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No developing country can get rich from consumption

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Jinan city, China
China, an example of a nation developing its economy through high savings rates.

No developing country is known to get rich from the consumption sector of their economy. Most rich countries have got their wealth from their manufacturing activities, called as the secondary sector, with different levels of technological complexity, now or in the past. The percentage contributions of the primary and secondary sectors to their GDP have been declining in the past 50 years. For example, what the UK and the US have seen in their GDP compositions.

It is true that they began developing their countries with the primary sector, including agriculture. Then, they shifted most of their economic activities to the secondary sector, and saved most of their disposable income, accumulating wealth. Once they reached the level of adequate affluence, they started consuming more of their income, and hence, lowering the ratios of both their savings as well as investment to GDP. As a result, their saving rates have been relatively very low. See the chart below.

In addition, developing countries with a high (>60%) ratio of public and household debts to their GDP, coupled with a similar ratio of their external loans to GDP and a low ratio of savings to GDP, have found themselves struggling to pay interest charges and/or repay debts. Their economies are also vulnerable to both internal and external financial and other shocks.

Reasons: Investment has a reproductive effect, but consumption does not. Consumption supports life and health and occasionally helps maintain an unsustainable standard of living to a certain extent. As a result, the higher a country’s ratio of consumption expenditure to its GDP, the less money its households and businesses save and the less money they both have for investment. As a further result, its GDP growth rate declines and its consumption ratio to GDP goes up. In order to prevent further declines, its households and government must borrow money heavily and/or the latter monetizes its debts.

Many countries with similar situations have even borrowed much more to survive the current Covid-19 pandemic. For example, the UK, Japan and the US.

Source: www.yahoo.com: https://finance.yahoo.com/news/pandemic-16-trillion-bill-come-210000693.html

In addition, consumptive nations tend to demand a higher and standard of living. In the long run, their consumption can exceed income, and they will begin to live beyond their means and have to borrow money to keep their standards of living. The most recent example is what the US has been experiencing in the past 50 years: change of international standing from a creditor to debtor nation (https://www.latimes.com/archives/la-xpm-1985-09-17-mn-20088-story.html).

Unsustainable Consumption (combined with corruption) can get a country bankrupt

For example, Nauru, a small country in the Pacific (How Nauru got bankrupt: https://www.news.com.au/finance/money/wealth/how-nauru-squandered-its-staggering-fortune-and-ended-up-bankrupt/news-story/02862341eec1b05de55845410cde9a56).

CAVEAT: Certain individuals and businesses have got so wealthy from the consumption sector. For example, Hartono brothers of the famous Djarum group, ranked first in terms of wealth in Indonesia; Zhong Shanshan, the king of water and the wealthiest person in China and Asia.

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Chanxcellor Yi Yin (1648-1549 BCE)

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No country can get rich from agriculture alone

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The author is seen on a tractor in Bengkulu, Indonesia

Lots of people in certain countries think that agriculture should be developed in order for them to be rich. This is a misguided opinion.


Picture of a Rice field in South Aceh, Indonesia, taken from the author’s personal files.

Thailand is a good example of the fact that when it generated a per capita income of close to USD 3,000 about 18 years ago, it faced obstacles to increase this income. Main reasons: 1. Agriculture produces food, and people consume it to a certain amount, not more; 2. Agricultural products are commodities, so their prices are sensitive to supply and demand. For example, if supply exceeds demand by a mere 5%, product prices can go down by 20%.

So, from about 2002, Thailand has been aggressively developing its manufacturing sector so that the country now is the largest automobile manufacturer and exporter in ASEAN.

Source: www.statista.com

Another reason: the contributions of agriculture to the GDPs of developed nations such as the US and Japan range between 1% and 1.3% only.

Like Japan and most other developed countries, the US got rich because of its manufacturing might. The US generated around 40% of the world’s GDP from 1960 to 1968 (https://www.forbes.com/sites/mikepatton/2016/02/29/u-s-role-in-global-economy-declines-nearly-50/?sh=5ce3afcc5e9e). The ratio of its GDP to the world’s began to decline from 1969. This ratio now stands at about 15.9% only (https://www.statista.com/statistics/270267/united-states-share-of-global-gross-domestic-product-gdp/).

Capture
Source: www.forbes.com

About the Composition of Japan’s GDP today

Source: www.statista.com

China is the most recent example of how a developing country can get rich: from investment in productive physical assets, manufacturing and exports of finished products.

Wuxi, Jiangsu province, a third tier city and the fourth richest city in terms of per capita GDP, not total GDP, after Hong Kong, Macau, and Karamay (in Xinjiang), based on the 2020 census in China.
Ningbo, the 18th-ranked richest city by per capita GDP in China. Ningbo, also the capital of Zhejiang province, has just been upgraded from a second tier city to a first tier city together with 14 others, including Wuhan, Shenyang, Qingdao; only Shanghai, Beijing, Shenzhen and Guangzhou were originally ranked as first tier cities. Source: www.chinadaily.com.cn- June 7, 2021: 15 new first tier cities. So, today there are 19 first tier cities in China.

CAVEAT: Certain individuals and businesses have got so wealthy from large-scale, or commercial, or cash crop, agriculture. For example, Robert Kuok, owner of Shangri-la hotels, sugar & oil palm plantation king & the richest person in Malaysia and the 53rd wealthiest in the world in 2020; Martua Sitorus, one of Indonesia’s oil palm plantation kings & the county’s 12th wealthiest; the big commodity traders: Archer Daniels Midland (ADM), Bunge, Cargill & Louis Dreyfus, known as the ABCD of global grain trading, of the US. They play central roles in the global agri-food system (https://www.reuters.com/article/us-global-grains-traders-idUSKCN1MZ2E8).

(TST)

China’s regulators said to slow their approval of new online games, as Beijing’s campaign against gaming addiction heats up

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Chna's General Administration of Press and Publications

Michael Bloomberg on PBS video: President Xi Jinping is not a Dictator

(RMH)

BlackRock raises US$1 billion with first Chinese mutual fund days after George Soros calls China investment a ‘tragic mistake’

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Larry Fink, BlackRock's CEO; Credit: The South China Morning Post
Larry Fink, BlackRock's CEO; Credit: The South China Morning Post

The BlackRock New Horizon Mixed Securities Investment Fund attracts more than 111,000 subscribers

BlackRock is the first global asset manager to win a licence for wholly-owned

For more information, click the link to the source below.

China’s Textile Firms Shy Away From Export Orders on Threadbare Margins, Uncertain Outlook

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Foshan City CBD, China
Foshan City CBD, China; Credit: B1M Video

China has been the largest exporter of textile and products on the planet for many years. However, things are now changing due to a number of factors such as shortage of shipping containers, insanely high costs of overseas shipment of goods.

For more information about why certain Chinese textile firms shy away from overseas orders, click on the link to Yicai Global below.

Indonesia announces IDR 439 trillion rupiah bond buying plan

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Bank Indonesia logo; Credit: www.bi.go
logo of Bank of Indonesia, Indonesia's central bank

In response to the continuing social, economic and financial consequences of the Covid-19 pandemic on the country, the Bank of Indonesia has announced its government bond buying plan worth IDR 439 trillion for 2021 and 2022.

For further details, please click on the source below (Business Times).

Don’t elect clowns and unwise politicians as top leaders.

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Chanxcellor Yi Yin (1648-1549 BCE)

In the past five years, we have seen clowns elected as presidents, PMs etc. as a result, we have suffered great economic, financial and political losses, and, thus, embarrassed.

Chancellor Yi Yin (1648-1548 BCE), of the ancient Shang Dynasty, China, is recorded as advising his five emperors as follows:” Strengthen moral character and determination to work for the people’s benefits. Recruit virtuous and capable government ministers.”

From 1978 to-date, China has been the true model of applying the meritocratic principles of identifying and electing top leaders. Only the best citizens can be elected as national leaders after they go through their respective political paths. For example, the seven members of the CCP’s Politburo, including Vice Minister Liu He, Wang Yang (former Guangdong governor), led by President Xi Jinping, represent the Chinese way of applying the meritocratic principles in the proper manner.

Liu He led the Chinese delegation in the negotiation with the US to a ceasefire of the US-China trade war
Liu He and Trump are seen announcing the signing of the Phase I Agreement of the US-China Trade Deal

Liu He, China’s Top Economic Architect, Supports the Growth of Private Enterprise

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Liu He led the Chinese delegation in the negotiation with the US to a ceasefire of the US-China trade war
Liu He and Trump are seen announcing the signing of the Phase I Agreement of the US-China Trade Deal

Vice Premier Liu He, one of the top architects of modern Chinese economy, reassures the Chinese of the Chinese government’s immutable support for the private sector, specially small businesses. He is also a member of the 19th Politburo of the Chinese Communist Party, the highest ranking institution within the party. The Politburo, comprised of 25 members, is led by President Xi Jinping.

Liu He is also considered by may as the modern Chinese economic philosopher. He earned his BS and MS degrees from the Renmin University of China and his MPA from Harvard Kennedy School of Government.

He led the Chinese delegation in the negotiations with the US on the Phase I of the US-China trade deal and its signing in the White House in 2019.


For further information on his most recent reassurance of the Chinese government’s commitment to the private sector, visit www.https://www.chinabankingnews.com/2021/09/07/chinas-top-economic-architect-reiterates-support-for-the-growth-of-private-enterprise/.

China news: ICBC offers Personal Loans for Overseas Study

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ICBC the most valuable retail bank in the world

Industrial and Commercial bank of China (ICBC), the largest lender on the planet in terms of Tier 1 capital, profits before taxa and assets (www.thebankerdatabase.com: The Largest 10000 banks globally)

ICBC Personal Loan Descriptions:
1. High amount: The upper limit of drawable personal loan for overseas study is RMB 2 million (USD 310,000); the upper limit of non-drawable personal loan for overseas study is RMB 1 million.
2. Long loan term: The loan term is up to ten years.
3. Many guarantee options: Mortgage, pledge and warrandice are all accepted.
4. Flexible granting: The loan can be all granted at the first request or granted in different batches based on the time of payment of the tuition, accommodation cost, living cost, etc.
5. Various comprehensive services: ICBC provides credit certification, personal foreign exchange purchase, foreign exchange settlement, account-opening witness, overseas account opening, application for international credit card and other supporting services combined with the loans for overseas study.
Notes: The drawable personal loan for overseas study refers to the RMB loan to pay the tuition and related fees and living cost of the borrowers or their direct relatives during their study abroad; the non-drawable personal loan for overseas study refers to the RMB loan to handle formalities of overseas study or dependence of the borrowers or their direct relatives and related credit certification recognized by the embassy.

Source: ICBC 2020 Annual report-ICBC Global Rankings & Awards 2020

☆ Qualifications of ICBC Personal Loan Borrowers
1. The borrower is a natural person with full capacity for civil conduct at an age between 18 (inclusive) and 65 (inclusive).
2. The borrower has the legal and valid identity certificates, certificate of marital status, local household registration certificate of the lender (or valid certificate of residence).
3. The borrower’s rating in the internal retailing rating system meets relevant regulations.
4. The borrower has a good credit history and the intention of repayment.
5. The borrower has stable income and the ability to repay the loan principal and interest on time and in full amount (the non-drawable loan excluded).
6. The overseas study loan has clear and relevant uses. The loan purposes shall be in accordance with laws, regulations and rules of the state, as well as the regulations of consulates of relevant countries and regions.
7. The borrower is able to provide legal, valid and reliable guarantee recognized by the lender.
8. The borrower has opened a personal settlement account in ICBC.
9. Other conditions required by the lender.
☆ Documents Required
1. Application for Personal Loan for Overseas Study of ICBC.
2. Original and duplicates of valid identity certificates, household certificate (household register or other valid certificates of residence), certificate of marriage status (marriage certificate, divorce certificate, singlehood statement, etc.) of the borrower.
3. Original and duplicates of certificate for relationship between the borrower and dependent (household register, birth certificate, etc.)
4. Personal repayment ability certificate, such as the individual tax certificate, salary certificate, investment income certificate, rental income certificate, certificate of financial asset purchased in ICBC or other banks in the past six months.
5. Loan use certificate. It includes the enrollment (admission) letter issued by the school or other effective enrollment certification. As an alternative, those who haven’t got the enrollment (admission) letter or other effective enrollment certification yet can provide the Self-funded Overseas Study Agency Service Agreement signed between the student and overseas study agents recognized by ICBC, or other effective certification recognized by the lender.
6. The ownership certificate shall be provided for guarantee provided in the form of mortgage (pledge).
7. If the borrower is the student to study abroad or the dependent, he/she should designate at least one domestic co-borrowers, and a copy of notarized Power of Attorney (except for the non-drawable loan), designating his/her domestic agents who are granted full power to dispose the mortgage (pledge) on behalf of the borrower in accordance with the contract.
8. For the guarantee provided by financing guarantee agencies, relevant materials of the guarantor should be provided as required by the bank.
9. Other documents or materials required by the lender.
(Source: http://www.icbc.com.cn/ICBC/EN/PersonalFinance/CrossborderFinancialServices/PersonalLoanforOverseasStudy/PersonalLoanforOverseasStudy.htm)

The above is for reference only. Details refer to the rules drawn up by local ICBC branch. To save your time, please call your local ICBC before applying for the service.