CHINA DIARY - INDIA CHINA AND THE WORLD ECONOMY 2009

I am sharing the views from a good Indian  friend who works for a large MNC in Being. He is in the automotive industry there and earlier worked in the same sector in India. My friend travels a lot across China and his views reflect his observations 

The theories of decoupling of Asia from the western world which were doing the rounds have come to a naught. The impact has been across varying in degree. Korean and Taiwanese economies besides HK took a huge beating owing to huge dependence of the overall economy on exports. Indonesia got affected with oil prices going down and the ensuing bust in commodity prices owing to perceived drop in demand for coal and thereby mining industry. Thailand has had a political imbroglio compounding the overall economic investment climate besides the export dependence contributing to the slowdown. Malaysia which seemed to be standing up and not slowing has started shaking now. So it is all over.

 

China which is supposed to emerge as a saviour … is showing strong policy drive by huge internal consumption stimulus in spite of the huge challenge of loss of jobs and contraction in the export sector. The scale and size of the stimulus package is stupendous. The confidence and sure footedness resolve of the government is likely to sail them through. When the President or the Premier here says that they would achieve 8% then they would!!

 

Another interesting trend that I see in China is that the runaway labor cost increases which one witnessed in the last 5 year are correcting which means that the labor rates are dropping with the workforce getting redeployed and absorbed after taking salary and wage cuts è all this would lead to another wave of cost efficiency making China weather this and become even more competitive. This holds good for india too but not to the same scale.

 

In India I have heard that there are new startup which owing to downsizing in the IT sector are able to hire talent easily now. Do we see an emergence of a new entrepreneurial wave in the near future?

 

I feel at the end of all this China would surge ahead further and even India would emerge stronger. Though it would be more painful for China (over 50% dependence on exports as compared to 20% of India).

H1B VISAS - THE NEW RULES - ONLY 1000 JOBS AT STAKE

The H1B amendment that passed isn’t as tough as the one Grassley proposed on Feb. 5, which would have prohibited firms from hiring H-1Bs altogether. The modified amendment instead makes TARP recipients like Citibank, Bank of America , GM etc  jump through extra hoops before they can hire those foreign workers. Specifically, it subjects recipients of TARP funds to the same rules so-called H-1B dependent employers must follow. (An H-1B dependent employer is one whose workers brought in with that visa comprise 15% or more of the employer's total workforce.) 

The new additions in the H1B rules include:

1. The employer can’t displace any similarly employed U.S. worker with an H-1B hire within 90 days before or after applying for H-1B status or an extension of status.

2. The employer can’t place any H-1B worker at the worksite of another employer – meaning it can’t outsource a worker for a client – unless that employer first makes a “bona fide” inquiry as to whether the other employer has displaced or will displace a U.S. worker within 90 days before or after the placement of the H-1B worker.

3. The employer has to take good-faith steps to recruit U.S. workers for the job opening, at wages at least equal to those offered to the H-1B worker. The employer must offer the job to any U.S. worker who applies and is equally or better qualified than the H-1B worker.

“These are hardly onerous expectations,” notes Ron Hira, professor of public policy at the Rochester Institute of Technology and an expert on H-1B visas. Hira says the provision would affect about 1,000 jobs.

2009 - A BAD YEAR FOR JOBS GLOBALLY

Global Economy - A Gloomy Outlook for 2009

New Jobs creation as well as retention of existing jobs are linked directly with the economy. 2009 is a bad year in general.

2009 looks a bad year for the global economy. I was reading in the latest issue of Newsweek about the happenings in Davos. The Newsweek correspondent was trying to find at least one senior management person ( from the illustrious crowd who had gathered at Davos ) who was optimistic about 2009.

The quick and dirty survey could not reveal even one, although he did meet a few Indian industrialists there.

Combine this with the following facts about the world’s largest economy  ( Courtesy Bloomberg ) :

Sales at U.S. retailers probably fell in January for a seventh straight month as surging unemployment hobbled consumers, economists said a report this week will show.

Purchases fell 0.8 percent, capping the longest slide since comparable records began in 1992, according to the median estimate in a Bloomberg News survey. Other reports may show falling oil prices helped narrow the trade gap and prevented consumer confidence from sinking further.

Household spending is likely to keep shrinking as job losses mount, home prices skid and banks limit lending. President Barack Obama is seeking to push a $900 billion stimulus package through Congress this month to jump-start the economy over objections by some lawmakers that the plan is too focused on spending and will bloat the government deficit.

“Consumers are still shell-shocked,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. “Folks just aren’t spending right now.”

Retailers are bracing for the first annual drop in sales this year in at least 14 years, according to the National Retail Federation. January same-store sales dropped 1.6 percent from a year ago, the International Council of Shopping Centers reported last week.

The unemployment rate jumped to 7.6 percent in January, the highest level since 1992, the Labor Department said last week. Payrolls plunged by 598,000, bringing the total number of jobs lost over the last 13 months to 3.6 million, the biggest slump in the postwar period.

Consumer Slump

Consumer spending is set to contract again in the current quarter, economists forecast, after falling in the second half of 2008. Purchases haven’t decreased for three consecutive quarters since records began in 1947.

The Commerce Department’s retail sales report is due Feb. 12. The estimated decline would follow a 2.7 percent drop in December. Excluding automobiles, sales decreased 0.4 percent in January after falling 3.1 percent the prior month, according to the survey median.

The world’s largest economy may contract at about a 5.5 percent annual pace this quarter after declining at a 3.8 percent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley in New York. Last quarter’s drop was the biggest since 1982.

Demand for expensive items such as automobiles is plunging as consumers retrench. Cars and light trucks sold in January at a 9.6 million annual rate, the lowest since June 1982, industry figures from Autodata Corp. showed. Sales plunged 55 percent at Chrysler LLC and sank 49 percent at General Motors Corp. as car loans became scarce after credit seized up late last year.

No Credit

“If you can’t get credit, you can’t sell vehicles,” Mark LaNeve, GM’s sales chief, said in an interview Feb. 3. “This is what is choking us to death.”

With overall demand cooling, imports of televisions, furniture and clothing, in addition to oil, have weakened. The trade gap probably narrowed in December to $36 billion, the lowest level since October 2002, the survey showed. Commerce will report the figures on Feb. 11.

While lower oil prices helped keep the import tab down, they also led to cheaper gasoline at the pump, providing the only bright spot to the gloomy backdrop.

A gauge of consumer sentiment this month fell to 61 from 61.2 at the end of January, according to economists surveyed before the Feb. 13 release by Reuters/University of Michigan. The measure reached a 28-year low in November.