China Research

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

New reasons to cry for Argentina?

November 16, 2023

In my earlier professional life, I had the pleasure of having quite frequent visits to Argentina. Argentina is a wonderful country with gentle people and fascinating nature. And all these wonderful football (soccer) players. Unfortunately, it is hard to see how the economy could improve after the ongoing presidential election. Sorry to say that economic policy has been a disaster for many decades. It seems difficult to see promising policy changes in the near future.

The current economic situation

Before looking into the future, it may be worthwhile summarizing briefly the current state of Argentina’s economy. Here are some important indicators:

¤  GDP growth : -4.9 % Q2 (yoy)

¤  Unemployment: 6.2 % (June)

¤  Inflation (CPI): 143 % (Oct)

¤  Current account to GDP: -0.7 % (2022)

¤  Government debt to GDP: 85 % (2022)

Most worrisome among the five key indicators are high inflation and the weak development of GDP. The three other indicators look currently still acceptable.

Will developments turn better?

There are still two presidential candidates in the second election round on November 19. One is the current minister of economy, peronist Sergio Massa, mostly launched as candidate of the middle or even left. As a minister, Massa has already implied different regulations and controls of prices and imports.

The other candidate is the extreme libertarian, anarcho-capitalist Javier Milei – with lots of strange and extreme plans. Only his idea of closing down the central bank, the introduction of the U.S.dollar as Argentina’s currency and the neglect of global warming can make me scared.

After having studied the economic programs of the two remaining  candidates – the most business-oriented candidate has already failed – my political and economic worries about Argentina have not declined. It could be a good idea for the current and next President of the United States to co-operate more with this strongly urbanized and pressured country.

One hundred years ago, Argentina still belonged to the 10 wealthiest countries in the word. After this glorious time, the descente went on almost without interruption. Hard to see that the next president will achieve all the badly needed changes !

 

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

 

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Was the current China crisis predictable?

October 13, 2023

Presentation by Hubert Fromlet, Linnaeus University (Linnéuniversitetet), at the Baltic Sea Region/Emerging Markets and China Seminar 2023 in Kalmar

The Chinese economy develops currently very disappointingly. Market expectations from earlier this year were obviously not met – and certainly not positive expectations from earlier years either.

The following question remains interesting: Was the current economic crisis predictable? The answer should be – “yes indeed”.

Too little profound analysis in time

China became the number 1 exporting nation in 2009 and the number 1 total GDP nation in 2016 (in PPP terms). Thus, there were many years to increase knowledge about China. However, foreign (Western) analytical curiosity about the Chinese economic system remained by far too limited ever since the beginning of China’s era as an economic superpower. In many cases, final enlightenment happened as late as in 2022 during the Chinese covid-19 disaster or only this year caused by the serious real estate crisis.

Since the millennium change, I have singled out four kinds of foreign China analysts. They are

¤ specialized researchers at universities and institutes with focus on China,

¤ full-time and part-time China journalists at home or with location in China,

¤ politicians and ambassadors with long-time experience from China,

¤ analysts on global financial markets and forecasters without special analytical skills and focus on China.

Considering these four groups, it seems to be clear that there has been a number of experts indeed well understanding the forthcoming problems in the Chinese economy – but not so many people could be counted. This implies that financial markets – generally expressed – during many years have been standing for the lion share of the foreign interpretation of the Chinese economy; unfortunately, naively based on (wrong) Chinese statistics and the neglect of poor transparency. However, a positive change may be started in the foreseeable future – hopefully giving us conditions for better China analysis also on a global scale.

The visible and neglected warnings signals

One of the main difficulties for economists or other risk managers is the question about the timing of possibly bursting (financial) bubbles or the misery of other serious accidents. This is mostly impossible since aggravating developments usually happen “step by step”. However, “step by step” or gradually should not make managers to forget about a quite early stressed problem or risk. Let’s now turn to some recognizable early warning signals (which may have been given as much as 15-20 years ago):

Warning signals for China’s economy in the past decade   

About bad transparency:

Bernanke/Olson, 2016, https://www.brookings.edu/articles/chinas-transparency-challenges/

Fromlet, 2013, https://www.centralbanking.com/central-banks/debt-management/2254223/bank-of-finland-highlights-astonishing-lack-of-information-on-chinese-government-debt

Comment: Persistent bad transparency impacts negatively on potential growth.

About poor statistical standards

Ravallion/Jalan, 1999, https://www.aeaweb.org/articles?id=10.1257/aer.89.2.301

Fromlet, 2013, see above

Comment: Statistical shortcomings could/can be found when it comes, for example, to GDP, (youth) unemployment, inflation, government debt and particularly local debt, housing market, bad loans of the banks, subsidies, government support of state-owned companies etc. These shortcomings make economic policy too difficult.

About previous and the current real estate crises

Lu Gao (ADB), 2010, https://www.adb.org/sites/default/files/publication/28408/economics-wp198.pdf

Fromlet, 2014, https://publications.bof.fi/bitstream/handle/10024/44826/bpb1514[1].pdf?sequence=1

Comment: Developments on Chinese housing and commercial real estate markets should permanently be watched very closely since these two sectors mean so much to the whole economy.

About banks and financial markets

Poon/Wu/Ahmad, 2023, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/chinese-banks-enter-2023-in-worse-shape-than-global-peers-more-risks-ahead-73464612#:~:text=Collateral%20risk&text=Credit%20losses%20for%20Chinese%20banks,report%20from%20S%26P%20Global%20Ratings.

Fromlet, 2001, https://gmdconsulting.eu/nykerk/wp-content/uploads/2020/02/Behavioral-Finance-_-theory-and-application.pdf

Comment: Financial risks will remain a top issue for China analysis in the foreseeable future – also in a psychological respect.

About political developments

McBride/Chatzky, 2019, https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade

Fromlet, 2017 (October 26), https://blogg.lnu.se/china-research/?cat=13398&paged=34

Comment: Politics and the economy belong together, particularly in a country like China.

 

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

 

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China’s high scientific ambitions

October 12, 2023

China is a country with outspoken scientific ambitions, particularly expressed by President Xi Jinping. This is certainly a logical approach in order to achieve the important Chinese goal of “of raising domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025” which  means that “reducing reliance on foreign technologies involves creating and developing companies that can innovate through research and development, dominate domestically, and produce competitive exports…” (https://isdp.eu/content/uploads/2018/06/Made-in-China-Backgrounder.pdf). To get there, strong technological progress is certainly needed – based on successful scientific research.

“Science” – a key word in today’s China

A few days ago, I saw an article in People’s Daily that made me very curious. The headline was “China surpasses U.S. in publishing most influential academic papers: report” (http://en.people.cn/n3/2023/0921/c90000-20074482.html). According to this report, China counts for almost one third of all academic papers that were published in 2022 in the most influential international journals (i.e. 16348 Chinese contributions out of totally 54 002). Among these publications were 1929 Chinese papers described as “hot” compared to 1592 from the U.S.

Regarding the size and ambitions of academic China, the rise to number one in the publication area may be plausible. However, some questions and uncertainties remain in my mind, particularly since my trust in Chinese statistics has been limited for many years. Some comments should be mentioned according to my understanding of the report (see also more about the publishing institution “Istic” – Institute of Scientific and Technical Information of China, https://www.istic.ac.cn/html/1/529/558/index.html):

  • The analysis of giving China the first place in this ranking of global scientific publications is made in China and therefore extremely difficult to go through and check out. At least in my view, transparency still seems insufficient.
  • It would be interesting to know which journals that have been selected as high-level international journals and to what extent Chinese journals are included in this ranking process.
  • It would be good to be informed about the criteria of a “hot” research paper.

I have been trying during quite a long time to understand more about China’s international research standing. Sure, there should have been interesting progress in the past 10-20 years. But why is access to the details so difficult to find and obtain?

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

 

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