Australian readers of many stripes have a noticeable interest in international stories on two particular themes – China’s economy and US presidential politics. On the former we’re interested because, either directly or indirectly, China’s economy does and hopefully will continue to help put bread on our tables. On the latter, we’re always keen to know, at least in passing, who the most powerful person in the world is and the spectacle that accompanied their ascent. As China’s economy cools and US politics heats up in 2012, Australians will be spoilt for choice. But why aren’t we that interested in China’s politics? The Australian’s Michael Sainsbury explains how the looming third leadership transition since the death of the Communist Party’s final Supreme Leader, Deng Xiaoping, will have significant ramifications for the Chinese economy. And speaking of stories that demand greater attention, another commentator details the steady decline of forecasts for India’s economy from New Delhi, with warnings of more bad news to come.
But first we start with The Australian’s China correspondent, Michael Sainsbury, who delivers an epic piece on the pending leadership change at the top of the Communist Party, that will stall many decisions in 2012 (until October). This comes at a particularly crucial time for Beijing, which is set to release GDP figures for the last quarter of 2011 showing growth beneath 9 per cent for the first time since 2009.
"When the global financial crisis hit three years ago, Beijing reacted by pumping billions of dollars into Australia's economy, generating an investment bubble and adding to inflation, but the sustained domestic demand in China has helped Australia to avoid recession. Once again, Chinese policymakers face a similar challenge as growth slows because of the global meltdown and government-led efforts to tackle inflation. But this time, as Beijing considers whether to again increase spending, it is more tightly constrained in policy options, not just by the coming leadership change but by the rising power of elite interest groups. At the political and business level, the demand is for economic stability and continued strong growth rather than reform initiatives that could slow the behemoth. Yet without reform, China risks being stuck in the middle-income trap or experiencing a Japan-style ‘lost decade’ or two.”
The importance of China in Australia’s economic future cannot be overstated, but equally, India’s role in that future is routinely understated. While many eyes will be on China this week – analysing numbers widely believed to have been massaged by Beijing – Fairfax’s South Asia correspondent Ben Doherty tracks the steady decline in economic growth forecasts from inside the Indian government.
"Perhaps more significantly, the prime minister said he didn't see improvement soon, but was hopeful about a return to the 9-10 per cent growth rates seen in the past decade ‘in the medium term’. India's shrinking growth rate has caused no small concern over the past week, with many fearing its days of double-digit growth are gone forever. Businessmen such as Ratan Tata say if growth falls below 6 per cent, regaining momentum will be difficult. Others such as Deepak Parekh, head of HDFC Bank, say the government's inability to govern – to pass laws such as the foreign direct investment bill to allow international supermarkets into India – is crippling the country.”
Doherty points out that, as is always the case, it’s India’s poor that will suffer first during the slowdown. The disparity between rich and poor is something that India will have to grapple with in 2012, after the Occupy Wall Street movement brought the topic new life in the US during the latter half of 2011. The Sydney Morning Herald’s Clancy Yeates says there are good reasons why the Occupy Wall Street movement was a bit of a non-event in Australia, because we have a more equal society.
"However, that doesn't mean the issue should be ignored and the gap allowed to expand indefinitely. As US politicians are finding out, countries that turn a blind eye to rising inequality do so at their peril. Australia has always thought of itself as egalitarian, but this hasn't stopped things becoming more unequal in recent decades. A report last month from the Organisation for Economic Co-operation and Development said the recent rise in Australia's income inequality was among the fastest in the rich world. The top 10 per cent of income earners here made nearly 10 times as much as the bottom 10 per cent in 2008, compared with an eight-to-one ratio in the mid-1990s, the OECD said.”
Staying with the Australian economy to round out this morning’s commentaries, The Australian’s Criterion columnist, Tim Boreham, examined the 2012 predictions of 11 analysts over the weekend. The broad consensus is the market will be slightly up, the dollar will be slightly down, as will gold, oil won’t move at all and rates will rise 0.25 per cent.
The Sydney Morning Herald’s Michael Pascoe asks what the impact of Australia’s retail ‘malaise’ will have on landlords, while Colin Kruger argues that the retail picture is much more complex than Myers and David Jones, adding that some retailers did quite well over Christmas.
In banking, The Australian’s John Durie was unsurprised by ANZ Bank’s decision not to increase interest rates at its first ‘delayed’ announcement, while The Australian Financial Review’s Tony Boyd wrote over the weekend that firm action against excessive pay packets for banking executives is starting to happen.
Meanwhile, The Age’s Barry Fitzgerald foresees some tense negotiations between Newcrest Mining and Fiji’s military dictator, Commodore Frank Bainimarama, over the $1 billion development of the Namosi copper-gold project.