CHINA AND THE IMF IN TOKYO

CHINA’S IMF BOYCOTT UNDERMINES QUEST FOR CLOUT

John Foley

Reuters, October 10, 2012

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

If China wants a bigger say at the IMF, boycotting the fund’s meeting in Japan is the wrong way to get it. The head of the central bank, Zhou Xiaochuan, withdrew on Oct. 10, amid a territorial dispute between the two countries. Yet the IMF is supposed to be about finance, not border politics. If China doesn’t agree, maybe it isn’t ready for a bigger role.

At best, the boycott is a missed opportunity for a country keen to increase its 3.8 percent voting stake in the fund. Zhou is a highly respected ideas man – he has pushed hard for a non-dollar denominated financial system – and the keynote lecture he was due to deliver is a potent platform for shaping the agenda. Though China’s central bank has challenges, it also has much to teach the world about macroprudential management.

True, China is not alone in mixing finance and politics: the United States remains the dominant force at the IMF, and a study in 1999 showed that countries which vote with the United States at the United Nations were more likely to get help from the fund*. But China will get more support from other members by promoting less foreign policy intervention and setting a better example, rather than simply inserting its own agenda.

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FALTERING GROWTH IN ASIA

AS GROWTH FALTERS, ANALYSTS ASK HAS ASIA LOST ITS MOJO?

AFP

The Jakarta Globe, October 07, 2012

First the IMF warned developing Asia to brace for shocks from the West. Then the Asian Development Bank slashed its regional growth forecasts. Now analysts are asking, has Asia lost its mojo?

The European debt crisis and weakness in the United States have long been drags on Asian growth, but throw in China’s difficult leadership transition and the outlook is grim.

“It wasn’t supposed to turn out like this. Growth in recent months has faltered again, confounding expectations of a gradual recovery,” HSBC economists Qu Hongbin and Frederic Neumann wrote in a report released last week.

“China is one culprit, though a wobbly West is equally to blame.”

As Asia’s powerhouses China and India slow faster than many had expected, the ADB last Wednesday revised down its growth estimates for the region’s emerging economies to the lowest level since 2009.

Echoing assessments from the International Monetary Fund, the bank also warned of significant risks arising from the eurozone and the uncertain recovery in America, both of which are major export markets for Asian manufacturers.

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INDIA’S 12th FIVE-YEAR PLAN

GOVT APPROVES 12TH FIVE YEAR PLAN

The Sangai Express / PTI

E-Pao, October 5, 2012

New Delhi, October 04 2012: The Government today approved the 12th Five Year Plan (2012-17) document that seeks to achieve annual average economic growth rate of 8.2 per cent, down from from 9 per cent envisaged earlier, in view of fragile global recovery.

"The Union Cabinet also discussed the draft 12th Five Year Plan (2012-17) and approved the draft and directed the that the draft be placed before the National Development Council (NDC)," Finance Minister P Chidambaram told reporters here.

"It is an ambitious Plan” “It estimates resources at an ambitious level and hope to expand the interventions in critical areas like health, education, drinking water, sanitation," he said.

He further said, "The projected average rate gross capital formation in the 12th Plan is 37 per cent of GDP.

The projected gross domestic savings rate is 34.2 per cent of GDP and the net external financing needed for macro economic balance has been placed at 2.9 per cent of GDP.

"Plan emphasises the need for speeding up the implementation of infrastructure projects".

The 12th Plan document has already been approved by the full Planning Commission chaired by Prime Minister Manmohan Singh on September 15.

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ADB’S FORECAST FOR INDIA

ASIAN DEVELOPMENT BANK CUTS GROWTH FORECAST FOR INDIA TO 5.6%

The Economic Times, October 4, 2012

NEW DELHI: In line with a barrage of downgrades over the last few months by various rating agencies, the Asian Development Bank on Wednesday slashed its growth forecast for India to 5.6% this fiscal compared to 7% reported earlier, citing sluggish global demand and low agricultural production due to weak monsoon.

Recently, India has suffered growth revisions from all quarters with a majority of private analysts revising the growth in the range of 5.5%.

Adding to market woes, even the Prime Minister's Economic Advisory Council confirmed the growth crawl and pegged it 6.7% down from 7.6% assessed in February.

"The delayed monsoon, coupled with weaknesses in the agricultural supply chains and rising costs of fertilizers and irrigation, are likely to result in subdued agricultural growth and sustain pressure on food prices," the ADB report stated.

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CHINA’S DREAM

WHY CHINA NEEDS ITS OWN DREAM FOR EMERGING MIDDLE CLASS

Thomas L Friedman

The Economic Times, October 3, 2012

On Nov. 8, China is set to hold the 18th National Congress of the Communist Party. We already know who will be the next party leader: Vice President Xi XInping. What we don't know is what matters: Does Xi have a "Chinese Dream" that is different from the "American Dream?" Because if Xi's dream for China's emerging middle class - 300 million people expected to grow to 800 million by 2025- is just like the American Dream (a big car, a big house and Big Macs for all) then we need another planet.

Spend a week in China and you'll see why. Here's a Shanghai Daily headline from Sept. 7: "City Warned of Water Resource Shortage." The article said: "Shanghai may face a shortage of water resources if the population continues to soar. . . . The current capacity of the city's water supply was about 16 million tons per day, which is able to cover the demand of 26 million people. However, once the population reaches 30 million, the demand would rise to 18 million tons per day, exceeding the current capacity." Shanghai will hit 30 million in about seven years!

"Success in the 'American Dream,"' notes Peggy Liu, the founder of the Joint U.S.-China Collaboration on Clean Energy, or Juccce, "used to just mean a house, a family of four and two cars, but now it's escalated to conspicuous consumption as epitomized by Kim Kardashian. China simply cannot follow that path - or the planet will be stripped bareof natural resources to make all that the Chinese consumers want to consume."

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CHINA’S REBALANCING AND ITS EFFECTS

WHO'LL FEEL THE PAIN OF A SLOWER CHINA?

Stephen Grenville

Business Spectator, October 2, 2012

There is a vigorous debate on the prospects for China's growth. But there is little disagreement that the 'new normal' for China is significantly slower than the 10 per cent-plus growth of the past decade and that there needs to be a rebalancing over time, reducing the role of investment in driving growth. How will these changes play out for China's trading partners?

As the latest IMF Economic Outlook shows, emerging countries have accounted for almost all of world growth over the past four years and China accounts for much of this (see IMF graph below; emerging economies are in red).

China's spectacular growth over the past decade has brought some large structural changes to its trading partners. These are the countries which will be most affected if China slows sharply.

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CHINA AND NAVAL POWER

LIAONING'S ROLE IN CHINA'S BLUE-WATER NAVY

SCMP Editorial

South China Morning Post, October 1, 2012

There is great symbolism in the nation's first aircraft carrier, the Liaoning. Its handing over to the People's Liberation Army Navy tells the world that China has arrived as a "big power", able and willing to protect its interests if threatened. There the significance for the vessel ends, though. While China has joined the likes of the United States, Britain, France and Russia, years will pass before it will have full capabilities. Truth be told, the craft is little more than a floating shell, devoid of the aircraft, support ships and well-trained crew that are necessary to make it effective.

But that is not to belittle the achievement. The navy is the nation's weakest military link and the carrier, bought from Ukraine and refurbished, is inspiration for the future. Modernising the military branch's hardware will be an expensive and lengthy process and the Liaoning points the way ahead. There is every need for a blue-water navy and, in the vessel, China's intentions are made plain.

China's becoming a naval power is inevitable. The energy and mineral resources it needs to thrive and the bulk of its trade are carried by ship and they need to be protected. A strong naval presence in the world's sea lanes is the best way to do that effectively. Some governments may fret, seeing the build-up as threatening, but it is a right that all the world's countries have for the sake of their national interests.

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