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Authoritarian regimes are significantly overstating their GDP (gross domestic product) growth, according to new research that uses satellite images of countries at night as a proxy for economic activity.

The report estimates that autocracies exaggerate yearly GDP growth by about 35% relative to democracies.

Rosier picture

The research starts from a central premise: that all leaders, whether in democracies or dictatorships, want to boast of a booming economy.

“Everyone would always want to paint a rosier picture,” report author Luis Martinez of the University of Chicago told VOA. “The crucial difference is that in a democracy you have a whole network of checks and balances that restrains this behavior somewhat.

“For instance, you have the media scrutinizing the numbers. You have the opposition in the legislature also asking questions. Nowadays, in many settings we have freedom of information requests. The underlying hypothesis is that when we start looking at undemocratic regimes, these checks and balances start to become largely absent,” Martinez told VOA.

Night lights

So how to measure economic growth when you can’t trust the government numbers? Research indicates that satellite images showing the intensity of electric lights at night are a close proxy for economic activity.

A common example is the nighttime satellite view of the Korean peninsula. Much of South Korea, a democracy, is lit up brightly. North Korea – whose economy under dictator Kim Jong-un is around 60 times smaller than that of its southern neighbor – is mostly black, the frontier clearly visible by the change in luminosity.

“As an economy develops, things get built, like infrastructure, streetlights, homes, industries,” Martinez said.

Martinez used the “Freedom in the World” index produced by the non-governmental organization Freedom House as a measure of a nation’s democracy. He then compared official GDP figures to the economic growth implied by the satellite images of nighttime luminosity.

“What I find is that, say, you take two countries and in these two countries the nighttime lights grow by the same amount. And it happens that one of them is more democratic than the other. It turns out that that same amount of growth in lights translates into lower reported GDP growth in the more democratic country,” Martinez said.

Economic exaggeration

His study observed GDP figures and satellite data for 184 countries over 20 years, up to 2013.

The research looked at whether the type of economic activity taking place, such as agriculture or hydrocarbon extraction, would impact the intensity of nighttime lights. Martinez also investigated whether poorer data collection and reporting in autocracies could skew the results.

Even controlling for such factors, Martinez said the pattern was clear: Dictatorships overstate their GDP growth.

“When we compare the more stable, credible democracies to the more authoritarian regimes, we’re talking about something in the range of 30% to 35%. What that means for instance, is that if the true growth rate is 1%, the authoritarian regime will report the growth rate of 1.3%,” Martinez told VOA.

Foreign aid

Martinez said foreign aid programs also appear to influence a country’s willingness to overstate its GDP, according to his satellite analysis.

“Many of the poorest countries in the world receive a lot of foreign aid. But once they reach a certain level of income – once they become rich enough – they graduate out of that program, they become ineligible.

“And so of course you can imagine that when you have a lot of money coming in because the country’s relatively poor, you don’t have a strong incentive to overstate growth, and to say that you’re doing really well. So indeed I find that it’s only once poor countries graduate and become ineligible for foreign aid, that these (patterns) start to appear,” Martinez told VOA.

China

China’s authoritarian leader Xi Jinping was sworn in for another five-year term last week. Martinez’s model suggests Beijing may have overstated GDP growth by a third over the past two decades, making its economy far smaller than claimed.

A report published by the Brookings Institution in 2019 suggested that China had been overstating its economic growth by about 2% every year, making its economy 12% smaller than official figures then claimed.

China denies manipulating economic data.

Beijing delayed the release of its 2022 third quarter growth figures without explanation, coinciding with the Communist Party congress. The figures were eventually released in late October, claiming year-on-year quarterly growth of 3.9%, exceeding analysts’ forecasts.
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Several dictators are significantly overstating economic growth, according to research which looks at satellite images of countries at night. As Henry Ridgwell reports, economists have long questioned the reliability of data from autocratic regimes – including China.
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Thousands of demonstrators defied an official ban to march Saturday against the deployment of new water storage infrastructure for agricultural irrigation in western France, some clashing with police.

Clashes between paramilitary gendarmes and demonstrators erupted with Interior Minister Gerald Darmanin reporting that 61 officers had been hurt, 22 seriously.

“Bassines Non Merci,” which organized the protest, said around 30 demonstrators had been injured. Of them, 10 had to seek medical treatment and three were hospitalized.

The group brings together environmental associations, trade unions and anti-capitalist groups against what it claims is a “water grab” by the “agro-industry” in western France.

Local officials said six people were arrested during the protest and that 4,000 people had turned up for the banned demonstration. Organizers put the turnout at 7,000.

The deployment of giant water “basins” is underway in the village of Sainte-Soline, in the Deux-Sevres department, to irrigate crops, which opponents claim distorts access to water amid drought conditions.

Around 1,500 police were deployed, according to the prefect of the Deux-Sevres department Emmanuelle Dubee.

Dubee said Friday she had wanted to limit possible “acts of violence,” referring to the clashes between demonstrators and security forces that marred a previous rally in March. 

The Sainte-Soline water reserve is the second of 16 such installations, part of a project developed by a group of 400 farmers organized in a water cooperative to significantly reduce water usage in the summer.

The open-air craters, covered with a plastic tarpaulin, are filled by pumping water from surface groundwater in winter and can store up to 650,000 square meters of water. 

This water is used for irrigation in summer, when rainfall is scarcer. 

Opponents claim the “mega-basins” are wrongly reserved for large export-oriented grain farms and deprive the community of access to essential resources.
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Heat waves, intensified by climate change, have cost the global economy trillions of dollars in the past 30 years, a study published Friday found, with poor countries paying the steepest price.

And those lopsided economic effects contribute to widening inequalities around the world, according to the research. 

“The cost of extreme heat from climate change so far has been disproportionately borne by the countries and regions least culpable for global warming,” Dartmouth College professor Justin Mankin, one of the authors of the study published in the journal Science Advances, told AFP. “And that’s an insane tragedy.”

“Climate change is playing out on a landscape of economic inequality, and it is acting to amplify that inequality,” he said.

Periods of extreme heat cost the global economy about $16 trillion between 1992 and 2013, the study calculated. 

But while the richest countries have lost about 1.5% of their annual per capita GDPs dealing with heat waves, poorer countries have lost about 6.7% of their annual per capita GDPs. 

The reason for that disparity is simple: poor countries are often situated closer to the tropics, where temperatures are warmer anyway. During heat waves, they become even hotter.

The study comes just days ahead of the start of the COP27 climate summit in Egypt, where the question of compensation for countries that are disproportionately vulnerable to but least responsible for climate change is expected to be one of the key topics. 

The costs of heat waves come from several factors: effects on agriculture, strains on health systems, less productive workforces and physical damage to infrastructure, such as melting roads. 

Study researchers examined five days of weather considered extreme for a specific region each year. 

“The general idea is to use variation in extreme heat, which is effectively randomly assigned to all these economic regions and see the extent to which that accounts for variation in economic growth” in a given region, Mankin explained. 

“Then the second part is to say, ‘OK, how has human-caused warming influenced extreme heat?'” he added.

Despite these calculations, the study results almost certainly underestimate the true cost of extreme heat, according to the paper — only studying five days per year does not reflect the increased frequency of such heat events, and not all potential costs were included. 

Previous studies on the subject had focused on the costs of heat to specific sectors, though scientists say it is important to look at the price tag of climate change wholistically. 

“You want to know what those costs are, so that you have a frame of reference against which to compare the cost of action,” Mankin said, such as establishing cooling centers or installing air conditioners, versus “the cost of inaction.”

“The dividends economically of responding to the five hottest days of the year could be quite great,” he said.

But according to Mankin, the most important response is to reduce carbon emissions to slow global warming at the source. 

“We need to adapt to the climate we have now, and we also need to deeply invest in mitigation,” he said.
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On Oct. 4, Elon Musk reversed himself and offered to honor his original proposal to buy Twitter for $44 billion — a deal he had spent the previous several months trying to wriggle out of. He posted a video of himself arriving at Twitter headquarters Wednesday, and Thursday evening new outlets announced the deal had been completed and Musk had fired at least two top Twitter executives.

If the case has your head spinning, here’s a quick guide to the major events in the saga featuring the billionaire Tesla CEO and the social platform.

January 31: Musk starts buying shares of Twitter in near-daily installments, amassing a 5% stake in the company by mid-March.

March 26: Musk, who has tens of millions of Twitter followers and is active on the site, says he is giving “serious thought” to building an alternative to Twitter, questioning the platform’s commitment to “free speech” and whether Twitter is undermining democracy. He also privately reaches out to Twitter board members including his friend and Twitter co-founder Jack Dorsey.

March 27: After privately informing Twitter of his growing stake in the company, Musk starts conversations with its CEO and board members about potentially joining the board. Musk also mentions taking Twitter private or starting a competitor, according to later regulatory filings.

April 4: A regulatory filing reveals that Musk has rapidly become the largest shareholder of Twitter after acquiring a 9% stake, or 73.5 million shares, worth about $3 billion.

April 5: Musk is offered a seat on Twitter’s board on the condition he amass no more than 14.9% of the company’s stock. CEO Parag Agrawal said in a tweet that “it became clear to us that he would bring great value to our Board.”

April 9: After exchanging pleasantries and bonding by text message over their love of engineering, a short-lived relationship between Agrawal and Musk sours after Musk publicly tweets “Is Twitter dying?” and gets a message from Agrawal calling the criticism unhelpful. Musk tersely responds: “This is a waste of time. Will make an offer to take Twitter private.”

April 11: Twitter CEO Parag Agrawal announces Musk will not be joining the board after all.

April 14: Twitter reveals in a securities filing that Musk has offered to buy the company outright for about $44 billion.

April 15: Twitter’s board unanimously adopts a “poison pill” defense in response to Musk’s proposed offer, attempting to thwart a hostile takeover.

April 21: Musk lines up $46.5 billion in financing to buy Twitter. Twitter board is under pressure to negotiate.

April 25: Musk reaches a deal to buy Twitter for $44 billion and take the company private. The outspoken billionaire has said he wanted to own and privatize Twitter because he thinks it’s not living up to its potential as a platform for free speech.

April 29: Musk sells roughly $8.5 billion worth of shares in Tesla to help fund the purchase of Twitter, according to regulatory filings.

May 5: Musk strengthens his offer to buy Twitter with commitments of more than $7 billion from a diverse group of investors including Silicon Valley heavy hitters like Oracle co-founder Larry Ellison.

May 10: In a hint at how he would change Twitter, Musk says he’d reverse Twitter’s ban of former President Donald Trump following the Jan. 6, 2021 insurrection at the U.S. Capitol, calling the ban a “morally bad decision” and “foolish in the extreme.”

May 13: Musk declares his plan to buy Twitter “temporarily on hold.” Musk says he needs to pinpoint the number of spam and fake accounts on the social media platform. Shares of Twitter tumble, while those of Tesla rebound sharply.

June 6: Musk threatens to end his $44 billion agreement to buy Twitter, accusing the company of refusing to give him information he requested about its spam bot accounts.

July 8: Musk says he will abandon his offer to buy Twitter after the company failed to provide enough information about the number of fake accounts.

July 12: Twitter sues Musk to force him to complete the deal. Musk soon countersues.

July 19: A Delaware judge says the Musk-Twitter legal dispute will go to trial in October.

August 23: A former head of security at Twitter alleges the company misled regulators about its poor cybersecurity defenses and its negligence in attempting to root out fake accounts that spread misinformation. Musk eventually cites the whistleblower as a new reason to scuttle his Twitter deal.

October 5: Musk offers to go through with his original proposal to buy Twitter for $44 billion. Twitter says it intends to close the transaction after receiving Musk’s offer.

October 6: Delaware judge delays Oct. 17 trial until November and gives both sides until Oct. 28 to reach agreement to close the deal.

October 20: The Washington Post reports that Musk told prospective Twitter investors that he plans to lay off 75% of the company’s 7,500 employees.

October 26: Musk posts a video of himself entering Twitter headquarters carrying a kitchen sink, indicating that the deal is set to go through.

October 27: In a message to advertisers, Musk says Twitter won’t become a “free-for-all hellscape.”  News organizations report the deal to buy Twitter has been completed.
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Elon Musk became Twitter Inc’s new owner on Thursday, firing top executives he had accused of misleading him and providing little clarity over how he will achieve the lofty ambitions he has outlined for the influential social media platform.

The CEO of electric car maker Tesla Inc TSLA.O has said he wants to “defeat” spam bots on Twitter, make the algorithms that determine how content is presented to its users publicly available, and prevent the platform from becoming an echo chamber for hate and division, even as he limits censorship.

Yet Musk has not offered details on how he will achieve all this and who will run the company. He has said he plans to cut jobs, leaving Twitter’s approximately 7,500 employees fretting about their future. He also said on Thursday he did not buy Twitter to make more money but “to try to help humanity, whom I love.”

Musk terminated Twitter Chief Executive Parag Agrawal, Chief Financial Officer Ned Segal and legal affairs and policy chief Vijaya Gadde, according to people familiar with the matter. He had accused them of misleading him and Twitter investors over the number of fake accounts on the social media platform.

Agrawal and Segal were in Twitter’s San Francisco headquarters when the deal closed and were escorted out, the sources added.

Twitter, Musk and the executives did not immediately respond to requests for comment.

The $44-billion acquisition is the culmination of a remarkable saga, full of twists and turns, that sowed doubt over whether Musk would complete the deal. It began on April 4, when Musk disclosed a 9.2% stake in the San Francisco company, making him its largest shareholder.

The world’s richest person then agreed to join Twitter’s board, only to balk at the last minute and offer to buy the company instead for $54.20 per share, an offer that Twitter was unsure whether to interpret as another of Musk’s cannabis jokes.

Musk’s offer was real, and over the course of just one weekend later in April, the two sides reached a deal at the price he suggested. This happened without Musk carrying out any due diligence on the company’s confidential information, as is customary in an acquisition.

In the weeks that followed, Musk had second thoughts. He complained publicly that he believed Twitter’s spam accounts were significantly higher than Twitter’s estimate, published in regulatory filings, of less than 5% of its monetizable daily active users. His lawyers then accused Twitter of not complying with his requests for information on the subject.

The acrimony resulted in Musk giving notice to Twitter on July 8 that he was terminating their deal on the grounds that Twitter misled him on the bots and did not cooperate with him. Four days later, Twitter sued Musk in Delaware, where the company is incorporated, to force him to complete the deal.

By then, shares of social media companies and the broader stock market had plunged on concerns that the Federal Reserve’s interest rate hikes, as it seeks to fight inflation, will push the U.S. economy into recession. Twitter accused Musk of buyer’s remorse, arguing he wanted to get out of the deal because he thought he overpaid.

Most legal analysts said Twitter had the strongest arguments and would likely prevail in court. Their view did not change even after Twitter’s former security chief Peiter Zatko stepped forward as a whistleblower in August to allege that the company failed to disclose weaknesses in its security and data privacy.

On Oct. 4, just as Musk was set to be deposed by Twitter’s lawyers ahead of the start of their trial later in the month, he performed another u-turn and offered to complete the deal as promised. The Delaware judge gave him an Oct. 28 deadline to close the transaction and avoid the trial.

‘Chief Twit’

Since then, Musk has indulged the deal hype. He walked into Twitter’s headquarters on Wednesday with a big grin and carrying a porcelain sink, subsequently tweeting “let that sink in.” He changed his description in his Twitter profile to “Chief Twit.”

He also tried to calm fears among employees that major layoffs are coming and assured advertisers that his past criticism of Twitter’s content moderation rules would not harm its appeal.

“Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences!” Musk said in an open letter to advertisers on Thursday.

Musk has indicated he sees Twitter as a foundation for creating a “super app” that offers everything from money transfers to shopping and ride hailing.

“The long-term potential for Twitter in my view is an order of magnitude greater than its current value,” Musk said on Tesla’s call with analysts on Oct 19.

But Twitter is struggling to engage its most active users who are vital to the business. These “heavy tweeters” account for less than 10% of monthly overall users but generate 90% of all tweets and half of global revenue.

Musk said in May he would reverse the ban on Donald Trump, who was removed after the attack on the U.S. Capitol, although the former U.S. President Donald Trump has said he won’t return on the platform. He has instead launched his own social media app, Truth Social.
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The European Central Bank piled on another outsized interest rate hike aimed at squelching out-of-control inflation, increasing rates Thursday at the fastest pace in the euro currency’s history and raising questions about how far the bank intends to go with the threat of recession looming over the economy.

The 25-member governing council raised its interest rate benchmarks by three-quarters of a percentage point at a meeting in Frankfurt, matching its record increase from last month and joining the U.S. Federal Reserve in making a series of rapid hikes to tackle soaring consumer prices.

“Inflation remains far too high and will stay above our target for an extended period,” ECB President Christine Lagarde told reporters after the meeting. Bank policymakers “expect to raise interest rates further to ensure the timely return of inflation” to the 2% target.

She pointed to continued rate hikes despite the bank expecting “further weakening in the remainder of this year and the beginning of next year.”

The ECB has now raised rates for the 19-country euro area by a full 2 percentage points in just three months, distance that took 18 months to cover during its last extended hiking phase in 2005-2007 and 17 months in 1999-2000.

Central banks around the world are rapidly raising interest rates that steer the cost of credit for businesses and consumers. Their goal is to halt galloping inflation fueled by high energy prices tied to Russia’s war in Ukraine, post-pandemic supply bottlenecks, and reviving demand for goods and services after COVID-19 restrictions eased. The Fed raised rates by three-quarters of a point for the third straight time last month.

Quarter-point increases have usually been the norm for central banks. But that was before inflation spiked to 9.9% in the eurozone, fueled by higher prices for natural gas and electricity after Russia cut off most of its gas supplies during the war in Ukraine.

Inflation in the U.S. is near 40-year highs of 8.2%, fueled in part by stronger growth and more pandemic support spending than in Europe.

Inflation robs consumers of purchasing power, leading many economists to pencil in a recession for the end of this year and the beginning of next year in both the U.S. and the 19 countries that use the euro as their currency.

Some analysts foresee a half-point increase at the last rate-setting meeting of the year in December and think the bank may pause after that.

The ECB predicts inflation falling to 2.3% by the end of 2024.

Higher rates can control inflation by making it more expensive to borrow, spend and invest, lowering demand for goods. But the concerted effort to raise rates has also raised concerns about their impact on economic growth and on markets for stocks and bonds. Years of low rates on conservative investments have pushed investors toward riskier holdings such as stocks, a process that is now going into reverse, while rising rates can lower the value of existing bond holdings.

The head of the International Monetary Fund, Kristalina Georgieva, has warned that tightening monetary policy “too much and too fast” raises the risk of prolonged recessions in many economies. The IMF forecasts that global economic growth will slow from 3.2% this year to 2.7% next year.

The ECB also must keep an eye on the euro’s sagging value against the U.S. dollar, although the ECB says it does not target any particular exchange rate. A weaker euro worsens inflation by raising the price of imported goods. The euro rose above parity with the dollar on Wednesday but remains near its lowest levels in 20 years.

Reasons for the dropping exchange rate include higher U.S. interest rates that attract money into investments priced in dollars and, more broadly, the dwindling prospects for Europe’s economy. Europe is facing headwinds from the loss of cheap Russian natural gas and an economic slowdown in key trade partner China.

ECB rate hikes, other things being equal, could support the euro by lessening the interest rate gap with the U.S.

The ECB’s benchmark for short-term lending to banks now stands at 2%, a level last seen in March 2009.
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The U.S. economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.

Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of economic output — grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and steady consumer spending, backed by a healthy job market, helped restore growth to the world’s biggest economy.

Still, the outlook for the economy has darkened. The Federal Reserve has aggressively raised interest rates five times this year to fight chronic inflation and is set to do so again next week and in December. Chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.

The government’s latest GDP report comes as Americans, worried about inflation and the risk of recession, have begun to vote in midterm elections that will determine whether President Joe Biden’s Democratic Party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats’ stewardship of the economy.

With inflation still near a 40-year high, steady price spikes have been pressuring households across the country. At the same time, rising interest rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia’s war against Ukraine drags on.

Last quarter’s U.S. economic growth reversed annual declines of 1.6% from January through March and 0.6% from April through June. Consecutive quarters of declining economic output are one informal definition of a recession. But most economists have said they believe the economy skirted a recession, noting the still-resilient job market and steady spending by consumers. Most of them have expressed concern, though, that a recession is likely next year as the Fed steadily tightens credit.

Preston Caldwell, head of U.S. economics for the financial services firm Morningstar, noted that the economy’s contraction in the first half of the year was caused largely by factors that don’t reflect its underlying health and so “very likely did not constitute a genuine economic slowdown.” He pointed, for example, to a drop in business inventories, a cyclical event that tends to reverse itself over time.

Higher borrowing costs have weakened the home market, in particular. The average rate on a 30-year fixed-rate mortgage, just 3.09% a year ago, is approaching 7%. Sales of existing homes have fallen for eight straight months. Construction of new homes is down nearly 8% from a year ago. 

Still, the economy retains pockets of strength. One is the vitally important job market. Employers have added an average of 420,000 jobs a month this year, putting 2022 on track to be the second-best year for job creation (behind 2021) in Labor Department records going back to 1940. The unemployment rate was 3.5% last month, matching a half-century low.

Hiring has been decelerating, though. In September, the economy added 263,000 jobs — solid but the lowest total since April 2021.

International events are causing further concerns. Russia’s invasion of Ukraine has disrupted trade and raised prices of energy and food, creating a crisis for poor countries. The International Monetary Fund, citing the war, this month downgraded its outlook for the world economy in 2023. 
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China’s Huawei Technologies reported modest revenue growth for a second quarter on Thursday, citing steady growth in its ICT infrastructure business as it finds its footing after U.S. sanctions knocked its once mighty handset business.

Huawei posted revenue of $62.03 billion (445.8 billion yuan) for the first three quarters, 10 billion yuan less than it saw in the same period a year earlier, the company said on Thursday.

Profits fell 42.45% in the same period to 26.75 billion yuan, based on Reuters calculations, a drop a company spokesperson attributed to investment in research and development and new business areas.

Revenue for the third quarter alone came to 144.2 billion yuan, up 6.5% on a year earlier, based on Reuters calculations.

Performance was in line with the company’s forecast, said rotating Chairman Eric Xu.

“The decline in our device business continued to slow down, and our ICT infrastructure business maintained steady growth.”

The United States placed Huawei on an export blacklist in 2019, banning the telecom giant from buying components and technology from U.S. companies without U.S. government approval.

The move largely hobbled Huawei’s handset business, which commanded 42% of the China market in 2019. The company is now a bit of a player behind rivals, including its former budget unit Honor, which it sold in 2020.

Huawei is pushing to develop other businesses that are less dependent on U.S. technology, including smart car components, energy efficiency systems and cloud services.

In its first nine months the Aito M5 vehicle, which Huawei jointly developed with Seres, ranked 10th among all electric SUV models by sales in China, according to the China Passenger Car Association.

($1 = 7.1870 Chinese yuan)
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International Monetary Fund chief Kristalina Georgieva said on Wednesday that central banks should keep raising interest rates further to fight inflation until they hit a “neutral” level, though in most cases they have not reached this point.

Speaking to Reuters in Berlin a day before the European Central Bank is widely expected to raise rates by 75 basis points, the fund’s managing director said it would take until 2024 for the positive effect of central banks raising rates globally to be felt.

The ECB had for months said that its first step will be to raise rates to a neutral setting, where it was neither driving nor restricting growth, but some policymakers are now advocating more aggressive action, saying the ECB should go further to tame inflationary pressures.

“At this point we look for getting to a neutral mode, and in most places we are not quite yet there,” Georgieva said in an interview.

Central banks have to bring rates up because “when inflation runs high, that undermines growth, it hits the poorest parts of the population the hardest.”

Recent rate hikes by the ECB have come against the backdrop of a deteriorating economic outlook and inflation that hit 9.9% in the euro zone in September, driven by soaring food and energy prices after Russia’s invasion of Ukraine.

Asked how long she expected central banks to keep raising rates, Georgieva said the IMF projected that “by 2024 to get to a point when central banks are seeing the impact of their actions.”

“The benefits would come but they are not instantaneous, this requires some patience in society,” she added.
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China’s President Xi Jinping has faced and survived many challenges in life. He spent years as a teenager toiling in the countryside after his father was persecuted. He worked his way up to the top echelons of power and carried out a massive anti-corruption campaign that earned him many enemies.

But as he’s about to get an unprecedented third term, Xi faces what may perhaps be his toughest challenge – fixing the serious problems that have metastasized in China following four decades of rapid, unbridled and wasteful economic growth, and putting the world’s second biggest and soon-to-be-biggest economy in order.

Experts say it won’t be easy, and Xi himself may be his biggest obstacle.

“China has essentially reached the peak of its growth period, much of it fueled by debt. The result is they’ll have difficulty unless he wants to reform the economy and he has no plans to do that,” said Andrew Collier, a Hong Kong-based expert in China’s macroeconomy.

Under the past four decades of China’s opening, its economy has grown 18 times bigger – from a GDP of $149.5 billion in 1978 to $17.7 trillion last year, making up about 18.5% of the world’s economy. Since Xi came into power in 2012, it has doubled in size, surpassing the European Union last year.

But a lot of that growth has been unhealthy, especially in the manufacturing and construction sectors, where excessive growth has turned out “ghost cities” and unnecessary infrastructure. Not only has this damaged the environment, but it also has created a lot of internal debt.

Property developers

A symptom of the problem exploded recently when overambitious property developers, funded by state banks, defaulted, leaving apartment buildings unfinished and angry homebuyers boycotting their mortgages and amassing in rare protests.

Xi seems unable to rein in these excesses. While he has famously said that “houses are for living in, not for speculation,” the property bubble has continued to balloon over the past decade that he’s been in power.

“It was a bubble before, but it has gotten much bigger, so obviously the talk has not been followed by action,” said Shanghai-based independent economist Andy Xie.

He estimated Chinese property developers owe at least $10 trillion in debt and says that’s a “very conservative estimate.”

While some companies may be bailed out, China simply cannot continue growing like this and Xi knows it.

In his speech at the opening of the 20th Party Congress on Sunday, he said, “Development was imbalanced, uncoordinated, and unsustainable, and the traditional development model could no longer keep us moving forward.”

He said the next five years will be “crucial” for building a “modern socialist country” by engaging in “high-quality” development.

State-owned emphasis

Analysts say that instead of continuing to put emphasis on state-owned enterprises, which are less efficient and less profitable, Xi should support the private sector. But they say he’s doing the opposite.

“He’s essentially doubled down on his existing policies to promote the state-owned system and … the crackdown on the tech sector that occurred in the past couple of years is very much part of his world view,” said Collier, managing director of Orient Capital Research.

Collier suggests allocating more bank loans to the private sector, shifting focus to boosting domestic consumption, and allowing more free market decision making.

But Collier notes, “That’s not part of his DNA.”

In a recent report, the World Bank also advised China to remove remaining barriers to market competition, spur innovation and productivity, and focus on the service and consumption sector by boosting spending on health and education, so that Chinese people wouldn’t feel the need to save so much.

But Xie asserts that Xi wants to control the market economy.

“The Chinese Communist Party is about keeping the party in charge, but the market is not about that, it’s about power decentralization; the market makes decisions on its own,” Xie said. “Coexistence has been uneasy. Now the market has been brought under control.”

Examples: One tech company’s planned IPO (initial public offering) was stopped in its tracks. Big tech firms have been pressured to make large donations to charities, and government intervention has caused the stock prices of some companies, like Alibaba, to plunge. Even the video game and private tutoring industries have been ordered to stop putting profits above children’s welfare.

Observers believe it would be better if China reformed and updated its tax system to adequately tax the country’s growing number of ultra-rich people, including property speculators, and narrow the wealth gap.

But contrary to Xi’s image as a strongman, he may not have that much control over economic matters.

While political power is centralized in the party, economically, China is very decentralized, Collier said.

“He can control state-owned firms, but at the end of the day, it’s up to provinces to try to generate growth,” said Collier.

With the property sector, for example, land sales and taxes from transactions contribute to 10% of the nation’s annual GDP and to more than half of many local governments’ revenue, so Xi’s hands may be tied.

Multiple challenges

So far, Xi seems to prefer a soft landing – slowing growth to avoid China’s economic bubble completely bursting, avoiding massive discontent and social unrest, which could threaten his party’s survival.

In his speech, Xi vowed to deepen reforms of state-owned enterprises and help them grow larger and more competitive, while also promising to encourage entrepreneurship and help private Chinese companies “become world-class outfits.”

He also pledged to accelerate China’s transition toward green, low-carbon development – meaning the world’s factory ostensibly will manufacture higher-end goods and in less polluting ways.

At the same time, he vowed to improve the income tax system, increase earnings for low-wage workers and expand the middle class.

With millions still living in poverty and youth unemployment very high, that’s a major challenge, especially as economic growth is forecast to fall from 8.1% last year to just 3.2% this year, the second lowest rate in nearly five decades.

If Xi fails to carry out necessary reforms in his third term, China’s economy — while still predicted to surpass that of the U.S. by 2030 because of its much bigger population and manufacturing sector — could reach a crisis point. Additionally, since China is the biggest market, trade partner, and also increasingly the key investor for many countries, that could have huge implications for the rest of the world.

“The world spins around China,” economist Xie said.
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Farmers are harvesting crops in the United States during a period of economic uncertainty due in large part to Russia’s war on Ukraine. As VOA’s Kane Farabaugh reports, farmers are trying to make the most of higher grain prices while managing external factors affecting their farming operations.
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The good news for Benjamin Rice is that the price for the corn and soybeans he grows on his Philo, Illinois, farm are up this year – a bright spot at a time of uncertainty and upheaval made worse for agricultural producers around the world by the war in Ukraine. 

“This year compared to two years [ago], we’re up in that 50 percent range [of higher prices],” he told VOA during a break in his work in the fields during the harvest.  

But market forces working in Rice’s favor will only benefit him if he can sell the yield from his crops in time. “We’re seeing swings every single day of easily 10, maybe 15 cents of corn and 30 to 70 cents in beans. So, if you can sell one day for 70 cents higher for what tomorrow is going to be, they aren’t small swings anymore,” he said. 

Contributing to price fluctuations are some factors farmers can’t control, like the weather and drought conditions lowering water levels on the Mississippi River, which prevents crop-carrying barges from easily navigating the important waterway leading to international shipping ports.    

While high crop prices are good news for farmers, this year they come with a downside.  The cost of doing business is also up.  

The price of diesel fuel that powers farm equipment is near an all-time high. So is the cost of nitrogen-rich anhydrous ammonia fertilizers, made using natural gas, which farmers rely on to boost crop yields.  

“It’s 40% above the cost last year,” Rice said. “And it’s over 100% the cost it was two years ago for the exact same product.”  

The U.S. Department of Agriculture reports that fertilizer prices account for a hefty segment of farm cash costs – nearly one-fifth. The proportion is even larger for producing wheat and corn.  

While his farm is far away from battle lines in eastern Europe, the effects of the war in Ukraine – and the resulting disruption to natural gas and other supplies – are rippling through Rice’s fields in the midwestern United States.   

“Ukraine and Russia combined export – I believe it’s somewhere in the 30%-to-40% range of the world’s use of anhydrous ammonia, and I know that they are also a big player in that natural gas market,” Rice said. “And as soon as that [war] started, the numbers just exploded on what our input costs were.”  

Those costs haven’t come down since.  

“They’re already taking a look at next year’s prices, where they are seeing triple predictions,” said DeAnne Bloomberg of the Illinois Farm Bureau (IFB), speaking with VOA from the group’s headquarters in Bloomington.

Even higher prices 

Bloomberg emphasized there’s no easy way to lower fertilizer costs.  “You can’t just rachet up fertilizer production,” she said. “It takes years for that.”  

So high input prices could go even higher – concerns the IFB is relaying to federal and state lawmakers, urging action where possible.  

“Gasoline prices, and being able to have the supply chain opened up and available, is one piece that we can look at because it is extremely regulated,” said Bloomberg. “So, any of those pieces that regulate those inputs is where government can come into play.”

What farmers aren’t asking for – yet, Bloomberg added – is a return to direct government payments to offset increased costs.

“They also want to work on free markets, and let the markets move through it,” she told VOA. “I don’t see that that’s been on their radar.”  

As the war in Ukraine drags on, food prices continue to rise and inflation weighs on economies across the globe.    

The economic headwinds come at a time when farmer Benjamin Rice is making tough decisions about fertilizer applications ahead of next year’s planting season.   

“I want to cut back and be responsible about it, but not too much to end up hurting next year’s crop,” he said. Acknowledging a delicate balancing act he may have to contend with for years to come, Rice added, “It’s been a roller coaster for sure.”
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Poor governance and corruption in Zimbabwe are responsible for the country’s economic decline, not U.S. and other Western sanctions imposed after reports of election rigging and human rights abuses, a top U.S. official said Wednesday. The country’s capital, Zimbabwe has scoffed at the claims, while some pro-government citizens protest the sanctions at the U.S. embassy in Harare.

James O’Brien, the U.S. State Department’s sanctions coordinator, told an online press briefing on October 19 that U.S. sanctions are not hurting Zimbabwe’s economy, as they do not affect banks, pointing to billions of dollars in reported annual illegitimate, illegal cross-border transactions as examples of what is hurting the country’s economy.

“Those cost the citizens of Zimbabwe a lot of their chance at having a more prosperous and free life. And so, we’d like our sanctions to be part of a policy answer that begins to improve the management of public services and public resources and makes things possible for the people of Zimbabwe to improve,” he said.

O’Brien said Washington is aware of concerns regional leaders have raised over the impact of the sanctions, including the Southern African Development Community and the African Union, saying that the impact of the sanctions is felt regionally and throughout the continent.

O’Brien said the U.S. would continue reviewing the sanctions list imposed in the early 2000s following reports of human rights abuses and election rigging by the current administration in Zimbabwe.

“We are not engaged in a comprehensive effort to close the Zimbabwean economy. We’re aware that because of the depth of the problems and the duration of this program, there probably are a lot of companies who believe that doing business in Zimbabwe is just too difficult. And that does cost opportunities for the people of Zimbabwe. Whether that’s the result of the underlying mismanagement and corruption, or whether our sanctions add to it. That’s something we are willing to talk about. We are focused on the people who benefit from corruption and human rights abuses in Zimbabwe. That’s the behavior we are attempting to change. Our sanctions are only one part of a policy to improve the situation there,” he said.

Some Zimbabweans disagree.

The chants are coming from pro-government members known as the Broad Alliance Against Sanctions. They are singing outside the U. S. embassy in Harare and ask, why do you hate Zimbabwe?

They have been camping here for months and continue to demand the removal of the sanctions.

Calvern Chitsunge, a member of the organization, told protesters and fellow government supporters the only thing we can do is demand that America remove sanctions it imposed on us today or yesterday.

He said as the Broad Alliance Against Sanctions, we sat down and agreed to write the Patriotic Act and we petitioned parliament. We appeared before the committee on foreign affairs and we said this law must prosecute those [Zimbabweans] who go abroad calling for sanctions, people who write lies. That’s what we are doing today: to correct mistakes made by the Americans and the British. Zimbabwe will never be a colony again. We are here to defend it, he said.

Zimbabwe officials refused to comment on O’Brien’s comments to journalists, saying President Emmerson Mnangagwa would address the nation Tuesday as the country marks what is known as “Anti-Sanctions Day,” when there will be government-organized protests in Harare.

Mnangagwa’s government called for the protests, alleging Zimbabwe is being punished for the land reform program under the late President Robert Mugabe in 2000, which forcefully displaced white commercial farmers and gave land to Black citizens.
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With its lush forests, abundant waterfalls and flamboyant birds, Guinea is the type of tropical paradise that draws tourists. But the West African country has few visitors and earns almost all its foreign revenue from mining, which can damage that environment. Now some are working to change that.

Guinean tour guide Mohammed Camara balances precariously on a slippery rock as water gushes around him and the three foreigners he’s leading on a hike. Below, the water slices through the cliff making way for a spectacular view of the forest.

He dreams of there one day being a boardwalk that spans the top of the waterfall so his clients don’t have to slip and slide to reach the view. Guinea’s government is more focused on developing the country’s mining industry than on creating ecotourism projects, he says.

“When people talk about mines, everyone talks about Guinea. But when people talk about tourism we don’t talk about Guinea,” Camara said. “And yet there is great potential for tourism in this country that could employ more people than mines and bring in much more money.”

Guinea is the world’s second largest producer of bauxite, the primary ore used to produce aluminum. The country is also rich in iron ore deposits as well as other minerals such as gold and diamonds.

Mining comprises about 25 percent of the country’s Gross Domestic Product, yet Guinea remains one of the poorest countries in the world with more than half the population living below the poverty line.

A 2018 report by Human Rights Watch found Guinea’s mining industry had destroyed ancestral farmlands, polluted water sources and blanketed villages and crops in dust. The environmental destruction of bauxite mining can be so severe it led Malaysia to implement an export ban in 2016.

François Kieffer is the operations manager for Belgian development agency Enabel in Guinea.

In September he helped launch an ecotourism project in Kindia – a forested region about 130 kilometers from Conakry with a high potential to attract tourists.

The project is focused on the construction of facilities that make sightseeing more accessible, such as boardwalks and trail signs, as well as the training of tour guides.

Kieffer said he hopes the projects will provide an alternative to environmentally destructive practices beyond mining, such as slash and burn agriculture and charcoal production.

“Today, human activity puts a lot of pressure on the environment and we realized that it’s the local people who are the first victims of these types of activities,” he said. “The potential for tourism here is incredible.”

Sites such as the breathtaking Mount Gangan and the pristine swimming holes beneath Kilissi Falls are largely unknown outside of Guinea.

From 2010 to 2017, the country saw an average of just 65,000 tourists per year – one-sixteenth the number who visited neighboring Senegal.

Sekou Camara is a local development officer in Guinea’s Linsan sub-prefecture.

“In Kindia, there are a lot of sites that are beloved by the locals. But because those sites aren’t developed, people are afraid to go,” said Sekou Camara, a local development officer in Guinea’s Linsan sub-prefecture. “If we succeed in developing them, Kindia could become attractive. But for now people are prioritizing the mines.”

He motions to the waterfalls plunging down the verdant face of Mount Gangan. That could be Guinea’s crown jewel, he says.
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China’s state banks stepped up their intervention to defend a weakening yuan on Monday, with banking sources telling Reuters these banks sold a high volume of U.S. dollars and used a combination of swaps and spot trades.

Six banking sources told Reuters the country’s major state-owned banks were spotted swapping yuan for U.S. dollars in the forwards market and selling those dollars in the spot market, a playbook move used by China in 2018 and 2019 as well.

The selling seemed to be aimed at stabilizing the yuan CNY=CFXS, with the swaps helping procure dollars as well as anchoring the price of yuan in forwards, said the sources, who have direct knowledge of market trades.

The yuan is down 11.6% versus the dollar this year. It was trading around 7.1980 per dollar on Monday.

One-year dollar/yuan forwards fell rapidly following the state bank actions, pushing the yuan to 6.95 per dollar. One of the sources noted the size of the dollar selling operation was “rather huge.”

“The big banks want to acquire dollar positions from the swap market to stabilize the spot market,” said another source.

State banks usually trade on behalf of the central bank in China’s FX market, but they can also trade for their own purposes or execute orders for their corporate clients.

A third source noted that the state banks’ trades appeared to be managed so that the country’s closely watched $3 trillion foreign exchange reserves will not be tapped for intervention.

At the same time, the move helps state banks to procure dollars at a time when rising U.S. yields have made dollars scarce and expensive.

China burned through $1 trillion of reserves supporting the yuan during the economic downturn in 2015, and the sharp reduction in the official reserves attracted much criticism.
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The International Monetary Fund (IMF) had bad news for the global economy this past week. It lowered the global growth rate to 2.7% for next year, warned of sovereign defaults on debts, and forecast recession and gloom for markets.

“It is tough, but we can deal with these challenges,” Kristalina Georgieva, managing director of the IMF, told an audience at the weeklong annual meeting of the IMF and World Bank multilateral lenders in Washington.

“For many people, 2023 will feel like a recession,” IMF chief economist Pierre Olivier Gourinchas tweeted Tuesday as he laid out some gloomy numbers for the global economic outlook.

World Bank President David Malpass, the IMF’s Kristalina Georgieva and many leading economists counted several factors for the global economic slowdown. The war in Ukraine, the pandemic, inflation, China’s slow economy, climate change and the strong U.S. dollar, they said, had triggered the risk of a recession, with chances that the “worst is yet to come,” The Financial Times reported on the multilateral lender’s latest global outlook.

Growing high-cost debt

The economists consider high-cost debt and many countries’ increasing hardships in repaying their debts bitter realities. They feared sovereign defaults and expected more debt restructuring requests in the emerging and developing economies.

Gita Gopinath, IMF’s first deputy managing director, said that about 60% of low-income countries were either in debt stress or facing a high risk of debt stress.

Elena Duggar, chairperson of Moody’s Macroeconomic Board, predicted that sovereign default rates would pick up over the next couple of years.

“We already have six sovereign defaults this year in 2022,” Duggar said. In a typical year, she said, one or two sovereign defaults could be expected. A sovereign default happens when a country fails to repay its debts.

“We do have many countries, several of whom are from sub-Sahara, where it [sovereign default] is a challenge,” Gopinath said.

As she spoke, chanting could be heard from some members in the hall, saying “cancel all debts, reparations now.” Some protesters outside the bank’s building also were calling for transparency in debt mechanisms.

The high cost of borrowing is of significant concern. IMF chief Georgieva said at the outset of the annual event that rising interest rates would start becoming an issue.

The United Nations underscored the global debt crisis in its report Tuesday and called for debt relief for 54 countries around the world. Pakistan, Tunisia, Chad, Sri Lanka and Zambia are viewed as facing the most immediate risk of sinking into a deepening debt crisis.

The IMF said Saturday it reached a staff level agreement with Tunisia under the Extended Fund Facility (EFF) for a $1.9 billion rescue package.

The IMF also resumed its support program for Pakistan and approved $1.7 billion for Islamabad in August.

The country’s finance minister Ishaq Dar told Reuters Friday he would seek rescheduling of some $27 billion in non-Paris Club debt most of which is owed to China.

Impact on prices

Gourinchas has anticipated a 9.5% global inflation rate for the remaining months of 2022. He expects it to decrease to 4.1% in 2024.

However, his predictions for next year are gloomy, and he calls it a year of recession for many people in the world.

“Inflation remains the most immediate threat to current and future prosperity by squeezing real income and undermining macro stability,” he tweeted Monday.

The inflation rate in many developing countries, however, does not match what the fund’s chief economist forecast for the globe. In September, grocery prices in the U.K. climbed to 13.9%, the Financial Times reported Tuesday.

On Tuesday, Egypt recorded a 15% jump, the highest level of inflation in the last four years, according to the state-run central agency for public mobilization and census.

The World Bank expects the inflation rate will rise to 23% in Pakistan next year, a country with around $130 billion of debt. 
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