Assessing Risk in China’s Shadow Banking System

Sara Hsu

A vague panic has overcome many analysts when discussing China’s shadow banking sector. The sector has even been referred to as a “ticking time bomb” by some. Other analysts say there is nothing to fear in the shadow banking sector. So which is it? Is the risk so high that a shock in this sector might result in a financial crisis? Or is the risk so low that growth will be entirely unaffected?

Looking at the sector from several angles, we try to rate the level of risk in various shadow banking sectors to determine whether this fear is justified. We look at liquidity risk, or whether shadow banking institutions have sufficient cash to repay asset holders in the short run; solvency risk, whether shadow banking institutions can muster up repayments in the long run; and market risk, whether shadow banking institutions are exposed to an overall decline in asset prices

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A Matter of Life and Death

Martin Khor

Originally published in The Star (Malaysia).

If you or some family members or friends suffer from cancer, hepatitis, AIDS, asthma or other serious ailments, it’s worth your while to follow the Trans Pacific Partnership Agreement (TPPA) negotiations, now going on in Singapore.

It’s really a matter of life and death. For the TPPA can cut off the potential supply of cheaper generic life-saving medicines, especially when the branded products are priced so sky-high that very few can afford them.

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Breathless in Beijing

Jayati Ghosh

Originally published in Frontline (India).

A week in Beijing in mid-February confirmed what many people have been saying for a while now: if you can somehow avoid it, it is better not to breathe the air outside. With one exception, every day was grey and hazy, the sky not so much overcast as simply limp, heavy and fatigued. The grand buildings and enormous skyscrapers that line the streets of the city loomed as hazy shadows, barely visible in the all-encompassing smog. The generalised greyness made it hard to distinguish between dawn, midday and dusk. The days were shrouded in dullness, while the nights made stargazing seem like a thing of the past.

The exception was one unexpectedly delightful day when the sky suddenly cleared to reveal a sun that actually shone brightly down on the cold city, on buildings and streets that seemed to sparkle in sheer exuberance in the sudden brightness. This was a gift, residents said, of dry winds that had temporarily swept away the smog. But it was a short-lived, ephemeral present, serving as an almost painful reminder of how much was being missed all the rest of the time.

It is true that this particular week may have been exceptionally bad even by Beijing standards. The city’s authorities raised the four-tier air pollution alert system to the second highest level (orange, just below red) for the first time in the year, as atmospheric pollution readings measuring six major pollutants at monitoring stations in the downtown area suggested an Air Quality Index of more than 300, more than 10 times the level considered “safe” by the World Health Organisation.

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Shanghai Free Trade Zone and Offshore Banking

Sara Hsu

The Shanghai Free Trade Zone was incorporated on September 29, 2013, with the aim of testing some liberalization measures, including financial liberalization. Although the zone is currently moving at a glacially slow pace in terms of liberalizing interest rates and financial flows, there are plans to allow funds to be transferred offshore. If and when this occurs, some financial flows moving offshore may be legitimate—going to real investment in countries like the United States, Japan, and Australia—while others may move truly offshore to known tax havens.

China has already been in the news recently, due to an exposé on offshore accounts held by members of the Chinese leadership. About 22,000 mainland Chinese and Hong Kong citizens were revealed to have accounts in tax havens in the Caribbean and South Pacific. The money is associated with hidden wealth. Some of this is suspected to stem from transactions that may not have been entirely above board. A current anticorruption campaign is attempting to eliminate some of the worst abuses.

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On the State of the Worldly Philosophy

Matías Vernengo

Originally posted at Naked Keynesianism.

I am pessimist by nature (or nurture), I guess. So I never thought that the current crisis would lead to a collapse of mainstream economics.

As I often point out to my students, in the U.S., it was the Great Depression, and the rise of the Neoclassical Synthesis that made Marginalism dominant. Up to that point the profession was dominated by an eclectic group that included many institutionalists, like Commons or Seligman, a non-Marxist defender of an economic interpretation of history, both of whom were presidents of the American Economic Association (AEA). Mitchell, another institutionalist that was president of the AEA, was the head of the National Bureau of Economic Analysis (NBER). And the administration was full of institutionalist economists during the New Deal. So a crisis might actually lead to the consolidation of a paradigm that was actually contradicted by the facts (yes, full employment of factors of production is hard to defend if you have 25% unemployment, but blame it on rigid wages and you’re fine).
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When Planting Trees is a Curse

Sunita Narain

Previously published by Centre for Science and Environment.

Forests have been blacked out in the economic assessment of the country. The Economic Survey does not even list forestry as a sector, for which accounts are prepared. Instead it is lumped together with agriculture and fisheries. In other words, there are no estimates of the productivity of this sector, which encompasses over 20 per cent of the country’s land area.

This is because the focus of forest managers is on conservation and forest productivity is nobody’s business. The forest survey report says forest cover in the country is stable but growing stock of forests has decreased between 2005 and 2009. Currently, we import more and more of forest produce, from pulp to timber. It is for this reason that revenues from forests are declining in state budgets, which creates pressure for their diversion to more productive uses.

This is clearly untenable. We need forests to be used for productive purposes. But we need to ensure that this time, unlike in the past, it does not lead to rampant deforestation and over-extraction.

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Why is the 2008 Crisis Taking So Long to Resolve? (Part 2)

Yilmaz Akyüz

Lynn Fries of The Real News Network continues her interview with regular Triple Crisis contributor Yilmaz Akyüz about the current global economic crisis. Akyüz here discusses both the over-reliance on monetary policy in the United States and elsewhere, and the over-reliance on exports and on international capital flows in developing economies. This is the second in a two-part series. You can see the first part here.

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Observing the Centennial of 1914

Erinç Yeldan

This year we are observing the hundredth anniversary of the eruption of the First World War. One hundred years ago, one June morning, the Archduke of Austria, Franz Ferdinand, was assassinated in Sarajevo. This event sparked a flame that would plunge the whole of continental Europe into warfare, leaving 40 million dead, a landscape torn to pieces, and a series of economic and social problems that would eventually lead to the rise of fascist dictatorships in the years ahead.

What are the lessons that we can distill 100 years later?

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Malawi’s Paradox: Filled With Both Corn and Hunger

Timothy A. Wise

Cross-posted from Global Post.

LILONGWE, Malawi — Visit this small, landlocked country in late January and you will have a hard time believing its people often go hungry.

It is mid-rainy season, and in and around the capital city the landscape is lush and green.

Look more closely and you’ll notice that nearly every inch of unpaved space seems planted with maize (corn); the green stalks rise up to five feet above moist, rich soil. Outside of the city, along the road leading south toward the former colonial capital of Zomba, the hills roll with maize, not in vast tracts reminiscent of Iowa but in small, neatly bordered plots.

It certainly doesn’t seem like a land that cannot feed itself. But until recently, that is what Malawi has been.

Droughts often threaten the country’s one rainy season, and with per capita incomes at around $900 per year, hunger, and even starvation, stalk the countryside. The World Food Program has permanent offices here, and for good reason.

Even this season, when the rains have come strong but late, more than 10 percent of the country’s 16 million people face severe food insecurity. According to news reports, some have starved.

It is paradoxical only to outsiders that this greenest of seasons is also the hungriest. By planting time late in the year, many peasant farmers have consumed the last of their saved grain, even following a decent harvest like they had last year. Until the new crop comes in late March or April they have to rely on meager cash income to feed themselves and their families.

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Malawi's Paradox: Filled With Both Corn and Hunger

Timothy A. Wise

Cross-posted from Global Post.

LILONGWE, Malawi — Visit this small, landlocked country in late January and you will have a hard time believing its people often go hungry.

It is mid-rainy season, and in and around the capital city the landscape is lush and green.

Look more closely and you’ll notice that nearly every inch of unpaved space seems planted with maize (corn); the green stalks rise up to five feet above moist, rich soil. Outside of the city, along the road leading south toward the former colonial capital of Zomba, the hills roll with maize, not in vast tracts reminiscent of Iowa but in small, neatly bordered plots.

It certainly doesn’t seem like a land that cannot feed itself. But until recently, that is what Malawi has been.

Droughts often threaten the country’s one rainy season, and with per capita incomes at around $900 per year, hunger, and even starvation, stalk the countryside. The World Food Program has permanent offices here, and for good reason.

Even this season, when the rains have come strong but late, more than 10 percent of the country’s 16 million people face severe food insecurity. According to news reports, some have starved.

It is paradoxical only to outsiders that this greenest of seasons is also the hungriest. By planting time late in the year, many peasant farmers have consumed the last of their saved grain, even following a decent harvest like they had last year. Until the new crop comes in late March or April they have to rely on meager cash income to feed themselves and their families.

Read the rest of this entry »