IMF Sees Varied Outlook for Mideast, with Oil-Importing Countries Facing Continued Economic Pressures
Press Release No. 11/378
October 26, 2011
Excerpts:
The economic outlook for countries across the Middle East and North Africa region varies markedly, with the oil-exporters seeing a mild pickup in growth in 2011 on the back of higher oil prices, and the oil-importers experiencing a dramatic slowdown, the IMF says in its latest assessment of the region. The IMF’s Regional Economic Outlook for the Middle East and Central Asia, released today, projects growth in the Middle East and North Africa region, including Afghanistan and Pakistan, at 3.9 percent in 2011, down from 4.4 percent in 2010.
The region’s oil-exporting countries (excluding Libya)—Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates, and Yemen—are forecast to expand by 4.9 percent in 2011, thanks to higher oil prices and oil production. But growth among the region’s oil importers—Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia—will register just under 2 percent (see table).
“Since the beginning of this year, a deterioration in the international economic outlook and the buildup of domestic social pressures have resulted in an economic slowdown in many of the region’s oil-importing countries. But we should not lose sight that the ongoing historical transformation holds the promise of improved living standards and a more prosperous future for the people in the region,” Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said at the launch conference of the report in Dubai today.
Higher oil prices benefiting oil exporters
Economic activity in the region’s oil-exporting countries has clearly improved, bolstered by continued high energy prices. This expansion is driven by the high level of activity in the countries of the Gulf Cooperation Council (GCC), where growth is projected at 7 percent in 2011, the report shows. Several countries—Saudi Arabia in particular—have stepped up oil production temporarily in response to higher oil prices and shortfalls in production from Libya. “The decision to increase oil production in the wake of disruptions in Libya was an essential contribution toward global energy market stability and enhanced activity,” Mr. Ahmed noted.
Increased oil revenues have created additional room for government spending in the GCC. Several countries announced spending programs early in the year, covering a wide spectrum of measures, such as subsidies, wages, and capital expenditure. At current projected oil prices and levels of production, revenue gains will more than offset the high levels of public spending. In 2011, the oil exporters’ combined external current account balance is expected to increase from $202 billion to $334 billion (excluding Libya), and from $163 billion to $279 billion for the GCC.
But fiscal vulnerability has also increased substantially, as break-even oil prices have risen steadily and are now approaching observed oil prices (see Chart 1). “Oil-exporting countries have understandably increased fiscal spending to address social needs. Looking forward, the widening of non-oil fiscal deficits makes many countries more vulnerable to swings in oil prices, at a time when the world economy is facing heightened risks,” Mr. Ahmed added.
[http://www.imf.org/external/images/pr11378a.gif]
Turning to the financial sector, the report sees a continued gradual recovery. GCC banks in particular, which showed considerable resilience during the global crisis, are now registering capital adequacy ratios in excess of 15 percent, with nonperforming loans below 10 percent. But private-sector credit growth remains cautious.
Looking ahead, the IMF’s assessment foresees a moderation in growth for the region’s oil exporters to about 4 percent in 2012, and notes that these countries also face some downside risks. The most immediate would be the impact of a sharp slowdown in Europe and the United States. Global oil demand could contract substantially, possibly leading to a sustained drop in oil prices. Other risks include further regional unrest and an economic downturn in key trading partners, such as India and China.
Meeting social needs, restoring confidence key priorities for oil importers
As for the region’s oil-importing countries, the political and economic transformations occurring in several of them are advancing slowly and are expected to extend well into 2012. Together with a worsening economic outlook in Europe and globally, the region is seeing a sharp drop in investment and tourism activity. As a result, the recovery in 2012 is expected to be weaker than anticipated, with growth projected at just over 3 percent, according to the IMF report.
“Undoubtedly, the year ahead will be challenging for many countries, with continued political uncertainty, a deteriorating global economic outlook, and higher financing costs impeding a quick economic recovery. Measures aimed at restoring confidence and fostering more inclusive growth will help countries enhance activity and ultimately address the needs of the population,” Mr. Ahmed said.
In response to growing social unrest, the economic downturn, and higher commodity prices, governments in the region have significantly expanded subsidies and transfers. The cost of this social spending remains high, exceeding 10 percent of GDP in Egypt and more than 5 percent of GDP in most other countries. As a result, oil importers’ fiscal deficits are widening by about 1.5 percent of GDP in 2010–11 (see Chart 2).
[http://www.imf.org/external/images/pr11378b.gif]
In the near term, such spending measures are appropriate to lessen the impact of the downturn. But from an efficiency and equity standpoint, it is better for governments to gradually replace universal subsidies with social safety nets that are targeted at the less well-off part of the population, the IMF report states. Resources can then be used for critical investments in infrastructure and education and for supporting much-needed reforms.
Meeting the rising demands of the population will not be easy, the report notes—particularly as most countries have already used their fiscal and international reserve buffers to respond to deteriorating economic conditions in the wake of the Arab Spring, and have less room left to respond to future shocks. Regional partners and the broader international community can facilitate this transition through financing and greater market access for exports.
Conflict has taken a massive human toll in addition to its enormous economic costs in Libya, Syria, and Yemen. The immediate priority for these countries is to avoid further humanitarian crisis and, post conflict, to pursue an agenda of reconstruction and reform.
See tables of selected economic indicators for Middle East, North Africa, Afghanistan, and Pakistan (MENAP) at http://www.imf.org/external/np/sec/pr/2011/pr11378.htm
Wednesday, October 26, 2011
Tuesday, October 25, 2011
Under Sec for Internt'l Affairs Lael Brainard Testimony on the U.S.-China Economic Relationship
Under Secretary for International Affairs Dr. Lael Brainard Testimony Before the House Committee on Ways and Means on the U.S.-China Economic Relationship
http://www.treasury.gov/press-center/press-releases/Pages/tg1336.aspx
Oct 25, 2011
Chairman Camp, Ranking Member Levin, distinguished members of the Committee, thank you for the opportunity to testify today on our economic relationship with China.
Challenges and Opportunities
Since the outset, President Obama has placed a high priority on pursuing a more balanced and fair economic relationship with China. This is central to our goal of doubling exports in five years and supporting several million U.S. jobs. And, indeed, since 2009, U.S. exports to China have grown by 61 percent, nearly twice as fast as our exports to the rest of the world. Despite this progress, the playing field is still uneven. To secure the future for our children, the Administration will continue working hard to get the economic relationship right.
China needs to take action at an accelerated rate, so that the potential of our relationship translates into real near-term benefits for our companies and workers. China’s leaders understand that China must shift to domestic consumption-led growth, provide a secure environment for the protection and enforcement of intellectual property rights, level the playing field between state-owned and private enterprises—domestic and foreign, and liberalize the exchange rate and financial markets. China needs to take these actions to sustain its own growth, as well as to address the concerns of its trade partners. On these issues, we have actively pressed China to accelerate the pace of reform in order to achieve more balanced growth and create fairer competition, and there has been some progress, but there are strong interests within China that favor a go-slow approach.
In the wake of the financial crisis, with American households saving more and demand weak in Europe and Japan, our exports increasingly will be directed at the fast-growing emerging markets if we are to create the good jobs with good wages that we need to grow our economy. For the next decade, China is expected to be the biggest source of demand growth in the global economy. The International Monetary Fund (IMF) forecasts that China’s growth will average 9.4 percent per year over the next five years, and the Organization of Economic Cooperation and Development (OECD) estimates that China’s share of global imports will increase from six percent in 2008, to over nine percent in 2012. This is a market opportunity that we must seize.
Foreign investment also is playing an increasingly important role in supporting jobs in the United States, and we expect this trend to continue. In 2009, majority-owned U.S. affiliates of foreign companies were an important contributor to U.S. economic activity, employing approximately five percent of the U.S. private workforce and 17 percent in the U.S. manufacturing sector. In the decade ahead, China will be a fast-growing source of foreign direct investment among major economies. Indeed, the stock of Chinese foreign investment in the United States more than doubled last year alone. Protecting national security is always our first concern, but where Chinese investment does not affect national security, we should welcome it. To create jobs here at home, it matters whether Chinese investment ultimately ends up in Anhui province, Argentina, or Alabama.
In order to derive a better balance of benefits from trade and investment opportunities with China, we need to see progress on three key challenges. First, in many sectors in which the United States is competitive globally, China must address a range of discriminatory policies, including those that favor domestic state-owned enterprises through barriers to foreign goods, services, and investment, as well as the provision of subsidies and preferential access to raw materials, land, credit, and government procurement. Second, rampant theft of intellectual property in China lowers the return to investments in research and development and innovation that represent a fundamental source of our country’s national competitive edge. Third, China must shift to a pattern of growth that can be sustained, drawing on home-grown demand rather than excessive dependence on exports. This requires that China bring its exchange rate into alignment with market fundamentals.
China’s Reforms
China’s current headline growth rate may look enviable right now, but China will face daunting challenges in coming years. We have a tremendous stake in ensuring that China deals with those challenges in a way that fundamentally reorients its growth pattern through greater balance and fairer competition.
China has had remarkable success in lifting hundreds of millions of its citizens out of poverty. But it has come at some cost, including large-scale environmental degradation and an economy that spends much more on investment than goods and services for its people. Chinese leaders understand that, with per capita income of around one-tenth of that of the United States in 2011,[1] and per capita household spending less than one-twentieth of that in the United States, the way China grew in the last two decades will not get them to the next stage of development. Instead, China will face what economists call the “middle income trap.”
China’s excessive dependence on growth driven by exports to advanced economies and investment will need to change. During the 2008-2009 global crisis, China was able to sustain growth through a massive credit-fueled investment boom. This will leave a financial hangover for years. China risks repeating the experience of other fast growing Asian economies that experienced sharp falls in growth soon after their investment-to-gross domestic product (GDP) ratios peaked. With investment reaching an all-time high of almost 48 percent of GDP, however, China’s peak is higher than other Asian economies.
China already is seeing rapidly slowing labor force growth, and the number of workers in China soon will be on the decline. While China maintains many advantages, a study by KPMG concluded that rising labor costs in China are shifting a rising market share of light manufactured goods to other producers in Asia.[2] A recent study by the Boston Consulting Group similarly concluded that China’s cost advantage is rapidly eroding.[3]
In the face of overinvestment and rising wages, China will need to move up the value chain. But China’s weak protection and enforcement of intellectual property rights threaten to retard the development of Chinese innovation and Chinese brands.
And the adjustment process – whether to greater consumption-led growth, higher value services, or innovation-intensive activities – is hampered by China’s continued excessive reliance on administrative controls, such as credit quotas to maintain price stability and intervention to temper exchange rate adjustment, that are subject to political determinations and thus leave policy making behind the curve. These controls are reflected in a financial system that fails to offer Chinese households financial assets that keeps up with inflation, let alone economic growth, and starves China’s most innovative firms and sectors of capital, despite massive domestic savings, while also depriving foreign competitors of the opportunity to offer a full range of products and services. Relying more on market-based prices, such as exchange and interest rates that facilitate adjustment to changing conditions, would make China’s growth more resilient, and avoid an excessive build-up of foreign exchange reserves.
For sustained growth, China wants greater access to U.S. technologies and high-tech dual use exports, to make progress on bilateral investment, and wants their exports to be accorded the same terms of access as exports from other market economies. We are willing to make progress on these issues, but our ability to move will depend in part on how much progress we see from China on issues that are important to us.
U.S. Engagement and Enforcement
We have worked tirelessly across the Administration to pursue a tight set of priorities with China – using the Strategic and Economic Dialogue (S&ED), as well as the Joint Commission on Commerce and Trade (JCCT). And since many other countries share our concerns, we also pursue these issues through multilateral channels, such as the G-20, the IMF, and the World Trade Organization (WTO), which are critical complements to our bilateral engagement. To advance our goals, whether it is faster appreciation of the exchange rate or reduced barriers to U.S. exports, we need to work smartly with our partners around the world and with China. And when engagement proves insufficient, this Administration will continue to be more aggressive than any of its predecessors in using all appropriate tools to address the particular problem, such as going after China’s unfair trade practices by taking China to the WTO and vigorously applying U.S. trade remedy laws.
While we face substantial challenges, and our job is far from finished, we have made important progress towards leveling the playing field and making the bilateral relationship more beneficial for American companies and workers. China’s trade surplus has declined from 7.7 percent of GDP in 2008, to 3.9 percent in 2010, and has declined further in the first half of this year compared to the same period last year, though an important part of the decline was due to slower growth in China’s export markets. In both its latest Five-Year Plan and the recent S&ED, China committed to targets to promote consumption-led growth, including raising household incomes, increasing minimum wages, and increasing services relative to GDP.
On the exchange rate, since China resumed exchange rate adjustment in June 2010, the renminbi has appreciated about seven percent against the U.S. dollar and about ten percent taking into account China’s higher rate of inflation relative to inflation in the United States. China’s currency has appreciated nearly forty percent against the dollar over the past five years in real terms. But the continued rapid pace of foreign reserve accumulation and the ongoing decline in the share of Chinese consumption in GDP indicate that the real exchange rate of the renminbi remains misaligned despite recent movement, and a faster pace of appreciation is needed.
Renminbi appreciation on its own will not erase our trade deficit. But allowing the exchange rate to adjust fully to reflect market forces is the most powerful near-term tool available to the Chinese government to achieve two of its top economic goals: combating inflation and shifting the composition of demand towards domestic consumption. By contrast, persistent misalignment holds back the rebalancing in demand needed to sustain the global recovery both in China and the world, and gives rise to substantial international concerns and ultimately to trade frictions. Further, emerging markets that compete with China resist appreciation of their own currencies to maintain their competitiveness vis-à-vis China.
At the G-20 earlier this month, surplus emerging markets such as China committed to accelerate the rebalancing of demand towards domestic consumption, and to move toward more market-determined exchange rates through greater exchange rate flexibility.
We also are making progress on our bilateral trade and investment priorities, in close collaboration with the Office of the U.S. Trade Representative and the Department of Commerce. At the most recent S&ED, after commitments made during the January state visit of President Hu and the prior December JCCT, China pledged to rescind all of its government procurement indigenous innovation catalogues, including by provincial and municipal governments. So far, the Central government has repealed four key measures that underpinned the indigenous innovation product accreditation system, and a number of local governments have taken positive steps. China also pledged to increase inspections of government computers to ensure that agencies use legitimate software, and to improve its high-level government coordination and leadership mechanisms to enhance long-term protection and enforcement of intellectual property rights. And last year, China met its S&ED pledge to raise the threshold for central government review of foreign investments from $100 to $300 million, leaving more foreign investment approvals to the mayors and governors who better understand the benefits of foreign direct investment.
Reforming and opening up China’s financial sector also remains a key priority. This not only would provide Chinese households with savings and insurance products to meet their financial goals without having to save so much of their income, but also would level the playing field with China’s state-owned enterprises for access to credit. We will continue pushing hard to address market access barriers in China’s financial sector, and we are seeing modest signs of progress. China now allows foreign banks to underwrite corporate bonds and is creating more opportunities for our financial services firms to manage investments in China as well as manage Chinese investments abroad. At the most recent S&ED, China committed to allow foreign firms to sell mutual funds, provide custody services, and sell mandatory auto liability insurance.
In short, while we will stand up to unfair and discriminatory practices and demand change, we will continue to engage with and encourage China as it pursues its reforms. And to meet this generational challenge, we must continue to work to strengthen the multilateral system that governs trade and finance, and not turn away from it. I believe this is the best way to promote American interests.
Thank you.
References
[1] September 2011 IMF World Economic Outlook Database, using market exchange rates.
[2] KPMG International, Product Sourcing in Asia Pacific 2011, pp. 7-9.
[3] Boston Consulting Group, Made in America, Again, August 2011, p. 5.
http://www.treasury.gov/press-center/press-releases/Pages/tg1336.aspx
Oct 25, 2011
Chairman Camp, Ranking Member Levin, distinguished members of the Committee, thank you for the opportunity to testify today on our economic relationship with China.
Challenges and Opportunities
Since the outset, President Obama has placed a high priority on pursuing a more balanced and fair economic relationship with China. This is central to our goal of doubling exports in five years and supporting several million U.S. jobs. And, indeed, since 2009, U.S. exports to China have grown by 61 percent, nearly twice as fast as our exports to the rest of the world. Despite this progress, the playing field is still uneven. To secure the future for our children, the Administration will continue working hard to get the economic relationship right.
China needs to take action at an accelerated rate, so that the potential of our relationship translates into real near-term benefits for our companies and workers. China’s leaders understand that China must shift to domestic consumption-led growth, provide a secure environment for the protection and enforcement of intellectual property rights, level the playing field between state-owned and private enterprises—domestic and foreign, and liberalize the exchange rate and financial markets. China needs to take these actions to sustain its own growth, as well as to address the concerns of its trade partners. On these issues, we have actively pressed China to accelerate the pace of reform in order to achieve more balanced growth and create fairer competition, and there has been some progress, but there are strong interests within China that favor a go-slow approach.
In the wake of the financial crisis, with American households saving more and demand weak in Europe and Japan, our exports increasingly will be directed at the fast-growing emerging markets if we are to create the good jobs with good wages that we need to grow our economy. For the next decade, China is expected to be the biggest source of demand growth in the global economy. The International Monetary Fund (IMF) forecasts that China’s growth will average 9.4 percent per year over the next five years, and the Organization of Economic Cooperation and Development (OECD) estimates that China’s share of global imports will increase from six percent in 2008, to over nine percent in 2012. This is a market opportunity that we must seize.
Foreign investment also is playing an increasingly important role in supporting jobs in the United States, and we expect this trend to continue. In 2009, majority-owned U.S. affiliates of foreign companies were an important contributor to U.S. economic activity, employing approximately five percent of the U.S. private workforce and 17 percent in the U.S. manufacturing sector. In the decade ahead, China will be a fast-growing source of foreign direct investment among major economies. Indeed, the stock of Chinese foreign investment in the United States more than doubled last year alone. Protecting national security is always our first concern, but where Chinese investment does not affect national security, we should welcome it. To create jobs here at home, it matters whether Chinese investment ultimately ends up in Anhui province, Argentina, or Alabama.
In order to derive a better balance of benefits from trade and investment opportunities with China, we need to see progress on three key challenges. First, in many sectors in which the United States is competitive globally, China must address a range of discriminatory policies, including those that favor domestic state-owned enterprises through barriers to foreign goods, services, and investment, as well as the provision of subsidies and preferential access to raw materials, land, credit, and government procurement. Second, rampant theft of intellectual property in China lowers the return to investments in research and development and innovation that represent a fundamental source of our country’s national competitive edge. Third, China must shift to a pattern of growth that can be sustained, drawing on home-grown demand rather than excessive dependence on exports. This requires that China bring its exchange rate into alignment with market fundamentals.
China’s Reforms
China’s current headline growth rate may look enviable right now, but China will face daunting challenges in coming years. We have a tremendous stake in ensuring that China deals with those challenges in a way that fundamentally reorients its growth pattern through greater balance and fairer competition.
China has had remarkable success in lifting hundreds of millions of its citizens out of poverty. But it has come at some cost, including large-scale environmental degradation and an economy that spends much more on investment than goods and services for its people. Chinese leaders understand that, with per capita income of around one-tenth of that of the United States in 2011,[1] and per capita household spending less than one-twentieth of that in the United States, the way China grew in the last two decades will not get them to the next stage of development. Instead, China will face what economists call the “middle income trap.”
China’s excessive dependence on growth driven by exports to advanced economies and investment will need to change. During the 2008-2009 global crisis, China was able to sustain growth through a massive credit-fueled investment boom. This will leave a financial hangover for years. China risks repeating the experience of other fast growing Asian economies that experienced sharp falls in growth soon after their investment-to-gross domestic product (GDP) ratios peaked. With investment reaching an all-time high of almost 48 percent of GDP, however, China’s peak is higher than other Asian economies.
China already is seeing rapidly slowing labor force growth, and the number of workers in China soon will be on the decline. While China maintains many advantages, a study by KPMG concluded that rising labor costs in China are shifting a rising market share of light manufactured goods to other producers in Asia.[2] A recent study by the Boston Consulting Group similarly concluded that China’s cost advantage is rapidly eroding.[3]
In the face of overinvestment and rising wages, China will need to move up the value chain. But China’s weak protection and enforcement of intellectual property rights threaten to retard the development of Chinese innovation and Chinese brands.
And the adjustment process – whether to greater consumption-led growth, higher value services, or innovation-intensive activities – is hampered by China’s continued excessive reliance on administrative controls, such as credit quotas to maintain price stability and intervention to temper exchange rate adjustment, that are subject to political determinations and thus leave policy making behind the curve. These controls are reflected in a financial system that fails to offer Chinese households financial assets that keeps up with inflation, let alone economic growth, and starves China’s most innovative firms and sectors of capital, despite massive domestic savings, while also depriving foreign competitors of the opportunity to offer a full range of products and services. Relying more on market-based prices, such as exchange and interest rates that facilitate adjustment to changing conditions, would make China’s growth more resilient, and avoid an excessive build-up of foreign exchange reserves.
For sustained growth, China wants greater access to U.S. technologies and high-tech dual use exports, to make progress on bilateral investment, and wants their exports to be accorded the same terms of access as exports from other market economies. We are willing to make progress on these issues, but our ability to move will depend in part on how much progress we see from China on issues that are important to us.
U.S. Engagement and Enforcement
We have worked tirelessly across the Administration to pursue a tight set of priorities with China – using the Strategic and Economic Dialogue (S&ED), as well as the Joint Commission on Commerce and Trade (JCCT). And since many other countries share our concerns, we also pursue these issues through multilateral channels, such as the G-20, the IMF, and the World Trade Organization (WTO), which are critical complements to our bilateral engagement. To advance our goals, whether it is faster appreciation of the exchange rate or reduced barriers to U.S. exports, we need to work smartly with our partners around the world and with China. And when engagement proves insufficient, this Administration will continue to be more aggressive than any of its predecessors in using all appropriate tools to address the particular problem, such as going after China’s unfair trade practices by taking China to the WTO and vigorously applying U.S. trade remedy laws.
While we face substantial challenges, and our job is far from finished, we have made important progress towards leveling the playing field and making the bilateral relationship more beneficial for American companies and workers. China’s trade surplus has declined from 7.7 percent of GDP in 2008, to 3.9 percent in 2010, and has declined further in the first half of this year compared to the same period last year, though an important part of the decline was due to slower growth in China’s export markets. In both its latest Five-Year Plan and the recent S&ED, China committed to targets to promote consumption-led growth, including raising household incomes, increasing minimum wages, and increasing services relative to GDP.
On the exchange rate, since China resumed exchange rate adjustment in June 2010, the renminbi has appreciated about seven percent against the U.S. dollar and about ten percent taking into account China’s higher rate of inflation relative to inflation in the United States. China’s currency has appreciated nearly forty percent against the dollar over the past five years in real terms. But the continued rapid pace of foreign reserve accumulation and the ongoing decline in the share of Chinese consumption in GDP indicate that the real exchange rate of the renminbi remains misaligned despite recent movement, and a faster pace of appreciation is needed.
Renminbi appreciation on its own will not erase our trade deficit. But allowing the exchange rate to adjust fully to reflect market forces is the most powerful near-term tool available to the Chinese government to achieve two of its top economic goals: combating inflation and shifting the composition of demand towards domestic consumption. By contrast, persistent misalignment holds back the rebalancing in demand needed to sustain the global recovery both in China and the world, and gives rise to substantial international concerns and ultimately to trade frictions. Further, emerging markets that compete with China resist appreciation of their own currencies to maintain their competitiveness vis-à-vis China.
At the G-20 earlier this month, surplus emerging markets such as China committed to accelerate the rebalancing of demand towards domestic consumption, and to move toward more market-determined exchange rates through greater exchange rate flexibility.
We also are making progress on our bilateral trade and investment priorities, in close collaboration with the Office of the U.S. Trade Representative and the Department of Commerce. At the most recent S&ED, after commitments made during the January state visit of President Hu and the prior December JCCT, China pledged to rescind all of its government procurement indigenous innovation catalogues, including by provincial and municipal governments. So far, the Central government has repealed four key measures that underpinned the indigenous innovation product accreditation system, and a number of local governments have taken positive steps. China also pledged to increase inspections of government computers to ensure that agencies use legitimate software, and to improve its high-level government coordination and leadership mechanisms to enhance long-term protection and enforcement of intellectual property rights. And last year, China met its S&ED pledge to raise the threshold for central government review of foreign investments from $100 to $300 million, leaving more foreign investment approvals to the mayors and governors who better understand the benefits of foreign direct investment.
Reforming and opening up China’s financial sector also remains a key priority. This not only would provide Chinese households with savings and insurance products to meet their financial goals without having to save so much of their income, but also would level the playing field with China’s state-owned enterprises for access to credit. We will continue pushing hard to address market access barriers in China’s financial sector, and we are seeing modest signs of progress. China now allows foreign banks to underwrite corporate bonds and is creating more opportunities for our financial services firms to manage investments in China as well as manage Chinese investments abroad. At the most recent S&ED, China committed to allow foreign firms to sell mutual funds, provide custody services, and sell mandatory auto liability insurance.
In short, while we will stand up to unfair and discriminatory practices and demand change, we will continue to engage with and encourage China as it pursues its reforms. And to meet this generational challenge, we must continue to work to strengthen the multilateral system that governs trade and finance, and not turn away from it. I believe this is the best way to promote American interests.
Thank you.
References
[1] September 2011 IMF World Economic Outlook Database, using market exchange rates.
[2] KPMG International, Product Sourcing in Asia Pacific 2011, pp. 7-9.
[3] Boston Consulting Group, Made in America, Again, August 2011, p. 5.
Are businesses run by women less productive than businesses run by men?
Where You Work: How Does Gender Matter?
Mary Hallward-Driemeier
Oct 2011
Are businesses run by women less productive than businesses run by men? If we perform a very simple comparison of the average productivity of female and male-owned enterprises, we might answer “yes”. But if we look a bit more closely at the data, a large part of this gap is explained by the fact that women and men are doing different things. If you compare women and men in the same sectors and in similar types of enterprises, the gap shrinks dramatically. Where you work is more important than gender in accounting for the observed productivity gap.
Using data on over 9000 registered enterprises from 32 countries in Sub-Saharan Africa, we see a productivity gap of 6 percent. However, controlling for sector, size and capital intensity, the gap disappears (see chart 1). If we include unregistered firms in the analysis, the unconditional productivity gap widens, as women are disproportionately in the informal sector where productivity is even lower. Nevertheless, the same pattern holds: there is little gender performance gap between similar enterprises.
A similar story emerges when we look at the obstacles faced by men’s and women’s businesses. Once the characteristics of the enterprise are controlled for, gender differences in obstacles are generally not significant. Access to electricity is a constraint, particularly for smaller and medium firms, and issues of skills and regulations for larger firms, regardless of the gender of the entrepreneur. There are, however, two exceptions that have a direct gender angle. First, women report having a harder time accessing credit. This is not only due to their running smaller firms (which itself may be a result of this constraint), women often have less access to collateral. This is correlated with a country’s gender gaps in formal property rights and practical constraints in accessing justice (this topic will be elaborated in an upcoming blog).
Second, women often face greater difficulties in dealing with
government authorities. They may be expected to pay higher amounts to
get things done, may be less likely to get things done even having paid –
and the ‘payment’ sought may not only be monetary. Indeed, over a
quarter of respondents, male and female, reported that they had heard of
sexual favors being requested to obtain licenses, receive credit or in
dealing with the tax authorities.
If where you work rather than gender is associated with performance and the main constraints to firm growth, policy makers need to understand why the observed gender patterns of entrepreneurship persist. One of the most significant predictors of whether an entrepreneur joins the formal or informal sector and the size of their enterprises is education. What we find is that across sectors, there are large gaps in education, but few gender education gaps within a sector. Women and men in the formal sector have very similar educational backgrounds, likewise in the informal sector (see Chart 2). However, where gender comes in is that women have fewer years of education, helping explain why fewer women are in the formal sector.
To expand women’s opportunities, more women need to be able to shift where they work. Tackling underlying disparities in access to human capital and assets are key to these efforts. With the same backgrounds, women are able to run the same types of firms as men with equal results.
See full story: https://blogs.worldbank.org/allaboutfinance/where-you-work-how-does-gender-matter to view full story.
Mary Hallward-Driemeier
Oct 2011
Are businesses run by women less productive than businesses run by men? If we perform a very simple comparison of the average productivity of female and male-owned enterprises, we might answer “yes”. But if we look a bit more closely at the data, a large part of this gap is explained by the fact that women and men are doing different things. If you compare women and men in the same sectors and in similar types of enterprises, the gap shrinks dramatically. Where you work is more important than gender in accounting for the observed productivity gap.
Using data on over 9000 registered enterprises from 32 countries in Sub-Saharan Africa, we see a productivity gap of 6 percent. However, controlling for sector, size and capital intensity, the gap disappears (see chart 1). If we include unregistered firms in the analysis, the unconditional productivity gap widens, as women are disproportionately in the informal sector where productivity is even lower. Nevertheless, the same pattern holds: there is little gender performance gap between similar enterprises.
Chart 1: The Gender Gap in Average Firm Labor
Controlling for enterprise characteristics removes the gender gap in productivity (registered firms in 32 Sub-Saharan African countries)
Controlling for enterprise characteristics removes the gender gap in productivity (registered firms in 32 Sub-Saharan African countries)
Once comparing like with like, the finding of no or few significant
differences between female and male entrepreneurs in performance is
encouraging. It confirms that Sub-Saharan Africa has considerable hidden
growth potential in its women, and that tapping that
potential—including improving women’s choices of where to be active
economically—can make a real contribution to the region’s growth.
A similar story emerges when we look at the obstacles faced by men’s and women’s businesses. Once the characteristics of the enterprise are controlled for, gender differences in obstacles are generally not significant. Access to electricity is a constraint, particularly for smaller and medium firms, and issues of skills and regulations for larger firms, regardless of the gender of the entrepreneur. There are, however, two exceptions that have a direct gender angle. First, women report having a harder time accessing credit. This is not only due to their running smaller firms (which itself may be a result of this constraint), women often have less access to collateral. This is correlated with a country’s gender gaps in formal property rights and practical constraints in accessing justice (this topic will be elaborated in an upcoming blog).
If where you work rather than gender is associated with performance and the main constraints to firm growth, policy makers need to understand why the observed gender patterns of entrepreneurship persist. One of the most significant predictors of whether an entrepreneur joins the formal or informal sector and the size of their enterprises is education. What we find is that across sectors, there are large gaps in education, but few gender education gaps within a sector. Women and men in the formal sector have very similar educational backgrounds, likewise in the informal sector (see Chart 2). However, where gender comes in is that women have fewer years of education, helping explain why fewer women are in the formal sector.
Chart 2: Education varies more by formal/informal sector than by gender
To expand women’s opportunities, more women need to be able to shift where they work. Tackling underlying disparities in access to human capital and assets are key to these efforts. With the same backgrounds, women are able to run the same types of firms as men with equal results.
See full story: https://blogs.worldbank.org/allaboutfinance/where-you-work-how-does-gender-matter to view full story.
Friday, October 21, 2011
The Case Against Global-Warming Skepticism
The Case Against Global-Warming Skepticism. By Richard A Muller
There were good reasons for doubt, until now.
http://online.wsj.com/article/SB10001424052970204422404576594872796327348.html
WSJ, Oct 21, 2011
Are you a global warming skeptic? There are plenty of good reasons why you might be.
As many as 757 stations in the United States recorded net surface-temperature cooling over the past century. Many are concentrated in the southeast, where some people attribute tornadoes and hurricanes to warming.
The temperature-station quality is largely awful. The most important stations in the U.S. are included in the Department of Energy's Historical Climatology Network. A careful survey of these stations by a team led by meteorologist Anthony Watts showed that 70% of these stations have such poor siting that, by the U.S. government's own measure, they result in temperature uncertainties of between two and five degrees Celsius or more. We do not know how much worse are the stations in the developing world.
Using data from all these poor stations, the U.N.'s Intergovernmental Panel on Climate Change estimates an average global 0.64ºC temperature rise in the past 50 years, "most" of which the IPCC says is due to humans. Yet the margin of error for the stations is at least three times larger than the estimated warming.
We know that cities show anomalous warming, caused by energy use and building materials; asphalt, for instance, absorbs more sunlight than do trees. Tokyo's temperature rose about 2ºC in the last 50 years. Could that rise, and increases in other urban areas, have been unreasonably included in the global estimates? That warming may be real, but it has nothing to do with the greenhouse effect and can't be addressed by carbon dioxide reduction.
Moreover, the three major temperature analysis groups (the U.S.'s NASA and National Oceanic and Atmospheric Administration, and the U.K.'s Met Office and Climatic Research Unit) analyze only a small fraction of the available data, primarily from stations that have long records. There's a logic to that practice, but it could lead to selection bias. For instance, older stations were often built outside of cities but today are surrounded by buildings. These groups today use data from about 2,000 stations, down from roughly 6,000 in 1970, raising even more questions about their selections.
On top of that, stations have moved, instruments have changed and local environments have evolved. Analysis groups try to compensate for all this by homogenizing the data, though there are plenty of arguments to be had over how best to homogenize long-running data taken from around the world in varying conditions. These adjustments often result in corrections of several tenths of one degree Celsius, significant fractions of the warming attributed to humans.
And that's just the surface-temperature record. What about the rest? The number of named hurricanes has been on the rise for years, but that's in part a result of better detection technologies (satellites and buoys) that find storms in remote regions. The number of hurricanes hitting the U.S., even more intense Category 4 and 5 storms, has been gradually decreasing since 1850. The number of detected tornadoes has been increasing, possibly because radar technology has improved, but the number that touch down and cause damage has been decreasing. Meanwhile, the short-term variability in U.S. surface temperatures has been decreasing since 1800, suggesting a more stable climate.
Without good answers to all these complaints, global-warming skepticism seems sensible. But now let me explain why you should not be a skeptic, at least not any longer.
Over the last two years, the Berkeley Earth Surface Temperature Project has looked deeply at all the issues raised above. I chaired our group, which just submitted four detailed papers on our results to peer-reviewed journals. We have now posted these papers online at www.BerkeleyEarth.org to solicit even more scrutiny.
Our work covers only land temperature—not the oceans—but that's where warming appears to be the greatest. Robert Rohde, our chief scientist, obtained more than 1.6 billion measurements from more than 39,000 temperature stations around the world. Many of the records were short in duration, and to use them Mr. Rohde and a team of esteemed scientists and statisticians developed a new analytical approach that let us incorporate fragments of records. By using data from virtually all the available stations, we avoided data-selection bias. Rather than try to correct for the discontinuities in the records, we simply sliced the records where the data cut off, thereby creating two records from one.
We discovered that about one-third of the world's temperature stations have recorded cooling temperatures, and about two-thirds have recorded warming. The two-to-one ratio reflects global warming. The changes at the locations that showed warming were typically between 1-2ºC, much greater than the IPCC's average of 0.64ºC.
To study urban-heating bias in temperature records, we used satellite determinations that subdivided the world into urban and rural areas. We then conducted a temperature analysis based solely on "very rural" locations, distant from urban ones. The result showed a temperature increase similar to that found by other groups. Only 0.5% of the globe is urbanized, so it makes sense that even a 2ºC rise in urban regions would contribute negligibly to the global average.
What about poor station quality? Again, our statistical methods allowed us to analyze the U.S. temperature record separately for stations with good or acceptable rankings, and those with poor rankings (the U.S. is the only place in the world that ranks its temperature stations). Remarkably, the poorly ranked stations showed no greater temperature increases than the better ones. The mostly likely explanation is that while low-quality stations may give incorrect absolute temperatures, they still accurately track temperature changes.
When we began our study, we felt that skeptics had raised legitimate issues, and we didn't know what we'd find. Our results turned out to be close to those published by prior groups. We think that means that those groups had truly been very careful in their work, despite their inability to convince some skeptics of that. They managed to avoid bias in their data selection, homogenization and other corrections.
Global warming is real. Perhaps our results will help cool this portion of the climate debate. How much of the warming is due to humans and what will be the likely effects? We made no independent assessment of that.
Mr. Muller is a professor of physics at the University of California, Berkeley, and the author of "Physics for Future Presidents" (W.W. Norton & Co., 2008).
There were good reasons for doubt, until now.
http://online.wsj.com/article/SB10001424052970204422404576594872796327348.html
WSJ, Oct 21, 2011
Are you a global warming skeptic? There are plenty of good reasons why you might be.
As many as 757 stations in the United States recorded net surface-temperature cooling over the past century. Many are concentrated in the southeast, where some people attribute tornadoes and hurricanes to warming.
The temperature-station quality is largely awful. The most important stations in the U.S. are included in the Department of Energy's Historical Climatology Network. A careful survey of these stations by a team led by meteorologist Anthony Watts showed that 70% of these stations have such poor siting that, by the U.S. government's own measure, they result in temperature uncertainties of between two and five degrees Celsius or more. We do not know how much worse are the stations in the developing world.
Using data from all these poor stations, the U.N.'s Intergovernmental Panel on Climate Change estimates an average global 0.64ºC temperature rise in the past 50 years, "most" of which the IPCC says is due to humans. Yet the margin of error for the stations is at least three times larger than the estimated warming.
We know that cities show anomalous warming, caused by energy use and building materials; asphalt, for instance, absorbs more sunlight than do trees. Tokyo's temperature rose about 2ºC in the last 50 years. Could that rise, and increases in other urban areas, have been unreasonably included in the global estimates? That warming may be real, but it has nothing to do with the greenhouse effect and can't be addressed by carbon dioxide reduction.
Moreover, the three major temperature analysis groups (the U.S.'s NASA and National Oceanic and Atmospheric Administration, and the U.K.'s Met Office and Climatic Research Unit) analyze only a small fraction of the available data, primarily from stations that have long records. There's a logic to that practice, but it could lead to selection bias. For instance, older stations were often built outside of cities but today are surrounded by buildings. These groups today use data from about 2,000 stations, down from roughly 6,000 in 1970, raising even more questions about their selections.
On top of that, stations have moved, instruments have changed and local environments have evolved. Analysis groups try to compensate for all this by homogenizing the data, though there are plenty of arguments to be had over how best to homogenize long-running data taken from around the world in varying conditions. These adjustments often result in corrections of several tenths of one degree Celsius, significant fractions of the warming attributed to humans.
And that's just the surface-temperature record. What about the rest? The number of named hurricanes has been on the rise for years, but that's in part a result of better detection technologies (satellites and buoys) that find storms in remote regions. The number of hurricanes hitting the U.S., even more intense Category 4 and 5 storms, has been gradually decreasing since 1850. The number of detected tornadoes has been increasing, possibly because radar technology has improved, but the number that touch down and cause damage has been decreasing. Meanwhile, the short-term variability in U.S. surface temperatures has been decreasing since 1800, suggesting a more stable climate.
Without good answers to all these complaints, global-warming skepticism seems sensible. But now let me explain why you should not be a skeptic, at least not any longer.
Over the last two years, the Berkeley Earth Surface Temperature Project has looked deeply at all the issues raised above. I chaired our group, which just submitted four detailed papers on our results to peer-reviewed journals. We have now posted these papers online at www.BerkeleyEarth.org to solicit even more scrutiny.
Our work covers only land temperature—not the oceans—but that's where warming appears to be the greatest. Robert Rohde, our chief scientist, obtained more than 1.6 billion measurements from more than 39,000 temperature stations around the world. Many of the records were short in duration, and to use them Mr. Rohde and a team of esteemed scientists and statisticians developed a new analytical approach that let us incorporate fragments of records. By using data from virtually all the available stations, we avoided data-selection bias. Rather than try to correct for the discontinuities in the records, we simply sliced the records where the data cut off, thereby creating two records from one.
We discovered that about one-third of the world's temperature stations have recorded cooling temperatures, and about two-thirds have recorded warming. The two-to-one ratio reflects global warming. The changes at the locations that showed warming were typically between 1-2ºC, much greater than the IPCC's average of 0.64ºC.
To study urban-heating bias in temperature records, we used satellite determinations that subdivided the world into urban and rural areas. We then conducted a temperature analysis based solely on "very rural" locations, distant from urban ones. The result showed a temperature increase similar to that found by other groups. Only 0.5% of the globe is urbanized, so it makes sense that even a 2ºC rise in urban regions would contribute negligibly to the global average.
What about poor station quality? Again, our statistical methods allowed us to analyze the U.S. temperature record separately for stations with good or acceptable rankings, and those with poor rankings (the U.S. is the only place in the world that ranks its temperature stations). Remarkably, the poorly ranked stations showed no greater temperature increases than the better ones. The mostly likely explanation is that while low-quality stations may give incorrect absolute temperatures, they still accurately track temperature changes.
When we began our study, we felt that skeptics had raised legitimate issues, and we didn't know what we'd find. Our results turned out to be close to those published by prior groups. We think that means that those groups had truly been very careful in their work, despite their inability to convince some skeptics of that. They managed to avoid bias in their data selection, homogenization and other corrections.
Global warming is real. Perhaps our results will help cool this portion of the climate debate. How much of the warming is due to humans and what will be the likely effects? We made no independent assessment of that.
Mr. Muller is a professor of physics at the University of California, Berkeley, and the author of "Physics for Future Presidents" (W.W. Norton & Co., 2008).
Thursday, October 20, 2011
BCBS: Basel III definition of capital - Frequently asked questions
BCBS: Basel III definition of capital - Frequently asked questions
Oct 20, 2011
The Basel Committee on Banking Supervision has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability. To help ensure a consistent global implementation of Basel III, the Committee will continue to review frequently asked questions and to periodically publish answers along with any technical elaboration of the rules text and interpretative guidance that may be necessary.
The frequently asked questions (FAQs) published in this document correspond to the definition of capital sections of the Basel III rules text. These FAQs are in addition to the first set of FAQs published in July 2011. The questions and answers are grouped according to the relevant paragraphs of the rules text. FAQs that have been added since the publication of the first version of this document are shaded yellow; the earlier July 2011 FAQs that have been revised are shaded red.
Contents
Paragraphs 52-53 (Criteria for Common Equity Tier 1)
Paragraphs 54-56 (Criteria for Additional Tier 1 capital)
Paragraphs 60-61 (Provisions)
Paragraphs 62-65 (Minority interest and other capital that is issued out of consolidated subsidiaries that is held by third parties)
Paragraphs 67-68 (Goodwill and other intangibles)
Paragraphs 69-70 (Deferred tax assets)
Paragraphs 76-77 (Defined benefit pension fund assets and liabilities)
Paragraphs 79-85 (Investments in the capital of banking financial and insurance entities)
Paragraphs 94-96 (Transitional arrangements)
Press release 13 January 2011 (Loss absorbency at the point of non-viability)
General questions
http://www.bis.org/publ/bcbs204.htm
Oct 20, 2011
The Basel Committee on Banking Supervision has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability. To help ensure a consistent global implementation of Basel III, the Committee will continue to review frequently asked questions and to periodically publish answers along with any technical elaboration of the rules text and interpretative guidance that may be necessary.
The frequently asked questions (FAQs) published in this document correspond to the definition of capital sections of the Basel III rules text. These FAQs are in addition to the first set of FAQs published in July 2011. The questions and answers are grouped according to the relevant paragraphs of the rules text. FAQs that have been added since the publication of the first version of this document are shaded yellow; the earlier July 2011 FAQs that have been revised are shaded red.
Contents
Paragraphs 52-53 (Criteria for Common Equity Tier 1)
Paragraphs 54-56 (Criteria for Additional Tier 1 capital)
Paragraphs 60-61 (Provisions)
Paragraphs 62-65 (Minority interest and other capital that is issued out of consolidated subsidiaries that is held by third parties)
Paragraphs 67-68 (Goodwill and other intangibles)
Paragraphs 69-70 (Deferred tax assets)
Paragraphs 76-77 (Defined benefit pension fund assets and liabilities)
Paragraphs 79-85 (Investments in the capital of banking financial and insurance entities)
Paragraphs 94-96 (Transitional arrangements)
Press release 13 January 2011 (Loss absorbency at the point of non-viability)
General questions
http://www.bis.org/publ/bcbs204.htm
Rapid Credit Growth: Boon or Boom-Bust?
Rapid Credit Growth: Boon or Boom-Bust? By Selim Elekdag & Yiqun Wu
IMF Working Paper No. 11/241
October 01, 2011
http://www.imfbookstore.org/IMFORG/WPIEA2011241
Summary: Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of a comprehensive event study focusing on 99 credit booms. Loose monetary policy stances seem to have contributed to the build-up of credit booms across both advanced and emerging economies. In particular, domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances. For emerging economies, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity) are virtually flat during these periods. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies.
Executive Summary
This paper is motivated by rapid credit growth across many emerging economies, particularly those in Asia. It presents the results of a comprehensive event study which identifies 99 credit booms, of which 39 and 60 originated in advanced and emerging economies, respectively. Episodes of excessive credit growth—credit booms—lead to growing financial imbalances, and tend to end abruptly, often in the form of financial crises. In particular, relative to booms in other emerging economies, credit booms in emerging Asia were associated with a higher incidence of crises historically.
Three other main conclusions include the following:
IMF Working Paper No. 11/241
October 01, 2011
http://www.imfbookstore.org/IMFORG/WPIEA2011241
Summary: Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of a comprehensive event study focusing on 99 credit booms. Loose monetary policy stances seem to have contributed to the build-up of credit booms across both advanced and emerging economies. In particular, domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances. For emerging economies, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity) are virtually flat during these periods. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies.
Executive Summary
This paper is motivated by rapid credit growth across many emerging economies, particularly those in Asia. It presents the results of a comprehensive event study which identifies 99 credit booms, of which 39 and 60 originated in advanced and emerging economies, respectively. Episodes of excessive credit growth—credit booms—lead to growing financial imbalances, and tend to end abruptly, often in the form of financial crises. In particular, relative to booms in other emerging economies, credit booms in emerging Asia were associated with a higher incidence of crises historically.
Three other main conclusions include the following:
- First, as credit booms build, they are jointly associated with deteriorating bank and corporate balance sheet soundness, and symptoms of overheating including: large capital inflows (including less stable bank flows), widening current account deficits, buoyant asset prices, and strong domestic demand.
- Second, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity), are virtually flat during these periods, which suggests the important role of domestic factors in driving credit growth across emerging economies. This may reflect, in part, that capital inflows are being channeled into other asset classes including real estate, equity, and corporate bonds, for example.
- Third, loose macroeconomic policy stances seem to have contributed to the build-up of credit booms. In particular, this seems to be the case for monetary policy across both advanced and emerging economies. For emerging economies, while international interest rates were essentially flat, domestic policy rates were below trend during the pre-peak phase of credit booms. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies including those in Asia.
Chellaney: Hydro-control turning China into dreaded hydra?
THE WATER HEGEMON
Hydro-control turning China into dreaded hydra? By Brahma Chellaney
Bangkok Post, Oct 18, 2011 at 12:00 AM
With Beijing controlling the sources of Asia's most important rivers, water has increasingly become a new political divide in China's relations with neighbours like India, Russia, Kazakhstan, Nepal and the Mekong River countries.
http://www.bangkokpost.com/opinion/opinion/261849/hydro-control-turning-china-into-dreaded-hydra
International discussion about China's rise has focused on its increasing trade muscle, growing maritime ambitions, and expanding capacity to project military power. One critical issue, however, usually escapes attention: China's rise as a hydro-hegemon with no modern historical parallel.
The Mekong River, whose water level last March dropped to only 33 centimetres, the lowest in 50 years. People living downriver in Thailand, Laos and Cambodia attributed the fall in water level to newly constructed dams in China.
No other country has ever managed to assume such unchallenged riparian pre-eminence on a continent by controlling the headwaters of multiple international rivers and manipulating their cross-border flows. China, the world's biggest dam builder _ with slightly more than half of the approximately 50,000 large dams on the planet _ is rapidly accumulating leverage against its neighbours by undertaking massive hydro-engineering projects on transnational rivers.
Asia's water map fundamentally changed after the 1949 Communist victory in China. Most of Asia's important international rivers originate in territories that were forcibly annexed to the People's Republic of China. The Tibetan Plateau, for example, is the world's largest freshwater repository and the source of Asia's greatest rivers, including those that are the lifeblood for mainland China and South and Southeast Asia. Other such Chinese territories contain the headwaters of rivers like the Irtysh, Illy and Amur, which flow to Russia and Central Asia.
This makes China the source of cross-border water flows to the largest number of countries in the world. Yet China rejects the very notion of water sharing or institutionalised cooperation with downriver countries. Whereas riparian neighbours in Southeast and South Asia are bound by water pacts that they have negotiated between themselves, China does not have a single water treaty with any co-riparian country. Indeed, having its cake and eating it, China is a dialogue partner but not a member of the Mekong River Commission, underscoring its intent not to abide by the Mekong basin community's rules or take on any legal obligations.
Worse, while promoting multilateralism on the world stage, China has given the cold shoulder to multilateral cooperation among river-basin states. The lower-Mekong countries, for example, view China's strategy as an attempt to "divide and conquer". Although China publicly favours bilateral initiatives over multilateral institutions in addressing water issues, it has not shown any real enthusiasm for meaningful bilateral action. As a result, water has increasingly become a new political divide in the country's relations with neighbours like India, Russia, Kazakhstan, and Nepal.
China deflects attention from its refusal to share water, or to enter into institutionalised cooperation to manage common rivers sustainably, by flaunting the accords that it has signed on sharing flow statistics with riparian neighbours. These are not agreements to cooperate on shared resources, but rather commercial accords to sell hydrological data that other upstream countries provide free to downriver states.
In fact, by shifting its frenzied dam building from internal rivers to international rivers, China is now locked in water disputes with almost all co-riparian states. Those disputes are bound to worsen, given China's new focus on erecting mega-dams, best symbolised by its latest addition on the Mekong _ the 4,200-megawatt Xiaowan Dam, which dwarfs Paris's Eiffel Tower in height _ and a 38,000-megawatt dam planned on the Brahmaputra at Metog, close to the disputed border with India. The Metog Dam will be twice as large as the 18,300-megawatt Three Gorges Dam, currently the world's largest, construction of which uprooted at least 1.7 million Chinese.
In addition, China has identified another mega-dam site on the Brahmaputra at Daduqia, which, like Metog, is to harness the force of a nearly 3,000-metre drop in the river's height as it takes a sharp southerly turn from the Himalayan range into India, forming the world's longest and steepest canyon. The Brahmaputra Canyon _ twice as deep as the Grand Canyon in the United States _ holds Asia's greatest untapped water reserves.
The countries likely to bear the brunt of such massive diversion of waters are those located farthest downstream on rivers like the Brahmaputra and Mekong _ Bangladesh, whose very future is threatened by climate and environmental change, and Vietnam, a rice bowl of Asia. China's water appropriations from the Illy River threaten to turn Kazakhstan's Lake Balkhash into another Aral Sea, which has shrunk to less than half its original size.
In addition, China has planned the "Great Western Route", the proposed third leg of the Great South-North Water Diversion Project _ the most ambitious inter-river and inter-basin transfer programme ever conceived _ whose first two legs, involving internal rivers in China's ethnic Han heartland, are scheduled to be completed within three years.
The Great Western Route, centred on the Tibetan Plateau, is designed to divert waters, including from international rivers, to the Yellow River, the main river of water-stressed northern China, which also originates in Tibet.
With its industry now dominating the global hydropower-equipment market, China has also emerged as the largest dam builder overseas. From Pakistani-held Kashmir to Burma's troubled Kachin and Shan states, China has widened its dam building to disputed or insurgency-torn areas, despite local backlashes.
For example, units of the People's Liberation Army are engaged in dam and other strategic projects in the restive, Shia-majority region of Gilgit-Baltistan in Pakistan-held Kashmir. And China's dam building inside Burma to generate power for export to Chinese provinces has contributed to renewed bloody fighting recently, ending a 17-year ceasefire between the Kachin Independence Army and the Burmese government.
As with its territorial and maritime disputes with India, Vietnam, Japan and others, China is seeking to disrupt the status quo on international river flows. Persuading it to halt further unilateral appropriation of shared waters has thus become pivotal to Asian peace and stability. Otherwise, China is likely to emerge as the master of Asia's water taps, thereby acquiring tremendous leverage over its neighbours' behaviour.
Brahma Chellaney is Professor of Strategic Studies at the Centre for Policy Research and the author of "Water: Asia's New Battleground." Project Syndicate, 2011.
Hydro-control turning China into dreaded hydra? By Brahma Chellaney
Bangkok Post, Oct 18, 2011 at 12:00 AM
With Beijing controlling the sources of Asia's most important rivers, water has increasingly become a new political divide in China's relations with neighbours like India, Russia, Kazakhstan, Nepal and the Mekong River countries.
http://www.bangkokpost.com/opinion/opinion/261849/hydro-control-turning-china-into-dreaded-hydra
International discussion about China's rise has focused on its increasing trade muscle, growing maritime ambitions, and expanding capacity to project military power. One critical issue, however, usually escapes attention: China's rise as a hydro-hegemon with no modern historical parallel.
The Mekong River, whose water level last March dropped to only 33 centimetres, the lowest in 50 years. People living downriver in Thailand, Laos and Cambodia attributed the fall in water level to newly constructed dams in China.
No other country has ever managed to assume such unchallenged riparian pre-eminence on a continent by controlling the headwaters of multiple international rivers and manipulating their cross-border flows. China, the world's biggest dam builder _ with slightly more than half of the approximately 50,000 large dams on the planet _ is rapidly accumulating leverage against its neighbours by undertaking massive hydro-engineering projects on transnational rivers.
Asia's water map fundamentally changed after the 1949 Communist victory in China. Most of Asia's important international rivers originate in territories that were forcibly annexed to the People's Republic of China. The Tibetan Plateau, for example, is the world's largest freshwater repository and the source of Asia's greatest rivers, including those that are the lifeblood for mainland China and South and Southeast Asia. Other such Chinese territories contain the headwaters of rivers like the Irtysh, Illy and Amur, which flow to Russia and Central Asia.
This makes China the source of cross-border water flows to the largest number of countries in the world. Yet China rejects the very notion of water sharing or institutionalised cooperation with downriver countries. Whereas riparian neighbours in Southeast and South Asia are bound by water pacts that they have negotiated between themselves, China does not have a single water treaty with any co-riparian country. Indeed, having its cake and eating it, China is a dialogue partner but not a member of the Mekong River Commission, underscoring its intent not to abide by the Mekong basin community's rules or take on any legal obligations.
Worse, while promoting multilateralism on the world stage, China has given the cold shoulder to multilateral cooperation among river-basin states. The lower-Mekong countries, for example, view China's strategy as an attempt to "divide and conquer". Although China publicly favours bilateral initiatives over multilateral institutions in addressing water issues, it has not shown any real enthusiasm for meaningful bilateral action. As a result, water has increasingly become a new political divide in the country's relations with neighbours like India, Russia, Kazakhstan, and Nepal.
China deflects attention from its refusal to share water, or to enter into institutionalised cooperation to manage common rivers sustainably, by flaunting the accords that it has signed on sharing flow statistics with riparian neighbours. These are not agreements to cooperate on shared resources, but rather commercial accords to sell hydrological data that other upstream countries provide free to downriver states.
In fact, by shifting its frenzied dam building from internal rivers to international rivers, China is now locked in water disputes with almost all co-riparian states. Those disputes are bound to worsen, given China's new focus on erecting mega-dams, best symbolised by its latest addition on the Mekong _ the 4,200-megawatt Xiaowan Dam, which dwarfs Paris's Eiffel Tower in height _ and a 38,000-megawatt dam planned on the Brahmaputra at Metog, close to the disputed border with India. The Metog Dam will be twice as large as the 18,300-megawatt Three Gorges Dam, currently the world's largest, construction of which uprooted at least 1.7 million Chinese.
In addition, China has identified another mega-dam site on the Brahmaputra at Daduqia, which, like Metog, is to harness the force of a nearly 3,000-metre drop in the river's height as it takes a sharp southerly turn from the Himalayan range into India, forming the world's longest and steepest canyon. The Brahmaputra Canyon _ twice as deep as the Grand Canyon in the United States _ holds Asia's greatest untapped water reserves.
The countries likely to bear the brunt of such massive diversion of waters are those located farthest downstream on rivers like the Brahmaputra and Mekong _ Bangladesh, whose very future is threatened by climate and environmental change, and Vietnam, a rice bowl of Asia. China's water appropriations from the Illy River threaten to turn Kazakhstan's Lake Balkhash into another Aral Sea, which has shrunk to less than half its original size.
In addition, China has planned the "Great Western Route", the proposed third leg of the Great South-North Water Diversion Project _ the most ambitious inter-river and inter-basin transfer programme ever conceived _ whose first two legs, involving internal rivers in China's ethnic Han heartland, are scheduled to be completed within three years.
The Great Western Route, centred on the Tibetan Plateau, is designed to divert waters, including from international rivers, to the Yellow River, the main river of water-stressed northern China, which also originates in Tibet.
With its industry now dominating the global hydropower-equipment market, China has also emerged as the largest dam builder overseas. From Pakistani-held Kashmir to Burma's troubled Kachin and Shan states, China has widened its dam building to disputed or insurgency-torn areas, despite local backlashes.
For example, units of the People's Liberation Army are engaged in dam and other strategic projects in the restive, Shia-majority region of Gilgit-Baltistan in Pakistan-held Kashmir. And China's dam building inside Burma to generate power for export to Chinese provinces has contributed to renewed bloody fighting recently, ending a 17-year ceasefire between the Kachin Independence Army and the Burmese government.
As with its territorial and maritime disputes with India, Vietnam, Japan and others, China is seeking to disrupt the status quo on international river flows. Persuading it to halt further unilateral appropriation of shared waters has thus become pivotal to Asian peace and stability. Otherwise, China is likely to emerge as the master of Asia's water taps, thereby acquiring tremendous leverage over its neighbours' behaviour.
Brahma Chellaney is Professor of Strategic Studies at the Centre for Policy Research and the author of "Water: Asia's New Battleground." Project Syndicate, 2011.
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