Sunday, April 10, 2016

Weekend Reading Links

1. The property price story in China is more nuanced now, with surging prices in certain areas of the Southern Coast and other major cities, and stagnating or declining prices elsewhere. There is a shortage in the former and excess supply among the latter. A Bloomberg news report summed it up,
At the heart of China’s property malaise is an imbalance between supply and demand -- the new building is taking place where there’s less demand, while supply is short in the most popular, largest cities. Last year, 61 percent of new-home building starts were in third- and four-tier regions, while only 5 percent were in first-tier hubs
The parallels with India's housing market are striking. Here, 95% of the supply is for the 5% of the market at the top, with acute scarcity in the affordable housing space and negligible supply in the LIG and MIG. 

Such market failures demand differentiated policy responses, instead of one-size-fits-all prudential ratios for all housing. In China's case, it would need to be geographically focused, whereas it has to be unit-size focused in India. 

2. From a Bloomberg report on India's limited success with promoting exploration and mining of gold, whose imports stood at $35 bn in 2015 and formed 43% of the current account deficit for the last quarter of the year,
Deccan Gold Mines, which hasn't dug up an ounce in 13 years because of the difficulty of obtaining permits from state governments... has no incentive to explore for gold after laws passed last year forced miners to bid for the right to mine the deposits they find. Finding mineral deposits is risky, cost-intensive business. As with pharmaceuticals, movies or venture capital, there are a long tail of failed investments behind every blockbuster... The only reason companies risk this capital is because they hope to get first refusal on the right to dig up what they've found.
India has long-standing problems with corruption around the free allocation of mining leases, which helps explain the desire to change the law. But doctors need to be careful they don't administer medicine that's more harmful than the disease itself. If a country can only stop corruption in mining by removing the industry's incentive to develop new mines, it's guaranteeing a future of rising import dependence.
The backlash from the spate of resource allocation scandals and the activism around it by various agencies of the state have left governments with limited space to manoeuvre. They are forced to view any resource allocation through the lens of public revenues maximization through auctions. This, as we know, is not always the right strategy. 

3. Highlighting the difficulties of protectionist policies like raising tariffs on Chinese imports in a world with globally integrated supply chains, Upshot writes,
A study by the Federal Reserve Bank of San Francisco figured that 55 cents of every $1 spent by an American shopper on a “Made in China” product goes to the Americans selling, transporting and marketing that product. Suppressing Chinese imports would harm shopkeepers and truck drivers. In fact, making Chinese-made goods more expensive would ripple through American shopping malls. An extra $20 for, say, children’s clothing from China is $20 not spent on a new baseball glove for a child, or a birthday gift for a grandmother. A tariff on China would dent the sales of all kinds of products, even those made in the United States. It seems likely that such a tariff would burden American consumers while doing little to create jobs for them. Gary Clyde Hufbauer and Sean Lowry at the Peterson Institute for International Economics, studying the impact of a 35 percent tariff imposed on Chinese tire imports by Washington in 2009, found that American consumers had to spend an extra $1.1 billion on tires, while the tariff protected no more than 1,200 jobs. About $900,000 for every job saved, in other words.
4. Livemint points to India's poor performance in inter-generational mobility, even compared to its neighbours, with education attainment of children being more dependent on that of their parents (higher score indicates lower inter-generational mobility). 
The causal chains may be running in all directions - poor people are more likely to suffer from poor quality schooling (in public schools) and/or unaffordable good quality schooling; are more likely to drop out of school for financial reasons; face far less domestic pressures to learn and stay enrolled; and good quality schooling is an increasingly important determinant of life incomes. 

5. Germany is the latest to suffer from the slowdown in China, with nine of the country's top 10 exports to China declining in 2015

6. Interesting findings from a very exhaustive JETRO survey in 2015 of 4635 Japanese affiliated (with Japanese investment of atleast 10%) manufacturing sector firms across 20 countries in Asia. Indian firms are among those with the most optimistic business expectations in terms of expansion and profitability. Indian firms do not enjoy much competitive advantage in terms of local production costs (as compared to their Japanese counterparts) among its main export competitors. 
Indian firms no longer have a competitive advantage with labor costs when compared to its direct competitors like Vietnam and Bangladesh, or even Indonesia.  
Indian firms are the least export-focused among all countries.
7. On the issue of manufacturing, NYT points to a BCG study which finds that Indian firms' manufacturing costs have remained the same in real terms between 2004-14. Note the contrasting fortunes of Mexico and Brazil, with the latter's cost competiveness taking a massive hit. Australia is another country which suffered, a possible reflection of the Dutch disease. 
More fascinatingly, the cost of making a pound of yarn is lower in the US than in India or China. Its success has been in controlling input costs. And this has lessons for other areas of manufacturing. 
8. Very informative slide deck on the Chinese economy from RBS Research. For an economy whose engine has been construction and infrastructure investments, the declining electricity, steel, and cement production is stark.
Investments as a share of GDP may have peaked and may be on its downward path.
Economic rebalancing between consumption and investment is happening at a very slow pace.
The biggest immediate worry is the massive pile of accumulated public (especially local governments) and corporate debt, which has risen at a staggering $6.5 bn a day since the 2008 crisis broke out. 

No comments: