The Emerging Giant of the Far East
Even though according to World Economic Outlook the world economy will expand 4.6 per cent in 2010, the biggest gain since 2007, the International Monetary Fund (IMF) warns on global recovery. The risk of a slowdown in the global economic recovery has risen sharply, but governments should continue planning to tighten fiscal policy, the International Monetary Fund has said.
“In the near term, the main risk is an escalation of financial stress and contagion, prompted by rising concern over sovereign risk,” the world economic outlook said. “This could lead to additional increases in funding costs and weaker bank balance sheets and hence to tighter lending conditions, declining business and consumer confidence, and abrupt changes in relative exchange rates.” The IMF called for most governments in advanced economies to use monetary rather than fiscal policy as the “first line of defence” to any weakening in demand, in spite of the fact that interest rates across much of the industrialised world are near zero.
It also urged the European Central Bank to give stronger signals to the bond markets that it was prepared to intervene if necessary to boost liquidity.
As for Europe, a sunny outlook might be obscured by gloomy clouds over some of the EU countries. Even though a robust recovery in Germany and evidence of a clear turnaround in France have helped lift the performances of their neighbouring countries, there is still uncertainty about Greece’s public finances, and unemployment in Spain is still around 19%. The IMF predicts a 1% economic growth in the euro area this year and 1.3% growth next year (compared to previous prediction of 1.5%).
A quite different outlook is shown by probably the second largest economy in the world, China (it is still unclear whether China has already become bigger than Japan in terms of GDP or it still has to wait until the end of 2010). It has grown massively ever since it opened its borders to foreigners some three decades ago; its growth did not stop even during the bust years, and as we can see from the Q1 figures, the country is back on track again.
In fact, data released in the last few weeks in China may be indicating that the third (or second) largest Transfer from Sports Transfer cash into poker chips Massive Jackpots $50,000+ Sit and Go tournaments Beat The Manager Can you defeat the legend? Irish Open 2014 Win your €3,200 Dublin package Pokasino Rewards Huge rewards for play Waiting for load Great table banter with fellow UK poker players. economy in the world is beyond recovery period and may be close
to overheating. Yet, the Chinese government is still far from acknowledging that fact and focusing on slowing down the property prices instead of initiating monetary policy tightening.
In China, strong gains in consumption and investment have led to a 0.5 percentage point boost to the 2010 growth forecast compared with the IMF April’s estimate.
China recently highlighted its rising weight in international finance by securing double the amount of money by initial public offerings (IPOs) than the US in 2009. This year Hong Kong alone has raised $27.2bn in IPOs, compared with $26.5bn in the US. Although the Hong Kong figure does not include the planned $2bn IPO from Rusal, the aluminium group controlled by Russian billionaire Oleg Deripaska, which is unlikely to happen until next year pending the approval of the Hong Kong Stock Exchange.
According to The Financial Times, the exchange has been aggressively trying to win the favour of overseas companies in an effort to challenge rivals in hubs like London and New York.
As the economy is expanding, it is increasing the demand for air travel. China will open 10 new airports this year, raising the nationwide tally to 176, as economic growth spurs travel demand. Additionally, China’s wages are predicted to increase by an average of between 15 percent and 20 percent annually for unskilled labour in the next five to 10 years, according to Citigroup Inc. analyst Eddie Lau.
According to the State Administration of Foreign Exchange, China’s current-account surplus will shrink for a second year in 2010 as domestic demand plays a greater role in driving the nation’s economic growth. And the trend is predicted to continue. The current-account surplus shrank 32 percent in the first quarter to $53.6 billion, while the capital and financial account reversed a deficit a year ago to show net inflows of $64.2 billion.
As the Yuan is expected to appreciate, a new trend for companies and individuals has emerged, which is holding Yuan and borrowing in dollars. “Three-month deposit rates are 1.71 percent in China and 0.53 percent in the U.S., according to data compiled by Bloomberg. The Yuan has strengthened 0.7 percent to 6.7760 per dollar since a two-year-old peg was relaxed last month and non- deliverable forwards suggest the currency will gain another 1.5 percent in a year.”
Despite the fact that China’s GDP per capita is around $6500 and there are many human rights issues, the country’s massive size, the ease for making decisions under the non-democratic regime, and its economic potential has helped it to become one of the world’s most influential countries with its powers still rising rapidly. Western countries have invested heavily in China, but now that it’s becoming even more open even new opportunities emerge; thus making China one of the major players in the financial world.
Written by Mārtiņš Kozlovskis on behalf of SSE Riga Investment Fund
