China concerned about its financial markets

March 19th, 2018

Political issues dominated the 13th National People’s Congress (NPC), topped by the constitutional reform giving China’s leader Xi Jinping the possibility to remain in office also beyond 2022 which would not have been possible without this constitutional amendment. The re-election of Xi as China’s president and Prime Minister Li Keqiang’s re-endorsement were, of course, also important political events – not to forget the establishment of the new corruption-fighting super agency named National Supervision Commission.

When applying a purely economic and financial view on the results of the NPC, the unofficial upgrading of financial concerns and the increase of power for China’s central bank – the People’s Bank of China (PBoC) – seem to be the most important news to consider. Sure, one could read about quite some sharpened warnings by Xi and Li already in recent months – warnings that also were stressed very recently by the multinational central bank of the central banks, the BIS in Switzerland ( But this time was – or rather is – different.

Despite the fact that official China tries to play down the very strong concerns of the BIS – where China by the way is a member – the very clear strengthening of the PBoC during the NPC convergation demonstrates all the same that China’s political leadership now worries more about the state of the financial sector than before. Now, the PBoC will be responsible for the macroprudential supervision of both China’s banks and insurance companies; it has also received the mandate to implement supervisory laws and regulations. For better decision-making, supervision of banks and insurance companies will be merged into the so-called China Banking and Insurance Regulatory Commission (CBIRC) under the aegis of the PBoC. The objective is obviously to create more efficient early warning signals and to implement well-working tools against misleading developments in the financial sector.

Altogether, the growing official awareness of structural problems in the financial sector and the approved improvements and changes of financial supervisory institutions have to be considered as positive. However, improvements of transparency should be achieved as well – whenever necessary and/or appropriate.

During the days of the NPC, a lot has been said by political leaders about the need of ever improving confidence. Better information on non-performing loans (NPL), shadow banks, new financial products and their risks should be part of such a strategy. The PBoC has now a good chance to contribute to a confidence-increasing development if China’s political leadership really wants to support such a positive change – and if a modern and forward-looking PBoC leader will succeed retiring, well-respected Governor Zhou Xiaochuan.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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India moving forward and sometimes back – now again higher tariffs on certain imports

February 19th, 2018

India is not always easy to understand. At the World Economic Forum some weeks ago, Prime Minster Shri Narendra Modi presented himself as a dedicated supporter of free trade – more or less in the same way as China’s leader Xi Jinping did a year ago at the same place shortly before President Trump’s inauguration. For a couple of months, Xi was celebrated as a kind of new global defender of free trade and antipole to protectionist Donald Trump. During 2017, however, China was again accused more strongly of protectionism by the U.S. government, particularly because of its enormous subsidies to certain industries. Consequently, cross-border trade mood between the Trump administration and China deteriorated further in the course of 2017.

These American-Chinese tensions may partly explain Modi’s efforts some weeks ago in the Swiss mountains to back up free trade. Modi is, of course, aware of the increasing role that India plays in the world economy. India is already the seventh largest economy in the world – and even number three on a Purchasing Power Parity (PPP) basis. India’s GDP growth is right now in line with China’s. Demography, digitalization and the growing middle class give India good potential in theory –  “but the quality of education is still a serious concern”, as one can read in chapter 47 of the new budget.

On February 1, the Indian Minister of Finance Arun Jaitley introduced the central budget for the fiscal year 2018-2019 (i.e. from April 1 to March 31). India’s next general election has to be held by 2019. For this reason, the Indian budget for 2018-2019 is observed with quite critical eyes. Certain comments – also from abroad – have judged the overall picture of the Union budget document as populistic. In my view, this grading may be too strict. Many structural needs and concrete measures are announced in 61 pages. There is quite a lot of supply side policy in it. Check it out, use this link:

So, what’s the reason for the criticism of being populistic? It is indeed – certainly surprising after the Prime Minister’s speech in Davos – that India introduces protectionist measures concerning a number of import goods which made the Trump administration very upset. Higher customs duties are proposed on, for example, imported juices, vegetable oils, furniture, parts of cell phones, and auto components. The reintroduction of long-term capital gains on stocks also surprises many observers.

Sure, India is a complicated country for economic policy since most central measures have to be accepted by the 29 different states of India (when they are affected by a central law). As an example, it took years to implement the necessary move to more indirect taxation by a so-called Goods and Services Tax (GST) – but now it is there nationally since July 1, 2017. Economic policy is easier in China than in in India – the latter country often regarded as the largest democracy in the world.

The recent tariff hikes announced in the budget on certain imports were obviously not a very wise decision, and one may wonder how many Indian jobs will be saved or created this way. The psychological damage may be considerably larger in a global economic climate where India indeed had gained credibility in recent years. Unfortunately, it will be widely concluded that moving back in economic policy remains an Indian option also in the future.

Thus, it is not the velocity of economic reform policy that really counts in the country analysis of India but the steadiness of moving forward. Also smaller moves back can do harm!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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Learn more about China’s geography and history!

February 6th, 2018

During many years as a chief and academic economist, I visited quite a number of emerging countries in all continents. Particularly China drew my attention many times. One of my conclusions from all these trips to China, for example, has to do with insufficient Western knowledge about this giant country. But also the understanding of China and of many other emerging markets – and, of course, also of advanced countries – is very important when we meet people from these countries.

Necessary knowledge and understanding include history, traditions, culture, popular sports, geography and many other issues. It is always good to know what people from other countries are proud of and what may be sensitive national issues for them. Talking about undesirable sensitive issues can even shatter business negotiations. We are talking about applied business psychology.

Turning to China again, I still get particularly confused about the lean knowledge that foreigners tend to have about Chinese geography (apart from business people with commercial reasons to get around). My experience is clearly that the Chinese like to tell their foreign guests during a dinner or a coffee break where they come from – or to be asked about it. One certainly can get bonus points when knowing the location of this specific province and the name of a major city there. Furthermore, if you also can mention the names of China’s currently best table tennis players like Fan Zhengdong, Ma Long or Chen Meng, you can quite easily gain further sympathy points.

I got the idea for this article with its “knowledge angle” when I recently saw a message in the Chinese press that another two cities had joined China’s
“1 trillion yuan GDP City Club” (not considering in this context statistical shortcomings). Now there are 14 cities that have exceeded this magical amount of production; altogether they stand for as much as 30 percent of China’s GDP.

If you need assistance: 10 of these 14 places can be found in Eastern China, 2 of them in Central China and two in the West. Now you can try and find out (or know) where these 14 expanding cities are located (east, central or west) – and then you can try to add the name of the province. Enjoy!

China’s 1 trillion yuan GDP City Club, 2017  (ranked):

¤  Shanghai
¤  Beijing
¤  Shenzhen
¤  Guangzhou
¤  Chongqing
¤  Tianjin
¤  Suzhou
¤  Chengdu
¤  Wuhan
¤  Hangzhou
¤  Nanjing
¤  Qingdao
¤  Wuxi
¤  Changsha

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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