Friday, March 22, 2013

Can China's Investment Boom Keep Going?

China's investment share of GDP is the highest in history. The graph below shows just how high it is compared to other countries both developing and developed.

Michael Pettis in his new book The Great Rebalancing makes the point that China is not an export-driven economy, it is an investment-driven economy.

Australia has benefitted enormously from this investment-driven model, but it must end eventually.

The great dream of Australian policy-makers is that the eventual rebalancing of the Chinese economy away from investment towards consumption will boost Australian exports of services, agricultural products and advanced manufacturing. Let's hope so because the investment slowdown will be matched by increasing supply of key Australian mineral and gas exports.  

Thursday, March 14, 2013


For what it's worth I get these cartoons from GoComics a fabulous site, where I pay about 12 bucks a year for as many US (and some other) comics as I possibly want to view, including their entire back catalogues. For some comic strips like Doonesbury this is a lot of strips over a very long time.

It's a pity there isn't an Australian depository for comic strips and political cartoons. One blogger tried to collate them but was warned off by News Limited's lawyers and had to cease and desist. What the copyright-obsessed don't realise is that such a site was probably a favourable thing for the cartoonists and for their exposure to a wider audience, rather than a threat to their profitability. May the Internet remain primarily the World Wide Web.

Anyway ... read with pleasure the latest random collection from the last month or so. 

Monday, March 11, 2013

Financialisation and Globalisation

Financialisation is a major component of recent globalisation but it also represents a key danger to the sustainability of global economic interconnection.

This recent graph from the NYT based on McKinsey research, shows how big a hit financial flows took from the financial crisis. It also shows just how rapidly financial flows increased in the lead-up.

Every element of financial flows - direct investment, equity, bonds and loans are well below their  peaks before the crisis - with loans taking the biggest hit. Emerging market economies have done relatively better, but investment was down last year.


Tuesday, March 5, 2013

Two stories about inequality

Here's a story about billionaires ... yay for them

According to Hurun Report’s
Hurun Global Rich List 2013, Asia is home to 608 billionaires, or more than 40 per cent of the world’s 1453 mega rich individuals. Of that 608, more than half live in China, which still trails the United States as the country with the most billionaires.
The top five countries for billionaires according to the list are: the United States (408 billionaires), China (317), Russia (88), Germany (61) and the UK (56). Australia comes in at No. 16 with 16 billionaires, by Hurun Report’s calculations.
But while the US is top of the pops among countries and Asia wins among continents, it’s Moscow that takes out the top spot as the city that’s home to the most billionaires.
Moscow (76 billionaires) leads New York (70), Hong Kong (54), Beijing (41) and London (40). Rounding out the top 10 cities are Istanbul (26), Mumbai (24), Shanghai (24), Paris (23) and Shenzen (22). 
Among the top 10, wealth rose 22 per cent for the 2013 survey, equivalent to these fattest of fat fat cats pocketing a combined $US250 million more a day.
The Report also suspects there may be many more billionaires out there than it’s counted.
“For every billionaire that Hurun Report has found, I estimate we have missed at least two, meaning that today there are probably 4000 [US] dollar billionaires in the world,” Hurun Report chairman and chief researcher Rupert Hoogewerf says.
How to spot a billionaire
As for what the typical billionaire looks like, the Report says:
  • The average age of a billionaire is 63
  • The average age of the top 10 billionaires is 74
  • Being an American male is a common trait
  • Being a woman is an uncommon trait (only 1 in 10 billionaires)
  • 74 per cent of billionaires are self-made
  • Among billionaires who inherit wealth, most are second generation riche
  • Most commonly billionaires made the fortunes in real estate, TMT (technology, media and telecommunications), investments and retail
  • Facebook founders Mark Zuckerberg and Dustin Moskovitz are the list’s youngest self-made billionaires at 28 and 29 years old respectively
  • Dragons and Horses are the most common Chinese star signs in the billionaire club, with Rats and Chickens the least common
The top 10 
As for the top 10, Hurun Report comes up with similar names but a slightly different order to Forbes’ billionaires list. According the Report those in the 10 are:
  • Carlos Slim Helu and family ($US66 billion)
  • Warren Buffett ($US58 billion)
  • Amancio Ortega ($US55 billion)
  • Bill Gates ($US54 billion)
  • Bernard Arnault ($US51 billion)
  • Larry Ellison ($US43 billion)
  • Li Ka-shing ($US32 billion)
  • Charles Koch ($US31 billion)
  • David Koch ($US31 billion)
  • Liliane Bettencourt ($US30 billion)
 Contast this with theis excellent little video on YouTube.

Sunday, March 3, 2013

Electricity Price Rises

Electricity prices are a constant source of annoyance for many Australians because they seem to be always rising.

No doubt this has led many of us to change our behaviour so that we use as little as possible. I must admit that I'm not the greatest example of this as my thinking often revolves around the fact that I'd prefer to pay a little extra if it means I can sleep in summer and work at home in winter.My thinking is that I'd prefer to pay an extra hundred on my bill and forego a night out for comfort. Not the most environmentally sound thinking process I know. Prices would have to rise much further for me to change my behaviour.

Living in Brisbane does not mean that you don't get cold in winter. Although the days are generally sunny in winter here (hard to imagine right now given that it seems to have rained every day for a month or more - indeed my backyard flooded for the first time ever yesterday), my house is like a sieve and requires a good deal of heating to be comfortable.

Giles Parkinson is a great writer on environmental issues and in this article he includes three great graphs that show how extensive electricity price rises have been. The data is for Sydney and NSW, but the story is similar Australia wide.

According to Parkinson "The first graph shows electricity prices based on average consumption of 3,300kWh a year. It should be noted that Australian average consumption is about double that, although it is falling."

So if you're living in Sydney, you're not imagining the price rises! Now even though many households have been compensated for the carbon price component of price rises (quite small as will be shown below), I imagine that many people just see the increase in prices and forget about any compensation. Price rises, especially in the form of a bill, are generally more noticeable than price decreases in other areas or increases in disposable income.

Note that the first graph is a growth or flow graph, while the second is a price comparison as at January 2013. According to Parkinson, those cities "featuring at the high end, and with at least a little sun, are proving to be among the most vibrant markets for rooftop solar PV"

The final graph shows the breakdown of price increases and as is now fairly well known, by at least the partly informed, most of the increase is taken up by network improvements (or in more pejorative language"gold plating"). According to Parkinson, the graph "shows the component increase in NSW from 2007/08 to 2012/13. It’s pretty self explanatory, network costs accounted for half the bills five years ago, have accounted for around two thirds of the increase in the ensuing years, and now account for more than half of the current bill." The middle sections show the breakdown of the increases in electricity bills. As you can see carbon pricing is not the major factor.

The problem for the Gillard government is the perception that they are responsible for the price increases, despite all the evidence to the contrary. Obviously we can all use less electricity and those who own their own houses can install solar and be cross-subsidised by others, but up to a point electricity usage is inelastic- that is to say it is difficult to lower our consumption without a corresponding change in lifestyle and this is exactly what environmentalists believe is necessary. Still, I imagine that prices would have to increase a good deal further to make consumers fundamentally change their behaviour, rather than just complain about the government.

The 'good' news is that the costs of renewables are coming down, which will mean that new renewable electricity generation capacity, when it is eventually needed, will be competitive with fossil fuel generation.
According to Parkinson, in an earlier article:
Australia needs no new baseload power plants for another 10 years – that’s according to the Australian Energy Market Operator and the utilities themselves. So this shows that the new plants we are getting built now – wind farms, thanks to the renewable energy target – are the cheapest option. By the time 2020 comes around, solar PV will have well and truly joined wind on the southern side of the cost curve (and will no doubt be competing for space in the RET), and solar thermal – with its ability for storage and dispatchable energy, will be competing vigorously with gas."
I hope this is true but there is so much gas capacity coming on board throughout the world that it is my guess that gas prices will drop significantly over coming years and  make gas also attractive. The gas lobby in Australia and elsewhere will be a fairly powerful force to reckon with and given the scepticism of the Coalition towards renewables, Parkinson's optimistic scenario might face some headwinds (pun intended).