Country spotlights
Among countries which have dominated the media over the past few months are China and the US. We look first at developments in these two countries, followed by a selection of other countries where there have been notable changes in the international business environment. This section contains four stories:
CHINA
Chapter links:
- Chapter 3
- Chapter 5
- Chapter 14
- CF 8.1
- OV Chapter 4
The period leading up to the Olympics was envisaged as a time to celebrate China’s accomplishments as a modernizing country, delivering a showcase event to universal acclaim. In reality, the months preceding the games proved difficult for China’s leadership. Severe winter snowstorms disrupted the plans of millions of migrant workers seeking to travel home for Chinese New Year celebrations (see opening vignette in
Chapter 4, page 118). A massive earthquake struck Sichuan province in May, leaving a death toll of over 69,000, and 5 million homeless. The disaster received unprecedented media coverage globally. Official rescue efforts and the work of thousands of civilian volunteers were praised, but it became clear that the most devastating losses were from hundreds of collapsed schools, while resplendent new government office buildings remained standing. Protests by parents over sub-standard construction of schools attracted the attention of the foreign media, prompting Beijing authorities to order a halt to media coverage of the protests. Nonetheless, reporters from western media gathered considerable evidence of poor design safety in the building of schools and hospitals across the affected region, despite the fact that it was a known earthquake zone.
The Olympic torch procession, designed as a city-to-city relay around the world, was launched in April 2008, as ‘journey of harmony’, to spread the Olympic message of ‘one world, one dream’. (Dyer. G., and Thornhill, J., ‘Feeling the heat’, Financial Times, 2 May 2008). The symbolism of the Olympic torch was soon overshadowed by protests in western capitals, particularly by those objecting to China’s harsh crackdown in Tibet. In reality, the torch relay highlighted the gap in perceptions of China: many westerners view China as a threat, while the Chinese themselves are proud their growing global status. Anxiety about China has been strong in Europe. In addition to sympathy with the desire of Tibet to maintain its own culture, there is unease about China’s lack of civil and political freedoms, and there is criticism of the government’s huge investment in Sudan, whose president has been indicted for war crimes by the International Criminal Court.
The Olympics, one commentator has said, ‘taught China more about the world and the world more about China’ (Sthephens, P. ‘China after the Olympics; a great but hesitant power’, Financial Times, 26 September 2008). China’s new self-confidence is grounded in an acute sense of national sovereignty. Its leaders reacted strongly to international criticism of its treatment of Tibetan separatists and dissidents generally. This reaction was mirrored in nationalist demonstrations across China, for example, outside Carrefour hypermarkets. China wishes to be recognized as an economic superpower by the international community, but it has not accepted that this status brings scrutiny of its internal governance and its international activities by outsiders. As global recession looms, China is experiencing a slowdown in growth. Economic downturn and an upsurge in human hardship could create new challenges for Chinese authorities, especially with rising unemployment. Vulnerable workers include those who have enjoyed years of increasing prosperity in export-oriented industries, as well as the millions of rural inhabitants who have not shared in the benefits of globalization.
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- Dyer, G., and Thornhill, J., ‘Feeling the heat’, Financial Times, 2 May 2008.
http://us.ft.com/ftgateway/superpage.ft?news_id=fto050120081449431899
- The Economist, ‘China before the Olympics’, 2 August 2008.
www.economist.com/world/asia/displaystory.cfm?story_id=11841531
- The Economist, ‘A ravenous dragon: Special report on China’s quest for resources’, 15 March 2008.
www.economist.com/specialreports/displaystory.cfm?story_id=10795714
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THE US
Chapter links:
- Chapter 1
- Chapter 2
- Chapter 3
- Chapter 5
- Chapter 11
- Chapter 15
- CF 2.1
As noted in the section on the global economy, the causes of global financial turmoil owe much to the sub-prime mortgage crisis in the US. Crisis in the housing sector has been accompanied by a sharp downturn in consumer spending. Much consumer spending in the US has been funded by debt linked to property, and has declined in line with falling property values during the credit crunch. As the country focus highlighted, much labour-intensive US manufacturing, especially the motor industry, has suffered from weakening competitiveness. This plight is exacerbated by slowing consumer demand. Having seen Congress agree a bail-out package for financial institutions, the major motor manufacturers (Ford, Chrysler and General Motors) are now seeking bail-out funding from the US government (see feature on the US motor industry below).
Economic issues became the main battleground of the US election campaign in the autumn, 2008. The Republican Party, traditionally perceived by voters the stronger party in terms of national security, found that, as the issues shifted to the economy, their campaign messages were not winning voters, who were becoming increasingly concerned about jobs, homes and healthcare. After all, the administration of President Bush, now reaching the end of its second four-year term, had presided over the build-up of a financial bubble of mortgage-based debt. The Republican presidential candidate, Senator McCain, found it difficult to dissociate himself from the Republican legacy of apparent financial mismanagement and regulatory failures, while the Democratic candidate, Senator Obama, argued persuasively for change.
The message of change reached voters, delivering a Democratic victory on 4 November. Unusually in US elections, Senator Obama received an absolute majority of the votes cast – 52.7% to 46% for Senator McCain. This was the first election since 1976 in which the winner has won an absolute majority of the votes cast. US elections are decided by an electoral college, each state having representatives equal in number to their members of Congress. The more populous states are key to victory, and a marginal win in a populous states delivers all that state’s electoral college votes to the winning candidate. In the event, Obama received 365 votes in the electoral college, to McCain’s 162 – a result which was much more decisive than the popular vote. Turnout, expected to be very high, following campaigns to sign up new voters, was just over 60%. This was high, but not unprecedented, and it was thought that many traditional Republican voters, disenchanted with their candidate or their party generally, simply did not vote.
Recession is reaching most of America’s states, some more deeply than others, reflecting partly the employment pattern in each. The farming states, where farmers are in receipt of federal government subsidies, are less affected by downturn that the states where heavy industry has been concentrated. Growing inequality has been highlighted by the economist, Paul Krugman, in
The Conscience of a Liberal: Reclaiming America from the Right. A study of inequality in OECD countries has revealed differences between countries. This study shows that the poor in the US are relatively worse off than the poor in countries with stronger welfare states, such as the Scandinavian countries. The poorest 10% in Sweden have incomes 1.5 times the level of the poorest 10% in the US, even though US incomes are much higher. Addressing the social issues, especially healthcare, will be high on the agenda of the new president when he takes office in January 2009.
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MYANMAR (BURMA)
Chapter links:
- Chapter 5
- Chapter 14
- Chapter 15
- CF 14.2
Cyclone Nargis swept across Burma 2-3 May 2008, leaving an estimated 138,000 people dead or missing and causing more than $4 billion in damage to the country. In addition, some 2.4 million survivors saw their livelihoods and homes destroyed. Although the survivors were in desperate need of immediate aid, Burma’s secretive military government refused for three weeks to let international aid workers into the country, stating that it was carrying out the rescue on its own. The contrast between this situation and the relative speed and openness of the Chinese rescue efforts following the Sichuan earthquake have attracted international attention. By the end of the third week following the cyclone, about 1 million people had received some aid, but this was mostly around the capital, Rangoon, rather than in the worst affected areas of the Irrawaddy delta.
The disaster brought to light the isolation of the military regime and the suffering of the Burmese people, who have long received much less aid than other authoritarian states, such as Zimbabwe and North Korea. Western countries have focused on economic sanctions against Myanmar, and calls for recognition of Aung San Suu Kyi as the country’s democratically elected leader. The regime, however, has refused to give way, and is bolstered by support from neighbouring countries. The fact that the military, which had asserted its national self-reliance, eventually let in aid workers and relief supplies, is perhaps a sign that it is opening up slightly to the outside world. However, the disaster also highlighted the issue of western policies towards Myanmar, where a humanitarian tragedy has long been unfolding.
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GLOBAL FINANCIAL CRISIS AND THE ECONOMIES OF CENTRAL AND EASTERN EUROPE
Chapter links:
- Chapter 3
- Chapter 5
- Chapter 6
- Chapter 11
- Chapter 15
- CF 5.1
- CF 7.1
- CF 10.2
- CF 15.1
- SX 9.2
While recent headlines have been dominated by the credit crisis and looming recession in the US and EU15, the impacts of global financial turmoil are also being felt in other economies. The transition economies of Central and Eastern Europe have been beneficiaries of globalization. These countries have attracted FDI, improved domestic living standards dramatically, and enjoyed relatively high economic growth rates. But how are they being affected by the global credit squeeze and financial turmoil? Foreign banks, notably the Austrian banks, have invested heavily in neighbouring countries to the East, where foreign debt has mounted. There are growing concerns about their ability to repay, linked to concerns that their currencies are weakening. Worrying current account and budget deficits have affected the countries of Central and Eastern Europe. Hungary’s economy is more precarious than the others, having seen only modest recent growth, in contrast to the healthier growth in Slovakia. In October 2008, the European Central Bank provided short-term credit facilities to Hungary, following sharp falls in its currency and stock market. Currencies and stock markets have also fallen in Poland and the Czech Republic.
Continuing economic growth would help export industries in the countries with high current account deficits, but slowdown in the markets of western Europe, where their main customers are located, would deepen the gloom in these emerging economies. For these former communist countries, transition was a matter of both economic liberalization and building democracy. The market economy has brought greater prosperity, on which their young democratic governments have been based. Economic hardship could be a stern test of their democratic depth, especially in the context of corruption, which remains a concern.
The economically diversified economies of democratic transition states in Central Europe differ markedly from the resource-rich authoritarian states of Russia and Kazakhstan. The Russian economy has amassed foreign currency reserves of nearly $491 billion, thanks to rising oil prices, and has generally been considered to have a sound economy. However, Russia’s stock market lost 50% of its value between May and October 2008. Russian companies have amassed considerable foreign debt, as there are few domestic sources of long-term capital. Economic growth is bound to slow, and is being affected by recent falls in the price of oil. A number of Russian banks have seen rises in withdrawals and account closures, as confidence in the banking system falters. The Russian government has put together a rescue package for the banks, and is planning to buy shares in key companies. Investors have flocked to Russia in recent years, but foreigners have withdrawn billions of dollars from the country since August 2008, partly out of fears about what the increasingly authoritarian government will do next (see the case of BP in the next section).
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