world growth

world growth

Saturday, September 6, 2014

Russia's Business With China Poised To Grow As Politics Strain Ties With The West

China and Russia officials last month celebrated an oil pipeline agreement that will boost trade between the two sides by billions of dollars in the coming years.  Against a backdrop of political tension between Russia and the West, what’s ahead for business ties between the two in the future? I exchanged this week with  Marlen Kruzhkov,  a Russian-speaking partner with New York-based Gusrae Kaplan Nusbaum.  Kruzhkov advises Russian and other ex-Soviet Union clients on international law.  In today’s unsteady world, it seems certain that business between China and Russia is poised to rise. Kruzhkov holds degrees from Boston University and Northwestern.  Excerpts follow.

Q. How is tension between Russia and the West affecting Russian capital flows into Asia?  In particular, are there signs of growing business partnership between Russia and China?

A. Russia and China have had a very substantial trading partnership for many years, and the next few years will see even more expansion. Since 2010, China has been Russia’s largest trading partner, surpassing Germany but not the EU.  This relationship is for the most part the same as all of China’s trade relationships, namely, China imports raw materials and oil from Russia and exports manufactured products to Russia.

Given political overtones elsewhere, there is no question that Russia is seeking to increase its trade relationship with China.  Just last month Russia and China finally reached agreement on a price for oil exports to China after nearly a decade of fruitless negotiations, and last month Russia broke ground on a new Siberian oil pipeline to China.

Russia continues to expand financially with China, and if it cannot go to the West, it will stay in the East.  We work with many Russian and Ukrainians who are also moving assets into Asia as they seek to further diversify their portfolios – expect that trend to continue.

Q. Who are some of the key Russian companies and individuals involved?

A. For the most part, this attempt to strengthen Russia-China trade is led by government sectors.  Almost all of the increased trade is in the oil sector which is heavily under Kremlin influence.  Thus, the biggest companies tend to be large oil companies: Rosneft, Lukoil, Surgutneftegaz, Gazprom Neft and Tatneft. As much of the oil is planned to go to China via pipeline, the state-owned monopoly for pipelines, Transneft and its subsidiary, Transnefteproduct, are also involved.  All the individuals who are in charge of these companies (along with the Kremlin) are involved.

One of the few things that Russians and Ukrainians can agree on right now is that China – and Asia as a whole – offer great financial opportunities at this time. When President Putin makes a public proclamation as he did on May 20, 2014 in Shanghai — “A Russian-Chinese Investment Committee has been set up to continue efforts to expand mutual investment,” one must believe that Russian money will follow Mr. Putin to China.  Notably, too, the Russian Minister of Economic Development Alexei Ulyukaev recently prepared a list of 57 state-affiliated businesses seeking to attract Chinese investments. The ministry is trying to attract more than $7 billion of Chinese investments in a wide range of industries.  Russian state bank Vnesheconombank (VEB) recently launched a Hong Kong subsidiary to encourage cross-border investments, and encourage more Russian exports into China. Russian aluminum company Rusal (in 2010) became the first Russian company to trade in Hong Kong, and it shouldn’t be a surprise if more Russian companies are soon listed on the Hong Kong Stock Exchange.

Q. Is there any sort of U.S. role as a conduit for Russia-Asia financial and business flows?

A. The U.S. is probably the largest conduit for Russia-China financial flows because all petro transactions must be made in dollars.  It is therefore impossible for Russia-China to trade oil without U.S. participation. Approximately 75% of Russia-China oil transactions are denominated in U.S. dollars.  Just this month, in order to lessen this need for the U.S. involvement (and the potential leverage such A need offers the U.S.), Russia and China signed a currency swap agreement in order to allow for greater trade between them of their domestic currencies.

That being said, both the Chinese and Russian sides have great interest in ensuring that portions of their respective profits are squared away in the U.S. as neither side really fully believes in a rosy future for their respective countries and economies.  The stability and rule of law of the U.S. is hard to ignore.

Q.  What’s the outlook for Russia-China business cooperation in the next 3-5 years?

A. The outlook is good in that China has a voracious appetite for raw materials and oil while Russia is rich in these products.  From China’s standpoint, dealing with Russia has the added benefit of dealing with a geographically closer and more stable region than the Middle East.  From Russia’s standpoint, China offers a large customer that is not only less judgmental of Russia but provides a nice counterbalance to the West.

Ultimately, though, there is a real cap on this trade in that China wants nothing but raw materials from Russia and cannot really provide the things that Russia needs which are currently provided by the West, such as sophisticated oil refining equipment or luxury goods amongst others.  Ultimately, for the average person, there is no question that trade with China is less beneficial than trade with the EU and U.S.

Sunday, June 15, 2014

China to open a carbon market to fight climate change

Good for the economy and good for the environment !

A senior official in China’s planning ministry announced the country would launch a national carbon market starting in 2018, based on the six regional carbon markets it launched this year as pilot programs.

China is the world’s largest emitter of greenhouse gases, just ahead of America, and setting a national cap-and-trade market would not only help slow its exponential emissions growth while directing funding toward clean energy, but it could finally make an international climate agreement go from dream to reality.

Toward The World’s Largest Carbon Market

If China were to launch a national carbon market, the world would lose its largest excuse for failing to pass international climate legislation. National cap-and-trade legislation died in the U.S. Senate in 2009 largely on concerns doing so would hamstring the U.S. economically compared to China.

Since then, the two nations, as well as the larger developed-versus-developing nations divide, have stumbled over the issue of who gets to emit while growing in every UN climate conference. But establishing a national Chinese cap-and-trade system would literally change the game and could lead to a truly global carbon market.

The seven regional pilot programs, announced in 2011, cover China’s most industrialized (and thus biggest-emitting) regions. To date, the six launched markets (the final market will start operations later this year) cover 1,115 million tonnes of carbon dioxide annually – that means combined, they’re second only to the European Union’s carbon market. In time, China intends to reduce carbon intensity 17% from 2010 to 2015, and up to 45% by 2020 compared to 2005.

“Carbon Pricing Policies Are Here To Stay”

Obviously, reducing emissions from the world’s largest polluter is a big deal, but China’s action becomes even clearer if we consider the global state of carbon markets. Earlier this week, the World Bank reported more than 60 carbon pricing systems are either in operation or in development across the world.

The cumulative value of these markets is roughly $30 billion, and China’s pilot market launches headlined a total of nine new markets opening since 2013. Combine China’s cap-and-trade action with new carbon markets in France and Mexico, and a potential linked carbon market spanning the North American West Coast, and the cause for optimism is clear.

“It is clear that carbon pricing policies are here to stay – the widespread use of these policies in all corners of the globe is striking,” said Alyssa Gilbert, lead author of the World Bank report. “The diversity of approaches will help policymakers learn what works and what doesn’t.”

Is America About To Follow Suit?

But back to why all this is relevant for U.S. emissions reduction action. America’s already home to two of the largest and best-functioning carbon markets, in California and the Northeast U.S., and  observers note the pending power plant emissions rules will likely strengthen these regional markets. U.S. can teach China how to properly set up a carbon market.

If the Obama Administration carries through and allows states to use existing emissions-reduction systems to meet their requirements instead of developing their own systems, other states would have a blueprint to work against and existing markets would be bolstered by new allowance revenue.

Under this scenario, it’s not far-fetched to see new regional markets develop and link to existing markets, expanding the cap-and-trade footprint and creating a wider footprint that can balance any price ebbs and flows – just as in the California-to-Quebec market connection that started this year. In both California and the Northeast U.S., carbon markets have pumped millions into state coffers and clean energy development, while lowering emissions and keeping economies strong.

That all means Members of Congress from fossil fuel-dependent states, who have killed previous attempts at national carbon markets, would lose their two biggest arguments against nation carbon policy – that we’d lose economic competitiveness to China, and that we’d kill our local economies in the process.

Armed with momentum in the U.S. and China, as well as a framework to move forward on additional international market linkages, the world may finally be able to reach a global climate agreement this September at the U.N.’s Climate Summit.

Sunday, May 4, 2014

China To Have World's Largest Economy This Year (2014)

(Hard to believe at the turn of the century (2000), China's economy was only about one quarter of Japan's economy, even less compared to USA.

Thought for an average Chinese citizen, this GDP figure is meaningless.)

The United States has had the world’s largest economy for more than 140 years, but according to new numbers from a World Bank project, that run will likely come to an end this year.

The World Bank’s International Comparison Project (ICP) just released comparison GDP estimates for the world’s economies for 2011, and found that China’s economy had caught up so close to the U.S. its economy is likely to surpass the U.S.’s this year.

The OECD estimated China would become the world’s largest economy in 2016; Chinese government pegged 2019 as the year it would happen. The Center for Economics and Business Research put it as far off as 2028.

Like many estimates of GDP, the ICP data adjusts the numbers for “purchasing power parity”. Because exchange rates fluctuate constantly, measuring the actual  GDP can be misleading. PPP adjusts the numbers to reflect what people in a given economy can actually afford.

In updating its numbers, the ICP found it had underestimated the purchasing power of people in developing countries. Once it adjusted the numbers for the higher purchasing power, it found China’s economy to be 87 per cent as large as the U.S.’s in 2011.

Given that China is expected to grow 24 per cent between 2011 and 2014, and the U.S. economy is expected to grow about 7.5 per cent, that would mean China will overtake the U.S. this year.

The U.S. has had the world’s largest economy since 1872, when it overtook the Great Britain during the industrial revolution.

“The figures revolutionize the picture of the world’s economic landscape, boosting the importance of large middle-income countries,” it states.

“The findings will intensify arguments about control over global international organizations such as the World Bank and IMF, which are increasingly out of line with the balance of global economic power.”

There's one group that seems utterly unhappy about these numbers, and that's the Chinese government. The country's National Bureau of Statistics rejected the World Bank report, despite having taken part in the study.

The bureau “expressed reservations” about the study’s methodology and “did not agree to publish the headline results for China,” AP reports.

China may fear added pressure to sign on to trade or climate agreements if it's seen as the world's largest economy, AP speculates.

India ranked as the world’s third-largest economy, up from tenth place the last time the ICP issued its report, in 2005.

Thursday, April 10, 2014

China imports, exports fell in March

A sign of slowing down ?

 Chinese exports and imports fell sharply in March, data showed Thursday, as officials noted that the world’s second-largest economy faces headwinds from tougher regional competition and “friction” with trade partners.
The figures are potentially another cause for concern about the the economy, which has shown signs of weakness recently with a string of disappointing indicators on trade, industrial output and consumer spending.

Imports slumped 11.3 percent year-on-year to $162.4 billion while exports fell 6.6 percent to $170.1 billion, the General Administration of Customs announced, resulting in a surplus of $7.7 billion. China recorded a surprise deficit of $884 million in March last year.

The results confounded market expectations, which had been for growth of 4.2 percent in exports and 2.8 percent in imports, according to the median forecasts in a survey of 16 economists by Dow Jones Newswires.

China recorded an unexpected trade deficit of almost $23 billion in February, which authorities blamed on the Chinese New Year holiday season. That result was China’s first monthly deficit in 11 months.

“Currently our foreign trade indeed is having some difficulties,” Customs spokesman Zheng Yuesheng said in a statement.

“China’s foreign trade has seen its competitive advantages in traditional trade being eclipsed due to negative factors including rising competition posed by neighbouring countries and regions and increasing trade friction with major trade partners.”

But Zheng urged calm, saying the setback will be “temporary and short-lived” and adding: “We cannot jump to the conclusion that our foreign trade is having a recession.”

- Import growth to stay weak -

For the first three months of 2014, China recorded a trade surplus of $16.7 billion — down sharply from $43.1 billion the year before — as exports fell 3.4 percent to $491.3 billion and imports rose 1.6 percent to $474.6 billion, the figures showed.

Analysts cautioned that the latest trade figures continued to be affected by fake reporting of exports seen early last year.

“We believe that China’s trade growth in the first few months would be distorted as the export over-invoicing activities last year have inflated the base for comparison,” ANZ Bank economists Liu Li-Gang and Zhou Hao said in a research note.

Import growth, however, was expected to remain a problem.

“At first glance, the weakness appears to be broad based, with both imports for processing and re-export and imports for domestic use contracting year-on-year,” Julian Evans-Pritchard, China economist at Capital Economics, said in a note.

Growth in imports was expected to “remain relatively weak as slowing investment spending is likely to weigh on imports of commodities and capital goods”, he added.

“As a result, China’s trade surplus is likely to rebound further over the coming year.”

Premier Li Keqiang on Thursday expressed confidence authorities can steer the economy through any troubles.

“With all the principles established and policy options at our disposal, we can handle all possible risks and challenges,” Li said, according to the state-run Xinhua news agency.

But despite those tools, Li also discounted any expectations for significant pump-priming even after some limited measures were announced last week.

“We will not resort to short-term stimulus policies just because of temporary economic fluctuations and we will pay more attention to sound development in the medium and long run,” he said. His comments came at the annual Boao Forum for Asia, a gathering of Chinese and international political and business leaders on the southern island of Hainan.

Li last week chaired a meeting of the State Council, China’s cabinet, where steps including extending tax breaks for small businesses and support measures for poor urban districts were announced in what analysts saw as a “mini stimulus”.

China’s leadership says it wants to make private demand the key driver for the country’s economic growth, moving away from over-reliance on huge and often wasteful investment projects.

Though expecting such a transformation to cause slower growth, they see that as healthier and more sustainable in the long run.

Tuesday, March 11, 2014

China becomes India's top trading partner in 2013

India definitely needs to increase its export to China, diversify the export composition.
Iron ore alone is not going to carry the trade.

India’s trade deficit with China reached a record $ 31.4 billion in 2013, with two-way trade declining last year by 1.5 per cent on account of a sharp decline in Indian exports, new trade figures released in Beijing on Friday showed.

Indian exports to China last year totaled $ 17.03 billion - a 9.4 per cent fall from last year - out of $ 65.47 total bilateral trade, according to figures released by the Chinese General Administration of Customs. Chinese exports to India, in recent years mostly comprised of machinery, were up 1.6 per cent.

Friday’s annual figures marked the second straight year of declines, highlighting the unexpected slowdown in rapidly growing trade ties that came to be seen as one of the key drivers of a relationship amid political uncertainties such as the long-running boundary dispute.

Bilateral trade reached a record $74 billion in 2011, when China became India’s largest trading partner. Trade declined to $ 66.5 billion the following year, on account of the global slowdown and a 20 per cent drop in Indian exports. The fall in exports was largely because of the curbs on the export of iron ore, which had emerged as India’s single biggest export to resource-hungry China (China also imports iron ore from Brazil and Australia).

Friday’s data showed an overall recovery in China’s foreign trade outlook, recording 7.6 per cent year-on-year growth, although missing the government’s 8 per cent target. Despite the challenge from grim global demand and an appreciating currency, China’s exports grew 7.9 per cent to $ 2.21 trillion, the GAC said.

Tuesday, February 18, 2014

Chinese border city to use Russian ruble as currency

Is China moving away from US dollar ? Chinese government has allowed the usage of Russian currency, the ruble, along with the yuan, in the city of Suifenhe on the Sino-Russian border in northeast China. Suifenhe, sometimes called “the capital” of Chinese-Russian trade, will become the first site in the republic since its founding in 1949 where a foreign currency can freely circulate, Xinhua agency reported Sunday. The Chinese will be able to make bank deposits and withdrawals in Russian rubles, and also use rubles to pay for goods and services. The People’s Bank of China believes the move will help to counter illegal currency swaps and turn Suifenhe into a model site for the ruble-yuan trade. The city, in the Heilongjiang Province, has been one of key channels for Sino-Russian trade, with hundreds of Russians arriving in Suifenhe daily for business purposes or as tourists, which has led to a surge in the use of Russian cash. Analysts say that the decision to allow the circulation of rubles will prepare the way for the subsequent introduction of a similar rule for the use of China’s yuan in Russian cities. Earlier, the Suifenhe government announced that from December they would introduce a visa-free travel for Russians with valid passports for a stay of up to 15 days. Three years ago, in December 2010, Moscow's Micex stock exchange started trading the yuan against the ruble for the first time, as Russia and China sought to reduce the use of US dollars in trade.

Tuesday, January 7, 2014

China now leads world in graphene production

This is more of a science news, but it could lead to a large
economic impact.

China is indeed investing heavily in new materials.
100 Billions yuan is a big sum for a city.

China is leading the world in the mass production of graphene films used in production of cell phone and computer touch screens as a new production line began operation on Wednesday.

The production line is in a graphene industrial park in southwest China's Chongqing Municipality. It can produce tens of millions of graphene films every year.

A state-level graphene industrialization base with sales revenue of 100 billion yuan (16.35 billion U.S. dollars) is expected to be completed within 5 years, according to an executive with the industrial park.

Graphene is a relatively new material with outstanding electrical, chemical and mechanical properties that make it attractive as flexible conductors used in gadgets such as touch screens.

"China is leading the world in the industrialization of graphene as it has begun mass production," said Shi Haofei, a researcher with the Chongqing Research Institute with the Chinese Academy of Sciences.

At present, scientists from Europe, the United States, Japan and the Republic of Korea are doing laboratory research on graphene, said Shi.

Graphene is a single layer of carbon atoms in a honeycomb lattice. It was first isolated in 2004.