China Research

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

Worrisome news from China

August 15, 2023

China continues to disappoint the rest of the world. In the beginning of 2023, many countries over all continents based their own recovery forecasts to a high extent on the internationally widely expected post-COVID recovery in China. However, these positive expectations could not be verified so far – and probably will not do so during the remainder of 2023. Furthermore, weak fundamentals raise doubts about China for the longer run as well.

Poor economic developments increase global concerns about China’s economy…

China’s economy reveals currently quite some weak economic numbers: e.g.for GDP, exports and imports of goods, inflation (lately quite low, contrary to many other countries – and even causing deflation fears), producer prices (PPI), the PMI, etc.

In this context, we should keep in mind that the quality of Chinese statistics has been questioned many times in the past (also by myself), particularly when reality seemed to be weak. But how could/can too positive numbers be measured? Here we have an issue that never could be singled out so far, and certainly not these days either. Can the current weak macroeconomic numbers be even weaker in reality?

Lagging transparency still does not allow for an illuminating answer. Perhaps we can see today a development that I have been pointing already quite some years ago – the possible start of better statistical quality without being recognized on time because of all the historical confidence gaps.

Some late macroeconomic statistics with bad results look as follows:

GDP q2: 0.8 %, qoq (versus 2.2 % in q1, qoq) and +6,3 % yoy (due to low base last year)

Exports (of goods), July: -14.5 % (in current prices, now weakest for more than three years)

Imports (of goods), July: -12.4 % (in current prices, reflecting weak domestic demand)

CPI July: +0.2% mom, -0.3% yoy (but no deflation so far – needs persistently falling CPI)

PMI (for manufacturing, Caixan), July: 49.2 (from 50.5 in June); Caixan is to a high extent based on exporting companies in coastal regions whereas the official PMI (via NBS) reflect broader geographical analysis all over the country and also contains distinctions between different corporate sizes, July: 49.3 (from 49.0 in June).

… while China strengthens its political efforts in emerging countries

China has an obvious strategy in its foreign policy – directed against the U.S. This happens partly also in mental co-operation with Russia or directly by increasing the political and financial influence in particularly emerging African and South American countries – i.e. on continents that indeed have been neglected in the past few decades both by the EU as a whole and important EU countries.

In recent months, China’s President & CP Chairman Xi Jinping visited several strategically important emerging countries (looking for commodity deals). At the same time, a substantial number of high foreign officials came to China, well reflecting China’s strategic ambitions outside OECD countries.

This Chinese international policy approach is certainly appreciated at home   – but how do many or most Chinese look at the development at home and, consequently, at Xi’s leadership? We know by now that the economy develops poorly, resulting in consumers’ declining confidence. Young people’s fading positive visions for their future point at bad mood, too (mainly caused by record-high youth unemployment, officially for youngsters at the age of 16-24 years – in June as much as 21.3%, among them many academics; according to Western experts’ guess it could be even twice as much). Also the ever-lasting concerns about the real estate sector, local public debt and probably increasing bad loans should mean psychological worries with impact on the economy and possibly social stability at some point.

Thus, China needs clearly improved GDP growth. But where should it come from more than very temporarily? The number of options and possible progress in GDP growth seems to be very limited, at least under current conditions. Investments in infrastructure may be strengthened further after last month’s stimulation package – but now without being able to induce major growth contributions. In my view – which I have mentioned many times before – China could at least in the longer run benefit from better political relations to the West and economically from wide-ranging supply-side reforms at home, including particularly better institutions with more openness, transparency, better conditions for foreign investors and less nationalism.

Simultaneously, less nationalism would also be a good step forward for many Western countries.

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

 

Back to Start Page

African debt issues

June 13, 2023

African debt needs more transparency which I pointed at several times before. Too much of African countries’ borrowing is summarized on aggregate (macro) levels, too little in micro numbers. However, an interesting change has recently been presented.

Interesting news from the Kiel Institute

Some weeks ago, a serious attempt to create more detailed debt statistics on African  micro levels has been launched by the Kiel Institute for the World Economy/Germany (which conducts a lot of international research, also on emerging countries including since two years ago the introduction of the bimonthly, very quickly updated World Trade Indicator with 75 participating countries and regions, quite a number from the emerging world as well (https://www.ifw-kiel.de/index.php?id=15876). These global trade statistics are based on water-transport big data and interesting AI applications.

You can now look at the following link to get more details on African debt (https://www.ifw-kiel.de/publications/kiel-working-papers/2022/who-lends-to-africa-and-how-introducing-the-africa-debt-database-17146/):

The Kiel Institute shows understandably that global private and Chinese (governmental) lenders on average charge essentially higher interest rates from African borrowers than multilateral public organizations like the World Bank or the IMF do. This attitude is not really fair – neither as shown by the Chinese and their influential political ambitions nor as applied by global private institutions vis-à-vis tax payers and their indirect contributions to subsidized loans.

According to the Kiel Institute averages credit conditions from multilateral public organizations in the past two decades – as exemplified above – tend to be clearly softer (around 1 %) than the average conditions given by Chinese government banks  (3.2 %) and private bond issuers (6-7 %) .

Altogether, the database of the Kiel Institute contains circa 7400 international loans and bond issues to African borrowers, many times with widely diverging credit conditions. This fact urges for more transparency.

Another three reasons for underlining the need of better transparency for international credits to African countries (projects) can be added:

1) Africa’s capital needs must expand further for achieving visible development progress.

2) Therefore, African debt burden – which already has been increasing strongly in the past few decades – should do so as well in the future.

3) When improving international borrowing and lending transparency, it would be a win-win situation for both the stability of international financial markets and therefore also for single African countries.

Conclusion – the way forward is obvious 

In order to manage the challenges described above, African borrowers should  – together with their lenders – work more ambitiously on the transparency of their international finance conditions. Particularly African borrowers could benefit from such good moves – also by the avoidance of potential financial accidents!

PS: Now I will spend around two months on vacation and special studies – and will be back at the end of August. All the best to you all!

 

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

 

Back to Start Page

My impressions from (studying) India

April 28, 2023

This is an attempt to summarize my impressions from quite a number of trips to the “continent” of India. Yes, l see India rather as a continent than representing a single country. When having noticed that India recently has surpassed China as the country with the largest population in the world and when having become aware of the enormous distances from the North to the South and from the West to the East, foreigners should conclude that India is characterized by different geographical, political, ethnical, religious, cultural, social, institutional and economic conditions. All this  in one country!

Understand and comment on these above-mentioned Indian conditions in a friendly and appreciatively way when meeting Indian business people! Foreign business people should stick closely to good relations and business deals. This conclusion looks logical and will remain valid in the long run.

Why is India gaining momentum?

India is currently receiving much more international analytical and commercial attention than a few years ago. There are several explanations for this development:

–  A lot of positive reports on India could be read more recently in the international press – partly in order to create or show a kind of contrast to China;

–  India’s status as a democracy seems to be acknowledged more carefully by current non-Indian corporate leaders;

–  India has started to plan and implement economic reform policy more ambitiously;

–  India received recently the most positive GDP outlook of all countries for 2023/2024 by several global forecasters, by the IMF as well; 

–  the Western global corporate world regards Indian companies to a lesser extent as future competitors than they do when it comes to Chinese global players;

–  China lost certainly recognition in a substantial number of Western countries by not opposing to the Russian war in the Ukraine (which India also rejected to do but India was able to apply its political bonus in the West);

–  some serious policy failures in China (e. g. the reactions on corona) may have turned global commercial attention somewhat stronger to India than ante coronam.

One may summarize as follows: The global business community still seems to judge China as more dynamic – but India still seems to be better able to attract more sympathy points from democratic countries and their corporations all over the globe – and this way also become increasingly interesting to foreign investors. Further growth potential can be explored by sizeable improvements of mainly infrastructure, institutions and education. However, necessary policy changes can take long time to be implemented.

How to meet Indian business people

Here we come to a very important issue for Western business people. When meeting Indian managers or other kinds of Indian colleagues, Westerners often feel that meetings or negotiations are handled more or less the same way in India as it is done at home or in familiar countries in the neighborhood. However, this may turn out to be a completely wrong reaction or attitude.

The other way around: Indian business culture is very different from the Western. Though not covering everything in this article, my experience from India can lead to a number of conclusions or recommendations as follows:

  1. 1. Accept the Indian rule of the game! Don’t hesitate to use or say titles!
  2. 2. Focus on communication, first on telling and showing who you are!
  3. 3. When you meet initially in India, don’t act straight forward to a deal!
  4. 4. Accept a dinner without business talk. Talk about your family!
  5. 5. For Indians, the family is very important. Take your time to listen!
  6. 6. Don’t talk about politics which Indians usually do not like to take up!
  7. 7. Don’t be very critical! Indians are rather euphoric or happy. Relax!
  8. 8. Indians are religious. Never question their religious habits / seriosity!
  9. 9. Never ask or talk about the Indian caste system!
  10. 10. During negotiatins: Never let your hosts feel any time pressure from you!

Obviously, one should look for information about how to behave in India. Sensitive topics should be avoided, appreciated topics like family, religion and knowledge about India should be preferred.

If intense commercial relations to Indian companies are planned, it would be a good idea to learn Hindi. Indians even appreciate low skills in Hindi. Do not forget that India already today is the no 5 economy in the world and will probably have moved into the third place around five years from now. The potential is enormous but necessary economic, institutional, social, environmental and educational changes should happen faster than in the past.

India will – as far as one can see today – develop into a giant market for direct foreign investors, exporters and purchasing managers.

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

 

Back to Start Page