G20 summit recognizes China's success, a historic starting point for the world, expert said

All in a day’s work: Chinese President Xi Jinping attending the opening ceremony of the B20 Summit ahead of the G20 Summit in Hangzhou. — Reuters

MOSCOW: The fact that the G20 summit will be held in Hangzhou, China, reflects the global recognition of and respect for China’s giant economic success, a leading Russian economic expert has said.

“The international community admits that China has become a major economic power, which largely determines the economic development of the whole world,” Vyacheslav Kholodkov, head of the International Economic Organisa­tions Department at the Russian Institute for Strategic Studies, told Xinhua.

As the second-largest economy of the world, China has a strong impact over global economic processes, the economist said, adding that the performance of China’s stock markets and its import of energy resources exert a powerful influence on world markets.

Kholodkov also expressed the belief that the Western media today have exaggerated and distorted the existing problems with the Chinese economy.

“China’s economic success is like a thorn on the side of many Western politicians and journalists, because it shows that there are other more successful models besides the Western liberal economic model,” the expert noted.

In his opinion, the current problems plaguing China were those of structural adjustments and shifts in economic development pattern.

If previously China’s development had been driven mainly by exports, it is now shifting from an export-oriented development model to focusing on domestic demand, Kholodkov said.

Kholodkov saw “nothing dramatic” in such a development, as other countries that experienced similar problems have survived such transitional periods.

China’s GDP grew by 6.9% last year, a rate to be envied by many countries, according to Kholod­kov.

China presents an example for many developing countries, including Russia, which are closely watching China’s experiences and following some of its trends in their political practices, he concluded. — China Daily/Asia News Network

Summit can be historic starting point for the world

President Xi Jinping and US President Barack Obama meet at the West Lake State Guest House in Hangzhou, Zhejiang province, on Saturday. Wu Zhiyi / China Daily

The Austria-born American management philosopher Peter Drucker once attributed the absence of right-wing fanaticism in North America to the self-organizational ability of society, represented, first of all, by the thousands of well-managed business enterprises.

That point should be appreciated today, when, eight years after the 2008 global financial crisis, all major economic powers still cannot guarantee a sustainable recovery for the world.

The annual meeting of the G20 bears witness to the shared will and joint efforts of the leading developed and developing economies in the world. All countries have so far remained steadfast in their agreement to hold a defensive line for the globalist agenda. There has not been a full-scale trade war and competitive currency depreciations－at least not yet.

The global financial crisis has cast a very long shadow, with growing income inequality in many places and corporations holding onto their capital instead of investing, and judging from the rising protectionism, along with some ideologically-charged rhetoric, from various political forces, there are some who seem willing to set back or spoil the globalization process.

A genuine "mass flourishing" of businesses is needed to help the world both stay on the course of globalization and avoid the malaise that caused the last crisis.

That is why the G20 created, alongside its annual summit, a business leaders' meeting, called the Business 20. That is also why the G20 needs not just a business leaders' meeting, but also a distilled vision of common concerns and necessary actions, which is what President Xi Jinping delivered in his keynote speech at the B20 Summit on Saturday.

Drucker proposed that long-range planning does not deal with future decisions, but with the future of present decisions. In his speech Xi urged all parties to prescribe remedies to the world's economic problems and explore new sources of growth and expand the space for development.

The foreign guests can see for themselves through Hangzhou, the host city of the G20 and B20 summits, how China has become a leader of growth, as the city is home to many new businesses and new management models.

As Xi said it is an unprecedented achievement for a country with such a large population to realize modernization. The more businesses are created, the more they spread from developed to under-developed areas. In the process, obsolete industries are phased out and new ones emerge, jobs are created, and cities such as Hangzhou become vibrant.

The same process can also prove true elsewhere in the world. - (China Daily)/ANN

China plays a key role in setting G20 agenda

The G20 summit meets against the backdrop of two interrelated global issues.First,since the international financial crisis global growth has been slow. Second, asa result social and geopolitical crises have persisted. China’s proposals for the G20 summit – an innovative, invigorated, interconnected and inclusive economy –simultaneously and in an integrated way address both issues.

China’s four proposals are inseparably connected:

Innovation, in technology and in management, logistics, skills and ideas, is indispensable for sustained economic development.

But innovation purely in ideas is insufficient to lead to sustained economic development. Advances in ICT technology, for example, had to be embodied in investment in internet and computer technologyto produce productivity gains. Therefore, the global economy must be invigorated through increased investment, new trade liberalisation agreements, new financial institutions such as the Asian Infrastructure Investment Bank (AIIB) and modifications in global economic governance. This requires drawing on numerous resources in global economy and finance.

Development is most powerful if internationally integrated. Since Adam Smith founded modern economics it has been known that the most powerful force developing productivity is division of labour, which in a globalised economy necessarily includes international division of labour.Retreats into protectionism deeply damage the world economy. But advancing international division of labour requires not only legal trade and investment agreements but development of internationally integrated infrastructure making such trade possible and supporting international investment. Such integration highlights the importance of China’s ‘One Belt, One Road’initiative,while China supports economic integration in Africa, Latin America, Europe and elsewhere.

Development must be inclusive both between and within countries.Failure of sections of the world’s population to benefit from economic development is dangerous politically. Impoverishment of sections of the population and social disintegration has led to terrorist organisations gaining support, andin some cases open warfare, in parts of Africa and the Middle East. Within advanced economies failure of parts of the population to gain from economic growth strengthens protectionist and xenophobic forces which threaten global economic integration and therefore global prosperity.

Success in developing innovative, invigorated, interconnected and inclusive economic growth will therefore lessen geopolitical and social tensions.

China is in an unequalled position to give leadership on this G20 agenda not only theoretically but due to China’s practical achievements in dealing both with the international financial crisis and over the longer term.From 2007, the last year before the financial crisis, to 2015 China accounted for 46% of world growth measured at current exchange rates – compared to 22% for the second placed US.China was the world economy’s most powerful engine to face the international financial crisis, benefitting both advanced and developing economies.

World Bank data shows 83% of the world’s population still lives in developing countries. Economic development therefore remains the most pressing issue facing humanity. China, the world’s largest developing economy, increased its per capita GDP, the fundamental index of economic development, from 2007 to 2015 by 86% - the fastest of any G20 country.

China playsa key G20 agenda setting role because, in addition to these shorter term anti-crisis trends, China’s historical economic and social achievements are unprecedented.From 1978 onwards China experienced the most rapid economic growth in a major economy in human history. China lifted 728 million people from World Bank defined poverty, 83% of the reduction of those living in poverty in the world. This is greatest contribution of any country to human well-being.

But despite these achievements China’s stress on integrated inclusive growth means China has no conception it can successfully develop alone. Instead China advocates strengthening the G20’s role. G20 economies account for 85% of world GDP, including the largest advanced and developing economies. The G20 is therefore provides an unequalled forum to coordinate measures to deal with the world’s most pressing economic issues.

China’s proposals for an innovative, invigorated, interconnected and inclusive economy are therefore crucial not only for this year’s Hangzhou summit but a step towards the G20s strategic development.

By John Ross (People's Daily Online)

John Ross is Senior Fellow at Chongyang Institute for Financial Studies, Renmin University of China.

G20 can unlock global economic potential

The 2016 G20 Hangzhou summit will kick off on Sunday and a related meeting, the Business 20, will be held this weekend. As China is the chair of this year's G20, expectations are running high though some still try to interpret the event through an ideological lens. But the fact that the global governance capability will be mobilized to its maximal extent at this year's summit may be a common consensus.

China sees G20 as a top item on its agenda and has strived to create favorable conditions for the summit. Some say too much attention has been put on G20. However, the positive significance of a successful G20 overweighs the negative effect. From the perspective of urban development, the summit has promoted Hangzhou's growth and image.

China is a unique member of G20. It is the world's second-largest economy and the largest developing country. It has excelled in some areas but the overall economic and social development is not as advanced as in some other countries. China's high speed development together with its experience, from both successes and mistakes, make us easier to find common ground with both developed nations and emerging markets.

China is sincere about promoting global governance and creating a win-win situation in resolving world economic issues. China's rise, to some extent, is the result of globalization. Chinese believe strengthening international cooperation is a global trend and are devoted to the win-win principle. We believe the G20 playing a greater role will benefit China and the world.

Compared to the time of the first G20 summit in 2008, the global economic issues have become more complicated and morale has taken a further beating. Eight years after the financial crisis, the developed nations have yet to walk out of the shadows and the emerging markets are facing increasingly grave challenges. G20 needs a passionate summit and the enthusiasm of the Chinese society will help make it happen.

There is still great potential in the global economy and the key is to redistribute resources more reasonably so that less developed regions can drive growth that benefits all sides. The same issue has also been haunting China. The country has been restructuring and developing through the process of reform. The exploration belongs as much to China as to the world.

Macroeconomics may not be the most popular stories. Some Western media tend to politicize the summit or sprinkle their coverage with gossip. The summit only takes two days and the topics proposed by China revolve around the economy. As the global economy is once again at a crossroad, we hope the media can make the call heard for an "Innovative, Invigorated, Interconnected and Inclusive" world economy. Global Times

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China once again boasts world's fastest supercomputer

The Tianhe-2, a supercomputer developed by China's National University of Defense Technology, was named the world's top supercomputer for the fourth consecutive time by the TOP500 project. [Photo/Xinhua]

The Tianhe-2, a supercomputer developed by China's National University of Defense Technology, was named the world's top supercomputer for the fourth consecutive time by the TOP500 project.

The Tianhe-2 relegated the US-developed Titan to second spot with a performance of 33.86 petaflop (quadrillions of calculations per second) in a standardized test designed to measure computer performance.

IBM's Sequoia rounded out the top 3 in the TOP500 list.

The TOP500 project, started in 1993, issues a list twice a year that ranks supercomputers based on their performance.

There was little change in the top 10 in the latest list and the only new entry was at number 10 – the Cray CS-Storm, developed by Cray Inc, which also developed the Titan.

The United States was home to six of the top 10 supercomputers, while China, Japan, Switzerland and Germany had one entrant each.

The United States remained the top country in terms of overall systems with 231, down from 233 in June and falling near its historical low.

The number of Chinese systems on the list also dropped to 61 from 76 in June, while Japan increased its number of systems from 30 to 32.

- China Daily/ Asia News Nework

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Malaysia's healthcare system is one of the best in the world

 Country is third best and practioners 'equal to or better than most Western countries'

PETALING JAYA: The country’s achievement at being rated third best in the world for healthcare services is something to be proud of, said Health Minister Datuk Seri Dr S. Subramaniam.

He also gave credit to the boom in the country’s medical tourism sector through strategic investments on good medical facilities and competitive rates compared to other parts of the world.

“Medical tourism has benefited the Government in terms of foreign direct investments and also spin-off effects in the hotel and shopping sectors,” he said yesterday.

The Star Online reported yesterday that a study by the American publication International Living rated Malaysia’s healthcare system as the third best out of 24 countries in its 2014 Global Retirement Index, beating Spain, Italy, Ireland and New Zealand, among other countries.

The index, which was recently released by the Baltimore-based magazine, praised Malaysia’s healthcare, which scored 95 out of a possible 100 points, as the medical expertise of Malaysian healthcare practitioners is “equal to or better than what it is in most Western countries”, according to InternationalLiving.com’s Asia correspondent Keith Hockton.

The top two countries, France and Uruguay, scored 97 and 96 points, respectively.

On the methodology of the index’s ratings, the magazine said both the cost and quality of healthcare were evaluated.

Another report in International Medical Travel Journal News reported that medical tourism receipts in Malaysia from foreign patients totalled RM509.77mil in 2011 involving 578,403 patients.

Dr Subramaniam added that Malaysia remained competitive with players like Singapore and Thailand and the focus was to consolidate the country’s position.

He said the key towards improving the overall healthcare sector would be to focus on the preventive and primary healthcare divisions.

Malaysia Medical Association (MMA) president Datuk Dr N.K.S Tharmaseelan also acknowledged the findings, saying that the country has one of the best healthcare systems in the world.

“The Health Ministry has become a massive seamless service provider in healthcare that has produced magnificent results over the years. Our statistics prove it,” he said, adding that this was despite general practitioners being the lowest paid in the world with their fees being regulated.

He added that impressive figures such as life expectancy for women reaching 80 years and about 72 years for men were reflective of the excellent healthcare provided by the ministry and the private sector.

By G. Surach The Star/Asia News Network

Old and abandoned by children like trash !

The forgotten: Foong with an elderly inmate of Rumah Kasih in Taman Mutiara Barat.

PETALING JAYA: Each week, at least 10 elderly Malaysians end up in old folks homes and that is just the official average, based on centres registered under the Welfare Department.

According to department director-general Datuk Norani Hashim, an average of 536 elderly persons were placed in registered centres each year between 2009 and 2012.

“The actual number could be much higher as some privately run homes are not registered with the department,” she said.

She said between 1993 and last year, a total of 4,968 senior citizens were placed in 211 centres nationwide.

“Perak has the most number with 1,339 in 56 centres, followed by Selangor with 860 in 45 centres but only nine of the centres are under direct supervision of the department,” she added.

In Kuala Lumpur, Foong Peng Lam, the coordinator of Rumah Kasih, which takes in old folks and patients found abandoned in government hospitals, said at least one person was admitted each week.

He said most of the patients were abandoned because their families claimed they could not afford to take care of them.

“Their family members do not provide any form of financial assistance and do not come over to visit,” he said.

The home has taken in over 600 abandoned individuals since its inception in 2000.

“Weak elderly people who had collapsed by the roadside were also brought in by strangers.

“There were also those who were brought in by family members who never return to visit or take them home,” he said.

Foong said the number of abandoned patients had been increasing steadily – from seven in 2000, to the 60 at present.

Apart from Hospital Kuala Lumpur, the home has been taking in patients from Hospital Universiti Kebangsaan Malaysia, Hospital Selayang, Tung Shin Hospital, Hospital Seremban, Hospital Sungai Buloh, University Malaya Medical Centre, Hospital Ampang and Hospital Kajang.

He said the hospitals would first try to contact the families, who would usually promise to take the patient home, but never turn up.

“This can go on for up to two months before they bring a patient in.

“Even when we manage to contact the families they usually refuse to take any responsibility,” he added.

Figures from the National Population and Family Development Board, an agency under the Women, Family and Community Development Ministry, show that about 675,000 elderly parents did not receive financial support from their children in 2004 when the Fourth Malaysian Population and Family Survey was conducted.

 Abandoned by loved ones after becoming ‘worthless’ 

KUALA LUMPUR: S.K. Cheng, 65, spent three months at Hospital Kuala Lumpur (HKL), waiting for his family to take him home.

The diabetic collapsed while walking by the roadside in September last year.

He woke up in the hospital and was told that his left leg would have to be amputated below the knee.

“I did not take care of my children when they were younger. That is why they do not want me now. I could not afford to take care of them well because I did not have enough money,” he lamented at the Rumah Kasih in Cheras, his current home.

Cheng said he used to work in a coffee shop and lived with his wife and three children.

He said his wife passed away 10 years ago and his son and daughters soon moved on with their lives elsewhere.

They came to visit him at the hospital once, but that was the last time he saw them.

Another inmate, also surnamed Cheng, said she was also left at HKL for nearly three months before she was sent to the home.

The woman, in her 70’s, was bedridden after suffering a stroke.

Her son, in his 40s, did not want to take her home because he could not afford the medical bills.

“She used to work odd jobs and was living with her son before she became ill.

“Her son just dumped her, expecting the hospital to care for his mother,” said a caretaker at the home.

While most Rumah Kasih patients are elderly there is also a 36-year old woman known only as Chan.

She spent six weeks in Hospital Selayang without anyone in her family visiting her.

“I used to be happy. I was working as a cashier and was married with three young children.

“When I suffered a stroke and became paralysed, my husband left me at the hospital and left my kids with my father,” she said.

“He said he could not take me. Now that I cannot work anymore I am worthless and they do not want me.”

Contributed by  P Aruna, Farik Zolkepli, Zora Chan, and Vanes Devindran The Star/ANN

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 Go see your parents... or else!

Go see your parents... or else!

Malaysians are still divided on the need of a filial piety law, but many countries in the world are already enforcing it.

IF you are disrespectful to your elders, you will be tortured and killed - that was the law during the Han Dynasty in ancient China. Although the death sentence is no longer mandatory for such behaviour in modern China, it is still a crime under its newly revised law Protection of the Rights and Interests of the Elderly.

Enforced in July last year, the Act lists nine new clauses that stipulate the duties of children - finacially and emotionally - towards their elderly parents. A main clause requires family members living apart from the elderly to “frequently visit or send greetings to the elderly persons.”

And if that is difficult for those living far away, a provision was included requiring employers to allow their employees time off to visit their elderly parents. However, no punishments were stipulated for those who neglect their parents.

The law allows senior citizens to sue their children and get a court order for financial aid, care and visits.

It was introduced due to the growing number of cases of the aged being abandoned in China in the last few decades, despite the deeply ingrained filial piety belief in its culture. In 2011, it was reported that nearly half of the 185 million people aged 60 and above live apart from their children.

An ageing population was also the impetus behind India’s 2007 filial piety law which states that adult children have an obligation of fulfilling all their parent’s needs including housing, food, and medical care. Failure to do so is punishable by hefty fines, and jail.

Closer to home, Singapore has enforced a Maintenance of Parents Act since 1999. The law also allows parents to sue their grown children for an allowance and care; or face six months in jail.

What many will find surprising is that filial piety laws are also practised in the United States, or rather in 30 American states. What is more surprising is that they are based on a law dating back to 1601, the Elizabethan Poor Relief Act, which stipulated that “the father and grandfather, and the mother and grandmother, and the children of ‘every poor, old, blind, lame and impotent person’ being of a sufficient ability, shall, at their own charges, relieve and maintain every such poor Person.”

The American filial piety laws differ from state to state but each generally describes the responsibility of children to provide financial support to their parents.

Many of the laws enable nursing homes to sue the adult children for their parents’ unpaid medical bills. A dozen states stipulate it a crime punishable by jail. South Dakota allows children who have been sued to get a court order for their siblings to pitch in.

Six states make grandchildren accountable.

As many have found out, living in another state does not protect them against a lawsuit – in 2007, Elnora Thomas from Florida was reportedly sued by her mother’s nursing home in Pennsylvania for unpaid bills. When she was unable to cough up the money, she was told they would put a lien on her house.

In France, the filial piety law allows senior citizens to get cash and care from their children-in-law too. Other Western countries that mandate financial support from adult children to their aged parents are Canada, Ukraine and Russia.

Can you legislate filial loyalty and love?

ONE of the cases that pushed the government of China to mandate filial piety was in Jiangsu province where a local TV station reported that a farmer had kept his 100-year-old mother in a pigsty with a 200kg sow.

94-year-old Zhang Zefang won her suit against her four children for financial support and care.

Last December, 94-year-old Zhang Zefang won her suit against her four children for financial support and care. They were ordered to split her medical bills and take turns to look after her. Due to their own financial problems, the siblings asked the youngest brother to take her in. He put her up in his garage - which was in a condition arguably worse than a pigsty.

Whose responsibility is it to look after the aged?

A CRITICISM of the filial piety law is that it is an attempt by the government to pass the buck of elderly care to the people with the growing size of the ageing population and escalating costs of healthcare, property and general living.

Another concern is for those who were abused by their parents when they were younger – should they be legally bound to care for the abusive parents?

Recently, the father of K-pop idol group Super Junior leader Leeteuk hanged himself after killing his own parents.

He reportedly suffered from depression due to the overwhelming financial and emotional burden of caring for his elderly parents who had dementia.

The high publicity case has sent the republic into a national debate on the public support system available for carers and relatives of the elderly suffering from serious illnesses, especially Alzheimer’s and Parkinson’s diseases.

In New York last week, a group of 70-something Korean-Americans were evicted from a McDonald’s restaurant for overstaying – they reportedly hogged the tables at the eatery from 5am until dark every day, affecting its business. The senior citizens are not homeless; they just have no other place to hang out together!

Symbols of filial piety

In Japan, filial piety is embodied in various statues called kohyo no zou (filial piety statues) around its public buildings and temples. One of the most famous statues is that of Nippon Foundation founder Ryoichi Sasakawa carrying his elderly mother up the stairs of a temple.

In China last year, Guangzhou Daily highlighted the filial heroics of a 26-year-old man who pushed his disabled mother for 93 days in a wheelchair for a holiday at a popular tourist site in Yunnan Province.

Filial tradition

FILIAL piety is a key virtue in cultures rooted in Confucianism such as that of China and South Korea. It is defined as respect for one’s parents and ancestors. However, the concept is well-ingrained in many other cultures too.

Known as seva in the Indian culture, filial piety is demonstrated at various traditional ceremonies including weddings where the young would serve milk to the elders and wash their feet.

In the Malay culture, the tale of Si Tanggang is used to caution the young on the consequences of filial impiety.

Si Tanggang is a poor young boy who goes off to sea in search of his fortunes. He promises to return for his mother when he makes something of himself. However, when he gets rich, he forgets her. When he returns after many years, she rushes to the shore with his favourite dish, but Si Tanggang is so ashamed of his poor mother that he refuses to acknowledge her. Worse, he orders his men to throw her off his ship. Heartbroken, Si Tanggang’s mother prays for God to turn him into stone.

For the Muslims, filial piety is asserted in various Quran verses and Hadith. A common reminder is “Heaven is at the bottom of your mother’s feet.”

Similarly, in the Jewish and Christian traditions, filial piety is asserted in various instances of their holy texts, such as the Fifth Commandment which says “Honor your father and your mother”.

Contributed by Hariati Azizan The Star/Asia News Network

Tianhe-2, Chinese supercomputer named as world’s fastest

BEIJING (AP) — A Chinese university has built the world’s fastest supercomputer, almost doubling the speed of the U.S. machine that previously claimed the top spot and underlining China’s rise as a science and technology powerhouse.

http://www.huffingtonpost.com/2013/06/18/tianhe-2_n_3458981.html The Tianhe-2 has a peak performance speed of 54.9 quadrillion operations per second.

The semiannual TOP500 listing of the world’s fastest supercomputers released Monday says the Tianhe-2 developed by the National University of Defense Technology in central China’s Changsha city is capable of sustained computing of 33.86 petaflops per second. That’s the equivalent of 33,860 trillion calculations per second.

The Tianhe-2, which means Milky Way-2, knocks the U.S. Energy Department’s Titan machine off the No. 1 spot. It achieved 17.59 petaflops per second.

Supercomputers are used for complex work such as modeling weather systems, simulating nuclear explosions and designing jetliners.

It’s the second time a Chinese computer has been named the world’s fastest. In November 2010, the Tianhe-2′s predecessor, Tianhe-1A, had that honor before Japan’s K computer overtook it a few months later on the TOP500 list, a ranking curated by three computer scientists at universities in the U.S. and Germany.

The Tianhe-2 shows how China is leveraging rapid economic growth and sharp increases in research spending to join the United States, Europe and Japan in the global technology elite.

“Most of the features of the system were developed in China, and they are only using Intel for the main compute part,” TOP500 editor Jack Dongarra, who toured the Tianhe-2 facility in May, said in a news release. “That is, the interconnect, operating system, front-end processors and software are mainly Chinese.”

China has ways to tap shale gas riches

CHINA'S aspiration for a US-style gas bonanza that will reduce its dependence on imported energy must confront three key scarcities -- water, shale gas expertise and pipelines -- before it can become a reality. 
 
As well, Chinese authorities must manage the social and environmental frictions likely to arise when drilling companies seek access to farm land and use hydraulic fracturing, or fracking -- the technique that is an integral part of shale gas exploitation.



Fracking involves injecting a mix of sand, water and chemicals into rocks deep beneath the surface to crack them open and get access to the shale.

In the US, large-scale shale gas extraction in the past five years has revolutionised its energy, transport and manufacturing landscape to the point where the US is likely to become an exporter of liquefied national gas by 2015.

Last year, for example, the US produced 220 billion cubic metres of shale gas, or more than a third of total natural gas output. Over the next two decades, shale's share is likely to rise to 50 per cent. The US Energy Information Administration estimates the country's recoverable shale gas reserves at about 14 trillion cubic metres.

Now China, with potential shale gas reserves of 25 trillion cubic metres in areas such as Sichuan province and the Tarim Basin in Xinjiang, wants to emulate the US experience, setting a goal in its latest State Council energy white paper of extracting 6.5 billion cubic metres of gas a year by 2015, and as much as 100 billion cubic metres a year by 2020.

But the US shale bonanza has been more than three decades in the making, and draws on the experience and infrastructure of a well-established oil and gas industry.

North America has thousands of kilometres of gas pipelines and receiving points, its geological survey records are extensive, its exploration companies have pioneered the key techniques of horizontal drilling and fracking, its rig crews are the best in the business and have good access to water for fracking, and there is a strong service sector covering finance, distribution, processing and marketing to support the industry. Even so, the industry has had to contend with vigorous opposition from environmental and farming groups concerned over water and land usage.

For China to achieve anything like the US success over the next decade, it will have to address these key issues. Much of its northern half is water-stressed already, while in the south, shale exploration will have to compete for water now used to grow food.

Certainly, China has the scale to be a big shale player, and state-controlled entities such as CNPC (whose listed arm is PetroChina), CNOOC, China Petrochemical Corporation (Sinopec) and Sinochem are keen to deploy domestically the shale skills that they hope to pick up from recent investments in North American shale plays and in joint ventures with oil majors ExxonMobil, Shell, ConocoPhillips, BP and Total within China.

While these technological skills are crucial, each shale gas field is unique, meaning there is no "one size fits all". That is why many of the North American fields were developed initially by smaller, independent oil and gas companies such as Devon Energy, Anadarko Petroleum and Chesapeake Energy.

When China held its first round of bidding for shale gas blocks in 2010, only six state-owned energy companies were invited to take part, and the blocks were limited to southern China, where water is more easily available than in the arid north and northwest of the country.

The second round of bidding on October 25 last year drew a much bigger field and was open to non-state players. A total of 152 bids from 83 companies were received for the 20 blocks, covering about 20,000sq km in Chongqing municipality and the provinces of Guizhou, Hubei, Hunan, Jiangxi, Zhejiang, Ahui and Henan.

Sinopec, one of the first-round invitees, began drilling China's first shale gas production wells in Sichuan province near Chongqing in June last year. Sichuan is one of China's biggest grain growing areas, and some farmers there are wary of the impact shale exploration will have on their land and water.

China is already the world's biggest energy consumer and uses a prodigious amount of domestic and imported coal and oil to run many of its power stations. It also has massive capabilities in wind, solar, hydro and nuclear power.

But it is natural gas that offers the potential to really change China's energy equation, particularly in the form of its domestic shale resources, coal-seam gas and coal-to-gas conversion. For now, much of China's gas is imported via pipeline from Central Asia or as LNG from the Middle East, Southeast Asia and Australia.

In its latest World Energy Outlook released last month, the International Energy Agency says it expects unconventional gas -- which covers shale and CSG -- to account for nearly half of the increase in global gas production out to 2035, with most of the increase coming from China, the US and Australia.

But the IEA also warns that the unconventional gas business is "still in its formative years" and that there is uncertainty in many countries about the extent and quality of the resource base, and about the environmental impact of producing this gas.

The IEA's outlook supports the view of British industry analyst Wood Mackenzie that China's shale gas development, while potentially substantial, will be a long-term story. At the World Gas Conference in Kuala Lumpur, Wood Mackenzie's head of Asia-Pacific gas research, Gavin Thompson, said the focus should be on China's gas import options to meet rapidly increasing demand. This, he said, presented opportunities for pipe suppliers in Central Asia and Russia, along with LNG suppliers.

"We remain positive that China's domestic shale gas will be a major boost to supply growth, producing approximately 150 billion cubic metres (bcm) per annum by 2030, largely accounted for by the Sichuan and Tarim basin production.

"However, shale gas growth will only accelerate after 2020, staying under 30bcm before then. Meanwhile, China's gas demand will increase from just over 150bcm to more than 600bcm from now to 2030."

Wood Mackenzie believed that both coal-to-gas projects and coal-bed methane (CBM) would each deliver more output to the Chinese gas market than shale right up to 2024.

"By 2020, we see CTG and CBM producing 27bcm and 17bcm respectively against only approximately 11bcm of shale production. These sectors are therefore far more significant through the medium-term, but are not receiving the appropriate level of attention outside of China."

Thompson said there was a need for a much deeper geological understanding of China's shale potential and the know-how to exploit it. As well, land access issues, environmental challenges, a lack of supply chain services and infrastructure, and decisions on the best allocation of capital all cloud China shale gas outlook.

China's energy white paper says the government will "actively promote" the development and use of unconventional oil and gas resources by speeding up the exploration of coal-bed gas and selecting favourable exploration target areas for shale.

By Geoff Hiscock is the author of Earth Wars: The Battle for Global Resources, published by John Wiley & Sons

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How much Any Pow be given in Chinese New Year?

A NETIZEN from Singapore has triggered a debate on the amount of ang pow one should give family members and friends, reported China Press.

The netizen said people should give between S$88 and S$288 (about RM211 to RM690) to their parents, and for their children they should give from S$50 (RM120) to S$188 (RM450).

The netizen suggested that they should give S$28 (RM67) to S$50 (RM120) to their nieces and nephews.

For children of a close friend, they could give ang pow worth between S$8 (RM19) and S$18 (RM46), it reported.

For other relatives and friends, they should give at least S$2 (RM4.80).

Some netizens said pegging a rate on ang pow went against the spirit of Chinese New Year as the gift of giving red packets should be from the heart.

However, some said the chart had given them an idea on the amount they should give to their family members and friends.

> Malaysian songbird Fish Leong said she planned to have a baby this year but urged the public not to pressure her, reported Sin Chew Daily.

“If there's good news, I will let you know,” she said, adding that she would celebrate Chinese New Year in Taiwan with her Taiwanese husband Tony Zhao's family.

Leong said she would come back to Malaysia to visit her family members only after Chinese New Year.

Leong married Zhao in 2010 and since then the media had been asking her about her plans to have a baby. 

- The Star/Asia News network

Who invented bank deposit insurance?

I LOVE the Internet. The best Christmas present I got last year was a preview of a forthcoming book by a banker/historian in Boston. He sent me electronically his PhD thesis, a piece of masterly detective work on how ideas travel over time and space, become adopted successfully in a different place, and then comes back to where they started.

Dr Frederic Grant Jr's forthcoming book uncovered how the US bank deposit insurance system has its root in ideas borrowed from Canton (Guangdong province in southern China) of the 19th century. The origins of the US deposit insurance scheme arose from the 1828 The Safety Fund statute of the State of New York, drafted by a legislator named Joshua Forman.

In those days, if the state-authorised banks failed, the state would have to pay for their failure. Forman borrowed the idea from Canton that those authorised for privileged trade (in banks the privilege of private currency issue) should be responsible for their own debts.

The success of the New York Safety Fund inspired the adoption of similar schemes by 13 other American states. In 1933, the Banking Act of 1933 created the Federal Deposit Insurance Corp (FDIC), following the failure of many banks across the US. This idea of a national deposit insurance scheme has been adopted by many countries around the world, and is currently being considered in China.

How did Forman get the idea about the Canton Guaranty Scheme? Apparently, New York was already the major port for US-China trade and the scheme was familiar to New York businessmen.

How the Canton system evolved

It all came about because the Qing dynasty official merchants, namely merchant houses (or hongs) authorised by Beijing to conduct foreign trade, often require trade credit to conduct business with foreigners in Canton. If these traders defaulted on their loans, the foreigners threatened to take action on the weak Qing dynasty. Hence, in order to prevent individual merchant failure, the Qing government used a collective responsibility method evolved by the Manchu court in Beijing that ensured that those authorised to benefit from the foreign trade also collectively guaranteed each other's trade debt, and a premium was paid yearly into a fund to pay off any individual failure.

The Qing government solved the problem of defaults by imposing collective responsibility everyone was responsible for the group's debt. The good news is that the group as a whole made sure that no member got into trouble, engaging in what is today called “peer surveillance”. The bad news is that with collective guarantee, the smaller traders have an incentive to take higher risks, creating moral hazard private gain at collective loss. Moreover, as history showed, if trade was really bad, more traders failed and since the Qing government also borrowed or taxed the accumulated fund regularly, there were not enough money in the fund to settle all debts. Eventually the Canton Guaranty Fund also failed.

Corruption and misappropriation of fund was to blame, but the main culprit remained what Grant called “the perennial dilemma of inadequate capital and lack of access to affordable credit” for smaller hongs.

These problems plagued all deposit insurance schemes, even today. Large banks loath to support deposit insurance because they pay a larger share of the premium than smaller banks. Small banks enjoy the group insurance, but are more prone to failure because they were more likely to take more risks, which meant that there should be supervision to make sure that these riskier players do not destroy the group as a whole.

Deposit insurance worked very well in the United States, as the FDIC not only participated in supervision of the insured banks, but also engaged actively as the mortuary of failed banks. In the recent crisis, from 2009 to currently, the FDIC smoothly managed the exit of over 400 banks in the United States, without disruption to the system as a whole. But this time round, it was the failure of the shadow banks and larger banks that created the problem. Yes, smaller banks failed, but they did not take down the whole system because deposit insurance prevented large-scale bank runs at the retail level.

The time has come for China to adopt a formal deposit insurance scheme. There are at least three good reasons why it should occur. The first is that deposit insurance will help stop retail bank panic, exactly the reason for the Canton Guaranty Fund. The second is that there must be an orderly exit mechanism for financial institution failure. Some argue that a deposit insurance would duplicate supervision. Today we realise why we have two kidneys instead of one we need redundancy in the system, in case one fails.

The third, based on my personal experience, is that regulators who are good at daily operations may not always be very good at conducting the messy operations of restructuring failed banks. This is a very complicated process that needs strong skills, good bankruptcy laws and more investment banking skills than regulation. Deposit insurance is specialised work and needs specialised skills.

As Grant rightly said, the historical record of the Canton Guaranty System offers a number of valuable lessons to the modern world. “These include (1) that the tax that supports a guaranty fund must be based on measured risk of loss; (2) that the fund and its insureds must be made subject to strong independent supervision; (3) that laws enacted to avoid risk contingencies must be enforced; and (4) that both corruption and the diversion of fund assets must be strictly prohibited.”

The trouble with history is that we never seem to learn from history.

THINK ASIAN
BY ANDREW SHENG

 > Tan Sri Andrew Sheng is president of the Fung Global Institute. 

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Innovation not the same as invention, the difference here...
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Market closes mixed, lower liners likely to hog the limelight

Regional bourses remained on a mixed trend with Japan's Nikkei 225 surging 292.93 points to 10,688.11 while Hong Kong's Hang Seng dropped 67.51 points to 23,331.09. Singapore's Straits Times eased one point to 3,223.80.

On the local front, the Industrial Index rose 19.44 points to 2,814.34, the Plantation Index improved 23.44 points to 8,255.19 and the Finance Index edged up 5.56 points to 15,341.36.

The FBM Emas Index increased 5.78 points to 11,485.90, the FBMT100 rose 2.71 points to 11,340.65, the FBM Mid 70 Index improved 17.33 points to 12,439.6 and the FBM Ace Index advanced 33.06 points to 4,259.77.

Total volume increased to 1.256 billion units valued at RM1.688bil compared with Thursday's close of 1.128 billion shares worth RM1.825bil. - Bernama

Lower liners likely to hog the limelight

REVIEW: Bursa Malaysia kicked off the last day of 2012 on the negative side, with the FBM Kuala Lumpur Composite Index (FBM KLCI) shedding 2.93 points to 1,678.40, as profit-taking activity set in following a series of uptrend.

The overall market sentiment was pretty cautious, depressed by an extended fall in Wall Street overnight, as the White House and US lawmakers closed in on the “fiscal cliff” deadline with no deal in sight.

A pullback in most major Asian markets on profit-taking activity during the holiday season lull added to the downbeat note.

Given the dearth of fresh market-stimulating leads on the horizon, the local bourse succumbed to light liquidation to flirt in the red zones, but within a narrow range.

And that was the trend from the opening bell until the last minute, where buying in select heavyweights emerged suddenly to help the market reversed early weaknesses to end 2012 at a new record of 1,688.95, up 7.62 points on Monday.

World markets including Bursa Malaysia were shut on Tuesday for the New Year. While all of us were enjoying the holiday, optimism about the immediate direction of risky assets grew stronger, because a settlement in the “fiscal cliff” crisis in the US fuelled bullish sentiment across markets.

As expected, stocks in the region resumed business on solid grounds, with major Hang Seng Index leading the way, up nearly 3%.

Usually, the local bourse would mirror the offshore pattern, but in an unprecedented move, blue-chip counters reversed trend, as local institutional players opted to book profit from recent spikes.

Unlike the quality issues, non index-linked companies were mostly steady on greater retail participation and the two-tier market was clearly shown on the score card.

In spite of the FBM KLCI dropping 14.23 points to 1,673.72, winners beat decliners by 373 to 335 in mid-week.

Come Thursday, global equities sustained the upward thrust and the bulls on the domestic front took the opportunity to strike back.

Blue chips topped the gainers list while second and lower liners dominated the active page.

On the back of the better sentiment, the key index hit a new all-time high of 1,692.25, up 17.93 points that day.

It scaled another new peak of 1,699.68 in early session yesterday before retreating to close down 0.07 point to 1,692.58 owing to an apparent profit-taking activity.

Statistics: Week-on-week, the key index rose 11.25 points, or 0.7% to 1,692.58 yesterday, against 1,681.33 on Dec 28.

Total turnover for week ballooned to 4.093 billion units valued at RM6.020bil, compared with 2.920 billion shares worth RM3.941bil done previously.

Technical indicators: After triggering a sell at the overbought area in mid-week, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index weakened further to finish at the 66% and 73% respectively.

Likewise, the 14-day relative strength index retraced slightly from the top to end at the 69 points level.

In stark contrast, the daily moving average convergence/divergence (MACD) histogram continued to surge steadily, in tandem with the daily trigger line to keep the bullish signal.

Weekly indicators remained positive, with the weekly MACD and the weekly slow-stochastic momentum index keeping the buy call.

Outlook: Bursa Malaysia extended the upward momentum for the fifth consecutive week, largely due to “window-dressing” activity and funds taking fresh positions, as well as re-balancing their portfolios, with gains in the quality issues propelling the FBM KLCI higher to set a new record almost on a daily basis. The “fiscal cliff” resolution in the United States also aided local sentiment to some extent.

Based on the daily chart, the local bourse is bullish and it will remain so, as long as the key index continues to flirt inside the newly-established upward channel and supported by the rising 14-day and 21-day simple moving averages.

However, investors should take note that the local market has chalked up a total of 109.01 points, or 6.9% over the past five weeks and the bulls are starting to look tired. The next logical move would be to pause for air before resuming their rally later.

While we expect blue chips to correct in the short-term to avoid overheating, second and lower liners, a favourite for retail investors, are showing signs that they are ripe for a rally.

Technically, the daily and weekly MACDs are promising, but given the overbought condition, the local market is likely to consolidate, probably within a tight range this week.

Resistance is expected at every 20- or 30-point intervals above the 1,700-point psychological barrier.

Important support is pegged at the 1,680 points, followed by the 1,670 points and the next, at the 1,660-point mark.

MARKET TREND By K.M. LEE

Related post:

FBM KLCI hits all-time high; Bulls set to explore uncharted territory  

FBM KLCI hits all-time high; Bulls set to explore uncharted territory

Global inflows into Asia, Window-dressing help push up Malaysian stock market

above: FBM KLCi Weekly chart (click to enlarge)  

PETALING JAYA: The FTSE Bursa Malaysia KLCI Index (FBM KLCI) closed at an all-time high of 1,681.33 points yesterday, courtesy of global inflows into Asia and window dressing activities in local funds.

The local benchmark index also recorded an intra-day high of 1,686.70 points. It closed 7.17 points, or 0.25%, higher to 1,681.33.

Total turnover was 858.83 million shares valued at RM1.27bil. Gainers outpaced losers 436 to 255 while 345 counters remained unchanged.

“The market is behaving in a fairly predictable manner. According to past patterns, the market should be sustainable until as late as the second week of January,” said Interpacific Research head Pong Teng Siew.

He added that the market would most probably see a slight dip before it started rising again on a Chinese New Year rally.

“This is a two-tiered market, with many of the biggest blue chips doing well. However, it does not necessarily reflect a true representation of the entire market,” Pong said.

Alliance Research analyst Teoh Chang Yeow said although the FBM KLCI created a new record high of 1,686.70 points yesterday, the lack of follow-through buying interest saw it easing slightly.

“This pushed the benchmark index down below the 1,680-point level to a day's low of 1,678.58 points before settling at 1,681.33 points,” he said in a report.

He expects FBM KLCI to trade below 1,678.58 points on Dec 31, 2012, as analysis of the overall daily market action on Friday suggested that buying power was weaker than selling pressure.

On Friday, Asian markets were largely unaffected by the looming fiscal cliff woes of the United States. Instead, they paid more attention to the depreciating Japanese yen, which is a result of possible further monetary easing. The Nikkei 225 Index gained 0.70% to 10,395.18 points on news of a huge injection stimulus by the Bank of Japan.

In key regional markets, the Hang Seng Index rose 0.21% to 22,666.59 points; Shanghai's Composite Index gained 1.24% to 2,233.25 points; Taiwan's Taiex was 0.67% higher at 7,699.50 points; South Korea's Kospi gained 0.49% to 1,997.05 points, while Singapore's Straits Times Index moved 0.25% up to 3,191.80 points.

“While we are quite encouraged by the development here, it is still a fairly buoyant time for Asia,” Pong said.

At Bursa Malaysia, plantation stocks were among the top performers on firmer crude palm oil (CPO) prices brought on by the removal of export duty on palm oil effective Jan 1, 2013.

Plantation stock Batu Kawan Bhd rose the most, gaining 30 sen to RM18.30, while Sarawak Oil Palms Bhd moved 19 sen up to RM5.85. PPB Group Bhd gained 14 sen to RM11.36 while Sime Darby Bhd was up 10 sen to RM9.49. However, Kuala Lumpur Kepong Bhd fell 16 sen to RM21.94.

Among the top gainers were British American Tobacco (M) Bhd which rose 84 sen to RM61, Petronas Dagangan Bhd up 24 sen to RM23.60, and Allianz Malaysia Bhd gaining 24 sen to RM7.08.

Top losers include Guinness Anchor Bhd, which was down 16 sen to RM16.48, JT International Bhd falling 12 sen to RM6.55 and IQ Group Holdings Bhd losing 12 sen to close at 38 sen.

US light crude oil was 11 cents higher at US$90.98 while spot gold fell US$3.18 to US$1,660.93.
The ringgit weakened against the US dollar at 3.0612.

By WONG WEI-SHEN
weishen.wong@thestar.com.my

Bulls set to explore uncharted territory

TREND ANALYSIS BY K.M. LEE

REVIEW: Growing worries that a budget deal could not be reached and a downbeat data on consumer morale in the United States and Germany prompted investors to liquidate risky assets.

In nervous trading, Wall Street's leading index, the Dow skidded 120.88 points to 13,190.84 and crude oil prices dived US$1.47 to US$88.66 a barrel the previous Friday.

Many people had expected the domestic front to kick off the final week of 2012 on a soft platform, but surprisingly, Bursa Malaysia was pretty upbeat, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) opening up 3.97 points to 1,662.82.

Asian equities steadied in quiet pre-Christmas trade, rebounding from huge losses previously on optimism the fiscal cliff problem in the United States would be resolved eventually. Taking the cue from a firmer regional trend, some institutional funds continued to indulge in year-end “window dressing” activity but interest was concentrated on certain quality issues.

Elsewhere, second and lower liners were mostly flat to lower on lack of retail participation. The apparent mixed landscape and dull volumes were clearly displayed on the scoreboard. Though the key index advanced a significant 10.55 points to 1,669.40 at the settlement, losers outnumbered winners by 324 to 279, with only 620 million shares done on Monday.

Most bourses worldwide were closed for Christmas. Major markets like Japan and China, which stayed open, sustained the uptrend lifted by exporters' counters due to weaker yen.

In spite of the bullish ambiance, the local bourse opened little changed, up 0.1 point to 1,669.50 in an initial deals, pending a clearer picture to emerge on Wednesday. The overall market sentiment was cautious, but “window-dressing” activities were very much alive, although no evidence of broad-based buying was sighted. But, as the key index crawled nearer to the historical peak, some players opted to book profit and their action somewhat capped the upside.

In range-bound session, the FBM KLCI fluctuated between an intra-day high and low of 1,673.19 and 1,665.83 before finishing at 1,671.58, up 2.18 points in thin turnover. Bargain hunters continued to dominate and rises in the blue chips lifted the key index 2.58 points higher to 1,674.16 on Thursday and an extra 7.17 points to 1,681.33, off an early new all-time high of 1,686.70, boosted by regional gains yesterday.

Statistics: For the week, the principal index climbed 22.48 points, or 1.4% to 1,681.33 yesterday, compared with 1,658.85 at the close on Dec 21. Total turnover for the four-day holiday week amounted to 2.920 billion shares worth RM3.941bil, versus 3.875 billion units valued at RM6.57bil traded during the regular previous week.

Technical indicators: Soon after slipping below the 80% bullish line, the oscillator per cent K reversed up quickly and climbed above the oscillator per cent D of the daily slow-stochastic momentum index to trigger a short-term buy on Thursday. Similarly, the 14-day relative strength index returned to the bullish territory, ending at 78 points level yesterday.

Meanwhile, the daily moving average convergence/divergence (MACD) histogram sustained the upward thrust, in tandem with the daily trigger line to retain the bullish note. Weekly indicators improved further, with the weekly slow-stochastic momentum index strengthening and the weekly MACD on the verge of calling a buy.

Outlook: The bulls bounced back from the danger zone with a vengeance late last month to give Bursa the fourth consecutive weekly gains. Based on the daily chart, the FBM KLCI had penetrated the previous record of 1,679.37 to establish a new all-time of 1,686.70 in early deals yesterday.

Apparently, the major breakthrough was not accompanied by great volumes, but we were not so concerned, as many big players were still on extended holidays. Hence, no matter how you look, it is a bullish breakout and the most important point is the bulls had somewhat removed the threat of a “double-top” reversal.

With more investors returning to the marketplace after the vacations and taking up fresh positions for the new year ahead, they can expect the market to firm deeper into the uncharted territory going forward.

Technically, indicators are painting a promising pictogram, suggesting a steadier trend this week. If there is an absolute change in the sentiment, the culprit would be a breakdown in the budget talks, coming from the United States.

The immediate upside is to challenge the 1,700 points psychological level. Thereafter, resistance is expected at every 20 points or 30 points intervals. Current support is pegged at the ascending 14-day and 21-day simple moving averages, resting at the 1,659 points and 1,643 points respectively.
---------------------------------------------------------------------------------

Test of 1,597.08 or a window-dressing decline?   FBM KLCI – May reverse near the key 1,597.08 all-time high.

Support: 1,562 to 1,581 Resistance: 1,596 to 1,597
Strategy: The FBM KLCI gained 10.50 points to close at 1,596.33 last Friday. The local market moved  uneventfully  until  last  Friday,  when  very  obvious  low-volume  1Q  window-dressing activities emerged. Volume shrank from 1.94b to 1.25b shares last Friday.

above: FBM KLCi Weekly chart (click to enlarge)  

The obvious areas for the FBM KLCI are in the 1,562 to 1,581 zone. The next resistance levels of 1,596 and 1,597 may see heavy liquidation activities. The FBM KLCI consolidated in a tight range of  801  to  936 from October  2008  to  April  2009,  but  broke  above  its  resistance  level  of  936.63 (Wave  a/B)  in  April  2009  and  surged  to  an  all-time  high  of  1,597.08  on  11  July  2011.  Its intermediate  Wave  b/B  low  was  836.51. We  traced  out  a  Wave  c/B  (of  the  Flat  3-3-5  variety) rebound phase to its all-time high of 1,597.08 (c/B). A downward “killer” large-scale “Wave C” is now in place and has only just begun, with a temporary low formed at 1,310.53 (Wave a/C). A temporary rebound wave (Wave b/C) is underway and may take the shape of yet another Rising Wedge pattern (as shown on the chart above).

If the index breaks the second upper Rising Wedge trend line, we would revise our Wave Count of an extended A-B-C correction to 1,310.53, and the current wave would be an extended Fifth Wave  of  the major  Flat  correction from the  801.27 low.  Trade  cautiously,  as the  index  may  be peaking soon with bearish divergent signals.  We favour this second “overbought scenario” for the index. A test of the 1,597.08-resistance (and all-time high) could be met with heavy selling.

Some  stocks  we  like  are:  AMMB,  ARMADA,  BAT,  CRESNDO,  CYPARK,  DIGI,  HLBANK, JTIASA, KLK, KMLOONG, LBS, MHC, SOP, TAANN, TAKAFUL, TM and YTL.

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Dim global growth prospects in 2013

Dim global growth prospects in 2013

The year 2012 is coming to a close, leaving behind many problems. Most are man-made originating in politics.

Yet, sadly, there are no major political leaders who have the credibility, charisma and strength of character to garner the needed political resolve to set their own nations or the world on the righteous path of sustainable growth.

The re-election of US President Barack Obama helped a little. As I write, even if he is able to persuade opposition Republicans in Congress to a deal to avoid the looming “fiscal cliff” (self-inflicted arrangement involving US$600bil of indiscriminate tax hikes and “sequester” cuts in military and welfare spending, bringing on a 3% reduction in 2013 fiscal deficit), the resulting cuts and taxes will invariably become a drag on growth estimated by most to be at least 1% of gross doemstic product or GDP in 2013.

The downside risk to global growth is likely to be exacerbated by the spread of the ongoing austerity to most advanced nations. Thus far, the recessionary fiscal drag has been centred on the eurozone periphery and United Kingdom. Latest indicators point to it spreading to the eurozone's core (including Germany and France) and Japan.

This only confirms the International Monetary Fund (IMF)'s contention that excessive front-loading of fiscal austerity will “dim global growth prospects in 2013.”

The recent near simultaneous leadership changes in China, Japan and South Korea offer East Asia a fresh opportunity for reconciliation after a period of tension.

The region's three biggest economies now appear to be confidently over the hump following the Tokyo and South Korean elections last week and Beijing's leadership “jockeying” resolved by last month. But, realistically, they continue to face headwinds from a stumbling world economy.

North Korea's rocket launch last week adds to regional uncertainty. So does continuing unrest in Syria and the Middle East.

Critical to the well-being of nations is how they will use this opportunity to get their ties back on track.

Enter 2013

The year 2013 is a big step following a tough year. To me, six events had dominated:

(i) Europe held the world's fate in its unsteady hands for most of the year. It took the European Central Bank (ECB) president Mario Draghi's promise “to do whatever it takes to save the euro” to rid the sting out of the crisis, with a later pledge of “unlimited” bond buying;

(ii) The impact of the war in Syria and Morsi's uneasy presidency in Egypt;

(iii) Leadership transition in four of the world's five largest economies, with “elections” in United States, France, Japan and China ushering promises of new approaches to politics and policy making;

(iv) Serious political disputes in the East Asia seas;

(v) recent massive anti-Putin unrest in Russia; and

(vi) Serious transformation moves in Myanmar.

Today they still continue to dominate. For the moment, it is too soon to tell what their politics will bring in 2013. But one thing is for sure: Global business gloom has deepened since the third quarter of 2012 and is likely to persist.

I think there are some important lessons.

First, investment risks have turned more political. US businesses today have more than US$1 trillion in cash reserves and committed facilities awaiting investment. For them, the nightmare is Washington staying gridlocked, four days before falling off the “cliff.” Hopefully, like before, the “game of chicken ends at the last minute.”

Second, even a small economy like Greece (barely 2% of eurozone economy) can have a material impact on global business sentiment as the “Grexit” drama showed.

Third, the European episode pointed clearly that governments can't cut and grow. One of the important takeaways from 2012 is that it is critical to always focus on the big picture and not be grappled by event risks as these come and go.

As a US civil rights activist once said: “For all its uncertainty, we cannot flee the future.” So as we step into 2013, nations just have to embrace risks and learn to manage and live with them. Scurrying away will not help.

OECD slashes forecast

Paris-based rich nations' think-tank OECD (Organisation of Economic Co-operation and Development) said in mid-December that its composite leading indicators (CLIs) point to widely differing growth outlooks among its 34 member states.

Signs are of a modest pick-up in United States and the United Kingdom, slowdown in Canada and Russia, and deepening recession in the eurozone (including significant slackening in Germany and France) and in Japan, and possibly Brazil.

OECD's CLIs are designed to provide early signals of turning points between economic expansion and slowdown, based on extensive data that have a reliable history of signalling changes in activity.

Overall, barring worst fears won't come to pass, combined OECD GDP will only rise 1%1.5% in 2013, not much change from 2012, with a modest pick-up to 2%2.5% in 2014.

Not unlike IMF's forecast, OECD growth will only expand if eurozone deals seriously with its political and debt crisis, and the United States finds a timely credible path to avoid the “cliff.”

Absent such actions, world growth would slide into another downturn, with deepening recession in the eurozone periphery, and contraction or stagnation at the core and related advanced nations. What's needed is “very careful policy steering”.

Eurozone manufacturing kept contracting in November for a 16th month. Data show signs of recession extending into 2013 as policymakers struggle to come to grips with the crisis. For businesses and investors, the October Markit survey concluded that in 2013 companies can expect challenging sales and profits, causing many to focus on cost cutting.

Eurozone: ECB slashed its forecast for the eurozone in 2013, signalling another difficult year ahead. Echoing the IMF, it now expects growth of between shrinking at 0.9% to a growth of 0.3% next year (minus 0.5% in 2012).

The level of uncertainty was reflected in its first attempt to forecast 2014 at 1.2%. “Gradual recovery should start later in 2013” (GDP shrank 0.1% in the third quarter of 2012).

As the eurozone slipped into recession for the second time in four years, Germany's growth slowed down to 0.2% in the third quarter of 2012 (0.3% in the second quarter); expectation is for it to expand 0.4% in 2013 (from 1.6% in 2012). However, Germany faces a “favourable environment on the back of expansionary monetary policy”. Expect some revival later on in the second half of 2013, following better-than-expected jump in investor sentiment in December.

Industrial output in Germany fell 2.4% in October (minus 1.6% in September); France reported a 0.6% drop while Spain and Portugal had increases of 1.2% and 4.8% respectively.

“France is facing conditions much worse than Germany it's fast becoming aligned with its southern neighbours of Spain and Italy.” Germany, given its openness, cannot “prosper alone; it has a particular interest in the welfare of its partners”.

Nevertheless, eurozone's peripheral shows little sign of recovery: GDP continues to shrink because of fiscal austerity, euro's excessive strength and severe credit crunch. Already, social and political backlash against more austerity is becoming overwhelming with strikes, riots, violence and rise of extremist politics.

They just need growth. Another year of muddling through only revives old risks in a more virulent form in 2013 and beyond.

The United States: Growth in United States remained anaemic at 1.5%2% for most of 2012. Political and policy uncertainties abound. Fiscal worries are centred on four key areas: taxes, spending, stimulus and borrowing.

The United States needs:

(i) A package exceeding US$1 trillion in revenues over 10 years and set in motion a tax reform process in 2013 to limit tax deductions and lower rates for businesses and individuals;

(ii) A package of spending cuts with less generous social benefits, health spending reductions and cuts in selected mandatory programmes, including military;

(iii) Some short-term stimulus measures, especially on infrastructure projects and on education and R&D; and

(iv) Raising the debt ceiling now.

Already, with continuing impasse even at this late hour, forecasters are downgrading growth expectations for 2013. “It's a dangerous situation,” says Nobel Laureate P. Krugman. “The opposition is lost and rudderless, bitter & angry as it lashes out in the death throes of the conservative dream.”

All this is happening at a time of significant game changes boosting the outlook:

(a) Housing is recovering;

(b) Manufacturing re-engineering is underway;

(c) The third quarter 2012 growth is up 3.1% (1.3% in the seconbd quarter), with consumer spending rising 1.6% and unemployment down to 7.7%, its lowest since 2008;

(d) Pent-up demand is awaiting to be unleashed upon clarity on the future fiscal pathway; and

(e) New future in energy transformation, especially from low cost shale oil and gas.

But first, the daunting task to regain business and consumer confidence needs to begin now. Because of continuing uncertainty, consensus forecast chances of 24% for greater than 3% growth in 2013, same as chances of a recession.

On the whole, they expect growth of 2.3% in 2013, better than three months ago. But, this won't materially help the 12 million jobless. Even by 2014, unemployment is unlikely to be lower than 7%.

East Asia and Pacific (EAP): World Bank's December update places growth in China and developing East Asia at 7.5% in 2012 (against 8.3% in 2011) in the face of weak external demand.

Growth in EAP is still the highest among the developing world and constituted 40% of global growth, but is set to recover to 7.9% in 2013.

EAP (excluding China) will grow 5.6% in 2012, 1% higher than in 2011 due mainly to a rebound of activity in Thailand, strong growth in the Philippines, and relatively modest slowdown in Indonesia and Vietnam. Malaysia held a steady course.

For the entire region, easy fiscal and monetary policies supported growth. Next year, the region will benefit from continued strong domestic demand and the mild expected global recovery, especially in the second half of 2013.

I agree with the World Bank that most EAP nations have retained strong underlying macroeconomic fundamentals and should be better able to withstand external shocks. But many risks remain, including open vulnerabilities in the eurozone that could readily lead to renewed financial market volatility, and global slowdown: The United States falling off the “cliff” resulting in a loss of growth push for EAP; potential hostility arising from political territorial tensions in the Asian seas; and fallout from unexpected developments in Syria and the Middle East.

However, the robust growth in services this year reflects strong domestic support derived from continuing rising incomes. As these trends gather strength, services can be expected to emerge as a new growth driver in EAP.

For the region, latest business sentiment surveys have turned positive for the fourth quarter of 2012, reversing two consecutive quarters of declines, while global uncertainties remained the biggest concern for the region's firms.

China is expected to grow by 7%-9% in 2012 (9.3% in 2011), the lowest since 1999, due mainly to lower domestic demand growth reflecting the 2011 stabilisation measures. World Bank expects China to expand 8.4% in 2013 fuelled by fiscal stimulus and faster effective implementation of large investment projects.

Indications are the recent slowdown has now bottomed out: The third quarter 2012 GDP rose 7.4%, below the historical trend and the lowest in 14 quarters, but its quarter-on-quarter growth reached a 9.1% annual rate in the third quarter of 2012. Growth is, however, expected to slacken to 8% in 2014 as productivity and labour force growth tail off.

Consumer prices will likely continue to fall, averaging 2.8% in 2012, but will rise moderately to 3.3% in 2013 as growth picks up and the lagged effects of easy monetary policies in the second half of 2011 take hold.

China's policy challenge is to balance the trade-off between supporting growth and reforming. But, priority remains at implementing targeted tax cuts, health and social welfare spending and large-scale social housing to support consumption.

What, then, are we to do?

Geopolitical uncertainties will engulf 2013. Consumers, corporate and investors are bound to remain cautious and risk adverse even scared.

But prospects in EAP look bright and the region continues to have ample fiscal space to counter the impact of external shocks.

Much of the global uncertainties are still being generated in Europe. It's messy there right now, but the recovery of Europe will come some day.

Today, the ratio of stock market value to GDP averaged worldwide at 80%. In peripheral Europe, this ratio ranged from 23% in Greece to 38% in Portugal akin to where Asian counterparts were in 1998. Italy's total stock market value is today about the same as Apple's.

R. Sharma of Morgan Stanley made these and other insightful comments in the Financial Times, with this refrain: Is Italy worth no more than Apple? Food for thought.

Look at it this way. We all have to keep the perspective in approaching 2013 in order to avoid our own self-made “cliff.”

WHAT ARE WE TO DO
BY TAN SRI LIN SEE-YAN

 ● Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email: starbiz@thestar.com.my.

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