Monday 10 January 2011

Quick links

- A woman has been jailed by Chinese authorities for re-tweeting an ironic comment lampooning anti-Japanese sentiment in China.

- A Chinese businessman resident in the UK puts in an offer for HMS Ark Royal.

- Wong Kar Wai, my favourite director (except, maybe, for Mel Brooks) is making a new film.

- A pair of Giant Pandas arrive in London.

Friday 7 January 2011

The HSBC 2050 report and Poland

Dr. Marcin Piatkowski, a senior economist at the World Bank's Warsaw office, expresses similar doubts about predictions that assume unchanging population growth/shrinkage in relation to Poland, where I'm currently working:

"The main reason why Poland is projected not to do too well in the future is the expected demographic decline. The model assumes that the fertility rate in Poland will remain low at 1.3 and that there will be no immigration. Both assumptions are incorrect.

First, the fertility rate in Poland is already increasing, exceeding 1.4 in 2009, up from 1.3 in 2003. What is more important, pressed by the society and rising future pension costs, the Polish government will have no choice, but to enhance its pro-family policy


Second, Poland is set to become a big recipient of immigrants, reversing the 300 year old trend. This is because with rising income Poland will become more and more attractive. When Poland's GDP per capita rises above 70% of the EU average, similarly to Spain in the mid-1990s and the Czech Republic recently . . ."

This would seem to be a general concern about these predictions - that population growth is actually hard to predict, and any forecasts done on the assumption that growth rates will remain stable or only change linearly are bound to be inaccurate. Something worth considering, for example, is that the UK's recent increases in birth rate have come at the expense of Eastern European states, where large numbers of young people emigrated to the UK after the accession of these states to the EU. Now that these states are becoming relatively richer, it seems unlikely that such migration patterns will continue.

PwC 2050 forecast: Bad news for the UK

As yet another counterpoint to the rosy predictions of HSBC, financial services giant PwC has issued its own economic forecasts for the middle of this century. Put simply, things don't look good for the UK or the rest of the Atlantic countries - and the reason for this is a failure to exploit the potential of developing world as an export market:

"The latest forecasts from the International Monetary Fund suggest that China will grow by 10.5% this year, India by 9.7%, Brazil by 7.5% and Russia by 4.0% – yet the four economies combined account for 7% of UK exports, the same as for crisis-ridden Ireland.

Moreover, the PwC report predicts that the shift in economic power from west to east will accelerate, with growth rates in the UK and other developed economies lagging far behind those of the leading developing nations. It says the UK will grow by 2.3% a year between now and 2050, compared with 5.9% a year in China and 8.1% a year in India.

"Rapid growth in consumer markets in the major emerging economies, associated with a fast-growing middle class, will provide great new opportunities for western companies that can establish themselves in these markets," Hawksworth says. "If the UK is not to be playing in the slow lane of history for the next 40 years, then it needs to find a way to break into these fast-growing emerging markets on a much larger scale than achieved so far."

Every time I visit the UK I see this in the patenting world in spades - the idea that having an office in Hong Kong somehow automatically gives access to the Mainland Chinese market is all too prevalent, and companies are too willing to lay back on trade from clients in the US and Japan leaving the field to their mainly German competitors. Given that the legal services industry in one in which the UK has, along with financial services, traditionally excelled, this is particularly depressing.

What can UK firms do to overcome this? First and foremost, more skilled workers from outside the EU should be allowed to work for UK firms - the current government's policy of reducing skilled immigration is totally counter-productive in this regard. Put simply, what UK firms have to offer that clients in the developing world need most is know-how, and the best way of marketing this is for people to go to the UK, work there, and see this for themselves.

Beyond this, a greater familiarity with the emerging markets amongst UK professionals would help a great deal - even well-educated UK professionals still have rather out-dated views of these markets and what may be accomplished in them.

Wednesday 5 January 2011

HSBC and world of 2050

The start of the year is the traditional time for publishing forecasts, but this one from HSBC seems particularly note-worthy, if only for the degree to which it is at variance with other forecasts. Essentially the report, which is based on the theoretical work of Harvard professor Robert Barro, foresees a US/China-led super-boom despite the doom and gloom currently seen in most corners of the globe except India and China:

"In a sweeping report entitled "The World in 2050", the bank said China would snatch the top slot as expected, but only narrowly. China at $24.6 trillion (constant 2000 dollars) and the US at $22.3 trillion will together tower over the global economy in bipolar condominium - or simply the G2 - with India at $8.2 trillion far behind in third slot, and parts of Europe slithering into oblivion. "

Robert Barro, who in 2005 predicted a 20-30% appreciation in the value of the Yuan against the dollar which is indeed what eventually happened
, has a not-too-bad record for accurate predictions. In the HSBC report, demographics are seen as key to long term economic health:

"America's high fertility rate (2.1) will allow it too keep adding manpower long after China's workforce has begun to contract in 2020s and as even India starts to age in the 2040s.

. . . .

The low fertility of Korea (1.1), Singapore (1.2) Germany (1.3), Poland (1.3), Italy (1.4), Spain (1.4) and Russia (1.4), more or less dooms these countries to aging crises and population decline unless they open the floodgates to immigration.

Japan is already deep into this phase of atrophy, explaining why the country has had such trouble shaking off the effects of the Nikkei bust. Its total population began contracting outright since 2005. It shed a record 120,000 last year, and will shrink 37pc by 2050."

All the same, other forecasts published recently have taken a far more gloomy view of the future for the non-BRIC countries. The Economist's "World in 2011", for example, had Chinese GDP surpassing that of the US by 2027, and the combined GDPs of the BRIC countries surpassing those of the G7 by around 2033. The author of the Telegraph's report on HSBC's predictions, Ambrose Evans-Pritchard, predicted misery all-round in this editorial:

"China and India are over-heating, faced with a 1970s choice between choking credit or the onset of stagflation. If they choose the latter to buy time, the politics of food will turn on them with a vengeance.

Vietnam will have to rescue its banking system, kicking off the Asian hard-landing of 2011-2012. The Aussie dollar will come back to earth.

Dylan Grice's rule of thumb at SocGen is that regions coming off a "good crisis" -- Japan in 1987, the US during East Asia’s 1998 blow-up, Chindia this time -- typically pop about two and half years later. The reason they have a good crisis when others bleed is because momentum from credit follies and/or hubris overpowers the external shock, but that contains the seeds of its own destruction.

Speaking of rules, the Atlanta Fed’s law is that every year of debt-based boom is roughly offset by equal years of debt-purge bust, which means a Lost Decade for the old world. I doubt the West will recover soon enough to pick up the growth baton before the East hits tires. We may then have a "sub-optimal equilbrium", that modern euphemism for a trade depression."

From my own amateur point of view, the HSBC report seems to err in assuming that demographic changes cannot occur rapidly. It seems unlikely, for example, that the relatively high birth-rates found in the UK and US will continue until 2050, particularly as they are driven by immigration which is itself fuelled by the difference in living standards between developing and developed nations which is sure to decrease with time. And this is even without pointing out the acknowledged limitations of the HSBC report, which assumes that problems in energy and food production are solved, and that a global environmental catastrophe is avoided.

Saturday 1 January 2011

China's stealth fighter - my former students at work?

Several blurry photos have emerged showing what appears to be a Chinese stealth fighter, something which US defence experts had not expected to see this soon. Whilst these photos are of dubious provenance, I can't help but think of a conversation I had with one of my students at Nanjing University of Aeronautics and Astronautics back in 2003 when I had just arrived in Mainland China for the first time.

Sitting down in a tea shop with some students I knew, I asked them about their research projects. One of them baldly replied that their research was in the field of reverse engineering stealth technology from the US-built F-117 and B2 stealth aircraft. Fearing that the student might be putting them self in trouble by telling me this, I changed the subject, so I never learned how the samples on which the reverse engineering was conducted were obtained. However, it's hard to believe they could have been obtained without some kind of espionage, although it is also possible that samples were bought from the Yugoslavs after they shot down a F-117 during the Kosovo conflict.

At any rate, it is strange to think that I may have shared a pot of tea with the people who developed China's newest wonder-weapon.

(Picture taken from