China Has Already Achieved its Goal for 2021


“The growth of the Chinese economy was quite robust in the second quarter with a plus of 1.3 percent, but will slow down noticeably in the third quarter.” This is what Axel D. Angermann writes, who, as the chief economist of the FERI Group, analyzes the economic and structural developments in all of the markets that are important for asset allocation.

“After the economy had returned to the pre-corona growth path at the end of 2020 and the economic consequences of the pandemic for China had thus been practically overcome,” reports Axel Angermann, “the Chinese leadership began to reduce the monetary and fiscal policy stimuli that they had previously used to overcome the crisis.”

Attention has shifted again to the containment of the enormous imbalances within the Chinese economy and in particular the excessive indebtedness. “An outward sign of the changed priorities was the, by Chinese standards, extremely unambitious requirement to strive for growth of more than 6 percent in the current year, which in view of the low level of the previous year could hardly be missed from the outset”, says Axel Angermann.

The consequences: the volume of loans granted in relation to GDP is again as low as it was at the end of 2018, when a similar economic policy regime prevailed, and significantly fewer government bonds than in the two previous years. “The purchasing managers’ indices are still above the important expansion threshold of 50 points, but have been falling since the beginning of the year”, warns Axel Angermann. “Industrial production growth has declined by several percentage points, while retail sales growth has remained at a low level. The trend in imports remained positive until recently. In contrast, exports stagnated at a high level, which again led to a lower trade surplus towards the pre-Corona level. As a result, consumption, investment and foreign trade already contributed less to overall economic growth in the second quarter than in the previous quarter. There is much to suggest that this development will continue in the third quarter and that overall economic expansion will be slowed down as a result.”

Positive impulses from China for the global economy are therefore not expected for the time being, which has an impact in particular on those countries that benefit to a considerable extent from exports to China, i.e. many emerging Asian countries and, in Europe, Germany in particular. “However, strong negative effects also appear unlikely: China’s leadership is well aware that their approach is a balancing act that harbors the risk of higher unemployment and social unrest. The stricter regulation of the private education system,” provides Axel Angermann an example, “is also likely to be due to the need to limit the financial burden on households for tutoring.”

He believes that the lowering of the minimum reserve ratios that the banks have to keep at the National Bank is more important: “This clearly sends the signal that they do not want to push ahead with reducing lending at any cost. There is therefore much to suggest that lending will stabilize at the lower level it has now reached. In the medium term, China’s economy would thus swivel on a course of moderate growth slightly below the 6 percent mark. The greatest risk remains that existing tensions with the US will result in a kind of cold economic war. An increasing decoupling of the two economic blocs from one another would not only jeopardize globalization, but also put Europe in an extremely difficult position.”

The Dynamics of Free Trade and FDI during the Globalization Era

Histories, Read

Multilateralism waned, but the process of trade liberalization continued.

This blog article is a short excerpt from Country Risk – The Bane of Foreign Investors (Springer, 2020) by Norbert Gaillard.

International trade went through unexpected and paradoxical changes during the globalization era (1991–2016). Multilateralism waned, but the process of trade liberalization continued. For instance, the average tariff rate for the Group of Twenty (G20) fell from 13% during 1991–1994 to 5% during 2013–2016.1 How can this evolution be explained?

After the General Agreement on Tariffs and Trade (GATT) was superseded by the World Trade Organization (WTO) in 1995, several challenges arose that rendered multilateral trade talks increasingly complex and lengthy. First, under the WTO regime, tariff rates and market-opening commitments are binding, which deters members from further liberalizing their trade policy. Second, the WTO’s admission of China in 2001 stirred mistrust among other WTO members, whatever their income level. Third, as industrialized countries had reduced their tariffs substantially during the previous GATT rounds, they had little maneuvering room left to obtain trade liberalization in emerging countries – with regard to financial services, for example. Fourth, the sustained growth of international trade in the 1990s and 2000s called into question the relevance of new multilateral talks.

In this context, it is not surprising that the Doha Round, launched in 2001, failed to achieve any trade liberalization agreements (see Cohn 2007). However, some minor progress was observed with the Nairobi Package of 2015, which removed subsidies for farm exports. In fact, other means were employed to effect trade liberalization during 1991–2016: unilateral actions, regional trade agreements (RTAs), and international investment agreements (IIAs).

Unilateral tariff cuts by several emerging countries (e.g., China, India, and Indonesia) were part of offshoring-led development strategies designed to attract foreign investments. These countries’ final objectives were to integrate themselves into global value chains, absorb knowledge and technologies, and export an even wider range of products and services.

The signing of RTAs was another feature of globalization. The number of RTAs in force rose by a factor of 5 within 25 years. However, the nature of those agreements changed significantly during that time span. Contrary to what was observed at the dawn of globalization, the bulk of RTAs signed in the 2010s were “deep” agreements. Thus, they transcend traditional tariff cuts to cover multiple policy areas: competition policy, anti-dumping measures, environmental laws, labor market regulations, and so forth (see Mattoo et al. 2017).

The boom in IIAs was certainly the most salient feature of the past three decades. These agreements, which include treaties with investment provisions (TIPs) and bilateral investment treaties (BITs), contributed to reshaping international business relations and increasing the levels of protection enjoyed by foreign investors. A typical IIA’s main provisions include protection against expropriation risk, convertibility risk, and arbitrary or discriminatory measures; they may also ensure “protection and security”, and/or “most favored nation” treatment.2

Several conclusions can be drawn from these trends in international investment rulemaking. First, they reflected the outright triumph of globalization. Second, they enabled developing countries to gain credibility. Vashchilko (2011) shows that risky economies that signed BITs managed thereby to reassure international investors, which stimulated FDI inflows. Third, the growing proportion of BITs involving exclusively low- and middle-income countries evidenced the ongoing enlargement of the group of capital-exporting nations.3 Such evolution went hand in hand with the mutation of capitalism.

The growing geopolitical tensions between China and the United States are likely to undermine such dynamics of free trade and foreign direct investment. In fact, it seems we are entering what I call the “post-globalization era” (Gaillard 2020). Post-globalization involves “a logic of high interdependence in the economic, trade, migration, and technological areas between States (and their companies) whose geopolitical interests are convergent, or at least compatible. This implies the elimination, the reduction, the selection, and/or the control of dependence and interdependence relations.” This new paradigm will oblige policy makers and economic leaders to revise radically their diplomatic, economic, and financial strategies.

1 Author calculations based on the World Bank’s World Development Indicators. The G20 comprises Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States. It accounted for more than 80% of merchandise trade in 2016 (author calculation based on

2 The “protection and security” provisions require that host countries take measures to prevent the destruction of an investor’s property.

3 About 33% of the BITs that entered into force during 2016 did not involve a high-income economy, compared with less than 12% in 1991 (see source).


Cohn, T. H. (2007), “The Doha Round: Problems, Challenges, and Prospects,” in Studer, I. and Wise, C. (Eds.), Requiem or Revival? – The Promise of North American Integration, Brookings Institution Press, Washington, DC.

Gaillard, N. (2020), “Le COVID-19, accélérateur de la post-mondialisation,” Politique Etrangère, Vol. 85, No. 3.

Mattoo, A., Mulabdic, A. and Ruta, M. (2017), “Trade Creation and Trade Diversion in Deep Agreements,” World Bank Policy Research, Working Paper 8206.

Vashchilko, T. (2011), Three Essays on Foreign Direct Investment and Bilateral Investment Treaties, Dissertation in Political Science, Pennsylvania State University.

Monarchs or the Pope Are Not Role Models for China


Many western states do not give China a good role model for further developing the political system.

All leading rating agencies – FitchRatings, S&P, DBRS Morningstar – give the People’s Republic of China a credit rating of A+ or A1. Moody’s credit profile of China (issuer rating A1) is supported by the country’s “a1” economic strength, but also – among other factors – drawn down by the country’s “baa” susceptibility to event risk, driven by risks posed by the banking sector, as well as by external vulnerability risk and political risk due to geopolitical tail risks.

However, many countries with better credit ratings, AAA or AA, do not offer the People’s Republic of China any examples to emulate. Only in kingdoms are there people who are granted a special position in politics and society at birth. In China, too, children of influential politics certainly have advantages in life. But these advantages are not guaranteed by the constitution or law, as in Western and Japanese monarchies: An unacceptable idea for the Chinese.

Absolute and semi-constitutional monarchies are most common today on the Arabian Peninsula, even though Morocco, Brunei, Eswatini and Liechtenstein also count among them. Semi-constitutionalism – where monarchs and elected representatives share powers – ranges from countries which let monarchs retain some powers next to an elected parliament to so-called elective monarchies, which elect leaders from a group of royals – the governing system of the United Arab Emirates. The Pope is also elected from a group of Cardinals, but he is the singular ruler over the Vatican, therefore considered an absolute monarchy.

Infographic: The World's Monarchies | Statista You will find more infographics at Statista
brown cathedral

Israel and UAE lead the field


Without a vaccination and without a face mask, the risks remain incalculable.

Israel is leading the race to reach the 60-70 percent threshold needed to suppress the spread of Covid-19 among the general population. Second-placed UAE’s 60.8 doses per 100 inhabitants and the UK’s 30.13 doses per 100 of its citizens are ahead of the United States, where the rate of vaccination stands at 21.77 jabs for every 100 people.

In the Federal Republic of Germany it has not been possible to achieve approximately the same level of protection for the population. Therefore, the pandemic is expected to continue to spread. The lack of success of the measures taken will therefore continue to burden the risk situation of many companies.

Infographic: The Covid-19 Vaccination Race | Statista You will find more infographics at Statista

for most people in Germany there is no short-term vaccination appointment available. Therefore, protection with face masks is essential.

symbol of european union on banknote

Sigmar Gabriel Explains to Moody’s the Euro as a Question of Sovereignty and Security


Moody’s Credit Trends 2021 Germany & Austria

“As last year has shown, a global pandemic can turn everything upside down,” says Jens Schmidt-Bürgel in an interview with Sigmar Gabriel and starts talking about the greatest challenges facing the new administration in the USA. Sigmar Gabriel is the keynote speaker at Moody’s conference “Credit Trends 2021 Germany & Austria edition “.

Sigmar Gabriel

was Germany’s Minister for Foreign Affairs from 2017 to 2018. Born in Goslar in 1959, Sigmar Gabriel studied politics, sociology and German at the University of Göttingen. In 1987 he passed the second state examination as a grammar school teacher and worked as a teacher in adult vocational training until 1990. In 1977 Sigmar Gabriel has become a member of the Social Democratic Party of Germany and was its chairman from 2009 to 2017. After several different positions within his party in Lower Saxony, Gabriel was Prime Minister of the State of Lower Saxony from 1999 to 2003. From 2005 to 2009 he was Federal Minister of the Environment and from 2013 to 2017 Sigmar Gabriel was Federal Minister for Economic Affairs and Energy. He was Vice Chancellor of Germany from 2013 to 2018 and Germany’s Minister for Foreign Affairs from 2017 to 2018. Sigmar Gabriel is chairman of the Atlantik-Brücke e.V., member of the Trilateral Commission and the European Council of Foreign Relations. He is also a member of the board of trustees of the International Crisis Group and the Deloitte advisory board. Since May 2020 he is member of the supervisory board of Deutsche Bank. Sigmar Gabriel teaches at the University of Bonn and spent a research period at Harvard University in autumn 2018.

Sigmar Gabriel sees measures to lead America back into the world of its partners. Joe Biden wants to show that Americans are back in international politics. There were never any true allies of China or Russia, but the United States was able to forge alliances. Joe Biden knows that even a country as large as the USA needs partners. Sigmar Gabriel sees this as an opportunity for international organizations as well.

Jens Schmidt-Bürgel questions whether Joe Biden will be able to reunite the country. The split in American society did not begin with Donald Trump, says Sigmar Gabriel. He sees Donald Trump more as a symptom of this split, which began earlier. Even with a four-year term in office, this split cannot simply be reversed. If the president is too absorbed in domestic affairs, he cannot appear in foreign affairs the way he used to.

The country with the “American dream” now has the lowest social mobility. In order to predict the life path of a child, it is now sufficient to look at the life path of the parents. The worst sentence by Hillary Clinton in her election campaign was to speak of the “deplorables“, which showed a contempt for people that accelerated the influx of Trump.

The USA sees China as its big competitor. The Europeans, on the other hand, see the Chinese as the “frienimies”, friends and opponents at the same time. In all policital parties in the USA, however, China is seen as the strategic opponent for US supremacy in the world. 600 years of centering on Europe are over, the axes of power have shifted. Barrack Obama spoke of the transpacific, instead of the transaltantic nation USA. The US aircraft carrier departed from the Atlantic for the Pacific.

Not Europe, not the Europeans, are filling the power vacuum left by the USA in the Middle East or North Africa, but authoritarian regimes. The American perspective has changed and it remains that way. Europeans have a different view of China, as Europeans also criticize unfair trade. For the US, however, trade liberalization resulted in the rise of China. Most of the people live in the Indo-Pacific region, and most of the world’s national product is generated. This is another reason why the USA is concentrating on this area and less on Europe.

In order to take relations with the USA to a new level, Europe must stop holding the USA responsible for everything. Sigmar Gabriel suggests that under the Trump administration it was easy to put the blame for all of the grievances on the United States. Many of Europe’s problems have nothing to do with the USA. Europe needed more effort. It could not be that French soldiers fight while German soldiers just take photos.

Jens Schmidt-Bürgel

is Geschäftsführer (Managing Director) of Moody’s Deutschland and Country Manager for Germany, Austria and Switzerland. In this role he oversees the outreach activities in these countries and acts as senior point of contact to issuers and other market participants. He is also the Head EU-27 focusing on the strategic direction and oversight of Moody’s Investor Service (MIS) 8 offices in the region. In this capacity Jens works closely with the local Country Managers in each of EU-27 offices and is responsible for promoting the Moody’s brand, establishing and maintaining strong relationships with key capital market participants, associations, regulators and government officials. Prior to joining Moody’s in 2015, Jens was a Managing Director at Fitch Ratings in Frankfurt and as country head responsible for business and relationship management in Germany, Austria and Switzerland. He also oversaw Fitch’s operations in Warsaw and the representative office in Stockholm. Jens holds a dual degree in European Business Administration from ESB Reutlingen and Middlesex University Business School. In addition, he has an Executive MBA from WHU-Otto Beisheim School of Management and Kellogg School of Management.

Why don’t we do a big joint project on hydrogen technology, asks Sigmar Gabriel. North stream, but also other pipeline deals with Russia were repeatedly sanctioned by the USA. Ronald Reagan, on the other hand, had the foresight not to burden relations with Europe because of this dispute. How do you deal with Iran? Could new disarmament offers be made with Russia? This is where the Europeans themselves should take the initiative.

Jens Schmidt-Bürgel asks about Europe’s lack of presence on the world stage. Sigmar Gabriel doubts that there is already an awareness in Europe of what is at stake for Europe. A new Federal Chancellor must first work out his standing. As in France, the German Chancellor would also be preoccupied with himself in the next few years. Sigmar Gabriel therefore warns against the hope that the two leading nations in Europe would quickly change the situation. The European Recovery Program, which requires more common policies, is within the realm of possibility. That is much more than a European army if the euro can be turned into an international reserve currency. If Europe continues to depend on the US dollar, there will be no sovereignty. A European Security Council could take a common look at the world. Sigmar Gabriel gives the example of Libya, where European partners support different parts of the civil war. Working together is important. Emmanuel Macron even suggested including the British, even though they were not part of the European Union. Central and Eastern European partners must be shown that the Europeans jointly take responsibility for the security of these countries.

Sigmar Gabriel recalls the agreement with Iran. The USA forbade business with Iran, so that not even a small Volksbank would have dared to do even one euro deal with Iran, because ultimately everyone was refinanced in US dollars. Sigmar Gabriel believes that security policy can sooner be made in the fiscal union. The dependence on the US dollar is a bigger problem than the risk of debt. The model of Switzerland, economically successful, politically neutral, is unthinkable for Europe as a whole.

Jens Schmidt-Bürgel addresses the delay in digitization and asks whether Europe is prepared for the challenges. Sigmar Gabriel sees the economic success model that Germany produces the best machines as no longer sufficient, because now it depends on the data. The classic, export-oriented model no longer works, so that Germany degenerates into a mere workbench. The increased complexity of planning processes in Germany is a problem. Africans criticize that at the time when Germans are building a cycle path in Africa, China has already completed two airports for Africa. If the whole world becomes poorer as a result of the pandemic, the damage will not be made good by the state doing everything somehow, but it depends on the private sector. The framework conditions would have to be set accordingly.

Benefits of Credit Ratings

Read, Uses

Bond purchases, like all investments, come with a certain amount of implied risk. The primary hazards of bond investing are the potential for non-payment and capital loss, caused by a decline in the instruments’ market value. Credit rating is the shortest profound and comprehensible profitability assessment of a given entity from viewpoint of its creditors. It gives an objective external opinion for the ability of a given debtor to serve his financial debts in a timely manner. Credit ratings are formed and disseminated based on established methodologies, models and criteria that apply to entities and securities that Credit Rating Agencies (CRAs) rate, including corporate finance issuers, financial institutions, insurance companies, public finance and sovereign entities as well as structured finance transactions.

The credit risk of issuers within a given jurisdiction is derived directly from the risk level of the State.The Government’s credit rating directly impacts other local bond issuers such as banks, public companies and state-owned enterprises. The sovereign rating usually serves as a ceiling for domestic enterprises’ own ratings, functioning as a reference point for pricing their bonds.

The reasons for the connection are as follows: A sovereign may impose currency controls on residents, effectively making the State a monopoly in the foreign currency revenues in the relevant territory. The country’s credit rating is indicative of macroeconomic conditions affecting a sovereign economy. This may influence foreign investors’ decision whether to operate within said economy. In some cases, the State guarantees corporate debt (especially that of government companies). While individual investors need to focus on their specific investment decisions, the time-consuming task of comparing sovereign risks and its impact all over the world is taken on by CRAs.

Credit Rating Agencies are creating value beyond data and information. At the heart of what makes them different is their people. They are powered by human insight and a collaborative culture that drives them forward – providing their clients and partners with the insight that has an impact on economies, businesses and livelihoods all over the world. Credit rating agencies play an important role in providing one source of information that aids market efficiency by reducing information costs, increasing the pool of potential borrowers, and reducing the imbalance of information that often exists between buyers and sellers of bonds. Their ratings are dedicated to improve the risk/reward decision-making capabilities of investors globally, while allowing issuers to access capital markets at premiums commensurate with their objectively assessed credit risk.

Credit risk is not only dependent on the organization of an issuer, but also dependent on an instrument’s individual attributes and many other factors. Government bonds denominated in local currency have a relatively low default risk, as sovereigns generally have the ability to print the money needed to repay creditors. For these securities, investors are exposed to a potential drop in the bonds’ value due to increased government debt issuances and inflation. These factors may erode a bonds’ real value. For bonds denominated in foreign currency there is a tangible risk of non-payment, as sovereigns are generally unable to print money to meet obligations.

Few investors have the time, resources or ability to frequently monitor issuer conduct and financial performance to derive the risk level associated with an investment.

The credit rating agencies perform these functions on behalf of investors. Credit Rating Agencies are supposed to use methodologies that are rigorous, systematic, continuous, dynamic and subject to constant validation, and should be completely independent and unbiased, politically and geographically. CRAs are obliged to work on the basis of strict internal controls as well as a robust and comprehensive system of governance. Their work includes monitoring issuers and their issues, reviewing issuer activities; publishing all relevant data to assess investment risk and assessing risk level according to a fixed proprietary scale.

Credit rating agencies take both an issuer’s ability to repay and the degree of commitment to debt repayment into account. With the expansion of the financial markets lending has become more complex and sophisticated. Credit rating is now vital to evaluating potential financial transactions and assisting in bond pricing. Credit rating reduces the dimension of uncertainty faced by potential investors, encouraging investment, and therefore declines in funding costs. In summary, credit rating is of vast importance, not only to the public sector, but to the economy as a whole.

Municipal Rating: Securing Financing for Cities and Communities


Oliver Everling (publisher): Municipal rating: Securing financing of cities and communities, 2nd edition Cologne 2015, Bank-Verlag,, 414 pages, Art. 22.489-1500, ISBN 978-3-86556-445-0.

The number of municipalities under emergency budget law raises the question of when banks could also be affected by defaults at municipal loans. Due to the minimum requirements for risk management, credit institutions are required to make risk classifications for each borrower, including municipalities and the companies they support. The political decision to weight the risk of public debtors with “zero” for the purpose of owning capital of credit institutions does not make a municipal rating superfluous, even for economic reasons.

For the first time in Germany, the first edition of the book “Kommunalrating” dealt with the topic of municipal finances from the perspective of the rating. The book sparked a lively discussion that sought less theoretical modeling than practical solutions. In the second edition, new proposals are raised, especially from the perspective of those affected, the mayors and city treasurers, but also by scientists. Many municipalities gained experience with the status of their over-indebtedness. In the case of insolvency, there is still no municipal bankruptcy law, which would allow in a foreseeable process, the exemption from the burden of debt. The lack of legal title to enforce their claims in the event of payment difficulties with their municipal debtors forces banks such also every other creditor for the differentiated risk classification of the municipal rating. The new book not only pools assessment standards for the rating of municipalities, but also highlights current developments.

Oliver Everling (Herausgeber): Kommunalrating: Finanzierung von Städten und Gemeinden sichern, 2. Auflage Köln 2015, Bank-Verlag,, 414 Seiten, Art.-Nr. 22.489-1500, ISBN 978-3-86556-445-0.

Municipal Rating: Securing Financing for Cities and Municipalities


Oliver Everling and Michael Munsch (publisher): Municipal rating: securing financing of cities and communities, 1st edition Cologne 2013, Bank-Verlag,, 383 pages, Art. 22.489-1300, ISBN 978-3-86556-285-2.

Whether in municipalities of “strengthening pact” or countries of “bailouts” is spoken, the underlying problems are similar: In any case, it is about imminent payment difficulties in formerly believed to be “absolutely safe” debtors.

The political decision to weight the risk of public debtors with “zero” for capital adequacy purposes makes a municipal rating in no way expendable for economic reasons.

The book deals for the first time with the topic of local finances from the perspective of the rating. Instead of theoretical modeling, practical solutions are discussed, especially from the perspective of those affected, the mayors and city treasurers.

Oliver Everling und Michael Munsch (Herausgeber): Kommunalrating: Finanzierung von Städten und Gemeinden sichern, 1. Auflage Köln 2013, Bank-Verlag,, 383 Seiten, Art.-Nr. 22.489-1300, ISBN 978-3-86556-285-2.