RM20bil aid for the people: the 6th economic stimulus package, Pemerkasa

 

PUTRAJAYA: The government has unveiled its sixth economic stimulus package, the RM20bil People and Economic Strategic Empowerment Programme (Pemerkasa), which, among others, will see targeted assistance given to the people and sectors still affected by the pandemic.

Focusing on 20 initiatives, Pemerkasa is also aimed at giving the economy a jump-start and to support business continuity, as the government reaffirms its commitment to care and listen to the people.

Unveiling Pemerkasa, Prime Minister Tan Sri Muhyiddin Yassin identified five focus areas to promote economic recovery – control the spread of Covid-19, accelerating economic recovery, strengthening Malaysia’s competitiveness, ensuring inclusivity by reducing development gaps within regions and communities, and transforming the economy.

Of the RM20bil under Pemerkasa, RM11bil is fresh fiscal injection by the government.

Muhyiddin said among the efforts in driving economic recovery was to revitalise the tourism and retail sectors which had been hard hit by the Covid-19 pandemic.

The Prime Minister said to alleviate the burden and to support the recovery of the tourism sector, the government would extend tourism tax and service tax exemptions on accommodation provided by hotel operators until Dec 31,2021.

“We will also extend tax incentives to tour companies until the year of assessment 2022, allow deferment of monthly income tax instalments from April 1 to Dec 31,2021 to companies in the tourism and industries such as cinemas and spas.

“The sector will also be provided entertainment duty exemption on admission fees to entertainment venues such as theme parks, stage performances, sporting events and competitions as well as cinemas in the Federal Territories, ” Muhyiddin said in a special address yesterday.

The scope of special relief on individual income tax of up to RM1,000 will be expanded to include expenses on travel packages provided by travel agents registered with the Tourism, Arts and Culture Ministry (Motac) while the HRDF levy exemption for affected businesses under the tourism and retail sector will be extended until June 2021.

Muhyiddin said in addition, the government had agreed to a one-off special assistance grant of RM3,000 to more than 5,000 tourism agencies registered with Motac.

The government will provide a one-off cash assistance of RM600 to homestay operators registered with Motac, which is expected to benefit more than 4,000 Malaysian Homestay Programme hosts or entrepreneurs.

“When most of us are vaccinated, the government will consider allowing interstate travel in stages and may even establish a special green lane for border travel involving air transport.

“At the moment, the government will need time to assess all the necessary aspects and weigh the risks before a decision is made, ” he said.

To assist cash flow and reduce operating cost for hotel operators, theme parks, convention centres, shopping malls, local airline offices and travel and tour agencies, a special discount on electricity bills of 10% will be extended for another three months until June 30.

The total cost borne by the government for this extension is RM135mil.

The Prime Minister said the Perikatan Nasional government remained committed to moving forward in planning various economic recovery strategies for the well-being of the rakyat.

“The government has done its level best to ensure that no groups are left behind from receiving government’s benefits.

“Perikatan as a caring government always listens and cares about the well-being of the people.

“This trust will be shouldered responsibly and sincerely for the sake of the people and the nation, ” he added.

Muhyiddin also urged the public to register for the Covid-19 vaccination, advising all not to delay because the sooner people get vaccinated, the sooner everyone can enjoy a normal life.

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  PETALING JAYA: The government’s People and Economic Strategic Empowerment Programme (Pemerkasa) includes hiring incentives and micro credit facilities to give a leg-up to the economic sectors most affected by the pandemic.

Prime Minister Tan Sri Muhyiddin Yassin said the government would allocate RM700mil to extend the Wage Subsidy Programme 3.0 for another three months, targeted at the tourism, wholesale and retail sectors.

Other sectors that were not allowed to operate during the movement control order would also benefit from this, he added.

“This initiative is expected to benefit 400,000 employees and 37,000 employers, ” he said.

Muhyiddin said the government would also enhance the PenjanaKerjaya 2.0 initiative under the Social Welfare Organisation (Sosco) by expanding the scope of hiring incentives to include temporary and gig workers.

This will include an allocation of RM300mil to assist 60,000 workers, where each worker will receive RM600 per month for a maximum of six months.

Employers offering short-term employment or gig service platforms registered with Socso will receive RM200 for each worker they hire.

The government will also extend the duration of PenjanaKerjaya’s apprenticeship programme to six months, where trainees undertaking this programme will be given an incentive of RM800 during their apprenticeship.

He said the government would continue to support the business continuity, especially local small and medium enterprises (SMEs).

“We will continue with the Prihatin Special Grant 3.0 (GKP) initiative to support businesses to recommence operations. Every eligible micro SME will receive a one-off assistance of RM1,000, ” he said.

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“Micro SMEs that have not received the GKP prior to this can apply for GKP 3.0 beginning April 1. GKP 3.0 is expected to benefit more than one million entrepreneurs.”.

He added that the government would increase the allocation for small-scale projects in 2021 from RM2.5bil to RM5bil..

“Among the types of small-scale projects which will be reserved for G1-G4 class contractors are the repair of public infrastructure and facilities damaged by floods, road repairs, social amenities, repair of strata housing including the replacement of elevators at public housing, and constructing stalls in municipalities, ” he said..

The government would also simplify procurement procedures to expedite the implementation of projects, he added..

Under Budget 2021, the government approved an allocation of RM1bil for micro credit financing facilities..

As such, Muhyiddin said the government would provide an additional RM500mil for micro credit financing through programmes under Bank Simpanan Nasional (BSN), the National Entrepreneur Group Economic Fund (Tekun Nasional), Mara and SME Corp..

“Through BSN, a fund of RM300mil will be made available with a financing limit of up to RM50,000 and the interest rate reduced from 3.5% to 3%. The loan tenure will be for five years and loan repayments will only commence after the sixth month..

“For entrepreneurs from the informal sector, Tekun Nasional will be providing an additional fund of RM60mil, especially for the Informal Financing Scheme with a financing limit of up to RM5,000 for small businesses operating from homes, night markets and wet markets..

“The Tekun Mobilepreneur programme will also be expanded to finance the repair or purchase of new motorcycles with a financing value of up to RM10,000..

“To complement this initiative, locally assembled motorcycles with an engine capacity of 150cc and below will be given a 100% exemption on excise duty from April 1 to Dec 31 this year, ” he said..

Financing assistance of up to RM20,000 will also be provided for repairing vehicles and up to RM50,000 for the purchase of vans or lorries under the POS-prenuer programme from Tekun..

“Through Mara, the Prihatin Micro Business Financing Scheme will be implemented, focusing on assisting 1,000 bumiputra micro SMEs in sustaining their business..

“A total of RM50mil will be allocated with a financing value of up to RM50,000 at an interest rate as low as 3%, ” he said..

“Additionally, SME Corp will provide RM50mil to assist local SMEs to obtain financing of up to RM250,000 at an interest rate as low as 3%.”.

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Malaysia, Asean to benefit most from China’s new economic strategies

Beijing's 14th five-year economic plan and 2035 goal promise a new era of development for China and the greater wealth for the world.

Momentous meeting: China’s top political advisory body wrapped up its annual session recently. — Xinhua

Review of China's achievements in 2020



US’s intention to destroy China will be a difficult process

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CHINA’s most important meetings of the year – “Two Sessions” – have unveiled Beijing’s medium- and long-term economic goals and strategies that experts believe will not only boost China’s quality development and modernisation but will also benefit the world, in particular Asean.

As Malaysia is part of the 10-nation Asean, China’s biggest trading partner, it will gain from Beijing’s strategies as long as Putrajaya continues to embrace foreign policies deemed as friendly – or at least non-toxic – towards Beijing.

The “Two Sessions” or Lianghui refers to the annual meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

The NPC is the Parliament where laws and policies are adopted, while the CPPCC is the top political consultative body comprising the Communist Party of China (CPC) and other interest groups that provide policy input for the NPC.

At the start of the NPC in Beijing on March 5, Premier Li Keqiang, while unveiling the 14th five- year plan (2021-2025), announced that China had set an economic growth target of more than 6% for 2021 – with emphasis on high-quality development, green economy, modernisation and innovation.

The GDP of China, the first country to be hit by and recover from the Covid-19 pandemic, grew by only 2.3% in 2020. Still, China was the only major economy to post growth last year.

Li also announced that China – the world’s second largest economy in the world – wants to double the size of its economy to 202 trillion yuan (RM128 trillion) in 2035, from 102 trillion yuan (RM64.5 trillion) in 2020.

Over the next five years, Beijing will aim to keep unemployment low, strive for 7% annual growth in research and development spending and forge a new development pattern.

China also aims to become an advanced manufacturing powerhouse by 2025. This involves upgrading its manufacturing capabilities in rare earth, robotics, aircraft engines, new energy vehicles, high-end medical equipment and innovative medicine, aviation, high-speed rail and industrial applications of the BeiDou satellite system.

Ultimately, China wants to reduce reliance on foreign technologies and enhance competitiveness against the United States after being trapped in a long and acrimonious US-initiated trade war.

According to a Xinhua commentary, the CPC wants to lay the foundation to transform China into “a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious and beautiful” by the middle of the 21st century.

To double its GDP, China needs to achieve an average annual growth rate of 4.7-5.0% in the next 15 years, according to estimates of economists.

Prof Justin Lin Yifu, a top economist in planning Beijing’s poverty eradication programmes, projects that China will become a high-income nation by 2025.

The dean at the Institute of New Structural Economics of Peking University told Chinese newspaper Global Times that his optimistic prognosis “is based on China’s complete industrial chain, rich industrial range and advantages in new technologies, including 5G and artificial intelligence”.

Chen Fengying, a research fellow at the China Institutes of Contemporary International Relations, told Global Times the five-year plan has taken into account risks and challenges, particularly those posed by the US and its allies that try to contain China’s rise and technology advancement.

Despite challenges ahead, Beijing has demonstrated that it is capable of achieving targets. A good example is shown in the eradication of extreme poverty in 2020, achieved on the back of economic disruption induced by Covid-19.

While China’s economic strategies aim primarily at developing domestic growth, they are seen as benefiting investors and foreign nations.

“Given the size of the Chinese economy and the important role it plays in the global economy, the 14th Plan also offers a bright spot for the global economy in this difficult time, ” Bai Ming, deputy director of the International Market Research Institute, told Global Times.

Indeed, China has contributed about 30% in global economic growth on average over the past 20 years. Within the next five to 10 years, China is expected to contribute 25-30% to global economic growth, says Gobal Times.

Christina Zhu, an economist at Moody’s Analytics, notes that Beijing plans to increase spending on fundamental research by 10.6% this year and encourages manufacturers to invest in research and development by offering greater tax benefits.

“China will further open up its domestic market to foreign businesses and investors. It has lifted restrictions in areas such as high-end manufacturing, new energy and service industries, and has committed to trimming down the negative list and providing a level playing field for foreign enterprises, ” she writes in a note.

Foreign trade stability and growth in foreign investment are critical to China’s ambition for greater connectivity with the world economy, she adds in the note also issued to Sunday Star.

Judging from what China’s Foreign Minister Wang Yi has said, Malaysia and its Asean neighbours can expect to enjoy preferential treatment from China.

Last Sunday, Wang Yi told a press conference: “China is willing to work with Asean to build an even closer community with a shared future and another 30 years of even greater cooperation.

“In the new development stage, China is like an express train with greater driving force and load capacity. China welcomes all countries to get on board and move towards a future of shared prosperity.”

Locally, the Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM) sees Asean becoming a strong beneficiary of Beijing’s economic plan and goals.

“With China regaining its strong growth momentum in 2021, its economic strategies will help to support Malaysia and Asean’s economic recovery from the pandemic, ” says Tan Sri Ter Leong Yap, president of ACCCIM.

The trade group sees China as intensifying external connectivity via the Belt and Road Initiative (BRI) of President Xi Jinping to accelerate China’s involvement in international trade.

Touching on Malaysia, ACCCIM notes that China has become Malaysia’s largest trading partner for the 12th consecutive year in 2020, with total trade valued at RM329.8bil or 18.6% of Malaysia’s total trade. Exports to China accounted for 16.2% while imports from China stood at 21.5%.

In 2020, China’s investment in Malaysia jumped 43.8% to RM5.8bil to become Malaysia’s sixth largest foreign investor.

“China’s long-term sustainable economic growth and greater emphasis on quality and technology-driven investment will open up more trade and investment cooperation in the areas that can help Malaysia’s industrial development.

“China’s signature BRI can continue to be a catalyst to spur more China investment to Malaysia and Asean, ” Ter tells Sunday Star.

The growing influence of China on the global stage will boost China-Asean economic cooperation, which can be further cemented by the signing of the 15-member Regional Comprehensive Economic Partnership (RCEP), he adds.

Malaysia’s development focus on IR 4.0, digitalisation, 5-G technology, e-commerce, green investment, renewable energy, electric cars and smart transport infrastructure also means that both nations can work together to foster win-win deals.

Ter opines: “Malaysia can learn a lot from China in high technology, digitalisation, agri-tech and the building of smart and eco-industrial parks.

“We hope that the Prime Minister’s planned visit to China could further strengthen bilateral relations, taking it to a new level of win-win partnership. Both countries have come a long way in deepening trade and investment flows, enhanced connectivity and people-people exchange.”

For Prof Datuk Dr Chin Yew Sin, China’s BRI strategy under its 14th five-year plan could help Beijing achieve its economic targets.

“Between 2013 and 2019, China had signed with 138 counties, including Asean countries, for a total of 790 BRI projects. These overseas BRI projects undertaken by China will help spur the economic growth rate of China by about one per cent annually.

“The BRI projects implemented in Malaysia and other Asean countries will enhance the economic growth rates of these countries also, ” says Dr Chin, adviser for the Global One Belt One Road Association (Asia Pacific Region).

Dr Chin believes China’s demand for Asean’s natural produces and manufactured products will be even greater when it overtakes the US to become the largest economy in the world before 2035.

“By then, Malaysia will be able to export more of its electrical and electronic products, palm oil, rubber, oil and gas, timber products and others to China due to a higher demand of these goods.

“In addition, Malaysia will be able to attract more direct investments from China because of its long-standing good relationship with China, ” he adds.

Malaysia was the first Asean country to establish diplomatic ties with China in 1974 and Beijing has never failed to repeat its gratitude to Malaysian leaders at meetings, Dr Chin notes.

Datuk Keith Li, a mainland Chinese business leader in Malaysia, shares the views of his Malaysian counterparts.

“China will definitely focus more on the Asean market since the bloc is China’s biggest trading partner amid the pandemic. Moreover, China’s current ties with the US, Europe and Australia are tense, ” says Li, president of the China Entrepreneurs’ Association in Malaysia.

He adds: “There will be more to be done when the RCEP is implemented. China is expected to help Malaysia build a high-speed railway, an essential link with other Asean countries” Cambodia, Myanmar, Laos, Thailand and Singapore. This will also facilitate China to enhance economic cooperation with Asean in tourism, trade, logistics and communication.”

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STILL AMRICA FIRST IN TRADE

Digital push

 

Go big in digital or risk being left behind. The government took full cognisance of this, which saw it roll out the Malaysia Digital Economy Blueprint or MyDigital recently.

It dove deep into the national digitalisation journey since 1996 when the Multimedia Super Corridor (MSC) was initiated and picked up on several weaknesses to address before it went back to the drawing board.

The Covid-19 pandemic and its wrath further cemented the need for digitalisation efforts, not only for the economy to rebound post-pandemic but even more so to future proof the nation from any sort of further crisis.

Minister in the Prime Minister’s Department Datuk Seri Mustapa Mohamed (pic below) said the pandemic has laid bare the weaknesses and the gap in the economic structure that has to be addressed immediately.

“Covid-19 affected the B40 more than the T20 and M40. We saw the impact from the MCO on micro, small and medium enterprises (MSMEs).

“The reality is, most of the traditional or brick and mortar business owners have to shut down because they were unable to generate any revenue for months but they still had to pay their workers and for rental. Most of them have low digital literacy and it is not easy for them to move into the digital economy quickly, ” he said in a 10-point question and answer on MyDigital.

Mustapa added that there was no other choice than to accept and adopt digital technology, where the agenda is to improve the quality of life of the people, to improve business productivity and to stimulate the country’s economic growth.

He said Malaysia is one of the countries with the highest Internet usage, far higher than Thailand and Singapore.

“During the pandemic, Internet data usage rose by approximately 30%. The government sees an importance in this in empowering the business community. Business sectors are expected to grow rapidly in line with global competition and this will give our local businesses opportunities to penetrate the global market to become even more competitive through digitalisation, ” he said.

From a macro perspective, the digital economy is expected to contribute 22.6% to the gross domestic product (GDP) by 2025.

MyDigital is also targeted to produce some 500,000 jobs in the digital economy and ensure that some 875,000 MSMEs adopt e-commerce.

For the people, the target is to achieve 100% of households with Internet access and for all students to have access to online learning.

Mustapa stressed on the importance of the blueprint in bridging the digital divide among Malaysians, between the urban and rural and between the young and old.

“The Covid-19 pandemic has raised our awareness that the adoption of digital technology needs to be expedited to protect our people from the risks of the digital economy. We are expected to see a change in the digital economic landscape towards improved digital literacy, creation of high-income jobs, a simpler and better organised banking and financial management, access to better education virtually, and the mobilisation of medical facilities to remote towns, ” he said.

For instance, Mustapa said one no longer needs to rent a shop to run a business and can do so entirely online using Facebook, Instagram or WhatsApp.

While digitalisation was not something alien to Malaysia, the minister noted that the digital foundation has to be further strengthened in a more aggressive and integrated manner.

There are three phases to the Malaysia Digital Economy Blueprint – the first phase from 2021 to 2022 on accelerating adoption to strengthen the digital foundation, the second phase from 2023 to 2025 to drive digital transformation and inclusion, and the final phase from 2026 to 2030 to become the digital product manufacturer and digital services provider for markets in the region.

“The first phase places a holistic emphasis on data and digital intelligence as the lifeblood of empowering the digital economy in Malaysia.

“In the second phase, the government will look towards an inclusive digitalisation strategy where government efforts will be focused towards digitalisation engagement on a larger scale.

“This will also see the private sector empowered with human capital to encourage innovation in business areas such as the gig economy sector whereas phase three will chart the path for strong and sustainable growth in the coming decades, ” Mustapa said.

The government also hoped that the initiatives under MyDigital will serve as a catalyst for 5,000 new start-ups in the next five years and to attract unicorn companies to operate in Malaysia due to its tremendous spillover effect. A unicorn is a privately-owned start-up valued at over US$1bil (RM4.06bil).

When the unicorns perform well, Mustapa said this will contribute to the country’s cash flow and will also become the starting point to attract new foreign and domestic investments of some RM70bil into the digital sector.

“Old or young, urban or rural, or what your level of education or career is, the blueprint is for all of us. There’s something in it for everyone. I urge all Malaysians to grab the available opportunities and make the most of it. Together, we will be able to improve the standard of living of every Malaysian, ” he said.

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Budget 2021 – Great expectations

 

LAST Friday, the Finance Minister tabled what is now known as Malaysia’s largest-ever budget.

The excellently-crafted and well-written budget was presented in a couple of hours and after it was presented, the social media, mainstream media, economists, consulting firms and investment banking strategists gave their views on the measures, especially those related to taxes, incentives or grants.

Now that Budget 2021 has been tabled, lawmakers will debate on the merits and vote on it. Having covered budgets for more than two decades, the devil is in the details and this year is not an exception.

Let’s look at the gross domestic product (GDP) estimate first. The government expects GDP growth for 2020 to contract by 4.5% and for next year, it is estimated to grow by between 6.5% and 7.5% in real terms. For the economy to close the year with the projected contraction, the second half of 2020 has a very small room to contract by only 0.7% as the economy shrank 8.3% in the first half.

This is a tall order as economic data remains largely weak as seen in several indicators, which include the industrial production index as well as the poor reading in the retail sub-segment.

With almost the entire nation under the conditional movement control order, economic growth, if any, will be challenging.

Meanwhile, in nominal terms, the government expects GDP growth to be -4.7% this year and to rise significantly by almost 9% in 2021, as inflation is expected to return with a reading of 2.5%, mainly due to the low base effect from 2020.

Perhaps when the Bank Negara releases the third quarter GDP data on Friday, we can then assess if the full year GDP assumption still holds water or otherwise.

For 2021, the government expects GDP growth to be driven by domestic demand, in particular growth from private consumption while the external sector may post some drag as imports are forecast to grow even faster than exports.

On the supply side, the government expects the services and manufacturing sectors, which account for 80% of the economy, to grow by 7% each while construction is expected to bounce back with a near 14% leap in 2021 after the forecast drop of 18.7% this year. From here, we can observe that one of the key drivers of the economy next year is public investment, as the government has bumped up development expenditure to the tune of RM69bil for 2021 from the adjusted figure of RM50bil this year (which was previously forecast to be at RM56bil).

The government’s total expenditure is now broken into three main buckets – other than operating expenditure and development expenditure, we now have a new line item called the Covid-19 Fund with an allocation of RM38bil this year and RM17bil next year.

In essence, since the pandemic outbreak, the government has introduced various economic stimulus packages under its Prihatin package series and the Penjana package, which in total amounted to RM305bil, while the actual direct fiscal injection totaled RM55bil.

However, under the Temporary Measures for Government Financing (Coronavirus Disease 2019) Act, the Parliament had only approved a ceiling of RM45bil for the fund and hence the Minister has proposed, taking into consideration the nation’s need up to 2022, an amendment that will be tabled to raise the fund to RM65bil, an increase of RM20bil.

This increase that was mentioned in the budget speech is meant for the RM10bil Kita Prihatin package, additional assistance for people’s well-being, as well as to secure the supply of the much-needed vaccine. The table above summarises the government’s revenue projection for this year and the next.

The expected revenue for the second half of the year and into 2021 will be challenging for the government, given the level it had achieved in the first half. As it is, the second half forecast is 23.3% higher than the first half.

In addition, for 2021, revenue and expenditure are expected to increase by 4.2% and 4.3% respectively, which will likely be tough given the tax breaks that the government is proposing, in particular, company income tax (CITA) and personal direct taxes.

Based on government’s estimate, taxes from the two sources are expected to fall by 6.8% and 7.2% this year but will bounce back strongly in 2021 with a growth of 8.8% and 18.2% respectively.Interestingly, the 2021 forecast for CITA and personal direct taxes at RM64.6bil and RM42.4bil is higher than 2019’s figure by 1.3% and 9.7% respectively.

As for expenditure, as total federal government debt stood at RM874.3bil mark or 60.7% of GDP as at end of September 2020, the government’s Debt Service Charges (DSC) too have deteriorated.

From an estimated level of 15.4% of GDP this year, DSC is expected to drop further to 16.5% in 2021, mainly driven by 11.6% increase in absolute DSC to RM39bil.

Although both the DSC ratio in 2020 and 2021 will be higher than the self-imposed fiscal limit ratio of 15%, it is hoped that by beyond 2021, this ratio will be brought under control when the economy is expected to expand further.

All in, Budget 2021 measures are holistic and inclusive for all levels of society and have been cleverly crafted to address the challenges faced by Malaysians, especially those severely impacted by Covid-19.The government has largely listened to the voices of hope in addressing the pandemic world.

Having said that, the expected government’s revenue and GDP projections are rather optimistic, resulting in a much lower budget deficit figure while the forecast government tax revenues too are on the high side. While the DSC has now surpassed the self-imposed ceiling, the government’s debt to GDP ratio is expected to remain elevated for at least this year and in 2021.It is important for the lawmakers to approve this budget as the government has taken steps in keeping the economy going.

While there are some shortcomings in the terms of budget allocations, it is hoped that this can be ironed out during the parliamentary debate stage and all lawmakers come to an consensus to approve the gigantic budget.

Pankaj C. Kumar is a long-time investment analyst. Views expressed here are his own. 

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The FM really got SHOCKED when LGE asked him whether the budget was approved by the cabinet. Watch the video.

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CMCO announced in 6 more states: Kedah, Penang, Perak, Melaka, Johor and Terengganu

Senior Minister for Security Ismail Sabri Yaakob said only Perlis, Pahang and Kelantan are exempted from the CMCO New Covid-19 cases at.

Global economic rebound stricken by Covid-19 surge

European Central Bank president Christine Lagarde (pic) said the economic recovery is “losing momentum more rapidly than expected” after

Global economic rebound stricken by Covid-19 surge

European Central Bank president Christine Lagarde (pic) said the economic recovery is “losing momentum more rapidly than expected” after the partial rebound seen in the summer. She warned that the risks to Europe’s economies are “clearly tilted to the downside”.

THE recent resurgence of the Covid-19 infections has cast a new shadow over the global economy, with lockdown measures taking place.

In France, President Emmanuel Macron has declared a nationwide lockdown starting today. It comes just days after German Chancellor Angela Merkel announced a four-week shutdown of bars, restaurants and theatres.

This week’s decline in global equities comes as investors grow increasingly worried about the economic recovery due to the sharp rise in the number of Covid-19 cases in Europe and in the US.

Over the past few weeks, there has been a series of new restrictions in many countries, including Malaysia, that make it harder to know where the economy is heading.

On Thursday, European Central Bank president Christine Lagarde said the economic recovery is “losing momentum more rapidly than expected” after the partial rebound seen in the summer.

She warned that the risks to Europe’s economies are “clearly tilted to the downside”.

The latest round of infections are causing a heightened level of uncertainties for governments to prepare fiscal and monetary responses.

International Monetary Fund (IMF) chief economist Gita Gopinath called on governments to continue fiscal support, including credit lines for small and medium businesses, wage subsidies and grants until the recovery is underway.

“To prevent large scale bankruptcies and ensure workers can return to productive jobs, vulnerable but viable firms should continue to receive support, wherever possible, through tax deferrals, moratoriums on debt service, and equity-like injections, ” she said in mid-October.

“Most economies will experience lasting damage to supply potential, reflecting scars from the deep recession this year, ” she added.

The IMF pointed out that Covid-19 remained the critical factor in economic recovery, and that “many more millions of jobs are at risk the longer this crisis continues.”

According to a recent estimate by the World Bank, up to 150 million more people may be pushed into extreme poverty by 2021.

The global economy is expected to decline by 4.4% this year before it expands to 5.2% in 2021, according to the IMF’s World Economic Outlook report published recently.

Interestingly, IMF data shows that emerging markets are likely to see a lower contraction of 3.3% this year compared to 5.8% decline in developed economies.

For the eurozone economy, the agency expects a slump in GDP by 8.3% in 2020, a level not seen since the 1930s Great Depression, with Spain likely to suffer the most.

The report predicts the Spanish economy to slide 12.8% followed by Italy, down by 10.6.%. Even the EU’s economic powerhouse, Germany, could contract by 6%.

Advanced economies’ recovery in 2021 would be slower than emerging economies, with GDP expected to grow 3.9% compared to 6%, the IMF believes.

The IMF said China, where the first cases of Covid-19 were reported, will be the only economy with positive growth for this year, with 1.9% expansion.

“While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks, ” it said.

China’s recovery from the pandemic is mostly coming from accelerating industrial production and robust export growth.

The US economy grew at a record pace in the third quarter. It expanded by an annualised 33.1% quarter-on-quarter following a plunge of 31.4% q-o-q in the preceding quarter as economic activities gradually resumed.

With the second wave of pandemic infections, though, some market observers suggest that a recovery remains uncertain.

MIDF Research said that on an annual basis, the US economy contracted 2.9% year-on-year in the third quarter, which is a “significant recovery” from the 9% fall registered in the second quarter this year.

“The recovery remains incomplete as the pandemic-induced crisis is far from over and the number of daily Covid-19 cases remains elevated.

“Tighter rules in other parts of the world such as in some European countries could be echoed by the US, which threatens the continuous recovery in the country, ” it said in a report yesterday.

In a report by Reuters, Moody’s Analytics chief economist Mark Zandi said rising Covid-19 cases, particularly in the winter months, could means a second economic hit from the virus, which is likely to be worse than the first time around.

He expects more business failures should the number of cases continue to spike.

“A lot of businesses were able to navigate together with the PPP money (Paycheck Protection Programme loans). Of course, consumers were able to hang in there, because they got all that consumer support from the government, ” he said.

“This time, if the pandemic intensifies and infections rise, it is going to be very difficult for these businesses to make it through, ” he added.

“We will see more business failures and the scarring effect, as economists say, will make it much more difficult for the economy to get back on track and get back to full employment.”

The IMF, meanwhile, has called on governments to rethink their spending priorities and direct funding to projects that will boost productivity, including green energy investments and education.

With debt on the rise in many countries, it said policymakers may need to increase taxes on the highest earners, cut out loopholes and deductions, and ensure that corporations pay their fair share of taxes while eliminating wasteful spending.

“This is the worst crisis since the Great Depression, and it will take significant innovation on the policy front, at both the national and international levels, to recover from this calamity, ” IMF said.

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Asia’s Journey at 60, what does independence mean, the promise & perils

What does Independence mean for former colonies

Singapore is the exemplar that pulled itself into the ranks of advanced income status by sheer grit and determination.ST PHOTO: LIM YAOHUI

How its leaders forge cohesion, heal social wounds will be true test of maturity in next 60 years

ON SEPT 16, Malaysia celebrates her 57th national day, having celebrated on Aug 31 the 63rd anniversary of independence from Britain in 1957.

What does Independence mean for former colonies?

It means that a nation is free to choose its own future independent from imperial influence. Lest we forget, colonisation in Asia arrived in the 16th century with Portuguese, Dutch and British pirateers who came, saw and conquered. They did this in the name of their king and Christianity, but it was mostly for their own well-being.

No statistic illustrates this better than the stark fact that India before colonisation in 1700 accounted for 24.4% of world GDP (Maddison, 2007) and by independence in 1947, her share was down to only 4.2% in 1950. Of course, the British left behind the English language, the rule of law and a durable administrative structure that is still being practised in many former colonies.

We should also be grateful that decolonisation (shedding of empires by the European powers) was encouraged by the post-war American administration, which basically did not want any challenges to her dominant status, British cousins or not. The result was that Hong Kong was the last of the colonies to lose her status in 1997. Considering that some Hong Kongers are still waving the Union Jack, colonial nostalgia has not lost all its fans

What matters is what the newly independent countries achieved with their sovereignty. Singapore is the exemplar that pulled herself into the ranks of advanced income status by sheer grit and determination, having almost no natural resources. Myanmar, on the other hand, was richly endowed with natural resources and had one of the best educated elites at independence in 1948. Ruled mostly by the military junta, her growth has been stunted relative to her neighbours.

The Asian Development Bank has just published an excellent book on Asia’s Journey to Prosperity, commemorating 50+ years of its establishment in 1966. The book tracked Asia’s transformation from a post-colonial era of essentially rural Asia to today’s urban and technologically driven region that accounts for roughly half of global growth.

Seen from a 60-year cycle, Asia’s transformation has been world-shattering. In 1960, Developing Asia (ex-Japan) accounted for only 4.1% of world GDP, measured in constant 2010 USD terms. That year, the EU accounted for 36.2% and the United States 30.6% respectively, together 18 times larger.

Japan was already a developed country with 7.0% of world GDP. By 2018, Developing Asia’s share increased six times to 24.0%, on par with the EU (23.2%) and the US (23.9%). This means that including Japan, Asia accounted for 31.5% of world GDP. The global GDP shares for Latin America, the Middle East, Africa and rest of the world were essentially unchanged in the last half century.

In other words, the loss in share of world GDP by Europe and the US between 1960-2018 was largely gained by Developing Asia, of which China was in its own class. China’s GDP grew 84 times over this period, whereas the other three Asian dragons, South Korea, Taiwan and Singapore, grew between 55 to 58 times. By comparison, over the same period, OECD countries, including Japan and Australia, basically grew eight times. Malaysia is in the upper pack, having grown by 35 times.

The secrets of Asia’s successful transformation deserve repeating. During this period, there was peace and general political stability, with Asian governments being fiscally prudent and willing to invest in infrastructure and people. Asia did not follow the “import substitution” model adopted in Latin America but adopted the Japanese export industrialization route. Development essentially came from a young growing population that shifted out of rural agriculture into urban centres, with pragmatic governments working hand-in-hand with markets to create jobs in new industries and services.

This raised the savings and investment levels significantly above that of the rest of the world. The state took care of macroeconomic stability, education, health and infrastructure, preparing the labour force for foreign and domestic enterprises to propell exports and growth.

Those economies that were most open to technology and innovation, including welcoming foreign investment, grew fastest. Initially, income distribution improved, but in recent years, income and wealth inequalities have widened. Furthermore, climate change issues in terms of weather change, impact on water, food and increasing natural disasters are rising in the social agenda. The geopolitical temperature has also risen with the West feeling more insecure.

Currently, China’s rise is seen as the main geopolitical rival for the West, since she is the West’s largest market, biggest supplier, toughest competitor and rival political model. But not far behind China are India and Asean, both with a culturally diverse, younger population, totalling two billion people and a US$5.8 trillion GDP, about to enter into technologically driven, middle-class income levels.

Both South and South-East Asia are about to enjoy the same demographic dividend as China, but it will take competent governments to ensure that the rise to middle and advanced income will be accompanied by good jobs and fair distribution, particularly in the face of growing protectionism, and decoupling in technology and supply chains.

Asia’s growth must be in cooperation with the West, socially, commercially and technologically. But the greatest risks are the neo-con hawks in the West who are willing to risk war to disrupt Asia’s rise.

Put simply, if Asian growth stalls, the world will lose its growth engine.

The rise of Asia for the rest of the century is neither destiny nor pre-ordained. The West will not sit by to see its leadership erode. But as McKinsey’s useful analyses on the Future of Asia opined, “The question is no longer how quickly Asia will rise; it is how Asia will lead.” Leading in a culturally diverse and complex world is not about fighting, but about how to work together, meaning competing and cooperating at the same time. The greatest Asian divide is not technology, but social polarisation driven by race, gender, religion, ideology and health/wealth inequalities, all exposed brutally by the pandemic.

How a new generation of Asian leaders heal these social wounds and move forward without fragmentation and fighting will be the true test of Asia’s maturity in the next 60-year cycle.

Andrew Sheng is a Distinguished Fellow of Fung Global Institute, a global think tank based in Hong Kong. The views expressed here are his own.

Asia News Network

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Global connection, disconnection, reconnection

In four separate speeches, Secretary of State Pompeo (pic), Attorney General Barr, National Security Adviser O’Brien and FBI Director Wray laid out their case for containing China. But do the US Gang of Four’s analyses of containment of China make global sense?

https://youtu.be/DPt-zXn05ac

This is the age of disconnection. What Covid-19 has done is to show up all the flaws of global connectivity.

The virus travels with human beings and forces us to have periodic lockdowns that disconnects the transmission, buying time to bring it under control. Commenting on the pandemic, US Foreign Affairs magazine laments not only the US failure to prepare, but also the failure to contain: “what is killing us is not connection, it is connection without cooperation.” Touché!

Globalisation was the great connector, created by the unipolar order which saw free trade as beneficial not just to the world, but mostly to itself. But the shift to a multi-polar order made America insecure and everyone else unsure.

A wounded Alpha is always dangerous, emotionally hurt and lashing out on perceived rivals. China as number two falls into that category.

In four separate speeches, Secretary of State Pompeo, Attorney General Barr, National Security Adviser O’Brien and FBI Director Wray laid out their case for containing China. But do the US Gang of Four’s analyses of containment of China make global sense?

Beating the drums of war, decoupling trade and splintering the Internet into a “Clean Net” may sound great for domestic politics, but no one in their right mind can support a nuclear arms race in the midst of a growing global pandemic and possibly the worst economic depression since the 1930s.

The global free trade bargain is very simple - free trade is win-win for all trading partners, but each country must deal with the unequal distribution of trade benefits within its own borders - all about domestic politics.

Disconnecting global trade and free flow of information only increases costs for all, reducing the resources to deal with domestic inequalities.Worse, any arms race is lose-lose for all, diverting scarce resources from fighting pandemics, climate warming and domestic injustices.

History is the best guide to understanding how we got into the mess today.

The story on US politics and economics is well told, but the China story is often undertold. Because of China’s rapid growth from poverty to world number two in 40 years, most historians are still at a loss to explain what this implies for the world as a whole. NUS East Asia Institute Professor Wang Gungwu in his marvelous new book: “China Reconnects (2019)” has given us a clear and easily readable sweep of China’s history and her search to reconnect with the outside world.

Professor Wang has condensed global history into three key centres of power: Mediterranean, India and China.

In 1500, China and India accounted for 48.6% of world population and 49.2% of world GDP (OECD). The Mediterranean powers (broadly including all Western Europe and West Asia) amounted to 17.1% and 22% of population and GDP respectively.

But it was naval power, science and technology that enabled the Western swerve to global dominance, so by 1950, China and India together accounted for 16.3% of world GDP, but 35.9% of the population. Western Europe and USA plus Western offshoots accounted for 19.1% of global population, but 56.8% of world GDP.

This neglect of maritime power caused India to be colonized by the 18th century, and China nearly gobbled up by the 19th century.

China’s engagement with the world was mostly through the Silk Road, with Indian Buddhism being the major foreign cultural influence on China. The Silk Road flourished during the Tang Dynasty (618-907 AD), but the Mongol empire in the 13th-14th century connected China not only to Europe, but also to Mughal India.

However, the arrival of Western traders through South-East Asia after 1500 accelerated China’s trade with the West (including cross-Pacific trade with Latin America through Manila). Only in the 20th century did China begin to appreciate that the key instruments of Western power came from maritime power and ability to enforce international law.

In Chapter 2 of “Behind the Dream, ” Professor Wang skillfully weaves the story of post-dynastic China, when Chinese intellectuals struggled to understand modernity. It was the Japanese invasion that sparked Chinese nationalism, culminating in the civil war that enabled the Communists to unite the country with the founding of the People’s Republic in 1949.

The story of Chairman Mao, Deng Xiaoping and the policy choices of President Xi Jinping is told with verve and deep insight, without the usual Western baggage of seeing personalities in black and white.

China’s admiration for the West is defined in Chinese names for the leading powers – heroic England, beautiful America, legal France and virtuous Germany. Hence, the reforms in the last 40 years were all about reconnecting to the West through trade, investment, technology and people. But as China became deeply entangled in globalisation as the world’s largest manufacturer and trading partner, there grew an internal awareness that continued development would have to rely on internal stability and order, as well as external security. Stability was premised on a strong Party, and as Professor Wang put it, “the country’s integrity rests on the capacity to defend its borders even from the world’s sole superpower.”

Professor Wang goes deep into Chinese philosophy and political history to find China’s roots into the new world order.

The book’s real contribution is in explaining China’s shift from the Old World to the New Global. Here, China’s interaction with the South, especially with the Association of Southeast Asian (Asean) countries, will play crucially in the next phase of development of the New Global.

Asean comprises 600 million people and over US$2.5 trillion in GDP, with great cultural diversity, natural resources and a strategic zone that holds the key to global trade between the West, South Asia, China and Northeast Asia. The South China Sea cannot afford to be balkanized because it was Great Power struggles that made the Balkans an unstable region for Europe and the Near East for over a century.

As the US tries to disconnect, China Reconnects is a tour-de-force for us to understand current developments from the lens of philosophy and history. Professor Wang writes with eye-popping clarity, dosed with empathy, to guide us through the fog of uncertainty. Unfortunately, reconnection takes two to play. Whether the next US President will attempt to connect or disconnect will be the question of the century.

Andrew Sheng is a Distinguished Fellow of Fung Global Institute, a global think tank based in Hong Kong.The views expressed here are the writer’s own.

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