The European Commission wants to boost the number of females working in the ICT sector.
Even before external demand collapsed, much of the developing world was trying to generate more growth from domestic consumption, particularly in Asia. Boosting consumption means reducing the saving rate; they are the two sides of the same coin. But...
Even before external demand collapsed, much of the developing world was trying to generate more growth from domestic consumption, particularly in Asia. Boosting consumption means reducing the saving rate; they are the two sides of the same coin. But China's experience shows how hard it is to persuade consumers they should spend instead of saving. Consumers in China save more than they do in most other countries for a variety of reasons. Demographic and cultural patterns cannot be easily altered, but other factors are related to economic conditions and can be affected by government policy.
What leads the Chinese to save? Widening income inequality on the back of an emerging middle class is one reason. Well-off families tend to save a larger proportion of their income. The government has responded with fiscal measures and, in particular, has aimed to address a widening income disparity between rural and urban areas.
Government efforts to reduce its spending on health and education have also fuelled savings. Replacing free healthcare with a cost-sharing scheme may be more efficient, but without effective competition, health service prices have surged. Tuition fees have also jumped and saving to pay them has been factored into household budgets. Where the legal system to protect private property rights is not well developed and investment alternatives are limited, allocating funds to educate a child offers an appealing risk adjusted return.
Pension provision, or the lack of it, also pushes up household savings and encourages investment in education to provide for old age. Contributions now are "pay as you go"; a funded system will begin to operate around 2015, but the shift has added to anxiety and increased the propensity to save.
The reasons Chinese consumers save so much have implications for how governments, in China and beyond, can encourage spending. First, they need to build welfare systems to ease anxiety over healthcare and pensions, and they need to make clear to consumers that they can depend on the system, not just their savings. Developing the consumer finance market would also reduce the need to save for education and housing. Personal income tax policy should be rationalised and the tax burden on poor farmers reduced. Using public funding to curb increases in the cost of education and healthcare would also help.
Emerging economies are highly vulnerable to what is happening in the developed economies, particularly in the US. Trade links with the developed world are very important for most of them, consequently they follow closely the monetary policy being adopted, particularly in the US. In December, the policy-setting Federal Open Market Committee lowered the US federal funds rate essentially to its "zero bound" by establishing a target range of zero to 0.25 per cent, something that only Japan has experienced in recent times.
Once at that bound, monetary policy must switch to unconventional measures that expand the central bank's balance sheet. Those include injecting liquidity by repurchasing financial instruments and ultimately the outright buying of bonds in the market - in effect, directly financing government spending programmes, the ultimate heresy of monetary policy in normal times.
The Federal Reserve Bank has already established a programme to buy government agency debt and government agency-insured mortgage-backed securities. That has the dual effect of directly supporting the housing market, which is central to any recovery, and injecting liquidity more broadly.
Such measures expand the Fed's balance sheet; it is now well over twice the $900 billion at the start of 2008. And there is no theoretical limit to issuance.
Fed officials argue the approach they propose is materially different from the quantitative easing pursued by the Bank of Japan in the early 1990s, which made little difference in reviving the moribund economy.
For most emerging economies, the zero bound interest rate is still some way off. The effectiveness of their policy responses will nonetheless be conditioned and constrained. Constraints and vulnerabilities include the stock of foreign exchange reserves, the fiscal balance, existing government indebtedness, real policy interest rates and existing inflation rates.
Measuring a number of emerging economies on these issues, Ukraine and Vietnam are the markets that look particularly exposed to a combination of vulnerability and constrained policy flexibility to respond. South Africa looks relatively vulnerable to financing and real economy risks but is less restricted in policy response, as are Korea and Kazakhstan. Some factors also make Russia and Brazil look relatively vulnerable, but their ability to respond with offsetting policy measures is significant. Russia's flexibility is being eroded as reserves run down and fiscal performance deteriorates, however. At the other end of the spectrum, markets like China, Taiwan and Hong Kong look relatively immune to the vulnerabilities we captured and also have an evident ability to respond with offsetting policy.
• This report was compiled by the marketing department of HSBC Bank Malta plc on the basis of economic research and financial information produced by HSBC International Bank.
What leads the Chinese to save? Widening income inequality on the back of an emerging middle class is one reason. Well-off families tend to save a larger proportion of their income. The government has responded with fiscal measures and, in particular, has aimed to address a widening income disparity between rural and urban areas.
Government efforts to reduce its spending on health and education have also fuelled savings. Replacing free healthcare with a cost-sharing scheme may be more efficient, but without effective competition, health service prices have surged. Tuition fees have also jumped and saving to pay them has been factored into household budgets. Where the legal system to protect private property rights is not well developed and investment alternatives are limited, allocating funds to educate a child offers an appealing risk adjusted return.
Pension provision, or the lack of it, also pushes up household savings and encourages investment in education to provide for old age. Contributions now are "pay as you go"; a funded system will begin to operate around 2015, but the shift has added to anxiety and increased the propensity to save.
The reasons Chinese consumers save so much have implications for how governments, in China and beyond, can encourage spending. First, they need to build welfare systems to ease anxiety over healthcare and pensions, and they need to make clear to consumers that they can depend on the system, not just their savings. Developing the consumer finance market would also reduce the need to save for education and housing. Personal income tax policy should be rationalised and the tax burden on poor farmers reduced. Using public funding to curb increases in the cost of education and healthcare would also help.
Emerging economies are highly vulnerable to what is happening in the developed economies, particularly in the US. Trade links with the developed world are very important for most of them, consequently they follow closely the monetary policy being adopted, particularly in the US. In December, the policy-setting Federal Open Market Committee lowered the US federal funds rate essentially to its "zero bound" by establishing a target range of zero to 0.25 per cent, something that only Japan has experienced in recent times.
Once at that bound, monetary policy must switch to unconventional measures that expand the central bank's balance sheet. Those include injecting liquidity by repurchasing financial instruments and ultimately the outright buying of bonds in the market - in effect, directly financing government spending programmes, the ultimate heresy of monetary policy in normal times.
The Federal Reserve Bank has already established a programme to buy government agency debt and government agency-insured mortgage-backed securities. That has the dual effect of directly supporting the housing market, which is central to any recovery, and injecting liquidity more broadly.
Such measures expand the Fed's balance sheet; it is now well over twice the $900 billion at the start of 2008. And there is no theoretical limit to issuance.
Fed officials argue the approach they propose is materially different from the quantitative easing pursued by the Bank of Japan in the early 1990s, which made little difference in reviving the moribund economy.
For most emerging economies, the zero bound interest rate is still some way off. The effectiveness of their policy responses will nonetheless be conditioned and constrained. Constraints and vulnerabilities include the stock of foreign exchange reserves, the fiscal balance, existing government indebtedness, real policy interest rates and existing inflation rates.
Measuring a number of emerging economies on these issues, Ukraine and Vietnam are the markets that look particularly exposed to a combination of vulnerability and constrained policy flexibility to respond. South Africa looks relatively vulnerable to financing and real economy risks but is less restricted in policy response, as are Korea and Kazakhstan. Some factors also make Russia and Brazil look relatively vulnerable, but their ability to respond with offsetting policy measures is significant. Russia's flexibility is being eroded as reserves run down and fiscal performance deteriorates, however. At the other end of the spectrum, markets like China, Taiwan and Hong Kong look relatively immune to the vulnerabilities we captured and also have an evident ability to respond with offsetting policy.
• This report was compiled by the marketing department of HSBC Bank Malta plc on the basis of economic research and financial information produced by HSBC International Bank.