Posts Tagged ‘International Monetary Fund’

China reports 6.7 per cent GDP expansion in 2016 amid data cooking scandal

January 20, 2017

By Frank Tang
South China Morning Post

Friday, January 20, 2017

China’s government said the nation’s economy expanded by 6.7 per cent in 2016, within its target but the slowest pace of growth in 26 years.

The publication of the figures comes as investor confidence in the Chinese economy, and even the credibility of official economic data, is waning.

China’s economy is expected to face more headwinds this year after Donald Trump, who has been threatening tough trade measures against Beijing, assumes the presidency.

The data released by the National Bureau of Statistics on Friday showed that China’s economy expanded by 6.8 per cent in the final quarter of last year, accelerating from 6.7 per cent growth in the third, second and first quarters of 2016.

Property and infrastructure construction, together with a credit boom, played a key role in stabilising the economy last year, according to analysts.

It raises doubts about whether there will be a further return to an investment-led growth model, which the Chinese government says it is trying to shift away from.

Fixed-asset investment rose 8.1 per cent last year, while retail sales, a barometer of consumption, gained 10.4 per cent, the statistics agency said.


 Residential and office buildings in the centre of Beijing. Photo: Reuters

China’s curbs to overcapacity in the steel and coal sectors plus a global commodity prices rebound helped shore up production, but fuelled worsening air pollution on the mainland.

China’s total GDP reached 74.4 trillion yuan (HK$84.2 trillion) last year.

However, China’s economic data came under fresh scrutiny this week after the northeastern province of Liaoning admitted cooking its books from 2011 to 2014.

“Data distortion harmed the judgement of policymakers in 2016 when the government unleashed a hefty monetary and fiscal stimulus to shore up investment,” Shen Jianguang, chief economist at Mizuho Securities Asia, wrote in a research note.

The International Monetary Fund is still optimistic about China’s growth prospects, upgrading its 2017 forecast to 6.5 per cent from 6.2 per cent in its World Economic Outlook released on Monday.


Davos: IMF chief Christine Lagarde Addresses Income Inequality That “Threatens to Pull Our Societies Apart”

January 18, 2017


© AFP | IMF chief Christine Lagarde says the Fund is now looking more closely at inequality
DAVOS (SWITZERLAND) (AFP) – IMF head Christine Lagarde conceded Wednesday the Washington lender had been late waking up to the widening gap between rich and poor around the world, but is now researching answers to the problem.”There has been a strong backlash (against) economists in particular saying that this was not really of their business to worry about these things, including in my own institution,” Lagarde told an audience of high-flying executives at the World Economic Forum in Davos, Switzerland.

The International Monetary Fund is “now being very harshly converted to the importance of inequality and studying it and providing policies in response to that”, she said.

An Oxfam report coinciding with Davos this week said eight billionaire men own the same wealth as the poorest half of the world’s population.

That level of inequality “threatens to pull our societies apart”, Oxfam said.

For its part, the IMF often demands unpopular reforms from governments in return for its financial aid stoking voter discontent where it is active, including in Greece.

Lagarde has been trying to make the IMF more responsive to public disquiet and has speaking out about inequality linked to globalisation, as voters in the West increasingly turn to populist parties.

“When you have a real crisis or when you have very strong signals as we have received from the voters from people who say no, it’s really time to say … what more can we do,” she said.

“If policymakers do not get the signal now, I don’t know when they will.”


Income inequality: The good, the bad, and how to tackle it

Populism in the West is bringing concerns over economic inequality – and scrutiny over how to ameliorate it – to the forefront. Will nationalist leaders respond?

By David Iaconangelo
The Christian Science Monitor

JANUARY 17, 2017 Eight of the world’s richest men now own as much wealth as half of the world’s poorest people, anti-poverty organization Oxfam said in a report released on Tuesday.

Public reaction to inequality is driving political division in rich countries, the group wrote. On the upside, poor countries have also seen hundreds of millions of their citizens escape poverty in recent decades, Oxfam acknowledges. But it suggests that these countries have also missed out on an opportunity to do the same for hundreds of millions more.

“The very design of our economies and the principles of our economics have taken us to this extreme, unsustainable and unjust point,” says the report. “It’s time to build a human economy that benefits everyone, not just the privileged few.”

The report, based on data from a 2016 global wealth index from Credit Suisse and Forbes’ billionaires list, comes as political and business leaders meet at Davos, Switzerland, for this year’s World Economic Forum (WEF) summit, where inequality is a top item on the agenda.

And it sounds an alarm about a problem that is stirring unprecedented debate among the political classes of wealthy countries: what the gap between rich and poor could spell for the direction of world trade and security, as well as how national governments ought to address it.

“We’re in a moment where policy proposals being put on table are being held up against this light: that people feel that their economies are increasingly unfair and unequal,” says Paul O’Brien, vice president of policy and campaigns at Oxfam America. “And I think it’s harder for policymakers to talk about economic growth without talking about inclusive economic growth.”

But here’s the catch: There’s no consensus among economists that inequality should be considered a problem. Conservative thought tends to see it as a consequence of a process that is actually quite beneficial for societies, even for those at the bottom rungs of the income ladder. The rich are getting richer, but so are the poor. Economists point to how the decades-long drop in global inequality of incomes – that is, between countries – has created new middle-classes in developing countries, especially in Asia.

“My own reaction is, well, who cares?” wrote Forbes columnist Tim Worstall about the Oxfam report:

Wealth, value, is something created. And some of it will stick to the people doing the original creation, some tiny, tiny, fraction and the rest of it goes out into the world to be enjoyed by the rest of us. Thus the solution to poverty is that there be more rich people, people who have grown rich by creating value for the rest of us to consume.

Others cast doubt on the viability of democracies in conditions of intense inequality – particularly in the case of the US, where some studies trumpet its arrival into full-blown plutocracy. Even much of the US political elite sees inequality as a catalyst of instability. Economists such as Branko Milanovic, a leading scholar on inequality at the City University of New York, have argued that the past century’s world wars came about in large part because of the pressures of inequality, as the Financial Times noted last April. And this past week, the WEF pointed to the election of Donald Trump and Britain’s vote to leave the European Union as evidence that “fundamental reforms of market capitalism” were in order.

The United States has made slight progress over the past few years, with median incomes and wages rising, says Jennifer Blanke, chief economist at the WEF.

But “there are huge warning signs right now,” she tells The Christian Science Monitor, “and a lot of disgruntlement.”

The assiduousness of inequality scholars in recent years has produced a few unorthodox proposals, including French economist Thomas Piketty’s proposed global tax on wealth. Still, the remedies that tend to be put forth – more progressive taxation, including new solutions to crack down on tax havens; stronger wage laws for workers; and expenditure policies that direct more money toward education, health care, and other programs designed to benefit the lower-income – read like pages cut out of a social democrat’s playbook.

Since their shellacking in the 2012 presidential election, Republicans in the US have begun to speak the language of inequality, with figures such as House Speaker Paul Ryan (R) of Wisconsin drafting anti-poverty plans and candidates incorporating it into campaign rhetoric.

President-elect Donald Trump, meanwhile, has begun to sketch the initial contours of his America-first agenda, pressuring specific manufacturers (notably, Ford and Carrier) not to relocate production overseas and threatening tariffs on imports from countries such as China, Mexico, and even Germany. That would seem to set the interests of US workers against those of workers in places like China and Mexico who have carved out a livelihood with US companies.

How a Trump government – and other conservative populists elsewhere – might manage protectionist measures, without causing a shock to their own economies, remains opaque. Another central question might be whether they will be able to pioneer solutions that reduce inequality at home, and convince their trading partners abroad to go along with this approach.

Mr. O’Brien of Oxfam sees uncertainty, with regard to how governments, including the US, will respond to pressure for a need to address income inequality.

But “if one of the consequences of this election is that more politicians are paying attention to the fact that huge swaths of Americans and people around the world feel they’re being left behind by extreme inequality,” he adds, “then that awareness is a good thing.”

PM Najib says Malaysia’s economic plan on track despite challenging 2016 — “The Government is committed to building a more prosperous and equitable Malaysia.”

December 31, 2016


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Malaysian Prime Minister Najib Razak said the country’s economic plan was working, as evidenced by independent assessments carried out by the world’s top economic experts. PHOTO: AFP

PETALING JAYA (THE STAR/ASIA NEWS NETWORK) – Malaysian Prime Minister Najib Razak has reminded all Malaysians that despite a challenging 2016, the Government is committed to building a more prosperous and equitable Malaysia.

Datuk Seri Najib said the country’s economic plan was working, as evidenced by independent assessments carried out by the world’s top economic experts, and urged everyone not to fall for smear campaigns carried out by certain groups for their own political gains.

“Assessments such as these are independent and conducted by the world’s top experts. They reflect the true picture of Malaysia – contrary to the smear campaigns of those who have been trying to commit economic sabotage against their own country just for their own selfish political objectives,” Najib said in a New Year’s message on his blog on Saturday (Dec 31).

He said Malaysians should be proud of the growth the country was achieving, highlighting the latest International Monetary Fund (IMF) report which concluded that “despite headwinds, the Malaysian economy continues to perform well”.

The IMF report also praised Malaysia for making “significant progress toward achieving high-income status”, and Najib said this is the economic reality of Malaysia instead of the false stories being propagated.

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High speed rail

“Fake news and the proliferation of false stories has become a worldwide phenomenon, and is a grave problem in our country as well,” he said.

The Prime Minister also acknowledged that the IMF’s assessment may seem remote to Malaysians who are struggling to afford a decent life, adding that this was why Budget 2017 would pay greater attention to the needs of the Bottom 40 and Middle 40.

He said that the large-scale infrastructure projects planned for Malaysia, such as Bandar Malaysia, Tun Razak Exchange, the East Coast Rail Link, the High Speed Rail, and the Pan Borneo Highway would ensure long-term sustainability.

“The Pan Borneo Highway, for instance, will not only connect Serundong in Sabah to Semantan in Sarawak, it will also help re-energise numerous towns along the way.

Image may contain: cloud, sky, outdoor and nature

Pan-Borneo Highway. Pic Sam, Flickr

“I am determined to see this project through as I know the sheer number of communities, many of whom I have visited, that will benefit from it,” said the Prime Minister.

Najib said Malaysia would also continue playing a leading role on the international stage, and bringing attention to global issues such as the Rohingya and Palestinian plight.

“At home and abroad, we continue to be at the forefront of the fight against extremism and radicalisation.

“We suffered our first ISIS-linked attack in June, and only the tireless dedication of our brave police and armed services have prevented there being more,” he said.

He also paid tribute to the unforgettable performances of Team Malaysia at the Olympics and Paralympics Games in Brazil.

“While all of our athletes are worthy of mention, to have won our first two gold medals was a truly historic achievement, and one which swelled the hearts of all Malaysians,” he said, adding that the coming together of all Malaysians in support of the national team was a true reflection of 1Malaysia.

“A nation confident in ourselves, celebrating our diversity, proud of our successes, and always looking to ensure that all our brothers and sisters are fully part of this great journey that Malaysia is on.

“I ask all Malaysians to be united in this spirit, and I wish you a happy, safe and prosperous New Year,” he added.


Malaysia’s growth is one that developed countries can only dream of: Najib

December 31, 2016

KUALA LUMPUR: Malaysia’s estimated growth rate for 2016 is something developed countries “can only dream of”, Malaysia’s Prime Minister Najib Razak said in his New Year message on Saturday (Dec 31).

“Our estimated growth rate of 4.3-4.5 per cent for this year is one that developed countries in Europe and North America can only dream of,” he said.

“Malaysians should be proud of the growth we are achieving.”

Citing an International Monetary Fund (IMF) report which concluded that “despite headwinds, the Malaysian economy continues to perform well”, Najib said that such assessments “reflect the true picture of Malaysia”.

“Assessments such as these are independent and conducted by the world’s top experts. They reflect the true picture of Malaysia – contrary to the smear campaigns of those who have been trying to commit economic sabotage against their own country just for their own selfish political objectives,” said Najib.

He added that fake news was a “grave problem in our country”, and urged Malaysians “not to fall for lies that are spread”.

However Najib’s assessment came at the close of a year which saw the ringgit fall to 4.4805 against the US dollar. This was its weakest level since the Asian financial crisis in 1998, according to a Bloomberg report.


Turning to global affairs, Najib said that Malaysia “will not shy away from speaking out” on “global issues that matter”.

“In response to the tragic events involving the Rohingya population in Myanmar, we successfully requested a gathering of ASEAN Foreign Ministers to discuss possible solutions to what is an increasingly concerning situation,” he said.

He added that Malaysia remained committed to supporting the quest for peace in the Middle East, citing the country’s co-sponsorship of a UN resolution against illegal settlement building in Palestinian territories.

China Hits Reset on Yuan Fixing

December 29, 2016

Central bank is adjusting mix of foreign currencies used in setting official daily value

The dollar’s weighting in the basket of currencies used to set the yuan’s daily value will be reduced.
The dollar’s weighting in the basket of currencies used to set the yuan’s daily value will be reduced. PHOTO: REUTERS

Updated Dec. 29, 2016 12:54 p.m. ET

BEIJING—China’s central bank is adjusting the mix of foreign currencies used in setting the yuan’s official daily value—a change analysts said should help ease recent pressure weakening the Chinese currency.

Starting Jan. 1, the central bank will expand the number of currencies in the basket uses to calibrate the yuan’s value to 24 from 13 and reduce the weighting given to the U.S. dollar to 22.4%, from 26.4%, according to an announcement by the central bank’s China Foreign Exchange Trade System late Thursday.

China wants a slightly weaker currency to help exporters and maintain competitiveness with other economies as the dollar rises, but it doesn’t want to lose control. By diluting the dollar’s share and bringing in currencies from the Korean won to the Saudi riyal and Swedish krona, the People’s Bank of China is giving itself more room to maneuver to keep the yuan from falling too fast, analysts said.

In recent weeks, the yuan has buckled under uncertainty about China’s economic performance, a surging U.S. dollar following Donald Trump’s presidential-election victory and escalating flows of Chinese currency moving offshore. A rapid descent in the yuan’s value would raise fears the central bank is losing control, undermine confidence in the economy and accelerate the outflows.

The potential for faster U.S. interest-rate increases could add even more downward pressure on the yuan, with some analysts and investors predicting that the currency could break the psychologically important seven-yuan-per-dollar level as soon as next month. So far this year the yuan has dropped 7% against the dollar, nearly double the decline from the year before.

How to manage the yuan’s value has become a hot topic in official circles since a nearly 2% devaluation 16 months ago shocked global markets. In the past year the central bank has sought a less abrupt path, constricting channels for moving money out of the country and managing the pace of depreciation.

The central bank controls the mainland trading of the yuan by specifying an official rate for the yuan against the dollar and then allowing the currency to move 2% above or below the so-called daily fix. Since the beginning of this year, the central bank has been taking into account the yuan’s performance against both the dollar and a wider selection of currencies when determining the daily fix. That move has paved the way for the yuan’s gradual deprecation, which helps make Chinese goods cheaper in foreign markets.

With the pressure building for further depreciation, Chinese leaders have been trying to assert greater control and slow the decline. At a top-level meeting earlier this month, Chinese leaders said that maintaining the yuan’s “basic stability” would be a main economic task for 2017.

Expanding the currency basket and reducing the dollar’s weighting could help “reduce fluctuations of the daily fix and stabilize market expectations” for the yuan, said Zhu Chaoping, China economist at UOB Kay Hian Holdings Ltd., a Singapore-based investment bank.

When calculating the yuan’s daily fix against the dollar, the central bank considers both the yuan’s previous close versus the greenback and the overnight changes in the value of the currency basket against the dollar. As more currencies are included in the basket, the currency group likely will become more stable–potentially making the yuan’s official value against the dollar less volatile.

However, most investors still focus on the yuan’s performance against the dollar as opposed to its value against the basket. The fresh mix in the currency group, therefore, likely won’t change many investors’ pessimistic outlook for the yuan, analysts say.

The new basket will include the currencies of almost all of China’s trading partners and therefore will be more representative of the yuan’s performance against its peers, the announcement said.

Many analysts and investors said the basket can play only a limited role in steadying expectations for the yuan. A bigger issue, they said is how to break the cycle of greater depreciation leading to more outflows and more stress.

“The one-way depreciation has led to rising depreciation expectations, resulting in huge capital outflow pressure,” said China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank.

The authorities face an imminent test as the clock is reset on individuals’ annual foreign-exchange quotas. Currently, Chinese citizens are allowed to exchange up to $50,000 worth of yuan a year. The opportunity to exchange yuan in 2017 is expected to set off fresh outflows, many analysts and economists said, potentially forcing Beijing to further tighten capital controls.

In recent weeks, the central bank has sought to slow the pace of the yuan’s depreciation by market interventions and a stronger-than-expected daily fix. Some of those efforts, like the actions to sell dollars and buy yuan, threaten to drain more liquidity from China’s financial system at a time when the demand for cash from ordinary Chinese is growing ahead of Lunar New Year in late January. Chinese traditionally make cash gifts during the Lunar New Year celebrations.

That demand has led to calls on the central bank to release more funds for commercial banks to lend. So far, the central bank appears to be maintaining a tightening bias in its monetary stance, analysts said, as any credit-loosening could add to more pressure on the yuan.

Write to Lingling Wei at

China expands forex basket, dilutes role of dollar

December 29, 2016


© AFP/File | China’s currency has been under pressure from uncertainty over the health of the world’s second largest economy

BEIJING (AFP) – China said Thursday it would almost double the number of foreign currencies it uses to determine the official value of the yuan, thereby diluting the role of the dollar.

The move to expand the foreign exchange basket used to set a daily reference rate for the yuan, or renminbi, will help Beijing shake off the weakness of the currency against the greenback and project an image of stability in the unit.

The dollar will see its prominence in the basket dented by the newcomers, with its share falling from 26.4 percent to 22.4 percent. It is followed by the euro at 16.34 percent.

Among the 11 currencies to join the 13 existing ones are the South Korean won, the South African rand, the Hungarian forint, the Turkish lira and the Polish zloty, according to the Chinese Foreign Exchange Trade System, which is run by the central bank.

The expansion is designed to “strengthen the representativeness” of the basket and will come into force on January 1, it added.

“The move is aim (ed) to reduce the impact of dollar strength on the overall performance of the basket,” said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd.

China’s currency has been under pressure from uncertainty over the health of the world’s second largest economy, massive capital outflows and the sharp rise in the dollar following Donald Trump’s election victory and anticipation of US interest rate hikes.

However, when valued against the “basket of currencies” as a whole, the yuan fares much better, even seeing a rise over the past four months.

China’s communist regime likely hopes the move will project an image of stability and strengthen the international stature of the renminbi after it was welcomed by the International Monetary Fund into its elite currency basket in October.

Egypt targets 5% economic growth by mid-2018

December 25, 2016


© AFP/File | Egyptian authorities have battled high unemployment, inflation and a collapse in tourism income since 2011

CAIRO (AFP) – Egypt targets a five percent economic growth rate in the year to June 2018, the finance ministry said Sunday as the government seeks to revive an economy battered by political turmoil.

Egyptian authorities have battled high unemployment, inflation and a collapse in tourism income since the 2011 uprising that toppled former president Hosni Mubarak.

President Abdel Fattah al-Sisi, who led the 2013 military overthrow of Mohamed Morsi, Egypt’s first elected civilian president, vowed to get the economy back on track after his election the following year.

But consumers have been hit by further price hikes since November when Cairo floated its currency and slashed fuel subsidies as part of an economic reform package linked to a $12-billion International Monetary Fund loan.

The Egyptian pound had been pegged at 8.83 to the dollar, but has since weakened to more than 19 pounds to the dollar.

Egypt’s inflation rate jumped to 19.4 percent in November from 13.6 percent the previous month, according to the central bank.

Despite its woes, the government has projected a 5.2 percent GDP growth in the year to June 2017.

Economic output grew 4.3 percent in the year to June 2016, the ministry of planning said in November.

The finance ministry hopes to bring unemployment — which officially stood at 12.6 percent from July to September — down to 11 percent in the year to June 2018.

The ministry said it also wants to cut its budget deficit to 9.5 percent of GDP in the year to June 2018, down from 12.2 percent the previous year.

It said it hopes to cut public debt to 94 percent of GDP in the year to June 2018, with a medium-term target of 80 percent.

“The government will continue to implement a structural reforms package to support productive sectors especially industry and exports, while attracting investments,” the ministry said.

It said it would press ahead with implementing a value added tax and “policies to rationalise spending.”


Ukraine adopts austerity budget along IMF lines

December 21, 2016


© AFP / by Dmitry Zaks | Community workers demonstrate with garbage bags at City Hall in Kiev on December 20, 2016 to oppose a city development

KIEV (AFP) – Ukraine’s parliament on Wednesday approved an austerity federal budget for 2017 that doubles minimum wages but keeps the deficit in line with the target set by the International Monetary Fund.

Lawmakers haggled over the bill into the early morning hours before passing it with some reservations about the social provisions it lacked.

The IMF is keen to see Ukraine keep its deficit to within three percent of gross domestic product (GDP) and reduce Soviet-era subsidies that remain a big financial drain.

The demands are part of a $17.5-billion (16.8-billion-euro) rescue loan the IMF approved in 2015.

Passing the budget was an important requirement for the Fund to release another $1.3 billion tranche of that loan early next year.

Prime Minister Volodymyr Groysman told lawmakers that key sectors would still receive the government’s full support.

“We will ensure spending on defence and back the agrarian sector,” the Interfax-Ukraine news agency quoted Groysman as saying.

Ukraine’s military spending stands at a whopping five percent of GDP because of the 31-month pro-Russian eastern separatist insurgency the pro-Western country has been battling at the cost of nearly 10,000 lives.

One of the more controversial provisions will see minimum monthly wages double from 1,600 to 3,200 hryvnias ($121).

Ukraine remains one of Europe’s poorest countries and was also ranked as the continent’s most corrupt by the European Court of Auditors this month.

The minimum wage increase and higher benefits to the lower paid were a consequence of street protests in Kiev and populist lawmaker demands.

But IMF economists worry that the measure may ramp up inflation that has been tempered since reaching more than 45 percent last year.

The Central Bank of Ukraine (NBU) has been able to reduce the interest rate it charges lenders to borrow money to 14 percent because of the slowdown in the cost of living increases.

The spending plan envisions a deficit of 3.0 percent of GDP and puts total expenditures at $30 billion – a paltry sum that compares to that of Los Angeles County in the United States.

Some political analysts said lawmakers’ tradition of passing federal budgets after pulling allnighters was detrimental for the country as a whole.

“In that limited time, they have no way of learning what is actually inside the draft. And some of them simply sleep,” political analyst Mykola Davydyuk told AFP.

He also noted that Ukraine alloted almost nothing to large infrastructure projects aiming to reduce unemployment and fostering economic growth.

The government’s latest projections see Ukraine’s economy expanding by about one percent.

by Dmitry Zaks

China’s foreign reserves fall again in November even as Beijing tightens screws on capital outflows

December 8, 2016

Reserves shrank by US$69.1 billion last month to hit US$3.052 trillion, central bank says

By Frank Tang
South China Morning Post

Thursday, December 8, 2016, 5:20 a.m.

The fall in China’s foreign ­exchange reserves accelerated in November even though Beijing is gradually closing the door on ­capital outflows.

The larger-than-expected decline in the world’s biggest stockpile of foreign exchange exposed the flaws in Beijing’s current ­approach of selling state reserves to support the yuan and was very likely to force the authorities to take a stricter line on outbound investment and payments, analysts said.

The reserves shrank by US$69.1 billion last month to US$3.052 trillion, according to data released by the People’s Bank of China on Wednesday. The mainland has lost nearly US$1 trillion worth of reserves since the figure peaked in June 2014.

November’s drop, the largest monthly fall since January, came as the US dollar index hit a 13-year high following Donald Trump’s victory in the US presidential ­election.

Tim Condon, chief Asia economist at ING in Singapore, said the rapid fall was undermining the Chinese government’s plan of a gradual and orderly decline.

“The authorities will respond by tightening capital controls and stabilising the daily midpoint, which they have done in past episodes of market turbulence,” Condon said.

In a joint statement released on Tuesday, the central bank and the National Development and Reform Commission, the state’s economic planning agency, warned of “irrational investment” in foreign properties, hotels, cinemas, entertainment and soccer clubs.

Documents obtained earlier by the South China Morning Post show capital outflow controls are already in force involving forex clearance for outbound investment of more than US$5 million, plus stricter reviews in place over very large deals. Both outbound investment and these mega deals are set to limit the speed and size of capital flow.

“The recent control measures are pre-emptive to prevent capital outflow pressure from rising on the US Federal Reserve’s highly likely interest rate rise in December,” said Zhu Qibing, chief macro analyst at mainland brokerage CITIC Securities International.

The fall in the value of the yuan, the reduction in foreign exchange reserves and the government measures to control outbound investment have all come at once.

They have dealt a blow to Beijing’s ambitions to make the yuan an international reserve currency along with the US dollar, the euro, the British pound and the Japanese yen, which together comprise the special drawing rights basket of the International Monetary Fund.

Beijing’s efforts to calm market concerns about the yuan’s value, or breaking the one-way bet on the yuan’s depreciation, have so far achieved only limited success, if any at all.

Commentary: How the TPP’s demise threatens US national security and Pax Americana

December 8, 2016

WASHINGTON: One of the casualties of this year’s election will be the Trans-Pacific Partnership (TPP), an important part of President Barack Obama’s “pivot to Asia” that he had hoped would be a signature part of his legacy.

While both Donald Trump and Hillary Clinton eventually came out against the agreement, the former made opposition to almost any U.S. trade deal a centrepiece of his campaign, turning his surprise victory last month into the TPP’s death knell.

With Obama’s last-ditch hope that Congress would approve the deal during a lame duck session dashed, the TPP is unlikely to be revived. The question then becomes, does it matter?

My short answer is yes, and the US and its citizens will surely be worse off without it. Economists like me usually note that reducing trade restrictions benefit a country’s economy through faster growth, higher productivity, more competition and innovation, and lower prices for better goods.

But there’s another reason why we’ll be worse off: Its demise threatens to weaken our national security.

Let me explain, but first lets brush up on what the TPP actually is and a few of its key economic benefits.


Signed by 12 countries around the Pacific Rim, including the U.S., Japan and Australia, the TPP is a complex and comprehensive trade agreement designed with the 21st century in mind. Importantly, China, India and South Korea are not signatories, although they could join at a later date.

The deal, like most of the multilateral trade-liberalising agreements negotiated since World War II, specifies reductions in tariffs on manufactured goods and on agricultural products as well. But the TPP goes much further, entailing a global code of conduct for trade that takes into account its increasing complexity.

Recognising the growing importance of services and digital products, it aims to reduce nontariff barriers in these areas too. It specifies rules for the protection of intellectual property. Going beyond previous agreements, it incorporates provisions for the protection of labour and the environment.

The provision of the TPP that has engendered the most controversy, even though it already exists in thousands of other treaties, is the Investor State Dispute Settlement provision. This allows a corporation to take complaints that a foreign government has violated its property rights to a special international tribunal, whose decision cannot be appealed.


Such a complicated agreement naturally includes many targets for opponents to shoot at.

Until recently, though, the promised economic benefits seemed to enable Obama to cobble together enough agreement in Congress to push through TPP’s ratification. That is no longer the case, as workers hurt by past deals have marshalled a strong political voice in the recent election.

One of its mouthpieces was Bernie Sanders, who characterised the TPPas “part of a global race to the bottom to boost the profits of large corporations and Wall Street.” His fierce opposition, together with the strong challenge he mounted in the Democratic primary, forced Clinton to disavow the deal after earlier labelling it the “gold standard” of trade agreements. And Trump, who repeatedly insisted that the US has been on the losing end of multilateral trade deals, promised to abandon the TPP on day one.

While I do believe the deal’s economic benefits alone make it worthwhile, there’s an even more compelling reason to support the TPP: Its loss all but ensures that trade agreements initiated by China will fill the vacuum.


Framing a trade deal in terms of national security is not a new idea.

That’s how President Eisenhower built bipartisan support for two rounds of tariff reductions in the late 1950s. He argued that trade liberalisation among “Western” nations (stretched to include Japan) was a measure of America’s “soft power” and would help contain the spread of Communism during the Cold War.

Such thinking also undergirded support for President Bill Clinton’s advancement of NAFTA and the normalisation of trade with China in the 1990s, which he argued would push China toward the rule of law and promote “a future of peace and security for Asia and the world.”

Today, China has replaced the Soviet Union as the major contender to supplant the US as the world’s dominant power. Obama had hoped to make his pivot toward Asia one of his signature achievements, with the aim of undercutting or at least slowing China’s efforts to expand its “soft” as well as its military power. Instead, now there is pressure in Asia for a pivot away from the US

In the Philippines, once among the United States’ most reliable Asian allies, the populist new president, Rodrigo Duterte, has underlined with profanity his determination to move his country’s relationship away from the US and toward China, going so far as to cancel an order for American police rifles. In a recent speech, Duterte opined that if China and Russia were to create a new world order, he would be the first to join.

The prime minister of Malaysia, which has long tried to strike a balance in its relationships with the US and China, has been making similar noises about moving its fulcrum in the direction of China. Both countries have eased their opposition to China’s incursions into the South China Sea.

China itself has been actively initiating programs directed at enhancing its global role, with major implications for the US. When China created the Asian Infrastructure Investment Bank in 2014, the US boycotted the new institution and asked allies to do the same. Despite its pleas, some 57 countries joined, including all the major countries of the European Union, as well as Australia and South Korea.

Even more recently, China has announced multi-billion dollar financing for its belt-and-road initiative, a grand plan to finance infrastructure projects throughout Asia and better connect China with the rest of the world that has been termed a Chinese Marshall Plan.

The Chinese challenge to American hegemony appears to be gathering steam.


It is in this context that the reframing of TPP as a security issue becomes particularly relevant.

Only two of its 12 signatories, Japan and New Zealand, have so far ratified the TPP. If the US does not ratify, the deal will probably wither on the vine – although there have been suggestions that the other 11 members could ratify it and put it into force on a provisional basis.

The failure of the TPP would not leave a vacuum. China is spearheading a proposal for a Comprehensive Regional Trade Partnership (CREP), which includes the 10 members of the Association of South East Asian Nations plus China, Japan, South Korea, India, Australia and New Zealand. As such, it includes seven of the 12 TPP signatories.

While both agreements cover such issues as trade in goods and services, investment and dispute settlement mechanisms, the CREP does not incorporate the TPP’s protections for labour or the environment or restrictions on the activities of state-owned businesses, which dominate the Chinese economy. These provisions are of key importance to the many countries, the United States among them, for whom they represent strongly held values.

China is also hoping to advance its concept of a Free Trade Area of the Asia-Pacific (FTAAP), which would have the narrower goal of overriding and integrating the various bilateral and regional free trade agreements that are currently in force or proposed.

But it would have a broader geographical reach than CREP; it could potentially incorporate all 21 member countries of the Asia-Pacific Economic Cooperation forum, including both China and the United States. Originally, the US had hoped that the TPP would be the main building block of the FTAAP, but China has clearly beaten us to the punch.


At stake is a principle much broader than the struggle between China and the United States for the “soft power” inherent in the competition over trade agreements.

A crucial aspect of the Pax Americana that underpinned global stability throughout most of the post-World War II period was US leadership in establishing rules for across-the-border trade and financial transactions.

Initially, this involved the creation of international organisations like the International Monetary Fund, the World Bank and the GATT, the predecessor to the WTO. A succession of international agreements that liberalised international trade and finance followed.

These economic arrangements went hand in hand with US leadership in stabilising key regions of the world through a combination of our own military expenditures and strategic alliances.

A US failure to authorise the TPP could be the coup de grâce for the Pax Americana. The ramifications of such a demise are material for many a sleepless night.

This article first appeared on The Conversation. The author Marina von Neumann Whitman is Professor of Business Administration and Public Policy at the University of Michigan. Read the original report here.