China Research

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

Which factors favor the recovery of corona-affected emerging markets?

August 11, 2020

In my blog from June 12, I stressed the importance of renewed satisfactory or good economic growth in OECD countries for the future recovery in emerging market countries. Another important source for single emerging markets can be increasing price trends for their most important commodities, for example oil, copper, tin and many agricultural products and – interrelated – particularly the development of the U.S. dollar and U.S. rates.

In this article, a somewhat closer look is also taken on the domestic conditions for a visible recovery of a single emerging country. Below, some of these growth-favoring conditions are listed up. The impact of these different factors can, of course, differ substantially from country to country.

Some structural relationships are well-known, such as the links between institutions and economic growth, education and growth, infrastructure and growth, entrepreneurship and growth, the environment and growth, political efficiency and growth, macroeconomic stability and growth, to mention a few.

Most emerging countries have some shortcomings in the above-mentioned respects, with Brazil and its strongly underperforming political leadership probably at the very end of the globalized emerging markets. International sources for comprehensive country information can be, for example, picked from international organizations like the IMF, the World Bank (“Doing Business”), Transparency International, continental development banks like the ADB in Asia or the AfDB in Africa. Embassies and companies from the own country may hint at changes of the business sentiment in the emerging world, sometimes with a certain bias for their geographical and professional location. Good country reports by specialized analysts may also help.

Altogether, the analysis of emerging countries will be even more complex in the forthcoming quarters than normally. This enormous complexity also includes, of course, the fight against the corona virus.

But how much do the affected emerging countries know themselves about their own corona contagion – and how much are they able or want to publish?

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

 

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China abandons ambition to be acknowledged as market economy

July 14, 2020

International recognition has been given high priority in the past few decades by China’s political leaders. Being welcomed by the WTO as a new member in 2001 was celebrated as a brilliant success in Beijing and the whole country. I could see it with my own eyes during a simultaneous visit in Beijing. An enormous new potential was opened for Chinese exporters but also for globally oriented foreign companies in this largely promising country. Without doubt, one may conclude that China turned to be the winner of globalization in the past twenty years, meaning also quite some opening up during this time.

But what about this spirit of opening up in the future? First signals of giving domestic objectives even more priority are obvious. Interventions in Hong Kong, increasing surveillance, declining transparency (covid-19), less calming diplomacy vis-à-vis the United States and relatively easily accepted abolition of the market-economy objective point indeed at stronger prioritization of domestic issues and (somewhat) lesser international harmony considerations. However, it should be kept in mind that China still maintains a neutral and even collaborative voice in its contacts with the EU.

No chance to be recognized as a market economy

Five years ago, there was a lot of pressure on the EU to finally give China the status of a market economy. Such an improved classification would have meant for China a milder treatment by the WTO with dumping conflicts. However, the EU never wanted to give such a mandate to the WTO. China has now canceled these ambitions and has therefore to accept possible anti-dumping accusations also in the future. Obviously, this formerly important international goal had become less relevant after many years of waiting and not really worth-while to go on fighting for.

Also when analyzing more deeply the whole question, it was impossible to find neutral arguments for a Chinese upgrading to market economy (see also my comments on this from 2016, https://blogg.lnu.se/china-research/?p=2164). China still has by far too much government in the economy and by far too weak institutions. No doubt about this!

However, all this has not necessarily to lead to negative consequences for global trade. I do not rule out completely that China will try to keep down future dumping charges as much as possible. Time will tell us.

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

 

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Unemployment – the most unusable indicator in China?

June 25, 2020

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Arbetslösheten – Kinas minst användbara konjunkturindikator?

Brief summary / sammanfattning

Kvaliteten i Kinas ekonomiska statistik har aldrig haft gott anseende bland flertalet utländska Kinaforskare. Tillämpningen av vettiga tidsserier har alltid varit synnerligen begränsad. Den officiellt redovisade arbetslöshetsstatistiken framstår som den kanske minst användbara konjunkturindikatorn för internationella bedömare. Arbetslöshetsstatistiken är helt enkelt inte tillräckligt omfattande.

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After having dealt with Chinese official statistics during 30 years, I still have the concrete impression that the monthly, quarterly and annually published economic numbers never could give me a feeling of applicable and comfortable accuracy (e.g. in: Finance India. The Quarterly Journal of Indian Institute of Finance, ISSN 0970-3772, Vol. 25, no 4, s. 1189-1207). Too many statistical inconsistencies could be found more or less regularly over the years. Other (academic) economists came to the same conclusion.

Referring to the corona virus, I pointed some months ago at the new opportunity for the official China to create better transparency – and by a new policy of improved openness to achieve an upgrading of its international reputation (see my article here on chinaresearch.se from April 14, 2020). And I strongly argued for the view that China itself could have benefited from such a policy change.

Unfortunately, China did not want to go for such a new direction. This also means that unemployment numbers will continue to be the same conundrum as they have been in the past decades.

Unemployment statistics covers only a limited part of the economy

Two different measurements of unemployment rates can quite easily be found in official statistics, one for 31 metropolitan cities and one for total urban unemployment http://data.stats.gov.cn/english/easyquery.htm?cn=A01. But also in this blog’s limited context show up a number of questions without good possible answers, quoting here some of them.

¤ Rural unemployment is not included in the official – survey-based – unemployment numbers. Is this a curable major shortcoming?

¤ There is no good estimate about migrant workers working occasionally in the cities, in good times according to the authorities up to 300 million people – and now may be half of it. One has to wonder where these newly unemployed people have gone in reality and in statistics?

¤ Also officially confirmed, migrant workers accounted last year for roughly one third of the Chinese labor force. Based on this number, it puzzles quite a lot that total urban unemployment in the 31 major cities merely rose from 5.3 % in July 2019 to 5.9 % in April 2020.

No clear answers to be expected

Increasing unemployment may be the most crucial issue for China’s leadership, both politically and socially (which is interconnected). For this reason, promising opening up in unemployment communication will not take room in the foreseeable future – unless the economy unexpectedly will face an explosive and sustainably strong recovery.

Who believes in such a development?

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

 

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