How services are neglected in the US-China trade war - Harry Broadman

Harry Broadman

Tarifs imposed in the US-China trade war focus on goods, but US politicians missed that most of the world trade consists of services, writes international trade expert Harry Broadman in the Gulf News. What has happened to Trump and his advisors over the past twenty years?

Harry Broadman:

While the importance of services trade to US competitiveness may have once been out of the mainstream of trade policy thinking, that was decades ago. If Trump’s economic advisers are worth their salt, they should know better. If they do, then why can’t they get through to the boss?

Perhaps Trump’s distorted view towards the importance of international trade in services stems from sheer ignorance. That is hard to believe. After all, he did attend the Wharton School of Business at the University of Pennsylvania, from which he graduated in 1968 with a Bachelor’s Degree in Economics. 

Such training, one would assume, equipped him with the tools to understand the concept of cross-border services transactions, even if they were not as commonplace then as they are today. 

Alternatively, does it stem from a nostalgic hope to return to years gone by when manufactured merchandise and other goods dominated economic activity in the US and elsewhere? If so, he would do well to recognise that such a wish is far-fetched. Why?

Because over the last 20 years, in every country of the world — rich as well as poor — manufacturing’s contribution to GDP actually has been declining while the share of GDP accounted for by services has been rising. 

It’s ironic that not only is the core of the Trump Organization in the real estate industry, a prime component of the services sector, but Trump’s course concentration in economics at Wharton was in real estate. Even television, Trump’s second occupation, is a services industry. 

Despite this, Trump might well believe that a shift to a services-oriented economy is a sign of economic decline. If so, the latest data, which are for 2015, suggest he would be quite mistaken. In high-income countries, services’ share of GDP has risen to 75 per cent. In low- and middle-income states, the share of GDP accounted for by services has increased to 56 per cent.

Whatever the reason for Trump’s myopia toward the fastest growing portion of international trade, he needs to realise that he — like the rest of us — is not living in an economy of years gone by.

More in Gulf News.

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Can a trade war hit the Big Four? - Paul Gillis

Paul Gillis

Import duties - increased during a trade war - focus on goods, not services. Nevertheless, the Big Four accounting firms can still suffer from a trade war, writes Beida accounting professor Paul Gillis on his weblog. But those subtleties might not be spent on China when they are drawn into a full-scale trade war.

Paul Gillis:

Services are not subject to import duties, but China has shown no qualms about punishing foreign business for the sins of their government. The Big Four are technically not American companies. The operations in China are not subsidiaries, but more like franchises owned and operated mostly by local Chinese. But they are generally viewed as American and may face regulatory crackdowns and may see an acceleration of the process of transferring major accounts to local CPA firms. Some smaller US CPA firms operate in China in ways that are technically illegal under Chinese law and would be easy to crack down on. 

It would be easy for the Chinese to crack down on the Big Four. They simply need to strictly enforce their own rules. Few audits can survive a critical examination by regulators, evidenced by the high rate of audit deficiencies identified during inspections by the Public Accounting Oversight Board (PCAOB) of domestic firms. Earlier this year China temporarily banned several local firms for audit deficiencies. 

The Big Four had best watch their back. The Big Four will likely also suffer from a decline in business serving US multinationals. All multinationals must carefully reexamine their global supply chains and some of the China business is going elsewhere even if this spat is settled. Even if this dispute is settled, it has highlighted the risk of overreliance on the Chinese market.

More at the Chinaaccountingblog.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form. 

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Services and consumption will drive growth - James Roy

James Roy

Manufacturing is - as planned by the central government - down, but services and consumption will keep economic growth for the rest of this year at 6.4, 6.5% says business analyst James Roy to Money Control.

Money Control:

Latha: I was wondering whether you will worry about the fact that loan growth has almost doubled to 1.3 trillion yuan as our guests have been telling us. There have been huge problems or huge worries over Chinese indebtedness and the problem of bad loans not being addressed not even being recognized, will this growth in loans be something that markets will start worrying about in the days to come? 

Roy: I think we could see loan growth worries continuing to increase going forward. But in terms of the consumer component of the economy, we still are seeing very strong signs here. Bad loans have had been an issue in China and if they are not addressed, they can continue to be pretty serious drag on the economy. So, I think they will see increased attention to this going forward. 

Reema: We know that the Chinese government is trying to move the economy from manufacturing to consumption. Does the recent data including this throw any light and how much of the growth in account of manufacturing and how much of it is in account of the new focus area of consumption and services? 

Roy: Yes, so manufacturing has been slowing for some time now and it is at around 6 percent or slightly lower now while you are seeing consumption at a higher level at around 8 percent, agriculture down closer to 4 percent, but now services for the first time ever in China greater are than 50 percent of GDP. So you are now seeing services and consumption account continue to be the main drivers for Chinese growth going forward.

More at Money Control.

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E-commerce is one of the services boosting China´s growth. Are you interested in having more e-commerce experts as a speaker from the China Speakers Bureau? Do check out this list.

One of the sources of growth is going to be the merged conglomerate of Beijing, Tianjin and Hebei Province. Journalist Ian Johnson discusses the emergence of this megacity.
 

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What will drive growth after real estate? - Arthur Kroeber

Arthur Kroeber

Housing is still a key factor in China´s economy, but is no longer the main driver. Economist Arthur Kroeber looks in FNArena at what can replace real estate, and what the decline means for economic growth.

FNArena:

...The best the government can do is smooth the downturn, it cannot cause construction to re-accelerate, and attempts to keep housing sales at an artificial high level would be disastrous. We believe the authorities are alive to this risk. Their efforts to support a flagging property market this year were fairly modest, suggesting that they are willing to let sales and prices drift down so long as the moves are not too abrupt. 

It is clear, however, that the housing´s shift from a growth driver to a zero or negative growth contributor means that tthe government´s aim to maintain GDP growth at 7% through 2020 is unrealistic, and will have to be revised down. - perhaps as early as next year. This outlook also underscores the urgency of deregulatory reforms, especially in services, that can help build a new economic growth driver to replace the sputtering real estate engine. 

Commodity prices have already suffered from China´s construction slowdown of the last two years. It is likely they will fall further. In the past, China´s steel consumption tracked housing constructions quite closely, and the industry´s current forecast of 1% growth in total Chinese steel use over 2014-15 reflects a recognition of the housing peak.

More in FNArena. 

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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Poor services in China - Bill Dodson

Bill Dodson

China veteran and author Bill Dodson remembers in his weblog his encounters in hospital hell and a nurse, as a lively example of the poor services in China, one of the subjects of his upcoming book.

Bill Dodson:

The nurse who changed my dressing was a battle axe, and managed to use the tweezers with which she was armed to such effect. She was heavy-set, with glasses, nearing the speed barrier of 40-years of age that seems to sour so many faces. 

She was so barbaric in her attendance and devoid of empathy that I shouted at her through the pain she was uneccesarily inflicting to pay attention to what she was doing. She tore the bandages from my fingers without waiting for the peroxide to do its work, impatient to get back to text messaging on her mobile phone. One of the fingers began to bleed again. 

I took the first new wrapping off myself, for her to redo, she had swaddled it so poorly. Admittedly, the doctor at the same hospital who had changed my dressings just two days before was careful and considerate, a real gentleman. The contrast could not have been greater... 

I devote an entire chapter of my book “China Inside Out” to the services dilemma in China. In my upcoming book “China Fast Forward” (Wiley, Spring/Summer 2012), I focus on the challenges the leadership has in staffing and training employees for the services outsourcing sector Beijing wants to grow. 

And as for my demonic nurse: I hope – as Dante would have had it – she retires to the seventh circle of Hell, where former patients take turns changing dressings on her that reflect their own injuries, and changed in such a manner as she recalls the original incident. Again and again.

Bill Dodson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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