Last year the financial media was busy in covering the growth strategies and the asset bubbles being spooked by the Chinese government over the various asset classes. The world markets was suspecting another round asset bubble burst out which will bring out the Recession dinosaur .But thanks to the government of the china that they identified this growth and acted well before they assets were going to burst out the recession dinosaur was about to take to birth. This article will try to bring out the invisible investments being made by china despite being awarded with “Manipulated Mark”.
CHINA THE STRATEGIST
China is well known for its strategic growth- strategies being developed during 2009 when it torn out the recession skin from the Asian markets. The Indian market should thank China for showing the early recovery way out the recession dark nights. In 2010 china was under the top ladder of currency manipulation and we well portrayed as a villain for destroying domestic markets of the world. But looking in a different angle we find out that china currency was never undervalued or manipulated. In fact other currencies were overvalued leading the CPI to increase in those countries. China has a huge mass of population where the present living cost is still unbearable for the Chinese citizens living in china. Looking at the tall skyscrapers its is quite hard to find out the real living cost of China. Over here I would like to quote from William Shakespeare Gilded tombs do worms enfold.
CHINA COMES TO RESCUE:
With global currency imbalances due to large imbalanced fiscal debts among the various nations have resulted volatile currency valuations. This further has spooked commodity prices to rise up and eradicate the middle class living from the earth. The middle class is the worst suffers of the rising commodity prices resulting cut backs on normal living standards. The interest rates GOD have been awakened to control the devil of Inflation. The blessing so the GOD of Interest rates is that cost of borrowing is going up and resulting further increase in the cost of production and commodity prices.
India has started feeling the heat of rising cost of interest rate in the winter season. These heats have forced the Indian corporate to look for cheap overseas funds. Over here again China have come for the rescue. Yes China the much debated, the much adducted economic country of the world.
Currently India needs 100000 megawatt power projects by 2017.For this alone the Indian banks have raised their hands helplessly that they will not be able to meet the desired projects funding. $45 billion dollars will be required for the power plants equipments alone. India is looking forward to china for investments into Information & Technology sector. India needs around $1.5 trillion investments in Indian infrastructure for the next 10 years to keep the GDP growth around 10%. The ongoing five-year plan called for $500 billion of infrastructure investment. The next, which runs until 2017, will argue for $1 trillion. With India’s public debt at over 60% of GDP, and a current account deficit touching 4% hence funding is going to be quite a hard stuff.By the time you read this data you have already found the FDI investments into India have dropped to levels of March 2003.
CHINA DESPITE BEING THE VILLAIN
We find the China who was being blamed in front of the media by the Wall Street heavy weights have silently entered in to joint ventures and corporate tie ups with Chinese investments. You might be shocked but that is the hard core fact that when the bugle of manipulated china was being blown, corporate tie-ups were happening at that point of time. Last year Chinese investments into Us was around the mark of $6billion.A small number but bigger that $100 million in 2005.
China have made investments in US business primarily into manufacturing plants, solar plants, and automotive. Total size of the trade among China and US last year was hanging around to the figure of $400 billion. China is attracted towards US solar sector for investments. Venture capitalist investments in US solar industry was to the tune of $1.67billion, an increase of 18% over the 2009 figure. At home china did an investment of $34billion in solar sector.
According to latest data released by the World Bank, China has extended loans to the tune of $110 billion to the emerging economies. This simply reveals that China is busy in shifting its resources from its own home to other nations. Development Bank and Import & Export Bank of China are the main leaders in the loans to emerging economies.
1377 Chinese companies have found investments avenues and growth areas in North America. The group of the companies primarily consist of small and medium enterprise.495 of this class of corporate have found investments avenues in North American manufacturing where as 14% in hospitality,14% in wholesale market and 13% in financial sector and last but not the least 56% wants to setup distribution channel in Canada.
Now if we look into the mirror of China and US we find from the other angle that is US investments in china is on the upward trend. US is shifting its operation jobs to China low cost based units. Over here I would like to draw the attention of the US government that what steps are being taken to reduce the unemployment. In fact if the manpower doesn’t shifts and only jobs then unemployment in US will be around 10%+ in 2011-2012.Jobs shifting results higher unemployment and burden of government debts.
In a recent report by the American Chamber of Commerce 79% of the business community wants to invest in Beijing alone. Now please explain yourself and ask questions to the US government what makes Dow Jones 11100 mark and what polices are being made in real and true sense to control the unemployment and why US is not having investments opportunities at home. Well when all these questions comes into the mind its time to move further ahead to find some cheese of cross border investments being made by china in my next article.
TURN AROUND BUDGET
Well if India needs funding to the tune of $1.5 trillion the Indian Banking System needs a radical change followed with Foreign banks givens adequate instruments in hands to finance the and meets the demand of $1.5 trillion. Securitisations and credit default swaps followed with insurance industry being allowed to invest more in infrastructure will reduce the burden to a certain mark up. Even FDI investments will not be suffice enough to support. At the same time India needs to solve the problems related to the Indian legal system of Environments, land acquisition, red tape and other infrastructure bottle necks. Since we all know that India is renowned for delay in execution of projects .If these bottlenecks are not removed the fund requirement unofficially will peg around $2.5 trillion.Budget 2011 will be a path breaking if the government formulates policies keeping the above factors in mind.2011 Budget can be a “Turn Around Budget” for Indian economy.
Indraneel Sen Gupta
Financial, Economic Writer and Research Analyst.