The Baccarat Apparatchiks: Macau Under Pressure

♠ Posted by Emmanuel in , at 1/30/2009 12:16:00 PM
A family friend who regularly visits Macau recently commented on how empty the place has become. (I've been there before and it's certainly worth a visit. Heaven knows they could use some tourists.) She asserts that the reason is simple: ever since the PRC cracked down on granting Chinese officials visas to visit the place, business has suffered. A simple search brought me a recent New York Times article suggesting pretty much the same thing. That is, the recent boom in the world's top destination by gambling revenues is in no small part driven by corrupt PRC officials siphoning state funds to spin the wheels of fortune. Another story of hard times, albeit more colorful and indicative of the extent of corruption among Party cadres:
Mr. Li is one of an increasing number of Communist Party bosses and government officials who, government prosecutors say, pillaged state funds, company accounts and municipal treasuries to try their luck in Macao, which sits just across the border from Guandong Province. Many of the biggest losers have been sent to prison and at least 15 have been executed. Some have committed suicide. The scandals have become a source of deep embarrassment for the Chinese government, which has now begun cracking down on travel visas for Macao.

While gambling remains illegal in mainland China, it is pure oxygen for Macao, which Portugal handed back to China in December 1999. The tiny territory, which has been enjoying a gambling-tourist-building boom since 2004, relies on gambling for 75 percent of its tax base. Now the biggest gambling market in the world, Macao has annual gambling revenues higher than the Las Vegas Strip and Atlantic City combined. Among its 31 casinos is the world’s largest, the Venetian Macao.

Much of that prosperity is now threatened, experts here say, not only by the global economic crisis but also by the crackdown on gambling by the government in Beijing. The issue is so sensitive in China that more than a dozen interview requests over the past month were refused by government and party leaders.

A Chongqing official, the head of the local Communist Party’s propaganda department, was accused of embezzling a total of $24 million. Along with a co-worker, he blew at least half the money at the Casino Lisboa here, according to Xinhua, the official Chinese news agency. The Chinese officials who gamble here lose mostly at baccarat, the game of choice in Macao, but they also lose at blackjack, poker and a dice game called Fish-Prawn-Crab. And even though many of them are neophyte gamblers, they often bet thousands of dollars on a single hand.

A 2008 study of 99 high rollers from mainland China showed that 59 had some sort of state affiliation: 33 were government officials, 19 were senior managers at state-owned enterprises and 7 were cashiers at state businesses. They were typically men, between 30 and 49 years old, and lived in mainland areas close to Macao.

The government officials reported losing an average of $2.7 million each, according to the study, which was conducted by Zeng Zhonglu, a professor at Macao Polytechnic Institute. State managers lost $1.9 million each, on average, and cashiers dropped an average of $500,000. Most said their gambling careers lasted less than four years before they were found out. Their losses at the tables bankrupted at least 10 companies. An editorial in the Beijing Youth Daily said gambling by public officials “threatens the safety of the national treasury,” though it is unclear just how much public money has been gambled away [my emphasis].

“I doubt even the Chinese government knows,” said Desmond Lam, an expert on Macao and Chinese gambling who is currently a senior research fellow at the University of South Australia. “Still, the figure is likely to be very substantial, at least in the hundreds of millions so far. “And if you include the undetected money, it must be higher.”

China had tried repeatedly to clamp down on gambling by public officials but had never had much success until hitting on the idea of limiting visas. The new visa regulations, which went into effect last summer, limit mainland officials to just one trip every three months, and for no more than seven days, and have been highly effective, gambling analysts and scholars say. “It has been a very, very serious problem, but it’s better now,” said Mr. Zeng, the author of the study on high rollers. “The mainland government has strict controls over officials coming to Macao.”

But along the way, the restrictions have helped turn Macao’s boom into something of a bust, a connection that was underscored on Monday, when the stocks of Macao casino companies plunged by a fifth after Beijing announced that it would retain the visa controls. Share prices of the companies are down more than 80 percent on average from their highs a year ago. Casino bosses, tour operators, shop owners, restaurateurs and hoteliers say they are feeling the pain from what Samuel Yeung, the manager of the landmark Hotel Lisboa, calls “the tightening control of mainland China.”

Gambling revenues are plunging and luxury shops are empty. Soaring hotel and apartment towers stand half-finished. Thousands of construction and casino workers have been fired. Last month at the Venetian, half the singing gondoliers on its indoor “Grand Canal” were abruptly fired. “The government is saying Macao is going too fast and we need to cool it down,” said Davis Fong, a business professor and director of the Institute for the Study of Commercial Gaming at the University of Macao. He cited a freeze on new projects and tighter regulations on the territory’s casinos. It is as if the gold is running out in the Klondike.

“It’s not so much the global downturn that’s having an effect on Macao; it’s the visa restrictions that are having the most impact,” said Anil Daswani, an analyst in Hong Kong who follows the gambling industry for Citigroup. “Clearly there was way too much capital coming into Macao, and the mainland is trying to cool the economy. “But it’s definitely worrying. Volumes are down materially.”
A shining model of development, indeed. Whoever said corruption was bad for business?

Those Sexy Political Scientists; Unsexy Economists

♠ Posted by Emmanuel in at 1/30/2009 08:04:00 AM
Let's face it: those of us aspiring to a career in academia as political scientists don't get paid much compared to say, business instructors. However, I am glad to say that there are fringe benefits. Henry Brighouse over at Crooked Timber made a nice discovery recently that sheds light on this assertion via a research paper he found. Felton et al. (2006) make a serious study [nudge-nudge, wink-wink] concerning how instructor sexiness is related to teachers evaluations on Before turning to this activity, the authors made a ranking of the perceived hotness of various academic groups:
Angry face
I haven't the foggiest idea why religion is considered sexier that political science, but I am nonetheless chuffed that the latter discipline is among the top 5. Economists? They're seventh from dead last. I suppose self-regarding behavioral assumptions in economics--what normal people call being "self-centered" or "cheap"--doesn't do them any favors. At the risk of pushing the analogy too far, think of the difference between American practitioners: Barack Obama's charisma carries worldwide despite his fake internationalist and environmentalist credentials. I must grudgingly admit the man has charisma. Meanwhile, his honcho for the National Economic Council is...frumpy ol' Larry Summers. There's a real lesson here somewhere about the fringe benefits of being hot. So, I try hard to maintain myself at 12 stone, 7 pounds of twisted steel and sex appeal ;-) TGIF...

I Stand Trial Over Misrepresenting US-China Trade

♠ Posted by Emmanuel in ,, at 1/29/2009 08:07:00 AM
Que barbaridad! Now I really know how Michael Corleone feels about being dragged back by ghosts of the past into business he wants to move away from. I am certain that many IPE Zone readers are not that interested in China-US economics relations. However, our friends at IPE@UNC keep referencing me on the matter, so I believe I'm obliged to respond out of politeness. Hence, I will make this post and try to move on until major developments arise. Recently, the group bloggers at Chapel Hill brought out trade expert Thomas Oatley to chime in on the matter and find little old me culpable of economic ignorance. The good professor faults yours truly for assuming that a large dollar devaluation would reduce America's current account deficit. To begin with, I never said it would. Here I make my defense and urge you, dear readers, to find the defendant "not guilty." I realized at the outset that my nuanced position--neither standard-issue free trader or mercantilist--would not be popular with either camp. Then again, novel proposals are what I think are in order.

(1) Thomas Oatley makes a genuinely interesting find from a 2007 IMF World Economic Outlook (WEO) in which IMF researchers build a model to estimate changes in price elasticity of demand for US imports and exports in response to currency movements (see the results above). In plain English, movements in currency affect the relative prices of imported and exported goods. A dollar devaluation would tend to lessen American imports by making them dearer locally and promote exports by making them cheaper abroad. If imports and exports are responsive or "elastic" enough to price changes, then the US current account deficit would be reduced. Dr. Oatley cites the WEO study for arguing that, for America, devaluation makes little or no sense because the price elasticities of demand for both US imports and exports are low. From p. 95 of the IMF study:
The results of the estimation conform to the elasticity pessimism view [of the US trade balance not being very responsive to exchange rate changes]. In particular, the long-run estimates of U.S. import and export elasticities are quite low—indeed too low to satisfy the traditional Marshall Lerner condition (Table 3.2).
Yikes! Has that econo-fraud Emmanuel finally been caught out? Well, no. In economics, the Marshall-Lerner condition is a widely-used benchmark for determining whether a currency devaluation has a positive effect of reducing a country's external imbalance. If the price elasticies of demand for exports and imports sum to less than an absolute value of 1, then they ought not have a positive effect on the trade balance and vice-versa. Returning to the table above, the IMF quotation is based on the simulation in red: (-0.69)+(0.02)=-0.67. Fair enough. However, what if certain adjustments are made to the model to make it more realistic? On p. 96:
The U.S. trade equations estimated above represent a basic, “stripped-down” version of the standard empirical trade model [red box]. Several efforts have been made over the years to improve upon this model and find more plausible values for trade elasticities in the long run.
It's a technical thing here called "aggregation bias" concerning how the numbers may underestimate price elasticity since differences among product categories are glossed over. What if goods- or sector-specific estimates were used to account for possible bias? Well, you get the results in blue: (-1.45)+(-0.26)=-1.71. Voila, price elasticities galore. As neither of us have the IMF's data set, this becomes a moot point. All I wish to say is that it's not an open-and-shut case of US trade being price inelastic that can be wielded against me. It now degenerates to three-handed economist style arguments which can and do go on ad infinitum.

(2) What Dr. Oatley seems to miss is another IPE point I wish to make instead of debating to no end about the IMF model. If the rest of the world becomes unwilling to fund America's CA deficit, then it has little choice other than to shape up. No ifs, not buts. Dollar devaluation will not be the main avenue for correcting global imbalances but rather LDC aversion to footing America's external tab. If capital account flows to the US slow dramatically as China stops piling on reserves and others follow suit, then America will have no choice but to undergo "structural adjustment." Nor am I claiming this will be a painless process. As I am more of an impartial spectator belonging to neither camp of combatants, I am probably more gung-ho on this point than my American counterparts. A reader also brought this point up about price elasticity of demand to which I made a similar reply. Savings are not exogenously determined; others' willingness to foot America's bill matters a lot and is not really considered by the IMF chapter. Simply, price elasticity of demand is a trivial consideration if there is no demand in the first place because China disabuses the US of its exorbitant privilege of cheap deficit financing.

(3) People keep hurling this idea at me that a China-US trade row is the slippery slope that leads to Smoot-Hawley II. Like Vietnam-era domino theory, I do not think this is likely. There is this thing called the WTO now, and LDCs have much tariff water to play with anyhow. I dislike protectionism in general, though I am keen on the possibility of the US initiating boneheaded currency legislation against China that makes the PRC reconsider its poor investment choices. To get things moving, China doesn't have to sell its Treasury stash a la the hyperbole of a "nuclear option." Mainly, it needs to stop buying Treasuries. As I've said, the US should kick China in the 'nads, pronto [1, 2] to get the adjustment process started.

Kindred cites a paper full of game theory in support of his assertion that a US-China trade conflict will lead to an outbreak of competitive devaluation. Aside from the obvious point that these authors are not playing with real numbers, there is no recognition of the real constraints on choice sets imposed by a multilateral economic regime called the WTO. To be fair, I will establish a scenario of how I believe things may play out. Bear with me as I'm all by my lonesome instead of four of them!

* * *
America has given the world an endless dose of courtroom dramas, so the next should be amusing to all re: the case of IPE@UNC vs. IPE Zone -

Judge Trudy: Has the jury reached a verdict?
Foreman George: We have your honor. We find the defendant, one Emmanuel from across-the-pond, not guilty on the count of economic ignorance.
Judge Trudy: The accused has therefore been cleared of all charges and is free to blog. This court is now adjourned [she bangs the gavel...KABLAM!]

Stupid Protectionist Tricks, French Aerospace Edn

♠ Posted by Emmanuel in ,, at 1/29/2009 07:18:00 AM
The French are famous for industrial policy under the guise of dirigisme. This has, time and again, gotten them into trouble--especially with the coming of the WTO. Today's post concerns the never-ending Boeing-Airbus pot-calling-the-kettle-black show. At the moment, the EU and US have cases against each other pending at the WTO over aerospace subsidies. There is even a whiff of industrial espionage. I am of the opinion that both cases are a lot of hot air. Both sides have given sizeable subsidies, meaning that their claims against each other tend to cancel out.

Perhaps cognizant of this fact, France is now upping the sweepstakes in a manner implicating not only its aerospace industry but also its banking industry. You see, these fine fellows are conspiring to use French banks to provide aircraft financing to airlines and freighters [!] Talk about upsetting Boeing of America. Is it not enough that Airbus significantly outstripped Boeing in terms of both orders and deliveries in 2008? Rubbing salt into an open wound isn't a formula for improving trade relations methinks. From Reuters:
The French state plans to inject 5 billion euros ($6.5 billion) into banks with the aim of financing airplane purchases to help European planemaker Airbus (EAD.PA), a French government source said on Sunday. "There is indeed a plan to lend 5 billion euros to the banks to finance Airbus contracts," the source said, confirming an earlier report in the business newspaper Les Echos...

Although not presented as a direct bailout, the plan appeared to be the first significant government package directed towards the aerospace industry as industrial countries pour funds into propping up industries weakened by the credit crisis. There are also concerns that the aviation industry, one of France's biggest export earners and home to thousands of high-tech jobs, could be hit indirectly by the automobile crisis since the two industries share many of the same suppliers.

Les Echos said the state would inject the money into banks with a record of lending to the aeronautical industry. It named Calyon, Societe General and BNP Paribas. "The aim is to prevent airlines from cancelling orders citing difficulties in raising money," said the newspaper, which did not give its sources.

Owned by European aerospace group EADS, Airbus is the world's largest producer of civil jetliners ahead of rival Boeing. The two planemakers are locked in a transatlantic trade row over subsidies at the World Trade Organisation, with both accusing the other of taking illegal government handouts. It was not immediately clear whether the plan was designed specifically to funnel money into protecting deals with Airbus, something that may open it to scrutiny from Boeing and other planemakers, or ease credit across the aerospace sector.

The French government has already pledged help on a smaller scale to help aeronautical suppliers and bolster research. Airbus has in turn been asked for help by aircraft doors maker Latecoere, a supplier to both Airbus and Boeing. A French industry source said the new plan, originating from the French prime minister's office, would be broad-based and aerospace was one of several industries expected to benefit. Airbus had no immediate comment.

The Toulouse-based planemaker said on Jan. 15 deliveries could fall and orders were set to tumble as the global recession curbs demand for jetliners. Both Airbus and rival Boeing are bracing for more turbulence in an industry damaged by recent fuel price spikes as the economic downturn hits air travel. They also face a battle to prevent airlines cancelling or deferring orders.

Aircraft are usually ordered years before they are built and the financing is often not finalised until a few months before delivery, according to aviation executives. This raises doubts over whether some aircraft ordered at the height of a three-year ordering boom that peaked in 2007 will be delivered to their original customers or leave the factories with no buyer, becoming so-called "white tails" with no livery.

Airbus has said it stands ready to boost the use of its own cash resources to offer credit financing to prevent airlines cancelling or postponing orders at the last minute. It also expects European Credit Agency financing to double in 2009.
Good stuff. We are all French national champions now, mate. They had better make sure this proposed financing is provided in a way that doesn't attract American scrutiny, though I doubt that's entirely possible.

Stupid Protectionist Tricks, Buy American Edition

♠ Posted by Emmanuel in , at 1/29/2009 07:07:00 AM
It is with great pleasure that I announce that blogging buddy Ben Muse is back in action after a short lapse. He notes that "Buy American" clauses in the forthcoming US stimulus package are subject to WTO contestation, to no one's real surprise. Here's the relevant quote from the trade lobbies concerning violations of agreements on government procurement:
Violate the United States’ international commitments, depending upon the actual proposal. The United States, through its membership in the World Trade Organization Government Procurement Agreement (GPA) and several bilateral and regional trade agreements, has guaranteed non-discriminatory access to the procurement markets of many of our largest trading partners. In return, the United States has agreed to provide non-discriminatory access to our own procurement markets for projects above certain dollar thresholds. The U.S. approach, crafted over successive Democratic and Republican Administrations, preserves many safeguards in our procurement rules for American goods and firms, including Buy American provisions for some projects, as well as small-business preferences. If the United States expands or enacts new Buy American-type provisions that abrogate U.S. GPA or our other trade agreement commitments, the United States and U.S. firms will face retaliatory sanctions in other markets and jeopardize our ability to open other foreign government procurement markets to U.S. goods and services.
It's well and truly raining protectionists now.

UPDATE 1: More on this point from Agence France-Presse (the irony here should be obvious).
UPDATE 2/4: Kevil Hall of McClatchy has a good backgrounder on the subject matter.

Same Old: Russian Ruble Devalues, France Strikes

♠ Posted by Emmanuel in at 1/29/2009 06:35:00 AM
I guess we're back to the bad old days when you could always count on two things. First, Russia's ruble losing value fast:
Russia’s ruble had its biggest two- day drop in a decade against the dollar as investors speculated the central bank will be forced to widen its target trading band after draining 35 percent of foreign-currency reserves.

The ruble depreciated 3 percent today to 34.9189 per dollar, the weakest since January 1998. The currency lost 5.2 percent in two days, the most since March 1999. It slipped as much as 2.3 percent to 45.6615 per euro, the lowest since the European currency’s introduction in 1999.

While Bank Rossii pledged last week to defend the ruble at 36 per dollar, that target may be “very quickly” breached, said Gaelle Blanchard at Societe Generale SA in London. Russia spent a record $11 billion in a day last week to support the exchange rate, after a 30 percent plunge against the dollar since August, according to Moscow’s Trust Investment Bank. Russia’s reserves, the world’s third-largest, fell $9.7 billion last week to $386.5 billion, Bank Rossii announced today. “As long as the central bank gives these targets then speculators are going to have something to aim for,” said Blanchard. “Right now the market is convinced it wants to see the ruble lower.”
Next, you have virtually all of France going on strike:
France’s rail network, airports and public schools were disrupted today as the country’s eight biggest labor unions called for a one-day general strike. In what is turning into the largest such action since President Nicolas Sarkozy was elected in May 2007, the unions are demanding that the government do more to counter rising unemployment and falling purchasing power as France enters its first recession in 16 years. The eight unions represent the bulk of France’s 1.9 million-strong unionized workforce...

Unions say measures announced by the government so far are inadequate. Sarkozy unveiled a 26 billion-euro ($34.4 billion) economic-stimulus package in December.

About 69 percent of the French people back the strike, according to a poll by CSA-Opinion for newspaper Le Parisien on Jan. 25. Forty-six percent support the strike, while 23 percent “sympathize,” with the union call, Le Parisien said. Of those interviewed, 12 percent were opposed or hostile to the strike. It’s the first time in Sarkozy’s presidency that a “social movement” has had such public approval, Stephane Rozes, head of CSA-Opinion told the daily...

Societe Nationale des Chemins de Fer Francais, or SNCF, France’s national railway, where workers began the strike last night at 8 p.m., said about 60 percent of the regional TER train services and 40 percent of high-speed TGV lines will be disrupted.
These are the Russians and French we all know, but do we share the love?

The World Social Forum Lives! (Well, Kind Of)

♠ Posted by Emmanuel in ,, at 1/28/2009 08:39:00 AM
Every year around this time, two gatherings occur. The first is the World Economic Forum hosted by Klaus Schwab in Davos, Switzerland, where the world's elites gather to talk about the current state of the world economy. Given that it's not so hot right now, planning to hobnob with the good and the great can get you fired. Go ask John Thain. Hold the champagne and caviar, me lovelies. Naturally, this event receives masses of press coverage. At the same time, there has been an annual counterevent staged by globalization skeptics to coincide with the World Economic Forum held in different third world locations.

I got a bit worried in 2008 because there was no formal event held as it was supposed to be conducted in several locations instead. Given the dearth of media coverage, I had a similar impression that there wouldn't be any such event in 2009. It is with great fanfare [toot-toot] that I proclaim the World Social Forum is alive and well. Although not attracting the sort of star power of Hugo Chavez as in 2006's event held in Venezuela, this year's gathering in Brazil is still noteworthy. These guys don't even have a website for the 2009 event, fer crying out loud. To try and remedy the coverage imbalance, here's the Associated Press providing color--and I do mean color--to the proceedings:
Some 100,000 activists of all stripes converged on this steamy Amazon city Tuesday [Belem, Brazil], opening the World Social Forum with a rambunctious march to the beat of samba drums. An afternoon jungle downpour could not drown the spirits of those who came from all corners of the globe to participate: Socialists, environmentalists, anarchists, Indians, communists and even a fellow dressed as a pirate. [No Noam Chomsky this year, though.]

The massive meeting — coming amid the worst global economic crisis in decades — was held for the first time in the Amazon region, an especially poignant fact for attendees. "During a financial crisis, the environment is the first thing to be pushed off the agenda of most governments," said Andrew Riplinger, 22, of Chicago. "I think having the social forum here in Belem, surrounded by the rain forest — it's keeping environmentalism on the table."

The streets of Belem were overflowed — by both water and the activists, who came wearing homemade shirts extolling every social cause under the sun. Massive banners were unfurled, trumpets blared a chaotic chorus as Indians from across the Amazon performed traditional dances, barefoot, bodies ornately painted and heads adorned with the feathers of exotic birds.

Local fire officials and media estimated that 100,000 people were in Belem for the ninth World Social Forum and 50,000 took part in the march. "I'm here to fight for land, health and education," said one parading Indian, an older man who gave his name only as Miguel. Attendees see this year's forum as more vital than ever, with participants saying the world's economic crisis gave legitimacy to their demands for alternative development models.

The celebration in the Amazon was geographically half a world away — and ideologically on another planet — from the World Economic Forum in Davos, Switzerland, where a dour mood and a decidedly slimmer list of global luminaries was expected to prevail. The social forum was first held in 2001 in southern Brazil as a direct response to that economic meeting in Europe.

Standing on the deck of the Greenpeace ship Arctic Sunrise, docked in Belem, the environmental group's top Amazon campaigner Paulo Adario said this year's social forum was being held in the perfect locale. "The destruction of the Amazon is being propelled by the globalization of the Brazilian economy — cattle and soy for export," he said. "Socio-economic problems and the environment are interconnected. That is why it is very important to have the forum here, so we can highlight both issues."
Fair enough. It may surprise some of you that I would be more interested in attending the World Social Forum instead of the World Economic Forum. As their slogan says, "Another World is Possible"...but does this motley collection have a coherent picture of another world average Joes like me can assent to? More on this later. I have always thought that the anti-globalization movement raises several legitimate points, but it remains a fringe movement due to a weak agenda unlike the proverbial Davos man. Check out the comparatively sparse press coverage, f'rinstance.

Some Great New Blog Finds

♠ Posted by Emmanuel in , at 1/28/2009 07:38:00 AM
Dear readers, I have been remiss in providing this blogging staple of pointing out fine new blogs that address similar fare to what you get here at the IPE Zone. Let me now correct this deficiency.

By all means, make a visit to the Global Economic Governance blog run by, well, the Global Economic Governance program at Oxford. Among the blogs mentioned here, it is the closest analog to yours truly's site. Although posting there is not very heavy, each topic receives thoughtful, in-depth coverage from acknowledged experts such as IPE godfather Robert Keohane talking about the possibilities for a global cap-and-trade climate change regime.

The credit crisis watchers among you will have probably seen the Baseline Scenario, a blog run by the insightful James Kwak and former IMF Chief Economist Simon Johnson. There is probably no more comprehensive source for up-to-the-minute commentary on the unfolding crisis. If you're thinking that Johnson and Co. are just rehashing the IMF line, note that Kwak has already found virtue in Joseph Stiglitz's proposals for dealing with the crisis. Stiglitz, of course, is the guy who unloaded on the IMF bigtime not so long ago in his book Globalization and Its Discontents. I particularly like the feature "Financial Crisis for Beginners" which should get anyone up to speed on the subject matter in no time.

Probably the heavyweight here is news of famous development aid skeptic William Easterly entering the blogosphere via Aid Watch. I am a bit disappointed to note that Easterly's schtick is becoming very repetitive as he starts by dumping on his former employer the World Bank, the Millennium Development Goals, and environmental concerns. I look forward to probing the libertarian-leaning Easterly on the latter point as I have received much flak for saying he has a Cato-esque attitude of "global warming...what global warming?"

And speaking of the World Bank, the world's most prominent aid institution has two more blogs, can you believe. The first has a regional focus, East Asia & Pacific. Their specialty is in case studies of World Bank operations in the region such as shrimp farming in Indonesia's restive Aceh region as well as fair trade cashews and ethical coffee cultivation elsewhere in Indonesia. Really, Easterly ought to go visit this fine blog. Next, it is a pleasure to note that probably the world's foremost expert on migration and remittances, Dilip Ratha, has put up a blog dedicated to the subject matter in People Move. Ratha and his team cover migration in fine detail.

All these blogs are definitely worth your while. Plus, I am sure that I have missed notable new blogs on the scene. If you have any more suggestions for the blogroll--as heroically stretched as it already is--just get in touch.

US 3, China 0: America Victorious in WTO IP Case

♠ Posted by Emmanuel in ,, at 1/27/2009 08:03:00 AM
I have to run, but note that the US has upped its effective tally in cases brought to the WTO dispute settlement mechanism (DSM) to three. For the record:
  1. China backed down and agreed to a settlement before a case concerning export rebates given to exporters was formally investigated;
  2. China lost its appeal in the case concerning discrimination against foreign auto parts manufacturers;
  3. Now, reports suggest the US has chalked up another one against China regarding intellectual property violations. From the US Trade Representative's site -
Acting U.S. Trade Representative Peter Allgeier [subbing until Ron Kirk is confirmed] announced today that a World Trade Organization (WTO) dispute settlement panel has found important aspects of China’s intellectual property rights (IPR) regime to be inconsistent with China’s obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The United States brought claims against China because of serious concerns about several shortcomings in China’s legal regime for protecting and enforcing copyrights and trademarks on a wide range of products.

“Today, a WTO panel found that a number of deficiencies in China’s IPR regime are incompatible with its WTO obligations,” Ambassador Allgeier said. “These findings are an important victory, because they confirm the importance of IPR protection and enforcement, and clarify key enforcement provisions of the TRIPS Agreement. Having achieved this significant legal ruling, we will engage vigorously with China on appropriate corrective actions to ensure that U.S. rights holders obtain the benefits of this decision.”

Allgeier added, “We are pleased that the Panel found that China’s denial of copyright protection to works that do not meet China’s ‘content review’ standards is impermissible under the TRIPS Agreement. Additionally, we are pleased that the Panel found it impermissible for China to provide for simple removal of an infringing trademark as the only precondition for the sale at public auction of counterfeit goods seized by Chinese customs authorities.”

“We also welcome the Panel’s clarification of China’s obligation to provide for criminal procedures and penalties to be applied to willful trademark counterfeiting and copyright piracy on a commercial scale,” Allgeier continued. [The DSM didn't find China in breach on this count as it lowered the threshold amount to press counterfeiting charges.] “The Panel did find, however, that it needed more evidence in order to conclude that actual thresholds for prosecution in China’s criminal law are so high as to allow commercial-scale counterfeiting and piracy to occur without the possibility of criminal prosecution. While this conclusion is disappointing, the United States is encouraged that the Panel, facing a case of first impression, set forth a market-based analytical approach that should help WTO Members and panels avoid or resolve future disputes concerning obstacles to criminal enforcement against counterfeiting and piracy.”
The Financial Times also has an article on the story about the usual Chinese "regret" over the loss. Meanwhile, Forbes says the US is claiming a hollow victory. Both China and the US can appeal, although I believe the former's chances for a major turnaround are minimal. There are yet more cases being contested by these two, but the tally is (unsurprisingly) going in America's favor. It's like shooting fish in a barrel as the Yanks say. Why does this matter? Feeling like it's on a roll, the US may be emboldened to launch the Big One, Section 301 legislation on Chinese currency manipulation. Things are still heating up.

UPDATE: The WTO site now has the reports on this case, DS362.

IMF Rope-a-Dope on China's Currency Policies

♠ Posted by Emmanuel in , at 1/26/2009 07:22:00 PM
My goodness, this story never ends. The FT has an informative article about infighting going on at the IMF over whether to brand the yuan as "fundamentally misaligned." If you will recall, the US forced the IMF's hand to come up with a gimmick for bashing China's currency regime in 2007. However, IMF officials have been wary of siding with the US likely knowing full well that LDCs will not play along. Notably, the IMF hasn't performed Article IV consultations with China since 2006 (see this PDF) when all members are, in theory, required to undergo this procedure yearly. Out of fear of offending China, the IMF has passed the yuan, not the buck. What should we make of this? The IMF is timid and won't be the place where the US airs its dirty trade laundry. Where that will happen I will discuss more in the near future. Just a little patience...
The International Monetary Fund is caught in a stand-off between members over whether to label China’s currency as “fundamentally misaligned”, a politically explosive move that could stoke global tension over economic imbalances. The issue is so controversial the IMF’s executive board has not discussed the Chinese economy since 2006, in spite of rules saying it should regularly assess member economies.

The decision touches directly on one of the most divisive issues among governments worldwide: the extent to which huge current account deficits and surpluses and artificially managed exchange rates have contributed to the financial crisis. Washington has long pressed Beijing to let the renminbi rise.

The present dilemma comes after a decision by the IMF in 2007 to step up surveillance of its member countries’ exchange rates, under heavy pressure from the US. Tim Geithner, President Barack Obama’s designate as Treasury secretary, has said that China was “manipulating” its currency and promised that all diplomatic avenues would be pursued to make Beijing change course. The IMF is almost certainly one such avenue.

Eswar Prasad, professor of trade policy at Cornell University and former head of the IMF’s China division, said IMF economists had concluded China’s exchange rate was “fundamentally misaligned”, defined as creating “a risk of disruptive adjustment”, but that it was not deliberately manipulating it to gain a trade advantage.

But he said the IMF’s management, led by Dominique Strauss-Kahn, the managing director, decided not to bring the issue to the fund’s executive board and start a “special consultation” with China on currencies because of disagreements among member countries.

“The board has now not had a discussion on China since 2006,” Prof Prasad told the FT. “If it can’t even have consultations with its members, this is a very serious issue. To some extent I suspect this is why [Tim] Geithner has decided to draw a line in the sand.” [I'm more willing to give Geithner the benefit of a doubt.]

Fred Bergsten, director of the Peterson Institute think-tank in Washington, said: “The IMF’s idea of starting a special consultation seems to have collapsed. The MD [managing director] has backed off.” Both the IMF and a spokesman for the Chinese embassy in Washington declined to comment.

The IMF’s decision to focus on exchange rates in 2007 proved deeply controversial. At the IMF’s annual meetings last October Raghuram Rajan, the IMF’s former chief economist, now at the University of Chicago, said the focus on exchange rates from 2007 was “an unmitigated disaster” [Rajan speaks the truth].

Because China is not borrowing from the IMF and seems unlikely to do so in the near future, the fund has no direct instruments to force Beijing to change policy and allow the renminbi to appreciate. But for the IMF to designate its currency as “fundamentally misaligned” – which it defines as creating “a risk of disruptive adjustment” – would undoubtedly strengthen Washington’s hand in its campaign for a freer-floating renminbi.
I was surprised that my old friend the China Economist beat me to this since I usually am no sluggard. He sums things up nicely:
The last couple of days have seen the gloves come off over the valuation of the renminbi. The US threw the first glove less punch followed by retaliation by the Chinese. So what do the IMF think? They are busy punching each other at the moment.
Good one, mate!

China's Next Cultural Revolution Meets Frank Zappa

♠ Posted by Emmanuel in , at 1/26/2009 06:03:00 PM
Like other countries in the region, China has good reason to be wary of student unrest. After all, the 1989 Beijing massacre was in no small part triggered by student protests. Then, as now, economic turmoil may be emboldening students to push for democracy and other Western capitalist nonsense. It is thus with little surprise that the PRC leadership is looking to avoid a 1989 rehash. In effect, the Communist Party is looking to replace flowery idealism a la the Beatles' Sgt. Pepper's Lonely Hearts Club Band with Frank Zappa and the Mothers of Invention-style realism a la We're Only In It For the Money (fake idealism). What are those legendary million unemployed college graduates to do instead of blasting each other online in massive multiplayer online role-playing games? From what's still our favorite official publication, the China Daily:
China's State Council announced over the weekend a plan to provide incentives to job-seeking college graduates, including professional training and preferential loans for start-ups. The government said it would help train one million unemployed college graduates in the coming three years to make them better qualified for jobs [instead of blasting each other all day in MMORPGS, presumably].

The Cabinet also said that civil service posts and state-owned companies should not charge job application fees from college graduates whose families are in financial hardship [!] For graduates who are willing to work in rural areas or join the armed forces, the loans for completing their college education might be partially or fully waived, the notice said [my emphasis].

Labor-intensive companies are also encouraged to recruit college graduates, with preferential government loans up to two million yuan ($293,000) for each company. Any graduates who are willing to kick off their own business would qualify for small loans of 50,000 yuan each.

The Ministry of Human Resources and Social Security said that as of December 31, there were 8.86 million urban residents registered as unemployed, 560,000 more than at the end of the third quarter. [This is likely understated given the PRC's legendarily--how do I put this--"massaged" figures.]
I am frickin' amused. Just as Chairman Mao created the "sent down generation" of tertiary-educated Chinese carted off to the provinces to do...nobody knows precisely what even now, today's newly-minted graduates are being encouraged to go to the provinces instead of expending youthful energy championing freedom in the major cities. Yes, it's the Cultural Revolution Reloaded.

The Communist gene in the PRC leadership may be dormant, but its past resurfaces every now and again. It's a pretty smart move for an authoritarian state bent on staying that way. After all, we're only in it for the money.

IMF: Global Growth Estimate Down to 0.5% in 2009

♠ Posted by Emmanuel in at 1/26/2009 05:43:00 PM
This is a quick one. Just five days ago, the IMF had this to say about its forthcoming updated forecast for world growth in 2009 (there's also a summary of current financial crisis borrowers):
[Dominique Strauss-Kahn] said the IMF would significantly adjust downward its forecast for world growth for 2009 when the 185-member international institution announces a revised assessment of the global economy on January 28. In an update released last November, the IMF had said that advanced economies would see a contraction in output in 2009—the first since World War II—but that growth in major emerging markets would still enable the global economy to advance by 2.2 percent in 2009.
Reuters now says a G-20 minister has leaked the IMF estimate at 0.5%:
The International Monetary Fund (IMF) has slashed its forecasts for 2009 global growth to 0.5 percent from 2.2 percent in its last economic outlook in November, a Group of 20 (G20) finance official told Reuters on Monday.

The Fund forecast the U.S. economy to contract 1.6 percent this year compared to an earlier forecast of a 0.7 percent fall, said the official, who had access to the forecast. It sees U.S. growth at 1.6 percent in 2010.

The IMF's revised economic outlook forecasts 2010 world growth of 3 percent, said the official, speaking on condition of anonymity. The revised forecasts are to be released in the next few days.
Grim stuff, but aren't the expectations for US growth in 2010 optimistic?

Why Chinese Think Geithner is Wet Behind the Ears

♠ Posted by Emmanuel in , at 1/25/2009 10:59:00 AM
Kindred blogger Kindred raises some interesting points in his most recent posts at IPE@UNC. First, despite being an IPE guy, he comes to the defense of economists receiving a thrashing at the hands of one Will Wilkinson. Even within IPE, readers should note that there are clear differences among practitioners--especially across a transatlantic divide. Benjamin Cohen has come out with an article in the Review of International Political Economy asking why American and British IPE are so different. (There's a non-subscription version, too.) Having studied IPE in both educational systems, I vouch for Cohen's idea that US IPE is more prone to capture by "economic imperialism." At the same time, British IPE is more open to heterodox approaches such as Marxist ones that are a no-no in a country whose government once convened something called the House Un-American Activities Committee. What US practitioners rightly point out is that British IPE is weak on quantitative stuff, though I try to remedy this failing by presenting you with numbers to back my assertions if possible--stuff I largely learned Stateside.

This brings me to the next and main discussion here. Kindred dismisses the assertion that there has been a change of tone in US-China relations. What of course prompted this was incoming US Treasury Secretary Timothy Geithner relaying President Obama's conviction that China was manipulating its currency. If one were to take an economistic approach here, then nothing has changed. The US is merely calling a spade a spade with regard to currency manipulation--something that many commentators acknowledge, although opinions differ widely.

However, if you were to take a more nuanced approach, Geithner made a very basic no-no. In the eyes of the Chinese, (perhaps innocently) saying what his boss thought marked Geithner out as the proverbial "ugly American"--loud, brash, and lacking in cultural sophistication. The reason is something standard-issue economists would probably gloss over but anyone who's taken a course in cross-cultural communication should be aware of. In Chinese culture, face is a very important concept. Even if stating what's patently obvious to most observers, many Chinese were jarred by the severity of the dressing down as if it were an assault on national pride. I was struck by this excerpt from a news article from a recent post:
Mr Geithner’s comments were also criticised in strong terms by prominent academics in China. “This is a sign of his immaturity and his inability to do such an important job,” said Shen Dingli, professor of American studies at Fudan University.
Even something as plebeian as a Wikipedia entry will tell you why I expected the Chinese to react strongly immediately after Geithner's faux pas:
Face refers to two separate but related concepts in Chinese social relations. One is mianzi (Chinese: 面子), and the other is lian (Traditional Chinese: 臉, Simplified Chinese: 脸), which are both used commonly in everyday speech rather than in formal writings. Lian is the confidence of society in a person's moral character, while mianzi represents social perceptions of a person's prestige. For a person to maintain face is important with Chinese social relations because face translates into power and influence and affects goodwill...

Notice that directly lying does not cause a loss of face. For example, if a flight is cancelled by an airline, then they may lie that it is merely delayed. Inability to arrange the trip would cause a loss of face, while lying that it is delayed would help to save face. So-called "polite lies" are acceptable.
What The Great Paulsonio understood given his fabled 50+ visits to China as Goldman Sachs chief that his successor at Treasury Geithner doesn't is precisely what's in bold above. Paulson knew better than to pull China's pants down in front of the whole wide world by tagging it a "currency manipulator." Instead, Paulson tried for "currency flexibility" and flattering China by saying it was doing so well that it could accommodate a stronger currency. In his inconsideration of saving the Chinese face, Geithner caused major offense. It's so simple yet so important to the Chinese psyche.

Returning to the idea expressed at the outset, economics would gloss over such details. After all, two Nobel Prize-winning economists came up with the idea of de gustibus non est disputandum, or there's no arguing about tastes (as an aside, the link is appropriately numbered "666"). Unfortunately, such economistic thinking would run roughshod over the very things that have branded Geithner a parvenu in China. In writing this blog, I try to explain why an interdisciplinary toolkit is necessary for analyzing issues in the world economy. Economics is just one of many tools including, in this case, sociology and anthropology.

Here's the thing: if IPE cannot do anything more than regurgitate economistic reasoning--whatever its merits and demerits--why bother with IPE at all? I should trademark a new tagline: The IPE Zone - Not an Economics Retread™ [!]

UPDATE 1: Kindred still thinks I'm making too much of this.
UPDATE 2: A commenter astutely observes that Geithner took up Asian studies at Johns Hopkins. A very strange lapse from TG, indeed.

China/US: Cut the Crap and Just Fight Each Other

♠ Posted by Emmanuel in , at 1/24/2009 11:01:00 AM
Now this is more like it in the "pot calling the kettle black" sweepstakes. China has now come out with an official response that takes great umbrage to just-installed US Treasury Secretary Timothy Geithner going along with the characterization of China as a "currency manipulator." From Reuters:
A Chinese central banker denounced accusations by U.S. Treasury Secretary-designate Timothy Geithner that China was manipulating its yuan currency, calling them misleading and warning against "excuses" for protectionism.

Su Ning, a vice governor of the People's Bank of China, called the comments by Geithner "out of keeping with the facts" and said they were "misleading in analysing the causes of the financial crisis," the official China News Service reported on Saturday. Su also warned against trade protectionism. "We believe that faced with the financial crisis there should be a spirit of self-criticism," Su said while visiting a business newspaper office in Beijing, according to the report. "The international community is currently working together in actively responding to the financial crisis, and it must avoid exploiting different excuses for renewing or encouraging trade protectionism," Su said, adding that such steps would harm global economic recovery.

Geithner's comments could signal that the new administration of President Barack Obama will take a tougher line against China in seeking to narrow China's big trade surplus, which some in Washington blame for stoking global economic imbalances. The yuan closed lower against the dollar on Friday and traded mostly below the Chinese central bank's mid-point, with speculation that Geithner's comments could spark a brief period of modest yuan depreciation.
To be fair to Geithner, I believe Brad Setser--who used to work under Geithner--when he says the Treasury chief is merely relaying his boss's opinion that China is a currency manipulator. Left to his own devices, Geithner would prefer a more conciliatory approach to economic diplomacy like The Great Paulsonio. The Financial Times adds more Chinese bellyaching, this time from the Commerce ministry instead of the PBoC. At this rate, virtually all trade and finance-related official functionaries will get a kick in:
The US and China have embarked on a public row over foreign exchange policy only three days after Barack Obama’s inauguration, with China denying on Friday night it was “manipulating” its currency and saying the allegation would only fan protectionist sentiment in the US. The Chinese government was responding to claims by Tim Geithner, President Obama’s choice for Treasury secretary, who told a Senate nomination hearing on Thursday that China was “manipulating” the renminbi. Mr Geithner’s blunt tone appeared to indicate a more confrontational approach towards China on economic issues.

In a statement on Friday night, China’s commerce ministry said Beijing “has never used so-called currency manipulation to gain benefits in its international trade”, AFP, the news agency, reported. “Directing unsubstantiated criticism at China on the exchange-rate issue will only help US protectionism and will not help towards a real solution to the issue.” The pointed comments between the two governments will exacerbate concerns of a surge in trade and currency disputes as a result of the slump in the global economy.

Mr Geithner’s comments were also criticised in strong terms by prominent academics in China. “This is a sign of his immaturity and his inability to do such an important job,” said Shen Dingli, professor of American studies at Fudan University.

China’s currency has appreciated 19 per cent since Beijing abandoned a dollar peg in 2005, but record trade surpluses over the past three months give ammunition to those who argue the renminbi is still undervalued [as imports for machinery and other capital goods fall faster than the PRC's goods exports].
Enough shadow boxing, I think it's high time we got some action from these antagonists. Frankly, I am getting tired of the bluster emanating from both. It's time they put the gloves on and got into the gladiator's arena known as power politics. Not only will be in a better place to figure out who calls the shots in the global political economy at this point in time, but we're likely better off if subprime globalization [1, 2, 3] is finished sooner rather than later. Here are my appeals to the belligerents -

President Obama, put your money where your mouth is at. Hit China hard with Section 301 legislation, ASAP. It will make you feel real good to punish these trade evildoers.

Chairman Hu, put your money where your mouth is at. Sell off some Treasuries to warn the US of its foolishness. You have Uncle Sam by the balls.

Today's Trope: Britain May Need IMF Bailout

♠ Posted by Emmanuel in , at 1/23/2009 09:08:00 AM
Asking for an IMF bailout is among the worst things countries can do in terms of damaging national prestige. It's the global political economy equivalent of cadging distant relatives (i.e., "the international community") for money to help tide you over. I've covered several of the most recent approaches to the IMF including Iceland, Ukraine, and Hungary. Now, the leader of the British Conservatives, David Cameron, is leading a charge that the United Kingdom may soon go hat in hand to un grand seducteur Dominique Strauss-Kahn. From the Independent:
Britain risks bankruptcy and a humiliating bailout by the International Monetary Fund (IMF) because of Gordon Brown's borrowing, David Cameron said yesterday. With official confirmation that the economy has entered recession expected today, the Tory leader delivered his strongest warning yet: "If we continue on Labour's path of fiscal irresponsibility, at some point – and it could be very soon – the money will simply run out."

His speech to the Demos think-tank in London raised the spectre of the 1976 bailout, when James Callaghan's Labour government was forced to make deep public spending cuts in return for a £2.3bn loan from the IMF. His remarks are bound to provoke Labour accusations that he is running the country down. Mr Cameron insisted he was not predicting a date by which the Government would "end up back at the IMF". But he added: "What I am saying is that we are running the risk of those things happening and those are risks that no government should responsibly run."

The Tory leader added: "We are borrowing, according to the Government's current estimates, 8 per cent of our GDP in the next financial year. That is the same percentage that Denis Healey [the then chancellor] was borrowing when he went to the IMF in 1976."
The Tories are hitting Labour pretty hard with punches many would view as being below the belt. Late last year, Shadow Chancellor George Osborne warned that Labour's actions risked a "run on the pound." Although I believe that Britain is in dire straits, the Tory duo is certainly fanning the flames in a manner without historical precedent. Rough-and-tumble politics does not get any rougher than this. Are the Conservatives making things even worse for the electorate to hasten the inevitable? Unless something dramatic happens, I am convinced Labour will lose during the next round of elections. However, their statements may come back to haunt Cameron & Co. if things do not improve noticeably on their watch.

Britain currently maintains a triple-A credit rating. Can Britain go quickly into such dire straits that a bailout becomes necessary? News of a larger-than-expected contraction in GDP certainly doesn't help, though I remain skeptical.

China Unhappy About Yuan Manipulator Taunt

♠ Posted by Emmanuel in , at 1/23/2009 07:09:00 AM
This place was among the first to note Timothy Geithner's more aggressive stance against China's foreign exchange policy. The New York Times has since covered the issue and so has fellow blogger Yves Smith. Trying to be at the forefront, it's my sworn duty to report that Chinese officialdom is not taking this accusation in stride as the following Reuters article notes. However, for someone curious about the outcomes of a possible trade war, I am not touting deliverance just yet as both sides are holding back from laying down the gauntlet with no chance of turning back. The text of the testimony is here (HT Trade and Taxes).

Again, the US Treasury issues biannual reports determining whether trade partners are practicing currency manipulation. I, for one, doubt whether there is sufficient political pressure to get this done at the first instance. On the Chinese side, they've taken the attitude of listening to what is said through diplomatic channels, choosing to ignore what's said in confirmation hearings and the like where there is presumably more posturing. What is unmistakable, though, is that Obama & Co. are not beyond taking a more aggressive attitude towards China, while the latter's patience is wearing thin.

Unless things calm down on either side, goodwill shall start wearing down. Eventually, we may get to considering Emmanuel-esque scenarios: Either the US brands China a currency manipulator--thus setting the stage for Section 301 legislation--or the Chinese sell off some of their stash of Treasuries to warn the US of its foolish intentions. Some commentators think China is more at risk in the event of a trade war; I think China has more room to stimulate demand at home at a time when exports are going downhill anyway. The PRC has simply more options. In any event, we draw closer to the endgame, if only by millimeters, not even decimiters...
China will make clear its displeasure at U.S. accusations of currency manipulation but hold its anger in check in the belief that President Barack Obama is simply posturing, Chinese analysts said on Friday.

Timothy Geithner, Obama's choice to head the U.S. Treasury, said the president believes China is "manipulating" the yuan, a loaded term that the Bush administration had deliberately avoided even as it criticised Beijing's exchange rate policy. The People's Bank of China, the central bank, had noted the comments by Geithner, a central bank official told Reuters on Friday. "We have reported them to relevant government departments and are awaiting a response," the official said, declining to elaborate.

Under U.S. law, formally labelling China a currency manipulator would require the Treasury to begin "expedited" negotiations with Beijing to reduce China's huge trade surplus with the United States and eliminate any "unfair" currency advantage. "China is going to be extremely unhappy, to say the least," Tao Xie, an expert on Sino-U.S. relations at the Beijing Foreign Studies University. "For administration officials, I do not think any one has ever pointed a finger so strongly at China."

Chinese anger at Geithner's choice of words, written in response to questions at his Senate nomination hearing, will add to simmering tensions over the global financial crisis. "President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency," Geithner wrote.

Chinese officials have accused the United States of regulatory failings that sparked the meltdown. When Henry Paulson, former U.S. Treasury chief, said that the high Chinese savings rate had helped sow the seeds of the crisis, a firestorm of criticism ensued in China. U.S. Treasury bond prices fell on worries that China might respond to Geithner's frank comments by cutting its holdings, the world's largest, of U.S. government debt.

But Yi Xianrong, a finance professor at the Chinese Academy of Social Sciences, said such concerns were premature. "They will not take the remarks very seriously," Yi said, referring to the foreign ministry and central bank. We will only try to understand their real stance via diplomatic channels," he added. "If they really resort to diplomatic tactics to intervene, we will take measures to respond."

Geithner, head of the Federal Reserve Bank of New York, said the Obama administration would "aggressively" use all its diplomatic tools to press Beijing on currency reform, but he also signalled some flexibility and patience. "The question is how and when to broach the subject in order to do more good than harm," Geithner said.

That hedging could suggest a more moderate approach. The first real test will come in a semi-annual Treasury Department report, due in April, on whether other countries manipulate their foreign exchange regimes.

"Obama will be too busy in his first 100 days to take on China," Xie said. "If he really wants to induce China to do something, he should do it in private, not in a public confrontational way." The yuan edged down against the dollar on Friday after traders concluded that China might usher in a period of mild depreciation as a shot across Washington's bow. "Such U.S. comments, if they become an official policy, will only lead to tit-for-tat moves from the Chinese side," said a dealer at a major European bank in Shanghai.

A Reuters poll earlier this month forecast that the yuan would remain virtually fixed in place this year at 6.83 to the dollar as China walks a tightrope between slowing growth at home and fears about a backlash abroad if it pushed through a significant depreciation. The yuan has been stable against the dollar for six months but broader strength in the U.S. currency has put upward pressure on China's trade-weighted exchange rate, Capital Economics, a London consultancy, noted in a report.

Chinese exports have fallen for two straight months, which, coupled with a domestic property slump, dragged down the economy's growth to a seven-year low of 9.0 percent last year.

France: British Pound is Getting Too Pounded

♠ Posted by Emmanuel in , at 1/22/2009 08:45:00 AM
It is unfortunate that we must consider the British as "Americanized Europeans" in the negative sense. Like the Americans, the British are full of consumer debt borne of financial innovation. Both had massive property bubbles. Now that the UK's banking shenanigans are coming undone, the British government is similarly opening the spigots to hose down an incipient crisis with liquidity to little positive effect. Again like America, Britain has allowed its industries manufacturing tradable goods to dwindle vis-a-vis a burgeoning financial services sector. Unlike the US dollar, however, the British pound does not have the luxury of being the world's prominent reserve currency. In scarcely more than six months, the pound has dropped from the $2.00 handle to below $1.40. Recent news that the government will undertake another round of massive bailouts that might end up costing £200 billion has sent the pound reeling since the start of the week.

Famous investor (and China and commodities booster) Jim Rogers recently commented that the pound did not have a very bright future, to say the least:
Jim Rogers, chairman of Singapore-based Rogers Holdings, said the “U.K. is finished” and investors should sell the currency. Commonwealth Bank of Australia said there was a high risk of a cut to the country’s credit rating outlook and lowered its pound forecast. Prime Minister Gordon Brown authorized a 100 billion pound ($142 billion) bailout for banks. “I would urge you to sell any sterling you might have,” said Rogers. “It’s finished. I hate to say it, but I would not put any money in the U.K.”
Not being on the shy side on matters of international importance, the French are not too happy about this state of affairs. Economic Minister Christine Legarde is crying foul, seeing that the British pound may be getting an unfair advantage from all this "quantitative easing"--a euphemism for allowing the currency to bear the brunt of adjustment via (competitive) devaluation:
French Economy Minister Christine Lagarde said on Wednesday the Bank of England should take more steps to support sterling. "I note the Bank of England is doing what it can, but its monetary policy and management of rates ... have not been particularly efficient for supporting the currency a bit more," she told a parliamentary hearing. "It would be in their interest to support it a bit." There was "strong volatility" in sterling, the minister said, adding: "Very clearly monetary markets are worrying about how sterling is faring, looking at the British economy."

In the past year, the British pound has lost around 30 percent versus the dollar, 20 percent versus the euro and more than 40 percent versus the yen , according to Reuters data. Such depreciation, while making imports dearer, gives the British exporting industry [whatever is left of it] an edge in price competition with rivals in world markets.

In London, a UK Treasury source told Reuters: "The Bank of England's policy is to target inflation, not the exchange rate."
So there you have it: the dismantling of the British Empire continues as the pound sets all time low after all time low against the euro. Who was the wiseguy who kept the UK out of the ECU in the first place? Why that would be PM Gordon Brown, the Anglophone heckuva job Brownie guy. He bungled it long before assuming his current post by saddling the country with a relic of a currency.

Is Geithner Climbing the China-Bashing Bandwagon?

♠ Posted by Emmanuel in , at 1/21/2009 07:15:00 PM
Beats me, actually. Reuters reports Geithner's coy statements before his Senate confirmation hearing. More or less, it's "I'll get back to you on that." Still, I must say that he appears more forthright in his criticism of China's practices than his Bush administration predecessors. Whether this is a prelude to some action will be very interesting to monitor:
Geithner was asked at his Senate Finance Committee confirmation hearing whether he thought China's "manipulation" of its currency remained a serious concern. "I do believe it is a significant issue," he told Sen. Jim Bunning, a Kentucky Republican who has sponsored legislation to press China to move a more flexible exchange rate policy. [That would be Bunning-Stabenow-Bayh, S.796.]

"As I said earlier, I believe it is important for the United States and the global economy that our major trading partners operate with a flexible exchange rate system and that market forces determine the level of those exchange rates," Geithner said. "I think that's very important and I will, when I have some time to think through how best to achieve that objective look forward to a chance to work with you and your colleagues on the committee on how we do that," Geithner said.
The thing here is that Geithner did not blanch at Bunning's description of China's activities as "manipulation." If you will recall, The Great Paulsonio continuously resisted pressure to get Treasury to brand China as a currency manipulator. It's a small detail worth keeping in mind, methinks.

Guiyu, China's Americanized e-Waste Capital

♠ Posted by Emmanuel in , at 1/21/2009 10:19:00 AM
If you ever wondered where your disposed-of electronics go, chances are that it will find its way back to the country where it was originally manufactured. TIME recently had an interesting article on Guiyu, China. Notably, the US is once again an enviro-villain as it is the only developed country not to have ratified the Basel Convention on hazardous waste exports to LDCs. Is this the "way of life" Obama doesn't want to apologize for? It would be appalling if the answer was "yes":
The U.S. is the only industrialized country that refused to ratify the 19-year-old Basel Convention, an international treaty designed to regulate the export of hazardous waste to developing nations. Meanwhile, the Environmental Protection Agency (EPA) oversees the export of only one type of e-waste--cathode-ray tubes in old TVs and monitors--and a report last August by the Government Accountability Office dismissed the EPA's enforcement as "lacking..."

A lot of exported e-waste ends up in Guiyu, China, a recycling hub where peasants heat circuit boards over coal fires to recover lead, while others use acid to burn off bits of gold. According to reports from nearby Shantou University, Guiyu has the highest level of cancer-causing dioxins in the world and elevated rates of miscarriages. "You see women sitting by the fireplace burning laptop adapters, with rivers of ash pouring out of houses," says Jim Puckett, founder of Basel Action Network (BAN), an e-waste watchdog. "We're dumping on the rest of the world."
I'm trying to cut down on e-waste by extending the life of an older model two generations removed from the current state of the art, an AGP 8x platform. Also, I have now committed to buying a laser-printed keyboard whose lettering doesn't eventually wear out with use. After seeing the slideshow presentation, I do feel guilty.

Explaining the Postwar Economic Order in One Chart

♠ Posted by Emmanuel in ,, at 1/20/2009 07:24:00 AM
What follows may be an oversimplification of the post-WWII order, but you may find that there is no small amount of truth to it. In a few hours, our American friends will inaugurate a new president. Although I am 100% percent certain that he and his advisors are not IPE Zone readers, the economic challenges they face--and indeed, the rest of us as well--can be informed by the following chart. It depicts historical US personal savings rates and is taken from ch. 9 of the EBRI Databook on Employee Benefits:
The important thing for me is, regardless of how you interpret this chart--the US as a spendthrift nation (negative view) or as a facilitator of a liberal economic order (positive view)--the implications you will arrive at remain the same. In both the data series used, the more familiar BEA NIPA or the Fed's Flow of Funds, there is a marked downward trend in personal savings over the last couple of years. There have of course been signs of a rebound in the savings rate in recent months as the credit crisis roils US consumer spending either through a lack of available credit (banks become warier of lending on easy terms), consumers simply hitting the wall (moving perilously close to bankruptcy or foreclosure), or wealth effects (folks tighten their purses as dwindling housing, stock, and retirement holdings make them feel less well off). Let's begin:

(1) The negative view is what you get a regular dose of in this blog and I needn't belabor it much. Here, the US is a once-great nation whose exporting industries have entered terminal decline. That is, its production of tradable goods has given way to a consumption-led Anglo-Saxon model that exacerbates its lack of savings, making the US reliant on the the kindness of strangers to fund its profligacy. Like Rocky-era Survivor, it's changed its passion for glory and lost its grip on the dreams of the past. The US has literally gone soft in the middle, further straining its also parlous public finances.

(2) OTOH, the positive view portrays the US in more flattering terms. Among the proponents of this view are authors championing the existence of a "Bretton Woods II" system. Here, postwar America acted generously by allowing war-torn Europe and Japan to export to the only consumer market left largely intact by WWII. Even the breakdown of the original Bretton Woods II system did not stop the US from acting as the world's consumer of last resort. In effect, newer export-led economies used fixed exchange rates and reserve accumulation to preserve America's status as such. Hence, the so-called Asian tigers (South Korea, Taiwan, Singapore, and Hong Kong) were able to follow Japan's lead and, after a lag, the PRC.

It is at the present time when (1) and (2) converge. With the benefit of hindsight, the US-as-intermediary story in (2) which portrayed the global economic order as "stable and sustainable" has been largely discredited by the credit crunch. The reason is simple: US consumers have simply run out of spending money as personal savings rates approached zero. Of course, there is a grain of truth to (2) in that US consumption has played an important role in the development of the aforementioned export-led economies. Even now, US consumption alone accounts for about 18% of world GDP by my reckoning, although others say it is more like 20%. You may think this isn't much in the global scheme of things, but consider the US as a "swing consumer" that can influence prices for America's all-important consumer credit via its monetary, exchange rate, and trade policies. As consumer of last resort, this role is key.

The chart speaks for itself. Bretton Woods II or whatever you call it has run aground simply due to American consumers hitting rock bottom. Export-led economies can no longer rely on the American consumer to pick up demand slack and must somehow stimulate domestic demand. Conversely, the US will need to address long-neglected industries in the tradable sector to escape the gravitational pull of its consumption-led growth model. Doing so is not an easy task for either as evidenced by US efforts to reflate consumption via virtually zero policy rates and exporters like China ladling on export incentives.

We are entering an interesting new phase for the postwar international economic order. It is often said that America's Anglo-Saxon model based on consumption and financial intermediation is endangered. Less often said is the obverse: Asia's export-led development model cannot which is in no small predicated on US consumption is similarly endangered. How we can move forward is the topic for another post, but the chart above should be plenty to digest for now.

Fight Time: EU to Slap 25% Duties on PRC Steel

♠ Posted by Emmanuel in ,, at 1/20/2009 06:28:00 AM
With folks like me prattling on and on about an impending US-China trade war, don't forget that there are many other disgruntled nations that have come up against the mighty Chinese export machine. Today's case in point is the EU. In late 2007, there were already rumblings about an impending EU sanction, with angry noises being made about China's pollution-intensive manufacturing methods. Fast-forward to early 2009 and we now appear to have impending EU duties on Chinese concrete rebar and the like. (My apologies for not bringing this news earlier.) From Reuters:
A key European Union trade panel voted in favour on Thursday of imposing temporary antidumping duties of 25 percent on imports of Chinese-made steel wire rods, EU sources familiar with the case said. "The vote was in favour of the duties," one source told Reuters on condition of anonymity.

European steel producers requested the additional tariffs on the rods, used among other things to reinforce tyres and concrete. They had complained that Chinese exporters enjoyed an unfair advantage because suspected subsidies in China's steel industry gave them cheap raw material. The duties -- which are likely further to damage already brittle trade and diplomatic ties between Brussels and Beijing -- will come into force next month and remain in place for six months.

The European Commission, which oversees EU trade policy, must then decide whether to propose "definitive duties" lasting at least five years. EU trade ministers must approve any such move for it to take effect. Trade disputes between Brussels and Beijing are on the rise since the EU's trade deficit with China has ballooned, hitting 160 billion euros ($210 billion) last year. In December, the EU's antidumping committee voted to adopt import duties of up to 87 percent on screws and bolts from China.
I also found the following from a site I've just come across called SteelGuru. It says Chinese steel producers are girding up for the impending EU sanctions:
It is reported that China's steel enterprises have already prepared not to export any products as the result of the voting on whether to impose 25% temporary tax on Chinese steel imports will come out soon. If the proposal be approved, it will take effect from February and last for 6 months. Until then, the European Commission should decide whether to propose definitive duties which would last for at lease five years or not.

Mr Bai Ming, vice director of the international market research department of Chinese Academy of International Trade and Economic Cooperation, citing the European steel producers' complaints of China's suspected subsidies said the government had not provide[d] any kind of subsidies. The foreign producers just made a mistake to take the government services as subsidies.

He figured that, China is becoming the biggest steel producer in the world and it owns a pretty good international market. Therefore, some foreign producers think they have been ruined by Chinese enterprises amid the sluggish global market. In addition, some foreign states just trick their people by imputing (blaming?) China for the economic slow down so as to keep their own images. He added that "Therefore, not only steel export but also other exports do not perform well. However, each country will come across such [a] bad situation on the way of its economy growing up just like South Korea and Japan."

At present, most Chinese middle[-sized] steel enterprises have reduced their exports by 30% to 40%, Mr Xu the principal of one steel manufacturer in Foshan city, Guangdong province said "We would choose to sell products on domestic market instead of exporting to Europe just as the company can not bear such a heavy export tax. It is also quite difficult to export to South Korea and Japan for the lower price there. Whereas, steel demand stimulated by the state's investment on the domestic market is expected to rebound in H2.”
Interesting stuff. Will there be more to come? Maybe commentators like your truly mistakenly assumed that US-China trade relations would boil over before EU-China ones.

Surprise! 83% of Largest US Firms in Tax Havens

♠ Posted by Emmanuel in at 1/19/2009 10:44:00 AM
The United States' General Accountability Office (GAO) is out with a new report whose main finding is that 83 out of 100 of the largest American firms have subsidiaries in jurisdictions commonly regarded as tax havens. I have discussed the ongoing crackdown by industrialized countries on tax havens for the understandable reason that tax revenues tend to become less healthy in times of slowing economic activity. If you read the summary of the report, the GAO uses very careful language to suggest that operating a subsidiary in a tax haven is not necessarily evidence of companies engaging in tax avoidance.

Is this like being found with a strange woman in a motel who isn't your wife? See for yourselves. I suggest that revenue-hungry countries adopt Metallica's "All Nightmare Long" as their soundtrack in tracking these evildoers: 'cause we hunt you down without mercy...hunt you down all nightmare long...
Many U.S. corporations operate globally and have foreign subsidiaries. The subsidiaries may be created, for example, to take advantage of sales opportunities or favorable labor conditions. In some cases they may be used to reduce taxes. GAO was asked to update its 2004 report on large federal contractors with subsidiaries in countries sometimes called tax havens because of low taxes and a general lack of transparency. In response, GAO determined how many of the 100 largest publicly traded U.S. corporations and the 100 largest publicly traded U.S. federal contractors have subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions. GAO (1) combined three lists of such jurisdictions created by governmental, international, and academic sources and (2) identified large publicly traded U.S. corporations and federal contractors and the locations of their subsidiaries using the Fortune 500 list, a federal contracting Web site, and a Securities and Exchange Commission (SEC) database.

Eighty-three of the 100 largest publicly traded U.S. corporations in terms of 2007 revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions. Sixty-three of the 100 largest publicly traded U.S. federal contractors in terms of fiscal year 2007 federal contract obligations reported having subsidiaries in such jurisdictions. Since subsidiaries may be established in listed jurisdictions for a variety of nontax business reasons, the existence of a subsidiary in a jurisdiction listed as a tax haven or financial privacy jurisdiction does not signify that a corporation or federal contractor established that subsidiary for the purpose of reducing its tax burden. GAO did not attempt to determine if corporations or contractors with subsidiaries in such jurisdictions engaged in transactions with their subsidiaries to reduce their tax burden. In addition, the SEC only requires public corporations to report significant subsidiaries, so the number of subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions for each corporation or federal contractor may be understated in this report.

There is no agreed-upon definition of a tax haven or agreed-upon list of jurisdictions that should be considered tax havens. However, various governmental, international, and academic sources used similar characteristics to define and identify tax havens. Some of the characteristics included no or nominal taxes; a lack of effective exchange of information with foreign tax authorities; and a lack of transparency in legislative, legal, or administrative provisions. A few sources used terms such as offshore financial centers or financial privacy jurisdictions to refer to jurisdictions with similar characteristics. Based on a review of a variety of sources, GAO identified three lists of tax havens or financial privacy jurisdictions. The three sources GAO used are (1) the Organization for Economic Co-operation and Development, (2) a National Bureau of Economic Research working paper, and (3) a U.S. District Court order granting leave for the Internal Revenue Service to serve a "John Doe" summons. GAO combined the three lists into one for the purposes of this report. GAO did not develop its own definition of tax haven or its own list of jurisdictions. In commenting on a draft of this report, the Department of the Treasury expressed concerns about GAO using a list of tax havens or financial privacy jurisdictions because there is no agreed-upon definition of tax havens or list of jurisdictions. However, GAO noted that there is no agreed-upon definition or list and also noted that the jurisdictions on the three lists used have similar characteristics. Further, background for one list said that industry analysts recognize them as offshore tax haven or financial privacy jurisdictions and that they are promoted as such.