6A – Identifying Opportunities in Economic & Regulatory Trends

1.

Economic Trends Opportunity: As virus fallout widens, China readies more measures to stabilize economy

a. https://www.reuters.com/article/us-china-health-economy-exclusive/exclusive-as-virus-fallout-widens-china-readies-more-measures-to-stabilize-economy-sources-idUSKBN1ZY103

Chinese policymakers are preparing to support an economy shaken by the coronavirus which is predicted to impact first-quarter growth. The Chinese government is debating whether or not they should lower the planned 2020 economic growth target of around 6%, with China’s central banks lowering their key lending rates. To minimize job losses, China’s leaders are most likely to sign-off for more spending, tax relief, and subsidies for virus-hit sectors. As a result of the coronavirus outbreak, the Lunar New Year holiday has been extended by 10 days while transport networks have been curtailed to curb the disease from spreading. The growth of China’s economy has been the weakest in the past 30 years.

b. An opportunity exists in the ruling Communist Party’s goal of doubling GDP and incomes by 2020 and transforming China into a “moderately prosperous” nation because the economy is driven by consumptions and services. However, growth has been depicted by a downwards trajectory, with the coronavirus killing 425 and infecting 20,438 in China in central Hubei province. Economists have predicted that first-quarter GDP growth for China could decrease below 5%, with the impacts persisting within the second quarter. A China economist at UBS predicted that first-quarter growth could decrease from 3.8% to 5.4% for the whole year. The spread of the coronavirus has impacted the economy more than SARS.

c. The prototypical customers are Chinese policymakers or those that use China’s central banks. Due to the death toll from the coronavirus, China’s central banks are lowering their key lending rate and cutting banks’ reserve requirement ratios in upcoming weeks. The People’s Bank of China has already put hundreds of billions of dollars into the financial system in an attempt to restore investor confidence as global markets are potentially damaged by the impact of the virus on world growth. Government spending is also increasing, which could push up the annual budget deficit relative ratio to 3% compared to 2.8% in 2019 along with local governments issuing more debt to fund infrastructure ideas.

d. The opportunity is relatively difficult to exploit because the People’s Bank of China has cut the amount of cash that banks must hold as reserves eight times since 2018 and lowering its key lending rates modestly since August. China’s economy grew 6% in the fourth quarter, which is the weakest it has been in nearly three decades. Chinese leaders face a larger challenge than they did in 2002-2003 during the SARS outbreak because the economy is now driven more by consumption and services. Chief economists predict that it will be difficult to find a turning point from the outbreak due to first-quarter GDP lowering.

Why did I see the opportunity: China’s economy has the potential to bounce back and double its GDP and income by 2020, although it will be a challenging job for Chinese leaders as a result of the coronavirus outbreak. The government’s planned 2020 economic growth target is within China’s reach but may be impacted by China’s central banks lowering their key lending rates along with cutting banks’ reserve requirement ratios. In the past two weeks, the People’s Bank of China has injected 1.7 trillion yuan into the economy through open market operations in order to keep China’s economy stable. By focusing on aspects vulnerable to job losses, China’s economy can recover from the virus.

2.

Economic Trends Opportunity: China’s ‘economic growth miracle’ fades into the past as northern city’s new rail lines only paper over the cracks

a. https://www.scmp.com/economy/china-economy/article/3047284/chinas-economic-growth-miracle-fades-past-northern-citys-new

China’s economy is expanding at a healthy rate of over 6%, but debt-funded growth is still strong and remains as one of China’s biggest challenges within their state-led economy. The President, Xi Jinping, has prioritized fiscal and financial risk controls, but the debt problem is getting bigger. China’s GDP ratio is approaching 310 per cent of GDP, one of the highest among emerging markets. The structural weakness of China’s growth model has been affected by the coronavirus outbreak, which will affect the economy from 2020 and beyond. China is currently based upon a GDP-centric development model for the economy. Many provinces are still facing funding problems and having to rely on vehicles sales.

b. An opportunity exists in cities reducing their implicit liabilities through land revenue, debt restructuring, the sale of state assets, and commercial and public rental fees. A debt crisis is unlikely to take place in China because of the government’s grip on resources ranging from land to finance and the country’s budget law provides unlimited guarantees for local governments from Beijing. The Chinese government currently allows local governments to issue bonds and to accelerate selected key projects that can serve the public even if the prospects of profits are not certain, such as transportation. Despite the slowdown in China’s economy, investments increasing is plausible and also sustainable.

c. The prototypical customers are residents of China that utilize the city’s major infrastructure project for themselves. Chinese citizens that contribute to the country’s economy along with factors that influence the market, such as debt or currency pressures. In the non-financial corporate sector, debt accumulation in China has picked up because of the country’s structural weakness and the challenges that the coronavirus outbreak has imposed, affecting the economy from 2020 and beyond. The government’s spending on infrastructure could be viewed as excessive by the country’s population and economic prospects. Economic growth shouldn’t be used as a key performance indicator for China.

d. The opportunity is relatively difficult to exploit because infrastructure projects such as the northern city’s new rail lines have only highlighted the problems of China’s debt-financed growth model. Fixed-asset investments have decreased by 19.4% and then 26.5% as a result of exaggerated local fiscal revenues per quarter and industrial output. In the past, cities in China were showered with money to spend on roads, bridges, and other infrastructural improvements. The decision to halt construction by the Chinese government highlighted and emphasized the economic and financial stress faced by cities. One of the biggest challenges China is facing is debt-funded growth for many projects.

Why did I see the opportunity: China can overcome its debt accumulation by going back to government-led investment. A new mindset is required in order to replace the GDP-centric model China is currently utilizing, but the local understanding for this need has not been spread. Many provinces in China still rely on financing vehicles as land sales fall as they face funding problems. Through land revenue, debt restructuring, the sale of state assets, and commercial and public rental fees, some cities were able to reduce the implicit liabilities. Banks are also at risk because China’s central bank is overtaking many of them due to the risk they pose to the financial system. The government can issue bonds and accelerate selected key projects, especially transport that is able to serve the population.

3.

Regulatory Changes Opportunity: Chicago restaurateurs want tighter regulations around your next delivery

a. https://www.chicagobusiness.com/restaurants/chicago-restaurateurs-want-tighter-regulations-around-your-next-delivery

Chicago is being urged by the Illinois Restaurant Association for developing new regulations around food delivery conditions such as food handling and car cleanliness for delivery upstarts such as Uber, DoorDash, GrubHub, and PostMates. Within the next two months, there will be a legislative push to view how delivery operators are cutting into businesses and their margins. By ordering ordinances governing the cleanliness and handling of food, the playing field will be leveled as part of a broader push by the restaurant association to beat back the incursion of online delivery providers that have disrupted the business. Restaurants have also been added without their permission.

b. An opportunity exists in the expansion of services delivery restaurants’ food along with working with all stakeholders to develop practical solutions that benefit both the restaurant and delivery services while keeping consumers safe. The vast majority of GrubHub’s orders come from their partnered restaurants and their goal is to bring the best delivery experience possible while balancing the interests of their diners, restaurants, and drivers. However, companies such as Uber and Lyft have refused to comply with local laws and regulations and the state is already facing a legal challenge from workers who argue that the law threatens their ability to make money because there is no law in other states.

c. The prototypical customers are people who use delivery upstarts such as Uber, DoorDash, GrubHub, and PostMates. The Illinois Restaurant Association is also involved because of their urging of new regulations surrounding food delivery conditions including food handling and car cleanliness. The group has displayed annoyance at how delivery providers’ fees can consist up to 30% of each food order and is implementing a legislative push within the next two months to rein in delivery operators who are cutting into their businesses and their margins. This is also part of a broader push by the restaurant association to beat back the incursion of online delivery providers that disrupted markets.

d. The opportunity is relatively easy to exploit because of previous laws that have been passed before. In California, a landmark law was passed that was designed to force gig-economy companies to treat their workers as employees, rather than contractors and currently in Illinois, delivery company workers are classified as contractors and are thus not entitled to health benefits, minimum wage and other protections. In the past, food delivery companies had partnered with restaurants but now these providers are adding restaurants to their lineups without the restaurant operators’ consent. This issue is a serious concern which can be addressed by working with stakeholders for a solution.

Why did I see the opportunity: Food delivery providers can easily comply with local laws and regulations regarding expanding their restaurant lineup with the restaurant operators’ consent. It is possible to bring the best delivery experience possible while balancing the interests of our diners, restaurants and drivers on top of complying with all local laws and regulations in connection with businesses. A majority of GrubHub’s orders come from partnered restaurants while Uber and Lyft have refused to comply with the law, with the state facing legal challenge from workers who argue that the law threatens their ability to make money. A practical solution can be discovered that benefits both parties involved.

4.

Regulatory Changes Opportunity: Algorithms on social media need regulation, says UK's AI adviser

a. https://www.theguardian.com/media/2020/feb/04/algorithms-social-media-regulation-uk-ai-adviser-facebook

The UK government’s advisory body has suggested that new regulation should be passed to control algorithms that promote content such as posts, videos, and adverts on social media. The government should also consider requiring social media platforms to allow independent researchers access to their data if they are researching issues of public concern on topics such as the effects of social media on mental health or its role in spreading misinformation. Most users of social media aren’t requesting for targeted content to be stopped, but rather for it to be done safely and responsibly. Social media has the power to regulate what content their audience is shown along with protecting people.

b. An opportunity exists in numerous company’s suggestions for an internet regulator, including suppressing the spread of legal-but-harmful content such as material that encourages self-harm or eating disorders on social media. This could be expanded to develop a regulator that ensured other elements of the internet were within reason, but this may result in harsh feedback. For example, giving the audience greater access for academics to social media data could help answer difficult questions about the effects of new technologies on societal problems, but it could also lead to fresh sources of data breaches or privacy violations. The risks of being online may outweigh the benefits.

c. The prototypical customers are people who use social media and parents who are concerned about what type of content their children are exposed to online. Parents increasingly feel that the risks of their children being online outweighs the benefits, with around 2 million parents arguing that the benefits are outweighed by the risks. Most parents were especially concerned with the risk of their child seeing content that might encourage them to harm themselves, by the social and commercial pressure to buy in-game items such as loot boxes while playing online, and by online bullying via video games. However, activism was also increased in children online, using it to express themselves.

d. The opportunity is relatively easy to exploit because new regulations can be passed to control the algorithm that promotes content such as posts, videos, and adverts on social media along with the creation of publicly accessible online archives for high-risk adverts, mirroring those voluntarily created by the social networks for political adverts, but expanding their remit to specific cover areas. Social media platforms have the ability to control and decide what information their audience can see, putting them in a position of real power. It’s crucial for online regulators to see how platforms recommend content for their audience. Legislation can be expanded to enforce regulations for the general public.

Why did I see the opportunity: Social networking platforms can easily comply with requests for new regulations to control the algorithms that promote content. The government can also consider requiring social media platforms to allow independent researchers access to their data if they are researching issues of public concern on topics including the effects of social media on mental health, or its role in spreading misinformation. The general public does not want targeted content to be stopped, but rather to be done safely and responsibly. By building public trust over the long term, it is crucial for the government to ensure that how platforms recommend content is regulated.