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Comparison of the US and Chinese economy

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No doubt that the US is the largest economy, but, it is facing severe challenges and may not sustain this status forever. It is a natural cycle, nations work hard and rose to the peak and rule the other nations, sustain status quo for various duration, and then by one or another reason starts declining and pave ways for other nation to climb peak and become number one. It is an historic fact, which cannot be denied. One cannot win against the nature.

The US has been ruling the world after the World War II, and enjoyed supremacy, especially, after the disintegration of former USSR in 1991, the US enjoyed hegemony as a single superpower in the unipolar world for few decades.

However, the geopolitics has been changed, the US may not have realized, or not willing to accept it. But, the ground realities are evident and the US economy is falling sharply and losing its status of unique superpower and supremacy.

Below is the record of bankruptcy in US:-

1. Victoria’s Secret declared bankruptcy.

2. Zara closed 1,200 stores.

3. La Chapelle withdrew 4391 stores.

4. Chanel is discontinued.

5. Hermes is discontinued.

6. Patek Philippe discontinued production.

7. Rolex discontinued production.

8. The world’s luxury industry has crumbled.

9. Nike has a total of $23 billion US dollars preparing for the second stage of layoffs.

10. Gold’s gym filed for bankruptcy

11. The founder of Airbnb said that because of pandemic, 12 years of efforts were destroyed in 6 weeks.

12. Even Starbucks also announced to permanently close their 400 stores.

13. WeWork isn’t in a great spot either

14. Nissan Motor Co. may close down in USA

15. Biggest Car Rental Company (Hertz) filed for bankruptcy – they also own Thrifty and Dollar

16. The biggest Trucking company (Comcar) filed for bankruptcy – they have 4000 trucks

17. Oldest retail company (JC Penny) filed for bankruptcy – to be acquired by Amazon for pennies

18. The biggest investor in the world (Warren Buffet) lost $50B in the last 2 months

19. The biggest investment company in the world (BlackRock) is signaling disaster in the world economy – they manage over $7 Trillion

20. Biggest mall in America (Mall of America) stopped paying mortgage payments

21. Most reputable airline in the world (Emirates) laying off 30% of its employees

22. US Treasury printing trillions to try to keep the economy on life support

23. Estimated no. of retail stores closing in 2020 – 12,000 to 15,000. The following are big retailers that have announced closing: – J. Crew,  – Gap,  – Victoria’s Secret,  – Bath & Body Works,  – Forever 21, – Sears,  – Walgreens,  – GameStop,  – Pier 1 Imports,  – Nordstrom,  – Papyrus, – Chico’s,  – Destination Maternity,  – Modell’s,  – A.C. Moore, – Macy’s,  – Bose,  – Art Van Furniture,  – Olympia Sports,  – K Mart, – Specialty Cafe & Bakery, and many more.

Unemployment claims reached an all-time high of 38+ million – unemployment is over 25% (out of 160 million of workforce, close to 40 million are jobless). With no income, consumer demand is falling drastically and the economy will go into a free fall.

Of course COVID-19 has adversely impacted on the global economy including the US, but, more importantly. The US military operations, misadventures, overseas military bases, unnecessary confrontations, and war craze has costed heavily and harmed its economy severely. Only the miracles can save the US, otherwise its downfall is under process and declining accelerated.

On the other hand, China is making positive developments, despite of COVID-19, and slightly deterioration, yet the economic indicators are encouraging. China’s foreign exchange reserves totaled 3.0549 trillion U.S. dollars at the end of August, down 49.2 billion U.S. dollars from July, data from the State Administration of Foreign Exchange showed Wednesday.

“Cross-border capital flows were rational and orderly, and supply and demand in the domestic foreign exchange market remained generally balanced,” said Wang Chunying, deputy director and spokesperson of the administration.

Wang attributed the decrease in foreign exchange reserves to factors including exchange rate conversion and asset price changes. On the global financial market, the U.S. dollar index rises and the price of global financial assets declines under the influence of monetary policy expectations and the macroeconomic data of major countries.

Deeming the external situation complex and grim at present, Wang said the global financial market registers strong fluctuations amid increasing pressure on the global economy.

China has kept its economy operating in an appropriate range by effectively coordinating epidemic prevention and control with economic and social development, while implementing a raft of policies on stabilizing the economy. This helps keep its forex reserves generally stable, Wang added. Its domestic market is huge and can compensate any loss from international market. The pace of development within China is huge, which keep the economy moving on. More companies are appearing the top 500 fortunes, against the US companies are decreasing gradually.

China is emerging as a role model for many developing nations and is being followed by few countries. Chinese model is based on win-win cooperation, no aggression, no war, no occupation, no colonialization, no interference into other’s domestic affairs. It is a perfect peaceful development model and a precedence for the civilized world.

Prof. Engr. Zamir Ahmed Awan, Sinologist (ex-Diplomat), Non-Resident Fellow of CCG (Center for China and Globalization), National University of Sciences and Technology (NUST), Islamabad, Pakistan.

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Baltic reality: High inflation and declining of living standards

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The Baltic States’ economy is in bad condition. The latest estimate from the EU’s statistics body shows that Eurozone inflation is continuing to soar to record highs.

The Baltic countries continue to be the hardest hit. These states in particular are experiencing the highest levels of inflation in the Eurozone. Thus, inflation in Latvia and Lithuania hit 22.4 per cent and 22.5 per cent respectively. Estonia also has seen inflation rise year on year from 6.4 per cent in September 2021 to 24.2 per cent in September 2022. The more so, the Baltic States continue to see soaring energy and food prices which lead to declining standard of living.

The Bank of Lithuania has published its latest economic forecast and revised gross domestic product (GDP) growth projections for 2023 from 3.4% to 0.9%.

Statistics Lithuania also reports that in September 2022, the consumer confidence indicator stood at minus 16 and, compared to August, decreased by 5 percentage points. The decrease in the consumer confidence indicator in September was determined by negative changes in all of its components.

According to SEB bank economist Tadas Povilauskas, the number of poor people in Lithuania will increase. Living standards will be affected by rising food and energy prices. The current price of natural gas is too high and the economy cannot “go” with it. It is evidently that energy prices shocks have far-reaching effects on Lithuanian economy and population.

The main cause of such state of affairs is deteriorated relations with Russia. Russia has lately been the EU’s top supplier of oil, natural gas, and coal, accounting for around a quarter of its energy.

The conflict in Ukraine and political confrontation between Russia and the West has exacerbated the energy crisis by fuelling global worries it may lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September it would not fully resume its gas supplies to Europe until the West lifts its sanctions.

It is obviously that the conflict in Ukraine dramatically worsened the situation on the markets, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s exports of sunflower oil used for cooking. Ukraine is also the world’s fourth-biggest exporter of corn.

According to Euronews, the prices of many commodities – crucially including food – strained global supply chains, leaving crops to rot, caused panic in many European countries, including the Baltic States.

High inflation has become the direct consequence of sanctions imposed on Russia. As for the Baltic States, the lack of wisdom to find compromises and blindly following the European Union’s decisions have lead to declining standards of living. The desire to punish such huge state as Russia played a cruel joke on the Baltic States. It will be difficult to explain the population why they should turn down the heating in homes, schools and hospitals over the winter.

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Policy mistakes could trigger worse recession than 2007 crisis

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The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed, according to a new report released on Monday by the UN Conference on Trade and Development (UNCTAD).“There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan.

‘Political will’

“This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said.

The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.

And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.

Grim outlook

The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.

Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises.

Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report.

Debt crisis

With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis.

Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.

And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies.

“Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves. 

The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring.

Hiking interest rates

Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.

And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say.

Calm markets, dampen speculation

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.

And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said.

Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.

UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.

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‘Sanctions Storm’: Recovery After the Disaster

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After the start of the special operation in Ukraine, a “sanctions storm” hit Russia; more sanctions were imposed against Russia in a few months than against Iran in decades. But a catastrophe did not take place, and the stage of stabilization came.

Indeed, almost all the weapons in the sanctions arsenal were used one after another: commodities exchange was suspended in some sectors, export and import controls were put in place, restrictions on air and sea transportation were introduced. The sanctions have spread to the investment and financial sectors, paralyzing many transactions with the West and complicating them with the East. An image impact came from the mass withdrawal of foreign business from the Russian market—not directly caused by the sanctions, but demonstrating “over-compliance,” excessive submission to them.

In the public mind, the destabilizing wave created the impression of the end of the story of the market economy in Russia, an impending catastrophe. But the catastrophe did not happen. The stage of stabilization has come, and it is important to use it correctly.

What to do?

In the near future, the Russian authorities and business will have to solve three groups of interrelated tasks. First, they must provide the domestic market with necessary goods, and restore value chains by the use of alternative partners. Second, they need to establish reliable financial mechanisms for working with these partners. Third, it is necessary to look for new growth points for the future, industries in which dependence on the West was critical. It is important to work out the possibilities: for new partners entering the markets and for attracting investors from friendly countries, as well as trying to integrate into new value chains.

Partners, first of all, include China and India. The southern direction is also not unpromising—to begin with, this includes Iran and Turkey, as well as a search for investors in the Arab world and the development of logistics routes through the Middle East. Nevertheless, in all areas, the key obstacle is the threat of secondary sanctions by the United States and the EU—which means that the second task becomes the main one: building a safe infrastructure for financial cooperation.

China remains Russia’s first trading partner—but despite the strategic partnership on the political level, large Chinese companies and banks that are active in the international market are suspending cooperation with Russia, fearing secondary US sanctions. In these conditions, it is important to work on explaining the nuances of the sanctions policy for Chinese business, creating secure payment channels that do not depend on foreign banks or on the dollar and the euro, and developing profitable package offers. Beijing seeks to use the opportunities opening up in the Russian market to occupy the vacant niches and strengthen the yuan in international payments, which means that its interest in finding a common solution is high.

A similar situation is developing in the Indian market, with the difference that Indian business is more connected than Chinese business with America, and its awareness of doing business in Russia is lower. As a consequence, Indian companies and banks integrated into the global economy will comply even more closely with sanctions restrictions, despite their interest in developing ties with Russia. Accordingly, even more active informational work is needed to establish Russian-Indian business ties, as well as the creation of a secure settlement mechanism. India already has similar experience, from doing business with Iran. In particular, UCOBank was formed to trade with it in rupees. Similar structures can be created in the Russian direction.

If the necessary channels are laid, both China and India can not only replace some Western goods in Russian markets, and ensure purchases from the Russian energy, agricultural, and military-industrial sectors—preserving their prospects for business—but also become zones of qualitative economic growth. Chinese partners can become a support in the development of bilateral cooperation in the fields of electronics and digital technologies (including 5G), and Indian, in pharmacology and high-tech agriculture. It also makes sense for business to look at these countries from the point of view of the development of green technologies in energy and agriculture, and the introduction of ESG practices, since these countries are also interested in this.

From our partner RIAC

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