It's the economy stupid!
China maintains its leading role in global economic growth, Vietnam is still booming, the dollar is causing havoc, Saudi Arabia strengthens China ties and China has been writing for 3600 years or more
UPDATE: The Long Mekong Daily runs a feature on China, but also takes a quick look at the rise of Vietnam and the ups and downs of the US dollar. After all the negative narratives from Anglo-American media and the Whitehouse, China remains the largest single contributor to global economic growth in 2023- why then does the US and EU seek to kill the goose that laid the golden egg? Vietnam’s rapid economic rise under the Communist party is the darling of the United States and FDI flows have boomed, but is it really about China and ASEAN or is it just geopolitics? Does the rise and fall of the US dollar signal the end of US exorbitant privilege, and what will the US do when it can no longer borrow money for free and impose inflationary taxes on the Global South? The strengthening of Saudi Arabian and Arab-China ties signals a shift toward de-dollarisation and the pricing of commodities in Yuan and other currencies, has the Belt and Road significantly changed world trade and investment patterns? Finally, the system of Chinese writing has been around for over 3600 years, but for Europeans and Anglo-America it remains a mystery. Enjoy the Long Mekong Daily!
China Consumer Report 2023: McKinsey
Following years of heady economic growth and rising consumer spending, recent macroeconomic pressures have sapped Chinese consumer sentiment. Stock market sell-offs, declining property transactions, and mobility restrictions designed to slow the spread of COVID-19 clouded consumers’ outlook. China’s consumer confidence index, a closely-watched number calculated by China’s National Bureau of Statistics (NBS), dropped below 90 in in April, a record low.
Historically high savers, Chinese consumers in 2022 doubled-down on their intent to put their money in the bank rather than spend it. According to McKinsey’s latest nationwide survey of Chinese consumers, 58 percent of urban households indicated their desire to “put money away for a rainy day,” the highest level since 2014, and 9 percentage points higher than in our previous survey conducted in 2019.
Chinese consumers' increased propensity to save their money rather than spend it has been evident in the rapid growth in savings deposits, which swelled by RMB 14 trillion during the first 9 months of 2022.
Despite these economic headwinds, and the decline in consumer confidence, China’s economy continues to exhibit a certain level of resilience. Nominal disposable income per capita rose by 5.3 percent in the first nine months of 2022, according to NBS statistics. Urban unemployment held steady at 5.5 percent in September, comparable to pre-pandemic levels, and consumer price inflation rose by just 2.0 percent on average in the first nine months of 2022.
Download the full report here.
Vietnam’s Economy Forecast to Grow 7.5% in 2022
Vietnam’s economic recovery accelerated over the last six months on the back of resilient manufacturing and a robust rebound in services. GDP growth is forecast to surge from an estimated 2.6 percent in 2021 to 7.5 percent in 2022, while inflation is projected to average 3.8 percent over the year, a World Bank economic update for Vietnam released today says.
Vietnam’s economy expanded 5.2 percent[1] in Q4-2021, 5.1 percent in Q1-2022, and 7.7 percent in Q2-2022, as consumers satisfied pent-up demand and foreign tourist arrivals picked up, according to the report, “Taking Stock: Educate to Grow,” the World Bank’s bi-annual economic outlook for Vietnam.
However, this positive outlook is subject to heightened risks that threaten recovery prospects. Risks include growth slowdown or stagflation in main export markets, further commodity price shocks, continued disruption of global supply chains, or the emergence of new COVID-19 variants. Domestic challenges include continued labor shortages, the risk of higher inflation, and heightened financial sector risks.
Given the nascent domestic recovery, the weakening global demand outlook, and heightened inflation risks, the report suggests a proactive response by the authorities. In the short run, on the fiscal front, the focus should be on the implementation of the Recovery and Development policy package and expanding targeted social safety nets to help buffer the poor and vulnerable from the effects of the fuel price shock and rising inflation. In the financial sector, close monitoring and strengthening non-performing loan reporting and provisioning as well as adopting an insolvency framework would be recommended.
If upside risks to inflation materialize -- with core inflation accelerating and the consumer price index moving above the 4 percent target set by the government -- the State Bank of Vietnam should be ready to pivot to monetary tightening to quell inflationary pressures through interest rate hikes and tighter liquidity provision.
“To sustain economic growth at the desired rate, Vietnam needs to increase productivity by 2-3 percent every year.” said Carolyn Turk, World Bank Country Director for Vietnam. “International experiences have shown that higher worker’s productivity can be achieved by investing in the education system, as an important part of a basket of investments and reforms. A competitive workforce will generate much-needed efficiency for Vietnam in the long term.”
The report argues that transforming the higher education system will be key to boosting Vietnam’s productivity and help achieve its goal of becoming an upper-middle-income country by 2035 and high-income country by 2045. To match average higher education enrollment levels in upper-middle economies, 3.8 million Vietnamese students would need to be enrolled in higher education institutions, almost twice as many as enrolled in 2019.
Reforms to Vietnam’s higher education system could help support development objectives, the report says. The increasing financial costs of pursuing higher education and the perception of diminishing economic returns from pursuing higher education have weakened demand. The system is further undermined by falling short of providing skills sought by employers, underinvestment by the state, and a weak and fragmented institutional structure governing higher education.
The report details suggestions for improving access to higher education, enhancing the quality and relevance of instruction, and making more efficient use of resources. Suggestions include expanding the use of digital technologies, enhancing the role of the private sector, and streamlining the regulatory framework.
Read the World Bank report here.
In a highly volatile and difficult year for many currencies and equities, the U.S. dollar has been a safe haven for investors. The greenback has provided exceptional stability, with almost every currency around the world declining against the U.S. dollar in 2022. This graphic visualizes almost 50 years of the Dollar Index’s returns along with the decline of major currencies against the U.S. dollar in the past two years using price data from TradingView.
U.S. Dollar and Major Currencies’ Returns in 2022
As shown in the graphic above, the past two years have seen nearly every major currency lose value against the U.S. dollar. One of the currencies hit hardest is the euro, which briefly fell below parity (meaning the euro was worth less than one U.S. dollar) in September and October of 2022, before recovering with a 5.3% rally in November.
Currency 2021 Returns / 2022 year to date Returns
Japanese Yen (JPYUSD) 🇯🇵 -10.4% /-14.7%
Indian Rupee (INRUSD) 🇮🇳 2.0% / -9.6%
Pound Sterling (GBPUSD) 🇬🇧 -1.1% / -8.0%
Chinese Yuan (CNYUSD) 🇨🇳 2.7% / -8.6%
Euro (EURUSD) 🇪🇺 -7.0% / -6.0%
Canadian Dollar (CADUSD) 🇨🇦 0.7% / -6.6%
Australian Dollar (AUDUSD) 🇦🇺 -5.7% / -5.2%
Swiss Franc (CHFUSD) 🇨🇭-3.0% / -1.1%
2022 YTD Returns as of December 14th 2022. (Source: TradingView)
However, the Japanese yen was the major currency hit hardest, having fallen more than 25% since the start of 2021. At the yen’s lowest point this year in October, the currency breached 24-year lows, resulting in the Bank of Japan intervening with $42.8 billion to support the country’s falling currency.
The Swiss franc and Canadian dollar have been the most resilient major currencies against the U.S. dollar since 2021, largely due to the financial and political stability of those nations. Along with this, Canada has benefitted from surging crude oil prices in 2022, exporting the majority of its crude oil across its southern border to America.
Read the full article here.
Saudi Arabia, China sign over 40 deals during Xi's visit
The deals encompassed tech, energy and climate sectors as Chinese President Xi Jinping held meetings with numerous Arab and Gulf leaders on Friday. Saudi Arabia and China signed more than 40 agreements by the end of Xi Jinping's landmark three-day visit to the kingdom.
On Friday, Saudi Aramco and China’s Shandong Energy Group signed a memorandum of understanding to explore opportunities to collaborate on oil refining and petrochemical opportunities in the People’s Republic. The agreement also specified they would seek ways to work together on renewable energy, hydrogen energy and carbon capture, Aramco said in a press release.
The two countries also signed a strategic partnership on the digital economy. The deal relates to artificial intelligence, quantum computing, robots and more, the official Saudi Press Agency reported Friday.
Chinese President Xi Jinping arrived in Saudi Arabia on Wednesday for a series of summits with Saudi, Arab and Gulf leaders. Representatives from both countries have signed numerous agreements since he arrived. The following is a summary of some of those deals:
Saudi energy company ACWA Power signed strategic agreements on Thursday with nine unspecified Chinese companies. The agreements pertain to renewable energy projects in Saudi Arabia and member states of China’s Belt and Road infrastructure initiative, ACWA said in a statement.
Also on Thursday, a variety of Chinese and Saudi companies signed 34 investment agreements during a meeting. The Chinese tech giant Huawei, the Chinese driverless car firm AutoX and others were among those who inked agreements. The deals covered green technology, cloud services, information technology and a variety of other sectors.
Riyadh and Beijing also signed a comprehensive strategic partnership agreement on Thursday, as well as an unspecified number of other bilateral agreements and memorandums of understanding, according to the Saudi Foreign Ministry.
Following Xi’s arrival Wednesday, the King Abdullah University of Science and Technology and China’s Sinovation Ventures signed an MoU on artificial intelligence. Saudi Arabia’s National Center for Vegetation Cover Development and the Chinese company Elion also signed an agreement on afforestation the same day.
Saudi Arabia issued a statement at the end of its bilateral summit with China. The statement notably referenced Saudi Arabia’s support for the “one China principle” — a reference to Taiwan.
Read the full article here.
3,600 years of Chinese writing
At this very moment, the words you are reading are entering your mind at the speed of thought. Below your awareness, strings of letters are retrieving words and meanings as effortlessly as oxygen absorbed into the bloodstream.
This efficiency is the result of careful refinements over time. The simple letters of the Roman alphabet are the successors to much more elaborate scripts like Egyptian hieroglyphics. As picture-based signs passed through new generations of users and into new languages, they apparently became more abstract, more compact, and fewer in number.
How then, do we make sense of the extraordinary Chinese writing system with its thousands of complex characters?
Simplifying symbols
Over time, letters adapt to become simpler to write and easier to read. Cultural transmission theorists refer to this process as “compression” and it seems to kick in as soon as people start using a script and teaching it to others.
A delightful Pictionary-based experiment shows just how this might unfold in practice. A player who is asked to draw a computer monitor will sketch a detailed picture so the guesser has the best chance of success. But when those same two players are given the exact same clue again and again, the “monitor” might be reduced to a few rectangles and then a simple wavy line. As soon as a simpler convention is established it makes sense to cut corners.
But while English readers are only contending with 26 letters, readers of Chinese manage to process over 4,000 core characters, some made up of dozens of strokes. The sign 麤 (cū, “to be rough with someone”), for example, is evidently much more complex than the alphabetic letter “o”. If Chinese writing is subject to similar pressures, why didn’t this sign simplify? Our newly published research grapples with this very problem. We found the Chinese script has evolved towards greater visual complexity over the course of its 3,600 year history.
The traditional view
As early as the 1600s, European scholars began to compare archaeological inscriptions across different sites and historical periods. They noticed signs that started out as pictures tended to become simpler and more abstract over time.Some of these scholars assumed the Chinese writing system had been trudging along a similar evolutionary path. Just as a hieroglyphic representation of a fish 𓆟 may have simplified into the letter D, and an ox’s head 𓃾 simplified into the letter A, Chinese characters are thought to have condensed from pictures of things to simpler sets of strokes.
Chinese philosophers of the Han Dynasty hypothesised their writing system originated at the hands of Fuxi (伏羲), China’s mythical first emperor, who invented characters inspired by the forms of birds, animals and elemental forces.
Later rulers were said to have simplified Fuxi’s pictures. Instead of representing the full outlines of the creatures, they began to trace only their tracks and movements. Tradition holds that a Qin dynasty emperor ordered his minister to simplify the script even further by reducing the total number of strokes in each character.
For over 350 years, scholars across the world have reproduced charts of Chinese characters that depict a straightforward sequence from stylised pictures towards abstract signs. Even contemporary sources make the claim that Chinese has been steadily simplifying across its history. But our research suggests the opposite is true: Chinese writing has become increasingly complex.
Read the research here.