Some China economic watchers are projecting China's economy to reach $7.5 trillion over the next decade, which would effectively double the size of the middle kingdom in that short period of time.
If this estimate is accurate, China's growth would be larger in GDP than the United States, combined with China's three BRIC counterparts.
There can be no doubt that China will be the economic story of the 21st century, and even with their measures to slow down their urban property markets, they will still grow at a solid pace, one that is much more healthy than it was before.
Now what is waited for is for China to successfully navigate from being primarily an export economy to one balanced with domestic growth and demand as well.
Assuming they do it correctly, they will be poised to extraordinary growth in the years ahead, which will continue to dominate the global economic growth other countries are increasingly relying on.
Showing posts with label China Infrastructure. Show all posts
Showing posts with label China Infrastructure. Show all posts
Saturday, July 3, 2010
Friday, August 21, 2009
BRIC Business | Rethink Them?
BRIC Business
An economic crisis will always bring out the best and worst, and the strenght and weakness of any economy, and the current economic crisis has provided fresh fuel to the debate over the feared decline of the West and rise of the East. The so-called BRICs – Brazil, Russia, India, and China – are often touted as the inevitable economic winners. But when you look behind the numbers, it suggests that the proclamation that these countries have won is far too premature.
The numbers at this time don't reinforce the assertions, and The World Bank’s dark forecasts see global GDP falling a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, gyrating stock markets and tumbling business confidence. Yes, there may be a few spots of recovery. China’s stimulus efforts – a quick expansion of fixed investment and credit to the state sector generated by huge foreign reserves – seem to have had a predictable positive, if likely short-term, effect. Perhaps broader, but still modest, recoveries in 2010 and 2011 are in the cards. And there is the looming risk of inflation to have to deal with, which could undermine China especially.
But the way to full recovery is not clear at this time. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various flavors of state capitalism (perhaps combined, as in China, with authoritarian politics) have not been widely embraced.
At this point, enter the BRICs. Before the severity of the looming economic storm was clear, the BRICs were the sweethearts of the investment sector. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman forecast that their ongoing GDP growth could outpace the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before mid-century. To be sure, these “emerging markets” were not seen as risk free, but with their scale – continental powers with large populations and records of substantial economic growth – they looked attractive. Especially to punters playing the markets. If Goldman liked them, how could you go wrong?
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan colossi Beijing and Shanghai have become. India’s IT prowess dominates. But sustainable growth and economic leadership will ultimately have to be based on business environment fundamentals. International metrics that go beyond GDP suggest the BRICs have a long way to go.
Take, for beginners, corruption, the negative element that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is close to the bottom, ranking 147th – Kenya and Syria are neighbors. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption of China’s legal system can eat business confidence away.
If there’s corruption, then it’s not so easy to do business there. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those league tables. China comes in a little better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly, taxes in Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global Competitiveness Report” (GCR). This sophisticated survey pulls together a large range of business environment variables, including social and political stability, economic concerns, technological sophistication and management quality. Of the 134 countries ranked, China comes in at 30th place (comparable to Spain); India and Russia land at 50th and 51st places respectively (about the same as Italy); and Brazil checks in at 64th place, close to Turkey and Kazakhstan. The GCR points out that all of these environments are plagued by bureaucracy, corruption, changeable business policies and problems with finance. (Not that the G-8 countries are 100% clean here either!).
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil and Russia rank in the middle of the United Nations’ Human Development Index; China is just a little below and India, is almost at the bottom. Russia and China face demographic challenges. China is growing older, while Russia has even more major population problems – it’s declining.
Their economic, social and political systems differ in a major way: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot. What do they share? Growth potential. And a desire to take the U.S. dollar down a notch. Is that enough to assert that the answer to the world’s problems be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away.
We focus on these things not to criticize the BRICs individually but rather to put a little more reality into the important discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership demands a sound business environment. On that score, the BRICs have a long way to go.
To be sure, their equity markets seem to be doing ok (China’s seems to be a bubble). But there’s more to the economy of any country than GDP projections and speculative bets about the future of a few leading companies.
But after all of this, we still have to remember that America had a lot of false starts and ups and downs in its early years or prosperity, so that shouldn't change for China or the other BRIC nations any time soon. Russia will struggle the most of all of them, while China and India will continue to lead them. Brazil, because it depends primarily on commodities, will do well when demand starts to increase again, and they could be right up there, and possibly surpass China and India as far as percentag of growth goes. Russia could do that too if it was in better position and strength, but it has a long way to go before that is a reality.
BRIC Business
An economic crisis will always bring out the best and worst, and the strenght and weakness of any economy, and the current economic crisis has provided fresh fuel to the debate over the feared decline of the West and rise of the East. The so-called BRICs – Brazil, Russia, India, and China – are often touted as the inevitable economic winners. But when you look behind the numbers, it suggests that the proclamation that these countries have won is far too premature.
The numbers at this time don't reinforce the assertions, and The World Bank’s dark forecasts see global GDP falling a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, gyrating stock markets and tumbling business confidence. Yes, there may be a few spots of recovery. China’s stimulus efforts – a quick expansion of fixed investment and credit to the state sector generated by huge foreign reserves – seem to have had a predictable positive, if likely short-term, effect. Perhaps broader, but still modest, recoveries in 2010 and 2011 are in the cards. And there is the looming risk of inflation to have to deal with, which could undermine China especially.
But the way to full recovery is not clear at this time. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various flavors of state capitalism (perhaps combined, as in China, with authoritarian politics) have not been widely embraced.
At this point, enter the BRICs. Before the severity of the looming economic storm was clear, the BRICs were the sweethearts of the investment sector. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman forecast that their ongoing GDP growth could outpace the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before mid-century. To be sure, these “emerging markets” were not seen as risk free, but with their scale – continental powers with large populations and records of substantial economic growth – they looked attractive. Especially to punters playing the markets. If Goldman liked them, how could you go wrong?
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan colossi Beijing and Shanghai have become. India’s IT prowess dominates. But sustainable growth and economic leadership will ultimately have to be based on business environment fundamentals. International metrics that go beyond GDP suggest the BRICs have a long way to go.
Take, for beginners, corruption, the negative element that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is close to the bottom, ranking 147th – Kenya and Syria are neighbors. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption of China’s legal system can eat business confidence away.
If there’s corruption, then it’s not so easy to do business there. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those league tables. China comes in a little better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly, taxes in Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global Competitiveness Report” (GCR). This sophisticated survey pulls together a large range of business environment variables, including social and political stability, economic concerns, technological sophistication and management quality. Of the 134 countries ranked, China comes in at 30th place (comparable to Spain); India and Russia land at 50th and 51st places respectively (about the same as Italy); and Brazil checks in at 64th place, close to Turkey and Kazakhstan. The GCR points out that all of these environments are plagued by bureaucracy, corruption, changeable business policies and problems with finance. (Not that the G-8 countries are 100% clean here either!).
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil and Russia rank in the middle of the United Nations’ Human Development Index; China is just a little below and India, is almost at the bottom. Russia and China face demographic challenges. China is growing older, while Russia has even more major population problems – it’s declining.
Their economic, social and political systems differ in a major way: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot. What do they share? Growth potential. And a desire to take the U.S. dollar down a notch. Is that enough to assert that the answer to the world’s problems be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away.
We focus on these things not to criticize the BRICs individually but rather to put a little more reality into the important discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership demands a sound business environment. On that score, the BRICs have a long way to go.
To be sure, their equity markets seem to be doing ok (China’s seems to be a bubble). But there’s more to the economy of any country than GDP projections and speculative bets about the future of a few leading companies.
But after all of this, we still have to remember that America had a lot of false starts and ups and downs in its early years or prosperity, so that shouldn't change for China or the other BRIC nations any time soon. Russia will struggle the most of all of them, while China and India will continue to lead them. Brazil, because it depends primarily on commodities, will do well when demand starts to increase again, and they could be right up there, and possibly surpass China and India as far as percentag of growth goes. Russia could do that too if it was in better position and strength, but it has a long way to go before that is a reality.
BRIC Business
Thursday, February 12, 2009
BRIC Countries Lead Global Equity Markets
While most countries around the globe struggle, including large western nations, the BRIC countries of Brazil, Russia, India and China are still enjoying significant, albeit slower growth, as the emerging markets countries still have consumers spending in them, in contrast to the overall domestic global business in other countries.
Consequently, the large emerging markets countries have outperformed most others in the equity markets, even though of the four, India has fallen by a slight 0.3 percent on the Bombay Stock Exchange, although it still ranks them in the top four of the 15 largest markets across the world.
As far as major stock markets, Brazil, Russia and China are the only ones growing above the 8 percent mark so far this year, while India has changed very little. Even though BRIC countries have slowed down in growth, they're still growing at rates far beyond their North American, European and Japanese counterparts.
Leading the equity growth is China, which has grown by 24 percent this year on the Shanghai composite index, while Russia via the Micex has surged 17 percent, and Brazil has performed at an 8.8 percent growth rate on the Bovespa.
This does show that domestically the consumers in the respective BRIC countries haven't stopped spending, as exports from China, Brazil and Russis have dropped significantly, let by the largest drop in China exports in 13 years, as demand for Europe and the United States has dried up. In the case of Brazil, they've struggle on both sides of the equation, as industrially they've fallen off in output the worst since 1992 in the fourth quarter, while commodity exports struggled in 2008, although it has started to rebound some.
Russia has been hit especially hard because of its reliance upon oil and its prices to shore up its economy, as it's one of the chief exports of the country. The Russian ruble has also experienced a downturn, falling by 16 percent against the U.S. dollar so far in 2009. That of course also increases the cost of financing for Russian companies.
For these reasons, even though domestic spending seems to have continued in these emerging markets countries, some think that it is still probably too early to start investing in BRIC markets until valuations have fallen to the point where it makes risk worth it. If the global recession last longer than expected, it could cause BRIC investors a lot of headaches and time as they wait to not only recoup their capital, but make money on it as well. Most are waiting for valuations to drop to the point where most or all the bad news is already priced into the emerging economies.
Even so, investors in BRIC emerging market countries need to position themselves for when the bull market starts up again, as when they do, those in early enough will enjoy great returns for years ahead.
There's no doubt China will lead the way out of the emerging countries equity slump, as there are already signs it's turning around and Chinese consumers are still saving and spending money, to the benefit of the country. That's in contrast to 2008, when the Shanghai index plunged by 65 percent, and was only trading at 13.2 times the reported profits. Just this week though, the Shanghai index had already climbed to 17.6 percent earngings, already up 32 percent from the lows of 2008. China watchers believe they're either at or close to the bottom. China is expected to come out of the economic slowdown far better than the majority, if not the very best.
Because the BRIC countries are growing both economically and population wise faster than developed countries, specifically China and India, we'll see them continue to outperform in growth for years to come.
Other BRIC emerging markets will enjoy growth as well, and are already starting to turn the corner in some areas of their economies.
Much of India's growth also stems from strong domestic spending, as growth for the year ending on March 31 is projected to expand by about 7.1 percent. That's much more than expectatons of only 0.5 percent from the IMF. The central bank of India also cut interest rates from 9 percent in October down to 5.5 percent as of today.
For Brazil's emerging economy, which relies so much on the exportation of commodities and natural resources, they've rebounded from the Bovespa index shedding 41 percent last year, whic dropped price/earnings ratios down to 7 as of October, to 9.6 today. The BRIC economy enjoyed a resurgence of some metals also, helping them to grow. Internal infrastructure spending also helped the economy grow.
For Russia, even though they've suffered from lost oil revenues, the steel companies have been doing well based on the assumption increased infrastructure spending will increase profits in the industry. The Russian ruble also had a nice jump recently, increasing by 2.5 percnet against the euro and the U.S. dollar. That's four days in a row the currency has risen, pushing investors to move out of foreign currencies as the Russian government defends the ruble.
So how can we invest in emerging and BRIc economies? Investing in BRIC markets can be through bonds in the emerging markets, emerging or BRIC funds, BRIC mutual funds, BRIC or emerging market ETFs, or many of the similar investments we already invest in in the countries we reside in.
For investors with a short term mentality, investing BRIC country investment vehicles is probably not a good idea, as there is much volatility at this time, and they must be entered with a long term outlook. BRIC funds and ETFs, along with the other investment instruments will outperform most if not all of their large competitors in general, but over the short term, just like in developed nations, it's risky to enter emerging markets with a short term time frame.
The BRIC countries and markets of Brazil, Russia, India and China will make fortunes for investors in the years ahead, and those that are patient and in it for the long term, along with doing their homework, will be wildly successful and profiable as emerging markets and emerging economies lead the way economically over the next couple decades.
Consequently, the large emerging markets countries have outperformed most others in the equity markets, even though of the four, India has fallen by a slight 0.3 percent on the Bombay Stock Exchange, although it still ranks them in the top four of the 15 largest markets across the world.
As far as major stock markets, Brazil, Russia and China are the only ones growing above the 8 percent mark so far this year, while India has changed very little. Even though BRIC countries have slowed down in growth, they're still growing at rates far beyond their North American, European and Japanese counterparts.
Leading the equity growth is China, which has grown by 24 percent this year on the Shanghai composite index, while Russia via the Micex has surged 17 percent, and Brazil has performed at an 8.8 percent growth rate on the Bovespa.
This does show that domestically the consumers in the respective BRIC countries haven't stopped spending, as exports from China, Brazil and Russis have dropped significantly, let by the largest drop in China exports in 13 years, as demand for Europe and the United States has dried up. In the case of Brazil, they've struggle on both sides of the equation, as industrially they've fallen off in output the worst since 1992 in the fourth quarter, while commodity exports struggled in 2008, although it has started to rebound some.
Russia has been hit especially hard because of its reliance upon oil and its prices to shore up its economy, as it's one of the chief exports of the country. The Russian ruble has also experienced a downturn, falling by 16 percent against the U.S. dollar so far in 2009. That of course also increases the cost of financing for Russian companies.
For these reasons, even though domestic spending seems to have continued in these emerging markets countries, some think that it is still probably too early to start investing in BRIC markets until valuations have fallen to the point where it makes risk worth it. If the global recession last longer than expected, it could cause BRIC investors a lot of headaches and time as they wait to not only recoup their capital, but make money on it as well. Most are waiting for valuations to drop to the point where most or all the bad news is already priced into the emerging economies.
Even so, investors in BRIC emerging market countries need to position themselves for when the bull market starts up again, as when they do, those in early enough will enjoy great returns for years ahead.
There's no doubt China will lead the way out of the emerging countries equity slump, as there are already signs it's turning around and Chinese consumers are still saving and spending money, to the benefit of the country. That's in contrast to 2008, when the Shanghai index plunged by 65 percent, and was only trading at 13.2 times the reported profits. Just this week though, the Shanghai index had already climbed to 17.6 percent earngings, already up 32 percent from the lows of 2008. China watchers believe they're either at or close to the bottom. China is expected to come out of the economic slowdown far better than the majority, if not the very best.
Because the BRIC countries are growing both economically and population wise faster than developed countries, specifically China and India, we'll see them continue to outperform in growth for years to come.
Other BRIC emerging markets will enjoy growth as well, and are already starting to turn the corner in some areas of their economies.
Much of India's growth also stems from strong domestic spending, as growth for the year ending on March 31 is projected to expand by about 7.1 percent. That's much more than expectatons of only 0.5 percent from the IMF. The central bank of India also cut interest rates from 9 percent in October down to 5.5 percent as of today.
For Brazil's emerging economy, which relies so much on the exportation of commodities and natural resources, they've rebounded from the Bovespa index shedding 41 percent last year, whic dropped price/earnings ratios down to 7 as of October, to 9.6 today. The BRIC economy enjoyed a resurgence of some metals also, helping them to grow. Internal infrastructure spending also helped the economy grow.
For Russia, even though they've suffered from lost oil revenues, the steel companies have been doing well based on the assumption increased infrastructure spending will increase profits in the industry. The Russian ruble also had a nice jump recently, increasing by 2.5 percnet against the euro and the U.S. dollar. That's four days in a row the currency has risen, pushing investors to move out of foreign currencies as the Russian government defends the ruble.
So how can we invest in emerging and BRIc economies? Investing in BRIC markets can be through bonds in the emerging markets, emerging or BRIC funds, BRIC mutual funds, BRIC or emerging market ETFs, or many of the similar investments we already invest in in the countries we reside in.
For investors with a short term mentality, investing BRIC country investment vehicles is probably not a good idea, as there is much volatility at this time, and they must be entered with a long term outlook. BRIC funds and ETFs, along with the other investment instruments will outperform most if not all of their large competitors in general, but over the short term, just like in developed nations, it's risky to enter emerging markets with a short term time frame.
The BRIC countries and markets of Brazil, Russia, India and China will make fortunes for investors in the years ahead, and those that are patient and in it for the long term, along with doing their homework, will be wildly successful and profiable as emerging markets and emerging economies lead the way economically over the next couple decades.
Sunday, November 9, 2008
China to Offer Stimulus Package Worth Over $585 Billion
Even though China has been doing pretty well economically, projections are its growth will slow by about 3 percent over the next year, down to a little over 8 percent.
That has caused China to enter into the stimulus package fad, and has announced it will offer a package worth over $585 billion to generate growth.
With China being especially vulnerable to export demand slowing down, much of the package will focus on huge infrastructure spending in order to shore up domestic growth.
Some of the sectors targeted, which will focus primarily in ten key areas in the country, are transportation, rural infrastructure, low-income housing, electricity and water. Some of the funds will also be used to build up areas ravaged from natural disasters, particularly the May earthquake in the Sichuan province.
Along with the stimulus package, which is scheduled to be spent over a two-year period, China will also loosen up credit and cut "value-added" taxes which should eliminate up to $17.5 billion in costs to industry.
Concerning credit, commercial bank ceilings will be ended in order to stimulate more lending to projects considered vital to the country. Hopes are it will have an impact on small businesses, rural areas, industrial mergers and acquisitions, and innovation in the technical sector.
That has caused China to enter into the stimulus package fad, and has announced it will offer a package worth over $585 billion to generate growth.
With China being especially vulnerable to export demand slowing down, much of the package will focus on huge infrastructure spending in order to shore up domestic growth.
Some of the sectors targeted, which will focus primarily in ten key areas in the country, are transportation, rural infrastructure, low-income housing, electricity and water. Some of the funds will also be used to build up areas ravaged from natural disasters, particularly the May earthquake in the Sichuan province.
Along with the stimulus package, which is scheduled to be spent over a two-year period, China will also loosen up credit and cut "value-added" taxes which should eliminate up to $17.5 billion in costs to industry.
Concerning credit, commercial bank ceilings will be ended in order to stimulate more lending to projects considered vital to the country. Hopes are it will have an impact on small businesses, rural areas, industrial mergers and acquisitions, and innovation in the technical sector.
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