- Stuck in the middle
Emerging markets are being squeezed by America’s recovery and China’s slowdown
The Economist Aug 15th 2015
TURMOIL has become a commonplace of financial markets in recent summers. This one is no different. An unexpected devaluation of the yuan this week fuelled fears about the state of China’s economy, setting off falls in commodities and emerging-market currencies. Stockmarkets in Europe and America wobbled. Copper hit a six-year low; oil is below $50 a barrel; Malaysia’s currency is at its lowest level since the Asian crisis in 1998. Even Canada is flirting with recession.
No single factor can explain everything that is going on. But two countries, and the relationship between them, provide a framework for understanding these gyrations. America is still the world’s biggest economy and sets the tone for interest rates and currencies globally. China has been the fastest-growing big economy by a distance. These two behemoths are pulling in different directions. America’s recovery is gradually gathering pace, while China’s economy is slowing sharply. This divergence is causing trouble, particularly for those emerging markets which have lived the high life on China’s investment boom and on a flood of cheap credit from America. And there is worse to come.
Start with America, where GDP has picked up after a wobbly first quarter and all signs point to more solid growth. Employers, excluding farms, added 215,000 people to the payroll in July, a hefty increase in line with the recent monthly trend. The jobless rate is inching down towards 5%.
Healthy growth in the world’s largest economy is good news. But it is bringing closer—perhaps as soon as September—the moment when the Federal Reserve raises interest rates for the first time in almost a decade. That prospect has pushed up the dollar, which has risen by 15% against its trading partners in the past two years. And it has squeezed emerging markets in two ways. First, capital is drawn towards higher-yielding American assets, rather than being invested at home; and, second, corporate borrowers in the developing world face currency risk on the $1.3 trillion of dollar-denominated bonds they have issued since 2010. According to the Bank for International Settlements, the heaviest such borrowers are in China itself, Brazil, Russia, Mexico and South Korea.
As America’s economy gathers steam, China’s is losing it. Alarming figures published this week showed an 8% fall in Chinese exports in July and a 5.4% drop in factory-gate prices. Output prices have fallen for 41 straight months, a symptom of overcapacity in much of China’s heavy industry. Some of the slowdown in China’s economy is both inevitable and welcome, reflecting as it does the transition from an investment-led economy to a consumption-centred one. But for many emerging markets it is painful nonetheless.
The impact of China’s slowdown is greatest for commodity producers, from Brazil to South Africa. But it is not confined to them. GDP growth in Singapore, a bellwether of the world economy, has slowed to below 2%, the lowest rate for three years. Surveys of purchasing managers suggest factory output is contracting in Taiwan and Korea. Even inflation-prone India, which is far less tied to China than its neighbours are, is feeling the pinch. Its steelmakers moan about a surge of cheap Chinese imports. The relentless downward pressure on factory-gate prices in China forces industry in neighbouring countries to follow suit or lose market share.
The divergence between America and China has also complicated the relationship between them. Until this week, the yuan’s loose peg to the dollar meant that it had been aping the greenback’s ascent even as its own economy has slowed: China’s trade-weighted exchange rate has risen by more than 10% since the start of 2014. Hence fears that this week’s devaluation presages a determined effort to drive down the value of the yuan to benefit Chinese exporters—and squeeze other emerging markets all the more.
Those fears are overblown. The government in Beijing is not about to start a currency war. The initial 2% devaluation of the yuan only undid the previous ten days’ worth of appreciation in trade-weighted terms. The changes made by the Chinese central bank to the exchange-rate regime were designed in part to strengthen the role of market forces in determining the value of the yuan. Fear of capital outflows makes policymakers wary of sustained depreciation (see article).
A feeling that something ain’t right
Similarly, the Fed’s rate-setters will not want to act too abruptly. They care about the strength of the dollar. The yuan’s fall this week prompted declines in other Asian currencies against the greenback. Having readied the markets for an increase this year, it may now be hard for the Fed to back away. But the turmoil this week makes it more likely that the rate-setters will move as gently as they can. That is some comfort for emerging markets, but not much. The lodestars of the global economy are moving apart, spelling more trouble ahead.
- China, East Asia and history
Xi’s history lessons
The Communist Party is plundering history to justify its present-day ambitions
The Economist Aug 15th 2015
IN EARLY September President Xi Jinping will take the salute at a huge military parade in Beijing. It will be his most visible assertion of authority since he came to power in 2012: his first public appearance at such a display of missiles, tanks and goose-stepping troops. Officially the event will be all about the past, commemorating the end of the second world war in 1945 and remembering the 15m Chinese people who died in one of its bloodiest chapters: the Japanese invasion and occupation of China of 1937-45.
It will be a reminder of the bravery of China’s soldiers and their crucial role in confronting Asia’s monstrously aggressive imperial power. And rightly so: Chinese sacrifices during that hellish period deserve much wider recognition. Between 1937, when total war erupted in China, and late 1941, when the attack on Pearl Harbor brought America into the fray, China fought the Japanese alone. By the end of the war it had lost more people—soldiers and civilians—than any other country bar the Soviet Union.
Yet next month’s parade is not just about remembrance; it is about the future, too. This is the first time that China is commemorating the war with a military show, rather than with solemn ceremony. The symbolism will not be lost on its neighbours. And it will unsettle them, for in East Asia today the rising, disruptive, undemocratic power is no longer a string of islands presided over by a god-emperor. It is the world’s most populous nation, led by a man whose vision for the future (a richer country with a stronger military arm) sounds a bit like one of Japan’s early imperial slogans. It would be wrong to press the parallel too far: China is not about to invade its neighbours. But there are reasons to worry about the way the Chinese Communist Party sees history—and massages it to justify its current ambitions.
History with Chinese characteristics
Under Mr Xi, the logic of history goes something like this. China played such an important role in vanquishing Japanese imperialism that not only does it deserve belated recognition for past valour and suffering, but also a greater say in how Asia is run today. Also, Japan is still dangerous. Chinese schools, museums and TV programmes constantly warn that the spirit of aggression still lurks across the water. A Chinese diplomat has implied that Japan’s prime minister, Shinzo Abe, is a new Voldemort, the epitome of evil in the “Harry Potter” series. At any moment Japan could menace Asia once more, party newspapers intone. China, again, is standing up to the threat.
As our essay on the ghosts of the war that ended 70 years ago this week explains, this narrative requires exquisite contortions. For one thing, it was not the Chinese communists who bore the brunt of the fighting against Japan, but their sworn enemies, the nationalists (or Kuomintang) under Chiang Kai-shek. For another, today’s Japan is nothing like the country that slaughtered the inhabitants of Nanjing, forced Korean and Chinese women into military brothels or tested biological weapons on civilians.
Granted, Japan never repented of its war record as full-throatedly as Germany did. Even today a small but vocal group of Japanese ultra-nationalists deny their country’s war crimes, and Mr Abe, shamefully, sometimes panders to them. Yet the idea that Japan remains an aggressive power is absurd. Its soldiers have not fired a shot in anger since 1945. Its democracy is deeply entrenched; its respect for human rights profound. Most Japanese acknowledge their country’s war guilt. Successive governments have apologised, and Mr Abe is expected to do the same (seearticle). Today Japan is ageing, shrinking, largely pacifist and, because of the trauma of Hiroshima and Nagasaki, unlikely ever to possess nuclear weapons. Some threat.
The dangers of demonisation
China’s demonisation of Japan is not only unfair; it is also risky. Governments that stoke up nationalist animosity cannot always control it. So far, China’s big show of challenging Japan’s control of the Senkaku (or Diaoyu) islands has involved only sabre-rattling, not bloodshed. But there is always a danger that a miscalculation could lead to something worse.
East Asia’s old war wounds have not yet healed. The Korean peninsula remains sundered, China and Taiwan are separate, and even Japan can be said to be split, for since 1945 America has used the southern island of Okinawa as its main military stronghold in the western Pacific. The Taiwan Strait and the border between North and South Korea continue to be potential flashpoints; whether they one day turn violent depends largely on China’s behaviour, for better or worse. It is naive to assume America will always be able to keep a lid on things.
- Oil’s New Normal
Project Syndicate AUG 14, 2015
LAGUNA BEACH – Oil prices have been heading south again, with a barrel of US crude recently falling below $42 – the lowest level since March 2009, the nadir of the global financial crisis. And, while last year’s sharp price drop was heavily influenced by two large supply shocks, the current decline also has an important demand dimension.
At the same time, oil markets are discovering what it is like to operate under the regime of a new swing producer: the United States. As a result, the price formation process is much clumsier nowadays, with considerably longer adjustment lags.
The dynamics of the energy markets changed notably as shale-oil production came onstream at a market-moving scale in 2013-2014. With this new source meeting more of world energy demand, particularly in the US, energy users were no longer as dependent on OPEC and other oil producers. In the process, they also became less vulnerable to geopolitical concerns.
Adding to the supply-side changes was Saudi Arabia’s subsequent historic announcement that it would no longer lead OPEC in playing the role of swing producer. It would no longer lower production when prices fell sharply, and increase output in response to large price surges.
That decision was both understandable and rational. Playing the role of swing producer was coming at a growing cost to both current and future generations of Saudi citizens. Non-traditional suppliers had increased their market influence, non-OPEC producers continued to plan high output, and some OPEC members failed to adhere to their production ceilings. Given all this, Saudi Arabia could no longer be expected to incur the growing short- and long-term cost of being the stabilizing market force that it had been for decades.
Such fundamental changes in the supply side of the market naturally drove oil prices lower – a lot lower. Prices plummeted by more than half in a period of just a few months last year, catching many oil traders and analysts by surprise.
Oil prices stabilized after a somewhat temporary overshoot, trading increasingly robustly for a while on the back of two conventional market reactions. First, the large price drop caused massive supply destruction, as some energy producers, from both the traditional and non-traditional sectors, became unprofitable. Second, as consumers reacted to lower energy costs, demand adjusted only gradually.
But a new factor soon disturbed this relative stability, pushing oil prices even lower: Evidence that the global economy was weakening, and that much of the weakening was occurring in relatively energy-intensive countries such as China and Brazil, as well as Russia (itself an energy producer).
Today, indicators of this global slowdown are to be found everywhere – from underwhelming retail and trade data to unanticipated policy responses, including China’s surprise currency devaluation (which coincides with its leaders’ commitment to a long-term shift toward a more market-based exchange-rate regime).
The impact is not limited to economic performance and financial-market movements. Slower global growth is also amplifying political pressures and, in some countries, adding to social strains – both of which tend to constrain policy responses.
It is hard to see the global oil market’s current configuration of supply and demand rapidly changing any time soon. As for the new swing producer, the US has a much slower (and leakier) reaction function relative to that of Saudi Arabia and OPEC.
Over the next few months, the US will indeed alter its supply and demand conditions in a way that puts a floor under oil prices and enables a gradual recovery in the market. But, unlike the previous swing producer, this will result from traditional market forces, not policy decisions.
Indeed, we should expect an even sharper reduction in US energy output as persistently low prices increase the pressure on domestic producers. From the shutdown of additional rigs to the curtailment of new investment in exploiting shale resources, the US will likely experience a fall in its absolute energy production, as well as in its share of world output.
But, while demand will increase, this will not have much of an immediate effect on oil prices. Yes, US consumers will be tempted to buy more trucks and bigger cars, drive more miles, and fly to more places. But the creation of this demand will be very gradual, especially given all the leakages in the transmission of lower energy-input costs to consumer fuel prices.
At the end of the day, no swing producer controls the fate of today’s oil prices. A sustained price recovery requires a healthier global economy that combines faster inclusive growth and greater financial stability. And this will not occur quickly, especially given the policy shortcomings in both advanced and emerging countries.
沒有留言:
張貼留言