Follow up to the China kleptocracy post The China kleptocracy post has received a lot of comment - mostly favourable. It was my first post to get 100 thousand views. I would like to thank all that commented on it (especially Paul Krugman who was good for about 35 thousand page views). Only a few of those views are from China. I will not name the people in agreement because many have to live in China. My thesis was (a). Demographics is outside my field of expertise and I received (and expected) most criticism on the demographic point. Unknown to me this was the subject of a serious academic paper by Shang-Jin Wei - a professor of finance and economics at Columbia University who supports the men-will-do-anything-for-sex argument with lots of fancy econometrics. There was little objection to my argument about limited options for saving in China. There is also little objection to my suggestion that bank deposit rates are rigged below the inflation rate. Absent subsidy the SOEs are staggeringly unprofitable. John
Translating the Chinese Experience Yikes! Xi Jinping arrives tomorrow. The Economist last month added a regular standing section on China to the front of the magazine, along with the US, the Americas, Asia, the Middle East and Africa, Europe and Britain. They’ve generally been on top of things since 1845, when they added railroads to the list of things they covered. To put it mildly, though, I am not prepared for the visit of the man who is expected to become, next fall, the new leader of a nation that probably will become the world’s largest economy sometime in the next ten years. It’s time to sort through the steadily accumulating shelf of books. There are three, it seems to me, that are more interesting than all the rest, one in particular. Demystifying the Chinese Economy (Cambridge University Press, 2012), by Justin Yifu Lin, is, I suppose, the single book most worth reading from the current torrent, since it depicts the story of the economy the way the Chinese see it themselves.
Behind <i>The Rise of the Great Powers</i> China’s imprisoned Nobel Peace Prize winner asks what a TV miniseries can teach us about the direction of the new China. From his new book of essays. Photograph via Flickr by Jakob Montrasio During the early years of the twenty-first century, an initiative toward “great power diplomacy” clearly became one of the objectives of the Chinese government under Hu Jintao and Wen Jiabao. The phrase “rise of a great power” entered the official language and was promoted in the state-run media, in part in connection with a spectacular television series. The Rise of the Great Powers No list of the major topics in public discussion in China during 2006 can omit the blockbuster production by China Central Television (CCTV) called The Rise of the Great Powers. The group that planned and designed the project included many Chinese scholars who work within the political system but hold values that are liberal and open-minded. But Professor Yuan also pointed out a number of major deficiencies in the series.
The mystery of Chinese savings Much attention has been directed toward China’s high savings rate (Broda et al. 2009, Prasad 2009, Reisen 2009). Not only is the savings rate disproportionately high compared to virtually any other country, but it directly impacts China’s current account surplus and the US consumer debt and trade deficit. When national savings exceeds investment, the excess savings becomes China’s current account surplus. Given its far-reaching effects, both private sector analysts and policymakers have attempted to trace the causes of China’s high savings rate and to predict how long it will last. But these explanations may not be the most important part of the story. It is the high Chinese household savings that has no equal among major economies. In my recent research paper with Xiaobo Zhang (Wei and Zhang 2009), we hypothesised that a social phenomenon is the primary driver of the high savings rate. Figure 1. The next possibility is far more challenging.
Capitalism with Chinese Characteristics Capitalism with Chinese Characteristics Cambridge University Press 9780521898102 - Capitalism with Chinese Characteristics - Entrepreneurship and the State - By Yasheng Huang Copyright Information Sloan School of Management, Massachusetts Institute of Technology CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi Cambridge University Press 32 Avenue of the Americas, New York, NY 10013-2473, USA www.cambridge.org Information on this title: www.cambridge.org/9780521898102 © Yasheng Huang 2008 This publication is in copyright. First published 2008 Printed in the United States of America A catalog record for this publication is available from the British Library. Library of Congress Cataloging in Publication Data Huang, Yasheng. ISBN 978-0-521-89810-2 hardback © Cambridge University Press
China Wants to Frack, and Frack Hard While fracking in the US remains a hugely contentious issue, a lack of groundwater regulation combined with an incredible thirst for energy production has led China to push for a massive fracking boom in coming years. According to a report by Caixin, a white paper released by the Chinese State Council envisions a fracking industry that can extract 6.5 billion meters of natural gas a year by 2015. Supplementary documents dug up by Caixin suggest that China is aiming for that industry to boom to 100 billion cubic meters of capacity a year by 2020. It's a push led by the fact that China has the world's largest proven shale gas reserves, but production lags far behind the US, which is the world's leader in that regard. While the Chinese government pushing natural gas isn't surprising, the incredible scale and called-for ramping up of production is. Top image via The World @derektmead
Domino Risk Grips Zhejiang Bankers, Borrowers A developer's collapse exposed banks to the dangers of reciprocal loan guarantees common in coastal province (Wenzhou) – The Zhejiang government is scrambling to settle a credit crisis threatening banks and financial institutions that altogether issued about 6 billion yuan in loans to scores of companies. Sources say 62 companies, from furniture makers to import-export traders, have been affected to varying extents by the collapse late last year of Hangzhou-based property developer Tianyu Construction Co. Ltd. The companies were financially linked to Tianyu through a province-wide, reciprocal loan-guarantee network. Tianyu's sudden failure raised the specter of a domino effect of defaults taking down every network participant and devastating their lenders. "After Tianyu went bankrupt, banks in Hangzhou started calling in loans to other firms guaranteed by Tianyu," said the owner of a company tied to the network. Rescues and Risks Who's to Blame?
Why Capital Flows Uphill - Keyu Jin Exit from comment view mode. Click to hide this space LONDON – At first, it seems difficult to grasp: global capital is flowing from poor to rich countries. China is a case in point. And China is not alone. Many observers believe that these global imbalances reflect developing economies’ financial integration, coupled with underdevelopment of domestic financial markets. While plausible, this argument suggests that, as financial markets improve over time in developing countries, the global imbalances are bound to shrink. A crucial dimension of globalization has been trade liberalization. Most of what China and other developing countries produce and export are labor-intensive goods such as textiles and apparel. With a slight mental stretch, one can imagine that what a country produces and trades may affect its savings and investment decisions. That may be an extreme example, but it illustrates a more general point about how merchandise trade can influence financial flows.
China’s Real Choices for Growth Yves here. I particularly like this post because Michael Pettis takes some boundary conditions about China and works through their implications. One quibble I have is that he talks of “debt capacity limits.” That depends who the issuer is. The national government could in theory “print,” it has no need to issue debt to fund its activities. Last week’s news was dominated by the sudden but not wholly unexpected removal of Bo Xilai as mayor of Chongqing.After the initial shock wore off, much of the speculation within China has moved on to what his ousting says about the evolution of power and, for economists, how it will affect the reform and rebalancing of the Chinese economy. 1. Notice that all of these options effectively have China doing the same thing: In each case the state share of GDP is reduced and the household share is increased.
What Is Financial Reform in China? Premier Wen’s recent attack on the Chinese banking system last month has highlighted what was already a very interesting debate on Chinese banks and the Chinese financial system. There is a growing sense that the Chinese banking system is deeply flawed and needs to be reformed. But why should China reform its banking – hasn’t the financial system been a key component of China’s economic success in the past three decades? Just as importantly, what does financial reform mean – what kind of changes would need to be implemented for a real reform to have occurred? Before addressing these questions we should be clear that there is no meaningful difference between China’s banking system and its financial system. Commercial banks dominate the country’s financial system and they largely determine pricing even in the informal banking system and in non-bank financial institutions. This is very clearly the case for China, as I have discussed many times in this newsletter. Depositors foot the bill