investment

As mentioned in my last post, I was in Asia just a few weeks ago, and one (favorite) destination was Beijing. One key reason for being there was to participate in a seminar on “Promoting Innovation for Development” with the Ministry of Science and Technology. This seminar covered a range of topics related to innovation, including China’s strategies for innovation, strengthening the capacities of small- and medium-sized enterprises to innovate, and the financing of innovation. The seminar was well-attended by a range of participants, including the financial regulatory agencies, and the seminar served as a platform to launch a new book the World Bank published entitled, “Promoting Enterprise-Led Innovation in China.” Please take a look!

I attended the seminar to discuss strengthening the ecosystem for domestic venture capital in China (a pdf of my presentation can be downloaded after the jump). This presentation covered the basics of the venture capital (VC) industry, what is happening in China, the challenges and recommendations for improvement of the ecosystem for VC in China and the areas for further research.

It has been a couple of weeks since my last blog entry and it is amazing how much the financial world has changed in that short time!  We seem to be entering new territory and the end of the global financial crisis seems to be nowhere in sight. I just returned from two countries in Asia–China and Vietnam, where the financial sector policymakers are clearly concerned about the possible effects of the crisis. However, there is no real sense of urgency or panic, which may be a good thing in this highly volatile environment.  In fact, it seemed the view was that the economies and financial sectors would ride this storm out without too much damage. This may ultimately prove true and it is what we are all aiming for, but should Asian financial policymakers take a preventative coordinated approach to the financial crisis to better ensure they can ride out this storm?  This is a particularly timely question in light of the Annual Meetings of the World Bank and International Monetary Fund being held this weekend.

The World Bank released the China Quarterly Update —of which I’m the lead author, full disclosure here-- today at a press launch in our Beijing office. The economic journalists noticed that the Bank’s projection for GDP growth in 2008 is now 9.8 percent, more than 2 percentage points lower than the outcome in 2007. Several journalists asked whether it is not time to stimulate growth by loosening macro economic policies and/or what would be the most appropriate policies to relax.

Somebody living in Dallas or Dusseldorf may find it difficult to understand why a government would want to stimulate the economy when growth falls to 9.8 percent.

The difference in perspective is related to a question that has been raised many times since the sub-prime problems broke out in the US: What will happen to growth in developing countries and emerging markets when the US economy, and the European one as well, slows down considerably? Many developing countries and emerging markets had been growing rapidly in the years preceding the sub-prime problems—much more rapidly than high income countries. But exports to high income countries are important for most of them. So the question was: can developing countries and emerging markets “decouple” from the high income countries?

The answer given by many economists was (as usual) yes and no. Developing countries and emerging markets that, like China, have successfully integrated into the world economy cannot decouple from the global economic cycle because a weaker world economy means lower exports and investment. 

Andrew  Leonard posts in his blog an interesting report from journalist Tony Cheng of Al-Jazeera:

China has banned, for environmental reasons, the free hand-out of plastic bags.  As a result, the country’s largest plastic bag factory has closed, throwing 20,000 workers out on the street.  Some see this as posing a dilemma between environment and economy, but I don’t agree that good environmental policies are bad for the economy, just the opposite.  What this case illustrates instead is the dilemma between doing something good for the whole people, but at the expense of adjustment costs borne by a small group – the 20,000 workers and the factory owner. 

Good environmental policies create jobs directly and indirectly. China is quickly emerging as the largest producer of photo-voltaic cells and of wind power equipment (both supported by World Bank projects, see here and here).  The clean-up of lakes and rivers and the expansion of sewerage and waste water treatment facilities (also a big area of ours) create huge numbers of jobs in construction and maintenance.  The health benefits of the clean-up reduce illness and prolong life expectancy, both of which are good for long-run economic development.