China Research

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

The International Business Compass of the HWWI / Hamburg

January 9, 2013

The objective of this blog is to focus on both short-term and long-term perspectives for emerging markets. An interesting publication in this context is the BDO International Business Compass (IBC), edited by the HWWI-institute in Hamburg (Hamburgisches WeltWirtschaftsInstitut).

The IBC is a composition of publicly available indicators – one a scale from 0 to 100, 100=best value – for 174 countries that reflect economic, political and social dimensions. These 174 countries are divided into two groups, OECD countries and non-OECD countries. Summarized indicator results are given for the total index and its three subgroups with the economic, political and social dimensions – for all 174 countries. For the non-OECD countries (emerging economies), there is also an average benchmark for each continent.

The IBC ranking instrument serves – in line with its name – as an International Business Compass. Of course, I recommend comparing the results of the IBC with similar publications like the World Bank’s “Doing Business”. The more sophisticated ranking tables – with both microeconomic, macroeconomic, political and social dimensions – decision-makers in both SMEs and bigger companies have access to, the better the conditions for making well-analyzed corporate decisions, particularly concerning those with strategic dimensions.

Let’s exemplify the latest results from 2012 by looking at some Asian countries. This does not, of course, rule out that individual companies so far may have a different experience and preference for ranking.

BDI, South East and East Asia, in a sales perspective * (Japan excl.)

1 China (7)
2 Taiwan (3)
3 Hongkong (2)
4 India (4)
5 Singapore (1)
6 Malaysia (6)
7 Indonesia (8)
8 Thailand (5)

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* In brackets from a production perspective. Source: BDO International Business Compass, by HWWI, Hamburg (editor Michael Bräuninger).

Let me add that the HWWI internationally also is known for its monthly commodity index. During 2012, the composed commodity index of the HWWI fell by around 1 percent. However, different subindices partly had quite volatile developments during the past year. Certain food prices rose strongly in 2012, other food commodities like coffee and sugar had declined markedly. Oil prices did not move very much in 2012 in a price average perspective – but substantially during the course of the last year. Industrial metals had quite a weak development until late summer. But expectations of Chinese fiscal injections – supporting particularly infrastructure – led to a recovery of several metal prices (aluminum, copper) since August/September.

Again, we can recognize what China increasingly means to many commodity prices.

 

Hubert Fromlet
Professor of International Economics
Editorial board

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Global Financial Reform and Cross-Border Integration: Is Asian Leadership Needed?

November 7, 2012

Before 2007–08, most global financial reform initiatives were based on a near-consensus about the benefits from the free circulation of capital across jurisdictions and from free cross-border competition among financial services firms. As a consequence of the financial crisis in the United States and Europe, however, this near-consensus can no longer be taken for granted. One implication is the increasing possibility of a fragmentation of the global financial system.

Such a trend could take many forms. Rating agencies were unregulated in most of the world outside the US before the crisis (South Korea being one exception). But the G-20 recommended that they be regulated and supervised by all major jurisdictions. Implementing that recommendation raises the risk of incompatible or inconsistent regulatory frameworks and supervisory practices among different countries. Rating methodologies could vary even within the same rating agency. Another example of fragmentation could arise for over-the-counter (OTC) derivatives. Trading has until now been cleared bilaterally among market participants. The G-20 has mandated central clearing in regulated clearing houses starting in 2013, however. Many investors fear a division of corresponding markets along the borders of country or currency areas. A third new development would flow from the new standards at international financial institutions, particularly the International Monetary Fund (IMF), governing the adequacy of capital control measures under certain conditions. But these new standards could potentially run counter to the previously received wisdom of the so-called Washington consensus.

Across the globe, supervisors have nudged banks to separate and protect assets and maximize lending in their respective jurisdictions, in some cases pushing for subsidiarization of activities previously conducted through branches. In countries that have run into fiscal difficulties, domestically headquartered banks have been pressed to increase their purchases of national sovereign debt. “Financial repression,” an expression long reserved to economic historians, has reentered the mainstream financial vocabulary to describe the possibility of such pressure. These developments have been striking in the euro area, where countries are in principle committed to total openness to capital flows but where an abrupt U-turn from financial integration to financial fragmentation has been identified by policy authorities, including the European Central Bank (ECB). They are by no means unique to Europe, though, and variations of the same themes have been observed in most if not all main economic regions.

Simultaneously, the pre-crisis momentum for harmonization of global financial standards has run into setbacks in crisis-affected countries. The United States has delayed any decision about the adoption of International Financial Reporting Standards (IFRS), which it had endorsed for US-listed foreign firms in 2007 and had seemed on the verge of extending to US-listed issuers in 2008. In another example, the European Union, after championing the global use of the Basel II Accord on capital standards during the 2000s, now seems set to adopt legislation that the Basel Committee has deemed materially non-compliant with the new Basel III Accord adopted in 2010. For all the G-20 talk about global solutions to global problems, financial reform often seems more driven by politics in the post-crisis context than in the previous period. And as the saying goes, all politics are local.

This new reality poses an unprecedented challenge for Asian policymakers. Asia has gained from dynamic financial development in the past two decades, and is entering a new phase in which cross-border financial openness could improve the allocation of capital and make financing mechanisms more efficient. Asians generally are likely to benefit from the continuation or even the acceleration of global financial integration. Until recently, Asians could take such integration for granted, counting on the commitments to financial openness of both the United States and Europe, which dominate the global financial order as embodied by such institutions as the IMF, the International Accounting Standards Board, or the Basel cluster around the Bank for International Settlements.

But the assumption that the West will continue to champion further cross-border openness of the global financial system can no longer be taken for granted. As a consequence, Asians may have to take more leadership in global financial reform discussions to make sure that global financial integration is not reversed. This would be a new situation. Some Asian policymakers may feel ill-prepared for such a trend, but they could find its implications difficult to escape.

Nicolas Véron
Senior fellow at Bruegel, Visiting fellow at the Peterson Institute for International Economics, Washington DC


Nicolas Veron gave us his kind permission to include this contribution in our blog chinaresearch.se  The article was initially published last week by Bruegel and Peterson Institute for International Economics.
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