Saturday 30 June 2007

Life in China: recycling for a living

This post from Ben at Ben's Blog "A Midwesterner in the Middle Kingdom" provides an interesting insight into the hidden or not so hidden economy of China's growing cities.

It makes an interesting contrast to jump from "stock market frenzy" to how many Chinese make a living and survive on less than a dollar a day recycling other people's rubbish. As a side issue China's economy can only benefit from such activity - the problem will come when the Chinese become too wealthy to indulge in such activity and follow the West down the road to becoming a disposable society.

Ben has an excellent writing style and the blog is always interesting. I must add it to my blog roll if it is not already there.

Professional Recycling

One summer when I was 10 years old, I heard a rumor at summer camp that there was a grocery store in my neighborhood which would pay cash for recycled aluminum cans. For the next 4 weeks, I collected all of the aluminum cans from fellow campers until I had nearly filled an entire garbage bag. At the end of the summer my dad took me to the grocery store. I proudly showed the clerk my bag full of cans which was nearly half my size. He told me I was a responsible little boy for caring so much about the environment, and then handed me $1.29 cash for my summer worth of can collecting.

5 years later, I started my first real job, working as a sacker in a local grocery store. I was paid $4.25 per hour, which was the minimum wage in Kansas at the time. It didn’t take me long to figure out that labor is worth more than materials in the USA.

While I was working at the barber shop, three or four times per day, a middle aged man or woman would rummage through the trash can in front of the store. There was a man who would collect bottles and cans, a woman who would collect the plastic disposable cups we used to serve the customers water, and there was even a lady who would come every few days to collect all of the hair. By the end of the day, there was hardly anything left in the trash.

To a casual observer, these people might seem to be beggers. Fuzhou does have its share of panhandlers, but these are not the same people who are digging through the trash Rather, the people who collect our disgarded items are professional recyclers.

In Fuzhou, recyclers can collect .07 RMB for an aluminum can and .1 RMB for plastic bottles. At this rate, it would take about 109 aluminum cans to equal 1 US dollar. This rate is not too far off the one I was given that summer I collected cans at camp. The return is still not high, but when you consider a low-level service industry job requires 4 hours of work to earn 1 US dollar, the prospects of making a living off of recycling suddenly become more attractive. Add that China’s densely populated cities make the process of bottle collecting more efficient than they would be in the US, and it is not surprising why professional recycling is such a common profession in China.

In addition to recycling cans and bottles, professional recyclers also collect and/or buy used electronic devices, books, magazines, cardboard, CDs, and virtually anything else which at some time had value. Some of it is resold, and some is broken down for scrap. The recyclers ride their bikes through city streets with big signs placed in front of the handle bars which read 高价回收 (high price recyclying) and contain a list of items (usually household electrical appliances) which they will buy.

The future will only tell how much longer recycling will remain a profession in mainland China, and presumably as the price of labor rises, the draw to professional recycling will recede. But as barbershop workers are still making only 24 cents an hour, recycling stands to remain a viable profession for the near foreseeable future at least.

Thursday 28 June 2007

Will a savings tax slow the stock market frenzy?

With the bubble continuing to inflate it is clear that certain elements of the underlying structure of the Chinese economy are to blame. The bottom line appears to be a shortage of alternative assets for the local Chinese to invest in (for example, overseas shares, real estate).

The latest idea is to abolish the savings tax to encourage individuals to keep their savings in accounts instead of throwing it at the seemingly one way street that it is the Chinese stockmarket.

With increasing inflation means that real returns are close to zero the Chinese government has a long way to go to turn around the stockmarket juganaught.

The Independent summarise the current proposition:

China to act on savings tax to deter share-buying frenzy
Chinese regulators are considering suspending or abolishing a 20 per cent tax on bank savings to try to persuade consumers to stop moving cash out of bank deposits into the increasingly heady world of stock market investment.

Rising inflation is badly eroding the value of savings in China, where people tend to save as much as 40 per cent of their income in the absence of a solid social welfare system.

This has helped to fuel a boom in share buying, which has replaced bank saving as the most popular investment option in China and stoked fears of an unsustainable bubble. The country's stock market rose 130 per cent in 2006 and by over 50 per cent already this year, despite some vertigo-inducing corrections that have caused ripples around the world.

China has seen the introduction of record numbers of new share-trading accounts which now add up to over 100 million. A central bank survey last month showed that consumers now prefer shares to deposit accounts.

The regulators hope that changing the tax, first introduced in 1999, would make saving in banks more attractive. JP Morgan economists said removing the tax would be the equivalent of a 60 basis point rate rise for savers.

The move into share ownership has been driven by ordinary investors, such as former State-owned Enterprise (SOE) employees, students and fledgling business people in the booming "New China".

These investors are unable to invest in property but are unhappy with the returns they are getting on their bank deposits, because rising inflation has brought real deposit rates close to zero. Rising food prices in China have seen CPI creep up to 3.4 per cent in May.

The benchmark one-year deposit rate is now 3.06 per cent, just slightly higher than the 2.9 per cent rise in the consumer price index to May this year.

"What's really happened is a shift out of long-term savings deposits in favour of more liquid short-term deposits," said Jonathan Anderson, chief Asia economist at UBS in Hong Kong.

"The domestic stock market has been booming, with a sharp rally in March and April; [and] households and firms liquidated longer-term deposits to buy equities," said Mr Anderson.

Finance Minister Jin Renqing said the government had decided to look into the issue in the light of a booming economy.

Wednesday 27 June 2007

How to Win the China Piracy Battle

From the inbox:

This is an interesting article from Shaun Rein at Business Week:

How to Win the China Piracy Battle

As Shaun correctly identifies, economics plays a crucial role in the demand for and the supply of pirated goods. Where I would take issue is that even if counterfeiting was removed entirely as of tomorrow it would make only a small dent in the US trade deficit and not as has been written "a long way to reducing the deficit".

The bottom line is that China is still developing and at this stage of development with per capita incomes still so low piracy is inevitable. As China gets richer demand for authentic goods will increase and the problem will solve itself. Meanwhile Western multinational need to take a pragmatic approach and consider their pricing policies. Creating brand loyalty now will pay off in future years. Indeed, the owners of fake Rolex watching will be constantly dreaming of the day they can afford a real one.

A Matter of Economics

First, multinationals should try to stop the piracy by taking a business approach rather than a legal or moral one. They must become less moralistic about intellectual property theft by the Chinese. While they do have the legal high ground, their current posturing does little to stop the pirates or generate revenue from legitimate sales.

The problem is more a matter of economics than of a morally corrupt Chinese populace. As the disposable incomes of Chinese consumers continue to grow, brand loyalty gains currency, and domestic Chinese companies begin to lose revenue to pirates, intellectual property problems will be solved in much the same way as they were in Taiwan and Korea. Smart multinationals will make sure they are in a strong position to reap the benefits in China.

One positive sign is that Chinese are in many ways no different from other consumers. Millions are entering the ranks of the middle class, and they want to look the part of the urban aristocrat. If they cannot afford genuine items they turn to touts on the street hawking fake Louis Vuitton, Tiffany (TIF), Montblanc (CFR.VX), Rolex, and Polo (RL) items. But as Chinese consumers become increasingly sophisticated, the situation is changing. Now consumers can value the difference between a real Giorgio Armani tie and a fake one.

Saturday 23 June 2007

China 2007 vs. NASDAQ 2000 - ZEAL analysis

Interesting post from 22nd June comparing the NASDAQ in the year 2000 and the current Chinese stockmarket.

China 2007 vs. NASDAQ 2000

Whilst there are significant differences in the structure the similarities in the figures makes this a compelling little story.

All stock manias must come to an end as exponential price growth is inherently unsustainable. Eventually the public has bought all the stock it can buy so there are no untapped pools of capital left to bid on stocks. At this point the whole house of cards starts to implode. The SSEC’s behavior in the last month mirrors the NASDAQ’s around its own March 2000 top remarkably well. Caveat emptor.

H/T China thread on ADVFN.

Friday 22 June 2007

Who is really inflating the bubble II: Warning on illegal Shanghai share deals

On the back of a previous post on this blog:

Who is REALLY inflating the "Chinese Stockmarket Bubble"?

comes an article from the Financial Times that sheds a little more light on the subject.

Warning on illegal Shanghai share deals

State-owned companies and government agencies in Shanghai, including those responsible for education and pensions, misappropriated Rmb6.3bn for illegal investment in the stock market over the past three years, according to a senior judge at the city’s highest court.

Qi Qi, deputy director of the Shanghai High People’s Court, said the diversion of funds into equities was the result of weak controls over public spending and could undermine confidence in the stock market.

“This is becoming a major threat to the stability of the market and to investment funds,” he said. “Moreover, the volatility of stocks can cause huge losses for public finances.”

His outspoken comments are the most authoritative confirmation yet that the spectacular boom in the mainland stock market over the past two years is not just the result of funds coming from millions of new individual investors, but also reflects large speculative investments by different branches of the government.

Chinese share prices are up 60 per cent this year, on top of 130 per cent in 2006.

Fraser Howie, co-author of a book on the Chinese stock market, believes undisclosed public investment in equities could be as high as $125bn (€93bn, £63bn) although he says it is impossible to prove the figures.

Economists fear that a substantial stock market fall could lead to calls on the authorities to bail out different government units.

“There has not been any effective mechanism in the country to supervise the operation and management of public funds, and as a matter of fact it is difficult to curb their malpractices,” Mr Qi said. The judge said the figures were based on an analysis of 105 embezzlement cases accepted by Shanghai’s courts between 2003 and 2006. About Rmb4.1bn ($539m, €402m, £271m) of the illegally invested funds had come from 69 different state-owned companies.

The other government units involved included agencies responsible for social security, education, housing maintenance and public utilities. Most are allowed to put some funds into government bonds, but not equities.

Mr Qi’s comments were initially made to a number of Chinese newspapers at a briefing on Tuesday. The court yesterday confirmed his comments and said they were a warning to investors about the potential risks in the market. The Shanghai government did not respond to requests for comment.

The revelations by the court follow a corruption scandal in Shanghai last year where officials were accused of siphoning off part of the city’s pension fund.

Earlier this week the banking regulator said it would fine eight banks for lending Rmb5.1bn to two Chinese state-owned companies, which had illegally used most of the funds to invest in equities. The announcement was seen as a warning to other companies.

Copyright The Financial Times Limited 2007

The problems that a share price collapse could have on other Chinese institutions could have serious knock on effects for political economy.

If, as assumed, the Chinese government will simply step in a bail out these government departments the incentive mechanisms are all wrong. The upside is huge and the downside is limited. The government needs to take action to curb this behaviour even if the result is a fall in share prices in the short term.

Thursday 21 June 2007

Beware the dragon: A booming China spells trouble for America.

I believe it is useful to get a US perspective on China's rapid growth. US-China relations are strained and will continue to be so especially as China continues to secure access to raw materials via links to Africa. The following links from my inbox provide interesting listening and viewing:
The debating society Intelligence Squared U.S. held a session last month on the motion: "Beware the dragon: A booming China spells trouble for America." Bill Gertz, Johm Mearsheimer and Michael Pillsbury spoke for the motion. Daniel Rosen, James McGregor and Stapleton Roy spoke against. James Harding of the Times of London served as moderator. A live audience of about 300 at Asia Society, New York City voted 35% for the motion and 59% against at the conclusion of the debate. Six percent (6%) were undecided.

The audio may be accessed here:

Video may be viewed here:

It is interesting to have a look at the profiles of those for and against the motion:


Bill Gertz is the defense and national security reporter for the Washington Times and the author of several books, including Enemies: How America ’s Foes Steal Our Vital Secrets—and How We Let It Happen and The China Threat: How the People's Republic Targets America. He is also an analyst for Fox News and has been interviewed on many news programs.

John J. Mearsheimer is the R. Wendell Harrison Distinguished Service Professor of Political Science and the co-director of the Program on International Security Policy at the University of Chicago, where he has taught since 1982. Professor Mearsheimer has written extensively about security issues and international politics. He has published three books, including Conventional Deterrence and The Tragedy of Great PowerPolitics.

Michael Pillsbury is a consultant to the Office of the U.S. Secretary of Defense on future planning issues. He has advised the Pentagon for more than three decades on subjects such as Asian affairs and long-term defense planning. He spent several years at the Rand Corporation and the National Defense University . Pillsbury has also served on the faculties of UCLA, USC, and Georgetown University , teaching East Asian politics.


Daniel H. Rosen is the Principal of China Strategic Advisory, a specialized practice helping decision-makers in the public and private sectors analyze and understand commercial, economic and policy trends in China. He is also an Adjunct Associate Professor at Columbia University and a Visiting Fellow with the Institute for International Economics. As Senior Advisor for International Economic Policy at the White House National Economic Council, he played a managing role in China ’s accession to the World Trade Organization.

James McGregor has served as a key advisor to both the U.S. and Chinese governments. A Mandarin speaker, he was the Wall Street Journal's China bureau chief following the 1989 Tiananmen Massacre, the chief executive of Dow Jones' China business operations during much of the 1990s, and a venture-capital investor during China's dotcom boom. McGregor is the author of One Billion Customers: Lessons from the Front Lines of Doing Business in China. He is also a former chairman and governor of the American Chamber of Commerce in China.

J. Stapleton Roy was promoted in 1996 to the rank of career ambassador, the highest rank in the U.S. Foreign Service. Fluent in Chinese and a specialist in Asian affairs, Ambassador Roy rose to become a three-time ambassador, serving in Singapore, the People's Republic of China, and Indonesia. Roy served as Assistant Secretary of State for intelligence and research from 1999 to 2000. He is currently a managing director of Kissinger Associates, Inc.

I must admit to being a little surprised but mildly impressed that the motion failed given the US audience and the recent press coverage of US-China relations. Perhaps there is hope after all.

Environmental Round-up for June

The globalisation and environment blog have a good round-up of China related environmental stories including coverage of the news that China has overtaken the US s the world's largest polluter ahead of expectations.

More researh is required into the so-called pollution haven effect where the west exports its dirty productive capacity to China either explicitly (MNEs actually moving production) or implicitly (China simply replacing Western production due to lower costs).

China the World Leader for CO2 emissions + China round-up

Monday 18 June 2007

Current Account Surpluses and the Global Imbalance: China's Role

A good NBER paper that touches on China's role in the global imbalances between current account surpluses and deficits - a not altogether surprising conclusion about China is highlighted in bold.

"On Current Account Surpluses and the Correction of Global Imbalances"
NBER Working Paper No. W12904

University of California, Los Angeles - Global
Economics and Management (GEM) Area, National
Bureau of Economic Research (NBER)

Full Text:

ABSTRACT: In this paper I analyze the nature of external adjustments in current account surplus countries. I ask whether a realignment of world growth rates - with Japan and Europe growing faster, and the U.S. growing more slowly - is likely to solve the current situation of global imbalances. The main findings may be summarized as follows: (a) There is an important asymmetry between current account deficits and surpluses. (b) Large surpluses exhibit little persistence through time. (c) Large and abrupt reductions in surpluses are a rare phenomenon. (d) A decline in GDP growth, relative to long term trend, of 1 percentage point results in an improvement in the current account balance - higher surplus or lower deficit - of one quarter of a percentage point of GDP. Taken together, these results indicate that a realignment of global growth - with Japan and the Euro Zone growing faster, and the U.S. moderating its growth - would only make a modest contribution towards the resolution of global imbalances. This means that, even if there is a realignment of global growth, the world is likely to need significant exchange rate movements. This analysis also suggests that a reduction in China's (very) large surplus will be needed if global imbalances are to be resolved.

Thursday 14 June 2007

TIME for a new approach to corruption

An interesting take on corruption in China from TIME magazine. It is an argument that appeals to economists - could it link to the value of statistical life literature?

I blogged just the other day on corruption and the death penalty.

The TIME view is that once you introduce the death penalty for corruption the individual may as well be very corrupt and try and get away with enough to flee the country. The comments section is also interesting.
A Different Approach on Corruption
June might not be such a bad month to be a corrupt Chinese official. Sure, there's a new set of regulations coming into effect baring yet more forms of graft, like payroll fraud or buying property at below-market rates. But the Communist Party's anti-corruption branch also issued a 30-day window for violators to confess in return for leniency. Party officials have issued clemency decrees before, but they are fairly rare. The usual approach includes harsh punishments and even death sentences, like the one was handed down in the case of former drug regulator Zheng Xiaoyu.

There are downsides to the strike-hard approach. The threat of a death sentence gives a corrupt cadre motivation to become very corrupt. "Because the punishments are so harsh ... some corrupted official tend be more vicious and more corrupt," says Yang Cheng, a professor at the Macau University of Science and Technology. "If you steal 1.5 million yuan ($200,000 U.S.), that qualifies for the death penalty. Why not go for 15 million ($2 million)? If you manage you can escape to the U.S., Canada or Australia." Developed nations have traditionally been reluctant to extradite corruption suspects to China because of concerns about the unequal application of justice and the use of the death penalty for non-violent crimes. But that is beginning to change. Spain, Portugal and France have signed extradition treaties with China, in part because Beijing agreed to not execute returned fugitives if they were convicted of financial crimes. The U.S. hasn't signed an extradition treaty, though it has returned an embezzler who was sentenced to 12-year prison term. Now that China is cutting back on its overall use of the death penalty and more closely scrutinizing those executions that go ahead, further cooperation on extraditions seems possible. In exchange China may be losing some of its ability to impose the ultimate justice, but that's better than none at all.

Wednesday 13 June 2007

Economic Analysis of China: Recent Research Round-up

As a new feature for this blog I will be posting a round-up of relevant academic papers that may be of interest to readers of "China Economics Blog" either directly or indirectly.

These are all papers I will read eventually but, as much as I would like, time does not permit a review of each paper. The source of these articles should ensure a high quality but this is not guaranteed (although NBER papers and similar are always of an excellent standard).

In some cases access to the article is free and in others there may be a cost. In any urgent cases email me at the address in the sidebar.

"Distributional Effects of Globalization in Developing Countries"
NBER Working Paper No. W12885

Yale University - Department of Economics, National
Bureau of Economic Research (NBER)

Dartmouth College - Department of Economics, Centre
for Economic Policy Research (CEPR), National
Bureau of Economic Research (NBER)

Full Text:

ABSTRACT: We discuss recent empirical research on how
globalization has affected income inequality in developing
countries. We begin with a discussion of conceptual issues
regarding the measurement of globalization and inequality. Next,
we present empirical evidence on the evolution of globalization
and inequality in several developing countries during the 1980s
and 1990s. We then examine the channels through which
globalization may have affected inequality discussing theory and
evidence in parallel. We conclude with directions for future

"China and the Knowledge Economy: Challenges and Opportunities"
World Bank Policy Research Working Paper No. 4223

World Bank

World Bank

Full Text:

ABSTRACT: The rapid pace of economic growth in China has been
unprecedented since the start of economic reforms in late 1970s.
It has delivered higher incomes and made the largest single
contribution to global poverty reduction. Measured by
international poverty lines, from 1978-2004, the absolute poor
population in rural areas has dropped from 250 million to 26.1
million. Such gains are impressive and have been driven largely
by a set of market-oriented institutional reforms, strong
investment, and effective adoption and application of various
knowledge and technologies, especially foreign ones through trade
and foreign direct investment. While enjoying tremendous success,
China also faces many challenges that need to be addressed to
sustain its long-term development. These include weak
institutions, low overall educational attainment, weak indigenous
innovation capacity, poor links between research and development
and industries, and so on. This paper provides an analysis of
some strengths, weaknesses, opportunities, and challenges to
China's knowledge economy in the areas of economic incentives and
institutional regime, human capital, innovation system, and
information infrastructure.

"U.S. Multinational Activity Abroad and U.S. Jobs: Substitutes or

Industrial Relations: A Journal of Economy and Society, Vol.
46, No. 2, pp. 347-365, April 2007

University of California, Berkeley - Department of
Economics, National Bureau of Economic Research

Tufts University - Department of Economics

University of California, Berkeley - Department of
Economics, National Bureau of Economic Research

Full Text:

ABSTRACT: Critics of globalization claim that firms are being
driven by the prospects of cheaper labor and lower labor
standards to shift employment abroad. Yet the evidence, beyond
anecdotes, is slim. This paper reports stylized facts on the
activities of U.S. multinationals at home and abroad for the
years 1977 to 1999. We focus on firms in manufacturing and
services, two sectors that have received extensive media
attention for supposedly exporting jobs. Using firm-level data
collected by the Bureau of Economic Analysis (BEA) in Washington,
D.C., we report correlations between U.S. multinational
employment at home and abroad. Preliminary evidence based on the
operations of these multinationals suggests that the sign of the
correlation depends on the crucial distinction between affiliates
in high-income and low-income countries. For affiliates in
high-income countries there is a positive correlation between
jobs at home and abroad, suggesting that foreign employment of
U.S. multinationals is complementary to domestic employment. For
firms that operate in developing countries, employment has been
cut in the United States, and affiliate employment has increased.
To account for firm size, substitution across firms and entry and
exit, we aggregate our data to the industry level. This exercise
reveals that the observed "complementarity" between U.S. and
foreign jobs has been driven largely by a contraction across all
manufacturing sectors. It also reveals that foreign employment in
developing countries has substituted for U.S. employment in
several highly visible industries, including computers,
electronics, and transportation. The fact that there were U.S.
jobs lost to foreign affiliates in key sectors, despite broad
complementarity in hiring and firing decisions between U.S.
parents and their affiliates, helps explain why economists view
the impact of globalization on U.S. jobs as benign despite
negative news coverage for declining industries.

"The Overvaluation of Renminbi Undervaluation"
NBER Working Paper No. W12850

University of California, Santa Cruz - Department
of Economics, CESifo (Center for Economic Studies
and Ifo Institute for Economic Research)

University of Wisconsin, Madison - Robert M. La
Follette School of Public Affairs and Department of
Economics, National Bureau of Economic Research

University of Tsukuba - Graduate School of Systems
and Information Engineering

Full Text:

ABSTRACT: We evaluate whether the Renminbi (RMB) is misaligned,
relying upon conventional statistical methods of inference. A
framework built around the relationship between relative price
and relative output levels is used. We find that, once sampling
uncertainty and serial correlation are accounted for, there is
little statistical evidence that the RMB is undervalued. The
result is robust to various choices of country samples and sample
periods, as well as to the inclusion of control variables.

"Gains and Losses of India-China Trade Cooperation ? A Gravity
Model Impact Analysis"

CESifo Working Paper Series No. 1970

National Graduate Institute for Policy Studies

Asian Development Bank, CESifo (Center for Economic
Studies and Ifo Institute for Economic Research)

Full Text:

ABSTRACT: As revealed by the trade intensity indices, India and
the People's Republic of China have significant bilateral trade
potential, which has remained unexplored until now. These
countries are presently negotiating for bilateral free-trade
arrangements based on their complementarities. This paper makes
an attempt to estimate the likely benefits in terms of gains or
losses in imports of both India and China due to different
preferential trading arrangements and free-trade arrangements
using the gravity model. Empirical results show that in the short
run India's potential gain is relatively lower compared to
China's because of its high tariffs but in the long run, India's
gains are higher than China's once its tariff levels are brought
at par with them. Free-trade arrangement is a win-win situation
for both countries and is consistent with their growing dominance
in international trade.

"State-Owned Enterprise Behaviour Responses to Trade Reforms:
Some Analytics and Numerical Simulation Results Using Chinese

NBER Working Paper No. W12780

University of Western Ontario - Department of
Economics, National Bureau of Economic Research
(NBER), CESifo (Center for Economic Studies and Ifo
Institute for Economic Research), Centre for
International Governance and Innovation (CIGI)

Xiamen University - School of Economics

Full Text:

ABSTRACT: We note the absence of prior literature on analytical
structures to be used for China and other economies with
extensive SOEs when evaluating behavioural responses of SOEs to
trade policy and other changes. This is despite both the large
empirical literature discussing the productivity effects of
Chinese SOE enterprise reform, and wider policy discussion of the
potential impacts of various reform initiatives. We present two
simple analytical formulations of SOE behaviour in response to
trade policy change with the aim of investigating how traditional
competitive models of enterprise behaviour can mislead when used
in policy debate. One formulation centres on SOE managerial
control. In this enterprise managers are politically appointed,
expect any non performing loans to be recapitalized by state
banks andhence capital is centrally allocated by credit
rationing. The managers are assured to maximize the size of the
enterprise rather than profits since this yields maximal
networking benefits to managers. This implies labour is priced at
its average rather than its marginal product, and with a
competitive non-manufacturing (agricultural) industry free trade
is not optimal policy. The other assumes worker control of SOEs
and that workers satisfice in their supply of effort to the
enterprise given both fixed wage rates and enterprise employment
and otherwise shirk or pursue second jobs. In this formulation
the enterprise meets their budget constraint and covers costs.
With leisure in the preferences of enterprise members, their
leisure consumption will be implied by the satisfying behaviour
of the enterprise and will be non optimal. In both model
variants, implications for trade policy are different from those
of a standard competitive model, and computations using models
calibrated to 2003 Chinese data suggest the differences can be

Ten Reasons Why You Should Study in Britain

As part of the Education series it is becoming increasingly clear that the global competition for overseas students in intensifying. Universities in the UK are competing with the US, Australia and increasingly with the rest of Europe (Germany, France, Italy, Sweden etc) who are developing their English language taught courses especially in Business, MBAs and Economics.

A future post will compare the relative costs across the world to see where the "value for money" really lies.

In this post I merely present the 10 reasons for studying in Britain from VisitUK.

Whilst (8), (9) and (10) could be written about pretty much any country the other reasons appear to hold up.

Ten reasons to study at a British university

Anyone opting for an education overseas is making one of the most important decisions in their life. Not just for the impact it has on your career prospects and long-term future, but also for the opportunities it gives you to experience new cultures, new customs and new ideas firsthand. So what does the UK have to offer international students?

1) Recognised and respected qualifications

UK undergraduate qualifications are respected and valued all over the world. They’ll give you an edge when you're competing for a job, proving to employers that you're capable of independent thought, research and self-discipline.

2) Value for Money

UK undergraduate study offers fantastic value for money and the sort of experience you can't put a price on: fantastic libraries, state-of-the art laboratories, ultramodern computer facilities and extensive research resources that will blow you and your future employers away.

3) Improve your English

Practise your English language skills every day, in shops and cafés and while you're out with English-speaking friends, as well as in seminars and discussion groups on your course. Many UK universities also offer in-session language support.

4) Flexibility

The wide range of undergraduate courses on offer gives you a huge amount of flexibility. Enrol on a bachelor's degree, or start by taking a 2-year HND or foundation degree. Study a single honours degree or more than one subjects in a joint or combined honours degree. It's entirely up to you!

5) Improve your job prospects

UK undergraduate qualifications let employers know at a glance that you've got the skills they're looking for, putting you on the right track for a great job and a great salary: a year after graduating, less than five per cent of UK undergraduates are unemployed.

6) It's a multicultural experience

At a UK university you'll be mixing with people from all over the world, whose different backgrounds and new perspectives will add to your experience. Of the 405,000 students who entered UK higher education in 2005, more than 10 per cent were international.

7) Learn outside the classroom

Cultural events and festivals run all year round, there are world-class museums, attractions, art galleries and exhibitions and hundreds of castles, palaces and historical properties to enrich your experience and support your studies.

8) Travel

Want to make the most of your time in Britain? Well then get out there and see some of it! With a Young Person’s Rail card or a BritXplorer pass, exploring the four diverse countries of Britain is cheaper and easier than you might imagine. See our Budget Travellers pages for more information.

9) The Outdoors

Britain boasts 14 National Parks, 49 Areas of Outstanding Natural Beauty, and enough beautiful forests, beaches and mountains to satisfy any nature enthusiast. Cycle or walk from one side of Britain to the other on the Coast to Coast path or try extreme sports like white-water rafting, rock-climbing and hang-gliding. See our Outdoor Britain pages for more information.

10) Make the most of your time

Here are just a few other ideas: Visit a film location; go to a summer music festival; experience a unique UK event like cheese rolling; have a pint in a quiet country pub in the Cotswolds; run the London Marathon; visit an historic palace; go to a national park; surf in Cornwall…Whatever you do, enjoy!

The following posts may be of interest:
Econphd Ranking of "Economics departments"

Studying "Economics in the UK": General Links

Which UK University to study in? "Academic Ranking of World Universities"

Studying in the UK: Cost of Accomodation

World University Rankings: Rankings and text

"UK University Ranking": large city effect

Tuesday 12 June 2007

Pork gets the Chop as Prices Rise

The price of Pork in China is soring - what are the implications and ramifications?

The Pork story is a fantastic illustration of just how Chinese economy is set up to cope with the vagaries of capitalism. Terms such as "strategic reserve" show how the old system works and then the fact that many pig farms shut down because of low prices when previously they would have remained open.

Consumers are also having to adapt to rapidly changing prices. What the Chinese are learning quickly is that capitalism has it's down side. A stockmarket crash will ram this home more forcefully when and not if the bubble bursts.

Rising pork prices in China signal pricier times worldwide
The Chinese government is struggling to cope - including deliberating whether to sell a snuffling, smelly strategic reserve of hundreds of thousands of live pigs kept at special subsidized farms for precisely the shortage the country is now facing.

Chinese officials offer several reasons for the high pig prices. The cost of animal feed has risen by one-quarter in the last year, partly because more corn is being made into ethanol and partly because more prosperous workers are eating more meat.

The cost of pig veterinary medicine has soared. Some pig farms, shut down because of low prices last year, were unprepared for strong demand this spring. And outbreaks of disease have killed many pigs, though no reliable estimates of how many are available.

The most recent statistics from the Agriculture Ministry show that prices for live pigs rose 71.3 percent in April from March, while pork prices climbed 29.3 percent. The price of pork followed pig prices higher in May as well, to the dismay of shoppers.


The Commerce Ministry keeps a national reserve of frozen pork and live pigs, and local governments keep their own reserves as well, constantly selling older supplies and procuring fresh stock. Government agencies pay a pig subsidy to farmers to keep their animals in the program.

Then there is the knock on effect on inflation:
China's inflation rate hits 27-month high in May
China's inflation in May hit the highest level in 27 months on rising pork and food stuff prices, raising the pressure on the central bank to raise interest rates.

The Consumer Price Index (CPI), a barometer of inflation, rose 3.4 percent compared with the same period of last year, the National Bureau of Statistics said Tuesday, beating the three percent target set by the People's Bank of China for this year.

Other stories:

Pork price rises fuel China inflation fear [Financial Times 28th May]
A disease killing millions of pigs in China has sharply lifted the price of pork, the country’s staple meat, fuelling fears about inflation and prompting a call from the top leadership for increased production of the meat.

Wen Jiabao, premier, provided confirmation of the seriousness of the crisis with a weekend visit to a market in Shaanxi province, where he said farmers should help “resolve the problem” of providing meat for 1.3bn people.

Pork prices have risen by as much as 30 per cent in Chinese cities over the last week. According to the agriculture ministry, wholesale prices for pigs have gone up even more, rising 71.3 per cent since April.

Pig disease sweeps 22 provinces [China Daily 12th June 2007].
The highly pathogenic blue-ear disease hit 22 provinces during the first five months of this year, killing 18,597 pigs, the country's chief veterinarian said yesterday.

Also known as Porcine Reproductive and Respiratory Syndrome (PRRS), the disease was found in 45,858 pigs, leading to the culling of 5,778, said Jia Youling, director of the veterinary bureau affiliated to the Ministry of Agriculture.

"The Economist" on Corruption and the Death Penalty in China

This is a quick link post to provide links to stories from the Economist on Corruption and the death penalty in China. I hope to write longer posts on this topic in the future.

These articles make interesting reading:

A long death row
NO ONE disputes that China is a rising great power thanks to its tremendous economic growth. But an announcement Tuesday May 29th cast several clouds over China’s reputation. The government says it will execute Zheng Xiaoyu, the former head of its food and drug regulator, for corruption. The news represents a remarkable confluence of bad press for China: that high-level corruption is rampant, that its products have killed people and animals around the world, and that the country advertising its “peaceful rise” is a harsh, execution-happy dictatorship.

A mixed picture
China executes more people than all other countries combined: unofficially, as many as 8,000, according to Amnesty International, a human-rights group. While the annual estimated number of executions fluctuates (1,591 in 2006—some 40% higher than in 2003), Amnesty notes that there is a global shift away from the death penalty. The total number of countries carrying out executions has fallen from 40 to 25 in a decade, and 129 countries are abolitionist in practice. America is one of only five democracies still to use the death penalty.

Sinfully rich
FOR all its avowed atheism, China is quite taken with the Christian idea of original sin. The term has become a fashionable one in the state-controlled media, though used almost exclusively in reference to one group of people: wealthy private entrepreneurs. As more prominent businessmen in China fall foul of the law, a debate is raging about whether any of them acquired their wealth entirely legally.

Monday 11 June 2007

Top Chinese Commercial Cities

Taken from PanAsianBiz this figure provides useful information on the top 25 largest commercial cities.

The main reason for this post is that I am doing some work in this area and this map is a very handy reference that I can refer back to.

Top 25 Commercial Cities in China
Bill Belew May 22, 2007
Know More: All about China China, Commercial Cities, Economy

According to Forbes Inc. the top 25 Commercial Cities in China are:
Shanghai Guangzhou Ningbo Hangzhou Yantai
Jinhua Beijing Jinan Dongguan Shenzhen Wuxi Tianjin Fuzhou Yueyang Dalian
Nanjing Wuhan Qingdao Chengdou Wenzhou
Suzhou Zhanjiang Wulumuqi Weihai Xiamen

Trade Growth - beats economist's forcasts

This is impressive growth by any standard...


June 11 (Bloomberg) -- China's trade surplus rose a bigger- than-estimated 73 percent in May from a year earlier, increasing pressure on the government to allow faster currency gains.

The gap widened to $22.45 billion, the customs bureau said on its Web site. The median estimate of 18 economists surveyed by Bloomberg News was for a $19.5 billion surplus. For the first five months, the surplus grew 84 percent to $85.72 billion.

Surging exports spurred economic growth of 11.1 percent in the first quarter and drove foreign-exchange reserves to a record $1.2 trillion.

Sunday 10 June 2007

Overseas Education and Job Prospects in China

This blog continues to assess the economics of Chinese students undertaking an overseas education. The merits of taking postgraduate education abroad are numerous including language skill and receiving a top quality education.

However, the number of applicants from China to UK Universities for example has been falling in the last few years by between 10 and 20% a year by my rough estimates.

One reason that I have always suspected is the state of the domestic job market relative to the high costs of studying in the US or UK. With more and more overseas graduates with PhDs, MBAs and MSCs and increasing competition from domestic graduates, starting salaries are often not reaching expectations and are certainly not sufficient to pay of the large debts accrued during their study period.

Some of the quotes from the article below are worrying - if the UK wants to continue to attract the best Chinese students they must ensure that they are offering a quality product that allows the student to differentiate themselves from the domestic graduate.

My last post on this issue was a couple of days ago:
High Education Costs, Low Executive Pay

The latest article on this topic comes from H/T: PanAsianBiz.

Overseas PhD Students Upset at Salary Offers

Some job hunters who attended the first special job fair for Chinese overseas students in Beijing on Sunday were disappointed to learn salaries offered were much less than they expected.

The Beijing Morning Post reported that more than 40 reputed enterprises and public institutions, such as Beijing Organizing Committee for the Games of the XXIX Olympiad (BOCOG), Chinese Academy of Social Sciences, Peking University and Chinese computer giant Lenovo joined in the job fair looking for qualified talents.

The fair attracted more than 2,000 job hunters holding advanced academic degrees issued by overseas universities and colleges.

However, although they held master or PhD degrees, the job hunters found many of employers only offered month salaries as low as 3,000-yuan (about 375 US dollars), almost equivalent to those offered for bachelors who graduated from a domestic university.

After nearly one-hour's search, Yu Yang, who got a MBA degree from a British university, said it was hard to find a satisfying job.

"I expect a monthly salary of around 8,000 yuan (some 1,000 US dollars). But what the employers offer is much lower than that," Yu Yang said. "It is imbalanced compared to the cost I spent studying abroad for two years - a sum about 500,000 yuan or above 64,000 US dollars."

A recruiting official from Beijing University of Posts and Telecommunications said the institution is inclined to recruit degree holders who have returned from overseas because they "usually possess an international view".

"However, we offer the same benefit package to employees in the same posts, no matter if they studied at home or abroad," the official said.
"The salary offered for some candidates with doctorate degrees is about 3,000 yuan per month."

Degree holders who return from abroad are increasing, said another employer.

"They do not have many advantages now," the employer said. "We will not favor a candidate just because he or she returns from abroad. We attach more importance to their capacities and work experience."

Friday 8 June 2007

"China bubble" - the political dangers ahead

The Chinese stock market bubble has slowly re-inflated itself after last week's share sell off. The Chinese government is in a quandary. If it lets the bubble inflate further the eventual crash will be severe. If it acts now it will get the blame for investors losses.

The true economic costs may be limited. However, the political ramifications may be far greater. My bold highlights.

Today's FT has an excellent article on this topic. We have previously covered a lot of the points raised here regarding the hundreds of thousands of small investors etc. The key here is to think "politics" (see the Stock market tab in the sidebar for previous posts).

I like this quote from the article:
"Only the government knows how the stock market will develop next. The government decides everything. We are helpless, helpless."

As stocks falter, Beijing mulls the chances of an investor backlash
The remarkable rise of China's stock market in recent months has left the government mulling two bad alternatives: let the market surge too high and the subsequent crash would be ferocious; but act too aggressively to cool it down and the authorities would be blamed for the losses.

With the Shanghai exchange again showing signs of fragility since the government increased the tax on share trading last week, there are many reminders that if the market turns sour, investors will consider it the government's fault.

Three years ago, when discontent was spreading among ordinary investors after a prolonged slump, one man set himself on fire outside the regulator's Beijing headquarters, while the manager of a beauty products company in southern China called in two bomb threats to the same building.

These stories are an indication that although the Chinese economy could easily emerge unscathed from a further plunge in the stock market, the political consequences are potentially much larger.

"In the case of a severe correction, this could lead to social instability," said Dong Tao, an economist at Credit Suisse. Some observers have even pointed out that market crashes in other developing economies - especially in post-Communist countries - have ended up undermining a whole generation of economic reformers.

The new bout of turbulence in Shanghai has brought to an end one of the more remarkable episodes in the history of stock markets. In an atmosphere that sometimes resembled a gold-rush, several hundred thousand new share trading accounts were being opened every day in April and May. Share prices became a staple of daily conversation, not just for urban professionals but also for domestic cleaners, janitors and sweet-potato sellers on street corners.

The influx of these new investors helped push share prices to record highs, a fourfold increase from the middle of 2005, and spawned myriad tales of (almost) overnight millionaires.

The popular frenzy over share trading led the government to intervene last week, trebling the tax on share trading. Just over a week later, the authorities are likely to be comfortable with the situation. After a 3 per cent jump yesterday, share prices have now fallen 10 per cent from their high last week since the stock tax was increased and trading volumes are considerably lower, indicating that some of the frenzied speculation of the last two months has disappeared.

However, further sharp declines cannot be ruled out. "If it falls 30 per cent, that would be the moment that warning bells would go off in Beijing," says Stephen Green, an economist at Standard Chartered in Shanghai.

The potential political problems from a 30 per cent drop in the market have been amplified by the scale of the current boom. At the height of the last bull market in 2000-2001, there were around 60m trading accounts. Now there are more than 100m.

A 30 per cent drop would bring the market down to around 3,000 points, a level it last saw on March 19. Since then, more than 17m new trading accounts have been opened, many of which would be showing losses.

The new investors range across all age groups. Brokerage houses in big cities are full of pensioners who treat playing the market as a new career, while so many students have been trading stocks that the education ministry put out a warning telling them to concentrate on their studies.

With the Communist party holding an important congress in the autumn to discuss top leadership positions and the Olympics next year, Beijing will not want to galvanise the middle class against the status quo.

As well as the potential for discontent from middle-class investors, a sharper fall in the market would also damage the government's plans for financial reform. Over the last two years, Wen Jiabao, the prime minister, has made one of his priorities the creation of a strong capital market in order to take pressure off the banks, promote more stable economic growth and to provide a platform for the development of pension assets.

One part of that strategy was to encourage citizens to put some of their bank deposits into equities and bonds. However, if the new retail investors end up with heavy losses, it could push back reform several years.

In recent days, it has not been hard to find disgruntled small investors who say they have been put off investing. Internet chatrooms have been full of outrage at the tax rise. "The only thing I have to say is that China is not a market economy," said a man with the surname Wu as he came out of a Shanghai brokerage earlier this week. "Only the government knows how the stock market will develop next. The government decides everything. We are helpless, helpless."

There could also be pressure on the government to bail out various parts of the public sector. While the small investors have been grabbing all the attention, some analysts believe there have been much bigger investments by state-owned companies, local governments, the police and the army.

Most of these investments are hidden - one of the few public examples is the Shanghai agency responsible for housing maintenance, which appears on the list of 10 largest shareholders for three listed companies. But Fraser Howie, co-author of a book on the Chinese stock market, argues that the investments by these government bodies could account for half of the traded shares.

Yet even though the authorities could face an uncomfortable backlash from some investors if there is another sharp drop in share prices, few China-watchers believe that the stock market has the ability seriously to undermine the government and generate broader political instability.

For a start, the number of small investors is probably much lower than implied by the figures for trading accounts. Many investors open two accounts - one at the Shanghai exchange, the other at the Shenzhen exchange. Moreover, a large proportion of the accounts are dormant. The number of people actively trading in shares could be as low as 10-20m.

Moreover, while there are cases of people pawning their houses to buy shares, the Chinese middle class has substantial savings to fall back on in the event of a stock market meltdown. Personal bank deposits in China are currently worth around $2,000bn (£1,010bn, €1,490bn).

"We are highly sceptical about the idea of a serious middle-class political backlash in the current environment," says Andrew Gilholm at Control Risks, the London-based consultancy. "The middle class consists of people whose lives have improved very significantly under the Communist party reforms. They are winning, so why rock the boat now?"

Wang Yuanqing, who spends his days investing at a Shanghai brokerage and giving advice to other small investors, is relaxed about the recent setback and takes a long-term view of the market. "After the rise over the last two years, I personally think the latest adjustment is very reasonable," he says. "The majority of investors have still made money."

Copyright The Financial Times Limited 2007

Thursday 7 June 2007

Climate Change Spotlights: Conservation International highlights China

Today saw the release by Conservation International of a list of 20 locations to highlight the impact of climate change.
"These 20 locations are a selection of examples, drawn from the expert opinion of our top climate change scientists, that illustrate the various impacts climate change is already having on life, both wild and human, across the planet."

Included are the regions you would expect, the Arctic, the Amazon, the Congo etc.

One of those locations highlighted is "China" with the following accompanying photograph and text. The bold type is mine.

I have posted before under the "environment" tab in the sidebar on the potential economic impact of climate change and pollution on Chinese growth. It is not something to be underestimated. My belief is that the Chinese government is well aware of this fact but faces a difficult balancing act between growth, poverty alleviation and limiting greenhouse gas emissions and other pollutants.

This article paints a rather bleak picture.

Just several years ago climate experts estimated China would surpass the United States as the world’s largest emitter of greenhouse gases by 2025. Now the experts say this will occur by 2008. A new coal plant is built every week, and some 14,000 cars are added daily to already-congested urban roads. China has 16 of the 20 most polluted cities in the world and more than a million Chinese die from respiratory diseases each year.

The haze also compromises economic security by blocking sunlight and impeding crop growth. Scientists believe severe floods in southern China and extreme drought in northern China may be a result of black carbon soot released from burning crop residues and coal-burning operations. Drought has desiccated 267,000 square kilometers of agricultural land, and desertification afflicts some 3 million square kilometers of mainly grasslands, with winds whipping sandstorms that travel all the way to North America.

At the same time, portions of this landscape are considered the most botanically rich temperate region in the world. Even though the species richness is not fully documented, diversity of vascular plants is estimated at around 12,000 species, representing as much as 40 percent of all the species in China. Of these, about 30 percent are endemic. The mountains of Southwest China also provide habitat for golden monkeys (Rhinopithecus roxellana), giant pandas (Ailuropoda melanoleuca), and a number of pheasants – all are threatened species found nowhere else on Earth.

Illegal hunting, overgrazing, and firewood collection are some of the primary threats to biodiversity in this region. The construction of the largest dam in history – the 18,000-Megawatt Three Gorges Dam on the Yangtze River – has already and will continue to heavily threaten the biodiversity of this region. China has additional plans to construct the equivalent of a Three Gorges Dam every 16 months over the next decade or so. The Yangtze is also home to the baiji or Chinese river dolphin (Lipotes vexillifer) – one of the most threatened dolphin species in the world – which is now on the verge of being lost forever.

China’s massive population of 1.3 billion people has exacerbated pressures on the environment and has also made more people vulnerable to the effects of climate change. Scientists project that sea levels will increase dramatically – anywhere from one to six meters – in this century. This will no doubt put coastal cities, agriculture, livelihoods, and infrastructure at great risk. China is among 10 countries with the largest number of people threatened by rising sea levels.

The more Earth’s climate changes, the worse China’s water crisis becomes. Western China’s glaciers have shrunk by one-fifth, threatening the water supply for a quarter of a billion people. The country is already plagued by a severe water shortage brought on by inefficient irrigation systems, where nearly two-thirds of water fails to reach crops. The shortage is exacerbated by severe water pollution; more than 70 percent of the country’s untreated wastewater is discharged directly into rivers.

Wednesday 6 June 2007

High Education Costs, Low Executive Pay

Numerous blog posts have discussed the costs incurred by overseas and Chinese students of studying for a degree in the US or UK. Overseas education is expensive but if I land a high paying job then it is worth the initial investment.

A similar cost-benefit analysis applies to Western Executives paying large sums to take MBAs at the top European and US Universities.

This recent article on C/Net is another reason that Chinese student numbers are falling in the face of continued and rapid growth. On one level, the large increase in the Chinese middle class should result if more students coming to the UK and US. However, the existing large numbers of overseas and local graduates are keeping pay low and making it harder to justify the initial expense.

The fault of the argument below is to assume all executives are the same. Whilst technology can be backward engineered and copied Executive skills are one thing that will take much longer to understand and copy. That is not to say that the Chinese will not learn quickly. Do not expect a fall in US executive pay any time soon.

Moreover, once living costs are taken into account are US executives really on that much more?

My bold highlighting.

China's new weapon: Low executive pay
Excessive executive pay has been a hot-button issue in American politics for years, but worldwide factors could one day make it a liability on the balance sheet.

As companies in countries like China and India move away from performing behind-the-scenes functions, they're selling products and services under their own brand names directly against U.S. and European counterparts.

Since high-level executives and other white collar professionals in Asian companies typically make less than their Western equivalents, these companies potentially will have a cost advantage.

How or even whether the differences in executive salary will impact the market remains unclear: multinational companies are hiring their own executives in these regions, too, after all. Nonetheless, the numbers are tough to ignore: engineers aren't the only "talent" that costs less in developing markets. Executives cost a lot less, too.

Shanghai's SunTech Holdings, for instance, has moved from being a bit player in solar panels to becoming one of the largest manufacturers in the world. Most of the company's panels end up overseas, and it can produce those panels more cheaply than American competitors for various reasons. Among them: the company isn't lavishing huge compensation packages on its executives.

"There aren't 10 executives in the company that make more than $200,000," said Steve Chan, vice president of business development at SunTech Power Holdings.

U.S. execs make far more. In a survey conducted by Forbes last year, the magazine found that the average big company CEO made $3.3 million in salary and bonuses.

It trickles down from there. Chinese engineers make about one-third to one-half the salary of their U.S. counterparts, said one executive who runs Asian operations for a U.S. high tech firm. Marketing execs can make about half as much as their stateside colleagues.

"If you have one (marketing manager) that makes about $100,000 in the U.S, you can hire one here for $50,000," he said.

Professional services firms also pay less than U.S. counterparts, said Ted Dean, managing director of BDA, an analyst firm specializing in Asian markets. New college graduates hired by services firms might make $400 to $500 a month, or $4,800 to $6,000 annually. A well-regarded person with years of experience might make $30,000 to $50,000 annually. In the U.S., the same person can graze around the $100,000 mark.

While executive compensation can be absorbed somewhat in manufacturing companies, it can be pronounced in purely white-collar service operations. Panorama Media Holdings, based in Beijing, sells high-resolution photos to advertising agencies, similar to Getty Images and Corbis.

Panorama, though, can sell its products for an eighth the price, according to Wayne Shiong, a partner in venture firm WI Harper, an investor in Panorama. Wherever Getty charges $50,000 for services, Panorama can charge 50,000 RMB (China Yuan Renminbi), or about $6,600.

Panorama primarily sells its photos to Asian advertising agencies. Shiong, though, said that the multinational photo outfits have not reacted to lower their prices for the local market. Additionally, Panorama is contemplating taking out office space in New York to test out the international opportunities.

The Spartan start-up
The pay discrepancy starts during the start-up phase. Founding CEOs of some Chinese start-ups deliberately take low wages to keep costs down, according to Shiong and others. The CEO at a company that's just finished a Series A round of funding might pay himself 500,000 RMB a year, or about $67,000.

Documents filed by Chinese companies with the Securities and Exchange Commission back this up. Focus Media Holding, which specializes in outdoor advertising kiosks, paid $100,000 to its two executive officers in 2004 combined. In 2005, the year the company went public on Nasdaq, Focus had 13 executives and directors and the total pay for all of them for the year was $512,947.

In 2005, the company's four executives and directors pulled in $100,000 combined. The four executives and directors of Trina Solar Limited pulled in $128,039 in 2005. None had severance packages, the filing states.

Compare that to a pre-public U.S. company. DivX, which makes media software, paid its top five execs about $1 million in 2005, the year before it went public. Shutterfly paid its top five people $1.1 million the year before an IPO--only one made under $210,000.

Chinese executives make their wealth in stock options, which U.S. execs get, too. Suntech founder Shi Zhengrong is considered one of the richest individuals in China, with a net worth exceeding $2 billion, according to various studies. Focus awarded 22.5 million in options to executives and employees in 2005. Salaries also rise after an IPO, but generally not to U.S. levels. One reason, of course, is that the cost of living is lower. Someone making $50,000 in China will likely be able to retain a driver and other household help. That's not enough to rent a decent one-bedroom apartment in many American cities.

Conversely, to expand internationally, Chinese companies have to hire U.S. and European executives, who will command U.S. salaries. Suntech's Chan said that will be an issue for his company. In the first few years of the company's growth, the salespeople came out of China. Expanding internationally will also take quite some time.

Victor Canto, chairman of La Jolla Economics, added that many executives in Asian companies will also leap to U.S. competitors to get salary raises. "That will decrease the disparity," he said.

Still, in the end, multinationals of course have some of their higher-level people in more expensive countries, so a discrepancy should be expected.

"Foreign vendors might be able to achieve comparable manufacturing costs, but they still will have a huge R&D lab in Finland," said BDA's Dean.

Tuesday 5 June 2007

Chinese Stock Market Bubble Deflates a Little

There have been numerous posts on the "Chinese Bubble" on this blog such as:
China's Stock market - "how does it work"?
Who is REALLY inflating the "Chinese Stock market Bubble"?
"Bursting Chinese Bubble" - a contagion effect?

The first of these even includes my predictions of what would happen for all to judge.

The last week or so and seen the first signs that investors are beginning to hit the panic button or as we call it in the west the "puke point". This is when markets have fallen to such an extent that fear really takes over.

Remember though, the stock market could fall over 60% and still be around the same level it was a year ago.

The third post above argues why there will be NO or very little contagion effect. So far, so good.

However, we should look at what has happened recently. For one, the introduction of stamp duty (which was tripled last Tuesday) was a wake up call and a trigger.

The stock market fell 8.3% yesterday with the cumulative losses amounting to $40bn since the stamp duty affair.
The first signs of panic selling in China began last Wednesday after the government trebled the stamp duty on share trading. The market has now fallen 15 per cent from its high last Tuesday to close at 3,670 points yesterday.
[FT leader]
So will the current fall lead to a full scale "pop". There are argument both ways. Yesterday many stocks did fall by their full daily limit suggesting further falls to come.

However, we now need to consider the political fallout from a crash.

Many stock market bulls would argue that the Chinese government will not let the market crash and will buy up stock using its vast reserves. This would effectively put in place an artificial floor to the market.
The government has a history of market interference owing to its concerns that share price volatility could lead to social unrest involving angry investors.

The country's three official securities newspapers carried editorials yesterday arguing that the market trend was positive and the tax increase was aimed only at speculative investors.

The government's propaganda officials routinely order the media to run articles and reports that support policy initiatives.

China also has excessive liquidity - the money must go somewhere.

The Chinese economy is still growing strongly and is on a relatively sound footing.

Still, stocks are overvalued and a correction is likely. However, I suspect we will see another upturn before the really big one.

The final point relates to post 2 above - who really owns Chinese stocks - more digging is required here.

Some references:

China correction [LEX FT]

Attempts to reassure investors fail to halt slide in China's shares [FT front page]

Monday 4 June 2007

Econphd Ranking of "Economics departments"

As part of a series of posts looking at UK and worldwide rankings of Economics departments for those considering postgraduate study (MSc Economics) comes a series of rankings not previously considered on this blog from

There are 3 categories:

1. Network.
2. Average Productivity.
3. An overall ranking.

Methodology for construction.

Unique among rankings, econphd have also disaggregated by sub-discipline so there are rankings for "trade and development", "econometrics", "macroeconomics" etc.

Given the UK nature of this blog I list just those Universities in the top 200 of the overall ranking.

Note the correlation between ranking and the list of MSc courses in the sidebar. Again, quality of institution matters.

12 London School of Economics (LSE)
31 Oxford U
34 Warwick U
39 U Cambridge
47 University College London
48 U Essex
65 U York
68 U Nottingham
91 Queen Mary & Westfield College
96 U Southampton
105 London Business School
108 Birkbeck College
110 U Bristol
112 U Manchester
113 U Leicester
144 U Edinburgh
149 U Glasgow
153 Royal Holloway College
159 U Wales - Cardiff
164 Imperial College
165 U Exeter
166 U Birmingham
167 U East Anglia

No real surprises here. I would expect UK Universities to do better in the future given the additional spending on education and the fact that UK academic salaries are getting significantly closer to those paid in the US and far better than a lot of Europe.

The following posts may be of interest:
Studying "Economics in the UK": General Links

Which UK University to study in? "Academic Ranking of World Universities"

Studying in the UK: Cost of Accomodation

World University Rankings: Rankings and text

"UK University Ranking": large city effect

China: Coming to Grips with the New Global Player

Lead article in World Economy (an academic economics journal that does tend to publish accessible articles). Requires subscription for full PDF or ask a friendly academic.

China: Coming to Grips with the New Global Player

* Horst Siebert 11Kiel Institute for the World Economy, Germany, and SAIS Bologna Centre, Johns Hopkins University, Italy


This paper analyses China's economic performance in the last 25 years and discusses its prospect for growth in the future. Exports and investment have been the two driving forces for the high annual GDP growth rates. FDI plays an important role. However, structural issues such as the loss-making state-owned firms and the fragile banking industry have to be solved. Monetary policy is complicated by the accumulation of reserves which, however, provide an insurance for the fragile banking system. Property rights, a crucial element in transforming a communist society, are far from being clearly developed. Major policy issues in the future include the correction of the distorted growth process and of the institutional deficits, especially with respect to the rule of law and the lack of democracy.

Coal and Corruption

As part of our "corruption watch" we read in today's China government's offical website that:

China punishes over 5,000 officials for illegal coal mine participation

There are a number of interesting numbers that have been thrown into this small article that I must say I was unaware of. In the UK any coal mines that are left are operated on a massive scale. If it difficult to conceive that coal mines can just be set up illegally without anyone knowing but for China to have 100,000 illegal mine cases is astonishing.

The other figure that is of course a cause for concern in the 17 deaths per DAY in Chinese coal mines. This may be less surprising when read with the number of illegal mines in operation.

Linking to the previous article the environmental implications of such activity are also entirely negative.

More than 5,000 Chinese civil servants participating in coal mine operation have received punishment in almost 100,000 illegal mining cases since 2005, according to statistics released by the Ministry of Land and Resources (MLR).

By the end of 2006, China has investigated 89,926 cases of mining with no licenses, 1,907 cases involving illegal trading of prospecting and mining rights, and 5,795 cases of mining beyond boundary lines, said Jia Qihai, a senior official in charge of mining resources development in MLR.

A total of 2,154 people received penal treatment for illegal coal mining, he said.

However, the MLR official specified neither where or what ministries these civil servants come from nor the kinds of punishment they took.

China has been cracking down on illegal mining since the State Council, the country's cabinet, demanded an overall straighten-out campaign in August 2005.

"Generally speaking, the number of cases of illegal mining are declining sharply and mine resources are exploited in a more orderly manner," said Jia, who also called for more related efforts to address this issue.

"Officials in some regions still haven't realized the graveness of the situation and supervision and institutional construction remains weak," he said.

Coal mine accidents killed 4,746 people in China in 2006. On average, 17 miners lose their lives everyday in Chinese coal mines, which are the world's deadliest.

On May 10, the State Administration of Work Safety announced punishment on 133 people held responsible for five serious accidents that claimed 249 lives. Four of the five accidents occurred in coal mines.

The largest single accident was a mine blast in Hebei Province on Dec. 7, 2005, which killed 108 people.

China's First Climate Change Action Plan

China today launched it's first Climate Change Action Plan. It is interesting to note that "economics" take precedent for entirely justafiable reasons.

The West will need to redouble their own efforts to cut emissions to offset Chinese growth in emissions.

The Chinese government is perfectly aware that many of the cost of climate change will fall on China itself. However, as with any developing country, growth, poverty reduction and political stability take priority.

Whilst China should be included in any multilateral discussions of emission reductions the West would be wise to allow China the leyway it requires.

China's First Plan on Climate Change: Poverty first

China puts economy before climate [BBC]

China to enact national action plan on climate change [Official Chinese government website]

China's climate change plan due ahead of G8 summit

China to enact first plan on climate change


Key Facts on China and Climate Change (from PlanetArk).


- China says global warming poses a serious threat through rising sea levels, worsening droughts in some regions, more unstable rain patterns in others, and melting glaciers.

- By 2020, annual mean temperatures could increase by 1.3 to 2.1 degrees Celsius from 2000, and by 2050 the rise could be 2.3 to 3.3 degrees.

- If adaptive steps are not taken, global warming could cut nationwide crop production by up to 10 percent by 2030. Wheat, rice and corn growing capacity could fall by up to 37 percent in the second half of the century.


- China's rapid economic growth and huge population of more than 1.3 billion have made it the world's second largest emitter of greenhouse gases after the United States.

- The International Energy Agency has said China could emerge as the top emitter of the main greenhouse gas, carbon dioxide, as early as this year, a claim disputed by Chinese officials.

- China's plan says that between 1994 and 2004, China's greenhouse gas emissions grew by an average 4 percent a year.

- Its average per-capita emissions from burning fossil fuels in 2004 were 3.65 tonnes of carbon dioxide, just 33 percent of the average for member countries of the Organisation for Economic Co-operation and Development.


- In 2002 China ratified the Kyoto Protocol, which governs international climate change and greenhouse gas obligations.

- As a developing country, China is excluded from the current phase of emission cuts in the protocol, but other countries may demand it accept some targets when the next phase of cuts from 2013 are negotiated in coming years.

- China joined the Asia-Pacific Partnership for Clean Development and Climate in 2005. The group, made up of the United States, Australia, India, South Korea, Japan and China, aims to use technology to reduce emissions.


- In 2005, China depended on coal, the most carbon-dioxide heavy of the fossil fuels, for 68.9 percent of its primary energy consumption, the plan says, and consumption of oil is climbing as vehicle ownership and industry boom.

- China's plan proposes expanding nuclear power and clean energy sources to weaken dependence on fossil fuels, as well as upgrading to cleaner coal-fired power stations.

- It also aims to expand forests to soak up more carbon dioxide and developing new crop strains to withstand long dry periods.

- China's previously released National Climate Change Assessment proposes by 2020 nearly halving from 2000 levels the amount of greenhouse gases emitted to produce each unit of gross domestic product (GDP), but it states emissions per person are likely to top projected developed-nation levels before starting to fall.

- China has vowed to cut the energy used to generate each unit of GDP by 20 percent of 2005 levels by 2010. (Sources: China National Climate Change Assessment; China's National Climate Change Programme; Reuters)

Sunday 3 June 2007

Paulson Plays the Rude Card Against Chinese

An fascinating post on the state of US-China relations from a US perspective. The linked article comments on a Chris Nelson report (posted below).

Nothing is particularly surprising but what is of interest is whether we believe this to be a deliberate snub or simply misplaced (or not misplaced) US arrogance. Cock-up over conspiracy is my reading of it. My bold.

Perhaps the most telling quote in the article is:
Are we discovering that when China considers itself an equal, does that change the whole "negotiating game"?

I suspect this statement is a true representation of the facts - a little surprising that this is only now being contemplated.
Paulson Plays the Rude Card Against Chinese: No Windfall Expected

The Nelson Report by Chris Nelson, 23 May 2007

It may be that we are cranky because the meds are wearing off from our root canal this morning (just a swell way to start the workday) but it doesn't sound like the US-China cabinet level SED "dialogue" went all that well. In fact, there is some evidence it was a disaster.

So you have to ask if it will end up being the end. Barring some major breakthroughs at the JCCT, it doesn't sound like there will be any point in meeting again, as scheduled, in December.

This morning's session was called early. . .the game was stopped in what would normally have been the 6th inning. As one experienced China-hand asked, rhetorically, "you telling me Wu Yi came over here with 14 of her cabinet members and they couldn't find things to talk with us about?"

"Results", with one or two exceptions, either were minimal, or not what Secretary Paulson seemed to expect. And at the closing press conference, the Chinese didn't even pretend they had had a good time. Madam Wu Yi read her statement, and walked off. No pretence of a friendly hug for the US side.

At yesterday's press briefing, journalists were urged not to see the SED as an negotiating "event", but, rather, as a "discussion". Negotiations and "results", it was argued, are for the JCCT process chaired by Commerce.


Today, an impertinent ink-stained scribbler asks, privately, "if Treasury chairs the SED, and Paulson isn't allowed to press his case on currency, and to get a Chinese response, what's the point?" In fact, sources indicate there was some "heated dialogue" on currency. But the bottom line is the same...after all the US pressure, all it got was last week's very minimal "float", increasing the maximum daily trading band by 0.2% to 0.5% total. . .exactly half what Bretton Woods defines as a "fixed rate".

So you have to wonder if this time, Paulson's patience has worn out, and the still-delayed Treasury report to Congress on undervalued currencies will. . .finally. . ."cite" China. Since that would formally kick-off mandated "negotiations", you have to wonder how Beijing would react, given its clear public heartburn over the IPR and other WTO cases.

Finally, you have to wonder how long it will take Ways & Means chairman Charlie Rangel to decide that maybe moving some China currency legislation is a small price to pay for Democratic Caucus approval of his Labor and Environment deal.

One normally hesitates to ascribe too much to the theater of body language, but here's something that just bashes you right between the eyes: Paulson, the guy with 72 private trips to China, all that hands-on experience, he who told the White House, State and USTR not to worry, that he would be the China Guy in this the closing press conference, Paulson stalked in, well ahead of Wu Yi, and then started reading his statement before she even reached the podium.

Excuse me? An American or European would have cold-cocked the President for such calculated rudeness! In China (Japan, Korea, etc.) you watch older married couples walk into someplace. . .the husband is 10 feet in front, and the subservient wife is dutifully plodding behind. You think for one minute that elderly maiden lady Wu Yi didn't catch the insult here?

Or, are you telling us Paulson didn't mean it, that he was so focused on reading his prepared statement he didn't think? NONSENSE. This was a calculated act of rudeness which told everyone in the room, and anyone watching on TV, that a major failure had taken place.

Further evidence of a Paulson snit. . .he seemed to go out of his way to be rude to an Asian journalist, who had to ask him four times, in very good english, something about the N. Korea/Macao money problems Treasury is having with State (see separate item in tonight's Report). Paulson pretended not to be able to understand what everyone else in the room got the first time.

Is there a less personal problem going on? Perhaps Labor Secretary Elaine Chao, speaking to reporters last night, sensed today's result, when she said that from what she'd seen so far, even though she herself is of Chinese descent, "it's much harder than anyone thinks for the two countries to communicate". "Maybe", she mused, "we just have very different styles. . ."

Even if you discount Paulson's rudeness to his alleged friend as somehow unintentional, witnesses agree that something definitely was "missing" today. Commented one, privately, "it was as cold as ice in there. The Chinese just looked like they wanted to get off the stage quickly. They really didn't bother to put on a show for the cameras back home."

Maybe that was the point? Certainly, Chinese officials had made very clear their displeasure at the Administration's decision to start those three WTO cases at the beginning of April. . .that was a major point of Wu Yi's "frank" opening remarks yesterday.

And perhaps that explains why Paulson got nothing on something which he had already, in a sense, "leaked" to the press. . .China lifting it's 25% foreign ownership cap on domestic bank investment. Nope. . .not this time.

And even with yesterday's OIE announcement of "controlled risk" clearance of US beef exports, no one hinted if the US asked China to at least agree to talk about its continuing ban later on. . .much less did anyone say something specific today, despite the obvious political importance for pro-trade/pro-China trade senators like Finance Chair Max Baucus, and former chair Chuck Grassley.

OK, OK, so Paulson & Co did get a few things. . .the airlines deal is useful; China said it would remove its moratorium on allowing new foreign securities firms into the market. . .something it had hinted about last December; and the Chinese said that US insurance firms can get into the brokerage and property trading business, as US companies had been asking (although an insurance source said, basically, "nice, no big deal").

So. . .step back a few feet. What happened? Is Chao right? Have we run into a clash of negotiating cultures? Are we discovering that when China considers itself an equal, does that change the whole "negotiating game"? Does that mean that when the Administration. . .finally. . .pulled the trigger on some narrowly drawn WTO cases, that when it also asked China for "deliverables" at the SED it was giving self-destructive offense to Beijing?

Somehow you think that by now, Chinese officials and negotiators are a lot more sophisticated than that. So maybe it was the substance, and capacity of the US negotiators?

Who knows? But one thing for sure, dressing up this SED as something which really moved forward the "responsible stakeholder" concept is delusional.

A final, frankly nasty thought: getting nothing on currency was not a surprise, of course, given the Chinese movement last week (Nelson Report, May 18). . .but this then raises a rather embarrassing question for Paulson personally: We noted in our coverage of his performance at a CSIS/PIIE currency conference (Nelson Report) that when unscripted, he has trouble putting two coherent sentences together. A friend in Beijing said he noted the same thing when Paulson was there last December. You have to ask if this guy is rich, tall, tan. . .and. . .and. . .