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By Dan Steinbock
Jul 23 2018 (Manila Times)

After explosive growth, China’s bond market provides diversified investment options to Chinese and foreign investors. But should you believe the hype, China’s bonds are overshadowed by fatal defaults.

Dan Steinbock

While China bulls might accuse such coverage of being excessive “glass is half empty” reporting, a more substantial problem haunts these briefings. The latter tend to assess the financial future of large emerging economies, which have high growth rates but low living standards, with the same benchmarks as major advanced economies, which are amid secular stagnation.

As a result, these reports systematically undervalue financial future in emerging economies, while overvaluing those in advanced economies. That’s misleading to investors at a historical moment of transition when financial might is following economic power toward emerging economies.

Low foreign participation as an investment opportunity
Rather than a great one-time opportunity for foreign investors, the low share of these investors in China’s bond market is often portrayed as a major liability.

Here are the realities: China has the world’s third-largest bond market, which was valued at about $12 trillion in year-end 2017. Currently, foreign investors own only 1.6 peercent of the total market. That is not a problem, but an investment opportunity.

Here’s why: Since the early 1990s, the Chinese bond market has achieved an annualized average growth rate of almost 40 percent. Just as Chinese industrialization took off in the late 20th century, China’s financial sector is following in the footprints, but with a time lag.

Let’s put the time lag in context, however. In the US, the Treasury bond market was created as part of the funding plans for World War I. In other words, it took almost 140 years of independence to create the first bond markets in America. In China, the bond market was created in the early 1990s; barely 40 years after China’s independence –more than three times faster than in the US.

It is the historical pace and structural importance of the Chinese bond market to ordinary Chinese and Beijing’s central government that should make it attractive to international investors as well.

Here’s why: After four decades of the most rapid catch-up in world history, Chinese per capita incomes, adjusted to purchasing power, are today on average about $18,100; or 30 percent of those in the US. In America, multiple generations have contributed to the bond market; in China, barely one.

Due to the lower prosperity levels of individual Chinese and Beijing’s national growth plan, the Chinese bond market is a priority for the well-being of Chinese families and for Beijing’s economic welfare plans – a priority that can now benefit foreign investors as well.

China’s impending financial expansion
In the past four decades, China’s economy has grown almost six-fold to more than 12 percent of the global economy. In the future, that share will continue to expand, as evidenced by the Chinese contribution to global growth, which has been around 30 percent since the 2008 global crisis. This is about 2.5 times more than its current share of the global GDP.

Relative to its rising economic importance, China’s role in the global financial market was limited until the early 2000s, however. Financial reforms started with pilot programs a decade ago and have dramatically accelerated, along with the internationalization of the renminbi. At the same time, sovereign paper, which dominated the bond market until the late 2000s, has been augmented by corporate bond issuance, particularly after the global crisis.

Today, the rapidly growing Chinese bond market comprises an expansive mix of sovereign, quasi-sovereign (policy banks), sub-government (municipal and state-owned enterprises, SOEs) and corporate bonds.

Moreover, the rapid growth of the Chinese bond market is not likely to be exhausted any time soon. By 2020, China is likely to catch up with Japan as the second-largest bond market in the world.

Indeed, the Chinese bond market has much more space to grow: relative to the $12 trillion economy, the bond market is less than 100 percent of China’s GDP. This ratio is far smaller than those in major economies. For instance, in the US, the ratio is closer to 200 percent. And China’s population base is more than four times larger than that of the US.

While cases of defaults and downgrades in the Chinese bond market have increased in recent years, these have remained under the control of the government, particularly regarding the state-owned enterprises (SOE) and local government subsidiaries (e.g. local government financing vehicles, LGFVs). Yet, only a decade ago the LGFVs were often portrayed as fatal to China’s economy by a slate of “China crash” theorists in Western media.

Chinese government may even have used some defaults as “demonstration effects” to signal the need for greater market discipline, while the campaign against corruption has enhanced regulators’ grip over potential credit events.

International takeoff
As the gap between media perceptions and investor realities has broadened, many investors ignore media reports that downplay opportunities. According to June data, overseas investors are pouring funds into China’s domestic bonds at record pace, despite what media portray as the “yuan’s jitters.”

The future of Chinese bond market expansion is likely to mimic that of China’s role in the IMF’s reserve currency basket (SDR), which is today 11 percent. That’s less than that of the US dollar (42 percent) and the Euro (31 percent), but more than the Japanese yen (8 percent) and the UK pound (8 percent). For all practical purposes, the Chinese bond market is likely to emulate the SDR allocations, which would imply that foreign participation has the potential to grow at least six-fold. Unsurprisingly, central banks and sovereign-wealth funds were the first to participate in RMB following its inclusion in the IMF’s SDR basket.

In contrast, private-sector investors—pension funds, insurance companies and asset managers—remain largely under-represented. Yet, in the past few years, the likelihood of their entry has been boosted by a number of highly regarded global index operators that have incorporated Chinese assets into their index space, including the IMF (SDR for global reserve currencies), MSCI (global equities) and Bloomberg-Barclays (BBGAI for global bonds).

It is the critical moments of historical transition that highlight the importance of unbiased financial reporting. The coming explosion of the Chinese bond market is a textbook example.

Dan Steinbock is the founder of Difference Group and has served as research director of international business at the India, China and America Institute (US) and a visiting fellow at the Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

This story was originally published by The Manila Times, Philippines

The post How international observers undervalue the Chinese bond market appeared first on Inter Press Service.

By Rukhsana Shah
Jul 23 2018 (Dawn, Pakistan)

As with so many other professions, nursing remains a neglected line of work, despite its practitioners being responsible for the treatment, safety and quick recovery of patients, as well as post-op management and specialised interventions. Doctors need them because no doctor can care for each patient.

Rukhsana Shah

According to the latest Economic Survey, there are 208,007 doctors and 103,777 nurses in the country. This reflects a ratio of one doctor to less than 0.5 nurses, while the recommended ratio is 1:4. This should not be surprising as 90 per cent of nurses here are females working in a highly misogynist culture, encountering sexual harassment and being treated as inferiors by doctors and hospital administrators.

They have long working hours and low wages. Their career trajectories are poor as they are inducted in Grade 16 after BSc in nursing, with prospects of promotions and perks like their officers in the public sector with similar qualifications. Many nurses are qualified from abroad but are not integrated at policymaking levels.

Nurses in Pakistan work in a highly misogynist culture.

In the private sector, nurses are paid between Rs12,000 to Rs20,000 per month with frequent double shifts due to shortage of staff. The quality of their qualifications varies as some nursing teaching institutions exist only on paper, while many others lack basic infrastructure. There is poor monitoring of benchmarks and discipline as the Pakistan Nursing Council is often hampered by the health bureaucracy and even by executive district officers who interfere in nursing recruitment, training, inspection and examination. Even transfers and postings of nurses are not controlled by directors generals of nursing in the provinces.

According to an Aga Khan University study, there is a highly skewed physician-centred culture in Pakistan with most nurses not being recognised as medical professionals in their own right. “The low socioeconomic status of nurses, unsafe work environment, lack of respect from doctors, and the very nature of nurses’ work create a dichotomy in society’s attitude towards the nursing profession.” It was noted that nursing shortage and the image of the profession had a reciprocal relationship: while most people appreciated the critical role of nursing in healthcare, very few considered it a suitable profession for their daughters or sisters, and even television portrayed nurses as handmaidens of doctors.

This is in complete contrast with the more feasible and affordable nurse-centred culture in developed countries, where public health is embedded in the nursing profession to reduce healthcare costs. Nurses work in a variety of settings in primary, secondary, community and social care services in hospitals, health centres, hospices and teaching institutions. They serve local communities in emergencies, work as midwives, nurse the sick and old, and also cater to persons with disabilities and mental illnesses. In the UK, despite NHS budget cuts, there are 300,000 nurses, while in the US, the ratio is one doctor to four nurses.

In India, high-powered institutional mechanisms such as the Bhore and Kartar Singh Committees have brought about major changes in the nursing culture, improving their working hours and recommending a minimum of Rs20,000 per month as starting salary. From 2000 to 2016, BSc colleges increased from 30 to 1,752 and MSc colleges from 10 to 611 in India. There are also eight institutions offering PhD programmes in nursing. Florence Nightingale Awards including medals and cash are given every year on International Nursing Day to 35 nurses for outstanding services.

In Pakistan, neither the legislators nor health professionals have effectively addressed the problems faced by nurses in the country. According to a Pakistan Medical Association office-bearer, it is an emergency situation and a special commission has to be put in place to review the entire system of nursing and align it with the requirements of not only the SDGs but the entire public health system. The number of nursing teaching colleges needs to be increased manifold and PhD programmes introduced. In order to improve the dismal doctor to nurse ratio, the government must take affirmative action to support nurses with higher salaries, a proper service structure and improve their image by publicly acknowledging through the media their services as a critical component of healthcare.

It is imperative that the bureaucracy of the health sector provide respect and space to the Pakistan Nursing Council to fulfil its mandate of training, inspection and protection of nurses without interference, providing modernised curricula, and ensuring access to foreign trainings which are usually used up by bureaucrats based in Islamabad. Other bodies such as the Pakistan Nursing Federation and Pakistan Nursing Association should also play their due role in empowering nurses, providing leisure facilities and encouraging the use of social media such as Twitter and WhatsApp to communicate with patients.

The writer is former federal secretary.

This story was originally published by Dawn, Pakistan

The post Bad career choice? appeared first on Inter Press Service.

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Imran Khan, the prime minister-in-waiting?

By Iftekhar Ahmed Chowdhury
Jul 22 2018 (The Daily Star, Bangladesh)

As one heads towards the elections in Pakistan on July 25, the main question in concerned minds is whether Imran Khan, the leader of the Pakistan Tehreek-e-Insaf (PTI), is going to be Pakistan’s next prime minister. Mr Khan has much going for him. He is a refreshingly fresh face in high political office untainted by corruption with rivals whose reputations stand in stark contrast. He is the blue-eyed boy of Pakistan’s “angels”—also known as the military establishment—who see themselves as the “mirror image” of the Pakistani society with scant respect for civilian political leaders drawn from feudal and business backgrounds, most of whom they accuse of having exploited the people. And finally, for a nation that thirsts for glory that has generally eluded it, Mr Khan is someone who earned huge admiration by winning for his people the World Cup in cricket, the holy grail of recognition in South Asia. Undeniably, Mr Khan has also toiled long and hard for victory at the polls. Is he going to get it? The question merits analysis.

Imran Khan gives a speech during a political campaign rally outside Lahore. Photo: Arif Ali/AFP

Imran Khan’s party, the PTI, has two main rivals. The Pakistan Muslim League (Nawaz), led by Nawaz Sharif, a former prime minister, currently in jail on charges of corruption; PML (N) is said to be the most popular party in Pakistan’s largest province, Punjab. The other is the Pakistan Peoples Party (PPP), jointly headed by the father-son combination of Messrs Asif Zardari and Bilawal Bhutto, which holds sway in the province of Sindh (though not in its principal urban centre, Karachi). The PTI currently rules Khyber Pakhtunkhwa (KP), where Mr Khan continues to enjoy massive popularity. Finally, in Balochistan, the principal political players known as “electables” are those who are tribal leaders with assured electoral seats, who are more likely to be influenced by offers in kinds than by any ideological predilections.

Now to look at numbers. The distribution of seats in the 272 contested constituencies (60 more are reserved for women and non-Muslims) in the Parliament (called the National Assembly) is as follows: Punjab 141, augmented by 3 in Islamabad the capital, which geographically lies within the province; Sindh 61 (including 21 for Karachi); Khyber Pakhtunkhwa 39; Balochistan 16; and Federally Administered Tribal Areas 12. So, the magic number to secure an overall majority is 137. Simply put, the party that wins that number gets to provide the prime minister. It would be stretching facts to say that the fiercely fought electoral battle is being conducted on a perfectly level playing field. Partly because of their past performance, or lack of it, in office and partly because of their poor relations with the military, the “angels”, with aid and comfort from the higher judiciary, surprisingly activist in Pakistan, both PML-N and PPP are left ploughing a difficult furrow on the political ground. This gives Mr Khan a decent leg-up. But can he, in the end, bring home the bacon—or in this case—the beef?

As of now, he is likely to win a huge majority in KP. In Sindh, he can pick up a few seats in Karachi, particularly as the influence of the earlier dominant Muttahida Qaumi Movement (MQM) comprising Urdu-speaking refugees from India is on the wane. In rural Sindh, where the PPP generally calls the shots, Mr Khan has articulated, at least at stated levels, sufficient religiosity to earn him blessings of some right-wingers, now organised as Grand Democratic Alliance (GDA). This can be converted into a few more seats. The Balochi “electables” will give him, a fellow Pathan, succour and solace, should he win. But to win, the battleground he will need to triumph in is Punjab. He has made significant inroads into the less developed southern part of the province, which has 45 seats. But in central and northern Punjab, which commands 95 seats, the PML-N, who currently govern at provincial level and claim some credits in development deliveries, are clear favourites.

So Mr Khan will have to rely on the 25 or so independent candidates for whom purse and perks can be major attractions to clinch the requisite majority. In all, should Mr Khan manage 110 or so of those numbers, he may have fortune smile on him. In that case, the president, who incidentally is a PML-N member but with the army looking over his shoulders (in this case, the act of “looking” may be accompanied by a modicum of “gentle pressure”), would have to offer him the first bite at office. If that happens, the number of parliamentary supporters is likely to swell because belonging to the government party always brings along certain welcome advantages.

But that remains, at least as of now, quite an “if”. There is always the possibility that immediately following the polls, the PML-N and PPP could join hands and demand to form government. Of course, by doing so, they would risk the ire of the “angels” and the possibility of their leaders following Mr Sharif into jail at some point in time. But the immediate temptation of office can boost audacity even against unsavoury odds. While this scenario is not far-fetched, right now Mr Imran Khan increasingly seems to be assuming the aura of a prime minister-in-waiting. It is true that given his internationally recognised charm and charisma, his appointment will make global headlines. But of course, Mr Khan himself more than most would know that just as in a game of cricket, politics is fraught with uncertainties. He surely understands that there is many a slip between the cup and the lip, and in this particular case, it would have to be “a cup that cheers but does not inebriate” (with power, that is!)

Dr Iftekhar Ahmed Chowdhury is a former foreign adviser to a caretaker government of Bangladesh and is currently Principal Research Fellow at the Institute of South Asian Studies, National University of Singapore.

This story was originally published by The Daily Star, Bangladesh

The post Prognosis of Polls in Pakistan appeared first on Inter Press Service.

Excerpt:

Imran Khan, the prime minister-in-waiting?

The post Prognosis of Polls in Pakistan appeared first on Inter Press Service.

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