What's New

US deploys THAAD in S. Korea despite Russia, China opposition

My live TV interview with RT on 7 March, 2017. 

US-Taiwan-China relations and US arms sale to Taiwan

My  live radio interview with Radio Sputnik, Russia's global multi-media news network on 17 March, 2017. 

China's new stance on Hong Kong and the HK Chief Executive election 中国对香港的新立场及香港行政长官选举

My live TV interview on China Global Television Network (CGTN), (formerly called CCTV) on 14 March, 2017. (My appearance on the panel starts at time counter 14:50) 

With Trump, where do you put your money in 2017?

My strategic investment talk with the Hong Kong University Graduate Association on 7 March, 2017 - entitled Implications of a Trump Presidency and Shifts in the World Order - Where to put your money in 2017

Download HKUGA Investment Talk flyer (Flyer in Chinese) 

Download Implications of a Trump Presidency and Shifts in the World Order - Where to put your money in 2017

The unprecedented expansion of the global middle class

In his Paper of February, 2017, Homi Kharas, a senior fellow and deputy director of the Global Economy and Development program at the Brookings Institution, outlines the unprecedented expansion of the global middle-class, 88% in Asia.

The following are extracts from his report - 

• There were about 3.2 billion people in the middle class at the end of 2016, 500 million more than .... previously estimated. This implies that in two to three years there might be a tipping point where a majority of the world’s population, for the first time ever, will live in middle-class or rich households.

• The rate of increase of the middle class, in absolute numbers, is approaching its all-time peak. Already, about 140 million are joining the middle class annually and this number could rise to 170 million in five years’ time.

• An overwhelming majority of new entrants into the middle class— ..... 88 percent of the next billion—will live in Asia.

• The absolute market size of middle-class spending is larger than previously estimated. In 2015, middle-class spending was about $35 trillion (in 2011 PPP terms), roughly 12 percent higher than ... previous estimate. It now accounts for one-third of the global economy.

• The global middle-class market is now clearly bifurcated: a slow-growing developed country middle class, and a fast-growing emerging economy middle class—with growth in both instances measured in terms of either numbers of people or total spending.

• The most dynamic segment of the global middle-class market is at the lower end of the scale, among new entrants with comparatively low per capita spending.

• Big geographic distributional shifts in markets are happening, with China and India accounting for an ever-greater market share, while the European and North American middle class basically stagnates.

• At a growth of about 4 percent in real terms, the middle-class market is growing faster than global GDP growth, but not as fast as it did in the 1960s and 1970s, the boom years for the middle class.

A larger middle-class population and market has significant environment and social implications. Naturally, assuming technology does not change, the carbon footprint per person will rise as the middle class expands.

Two mitigating factors could limit the extent of this. First, middle-class growth is associated with migration from rural to urban areas and, for a given level of income, households in urban areas tend to have a smaller carbon footprint than households in rural areas, especially for transport. Second, middle-class households tend to invest more in their children’s education and this, in turn, can reduce fertility rates and decrease the long-term population trajectory for the world.

The social implications of a larger middle class are also important. There is considerable evidence that a larger middle class will also imply a happier population, at least for new entrants into the middle class (Kahneman and Deaton, 2010). But there is little evidence to suggest that this will create pressures for more democratic governance or for better delivery of public services, both of which are required for sustained growth. In fact, governments may find themselves unable to meet the growing expectations for middle-class enhancing programs, such as universal health care, public education, pensions, and affordable housing, without resorting to deeply unpopular tax increases.

Getting the right balance between taxes on the middle class and services to support them likely presents the greatest source of uncertainty for this paper’s forecasts.

Download Brookings - Homi Kharas - Global Middle Class Expansion

Looming global banking risks - is this time different?

According to the Financial Times, China overtakes the eurozone as world’s biggest bank system, more than double that of the United States. China's bank assets amounted to $33tn at the end of 2016, compared with $31tn for the eurozone, $16tn for the US and $7tn for Japan. The value of China’s banking system is more than 3.1 times the size of the country’s GDP, compared with 2.8 times for the eurozone.

While the status reflects global influence, it also reflects on reliance on debt to fuel the economy. 

China is starting to confront her complicated debt problem.The latest tool is new "Corridor System" of monetary management to achieve prudence with flexibility. She is beginning to clamp down on local debt, according to a Reuters report.  The country is also shifting gear, letting more firms go bankrupt rather than propping up corporate zombies with state-funded debt, according a report in the Walls Street Journal 

For perspective, let's not forget the gigantic 247 trillion-dollar derivative risks in the US banking system, according to a report in Infowars, a US online free-speech platform. This represents a much greater systemic risk to the banking systems of the whole world. 

All in all, it's perhaps time to re-visit Professors Carmen M Reinhart and Kenneth Rogoff's post-Financial Crisis warning shot - This Time Is Different? - Eight Centuries of Financial Folly, Princeton University Press, 2009.