China's economic ills infecting the rest of 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 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.

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Evergrande: Shares in crisis-hit property giant jump in market return

China Evergrande sign.shabby graphics

Shares of Evergrande, a Chinese real estate juggernaut that has been hit by the financial crises, have increased as investing in the company resumed after being suspended in Hong Kong.

On Thursday, the business ceased trading in its shares after announcing that its billionaire leader was the subject of an investigation by the authorities.

On Tuesday, Evergrande shares increased by more than 40 % in early trading before closing at about 15 % higher.

In 2021, it declared default on its debt, causing a real estate problems in China.

The most recent share hanging occurred only one fortnight after the company’s past 17-month investing halt was lifted.

When the town’s market was shut down for the National Day holiday on Monday, Evergrande stated in a statement to the Hong Kong Stock Exchange that” there is now no other in information in relation to that needs to be disclosed.”

When buying resumed in August following a more than 1.5-year hanging, Evergande’s shares fell by almost 80 %.

Since July 2020, the company’s stock market valuation has decreased by almost 99 %, and its shares are currently worth about HK$ 0.35($ 0.05,£ 0.04 ) each.

The company, which was once China’s top-selling real estate developer, has been struggling with debt totaling more than$ 300 billion(£ 248 billion ).

When Evergrande failed to make payments on its international obligations in late 2021, it caused jitters in the world financial marketplaces.

When it was revealed last week that authorities were looking into its flagship Chinese company Hengda Real Estate, the problems only got worse.

The company’s strategy to restructure agreements with its bondholders was further complicated by the growth.

Hui Ka Yan, the company’s founder and chairman, was” subject to mandatory procedures in accordance with the law due to suspicion of unlawful acts ,” it said a few days later.

Evergrande requested Book 15 debt protection in the US in August. While a foreign firm is working on restructuring its debt, Chapter 15 safeguards its US possessions.

According to some analysts, the most recent failures have raised the possibility that the business won’t be able to come to an agreement on a reform strategy with its creditors.

Evergrande will appear in court in Hong Kong to discuss a winding-up request that could potentially push it into bankruptcy. The reading, which was supposed to happen in July, will now happen on October 30.

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Fixing Pakistan’s economy not military's role

General Asim Munir, Pakistan’s present chief of army workers, has vowed to boost the economy by boosting business investment, expanding the tax selection network, regulating the US dollar exchange rate, and putting an end to Iranian oil and gasoline trafficking.

Moreover, the army chief has urged the provincial and federal governments to take serious action and return Afghans who are residing in Pakistan fraudulently.

Pakistan serves as a testing ground for social leaders and military commanders. Civil and military command has been working to reform the nation in their own unique ways since 1947. General Asim Munir, the present COAS, is also working to revive the nation’s failing market.

The Bangladeshi military itself has created negative challenges for the nation due to the surrender of political forces before it, the damaged regional image on a global scale, human rights violations, and rampant militancy.

The army has its own problems to deal with, especially violence and uncertainty, so the army chief’s efforts to stabilize the economy wouldn’t be successful.

significant obstacles

A depreciated money, a declining GDP, rising inflation, increasing taxes, and an increase in illegal activities like smuggling are all signs of Pakistan’s complex financial crisis.

An already weak economy has suffered significant harm as a result of the widespread contraband of goods into Pakistan, including sugar, bread, and Iranian oil. Addressing this problem is essential to reviving Pakistan’s business and preserving its long-term steadiness.

Numerous important indications show that Pakistan’s business is facing serious difficulties.

Numerous economic factors contribute to the severe economic downturn. & nbsp,

Prices is a major problem. The increase in prices worsens financial difficulties and reduces people’s purchasing power.

smuggling disease

Trafficking of diesel and gasoline from neighboring Iran is one of the major financial problems. In addition to undermining the administration’s efforts to collect taxes, this illegal activity even alters market dynamics, resulting in unfair competition and the loss of legitimate business opportunities. & nbsp,

More than 6 million liter of gasoline and diesel are allegedly smuggled into the country from Iran every day. Smuggled crude products are available all over the country.

The smuggling exercise must be absolutely linked to corruption of municipal authorities, Pakistani Customs officials, the Frontier Corps, FIA( Federal Investigation Agency ), local and area administrations, and boundary security forces.

Pakistan’s already precarious economy has lost US$ 10 billion in terms of tax and levies, according to a recent report from the Federal Board of Revenue( FBR ). Concerns about the smuggling of oil-related products have also been raised by the International Monetary Fund ( IMF ). & nbsp,

The flow of money to Afghanistan is another major obstacle. This suggests that money is being moved across the frontier, possibly for nefarious ends or to profit from business opportunities in the surrounding nation. By depleting its foreign exchange reserves and impeding funding and financial growth internally, this money flight can further weaken Pakistan’s business. & nbsp,

Additionally, Pakistan’s revenue system is essentially nonexistent. For any country’s financial security and development, a strong and effective taxes network is essential.

Imran Khan, a former prime minister, deserves praise for expanding Pakistan’s taxes system. The FBR collected record tax during the fiscal year 2021 – 2022

The state is unable to generate enough revenue to support public services, equipment initiatives, and social welfare programs without a well-functioning tax system. The fiscal deficit is increased, economic expansion is hampered, and the cycle of poverty and inequality is perpetuated by this shortage of tax collection.

Another urgent issue is Pakistan’s high unemployment rate. Successful prospective is lost as a result, consumer spending is cut back, and there is social and economic unrest. This problem is made worse by the mixture of a lack of employment opportunities and an expanding people, making it difficult for the government to provide for its citizens’ daily needs.

The Muslim rupee’s price is declining. Both the domestic and international economies may suffer significant effects from this loss. Goods become more expensive as a result, which raises prices for both businesses and consumers. Also, it may deter foreign investors and make Muslim goods less competitive on international markets.

Last but not least, Pakistan’s energy costs are skyrocketing. This alludes to a sharp and quick rise in energy prices. For low-income communities, the current per unit price is between 52 and 53 pounds( 18 cents ), which is disastrous.

Rising energy costs can be detrimental to businesses because they raise production costs and lower profitability. Additionally, this has an effect on consumers by raising their energy bills and lowering their revenue available for other necessities. The financial difficulties that both individuals and businesses face may be made worse by this.

politics and business

Pakistan’s existing practices to limit cross-border deal with Iran and Afghanistan will have an economic impact on Pakistan. Instead, in order to achieve financial stability and security, Pakistan may forge cordial ties with its neighbors Afghanistan, Iran, and India.

These nations can work together to create interconnectedness in a variety of fields, including systems, business, industry, oil, meals, medicine, industrial machinery, and transportation.

For Pakistan’s financial restoration and security, cooperation with Iran and Afghanistan is of utmost importance. Pakistan is successfully stop smuggling and lessen its negative effects by taking a comprehensive strategy that combines improved boundary security, intelligence sharing, constitutional reforms, public awareness, and financial incentives. & nbsp,

Prioritizing these issues, working with neighbors and international partners, and putting fair financial strategies into practice with tenacity and determination are all essential for the authorities. Pakistan can simply therefore pave the way for a prosperous and secure future for its economy. & nbsp,

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Gobi Partners invests undisclosed amount into agritech BoomGrow

Pre-Series A made via Khazanah-backed Gobi Dana Impak Ventures fund
Uses repurposed shipping containers located in situ, growing vegetables

Asia-focused venture capital firm, Gobi Partners is doubling down on its commitment to Environment, Social and Governance (ESG)-friendly investments through its latest funding, for an undisclosed amount, into Malaysian AgriTech startup, BoomGrow’s Pre-Series A…Continue Reading

Crypto hedge fund Three Arrows Capital co-founder arrested at Singapore's Changi Airport

SINGAPORE: One of the co-founders of collapsed cryptocurrency hedge fund Three Arrows Capital has been apprehended in Singapore and jailed for four months, according to the company’s liquidator.

The Singapore-based company filed for bankruptcy last year when its fortunes suffered a sharp decline after a massive sell-off of assets it had bet on as prices nosedived in crypto markets.

Su Zhu was detained at Changi Airport while trying to leave the country, Three Arrows’ liquidator Teneo said in a statement late Friday (Sep 29). 

His arrest came after Teneo said it obtained a committal order this week against Zhu for failing to comply with its investigation into the company’s failure.

“The committal order granted by the Singapore Courts sentenced Mr Zhu to 4 months’ imprisonment,” Teneo said.

His co-founder Kyle Davies was also committed to four months in prison but “his whereabouts remain unknown at this point in time”, it said.

The Monetary Authority of Singapore (MAS) had banned the pair “from conducting regulated investment activity for nine years each”, Teneo said.

The liquidator, ordered to preside over the bankruptcy by a court in the British Virgin Islands, is attempting to recover the assets of Three Arrows and bring returns to its creditors after the company failed.

However, it has accused Zhu and Davies of not cooperating with the effort to return funds and failing to voluntarily provide information.

In a profile in The New York Times in June, the pair said they had been travelling since the hedge fund’s collapse, including to the Indonesian resort island of Bali where they had been surfing and meditating.

CNA has contacted the Singapore Police Force and Immigrations and Checkpoints Authority for comment.

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Evergrande: The rise and fall of the property giant's billionaire founder

Evergrande founder Hui Ka Yan during the 12th National People's Congress in 2016 in Beijing.Getty Images

Hui Ka Yan, the founder and chairman of Chinese property giant Evergrande, was once Asia’s richest person.

The 64-year-old, who is also known as Xu Jiayin, rose from a humble upbringing to head a vast business empire. His fortune was estimated at $42.5bn (£34.8bn) when he topped the list of Asia’s wealthiest people compiled by Forbes magazine in 2017.

Now he is being investigated over suspected “illegal crimes” as his company teeters under the weight of $300bn (£245.4bn) of debt.

Who is Hui Ka Yan?

Born into a poor rural family in 1958, his early childhood was shaped by the Great Leap Forward – Mao Zedong’s campaign to rapidly industrialise a Chinese economy reliant on agriculture triggered a famine that killed millions.

Mr Hui was raised by his grandmother in a village in central Henan province after his mother died of sepsis when he was just eight months old.

After graduating from university in 1982, he spent the next decade working as a steel technician before becoming a salesman for a property developer in the city of Guangzhou in southern China. It was there that he founded Evergrande in 1996.

The company expanded rapidly as China’s economy boomed by borrowing large amounts of money.

Evergrande Group Chairman Xu Jiayin (C) attends Evergrande New Energy Auto Global Strategic Partners Summit on November 12, 2019 in Guangzhou, Guangdong Province of China.

Getty Images

“He was an example of how anybody can become rich if you’re smart enough and if you work hard enough,” said Alicia Garcia Herrero, the chief economist for Asia-Pacific at French investment bank Natixis.

Mr Hui, who has been a Communist Party member for more than three decades, was elected in 2008 as a member of the Chinese People’s Political Consultative Conference. The elite group of government officials and business leaders is the country’s top advisory body.

A photograph of him at a party conference wearing a gold-buckled belt made by the French luxury label Hermès went viral on social media in 2012, earning him the nickname “belt brother”.

Explosive growth

A rapidly expanding Evergrande raised $9bn in its 2009 Hong Kong stock market listing.

That growth was then turbo-charged by by Mr Hui’s “maximum leverage” approach, according to Jackson Chan from financial markets research platform Bondsupermart.

“Evergrande grew fast but even faster after he [Mr Hui] made friends with a group of [the] richest real estate tycoons in Hong Kong and the company was listed on Hong Kong Stock Exchange,” Mr Chan says.

“He received numerous support from these friends as they bought a lot of Evergrande’s stocks and bonds to help the company grow.”

Evergrande’s business model was to borrow large sums and then aggressively sell apartments that had not even been built. The group’s real estate unit currently has more than 1,300 projects in more than 280 cities in the country, according to its website.

Mr Hui’s business empire grew to encompass far more than just property and now includes operations including wealth management, electric car making and food and drink manufacturing.

It also has a majority stake in what was once China’s top football team, Guangzhou football club.


In 2020, Beijing brought in new rules to control the amount of money owed by big real estate developers.

The new measures led Evergrande to offer its properties at major discounts in an attempt to keep the business afloat. But it is now struggling to pay its debts.

The crisis has seen its stock market valuation shrink by 99% and Mr Hui’s fortune plummet to $3.2bn.

The luxury yacht "Event", reportedly owned by Evergrande boss, docked in Hong Kong in 2021.

Getty Images

Evergrande suspended trading of its shares in Hong Kong as Mr Hui became the latest Chinese billionaire to find himself being investigated by authorities.

Some experts see a link between China’s wealthy elite coming under official scrutiny and President Xi Jinping’s Common Prosperity policy, which aims to reduce income inequality.

Mr Hui is “the symbol of extreme wealth especially with his flamboyant lifestyle, flying around the world in his private jet,” Dexter Roberts, Director of China affairs at the Mansfield Center at the University of Montana, told the BBC.

“Xi has made it clear that extreme wealth, especially when displayed publicly like Hui, isn’t good for the economy and the society,” Mr Roberts said, adding that Mr Hui was “seen as a natural target”.

Although there has been no official statement yet on the investigation of Mr Hui, an opinion piece in the state-run Global Times newspaper indicated that the interests of ordinary citizens were being prioritised.

“Minimising homebuyers’ losses at all costs should be the next biggest consideration in dealing with the Evergrande crisis,” Hu Xijin, the paper’s former chief editor wrote.

“We should deal with the matter strictly and in accordance with the law, keep the public informed, and look at how to support the company’s customers as much as possible,” he added.

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India’s not the China alternative Wall Street thinks

Financial bookmarks can be very illuminating in assessing a market’s readiness for global primetime. Such is the case with JPMorgan Chase & Co adding Indian debt to its emerging market indices.

The Wall Street icon plans to do just that in June 2024, perhaps drawing US$40 billion into South Asia’s biggest economy – and at a moment when investors are buzzing that India is a ready alternative to a slowing China.

Perhaps most interesting, though, is that India will enter JPMorgan’s benchmark just days after Prime Minister Narendra Modi reaches his 10-year mark in power. On May 26, 2014, Modi’s Bharatiya Janata Party returned to power with a bold economic reform agenda.

The question, nearly a decade on, is whether the Modi era has whipped India into shape as a more innovative, productive and prosperous investment destination. And it’s here where investors rushing India’s way may be more disappointed than fulfilled.

In the Modi era, India is really a tale of two economies. The macroeconomy is going gangbusters with its China-beating growth rate and stampede of tech “unicorn” startups juicing the stock market. At the micro level, though, India is more cautionary tale than emerging-market exemplar.

At the BRICS summit in New Delhi earlier this month, Modi declared that “soon, India will become a US$5 trillion economy.” That would make India’s economy bigger than Japan’s.

And clearly, India is winning friends in high places. As JPMorgan Chase CEO Jamie Dimon views it, the surge in optimism on India is warranted.

Speaking at a forum in London this week, Dimon said: “Look at this conference. I remember eight years ago or nine years ago we started with 50 or 75 clients. Now it’s 700 investors around the world, 100 companies presenting. I think the optimism of India is actually completely justified.”

Morgan Stanley strategist Min Dai notes that its inclusion in indices like JPMorgan’s “could be a push factor to prompt foreign inflows into India and foreign investors are likely to be more active in the Indian fixed-income market.” This is, he says, a “milestone event.”

Economist Robert Carnell at ING Bank says “It remains to be seen whether the JPMorgan decision will spur others, such as the FTSE Russell to follow suit. Either way, as well as supporting the Indian rupee, the decision should also help to reduce government bond spreads over US Treasuries, and also pass through into lower corporate bond rates.”

Not surprisingly, Modi is working overtime to capitalize on this India-rising optimism by seeking to lure multinational companies disillusioned with China. The recent move by Beijing to order employees at some state-linked firms to cease using Apple’s iPhones has been a gift to Modi’s commerce ministry.

Indian Prime Minister Narendra Modi supporters attend a public election rally on the outskirts of Siliguri on April 10, 2021. Photo: Asia Times Files / AFP / Diptendu Dutta

India, meanwhile, grew a China-topping 6.1% in the three months ended March year on year. Asia’s third-biggest economy grew an even more impressive 7.2% for the fiscal year through March as its post-pandemic recovery drove consumption.

As China becomes more isolated amid “de-risking” and “decoupling” calls, and Washington and its allies in Asia seek a new emerging-market growth champion, Modi’s $3.4 trillion economy is keen to step up.

This year, the International Monetary Fund sees India contributing more than 15% of global growth. While still less than half of China’s 35%, India’s global clout is clearly growing.

As Modi was happy to highlight at the BRICS — Brazil, Russia, India, China, South Africa — summit, India finds itself in something of a geopolitical sweet spot just as Global South nations come into their own. This gives Modi a unique degree of leverage to play China’s interests against America’s.

This, just as India surpasses China to become the most populous nation, a reminder that Modi’s demographics are healthier than Xi’s. China’s Communist Party is grappling with record youth unemployment, reported as high as 21% until authorities banned future readouts on the figure.

But India’s outlook also depends on Team Modi making the most of India’s so-called “demographic dividend.” If New Delhi doesn’t create enough good-paying jobs, it will face a demographic nightmare rather than daydream.

It’s here where India’s micro policies lag the heady exuberance at the macro level. Look no further than the lack of confidence among currency traders selling the rupee. India’s inflation troubles and the government’s shaky fiscal position have rupee trends defying economists’ optimism.

“Foreign investors have poured $16 billion into equities this year, viewing India as a haven amid rising US rates and economic stresses in China,” notes analyst Udith Sikand at Gavekal Research.

“They have been well rewarded, with stock markets hitting record highs. But the prospect of a weaker rupee, in addition to the outlook for elevated global interest rates, makes the risk-reward proposition on Indian equities less favorable in coming months,” Sikand says.

True, Sikand adds, the inclusion of Indian government debt in JPMorgan’s benchmark index “should prove a watershed event, turbocharged by investors’ need to find alternatives to China.” He adds that India’s “bond market is both deep enough to absorb much larger flows and remains largely untapped.”

Yet “the flip side of greater foreign participation in domestic bond markets is that policymakers will have less room to maneuver, particularly as the twin deficits widen,” Sikand says.

“Still, as long as the Modi government does not give in to its populist instincts in the run-up to elections next year, bond yields are likely to fall as investors look to front-run the expected flood of passive inflows.”

A man holds 2000 Indian rupees notes aloft outside a bank in Mumbai. Photo: Reuters
The rupee hasn’t yet caught on among global currency traders. Photo: Asia Times Files / Reuters

It’s a big “if,” though. Another worry: India’s infrastructure and competitiveness in manufacturing lag China’s by magnitudes that are impossible to dismiss.

Modi’s ambitious “Make in India” push has only increased the flow of Chinese imports, leading to a marked deterioration in New Delhi’s trade balance. Along with rubbing currency traders the wrong way, this dynamic complicates hopes that multinationals might shift supply chains India’s way.

Other warning signs include rising inequality, partly thanks to Covid-19 fallout and inflation running at 15-year highs. Kunal Kundu at Societe Generale speaks for many economists in cautioning that “consumer fatigue” could soon cause giant headwinds.

Modi’s decade in power hasn’t sufficiently addressed many of the challenges he pledged to tackle in 2014. They include poor infrastructure, inequality, chronic youth unemployment, high levels of private debt, a deterioration in balance of payments dynamics and underwhelming household demand.

This has opposition parties ready to pounce. At least two dozen minority parties are joining forces to sideline Modinomics in favor of a more inclusive model. Along with inflation, opposition forces are drawing attention to worsening religious violence and assaults on press freedom.

Here, it’s worth considering another worrisome bookend: the number 85. This is India’s current ranking in Transparency International’s corruption perceptions index.

It’s the exact same ranking India achieved in 2014 — and fully 20 rungs behind 65th-ranked China. So, while Modi’s tenure hasn’t unleashed a bull market in graft, it hasn’t been a golden era for good governance either.

That helps explain why nearly a decade after Modi took national power S&P Global still rates India just one notch above junk at BBB.

Modi’s appeal, of course, derived from the folk-hero reputation he cultivated during his 13-year stint running the western state of Gujarat. From 2001 to 2014, Modi’s local government routinely generated faster gross domestic product (GDP) rates than the national average.

Gujarat often also boasted greater productivity and innovation, less bureaucracy, better infrastructure and lower levels of corruption. A major reason why voters returned the BJP to power in 2014 was in the hope that Modi would replicate the “Gujarat model” nationwide.

Modi’s team did put some early wins on the scoreboard. It opened some key sectors to increased overseas investment, including aviation and defense. It implemented a national goods-and-services tax. It projected a sense of confidence as a startup boom put India in headlines for all the right reasons.

Yet Modi has often read more from the playbook of Shinzo Abe than Margaret Thatcher or Ronald Reagan.

In 2012, Japanese Prime Minister Abe took power pledging epochal reforms, channeling the supply-side revolutions that Thatcher unleashed on the UK and Reagan on the US.

Abe did manage to improve corporate governance. That, over time, drove the Nikkei Stock Average to 30-year highs. Mostly, though, Abe relied on hyper-aggressive Bank of Japan easing to revive growth. This trickle-down economics scheme failed to boost wages or rekindle innovation.

The parallels between Abenomics and Modinomics are clear enough. In certain ways, though, the Modi era in India has been far more damaging than Abe’s 1980s-influenced economic exploits.

Take India’s press freedom score, which has plunged precipitously. In 2014, its 140th ranking out of 180 nations on Reporters Without Borders’ tables was poor enough. Today India ranks 161st, trailing Cambodia by 14 rungs and 11 behind Pakistan.

If Team Modi were serious about reducing opacity and leveling playing fields, it would embrace a free-wheeling press as an ally in raising India’s competitive game. The Modi era has dragged India in the other direction.

Making this dynamic all the more awkward: this year’s scandal involving the Adani Group, led by billionaire Gautam Adani, whose alleged close ties to Modi date back to their Gujarat days.

Gautam Adani used to be a lot richer. Image: Screengrab / CNN

Short seller Hindenburg Research accused the conglomerate of “brazen stock manipulation and accounting fraud,” spotlighting cracks in India’s financial sector.

In February, billionaire George Soros exacerbated the storm by saying that the Adani crisis “will significantly weaken” Modi’s “stranglehold” on New Delhi politics. In Soros’ telling, Modi and Adani are “close allies” with “intertwined” fates.

BJP officials pushed back, arguing that Soros has “now declared his ill intentions to intervene in the democratic processes” in India.

Weak corporate governance is raising concerns about the health of India’s business environment. It also collides with Modi-era efforts to spotlight India’s giant industrial conglomerates, many of which might not be ready for global primetime.

Another bookmark worth noting: In the latest financial year, foreign direct investment inflows fell for the first time in a decade. The 16% drop to $71 billion would seem at odds with a booming economy winning new converts around the globe as the new China.

It speaks to the need for Modi’s team to accelerate efforts to increase domestic and international competition, build trust in New Delhi’s regulatory institutions, scrap policies that support national champions and curb protectionist impulses.

If his “Make in India” strategy is to gain traction, Modi must rethink tariffs on foreign components. Though intended to advantage domestic supply chains, the protectionist policy dents India’s argument that it’s open for business.

Modi’s government must also invest more in human capital. One in five of India’s 1.4 billion people is under 25. Increased funding must go toward improving financial literacy, education and training. Modi’s team must delve into the economic effects of societal norms.

In a March report, the Organization for Economic Cooperation and Development argued that “in South Asia hundreds of millions of people – not just in India – are affected by caste-discrimination. Caste systems divide people into unequal and hierarchical social groups. Those at the bottom of hierarchy are considered lesser human beings. In the business and work-sphere caste-discrimination affects workers.”

To be sure, Modi has racked up some notable victories, notes analyst Alexis Serfaty at the Eurasia Group consultancy. He says that “India’s policy ecosystem seems to have finally found the right mix to enable rapid manufacturing growth.” Powered by broader geopolitical trends” and Modi government policies, “electronics manufacturing has grown 275% over the past eight years.”

But “while the overarching policy environment at both the central and state levels is realigning toward enabling export-led manufacturing growth, industry executives are still concerned about long-term policy stability, given India’s checkered history,” Serfaty says.

“The Modi government has assured investors that it has the political capital, and the policy will stay the course. Still, realigning bureaucratic behavior and state-level political views to support long-term growth will pose a big challenge in the medium term,” he adds.

And for global investors about to pour $40 billion into Indian debt, a reminder that Modinomics hasn’t transformed the economy as much as hoped and as much as needed to be the new China.

Follow William Pesek on X, formerly known as Twitter, at @William Pesek

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Evergrande: Why should I care if China property giant collapses?

A man and children cycle past the Guangzhou FC football stadium, which is being built by Evergrande.Getty Images

A crisis at the world’s most indebted company has worsened after its chairman was placed under police surveillance.

It follows earlier reports that other current and former executives at Chinese property giant Evergrande had also been detained.

Evergrande suspended the trading of its shares in Hong Kong on Thursday until further notice.

It marks another low for the firm which was declared to be in default in 2021 after missing a crucial repayment deadline, triggering China’s current real estate market crisis.

What does Evergrande do?

Businessman Hui Ka Yan founded Evergrande, formerly known as the Hengda Group, in 1996 in Guangzhou, southern China.

According to the company’s website, Evergrande Real Estate currently owns more than 1,300 projects in more than 280 cities across China.

The broader Evergrande Group encompasses far more than just real estate development.

Its businesses range from wealth management to making electric cars and food and drink manufacturing. It even owns a controlling stake in what was one of the country’s biggest football teams, Guangzhou FC.

Mr Hui was once China’s richest person with his fortune estimated at $42.5bn (£34.8bn) by Forbes, but his wealth has plummeted since then, largely as Evergrande’s problems have grown.

Why is Evergrande in trouble?

Evergrande expanded aggressively to become one of China’s biggest companies by borrowing more than $300bn.

In 2020, Beijing brought in new rules to control the amount owed by big real estate developers.

The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.

Now it is struggling to meet the interest payments on its debts.

This uncertainty has seen Evergrande’s shares lose 99% of their value in the past three years.

In August, the firm filed for bankruptcy in New York, in a bid to protect its US assets as it worked on a multi-billion dollar deal with creditors.

Why would it matter if Evergrande collapses?

There are several reasons why Evergrande’s problems are serious.

Firstly, many people bought property from Evergrande even before building work began. They have paid deposits and could potentially lose that money if it goes bust.

There are also the companies that do business with Evergrande. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.

The third is the potential impact on China’s financial system: If Evergrande collapses, banks and other lenders may be forced to lend less.

This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates.

A credit crunch would be very bad news for the world’s second largest economy, because companies that can’t borrow find it difficult to grow, and in some cases are unable to continue operating.

This may also unnerve foreign investors, who could see China as a less attractive place to put their money.

Is Evergrande ‘too big to fail’?

The very serious potential fallout of such a heavily indebted company collapsing has led some analysts to suggest that Beijing may step in to rescue the company.

However, Jackson Chan from financial markets research platform Bondsupermart does not think that will now happen.

“To be honest, Evergrande has already collapsed,” says Mr Chan, adding that he believes “it is on the brink of a forced liquidation”.

This could have a major effect on China’s economy as the property sector contributes roughly a quarter of its growth.

Mr Chan also suggests that the country could be following a similar path to Japan in the 1980s, when it slipped into decades of economic stagnation.

However, others think it is unlikely that Evergrande will be allowed to completely collapse.

“That could spiral, affecting other indebted companies and further hurt the overall property sector which is very important to the growth of the economy,” Dexter Roberts, director of China affairs at the Mansfield Center at the University of Montana, told the BBC.

“At the same time, many people whose household wealth is mainly in their apartments will also be badly hurt,” he added.

Mr Roberts, who spent more than two decades in China as a journalist, said “the old Evergrande no longer exists” and while the authorities may keep it afloat, “it will be as a radically diminished company.”

Reporting by Peter Hoskins and Mariko Oi

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Biden's Belt and Road counter needs an eastern extension

US President Joe Biden announced on September 9 at the G20 Summit in India an ambitious plan for a transportation corridor connecting India with the Middle East and, ultimately, Europe – a possible game changer for global trade.

The shipping and rail corridor would include India, Saudi Arabia, the United Arab Emirates, Israel, the European Union and other countries in the G20.

Indian Prime Minister Narendra Modi asserted that the India-Middle East-Europe corridor will become a basis of world trade for the coming centuries, and history will remember that it was envisioned in India.

Indeed, this project was conceived during a meeting of the I2U2 forum of the US, Israel, the UAE and India (September 2022). In India, it was referred to as the “Western Quad.”

The rail and shipping corridor would enable greater trade and other interactions among the countries, including energy products and digital cooperation. The American-proposed passageway, which gives India a pivotal role, intends to bring Delhi closer to Washington amid its rivalry with China.

Map: The Hindu / Twitter Screengrab

It immediately comes to mind that the corridor could constitute one of the more ambitious counters to China’s own Belt and Road Initiative, which sought to connect more of the world to that country’s economy.

The announcement comes at a time when Washington is encouraging Saudi Arabia to normalize ties with Israel – a linkage critical for permitting the corridor to reach the Mediterranean on its way to Europe.

Israeli Prime Minister Benjamin Netanyahu has previously discussed the possibility of a train linking Israel to Saudi Arabia via Jordan. There are many obstacles to realizing the American vision. However, they can be overcome with diplomatic acumen and money.

However, if the American goal is to circumvent Chinese influence, the announced corridor needs an eastern extension.

This western-oriented corridor neglects important US allies such as South Korea, Japan, Singapore, Taiwan and Thailand. These states are essential in the ongoing American competition with China.

They are all export-oriented and are energy-dependent upon the Middle East. They have major markets in Europe. Their security and prosperity hinge upon the American willingness and capability to secure the freedom of the maritime routes east of India. 

Moreover, the main arena of US-China competition is the Indo-Pacific. An Eastern Extension of the corridor can be critical to additional states such as Australia and the Philippines. Indonesia and Vietnam are potential supporters. Some of them are democracies that deserve American protection and are clearly in the American camp.

Malacca Strait image: Marine Insight

Extending the corridor to the Indo-Pacific emulates George Kennan’s containment strategy, put forth in 1946 to parry Russian expansionism. The eastern wing of the passage has two main choke points, the Malacca and Taiwan straits. A significant proportion of world trade travels via the two straits both ways. Both waterways are recognized among the busiest shipping channels in the world.

Approximately 25% of all oil transported by sea, primarily from the Middle East to East Asia, passes through these straits. Historically, over 100,000 vessels have passed through the channels annually. Significantly, Asia – particularly East and Southeast Asia – has long been considered the world’s manufacturing hub. A large proportion of the manufactured goods go westward.

Any trade corridor needs to be defended militarily. The US must control both straits via its allies or its own maritime power. This requires the US to establish the military might to maintain the freedom of navigation along the extended corridor. An uninterrupted flow of goods from Europe and the Middle East to the Indo-Pacific is critical.

Only an America that can supply security for the trade routes can reassure its allies and hedging states about the American seriousness to help in case of greater Chinese encroachment. The US possesses several diplomatic and military arrangements to respond to increased Chinese economic and military power.

For example, the Quadrilateral Security Dialogue (QSD), commonly known as the Quad, is a strategic security dialogue among Australia, India, Japan and the US. Less known is the Indo-Pacific Partnership for Maritime Awareness (IPMDA), an offshoot of the Quad, intended to monitor China’s military activity and illegal fishing.

In the intelligence area, the US is a part of the Five Eyes intelligence alliance that includes Australia, Canada, New Zealand and the United Kingdom.

All arrangements must be incorporated into an eastern extension.

Nevertheless, both wings of the corridor are susceptible to hostile interference. Iran can act against free trade in the western corridor. It already does so by attacking even American ships in its vicinity in the Indian Ocean, and its presence in Yemen is also threatening.

A picture obtained from Iranian State TV IRIB on June 13, 2019. It allegedly shows smoke billowing from a tanker said to have been attacked off the coast of Oman. Photo: IRIB TV / Handout

Similarly, China acts aggressively in the South China Sea and threatens to invade Taiwan. Taking over the Taiwan Straits would have significant strategic impact.

The US needs to demonstrate to the states that getting closer to China is unwise. In the Middle East, anti-American political entities such as Iran, Syria and even the Palestinian Authority, which signed strategic partnerships with China, must realize that Beijing is not a reliable ally.

The best demonstration is a strong American response to the Iranian challenges. In contrast, neither China nor Russia can project power in the Indian Ocean, signaling that China cannot guarantee security.

President Biden will be well-remembered if his strategic clairvoyance, exemplified by his proposal of an India-Middle East-Europe corridor, leads to the establishment of an eastern extension.

Efraim Inbar is president of the Jerusalem Institute for Strategy and Security. The issues mentioned above will be discussed at a conference in Jerusalem on November 7.

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Evergrande: China property giant suspends shares amid reports of detained leaders

An Evergrande sign on the facade of a buildingReuters

Shares in crisis-hit Chinese property giant Evergrande have been suspended in Hong Kong amid reports its chairman has been placed under police surveillance.

It follows reports earlier this week that other current and former executives had also been detained.

Thursday’s market statement did not give a reason for the trading halt.

But it marks another low for the heavily indebted property giant which defaulted in 2021, triggering China’s current real estate market crisis.

In August, the firm filed for bankruptcy in New York, in a bid to protect its US assets as it worked on a multi-billion dollar deal with creditors.

The market trading halt now comes just a month after the firm’s previous 17-month suspension was lifted.

Evergrande – once valued as the world’s most valuable property developer – is at the centre of a real estate crisis threatening the world’s second largest economy.

With more than $300bn (£247bn) of debt, the firm has been scrambling to raise cash by selling assets and shares to repay suppliers and creditors.

Most of Evergrande’s debt is owed to people within China, many of whom are ordinary citizens whose homes have not been finished.

When the firm defaulted on its huge debts in 2021, it sent shockwaves through global financial markets as the property sector contributes to roughly a quarter of China’s economy.

Several other of the country’s major developers have defaulted over the past year and many are struggling to find the money to complete developments.

In July, Evergrande revealed it had lost a combined 581.9bn yuan ($79.6bn; £65.6bn) over the post two years.

It has been working on a new repayment plan and the company seemed to have been moving closer to resolving the problem after it filed for US bankruptcy protection.

Its latest plan was to reissue its overseas debt as new bonds that it had to pay back in about 10 years’ time, as well as offering their creditors stakes in the company as shares.

But earlier this week, Evergrande revealed its mainland unit Hengda Real Estate had defaulted on 4 billion yuan (£449m; $547m) of debt.

Chinese business wire Caixin also reported that several current and former executives has been detained.

Then on Wednesday, Bloomberg News reported the firm’s founder Hui Ka Yan, who is also known as Xu Jiayin, had bene taken away by police this month and was being monitored at a designated location.

The BBC has been unable to independently confirm Bloomberg’s reporting.

Trading in its two other units – the property services and electric vehicle – was also suspended on Thursday.

“China’s property-sector stress will continue to pose cross-sector credit risks in the near term,” wrote Lan Wang and Duncan Innes-Ker of Fitch Ratings.

“The government’s modest policy easing to date is unlikely to drive a sharp turnaround in homebuyers’ sentiment, even though it has led to some recent improvements in broader economic indicators,” their report said.

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