Risks of over-capacity in Chinese car making
The Chinese automobile market is now the world’s largest and demand for vehicles is set to continue expanding at a rapid pace as per capita incomes increase. The supply-side capacity of the car industry is being vastly increased partly as a result of inward investment - Nissan, Toyota, BMW, Hyundai, the Chinese automaker FAW and others have all announced plans to build new factories in mainland China. But are there risks of too much investment which could leave the industry with a buffer of excess capacity. This Business Day article says that there is and provides a useful reminder of elasticity of supply in a fast-growing sector - “Projecting market trends is always difficult for auto makers who often need up to two years to build new plants.” A hat tip to Shani Hartley for spotting it. I will post up some charts showing the growth of the Chinese car industry a bit later on today.
Are the Chinese to blame for rising wine prices?
The Chinese seem to be getting the blame for a lot these days, so it comes as no surprise to read this headline
read more...»Currencies in the News - Two Videos
Movements in the external value of currencies have direct and indirect effects on plenty of macroeconomic variables such as inflation, exports, output, profits and - ultimately - jobs. This week we have seen the Japanese central bank intervening in the foreign exchange market in an attempt to drive the value of the Yen lower. Japan is struggling to sustain a recovery after the global financial crisis and a weaker currency is seen as a vital part of the attempt to prevent another draining bout of price deflation.
And the long-running dispute between the United States and China about the alleged under-valuation of the Yuan against the US dollar continues to rumble. This BBC news video takes a swing through New Jersey to find trade unions lobbying government for more action on the exchange rate issue.
Potash - a battle for grey dust that has become gold dust
The market for a particularly lucrative gray dust has been thrust into the spotlight this summer with news of a $38.5bn (£25bn) hostile takeover bid from Australian mining giant BHP Billiton for Potash Corp of Saskatchewan in Canada a business coined by some as the “Saudi Arabia of Potash”!
read more...»Little sign yet of a Yuan appreciation
Back in June the Chinese authorities announced that they were prepared to allow a managed withdrawal of the pegged currency against the US dollar. There has been longstanding pressure from US law-makers that an undervaleud Yuan has given China an artificial competitive advantage in international markets. And that the huge rise in her current account surplus is indicative of an exchange rate that is some distance from a long-run equilibrium level.
read more...»Revision Note: China and the World Economy
A brief revision note on the impact that China’s emergence as a major economy has on the world economic system.
read more...»A Lewis Turning Point? Wages in China
The Telegraph reports that FoxConn is raising wages for workers at its factories by 70% with effect from the 1st of October. Following the latest rise the basic salary for production-line workers at Foxconn’s will have risen from 900 renminbi (£91.30) per month two weeks ago to 2,000 renminbi (£203). The article picks out some of the short and medium term factors driving average wages higher in the Chinese economy including the effects of demographic change in addition to labour shortages in many Chinese manufacturing heartlands.
It raises plenty of interesting economics aspects:
1/ Whether the wage hike will raise productivity still further - many economists believe that there is a positive relationship between pay rates and output per worker - the idea of efficiency wages
2/ How Chinese manufacturing businesses will absorb the increase in unit labour costs
3/ The extent to which consumers in the developed world will now pay more for their digital gadgets
4/ The impact on domestic living standards and consumption in China and on demand for household goods and services
In several ways the Chinese authorities will support the lifting of average wages - China now aims to boost private sector capital investment and consumption to cut dependence on the fiscal and monetary stimulus that countered the effects of the global financial crisis
Foxconn is not the only foreign-owned company in China to decide to raise wage rates. Honda, Japan’s second-largest automaker has recently reached an agreement with most of the 1,900 employees at a Chinese parts factory to raise pay by 24 percent after workers walked out on strike.
More here from the BBC news web site: Foxconn gives workers second pay rise
See also: Apple boss defends conditions at iPhone factory
And more here from Bloomberg Economy
“China, once an abundant provider of low-cost workers, is heading for the so-called Lewis turning point, when surplus labor evaporates, pushing up wages, consumption and inflation, said Huang Yiping, former chief Asia economist at Citigroup Inc. The result may prompt manufacturers to switch to cheaper countries such as India and Vietnam. “
China’s housing market - fantastic interactive resource
The Wall Street Journal has excelled itself with this superb resource providing background on the Chinese housing market (bubble?)
Government failure - extereme version!
An example of pretty extreme government failure here on BBC video - thanks to Mark Seccombe for spotting it!
Is the UK coal industry turning a corner?
These are fascinating times for the UK coal industry. Over several decades, production of coal from an industry that once employed hundreds of thousands was in steep decline. The nadir appeared to be the early 1990s when an accelerated pit closure programme was introduced as the UK turned decisively towards gas a major energy source. The result was the end for deep-mine activity for thousands of miners, high levels of structural unemployment and major economic and social problems for local communities.
read more...»A2 Economics Revision - Changing Pattern of Global Trade & Investment
This new streamed revision presentation guides students through some key evaluation points on the changing patterns in global trade & investment. Ideal for A2 revision.
Revision Presentation on the Changing Pattern of Global Trade & Investment
BRIC economies
The BRIC grouping is shorthand for four countries – Brazil, Russia, India and China – and the BRIC acronym has become popular to describe the growing power and influence of emerging markets in the global economy. The BRICs already have a bigger share of world trade than the USA and China is on the verge of surpassing Japan as the second largest economy in the world.
read more...»Living in a multi-polar world economy
Although many millions of people in the lowest income countries have suffered greatly from the world recession, for many emerging countries growth has continued apace and the world economy is more resilient than the consensus view believes. This was one of the arguments explored by Jim O’Neill, Head of Global Economics, Commodities and Strategy Research for Goldman Sachs, in his talk to the 40th Anniversary meeting of the Eton College Keynes Society last night. The creator of the BRIC acronym was also quite bullish about prospects for the UK economy, with Britain able to take advantage of a competitive exchange rate and a strong rebound in global economic activity driven forward by fast growth in emerging market countries.
read more...»Demographic shifts - and working with China
Business Insider’s chart of the day has some revealing population projections that suggest that the USA’s labour force is set to continue to expand in the years ahead whereas China’s labour force will shrink by 10%, Europe’s will shrink 25%, and that of Korea and Japan’s will also contract by a significant amount.
The BBC news website carries a related article on labour mobility within the Chinese economy. Millions of internal migrants moved away from the manufacturing heartlands during the recent economic crisis. How many of them will return especially with the financial incentives on offer from a Chinese government that is seeking to create a million more entrepreneurs. Read: Why migrant workers are shunning China’s factories
Hamish McRae has a thoughtful piece in the Independent today on some of the lessons from the rising level of foreign direct investment by Chinese companies in Western businesses.
Hamish McRae: Dealing with China will never be easy
Geely buys Volvo - a fresh sign of the march of Chinese FDI
Chinese car maker Geely has signed a deal to buy Volvo from US car giant Ford for $1.8bn (£1.2bn). It is fresh evidence of the foreign direct investment being made by Chinese companies in a bid to buy access to European markets and access Western technology. This BBC news video provides some background. In 2009 China overtook the US as the world’s largest car market.
FT Graphic on China’s Overseas Investments
A super interactive graphic from the Financial Times. China has developed a rapacious appetite for natural resources as its economy has developed over the last decade.
PIGS or BRICS - which is most important for UK exports this year?
The PIGS - Portugal, Italy, Greece and Spain - are in economic turmoil and likely to experience weak growth in the near term. A contrast to the BRICs - Brazil, Russia, India and China - three of whom are already seeing a ramping up of their growth rates as the world economic cycle turns. But which group is more important for the UK export sector? Chris Giles from the Financial Times has the answer here and his blog provides a useful evaluation point for AS and A2 macroeconomics students.
Wen turns the tables
Following on from last month’s article in EconoMAX that I wrote, China has insisted again today that the yuan is not undervalued - The Chinese premier turned the tables on the U.S and Europe today when it said that putting pressure on China to appreciate its currency was tantamount to protectionism!! Genius!
“What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism,” Mr Wen said.
read more...»Supply-side stimulus for the Chinese economy
A top-down programme to encourage bottom-up growth of entrepreneurship in China’s rural areas. We have become accustomed to the enormous size of infrastructure projects in China designed to maintain domestic demand and employment and sustain a minimum growth rate of 8 per cent. China’s investments in new factories and properties surged 67 percent last year to 15.2 trillion yuan, more than Russia’s gross domestic product.
This is another approach focusing on enterprise in rural areas. The Chinese Government has spent about $40 billion training people from the countryside to run their own business. The Government’s scheme provides free skills training, tax free loans of up to $8,000 and two years of support.
Inflationary pressures in China
This BBC news video provides an interesting window on the pressures for wages to rise in the booming city of Shanghai. The impressive rebound in Chinese economic growth is driven by the strength of the underlying growth forces in the economy together with the impact of the huge fiscal stimulus. But for many young professionals growth is causing the cost of living to surge - food and property prices are the main concerns. Inflation is a genuine risk for the Chinese economy - what might the Chinese authorities do about this?
read more...»China Economy Chartroom 2010 - Classroom Posters
We’ve just updated our China Economy Chartroom classroom poster set. It provides charts using the latest public data on the key economic variables in China together with some profiles of China’s phenomenal consumer and industrial growth in recent years.
read more...»A Breathtaking Bridge
It is the type of infrastructure project whose ambition and scale takes the breath away - this Independent article looks at the start of construction work for 30-mile Hong Kong-Zhuhai-Macau Bridge, which will link China’s southern economic hub of Guangdong province to Hong Kong and Macau.
China the hungry teenager
Hamish McRae is on excellent form in this piece in the Independent - China’s latest growth surge is the result of an enormous fiscal stimulus and a massive (and unsustainable) rise in credit.
One of the short term consequences is that China’s turbo-charged growth is once again putting upward pressure on world commodity prices. Just as a hungry teenager will happily eat food long into the night, China’s incremental demand for natural resources and manufactured components is threatening another rise in cost push inflationary pressures in the world economy. This is one of the inflation risks facing developed countries and a factor behind fears of a rise in short term and long term interest rates before a recovery gains sufficient traction.
Focus on the BRICs
The following video clips from the FT focus on the so-called BRIC economies (coined by the Chief Economist at Goldman Sachs in 2001).
There are excellent to provide discussion points on why grouping the BRIC (Brazil, Russia, India, China) economies together is flawed, with the 4 countries being actually very different and the acronym BRIC no longer being appropriate, in its description of their experiences or their futures. They also discuss whether economic power has shifted from the US to the East.
Chinese growth in words and pictures
Statistics about the speed of China’s development never cease to be amazing, no matter how many times you read them. Here is another one; in the dark days of 2009 the Chinese economy grew by yet another 8.7% (10.7% in the final quarter of the year) so that it is now set to overtake Japan, which probably shrank by 6% over the same period, to be the world’s second largest economy. And yet, according to Ma Jiantang, head of the National Bureau of Statistics, there are still 150 million people in China living on $1 a day and so poor according to the UN’s standard rating. This gives a remarkable contrast as the world’s second or third largest economy is also a developing nation with enormous conflicts and trade-offs in macroeconomic policy to resolve. Mr Ma also referred to the concerns about inflation in China - he said price rises were “mild and under control”, but over recent days the government has tried to limit the amount of loans made by the country’s banks in order to avoid a ‘domestic bubble’ of growth. This is the focus of the Times’ report, which highlights expectations that there may be a rise in interest rates in China in the next two months.
read more...»Assorted Links (19 Jan 2010) - Focus on the Chinese Economy
1/ Telegraph: Something has to stop the Orient express and its cargo of trade imbalances - Roger Bootle argues that China must do more to reduce the soaring trade imbalance between China and the rest of the world
2/ The Observer: Dark economic clouds on the horizon for China - Heather Stewart looks at the risks facing the Chinese economy in 2010
3/ The Times: After £800bn loans, China tells banks to focus on the real economy - Unprecedented lending growth risks causing a bubble economy and rampant inflation.
4/ The Guardian: Without Chinese economic reform, global recovery may be doomed - Larry Elliott argues that China needs to boost domestic consumption rather than relying on exports, or the world will be flooded with goods that nobody wants
5/ Independent: China ‘overtakes’ Germany to become largest exporter
read more...»Revision Presentation - China’s Economy Surges into 2010
More significant developments in the Chinese economy over recent weeks, with significant implications for the global economy & businesses looking to exploit opportunities in China, or counter threats from import penetration. This new revision presentation guides students through some of the key data and developments:
Launch revision presentation on Chinas Economy Surges into 2010
Assorted Links (10 Jan)
1/ The Observer - China becomes world’s biggest exporter
2/ BBC news - Greece raises taxes on alcohol and tobacco
3/ Predictably Irrational - what boyfriends and girlfriends search for on Google
4/ Sunday Times - Japan airlines about to collapse
5/ Teach America - what makes a good teacher?
Jim O’Neill Remains Hugely Positive on the BRICS
A fascinating, short interview on Bloomberg today (4 Jan 2010) with Jim O’Neill (Cheif Economist at Goldman Sachs) talking about the economic prospects of the BRICS in the next decade.
read more...»Krugman on Chinese mercantilism
My dictionary suggests that mercantilism is governmental regulation of a nation’s economy for the purpose of augmenting state power at the expense of rival national powers. Answers.com says that the term historically refers to policies designed to accumulate bullion, establishing colonies and a merchant marine, and developing industry and mining to attain a favorable balance of trade. China’s trade and exchange rate policies have been a subject of heated controversy for many years and, as we head into a new year, Nobel prize winning economist Paul Krugman launches an attack on Chinese mercantilism which he argues has cost over a million jobs in the USA.
“We know that China is pursuing a mercantilist policy: keeping the renminbi weak through a combination of capital controls and intervention, leading to trade surpluses and capital exports in a country that might well be a natural capital importer. We also know, or should know, that this amounts to a beggar-thy-neighbor policy — or, more accurately, a beggar-everyone but yourself policy — when the world’s major economies are in a liquidity trap.”
Lots in this short paragraph for students:
1/ How can capital controls and intervention affect the value of the Chinese exchange rate?
2/ Using your understanding of the balance of payments, explain how trade surpluses can lead to capital exports. Identify some of the longer-term effects of these capital exports.
3/ Why does mercantilism represent a beggar-thy-neighbour policy? With what consequences for the world economy?
4/ What policies are available for governments wanting to reduce trade imbalances?
