“STAGFLATION” IN INDIA

INDIA PREDICTS DECADE-LOW GROWTH AMID INFLATION RISKS

Unni Krishnan

Bloomberg, February 7, 2013

India forecast the weakest economic growth in a decade as subdued investment and elevated inflation add pressure on Prime Minister Manmohan Singh to extend policy changes and revive his development agenda.

Gross domestic product will rise 5 percent in the 12 months through March 2013, below last year’s 6.2 percent and the least since 4 percent in 2002-2003, a Central Statistical Office statement showed in New Delhi today. The median of 34 estimates in a Bloomberg News survey was 5.5 percent.

India faces inflation of more than 7 percent, one of the fastest levels in major emerging nations, limiting the extent the central bank can cut interest rates to spur expansion. The government has vowed spending curbs to damp price gains as it prepares to unveil the annual budget, part of a wider policy overhaul since September to lure capital inflows and ease bottlenecks by speeding up infrastructure projects.

“Putting out a number like this says that we need to get our act together,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. India faces a modest recovery and the government needs to maintain the push to spur the economy, he said.

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CHINA’S GDP AND THE PROVINCES

THE PHANTOM PROVINCE IN CHINA’S ECONOMY

Didi Kirsten Tatlow

IHT Rendezvous, February 6, 2013

BEIJING - China has a "phantom province" pumping out nearly 5.8 trillion renminbi (about $925 billion) in gross domestic product last year, about equivalent to the output of its richest province, Guangdong, Chinese media reported this week.

How so?

Deliberately inflated figures from local officials are largely to blame, domestic media reported, as officials seek promotion for delivering the high growth demanded by the state. And the problem of systemic exaggeration in the economy is growing, not shrinking, as the country becomes richer and is increasingly integrated into the global economy.

The world is accustomed to remarkable growth from China, which is now the world's second-largest economy after zooming up the list to overtake Germany and Japan, and is projected by some to challenge the economic dominance of the United States. And other nations have grown accustomed to looking to China to drive global growth with those high numbers. As Yi Gang, the deputy governor of the People's Bank of China, the central bank, said at the World Economic Forum in Davos last month, "I think China's growth rate will be about 8 percent this year."

Yet back home, officials are faced with figures that can be off the mark by millions, billions or trillions of renminbi, meaning no one is entirely sure what's going on. (The government in Beijing has its own way of dealing with the problem: the incoming prime minister, Li Keqiang, once reportedly said financial data in China was "man-made" and he relied instead on three indicators: electricity consumption, rail cargo and bank loans.)

This week, Chinese media reported widely on China's "phantom province," the GDP excess that resulted when the economic growth figures from 31 provinces, municipalities and regions were added up and compared to the different, national GDP figure that the government uses. In 2012, the discrepancy reached a remarkable 5.76 trillion renminbi, its biggest ever and the equivalent of the output of Guangdong province, itself an economic powerhouse, the media said.

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CHINA: OVERINVESTMENT AND DOWNSIDE RISK

INVESTMENT OVERHANG SPELLS TROUBLE FOR CHINA

Persistently high levels of investment are producing diminishing returns and may signal a correction.

Nick Ferguson

Finance Asia, February 5, 2013

You can’t keep a good China bull down. After a brief flirtation with notions of a hard landing, the conventional wisdom now has it that China is poised to resume its inexorable rise to global superpower.

It is not entirely clear why the mood has changed. China has a new deck of leaders, as nobody could have failed to notice, but they are hardly very different from the old ones — and, in the meantime, the country’s other problems haven’t gone away.

Questionable accounting, unaffordable housing, tainted food and corrupt officials are all proving hard to resolve. There is also the small issue of Beijing’s hazardous “fog”, which has become a very visible example of a negative externality. But all these problems would fade into insignificance if China’s tentative recovery were to falter.

There are reasons to fear that may be the case. China continues to run the highest investment-to-GDP ratio in the world and, despite the cooling effects of the global financial crisis, its economy may be suffering from a serious investment overhang.

Indeed, Standard & Poor’s estimates that China’s overinvestment poses a downside risk of $800 billion. The rating agency has conducted a study of investment levels in 32 countries in the run-up to two crises — the Asian financial crisis and the most recent global financial crisis — and concludes that China is at the highest risk of an investment-induced correction.

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TENSIONS OVER THE SENKAKU/DIAOYU ISLANDS

CHINA’S SENKAKUS OPERATIONS OVERSEEN BY PARTY TASK FORCE LED BY XI

Kenji Minemura

The Asahi Shimbun, February 4, 2013

BEIJING--China’s response to the Senkaku Islands dispute is now under the direct command and coordination of a top-level task force of the Communist Party of China, led by General Secretary Xi Jinping.

A source close to the Communist Party said the creation of the new task force, said to be modeled after the U.S. National Security Council, means that the dispute has become one of the most important issues for China along with reunification with Taiwan and others.

Tensions between Japan and China are mounting over the five uninhabited islands in the East China Sea.

Military sources told The Asahi Shimbun that the two countries scrambled fighter jets several times on Jan. 19, although no announcements were made publicly.

Two Jian-10 fighters took off from an air base outside Shanghai and followed a U.S. airborne warning and control aircraft, which carries a surveillance system for tracking other planes, north of the Senkaku Islands at a close distance, the sources said.

Two F-15 fighters of the Air Self-Defense Force then took off to counter the Chinese move, the sources said.

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CHINA: THE QUALITY OF ECONOMIC GROWTH

CHINA'S YEAR OF CHALLENGES

The tottering global economy and slowing growth rate at home make it important to transform economic development model

Zhang Yansheng

People's Daily, February 3, 2013

The decision of the 2013 Central Economic Working Conference is to raise the quality of economic growth and make it more result-oriented by focusing on "six musts".

The first is expediting economic restructuring. The second is transforming the pattern of economic development to ensure that it is based on expanding domestic demand. The third is continuing to work effectively on agriculture, rural areas and farmers, as well as advancing urban-rural integration. The fourth is continuous implementation of the strategy to invigorate China, and boost its economic and social development. The fifth is prioritizing people's interest above everything else and working tirelessly for people's well-being so that development benefits reach the whole nation in a fairer manner. And the last is deepening reform in an all-round way, clearing obstacles in the system that hinder development, proactively implementing the opening-up strategy and creating a competitive edge.

The key to fulfilling the "six musts" lies in handling the relations between steady economic growth in the short term, economic restructuring in the intermediate term and systematic transformation in the long run.

The prospect of global economic growth, however, remains troubling in 2013.

First, the global economy will continue to grow slowly this year, for it has not fully recovered from the global financial crisis of 2008. For example, the International Monetary Fund had forecast that the global economic growth rate in 2012 would be 3.3 percent, the lowest since 2009, and lowered China's and India's growth rates to 7.8 percent and 4.9 percent.

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A CURRENCY WAR IN ASIA?

IS A CURRENCY WAR COMING?

Andrew Sheng

The Star Online, February 2, 2013

WHEN Shinzo Abe became Japanese Prime Minister on Boxing Day last year, he promised to deliver change.

Very shortly, he announced a 10.3 trillion yen (US$116bil or 2.2% of GDP) stimulus package to end deflation and pressured the Bank of Japan (BOJ) to adopt a 2% inflation target. As a result, the stock market index Nikkei jumped 28.3% from mid-November to current levels and the yen weakened by 20.1% from 75.7 to 90.9, its lowest level in over two years.

Such action has already provoked muttering about another currency war, invoked by Russian, German and South Korean officials.

Are we moving from a trade war to a currency war? Not yet.

Firstly, the global imbalance is already ameliorating, with the Japanese current account surplus declining sharply due to rising oil import costs. Secondly, all reserve currency central banks (European Central Bank, Fed, Bank of England and BOJ) claim they only have inflation targeting, rather than exchange-rate targeting. In other words, currency rates are a consequence of the monetary policy, not a target. And we all know that if everyone devalues at the same time, there is no advantage to any single country. Since the world moved off the gold standard in 1971, everyone is aware that competitive devaluation ends up with no winners.

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NK’S PLANNED NUCLEAR TEST

N. KOREA'S 3RD NUCLEAR TEST MORE THREATENING THAN PREVIOUS PROVOCATIONS: MINISTER

Yonhap News, February 1, 2013

SEOUL, Feb. 1 (Yonhap) -- North Korea's planned third nuclear test will have greater significance than the two previous detonations and could fundamentally change the security environment on the Korean Peninsula, Seoul's unification minister said Friday.

In a meeting with ministry officials, Yu Woo-ik claimed the overall situation facing South Korea remains grave and made clear that it is wrong to view the expected atomic detonation in the same light as the tests conducted in 2006 and 2009.
"The first and second tests can be seen as part of Pyongyang's efforts to develop nuclear capability, while a third detonation could mean it is in the final stages (of making weapons)," he claimed.

Pyongyang has repeatedly denounced the U.N Security Council resolution passed last week that condemned its launch of a long-range rocket on Dec. 12, warning it will develop its nuclear deterrence to meet external challenges.

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