China’s ability to feed its population may depend in part on a legal issue -- better property rights for farmers.
The capacity of Chinese farmers to expand their holdings is constrained by the fact that they only have usage rights and can’t put it up as collateral to fund acquisitions, said Michael Spencer, chief economist for Asia at Deutsche Bank AG in Hong Kong. That in turn impedes improvements in agricultural productivity.
According to Spencer, they need what their city counterparts already enjoy -- clearly defined property rights. That would enable “better” farmers to take over more holdings.
“Ultimately, land ownership is still held at the village level,” he wrote in an Aug. 3 report. “The inability to mortgage farmland makes it difficult for farmers to convert their business from smallholder family farming to the industrial farming necessary to feed 1.4 billion people on less than half the current agricultural workforce.”
While farmers can currently rent other land, inability to buy is a “significant barrier to the further increase in agricultural productivity,” Spencer wrote. A change in the law would also allow those “more suited to non-farm work” to sell and migrate to urban centers.
A “massive injection of capital” is needed for mechanization, and if farmers get secure rights, “they will be the agents of this agricultural transformation,” he said.
Without these, rural land purchases may be dominated by urban residents who can borrow against their assets to invest “on the scale necessary to modernize Chinese farming,” Spencer said. That will turn farmers “once again into workers on what was once their own land.”
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The U.S., El Salvador, the Czech Republic, and Luxembourg were the best performers in a study by the Cambridge, Massachusetts-based institute that measured the speed at which national postal services return incorrectly addressed mail.
The researchers sent two business letters to the five largest cities in 159 countries. The addresses contained correct postal codes though the addressee was a common name for that country. The company name was both generic and fictitious, while Nobel economics laureates or composers were used as street names, such as Tobin Rd 1048 for a letter sent to Kenya.
Each envelope contained a business letter requesting an urgent reply about a collaboration project, and the return address was one of the researchers, Rafael La Porta at Dartmouth College, New Hampshire. Under that, in bold letters, were the words “PLEASE RETURN TO SENDER IF UNDELIVERABLE.”
The researchers received all letters back from 21 countries, including Canada, Germany, Uruguay and Algeria, and none from 16 countries, mostly African, as well as Russia and Cambodia. Only the U.S., El Salvador, the Czech Republic, and Luxembourg sent the letter back within 90 days.
The researchers found differences in resources and technology, such as having letter-sorting machines that can detect incorrect street names, explain between 41 and 46 percent of the variation in efficiency. Management practices also play a role, since getting a low-level employee to process an incorrectly addressed letter is a management issue.
“An important reason for poor government in developing countries is the same low productivity that plagues the private sector in these countries as well,” the report said. “Such low productivity is related to inputs and technology, but also to management. Not all bad government is caused by politics.”
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The European Central Bank will focus attention for the rest of this year on reviving bank lending amid signs that its record-low interest rates aren’t feeding through to borrowers, according to JPMorgan Chase & Co economist Greg Fuzesi.
The ECB’s lending survey for July shows the margin on corporate loans has risen by 60 basis points since late 2011, with small- and medium-sized companies hit hardest, Fuzesi said. Interest charges on mortgages with a floating-rate or a cost fixed for less than a year rose 70 basis points.
Rates on new corporate loans in Portugal and Greece have “increased dramatically,” according to JPMorgan. While overall borrowing costs for businesses in Italy, Spain and Ireland stayed closer to those in Germany, rates on smaller loans -- which likely represent borrowing by smaller companies -- have increased “sharply,” it said.
The findings suggest looser monetary policy may be needed, perhaps by easing collateral requirements and offering more Long-Term Repo Operations, according to Fuzesi.
“The tightening in bank lending standards is no longer driven primarily by bank funding problems,” he wrote. “It is increasingly driven by macroeconomic uncertainties, and also by the cost of bank capital. This suggests that macroeconomic stimulus, reduced policy uncertainty, and bank recapitalizations are also needed.”
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Australian sports fans looking for a scapegoat for the dearth of medals at the London Olympics can possibly blame the country’s currency.
After analyzing a century of sports data, economists at Australia & New Zealand Banking Group Ltd. (ANZ) concluded that Australian athletes have been more successful when their currency is weak.
“Although not a gold medal winning analysis, the high level of the Australia dollar appears to have a negative effect on Australia’s Olympic performance,” chief economist Warren Hogan and currency strategist Andrew Salter said in a July 30 report.
With three days of competition left, Australia has won just six gold medals, which would be the worst performance since 1988. At the same time, its currency has gained 11 percent in the past year, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The analysis also holds up in the light of Australia’s best-ever gold medal performance in 2004. While the country’s Olympians won 17 golds in Athens, the currency was about 32 percent weaker against the dollar than it is now.
For Hogan and Salter, traders and sports fans probably shouldn’t take their analysis too far.
“Although we probably won’t make the podium, we remember the dictum of the founder of the modern Olympic Games, Pierre de Coubertin, who remarked ‘the important thing in life is not to triumph but to take part,” they wrote.
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