Tag: Approved

NOT long ago China was a leading culprit in global economic imbalances. Whether blame was ascribed to its undervalued yuan or its frugal people, the problem seemed clear. China was selling a lot abroad and buying too little back. One data-point summed this up: its currentaccount surplus reached 10% of GDP in 2007, well above the level that is generally seen as reasonable. Far less attention has been paid to its steady decline since then. In the first quarter of 2018 China ran a current-account deficit, its first since joining the World Trade Organisation in 2001. Just as its massive surpluses of yore had big consequences for the global economy, so does this swing in the opposite direction.

China still exports many more goods than it imports, to the tune of nearly $500bn annually. But its share of global exports appears to have peaked. At the same time its trade deficit in services is getting bigger, largely thanks to all its tourists venturing abroad (see chart).

At bottom, a current-account…Continue reading

FEW banks can match the quaint serenity of Banco Delta Asia’s headquarters in Macau. Housed in a pastel-yellow colonial building opposite a 16th-century church, its entrance is flanked by tall vases, depicting sampan gliding between karst hills. In the tiled square outside, men laze under a banyan tree and an elderly woman peels a boiled egg for lunch.

But in 2005 this backwater bank incurred the wrath and might of the world’s financial hegemon. America’s Treasury accused it of laundering money for North Korea, prompting depositors to panic, other banks to keep their distance and the Macau government to step in. The Treasury subsequently barred American financial institutions from holding a correspondent account for the bank, excluding it from the American financial system.

Macau is over 8,000 miles from Washington, DC. But it is hard to escape the long arm of the dollar. Its dominance reflects what economists call network externalities: the more people use it, the more useful it…Continue reading

“YOU only have one vote so use it wisely,” advised the captain of a lunchtime AirAsia flight from Singapore to Kuala Lumpur on May 9th. It was the third time he had reminded passengers of Malaysia’s election that day. Travellers delighted by the personal touch shook his hand as they disembarked.

The pilot was not freelancing. AirAsia had planned to provide 120 flights with reduced fares to help Malaysians get home to vote (in the end, half of the extra flights were approved by the airlines regulator). And the low-cost carrier’s political play went much further than encouraging people to vote. Tony Fernandes, the firm’s British-Malaysian boss, arranged for an AirAsia plane to be painted with the slogan of the ruling coalition of Najib Razak, the country’s prime minister at the time. Mr Najib duly posted pictures of it. Mr Fernandes also appeared in a video attributing the success of his business to the Malaysian government.

Then came the most astonishing political result…Continue reading

IF ONE concern unites Americans, it is the high prices of prescription drugs. One incident in particular tarnished much of the pharma industry: in 2015 the price of an antiparasitic drug, Daraprim, jumped from $13.50 to $750 per pill. But large price increases remain stubbornly commonplace (see chart). According to IQVIA, a health-data firm, the wholesale prices of leading drugs such as Humira, Enbrel and Lyrica increased by more than 120% between 2012 and 2017. Other data show that cancer-drug prices rose from about $10,000 to over $100,000 per year in just over a decade to 2012. Further ahead, a new generation of cures, such as a gene therapy for haemophilia, may cost more than $1m.

President Donald Trump, never one to avoid stoking a grievance, has waded in, accusing the pharma industry of “getting away with murder”. This week, as The Economist went to press, he was scheduled to deliver a speech outlining a strategy to lower prescription-drug prices. Whatever he says, though,…Continue reading

TWENTY years ago schoolyard fads revolved around clothes and music. Now they are as likely to involve video games. The latest must-have is “Fortnite Battle Royale”, a lighthearted multiplayer shooter in which up to 100 players parachute onto a continually shrinking playing field, hunt each other down and compete to be the last one standing.

It is wildly popular. One estimate is that it had 45m players in March. A match broadcast on YouTube, and featuring some of that site’s stars, attracted more than 1.1m concurrent viewers, making it one of the most watched streams ever. Other big publishers, such as Activision-Blizzard, are pondering jumping in with clones of their own. Parents blame it for unfinished homework and for corrupting their children’s oh-so-pure minds. Some schools have tried, mostly in vain, to prevent students from playing.

Moral panics are tedious things. But “Fortnite” is interesting for a good reason. It shows the long-established influence within…Continue reading

IN CHINA no company achieved $1bn in annual revenue as quickly as Xiaomi did, in the year following the launch of its first smartphone in 2011. Chinese media initially nicknamed Xiaomi the “Apple of the East” (its literal translation is “little rice”). That was a stretch, even in good times. But within another two years the affordable-handset-maker became the world’s most valuable startup, worth $46bn.

Analysts reckon that it now wants to raise up to $10bn in an initial public offering (IPO) on Hong Kong’s stock exchange which was announced on May 3rd. (Its filing documents disclose neither the valuation that it is seeking, nor a fundraising target.) That could afford it a very generous valuation of as much as $80bn—not far off the $91bn market capitalisation of Baidu, China’s biggest search engine and one of the country’s three “BAT” tech titans alongside Alibaba and Tencent.

Yet only 18 months ago such talk would have seemed outlandish. In 2016 Xiaomi’s sales…Continue reading

JUST over a year ago Harold Hamm, billionaire boss of Continental Resources, one of the biggest shale-oil producers in America, issued a stern warning to his fellow frackers. Drill with restraint or we will “kill the market”, he said. This month the 72-year-old Mr Hamm, son of an Oklahoma cotton sharecropper who went on to become one of the founding fathers of the shale revolution, had a different message. Restraint is working.

The price of West Texas Intermediate (WTI), the light, “sweet” (or low-sulphur) crude that is a benchmark for American producers, rose to $71 a barrel on May 9th, its highest level since November 2014. OPEC, which Mr Hamm once called a “toothless tiger”, is successfully leading efforts to balance the market. Oil prices are partly rallying because President Donald Trump this week pulled America out of the nuclear deal with Iran and said he would reimpose sanctions on a big oil producer. Meanwhile a free fall in Venezuelan production may be further exacerbated by the…Continue reading

Digging in its wheels

MANY Europeans see long-distance coach travel across America as glamorous. That may be a legacy of a Clark Gable film from 1934 called “It Happened One Night”, about a romance between two passengers on a bus travelling from Florida to New York. Modern Americans see it as anything but alluring. It is looked down on as something used only by time-rich, money-poor people who cannot afford to travel by car, train or plane.

Flixbus, a German coach startup which is launching in America on May 15th, wants to change that. On the firm’s flagship route from Nuremberg to its hometown of Munich, winding between snow-capped peaks and picture-book villages in Bavaria, its bus passengers look distinctly affluent. Many on board play on tablets to pass the time; shirts and ties are common. One discerning traveller reads The Economist. Since Flixbus was founded in 2013, its efforts to encourage more people to try coach travel…Continue reading

IN A British television show, “Doctor Who”, the titular character is able to travel anywhere in time and space in his Tardis police box. Given access to that technology, what useful message would this columnist impart to his previous self, nearly 12 years and 550 columns ago?

The first lesson would be to avoid confusing the economy with the financial markets. If you looked at share prices alone, you might assume the intervening period had been calm; the S&P 500 index is around double its level when this column began in September 2006. But though the markets have long since recovered their sangfroid after the crisis of 2008-09, the trend growth rate of developed economies has never regained its strength. That is a bitter irony given that the crisis originated within the financial sector, bringing to mind a teenager who crashes their parents’ car and leaves them with the bill.

In part, the market’s resilience was owing to the remarkable strength of corporate profits,…Continue reading

WITH the exception of a few governments big enough to run their own auctions, anyone wishing to issue bonds must seek bankers’ help. A hefty fee will buy assistance in calibrating the size, structure and timing of a bond issue, as well as connections to lots of buyers. And once a bank has agreed to underwrite an issue, it bears the risk of failing to get a good price for the bonds. But the process is old-fashioned and inefficient (the head of bond origination at one American bank jokes that “not a lot has changed since 1933”), and the accuracy of the advice is hard to gauge. Overbond, a financial-technology startup in Toronto, wants to change all that.

Investment bankers responsible for bond issuance still operate largely by feel, calling up asset managers to get a sense of demand, rather than by crunching numbers. Rules against insider trading mean they cannot talk directly with their trader colleagues. Data on existing bonds are more abundant. In America, for instance, information on the price,…Continue reading