The fortunes of the world’s emerging economies once rose or fell in lockstep with China. No longer.
Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, writes that in recent years we’ve seen a gradual decoupling of GDP growth between the Asian giant and the world’s smaller economies. Now Covid-19 has collapsed the link altogether. China is growing more slowly as its government imposes lockdowns to combat the virus, all while reining in its real estate moguls and tech oligarchs.
“China may not matter as much as it once did,” argues Sharma.
International businesses are starting to reach a similar conclusion. Increasingly, companies that once focused their global strategies on China, extrapolating its high growth rates far into the future, are now planning less with the nation in mind.
For instance, after Covid-19 highlighted the risks of concentrating supply chains in China, multinationals began looking at places like Mexico and Thailand to produce goods for the rest of the world. Some are bringing their supply chains home, a process of “reshoring” enabled by advanced manufacturing technologies like robotics and 3-D printing.
Nobody argues that China no longer matters, of course. It is, after all, the world’s biggest trader, manufacturer and lender.
Nor is there any evidence that multinationals in China are pulling out. In fact, surveys of U.S. businesses in the country (by definition the ones doing well, others having packed up and left) mostly plan to double-down on their investments. And although the regulatory crackdown on big tech that wiped out trillions of dollars in shareholder value prompted claims on Wall Street that China is “uninvestable,” record sums of venture capital are flooding in.
Rather, it’s dawning on investors that there are attractive alternatives. For instance, while China’s economy is sinking, Taiwan and South Korea are on a roll, boosted by their market dominance in semiconductors that are powering the digital revolution. As Sharma points out, the same forces of technology are transforming larger emerging economies, including Indonesia and India, which are building opportunities around mobile internet technologies.
As online payments and digital loans soar at some of the fastest rates worldwide, money is pouring into India’s financial technology sector at an unprecedented pace. Above, offices at the New Delhi headquarters of fintech firm BharatPe on Oct. 5.
Photographer: Anindito Mukherjee/Bloomberg
And the coming “green revolution” is lifting prospects for producers of metals like copper and aluminum that come from emerging economies—among them Peru and Chile. All of this helps to explain why China’s share of global GDP growth has plunged from 35% before the pandemic to 25% today.
Moreover, for just about all investors in China, the risk calculus is changing. I pointed out last week that the decision by the Women’s Tennis Federation to stand up for tennis star Peng Shuai was a rare case of a Western organization placing principles above profits in China. But the group almost certainly input revenue calculations into its decision-making, perhaps concluding that the potential financial hit might not be as catastrophic as one might think.
Just ask the U.S. Professional Golf Association. China was supposed to be its next big market, the game having slumped in the U.S. when Tiger Woods lost form. Developers on Hainan Island laid out 10 golf courses side-by-side across a stretch of land 1-½ times the size of Manhattan.
But the growth of the sport didn’t survive President Xi Jinping’s early austerity drive (he prefers proletariat soccer to bourgeois golf.) Bulldozers moved in and ripped up scores of Chinese golf courses. Meanwhile, the game in America has spectacularly revived.
The Mission Hills Resort Haikou in Hainan Province, China
Photographer: Brent Lewin
There’s a broader lesson to be learned there. It’s not a given that China’s economy will overtake the U.S. in aggregate size. And even if it does, it will do so with fading momentum, held back by an aging population and massive debt.
These days, Chinese state media confidently proclaim that Xi has brought China “closer to the center of the world stage than it has ever been.” In March, the Chinese president boasted to the national legislature that China’s supposed victory over Covid-19 was the result of “self-confidence in our path, self-confidence in our theories, self-confidence in our system, self-confidence in our culture.”
Yet China is hunkering down and the virus still very present. The country is largely sealed off from the world by quarantines. Mao Zedong’s “self-reliance” slogan is back as the country invests in home-grown technologies and boosts its domestic consumer markets.
Meanwhile, as Sharma notes, emerging markets that once thrived primarily by selling parts and raw materials to the world’s factory floor are also gaining confidence. “Now, they have more options,” he said. So does everyone else: an enduring consequence of the coronavirus may be that global investors have seen other opportunities in the world beyond China.
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OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
