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Will 2016 Bring the Collapse of China’s Economy? ( Source- The National Interest / Author- Gordon G. Chang)

Image credits- Wikimedia Commons Source- The National Interest Author- Gordon G. Chang Last Monday, at the conclusion of China’s closed-door Central Economic Work Conference, Beijing’s public relations machine went into high gear to show that the country’s leaders had come up with a viable plan to rescue the economy. Unfortunately, they do not now have such a plan. In reality, they decided to continue strategies that both created China’s current predicament and failed this year to restart growth. The severity of China’s economic problems—and the inability to implement long-term solutions—mean almost all geopolitical assumptions about tomorrow are wrong. Virtually everyone today sees China as a major power in the future. Yet the country’s extraordinary economic difficulties will result in a collapse or a long-term decline, and either outcome suggests China will return to the ranks of weak states. As an initial matter, China’s current situation is far worse tha

China's Potential Pitfalls #2: The Limitations of China’s Political and Economic Models ( Source- The Diplomat / Author- Xue Li)

Image credits- Wikimedia Commons / Author Source- The Diplomat Author- Xue Li After enjoying rapid development for nearly 40 years, China is at a turning point in terms of both economic growth and social development. In this series, Dr. Xue Li examines the five most critical challenges and potential pitfalls China faces today. See the first piece here. More than 30 years have passed since China began its reform and opening up, but it has yet to create a political and social model for sustainable development. On the economic side, by and large the market economy has taken the leading role, but there are some serious shortcomings. The government still intervenes too much in the economy. This problem of improper intervention in the economy has not been solved. To cite just two examples: First, the stock market bears clear signs of being a policy-driven market. The recent classic example is the government’s violent intervention to rescue the market Regrettably, n

Beware: China Has Opened an Economic 'Pandora's Box' ( Source- The National Interest / Author- Julian Snelder)

Image credits- Wikimedia Commons Source- The National Interest Author- Julian Snelder There's a rule in economics called Goodhart's law: when a measure becomes a target, it ceases to be a useful measure. If a government chases a particular economic variable, then it becomes influenced by policy, and so loses its meaningfulness as an input. 'Information value' is lost in the interference. Because managing economies is hard and good information is scarce, that's a big problem. The last few tumultuous weeks of action in Chinese financial markets shows Beijing struggling with Goodhart's law.  First, state institutions are actively supporting equities, reportedly on Chairman Xi’s personal order to push prices up. Second, after long controlling the exchange rate, policy-makers briefly let it go, only to rush back in days later to fix it again. These panicked interventions have cost Beijing dearly in both money and credibility and jeopardies its e

Will China's Economic Collapse Save the South China Sea? ( Source- The National Interest / Author- Minxin Pei)

Chinese Finance Minister Lou Jiwei ( Credits- Internet image) Source- The National Interest Author- Minxin Pei Not too long ago, the Chinese economy appeared to defy both gravity and doomsayers. Despite years of unbalanced growth, Beijing has managed to rely on investment to power its economy and keep growth high. The country’s binge on credit since 2009, which has brought the debt-to-GDP ratio close to 300 percent, a perilous level for an upper-middle income country, has not triggered a financial crisis. Its real estate bubble, perhaps the largest the world has ever seen in terms of completed but unoccupied residential housing, is leaking air but has yet to crash totally. It was this appearance of economic invincibility that has emboldened the Chinese government to embark on an ambitious but highly-risky new foreign policy in the last few years. Many Chinese elites saw the United States and the rest of the West as in inexorable decline and China’s rise unstoppable. H

Asia’s Growth Far From Finished ( Source- The Diplomat / Author- Anthony Fensom)

Singapore Keppel Terminal ( Source- Wikimedia Commons / Credits- Calvin Teo) Source- The Diplomat Author- Anthony Fensom China’s slowdown may have rattled markets, but Asia is still expected to remain the world’s economic growth engine through the end of the decade, according to the Economist Intelligence Unit (EIU). In a July 29 presentation, Duncan-Innes Ker, EIU regional editor for Asia, said Asia stood out as the only economic region recording fast rates of growth, in stark contrast to the Eurozone’s woes, conflicts in Ukraine and the Middle East and stagnation in much of Latin America. According to the EIU, South Asia is expected to lead the pack with an average of around 7 percent annual gross domestic product (GDP) growth through to 2019, followed by China (over 6 percent) and ASEAN at 5 percent. In contrast, Latin America is forecast to post around 2.5 percent GDP growth, slightly ahead of the United States at over 2 percent and exceeding the Eurozone’s 1.

Devaluation and Despair: Breaking Down China's Currency Dilemma ( Source- The National Interest / Author- Gordon C. Chang)

Source- Wikimedia Commons / Author- JesseW900 Source- The National Interest Author- Gordon G. Chang On Friday, the People’s Bank of China (PBOC), the Chinese central bank, reversed course and set the renminbi on an upward path. That followed three straight days of devaluation that shook global stock, currency, and commodity markets, sending them downward. Friday’s reversal looks responsible. Nonetheless, the PBOC’s actions last week show policy disarray in the Chinese capital. The net result is that Beijing rattled the world, ruined its reputation for stable management, and did almost nothing to help China’s faltering economy. The daily devaluations follow months of government statements that the central bank would keep the currency stable. Every trading morning, 15 minutes before the 9:30 opening bell, central bank officials announce the day’s reference rate against the U.S. dollar. The renminbi, informally known as the yuan, is then allowed to rise or fall 2

This Is the Real Reason China's Currency Devaluation Is Bad News ( Source- The National Interest / Author- Samuel Rines)

Chinese Yuan coin ( Source- Wikimedia Commons / Author- Liamjiao) Source- The National Interest Author- Samuel Rines In the late 20th century and the first decade of the 21st, Alan Greenspan led a Fed that—in retrospect—kept monetary policy loose for an exceedingly long period of time. Inflation was tame, and wage pressures were nonexistent due to the acceleration of global competition for jobs, and the relocation of American manufacturing jobs to China. Seeing none of the typical indicators of an overheated economy, low interest rates seemed a reasonable means to spur job creation and spark some wage inflation. The end result was a housing bubble. And housing created the type of low or noncontestable jobs that were impossible to find in other sectors of the economy. Housing construction jobs were easy transitions from the manufacturing floor, and they could not be taken offshore easily—they were China proof. But the housing bubble burst in spectacular fashion. The in

India could rival China's economic growth in 2015 ( Source- Want China Times)

Bombay stock exchange ( Source- Wikimedia Commons /Author- Niyantha Shekhar) Source- Want China Times India's nominal gross domestic product (GDP) might surpass China's in 2015, according to the International Monetary Fund (IMF), reports Nihon Keizai Shimbum, a Japanese news outlet based in Tokyo, cited by Beijing-based Reference News. However, India has many issues to resolve in order to spread wealth across the whole country, the fund said. The IMF predicted that India's real GDP growth will be 7.5% in 2015, said the report. India's nominal GDP in 2015 will reach US$1,800 per capita, which is the same as China's GDP per capita was in 2005. India will see a shift from consumption-led growth to investment-led growth, according to the IMF. This transition will give India the chance to surpass China's predicted 6.8% growth in real GDP in 2015, according to Reference News. In terms of nominal GDP, however, China's growth figure will still

Slowing growth represents the 'Tiger test' for China ( Source- Want China Times)

Golden Resources Mall, China ( Image source- Wikimedia Commons / Author- Frank Yu) Source- Want China Times Whenever any negative figures have been in seen in China's economic performance in recent years, all sides rush to provide extensive analysis as to just how hard the country's economic landing will be. A look back to the experience of Japan in the 1960s and the Asian Tigers in the 1970s reveals that slowing economic growth after a period of extremely rapid development is not necessarily such a terrible thing. Japan and the four Asian Tigers of Taiwan, Hong Kong, Singapore and South Korea have used the model of "manufacturing plus exports" to achieve dynamic growth but they also have encountered inevitable economic transformation brought about by the moving offshore of their labor-intensive manufacturing industries due to the rising domestic labor costs caused by their own success. Japan's average annual economic growth rate slowed from 10% in t