China and Greece: a Tale

of Two Crises
Two crises have dominated the financial news agenda this week: the Greek
debt crisis and the plunge in the Chinese stockmarket. Both could have a big
impact on the global economy. The Greeks could precipitate the disintegration
of the Eurozone, the Chinese could foretell a crash not seen since Wall Street
in 1929. Those gloomy scenarios have led some to speculate about which one
of the two has the greatest significance. So, how do the two crises compare?
Whats at stake?
In Greece, its the debt the government owes to its various creditors 320
billion or more than 170% of its GDP.
In China, its the value of publicly listed stocks a loss of more than $3 trillion
from its peak or 30% of GDP.
Who stands to lose?
In Greece, two groups could be affected: creditors if Greece is partially bailed
out or refuses to pay, or the Greek people if further austerity measures or tax
increases are brought in. Greeces creditors are mostly European
governments, chiefly Germany, which has lent some 55 billion or 650-700
per person. The groups most at risk are Greek pensioners, who are seeing
their pensions cut, government employees, who might lose their jobs, and
companies and consumers facing higher taxes.
In China, the losers are people owning stocks and listed companies who have
seen their valuations plummet. Chinas stock markets are, for the most part a
mom and pop affairabout 80% of stock trading is by Chinese individuals, but

that still only affects at most 14% of the population. Only 15% of households
financial assets are held in stocks and just 1.5% of bank loans support the
activity.
How does the current crisis look like from a longer term perspective?
The Greek economy has declined by about a quarter since 2008 and Its debt,
despite two restructurings, has only come down by about 10%, meaning its
debt-to-GDP ratio has worsened significantly.
In China, despite the recent fall in the stock markets, the value of stocks is
simply back to where it was in March and still up by 75% over the past year.
Its as though Chinese stocks had simply skipped a quarter. Meanwhile,
Chinese GDP has double in dollar terms since 2008.

Author: Peter Vanham is a senior media manager with the World Economic
Forum
Image: A Syrian immigrant waves Greek and Syrian flags during an antiausterity protest in front of the parliament in central Athens, Greece, July 10,
2015.

Abstract
Translate [unavailable for this document]
Since 1978 China has liberated more people from poverty than any other country in history, partly
because China before 1978 consigned more people to poverty than anywhere else in history. But
this week China added over 100m to the ranks of the poor. This was not the result of some economic
calamity, but of the government's welcome decision to relax its definition of rural poverty. About
128m Chinese countryfolk earning less than 2,300 yuan ($361) a year will now be deemed poor,
compared with the 26.9m who fell beneath the previous poverty line of 1,196 yuan. China has a
tradition of defining destitution abstemiously, perhaps in an effort to keep the poverty count low and

the relief bill down. But this week's decision raises China's poverty line close to or even above the
World Bank's global standard of $1.25 per day. That standard is widely misunderstood. It is
calculated not at market exchange rates, but at purchasing-power parity rates, which take
account of the lower prices prevailing in poor countries. China's new, higher line qualifies 100m more
people for a variety of benefits. That is good news for China's poor, and also good news for China's
slowingeconomy.

Full Text
Translate [unavailable for this document]
China's government offers relief to the poor and to the economy
SINCE 1978 China has liberated more people from poverty than any other country in history, partly
because China before 1978 consigned more people to poverty than anywhere else in history. But
this week China added over 100m to the ranks of the poor. This was not the result of some economic
calamity, but of the government's welcome decision to relax its definition of rural poverty. About
128m Chinese countryfolk earning less than 2,300 yuan ($361) a year will now be deemed poor,
compared with the 26.9m who fell beneath the previous poverty line of 1,196 yuan.
China has a tradition of defining destitution abstemiously, perhaps in an effort to keep the poverty
count low and the relief bill down. But this week's decision raises China's poverty line close to or
even above the World Bank's global standard of $1.25 per day. That standard is widely
misunderstood. It is calculated not at market exchange rates, but at purchasing-power parity rates,
which take account of the lower prices prevailing in poor countries. China's new, higher line qualifies
100m more people for a variety of benefits. That is good news for China's poor, and also good news
for China's slowing economy. An official measure of manufacturing activity, based on
surveys of purchasing managers, dropped to 49 on December 1st, its lowest reading since January
2009 (see chart). Managers feel business worsened or stagnated in November, compared with the
month before.
Europe's woes must account for much of this disappointment. The rest of the blame probably lies
with the government's efforts to fight inflation by tightening the supply of money and credit. For the
past couple of months it has been "fine-tuning" this policy, easing up on some things, but not on
others. On November 30th it opted for something more dramatic, cutting the amounts that banks
must keep in reserve at the central bank by 0.5 percentage points.
That should ease the credit crunch that hurt many businesses over the summer. The fear, however,
is that freeing the banks could lead to a lending spree like the one that rescued China from the

previous crisis. That lending saddled many local governments with debts they are struggling to repay.
These loans will be rolled over once, according to reports. But if local governments still need a bailout after that, they will have to cede some of their budgetary freedoms to Beijing. That is how fiscal
federalism works--as Europe is about to discover.
If China's slowdown remains modest, the government may get away with modest monetary
measures: loosening the reins on the banks, without letting go. But if the economy deteriorates
sharply, the government may lean more heavily on fiscal remedies. The central government is flush
with cash, taking in 28% more in revenue this year than over the same period last year. And
excessive lending to the banks' traditional borrowers (state-owned enterprises and local
governments) will help the economy less than extra spending on neglected constituencies, such as
the 128m rural poor. If China is worried about the economic winter ahead, it should fatten up its
skeletal welfare programmes, not its bloated banking system.

China Cuts 2014 Economic Growth Estimate

to 7.3% From 7.4%; Revision is likely to
amplify concerns about health of world's
No. 2 economy
BEIJING--China revised its 2014 growth rate to 7.3% from 7.4% due to a weaker-than-reported
contribution from the service sector, casting doubt on an economic bright spot amid
concerns about the health of the world's second-largest economy.
The change is relatively small but suggests that China's effort to meet its official growth target
of about 7.5% last year was tougher than it seemed. It comes as worries grow that China will
struggle to reach this year's goal of about 7%.
"That's the beauty of using 'about' in your targets," said IHS Global Insight economist Brian Jackson.
"It's undefined. No one knows if you reach it. Even they may not know. It gives them flexibility to
revise it later."
The country's gross domestic product last year totaled 63.614 trillion yuan, or about $10
trillion, China's statistics bureau said Monday. That was down 32.4 billion yuan from its initial

estimate in January of this year. The change amounted to less than 0.1% ofChina's overall economy.
The statistics bureau said the number could be revised one again when it releases final results in
January 2016.
The main reason for the change was the service industry, which the agency said grew by 7.8%
rather than 8.1%. China is trying to shift its economy from debt-fueled investment to consumption
and services.
The downward revision to growth comes as slower economic momentum last year carries over into
2015. Weak domestic and global demand, high debt levels and industrial overcapacity have left
many factory owners reeling.
China's growth target of about 7% this year is the slowest pace in a quarter century. China reached
that level in the first half of the year, helped by a strong contribution from equity sales tied to a boomand-bust cycle in its stock markets. But growth could weaken in the second half as momentum slows
and the contribution from financial services falls off. Concern over China's economic growth has
helped fuel a slump in global markets in recent weeks.
China's official services purchasing managers index has remained strong at readings above 53 this
year even as the manufacturing counterpart has struggled. The manufacturing PMI dipped into
contractionary territory in August with a reading of 49.7. A number above 50 indicates expansion,
while a number below 50 represents contraction. Services have been growing steadily, accounting
for 48.2% of China's GDP in 2014, up from 46.9% in 2013 and 45.5% in 2012.
Chinese officials have sought to reassure a domestic audience and global investors that
the economy is solid and that it will improve as interest-rate cuts and stepped-up fiscal spending take
effect. "This government is trying to boost confidence in both the economyand their ability to handle
it," said Standard Chartered economist Ding Shuang.
On Monday, China's top economic-planning body said the country was on track to meet the
government's annual growth target, pointing to indicators ranging from electricity consumption to
train freight to housing prices that it said suggested an economy on the mend.
Over the weekend, Zhou Xiaochuan, the head of China's central bank, said that the "correction in the
stock market is almost done" and that China's currency is steadying after last month's devaluation .
On Sunday, the China Securities Regulatory Commission said China's state-owned margin loan
provider will continue to stabilize the market when drastic price fluctuations lead to systematic risks.
Accurately tracking services is a challenge even for advanced countries given the number of familyowned companies, one-person operations and Internet ventures. The revision won't make it easier

for China to reach its 2015 target, said Mr. Ding, of Standard Chartered, given that the same
collection method for services will be applied in both years.
China's tends to revise its GDP figures--which have come under criticism for inconsistent
methodology and poor transparency--less frequently than some other countries. Last year Beijing
raised its estimate of 2013 economic output based on a new survey.
If this is the start of more meaningful revision process by the statistics bureau, it could bring Chinese
practices more in line with other countries, even if the information is released several quarters late,
economists said.
"In the U.S., revisions cause havoc, with all the economists having to revise their models constantly,"
said Mr. Jackson at IHS Global, adding that any move this year by China to "massage the data, but
not go beyond plausibility," could give analysts a better picture of the real state of the economy.

G-20 Increasingly Concerned About Slowing

Chinese Economy; China could fuel further
market instability and damp global growth
ANKARA--China's market routs and a string of weak data are fueling concern among Group of 20
officials that a slowing Chineseeconomy could fuel further market instability and push global growth
deeper into a long-term rut.
Global finance leaders meeting in Ankara on Friday and Saturday sought details from Beijing
officials about how China plans to calm turbulent markets and keep the world's secondlargest economy from stalling.
China's turmoil, a souring global growth outlook, sliding commodity prices and the prospect of higher
borrowing costs as the U.S. Federal Reserve prepares to raise interest rates for the first time in
nearly a decade slammed emerging markets again Friday. The Russian ruble sank by as much as
2.3% against the dollar, the South African rand shed 0.5% and Turkey's lira slumped back toward alltime lows against the greenback.
Friday's selloff comes despite signals from the European Central Bank on Thursday that it may
embark on additional monetary easing to stimulate the eurozone economy, which is grappling with
stagnant growth and inflation near zero. The persistent pressure on markets, led by developing
nations, highlights concerns about China's ability to counter a slump in financial markets stoking
economic risks.

"Uncertainty is growing over the world economy because of possible interest-rate hikes in the U.S.
and market instability in China," said South Korean Finance Minister Choi Kyung-hwan in an
interview. "Viable alternatives--not rhetoric--should be presented."
Ahead of the meeting, the International Monetary Fund said it is planning to downgrade its global
growth outlook for the year--already at its slowest rate since the financial crisis--in part
because China's slowdown was weighing on global output more than previously expected.
That is why ECB chief Mario Draghi said China would dominate talks among officials. "We do expect
to have much more visibility than we do today."
Australian Treasurer Joe Hockey, whose commodity-driven economy is intimately intertwined
with China, said misinformation aboutthe Asian powerhouse's market tumult was fostering investor
fear.
"We all have an obligation...to spread the truth about what is really happening in our economies and
how we can in fact help to build a more prosperous world," Mr. Hockey said at an event on the
sidelines of the G-20 on Friday.
The potential collapse of demand from China, a major engine of global growth and commodity prices
for more than a decade, comes amid myriad other economic headwinds. Several of the largest
emerging markets are already in recession and are struggling to revive growth, especially those
reliant on commodity exports. The Fed's signal for a rate increase--possibly as soon as September-is raising borrowing costs around the world and helping push up the value of the dollar. That is a
double-whammy for those countries and their companies that borrowed dollars heavily amid the
cheap-cash era of central-bank easing.
Although the IMF has urged the Fed to delay its rate liftoff until 2016 given the potential global
spillovers, many G-20 officials are also pressing the U.S. central bank to ensure that the transition to
higher rates will be smooth. Fed officials have indicated they will move gradually, but those
comments haven't been enough to placate some emerging-market officials worried about the impact
on theireconomies.
"Recent turbulence in emerging markets reflects rising awareness of persistent problems that will not
be quickly reversed," said Charles Collyns, chief economist for the Institute of International Finance,
an industry group that represents over 500 of the world's largest private banks, hedge funds and
other financial institutions.
"In fact, stress could intensify again in the face of a dangerous cocktail of real economy, market and
political interactions," Mr. Collyns said.

In particular, Beijing's handling of its market crises has fueled questions about whether it has
complete control over its economy. G-20 officials and outside economists also complain
that China doesn't provide enough transparency on the nature of its economy. Many also wonder if
the volatility might cause the Communist government to put the brakes on a promised overhaul of
its economy. Those uncertainties are fomenting market turmoil as investors fear growth could be far
lower than Beijing's official 7% rate.
"They look less like a smooth-oiled machine and more like they are making it up as they go along,"
said Ted Truman, a senior fellow at the Peterson Institute for International Economics and former top
financial diplomat at the U.S. Treasury. "That has unnerved some people."
Beijing has promised to shift its economy away from a credit-fueled, export-driven investment
strategy to one more reliant on household consumption. A key plank in that effort is allowing markets
to play a much stronger role in the carefully managed economy. But U.S. and other G-20 officials are
concerned that China's recent market routs could undermine political support for that economic
transition, slowing the pace of overhauls, which could in turn lower the country's long-term growth
prospects.
"The question is, are they managing that transition in an effective and orderly way," U.S. Treasury
Secretary Jacob Lew told CNBC Wednesday.
Besides China's slowdown, the IMF said a host of other downside risks threaten to push the
global economy into much deeper trouble without concerted action by the largest economies.
"Risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a
much weaker outlook," the IMF said in a report on the state of the global economy for the G-20.
Tim Ash, an economist at Nomura in London, said the turmoil and gloomy outlook requires a much
more coordinated global response, including by the G-20. "Not sure we are close to that," he said.
The fund's prescription for the global economy hasn't changed much over the past several years, but
politics have hindered G-20 efforts to bolster global growth. The IMF has urged both emerging and
developed nations to overhaul their economies to make them more competitive. It has long cautioned
developing nations to get their fiscal houses in order. The IMF has backed more central bank easing
to spur growth and avoid curbing global output. And the fund has pushed for more infrastructure
investment as a way to boost global demand.
While central banks have eased, other policy makers have struggled to push through deep,
meaningful economic overhauls. Now that borrowing costs are rising and growth in many of the
world's largest emerging markets slowing, prospects for many economies are dimming even further.

"We are surrounded by economic gloom," said Raghuram Rajan, head of the Reserve Bank of India.
Aside from the American economypicking up steam, India's economy is one of the few bright spots in
the global economy.
If China's growth falls off a cliff, it would send shock waves across the globe. The country's slowdown
has already been a prime factor in the commodities selloff and slumping growth in some of the
largest industrializing nations from Asia to Latin America.
The World Bank estimates that a 1-percentage-point decline in China's growth shaves a half
percentage-point off global growth. That means if forecasters such as Lombard Street Research,
whose projection for the year is more than 3 percentage points below Beijing's official rate of 7%, are
right, a Chinese nosedive would ax 1.5 percentage points off global growth.

G-20 Increasingly Concerned About Slowing

Chinese Economy; China could fuel further
market instability and damp global growth
ANKARA--The world's biggest economies, rattled by recent market routs in China, are growing
increasingly concerned that the country's slowdown could fuel further market instability globally and
drag down growth.
Finance leaders from the Group of 20 countries meeting here sought details from Beijing
officials about how China plans to calm its turbulent markets and keep the world's secondlargest economy from stalling.
Emerging markets took a hit again Friday, weighed down by China's turmoil and the prospect of
higher borrowing costs as the U.S. Federal Reserve prepares to raise interest rates for the first time
in nearly a decade. The Russian ruble sank by as much as 2.3% against the dollar, and Turkey's lira
fell to a fresh all-time low against the greenback.
"Uncertainty is growing over the world economy because of possible interest-rate hikes in the U.S.
and market instability in China," South Korean Finance Minister Choi Kyung-hwan said in an
interview. "Viable alternatives--not rhetoric--should be presented."
U.S. Treasury Secretary Jacob Lew used a private meeting to press China's finance minister, Lou
Jiwei, on the country's currency policy amid concerns over Beijing's recent exchange-rate moves.

China's pullback has already been a prime factor in the commodities sell-off and slumping growth in
some of the largest industrializing nations from Asia to Latin America.
Ahead of the G-20 meeting, the International Monetary Fund said it is planning to downgrade its
global growth outlook for the year--already at its slowest rate since the financial crisis--in part
because China's slowdown was weighing on global output more than expected.
Several of the world's largest emerging markets are already in recession and struggling to revive
growth, especially those reliant on commodity exports. The Fed's signal for a rate increase--possibly
as soon as this month--is raising borrowing costs around the world and helping push up the value of
the dollar. That is a double hit for those countries and their companies, many of which borrowed
dollars heavily amid the cheap-cash era of central-bank easing.
While the IMF has urged the Fed to delay its rate lift-off until 2016 given the potential global
spillovers, many G-20 officials are pressing the U.S. central bank to ensure that the transition to
higher rates will be smooth.
Fed officials have indicated they will move gradually, but those comments haven't been enough to
placate some finance officials from emerging-market countries worried about the impact on
their economies.
"Recent turbulence in emerging markets reflects rising awareness of persistent problems that will not
be quickly reversed," said Charles Collyns, chief economist for the Institute of International Finance,
an industry group that represents more than 500 of the world's largest private banks, hedge funds
and other financial institutions.
In particular, Beijing's handling of its market crises has fueled questions about whether it has
complete control over its economy. G-20 officials and outside economists also complain
that China doesn't provide enough transparency on the nature of its economy.
Many also wonder if the volatility might cause the communist government to put the brakes on a
promised overhaul of its economy. Those uncertainties are fomenting market turmoil as investors
fear growth could be far lower than Beijing's official 7% rate.
"They look less like a smooth-oiled machine and more like they are making it up as they go along,"
said Ted Truman, a senior fellow at the Peterson Institute for International Affairs and former top
financial diplomat at the U.S. Treasury. "That has unnerved some people."
Still, the European Union's economics commissioner, Pierre Moscovici, said Chinese officials had
reassured G-20 members on Friday that Beijing would implement key structural reforms and with
what he called its "absolute determination" to do everything in its power to sustain economic growth.

Beijing has promised to shift its economy away from a credit-fueled, export-driven investment
strategy to one more reliant on household consumption. A key plank in that effort is allowing markets
to play a much stronger role in the carefully managed economy.
But U.S. and other G-20 officials are concerned that China's recent market routs could undermine
political support for that economic transition, slowing the pace of overhauls, which could in turn lower
the country's long-term growth prospects.
"The question is, are they managing that transition in an effective and orderly way," Mr. Lew told
CNBC on Wednesday.
Besides China's slowdown, the IMF said a host of other downside risks threaten to push the
global economy into much deeper trouble without concerted action by the largest economies.
"Risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a
much weaker outlook," the IMF said in a report on the state of the global economy for the G-20.
The fund's prescription for the global economy hasn't changed much over the past several years, but
politics have hindered G-20 efforts to bolster global growth.
The IMF has urged both emerging and developed nations to overhaul their economies to make them
more competitive. It has long cautioned developing nations to get their fiscal houses in order and has
backed more central bank easing to spur growth and avoid curbing global output. And the fund has
pushed for more infrastructure investment as a way to boost global demand.
While central banks have eased, other policy makers have struggled to push through deep,
meaningful economic overhauls. Now that borrowing costs are rising and growth in many of the
world's largest emerging markets is slowing, prospects for many economies are dimming even
further.
"We are surrounded by economic gloom," said Raghuram Rajan, head of the Reserve Bank of India.
Aside from the American economypicking up steam, India's economy is one of the few bright spots in
the global economy.
Tim Ash, an economist at Nomura in London, said the turmoil and gloomy outlook require a much
more coordinated global response, including by the G-20. "Not sure we are close to that," he said.

China: China's chief economic planner

"confident" about economy
China's chief economic planner said Wednesday the country's 7.8-percent economic growth in 2012
should be evaluated "positively" and he is confident about the overall economy in the long run.
"China currently remains in an important period of strategic opportunities... and I am sure
the economy will sustain a durable and healthy development," Zhang Ping, head of the National
Development and Reform Commission, the top economic planner, told a press conference.
Zhang said the 7.8-percent gross domestic product growth in 2012 should be highly appraised as it
exceeded the year-beginning target of 7.5 percent, though it receded from 9.3 percent in 2011.
Meanwhile, the growth was the highest among major economies, and was attained upon the
backdrop of the global financial crisis, which had a negative impact on the economy, Zhang noted.
The senior official said China had increased the quality and efficiency of its economy while
maintaining a fairly high growth, after decades of fast development had brought a large economic
scale.
He further noted that China's economic achievement was made while keeping consumer prices
stable and bringing people's income to a new level.
China's consumer prices rose 2.6 percent in 2012, 1.4 percentage points lower than the 4-percent
inflation target set at the beginning of the year.
The average income of residents in rural areas rose 10.7 percent in 2012, and 9.6 percent in cities
and townships, according to Zhang.
He added, however, that there are still some challenges in developing the economy, "which we must
face and overcome through hard work."
Zhang said China is positively advancing industrialization, informatization, urbanization and
agricultural modernization, which will offer much room for expanding domestic demand.

China: Survey shows increased optimism

about China's economy
Despite not-so-rosy figures on the Chinese economy, the latest survey released by Bank of America
Merrill Lynch showed global fund managers were increasingly optimistic about China.
A net 28 percent of respondents from Japan, the Asia Pacific Rim and global emerging markets
believe China's economy will strengthen in the next year, a contrast to the net 32 percent who
predicted a weakening economy just one month ago, according to the survey.
"A spike in optimism towards China's economy is one sign that emerging markets could be set to
recover in the months ahead," the September BofA Merrill Lynch Fund Manager Survey said.
Negative sentiment toward global emerging markets has stabilized. The number of investors saying
that emerging markets are the areas they most want to underweight has fallen to a net 21 percent in
September from a net 29 percent a month ago.
Investors have indicated that they are seeing the best value in emerging markets in almost a decade.
A net 36 percent of respondents said that global emerging market equities are the most undervalued
of all regions.
This is the strongest undervalued reading since January 2004, according to the survey.
The survey also showed investor bullishness toward European equities has reached pre-crisis highs
as markets digest the emerging market sell-off.
Allocations to Euro zone equities have reached their highest level since May of 2007. A net 36
percent of global asset allocators are overweight in the region, more than twice the net 17 percent
recorded in August.
In addition, the survey showed the gulf between allocations toward equities and bonds is at its widest
since February 2011, and the second-widest in the history of the survey.
A net 68 percent of asset allocators are underweight in bonds, the greatest underweight position
recorded since April 2006 -- giving a bond-to-equity allocation spread of 128 net percentage points.
BofA Merrill Lynch said an overall total of 236 panelists with US$ 689 billion of assets under
management participated in the survey from Sept. 6 to Sept. 12. A total of 172 managers, managing
US$ 518 billion, participated in the global survey. A total of 123 managers, managing US$ 272
billion, participated in the regional surveys. - PNA