The worst decline in history…
Courtesy Paul Kedrosky [ via Bespoke ], this chart that says it all:
India, China and G11
Excerpts from a recent article by Liam Halligan (Chief Economist at Prosperity Capital Management) in The Sunday Telegraph, “China, Brazil and India belong in the G8”
*** Excerpts Begin (emphasis mine) ***
It’s become fashionable to say the G8 is pointless. Last week’s summit of the “world’s advanced industrial democracies” was certainly an anti-climax.
After all the posturing, “working lunches” and “financial stability pacts”, the impotence of the leaders gathered on the Japanese island of Hokkaido was displayed for all to see.
Western shares kept tumbling. Crude hit another record high. As the smell of meltdown turned acrid last week, the markets seemed determined to stress the G8’s irrelevance.
…
Since the mid-1970s, the US, UK, Germany, Italy, Japan, France and Canada have held an annual summit. Russia has recently been added – grudgingly, because four G7 members depend on its oil and gas. Even with Russia, the G8 accounts for only 14 per cent of the world’s population, and less than 60 per cent of the global economy. And that share of worldwide output can only fall as the fast-growing emerging giants continue to outpace the West.
The likes of China, Brazil and India have churned out average annual growth of 5 to 10 per cent for many years now – an expansion rate that’s set to continue. In dollar terms, these countries are now the fourth, 10th and 12th largest economies on earth – and climbing fast.
Of India, Japan and “Client States”
A few weeks ago while I was in Japan, a mini-storm was brewing up in the blogosphere precipitated by the somewhat careless choice of words by Daniel Altman on the IHT blog.
In a piece on the occasion of Japanese Prime Minister’s visit to India, Daniel wrote:
“…Not so long ago, there were only two countries that collected client states around the world: the United States and the Soviet Union.
These days, it seems like anyone with some economic clout can join in the fun. China has Sudan, Venezuela has Bolivia, and now Japan has India.”
Predictably that kicked up a furore (and not just because of the ill-considered comparisons).
Our friends at Wikipedia describe “Client States” as:
“Client state is one of several terms used to describe the subordination of one state to a more powerful state in international affairs. It is the least specific of these terms and may be treated as a broad category which includes satellite state, puppet state, neo-colony, protectorate, vassal state and tributary state.”
Clearly this was not a flattering description.
Daniel went on to say that, “One day, India’s economy may be bigger than Japan’s. But for now, the Japanese government is happy to underwrite India’s growth, in return for a share of spoils.”
The brief post elicited several comments with readers pointing out that:
- Japan’s increasing interest in India was also at least partly due to its growing suspicion of China
- A $100bn investment does not make a client state make
- On a PPP basis, India’s economy is now larger than Japan (link courtesy Suraj Swami on the IHT blog)
- Sino-Japan economic trade and ties dwarf the relationship between Japan and India (A related piece on IHT had noted Japan’s trade with India was about $6.5 billion in 2006…about 4 percent of Japan’s trade with China)
On the Indian Economy Blog, Shefaly posted a more balanced perspective. In her post she pointed out several flaws in Daniel’s hypothesis, notably:
- …the assumption that investing in infrastructure is going to produce spoils worth sharing, and produce them post haste
- Daniel’s diregard of the “strategic” reasons for such a investment and the influence that sovereign states wish to exercise through such measures
Shefaly had kindly asked me for my take on all this. I decided to wait for the dust to settle down before jumping in.
Here is what I think (in “ugly” bullet points; sorry for not crafting this more elegantly – I am fast loosing whatever skills I had learnt in the diplomatic service!):
- Whatever Mr Altman might think, India is unlikely to become anybody’s client state – ever
- Daniel’s piece was meant to provoke – which it did. It was not meant as a serious expression of opinion – hence it is best ignored beyond a point
- Financial aid is – almost always – linked to political objectives (however strenuously denied) and rejecting it also sends political signals
- Japan’s increasing (and belated; in my opinion) interest in India has as much to do with geo-politics as it has to do with economics & trade
- Japan’s investments in India – as elsewhere – are based on economic as well as political considerations and a combination of perceived political & economic benefits
- No doubt many people see the shadow of China looming over this relationship – but clearly that is not the only factor driving trade and commerce between the two countries
I will stop here.
P.S. For more on client states, read “We are now a client state” by David Leigh and Richard Norton-Taylor that talks about how “Britain has lost its sovereignty to the United States”
Will we ever see that kind of relationship between India and Japan? I think we all know the answer.
What might stall the “Great Chinese Growth Engine”?
A few weeks ago, I attended a fascinating talk at Chatham House by Professor Wing Thye Woo who teaches Economics at the University of California on “The Real Challenges to China’s Continued High Growth”
He identified three important factors which might lead to the “crash of a speeding car” aka the “Great Chinese Growth Engine”:
- Hardware failure: “right tire burst” = collapse of a crucial economic mechanism
- Software failure: “fight within car” = social disorder
- Power supply failure: “no petrol” = limits from ecological barrier or external sanctions
He also cited several interesting statistics in his presentation of which the two below particularly stood out for me:
- “Social Disorder”: 1994 had 10,000 mass incidents involving 730,000 persons? in 2004 the number had gone up to 74,000 mass incidents involving 3.7 million people.
- China’s GINI coefficient has almost doubled from .24 in ‘78 to .47 in 2005
The China Policy Institute, which made it all happen, wrote its own report on the talk which can be accessed here. The report nicely summarised the key points. I would recommend it and the slides to everyone who is watching China and its impact on the global economy.
A few excerpts:
“…China had enjoyed the highest sustained economic growth rate of any country in recorded history, he said, and it was probable that this high growth model would succeed.
But it was important to examine the factors most likely to disrupt the high growth rate from continuing…
…Professor Woo said that perhaps the greatest challenge to China’s continued high growth in China would be future global disputes over resources and the environment, following what he called the unravelling of the global consensus for free trade in the United States, which was making the atmosphere ripe for protectionism.
As China and India moved up the value chain in manufacturing complexity, he said, Western countries were being forced to make painful adjustments as more and more jobs were lost. At the same time they would be faced with demands to help pay for the environmental improvements needed in countries like China and India to curb carbon dioxide emissions, he said.
…The best way to reduce CO2 emissions was to ensure that the new power generation capacity installed in China and India made use of modern, clean coal technology, he said, but this would mean that the richer countries would have to offer to pay for this in order to enjoy the benefits.
This made the atmosphere also ripe for what he called a coming global clash over the “Global Commons” not just air but also water as well. Asia, he said, faced a looming water crisis as China made plans to divert the flow of water to rivers such as the Bramaputra and the Mekong that flowed into India and Southeast Asia…”
How many £s does it take to cash a 1p cheque?
Talking of small change…last week I received this cheque in the mail for a single penny.
I had to check it twice just to make sure that it was actually a 1-penny cheque.
I cannot help wondering how many man-hours have been wasted (and are going to be wasted) on issuing and processing this cheque.
My estimate is around 2-man hours (at least) which translates into well over £12 (or $24) at the minimum wage rate in UK.
Any one else cares to venture a guess?
Long live the “traditional” way of doing business!
P.S. Coincidentally came across this BBC report which suggests that “the cost to a bank of processing a cheque was 44p” (Note that this is simply the cost to the bank – it does not include cost to the issuer and the beneficiary – in terms of time).
This site suggests that the cost of “processing paper cheques” may be as much as “between $15 to $25″. Wow.
“Overheating India” is the new cool…
First it was Davos, then the FT 
and now The Economist*
So I guess “Overheating India” is the new cool in circles where they discuss such weighty matters and amongst people who read the FT to work**
On the WSJ’s Davos blog: “Is India Overheated?” Balaji wrote a great comment in reaction to Stephen Schwarman (CEO, Blackstone Group)’s “outsider’s perspective”. But first the “outsider’s perspective” (as reported by Christopher Emsden):
“A couple of years ago, he said, his company decided to start investing in India. He liked India because it was a democracy, the legal system was well established, and the costs seemed low and the potential seemed high.
But when Blackstone tried to find an office in the commercial capital of Mumbai (formerly Bombay), the only space it could find was a hotel room. (”And I thought hotel rooms were for sleeping, not officing,” he said.) Employees, wired into the world, wanted wages competitive with what they would earn elsewhere. And even the investment climate seemed somewhat overheated, with high multiples. Land prices alone, he was told, are more than 10 times what they were 18 months ago.
“Overheated?” asked Mr. Schwarzman, who describes himself as a big India booster. “You decide.”
Here is what Balaji wrote in response:
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