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China will suffer the most - Views on News from Equitymaster
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  • Mar 12, 2009

    China will suffer the most

    Jim Walker says that the recession will hit China the hardest. In an interview to a leading business daily, the founder of Asianomics says although many analysts are talking of a recovery in China, the situation is quite the opposite. Not only have Chinese exports declined, imports have collapsed - indicating falling domestic demand. Moreover, he believes that the private investment in the Chinese industrial sector has resulted in massive overcapacity. As a result, fresh investments will contract sharply. As for the 4 trillion Yuan stimulus package, he says, "The biggest danger is that it will go to the wrong industries and the wrong places, not the ones that are not efficient or profitable, which means eventually they will become bad debts in the banking system."

    Crisis takes a toll on billionaires
    As per Forbes, the number of billionaires around the world has shrunk by 30% from 1,125 a year ago, to 793 now. Bill Gates is still the world's richest man, despite losing US$ 14 bn last year. He is now worth US$ 40 bn. Warren Buffett is the second richest having lost US$ 25 bn to register at US$ 37 bn. Mukesh Ambani and Lakshmi Mittal are placed at number 7 and 8 in the list of billionaires with net worth of US$ 19.5 and 19.3 bn respectively. Clearly, the crisis has taken a toll on the very rich.

    IT sector salaries will be hit
    T.V. Mohandas Pai, head of human resources at Infosys says, "The market is cold and there are fewer jobs, for the next two or three years, salaries will be low." As quoted in a leading national daily, he believes, "Good people will not be laid off but the key challenge is compensation." However, headhunters believe that the job market will improve by the end of the year and compensation levels will be back on track. Only time will tell which of the two views turns out to be correct.

    Polls to affect companies' forex losses
    As per a leading business daily, the Institute of Chartered Accountants of India last week postponed the decision to relax the accounting standard 11 (AS-11) provision on mark-to-market (MTM) losses on foreign exchange fluctuations. Apparently, the decision was made on the grounds that it should not do anything that will be seen as benefitting a section of the society or the industry, in view of the upcoming national elections. It may be noted that around 150 Indian companies, who had raised overseas debt when the Indian rupee was relatively stronger, will have to book MTM losses with the currency touching 51 against the US dollar. In fact, several companies have instead chosen to deduct the loss from the cost of fixed assets as per the Schedule VI of the Companies Act.



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