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The Sixth Forum on China-Africa Cooperation (FOCAC): New Agenda and New Approach?

The forthcoming 15th anniversary FOCAC meeting to be held in South Africa in 2015 marks a new era of dynamic developments across Africa. The continent seems to be seeing the twilight of a classic "resource curse" as evident from robust growth despite plummeting commodity prices, according to The Economist.  Download African economic growth_ The twilight of the resource curse_ _ The Economist

The anniversary coincides with transformative dynamics in China's own development towards more balanced, equitable and sustainable growth. It also tallies with the Middle Kingdom's  re-calibration of its role in the global commons in a potential New Asia-Pacific Century underpinned by China's New Silk Road strategy connecting even more closely to the rest of the world, including Europe, Central Asia and Africa.

A review of China's engagement with Africa to date is contained in my presentation at an international conference in Ghana in 2011 on A New Era of China-Africa Trade, Investment, and Business Partnership: Lessons and Opportunities, which was based on an earlier special research paper New China-Africa Financial, Investment and Business Partnership. Click here

In anticipation of the seminal FOCAC meeting, the Top Priorities for the Continent in 2015 are highlighted in a Brookings Institution Africa Growth Initiative report dated January, 2015. The report contains a series of articles addressing, inter alia, the three prongs of Africa's Post-2015 Development Agenda—job creation, infrastructure and governance, and peace and security; the importance of policies for "public, private and blended financing" to promote inclusive and sustainable growth; and the evolving China-Africa relationship including the possibility of China’s shifting priorities. 

The latest article in The Economist (24 January, 2015) shows how private equity is fast spreading in this continent of new opportunities.

The Age of Oil may end with a financial crisis from an "energy bubble"?

The Economist front-page article (6 December, 2014) shows how the economics of oil have changed with the "shale revolution" in America and other countries. Another Economist front-pager of 17 January 2015 flags up what an era of low energy prices can do to fix bad energy policies and politics.

The backdrop is what is proving to be a long-term massive drop in oil (and gas) prices all around. This should be good news for economic growth except for major producers of fossil fuels.  Click here

Saudi Arabia's refusal to reduce production to prop up prices may be a ploy to nip the shale competition in the bud. According to some analysts, this may also be a disguised lethal weapon (in collusion with the United States) to wreck Russia's economy as what actually happened in 1985 leading to the collapse of the former USSR.

China's recent energy deals with Russia are largely for reasons of the Middle Kingdom's energy security and geopolitical balancing against America's "Asia Pivot". They do not alter the reality that China is rapidly shifting her energy mix towards a higher proportion of renewables and nuclear energy. Click here

The Economist has flagged up the front-loaded depletion of shale wells with 60-70% of total production coming within the first year of operation. So a continuous stream of revenue and investment is essential by having to drill more and more wells. It begs the question how many shale operators could cope with a massive drop of oil prices from $115 a barrel in June to near $46 a barrel at present, below the average floor price of $48 a barrel for shale production viability.  Click here

Apart from the question whether global demand will increase in sufficient magnitute in the coming decades to sustain the shale euphoria, the extensive environmental impact of fracking in terms of ground water and soil pollution may rear its ugly head at some point causing such public outcry as to dim its future prospects. Click here

What is more, it seems that another financial crisis could be just around the corner, this time to be sparked off by an "energy bubble". Click here

This is no sheer conjecture because -

(a) There is too much hype financed by junk bonds offering high interest yields. As oil and gas prices continue to be subdued, and as more and more new and less profitable drilling needs to be made, a tipping point may suddenly happen, as in the case of an unstable but grand-looking sand castle.

(b) The world's major oil and gas consumers, especially China, are all trying hard to enhance energy security through energy conservation and reducing and/or diversifying imports.The momentum is builing up in China towards a greater share of near-zero-emission energies like solar, wind, hydro and nuclear power.  While the demand remains substantial, the rate of growth in imports is likely to slow down.

(c) In addition, as the world's largest energy consumer, China is re-structuring her economy to becoming less energy-intensive (from a value-added perspective) and more sustainable (from an environmental perspective). This will dampen oil and gas prices further.

While much lower energy prices will benefit most economies, particularly those heavily dependent on energy input such as China, before the Age of Oil comes to an end, the transition is likely to be fraught with uncertainties including geopolitics and shale-gas "irrational exuberance".

As energy prices and production are closely interlocked wih the world''s financial and investment matrix, the bursting of a global "energy bubble" could well spark off the next global financial crisis from which few countries could escape unscathed.

The most powerful militaries in the world

As compiled by Business Insider from rankings published in Fire Power, the Centre for Arms Control and Non-Proliferation, this table gives a glimpse of the relative military strengths of the top 35 militaries in the world today.

Download Most Powerful Militaries in the World 

However, these rankings fail to take into account global outreach, including military outposts, allies, strategic choke points, global communication and surveillance systems as well as the quality of the militaries, including cutting-edge technologies, combat readiness, integrated warfare and advanced research capabilities, all of which put the United States a cut above the rest.

On the other hand, these rankings also miss the increasingly important asymmetric warfare capabilities, including cyber-warfare and terrorism.

In any case, they have also to be put in the context of comprehensive power, including economic influence (not only in terms of GDP but also global connectivity and dependance) and scientific leadership, as well as the exercise of "smart power" including soft power, where China at best is playing "catching up".

Is China's property market heading towards collapse?

A Policy Brief dated August 2014 by Li-Gang Liu, visiting fellow at the Petersen Institute for International Economics, Washington DC.

While noting that China's housing market is slowing down, the research paper explains that amongst other things, comparison with Dubai or Japan is off the mark because -

• China's housing market, borne only in 1998, remains characterised by massive demand, very low gearing, and far from excessive price-to-income ratios as both rural and urban income levels have greatly increased.

• China is still undergoing the fastest and most extensive urbanization transformation in human history with over 200 million more people becoming urbanites by 2023.

The paper's analysis sits well with my earlier prognoses in "Is China the Next Dubai? " (May, 2010) and "China's Ghost Cities and Malls" (May 2011).

As for the risk of potential melt-down of China's shadow banking and indebtedness, it must be borne in mind that China's total debt as a percentage of GDP ranks below a number of advanced countries including the UK, Japan and the United States.

In comparison with the U.S., shadow banking as a percentage of the regulated banking sector is 28% versus 200% while total loan to the real estate sector as a percentage of GDP is 22% versus 103%. (Slide numbers 10-14 in my presentation China Ascendant: Challenges and Opportunities for Hong Kong and the Asia-Pacific in New Zealand in August 2014).

A June 2014 Report by CBRE, an American global commercial real estate services company, suggests that at $3.5-5 trillion, China's shadow banking exposure amounts to 38-55% of the country's GDP, compared with the global size of non-bank financial intermediaries at 117% of global GDP in 2012.

The report notes, however, that China's shadow banking exploded by 42% in 2012 alone, compared with the global average rate of 8.1%. This has prompted the central government to tighten control over trust products, the fastest expanding form of shadow banking. As a result, trust loans plummeted by 79% y-o-y in April 2014. The shadow banking pool is expected to shrink or at least grow at more manageable rates in future.

The report concludes by saying that with the exception of small residential developers in tier-3 and tier-4 cities, the outlook for demand-supply is more balanced in upper-tier cities where the current downturn may well offer selected buying opportunities. 

Download Asia Pacific_Special Report - China Shadow Banking and the Real Estate Market_June_2014