China’s Stock Market Collapse

Jayati Ghosh

The recent rout in the Chinese stock market – and the Chinese authorities’ increasingly panicky responses to it that temporarily halted the decline – may not seem all that important to some observers. Indeed, there are analysts who have said that this is just the typical behaviour of a still immature stock market that is still “froth” in the wider scheme of things, and not so significant for real economic processes in China. After all, the Chinese economy is still much more state-controlled than most, the main banks are still state-owned and stock market capitalization relative to GDP is still small compared to most western countries, with less than 15 per cent of household savings invested in stocks. Most of all, there is the perception that a state sitting on around nearly $4 trillion in foreign exchange reserves should be rich enough to handle any such exigency without feeling the pain or letting others feel it.

But this relatively benign approach misses some crucial points about how the Chinese economy has changed over the past few years, as well as the dynamics of this meltdown and its impact in the wider Asian region. Since the Global Recession, which China weathered rather well, there have been changes in the orientation of the Chinese government and further moves towards financial liberalization, which were rather muted before then. And these resulted in big changes in borrowing patterns as well greater exposure to the still nascent stock market, in what have turned out to be clearly unsustainable rates.

Read the rest of this entry »

China’s One Belt One Road: Globalization 3.0

Sara Hsu

China’s One Belt One Road initiative is becoming increasingly better financed, expanding China’s reach into Europe, Asia and Africa. The $50 billion Silk Road Fund and the $100 billion Asian Infrastructure Investment Bank are to back the program, while the China Development Bank will invest over $890 billion into over 900 projects in 60 countries. The projects will build up infrastructure, increase trade and finance, and boost connectivity across Europe, Asia and Africa.

The One Belt One Road initiative will jump start China’s foreign policy agenda, which has been relatively low key up until this point. In fact, the plan is so ambitious that it has the potential to boost China’s political and economic power to predominant status in the East.   This type of far-reaching foreign policy focuses on soft power rather than military might or economic coercion, and is arguably a part of a more diverse Globalization 3.0.

Read the rest of this entry »

China-Latin America Economic Bulletin

Rebecca Ray and Kevin Gallagher

This post summarizes the key findings in the second annual China-Latin America Economic Bulletin, co-authored by Rebecca Ray and regular Triple Crisis contributor Kevin Gallagher. Issued by the Global Economic Governance Initiative at Boston University, the full report is available here. (Note that graphs and tables below are numbered as in the original report.)

This China-Latin America Economic Bulletin is the second annual note summarizing and synthesizing trends in the burgeoning China-Latin America economic relationship.

The goal of the bulletin is to provide analysts and observers handy reference to the ever-changing landscape of China-Latin America economic relations, a landscape where data is not always as readily accessible.

Highlights from this year’s edition include:

China surpassed the United States as most the important destination for South American exports. LAC exports as a whole to China grew to US $112 billion in 2013 (a record 2.0% of regional GDP), though the region still had a trade deficit of 0.5% of GDP with China that year.

Ray and Gallagher 1

Read the rest of this entry »

Infrastructure Financing as Power Politics

C.P. Chandrasekhar

Infrastructure lending may sound an innocuous political terrain of interest only to financiers. But it is proving to be the location for the play out of big power politics, involving especially the US and China. As of now, it appears to be one more battle the US will regret having fought.

When the deadline for applications to be a founding member of the China-mooted Asian Infrastructure Investment Bank (AIIB) passed on April 1, 2015, 47 countries had expressed an interest, about 30 of whom had already been accepted. The AIIB is a multilateral development bank to be headquartered in Beijing  with paid-up capital of $100 billion, created with the special mandate to finance much-needed infrastructural projects in Asia. China is providing $50 billion to the bank’s capital upfront.  Other countries too  would contribute, but China has promised to increase its contribution to $100 billion, if needed. Thus, though according to reports voting power in the bank will be proportional to the GDP of a member country, there can be little doubt that China will call the shots.

Read the rest of this entry »

Will BRICS Carbon Traders Bail Out the Bankers’ Climate Strategy? Part II

This is part II of a two-part series.

Patrick Bond

An overriding danger has arisen that may cancel the deterrents to carbon trading: the international financial system has overextended itself yet again, perhaps most spectacularly with derivatives and other speculative instruments. It needs new outlets for funds. The rise of non-bank lenders doing “shadow banking,” for example, was by 2013 estimated to account for a quarter of assets in the world financial system, $71 trillion, a rise of three times from a decade earlier, with China’s shadow assets increasing by 42% in 2012 alone. The Economist last year acknowledged that “potentially explosive” emerging-market shadow banking “certainly has the credentials to be a global bogeyman. It is huge, fast-growing in certain forms and little understood.” As for the straight credit market, the main result of Quantitative Easing policies was renewed bubbling, with $57 trillion in debt added to the global aggregate from 2007-14, of which $25 trillion was state debt. By mid-2014 the total world debt of $200 trillion had reached 286 percent of global GDP, an increase from 269% in late 2007.

Global financial regulation appears impossible given the prevailing balance of forces, witnessed in failures at the 2002 Monterrey Financing for Development initiative and various G20 summits after 2008. As a result, the BRICS are especially important sites to track ebbs and flows of financial capital in relation to climate-related investments, what with so many expansive claims made about their counter-hegemonic character. In reality, in relation to both world financial markets and climate policy, the BRICS are not anti-imperialist but instead subimperialist.

The first-round routing of CDM funding went disproportionately to China, India, Brazil and South Africa from 2005 until 2012, but by then the price of CDM credits had sunk so low there was little point in any case. Moreover, according to Carbon Market Watch, “The environmental integrity of the other Kyoto offsetting mechanism Joint Implementation is even more questionable with over 90% of offsets issued by Russia and Ukraine with very limited transparency and no international oversight.”

As Naomi Klein pointed out in This Changes Everything, gaming the CDM became a profitable sport: “The most embarrassing controversy for defenders of this model involves coolant factories in India and China that emit the highly potent greenhouse gas HFC-23 as a by-product. By installing relatively inexpensive equipment to destroy the gas (with a plasma torch, for example) rather than venting it into the air, these factories— most of which produce gases used for air-conditioning and refrigeration—have generated tens of millions of dollars in emission credits every year.”

Read the rest of this entry »

Winds of change in Asia

Martin Khor

In the last month, the international media has been carrying articles on the fight between the United States and China over the formation of the Asian Infrastructure Investment Bank (AIIB).

Influential Western economic commentators have supported China in its move to establish the new bank and judged that President Barack Obama made a big mistake in pressurising US allies to shun the bank.

The United States is seen to be scoring an “own goal” since its close allies the United Kingdom, Australia and South Korea decided to be founding members, as well as other European countries, including Germany and France, and most of Asia.

The United States also rebuked the United Kingdom for policies “appeasing China,” but the latter did not budge.

The United States did not give any credible reason why countries should not join the AIIB.

Treasury Secretary Jack Lew said the new bank would not live up to the “highest global standards” for governance or lending.

But that sounded like the pot calling the kettle black, since it is the lack of fair governance in the International Monetary Fund (IMF) and World Bank that prompted China to initiate the formation of the AIIB, and the BRICS countries (Brazil, Russia, India, China and South Africa) to similarly establish the New Development Bank.

Read the rest of this entry »