed large sums of money from China to fund infrastructure projects like roads and ports. While these projects have helped to improve the country’s infrastructure, they have also left the country with a large debt burden. In some cases, the debt has become so large that the country is unable to pay it back, and it becomes trapped in a debt cycle that can be difficult to break.
As a nation, it is natural to seek foreign investment and aid to support its economic growth and development. However, it is essential to realize that getting dollars from other countries may not always be the best solution to address a country’s economic challenges. In fact, it can lead to plenty of problems that may exacerbate the current situation.
Foreign aid can create a dependency culture, where a country becomes reliant on the help of others to sustain its economy. This often leads to the abandonment of initiatives that would have driven growth in the economy, as it is more comfortable to rely on handouts rather than working towards self-sufficiency. A dependency culture also makes a nation vulnerable to the whims of other countries, who may withdraw their support without warning, leaving the country with a sudden and severe economic downturn.
Another challenge with getting dollars from other countries is the exchange rate risk. When a country borrows money in a foreign currency, it becomes susceptible to fluctuations in the exchange rate. For instance, if a country borrows money in US dollars, and the US dollar appreciates against the local currency, the debt burden becomes more significant, and it becomes harder to pay back. This can create a vicious cycle of borrowing to pay back previous loans, leading to an unsustainable debt situation.
foreign aid and investment can create a situation where the recipient country becomes a dumping ground for substandard goods and services from the donor countries. For example, in Africa, there have been reports of donated clothes from western countries causing local textile industries to collapse, as people prefer the cheap second-hand clothes from the west. This creates a vicious cycle of dependency on foreign goods, leading to the closure of local industries, job losses, and an erosion of local culture.
Another challenge with getting dollars from other countries is that it may lead to the exploitation of natural resources. For instance, foreign investors may demand favorable policies that allow them to extract resources from the host country at minimal cost, leaving the country with minimal benefits. This creates a situation where the host country is merely an exporter of raw materials, and the foreign investors reap the benefits.
Critics argue that the loans provided by the IMF and other entities often comes with strict conditions attached. Such as imposing austerity measures or liberalizing markets.
whether IMF and World Bank lending helps poor countries or not depends on a variety of factors, including the specific terms and conditions of the loans, how the funds are used, and the broader economic and political context in which the lending takes place.
The Complex Relationship Between Populism and the Economy: A Delicate Balancing Act
Populism on both the right and left has spread like wildfire over the world. The drive reached its apex in the United States with Trump’s election, but it has been a force in Europe since the Great Recession threw the European economy into a lengthy tailspin. Populism is a political philosophy that demonizes economic and political elites while lionizing ‘the people.’ Populists of all shades argue that the people must recapture power from the unaccountable elites who made them impotent.
Populism has emerged as a powerful force in contemporary politics, challenging long-held political norms and institutions. The appeal to economic concerns and complaints is a crucial feature of populist movements. The link between populism and the economy, on the other hand, is intricate and diverse. During periods of economic instability or stagnation, populism frequently arises, tapping on the frustrations and worries of marginalized people. the economic instability refers to an economy that lacks certainty or equilibrium, such as high unemployment rates, poor economic development, or unpredictable financial markets. Populist leaders and groups are skilled at exploiting economic complaints and presenting them as the consequence of an inefficient or corrupt elite. They present themselves as defenders of the “common people” or marginalized groups who have been left behind by the current political and economic elite. They provide simplified solutions to complicated economic problems, vowing to protect people’s interests against perceived dangers presented by global entities such as globalization, immigration, or multinational businesses.
It is crucial to remember that economic insecurity or stagnation does not always result in the emergence of populism. Other variables, such as cultural fears, identity politics, and a lack of faith in institutions, all contribute to the creation of a climate favorable to populist movements. The economic factor, on the other hand, is frequently a substantial motivator since it directly affects people’s livelihoods and ambitions.
Populist policies and language can have serious consequences for economic stability, development, and long-term viability. To understand its implications for society and policymaking, this delicate balancing act between populism and the economy must be carefully examined.
Economic Dissatisfaction and the Rise of Populism
Populist groups frequently garner support by focusing on economic dissatisfaction in society. These complaints may be the result of a variety of issues, including wage stagnation, job insecurity, economic inequality, and the belief that conventional political elites have not effectively addressed these issues. Populist leaders are skilled at capitalizing on these resentments by pledging quick and dramatic fixes that appeal to disenchanted people.
Populist economic policies
Populist economic policies are frequently put in place once populist politicians are in charge in order to solve the issues that brought them to power. These regulations might be very varied from one country to another, reflecting the diversity of populist movements worldwide. Protectionism, trade restrictions, and more government involvement in the economy are some characteristics of populist economic policy. These actions are frequently justified as defending the rights of the “common people” in the face of multinational companies and powerful global elites.
Long-Term Economic Effects and Short-Term Populist Gains:
Populist measures may improve the short term and placate disenchanted people, but they can harm the economy in the long run. For instance, protectionist policies may shelter domestic sectors from competition in the near term, but they eventually stifle effectiveness, innovation, and competitiveness. Increased government involvement may result in corruption, inefficiency, and a suppression of the expansion of the private sector.
The Effects on Investor Confidence and Market Stability
Populist discourse and actions may also significantly affect investor confidence and market stability. Populist politicians frequently take on established financial and economic institutions like central banks, which can increase volatility and uncertainty. When political factors appear to be driving policy decisions rather than strong economic realities, investors may be reluctant to commit capital.
Inclusive growth vs. Protectionism
If it is feasible to achieve inclusive economic development while assuaging populist attitudes, that would be a key question in the populist-economic nexus. Opponents contend that populist policies frequently priorities instant gratification and protectionism, which may eventually impede broad-based prosperity and deepen inequality. For nations battling populism, striking the correct balance between addressing valid economic concerns and pursuing long-term, sustainable economic policy is a vital task.
The Importance of Education and Economic Literacy
A diversified strategy is needed to address the complicated link between populism and the economy. Increasing economic literacy and spreading education on the advantages of free trade, open markets, and globalization might help dispel the oversimplified myths sometimes spread by populist groups. Societies may promote a more educated and nuanced public dialogue by providing people with the means to comprehend and critically analyses economic concerns.
The complex interrelationship between populism and the economy emphasizes the need of having a thorough grasp of the motivations and outcomes of populist movements. Because it plays on the frustrations and worries of marginalized groups who feel left behind by the current political and economic system, populism frequently gains support during periods of economic instability. Populist leaders can appeal to disillusioned people by capitalizing on economic concerns and promising quick, radical answers.
Economic stability, growth, and societal well-being may be significantly impacted in the long run by populist economic policies and rhetoric. While populist initiatives may temporarily alleviate problems and placate irate people, they frequently overlook factors like long-term sustainability, effectiveness, and competitiveness. Economic development, investment, and innovation can be hampered by protectionist trade policies, increasing government interference, and a contempt for economic competence.
In conclusion, it is important to carefully evaluate and take a balanced approach to the topic of populism and the economy. While economic resentments might contribute to the growth of populism, the economic effects of populist measures must be considered over the long run.
A broad strategy that tackles both the underlying economic complaints and supports sustainable economic policies is necessary to handle the complex problems surrounding populism and the economy. Here are some tips for overcoming these obstacles
Addressing Economic Inequality
Governments should implement policies that promote inclusive economic growth and reduce income inequality.
Upholding the integrity and independence of democratic institutions is crucial in countering populist tendencies. Strong institutions can help rebuild trust and confidence in the political and economic system, mitigating the appeal of populism.
Promoting Dialogue and Engagement
To address the concerns of marginalized groups, it is essential to engage in open and constructive dialogue.
Strengthening Economic Literacy
Enhancing economic literacy among the general population is critical.
Promoting International Cooperation
Global challenges such as climate change, pandemics, and economic interdependence require collaborative solutions. Governments should prioritize international cooperation and engage in constructive dialogue to address these challenges collectively. By demonstrating the benefits of global engagement and cooperation, societies can counter the isolationist and protectionist tendencies often associated with populism.
Societies may overcome the problems presented by populism while supporting sustainable economic development and social cohesion by resolving economic complaints, advocating inclusive policies, and creating a feeling of economic security and opportunity.
From Bullets to Development: Rethinking Military Expenditure in Favour of Official Development Assistance
International assistance has achieved remarkable accomplishments in reducing global poverty, supporting girls’ education, addressing hunger, ensuring safe childbirth, nearly eradicating polio, combating female genital mutilation (FGM), providing food rations for Syrian refugees, constructing schools and sanitation facilities in Kenya, and delivering crucial relief supplies to Afghan villagers affected by an earthquake.
However, despite the current combination of global crises, some of the wealthiest nations in the world are planning to significantly reduce their life-saving aid budgets in 2022-23. These decisions are made by political elites who are sheltered within the safety of their privileged positions, yet the consequences of these choices are acutely felt by the most vulnerable individuals across the globe.
Official Development Assistance (ODA) plays a vital role in supporting the development and welfare efforts of low- and middle-income nations. The United Nations has set a target for countries to allocate 0.7% of their Gross National Income (GNI) towards ODA. However, recent estimates indicate that a significant portion of foreign aid is being directed towards Ukraine, accounting for 7.8% of all ODA in 2022. Meanwhile, aid provided to least-developed countries and countries in sub-Saharan Africa has actually decreased. Donors continue to fall short of their targets to contribute at least 0.7% of their GNI to ODA. When considering a long-term perspective, it is evident that aid may still be experiencing a downward trend in comparison to what countries can reasonably afford.
.Despite its importance, the global levels of Official Development Assistance (ODA) have experienced minimal growth in the last ten years. This lack of progress in fulfilling the commitment to increase ODA to 0.7 percent of gross domestic product (GDP) places a burden on low- and middle-income countries. As a result, these nations are compelled to devise alternative development strategies that are less reliant on external aid. This situation presents them with difficult choices regarding the allocation of their scarce domestic resources undermining development in social sectors.
On the contrary, Military expenditure reached record level in the second year of the pandemic and world military spending continued to grow in 2021, reaching an all-time high of $2.1 trillion. This was the seventh consecutive year that spending increased, research published by the Stockholm International Peace Research Institute (SIPRI).
In light of the Monterrey Consensus on Financing for Development adopted in March 2002 and the 2015 Addis Ababa Action Agenda (AAAA), which outlines spending priorities, states are encouraged to set appropriate targets for essential public services like healthcare, education, electricity provision, and sanitation. However that might not be the case. The latest figures from the OECD will provide further support to the argument. Although there was substantial funding for Ukraine in 2022, Official Development Assistance (ODA) to some of the world’s poorest countries experienced a decline.
The data reveals a decrease of approximately 0.7% in bilateral flows to the group of nations categorized as the least developed countries, comprising 46 countries ranging from Afghanistan to Zambia. The total amount of aid provided to these countries amounted to $32 billion. In simpler terms, the data demonstrates that development aid to numerous developing countries actually contracted.
This leads to an abrupt reordering of budget priorities, where military expenditures, and humanitarian aid take precedence, while other critical needs like education and social services are likely to be deprioritized. Meanwhile, the convergence of droughts and conflicts causes immense human suffering and widespread hunger in several nations, and despite the urgent nature of these crises, UN humanitarian appeals for assistance consistently suffer from inadequate funding.
Assistance allocated to Ukraine, as well as any future major crises that require global attention, should be supplementary to the existing humanitarian and development budgets rather than compromising one for the sake of the other.
As we already knew, in 2021 the ODA budget was reduced to 0.5%, a drop of £3bn compared to 2020 to £11.4bn. The starkest impact of these cuts is on “least developed countries” (LDCs). The amount of bilateral ODA going to LDCs dropped by £961m in 2021, a cut of 40% taking it to a total of £1.4bn.
Yoke Ling, the Executive Director of Third World Network, commented that the increasing military expenditure will undoubtedly have a direct influence on various types of spending that developed countries have committed to providing for developing nations. This includes Official Development Assistance (ODA) and climate finance, which are legal obligations under climate treaties.
Furthermore, Yoke Ling highlighted that even prior to the Russian-Ukraine conflict, developed nations had already been reducing their financial support for development. Therefore, it is anticipated that this decline in development financing will further deteriorate in the future.
Given the climate-change-triggered floods in Nigeria and Pakistan, the severe food insecurity affecting millions in Nigeria, Ethiopia, South Sudan, Yemen, Afghanistan, and Somalia, the unfolding humanitarian crisis in Afghanistan resulting in widespread starvation and desperate measures such as selling body parts to provide for families, the ongoing refugee crisis in Syria where millions remain in displacement camps even a decade after the conflict started, and the devastating famine gripping Tigray, advocates concur that there is an urgent need to uphold and potentially enhance international aid more than ever before.
According to a UN report titled “2022 Financing for Sustainable Development Report: Bridging the Finance Divide,” the Official Development Assistance (ODA) experienced a remarkable growth, reaching its highest-ever level of $161.2 billion in 2020. However, despite this record growth, the report highlights that 13 countries reduced their ODA contributions, and the overall amount remains insufficient to meet the significant needs of developing countries.
The UN expresses concern that the crisis in Ukraine, coupled with increased spending on refugees in Europe, may result in reductions in aid provided to the poorest nations. The majority of developing countries require urgent and proactive support to get back on track towards achieving the Sustainable Development Goals (SDGs).
According to the report’s estimates, a 20 percent increase in spending will be necessary in key sectors within the poorest countries.
If certain developed nations allocate generous resources to military expenditures while simultaneously reducing funding for other aid programs, are they implying that security interests take precedence over long-term public needs? Without question, the rights and necessities of people in Ukraine, Asia, and the rest of the Global South should be prioritized over military spending. Moreover, apart from the conflict in Ukraine, developed countries have already failed to fulfil their commitment of providing $100 billion of climate finance by the year 2020.
By compromising development aid budgets and climate finance, the consequences of poverty, inequalities, adverse climate impacts, and exclusion in the global South will be exacerbated. Such a lack of ambition risks reinforcing the economic and political grievances that lie at the core of armed conflicts in various regions, including Asia.
In order to uphold solidarity and justice, there is a pressing need for synergized political will and ambition.
We should challenge developed countries to honour their existing aid commitments, which include allocating a minimum of 0.7% of their Gross National Income (GNI) as Official Development Assistance (ODA). Additionally, we also call upon them to provide new funding to address the needs of the people in Ukraine. It is imperative to identify new avenues for grants-based climate finance to compensate those most affected by climate change, including communities experiencing losses and damages.
The UN report on Financing for Sustainable Development also highlights the stark contrast between rich countries, which were able to support their pandemic recovery through substantial borrowing at very low interest rates, and the poorest nations that had to allocate billions of dollars to service their debts, hindering their ability to invest in sustainable development.
As we approach the midpoint of funding the Global Sustainable Development Goals, the discoveries are deeply concerning. We cannot afford to be inactive during this critical moment of shared responsibility, where our aim is to uplift hundreds of millions of individuals out of hunger and poverty. It is indispensable that we prioritize investments in equitable access to decent and environmentally friendly employment, social protection, healthcare, and education, leaving no one behind.
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