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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LNU’s China Panel Survey No 15 – December 2012:

“Our “overheating indicator” for China rises to 6.5 – slightly improved outlook for 2013 and 2014“

¤ Our so-called overheating indicator for China – derived from a survey with China specialists all over the globe – gained some temperature in December compared to May 2012 (6.5; May:2012: 4.9; 1-10; 10=extremely overheated). The current GDP-growth temperature does not indicate any overheating in the general economy.

¤ GDP forecasts for China (average, percent) 2012: 7.3 2013: 7.8 2014: 8.0
For both 2013 and 2014, GDP predictions are characterized by downward biases – though on a somewhat more encouraging trend. I tend to be slightly more optimistic.

¤ One of the panel’s assumptions for Chinese growth forecasts is that around two thirds of our panel members count on a gradual but relatively modest recovery in 2013/2014 in the OECD area as a whole. Approximately, one third believes in a continued weak and disappointing performance – on average – of the entire OECD block. China’s growth sensitivity that is related to the European crisis is considered to be at 5.6 (scale 1-10; 1=no sensitivity at all) which is not negligible.

¤ Three fourths of the panelists predict that the Chinese currency renminbi (RMB) will appreciate slightly during 2013 (by 1-5 percent). All the other remaining panelists assume the RMB to remain more or less stable.

¤ 100 percent of the panelists think that there is still a dangerous price bubble on the real estate market. When it comes to the Chinese stock market, however, our China experts seem to be markedly less concerned about potential bubble risks.

Read the full article

 

Hubert Fromlet
Professor of International Economics
Editorial board

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Bank Productivity Changes in two Asian Giants

December 5, 2012

Summary

After centuries of quiescence, the last two decades have witnessed very rapid economic growth in the world’s two most populous countries, China and India. Finance plays a crucial role in growth and in both economies the banks dominate the provision of external finance during the period of studied.

For China bond and equity market capitalisation was 26% and 45% respectively in 2002, compared to 115% and 137% for the US. In India, the comparable figures are 36% and 43%. The main aim of the paper is to look at recent productivity advances in Chinese and Indian banks.

First, this study focuses on trends in total factor productivity (TFP) changes in their banking sectors between 2000 and 2007; annual fluctuations are also examined. Second, the components of TFP growth are analysed, along with variations within and between the two countries, and across banks that differ in size, ownership, and listing characteristics. Third, we assess how closely estimates from non-parametric (Data Envelopment-DEA) and parametric (Stochastic Frontier-SFA) analyses concur and what this implies for their relative merits. Finally, we address the question of how TFP growth is related to standard measures of individual banks’ financial performance such as return on equity.

This study adds to knowledge by providing explicit comparisons of bank TFP growth in these two giant emerging markets. It brings more recent data into play: one advantage of looking at the period 2000-7 is that most major bank reforms have had a chance to “bed down” by this time. It is the first banking study outside the OECD area to compare and contrast the DEA and SFA approaches. It also adds to the literature by assessing the empirical relationship between TFP change and share prices.

The main findings are first, that TFP growth is largely driven by technical progress/innovation. It is somewhat faster in China than in India and strongest in large banks, though in China, there may be some deceleration with a shift in the underlying components. Second, the influence of ownership varies between the countries and listing is similarly ambiguous. Foreign banks display slower growth than locally owned banks in both countries. Third, for India, the period covering the early 2000s is found to be broadly in line with the aggregate TFP growth findings of most studies that covered the 1990s. Fourth, the Divisia (using SFA) and Malmquist (using DEA) TFP changes are not notably different in aggregate, but often generate pronounced differences in estimates of different components that drive TFP growth. Fifth, TFP advances are found to exert important influences on bank-specific equity prices.

JEL classification: G21, G28, D24
Keywords: productivity change, China, India, stochastic frontier; data envelopment analyses

Read more about the whole paper after its publication; we will get back to this issue.

 

 

 

 

 

 

Xiaoqing (Maggie) Fu
Associate Professor of Finance, Interim Associate Dean of Graduate School, Faculty of Business Administration, University of Macau

 

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