The latest IMF forecasts are slightly improved on before the summer but are still dire.

October 15 2020

Protracted school closures and reliance on online learning threaten to create even greater inequality

Outside the locked and deserted Vidya Sagar Public School, the eight-year-old daughter of a snack vendor sits forlornly on her father’s disused pushcart.

Before coronavirus, Rachna Kashyap was one of 200 pupils whose working-class parents paid Rs400 ($5.40) in monthly tuition to send their children to the no-frills, English-medium private school instead of overcrowded and underperforming state schools.

But the school, which employed nine teachers, collapsed during India’s lockdown that cost millions of jobs. Parents could no longer afford the fees and the school lacked the wherewithal to transition to online learning.

For Rachna, her education ground to a halt. “I can’t study because my mom can’t pay,” she said.

Vidya Sagar, the founder of the school, is pessimistic about any imminent revival. “All of the teachers have left,” he said. “People are busy finding some means of livelihood to survive: parents, teachers — all of us. My business has been destroyed. The story of education for children like those at my school is over.”

Rachna Kashyap used to attend the low-cost Vidya Sagar Public School © Jyotsna Singh/FT

The pandemic has exacted a heavy toll on India’s estimated 270m schoolchildren, who have not seen the inside of a classroom since March — and may not return this year at all.

For decades, India has struggled to entice children into school and teach basic skills, while poor families have embraced education as a ticket to greater prosperity. Many scraped together the fees for low-cost private schools.

Coronavirus has set back those efforts. Elite private schools and top government schools have made a smooth transition to virtual classrooms, though concerns about excessive screen time have curbed instruction.

But millions of less privileged children, including many first-generation pupils, have had their education severely disrupted. Neither their families nor their often rudimentary schools are equipped for remote learning.

If you are a first-generation learner, without access to technology and without educated parents, school is everything. If you have lost that, you have nothing

Karthik Muralidharan, University of California, San Diego

The World Bank has warned of a surge in dropouts and significant learning losses, which will “will have a lifetime impact on the productivity of a generation of students”.

Bhaskar Chakravorti, dean of global business at Tufts University’s Fletcher School, said the disruption would weigh on India’s economic prospects for many years. “If there is a breakdown in education, you are seriously hobbling the future,” he said.

India will permit schools to reopen after October 15. But whether, when and how to resume classes will be decided by state governments. With coronavirus still circulating widely, many authorities are wary of restarting. Surveys suggest most parents are reluctant to send their children to school until a vaccine is available.

Prime Minister Narendra Modi is touting a “culture” of online classes, and new education ministry guidelines state “online/distance learning shall be the preferred mode of teaching” even if schools partially reopen.

This picture, taken in July, shows children sitting on the ground as they listen to recorded lessons on loudspeakers after schools were closed due to coronavirus © Prashant Waydande/Reuters

But experts warn that protracted school closures and continuing reliance on remote learning will exacerbate yawning educational disparities.

“If you are a first-generation learner, without access to technology and without educated parents, school is everything,” said Karthik Muralidharan, a professor at the University of California, San Diego. “If you have lost that, you have nothing. It’s almost inevitable that we are going to see an increase in inequality.”

Long-term school closures also put children at risk of losing skills they had already developed. “There is genuine learning loss from not being in school,” he added. “When I miss fifth grade, I also lose much of what I learnt in fourth grade. These could be long-lasting losses.”

India was among the least prepared of any big economy for virtual learning, Mr Chakravorti said. According to the Internet and Mobile Association of India, internet penetration was just 40 per cent at the end of last year.

In rural areas, where two-thirds of Indians live, just about a quarter of the population has internet access, often through just one device per family.

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“The online stuff is only for the elite,” said Rukmini Banerji, chief executive of Pratham, an educational charity. “Online requires that you have a device and that you have connectivity, which is not an assumption that you can make, even in cities.”

Before the pandemic, nearly half of India’s schoolchildren studied in private schools, estimates Gaja Capital, a private equity firm that invests in education businesses.

Of those, about 80 per cent paid less than Rs40,000 a year in tuition. But like Vidya Sagar, many of these low-cost private schools have suspended operations, hit by the economic shock and mass exodus of migrants from cities.

An Oxfam India survey of 1,158 families in five states found that 80 per cent of government school students and 60 per cent of private school students received no instruction or educational support during lockdown.

Yamini Aiyar, president of New Delhi’s Centre for Policy Research, said free government schools, which were already struggling to educate their students, would be inundated with new pupils when the virus threat recedes. “The school system,” she said, “is going to look very different.”

Letter in response to this article:

It’s not just India’s elite who enjoy online teaching / From Shashi Shekhar Vempati, Chief Executive Officer, Prasar Bharati, India’s Public Broadcaster (Doordarshan and All India Radio), New Delhi, India

IMF urges governments to spend their way out of pandemic

Most advanced economies need not cut public spending to restore government finances after the coronavirus pandemic, the IMF said on Wednesday, in a reversal of the advice given following the last financial crisis.

The IMF expects government debt to rise significantly in proportion to national income in most advanced economies this year as countries respond to the impact of Covid-19.

In its first medium-term forecasts since the onset of the virus, the IMF warned this week that coronavirus would wreak “lasting damage” across the global economy in the form of job losses and bankruptcies.

The fund said countries heavily reliant on tourism and commodities were likely to be left in “a particularly difficult spot” as it predicted the biggest contraction in the global economy since the Great Depression of the 1930s.

Overall, it expected the global economy to contract by 4.4 per cent in 2020 and public debt to reach a record high of almost 100 per cent of the world’s gross domestic product.

However, the IMF said interest rates in most advanced economies were likely to remain at record lows, meaning governments could borrow to largely offset the weaker growth and lower tax revenues that would result from the pandemic.

The fund’s advice for governments to spend their way out of the crisis is a stark reversal of the message a decade ago at the equivalent stage in the financial crisis. Then, the IMF warned that “many countries face large retrenchment needs going forward”, leading many governments to cut their public spending.

Speaking to the Financial Times today, Vitor Gaspar, head of fiscal policy at the IMF, exemplified the IMF’s policy shift under current managing director Kristalina Georgieva and her predecessor Christine Lagarde.

“Policymakers that have a choice would be well-advised to be very gradual and to maintain fiscal support until the recovery is on a sound footing and the long-run scarring impacts from Covid-19 are perceived to be under control,” he told the FT.

Array of economic and political factors points to a continued rise in the Chinese currency

October 13 2020 www.ft.com DIANA CHOYLEVA Renminbi strength serves an important strategic purpose: attracting foreign capital © Financial Times

The writer is chief economist at Enodo Economics

Alan Greenspan was doubtless right in 2004 when the then US Federal Reserve chairman likened exchange rate forecasting to predicting the toss of a coin. But sometimes you can tell the coin is biased: in the case of the renminbi, an array of economic and political factors are pointing to a continued rise in the Chinese currency over the coming months.

There is no such thing as a winner in a global pandemic. But, after blundering badly when it covered up the initial outbreak of Covid-19 in Wuhan, China contained the virus more swiftly than most countries thanks to a fierce lockdown. As a result, the economy has staged a V-like recovery that has been reflected in recent renminbi strength.

Beijing, which retains close control over the currency, might have been tempted in the past to hasten the recovery by engineering a weaker exchange rate. Not this time.

Chinese exporters have benefited from brisk demand from the rest of the world for personal protective equipment and other medical kit. And millions of people forced to work from home have upgraded their computers and home-entertainment systems with Chinese-made components. China’s current account surplus has soared, lending support to the renminbi.

But a weaker exchange rate would not have made much of a difference to China’s growth, for two reasons. First, overall global demand is constrained because restrictions remain in place to battle the disease. Second, the majority of Chinese export contracts are denominated in dollars.

China is increasingly chafing at such dependence on the dollar and is keen to promote greater cross-border use of the renminbi. Currency weakness would undermine that strategic goal by sending the wrong signal to central banks and sovereign wealth funds that might be considering increasing their renminbi holdings, especially at a time of political turbulence in the US.

China also is setting particularly high hopes that a new digital currency, now in advanced trials, will be adopted by other countries. Keeping confidence high in the “analogue” renminbi will be key to winning converts to its digital twin.

Renminbi strength serves another important strategic purpose: attracting foreign capital. Overseas money has been pouring into China’s asset markets this year, not least because Chinese government bonds yield about 3 per cent, dwarfing yields in advanced economies. Moreover, leading bond and stock index providers have added China to their main emerging market benchmarks.

Beijing is determined not to upset this trend. It needs foreign capital to help clean up vast bad debts that have accumulated down the years due to reckless state-directed stimulus packages and to help recapitalise the banks that did the lending.

Foreigners — and their money — are also being wooed to professionalise China’s financial markets. The goal is to improve the allocation of capital and develop long-term pension and insurance products that will offer savers an alternative to speculating on property or accepting paltry returns on bank deposits.

Inflows on the capital account as well as the current account thus look favourable for the renminbi. And then there is the domestic political context.

Next July marks the 100th anniversary of the founding of the Chinese Communist party, and it is a fair bet that party bosses have sent out the instruction to spare no effort in keeping the stock market — up 10 per cent so far this year — and the renminbi strong in the run-up to the celebrations.

With many Chinese still regarding the dollar/renminbi rate as a barometer of confidence, President Xi Jinping does not want a sustained decline to spoil his big day.

In a sign of its own confidence, the People’s Bank of China on Saturday removed an emergency measure introduced in 2015 to deter heavy selling of the renminbi sparked by a bungled mini-devaluation. The central bank scrapped a 20 per cent reserve requirement on foreign currency forward contracts used to bet on the direction of the renminbi

The move pushed the renminbi down as much as 0.9 per cent on Monday to 6.754 a dollar, but the decline is unlikely to have upset the PBoC, which may have wanted to slow the currency’s rise. The renminbi had jumped as much as 1.5 per cent on Friday.

As Mr Greenspan said, foreign exchange markets are unpredictable. There is no guarantee that the stars will remain aligned for Beijing and the renminbi is far from becoming a haven currency. Political events, in particular, could rattle the currency. But, as things stand, the renminbi is likely to be worth closer to 6 to the dollar next July than to 7.

There is an uncharacteristic urgency in China’s reaction to US attacks on its tech sector

October 14 2020 www.ft.comFortress Shenzhen: Xi Jinping speaks during an event to commemorate the 40th anniversary of the establishment of the city’s special economic zone © AP

China is reinforcing Shenzhen’s defences as its fortress in the tech war with the US. President Xi Jinping has promised new investment for the city on the Pearl Delta. On the same day, as Chinese tech stocks hit new highs, Reuters reported that Huawei, Shenzhen’s most controversial business, could receive helpful proceeds of more than $3bn from an asset sale.

The impression of military manoeuvres by alternative means was reinforced by Tencent, another Shenzhen resident. It was among big Chinese social and video platforms including iQiyi and Weibo, that simultaneously cancelled the livecast of Apple’s iPhone 12 launch.

Mr Xi plans to bolster China’s biggest tech hub by cutting regulations and making takeovers easier. The latter is especially good news for Huawei, which the US accuses of spying. Its smartphone business is just months away from running out of crucial chips following a US sales ban. It is tipped to sell part of its Honor smartphone operation to Digital China, a move cynics will suspect Beijing is brokering.

The sale would bring in much-needed cash. More importantly, in the hands of a new owner, smartphone production could resume.

The US would have a harder time justifying a ban on chip sales to an owner lacking Huawei’s global sales of telecom network gear. Huawei could perhaps buy the unit back later, if tensions ease.

Chinese official resentment towards Apple’s popular products is hardly surprising in this context. There is a new and uncharacteristic urgency in China’s reaction to US attacks on its tech sector.

Some investors will be wary of the shift in tone. Beijing’s policies have not always helped shares in local tech companies. Restrictions on Tencent game licence approvals and crackdowns on Alibaba over product listings are examples.

But increasingly the relevant rule will be: “My enemy’s enemy is my friend.” Sprawling Shenzhen, with its aseptic shopping malls and barely-concealed rough edges, is now more than ever pitted against San Francisco. That contest will show whether blunt state power can foster the creativity free markets inspire on the US west coast.

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This article has been amended since first publication to replace the main image and an incorrect caption.

Why China's dramatic economic recovery might not add up

The country seems to have rebounded, but some analysts believe that at the very least, there is sleight of hand at work

Under Xi Jinping, China has made some amazing economic gains. Photograph: Kevin Frayer/Getty Images

 

Sun 25 Oct 2020 09.50 GMT

Beijing prompted envy, admiration and not a little resentment when it released data last week confirming that it was the first major economy to start growing again after the devastation caused by Covid-19 in the first half of the year.

China appeared to have achieved the V-shaped recovery being chased by finance ministers around the world, after pioneering mass lockdowns to contain the virus that had taken hold in Wuhan, then shutting its borders to stop it filtering back in from abroad.

With the country largely virus-free, people could return to something like normal life in offices, schools, shops and restaurants, and the government encouraged a splurge in investment across infrastructure and new manufacturing.

Government data showed growth of 4.9% between July and September, slightly lower than economists had expected, but still an astonishing achievement.

Analysts have warned, however, that apparent data manipulation, and the details of how China returned to growth – relying more on investment than consumption – raise questions about the strength and durability of the economic revival.

Nick Marro, lead analyst on global trade at the Economist Intelligence Unit, said the figures appeared to show a shuffling of some data to boost the overall GDP growth rate for the third quarter, although he cautioned there was no direct evidence of any data fabrication.

“The Chinese statistical agency is opaque about their methodology, and unless we get more details about their adjustments, we’ll never know the full story. But there does seem to be evidence of a targeted adjustment to help lift that headline figure,” he said.

“The September figures were smoothed by quietly altering the historic basis of comparison; basically, some of the numbers from September 2019 were re-apportioned into October of that year, in order to lower the comparison base. That led to a statistical distortion where the September 2020 growth figures might’ve been artificially inflated.”

The difference in growth rate was not huge, Marro said, but the manipulation suggested the economy might not be as strong as Beijing would have liked people to think. “The bigger implication is that the investment landscape might be more fragile than the official numbers suggest heading into the last quarter of 2020. That’s perhaps the bigger risk for companies to be aware of.”

Leland Miller, chief executive of the China Beige Book consultancy, which tracks the Chinese economy with data it collects itself in addition to government statistics, flagged up what he considered a far more disturbing alteration in the data.

China recorded growth of 0.8% in fixed-asset investment for the first three quarters of the year, compared with 2019, but the absolute figures for the same period showed a drop of several trillion yuan. “This is not toying at the margin. This is making 2.5 trillion yuan in fixed asset investment disappear,” he said.

The only explanation given by Chinese authorities for the discrepancy was that the data had been adjusted to reflect “results of the fourth national economic census, statistical law enforcement and regulation of statistical programmes”, so economists have no way to assess how accurate the revisions are or compare them to other data.

If fixed-asset investment had actually fallen, as the raw data suggested, while consumption was also down, overall GDP growth could be much lower than the headline figure, Miller said. “There are very big lessons here, because people think that China’s back. They’ve done a pretty good job but ... they’re not anywhere near being back to where they were before.”

Meanwhile the pandemic has pushed many western companies to reconsider their dependence on Chinese factories. And while Beijing has for several years called for a “rebalancing” of the economy to boost domestic consumption, it has struggled to make it a reality.

Other long-term challenges including debt and an ageing population have been overshadowed by coronavirus temporarily, but remain no less problematic.

“Even if growth leaps from a low base next year there are still underlying structural problems,” said George Magnus, former chief economist at UBS, and an associate at the China Centre, Oxford University.

“These include growing debt, demographics, poor productivity, a much more hostile external environment for trade, commerce and investment. All of these things are going to weigh on China’s potential for expansion and development.”