First and Second Quarter 2018 North American Housing News

2018 housin

Canadian Housing News

CREA cuts home sales forecast, May sales fall 16.2 per cent from year before

The Canadian Press

Published June 15, 2018 Updated June 15, 2018

The Canadian Real Estate Association is lowering its national home sales forecast for this year because of weaker sales in B.C. and Ontario.

The industry association, which represents about 100,000 real estate agents across Canada, said Friday it now expects home sales this year to fall 11 per cent compared with a year ago to 459,900 units in 2018. The prediction compared with a forecast for a 7.1-per-cent decline the association released in March.

“The decrease almost entirely reflects weaker sales in B.C. and Ontario amid heightened housing market uncertainty, provincial policy measures, high home prices, ongoing supply shortages and this year’s new mortgage stress test,” the association said in a statement.

The updated forecast came as CREA reported actual home sales in May hit a seven-year low as they fell 16.2 per cent compared with a year ago.

The national average price for homes sold in May was slightly more than $496,000, down 6.4 per cent from a year ago. Excluding the Greater Toronto and Greater Vancouver areas, the average price was a shade more than $391,100, down 2 per cent.

This drop in sales activity capped off a lackluster spring home-buying season, as March, April and May are typically the most active months in any given year. National home-sales activity in March and April were down 22.7 per cent and 13.9 per cent, respectively, according to CREA numbers.

Combined sales for the three-month period fell to a nine-year low, CREA said Friday.

Factors weighing on home sales include new government measures introduced in B.C. and Ontario, such as a foreign-buyers tax, as well as interest-rate hikes by the Bank of Canada.

The association on Friday again pointed the finger at a new stress test introduced at the beginning of the year for uninsured mortgages, which has cut the amount that certain home buyers are able to qualify for.

“The stress test that came into effect this year for home buyers with more than a twenty per cent down payment is continuing to suppress sales activity,” said CREA president Barb Sukkau, in a statement. “The extent to which it is sidelining home buyers varies among housing markets and price ranges.

As of Jan. 1, the Office of the Superintendent of Financial Institutions requires buyers who don’t need mortgage insurance to prove they can make payments at a qualifying rate of the greater of two percentage points higher than the contractual mortgage rate or the central bank’s five-year benchmark rate.

The bar was raised even higher in May, when the central bank’s five-year benchmark rate rose from 5.14 per cent to 5.34 per cent. The Bank of Canada uses the posted five-year fixed mortgage rates at the Big Six banks to calculate the benchmark rate. The central bank’s benchmark rate increased, in turn, after all the Big Six banks raised their posted five-year fixed mortgage rates in the preceding weeks, reflecting the higher borrowing costs associated with a recent rise in government bond yields.

“This year’s new stress-test became even more restrictive in May, since the interest rate used to qualify mortgage applications rose early in the month,” said Gregory Klump, CREA’s chief economist, in a statement Friday. “Movements in the stress test interest rate are beyond the control of policy makers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from U.S. trade policy frictions.”

CREA’s latest figures support the notion that markets are stabilizing after the volatility at the beginning of 2018 related to the tightened mortgage rules introduced on Jan. 1, said TD economist Rishi Sondhi.

“On balance, this was a better-than-expected report. Sales were effectively flat during the month – their best turnout so far this year. Meanwhile, listings increased for the third time in four months, pointing to somewhat improved confidence on the part of sellers as prices edged higher for the second straight month.”

  • Summary
  • National data
  • City and neighbourhood data

Canada’s home prices gain a little ground

Canada’s home prices gained ground in June with a 0.9 per cent increase from May, according to the latest data from the Teranet-National Bank House Price Index.Marc Pinsonneault, senior economist at National Bank of Canada, says that, while impressive at first glance, the gain was the third smallest for June in the past 14 years.

The composite index of 11 metropolitan markets is now barely above its previous peak in August of 2017, the economist points out.

In June, prices rose compared with May in 10 of the 11 markets surveyed. The leader was Ottawa-Gatineau with a two per cent jump, followed by Hamilton with a 1.8 per cent gain, and Edmonton with a 1.5 per cent increase. The Victoria index rose 1.3 per cent; Toronto added 1.2 per cent; and Halifax, one per cent.

The average sale price of all the housing types in the cross-country index was $546,562 last month.

The composite index, which charts price trends based on a large sample of the property deals registered at land title offices, now stands at 223.82.

year over year june 18

Mr. Pinsonneault adds that when seasonal patterns are stripped out, the index has essentially remained stable in the past three months.  Carolyn Ireland

year over price change may 18

Canadian Housing Snippets

CHMC Highlights

Labour Force Survey, May 2018 Released at 8:30 a.m. Eastern time in The Daily, Friday, June 8, 2018

Employment was little changed in May, and the unemployment rate was 5.8% for the fourth consecutive month. On a year-over-year basis, employment grew by 238,000 or 1.3%, due to gains in full-time work. Over the same period, total hours worked were up 2.0%.


Highlights In May, employment decreased for people in the core working ages of 25 to 54. It increased for people aged 55 and older and was little changed among youth aged 15 to 24. Employment increased in Prince Edward Island, while it decreased in British Columbia and Nova Scotia. There was little change in the other provinces. There were employment increases in four industries in May: accommodation and food services; professional, scientific and technical services; transportation and warehousing; and finance, insurance, real estate, rental and leasing. At the same time, employment declined in health care and social assistance, manufacturing, construction, and “other services.” There was little change in the number of employees in both the private and public sectors, as well as the number of self-employed workers

unemployment rate

 Employment decreases for core age population

For people in the core working ages of 25 to 54, employment fell among both men (-19,000) and women (-19,000).

The unemployment rate for men in this age group held steady at 5.0%, while it increased by 0.2 percentage points to 4.9% for women.

In the 12 months to May, employment among core-aged men grew by 33,000 (+0.5%), the slowest year-over-year growth for this group since November 2016. Employment increased by 40,000 (+0.7%) for core-aged women on a year-over-year basis.

Among people aged 55 and older, employment increased by 29,000 in May, bringing year-over-year gains to 173,000 (+4.5%). The unemployment rate for this age group fell 0.2 percentage points in the month to 5.1%.

Employment was little changed among youth aged 15 to 24 on both a monthly and year-over-year basis. The unemployment rate for this age group held steady at 11.1% in May.

Employment little changed in most provinces

Employment in Prince Edward Island increased by 800 in May, while the unemployment rate fell by 1.9 percentage points to 9.3%. Compared with 12 months earlier, employment in the province was little changed.

In British Columbia, employment fell by 12,000 in the month. For the first time since May 2015, employment in British Columbia recorded virtually no growth on a year-over-year basis. The unemployment rate was little changed compared with the previous month, at 4.8% in May.

The number of workers in Nova Scotia was down by 3,600 in May, and the unemployment rate Increased by 0.5 percentage points to 7.2%. On a year-over-year basis, employment was little changed.

Employment in Quebec was little changed in May, as a decrease in full-time work was offset by more people working part time. The unemployment rate was little changed at 5.3%. In the 12 months to May, employment in the province increased by 65,000 (+1.6%).

In Ontario, there was virtually no change in the number of people working in May, and the unemployment rate was 5.7%. On a year-over-year basis, employment in the province was up by 126,000 (+1.8%).

The remainder of he provinces showed minimal change year to year.

Industry perspective In accommodation and food services, employment rose by 18,000 in May, driven by growth in British Columbia. Employment gains in April and May accounted for more than half of the year-over-year increase (+56,000 or +4.7%) in this industry.

Employment in professional, scientific and technical services rose by 17,000 in May, entirely due to gains in Ontario. On a year-over-year basis, employment in this industry was up by 31,000 (+2.1%).

There were 12,000 more people working in transportation and warehousing in May, bringing the year-over-year increase to 42,000 (+4.5%).

Employment in finance, insurance, real estate, rental and leasing rose by 12,000, almost entirely in Quebec. Despite this increase in the month, the number of people working in this industry was like that observed 12 months earlier.

There were 24,000 fewer people working in health care and social assistance in the month, while employment was little changed on a year-over-year basis.

Manufacturing employment was down by 18,000 in May, and was virtually unchanged compared with 12 months earlier. Employment in this industry reached a five-year peak in December 2017, and has been trending downward in 2018.

Employment in construction fell for the second consecutive month, decreasing by 13,000 in May. Employment was little changed from 12 months earlier, with recent declines offsetting gains observed in late 2017. Employment in “other services” fell by 12,000 (-1.5%) in May and was little changed on a year-over-year basis.

Other services” includes services related to civic and professional organizations, and private households. There was little change in the number of employees and the self-employed in May. On a year-over-year basis, there were increases in the number of public sector (+84,000 or +2.3%) and private sector (+105,000 or +0.9%) employees, while the number of self-employed was little changed.

Summer employment for students From May to August, the Labour Force Survey collects labour market data on youths aged 15 to 24 who were attending school full time in March and who intend to return to school full time in the fall. The May survey results provide the first indicators of the summer job market, especially for students aged 20 to 24, as many younger students are still in school. Data for June, July and August will provide further insight into the summer job market. Published data are not seasonally adjusted, therefore comparisons can only be made with data for the same month in previous years. Compared with 12 months earlier, employment among 20- to 24-year-old students was virtually unchanged in May. The employment rate (57.0%) and unemployment rate (13.6%) for this group of students were also little changed compared with May 2017.


Annual review of the labour market, 2017 Introduction and overview

This article analyses the Canadian labour market in 2017. The focus is on national trends as well as key provincial and industrial sector changes.

In general, consistent signals across key labour market indicators pointed to a tightening of the labour market, including the fastest total employment growth in a decade and a downward trend in the national unemployment rate.

At the same time, average weekly earnings increased notably, the number of regular Employment Insurance (EI) beneficiaries declined, and the job vacancy rate increased. All these changes coincided with stronger economic growth, as the real gross domestic product grew 3.0% in 2017, following growth of 1.4% in 2016.1

The analysis in this article uses a combination of major labour market indicators from different sources. All analysis is based on annual averages, unless otherwise noted. The Labour Force Survey (LFS) is used primarily for data on unemployment and employment details for demographic groups.

The Survey of Employment, Payrolls and Hours (SEPH) is used for payroll employment by industrial sector as well as average weekly earnings and hours for employees. Data from the Job Vacancy and Wage Survey (JVWS) and from EI statistics are also used.

Fastest employment growth rate in a decade, driven by increases in full-time work

Between 2016 and 2017, total employment rose by 336,500 or 1.9%, the fastest annual rate of growth in a decade.2 This follows three years of increases below 1.0%. Most of the growth was in full-time work (+280,600 or +1.9%). Employment gains were spread across several provinces, led by Ontario, Quebec and British Columbia. At the same time, there was a notable decline in Newfoundland and Labrador. At the national level, the largest increase was among people in the core working age group (25 to 54). This contrasted with 2016, when core age employment was virtually unchanged.

employment by type of work and growth rate

Unemployment rate trends down, participation rate edges up

Using annual data, the unemployment rate was 6.3% in 2017, down 0.7 percentage points compared with 2016. This was the largest decline since 2000. The unemployment rate fell among every major demographic group in 2017.

Provincially, the lowest unemployment rate was in British Columbia (5.1%), and the highest was in Newfoundland and Labrador (14.8%). On a monthly basis, the unemployment rate trended down throughout 2017, reaching 5.8% in December— matching a record-low previously observed in October 2007.3 The unemployment rate at the end of 2017 was 1.1 percentage points lower than 12 months earlier.

For most OECD (Organization for Economic Co-operation and Development) countries, the unemployment rate 4 also trended down in 2017, as economic conditions strengthened for this group of countries.

In December 2017, the unemployment rate in Canada was in line with the total OECD harmonized average unemployment rate of 5.5%. The participation rate—the proportion of the population either working or looking for work—rose for the first time since 2008, increasing by 0.1 percentage points to 68.5% in 2017.5 This was driven by increased participation among the core age population, particularly for women in this age group, which brought the core age participation rate to a record high of 87.0% (+0.5 percentage points compared with 2016). Labour force participation among people aged 55 and older continued its long-term upward trend, which is associated with the aging of the population as well as other social and economic factors

unemployment rate canada Jan 2007-dec 2017

Employment Insurance recipients decline, job vacancies rise The number of people receiving regular EI benefits was 529,700 in 2017, down 6.0% from 2016.6 This follows two years of increases. The declines were most notable in Alberta and Quebec, while the number of beneficiaries rose the most in Newfoundland and Labrador. At the same time, there was a higher number of vacancies among employers—the average number of job vacancies over the four quarters of 2017 rose 18.2% in comparison with the average of 2016.7 The average job vacancy rate—the number of job vacancies expressed as a percentage of all occupied and vacant jobs—over the four quarters in 2017 was 2.8%, up from 2.4% in 2016. The unemployment-to-job vacancy ratio—the number of unemployed people divided by the number of job vacancies—declined in 2017.8 There were 2.8 unemployed people for each job vacancy (down from 3.6 observed in 2016).9 This is a due to a combination of fewer unemployed people as well as a rise in the number of vacant positions being reported by employers

  1. Labour Force Survey estimates (LFS), by sex and age group, seasonally adjusted and unadjusted, monthly (282-0087). “Record-low” using comparable data starting in 1976.
  2. OECD (2018). Harmonised unemployment rate (HUR) (indicator). doi: 10.1787/52570002-en (accessed on 4 April 2018), htm#indicator-chart.
  3. Labour Force Survey estimates (LFS), by sex and detailed age group, annual (282-0002).
  4. Employment Insurance program (EI), beneficiaries by province, census metropolitan category, total and regular income benefits, declared earnings, sex and age, unadjusted for seasonality, monthly (276-0033). Calculated using the annual average of the calendar year.
  5. Job Vacancy and Wage Survey (JVWS), job vacancies, job vacancy rate and average offered hourly wage by economic region, unadjusted for seasonality, quarterly (285-0001). Calculated using the annual average of the four quarters.

Average weekly earnings increase in most provinces Following a record-low annual earnings growth of 0.5% in 2016, average weekly earnings of non-farm payroll employees increased by 2.0% to $976 in 2017.10 This growth rate was similar to the one observed in 2015 (+1.8%). Average weekly earnings trended upward in the second half of 2017. As a comparison, the annual average increase in the Consumer Price Index (CPI) was 1.6% in 2017.11 In general, changes in weekly earnings reflect a number of factors, including wage growth; changes in the composition of employment by industry, occupation and level of job experience; and average hours worked per week.

annual rowth rate of av weekly earnings

Average weekly earnings grew in almost all provinces; and in the majority, the growth rate was higher in 2017 than in 2016. Growth in average weekly earnings was above the national average in Quebec (+2.8% to $903), British Columbia (+2.5% to $943), Manitoba (+2.5% to $911) and Saskatchewan (+2.2% to $1,010).12 Alberta saw the most notable change in the growth rate in comparison with 2016, with average weekly earnings increasing 1.0% to $1,130 in 2017, after declining 2.4% in 2016. In Prince Edward Island, average weekly earnings were little changed in 2017

  1. The ratio is often used to describe how tight or slack the labour market is. Lower values of the ratio imply that there are fewer unemployed persons per job vacancy and possibly greater ease of finding a new job, suggesting a tight labour market. Conversely, higher values of the ratio imply that there are more unemployed persons per job vacancy and possibly greater difficulty finding a new job, suggesting a slack labour market. For more information, see “Linking labour demand and labour supply: Job vacancies and the unemployed.” Insights on Canadian Society (75-006-X),
  2. Labour Force Survey estimates (LFS), by sex and detailed age group, annual (282-0002); and Job Vacancy and Wage Survey (JVWS), job vacancies, job vacancy rate and average offered hourly wage by economic region, unadjusted for seasonality, quarterly (285-0001). Calculated using the annual average of the four quarters.
  3. Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings by type of employee, overtime status and detailed North American Industry Classification System (NAICS), annual (281-0027).
  4. Consumer Price Index, annual (2002=100) (326-0021).
  5. Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings by type of employee, overtime status and detailed North American Industry Classification System (NAICS), annual (281-0027)

Hours trend up for employees paid by the hour, hold steady for salaried employees

After trending downward through 2016 and reaching a recent low point in April 2017, average hours among hourly paid employees—who represent about 60% of non-farm payroll employment—trended upward through most of 2017.13 However, on an annual basis, average weekly hours were little changed from 30.2 hours per week in 2016 to 30.1 hours per week in 2017. For salaried employees, the regular work week was also little changed in 2017, at 36.9 hours per week on average. The regular work week for salaried employees has been hovering around that level since 2009.

Employment increases in both goods- and services-producing sectors

Most of the non-farm payroll employment growth in 2017 was driven by services-producing sectors, which rose by 219,900 (+1.7%), the largest level increase since 2008.14 Health care and social assistance was the main contributor. There were also notable increases in accommodation and food services; professional, scientific and technical services; as well as educational services.

Payroll employment growth in services-producing sectors has typically outpaced goods-producing sectors over the past decade, except for a brief period between 2010 and 2012, when goods-producing sectors increased at a faster rate, due mostly to increases in natural resources and construction.

Following two consecutive years of declines, employment in goods-producing sectors rose by 64,400 (+2.3%) in 2017. This growth was led by manufacturing and construction. Employment in the mining, quarrying, and oil and gas extraction sector recovered slightly

payroll employment change in srevices and goods

  1. Survey of Employment, Payrolls and Hours (SEPH), employment, average hourly and weekly earnings (including overtime), and average weekly hours for the industrial aggregate excluding unclassified businesses, seasonally adjusted, monthly (281-0049).
  2. Survey of Employment, Payrolls and Hours (SEPH), employment by type of employee and detailed North American Industry Classification System (NAICS), annual (281-0024)

Health care and social assistance jobs continue to rise

For the fourth consecutive year, health care and social assistance was the largest contributor to payroll employment growth, rising 39,600 (+2.1%) in 2017. This brought the total number of employees in this sector to 1.9 million, the second-largest sector by employment (behind the 2.0 million in retail trade).

The biggest employment increase for the health care and social assistance sector was in Ontario (+14,600 or +2.1%), and to a lesser extent Quebec (+8,400 or +1.9%), reflecting their larger populations. However, the rate of employment growth outpaced the national average in Manitoba (+3.2% or +2,900), British Columbia (+2.7% or +6,900) and Alberta (+2.6% or +4,900).

At the national level, increases in health care and social assistance were spread across several industries, led by general medical and surgical hospitals, individual and family services, as well as community care facilities for the elderly. Employment in community care facilities for the elderly has more than doubled since 2006, reflecting the needs of an aging population. The number of people aged 65 and older increased by 36.9% between 2006 and 2016.15

The unemployed-to-job-vacancy ratio in health care and social assistance was 0.9 in 2017, which means there are more job vacancies than unemployed persons in that sector.16

Average weekly earnings in health care and social assistance were $889 in 2017, an increase of 2.6% from a year earlier. While average earnings in this sector were slightly below the national average, there was large variation within industries: employees in offices of physicians earned on average $1,152 per week, while employees in home health care services earned $675 on average per week. Most of the growth in 2017 was led by gains in the largest industry, that is, general medical and surgical hospitals.17

payroll employment change by sector

Employment gains in restaurants Employment in accommodation and food services increased by 31,400 (+2.5%) in 2017, with more than half of the increase in Ontario (+19,500 or +4.2%). The gains were almost entirely in full-service restaurants and limited service eating places, with smaller increases in traveller accommodation. The rate of employment growth in the accommodation and food services sector has exceeded the national average growth rate each year since 2011. In total, this sector had 1.3 million employees in 2017.

  1. Statistics Canada. 2017. Age and Sex Highlight Tables. 2016 Census. Statistics Canada Catalog no. 98-402-X2016002. Ottawa. Released May 3, 2017 (accessed April 13, 2018), HTTP://
  2. Labour Force Survey estimates (LFS), by North American Industry Classification System (NAICS), sex and age group, annual (282-0008); and Job Vacancy and Wage Survey (JVWS), job vacancies, job vacancy rate and average offered hourly wage by North American Industry Classification System (NAICS), unadjusted for seasonality (285-0002). Calculated using the annual average of the four quarters.Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings by type of employee, overtime status and detailed North American Industry Classification System (NAICS), annual (281-0027).
  3. Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings by type of employee, overtime status and detailed North American Industry Classification System (NAICS), annual (281-0020)
    Average weekly earnings in accommodation and food services were the lowest among the sectors, with an average of $383 a week; however, earnings rose 3.4% compared with 2016, outpacing the national average growth rate. Accommodation and food services had the second highest job vacancy rate of all sectors on average over the four quarters in 2017, rising 0.5 percentage points to 4.5%.18 This is partly the result of high turnover in this sector

    Tech jobs growing at a fast pace

    One of the fastest growing sectors in 2017 was professional, scientific and technical services, which rose 3.4%, adding 29,300 payroll jobs. This is the fastest pace of growth in the sector since 2008. In total there were 892,000 employees in this sector.19 Employment growth in professional, scientific and technical services was almost entirely driven by Ontario (+14,100 or +3.8%) and Quebec (+10,600 or +5.7%). For the professional, scientific and technical services sector, average weekly earnings were $1,347 (+2.3%). There was a relatively high job vacancy rate in this sector, at 3.1% on average for 2017, in line with the rate observed for 2016.20 Most of the employment growth in the sector was in computer systems design and related services, which grew by 19,100 (+9.2%). This is a high-skilled and high-earning industry, with average weekly earnings of $1,577 (up 2.9% from 2016).21

    Strongest manufacturing growth in over a decade In 2017, manufacturing had the strongest employment growth since comparable data became available in 2001, adding 26,800 payroll jobs and growing at a pace of 1.8%. In total, there were 1.5 million employees in manufacturing, the third largest sector by employment. However, despite recent gains, there were nearly half a million fewer payroll employees in manufacturing compared with 2001.

    payroll employment in manufacturing

  4. Job Vacancy and Wage Survey (JVWS), job vacancies, job vacancy rate and average offered hourly wage by North American Industry Classification System (NAICS), unadjusted for seasonality (285-0002). Calculated using the annual average of the four quarters.
  5. Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings by type of employee, overtime status and detailed North American Industry Classification System (NAICS), annual (281-0027).
  6. Job Vacancy and Wage Survey (JVWS), job vacancies, job vacancy rate and average offered hourly wage by North American Industry Classification System (NAICS), unadjusted for seasonality (285-0002). Calculated using the annual average of the four quarters.
  7. Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings by type of employee, overtime status and detailed North American Industry Classification System (NAICS), annual (281-0027).

Gains in 2017 were spread across several subsectors, with the largest increases observed in food, as well as beverage and tobacco product manufacturing (+5,400 or +2.4% and +4,200 or +11.2%). There was also some contribution from transportation equipment manufacturing (+3,800 or +2.0%), particularly in motor vehicle parts manufacturing and motor vehicle and trailer manufacturing.

Most of the growth in manufacturing was in Quebec (+12,000 or +3.0%) and Ontario (+8,400 or +1.3%). To a lesser extent, there were increases in British Columbia and Alberta. At the same time, employment in manufacturing fell by 1,900 (-15.6%) in Newfoundland and Labrador, mostly in seafood product preparation and packaging.

Weekly earnings in manufacturing were $1,097 on average per week in 2017, virtually unchanged compared with 2016. The job vacancy rate for manufacturing was 2.5% on average for 2017, below the national rate for all sectors.22

The employment growth coincides with an upward trend in manufacturing sales, which rose by 3.3% in 2017—the highest pace of annual growth since 2010.23

Employment in mining, quarrying, and oil and gas extraction rebounds after two years of losses

Employment in mining, quarrying, and oil and gas extraction rose by 10,000 (+5.2%) in 2017.24 This follows two consecutive years of losses that resulted in an 18.1% decline in payroll employment for this sector from 2014 to 2016. Most of the decrease over this period was related to declines in global oil prices, with employees in Alberta most affected by this change.

In 2017, just under half of the increase in mining, quarrying, and oil and gas extraction was in Alberta (+4,700 or +4.8%). The increase in the province was led by “support activities”, which includes occupations such as oil and gas well drillers, servicers, testers and related workers. This subsector had the largest decline in employment following the oil price shock and, despite the recent increase, is still below its 2014 peak. Employment in the higher-paid “oil and gas extraction” subsector continued to trend downward in 2017.

There were also increases in mining, quarrying, and oil and gas extraction spread across British Columbia (+1,600 or +9.0%), Quebec (+1,400 or +8.5%) and Ontario (+1,200 or +5.0%). For these provinces, the rise was mostly in the metal ore mining industry.

In Newfoundland and Labrador, employment in the sector was virtually unchanged in 2017. This contrasts with notable growth from 2007 to 2014, during which employment in the sector grew by 8.4% due to oil exploration and investment in the province. On average, the job vacancy rate in 2017 for mining, quarrying and oil and gas extraction rose notably, up from 1.2% in 2016 to 2.3% in 2017.25

Wholesale trade has highest average weekly earnings growth

Looking at sectors, earnings grew the most in wholesale trade and in finance and insurance. Earnings in wholesale trade grew by 4.1% to $1,203, led by gains among wholesalers of machinery, equipment and supplies. The number of payroll employees in the sector has been on an upward trend throughout most of 2017, coinciding with increasing sales.26 Provincially, Ontario contributed the most to the earnings rise in the sector

  1. Job Vacancy and Wage Survey (JVWS), job vacancies, job vacancy rate and average offered hourly wage by North American Industry Classification System (NAICS), unadjusted for seasonality (285-0002). Calculated using the annual average of the four quarters.
  2. Real manufacturing sales, orders, inventory owned and inventory to sales ratio, 2007 dollars, seasonally adjusted, monthly (377-0009). Calculated using the annual average of the calendar year.
  3. Survey of Employment, Payrolls and Hours (SEPH), employment by type of employee and detailed North American Industry Classification System (NAICS), a(NAICS), unadjusted for seasonality (285-0002). Calculated using the annual average of the four quarters.
  4. Survey of Employment, Payrolls and Hours (SEPH), employment and average weekly earnings (including overtime) for all employees by detailed North American Industry Classification System (NAICS), Canada, seasonally adjusted, monthly (281-0047); and Wholesale trade, sales by the North American Industry Classification System (NAICS) (081-0011).

wholesale trade sales and payroll employment

United States Housing News

Real Estate

The U.S. Housing Market Looks Headed for Its Worst Slowdown in Years


Prashant Gopal


Sho Chandra

‎July‎ ‎26‎, ‎2018‎ ‎3‎:‎00‎ ‎AM Updated on ‎July‎ ‎26‎, ‎2018‎ ‎10‎:‎41‎ ‎AM

  • Market appears to be headed for its broadest slowdown in years
  • ‘Affordability is becoming a headache for homebuyers’: Yun

why pay full price

Seattle Situation

They were fed up with Seattle’s home bidding wars. They were only in their late 20s but had already lost two battles and were ready to renew with their landlord. Then, in May, their agent called.

Suddenly, Redfin’s Shoshana Godwin told the couple, sellers were getting jumpy, even here in the hottest of markets. Homes that should have vanished in days were sitting on the market for weeks. There was a three-bedroom fixer-upper just north of the city going for $550,000, down from more than $600,000. They made the leap in early June and had closed by the end of the month, for list price.

The U.S. housing market — particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas — appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.

“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles, in an interview. He stressed that he isn’t ready to make that call yet.

The Data

A slew of figures released this week gives ample evidence of at least a cooling.

Existing-home sales dropped in June for a third straight month. Purchases of new homes are at their slowest pace in eight months. Inventory, which plunged for years, has begun to grow again as buyers move to the sidelines, sapping the fuel for surging home values. Prices for existing homes climbed 6.4 percent in May, the smallest year-over-year gain since early 2017, and have gained the least over three months since 2012, according to the Federal Housing Finance Agency. Shares of PulteGroup Inc. fell as much as 4.9 percent Thursday morning after the national home builder reported that orders had declined 1 percent from a year earlier, blaming rising mortgage rates.

high cieling

“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics Ltd. in London. “People are saying: Let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.” That means “we’re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years.”

Stansfield projects a 5 percent gain this year and a 3 percent increase in 2019. That compares with 10.7 percent in 2005, shortly before the crash.

Supply Lines

Some of the most expensive markets, where sales are falling under the weight of prices, are now seeing substantial increases in supply, according to Redfin Corp. In San Jose, California, inventory was up 12 percent in June from a year earlier. It rose 24 percent in Seattle and 32 percent in Portland, Oregon. Those big jumps are from low numbers, so the housing crunch is still a serious problem.

“Inventory has increased quite a bit,” Godwin, the Seattle agent, said. “We’re seeing less competition.”

Dustin Miller, an agent with Windermere Realty Trust in Portland, said he’s trying to manage sellers’ expectations, something he hasn’t had to do since the end of the last housing boom. One customer, a baby boomer moving to a new home across the state, expected to have buyers fighting over her house. She got one bid, below her asking price.

“Buyers want to shop and take some time, as opposed to having to rush and throw offers in,” Miller said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.”

taking inventory

This new wariness was noticeable in the latest consumer-sentiment data from the University of Michigan. In its preliminary July survey, 65 percent of Americans said it’s a good time to buy a home, the lowest since 2008, when the economy was still in recession.

Still, market watchers note that the housing sector has strong support from a healthy labor market and steady economic growth, which indicates a stabilizing trend for home prices rather than anything close to the experience of the crisis, when property values plunged. And shares of D.R. Horton Inc., which builds a lot of starter homes, rose as high as 8.7 percent Thursday morning after the company reported a 12 percent jump in orders.

“The rate of home sales, new and existing, has probably peaked,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “But it’s not going to roll over. It will gently decline.”

The homeownership rate in the second quarter was 64.3 percent, up from 63.7 percent a year earlier, according to U.S. Census Bureau data released Thursday.

“While there appears to be a slowdown in the growth rate of home sales and prices, it has not slowed rising homeownership,” Freddie Mac Chief Economist Sam Khater said in a statement — though he added that the rate is a full percentage point below the 50-year average, reflecting “the long-lasting scars from the Great Recession and the lopsided nature of this recovery.”

New Record

S&P CoreLogic Case-Shiller data hint at the softening. The 20-city index of property values rose 6.6 percent in the 12 months ending in April. After seasonal adjustments, the gauge posted its smallest monthly increase in 10 months, with New York, San Francisco and Washington reporting declines.

Homeownership remains out of reach for many Americans, especially for first-time and younger buyers. For existing homes, the median price climbed in June to a record $276,900, while properties typically stayed on the market for 26 days, unchanged from the prior three months, according to the National Association of Realtors.

“Affordability is becoming a major headache for homebuyers,” said Lawrence Yun, the association’s chief economist. “You are seeing home sales rising in Alabama, where things are affordable. But in places like California, people aren’t buying.”

In addition, “no one knows how far and how fast” borrowing costs may rise as the Federal Reserve raises interest rates, Stansfield said. Lenders and borrowers alike are less likely to let credit spiral out of control than in 2005 and 2006. And with financing tighter and wage gains in check, “there’s not much scope for prices to continue to increase sustainably” at recent rates, he said.

The cooling, in turn, could curb housing starts, “because builders tend to only build what they think they can confidently sell,” Stansfield said. At the same time, he said, “it will decrease the risk of a bust.”

(Updates with PulteGroup in sixth paragraph and homeownership analysis just above New Record section.)

And finally, here’s what Joe’s interested in this morning Bloomburg

If you’re planning to do a cookout this 4th of July holiday, then I humbly suggest checking out this recent interview I did with Minneapolis Fed President Neel Kashkari. In the video, which we shot in his back yard, Neel walked me through his approach to grilling steak (he puts it right on the coals) and we also talked some monetary policy. An interesting admission he made was that, like many others, he’d seen the elevated level of unemployment in the post-crisis period as something to do with structural challenges facing the economy, like some sort of skills gap where the qualifications of job-seekers didn’t tally with the job openings employers needed to fill. In our chat, Neel admits that this view of the labor market has proven to be “dead wrong” and that high unemployment was simply a reflection of ongoing cyclical weakness. I was impressed: How many other people who espoused the structural view of the labor market admitted they were wrong? It’s hard to think of many others (though surely there must be some). Of course a lot of people got a lot of things wrong about the economy over the last 10 years. And it’s no crime to get things wrong, of course. But unless people acknowledge their errors, and attempt to get to the root of why they were wrong, it’s hard to be too confident in policy making the next time the cycle turns down.

hiring surprise

Flat Footed

Thursday was the Treasury market’s equivalent of lighting the candle at both ends: the spread between two-year and 10-year yields hit the lowest level since August 2007 as the short-term rate rose while the longer-term tenor retreated fractionally.

flatter from both sides

For all the ink spilled about a U.S.-China trade war — with the Federal Reserve eyeing the economic fallout and the like — the move suggests that the conflict is not at all conducive to a bull steepener.

(That’s where the yield gap widens as two-year rates fall by more than their 10-year counterparts, as traders reduce Fed hike expectations.) Also backing that idea are the central bank’s dot plot and its  assessment of the economic outlook. Put simply, the Fed’s concern about the ramifications of an onslaught of tariffs is dwarfed by its optimism on the U.S expansion.

The minutes from the July meeting showed that four officials saw the risks to growth as tilted to the upside (up from two in March), while a lone wolf continued to see things the opposite way. None viewed the risks to core inflation as biased to the downside. Add it all up, and it looks like Larry Kudlow’s wish might not come true.

But Brian Reynolds at Canaccord Genuity sees another way in which trade tensions have had an impact. “Banks were buying more Treasuries as they put on the ‘carry trade,’ buying longer-term bonds utilizing shorter-term funding,” he writes about the second quarter — suggesting the activity was driven by “trade-war worries.”

banks have been buyers

Meantime, nobody told break evens that trade wars were inflationary, or would foster a steepening in the inflation-risk premium. It’s possible that break evens could be distorted by a flight to safe and liquid assets thanks to deteriorating ties between the world’s two largest economies. But since these concerns about trade ratcheted higher in mid-June, market-based measures of inflation compensation drifted marginally lower — until Wednesday, at least.

inflation back on the menu

Breakevens did perk up materially that day, particularly the two-year tenor, which extended their advance after the Fed minutes referenced “supply constraints” on three occasions. As Bespoke Investment Group macro strategist George Pearkes observes, that’s the first time the phrase has appeared more than once in this communiqué in at least a decade. The Fed is bullish on growth and shifting to inflation-prevention mode under the presumption it’s the best way to sustain the expansion for as long as possible. Others might see continued Fed tightening as bringing the end of the cycle all the nearer.

Which in turn leads to an astute quip from Family Management Corp. CIO David Schawel on Twitter: “If you believe the yield curve flattening, and think we eventually go back into a recession with the Fed cutting, then the 5-10y part of the curve isn’t as unattractive as many think.

A Reprieve from IGnominy

It’s just three sessions into the third quarter (if you’re in the U.S.). But after blue-chip corporate debt was the worst-performing U.S. asset in the first half, it’ll take any stretch of out performance it can get:

top grade for IG

A recent Citigroup survey shows just how unloved investment grade U.S. debt is: hedge funds have pared their holdings in the most aggressive fashion since early 2016, with allocations at the lowest level since 2008. Bloomberg’s Sid Verma notes that this may be a contrarian bullish signal, because it means funds have more room to add to the asset class going forward.

But any time in the sun may prove fleeting should long-term yields trend back to their 2018 highs.

“IG has become more of a duration product as well in the past few years, so if intermediate rates stay range-bound in Q3 (as we expect) and issuance remains subdued (given the summer low-issuance period ahead), then this might be the one quarter of 2018 where IG catches a bid,” writes George Goncalves, head of Americas fixed-income strategy at Nomura, who warned that the soft-supply dynamic wouldn’t last forever.

“We would use any tightening of spreads to lighten up on IG, as duration-based products are likely to suffer in the coming quarters and we anticipate that the higher-rates theme will eventually become a credit story, where HY and IG are both hit,” Goncalves says.

To his point on rate sensitivity, mid-April saw bond managers’ allocation to corporate debt as a share of assets deteriorate as the 10-year Treasury yield made its push through 3 percent for the first time since 2014. It’s a picture of what happens when duration risk and the competition for capital collide.

less need to reach for yield

Buyout activity could change the supply picture materially for IG, to boot. Bloomberg Intelligence estimates more than $1 trillion in pending deals, and strategists warn of a flood companies coming to tap the market, raising questions about whether that’s already priced in. That’s the major wild card for high grade — and to a certain extent for the Russell 2000 Index as well, as many potential acquisition targets in the health care space have gone on tears this year.

There Is No U.S. Wage Growth Mystery

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Jul 14, 2017 | 8:26 AM ET | By Adam Ozimek •
Economists are puzzled over U.S. wage growth, wondering why it has been so slow despite a labor market that is allegedly back to or close to full employment. However, if you look at the right wage growth and the right measure of employment slack there is no mystery: Wage gains are right where they should be. And it indicates the labor market has room to improve.
Starting early in 2014, economists and pundits began debating the wage growth “mystery.” If unemployment has fallen so much (at the time, unemployment had fallen below 6%) then why hasn’t wage growth picked up? Theories abounded. Some argued that there were “pent-up wage cuts,” and therefore wages soon would accelerate rapidly. Others theorized there were measurement problems making wage growth look slower than it was: for example, lots of young workers entering the labor force and old workers retiring. Others worried that low productivity meant wage growth wasn’t getting any better. Some impressive economic acrobats have embraced all of these theories at different times.
However, there really is no wage puzzle. You just have to look at the right numbers and in the right way.
The first challenge is making sure you are looking at the right measure of wage growth. For this, the employment cost index is the most useful. Some argue that the Atlanta Fed median wage growth tracker is the best because it tracks growth for the same workers over time. However, this conflates experience-based raises with a general growth in wages. The ECI avoids this pitfall by tracking the same job over time instead of the same person.
Besides, the Atlanta Fed wage measure was at 3.3% in April 2015, leading to some concerns at the time that we were at full employment. But how do we interpret a wage growth measure that allegedly shouts “full employment” in an economy that over the next two years saw annual job growth of 2.3 million while the unemployment rate fell by more than a percentage point?
In fact, the performance of the economy over the last few years has resoundingly rejected the pent-up wage cuts, compositional changes, low productivity, and measurement problem theories of wage growth. There is simply no way we were at full employment then and yet added as many jobs as we have with inflation below target. It’s time to put those theories to bed and consider that, in fact, labor slack was greater than the full-employment hawks thought.
The problem of underestimating labor slack is twofold. First, there was a fear that the unemployment rate would remain above historical levels permanently. This has clearly proven overly pessimistic. Second, there is more slack outside of the unemployment rate.
The unemployment rate wage Phillips curve suggests that wage growth measured by the ECI for private sector wages and salaries has tracked relatively close to where you would expect it to be given the unemployment rate from 1994 through 2017. However, it has indeed fallen short in recent years compared with the line of best fit. Wage growth given the current unemployment rate would be expected at around 3% to 3.5%, but instead is around 2.5%. However, if wage growth is to reach 3.5% to 4%, this wage Phillips curve suggests the unemployment rate will need to fall still further.

wage growth a little low

However, the unemployment rate is not the right measure of labor market slack right now. If instead we look at the prime age non-employment rate (which is 100% minus the prime aged employment rate), we see an even tighter wage Phillips curve. According to this curve, wage growth is exactly where we would expect given the level of slack in the labor market. To get to 3.5% to 4% or higher wage growth, this graph suggests another 3 percentage points of improvement in the non-employment rate will be needed.

Whether you use the unemployment rate or prime non-employment Phillips curves, both suggest there is room to improve. The unemployment rate Phillips curve fails to explain the last two years of wage growth. The prime non-employment rate curve in contrast suggests wage growth should be exactly where it is. The better fit extends throughout the sample period: The r-squares from the lines of best fit indicate that the prime-age non-employment rate can explain 87% of the variation in wage growth since 1994 compared with 64% for the unemployment rate.

wage growth right on target for EPOP

Wage growth is not really that mysterious if this level of slack is correct. Labor market pessimists who have pivoted from one theory to the next only to see them debunked by subsequent economic performance should consider the parsimonious explanation that there remains slack in the labor market, and they have underestimated it for years.

© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licencors and affiliates (collectively, “MOODY’S”). All rights reserved.

US Housing Statistic Snippets

housing starts

North American Housing Association 2018



Characteristics of Home Buyers

First-time buyers made up 34 percent of all home buyers,a decrease from last year’s 35 percent.

The typical buyer was 45 years old this year, and the median household income for 2016 rose again this year to $88,800.

Sixty-five percent of recent buyers were married couples,18 percent were single females, seven percent were single males, and eight percent were unmarried couples.

Thirteen percent of home buyers purchased a multi generational home, to take care of aging parents, for cost savings, and because of children over the age of 18 moving back home.

Eighty-nine percent of recent home buyers identified as heterosexual, three percent as gay or lesbian, one percent as bisexual, and seven percent preferred not to answer.

Eighteen percent of recent home buyers are veterans and three percent are active-duty service members.

At 30 percent, the primary reason for purchasing a home was the desire to own a home of their own.

Characteristics of Homes Purchased

Buyers of new homes made up 15 percent and buyers of previously owned homes made up 85 percent.

Most recent buyers who purchased new homes were looking to avoid renovations and problems with plumbing or electricity at 36 percent. Buyers who purchased previously-owned homes were most often considering a better price at 32 percent.

Detached single-family homes continue to be the most common home type for recent buyers at 83 percent, followed by seven percent of buyers choosing townhouses or row houses.

Senior-related housing stayed the same this year at 13 percent, with 16 percent of buyers typically purchasing condos and six percent purchasing a townhouse or row house.

There was a median of only 15 miles between the homes that recent buyers purchased and the homes that they moved from.

Home prices increased slightly this year to a median of$23 5,000 among all buyers. Buyers typically purchased their homes for 98 percent of the asking price.

The typical home that was recently purchased was 1,870 square feet had three bedrooms and two bathrooms, and was built in 1991.

Heating and cooling costs were the most important environmental features for recent home buyers, with 85 percent finding these features at least somewhat important.

Overall, buyers expect to live in their homes for a median of 15 years, while 18 percent say that they are never moving.

The Home Search Process

For 42 percent of recent buyers, the first step that they took in the home buying process was to look online at properties for sale, while 17 percent of buyers first contacted a real estate agent.

Seventy-nine percent of recent buyers found their real estate agent to be a very useful information source. Online websites were the most useful information source at 88 percent.

Buyers typically searched for 10 weeks and looked at a median of 10 homes.

The typical buyer who did not use the internet during their home search spent only four weeks searching and visited four homes compared to those who did use the internet and searched for 10 weeks and visited 10 homes.

Among buyers who used the internet during their home search, 89 percent of buyers found photos and 84 percent found detailed information about properties for sale very useful.

Sixty-one percent of recent buyers were very satisfied with their recent home buying process.

Home Buying and Real Estate Professionals

Eighty-seven percent of buyers recently purchased their home through a real estate agent or broker, and seven percent purchased directly from a builder or builder’s agent.

Having an agent to help them find the right home was what buyers wanted most when choosing an agent at 52 percent.

Forty-two percent of buyers used an agent that was referred to them by a friend, neighbor, or relative and 12 percent used an agent that they had worked with in the past to buy or sell a home.

Seven in 10 buyers interviewed only one real estate agent during their home search.


National Association of REALTORS®

Eighty-nine percent of buyers would use their agent again or recommend their agent to others.

Financing the Home Purchase

Eighty-eight percent of recent buyers financed their home purchase. Those who financed their home purchase typically financed 90 percent.

First-time buyers who financed their home typically financed 95 percent of their home compared to repeat buyers at 86 percent.

For 59 percent of buyers, the source of the down payment came from their savings. Thirty-eight percent of buyers cited using the proceeds from the sale of a primary residence, which was the next most commonly reported way of securing a down payment.

Forty-three percent of buyers saved for their down payment for six months or less.

For 13 percent of buyers, the most difficult step in the home buying process was saving for a down payment.

Of buyers who said saving for a down payment was difficult, 49 percent of buyers reported that student loans made saving for a down payment difficult. Forty-two percent cited credit card debt, and 37 percent cited car loans as also making saving for a down payment hard.

Buyers continue to see purchasing a home as a good financial investment. Eighty-three percent reported they view a home purchase as a good investment.

Home Sellers and Their Selling Experience

The typical home seller was 55 years old, with a median household income of $103,300.

For all sellers, the most commonly cited reason for selling their home was that it was too small (16 percent), followed by the desire to move closer to friends and family (14 percent), and a job relocation (11 percent).

Sellers typically lived in their home for 10 years before selling, the same as last year.

Eighty-nine percent of home sellers worked with a real estate agent to sell their home.

For recently sold homes, the final sales price was a median 99 percent of the final listing price.

Recently sold homes were on the market for a median of three weeks, down from four weeks last year.


Thirty-seven percent of all sellers offered incentives to attract buyers.

This year, home sellers cited that they sold their homes for a median of $47,500 more than they purchased it.

Sixty-two percent of sellers were very satisfied with the selling process.

Home Selling and Real Estate Professionals

Sixty-four percent of sellers found their agent through a referral from a friend, neighbor, or relative or used an agent they had worked with before to buy or sell a home.

Seventy-four percent of recent sellers contacted only one agent before finding the right agent they worked with to sell their home.

Ninety percent of sellers listed their homes on the Multiple Listing Service (MLS), which is the number one source for sellers to list their home.

Seventy-six percent of sellers reported that they provided the agent’s compensation.

The typical seller has recommended their agent twice since selling their home. Thirty-three percent of sellers recommended their agent three or more times since selling their home.

Eighty-five percent said that they would (67 percent) or probably (18 percent) recommend their agent for future services.

For-Sale-by-Owner (FSBO) Sellers

Only eight percent of recent home sales were FSBO sales again, this year. For the third year, this is the lowest share recorded since this report started in 1981.

The median age for FSBO sellers is 55 years. Seventy-four percent of FSBO sales were by married couples that have a median household income of $103,100.

FSBOs typically sell for less than the selling price of other homes; FSBO homes sold at a median of $190,000 last year (up from $185,000 the year prior), and significantly lower than the median of agent-assisted homes at $250,000.

FSBO homes sold more quickly on the market than agent assisted homes. Fifty-eight percent of FSBO homes sold in less than two weeks—often because homes are sold to someone the seller knows.

Sixty-eight percent of successful FSBO sellers who knew the buyer was very satisfied with the process of selling their home.

demographic turning point

dependency ratios

racial and ethnic

foriegn born people.jpg

projected population chanes births and deaths


First Quarter 2018 Economic and Wood Product News Part 1 -Feng Shui forecast, Why Asia’s Tigers Suffer while the Nordics Thrive…

Well this news blog is a bit late but always fascinating to look at what happened retrospectively. I thought this was entertaining. A lot of things going on in the first quarter. I split the blog in two pieces…

Here’s the Feng Shui financial forecast for 2018, the Year of the Dog

I thought this entertaining!!

Chris Pash,

Business Insider Australia

Feb. 13, 2018, 9:57 PM

wong Campion

Wong Campion/Reuters

  • The Chinese Year of Dog is a good time to be cautious when it comes to finances, according to this year’s CLSA Feng Shui Index.
  • The guide, which farewells the Year of the Rooster, also includes top sector picks, property tips and zodiac predictions for health, wealth, love and careers in the Year of the Earth Dog.
  • In terms of sectors, the index says to stick with pharma and consumer as the Earth Dog sees strong gains in wood-related industries overall.
  • Telcos/internet, technology and utilities perform well but casinos and transport won’t get a leg up until October.

The Chinese Year of Dog is a good time to be cautious when it comes to finances, according to this year’s CLSA Feng Shui Index.

CLSA, a Hong Kong-based capital markets and investment group, has launched its 24th index, a tongue-in-cheek alternative look at what’s in store in the Chinese New Year.

The guide, which farewells the Year of the Rooster, also includes top sector picks, property tips and zodiac predictions for health, wealth, love and careers in the Year of the Earth Dog.

Feng Shui is a mystical system used in China seeking a balance between people and the elements of the world. Feng Shui masters are regularly consulted, sometimes at great expense, to make sure buildings about to be constructed are sited in harmony with its surroundings.

CLSA Feng Shui Index

“The Dog represents duty and loyalty and is a sign of defence and protection,” says CLSA.

“It’s a good time to be level headed and to err on the side of caution. Entrepreneurs should stick with their most loyal clients, and investors are advised not to bite off more than they can chew.”

The path of the Hang Seng index as mapped by the Feng Shui experts:

CLSA Feng Shui Index 2018 CLSA

According to the index, there could be a stock market high ahead.

It says: “The Earth Dog jumps out of the kennel, tossing the Fire Rooster back to the barn and sending the Hang Seng index in Hong Kong skyward.

“After a great start, the hound takes a tumble in March which sees the Index head south.

“Through to summer the market chases its tail and drops, before the Dog and our favourite Earth Rooster, the HSI (Hang Seng index), extend a little more consideration towards each other and get back on track.”

In terms of sectors, the index says to stick with pharma and consumer as the Earth Dog sees strong gains in wood-related industries overall.

Telcos/internet, technology and utilities perform well but casinos and transport won’t get a leg up until October.

Investors who expect decent returns from banking and financials are definitely barking up the wrong tree this year,” says CLSA.


The Bitter Truth: Why Asia’s Tigers Suffer while the Nordics Thrive 

why Asia tigers suffer

Yulin Huang

Why you need to know

Justin Hugo looks at how statistics suggesting the Asian Tiger economies have caught up with their Scandinavian counterparts mask a more sobering wage-based reality.

Wage wars

The Asian Tigers and Japan have enjoyed a remarkable growth streak over the last half a decade that has put them firmly in the league of high-income countries – at least as measured by GDP per capita – a phenomenon bested by only some oil-rich Gulf states.

But in terms of the actual livelihoods of their citizens, have they caught up?

Nordic countries are upheld as the gold standard of what a model country should look like, often featuring in lists of the world’s best places to live with the happiest people in the world. How would the Asian Tigers – known on the contrary for their high stress levels and rates of suicide – compare with the Nordics, and with the Netherlands, which Taipei mayor Ko Wen-je (柯文哲) said is “an excellent model [… and] the best country for Taipei to learn from,” having realized that Taiwan’s thriving democracy discounts emulating the region’s leading economic light, Singapore.

“[Former] President Lee Teng-hui (李登輝) had led Taiwan along a “democratic path,” that meant [that Taiwan] could never be like Singapore,” Ko reportedly said. Taiwan and the Netherlands also have significant historical links dating back to when Taiwan was a Dutch colony (1624-1662), the Taipei mayor added.

But the growth spurt among the Asian Tigers did not happen all at once. Back in 1950, the real GDP per capita of Hong Kong, Japan and Singapore was already among the highest in Asia, at US$4,013, US$2,519 and US$2,439, respectively. Taiwan’s real GDP per capita was US$1,393 and South Korea’s US$1,122, according to data from the University of Groningen’s Maddison Project Database, which provides researchers with tools to compare economic performance between regions.

real gdp per capita 1950

Source: University of Groningen

Meanwhile, the real GDP per capita of the Nordics and the Netherlands was twice at high, at between US$5,208 (Finland) and US$9,376 (Denmark) – they were already one of the richest countries in the world at that time.

real GDP per capita 2016

SnSource: University of Groningen

Nearly 70 years later, in 2016, Norway’s real GDP per capita had grown to US$76,397 while Singapore’s had shot past the rest of the pack to US$67,180.

At the same time, Hong Kong’s real GDP per capita had grown to US$47,043, similar to the Netherlands’ US$49,254 and Denmark’s US$45,141, Taiwan’s had risen to US$42,304 which is comparable with Sweden’s US$44,371. Japan and South Korea real GDP per capita were roughly on par with Finland’s US$38,335.

real GDP per capita 1950 to 2016

Source: University of Groningen

One might assume that a similar level of national wealth might equate to citizens enjoying a similarly high standard of living, but this is where the GDP per capita statistics are misleading.

A more illuminating comparison involves looking at the minimum and median wages of each country.

monthly minimum wage

Source (data from latest year): Norway: Norwegian Labour Inspection Authority, Denmark: 3F – Danmarks Stærkeste Fagforening, Sweden: Swedish Work Environment Authority, Finland: Service Union United PAM, Netherlands: Government of the Netherlands, Japan: Japan International Labour Foundation, South Korea: (Maeil Business Newspaper’s English news site), Taiwan: Ministry of Labor Republic of China (Taiwan), Hong Kong: Labour Department The Government of the Hong Kong Special Administrative Region, Singapore: Ministry of Manpower Singapore.

In the Nordics, there are no minimum wages – salaries are collectively bargained for by labor unions in different industrial sectors – which by the way, results in the highest wages in the world. According to the International Labour Organisation (ILO), collective agreements cover about 90 percent of workers in Finland, 89 percent in Sweden, 84 percent in Denmark and 67 percent in Norway.

For the purposes of this comparison, we can use the wages of transport workers as the de facto minimum wages in the Nordics: Norwegians earn a monthly minimum of approximately 27,662.25 krone (US$3,517), the Swedes 25,088.00 krona (US$3,107) and the Finns €2,080 (US$2,542). For the Danes, workers in the industrial sector earn a minimum of 18,502.22 krone (US$3,039). In the Netherlands, where there is a nationally legislated minimum wage, it is €1,578.00 (US$1,929).

Turning to East Asia, Japan has the most respectable monthly minimum wage, at about 168,608 yen (US$1,524). South Korea’s historic minimum wage increase to 1,573,770 won (US$1,475) last year is also palatable.

So far, the minimum wages of these countries correspond roughly to their nominal GDP per capita, where the higher the nominal GDP per capita, the higher the minimum wage.

GDP per Capita vs Min wage

Source (data from latest year): Nominal GDP per Capita: The World Bank, Monthly Minimum Wage: Norway: Norwegian Labour Inspection Authority, Denmark: 3F – Danmarks Stærkeste Fagforening, Sweden: Swedish Work Environment Authority, Finland: Service Union United PAM, Netherlands: Government of the Netherlands, Japan: Japan International Labour Foundation, South Korea: (Maeil Business Newspaper’s English news site), Taiwan: Ministry of Labor Republic of China (Taiwan), Hong Kong: Labour Department The Government of the Hong Kong Special Administrative Region, Singapore: Ministry of Manpower Singapore.

Denmark, Sweden and Finland generally perform better by having minimum wages that are higher than the regression line, and the minimum wage increase that South Korea implemented last year elevated its position to a similarly lofty level.

Taiwan’s minimum wage of NT$22,008 (US$749) that took effect at the start of this year still leaves the country lagging below the regression line.

There are two other distinct outliers – Singapore and Hong Kong. Even though they have higher nominal GDP per capita than Taiwan, their minimum wage is set at a similarly depressed level – Singapore’s de facto monthly minimum wage is SG$1,100 (US$833) and Hong Kong’s is HK$6,724.74 (US$860).

In fact, Singapore does not have a minimum wage – basic minimum wages are set for the cleaning, landscape and security sectors but unlike the Nordics, the “minimum wages” set for these sectors are low – basic minimum wages for security officers are used for this comparison. According to Singapore’s Ministry of Manpower, these “minimum wages” are “developed by tripartite committees consisting of unions, employers and the government.”

However, it should be noted that the government has its hands in the unions and businesses, which precipitates something more like a “one-partite” arrangement. The confederation of trade unions in the country – the National Trades Union Congress (NTUC) – is headed by a minister – Chan Chun Sing – who is widely tipped to be Singapore’s next prime minister. There is also high state control of publicly traded companies in Singapore – 23.6 percent as compared to only 1.1 percent, 3.0 percent, 3.7 percent and 5.1 percent in Japan, Taiwan, Hong Kong and South Korea, respectively ­– though the figure for Taiwan is higher if you include companies indirectly controlled by state-owned shareholders.

Singapore’s nominal GDP per capita of US$52,963 is two times higher than Taiwan’s and puts it in between Denmark and Sweden. If Singapore were to adopt a similar minimum wage, it would be at least US$3,000 (SG$3,963) – or around US$2,300 (SG$3,039) if following the regression line above. Similarly, Hong Kong’s minimum wage should be closer to US$1,850 (HK$14,459) – on a par with the Netherlands, which has a similar level of nominal GDP per capita.

As such, low-income workers in Singapore and Hong Kong are being short-changed.

But the minimum wage does not give an overall perspective of the wage situation in these countries, so we also need to address median wages.

Monthly Median Wage

Source (data from latest year): Eurostat, Sweden: Statistics Sweden, Finland: Statistics Finland, Japan: (derived from Ministry of Health, Labour and Welfare Summary Report of Basic Survey on Wage Structure (Nationwide) 2012 and Ministry of Health, Labour and Welfare Year Book of Labour Statistics 2015, South Korea: The Hankyoreh, Taiwan: Focus Taiwan News Channel, Hong Kong: Census and Statistics Department The Government of the Hong Kong Special Administrative Region, Singapore: Ministry of Manpower Singapore.

Norway has the highest monthly median wage (€4,562.37 / US$5,576) among the Nordics and the median wage in the Netherlands is €2,672 (US$3,226).

Japan has the highest median wage among the East Asian countries, of an estimated US$2,711, while Taiwan (NT$40,612 / US$1,382) has the lowest. South Korea’s (2,017,692.31 won / US$1,891) median wage is second-lowest.

As you can also see from the below, the higher the nominal GDP per capita, the higher the median wage as well.

GDP per Capita vs median wgae

Source (data from latest year): Nominal GDP per Capita: The World Bank, Monthly Median Wage: Eurostat, Sweden: Statistics Sweden, Finland: Statistics Finland, Japan: (derived from Ministry of Health, Labour and Welfare Summary Report of Basic Survey on Wage Structure (Nationwide) 2012 and Ministry of Health, Labour and Welfare Year Book of Labour Statistics 2015, South Korea: The Hankyoreh, Taiwan: Focus Taiwan News Channel, Hong Kong: Census and Statistics Department The Government of the Hong Kong Special Administrative Region, Singapore: Ministry of Manpower Singapore.

Denmark (€ 3,828 / US$4,679) and Finland (€3,001 / US$3,668) have the second- and third- highest median wages in the Nordics and also sit above the regression line.

On the other hand, for Singapore and Hong Kong, median wages are considerably lower than trend. If median wages were to follow the regression line, Singapore’s should be closer to US$3,800 (S$5,020) and that of Hong Kong should be nearer to US$3,000 (HK$23,448), instead of the current S$3,500 (US$2,649) and HK$16,200 (US$2,073), respectively. In other words, the citizens of both cities should be earning a median wage of about US$1,000 more.

Whys and wages shares

What accounts for the discrepancy between wages and the GDP per capita in Singapore? If Singapore is considered one of the richest places in the world, why would its (de facto) minimum wages be among the lowest in high-income countries?

To see why, let’s look at the wage share of each country – or the share of GDP that goes to wages.wage share

Source: OECD Statistics Working Papers, Taiwan: Directorate General of Budget, Accounting and Statistics (DGBAS), Executive Yuan, (R.O.C. Taiwan), Hong Kong: Hong Kong Economy The Government of the Hong Kong Special Administrative Region, Singapore: Ministry of Trade and Industry Singapore.

We saw that Denmark, Sweden and Finland had de facto minimum wages that were higher than the regression line. One reason for this is their relatively higher wage shares – of 63.4 percent, 62.1 percent and 62.0 percent.

At the other end of the scale, Singapore’s wage share of only 42.5 percent explains why its de facto minimum wage is lower than the regression line.

Of note, too, is that Taiwan’s wage share is also low – at only 44 percent. As such, similar to Singaporeans, Taiwanese are not being compensated fairly for their labor, at least compared with high-income peers.

If the Taiwanese were paid a wage share of 50 percent – closer to the workers of South Korea (wage share of 51.8 percent) and Hong Kong (50 percent), then it follows by a back-of-an-envelope calculation that the minimum wage would also fall in line with theirs at about NT$25,000 (US$851). By the same logic, if wage share was elevated to the 60 percent level of Denmark, Sweden and Finland, then Taiwan’s minimum wage would amount to NT$30,000 (US$1,021)

Moreover, Chang Wen-po (張溫波), a former professor at National Taiwan University and retired department director at the Economic Development Council has shown in a Taipei Times article that when dividing Taiwan’s nominal GDP per capita last year by current wage share, the amount of NT$26,974 is actually lower than the NT$30,792 you would have obtained in the late 1980s and early 90s, when wage share was half of GDP. “[NT$30,792] would probably be acceptable for low-income earners [as a minimum wage],” he concluded.

Of course, a minimum wage of NT$30,000 (US$1,021) is “a dream” according to Taiwan President Tsai Ing-wen (蔡英文), who in a television interview recently declined to set out a timetable for when that dream might come true. Still, the fact that the figure is on the table is a step in the right direction.

Similarly, if Singapore’s wage share were to increase to 50-60 percent, minimum wages should correspondingly rise to between SG$1,230 (US$931) and SG$1,550 (US$1,173) – just a touch higher than in Taiwan under the same framework. But as explained previously, Singapore’s minimum wage should range between US$2,300 and US$3,000.

Inequality, poverty and corporate cultures

What is the cause of the large differentials in wage levels outlined in part 1? The reason lies in the Gini coefficient *. Singapore is the most unequal country among the developed nations – even when you include the United States and the United Kingdom.

Singapore also has the highest Gini coefficient, at 0.38 of the countries we are considering here. Hong Kong has the second-highest at 0.379 (derived from the Hong Kong’s Census and Statistics Department for comparison on OECD’s scale.)

By contrast, Denmark and Norway are the most equal countries in the world, with Gini coefficients of 0.256 and 0.257, respectively. (Note that the Gini coefficient figures account for taxes and transfers aimed at reducing the inequality – even so, Singapore and Hong Kong still present the largest income inequality.)

gini coefficient

Source (data from latest year): OECD, Taiwan: Directorate General of Budget, Accounting and Statistics (DGBAS), Executive Yuan, (R.O.C. Taiwan), Hong Kong: Census and Statistics Department The Government of the Hong Kong Special Administrative Region, Singapore: Department of Statistics Singapore

*The Gini coefficient; sometimes expressed as a Gini ratio (or a normalized Gini index) is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation’s residents and is the most commonly used measurement of inequality.

You can see income inequality manifested in the gap between minimum and median wages. Because Singapore and Hong Kong have the highest Gini coefficient, they also have the highest wage gap – the median wage is 3.18 times higher than the de facto minimum wage in Singapore and 2.41 times higher in Hong Kong.

In Denmark and Norway, the median wage is 1.5 times higher – even so, de facto minimum wages in Norway, Denmark and Sweden are already higher than even median wages in the East Asian nations. Their workers already earn higher wages than half the population of the East Asian countries – because workers at the bottom in the Nordics start from a high wage base. South Korea’s wage difference is lower because of this year’s robust minimum wage increase. As a result, income inequality in South Korea could be even lower next year.

wage difference vs gini coefficient

If Singapore’s inequality were reduced and the wage share returned to Singaporeans, you might see a wage distribution like that of Denmark and Sweden.

After all, Singapore has a nominal GDP per capita similar to both countries, and taking the median wage share of above 60 percent as a reasonable optimal level – and which Denmark and Sweden employ – and a Gini coefficient on par, then Singapore should have a similar wage distribution.

That would put the city state’s minimum wage at about US$3,000 (SG$3,963) or US$2,300 (SG$3,039) if it were to follow the regression line, instead of the SG$1,100 (US$830) we see now. The median wage would be around US$3,800 (SG$5,020), similar to Sweden, instead of the current SG$3,500 (US$2,635). Another way to look at it would be that if Singapore’s wage share were 60 percent instead of 42.5 percent, then Singapore’s median wage should correspond to US$3,720 (SG$4,914) – giving a similar result.

As for Taiwan, it has a comparable nominal GDP per capita to South Korea. By the same logic of adjusting wage share and Gini coefficient, this should give the country a similar minimum and median wage, putting the former twice as high as it is now, closer to US$1,500 (NT$44,078). The median wage would balloon to US$2,000 (NT$58,771) instead of the US$1,382 (NT$40,612) it is now.

Alternatively, if Taiwan’s wage share of 44 percent were increased to 60 percent, it would give the Taiwanese a median wage of NT$55,380 (US$1,884), achieving much the same result.

Is NT$40,000 as a minimum wage feasible? It is already being done on a localized level in Taiwan. A-Zen Bakery in Changhua County’s Lugang Township already gives its workers a minimum monthly salary of more than NT$40,000 a month. In fact, owner Cheng Yung-feng has increased his workers’ wages by 20 percent for the past two consecutive years, Taipei Times reported President Tsai as sharing. Because of that, the newest employees – who have two to three years of experience – have seen their salaries rise to more than NT$40,000 and are set to receive NT$48,000 this year. Workers who have been with the company for more than 20 years earn more than NT$100,000.

Now, A-Zen Bakery is an SME, yet it has the resources to give its workers significant wage increases and so far, it is still earning high profits, suggesting that Taiwan’s businesses do have a lot of leeway to increase the wages of Taiwan’s workers. In fact, in spite of the significant increase in wages, A-Zen Bakery continues to sell its buns at a low price of NT$20 and generates annual revenue of NT$50 million – resisting the temptation to raise prices along with wages. It is therefore not a question of how much the wages of Taiwan’s workers should increase, but how we can develop a roadmap to increase the wages of Taiwan’s workers to the ideal. As Tsai said, “Business owners should not think of raising wages as a burdensome increase to their overheads, but as a way for them to share their joy with colleagues who have worked hard to grow their businesses.”

According to Cheng, business owners and their employees are in the same boat. He believes that if everyone reaps the benefits together, employees would be more than willing to strive hard together with a company to help it succeed. His motto is, “The more we give, the more we get,” and as long as his company earns profits, he is happy to share them with his workers and increase their wages. Indeed, Cheng’s workers reveal that over the years, he has been giving the workers significant increases in salary, and because of that, not only has it done much to boost staff morale, they say that this has made them put in more effort to work harder for the company.

Salaries and poverty

comparison of salaries at the top makes the disparity even more glaring. Top executives in Singapore earn €250,000 / US$305,566 per annum (about €210,000 after taxes and social security – which is the second-highest net executive salary in the world). Those in Hong Kong earn about €230,000 (close to €200,000 after deductions, or the fourth highest).

In the Nordics, the Netherlands and Japan, executives earn about €150,000 to €185,000 per annum (or €115,000 to €125,000 after deductions in Japan and South Korea, respectively, and between €80,000 and €100,000 in the Nordic countries and the Netherlands).

Taiwan’s executives earn about €120,000 before taxes and social security but about the same as the Norwegians, Danes and Dutch after deductions – around €95,000.

Middle managers in Singapore and Hong Kong earn similarly higher salaries, both before and after taxes and social security, as the Nordic countries, the Netherlands and the other East Asian countries.

The fact that the Nordics have the highest “minimum wages” in the world but executive pay is relatively lower reflects how a fairer wage distribution helps reduce inequality.

Taiwan’s executives earn a similar net salary as their Norwegian and Danish counterparts but the minimum wage in Taiwan is only a fifth or a quarter of the de facto minimum wage in Norway and Denmark, which clearly shows the massive income gap in Taiwan vis-à-vis the Nordics. Taiwan’s low Gini coefficient therefore does not present a complete picture of Taiwan’s income distribution.

Singapore and Hong Kong also have one of the lowest minimum wages among the developed high-income countries – on par with Taiwan – but among the highest executive pay brackets in the world, helping explain the extremely high inequality that plagues the two cities.

This also explains the high level of poverty in both the cities.

poverty rate

Source (data from latest year): OECD, Taiwan: National Statistics, Republic of China (Taiwan), Hong Kong: The Government Information Centre The Government of the Hong Kong Special Administrative Region, Singapore: Singapore Management University and Lien Centre for Social Innovation.

The Singapore government has refused to define a poverty line, claiming to fear an arbitrary “cliff effect”. However, a report by the Singapore Management University and Lien Centre for Social Innovation quoted Associate Professor Irene Ng from the National University of Singapore as estimating Singapore’s relative poverty rate to be about 20 percent, which would put the city as a leader in poverty among high-income countries.

This is perfectly plausible since Singapore has a de facto minimum wage that is even lower than Hong Kong’s and a cost of living ranked by The Economist as the highest in the world for the fourth year in a row in 2017 – Hong Kong’s poverty rate is 14.7 percent. Japan (16.1 percent) and South Korea (13.8 percent) have similar levels of poverty.

The Nordics and the Netherlands all have low levels of poverty, at between 6.3 percent (Finland) and 9 percent (Sweden).

Interestingly, Taiwan’s relative poverty rate is also low at 6.6 percent but this could be due to stagnant wages, which depress the median wage and therefore the relative poverty rate (which is defined by the Organisation for Economic Co-operation and Development (OECD) as half the median household income of the total population). On a similar note, Singapore’s depressed wages and the lower median wage could also result in a lower estimation of the poverty rate.

A better estimation of relative poverty would be to first define the optimal median income corresponding to the country’s GDP per capita, and calculating the poverty line from this optimal level – so, half of optimal median income. In Singapore, taking the optimal median wage as about US$3,800 (SG$5,020) would correspond with a poverty line at SG$2,500 (US$1,892). This puts more than 30 percent of the population in relative poverty. Professor Hui Weng Tat of the Lee Kuan Yew School of Public Policy estimated a relative poverty rate of around 35 percent based on a poverty line set at 60 percent of the national median equivalized income.

One other statistic gives us a broader perspective of the countries’ wage situation – the top 10 percent income shares.

Top 10% income share

Source (data from latest year): World Wealth & Income Database, South Korea: The Hankyoreh, Hong Kong: Education Bureau The Government of the Hong Kong Special Administrative Region.

Naturally, Singapore’s and Hong Kong’s high income inequality implies that the share of income that goes to the top 10 percent is one of the highest among the high-income countries – at 43.8 percent and 41 percent, respectively.

The top 10 percent income share in the Nordics and the Netherlands is lower, ranging from 26.9 percent in Denmark to 30.9 percent in the Netherlands.

Japan and South Korea’s top 10 percent income share is also high at 41.6 percent and 45 percent, respectively. However, they have relatively higher minimum wages, which should help close the wage gap, and the higher wage shares should enable a greater portion of the GDP allocated to wages to be available for fairer distribution, when compared with Singapore and Hong Kong. (Note that South Korea’s income share statistic comes from a separate source, and is used as an approximate.)

As a comparison, assuming the top 10 percent income share as a portion of the wage share, Chart 13 below shows the share of GDP that can be distributed to the remaining 90 percent of workers. For Singapore, this allows only 23.9 percent of the GDP to be distributed to the 90 percent of workers. In South Korea, it would be higher, at 28.5 percent, while Japan would register 36.1 percent. The shares are higher in the Nordics and the Netherlands. The share in Norway is slightly lower than the other Nordics because Norway starts off with a higher GDP per capita, and a higher income base.

In other words, because Singapore has a low wage share of 42.5 percent but 43.8 percent of the income goes to the top 10 percent, only 23.9 percent of the GDP would be available for the rest of the 90 percent as wages – based on our assumptions. In comparison, even though the top 10 percent income share in Japan is also high at 41.6 percent, but there is a high wage share of 61.8 percent, there is still 36.1 percent of the GDP that can be distributed to workers in terms of wages.

income share GDP for bottom 90% work share

When we compare the difference between the annual executive pay and minimum wage, Singapore and Hong Kong again have the highest wage gap. Even though Taiwan’s wage disparity is not as wide, it still has the third highest gap ahead of Japan and South Korea.

ratio of exec pay to min wage

Moreover, when comparing the pay gap between executives and middle managers (see chart below), the gap in Taiwan shows a similar disparity with Singapore and Hong Kong, suggesting that wages also fall off quickly from the top in Taiwan as well. Still, Taiwan’s income inequality is notably low as compared to the other East Asian countries, which could be due to the social welfare transfers that compensate for the wage gap, or the higher concentration of small and medium-sized enterprises (SMEs) – we will look at these later.

ratio of exec pay to middle managerpay

Source: Approximate data of executive and middle manager pay from ECA International.

One possible reason why Taiwan’s executives and the rich pay themselves such high comparative salaries in relation to the minimum wage could be due to the control of top families in the largest firms. As can be seen in the chart below, two-thirds of the 20 largest firms in Taiwan were controlled by families (defined as having 10 percent control rights) in 1996. A similar pattern is also seen in Hong Kong and Singapore, with 70 percent and 45 percent, respectively – which helps further explain the high inequality in those cities. Taiwan’s Gini coefficient might therefore be relatively low due to the sharp drop-off in wages from the top which influences a more equitable wage distribution at the bottom. This idea led to a popular joke in Taiwan: “That wages are equal – because they are equally low.”

Taiwan’s low wages could therefore be attributed to the high family control which in spite of the country’s democracy has resulted in its economy functioning in a similarly familial fashion as Singapore and Hong Kong. But how does a politically-democratic and corporately-authoritarian country run? Could Taiwan’s relatively strong social welfare system but depressed wages and relatively poor labor standards in terms of rest days be a result of this odd combination?

family ownersip 20 largest firms

Source (data from 1998 to 2000): Eklund, Johan E., and Sameeksha Desai. “Ownership and allocation of capital: Evidence from 44 countries.” Journal of Institutional and Theoretical Economics JITE 170.3 (2014): 427-452.

Among the Nordics, Sweden’s top families also have significant control in the top 20 largest firms – 55 percent – but the developed culture of collective bargaining for workers’ wages and a transparent democratic structure might serve to limit the families’ ability to expand their wealth at the expense of workers.

Fortunately, even as the top families in Taiwan have significant control in the largest firms, the corporate assets held by the top 15 families in Taiwan as a percentage of GDP is still not as high as Singapore and Hong Kong.

corporate assets top 15 families as % GDP

Source (data from 1996): Claessens, Stijn, Simeon Djankov, and Larry HP Lang. “The separation of ownership and control in East Asian corporations.” Journal of financial Economics 58.1 (2000): 81-112.

The concentration of control of the top 15 families comprised 17 percent of GDP in 1996, which is lower than in Hong Kong (84.2 percent) and Singapore (48.3 percent). However, it is still higher than Japan (2.1 percent) and South Korea (12.9 percent), which could explain the challenges faced by the Taiwanese in reforming their system for more equitable distribution, vis-à-vis Japan and South Korea.

State control publicly traded corp

Source (data from 1996): Claessens, Stijn, Simeon Djankov, and Larry HP Lang. “The separation of ownership and control in East Asian corporations.” Journal of financial Economics 58.1 (2000): 81-112.

However, as mentioned, Singapore stands out from other East Asian Tigers due to high state control – when looking at control of publicly traded companies in East Asia, 52 percent of companies are in family hands (with at least 10 percent of voting rights) while 23.6 percent is controlled by the state, effectively totaling 75.6 percent.

state & family control of publically traded companies

Source (data from 1996): Claessens, Stijn, Simeon Djankov, and Larry HP Lang. “The separation of ownership and control in East Asian corporations.” Journal of financial Economics 58.1 (2000): 81-112.

In South Korea, 67.9 percent of companies were controlled by families but only 5.1 percent were state-controlled. Similarly, in Hong Kong, it was 64.7 percent versus 3.7 percent and 65.6 percent versus 3.0 percent in Taiwan. In Japan, the control by both families (13.1 percent) and state (1.1 percent) is low.

But as Johan E. Eklund and Sameeksha Desai, authors of the study “Ownership and Allocation of Capital: Evidence from 44 Countries”, explain, “family control and ownership concentration negatively influence capital allocation. Economies with highly concentrated ownership structures display economic entrenchment and persistent misallocation of capital.”

There is evidence to support this. In “Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance,” researchers found that “the longer CEOs were at the helm, the more pronounced was their firms’ poor performance.” Forbes reported the study’s authors as saying this is “because those CEOs are able to appoint more allies to their boards, and those board members are likely to go along with the bosses’ bad decisions.”

Among the Asian Tigers, the top firms are predominantly family-controlled (and state-controlled, in Singapore’s case), and the families’ (and state’s) voting rights of at least 10 percent effectively allow them to appoint their allies to company boards.

Michael Cooper of the University of Utah’s David Eccles School of Business, a co-author of the “Performance for Pay” study, added: “For high-pay CEOs, with high overconfidence and high tenure, the effects are just crazy” In fact, the returns on shareholder value of these companies over three years is 22 percent worse than their peers.

Indeed, long tenures are also a concern in Taiwan – a 104 Job Bank survey last year showed that 86.1 percent of Taiwanese companies polled do not have any succession plans while only 13.9 percent have thought of enacting one.

However, the problem also lies with how well executives pay themselves. Historian Nancy F. Koehn from the Harvard Business School suggests that in America, the salaries of board directors are usually decided by compensation committees, and since “Most board members of public companies are themselves well-paid executives … they have incentives to approve large pay packages for men (and the many fewer women) who are effectively their peers.”

Bloomberg writes up a very good summary of the thinking here.

In essence, the make-up of the companies in the Asian Tigers mean that they already function internally like compensation committees, and in conjunction with other families related to them, and via their intermarriages. Blogger Jess C. Scott has dug out and pieced together the relationships of the top families in Singapore from the corporate and political scene. Blogger Roy Ngerng had also drawn out several family tree maps of their relationships.

Koehn adds that these executives are “operating in a system that presumes the contribution of a good senior executive is very, very high.” But as we have seen from Cooper’s study, the evidence points to the contrary – “the more CEOs get paid, the worse their companies do over the next three years.”

In an analysis of American companies, former CEO Steven Clifford concludes that, “board directors and compensation committees have directly contributed to the rising salaries and bonuses of the country’s richest executives; [… but] each of those companies could have paid their CEOs 90 percent less and performed just as well.”

“From the outside, this may look a lot like cronyism or poor corporate governance, and no doubt both are at work,” says Koehn.

The Economist has calculated that Taiwan – and Singapore – has high levels of crony capitalism, at 3.2 percent and 10.7 percent of the GDP, respectively, when analyzing for billionaire wealth in the crony sector. In an earlier reiteration of the index, Hong Kong was also ranked as having the highest crony capitalism* level in the world, at 58 percent of the GDP. In comparison, Japan and South Korea have comparatively low levels of cronyism – at 0.6 percent and 0.5 percent, respectively. You can see a correlation between crony capitalism and the control of corporate assets within the top 15 families in the GDP.

corp assets of top 15 familes vs crony capitalism

Source: Corporate Assets of Top 15 Families: Claessens, Stijn, Simeon Djankov, and Larry HP Lang. “The separation of ownership and control in East Asian corporations.” Journal of financial Economics 58.1 (2000): 81-112., Crony Capitalism: The Economist, Crony Capitalism (Hong Kong): The Economist.

*Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.

As The Economist explains, “Behind the crony index is the idea that some industries are prone to “rent seeking” […] when the owners of an input of production – land, labour, machines, capital – extract more profit than they would get in a competitive market.

“Rent-seeking can involve corruption, but very often it is legal,” it adds.

But Eklund and Desai offer this point of view: “We argue that it is not ownership concentration per se that creates inefficiencies in the allocation of capital but rather, key governing institutions. Therefore, strong private property and investor protection [will] reduce [the] equilibrium concentration ownership and improve [the] allocation of capital.”

In short, when wages are low and inequality is high, it is because of government inaction, and if wages are to be increased, then the government needs to act or citizens have to badger their government to do so, and hold politicians accountable for not acting on their promises to the citizens and workers, or for having too cosy relationships with big business.

The authors Stijn Claessens, Simeon Djankov and Larry H.P Lang, of the paper, “The separation of ownership and control in East Asian Corporations”, explain: “In most developing East Asian countries, wealth is very concentrated in the hands of few families. Wealth concentration might have negatively affected the evolution of the legal and other institutional frameworks for corporate governance and the manner in which economic activity is conducted.

“It could be a formidable barrier to future policy reform,” they conclude.

Singapore’s case therefore presents a danger to its citizens. Whereas in Norway the state also has a high control of publicly traded firms, there is transparency as to how these firms are managed and the Norwegian government is therefore accountable to its citizens and cannot withhold from them their rights and gains.

However, the Singapore government does not operate in a transparent manner. It was Singapore Prime Minister Lee Hsien Loong who famously said: “I would not believe that transparency is everything” when discussing the government’s management of investment funds (which the country’s national pension funds are transferred into).

Social protections and saving graces

As touched on in part 3, Taiwan’s saving grace lies in its social welfare system.

Taiwan ranks eighth in a global list of unemployment benefit replacement rates*, which compare unemployment benefits received when not working to wages earned when last employed in a given year (in this case the year 2000). The list was compiled based on underlying data for this IMF working paper and does not take into account the eligibility of recipients for unemployment benefit, the duration they are able to receive it, or the conditions attached to its distribution.

Taiwan can be said to offer adequate protection, which at 60 percent of the previous salary is just below the Netherlands’ 70 percent, Sweden’s 68.5 percent and Norway’s 62.4 percent. In general, the Nordics and the Netherlands have high replacement rates, and they also start at a high wage base.

Singapore does not have any unemployment benefits – the government has refused to considerintroducing them on the basis that employers are mandated to pay laid off workers retrenchment benefits and Singapore has persistently low unemployment. Manpower Minister Lim Swee Say told Singapore’s parliament in 2016 that nine out of 10 retrenched workers receive such benefits.

Prime minister Lee Hsien Loong said at the May Day Rally in 2016: “Actually, we have something even better than unemployment insurance, because (for) unemployment insurance the worker has to pay out of his salary.” He added, “Ours is different. The scheme is not paid by the workers or the employers. It is paid by the government and the scheme is […] to help you get employed, get a job [and] upgrade yourself.” Lee was referring to the SkillsFuture scheme introduced in 2016 where Singaporeans aged 25 and above received SG$500 to attend training courses. However, this money is not given on an annual basis and Singaporeans only receive “periodic top-ups”. But early this month, it was revealedthat since its launch, only 285,000 working adult Singaporeans used SkillsFuture and in 2017, only about 160,000 Singaporeans, did so. The Online Citizen calculated that this would mean that only 11.4 percent of Singaporeans have used this money over the last two years – it would be lower when accounting for only 2017. It is not known if these figures account for the money which Singaporeans were scammed of – it was later found that SG$40 million worth of fraudulent claims to SkillsFuture were made by a criminal syndicate and 4,400 individuals submitted false claims of SG$2.2 million.

But academics, economists and opposition members have been calling for unemployment benefits. In the book, “Singapore Perspectives 2012: Singapore Inclusive : Bridging Divides”, published by the Institute of Policy Studies, the authors wrote that, “within policymaking circles, it is often argued that unemployment benefits create moral hazard, […] but even if our policymakers remain sceptical, […] how should our social security system help workers transit between sectors as the pace of restructuring intensifies?” At a budget forum organized by the Economic Society of Singapore in 2016, Assistant Professor Giovanni Ko at Nanyang Technological University also said, “You can’t just have a push towards automation without something to help catch these people who will probably lose their jobs,” and that, “there needs to be some kind of safety net”.

OCBC Bank’s head of treasury research and strategy Selena Ling echoed: “I think if you want people to take risks, you want people to give up their bread-and-butter kind of jobs to start up companies, try new things, see the world, fail nine times before they get one right … definitely you have to have some form of support infrastructure.”

Japan and South Korea’s unemployment benefits provide for only 28.9 percent and 25 percent of the previous salary, respectively, and in Hong Kong, it is only 41 percent.

It should be noted that in Japan, unemployment insurance is legislated at 50 percent to 80 percent of the previous salary but because there is a maximum daily limit of 7,830 yen (US$70.75) in unemployment benefits, the average gross replacement rate is therefore low in comparison with wages. Similarly, in South Korea, unemployment benefits cover 50 percent of the previous salary, and again because the maximum daily limit is only 40,000 won (US$37.48), the average gross replacement rate is low as well.

Source: European Welfare States blog (based on: IMF).

unemployment benefits gross replacement rate

*Replacement Rates The replacement rate for given income levels measures the proportion of out-of-work benefits received when unemployed against take home pay if in work. While there is no pre-determined level of replacement rate which would influence every individual’s decision to work, clearly the higher the replacement rate, the lower the incentive to work. A replacement rate more than 70% is considered to be excessive.

On pension adequacy, Taiwan also does well – the gross pension replacement rate stands at 70 percent, coming third after the Netherlands and Denmark, at 96.9 percent and 86.4 percent, respectively.

pension fund gross replacement rate

Source: OECD (2017 report), Taiwan; OECD (2009 report), Hong Kong and Singapore: OECD (2013 report).

However, there is a wide disparity in the pension payments received by Taiwanese workers. Before last year’s pension reform, the average monthly pension for public school teachers was NT$68,025 (US$2,315), NT$49,379 for military personnel and NT$56,383 for civil servants. However, for private sector employees, private school teachers only received NT$17,223 – just a quarter to a third of what their public sector counterparts received – while employees covered by labor insurance received only NT$16,179 and farmers received a paltry NT$7,256.

Moreover, 46 percent of retirees actually received an average pension of only NT$3,791 because they have not worked enough years to be eligible for pension payments. After the pension reform, the replacement rates for public teachers have decreased from 75 percent to 60 percent – still high – with a base pension payment amount of NT$32,160, which means that public school teachers will still receive at least twice as much as their private sector counterparts.

In addition, public sector workers already earn higher wages, a minimum of NT$29,345 as compared to NT$22,000 for private sector workers. Private sector workers in Taiwan are short-changed in terms of their wages and benefits.

The other East Asian countries fared poorly in their pension adequacy, with replacement rates at between 34.6 percent (Japan) and 39.3 percent (South Korea). Singapore’s and Hong Kong’s replacement rates were 38.5 percent and 34.8 percent, respectively. In addition to Hong Kong’s Mandatory Provident Fund (MPF) public pension scheme, the government also provides various social security schemes for the elderly based on their income level: 13 percent of the elderly received a monthly payment of HK$5,548 (US$710) in 2015, 37 percent received HK$2,390 and 19 percent received HK$1,235.

The amounts are actually low in comparison to the cost of living and do not do much to increase the replacement rates, but if you think these are low, look at what Singapore provides – only between SG$100 (US$76) and SG$250 a month, and it is only given to the bottom 20 percent of retirees, who have to meet stringent criteria. Retirees in Singapore are also not guaranteed a minimum pension amount or a minimum pension payment as a percentage of their previous wage as the other countries do. In 2014, the median pension payment from Singapore’s Central Provident Fund (CPF) was only SG$394, as compared to the median wage of SG$3,276 in that year, making up only 12 percent of the median wage.

The Singapore government transfers Singaporeans’ CPF pension funds into the government investment firm GIC Private Limited. The fund claims on its website that it “receives funds from the government […] without regard to the sources” while the Singapore government claims that the funds from the CPF are “comingled” with other funds such as government surpluses and land sales, and ultimately transferred to GIC for management.

The other government investment firm, Temasek Holdings, clearly states that “Temasek does not manage CPF savings.” There is little transparency in how the GIC and Temasek are being managed, and the size of the funds managed by the GIC are not even published. In 2015, Nominated Member of Parliament Chia Yong Yong said that she was “not entirely sure” if Singaporeans “have the right to spend [their CPF monies]” because “at the end of the day […] I am not the only person contributing to that fund, I cannot be the only person to call the shots as to how I’m going to spend it.”

Prime Minister Lee later said that Chia “made an excellent speech about the CPF” about the “broader perspective: whether it is right to think of the CPF as “our money”, to be spent solely as we choose.”

“I am glad that she did, and to such good effect,” Lee added.

Singaporeans have often complained that their CPF monies are trapped inside the government’s coffers and it has become commonplace to hear Singaporeans lament that the “CPF is not my money.”


On health expenditure, the Taiwanese government’s contribution of 60 percent of total health expenditure again puts Taiwan ahead of Singapore and Hong Kong, where the governments only spend 52 percent and 49 percent, respectively. However, Taiwan is still some way off from the governments of the Nordics, the Netherlands and Japan, which spend between 77 percent and 85 percent on healthcare.

govt health expenditure as % total Health expend

Source (data from latest year): World Health Organisation, Taiwan: Ministry of Health and Welfare Taiwan, Hong Kong: Food and Health Bureau The Government of the Hong Kong Special Administrative Region.

Also in the Nordics, the Netherlands and Japan, there is an annual maximum payment limit that citizens need to pay when they seek healthcare, or a limit to the co-payment. Citizens in these countries only need to pay a maximum of between US$409 (Sweden: 3,300 krona) and US$845 (Finland: €691) in a year. It is higher in South Korea, where the limit is set at 2 million won (US$1,874) for the bottom 50 percent, 3 million won for the middle 30 percent, and 4 million won for upper 20 percent.

There is also an annual limit in Taiwan, but the cap of NT$59,000 (US$2,008) pertains to each condition, though it is understood that patients seldom have to pay this maximum amount. Patients pay as low as NT$50 (US$1.70) to see a general practitioner (GP) or NT$150 (US$5.10) for emergency care at a district hospital.

annual payment limit for patient fees

Source (data from latest year): Norway: The Local Norway, Denmark: Danish Medicines Agency, Sweden: The Newbie Guide to Sweden, Finland: City of Helsinki, The Netherlands: Zilveren Kruis, Japan: Tokyo Securities Industry Health Insurance Society, South Korea: National Health Insurance Service South Korea, Taiwan: National Health Insurance Administration, ROC, Hong Kong: Hospital Authority.

In Hong Kong, there is no annual limit set, but the government mandates specific charges that patients only need to pay when they seek healthcare at public hospitals. These charges are relatively low, ranging from HK$50 (US$6.40) for general outpatient services to HK$180 (US$23) per attendance to the Accident and Emergency.

Again, Singapore stands out for not having such protections – there is no annual payment limit. In the GP Fee Survey in 2013 published last year by the Singapore Family Physician journal, it was found that the median consultation fee was SG$35 (average of SG$40) with fees going up to as high as SG$100 (US$75.70).

Citizens have been known to pay astronomical amounts for healthcare – in fact, in 2012, it was foundthat 2,400 Singaporeans had to pay more than SG$10,000 (US$7,570) for their hospital bills. A studyby Associate Professor Tilak Abeysinghe and then-PhD student Himani Aggarwal in 2014 also showed that as early as 2007, of 30,192 cases of elderly patients hospitalized at a public hospital, there were seven cases where the net hospital bill after government subsidies exceeded SG$100,000 (US$75,670), where the highest was SG$207,741 (US$157,259). In fact, Singaporeans have been known to “choose death over dialysis when their kidneys fail,” one reason being that dialysis is too expensive. It is preposterous that whereas other countries set a limit as to how much citizens have to pay for healthcare, the Singapore government instead sets a limit as to how much citizens’ can claim for healthcare.

In contrast, it is free for citizens to see a GP in FinlandDenmark and the Netherlands. In Sweden, it is between 100 krona (US$12.39) and 300 krona (US$37.16), and between 152 krone (US$19.32) and 257 krone (US$32.67) in Norway. In Taiwan, it is only NTS$50 (US$1.70). In Singapore, median and average consultation fees in 2013 were SG$35 (US$26.49) and SG$40 (US$30.27), respectively, but can go as high as SG$100 (US$76).

In Japan, people who go to the GP only need to pay 20 to 30 percent of the costs, while in South Korea, it is 30 percent. In Singapore, the average citizen stumps up the full cost.

In almost all these countries, there is a maximum limit for how much citizens need to pay for patient fees in a year, but again, there is no such ceiling in Singapore.

Lancet study has shown that high co-payments and hospital bills increase “potentially avoidable hospital admissions due to worsening of the condition, or emergency visits to obtain medication in acute episodes in patients with chronic diseases. Co-payments reduce demand for preventive services, because people tend to overestimate present costs and underestimate future health benefits.” This results in patients still having to go to hospital and pay even more than they would initially.

Unless they choose to die – which some Singaporeans have opted to do.

This could be why Singaporeans have developed a “kiasu” and “kiasee,” or fight or die, attitude. But this has created a self-centered culture – studies have shown that given Singapore is the most unequal country among the developed nations, Singaporeans are also less trusting towards one another and the level of self-enhancement – where people believe that they are better than someone else – is also the highest among developed nations. Social mobility in Singapore is impeded because of the city state’s unequal social and economic structure.

On the other hand, even though wages in Taiwan are the lowest in this comparison, the country in fact offers a solid social safety net – even though it might not seem so to some Taiwanese. By most metrics, Taiwan’s social welfare system can be considered a strong one – it just does not feel like it because low wages make the benefits look insufficient.

It should also be noted, however, that Taiwan’s government pays for only 60 percent of health expenditure, which compared to other developed countries, is relatively low. As such, there is room for the government to increase spending to between 70 and 85 percent, so that the quality of Taiwan’s healthcare system can be maintained, and is not compromised by unnecessary cost-cutting measures. As such, instead of reducing the top rates of income tax, the Taiwan government would do better to redistribute the budget to improving healthcare standards. This could begin with improving the quality of life of healthcare workers by hiring more of them – Taiwan already has the lowest physician densityamong the high-income countries – tied with Singapore and Hong Kong. Their governments spend the lowest among the developed countries on healthcare.

physician density.png

Source (data from latest year): World Economic Forum, Hong Kong: Department of Health The Government of the Hong Kong Special Administrative Region.

On paper, Taiwan stands out as a place that protects its poor and sick. That’s a saving grace, at least.

Equality and the future

There is an important area in which East Asian countries still have not caught up and perform poorly as a whole – work hours and off days.

annual hours worked

Source (data from latest year): The Conference Board.

In terms of work hours, Singaporeans work the longest among the developed countries – 2,237 hours annually. People in Hong Kong work the second-longest, at 2,175 hours, while South Korea comes in third at 2,088 hours. Taiwanese endure long hours as well, but not to the same extent as their counterparts in the other Asian Tigers do, clocking in 1,915 hours per year.

Japan fares a bit better, but it is the Nordics that shine – after the Germans, the Danes, Norwegians and Dutch work the shortest hours in the world.

fertility rate

Source (data from latest year): Central Intelligence Agency

It would also be reasonable to conclude that the situation for low-income workers in Singapore is completely out of whack – they earn comparatively low wages, work long hours and can only take short breaks, but suffer from scant social protection. Workers have limited protection from unemployment.

Singapore’s harsh inequality therefore also results in the country having one of the lowest purchasing powers (as measured by purchasing power parity*) when compared with the high-income countries. Even though Singapore has one of the highest GDPs per capita in the world, because the wage share is low and inequality is high, wages are therefore relatively low. This, coupled with being the most expensive place to live in the world, equates to low purchasing power. If it is of any consolation to Singaporeans, Taiwan has a lower purchasing power, though Taiwan’s redeeming feature is that it has a stronger social welfare system. On the other hand, precisely because the Nordics have one of the highest GDPs per capita in the world, and these countries have a high wage share and the lowest income inequality in the world, they therefore also have the highest purchasing power in the world after Switzerland and Australia and enjoy a high standard of living that is only available to the rich in Singapore and Hong Kong.

prchasing power parity

Source (data from latest year): World Economic Forum

Purchasing power parity (PPP) is an economic theory that compares different countries’ currencies through a “basket of goods” approach. According to this concept, two currencies are in equilibrium or at par when a basket of goods (considering the exchange rate) is priced the same in both countries.

Singapore’s socio-economic structure embodies many of the fundamentalist views on eugenics expressed by Singapore’s first prime minister Lee Kuan Yew. In 1969, the late Lee said in parliament: “free education and subsidized housing lead to a situation where less economically productive people in the community are reproducing themselves at rates higher than the rest.”

In 1980, as the birthrate among women who were more educated fell faster than that of those who were less educated, Lee then said: “If we continue to reproduce ourselves in this lop-sided way, we will be unable to maintain our present standards. Levels of competence will decline. Our economy will falter; and administration will suffer; and society will decline.”

The irony is that it is these very beliefs that have resulted in Singapore developing along such unequal lines. Singapore’s government has implemented these ideas to their full extent, treating the poor with contemptible disdain. If “society will decline” – as Lee put it – then it is because of his own ideals. By marginalizing the poor and denying them opportunities to move up the social ladder – Singapore’s social mobility is low because of its inequality – the Singapore government reinforces structural poverty. The poor cannot move up not because they do not want to, but because they are not allowed to. The examples of the Nordics show that that where resources are distributed equally, and everyone is uplifted, society progresses together. Whether or not the current leaders in Singapore subscribe to the late Lee’s views, they have continued to indulge them.

In truth, it is not because people are “less educated” that makes them poor, it is their poverty that makes them “less educated.” A study in the American Journal of Preventive Medicine found that people who are consistently exposed to having low incomes for two decades showed worse cognitive function and intelligence levels, and that living in poverty and hardship also meant a higher possibility of premature aging.

Research from Princeton University suggests that people who are poor are not less capable because of any inherent traits but because poverty impedes their cognitive capacity. The researchers explain: “Poverty and all its related concerns require so much mental energy that the poor have less remaining brainpower to devote to other areas of life.”

The researchers go on: “Thusly, a person is left with fewer mental resources to focus on complicated, indirectly related matters such as education, job training and even managing their time.” As a result, the poor “make mistakes and bad decisions” because they are poor – and must spend too much time thinking about how to make ends meet. It might take having to fall into poverty for people to really appreciate what this means.

But the study also shows that when people are lifted out of poverty, “low-income individuals performed competently, at a similar level to people who were well off,” then doctoral student and co-author Jiaying Zhao explains. As such, people who are considered intelligent now but who are made to live in poverty can also become less intelligent, when their resources are constrained. It is not a zero-sum game and definitely does not conform to the eugenics ideology expounded by the late prime minister.In sum, our society can be smarter as a whole when people are paid higher wages, and when resources are more equitably distributed to let everyone have the same chance. Unfortunately, the ruling People’s Action Party appears too deeply embroiled in the situation to pull itself out and Singaporeans are too fearful – or complacent – to do anything about it.

Taiwan’s future

Taiwan, on the other hand, by its metrics, has a relatively strong social welfare system, with high adequacy in unemployment benefits and gross pension replacement rates, as well as healthcare that is generally cheap.

However, the key issue with Taiwan is low wages, which drag down Taiwan’s otherwise strong social welfare system. It has thus become commonplace to read reports or hear government officials talk about how the national health insurance or pension system might go bankrupt, but this neglects the wage issue, which results in lower contributions to Taiwan’s social welfare system.

But Taiwan is on the crux of change. Should the country continue down the misguided path of neoliberalism and inequality, which even the IMF is now cautioning against, or focus on pursuing progressive ideals as part of its democratic evolution?

When Taiwan’s President Tsai Ing-wen (蔡英文) was elected, she promised to increase workers’ wages.

“Our young people still suffer from low wages. Their lives are stuck, and they feel helpless and confused about the future,” she said.

Indeed, Commonwealth Magazine wrote about the 30-somethings in Taiwan who grew up during as wages became depressed, and because of that, Lin Thung-hong, an associate research fellow in Academia Sinica’s Institute of Sociology, explains, “(Living in the moment) is rational behavior when wages are low because saving doesn’t have any benefits.”

Therefore, when Hsu Chung-jen (徐重仁), president of PX Mart, one of Taiwan’s largest supermarket chains, complained that Taiwan’s youths were “spending too much money” and that they should “tolerate rather than complain about low pay,” he could not be more out of touch.

“Nowadays, young people are really spendthrift,” Hsu said, “Young people should not fuss over having lower salaries than other people. Withstand rather than complain; work diligently and your boss will see you one day.” But have the bosses of Taiwan met his expectations?

Hsu later apologized, saying “the incident led him to reflect whether he — and those of his generation — tend to pass judgement too quickly on the younger generation,” Taipei Timesreported him as saying.

Perhaps Hsu might not be completely to blame for his lack of understanding. As in Singapore, the rich-poor gap in Taiwan has also resulted in a separation of experience and understanding, where “the Elites – due to their wealth – do not suffer the detrimental effects” of inequality and “appear to be oblivious” to the plight of those at the bottom, as a study on collapsed societiesexplains.

Taiwan and Singapore are of course different – Taiwan is a democracy where its citizens have the right and ability to push for change. In Singapore, activists have been intimidated,interrogatedsuedcharged and jailed, while some have lost their jobs simply for speaking up – just like in China.

Taiwan president Tsai also said at her inauguration: “Young people’s future is the government’s responsibility. If unfriendly structures persist, the situation for young people will never improve, no matter how many elite talents we have. My expectation is that, within my term as president, I will tackle this country’s problems step by step, starting with the basic structure.”

Compare this with Singapore’s Prime Minister Lee who mocked income inequality as a “fashionable thing to talk about.”

He also said: “If I can get another 10 billionaires to move to Singapore and set up their base here, my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in business, bring in opportunities, open new doors and create new jobs, and I think that is the attitude with which we must approach this problem.”

Well, statistics suggest otherwise.

President Tsai also campaigned on a platform of marriage equality in the last general election, yet her administration has dragged its heels on following through. Premier William Lai (賴清德)said in October last year that the Legislative Yuan was still working on submitting a proposal on marriage equality for discussion before the end of 2017 but we are now into the new year, and not a sound has been heard. Nonetheless, Taiwan remains the only Asian country which has a road map towards marriage equality by the middle of 2019 – putting it in the same league as the Nordics and the Netherlands, even as its East Asian counterparts remain nonplussed by the issue.

Same-sex marriage recognition (year of legalization) No same-sex marriage recognition Criminalization of male same-sex sexual relationships
Netherlands (2001) Norway and Sweden (2009) Denmark (2012)Finland (2017) Japan (partnership certificates issued in six local governments)

Hong Kong and South Korea-none


In Singapore, after a record number of international corporate sponsors joined in the eighth run of the annual PinkDot SG event in 2016, held in support of the Lesbian, Gay, Bisexual and Transgender (LGBT) community, the government announced that foreign entities would not be allowed to sponsor the event unless they apply for permission. Even then, Google, Apple, Facebook, Salesforce, Airbnb, Uber, Microsoft, NBC Universal and Goldman Sachs did just that,but had their applications rejected. The government also introduced new rules to prohibit foreigners from participating or to sponsor the event. Those deemed to be illegally participating can be fined while organizers are threatened with fines and jail time if they flout the rules.

However, the ban has had the opposite effect – more than 100 local companies then stepped up to provide sponsorship for the event. Still, male same-sex sexual relationships are still illegal even though the ILGA-RIWI Global Attitudes Survey on Sexual, Gender and Sex Minorities released last year showed that 61 percent of Singaporean participants believe that equal rights and protections should be applied to people who are romantically or sexually attracted to people of the same sex – which was the second-highest acceptance level in Asia.

In Hong Kong, the High Court said in a landmark ruling last year that the government should provide the same benefits that it provides to heterosexual couples, to same-sex couples. Justice Anderson Chow Ka-ming (周家明) called the Civil Service Bureau’s policy “indirect discrimination” – the bureau had denied benefits to senior immigration officer Leung Chun-kwong and his partner, Scott Adams from New Zealand, whom he married in 2014, claiming the need to protect “the integrity of the institution of marriage”, leading Leung to challenge the bureau in court. However, the government has decided to appeal the ruling.

In South Korea, homosexual activity is banned in the military and after a video showing two male soldiers having sex was uploaded onto social media, human rights group reported a witch hunt against gay soldiers which even used dating apps to entrap them, leading to 32 soldiers being charged. The Associated Press also reported the South Korean President Moon Jae-in as opposing homosexuality.

On the other hand, in Japan, partnership certificates can be issued to same-sex couples in six local governments and the city of Sapporo, even though they are not legally recognized as marriage certificates. Attitudes towards homosexuality are said to be conservative, though the ILGA-RIWI survey also showed that 55 percent of participants believe that same-sex couples should be treated with equal rights and protections.

Overall, among the Asian Tigers, Taiwan is a mixed bag. On the one hand, wages are low but on the other, Taiwan has a good social welfare structural system and same-sex marriage will soon be legal in the next one and a half years at most. It seems almost as if the Taiwanese government is pushing all the right buttons except the most important one – wages (and related to it, rest days).

Vice Premier Shih Jun-ji did discuss the possibility of increasing wages by 6 percent every year to achieve a minimum wage of NT$30,000 (US$1,021) by 2024, or by 8 percent to achieve it by 2022. However, Shih’s calculations do not consider the inflation rate, which in 4 years time might mean minimum wage should have gone up to NT$32,000 (US$1,089), which would mean that wages should be increasing by 9 to 10 percent every year – noting the study mentioned earlier which showed that a 10 percent increase would only lead to a 0.4 percent increase in overall prices and 4 percent in food prices.

Taiwan’s government should come out with a projection as to the different scenarios that wages can be increased by, and how these would affect prices and employment, so as to come out with a practical solution.

Even so, Premier William Lai had side-stepped the topic of implementing a minimum wage of NT$30,000 even as he suggested that listed companies and multinational corporations should pay graduates a starting wage of NT$30,000. But a minimum wage policy is important as can be seen in the announcement of the Workforce Development Agency (WDA) annual career fair. At its upcoming fair, of the 3,500 jobs available, only half will have a starting salary of NT$30,000 per month. In spite of Lai’s calling on businesses to increase starting salaries to NT$30,000, this call has not been heeded – which is why increasing minimum wage as a policy is necessary.

While NT$30,000 is not only the “ideal” minimum wage, it is also necessary to bring Taiwan’s wages to parity. Taiwan’s current minimum wage is only NT$22,000, but public-sector workers already earn a minimum of NT$29,345 and with the pension reform last year public sector pensioners are also guaranteed a minimum pension payment of NT$32,160.

Clearly, the government acknowledges that NT$30,000 to NT$32,000 is the minimum necessary for basic living for the Taiwanese. Leaving private-sector workers in the lurch to earn only NT$22,000 and leaving it to the private sector to increase wages without legislating minimum wages to the ideal would be irresponsible.

In fact, when you take the example of Denmark and Sweden, public and private-sector workers earn about the same wages, and skilled private-sector workers actually earn higher wages than public-sector workers, so it begs the question why public sector workers in Taiwan are earning such significantly higher wages than private-sector workers. Shouldn’t they be earning similar – and higher – wages if the Taiwanese are to be uplifted together? Which is why the continuous push by retired public servants to fight to keep their high pension payments – which already would put them in the top 10 percent income earners – is incredulous.

What kind of example are the public school teachers setting for their students when they would fight for their own pension and not for the general public, when the very people they teach would go out into the workforce to earn significantly lower pay than them? Already, public school teachers already received an average pension of NT$68,025 last year, or 18 times higher than the average pension of only NT$3,791 that 46 percent of Taiwanese retirees were able to receive. Shame is perhaps not the right word, but where we should work for the benefit of all of Taiwan, where is the self-respect of the public school teachers when their role should be to educate the public of their responsibility to society?

Shih also said that the government would adopt a targeted approach to increase minimum wages in industry sectors where wages are low such as in the retail and food industries, and where unemployment is high such as among young workers and first-time job seekers, instead of a “broad approach aimed at improving the entire economy.”

But labor unions should take note – the Nordic example where collective bargaining is done for each sector actually helped to increase wages to the highest in the world, but that is because they are democracies. Taiwan may be a democracy, but it has not attained the level of transparency that the Nordics have and because the top families’ control of businesses in Taiwan is similar to Singapore’s top families’ (and state’s) control – and where crony capitalism is high. Taiwan might fall into a similar situation where wages would remain low as in Singapore’s case, even if there were any increase. Where Taiwan will go depends on the integrity of Taiwan’s politicians and their commitment to democracy, and the strength of the labor unions and the Taiwanese to hold the government accountable.

The World Economic Forum highlighted this: “Recent empirical research indicates that the most important explanation for the falling wage share is workers’ weaker bargaining position.”

It added that, “The conclusion is that it is absolutely possible to restore the wage share through the right policies, [… by] strengthening the welfare state, supporting trade unions and providing workers with […] a social safety net,” among other things.

Additionally, the Nordic model has shown how high wages and a strong social welfare system can help design an ecosystem which has led the Nordic countries to be one of the most innovative in the world, and which has moved the Nordic countries into high-skilled and high-value industries.

At the very least, at her year-end conference, President Tsai did talk up her promise of setting a minimum wage act.

Tsai also said: “The government will provide support to companies willing to give bigger pay raises. When companies share more of their profits with employees, this increases employees’ buying power, creating a positive cycle that benefits both enterprise and labor.”

Tsai’s point is backed up by evidence which showed that “the marginal propensity to consume of high-income earners is substantially less than for low-income earners,” as reported by The Guardian of the study by Brookings Institution and the Reserve Bank of Australia. also showed that the richest 10 percent in America actually spends about the same on basic necessities as the rest of the 90 percent – US$1,601 vs US$1,455, respectively, but with the top 10 percent spending only 10 percent of their income. As such, Michael Linden of the Center for American Progress’ managing director for economic policy told HuffPost: “It’s a real problem to the extent that more and more income is going to people at the top and more of that income is not going to places that are productive.”

Sam Pizzigati, an associate fellow at America’s Institute for Policy Studies added that, “This whole hoarding episode [among the rich] just tells us once again that any society that lets wealth concentrate at the top is making a very foolish move economically.”

“There’s a bit of a vicious cycle,” Linden said. And this is where Taiwan is today.

For too long, Taiwan’s government has pandered far too much to the big businesses. This has resulted in a vicious cycle, as Tsai’s proposal hopes to undo, or at least we hope it will. But this also requires the cooperation of the top families in Taiwan and the bosses of SMEs to understand the role they play not only as business leaders but as the citizens of Taiwan. If Taiwan is to become relevant on the international stage again, the Taiwanese have to first take themselves seriously and to uplift the livelihoods of one another, so that the Taiwanese will gain a new confidence and foothold and be able to take Taiwan forward together as a nation.

On many indicators, Taiwan already performs admirably – in terms of social welfare and human rights. But if Taiwan were to truly become one of the developed and democratic countries in the world, it has to start with wages – by increasing them.

The World Economic Forum explained: “Strong unions, collective wage bargaining and high minimum wages can offset the negative impact of other factors, as the Nordic countries have proved,” which together can help design an ecosystem which has led the Nordic countries to be one of the most innovative in the world, and which has moved the Nordic countries into a high-skilled and high-value industry.

The solution therefore, is doable. Writing before the recently-concluded World Economic Forum Annual Meeting 2018, Executive Director of Oxfam International Winnie Byanyima said: “I will be urging political leaders [at the meeting] to limit rewards to shareholders and senior executives, introduce a statutory living wage, build fairer tax systems, invest in healthcare and education, and shepherd in a technological revolution that works for all. I will be calling on business leaders to stop paying huge share dividends and awarding bumper pay packages to top executives until they can guarantee that all of their workers are getting a living wage and that their suppliers in their supply chains are being paid fair prices.”

The same needs to be done in Taiwan.

Already, Taiwan’s low wages are causing Taiwanese youths to leave to seek higher paying jobs, ironically in China. Where Taiwan is losing talent, the other irony is that Taiwan’s companies are still resistant to increasing wages while yet fretting about losing talent. In short, Taiwan’s businesses cannot have their cake and eat it. If they want wages to be kept low, then they have to content with Taiwan losing its lead and the continued stagnation. Otherwise, Taiwan’s businesses need to also increase wages to kickstart Taiwan’s economy once again.

It is a misguided strategy to hope that Taiwan can be kept as a low-cost manufacturing hub to compete with countries like Vietnam or Cambodia. Like the World Economic Forum explained, Taiwan’s government has to “avoid a prisoner’s dilemma in which [they] suppress wages to gain a competitive advantage over others”. Taiwan has outgrown this strategy and needs to move up the value chain to become more like the Nordic countries and the Netherlands. What it takes now is whether Taiwan’s businesses – and the government – have the foresight and confidence to take the next step to bring Taiwan forward. This means investing in Taiwan’s workers, to lift their wages, so that in turn they can help to lift local businesses.

Premier Lai had mentioned that in Taiwan, the “private sector is not short of funds, [however] much of it is invested overseas.” If Taiwan’s businesses would heed the government’s call to channel the funds back to Taiwan, this could give Taiwan the much-needed chance for change.

At this juncture, where the government’s Southbound policy seems to be gaining traction, Taiwan’s renewed collaborations with countries like Japan, Australia and India, as well as the United States and parts of Europe means that Taiwan can once again play a central role in the regional economy. Now all it takes is for the Taiwanese and Taiwan’s businesses to believe in Taiwan’s potential and to help bring Taiwan’s hopes and possibilities to fruition.

First Quarter 2018 Economic and Wood Product News Part 2- China, India, and Second Quarter Forecast by Strafor

China economy stable but housing to hit growth

FTCR China Busniess Activity Index.jpg

Real estate again weakest link as FTCR Business Activity Index drops below 50

China economy stable but housing to hit growth Real estate again weakest link as FTCR Business Activity Index drops below 50

Financial Time’s latest data covering the Chinese economy pointed to stable growth as 2017 ended. FTCR measures of internal and external trade continued to defy expectations for a meaningful slowdown in the fourth quarter, while household sentiment remained near record levels of optimism.

The FTCR Freight Index ended the year at 52.5, slightly below the previous month’s reading but suggesting a fourth straight month of improving conditions. Our export index also weakened on slower volume growth, but exporting companies reported that profits improved for a ninth straight month. However, our Business Activity Index, a monthly aggregate of our data, was dragged to a four-month low of 49 in December on the back of a slowing housing market.

Other public and private sector measures of the economy, released after our data were published, confirmed that growth remained strong last month. The purchasing managers’ index distributed by Caixin rose to a four-month high, while that produced by the China Federation of Logistics and Purchasing, a government-linked association, remained at levels suggesting manufacturing conditions continued to improve in the final month of the year.

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The FTCR Real Estate Index fell to its lowest level since January 2017, however, as rising mortgage rates continued to strangle sales activity, particularly in first-tier cities. We anticipate more pain ahead for housing, and its importance to the Chinese economy is such that overall growth will slow.

The government sees financial risk as a key threat to national security, and the country’s property market as a major source of that risk. Deleveraging was not directly name-checked in the statement marking the conclusion of the Central Economic Work Conference in December, prompting speculation that growth considerations will dominate in 2018. However, enough was made of the need to prevent financial system risk to suggest the leadership will continue its regulatory crackdown on finance in 2018. This also means that the purchase restrictions introduced by city governments starting at the end of 2016 will remain in place to snuff out speculation.

Despite tighter policies, consumers are still bullish on house prices. Our monthly gauge of price expectations showed that 62.5 per cent of respondents in December expected prices to keep increasing in the first half of this year, including 18.1 per cent who expect gains of more than 10 per cent. Over a year after local governments began making it more difficult to buy, far more Chinese consumers still expect prices to continue rising than during the peak of the previous tightening cycle in 2014, when just 41.5 per cent expected continued gains.

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As price inflation cools, the market’s ongoing slowdown will have a knock-on effect on consumer views towards the economy. Recommended Chinese consumers fret about healthcare and education costs. Rising Chinese interest rates will suppress future Tier One City house price gains. China governments will see more defaults as regulators implement tougher regulations. The government’s response to a slowing economy will be crucial. Previously when growth fell below target, the Chinese leadership would loosen policy. Although the 2018 annual growth target will reportedly be set at 6.5 per cent again, the government has signalled that it will tolerate a slower pace of expansion, in accordance with its new-found goal of improving the lot of Chinese households rather than just chasing growth. The growth target will be announced at the opening of the annual meeting of the National People’s Congress in early March. Allowing growth to slip below target, to about 6.3 per cent, would demonstrate the leadership’s commitment to reform. However, while we expect greater tolerance for slower economic growth, the government will resort to stimulus if the slowdown goes too far. The FTCR China Business Activity Index is a composite reading of business activity and sentiment based on our surveys of companies in the real estate, export and freight sectors. For individual survey methodologies click here. A full set of survey results can be found in the Financial Times Database.

purchaser's managers indice
Rising Chinese interest rates check big-city house price gains

FTCR China Real Estate Index takes another lurch down as credit woes hit sales
Rising Chinese interest rates check big-city house price gains FTCR China Real Estate Index takes another lurch down as credit woes hit sales Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Mail Save Save to myFT FT Confidential Research DECEMBER 28, 2017 Print this page House prices stopped rising in major Chinese cities in December as a scarcity of cheap mortgage deals choked sales. The FTCR China Real Estate Index fell to 43.5, its lowest level since January, as sales activity across all city tiers slowed further. Although prices continued to rise in second- and third-tier cities, developers in China’s biggest markets, where the gains have been most intense during this most recent cycle, said that prices had stopped rising in December, the first time they had done so since July 2014. This is not to say that prices are falling outright; 77.8 per cent of developers in these cities said that prices were unchanged relative to the previous month. Nonetheless, the Chinese housing market’s woes look set to continue as the government tries to make good on its pledge to stamp out the speculative impulses that have driven heady price gains across the country during the past two years. Although the number of developers reporting the availability of discounted mortgage rates ticked up in December, more than 90 per cent said first-time buyers were having to pay at or above the benchmark, signalling that credit remains historically tight. Although developers expect sales to fall again at the start of 2018, prices are expected to remain supported by a widespread belief among consumers that prices will continue to rise in the coming months. Share this graphic Sales fell across all city tiers at a faster pace than in November, with our Home Sales Index down another 4.1 points to 39.5, its lowest reading since January. First-time buyers were again the biggest source of demand (47.2 per cent), with those looking to buy an additional home accounting for 20.7 per cent of buyers, and upgraders making up the remaining 32.1 per cent. Developers reported that the volume of sales inquiries fell for a second month, with our inquiries index at 46.4, versus 45.1 in November. Share this graphic Developers in first-tier cities reported that house prices failed to rise in November, the first month they have done so since mid-2014. Increases in second- and third-tier cities were enough to lift the FTCR China Home Price Index 0.3 points to 58.5. The proportion of developers offering discounts rose 2 percentage points to 57.4 per cent, having hit a 44-month low of 53.1 per cent in October. Share this graphic The supply of new houses to the market shrank in all city tiers for a second month, with our New Home Supply Index falling 1.1 points to 44.6. The share of developers reporting rising sales volumes outstripped those reporting supply growth: 16.7 per cent said transactions increased while 15.8 per cent said supply did. Share this graphic Our Home Sales Outlook Index dropped 1.1 points in December to 47.9, but developers across all city tiers expect prices to rise further in the coming month. Our Home Price Outlook Index rose 0.3 points month on month to 56.9. Share this graphic The number of developers reporting that discounted mortgage rates were available for first-time buyers rose for the first month since January. However, credit remains historically tight, with 91.4 per cent saying that buyers are paying rates at or above benchmark. Share this graphic Our Home Sales Index for first-tier cities dropped 2 points to 37.8, in second-tier cities it fell 4.7 points to 39.1, and in third-tier cities it fell 3.9 points to 41.2. Our first-tier-city house price sub-index fell 3.4 points to 50, while the second-tier city sub-index rose 1.2 points to 60.4 and the third-tier city index increased 0.5 points to 59.3.

No ordinary ZhouZhou Xiaochuan, China’s central-bank chief, is about to retire

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If you seek his monument, survey China’s economy

 Print edition | Finance and economics

Feb 1st 2018

WHEN Zhou Xiaochuan took the helm of China’s central bank 15 years ago, the world was very different. China had just joined the World Trade Organisation and its economy was still smaller than Britain’s. Foreign investors paid little heed to the new governor of the People’s Bank of China. He seemed safe to ignore: another black-haired, bespectacled official whose talk was littered with socialist bromides.

Mr. Zhou is widely expected to retire in the coming weeks. He leaves with China far stronger and his own role much more prominent. No one person can take credit for the flourishing economy. But Mr. Zhou, who is 70, deserves more than most. He helped forge the monetary environment for China’s growth. He also went a long way to dragging the financial system out of the mire of central planning, even if reforms fell short of his own wishes.

His achievements are surprising. China makes no pretence of having an independent central bank. The People’s Bank is under the State Council, or cabinet. But with political acumen and a command of economics, Mr. Zhou carved out power for himself. As the years silvered his hair, his decision to leave it undyed, rare among high-ranking cadres, marked him out as different, even a bit daring.

It did not hurt that, as the son of Zhou Jiannan, a senior Communist official, he enjoyed the privileged status of “princeling”. From his early career in the 1980s, he advocated a more market-based economy. He helped design the “bad banks” that freed Chinese banks of their failed loans and paved the way for a boom. As stock market regulator, he was nicknamed “The Flayer” for trying to root out corruption. Mr. Zhou was not a radical but, by China’s standards, a staunch economic liberal.

When party leaders chose Mr. Zhou as central-bank governor in 2002, they made him the point-man for financial reform. Over time he also became the face of Chinese economic policy in global markets, much liked for his jovial manner and straight talk. At the last big shuffle of government personnel five years ago, he was old enough to retire. A former aide says that Mr. Zhou hoped to return to his other love, music. Sent to work on a farm during the Cultural Revolution, he kept a contraband collection of classical-music records; in the 1990s, when he was a banker, he wrote a book about musicals on the side. But when Xi Jinping became China’s leader in 2012, he asked Mr. Zhou to stay on. The Flayer had come to be seen as a wise elder, an indispensable guide for the financial system through a dangerous period.

His first big move as central banker, back in 2005, was to unpeg the yuan from the dollar. China’s currency remains tightly managed, but it has not stood still. It rose by a third against the dollar in the decade after unpegging. Mr. Zhou also steered China towards a system in which banks set interest rates themselves, rather than merely follow government diktats. Frustrated by the torpor of China’s other regulators, he oversaw the creation of a vibrant exchange for “medium-term notes”, a bond market in all but name. Rather than big-bang reforms, with all their attendant dangers, these were small changes that added up to something bigger.

Yet Mr. Zhou craved more. He wanted to open China’s financial system to the world, believing that only with true competition would it be possible to curb wasteful investment. As a vehicle for this he lighted on internationalising the yuan. Politically, it was an easy sell—leaders liked the idea of having a powerful currency. Economically, it proved complex, requiring China to open its sheltered financial system to more risks. When cash flooded out of the country in 2016, the central bank retreated, ratcheting up capital controls.

Criticism has come from opposite sides. Some economists, mostly in China, feel that Mr Zhou pushed too hard for market forces, especially in his drive to internationalise the yuan. One former adviser, a more conservative economist, calls him “relentless”. The other criticism, more often heard abroad, is that Mr Zhou did too little to cure China’s financial ills. Debt levels soared on his watch, a threat to stability that the government is trying to reduce.

Neither criticism is entirely fair. The project to make the yuan global was never just about the currency. Mr. Zhou knew that opening the capital account would reveal financial shortcomings in China and press the government to crack on with reform. To some extent this is now happening, with officials more focused on risks. As for the debt explosion, Mr. Zhou could do little to restrain it. Given that the government was committed to ambitious growth targets, the central bank had to provide supportive monetary policy. But it has not let things get out of hand: inflation has remained generally low and stable.

Legacy systems

Mr. Zhou is well aware that reputations change. He started his term as central-bank governor when Alan Greenspan was seen as the Federal Reserve’s “maestro”, not yet as a villain of the 2008 global financial crisis. Over the past half-year Mr. Zhou issued several warnings that debts were too high and that, without stricter regulation, China could face serious trouble. To some it looked as if he was trying to protect his legacy, since, if financial turmoil erupts, he cannot be accused of failing to foresee it.

The front-runners to replace him are Guo Shuqing, China’s most senior banking regulator, and Jiang Chaoliang, party chief of Hubei, a central province. Whoever gets the job will have less personal clout than Mr. Zhou. And with decision-making more centralised under President Xi, the central bank itself may play a diminished role. Yet in one respect its next governor will start from a much stronger position. China’s financial reforms are far from finished, but the system as a whole is much more advanced than 15 years ago. As an architect, Mr. Zhou never saw his vision fully realised, but he designed solid foundations.

China Economic Update

By Eric Wong 

eric wongManaging Director, Canada Wood China

May 2, 2018

Posted in: China

2018 Q1 highlights:

  • Based on the report issued by the official statistics bureau on April 17th, China’s GDP growth increased 6.8% in the first quarter which exceeded the previous expectation (6.7%); real estate investment is expected to go slower because China intends to restrain excessive speculation in this sector;
  • The industrial output growth in March 2018 slowed down to 6% year-on-year compared to the 7.2% from January to February period which showed the strengthen policy to reduce environmental pollution from industry; retail sales are estimated to have rose 9.7% in March which match readings in the first two months, meanwhile industrial production increased 6.4%, made a slower pace compared from January and February; fixed asset investment grew slowly to 7.5% year-on-year from January to March 2018, decreased from 7.9% in January and February this year. Above-mentioned indicators are combined for the first two months of the year because of the annual holiday in China.ii

PMI (Caixin) indexes decreased unexpectedly to 51.0 in March 2018 from 51.6 in February which skipped market consensus of 51.8.iii China Exports dropped 2.7% year-on-year to USD 174.12 billion in March 2018 which didn’t make the market expectations of a 10% growth

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China Consumer Price Index (CPI) fluctuated, rose from 101.5 (January 2018) to 102.9 (February 2019) and then decreased slightly to 101.7 (March 2018).v USD/CNY fluctuated, increased from 6.30 (February 1st) to 6.36 (March 1st) and then went slightly lower to 6.29 (April 1st);vi CAD/CNY dropped continuously from 5.13 (February 1st) to 4.95 (March 1st) to 4.88 (January 1st), hit the lowest spot (4.83) on March 16th during the past 12 months.vii

Building material prices

Cement price dropped slightly from RMB 410.83 to RMB 398.33 per metric ton (down 3.04%) over March 2018.viii Rebar steel price went down by 12.22% from RMB 4,088.12 per metric ton on March 1st 2018 to RMB 3,588.46 per metric ton on March 31st 2018.ix The log price index in March 2018 was 1,115.91 points which decreased 0.48% less than February 2019 and grew 2.22% compared to the same period year-on-year; the lumber price index in March 2018 was 1,123.99 which went down slightly of 0.33% month-on-month and decreased 0.56% year-on-year.x

Wood import of Chinaxi

Normally during Chinese New Year (January to February) wood imports to China tend to decrease lower while volume of wood inventory stays higher in most ports. This year the volume of wood imports in total dropped to a new low at 5.49 million m3 in February which decreased 14.81% year-on-year and 35.28% month-on-month. On the contrary log and softwood inventory at Taicang, Wanfang and Meijing Ports increased steady from September 2017 (1.05 million m3) and hit 1.26 million m3 in February 2018, the latter figure shows 2.5% growth year-on-year and fits the total trend. Based on the market trend in previous years it is expected to see wood imports to China to go up and inventory goes down in the coming months. This trend shows consistency when it comes to softwood lumber imports from Russia and Canada, both figures decreased to new lows in February 2018 during the past 12 months especially for Canadian softwood lumber (194,423m3) which dropped 38.93% year-on-year and almost half (44.95%) compared to the volume of last month.

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demand for wood

i Huileng Tan (April 17th, 2018). China says its economy grew 6.8% in the first quarter of 2018, topping expectations
ii Bloomberg News (April 16th, 2018). China’s Economy Brushes Aside Trump to Power Ahead in 2018
iii Trading Economics (April 17th, 2018). China Caixin Manufacturing PMI
iv Trading Economics (April 17th, 2018). China Exports
v Trading Economics (April 17th, 2018). China Consumer Price Index (CPI)
vi XE Currency Charts: USD to CNY
vii XE Currency Charts: CAD to CNY
viii Sunsirs (April 2018). Spot Price for Cement
ix Sunsirs (April 2018). Spot Price for Rebar Steel
x BOABC (April 2018). China Wood and Its Products Market Monthly Report
xi BOABC (January to April 2018). China Wood and Its Products Market Monthly Report


Lumber Shipments

By Tai Jeong

Tai JeongTechnical Director, Canada Wood Korea

May 2, 2018

Posted in: Korea

BC softwood lumber export volume to South Korea for the first two months of 2018 decreased 38.6% to 24,430 cubic meters as compared to 39,784 cubic meters for the same period of 2017.

This significant downward trajectory comes from many reasons including weakened BC Coastal shipments in the first quarter of 2018 (36% decrease) and decreased housing starts in the South Korean residential construction segment forced by the South Korean government’s strong intervention to limit the supply of new homes from August 2016 to check rise in household debts and curb rising house prices.

Export value for the same period decreased 23.3% to CAD$8.048 million as compared to CAD$10.489 million for the same period in 2017.

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Bank of Japan abandons ‘fiscal 2019’ target for inflation goal

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Time frame on Kuroda’s pledge to hit 2% inflation has been postponed six times Haruhiko Kuroda has begun his second term as Bank of Japan governor The Bank of Japan has abandoned a pledge to hit its 2 per cent inflation target “around fiscal 2019” in a belated recognition that prices are less sensitive to monetary policy than it once believed. Japan’s central bank did not change its inflation forecasts, continuing to predict price rises of 1.8 per cent in the year to March 2020, but it scrapped the written time frame it has kept in place since the start of its massive monetary stimulus in 2013. The change of wording signals the BoJ is settling in for a long campaign to raise prices as Haruhiko Kuroda began his second term as governor. Policy stayed on hold, with overnight interest rates kept at minus 0.1 per cent, 10-year bond yields capped at around zero per cent and the BoJ buying assets at an official pace of around ¥80tn ($730bn) a year. “We do not think this will have any near term policy implications, but think the removal of the fiscal year 2019 timeline gives the BoJ more policy flexibility, avoiding the need for more aggressive stimulus,” said Mitul Kotecha, a strategist at TD Securities in Singapore. At the start of his stimulus in 2013, Mr Kuroda promised to hit 2 per cent inflation in about two years, but he has been forced to postpone the time frame six times since then. Those repeated changes have undermined Mr Kuroda’s credibility. Recommended The Big Read Central bankers face a crisis of confidence as models fail The lack of change in policy signals that the reconstituted BoJ board, including two new deputy governors, will carry on with the stimulus in place since 2013. The policy board voted 8-1 in favour of the decision. Board member Goushi Kataoka dissented in favour of more stimulus. New deputy governor Masazumi Wakatabe, who is regarded as a dove, followed tradition and voted with the governor. Inflation in Japan remains subdued with prices, excluding fresh food and energy, up 0.5 per cent on a year ago in March. There is little momentum towards the BoJ’s objective of 2 per cent inflation. Speaking at a press conference, Mr Kuroda said there was no change in policy, but the BoJ had dropped the language to correct market misconceptions about a direct link between changes in the date and changes in the BoJ’s monetary stance. “I think there is a high chance we will achieve something like 2 per cent inflation around fiscal 2019,” he said. The BoJ left its economic forecasts largely unchanged. It expects inflation of 1.3 per cent in the year to March 2019 and 1.8 per cent in the year after that, excluding the effects of a planned rise in consumption tax. Most external analysts are more pessimistic. “Japan’s economy is likely to continue growing at a pace above its potential in [the year to March 2019],” said the BoJ. But it added: “The year-on-year rate of change in the consumer price index has continued to show relatively weak developments.” The BoJ said that risks to growth next year were “skewed to the downside” because of the consumption tax rise, from 8 per cent to 10 per cent, scheduled for October 2019. Its cautious outlook highlights how far Japan still has to go to achieve a permanent escape from the past two decades of on-and-off deflation. Despite slow progress on inflation, economic activity remains robust, with the ratio of open jobs to applicants hitting a fresh 44-year high of 1.54 times. The unemployment rate held steady at 2.5 per cent. The BoJ hopes that tight labour markets will ultimately lead to upward pressure on wages, higher consumption and a faster pace of increase in prices.


The elephant in the room India’s missing middle class

Multinational businesses relying on Indian consumers face disappointment


Print edition | Briefing

Jan 11th 2018| MUMBAI

THE arrival of T.N. Srinath into the middle class will take place in style, atop a new Honda Activa 4G scooter. Fed up with Mumbai’s crowded commuter trains, the 28-year-old insurance clerk will become the first person in his family to own a motor vehicle. Easy credit means the 64,000 rupees ($1,000) he is paying a dealership in central Mumbai will be spread over two years. But the cost will still gobble up over a tenth of his salary. It will be much dearer than a train pass, he says, with pride.

Choosing to afford such incremental comforts is the purview of the world’s middle class, from Mumbai to Minneapolis and Mexico City to Moscow. Rising incomes and the desire for status have, in recent decades, seen such choices become far more widespread in a host of emerging markets—most obviously and most spectacularly in China. The shopping list of the newly better off includes designer clothes, electronic devices, cars, foreign holidays and other attainable luxuries.

Many companies around the world are looking to India for a repeat performance of China’s middle-class expansion. India is, after all, another country with 1.3bn people, a fast-growing economy and favourable demography. And China’s growth is flagging, at least by the standards of the past two decades. Companies which made a packet there, both incomers such as Apple and locals like Alibaba, are seeking pastures new. Firms that missed the boat on China or, like Amazon and Facebook, were simply not allowed in, want to be sure that they do not miss out this time.

Enthusiasm about India is boundless. “I see a lot of similarities to where China was several years ago. And so I’m very, very bullish and very, very optimistic about India,” Tim Cook, Apple’s boss, recently told investors. A walk around the Ambience Mall in Delhi shows he is not the only multinational boss with big ambitions in the country. Indian brands like Fabindia, a purveyor of fancy clothes and crafts, are outnumbered by Western ones such as Levi’s, Starbucks, Zara and BMW. The slums that host a quarter of all India’s city dwellers feel a long way off.

Beyond the mall, Amazon has committed $5bn to establish a presence in the world’s biggest democracy. Alibaba has backed Paytm, a local e-commerce venture, to the tune of $500m. SoftBank, a Japanese investor, has funded a slew of start-ups premised on the potential buying power of India’s middle class. Uber, the world’s biggest ride-hailing firm, has hit the streets. Google, Facebook and Netflix are vying for online eyeballs. IKEA is putting the finishing touches to the first of 25 shops it plans to open over the next seven years. Paul Polman, boss of Unilever, has described India as potentially the consumer giant’s biggest market. Reports put out by management consultants routinely point to 300m-400m Indians in the ranks of the global middle class. HSBC, a bank, recently described nearly 300m Indians as “middle class”, a figure it thinks will rise to 550m by 2025.

But for some of the firms trying to tap this “bird of gold” opportunity, as McKinsey once called it, an awkward truth is making itself felt: a lot of this middle class has little money to spend. There are many rich people in India—but they number in the mere millions. There are a great many more who have risen above the poverty line—but not so far above it that they spend much on anything other than feeding their families. And there is less in between the two than meets the eye.

Missing the mark

Companies that have tried to tap the Indian opportunity have found that returns fell short of the hype. Take e-commerce. The expectation that several hundred million Indians would shop online was what convinced Amazon and local rivals to invest heavily. Industry revenue-growth rates of well over 100% in 2014 and 2015 prompted analysts to forecast $100bn in sales by 2020, around five times today’s total.

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That now looks implausible. In 2016, e-commerce sales hardly grew at all. At least 2017 looks a little better, with growth of 25-30%, according to analysts (see chart 1). But that barely exceeds the 20% the industry averages globally. Even after years of enticing customers with heavily discounted wares, perhaps 50m online shoppers are active in India—roughly, the richest 5-10% of the population, says Arya Sen of Jefferies, an investment bank. In dollar terms, growth in Indian e-commerce in 2017 was comparable to a week or so of today’s growth in China. Tellingly, few websites venture beyond English, a language in which perhaps only one in ten are conversant and which is preferred by the economic elite.

India has yet to move the needle for the world’s big tech groups. Apple made 0.7% of its global revenues there in the year to March 2017. Facebook, though it has 241m users in India, probably the most in the world in one country, registered revenues of just $51m in the same period. Google is growing more slowly in India than in the rest of the world. Mobile phones have become popular as their price has tumbled—but most handsets sold are basic devices rather than the smartphones that are ubiquitous elsewhere in the world.

Eating their words

Fast-food chains once spoke of a giant market. Their eyes were bigger than Indian stomachs. Despite two decades of investment McDonald’s has hardly any more joints in India than in Poland or Taiwan. The likes of Domino’s Pizza and KFC have struggled to come close to expectations that were once sky-high. Starbucks says it has big plans for India but has opened about one new coffee shop a month over the past two years, bringing its total to around 100—on a par with Utah or the United Arab Emirates. A new Starbucks opens in China every 15 hours, adding to 3,000 already operating.

Executives remain relentlessly upbeat in public—even if investments do not always follow. Anurag Mehrotra, boss of Ford India, told the Financial Times in May that car sales in India were set to double every three to five years. That would be an extraordinary change in fortunes: sales grew by less than 20% overall in the six years to 2016. There is one car or lorry for every 45 Indians, according to OICA, a trade group. The Chinese own five times as many. Motorbike sales have grown fast but only because their price has tumbled by 40% since 2000, points out Neelkanth Mishra of Credit Suisse, another bank.

India-boosters point to middle-class services that have taken off. With 20% annual growth in passengers, aviation is already booming at the rate Mr Mehrotra hopes to see in the car industry. But taken together, all India’s domestic airlines are no larger than Ryanair, the world’s fifth-biggest carrier, according to FlightGlobal, a consultancy. SpiceJet, an airline, says that 97% of Indians have never flown. A mere 20m Indians travelled abroad in 2015, about one in 40 adults.

Optimists also argue that the rapid growth of things like Chinese mobile-phone brands shows that the Indian middle class is out there and spending—just not on Western brands. Locally based fast-food chains that undercut McDonald’s or KFC have done much better than the new arrivals. But local consumer businesses face much the same problem as multinationals. Inditex, Zara’s parent firm, has 46 clothes shops in India, fewer than in Ireland, Lithuania or Kazakhstan. For the kind of goods the global middle class aspires to own at least, executives whether at global or local firms clock the number of potential customers at 50m and no more. Even selling basic consumer goods does not necessarily work. Hindustan Unilever, which purveys sachets of shampoo for just a few rupees, has seen virtually no sales growth in dollar terms since 2012.

“The question isn’t whether Zara or H&M can open 50 stores in India. Of course they can. The question is whether they can open 500,” says a banker who asks not be named, on the ground that it is best not to be seen questioning the Indian middle-class narrative. “You can try to push beyond the 50m people who have money, but how profitable would that be? Companies can expand for a time, but the limits to growth are getting obvious.”

The bullish argument that brought Western brands to India was basically this: although the country remains, for the most part, very poor, its population is so enormous that even a relatively small middle class is large in absolute terms, and fast overall growth will, as in China, quickly increase its size yet further. This assumes two things. One is that the middle class in India is the same relative size as in other developing countries where marketers have succeeded in the past. The other is that growth will benefit this middle class as much as other parts of the population. Neither is true in India, which as well as being poor is deeply unequal, and becoming more so.

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For all the talk of wanting to tap the middle class, no firm moving into India thinks it is targeting the middle of the income distribution. India’s mean GDP per head is just $1,700, and 80% of the population makes less than that. Adjust for purchasing-power parity by factoring in the cheaper cost of goods and services in India and you can bump the mean up to $6,600. But that is less than half the figure for China (see chart 2) and a quarter of that for Russia. What is more, foreign companies have to take their money out of India at market exchange rates, not adjusted ones.

Defining the middle class anywhere is tricky. India’s National Council of Applied Economic Research has used a cut-off of 250,000 rupees of annual income, or about $10 a day at market rates. Thomas Piketty and Lucas Chancel of the Paris School of Economics found in a recent study that one in ten Indian adults had an annual income of more than $3,150 in 2014. That leaves only 78m Indians making close to $10 a day.

Meager market

Even adjusting for the lower cost of living, that is hardly a figure to set marketers’ heartbeats racing. The latest iPhone, which costs $1,400 in India, represents five month’s pay for an Indian who just makes it into the top 10% of earners. And such consumers are not making up through growing numbers what they lack in individual spending power. The proportion making around $10 a day hardly shifted between 2010 and 2016.

Another gauge is whether people can afford the more basic material goods they crave. For Indians, that typically means a car or scooter, a television, a computer, air conditioning and a fridge. A government survey in 2012 found that under 3% of all Indian households owned all five items. The median household had no more than one. How many of them will be anywhere near able to buy an iPhone or a pair of Levi’s if they cannot afford a TV set?

To get in the top 1% of earners, an Indian needs to make just over $20,000. Adjusted for purchasing-power parity, that is a comfortable income, equating to over $75,000 in America. But in terms of being able to afford goods sold at much the same price across the world, whether a Netflix subscription or Nike trainers, more than 99% of the Indian population are in the same league as Americans that count as below the poverty line (around $25,000 for a family of four), points out Rama Bijapurkar, a marketing consultant.

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The top 1% of Indians, indeed, are squeezing out the rest. They earn 22% of the entire income pool, according to Mr Piketty, compared with 14% for China’s top 1%. That is largely because they have captured nearly a third of all national growth since 1980. In that period India is the country with the biggest gap between the growth of income for the top 1% and the growth of income for the population as a whole. At the turn of the century, the richest 10% of Indians made 40% of national income, about the same as the 40% below them. But far from becoming a middle class, the latter’s share of income then slumped to under 30%, while those at the top went on to control over half of all income (see chart 3).

Such economic success at the top leaves less for everyone else. Consider the 300m or so adults who earn more than the median but less than the top 10%. This group has fared remarkably badly in recent decades. Since 1980, it has captured just 23% of incremental GDP, roughly half what would be expected in more egalitarian societies—and less than that captured by the top 1%. China’s equivalent class nabbed 43% in the same period.

The rich get richer

Some have doubts about Mr Piketty’s methodology. But other surveys suggest similar distribution patterns. Looking at wealth as opposed to income, Credit Suisse established in 2015 that only 25.5m Indians had a net worth over $13,700, equating roughly to $50,000 in America. And two-thirds of that cohort’s wealth was held by just 1.5m upper-class savers with at least $137,000 in net assets.

India’s middle class may be far from wealthy, but the rich are truly rich. There are over 200,000 millionaires in India. Forbes counts 101 billionaires and adds one more to the list roughly every two months. It shows. The Hermès shop next door to the Honda dealership frequented by Mr. Srinath sells scarves and handbags that cost far more than his scooter. Flats in posh developments start at $1m. In other emerging economies, there are fewer very rich and a wider base of potential spenders for marketers to tap.

In absolute terms, India has wealth roughly comparable to Switzerland (population 8m) or South Korea (51m). Although India’s population is almost the size of China’s, it is central Europe, with a population about the size of India’s top 10% and boasting roughly the same spending power, that is a better comparison. Global companies pay attention to markets the size of Switzerland or central Europe. But they do not look to them to redefine their fortunes.

Confronted by this analysis, India bulls concede the middle class is comparatively small, but insist that bumper growth is coming. The assumptions behind that, though, are not convincing. For a start, the growth of the overall economy is good—the annual rate is currently 6.3%—but not great. From 2002 China grew at above 8% for 27 quarters in a row. Only three of the past 26 quarters have seen India growing at that sort of pace.

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Another assumption is that past patterns will no longer hold and that the spoils of growth will be distributed to a class earning decent wages and not to the very rich or the very poor. Yet the sorts of job that have conventionally provided middle-class incomes are drying up. Goldman Sachs, another bank, estimates that at most 27m households make over $11,000 a year—just 2% of the population. Of those, 10m are government employees and managers at state-owned firms, where jobs have been disappearing at the rate of about 100,000 a year since 2000, in part as those state-owned enterprises lose ground to private rivals.

The remaining 17m are white-collar professionals, a lot of whom work in the information-technology sector, which is retrenching amid technological upheaval and threats of protectionism. In general, salaries at large companies have been stagnant for years and recruitment is dropping, according to CLSA, a brokerage.

Might those below the current white-collar professional layer graduate to membership of the middle class? This happened in China, where hordes migrated from the countryside to relatively high-paying jobs in factories in coastal areas. But such opportunities are thin on the ground in India. It has a lower urbanisation rate than its neighbours, and a bigger urban-rural wage gap, with little sign of change. It is not providing jobs to its young people: around a third of under-25s are not in employment, education or training.

There are other structural issues. Over 90% of workers are employed in the informal sector; most firms are not large or productive enough to pay anything approaching middle-class wages. “Most people in the middle class across the world have a payslip. They have a regular wage that comes with a job,” points out Nancy Birdsall of the Centre for Global Development, a think-tank. And women’s participation in the workforce is low, at 27%; worse, it has fallen by around ten percentage points since 2005, as households seem to have used increases in income to keep women at home. Households that might be able to afford luxuries if both partners worked cannot when only the man does.

Spent force

Across the income spectrum, households that do make more money tend to spend it not on consumer goods but on better education and health care, public provision of which is abysmal. The education system is possibly India’s most intractable problem, preventing it becoming a consumer powerhouse. Attaining middle-class spending power requires a middle-class income, which in turn requires productive ability. Yet most children get fewer than six years of schooling and one in nine is illiterate. Poor diets mean that 38% of children under the age of five are so underfed as to damage their physical and mental capacity irreversibly, according the Global Nutrition Report. “What hope is there for them to earn a decent income?” one senior business figure asks.

None of this leaves India as an irrelevancy for the world’s biggest companies. Whether India’s consumer class numbers 24m or 80m, that is more than enough to allow some businesses to thrive—plenty of fortunes have been made catering to far smaller places. But businesses assuming the consumer pivot in India is the next unstoppable force in global economics need to ask themselves why it already looks to have run out of puff—and whether it is likely to get a second wind any time soon.

This article appeared in the Briefing section of the print edition under the headline “The elephant in the room”

BanyanAsia is taking the lead in promoting free trade

Asian voters know open markets have lifted billions of them out of poverty

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 Print edition | Asia

Jan 24th 2018

THE obituary of the Trans-Pacific Partnership (TPP) was widely written when Donald Trump pulled America out of the 12-country free-trade deal on the third day of his presidency. Yet, a year later and against all the apparent odds, the pact lives on. On January 23rd its remaining 11 members met in Tokyo to thrash out the final details of pressing ahead regardless. The plan is to sign a final agreement in March, to come into force in 2019. It will be one of the world’s most exacting trade pacts, measured by openness to investment from other members, the protection of patents and environmental safeguards.

The pact’s resurrection is one of the more unlikely events in a year of surprises. After all, America accounted for almost two-thirds of the original bloc’s $28trn in annual output. Access to the vast American market was what made other members readier to open up their own. Moreover, Mr. Trump’s retreat had sent a dismal message about the prospects of the open, rules-based order that America had underwritten. The Asia-Pacific region had benefited more than any from that order in recent decades—yet Mr. Trump was declaring multilateralism dead and signalling an intention to raise barriers to trade. Soon afterwards, he ordered South Korea to renegotiate its free-trade agreement with America. And this week he imposed punitive tariffs on imported washing machines and solar panels, aimed at South Korean and Chinese manufacturers (see article).

In spite of this forbidding backdrop, the dauntless 11—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam—have regrouped. In Vietnam in November their leaders sketched out an agreement on the core features of a revised deal. The pact’s name has changed, to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in case the original had tripped too lightly off the tongue. But remarkably few (22, to be precise) of the original provisions have been frozen. The victims are mainly strictures insisted on by America. For instance, copyright has been reduced from 70 to 50 years. And special protections for biologics, a booming category of drugs, have been suspended.

A few concessions were made to those still in the pact. Malaysia will not immediately have to liberalise its state-owned enterprises. Communist Vietnam can put on hold new rules about resolving labour disputes and allowing independent trade unions.

The biggest foot-dragger was Canada, the second-biggest economy in the group (after Japan), which had wanted special treatment for cultural industries such as television and music—a concern for Francophone Canadians—and changes to the rules on imports of cars. Canada has a big car-parts industry, which caters mainly to American carmakers. Now that America has dropped out of the pact, fewer cars from this integrated North American supply chain will have enough content from CPTPP countries to qualify for tariff-free access to other members. But Canada will still have to open its market to Asian cars, subjecting its car-parts firms to a one-sided dose of foreign competition.

In the end Canada’s concerns were met with a favourite TPP trick: “side letters” between it and other members, that are not officially part of the deal. One of them promised Canada greater access to the Japanese car market. CPTPP’s members were sufficiently determined to revive the pact, in other words, that they gritted their teeth and compromised.

How does CPTPP carry on, even as multilateralism has fallen out of favour elsewhere? For some members, including Japan, which has done most to keep the show on the road, there is a strategic imperative: to prop up the old rules-based order in America’s absence. (The less-welcome alternative might be an order overseen by China.) Bilahari Kausikan, a Singaporean ambassador-at-large, predicts that America will eventually return to the partnership. After all, CPTPP (and TPP before it) is not typical of the tariff-cutting deals that Mr. Trump claims have shafted America. Rather, it breaks ground in setting American-inspired standards and safeguards for everything from online commerce to creative industries. Mr. Kausikan believes it is only a matter of time before American firms are clamouring to take part.

Before then, others may seek to join an arrangement designed to be infinitely expandable. South Korea, Indonesia and the Philippines have expressed interest—even Britain has. And CPTPP is not the only trade deal making progress in Asia. Japan has just concluded a sweeping agreement with the European Union. The Association of South-East Asian Nations is seeking to create a vast free-trade area encompassing China and India, among others.

Fair blow the Asian trade winds

In Asia free trade is more popular than it is in America and much of Europe. The question is why. One explanation is that in the West, trade creates winners and losers; in Asia, at a lower stage of development, it mainly creates winners, though some gain more than others.

Yet that is not quite right. Asia’s pell-mell development creates lots of losers. It can be traumatic to be forced off your land to make way for a palm-oil plantation or a high rise. Inefficient rice-farmers across the continent have much to fear from free trade. Even in prosperous Singapore, points out Deborah Elms of the Asian Trade Centre, an advocacy group, it is still an emotional wrench to see nearly every landmark of your childhood vanish in an orgy of rebuilding.

The difference is that most Asians don’t have what Mr Kausikan calls the illusion of choice. Trade is how billions of them have attained a modicum of prosperity. And thanks to rapid, trade-fuelled growth, the drawbacks of opening markets seem relatively insignificant. For as long as wrenching change is offset by the prospect of a better tomorrow, Asia will fly the flag of global trade even when it is being furled elsewhere.


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Stratfor Worldview March 11 2018


The White House Takes on the World: The White House will bump up against the laws of the United States and the central tenets of the World Trade Organization as it launches a global trade offensive in the name of national security. U.S. production costs will rise in response, and countries will target America’s politically sensitive sectors in retaliation.

Trade, Technology and Taiwan: Tension between the United States and China will spike, putting businesses caught in the fray at risk. While the White House targets Chinese trade and investment with its protectionist policies, Congress will rouse Beijing’s ire by upgrading U.S. ties with Taiwan.

A Race to the Cutting Edge: As the United States turns its attention toward its competition with China and Russia, the development of disruptive weapons technology among the great powers will further degrade the world’s arms control treaties. Beijing will funnel state funds toward artificial intelligence research in hopes of catching up with its American adversary while the West struggles to navigate antitrust and data privacy concerns.

The Stubborn Problem of Nuclear Proliferation: Building on a brief detente, South Korea will try to persuade the United States and North Korea to reconcile their mostly intractable positions on the issue of denuclearization. Meanwhile, Iran will rely on Europe’s support to keep its nuclear deal alive as Saudi Arabia uses the same agreement to negotiate a civilian nuclear program of its own.

Fighting for the Future of Europe: Headed by a divided Germany and an emboldened France, the debate over euro zone reforms will expose the deeper divides threatening Continental unity as Italy stands ready to flout any rules-based regime that Berlin and its northern allies propose.

Balancing Oil and Building Batteries: Global oil producers, led by Saudi Arabia and Russia, will extend and adjust their agreed-upon production cuts to counter U.S. shale output over the long run. In the alternative energies sector, battery developers will have to contend with the Democratic Republic of the Congo’s attempt to rake in more revenue as the world’s demand for cobalt grows.

Trouble Brews in the Americas: Mexico will let Canada take the lead in confronting the United States on trade issues during NAFTA negotiations. Trade tension will likewise mar Washington’s rocky relationship with Brazil as the two remain at odds over how to manage Venezuela’s economic crisis and its regional spillover.

India Protects Its Periphery: China’s deep pockets and wide maritime reach will draw India into closer defense cooperation with the United States, Japan and Australia as it works to balance against its increasingly powerful neighbor.

Ankara’s Ambitions Take Center Stage: A rising power in its own right, Turkey will push its troops deeper into northern Syria and Iraq while laying claim to the eastern Mediterranean Sea, upsetting Cyprus’ plans for the energy resources that lie beneath the disputed waters.

Global Trends

The Bull in the China Shop

As U.S. President Donald Trump’s 2018 trade agenda put it, “these are exciting times for U.S. trade policy.” That may be the understatement of the year. The White House is ready to take aim at the global economy this quarter, and the bull’s-eye is sitting squarely on Beijing.

Trump is convinced that China’s economic rise poses a national security threat. And when it comes to China’s penchant for dumping goods, enacting unfair subsidy regimes, distorting the market and violating intellectual property rights, many countries in the developed world would agree. The United States, however, isn’t willing to wait around for the European Union and Japan to address these challenges in a managed, multilateral forum. Instead it will follow an “act now, talk later” strategy that it believes — rightly or wrongly — will coerce Beijing into coming to the negotiating table on Washington’s terms. The United States also hopes its tactics will galvanize free-trade advocates to reform institutions like the World Trade Organization (WTO) so that they, too, can bring China in line with international trade and investment norms. That’s the idea, anyway.

But just as the United States claims that China benefits from a rules-based global trade order [1] by refusing to play by those rules, the White House is bending many of them to make its point. For instance, the sweeping tariffs on steel and aluminum [2] that Washington will use to combat overcapacity in the name of national security will produce a litany of legal challenges within the United States and at the WTO, as affected countries — including members of the European Union, China, Brazil, Japan and South Korea — protest the measures.

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In fact, many will retaliate with anti-dumping and countervailing duties of their own against the United States, taking care to target politically sensitive sectors like agriculture ahead of midterm elections in November. These reprisals may even take on an anti-American tone: The European Union has already threatened to crack down on iconic American imports, including Harley Davidson motorcycles, bourbon and blue jeans.

By using creative arguments to wield the most powerful trade weapons in its arsenal, the United States will back the WTO into a corner. Legal challenges in the organization take years to play out, but if the arbitration ends in Washington’s favor, it will endorse a dangerous precedent of invoking national security to justify economic protectionism. Should the WTO rule against the United States, the White House could opt to ignore the decision altogether by citing American sovereignty, undermining the institution’s credibility in the process. (Notably, the White House will also continue to paralyze the WTO’s arbitration system by blocking new appointments to the appellate body.)

In the meantime, steel and aluminum consumers in the United States will have to bear higher input costs. Contrary to Trump’s logic that higher tariffs will reduce trade deficits, they aren’t guaranteed to make Chinese steel less competitive in the United States. Metals exporters subject to U.S. tariffs will divert their goods to other markets around the world, which in turn will cause big metals importers to throw up barriers to protect their markets from a flood of foreign products. Amid the ensuing trade scramble, the United States hopes to persuade the European Union and Japan to join its crusade to counter excess global steel capacity. But Washington’s partners may instead choose to stand up to its blatant protectionism and push back against the United States under the auspices of the WTO.

The United States’ opening trade move may be to target overcapacity, but intellectual property will be high on its list of concerns as well. Under a Section 301 investigation into whether China’s technology transfer and investment requirements of American firms operating inside its borders are discriminatory, Washington will take action against Beijing — both within and beyond the bounds of the WTO. (The investigation must wrap up by August, but Washington may release its findings before then.) The United States is already entertaining some legally questionable moves, such as declaring a national emergency [6] in response to China’s intellectual property violations, to impose punitive measures and erect safeguards around certain U.S. industries like consumer electronics, household appliances and automotives. Along with Europe, it will also continue to block Chinese investments in the tech sector as it sees fit, pointing to national security as its motive.

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China, of course, won’t take Trump’s trade jabs lying down. In addition to imposing its own restrictions on some U.S. agricultural goods, Beijing is likely to selectively apply regulatory pressure on American companies with stakes in China. And when the time comes for Beijing to negotiate with Washington, it will have a handful of concessions — expanding U.S. access to the Chinese market and boosting Chinese imports of U.S. goods in certain sectors, to name a few — to offer. The external pressure mounting against China’s economy may even accelerate the country’s ongoing attempts to tackle overcapacity at home.

Though the White House may be willing to stomach the political risk attached to tariffs that ratchet up metals prices for U.S. industrial consumers, it will show more caution as it navigates North American trade negotiations. The ongoing NAFTA talks will stretch beyond this quarter, thanks to major sticking points on rules of origin requirements for the auto sector and to Canada’s more assertive stance against the United States. So far, domestic political checks on Trump’s actions have dissuaded the president from abruptly withdrawing from the pact. As he leans on more aggressive trade measures in the months ahead, overruling defenders of free trade within his administration, Congress will take on a more assertive role in regulating the country’s commerce abroad. Though U.S. lawmakers will have greater room to insulate existing free trade agreements, including NAFTA, their ability to counter unilateral tariffs leveled by the executive branch will be limited.

The White House’s trade policy will be one of several factors fueling market volatility [in the second quarter. Any uptick in expectations of inflation could lead to four hikes in U.S. interest rates this year instead of three. While by no means certain, this outcome would cause overvalued asset prices in U.S. equity markets to deflate. Higher interest rates could also strengthen the dollar and put more pressure on the central banks of the euro zone, Japan and China to tighten their monetary policies as they guard against the outflow of capital — with consequences for economic growth that could ripple across the globe.

Reining in Rogues and Rivals

The president’s approach to trade offers yet another example of his willingness to override the concerns of national security professionals within his administration on certain issues. Many have called for a more measured and targeted approach to avoid entrapping strategic U.S. allies and increasing the costs of U.S. defense. Still, as long as these voices remain in the White House, they will continue to restrain Trump’s responses to thornier foreign policy matters.


Among them will be nuclear containment. Despite worsening military friction between the United States and North Korea this quarter, a U.S. strike on the Korean Peninsula will remain an unlikely prospect — particularly given the promised summit between Trump and North Korean leader Kim Jong Un. Meanwhile, even as the United States urges Europe to threaten Iran with sanctions related to its ballistic missile program, Washington will stop short of tearing up Tehran’s nuclear deal altogether. But new nuclear proliferation concerns are emerging in the Middle East. Having already secured Russia’s stamp of approval for a preliminary roadmap, Saudi Arabia will use the Joint Comprehensive Plan of Action between Iran and global powers as a framework for a deal on a civilian nuclear program in the kingdom that includes domestic enrichment rights. Though it won’t be thrilled with the idea, the United States will work to ensure that it — rather than a rival like Russia — is best positioned to partner with allies in the Arab world that seek civilian nuclear programs of their own.

As it fends off Moscow’s encroachment in the Middle East, Washington will prepare for a more fundamental competition with Russia and China. At the beginning of the year, a series of U.S. defense reviews all but confirmed this by dubbing the two eastern giants the main strategic threats to the United States today. As the great power competition [9] takes shape, countries caught in the middle will have no choice but to adapt. Some, like Ukraine and Taiwan, will use the contest to fortify their alliances with the United States. Others, like the Philippines, will find it increasingly difficult to balance their relationships with both sides.

Spurred by their rivalry, the United States, China and Russia will continue to develop disruptive weapons technology. But rather than force all parties into compliance with existing arms treaties, this dangerous race is more likely to further degrade the deals [10] as time goes on. Accusations of violations will continue to fly between the United States and Russia as the pivotal Intermediate-Range Nuclear Forces Treaty steadily falls apart, undermining talks on the extension of the New Strategic Arms Reduction Treaty in the process.



A Mad Dash to the Cutting Edge

At the same time, the United States and China will jockey for the leading edge in artificial intelligence, which stands to have a profound impact on both military and civilian life. The United States is still ahead of China on this front, but Beijing is sprinting to catch up. And whereas big tech firms will have to contend with data privacy concerns and antitrust investigations in the West, China’s corporate giants will be largely unfettered in the mad dash for technological dominance [11].

Data privacy and its role in the evolving relationship among citizens, companies and states will take the spotlight in the European Union in the months ahead. Though European governments are particularly keen to protect the privacy rights of individuals, the Continent is simply too large a market for tech companies to avoid entirely. The General Data Protection Regulation set to take effect across the European Union on May 25 will thus set a global precedent for tech firms trying to navigate data privacy challenges.

The financial tech sector will follow the same path. Now that the speculative bubble around cryptocurrencies has burst, states will have more space to craft rules for cryptocurrencies, distributed ledger technology and initial coin offerings. Other industries — from supply chain management to insurance to health care — are beginning to adopt and regulate distributed ledger technology as well, albeit at a slower pace. Pending regulatory approval, a recently announced joint venture between IBM and Maersk Line shipping will bear watching because it may pioneer the use of block chain technology in the management of global supply chains.

As governments wrap their heads around the benefits of alternative currencies, more state-backed cryptocurrencies will crop up throughout the year, each driven by a different motive. For advanced countries, such as Estonia, cryptocurrency adoption is a natural step in digitizing their economies. For Iran and Russia, it could offer some insulation from the sanctions against them. Cryptocurrencies can also be useful to shambolic economies like Venezuela or Zimbabwe, where people have lost trust in fiat currencies, want to back their currencies with a commodity or hope to shield themselves from sanctions. And as small, dollarized countries like the Marshall Islands are discovering, cryptocurrencies can offer greater economic flexibility and an alternative to the dollar.

Old Challenges and New Appetites in Energy

The U.S. energy industry, a major steel consumer, will be hit hard this quarter by hefty steel tariffs that jack up its production costs — and at a time, no less, when U.S. oil output has broken records at over 10 million barrels per day. Though U.S. shale production may moderately decline as a result, it won’t be enough to ease the concerns of OPEC and its external partners, which have trimmed back their output in an effort to balance out the growing supplies of their American competitors. So far, production dips in Mexico, China and Venezuela are helping to offset the relentless climb in U.S. and Canadian output. OPEC and non-OPEC producers will probably extend their cuts through the end of the year when they meet in Vienna in June. The details of a longer-term agreement, led by Saudi Arabia and Russia, to counter U.S. shale production will likely emerge around the same time as well.

Elsewhere in the energy realm, demand for lithium-ion batteries — and the corresponding need for cobalt and lithium — is on the rise. At its heart is China, whose environmental reforms and technological drive are fueling the development and demand for electric vehicle batteries. But the world’s newfound appetite [15] for these resources will create a host of geopolitical challenges. This quarter, battery producers will have to grapple with new legislation in the Democratic Republic of the Congo, a major source of cobalt that will increase mining royalties owed to the government. And although Argentina and Chile are well-positioned to attract foreign investment into their lithium sectors, growing political instability in Bolivia will hurt its chances of doing the same.



The Bell Heard ‘Round the World

For months, the nuclear threat rising from the Korean Peninsula has transfixed the globe, but during this quarter, a different issue will take center stage in Asia: China’s brewing trade spat with the United States. With Washington determined to bring Beijing’s behavior in line with its own agenda, it will ratchet up pressure by targeting China’s economy and strategic interests in the region — including its claim to sovereignty over Taiwan. Rather than take these measures lying down, China will retaliate, sounding the bell for a boxing match that will determine the moves and countermoves of smaller nations caught between the sparring giants.

The impending showdown has loomed for over a year. Throughout 2017, China parried most of the United States’ jabs by answering Washington’s calls to ramp up economic pressure on North Korea. To that end, Beijing scaled back its trade ties and severed its lingering financial connections with Pyongyang. But as North Korea accelerated its weapons development, China’s ability to shape events on the peninsula waned, eroding its ability to link trade matters to security issues [17] in the process. No longer able to fend off the United States’ blows, and faced with the maturation of several U.S. punitive trade measures against it, China could respond in kind by slapping tariffs on U.S. exports, including on agricultural and chemical products; by challenging U.S. measures at the World Trade Organization (WTO); and by pressuring American firms operating in China. All the while, Beijing will try to create room for negotiation with Washington by offering to open up Chinese markets and boost its imports of U.S. goods. Despite its best efforts, however, the United States will keep its sights trained on Chinese trade practices.

The timing of this feud couldn’t be worse for Beijing. On the heels of a crucial quinquennial transition in political leadership, China’s elite face the daunting task of pushing through a raft of delayed socio-economic reforms. Over the past few months, the country has taken advantage of its robust economic growth and stable trade ties to advance important aspects of a plan to shift its economic model away from credit-based investment and toward domestic consumption. Among these steps are deleveraging China’s financial system and deeply indebted state-owned enterprises, eliminating overcapacity in resource-intensive industries, and increasing the enforcement of environmental regulations.

As Beijing expands its reforms in the months ahead, the central government will concentrate on making sure that local governments and industries effectively enforce them. So far China’s attempts to curb informal lending and overhaul the bloated state-run companies at the heart of the nation’s debt crisis have fallen short at the local level; governments and companies there collectively hold debt equal to about 80 percent of China’s gross domestic product. Likewise, the implementation of environmental laws has been lackluster across the southern provinces and among a handful of industries, including steel and coal. Beijing will try to rectify these problems by stressing the importance of compliance but doing so will carry the risk of widespread failure caused by overly hasty implementation or by local resistance stemming from a desire to preserve economic growth and jobs.

Having cemented his grip on power, President Xi Jinping will have few excuses left for such failures. He will rely in part on the new National Supervision Commission to keep a sharp eye on local officials’ performance and ensure that they don’t botch the job. One issue will draw particularly close attention from Beijing: easing China’s massive local debt burden by correcting an imbalance between the fiscal responsibilities of the central and local governments. Since the start of the year, Beijing has made significant headway on its long-delayed tax reforms, in part by shoring up local tax bases. Though its centerpiece property tax likely won’t emerge until 2020, the Chinese government will continue to enact fiscal reforms, encourage domestic consumption, reallocate resources to underdeveloped regions and lighten corporate debt loads in the coming months — all with the aim of setting the Chinese economy down a more sustainable path.

Of course, a deepening trade dispute with the United States [25] will present a formidable obstacle on the road to reform. On March 23, Washington will impose high tariffs on U.S. steel and aluminum imports to protect itself from what it deems to be unfair trade practices by other countries, including China. Because only about 2 percent of U.S. steel imports come from China, the volume of these imports will remain fairly steady. But China, which accounts for roughly half of the world’s steel production, will still be hit hard as steel prices tumble and major exporters divert their supplies from the United States, snatching up a portion of China’s market share along the way. To make matters worse, Washington’s actions could inspire European countries and Japan to erect their own trade barriers against China to protect producers at home. Each new source of strain could damage China’s steel industry, potentially reducing employment in the sector and undermining Beijing’s ability to address stubborn overcapacity issues.

Steel and aluminum tariffs aren’t the only weapon at the United States’ disposal, either. Washington could opt to establish tariffs or import quotas on major Chinese exports, such as electronics. It may also charge hefty fines intended to alter China’s market restrictions and intellectual property practices. Each of these tactics would become even more effective if the United States were to join forces with the European Union and Japan — a scenario China is undoubtedly eager to avoid. But try as it might, Beijing’s efforts to open up its services, finance and manufacturing industries to the rest of the world won’t satisfy Washington’s demands or discourage its scrutiny of Chinese investment in the high-tech sector.

Regardless of which means the United States uses to achieve its ends, China will have to expend more and more resources to prop up its precarious economy. And as its funds run low, Beijing will be forced to compromise on some of its key economic objectives. For instance, should Washington’s measures chip away at China’s growth or employment figures, Beijing may back off its planned production cuts and environmental reforms, or it may use lines of credit to buoy the economy. In the direst circumstances, the central government could even bolster the real estate market, potentially creating a real estate bubble and, in the long run, the heightened risk of a national debt default.

Second Quarter 2018 Economic and Wood Product News -Demographic Challenges, Update China’s Belt and Road Initiative, North Korean and Stratfor’s Outlook

Gone in their prime Many countries suffer from shrinking working-age populations

There are things they can do to mitigate the dangers

 Print edition | International

May 5th 2018| VILNIUS

workin age populations

MANY developed countries have anti-immigration political parties, which terrify the incumbents and sometimes break into government. Lithuania is unusual in having an anti-emigration party. The small Baltic country, with a population of 2.8m (and falling), voted heavily in 2016 for the Lithuanian Farmer and Greens’ Union, which pledged to do something to stem the outward tide. As with some promises made elsewhere to cut immigration, not much has happened as a result.

“Lithuanians are gypsies, like the Dutch,” says Andrius Francas of the Alliance for Recruitment, a jobs agency in Vilnius, the capital. Workers began to drift away almost as soon as Lithuania declared independence from the Soviet Union in 1990. The exodus picked up in the new century, when Lithuanians became eligible to work normally in the EU. For many, Britain is the promised land. In the Pegasas bookshop just north of the Neris river in Vilnius, four shelves are devoted to English-language tuition. No other language—not even German or Russian—gets more than one.

Mostly because of emigration, the number of Lithuanians aged between 15 and 64 fell from 2.5m in 1990 to 2m in 2015. The country is now being pinched in another way. Because its birth rate crashed in the early 1990s, few are entering the workforce. The number of 18-year-olds has dropped by 33% since 2011. In 2030, if United Nations projections are correct, Lithuania will have just 1.6m people of working age—back to where it was in 1950.

Lithuania was an early member of a growing club. Forty countries now have shrinking working-age populations, defined as 15- to 64-year-olds, up from nine in the late 1980s. China, Russia and Spain joined recently; Thailand and Sri Lanka soon will. You can now drive from Vilnius to Lisbon (or eastward to Beijing, border guards permitting) across only countries with falling working-age populations.

It need not always be disastrous for a country to lose people in their most productive years. But it is a problem. A place with fewer workers must raise productivity even more to keep growing economically. It will struggle to sustain spending on public goods such as defence. The national debt will be borne on fewer shoulders. Fewer people will be around to come up with the sort of brilliant ideas that can enrich a nation. Businesses might be loth to invest. In fast-shrinking Japan, even domestic firms focus on foreign markets.

The old will weigh more heavily on society, too. The balance between people over 65 and those of working age, known as the old-age dependency ratio, can tip even in countries where the working-age population is growing: just look at Australia or Britain. But it is likely to deteriorate faster if the ranks of the employable are thinning. In Japan, where young people are few and lives are long, demographers expect there to be 48 people over the age of 65 for every 100 people of working age in 2020. In 1990 there were just 17.

Some countries face gentle downward slopes; others are on cliff-edges. Both China and France are gradually losing working-age people. But, whereas numbers in France are expected to fall slowly over the next few decades, China’s will soon plunge—a consequence, in part, of its one-child policy. The number of Chinese 15- to 64-year-olds, which peaked at just over 1bn in 2014, is expected to fall by 19m between 2015 and 2025, by another 68m in the following decade, and by 76m in the one after that (see chart 1).

sloping off

Jörg Peschner, an economist at the European Commission, says that many countries face demographic constraints that they either cannot or will not see. He hears much debate about how to divide the economic cake—should pensions be made more or less generous?—and little about how to prevent the cake from shrinking. Yet countries are hardly powerless. Even ignoring the mysterious business of raising existing workers’ productivity, three policies can greatly alleviate the effects of a shrinking working-age population.

Never done

The first is to encourage more women to do paid work. University-educated women of working age outnumber men in all but three EU countries, as well as America and (among the young) South Korea. Yet female participation in the labour market lags behind men’s in all but three countries worldwide. Among rich countries, the gap is especially wide in Greece, Italy, Japan—and South Korea, where 59% of working-age women work compared with 79% of men.

Governments can help by mandating generous parental leave—with a portion fenced off for fathers—to ensure that women do not drop out after the birth of a child. And state elderly care helps keep women working in their 50s, when parents often become needier. But a recent IMF report argues the greatest boost to recruiting and keeping women in paid jobs comes from public spending on early-years education and child care.

Employers can do more too, most obviously by providing flexible working conditions, such as the ability to work remotely or at unconventional hours, and to take career breaks. Fathers need to be able to enjoy the same flexible working options as mothers. Some women are kept out of the workforce by discrimination. This can be overt. According to the World Bank, 104 countries still ban women from some professions. Russian women, for example, cannot be ship’s helmsmen (in order, apparently, to protect their reproductive health). More often discrimination is covert or the unintended consequence of unconscious biases.

Countries can also tap older workers. Ben Franklin, of ILC UK, a think-tank, argues that 65, a common retirement age, is an arbitrary point at which to cut off a working life. And in many countries even getting workers to stick around until then is proving difficult. Today Chinese workers typically retire between 50 and 60; but by 2050 about 35% of the population are expected to be over 60. Thanks to generous early-retirement policies, only 41% of Europeans aged between 60 and 64 are in paid work. Among 65- to 74-year-olds the proportion is lower than 10%. In Croatia, Hungary and Slovakia it is below one in 20.

The levers for governments to pull are well known: they can remove financial incentives (tax or benefits) to retire early and increase those to keep working. Raising the state retirement age is a prerequisite almost everywhere; if the average retirement age were increased by 2-2.5 years per decade between 2010 and 2050, this would be enough to offset demographic changes faced by “old” countries such as Germany and Japan, found Andrew Mason of the University of Hawaii and Ronald Lee of the University of California, Berkeley.

Employers, too, will have to change their attitudes to older workers. Especially in Japan and Korea, where they are most needed, workers are typically pushed out when they hit 60 (life expectancy is 84 and 82 respectively). Extending working lives will require investment in continued training, flexible working arrangements, such as phased retirement, and improved working conditions, particularly for physically tough jobs. In 2007 BMW, a German carmaker, facing an imminent outflow of experienced workers, set up an experimental older-workers’ assembly line. Ergonomic tweaks, such as lining floors with wood, better footwear and rotating workers between jobs, boosted productivity by 7%, equalling that of younger workers. Absenteeism fell below the factory’s average. Several of these adjustments turned out to benefit all employees and are now applied throughout the company.

A final option is to lure more migrants in their prime years. Working-age populations are expected to keep growing for decades in countries such as Australia, Canada and New Zealand, which openly court qualified migrants. Others can try to entice foreign students and hope they stick around. Arturas Zukauskas, the rector of Vilnius University, thinks that he could improve greatly on the current tally of foreign students—just 700 out of 19,200. In particular, he looks to Israel, which has the highest birth rate in the rich world. Lithuania had a large Jewish population before the second world war, and many prominent Israelis have roots in the country. Partly to signal the academy’s openness, Vilnius University has started awarding “memory diplomas”, mostly posthumously, to some Jewish students evicted on Nazi orders.

The trouble is that the countries with the biggest demographic shortfalls are often the most opposed to immigration. For example, the inhabitants of the Czech Republic and Hungary view immigrants more negatively than any other Europeans do, according to the European Social Survey. Those countries’ working-age populations are expected to shrink by 4% and 5% respectively between 2015 and 2020. Countries that lack a recent history of mass immigration may have few supporters for opening the doors wider. Even if they wanted new settlers, they might have to look for them far afield. Countries with shrinking working-age populations are often surrounded by others that face the same problem.

“China has never been a country of immigrants,” explains Fei Wang of Renmin University in Beijing. It is unlikely to become one, but is trying to lure back emigrants and to attract members of the ethnic-Chinese diaspora. In February the government relaxed visa laws for “foreigners of Chinese origin”. In Shanghai, and perhaps soon in other cities, foreign-passport holders are allowed to import maids from countries such as the Philippines. That is a small step in the right direction.

italian jobs

Just as countries’ demographic challenges vary in scale, so the remedies will help more in some countries than in others. Take Italy and Germany. Both have shrinking working-age populations that are likely to go on shrinking roughly in parallel. But Italy could do far more to help itself. Because the women’s employment rate in Italy lags so far behind the men’s rate, its active population would jump if that gap closed quickly—and if everybody worked longer and became more educated (see chart 2). Germany could do less to help itself, and Lithuania less still.

In theory, every rich country can prise open the demographic trap. Governments could begin by lowering barriers to immigrants and raising the retirement age. They could entice more women into the workforce. They could raise the birth rate by providing subsidised child care, which would create a wave of new workers in a couple of decades, just when the other reforms are petering out. But, when a country is shrinking, many things come to seem more difficult. Earlier this year, Poland built up a large backlog of immigration applications, many of them from Ukrainians. It turned out that the employment offices were badly understaffed, and could not process the paperwork in time. They had tried to take on workers, but failed.

This article appeared in the International section of the print edition under the headline “Small isn’t beautiful”


Why people are working longer

Labour-force participation rates are rising for older people in advanced economies


The Economist explains

Jun 11th 2018

THE golden years of retirement, when decades of toil are traded for some downtime, are starting later. In the mid-1980s, 25% of American men aged 65-69 worked; today, nearly 40% do. The situation is the same for younger men. In 1994, 53% of 60- to 64-year-olds worked; now 63% do. American women are working longer too, and similar upticks have been witnessed in Japan and other parts of western Europe. Since unhealthy workers tend to retire earlier, many attribute the ageing workforce of today to improvements in health. Mortality rates for American men in their 60s have declined by 40% since 1980; for women, they have fallen by 30%. Education and occupation are also relevant. In countries of the OECD, the share of 55- to 64-year-olds with a college education has increased in the past three decades, and better-educated people tend to work longer, doing white-collar jobs. In a similar vein, the fact that modern jobs in general are less physically taxing than those of yore allows all people to work for longer or look for jobs suitable to their advancing years.

But these are not the primary drivers of the greying workforce, suggests Courtney Coile, an economist at Wellesley College. Social-security reforms and other institutional changes play a central role. In recent decades, many countries and companies have altered the way they fund pensions. About half of Americans working in the private sector participate in employer-sponsored plans. In the 1980s a third of these were “defined benefit” (DB) schemes, under which a company pays its retired employee a predetermined lump sum depending on tenure, age and past earnings. Now, though, “defined contribution” (DC) plans, for which employees contribute a percentage of their paycheques to their retirement fund, have largely supplanted DB plans. These are generally lower than DB pensions (hence their popularity with employers), so their recipients cannot afford to retire so early. By working longer, they increase the size of the pot. Researchers reckon the growth in DC plans has led to a five-month increase in the median retirement age.

Reductions in the generosity of social security and disability insurance have also had an impact. Since the 1990s, Italy, Germany, Japan and others have raised the minimum age at which citizens can accept retirement benefits. The labour-force participation rates for older workers there have risen in lock-step, with a one- to two-year lag. A final factor is the increased number of women in the workforce: about 44% more hold a job now, across 12 developed countries, than in 1995. And, like men, they are working longer. Given that married couples often retire at the same time, this “co-ordination”, which sees men working longer to keep up with Stakhanovite wives, can have profound effects. In Canada, for example, it could explain around half the change in the labour-force participation rates of married men aged 55-64.

This is good news. The “lump of labour” fallacy holds that older workers threaten economic prosperity by crowding out younger workers. (The same argument had been used to exclude women from the workforce.) In fact the economies of many countries with ageing workforces are growing quite quickly. Older workers use their wages to buy goods and services made by other workers. And as Lisa Laun of Sweden’s Institute for Evaluation of Labour Market and Education Policy points out, with more workers, of whatever age, tax revenues and pension contributions rise. That means a larger pie for everyone.

Not much leeway Singaporeans are in the dark about their next prime minister

Not that their views count for much

lee hsien loong

Print edition | Asia

Apr 25th 2018 | SINGAPORE

A PILLAR of stability, Lee Hsien Loong, son of Singapore’s independence leader, Lee Kuan Yew, has run the country since 2004. Despite a decline in his party’s popularity, the manicured electoral system has returned him to office time and again, most recently in 2015. The country is now more than halfway to the next election, which must be held in 2021 at the latest. As it nears, a tricky subject looms: who will replace Mr. Lee? He plans to step down as prime minister ahead of his 70th birthday in 2022. The question has the government on edge.

Mr. Lee will almost certainly win the next election. The ruling People’s Action Party has held power since before independence in 1965. It holds 83 of the 89 elected seats in Singapore’s parliament. Predicting the identity of the next prime minister is trickier. But a cabinet reshuffle this week provided clues. Three older ministers, all in their 60s, stepped down. Younger ones won more responsibility.

Mr. Lee’s possible successors include Heng Swee Keat, the finance minister, Ong Ye Kung, the education minister and Chan Chun Sing, newly promoted from the prime minister’s office to the Ministry of Trade and Industry. Mr. Heng, who has led the education ministry and the Monetary Authority of Singapore, as well as serving as an aide to Mr. Lee’s father, is regarded as the frontrunner. One former official praises him for his growing ease in the public eye, despite not being “a natural politician”. Wonkiness does not tend to hold Singaporean politicians back. His health, however, might: he suffered a stroke in 2016.

Public opinion is unlikely to play much part in the decision. In fact, the government is further crimping freedom of speech in a country not exactly known for it. In March parliament passed a law that allows police to ban the dissemination of videos or pictures of certain events. The sorts of incidents that qualify range from terrorist attacks to demonstrations that block pavements or disrupt business. Plans to put cameras linked to facial-recognition software on more than 100,000 lampposts will further discourage even the most respectable protests. Social media are also being scrutinized by a parliamentary committee which wants to fight “deliberate online falsehoods”. Whoever ends up in charge, the government will be well defended against unruly critics.

This article appeared in the Asia section of the print edition under the headline “Not much leeway

Haiyan Zhang

By Haiyan Zhang

Technical Director, Canada Wood Shanghai

May 30, 2018

 speakers Shanghai.jpg

Fire safety symposiums held in Shanghai and Beijing

Guest speakers at the event venue in Shanghai on April 27th.

Canada Wood China joined European Wood to hold symposiums on fire safety in timber structures. The first was in Shanghai on April 27th while the second was in Beijing on April 28th.

The seminars attracted more than 400 industry professionals including researchers, designers and developers. Five guest speakers from Canada, Europe and China gave presentations on fire safety attributes in modern timber structures. They also shared insight into the history and evolution of fire safety code requirements for timber structures in Canada and Europe. The latest in fire research, alternative solutions in fire safety design, and fire safety codes for timber structures in China were also discussed.

delegates shanghai.png

Audience members listen to a presentation at the event venue in Beijing on April 28th.

Officials from the Canadian Embassy, Canadian Consulate in Shanghai and MOHURD attended the seminars and made opening remarks.


Japan Housing Starts Summary for February & March 2018

By Shawn Lawlor

shawn lawlorDirector, Canada Wood Japan

May 30, 2018

Total February housing starts edged down 2.6% to 69,071 units. Wooden starts fell 3.2% to 38,340 units. Pre-fab housing fell 8% to 10,063 units. Post and beam housing declined 3.2% to 29,070. Platform frame starts fell 3.0% to 8,255 units. The decline in 2×4 starts was primarily attributable to a 5.9% decrease in multi-family rentals. Platform frame custom ordered and built for sale spec housing gained 0.8% and 4.4% respectively.

March housing activity decelerated significantly with an 8.3% drop in total starts. Rental housing fell 12.3% compared to owner occupied single family starts which dropped 4.2%. Total wooden housing retreated 4.3% to 39,736 units. Post and beam starts fell 4.3% to 30,106 units. Wooden pre-fab fell 4% to 911 units. Platform frame starts fell 4.4% to 8,719 units. As with the previous month, results for platform frame were dragged down by weakness in rentals; single family starts showed gains. Platform frame rentals fell 9.1% to 5,385 units, custom ordered single family homes increased 3.0% to 2,226 units and built for sale spec homes increased 7.4% to 1,086 units.

Japan Economic Update

By Shawn Lawlor

Director, Canada Wood Japan

May 30, 2018

According to Cabinet Office date, Japan’s first quarter GDP slipped by 0.2%, thereby ending two consecutive years of continuous growth. The decline was attributable to flat consumer spending and a slight decrease in capital investment. The majority of analysts contend that this decline is a temporary blip and that economic fundamentals remain strong. A tightening labour market resulted in a 1.3% year increase in average wages and inflationary pressures are picking up. Improved capital spending and exports are expected to Japan’s GDP is expected to return into positive territory for the balance of the year.


Leading Architectural Firm and Prefabricator in Korea Join Forces for the Creation of Industrialized Wood Frame House

By Tae Hwang

HwangProgram Manager / Market Development & Market Access, Canada Wood Korea

May 30, 2018

Gansam Architects & Partners, one of the top 10 architectural firms in Korea and Refresh House, the leading prefabricator-builder-developer of energy efficient wood frame houses, have joined their efforts together for the creation of small ready-to-order wood frame structure called “Off-site Domicile Module” or ODM. The ODM, with slogan of “Small but Enough,” has footprint of 7.25-meter x 3 meter rectangular shape with 20 m2 of floor area.

Several types of the module designed by Gansam will be built completely and entirely under the roof of Refresh House’s factory and can be transported to sites. The Nest, pictures shown in this article, is designed as small home consists of sleeping and living area, kitchen and bathroom. And other types for different uses include canteen, pop-up store, exhibition, café,etc. Also, you can order single module or two modules which can be joined at the site for more space.

Industrialized construction, off-site construction or prefabrication is gaining momentum in Korea as the weather dependent traditional site building is getting less and less productive due to harsher weather arising from climate change and the shortage of skilled labours combined with rising wages.

Korean Architecture Fair demos

Japanese-style housing projects planned

Update: June, 25/2018 – 14:56

TWGroup Corporation and Japan’s Hinokiya Group Co. on June 22 sign an agreement to develop housing and other projects in Việt Nam. — VNS Photo

Viet Nam News


HCM CITY — TWGroup Corporation and Japan’s Hinokiya Group Co. have signed an agreement to develop housing and other projects in Việt Nam, starting off with a Japanese-style housing project in HCM City next year.

The low-rise residential project will have intelligent solutions enabling residents to live close to nature.

TW said in a press release that the outstanding elements of the project would include a relaxing onsen area – a Japanese hot spring for dipping in the buff — and a Japanese-style park with fresh greenery.

Lê Cao Minh, general director of TWGroup, said: “Hinokiya is a leading corporation of Japan, a pioneer in bringing solutions to improve the quality of life.

“After contacting Hinokiya leaders and visiting their projects in Japan, we are really convinced by their convenience, intelligence, safety, and, especially, the humanity.

“Hinokiya builds not only housing but also pre-schools and nursing homes for old people.”

Hinokiya said it fully believed that the experience of both parties would create projects bearing their own marks, meeting the needs of customers for ideal living spaces.

The company, established in 1988, designs, builds, and sells houses; undertakes renovation, expansion, and reconstruction works; offers real estate brokerage services; leases houses; provides real estate investment and lease management consultancy, and produces and sells thermal insulation materials.

It also operates nursing and childcare facilities.

TWG has interests in property, construction, construction consultancy, education, and healthcare. — VNS

Chinas belt and Road

China’s ambitious Belt and Road Initiative, formally announced in 2013, has revived the country’s ancient concept of the Silk Road.


◾Despite its success in the developing world, Beijing’s approach to the Belt and Road Initiative has raised concerns over corrupt practices and financial sustainability in several recipient countries.

◾Beijing’s ambitious outreach, and its hidden agenda for strategic expansion riding on the initiative, will continue to fuel skepticism, suspicions and resistance among core powers.

◾Ultimately, given the sheer scale of the Belt and Road Initiative, snags, delays and cancellations are to be expected.

Since it began in 2013, the Belt and Road Initiative has become the centerpiece of China’s domestic and foreign policy, jump-starting diplomatic, financial and commercial cooperation between China and more than 70 neighboring countries across the Eurasian landmass. When complete, the massive infrastructure project will increase China’s overland and maritime connectivity to other regions, extending its trade and technology to new markets. The initiative also gives Beijing the opportunity to offload some of its excessive industrial capability, facilitating the necessary domestic industrial reforms it needs to establish a more stable economy.

In the past five years, China has spent at least $34 billion on the Belt and Road Initiative, focusing primarily on connectivity projects such as railways, ports, energy pipelines and grids. And though China has made major progress toward its long-term goals, it has also experienced several delays and setbacks. Given the sheer scale of the Belt and Road Initiative and how many large projects it encompasses, hold-ups, cancellations and failures are to be expected. But the causes of delays, in some cases a result of increased skepticism and resistance to China’s strategic aims, will continue to shape the future development of the Belt and Road Initiative.


The Big Picture

China’s ambitious Belt and Road Initiative, formally announced in 2013, has revived the country’s ancient concept of the Silk Road. Stratfor has closely tracked the development of this continent-spanning project, and in 2017 they published a four-part series discussing the underlying motivations behind this grand initiative — and the challenges it faces. Now that the Belt and Road Initiative has entered its fifth year, Stratfor is taking the time to examine the current state of the project and how its challenges will impact the way we analyze the initiative in the coming year

See China in Transition

Strategic Partnerships

Though one of Beijing’s stated goals is to foster inclusive Eurasian integration with the Belt and Road Initiative, its scheme so far has focused on the developing world, particularly countries in Central and Eastern Europe, South and Southeast Asia and Central Asia. It has achieved only limited success drawing developed states, such as Japan, and core European powers into the Belt and Road project. After all, though they may share business interests with China, they also maintain a strong and growing skepticism about Beijing’s means of increasing its competitiveness and its agenda for strategic expansion on the global stage.

According to a survey covering primarily emerging and transitional economies, Chinese financing — such as the Silk Road Funds and the Asian Infrastructure Investment Bank — provides a more significant boost to the majority of Belt and Road countries than their own domestic financing or even, in many cases, the International Monetary Fund, the World Bank and other international financing institutions.

China has many reasons for focusing on developing nations with strategic positions. And the developing countries themselves, which in many cases have weak economic foundations and governance, have been extremely welcoming to the Belt and Road Initiative. Many of these countries — 11 of which have been identified by the United Nations as the world’s least developed, such as Laos, Tanzania and Djibouti — have major infrastructure deficits but are eager to avoid the kind of restrictive, strings-attached financing offered by Western institutions. Since China’s approach to funding emphasizes non-interference and is generally unconditional and indiscriminate of regime, Beijing has achieved more access and goodwill than is usually given to its Western competitors. China’s methods to draw these smaller countries into its Belt and Road framework also offer them a way to leverage their strategic positions and balance regional powers such as Russia, the European Union and India.

Domestic Complications

China’s aspirations with the Belt and Road Initiative have increasingly been constrained by its own approaches and strategic objectives. Though the Belt and Road gained great success in the developing world, challenges over financing capabilities and political instability in the recipient states have repeatedly caused delays and even cancellations. This has been the case with several transportation and energy projects in countries such as Kazakhstan, Bangladesh, Myanmar and Pakistan. Beijing also had the unlikely hope that it could link several war-torn states, such as Afghanistan and Yemen, but that will certainly not happen in the foreseeable future.

Moreover, China’s partnership and perceived support for partner countries’ ruling regimes have led to domestic political polarization, opposition and international criticism. In some cases, leaders of these states have used the Belt and Road Initiative in service of their domestic political agendas, leveraging Beijing’s international clout to further their own international interests. And more significantly, corrupt governments have used Chinese funds for their own personal and political benefit.

Problem Countries

Problem Countries

problem Countries 2

Political corruption and instability have not only invited judgment but have also put Belt and Road projects at risk of delay. In Malaysia, for example, a game-changing May election turned several China-backed infrastructure projects into centerpieces of the political discourse. The new ruling power in Kuala Lumpur aims to investigate investments to not only delve into the corruption of the former government but to reduce its debt burden. Although Beijing’s policies are mostly to blame for such complications, China has also been frustrated by the liabilities caused by corrupt regimes. For instance, despite early investment, China has had to hold back some of its projects in politically risky countries such as Djibouti and Venezuela.

Finally, China’s eagerness to draw in partner countries provides these governments with leverage as they attempt to win investment from China’s rivals. Countries such as Thailand, Indonesia and some South Asian states, in particular, have been able to encourage Japan and India to compete with China over railways and hydropower projects at home, dampening Beijing’s objective of becoming the most influential regional power.

Debt Concern, or Debt Strategy?

China’s approach to debt financing in key strategic projects has also led to pushback, mainly over Beijing’s level of influence. For example, the East Coast Rail Link in Malaysia and the deep-water Kyaukpyu port in southern Myanmar are currently under review by the recipient governments, which are already critical of Beijing’s goal of securing supply routes other than the Strait of Malacca. Like Malaysia, Myanmar is concerned about the possibility of ending up in a “debt trap,” where China holds disproportionate control over the nation’s economy. After all, the $9 billion Kyaukpyu project is equivalent to 14 percent of Myanmar’s gross domestic product. As a result, the country is fearful that China could ultimately exert its influence to gain ownership of the strategically important Kyaukpyu port.

Myanmar’s concern is not unfounded. Both Sri Lanka and Pakistan — governments struggling with debt repayment and financing negotiations — have entered into “debt-for-assets” land-lease agreements with Chinese companies. In Sri Lanka, the Hambantota Port is now leased for 99 years, while areas around the Gwadar Port in Pakistan are leased for 43 years. In other states that already have high external debt or rely excessively on direct Chinese investment — such as Djibouti, Laos, Tajikistan, Kyrgyzstan and Montenegro — Beijing has used different forms of debt relief or forgiveness measures, in some cases resorting to acquiring the recipient country’s natural resources or long-term oil contracts to offset the loans. And speculation is rising over whether China will leverage its financing of strategic deep-water ports in countries like Myanmar and Djibouti to gain an advantage in the Indian Ocean supply routes. Just recently, China established its first overseas naval base in Djibouti.

High debt to GDP Ratio

Confronting the Core Powers

There is a growing wariness of China’s strategic intent and expanding influence with the Belt and Road Initiative. Beyond the concerns of developing states, China’s strategic rivals and powers throughout the developed world maintain a strong, if not growing, resistance to the project. Though core regional powers such as India, Russia and some European countries share business interests with China, they also maintain a strong and growing skepticism about Beijing’s means of increasing its competitiveness. And beyond that, China’s hidden agenda for strategic expansion on the global stage.

Despite India’s tactical recalibration to ease its tense relationship with China, New Delhi remains vehemently opposed to the China-Pakistan Economic Corridor. This is seen by India as part of Beijing’s strategy to encroach on the subcontinent and could potentially undermine New Delhi’s claims to the contested Kashmir region. Indeed, India’s opposition has factored significantly in some South Asian states’ strenuous geopolitical balance. For instance, last year Nepal scrapped a $2.5 billion Budhi Gandaki hydropower project, because of Indian concerns.

In Europe, core EU members such as Germany and France have found Beijing’s outreach in Central and Eastern Europe to be more competitive than cooperative, viewing the project as an attempt to dilute the bloc’s rule and agenda. This led to ongoing criticism and increased scrutiny over Chinese investment and projects in Eastern and Central Europe. The proposed railway between Budapest and Belgrade — a key piece of Beijing’s strategy to link to the Mediterranean port of Piraeus — is under review.

Where China’s outreach has received some success in the developed world is in Russia and, to some extent, Japan. Initially suspicious of the Belt and Road Initiative, Russia has grown more amiable as it recognizes how Chinese investment can benefit its own economy and foster development in Central Asian countries over which it exerts significant control. Moscow has begun supporting and even participating in some Belt and Road projects. Most recently, it entered into a co-financing agreement with China for close to 70 projects under its own Eurasian Economic Union, a move that will greatly ease the barriers to Beijing’s investment in some Eastern European and Central Asian countries as well as the Arctic.

Japan, for its part, continues to refrain from openly endorsing the Belt and Road Initiative. But in more tacit ways, the Japanese government is working to encourage its companies to participate in some of China’s projects. This is especially true in areas such as Central Asia and Africa, where Tokyo hopes to boost Japanese corporations’ waning overseas presence.

Looking Forward

Despite these successes, Beijing’s ambitious outreach will continue to fuel skepticism, suspicion and resistance among the core powers and complicate its agenda, especially as it works to hedge against increased pressure from the United States. And China has even inadvertently encouraged loose regional blocs to counter it. Japan and India, for instance, have begun working on an alternative to the Belt and Road Initiative on the African continent, participating in a U.S.-led proposal to establish a quadrilateral framework for infrastructure investment. Elsewhere, Australia is pledging an extensive campaign of aid, trade and diplomacy in the South Pacific, hoping to regain the position it has lost to China in its traditional backyard.

The reality is that none of these countries’ proposals can outdo China’s enormous and well-funded infrastructure plan. They lack China’s capital, human resources and moral flexibility. For participating countries, the long-term benefits of Chinese investment and infrastructure construction in many ways outweigh the risks. So, while investors should be aware that China will continue to experience setbacks in its Belt and Road projects, the initiative is still moving along relatively successfully, as are Beijing’s expansionary aspirations.


Economic scramble for North Korea picks up pace

Pyongyang appears to favour state-guided Chinese model over unfettered capitalismNorth Korea

Bryan Harris in Seoul, Lucy Hornby in Beijing and Demetri Sevastopulo in Washington JUNE 19, 2018

When Donald Trump outlined his vision for the economic development of North Korea, he played on western ideals of luxurious apartments with sea views.

But just days after a landmark summit with the US president, North Korean leader Kim Jong Un has made clear he has a different model in mind: China.

The 34-old-year dictator was set to depart Beijing on Wednesday after a two-day tour aimed at winning China’s financial backing for what Pyongyang says will be a new era of reduced international tensions and domestic economic development.

Scepticism persists about North Korea’s true ambitions, but the renewed optimism has investors salivating over the country’s untapped markets, including its substantial mineral deposits and inordinately cheap workforce.

As the scramble for North Korea picks up pace, however, it is becoming clear that Pyongyang is veering not towards unfettered capitalism but rather a state-guided model along the lines of its huge neighbour.

Beijing — with its long history of friendship and political affinity with Pyongyang as well as its geographical proximity — appears poised to reap its dividend.

North Korea 2.jpg© AP

“China is eager to encourage the North Koreans to take up the Chinese model because it will bind Pyongyang closer to Beijing and therefore lower the chances of Pyongyang either falling into the US orbit or experiencing a democratic uprising against the Kim regime,” said Dennis Wilder, a former top China analyst at the CIA.

China is holding out the promise of economic development to Mr. Kim if he lowers tensions with the US, Mr. Wilder added.

Long viewed as the last bastion of Stalinist economics, North Korea has undergone a period of quiet but transformative change since Mr. Kim took power in 2011.

The regime introduced agricultural reforms in 2012, legal revisions in 2014 and an overhaul of enterprise laws in 2015 — all of which loosened state control over the market and have contributed to an uptick in wages and the quality of life.

But most of the changes have been spearheaded by ordinary North Koreans, who have found themselves free to eke out a living through private enterprise within the shadows of the state’s hulking institutions.

North Korea 3

Unlike his father and predecessor Kim Jong Il, Mr. Kim has allowed marketisation to flourish and has vowed to pursue economic development. These changes, however, have not been accompanied by political liberalisation.

“He is copying China without admitting it. These are reforms without openness,” said Andrei Lankov, a North Korea expert at Kookmin University in Seoul.

“North Korea wants foreign direct investment. The problem for them now is they don’t know how to get it,” added Prof Lankov, who regularly travels to the reclusive nation.

In this regard, Beijing appears to be willing to offer assistance. Last month, the Chinese Communist party escorted a group of North Korean officials around Beijing to study “reform, opening up and economic development”, according to the Global Times, a Chinese newspaper.

Their trip followed a visit by the Chinese ambassador to Sinuiju, North Korea’s special economic zone near the Chinese border, as part of a broader push by Beijing to promote its model of controlled economic opening.

wage growth North korea.gif

Mr. Kim’s interest in the Chinese model was further highlighted by his inclusion of Pak Pong Ju, a key official spearheading North Korea’s economic reform, in this week’s delegation to Beijing.

“This visit to China was primarily aimed at winning economic support,” said Lee Seong-hyon, researcher at Sejong Institute in Seoul. “China’s economic model is the most viable, realistic option for North Korea and [Chinese President Xi Jinping] must have assured Kim about how North Korea can achieve economic development without risking political stability.”

One part of the model that North Korea has already sought to replicate are the special economic zones (SEZs), which China used effectively in southern cities Shenzhen and Zhuhai.

North Korea operates more than 20 SEZs, mostly in its border regions, although few have attracted foreign investment.

Even before the implementation of international sanctions, the attractiveness of the zones was undercut by entrenched North Korean bureaucracy, a lack of infrastructure — including electricity and roads — and the fear that assets could be expropriated.

av ratio offical_unofficial jobs to total income

“Sometimes they even put these SEZs in the middle of nowhere, so they could not cause a political disturbance,” said Prof Lankov.

“North Korea always wanted investment but on its own conditions. China used to be annoyed by these conditions. But now that Beijing is in a trade war with the US, it may accept.”

Lee Sung-yoon, a Korea expert at Tufts University, cast doubt on the scope of economic reform in North Korea, saying that Mr. Kim only sought “controlled SEZs which are more like enclaves for generating foreign currency”.

“Genuine reform and opening would entail liberalising banking and the private sector [and increasing] transparency in finance and trade — all anathema to long-term regime preservation,” he added.

South Korea is also anticipating economic liberalisation and the lifting of sanctions.


North Korea nuclear tensions


Kim Jong Un visits Beijing after Trump summit

The Moon Jae-in administration has already outlined to Mr. Kim its plans to develop rail routes along North Korea’s east and west coasts, which could integrate the reclusive nation into the wider region.

The country’s dominant conglomerates, meanwhile, have established task forces to probe opportunities in the North amid concerns about the longer-term economic outlook in South Korea.

According to a survey of 167 businesses earlier this month, almost 75 per cent would be prepared to invest in the North if sanctions were lifted. Companies that stand to benefit, such as steel and cement groups, have seen their stock prices soar in recent weeks.

Shares in Hyundai Cement rose more than 500 per cent between March and June as detente unfolded on the Korean peninsula. US-North Korea summit: a win for Kim Jong Un

“There is a lot of enthusiasm. Maybe too much,” said Chung Yeon-wook, a private banker with NH Investment and Securities.×1080.mp4

However, many in Seoul feel that South Korea’s historically adversarial relationship with the North may undermine its prospects.

“The rivalry between China and South Korea [for access to North Korea] has already been there for 10 years. China is now taking advantage of the situation because the North Koreans feel more comfortable dealing with them,” Mr. Chung added. Additional reporting by Song Jung-a

Q3_18 Stratfor forecast

Stratfor Worldview June 7 2018


China Remains in the U.S. Cross-hairs. The United States will impose tariffs, sanctions and blocks on investment and research in a bid to frustrate China’s development of strategic technologies. China not only has the tools to manage the economic blow, but will also accelerate efforts to lessen its reliance on Foreign-sourced technological components.

Trade Battles Fall Short of a Full-Fledged War. Trade frictions will remain high this quarter as the White House continues on an economic warpath in the name of national security. U.S. tariffs will invite countermeasures from trading partners targeting U.S. agricultural and industrial goods. As Congress attempts to reclaim trade authority, the White House will refrain from escalating these trade battles into an all-out trade war.

Taking the First Big Step with North Korea. Drama will inevitably surround the negotiation, but the United States and North Korea have a decent shot at making progress toward a political agreement this quarter, something that will set the stage for much thornier and lengthier technical discussions on denuclearization. Even if talks appear to break down in the coming months, Pyongyang will avoid more aggressive measures in the near term while working to maintain diplomatic and economic momentum with China and South Korea.

Tremors in Europe. The new Eurosceptic government in Rome will hold off on threats to leave the Eurozone for now, but will be seeking allies in southern Europe to battle Brussels on fiscal deficit and debt rules. Divisions within the British government will meanwhile raise the potential for Parliament to take more control of the Brexit process to keep the UK in the customs union.

All Eyes on Riyadh. As Iran’s major European and Asian clients negotiate waivers with the U.S. in return for reducing oil exports from Iran, the United States will be looking to Saudi Arabia to coordinate with major oil producers to make up the supply gap. Riyadh will nonetheless be cautious in planning a market intervention as it aims for a higher price band in anticipation of the Saudi Aramco IPO.

Moscow Tries to Break a Stalemate with Washington. Poland and other borderland states will make appeals for stronger security guarantees from Washington while they still have the United States’ attention. Moscow will try to break a negotiating stalemate with the U.S. to talk sanctions, military build-ups and arms control by promoting its mediation in the Syrian conflict and its potential utility in North Korean denuclearization. Don’t hold your breath for a breakthrough, though.

Polarizing Allies. In harnessing the power of tariffs and extraterritoriality in sanctions, the United States will polarize many of its security allies in Europe and Asia — strategic partners that Washington needs to counterbalance the emerging threat from China and Russia. Attempts to target Russia’s strategic relationships will call into question the long-term reliability of the U.S. as a defense partner and invite heavy push back from Turkey, Vietnam, Germany and India, in particular.

Iran’s Return to the ‘Resistance Economy.’ As the limits of EU economic safeguards are exposed, Tehran will cautiously walk back its commitments to the JCPOA while seeking out willing partners to circumvent sanctions. Russia will take advantage of Iran’s rising vulnerability to deepen its military ties with Tehran while mediating between Iran and Israel in Syria.

The Big Turkish Gamble. Turkey will be a big feature of the third quarter following a precarious electoral gamble by Turkish President Recep Tayyip Erdogan. Erdogan has the tools to eke out a win and whip up a nationalist reaction to any outside questioning of the vote, but the highly polarized country will remain on shaky economic ground amid worsening relations with the West.

Votes against the Status Quo. Mexico’s populist candidate stands a chance of winning big in July elections, which could pose a threat energy and education reforms while further complicating NAFTA talks. A strong anti-establishment current will also be on display in Colombia, where the FARC peace deal is under threat, and in Brazil and Argentina, where the appetite for economic reform will plummet.

Key Trends

The Constant Battle Against Unpredictability

As the United States enters the long summer stretch before midterm congressional elections in the fall, the midpoint of Donald Trump’s presidency will also come into sight this quarter. And after a particularly suspenseful spring of sanctions, tariffs, Cabinet changes and summit surprises, the U.S. president has only reaffirmed to the world his reputation for bending constraints toward a particular policy end — even if the means to that end cause considerable collateral damage at home and abroad.

And so, with several negotiations still pending — including discussions over the fate of the Korean Peninsula and high-stakes trade talks — a world weary from grappling with the fitful superpower is bracing itself for another quarter of whiplash from White House maneuvers.

The world is muddling through a blurry transition from the post-Cold War world to an emerging era of great power competition.

 But while Trump thrives on unpredictability as his chief negotiating tactic, many of his moves fit quite neatly— Even predictably — in the context of the United States’ great power rivalry with China and Russia. The United States’ intensifying economic pressure on China, its harder-hitting sanctions on Russia and its growing support for critical borderland states, such as Taiwan, Ukraine and Poland, are all a part of this budding competition. Even the U.S. search for a way to reunify and denuclearize the Korean Peninsula is a piece of a broader long-term strategy to balance against China.

Yet the United States is creating bigger distractions for itself in the Middle East with Iran while putting stress on the very alliances it needs in its global competition with China and Russia. Although the contradictions in U.S. policy are taxing much of the world, this prolonged state of confusion is par for the course as the world muddles through a blurry transition from the post-Cold War world to an emerging era of great power competition.

U.S.-China Competition Builds

Narratives casting China as an economic imitator, as opposed to an innovator, are out of date. As the country grows more economically advanced, focusing its attention on game-changing technologies, the United States will heighten its economic scrutiny on China — and squeeze numerous companies along U.S.-Asian supply chains in the process. This dynamic will endure well beyond the quarter and the Trump presidency. In the name of national security, the executive and legislative branches of the U.S. government will continue to target China’s Made in China 2025 strategic development program through various means, including tariffs, sanctions and restrictions on investment and research. U.S. companies, particularly those involved in sensitive technology sectors, will face growing risk and uncertainty over the potential for export controls and for closer monitoring of foreign investments.

Specific measures to watch for in the third quarter include a special investment regime for Chinese companies designed to block investment into sensitive areas like robotics, telecommunications, semiconductors, artificial intelligence (AI), virtual and augmented reality, and new energy. The White House already has announced its intention to impose tariffs on up to $50 billion worth of Chinese industrial technology goods under a Section 301 investigation into Chinese intellectual property and technology theft. (More details are expected June 15.) The United States will apply tight scrutiny to outbound investment to or informal collaboration with Chinese companies, especially in high-tech sectors. Telecommunications firms Huawei and ZTE are already feeling the pressure; the U.S. Commerce Department has slapped hefty penalties on ZTE, while Huawei is under investigation by the Justice Department. In addition to those companies, the United States could expand its net to ensnare tech giants like Baidu, Alibaba and Tencent, launching investigations into web services they provide. Washington is also likely to impose visa restrictions on Chinese researchers and students in the United States.

U.S. pressure will only make China more determined to accelerate its drive to forge its own supply chains for sensitive technologies.

 Deepening U.S.-China economic competition, however, does not guarantee a trade war, in which tit-for-tat trade measures escalate with no clear end in sight. China, along with the European Union,

Japan and other major U.S. trade partners, is trying to avoid destabilizing the global economy more severely. The United States, meanwhile, despite an apparent penchant for picking trade spats, will run into political constraints that will avert a worst-case scenario. Washington and Beijing alike will eventually make concessions to justify dialing back their more extreme tariff threats. Still, the negotiations will be bumpy.

There are hard limits to what each side can concede, and Chinese compliance is not assured, leaving the door open for some tariffs, and retaliatory measures, to shake out this quarter.

Internal White House dynamics will also be key to watch in tracking the progress (or lack thereof) in trade negotiations. Treasury Secretary Steven Munchkin and White House economic adviser Larry Kudlow will push for a compromise that minimizes collateral damage, while economic adviser Peter Navarro and U.S. Trade Representative Robert Lighthizer drive a much harder, and perhaps impossible, bargain with China. In the lead-up to U.S. midterm elections, the White House will probably be more sensitive to retaliatory tariffs targeting the U.S. farm belt, where support for Trump was strong during the 2016 presidential race. Tariffs on smaller crops such as cranberries and ginseng, for example, could hit a political nerve in Wisconsin, a state in which the farming vote could make a big difference.

Even as the negotiation inches ahead, the United States won’t prevent China from providing heavy, focused support to Made in China 2025 sectors. The U.S. pressure will only make China more determined to accelerate its drive to forge its own supply chains for sensitive technologies. China will, however, be willing to negotiate ways to increase U.S. imports, including of energy, semiconductors, vehicles and agricultural products; to partially liberalize certain sectors, such as the financial sector; to reduce some trade barriers for imported vehicles; to enhance intellectual property protection rights; and to restructure state-owned enterprises as part of its reform drive. Even if the United States hits it with tariffs this quarter, China has the political and economic means to withstand the blow at home [10]. A growing number of maturing corporate bonds will add to the financial strain on local state-owned and private enterprises, but Beijing will inject liquidity selectively to ease the pain, particularly in central and northeastern China, and to manage any fallout.

A Framework for North Korean Denuclearization

Trump and North Korean leader Kim Jong UN will meet face-to-face June 12 for a much-anticipated summit in Singapore]. While there will be moments throughout the process where it appears as if the whole     dialogue is collapsing, there is reason to believe that the negotiation will still have legs by the end of the quarter. Our focus will not be so much on the drama to come — the typical walk-outs,

Name-calling and muscle-flexing — as Trump and Kim battle to prove who can play the unpredictability card most effectively in the talks. Setting aside the theater of the negotiation, the fundamental question for the quarter is whether both sides will muster enough political will to develop a framework for denuclearization. If a dialogue advances, it will likely start with freezing nuclear development, leaving room to tighten the screws on denuclearization over time. Just as the United States is unwilling to offer North Korea instant regime security, North Korea will negotiate denuclearization only over a long period of time.

Compared with previous efforts at negotiation, the stakes are much higher this time around. North Korea is closer than ever to its nuclear deterrent, and if the talks fail, the United States will have invalidated the diplomatic route. The United States would find it difficult to build international consensus to reinstate crippling sanctions on North Korea, much less a consensus to pursue a military option.

If the United States can manage to avoid a military conflict with North Korea, it will be able to apply more resources and attention to reinforcing countries in China’s borderlands.

 But a breakdown in talks with the United States would not necessarily lead North Korea to resume its nuclear testing immediately. Even if the United States walks away, China and South Korea would keep up the diplomatic momentum with North Korea, giving Pyongyang an opportunity to press its neighbors to ease up on their own economic sanctions.

Japan will remain largely on the sidelines of the negotiation], given its frosty ties with South Korea and even frostier ties with North Korea. As trade tensions mount between the United States and Japan over the threat of auto tariffs, Tokyo will do its best to keep them separate from its security partnership with the United States. Japan’s biggest concerns lie in North Korea’s short- and medium-range ballistic missile threats and any short-term shifts to the U.S. force presence on the Korean Peninsula that could also lead to a draw down in Okinawa before it is politically and militarily ready to compete with China. Japanese Prime Minister Shinzo Abe will try to keep a high diplomatic profile this quarter both to try to insert Japan’s security interests into the U.S.-North Korea dialogue and to distract his own constituency from a scandal that threatens his six-year tenure. Should Abe lose the critical contest for the ruling party’s leadership in September, Japan could enter another period in which prime ministers come and go more frequently, creating more uncertainty as the great power competition in the Pacific heats up.

If the United States can manage to avoid a military conflict with North Korea, it will be able to apply more resources and attention to reinforcing countries in China’s borderlands [19]. Though China has managed to ease tensions with the states in its periphery, its continued militarization in the South China Sea will draw the United States into a more active military role in the region to balance it. The United States will increase naval deployments and patrols in the South and East China seas this quarter while working to expand military exercises with members of the Association of Southeast Asian Nations (ASEAN). An increase in U.S. deployments will lead to a period of heightened tension between Chinese and U.S. forces in these waters, and instances of harassment could become more frequent as the rate of close encounters and interceptions increases.

Friction Points in the U.S.-Russia Relationship

Russia’s influence over North Korea will remain limited so long as Washington sustains its diplomatic engagement with Pyongyang through the quarter. If the talks make progress, Russia will try to secure a role in the denuclearization process to make sure it has a seat at the table. And should the talks collapse, Russia will align itself closely with China to resist the United States in the U.N. Security Council on sanctions and military action.

The push and pull between the U.S. Congress and the president on Russia policy [20] can be messy and contradictory at times, but the result tends to be a harder U.S. line on the country. Congress will lean on the Treasury Department to sharpen its aim in targeting Russian elites with an eye toward sowing divisions in the Kremlin without creating the kind of significant global economic blowback that sanctions against Russian aluminum producer Rusal caused in the second quarter [21]. At the same time, U.S. lawmakers will be working to implement the Russia-related provisions of the Countering America’s Adversaries through Sanctions Act [22] (CAATSA) to coerce other countries to reduce their defense, intelligence and energy ties with Russia.

Though the White House has been more reluctant in the past to confront Moscow, secondary sanctions targeting Russia’s defense and energy sales appeal to its business sense by creating more export opportunities for U.S. liquefied natural gas producers. They will also appeal to the United States’ business sense by potentially creating more export opportunities for U.S. defense firms and for U.S. liquefied natural gas producers. Commercial interests, along with a growing U.S. strategic focus on Central and Eastern Europe in its competition with Russia and China, will give Poland, Ukraine and the Baltic states an opportunity to appeal to the White House for stronger security commitments. Warsaw, in particular, will try to advance talks with Washington over a permanent U.S. military presence in Poland, which will in turn cause Russia to up the pressure on Belarus to host a Russian airbase in its borders.

A potential military buildup in Russia’s periphery is one of several factors that could prompt a high-level dialogue, or at least preparations for one, between Washington and Moscow this quarter. Russian President Vladimir Putin has a long list of items ready for when he sits down with Trump, including sanctions, military buildups and stymied arms control talks. Russia will try to use its mediation in the Syrian conflict and offers to help with North Korea’s prospective denuclearization to present itself as a more constructive force. But the White House will engage with Moscow at a high level only if it feels that it has made enough progress on North Korea that it can deflect negative attention from the Russia-related investigations underway. Even if Trump and Putin manage to set up a meeting, the geopolitical environment will not be conducive to a grand bargain.

It will be important to watch how Putin handles the various challenges facing him this coming quarter.

 Having made it to a fourth term in office in elections in March, Putin will have to maneuver carefully among the government, his inner circle and Russia’s powerful oligarchs as the United States dangles the threat of heavy sanctions over them. Efforts to consolidate the assets of Russia’s elite will continue in the third quarter, as the Kremlin works to maintain economic stability and political loyalty. Higher oil prices will help ease some of the strain that honoring social pledges made during the campaign season, increasing security spending and hosting the World Cup have put on the Kremlin’s finances. Competition among the security services remains a key area to watch as Putin balances among rival factions. We’ll also be watching carefully for further signs that the longtime president is elevating younger members of the elite in search of a successor.

The more immediate priority in the quarter will be for Putin to try to take more steam out of opposition protests. In the second quarter, a wave of opposition protests in Armenia that swept longtime leader Serzh Sargsyan from power was another wake-up call for the Russian government and the heads of other former Soviet states: Once a protest movement has gathered enough momentum, not even brute force tactics can quell it. Determined to avoid a similar fate, the Kremlin will work on co-opting opposition leaders into government positions. Opposition leaders like Alexei Navalny are unlikely to fall for this strategy. But figures from other prominent dissident parties — especially those that stand to do well in September’s regional elections, including Yabloko and the Communist Party — may yield to the Kremlin.

Doubling Down on Iran

A big element of the U.S.-Russia competition will also play out in the Middle East. In walking away from the Iran nuclear deal and reinstating hard-hitting sanctions, the White House is hoping against all odds to foment enough economic frustration in Iran to set regime change in motion. Israel, meanwhile, is seizing a rare opportunity to escalate its military campaign against Iranian and Hezbollah assets in Syria, knowing that it has firmer security guarantees from the United States to manage the fallout of a cycle of attacks and retaliatory attacks that risks drawing in Russia. Moscow will plan its next steps carefully with the aim of avoiding a direct collision with the United States while exploiting U.S. and Israeli needs to disengage on the Syrian battlefield. Despite its attempts to mediate between Israel and Iran — in hopes of bargaining on a more strategic level with the United States — Russia’s limited influence on the Syrian battlefield will prevent a lasting truce. Russia also will try to take advantage of Iran’s vulnerability with the United States to deepen its own military footprint in the region. Watch for discussions between Iran and Russia over boosting Iranian air defenses and appeals from Moscow for access to Iranian bases.

Tehran’s focus for the third quarter will be to buy itself as much room to maneuver as possible with those trading partners willing to risk U.S. secondary sanctions. In the immediate term, Iran will take care to avoid aggressive actions that could push the European position closer to that of the United States. But as the limits of the European Union’s economic guarantees become more evident in the coming months, Iran’s internal debate over how to proceed will intensify. Iran will probably still confine retaliatory attacks against Israeli strikes in Syria to the Golan and potentially the Palestinian territories as it tries to avoid a bigger conflagration. It will also test the limits of the nuclear deal and its cooperation with Europe, for instance by threatening to increase enrichment, to limit access to International Atomic Energy Agency inspectors or to withdraw from the Nuclear Non-Proliferation Treaty.


Philippine infrastructure push is unlikely to boost wages as lack of high-paying jobs hinders government’s poverty reduction plan FT Confidential Research JUNE 18, 2018

As living costs in the Philippines rise, neither the government nor the private sector can provide Filipinos with higher-paying jobs. Dissatisfied workers demanding more work, more money and better career options threaten President Rodrigo Duterte’s poverty reduction agenda. In our first-quarter survey of 1,000 urban Filipinos, 55 per cent of respondents said they had a “secure” or “very secure” job. The figure is in line with the average for the other ASEAN-5 economies included in the Economist survey. Although the majority enjoy job security, people looking for a new job are having a hard time. Forty per cent of our respondents said they found it difficult to get hired, while only 11 per cent said it was easy. Among job seekers, 34 per cent said they wanted a higher salary, while 28 per cent wanted career growth.

filipnos want hiher wages.jpg

The survey corroborates government data showing that while unemployment is down, underemployment is high. The underemployment rate — defined as those wanting to work longer hours or get an additional job to earn more — rose to 17 per cent in April, from 16.1 per cent the year before.

underemployment remains high.jpg

The Economist sees underemployment as a more formidable challenge than unemployment. In the public sector, Mr. Duterte’s promise to spend up to 8.44tn pesos ($158bn) to fix the country’s dilapidated infrastructure is producing low-paid, temporary construction jobs, incapable of sustaining a typical Filipino family. Private companies, meanwhile, are bracing for wage rises this year that could increase labour costs. This, in turn, is making the Philippines unattractive to private investors, who are critical to the creation of competitive jobs.

Low pay, temporary work

The government’s ambitious “Build, Build, Build” programme aims to generate 6.4m jobs by 2022, mostly by employing low-skilled workers in construction. We think the programme is a good way to absorb poor rural agricultural workers into higher-paying jobs, especially since some of the projects are in regions outside Metro Manila.


This is all part of Mr. Duterte’s plan to spread wealth beyond Manila. But while the infrastructure push will indeed reduce unemployment, it is unlikely to offer the competitive salaries and permanent positions available in the private sector, or overseas. In fact, government data show that 96 per cent of current vacancies would pay only a minimum wage, below the amount needed for a decent living. In Manila, the minimum wage amounts to 15,360 pesos a month, but wages in poorer areas tend to be lower and fall near the 2015 poverty line of 9,064 pesos.  Although there is no official definition, Ernesto Pernia, the socio-economic planning secretary, recently said that a “decent income” for a family of five would be at least 42,000 pesos a month. This is achievable if two family members are earning 21,000 pesos each, near the average entry-level salary in the booming business process outsourcing industry. Construction jobs are also temporary. Since none of the 75 big-ticket infrastructure projects are under way yet, government contractors concentrate on smaller projects that require fewer workers and are completed in a shorter time. Some bigger projects funded by China are also likely to employ Chinese workers, leaving fewer opportunities for Filipinos. The lack of job security and decent pay make local construction jobs unattractive compared with employment overseas. There is no incentive for skilled Filipino engineers and architects currently working abroad to heed Mr. Duterte’s call to come home and contribute to his nation-building project. This could partly explain why construction jobs remain open, and state projects delayed.

Tough times all round

Poverty also affects households with permanent jobs. The World Bank, in a recent report on the Philippines, found that 54 per cent of poor households are headed by wage earners (as opposed to those who are self-employed). These include university graduates who work for private companies that typically pay more than the government.

Businesses are also operating in a more difficult environment. Accelerating consumer prices and a weaker peso, which hit a 12-year-low against the dollar this month, are increasing operational costs. Central bank data show fewer companies are planning to hire workers in the next quarter and we believe this will only get worse in succeeding months, especially as the government is pushing for a higher minimum wage. The minimum wage level in the Philippines in certain regions is already higher than in more developed Malaysia.

The private sector picture is not encouraging. Infrastructure projects have been delayed and the government plans to reduce tax incentives for investors under its proposed tax reform. As a result, foreign investment in the economic zones where these incentives are offered has fallen to its lowest level since 2010. Never mind tackling underemployment; even sustaining the recent drop in unemployment could be challenging. — Prinz Magtulis, Philippines Researcher,


Economic Snapshot for ASEAN

June 21, 2018

Economic momentum remains solid in Q2 after a positive Q1

The latest indicators suggest that ASEAN’s economy continues to perform well in the second quarter despite swirling global trade tensions, with growth forecast to come in at 5.2% year-on-year. With the exception of Malaysia, manufacturing PMIs for April and May were firmly in expansionary territory across the region, supported by strong domestic demand. In May, Indonesia’s PMI reached a near two-year high, while readings also improved in the Philippines and Vietnam. In Singapore, the indicator has moderated slightly so far in Q2 despite remaining firm, while in April Myanmar’s PMI reached its highest level in the survey’s history before a correction in May.

Other signs corroborate the ongoing momentum, with internal dynamics buttressed by strong labor markets and wage gains. In April, Indonesia saw healthy retail sales growth, while industrial production grew at a robust pace throughout the region. In contrast, the external sector appears to be softening. Import growth is outpacing export growth in many countries, on strong private consumption, higher international oil prices and tough prior-year comparisons for export growth.

The latest GDP readings for the first quarter confirmed regional growth at 5.4%. Comprehensive data for Singapore saw GDP growth revised up, on the back of an expansion in the services sector that was stronger than previously estimated. In addition, the figures point to a broadening of economic momentum towards more domestic-oriented sectors, as well as an incipient recovery in the construction sector. In Thailand, growth was clocked at 4.8% year-on-year in Q1, marking a five-year high and in line with FocusEconomics panelists’ forecasts. The reading was underpinned by higher farming and non-farming incomes, and a recovery in public investment.

On the political front, Malaysia reduced the Goods and Services Tax (GST)—an important source of revenue for the government—to 0% effective 1 June. This should give private consumption a shot in the arm in the short term, at least until a substitute Sales and Services Tax (SST) takes effect from September. However, the move creates fiscal uncertainty. Until the SST is introduced there will likely be a fiscal shortfall, despite the breathing space provided by higher oil prices. In addition, it is unclear whether, once introduced, the SST will raise as much revenue as the GST. To convince investors that it is serious about fiscal discipline, the new administration has moved to reduce infrastructure spending—including scrapping a planned high-speed rail link to Singapore—and trim ministries’ spending and the public sector wage bill.

Thailand is also trying to present a fiscally responsible image; the Junta recently presented a draft budget for FY 2019 aimed at reigning in the budget deficit. Proposed spending is slightly below the FY 2018 budget, although defense spending will receive a notable boost. In contrast, several areas important for future economic development will see spending cuts, including education, agriculture and social development.

 See the full FocusEconomics Consensus Forecast ASEAN report

Economic outlook looks rosy, but trade concerns are rising

Economic growth should remain solid going forward, as the region continues to benefit from resilient domestic demand. Public infrastructure investment in key economies such as Indonesia and Philippines will support growth, while strong labor markets bode well for private consumption. On the downside, external sectors will likely continue to weaken, as export growth eases after a stellar performance in 2017 and higher crude prices raise the import bill. In addition, tighter financial conditions could weigh on activity, while a further escalation of trade tensions between the U.S. and China would hit the generally open economies of ASEAN hard, particularly given the importance of both countries as key export markets. GDP growth for the region is expected to come in at 5.2% this year, which is up 0.1 percentage points from last month’s estimate and matches last year’s expansion.

This month’s upgrade comes on the back of higher 2018 growth projections for Thailand—following a strong Q1 outturn—and the Philippines. In contrast, growth forecasts for the rest of the economies surveyed in the ASEAN region—including heavyweights Indonesia, Malaysia and Singapore—were unchanged from the prior month. For 2019, our panel sees growth at 5.1%.

Our panel projects that Myanmar will be the fastest-growing economy in the region, with a 7.1% increase expected in 2018. Conversely, Brunei is foreseen logging the weakest expansion this year, at 1.4%. Among the major economies in the region, the Philippines will record the fastest increase, followed by Indonesia and Malaysia.

INDONESIA | Economic growth appears firm in the second quarter

The most recent indicators from Q2 suggest that economic activity is picking up from Q1’s muted performance. Retail sales growth accelerated to a ten-month high in April and should remain elevated, as consumer confidence in May improved markedly. The manufacturing PMI increased in May to the best print in almost two years, underscoring the improving health of the sector. Against this positive backdrop in the domestic economy, S&P Global Ratings affirmed the country’s BBB- rating and stable outlook on 31 May. The ratings agency applauded the government’s prudent handling of fiscal accounts and the recent reform that has increased tax collection. Nevertheless, it warned that increasing external financing costs because of faster-than-expected monetary tightening in the United States and modest increases in the prices of Indonesian key exports could cause external buffers to deteriorate and expose the country to economic shocks.

The economy is expected to accelerate slightly compared to last year on faster growth in government consumption and fixed investment. Higher crude oil prices and a modest price outlook for Indonesian commodities, however, are weighing down growth prospects. FocusEconomics panelists see GDP growth of 5.3% in 2018, which is unchanged from last month’s forecast. In 2019, the economy is seen growing 5.4%. 

THAILAND | Growth hits a multi-year high in Q1, data for Q2 suggests continuing momentum

National accounts data showed the economy continued to enjoy a strong run in the first quarter, growing at the quickest pace in five years. This was largely due to strong activity in the domestic economy as private consumption benefitted from an increase in non-farming income. In addition, the external sector remained solid despite a moderation in export growth and a pick-up in import growth on the back of a strong domestic economy. Data for Q2 continues to suggest that the domestic economy is gaining traction, while the external sector is softening slightly. In April, manufacturing growth accelerated, while the country recorded its second trade deficit of the year, owing to strong import growth outpacing double-digit export growth.

Although growth is expected to moderate in the coming quarters, economic growth should remain robust this year due to healthy domestic demand. Export growth is, however, likely to ease due to a large base effect. Looking to 2019, a tight fiscal stance as outlined in the recent draft budget could drag on growth. Risks to the outlook stem from rising trade tensions, mostly coming out of the United States. Furthermore, high household indebtedness and political uncertainty in the lead up to elections to be held no later than February 2019 could drag on economic prospects. FocusEconomics panelists expect the economy to grow 4.2% in 2018, which is up 0.3 percentage points from last month’s forecast. The panel projects growth of 3.8% in 2019.

See the full FocusEconomics Consensus Forecast ASEAN report

MALAYSIA | Economic signs are positive, although fiscal concerns emerge following tax change

Following a robust Q1, the economy appears to have gotten off to a solid start to Q2: Exports jumped and industrial production growth accelerated in April. On the downside, the manufacturing PMI moved further south of the neutral 50-point threshold in May due to weakening domestic demand. The new government reduced the Goods and Services Tax (GST) to 0% effective 1 June. This should provide a boost to private consumption in the short term until the Sales and Services Tax (SST) is introduced on 1 September. However, slashing the GST creates a sizable gap in the budget, raising questions about the government’s finances and whether it will be able to stick to the 2.8% deficit target for 2018. To rein in spending, Prime Minister Mahathir Bin Mohamad has cancelled big infrastructure projects and told ministers to implement austerity measures.

GDP should remain resilient this year on the back of strong private consumption growth, although government consumption is likely to suffer in the near term from the cancellation of previously approved projects and expenditure cuts. Risks are, however, titled to the downside: High household debt servicing costs could drag on private consumption, while uncertainty over government policy and the fiscal situation could dent private sector activity and investment. FocusEconomics Consensus Forecast panelists expect the economy to grow 5.3% this year, unchanged from last month’s forecast, and 5.0% in 2019.

MONETARY SECTOR | Inflation picks up marginally in May

A preliminary estimate by FocusEconomics shows regional inflation accelerated to 2.6% in May from 2.5% in April, on the back of stronger inflation in Laos, the Philippines, Thailand and Vietnam. Price pressures dipped in Indonesia and are still outstanding for the remaining countries in the region. In an unscheduled meeting on 30 May, Indonesia’s Central Bank raised its policy rate from 4.50% to 4.75%, mere weeks after a similar rate hike to 4.50%. The move was designed to support the depreciating currency, particularly given the prospect of the Federal Reserve raising interest rates in mid-June.

Inflation will be supported this year by higher global oil prices and solid domestic activity, although price pressures will remain relatively muted. Our panelists expect inflation to average 2.9% this year, which is unchanged from last month’s estimate and marginally above the 2.8% inflation figure recorded for 2017. Our panel foresees inflation ticking up and averaging 3.1% in 2019.

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Oliver Reynolds


Fourth Quarter 2017 Economic and Wood Product News

The year of the fire rooster was a humdinger. Lots of social, political and economic anxiety and uncertainty. The rise of populism working against globalization. 2018 will be very interesting. Happy New Year!

Banyan For Asia, the path to prosperity starts with land reform

Countries that did it properly have grown fastest

land reform

 Print edition | Asia

Oct 12th 2017

NEARLY as striking as Asia’s dynamism is how unevenly prosperity is spread—in contrast to Africa, Latin America or Europe. First-world Japan (with a GDP per person of $38,900) is in effect part of the same island chain as the Philippines ($2,950). Rich Singapore ($53,000) is little more than an hour’s flight from Myanmar ($1,275). On the Korean peninsula, the division is even starker. Two economies that started out in identical circumstances have diverged so wildly that South Koreans are between 3cm and 8cm taller than their North Korean counterparts on average, depending on their age, thanks to better nutrition.

A voluminous literature ponders the causes of the East Asian miracle, in which first Japan, then the four original “Asian tigers”—Hong Kong, Singapore, South Korea and Taiwan—and then China sustained bounding growth for decades. Most studies point to market-friendly policies that encouraged exports of manufactures and the rapid accumulation of capital, including the human sort. Others emphasise the importance of institutions. Yet one crucial factor has been relatively underplayed: restructuring agriculture.

“Land reform” sounds innocuous but involves great upheaval: seizing land from those who have it and giving it to those who do not. Yet radical action may be necessary in countries with big, impoverished, rural populations. As Joe Studwell points out in “How Asia Works”, farm yields often stagnate in such places. As populations grow, making land scarce, landlords jack up rents and lend at extortionate rates. That leaves poor tenant farmers mired in debt, with no means to invest.

China provides a stark example. By the 1920s, a tenth of the population owned over seven-tenths of the arable land. Three-quarters of farming families had less than a hectare. Mao Zedong’s Communists reallocated land in every new territory they seized. After the defeat of the Kuomintang (KMT) in 1949, they rolled out land reform nationwide. Landlords, some with scarcely more land than most, were blamed for everything. In the decade after 1945, millions of them were beaten to death or shot, or left to starve. Revolution, Mao said, was not a dinner party.

The effect was immediate. Grain output leapt by perhaps 70% in the decade after the war. When farmers can capture most of the value of their land, they have a powerful incentive to produce. And while smallholder agriculture is hugely labour-intensive that makes sense when labour is abundant. (Only a few years later the Communists embarked on the madness of collectivisation. China emerged from that disaster in 1978, after Mao died. North Korea is starting to do so only now.)

China’s early success challenged Japan, South Korea and Taiwan. These countries, pressed by America to carry out land reform, showed that it does not require mass murder. By the war, half of Japan’s arable land was worked by tenant farmers, and rent was never less than half the crop. After the war, farm size was limited to three hectares. Land committees on which tenants outnumbered landlords oversaw a reapportionment that took land from 2m households and gave it to 4m others. Compensation fell short (and was gobbled up by inflation), but there was little violence among farmers. Perhaps it helped to be able to blame the occupiers when politely taking over someone’s paddy field. At any rate, agriculture boomed.

South Korea had the most unequal land ownership in the region, and resistance by the elites was strongest. Some landlords lost as much as 90% of their land. But Taiwan under the KMT shows the clearest benefits from land reform, which started with rent controls and reforms to tenancy. Sales of formerly Japanese-owned land followed. Then, in 1953, came appropriation. The share of land tilled by the owner rose from just over 30% in 1945 to 64% in 1960. Yields on sugar and rice leapt. New markets sprang up for exotic fruits and vegetables. Household farmers dominated early exports. Crucially, income inequality shrank thanks to the new farmer-capitalists. Less spent on imports of food, more money in Taiwanese pockets, a new entrepreneurialism: farming was the start of Taiwan’s economic miracle.

Cheap at half the price

Indonesia, Malaysia and Thailand could have followed Taiwan’s example, but didn’t. Their economies have done far worse. With between 25% (Malaysia) and 48% (Thailand) of their populations still living in the countryside, land distribution matters. The state favours agribusiness and plantations over small farmers. There is a yawning gap in income between countryside and city.

The situation is worse in the Philippines, which had a similar income per person to Taiwan’s just after the war. Before independence in 1946, America auctioned off the Catholic church’s huge estates. Only the local elites could afford them. These became the hacienda class that thrives today, forming the basis of many political dynasties. Admittedly, after the People Power revolution (led by Cory Aquino, from one landed family, who married into another), political pressure for land redistribution culminated in a reform law passed in 1988. Nearly 30 years on the law, replete with loopholes, is still being implemented. The operations of many big estates have hardly been affected, while household farmers still lack technical and financial support. Many of those given plots have had to lease them back cheaply to the big planters, becoming wage labourers on their own land.

There are political consequences too. In South Korea and Taiwan inclusive agricultural growth prefigured the inclusive politics of today’s thriving democracies. In South-East Asia, by contrast, cronyism and inertia are consequences of an economy that is unfair to those at the bottom. The Philippines and Thailand have most clearly paid a price, in the form of insurgencies and rural unrest, for keeping poor people down. When weighed against the costs, land reform, done well, starts to look cheap.

This article appeared in the Asia section of the print edition under the headline “Land to the tiller”

Sep 2, 2017 | 15:44 GMT

Will the U.S. Free Itself From a South Korean Trade Deal?

South Korean Trade Minister Kim Hyan-chong


The White House is considering beginning the official withdrawal process from the U.S.-Korea Free Trade Agreement (KORUS) next week, several sources have told Inside U.S. Trade. The online publication noted in a Sept. 1 report that U.S. President Donald Trump has not made a final decision on whether to make the move, but the news source also reported that the draft notice has been written and that several members of Congress have been told it will be announced Sept. 5.

The U.S. trade pressure on South Korea comes as Washington is trying to maintain Seoul’s cooperation in reining in North Korea. The two negotiations have run on parallel tracks, and South Korea is aware that the United States will pursue its trade agenda regardless of Seoul’s cooperation against Pyongyang. However, trade has the potential to drive a wedge between the two allies, particularly as South Korea mulls the pursuit of a softer stance toward the North to avert a military conflict.

Issuing a Threat to Force a Move

While the Trump administration is almost certainly considering a clean break from KORUS, the media leaks and the threat of withdrawal are as much a negotiating tactic as anything else. In July, the United States called for a special meeting of the agreement’s joint committee to discuss modifying the deal after arguing that KORUS has unfairly hurt the United States. Since the agreement came into force in March 2012, the U.S. trade deficit with South Korea has increased from $15.1 billion in 2011 to $29.7 billion in 2016. When the joint committee finally met on Aug. 22, talks went nowhere. The United States demanded the two countries renegotiate the deal, but South Korea said it would reject any changes to the agreement that did not come with a recommendation from an objective joint study. This difference in views echoes the disagreement between the two sides during South Korean President Moon Jae In’s visit to Washington in June, when Trump said the United States and South Korea were negotiating a new trade agreement but Seoul remained conspicuously silent about such an arrangement.

By threatening to withdraw from the trade deal, the United States is hoping to force South Korea back to the negotiating table. This is the second time that the United States reportedly has been close to withdrawing from an existing trade deal. In April, there were leaks that the United States was about to pull out of the North American Free Trade Agreement (NAFTA), forcing Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau to hurriedly phone Washington to object. While the more recent threat may be a negotiating tactic, it is far more realistic than the threat to leave NAFTA.

After all, KORUS is a 5-year-old trade deal between two countries an ocean apart, whereas NAFTA is a 25-year-old trade deal between three countries on a deeply integrated continent. Over the last quarter-century, the United States, Canada and Mexico have developed closer links and sophisticated supply chains where goods crisscross national borders multiple times before finally being sold to end consumers. These deeply interwoven supply chains are difficult to unravel, and the outright breakdown of NAFTA would cause immediate economic pain to a considerable portion of the U.S. electorate — and key Republican Party constituencies. States, communities and a number of powerful industries provide a significant counterweight that constrains Trump’s ability to completely rip apart NAFTA.

The same level of supply chain integration with South Korea does not exist. The vast majority of U.S. imports from South Korea are finished products that go to end consumers. The products include $16.4 billion worth of automobiles in 2016 and $7 billion in phones, representing about a third of U.S. imports from South Korea alone. As a result, there would be less of a lobbying push from U.S. industry and fewer immediate consequences to communities and regions dependent on U.S.-South Korean trade.

A Perception of Caution Abandoned

Should the United States actually issue a withdrawal notice — even if its ultimate intention is to make South Korea decide between negotiating or losing the free trade agreement — it would change how the world sees the country’s trade negotiation strategy. So far under Trump, the United States has taken a cautious approach toward trade policy. The key professional free trade camp within the White House — led by Treasury Secretary Steven Mnuchin, chief economic adviser Gary Cohn and, to a lesser extent, Secretary of State Rex Tillerson — has been able to prevent Trump from going to the extreme or taking drastic measures. A withdrawal from KORUS would shatter confidence that they would be able to continue to do so.

This newfound doubt would have important implications for Washington’s other ongoing trade negotiations. The most critical of these talks concern NAFTA, with a second round of negotiations taking place Sept. 1 to Sept. 5. Trump already has threatened to pull out of the deal once. Last month as the talks began, Trump complained on Twitter that Canada and Mexico were being “very difficult” in negotiations. There has long been speculation that Trump might try to weaken Mexico’s and Canada’s hands by issuing a formal withdrawal notice — which takes six months to complete — and then negotiating during the countdown as a way to reduce their leverage.

By pulling out of KORUS, Trump would be announcing to the world that he is willing to put his money where his mouth is and sever trade ties with countries. Until now, his policy has focused more on orderly negotiations and higher levels of trade agreement enforcement, but if the president pulls the trigger on KORUS next week, that policy will change.
Oct 2, 2017 | 07:58 GMT

Korean Economy, Construction & Lumber Shipments

By Tai Jeong

Tai Jeong

Technical Director, Canada Wood Korea

October 30, 2017

Posted in: Korea


South Korea’s economic growth hit a seven-year record high in the third quarter of 2017 mainly due to increased construction investment and exports.

South Korea’s gross domestic product in the third quarter increased 1.4% from the previous quarter, faster than the previous quarter’s 0.6% on-quarter gain and improved 3.6% from a year earlier.

Government spending increased by 2.3% in the third quarter, the highest since the first quarter of 2012, when it came to 2.8% and construction investment grew 1.5%, faster than the previous quarter’s 0.3% on-quarter gain.

On the back of rising global demand, exports, South Korea’s key economic driver, grew a solid 6.1%, the highest since the first quarter of 2011.

However, South Korea’s private consumption has remained in the doldrums for months as consumer sentiment dropped for two straight months to a five-month low of 107.7 in September. Consumer prices continued their sharp growth in September to 2.1% from a year earlier due to high-flying food prices.

South Korea’s jobless rate stood at 3.4% in September, down 0.2 percentage point from a year ago.

The exchange rate for Canadian Dollar averaged at 903.08 won in the third quarter of 2017, up by 4.95% from 860.47 in the second quarter of 2016 and also down by 7.40% from 840.88 in the previous quarter.


In early September, the South Korean government announced a fresh set of regulations to cool down the overheated housing market, a month after in October adopting strong measures for Seoul and other cities.  Household loans in South Korea accounted for 95% of all household debt, which stood at 1,388 trillion won (US$1.23 trillion) as of the first half of 2017. Mortgage loans took up 54% of all household loans.

Amid ongoing government intervention to limit the supply of new homes, especially new apartment in Seoul, South Korea’s housing starts in number of buildings in the first eight months of 2017 decreased 14.3% to 67,077 buildings from a year earlier 78,264 buildings while that in number of units significantly decreased 22.4% to 311,098 units from a year earlier 400,898 units. Housing permits in number of buildings and units for the same period of 2017 also decreased 9.7% and 15.9% respectively to 79,999 buildings and 396,469 units from a year earlier 88,614 buildings and 471,528 units. This downward trend in both housing starts and permits is set to be precipitated by the government’s measures aimed at curbing rising house prices and a planned cut in public infrastructure spending.

While the overall residential construction sector struggles, the number of wood building permits in the eight months of 2017 increased 3.0% to 11,588 buildings from a year earlier. However, the number of wood building starts for the same period decreased 6.3% to 9,317 buildings.

Total floor areas of wood building permits for the same period in 2017 increased 6.6% to 1,060,196 m2but that of wood building starts slightly decreased 3.6% to 866,930 m2 from a year earlier.

Korean wood building

Lumber Shipments


Owing to the increased percentage use of Canadian lumber in wood building sector and price competitiveness of Canadian lumber resulted by 0% tariff as a benefit of the CAN-KOR FTA, BC softwood lumber export volume to South Korea for the first eight months of 2017 increased 5.7% to 196,631 cubic meters as compared to 186,005 cubic meters for the same period of 2016.

Export value for the same period also increased 17.3% to CAD$56.954 million as compared to CAD$48.559 million for the same period in 2016.

BC Lumberexports to Korea

Safe against Fire, ‘Age of Tall Wood Mass Timber’ Begins

By Sunny Kim

sunny kim

Program Manager / Market Development & Market Access, Canada Wood Korea

October 30, 2017

Posted in: Korea

CLT floor test

CLT floor test

The two-hour fire resistive performance of a wood frame construction (WFC) was proven for the first time in South Korea. The National Institute of Forest Science (NIFoS), formerly known as KFRI, tested five different main structural members of tall wood mass timber such as glued laminated timber columns and beams and Cross Laminated Timber (CLT) floor and wall materials in the fire certificate testing performed at the Korea Institute of Civil Engineering and Building Technology (KICT). The test materials satisfied the two-hour fire resistive performance.

According to the Building Act of Korea, 5 to 12-storey buildings must satisfy at least two-hour fire resistive performance for its major structural components, such as bearing walls and floors. The test proved that the materials successfully secured the two-hour fire resistive performance, which is the precondition for tall wood mass timber, for the first time in South Korea.  As the wood framed structural components developed in this fire certificate test stably secured the fire resistive performance, it is expected to encourage the acquisition of the two-hour fire rated certificates for WFC (Weighted Fractional Count) and promote tall wood mass timber.

CLT floor test2

Test passed with flying colors

CLT wall test

CLT wall fire test

Green Building Seminar Held in Conjunction with CWK’s Participation in 2017 Busan Kyunghyang Housing Fair

By Sunny Kim

Program Manager / Market Development & Market Access, Canada Wood Korea

November 30, 2017

Posted in: Korea

Hyeon Wook Lee

Presentation by Mr. Hyeon Wook Lee

Canada Wood Korea (CWK) participated in the 2017 Busan Kyunghyang Housing Fair from September 14 to September 17, 2017. In conjunction with the participation in the Housing Fair, CWK held a “Green Building Seminar”, a wood-frame construction technical seminar to promote wood as a sustainable building material.

Two passionate speakers spoke at the seminar: Mr. Wook Lee, the principal of Kwangjang Architects, famous for the “Peanut House” spoke on wood infill walls and Mr. Ki Cheol Bae, the principal of IDS, famous for designing large scale wood institutional buildings using mass timber spoke on “tall buildings”.

Ki Cheol Bae

Presentation by Mr. Ki Cheol Bae

Tai Jeong, Country Director of CWK, also spoke on tall wood and mass timber products with emphasis on nail laminated timber (NLT), and reviewed technical aspects relating to installation, connections, and fire protection focused on design and construction of the 18 storey Brock Commons in Canada.

Busan Metropolitan City, with 3.5 million population, is the second most-populous and the largest port city in Korea located in the southeastern corner of the peninsula.


Canada Wood Korea Provides Seismic Design Solutions for Architects, Engineers and Builders

By Tai Jeong

Technical Director, Canada Wood Korea

November 30, 2017

Posted in: Korea

Caterina Armstrong

Catriona Armstrong, Manager, Market Development, Trade and International Division, Natural Resources Canada providing welcoming remarks.

Korea used to be considered as safe from earthquakes, however, an earthquake with the magnitude of 5.8 in Richter scale, the strongest one since the measurements of seismic activities began in 1978 in Korea, occurred in September 2016 and the Ministry of Land, Infrastructure and Transport (MLIT) has recently strengthened the seismic design requirements and soon the requirements will be extended to 2 storey buildings and houses.


Workshop received keen interest from more than 170 local professionals

In response to growing needs for seismic design solutions, CWK organized the Seismic Design Workshop with local and overseas lecturers: David Joo (PE, President of King Engineering, Canada), Sang-sik Jang (Professor of Chungnam National University, Korea) and Damon Ho (PE, Engineering Supervisor with Simpson Strong-Tie, U.S.).

The three speakers have introduced Mid-rise Wood Construction in Canada focused on seismic design, Simplified Seismic Design Method for using OSB sheathed shearwalls and North American Lateral Force Provisions and Seismic Design Method respectively, providing seismic design solutions for various types of wood frame buildings.

The workshop was attended by more than 170 architects and designers, engineers and builders showing growing interest in seismic design and wood construction. And two special guests, Catriona Armstrong, Manager, Market Development, Trade and International Division, NRCan and Joyce Wagenaar, Director, Market Outreach, FII also came from Canada and provided welcoming remarks.


2017 Fourth-Quarter Forecast

fourth Q forecast



Homing in on North Korea: An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States’ agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid — and prepare for — the worst. Thoroughly distracted, the United States will have little time and few resources to spend on other foreign policy matters, including its nuclear deal with Iran. Though Washington will try to counter Tehran’s regional power grabs where it can, it will not risk triggering another diplomatic meltdown by abandoning the agreement. The White House will similarly shelve the most aggressive moves in its protectionist trade agenda until next year.

The Debate Over Europe’s Future Begins: Europe, for its part, will turn its attention inward to wrestle with weighty questions about its future. But discussions of reform will be fraught with thorny issues that lay bare the fundamental differences among European Union members. As France lobbies to more closely knit together the Continent’s core, Central and Eastern European countries will be torn between their desire for the security and financial perks that deeper integration could bring and their determination to keep institutions in Brussels at arm’s length. All the while, the bloc’s leader, Germany, will be preoccupied with the task of cobbling together a ruling coalition after September elections produced a divided parliament, forcing parties to enter into complex negotiations in hopes of forming a government.

Pragmatic Cooperation Masks Deeper Competition in the Middle East: As U.S. pressure gradually builds against Iran, the government in Tehran will try to relieve it somewhat by easing tension with its regional rivals, Turkey and Saudi Arabia. At least, that is, on the surface. Though Iran will find common ground with each country in places such as Iraq and Syria, its pragmatic cooperation will remain just that — pragmatism — as its long-standing feuds persist beneath the surface in proxy battles scattered across the Middle East. But Iran is not the only external power involved in these conflicts, and as common enemies like the Islamic State are beaten back, the risk of clashes breaking out between the partners of the United States and Russia will only increase, potentially pulling their larger patrons deeper into the fray.

In a Volatile Region, Japan and China Seek Stability at Home: Though North Korea will pose the greatest security threat to the Asia-Pacific this quarter, leaders in China and Japan will have other problems on their minds. The Chinese Communist Party is gearing up for a crucial congress in October, where President Xi Jinping will take the opportunity to further concentrate power among a circle of trusted allies. In much the same way, Japanese Prime Minister Shinzo Abe will work to shore up his support base during snap elections in October with an eye toward his party’s leadership contest next year.

India Finds the Enemies of Its Enemy: The tense standoff between India and China on the Doklam Plateau has ended, but it exposed the neighbors’ age-old dispute over much of the mountainous border separating them. As India races to expand its infrastructure in the region in case tensions flare again, it will also reach out to Japan and the United States to deepen its defense relationships in hopes of countering the rising power looming on its doorstep.

Global Trends

In today’s world, nations are becoming increasingly interconnected by air, land, sea and cyberspace. As globalization has knitted countries and continents closer together, the borders of the map and the barriers of geography have been rendered, in some ways, obsolete. Now events in one region can more easily have consequences in another, at times even rippling across the globe. We explore those with the greatest impact on international decision-making during the forecast period below.Read Synopsis



Table of Contents


Section Highlights

  • North Korea’s nuclear ambitions will occupy most of the United States’ attention as Washington searches for ways to halt the progress of Pyongyang’s weapons program, even as China and Russia continue to subtly prop up their belligerent neighbor.
  • Distracted by North Korea, the United States will not be willing to create another headache for itself by withdrawing from its nuclear deal with Iran. Russia, meanwhile, will deepen its involvement in several conflicts around the world to strengthen its own bargaining position in talks with the United States.
  • The White House will keep putting its trade policies into practice in the fourth quarter, but despite its tough talk in the opening phase of NAFTA negotiations, the United States will have a hard time persuading Mexico and Canada to meet its steep demands.
  • Across the Atlantic, Europe will turn to the difficult task of reforming institutions within the European Union and eurozone now that national elections in France and Germany have wrapped up.
  • Though the world’s oil inventories have declined, they haven’t fallen quickly enough to suit the organizers of a pact among oil producers to slash output, signaling the group’s likely intent to extend the quota beyond March 2018.

The Start of a Dangerous Race

The United States will head into the last quarter of the year facing one of the greatest direct nuclear threats to the American mainland since the Cuban missile crisis. Over the past three months, North Korea has stepped up its nuclear and ballistic missile tests, leading U.S. intelligence officials to conclude that Pyongyang will obtain a reliable intercontinental ballistic missile (ICBM) capable of carrying a nuclear warhead before next year is out.

Washington will race against the clock to find ways to stall North Korea’s progress and bring it back to the negotiating table. The United States will likely try to court the support of Russia and China in this endeavor as it doubles down on employing diplomatic and financial pressure to dissuade further weapons tests by Pyongyang. But getting their help will not be easy. Even if the United States casts a wider sanctions net to include Russian and Chinese firms that trade with or provide financial services to North Korea, it will not weaken either country’s determination to protect the stability of the government in Pyongyang while advocating a policy of engagement rather than isolation.

But therein lies the problem.

Dialogue between North Korea and the United States presents somewhat of a Gordian knot. Pyongyang will agree to talk with Washington only as an equal, and it will not curb its weapons development to do so. Pyongyang is also willing to accept the risk of further sanctions, confident that its troop presence on the Korean Peninsula and its burgeoning nuclear capabilities would preclude any military action against it. Washington, on the other hand, has demanded that Pyongyang freeze its nuclear weapons tests before talks can begin. Washington also views coercion as the most effective method of blocking Pyongyang’s continued weapons development. Because the two adversaries’ positions are incompatible, their dispute will doubtless escalate in the coming quarter.

north korea

A picture taken on Sept. 23 shows an anti-U.S. rally in Pyongyang’s Kim Il Sung Square.

(STR/AFP/Getty Images)

As North Korea continues to conduct weapons tests, the risk of U.S. military action against it will rise. Though the United States could launch a limited strike against North Korea with the assets it currently has near the peninsula, Washington is far more likely to gradually build up its military presence in the region throughout the quarter, giving diplomatic overtures and sanctions a chance to take effect. And though an accident or close call during a North Korean missile launch may force the United States or its allies to shoot down the device, they will not make the decision to initiate a more serious military intervention before the end of the year.

The Side Effects of U.S. Tunnel Vision

More Information

syrian loyalists

Syrian loyalists stand on the side of a road on the outskirts of Deir el-Zour on Sept. 24.

(STRINGER/AFP/Getty Images)

A continent away, Russia is gaining ground in yet another regional conflict: the Syrian civil war. Loyalist forces, backed by Russia and Iran, broke the Islamic State’s grueling siege against Deir el-Zour in September. Now those troops will be free to push toward the Iraqi border even faster. As they do, the United States will have to maintain contact with Russia to prevent the outbreak of clashes between their battlefield proxies.

Closer to home, Washington will have to come to grips with Moscow’s presence in a third unstable environment. Venezuela is inching closer and closer to a financial default, and Russia (along with China) is one of the last allies the foundering country has left. Caracas has even asked Moscow to restructure Venezuelan debt as U.S. sanctions weigh heavily on its finances.

As Western Protectionism Surges, the World Adjusts

The return of protectionism will continue to manifest in trade, investment and technology relationships across the globe through the end of the year. As has been true for most of 2017, the United States will lead the charge, particularly with the renegotiation of NAFTA underway. In fact, Washington has already put forth plans outlining the ways in which bilateral trade deals should be implemented instead. It has also called for the introduction of a U.S. content requirement in certain sectors, stipulating that foreign goods must contain a given share of parts produced in the United States in order to qualify for reduced tariffs. Washington has even gone so far as to suggest an automatic sunset clause that would terminate NAFTA under certain circumstances.

Both proposals have drawn criticism from Canada and Mexico, but they also have signaled Trump’s determination to significantly revise the North American pact. Despite adopting an aggressive opening stance in the talks, however, the United States will not abandon NAFTA. Instead, the three partners will eventually reach an agreement, albeit beyond the fourth quarter’s end.

Over the past few months, the United States has shifted more attention toward its trade complaints with China and South Korea. As a result, disputes between Washington and both Asian nations will become more heated in the months ahead. U.S. investigations into China’s technology transfer requirements and other practices related to intellectual property could lay the groundwork for sweeping action against China, including broad tariffs. However, such moves likely won’t come until next year.

The United States may not wait that long to clarify its intention to pursue a case against China through the World Trade Organization (WTO). If U.S. investigators discover that Chinese tactics are inconsistent with the bloc’s rules, Washington will be compelled by both its WTO obligations and U.S. law to bring the disagreement to the organization before unilaterally imposing other punitive trade measures. On the other hand, if China’s activities are found to hurt American companies in ways that are not addressed by WTO regulation, the United States will be able to more swiftly respond as it sees fit.

The United States is not the only party concerned about Beijing’s strategy for acquiring Western technology, either. In September, the European Commission called for the Continent to establish more mechanisms for scrutinizing investment into strategic sectors from companies backed by states outside the European Union — a move clearly aimed at Chinese money. Italy, France and Germany have each supported this sentiment as well, fearing that the Chinese government may be using the resources of the state to encourage takeovers of European companies to “buy” the core technologies and know-how that underpin the world’s modern economies. As usual, France will lead the protectionist charge within the European Union in the months ahead. But Paris’ proposals will create controversy among market-oriented countries, such as Denmark, and Eastern European states, which will view with suspicion any undertaking that could rob them of Chinese investment opportunities or increase Brussels’ control over their economies.

These differences of opinion, along with many others, will be on full display this quarter as Europe tackles the task of reforming the union. Now that critical elections in France and Germany have concluded, the bloc will weigh proposals to create a European Monetary Fund, boost public investment across the Continent and introduce risk-sharing measures in the eurozone. Though Berlin is willing to find common ground with Paris, Germany will spend the remainder of the year building a governing coalition at home. Even so, the debate over Europe’s future that will become a defining feature of 2018 will kick off within the next three months.

Amid the resurgence of economic nationalism in the United States and parts of Europe, the rest of the world will scramble to adjust its expectations and strategies. The 11 members left standing in the Trans-Pacific Partnership will continue to hash out a pact without the United States, but there is no guarantee that they will find compromise. The group’s large, developed members — Japan, Australia and Canada — are certainly eager to sign a deal, but their less-developed counterparts may demand enough concessions to precipitate the negotiations’ collapse. The incipient bloc’s best chance for success, then, lies in its speed, suggesting that talks could progress quickly before the year’s end.

With the WTO’s biennial ministerial meeting set to take place in December, countries will likely spend the months leading up to it lobbying for their pet projects. The bloc will also hold an unprecedented “mini-ministerial” meeting in October to try to firm up an agenda for the full summit in Buenos Aires. But this year’s convention may not be as fruitful as some states had hoped. In light of dissent from the United States, India and South Africa earlier this year, China and Germany’s hopes of reaching a comprehensive agreement on the facilitation of investment have been dashed, as has any chance of a deal to restrict agricultural subsidies. Even so, some progress on issues such as e-commerce, public stock holdings and fisheries subsidies cannot be ruled out.

A Crude Awakening

Meanwhile, the world’s oil stockpiles are declining, but not quickly enough for global producers’ liking. In the United States, one of the most closely watched markets in the industry, crude oil inventories totaled 471 million barrels (about 24 percent higher than the five-year average) as of Sept. 22. Such gluts will spur the strongest advocates of production cuts — Saudi Arabia, Russia and Venezuela — to redouble their efforts to extend the quotas among OPEC members and non-OPEC states beyond March 2018. At the same time, they will ratchet up pressure on exempted OPEC members Libya and Nigeria, which have increased their collective output by 622,000 barrels per day since the fourth quarter of 2016, to join the pact. However, these states are unlikely to sign on. And if the cuts are extended, it won’t be long before compliance among existing signatories starts to weaken.

oil production

The United States, for its part, continues to see its output climb. But by the end of June, U.S. crude production reached a little under 9.1 million bpd — just 27,000 bpd higher than its February total. This suggests that the recent growth in U.S. output is not as resilient as industry experts initially expected. And though the country’s production will keep rising slowly throughout the quarter, it will not be cause for debate and contention among the global producers trying to counter the persistent oversupply in the oil market.

US Crude


The Asia-Pacific is home to more people than any other region. Centered on the western rim of the Pacific Ocean, this region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast. Several of these countries, most notably China, experienced rapid economic growth in the second half of the 20th century, giving the region a new sense of global economic relevance that continues today. That relevance, however, depends largely on China, a power in transition whose rise is testing the network of U.S. alliances that have long dominated the region. How effectively Beijing manages its transition will shape the regional balance of power in the decades to come.Read Synopsis

rice fields

(Thoyod Pisanu/

Table of Contents





Section Highlights

  • Heedless of the sanctions mounting against it, North Korea will continue to steadily conduct weapons tests while the United States pursues every economic and diplomatic tool available to stop it.
  • Next door, China will work to pre-empt the crisis in Pyongyang while fortifying its own administration in Beijing, completing a leadership transition within the Communist Party that will likely result in a strong show of support for President Xi Jinping.
  • Though China will focus on preserving its economic and social stability once the crucial party congress is over, the conclusion of its leadership transition will give Beijing greater flexibility in its foreign policy, making room for it to grow more assertive in South Asia and the South China Sea.NE and SE asiaSee more on this RegionWar Looms Over the Korean Peninsula

    North Korea will remain at the center of the region’s — and the world’s — attention as the year comes to a close. Over the third quarter, Pyongyang made steady strides in its intercontinental ballistic missile (ICBM) and nuclear weapons  programs, even going so far as to conduct launches over Japanese territory. And as Pyongyang inched closer to fielding a nuclear device capable of striking the U.S. mainland, China’s temporary detente with the United States on North Korea crumbled. Hoping to sever Pyongyang’s economic lifelines for good, Washington stepped up pressure on Beijing and, at times, Moscow by slapping their citizens and companies with new sanctions, both unilaterally and with the support of the United Nations.

    North Korea’s weapons tests will proceed apace in the coming quarter as the country closes in on a credible nuclear deterrent. The United States will exhaust every economic and diplomatic tool at its disposal to arrest Pyongyang’s progress and to persuade China to step in on its behalf. Though Washington will also hedge its bets by continuing to build up strategic and tactical assets on the Korean Peninsula and in the Asia-Pacific, it will opt for an incremental expansion of its military footprint in the region to give its other sticks and carrots time to take effect. At the same time, the United States will strike deals with Japan and South Korea aimed at bolstering their defenses — especially their missile defense systems — over the long run.

    N Korea arms pushDetermined to counter the U.S. military buildup on its doorstep, China will work to amass its own forces along the North Korean border. Pyongyang will also keep shoring up its defenses as it continues to test devices in accordance with its technical needs and in response to U.S. actions. Such tests may include firing ICBMs (perhaps even several at a time) to prove North Korea’s ability to overwhelm nearby missile defense systems.

    During the fourth quarter, the likelihood that these tests will trigger a conflict on the Korean Peninsula is greater than the possibility of a preventive military strike by the United States. Should a North Korean missile come perilously close to or break up over Japanese or South Korean territory, the United States and its allies would have to decide whether to try to shoot it down. The attempt would be costly, no matter the outcome: Success would risk retaliation from North Korea, while failure would undermine the credibility of the region’s missile defenses. Pyongyang, moreover, may feel the need to counter the movements of U.S. air and naval assets in the region. Its responses could inadvertently lead to a rapid military escalation, as could a decision by Pyongyang to test a missile near the U.S. mainland. Another North Korean nuclear test cannot be ruled out either, and if that was an atmospheric test, Washington may feel the need to halt it by downing the missile carrying the test warhead.

    It is possible (albeit unlikely) that the United States will use the forces it already has stationed in the region to launch a punitive or preventive strike against North Korea’s nuclear and missile programs. Washington might resort to such drastic measures in response to an unforeseen crisis or to unexpected progress in Pyongyang’s weapons development. However, the United States would be far more likely to preface an attack by deploying more military assets to the Asia-Pacific to better respond to any retaliation by North Korea.

    Of course, the United States has many avenues it can pursue before turning to a military solution. To that end, Washington will continue to isolate Pyongyang economically and diplomatically, leaning on North Korea’s dwindling trade partners to fall in line with the initiative. China may consider squeezing some flows of aid to North Korea in the interest of averting a U.S. intervention — a prospect it fears even more than the collapse of the government in Pyongyang. Russia, however, will work to undercut any endeavor that threatens to undermine the North Korean administration.

    As China comes under mounting pressure from the United States to cut economic ties to North Korea, Russia will move to soften the resulting blow to Pyongyang’s finances. In hopes of discouraging such behavior, Washington may pursue secondary sanctions against China and Russia in the months ahead. But as both countries distance their most important firms from North Korea, these measures will likely affect companies and individuals with relatively minor roles in the Chinese and Russian economies.

    Meanwhile, Beijing and Moscow will continue to emphasize the importance of easing tension and diplomatically engaging with Pyongyang. The two will try to dissuade Washington from taking military action against North Korea, advocating dialogue between the North and South instead. The installation of the Terminal High-Altitude Area Defense (THAAD) system in South Korea, however, will feed tension between Seoul, on one hand, and Moscow and Beijing on the other. Eager to fortify its alliance with the United States, South Korea will remain broadly aligned with the White House’s stance, temporarily shelving its own attempts to pursue a dialogue with North Korea for a more opportune time while reinforcing its indigenous defenses.

    China’s President Tightens His Grip

    China, for its part, will have bigger concerns to grapple with at home this quarter. The Chinese Communist Party’s careful preparations for a change in leadership will be realized in mid-October at its quinquennial congress. The event will bring reshuffles at the highest ranks of the party and serve as an important test of President Xi Jinping’s attempts to consolidate power.

    So far, all signs point to the president’s success in tightening his grip over the country’s top decision-making bodies. Xi has already secured the honored status of “core leader,” not just of the Communist Party but also of the Chinese state and military. He has also managed to rapidly promote many of his associates to prestigious positions in recent months. Looking ahead, as many as 11 Politburo and five Politburo Standing Committee members are nearing retirement — vacancies that would give Xi the opportunity to fill the majority of seats in both bodies with political allies. Perhaps even more important, party members are likely to endorse the inclusion of Xi’s guiding philosophy in the Communist Party Constitution at the approaching congress, allowing him to join the venerated ranks of Deng Xiaoping and Mao Zedong.


    But the summit will also signal the lengths to which Xi must go to secure the political compromises he seeks. It remains to be seen whether the president will be able to break the ruling party’s customary age limit to keep longtime ally and anti-corruption czar Wang Qishan on the Politburo Standing Committee. It is similarly unclear whether Xi intends to try to extend his presidency beyond the two-term ceiling specified in the Chinese Constitution.

    Even so, Xi will likely emerge from the party congress with the political capital needed to see many of his grand visions through. But in the wake of widespread turnover among the Party’s upper ranks, the president will focus his immediate attention on stabilizing the country. Xi will look to contain any socio-economic issues at home or diplomatic disputes abroad that could threaten the image of the Party or the president’s status within it. This effort will include steadying China’s precarious financial system and highly leveraged companies while mitigating the risk of external volatility. To that end, China has attempted to blunt the effect of U.S. trade measures, insisted on negotiation with North Korea while discouraging U.S. military action and struck a temporary deal with India to end their tense border standoff.

    China’s sensitive political environment will not cause its leaders to completely ignore economic reform, though. The party’s newly instated officials, after all, will need to boost the public’s confidence in the government as the economy remains stable but weak. Over the past few months, Beijing has combined broad-based structural reforms such as the consolidation of industries, production cuts and the enforcement of environmental regulations with renewed efforts to chip away at the mountain of debt crippling the country’s state-owned enterprises, financial sector and local governments. These reforms will only accelerate in the coming quarter.

    growin mountain of debtBeijing, however, will have to hedge against the significant risks associated with the reforms. They include threats to corporate solvency and a slowdown in the all-important real estate market on which China’s heavy industries and construction sector depend. Underpinning these problems are the long-term risks that the country’s considerable debt presents to the Chinese economy, which will only become more fragile over time if it is not paid off. And though Beijing has the resources and fiscal tools with which to contain the danger of widespread default, relying on them will only exacerbate the government’s debt problems in 2018 and beyond.

    The global resurgence of protectionism, moreover, will run counter to China’s desire to avoid upheaval outside its borders. Over the past few months, the United States has opened several investigations into China’s technology transfer requirements as well as other matters related to the protection of intellectual property. In the months ahead, discord between the two countries will only worsen in the trade realm. Even if the United States chooses not to take action against Chinese practices, Washington will probably expand its investigations into critical Chinese industries, such as semiconductors. As it does, it will doubtless use the same justification — safeguarding U.S. national security — that it has used to target China’s steel and aluminum sectors before. China, which is eager to dissuade the United States from targeting its economy, will ramp up its efforts to increase the protection of intellectual property at home while leveraging market access and investment in its negotiations with Washington. But the United States is not alone in its scrutiny of China: A recent decision by the European Union to deepen investigations into Chinese takeovers of high-tech companies on the Continent underscores the growing backlash against the country’s overseas investment into crucial industries.

    Despite the economic nationalism sweeping across the developed world, Beijing will continue its effort to upgrade its domestic manufacturing base and to invest in infrastructure in countries participating in the Belt and Road Initiative. It will, however, maintain close control over the outflow of capital into foreign industries it deems risky, including property, entertainment and sports. Countries whose property markets have been buoyed by China’s previous spending sprees will feel Beijing’s tightening grip most acutely.

    Asia’s Biggest Powers Square Off

    China will try to ease mounting U.S. pressure on trade issues and North Korean threats where it can. But Beijing will be particularly wary of any attempts by Washington to raise the touchy subject of Taiwan’s status before or during the Communist Party Congress. Once the summit is over, however, China will have more flexibility in its foreign policy.

    As the United States disengages from Southeast Asia, China will continue its amicable outreach to the members of the Association of Southeast Asian Nations (ASEAN), offering to negotiate a code of conduct in the South China Sea and to formalize discussions with the Philippines on joint energy development in the disputed waters.But Beijing will also keep its coercive options open in dealing with states that prove uncooperative, increasing the likelihood of new spats emerging between China and Vietnam.

    The Philippines, for its part, will try to strike a balance between its relationships with China and the United States. Manila hopes to secure its maritime boundaries by maintaining its detente with Beijing, but it also relies on the assistance of the U.S. military to combat militants linked to the Islamic State in the restive region of Mindanao. Once the few insurgent pockets left in Marawi City fall, the Philippine military will have the opportunity to clear the region of any remaining fighters. But Manila will also face the challenge of reconciling with the mainstream militant Moro Islamic Liberation Front, which has assisted military operations in Marawi City and will expect political concessions in exchange for its help.

    Meanwhile, China’s foray into South Asia through the Belt and Road Initiative will continue to inspire similar projects among Beijing’s regional rivals, including India. New Delhi already has entered the proposal stages of the India-Japan Freedom Corridor and of the joint construction of ports by India, Japan and the United States. None of these undertakings, however, will notably progress during the fourth quarter.

    As China builds up its infrastructure and troop presence along its contested border with India, New Delhi will follow suit, blazing its own roads while seeking out new defense relationships with Asian partners such as Vietnam, Mongolia and Australia. Chief among them, however, will be Japan. The common ground that New Delhi and Tokyo find in maritime security and in their mutual aspirations in Africa and Southeast Asia could drive Beijing to expand its own outreach in India’s backyard. If it does, states like Nepal, Bhutan and Sri Lanka will have to find a way to juggle their relationships with India and China. In much the same way, China will work to solidify its security and economic ties with Pakistan amid the United States’ calls for India to play a larger role next door in the stabilization of Afghanistan.

    The Tale of Two Trade Deals

    Scrambling to account for the recent swell of global protectionism, countries in the Asia-Pacific will feverishly negotiate deals to increase their connectivity with international markets. The 11 members left in the Trans-Pacific Partnership will try to pick up the pieces of the crumbling pact as tension rises between its more- and less-developed signatories. Pressure to reach an agreement will only grow as the rival Asia-Pacific Economic Cooperation bloc prepares to meet in November. Nevertheless, states will have a tough time finding a compromise on thorny issues such as data exclusivity, investment regulations and copyright protections.

    The outlook of another major Asian trade pact under negotiation — the Regional Comprehensive Economic Partnership — is even less promising. Its members are largely split into three camps. Developing nations, many of which belong to ASEAN, are interested in discussing little beyond tariffs on goods. By contrast, developed countries such as Japan and Australia aim to hash out a more comprehensive pact. Caught in the middle, India is reluctant to discuss measures to ease the trade of goods but is keen to liberalize the trade of services. These stark differences are guaranteed to lead to dysfunction in talks regarding the deal.

    proposed trade agreementsAll the while, the United States will continue to hassle Asian exporters — particularly South Korea and China — to change their trade policies. Though Washington will not take any concrete steps to revamp the United States-Korea Free Trade Agreement in the coming quarter, Seoul suspects that it will eventually, regardless of how much South Korea cooperates with U.S. attempts to rein in North Korea. Seoul will likely try to preempt any punitive measures against the South Korean electronics and automotive industries by agreeing to some concessions in its trade arrangement with Washington.

    Japan’s Ruling Party Makes a Bid to Preserve Power

    Like China, Japan will concentrate on the political changes underway within its borders this quarter. Over the past few months, few challenges have arisen at the national level to the rule of the Liberal Democratic Party (LDP) as its opponents have remained in disarray. But Prime Minister Shinzo Abe’s approval ratings have dipped repeatedly amid a series of scandals and his use of the LDP’s majority to ram unpopular bills through the legislature. The public made its growing dissatisfaction clear in Tokyo elections on July 1, dealing the LDP a humiliating blow with the victory of a right-wing contender backed by the capital city’s governor, Yuriko Koike.

    On the heels of a Cabinet reshuffle and a rebound at the polls, Abe recently decided to take advantage of lingering disunity among his opponents by calling for snap elections in late October. The vote will bring Koike’s new political party to the national stage for the first time. It will also test the popularity of Abe’s ambitious proposal to revise the Japanese Constitution to pave the way for the normalization of the country’s military and for a massive economic reform package. North Korea’s persistent weapons tests, particularly those that involve launching missiles over Japanese territory, will certainly drum up support for the prime minister and his party.

    If the LDP sweeps the elections on the promise of constitutional revision, the win would give Abe a broad mandate to pursue his reform agenda. On the other hand, a loss of seats would jeopardize the ruling party’s plans, particularly if coalition ally Komeito or the opposition party led by Koike — both of which are ambivalent to the prime minister’s proposals — carve out a bigger share of seats. And though the opposition has long been disunited, there is a risk that it will start to coalesce into a more coherent force. More important for Abe, however, the snap elections will serve as a bellwether of the prime minister’s political future as his party nears a leadership transition scheduled for late next year.


    Abe Win May Boost Chances of Second Term for Kuroda, Takenaka Says


    Toru Fujioka


    Masahiro Hidaka

    October 16, 2017, 2:00 PM MDT

    • Takenaka says Kuroda should remain Bank of Japan governor
    • The ex-economy minister says Kuroda has done ‘excellent’ jobKarudaHaruhiko KurodaPhotographer: Kiyoshi Ota/Bloomberg

      If Shinzo Abe wins the election next week, it will boost the chances that Bank of Japan Governor Haruhiko Kuroda will serve a second term, according to a former Japanese economy minister.

      “Kuroda has done a excellent job. He should continue,” Heizo Takenaka said in an interview on Monday. After Kuroda pushed through massive stimulus, prices have stopped falling and the economy is in better shape, Takenaka said.

      TakenakaHeizo Takenaka

      Photographer: Akio Kon/Bloomberg

      Abe has expressed his trust and confidence in Kuroda numerous times, and reappointing him was seen as the most likely scenario in a recent survey of economists. Even though inflation is nowhere near the BOJ’s 2 percent target, the Nikkei 225 Stock Average closed at a 21-year high on Monday and the economy is on track for the longest expansion since 2001.

      Recent polls show Abe’s ruling Liberal Democratic Party could win a majority in the lower house by itself in the Oct. 22 election. An Abe victory “will of course push the tide” toward a second term for Kuroda, said Takenaka, a professor at Toyo University in Tokyo. “I think there is a sufficient amount of trust between the government and the BOJ for that to happen.”

      Takenaka and Abe served together in the cabinet of former Prime Minister Junichiro Koizumi in the early 2000s. He also served with current Tokyo Governor Yuriko Koike, who was environment minister at the time and is now an opposition leader. He is a member of an advisory panel for special economic zones chaired by Abe.

      More: Kuroda Is on Top in Guessing Game for Who Will Run the BOJ

      Unlike the 2012 election that returned Abe to power, the BOJ isn’t the center of debate this time, with none of the parties proposing alternative policies for the central bank. Still, if Kuroda were reappointed, the decision could draw criticism. Abe advisers Nobuyuki Nakahara and Etsuro Honda have both suggested Kuroda should step down because the central bank needs a new face.

      Takenaka said that even though there is no need for further easing at this point, an exit won’t happen soon, so the BOJ needs to continue stimulus with “considerable patience.” Kuroda, speaking in Washington over the weekend, pledged to continue monetary easing as inflation remains a long way from his target. Japan’s core inflation rose 0.7 percent in August.

      Takenaka became widely known after he led the write-off of bad loans at Japan’s debt-ridden banks, when he served as financial services minister under Koizumi. He also held the economic and fiscal policy portfolio and oversaw plans to privatize the post office.

      Appointing Kuroda for another term will raise expectations for appropriate policies, Takenaka said. “A shift in personnel can change expectations at once.”

      B.C.’s largest forestry trade mission to China

      Japanese 2×4 Building Code to Specify High Performance Shear Walls

      By Hidehiko Fumoto


      hidehiko fumoto

    • Deputy Director and Manager Technical Services, Canada Wood Japan

      November 6, 2017

      Posted in: Japan



      shear walls

    • When designers take the prescriptive design approach for wooden buildings, shear wall multipliers are the indicator that are popularly used to determine the seismic load resistance.  In the PFC building code, a shear wall multiplier 3.5 has been the highest value given to a shear wall with 9-mm thick Class 1 JAS plywood sheathing fastened with the CN50 nails at 100 mm spacing.  In the past 3 years, MLIT has been reviewing the shear wall ministerial approvals with the multiplier higher than 3.5 and has been seeking the possibility to include those specifications in the code.  The reviewed approvals include those obtained by the APA the Engineered Wood Association.  As a result, it has been decided to specify in the PFC code the shear walls with the multiplier as high as 4.8.  The code revision draft defines 4.8 for the walls with 12mm-thick Class 3 OSB and Class 1/Class 2 plywood sheathing fastened with CN65 nails at 50mm spacing.  Using these high shear wall factors would enable the architects to design PFC houses with remarkably higher seismic resistance than currently achievable in the code.  It is important to note that shear wall factors approved in the past remain effective even after the new code becomes enacted.  The revised code is scheduled to be released in December 2017.



      The Seven Men Who Will Rule China for the Next Five Years

      Bloomberg News

      October 24, 2017, 10:12 PM MDT October 25, 2017, 3:39 AM MDT

      • New Politburo Standing Committee surrounds Xi with loyalists
      • Communist panel manages affairs for one-fifth of humanity


      China’s Xi Unveils New Leaders But No Clear Successor

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      China’s Top Political Body Shows No Clear Successor

      President Xi Jinping walked onto the red carpet of China’s Great Hall of the People on Wednesday having amassed more power than any leader in a generation.

      new politburoPhotographer: Qilai Shen/Bloomberg

      Behind him followed — in order of rank — the other six members of the Politburo Standing Committee, the panel that meets weekly to manage the affairs of almost one-fifth of the world’s population. The new line-up chosen after the Communist Party’s twice-a-decade congress surrounds Xi with loyalists to advance his ambitious plans to cement one-party rule and complete China’s reemergence as a great power.

      Here’s a look at the officials who will run China for the next five years, in the order they appeared:

      Xi Jinping, 64

      Xi JinpingPhotographer: Qilai Shen/Bloomberg

      For Xi, the party congress was a crowning moment. The enshrinement of his name in the party’s charter capped a decades-long journey from being forced to live in the countryside under Mao Zedong to becoming a leader on par with him. In his first five years in power, Xi has demonstrated vast ambitions to restore China’s place among the great powers, laying out a three-decade plan to finish the job. His changes to the party’s governing documents — and the lack of a clear heir — position him to rule China for years to come.

      Li Keqiang, 62

      Li KeiqaingPhotographer: Qilai Shen/Bloomberg

      Once seen as a contender for the presidency, Li Keqiang watched Xi win the top job and instead became premier. The job appeared a natural fit for Li, who holds a Ph.D in economics and served as top lieutenant to former Premier Wen Jiabao. He once likened unleashing market forces to “cutting one’s wrist.” His image took a hit during the 2015 stock market rout and Xi has quickly assumed economic roles held by past premiers. Still, if there’s any gap between Xi and Li, outsiders haven’t been allowed to see it.

      Li Zhanshu, 67

      Li ZhanshuSource: Imaginechina

      Not only is Li Zhanshu among an exclusive group of top officials who accompany Xi on diplomatic visits, he’s also become the leader’s personal liaison to Russian President Vladimir Putin. Before becoming Xi’s chief of staff in 2012, Li toiled for decades in rural obscurity. He wrote poetry and held jobs in places like China’s ancient heartland of Shaanxi and the rust belt province of Heilongjiang. His ties with Xi stretch back to the 1980s, when they served in adjacent counties in the central province of Hebei.

      Wang Yang, 62

      Wang YangPhotographer: Andrew Harrer/Bloomberg

      Wang Yang missed the cut for the Standing Committee in 2012, the year his effort to bring the pro-democracy protests in the fishing village of Wukan to a peaceful resolution helped earn him a spot on Time Magazine’s most-influential list. He had risen to prominence in an unusually public debate about China’s economy. Wang backed a relatively liberal package of policies called the “Guangdong model” that allowed a greater role for non-profits and trade unions. That approach contrasted with Bo Xilai’s “Chongqing model,” which emphasized social cohesion and the role of the state.

      Wang Huning, 62wang huningPhotographer: Andrew Harrer/Bloomberg

      Wang Yang missed the cut for the Standing Committee in 2012, the year his effort to bring the pro-democracy protests in the fishing village of Wukan to a peaceful resolution helped earn him a spot on Time Magazine’s most-influential list. He had risen to prominence in an unusually public debate about China’s economy. Wang backed a relatively liberal package of policies called the “Guangdong model” that allowed a greater role for non-profits and trade unions. That approach contrasted with Bo Xilai’s “Chongqing model,” which emphasized social cohesion and the role of the state.

      Zhao Leji, 60

      Zhao LejiPhotographer: Wang Zhao/AFP via Getty Images
      Zhao Leji has played an instrumental role in Xi’s efforts to position allies ahead of the current reshuffle. For the past five years, he has led the powerful Organization Department, which holds sway over appointments to senior jobs across the country, from provinces to central party agencies. Before that, he spent almost three decades climbing the ranks in Qinghai, a northwestern province bigger than Texas at the crossroads of some of the country’s largest ethnic groups. He eventually became the country’s youngest provincial leader, overseeing the doubling of Qinghai’s economy.

    • Han Zheng, 63Han ZhengPhotographer: Qilai Shen/BloombergHan Zheng’s ascension from Shanghai to the Standing Committee is all the more remarkable after the shocking 2006 downfall of his then-boss Chen Liangyu amid bribery charges. During more than three decades in Shanghai, Han has overseen the once-gray former colony’s transformation into a shimmering monument to modernity. As mayor, he led a $44 billion infrastructure makeover for the 2010 Shanghai Expo. He has faced challenges since taking over as Shanghai party chief in 2012, from runawayproperty prices to a New Year’s stampede that killed 36.

      — With assistance by Keith Zhai, Peter Martin, and Ting Shi

      XI’S CHINA

      China’s Xi gains Mao status, adding to power with name in constitution

      CPC delegates

A general view shows delegates attending the closing of the 19th Communist Party Congress at the Great Hall of the People in Beijing on October 24, 2017



OCTOBER 24, 2017

Xi Jinping sat before the thousands of delegates gathered for his latest coronation in Beijing, and asked for a show of hands. Did anyone oppose adding his name to the party’s constitution?

The shouts rang out across the enormous Great Hall of the People:

“Meiyou” – “none.”

With that, “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” formally entered ruling party doctrine, a stroke vaulting Mr. Xi into the ranks of Communist royalty, alongside Mao Zedong and Deng Xiaoping.

Read also: China’s Xi Jinping: Inside his rise from an enigmatic nobody to a strongman who’s just getting started

China Communist Party enshrines ‘Xi Jinping Thought’ in constitution(REUTERS)

China’s Xi sells his vision of new socialism to the world

Far from a theoretical nicety, the change both reflects and strengthens the firm grasp Mr. Xi has attained over the direction of the world’s second-largest economy.

“Xi’s ability to dominate the policy-making process has just increased by a factor of 10,” said Jude Blanchette, an expert in the Communist Party at the Conference Board’s China Center for Economics and Business in Beijing.

Mr. Xi has sought to unify the Chinese people, military and economy toward a vision of national rejuvenation – one that promises new greatness by rejecting Western principles in favour of an authoritarian, neo-Marxist ideology under Communist rule.

“The Chinese people and the nation will, of course, embrace a bright future. And in this great era, we are full of confidence and pride,” Mr. Xi said moments after the unanimous show of his support for his leadership. Delegates to the Communist Party’s 19th National Congress also added Mr. Xi’s “Belt and Road Initiative” to the constitution, enshrining his vision of extending China’s political and development models far beyond its borders. The plan would place Beijing at the centre of new networks of trade and investment that extend as far as Europe. The concept of “supply-side reform,” a description of Mr. Xi’s vision for fixing domestic economic problems, is also included.

“The inclusion of Xi Jinping thought in the constitution along with the requirement to pay obeisance to him as the party core is no small feat,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies “The new era is where Xi will take China in the years to come – history that has yet to be written.”

But Mr. Xi has offered a clear preview, both in his first five years of rule and in his remarks, in which he called on the party to be “brave and passionate … to create achievements and make great strides to a promising future.”

The Chinese president has pledged to eradicate poverty, restore environmental health and wage war on corruption at home, while elevating China’s global influence abroad.

Mr. Xi called it “the historical mission of the Communist Party of China in a new era.” As he spoke, former presidents Jiang Zemin and Hu Jintao looked on at the man who has now eclipsed them. Neither of the two predecessors had their names added to the constitution.

“There is enormous meaning in changing the party’s constitution, since the constitution is the leading guidebook for Chinese development,” Xie Chuntao, member of administrative committee at the Party School of the CPC Central Committee, told China Youth Daily.

“China is currently going through the most comprehensive revolution in its history,” Wang Xinsheng, who is with the School of Marxism at Nankai University, told China National Radio.

“As a country at a critical stage of development, we can’t help asking what we should do to push forward our cause of socialism with Chinese characteristics. And President Xi, the core of the Communist party, is the one who can answer this question.”

In his dramatic ascension, however, Mr. Xi has taken onto himself a degree of personal authority rejected by party elders in favour of consensus rule following the vicious turbulence of the Mao era.

The extent of Mr. Xi’s influence will come into sharper view on Wednesday, when the party unveils the roster of the Politburo Standing Committee, the elite inner trust that holds great power. A relatively youthful new face in the Standing Committee would signal that Mr. Xi has selected someone as his likely successor.

A Standing Committee stacked with older leaders, or perhaps one winnowed from its current seven members to five, would confirm suspicions that Mr. Xi expects to stay in power beyond the two five-year terms allowed for presidents.

Mr. Xi’s more powerful positions as general secretary of the party, and chairman of the Central Military Commission, which he also now holds in addition to his leadership of a number of influential “small leading groups,” carry no such restrictions.

But for at least the next five years, Mr. Xi’s new pre-eminence gives him potent new authority to shape a country of 1.3 billion people after his own vision.

“Non-compliance with his signature policies – the Belt and Road Initiative and Supply Side Structural Reform – is now tantamount to betrayal after their inclusion in the Party Constitution,” said Mr. Blanchette.

His success, however, will be measured in his skill in putting his new power to use.

“The moves over the past week are primarily about increasing Xi’s power within the party-state bureaucracy, so we really won’t know the extent of his power until we see how effectively he can initiate and oversee policy,” Mr. Blanchette said.


Oct 18, 2017 | 09:00 GMT

China’s Economic Reforms Get Another Chance


(STR/AFP/Getty Images)

Editor’s Note

The 19th Chinese Communist Party Congress runs Oct. 18-24. The convention marks the start of a transition as delegates name new members to lead China’s most powerful political institutions. But the change in personnel is only part of a larger transformation underway in the Party and in the country — a process that began long before the party congress kicked off and will continue long after it ends. This is the third installment in a four-part series examining how far China has come in its transition, and how far it has yet to go.

The global financial crisis in 2008 was the last straw for the Chinese economy. After years of rapid growth, China had finally reached the limits of its economic model, centered on exports of low-end manufactured goods. The ensuing slump revealed the glaring inequality that still divided the country’s coastal regions from its inland, its wealthiest citizens from its poorest. To get back on track, Beijing would have to break with the socio-economic paradigm that it had maintained for the preceding three decades and introduce a new one.

Today, the transformation is far from complete. The balanced and homogenous society the central government had imagined — and the sustainable, consumption-based economy that would support it — are still little more than a decades long dream. China’s socio-economic disparities are as stark as ever, and the legacy of past growth models continues to haunt the country’s economy. What’s more, Beijing’s attempts at change have unleashed numerous social pressures that China’s growing material wealth had previously kept at bay. For Chinese leaders, the transition poses a dilemma. On the one hand, they understand that reform is necessary to sustain the country in the coming decades. But on the other, they know the difficulties inherent to the transformation could jeopardize their positions, and that of the Communist Party. President Xi Jinping spent his first term in office struggling to reconcile these conflicting concerns, and he’ll spend his second term in much the same way.

china province GDP

Hu’s Legacy Is This

When Xi took office in 2012, he inherited a socio-economic situation in China far different from the one that had greeted his predecessor, Hu Jintao. Hu came to office in 2002, just as China was emerging from the Asian financial crisis and as the dust was settling from reforms to the state sector that had caused massive unemployment. Having survived the crucible, China was ready to resume double-digit economic growth with help from a capital stimulus initiative, a booming private sector and its recent accession to the World Trade Organization. Social and regional inequality, along with rampant bureaucratic corruption, were beginning to take their toll on the country, giving rise to unrest. Still, the government could manage the brewing discontent so long as the economy was strong enough to uphold the Communist Party’s legitimacy.

To that end, Hu focused on growth. But because China’s economic model had already reached its limit, and its workforce was nearing its peak, Beijing had to find new ways to stimulate the economy. Hu and his administration launched a host of measures to try to retool the economy, including efforts to develop China’s inland regions, fiscal incentives to encourage manufacturers to relocate their operations from the coast and reforms aimed at cultivating a domestic consumer base. As it worked to promote these endeavors, however, the government had to contend with resistance from bureaucratic patronage networks and extensive business interests concentrated on the coast, not to mention the global financial crisis that hit in 2008. To keep the economy afloat, the government radically expanded access to credit while also funneling state money into infrastructure projects, particularly in the property sector, through state-owned enterprises and banks.

outstanding debt to GDP

Thanks to these policies, Xi arrived in office to find a precariously swelling real estate bubble, massive overcapacity in China’s industries, severe environmental degradation and a staggering level of debt awaiting him. The government is still dealing with the fallout five years later. Xi’s administration has accepted comparatively sluggish growth as the new normal for China and has adapted its policies and rhetoric to temper expectations for a more robust recovery. Structural reforms to reinvigorate the economy, for instance by phasing out inefficient heavy industrial and low-end manufacturers, and initiatives to curb pollution have made little headway, constrained by Beijing’s core imperative to maintain employment levels. China’s debts, meanwhile, have continued to pile up, reaching an equivalent of 250 percent of the country’s gross domestic product. (Corporate debt alone accounts for 165 percent of GDP, of which state-owned enterprises — mainly in the sectors that most benefited from the credit expansion, such as real estate and steel — hold more than half.) To make matters worse, China’s real estate market is starting to correct itself. The decline in property sales, coupled with the efforts to consolidate China’s unwieldy steel and coal sectors, could bring the simmering debt crisis to its boiling point.

China SOE Problem

Under the circumstances, Xi has no choice but to try to push forward with structural economic reforms. His attempts to do so have put him on a different course from those followed by predecessors Deng Xiaoping, Jiang Zemin and even Hu. To overcome the many obstacles standing in the way of change, Xi dispensed with the devolved power structure that for some 30 years had given localities, bureaucracies and industries considerable political sway as a way to drive growth. In its place, a more cohesive central government emerged and with it, a more unified Communist Party.

Xi and the Party undertook a sweeping campaign to streamline China’s key economic sectors and bring them and the country’s provinces more firmly under their control. Since taking office, the president has largely consolidated his power over economic decisions while cracking down on Beijing’s disparate political factions, including the array of powerful state-owned industries and the regional cliques of Chongqing, Sichuan and Shanxi. Under the guise of an anti-corruption drive, Xi’s administration has overhauled the Chinese bureaucracy. Not even the country’s entrenched financial and banking sectors have escaped the shake-up. At the same time, Beijing has refrained from stepping in to weaken the state economy, despite its promises of reform in the public sector, preferring mergers and consolidations to rehabilitate ailing state-owned enterprises. It has also apparently reinforced its role in the private sector. By adopting more stringent regulations on outbound investment, for example, the central government aims to increase its oversight of private companies at home — and over itsBelt and Road Initiative projects abroad.

Compared with Western economies, China’s has always been subject to greater state control. However, the Xi administration’s recent moves don’t necessarily signal a return to a command economy in China, nor do they suggest that the Party even aspires to gain total control of economic affairs. Instead, the president is trying to move away from the devolved system that, from his perspective, empowered competing factions whose interests conflicted with, and thereby threatened, those of the central government. With a more unified Communist Party at the helm of China’s economic policy, Xi hopes to bring his vision for the country to fruition.

Falling Into a Familiar Pattern

Of course, whether he can achieve that goal is hardly certain. Beijing can’t prevent provincial and local governments from bucking its orders, given China’s sheer size and complexity. Nor can it keep strategically important sectors from challenging its policies, as many of the country’s high-tech companies have demonstrated. This predicament isn’t unique to Xi’s administration, either; Chinese rulers throughout history have struggled against the forces pulling the country apart to form a coherent political entity. Campaigns to consolidate power inevitably follow stretches of decentralization as new leaders take over, or as tenured rulers encounter new problems.

And so, Xi will likely continue his quest to concentrate control under his office, though the aim of his endeavors will be increasingly unclear. The president outlined an ambitious reform agenda in 2013 in which he called for the market to “play a decisive role” in charting the course of China’s economy. Yet his administration’s apparent return to economic statism, its push for political conformity among the economy’s various sectors and its efforts to give the Party enhanced authority over the state have all undermined or contradicted that goal. Beyond small steps toward liberalizing China’s currency and stock market, Beijing has kept its reforms to the financial system limited to regulatory and bureaucratic changes. Its bids to restructure state-owned enterprises, likewise, have focused on staving off their collapse by bringing them more closely under the Party’s control. Furthermore, the central government’s policies to expand key strategic sectors abroad have only invited pushback from foreign powers, including the United States and the European Union. Xi’s efforts to reform China’s heavy industries have produced uneven results at best — to say nothing of his initiatives to kick-start the country’s languid services sector or to improve conditions for private businesses.

Even so, he could turn things around in the coming years. The steps Xi took during his first term in office to consolidate power could ease the way for deeper and more politically challenging structural reforms in his next term. Otherwise, the president and the Communist leadership may find themselves in a tricky position when the next party congress rolls around in 2022.

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China consumer sentiment improves as party extols economic record Premium FTCR Consumer Index just short of record high in October despite slower income growth EM Squared Read next EM Squared Chinese operators bullish as freight rates rise Premium Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) EmailSave to myFT YESTERDAY by FT Confidential Research The FTCR China Consumer Index rose 0.7 points in October to 74.8, the second-highest reading since our survey launched in July 2011. The improvement in the headline reading was largely the result of household views on the economy, which were at their best on record. This in part reflects the economic and financial market stability engineered as the Communist party leadership met in Beijing for its twice-a-decade congress. Blanket domestic coverage of the congress, including the party’s emphasis on its achievements in developing the Chinese economy and raising living standards, was not lost on Chinese households. In contrast, our measure of household incomes and of their financial situations softened again in October. Although both remained near recent record highs, their relative weakness follows signs that wage inflation is cooling and the housing market is responding to government tightening measures. The wealth effect generated by rising house prices was evident from a pick-up in the reported growth of discretionary spending in October, while indices measuring sentiment towards the purchase of cars and clothing, as well as housing, all improved. Share this graphic Consumers said their discretionary spending improved in October compared with both last month and October 2016. The FTCR China Discretionary Spending Index rose 0.6 points month on month and 2.9 points year on year to 78.1. Our Discretionary Spending Outlook Index also increased, rising 0.4 points month on month and 3.2 points year on year to 75.8. Share this graphic Consumers reported that their household incomes grew at a slower pace for a second straight month but remained well above historical averages. Our Household Income Index fell 0.1 points to 78.2. However, it was 7.6 points higher than last year and 3.7 points above the series average. Our Household Income Outlook Index rose 0.2 points month on month and 5.8 points year on year to 78.4, while our measure of financial situations dropped 0.5 points to 62.8. Share this graphic Household views on the economy were at their best on record in October. Our Economic Sentiment Index rose 3.1 points month on month and 16.6 points year on year to 77. Our Economic Outlook Index also hit a fresh high, rising 4.3 points month on month and 16 points year on year to 85. Share this graphic Consumers reported that their cost of living rose at a quicker pace in October but remained well below the historical average. Respondents estimated their average cost of living rose 7.8 per cent year on year in October, up from 6.7 per cent the previous month and close to the series average of 8 per cent. They expected their cost-of-living growth to increase 7.1 per cent over the next six months, up from 6.5 per cent previously. Share this graphic Our House Buying Sentiment Index rose 0.9 points to 56.3, the second highest reading on record. Our Property Investment Index rose 2 points, taking it 9.9 points higher than last year at 51.1 — only the fourth reading above 50 since our survey launched in July 2011. Indices measuring sentiment towards purchases of cars and clothing both rose but remained below August’s record high readings. Our measure of sentiment towards buying watches and luxury jewellery weakened. Share this graphic Our A-share Buying Sentiment Index, measuring whether consumers perceive now to be a good time to invest in A-shares, fell in October despite another improvement in the stock market. The index dropped 2.5 points to 50.1, but was 6.2 points higher year on year. Actual stock-buying intentions weakened, with 35.2 per cent of retail investors saying they plan to buy stocks in the next three months. Buying sentiment towards funds was also weaker but consumer sentiment towards purchases of wealth management products and insurance products strengthened. The FTCR China Consumer survey is based on interviews with 1,000 consumers nationwide. For further details click here. This report contains the headline figures from the latest Consumer survey; the full results are available from our Database.

China’s Government Bond Woes Prove Infectious

The slow-burn rout in China’s government bonds started to cause some turmoil elsewhere this week. The nation’s $3.4 trillion corporate debt market was showing the strain, as were key policy banks. And stocks took a tumble that may last for a while. The disturbances highlight the difficult course China has chosen, stepping up a deleveraging campaign to make long-term growth more sustainable, at the risk of curbing short-term growth if the consequences prove  disruptive. On the other side of the equation, some are concerned the reform moves won’t do enough to get rid of  moral hazard. It all adds to the challenges that will greet China’s next central bank chief. And it explains why China is seen in some quarters as one of the top two major risks for the global outlook now.

G20 china economies

By Lisa Dou

dora xue

FII General Manager

November 30, 2017

Posted in: China

B.C. Forests, Lands, Natural Resource Operations and Rural Development Minister Doug Donaldson led a B.C.’s largest-ever forest sector mission to China from November 12th to 15th. There were over 40 delegates from more than 20 B.C. forest companies and associations, and representatives from Embassy of Canada to China, the Consulate General of Canada in Shanghai, B.C. Trade Office and Canadian Trade Office joining in the mission. John Kozij, Director General, Trade, Economic and Industry Branch of Natural Resources Canada was one of the delegates.

Although it was an only four-day mission in China, the mission covered comprehensive elements to provide Minister Donaldson and delegates to:

  • Gain new insights into China’s economic and political trends;
  • Reinforce the commitment of B.C. government to Chinese stakeholders;
  • Understand the range of opportunities for B.C. wood products in China;
  • And enhance government-to-government relations with key partners.

Minister and the full delegation participated in 3rd Sino-Canada Wood Conference on the first day. It is worth mentioning that there were more than 200 participants attending the conference consisting of Shanghai local MOHURD officials, real estate developers, wood traders, builders and academics. It provides an important platform to promote Canadian forest products, particularly in industrialized construction sector. At the beginning of the conference, Minister Donaldson, Weldon Epp, Canadian Consul General in Shanghai and Mr. Pei Xiao, Deputy Director-General of Shanghai MOHURD provided opening remarks respectively. Furthermore, it also provides opportunities for Canadian sellers and Chinese buyers to strengthen business-to-business relationships.

minister donaldson

Minister Donaldson and delegates participating in 3rd Sino-Canada Wood Conference in Shanghai

The panel discussion was another important segment in the conference. Executives from West Fraser, Canfor, Interfor, Tolko and Interex had a discussion moderated by Susan Yurkovich, President and CEO of COFI. The industry executives highlighted that China is one of most important market for Canadian wood business. Nowadays China has been the second-largest export market for Canadian softwood lumber. The Canadian wood industry is committed to China, values China as a business partner and expects to further strengthen this partnership.

panel discussion

Panel discussion by Canadian Forestry Executivies

Following the wood conference in Shanghai, it was an official meeting with Jiangsu Ministry of Housing and Urban-Rural Development (MOHURD) in Nanjing, Jiangsu Province on the second day. Minister Donaldson and other delegates had a deep discussion with Mr. Liu Dawei, Vice Minister of the Jiangsu MOHURD, and other Chinese government and industry stakeholders on the latest developments of wood construction in Jiangsu and potential innovative applications in Jiangsu such as prefabricated wood infill wall, re-roofing and cross-laminated timber. Minister Donaldson expressed gratitude to Jiangsu MOHURD for their efforts and contribution on developing wood technology in Jiangsu province and making Jiangsu Province as a leader in wood construction in China.

meeting with MOHURD

Meeting with Jiangsu MOHURD

Also in Jiangsu, CW China signed an MOU with Yadong Group which is a large, specialized real-estate and industrial investment enterprise with witness of Minister Donaldson, John Kozij, Liu Dawei and other governmental officials and industry executives from Canada and China. Signing MOU with Yadong Group will help CW China step further into tourism sector as the group is using wood to build resort home and tourism projects in China including wood-frame villas, hotels and commercial facilities.

MOU signing

MOU signing with Yadong Group; seats from left to right: Michael Loseth, CEO, Forestry Innovation Investment; Liu Chenggang, President of Yadong Group; Rick Jeffery, Chairman of Canada Wood Group

The mission ended with a tour of the Jiangsu Urban and Rural Construction College in which the delegation was introduce the development of wood frame course in the school and its workshop with various wood application models.

The trade mission plays an important role for Canada Wood China carrying out our strategies in Chinese market. Canada is a long-term, reliable partner to China for wood products.


China Economy, Construction & Lumber Shipments

By Eric Wong

eric wong

Managing Director, Canada Wood China

November 6, 2017

Posted in: China

2017Q3 highlights[i]:

  • GDP growth in Q3 is 6.8% (YOY), maintaining strong growth between 6.7% to 6.9% consecutively for 9 months.
  • Consumption is 64.5% of GDP, increased by 2.8% compared to 2016.
  • Fixed-asset investment in Q1-3 is 45,847.8 billion RMB, grew 7.5% (YOY).
  • Investment in real estate development in Q1-3 is 8,064.4 billion RMB, grew 8.1%. New construction started over Q1-3 is 1,310 million m2 (floor space), grew 6.8%.

PMI (Caixin) indexes dropped to 51.0 in September 2017 from 51.6 (August) which was the weakest expansion since this June due to the slow growth of output, new orders and export sales in the past three months[ii].

china exports and manufacturing

China Consumer Price Index (CPI) has increased 1.6% year-on-year in September compared to the 1.8% rise in August and both under 3% which is Beijing’s 2017 target.[iii] USD/CNY decreased continuously from 6.78(July 1st) to 6.72 (August 1st) to 6.56 (September 1st) and slightly came back to 6.65 (October 1st[iv]CAD/CNY fluctuated from 5.23 (July 1st) to 5.35 (August 1st) to 5.29 (September 1st) to 5.34 (October 1st)[v].

Building material prices

Cement price moved from RMB 308.33 to RMB 320.00 per metric ton (up 3.78%%) over September [vi]; Rebar steel price dropped by 3.89% from RMB 4,049.33 per metric ton on September 1st to RMB 3,892.00 per metric ton on September 30th [vii].The log price index in September was 1,106.30 which increased 1.81% more than this August and grew 5.54% YoY; the lumber price index in September was 1,102.98 with 0.85% growth MOM and 1.89% growth YoY[viii].

Wood import of China[ix]

From January to August 2017 the forestry fixed asset investment was worth RMB 144.89 billion which increased 7.1% year-on-year. During the same period around 7.76 million m3 of Russian wood were imported through Manchurian Port with 8.1% growth year-on-year. In the second quarter of 2017 the Swedish softwood lumber inventory was predicted to be 2.1 million mwith a 21% decreasing year-on-year. Canadian lumber output was 5.2 million min July 2017 which showed -1.9% year-on-year and -9.1% month-on-month; its lumber shipment quantity was 5.5 million m3, down 0.8% year-on-year and down 5.2% month-on-month.

china deman for wood

 [i] Yawen Chen and Ryan Woo (October 4th, 2017). China September data to show steady growth ahead of key Communist Party congress

[ii] Trading Economics (September, 2017). China Caixin Manufacturing PMI

[iii] Trading Economics (September,2017). China Consumer Price Index (CPI)

[iv] XE Currency Charts: USD to CNY

[v] XE Currency Charts: CAD to CNY

[vi] Sunsirs (September 2017). Spot Price for Cement

[vii] Sunsirs (September 2017). Spot Price for Rebar Steel

[viii] BOABC (September 2017). China Wood and Its Products Market Monthly Report

[ix] BOABC (July to September 2017). China Wood and Its Products Market Monthly Report

Kiwi politics New Zealand’s Labour Party turns defeat into triumph

Another youthful leader takes the helm, even though her party won second place

Jacinda Ardern

Oct 20th 2017

FOR the first time since the 1920s, a losing party will form a government in New Zealand. Labour came second in last month’s election, claiming 46 seats with a shade under 37% of the vote. But after the horse-trading had finished, it emerged with political power. It has entered a coalition with New Zealand First, a populist party that won nine seats and held the balance of power. By relying as well on the votes of the Green Party’s eight MPs (who remain outside the coalition), Labour secured a narrow majority in the one-house, 120-seat parliament. The party was polling terribly before the campaign, but recovered under a charismatic new leader, Jacinda Ardern, who has been the boss for less than three months. Her coalition ousts the soft-right National government, which has been in power for nearly a decade. At just 37 years old, Ms. Ardern joins a growing club of youthful leaders promising to shake up politics.

The result will incense the conservatives, led by the outgoing Prime Minister, Bill English, who steered the economy out of the financial crisis and returned it to enviable growth. After three terms in charge, his National Party won 44% of the vote—and ten more seats than Labour. Under New Zealand’s German-style system of proportional representation, the winning party does not have the first opportunity to form a government, however. Any leader who can command the confidence of parliament may do so. Expect dissatisfaction from conservative voters who are “not used to the biggest party not being in government”, says Bryce Edwards, a political analyst.

Ms Ardern, who almost single-handedly breathed new life into her party after its decade on the sidelines, is liked for her warmth and approachability. She makes an unusual mate for Winston Peters, the belligerent 72-year-old leader of New Zealand First. Yet the two have found common ground on issues relating to the economy. Labour will not announce policy agreements until next week, but will almost certainly push forward with promises to cut net immigration by almost half, to stop foreign non-residents from buying houses, and to renegotiate existing and prospective trade deals. Mr Peters will be rewarded with four cabinet positions for his party and another, less senior ministerial spot. For the second time in his career, he has also been offered the role of deputy prime minister. After feigning a lack of interest in the spoils, he will probably accept.

He said that he had chosen to side with “change” over a “modified status quo” because “far too many New Zealanders have come to view today’s capitalism not as their friend but as their foe”. It is time, he argued, “for capitalism to regain a human face”. Strategically, identifying with a new government makes sense for New Zealand First, which has been stung by coalitions with incumbents in the past. But Mr Peters’s comments alarmed some observers, who fear that the new government will now veer leftwards, ending more than 30 years of liberal reform. The New Zealand dollar fell immediately.

Labour’s positive campaign resonated with some locals whose personal wealth has not grown alongside the economy. Many are frustrated by high house prices and increasingly gridlocked roads. Yet New Zealanders are not ideologically divided, nor itching for the revolution to which Mr Peters points. The campaigns of the two main parties were generally mild-mannered and at times painfully polite. After three terms of conservative leadership, the mood for change was as much a product of boredom as of anti-establishment zeal. The main local news channel switched off its coverage before Mr English made a magnanimous speech conceding defeat on October 19th. It did something similar before the final count came in on election night. Interested New Zealanders had to turn to Australian networks instead.

Promising the Moon South Korea tries to boost the economy by hiking the minimum wage

But at 70% of the median wage, is it going too far?


Oct 12th 2017| Seoul

A LOT has changed since Jeon Tae-il killed himself. In 1970, when the 22-year-old South Korean set himself alight to protest about poor working conditions, his country received millions of dollars of foreign aid. Now it is the world’s 11th-biggest economy. The statue that commemorates him in the capital, Seoul, is dwarfed by skyscrapers. Passers-by play games on their smartphones. Yet his memory is often invoked by activists and politicians who argue that ordinary workers do not get their fair share of the national pot of kimchi. “He was a great man,” says a market trader, having a cigarette break next to the memorial. “Things have improved a lot but our wages are still poor.”

Moon Jae-in, the left-leaning president who took office in May, was elected in part on the promise of changing that. The centrepiece of his economic policy is a bold experiment in raising the minimum wage. The first step is a 16.4% increase set for next year, the biggest rise since 2000. The difference is that in 2000 the economy was growing three times as fast as it is now. Even more ambitious is the sequence of increases planned for coming years, intended to produce a total rise of 55% by 2020.

South Korea’s is far from the only government ratcheting up the minimum wage, but the others that have opted for such big increases have typically been those of wealthy cities or regions in rich countries, such as Seattle and Alberta. It is rare for an entire country to move so aggressively, especially one that relies on exports. If South Korea follows through as intended, its minimum wage will be roughly 70% of its median wage by 2020, well above the level in all other big economies (see chart).

pushing it

On the face of things, the South Korean economy is doing well. Growth has averaged 3% annually over the past six years, a decent outcome for a period when global trade was sluggish. Income per person is about two-thirds of America’s, up from a third 25 years ago. The unemployment rate is just 3.6%. South Korea spends more as a share of GDP on research and development than almost any other country.

But it may not be the best time for such a radical economic reform. There are immediate concerns: Donald Trump’s threat to tear up a bilateral free-trade pact, foreign investors’ jitters over the nuclear stand-off with North Korea and Chinese economic retaliation in response to South Korea’s deployment of an American missile-defence system. There are also more lasting worries: high household debt, a rapidly ageing population and stiffer competition from China in a range of industries.

Nonetheless, poorer Koreans resent rising inequality. The chaebol—sprawling family-run conglomerates such as Samsung and Hyundai—dominate business, as they have for decades. A study by the International Monetary Fund last year found that the top 10% of South Koreans receive 45% of total income—a greater concentration than in other big economies in Asia. The proportion has risen sharply over the past two decades as the wages of the rich have grown faster than those of the poor. A spike in youth unemployment earlier this year highlighted a mismatch between the needs of business and an education system that is geared towards producing stellar test scores. Adjusted for inflation, household incomes fell last year, something that in recent decades had happened only in the wake of financial crises.

In his campaign Mr. Moon pledged to take on vested interests and rev up the economy. Nearly six months into his presidency, he has taken several symbolic steps in that direction. He has appointed Kim Sang-jo, known as the “chaebol sniper”, to head the Fair Trade Commission, raising expectations that he will try to reduce the big conglomerates’ clout. His government is nudging up taxes on companies and high-earners. It has also increased spending, albeit modestly. But most striking of all in its immediate impact is the hefty increase in the minimum wage, the heart of what Mr. Moon calls his “income-led growth” strategy.

The bet is that the jump in wages will feed through to stronger consumption, particularly as low-earners tend to spend more of their pay than the rich do. In addition to propping up growth, stronger consumption would make South Korea less reliant on exports and so less beholden to the whims of China and America, Mr. Moon predicts. It should also help reduce inequality.

Politically, the push for higher wages is popular. All the main candidates in the presidential election matched Mr. Moon’s pledge to increase the minimum wage to 10,000 won ($8.80) per hour. They differed only about how quickly to do so. Two said they would reach the goal by the end of their five-year term; three, including Mr. Moon, said they would do it by 2020.

Whether the increase will actually work as planned is, however, in doubt. Nearly 14% of companies ignore the current minimum, according to a government-run employment agency; it reckons the share could go up to 20% next year. The vast majority of people on the minimum wage work at smaller businesses, not chaebol. Nearly all respondents to a survey by the Korean Federation of Micro Enterprise said they would consider laying off workers to cope with higher wage bills.

Park Kyung-ja, 59, who runs two convenience stores with her son, says the rise will hit them hard. They plan to close their less profitable branch to cut costs and will probably cut two of six part-time staff, who are paid the minimum wage. “What could we sell here to make up that cost?” she says, gesturing to the packs of chewing gum and cigarettes.

Evidence from elsewhere suggests that increases in the minimum wage generally lead to only slight declines in employment as well as to solid rises in income for those on lower salaries. But at a certain point—economists use 50% of the median wage as a rule of thumb—employers will begin to cut back on hiring. Misgivings are widespread enough that the government has promised to review the policy next year.

Another concern is that the reform does nothing to diminish the sharp split between permanent employees and those on part-time or temporary contracts. Other economies have similar divisions, but they are particularly pronounced in South Korea, with permanent employees accounting for less than 50% of the workforce. As Sung Taeyoon of Yonsei University puts it, half of workers end up overpaid and overprotected, and the other half underpaid and insecure.

No remedy is straightforward. The government could make it easier for companies to fire permanent workers or expand social spending to provide more of a backstop for those with temporary jobs. However, the former would anger Mr Moon’s base and the latter would require a big increase in taxation.

Raising the minimum wage, by contrast, is popular and cheap for the government. But it risks exacerbating the divide in the workforce and further discouraging companies from creating permanent jobs. An executive at a big company says that it will lead to greater polarisation between profitable conglomerates and struggling small businesses—just the opposite of what the government set out to do. Mr Moon’s big experiment could soon turn into a big liability.

This article appeared in the Asia section of the print edition under the headline “Promising the Moon”

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India agrees $32bn plan to recapitalise state banks Balance sheets strained by soaring corporate defaults Read next Opposition says Kenya constitution being subverted 2 HOURS AGO The Reserve Bank of India. State banks have been hit by soaring corporate defaults © Bloomberg Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Email11 Save to myFT YESTERDAY by Simon Mundy in Mumbai India’s government has announced a $32bn recapitalisation plan for the country’s ailing state-controlled banks in a bid to tackle a festering economic problem. The finance ministry promised on Tuesday to take a “massive step . . . to support credit growth and job creation” by shoring up bank balance sheets strained by soaring corporate defaults over the past three years. Of the Rs2.11tn ($32.4bn) to be raised over the next two years, Rs1.35tn would come through recapitalisation bonds, the ministry said, promising further details in due course. Karthik Srinivasan, financial sector head for rating agency ICRA., said the government was likely to issue the bonds to the banks themselves and use the proceeds to inject capital in them — an approach previously used by New Delhi in the 1990s. The state banks have been faced with weak credit demand this year and have lost market share to private sector rivals. A further Rs580bn will be raised from private investors, diluting the government’s holdings in the banks, while direct budgetary support will account for a further Rs181bn. Analysts at Nomura called the intervention “growth positive”, while noting that it would push up the stock of government debt, even if the recapitalisation bonds are not formally included in the fiscal deficit estimate. India is aiming to bring its deficit down to 3.2 per cent of gross domestic product in the fiscal year ending next March, from 3.5 per cent in the last year. Concerns about the condition of the state-owned banks, which account for more than two-thirds of sector assets, have been mounting along with estimates of their bad loans. Recommended Serious economic reform is key to unlocking India’s potential Modi’s pursuit of black money proves drag on India’s economy Why Thomas Piketty is wrong about inequality in India This is because of a spurt in loans to companies in sectors such as steel and infrastructure over much of the past decade, many of which subsequently turned sour. Gross non-performing loans at the state-controlled banks rose to 13.7 per cent of their assets at the end of June, up from 5.4 per cent in March 2015. The finance ministry’s announcement implicitly acknowledged the limitations of the government’s previous recapitalisation plan, announced two years ago. That allowed for government capital injections of Rs519bn and a further Rs213bn from the market. Beyond the recapitalisation, the government promised to push the banks to step up their lending to small and medium-sized enterprises, including by partnering with financial technology companies. This sector was badly hit by India’s demonetisation last year, which triggered a shortage of bank notes that rocked companies long used to dealing entirely in cash. Further problems were caused for many smaller companies by the introduction in July of a new goods and services tax. The government acknowledged the hit to growth from the tax on Tuesday, while calling it “a historic economic and political achievement”. The government also gave new details of its plans for infrastructure investment, with Rs6.9tn to be spent on a 83,677km road-building programme over the next five years.

zero no more

Investors Told to Brace for Steepest Rate Hikes Since 2006


David Goodman

Aviva’s Nicola Sees Three Hikes for Fed Into 2018

China Credit Growth Tops Estimates

Stiglitz Says U.S. Tax Bill Is the Worst He’s Ever Seen

Aviva investment strategist Mary Nicola discusses Fed policy, inflation and her out for markets in 2018.

Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.

With the world economy heading into its strongest period since 2011, Citigroup Inc. and JPMorgan Chase & Co. predict average interest rates across advanced economies will climb to at least 1 percent next year in what would be the largest increase since 2006.

As for the quantitative easing that marks its 10th anniversary in the U.S. next year, Bloomberg Economics predicts net asset purchases by the main central banks will fall to a monthly $18 billion at the end of 2018, from $126 billion in September, and turn negative during the first half of 2019.

That reflects an increasingly synchronized global expansion finally strong enough to spur inflation, albeit modestly. The test for policy makers, including incoming Federal Reserve Chair Jerome Powell, will be whether they can continue pulling back without derailing demand or rocking asset markets.

“2018 is the year when we have true tightening,” said Ebrahim Rahbari, director of global economics at Citigroup in New York. “We will continue on the current path where financial markets can deal quite well with monetary policy but perhaps later in the year, or in 2019, monetary policy will become one of the complicating factors.”

years of tightening

A clearer picture should form this week when the Norges Bank, Fed, Bank of EnglandEuropean Central Bank and Swiss National Bank announce their final policy decisions of 2017. They collectively set borrowing costs for more than a third of the world economy. At least 10 other central banks also deliver decisions this week.

The Fed will dominate the headlines on Wednesday amid predictions it will raise its benchmark by a quarter of a percentage point. Outgoing chair Janet Yellen is set to signal more increases to come in 2018. On Thursday, the SNB, BOE and ECB will make decisions in quick succession although each is forecast to keep rates on hold.

There will likely be more activity next year as Citigroup estimates the advanced world’s average rate will reach its highest since 2008, climbing 0.4 percentage point to 1 percent. JPMorgan projects its gauge to rise to 1.2 percent, a jump of more than half a percentage point from 0.68 percent at the end of this year.

Citigroup expects the Fed and its Canadian peer to move three times and the U.K., Australia, New Zealand, Sweden and Norway once. JPMorgan is forecasting the U.S. will shift four times. The latest Bloomberg survey also showed three Fed hikes in 2018, but moved forward one of them to March from June.

Behind the shift are expectations that the world economy will expand around 4 percent next year, the best since a post-recession bounce in 2011. Among the accelerators: falling unemployment, stronger trade and business spending, as well as a likely tax cut in the U.S.

The International Monetary Fund predicts consumer prices in advanced economies will climb 1.7 percent next year, the most since 2012, although it remains below the 2 percent most central banks view as price stability.

The global tightening will still leave rates low by historical standards and central banks may ultimately hold fire if inflation stays weak. Neither the ECB nor the BOJ are currently expected to lift their benchmarks next year.

Past and ongoing bond buying will cushion the withdrawal of stimulus elsewhere, as will easing by some emerging market central banks. Russia and Colombia may this week follow Brazil in cutting their benchmarks.

busy central bankers

While BOE Governor Mark Carney and ECB President Mario Draghi pivoted away from easy money without roiling financial markets, the calm may not last. The Bank for International Settlements warned this month that policy makers risk lulling investors into a false sense of security that elevates the risk of a correction in bond yields.

What Our Economists Say…

“Many developed market central banks, led by the Fed, are entering 2018 taking a leap of faith that inflation will return as they move toward normalizing monetary policy. Continued asset purchases by the BOJ and ECB will buy sometime for policy makers to discover the unattended consequences of quantitative tightening without risking a severe market disruption. Nevertheless, too much normalization too fast, risks reversing a relatively upbeat global economic outlook in 2018, especially if central bankers’ assumptions on the Phillips Curve prove to be false.”

–Michael McDonough, Bloomberg Economics

Investors are already less bullish than most economists. In the U.S., where inflation has shown some signs of slowing, the market sees about two quarter-point hikes next year, according to federal funds futures contracts. There is also speculation the bond yield curve may even invert as long-term borrowing costs fall below short-term ones, a trade which sometimes foreshadows a recession.

Torsten Slok, chief international economist at Deutsche Bank AG in New York, is betting that “quantitative tightening” will hit markets in the second quarter. That’s when he assumes U.S. inflation takes off and the ECB signals an end to bond buying.

“We see 2018 as a pretty key year for normalization,” said Victoria Clarke, an economist at Investec in London. “It’s going to be quite challenging for central banks to get the balance right on how much to do.”

— With assistance by Jeff Black, Anooja Debnath, Zoe Schneeweiss, Brett Miller, and Andre Tartar

Fourth Quarter North American Housing and Economic News

Paper house under a magnifying lens


Metropolitan Resale Snapshot: November 2017

Another Month of Varied Results in October

by Robin Wiebe

Short-Term Year-Over-Year MLS Price Change Expectations

Resale Indicators

About the Metro Resale Snapshot

Sales remained mixed in October, with transactions falling in 13 of our 28 areas (Sudbury data remain unavailable). Most declines were small; only three markets posted a loss of 5 per cent or more. Southern Ontario markets are still well off their 2016 levels, thanks to the province’s Fair Housing Plan, but sales in Toronto and Hamilton edged up on the month. Volumes in Vancouver and the Fraser Valley are rebounding from B.C.’s foreign buyers tax. Saskatoon’s sales jumped, but sales in other Prairie cities were soft. Volumes rose in four of six Quebec areas.

Listings fell between September and October in 17 markets and hovered below year-earlier levels in 14 areas. London saw last month’s largest decline. Listings either declined or were flat in the Golden Horseshoe last month and were down in Vancouver, the Fraser Valley, Calgary, and Edmonton. Listings generally fell in Quebec and Atlantic cities.

The sales-to-listings ratio was on the rise in October, rising in 17 areas and exceeding year-earlier levels in 15 markets. Balance prevails in 20 markets, including Toronto, Vancouver, and Montréal. Oshawa is a buyers’ market (as are Regina and Saskatoon), but the rest of the Golden Horseshoe is balanced. All markets east of Ottawa are also balanced. The Fraser Valley, London, Windsor, and Kingston are enjoying sellers’ markets.

Monthly price changes were evenly divided between advancers and decliners in October. Saguenay and Thunder Bay saw healthy jumps, while Regina saw a significant loss. Values advanced in Montréal, Toronto, and Vancouver. Calgary’s price appears to have stabilized, but pricing in the Golden Horseshoe continues to be uneven. Saint John and Newfoundland and Labrador saw prices ease.


Short-Term Year-Over-Year Price Change Expectations

+7% Vancouver, Fraser Valley, St. Catharines, Kitchener, London, Windsor
5–6.9% Victoria, Thunder Bay, Kingston, Ottawa, Montréal
3–4.9% Edmonton, Winnipeg, Toronto, Oshawa, Hamilton, Gatineau
0–2.9% Calgary, Regina, Sudbury, Québec City, Trois-Rivières, Sherbrooke, Saguenay, Saint John, Halifax, Newfoundland and Labrador
Falling Saskatoon





1 For real estate board area (except Newfoundland, which is province-wide).
2 Italics indicate per cent change. The second row shows the percentage change from the previous month; the third row from the year earlier.
3 Within one standard deviation of long-term average sales-to-new-listings ratio.
4 Includes Abbotsford.
Note: All data are seasonally adjusted.
Sources: The Conference Board of Canada; Canadian Real Estate Association; Quebec Federation of Real Estate Boards.

About the Metro Resale Snapshot

The monthly Metro Resale Snapshot provides an overview of the existing home market for 28 areas and expectations for existing home price growth over the short term.

Disclaimer: Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice.

During boom times, when there is plenty of business to go around, misconduct by real estate agents tends to be less serious, a RECO spokesman says.


Janet McFarland


Tougher mortgage stress-testing rules could make it impossible for 40,000 to 50,000 Canadians to buy a home each year, driving down real estate sales and reducing the anticipated pace of new mortgage-lending growth, according to a new analysis.

A report by Mortgage Professionals Canada, a national mortgage-broker industry association, forecasts about 18 per cent of home buyers – or about 100,000 people a year – would not qualify for their preferred home purchase option under new rules announced in October by Canada’s banking regulator, the Office of the Superintendent of Financial Institutions.

Websites publishing Toronto home sales data quick to spring up after federal court ruling

Mortgage Professionals Canada chief economist Will Dunning, who wrote the report released Tuesday, estimates 50 per cent to 60 per cent of those not qualifying will be able to adjust their expectations and buy a cheaper home, but he anticipates the other 40 per cent to 50 per cent will likely not buy anything because the adjustments they have to make would price them out of the market.

It will leave about 40,000 to 50,000 potential buyers a year shut out of the market, which means a 6-per-cent to 7.5-per-cent drop next year in home sales, including sales of both new and resale homes, he said.

He added that rising interest rates are expected to have a similar level of impact on home buyers next year, on top of the stress-test rule impact.

“Between the two – the policy effect and the interest-rate effect – we’re looking at somewhere between 12-per-cent and 15-per-cent less sales next year than we saw in 2016,” Mr. Dunning said in an interview.

The stress-testing rules, which will take effect Jan. 1, will require borrowers who are making a down payment of more than 20 per cent of a home’s value to prove they could still afford their mortgage payments if interest rates were significantly higher. The OSFI rule change will require borrowers to qualify for mortgages at the greater of the Bank of Canada’s five-year benchmark rate or an interest rate two percentage points higher than they negotiated.

Mr. Dunning said federal regulators have introduced six prior policy changes since 2010 impacting mortgage eligibility in Canada, but until now, only the package of changes in 2012 – which reduced maximum amortizations to 25 years from 30 years – had a substantial impact on home sales.

“It appears that this new policy change is also likely to have substantive and prolonged consequences,” the study concludes.

While home sales are expected to fall, the report forecasts 5.5-per-cent growth in the amount of outstanding mortgage credit in 2018, which is a reduction from 5.9-per-cent growth in 2017 and the prior 12-year average growth rate of 7.3 per cent.

Mr. Dunning said mortgage borrowing is expected to grow despite his forecast of falling sales, largely because there are so many new homes under construction that have already been started and have buyers scheduled to take possession next year.

“There have been a lot of housing starts lately and those are going to be completed next year, so that’s going to require a lot of new mortgages on those newly completed dwellings,” he said. “That’s what’s holding it up. If you look further out, there’s going to be a further drop off in credit growth in 2019 and 2020.”

Many analysts have predicted buyers will have to reduce their target prices by 20 per cent under the new stress-testing rules, but the report said those estimates ignore the fact that most people borrow much less than the amount their banks qualify them to borrow, so have leeway to adjust.

Based on data from a survey the mortgage association conducted in the spring – asking potential home buyers their target purchase prices, their down payments and their borrowing rates – Mr. Dunning predicts average home buyers would need to reduce their target prices by just 6.8 per cent or by $31,000 under the new rules.

Follow Janet McFarland on Twitter @JMcFarlandGlobe

As Alberta rebounds, massive inventory of unsold condos raises concerns

new condos

New condos under construction in Calgary on Nov. 30, 2017.

Todd Korol/The Globe and Mail


Published December 1, 2017 Updated December 4, 2017

Alberta’s economy is slowly emerging out of a deep hole, but there are lingering worries about a massive inventory of condominiums available for sale.

While it could be a buying opportunity for someone who wants to get into the market as the province’s fortunes improve, the sizable inventory could just as easily drive down prices. New condo projects and purpose-built rental apartments planned when oil was riding high are now hitting the market, even as the vacancy rates in both Edmonton and Calgary remain high, and employment and migration remain weak.

The number of new housing units sitting unsold in Alberta this year is striking. The figure soared above 4,000 in early 2017, and peaked at a record 4,447 in July. In October, it still sat at 4,161, according to Canada Mortgage and Housing Corp. That is about double the unsold units in British Columbia (2,105) and much higher than Ontario (2,580) – both provinces with much higher populations, but where there are more robust economies and hot housing markets.

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Related: Critics paint ‘bleaker picture’ amid Alberta’s jobs optimism

Looking at it another way, nearly 30 per cent of Canada’s 14,204 built-but-unsold housing units are in Alberta.

“In a cyclical market like Alberta, if you are building that much inventory and you go through an economic cycle, you will end up with unsold inventory,” said Matthew Boukall, a senior director at Altus Group Ltd. real estate data group.

“That’s kind of where we’re at today.”

More than 45 per cent of the empty housing units in the province are apartment-style condos, mostly in Edmonton and Calgary. In Calgary, the province’s largest city, the new condo units for sale are being added to an increasingly large inventory of resale apartment condos – a number now sitting at more than 1,600.

Lurking in the background are the debt obligations carried by developers who could be pressured to sell for lower prices in the months ahead, and the possibility of more units coming on the market from individual condo owners who bought when prices were high and want to sell their properties as soon as there is a slight improvement in the market. Shamon Kureshi, chief executive of Hope Street Management Corp. – one of Calgary’s largest property management firms – describes the condo owners who are now renting when they would rather get their money out “accidental landlords.”

Economists and market watchers have been surprised at how resilient the overall housing market has stayed through the province’s economic downturn that began three years ago. The Teranet-National Bank National Composite House Price Index shows Calgary’s overall prices are down 2.85 per cent from a peak in October, 2014 – significant but not calamitous.

But the city’s condo prices have been harder hit. According to Ann-Marie Lurie, chief economist for the Calgary Real Estate Board (CREB), its benchmark apartment-style condo price is still well below the September, 2007, high of $297,600 – a time that saw the oil price trending upwards – and the October, 2014, high of $300,000 – when oil prices had started a multi-month decline. The benchmark Calgary condo price in October was $261,600, and CREB expects that figure will drop another 3 per cent by the end of 2017.

Alberta, like other provinces, is seeing a major shift from single-family to multi-family housing construction as land prices surge. While it takes two years or more to build a high-rise, economic fundamentals can shift drastically in that period. That time lag between deciding on a multi-family project, and completion, doesn’t always work with the cyclical nature of Alberta’s oil and gas-focused economy. Condo projects planned and started when oil was $100 (U.S.) per barrel have many units sitting empty today, as crude prices nudge up from the lows of 2015 and 2016 toward $60 per barrel.

Alberta’s economy is improving, with ATB Financial forecasting GDP growth of 3.9 per cent in 2017, to be followed by growth of about 2.7 per cent in 2018. However, employment remains a major issue. In the same way that many of Calgary’s downtown offices are sitting empty, many of the residential condos in the inner city are also unoccupied. “Continued high vacancy rates in the downtown core is an indication that near-term recovery of higher-paid energy sector jobs is not expected,” said a recent CREB report.

Mr. Boukall said many of the jobs that are coming back are not coming to downtown Calgary – and instead are service or industrial jobs further out from the core. For condos in Calgary, he expects flat pricing in the suburban market in 2018 and, in the inner city, a price decline of less than 5 per cent.

He notes two key risks to the condo market recovery: The tightening of mortgage stress-test rules to take effect across Canada on Jan. 1, and the high levels of inventory and slow sales making it difficult for developers to keep their businesses afloat or to service debt.

Already, well-known Alberta builder and property developer ReidBuilt Homes, which had been in business for more than 35 years, collapsed into insolvency this year. Receiver Alvarez & Marsal Canada Inc. this month pointed to sluggish sales, downward pressure on prices and “an unsustainable debt load and leverage” as reasons for the private firm’s downfall.

Some developers have taken to renting out completed but unsold units – Lamb Development Corp. is offering realtors a 50 per cent cut of a month’s rent if they find a tenant for its newly built 230-unit 6th and Tenth building in Calgary’s Belt line.

Lai Sing Louie, a regional economist for CMHC, said multi-family construction is going to slow down next year so some of the inventory can be absorbed. However, he believes “one shadow component of supply” in Calgary are the people who bought a condo during a boom period, at one of the price highs, and are still trying to recoup their investment.

“People who bought in that sort of frenzied period are still likely under water,” Mr. Louie said.

Mr. Louie’s assessment squares with the experience of Farhan Qureshi. A decade ago, when Calgary’s economy was booming, the engineer took possession of his two-bedroom, two-bathroom unit with a wrap-around balcony high above the Stampede grounds.

Mr. Qureshi believed the $350,000 preconstruction price – an amount paid in 2005, “when people were basically bidding against each other” – would be a solid investment, and eventually the condo would be good place for him and his wife to live when their children moved out.

Now, forced into a retirement earlier than he would have liked by Alberta’s economic slump, the condo doesn’t work as a home for Mr. Qureshi, 65, and his wife. The unit has occasionally sat empty for a couple of months, but he now has a tenant with a six-month lease. He still can’t charge a rent that covers all his monthly costs, and the $600 per month in condo fees feels like a weight. “I have chewed up all my savings.”

Mr. Qureshi listed the condo for sale about 18 months ago at $480,000, but he couldn’t get an offer he liked and took it off the market. This month, he listed the condo again, at just less than $400,000.

“I just want to get it over with so I can pay off the mortgage,” Mr. Qureshi said. “I don’t want to be a landlord.”


Highlights taken from

After the boost in residential construction for 2017, housing starts are projected to decline by 2019. „ Sales of existing homes are expected to decline relative to the record level of above 535,000 MLS® sales registered in 2016. The average MLS® price should increase over the forecast horizon, but at a slower rate than in the past four years. The average price should lie between $493,900 and $511,300 in 2017 and between $499,400 and $524,500 by 2019. Trends Impacting the Housing Sector  Before turning to the detailed forecast, this section reviews key assumptions of the housing market at the national level. These drivers are the central building blocks for CMHC’s framework to produce the Housing Market Outlook.

canada starts

Canada MLS Price

Growth in GDP to slow by 2019 after stronger-than-expected growth in 2017 Based on the average of private sector forecasts, our baseline forecast scenario assumes that Canada’s real GDP growth will range between 2.4% and 3.2% in 2017 and between 1.2% and 2.5% in 2018. The strong growth in 2017 was due to accommodative fiscal and monetary policies, households’ wealth and income gains. It is expected that growth in Canada’s economy will slow by 2019 due to an increase in interest rates, reduced contribution from households’ consumption and weaker boost from fiscal policy. However, the expected acceleration in business investment and foreign demand will mitigate some of these negative pressures on real GDP growth. In 2019, GDP growth is forecast to lie between 1.0% and 2.4% for Canada.

Trends in the labour market improving over the forecast horizon. In the past year and up to this summer, growth in employment has been positive for both full-time and part-time employment, but part-time employment growth was stronger than full-time employment growth. Part-time work is usually said to provide less support to housing markets. Even as the number of jobs increased, the number of actual hours worked declined, contributing to less support for housing markets. In terms of wages, the average real weekly earnings declined in 2017 compared to 2016 on a national level. For the forecast horizon however, labour market conditions are expected to improve. According to the private-sector forecasts, the overall Canadian unemployment rate is expected to decline to 6.5% in 2017 and 6.4% in 2018 (compared to 7.0% in 2016). In addition, hourly earnings are forecast to grow faster (at 2.7% and 3.5% year-over-year) than consumer prices (at 1.9% and 2.2% year-over-year) in 2017 and in 2018 respectively, increasing households’ purchasing power. Our projections for average weekly earnings are growth rates of 1.0% this year and 1.9% in 2018 and in 2019, providing more support for housing demand.

Strong net migration from 2016 will continue to support demand for new dwellings in 2017. The historically high growth in net migration in 2016 continues to support demand for new homes for all housing types. Net migration increased by roughly 60% from 2015 to 2016, setting a close-to record number of new immigrants to the country. This number will likely be closer to the average of the last ten years by the end of the forecast horizon.

Mortgage rates are expected to rise gradually over the forecast horizon Mortgage rates are expected to rise modestly over the period 2017-2019. This increase is consistent with the expected improvement in domestic economic conditions and the predicted increase in world interest rates. In our baseline scenario, the posted 5-year mortgage rate is expected to lie within the 4.9%-5.7% range in 2018 and within the 5.2%-6.2% range in 2019. Hence, the expected increase in this rate over 2017-2019 should be at most 160 basis points. Over our forecast horizon, mortgage rates are expected to stay below levels observed prior to the Great Recession.

Detailed National Housing Outlook Strong housing starts to level off by 2019 National housing starts will register more than 200,000 starts for 2017 – a boost compared to last year. The inner range for 2017 is estimated to be 206,300 – 214,900 units for the year. However, by the end of 2019, the total number of starts should decline compared to 2017. The inventory of completed and unsold units in Canada has been driven by the multi-unit segment since the early 2000s, and still represents about 60% of all the inventories of completed and unsold units. The inventory of total completed and unsold dwellings per 10,000 population was 4.2 units in the second quarter of 2017, its lowest level in 6 years. This trend suggests that inventory management is adjusting to market conditions, hence putting upward pressure on starts for the short-term.

The growth in population and near-record growth in immigration will continue to have a positive effect on housing starts over the forecast horizon. Employment growth should stay positive and provide support to new housing market activity, but this effect should even out by the end of 2019. We project starts to decline in 2018 and 2019 compared to 2017 as there will be less simulative economic conditions and gradually increasing mortgage rates. As a result, residential construction is projected to level off by the end of 2019, but still represents an upward revision compared to our previous forecast. Housing starts are to range from 192,200 to 203,000 units in 2018 and from 192,300 to 203,800 units in 2019. Single-detached starts are forecast to contract by 2019

Single-detached starts are forecast to contract by 2019 Single starts have been increasing since the first quarter of 2016. This was partly explained by stronger demand for those types of units, as there were continued low inventories of new and unsold single detached homes, especially in some of the major housing markets in Canada, encouraging single-detached starts in the short-term. Single starts are forecast to range between 75,900 units and 77,100 units, compared to 74,100 units in 2016.

As more supply becomes available from this year’s strong construction, and households continue to opt for lower-priced alternatives in the multi-unit sector, we expect this recent boost to be short-lived and single-detached starts to range between 66,200 units and 68,400 units in 2018 and between 66,100 and 68,900 units for 2019.

Multi-unit starts to remain strong over the forecast horizon Multi-unit starts are expected to increase this year and level off by 2019, but remain above the historical average over the forecast horizon. The pool of potential first-time home buyers, people aged 25-34 years old, is expected to slow, negatively impacting the demand for multi-unit homes, but the demand due to increasing aging population will partly offset that areas are experiencing historically low apartment vacancy rates and low inventories of new and unsold multiple units. Combined with relatively low ownership cost compared to single-detached homes, this will create upward pressure on multi-unit starts. Accordingly, multi-unit starts are expected to increase in 2017, ranging between 128,800 and 139,400 before leveling off to 124,400-136,200 units and 123,200-137,800 units in 2018 and 2019 respectively. These represent increases compared to the level of 123,800 registered in 2016.

MLS® sales are forecast to decline this year and stabilize by the end of 2019 MLS® sales were at a record high in 2016 and are projected to lose momentum in 2017, before settling in 2018 and 2019 at levels that are more in line with the projected economic conditions. While there is evidence of overheating in the resale markets of many major CMAs, this has subsided in recent months as the supply of resale homes (listings) has increased relative to the demand (sales). The strong boost in international migration has provided support to sales in 2017, but this factor is expected to dissipate by 2019. Moreover, the projected gradual rise in mortgage rates by the end of the forecast horizon could restrain sales for existing homes. Therefore, MLS® sales are expected to be between 493,900 units and 511,400 units in 2017, between 485,600 units and 504,400 units in 2018, and between 484,700 and 509,900 in 2019.

Canada MLS sales

Resale prices are expected to keep increasing, but at a slower pace than in previous years. In 2016, most of the strong growth in average prices came from a compositional effect: proportionately more sales of expensive single detached homes were pushing up the average price. As the sales of apartments in 2017 are increasing in share of total sales, there is downward pressure on the MLS® average price since apartment condominiums are usually a less expensive option than single detached homes. However, as the demand grows for apartment condominiums, this in turn pushes apartment prices upwards. Figure 4 shows the rising Apartment MLS® HPI (Home Price Index)while the single-detached MLS® HPI declined relative to the recent peak. The average MLS® price declined from the recent monthly peak of $536,000, but the average price for the year is still expected to increase compared to 2016 and to range between $493,900 and $511,300. For 2018 and 2019, the MLS® price is expected to range between $491,900 and $512,100 and between $499,400 and $524,500, respectively.

Apartments HPI

Risks to the Outlook and Scenarios

While the outlook for the Canadian housing sector is one of general stability, there are global and domestic risks to consider. The evolution of risks since our last forecast has been stable.

Global effects -from an international perspective

·         Sluggish business investment in Canada may mean that Canadian firms do not have the productive capacity to respond to demand for exports. This would mostly impact export-dependent provinces.

·         There could be a positive risk for housing market variables if real GDP growth in the USA, triggered by higher business confidence, leads to stronger U.S. economic growth, increasing Canada’s net exports, employment and real GDP.

Household Debt

·         Recent levels of strong consumer confidence point to robust consumption. Higher consumption would mean a higher boost to GDP and to housing markets, but it would also increase vulnerability related to already high levels of debt in Canada. High household debt remains a risk for the Canadian economy, making households more vulnerable to an economic or interest rate shock.

·         If interest rates or unemployment were to increase sharply and significantly, more heavily indebted households may need to liquidate some assets. This could include their homes, which would put downward pressure on housing market activity.

Overvaluation in property markets

·         Fundamentals such as income and population growth are not catching up to the strong growth in house prices observed in most major markets such as Vancouver, Toronto and surrounding markets. This adds considerable uncertainty over how the housing market will adjust to these imbalances.

·         A sharper and quicker-than-expected unwinding of imbalances between observed house prices and those that would be supported by underlying fundamentals could impact forecasts negatively, and result in outcomes in the lower part of the forecast range presented in figures 1, 2 and 3 above.

·         To reflect these upside and downside risks to the economy and housing markets,

o   The outer range for housing starts on a national level is from 190,100 to 231,100 in 2017, compared to 176,000 to 219,200 in 2018, and 175,600 to 220,400 in 2019.

o   MLS® sales could range from 465,500 to 539,700 in 2017 before moving to a range of 455,000- 535,000 in 2018, and 452,500- 542,000 in 2019.

o   The average MLS® price could range from $478,900 to $526,300 in 2017, from $477,000 to $527,000 in 2018 and from $482,300 to $541,600 in 2019.

Canada – Economic Forecasts – 2018-2020 Outlook USDOC Economic Trading

These pages have economic forecasts for Canada including a long-term outlook for the next decades, plus medium-term expectations for the next four quarters and short-term market predictions for the next release affecting the Canada economy.

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2018 housing predictions

ERA Forest Products Research

December 6, 2017


Caution On Housing, Negative For Building Products ERA FOREST PRODUCTS RESEARCH December 6, 2017 – 2 – Tel: (604) 886-5741

non farm employment

As the chart above shows, the growth rate in non-farm employment has been declining steadily for the past two years. Previous large declines in non-farm employment have typically coincided with sizeable reductions in housing starts (see 1973–75, 2005–09). There have been some exceptions, however (e.g., in 2000–02, the change in non-farm employment fell from roughly 280,000 to a loss of 160,000, but housing-start growth was largely uninterrupted and eventually eclipsed the 2MM mark — although this ended in tears). We have seen non-farm employment dip slightly and then reverse course without severely impacting starts (e.g.,1998–1999), but with little by way of positive policy changes currently in the pipeline, weakness in employment trends is increasingly worrying for the economy as a whole, and for housing as well.

This trend should temper some of the optimism running rife in the market presently. The Trump administration’s recently proposed tax cuts have been well received by Wall Street (although there are concerns that a cut to the home mortgage interest deduction could end up weakening house prices), offering further support to a year-end rally that will no doubt raise many observers’ expectations for 2018. However, economic growth in the U.S. is typically reliant on the quality and quantity of its workforce, and today there is a growing shortage of both skilled and unskilled labour. Some companies in our coverage universe have cited housing as their biggest concern heading into 2018, stressing that the lack of available labour (rather than demand for new housing) is the root cause of their concern. Government initiatives, like first-time home buyer grants and mortgage tax credits, are ineffective if there are no homes available for would-be buyers to buy! For housing starts to continue on the same slow-and-steady trajectory we have seen over the past six years (we forecast an increase of 5% to 1.27MM in 2018 and a further 6% to 1.35MM in 2019), more needs to be done to address the current labour shortage. NAFTA battles and wall-building won’t help.

This problem is not unique to the construction industry. Agriculture, manufacturing and transportation are all facing an urgent shortage of workers. October’s unemployment rate edged down ten basis points to 4.1% and most economists agree that the U.S. is beyond “full employment”. In many industries, wage increases have been unsuccessful in attracting and retaining quality labour — U.S. workers are largely unwilling or unable to do the grueling, “low paid” work required to transport produce and fill refrigerators across the country. In the case of recent rebuilds after the hurricanes in Houston and South Florida, sizeable wage increases haven’t been enough to attract the required number of residential construction workers, and efforts to get displaced residents back in their homes have been delayed. Given President Trump’s hardline stance on immigration (the Department of Homeland Security this week announced that non-criminal arrests of illegal immigrants were up 42% ytd) this problem is likely to get a whole lot worse before it gets any better.

Solid wood names would be first impacted by a slowdown in housing start

A slowdown in housing would primarily slow demand growth for lumber and panels, and thus would have more immediate negative consequences for TSX:OSB and NYSE:LPX as well as TSX:WFT, CFP, and IFP. Longer-term, timberland names NYSE:WY, RYN and Nasdaq:PCH would feel the effects of lower lumber production and the resultant reduction in timber demand. Many of our names are looking more than full-value right now, and once this Christmas rally has run its course and the realities of seasonal slowdowns in consumption and current housing and labour trends return to focus, we expect to see downward corrections. Lumber names have already started to come off this quarter, and we expect they still have some downside runway. Panel names have been a mixed bag of late, but again we see more downside than upside as 2017 draws to a close. The OSB industry, in particular, is more at risk than others given the 11% growth in capacity coming to the market next year. There will be a time to buy again, but not now.

– John Cooney

Fed Raises Rates, Eyes Three 2018 Hikes as Yellen Era Nears End


Christopher Condon

@chrisjcondonMore stories by Christopher Condon


Craig Torres

@ctorresreporterMore stories by Craig Torres

‎December‎ ‎13‎, ‎2017‎ ‎12‎:‎00‎ ‎PM Updated on ‎December‎ ‎13‎, ‎2017‎ ‎1‎:‎57‎ ‎PM

Central bank expects labor market to ‘remain strong’
Kashkari, Evans dissent, preferring to leave rates unchanged

fed report

Bloomberg’s Mike McKee reports on the Fed’s rate hike.

Federal Reserve officials followed through on an expected interest-rate increase and raised their forecast for economic growth in 2018, even as they stuck with a projection for three hikes in the coming year.

“This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages,” Chair Janet Yellen told reporters Wednesday in Washington following the decision. In her final scheduled press conference, Yellen noted that her nominated successor, Jerome Powell, has been part of the consensus shaping the Fed’s gradual rate-hike strategy.

In a key change to its statement announcing the decision, the Federal Open Market Committee omitted prior language saying it expected the labor market would strengthen further. Instead, Wednesday’s missive said monetary policy would help the labor market “remain strong.” That suggests Fed officials expect improvement in the job market to slow.

The yield on 10-year U.S. Treasury notes fell after the Fed announcement, as did the Bloomberg Dollar Spot Index. Trading at record highs recently, stocks jumped after the Fed’s announcement before paring gains. Asked during a press conference about rising asset prices, Yellen said the high valuations don’t necessarily mean that they’re overvalued and that she’s not seeing a worrisome buildup of leverage or credit.

The 7-2 vote for the rate move, the Fed’s third this year, raises the benchmark lending rate by a quarter percentage point to a target range of 1.25 percent to 1.5 percent. In another move that could tighten monetary conditions, the Fed confirmed that it would step up the monthly pace of shrinking its balance sheet, as scheduled, to $20 billion beginning in January from $10 billion.

Through the policy adjustments and the statement, the Fed continued to seek a delicate balance between responding to positive news on growth and unemployment that encouraged gradual tightening, while signaling caution due to persistently weak inflation readings that have befuddled policy makers.

That puzzle continued earlier Wednesday when Labor Department data showed consumer inflation, excluding food and energy, was lower than expected at 1.7 percent in the 12 months through November.

Inflation Developments

“Hurricane-related disruptions and rebuilding have affected economic activity, employment and inflation in recent months but have not materially altered the outlook for the national economy,” the Fed said. Repeating language used since June, the FOMC said that “near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely.”

In the latest set of quarterly forecasts released Wednesday, the median estimate for economic growth next year jumped to 2.5 percent from 2.1 percent. It wasn’t immediately clear how much of the change reflected confidence that the tax-cut legislation moving through Congress will boost growth, or other factors such as pickups in business spending and global growth.

feds new dot plot

At the same time, the committee’s median forecast for long-run expansion was unchanged at 1.8 percent, suggesting officials aren’t yet convinced the tax package will significantly affect the economy’s capacity for growth.

Minneapolis Fed President Neel Kashkari and the Chicago Fed’s Charles Evans both dissented against the interest-rate decision, preferring to leave them unchanged. It was the first meeting with more than one dissent since November 2016; Kashkari’s dissent was his third this year. Evans dissented for the first time since 2011.

What FED Economists Say:
“The most important takeaway from the December FOMC meeting is that even though policy makers are becoming more bullish on economic prospects, they are not shifting to a more hawkish policy stance. An extended inflation soft patch is giving the Powell-Fed a free pass to continue along Janet Yellen’s gradualist path toward policy normalization.”

— Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics.
That follows a solid rebound for the expansion since a disappointing start to 2017. Gross domestic product grew at more than a 3 percent annualized pace in both the second and third quarters, and is on track to expand in the fourth quarter by 2.9 percent, according to the Atlanta Fed’s GDPNow tracking estimate.

Rate Path

Despite the upgrade in near-term growth expectations, policy makers left the number of hikes projected for 2018 effectively unchanged. The median forecast pegged the federal funds rate at 2.1 percent at the end of next year.

That could, in part, reflect lingering concerns over sluggish wage and price gains. The Fed’s preferred gauge of inflation, based on consumer spending, gained just 1.6 percent in the year through October.

Weighed against unemployment, which has dropped to a 16-year low at 4.1 percent, that weakness has puzzled economists and made some policy makers declare the Fed should hold off on additional rate increases until prices respond more briskly.

The committee lowered its median estimate for the unemployment rate, expecting it to hit 3.9 percent by the end of 2018, compared with a September projection of 4.1 percent.

The committee left its median estimate for the lowest sustainable level of long-run unemployment at 4.6 percent, suggesting that officials still expect the drop in joblessness to eventually boost inflation. Forecasts showed little change in the inflation outlook over the next three years.

Yellen is expected to chair the committee’s next meeting on Jan. 30-31 for what will be her last FOMC gathering of her time on the committee spanning three decades as chair, vice chair, San Francisco Fed president and governor.

Other Details of Projections

Median estimate for 2019 federal funds rate held at 2.7 percent; 2020 projection rose to 3.1 percent from 2.9 percent, while long-run rate remained at 2.8 percent
Median inflation forecasts all unchanged except for 2017 headline PCE forecast, which rose to 1.7 percent from 1.6 percent
2019 median economic-growth forecast rose to 2.1 percent from 2 percent; 2020 projection moved to 2 percent from 1.8 percent
Median 2019 unemployment-rate projection fell to 3.9 percent from 4.1 percent; 2020 estimate declined to 4 percent from 4.2 percent

— With assistance by Matthew Boesler, Jeanna Smialek, and Steve Matthews

US Housing starts

US Full time employment

US family earnings

United States – Economic Forecasts – 2017-2020 Outlook USDOC Trade Economics

After growing the most since 2015 in the second quarter of 2017, we expect the US economy to slow down in Q3 due to effects of Hurricanes Harvey, Irma and Maria. The expansion is likely to gain speed in Q4, as rebuilding activity takes place, and continue throughout 2018. Consumer spending will continue to benefit from employment gains, stronger wage growth and expected personal tax cuts. Also, corporate income taxes are likely to bring further improvement in investment activity and growing external demand and abetting effects of dollar appreciation should boost exports. Lastly, as inflation remains close to its 2 percent target and labour situation continues to improve, the Fed funds rate is projected to rise gradually. This page has economic forecasts for the United States including a long-term outlook for the next decades, plus medium-term expectations for the next four quarters and short-term market predictions for the next release affecting the United States economy.

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Third Quarter 2017 North American Housing News



Census 2016: Income grows in resource-rich provinces, Ontario and Quebec lag behind

Over the past decade, Canadian median income rose 13 per cent for individuals, with much variation between regions, according to the latest data. Here are the highlights

Median household total income in 2015,

median household income

Median household total income in 2015, by 2016 census division


Tavia Grant , Rachelle Younglai and MURAT YUKSELIR

Most Canadians saw their incomes climb over the past decade as the resource sector boomed, though new census numbers underscore the dramatic variation between regions.

The median incomes of individuals in Canada rose 12.7 per cent between 2005 and 2015, to $34,204, adjusting for inflation, Statistics Canada said Wednesday. For Canadians in all household types, median income rose 10.8 per cent between 2005 and 2015, to $70,336. That is an acceleration from the prior decade’s 9.2-per-cent growth and the decline of 1.8 per cent between 1985 and 1995.

The income data is the fourth tranche of information from the 2016 census following releases this year on population, age, language and living arrangements. It’s the first time the agency has linked income data from the Canada Revenue Agency to all census respondents.

The findings paint a picture of growth for most households, though the gains were uneven. Households in the Prairies registered rapid increases in median incomes, led by Saskatchewan where median individual incomes jumped 36 per cent in the decade. Median incomes in Ontario and Quebec, which have the highest populations and suffered steep factory job losses, saw the weakest gains. More seniors are living in low income, while the share of young children living in poverty declined.

As a result of these shifts, Ontario’s low-income rate is now close to the national average. The Atlantic Provinces still have the highest low-income rates in Canada.

“The biggest thing that jumps out, when you look at median household income, is the clustering of growth in provinces and cities,” said Brian Murphy, chief of analysis for census income at Statscan. “The strong growth has been in the West, the North and Newfoundland, so areas related to high resource development, so a lot of construction follows … in the flip side of that, Ontario shows up as having below-normal growth.”

Canadians experienced sweeping economic changes in the 10-year period, with a 2008-2009 recession followed by a recovery and rapid price increases in the housing market, especially in urban areas such as Vancouver and Toronto, where average house prices nearly doubled in the decade. Because it’s based on 2015 incomes, the data does not fully capture the impact of the 2015-2016 oil price collapse that slammed resource-dependent provinces such as Alberta and Newfoundland.

Median income: The big picture

The median income for individual Canadians rose 12.7 per cent to $34,204 over the past decade, with the heftiest gains in the oil-producing provinces.

The median individual income in Newfoundland and Labrador rose 37 per cent to $31,754. In Saskatchewan, it increased 36 per cent to $38,299 and in Alberta it grew 25 per cent to $42,717.

The multiyear boom in commodities prices was responsible for driving up wages in the three resource-dependent provinces. The fastest growth for individuals was in the oil sands region of Wood Buffalo, Alta., where the median income rose 49 per cent. Other areas that experienced rapid wage increases included Yorkton and Estevan in Saskatchewan.

Meanwhile, the loss of factory positions in the country’s manufacturing heartland of Ontario weighed heavily on the province. The median individual income increased 3.8 per cent to $33,359 – the slowest growth in the country.

change in median income by region

In areas where manufacturing was a major employer in Ontario, the median income dropped over the decade. Windsor saw the median income fall 1.5 per cent. When looking at households, the median income in Windsor declined 6.4 per cent, Tillsonburg dropped 5.7 per cent and Leamington fell 2.8 per cent.

The release is notable for what it doesn’t contain: the agency compared income trends in 2015 with the 2005 census, skipping over any comparison with the 2011 National Household Survey. That last release on 2011 incomes was controversial as a government-mandated switch to a voluntary survey resulted in lower response rates. Many researchers didn’t use the data, citing it as unreliable.

The release also didn’t contain details on demographics, such as how incomes by ethnicities fared in the 10-year period, how education levels affected income trends or which occupations saw the strongest gains. Nor did it detail how income inequality changed in the past decade, or changes in income distribution.

Which Canadians earned more?

Cities within the oil-producing provinces experienced the steepest increase in the number of people earning more than $100,000, which is considered in the top 10 per cent of all income earners.

In Saskatchewan, the number of these high-income earners more than tripled in North Battleford and Yorkton. In Bay Roberts, Nfld., and Okotoks, Alta., the number of individuals earning at least $100,000 nearly tripled.

Toronto and Montreal continued to be the top two locations for individuals earning a minimum of $100,000 in 2015. But over the 10-year period, Calgary edged Vancouver out of the third spot. Calgary, which is home to major oil companies headquarters, nearly doubled the number of high-income earners while Vancouver increased its ranks by 55 per cent.

In contrast, Toronto’s high-income earners grew by 40 per cent and Montreal rose by 35 per cent.

Which Canadians earned less?

Canada’s low-income rate – as measured by the after-tax low income measure – was 14.2 per cent in 2015 from 14 per cent a decade earlier. The measure counts a household as low income if it earns less than half of the median of households. As of 2015, the low-income threshold for someone living alone was $22,133.

All told, 4.8 million people in Canada were considered as living in low income in 2015, compared with 4.3 million in 2005.

Though the rate was little changed, the poverty shifted among regions and age groups. More seniors are living in low income, while the proportion of children under the age of five in low-income households declined. “While the increase was particularly strong for senior men, overall, senior women were still more likely to be in low income in 2015,” Statscan said.

By province, low income shares fell “sharply” in Newfoundland (to 15.4 per cent from 20 per cent) as well as in Saskatchewan, the agency said; in Ontario, it rose to 14.4 per cent from 12.9 per cent.

More details on low-income trends by demographic groups will come in Statscan’s November release.



Children and low income

Children represent nearly a quarter of people in low-income in Canada, with almost 1.2 million kids under the age of 18 living in poorer households in 2015.

Their share in the low-income population has been falling, helped partly by the introduction of new policies. The average child benefit that families received “has nearly doubled since the 1990s,” the agency noted. Among cities, Windsor, Ont. (hit hard by a manufacturing downturn) has the highest rate in Canada of children living in low-income households. Nearly one in four kids in the city lived in low income.

By province, Alberta has the lowest rate of kids living in poverty, while Nova Scotia and New Brunswick have the highest rates. Quebec – which has lower daycare costs and higher child benefits – is the only province where kids are less likely than adults to live in low-income households.

By household type, single-mother families have the highest incidence of children in low-income, at 42 per cent. Two-parent families have a lower rate, at 11.2 per cent. And households with three or more children tend to have higher child poverty rates.

income in Canada

A tale of two Canadas: Where you grew up affects your income in adulthood A study of millions of Canadians’ income data reveals a country of opportunity, with most children out-earning their parents – but also a country pocked with mobility traps, Doug Saunders and Tom Cardoso explain.

pop growth by prov

Population: Western provinces are the fastest-growing in Canada As of 2016’s census day, there were 35,151,728 people in Canada, and nearly one in three lived in the West.

age projection

Age and gender: The growing generational gap and other key takeaways Statscan’s May release painted a clearer picture of Canada’s aging population and how they live.

Families: More Canadians than ever living alone For the first time in the country’s history, the number of one-person households surpassed all other types of living situations in 2016, Gloria Galloway explains.

percentage one person house

Where RBC sees the Canadian dollar heading next


The loonie is pictured in this illustration picture taken in Toronto January 23, 2015.


David Berman

23 hours agoSeptember 12, 2017

For Subscribers

The strong Canadian dollar has been weighing heavily on U.S. dollar assets held by Canadian investors, but is the pain nearly over?

Here’s one way to look at the issue: The S&P 500 is at a record high in U.S. dollar terms, but if you hold an S&P 500 index fund priced in U.S. dollars, then your holding in Canadian dollar terms is down more than 6 per cent since June. Your U.S. bonds are probably smarting even more.

Add in the lacklustre performance of Canadian stocks – the S&P/TSX composite index is down nearly 5 per cent since February – and your investment portfolio just might be sputtering as we approach the final quarter of 2017.

Currency trends are notoriously difficult to predict, but it helps to arm yourself with an understanding of what’s driving the moves.

The loonie has recently surged above 82 cents (U.S.), up from about 75 cents since the start of the summer. The remarkably sharp increase follows surprisingly strong Canadian economic growth that has pushed the Bank of Canada to raise its key interest rate twice in the past three months – with more hikes likely on the way.

In a report on global currencies by Royal Bank of Canada, analysts now expect Canadian gross domestic product will rise 3.1 per cent in 2017, up from an earlier forecast of 2.6 per cent. Needless to say, they also expect the Bank of Canada will raise its key interest rate again in October.

This might suggest that the Canadian dollar is going to continue to move up, but RBC analysts believe that the biggest moves are behind us and that the loonie should settle back.

That’s because the U.S. dollar, which has been weak against a basket of global currencies, is by no means down for the count: Stronger global currencies are merely adjusting to the fact that the U.S. Federal Reserve is not the only central bank now raising interest rates from ultra-low levels.

“The standard explanation for U.S.-dollar underperformance is that it reflects a reversal of the policy divergence theme that drove previous U.S.-dollar outperformance when the Fed was the only major central bank hiking rates. Now, the Bank of Canada has followed (twice) and markets are priced for varying degrees of policy normalization elsewhere, including the Bank of England, European Central Bank and smaller European countries,” RBC said in its note.

Some observers believe that the U.S. Federal Reserve might even have to delay additional rate hikes given U.S. economic uncertainty, which is also undercutting the greenback. And confusion over the direction of the Trump administration isn’t helping matters.


However, RBC expects that the U.S. economy will continue to power ahead (GDP in the second quarter was revised up to 3 per cent from 2.7 per cent), pushing interest rates higher.

“With just one hike priced between now and mid-2018, it should not be hard for the Fed to over-deliver,” the RBC analysts said in their note.

Changes to U.S. tax laws, which could encourage U.S. companies to repatriate foreign earnings, could provide another bump to the U.S. dollar.

Yes, there are a lot of moving parts here, which underscores the difficulty in making currency predictions. Nonetheless, RBC expects the Canadian dollar will slip below 81 cents against the U.S. dollar in the fourth quarter of this year, and retreat below 79 cents in the first quarter of 2018.

Your U.S. dollar assets, which have struggled this year, might soon provide a tailwind to your results

United States

Hurricanes Harvey & Irma: What They Could Mean for Housing


We cover homes and the real estate marketplace.  Opinions expressed by Forbes Contributors are their own.

svenja Svenja Gudell , Contributor

In the immediate aftermath of Hurricane Harvey, and ahead of the huge potential for danger and destruction still to come from Hurricane Irma, there remains much uncertainty and fear about estimated and actual damage to housing markets in Texas and the Southeast. But based on past and present research, there are several things we can state with confidence about both situations, and more about which we can make educated assumptions.

As more data comes in and official reports are finalized, we will update these facts and figures wherever possible. But here’s what we know now:

Hurricanes, Housing and Our Love of the Ocean

Over the past roughly two decades, a number of destructive hurricanes have had a costly immediate impact on a huge number of U.S. coastal communities – from Hurricane Andrew, through Katrina, Sandy and most recently Harvey. While the immediate impact on housing is immense and often runs in the billions of dollars’ worth of damage, the lasting impact of these kinds of storms on local housing markets is surprisingly minimal.

Our research shows that properties near the coast – those most likely to get battered by the wind, rain and storm surges wrought by large hurricanes – exhibit a consistent pattern:

  • They command a significant premium over properties located farther inland;
  • They retain that premium even after the danger posed by these storms has become obvious.

The bottom line: Homebuyers love coastal areas. The attraction of living near the sea is too strong to dampen interest simply because of a few hurricanes here and there. Evidently, people either quickly forget the potential dangers, or they place more weight on the upsides of coastal living. Whether or not this holds true in the wake of Harvey and Irma remains to be seen.

Read our research on the premium placed on coastal properties – both before and after large storms.

Hurricane Irma: What Can Miami Expect From a Six-Foot Storm Surge?

Hurricanes pose an immediate danger, through rising seas caused by storm surges and wind-whipped high tides. But a more gradual threat is no less real and potentially much more destructive than localized, hurricane-driven flooding: The threat of rising sea levels caused by climate change.

Given growing evidence of the relationship between climate change and the strength of major hurricanes like Irma and Harvey, this threat becomes doubly important.

Some estimates suggest sea levels will rise six feet or more by the year 2100 if climate change continues unchecked. Using maps from the National Oceanic and Atmospheric Administration (NOAA), in conjunction with our database of information on more than 100 million homes nationwide, we determined which properties were at risk of being submerged (at least their ground floors) in the next century or so, and roughly what they’re currently worth.

Our research found:

  • Nationwide, almost 1.9 million homes (or roughly 2 percent of all U.S. homes) – worth a combined $882 billion – are at risk of being underwater by 2100.
  • If sea levels rise as much as climate scientists predict by the year 2100, almost 300 U.S. cities would lose at least half their homes, and 36 U.S. cities would be completely lost.
  • One in eight Florida homes would be under water, accounting for nearly half of the lost housing value nationwide.

Miami sits squarely in the projected path of Hurricane Irma, which is expected to bring a significant storm surge that could easily exceed six feet or more. For reference, in Miami, a sea level rise of six feet could flood almost 33,000 homes, worth a combined total of $16 billion (as of summer 2016).


Zillow Research

Underwater Homes in Miami

Hurricane Harvey & Houston-Area Housing: What We Know

Based on very preliminary flood data coming out of Hurricane Harvey’s immediate impact zone in Southeast Texas, combined with home value information from our database, we can make some initial estimates about the amount of housing damage sustained in the region.

Hurricanes Highlight Failure to Enforce Flood Insurance Rules

Government-backed mortgage holders in high-risk areas are required to maintain a policy. But federal agencies are playing “not it” over who has to hold them accountable.

By Christopher Flavelle

 September 13, 2017, 9:15 AM MDT


A resident of Bonita Springs, Fla., removes her belongings from her home on Sept. 12, 2017, after it was flooded by Hurricane Irma.


As the floodwaters of Hurricanes Harvey and Irma recede, they may reveal more than moldy drywall and fetid trash. They could lay bare the federal government’s failure to police a basic tenet of its own disaster policy: that properties with government-backed mortgages in risky areas carry flood insurance.

The government has known for decades that homeowners in flood zones often don’t have the insurance they should. Just two years ago, the Federal Emergency Management Agency estimated that as few as half of the 1.5 million residential structures required to carry flood insurance actually do. It can’t be sure, though: FEMA isn’t responsible for tracking that kind of data—nor is any other agency.

“This is a huge blind spot,” says Samantha Medlock, a senior adviser to President Obama on flood insurance policy. Homeowners with lapsed insurance could “mistakenly believe that if their luck runs out, the federal government will come in and take care of them,” she says.

The magnitude of the risk is revealed partly by the numbers of uninsured homes in the paths of the recent storms. More than 80 percent of homeowners in the Texas counties hit by Harvey lack flood insurance, according to a Washington Post analysis. In Florida, FEMA estimated in 2015 that as many as 43 percent of those required to have coverage didn’t. And as climate change and coastal development increase the number of homes at risk, it’s becoming harder for the federal government to keep ignoring the problem.


When a mortgage is issued, the lender is supposed to check whether the home is in a flood plain, and if so, it should require the owner to acquire insurance. When that mortgage is sold to investors, the company that services it must make sure the premiums are paid or pay them through escrow. If the coverage lapses, the servicer is supposed to buy coverage on the homeowner’s behalf, then add the premiums to the mortgage payments.

Fannie Mae, Freddie Mac, and government entities own or guarantee 60 percent of U.S. mortgages. Lisa Tibbitts, a spokeswoman for Freddie Mac, says the insurer conducts yearly reviews of its loan portfolio, including rates of flood insurance coverage. “These reviews reveal a very low percentage of noncompliance,” she says.

And yet, since 2012, the Office of the Comptroller of the Currency, which regulates federal banks, has fined at least 27 institutions for failing to meet their obligations on flood insurance. Experts in flood insurance policy say the process appears to break down after the mortgage is made. Homeowners required to carry insurance typically keep paying their premiums for just two to four years, said University of Pennsylvania researchers in a 2012 study.

central florida

“There are plenty of areas to pass the buck in the chain of mortgage finance,” says Nela Richardson, chief economist for Redfin Corp. “That’s what makes it ultimately hard to track.” The National Mortgage Servicing Association, a trade group that represents servicers, didn’t respond to a request for comment. Four of the five largest servicers as identified by Inside Mortgage Finance declined to provide information about how many of their mortgages even require flood insurance, let alone how many comply. About 4 percent of mortgages at Wells Fargo & Co., the country’s largest servicer, require the insurance, according to spokesman Tom Goyda. He declined to say how many of those homeowners had stopped paying their premiums or how much time typically goes by between a policy lapsing and Wells Fargo finding out about it.

Mortgage lenders and servicers that are lax about flood insurance tend to be penalized lightly. In March 2013 the OCC, which regulates federal banks, determined that Amarillo National Bank had been making or renewing loans without requiring the necessary flood insurance. The fine? All of $7,250. In July 2015, Sumner National Bank of Sheldon in Illinois was fined just $3,000 for allegedly engaging in a pattern of “making, modifying, or renewing loans” without requiring coverage. First Federal Community Bank in Dover, Ohio, got dinged for $1,800. The banks neither admitted nor denied liability.

Ignoring flood insurance could soon become more costly for the mortgage industry, says Carolyn Kousky, a flood insurance expert at the Wharton School at the University of Pennsylvania. “So far there hasn’t been enough of a default risk to motivate lenders to do more on their own, voluntarily, but we’re seeing worse and worse events,” she says. “After Harvey, we might see a different kind of response.”

That’s because uninsured homeowners with severe damage may decide their only option is to abandon the property and stop making mortgage payments. “If you’ve lost your home and you don’t have insurance, that’s a good time to walk away from your property,” said R.J. Lehmann, an insurance expert at the R Street Institute, a libertarian research organization in Washington.

Fannie Mae and Freddie Mac can force servicers to buy mortgages they’ve sold or had guaranteed if they don’t have the required flood insurance, according to the Federal Housing Finance Agency. Susan Wachter, a professor of finance at Wharton, says that’s true—but it only works if the servicer has the money. And as flood events increase, so does the risk that individual servicers, which increasingly aren’t banks, will run out of funds.

“Servicers may be contractually on the line, but if they don’t have the capital, then they can’t pay up,” Wachter says, adding that taxpayers could be further exposed if clusters of homes default at the same time, reducing the value of houses around them.

Some experts have suggested that the federal government should require all homes to have flood insurance. Another possibility is to have policies last as long as 10 years.

Whatever the fix, Harvey and Irma have given the federal government a brief window to change its policy. “We can capitalize on this,” says Howard Kunreuther, a director of the Risk Management and Decision Processes Center at Wharton. “If you don’t take advantage after a disaster, you’re missing a critical opportunity.” —With Heather Perlberg, Joe Light, and Jeanna Smialek

BOTTOM LINE – The federal government has struggled for decades to enforce flood insurance requirements. Climate change is increasing the cost of that failure.

How a Disaster’s Economic Impacts Are Calculated

Providing an early estimate of a storm’s costs is generally a pretty rough science, and Harvey is a particularly tough case.


Floodwaters surround a home in Spring, Texas, after Harvey.David J. Phillip / AP


  AUG 29, 2017




Tropical Storm Harvey had not stopped raining on Texas before the first estimates emerged as to how many billions of dollars in damages would result from the storm. Initial estimates from insurance companies like Hannover Re put the number at $3 billion. In a note to clients, JP Morgan estimated that the insurance industry could lose $10 to 20 billion from Harvey, making it one of the top 10 costliest hurricanes to hit the U.S. Enki Holdings, a consultancy that calculates the risks and costs of various natural disasters, said Monday afternoon that its estimates for Harvey damages had reached $30 billion. It’s likely, though, that none of these estimates will end up being accurate. “It’s a pretty tough business—you don’t really know what’s on the ground,” Tobias Geiger, a researcher from the Potsdam Institute for Climate Impact Research, told me, about forecasting the impact of disasters. “A good ballpark would be if you’re off by a factor of two.”

There are two different types of damages tallied from natural disasters: direct damages, which are caused by harm to physical structures like buildings and the belongings inside of them, and indirect damages, which are caused by people losing their incomes and jobs. Both direct and indirect damages are best tallied months or years after a storm has taken place because people have made insurance claims, and if they’re not insured, they know how much money they spent rebuilding. But dozens of companies try to predict damages earlier than that, both because it is useful for insurers to know what their potential costs may be, and because government officials may need to offer economic aid for residents.

Every company that predicts damages from disasters has a different method for doing so. Enki, for example, has a computer simulation that uses the laws of physics to estimate what the forces of nature such as wind, waves, and flood waters would do to the properties it is predicted to hit. The company comes up with the values of the properties in a storm’s path using data it has tabulated on what sits on parcels of land across the country. Risk Management Solutions (RMS), a catastrophic-risk-modeling company based in California, has constructed a hurricane model that simulates tens of thousands of potential hurricanes to advise the insurance industry on the likely impacts of Harvey. RMS can use wind speeds to calculate what percentage of the home may be damaged by the storm, said Tom Sabbatelli, a senior product manager with the company. Once it gets information from insurers on the how much particular properties are worth, RMS can estimate the cost of the damages based on those percentages.

These models are pretty accurate when accounting for the damage caused by wind speed and storm surges, which are typically the two factors that cause the most damage from a hurricane. But Harvey was not a typical hurricane. Rather than just hitting the coast and moving on, it crept inland and lingered, causing huge amounts of flooding in Houston and surrounding areas. Watson estimates that 30,000 square miles have seen over 10 inches of rain. Experimental flood models he’s run show that impacts from Harvey are four to five times higher than those of a typical hurricane. “If Harvey had been a normal Category 3 or 4 hurricane, we’d be talking about a $4 billion storm—from a national perspective, it would not have been a huge event,” he said. “The problem is that Harvey moved inland and turned into a big, wet, tropical storm.”

Economists are now trying to calculate how to factor in the flooding damage that Harvey is causing. But damage from flooding is much more difficult to model than damage from wind. While the general wind structure of a hurricane is well understood by scientists, flooding is more circumstantial. Small factors can easily aggravate flooding—a trash can could block a drainage ditch, for example, and flood a block of homes, while the drainage ditch in the next block worked as planned, Watson said. Wind damage also usually harms the outside of a structure, while flood damage is heavily dependent on what’s inside the structure too, which can vary from house to house, Sabatelli said. And while instruments on the ground can accurately measure how fast the wind is blowing during a storm, there are not enough instruments to determine a flood’s extent with great granularity, block to block or home to home. “There will always be uncertainty in flood estimates,” he said.

Still, there are two past storms that can be compared to Harvey when it comes to calculating the amount of damages—Hurricane Ike and Tropical Storm Allison. Ike in 2008 had lower wind speeds than Harvey, but had a high storm surge and a great deal of coastal flooding. It cost $30 billion, which is about $38.4 billion in today’s dollars, according to the National Oceanic and Atmospheric Administration (NOAA). Tropical Storm Allison, which dumped 30 to 40 inches of rainfall in Texas and Louisiana in 2001 and produced severe flooding in Houston, cost about $8.5 billion, which is about $11.9 billion in today’s dollars, according to NOAA. The amount of rain Allison dumped on Houston was catastrophic, but Harvey released as much rain in two and a half days as Allison did in five, Watson said. “It’s probably too early to tell, but my guess is there is going to be parts of Houston that will be uninhabitable for at least months,” said Tatyana Deryugina, a professor of finance at the University of Illinois who studies the economic impact of disasters.

The fact that Houston is the nation’s fourth-largest city will also push the damages up, simply because there were more people and properties in the storm’s path. It is a bigger city today than it was when Allison hit. The city of Houston had 2.3 million residents last year, an 18 percent jump from the population in the year 2000, according to Census data. As more people move to coastal regions, scientists predict that the costs of storms could continue to rise because more people and properties will lie in the path of big weather events.

In addition, economic forecasters have also discovered that each new storm can generate costs that had not been problematic in the past. Hurricane Sandy, for instance, caused tens of millions of dollars in additional damage because of the valuable equipment like servers and financial documents stored in basements of some of the buildings that were affected. The costs of things like road signs and guardrails often add up more quickly than most forecasters anticipate—Watson estimates the costs of replacing street signs and repairing road damage after Katrina reached $800 million.

Still, one bright spot might be that indirect damages from Harvey might not be particularly bad. In a 2014 study, Deryugina used tax-return data to track the long-term economic impact of Hurricane Katrina on its victims. She found that though Katrina uprooted many people from their homes, the storm did not harm their long-term economic prospects. Though incomes of the average Katrina victim were lower than that of counterparts in other cities the year after the storm, by 2008, the average hurricane victims had incomes that were higher than comparable people in other cities. “What we found is that people bounce back pretty quickly,” she told me. On the other hand, New Orleans was a city with declining economic opportunities when Katrina hit, which meant that people forced to relocate often found better opportunities when they moved, she said. Houston was booming economically before Harvey, and if people lose jobs in Houston because of the storm, they might have trouble finding better opportunities elsewhere.

Photographer: Craig Warga/Bloomberg

Homes Are Getting Snapped Up at the Fastest Pace in 30 Years

The typical U.S. home lasted just three weeks on the market, according to a new report.


Patrick Clark

October 30, 2017, 8:06 AM MDT


Here’s more evidence that the defining characteristic of the U.S. housing market is a shortage of inventory for sale: Homes are sitting on the market for the shortest time in 30 years, according to an annual report on homebuyers and sellers published today by the National Association of Realtors.

fast money

The typical home spent just three weeks on the market, according to the report, which focused on about 8,000 homebuyers who purchased their home in the year ending in June. That was down from four weeks in the year ending June 2016 and 11 weeks in 2012, when the U.S. housing market was still reeling from the foreclosure crisis. It was the shortest time since the NAR report began including data on how long homes spend on the market, in 1987.

Buyers are snapping up homes quickly at a time when for-sale listings are in short supply, forcing them to compete. The number of available properties declined in September, according to NAR’s monthly report on existing home sales, marking the 28th consecutive month of year-on-year decline in inventory.

In addition to moving fast, buyers also had to pony up to close the deal. Forty-two percent of buyers paid at least the listing price, the highest share since the NAR survey started keeping track in 2007.

paying up

“With the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home,” said Lawrence Yun, NAR chief economist, in a statement. “Multiple offers were a common occurrence, investors paying in cash had the upper hand, and prices kept climbing, which yanked homeownership out of reach for countless would-be buyers.”