beating facebook much easier than avoiding the web bubble
Last Updated : GMT 09:07:40
Egypt Today, egypt today
Egypt Today, egypt today
Last Updated : GMT 09:07:40
Egypt Today, egypt today

Beating Facebook much easier than avoiding the web bubble

Egypt Today, egypt today

Egypt Today, egypt today Beating Facebook much easier than avoiding the web bubble

LONDON - Arabstoday

Mark Zuckerberg shouldn’t lose too much sleep about China’s Facebook beating him to Wall Street. Renren is the first social-networking website to go public in the US raising $743 million with which founder Joseph Chen can tap China’s 1.3 billion people. China is a market Facebook has yet to friend and the US equity market is a place Zuckerberg has yet to trade. Here’s the thing though. Renren investors are paying a huge premium for future spoils — the belief that China will grow 10 per cent indefinitely. To do that the country will have to upgrade its economic software. This vital bit of re-engineering isn’t unfolding on schedule and China’s undervalued currency is partly to blame. It stifles incentives for the Zuckerberg and Chen wannabes out there imperilling the nation’s outlook. It sounds counter-intuitive that the anchor of China’s success in raising living standards over the last three decades now is holding it back. As China enters the age of an Internet it obsessively censors the yuan has lulled officials who must move the economy away from manufacturing that relies on cheap labour. The longer the currency is artificially weak the more difficulty China will have nurturing the innovation vital to its future. A recent report by Barry Eichengreen at University of California Berkeley shows why and perhaps appropriately it’s gone viral in cyberspace. His prediction that China will run into trouble around 2015 is inspiring lively debates from the blogosphere to the conference halls of Hanoi where policy makers are gathered for the Asian Development Bank’s annual meeting. The study co-written with Donghyun Park of ADB and Kwanho Shin of Korea University argues that China will hit a wall when per-capita income approaches $17,000. That could be in the next three or four years at current growth rates. This so-called middle-income trap tripped up one-time growth stars Malaysia the Philippines and plenty of other developing countries. Were China to fall into it investors betting on Renren would be in for a brutal reality check. At its $14 initial price, Renren is valued at 72 times last year’s sales compared with 25 times for Facebook based on the value of Goldman Sachs Group’s investment in the US company. Renren’s premium is a no-brainer: China’s economy may grow three times faster than the US and about two-thirds of the population isn’t online. What isn’t a no-brainer is how China will deliver on those expectations. Officials know what they need to do Stop relying on exports for growth and go up-market. The export and investment-led model that last year enabled China’s economy to surpass Japan as the world’s second-largest has run its course. Not only is it holding back wage growth but it’s also bumping up a against a feeble world economy. The US Europe and Japan are limping along. Hence the urgency to rebalance things. China needs to build a service-based economy that boosts productivity and empowers entrepreneurs to create good-paying jobs. That would lead to a far more sober allocation of the nation’s wealth much of which is pumped into government-favored champions. Such investments tend to return far less than those of innovators building new globally competitive businesses. It’s an economic software issue. While China’s hardware is first world airports roads bridges and dams it has yet to cultivate cutting-edge industries based on ideas and knowledge not factory floors and low-cost labour. An undervalued currency skews incentives and priorities. It exacerbates imbalances like credit bubbles that make China’s financial system vulnerable. In their study Eichengreen Park and Shin looked at international data since 1957. They conclude that an undervalued exchange rate maintained for significant periods of time increases the odds of economies falling into the middle-income trap. This is an Asia-wide risk says Rajat Nag managing director at ADB. He points out that there are two routes the region could travel. One will propel three billion people toward affluent Europe-like levels by 2050. The other would see growth stagnating in many key economies including China and India.

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beating facebook much easier than avoiding the web bubble beating facebook much easier than avoiding the web bubble



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