But Mr Euro, Jean Claude Junker, certainly doesn't. The pressure *is* showing.
Wednesday, June 15, 2005
So Happy Together
Actually I don't know if anyone else noticed, but the video footage of their meeting yesterday showed Blair looking off into the distance as Chirac was speaking to him. Looking straight through him almost. Whether this means that 'our Tony' is now living in his own private world, or whether he just thinks Chirac has gone mad (a view which might be confirmed by the video footage of Chirac's earlier meet with Schröder, where he is seen answering a personal call on his mobile whilst greeting the press). In any event Chirac seemed to me to be visibly un-nerved by Blair's behaviour.
Swimming Against the Stream
Despite what William Poole says, I think there is little life left in the Fed 'measured rate rise' policy. One of the consequences of growing globalisation (read China and India) and the CA deficit is that you loose the ability to upwardly control your own domestic prices and set your own interest rates. The US CPI is being determined in China, and the Federal FOMC rate is being set by ECB president Jean-Claude Trichet.
China: More Exports On The Way
China's industrial production rose faster than expected in May as factories expanded production to meet export orders.
Output climbed 16.6 percent from a year earlier to a record 570 billion yuan ($69 billion) after a 16 percent gain in April, the Beijing-based statistics bureau said on its Web site today. Exports of ferrous metals such as steel rose 74 percent and those of laptop computers and shoes rose more than 30 percent.
and don't miss this part:
"Chinese consumer prices of clothing, household appliances and telecommunications products have declined every month since May 1999, government figures show."
Output climbed 16.6 percent from a year earlier to a record 570 billion yuan ($69 billion) after a 16 percent gain in April, the Beijing-based statistics bureau said on its Web site today. Exports of ferrous metals such as steel rose 74 percent and those of laptop computers and shoes rose more than 30 percent.
and don't miss this part:
"Chinese consumer prices of clothing, household appliances and telecommunications products have declined every month since May 1999, government figures show."
Japan: The Deflation Debate Continues
The fact of the matter is that if you are chasing hares in the wrong places, you are going to miss all the interesting and important stories. Most of the current 'consensus' view of where we are in global economy terms is little short of balderdash, IMHO. We will not see major inflationary problems in the OECD world, the dollar is *not* going to collapse, and, and ....... deflation isn't a dead issue in Japan. Of course with so much time spent contemplating China, Japan and its economic woes are rather pushed down the columns these days. One 'weathered' Japan watcher is the FT's David Pilling, and as he explains today, the debate in Japan, far from being over is just starting to warm up:
Interest rates have not risen from zero since the famous occasion in August 2000 when under the previous, hawkish governor the bank temporarily raised rates a quarter point, in spite of the fact that Japan was still mired in deflation.
n conventional monetary policy terms, the return to zero-interest rate policy has left the BoJ with little to do but twiddle its thumbs until inflation returns.
Yet the apparent calm obscures the fact that these days, the bank is buzzing with debate, and the subject of intense scrutiny from other branches of the government.
The reason is that when the board met last month, it signalled what many consider to be a turning point in its anti-deflationary policy. After flooding the market with ever-increasing amounts of liquidity in an attempt to breathe life into monetary policy, the bank last month tacitly declared an end to the experiment.
I think one part of the present debate is simply a question of people convincing themselves with their own arguments: that is, if deflation is primarily a monetary phenomenon, and you get the monetary conditions right, then deflation must end. Well, unless your name is Ben Bernanke, the monetary conditions are amazingly loose, so logically deflation should be coming to an end. Of course, if deflation in Japan isn't primarily a monetary phenomenon, the argument doesn't hold.
Now deflation is reducing. But we are at - or near - the top of the business cycle. You would expect upward price pressure, before we declare deflation dead it might be more prudent to wait till we're back in a cyclical trough.
Interest rates have not risen from zero since the famous occasion in August 2000 when under the previous, hawkish governor the bank temporarily raised rates a quarter point, in spite of the fact that Japan was still mired in deflation.
n conventional monetary policy terms, the return to zero-interest rate policy has left the BoJ with little to do but twiddle its thumbs until inflation returns.
Yet the apparent calm obscures the fact that these days, the bank is buzzing with debate, and the subject of intense scrutiny from other branches of the government.
The reason is that when the board met last month, it signalled what many consider to be a turning point in its anti-deflationary policy. After flooding the market with ever-increasing amounts of liquidity in an attempt to breathe life into monetary policy, the bank last month tacitly declared an end to the experiment.
I think one part of the present debate is simply a question of people convincing themselves with their own arguments: that is, if deflation is primarily a monetary phenomenon, and you get the monetary conditions right, then deflation must end. Well, unless your name is Ben Bernanke, the monetary conditions are amazingly loose, so logically deflation should be coming to an end. Of course, if deflation in Japan isn't primarily a monetary phenomenon, the argument doesn't hold.
Now deflation is reducing. But we are at - or near - the top of the business cycle. You would expect upward price pressure, before we declare deflation dead it might be more prudent to wait till we're back in a cyclical trough.
China and FDI
While it is rumoured that the Poles may well have to learn to distinguish between two identical twins who they could have as PM and President respectively, I am having difficulty separating one Brad from another. In particular since yesterday they both had posts on China (here, and here). Now if I get the time I may well add my own six-penny worth to this on Afoe later, but meanwhile this news about railway projects in China draws attention to one of the important details about FDI in China: it is about technology transfer. China has the capital internally to carry out such projects, what It may not have is the logistics and technical expertise, and what it certainly dopesn't have is the state of the art technology, at least it doesn't have it yet. Learning by doing.
China's eastern province of Shandong has called for overseas investment in up to six new railway lines, opening the way for what analysts say would be the first wholly foreign-owned track to be laid since the 1949 communist revolution.
Foreign railway ownership has been a sensitive issue in China since colonial powers outraged many by building lines deep into the interior during the 19th century decline of the Qing Dynasty.
Now Beijing sees foreign investment as an important way of accelerating construction of the nearly 30,000km of track China plans to build before 2020.
But the enthusiasm of international investors for what is one of the world's biggest railway construction booms may be undermined by a lack of regulatory clarity and vulnerability to bureaucratic whim.
China's eastern province of Shandong has called for overseas investment in up to six new railway lines, opening the way for what analysts say would be the first wholly foreign-owned track to be laid since the 1949 communist revolution.
Foreign railway ownership has been a sensitive issue in China since colonial powers outraged many by building lines deep into the interior during the 19th century decline of the Qing Dynasty.
Now Beijing sees foreign investment as an important way of accelerating construction of the nearly 30,000km of track China plans to build before 2020.
But the enthusiasm of international investors for what is one of the world's biggest railway construction booms may be undermined by a lack of regulatory clarity and vulnerability to bureaucratic whim.
Energy Consumption Numbers
The latest fuel consumption numbers from BP confirm what was already pretty obvious: that with global growth continuing at a brisk clip, and two of the most populous nations, China and India, growing super-fast, the increasing use and price of Oil is structurally inbuilt into the system.
World energy consumption surged 4.3 per cent last year, the biggest percentage rise since 1984 and the largest volume increase ever, according to new figures from BP, the oil company.
BP's annual statistical review, released on Tuesday, showed that the fast-growing economies of Asia were responsible for a large portion of the rise. China's fuel consumption rose by 15.1 per cent and India's by 7.2 per cent.
Global consumption of oil also rose by 3.4 per cent, or 2.5m barrels a day, the biggest increase since 1978. Some 900,000 b/d of that increase in demand came from China, but BP said the demand also rose strongly across virtually every region.
There has been a lot of talk lately about China in this context, but India's energy needs are evidently on the rise, and they are also having geo-political consequences.
World energy consumption surged 4.3 per cent last year, the biggest percentage rise since 1984 and the largest volume increase ever, according to new figures from BP, the oil company.
BP's annual statistical review, released on Tuesday, showed that the fast-growing economies of Asia were responsible for a large portion of the rise. China's fuel consumption rose by 15.1 per cent and India's by 7.2 per cent.
Global consumption of oil also rose by 3.4 per cent, or 2.5m barrels a day, the biggest increase since 1978. Some 900,000 b/d of that increase in demand came from China, but BP said the demand also rose strongly across virtually every region.
There has been a lot of talk lately about China in this context, but India's energy needs are evidently on the rise, and they are also having geo-political consequences.
Tuesday, June 14, 2005
Chinese Consumption Continues To Power Ahead
Whilst Stephen Roach seems to be becoming increasingly nervous about a China slowdown, the latest set of retail numbers continue to show strong growth.
Re-Sequencing
Stephen Roach 13 June 2005
In short, in a rising real interest rate climate, there was good reason to believe that the asset-dependent American consumer was about to lead the charge in a long overdue global rebalancing.
That was then. No longer do I feel that the American consumer will be first to go in this adjustment process. I now believe that the Chinese producer will lead the way. A two-pronged slowdown now seems likely to unfold in China -- with internal policies aimed at a bursting of the property bubble and external forces putting pressure on China’s export dynamic (see my 23 May dispatch, “What If China Slows?”). Collectively, fixed investment and exports account for 80% of Chinese GDP, and these two sectors are currently surging ahead at a 30% y-o-y rate. With the Chinese government now serious in going after the excesses on the demand, supply, and financing sides of the coastal property bubble, the investment dynamic should slow appreciably.
Meantime the Chinese themselves continue to increase their spending:
China's retail sales rose at a faster than expected pace in May as higher incomes spurred spending on Hitachi Ltd. televisions, General Motors Corp. cars and Tsingtao Brewery Co. beer.
Sales increased 12.8 percent from a year earlier to 489.9 billion yuan ($59 billion), the Beijing-based National Bureau of Statistics said today on its Web site. The median forecast of seven economists surveyed by Bloomberg News was for growth to remain at April's 12.2 percent rate.
Of course Roach is right, an economy where 80% of GDP comes from investment and exports is hardly 'well balanced', the big question though is still when the 'unsustainable' will cease to sustain itself.
Re-Sequencing
Stephen Roach 13 June 2005
In short, in a rising real interest rate climate, there was good reason to believe that the asset-dependent American consumer was about to lead the charge in a long overdue global rebalancing.
That was then. No longer do I feel that the American consumer will be first to go in this adjustment process. I now believe that the Chinese producer will lead the way. A two-pronged slowdown now seems likely to unfold in China -- with internal policies aimed at a bursting of the property bubble and external forces putting pressure on China’s export dynamic (see my 23 May dispatch, “What If China Slows?”). Collectively, fixed investment and exports account for 80% of Chinese GDP, and these two sectors are currently surging ahead at a 30% y-o-y rate. With the Chinese government now serious in going after the excesses on the demand, supply, and financing sides of the coastal property bubble, the investment dynamic should slow appreciably.
Meantime the Chinese themselves continue to increase their spending:
China's retail sales rose at a faster than expected pace in May as higher incomes spurred spending on Hitachi Ltd. televisions, General Motors Corp. cars and Tsingtao Brewery Co. beer.
Sales increased 12.8 percent from a year earlier to 489.9 billion yuan ($59 billion), the Beijing-based National Bureau of Statistics said today on its Web site. The median forecast of seven economists surveyed by Bloomberg News was for growth to remain at April's 12.2 percent rate.
Of course Roach is right, an economy where 80% of GDP comes from investment and exports is hardly 'well balanced', the big question though is still when the 'unsustainable' will cease to sustain itself.
Monday, June 13, 2005
China Here and China There.
I had a mangled post on the euro and the US trade deficit here. Brad Setser has a much better one here. Brad has a good summary piece on China and the US here, and a summary of a recent trip to China here (both with Nouriel Roubini). I also have a piece on Afoe today about China and Europe:
So what can we learn from all this? That trade with China is a problem for those countries which have a preponderance of low value manufactured exports, since these are in direct competition with the nascent Chinese industries. Those countries who have competitive exports - UK, Germany, Netherlands, Finland, Sweden -are *not* threatened by China, indeed in these countries consumers can welcome the prospect of enjoying cheap manufactured products which they pay for by selling other products elsewhere. At root, I suspect the US problem is somewhat similar: some regions/states enjoy the benefits of trade with China whilst others see their economic livelyhood threatened. Unfortunately in the US system, those who are threatened seem to have a disproportionate political influence. I wonder whether one of the ironic consequences of the recent French vote will be that this same situation will *no longer* be the case here in the EU.
So what can we learn from all this? That trade with China is a problem for those countries which have a preponderance of low value manufactured exports, since these are in direct competition with the nascent Chinese industries. Those countries who have competitive exports - UK, Germany, Netherlands, Finland, Sweden -are *not* threatened by China, indeed in these countries consumers can welcome the prospect of enjoying cheap manufactured products which they pay for by selling other products elsewhere. At root, I suspect the US problem is somewhat similar: some regions/states enjoy the benefits of trade with China whilst others see their economic livelyhood threatened. Unfortunately in the US system, those who are threatened seem to have a disproportionate political influence. I wonder whether one of the ironic consequences of the recent French vote will be that this same situation will *no longer* be the case here in the EU.
Chinese Inflation Tame
Chinese consumer price inflation held steady in May at 1.8%, the lowest level in a year and a half as falling food prices offset pressure from high oil and commodity prices. In fact Consumer price inflation has been steadily declining from a peak of 5.3% last July and August. Until April, the annual rate of CPI growth had been over 1.8% every month since October 2003. According to the FT the reduction is due to the fact that food prices, which account for an estimated 40 percent of the CPI basket, have eased and that prices for almost all manufactured goods continue to be stuck in deflation.
"Analysts pointed in particular to grain prices, where increases have steadily dropped over the past year from annual rises of more than 30 percent in much of 2004 and which have even started to fall in recent months.
In May, grain prices were 1.6 percent lower than a year earlier, similar to April’s fall of 1.7 percent. However, vegetable prices rose 10.1 percent on the year, data from the National Bureau of Statistics showed."
Basically strong producer price inflation persists (5.9% annual) but overcapacity and strong competition prevents producers from passing on costs.
"Analysts pointed in particular to grain prices, where increases have steadily dropped over the past year from annual rises of more than 30 percent in much of 2004 and which have even started to fall in recent months.
In May, grain prices were 1.6 percent lower than a year earlier, similar to April’s fall of 1.7 percent. However, vegetable prices rose 10.1 percent on the year, data from the National Bureau of Statistics showed."
Basically strong producer price inflation persists (5.9% annual) but overcapacity and strong competition prevents producers from passing on costs.
Sunday, June 12, 2005
Gay Pride In Poland
There's a lot of debate in the EU these days about whether Turkey is a suitable candidate for membership. Many opponents point to Turkey's record on human rights, and the deep religious conservatism in some parts of Turkish society as obstacles to joining. I think it is important to keep in mind the potential of the EU as a motor for facilitating change. Poland would be a case in point. When I was studying Bulgarian immigrants in Spain, it was clear that a majority of the migrants wanted to return home when they could. The two big exceptions members of ethnic minorities (particularly from Bularia's Turkish minority, but also Pomacs) and those who wanted to be able to freely express their sexual orientation. Well by joining the EU you can now increasingly do this without resort to external migration. Well done EU.
"More than 2,000 people defied a ban on a gay-rights rally in Poland's capital, taking to the streets of Warsaw on Saturday against the orders of the city's conservative mayor. Gays, lesbians and their supporters carrying banners with slogans including "A gay is not a pedophile" and "Law and justice for all" rallied near parliament and marched to the Palace of Culture, a Stalinist landmark. It was the second year Warsaw's mayor, Lech Kaczynski. had banned the gathering."
"More than 2,000 people defied a ban on a gay-rights rally in Poland's capital, taking to the streets of Warsaw on Saturday against the orders of the city's conservative mayor. Gays, lesbians and their supporters carrying banners with slogans including "A gay is not a pedophile" and "Law and justice for all" rallied near parliament and marched to the Palace of Culture, a Stalinist landmark. It was the second year Warsaw's mayor, Lech Kaczynski. had banned the gathering."
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