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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » 5% GDP growth in China this year - Would add more to world output than its 14% expansion in 2007

5% GDP growth in China this year - Would add more to world output than its 14% expansion in 2007

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Melissa Pereira

Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Governments and non-profits are muscling in on turf previous reserved for millionaires. Private islands from the Shetlands to the Seychelles are being bought by conservationists eager to protect isolated chunks of nature. In America's north-east, off the coast of Maine, non-profits own 65 islands that nurture seabirds and seals. The unspoiled sands of the Discovery Islands, 150 miles west of Abu Dhabi, were slated for development until intervention by the United Arab Emirates government. In Canada, where a plethora of islands make land cheaper, Nova Scotia Nature Trust is trying to buy or protect over 200 islands. The isles are often bought with donations or gifted to the trusts but cheap prices have spurred them on too. Since the recession the cost of the less-developed private islands, which make up 80% of the market, has halved. And though that is bad news for sellers, it is great news for the seals.

Lithium-ion batteries charge by pushing lithium ions back and forth between the battery's electrodes, through the medium, what's known as an electrolyte. After a couple of years of these chemical reactions, the battery starts to break down and eventually fails. How the battery is charged, and the conditions under which it is done, can increase or decrease the amount of times the battery can be charged.
Qnovo's technology optimises a battery's charging at the same time as it extends the amount of times it can be charged. At the same time, Qnovo says its battery software can deliver a competitively high battery capacity, which is the amount of energy that can be used from the battery.

Fast charging options that are currently available can deliver one of maybe two of these characteristics. Some options can speed up charging, but can end up reducing the battery's life or reducing its capacity.
Qnovo executives say a cell phone using just its software can double its charging speed compared to a cell phone without the software. Devices that uses use both the silicon and software can double the charge rate of Qnovo's own software-only solution.
Fast charging technology could apply to electric car batteries, too, but Qnovo isn't yet actively pursuing that market.
Yahoo CEO Marissa Mayer is pregnant with identical twins.

Mayer said on her blog that she and her husband are expecting twin girls in December.
She says that she will take some limited time away but work during the pregnancy as she did with her son's birth three years ago. Yahoo Inc. executives are aware of her pregnancy.
The news comes at a busy time at the company.
Mayer has been trying to engineer a turnaround since Yahoo hired her away from Google, but has made limited progress. Yahoo's net revenue has decreased or been unchanged from the previous year in eight of the previous 10 quarters.
Company shares have soared since she took over, mainly because of Yahoo's large stake in one of China's hottest Internet companies, the Alibaba Group.

Without the Alibaba stock in its investment portfolio, Yahoo will have to start boosting its revenue or risk of shareholder unrest.
Three years ago, Mayer announced she was pregnant with her son a few hours after Yahoo hired her as its third full-time CEO in less than a year.
Her decision to spend just two weeks away, working from home, before returning to Yahoo's offices was criticised by some who said that it set unfair expectations for other working mothers.
A few months later, the company expanded its parental leave policy for both mothers and fathers and added other perks for new parents.
The kinder, softer, we-love-everybody Microsoft under CEO SatyaNadella's helm just struck again.
Microsoft is burying the hatchet with VMware, a rivalry that has been going on pretty much since VMware was founded in the late 1990's.

During VMware's massive customer conference going on this week in San Francisco, the two announced a new partnership and, for the first time ever, a Microsoft exec appeared on stage at VMworld.
Microsoft's Jim Alkove, corporate vice president of Windows Enterprise & Security, joined VMware's Sanjay Poonen on stage. Poonen is the guy that orchestrated VMware's US$ 1.5 billion purchase of AirWatch last year, and is head of VMware's mobility business unit.
'It's very clear what Satya is doing at Microsoft is transforming the openness of Microsoft,' Poonen praised.
The new partnership is called Project A2 and it involves allowing IT departments to manage their Windows devices differently. Instead of just focusing on the machine, Project A2 is going to focus on the applications.
It's part of a bigger trend called 'desktop virtualization' in which IT departments offer app stores and don't run every app on the device, but stream them from their data centres, or the cloud.

VMware believes Project A2 will encourage businesses to upgrade to Windows 10 by giving them an easier way to roll it out and move all their apps from Windows 7 machines to new Windows 10 machines.
VMware also believes that Windows 10 will be a hit with enterprises regardless, because it helps them move their apps off the device and to the cloud.
Upgrading an operating system at an enterprise, which may have tens of thousands to hundreds of thousands of PCs, is no small task.
A2 hopes to not only make it easier for IT to standardize their PC apps, but also the apps employees use on tablets and smartphones.

The new partnership with Microsoft comes on the heels of an announcement VMmware made earlier this summer to focus on supporting Apple and the iOS platform in enterprises. As part of that announcement, VMware also rolled out a security cloud service that competed with an area that Microsoft has dominated for years: identity management.
But this deal with Microsoft has the potential to be much, much bigger than what VMware is doing with iOS.
VMware makes most of it money from its initial product which does server virtualisation, which allows a single server to run a lot of different operating systems and apps.
It was such a big instant hit with enterprises, that Microsoft grew worried it would tank Windows Servers and invented its own competitor, bundled into Windows Servers. And the two have been attacking each other ever since.
Until now.

China's appetite for commodities has probably peaked. That is bad news for companies and countries that prospered over the past decade by selling it mountains of iron ore, copper and coal. A decline in Chinese consumption would be of huge consequence: it absorbs about half the world's aluminium, nickel and steel, and nearly a third of its cotton and rice.
Arguably worse for some emerging economies than the prospect of a Chinese slowdown is the reality of resurgent American growth. The rich world's anaemic post-crisis recovery has ensured that global interest rates remain at rock-bottom. The monetary stimulus has been boosted by 'quantitative easing' (QE), bond-buying designed to make policy even looser. With bond yields depressed in America, investors piled into emerging-market bonds in the search for decent returns.
The days of cheap American money appear to be numbered. The Federal Reserve's QE programme was wound down last year and it is now contemplating raising interest rates for the first time since 2006. That prospect has driven up the dollar, which has risen by a weighted average of 17% against the currencies of its trading partners in the past two years and by considerably more than that against emerging-market currencies.

This is a dramatic shift given that expectations of future rate rises in America are modest. But much of the money that flowed into emerging markets was pushed there by the falling yields on offer in America and pulled by the lure of racier returns. Capital has already started to flow out of emerging markets. If and when the Fed increases rates, investors will promptly repatriate more money to America.
The countries most vulnerable to such a reversal are those with biggish current-account deficits – in other words those that relied on foreign capital to bridge the gap between what they spent and what they earned from trade. The countries most exposed to shifts in China's economy, meanwhile, are the commodity exporters who supply the raw materials for the steel girders and copper piping that have underpinned the construction boom.

Brazil suffers on both counts. Its currency, the real, has fallen by more than a third against the dollar in the past year and by almost half since May 2013, when the Fed first hinted that its bond-buying would taper off – prompting a wobble across emerging markets dubbed the 'taper tantrum'. Brazil's central bank has raised rates to 14.25% to tackle the inflation caused by the real's dive. The economy is in recession. Investment in mining and in offshore oil has collapsed.
The currencies of other commodity-intensive countries nearby, such as Argentina and Mexico, have also fallen heavily against the dollar. Among emerging-market currencies only the Russian rouble –slammed by the collapse in oil prices and by sanctions related to Ukraine – has fared worse than Latin America's miners. Malaysia and Indonesia, the two commodity exporters closest to China, have also been caught up in the sell-off.

After two years of persistent selling, such currencies have begun to look cheap when set against conventional benchmarks. But that has not stopped them falling further in recent weeks as concerns about China's economy have intensified. The Colombian peso, the Malaysian ringgit and the rouble have been among the hardest-hit currencies in the past week.
The unenviable third bucket
Despite being a commodity exporter, South Africa largely missed out on the China-led raw-materials boom, because of weaknesses in its transport and power industries (see article). It belongs more readily with Turkey in a separate category of emerging markets that have suffered badly because of an over-reliance on hot money to finance a large current-account deficit. Both economies are inflation-prone and have low domestic savings. They also share a tendency to do well when global capital flows freely and to do badly when, as now, investors are choosier about where they park their money.
Ironically, some of the most resilient countries have been those with the closest trade links to China, such as South Korea, Singapore and Taiwan. All have solid current-account surpluses and healthy foreign-exchange reserves and so have little to fear from capital flight in response to rising interest rates in America. And as net importers of raw materials, they benefit from falling commodity prices.

Even so, their currencies fell in the wake of China's devaluation in mid-August and cracks have recently started to show in their economies. GDP growth in Singapore has dropped below 2%, the lowest rate for three years. Surveys of purchasing managers point to falling manufacturing output in Taiwan and South Korea.
Factory-gate prices are falling across Asia, too, reflecting excess capacity in industry. In China they have declined for 41 consecutive months; in South Korea and Taiwan for 35 months; and in Singapore for 31 months, notes ChetanAhya of Morgan Stanley. Falling prices make it harder for companies to service the debts they run up to pay for new capacity in the boom years.
Producer prices are falling even in inflation-prone India, which is one of the relative bright spots in emerging markets. India is less tied to China than other economies in Asia and, as a net oil importer, benefits from low crude prices (caused, mostly, by abundant supply in Saudi Arabia and America rather than Chinese wobbles). Its junior finance minister even speaks of taking up the baton of fast growth from China. The worry is that such boasts reveal complacency about reforms that are needed in India but have nevertheless stalled.

With large chunks of the emerging world in trouble, parallels are being drawn with the Asian crisis of 1997-98. Yet many of the factors that contributed to the intensity of that debacle – and the brutality of the recession in emerging Asia that followed –are missing today. The chief absentee is exchange-rate pegs, which were common in the mid-1990s. The illusion of currency stability that such pegs fostered led to a build up of dollar-denominated debts in emerging Asia. When capital inflows dried up, the pegs broke. Currencies quickly plunged in value, pushing up the cost of dollar debts.
These days far more emerging markets allow their currencies to float. By contrast with what happened in 1997, the recent flood of capital from the rich world into emerging markets went largely into local-currency bonds. Foreigners own between 25% and 50% of the stock of government bonds in Brazil, Turkey, South Africa, Indonesia, Malaysia and Mexico, according to Morgan Stanley. For a while the momentum behind capital flows meant rich-world investors enjoyed a virtuous circle of higher bond prices and stronger currencies. Now that cycle has turned vicious but it is the currency (and thus the lender, not the borrower) that has adjusted most. Emerging markets typically have far larger arsenals of foreign-exchange reserves – and healthier current-account balances – than they did in the 1990s.

For these reasons the latest emerging-market dust-up lacks the severity of the 1997-98 crisis. But in at least one regard it is more worrying. The weight of emerging markets in global GDP is now much heavier, mostly because of China's greater mass (see chart 4). Slower growth there is felt more keenly in rich countries. Worryingly, world trade suffered its biggest fall since 2009 in the first half of this year.
There is one other contrast with the late 1990s. More recently the search for yield in exotic places took rich-world pension funds to the farthest edge of the investing universe: 'frontier' markets, which are typically poorer and have less developed financial systems than most emerging markets. Resource-rich Africa was one of the busiest parts of the frontier. Countries that had not long ago been freed from punitive debt burdens were suddenly able to borrow cheaply, albeit in dollars. Sixteen countries in sub-Saharan Africa have now issued such foreign-currency bonds, says Stuart Culverhouse of Exotix, a broker. With commodity revenues falling, repayment could get tricky. Firms that borrowed in dollars could face similar troubles – including some in China that have done so through opaque offshore arrangements.

Quite when the turmoil associated with the end of easy money comes to pass largely depends on the Fed. Before the tumult, markets priced the chance of a September rate rise at over 50%; now the probability is closer to 25%. Grandees such as Larry Summers, a former treasury secretary, and Bill Dudley, head of the New York Fed, have expressed scepticism about a rate rise next month.
Yet the Fed may plough on regardless. America's economy is well insulated from the Chinese shock: just 8% of American exports, worth 0.7% of GDP, go to China. When discussing the timing of interest-rate rises, Janet Yellen, the Fed's chairman, usually focuses on the domestic labour market rather than the fate of distant economies. If a jobs report on September 4th shows strong employment growth, the Fed could well raise rates despite market volatility.
After the 'taper tantrum' of 2013, a 'rate-rise rumble' was always a possibility as the prospect of Fed action neared. That has affected all emerging markets – including China. The crash in Shanghai was not evidence of a Chinese economy on the brink. Nevertheless, policymakers in Beijing have chosen a bad time to lose so much of their credibility as the world economy's safest hands.

Courtesy: Ceylon Financial Today 4 September 

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