Sunday, September 20, 2015

Weekend reading links

1. Scott Sumner on the critical role played by revenues from land sales and leases in financing infrastructure and other investments in East Asian economies,
The bigger story in China (and elsewhere in East Asia) is the government ownership of land, which provides an important share of government revenue. The Singapore government, for instance, has a monopoly on the right to "mine" (i.e. create) new land. As a result, Singapore's land area has grown rapidly, and this has generated a lot of revenue. Local governments in China rely on land sales to pay for infrastructure projects.
2. Countries scaled to the size of their respective stock markets
3. Martin Wolf points to the possibility of a "Made in China" global recession, one triggered by a shrinking of the country's unsustainable investment spending (46% of GDP), and its interaction with the dynamics of financial markets as the Fed tapers and credit flow reversals begin,
One channel would be a decline in imports of capital goods. Since about a third of global investment (at market prices) occurs inside China, the impact could be large. Japan, South Korea and Germany would be adversely affected. A more important channel is commodity trade. Commodity prices have fallen, but are still far from low by historical standards (see chart). Even with prices where they are, commodity exporters are suffering.

4. On the resource misallocation in US engendered by the quantitative easing policies,
But companies have been following the central bankers in rigging the market, pushing equity prices up to heady levels that may not be validated by economic growth. The “evidence” of putative value creation is short-term noise. The reality is that companies are buying shares expensively at the cost of increased leverage, which amounts to a misallocation of capital. Then there is the resurgence in mergers and acquisitions, which are now running at levels reminiscent of 2007. If we know anything about M&A it is that managers are too easily carried away by the thrill of the chase, resulting in the notorious winner’s curse. When you bear in mind that $3tn of deals have been agreed across the world since January, much of it in the US, the scope for capital misallocation is once again large.
5. After this fantastic Indian Express essay on the workload endured by ecommerce"last mile boys" in India, another in FT from China on their kuaidi is eerily similar,
Ecommerce relies on these super-cheap delivery services. Delivering a package overnight in most locations costs Rmb10-13 ($1.50-$2), about a tenth of the cost in the US, thanks to the 12-hour days worked by Mr He’s couriers. The main beneficiaries are the rising middle class, which consumes the trappings of a much richer society at a fraction of the cost... By Chinese standards the jobs pay well — Rmb5,000 a month including bonuses — but it is back-breaking. “During peak time, work starts at 7am, and doesn’t end until midnight” says Mr He. “It’s very stressful, they have to deliver 300 to 400 [packages], and have to pick up between 100 and 200, in some neighbourhoods 700 or 800 items. The entire day they are on the move, climbing stairs, when they get back they are too exhausted to move.. 

Bigger companies like ZTO have built good reputations in the industry for providing decent work conditions, but there are thousands of courier companies in China and most do not even bother to sign contracts with couriers and are only lightly regulated. Yang Zhanlu, a courier who asked for his company name to be withheld, says of his Rmb4,000 monthly salary that 25 per cent is often deducted in fines. He has been punished for knocking too loudly, or delivering too early, and has no recourse.

In UP more than 23 lakh persons have applied against 368 posts of peon in the state secretariat. The number is almost half the population of Lucknow, which is 45 lakhs. What is even more shocking is that over two lakh applicants are at least graduate with BTech, BSc, MSc and MCom degrees. Applications also include 255 candidates with a PhD degree in hand. 
An interesting explanation for the explosion in applications,
In 2006, for about 260 jobs we received 100,000 applications. But in nine years the figure has gone up so much. One reason is perhaps the easy access, because the government had distributed 1.5m laptops and people sitting in remote areas can apply at the click of a mouse. In 2006, applications were made offline.
7. Amidst all the gloom surrounding the coverage on China, very little analysis has been done on the scenario that while its manufacturing output may be slowing, it is possible that the country can recalibrate towards consumption as a driver of economic growth and generate a greater share of growth from its services sector. Nicholas Lardy sings a contrarian tune,
The skeptics have taken insufficient notice of China’s progress in transitioning to its new model of economic growth, one less dependent on expanding industrial output, investment, and exports and more dependent on expanding private consumption expenditure. After a decade of relative stagnation, since the first half of 2012, China’s services sector has become the main driver of its economic growth. The services sector has grown continuously more rapidly than GDP, and its share of the economy now exceeds that of industry. Expanding demand for services such as health care, education, entertainment, and travel generates little or no demand for industrial goods, electric power, or freight transport. The demand for passenger transport, in contrast to freight, is soaring as domestic tourism booms.


The expanded role for the services sector reflects a continuous four-year rise in the private consumption share of GDP. The cumulative increase is not yet large, but it is a sharp change from the previous decade when the share fell continuously. China’s average level of per capita income is now at a sufficiently high level that a growing share of consumption is for services rather than goods such as food and clothing. The rising share of private consumption expenditure is feeding off increases in disposable income—which have exceeded the pace of GDP growth for several years—and a slightly reduced household savings rate. The relatively rapid growth of disposable income is in turn the result of the continued rapid growth of wages and an improved rate of job creation in sectors with higher incomes than agriculture. All of this growth—in consumption, disposable income, wages—is hard to square with the skeptics’ view that China is in an extreme slump.

In effect, China is in a virtuous circle. Since the services sector is much more labor intensive than industry, the rising demand for services feeds into more rapid growth of nonagricultural employment, helping to sustain rapid wage growth despite the slowdown in GDP growth since the 2000s. In turn, these lead the growth of disposable income to outstrip that of GDP, feeding back into rapidly rising private consumption expenditure, particularly for services.
It is debatable as to whether these trends have become sustainable, as is being claimed, or may reverse when the industrial production and infrastructure investments slow down. But with low baseline of domestic debt and consumption share, the re-calibration prospects should not at all be discounted.

8. On the much-discussed employability problem across Indian economy, this graphic from a report by EY on India's Higher Education shows that almost half the graduates are not employable in any sector.
9. Robert Reich points to concentration of market power in the digital market,
Google runs two-thirds of all searches in the United States. Amazon sells more than 40 percent of new books. Facebook has nearly 1.5 billion active monthly users worldwide. This is where the money is. Despite an explosion in the number of websites over the last decade, page views are becoming more concentrated. While in 2001, the top 10 websites accounted for 31 percent of all page views in America, by 2010 the top 10 accounted for 75 percent. Google and Facebook are now the first stops for many Americans seeking news — while Internet traffic to much of the nation’s newspapers, network television and other news gathering agencies has fallen well below 50 percent of all traffic. Meanwhile, Amazon is now the first stop for almost a third of all American consumers seeking to buy anything. Talk about power.
Supporters would point to the disruption that has been the characteristic of the information technology industry over the last two decades. But a counter-view, that appears not far-fetched,is that this churn was due to the initial stages of development of the IT sector and now that the industry has matured, the winners may be consolidating their positions.

10. Finally, nice graphic about the nationality of the largest group of migrants (outside Mexico) to each US state

1 comment:

Unknown said...

On the question of whether consumption and/or services are able to take over and drive growth in China, you might wish to follow Prof. Chris Balding too.