Calls for new China debt boom miss the big picture

By:
On:
In: Asia

At a time when President Xi Jinping’s group is veering in the opposite direction, eminent Chinese analyst Yu Yongding is calling for violent financial growth.

Yu, a previous top official from the People’s Bank of China who is currently employed by the Chinese Academy of Social Sciences, contends that the shift in policy to” apply fiscal and monetary levers to listen to growth and value files” is the” key to success.” Fiscal and monetary expansion are appropriate if both growth and prices are slow.

According to Yu, the intensity of the headwinds affecting China calls for a strong outburst of public spending in particular to regain demand and thwart negative forces. Instead, he worries that Xi’s economic team is overly preoccupied with” supply-side” solutions like tax breaks, which may ultimately harm China. According to Yu,” supply-side economics is more important in China than in the US ,” even though several Western observers would agree.

It’s difficult to imagine that some major observers, least of all representatives of the International Monetary Fund, would agree with Yu on his proposals for fiscal and monetary expansion, aside from Nobel laureate Paul Krugman.

IMF Chief Economist Pierre-Olivier Gourinchas called for” aggressive actions by the regulators” on a number of fronts, not only looser fiscal policy, in his speech on Tuesday in Marrakech.

In order to prevent an increase in financial instability, to ensure that it stays localized in the real estate business and doesn’t spread out into the larger financial system, and to help rebuild household confidence, Gourinchas argued that Xi’s group if” help rebuild struggling home developers.”

The argument made here is that the largest economy in Asia needs to be stabilized through architectural changes and governmental actions. The IMF’s position does not, of course, preclude increased & nbsp, fiscal spending.

Beijing telegraphed moves to increase its budget deficit for 2023 at the same time Gourinchas spoke at an IMF occasion in Morocco, suggesting a new new stimulus may accompany Xi’s supply-side efforts to calm property markets.

According to Bloomberg, Beijing may issue additional sovereign debt totaling up to 1 trillion yuan($ 137 billion ) to fund new infrastructure projects. China’s 2023 budget deficit would increase above the 3 % cap established in March as a result.

Yu, who is concerned that Xi’s inside circle is extremely devoted to the debt-to-gross-internal-policy provisions of the Maastricht Treaty, the founding document for the European Union, may be encouraged by this development. It maintains that the debt to GDP ratio cannot be higher than 3 %.

According to Yu, the People’s Bank of China has been” juggling too many priorities ,” while Beijing has” pursued a careful financial plan.” ” Economic growth, employment, internal and external price stability, & nbsp, financial stability and even allocation of financial resources” are the terms he uses to describe them.

Yu claims that the PBOC has specifically had to react to the housing price index’s seasonal changes. According to Yu,” the PBOC pulls back the financial plan reins if the score rises quickly.” More generally, the PBOC has vowed to stick to a” precision drip – irrigation” approach rather than pursue” flood irrigation ,” which would mean flooding the economy with liquidity.

However, according to Yu, China” unquestionably” could have been experiencing” higher growth over the past ten years with a more intense economic – coverage strategy.” ” China can still obtain a more powerful coming, even though it’s too late to change the history ,” he claims,” but only if it implements carefully thought-out fiscal and monetary expansion focused on increasing powerful require and, ultimately, rise.”

Academician and top colleague Yu Yongding works at the Chinese Academy of Social Sciences. Wikipedia image

The problem is that rather than addressing the root causes of China’s financial andNBSP problems, these plans do more to treat its symptoms.

Yu is not the only person who believes that China’s issue is a lack of speedy sugar highs. Leading mainland macro hedge fund Shanghai Banxia Investment Management Center urged Xi’s team to establish a market stabilization fund on Tuesday in order to put an end to the” vicious cycle” that is undermining shares. Li Bei, the fund’s leader, is essentially looking for a return to direct business interventions of the kind used in 2015.

Li stated in a WeChat article that” the key is to split the damage property – price declines are doing to people, and their trust.”

However, these quick fixes have no effect on China’s economic system, business governance, or capital markets. Additionally, they don’t boost efficiency, advancement, or chances for change in a struggling economy.

Incentives for local governments to create more dynamic business environments, create social safety nets, which are needed to find households to invest more and keep less, or handle the world’s aging population won’t change despite loosening fiscal policy and bailing out markets andnbsp.

Stimulus alone cannot promote the shift away from tomorrow’s investment-heavy, state-owned – enterprise-led growth model and toward a demand-driven economy. It won’t increase the confidence of international buyers to place large bets on China. Additionally, it didn’t help to stabilize the unstable real estate markets that are alarmed owners.

The issue with the real estate market is the most pressing. Country Garden is implying that it won’t be able to fulfill its obligations abroad two centuries after China Evergrande Group filed for bankruptcy. One of China’s largest real estate developers, Country Garden, had an estimated debt pile of$ 116 billion as of 2023.

Despite the numerous easing measures implemented in September, the property business” showed signs of weakening again ,” according to Tu Ling, a Nomura scholar. This was particularly true of low-tier locations, which may have been squeezed even more by the relaxation of regulations in high-territ cities.

According to Zhang Wenlang, an analyst at China International Capital Corp.,” We believe that economic development may continue to be hampered by pressures along the real estate price network, such as sales, property acquisition, and building.”

Similarities to Japan’s negative mortgage crisis in the 1990s have been made due to the scope of the issue. According to Gourinchas of the IMF,” aggressive action is necessary to clean up the real estate business.”

There is a possibility that the issue will rot and get worse if that doesn’t happen, he claims.

Of all, the PBOC may contribute. However, the weak yuan & nbsp may restrict Governor Pan Gongsheng’s ability to further reduce interest rates. That implies that there will undoubtedly be some financial relaxation.

According to scholar Ding Shuang at Standard Chartered Plc,” with CPI falling to depreciation, exports contracting further, and the home business also struggling, we see opportunity for the authorities to make full use of the fiscal space under the approved budget to maintain growth.”

According to economist Thomas Gatley of Gavekal Research, problems facing Evergrande and other designers harm the Taiwanese economy as a whole,” as the recent declines in equity and offshore bond pricing attest ,” going far beyond the strain they place on the companies’ direct lenders.

According to Gatley, there are at least three causes for concern for shareholders regarding the future of Evergrande.

First, he claims that there are now more risks associated with government policy mistakes that” disrupt industry and the market.” ” Mistakes are always possible, and the precarious financial situation of developers makes it difficult to predict or control the flow of events ,” says Gatley.

Two, there is still the” potential for further damage to cover – market sentiment, which is already anxious.” Third, Gatley claims that” as engineers delay or default on payments to their manufacturers, the financial strain of house builders is spilling over onto another companies.”

By the middle of 2023, China’s listed designers jointly owed their suppliers 3.4 trillion renminbi( US$ 466 billion ) in business payables. Evergrande only is worth$ 82 billion in the US.

In short, according to Gatley,” the struggles of China’s real estate developers have now drained trillions of rmb of liquidity from the economy andnbsp, and if things get worse for developers, so will the monetary drag on associated industries.”

Therefore, economists like Yu downplay the urgent need for the supply-side rebellion.

Vitor Gaspar, chairman of financial affairs for the IMF, approached the issue from a different angle this week in Marrakech. According to Gaspar, both China and the US are getting less value for their signal investment.

According to Gaspar, the US and China’s budget deficits, which range from 6 % to 7 % of GDP over the course of the period up to 2028, are what are really driving them. However, for both of the world’s two largest markets,” growth has slowed and the medium-term leads are the weakest in some day.”

The opacity built into the Communist Party’s growth model, including the explosion of off-balance-sheet borrowing via local government financing vehicles ( LGFVs ) since the late 2000s, is a major concern in China.

Lower China’s long-standing emphasis on real estate and massive infrastructure projects for growth, according to Gaspar, is the current top priority. According to Gaspar,” The concern for China is development, balance, and innovation.”

According to Gaspar,” China” has” enough coverage space” and” many options” to switch to a new development model that prioritizes domestic need over exports and investment. He cites development in the electric vehicle industry and other energy markets as examples of those options.

Encourage households to eat more and keep less must be the main focus. According to Eric Khaw, older portfolio manager at Nikko Asset Management,” China’s huge benefits imbalance is the trouble now.” The savings rate is significantly higher than the purchase price, which has been impacted by a liberal decline in investment demand, and China currently has one of the highest savings rates in the region.

This implies, according to Khaw,” that China, with its surplus discounts, will need to have higher purchase.” You can see that the overall level of personal loan is lower than that of the US, South Korea, Japan, and many other nations if you look at it.

He also notes that, based on IMF information, China’s public debt is only about 71 %. ” Relatively less than those of the US and Japan ,” to put it mildly. Therefore, in our opinion, there is a lot of room to raise the nation’s purchase rate.

According to Khaw,” more borrowing and lending will need to be done for China’s economic mediation the bigger the discounts.” Saving must either be invested domestically or borrowed internationally. China used to be able to export its extra benefits worldwide. However, politics then place restrictions on Chinese imports. Saving might be the only option available to the Chinese authorities.

Therefore, claims like Yu’s that a debt-fueled signal growth is necessary to return to 6 % only serve to continue the boom-bust period that the Xi team is trying to break. In order to win China’s financial game, fresh and disruptive policies must be taken on, rather than being reliant on tried-and-true safeguards.

Continue Reading

Has China's economy hit the wall?

By:
On:
In: Asia

The state of China’s market has come to the forefront of global attention due to sluggish growth and rising doubt. China’s economic activity has strongly fallen short of expectations after a solid start to 2023.

Imports are no longer profitable. While inflation has stabilized and the unemployment rate has risen, use, production, and investment have all decreased. Concerns about the local economy caused the Chinese yen to fall to new highs in August and September 2023.

According to Larry Summers, a former US Treasury Secretary,” folks are going to look back at some of the financial forecasts about China in 2020 in the same way they looked up to financial projections for Russia that were made in 1960 or for Japan in 1990.” He also made menacing similarities between China, Russia, and Japan.

The evolving economic outlook is being influenced by continuous and fundamental aspects, as usual. Scars from the Covid – 19 pandemic, declining balance sheets, an ailing real estate market, and a constrained economic policy response are among the seasonal factors.

As concerns about regulation, security, and political stability continue to grow, architectural pressures are weighing on confidence.

The balance sheets of homes, businesses, and local governments have been stretched after three centuries of pandemic strain. In contrast to the United States, China’s government did not distribute sizable subsidies to households and businesses during the Covid-19 epidemic. Without that demand-side input, Chinese consumption has been stagnant.

China’s biggest financial concerns are related to the real estate market. The effects of this sector’s decline would become extremely negative.

In Chongqing, China, a porter is seen strolling along the bridge as brand-new personal properties can be seen in the distance. Photo: Zhang Peng, LightRocket, CNBC Screengrab, and Getty Images

However, one distinction between China’s situation and, for instance, the US subprime crisis of 2007 – 2008 is the absence of any discernible negative equity in Chinese real estate. This is as a result of China’s high lower payments, which typically range from 60 to 90 % for second or third home buying. & nbsp,

The property sector may contribute less to the risk of a financial crisis than the United States did during the global economic crisis, even though the ensuing losses in terms of household wealth and financial growth could still be significant. However, property prices haven’t yet decreased significantly in most areas.

Both during and after the worst stages of the Covid – 19 pandemic, China’s present problems have received moderate fiscal and monetary reactions. This is true even though, in contrast to the United States and Europe, China is more at danger from recession than from inflation. & nbsp,

True interest rates have remained largely unchanged since late 2020, also rising over a period of time when the consumer price index dropped more quickly than the plan level. Current policy goals are reflected by the lack of overall relief. Demand-side considerations in policy wondering have largely been dominated by supply side reforms.

Additionally, there are fundamental constraints on Chinese expansion. Not the least of them are regulatory actions that significantly reduced business confidence, particularly among tech firms and foreign-invested businesses.

While some of these policies were put into place to address issues with regional security, others were aimed at reputable regulatory issues like customer protection and fair competition. They reflect the government’s willingness to pay more as a result of the growing importance safety issues are given.

The government has taken action to mitigate some of these detrimental effects of coverage. It has announced new guidelines as a part of its broader plan mix intended to boost confidence and support private business, foreign-invested firms, and use. & nbsp,

The government’s 31-point plan & nbsp, which was published in July 2023, emphasizes the significance of the private sector and fair competition, removing entry barriers, safeguarding property rights, and involving private businesses in national initiatives.

However, the market is negatively impacted by the shifting geopolitical environment. Fears about national protection that affect trade and investment are becoming more and more important in both China and the US.

Assistance to address the problems caused by modernization is possible because both nations have similar concerns, though not always the same meanings of social stability and national security. More discussion is first necessary for for assistance. Yet or especially when the social landscape is difficult, dialogue is important.

Next events can also be crucial in establishing a stable environment. The & nbsp, the” de – risking” strategy used by the European Union, even if it only involves partial decoupling by another name, is a good illustration. Regional relations can play a stabilizing role in Asia, particularly with the Association of Southeast Asian Nations ( ASEAN ).

Has China’s financial mystery come to an end? Since no miracle lasts long, the answer is definitely yes. Great incomes and the higher work costs they entail, worsening external conditions, and an aging population all pose significant long-term obstacles to high growth.

However, neither Japan nor the Soviet Union existed in the 1960s or 1990s in China. For China, industries like engineering platforms, electric vehicles, clean energy, and electronics are then andnbsp, thriving sources of growth and innovation. & nbsp,

A significant economic crisis, similar to a collapse of the real estate market, is however improbable. Artificial intelligence and the modern economy may partially offset the financial effects of demographic changes.

Although some businesses have been negatively impacted by regulatory shifts, China’s ability to regular above 9 % growth for 40 years suggests that some flexibility still exists. The new legislation package’s current announcement also shows that policymakers do react to economic challenges.

An individual at a stock in the northeast Jiangsu province of China, working on rotary kiln components. Asia Times Files, AFP, and Stringer

In July 2023, economic engagement most likely experienced its previous significant decline. According to statistics from August, the market is slowly but surely bottoming out. According to routine observations, September saw the start of the financial recovery.

However, the geopolitical fog is unlikely to rapidly dissipate. Many of the difficulties China faces, such as maintaining development while security concerns are rising, are on a global scale. & nbsp,

Navigating the difficulties away will require figuring out how to address these issues within international frameworks that encourage open trade and investment.

Yiping Huang is a teacher and assistant professor at Peking University’s National School of Development as well as the director of the Institute of Digital Finance.

This post, which was previously published by the East Asia Forum, has been republished with a Creative Commons license.

Continue Reading

Circular closes US$7.6 mil funding to spearhead consumer tech subscriptions in APAC 

By:
On:
In: Technology

Circular’s overall value is now US$ 30 million thanks to money.Will expand & nbsp, products in Singapore, hasten expansion in AustraliaCircular, a subscription service backed by Y Combinator that specializes in high-end consumer electronics, has successfully shut down its seed & nbsp, round & nBsP, of$ 7.6 million. Investors from YC…Continue Reading

Singapore’s Circular closes US$7.6 mil funding to spearhead consumer tech subscriptions in APAC 

By:
On:
In: Technology

Circular’s overall evaluation now stands at US$ 30 million thanks to money.Funds will be donated to & nbsp, which will expand its offerings in Singapore and Australia.Circular, a subscription service that specializes in high-end consumer electronics and is supported by Y Combinator, has successfully closed its seed funding round and secured…Continue Reading

Japan's yen stuck in a 'Groundhog Day' time loop

By:
On:
In: Asia

TOKYO- The international financial system’s rendition of” Groundhog Day” is a plunging renminbi.

Currency traders have frequently had to worry about whether the Ministry of Finance and Bank of Japan will step in to stop the dollar’s drop since 1993, when the precious Bill Murray movie stars a meteorologist trapped in the middle of the worst day of his career until he changes program hit venues.

Currently, the goal is to prevent a hankering that is currently trading at 150 to the money from rising to 160 in the coming days. At a time when the US Federal Reserve is implying additional interest rate increases, that is simpler said than done.

However, as this most recent movie hits a nearby economic nyse, the stakes are higher. Japan is even more stuck between the proverbial stone and a hard place than it has been over the past 30 years as US provides continue to rise and China’s economy stagnates.

After all, it wasn’t until 1993 that Tokyo started to accept the fallout from the collapse of the 1980s” bubble economy” time. Banks in Japan were left with trillions of dollars’ worth of dangerous loans as a result of the real estate collapse.

Today, economists typically use that time period as a cautionary tale for the current real estate crisis in China. However, Japan has not yet fully recovered from the 1990s in many ways. Take a look at the BOJ’s” Groundhog Day” get-it-right situation with statistical moderation.

In the 1993″ Groundhog Day” humor, Bill Murray plays Phil Connors. The dollar’s” Groundhog Day” conundrum is not amusing. Photo: Screengrab, Columbia Pictures, and YouTube

When Governor Kazuo Ueda arrived at BOJ offices in April, there was a lot of rumor that QE’s days were numbered. Ueda’s career did not result in the happy ending traders had anticipated; rather, it only made the story more complicated.

Ueda stooped down just this week to refute the idea that the BOJ may cut back on cash. He emphasized that there is” also a long way to come” before the BOJ abandons its extremely loose monetary policy. This could indicate 2025 or afterwards based on the rate at which father Haruhiko Kuroda operated.

According to Mohamed El – Erian, chief consultant at Allianz,” The FX weakness reflects policy decisions within the forex and curiosity rates.” The” trade-off facing the Chinese authorities” is” accentuated by both the government of yield-curve power monetary policy and higher provides globally.”

News that the Financial Services Agency will start conducting stress testing on about 20 banks is a crucial clue. The evaluation should be finished by July 1st, 2024, but chances are it will take longer.

Discussions about the findings would therefore take place between regulatory bodies, government agencies, the BOJ, and the office of the prime minister. All of this suggests that the BOJ is hesitant to” taper” until it is certain that ending QE won’t cause meltdowns akin to those at Silicon Valley Bank.

Governor of the Bank of Japan Kazuo Ueda. Wikipedia image

Time, however, is not on Tokyo’s area. The japanese will experience even more extreme downward pressure as US Fed Chair Jerome Powell considers another price increase or two. This occurs as Japan struggles with two additional 30-year goals, including the best Nikkei Stock Average protest since the first 1990s and the highest inflation rate.

The problem of inflation is difficult for Ueda’s group. Tokyo has been struggling with recession since 1999, when the BOJ became the first significant central banks to reduce rates to zero. The group led by then-governor Masaru Hayami pioneered QE in 2000 and 2001.

Unfortunately, though, Tokyo’s long-desired inflation arrived before the second-largest economy in Asia was prepared. Instead of increasing demand at home, it is primarily being imported due to rising power and food expenses.

As a result, the 126 million people in Japan are cutting back on household spending, and business leaders are changing their minds about wage increases.

As the hankering declines, Saudi Arabia reduces oil production, and Russia continues its invasion of Ukraine, Japan runs the risk of importing yet more inflation. Citizens are being reminded by this powerful how little the Liberal Democratic Party of Prime Minister Fumio Kishida has done to boost incomes over the past 30 years.

According to economist Yasunari Ueno at Mizuho Securities, Kishida’s” government would gain nothing diplomatically by showing the Chinese people that it is committed to addressing the import price spike brought on by a weaker yen.”

Local advertising is evaluating Kishida’s state at the two-year mark this week. The general consensus is that Kishida has brought balance to Tokyo but has not implemented any reforms to lower bureaucracy, renew innovation, overhaul labor markets, or encourage businesses to share hefty profits with a workforce that lacks confidence in the future.

A Nikkei Stock Average that has reached 30-year spikes collides with this striking reality. Due in part to initiatives to improve corporate governance, extend boardrooms, and boost returns on equity since 2014, Asian businesses are once again popular with international investors.

In 2020, Warren Buffett’s Berkshire Hathaway attracted sizeable and headline-grabbing opportunities in Japan Inc. Interest charges are” less expensive than completely, and the real effective exchange rate has fallen ,” according to CLSA planner Nicholas Smith,” making Japan cruelly aggressive.”

yet fiercely aggressive enough to start a moral cycle of rising consumption and fat paychecks? Information of this dynamic is currently virtually nonexistent.

Kishida has vowed to quicken the process of financial revamping. His” new capitalism” initiative to promote gross domestic product ( GDP ) advantages has largely failed. As a result, the BOJ is now in the driver’s seat and must help development.

Opening a way for the US$ 1.6 trillion Government Pension Investment Fund, the largest of its kind in the world, to finance an upsurge in startups is another strategy that has failed. Kishida had pledged to attract more foreign funding in addition to utilizing GPIF’s sizable property pool.

To entice international talent to Tokyo, ideas include creating English-only unique enterprise zones. The hourly minimum wage was recently increased to 1,000 yen( US$ 6.69 ) by Kishida’s party. In, say, 2003, both concepts might have been helpful. In 2023, not so much.

The financial benefits of Kishida’s” new capitalism” have not been delivered. Screengrab image

Ueda is under increasing stress hardly to budge due to political unrest. The japanese will continue to be under downward stress as the BOJ maintains its fire. Shunichi Suzuki, the finance minister, stated on Tuesday that” all methods” are being taken to put a stop to the renminbi.

The Ministry of Finance and the BOJ were rumored to have intervened in marketplaces later that evening or early the next morning. Authorities have yet to provide confirmation.

The chief of the money for the finance ministry, Masato Kanda, will declare that” We may continue with the existing position on our response to excessive dollar moves.”

While we are essentially like Gulliver in the market, he continued,” we are even coming and going as a business person, so typically we didn’t say whether or not we’ve intervened each time.”

According to researcher Edward Moya at OANDA,” A good Chinese money treatment may have also put a major in place for the dollar, which is providing some support for oil.”

A change in BOJ policy, according to analysts at MUFG Bank,” even becomes more probable, and we would expect solid opposition to yen weakness at levels over 150.00.”

However, among those who are unsure whether the Tokyo authorities’ decision to buy yen did succeed this time is planner Marc Chandler at Bannockburn Global Forex. He explains that the” BOJ intervened three times last season, nothing during the US day area.”

Representatives from BOJ are equally likely to rely more on jawboning industry. According to dealer Takehiko Masuzawa at Phillip Securities Japan,” It appears that Ueda’s new remarks were intended to stop the yen from falling against the money.” These remarks” are operating almost the same as federal action.”

Given the main company’s growing concern with the yen, Stefan Angrick, an economist at Moodys Analytics, claims that” the shift in tone is probably an effort to avoid sounding overly dovish.”

The worries about the yen, according to Angrick, are” understandable given that the price is creeping towards 150 ( yesen ) to the dollar, the level that last prompted FX intervention in October 2022.” However, it has also increased the obscurity of the BoJ’s contacts.

According to Angrick, the BOJ’s purposes become more difficult to discern with each new policy change and every new guide to acting with flexibility.

When rates spend more time above zero than below,” A 0 % target for long-term rates carries little meaning ,” he observes. This” creates a policy stance that aims to avoid the appearance— and cost — of tightening while raising interest rates ,” says Angrick. Potential coverage is now more difficult to predict as a result of all of this.

According to Angrick’s” best guess ,” recent styles” will see the BOJ hold major economic policy levers stable for the time being ,” but due to the central banks’ increased emphasis on the yen and confusing communication, there is now a greater chance of policy surprises and missteps.

US interest rate increases hurt the renminbi. Photo: Facebook

However, according to planner Win Thin at Brown Brothers Harriman, the US continues to play a significant role in this situation. We believe that quarter-end balancing is most likely the cause of this money weakness, which is corrective in nature. Investors should be on the lookout for a chance to go long dollars suddenly at lower levels, though we’re not sure how long this revision lasts.

The japanese does more than just convey that trust in Japan is dwindling as it moves toward 160. It gives China more leeway to accept a weaker yuan in order to increase imports. As one of the most divisive US elections in history heats up, all of this runs the risk of raising questions about Asiatic money policy in Washington.

Although Asia investors have seen previous iterations of this film, the upcoming plot twists may cause the world’s economic structure to collapse in a chaotic manner.

At @ WilliamPesek, follow William Peserk on X, formerly Twitter.

Continue Reading

Individual creativity solves the impossible

By:
On:
In: Asia

The new Nobel Prize in Physiology or Medicine was given to Katalin Kariko and Drew Weissman, and this has drawn a lot of media attention to the fact that the two encountered several skepticisms during their study and that their fruitful collaboration began as an accident encounter in the copy room. never during a Zoom meeting. The Wall Street Journal notes that” Pair met with questions, then get Nobel Prize.”

Great accomplishments in the face of scepticism are more frequent than most people realize in my profession in technology development and investing, and they serve as the foundation for my conviction that it is crucial to support the work of gifted, creative people who are free to follow their intuition. & nbsp,

My experience has included both private equity funding management of technology product and service organizations and managing a top experiment, the RCA Laboratories. I’ve discovered that exceptional artistic people who can solve problems that people find impossible to solve consistently produce great results. & nbsp,

However, for concepts must be carried out with excellent performance that quickly resolves blocking issues. This & nbsp was true in my experience in other fields as well as in the Nobel-winning technology that made mRNA vaccines possible. The great entrepreneurs may execute their ideas with equal excellence. Success is made possible by fantastic management team led by outstanding leadership in this area. & nbsp,

The development of color tv at the RCA Laboratories encountered numerous obstacles in its ability to produce three-color digital photos, and unfeasible solutions were put forth. One person saved the job by coming up with a workable solution.

Integrated circuits chips in semiconductors did a bad job of dissipating the heat produced by switching. One scholar created the CMOS( comparable metal-oxide-semiconductor ) architecture, which eventually became business standard and then enables billions of devices on a device the size of an enormous thumbnail– as well as smartphones with the features we desire.

My work in semiconductor and nbsp lasers was immediately discouraged because of earlier findings that the devices would be destroyed by the great currents required for lasing. My job, along with others’ and nbsp’s, eliminated the root of the problem, and laser have been in use for a long time. & nbsp,

Every instance I’ve given these involved exceptional development that put ideas on the market after the initial contribution. & nbsp,

I could give numerous instances from my trading career where people made advances possible. My favorite development is the development of Ethernet contacts.

The transfer of electronic computer information on common twisted-pair copper lines used in digital telephone systems was modeled by two engineers working on their own projects. There was a lot of doubt about the viability of for transportation. Their research demonstrated how software may get around significant phone network and nbsp limitations and enable the transmission of great digital data rates.

Level One Communications was established( and supported by us ) and nbsp, which under the direction of Robert Pepper rose to become the industry leader in Ethernet bits before Intel bought it. Systems is now widely used.

That these laureates’ function is receiving so little consideration makes me happy. They serve as a reminder that commissions don’t create something. When given the freedom and resources to complete the deemed impossible, brilliant people do. & nbsp,

Technologist, engineer, writer, and lifelong private equity investor Henry Kressel.

Continue Reading

China's economic ills infecting the rest of Asia

By:
On:
In: Asia

The latest assessment of China’s decline from the World Bank is reassuring for the rest of Asia. However, the likelihood is not really awake enough.

The biggest market in Asia’s property sector is still receiving negative news, which is having an impact on global markets. The consensus among economists is that the multilateral lender is still far too optimistic as the World Bank lowers its 2024 China growth projection from 4.8 % to 4.5 %.

Consider the most recent assessment of the region’s consequences by the Asian Development Bank of China. The ADB issues a warning that” dangers to the prospect have intensified” as weaknesses in China’s house sector” hold back local growth.”

Investors have fled as a result of the struggles of China Evergrande Group & nbsp, which resumed trading on Tuesday. A significant debt restructuring plan has failed, the creator, which filed for default in 2021, just acknowledged. Authorities have prohibited the organization from issuing new loan because its president, Hui Ka Yan, is the subject of a criminal investigation.

According to researcher Thomas Gatley at Gavekal Dragonomics, that” threats to bring even more harm to China’s real estate sector and the broader business.”

Additionally, Gatley notes that” the likelihood of a government policy failure that disrupts markets and the economy has increased.” He therefore issues a warning that” as engineers delay or fail to make payments to their manufacturers, the financial strain of house developers is spilling over onto other businesses.”

For Asian neighbors who are relying on President Xi Jinping’s team to stabilize growth, the fact that the property sector in China accounts for up to 30 % of the gross domestic product ( GDP ) is terrible news. As a result, there is talk in Asia about andnbsp, disease risks, and the state’s 2024.

According to researcher Rick Waters at the Eurasia Group firm,” Industry and homebuyer attitude will likely continue to diminish and contribute to financial uncertainty as defaults snowball through the industry and Beijing withholds relief.”

In order to maintain the real estate industry, Beijing is in fact implementing a number of steps. The government is making an effort to ease monetary pressures without re-inflating real estate bubble, in contrast to earlier instances of slowing progress.

Regulators pushed commercial banks to reduce payment ratios for first-home purchases to 20 % and to 30 % in late September. Lenders reduced current first-time loan rates for borrowers with 40 million or more.

Guangzhou was China’s second top-tier city to end restrictions on purchasing more than two properties for people or one for nonresidents last quarter. Different cities can be seen doing the same.

Homebuyer trust will be lower despite easing measures, according to Waters, as more developers face definition and liquidation. Rates and sales will likely continue to decline in lower-tier cities.

Widespread Asia is starting to have issues with China’s real estate problems. Photo: Twitter

We believe that more top-tier places with district-specific restrictions will follow suit to encourage non-core areas and possibly key areas as well, according to Karl Shen, an scientist at Fitch Ratings. Given that their house sales are typically more constrained by policy, for policies, if they are implemented, may further focus demand in larger cities. Given top-tier cities’ little share in full, this will add little to the federal new homes market.

Officials warn Beijing to do more to encourage developers to fix balance sheets and prevent more defaults, saying that it may take China’s real estate market as long as a time to recover.

Selling in China’s largest cities may start to increase again in the next four to six months, according to Li Daokui, a past member of the monetary policy committee at the PBS and nbsp. However,” it will take anything from six months to one time for a great treatment” in smaller cities.

The World Bank’s most recent forecast simply contains a small amount of encouraging information: South Asian growth is expected to significantly accelerate in 2024, excluding China, thanks to better prospects for manufactured goods and commodities.

However, as economists at the World Bank note,” what happens in China matters for the entire place.” A 1 % decrease in its progress is correlated with a 0.3 percent point decline in regional development.

or perhaps even more, as the loss of Asia’s primary development website has a negative impact on investor, household, and business confidence throughout the region. Negative threats include political unrest as well. They include the possibility of Saudi Arabia announcing new oil production reductions, raising the risk of international prices.

According to Aaditya Mattoo, chief economist for East Asia and the Pacific at the World Bank, experts in the region predicted that China’s post-pandemic treatment may be” more prolonged and more important than it turned out to be.”

Rather, governments from Bangkok to Jakarta to Seoul are dealing with the reality of stagnant wages, poor retail sales, sweet private business expense, and elevated home debt levels that may spread throughout the area.

According to Mattoo,” this entire region, which had bizarrely benefited from trade tensions between the US and China, is now suffering trade diversion apart from it.”

China’s” third quarter has started on a weak note ,” according to economist Stephen Innes at SPI Asset Management,” with weakening exports and imports in July ,”” a significant property developer reportedly missing bond payment ,” and” consumer price inflation joining producer price in the negative year-over-year territory, although primarily due to food prices.”

The two main drivers of China’s development, exports and real estate, are facing significant setbacks, according to Innes, which are having a negative effect on both the local and global ASEAN chance markets.

Following Covid-19, the Association of Southeast Asian Nations ( ASEAN ) economies are dealing with rising debt levels. The region’s ability to manage this overhang while also investing in domestic infrastructure, increased productivity, and human capital is clearly and currently in danger due to rising & nbsp, US debt yields, etc.

In the meantime, Jerome Powell, chairman of the US Federal Reserve, is making hints about a 12th tightening walk in the upcoming 18 times, adding to the pressures on Wall Street and the world’s largest economy.

Jerome Powell, chairman of the US Federal Reserve Board, is in charge of how the world market will turn out. Asia Times Files, AFP, and Mandel Ngan

The combined effects of the Fed’s most extreme tightening since the mid-1990s are having a negative impact on US growth. According to Goldman Sachs planner David Kostin, solid and long-term rate increases are starting to hurt corporate profits and returns on capital.

The main risk for S & amp and P 500 ROE will be higher interest expenses and lower leverage in the new” higher-for-longer” rates environment, according to Kostin. It would be a departure from the traditional trend for” a situation in which interest cost and leverage consistently weigh on ROE.”

The world keeps getting more expensive, according to Capital.com scientist Kyle Rodda. The increase in oil increased the upwards pressure on bond yields, and the combination of higher fuel, higher yield and a higher ruble does not typically portend properly for equities.

There is some hope that the Fed’s tightening cycle is truly coming to an end, to be sure. According to scholar Rubeela Farooqi at High Frequency Economics,” Nevertheless, spending remains optimistic and inflation is slowing, which will be pleasant news to politicians.”

The Federal Reserve Bank of Chicago’s president, Austan Goolsbee, expressed optimism that the US is moving toward taming inflation without a formal recession next year.

According to Goolsbee,” The Fed has the opportunity to accomplish something very uncommon in the background of northern banks: to thwart inflation without tanking the economy.” The gold route may be studied for years if we are successful. If we don’t succeed, it will also be researched for a long time. But this strive to be successful.

Additionally, there is hope that China’s economy will start to recover more quickly than naysayers anticipate.

According to Morgan Stanley scholar Robin Xing,” a northern government-led, detailed plan to reduce local bill danger may be unveiled before / at the Third Plenum this drop.” ” From the third quarter 2023 onward, the business may be able to recover modestly thanks to the combination of these steps.”

The housing market will likely maintain in half a year, according to Yao Yang, dean of Peking University’s National School of Development. He claims that officials used to” overshoot” in their real estate onslaught. The central authorities will now” slowly release up on the supply side, very.”

After four consecutive months of collapse, China’s fresh home prices increased substantially in September. Developers accelerated launches to take advantage of Beijing’s new support measures as a result of the respite.

According to China Index Academy, a real estate consulting, the regular price increase starting in August was the largest month-over-month gain since October 2021. Just 30 of the 100 island places polled reported drops in new home prices.

The commencement of investing in China Evergrande stocks on Tuesday, along with a strong rallying price of up to 42 % on the Hong Kong Stock Exchange, may psychologically benefit the company.

Stocks of the business and subsidiaries like Evergrande Property Services Group were suspended on September 28. Hui, the leader of China Evergrande, was reportedly detained by police a moment earlier.

However, according to scientist Liu Jieqi of UOB Kay Hian Holdings, reform is still desperately needed. The” only option for debt restructuring ,” a move that” faces great uncertainties ,” continues to be the conversion of all debt to shares of Evergrande or of its arms.

Others, however, contend that China’s 2024 is a negative sign given the recent failure of designer Country Garden.

According to analysts at Barclays,” Country Garden was associated with China’s mass-market cover and urbanization story.” What little trust remained in the market was” shaken” by its difficulties making loan repayments.

Kenneth Rogoff, an analyst at Harvard University, adds that” the entire business is in trouble” as a result of China’s$ 18 trillion economy experiencing years of severe home shortages. Since the majority of China’s riches might collapse, how can you avoid the Chinese people from going into a stress mode? Rogoff queries. ” It’s not simple.”

The fact that” Chinese households no longer view cover as a healthy investment” presents an additional challenge, according to Société Générale analyst Michelle Lam.

President Xi Jinping and Chinese Premier Li Qiang. Xinhua image

In order to persuade homes to invest in stocks, Xi and Premier Li Qiang have intensified efforts to strengthen China’s money industry. and to create stronger social safety nets to persuade customers to spend more money and protect less. The switch from funding and property-led development is, at best, still in the early stages. That’s accurate both in China and elsewhere.

According to Mattoo, reforming the services sectors to take advantage of the digital revolution will be the next major driver of progress in a location that has truly prospered through trade and manufacturing investment.

In the interim, Asia is in danger. not just from China, either. The World Bank notes that the protectionist policies andnbsp of US President Joe Biden directed at China are having a negative impact on technology and electronics exports. Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are among the countries under consideration.

According to Mattoo,” The care under these rules is discriminatory against nations that are not exempt from the local information requirements.”

2024 appears to be the year to lock those seatbelts, with China’s downturn and Washington struggling with recession rumors.

At @ WilliamPesek, you can follow William Peserk on X, formerly known as Twitter.

Continue Reading

Building a business that also helps underprivileged women 'an uphill task' but these Singaporeans have done it

By:
On:
In: South-East Asia

The hole-in-the-wall bookstore quickly became a viral sensation. 

And as a result, not only was Books Beyond Borders able to fund a school bag distribution programme, it also helped raise money for supplies to support school libraries, art classes and even STEM labs in Nepal. 

To date, the social enterprise has raised more than S$37,000 towards these efforts, which required Chong to work closely with nonprofit organisation Teach for Nepal, whose fellows are employed in some of the most underfunded schools across the country.

It was this partnership that drew his attention to a “critical gap” in Nepal’s education system: The absence of a scholarship programme for girls completing 10th grade. 

“Most girls in Nepal, after completing their 10th grade schooling, lack the means to pursue higher secondary education and are often expected to start raising a family,” said Chong.

“This perpetuates the cycle of poverty.

“By bridging this gap and enabling more girls to attend school, the likelihood of their future generation receiving an education increases,” he added.

Chong announced this year that Books Beyond Borders was narrowing its philanthropic focus to helping young Nepalese women achieve higher education, specifically by donating 5 per cent of its monthly profits to the scholarship programme.

Continue Reading

TSMC to help Europe break its Asia chip dependency

By:
On:
In: Asia

In contrast to Dutch manufacturing equipment maker ASML’s position at the center of the US-China trade and technology conflict, most European semiconductor makers are maintaining a low profile.

For those who have not been following the issue, Netherlands-based ASML has a monopoly on the most advanced semiconductor lithography equipment (EUV), which it is not permitted to sell to China under US export restrictions.

Europe’s largest semiconductor makers are Germany’s Infineon, Switzerland-headquartered STMicroelectronics and the Netherlands’ NXP, which rank 9th, 10th and 12th worldwide in terms of sales. In the second quarter of 2023, Infineon’s sales were 35% as large as industry leader Intel’s.

In July, on a visit to the Inter-University Microelectronics Center (IMEC) in Belgium, European Commission President Ursula von der Leyen said, “We need to reduce our dependency on too few suppliers from East Asia. And we actively have to de-risk our supply chains for chips – it is vital.”

The Europeans think their semiconductor industry is too small and, in fact, data from market research and industry organizations indicate that only 5% of global semiconductor production capacity is based in Europe and that European companies account for only 9% of global chip sales. Europe buys about 20% of the world’s semiconductors.

With this in mind, von der Leyen said, “We need to promote the design, testing and production [of semiconductors] here in Europe. For that, the Chips Act is the game changer.”

European Commission President Ursula von der Leyen, shown at a press conference after a virtual summit between EU and China in Brussels on June 22, 2020, wants Europe to up its chip-making game. Photo: Asia Times Files / AFP / Dursun Aydemir / Anadolu Agency

That was a reference to the European Chips Act, which was adopted on July 25. In the words of the European Commission, it “will mobilize more than 43 billion euros (US$45.5 billion) of public and private investments and set measures to prepare, anticipate and swiftly respond to any future supply chain disruptions, together with Member States and our international partners.”

The European Chips Act aims to:

  • Strengthen Europe’s research and technology leadership towards smaller and faster chips;
  • Build and reinforce capacity to innovate in the design, manufacturing and packaging of advanced chips;
  • Address the skills shortage, attract new talent and support the emergence of a skilled workforce;
  • Put in place a framework to increase production capacity to 20% of the global market by 2030; and
  • Develop an in-depth understanding of the global semiconductor supply chains.

More specifically, it entails: 

  • Investments in next-generation technologies;
  • Providing access across Europe to design tools and pilot lines for the prototyping, testing and experimentation of cutting-edge chips;
  • Certification procedures for energy-efficient and trusted chips to guarantee quality and security for critical applications;
  • A more investor-friendly framework for establishing manufacturing facilities in Europe;
  • Support for innovative start-ups, scale-ups and SMEs in accessing equity finance;
  • Fostering skills, talent and innovation in microelectronics;
  • Tools for anticipating and responding to semiconductor shortages and crises to ensure the security of supply; and
  • Building semiconductor international partnerships with like-minded countries.

All that should keep EU bureaucrats busy but might be enough only to keep pace – not catch up – with technology and workforce development, market security measures, capacity additions and industry subsidies in the US, Taiwan, South Korea, Japan and China. But it needs to be done and should make a substantial future contribution to Europe’s economy.

On August 8, TSMC, Bosch, Infineon and NXP announced plans to establish a joint venture known as the European Semiconductor Manufacturing Company (ESMC). Situated in Dresden, Germany, it will provide semiconductor manufacturing services for the automotive, industrial (including IoT, or internet of things) and other economic sectors. One of the world’s largest semiconductor manufacturing complexes is already in Dresden.

Headquartered in Taiwan, TSMC is the world’s largest and most technologically-advanced integrated circuit (IC) foundries. It is the most prominent of von der Leyen’s “too few suppliers from East Asia” upon which Europe now depends. Bosch is a leading German supplier of automotive, industrial, IoT and other technology and services.

TSMC will own 70% of the ESMC joint venture and its three local partners – which will also be its main customers – will own 10% each. The total investment is expected to exceed 10 billion euros ($10.6 billion), including equity, bank borrowings and subsidies from the EU and German government and falls within the framework of the new European Chips Act.

Construction of a wafer fabrication facility (fab) with a monthly production capacity of 40,000 300mm (12-inch) wafers per month is scheduled to start in the second half of 2024. The scale is similar to that of TSMC’s operations in Nanjing, China, and its joint venture in Japan.

TSMC will operate the fab, utilizing its 28/22 nanometer (nm) planar CMOS and 16/12nm FinFET process technology. Most German semiconductors are fabricated at these process nodes. Production is scheduled to commence by the end of 2027.

TSMC deputy spokesperson Nina Kao told electronic engineering trade paper EE Times that “Bosch, Infineon and NXP are all long-time TSMC customers and key European players in the automotive segment and industrial semiconductor supply chain.” ESMC will make chips that would otherwise be made in Taiwan.

The production start date might seem less than urgent, but is probably realistic. On September 26, The Wall Street Journal reported that Intel’s heavily-subsidized fab construction project in Germany faces delays due to an acute shortage of technicians, high energy prices and “an at-times Byzantine bureaucracy.” Production is slated to begin four or five years from now.

TSMC will give Europe’s chip-making drive a big helping hand. Photo: Handout

By the end of the decade, Intel plans to build two leading-edge fabs in Magdeburg, a Germany city between Hanover and Berlin, to make Intel products and serve Intel foundry customers. The total investment is expected to exceed 30 billion euros ($31.7 billion) – “the single largest foreign direct investment in German history,” according to Chancellor Olaf Scholz.

“Along with Intel’s existing wafer fabrication facility in Ireland and its recently announced assembly and test facility in Poland,” says Intel, “the new wafer fabrication site in Magdeburg will create a first-of-its-kind, leading-edge end-to-end semiconductor manufacturing value chain in Europe, serving European customers and helping to fulfill the EU’s ambitions for a more resilient semiconductor supply chain.”

There are currently no European companies among the world’s leading semiconductor foundries, memory chip makers or makers of cell phone, computer and AI processors. But over the next several years, TSMC and Intel will add foundry services and processors to Europe’s production base. The Europeans can also buy memory chips from America’s Micron Technology if they don’t want to overly depend on South Korea.

Still investing in Asia

That said, the Europeans are adept at making automotive ICs. According to market research firm TechInsights, Infineon, NXP and STMicro ranked first, second and third worldwide in terms of sales in 2022, with a combined global market share of 33%. They also have a major presence in other industrial-use ICs.

In June, STMicro announced a joint venture with China’s Sanan Optoelectronics to make SiC (Silicon Carbide) power semiconductors in Chongqing for electric vehicle, industrial and alternative energy (solar and wind) applications. The total investment is expected to reach about 3 billion euros ($3.2 billion) and production is scheduled to start by the end of 2025.

In August, Infineon announced plans to spend up to 5 billion euros ($5.3 billion) on a large additional expansion to its fab in Kulim, Malaysia, with an aim of raising its share of the global market for SiC power devices from 12% to 30% by 2030.

This investment decision is supported by design wins and prepayments from six customers in the auto industry, three of them from China; four customers in renewable energy, including three Chinese photovoltaic and energy storage companies; and a capacity reservation for Schneider Electric.  

These projects are driven by market dynamics, not the European Chips Act, and they were launched without interference from Brussels or Washington, DC.

Follow this writer on Twitter: @ScottFo83517667

Continue Reading

South India's progressive politics vs North's regressive politics

By:
On:
In: Asia

“You cannot expect any rational thought from a religious man. He is like a rocking log in water.” – E V Ramasamy

Erode Venkatappa Ramasamy, revered by his followers as Periyar, was an Indian social activist and politician who started the Self-Respect Movement. He is known as the “Father of the Dravidian movement.”  

Dravidianism or Dravidian nationalism is based on the idea that people living in the southern part of India are racially and culturally different from the North Indian (Indo-Aryan). Periyar claimed that Brahmins of the south were originally Aryan migrants from Northern India, who spoke Sanskrit and brought caste system to South India.

Periyar promoted Dravidian nationalism, which was based on the principle of rationalism, dismantling Brahmin hegemony by abolition of the caste system and revitalization of Dravidian languages.

He rebelled against Brahminical dominance by preaching to people that the Brahmins had monopolized and cheated other communities for decades and deprived them of self-respect. Periyar also led a strong rebellion against the imposition of Hindi as a compulsory subject in Tamil Nadu schools, viewing it as an attempt to establish “North Indian imperialism.”

Periyar’s legacy of self-respect, women’s rights, and caste eradication continues to influence South Indian politics, particularly in the state of Tamil Nadu. 

On September 2, Udhayanidhi Stalin, minister of youth welfare and sports development and son of Tamil Nadu Chief Minister M K Stalin, while speaking at a writers’ conference in Chennai, sparked a massive controversy with his remarks on Sanatana Dharma (Hindu religion).

He said Sanatana Dharma is against the idea of social justice and must be “eradicated.” He argued that the idea is inherently regressive, dividing people based on caste and gender, and is fundamentally opposed to equality and social justice. The controversial remarks drew widespread condemnation from the Bharatiya Janata Party, with the BJP terming it a “genocidal call.”

 In defense, Udhayanidhi Stalin wrote on Twitter that he never called for genocide, but opposed the principle of Santan Dharma, which divides the people in the name of caste.

He has accused BJP leaders of twisting his statements and vowed legal action.

After the remarks, Paramhans Acharya, the chief priest of the Tapaswi Chawni temple of Ayodhya, Uttar Pradesh, the largest North Indian state, offered the equivalent of US$1.2 million to the one who beheads Udhayanidhi Stalin over his remarks against Sanatana Dharma.

But the bigger question is why North India is becoming so sensitive or radicalized with respect to its religion. A society must be able to understand that every religion has certain flaws, which must be corrected over time.

Certainly, Periyar’s views of making a rational society rather than a religious one based on superstitions and prejudice have played a crucial role in the development of South Indian states. 

What North India can learn from South India

Telangana, Andhra Pradesh, Kerala, Karnataka and Tamil Nadu are commonly considered South Indian states. Bangalore, the capital city of Karnataka, is known as the “Silicon Valley of India” and accounts for one-third of India’s software exports. Tamil Nadu is known for manufacturing as it alone accounts for two-thirds of exports of personal vehicles from India.

Andhra and Telangana are known for being a pharmaceutical hub, accounting for 22.5% of all pharma manufacturing facilities in India.

Kerala is famous for its tourism industry. According to 2018 official data, tourism constitutes 10% percent of Kerala’s GDP and provides about 23.5% of employment in the state.

Millions of migrant workers from the North reach the South in search of better jobs, putting an extra burden on the states. Data show that southern Indian states continue to outperform the rest of the country in health, education, and economic opportunities.

Kerala has the highest literacy rate in India. A state’s prosperity is measured on two indicators, gross state domestic product (GSDP) and per capita income. According to Wikipedia, four of the five South Indian states rank among the top 10 Indian states in terms of GSDP. Telangana, Karnataka, and Kerala make it into the top 10 states by per capita income.

Besides a strong industrial and IT base, the southern states have also been blessed with robust banking and finance infrastructure. Apart from public and private sector banks, NBFCs (non-banking financial companies) play a crucial role in lending infrastructure, a vital factor in supporting entrepreneurial spirit.

Today’s South Indian states are far better than all the other regions of India on every Human Development Index. But the bigger question is what led the South Indian states to march ahead of their North Indian counterparts. 

In South India, social revolution always preceded the political revolution. But in the North, it’s just the opposite.

North Indian electorates remain swayed by emotive, irrational appeals by following a herd mentality to vote based on caste and religion, leading to long-term dominance by one party more than a decade.

The Indian National Congress ruled across North Indian states for five decades. Such a monopoly disconnects citizens from government activity and the government takes the people for granted, which results in less development in those states compare to South.

However, South India experiences stable political competition, with alternating parties in power such as the DMK and AIADMK in Tamil Nadu, LDF and UDF in Kerala, BJP, Congress and JDS in Karnataka, Congress, YSR Congress and TDP in Andhra. This healthy competition encourages governments to perform better and promotes citizen participation and activism, unlike the North, where politics tends to overshadow governance.

This has resulted in quality of governance and better leadership, which pushed the states on the path of development and prosperity. Effective population control consistently over the decades is a testimony of their leadership.

However, statistics show that South India is not getting enough reward for such good performance from the central government. Even South Indian politicians have expressed concerns about the state of federalism in India.

North’s regressive politics pulling India down

The central government collects taxes from all states and distributes them among states based on Finance Commission recommendations, considering three criteria: needs, equity, and state performance.

Recently the 15th Finance Commission increased weightage for the population criterion to 15% from the previous 10%, which some critics in South India believe is rewarding states with high populations that haven’t controlled population growth or provided better governance. 

As a result, states like Uttar Pradesh, which have a large populations but low Human Development Index scores, receive more funding (17.9% ) than states with higher development indices like Karnataka (3.65%), Tamil Nadu (4.08%), and Kerala (1.09%). This appears to reward mis-governance, low productivity, and irrationality, raising questions about the fairness of Indian federalism.

More important, South Indian politicians are denied opportunities at the central leadership despite excellent performance in their respective states. The fact that only three cabinet ministers from South India are in the current Modi government is a testimony. 

South India seems to be the biggest loser from this financial arrangement, where South Indians work hard to contribute more to national growth, while the North gets all the rewards for mis-governance and low productivity.

More important, the question arises, how long will South India fund the mismanagement and political shambles in North India, allowing non-performing states to set the country’s agenda? Udhayanidhi Stalin’s statement reflects the frustration with the kind of politics done in North India or Delhi for which South Indians have to pay a price.

Rather than tackling the issue of governance, productivity, HDI, economic opportunity, jobs, and better infrastructure, religion has become the center of the debate for the last nine years. In the real world, one who pays the bills is likely to get most of a deal. Unless we support the principle of prosperous regions always assisting poorer ones.

Continue Reading