The world we live in

It is so hard to be good, and ethical in this broken down corrupted world. India and China are epitome of such brokeness and corruption; yet is it not for me to condemn their ways of working; it is just that it is so rampant that no other way of getting things done will get anything done at all.

Vatsan was telling us yesterday that to start a business in India, there are so many hidden costs that cannot be properly accounted for. Most of these miscellenous costs result from and include under the table transactions and coffee money to ease the restrictions that otherwise would be present and of a great hindrance to the flow of operations. Living in Singapore, it is easy to shake our heads in disgust and think that everyone should be ethical and uncorrupted; but in fact, we are the minority of Asian countries that actually practice what we preach (or at least appear to). Being a good business man is not covered in the University courses we diligently attend; so much of it has to be learnt on the job; only that some of us are more adept at learning the ropes than others.

This is what separates academics from real practitioners; the former like to idealize and theoreticize all topics that they cover; the later just find the best way to get things done and do it without thinking too much about the consequences. I think I lean more towards the former; with a bunch of lofty notions and ideals in my head, I tend to want to do more for a society than is actually possible.

Yesterday in our IB chat, Kelvin, Spencer and I discussed about poverty in the world; and whether giving humanitarian aid was worth it; or whether it was simply solving a problem temporarily while in fact causing more harm than good. Kelvin steadfastly pointed out the importance of self-motivation; his belief lay in the fact that people should strive to improve the quality of their lives, not merely depend on aid for survival. That is true; look at Africa– no matter how much aid has been pouring into the continent, it seems that there are always people dying of aids and poverty; but its mainly attributed to the government as well; the corrupt government and constant civil wars and illegal trade make life hard for these African nationals. Spencer asked me how I was going to try to help a world so badly in need of help; and I said I wanted to write and make the rest of the developed world aware of the terrible mess the rest of the undeveloped nations were in. He then asked me whether that would really be of any help– since after all if people dont help themselves, why should they be given help? I totally disagreed with that; there are so many loopholes to that argument; I told him it wasnt that I think people who dont help themselves should be left in the ditch to die; but that if we do not help them, there are many others who because of forced circumstances such as being sold as sex slaves and other abusive labour, have lost all hope of moving to a better life, that they succumb to a fate that was not theirs to begin with but unfairly thrown and thrust upon them.

We had a debate; the details of which are too much to go into; but we finally arrived at the same conclusion that education is the key to an improved life; but that unfortunately, there are so so many people who are deprived of the chance to be educated. It is ignorance that leads them to surrender their fate to be that of the victims, and also incidents that leave them marred for the rest of their lives.

Talking about this is saddening; that we are the fortunate few who can worry about things other than just our subsistence level is in fact a heavy responsibility on our shoulders; the more we are given, I feel, the more we should do for those that have not.

The World is Flat

Thomas Friedman, author of “The World is Flat”, commented in his book that when he was young, his mother told him to “Finish up your food, people in India and China are starving.” Nowadays, he tells his daughter, “Finish up your homework; people in India and China are starving for your jobs.”

As globalization continues its rampage around the world, mobilization of everything is possible. Jobs are no longer confined to domestic citizens; its buffet time for all who are willing to travel and grab them. To transit and be willing to take the cheapest pay in exchange for having a job at all.

There are billions of people starving for jobs, and it makes the stark acknowledgement that productivity is so crucial for survival even more real.

Oh oh, we’re in trouble; Is someone going to burst our bubble?

In 1997, I was in Primary 6, didn’t give a hoot about the world, nor the fact that the Asian Financial Crisis was hitting all the Asian countries in full force, wrecking havoc whose effects on certain countries like Indonesian have left them still recovering from the shock.

This year its 2007, I’m in University, and through my readings and courses as well as of course, my new interest in the world whose effect on all of us I can no longer deny, I read over and over again, about the 1997 crisis. It’s weird to read a Caucasian’s reports on the effects of the Asian Crisis, and weirder to find that it seems in the field of Asian Monetary Policy, there are more good writers from the Western part of the world than from Asian. Even my Asian Monetary Professor is American.

Apart from that brief digression, I really want to talk about the possibility of another crisis, another crash, but this time, perhaps not just involving Asia, but perhaps America (very likely) and maybe also Europe. I’m not advocating that such a scenario is good; but looking at the news everyday that mark yet another all time high on the stock exchange, in Singapore, China, and many other places, where the prices of goods are going atrociously high. In a time and age where the economy is booming, everyone is busy swiping out their plastics to make use of more and more credit, it seems the stage is set for a market correction. Maybe Crash is a word too harsh; corrrection may be more correct (pun intended).

As I mentioned a few posts ago, hedge funds are taking on dangerous amounts of debt, and together with the package, risks that they may be unable to handle.  Everywhere, it seems the press is screaming with news about inflation curbing, in the USA, Thailand, China; all the Central Banks are scratching their heads over whether to maintain or increase interest rates. If you were to keep up with the news everyday, you’d realize that every country seems troubled by any news that may hint at increasing inflation, yet at the same time, investors with money to act on these news are moving capital in and out of countries, hedging their bets that these interest rates increases or decreases will move currencies and bond prices in the direction of their favour.

Everything happens so fast, many are pumping in much money and taking on leverage to accelerate the growth of their wealth. Suddenly it feels like we’re trapped in an air tight bubble that keeps getting larger and thinner. Will it be another bubble that bursts? How can we identify it? Someone wise one said that you can never identify a bubble until it bursts, but by then it would have been too late.

Alas, writing the history of the future is harder than writing the history of the past (in Eichengreen’s beautiful words). Only time will be able to unravel the mystery that has left so many worrying about.

re-sparked love

The more in depth i get with Economics, the greater my love for Economics deepens, opening my eyes to a world that is so intricately webbed in a maze of decisions whose consequences befall not just one but many.

Economics has natural rules much like that of the Universe, which, no matter how man tries, will not allow themselves to be broken. The impossible trinity for one, where free capital flows, independent monetary policy and a fixed exchange rate regime cannot and positively will not co-exist together. Only two out of the three options can be put side by side, and even though there may be arguments that the impossible trinity theorem may be violated in fractions (such as having a fixed exchange rate regime with a semi-controlled capital flows regime and a semi-independent monetary policy), it only goes to prove that Economics has a mind of its own, and though markets are man-made, the natural rules that govern are as their name suggests– Natural.

This term Asian Monetary Policy is on my list of modules, and the readings that come with the package, though more than I would prefer, are actually enjoyable to a great degree. This year sees me more interested in financial and economic news than in gossip columns, and the past 7 days have been a terrific start, with the exception of the damned flu and phelgm that Im finally getting rid of.

HK braces itself as renminbi nears parity

By Tom Mitchell in Hong Kong

Published: January 1 2007 16:02 | Last updated: January 1 2007 16:02

When the Chinese renminbi slips through the psychological threshold of Rmb7.8 to the US dollar, which may happen as early as this week, it will be a moment replete with symbolism for Hong Kong and the territory’s relationship with the mainland.

It will mark the first time in 13 years that China’s currency has traded above the level at which the Hong Kong dollar is pegged to the greenback.

Technically, the Hong Kong dollar, which is allowed by the territory’s monetary authority to trade in a band set at HK$7.75- HK$7.85 to the dollar, will remain more valuable than its mainland counterpart for a few more weeks, if not months.That is because the Hong Kong dollar has been trading at the lower end of its band, last closing at HK$7.778 to the dollar. The renminbi, meanwhile, is at Rmb7.805 to the US currency.

Nevertheless, sneaking past the threshold of Rmb7.80 to the dollar will mean that the renminbi has achieved de facto parity with the Hong Kong dollar, and it will be a matter only of months before it starts to leave the territory’s currency in its wake.

Previously pegged at Rmb8.3 to the dollar, the renminbi was revalued at Rmb8.1 in July 2005, as Beijing finally bowed to US government pressure and began to let the currency appreciate, albeit at a carefully controlled rate.

The renminbi has since strengthened steadily. In the first 12 months after it was revalued, it gained just 100 basis points against the US dollar. In the past six months of 2006, however, it surged another 200 basis points.

For Hong Kong, the practical effects of a stronger renminbi will be limited. Chinese tourists, on whom the local hospitality sector depends, will enjoy increased spending power. On the negative side of the ledger, Hong Kong imports most of its foodstuffs and other important raw materials from China, so a stronger renminbi will have an inflationary impact.

Hong Kong-owned factories in China, long spoiled by renminbi-US dollar currency stability, are less than enthusiastic about the consequences of a stronger renminbi. But the renminbi’s 6 per cent appreciation against the US dollar during the past 18 months has been manageable. It pales in comparison with the price pressures they have been enduring on wages, inputs and energy.

More important for Hong Kong is the psychological effect of a renminbi that is stronger than its own currency, because it symbolises China’s economic emergence and exacerbates the territory’s fears of marginalisation.

When Donald Tsang, Hong Kong chief executive, made his annual “duty visit” to Beijing late last week, top of his wish list was central government approval for Chinese companies to issue renminbi bonds in the territory and for local importers to be allowed to pay for China-sourced goods in renminbi.

Hong Kong banks held almost Rmb22.8bn ($2.9bn, €2.2bn, £1.5bn) worth of deposits as of November, according to the Hong Kong Monetary Authority, but they can do little with the renminbi they hold. Hence Mr Tsang’s desire for Beijing to allow bond issuance.

Copyright The Financial Times Limited 2007

Job search

Labor economics seeks to understand the functioning of the market and dynamics for labor. Labor markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers), the demanders of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income.

As I read about the reason for labour economics, I start to wonder about the huge mis-match of demand and supply in China, India and many other emerging nations whose population are fighting, and literally gnashing their teeth in return for survival. These people are willing to accept a pay one third of what we get to do the same if not even more. And here we are, looking at the rosy booming economy with rose-coloured glasses, unaware that our very rice bowls are about to be snatched from right beneath our noses.

As I started applying for my internship positions, I realise how job searching can be both exciting yet exhausting, and without the hunger and incentive and the dire motivation to get our jobs, we may be in a much tougher position in the next year. I tink it was estimated that some 2 million mainland Chinese graduates will be unemployed next year, and like diffusion, where there are more opportunities, there will the unemployed be led, and Singapore is one of the places that makes a good place to live and to get a job.

Really, maybe I’m taking this finding a job thing a little too seriously, but sometimes, I kinda envy people who have guaranteed jobs as a result of their scholarships. I want a secure job in the future, but i would also rather have clinched it on my own merits, rather than because of various deliberate pulling of strings.

I want to prove that I am independent, but not to anyone in the world except myself.

China’s Foreign reserves to hit $1 trillion

BEIJING : Boosted by a huge and growing trade surplus, China’s forex reserves have shot past the one-trillion-dollar mark and nothing is likely to stop them rising even further, analysts have said.

“They have grown by 200 billion dollars a year over the past three years … and they will continue to grow at the same pace in 2007,” Tim Condon, Singapore-based chief economist for ING Barings told AFP.

“The authorities have stated concerns over this but I have not seen anything that would change my view of 1.5 trillion dollars in forex reserves in the next few years.”

The State Administration of Foreign Exchange said the reserves had broken through the trillion-dollar mark late Monday, making China the world’s largest holder, ahead of Japan.

An inflow of foreign investment and a continuous stream of hot money looking for short-term speculative gains have helped the reserves reach their current size but booming exports are by far the single most important factor.

The trade surplus in the nine months to September hit 110 billion dollars, already above the 102 billion dollars recorded in 2005 and continuing to fuel protests, led by the United States, that Beijing keeps its currency undervalued to gain an unfair advantage.

But from China’s point of view, the economy has developed smoothly over the past decade due largely to its tightly controlled foreign exchange regime and on that basis, “there is no need for a fundamental change,” Condon said.

Beijing will instead continue to mop up funds coming into the country, investing them largely in dollar assets, and will resist efforts to get it to revalue the yuan, estimated by its critics to be up to 40 percent undervalued.

China did revalue the yuan by 2.1 percent to 8.11 against the dollar in July 2005 in an apparent effort to mollify Washington, but since then the unit has risen only at a snail’s pace to 7.88 Tuesday, sparking calls for faster change.

That course, however, would not be China’s best interest, says Fan Gang, a Beijing-based economist and a member of the central bank’s monetary policy committee.

Large fluctuations in the yuan’s value would only lead to further inflows of speculative capital betting on the currency’s appreciation, he said in an opinion piece published in Monday’s Wall Street Journal.

A sharp move to revalue the yuan could have “catastrophic” consequences for the domestic economy, Fan said, blaming an overvalued dollar on the world’s monetary imbalances — not, as Washington would have it, on China’s policies.

Many bank economists, including ING Baring’s Condon, expect China to allow the yuan to appreciate incrementally to about 7.75 to the dollar by the end of the year and maintain that rate for most of 2007 despite outside pressure.

Some analysts see the issue as a re-run of what happened with Japan in the 1980s when the United States forced a sharp appreciation of the yen, sparking a massive speculative bubble which ended with Japan in the doldrums for 15 years.

“To some extent this is a re-run to what happened with Japan in the 1980s and 1990s when the focus was on the yen,” Callum Henderson, a Singapore-based forex strategist for Standard Chartered, told AFP.

“Now we have a huge push in the United States for a much, much stronger yuan. Certainly the message I get when I go to Beijing is, and I quote: ‘We’re are not going to make the same mistake as Japan’.

“It is entirely reasonable that China goes at a very slow and gradual pace because too much can be lost if you go too fast, not just on the economic side but in terms of general stability,” Henderson said.

“I think China has learned a number of very important lessons that Japan learned to its cost in the 1990s.”

Chinese roots

Watching “Global Picnic” on TV Mobile today made me long for something that I never used to wish I wanted– a culture that I could call my own.

Being Singaporean Chinese seems to separate us from the Chinese from Mainland China, Taiwan, HongKong. We are a breed without a culture, without something to distinctively call our own. There is a tremendous lack of pride in being Chinese in Singapore, although I dont know why that was instilled in us. But for myself, I was never too proud of the fact that I came from both a Chinese secondary school and a Chinese Junior College. It wasnt something to boast to your friends about, not when the cool people sure didnt come from those schools. No, it was the anglo schools that produced those high and mighty rich and goodlooking people. So naturally, there always seemed to be an affinity with being anti-chinese. Which now strikes me as absurd.

What makes us Chinese are the very roots of our being, our existence as a Chinese really ought to be something to be proud of, and not ashamed of. The Chinese may be cheats, but they are nonetheless shrewd and brilliant beyond any doubt. They may have been selfish, but have devised incredible ways to defeat their enemies– such a statement can be effortlessly justified by the Great Wall of China and the origin of Mooncakes eaten during the Mid Autumn Festival (wait, did I get that right?). What an embarrassment, I dont even remember the name of such an important festival. But basically, mooncakes were created in an effort to out the occupying enemies in a certain province; and villages upon eating the mooncakes would have noticed the piece of instruction so cleverly hiddein in the lotus paste telling them when to attack the enemy guards outside each house. Ingenious arent we? I mean, our forefathers.

I feel sad to have ever entertained any thought of not wanting to be Chinese; in fact, it is an honour. I suppose no Chinese person will every really appreciate their roots unless they are forced to give it up. But I tink it suffices for now to reflect at least on the incedible feats accomplished by our mainland forefathers, and how we must continue the spirit of survival, hard work and being Chinese.

 

hindrances to the Dragon’s growth

 

Partly as a result of China’s rapid expansion, global economic growth at  purchasing power parity exchange rates is estimated to reach 5.3% in 2006, before easing to 4.7% in both 2007 and 2008, as the US economy slows. As the US decelerates, global trade growth is expected to decline from 9.5% in 2006 to 7.5% in 2007, before picking up slightly to 7.8% in 2008. Although the expansion of China’s exports is a structural phenomenon rather than a cyclical one, this slowdown in global—and particularly US—demand will nevertheless act as a dampener on Chinese export growth. Global oil prices will remain high, at US$69.3/barrel in both 2006 and 2007, before falling slightly to US$66/b in 2008. High global oil prices forced the Chinese government to raise the retail price of refined petroleum products in 2006. Additional rises are, however, still necessary if domestic oil prices are to be brought closer in line with international prices, and this would put upward pressure on inflation in China.

Further weakness in the US dollar, which is expected to average €1:US$1.34 by 2008, may prompt the authorities to allow a faster appreciation of the renminbi against the major currencies.