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The World has Entered the Era of Oversupply

Based on the latest economic data, “optimistic” is not the word to describe the prospects of the global economy. America, China and India, however, are exceptional cases among the world economies representing the incumbent and potential superpowers whose actions could significantly impact the global economic arena.

There is little doubt about the economic might of India, which has a significantly brighter economic forecast than the other countries, according to some institutions. However, policies such as the demonetization of the Indian banknotes in 2016 confused some of our analysts. Corruption is a problem that exists in almost all economies, and efforts to curb and eliminate it need to be carefully planned out and formulated. It might be a noble intension to curb corruption through demonetization, but the repercussions of this adjustment are simply too much for the Indian financial system to bear. In fact, the international brouhaha caused by this anti-corruption measure simply exposed the vulnerability of the Indian financial system and consequently compelled foreign investors to reconsider and reassess their future and pre-existing investments in India.

As for the development within EU, the largest market in the world, I believe that only a handful of countries will be able to perform well economically. The rise of Euroscepticism, populism, and the power struggle within Turkey have become the most challenging problems the EU has had to face since the Greek government-debt crisis. The result of the UK’s Brexit referendum undoubtedly sparked even more Euroscepticism across the EU, particularly in Italy, a country struggling with a series issues because of its connection with EU. If not for the public’s support of the referendum, it would not have taken place. It was Renzi’s policies on the refugee crisis in the EU that cost him his political career.

While it seems like there is no winner in the refugee crisis, president Erdoğan capitalized on Turkey’s location successfully to continually gain leverage over the European Union. The way in which Erdoğan hunted down his enemy and the power struggle going on in Turkey have deterred member states of the European Union from ratifying Turkey’s accession to the EU, despite Turkey’s essential role in the refugee crisis and its potential as a source of abundant labor for the EU.

The world has entered the era of oversupply.

While stimulating aggregate demand is believed to be the most effective solution to revitalize a stagnant economy, little attention has been paid to the problem of oversupply. The ability to manufacture an abundant variety of goods allowed Europe to become the most vital market during the post-World War II era, and this was followed by the rise of the four Asian tigers. The economic success in the above precedence was built upon the most fundamental economic principle: demand and supply. In the case of China, however, the astonishingly high industrial capacity not only satisfies the needs of the Chinese market, but also the global one. Therefore, no matter which field Chinese corporate enters, the price of the product will drop and significantly impact the global market.

For a long time coming, ideology has been the mainstream methodology used to interpret both the domestic and foreign policies of foreign governments in China. Most of the Chinese economists are so entrenched in their ideology that they perceive any domestic market intervention conducted by the foreign government to be hostile acts inspired by Sinophobia.

Corporations are indeed profit-driven, yet a zero-sum scenario is not the best way to utilize resource in international trade. Corporations and economists in china must be more realistic when making investment plans and try their best to avoid ideological prejudice. To assume that they are always trying to win in a zero-sum game is not only ignorant but also naive.

An objective economic analysis should always prioritise objective facts, only then can economists construct a concrete forecast, even if the past experiences they have to reflect upon are not pleasant.

Recognising the mistakes that we have made in our past economic forecasts does not mean that we can make immediate changes in our policies. The stagnant growth in market size that is creating an OPEC scenario (meaning the necessity of reducing aggregate supply does not constitutes the necessity to sacrifice national interests) exists in every market. In other words, the competition within every industry will become cut-throat and China should maximize the market size through its cooperation with the WTO, which will be vital to almost all the corporations in china, despite the unsustainability.

To break the current economic deadlock, government leaders should cooperate on a pragmatic level to solve the problem of oversupply, and eliminating poverty is one common goal to work towards. Governments should seriously consider the redistribution of wealth to change the trend of populism that will only create more uncertainty in the political and economic climate and shake up the economy for at least the next decade.

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