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The Complexity of China’s Economy Along with Rising Prices

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So far this year, the world has experienced a surge in inflation driven by rising energy and commodity prices in the post-pandemic environment, aggravated by global monetary easing and supply chain distortions.

Inflation in the United States hit a record high of 7.5% in January. In major economies such as Europe and the United Kingdom, it is above 5%, while emerging market economies such as Brazil have seen inflation of over 10%. As a result, the Federal Reserve and the Bank of England have tightened monetary policy in response to high inflation. At the same time, the outbreak of the Russia-Ukraine conflict, as well as European and American sanctions on Russia also brought about distortions in the prices of energy and some raw materials, driving up global inflation and economic turmoil. Meanwhile, China’s economic recovery and growth are also under increased stress, according to ANBOUND researchers, due to changes in the international situation and the possibility of “stagflation” in the global economy.

Inflation in China has failed to pick up in the first two months of the year, with the continually high PPI reflecting the burden of growing raw material prices on firms, and the low CPI reflecting the present sluggish domestic demand. These factors have increased the pressure on business operations and profitability. Such a complex situation not only means that the country’s economy will face difficulties in maintaining growth this year but also makes it more difficult to adjust macro policies. There will be further structural adjustments and cost-push inflation. This requires adjustments from both the supply and demand sides.

According to researchers at ANBOUND, the current distortions in international supply and demand for energy and commodities keep China exposed to imported inflationary pressures. With the war between Russia and Ukraine impossible to be resolved in the short term, crude oil and natural gas prices have increased dramatically, and refined oil prices in China have seen multiple adjustments, affecting household consumption and increasing the cost of doing business.

The most challenging is the rise in global grain prices, which is gradually affecting the domestic market and impacting prices of food and related products in China. At present, the prices of wheat, corn, soybean, and other major grain varieties on the international market have risen significantly, and the same is true in the Chinese market. The price of wheat in Zhengzhou Commodity Exchange was RMB 2,946/ton at the beginning of the year, and the highest price reached RMB 3,761/ton, up 27.7%, and is currently trading at RMB 3,405/ton. The price of corn in the Dalian Commodity Exchange was RMB 2,672/ton at the beginning of the year, and the highest price reached RMB 2,932/ton, up 9.7%, and is currently trading at RMB 2,885/ton. The price of No.1 soybean was RMB 5,652/ton at the beginning of the year, and the highest price reached RMB 6,443/ton, up 14%, and is currently trading at RMB 6,213/ton. The rise of relevant grain prices not only directly affects the daily consumption of residents but also affects meat products and related industrial products through the rise of feed and raw material prices, thus directly affecting the CPI. Therefore, from this point of view, although Chinese grain market can remain stable, the continuous rise of international grain prices will put the country’s economic and social stability at risk.

What is more worrying is the situation for the enterprises. For example, Tesla, BYD, Weltmeister, XPeng, Nezha, and many other electric vehicles (EV) enterprises have announced price increases since March. According to limited data, this round of price increases has affected almost 20 EV companies and approximately 40 car types. The majority of EV companies blamed the price increase on “increasing raw material prices”. Market institutions have analyzed that since 2021, the prices of upstream raw materials for lithium batteries such as cobalt and lithium have risen sharply, and the production of lithium batteries is facing obvious cost pressure. As of March 18, 2022, the average price of battery-grade lithium carbonate was RMB 515,000/ton, up 890.4% from RMB 52,000/ton on December 31, 2020. The average price of cobalt in the Yangtze Non-ferrous Metals Market was RMB 571,000/ton, up 104.7% from RMB 279,000/ton on December 31, 2020. In reality, the high PPI in February indicated the mounting cost pressures that many industrial businesses were facing.

From the perspective of consumption, CPI remains at a low level, forming price scissors with PPI. This indicates, on the one hand, that the overall demand in the consumption sector remains sluggish; while it also shows that enterprises are facing greater pressure from excess capacity. In the automotive industry, despite the rapid growth seen in the EV sector, the figures for the first two months of the year were not optimistic as far as overall passenger car consumption is concerned. According to data from the China Passenger Car Association, a total of 1.246 million passenger cars were sold domestically in February, a 40.0% decline in sales from a month earlier and a 4.2% increase from a year earlier. In the first two months of this year, the cumulative sales of passenger vehicles in China stood at 3.324 million units, down 60,000 units from the same period last year. Meanwhile, consumption figures for home appliances and cell phones were also underwhelming. This means that the overall consumer demand remains under pressure. In this case, rising raw material prices are eating into corporate profitability. Under the downward trend of the economic cycle, market competition will be more intense, and the pace of overall economic restructuring is accelerating. This is also the reason why ANBOUND said that the overall economy is “looking for the bottom” and heading for a “soft landing”.

Investment, consumption, industrial production, and other macro data that have exceeded expectations in the first two months of this year have shown “signs” of economic recovery, but most of them are of a short-term volatile nature, as they are mostly related to previous base data (measured by the two-year average growth rate), and also based on increased macro-policy support and increased government investment.

It remains to be seen whether this trend can be sustained. Of course, judging from the current situation of enterprises, state-owned enterprises and other large enterprises still maintain good performance due to their monopoly and competitive advantages. However, as officials from the National Bureau of Statistics stated, the statistics only reflect the operation conditions of enterprises above the scale. Large and medium-sized enterprises with economies of scale are still resilient, while enterprises below the scale are still facing great difficulties. The plight of the vast number of small and medium-sized enterprises is more reflected in other aspects. This change in the structure of the enterprise-level not only brings about the “deviation” of macro data but also is bound to bring about the destruction of market ecology. In terms of micro and small enterprises, if a large number of these enterprises have a “bad situation” and are further transmitted to large and medium-sized enterprises, as well as to upstream enterprises, it is bound to bring about a shift in the overall macroeconomic trend.

Moderate price increases are said to have a positive effect on stimulating economic demand. Although the overall and structural impact brought by the sustained rise of the prices of energy, commodities, and other raw materials may not be reflected in the overall macroeconomy, for the time being the impact on the economic form and economic potential can be destructive. This kind of spontaneous structural adjustment in the market not only increases the pressure of maintaining “stable growth” of the macroeconomy but also brings about the potential risk of “stagflation” in the long run. In the view of ANBOUND, the “triple pressure” facing the macroeconomy, i.e., a contraction of demand, supply shock, and “weakening expectations” has not been eased but instead has further increased. In terms of macro policy, adjustments should be made on the demand and the supply sides to avoid a vicious cycle of simultaneous contraction of the both sides.

A researcher at ANBOUND, graduated from the School of Mathematics at Peking University and has a PhD in economics from the University of Birmingham, UK

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Economy

World Order Is Old Order: New World Order Is No Order

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The grand hallucinations: When there is any order, it always becomes visible as an orderly progression, when it is supposed to be a secret or an invisible order, then it is grand hallucinations for a cult of illusionists. Observe how the World Order is an old order, and notice how the new world order is no order. The random engagements in illusionary cultish acts of chaos sold as order. Fakery sold and resold as victory, illusions pushed as hallucinations of success. Courage is needed to see the big magical acts of grand hallucinations.

The feel of afternoon-high: Across the world, free economies are already bent, twisted or broken, while procedures, policies and laws, everything on sale for the right price. Mighty-money, delivered crisply stacked, shrink-wrapped as freshly printed solutions, to buy more chaos, spread misery and create the economic hallucinations and stage the smoke and mirrors, all without any totals, balances or columns. Sold to feel a real afternoon-high.

The interchange: When integrity gone, fakery dominates, when real value-creation gone value-manipulation regulates, when vision gone illusions thrives, when national economics gone hallucinations declared as great success and reality interchanges to fakery.  

The elasticity left: Needed across the free economies of the world, no further proof required, a total change, no further verification needed, as political power no longer economical power, no further help needed, as most nations in need of basic diaper change. Visible damage to skills and competency, inability to understand and articulate the real problems with grassroots solutions is now a big tragedy of our times. Nations already stretched via rubber band economy, some with elasticity left before going bust.

The truth: Which nation has the capacity to face the truth? Which nation can fix itself not just top reshuffle, but rather from top to bottom to the real core? Which nation can uplift its citizenry to stand up to global age skills and cope with global speed and competitiveness? Which nation is capable of understanding and has the right to mobilize its hidden national entrepreneurialism and provide a future for the next generation?

No electricity and missing bulbs: Is there any value left in the most cherished Machiavellian style political power without ever creating any economic power? Is there any remaining value in economic power play of today without entrepreneurial growth models? What good are economies when stuck in waste paper baskets still without digitization like a nation being without electricity? What real economic value is created when odd mindsets playing with economic development procedures like creating light but with no bulb?  

Welcome to cold facts and warm realties.

The branded nations: Why each and every single nation of our planet is now branded every single day of the year? Like it or not, agree with what is said, disagree with what gossiped, simple fact of the day,  each nation is branded, between each sunrise and sunset. Here is some advanced level insight for the national leaderships on global corporate communication challenges, as what may be altering their efforts on global affairs, what might mold their global trades as the deep undercurrents of global ‘likes’ and ‘dislikes’ from the global populace shape their national global image and rate of popularly and any level of respect on world stage.

The global opinion: Observe how fast the world changed, how the ocean of “global opinion” is now drowning ponds of “national opinion”. Notice, nations already intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. What does this mean to a nation’s image supremacy, how does this translate into economic impacts? Why is any global opinion of any kind important anyway? Be cautious, if such important topics are not discussed in your boardrooms, check out the restrooms.

The fabric of humankind. Every huge, little, deadly, serious or funny incident of any kind, becomes ‘alive’ in global social media, where despite all controls its is processed with common sense with common emotions, commented and circulated around the world, many times, registered, measured, analyzed, criticized and humanized as good, bad or ugly in the minds of the global populace.  No one can stop it. Facing truth is now a new global challenge of moral strength, something that increasingly demands insight and awareness. Shunning, arguing or defending and fighting has little or no power, as the real power hidden is in critical thinking to solve common good, humankind issues.   

The 200 nations, now under their own global digital spell, responding, and adjusting their own feedback and updating reality checks, influenced by the five billion, connected populace driving the world opinion.  The voices are no longer the big old-media, as they have already lost their credibility and power,  but across the world the new known and unknown big and small clusters of people sharing their thoughts amongst their local and global connectivity and surroundings. The truth rises, because this is how the critical needs for common good and social justice advances. The fabric of humankind stretches, starts to cover all nations.

Weaponization of Ideologicalism:  Why are most nations increasingly unable to control their restless citizenry? How much more will the citizens of these nations, continuously influenced by the global opinion, facing common sense, chasing truth, turning internal tribalism, into cultural wars defining limits of ideologies, as Weaponization of Ideologicalism slowly ripping local social fabric and crushing economies. Where are the repairmen, where are the solutions, which leadership is ready to articulate and bring national mobilization of entrepreneurialism as an untapped national treasure. Which nation is ready to face reality and show their advanced skills?

The aimless directives: When nations appear aimlessly drifting into hallucinations, the lack of vision, absence of social justice, unable to control internal tribalism, cultural wars move to ideological wars. Nations fragmented and splintered, now facing street by street mental wars. The visible lack of skills at the top management, lack of speed of execution at middle level and the absence of any motivation at remaining workforces now seriously limits all new options.

The coming revolution: The next global revolution, driven by economic chaos based on social failures, while the middle classes already disappeared, may not be about the mobs of commoners with broom-sticks but most likely the imploding calm and silent systemic collapse of bureaucratic administrative blockades and fall of economic intellectualism for destroying the fabric of humankind.

The absence of dialogue, only proves lack of real pragmatic solutions, skills and competence. Electioneering, sloganeering and fakery of wars to remain in power with no real economic solution, in global opinion a colossal failure.  Therefore, “Self Mastery” urgently needed to differentiate between a mesmerized mind with an enlightened one will possibly be a way to face the new challenges. Economies will only improve when old methodologies declared broken

The new world order: No other time in the history of civilization, so many globally connected will hold responsible the so few in power for destroying the remains of world order and bringing the world to a nuclear war.  A war, suggested to eliminate five billion people. It is possible, the coming revolutions to be less about anarchy but more about establishing real meritocracy. The need to search, find and strive for real value creation to answers grassroots prosperity affairs and eliminate lingering bureaucracies with fermented layers of incompetency. How soon will the five billion connected reach a critical point to select the right players with right policies and declare common good the new ultimate goals? This may eventually lead to a new world order. Pandemic was just a sneeze, economy, now like a hole in the empty pocket, leadership like a circus show, while billions looking up. Acquire mastery. Get ready for major global shifts of major economic behaviorism. The rest is easy. 

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Mosul’s recovery moves towards a circular economy

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Five years since the end of the ISIL(so-called Islamic State in Iraq and the Levant) conflict in 2017, the International Organization for Migration (IOM) in Iraq and the UN Environment Programme (UNEP), with funding from the Government of Japan, has established a debris recycling centre in Mosul. After its initial use, the centre has now been handed over to Mosul Municipality for its continued, sustainable operation.

“On behalf of the Iraqi Government, the Ministry of Environment expresses its gratitude to the Government of Japan for generously supporting this important project and to UNEP and IOM for enabling the sustainable management of the huge quantities of conflict debris and restabilization of the liberated areas in an environmentally sustainable manner,” said Iraq’s Minister for Environment, Dr. Jasim Abdulazeez Humadi.

The handover of the Mosul debris recycling centre marks a significant step in the sustainable management of the huge volumes of debris — an estimated 55 million tonnes — created by the ISIL conflict. It also opens the way for the recycling of routine construction and demolition waste, contributing to ‘building back better’ and an increased circularity in Iraq’s development.

UNEP West Asia Regional Director, Sami Dimassi, emphasized that “by reducing waste, stimulating innovation and creating employment, debris recycling also creates an important business opportunity.” Indeed, construction companies in Mosul have expressed interest in purchasing the recycled aggregate, thereby underscoring the longer-term sustainability of debris recycling.

“This project supports recovery and livelihoods by drawing on principles of a circular economy, wherein waste and land pollution is limited through production processes that reuse and repurpose materials for as long as possible,” explained IOM Iraq Chief of Mission, Giorgi Gigauri. “Collaboration and sustainability are key priorities in IOM’s work toward durable solutions to displacement, and we are pleased to have partnered with UNEP and the Government of Japan so that this is represented not only in the function of the plant itself, but also in its functioning, by supporting local authorities to be prepared to effectively operate the plant moving forward.”

On 28 July 2022, Mosul Municipality hosted an event to officially hand over the debris recycling centre, attended by senior government officials and academia, as well as representatives from IOM, UNEP and the United Nations Assistance Mission for Iraq (UNAMI).

Masamoto Kenichi, Charge d’Affaires, Embassy of Japan to Iraq stated: “We are glad to know that the project funded by the government and people of Japan has contributed to cleanup of debris and reconstruction of Mosul. We would like to commend UNEP, IOM and the city of Mosul for their tremendous efforts of turning the legacy of ISIL’s devastation into building blocks of reconstruction”.

Through the rubble recycling project, nearly 25,000 tonnes of debris have been recovered and sorted, of which around half was crushed into recycled aggregate. Material testing of the recycled aggregate endorsed by the National Center for Structural Tests of the Ministry of Planning confirms its compliance with the Iraqi State Commission for Roads and Bridges design standards for road foundational layers and its suitability for several low strength end-use applications such as concrete blocks and kerbstones.

The project created 240 much-needed jobs through cash-for-work schemes targeting vulnerable persons, including 40 women.

Building on this experience, IOM has set up two other debris recycling operations in Sinjar and Hamdaniya in Ninewa Governorate, and a third in Hawija in Kirkuk Governorate, where a pilot phase using a mobile crusher was implemented in al-Buwaiter Village in 2021. In addition, two other conflict-affected governorates — namely Salah al-Din and Anbar — have  also shown a high-level of interest in replicating and scaling up debris recycling in their own regions. 

UNEP has been supporting Iraq in cleaning up the huge volumes of debris created by the ISIL conflict since June 2017. Initially, this included carrying out technical assessments and planning workshops with UN-Habitat, and subsequently designing and implementing debris recycling pilot projects to support returns in Mosul, Kirkuk and other conflict-affected areas in cooperation with IOM.

UNEP

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Digital Futures: Driving Systemic Change for Women

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Authors: Erin Watson-Lynn and Tengfei Wang*

As digital technology continues to unlock new financial opportunities for people across Asia and the Pacific, it is critical that women are central to strategies aimed at harnessing the digital financial future. Women are generally poorer than men – their work is less formal, they receive lower pay, and their money is less likely to be banked. Even when controlling for class, rural residency, age, income, and education level, women are overrepresented among the world’s poorest people in developing countries. Successfully harnessing digital technology can play a key role in creating new opportunities for women to utilise formal financial products and services in ways that empower them. 

Accelerating women’s access to the formal economy through digital innovations in finance increases their opportunity to generate an income and builds resilience to economic shocks. The recently issued ESCAP guidebook titled, Harnessing Digital Technology for Financial Inclusion in the Asia Pacific, highlights the fact that mechanisms to bring women into the digital economy are different from those for other groups, and that tailored policy responses are important for women to fully realise their potential in the Asia-Pacific region.

Overwhelmingly, the evidence tells us that how women utilise their finances can have a beneficial impact on the broader community. When women have bank accounts, they are more likely to save money, buy healthier foods for their family, and invest in education. For women who receive Government-to-Person (G2P) payments, there is significant improvement in their lives across a range of social and economic outcomes. Access to safe, secure, and affordable digital financial services thus has the potential to significantly improve the lives of women.

Despite the enormous opportunity, there are numerous constraints which affect women’s access to financial services. This includes the gender gap in mobile phone ownership across Asia and the Pacific, lower levels of education (including lower levels of basic numeracy and literacy), and lower levels of financial literacy. This complex web of constraints means that country and provincial level diagnostics are required and demands agile and flexible policy responses that meet the unique needs of women across the region.

Already, across Asia and the Pacific, governments are implementing innovative policy solutions to capture the opportunities that come with digital finance, while trying to manage the constraints women often face. The policy guidebook provides a framework to examine the role of governments as market facilitators, market participants and market regulators. Through this framework, specific policy innovations drawn from examples across the region are identified which other governments can adapt and implement in their local markets.  

A good example of how strategies can be implemented at either the central government or local government levels can be found in Pakistan. While central government leadership is important, embedding tailored interventions into locally appropriate strategies plays a crucial role for implementation and effectiveness. The localisation of broader strategies needs to include women in their development and ongoing evaluation. In the Khyber Pakhtunkhwa province, 50,000 beneficiary committees comprising local women at the district level regularly provide feedback into the government’s G2P payment system. The feedback from these committees led to a biometric system linked to the national ID card that has enabled the government to identify women who weren’t receiving their payments, or if payments were fraudulently obtained by others.

In Cambodia and the Philippines, governments have implemented new and innovative solutions to support remittance payments through public-private-partnerships and policies that enable access to non-traditional banks. In Cambodia, Wing Money has specialised programs for women, who are overwhelmingly the beneficiaries of remittance payments. Creating an enabling environment for a business such as Wing Money to develop and thrive with these low-cost solutions is an example of a positive market intervention. In the Philippines, adjusting banking policies to enable access to non-traditional banking enables women, especially those with micro-enterprises in rural areas, to access digital products.

While facilitating participation in the market can yield benefits for women, so can regulating in a way that drives systemic change. For example, in Lao People’s Democratic Republic and India, different mechanisms for targets are used to improve access to digital financial products. In Lao People’s Democratic Republic, the central government through its national strategy, introduced a target of a 9 per cent increase in women’s access to financial services by 2025. In India, their targets are set within the bureaucracy to incentivise policy makers to implement the Digital India strategy and promotions and job security are rewarded based on performance.

These examples of innovative policy solutions are only foundational. The options for governments and policy makers at the nexus of market facilitation, participation and regulation demands creativity and agility. Underpinning this is the need for a baseline of country and regional level diagnostics to capture the diverse needs of women – those who are set to benefit the most of from harnessing the future of digital financial inclusion.

*Tengfei Wang, Economic Affairs Officer

This article is the second of a two-part series based on the findings of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Policy Guidebook: Harnessing Digital Technology for Financial Inclusion in Asia and the Pacific, and is jointly prepared by ESCAP and the Griffith Asia Institute.source: UNESCAP

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