China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

The foreign image of Russia and China

September 16, 2022

Most countries in the world care about their international image. But how do Russia and China think in this respect? 

Russia is looking for more international recognition

There is no easy answer to the question above. However, my feeling is that at least Russia currently is looking for better international participation and recognition. For this reason, the SCO conference – more exactly the conference of the Shanghai Cooperation Organization, a quite unknown regional Eurasian political, economic and security organization – in Samarkand/Uzbekistan this week served as an excellent occasion for Russia to meet a number of other countries,. Russia got the opportunity to show up internationally at a major meeting together with seven other Asian SCO-member countries (China, India, Tajikistan, Kazakhstan, Kyrgyzstan, Pakistan, and Uzbekistan and ten Observer States and Dialogue Partners).

The most important event during the SCO conference was without doubt the summit with Russia and China – i.e. the meeting of President Putin and President Xi Jinping. Certain experts even think that the enlarging cooperation between Russia and China – or in reality rather vice versa – in the longer run may lead to a visible empowerment of a changing political world order and, consequently, declining global influence of the U.S. and the EU. This is exactly what China and Russia finally want to achieve – with China as the stronger partner.

Altogether, we should not neglect that Russia may find ways that will lead to less international isolation both in the short and in the medium run. Russia certainly wants to get there, in my view particularly for economic and national development reasons.

China does not care about its international image when against the CP

It always strikes me when Western interpreters of China’s politics come to conclusions that are set in line with their own Western logic. However, Chinese logic is often unlike Western logic. My experience from many years of China observation is certainly that Chinese political decision-makers do not care about their domestic or international image when the political system at home or certain Chinese political objectives and decisions are questioned or attacked by other governments.

For example, the common Western view that China may improve its environment for pure image reasons in a more determined way than many observers in our part of the world believe, is simply naïve or incomplete. One should at least add that China’s fight for an improved environment only will be favored when such policy decisions are not counteracting even more important political priorities. China’s (foreign) image does not play a role in such a context.

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

 

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The analysis of emerging countries in the light of the Russian war

April 7, 2022

The analysis of emerging markets is traditionally part of my lectures and generally not changing very much from year to year. However, this year (and beyond?) is different. A kind of limited global downturn was already in the cards last fall for the forthcoming quarters. But the Russian war makes the outlook for the global economy both worse and more uncertain about both depth and length of the downturn. The world is indeed confronted with the abominable black swan.

The spillover to emerging markets

Also emerging markets all over the world are affected badly by the ongoing terrible war development in the heart of Europe. There are clear spillover effects on the less advanced countries as well. Of course, the Ukraine and Russia itself are hit the most. But there are many other countries in the emerging world that are now meeting worsening conditions that are directly or indirectly linked to the Russian war.

When considering the already existing economic troubles before the eruption of the war Russian war, the timing for the commenced war in February could not be less favorable for emerging countries. But emerging countries are not equally hit by all the deteriorating political and economic developments. In very general terms, one may say that less advanced countries far away with, for example, energy and food resources tend to be better off than countries with corresponding shortages. Altogether, more details should be examined.

Reliable calculations are currently not possible     

I feel pretty sure about the conclusion that accurate point forecasts for individual emerging countries and emerging regions currently are not possible – at least not without precise assumptions about uncertain parameters like the supposed depth and length of the war, energy and other commodity prices and – not to forget – transports and delivery times.

However, when a major event like a big war in Europe happens with a military superpower involved, our models do not work anymore because of the lacking historical experience in a comparable war. Using another one or two different assumption baskets about depth and length of the war, a number of different scenarios could be developed. But still, we are not talking about a forecast. Instead, it is about scenarios.

Thus, further studies on war developments with impact on emerging markets would be beneficial. More can be found.

Influence on emerging markets due to the war

Initially, it would be useful to single out a number of different negative global developments that already had shown up globally in 2021. Here we find

  • rising global inflation, interest rate hikes not far away,
  • rapidly rising energy prices,
  • insufficient supply of chips, other IT components, metals plus transport bottlenecks,
  • since last fall worsening GDP forecasts for the beginning of 2022.

What we now can see as a further consequence of the war, are currently worsening trends for several of the negative developments from last year

—>  more inflation (coming from energy, agricultural products, metals, intermediate IT-goods, transport bottlenecks)

—>  further and/or faster global/American interest rate hikes than anticipated some months ago (means higher costs for emerging countries borrowing in foreign / American currency)

—>  higher American interest rates may mean a stronger dollar (which would lead to higher costs for many emerging markets since most foreign credits by emerging countries have been taken up in dollars)

—>  clear weakening GDP growth both in advanced and emerging countries.

—>  slowing FDI from Western companies in emerging countries as a result of increasing general uncertainty and risk aversion.

Conclusion 1: The foreign debt situation will remain an increasingly important indicator for emerging countries (https://databank.worldbank.org/source/quarterly-external-debt-statistics-gdds). Check it out!

Major producers of oil, gas, agricultural products etc., are, of course, better off than less developed countries that need to import a lot of these commodities. Commodity production at home and imports from abroad are other important factors that should be considered when emerging countries are analyzed, particularly now during the Russian war (https://www.worldbank.org/en/research/commodity-markets).

Conclusion 2: Also commodities play an important role for the development of many emerging countries, particularly during the Russian war.

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

 

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Russia – a modest recovery after a more limited slowdown?

January 13, 2021

Also Russia was – and still is – sharply hit by covid-19. For this reason, nobody should be surprised that Russian GDP has shrunk in 2020, probably by 3 ½ % – 4 % (will be published on February 3). This annual fall of GDP looks, however less dramatic than in most other European countries.

But how strong will a Russian rebound of GDP growth turn out to be – hopefully already in 2021? More than the generally expected growth rate of 2.5 – 3% which may be even less than predicted or possible EU growth? The development of covid-19 cases/vaccinations and GDP growth of the EU and China will play an important role in the Russian growth context for the year to come – but also the future political relations between the Biden administration and Russia.

In 2020, April and May were shocking months when GDP growth declined by 9.5 and by 8.9 % (yoy). During the following months, GDP drops stayed at around 4 %; the latest available number showed a decline by 3.7 % in November 2020 (yes, the Russian Ministry of Economic Development publishes monthly GDP numbers).

Slight signs of recovery and a recommendation

At the end of 2020, there were signs of a slight recovery in Russian industry when comparing with previous months but not yet when relating to the development one year earlier. Retail sales recovered visibly from late spring to the end of summer but have been stagnating again in the past few months (mom). A new and indicating number for consumer confidence during Q4 will be published on January 18.

As a major reason for concern remains the development of fixed investments, last year clearly under the level of 2010 (like, for example, Brazil). This negative investment trend must be reversed if Russia ever should become able to enter a promising structural trend of its growth potential. A better investment performance could also lead to more diversification of products, also of those for exports in order to decrease the dependence on exports of energy (commodity) products.

Finally, I recommend my readers to regularly follow the illuminating weekly reports of the Finnish BOFIT Institute (The Bank of Finland Institute for Emerging Economies) which is linked to the central bank of Finland (Bank of Finland). BOFIT also prepares interesting forecasts on the Russian (and Chinese) economy https://www.bofit.fi/en/publications/

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

 

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