Economist 3/12/15

  1. CHINA has cut its growth target for 2015 to 7%, which would be the slowest expansion in more than two decades. Data this week show it will be a stretch to hit even that. This might not seem much to fret about.On a basic level, it was inevitable that the Chinese growth rates of the past three decades, which averaged 10% a year, would wane.The bigger an economy gets, the harder it is to keep growing at a fast clip.China’s working-age population peaked in 2012. Investment also looks to have topped out (at 49% of GDP, a level few countries have ever seen).The single most important development has been its credit binge. Total debt (including government, household and corporate) has climbed to about 250% of GDP, up 100 percentage points since 2008.The real-estate sector, which previously accounted for some 15% of economic growth, could face outright contraction.
  2. Michael Corbat, the current boss of Citigroup reckons 60 businesses have been sold since the crisis. Among them are brokerage arms in America and Japan, a student-loan operation and some credit-card units. The most visible contraction has been in Citi’s consumer business, which is shrinking from 50 countries to 24, and in America, from 14 cities to seven.In spite of all this restructuring, Citi’s performance remains dismal. Part of the problem is the endless restructuring itself: provisions related to it were $148m in the first quarter of 2013, $75m in the second, $133m in the third, $234m in the fourth.Its return on equity last year was 3.4%.On March 11th the Federal Reserve will reveal the results of the second of the two annual “stress tests” it conducts for big banks, which attempt to simulate downturns to make sure that banks have enough capital to withstand them. Citi failed this test in 2012 and in 2014, and as a result has not been allowed to raise its dividend.It is present in 101 countries, and handles $3 trillion of transactions daily. It finances $600 billion in trade every year. More than half its deposits are foreign—far more than any other American bank.On top of this, big global banks face ever higher capital requirements, with overlapping regulations set in multiple jurisdictions.These rules are giving smaller banks, or purely domestically focused ones, a competitive advantage.
  3. After the talks, Barack Obama said he hoped the United States could lay the groundwork for reopening its embassy in Havana before the Summit of the Americas in Panama on April 10th-11th, which he will attend along with Cuba’s Raúl Castro. Cuba confirmed that it is prepared to restore diplomatic ties as soon as the US administration recommends the island’s removal from the State Department’s list of state sponsors of terrorism. Mr Raul Castro told a Latin American summit in January that full normalisation of relations with the United States would depend on the formal lifting of the embargo, compensation for the costs it imposed on Cuba and the restitution of the Guantánamo naval base. The last two items are politically impossible, as he surely knows.Why is he being so prickly?As a Cuban academic in Havana puts it, the leader of the opposition is Fidel. Raúl cannot ignore his brother’s views, even though Fidel is now frail and elderly. And Fidel is not a fan of the rapprochement with the United States.
  4. AMERICA’S health-care system is the costliest in the world, gobbling up 17% of GDP. The average for rich nations is only 9%; even the French spend less than 12%. Despite this avalanche of cash, one American in ten has no cover and American life expectancy, at 79, is four years worse than Italy’s.The Affordable Care Act of 2010, better known as Obamacare, was supposed to deal with these problems. Five years later, Barack Obama’s most important domestic reform is unpopular (56% of Americans disapprove of it) and under renewed attack.First, despite the incompetent rollout of healthcare.gov , the proportion of Americans who lack cover has fallen from 16.2% to 12.3% since 2009. Second, the previously terrifying pace of medical inflation has slowed. The amount that America spends on health care grew by 3.9% a year in nominal terms between 2009 and 2011—having grown by 7.3% a year in 2000-08.The economic downturn accounted for much of the fall in health-care inflation: 77% by one estimate, 37% by another. Yet Obamacare also played its part.The old rule of thumb for American health care—and particularly for Medicare—was that doctors were paid for every test and surgical procedure, and so performed many that were unnecessary. The new law has provisions that encourage them to keep people well; for example, it imposes penalties on hospitals where patients are frequently readmitted.
  5. The education reform of 2013 in Mexico is aimed at boosting the quality of education in a country that Mexicanos Primero says gives children an average of 8.8 years of study, compared with 13.3 in the United States.Mr Peña is getting tough with teachers, who earn, with copious benefits, the equivalent of 513.6 days of salary for 200 days of school, according to Marco Antonio Fernández of the Monterrey Technological Institute’s School of Government. His reform exposes them for the first time to independent evaluation, both at entry level and further up the career ladder.The reform has also centralised payments of salaries at federal level, in an effort to end a ludicrous anomaly by which both central and state governments paid teachers, though neither knew how many there were.Imperfect as it may be, pollsters say the education reform is far more popular nationwide than others promoted by Mr Peña, such as bringing competition into the monopolistic energy and telecoms businesses. That is particularly true in the industrialised states in central and northern Mexico, where PISA scores are already well above the national average.In the south, where reform is needed most, resistance is strongest. Teachers there say what they need is electricity, running water and toilets, not evaluations.
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