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Friedman describes the development of a tablet computer by a team led by Prof. Kalra and two professors of electrical engineering at the Indian Institute of Technology, Jodhpur, which costs less than $50 to produce. The new price point is needed to reach over 200 millon students in India who need such a device to escape poverty and poor teaching. The new tablet computer enables them to reach out to knowledge in language, sciences and math, and the humanities in the world outside them. This is an I-Pad like, internet enabled, wirlessly connected tablet. The average Indian family in rural areas saves $2.50 a month, and government support for its educational benefit could subsidize a portion of the cost. The tablet would bring distance learning, teach English, to students and help track commodity prices for farmers. The invented device uses the Android 2.2 operating system, a 7 inch touch screen, 3 hours battery life, and can download YouTube videos, PDFs and educational software. The governmment is expected to subsidize wireless connections to students. The name of the tablet is Aakash, Hindi for sky....

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This Journal editorial says the Bankia bailout continues to be handled poorly by the Spanish government, with Bankia continuing to be a drain on the government funds.

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Two Harvard economists, Lawrence Summers and Lant Pritchett, say China is likely to revert to the mean of average long term growth of developed countries after this spurt of growth is over. Growth is likely to slow to 6% by 2016, and revert to the mean of 2% for industrialized countries in the long term. Goldman Sachs banker Jim O'Neill, says the growth at a higher rate could be sustained because of urbanization. Summers does not rule out this outcome as he accepts a range of outcomes, with the most likely outcome being a reversion to the mean. The factors often cited for slowing growth are lower of productivity of capital as corruption and close connections determine where capital is allocated, misallocation of capital, large increases in credit in the economy since 2009 leading to bad debt in the financial system, aging society and demographics with increasing numbers of older people. Other reasons are the choices being made by Chinese leaders for slowing down to address the problems of air pollution and contamination of water supplies, inflation in housing prices, overdependence on exports, need to shift to increasing domestic consumer spending but unable to do this with the lack of spending power of large parts of the population because wealth is excessively concentrated in the upper ranks of society. The need to manage these forces ensuring some measure of stability depends on finding ways to reduce the growing concentration of wealth and power, in itself a challenge for the Communist Party elite. A combination of different factors with some still unknown factors are likely to play a part in this reversion to the mean for China, a situation encountered by every country so far in North America, Europe and Japan. This makes it even more important that each developing society structure its development around the most optimal goals with the least costs attached to the development....

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Some of the flaws in China's development model are shown by the Economist. Over half of the economy is dominatd by state run enterprises. And the remainder is also heavily influenced by local government and officials from the government. Financing goes through state run banks which lend to state run enterprises, and only a small fraction of lending goes to small businesses. These busineses are not actively looking to support innovation and new products. The other weakness that the Economist correctly points out, is that by contrast even in the 1960's, about 10 years into Japan's postwar development, quality control was a big thing with companies in Japan. The Deming Prize was seen as the most prestigious prize for Japanese companies, and Japanese engineers tried to learn everything they could about quality control to make Made in Japan mean high quality. They succeeded by the 1980's in making this happen, with leading global brands like Sony, Matsushita, Panasonic, Toyota, Honda, Canon and a host of other brands. If 1980 in China, is where Japan was in 1950, now about 30 years later there is nothing like what was seen happen in Japan in the area of quality and global brands. The area in which the freewheeling culture of capitalism has been most successful is the economic zone, a 2 hour drive between Guanghou and Shenzen. It manufactures mostly low tech goods like toys and apparel and shoes, and these manufacturing facilities are of low quality, with poor conditions for labor. With the efforts by the government to move to higher value added and high tech products these businesses came under pressure by mid 2007, with new labor laws, more enforcement, pollution control laws and resulting higher costs. As they felt the impact by mid 2008 from the higher costs, some businesses disappeared. Then another and even bigger problem hit these businesses. The global economic crisis, the shortage of credit in western countries to sustain import orders, and the rapid fall off of demand from highly indebted consumers in the USA, has led to closure of most of these businesses. The rapidity with which many of these businesses closed is amazing, as row after row of these buildings are now empty in the Guangzhou-Shenzen area. Another development is happening in Taiwanese firms like Hon Hai, that with little disclosure, make IPods, laptops, PC's, and other electronic products in the same area. At one point this firm employed 250,000 people in a industrial city sized factory campus. Now it is shifting production to places like Vietnam. Now Taiwanese reports say that the workforce of Hon Hai in Shenzen area will drop to 100,000. Other Taiwanese firms are also shifting production to other countries. Climate change and the heavily polluting industries that are widespread in China is one of the other flaws in the Chinese development model. Another is the lack of energy efficiency in these industries. With all these changes exposing the deeper flaws in the model China has used for development for the last 30 years, this a time for change in the way economic development takes place in China. ...

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Before this deal Kuwait with 7.6% was the largest single shareholder in Daimler. Now a Abu Dhabi investment firm Aabar Investments PJSC plans to put in $2.65 billion for a 9.6% stake in Daimler. The largest shareholder in Aabar, which is listed on the Abu Dhabi Securties Exchange, is International Petroleum Investment Company. IPIC is owned by the Emirate of Abu Dhabi. Daimler is doing this deal by issuing 96.4 million shares at price of 20.27 euros ashare. On March 20, 2009, Daimler shares closed at 21.34 euros in Frankfurt.

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Financial Stability FOrum will be renamed the Financial Stability Board and include 10 additional members, These additional members are from developing countries or emerging markets, including Argentina, Brazil, South Africa, and China. This forum which currently brings together regulators, central bankers and finance ministers from a few wealthy nations, will now reflect the views of emerging countries. It previously only served as aforum for exchanging ideas. Now it will be given the task of drafting the detailsfor global standards for financial institutions, including benchmarks for executive pay and how much risk that financial firms can take on. But there is still some resistance to the idea of getting ideas from different sources and including the benefit of a diversity of experiences and backgrounds, even though some of these countries, have borne the brunt of these recurring economic crises in the past, as have Argentina, Brazil and Mexico. Howard Davies, director of the London School of Economics says that you have to hear out China but objects to taking advice from Argentina, a comment which reveals the insular nature of these forums and boards in the past, with little or no representation from places where a majority of the word's peoples live. As would be expected in the light of that comment, there is resistance to giving China, India, Brazil, Russia, and other large developing countries like Mexico, South Korea, and Saudi Arabia proper representation in the IMF's governing bodies, and having the rules changed so that the head of the IMF and other important staff members could be selected from emerging countries. Each of these countries can bring adifferent perspective to the decisions made at the IMF, as most of them have suffered from these recurring economic crises in the postwar period. South Korea's experience with the IMF is the most recent and is covered in the link to S. Korea and the IMF, and if reflected in the policy making at IMF could help it perform a more constructive role in this crisis. This is also the case with some of the other countries....

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How the IMF conditionality has changed in the 2009 global economic crisis. The IMF head, Dominique Strauss-Kahn of France, is aware how sensitive nations around the world have become to the word IMF. So much so that it has even suggested removing the word IMF from loans to get takers. The IMF conditons worsened the S. Korean financial crisis in 1998. See link to this. This time Kahn has advocated that the developed countries of Europe and the USA increase stimulus spending to 2% of GDP.And there are fewer calls for cutting spending in developing countries offered help by the IMF. Pakistan was asked to increase interest rates by 3% but actually increased them by 2% to fight inflation. But to get some idea how the IMF is viewed with suspicion and hostility in many countries one has to listen to comments made. The move for Pakistan was so unpopular in 2008 that Mohsin Khan a top IMF official says he met with agroup of generals to get their backing. Some IMF officials insistend on a 10% rate increase. Something like that would have led to riots in Pakistani cities. IMF loaned Pakistan $7.6 billion. When S. Korea said no to the IMF credit line, Lee Hyoung-ryoul, a Korean Finance Ministry official said that S. Koreans tremble and financial markets turn sensitive whenever they hear the word "IMF." This time Brazil, S. Korea and Mexico, were offered condition free credit lines. But it has found no takers from these three conuntries, so badly is the IMF viewed in developing countries. Even though it appears that Kahn, in the small club of western nation's officials and staff that form the governing body of the IMF, is trying to give the IMF a new image, its just so bad and the views of the old timers at the IMF on spending or interest rates so contrary to the needs of people in the developed and developing countries, that a new generation of people in finance and economics will be needed before real change is established. ...

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A new report, "China: 2030," by the World Bank and the Development Research Center (DRC), has major implications for the course of action taken by new Chinese leaders. The limits to China's economic model with the dominant role of state owned companies has been pointed out in the past. It has now reached a point where China must choose to move to a modified model or face the "middle income trap" of countries like Brazil and Mexico, where income levels and growth reaches a certain level and then decelerates suddenly with little warning. The report makes some major recommendations that would modify the current system. It says the state owned companies should be supervised by asset management firms focussed on commercializing these companies, and not supervised by the State-owned Assets Supervision and Administration Commission (SASAC). The asset management firms would restrict the state owned companies on what areas they participate and sell off businesses to make it possible for private companies to compete. Zoellick says- "China needs to restrict the role of the state-owned companies, break up monopolies, diversify ownership and lower entry barriers to private firms." The state owned companies would be required to pay sharply higher dividends to the government which could then be used for social programs. Currently state owned companies invest in land which is sold by local governments for revenue helping fuel the real estate bubble. Significantly, the report had its origins when it was proposed by Mr. Zoellick, head of the World Bank, during a visit to Beijing in Sept 2010. It was supported by Li Keqiang, then vice premier, and now expected to be the new prime minister of China. The World Bank is widely respected by Chinese leaders because of its assistance during the early stages of reform in the 1980's. The DRC reports to China's State Council, a top governmental institution, and the No. 2 person at DRC, Liu He, is a senior advisor to the Politburo Standing Committee. He helped draft the current five year plan and is close to Li and Xi Jinping, the next president of China. The SASAC has opposed these ideas, especially any shift in its personnel selection of management at the state owned companies, which it shares with the Communist party's personnel department. Respected China economists say China faces large risks of a sudden sharp slowdown because the the state owned companies have largely copied foreign technology and have not generated enough technological advances, which will be needed for the next stage of growth. Lower growth rates could worsen problems in China's banking system leading to a crisis. The Conference Board, estimates China's growth at 8% for 2012, slowing to an average annual growth rate of 6.6% from 2013 to 2016. Barry Eichengreen of UC Berkeley, Donghyun Park of the Asian Development Bank, and Kwanho Shin of Korea University, say the annual growth rate will drop by at least 2 percentage points by 2015....

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The ECB and the Bank of England cut interest rates to near zero.

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Collapse of the easten european economies says the Economist would raise questions about the idea of a united Europe, the idea of the EU itself, and destabilize the euro - as countries in the EU like Ireland and Greece are in just as bad a shape. And in talk of enlargement of the EU will be doomed, and this is true of the western Balkans, TUrkey, and some countries int he former Soviet Union. Politically letting these countries derift could mean they fall for populists and nationalists of the bad type. And there is the serious economic consideration for banks in Austria, Italy and Sweden, which are heavily involved in lending to Eastern Europe. They could see catastrophic losses and put the banking systems of these countries at risk. Sweden has already chosen to help the Baltic Countries, and sees it has its political responsibility, and the whole Baltic region as its home, see link. The Economist suggests a differentiated approach depending on which group of countries in Eastern and Central Europe something that Angela Merkel of Germany also supports. For Ukraine the Economist says its best to let the IMF provide assistance. For the Baltic countries, plus Bulgaria, the Economist advocates an accelerated path to the euro, on the grounds that they are tiny and shouln't affect confidence in the euro. The Baltic countries have a population of 7 million. This approach is not supported by the European Commission or the European Central Bank. For the 4 larger countries, Poland, Czech Republic, Hungary, and Romania, the Economist says the priority should be to prevent further currency collapse, and to rescue the banks responsible for the foreign currency loans that are going bad, with the pain being shared between debtors and the banks, governments of lending and borrowing countries. Financial institutions like the ECB, the IMF, and the European Bank for Reconstruction and Developemnt, and the European Investment Bank should help support the rescue effort. ...

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The comparison of China with Japan as stress builds up from overexpansion of credit in the banking system. The sharp increase in credit following the 2008 financial crisis has built up stress in China's banking system. Japan went through a period of low growth and insufficient lending by banks. Banks refinanced bad debts to zombie companies in Japan leading to a long period of low growth. China faces a similiar period of low growth after a credit expansion binge.

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Compared to the situation in 2008-2009 during the global financial crisis with the excess supply of labor, China in 2012 faces an excess in demand for labor. In 2009 about 20% of migrant workers were unemployed when the crisis hit, and wages dropped 10% for migrant workers, according to the Chinese Academy of Sciences and Stanford University. The situation three years later is one of tight labor markets and higer wages. A large stimulus in not only not needed today in the way it was in 2008-2009 as a way to maintain social stability, it would reduce the benefits of the anti-inflationary steps taken in 2011-2012, by putting more pressure on wages and prices. Manufacturing sector wages increased by 20.1% in 2011, according to China's statistics bureau. This may be why the Chinese government is taking measured steps to avoid creating more bad loans through indiscriminate lending, and being more selective in accelerating development projects in the pipeline. According to Hong Kong's new Chief Executive Officer China plans to have about 7% growth. This shift in approach would help China refocus on growth strategies recommended in the recent Development Reform Commission and World Bank Report on China....

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Much of China's strong GDP growth year after year of 9-12% was generated through large fixed investments in manufacturing. More than 40% of GDP is from factory construction or fixed asset investment in housing and infrastructure. And this spawned suddenly on its own a whole generation of new small business bootstrap entrepreneurs, as if from nowhere, who were good at adapting and seeking out new opportunities as new factories and exports shot upwards. GDP multiplied 14 fold from 1980's. And created 5 million businesses of over 8 employees each, according to the State Administration for Industry and Commerce. In the processs creating 75 million jobs for university graduates, workers from state companies and fro migrants from the rural areas. These private companies and their investment spending make up half of the 2008 GDP of $4.42 trillion. But with the export model heavily dependent on overseas markets especially the USA, the collapsing export markets is shrinking production and investment. Industrial production which went up by 16% annually for 5 years, dropped to 3.8% for Jan-Feb 2009. Mr Yu and his company GenTech, profiled here, was an engineer who studied engineering in Beijing, then at Newcastle University in the UK, worked for Cargill in Iowa, and looked for opportunities away from agricultural engineering. Adapting to China's needs in first semiconductors and then solar equipment assembly lines, he provided the high tech tubing for the gases and chemicals used in manufacturing assembly lines, competing with the likes of Air Products and Chemicals of the USA....

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The NYT editorial says the summit came up short on both the Stimulus that Europe was asked by the US to commit to, and the global regulation that the Europeans asked the US to agree to. The regulatory reform is not what it needs to be to address the many issues raised by this crisis says the NYT. And Germany it says needs to see that deteriorating conditions will require a strong stimulus. By committing to $1 trillion in funds to backup international trade and to help emerging countries fight the crisis, the summit did achieve its other goal of helping the vast majority of people in the world in the emerging countries deal with this crisis, including countries in the EU.

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Changes to China's five year plan to include critical social goals, reduce income inequality, and provide a social safety net. The influence of local governments in distorting central government policy.

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Reflecting the volatile nature of the global economy with systemic risks remaining, impact of sharp cuts in spending, and the danger of oil prices exceeding $150 with a mideast crisis, the IMF provided a wide range of possibilities around its basic forecast. The IMF says it expects the global economy to grow 3.5% in 2012, up 0.2% from a Jan. forecast, and a forecast of 4.1% for 2013. But the IMF says this depends on the eurozone crisis, which could take off 2% from global output and 3.5% from output in the eurozone if things went wrong in Europe. Higher oil prices above $165 with supply disruptions after Iranian sanctions are another danger. Its forecast for Europe is 0.3% contraction in 2012 and 0.9% growth in 2013. Because of the risks in the outlook the IMF cautions countries from cutting spending too quickly, and says the best approach is to reduce deficits gradually over the long term and not to move too fast in the short term. This word of caution applies to Spain, the UK, France and Germany. To maintain enough funding in a crisis the IMF plans to increase its lending capacity from $380 billion by an additional $280 billion, with pledges of $60 billion from Japan, $26 billion from the Nordic countries, and $200 from other eurozone countries. ...

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China's shadow banking system of trust companies and insurance companies with trust company units and other informal lenders are the fastest growing part of its banking system. Between 2010 and 2012 trust companies and other shadow banks doubled outstanding loans to 36 trillon yuan ($5.8 trillion) or about 69% of China's GDP, according to J.P. Morgan Chase & Co. Hidden debt that is likely to default in this poorly regulated sector is seen as a large risk in the banking system by the central bank and China's government planners. Tightening of credit by the central bank, the People's Bank of China, sent interbank lending rates from 3% to as high as 25% in late June 2013, finally settling on June 24 at 6.64%. China's state owned banks lend to trust companies in this market. Trust companies get additional financing by selling wealth management products promising investors returns of 8-10%. Even with China's high savings rate and large government reserves, the hidden debt and large unknowns about the loans in default, are seen by the central bank as posing risks to the target rate of economic growth of 7.5% if the government has to bailout a significant number of troubled banks. Much of the money funnelled through the trust companies since 2008 has been poorly invested. The trust companies such as Citic and Ping An Trust channel lending to borrowers for projects ranging from steel mills to infrastructure projects, such as highways and property developments that cannot obtain the financing through the large state owned banks. Fitch Ratings estimate is that since the financial crisis of 2009 these loans generated only one third of the economic growth per yuan as they did before 2009. ...

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Faced with the prospects of severe hardship in poorer countries, the World Bank gives a realistic forecast for 2009 that shows the world economy shrinking in 2009. It says the neeeds of poorer countries are likely to overwhelm what the IMF and the World Bank can do. And called for seting up a"vulnerability fund". Even if the World Bank tripled its lending in 2009, it would only reach $35 billion. The combined gap the emerging market countries face it says, is at least $270 billion and upto $700 billion in the next 2 years.

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The crisis in Eastern Europe where 13 countries have accumulated close to $1 trillion in collective debt to western European banks or in foreign currencies. The need for a fund like the one proposed by Hungary, with roughly $240 billion, to bailout the Eastern European countries.