Mr. Hu’s Claims

Sure, this is late, but I read a couple of articles on the Economist that seemed interesting:

Hu’s counting – Hu claims that China saved Americans money.

Hu’s counting II – Hu claims that China created jobs for the world.

Read Full Post »

Countering the Paradox of Thrift

So I was listening to NPR as usual and they were interviewing this guy, I think he was some kind of Democrat politician, who was talking about the bailout plan. He said that government spending is more effective in stimulating the economy than tax cuts since parts of those tax cuts would be saved.

The biggest problem that I have with Democrat politicians (and actually most politicians in general) is that they ignore the basic fact that savings is what drives the economy. If you looked at the savings rate for countries, there is a direct parallel between the savings rate and the growth rate. People in Thailand, Singapore, South Korea, and post-reform PRC had really high savings rate  of around 30-40% and they experienced very high growth rates. Then you looked over at sub-Saharan Africa and their savings rate was somewhere around 15% and they all had very low growth rates.

The argument that was made by Keynes is that when people save money, they’re not spending. When people are not spending, revenue for firms go down. When revenue goes down, firms hire less people, which leads to less jobs, and less income for the people. As a result, when people save money, they  actually hurt themselves because their income decreases. Thus the term ‘Paradox of Thrift’ was coined.

Note: This is not just a liberal term. Bush, right after 9/11, told people to go shopping based on the idea that savings is bad. Even when Republican politicians propose tax cuts, they do so not to promote savings, but to promote higher consumption.

So what happens when people save money? Do they just stick it under their mattress and forget about it? Probably not, except in the case of Japan in the 90s when people were ‘hoarding’ (not saving) money due to poor confidence in t he banking system.

Instead, savings goes into financial institutions, bonds, financial assets, and stuff like that, but for simplicity sake, lets just look at banks. People put money in the banks. What happens to that money? Do banks really just sit on all that cash and not lend it out as a bunch of people were saying before? Well, during the time when people were saying there was a ‘credit crunch’, interest rates were actually decreasing, which means that banks were trying to loan money out. If a bunch of people were demanding credit and were unable to get it, the interest rate should have increased. Which it didn’t (and just to dispose of another myth, while the Federal Reserve can influence the interest rate by printing or destroying money, it doesn’t exert control over it).

So people put money into banks. The banks do not just sit on it since the way that banks make money is by loaning it out. If people are pulling out of the stock market (which is why it tanked so much in the past few months), then they have to put it somewhere. Lets assume that they’re putting it into their savings account just for continuity sake. Now the banks are overflowing with money and they want to loan it out. Who do they loan it out to? Well obviously to people that they think would be able to pay it back. Now this is not always the case, which is what led to a few bank collapses, but the majority of the banks in America are still solvent, which means that most of the loans made were good.

So who borrows money? Well, sometimes its by people who want to buy a new yacht, but usually, its businesses that want to invest so that they can increase production and efficiency in the future. Higher investments means higher productivity. On the micro level, this can be seen as an outward shift in supply, which leads to lower prices and higher quantity. Multiply that supply-demand chart by 300 million and you got increased production due to higher capital to labor level and as a result are able to reach a higher income level (Solow growth model). Everybody is richer, everyone has more, and everyone is materially better off. Now those people who are seeking spiritual enlightenment are left wanting, but everyone else should be happier.

At least this is what the people who say that the Paradox of Thrift is all screwed up. Next time, I’ll counter the argument that the Paradox of Thrift is totally wrong and that spending AND saving can both lead to growth.

Read Full Post »

If China had $900bn to blow… #1

…well, a lot of good can be done in preserving the CCP’s hold on power (as well as making the lives of its people better). I mean they’re using around $500bn right now, but where would we get the most ‘bang for the buck’? I’ll write a few of my own thoughts in a series of blog posts… so in no particular order…

1. Infrastructure Projects

The water system can definitely use some investment.

President Hu Jintao and Premier Wen Jiabao ordered all-out efforts to fight the drought, allocating 400m yuan ($58m, £40m) in relief assistance.

So there’s a pretty awful drought right now and China is spending $58m to fight it. Imagine they had $580m to spend. There could be improved irrigation systems, deep wells, water purification plants, pumps, improved piping in rural areas, and the spread of running water to some of the poorer areas in the west. This would definitely help China’s economy, increase legitimacy of the CCP, and make millions of lives better.

Improving internal transportation would also be a good thing.

Police had seized more than 40,000 scalped tickets, with a total face value of about 5 million yuan (730,000 U.S. dollars) since Jan. 14 when the Ministry of Public Security launched a nationwide campaign to curb illegal ticket deals.

Compared to many other developing countries, China actually has a pretty good internal transportation network. They have airports in most medium sized and up cities, many roads even in countryside towns are paved, and serviceable bridges cross over the major waterways. However, China has a lot of people (duh) so there’s a much higher need. Better and more fuel efficient buses in the cities, more and faster trains on the tracks, subways systems in the major metropolises, and all these other ‘people moving’ systems would enable a freer flow of labor (oh, and Hukou reform would be good too).

Freight transportation networks into the west would also be nice. Improving canals in places where river transportation is key, building more tracks and roads that reach townships previously neglected, and decreasing tolls for roads would do nicely in encouraging development in the west where labor might be even cheaper. This will also have the effect of lowering pressure on coastal urban areas.

Power generation would also need to be improved and expanded.

Wang forecast that China’s power use will grow about 5 percent this year although the contraction in consumption seen late last year will extend into the first half.

China’s currently using a lot of coal because they have a lot of it, but environmentalism is a rising trend in China and ‘green’ is the new ‘red’. The CCP also has been open to green energy so I think that using a stimulus plan to invest in renewable power generation would be a great thing. Solar panels in the western deserts would create much needed investment, wind turbines in the mountains would make Free Tibet folk and tourists angry about the ruined scenery, but as long as they keep them off the beaten track, it’ll benefit the local communities greatly. I would stay away from hydroelectric since most rivers have been damned (haha) to hell and water pollution is already high.

But most importantly, China should focus on flying cars.

Read Full Post »

China and the Global Economic Crisis

Crisis has hit China’s economy

People say that China needs to have GDP growth of over 6% a year to ensure enough job creation to prevent social and political unrest. I mean the high economic growth in China can legitimize almost everything that the CCP has done since reforms in 1978. Ending the Democracy Wall movement? Well, they countered that by opening up rural agriculture markets. Crushing the Tiananmen protests? The number of people lifted out of poverty since the reforms have saved and improved the lives of millions. The suppression of political and religious freedoms? China’s open economy has put a McDonalds on every block and brought the Olympics to Beijing.

Ok, so of course economic growth doesn’t legitimize everything, but all those people who hate on China usually avoid criticizing the CCP’s handling of the economy (except in the cases of high inequality and damage to the environment). So if ‘crisis’ really is hitting China’s economy, then something must be done.

As the demand for China’s exports shrinks, he said that as part of relaunching the economy, the country had to focus now on expanding domestic consumer demand.

Ah yes, increasing domestic consumer demand to make up for the huge drop in exports. But then again…

Mr Wen said that among the reasons behind the current global downturn were “inappropriate macro economic policies in some economies, characterised by [a] low savings rate and high consumption”.

So China is going to change the structure of their economy so that it can become the reason for the next global economic downturn instead of a victim of someone else problems? Ok, I’m kidding, but does China really need to increase their domestic consumption?

Increasing domestic consumption would mean all those goods waiting in warehouses would be sold and firms would receive higher revenue. This means that they would be able to hire more people and thus save the economy.

However, if savings are really high in China, firms can borrow money at a really low interest rate.  Since there is currently lower consumption demand, firms should just focus on investing for the future so that they can produce better and more goods at a lower cost. Or at least that’s what all those classically trained economists would say.

If we were talking about America’s economy, I would say that we should encourage Americans to save more so that banks with bulging vaults would be forced to loan that money out to reputable and innovative companies. However, since China doesn’t have the best financial system in the world, a lot of those savings might be wasted on poor investment choices, like propping up a failing SOE. So yeah, I think Mr. Wen is right that increased domestic spending, may it be through coupons to buy a new fridge or discounted bicycles for rural folk, would do a lot of good in getting China through the current economic downturn.

Read Full Post »

Re-Starting the China Blog

I’ve been off-topic since the Olympics ended, so I guess it’s time to bring China back into this blog. But what should I write about? There’s just so much!

The Financial Crisis and China’s Bailout Plan

I’m not a big fan of the government jumping in and ‘spending’ a country out of a recession. I mean the government is inefficient and though the CCP gets things done faster than the American Congress, they’re also a little corrupt so who knows how many pockets will be lined when this bailout plan is implemented. However, with that said, China’s economic growth has long neglected the western half, so maybe it’s necessary for the government to step in, build infrastructure, and ‘spread the wealth around’. I mean 16% of China’s GDP is a lot of money… it can’t all be wasted on government official banquets and tacky landmarks, right?

Gong Li is a Traitor!

So Gong Li changed her nationality to Singaporean. I remember during the Olympics, the ethnic Chinese Singapore ping pong team got some praise because they were ‘second tier’ players exporting Chinese culture to the outside world. So why are they hating on Gong Li? I mean she’s been making pretty shitty movies since ‘To Live’ came out so it’s not like they’re ‘losing’ somebody awesome like Yao Ming. Jeez, they’re not even losing her. It’s not like she’s changing her ethnicity to Japanese or something…

Longnan Protests

A bunch of people are being moved out of their houses because the government is building something shinier on top the land so people decided that they don’t like that and they got a bunch of people to join them to protest and a lot of people came to watch and the police came and then there was yelling and shouting and possibly some singing and then after it was over the local government said that the incident was caused by a few trouble makers because 99% of the residents love them. Yay.

Chinese Girls Get Beat up and Videotaped While Walking Around Naked

There has been a few posts on the internet with schoolgirls getting beat up and humiliated by other schoolgirls. This is pretty rare in the US, not because it doesn’t happen, but because it’s usually not put up on the internet since they’re afraid of getting identified and charged for sexual assault. These schoolkids are too naive and for some reason put it out there and now they’re all getting arrested and stuff. If only they listened to their parents and retained the Cultural Revolution mentality… though I guess it’s better that they didn’t since now they’ll get caught and will get punished for not playing nicely.

Eh… writing about the news is kind of boring. I’ll think of something more interesting to write next time.

Read Full Post »

Political Economy

First I lost faith in Marx. Now I’m losing faith in Keynes. Marshall, Humes, Mill, Smith and all them classical folk that I used to dislike are turning me towards the dark side. I had no idea those guys were so subversive.

I’m politically liberal so I was always big into the government intervening. When I first studying political economy, I fell for Marx and his awesome beard. I wanted there to be global revolution, an egalitarian society, and witness the inevitable collapse of capitalism that Marx predicted. I mean the working people having nothing to lose but their chains? That’s one helluva pick up line.

My love for Marx slowly dissipated when I met other Marxists who turned out to be pompous elitist assholes who were more interested in showing off their intellectual superiority and how ‘down with the people’ they were with their communist-chic style of dress instead of actually contributing anything to society. So instead, I turned to Polanyi who said there was a big role for the government in protecting the people from the market. I liked that idea because I saw in my mind this image of the corporate machines and the invisible hand crushing the life out of poor starving children before Uncle Sam and Captain America swoop in to save them with social safety nets and injections of liquidity.

And from that, I naturally became a Keynesian. I mean all the economics that we learn as an undergrad,  unless you got to one of them special schools that teach neo-classical stuff, is based on Keynes. You know, all those IS-LM curse, AS-AD stuff. The reason why I liked Keynes was because he was so cool. Like he didn’t give a shit about what the social norms were. I mean he pissed on the grave of all those dead white classical economists AND he was an equal opportunity employer of sexual partners. Oh, and instead of telling an unemployed hardworking Mexican in the Central Valley that he was gonna be unemployed because there’s a economic downturn and that’s just the way the market worked, he would have said that the market is fucked up and the government should do something that helped that Mexicano y su familia. That was pretty cool in my eyes.

However, the more I learn about Keynes, the more I begin to see him as someone who just had a personal grudge against the classics instead of someone who truly found error in the old market theories. Just a couple examples that have been pointed out by my professor is that Keynes believed that ‘capital’ in the classical sense meant industrial goods and machinery. He also believed that savings = hoarding. And then there was his argument that changes in credit supply or demand would lead to changes in  income instead of the proportion of income saved/consumed. He didn’t have a basis for what he was arguing. He just said that the oldies were wrong and he was right. When other people tried to tell him he was interpreting the literature wrong, he just brushed them off and gave these half-assed excuses.

Now I still think Keynes’ idea hold strong in times of major economic crisis. Like during the Great Depression, massive money creation by the central bank might have been able to dampen the crisis in the short run. But his overly-quoted statement that we’re all dead in the long run is kind of short sighted. It’s like instead of building a good house and ensuring that it’ll last for a thousand years without much maintenance, you build a shoddy house and constantly patch it up.

I haven’t finished all my re-reading of Keynes yet, but after reading Humes and Mill, I’m starting to turned more and more towards the dark side of economic liberalism – which is usually associated with rich white folk like that duck that swam in piles of gold coins and gun-toting libertarians like Moses. Scary shit.

Read Full Post »

Politics and Economics

So a lot of people have been saying that the economic crisis has helped Obama while foreign policy is McCain’s strength. For me personally, it’s kind of the opposite.

First let me say that I have already voted absentee for Obama for reasons I mentioned in a post a few days/weeks ago.

I dislike McCain mostly for his foreign policy views, mainly the Iraq war. I don’t like war for many reasons. First of all, it leads to people dying, obviously. But on top of that, there’s the increase in government spending that would cause increased inflation (if they are printing money to pay for it) or shoot up interest rates (if they are borrowing from the public). Then there’s the strained international relations that comes from war, which can negatively impact trade. Productivity is decreased as skilled mechanics, tenchnicians, or engineers are taken out of the work force and sent to a foreign country to repair tanks and launch missiles. Some people would argue that war leads to a ramp up in industrial productivity, but that usually takes place only during a total war (where the entire country is geared towards war, not the computer game series) so during wars like Iraq, it’s just a shift in productive power from the domestic to the government sector. And on top of that, I don’t think going into Iraq is protecting America.

As can be inferred from above, I’m not a huge fan of government spending, though I’m far far FAR from libertarian. For example, public goods like education, parks, and infrastructure should definitely be maintained by the state (as well as defense I guess since it’s necessary to prevent Bermuda from invading). In the area of ‘steering’ the economy, I’m a bit iffy, though in areas such as encouraging the use of more fuel efficient cars through government rebates and improving technology through government investment, I think the positive externalities that result from such actions can outweigh the costs of bureaucratic inefficiency.

Which is why I don’t like Obama’s economic policy too much, though McCain has also played the populist card as well. I mean why should homeowners be bailed out by the government? Why does ‘main street’ (damn, I hate that term) deserve to be helped any more than ‘Wall Street’? As for more regulation, Fannie Mae and Freddie Mac were both government institutions. It was the government that encouraged private banks to give risky loans to consumers, so how can it be believed that a new government institution in charge of overlooking credit markets will do any good?

However, I came upon the belief that while I’m more Republican in terms of my economic thoughts in that I like freer markets, I’m voting for a politician and politicians just don’t know much about economics. So I am forced to vote based on my political ideology and as a result, I’m voting for Obama.

Though if Glenn Hubbard ran for president, I would vote for him.

Read Full Post »

The Primitive America

Yeah, so I know that this is supposed to be a China blog, but since I’m not in China no more, I’m gonna have to turn this into a whatever blog until I return to the motherland.

It’s been almost a month and a half since I’ve been back to the states now. Back in that little city that never really changes. The day after I came back (I slept the entire first day and night), I went over to the shoreline that was near my house. It’s not those traditional sandy beaches that you imagine of California though. The shorelines in northern California are mostly rocky. The one near my house is half landfill and half wildlife preserve. I went there for a little run at 6am in the morning because I couldn’t think of anything else to do with my jet lag.

It was strange. My hometown has absolutely nothing of value. It has a BART station and a pair of freeways that run through it so most people have heard of my city though the only time they ever enter it is if they get off at the wrong stop or off ramp. The run to the shoreline showed that nothing really changed down that road since my grandpa took me to there when I was a kid to watch trucks pass by. The chop shops and junk yards lined one side of the street while clean and empty single storied office buildings sat on the other. Nothing changed except they pulled out a bunch of trees by the community college to make space for more classrooms.

So when I first got back, I couldn’t help but feel how primitive my hometown was. Where were all the bright lights and hip young people walking around with bursting wallets? Where were the cars, the hustle and bustle, and the life that existed in Beijing 24 hours a day? It was empty on the shoreline that day I went running except for some old man and his dog (which seemed to strengthen my belief that America had fallen far behind). The air was too clean and the sky too blue for there to be any evidence of proper industrialization. There were too few people around for there to be a sufficient market demand. There was too much nature and unchanging buildings for there to be signs of progress. It’s like I went from the 21st century in China to some sleepy pre-Colombian America where the people are still happily living slow lives with their animal companions while advanced peoples across the ocean were blasting people into space.

Of course none of that is true. Once I finished by run it was around 8am and there was the rush hour traffic spewing toxins into the air. I went to the City a few days later and there were those nice shiny buildings and fancy cars parked on the side of the road. I even found my way to Chinatown one day and lo and behold, there were people selling all sorts of goodness on the side of the streets.

I guess 10% GDP growth really is much faster than 3%. I’ve got mixed feelings about it now that I’m back. I miss the rapid change of Beijing, but at the same time I’m kind of glad that the swing that I used to play on back when I was in elementary school is still around. What we all need a perfect balance where the world we live in changes enough to be exciting while enough of the old remains so that we can remember where we came from. With that said, I have come to the conclusion that a 6.5% GDP growth rate per year, a number that is right in between the growth of China and America, would be best.

What can I say? I’m so prepared to take those graduate economics classes in a few weeks.

Read Full Post »

Greater East Asia Co-Prosperity Sphere

A sense of community elusive in East Asia

The article above is pretty interesting in it’s criticism of Asian countries for failing to put aside the past and move forward as a community like what Europe did/is doing. Here’s an excerpt:

To be blunt, there is no community. Each of the major countries – China, Japan and South Korea – clings to its own vision of the future, to its own self-serving version of history, and relates to the outside world as a sole actor, and almost never in terms of regional interests or priorities.

I won’t disagree that there isn’t much in the sense of community here in East Asia. I mean even Taiwan, which is supposed to be a province of China, has their own regional goals that is contrary to that of the PRC (obviously) and Japan (like those disputed islands).

Some would say that East Asia looks a hell of a lot better than what’s going on in Africa. I mean with all these civil wars, genocide, fighting over resources, fractured states, and terrorism all over the continent, East Asia looks pretty damn good. However, in another part of the article, they say:

The first thing that must be said about East Asia is that for all of its economic achievements, it lags woefully behind much of the rest of the world in important ways.

You can’t compare East Asia to Africa because it’s so much richer. Some people have been arguing that all the problems taking place in Africa is due to lack of economic growth. The reason why China isn’t bombing Taiwan is because they don’t want to destroy their economy and links to the rest of the world. When you’re a land locked country in Africa with no natural resources, then you don’t have much to lose.

But is it really fair to compare the level of cooperation in East Asia to that of Europe? I mean the European Union is nothing short of amazing in my own opinion. I still can’t believe that all these countries that used to kill and hate each other not too long ago (especially the recently admitted Eastern Europe countries) have united in the way that they have.

There really doesn’t seem to be much want from the governments of the Asian people for more cooperation. People are still hung up about what happened during World War II and the Korean War. They’re all still demanding apologies all the time and pointing at the wrong-doings of other nations to stir up nationalism. Instead of hatred dying out with the last generation, it’s being passed down to the youth.

I personally don’t see much progress in the near future of East Asian cooperation. I get the feeling that everyone will just condemn it as ‘The Greater East Asian Co-Prosperity Sphere’ in sheep’s clothing. Or something awkwardly stated like that.

Read Full Post »

Meat and Telecoms

The Rise of China and Meat Prices

Back when I was in California growing up, my parents would occasionally take us out to eat at western restaurants or fast food places. I was generally able to finish my food as a kid, but my sister used to be able to eat only a spec of food before she explodes (though these days she can eat a water buffalo and then ask what’s the main dish). My parents would try to force her to finish it, but when its obvious that she couldn’t, they’d always tell her to eat the meat because it’s more expensive. 

In most restaurants here in the mainland, especially the Chinese fast food joints that I frequently eat at, the meat dishes are more expensive than the vegetable ones even if there is only a couple specks of preserved pork within a sea of noodles. For example, at my favorite Chengdu Xiaochi place, the Tomato and Eggs rice dish is 8 RMB while a Pepper and Preserved Pork dish is 10 RMB. Non-preserved meat would be around 12 RMB a dish. Of course this is more expensive since I’m in Beijing, but the price difference between meat and vegetables is pretty big throughout most of the country.

Yeah, so the article goes on to talk about how increased purchasing power has allowed more and more people to buy meat. It’s pretty good so I recommend taking a little time to check it out.

China Tries to Increase Telecom Competition

China Unicom sucks. It’s a pretty much accepted belief here in China. I once unknowingly got a non-China Mobile SIM card while I was in Guangdong and my students all stared at me in disbelief when they found out. For one thing, the roaming charges were ridiculous. Recently, I used my Beijing China Mobile SIM card in Guangdong for three days and I still had most of the 50 bucks I charged it with. When I lent my Guangdong China Unicom phone to my sister while she was in Beijing, all 100 RMB was gone after just two and a half days. Maybe I just got a bad plan, but right now I’m pretty convinced Unicom blows.

So maybe with all this reorganization, China’s telecom industry would be able to get more competition and encourage more innovative plans and adoption of new technologies. Maybe one of those companies will be able to sign a deal with Apple and get official iPhone support on the mainland. Good stuff.

Read Full Post »