9 JANAURY 2016
China’s contagious economic turmoil
China’s transition to a ‘new normal’ rate of growth was always expected to be bumpy. But, as it shifts gears, the Asian giant is spilling pain on to the rest of the world, and volatility is about the only certainty in the global economy at the moment. The yuan’s depreciation on Thursday to its lowest level since 2011, again put stock markets and currencies worldwide under pressure. Investors fear other countries could now be forced to consider competitive currency devaluations. The depreciation was less unexpected than the devaluations in August and is in line with Beijing’s move to make the yuan — all set to become a reserve currency of the International Monetary Fund — more market-linked. There’s a fresh worry: China’s foreign exchange reserves shrank by $108 billion in December, the biggest monthly drop on record, and declined by $513 billion last year. To put this figure in perspective, India’s foreign exchange reserves added up to $350.4 billion on January 1. The accelerating outflows from China, investors fear, could also be a sign of the country’s deepening troubles. China is rebalancing its economy, shifting it away from a model of debt-fuelled infrastructure and low-cost exports towards lower but more sustainable growth, driven instead by domestic consumption and services. Reformers in Beijing want to slow the Chinese economy, which expanded at a frenetic 10 per cent annually before 2008, and by about 7 per cent more recently. As the world’s second largest economy goes through a recalibration, the question increasingly being asked is: are the authorities in Beijing in control of the transition?
The scale and span of China’s trade gives it an over-sized influence over the global economy. Its waning appetite for commodities and imports is hurting economies dependent on such exports. For India, though, the drop in international commodity prices, especially of oil, is providing a silver lining as it is a net importer. The pain for India will come from the big and growing trade deficit it has with China. The deficit, which was $48 billion at the end of March, had reached $36 billion in the first eight months of this year and could worsen with the yuan’s depreciation. The Indian government must recognise that the depreciating yuan is a threat above all to Prime Minister Narendra Modi’s ‘Make In India’ plan. Indian manufacturers already suffer significant cost disadvantages. Their competitiveness will now diminish further against imports from China. Under the burden of China’s slowdown, global trade itself has shrunk. Recovery continues to elude the world more than seven years after the financial meltdown in 2008 and the subsequent monetary easing worldwide. India must recognise that the global economic scenario is far from healthy and take steps to spur domestic growth.
The U.S.’s firearms menace
U.S. President Barack Obama parted with the steely tradition of his two-term presidency this week, when he shed tears at the White House over what appears to have become a top-of the-agenda item of his final year in office, gun control reform. Although he broke down at the mention of six-year-olds massacred at Sandy Hook Elementary School in Newtown, Connecticut, it was anger that seared through his speech announcing executive actions to take on the stubbornly lax regulation of guns in the U.S. These actions aim to expand background checks for gun ownership, boost funding for federal agencies enforcing gun laws, improve treatment of mental health conditions nationwide, and herald an era of “smart gun” technology to prevent accidental firearm deaths. Few would blame Mr. Obama for feeling frustration over the quagmire that has greeted every attempt of his to start a conversation on what many worldwide would consider a reasonable restriction on the constitutionally enshrined right to bear arms. He has pitched for tighter, more meaningful gun laws no fewer than 15 times from the Oval Office, and his most ambitious attempt to bring the discussion to the floor of the Senate three years ago was speedily disposed of by hostile lawmakers. This week’s executive action had echoes of that 2013 omnibus gun control bill, yet in the face of uncertain funding prospects in a Republican-controlled Congress, likely resistance from conservative states and near-certainty of legal challenges, it may lack the teeth to seriously impact gun proliferation.
There are two forces behind America’s abysmal progress in halting the regular occurrence of gun rampages in public spaces. The first is what Mr. Obama described as the “lies” of the pro-gun lobby, whose lifeblood is the influential National Rifle Association, funded largely by gun manufacturers. After every mass killing with guns, NRA spokespersons proclaim in the American media that the only answer to gun deaths is more guns. Their efforts are bolstered by Republican presidential hopefuls such as Donald Trump. The second, more intractable, impediment facing any would-be reformer is the U.S.’s cultural proclivity for gun ownership. Even though a Quinnipiac poll last month found 89 per cent overall support for expanded background checks, a CNN poll the same month found that only 48 per cent of Americans favoured stricter gun control laws. Like any other cultural revolution, unwinding this national obsession with guns will be a slow process. Ultimately the realisation must dawn that, contrary to the Second Amendment’s promise that the right to bear arms will protect the public from the tyranny of government, in the 21st century it is the tyranny of firearms that truly threatens the American way of life.