China Research

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

Poland – why it succeeded so far

January 13, 2016

Newspapers and politicians all over the world currently show a high degree of disappointment about Poland’s political development after last year’s general elections. Fears of markedly reduced democracy are expressed quite loudly. Economists, however, are more silent. This fact may confirm once more that foreign analysts at financial institutions and elsewhere usually are not well informed about economies outside the traditional OECD area (though Poland nowadays is an OECD country). This is – by the way – also true of China for which herd analysis usually dominates even outside the country, particularly among most financial players.

In my view, recent developments in Poland should not be underestimated. Poland’s strong emerging role during the transition to a working market economy was indeed impressive. Poland was even the first country among the former planned economies in (South) Eastern Europe that reached pre-1989 GDP levels. I have seen Poland’s impressive development many times with my own eyes since its opening-up in 1990.

The secret behind Poland’s success story until recently was without doubt that Poland – more or less – never moved backward in its reform policy. Sometimes Poland moved somewhat more to left of the road, sometimes a little more to the right – and the pace of reforms was during certain periods quite slow and during other periods more accelerated.

But the direction was always forward – and never really backward! This is probably the most important explanation of Poland’s political and economic recovery in the past 25 years. My own research has also confirmed in a number of studies that reliable and steady – sometimes quite slow – moves forward usually mean more to sustained economic growth than a mixture of fast structural improvements and following setbacks.

So, why should Poland want to jeopardize its achieved, good international credibility position? Foreign companies have invested a lot in Poland and, thus, contributed strongly to Poland’s fairly good international competitiveness. In other words: it should not be ruled out that reality and memory can take this quite large European country back to frameworks that are in line with nowadays valid European standards. However, good psychological feeling should be applied – particularly by Poland’s partners in the EU and in NATO. Such a position seems to be more promising than threats – if I understand Polish mentality correctly.

Anyway, the analysis of Poland’s political and economic development should be intensified in many international institutes and commercial organizations. We should keep in mind that Poland is an important European country – though often underestimated.

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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Current problems on the Chinese stock exchanges – a matter of lagging confidence

January 7, 2016

Today, the two stock exchanges in China were closed again after having dropped by 7 percent. As I have been emphasizing many times on this page, developments like this should not be surprising at all. Finally, China has to pay for all the shortcomings in transparency and statistical quality. Markets cannot know how serious and sustained the Chinese growth problems really are.
Consequently, confidence in reasonable growth prospects is shrinking. Right or wrong, current behavior of financial markets is logical. For this reason, China should do everything to restore this lost confidence. Improvements take, of course, time. But certain steps can be taken any time soon.
For instance, by calculating and revising GDP numbers closer to reality. In other words, by getting to something else than a 6.9, 7.0 or 7.1 percent in GDP growth for the fourth quarter of 2015 and by allowing for more fluctuations and revisions between the quarters. Not to forget: it really should take more time to make the quarterly GDP calculations applicable than it is still the case.
I’m sure, the whole world will look very carefully at the GDP results for 2015 which probably will be presented already three weeks from now. No other country has such speedy statistical calculation process of GDP as China shows year after year. Or will there be a change already this time?

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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India – changing or not?

December 21, 2015

I have been analyzing India since the late 1980s. Consequently, I feel quite familiar with most of the structural changes in this big country and the economic development that could be noted in the past twenty years. India of today is certainly very different from India of the early 1990s – at least in most economic respects. India has been changing.

Improvements have been achieved in many areas – but not in all. There are still important bottlenecks for the efficiency of reforms.

First, India remains a slowly moving country. Indian colleagues and journalists still tell me regularly that this phenomenon mainly can be explained by the fact that democratically based changes often need time-demanding compromises (which China does not need to consider, Indian experts usually add).

Second, the different states in the federal system of India make the conditions for unified reforms over the whole country many times very difficult or in certain cases even impossible. This situation can also be regarded as very different from China.

Third, lndian capitalism is softer than, for example, the more ruthless capitalist part of the Chinese economic model. Sympathy for the first or the second version of these two capitalist applications may differ among foreign observers. Western analysts and companies dislike in this context many times the inflexibility on Indian labor markets.

Anyway, India belongs obviously to the group of emerging markets where foreign country analysis tends to focus insufficiently on the strong  relationship between politics and economic development. This is a decisive shortcoming.

Expectations were indeed high when Narendra Modi from the conservative Bharatiya Janata Party (BJP) in 2014 became India’s new prime minister. In the beginning, reform plans looked promising. Today, however, historical reality seems to be back – i. e. the usual reality of delayed moves forward. Sure, prime minister Modi and his plans and strategies for economic policy still seem to be supported by the Indian corporate sector. But political opposition in Indian parliament(s) gets tougher and tougher.

Today, for example, the political opposition works against the introduction of a new goods and services tax for in the same way as the current government did during their time in opposition. Furthermore, plans of more relieved rules for purchases of land by companies and the liberalization of many tight labor market rules have also been canceled from the near-term agenda.

Altogether, India is changing into the right direction – and at the same time it is not. Policy orientation itself toward better structural growth conditions seems to be in place – but the tools to speed up the processes of implementation are still too inefficient or even absent.

Here we the key to many promising future structural economic reforms in India!

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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