Alberto Bagnai said that there should be a controlled end to the euro. He is a professor at Pescara University who is one of the leading Italian advocates of leaving the euro. My main comment is that if Italy remains in the Eurozone, it will be very difficult, almost impossible, for Italy to escape the current economic crisis. Indeed, things may get worse over time. If however, Italy decides to exit the Eurozone, there is a chance. It does not mean that Italexit will bring prosperity, but it will give Italians a chance.
Since last year, I have argued that economic growth in China would take a less and less important role in China’s political agenda. My view is that Chinese policymakers are well aware that growth cannot be sustained for the foreseeable future and are therefore looking for new objectives and for a new narrative that can maintain social stability. It is a bit like an ex-post rationalization of a problem: “Given that GDP growth cannot be sustained, let’s play down the importance of the economy and focus on other goals so that we can continue to meet those – new – objective”. The output from the Two Session seems to go in this direction.
In 2017, one of the biggest issues that the world will be facing is trade war, especially between China-US. President Xi and Trump have different views. Xi strongly encourages free trade between countries while Trump stresses the importance of fair trade. Michele Geraci has an even different view from both of them. He thinks that opening up trade and lowering trade barriers, in general, would benefit both countries involved, on average, but the problem is that these benefits are not always redistributed fairly within the country.
Minister of Industry and Information Technology, Miao Wei, during the National People Congress said that China welcomes foreign companies to compete openly with domestic companies within the framework of CM2025. He said the market is going to play a significant role in company selection and resources allocation. All companies will be treated equally. “Adhere to the government-led, market oriented” is the principle of CM 2025 initiative. Foreign direct investment in the manufacturing industry has peaked in 2011 at 50%, and since then declined to reach 43% in 2015. Worth noticing is how the proportion of foreign direct investment in the service industry has grown substantially over the last five years.
Insiders said that private funds like PAG and Long Star are starting to be interested again in returning to Chinese non-performing loan (NPL) portfolios in recent months. Government loose credit policy in the last three years has boomed the NPL market, which has reached over 3 trillion US dollars at the end of last year. I think the true size of NPL in China (like in any other country) has always been unclear.
Trump is over blaming trade deficit for America’s current situation. But US has trade deficit to 101 countries, not especially to China. This is no longer a bilateral problem, but rather a multilateral problem which origins from America itself. One other reasons why America suffers a negative trade deficit is due to the international status of the US dollar. If there is an international crisis, the demand for dollar will increase because people consider dollar as the safest asset. Therefore dollar appreciates, whcih is bad for US’s international trade.
The European Chamber in China has just released a report commenting the “Made in China 2025” plan pursued by the Chinese Government. The report indicates the current challenges for CM 2025. One is the lack of skilled labors. The second challenge is overcapacity as a result of government subsidy over the past years. The third one is the challenge to international markets. I think another reason of worry is that most of the MA activity carried out by Chinese companies overseas, has actually been driven by the government encouragement. Therefore, it further represents market distortions.
Premier Li on the CPPCC published the Government Work Report, setting the key growth target for 2017. GDP growth target is expected to be 6.5%, government deficit target to be 3%, CPI to be 3%., and the unemployment rate to be 4.5%.
Last year, the GDP growth rate was 6.7%, with total GDP reached 74.4 trillion yuan. CPI increased by 2%. Industrial profitability turned positive from -2.3% in 2015 to 8.4% in 2016.