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Japan is Different, Will China Become Japan, the Air Up Here

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As you may have noticed, music is important to us and we make a point of getting to live shows when we can. You may also have picked up that we are big fans of New Orleans. So when the Hot 8 Brass Band out of the Crescent City comes to town, you know we’ll be there. They are the Rolling Stones of brass bands to the Rebirth Brass Band’s Beatles, combining funk, hip-hop, bounce and the call backs of the sanctified church with the long tradition of brass bands. One of our favorite shows we’ve ever been to was a Hot 8 second set in NOLA around 1 am in a venue not much larger than our living room. The slide of the trombone nearly hit us. Tuesday night’s show was fantastic too with the guys jamming in top form. With all that divides our world, music often brings us together–whether here in Seattle, down in New Orleans, over in Manchester, or even in Tehran. On the latter, we came across the video below of two Iranian buskers, a woman bassist and a man playing the guitar, covering Radiohead’s Creep. Check out the short video below and then tap your feet as we examine yet again how different Japan is, delve into whether we should worry about China following Japan’s economic path and then breathe in, but not too deeply, the latest data on air pollution. It’s this week’s International Need to Know busking for knowledge and information on the streets of our hustling, bustling world.

Iranian Buskers play a funky rendition of Rad…
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Without further ado, here’s what you need to know.

Japan is Different Part 6,753.5

We love Japan. It has one of the most unique cultures in the world and we are a sucker for those who march to the beat of their own drum, even when it’s an entire nation. Of course, there are trade-offs in everything in life and Japan’s uniqueness can lead to challenges. For example, in Japan, CEOs are far older on average than in other countries. As you can see in the chart below, the average age of a Japanese CEO is 61 while globally it is 53. Further, only 33% of Japanese CEOs worked in another company at one point in their career while globally the figure is 74%. An article in the Nikkei Asian Review notes that “because many Japanese CEOs build their careers in a fairly culturally homogeneous environment, Japanese companies are at a big disadvantage when it comes to competing globally.” That cultural homogeneity makes our world much more heterogeneous, but like Japan’s lack of immigration and its other insular ways, homogeneity also has challenging effects for the country and economy. 

Will China Become Japan?

No we don’t think China’s CEOs will suddenly become old but people are making comparisons between the two countries’ economies. The Financial Times notes a number of eerie similarities between China’s economy and the pre-bubble, late-1980s Japanese economy, just before Japan’s long economic slog. But, the FT, which we esteem as much as the next person, misses two factors that typically, for the ever complicated China, point in various directions. First, is a demographic comparison. China, like Japan, like most of the world, has an aging population and most important has a shrinking working age population. The chart below by Charles Schwab, shows that under current projections China’s aging demographics are closely mirroring Japan’s. As we’ve noted before, economic growth goes up due to a larger working age population and due to productivity increases.* Unless trends change, China will face a future demographic headwind. However, China does not have the same closed society culture that Japan has so it’s possible it’s working age population could increase due to immigration (like America) or perhaps its birth rate will start going up again. Nonetheless, the graph below is worrisome. The other thing the FT article neglects to mention is that although Japan’s economy has been problematic, if one looks at GDP per capita, Japan does not look so bad. Of course, GDP overall is not growing and we shouldn’t expect it to expand with a shrinking population. But, the economy, when discussed in per capita terms, is not so bad. Whether China follows Japan’s path we do not know, but there are plenty of short-term worrying signs.

*China productivity, like the rest of the world’s, is way down in recent years.

The Air Up Here

Depending on where you live, the air you’re breathing is full of particulates and other pollution. In recent years, Berkeley Earth began a major project to start tracking such pollution. In the map below you’ll see the worst areas in reds and purples (those colors sure seem to get a bad rep in graphics and metaphors while green just keeps skating on by–like much in life, our perceptions of colors are unfair). Berkeley Earth measures PM2.5 — particulate matter measuring 2.5 microns across or smaller–to determine where air pollution is problematical. Large parts of China, of course, look like Jake Lamotta’s face during a Raging Bull boxing match. But they are by no means alone. India is full of purple and red too. You’ll even see some yellow in parts of Europe and the United States. Berkeley Earth has not mapped Africa yet. Berkeley Earth has calculated “daily exposure to PM2.5 in terms of cigarette equivalents. Red is like smoking five cigarettes a day, purple brings you up to 10 and the brownish purple is the equivalent of Humphrey Bogart in a saloon in north Africa–15 or more Pall Malls a day. During a really bad day in Beijing one might as well inhale a pack of 25. But, as Berkeley notes, China is trying to address air pollution–and the incentive is not so much climate change but because of these localized air pollution health issues. There may be a lesson in here for addressing a variety of transnational issues resistant to solutions.

Unproductive World, Is China Smaller than we Think and Forest Bathing

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Nostalgia, memory and quests are funny, tricky, even occasionally dangerous things. Years ago when we were but a teenager, we read a science fiction novel called Space for Hire, which at that age we loved. It was about a hardboiled detective named Sam Space (no relation) and in some ways foreshadowed the Star Wars movies. A sequel to the novel existed but was out of print and extremely difficult to find. A friend and I searched in used book stores but in our small town the sequel proved elusive. Years later we found it in a used book store on the east coast. We eagerly read the book and…it was terrible. A huge let down. In fact, when we re-read the original Space for Hire years later, we discovered to our shock and dismay, that it was not only not very good but also full of racism and misogyny. The quest for the book was far more enjoyable and edifying than the books themselves. Of course, today such quests don’t really even exist with Amazon and the Internet putting everything at our fingertips, eyes and ears instantly and continuously. It is a better world because of these technological developments but as with everything there is a trade-off. Something is lost in not being able to hunt for today’s equivalent of Space for Hire, and in confronting our nostalgia and memories we found our innocence lost as well. But neither technological advances nor nostalgia pry us from continued worries about productivity, the mystery of the missing 90 million in China and the scientific validity of Japanese Forest Bathing (a sentence we could type over and over again).  It’s this week’s International Need to Know your hardboiled look at our increasingly soft boiled world.

Without further ado, here’s what you need to know.

Our Continued Unproductivity

May you live in interesting times is the alleged curse. More apt, we believe, is may you live in unproductive times, which indeed we are. Last year we warned about the near worldwide slowdown in productivity. The OECD recently published a report adding more fuel to our concern fire. The report, entitled, Compendium of Productivity Indicators (has there ever been a sexier title?), details the productivity slowdown and notes that the UK and Japan are particular laggers in productivity. In addition, “among OECD countries, labour productivity in manufacturing slowed most markedly in recent years in the Czech Republic, Finland and Korea. In business sector services, the slowdown was most notable in Estonia, Greece, Latvia and, to a lesser extent, the United Kingdom.”  Small businesses are seeing greater productivity gains than large companies. And yet large companies are dominating economies more and more (hmm, policy makers might want to think about why this is). Remember that GDP grows two ways–an increase in the working age population (which as we have documented is down in most countries except India and Africa) and rising productivity, which is not rising much at all currently. That means economic growth will continue to be slow around the world with all the consequences that come with it.

Is China Smaller Than We Think?

China is big. Enormous really. But perhaps it is not as large as advertised. Yi Fuxian, a researcher at the University of Wisconsin-Madison, recently reported on his research that claims “China’s real population may have been about 1.29 billion last year, 90 million fewer people than the official figure released by the National Bureau of Statistics.” Yi’s research finds that there were 377.6 million births between 1991 and 2016 rather than the official figure of 464.6 million. Now 377 million is still a big figure, larger than the population of the United States, but Yi’s contention is that 90 million fewer people is a big deal. For instance, it would mean China’s aging demographics are worse than we thought. A small working age population without continued large gains in productivity means slower economic growth as we noted in the first story this week. So it’s a 90 million question of whether Yi’s data analysis is correct, and if so, what that will mean for China’s family planning and economic policies going forward. BTW, China’s yield curve inverted this month. Inverted yield curves often predict a recession. More on this soon.

Forest Bathing

In these tumultuous times, let’s slow down a moment and contemplate something soothing. In this case, the Japanese practice of forest bathing and recent scientific studies showing it is good for your health. Yes, forest bathing, which Japan instituted as part of a national public health program back in 1982 is “basically being in the presence of trees.” Japan not only included it as part of their health program but examined the impact of tree bathing in a study from 2004 to 2012. They studied volunteers who went into a forest and then into a controlled environment and concluded, “Forest environments promote lower concentrations of cortisol, lower pulse rate, lower blood pressure, greater parasympathetic nerve activity, and lower sympathetic nerve activity than do city environments.” This is apparently due to “various essential oils, generally called phytoncide, found in wood, plants, and some fruit and vegetables, which trees emit to protect themselves from germs and insects.” We’re feeling calmer and stronger just writing about it. Have a good Memorial Day Weekend and find some time to hang out among the trees, or since our world is more and more urbanized, at least in the Land of the Glass Pinecones.  Their seeds are made of rhinestones.*

 
What is Japanese FOREST BATHING by World Econ…
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*There was a time, long ago, when we were obsessed with this song. We are still proud of this.

Drones Gone Wild, One Belt One Road and Who Votes

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Our favorite current TV show is Better Call Saul, a kind of prequel to Breaking Bad. We in fact prefer it to its antecedent. Its quietness, more sophisticated character study, more complicated moral compass we find far more intriguing. The main character, Saul/Jimmy, is at odds with his brother, Chuck, who spends considerable time trying to harm Saul. Chuck is mentally ill, manifesting itself in an irrational fear of electricity. In the most recent episode, Saul wins a minor victory over his brother which leaves Chuck holed up alone in his house, apparently in the depths of despair. A character sympathetic to Chuck asks Saul to talk to his brother. He refuses–after so many years of turmoil with his brother, he turns his back on him in perhaps his brother’s greatest time of need. The character sympathetic to Chuck says to Saul, “Chuck was right about you all along. He’s mentally ill, what’s your excuse?” She finishes her rejoinder to Saul, who is sipping a celebratory drink, by saying “Enjoy the champagne.” It is a devastating moment. Our sympathies are with Saul but the show reminds us that no battle, especially those involving mental illness, is won without loss. So far, society and science have proven themselves inadequate to the challenge of dealing with mental illness. Mental illness does not discriminate–it afflicts every race, every gender, the poor and rich alike, the downtrodden and even the most powerful. So as we watch rapid fire events in this world, we will remind ourselves of the devastating rejoinder, enjoy the champagne. Our glass is neither half full or half empty but Waterford crystal clear as we examine drones gone wild, the shifting political alliances with China and who votes the most (no not Chicago graveyards). It’s this week’s International Need to Know providing sunshine on happenings around the world even under continuous gray skies (c’mon Seattle, where’s spring?).

Without further ado, here’s what you need to know.

Drones Gone Wild

One of our earliest posts on this platform was about drones and how the U.S. needs to remember that we will not have a monopoly on them forever. We noted that many other countries now have drones. Turns out nowadays criminals do too. So much so that The Telegraph reports “a British prison has become the world’s first to use a new system designed to stop drones flying over perimeter walls to drop contraband into jails.” The prison is creating a drone shield consisting of sensors that can jam drones and prevent them from delivering drugs, weapons, cell phones and other items the jailers don’t want their prisoners to have access to. The name of the system, created by the UK companies, Drone Defence and Eclipse Digital Solutions, is Sky Fence, a science fiction overlord type of name which invokes as much fear in us as the prisoners do in the jailers. We live in interesting times.

Who are you With?

The world is changing in ways that can seem uncomfortable to many. China’s growing importance in the world, coupled with political turmoil in the United States and Europe, is informing how the world interacts with China. We offer two recent examples. First, at the One Belt One Road summit (see our post last week about it), a number of final communiques were released. But EU members did not sign onto a trade statement “because a series of concerns they had raised with the Chinese government were not incorporated into the draft text.” These concerns focused on a lack of environmental protections and an unfair tendering process. The EU has been increasingly concerned about China’s closed markets. In fact, the EU recently imposed anti-dumping duties on steel and other products from China. China and the EU’s relationship will continue to evolve. At the same time, China’s relationship with North Korea also appears to be changing. China apparently prevented North Korea from conducting a nuclear test on April 20th. This is the first time China has exerted such pressure on North Korea. Experts note it is difficult to take action against North Korea because they could easily attack South Korea with nuclear weapons in a matter of moments. Less noted is that China is also vulnerable to such attacks. So their willingness to take action is notable. As China strides larger across the world stage, they will find the same challenges and complications that confronted other world powers throughout history. There is no free or easy ride.

Who Votes?

There have been a number of high stakes elections over the last year, some of them with surprising results. They have been influenced by everything from worries about transformative technology, concerns about immigrants, reactions to income stagnation and even by Russian interference. The political pros will tell you (often for a hefty price) that voter turnout is a big factor in who wins elections. They break down turnout in a myriad of ways, from income and education levels to race and gender. But overall in which countries is there the highest voter turnout? Belgium comes in first according to the Pew Research Center which is ironic given complaints that the European Union (EU) is not a very democratic entity and Brussels is home to the EU.  Belgium is followed by Sweden, South Korea, Denmark and Australia. In this Pew list, Turkey brings up the rear although given recent events in that country those poor voters may not matter at all (and could be viciously attacked in Washington D.C.)

 

Fast & Furious, China Belt with Indian Suspenders and where CO2 Emissions are Decreasing

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This week we head to Canada. In fact, we leave for the border shortly and plan on remembering our passport unlike a trip we took to Vancouver BC a few years ago for our wedding anniversary. On that trip, we remembered five minutes from the border that we had left our passport at home. We explained to the Canadian border guard that we were coming to celebrate our wedding anniversary and asked if was there any chance he would let us in without my passport. The guard good naturedly quizzed me on what year we were married . When I hesitated trying to remember when we were wed and our wife made a face at our hesitation the guard laughed and said it was obvious we were married and he would let us into Canada but he couldn’t guarantee what our country would do when we tried to return. Sure enough when re-entering America we were lectured sternly by the American border guard and told we were being put on a list; there was none of the joviality and accommodation of the Canadian guard. But for good or bad for America and for us, after a long lecture, we were permitted to reenter the country. So as we double check our passport is in hand, we examine the Fast and the Furious, catch up on China’s One Belt Initiative and ponder whether countries have made any progress on greenhouse gas emissions. It’s this week’s International Need to Know, providing comity, not Comey, on international affairs.

Without further ado, here’s what you need to know.

Movies Moving Fast & Furiously Overseas<

The closest we have come to seeing a Fast and Furious movie is when someone ran a red light and totaled our car last summer. But we could not resist the chart below showing the overseas revenue for each of the Fast and Furious movies since 2001. The chart is essentially shorthand for globalism. In 2001, overseas revenue accounted for 30 percent of the first movie’s overall take but for this year’s eighth(?!!) installment in the series, overseas revenue is so far accounting for 81.8 percent. The importance of international revenue has been cited for the dumbing down of Hollywood movies (Hollywood believes you can’t have complicated dialogue, plots or character development when it is being translated into many languages and cultures). Fortunately, Amazon, Netflix and other streaming services are catering to more niche markets allowing for films of a different bent than F&F and at budgets more manageable. But for big tent pole pictures–the superhero movies, the F&F franchises–the kind of big budget spectacle Hollywood specializes in, movie goers overseas are more important than American movie lovers. This will be increasingly the case in other areas of commerce and culture going forward.

One Belt, But Indian Suspenders

Last year we brought you news of China’s One Belt Initiative, an ambitious project of the Chinese government to further trade and economic integration across Asia, Europe, and Africa. As Sarah Zheng writes in the South China Morning Post, “The strategy uses free-trade agreements and infrastructure projects – including roads, ports and railways – to create a modern Silk Road spanning some 65 countries, which have a combined gross domestic product of US$21 trillion.” The One Belt initiative really consists of two belts–an economic “land belt through Eurasia, and a maritime belt that connects coastal Chinese cities to Africa and the Mediterranean.” A major summit takes place next week in Beijing at which 28 heads of state of the countries making up the notches of the belt will attend. But, one prominent notch, India, refuses to attend. Among the reasons for India’s absence is the One Belt Initiative includes a China-Pakistan Economic Corridor which India is not keen on. India is also concerned about the security implications of the One Belt initiative and its potential to align economic standards around a Chinese model. The battle to fill the vacuum we referred to last week Hoovers on.


 

Update!!!: Just as we were about to hit “send” on this week’s missive, we came across the video below produced by China promoting the One Belt One Road Initiative. It’s our favorite video of 2017 so far! And, the rap towards the end of the video proves utterly and convincingly that rap, like rock before it, is dead. Enjoy!

Lies, Damned Lies and Charts

A new New York Times columnist who has caused much consternation for his dismissiveness of climate change in his debut columns posted this chart of Germany’s greenhouse gas emissions since 2009 in his most recent column. His point is that Germany has made no progress on lowering emissions since the 2016 level is essentially the same as the 2009 level.

Music Video: The Belt and Road is How

Kevin Drum and others point out that the columnist was able to make Germany look like it has accomplished little in lowering greenhouse gas emissions by cherry picking the starting date of his chart. Here’s a chart Drum drums up for emissions going back to 1990 which shows Germany having pretty good success in lowing greenhouse gas emissions.

We are not wading into this fight but it got us to wondering how other countries have done in lowering emissions during that time period. The OECD gives us the answers. China’s emissions have, of course, gone up. But, France, the U.K. and the U.S. have all seen their emissions decrease as have a number of other developed countries (you can choose countries and adjust dates at the link). The OECD as a whole is slightly down since 1990, the G20 slightly up. We await our op-ed contract from the New York Times.

Great Vacuum War, Peace in Trouble?, Poor Middle Class

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We find ourselves today ruminating about pancakes, Roger Federer and excellence. We were fortunate, thanks to a friend, to attend a charity exhibition match in Seattle last weekend between perhaps the greatest men’s tennis player in history, Roger Federer, and one of the top ranked players in the world, John Isner. Earlier in the evening these two matched up with Bill Gates and Pearl Jam’s Mike McCready in a doubles match. It was a wonderful evening that featured this amazing shot by Federer (fourth video on the page). Federer has lots of talent, of course, but he worked hard mentally and physically to become one of the greats. Before we were married, most Sunday mornings we would make pancakes while listening to Johnny Cash. We still cook pancakes today though not as often as in our weekly bachelor days. And yet, despite our many hours practicing our pancake skills, we cannot claim we are the Roger Federer of pancake makers. We do not know if we have spent Malcolm Gladwell’s 10,000 hours making pancakes but one would think we should be pretty darn good by now. But instead we research pancake schools on the Internet as we serve hot off the griddle more evidence of China trying to fill a vacuum, some worrisome signs about peace in our world and just how global the fall of the middle class is. It’s this week’s International Need to Know, the French Toast of international news, data and information.

Without further ado, here’s what you need to know.

The Great Vacuum War of 2017*

We talked a few weeks ago about the world’s leadership vacuum. China is continuing to try to fill it. For example, last week China demanded that it be the sole source of financing for a major logistics railway in Pakistan, and the Pakistan government agreed to the demand. Originally, both China and the Asian Development Bank (ADB) were to finance the railway. The ADB is a multilateral development bank funded by both Western and Asian countries. The bank is often involved in projects like the Pakistan railway. However, Pakistani newspaper The Dawn (it’s always reddest before the dawn) reports that the Minister for Planning and Development Ahsan Iqbal said in a news conference, “China strongly argued that two-sourced financing would create problems and the project would suffer.” Originally the ADB was going to provide $3.5 billion for the 1,700 kilometer rail line which is “considered the backbone of the country’s logistics, connecting two major ports with the rest of the country for transporting goods and passengers.” Even before political changes in the United States, China was playing a larger role in world events, including in development. In fact, in 2015 it created an Asian Infrastructure Investment Bank (AIIB) to rival the ADB. The AIIB recently received a big endorsement from Bank of Japan Governor Haruhiko Karoda, “Infrastructure needs are huge and it’s simply not possible for the Asian Development Bank and the World Bank to fill the gap completely,” said Kuroda. Space is full of vacuums. China is trying to fill ours.

*A title that only Charlie Mitchell will fully appreciate

All We Are Saying

While listening to the remarkable Louis Armstrong cover of Give Peace a Chance (no, really, check it out—peace has never swung so hard) and reading about political protests by both the left and the right, it occurred to us that what is missing from today’s protestors as opposed to those from years gone by is optimism. There was an optimistic bent to long ago protests fueled perhaps by a belief that their agitation would lead to a better world. Today’s protesters fill the optimism void with anger.*  Perhaps this is because although we live in the most peaceful and prosperous time in human history, there are worrisome signs of regress. The last couple years of trouble are either a hiccup or perhaps this long virtuous cycle of peace and prosperity is turning towards something darker. Take peace, for example–the last few years have seen peace take a beating. Looking at one measure—The Global Peace Index—there are now fewer countries in the “more peaceful” part of the spectrum as you can see in the maps below. Much of this is due to increased terrorism:. According to the Peace Index, “Deaths from terrorism increased by 80 per cent from last year’s report with only 69 countries not recording a terrorist incident.” Internal conflicts leading to more displaced people also led to the peace index achieving its lowest score since 2008. Whether this negative data is a short term blip or we are in for a trend of trouble is, of course, one of the more important questions of our time. 

2016 Peace Index

 

 

2011 Peace Index

*Or maybe it is anger that is causing the regress.

The Poor Middle Class

There has been much debate about the difficulties that America’s middle class is experiencing but like most trends, including the decline in manufacturing jobs (not unrelated to the fate of the middle class!) this is a global trend. In fact, Thomas Piketty, who authored the famous book,  Capital in the Twenty-First Century, three years ago, recently published new research showing China’s middle class is suffering too. In the chart below, Piketty shows the income share of the middle 40% of the U.S., China and France, all of which are lower than they were a few decades ago. Piketty, in his new paper, writes, “China’s inequality levels used to be close to Nordic countries and are now approaching U.S. levels.” Clearly this is because of NAFTA…wait, maybe these issues are more complicated than those attacking trade deals realize.

The Young and Restless, China vs India, Who’s on First

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On the occasions we take public transit, our walk to the bus takes us by a cemetery. It’s a helpful reminder on our way to meetings which may contain challenges, puzzles and even on occasion acrimony, that in the long run, it will not matter. On a recent such walk, we were reading on our smartphone that Seattle has set a 122-year record for rain. It was, in fact, raining while we read this news. As we looked up from our phone, we saw a cemetery worker fixing an automatic sprinkler. We noted that all the sprinklers were turned on, spraying water onto the already damp environment, which we found neither efficient nor smart of the cemetery. Compounding this, one of the sprinklers was spraying directly into the sidewalk upon which we trod. We are one of the few Seattleites who uses an umbrella which we turned from the sky towards the sprinkler to block its rush of water. As we passed by another tombstone, we thought at least stupidity is not dead. But even as close our umbrella we open up the skies to France’s young and restless, to what India is exporting more than China and to who is emitting the most CO2 into the atmosphere. It’s this week’s International Need to Know, coming to you weekly, almost as inevitable as death and taxes, but much more useful, sweet and helpful.

Without further ado, here’s what you need to know.

The Young and the Restless

Explanations for the results of the French election, like explanations for most election results, like life itself,* are complicated. We could post a myriad of charts about the election but today we choose only two. The first shows who the young voted for, and it was not for the remaining centrist in the race, Macron. No, the populist on the left, Melenchon received the most number of votes from the age 18 – 24 crowd, with the populist on the right, Le Pen, coming in second among hip millennials. This is perhaps not surprising given a) that as in much of Europe, youth unemployment continues to be high in France (23.5%); and b) as we told you last year, democracy’s brand with the young is not as strong as it was with previous generations. The second chart below (courtesy of Ian Bremmer’s Twitter feed) maps high unemployment geographic areas with where Le Pen did best, and the similarities are striking. The French election like many elections in the last year have brought to the fore two crucial issues for the world–economic stagnation and an increasing affinity for authoritarianism. These two issues, of course, are related.

*We find ourselves thinking like a French philosopher.

    

China vs. India on Exports

China has far outpaced India in merchandise exports over the last 15 years. Everyone knows that. But perhaps not so well known, though obvious when one thinks about it, is that India is a much larger exporter of services than China, service exports being things like software, programming, architecture, engineering and the like. China is trying to transform into more of a services economy and one might expect that services export gap with India to narrow over the coming years. But, for that to happen, we expect China will have to do something about intellectual property theft and other associated issues. It will be difficult to have trust in services provided by China under the current legal and cultural norms there. That is not to say that China does not have a large services industry, including in information technology (Tencent is very large and very innovative), but will these services translate internationally? We expect they will over time and that will eventually compel China to open up its markets to foreign competition. Interestingly, both China and India’s economies are roughly equal in their dependence on exports. For China, exports are 22% of GDP and for India, they are 20%. But, China relies on goods exports, and India relies on service exports.

 

Who is on First?

We recently came across on Twitter (one of the worst human inventions of all time, and yet one we can’t stop ourselves from using) the first chart below showing China far and away as the largest emitter of CO2 into the atmosphere. China’s environmental problems are a huge challenge. Fortunately, they are working to address these environmental problems, although often it is a one step forward, one step back process. By its sheer size and increasingly developed economy, what China does or does not do, will have a huge effect on climate change efforts. But, it’s important to note China is not even close to being the largest emitter per capita. As you see in the second chart below, Australia takes that dubious prize. The U.S., the second-largest overall emitter, is a much larger emitter than China per capita. Everybody’s favorite northern cousin, Canada, is also, because of its large energy industry, a large per capita emitter.

 
 
Emissions per capita (t)    

IMF Explanations of Declining Labor, Are We Wrong about Chinese GDP, Where the Money is Going

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It is all about the hunt, the seeking, the thrill of the chase in this little world of ours. And so after many years, countless hours of research, many false leads, we are ecstatic to announce that we have finally found a bialy worth its name here in the Pacific Northwest, the home of the worldwide headquarters of International Need to Know. Wait, what is a bialy you ask? Ahh, a bialy is like a bagel but a thousands times better–baked rather than boiled and rather than a hole, the middle contains onions or garlic. We sampled bialys as a child visiting family in New York and continued to enjoy them over the years whenever we were in the big city. But outside of New York they are hard to find and almost impossible in the Seattle area. A few local bakeries carry something they claim are bialys but they are virtually unrecognizable from the real thing. But then our friend (the now sainted) Pete Gladhart handed us a bialy from The Bagelry in Bellingham, Washington, and as we bit into it the skies opened and glory (and taste) rained down upon the land. For this was a bialy almost as good as Kossar’s on the Lower Eastside of Manhattan. Unfortunately, Bellingham is a long drive from our Seattle headquarters so as we make plans to develop a bialy food truck with a secret method of replicating New York bialys we bring you an explanation for the decline in labor’s share of income, ask whether we’ve been wrong about China’s GDP and tell you where the money is going. It’s this week’s International Need to Know, the new, better, more honest, non-harassing, no-spin zone of international news.

IMF-Splaining of Decline in Labor Share of Income

Earlier this year we pointed out that the global share of corporate income has been decreasing since the early 1980s, noting “it’s not just in developed countries like the U.S., Germany and Japan–China is seeing the same trend.” We did not hazard an explanation for this trend but just in time for kids and anarchists to dance around the May Day Pole, the International Monetary Fund (IMF) does, arguing that “this trend is driven by rapid progress in technology and global integration.” The reasons for the trend differ by type of economy. In advanced economies, the IMF asserts, “half of the decline in labor shares can be traced to the impact of technology. The decline was driven by a combination of rapid progress in information and telecommunication technology, and a high share of occupations that could be easily be automated.” In emerging markets, on the other hand, the IMF states, “We find that global integration, and more specifically participation in global value chains, was the key driver of declines in labor shares in emerging markets.” The IMF’s claim is that such integration is “shifting the production in emerging markets and developing economies towards more capital-intensive activities.” We’re not sure we buy these explanations for the decline in labor’s share of income but since we raised the issue we offer up the IMF’s ideas for the cause of this trend.

Are We Wrong About Chinese GDP?

On more than one occasion we have joked about the validity of official Chinese government statistics on GDP growth, asserting they are higher than the actual growth of the economy. But is the joke on us? A new economic paper tells us we are wrong—not that the government’s statistics are correct but that the official GDP figure is actually undercounting GDP?!!! The method these three economists used was to count satellite-recorded nighttime lights, something that cannot be manipulated the way GDP statistics can be. To vastly oversimplify, these economists found that they could correlate the increase in these lights to increases in GDP and to other variables which simulate economic growth such as electricity use, freight volume and bank loans. Using the nighttime lights variable they calculate that Chinese GDP figures are actually higher than what was reported by the government. The  economists used nighttime light data from 2004 to 2013 before many of us thought China was having economic difficulties. But the paper also examined late 2015 data: ” We find that GDP growth in 2015 Q4, a time when the financial press was awash with stories about a hard landing of the Chinese economy, is somewhat higher, but quite close to the officially reported rate, with a 95% confidence interval…”  We are curious what nighttime lights show for 2016 GDP growth. This paper does note that the growth seems to be driven by credit which could foretell an economic stall when this credit growth is removed. While we await others analysis of this economic paper that is upending our beliefs, we file it in our increasingly large file labeled “China is complicated.”

China’s real GDP Growth. You do the math! Or, maybe not, the math the economists used is a bit complicated:

Where the Money is Going

The world seems to be more volatile than usual, at least if you scan the headlines. But even in the midst of the constant churning, money continues to flow around the world. In which places do investors currently have the most confidence? The 2017 A.T. Kearney Foreign Direct Investment Confidence Index tells us the United States is number one for the fifth year in a row. In fact, Canada, coming in at number five, makes North America an investment destination powerhouse. Rounding out the top five are Germany, which rose to second as China fell to third (but the nighttime lights?) and the United Kingdom comes in fourth. The folks at A.T. Kearney were surprised that the UK did so well given the uncertainty of Brexit. A.T. Kearney explains the the U.K.’s investment destination resilience, by noting that, “U.K. Prime Minister Theresa May has promised they will emerge as a ‘Global Britain,’ one with fewer cumbersome EU-mandated regulations…” We still hope to do a deep dive into Brexit in the coming weeks–in fact, we are assembling our mask and oxygen tanks as we type.

Who is the World’s Superpower, Where Taxes are High and Where Millennials Buy Houses

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Earlier this week we spoke at a business event about the so-called Border Adjustment tax as well as about H1B visas. On the latter we noted that many analysts frame the issue as there not being enough talent domestically to fill certain high skill positions. This is certainly true (just as we are sure there are certain abuses in the H1B system–this is the nature of all such systems in this little world of ours). But, we also stressed it is important to recognize that companies are in a worldwide competition for talent. The best talent that is not allowed to work for Microsoft, Amazon or Google, will work for their competitors overseas. Think about our beloved Seattle Mariners baseball team without international players Felix Hernandez, Robinson Cano and Nelson Cruz…hold on a minute! The Mariners are horrible, bad, terrible even with this international talent!* As we search for a different sports analogy, we bring you news about which country is considered the world’s economic superpower, which countries tax labor the most and where millennials own houses. It’s this week’s International Need to Know, not giving up our plane seat as we fly into clouds of international information and data.

Without further ado, here’s what you need to know.

Who is the World’s Superpower?

If we utilized click bait to gain readership from Marvel Universe readers, that headline would have read, “What is the World’s Superpower?”  Fortunately we are not so sleazy in seeking eyeballs. But last week in asking whether China is dominant, we concluded: “..for now the world leadership vacuum is exactly that, a dark empty void, for good, bad or between.” This week, however, comes news that the world, when choosing between the U.S. and China, now sees the U.S. as the world’s economic superpower as you see in the chart below. According to a Pew survey, most countries now rank the U.S. higher than China for economic power. That’s very different than in 2012 when countries thought just the opposite, ranking China as the main economic superpower. But, today the world is looking through red-white and blue-colored glasses. “By contrast, in the most recent release of the survey, only three of 16 countries picked China over the US: France, Canada, and Australia.” Not sure why the French (and French Canadians and French Aus–, er, uh, Australians) have such a different view of economic power.  Regardless, in terms of leadership, there is still a void, perhaps even more so now since the country seen as the greatest economic power in the world is less so a political one.

World Tax Rankings

Most of our American readers are busy preparing to file income taxes next week, well, except for those in perpetual audit. But which countries have the highest tax rates on labor? Among Organization for Economic Cooperation and Development (OECD) countries, the answer is Belgium. The OECD measured “the level of personal income tax and social security contributions in each OECD country by calculating the ‘tax wedge’ – the total taxes on labour income paid by employees and employers, minus family benefits received, as a percentage of the labour costs of the employer.” Interestingly, this tax wedge for the average worker in OECD countries has been falling for a number of years and in 2016 the average fell to 36%. But, the OECD points out that although the OECD average tax wedge decreased slightly in 2016, it actually increased slightly in more countries (20) than it decreased in countries (14), with most of the increases and decreases driven by changes in personal income tax. So some countries have sizably cut their income taxes which lowers the overall average but the majority of countries are increasing their tax on labor. Keeping with the austerity program imposed there, Greece suffered the largest increase in these types of taxes. Regardless of the rate, how many Greeks actually pay their taxes is another matter.

Share of Millennials Owning Houses

As millennials increasingly take their rightful place on the world stage, let’s examine where they are most successful, or at least are fulfilling their dream to own their own home. According to HSBC, China has the largest share of millennials who own a home. The percentage in China, 70%, is so high, that we doubt the validity of the HSBC survey. Nonetheless, the numbers provide an interesting comparison. Mexico comes in second which helps to explain the continued net negative immigration of Mexicans into the U.S–there is not as much economic incentive for Mexicans to come work in the United States. France and Malaysia are third and fourth in the number of millennials owning a home. What does the future portend for millennial ownership? Pay particular attention to the second graph below comparing house price growth and salary growth in these countries. In many places, salary increases are not keeping up with housing price increases. Does this mean ownership rates will decrease, salaries increase, personal debt rise or some other factors change? As we go pay our latest mortgage bill, we await the answer.

 

Deep Dive into China Plus Changes in World Population

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Recently at the gym while exercising, we were watching the Boston Celtics demolish the New York Knicks. It was a rather boring game. We looked across the room and saw a bank of TVs in front of a set of treadmills that were showing a different basketball game. We squinted our eyes to figure out who was playing. Later when we walked over to the TVs we realized the channel was showing a video game of basketball–the treadmillers preferred to watch two people playing a video game simulating a basketball game rather than watch an actual NBA game. I suppose we can’t entirely blame them given the poor entertainment value of the Celtics-Knicks matchup. We took two lessons from this: First, even admitting our bad eyesight, it is clear video game graphics have advanced so much that from a distance it is difficult to tell reality from virtual. Second, we are near a new era when it will be impossible to distinguish real life from artificial. Of course, if the recently popularized theory is true that we are all just a software simulation, then we are building imaginary worlds on top of illusions. Speaking of imaginary worlds, from time to time we will take deeper dives into issues and places, and this week, in honor of President Xi Jinping’s visit to the U.S., we look at the always confusing, confounding, complex China, including China’s role in the world and the state of its economy, finishing up with global population changes. It’s this week’s International Need to Know, using our game controller to keep you apprised of our massively multiplayer online role-playing world.

Without further ado, here’s what you need to know.

Is China Dominant?

Is China Dominant? That giant sucking sound you hear? Many people claim it is the United States abandoning its 70-year role as a global leader. Into that void many people assert (their voices are at least powerful enough that they reach our tender ears) strides China. They are asserting this is true for trade, the environment and the world economy in general. And it is true that China is much more important than it was twenty years ago and even ten years ago. But, as we noted in this space at the beginning of the year, it is difficult for China to be the leader of free trade when its borders remain mostly closed to trade and investment. China is working to clean up its environment and deserves credit for what they have accomplished, but China’s laws and practices have a long ways to go before they reach the standards of developed countries. And finally there is finance. China’s formal and shadow banking systems are murky and we’re not certain anyone, perhaps even the Chinese themselves, completely understand them. And when we look at global financial payments, China still lags far behind the U.S., the EU (the Euro is not gone yet!–soon we will dive deep into the roiling English Channel of Brexit and the EU) and even the British Pound. For that matter, though close, the Renminbi is still behind the Japanese Yen and Canadian dollar in its share of global payments. Barring catastrophe, we expect over the next two decades that China may become a leader in any number of these categories. But for now the world leadership vacuum is exactly that, a dark empty void, for good, bad or between.

China’s Economy is…?

As President Xi sits down to a meatloaf sandwich in Mar-a-Lago, what is the state of his country’s economy? By many measures, the economy is doing fine. After some worries last year, the economy appears to have stabilized. The government has launched a variety of initiatives including a new Silk Road initiative and a new Special Economic Zone in Hebei Province. On the other hand, we have warned before that official data in China is like a cable company saying it will be at your house between noon and three, not always to be trusted. A year ago, we looked at beer sales to see what was really going on in China’s economy and as we often do, we turn to beer again, and noodles. Reuters reports that “Tsingtao Brewery Company, China’s number two brewer, posted its steepest drop in net profit in 20 years last week, blaming tough competition and weak demand. Noodle maker Tingyi saw profits drop by a third.” The stable economic growth also appears to be built on credit which has grown at a much faster rate than the economy. Much of recent investment in China is by state owned companies. For how long can China goose its GDP with credit? Finally, perhaps most relevant to the host at Mar-a-Lago and as we noted in the post above is that China’s economy is still very much closed in many ways. For example, as you see in the graph below, China ranks as the second most restrictive major economy in the world. Or, as former Treasury Secretary Henry Paulson says, China’s market is far more closed today than it was a decade ago when he was negotiating with the Chinese. So China’s ship is doing well but has some rocks and treacherous islands (not necessarily in the South China Sea) to navigate ahead.

As the World Turns

Sixty some years ago in 1950, China, India and the U.S., in that order, were the largest countries in the world by population. The same is true today but many of the other top populous countries are very different. As you see below in the graph courtesy of Robert Ward of the Economist Intelligence Unit, Russia has fallen from fourth to eighth, Japan is barely in the top ten and Britain and Italy are nowhere to be found. Meanwhile places like Indonesia, Nigeria and Bangladesh have climbed into the top ten. If current trends continue, always an iffy proposition, India will be larger than China and Nigeria larger than the U.S. in 40 years. To give a sense on how long ago 1950 was and at the same time how much constancy there is in certain parts of life, this year is the first baseball season without Vin Scully or Connie Mack working in some level of it since 1885. Now graph that! 

 
   

Where Tech Workers Should Live, Where Inequality is Decreasing and Where the Flying Taxis are

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We have a rich history dealing with customer service representatives, so much so that we even made a movie with our friend, Mike Williams, about them called Please Hold. But today’s customer service representatives appear to be influenced by the current political landscape, asserting up is down and black is white, literally. We offer an illustration. The INTN better half recently gave her parents the gift of a DNA test so they could learn more about their genealogy. Our father-in-law is African-American and our mother-in-law is white. But the results they received from the company asserted that our father-in-law’s background is western and northern European. So our mother-in-law called the company and said there must be some sort of mistake. Ahh, but the customer service representative asserted their test was completely accurate and offered a meandering and strange history of whites bringing blacks to America and the mixing of the two. Our mother-in-law patiently explained that the test results asserted her husband had less than 1 percent African heritage in him despite the fact both his parents are African-American. The customer service representative, not unlike a White House spokesperson, stood her ground saying the test results are always correct, telling our mother-in-law that her husband must indeed be white. Our mother-in-law, whose husband was standing next to her, and who knows empirical evidence when she sees it, said, “If you look at the person I’m looking at now, you wouldn’t say that.” But today’s customer service representative creates her own facts and refused to admit there was something wrong with the test results. So as we adjust to our new world where black is white and white is black, we dive into where tech workers should live, examine where inequality is declining and tell you which country is the latest to test flying taxis. It’s this week’s International Need to Know, giving the Japanese-American perspective on our upside down world.

Without further ado, here’s what you need to know.

Where to Live as a Tech Worker

Tech workers can write their own ticket we are often told. Computer programmers and others of their ilk are in such great demand by technology companies that these workers can choose where they want to live. So where are the best places for such workers to lay their weary heads after a hard days night’s coding? The global real estate firm, Savills, gives us to two criteria to look at: commute time and rent costs. Among the tech cities Savills examined, tech workers in Austin had the shortest commute time. But in recent years the South by Southwest city has seen rents go north and is the sixth-most expensive city for rent among those examined by Savills. The cheapest tech city for rent is Seoul; followed by Santiago, Chile; and Berlin. We note that our city, Seattle, is both expensive and has lousy commutes. Of course, the same is true of other top tech cities in the world such as San Francisco and Boston. Will these disadvantages eventually affect these urban region’s prowess for being tech leaders or are there other factors that will continue to driver their success? We guess, at least for the mid-term, the latter. We note that Chinese cities are not even examined. in the study. We plan on soon updating you on China’s technological and innovation prowess, which continues to be underrated.

A Region Becoming Less Equal

Inequality has become a big topic nowadays, with evidence of growing inequality in the United States, Europe and other parts of the world. But over the last decade, one region has seen inequality decrease: Latin America. Most countries in Latin America, according to a new study, saw their Gini Coefficients (a measure of inequality–but also a great name for a character in a science fiction story) decrease from 2002 to 2012. Only in Honduras did inequality go up during that period. You might think because a number of these countries elected socialist governments during that period, that government transfers are the main reason for the decline in Gini coefficients. But that same study found that government transfers only account for a quarter of the decline. Other factors, including growing economies coupled with rising education levels, are the main factors for the decrease in inequality in Latin America. Of course, in Venezuela everything is now equal—equally catastrophic. Better to grow your economy and increase your education levels than to implement disastrous economic policies.

 

Singapore Flying Taxis

It is true that we have been waiting for an opportunity to write a headline about flying taxis, especially in Singapore, but this is also news well worth sharing. As long time INTN readers know, we have a soft spot for innovative transportation solutions. In fact, last month we reported from an Autonomous Vehicle conference that we attended in Santa Clara. And we recently reported on a flying taxi initiative in Dubai. So we read with interest about Singapore’s efforts in this technology. In fact, one of the prototypes the Singapore government is examining is the same Ehang 184 autonomous aerial vehicle that Dubai is planning to start testing this summer.  Singapore is taking a more cautious approach than Dubai. Pang Kin Keong, the Permanent Secretary for the Ministry of Transport recently told an audience that “In 2030, you bet your money that aerial transport will also be a means of urban mobility.” 2030 is not this summer but it is also not that long from now. Singapore is already working with Delphi Automotive to test and soon launch a fleet of self-driving taxis (the ground variety) and is investing in a variety of other innovative transportation options. We expect places such as Singapore, with an advanced economy, and a proactive assertive government, will lead the way in the initial use of new transport technology, ahead of Europe and the United States with their more stodgy bureaucracies. And we expect flying taxis to be far safer than taxi drivers in New York, where we have often nearly lost our life due to crazy cabbies.

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