One Belt One Road paving the way to success


In 2013, Chinese President Xi Jinping proposed building the Silk Road Economic Belt and 21st-Century Maritime Silk Road, which became known as the Belt and Road Initiative.

Countries along the Belt and Road have their own resource advantages, and their economies are mutually complementary. This means there is a great potential and space for cooperation.

Connecting facilities is a priority in implementing the initiative. On the basis of respecting each other’s sovereignty and security concerns, countries along the Belt and Road are improving the connectivity of their infrastructure construction plans and technical standard systems, jointly pushing forward the construction of international passageways, and forming an infrastructure network connecting all sub-regions in Asia, and between Asia, Europe and Africa.

At the same time, China and countries along the way are making efforts to promote green and low-carbon infrastructure construction and operation management, taking into full account the impact of climate change on any construction.

With regard to transport infrastructure construction, they are focusing on key passageways, junctions and projects, and giving priority to linking up unconnected road sections, removing transport bottlenecks, advancing road safety facilities and traffic management facilities and equipment, and improving road network connectivity.

Countries along the Belt and Road are building a unified coordination mechanism for whole-course transportation, increasing connectivity in customs clearance, reloading and multimodal transport, and gradually formulating compatible and standard transport rules, in order to facilitate international transport.

China suggests pushing forward port infrastructure construction, building smooth land-water transportation channels, and advancing port cooperation, increasing sea routes and the number of voyages, and enhancing information technology cooperation in maritime logistics. We should expand and build platforms and mechanisms for comprehensive civil aviation cooperation, and quicken our pace in improving aviation infrastructure.

In this episode, we will see how Belt and Road helps close the distance between people around the world.

The Belt and Road:

http://watchthis.chinadaily.com.cn/video/column/belt-and-road/

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Bitcoin, digital currencies rally, caution prevails; virtual currency in property


Bitcoins As Digital Currency's Rally Crushed Every Other Currency in 2016
A collection of bitcoin tokens. Bloomberg—Bloomberg via Getty Images

Digital currencies rally, but caution prevails

While investing in the future is the way to go, it comes with risks and rewards. The best strategy would be to not be in a rush. Do your homework.

THIS week, the rally in crypto currencies is at its all-time high.

Bitcoin, the pioneer in digital currency, surged to over US$1,700 per coin in
anticipation of a reversal in United States financial regulators’ ruling to allow for an exchange-traded fund for Bitcoin and other factors.

Bitcoin was trading at US$935 on March 24. It rose 82%, pushing its market capitalisation to over US$28bil.

Ether, another such currency, surged from US$8 on Jan 1 to US$90 this week, gaining 1,125% in five months.

The market capitalisation of the 700-over currencies is over US$50bil. The promoters believe it is the currency of the future, hence the rise, but the naysayers believe it is entering a speculative bubble.

But there are some who are ditching gold to mine Bitcoins.

It is a fact that crypto currencies are gaining traction from their inception in 2009. Now, at least 150 organisations including Apple, Walmart, Sears, eBay, Overstock.com,  Microsoft, Steam, Expedia and even Subway accept them in exchange for goods.

So, what is Bitcoin then?

It is a form of digital currency, created and held electronically, not blocked by any nation or government, not printed like dollars and ringgit but produced by people. Crypto currencies are digital currencies that use encryption to secure transactions and control how new coins are made.

You and I can get Bitcoins by “mining” computers that validate blocks of transactions using software to solve mathematical puzzles every 10 minutes. If you solve it first, you are rewarded with new Bitcoins.

Bitcoin is the mother of all crypto currencies – also known as virtual currencies, digital currencies and private currencies.

Other than Bitcoin and Ether, there is also Dogecoin, Augur, Chinacoin, Litecon, Dash, Waves and Zcash. There are over 40 exchanges globally to trade in Bitcoins.

All this came about because of fintech, the financial services technology that is  disrupting the financial services sector with faster, cheaper and so-called “reliable”
transactions for money transfers, bank exchange rates and other money-related transactions. The average clearance is a 12-hour period, which apparently the banks cannot match.

In Brazil, people use Zcash to pay for their taxes, electricity bills and purchases.

This week, Australia said there would be no double taxation for crypto currencies and to treat it just like other currencies from July 1, paving the way for greater usage.

Many are betting on crypto currencies because of the lure that they are the currency of the future. Would you?

Since 2009, there have been gainers and losers, so you decide.

All these digital currencies came about because of the Internet and data.  The value of data and digital services is becoming more apparent, and in the digital era, data is the new currency.

Amid all this is blockchain, which is simply a digital ledger that keeps track of Bitcoin transactions and transfers it globally. It boasts of instantaneous transactions, transparent and cheaper than the traditional ways. This is why banks are hurriedly getting their acts together in the area of fintech so as to not miss the boat.

There is a growing number of mergers and acquisitions and crowdfunding for blockchains. Last month, music-podcast-video streaming service Spotify  bought over blockchain technology company Mediachain Labs to help reward  online content owners with royalty payments.

Other telcos and IT firms are getting into blockchain because they don’t want to miss out on anything. Other payment companies are getting into the act too. There is just too much interest in this new wave of doing things.

The journey of crypto currencies, however, is not without hurdles, and there are plenty out there that cannot be ignored. Even blockchain’s growth cannot be ignored, especially since it is being positioned by those championing it as the de facto technology of the future.

But will it really be all that or will it just add another layer to the overall cost?

All these transfers do not need regulation as yet, something that central bankers don’t like. In fact, Bank Negara is already in the thick of things where fintech is concerned.

While investing in the future is the way to go, it comes with risks and rewards. The best
strategy would be to not be in a rush. Do your homework, as there is also the other side of Bitcoin – fake websites, fake online gaming sites, trading, etc.

I bet you would know of someone who has lost money mining Bitcoin or Ether. You honestly wouldn’t want to be put in a spot like those caught up in the recent forex scam and the earlier gold scam.

It would be good too to bear in mind that the sweet spot of crypto currencies has been linked to terrorism financing, money laundering, tax evasion and fraud.

Trust and transparency have been the bedrock of financial institutions all these years. Ensure your bedrock is solid, but at the same time, remember what the former US Federal Reserve chairman Ben Bernanke had said in a letter to US senators about virtual currencies, that they “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system”.

Do you think blockchain will bring trust and transparency to the world of crypto currency? Share your thoughts with me at bksidhu@thestar

Source: The Star by b.k. sidhu

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Property in a digital era

WITH digital technology all the rage and taking the world by storm, we look at how science and automation has managed to change and revolutionise the way we do things, in this section, property.

While the internet has changed the way we receive information and connect with others and the smart phone transformed the whole concept of a phone, we now look at the evolution of finance and how purchasing items, including a house, is going through reform with the introduction of bitcoin.

Introducing bitcoin

When people hear terms like “bitcoin” and “blockchain”, many are vague while some may not even be familiar with these words. But for the technology industry adept, bitcoin and blockchain is common as these new-age technology concepts and modus operandi have been around, perhaps less widely known in Southeast Asia as it is in the West and China.

For the uninformed and in the dark, bitcoin is a technology that has established a new electronic payment method using “digitised money” made with digital cryptography, otherwise known as cryptocurrency.

This system of payment is carried out when a user uses “bitcoin currency” (or cryptocurrency) to pay for goods by transferring the currency to another user (seller) within the bitcoin community.

Each transaction is recorded in a public data ledger known as “blockchain” and it is here where all the transactions that have taken place within the bitcoin community are stored.

The amazing thing about this system is that anyone in the bitcoin community is able to validate transactions that take place without the need of an intermediary.

Sound too good to be true and a little risky? Well, the reason there is no intermediate party necessary is due to the network bitcoin technology is regulated on.


Modus operandi and more

The bitcoin network is founded on a “peer-to-peer network system (P2P network)” which is explained as “a network of computers/ mobile configured to allow certain files and folders to be shared with everyone or with selected users”.

As a result, the “participants” are in control of their transactions, making everyone equal within the bitcoin community, which is also transparent.

It is said that bitcoin technology was first created in 2008 by a person or a group of persons under the pseudonym “Satoshi Nakamoto” in a research paper. The research stated that there was need for a new electronic payment method, one using digitised money. The analysis also included the future of bitcoin, its benefits, capabilities and potential.

The system was implemented on Jan 3, 2009. And after just a few years, bitcoin grew to become a whopping US$12 billion (RM52.7 billion) globalised economy.

Bitcoin attributes

While not much has been said about bitcoin in this part of the region, the system has been around, slowly developing and growing. Like many things that are cloudy and not often talked about, people are weary hence, there will be sceptics who dissuade others about the system they themselves are unclear about.

With that, theSun’s Brian Chung shares what he learnt of this new method of transaction and currency when he attended a talk by renowned entrepreneur, author and expert on bitcoin Andreas M. Antonopoulos.

Below, Antonopolous shares important information on bitcoin.

1) Bitcoin is an open system of payment: It is a system that anyone can access, participate and innovate, and does not require permission. Bitcoin allows anyone to join in and use the system, validate the transaction and create different kinds of cryptocurrency.

2) Bitcoin is borderless: Like the internet, bitcoin is not restricted to a country’s rules and regulations as it has its own protocol with no distinction across countries.

3) Bitcoin is neutral: Bitcoin does not take the identity of the participant into any consideration. It only validates the transaction that takes place between participants. This attribute also allows participants to remain anonymous.

4) Bitcoin is censorship resistant: Every transaction in the bitcoin network cannot be frozen, censored or canceled. Like the internet, the bitcoin system is a global digital economy with one currency.

5) Bitcoin is a decentralised system: The bitcoin network has no central institution or centre point of control. This trait ensures that there is no one major target for hackers to concentrate their attacks on. Instead, hackers have to create attacks on every single participant’s software with different forms of virus and codes to hack into one computer.

6) Bitcoin is scarce and limited: Bitcoin is a system of value like gold but in digital form. This makes it a system that is not based on credit and debit. It also makes bitcoin a singular global currency with no exchange rate between countries.

7) Every bitcoin transaction is permanent and immutable: The transaction of everyone in the community is verified by everyone in the system. Once it is verified, the transaction will be permanently recorded in the blockchain.

8) Bitcoin is a constantly innovative technology: The open source nature of the bitcoin technology allows other people to further improve on it. There are many other cryptocurrencies based on the bitcoin technology. Moreover, the bitcoin technology is dependent on the internet, which makes improvement and innovation necessary.

Bitcoin transactions can be done via smart phones and computers by downloading the application and software. Users do not need to register themselves to be part of the bitcoin network as all “participants” are referred to by codes and “signature of one’s device”.

However, iPhone users need to remember their iTunes password to download the application. In addition, the device that one has downloaded the bitcoin software on must remain connected to the internet in order for one to use the bitcoin method of payment.

Follow our column next week on the application of bitcoin in property.

[Note: All charts courtesy of Bitcoin Malaysia.]

 

The application of bitcoin in property

 

WHILE last week, we introduced the term bitcoin to those oblivious of this new age cryptocurrency and system of payment, this week, we share bitcoin whiz Andreas M. Antonopoulus’ insights on how this technology is applied in property. Here is what he had to say:

Permanent records

“One very common application is the registration of assets or ownership of tangible and
non-tangible things like the registration of title over land and the ownership of assets
like homes.

When you record something on blockchain, it cannot be modified … it is immutable. Once recorded on the blockchain, the system of trust prevents anyone from reversing or overwriting it. That makes a record on blockchain permanent, an immutable record which is really important in real estate transaction as it allows one to pass the title of a piece of land from person to person independently with no one being able to falsify the record or steal land through paper,” Antonopoulos said.

Moreover, he mentioned that this technology can benefit the industry tremendously as it is able to resolve a huge problem in real estate and property transactions – the falsification of strata titles and property documents.

His view is further enhanced with the emergence of another bitcoin-based system, ethereum. Like bitcoin, ethereum has its own cryptocurrency known as ether. However, ethereum adopts a different technology that is based on the blockchain public ledger system known as Smart Contract.

According to Antonopoulos, a smart contract is an electronic contract with all the contractual obligations of the buyer and seller. The contract is written and coded into an application, which will ensure both parties fulfill their obligations.

Like blockchain technology that is built on trust and verification, these contracts are encoded in a public ledger in the ethereum community. If anyone tries to forge the contract, the ledger will reject it. As such, this smart contract cannot be rewritten and altered as it is a permanent and immutable contract.


Direct transactions

Besides the use of a contract, the technology will make transactions direct, fast and secure.

Antonopoulos also shared about the removal of third parties and its altered role. He said, “Another example relevant to real estate application is the function of escrow. In order to do make transactions for real estate today, people have to use a third party agent, an escrow agent. This escrow agent charges a significant amount of money in most countries. During the process, that agent holds custody of the entire fund, which is dangerous. This means that the escrow agent has to be carefully vetted and have foresight.

Bitcoin can replace all of this by using multi-signature, which allows the seller and buyer to transact escrow programmatically, with the third party acting as mediator only in the case of a dispute.

Buyer and seller will be able to execute a transaction on their own without the need of an escrow agent and without any of the parties having custody of the entire fund. Through bitcoin, you do not need to spend that additional one percent of the sale of the house – the escrow agent is no longer necessary.

It can also change the speed of escrow by doing it in hours instead of a month and changes the security because no one of the three parties can run away with the money. It is faster, cheaper and secure. It can be done in other industries related to real estates like purchasing assets, corporation, mergers and acquisitions.

International property purchase

With the use of decentralised digital currency, one can assume that purchasing items and properties is a little easier, and it is.

The chance of purchasing international property is further reinforced by the fact that bitcoin is not controlled by anyone, not even political and banking institutions. This attribute of bitcoin makes it easier for people buying property from another country. Although each country has its regulations, the use of bitcoin to purchase property abroad saves time and money as one does not need to change currency.

The Australia Real Estate website has stated that there are properties in the United States and Latin America being sold using bitcoin. The Wall Street Journal wrote an article in 2014 regarding a Lake Tahoe property, which was sold for US$1 million in bitcoin.

Follow our column next week for more interesting information on bitcoin, its challenges and how stable a cryptocurrency it is.

By rian Chung

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More big corrupt officials nabbed: Datuk among those busted for graft & mismanagement


Sitting in the lap of luxury: A Mercedes Benz belonging to one of the suspects

https://www.youtube-nocookie.com/embed/LYHqhmC5oeknocookie.com/embed/Hap2yFzhxG0 https://youtu.be/LYHqhmC5oek

Five people, including two former senior officers of Felda, are in remand for seven days from today for investigations into alleged misappropriation in connection with a sturgeon fish rearing project worth RM47.6 million. — Bernama

Five Felda officials linked to Felda, one of them a ‘Datuk’ have been arrested in a sting operation dubbed ‘Ops Caviar’ , as the Malaysian Anti-Corruption Commission zeroes in on a RM47.6 million sturgeon farming project which failed to take off in Pahang.

PETALING JAYA: Felda is the latest government-linked company (GLC) to be investigated by the Malaysian Anti-Corruption Commission (MACC), which saw three current and two former officers, one of them a Datuk, being arrested for alleged corruption over a project worth RM47.6mil.

Three of them were former senior executives, who held positions of power when they were still with the GLC.

They are the GLC’s former director-general, ex-deputy director-general (strategic resources), and the former operations officer in charge of the sturgeon project.

Two others detained were its head of London Properties and an assistant administration officer.

All five were picked up in a sting operation, dubbed Ops Caviar, by officers from the anti-graft body between 11.30am and 6pm in several locations around Klang Valley yesterday.

Many valuable items were seized during the raids, including a luxury car and jewellery, estimated to be worth millions of ringgit.

More items are expected to be seized as anti-graft officers visit their homes and obtain details of their assets and personal accounts of their immediate family members to be frozen as part of investigations.

They are being investigated for alleged corruption, abuse of positions and using the GLC for personal gain.

It is learnt that the investigation was zeroing in on the implementation of technology transfer in relation to the sturgeon fish rearing project with a Korean firm.

“We believe all the five suspects are directly involved in the project worth US$10mil (RM47.6mil) since 2014.

Penchant for bling bling: Some of the jewellery seized from the suspects.
Major haul: Some of the items sized by MACC

“Checks showed that in early 2013, a meeting was held to discuss the project.

“But the Felda board of directors told the 53-year-old suspect to first come up with a detailed report and a proposal on the amount of investments for the project before making a decision,” said a source.

But unknown to the Felda directors, financial and legal divisions, a company – Felda Carviative Sdn Bhd (FCSB) – was set up in January 2014.

An agreement, worth US$45mil (RM146.25mil), was then signed between the company and a Korean firm, in relation to sturgeon rearing deal.

Checks by the MACC showed the project did not receive accreditation from the Pahang Department of Environment as per the SOP.

“We found payment made to the Korean firm about one week after the FCSB was set up.

“This was despite no approval being obtained from the Felda directors,” added the source.

So far, funds amounting to RM47.6mil from Felda have been disbursed by the suspects.

It is learnt the deal with the foreign firm involved technology transfer, service agreement and design and construction agreement.

The agreement was said to have been inked by the Datuk and the 53-year-old suspect, both of whom were former directors of FCSB.

Then, the financial division was also under the purview of both suspects.

MACC director of investigations Datuk Simi Abd Ghani confirmed the arrests of the five.

Simi said stacks of documents relating to the project had been seized to assist in the probe.

“The investigation is still in the initial stage. We will need time to sift through the documents and call in more witnesses to gather evidence. Give us some time to work on the case,” he said.

All the five suspects, held overnight at the MACC Putrajaya headquarters, will be remanded today.

Source: The Star/ANN

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Auditor General Ambrin: Losses in publicly funded projects due to graft

Tan Sri Ambrin Buang

KUALA LUMPUR: Mismanage­ment and corruption in publicly funded construction projects have caused potential losses of up to 30% of a project’s investment value, according to the Auditor-General (pic).

Tan Sri Ambrin Buang said a study by the Organisation for Economic Co-operation and Development (OECD) and the World Bank showed how corruption in the infrastructure and extractive sectors had led to misallocation of public funds and services that were substandard and insufficient.

“It is difficult to measure the exact cost, but it has been estimated that between 10% and 30% of the investment in publicly funded construction projects may be lost through mismanagement, and about 20% to 30% of project value is lost through corruption,” he said at the Combating Procurement Fraud in the Public and Private Sectors Forum 2017 yesterday.

The forum highlighted the issues in public procurements in Malaysia – a process where the government obtains works, goods or services from companies and one that Ambrin said is most vulnerable to corruption.

Ambrin’s speech was read out by the National Audit Department’s research, corporate and international relations division director Roslan Abu Bakar.

Ambrin also observed that procurement fraud in the public sector is a complex issue, covering a wide range of illegal activities from bid-rigging during the pre-contract award phase through to false invoicing in the post-contract award phase.

He noted that last year, the Malaysian Anti-Corruption Com­mission had opened up a series of investigations involving government procurements.

“One of these involved senior government officials making false claims and fraud amounting to RM20mil last year, and this was followed by a case involving a senior Youth and Sports Ministry official amounting to RM107mil.

“Another case involved a Sabah Water Department official for fraud amounting to RM153mil, and the latest arrest involved a federal ministry secretary-general,” he said.

The Auditor-General added that based on experience, he could not entirely dismiss the existence of bid-rigging in Malaysia’s public procurement.

“One of the signs is when an equipment price is quoted higher than market value.

“If procurement officers do not research market prices, they will believe that the given price is reasonable.

“For example, in the Audit Report, we highlighted significant differences in prices of certain equipment, ranging from RM1,000 to RM7,200 additional cost for the same types and specifications,” he said.

Post-contract fraud is also a common problem, and Ambrin said the department had identified cases where payment control systems were bypassed to allow for fraud to occur.

Source: The Star/ANN



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China tops global fintech rankings


China’s financial technology (fintech) firms continue to lead globally, securing four positions in the top five in a recent industrial ranking.[Photo: mindai.com]

 

China’s financial technology (fintech) firms continue to lead globally, securing four positions in the top five in a recent industrial ranking.

Alibaba’s third-party payment platform Ant Financial tops the global ranking for the 100 best performing fintech companies, with micro-loan firm Qudian, wealth management company Lufax and insurance enterprise Zhong An entering the top five, according to a report by international accounting firm KPMG and investment firm H2 Ventures.

The firms are rated according to their capital raising volume and ratio, geographic and sector diversity, and consumer and marketplace traction.

“It is no surprise to see four Chinese companies in the top five. Fintech in China has seen rapid development, fuelled by the demand to address domestic needs,” said James McKeogh, Partner with KPMG China. “It is likely that we will see more of these players move to the international markets in the future.”

A total of eight Chinese fintech companies are on the list, a remarkable rise from just one company in the top 100 in the 2014 ranking.

“We have seen significant investment in China’s fintech sector in recent years, and an increasing appetite for innovative products, supported by the rapid pace of technology development,” according to Raymond Cheong, another KPMG China Partner.

China pledged in October to improve supervision in online finance, including peer-to-peer platforms, to contain risks, improve competitiveness and increase risk awareness.

Companies related to lending and insurance are gaining larger share in the full Fintech 100 list, while the creation of value in new sub-sectors such as regulatory technology as well as data and analytics make the fintech sector more diverse, according to the report.

Source:

 

Related: China mulls sharing blacklist of telecom scammers

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World doubts the leadership of Uncle Sam: expert


The culture of guns

As the US has lost more international status and influence since the global financial crisis in 2008, the international community is raising doubts about its leadership and ability to contribute to the world, an expert said, analyzing that such a decline of influence can be attributed to some deep-seated reasons, including its self-willed overseas military operations.

Since the financial crisis, the US can neither provide effective solutions to a host of global challenges, nor sustain its control over other countries, Zhang Ruizhuang, Director of the Center of American Studies at Nankai University, wrote in an article published in the People’s Daily on Sunday.

In the commentary titled “The City upon a Hill is not there any more,” he gave an in-depth analysis on the reasons of such changes.

Zhang says that “A City upon a Hill,” often cited by American politicians as their political creed, verified the self-labelling of the arrogant Americans as “God’s Chosen Ones” to lead the world. After the Cold War, the preaching about the superiority of its values brought US much popularity and pulled the country to a commanding stage.

But it over-consumed its accumulated political capital during the last quarter of the 20th century, which resulted in a decline in its global influence, Zhang said, adding that the most destructive threat to its dropping status can be attributed to overseas military operations.

After the Soviet Union collapsed with the end of the Cold War, the US dominated the world and launched a series of capricious measures. With the excuse of protecting democracy, human rights and the world order, Uncle Sam trampled on the post-war international law based on the UN Charter and norms governing global relations by bringing the flames of war to many parts of the world.

Panama, Somalia, Haiti and Kosovo are all victims of such wars waged by the superpower. With a made-up excuse, it pulled Iraq into a war and this political farce finally brought the latter millions of civilian casualties, endless terrorist attacks and ceaseless disturbance.

What the US gained, after it paid a price of trillions of dollars for the war, was a hotbed for terrorist organizations which in turn threatened the security of itself and other Western countries. The war against Iraq ultimately turned out to be a foolish one that not only crumbled its diplomatic morality, but undermined its own strategic interests, Zhang concluded.

Despite the lessons, the US never gave up every opportunity to start “color revolutions.” Its attacks on Libya and Syria, once again, dragged these nations into raging wars. What’s worse, as a result of the wars, a number of regulation vacuums provided ISIS and other religious extremist organizations a bed in which to grow stronger.

The US, its Western allies, as well as the whole world, are now swallowing the sour fruits resulted from its self-willed deed, he added.

According to the scholar, apart from its frequent diplomatic mistakes, its economy, politics and society, in which the Americans once took pride, are all in a predicament, arising more doubts over the superiority of the US system.

The global financial crisis breaking out in 2008 exposed the defects of capitalism once again. It brought to light not only the failure of Keynesian policy to narrow the wealth gap and boost effective demand, but the greed and corruption of financial executives, the ineffectiveness of financial supervision, plus the government’s shielding of tycoons.

The US public felt shock, despair and anger towards such defects, and the ensuing “Occupy Wall Street” movement is one of their ways to express dissatisfaction. The protest wave later spilled to other part of the world, triggering worldwide query over the US system and its values.

Zhang also criticized US domestic politics, citing its notorious presidential election system as an example.

Manipulated by capital, the “winner takes all” election system in many states gives no chance to other newborn parties besides the two major parties. The American elections of the past two to three decades have been more like technical games.

The candidates now focus more on technical details for the sake of more votes rather than their political ideas and governance philosophies, and the whole process has fallen into personal attacks between the two candidates, he added.

Coupled with some other faults, the US and even the whole world began to question on the effectiveness of US democracy, as well as its leader selected in such a flawed way.

The article analyzed that one key reason for its flopping election lies in a lack of innovative governing ideas.

Barely stimulated by major crisis, US society tends to be mediocre and conservative about its ideas, the commentary further explained, adding that the prevailing philosophy of so-called “political correctness” also created an unfavorable environment for the candidates to come up with new ideas acceptable to the public.

Lack of foresighted candidates with outstanding capability is another reason for its unsuccessful election, Zhang wrote.

He explained that some capable politicians are not willing to embarrass themselves on the election stage at the cost of their privacy and that of their family as the butt of jokes.

“As a result, the world was presented with an election farce performed by the two unqualified and big-mouth candidates selected by the two parties,” the author concluded.

“It is obvious that the US is seeing a decline in terms of both prestige and influence, but such a drop is not so eye-catching as it has no strong competitors yet. It would be a complicated historic path,” the scholar said, calling for more attention to the course of the world pattern.

(People’s Daily)

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Bizarre world of new debt, low, even negative interest rates a threat to global stability


New debt crisis a threat to global stability

 

Global debt has jumped alarmingly to RM631tril and as capital flows out from developing countries, some are facing new debt crises.

DEBT worldwide has grown to unprecedentedly high levels and has to be brought down to prevent another financial crisis.

This was highlighted by the Inter­national Monetary Fund at its annual meeting in Washington last week.

Other problems facing the global economy include the stagnation in world trade, a decline in commodity prices and the reversal of capital flows to developing countries.

A recently released United Nations report has analysed the situation as a third phase in the global crisis that began with the United States in 2008, then spread in a second wave to Europe, and is now moving on to the developing countries.

The IMF said that world debt had reached US$152tril (RM631tril), a record level. It was 200% of the value of global gross domestic product in 2002, but has risen to 225% in 2015. The private sector holds two thirds of the total, but government debt has also risen fast, and the IMF warned about the risk of another financial crisis.

“Excessive private debt is a major headwind against global recovery and a risk to financial stability,” said Vitor Gaspar, IMF director of fiscal affairs. “Rapid increases in private debt often end up in financial crises.”

Most of this global debt is concentrated in developed countries. The huge jump there has been due to policies of easy money and low, zero or even negative interest rates, and especially to quantitative easing in which Central Banks bought bonds and pumped trillions of dollars into the banking system.

 

It was hoped that this massive infusion would cause the banks to increase lending to consumers and businesses and thus stimulate economic growth.

However, the real economy did not benefit much. Instead, most of the money went into the equity markets, boosting prices, and to the developing economies as investors searched for higher yield, and this helped to fuel the growth of their debt.

The debt of non-financial corporations in emerging economies jumped from US$9tril (RM37tril) at end-2008 to over US$25tril (RM104tril) by end-2015, or from 57% to 104% of their GDP.

Foreigners now own unprecedentedly high shares of bonds and equities in developing countries, which have become vulnerable to investor-mood swings and funds, resulting in financial crises.

When market sentiment or conditions change, the massive inflows can turn into equally large outflows. Indeed, the boom-bust cycle of capital flows has gone through many turns through the years.

Huge amounts left developing countries in the fourth quarter of 2015, and for that year as a whole there was a net outflow of US$656bil (RM2.7tril) or 2.7% of their Gross Domestic Product, according to the UN Conference on Trade and Development (UNCTAD).

This was a big change from a net inflow of 1.3% of GDP in 2013. This turnaround of 4.4% is much larger than the reversals of capital flows in 1981-83, 1996-98 and 2007-08.

But in recent months the cycle turned again, with the return of fund investors to emerging economies. For example, in Malaysia, after suffering large outflows in 2015, there have been net inflows of funds into the equity and bond markets in the past few months.

Going through these cycles, the debt of developing countries has grown. “Easy access to cheap credit in boom times has led to growing debt levels across the developing world,” says UNCTAD’s Trade and Development Report 2016.

Developing countries’ external debt rose from US$2.1tril (RM9tril) in 2000 to US$6.8tril (RM28tril) in 2015. Overall debt (foreign and domestic) jumped by over US$31tril (RM129tril) with total debt-to-GDP ratios reaching over 120% in many countries and over 200% in some others.

Now a nightmare scenario is emerging. For many countries, the tide is turning and access to cheap credit has begun to dry up. Says UNCTAD: “Against the backdrop of falling commodity prices and weakening growth in developed economies, borrowing costs have been driven up very quickly, turning what seemed reasonable debt burdens under favourable conditions into largely unsustainable debt.”

In some countries, the problem is compounded by currency devaluation (which increases the value of external debt) and lower commodity prices.

These countries are thus hit by multiple whammies – lower commodity prices and export earnings, net outflow of funds, devaluation (which causes their foreign debt to increase), a higher cost of servicing debt, and economic slowdown.

More and more low-income countries are in a downward economic spiral that has led them into a new debt crisis. They have had to turn to institutions like the IMF and World Bank for bailouts. UNCTAD lists Angola, Azerbaijan, Ghana, Kenya, Mozambique, Nigeria, Zam­bia and Zimbabwe as countries that have already asked for financial assistance or are in talks to do so.

This points to a shortfall in the international financial system – the lack of an orderly and fair debt mechanism which countries facing a debt crisis can have recourse to.

At the national level, the developed countries and some developing countries have corporate bankruptcy laws, aimed at helping companies to recover from a debt crisis through an orderly debt workout.

But there is no such debt workout mechanism, with fair burden sharing between debtor and creditors, when countries fall into a debt crisis.

In its absence, indebted countries often face many years of austerity and recessionary conditions im­­posed by the creditors and rescuing agencies, and with no guarantee that their debt level will even decrease.

With the present level of worldwide debt and the emergence of a new debt crisis in several countries, especially poor ones, it is time to consider smarter policies that prevent debt crises, and to manage them properly when they happen.

Global Trends By Martin Khor Global Trend The Star/ANN

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.

The bizarre world of low, even negative, interest rates

Draghi’s point: ECB president Mario Draghi speaks during a news conference in Berlin. He vigorously defended his stimulus policies to critical lawmakers in Berlin, while reaffirming the urgency to step up structural reforms. – Bloomberg


INTEREST rate is the price of money
.

It sets the benchmark as it serves to oil the financial system’s engine, helping capital to flow freely and effectively in the global economy. Rates have been positive for the past three centuries despite world wars and the Great Depression. The system is not designed for a world of ultra-low, let alone negative rates.

The traditional business of banking, as we know it, is to take money from savers (in the form of deposits – representing banks’ liabilities) and lend it, at higher rates and over longer periods, to borrowers (investors, whose loans become their assets). Essentially, banks borrow short and lend long.

So the shape of the yield curve (chart of interest rates reflecting their term structure) is critical as it drives profits. The smaller the margin (gap) between short and long-term rates (i.e. the flatter the yield curve in economists’ jargon), the tighter banks’ profits are squeezed. The problem becomes even more difficult as interest rates or bond yields move near or to zero or worse, get negative.

Negative world

Negative rates invert the norms of banking. Strangely, borrowers are paid for taking money, while savers pay to hand over their deposits. Banks already face resistance from depositors who won’t pay to save with them. Even as the return on their assets falls, banks find it hard to reduce the cost of their liabilities. When central banks impose rates on the reserves kept by banks with them – as is done at the European Central Bank (ECB) and Bank of Japan (BoJ) – it’s difficult for the banks to pass on this cost.

Indeed, negative rates act as a tax on bank profits. Banks also own government bonds, partly because regulators require them to keep a portfolio of liquid assets. Revenue here is a handy source of income. But as the older, high-yielding bonds mature, their replacements are now much lower yielding, thus eating into banks’ profits.

So banks look for other ways to re-coup, resorting to fees for services. Indeed, wealthy clients of private banking are starting to wake up to the impact of fees.

Insurance companies are also badly affected. They buy bonds to match assets with their long liabilities. But insurance companies in Germany and Switzerland are stuck with savings products they had sold in happier times, which guarantee returns well above current yields. A similar problem hit Japan in the 1990s and 2000s. Those with asset management arms have some protection, where returns are linked to the markets. But the impact of low returns is slowly but surely squeezing them too.

Impact

The underlying economic problem today remains inadequate global demand. In response, ECB has since stepped up its stimulus activities, joining BoJ and others in breaching the “zero lower bound” (inability of interest rates to get negative). So far, the impact on growth and employment has been dismal – simply because there is so much excess capacity worldwide.

Lower rates (even going negative) don’t appear to work. Lending has become more risky and banks today, as I see it, have neither the appetite nor enthusiasm to lend. Negative interest rates (NIRs) hurt banks’ balance sheets.

Other problems: NIRs (i) encourage investment in capital-intensive and disruptive technologies; (ii) perversely encourage savings – as fixed, interest-dependent income earners dampen consumption; (iii) curb a bank’s ability to lend; (iv) distort financial markets; and (v) shift portfolios to riskier assets in search of higher yields. In the longer run, NIRs compel businesses and individuals to disengage from a financial system that now taxes their saving.

Short-term rate and government bond yields represent the risk-free rate that forms the basis of return in finance. The expected return on equities comprises this risk-free rate plus a premium to allow for stock volatility and risk of capital loss. A good chunk of income of service providers is the “cut” they take. Today, there is simply much less return to go around.

Global trading in government bonds had exceeded US$10 trillion, a testament to just how hard central bankers are pushing yields down to spur households and businesses to spend. US 10-year Treasury now yields below 1.7%. Returns on comparable bonds in Germany and Japan are negative. Falling rates promise limited relief for consumers and businesses because inflation is falling too. For many in Europe and Japan, even record low rates don’t translate into easier borrowing terms on a real, or inflation adjusted, basis. For example, 10-year Japanese bonds return a -0.07%; but consumer prices fell 0.3%, yielding a +0.23% at 10 years, a key rate for most Japanese. NIRs don’t appear to have helped boost inflation in Europe either. The real case against NIRs is the folly of relying on monetary policy alone to rescue economies from depressed conditions.

Scandinavian experience

Among Scandinavian nations, Denmark already has four years of NIRs. Its central bank benchmark rate now stands at -0.65% (mortgage rate, excluding fees, being at negative 0.0562%). Neighbour Sweden’s is -0.5% (below zero for 14 months). In Norway, rates can go negative to prop-up an economy hard hit by low oil prices. ECB and BoJ are using sub-zero rates to stimulate growth with little success.

Meanwhile, Switzerland, Sweden and Denmark are trying NIRs to keep their currencies in line with the struggling euro. Their experience points to concerns about undesirable side-effects, including: (i) savers pay the price of getting no interest; even so, bank profitability is squeezed; (ii) excessive investment in real estate; (iii) households gorging up mortgages they can’t afford to repay when rates rise or real estate values fall.

Sweden’s household debt to disposable income ratio is at an unsustainable 175% (90% in mid-1990s); and (iv) run to physical cash by savers. The flip-side points to success in keeping the currency in check, holding steady against the euro to protect euro-trade and competitiveness.

In Denmark, despite NIRs, private saving is rising (26% of GDP, against 21% before 2012 when rates were positive) to protect future purchasing power. But, investments fell (16% of GDP against 18.1% in 1990-2012). So, NIRs appear to be counterproductive. This chorus of discontent is spreading to other parts of Europe.

NIRs have pushed up savings and done little for corporate investment, while eviscerating pension plans. Politically, in Europe’s sclerotic economy, in the face of high unemployment (double the US rate) and an uncertain outlook, NIRs can be even more toxic, driving voters to support populist causes.

Japan

BoJ took radical measures for 3½ years to reflate the country’s sagging economy, resorting this January to NIRs. Yet growth and inflation remain elusive. Core-inflation is at minus 0.5%, far below BoJ’s 2% target. Prices today are still lower than they were in 1997. BoJ’s primary method to raise consumer expectations has been buying assets, mostly government bonds but also real estate and equities.

As a result, Japan’s monetary base tripled to US$4 trillion (80% of GDP). Investors’ patience is fraying. In a bold move to deepen the yield curve, BoJ on Sept 21: (i) capped the 10-year government bond rate at 0%, vowing to overshoot its 2% inflation target; and (ii) maintained its existing policy to purchase 80 trillion yen (US$78bil) of assets a year. Both these goals are incompatible. They pose a dilemma – in the event demand for government bonds collapses, BoJ will need to buy more and more to keep yields at zero. Similarly, strong demand may even make it unnecessary to buy any.

As I see it, the new approach is a sensible response to market realities. BoJ had conceded real difficulties in shifting price expectations towards the inflation target. Besides, the flattening yield curve is eating into banks’ profits.

By targeting its future purchases at the shorter-end (rather than buy longer bonds as now), BoJ is expected to tolerate a steeper yield curve. The yield cap should make NIRs more effective. Indeed, it allows BoJ to further test the bounds of its NIRs policy. In essence, the new approach shifts focus to interest rates, a retreat from the unpopular quantitative easing (QE). For investors, there is no longer a willing buyer. Instead, a price setter – adding uncertainty. Its pledge to overshoot the inflation target as soon as possible is designed to raise future price expectations more forcefully.

Whether BoJ can shake off deflation depends on whether domestic demand can revive to rekindle the still elusive price expectations. QE needs to be accompanied by more purposeful fiscal stimulus – including even a last ditch effort to issue “helicopter money” – to directly underwrite government spending by BoJ.

In search of yields

With NIRs, some of the world’s un-venturesome investors – the Japanese – are going abroad at an unprecedented rate this year: up to US$500bil being invested so far in foreign securities. For the risk taker, Venezuela bonds earned as much as 27% return over the past year. However, most prefer to just take “duration” risk: measured on when the investor gets his money back.

Longer bonds have higher duration risk – as do bonds with low coupons (more waiting time). Rule of thumb: 1 percentage point change in the rate changes the bond price equal to the duration. The price of 25-year bonds will jump 25% if rates fell by 1 percentage point; and falls 25% if rates rose 1 percentage point. As duration gets longer, risk mounts. For example: last year, 40-year Japanese bonds carried a 1.4% coupon. Rates have since turned negative; so the price rose by as much as 34%.

What then, are we to do

It is startling that the total volume of sovereign and corporate bonds with NIRs now exceeds one-half of all western debt. It’s equally amazing how investors continue to gobble up these bonds even though they are likely to get back less than what was invested.

Just as astonishing is the rising demand for cash – the world’s largest asset managers now hold 5.8% of their assets in cash! Why? Points to investors and fund managers being downbeat on the ability of central bankers to raise inflation in the face of growing pessimism about growth prospects (17% of them expect a global recession, and as many as 39% expect “helicopter money” to be handed out). Most fear the policy landscape will become weirder.

QE appears broken. This playbook has limited success in US and is patchy at best in Europe and Japan. Frankly, US bankers and economists are growing increasingly uncomfortable with the cycle of QE infinity and more aware of its collateral effects, including keeping US dollar cheap.

But consumers and businesses have been saving rather than spending, with stagnant unemployment overshadowing the windfall from rising asset prices. European banks have been hit by low interest rates, tighter regulation and rising non-performing loans that have hurt profitability. Policymakers are today rethinking strategies. Mario Draghi is, and Haruhiko Kuroda has had a recent relook. The key question remains: how to regain policy effectiveness. That’s where the focus should be – adopt pro-growth structural reforms to make the economies more competitive, and to enhance fiscal creditability.

Sure, BoJ has to make people believe in inflation. Inflationary expectations won’t materialise until BoJ is credible. Credibility – that’s what makes our world in 2016. In the US, both presidential candidates have pledged fiscal stimulus. Hopefully, by next year (after elections in Spain, Germany and France), a more balanced application of softer QE and aggressive fiscal stimulus can turn Europe from a good trade into a good investment.

What are we to do?

By Lin See Yan

Former banker, Harvard educated economist and British Chartered Scientist, Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015). Feedback is most welcome; email: starbiz@thestar.com.my.
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THE Fed failed to raise interest rates on Sept 21, giving many markets and fund managers a sigh of relief.

Fed chairman Janet Yellen said the case for an increase has strengthened, but decided for the time being to wait for further evidence of continued progress toward the Fed objectives of maximum employment and price stability. Some analysts felt that any Fed rate increases would be seen as favouring one party in the US Presidential elections.

Caution having over-ridden valour, overall stock markets rallied somewhat, while currency markets moved sideways. Going forward, the futures market think that there is a 60% chance of the Fed raising interest rates in December, after the November Presidential elections.

The key question is whether the dollar will strengthen. So far, the US dollar has been strong against emerging market currencies, flat against the euro and weakened relative to the yen.

There are hoards of analysts trying to forecast short-term and long-term exchange rate movements. Exchange rates are determined by the supply and demand in currency pairs, usually between the dollar and the most traded currencies, such as euro, sterling, yen and other liquid currencies (Australian dollar etc). In turn, the supply and demand for foreign exchange would depend on the current account (trade flows) and capital account (financial flows) of the balance of payments.

If one only looked at trade flows, then exchange rate expectations would depend on whether countries are running large current account surpluses or not, on the basis that a surplus country’s currency would strength. On that basis, one would expect that the Euro should strengthen, because the eurozone is now overall running a current surplus of roughly 3% of GDP. Germany alone is runnng a current account surplus equivalent to 8% of German GDP. However, investor nervousness about the sluggish outlook for the eurozone has keep the euro on the weak side.

One reason is that capital flows are now driving the exchange rate, due to large portfolio flows in search of yield and total returns, as financial assets become more globalised. Theoretically, portfolio flows should be driven by covered interest rate parity, meaning that foreign exchange traders arbitrage in spot, forward and futures markets to equalise risk-adjusted interest rates between countries. Hence, expectations of interest rate differentials between countries matter in shaping exchange rate behaviour.

Interest rate behaviour is determined today largely by monetary policy, which is why global markets are particularly nervous about US Fed interest rate adjustments. Since the US dollar is the world’s benchmark currency, with roughly two thirds of global financial assets measured against the dollar, global financial markets move in expectations of future Fed interest rate increases.

The US remains the dominant military and economic power and is consequently the safe-haven currency. Whenever geo-politics become tense, as is the situation currently, the flight is always towards the dollar.

Furthermore, all signs point towards the US economy performing best amongst the advanced economies, despite overall slower growth post-crisis.

There is enough evidence that the US is already reaching full employment levels at 4.9% unemployment rate, with anecdotal evidence that companies are hiring in anticipation of growing consumer confidence.

There is however a disconnect between US recovery and trade growth. The US consumption pattern has changed from consuming durables towards spending on services, such as new apps and digital entertainment. A partial shift towards manufacturing at home also explains why exports to the US have not increased substantially. With global trade growing slower than GDP, emerging markets are not growing due to the traditional cyclical uptick in exports.

The bad news is that historically, a strong dollar has been associated with slower global growth and vice versa. The explanation is that when the dollar is weak, capital flows out to the emerging markets, stimulating trade and investments. When the dollar is strong, capital flows back to the US and if the US is unable to recycle these flows, global growth weakens.

As the taper tantrum in 2013 showed, when the Fed signalled an increase in interest rates, emerging markets suffered huge turmoil of capital outflows, leading to either interest rate increases or sharp devaluations.

The power of the US to recycle global capital flows is critical to global recovery. Unconventional monetary policy in the US, in the form of near zero interest rates, is not working because the transmission mechanism of cheap money to the real economy is not working. Liquidity remains within the central bank-financial market nexus, with relatively slow lending to finance private sector long-term investments. The private sector is also not confident about the future until there are stronger signs of sustained consumer spending. Furthermore, much-needed public sector investments in infrastructure are being constrained by the large debt overhang and toxic politics.

In short, global capital flight to the dollar, with near zero interest rates, will mean global secular deflation. The reason is that zero interest rate dollar holdings have the same deflationary role as gold in the 1930s. Holding gold was deflationary because spending stops as more and more gold hoarding drained liquidity from the market.

Wait a minute. If the Chinese economy is still growing three times faster than the US in GDP terms (6.7% versus 1.8%), shouldn’t the yuan appreciate? Yes, China is running a current account surplus, but capital outflows are currently running about the same level as trade surpluses, so foreign exchange reserves are flat. Many people think that capital outflows indicate that the yuan will remain weak against the dollar until private sector confidence recovers.

The European and Japanese central banks are running negative interest rate policies precisely because with interest rates relatively lower than the dollar, capital flows will induce lower exchange rates, which will hopefully reflate their economies. The Fed has exactly the same fear as the People’s Bank of China in 2009 when China was growing at more than 10% per year.

Higher Fed interest rates would attract higher capital inflows, pushing up the dollar and inducing even higher asset bubbles, with no inflation in sight.

In sum, much will depend whether the US will use more fiscal stimulative policies and less of unconventional monetary policy to revive productivity growth. It looks as if we will have to wait for a new President to make that strategic call. We will know by November,

By Andrew Sheng

Tan Sri Andrew Sheng is Distinguished Fellow, Asia Global Institute, University of Hong Kong.

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