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FINANCIAL TIMES Thursday, March 05, 2020

In this issue

Page 1

Commodities Rally on China’s CRR cut

Financials Commodities Rally on China’s CRR cut • Globalization at Risk • Petro Loans – A Reality? •

World China: A Global Superpower with social syndrome • MNC Insurance Firm introduces “Pink Slip” insurance • Bioterrorism – Emerging Threat •

Technologies •

Mind Reading Technology – A New Security Measure

Environment India: Hardest hit due to global warming • The future of nonrenewable resources •

Emerging Markets •

Emission Trading

The People’s Bank of China continued with its dovish monetary policy stance and cut CRR to 3% for the 15th time in a row since the past 3 years. The governor said, “With inflation at all time lows due to lack of global demand for commodities, the need to stimulate the economy of China is necessary and domestic demand needs to be propelled in order to reduce China’s high dependency on exports.” China’s economy, though being the largest economy in the world after crossing the size of the United States in 2015, is struggling to grow beyond 2% per year as its currency has appreciated more than 30% over the past 5 years. The Chinese Yuan, Which has corrected from 5.8 per US dollar in 2015 to 4.02 per US dollar as of yesterday’s closing price, has helped other smaller economies to compete with China in certain products.

While Taiwan has regained its competitiveness in chip manufacturing industries, companies like Nokia and Apple have moved their manufacturing hubs to Finland from China due to increase in labour costs. China is facing an ageing population due to its much hyped one child policy enacted in the 1980s, in turn leading to a reduction in workforce, forcing the labour arbitrage to reduce vis-à-vis other countries. Demands of the Chinese middle class are also increasing

for higher quality of standards of living which is in turn driving imports of higher quality luxury goods into China, not helping the domestic manufacturing sector at all. The People’s Bank of China hopes that a decrease in interest rates and increase in liquidity will help its currency to depreciate so that the imports can become expensive and China’s economy can regain some momentum through increase in investments and production of cheaper goods.




Globalization at Risk? Government leadership all across the world has collapsed. Proactive fiscal and monetary policies is what is the need of the hour to ensure that the deep national recessions will not turn into an extended depression, although reduced economic growth could slow globalization’s pace, increasing protectionist pressures and financial fragmentation.

favours or to seed new regional initiatives. In the West, the shift of power to the states has created havoc. Western governments now own large swaths of their financial sectors and must manage them, potentially politicizing markets.

The crisis is accelerating the global economic rebalancing. Developing countries have been hurt; and in the literal sense have remained in the “developing” stage. Countries such as Pakistan, Brazil, Africa, with their large current account deficits, are at considerable risk. Even those with residual cash reserves—such as South Korea and Russia—have been severely buffeted; long periods of unemployment and inflation have triggered widespread political instability and thrown emerging powers off course. However, if China, Russia, and Mideast oil exporters can contain their internal crises, they will be in a position to leverage their likely still sizeable reserves,

Countries such as Pakistan, Brazil, Africa, with their large current account deficits, are at considerable risk. buying foreign assets and providing direct financial assistance to stillstruggling countries for political

The prolonged crisis has increased calls for a new “Bretton Woods” to better regulate the global economy. World leaders, however, will be challenged to renovate the IMF and devise a globally transparent and effective set of rules that apply to differing capitalisms and levels of financial institutional development. Failure to construct a new all-embracing architecture could lead countries to seek security through competitive monetary policies and new investment barriers, increasing the potential for market segmentation. With all these changes in regulations, stiff monetary policies and heightening barriers to entry being introduced by countries, pseudo protectionism in a way, is globalization at risk?




Petro Loans - A reality? Tring! Tring! My blackberry rang in the middle of the dull afternoon at work and shook me out of deep thoughts. Excited, I answered the call thinking it was a customer enquiry. But alas! It was a lady calling from Hyundai, trying to sell me the latest model. I was about to hang up on her, knowing very well that I could not even afford the miniature replica of the car in these tough economic times. Just when I was ready to press the red button, something bizarre, she said, caught my attention. “Madam, apart from the auto loan, we will also assist you with the Petro loan”. What in God’s name is a “Petro Loan”? With the fear of sounding foolish, I quickly wrapped up the conversation with her and called my banker friend. He went on to explain, that banks designed this new loan as a “rider” with auto loans, as petroleum prices are shooting beyond the roofs. Due

to this, there has been a drastic drop in car sales and a subsequent drop in auto loans, one of the biggest revenue sources for banks.

How this exactly works is, like a working capital limit for corporate. Whatever be your auto loan amount, you will get an additional 10% of that as an overdraft limit on your loan account, which you can use at anytime till you clear the auto loan. However, this limit can only be used to fuel your car, re-

ceipts of which have to be submitted to the bank, as when the limit is availed of. Voila! Here is another brilliant strategy from the evil world of banking, to entice the customer to spend what he does not earn and cannot afford at least in the near future. The very same strategy, that has landed us in these tough times. It started with home loans and has now come down to “petro loans”! Every new banking product just reconfirms by belief that bankers are nothing but conmen in Armani suits, and I was adamant of not falling into this trap. While I was mulling over the details of this new petro loan, I thought to myself, that probably the only reason I did not want to buy that latest model of Hyundai, was because I did not want to burden myself with crazy fuel expenses. Hmmm, maybe there is no harm just checking out the features of the car. I am, after all, only human!




China: A Global Superpower with social syndrome

Today china may have become world’s largest economy but their society is going through turbulent times. Apart from being a country which has highest average age at 40, China is suffering from gender imbalances where they have 30 million more men of marriageable age then women. This social mayhem has primarily been caused by China’s one child policy in 1970, which resulted in gender selection of the babies. As parents didn’t want the only child to be a girl, they rather preferred to abort the baby girl fetuses. This gender imbalance has resulted in huge crisis for the young men in China. Today China is facing an increase in number of suicides, increase in cases of depression in young men

and this imposed bachelorhood plays a significant role in this social mayhem. Today surplus of Chinese male in 20’s has exceeded the entire population of Taiwan. Chinese men are compelled to get the girls from the nearby countries like Korea and Taiwan, which is causing further deterioration of the social structure as these brides have different values and norms because of which families are breaking up in a society which took pride in its heritage and tightly coupled family values. Another side effect of this bride scarcity is increased homosexuality in China. Earlier Homosexuals were bound to marry opposite sex because of social fear and cultural values but as there is a shortage of brides,

there is no moral or social impediment for these homosexuals in a homophobic society like china. China may have won the race of being the first to become developed country among its competitors like India and Brazil but they have failed to maintain a social structure, Which was conducive for the growth of Chinese culture and values. The day is not far when we have bride war in china when Chinese would be fighting among themselves. This is the time for Chinese government to step in bring in some strict laws for abortion and concentrate on the alleviation of social and cultural values because if these values are lost Chinese economy would perish as well sooner or later.




MNC Insurance Firm introduces “Pink Slip” insurance A major MNC Insurance firm headquartered in New York, United States, has introduced a new insurance scheme called the “Pink Slip”. You guessed it right; it’s a scheme for protecting employees against losing their jobs in these volatile times. The scheme entitles a benefit of up to two year’s salary for the policy holder or until the holder finds another job, whichever is earlier. While it may sound too good to be true, a thorough check of the documentation by FT revealed that the prerequisites to qualify for the policy are too stringent. First of all, the policy holder needs to have a postgraduate degree from a reputed institution. Another requirement is having at least 3 years of experience

in the same company during the time of initiation of the policy. The policy entitles the holder to two

years of the annual income of the holder at the time of the “Pink Slip” and the premium fee is a hefty 1% of salary per month. Employees of some companies operating in cyclical sectors are also not eligible,

while there is a minimum turnover requirement of $100 M in annual sales for the company which the policy holder is employed with. Such an insurance policy is a win-win for the both the insurance firm and the policy holders. While a 1% monthly salary expense would hardly burn the employee’s pocket and give a sense of security as well, the insurance firms would earn roughly 12% in premiums every year with a low claim ratio as most of the policy holders would be qualified to retain their jobs or get employed quickly upon receiving the “Pink Slip”. Another advantage to the policy holder would be that once he receives the boot, he can bide his time in choosing a suitable employment opportunity without having to worry about his personal finances.



The future of Non -renewable Resources Is the current method of production capable of meeting the needs of a population of 8 billion people given the limitation of the resources available and its negative effects on the environment? Are the consumer’s preferences (demand-side) having a prevalent impact? Is technology developing sufficiently fast? Are prices and taxation really modifying behaviours? If from tomorrow all the citizens of the world were to behave the same as the population of the USA with its food/water/energy consumption model, the highest per capita in the world by far, these goods would become rare and this could cause a serious worldwide crisis and explosive increase in their relative costs. These tensions will affect food consumption, and access to water. Food: Malnutrition affects 4 billion people today with Africa and South Asia having the highest numbers. Moreover, supply is getting affected because of the reduction of agricultural land, of irrigation problems and of climate change, leading to increases in food prices towards levels that are too high for the poorest groups. Food-importing countries with land and water constraints but rich in capital, such as the Gulf States as well as countries with large populations and food

security concerns such as China, South Korea, and India, are buying or leasing farmland abroad. Largescale land acquisitions can be seen as an opportunity for increased investment in agriculture for developing countries lacking the necessary capital. But unequal power relations in the land acquisition deals can put the livelihoods of the poor at risk. Water: The need for water is increasing sharply with the increases in world population and the rise in the standard of living in emerging countries, creating strong tensions with the quantities available, which are likely to decrease due to climate change. Desalination plants, which were used extensively in the Middle East, are now found around the Mediterranean, in Asia and in Australia. The first generation of desalination technologies will use a great deal of combustion energy, and thus contributes to CO2 emissions. Will desalination technologies with the help of renewable energy be developed on a large scale in time for these tensions to be reduced? Climate change will also have impacts on coastal demography and de/relocalization of populations in several parts of the world.


Emissions Trading Since the inception in 2005 cap and trade has played a vital role in limiting the emission levels across the world. Initially there were four programs spread across Europe and America. As per the Global Emissions Tracking Association, almost every country has signed up with one of the six programs globally. The latest country to enter this list is Saudi Arabia, which joined the Middle Eastern Emission Reduction Accord in 2019. After a shaky start between 2005 and 2012 and a lot of scrutiny and revisions of the regulations and norms, cap and trade has successfully helped put a check on the emission levels in US, Europe, Australia, India, and China. Smaller countries in the Middle East, South Africa and Russia are still lagging behind in controlling the growth in emission levels. This is mainly because the strategies of the major powers and of the emerging countries regarding cap and trade regulations vary. Overall global emissions levels have dropped by 12% compared to the 1990 levels. The net annual economy-wide cost of the cap-and-trade program today is $22 billion an increase of $2 billion compared to last year. With the cap and trade programs playing their part, companies have shown increased share of revenue in the research of alternate energy sources.

2020 visions ‘Humans became fire, burned the Earth down. Without fuel, what will we become?’‘The bigger you build the bonfire, the more darkness is revealed.’

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India: Hardest hit due to global warming

The earth has become 2.4 degree Celsius warmer as it was ten years ago and India is the hardest hit country due to this temperature rise as its crop yields have reduced by 25 percent. India, which was second largest producer of wheat and rice up to five years ago, is now bound to import these grains. Indian grain Exports have fell sharply by 15% due to low production. On the other side just opposite is happening in China, as their crop yields have increased by 15% and they are enjoying a rise in exports. Impact of global warming has been different for different regions where central and southern region are witnessing adverse impacts; the impacts are beneficial for East and South-East Asia. Its not only Asia which has been impacted by a warmer planet, In fact food production globally is going through strange changes where some regions are enjoying increase

in crop yields, at the same time others are facing severe problems with meeting the local food demands. Global wheat production is facing a 14 percent deficit between production and demand, while rice and maize production is witnessing 11 and 9 percent deficit in production respectively. Soybean is the only crop, which is showing rise in production, with a 5 percent surplus. The IPCC (Intergovernmental Panel on Climate Change) seventh Assessment Report (2020) has concluded that, unequivocally, the Earth's warming is anthropogenic (man-made)," said one of the Universal Ecological Fund (FEU - US) scientific advisor who was the former Co-Chair of Working Group III of the IPCC as well. He says that if we’ll still not take necessary steps to control global warming, day is not far when our survival would be questionable.


Bioterrorism – Emerging Threat The wide spread and inexpensive advancement in Biotechnology have now become a threat for the survival of humanity. A person or a small group of person can now pose a threat to the entire human community. With the increased accessibility for the public to software fabrication labs, genetic database and Artificial Intelligence , the rapid research and synthesis of Deoxy Ribo Nucleic acid has been made easy. The latest intelligence reports from RAW and FBI suggests, terrorist have been using this as their new weapon of mass destruction. In the past, with the Government regulations on the laboratory use of potentially deadly agent like Ebola virus i.e. by restricting the access to pathogens, government were able to combat bioterrorism. How ever with the emergence of DNA synthesis technology, there is no more restriction on the access to a pathogen. The gene is now a sequence of blue print , coded and the pathogens can be synthesized depending on the sequence with out culture samples or DNA stocks. Further more with the DNA sequence, Watson and Creek model of various pathogens like anthrax and botulism have been available on internet for decades now. Just like the information technology revolution, the synthesis technology has continued to advance, become cheaper and more accessible and alarmingly easier to use and produce deadlier version of virus. These home made bio weapons if unleashed with time can create devastating results. It could be a greater sinister with its ability to target specific race of genetic group of people. Hopefully Time would evolve new defensive technologies which could curb these bio terrorism.

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Mind Reading Technology – A New Security Measure

The day which made America realize what terrorism is , the day when they realized what India and South Asian Countries have been speaking off . The world realizes an issue when only US realizes it. And this was a new beginning an era of insecurity, era of suspicion. Under the pressure of Security, In-

telligence agencies and with security, suspicion in mind, Government has been funding technology to enhance the existing safety measures. The evolution of security technology has been fascinating over the period of time. Post 9/11 with the security beefed up in airport with multiple airports

and other sensitive venues, one of the major breakthroughs came in 2010 when Israel came up with a enhanced security sensor which could scan anything with a room instead of the traditional hand held sensors or frame sensors. 20 years later today, in an age when brains stimulations are possible, scientist at TIFR have come up with a mind readers which would soon been a coming feature of airport security, at other high profile events and to replace lie detectors. The technology developed at the Tata institute has been a great success in their pilot projects and has a great demand globally. The recent advances in neurosciences, brain stimulations and computer analyzing software gave greatly improved the accuracy. The system uses "non-invasive" sensors and imagers. These observe, stimulate and evaluate a person’s emotional state, facial muscle movement, body temperature, pulse rate, breathing rhythm and other cues. Analyzing and stimulating these factors determine the state of mind and possibilities of crime. And it is now possible to establish their basic, overall intentions beyond any reasonable doubt.

The team: Abhishek Srivastava , Gyanesh Changlani, Jharna Ahuja, Amar Mavila Chathoth, John Gonsalves.

Financial Times 2020