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McKinnon argues that China should be very careful not to appreciate the yuan beyond the interest rate differential between the two countries, which is related to their inflation rates. If inflation comes down in the U.S. even a 3% appreciation could lead to deflation in China. See the related article by Feldstein in this group which looks at the need for U.S. to keep business investment strong and boost exports to compensate for a housing price collapse related slowdown in the US. How this will playout and how the two situations will be managed so as to create desirable outcomes and avoid risks of slowdown in both countries is uncertain.

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Simon Denyer's interview with Vinod Rai, the Comptroller and Auditor General of India. Rai has persisted in uncovering corruption in India. He was appointed by prime minister Manmohan Singh from India's Finance ministry five years ago, and runs an organization with 63,000 employees with accountants in all Indian states. Reports by his agency have uncovered giving away of natural resources and telecom licenses worth billions of dollars. He describes the amounts involved as huge and attributes the increase in accountability of politicians and ministers to active citizens groups. The Indian media and Supreme Court have supported efforts to increase accountability. The CAG has constitutional protection. Rai sees the CAG's role as examining government spending to uncover irregularities and make it accountable to parliament. India is rare in this respect compared to China, Russia and other emerging market countries because of its vibrant media and democracy. A 2010 report uncovered corruption in giving away mobile phone network licenses and a 2012 report uncovered allocation of coal land without a competitive auction, with loss in government revenues estimated at $30 billion. The reports showed prime minister Singh aware of the irregularities but unable or unwilling to call for transparency and proper process. Rai's six year term expires in May 2013. ...

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Tom Friedman explains why Applied Materials is one of the largest solar panel manufacturers in the world but makes its panels in 5 factories in Germany, four in China and one each in India, Taiwan and Italy. With no factory in the USA. And all 14 factories put up in the last 2 years, put up overseas. Applied Materials is opening its largest worldwide research facility in Xian, China, in October 2009. Applied develops the knowhow for solar energy at its research facilities for manufacturing technology. These solar panel factories says Applied CEO Splinter go for about $200 million each. Solar panels technology can vary from thin film coated onto glass with nanotechnology using crystalline silicon, to other technologies. Germany is at the forefront of the world solar energy industry. It is the second largest industry in Germany employing some 50,000 people. China is putting a new emphasis on pollution free energy. What Germany has done says Friedman after visiting Applied Materials research facilities, is to allow any business or homeowner to generate solar energy, and if they decide have the power utility to connect them to the grid as well as buy the solar power at apric and duration attractive to the homeowner or business user. Something the USA has still to do. As a result solar energy consumption in the USA lags way behind these countries. Applied Materials largest USA customer is a German owned company in Oregon says Applied CEO Splinter. Splinter points to the fact that solar energy is becoming an important industry, similiar to the way the auto industry assumed importance. For Applied Materials this means revenues of $1.3 billion in the last 12 months, according to Splinter. ...

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Kevin Hassett, head of the National Economic Council, says the US-China talks in London are moving well and China is likely to provide access to rare earth minerals in exchange for flexibility in importing advanced semiconductors it needs. Asked about the talks at the meeting in the Oval Office with Germany's Merz, DJT says he is optimistic, and after talking to Xi for 2 hours he is planning to visit Beijing and Xi will be coming to the US.

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  A look at European history shows even in the religious wars between Catholics and Protestants France took the Protestant side when it was in its national interest. Other European nations also did the same in the Thirty Years War 1618-1648. China shifted out of the Soviet Bloc in the 1970's. There is no monolithic way in foreign policy. US sees it in its interest to get a European population Russian on its side or separate from China in meeting the challenge from China. After 3 years of war in which the US relations with Russia deteriorated because of the Ukraine war and US supplying Ukraine under the Biden administration, DJT reverses US policy to improve relations with Russia. The goal is to improve US-Russia relations. Because this also involves ending the Ukraine war that is destroying a whole generation of young men in Russia and Ukraine, US is exploring ways to end that war through early discussions to get a sense of Russian perceptions.This is why the US does not need the Europeans or the Ukrainians at the table. Ways in which US will restore relations-Restore staffing levels at embassies and consulates. Find ways to cooperate on economy and foreign policy issues.   ...

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After an initial period of a year Japanese companies are now making the move to pull back some of the production shifted overseas with the yen at 80 to the dollar. Canon made 40% of its product overseas in 2009 before the shift to 60% by 2013. Now it is shifting production back home to reach 40% overseas production. Other consumer electronics companies Panasonic, Sharp, Daikin, are shifting production back to Japan. This is similiar to the shift back to the U.S. of products made overseas as costs have risen in China and other Asian countries. The sharp swing in exchange rates is accelerating the trend. Auto companies Subaru, Toyota, Nissan, Honda are continuing plans to manufacture close to customers in the U.S. Shorter product cycles make it possible to shift production for electronics companies compared to longer product cycles at auto companies. Murata Manufacturing will continue to make smartphone parts close to its customers in China, lifting production overseas from 14% to 30%. As a result exports have increased in Nov. 2014 by 10.8% from the prior year and imports up 2.2%, according to the Finance Ministry....

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Good news for the eurozone economy. Growth has accelerated to 0.3%. It is estimated by OECD for growth in Eurozone at 1.2% for 2025 and 1.4% for 2027. The number of people employed rose by 0.6% for 2025 which shows the eurozone economies are resilient inthe face of tariffs and China's aggressive export drive in the EU. Investment growth picked up by 0.9% in the third quarter quarter of 2025 over prior quarter after a drop in the second quarter of 1.7%.

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US president Biden's multi-trillion dollar spending plans for infrastructure, climate change plans, education and healthcare, are based on a changing perception about the effectiveness of the public sector spending initiatives. The Reagan period idea that the public sector is not as efficient as the private sector that lingered through the Clinton, Bush and Obama, Trump administrations is no longer accepted. After the pandemic another perception is taking root that when it comes to health infrastructure the government has a leading and indispensable role to play. Gone are the doubts about this that hung like a cloud over the nation's plans for infrastructure in health, education and supply channels. Following the global competition with China a new factor is also playing its part. The need for government to play an active role in trade, in protecting technological resources, and in supporting US technological firms in competition with other countries. There is a new perception that the government should be determined to play this role. In the effort to be self-reliant after the pandemic the government is expected to play a role in redesigning the supply channels and providing the direction and incentives for supply channels worldwide that give America a competitive advantage and less dependence on other nations. ...

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See these really remarkable black and white pictures of what happens in a period of decay for industrialized economies as old industries die out- as happened in the UK,  in the US with communities left without hope. Only now with Biden and Starmer a new sense of purpose for the US and UK to correct what went woefully wrong- no plans for transition to new industries and outshoring of the nation's industrial base. This exhibition of 20/20 of photos taken by Kilip and Smith in black and white is at the Parr Gallery in Bristol, UK- you can see it here by clicking on original article right now. It is the failure to plan for the transition that has led the Conservatives from Thatcher onwards to the situation today, and a similar situation in the US from Reagan onwards. The haphazard transition has let China take the lead in new industries with government support. Only now is America under Biden making a real transition and backing up new industries for factory jobs with government support and planning for the next 10 years. Britain with the Conservatives in charge is without a clue and financially strapped- the mood in Birtiain is now for Labour under Starmer to right things the way Biden is doing in the US.  ...

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This Editorial Board article of the WSJ says the EU's embargo on Russian oil raise the cost for Putin's invasion of Ukraine and demonstrate Europe's resolve. The new round of sanctions by EU will ban the imports of Russian oil by sea as well as insurance for shipping companies that transport it globally. About two thirds of Russian oil comes by tanker. Germany and Poland will also stop pipeline oil imports from Russia, only Hungary, Czech Republic and Slovakia will continue with Russian pipeline oil. The result- an effective embargo on 90% of Russian oil imports by the end of 2022. How effective is this if Russian oil is rerouted through other countries to reach China, Western Europe and the US? The WSJ says don't underestimate the impact especially when it is combined with the ban on insuring ships that carry Russian oil. The higher insurance rates and costs of shipping will limit Russian oil exports. Europe makes up half of Russian oil exports and WSJ says the rest of the world can't use up all that oil. Russia exported $180 billion of oil in 2021, a large amount of this will no longer be available to Russia to finance the war. ...

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The RNC speech of the former president is described by the WSJ Editorial Board as long and rambling for 90 minutes after a good start becoming a typical speech that did not broaden the appeal, and with its random comments lacking clarity. The former president's claims on crime up when it is actually down by 15% according to FBI. On inflation and cost of living the inflation peaked at 9% is now down to 3% in 2023 with cost of living actions by Biden and Powell. The former president's solution to "Drill, baby drill," would only affect gas prices a bit, and do nothing for the principal causes of inflation in housing, in rental of apartments, in prices of automobiles and auto repairs, and in cost of drugs, student loans. Only a concerted action on all fronts as Biden and Powell have done would work, along with large investments in American manufacturing and jobs, which can only be done if no tax cuts are made for the wealthy not in the Republican platform. This means the hundreds of thousands of job creation each month happening now will stall and inflation from supply chains in China will be harder to control especially with a 60% Trump proposed tariff on Chinese imports. ...

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Lake county with 230,000 population in Ohio received 60 million pills. Ohio Counties say after the $650 million settlement verdict by US courts for CVS, Walgreens, that it cost them $1 billion for law enforcement, social services, and health services. The opioid crisis dealt another blow to communities in the US already devastated by the behaviour of banks in the 2009 economic crisis, the outshoring of entire manufacturing to China, followed by the pandemic in 2020. America is only now coming to terms with the failure of previous adminstrations as the Biden administration takes on this task of bringing America, its workers and families back to healthy thriving communities.

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What Handan Iron and Steel in Hebei Province 300 miles south of Beijing and ThyssenKrupp in Dortmund, Germany, have in common. The transplanting of Germany's aging defunct iron and steel furnaces and plant to Handan, boxed and crated away- its unreal that in 1998 Handan Iron and Steel bought and transferred an aging polluting plant to a city where the steel works are located in China which has 8.5 million residents. When years later the steel works were debated to be moved to a distance away from the city with Baoshan Steel, the decision was made to instead put a new plant there instead. The solution was to make pollution payments to residents of Handan. It was Mao's dream to build a steel industry in Hebei province ,which has large deposits of iron ore and coal and a rail line. Couple of questions come up to mind- one why did the first steel works go up right in Handan, and same is true of Dortmund, labor supply perhaps but couldn't homes be built nearby instead and these plants located away from cities. Second the deal for bringing the ThyssenKrupp plants was as recent as 1998, by this time China was already a big steel producer (producing more than the US by one estimate) and in a few years Chinese steel production was to exceed the US, Europe and Japan combined. With steel production already on the rise why didn't China move more carefully. Some of the Thyssen Krupp assets were built only a few years before 2000 and met stringent environmental control. China bought these.. Why didn't China pick out the best assets instead of old aging blast furnaces. The possible answers are that they were available at cut rate prices, but were they worth it. The second is that Hebei must be competing with other parts of China, and there wasn't a rational allocation of capital as would happen if a sophiticated company like a Mittal or a Tata Steel is involved. Is China operating on a outmoded concept- nationalism, competition between provinces with local government officials running the show? The other question is that in the case of the automobile industry a different pattern is seen, the most modern technology was selected , and in the case of Cherry, the most recent technology was selected for manufacturing cars, then why was this same pattern not adopted in the case of steel. In the end China has a surplus of steel mills, which makes this rush into steel production without carefully thinking through this appear to have been a mistake. The visual picture if one flies into Dortmund of manmade lakes, green park areas and residential housing and shopping from the $22 billion the EU and Germany are investing to turn the Ruhr valley region of Dortmund into a centre of education, technology and tourism now contrasts sharply with Handan in Hebei province. Can emerging countries do better, build manufacturing for jobs but keep living conditions in mind, be patient and work to achieve the best overall results, and build education, technology, appropriate for their own situation. ...

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Thre drug companies are placing bets on the vaccine business. Johnson and Johnson paid 302 million euros for 18% of Dutch biotech company Crucell NV, to jointly develop vaccines. Abbott Labs says it will acquire a unit of Belgian conglomerate Solvay SA for 4.5 billion euros in adeal that includes a vaccine business. And Merck obtained the marketing rights for a seasonal flu vaccine from Australia's CSL Ltd. This follows Pfizer's Wyeth acquisition. Low prices, high costs and fear of lawsuits made most drug makers to exit the business in the 1980's and 1990's. Now vaccine sales are growing faster than other prescription drugs and are largely protected from generic competition. And government agencies here in the USA and around the world are reliable buyers of vaccines as they seek to stockpile medicines that could be needed in aflu outbreak. Merck never exit the vaccine business and now makes 8 of 10 vaccines recommended for adults. Flu and other vaccines are especially attractive for entering drug markets in Brazil and China and developing countries. Governments lke the idea of lowcost prevention at $10 adose, and with this new relationships are developed in these countries. And even at price of $10 or $20 a dose they provide asteady stream of revenue.Vaccines are estimated to generate $21.5 billion in revenues by 2012 according to Sanofi-Aventis SA, which is a leading vaccine maker....

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The new government of prime minister Naoto Kan in Japan has tapped 2 business executives for posts as Ambassador to Greece and Ambassador to China. A former top executive at Nomura Securities heads for Greece, and former CEO of Itochu Corporation heads for Beijing. It is an effort to stay on top of changes in the global economy with experienced businessmen. Kan's idea is to harness the needs of Asian countries, finding solutions to problems, to raise the Japanese growth rate.

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A new CEO, Takahiro Hachigo, takes over at Honda Motor in Feb. 2015, following quality issues and problems with the faulty Takata airbags. Hachigo is a younger engineer who was managing officer for China. Executives with more experience were bypassed in the selection. This follows Toyota's selection of Akio Toyoda, a younger executive with international experience as CEO, and his successful track record in handling the Toyota recalls for unintended acceleration. This may have persuaded Honda to go with an unconventional choice.

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This editorial in WSJ says the WHO report on the most likely source of the pathogen for the coronavirus lacks credibility. It says the statement by former CDC head Mr. Redfield is more credible when he said last week, that the "I still think the most likely etiology of the pathogen in Wuhan was from a laboratory." Redfield added that virus transfer to a lab worker is not unusual in such research. Even WHO says it needs more research into the source. This editorial says the Biden administration knows the underlying intelligence and should release it to the public, that it should not accept a whitewash of the whole thing, leaving it as an unknowable. The need to take preventive steps in the future would help the world's population including China and India, the most populous nations in the world with most of the world's population, as well as the  countries in Latin America, North America, Africa, and Europe. Because the brunt of the coronavirus impact was borne by the people of the world preventive action is needed to restore hope for the future. One of the lessons of the crisis is that public and governmental involvement from many countries particularly the leading democracies is essential to restore hope, health cannot be delegated to any organization alone much less the WHO, ...

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India's leading energy official, Anil Swarup, the Coal Secretary, says India has to depend on what is available, with slow progress on nuclear power there is not much else. As India increases its growth rate to 7-8% India will increasingly be dependent on coal. The Modi government plans to double coal production. About 300 million people in India have no access to electricity. The country faces energy shortages in other areas. Even with a push for renewable solar and wind energy, coal is expected to provide 60% of energy needs in India in 2030. One government model shows solar and wind increasing from 6% to 18% by 2030. India points to per capita emissions which are 1.7 for India, 6.2 for China, and 17.6 for the U.S., according to the Carbon Dioxide Information Analysis Center.

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Under Mette Frederiksen immigration which reached 21,000 in 2015 was down to a little over 1000 a year. She is a strong fighter for workers and families and labor rights and yet tough on illegal immigration. She has been proven right about this as Britain and the US under Biden are seeing illegal immigration as a threat to workers and labour, are seeing the risks of distraction from illegal immigration doing a serious disservice to workers and families by making it hard to fight for workers and families on wages, cost of living and other issues.  Even with a strong record of fighting for workers and families, Frederiksen was one of the first European leaders to see the dangers of illegal immigration to society. It gave parts of the political spectrum that had no interest all along in workers and families doing well, an issue to run on that would come to cause grave harm to workers and families. This turned out to be the error of Angela Merkel a CDU leader brought up in Communist East Germany, who had no idea of the risks of her approach for open immigration. As Merkel let this chapter unfold it created fissures in Europe, with Tories and Nigel Farage taking Britain out of the EU and laying waste to its economy for 5 years till Labour's Starmer adopted a tough immigration policy and became prime minister in 2024. That danger then spread to the US in 2016 which also suffered as Republicans and Trump did the same in the US around rhetoric but without serious action on immigration till the Lankford- Biden legislation.  That bill would have closed the border with Mexico and ended immigration as an issue forever if passed into law in December 2023, as Senator Lankford says would have happened. Ending immigration as an issue forever alongside foreign wars as an issue, so that a concentrated effort could be made on improving badly damaged lives of workers and families. And on rebuilding badly damaged manufacturing in the US, rebuilding collapsing infrastructure, and competing with better education and healthcare with the large Asian countries China, Japan/ South Korea, India. ...

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Important year end reveiw of the oil price forecasting work of so many anlaysts and where they failed . The IEA and the US Enery Dpt forecast have year after year underestimated this pirce by over 20%. Analysts change the price forecasts within a couple of weeks based on changing information and assumptions. Of all this the Saudi Arabian forecasts have ben within 12 % of what has actually ocurred according to a study by Ronald Berger Strategy Consultants of Muich, Germany. And whats their forecast for 2008. By extrapolating from the Saudi budget and the assumptions, used such as giving a wide margin to avoid a deficit in the budget if oil prices undershot by a wide margin, one gets $75 for US benchmark crude. Forecast by experts are in the neighborhood of $80 average for the whole year 2008. Goldman recently revised theirs upwards from $85 average for 2008 to $95 within a 4 week period. How good is the Goldman forecast. No one really knows. Lehman has a forecast of $84 average for 2008 and bases it on the opacity of the market because no one knows what OPEC will do with supply and China does not provide good information on demand. So basically anlysts are adding an uncertainty premium to the price of oil. And this is especially so because as the Chief Economist at IEA says global space capacity is so thin and any event can influence price. Last year the rhetoric about Irans nuclear intentions was enough to stir up the price, as were other smaller events disrupting supplies. But the Iranian situation has since cooled down and diplomatic solutions are in the works. So what to expect in 2008 in the way of political uncertainty. Iraq, Iran, Palestine, Lebanon have all seen a cool off in the ast couple of years and the Bush administration rhetoric has become outmoded as has other rhetoric from Iran so that does'nt look like it will stir up oil prices in 2008. Still there will be some uncertainty premium about supply from OPEC and demand from China and India. And demand from the Middle Eastern oil producing countries themselves as well as the increasing demand in India and China will mean that lower demand in the US because of a recession will still mean an increase in global demand over 2007 of 1.5 million barrrels a day over 2007's 85 million barrels a day. What will change the dynamics of this situation is the government mandated fuel economy for all vehicles on the road with Europe more aggressive in this area under the pressures of global warming. If this impacts India, China and Russia as these fuel saving technologies are transferrred there overall consumption should see an impact. Europe's targets are only 4 years away for 2012. And the environment may cause China to bring in newer technologies that both contribute to improving environment and conserving energy. Because China's environmental record is almost catastrophic one could see some of this happen much sooner than expected after the Olympics in 2008. All that might change the way the world looks at oil and its use, and all energy sources and their use. ...

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The Paris climate change agreement involved 195 countries. Agreed to on December 12, 2015 it was seen as a major step forward to limit global warming to 2 degrees celsius or 3.6 degrees Fahrenheit. Progress has been slow in taking action since then. Because of covid 19 the Glasgow conference was cancelled. Hope stems from the goals set for carbon neutral economy of Japan, the EU, UK, China, and the U.S. as it enters the agreement after withdrawing.  Much will depend on action taken as the pandemic has pushed economic goals of recovery to the forefront. As India has shown in renewable energy, particularly in solar energy targets and bold vision, there is a lot that can be done by each country acting on its own without the hype of the agreement. India now sees huge opportunities in solar energy because it is cheaper and pollutes less than coal. This is a game changer that comes from investing in new technologies and taking advantage of India's abundant access to sunny weather and the lower labor and other costs. ...

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Coral Davenport of the NYT provides some of the basics of the Paris climate change agreement. This includes an effort to cut greenhouse gas emissions by half to avoid a situation in which atmospheric temperatures rise by 2 degrees Celsius or 3.6 degree Fahrenheit.  The earlier effort to negotiate an accord failed in 2009 in Copenhagen. This time all 186 countries were asked to signup with the USA and China, the No. 1 and No. 2 polluters and India leading the way. Germany is well on its way to self sufficiency through development of solar and wind energy with the German government leading the way, and France leads in the use of nuclear energy. How did this happen now? As Davenport points out there are scientific studies. But this is not the primary reason China is shifting.Davenport fails to emphasize the health concerns and pollution concerns that motivated China to shift away from coal. China's industrial revolution of the last 3 decades has come at a huge cost in pollution of air and water, and president Xi Jinping has decided to make the shift away from coal a top priority. It is estimated that mortality rates for areas of high coal use north of the Yangzte river have higher mortality rates than areas of lower use of coal south of the Yangzte river. The other big polluter India is shifting because it is learning from China's experience. Davenport mentions the resistance to the scientific evidence in the Republican party. As a result it is already clear that it lacks support in Congress and under a future Republican administration. In a fashion similar to healthcare, president Obama failed to create a consensus before proceeding in the hope that this would be better than waiting. However American industry is already moving away from coal as documented in Links- "The Trump executive order on coal and the continuing shift to natural gas." Utilities in the U.S. are making the shift away from coal because of the economics and planning ahead as governments can change every four years. ...

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This article in DW.com looks at China's development of the port of Hambantota, made using a loan of $312 million from the Export-Import Bank of China. State owned China Harbour Engineering worked on the construction of the port. This report says the port can handle about 2500 ships initially to take some of the load off of Colombo port which handles about 6000 ships annually.

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The domestic market is declining as Japanese consumers spend even less than before. Household spending declined by 3.5% in February, as unemployment went up to 4.4%. This means recovery based on domestic demand picking up is not going to happen. Exports declined by 46% in February 2009. Even though policymakers are trying to revive the domestic market, Japanese companies are looking for innovative ways to increase exports. Panasonic is making products specifically for emerging markets like China and Vietnam. In cars the domestic market is weak as younger Japanese are not showing an interest in buying new cars. Sales have gone down by half from the peak reached in 1990, and an industry organization expects sales to go to the lowest since 1977. Toyota saw overseas sales double since 1998, but Japanese sales declined by 10%. Sales of beer are declining as Japanese are shifting to drinking wine, so Kirin came up with a cheaper beer flavored drink in 2005 that did away with malt altogether, bought a winemaker. It is expanding overseas with $1.26 billion to raise its stake in Philippines beermaker San Miguel, and $1 billion in National Foods, an Australian company. Japanese are also becoming poorer in a relative sense, with Japanese income per capita not in the top five, it is now 19th in the world. And as the nation's birthrate declines, companies that make diapers like Unicharm are making diapers for the elderly, and products for pets called litter sheets. And Unicharm is expanding its network in China from 300 cities to 500 cities, is targeting the 18 million babies born in China, as well as selling diapers in South East Asia....