When China Rules The World: The End Of The Western World And The Birth Of A New Global Order

Book review: China is still ascendant

Author: Marc Jacques
Publisher: Penguin, 848 pages

SKEWED as they may be, reactionary Orientalist perspectives of East Asian realities remain the norm in Western punditry and news reports. The problem has become prevalent in both conservative and liberal circles.

The problem for the West itself is that such a persistent misperception of modern China may undermine Western interests further. Martin Jacques’ When China Rules The World: The End Of The Western World And The Birth Of A New Global Order is intended largely as a corrective, looking at the historic phenomenon of China’s grand return to the global stage in China’s own terms.

My review of the first edition of Jacques’ book appeared earlier in China awakens (Star Bizweek, Oct 3, 2009). The present consideration is of the second edition published by Penguin earlier this year.

The first edition was subtitled The Rise Of The Middle Kingdom And The End Of The Western World. The second edition, suggesting an evolution, is subtitled The End Of The Western World And The Birth Of A New World Order.

Jacques and Penguin are just as grandiose now as before. The titling remains as presumptuous and alarmist, at least to Western conservatives, and no apologies are tendered in that regard.

The title itself can be a problem for those who judge a book by its cover. Jacques does not believe that China or any other country can “rule” the world today, only that China and things Chinese would predominate globally.

The second edition contains new data and a new section in the Afterword. For Jacques, international developments in the three years between the two editions only confirm and strengthen his central themes.

His chief arguments remain intact: that China will be dominant economically and culturally, it will not essentially be Westernised, and China will be ascendant despite multiple challenges.

This rise, mainly economic but also in other spheres later, is of epochal proportions. China’s ascendancy would result from both its own efforts and the decline of the West simultaneously.

The 2008 recession in the United States, followed by economic doldrums there and the European sovereign debt crisis underline the situation impeccably. In contrast, China’s GDP growth continues, affected only minimally.

Like many others, Jacques believes that China’s current growth model based on cheap labour and global raw materials is unsustainable. For example, China would need to stimulate more domestic demand to compensate for a slackening of overseas markets.

The latest data show that more and more countries have now made China their main trading partner. And as with trade, increasingly so with investment.

Thus, China’s economic gravitational “pull” is becoming unerring and compelling. Not only has China swiftly replaced Japan as the world’s second-largest economy, its relationship with the United States has replaced Japan’s as the most important bilateral relationship across the Pacific and in the world.

Analysts impressed with China’s economic growth once expected it to surpass the US economy in a couple of decades. But that timeframe has shrunk.

In 2009 Jacques cited the Goldman Sachs prediction that China’s economy would overtake the US’ by 2027. Sceptics scoffed.

In this second edition, he cites The Economist’s projection that the Chinese economy will become the world’s biggest by 2018. Now the International Monetary Fund predicts the year will be 2016.

But even when that happens, China will still be a developing country with vast human resources yet to reach peak productivity. That means when China’s standard of living approaches that of the US, with a comparable GDP per capita, its economy will be two to four times that of the US today.

Unlike many China pundits, particularly critics, Jacques believes China will not succumb to the weight of its own promise. He does not accept that China has to Westernise or democratise before it can fully develop and prosper.

Jacques also rejects the alarmist Western notion that today’s China is re-arming aggressively. He finds Chinese defence expenditure as a proportion of GDP falling between the 1970s and 1990s, and since then only keeping pace with GDP growth.

As expected, the very people he seeks to inform are often those who spurn his information. Jacques attributes this Western stubbornness to a mixture of unfamiliarity, ignorance, prejudice, denial, stereotyping, racism and Cold War ideology against a non-Western country that is communist, at least in name.

With such unwieldy baggage, the nuances and subtleties about China are naturally lost on the bigots. For Jacques, China is a continent-sized civilisational state whose history has seen upheavals and expansion on its Asiatic land mass, but not military adventurism in a littoral and archipelagic East Asia.

In response to critics of an increasingly powerful China, Jacques does not see China as a global superpower. He finds China historically absorbed in its own internal governance as it is a very difficult country to govern, its trajectory will continue to be tempestuous, but it is still a complex and sophisticated state and the home of statecraft, so it cannot simply be dismissed with an epithet like “authoritarian”.

For example, while critics fret over the People’s Liberation Army and the PLA Navy, it is China’s Coast Guard rather than the military that is a key player in the disputed island claims. Jacques finds no less than seven uncoordinated Chinese agencies involved over these claims.

A key question in the book is whether the United States will allow China the space to be a major player in Beijing’s own regional backyard. Jacques finds that unlikely, while also convinced that US efforts, such as its “pivot” to contain China, will ultimately fail.

This book still has major gaps that need filling. A central theme is that China’s coming predominance will be different from that of Western colonialism, but how different and in what ways?

Jacques also envisages an updated revival of the tributary system in East Asia, in which all the smaller countries acknowledge their junior status with regard to China. But what form will a revised tributary system take?

Another key point is China essentially being a civilisational state rather than just a nation state like other countries. But what can this mean in practical policy terms, particularly in China’s relations with other countries?

Such answers are essential to an intelligent understanding of a rising modern China. But we may have to wait for a new book by the author for further illumination, because any answers are unlikely to be accommodated by the structure of the present work, notwithstanding its already intriguing insights.

The first edition was already a vast interdisciplinary work of far-reaching implications, and the second version even more so. Few analysts as authors have achieved what Jacques has: combining the depth and rigour of academia with the readability and vigour of journalism in a single volume on a subject of great topicality.

The result is a serious and interesting textbook which, despite its 800+ pages, has sold a quarter of a million copies (and counting) in a dozen languages in its first edition alone. His critics have yet to match that kind of appeal in whatever they have to say.


> Bunn Nagara is an associate editor at The Star.


Related posts:
Fearful of China’s rise? Sep 28, 2012
Dawn of a new superpower Jul 08, 2012

Taman Manggis land issue in Penang, a ‘Robin Hood story’ or soap opera?

The twists and turns in the Taman Manggis land issue in Penang is starting to resemble a soap opera but it has also raised the question of whether the legal procedures are observed in the sale of state land.

THE showdown over a plot of land known as Taman Manggis or “mangosteen garden” in the heart of George Town is about to erupt in another slanging match on Nov 3.

Dubbed by some as the “Robin Hood story”, the Taman Manggis land has become one of the most controversial issues in Penang.

It has also become a rather entertaining saga of gamesmanship between Chief Minister Lim Guan Eng and his political secretary Ng Wei Aik on one side and the state Barisan Nasional Youth on the other.

The 0.4ha of land had been designated for affordable housing but before the project could take place, Barisan was toppled.

Lim’s administration has since reportedly sold the land for RM11mil to a Kuala Lumpur company that is planning to build a health tourism facility that includes a private dental hospital and hotel on the site.

That was how the Robin Hood thing came about, but with a twist where Barisan is accusing the Pakatan Rakyat government of being a distorted version of Robin Hood by taking land meant for the poor to give to the rich.

When Barisan accused the state government of selling the land at below market rate, Lim challenged it to buy the land for RM22.4mil. Lim probably thought Barisan would not take up the dare. After all, RM22.4mil is not small change.

But Barisan agreed and announced that it had set up a special purpose company to buy and develop affordable homes on the land.

Caught on one foot, the state government was forced to respond and Ng issued an offer letter to Barisan. And that was when the soap opera began.

The Barisan side led by its State Barisan Youth chief Oh Tong Keong proceeded to pay 1% earnest money as is called for in such transactions.

The next step, as anyone would know, is for the lawyers from both sides to draw up a sales and purchase (S&P) agreement.

Once that is signed, the buyer would pay the balance of the requisite 10% and depending on the terms and condition, the full amount is usually paid within three months or more.

This is to enable the buyer to raise funds or secure a loan from the bank.

However, following the 1% payment, Lim demanded that the Barisan pay up the rest of the amount within a month.

The outlandish demand saw a few jaws drop on the Barisan side. First, it is not possible for Barisan to cough up that kind of money in so short a time.

Another was the audacity of the demand.

“There is no S&P agreement in sight and the seller is demanding the full amount. Do they understand the laws of transaction? Without an S&P agreement, no one would want to pay RM22.4mil,” said architect Khoo Boo Soon.

Khoo, who was the former building director of the Penang Island Municipal Council (MPPP), is quite appalled at the frivolous way that state property is being treated.

He is incredulous that state land is being sold based on an offer letter by a political secretary on the instruction of the Chief Minister.

“I have been a government servant for more than 17 years. As far as I know, land transactions have to be discussed and decided by the state exco, the state legal adviser has to be consulted, the state secretary has to be involved. It cannot be a one-man decision, both parties need to sign an S&P agreement,” said Khoo.

The Barisan side was more direct. “This is government land, it belongs to the people. The land does not belong to the Chief Minister’s grandfather. We are not buying a bicycle or a car, this is about public land costing millions of ringgit,” said Oh.

The Barisan side had on Oct 3 written to the state government requesting for an S&P agreement before they proceed to pay up the rest of the money.

On Oct 8, the state secretary wrote back asking them to refer to the offer letter and to pay up within a month.

To compound this half-past-six state of affairs, rumours abound that the land has actually been sold to the Kuala Lumpur company.

No one can tell for sure because the state government has been tight-lipped about the issue.

Requests for information on the actual status of the land has run up against a stone wall.

On top of all that, the house that Lim is renting in Penang reportedly belongs to the wife of the major stakeholder of the Kuala Lumpur company.

The lady is also the cousin of state exco member Phee Boon Poh. The implication of all this is unclear but it does add spice to the story.

Many people following this soap opera are quite confused but that is what makes soap operas so addictive – there are lots of twists and turns.

The more discerning think Lim has no intention of selling the land to Barisan, hence the conditions and obstacles put in the way.

Some suspect the delay tactics are aimed at making Barisan give up.

But it would be a blow to Lim’s administration if the Barisan people actually purchased it and proceeded to build low-cost housing.

Lim would lose face, particularly given that his administration has failed to build any affordable housing since coming into power.

To make matters worse, this is happening amid an inflated property market on the island and where house prices have soared beyond the reach of 80% of wage earners.

Lim should be transparent about the issue. If the land has been sold, he should admit it.

If it is still in the state’s hands, then he should do the decent thing and use it for its original purpose.

Instead he is angry at being criticised and is punishing those who want to build affordable homes by doubling the price of the land.

A Penang lawyer said he is not surprised about the “Robin Hood issue”.

“What shocks me is the silence on the part of the Penang NGOs. They used to be so vocal on issues affecting public interest,” said the lawyer.

In the meantime, the countdown to Nov 3 has begun.



P/S:  Landlady of CM’s residence is not wife of company stakeholder

Regarding the Taman Manggis land, the Star and State exco member Phee Boon Poh clarified yesterday that the woman in question is his cousin, she is not married nor is she the wife of the company stakeholder. “My cousin and the stakeholder are just business partners,” he said.

The Taman Manggis land which had been designated for low-cost housing by the former Barisan Nasional government, became an issue when the Lim administration decided to sell it to a Kuala Lumpur company to develop a health tourism facility that includes a private dental hospital, hotel and multi-storey car park.

Related post:

Land sold for a song? Aug 11, 2012

Malaysia taps into the growing importance of the redback: Yuan

The Society for Worldwide Interbank Financial Telecommunication says yuan usage worldwide grew 15.6% between July and August this year.

MALAYSIA’S love affair with the yuan or renminbi is growing, and it is easy to see why.

For one thing, China’s economic clout is rising. It is now the second largest economy in the world, and with ongoing financial reforms by the Chinese government, the yuan is expected to eventually rise to match the country’s economic stature.

For another – and more importantly – China has, in recent years, been growing to be an increasingly significant trading partner to many economies in the world, especially in Asia, including Malaysia.

Bilateral trade between Malaysia and China, for instance, is now seven times higher than it was 20 years ago.
And China has emerged as Malaysia’s largest global trading partner since 2009.

Last year, Malaysia’s total trade with China was valued at RM167bil, up 14% from the preceding year, and accounting for 14% of the country’s total trade.

The Government expects the value of Malaysia’s total trade with China to double in the next five years.

China’s rising prominence, in Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz’s words, presents “a new operating environment” that requires “dynamic response”.

At a recent seminar entitled “Renminbi Trade Settlement and Investment”, Zeti said one of the changes that would shape the international financial system in the years to come was the wider role of the yuan in trade and finance.

As it is, such trend is already taking shape, with yuan usage across the world increasing progressively.

Wider yuan usage 

According to Society for Worldwide Interbank Financial Telecommunication (SWIFT), yuan usage worldwide grew 15.6% between July and August this year, compared with an average decrease of 0.9% across all other currencies. SWIFT further noted the yuan has moved up one position to be the 14th mostly used world currency, with a market share of 0.53%, up from 0.45% in July 2012.

Standard Chartered plc’s report supports claims that the global use of yuan is on the rise, for trade settlement, in particular.

The international bank notes that Asian and European firms, led by those from Singapore and London, are increasingly open to using yuan.

“We see many European and Asian clients shifting away from settlement in US dollars,” Standard Chartered’s Hong Kong-based foreign exchange analyst Eddie Cheung wrote in his report.

Reports by foreign media suggest that yuan trade settlement could run between US$350bil and US$450bil this year, up from US$300bil last year.

It is understood that China is also quietly working on developing new yuan financial centres around the world to expand the international use of the currency.

At present, Singapore and London are the only cities outside Hong Kong that have been allowed to serve as yuan trading centre. China is reportedly planning for the next regional hubs for settling trade deals in yuan to be set up in Latin America and the Middle East.

As part of an initiative to encourage a wider use of its currency and to manage volatility in uncertain economic times, China has been actively seeking to establish ilateral swap agreements with foreign central banks since the onslaught of the global financial crisis in 2008.

To date, China has managed to set up 20 bilateral local currency swap agreements, worth a total of 1.6 trillion yuan (RM780bil), with central banks of countries within and outside of Asia.

This list includes Malaysia, South Korea, Iceland, Argentina, Pakistan, the United Arab Emirates, Turkey and Australia.

China’s bilateral swap agreement with Malaysia is worth 180 billion yuan.

Zeti notes that Malaysia’s trade settlement in yuan is still at a paltry 1% of the country’s bilateral trade with China. “There is, therefore, a significant potential for this to increase,” she says.

Bank Negara is currently on a mission to promote a wider use of yuan for trade settlement and investment among Malaysian corporations as a way to generate cost savings and minimise exchange rate risks.

“A wider use of yuan is only a natural progression, led by China’s rapidly expanding trade volume and its increasing role as the driver of global economic growth,” explains RAM Holdings Bhd group chief economist Dr Yeah Kim Leng.

“For Malaysian businesses with yuan obligations, the shift to the use of yuan will provide a natural hedge and help them reduce risk and lower cost,” he adds.

According to Zeti, Malaysia’s interest in yuan is also notable in the investment option, with yuan deposits in the country’s banking system having tripled within the first seven months of this year.

Focus on Dim Sum bonds

Meanwhile, there is also an ambition to promote Malaysia as the next hub for yuan-denominated debt (or popularly known as “Dim Sum bonds”) in Asean after Singapore. This is led by the growing interest in raising financing in yuan to meet funding requirements.

“Malaysia is well-positioned to realise this growth potential in yuan-denominated bond and sukuk, given our market size and supporting infrastructure,” Zeti argues.

She, however, says the number and timing of yuan-denominated bond and sukuk issuances will depend on the approvals of Bank Negara and the Securities Commission.

To date, there are only two issuances of offshore yuan-denominated sukuk out of Malaysia and a yuan-denominated bond issuance by Malaysian corporations.

“Ultimately, the potential of Malaysia of becoming a regional yuan debt hub will have to be led by natural market forces, that is, supply and demand,” Yeah points out.

At present, Europe, led by Luxembourg, outstrips Asia (excluding Hong Kong) in terms of both the number of issues and the number of issuance locations.

Analysts, however, believe Asia (excluding Hong Kong) will soon catch up.

Anchor currency

According to the Asian Development Bank (ADB), the yuan will eventually become the “anchor currency” for Asia.

This destiny is cemented by the growing use of the currency in the region’s trade and financial markets.

This, however, does not necessarily mean that the yuan will become part of the foreign exchange reserves of Asian countries, most of which still hold US dollar, euro and the Japanese yen, says ADB. Rather, it means that countries that use yuan widely will manage their currencies according to the yuan’s movement.

The consensus view is that there is still some way to go before the yuan can become a reserve currency. That will involve further openness of China’s own financial markets.

At present, the yuan has yet to qualify as a reserve currency due to its lacks of full convertibility as defined by the International Monetary Fund.

Nevertheless, many central banks have already started to diversify their reserves into the yuan. One of these is Bank Negara, which became the first central bank in the world to announce the inclusion of yuan in its foreign reserves in 2010.

It has been five years since China embarked on a plan to internationalise its currency.

Analysts argue that the process of internationalising the yuan is already progressing smoothly, but gradually in a managed way.

In their working paper entitled “Will the renminbi rule?” authors Eswar Prasad and Lei Ye argue that although China still has extensive capital controls in place, they are being “selectively and cautiously dismantled”.

“China’s capital account is becoming increasingly open in actual terms even though by this measure it remains less open than those of the reserve currency economies – the euro area, Japan, Switzerland, the UK and the United States,” they argue.

According to CIMB Research chief economist Lee Heng Guei, China has taken small yet quite successful steps in its quest for internationalisation of the yuan.

However, he says, full-fledged internationsation of the yuan is a still a distant goal.

“China is clearly more influential than in the past and the internationalisation of the yuan has sped up. But it will take many more years, perhaps another five to ten, for the yuan to be fully global and convertible,” Lee argues.

Undervalued or not?

Now, China’s currency policy has for long been a contentious issue with many western developed nations, especially the United States. There has been growing political pressure on China, led mainly by the United States, to increase the value of the yuan.

The United States has been arguing that the yuan is significantly undervalued, hence giving China’s exporters an unfair price advantage over US manufacturers.

The undervaluation of yuan, which, to some, warrants China being tagged a currency manipulator, has even become an important scoring point in the current US presidential campaign between Republican candidate Mitt Romney and incumbent Barack Obama.

A semi-annual report on the yuan by the US Treasury is due to be released on Monday.

It remains to be seen whether the release of the report will be delayed until after the Nov 6 US presidential election, given the political sensitiveness of the issue.

To be fair, since the yuan’s depeg from the US dollar in July 2005, the Chinese currency has appreciated more than 30% against the greenback.

And reaffirming its policy stance of further exchange rate flexibility, the Chinese government in April widened the trading band from +/-0.5% to +/-1% for the yuan against the US dollar.

Peterson Institute for International Economics estimated the yuan four years ago was undervalued by 31.5% against the US dollar. The latest estimate by the Washington think tank in May indicates that the yuan is now undervalued by only 7.7% against the greenback.

CIMB’s Lee contends that the yuan’s appreciation has to be a gradual and longer-term affair to avoid disrupting China’s economic development.

“The gradual and consistent yuan appreciation can be considered a stabilising factor for the (Chinese) economy, especially its export-oriented sector,” he explains.

According to the Royal Bank of Scotland, the yuan’s value is unlikely to change much in the short term, but further medium-term appreciation on account of productivity catch up remains a possibility.

“If the global economic outlook improves in 2013, the yuan is likely to see further medium-term strengthening, with the pace depending on current account developments,” RBS’ Hong Kong-based analyst Louis Kuijs notes.



Related posts:

Yuan Trade Settlement Seen Reaching $1 Trillion 

The yuan goes global: Money talks and London is

IMF aid to Europeans stirrings of resentment

Members feel Eurozone countries aren’t willing to swallow the necessary tough medicine


BT 20121010 IMF 204330
Critical role: Last month, European Central Bank president Mario Draghi (right) gave the International Monetary Fund, headed by Christine Lagarde (left), an important new task: requesting that the Fund keep an eye on the behaviour of countries like Spain if the bank took measures to contain their borrowing costs. – PHOTO: REUTERS

IT IS one of the ironies of the eurozone crisis: the Europeans who have long dominated the International Monetary Fund (IMF) are now the ones borrowing its money and swallowing its advice.

The IMF, traditionally a lender to poor countries, now devotes more than half of its financial resources to the eurozone. Moreover, the fund and its managing director, Christine Lagarde, have emerged as the taskmasters that European leaders seem to need to flog them towards a solution to the crisis.

The Fund’s critical role in Europe has revitalised the organisation’s claim to relevance in world affairs. Last month, Mario Draghi, president of the European Central Bank (ECB), gave the Fund an important new task: requesting that it keep an eye on the behaviour of countries like Spain if the bank took measures to contain their borrowing costs.

“The ECB wants an independent observer,” said Manuela Moschella, an assistant professor at the University of Turin who studies the IMF. ”They want someone who can blow the whistle and say what is going on.”

But there is also resentment among some of the 188 countries that belong to the fund and supply its financial firepower. These discontents are likely to surface in Tokyo when the I.M.F. and the World Bank hold their annual meetings, which were to start Tuesday.

The United States and Canada, among others, have objected to the shift of resources to Europe at the same time that European countries have blocked changes that would give emerging countries a greater voice in making I.M.F. decisions.

Tough pill to swallow

Canadian leaders, in particular, have said that countries whose people live on a few dollars a day should not be asked to help maintain the European welfare state.

”The feeling is that the Europeans don’t want to swallow the tough medicine,” said Bessma Momani, a professor of political science at the University of Waterloo in Ontario. There is, she said, ”a more general sense that European society and way of life are passé.

”Before the beginning of the financial crisis in 2008, the fund provided almost no financial assistance to Europe. Now resources committed to the European Union, including Greece and Portugal, account for 56 percent of the I.M.F. total – (EURO)110 billion, or $143 billion.

The first European countries to seek I.M.F. help in recent years were former Soviet Bloc countries, like Latvia and Hungary in 2008, both of which are members of the European Union. The I.M.F. also played a main role in the Vienna Initiative in 2009, in which the European Union and commercial banks cooperated to prevent the collapse of the financial systems in Eastern Europe.

Management of the I.M.F. has long been dominated by Europeans, leading to accusations that the region is now getting preferential treatment. Since its founding in 1946, all of the fund’s managing directors have been European.

”There is at least the suspicion that the European members will get easier terms” for financing, Ms. Moschella said.

”This is really a threat to the credibility of the organization. I think the I.M.F. has behaved correctly, but the suspicion is there.

”European countries continue to contribute more money to I.M.F. coffers than they take back in loans. Germany’s quota, or maximum financial commitment, is $14.6 billion, while France’s is $10.7 billion. The largest contributor is the United States, with a quota of $42.1 billion out of a total for the fund of $238 billion.

Officials at the fund argue that the euro zone crisis has become a threat to the global economy, including poorer countries, and it is in everyone’s interest to fix it. As members of the I.M.F. and financial contributors, European countries have as much right to ask for help as other members.

”When there are systemic crises that affect other countries in the world, it is natural for the fund to be involved,” said Reza Moghadam, director of the fund’s European department.

”The fund has huge depth of expertise in crisis management,” Mr. Moghadam added. ”We have dealt with a lot of crises in the past, and there is huge institutional knowledge.

”Many analysts agree that there is no other organization with the clout, money or expertise to serve as outside arbiter to quarreling euro zone members.

”Expertise and impartiality – that’s what they bring to the table,” said Carl B. Weinberg, chief economist at the research firm High Frequency Economics in Valhalla, New York. ”They know how to walk into a government treasury and look at the books and know what they’re seeing.” Mr. Weinberg, as a banker earlier in his career, worked with the I.M.F. on debt restructuring programs in Mexico and other countries.

Ms. Lagarde has helped Mr. Draghi and U.S. leaders put pressure on European officials to move more aggressively to fight the crisis.

European firewall

During a speech in Washington late last month, Ms. Lagarde beseeched European leaders to ”implement the European firewall – notably the European Stability Mechanism; implement the agreed plan for fiscal union; and, at the country level, implement the programs that are essential for growth, jobs and competitiveness.

”If, as expected, Spanish leaders ask for help from the European Central Bank, the I.M.F. would monitor whether the country kept promises to overhaul the economy and contain government spending. The E.C.B. does not want to take the risk of buying Spanish bonds, a way of lowering the country’s borrowing costs, without such conditions.

The euro zone crisis has also presented the I.M.F. with unprecedented organizational challenges. Instead of dealing with one country, it must deal with the 17 members of the European Union that use the euro. They frequently do not agree, and decision-making is slow. In overseeing lending and restructuring programs in Greece, Ireland and Portugal, the fund has shared authority with the E.C.B. and the European Commission, with the three having come to be known as the troika.

”The fund’s relationship with Europe is more complicated than anything it has ever been involved in,” said Edwin M. Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

While he said the fund had done a ”reasonable job” in Europe, Mr. Truman also called the I.M.F.’s involvement on the Continent a ”political subterfuge” because the euro zone countries were effectively outsourcing responsibilities they should be taking on themselves.Some observers say that European countries made the fund’s task more difficult because they hesitated too long to ask for help, for reasons of pride.

”We should have let the I.M.F. in earlier in Greece,” said Erik Berglof, chief economist at the European Bank for Reconstruction and Development. ”We could have maybe had an earlier solution to the Greek problem and not allow it to grow in magnitude before it was addressed.

”There is a risk that European leaders will repeat the same mistake in Spain, waiting to call in the I.M.F. until the crisis is acute. No national leader likes to take orders from an outside institution, especially in Europe, where countries are not used to being charity cases. The stigma and loss of sovereignty are likely reasons that Prime Minister Mariano Rajoy of Spain has delayed asking for help.The fund has learned from its own mistakes in places like Asia that too much austerity can be counterproductive, but was not always able to apply that experience. In Greece, for example, Germany and other northern countries insisted on a strict austerity program.”The I.M.F. has learned a lot how to design programs and structural reform measures and how to embed them in the local political system,” Mr. Berglof said. ”That experience the European institutions didn’t have from the beginning.

”Though the I.M.F.’s presence in Europe may not please everyone, it is likely to continue growing. No other institution, even the E.C.B., has the political independence or expertise needed to oversee restructuring programs in a country like Spain. Canada and other countries that resent paying for a European bailout are not likely to block one altogether.

Said Mr. Berglof of the E.B.R.D., ”There is a broader constituency that has a very strong stake in the resolution of the economic problems in Europe.

Political uncertainty

”The International Monetary Fund is cutting its global economic forecast yet again, calling the risks of a slowdown ”alarmingly high,” primarily because of policy uncertainty in the United States and Europe, Annie Lowrey reported from Washington.

It foresees global growth of 3.3 percent in 2012 and 3.6 percent in 2013, down from 3.5 percent this year and 3.9 percent next year when it made its previous report in July. New estimates suggest a 15 percent chance of recession in the United States next year, 25 percent in Japan and more than 80 percent in the euro area.

Financial market stress, government spending cuts, stubbornly high unemployment and political uncertainty continue to hamper growth in high-income countries, the fund said. At the same time, the emerging-market countries that fueled much of the recovery from the global recession, like China and India, have continued to cool off, with global trade slowing.

By Jack Ewing, The International Herald Tribune

New global currency wars warning!

The recent money-pumping measure by the United States has been criticised by Brazil as a protectionist move which will adversely affect developing countries.

THE recent announcement by US Federal Reserve chief Ben Bernanke that the United States would be renewing its pumping of money into the banking system has been acclaimed by some parties as a move to revive its faltering economy.

But the Fed’s measure to revive “quantitative easing” is not being welcomed by all. It has instead caused anxiety in some developing countries.

Their fear is that a large part of the massive amounts of money being unleashed into the financial markets may fail to boost the US economy but will find its way as unwanted capital flows into some developing countries.

Bernanke announced that the Fed would purchase US$40bil (RM124bil) per month of mortgage-linked assets from the market, and do so continuously until the jobs situation improves.

The hope is that cheap and abundant money will encourage entrepreneurs and consumers to spend more and spark a recovery.

However, previous rounds of such quantitative easing did not do much for the US economy.

A large part of the extra funds were placed by investors not in new US production but as speculative funds in emerging markets or in the commodity markets, in search of higher returns.

In developing countries that received the funds, adverse effects included an inflation of prices of property and other assets, as well as appreciation of their currencies which made their exports less competitive.

On the other hand, the US dollar depreciated because of the increased supply of US dollars and the reduced interest rates, making US exports more competitive.

Brazil has been in the forefront of developing countries that are critical of the US money pumping. Last week, the Brazilian finance minister Guido Mantega called the US Fed measure a “protectionist” move that would re-ignite global currency wars.

Mantega told the Financial Times that the third round of quantitative easing would only have a marginal benefit in the United States as the already high liquidity in the United States is not going into production.

Instead, it is really aimed at depressing the dollar and boosting US exports.

Japan has also decided to expand its own quantitative easing programme in response to the US move, and this is evidence of tensions and a currency war, said Mantega.

In previous rounds of liquidity expansion in recent years, Brazil has been one of the developing countries adversely affected by sharp currency appreciation, which reduced its export competitiveness and facilitated import increases.

Recently, Brazil’s currency, the real, has weakened from the high of 1.52 real to the dollar to the present two real, which has improved its competitiveness.

But the new liquidity expansion in the United States may again cause a flood of funds to enter Brazil and reverse the currency trend.

In such a situation, Brazil may be forced to take measures to stop the real from appreciating, said the minister.

Previously, the country had taken capital controls to discourage inflows of foreign funds.

What has irritated Brazil even more is an accusation by the US Trade Representative Ron Kirk that Brazil has become protectionist in raising some tariffs, even though the Brazilian measures were within its rights in the WTO framework.

Brazil’s Foreign Minister Antonio Patriota last week wrote to Kirk pointing out the unfairness of a protectionist US accusing Brazil of protectionism.

“The world has witnessed massive monetary expansion and the bailout of banks and industrial companies on an unprecedented scale, implemented by the United States and other developed countries,” said Patriota.

“As a result, Brazil has had to cope with an artificial appreciation of its currency and with a flood of imported goods at artificially low prices.”

He pointed out that the United States was a major beneficiary, as it almost doubled its exports to Brazil from US$18.7bil (RM58bil) to US$34bil (RM105bil) from 2007 to 2011.

“While you refer to WTO-consistent measures adopted by Brazil, we, on our side, worry about the prospect of continued illegal subsidisation of farm products by the United States, which impact Brazil and other developing countries, including some of the poorest countries in Africa.

“The US has managed in a short period to remarkably increase its exports to Brazil and continues to reap the benefits of our expanding market. But it would be fairer if those increases took place in an environment not distorted by exchange rate misalignments and blatant Government support”.

As the quantitative easing from the United States and Japan is only going to take effect in future, it remains to be seen whether history will repeat itself – it will have minimal effect on the United States and Japanese economic recovery but will cause problems for developing countries – or whether it will be different this time.


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Currency wars ‘hurt global markets’, World leaders seek
Currency Wars: U.S. Economy Needs More Fiscal

Japan’s buying Diaoyu Islands provokes China to strike back

China should strike back over sale: experts

Analysts Friday slammed Japan’s plan to nationalize the Diaoyu Islands in the East China Sea as provocations which would further trash Sino-Japanese relations, and called on the Chinese government to take corresponding measures to counter Japan’s scheme.

This video image, taken by the Japan Coast Guard on Aug 15, and released on Aug 27 shows a Chinese boat carrying Hong Kong activists after landing on the disputed island called Senkaku in Japanese and Diaoyu in Chinese in the East China Sea.

Japan’s Yomiuri Shimbun paper reported that Japan is scheduled to hold a cabinet meeting on Monday to officially “nationalize” the Diaoyu Islands on Tuesday.

The Japanese government will sign a deal with the so-called private owners on Tuesday to purchase the islands. And the Japanese government believes that putting the Diaoyu Islands under state ownership at an early date could minimize the backlash from China, said the report.

The paper also noted that the actions of Tokyo Governor Shintaro Ishihara, who had pushed strongly for the island purchase, had helped drive the state toward the purchase.

Qu Xing, director of the China Institute of International Studies, told the Global Times that by buying the islands, Japanese Prime Minister Yoshihiko Noda’s administration is attempting to reinforce Japan’s claim of sovereignty over the Diaoyu Islands.

“The repeated provocations have greatly undermined Sino-Japanese relations,” said the expert.

“We should resort to corresponding countermeasures to strike back against Japan’s unilateral move. Japan is making their assertion by legal means. Accordingly, China could also reinforce our claims of sovereignty over the islands through legal means,” said Qu.

According to the Kyodo News Agency, Japanese Foreign Minister Koichiro Gemba said that Noda is unlikely to hold summit talks with Chinese President Hu Jintao and South Korean President Lee Myung-bak on the sidelines of the ongoing Asia-Pacific Economic Cooperation (APEC) forum in Vladivostok, Russia, indicating that formal talks would not be appropriate given renewed territorial rows.

Gemba added that informal and “spontaneous” exchanges may take place, the report said.

Wang Ping, a researcher with the Institute of Japanese Studies under the Chinese Academy of Social Sciences, told the Global Times that Sino-Japanese relations are bound to be further undermined if Tokyo continues to inflame the situation.

“Japan’s national interests as well as its strategic interests in East Asia and the West Pacific will also be hurt. It should better recognize the consequences of its moves,” warned Wang.

The impact of the diplomatic rows between the two countries have already extended to the sphere of economic ties.

Reuters quoted Toshiyuki Shiga, a senior executive of Japanese auto maker Nissan, as saying that Japanese car manufacturers were having difficulty in holding big, outdoor promotion campaigns, which may have hurt August sales.

Foreign ministry spokesman Hong Lei said Thursday that in order to change the current situation, Japan must immediately stop encroaching upon China’s territorial sovereignty.

China is Japan’s largest trading partner, while Japan is the fourth largest trading partner of China.

Though Japan relies much more on its trade with China than China does Japan, economic friction is a double-edged sword, Qu said.

“The adverse political climate will definitely affect economic relations. But smashing Japanese cars and boycotting Japanese goods don’t help resolve the problems,” said Qu, calling for the public to remain rational.

Separately, Taiwan leader Ma Ying-jeou Friday inspected the Pengjia Islet, which is located 156 kilometers from the Diaoyu Islands. He made a speech in front of a monument on the islet and praised those who have helped to protect the Diaoyu Islands, reported the Xinhua News Agency.

Responding to a question about Ma’s visit, Hong Lei said Friday that all Chinese, including those from both sides of the Taiwan Straits, are responsible for safeguarding the sovereignty of the islands.

By Jin Jianyu and agencies contributed to this story

 Taiwan warns Japan against nationalising islands

Pengchia:  Taiwan’s president used a high-profile visit to a Taiwanese islet on Friday to warn Japan against making any attempts to nationalise islands that are part of a disputed chain in the East China Sea.

Escorted by warplanes and naval vessels, President Ma Ying-jeou flew by military helicopter to Taiwan’s Pengchia Islet, which lies off northern Taiwan, only about 140 kilometers (85 miles) west of the disputed chain.

The chain — known as Senkaku in Japan and Diaoyu in China — is controlled by Japan but also claimed by China and Taiwan, and has been a key part of simmering regional tensions over rival territorial claims. Japan’s government reportedly is planning to buy several of the islands from their private Japanese owners.

Analysts say Ma chose the Taiwanese islet to make his well-measured gesture to raise international attention without further aggravating tensions.
South China Sea. Agencies

Disputes have flared over island chains in the East China and South China seas, rich fishing grounds with potentially lucrative oil and gas reserves.

But diplomatically isolated Taiwan — which China claims a part of its own territory 63 years after the two sides split amid civil war — has been largely left out of the spotlight.

Ma called on the East China Sea chain’s three claimants — Taiwan, China and Japan — to put aside their disputes and hold dialogues to jointly develop the rich resources there. He suggested bilateral or trilateral talks “to resolve the issue in a peaceful way.”

Ma also asked commanders at two Taiwan-controlled islets in South China Sea’s Pratas and Spratly island chains to strengthen guards. Those chains are claimed by Taiwan, China, Vietnam, the Philippines, Brunei and Malaysia.

“Ma has tried to avoid provoking tension, but as Taiwan’s leader, he must make a gesture even though the impact may be limited,” said Lo Chih-cheng, a political scientist at Taipei’s Soochow University.

While Taiwanese media were generally skeptical about the visit’s impact, some say Ma’s trip may manage to rebut Beijing’s appeal for a united front with Taiwan over the disputes. Many Taiwanese fear Beijing may be using its warming economic ties with Taiwan in recent years to further its goal of unifying with the self-ruled democratic island.

“The mainland is trying to create the false scenario of cross-Strait cooperation in the East and South China” seas, Taiwan’s China Times said in an editorial. – AP

No let-up in protests over Diaoyu Islands

By CHOW HOW BAN hbchow@thestar.com.my/Asia News Network

There have been protests on many fronts after the move on Monday by Japanese government to buy the islands from their “owners”.

CHINESE actress Li Bingbing became the latest ordinary citizen to publicly show her outrage against Japan over its claim of the disputed Diaoyu Islands (known in Japan as Senkaku Islands).

The Golden Horse Best Actress award winner turned down an invitation to attend the premiere of her latest film, Resident Evil: Retribution, in Tokyo on Monday in protest of the move by the Japanese government to buy the islands from their “owners”.

“The premiere in Tokyo was an important event for this film because it was the first premiere around the world. During the shoot, it was already decided that all the production crew should go for the Tokyo premiere,” she said.

“I do not like to break an appointment but after what had happened to the Diaoyu Islands, I did not feel like going. It is something I cannot stand and I thank the film company for their understanding,” Li was quoted by the Chinese media as saying on Thursday.

Two weeks ago, two Chinese men, aged 23 and 25, were detained for stopping the car of the Japanese Ambassador to China, Uichiro Niwa in downtown Beijing.

The duo allegedly emerged from their car and pulled the Japanese flag off Niwa’s car when the ambassador was on his way back to the Japanese embassy.

Another man was issued a warning for blocking Niwa’s car.

Earlier last month, hundreds of Chinese protesters took to the streets in Shenzhen and Hangzhou and called on the Chinese government to protect the islands, following an incident where 10 Japanese nationalists swam to the islands in East China Sea in response of a similar landing by seven Chinese activists.

Some Chinese protesters also surrounded the embassy in Beijing and the Japanese consulate office in Shenyang, Liaoning province.

Two senior citizens who threw eggs at the embassy were persuaded to leave, while another demonstrator was stopped by the police when he attempted to enter the premises.

Other demonstrators held a 7m-long banner expressing their indignation over Japan’s detention of the Chinese activists who landed on the islands.

Last Monday, Kyodo News Agency reported that Tokyo was in the final stages of reaching a deal to buy the islands by the end of this month.

Japanese television images showed that a team of surveyors dispatched by Tokyo Governor Shintaro Ishihara was surveying the shoreline and waters around the uninhabited isles.

The surveyors then released the outcome of their investigation, detailing the geographic composition of the islands.

Apparently, Ishihara called on the Japanese government to build a harbour in the area.

It was reported that the administration of Prime Minister Yoshihiko Noda had agreed to pay two billion yen (RM79mil) for the islands.

The controversial islands are counter claimed by China and Taiwan.

China and Taiwan claim that the islands have been a part of Chinese territory since at least 1534 until Japan took brief control of it during the first Sino-Japanese war (1894-1895), while Japan has rejected claims that the islands were under China’s control prior to 1895.

In its editorial, China Daily warned that Japan was dicing with danger of leading the Sino-Japanese relations to their worse path.

“Japan is escalating tensions between itself and China. Our protests, be it official or civil, have fallen on deaf ears with the Japanese government.

“The deal for the islands was signed just five days after a letter from Japanese Prime Minister Noda to Chinese President Hu Jintao was delivered in Beijing on Aug 31. Noda was then said to have talked about lowering tensions between the two countries.

“The Noda administration now lacks credibility. They said they wanted to maintain and manage the islands in a peaceful manner but the islets are not part of Japan’s territory,” it said.

The newspaper said while China had kept its word to seek common ground on the islands and to maintain peace in the area, Japan had no longer shared the same goal.

China had failed to understand Japan’s diplomatic strategy, after all, and should re-look into its stand on the issue, it added.

Xinhua news agency slammed the islets purchase deal, saying that it would put to test Japan’s credibility over an historical commitment made in 1978 friendship treaty between Japan and China to resolve the issue.

Renmin University’s Centre for East Asia Studies director Huang Dahui said the pressure from the Japanese elections and fears of China’s economic development were reasons for the move.

“Japan is playing a two-faced game with China. What Ishihara and Noda are trying to do share the same purpose, which is to nationalise the Diaoyu Islands. China should strongly protest,” he told Global Times

Related posts:

Financial Times hails Malaysia’s economic boom

KUALA LUMPUR: It is not always that emerging economies get favourable remarks from hard-boiled foreign media practitioners but Malaysia is getting more laudatory remarks from foreign journalists these days.

Take Jeremy Grant’s article on Kuala Lumpur’s soon-to-be-developed new financial centre, the Tun Razak Exchange, and the state of the Malaysian economy in the Financial Times Friday, for example.

He wrote: “With much of the world economy experiencing anaemic growth at best, it is hard to believe that any country would contemplate a project on this scale.

“Yet Malaysia’s economy is enjoying a gravity-defying boom that is confounding sceptics. Second-quarter gross domestic product figures out this week showed the economy grew by 5.4%, way above consensus expectations of 4.6%, and the 4.9% recorded – after an upward revision – for the previous quarter.”

Grant attributed this development to big-ticket government spending, lending to business by well-capitalised banks, and robust consumer demand, fuelled by pay rises for civil servants and cash handouts that have even seen taxi drivers receive vouchers for free replacement tyres.

“Malaysia’s stock market has been among the best performers in the world, buoyed by big flotations including Felda, a state-controlled palm oil producer, which was the second-largest initial public offering after Facebook when it raised over USD2bil last month. Bankers are cashing in with a parade of further IPOs expected within months,” he added.

“Much of the impetus behind the growth comes from the “economic transformation programme” initiated by Prime Minister Datuk Seri Najib Tun Razak when he came to power in 2009.

This involves dozens of government-backed projects designed to boost per capita income to USD15,500 by 2020, from USD9,600 last year and lift Malaysia out of its “middle-income trap”, Grant wrote.

Over spending: Analysts say one nagging concern for Malaysia is the rising household debt caused by the rapid growth in credit card usage. Over spending: Analysts say one nagging concern for Malaysia is the rising household debt caused by the rapid growth in credit card usage.

The Financial Times also quoted Christian de Guzman, an analyst at Moody’s, a rating agency, who admitted he was sceptical about the programme’s ability to spur private sector development when it was launched. De Guzman is more convinced now, adding that “The proof of the pudding is in the eating but so far they are on track. In aggregate there are just so many things going on [in the economy].”

Grant wrote that “Not only has Malaysia experienced strong domestic demand offsetting its vulnerability to weakening demand for its exports – much of them electronics destined for Europe; it has also benefited from deeper ties with economies in Asia.

Moody’s says that in 2006 the United States was Malaysia’s largest trading partner, absorbing 18.8 per cent of its exports, while Asia Pacific accounted for 60 per cent. By last year the US share had dwindled to 8.3 per cent while Asia Pacific jumped to 69 per cent.

Malaysia’s healthy economy – and the resulting “feel good” factor – stands in contrast to growing anxiety among Malaysia’s neighbours in south-east Asia as the global downturn has tarnished their economies.

Analysts point out one nagging concern for Malaysia: rising household debt, caused by rapid growth in credit card usage.

As the transformation programme’s projects take root, Grant wrote that Bank Negara Malaysia is forecasting full-year growth at the upper end of its 4-5 per cent.

Amidst this scenario, the Financial Times also quoted Rahul Bajoria, an anaylst at Barclays, as saying that: “We expect momentum to remain underpinned as the project-based nature of these investments means that it is unlikely to be halted abruptly.” – Bernama

Related posts:

Malaysia’s Days in the Sun – WSJ

Malaysia’s growth forecasts raised after the actual 5.4% in Q2, 2012

US poverty on track to rise to highest since 1960s

This photo shows new parents Garrett Goudeseune, 25, Laura Fritz, 27, left, with their daughter Adalade Goudeseune, as they pose for a photo at the Jefferson Action Center, an assistance center in the Denver suburb of Lakewood. Both Fritz and Goudeseune grew up in the Denver suburbs in families that were solidly middle class. But the couple has struggled to find work and are now relying on government assistance to cover food and $650 rent for their family. The ranks of America‘s poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net. Census figures for 2011 will be released this fall in the critical weeks ahead of the November elections. (AP Photo/Kristen Wyatt)

The ranks of America’s poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net.

Census figures for 2011 will be released this fall in the critical weeks ahead of the November elections.

The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 per cent in 2010, climbing as high as 15.7 per cent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965.

Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth.

“I grew up going to Hawaii every summer. Now I’m here, applying for assistance because it’s hard to make ends meet. It’s very hard to adjust,” said Laura Fritz, 27, of Wheat Ridge, Colo., describing her slide from rich to poor as she filled out aid forms at a county centre. Since 2000, large swaths of Jefferson County just outside Denver have seen poverty nearly double.Fritz says she grew up wealthy in the Denver suburb of Highlands Ranch, but fortunes turned after her parents lost a significant amount of money in the housing bust. Stuck in a half-million dollar house, her parents began living off food stamps and Fritz’s college money evaporated. She tried joining the Army but was injured during basic training.

Now she’s living on disability, with an infant daughter and a boyfriend, Garrett Goudeseune, 25, who can’t find work as a landscaper. They are struggling to pay their $650 rent on his unemployment checks and don’t know how they would get by without the extra help as they hope for the job market to improve.

In an election year dominated by discussion of the middle class, Fritz’s case highlights a dim reality for the growing group in poverty. Millions could fall through the cracks as government aid from unemployment insurance, Medicaid, welfare and food stamps diminishes.

“The issues aren’t just with public benefits. We have some deep problems in the economy,” said Peter Edelman, director of the Georgetown Centre on Poverty, Inequality and Public Policy.

He pointed to the recent recession but also longer-term changes in the economy such as globalisation, automation, outsourcing, immigration, and less unionisation that have pushed median household income lower. Even after strong economic growth in the 1990s, poverty never fell below a 1973 low of 11.1 per cent. That low point came after President Lyndon Johnson‘s war on poverty, launched in 1964, that created Medicaid, Medicare and other social welfare programs.

“I’m reluctant to say that we’ve gone back to where we were in the 1960s. The programs we enacted make a big difference. The problem is that the tidal wave of low-wage jobs is dragging us down and the wage problem is not going to go away anytime soon,” Edelman said.

Stacey Mazer of the National Association of State Budget Officers said states will be watching for poverty increases when figures are released in September as they make decisions about the Medicaid expansion. Most states generally assume poverty levels will hold mostly steady and they will hesitate if the findings show otherwise. “It’s a constant tension in the budget,” she said.

The predictions for 2011 are based on separate AP interviews, supplemented with research on suburban poverty from Alan Berube of the Brookings Institution and an analysis of federal spending by the Congressional Research Service and Elise Gould of the Economic Policy Institute.

The analysts’ estimates suggest that some 47 million people in the U.S., or 1 in 6, were poor last year. An increase of one-tenth of a percentage point to 15.2 per cent would tie the 1983 rate, the highest since 1965. The highest level on record was 22.4 per cent in 1959, when the government began calculating poverty figures.

Poverty is closely tied to joblessness. While the unemployment rate improved from 9.6 per cent in 2010 to 8.9 per cent in 2011, the employment-population ratio remained largely unchanged, meaning many discouraged workers simply stopped looking for work. Food stamp rolls, another indicator of poverty, also grew.

Demographers also say:

—Poverty will remain above the pre-recession level of 12.5 per cent for many more years. Several predicted that peak poverty levels — 15 per cent to 16 per cent — will last at least until 2014, due to expiring unemployment benefits, a jobless rate persistently above 6 per cent and weak wage growth.

—Suburban poverty, already at a record level of 11.8 per cent, will increase again in 2011.

—Part-time or underemployed workers, who saw a record 15 per cent poverty in 2010, will rise to a new high.

—Poverty among people 65 and older will remain at historically low levels, buoyed by Social Security cash payments.

—Child poverty will increase from its 22 per cent level in 2010.

Analysts also believe that the poorest poor, defined as those at 50 per cent or less of the poverty level, will remain near its peak level of 6.7 per cent.

“I’ve always been the guy who could find a job. Now I’m not,” said Dale Szymanski, 56, a Teamsters Union forklift operator and convention hand who lives outside Las Vegas in Clark County. In a state where unemployment ranks highest in the nation, the Las Vegas suburbs have seen a particularly rapid increase in poverty from 9.7 per cent in 2007 to 14.7 per cent.

Szymanski, who moved from Wisconsin in 2000, said he used to make a decent living of more than $40,000 a year but now doesn’t work enough hours to qualify for union health care. He changed apartments several months ago and sold his aging 2001 Chrysler Sebring in April to pay expenses.

“You keep thinking it’s going to turn around. But I’m stuck,” he said.

The 2010 poverty level was $22,314 for a family of four, and $11,139 for an individual, based on an official government calculation that includes only cash income, before tax deductions. It excludes capital gains or accumulated wealth, such as home ownership, as well as non-cash aid such as food stamps and tax credits, which were expanded substantially under President Barack Obama’s stimulus package.

An additional 9 million people in 2010 would have been counted above the poverty line if food stamps and tax credits were taken into account.

Robert Rector, a senior research fellow at the conservative Heritage Foundation, believes the social safety net has worked and it is now time to cut back. He worries that advocates may use a rising poverty rate to justify additional spending on the poor, when in fact, he says, many live in decent-size homes, drive cars and own wide-screen TVs.

A new census measure accounts for non-cash aid, but that supplemental poverty figure isn’t expected to be released until after the November election. Since that measure is relatively new, the official rate remains the best gauge of year-to-year changes in poverty dating back to 1959.

Few people advocate cuts in anti-poverty programs. Roughly 79 per cent of Americans think the gap between rich and poor has grown in the past two decades, according to a Public Religion Research Institute/RNS Religion News survey from November 2011. The same poll found that about 67 per cent oppose “cutting federal funding for social programs that help the poor” to help reduce the budget deficit.

Outside of Medicaid, federal spending on major low-income assistance programs such as food stamps, disability aid and tax credits have been mostly flat at roughly 1.5 per cent of the gross domestic product from 1975 to the 1990s. Spending spiked higher to 2.3 per cent of GDP after Obama’s stimulus program in 2009 temporarily expanded unemployment insurance and tax credits for the poor.

The U.S. safety net may soon offer little comfort to people such as Jose Gorrin, 52, who lives in the western Miami suburb of Hialeah Gardens. Arriving from Cuba in 1980, he was able to earn a decent living as a plumber for years, providing for his children and ex-wife. But things turned sour in 2007 and in the past two years he has barely worked, surviving on the occasional odd job.

His unemployment aid has run out, and he’s too young to draw Social Security.

Holding a paper bag of still-warm bread he’d just bought for lunch, Gorrin said he hasn’t decided whom he’ll vote for in November, expressing little confidence the presidential candidates can solve the nation’s economic problems. “They all promise to help when they’re candidates,” Gorrin said, adding, “I hope things turn around. I already left Cuba. I don’t know where else I can go.”

By Hope Yen Associated Press

Malaysia’s Days in the Sun – WSJ

New York, Hong Kong, London…Kuala Lumpur? Malaysia is going gangbusters. Now, it must sustain the momentum.

The Southeast Asian nation is home to the world’s second and third largest initial public offerings this year—the $3.3 billion listing of Felda Global Ventures 5222.KU 0.00% and IHH Healthcare’s $2 billion IPO. Meanwhile, the benchmark KLCI hit a record Wednesday after rising almost 7% this year.

State backing for Malaysian equities is a factor. Felda’s IPO was largely bought by government-backed investors such as individual Malaysian states. Mandatory retirement savings boosts domestic pension funds that typically invest a lot in the local market too.

The economy is also performing well. Unemployment is low. Inflation is benign at about 2%. Gross domestic product growth is around 5%. That is important because the Malaysian stock market is mainly comprised of domestically focused companies.

Diverse exports are also relatively robust. Commodities like palm oil, petroleum and gas make up about a quarter of exports, while electronics and manufactured goods make up the rest. HSBC notes that Malaysia’s exports are down just 2% since last August, compared to a 13% aggregate decline for shipments from Singapore, Thailand, Indonesia and the Philippines.

The country’s banks look healthy too. Asset quality is strong and deleveraging by European banks isn’t a big threat, says Moody’s. “Their claims on the Malaysian economy amount to a mere 5% of GDP,” notes the rating company.

Still, there are risks that warrant caution. A prolonged slump in global trade would hurt. Net exports are equal to about 16% of GDP—much higher than the ratio for neighbors such as Indonesia and the Philippines.

Politics is a wildcard too. Prime Minister Najib Razak wants to improve infrastructure and boost investment in sectors including oil and gas and tourism. Investors must hope that agenda stays on track regardless of the outcome of an election expected by early 2013.

Much of the good news may be priced in. Malaysia’s benchmark stock index trades at about 15 times current earnings. Some analysts say that is rich. Malaysia has momentum. But much now depends on domestic politics and the depth of the weakness in global trade.

Write to Cynthia Koons at cynthia.koons@wsj.com

Singapore millionaires who don’t feel rich

Singapore, the third richest country in the world on a per capita basis, may be good at accumulating wealth but it fares less well when it comes to distributing it.

WHEN I read last week that one in six households in Singapore is a millionaire in investable wealth, it stirred mixed emotions of pride and worry.

Bloomberg had earlier reported that the city state had become the third richest country in the world on a per capita basis.

Many Singaporeans probably share these mixed feelings, if they could take time away from work to think about it. (More on that later.)

The pride, of course, stems from our transformation from a squatter colony to this present level of affluence in only 47 years, and the concern comes from the high cost of living that such wealth brings.

Singapore is the 10th most expensive city in the world. The two factors – wealth and high cost – are related; if cost of living is taken into account Singapore’s wealth ranking drops to 11th in the world.

Inflation clouds everyone’s lives, unless he is among the 188,000 millionaire households, to which it probably matters much less..

A school-teacher commented: “Being told that I am living in one of the world’s richest cities doesn’t profit my life and the resultant high cost is a blow.”

Last year, the number of millionaires (in US dollars) increased by 14%, one of the world’s fastest growth rates. In the previous year – from 2009 to 2010 – it went up by a record one-third.

Their wealth does not include the value of their properties or other fixed assets. If it does, Singaporeans would be even richer.

The question is: how many of the new rich are foreigners who took up permanent residency here? If the number is high, it could distort the picture a little.

Over the past five years, the number of rich mainland Chinese, Indians and Indonesians who took up PR here has risen, pushing up the price of properties.

Two of Facebook billionaire co-founders, Mark Zuckerberg and Eduardo Saverin, have made Singapore their home.

I also noticed that the pro-government media has been playing up stories of rising wealth and the capacity of Singaporeans to spend it. It is understandable because it paints a rosy picture.

Recent tales included the following:

> Singapore’s (resale) public flats are worth more than some expensive villas and islands in Portugal, Greece and Spain, as well as luxurious properties in the United States, reported Business Times.

> Rising property prices – nearly 7,000 “shoe box” condos of 300 sq ft to 500 sq ft have been built. A 463 sq ft condo was sold for S$702,000 (RM1.7mil).

> For sale: a bottle of special edition whisky in Singapore for S$250,000 (RM620,165).

> Singapore girl from a promi­­-nent family splurging S$200,000 (RM496,252) on a photo shoot.

> Launch of the Singapore’s most expensive car, priced at S$3.6mil (RM9mil).

> A 23,920 sq ft bungalow at the prestigious Nassim Road was sold for a record S$47.8mil (RM118.6mil).

Such stories will likely continue to happen but so will tales relating to the new poor.

Singapore may be good at accumulating wealth but it fares less well when it comes to distributing it.

In fact, what is rubbing off some of the “wealth” shine is the widening inequality between the rich and the poor, an imbalance that ranks a notorious second in the world next to Hong Kong.

According to the Manpower Ministry, the earnings of the poorest 20% had stagnated in the past 10 years, with real income rising only S$200 (RM496) to S$1,400 (RM3,471), or 0.3%.

Robert Kiyosaki, author of Rich Dad, Poor Dad wrote: “Singapore is rich and happy at the moment, and that’s not good. America was like that at one point in time.”

I know what he means.

A blogger recalled this was what former Prime Minister Lee Kuan Yew said years ago. He said he feared affluence was making Singaporeans complacent.

He said the young generation compared badly with the poorer, hard-striving migrants from China and needed “spurs on its side” to drive it on.

Are wealthy Singaporeans happy? Happiness is subjective, but a Twitter reported that only one quarter of the people are happy.

A newspaper for Indians in Singapore, Tabla, wrote: “They are among the world’s wealthiest, ranking sixth highest in net wealth with a mean value of US$284,692 (RM908,737) per adult. But Singaporeans aren’t necessarily a happy lot.”

Most attribute it to the pressure cooker living, the high cost of living and the education system. Despite what Lee said, Singaporeans work the longest hours in a worldwide comparison, beating the Japanese.

But the country has the second lowest job satisfaction in the world, according to an Accenture survey, with some 76% saying they are dissatisfied with their jobs.

Long-time visitor Brian Nelsen wrote last month: “Where are the friendly Singaporeans I used to know?”

He expressed shock and dismay at the abrupt change in the attitude of Singaporeans towards tourists in the last few years. They appear unfriendly and rude nowadays.

“Nobody smiles or returns a greeting any more. Many are now a surly lot,” he said. He probably had not met our richer folks.

Joyce Hooi of The Business Times wrote: “If Singapore had been a person, it would have stood above the unwashed tableau of Occupy Wall Street, watching from its penthouse and laughing into its Cognac.”

The really wealthy are busy buying up luxuries.

Every single day, she added, 25 people had bought a Mercedes-Benz or a BMW, and a Ferrari every four days over the past 11 months.


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