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Economic Stimulus Policy Has Become Inevitable for China

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China’s economic growth targets and macroeconomic policies formulated at its annual parliamentary meetings the “Two Sessions” face the challenge of policy adjustment in just one month later.

In this year’s government work report, the GDP growth target is set at about 5.5%. There will be more than 11 million new urban jobs expected to be created. The yearly surveyed urban unemployment rate in China is expected to be within 5.5%. Meanwhile, consumer prices are expected to climb by roughly 3%. It is also expected that inhabitants’ incomes would expand at a similar rate to the overall economy. The quality of imports and exports would be steady, and the balance of payments would be basically zero, according to the forecast. In terms of fiscal policy, the deficit rate is expected to be about 2.8% (approximately RMB 3.37 trillion) this year, which is lower than the 3.2% deficit rate (approximately RMB 3.57 trillion) in 2021.

The above goals and policies were set under normal circumstances and did not take into account major events such as the Russia-Ukraine war, the resurgence of COVID-19, and the re-imposition of strict pandemic prevention and control measures.

At present, however, the current conditions both within and outside of China are not conducive to the country’s economic development. As the Russia-Ukraine war is likely to continue, the volatile global energy and food markets would affect not only Russia and Ukraine, but also the rest of Europe and the emerging market as well. In China, the post-pandemic global recovery may lead to a shift in orders and a slowdown in export growth. The pressure of strict prevention and control has a significant impact on the Chinese economy. Some cities in the eastern region have undergone lockdown for nearly a month, and parts of Shanghai have been closed for more than a month. Strict measures have led to large-scale disruptions to the nation’s logistics network and supply chain. People’s lifestyle and consuming habits have substantially been impacted in certain restricted cities. For the past two years, when the country’s economy was hit by COVID-19, the developed southeast coast regions have been supporting the other regions economically (as Shanghai has done during the period). Given that the current outbreak is mainly on the southeast coast, other regions are helpless in this.

The above challenges have brought new pressures on China’s economic decision-making.

The State Council executive meeting on April 6 mentioned that “the complexity and uncertainty of the domestic and international environments have intensified and in some cases exceeded expectations”. On April 11, Premier Li Keqiang, while attending a symposium in Jiangxi, emphasized that “we need to be highly vigilant for unexpected changes in the international and domestic situations and the downward economic pressure, and face up to and resolutely respond to new challenges”. To stabilize the economy and assure basic people’s living through supportive economic activities within a fair range of employment and price stability, the Chinese economy may need to enhance the execution of macroeconomic policies, as well as deepen the country’s reform and opening-up.

As a result, according to ANBOUND’s analysts, China may be forced to implement a huge economic stimulus strategy in 2022, with a focus on economic impetus. Some of the policy concerns are listed below:

The first issue looks at the different investment plans in parts of China. From January to February, the national fixed asset investment (excluding farmers) was reported at RMB 5.076 trillion, a year-on-year rise of 12.2%, 7.3 percentage points faster than that in 2021, and 8.3 percentage points faster than the average growth rate for the two years in 2021. Although the growth rate of investment is not slow, the huge investment scale is the sum of the investment plans of various places. The investment scale does not have incremental utility and cannot be regarded as a large-scale stimulus.

The second matter involves some major projects where local resources are concentrated. Any major project is usually the exclusive domain of state-owned enterprises. State-owned enterprises only act as the “second central bank” and invest part of their funds in major projects, which has certain limitations in bringing substantial incremental utility.

The third concern touches on real estate development and market policies. Under economic pressure, 60 cities in China have experienced the impact of the relaxation of real estate control policies. The primary goal is to improve the real estate market, although currently the country’s real estate market has been affected, putting locals in severe debt. Even the deployment of corrective policies can only help to ease the financial crisis to a limited extent, and the real benefits to the economy are limited.

The fourth has to do with direct consumption stimulus. In the past two years, the Chinese government has issued consumers vouchers in many places to alleviate the impacts of the pandemic and stabilize the economy. The issue could be complicated because, despite intractable financial constraints, issuing consumer vouchers requires substantial financial resources from central and local governments.

The fifth is associated with a cut in taxes and fees, rental, and interest. This approach not only contributes to reducing the total social cost but also lowers the operating costs of enterprises. For businesses under severe economic downward pressure, however, this approach has limited effect on the growth of economic volume but more of maintaining the current condition.

Each of the above issues has its own advantages and disadvantages, and the effect is different. The following aspects may require further attention.

Sixth, the Chinese government might further promote urban transformation. ANBOUND has mentioned that urban renewal is the key to the development of urbanization in the second half of the year. Through urban transformation projects, the process of urbanization is continuous, thereby increasing the value and output of urban spaces, which will generate economic growth.

Seventh, the Chinese government may revitalize the capital market and improve its attractiveness of the capital market while liberalizing direct financing. The development of the capital market has always been an obvious shortcoming in the Chinese economic system. The stock market, in particular, is not only a difficult platform to boost property income but also insecure when it comes to luring foreign investment.

Eighth, the Chinese government could implement an expansionary fiscal policy under special circumstances to moderately make up for the economic deficit. Facing downward pressure on the economy, only the central government can afford a higher debt ceiling. In general, macro policies require continuous deleveraging but in exceptional circumstances, deleveraging may have to be delayed. However, from the current economic condition in China, it seems inevitable that the debt ceiling will be breached.

Our proposal for a massive economic stimulus policy is different from the concepts introduced in the past few years. In past policies, the Chinese government adopted some systematic expansionary monetary and fiscal policies. By providing large liquidity, the “capital excess” mitigated the impacts of a lack of economic momentum. The massive economic stimulus policy we now propose is mainly to restore the Chinese economy in the post-pandemic period. During this period, the Chinese economy appears to have continued to be affected to some extent by the economic freeze following tighter pandemic control. If the Chinese government allows the market to adjust itself, there is a risk of economic stagnation.

Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy

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Economy

Another Sri Lanka?: Pakistan’s Economic Crisis

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Pakistan’s Finance Minister, Miftah Ismail warned of “bad days” ahead as he highlighted the looming economic crisis that the nation finds itself in. Addressing a ceremony at the Pakistan Stock Exchange, the Finance Minister blamed the economic policies taken by the erstwhile Tehreek-e-Insaf government for the dire economic state of the country.

A Nation in Crisis

Pakistan’s foreign-exchange reserves have shrunk by more than half in the past year, to just over $9 billion, or about six weeks’ worth of imports. In 2022, the Pakistani rupee has lost about 30 percent of its value against the US dollar. Furthermore, a rise in inflation and unemployment coupled with political instability has only made matters worse. The three major global rating agencies, Moody’s, Fitch, and S&P Global have downgraded Pakistan’s long-term rating from stable to negative, citing the country’s deteriorating economic position.

The current Pakistani government has blamed former Prime Minister Imran Khan for much of its economic woes. These accusations are not entirely unfounded. While he promised to rid Pakistan of its economic troubles, Mr. Khan failed to deliver. His regime saw an increased rate of inflation and widespread economic mismanagement. By March 2022, the country’s total external debt and liabilities reached $128 billion. Unemployment also surged with Pakistan Institute of Development Economics (PIDE) reporting 31% of the youth to be unemployed. The sudden dissolution of his government added fat to the fire, leading to political instability amid grave economic troubles. However, with a tenure of less than five years, blaming Imran Khan for all of Pakistan’s economic troubles seems far-fetched. Undoubtedly, the economy suffered under the Khan administration but this crisis stems from a much larger flawed system.

Economic Fault Lines

There are various structural flaws that can be located in the Pakistani economy that have time and again led to its unmaking.

The Khan administration is not solely responsible for the ongoing debt crisis. The IMF has provided loans to Pakistan on twenty-two occasions since 1958, imposing 13 Structural Adjustment Programmes (SAP). The focus of these programmes has been to stabilise the economy while sacrificing growth in the short term. However, Pakistan’s growth rate has consistently remained the lowest in South Asia since the introduction of the first SAP in 1988. The sustainability and feasibility of these IMF bailouts have also been brought into question considering the frequent visits Pakistan makes to the IMF requesting for bailouts. For instance, the last bailout Pakistan requested was in May 2019, just three years before the current crisis. Furthermore, the China–Pakistan Economic Corridor (CPEC) created a debt of $64 billion for Islamabad which was originally valued at $47 billion in 2014. The excessive borrowing to resolve short term issues has majorly contributed to Pakistan’s economic troubles.

Another major issue with the Pakistani economy is the huge trade deficit that the country incurs. Pakistan’s trade deficit currently stands at $48.66 billion, a record high. This enormous trade deficit has resulted from lack of exports in the face of steadily growing imports. As the industries fail to meet the requirements of the domestic market, Pakistan has to rely on imports for bridging the gap. Similarly, the exports suffer due to low productivity of agriculture and industries. According to the International Labour Organisation (ILO), Pakistan is ranked 143 out of 185 countries on labour productivity, having its GDP per hour worked at a measly $6.3.

Poor fiscal management and failure of the private sector to adapt to innovations has further shackled the Pakistani economy. All of these issues have contributed to the ensuing political instability.

Another Sri Lanka?

The past few months have witnessed the collapse of Sri Lanka from one of the top performing economies in South Asia to its descent into anarchy. With Pakistan in a similar crisis, it is widely argued that the country might be on its way to follow the island nation into a harrowing economic collapse. With the fate of Sri Lanka at display, it is also feared that escalating political instability might lead to an eventual military rule, as has been the norm in Pakistan.

While the situation is bad and might worsen in the coming days, Pakistan is unlikely to follow the Sri Lankan trajectory. The revival of a 2019 bailout with the IMF on July 13, clearing the way for about $1.2 billion, comes as a relief for Pakistan. This much needed help will allow the country to look for alternative channels to bridge the financing gap. The Pakistani military has also been playing an active role in stabilising the situation, with Army Chief Qamar Bajwa seeking financial help from friendly countries including UAE and Saudi Arabia. The involvement of such external lenders should discourage major creditors like China from requesting immediate repayments, easing the pressure on Islamabad. However, this requires the Pakistani government to keep a check on the steadily increasing imports.

While the present measures are likely to provide respite for now, even in the unlikely scenario of a Sri Lanka-like complete economic collapse, the military would not let the political situation in Pakistan slide into anarchy and is likely to take over by dissolving the government in the worst case.

The Way Ahead

Even though Pakistan might just evade the crisis through IMF involvement and bettering the trade deficit by curbing imports into the country, these are measures that tend to serve short term purposes and are no guarantee against another similar crisis in the coming years. The only sustainable answer would be initiating structural reforms. A self-sufficient economy must be at the heart of a rebuilding project. Increased productivity will facilitate an increase in exports while decreasing the imports on basic commodities like food and medicines. Finding economic stability is also detrimental to which path Pakistan’s politics will take in the future as the shadow of military rule looms large on the dwindling democratic set up which has managed to keep it in the barracks since 2008.

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What Is Stopping Economic Development Across The Free World?

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Notice the big events of economic booms during the last century and observe the unique role of mobilization of entrepreneurialism on such trajectories. For example, the original Silicon Valley of the USA was not a technology or financial revolution but the mobilization of an entrepreneurial journey, way before the term ‘IT’ became popular, and ‘technology’ conceptualized as worthy enough to trade in billions while staying invisible. The out-of-box thinkers came out of their garages, broke old systems, created new alternates and changed the world forever. Revolution of entrepreneurs, created by entrepreneurs and for entrepreneurs. The rest is history

Today, some 100 other nations are still trying hard with their own version to become the copycats. The existing lukewarm failures around the world on the replications of “silicon valley” of sorts, already speak volumes. Remember, only measured by entrepreneurialism, such goals, unless once Mindset Hypotheses properly understood this entire subject already beyond common narratives on economic growth.

Real economic development always needs methodical advancements of national mobilization of entrepreneurialism, upskilling and uplifting SME sectors to quadruple exportability otherwise, growth and productivity remain stagnant.  The big challenges are to bring the entrepreneurial thinking and job creator mindsets blend across the economic development teams on a fast track basis. Their current frame of mind critically needs uplifting so their confidence level stands up to the global quality, demands for speed and execution able to tackle the power of global competitive forces.  

Neither across the world, during the entire last decade, did academia build neither the long awaited Fourth Industrial Revolution nor did the bureaucracies digitized, mobilized and uplifted SME economies. Where is the entrepreneurial mix in all such equations? What have the economic development teams really learned recently?  When will they get ready to advance their thinking and blend their efforts alongside the entrepreneurial engines and right mindsets?

When 100 plus nations, talking about digitization, are still trying to figure out mobilization of large sectors of their SME economies, with little or no progress, lingering questions arise. Necessitated now, are some newly mandated activities at every stage of any economic development in progress. Identify and rearrange right mindsets, for right challenges. What worked, last many decades, today, with no results, now ready for thrown out of windows? How long unlimited printing of currencies last, how high will inflation go and how long the recessions last?

The post-pandemic technologically advanced world,  Best option is to balance mindsets and cause change, adjust to global age demands on productivity and performance, otherwise accept a diaper change, surrender to face frailty of life and limits of minds. It is not the absence of expertise that is a problem, it is the mindsets unable to recognize such expertise, in the first place.

The invisible switch: There is no political power unless there is a parallel economic power; after all, there cannot be any economic power without entrepreneurial job-creator-mindset power. Economies without digitization are as if without electricity, economic development without upskilled frontline teams as if without a bulb. Study the solutions via Mindset Hypothesis

The 4B factor: Four Billion on the march; billion displaced due to pandemic, billion replaced due to technology, billion misplaced in wrong jobs now a billion on starvation-watch. The 4B Factor, this digitally connected mass of people making this now the biggest force of global opinion in the history of time.

Global opinion v/s national public opinion: Observe, how fast the world changed, how the ocean of global opinion is now drowning ponds of national opinion. Notice, nations are already so intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. Study the global tidal waves.

Study the Agrarian Age to Industrial Age, later to Computer Age, measure how most talented ‘cow-hands’ were suddenly replaced by steam power and hydraulics and later floors filled with clerks replaced by a single computer. Study “How did we arrive here so suddenly” Excerpted Source: Naseem Javed, Sunrise, Day One, Year 2000. Published, IABC Communications World, Dec. 1995, Volume 12 Issue 11, Article, ‘Chronology Charts’

Over centuries, despite, available like an open book, the government failed to create armies of entrepreneurs but was always successful in creating real armies and real combat soldiers. Simply because, soldiers trained by sleeping in the forests while digging trenches in the rain, but not trained by running around in classrooms with water pistols or drawing pictures of tanks. 

Entrepreneurialism is neither academia born nor academic centric. Let the professors teaching entrepreneurialism break the furniture in protest, their contributions, as theories are excellent only when free, but not for heavy cost and creating student debts. Today business education is more a liability and no longer a real asset. The world changed, minds opened, old-systems closing, new worlds arising with new definitions erupting to manage the future better.

Go build an airline, place aeronautical engineers, and frequent flyers in the cockpits but leave qualified trained pilots in the airport lobbies. Now glued to the radio to find about a crash understand the similarity to current pending financial crashes, nation by nation. As a test, best check out what percentage of entrepreneurial job creator mindsets are in the mix with job seeker mindsets of any local, national economic ministry anywhere in the free world.

Save economies and grab the solutions: They can rapidly upgrade and acquire Mastery on National Mobilization of Entrepreneurialism,learn its pragmatism and common sense deployments within months, acquire digitization, mobilization and most importantly to articulate on such advanced new thinking across the national agenda. Learn fast, fail fast, raise fast and shine. Study how Expothon is tabling such ideas globally. 

Today, a shipload of some 7000 economic development officers, representingalmostthe total of top teams spread across free economies of the world should now take a luxury cruise, relax, relearn, unlearn, as their current mathematics is causing serious maladjustments on creating grassroots prosperity for some 100 nations. How fast can this force of 7000 people on a luxury cruise be upskilled on National Mobilization of SME Entrepreneurialism?

The difficult questions: How quickly options when infused with technology lead to mobilizations to discover new paths. Which economic leadership of free nations can display such transformation or even articulate on such critical topics? Which national or global institution is bold enough to face and debate such challenges? Which economic team is ready to test, explore, or try on such forbidden topics? Nevertheless, the world changing fast and will not stop for anyone.

Observing the change, it will not be the sudden arrival of missed Fourth Industrial Revolution; but the surprised arrival of the First Industrial Revolution of the Mind. Study deeply how the mind is opening up and responding to creative entrepreneurial issues, the old concept already dead, now replaced with new thinking. Leaving behind the woman entrepreneurs is another tragedy for any nation. What are some new solutions

Just like today, we no longer tolerate square wheels or rotary dials, or chasing a form stamped 10 times, across a 10-floor building without a lift. The post pandemic economic recovery in smoke and mirror war games, will no longer tolerate the inefficiencies and bureaucracies. Of course, today, the ability to face the truth now considered extraordinary strength. Change can be beautiful, once minds opened.

Refusing to face the truth; this is where all the hostility and hate breeds,  and where without diversity and tolerance, wars and fakery declared the common games, this is when humankind left as secondary, common good declared waste, societies destroyed, so who needs economic development, anyway? A new wave of grassroots economic development will emerge as the top-level economic development almost already destroyed. Hear the sounds of distant firings. It will be the five billion connected alpha dreamers, who will develop and change the world. The rest is easy 

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The first Africa-Caribbean Trade and Investment Forum Comes On 1-3 September at Barbados

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With the new dawn gradually unfolding, African financial institutions such as the African Export-Import Bank (Afreximbank) are making tremendous efforts and offering support for African leaders in consolidating Africa’s economy within the framework of the African Union Agenda 2063. They have consistently been pushing to transform agriculture as the safest approach to reduce imports and insure food security, improve industrialization and the raise the efficiency of human resource capital in Africa.

The Government of the Republic of Barbados will be hosting the first ever edition of the AfriCaribbean Trade and Investment Forum (ACTIF) which is being convened by African Export-Import Bank (Afreximbank) and Government of Barbados in collaboration with African Union Commission (AUC), African Continental Free Trade Area (AfCFTA) Secretariat, Africa Business Council, the Caribbean Community Secretariat, and Caribbean Export Development Agency. 

The African and Caribbean ties are deep rooted and based on shared history, culture, and sense of a common identity and destiny that was forged by the slave trade creating large centres of African Diaspora in the Caribbean and elsewhere. While Africa and the Caribbean have renewed their engagement, with a Heads of State and Government Summit of the Caribbean Community and Africa, held on 7 September 2021, the relationship needs to be institutionalized through deepening of trade and investment ties between the two regions.

The holding of the inaugural Africa-Caribbean Trade and Investment Forum is, therefore, a key strategic deliverable towards the institutionalisation of the reborn relationship between Africa and the Caribbean. This Forum will further consolidate the political agreement reached by Heads of State and Government of the Caribbean Community and which aims to strengthen collaboration, unity and to foster increased trade, investment and people-to-people engagement between the two regions.

It is in this context that the inaugural Africa Caribbean Trade and Investment Forum (ACTIF), has been organized to hold during 1-3 September at Bridgetown, Barbados. The Forum dubbed: AfriCaribbean Trade and Investment Forum 2022, will hold under the theme “One People, One Destiny. Uniting and Reimagining Our Future” vividly reflecting the common cultural aspirations. 

The main goal of the AfriCaribbean Trade and Investment Forum is to provide a platform for the development of strategic partnerships between the business communities in Africa and the CARICOM Region with the objective of fostering bilateral cooperation and engagement in trade, investment, technology transfer, innovation, tourism, culture and other services. The Forum will also be used as a vehicle to actively promote trade and investment opportunities among people of Africa and the Caribbean, as well as the wider diaspora which will contribute to the implementation of the African Continental Free Trade Agreement (AfCFTA) and to the Caribbean trade development agenda.

Africa leaders and its people highly appreciate the readiness of external countries, who in practical terms, engage in infrastructure development, agriculture and industry especially at the dawn of the rapid geopolitical changes possibly leading to creating a new global economic order. Noting the significance, a number of countries are simultaneously trying to understand barriers in the region and are steadily exploring ways to leverage unto the newly created AfCFTA which provides a unique and valuable platform for businesses to access an integrated African market of over 1.3 billion people in Africa.

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