China Research

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

In memoriam: Professor (Dr) J.D. Agarwal

January 10, 2023

Founder of the Indian Institute of Finance (IIF), Chairman and Director of the IIF, chief editor, etc.

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It would take a lot of pages and time to sum up all the efforts, achievements, research results, high honors and appointments Professor (Dr) J.D. Agarwal has received during his successful life as a researcher. He saw many forthcoming problems on financial markets at an early stage, e.g. money laundering, real estate bubbles, liberalization of capital flows and the impact on bank systems – with focus on crisis situations. Energy and climate change in a financial context were also part of Professor J.D. Agarwal’s research.

Altogether, professor Agarwal’s impressing professional record clearly indicates his direct important role for the Indian society when advising Indian governments and other influential public decision-makers. The indirect important impact of Professor J.D. Agarwal’s work is also obvious. He deserves a lot of recognition for having led many of his well-educated financial students so beneficially to serve the society.

Fortunately, I had the great privilege of having met Professor J.D. Agarwal several times in Delhi. It was always very stimulating to meet and listen to such an intellectual, skilled and at the same time humble colleague. His generous attitudes also included enormous hospitality whenever I came to India, Delhi and the IIF.

J.D. Agarwal’s close family members – some of them I had the pleasure to meet as well, even in Sweden – will certainly work hard and successfully to cultivate and further develop the heritage of Professor J.D. Agarwal’s great lifetime achievements.

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

 

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China’s corona conundrum

December 15, 2022

What we do know is that fact that corona also reached China from the very beginning. Certain people claim that that corona originates in Wuhan at a laboratory. This, however, nobody knows for sure. Anyway, the first infection cases happened in China. We also know that Chinese political leaders recently changed their policy stance in the fight against corona – from very restrictive to clearly less restrictive. But which were the real driving forces behind these changes?

Management by fear

China was the first country to be confronted with the covid virus roughly three years ago. China also acted as the first country to impose drastic restrictions to stop the disease. This was understandable as big concerns about major contagion already existed directly after the eruption of the crisis.

The objective of control and maximum battle against covid-19 (zero-covid strategy) was close to recently to reduce virus contagion down to almost zero and finally eliminate the virus. But fear remained around all the time and continues to do so – not very strange when considering the population of 1400 million people and the enormous potential of contagion. Consequently, management by (feeling) fear continued – provided with the frequent official political remark that the zero-covid strategy has kept Chinese corona contagions and deaths low when comparing with Western countries. Rumors say that President Xi Jinping himself persistently commanded the application of the zero-covid strategy.

But also transparency so far remained low during the corona crisis. Since I for a long time have been analyzing that the quality of economic statistics was quite limited in China, I applied this questioning experience also to the statistical interpretation of covid infections – right or wrong. I suspect that published corona statistics showed much lower numbers than reality would have shown. Statistical transparency remains by far too low.

Strict restrictions with more and more lockdowns went on for quite some time but citizens finally became impatient and started this fall their protests and even demonstrations. Political leadership continued management by (feeling) fear for a while. Only recently, however, a far-reaching easening of the corona restrictions was introduced allowing more mobility and less control – again driven by management of (feeling) fear. This time probably by fear of social unrest, since the corona situation only a few days before the corona deregulations was worsening. An enormous swing!

What now?

The comprehensive abolition of many covid restrictions in the beginning of December this year seems to be risky. Everything happened so suddenly and quickly. Chinese institutions had no time to prepare. The omicron virus was suddenly explained as quite harmless – opposite to official comments only the week before.

Now, an obvious risk for the future is a fast acceleration of new corona infections and exhausted hospital resources. Such developments could also counteract a visible economic recovery which the whole world is waiting for.

On the other hand, the big future opportunity in the short run may be a beneficiary widening of the Chinese labor force and, thus, more potential for production – particularly if China politically starts to lean a little bit more to the West again.

Summary: China’s corona conundrum remains puzzling. Corona is not dead!

 

I send all readers my best seasonal greetings and a Happy New Year with at least some economic recovery.

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

 

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Tough discussions in Germany on Chinese FDI

October 31, 2022

Germany is the largest economy in Europe and the EU. For this reason, the recently intensified German debate about the planned Chinese FDI in the harbor of Hamburg looks both interesting and dramatic. Fundamentally, the real reason for this domestic political conflict is mainly about Germany’s future political and economic dependence on China.

The original plan was to allow the Chinese shipping company COSCO to purchase 35 percent of one of the terminals named Tollerort. However, even within the German government a lot of opposition was raised against the planned Chinese harbor deal, particularly by the Greens – thus also criticizing German Chancellor Olaf Scholz who initially supported the 35-percent deal. Finally, the government agreed with a compromise to allow a Chinese participation of 24.9 percent – i.e. an enforced change from a strategic investment in line with the BRI-plans to a financial investment. (BRI means Belt and Road Initiative, see my article in Swedish in Ekonomisk Debatt https://www.nationalekonomi.se/sites/default/files/2022/08/50-5-hf.pdf).

After dependence on Russia a heavier dependence on China?

In the past few months, former German governments and top politicians have been sharply criticized for their contributions to the burdening gas dependence on Russia. This political failure explains very well German fears of a future, even more challenging dependence on China. Maybe, the German concerns have been enlarged further by the latest political powerful political manifestations at the Chinese Communist Party (CCP) Congress.

It should be added that Germany’s dependence on China already now appears purely economically much larger than it ever has been on Russia – i.e. the Russian war consequences excluded. Two important questions show up in this context:

¤ Will other European countries join German skepticism against Chinese outbound FDI?

¤ Will European companies voluntarily re-consider their (planned) FDI strategy in China?

We will see. Obviously, German Chancellor Scholz does not want to close the door to China completely at this point. This week he will visit China together with a delegation of German business leaders.

 

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

 

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