Collection of Interesting, Worth Reading NEWS, ANALYSIS & ARTICLES

Back in the early stages of the financial crisis, wags joked that our trade with China had turned out to be fair and balanced after all: They sold us poison toys and tainted seafood; we sold them fraudulent securities.

But these days, both sides of that deal are breaking down. On one side, the world’s appetite for Chinese goods has fallen off sharply. China’s exports have plunged in recent months and are now down 26 percent from a year ago. On the other side, the Chinese are evidently getting anxious about those securities.

But China still seems to have unrealistic expectations. And that’s a problem for all of us.

The big news last week was a speech by Zhou Xiaochuan, the governor of China’s central bank, calling for a new “super-sovereign reserve currency.”

The paranoid wing of the Republican Party promptly warned of a dastardly plot to make America give up the dollar. But Mr. Zhou’s speech was actually an admission of weakness. In effect, he was saying that China had driven itself into a dollar trap, and that it can neither get itself out nor change the policies that put it in that trap in the first place.

Some background: In the early years of this decade, China began running large trade surpluses and also began attracting substantial inflows of foreign capital. If China had had a floating exchange rate — like, say, Canada — this would have led to a rise in the value of its currency, which, in turn, would have slowed the growth of China’s exports.

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NOBODY talks about “decoupling” any more. Instead, emerging economies are sinking alongside developed ones. In 2008 emerging stock markets fell by more than those in the rich world, and financial woes forced countries such as Hungary, Latvia and Pakistan to go cap in hand to the IMF. Taiwan’s exports have plunged by 42% over the past year, and South Korea’s by 17%; even China’s have shrunk. Singapore’s GDP fell by an annualised 12.5% in the fourth quarter of 2008, its biggest drop on record. Is this the end of the emerging-market boom?

Over the five years to 2007, emerging economies grew by an annual average of more than 7%. But in the past three months their total output may have fallen slightly, according to JPMorgan, as the fall in exports was exacerbated by a sudden drying up in trade finance. For 2008 as a whole, average growth in emerging economies was still above 6%, but recent private-sector forecasts suggest that this could slip to less than 4% this year. That is grim compared with the recent past, though still robust set against an expected 2% decline in the GDP of the G7 countries.

Short-term pain is only to be expected. But some economists argue that emerging markets’ longer-term prospects have been badly hurt by the global financial crisis. From Brazil to China, they claim, the boom was driven largely by exports to American consumers, easy access to cheap capital and high commodity prices. All three props have now collapsed. In particular, as America’s housing bust causes households to save more, they will import less over the coming years. This could reduce emerging economies’ future growth rates.

Just making a bullet list of all the items that developing countries and poor nations got at the 2009 G20 summit in London.

Funding Pledges:

If IMF have more money to lend then it means that poor countries are less reliant on Western nations when they get into trouble and need aid. Poor countries will also be less reliant on the value of the US dollar because IMF has its own accounting currency, SDR, which is a basket of major currencies such as dollar, euro, yen and pound.

JAPAN developed rapidly after American gunboats opened it to trade in the late 19th century. Within 40 years, Emperor Meiji led his once-feudal country into the modern world economically (and, alas, militarily). To do so, the state bought Western technology such as factory machines, railroads and telegraph lines. But until the turn of the 20th century it did so by eschewing foreign loans, which were equated with a loss of sovereignty.

How did a poor country like Japan obtain the foreign currency to pay for such products? The answer was exports: first, of light industrial goods such as raw silk and pottery; later, of heavier materials, including steel and chemicals. It was a huge success. In the 1860s Japan’s small-scale cotton-textile industry was nearly decimated by European imports. By 1914, however, after buying automated cotton spinners, the country sold half of its yarn production abroad, which accounted for one-quarter of the world’s cotton yarn exports.

Thus the “Asian model” of export-led growth was born. The region was inspired by Japan’s lead before the second world war and its economic resurrection afterward. In the 1960s Asia’s four “tiger economies” (Singapore, Hong Kong, Taiwan and South Korea) imitated Japan and flourished. South Korea’s bureaucrats, for example, protected domestic firms and funneled them cheap loans under the condition that they exported their wares.

China also boomed after opening its economy in 1978. Its “special economic zones” were designed to attract foreign capital—initially from Chinese businessmen in Hong Kong and Taiwan—to build factories for export production. Malaysia, Thailand, Indonesia and later Vietnam all forged similar export-led paths to growth.

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TO LOSE one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan’s economy stagnated in the 1990s after its stockmarket and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan’s GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery.

If that turns out to be true, Japan’s economy will have grown at an average of 0.6% a year since it first stumbled in 1991. Thanks to deflation as well, the value of GDP in nominal terms in the first quarter of this year probably fell back to where it was in 1993. For 16 years the economy has, in effect, gone nowhere.

Was Japan’s seemingly strong recovery of 2003-07 an illusion? And why has the global crisis hit Japan much harder than other rich economies? Popular wisdom has it that Japan is overly dependent on exports, but the truth is a little more complicated. The share of exports in Japan’s GDP is much smaller than in Germany or China and until recently was on a par with that in America. During the ten years to 2001, net exports contributed nothing to Japan’s GDP growth. Then exports did surge, from 11% of GDP to 17% last year. If exporters’ capital spending is included, net exports accounted for almost half of Japan’s total GDP growth in the five years to 2007.






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The year 1989 reshaped the world. Its news stories - from Tiananmen Square to the fall of the Berlin Wall - are now historical marker posts. BBC Diplomatic Editor Brian Hanrahan watched many of the events at first hand, and will retrace his steps this year.

One of the paradoxes of 1989 was that communism was destroyed by its own system. I'm not thinking here of the weight of economic collapse, which hollowed out the whole Soviet Bloc.

Painful though it would have been, the countries of Eastern Europe and their Soviet overlord could have limped on for many years - their people suffering and their influence declining. They would have been marginalised but left alone until they eventually collapsed, probably with much bloodshed.

What short-circuited this process was the Stalinist power structure of the Soviet Union. The system allowed the general secretary of the Communist Party to acquire almost total control of the party and the country.

By 1989 Mikhail Gorbachev had consolidated his power base and was able to drive through his own policies regardless of the opposition among his colleagues.

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