TIME China

Will the Communist Party Save China’s Volatile Stock Market?

An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing
Kim Kyung Hoon—Reuters An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing, China, July 6, 2015

China’s top brokerages have pledged almost $20 billion to arrest a calamitous slide

Rain, like the downpours that have inundated Shanghai in recent weeks, doesn’t buoy the spirits. But don’t despair, counseled the People’s Daily, the Chinese Communist Party’s mouthpiece, on Monday: “Rainbows always appear after rains.”

That upbeat message coursed through China’s state media on Monday, referring to the dismal performance of the nation’s bourses, including the Shanghai Composite Index, which has lost nearly 30% over the past three weeks.

The chief rainbowmaker is, no surprise, the ruling Communist Party. “The Chinese government unveiled an unprecedented string of emergency and supportive measures to stabilize market sentiment,” announced state news agency Xinhua on Monday, with the nation’s central bank called in to increase liquidity.

Over the weekend, China’s top brokerages, surely encouraged by officialdom, vowed to spend nearly $20 billion to shore up the stock market. By government fiat, new stock listings are being curtailed. Foreigners have been admonished not to sell China short — as if they were the ones chiefly responsible for the stock market’s nosedive. On July 5, Beijing police arrested a man they say spread rumors that a despondent punter jumped to his death because of the stock-market plunge.

The result so far of this massive government intervention: after an 8% surge in the morning, the Shanghai index ended up 2.4% on July 6, following a 12% loss the previous week. State-owned giants led the weak recovery. In meteorological news, the plum rains are forecast to last all week in China’s commercial capital. (At close on Monday, Shenzhen’s more erratic index was down 1.39%.)

The past three weeks have seen the market shed more than $2 trillion. Still, the percentage of the Chinese population that dabbles in the stock market is comparatively low. And as brutal as the summer sell-off has seemed, shares are still up this year, with the Shanghai Composite having expanded by nearly 80% compared with roughly a year ago.

Chinese social-media users have debated whether the central government’s efforts were enough to prevent a further market nosedive. There was less discussion, however, of whether the government should be doing battle in the first place — especially given that some of the recent market frenzy has derived from risky margin trades that may be testing banks. Critics have noted that this generation of Chinese leadership, in place since late 2012, has called for market forces to gain more power, not less. The government’s latest intervention runs counter to talk of reform.

“Fragile market sentiment will be reversed,” the People’s Daily has stated. That’s about as clear a signal of official policy as the ruling Communist Party can give. Beijing, which is already facing a slowing economy, is tying part of its legitimacy to returning confidence to the nation’s stock market. When will the rainbow appear?

TIME

Chinese Stock Markets Are in the Middle of an ‘Unprecedented’ Slide

A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai
Aly Song—Reuters A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai, China, June 26, 2015.

State monetary policy has failed to fix the situation, and Beijing is growing desperate

In what analysts are describing as an unprecedented economic situation, China’s stock indexes are currently tumbling into a free fall, with panic taking the place of the brash confidence that, until last month, led these markets to rapidly develop into an unsustainable bubble.

That bubble appears to have now burst: by early afternoon local time on Friday, the Shanghai Composite Index had fallen 3.25% to an anemic 3,785.57 points; in the three weeks since it reached a seven-year high, it has lost 30% of its value.

Monetary authorities in Beijing are currently grasping for straws to remedy the situation, but numerous market interventions, including the fourth cut in interest rates since November, have failed to keep investors from frantically selling their Chinese stocks.

The turbulent situation is not yet catastrophic, but it illuminates the greater volatilities of China’s fraught existential dynamic: between an autocratic Communist government and the currents of free-market capitalism. In a country where stock investors now outnumber Communist Party members, if the market heals, it will likely heal itself. Beijing’s economic policies have thus far proven mostly ineffective.

Meanwhile, state authorities are attempting to blame the economic instability on calculated “foreign forces,” the Washington Post reports. State media outlets have alleged that Morgan Stanley or prominent investor George Soros may be purposely interfering in the Chinese markets. Messages making the rounds on WeChat, the country’s preeminent messaging service, allege that “‘international capital’ — or simply capitalism itself — [is] attacking China,” according to the Post.

In the face of this supposed malfeasance, prominent figures are encouraging their fellow countrymen to have faith in their faltering economy.

“Hold stocks with confidence,” was the advice of Fan Shaoxuan, a executive at microblogging service Sina Weibo, according to the Post. “Win glory for the country even if you lose the last penny.”

TIME Economics

Everything You Should Know About Puerto Rico’s Economic Crisis

The island's debt is four times that of Detroit

As Greece’s debt crisis grows increasingly dire, another territory much closer to home — Puerto Rico — has admitted to some major financial woes.

What exactly is happening in Puerto Rico?

Puerto Rico Governor Alejandro García Padilla made a worrisome announcement Sunday that the island cannot pay back its $72 billion in public debt, the New York Times reports. Padilla and his staff, according to the Times, are seeking to defer debt payments for as long as five years, while also possibly seeking concessions from many of its creditors.

“The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

Okay… in English, please?

Puerto Rico is in the midst of a decades-long economic struggle fueled by years of recession and slow economic growth. As a result, its government has taken out massive loans from creditors to cover its costs.

But Puerto Rico has to pay back the money (or figure out a Plan B). In recent years, the commonwealth has raised taxes and slashed pensions in order to pay back its loans, but the island’s “tab,” so to speak, has still spiraled out of control. Many residents have found their businesses collapsing — Puerto Rico’s unemployment rate is double that of mainland America — while others have been leaving the island for better opportunities state-side.

Financial markets across the world have already been rocked by Greece’s debt crisis, and Puerto Rico’s troubles will only add to the current global economic uncertainty.

What does this mean for Americans?

If you’re an investor in municipal bond funds, Puerto Rico’s debt might be your problem, too. Municipal bonds — or loans used by local governments to fund public projects — have traditionally been considered safe investments. But some investors are worried about them — several American cities have filed for bankruptcy in recent years, and the Puerto Rico situation could make things worse. According to the Washington Post, as many as three out of four municipal bond mutual funds held Puerto Rican bonds in 2013.

How bad is the situation exactly?

Padilla called the situation a “death spiral.” And he wasn’t exaggerating: Puerto Rico’s debt is four times that of Detroit’s, and the island has more debt per capita than any American state. Analysts believe the central government will run out of cash as soon as July, according to the Wall Street Journal, which could lead to a government shutdown, emergency measures and an unpredictable crisis.

So what’s next for Puerto Rico?

Good question. While Padilla seeks to negotiate with creditors, his administration is also pushing for the right to file for bankruptcy under Chapter 9, which outlines a plan for creditors to get back some of their money. (That’s what happened with U.S. cities like Detroit, Mich., and Stockton, Calif., last year.) But under current law, that right is afforded only to U.S. cities, not to states or territories including Puerto Rico.

Read next: Everything to Know About Greece’s Economic Crisis

TIME South Korea

Bank of Korea Cuts Key Interest Rate to Stave Off Economic Fallout From MERS

The death toll rose to nine on Wednesday

In an effort to stave off economic troubles caused by panic over the MERS (Middle East Respiratory Syndrome) outbreak, South Korea’s central bank lowered its seven-day repurchase rate to an unprecedented 1.5% Thursday, the fourth such reduction in 10 months, Bloomberg reports.

Authorities meanwhile announced that more people had died of the respiratory ailment, bringing the death toll to 10. The total infections now stand at 122, according to the Wall Street Journal.

As many as 3,000 people have been quarantined to date, and economists fear that a bleak mood will deaden any upward momentum the country’s already embattled economy might have been gaining.

This is the second straight year that the country has faced sudden threats to consumer sentiment, after last year’s sinking of the Sewol ferry also traumatized both the country’s people and its markets. Similarly, experts fear that worries over MERS could freeze domestic consumption, adding further troubles on top of the country’s plummeting exports, which fell 10% last year.

Public approval for President Park Geun-hye meanwhile dropped six percentage points in the past week, according to a Gallup Korea poll, suggesting that South Koreans were unhappy with Park’s handling of the crisis. She postponed a trip to the U.S. planned for next week and asked her Cabinet to execute “all preemptive measures” that might minimize the effect of MERS on the economy.

To date, all South Korean MERS casualties have been older than 55; all also had underlying medical conditions such as asthma, heart disease, and cancer. Still, this is the most extensive outbreak of MERS since the syndrome was discovered in Saudi Arabia in 2012.

[WSJ, Bloomberg]

TIME Economy

Most Americans Say Wealth Inequality Is a Huge Issue

McDonalds Holds National Hiring Day To Add 50,000 Employees
Justin Sullivan—Getty Images A McDonald's employee prepares an order during a one-day hiring event at a McDonald's restaurant on April 19, 2011 in San Francisco, California.

Expect it to be a 2016 campaign theme

An improving economy has done little to distract Americans from an issue sure to be a the forefront of the 2016 presidential contest: inequality.

A new poll by The New York Times and CBS News found that a majority of respondents—66%—said wealth should be more evenly distributed. 67% percent of respondents said the gap between the rich and the poor was getting larger, and 65% said the divide needs to be addressed now.

A smaller chunk of respondents—57%—said the government should do more to close the gap between rich and poor, though they split sharply along partisan lines with one-third of Republicans supporting a more active government role, versus eight in 10 Democrats, according to the Times. When asked if they wanted to raise taxes on Americans who earn more than $1 million, 68% said they were in favor of such hikes.

Democrats are trying to capitalize on Americans’ belief that the economic recovery has been uneven, benefiting high-earners the most. But inequality is far from a partisan issue. The Times reports inequality is a concern for almost half of Republicans and two-thirds of independents, which suggests it’s an issue that will persist through and beyond this election cycle. Considering these findings, it’s no surprise that both Democratic and Republican politicians are exercising their populist muscles.

TIME Economics

El Nino Could Cause Serious Trouble Across Asia

Aerial view of a flooded area in Trinida
Aizar Ralder—AFP/Getty Images Aerial view of a flooded area in Trinidad, Beni, Bolivia on Feb. 24, 2007. Authorities say two months of rain and floods left 35 people dead, 10 unaccounted for, and affected hundreds of thousands of people. The disaster, blamed on the "El Nino" weather phenomenon, also has caused millions of dollars in material losses.

Bad weather on the horizon

You may recall a time in the mid-1990s when American citizens were worried about El Niño, the tropical weather pattern that can cause global changes in temperature and rainfall. Now, according to a new Citigroup report, the next group to pin concerns to El Niño may be bankers.

The report, produced by Citi analysts Johanna Chua and Siddharth Mathur, suggests that the current El Niño (the weather anomaly takes places at unpredictable times, sometimes more than five years apart) could have a deleterious effect on economies in countries in and around Asia.

India, Thailand, The Philippines, and others, where agriculture contributes a major percentage of GDP, might see inflation in food prices, since a severe El Niño can brings dry spells and cause crop damage. In Indonesia, for example, the agriculture sector makes up more than 50% of overall employment.

In economies dependent on farming, long-lasting weather that upends crops will naturally impact farming output, and thus commodity pricing.

With these countries especially vulnerable to economic disruption, it may be more bad news that recent reports indicate we are about to see a particularly violent El Niño.

TIME Economics

These Are the Fastest-Growing Cities in America

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Don Klumpp—Getty Images Downtown San Marcos, Texas

One state has five cities on the top-ten list

The Census Bureau on Thursday released its latest data tracking the nation’s population shifts from July 2013 to July 2014, resulting in a new list of American boomtowns. A quick glance at the list tells us one thing: Texas is blowing up.

Five of the ten fastest growing cities with 50,000 residents or more are in the Lone Star State. Top among them is San Marcos, which snagged the fastest growing title for the third year running. The city saw its population climb 7.9% between 2013 and 2014.

San Marcos’s growth is attributable to its status as a college town; it’s home to Texas State University. It also offers job opportunities in both Austin and San Antonio since it sits between the two employment hubs.

Here’s a full rundown of the top ten:

1. San Marcos, Texas grew 7.9%
Population: 58,892

2. Georgetown, Texas grew 7.6%
Population: 59,102

3. Doral, Florida grew 7%
Population: 54,116

4. Frisco, Texas grew 5.8%
Population: 145,035

5. South Jordan, Utah grew 5.7%
Population: 62,781

6. Conroe, Texas grew 5.2%
Population: 65,871

7. McKinney, Texas grew 5.1%
Population: 156,767

8. Milpitas, California grew 5.1%
Population: 73,672

9. Meridian, Idaho grew 5.1%
Population: 87,743

10. Castle Rock, Colorado grew 4.9%
Population: 55,747

TIME Economy

How Social Security Could Boost India’s Economy

Traffic make way in haze mainly caused by air pollution in Delhi, India on January 20, 2014. Air pollution in India exceeds that of China as diesel fuel subsidies encourage ownership of polluting vehicles. (Kuni Takahashi/Bloomberg)
Kuni Takahashi— Bloomberg Finance LP Traffic make way in haze mainly caused by air pollution in Delhi, India on January 20, 2014.

This weekend, India’s Prime Minister Narendra Modi launched three social security schemes aimed at helping the people of West Bengal gain access to pensions and insurance. Earlier, Modi also launched a program to provide every Indian citizen with a bank account in a bid to promote financial management, especially amongst the poor, and to modernize payment methods for workers.

Social security, though not novel, is still an underdeveloped concept for a country where at least 30% of the population continues to live in poverty and where old age is often accompanied by extreme destitution for many. The current program covers only a small portion of the population and is primarily employer driven, limiting its scope to help the vast majority of people.

While Modi’s plans to create a bigger safety net for more citizens are still in their infancy, they could be a harbinger of an important change for the Indian workforce, one that can enhance the skill level of labor, enable entrepreneurship, increase consumption, and propel Indian commerce to new heights.

The concept, of course, has a successful precedent in the U.S. When President Franklin Roosevelt created social security in 1935, his landmark action arguably changed the course of American history by freeing Americans to aim for higher education, innovate, and take entrepreneurial risk instead of worrying about their welfare when they grew old. That spirit of risk-taking has been instrumental in creating America’s technology boom and boosting its economic power over the decades.

The same could happen in India if Modi succeeds in widening the scope of the nation’s social security program. It might even be crucial.

One of the highest areas of growth for the Indian economy has been its Information Technology sector, which accounts for 7% of GDP, grew at a compound annual growth rate of 25% from 2000-2013, and is creating new jobs at a rapid clip. But the industry may be slowing down, driven by international competition from companies such as Google and Microsoft, due to a lack of innovation, according to forecasts by Indian trade association IBEF and Livemint, a sister publication of the Hindustan Times.

While half of India’s population is under 21, creating a fertile labor pool for the future, a large rural population (68%) and poverty could hold the country back in being able to realize its potential unless its people are freed from a hand-to-mouth existence. For example, a lack of options and financial necessity still keep almost 50% of workers stuck in the agricultural sector, most of whom have no social security whatsoever, while what is needed is a shift of the workforce towards more skilled jobs, such as in IT or the equally emergent and large healthcare sector. A robust social safety net could well give such people the courage to migrate towards urban areas and pursue higher education and knowledge-based jobs.

In addition, social security will add to the Indian economy through increased consumption, which is important in a nation where the per capita income is only about $1,500, according to the World Bank. Once again, there is a striking parallel to justify this assumption. According to a report by the AARP, social security adds about $1 trillion to the U.S. economy every year, mainly through consumption.

Much of the attention surrounding Modi’s economic plans has focused on the Indian government’s opening up of its markets to foreign investment and lowering barriers to trade, but more subtle initiatives like social security will also play an important role in helping the Indian economy become the powerhouse that the Modi administration has promised it can be, and which the international investment community is hoping for.

Kumar has worked at leading U.S. investment banks in technology, media, and telecom mergers and acquisitions, He has also served as a strategic consultant to media companies and hedge funds. He has an MBA from Columbia Business School and has lived in India.

TIME Nepal

Nepal’s Economy Will Take Years to Recover From the Deadly Earthquake

Tourism and rural infrastructure have taken a big hit

Even as the death toll from the Nepal earthquake nears 5,000 — and it looks set to rise much further if reports trickling in from devastated rural areas are anything to go by — experts are warning that the economic aftershocks will be felt for years after the last victims have been buried and rubble cleared.

Nepal is one of Asia’s poorest nations with unemployment over 40% and per capita GDP of just $1,000. Some 59 out of 75 districts have been affected by Saturday’s 7.8-magnitude quake — 11 of them severely. The U.S. Geological Survey estimates that reconstruction costs could exceed $10 billion, or half of national GDP.

“With housing construction standards in Nepal being extremely low due to the poverty of the general population, the impact of the earthquake has been devastating,” says Rajiv Biswas, Asia-Pacific chief economist for IHS analysis group.

The tourism sector, accounting for around 10% of GDP and a similar percentage of all jobs, looks gutted in the short-term.

Nepal boasts eight of the ten highest mountains in the world, with spectacular scenery to match. The fact that it only receives around 600,000 visitors each year makes hospitality a key area of potential growth.

Yet most major hotels have now been shuttered for at least a fortnight while structural assessments are completed, and Kathmandu airport has been thronged by shell-shocked vacationers clamoring to escape the bedlam. Airplanes have been held on the tarmac for hours as the besieged terminal struggles to cope with the increased traffic alongside vital aid deliveries.

Compounding matters, four of this mountain nation’s seven UNESCO World Heritage sites — such as the 100-foot Dharahara Tower in the capital — have been severely damaged. At least 18 climbers at the Everest Base Camp died during an avalanche, while the popular hiking hamlet of Langtang has likely been wiped out by a landslide, according to the New York Times.

“Rebuilding efforts and hopefully recovery can be quick,” Kenichi Yokoyama, Nepal director for the Asian Development Bank, tells TIME. But they will also be uneven.

The service sector and manufacturing — Nepal boasts industrial plants for many Asian and international firms, including Coca-Cola — face disruption, as factories have been evacuated indefinitely until structural reports can be compiled. Damage to infrastructure in rural areas could also be significant.

MORE: Six Ways you Can Give to Nepal Earthquake Relief

On the other hand, the farming sector appears to have escaped relatively unscathed. Agriculture remains Nepal’s principal economic activity, employing 80% of the population and providing a third of GDP.

“Unless land is affected by landslides, or farmers are injured, the agriculture sector may not necessarily suffer major damage,” explains Yokoyama.

Then there is hydropower — the other great hope for Nepal besides tourism. The nation has about 6,000 rivers stretching some 28,000 miles, ranking the nation the second richest globally for inland water resources.

Hydropower is a major source of investment from energy-hungry neighboring superpowers India and China. Nepal is estimated to boast hydropower potential of 80,000MW — enough to power the whole of Germany — but only around 700MW has so far been exploited.

Due to poor infrastructure and extreme conditions, and with construction impossible during most ferocious weather, such schemes are exorbitantly expensive; a new India-backed 900-megawatt dam on the upper Karnali River is slated to cost $1.4 billion.

Nevertheless, Yokoyama says the latest quake is unlikely to affect investor confidence in this sector, especially as no major damage has been reported in existing hydropower stations.

“Everybody would know that Nepal has a high earthquake risk and normally these [hydropower projects] are built to take into account geological and earthquake risks,” he says.

“Hydropower projects are generally ‘over-engineered’ so as to have a significant margin of safety that takes into account regional conditions,” confirms Prof. Tony Lucey, a hydropower expert at Curtin University’s department of engineering in Perth, Australia.

Nepal’s growth was already much slower than most of its South Asian neighbors, and the ABD forecast for this year has been dropped from 4.6% to around 4.2% in light of the quake, says Yokoyama. However, from next year and beyond, reconstruction activity could support faster GDP growth, according to the Economist Intelligence Unit. The remittances sent by Nepalis working overseas, which make up about a third of GDP, will also become even more vital.

At the same time, a fraught political scene adds unpredictability to the equation. Nepal has not had a fully functioning government since the monarchy was abolished in 2008, with a disparate hodgepodge of bickering Maoist and communist splinter groups creating political inertia. Nepal is also ranked 126 out of 175 nations for corruption by Transparency International. Both of these are going to have to change if Nepalis are to truly rise from the rubble.

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