China’s Natural-Disaster Displacement Risk Quantified

China: Disaster-related displacement, 1970-2013. Source: IDMC

China: Disaster-related displacement, 1970-2013. Source: IDMC

CHINA ACCOUNTS FOR a disproportionate share of the world’s disaster-related displacement. That is not only a function of the size of its population. The country is at high-risk of being stricken by drought, seasonal floods, cyclones, earthquakes and landslides induced by the latter two.

Drought and cyclones are the most costly; earthquakes and floods the big killers. Some 130 million inhabitants are exposed to these risks. More than 8 million of them every year are at risk of being displaced, according to a new analysis of regional displacement risk by the Internal Displacement Monitoring Centre (IDMC).

Disaster-induced displacement has been increasing and is likely to continue to do so. For one, population growth and the increased concentration of people and economic activity in hazard-prone areas such as coastlines and river deltas are swelling the numbers of people exposed to natural hazards.

Second, better early warning systems and evacuation planning means that more people survive disasters even as their homes and property are damaged or destroyed. Third, climate change is making extreme weather both more frequent and severe.

The richer a country gets, the more resilient it is to natural disasters, not least of all because it has more to lose, so they take steps to protect what they have. Yet though they suffer fewer natural disasters those that do occur are more severe.

Since 2008, China has suffered three disasters that displaced more than 3 million people, five that displaced 1 million-3 million people and 34  that displaced between 100,000 and 1 million people.

All that helps explain why China has the highest absolute risk of disaster-related displacement in the region. It also ranks second in relative displacement for its population size — 6,082 displacements per million residents, after Laos’s 6,542 displacements per million inhabitants.

The IDMC predicts that over the next four years that the average number of displaced will rise to nearly 9 million and the per million ratio will rise to Laos’s current level.  Its study, which is regional, is intended to provide a forecast to help planners not so much to deal with natural disasters as to forestall their worst effects.

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China’s Economy Steadies As She Slows

CHINA’S THIRD-QUARTER GDP growth number, at a 7.3% year-on-year, was a tad better than expectations, though not sufficiently so to prevent gloomy headlines about it being the slowest growth since the global financial crisis of 2008.

Fears that growth was slowing too quickly can be set aside for now. The selective stimulus applied earlier in the year is starting to work its way through the economy. Policymakers will likely feel that they will need only the lightest of hands on the monetary tiller in the fourth quarter to hit the officially fudged growth target of about 7.5%

One important sign of stabilization is a pick-up in industrial production. Manufacturing output was up 8% year-on-year in September, after August’s abrupt slowdown to 6.9% growth. Fixed asset growth slowed to 16.1% from 16.5% in August, a reflection of the sluggish real estate market, though the national figure conceals a two-track property slowdown at the city level.

The black cloud is that retail sales’ year-on-year growth slowed to 11.6% in September from 11.9% in August, suggesting that little progress is being made towards rebalancing the economy towards greater domestic consumption. It is that that is needed most to ensure China is safely on the long glide path to slower but more sustainable long-term growth.

 

 

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Summers Sees Possible Abrupt Slow Down In China’s Growth Rate

CHINA, AND INDIA come to that, will grow much less rapidly than is currently anticipated. That forecast comes from former U.S. Treasury secretary Larry Summers and Lant Pritchett, a colleague of Summers at Harvard’s Kennedy School of Government, in a newly published working paper from the National Bureau of Economic Research in the U.S.

The pair say that regression to the mean is the strongest predictor of long-term economic growth; witness other fast-growing countries such as Japan. Pritchett and Summers expect China’s growth rate to slow to 3.9% over the next two decades, and India’s to 3%.

High levels of authoritarian political rule, corruption and extensive government meddling in business, the authors also argue, make slower growth even more likely. They also note that while “China’s growth in the past 35 years has been remarkable, and that nothing in our analysis suggests that a sharp slowdown is inevitable,” such phases of super-rapid growth tend to end “abruptly.”

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Facing A Slower Chinese Economy, Xi Needs A Winning Party Plenum

THE INTERNATIONAL MONETARY FUND held its forecasts for China’s GDP growth this year and next unchanged in its latest quarterly economic outlook even as it trimmed those for the world economy. It is still expecting 7.4% GDP growth this year, slowing to 7.1% in 2015, down from 7.7% in both 2012 and 2013. “China is sustaining high growth, but slightly lower growth in the future is seen to be a healthy development,” the Fund says.

For this year, the IMF is projecting that the economy will come up just short of the official growth target of 7.5%. After a slower than expected first-quarter, Beijing launched a number of stimulative measures to get the economy back on track for hitting that target. These included tax relief for small and medium businesses, accelerated fiscal and infrastructure spending, and selective cuts in banks’ required reserve ratios.

But with the  property market still weighing on the broader economy, GDP in the third quarter, due to be announced on October 21st, is likely to confirm that growth continues gently gliding downwards, somewhere in the 7-7.5% range is this Bystander’s best guess. We expect some more if modest stimulus in the fourth quarter to make sure the full-year number comes out as close to the higher end of that range as possible. Prime Minister Li Keqiang is only the latest official to blur what counts as 7.5%; about 7.5% will be close enough.

It is likely that next year’s official target will be lowered to a more realistic 7% as the economy makes the transition to more sustainable long-term growth through rebalancing demand away from investment toward consumption, and the property market, especially residential investment, remains sluggish. However, infrastructure investment and credit will remain the main drivers of growth next year.

Excess industrial capacity and the dark shadow of provincial and municipal debt remain the main risks to the growth forecast along with the deflation of the property market getting out of hand. While the government has great capacity to absorb such a hard landing, that capacity isn’t infinite, and the policy challenge is exacerbated by the two-tier property market that has emerged in China. Bubble prices persist in large cities while small cities are experiencing a property recession thanks to overbuilding spurred by local governments desperate to spur growth.

A too-fast slowdown in property prices would work through to the banking and shadow banking system in short order. The IMF rightly notes in its report the importance of reforms to buttress financial sector stability:

It is crucial to implement key elements of the authorities’ structural reform that aim to strengthen the regulation and supervision of the financial sector, reduce implicit guarantees, liberalize the deposit rate, and use interest rates instead of quantitative targets for the implementation of monetary policy, thus encouraging market-based pricing of risks. Further expansion of the social safety net, by reducing the current high rate of social security contribution, and better health care benefits would help reduce household saving rates and raise domestic consumption.

More broadly, China needs to structural reforms to its education, labor and product markets to raise firms’ competitiveness and productivity while lowering credit growth and local government borrowing. All that touches just about every vested interest. That is meat for the forthcoming Fourth Party Plenum.

Last year’s Third Party plenum announced the need for reforms to strengthen social safety nets and the social security system as part of a 60-point blueprint sketched out for President Xi Jinping’s plan to rebalance the economy. This year’s plenum, due to start on October 20th, has as its first objective the consolidation of Xi’s rule of law cum anti-corruption drive — which will be a proxy for the jockeying for power and influence between Xi and his predecessors Jiang Zemin and Hu Jintao.

While Xi has moved faster to consolidate his power base than might have been expected, his ability to advance his economic-reforms agenda will require the backing of Jiang and Hu and their respective Shanghai and Communist Youth League factions. The appearances at National Day celebrations of some senior figures in the Party and army thought to be the subject of anti-graft investigations and who have not been seen in public recently suggests Xi may be rallying unity in the ranks to that end.

Xi may well feel his best next tactical move for economic reform will be to revamp the 100-or so central-government controlled state-owned enterprises to improve their business performance and governance. These are the big dogs in the economy, and entrenched obstacles to reform in their various sectors. Making them over would have the added bonus for him of weakening some of the power bases of those not aligned with him.

The trick for Xi remains aligning the political realities he faces with the underlying structural slowing of economic growth, but without getting too close to the feared hard landing of the economy that would undermine his political position. As we have noted before, every mini-stimulus ratchets up a notch the difficulty of introducing the policies needed for rebalancing because they don’t address the underlying causes of unsustainable booms and the vested interests that benefit from them. And that needs a political solution before it can get an economic one.

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Hong Kong’s Umbrella Protest: Tanks For The Memory

PRESIDENT XI JINPING will not want a photograph of even a single Hongkonger facing down a line of PLA tanks to be the iconic image to emerge from the current Umbrella protest in the city. However, sending in the tanks, whether metaphorically or not, remains an option for the Party leadership in Beijing which has to suppress this protest against its monopoly on political power in short order.

While Hong Kong in 2014 is in a different time and place to Beijing in 1989, Beijing’s combination of cajoling condemning and cudgeling hasn’t yet done it. Xi may be prepared to wait out matters in the hope that the internal divisions among the demonstrators will eventually break their protest apart. Yet, as our man in Tiananmen Square in 1989 pointed out to us, there is a terrible symmetry taking shape: a tidy protest (demonstrators street sweeping in 1989; plastic bottle recycling in 2014) turning violent and unruly before being brought to a forceful end by the authorities.

The Party has to weigh the internal and external costs of shutting the protest down forcefully. One external consideration is the international sanctions it would bring. Beijing has been carefully following the response of the U.S. and Europe to Russia’s military intervention in Ukraine. It may conclude from that that those are the least of its worries. More concerning would be the effect of international confidence in Hong Kong as a place where China business can be done with Western legal safeguards. That would be shot, at least for a while, but there are internal municipal constituencies within China that would be happy for Hong Kong to be taken down a peg or two.

All of that pales against the internal calculation. Hong Kong is both a part of China and apart from it. One country; two systems. If its 50-year post-colonial assimilation agreement was seen from the south side of the Sham Chun River as prologue to the future — a chance for Beijing to experiment along the well-trodden development path of industrializing nations, letting the Party learn how to handle a growing middle class developing expectations of a greater voice in how they are governed and more say over their economic interests — then from the other side of the river that has just become to look like an existential threat. The further north you go, the acuter that threat seems.

The tinder that sparked the current demonstrations is Beijing’s requirement that no candidate may run in a Hong Kong election who has not in effect been nominated by the Party. Protesting Hongkongers want anyone to be allowed to stand. That is a long way from demanding reform to the elections themselves, which are a limited expression of popular democratic will at best. But it is a direct challenge to the Party’s notions of tight political control. And Hong Kong provides a beacon for the millions of urban middle class Chinese on the mainland where there is widespread dissatisfaction about the way they are governed, especially by local and municipal officials.

That, in turn, is a long way from saying that there is a groundswell of support for U.S. or European style democracy in China. There is not on any great scale, anymore than there was in Japan and South Korea at a similar stage of their economic development, even if democracy becomes shorthand for political reform, and a shorthand that is often misread in the West. But the bargain of rising economic prosperity in turn for docile political compliance no longer looks as attractive to many Chinese as it once did when they were poor.

The experience of industrialization has always been harsh for those living through it. For most, it is a hard daily slog in large, crowded cities with all the accompanying quality of life issues from adulterated food to killingly dirty air. Officials living high on the hog from corruption and cronyism sits ill with that. For Party bureaucrats the change is no less unsettling as they lose control of their economic levers of command and control.

Attempts by authorities to censor news of what is happening in Hong Kong are being only partially successful at best. How Xi settles his current Hong Kong issue will reverberate in the mainland for years to come, and especially if it is with tanks.

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Slowing China’s Too-Rapid Property Slump

Restrictions placed on the property market in 2010 to deflate the real estate boom are quietly being lifted at the local level. In only six of China’s 47 municipalities that imposed them do they remain in full force. At central government level there have been a series of targeted steps taken to support the market, the latest being this week’s reopening of the discount residential mortgage market for first-time buyers by the big banks.

Four consecutive months of falling real estate prices have left policymakers concerned about the knock-on effect on the broader economy, from worsening unemployment to heightened stress on the financial system — not to mention a loss of personal wealth among government and Party officials.

It is the softening labour market that is uppermost in their minds. The HSBC preliminary purchasing managers’ index for September points to increasing job losses, even though the mini-stimulus introduced in the second quarter appears to have stabilized what was becoming a too fast a slowdown.

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China Adds More Speed Bumps To The Road To Rebalancing

THE PEOPLE’S BANK of China has reportedly injected some 500 billion yuan into the five biggest commercial banks in the form of short-term low-interest loans. This can best be regarded as a targeted monetary easing to perk up an economy at risk of falling short of its official target of 7.5% annual growth following a run of soft monthly economic indicators. Four months of a weakening property market, in particular, has culminated in noticeable economic sluggishness since mid-August.

Taking such action ahead of the October national day holiday, during which the banks traditionally face high cash withdrawals, gives the central bank a fig leaf from behind which to claim, should it be of a mind to explain its motives, that it is not indulging in old-school stimulus. Much of the new loans is likely to end up in the real estate sector and funding new infrastructure, however, and thus lay down more speed bumps along the road to rebalancing the economy.

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