PESTLE

New Forum For My Writing

Hi all,

As you may have noticed my output has slackened. This is not due to a lack of interest in PESTLE topics, but rather to the fact that I have started as a columnist for Examiner.com. I will be writing more frequently there, as I actually get paid to do so.

I welcome your visit there--bookmark me and check back. I get paid by number of visits...

Here's my Examiner home page.

I will continue to post on this weblog--and will probably get back to a semi-regular schedule after the newness of the new toy wears off a bit. Besides, some of the stuff I write here probably wouldn't make it into a daily newspaper column, right?

More trouble for China

...as noted in the Economist. "This year 6.1m students will graduate from Chinese universities, nearly six times as many as in 2000. Next year the figure is expected to rise to about 7m. In 2011 it will reach a peak of nearly 7.6m according to Beijing Evening News, a state-owned newspaper." But where will they all work?

"In 2006 the government was already trying to find something useful for graduates to do by encouraging them to take up jobs in villages as assistants to rural officials. They were promised preferential treatment after three years in the countryside when applying for civil-service jobs or for places in graduate school. Beijing municipality, which includes a large rural hinterland, says it has already fulfilled its goal of installing two graduates in every village. Last year there were 17,000 applicants in the city for 3,000 such posts."

China needs these people--they are graduating engineers only at the same pace as their economy has been growing--they're not stockpiling them for a rainy day. The anniversary of Tianemen Square is just around the corner.

China's Dilemma (3)

In the previous 2 posts I identified two desperate needs for China--they need for America to recover quickly and they need their citizens to replace export earning by consumer spending. It must be galling for the Chinese government to realise their fate is in the hands of the Yanks and their own consumers--they've been sober and conservative in their management of China's macro-economy and just got swamped in the tidal wave. But because they are autocratic and cruel, and more concerned with self-preservation than their country's future, I can't muster up much sympathy for them.

But even if both their desperate needs are satisfied (and I do think the American economy will recover quickly), China is still due for what is essentially the same disruptive period that happens in the transition to developed economies that has afflicted all of their predecessors, from the UK to South Korea, and most definitely including the U.S., which had several break points. And here is where Chinese leadership is failing China.

China has other desperate needs. The stimulus they are injecting into the economy is failing to address them. They need clean energy generation far more than the worried West--Chinese people are dying every day due to air and water pollution, and it is saving up trouble for the future to ignore it now. China is introducing a national healthcare scheme--if they don't fix their pollution problems, this scheme will be overwhelmed just dealing with the effects of pollution.

The demography of China is going to start working against them quite soon, as the one child per family rule works through the population figures like a pig through a snake, and China incredibly starts to look like Japan. Preferential abortion to insure that that one child was male will exacerbate this issue starting now. Increasing unemployment makes the idea of bringing surplus males into the military a fairly sane option. Having a larger military will create pressure to justify its existence. And war is not good for developing countries. It slows down useful development and creates a warped sense of priorities.

The consensus shared between Chinese citizens regarding the central government is entirely an economic transaction. We let you rule if we can better our lot dramatically. If the Chinese government does not keep its end of the bargain, this consensus will disappear. I think this will happen over the next 5 years, and considerable turmoil will be the result.

China's Dilemma (2)

According to Nationmaster, 22% of the world's poor live in China. I don't know if that percentage will increase--times are tough all over--but the raw number most probably will. And this isn't China of 1978, when the entire population was poor. Now, the 100 million who are living on less than $1 a day have middle class neighbours and rich Chinese people on TV.

Why am I so pessimistic about China regarding the next 5 years? These are smart people, industrious and entreprenurial. Well, partly it's because the rest of the world will let them down. In 2007, China's exports were $1.2 trillion. That compares to their total GDP in 2008 of $4.84 trillion. So far this year, exports are down by a quarter. So far during this recession, worldwide job losses are 50 million. Of that number, 20 million are Chinese.

So we have a deteriorating financial situation in a country with brand new access to communications and growing inequality. Sound like a recipe for social unrest? Add in government corruption. China is ranked at the same level as Romania. China is embarrassingly and publicly failing in its efforts to control corruption--this article in Asia Times is just more of the same. And Chinese people now see and hear this every day--and not just in the newspapers, as China has the most internet users in the world, at 300 million.

China desperately needs for its citizens to spend more and save less to compensate for reduced exports. Chinese people are famous for saving. This is the most publicized economic downturn in history, being covered like an American Super Bowl or the World Cup. Does anyone think the Chinese are going to pull their yuan out from under their mattress and buy a Haier TV on the heels of 20 million job losses and 10,000 factory closures? I do not.

More on China later.

China's Dilemma

China's manufacturers desperately need America to buy Chinese goods. China's government desperately needs America to become more conservative in its economic behaviour, the better to protect Chinese holdings of American debt.

So far, it's the worst of both worlds. America has quit buying Chinese goods, but it hasn't started acting conservatively enough to protect Chinese holdings of Treasuries.

It's a real dilemma. One of several Catch 22's that China faces over the next 5 years. We're going to focus on China for a bit.

We can start with a bit of a contrary view, one written by James Fallow for the Atlantic. Read it. He doesn't really disagree with me that China is going to have a rough 5 years--but he's considerably more optimistic about China's future after that. Well, I am, too, depending on how you define 'after that.' In 25 years, maybe, China will be back on the road to superstardom. But this five year period is going to be so tough for China that it will take 20 years to recover.

Sunday update

Time to look around the intertubes and see if anything is new on subjects I've covered so far.

The Decline of Russia: Well, if anyone needs a second opinion on Russia, I'd refer you to World Affairs, and an article by Nicholas Eberstadt called Drunken Nation: Russia's Depopulation Bomb. Eberstadt takes a much longer and closer look at the demographics destroying Russia today.

Green Technology: Venture capital investment in green technology fell 48% in the first quarter of 2009, to a paltry total of $1 billion in 82 countries. (No comment on how poorly VC investment is doing in other sectors--I'd be surprised if Green Technology fared any worse than anbyody else.) But nobody will even notice, I imagine, as governments around the world have earmarked $400 billion for various green technologies.

Nanotechnology. Two story leads here, reported without comment: 1. An article in the April 2009 The Lancent Infectious Diseases, highlights research being conducted using nanotechnology to prevent, diagnose and treat infectious diseases. Saying that progress in this field is moving at an exponential pace, the author quotes Karin Forsberg-Nilsson, chair of the EuroNanoMed Network Steering Committee, as urging industrial players to collaborate more closely with scientists and clinicians, to shorten the delay from patents to patients. 2. The European Parliament's Environment Committee this week adopted a report that calls for nanotechnology products already on the market to be withdrawn until safety assessments can be made.

Robotics: ADAM is the first robot—but maybe not the last—to have independently discovered new scientific information, according to scientists who recently built themselves the mechanical colleague.

Genetics: Gene mutations that cause infertility in men could point the way to a male birth control pill, American and Iranian researchers say.

That's it for Sunday--more rigorous work on tap for tomorrow.

Recession, depression, what's going on?

In the U.S., factory orders and the Dow are climbing. So is unemployment and homelessness. What's really happening right now?

We've just looked at 8 countries that account for half the population and two-thirds of the GDP in this world. They certainly can serve as a proxy, as they include the BRICs, the U.S., France, the United Kingdom and Japan.

The U.S. looks schizophrenic right now, as companies are laying off workers at the same time their order books are filling up. To say this is typical is to be too kind. US managers have never yet gotten this right, and it doesn't look like they will this time, either.

China's manufacturing seems to be reacting favorably to the huge stimulus package of the government, with sentiment rising into expansionary territory. But there, too, unemployment is rising and set to rise faster. It's hard to track homelessness in China, due to migrant workers who will return to the farms and also to the quake last year that left millions homeless. But they are doubling the number of urban homeless centers, so it must be an issue.

India is just diving into the hard part of the recession, and stronger family ties may cushion the worst of unemployment rates there. But there's no question it's increasing. And although they're trying to put a brave face on it, India's manufacturing activity is decreasing. It could be a lot worse, however.

In Russia, manufacturing output was down 20% year on year in January and 13% in February. Stocks rose! Bloomberg forecasts unemployment in Russia to rise to 12%. That is just going to be really tough--inflation at 13%, unemployment at 20%, and the government having to bail out the oligarchs right and left. Hey, but stocks rose...

In Brazil, manufacturing slumped 17% last month year on year. Unemployment jumped to 8.5%.

In the United Kingdom, manufacturing dropped 4.5% for the quarter after falling 1.8% the previous quarter. Meanwhile, unemployment skyrocketed at the fastest rate in history there, to 6.5%. I think the UK will be first in, last out of this recession.

France's PMI (Purchasing Manager's Index) is at a dismal 36.5, compared to China's 51. French unemployment is at 9.9%, and expected to rise another percentage point this year.

Japan's PMI is even lower than France's, at 33.8, and even that is an improvement over Februay. Manufacturing activity has declined in Japan for 13 consecutive months. Wow. Unemployment rose to 4.4%, which is high for Japan and a 10% increase in one year.

So yeah, I guess you'd call it anything short of a depression. Countries massage their figures to make them look better. There are a lot of people in really tough times right now. Considering that it looks like it's going to get worse before it gets better, I think my comment in a previous post--that world GDP looks set to decrease for the first time since WWII may actually come true.

What have we learned from our Pestle summaries (2)

According to the Economist, the 8 countries I have selected for further analysis will contribute a negative $648 billion to the world economy this year. The only two countries on my list that they think will grow in 2009 are India (at 5%) and China (6%). The Economist forecasts that all but two (the UK, at -1.1%) and France (0.0%) will return to positive growth the next year. It's the second worksheet in this file, titled The 8. Download Top 10 in 3 categories

I don't really agree with the Economist's numbers for individual countries, but it could be that the net difference is small--as I roughly agree with the numbers for USA and Japan, the big difference is that I think China will go in the tank, but that's for another post.

But if 8 countries wipe more than 1% of world GDP off the board this year, the other 200 countries are going to have to make up for a lot of ground if world GDP is to grow at all in 2009. And I don't see where that growth is going to come from.

So it looks as if, for the first time in a very long time, world GDP may decrease this year. That's big news.