[FT China Report] Unstoppable Yet Unsustainable

In a special report on China, The Financial Times writes that “China has barely paused for breath this year in its jet-propelled rise into a global power, returning the country to a position its leaders and people think it rightfully occupies.

For the third year in succession, the economy is on track to grow by more than 10 percent, according to Chinese statistics, a figure that many foreign investment bank economists think understates the true pace of development. … [But] China’s rapid development remains a curious mixture of the unstoppable and the unsustainable.

The unstoppable part of the equation is increasingly apparent to most close observers of the country. … But even by the leadership’s own reckoning, the country’s present development model is unsustainable. The rich-poor gap has grown so quickly in recent years that the country is now more unequal than the US and Russia, an astounding development, given that two decades ago the country was one of the most equal – even if that did mean poor. China’s growth has continued to bring down the poverty rate, from 16 to 10 per cent in the three years from 2001, according to the World Bank’s measure of $1 a day in consumption using global prices. But at the same time, the poverty dynamic has changed in a way that worries the leadership. In the two years from 2001, according to a World Bank study, the income of the poorest 10 percent of Chinese actually fell by about 2.5 percent, despite rapid economic growth. …” [The Financial Times (UK)]

In a separate piece, The FT reports that “[i]t is five years since the biggest economic transformation in the modern world was put on to a permanent footing, and China joined the World Trade Organization (WTO). From China's point of view, WTO membership has been an almost unmitigated success. However, its dominance of certain sectors of world trade has created a backlash, and some of its gains may have come at too high a price. … There has been some high-profile resistance, with both the EU and the US slapping on emergency ‘safeguard’ quotas to hold back the tidal wave of Chinese exports, but the restrictions are limited in scale and time. Unless trade restrictions increase markedly, China's dominance of low-cost manufacturing market is likely to continue. Indeed, along with its increased exports, China has become a favored scapegoat among other WTO members for the growing imbalances in the global economy … [and] is the number one target for so called ‘anti-dumping’ actions … . …” [The Financial Times (UK)]

The FT meanwhile notes that “… [i]t is well known that the Chinese state, sitting comfortably on more than $1,000 billion of foreign exchange reserves, has the financial means to meet its promises to developing countries - even though its modest per capita income means it is still a recipient of aid as well as a donor. … The China Development Bank, for instance, says it is the world's largest development institution by assets. Until recently, the bank was looking inward, investing largely in Chinese infrastructure projects such as the Three Gorges dam. Now, it has begun to deploy some of its capital abroad, particularly to help Chinese energy and mineral companies working in developing countries. … The first criticism is made on commercial grounds. Some economists and financial analysts believe that China, like Japan in previous decades, is so thirsty for oil that it is overpaying for access to natural resources. Chinese companies are certainly taking risks - by investing in unstable countries such as Sudan, for instance - but that is true of almost all energy groups. The question of overpayment will be answered by future commodity prices. …” [The Financial Times (UK)]

“The excitement among investors over the prospects of the ‘Brics’ - the big emerging markets of Brazil, Russia, India, China and South Africa - has begun to metamorphose into a more realistic enthusiasm for ‘Chindia,’ writes The FT. China and India, after all, are by the far the largest and fastest growing of the five. China, with 1.3 billion people, and India, with 1.1 billion, happen to be the world's most populous nations. Both economies are growing exceptionally fast, and both are increasingly dependent on imports of energy and raw materials. … In the race to become developed economies, China and India have very different challenges and can hardly be said to be on the same track. They might end up in the same place. But if they do, it will take a long time and each will have achieved success by a very different route.” [The Financial Times (UK)]

Wolfowitz Says US Needs To Do More In Africa

“Progressive leadership in some African states presents a big opportunity for development but donor countries and especially the United States must respond, World Bank President Paul Wolfowitz said on Monday. Addressing an audience at the Federal Reserve Bank of Atlanta, Wolfowitz said an increasing number of African leaders were taking the fight against corruption more seriously, helping to raise economic growth to between 4 and 8 percent and earning the right to be taken seriously by donor countries. 

Wolfowitz singled out an anti-corruption campaign in Nigeria for praise, said Ethiopia was engaged in a project with the World Bank to keep development assistance free from political interference and noted Rwanda had made enormous progress since a genocide in 1994. ‘The two (states) that I think have the greatest potential ... are Ghana and Tanzania, big enough (to grow) ... but small enough that they don't have the challenges of the really big ones like Nigeria and Ethiopia,’ he said. … While development statistics by which Africa is judged are still unfavorable, Wolfowitz said it was possible that states could get locked into a virtuous circle in which they copy each other's best practices.

The US should respond to positive news in Africa by increasing its contribution to the International Development Association (IDA), the World Bank's main lending facility for its poorest borrowers, when donors meet next year, Wolfowitz said. Washington's contributions to IDA has declined from 21.6 percent to 13.8 percent of total contributions, he said. …” [Reuters and Business Day (South Africa)/Factiva]

EU Seeks 3-Month Extension For Palestinian Aid That Bypasses Hamas

“The European Commission on Monday proposed a three-month extension of a special aid deal for the Palestinians that bypasses the Hamas-led government. 

The refusal of the Islamic militant group to recognize Israel has caused international aid to the Palestinian Authority to dry up, creating an acute financial crisis. A temporary World Bank-supervised alternative that bypasses the Hamas government expires at year's end and ‘it is highly important’ that it is extended by another three months, said EU External Relations Commissioner Benita Ferrero-Waldner. … Her request to extend the special aid scheme for another three months was expected to be endorsed by the 25 EU leaders at a two-day summit opening Thursday, diplomats said. It took effect in July and has already been extended once. …” [The Associated Press/Factiva]

Reuters notes that “… [t]he aid mechanism was launched in June to assist Palestinians while bypassing the Hamas-led government. EU officials say it has provided access to water, health services and sanitation to 1.3 million Palestinians and paid allowances to around a million people. Fourteen EU states, the EU's executive Commission and Norway have contributed. …” [Reuters/Factiva]

Arctic’s Summer Sea Ice ‘Could Disappear Completely By 2040’

“The Arctic could lose virtually all its summer sea ice by the year 2040 – 40 years earlier than previously thought – according to a study by leading climate scientists.  

A rapid acceleration in the loss of sea ice seen in recent years will be dwarfed by the massive melting, up to four times faster than previously, which could take place within 20 years, the scientists predict. If nothing is done to curb man-made emissions of greenhouse gases the Arctic Basin, from Siberia and Greenland to Canada and Alaska, could be open water in summer within the lifetime of today’s children. The findings, part of the fourth assessment of the International Panel on Climate Change due next year, are published today in the journal, Geophysical Research Letters. …” [The Independent (UK)/Factiva]

“… The new study, by a team of scientists from the National Center for Atmospheric Research, the University of Washington, and McGill University, found that the ice system could be being weakened to such a degree by global warming that it soon accelerates its own decline. ‘As the ice retreats, the ocean transports more heat to the Arctic and the open water absorbs more sunlight, further accelerating the rate of warming and leading to the loss of more ice,’ explained Marika Holland to the BBC. ‘This is a positive feedback loop with dramatic implications for the entire Arctic region.’ Eventually, she said, the system would be ‘kicked over the edge,’ probably not even by a dramatic event but by one year slighter warmer than normal. Very rapid retreat would then follow. …” [BBC News Online]

“… In one model simulation, the September ice shrinks from about 2.3 million square miles (6 million square km) to 770,000 square miles in a 10-year period. By 2040, only a small amount of perennial sea ice would remain along the north coasts of Greenland and Canada, while most of the Arctic basin would be ice-free in September. The winter ice also thins from about 12 feet (3.7 meters) thick to less than 3 feet. …” [Reuters/Factiva]

“… Several experts not involved with the studies said [the consequences] were significant for human affairs, as well as biology. Polar bears will struggle, these scientists said, and so will Arctic people who still go out on sea ice to hunt seals. By contrast, countries and businesses pursuing new shipping lanes, energy supplies and fishing grounds could profit. The melting is likely to shift weather patterns, too. More sea ice means colder winters, because frigid winds blowing over ice pick up little heat from the warmer waters below. The change will have ramifications beyond summertime, experts said. Having open water each year would mean that almost all ice forming in winter would be freshly frozen and just a yard or so thick. This would greatly ease the task of maintaining shipping lanes with icebreaking vessels, said Lawson W. Brigham, Deputy Director of the Arctic Research Commission. …” [The New York Times/Factiva]

“… There are geopolitical implications, too, as Canada, Russia and the US jockey to claim rights over transpolar passages that open up within their newly ice-free waters. In September, European scientists unveiled satellite images from late August showing that perennial sea ice -- thick ice that is normally present year-round and is not affected by the Arctic summer -- had disappeared over an area bigger than the British Isles. The study released Tuesday concludes that reduced rates of greenhouse gas emissions could slow the ice loss. …” [Agence France Presse/Factiva]

World Bank Praises Moldova's Reform Progress, Urges Further Effort

“The World Bank said on Monday that Moldova has achieved progress in reforms aimed to cut poverty and promote sustainable growth, but noted that challenges remain.

‘Moldova has experienced considerable success in these areas [poverty reduction, economic growth] in recent years. At the same time, while Moldova is moving, so too are the countries with which Moldova competes for investment and exports,’ World Bank Group Managing Director Graeme Wheeler said in a statement released after his visit to Moldova.

He urged the Moldovan authorities to step up economic and social reforms and reforms in the areas of business climate, agriculture, energy and governance. ‘The medium-term growth prospects are bright, if the impact of the recent external shocks can be managed successfully,’ Wheeler added. 

A double rise in the price of Russian gas imports and a Russian ban on imports of Moldovan wine rocked the Moldovan economy this year, fueling inflation and disrupting the country's trade balance. …” [SeeNews (Bulgaria)/Factiva]

Also In This Edition: Letter: World Bank's Positive Effects On Governance Ignored; Briefly Noted...

Letter: World Bank's Positive Effects On Governance Ignored.   In a letter published in The Financial Times, Senior Adviser to World Bank President Paul Wolfowitz, Kevin Kellems, states that the December 8 story published in the FT entitled, ‘Study urges review of drives against corruption’ misleads FT readers.

Kellems writes: “Mr. Guha selected only negative points from the independent evaluation group report, while ignoring positive results it cites. He also ignored the management response provided and apparently made no effort to contact the World Bank. A balanced story would acknowledge the progress identified in the report: ‘The Bank has had good results helping countries fight corruption by supporting narrower, but politically feasible, changes in regulation, public service delivery, budgeting and procurement processes. In Turkey, for example, Bank-supported reforms helped to clean up government tendering practices simply by making sure the bidding results are made public.’

The hard facts on growth in developing countries, included in the management response, are a very important part of the picture. Developing countries grew at 5.6 percent between 2004 and 2006, even excluding fast-growing China. This year the number is expected to be 6.8 percent, a fifth consecutive year of strong growth.

More importantly, one of the main thrusts of the Bank's enhanced strategy on governance and anti-corruption is consideration of domestic support for improvements in this area. We fully realize improvements in governance must be driven from within. Indeed, that is why we are now holding consultations in nearly 40 countries seeking feedback on the strategy and on how the bank can better support governance reform efforts. (Details of this global engagement process have been available on our website since November 10.)

The evidence shows that better governance - for example, publishing budget information so that citizens can hold their elected officials accountable for how those monies are spent (something the Bank is actively supporting in a number of countries) - leads to improvements in development results and poverty reduction.” [The Financial Times (UK)]

Briefly Noted… Vietnamwill join the World Trade Organization as its 150th member on January 11, the Geneva-based trade body announced on Tuesday. Vietnam's one-party legislature ratified on November 28 the country's entry to the WTO, clearing the final hurdle for the Asian state to become a member of the biggest capitalist free trade club. The ratification was deposited with the WTO on December 12 and automatically becomes effective 30 days later. [Reuters/Factiva]

The World Bank said Monday that its Consultative Group for Vietnam will hold its annual meeting in Hanoi this week to discuss the implementation of Vietnam's social and economic development plans for 2006-2010. About 50 international delegations will attend the meeting to be held Thursday and Friday, it said in a statement. At the end of the meeting, foreign donors are expected to announce their pledges for official development assistance next year. [Dow Jones/Factiva]

The UN Human Rights Council will hold a special session on violations in Sudan's troubled Darfur region on Tuesday, giving the recently-formed body a chance to improve its maligned reputation in the eyes of Western governments. It is the first time the Council has held a special session on Darfur, while it has already held three such meetings on the Israeli/Palestinian dispute.  [Agence France Presse/Factiva]

A $17 million project to promote household water filtration and chemical purification in poor communities worldwide is being funded by the Bill & Melinda Gates Foundation. The five-year effort led by the Program for Appropriate Technology in Health of Seattle, known as PATH, is expected to begin in India, where the World Bank has estimated that 21 percent of all communicable disease are caused by poor water quality. [The Associated Press/Factiva]

The Bill & Melinda Gates Foundation on Monday pledged $83.5 million to fight malaria by paying for better controls, vaccine research and prevention of a disease that kills more than a million people a year. The Gates Foundation, the world's largest charity, said the new grants would also help pay for better malaria tests and for advocacy to get more attention for the killer disease. [Reuters/Factiva]

World Bank President Paul Wolfowitz faces criticism from directors of the international lending organization who say he relies on a coterie of political advisers with little expertise in development while driving away seasoned managers. ..The only other World Bank chief to sweep aside as many senior managers was Wolfowitz's predecessor, James Wolfensohn, said Devesh Kapur, a former economist at the lender and author of ``The World Bank: Its First Half Century . Special Advisor to the World Bank President, Kevin Kellems in an interview, said that “change in senior posts throughout the Bank has been more gradual than most people expected, and the senior management team is very international and composed of experienced professionals from a wide range of backgrounds and viewpoints.” [Bloomberg]