SocGen & Nouriel Roubini: Markets to Tank Very Soon

SocGen's Albert Edwards and economist Nouriel Roubini are sounding a warning that the recent rallies in asset markets are being driven by a liquidity bubble that is going to burst spectacularly, perhaps as soon as next year.

Reuters reports as follows:

SocGen's top analyst sees market lows next year
Mon Nov 9, 2009 11:54pm EST

HONG KONG (Reuters) - Albert Edwards, a top analyst with French bank Societe Generale, expects global markets to hit a new low in 2010, adding that he would not be surprised if the global economy enters another recession next year.

Edwards, one of the leading equities bears and a long-term critic of the policies of Western central banks, is skeptical of popular opinion that extreme policy response will safeguard the West against a repeat of Japan's lost decade of the 1990's.

Edwards said he expected that at some point China would go into recession, calling people's excessive faith in growth stories a "sick joke."

Japan would run into difficulty funding itself next year as demand for Japanese government bonds waned and bond yields rose further, he said.

The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.

Meanwhile, Nouriel Roubini, in this essay, warns of the effects of the 'mother of all carry trades'

"the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

...

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments."

Personally, i don't know exactly what is going to happen, but I certainly agree with these two analysts that the recent market rallies certainly seem to be fueled by exceptionally loose credit rather that proper market fundamentals. The US and European economies are still in the dumps, propped up only by record levels of government spending and record levels of liquidity as supplied by the central banks. Instead of taking the hard medicine of properly restructuring the economy, all we see is continued support of 'too-big-to-fail' sick giants and more and more borrowing.

Sooner or later a liquidity bubble is going to form (it probably already has) and sooner or later this bubble is going to burst... how big and how hard the burst and subsequent crash is going to be, I don't really know. But if SocGen and Roubini are right, then it looks like it's going to be a loooong way down from here.

Global Economic Meltdown Means Singapore's Economy Isn't Bouncing Back Any Time Soon

Some time ago, Singapore's heavily export-oriented growth model came under fire. The Wall Street Journal published an opinion piece, criticising the lop-sided dependence on exports and the crowding out of the private sector by the government:

The export-led economy is falling on its face. Minister Tharman Shanmugaratnam predicts the city-state is "likely to experience" the deepest recession in its history. The government will tap its reserves to help pay for the stimulus package. Growth contracted 16.9% in the fourth quarter last year. The Ministry of Trade and Industry has revised down GDP forecasts twice this month already, and expects the city-state's growth to contract 2% to 5% this year. The pain is now leaking into the domestic economy as consumers retrench.

Singapore's economy would be more resilient if it were better balanced. Consumption composes only about 40% of GDP -- far less than other developed Asian economies, nearer to 55%. Yesterday's budget doesn't do much to change long-term incentives to consume. The government announced a 20% income-tax rebate for one year, but no permanent cuts. Nor did it cut the 7% goods and services tax. Singaporean workers and businesses invest a total of 34.5% of wages into the state pension fund, but receive less than a 2% return from the government. That's a measly payout compared to what private funds return over long investment periods.

These thoughts and others were echoed by many financial and economic analysts around the world. Naturally, however, Singapore's government took a stand against its critics, and Tharman Shanmugaratnam was forced to declare that "Singapore's Growth Model Works", in defence of the government's economic policies:

The Government will keep restructuring the economy to emerge 'leaner and smarter' after each downturn, Finance Minister Tharman Shanmugaratnam said in an interview with Bloomberg Television on Wednesday.

'The fundamentals of our growth model are sound,' he said, adding that 'we should not be less susceptible to global markets. That's our future, that's where our fortunes are tied to'.

Singapore's economy may shrink a record 5 per cent this year as the global recession erodes demand for exports and companies lay off workers.

...

'We are plugged into the markets that are largely in the rich countries and when we go through a global crisis like this, we come down very quickly,' Mr Tharman said, adding that there was no Asian domestic demand to provide a cushion for Singapore

...

'Singapore will come out of this,' said Mr Tharman. 'We will bounce back the way we've bounced back three times already in 10 years.'

But the global bloodbath makes it increasingly unlikely that Singapore is going to bounce back any time soon. This global recession is the worst since world war II, and some even say that recession is an understatement - they say that we are in for an economic depression.

Just yesterday, Japan's GDP was reported to be shrinking at an annualised 12%:

Japan Economy Goes From Best to Worst on Export Slump, Yen Gain

By Jason Clenfield

Feb. 17 (Bloomberg) -- Japan’s economy, only months ago forecast to be the best performing among the world’s most advanced nations, has become the worst.

Gross domestic product shrank an annualized 12.7 percent last quarter, the Cabinet Office said yesterday. The contraction was the most severe since the 1974 oil crisis and twice as bad as those in Europe or the U.S.

The credit crisis that crippled the U.S. financial system may have also knocked out the props that supported Japanese growth between 2002 and 2007: a U.S. consumer-spending bubble and a cheap yen. The speed of the deterioration has taken companies by surprise: Toyota Motor Corp. this month forecast a 450 billion yen ($4.9 billion) loss, reversing a November estimate it would make 550 billion yen.

“We thought this would be a cyclical slowdown for the Japanese economy,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. “It’s now clearly a structural one. Eventually we should see some stabilization in consumption globally, but there just won’t be the same” willingness to fund spending by taking on debt, he said.

...

‘Devastating Effects’

The end of easy credit in the U.S. will lead to a “quantum downward shift” in consumer spending in the world’s largest economy that may have long-term and devastating effects on economies that have relied on it, according to Allen Sinai, chief global economist at Decision Economics Inc. in New York. Exporters Toyota and Canon Inc. get more than a third of their sales in North America.

“Companies that planned their businesses around the idea that U.S. consumer spending would grow by 3 percent per year, as it has for decades, are in for a shock,” said Sinai, who spoke in an interview in Tokyo after he briefed Japan’s biggest business lobby, Keidanren, on the U.S. outlook.

Indeed, Japan's economic woes are reflective of what is happening across the troubled east asian tigers - economies that are heavily dependent on exports for economic growth. Singapore, Taiwan and Korea are facing steep falls in exports as the US & European financial systems implode, causing massive deleveraging and sharp drops in consumer spending previously fueled by easy credit.

Yet many of Asia’s tiger economies seem to have been hit harder than their spendthrift Western counterparts. In the fourth quarter of 2008, GDP probably fell by an average annualised rate of around 15% in Hong Kong, Singapore, South Korea and Taiwan; their exports slumped more than 50% at an annualised rate. Share prices in emerging Asia have plunged by almost as much as during the Asian financial crisis a decade ago. That crisis was caused by Asia’s excessive dependence on foreign capital. This time the tigers have been tripped up by their excessive dependence on exports.

...

In the fourth quarter of 2008, real GDP fell by an annualised rate of 21% in South Korea and 17% in Singapore, leaving output in both countries 3-4% lower than a year earlier. Singapore’s government has admitted the economy may contract by as much as 5% this year, its deepest recession since independence in 1965. In comparison, China’s growth of 6.8% in the year to the fourth quarter sounds robust, but seasonally adjusted estimates suggest output stagnated during the last three months.

Asia’s richer giant, Japan, has yet to report its GDP figures, but exports fell by 35% in the 12 months to December. In the same period, Taiwan’s dropped by 42% and industrial production was down by a stunning 32%, worse than the biggest annual fall in America during the Depression.

Asia’s export-driven economies had benefited more than any other region from America’s consumer boom, so its manufacturers were bound to be hit hard by the sudden downward lurch. Asian exports are volatile anyway. And though the 13% fall in the region’s exports in the 12 months to December was slightly smaller than in 1998 or 2001, those dismal records seem certain to be beaten soon.

The plunge in exports has been exacerbated by the global credit crunch, which made it harder to get trade finance. Destocking on a huge scale has further slashed output. Trade within Asia has dropped by even more than the region’s sales to America or Europe. Exports to China from the rest of Asia were 27% lower in December than a year earlier, partly reflecting weaker demand for components for assembly into goods for re-export.

The press has mostly focused on the financial meltdown in the US. Yet, the European financial system now appears to be in an even worse condition than their American counterparts. John Mauldin analyses the dire situation in Europe:

European Bank Losses Dwarf Those in the US

...

But European banks may be in far worse shape. Bruno Waterfield of the London Daily Telegraph reports to have seen an eyes-only document prepared by the European Commission for the finance ministers of the various EU member countries. The problem revealed in the report is an estimated write-down by European banks in the range of 16 trillion pounds, or about $25 trillion dollars! The concern is that bailing out the various national banks for such an unbelievable amount would push the cost of government borrowing to much higher levels than we see today.

...

Waterfield reports, "National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors -- particularly those who lend money to European governments -- have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

...

Part of the problem is that European banks were far more highly leveraged than US banks. Some banks were reportedly leveraged 50:1. And they lent money to Eastern European projects and businesses which are now facing severe financial strain and plummeting local currencies.

Let that number rattle around in your head for a moment: $25 trillion. Even $5 trillion would be daunting. But the problem is that Europe does not have a central bank that can step in and selectively save banks from one country without taking on all euro zone member-country banks. Yet, as noted above, some countries may not have the wherewithal to save their own banks. It is reported that some Austrian banks are hoping that Germany will step in and help them. Given Germany's problems, they may have a long wait.

The slump in exports is not just driven by a drop in US demand alone - it is driven by a broad-based drop in consumer spending in East Asia's key export markets of Europe and the USA, economies whose financial systems are up to their noses in toxic credit and whose financial problems aren't going to be solved any time soon. At the same time, there has been broad-based concern about the Obama administration's lack of leadership in coming up with a detailed plan for fixing the credit system. Tim Geithner's recent speech inspired no confidence in analysts and business leaders, and has left much to be desired:

The Obama rescue

Feb 12th 2009

From The Economist print edition

This week marked a huge wasted opportunity in the economic crisis

By any recent historical standards America’s banking bust is big. The scale of troubled loans and the estimates of likely losses—which are now routinely put at over $2 trillion—suggest many of the country’s biggest banks may be insolvent. Their balance-sheets are clogged by hundreds of billions of dollars of “toxic” assets—the illiquid, complex and hard-to-price detritus of the mortgage bust, as well as growing numbers of non-housing loans that are souring thanks to the failing economy. Worse, banks’ balance-sheets are only one component of the credit bust. Most of the tightness of credit is owing to the collapse of “securitisation”, the packaging and selling of bundles of debts from credit cards to mortgages.

Fixing this mess will require guts, imagination and a lot of taxpayers’ money. Mr Geithner claims he knows this. “We believe that the policy response has to be comprehensive and forceful,” he declared in his speech, adding that “there is more risk and greater cost in gradualism than aggressive action.”

But his deeds did not live up to his words. His to-do list was dispiritingly inadequate on some of the thorniest problems, such as nationalising insolvent banks, dealing with toxic assets and failing mortgages. Mr Geithner promised to “stress-test” the big banks to see if they were adequately capitalised and offer “contingent” capital if they were not. But he offered few details about the terms of public-cash infusions or whether they would, eventually, imply government control. His plan for a “public-private investment fund” to buy toxic assets was vague and its logic—that a nudge from government, in the form of cheap financing, would enliven a moribund market—was heroic. Banks’ balance-sheets are clogged with toxic junk precisely because they are unwilling to sell the stuff at prices hedge funds and other private investors are willing to pay. Vagueness, in turn, led to incoherence. How can you stress-test banks if you do not know how their troubled assets will be dealt with and at what price? Amid these shortcomings were some good ideas, such as a fivefold expansion of a $200 billion fledgling Fed facility to boost securitisation. But for nervous investors and worried politicians, desperate for details and prices, the “plan” was a grave disappointment.

So, is Singapore really going to "bounce back" like it has bounced back "3 times in the last 10 years," as Tharman Shanmugaratnam claims? The dire straits of the global economic situation point to a resounding NO! Indeed, far from looking like it is going to bounce back like it has in the past, Singapore looks like it is in for a protracted recession.

On top of that, to compound the situation, just as Singapore is entering into its worst ever recession, its reserves are getting pounded by the collapse in global markets. Temasek recently reported that it lost 31% to Nov 08, and GIC is rumoured to have lost a whopping 41% on its portfolio! Just when Singapore needs its reserves the most, it is finding that its investments are evaporating by the bucketloads.

The implications, then, of this economic and financial crisis, are going to be deep and profound. More PAP sacred cows are likely to be slaughtered, as workers lose their jobs and find themselves without a social safety net. The lack of a quick economic rebound will mean that unemployment is likely to rise and stay at high levels - the Singapore government will need to re-think its policy on social handouts in order to deal with the growing social unrest brought about by the steep downturn. More pro-worker policies like those championed by the workers' party are likely to gain ground in the minds of Singaporeans as they feel the pinch of a protracted recession.

Economically, the government is going to have to come up with better ideas than just orienting Singapore's economy for export markets. The receding of the tide of easy credit has caught Singapore with its pants down, and it is going to have to find a new set of clothes because the tide isn't coming back up anytime soon to cover Singapore's exposed ass.

Singapore's reputation with the management of its reserves is also likely to take a severe hit. The performance of Temasek, and that of GIC - which is yet to be released but unlikely to be very good - has been unexceptional in this global downturn. One would have expected the best and the brightest of Singapore's elite to have at least somehow anticipated the the credit crisis and have at least had some foreknowledge of the lax credit standards and massive leverage that was accumulating in the US and EU financial systems. Yet not only did they miss the boat, they got very badly hurt in the process of investing in financial institutions such as UBS, Citigroup, Merrill and Barclays.

In short, the global economic meltdown means that Singapore's export-dependent economy isn't bouncing back any time soon. And given that the PAP's hegemony has been built on economic policies that have failed to factor in the oncoming structural change in global headwinds, Singapore looks like it is in for much change in the years to come.

Singapore's Quality of Life vs Sweden's

This has got to be one of the best written letters in the ST Forum on Singapore's quality of life and how it's not really as good as the Singapore government makes it out to be. I append it here for my future reference. Emphasis added by me.

For more information on this topic, see "Quality of Life is more than Material Wellbeing: GDP as an Incomplete Measure of Singapore's Development"

Swede quality of life

I REFER to Ms Heng Siew Cheng's letter, 'Why one couple is resettling in Sweden'', (July 17) and the replies by Singapore Senior Minister of State for Finance and Transport, Mrs Lim Hwee Hua (July 22), and 'Where else can you buy your home in 5 years?'' by Mr Peter Wadeley (July 24) My Singaporean wife moved to Sweden in 2001. She gave birth to our first child, a boy, last November. We are now on holiday, extending our first flush of joy of parenting in Singapore with my wife's family.

My wife, a teacher, is on a year's maternity leave. I am on paternity leave for 45 days here. When I return home, I shall still be on paternity leave for three more months. The generous duration of our parental leave is mandated by the state. Mr Wadeley implies that Singaporeans can buy a home in five years. I disagree. Last year, the median household income was $4,870. Even with grants, an average family cannot pay off a flat that quickly. It is also unachievable for Ms Heng and her Swedish husband, even if their collective income barely breaches the HDB's $8,000 bar.

Mrs Lim's comparison is incomplete. Nine in 10 Singaporeans merely lease their homes (HDB flats are typically 99-year leaseholds). Freehold ownership is higher in Sweden: Forty per cent live in landed property, 20 per cent in freehold condos and 40 per cent in rental flats. Swedish rental flats are akin to HDB flats. The main differences are that there is no downpayment, and the rental contract does not expire.

It is true, as Mrs Lim says, that Swedes spend 13 per cent of their income on housing. But for the money, half of us have our own garden - and precious time - to play with our children.

She suggests it is less expensive to raise children here. It is true that consumer goods are cheaper here and Singapore ranks third globally in per capita GDP (purchasing power adjusted) and Sweden 12th, according to the World Bank. But as more of Singapore's GDP comprises imports and exports, the statistic does not reveal the extent of benefit to its citizens.

The World Bank uses Household Final Consumption Expenditure (HFCE) as an affordability benchmark. Including goods and services provided by the government, it tells how much one has for useful spending, either directly or through tax. Sweden's HFCE per capita, in 2005 figures, is US$30,000, (S$42,000) double Singapore's US$14,000.

Ms Heng is concerned about raising children here. Having lived in both countries, I agree. The United Nations' Human Development Index, based on 350 indicators, tracks 'a long and healthy life, knowledge and a decent standard of living'. Sweden ranks sixth worldwide, while Singapore trails at 25th.

I am not advocating the adoption of Sweden's welfare system wholesale. But, if Singapore adopts a tiny part, giving parents flexibility and cheaper childcare, it probably means a tax hike of just a few per cent.

I would like to extend a warm welcome to Ms Heng to Sweden.

Jan Sundström

The Economics and Politics of the CPF

[What follows is the excerpt of an exchange I had with someone regarding the CPF. My opinions are purely my personal comments and should be read in the light that I do not have empirical data and am only able to speculate about how the CPF is managed.]

Q: Whats your opinion about CPF 2.5 % and 4 % per annum? Are the returns fair for the avg singaporeans? I thought CPF as an institution ($60 bn, correct me if i'm wrong), should have economies of scale when engaging with investment banks and hence better returns if it were to engage with Vanguard or Merrill Lynch.

...

I think the real question for CPF should always be about economic/financial viability and nothing to do with politics. Investment is something we can calculate/evaluate that is why i love it, can we evaluate politics?

A:The Ministry of Finance (MoF) manages and controls the CPF. It takes in monies/deposits from Singaporeans on the liabilities side while investing the proceeds on the assets side.

On the assets side, Temasek and GIC, which are owned by the ministry of finance, manage the reserves and investments of the MoF.

Now, the challenge for the ministry of finance is to give Singaporeans a reasonable return on their CPF monies, at the same time guaranteeing that
A. it will be there for their retirement, and also guaranteeing that
B. it will be available for housing and medisave,
as and when it is needed for those purposes.

The crux is, how much return should Singaporeans get on their CPF savings, while still being able to retain benefits (A.) and (B.)

Your contention is that it should be possible for the government to give a higher return than a 4% fixed rate. After all, if you were just managing your own retirement money, you would just put your savings into an index fund and let it sit for 30yrs and you would expect to earn about 9% per annum. So, why can't the government do this, since because of its size it has a large bargaining power and it can rope in world class investment expertise from around the world?

My argument is that, yes, it may be possible for the government to give higher rates, but with several caveats.

a. Size is the enemy of returns. Even the Sage of Omaha, Warren Buffett, has admitted that the mountain of capital he has to deploy eats away at his returns. On an individual's scale, you may be managing your retirement money of $1 million. However, this is a very different problem compared to managing assets of $60b. The MoF/CPF cannot simply stick all its assets into an index fund like you can. We have to note that from the government's point of view it is taking responsibility for the entire country and the problems are quite different on a macro scale rather than the micro scale of the individual.

b. Many Singaporeans intend to use their CPF for housing and Medisave. This adds a liquidity challenge to the investment issue and the government may only be able to deal with this by devoting a significant portion to shorter-term marketable liquid securities which give a much lower return than equities. At the same time, higher returns tend to be made in long term investments such as corporate acquisitions, real estate, and equities which will be much more volatile and illiquid than fixed-income securities. Therefore, in order to provide the liquidity and certainty (benefits A. and B. as discussed above), the Ministry of finance may not be able to devote a large portion of CPF monies into higher yielding investments, therefore the tradeoff is that Singaporeans have to accept lower returns on their CPF monies than if they were managing their retirement themselves.

Since we do not have empirical information about the size of the CPF and the inflows and outflows of CPF monies and the investments of the MoF, we can only speculate whether or not 4% is a reasonable number.

This covers the economics and finance of the CPF issue.

The politics of the CPF, however, is just as important.

Central to the CPF is the idea that Singaporeans should automatically abdicate their rights (and responsibilities) to manage their own retirement money, to the government. This is enshrined in the fact that CPF is compulsory for all Singaporeans.

If Singaporeans accept the compulsory nature of the CPF and take no political action to the contrary, then they have to also accept whatever it is that the government gives them. After all, if you don't want to take responsibility for your own retirement, then you have no say in determining the return on your retirement monies. In other words, if you let the govt manage your money, then you have to accept whatever the govt gives you, 4% or not.

And, if the govt is able to invest the money at 15% (thru its investment arm like Temasek) but it only gives you 4% per annum, it may be earning the spread of 11%. You may be unhappy with the fact that the government is getting in a sense a low interest 'loan' to make its investments, but the fact is that Singaporeans as a whole keep quiet and do nothing to change the status quo.

Now, you might say, many people do not have time to look after their savings investments and are willing to let someone else who knows what they are doing, manage it for them.

How about those who have the time to manage their investments? Perhaps an option is to make the CPF an optional scheme. For those who want to opt into CPF, the government will be responsible. For those who want to opt out, they will have to be responsible for their own retirement. But this is a political issue.

Or perhaps, we could retain the compulsory nature of the CPF, but instead of forcing Singaporeans to contribute 20% of their salaries, they should only be required to contribute less, like maybe 10%. This is a number that is closer to other countries' pension funds, like the Canada Pension Plan. This, again, is a political issue.

We could even ask another question and say, I'm not sure that the CPF is giving me as much money as I should be getting. I think the government should be more transparent about the CPF and the returns it is getting so we can figure out if we deserve more. But transparency is a political issue.

The issue about how much returns can the government give on our CPF monies is a economic issue. But the question, should CPF be compulsory and/or should we have the freedom to manage more of our retirement monies and give less to the CPF, is a political one. The question whether the govt should be transparent with their books, is a political one.

And as long as the politics of the CPF remains as it currently is, there is no point arguing that the government should be giving more than 4%. Because as long as Singaporeans abdicate their rights to manage their own retirement money, the returns on the CPF are not for the people to decide, it is for the government to decide.

I think the real issue ultimately boils down to whether the people want to be spoon fed and let the govt take the responsibility for their retirement, or they want to take responsibility into their own hands. i.e. without solving the political issues of the CPF, it means very little to debate over the economic ones.

The Importance of Learning Mandarin in Singapore: An Economic Perspective

When I was younger, I did rather poorly in my Mandarin classes in school. I got a D7 for my Chinese at AO-level in my first year in junior college. In the second year, I gave up trying to pass the subject and dropped it. I just could not see the relevance of putting effort into learning a language which I did not use at home, in my other subjects, or in any practical way other than in Mandarin language class. In short, I was studying Mandarin in a vacuum.

Nowadays, I know that some students in Singapore schools face a similar difficulty and lack of motivation towards putting their hearts into learning the language. For many years the education system has been constructed primarily around getting grades rather than learning for learning's sake. It is thus understandable that students might be unmotivated when learning the subject; it is extremely difficult to study Chinese just for the sake of passing exams.

The thing about learning a language is that a language never exists in a vacuum. It is a medium of communication, a tool used by people to exchange ideas, to record thoughts and knowledge, and to express oneself. It is thus natural that without an environment within which to regularly use the language, or without a purpose which includes learning Mandarin as a part, students are naturally unmotivated to study the language at school.

Personally, I have since moved on from those times when I was unmotivated to learn the language. My experience studying in Australia and my deepening understanding of global economics and business have given me a personal impetus to improve my Mandarin.

Here are examples of the things I have seen:

A. China's economy is large (3rd largest) and is the fastest growing of any of the major economies in the world. In time to come, it will exert an global economic influence that businesses, politicans and employees cannot ignore. Indeed, the global economic center of gravity has begun to shift across the Pacific Ocean away from the USA. Those with a grasp of the Chinese language will be in an advantageous position to benefit from the ascension of the Chinese economy.

As a case in point, let us take the economy of Australia. Australia is one of the most resilient economies in the world. It has shown positive or flat economic growth for the last 15 consecutive years. In most of those 15 years, Australia's economy experienced expansion, and it is still going strong. This is unprecedented for a developed economy. A deeper examination into the roots of Australia's economic growth will reveal that it has been driven by the global natural resources boom of which China has been the engine. As a country rich in natural resources, Australia has seen a surge in natural resource exports to China, and this has had a persistent multiplier effect throughout the Aussie economy. Needless to say, the Australians who have some sort of understanding of Mandarin have been able to capitalise on the business opportunities presented by China's insatiable thirst for natural resources.

B. Not too long ago, a certain individual was passed over for the top job at Goldman Sachs China because his mandarin was not good enough:

"Goldman's Ong misses China CEO job on language hitch (Bloomberg)
Updated: 2007-07-12 16:33

Goldman Sachs Group Inc, the world's most profitable investment bank, couldn't name the co-head of investment banking in Asia as chief executive officer of its Beijing joint venture because his knowledge of Chinese was too weak, three bankers at the firm said.

Richard Ong, an ethnic Chinese born in Malaysia, didn't write Chinese well enough to take a mandatory test for senior managers, said the bankers, declining to be identified as the matter is private. New York-based Goldman instead promoted Zha Xiangyang, deputy CEO of its China joint venture, Goldman Sachs Gao Hua Securities Co, in May."

See here for the entire article.

Indeed, it is no trivial matter that a senior banker at one of the world's top banks was unable to land the top job in the world's fastest growing securities market. A firm grasp of the Chinese language is so critical to doing business in the country that even those with less experience and ability may be promoted to top positions over those who are technically more capable but linguistically less so.

C. For many years, Las Vegas has taken pride in being the gaming and entertainment capital of the world. Yet since the liberalisation of the gaming market in Macau not too long ago, Las Vegas has already been supplanted from its perch by the former portuguese economy. Macau in 2006 over took Las Vegas in gaming revenues; in time to come it will far and away outstrip Las Vegas and make it look like a small fish. All the big players in the gaming market, including Americans, Australians and Europeans have been rushing to get a foothold in Macau market.

Read this to get a sense of the scale of the Chinese market.

D. In the world of entertainment, we are seeing a conscious decision on the parts of movie executives to try to penetrate the Chinese market. Pirates of the Caribbean 3, for instance, starred Chow Yun Fatt and a few other Chinese actors. Oceans 13, for the first time, included a Chinese actor in its cast, who only spoke Mandarin throughout the movie. In short, Hollywood is beginning to realise that the Chinese market is just too large to ignore.

E. Closer to home in Singapore, the government has made a push to expand industries such as the integrated resorts, private banking, and digital media. I have absolutely no doubt that the Chinese market will be a major contributing factor to the growth of these industries in Singapore. Those seeking for jobs in these areas will definitely have an advantage over their peers if they are fluent in Mandarin.

Conclusion

As we can see, China will exert its influence far and wide on the global economy in almost every field of business and in every part of the world, particularly in Asia. These examples that I have listed are only the tip of the iceberg, a simple enquiry into the Chinese influence on the global economy will make its importance apparent. Ethnic Singaporean Chinese who ignore the Chinese language only do so to their personal disadvantage.

As for me, the difficulties of finding motivations to improve my Mandarin are long gone. I now try to watch Mandarin movies, interact with Chinese people, and put myself in situations where I can be exposed to the language. I hope that in time I will be able to have a fluent grasp of the language.

How about you?

Quality of Life is more than Material Wellbeing: GDP as an Incomplete Measure of Singapore's Development

The Government likes to tout how Singapore's GDP (Gross Domestic Product) has rapidly grown, it frequently brandishes this metric in order to sell Singapore's economic success to the masses and to convince the public that the country is doing well - and thus buy votes.

But is GDP necessarily a foolproof metric for the country's progress?

Common criticisms of GDP as a measure are that it only measures change in material well-being, and ignores a variety of other, possibly more important factors that affect living standards. You can find these in any Macroeconomics textbook:

• It takes no account of the distribution of income (i.e. whether the rich or the poor are the ones benefiting) (#1)
• It takes no account of the composition of output (doesn't tell us the breakdown of goods and services produced, for all u know GDP grew because we produced more tanks)
• Ignores negative externalities (e.g. doesn't tell us if there has been more pollution as a result of increased production)
• Ignores the allocation of time between working hours and leisure hours (i.e. ignores work-life balance) (#2)
• Ignores "quality of life" issues, which may result with excessive concern with material well-being at the expense of social, moral and religious values. (#2)
• Excessive concern with material well-being can lead to increased crime, increased divorce, marital breakdown, increased suicide rates. (#3)

Don't these criticisms sound familiar?

(#1)We've heard much about the widening income gap in Singapore - focusing purely on GDP fails to acknowledge how the benefits from economic growth are concentrated in the upper income group, while the lower income group sees a fall in its income and the middle income group experiences wage stagnation.

(#2)Focusing on GDP also ignores the fact that Singaporeans spend many hours in the office, working their butts off in the evenings and on weekend, to achieve this economic growth. And time spent at the office must necessarily come at the expense of family, friends, hobbies, and other activities that make life fun.

(#3)And, of course, we need not be reminded of how divorce rates in Singapore are on the rise and how suicides are hitting the headlines. The Government's focus on GDP ignores all these ills of society.

Because of these deficiencies related to GDP, other measures have been developed to gauge a nation's welfare, and perhaps the best known of these alternatives is the United Nations' Human Development Index (HDI)

The HDI brings together three different aspects of living standards. It's not perfect, but it provides a better picture than does GDP alone. The HDI includes

• Real GDP growth as a measure of material well-being
• Average life expectancy as a reflection of quality of health care.
• Adult literacy rates as a reflection of educational standards and attainment. This measure relates to the political situation of the nation - democratic values and freedom are more likely to be achieved in an educated society, as is social tolerance and harmony.

If we look at Singapore's position on the UN global HDI list, we see it is ranked quite highly, at number 25.

However, on deeper scrutiny, we see that this high ranking on the HDI is highly skewed towards Singapore's GDP (#21) and life expectancy (#17), whereas Singapore is comparatively far behind in Adult literacy rates (#46), even behind countries like Thailand and the Philippines, and its also behind in combined primary, secondary, and tertiary enrolment ratio (#35), behind the Russian Federation and Hungary.

As long as the literacy rates remain at such a level, Singapore will face challenges moving up the HDI ladder. It's difficult to see it going much further up in GDP and in life expectancy - hence the chief factor that Singapore needs to work on to improve the standard of living relates to non-material measures - things like higher adult literacy rates, which, as mentioned, is associated with democratic values and freedom.

Despite the more balanced perspective it provides, the HDI also ignores issues related to work-life balance. I shudder to think where Singapore ranks on a global scale with regards to this measure. If this measure was factored into the equation, I hazard that Singapore would rank much lower globally than #25. And then there's the rest of the unaccounted measures like the income distribution, and the rate of suicides... I wonder how these would impact Singapore's global ranking.

So, the next time you see a news article in the press that trumpets how GDP has grown at a rapid pace (read:economy is doing well), pause to think about the deficiencies in the measure! Just because the economy is doing well, doesn't mean the quality of your life is improving. Life is about more than material wealth, and Singapore's progress should be measured by more than GDP!

Singapore: Middle Class Wage Stagnation

This was in the press not too long ago:

Middle class wage stagnation could lead to social instability
By Pearl Forss, Channel NewsAsia | Posted: 11 January 2007 1856 hrs

SINGAPORE: Middle class wages have been stagnant in the past 5 years, according to economists, and this could lead to social instability.

These concerns were shared by economists at the annual Institute of Policy Studies Singapore Perspectives conference, who also added that the government is taking steps to address the problem.

Economists believe a US economic slowdown in business and consumer spending may cause problems for Singapore, but as Singapore is tops in the ASEAN resilience index, it should be able to weather external shocks, thanks to a diversified economy and strong Asian demand.

They predict that growth going forward will be above 3 to 5 percent.

The long-term growth limits for a mature economy was previously in the 3 to 5 percent range.

However, economists are asking who this growth is for. The income of the bottom 30 percent of the population has fallen. What is more worrying is the fact that the majority of Singaporeans in the middle class has only seen about a one percent increase in their nominal income in the last 5 years.

The answer to this question is clear: the vast majority of economic growth has benefited the upper class and the rich; the middle and lower classes have hardly benefited from the reported economic growth that the government has put up of late. One can see this in the growth in property prices that has centred around high end luxury properties built mainly for rich foreigners, and in the focus on developing industries designed to attract the foreign rich to our shores: Casino gambling and Private Banking.

But considering the vast concentration of political power in the hands of a few, Singaporeans should not be surprised that their interests have been, at best, secondary to those of the ruling and upper class. Singaporeans have repeatedly chosen small monetary handouts over substantive political change, and the economic impact can be said to be a direct result of their political choices.

This is not just a Singapore problem say economists who point out that stagnant wages is a global problem.

The chief reason for this is globalisation, especially with India and China introducing a large pool of skilled and unskilled labour to compete with the labour forces of industrialised countries.

Singapore is susceptible to this because of its open economy.

This part of the report fails to consider one very important fact: Singapore is largely a country of wage earning employees, in contrast to free economies like Hong Kong or the United States where there is a substantial proportion of small businesses. These countries, unlike Singapore, value free enterprise and entrepreneurship; people take risks to start their own businesses and do not necessarily value the lawyer/doctor/accountant/banker route with anywhere near the kind of respect that Singaporeans do. Take a visit to Hong Kong and you will see multiple small businesses along Nathan Road running their operations long into the night, with their neon lights flashing for your attention. Singapore, in comparison, is a dead city. And why? because most people are too busy going home after their 9-9 job and plunking down on their bed, getting ready for the next day of work.

No, the thing that most makes Singapore susceptible is not the fact that it has an open economy, it is not the fact that China and India are exporting more and more cheap labour, it is because Singaporeans themselves have grown too accustomed to depending on the government to tell them what to do, what job to work for, and have been psychologically conditioned to be employee-smart, but entrepreneurially dumb.

Manpower Ministry data shows that 124,000 jobs were created last year and 45 percent of these jobs went to foreigners.

It is thus no surprise that multiple jobs should go to foreigners. In fact, citizens only took 30% of the jobs, the other 25% going to PRs. It is clear that Singapore is not a country for Singaporeans, it is a country where Singaporeans screw themselves to serve foreigners.

Why? Perhaps it is because Singaporeans as a whole have some kind of deep-seated inferiority complex where they do not believe that they are as good as foreigners. They treat their own scholars poorly by paying them less than foreign imports. They treat their own men poorly by not making special arrangement for the fact they have served national service. And they have a weird obsession with bringing in 'foreign talent' to fill each job where they believe there is no local to fill.

And the great paradox is that Singaporeans repeatedly vote in a government that embodies and emphasises this phenomenon. Can we really put all the blame on the PAP for being an abusive husband when Singaporeans willingly play the subservient wife? Can we really put all the blame on foreigners for wanting to take our jobs when we do not stand up to fight for our own ricebowls?

I personally think that Singaporeans are in no way inferior to foreigners. In fact, I have come across many caucasians whom I think are dumber than most. But then, the government and other Singaporeans seem to disagree.

It will be interesting to see how Singaporeans respond to this latest piece of news, and how this sado-masochistic relationship between ordinary Singaporeans and the government/foreigners develops.

Andy Xie's Original Email

Well, well, at least Morgan Stanley hires people who are honest, forthright, and straight to the point. Unfortunately, they're also ruthless when their employees make comments that are politically incorrect. In any case, here's the original insightful email that Andy Xie wrote.:

----------

Text of email attributed to Andy Xie:

I participated in the panels on Commodity (sic) and China-India and in some obligatory dinner parties. On Friday night the Singapore prime minister invited the speakers at the meeting that the Singapore government organized. Trichet, Larry Summers, Paul Volker (sic) Chuck Price, the finance ministers of ASEAN countries were there. No government official from China was there …guess I was there to make it look like China was represented.

The dinner was turned into an Oprah with PM Lee Hsein Long (sic) at the center. The topic was on the future of globalization. People fawned him like a prince. Of course, he is. There are two reigning princes in the world that the Davos crowd kiss up to, Jordan and Singapore. The Davos crowd are Republican on economic issues and democratic on social issues. Somehow they manage to put aside their moral misgivings and kiss up to Lee Hsein Long and Abdullah.

I tried to find out why Singapore was chosen to host the conference. Nobody knew. Some thought it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would have been a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for 10 years. Singapore’s per capita income has not changed either at $25,000. China’s GDP in dollar terms has tripled during the same period.

I thought the questioners were competing with each other to praise Singapore as the success story of globalization. Actually, Singapore’s success came mainly from being the money laundering center for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn’t doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China.

These western people didn’t know what they were talking about. Aside from the nauseating pleasantries some useful information came out of it. Trichet sounded very bullish on euro-zone economy (sic). He noted that euro-zone was catching up with the US in growth rate (sic) and talked about further gain in 2007. His tone was much more bullish than our house view. As Japan is surprising on the downside, I don't see how the rise of euro-yen could be stopped.

Larry Summers and Paul Volker (sic) were very worried about the US economy. As you probably know, Alan Greenspan is talking the same way. At the CLSA conference last week, he talked like one of his critics. There is fear of a US collapse. Many Americans think that an RMB reval (sic) would save the US. This is just a dream, in my view.

Most were worried about the future of globalization due to income inequality. As average workers in the west are not seeing wage increase (sic), they may vote against globalization. I thought that they were understating the benefit from cheap consumer goods. However, as inflation comes back, it does diminish the benefits for western consumers.

No-one was worried about the growth outlook for China and India. The Indian Planning Minister was very bullish, talking about 9% forever.

My sense is that policymakers are relexed (sic) about the short-term economic outlook but anticipate a US collapse at some point. Americans think that RMB reval could save the US. So they would keep pressuring China."

Andy Xie
Morgan Stanley

Courtesy of Asia Sentinel

Morgan Stanley Former Chief Economist Characterises Singapore as Economic Failure

Wow. This stuff is gold.

The original source is here

Morgan Stanley's Andy Xie Quit After E-Mail Attack on Singapore

By Netty Ismail

Oct. 5 (Bloomberg) -- Andy Xie's resignation as Morgan Stanley's chief economist in Asia last week followed an e-mail in which he characterized Singapore as an economic failure that is dependent on illicit money from Indonesia and China.

Xie, who worked at Morgan Stanley for nine years, sent the e-mail to his colleagues after attending the International Monetary Fund and World Bank annual meetings last month in the Southeast Asian island state. He questioned why Singapore was chosen to host the conference and said delegates ``were competing with each other to praise Singapore as the success story of globalization.''

``Actually, Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials,'' said Xie, who was based in Hong Kong before leaving Morgan Stanley on Sept. 29. ``Indonesia has no money. So Singapore isn't doing well.''

Singapore's $118 billion economy is recovering from three recessions since the 1997 Asian financial crisis, and is expecting growth of as much as 7.5 percent this year. The city- state is grappling with growing competition from China and India, two of the world's most populous nations, where labor costs are less than a quarter of those in Singapore.

Prime Minister Lee Hsien Loong said in September that Singapore's economy may sustain annual growth of 3 percent to 5 percent for the next 10 to 15 years as the country expands industries from information technology to tourism.

``To sustain its economy, Singapore is building casinos to attract corruption money from China,'' Xie said.

`Internal E-mail'

Singapore is ending a four-decade ban on casinos. The government plans to triple tourism revenue to $19 billion and double visitors to 17 million by 2015.

Officials from the public relations departments of the Monetary Authority of Singapore and the government's information service declined to comment on the contents of the e-mail. They also declined to be identified.

Morgan Stanley confirmed the contents of the e-mail and said the New York-based firm doesn't elaborate on the reasons behind employee departures.

``This is an internal e-mail based on personal suppositions and aimed at stimulating internal debate amongst a small group of intended recipients,'' Cheung Po-ling, a Hong Kong-based spokeswoman for the world's largest securities firm by market value, said in a written statement. ``The e-mail expresses the views of one individual and does not in any way represent the views of the firm.''

`Strong Supporter'

``Morgan Stanley has been a very strong supporter of Singapore and has a great deal of respect for Singapore's achievements,'' Cheung said.

Morgan Stanley ranks sixth among merger advisers in Singapore this year, handling $1.5 billion of deals, according to data compiled by Bloomberg. It advised Temasek Holdings Pte., the Singapore government's investment company, in its purchase of a 9.9 percent stake in Mumbai-based Tata Teleservices Ltd. in March. Morgan Stanley, which ranks third among stock sale arrangers in Asia outside Japan this year, hasn't underwritten any deal in Singapore this year, according to Bloomberg data.

``I tried to find out why Singapore was chosen to host the conference,'' Xie wrote in the e-mail. ``Nobody knew. Some said that probably no one else wanted it. Some guessed that Singapore did a good selling job. I thought it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would be a lot more appropriate.''

`Fawning' Guests

At a dinner party hosted by Singapore Prime Minister Lee Hsien Loong, ``people fawned him like a prince,'' Xie wrote. ``These Western people didn't know what they were talking about,'' he wrote, describing the praise for Singapore as ``nauseating pleasantries.''

Xie declined to comment on his departure when contacted on his mobile phone on Oct. 2.

Xie, who said in September that the U.S. economy may fall into a recession in 2008, worked at the corporate finance division at Macquarie Bank in Singapore before joining Morgan Stanley in 1997. He spent five years as an economist with the World Bank, overseeing the bank's programs in Indonesia and other countries in the Asia-Pacific region, according to the New York-based firm's Web site.

Xie holds a doctorate in economics and a Master's degree in civil engineering from the Massachusetts Institute of Technology.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net .