Here's my Top 10 links from around the Internet at 10 am today.
As always, we welcome your additions in the comments below or via email to email@example.com.
My must read today is #2 from John Kay on how effective QE has been at boosting the broad economy (not very), as opposed to the wealth of property, bond and stock owners (very).
1. 'We are inside China, but China is not inside us' - Martin Wolf at FT.com writes about a new book on globalisation and China from Cambridge University academic Peter Nolan that says we have little reason to fear China buying up the rest of the world.
Nolan's argument is that China is still dependent on large multi-national and integrated companies.
China has yet to build its own global corporate behemoths. Although I'd note there are a few contenders, including Huawei.
Nolan makes some interesting points about the way many global supply chains are now dominated by two or three companies that are 'integrators'.
Fonterra is the closest thing New Zealand has to one of these companies. It's not quite there yet.
It's got the ingredients, but not the consumer brands, although it's working on that.
What does this analysis suggest? The most important implication is that China has barely developed any globally significant companies. Moreover, such is the lead of the advanced countries’ incumbents that it is going to find it extremely hard to do so. From the Chinese perspective, therefore, the striking feature of their economy remains its dependence on the knowhow of others. This explains China’s desperate efforts to obtain that knowledge. A further implication is that China is very far indeed from “buying up the world”. The paranoia about its impact is unwarranted.
A deeper question is whether, in a world of ever more global companies, it makes sense to worry that companies are not “yours”. I suspect the answer is: yes. China is right to worry about this. Companies still have national attachments that shape how they behave and, in particular, their role in developing a particular country’s competences. But, for a nation as vast as China, this may matter less than for most others. In the end, almost all global companies are likely to find themselves enveloped by China: it will be too central to their activities for them to escape its demands.
2. Is QE really working? - FT commentator John Kay chews this over in this comment piece on his website, in which he ultimately concludes there has been little real analysis of the effects of the particular type of quantitative easing (QE) being used in the US, the UK and Japan. It is however something the financial sector likes.
Kay makes some excellent points about the liabilities of public pension funds and the lack of public infrastructure investment.
In the modern financial economy, the main effect of QE is to boost asset prices, as market gyrations of recent weeks have clearly illustrated. But is the pursuit of higher asset prices an effective or desirable means of promoting economic growth? The distributional impact of the policy demands attention; the one certain consequence of boosting asset prices is that those with assets benefit relative to those without. Many people own houses – but, although in the UK, for example, we need more houses, we do not need another housing boom. The public also holds financial assets indirectly, largely through pension funds. But here there has been a paradoxical effect: because of the way pension funds are valued, QE has generally increased pension funds’ liabilities more than their assets.
A few technical papers from central banks try to estimate the overall macroeconomic effects of post-2008 monetary policies. But there is almost no direct evidence; these studies focus on the predicted effects of lower long-term interest rates within a particular economic model. The one policy certainty is that countries that claimed an early commitment to fiscal rectitude would encourage growth have not come through the crisis as well as those readier to adopt fiscal stimulus.
This relationship of monetary and fiscal policy reveals another paradox. Most opportunities for long-term investment are found in infrastructure, either in the public sector, or associated with or financed by the public sector. Yet far from treating the depressed state of western economies as an opportunity to make such investment, and taking advantage of opportunities to raise long-term finance at interest rates that are negative in real terms, austerity-minded governments have been cutting capital expenditure and their central banks have been aggressively buying long-term debt back from its private holders.
Why has so much attention been given to these monetary policies with no clear explanation of how they might be expected to work and little evidence of effectiveness? The very phrase “quantitative easing” seems designed to discourage non-technical discussion. But the real answer, I fear, is all too familiar: these policies may not benefit the non-financial economy much, but they are helpful to the financial services sector and those who work in it.
3. China's slowdown starts to show - Reuters reports Chinese trade figures out last night show how quickly China's economy is slowing, how relaxed the leadership appear to be, and how the 7.5% GDP growth target is likely to be missed.
China's reform-minded new leaders, including Premier Li Keqiang, have shown a tolerance for slower growth, while pressing ahead with efforts to revamp the economy for the longer term, but any continued slide in economic performance could test their resolve.
The customs data showed that exports fell 3.1 percent in June against forecasts for a rise of 4 percent, casting a shadow over second-quarter GDP figures due on Monday that are already expected to show growth slowed down to 7.5 percent as weak demand dented factory output and the pace of investment.
"Next week will be a testing time for the government in revealing just how much of a growth slowdown it is willing to tolerate," Zhiwei Zhang, China chief economist at Nomura in Hong Kong, said in a client note. The fall in exports was the first since January 2012. Imports fell 0.7 percent versus expectations for an 8 percent rise.
4. European strains - BBC reports S&P downgraded Italy's credit rating to BBB (two notches above junk) last night because its economy is expected to contract by 1.6% this year. Europe is far, far from fixed.
5. A very rare coin company - This has snuck under the radar in Western Australia. The West Australian reports the collapse of the Albany-based Rare Coin Company is causing many Australian savers to worry about whether they'll get back the A$240 million of coins in their vaults. The liquidators say they will eventually, but it's one to watch. Any New Zealanders caught up in this?
6. A homeless man and his Blackberry - This is a useful on-the-ground insight from Time into what homelessness and poverty looks like in the modern America. It's different here, right?
Bert said his phone connects him to less tangible, but still important, resources. He knows people can reach him, no matter where he sleeps at night. He gets daily e-mails from an online ministry, with inspirational messages and passages from the Bible. Those keep up his spirit and faith and keep him going. He can read news on the browser, too. Ironically, his biggest criticism of BlackBerry is the browser: it’s slow and outdated and most websites won’t load on it anymore. He only gets a certain amount of time on the computer at the public library, so he often begins researching jobs and housing on his phone and makes a list of websites he wants to visit when he gets on a computer with a faster connection.
The phone also, in part, structures his day in an often chaotic life. He has an exhaustive list of places to charge his phone, and he makes sure to hit them at some point during the day. He’s careful about his power and data usage and carries his charger at all times, in one of the capacious pockets of his army jacket. “When I see a free outlet somewhere, I have to say, it feels like Christmas,” he said. Free Wi-Fi inspires the same feeling; he can save up his valuable data usage.
7. What about goat meat? - Foodbeast points out goat meat is the world's biggest source of red meat, thanks to its popularity in the Middle East, Africa and South Asia. Surely New Zealand could become a great source of goat protein?
8. A fantastic charting tool - This chart tool from gedviz allows you create a chart showing trade, migration and bank claims between countries. Here's one I built showing China, Australia and New Zealand. Click through to play with it.
9. A canary in the coal mine - This piece from Adele Ferguson in the SMH suggests this week's very poor business confidence figures in Australia are indicating some ugly smells may start brewing inside that economy.
A briefing paper to Victorian Treasurer Michael O'Brien last week is understood to show that the downturn is widespread, with the billable hours of the state's top law firms and accountancy firms down 25 per cent year on year.
Debt collection agency Prushka has been monitoring the trends for the past 12 months and likens the rapid deterioration in debt collection to the ''canary in the coalmine''.
According to Prushka's Roger Mendelson, the figures from the group's debt collection agency and legal arm show that of all the statutory demands served on behalf of Prushka over the past 12 months, 47 per cent across the country resulted in no payment. It says the amount recovered equated to 2.9 per cent of the total amount claimed.