Latest News Clips June 22, 2015

                 Latest News Clips June 22, 2015 

1. India Rising, China Slowing Doesn’t Mean Modi Wins 

India is poised to top China in population and economic growth. That's no guarantee Narendra Modi’s pro-business push will beat Xi Jinping’s consumption-heavy makeover in a regional contest with global consequences. 

The Bloomberg   June 17, 2015  

   

Jim O’Neill still vividly recalls a 2006 road trip he made from India’s capital, New Delhi, to a new industrial city named Gurgaon. On a two-lane road jammed with cars, motorcycles, rickshaws, and animals, it took O’Neill, then chief economist at Goldman Sachs, two and a half hours to travel 30 kilometers,Bloomberg Markets magazine reports in its July/August issue.  “It was insane,” he says. 

O’Neill, who’s now a British government minister, repeated the journey in February. This time, the drive, on a new highway to what’s now more of a suburb, was less than an hour. Even better, the hotel car provided free Wi-Fi—the first time he’d encountered this perk anywhere in the world. “It sort of sums up the changes in India,” he says. 

Prime Minister Narendra Modi won the nation’s biggest election victory in 30 years in May 2014 by insisting India is capable of such advances on a grand scale. He pledged to lift the lumbering democracy—held back by red tape and weakened by corruption—into a global superpower with “minimum government, maximum governance.” He promised modern cities, improved manufacturing, and 100 million new jobs by 2022. Investors bought into the vision of the country’s first overtly business-oriented leader, pouring a record $42 billion into Indian stocks and bonds last year. 

Christopher Wood is a believer. The chief strategist at brokerage CLSA in Hong Kong had more than tripled the percentage of Indian shares in his Asia-Pacific portfolio, which excludes Japan, to 20 percent as of mid-May from just 6 percent in October 2013. Wood’s 20 percent also tops the 6.2 percent weighting for India in the benchmark MSCI AC Asia Pacific Index, which also excludes Japan. “India is the most promising story in Asia on a five- to 10-year view,” he says. “Mr. Modi is the most pro-business, pro-investment political leader in the world.” 

That’s some statement in a region where China’s shadow eclipses India in almost every conceivable way. China is bigger, with 1.37 billion people to India’s 1.25 billion. Economic reforms have lifted 500 million Chinese citizens out ofpoverty since 1978, the World Bank says. In India, 175 million have escaped poverty from 1993 through 2011, the closest comparison the bank offers. Modi, 64, and Chinese President Xi Jinping, 62, are political strongmen who profess mutual respect. But their politics are poles apart. India is the world’s largest democracy; China, a totalitarian communist state. And they compete for everything—investment and trade dollars; coal, gas, and oil; and even territory along their 4,000-kilometer (2,485-mile) border.‘ 

So far, China has had the upper hand. Its economy and stock market capitalization are each more than five times those of India, largely the result of then-leader Deng Xiaoping’s unlikely embrace of a market economy and foreign investment in 1978, 13 years before India opened some of its industries to outside investment. “China’s reforms were far more comprehensive, and it’s already an economic miracle,” says Ruchir Sharma, who oversees more than $25 billion as New York–based head of emerging markets at Morgan Stanley Investment Management. “India is still aspiring to be an economic miracle.” 

2.  My big fat Greek divorce 

Greece and the euro zone are stuck in an abusive relationship 

The Economist    June 20, 2015 

IT IS never pleasant to watch a relationship founder. Greece’s prime minister, Alexis Tsipras, has charged its creditors with trying to humiliate the country; he has accused the IMF of “criminal responsibility” for Greece’s suffering. Prominent euro-zone politicians are saying openly that, without a deal to release rescue funds in the next few days, default and “Grexit” loom. 

The urgency is because of a repayment of €1.5 billion ($1.7 billion), which Greece seemingly cannot afford, to the IMF on June 30th and because Greece’s European bail-out expires that day. Cue the last-ditch negotiations that have become a Euro-speciality: just after The Economist went to press, finance ministers were to assemble in Luxembourg; leaders may meet over the weekend; a European Union summit is scheduled at the end of next week. It may come down to a head-to-head between Mr Tsipras and Angela Merkel, Germany’s chancellor. A deal is still possible, but the sides have come to loathe each other. If this were a marriage, the lawyers would be circling. 

Divorce would be a disaster—for everyone. The trouble is that, unless Greece and the euro zone change the terms of their relationship, staying together would not be a great deal better. 

Exit Greece, stage far-left 

To see why, start with the results of a default and Grexit. After arguing on and off for five infuriating years, some have begun to welcome the prospect. They are making a mistake. 

For Greece the gains from defaulting would be slight, and the costs potentially vast. True, the country could walk away from debts of €317 billion, or almost 180% of GDP. But that is worth less to Greeks than it sounds. Although the debt is huge, it is at bargain-basement interest rates and repayable over decades. Interest payments until the early 2020s are just 3% of GDP a year. Even for Greece, that is manageable. Nor would leaving the euro do much good. In theory, with a new drachma and its own central bank, Greece could devalue and gain competitiveness. But Greece’s trade is modest. And it has already lowered nominal wages by 16% without a boom in exports. 

3. Hong Kong Legislature Rejects Beijing-Backed Election Plan 

The New York Times    JUNE 18, 2015 

HONG KONG — In quiet negotiations as well as public protests, they have pleaded and demanded for nearly two decades that Beijing allow Hong Kong’s leader to be elected by the general public. But in a dramatic vote on Thursday, pro-democracy lawmakers here rejected a bill that could have been their last best chance to achieve that goal. 

In doing so, they redrew the battle lines in the struggle over Hong Kong’s future and may have ushered in a more volatile era in the city’s politics. 

The measure that failed would have allowed the public to elect Hong Kong’s next chief executive in 2017 from a slate of two or three candidates nominated by a committee controlled by China’s ruling Communist Party. 

But in a twist that speaks to the awkward politics of a freewheeling former British colony ruled since 1997 by an authoritarian government in Beijing — as well as a last-minute parliamentary blunder by allies of the Chinese leadership — the bill won only eight votes in the city’s 70-member Legislative Council. 

The legislature’s pro-democracy camp voted unanimously against the plan, arguing that as it allowed Beijing to screen candidates before they appeared on the ballot, it would have been a perversion of the principle of universal suffrage, akin to the meaningless elections held in Leninist states such as the Soviet Union of old — or in the rest of China today. 

Beijing’s supporters in the legislature argued that some progress was better than none and that Hong Kong should embrace the historic chance to become the only city in the People’s Republic of China permitted to elect its leader by one-person, one-vote balloting. 

An embarrassing misstep by the pro-Beijing camp, however, meant only eight lawmakers actually voted for the proposal. The others walked out before the vote in a failed attempt to force a 15-minute delay so a senior member of their bloc could return to the chamber. 

The measure’s defeat was assured in any case because it needed the support of at least two-thirds of the Legislative Council to pass, and 28 members — 27 of them from the pro-democracy camp — voted no. 

Those who had campaigned against Beijing’s election plan, including the leaders of last year’s huge street demonstrations, were hardly rejoicing. 

The plan’s failure “is no cause for celebration,” Joshua Wong, the 18-year-old student leader who became the public face of the protests, said outside the legislature on Thursday. “We have defeated a bogus voting plan, but we will have to shift from playing defense to playing offense to get the election that we desire.” 

By rejecting Beijing’s offer of a partial step toward open elections, the pro-democracy lawmakers are taking a huge gamble. In effect, they are betting that they can do better — that they will find a way to persuade or pressure the Chinese leadership to give Hong Kong more. 

4. Fed, in Shift, Expects Slower Increase in Interest Rates 

The New York Times  JUNE 17, 2015 

Janet L. Yellen, the Fed’s chairwoman, said that economic and labor market conditions were improving, but the central bank was not yet ready to pull back. CreditShawn Thew/European Pressphoto Agency 

WASHINGTON — The era of easy money is not ending yet. 

The Federal Reserve indicated on Wednesday, following a meeting of its policy committee, that it plans to raise interest rates even more slowly than its officials had previously predicted. 

The Fed still plans to start raising rates before the end of the year. Janet L. Yellen, the Fed’s chairwoman, said that growth had rebounded after a difficult winter, and that the Fed was simply waiting to make sure the economy was finally ready for higher rates. But she emphasized that even after rate hikes began, borrowing costs would remain low for years. 

“It’s not an ironclad guarantee, but we anticipate that that’s something that will be appropriate later this year,” Ms. Yellen said at a news conference on Wednesday, referring to raising rates above zero for the first time since December 2008. 

For years, Fed officials said they expected to begin the process in June, but they are now delaying at least until September in part because economic growth has once again disappointed. In a retreat that has become a ritual for the overly optimistic central bank, officials said in a new round of economic forecasts published Wednesday that they expected the economy to grow this year by 1.8 percent to 2 percent. In March, they predicted growth of 2.3 percent to 2.7 percent. 

  

Officials also predicted they would raise rates more slowly in subsequent years. On average they now expect rates to reach 1.75 percent by the end of 2016. Last June, the average prediction was that rates would reach 2.5 percent by the end of 2016. 

Ms. Yellen described these reductions in the expected level of interest rates over the next several years as more important than the month the central bank chooses to start raising rates. 

“I want to emphasize sometimes too much attention is placed on the timing of the first increase,” she said. “What should matter to market participants is the entire trajectory of expected policy.”