Thursday 30 August 2007

Chinese Finance Minister Resigns

Breaking news:

Can it really be "personal reasons"?

Chineses Finance Minister Resigns[Guardinan]

BEIJING (AP) - Government officials said Thursday that Finance Minister Jin Renqing resigned for ``personal reasons,'' amid concerns of surging inflation and just weeks ahead of an expected reshuffling of top government positions.

Jin's tenure saw China's foreign currency reserves surge past $1.3 trillion, a sign both of China's foreign trade juggernaut and the government's failure to balance flows of money into and out of the economy.

China's massive trade deficit with the U.S., which hit $235 billion last year and is expected to grow this year, has put Beijing under pressure to revalue its currency. Critics say the Chinese yuan is deliberately undervalued against the U.S. dollar and other currencies to spur trade by making Chinese exports unfairly cheap.

Beijing says its currency regime is fair, but has allowed a gradual strengthening of the yuan.

Jin oversaw a highly publicized crackdown on tax evasion by the rich as part of efforts to ease public anger at the growing gap between rich and poor. A film star was arrested and others targeted included entrepreneurs and professionals.

Jin's time in office saw huge growth and development in the economy as well as concerns about overheating.

On Wednesday, the central bank said inflation was likely to exceed the government's 3 percent target for the year despite a series of credit-tightening measures to damp down prices and cool enthusiasm for buying shares.

"But the levee was dry.": Levy on US-China relations

Excellent take on US-China relations.

What is interesting is how quickly China can threaten to go "over the top". The US needs to get used to not being able to call the shots in China. The implications of the enormous US paper holdings that China owns are yet to be fully understood.

The US fear of China is equally over the top with China bashing a favourite sport among the US press. This irrationality needs to be curbed - US trade economists are trying but finding it hard to be heard.

This quote sums up the difficult Chinese position:
The cheap yuan policy is now threatening the Chinese economy with overheating and inflation. Yet the Chinese hold back for fear of economic turmoil and financial sector distress.

It is refreshing to read someone talking sense for once. This following quote is undoubtedly true.
If China were to recede as an exporter into the U.S. market, Asian neighbors would largely fill China’s spot. This is also why Chinese currency revaluation would do relatively little for American manufacturing employment. China may be the cheapest producer of imported manufactures, but it’s not the only producer. And much of the American job loss in manufacturing is traceable to technological change rather than imports.

Hopefully common sense will eventually prevail and congress with begin to see the wood for the trees.

My bold.

Eat the Fish—Or Else! from The American.

Perhaps it’s just the stupefying heat of August, but U.S.-Chinese economic relations are devolving into confusion. Last week, American authorities identified another shipment of tainted seafood from China. Then there were reports of Chinese threats to dump their holdings of American bonds—the so-called “nuclear option”—in response to American trade protection. This caused at least one news outlet to draw a causal link. Selling $400 billion in bonds would certainly be an escalation over the standard response to a failure to clean your plate.

In fact, it is not only casual observers who are getting entangled in the burgeoning conflicts between the countries. Chinese media and officials have also conflated two disputes that really ought to be kept separate—Congressional outrage over China’s undervalued currency and public concern about the safety of Chinese products.

The misguided nature of Congress’ currency crusade could be responsible for the mess. The Chinese may have concluded that America’s obsession with the bilateral trade deficit is causing Americans to question the purity of their produce. Alarmed by the deficit and the decline in manufacturing employment, Congress has been demanding an appreciation of the Chinese currency for years. Such a move would make American goods look cheaper to Chinese and would make Chinese goods appear more expensive to Americans.

Oddly enough, pretty much everyone agrees this would be the right thing for China to do. China, a relatively poor country, has been lending hundreds of billions of dollars to the rest of the world as it has accumulated a $1.3 trillion mountain of international reserves. The cheap yuan policy is now threatening the Chinese economy with overheating and inflation. Yet the Chinese hold back for fear of economic turmoil and financial sector distress.

While a currency appreciation would help China, it would do relatively little for the United States. China is large enough that a revaluation could bring down the U.S. trade deficit a bit, particularly if the move prompted other Asian countries to let their currencies rise. But the U.S. trade deficit is spread across partners in Asia and the Middle East. If China were to recede as an exporter into the U.S. market, Asian neighbors would largely fill China’s spot. This is also why Chinese currency revaluation would do relatively little for American manufacturing employment. China may be the cheapest producer of imported manufactures, but it’s not the only producer. And much of the American job loss in manufacturing is traceable to technological change rather than imports.

Yet Congress remains obsessed. Bills have been blossoming across Capitol Hill threatening to adopt trade protection if the Chinese don’t move. Before last November’s election, these bills were suppressed through Republican Party discipline. Now they are enjoying bipartisan and possibly veto-proof support. If such measures are adopted, the likely outcome will be increased American tariffs on imported Chinese steel and other products.

This prospect has alarmed the Chinese sufficiently that last week they issued an unofficial warning. If America chooses to damage itself with tariffs, in effect, they threatened to retaliate with financial self-immolation in the form of a massive bond sale. It’s not immediately clear how China would go about doing this, but any approach has its problems. If they sold the bonds and took Chinese currency in return, this would cause the yuan to appreciate—just what Congress wants! If they simply exchanged dollar reserves for euro reserves, the question would be whether they manage to spook markets or not. If they don’t, then there’s little impact on the United States. If they do, they could drive up U.S. interest rates but the value of their massive hoard would crumble as the price of bonds plummets.

The simultaneity of this threat and the latest food safety warning was coincidental, but they are not unrelated. American public concerns about tainted toothpaste, carcinogenic catfish, and leaded toys are real. But in the heated atmosphere of current discussions, China has occasionally reacted as if this were just another sortie in the grand American crusade against the bilateral trade deficit. They have responded with statistics and counterclaims against U.S. food exports. Given the prevalence of flawed analysis in this debate, it has gotten hard for the Chinese to know when to take us seriously.

Congress is demanding the right policy for the wrong reasons and warning that they’ll hurt American consumers unless they get their way. Regular Americans are scared of the Sino-shrimp. And the Chinese are threatening to do what Congress wants, unless Congress relents. This has all the makings of a classic summer farce. If only global macroeconomic stability didn’t depend on it.

China Stock Market Bubble update

It has been a while since we commented on the "Chinese stockmarket bubble".

It is interesting to note that the foreign press only appear to really care when stock prices fall dramatically and they can shout about "crashes" and impending doom for thousands of students and taxi drivers that have been ploughing every penny they earn (or can borrow) into stock prices.

This blog was initially no different although we did stick our neck out and make some predictions at the height of the last 12 sell off a few months ago.

Here are those predictions from the 25th May:

China's Stockmarket - "how does it work"?

Before the article here is my prediction - let time be the judge.

1. Stockmarket will continue to rise perhaps by another 25-30% over the next 6 months to a year. 5000 could be the psychological barrier that is a digit too far. There will be a series of small hiccups on the way.
2. What will follow will be a trigger than may, by itself, seem quite unimportant that will lead to a widespread sell off of Chinese stocks with perhaps a 10-15% one day fall.
3. Over the next year shares will fall by as much as 40-50% off their all time highs before stabilising.
4. The knock on effect on the world markets will not be as great as some commentators fear but there will be some contagion effect on neighbouring exchanges.
5. Internally, real estate prices will fall and many individuals will be wiped out. Given the large share holdings by the Police, Army and state owned enterprises what happens then is anyone's guess but it could conceivably get quite ugly quite quickly.

So far so good, we have just gone above the important 5000 barrier with only a little pause for breath.

For all the doomsayers - those Chinese investors who stuck with their investment instead of being bounced out by a frenzied media have made over 20% in 3 MONTHS. That is a massive return and beats any bank account paying 5% a YEAR.

This is todays update of the China Stockmarket (from ADVFN - see advert in the sidebar - it has stock prices for all Chinese company share and it is all FREE).

A-shares closed higher as large caps rebounded following strong gains on the
Hong Kong bourse and on Wall Street.
The benchmark Shanghai Composite Index closed up 58.46 points or 1.1 pct at
The Shanghai A-share Index was up 60.85 points or 1.1 pct at 5,426.40 and
the Shenzhen A-share Index was up 29.29 points or 2 pct at 1,512.02.
The Shanghai B-share Index rose 8.33 points or 2.7 pct to 322.23 and the
Shenzhen B-share Index was up 20.56 points or 2.9 pct at 737.81.

So where next, I stick by my predictions but suspect we may get as high as 5500 because make no mistake there are fundamental problems in China that will soon undermine stock prices severely. The fundamentals underpinning each individual stock price are flawed. The political ramifications of a full scale collaspe remain very serious.

My blog post cmparing the Chinese stock market with the NASDAQ in 2000 is telling:

Shanghai 2006-2007 vrs Nasdaq 2000-2001

Other posts that you may find of interest:

China 2007 vs. NASDAQ 2000 - ZEAL analysis

Will a savings tax slow the stock market frenzy?

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

"China bubble" - the political dangers ahead

Chinese Stock Market Bubble Deflates a Little

China by numbers: more on the bubble

"Bursting Chinese Bubble" - a contagion effect?

Who is REALLY inflating the "Chinese Stockmarket Bubble"?

Wednesday 29 August 2007

The BEST economics blog ranking EVER

China Economic Blog is pleased to provide a link to the new listing of 100 economic blogs.

Guess who is number ONE (out of 100)?

Goodbye Freakonomics, goodbye Greg Mankiw, goodbye Becker-Posner, goodbye David Smith.

OK, so it is just a listing of 100 blogs in a random order but hey, we at China Economics Blog are not proud.

Top 100 Economics Blogs

Here are the other International blogs.

International Economics

These blogs focus more on international economics, rather than just the United States’ economic scene. Discover insightful posts that reveal direct and indirect economic effects on global policy.

1. China Economics Blog - A good place to find news, observations, statistics, information on undergraduate (BSc and BA economics) postgraduate (MSc economics) and academic analysis of important issues for China’s economy. Topics about China’s include economic growth, inequality, stockmarket, shares, exchange rates, the environment, and foreign direct investment

2. Economics in the News - “Britain’s most popular economics blog” is a must-read for economists all over the world. Learn how European currencies and trends affect the global economy.

3. Adam Smith Institute - The Adam Smith Institute is the UK’s leading innovator of free-market policies. It researches practical ways to inject choice and competition into public services, extend personal freedom, reduce taxes, prune back regulation, and cut government waste.

4. AtlanticBlog - Site contains thoughts on politics, economics, and culture by an economist living in Ireland.

5. Club for Growth - This blog is written by an academic economist to document the rapidly changing Chinese economy and its local and global implications.

6. Dear Economist - The ‘Dear Economist’ column in the Financial Times answers readers’ personal problems with the tools of Adam Smith.

7. Eclectic Econoclast - Canadian economics professor examines economics from a non-U.S.centric point of view. Objective and academically sound theories.

8. Mises Economics Blog - Part of a larger site which offers reliable and stable research tools to classrooms and libraries around the world. The blog offers particular insight into Austrian economics and libertarian political theory.

9. New Economist - The author of this blog is London-based, so reading up on his research will give you a broader perspective of the world economy.

10. Nouriel Roubini’s Global Economics Blogs - On this blog, readers are able to select in-depth analyses of the economy in the Americas, Europe, Asia/Pacific, or the Middle East and Africa.

11. Tea With FT - A clever blog from a former World Bank Executive Director, articles are disguised as letters to the editor of the Financial Times.

12. Stumbling and Mumbling - A primarily British-centric site, this economics blog mixes hard news with hysterical anecdotes.

13. Tim Worstall - This personal blog comes from Tim Worstall, who proudly flaunts the review that he is “bad, mad, and dangerous to know” at the top of his Web page.

14. Vox - A policy portal set up by the Centre for Economic Policy Research ( in conjunction with a consortium of national sites. Vox aims to promote research-based policy analysis and commentary by leading scholars. The intended audience is economists in governments, international organisations, academia and the private sector as well as journalists specializing in economics, finance and business.

15. David Smith’s EconomicsUK - Author David Smith boasts that this blog features “all the economics you need.” Open forums supplement his own articles and reviews.

H/T: Environmental Economics

Research Paper: "On how to construct anti-corruption policy"

Although this paper looks at Indonesia there are lessons for the Chinese government to learn in my opinion. This is an interesting paper and a great data set.

If nothing else it shows how complex the problem of corruption is and how astute/rational/intelligent the perpetrators are at all levels of a corrupt economy.

Reading the abstract you could be forgiven that this paper is considering perhaps the lowest level of corruption.

"The Simple Economics of Extortion: Evidence from Trucking in Aceh"
NBER Working Paper No. W13145

National Bureau of Economic Research (NBER),
Harvard University - Society of Fellows

World Bank

Full Text:

ABSTRACT: This paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory. We designed a study in which surveyors accompanied truck drivers on 304 trips along their regular routes in two Indonesian provinces, during which we directly observed over 6,000 illegal payments to traffic police, military officers, and attendants at weigh stations. Using plausibly exogenous changes in the number of police and military checkpoints, we show that market structure affects the level of illegal payments, finding evidence consistent with double-marginalization and hold-up along a chain of vertical monopolies. Furthermore, we document that the illegal nature of these payments does not prevent corrupt officials from extracting additional revenue using complex pricing schemes, including third-degree price discrimination and a menu of two-part tariffs. Our findings illustrate the importance of considering the market structure for bribes when designing anti-corruption policy.

Tuesday 28 August 2007

Is China really "Rotten": The Guardian reports

In today's Guardian Jonathan Fenby writes about the rotten state of China linking to the product recall issue and the broader problem of corruption and political stability.

The environment in China gets top billing yet again. There is no getting away from the increasingly close link between economic success and environmental damage.

This balanced article at least explains that the Mattel recall was as a result of a design fault from the US and not a result of poor manufacturing.

Many of the issues discussed below have been covered in this blog.

My bold.

The rotten state of China

First it was tainted pet food and poisoned toothpaste. Then it was lead-coated toys and catfish dosed with dangerous levels of antibiotics. Now it is mattresses and children's clothes treated with unsafe levels of chemicals.

To the long-running saga of China stealing jobs from more developed economies, add the safety factor. As Hillary Clinton put it when addressing a trade union conference: "I do not want to eat bad food from China or have my children having toys that are going to get them sick. So let's be tough on China going forward." Does Chelsea still play with lead-daubed Dora the Explorer dolls?

As always, things are somewhat more complicated than they appear. The 20m toys recalled by the Mattel company this month were, indeed, made in China, but most are being called back because of a design fault (a magnet) written into the specification handed out by the American firm. Already, some voices are saying that - as with China's terrible environmental record - it is really all the result of the West and Japan having foisted industrialisation on China, as if Deng Xiaoping was secretly in the pay of foreign companies seeking cheap labour or Chinese entrepreneurs did not sign up wholesale for plants burning brown coal or spewing poisonous waste into rivers.

In trade terms, the effect is small as yet, though it could become much more serious if the allegations of use of dangerous chemicals spread to textiles as a whole. But, while insisting that 99% of its exports are safe, China has reacted by appointing its main trouble shooter, Wu Yi, to head a committee to look into safety standards and food quality. Officials now say that 85% of food meets standards - which is worrying for those who consume the other 15%.

Though it is the foreign alarm that catches the headlines, the effect is more serious at home where Chinese consumers have been subject to sub-standard and downright dangerous goods for years. In the latest case, reported in Shanghai recently, more than a tonne of dried seaweed was being soaked in vats of industrial dye and preservative containing sulphur dioxide to make it seem fresh. Other raids in the city discovered 13 tonnes of rice wine and five tonnes of vinegar containing ethyl alcohol and industrial salts.

Like China's huge environmental crisis, the safety issue is the result of headlong manufacturing development without accompanying regulation. Both are systemic problems that go to the heart of how China works, and how governance does not function at a level the economy requires. Of course, global demand for Chinese products lies behind the unregulated boom. But it cannot be blamed, in itself, for what is coming to light. The heart of the matter lies in the People's Republic, not with consumers in the developed world.

While big, modern manufacturing companies have emerged, like Bao Steel, Haier, and Lenovo, a major motor of Chinese growth remains the small and medium-sized enterprises which were given their head by Deng in the 1980s. Between them, they have as many workers as the entire US labour force.

Most are, in effect, outside any kind of control except that of the local authorities, which may well have a personal or institutional interest in their activities in return for having granted land and been otherwise helpful. How likely are those local authorities to rein in the village and township enterprises, or impose environmental or safety standards that would cost them all money, particularly when the abolition of land taxes leaves local government short of cash?

Equally, the major contractors with which American, European or Japanese brands deal generally sub-contract to a mass of small firms. The directors, sitting in Hong Kong or Shanghai or Guangzhou, proffer assurances that standards are being met, but have little control over the small plants in Zhejiang or in the sprawling hinterland of Guangdong. Quality control takes place when the goods arrive at the export destination, not when they leave China. With tight margins, the modus operandi is to fill as many containers as possible without asking questions.

The system has worked like a charm in terms of growth. It has enabled China to by-pass the business procedures and standards of classical economics. With a tidal wave of liquidity flowing in from trade, the PRC has been able to follow its own path. Soon, the natural resources acquisitions of recent years will be followed by hundreds of billions of dollars aiming to buy foreign assets to fill China's technological and brand gaps.

Since Deng Xiaoping lead the Communist Party into business after 1978 - although it is easy to forget how long it took him to vanquish the conservatives - the Chinese Communist party has had to maintain growth. That further diminishes its already circumscribed ability to influence the economy. Provincial governments may be told to pay more attention to environmental standards, but they are still marked on their ability to produce growth. Thus, Beijing decrees a slowdown in the steel sector and makes tax changes to deter exports, but output and exports go on increasing.

The irony of a Leninist system with a weak centre is not that surprising, given China's history, particularly in the pre-Communist era. But the result is a line that leads directly from President Hu Jintao having to scrabble for support in the politburo standing committee, down to sub-contractors daubing lead paint on toys.

Wu Yi will bang the table, and China will take counter-measures against allegedly unsafe imports - a list that already includes American soybeans, turbines, pacemakers and orange juice concentrate. But, so long as the peculiar hybrid Chinese politico-economic system continues, with the country posting such large trade surpluses, meaningful change may be impossible, if only because it would threaten the structure on which the regime rests.

In the end, Beijing has to decide what kind of economy it wants, and how it moves to the second stage of global integration. What has happened since 1978 has been easy given the strength of the global economy in which China has evolved. The second term for Hu Jintao, starting in the autumn, may be the more difficult test. Is China's unreconstructed Communist system up to it?

This final paragraph is key. China is growing fast and the political system is not used to such rapid change. This may be of some benefit if it means politicial stability continues but it appears that some cracks are beginning to show.

Monday 27 August 2007

Chinese Data, Lester Thurow or both: Can we believe any of it?

As an applied economist I rely on data to investigate, analyse and examine to test theoretical predictions.

This is a problem with China which is that it is difficult to say with any certainly that the data one is using is reliable especially if the data is required over a large number of years.

This topic is forcefully bought to the fore by Lester Thurow of MIT in this article "Chinese Century? Maybe It’s the Next One".

In this article Lester examines the claim that Chinese growth has not been as rapid as the published GDP figures suggest. What is clear is that GDP growth in China has been phenomenal and may not be as far off as Professor Thurow is claiming. My bold.

A Chinese Century? Maybe It’s the Next One [Ny Times - subscription required]
CHINA claims that its economy is growing at 10 to 11 percent a year,
and China’s official analysts say that their nation will catch up with
the United States long before the 22nd century arrives. Don’t believe

First, let’s deal with the implausibility of the official Chinese
statistics. Mathematically, if the overall economy were to grow 10
percent annually, and the 70 percent of the economy that is based in
rural areas were not growing (as stated by the Chinese government), the
economy in China’s cities would have to be growing by 33 percent a
year. The urban economy is growing rapidly, but not at a 33 percent

Thirty-three percent a year for 10 years is a quite astonishing rate but remember that new cities are springing up everywhere and the population growth rate of urban areas has also been dramatic.
Furthermore, Chinese statistics conflict with those of Hong Kong, the
semiautonomous territory that serves as the financial capital of much
of southern China. In 2001, Hong Kong had a recession, which is to say
that it reported that its gross domestic product fell. Guangdong, the
adjacent Chinese province, has a population of around 200 million. In
2001, it reported that its G.D.P. grew by 10 percent. What are the
chances that both of those numbers are correct? Very slim.

The economies of Hong Kong and Guangdong are very different. Hong Kong is reliant of financial services to a large extent and the technology crash of 2000/2001 will have hit Hong Kong and not Guangdong. These statistics are not outlandish at all. A 10% increase from a low level can easily be compatible with a small fall from a very very high level. For example, it is easy to think that an increase from 10 to 11 (Guangdong) could happen in the same year that Hong Kong moves from 100 to 99.
Economic growth rates can be inferred from electricity consumption. In
every country in the world, electricity use has generally grown faster
than the G.D.P. Electricity is necessary for nearly all productive
activities, and because of inefficiencies, consumption of electricity
has generally outstripped economic growth. Rising energy costs have
resulted in more efficient use of electricity, but especially in the
developing world, economic growth has still generally lagged growth in

But if China’s official numbers are to be believed, there are
provinces in China where the G.D.P. has been growing faster than energy
use. That is unlikely, since the central government’s statistics also
say that energy use per unit of G.D.P. is going up — not down, as
claimed in provincial G.D.P. statistics.

This argument has some basis but perhaps it is the energy use statistics that are incorrect and NOT the GDP figures.

Among the world’s 12 most rapidly growing economies over the last 10
years, the G.D.P. has grown only 45 percent as fast as electricity
consumption. In the early 1970s, Japan was shutting down its
electricity-guzzling aluminum industry. During this period, the G.D.P.
grew 60 percent as fast as electricity consumption, the highest
recorded level among industrialized nations.

Using those numbers as a guide, if we consider China’s actual
electrical use, which is relatively easy to measure, and do a little
math, we come up with this estimate: The G.D.P. in China has been
growing somewhere between 4.5 percent (using the average for a rapidly
growing country) to 6 percent a year (using the highest rate for
Japan), not at the 10 percent rate claimed in official statistics.

Is electrical use data reliable? There is also a time inconsistency problem here. The drivers of growth now are different to those of Japan in the 1970s.
The official statistic for China’s overall growth rate is best
regarded as an approximate growth rate of the economy of its cities.

China also officially claims that it will catch up with the United
States and become the world’s largest economy well before the 22nd
century arrives.

Note here China is talking about being the world's LARGEST economy in ABSOLUTE terms.
There is an equally simple reason that neither of these predictions is
likely to be realized. It simply takes more than 100 years for a large,
less economically developed country to catch up with the world leader
in per capita income. One need look only at the history of the United
States, which had a much higher growth rate than Britain in the 19th
century, yet did not catch up until World War I. Or consider Japan and
the United States. Some 150 years after Japan started to modernize
during the Meiji restoration, the country’s per capita G.D.P. is still
only 80 percent of that of the United States in terms of purchasing
power parity — although, in nominal terms, it has caught up.

The United States is not standing still. In fact, its per capita
income grew faster than nearly all other big countries from 1990 to
Europe’s per capita income fell from 85 percent of that of the
United States in 1990 to 66 percent in 2007, according to International
Monetary Fund statistics.

Lester is talking here about per capita which is very different. Nowhere do China claim that they will have a higher per capita income. With China's population that is very unlikely.

The article then does a little maths based on possibly plausible but seeminglly implausible assumptions on population growth and immigration rates to conclude that:
If, in 2100, China has four times as many people as the United States, as it does now, China would still not have a total G.D.P. equal to America’s.

The final line of the article states that:
There may be a Chinese century, but it will be the 22nd century — not the 21st.

My conclusion - why does the New York Times publish stuff like this? Is it fine to throw a few predictions out there but this article is in desperate need of some proper economics. A cynic would say this is all part of the anti-China bias in the US press.

Labour Disputes in China

We are all used to news of strikes and labour disputes in the West with the television showing the inevitable conflict between the police, pickets and strike breakers. The battle is seen as being between:

(1) the evil capitalist managers and the exploited workers.
(2) the evil communist workers and the powerless workers.

In China however, a communist country, one might expect reason (1) to prevail.

The possibly sad truth of the matter is that China is probably the most ruthlessly capitalist country in the world with few employee rights and little employment legislation. How can this happen in a country ruled for the workers by the workers?

China looks to deal with rising number of labor disputes[China Briefing]

State media announced today that China’s top legislature started to read the draft law on labor dispute mediation and arbitration on Sunday amid an increasing number of labor disputes that emerged in the country.

“The draft bill has summed up the experience in solving labor disputes, which also takes new situation and problems into account. It is aimed at strengthening mediation and improving arbitration, so as to solve labor disputes without going to court,” said Xin Chunying, vice Chairman of the Legislative Affairs Commission of the National People’s Congress Standing Committee.

Regulations for handling corporate labor disputes were first promulgated in 1993 and 1994, though the continued economic boom has lead to an increasing gap between rich and poor resulting in increased labor disputes throughout the country. According to NPC statistics, labor dispute arbitration organizations at various levels dealt with 1.72 million labor dispute cases, involving 5.32 million employees from 1987 to the end of 2005 - a growth rate of 27.3percent annually.

The draft bill is meant to strengthen mediation and improve arbitration so as to help solve labor disputes without resorting to the courts and thus safeguard employee’s legitimate rights and promote social harmony, Xin said.

According to Xinhua, under the draft bill, corporations are entitled to establish labor mediation committees to solve labor disputes on a grassroots level that occur within the company. The corporate labor mediation committee should consist of employees and management representatives. Should a labor disputes occur, litigants will be able to turn to the corporate mediation committee the draft bill said. Labor disputes concerning pay, medical fees of job-related injuries, compensation, pensions whose relevant sums do not exceed 12 months of the local minimum monthly wages could be solved by arbitration. The arbitration documents will be legally binding once handed out.

Thursday 16 August 2007

China's reaction to "Total Recall": More spin required

The product recall wagon rolls on. Whilst many of these recalls would have gone unnoticed a few months ago any small Chinese product recall problem is all over the press. A cynic would say that the US press has spun China into this mess and this is all part of systematic attempt to discredit Chinese exports and to solve the trade imbalance by any means possible.

That is not to deny that there is a problem linked to a previous post on this blog related to the issue of "quality fade". I am sure that the first samples of the Mattel toys were fine. It is only when managers try to maximise profits by cutting corners and squeezing suppliers who in turn will squeeze their suppliers that problems arise.

In essence the economics cost to China may be considerable. A tainted "China brand" may slow exports, multinationals may locate (or relocate) to other East Asian countries such as Malaysia and Thailand that are not embroiled in any quality recall issues, the cost to firms of meeting new stringent regulations will mean higher costs and thus higher prices hurting China's current cost advantage. All of these problems may lead to job losses at a time when China needs to continuously generate new jobs.

China will no doubt recover and be stronger for it, but for now the US politicians and even the general public may be happy before they realise that the prices of toys and many other products have gone up - they won't be so happy then.

This interesting post from China Briefing sums up China's problem which is related to the culture of simply denying everything until it is too late. My bold.

Brand China struggles under the weight of product recalls
China is struggling to protect its brand; the country has been hit repeatedly over the last several months with product recalls that would make Ford blush. First it was the diethylene glycol as glycerin problems in Panama that can only be described as tragic - Beijing’s assertion that the blame fell to the Panamanians, a sad indication that they hoped the problem would just go away. What followed was a cavalcade of tainted products; toothpaste, fish, tires, toys, the list keeps growing. The New York Times said on Tuesday that baby bibs made in China and sold at the U.S. toy outlet Toys”R”Us have been found to be contaminated with lead paint. The hits keep coming.

China has been caught up in a vicious news cycle, and it looks like it will continue for some time as Beijing appears incapable of shifting the story. A lack of qualified spinmeisters in the Chinese government doesn’t help either. The most common reaction has been to first deny the problem, when that tactic become untenable, blame the foreign media for blowing this out of proportion. It is only after several weeks of continued pressure from external (Western media, governments, NGOs) and internal (consumers, bloggers, an increasingly outspoken media) that Beijing has been forced to announce remedies, solutions, or when all else fails, a pre-selected scapegoat to take the fall for the system.

But by the time the announcements are being made that Zheng Xiaoyu was sentenced to death or a new regulatory body would be established to monitor overseas food shipments, the damage had been done. It all sounds a bit too familiar. Critics argue that Beijing’s handling of SARS allowed the virus to spread worldwide. And it’s China’s lack of transparency that is raising global concern over bird flu and what appears to be a particularly virulent strain of blue-ear pig disease.

Beijing has recognized that no longer can it simply report what it wants, and expect the media to toe the line. Imagethief commented last month on China’s commitment to change, saying that he was grateful to see that CCP was finally taking PR seriously.

Imagethief firmly believes a more contemporary approach to public relations and media management will benefit the party, which remains rather mired in the “shut up and do what I tell you” tradition of media management. As a PR man I can appreciate the attractiveness and elegance of this model, but I must also concede that it is less effective than it may once have been. I’m pretty sure if I tried “shut up and do what I tell you” on the Wall Street Journal I’d get a steno pad crammed up my nose.

The efforts to save the brand are showing some positive results. New regulations are being put in place, enforcement, long a difficult proposition in places where they still say “Heaven is high and the emperor is far away,” has been stepped up, and China is finally learning that avoiding news deemed to be a problem doesn’t always result in that problem going away. The Made in China brand will bounce back, too much of the world is using it for there to be a significant backlash, but toy sales in the United States and Europe in the coming holiday season will no doubt be lower for products made in the Middle Kingdom.

Wednesday 15 August 2007

"Graft", "Confucianism" and Chinese business

Whilst the fallout from the Mattel recall still reverberates it is worth reminding ourselves about the endemic culture of corruption that pervades Chinese business.

In many senses this is cultural and one should not expect Western values to be so quickly absorbed into mainstream business. With Confucianism putting loyalty to friends first it is no surprise to see an element of "capture" taking place within firms. It is fascinating to read how businesses are being advised to hire geographically dispersed workers to prevent such behaviour.

Dirty dealing [Economist]
THE announcement on July 26th that Chen Liangyu is to be prosecuted for corruption came as little surprise. The former chief of the Communist Party in Shanghai had been the subject of a well-publicised investigation since a 3 billion yuan ($390m) hole was found in the city's pension fund last year. Mr Chen's is the highest-profile corruption case for a decade, and although his prosecution is suspected of having political motivations too, it is a signal that the government is serious about clamping down on corruption.

This week several top media officials in Guangzhou were arrested for allegedly selling advertising slots privately. The stockmarket has also suffered from a rash of dodgy dealing, with 11 firms blacklisted and almost 300 people penalised in the past six months for activities including publishing fake company reports and false auditing. Every week, it seems, the local press has stories about people who have illicitly squirrelled away huge sums.

The fact that these crimes are now reported is itself a step forward. As in many countries the mentality of graft is deeply ingrained in China. But Chinese graft has particular characteristics: the dishonesty often takes place at very senior levels and frequently involves groups rather than individuals. There were more than 20 people involved in Shanghai's pensions scandal, and ten in this week's media case.

Within businesses, the most likely areas for graft are the purchasing or finance departments, where staff are given kickbacks from suppliers, or the personnel department, where employees are bribed to arrange interviews or jobs. The problem has become so bad that many foreign executives claim to be “overwhelmed by the business of kickbacks,” says Stephan Rothlin of the Centre for International Business Ethics (CIBE) in Beijing.

But he says it is a mistake simply to translate or impose Western ethical standards. Although much of the corruption is driven by greed, it is also the result of a different set of beliefs. Confucianism puts loyalty to family and friends first. Then comes “face”, and finally compliance with the law. Even then, the law is seen as malleable rather than absolute. Mr Rothlin argues that foreign firms need to strike a balance between imposing their own ethical codes and understanding the local culture.

It is even harder to deal with lower-level shadiness, such as a secretary booking a flight for her boss and then getting a payment from the travel agent, or a receptionist getting paid to refer new enquiries to a rival firm. Such cases usually involve relatively small sums and are often regarded as a socially acceptable way for employees to prepare for retirement or keep up with the spending of their peers.

Dane Chamorro, the regional manager for China at Control Risks, a consultancy, says the law against commercial corruption is rarely enforced—and when it is, prosecutions usually have additional motives. He suggests that foreign firms start their operations from scratch and impose their ethical standards from day one. They also need to avoid hiring “tribes”—groups of workers from the same region, or who speak the same dialect. Such groups are known to move systematically between businesses, especially foreign ones. Training is important too, as are regular audits.

But even though there is a growing push for a clampdown, the resistance to change is strong. Fu ze ren bu zai, “the man with the key is not here”, is a common way of asking for a bribe. Alas, the man with the key to solving China's corruption problem is nowhere to be found, either.

Tuesday 14 August 2007

China's growing role in World Trade: NBER conference

Excellent NBER conference on China's growing role in world trade.

Papers are listed below. For links to each paper see HERE. [IPE Zone].

Session 1: International Trade

The Rising Sophistication of China’s Exports: Assessing the Roles of Processing Trade, Foreign Invested Firms, Human Capital and Government Policies
ZHI WANG, International Trade Commission; SHANG-JIN WEI, IMF and NBER

An Anatomy of China’s Export Growth
MARY AMITI, Federal Reserve Bank of New York; CAROLINE FREUND, IMF

China's Local Comparative Advantage
HAIYAN DENG, The Conference Board; JAMES HARRIGAN, Federal Reserve Bank of New York and NBER

China and the Manufacturing Exports of Other Developing Countries

Session 2: Macroeconomic Issues

China’s Exports and Employment

Exporting Deflation? Chinese Exports and Japanese Prices
CHRISTIAN BRODA, University of Chicago and NBER; DAVID WEINSTEIN, Columbia University and NBER

China’s Current Account and Exchange Rate
YIN-WONG CHEUNG, UC-Santa Cruz; MENZIE CHINN, University of Wisconsin and NBER; EIJI FUJII, University of Tsukuba

Session 3: China’s WTO Entry

China’s WTO Entry: Antidumping, Safeguards, and Dispute Settlement
CHAD BOWN, Brandeis University

China’s Experience Under the Multifiber Arrangement (MFA) and the Agreement on Textile and Clothing (ATC)

Agricultural Trade Reform and Rural Prosperity: Lessons from China
JIKUN HUANG and YU LIU, Center for Chinese Agricultural Policy; WILL MARTIN, World Bank; SCOTT ROZELLE, Stanford University

Trade Growth, Production Fragmentation, and China’s Environment
JUDITH DEAN, International Trade Commission; MARY LOVELY, Syracuse University

Session 4: Foreign Direct Investment (in China)

Facts and Fallacies about U.S. FDI in China
LEE BRANSTETTER, Carnegie Mellon University and NBER; C. FRITZ FOLEY, Harvard University and NBER

Please Pass the Catch-up: The Relative Performance of Chinese and Foreign Firms in Chinese Exports, 1997-2005
BRUCE BLONIGEN, University of Oregon and NBER; ALYSON MA, University of San Diego

China’s Outward FDI: Past and Future
LEONARD CHENG, Hong Kong University of Science and Technology; ZIHUI MA, Renmin University of China

International Students and the Marketing Machine

One reason for the writing this blog was to help potential overseas students cut through the marketing to find the Economics or Finance MSc for them. There is therefore a wealth of information in the sidebar of this blog. Being censored in China has not helped that cause as you may imagine. We are still banned apparently.

This post from IPE Zone is interesting. This is a US-centric article. In my experience the UK is WAY behind the times in using these methods.

Higher Ed's Int'l Marketing Machine
International education is big money; consequently, a whole industry has sprung up around suck...I mean, persuading foreign students to attend certain universities. The proliferation of "study abroad" programs which earn fees and commissions from universities based on signing up international students--who usually pay significantly higher fees than home students--attests to this phenomena.

A practice which is being questioned here is of doling out various perks to would-be students. To some, it is unethical in the same way that sports programs are banned from offering star high school athletes perks like free cars, albeit on a smaller scale. Worse, students who sign up through these "study abroad" programs end up paying more than if they directly got in touch with these universities. Interesting stuff:

The article then quotes from an International Herald Tribune article. My bold.

In study abroad, gifts and money for universities

As overseas study has become a prized credential of the undergraduate experience, a competitive, even cut throat, industry has emerged, with an army of vendors vying for student money and universities moving to profit from the boom.

At many campuses, study abroad programs are run by multiple companies and nonprofit institutes that offer colleges generous perks to sign up students: free and subsidized travel overseas for officials, back-office services to defray operating expenses, stipends to market the programs to students, unpaid membership on advisory councils and boards, and even cash bonuses and commissions on student-paid fees. This money generally goes directly to colleges, not the students who take the trips.

Critics say that these and similar arrangements, which are seldom disclosed, typically limit student options and drive up prices for gaining international credentials compared with the most economical alternative — enrolling directly in a foreign university, paying generally lower tuition to that institution and having the credits transferred. Some campuses require students to use one of several affiliated providers, but some even have exclusive arrangements with study-abroad agents, further limiting options.

For example, the American Institute for Foreign Study offers college officials a free trip to one of its overseas sites for every 15 students that sign on and a 5 percent share of the fees that students pay, according to a copy of its agreement with the University of Mary Washington; if fewer than 15 sign on, the payback is 2 percent. According to its Web site, the institute has deals with universities nationwide, including the University of California, Berkeley; Fordham and Pace in New York, and Rice in Houston.

Amy Bartnick-Blume, a vice president of the nonprofit Institute for Study Abroad, which is affiliated with Butler University in Indiana, said the institute gave colleges with which it has "exclusive agreements" up to $500 per student for restricting them to the institute's programs in a given region. The practice in effect shuts out the competition. Bartnick-Blume said that the colleges decide whether to pass the savings on to students and that the institute had no way of knowing how many do.

Whalen, who is also the executive director of study abroad at Dickinson College in Carlisle, Pennsylvania, said overseas site visits for educators, when given in exchange for student participation in a program, crossed an ethical line. As for payments from outside providers, he said, the danger is that colleges may come to rely on the money. Then, he said, study abroad officials may think, "If it goes away, we're going to be in trouble with our office."

"It creates an incentive to bring up the numbers of students using a certain organization," Whalen said.

Officials at universities and study abroad agencies, though, defend the system, saying the perks are relatively minor, do not obligate a college to choose a particular program and are so common that they do not sway decisions.

Students, while cherishing their overseas experience, are sometimes the system's most bitter critics. Few, if any, are aware of the perks dispensed by study abroad providers, but they complain generally of the high costs of studying overseas and do not understand how providers get selected by universities.

Partly in the hope of saving money, Brendan Jones, a former student at Columbia and now a contractor specializing in architectural salvage, studied at Oxford University several years ago through an outside company, rather than through a program approved by Columbia.

Monday 13 August 2007

Anything for publicity?

I think I may have gone too far this time in my efforts to generate publicity for this blog.

Inflation update

Inflation reaches 10 year high. Remember when reading these stories that the data tend to be unreliable. My guess is that inflation is being understated if anything.

We have posted previously on food price inflation which is a worry for the poor in China. The government will be watching carefully - civil unrest would not be welcome. I am not sure why Bloomberg see bring up 1989 in this article but it shows the debate that economists are currently having.

Inflation is important and China may well export it around the world. However, China's vast pool of labour should help restrain wage inflation.

China's Inflation Rate Jumps to Highest in 10 Years

Aug. 13 (Bloomberg) -- Inflation in China, the world's fastest-growing major economy, accelerated to the highest rate in more than 10 years, fueling speculation that the government may raise borrowing costs for a fourth time in 2007.

Consumer prices jumped 5.6 percent in July from a year earlier, after gaining 4.4 percent in June, the National Bureau of Statistics said today. That beat the 4.6 percent median estimate of 17 economists surveyed by Bloomberg News.

Food costs climbed 15.4 percent after a shortage of pigs pushed up meat prices and bad weather destroyed crops. The central bank is concerned that food inflation will spread, overheating an economy forecast to contribute more to global growth than the U.S. this year.

``It's still mainly a food-price phenomenon, but the central bank will continue to be worried,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``We expect another interest-rate hike this year and one more increase in the reserve ratio for banks.''

The yield on the benchmark 10-year government bond rose 0.03 percentage point to 4.34 percent at 3:27 p.m. in Shanghai. The benchmark CSI 300 Index of stocks closed 0.1 percent lower.

The official China Securities Journal said last week that the inflation rate would probably be 5.6 percent, citing unidentified people. The central bank said on Aug. 8 that consumer-price gains aren't solely from ``temporary factors.''

Interest-Rate Increase

China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years, on exports and investment. Cash from record overseas sales raises inflation risks.

``With this massive headline number, plus evidence of heightening concern of the central bank, the chances of another rate hike soon are very high,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai.

The 3.5 percent rate for the first seven months is above the central bank's target ceiling for the year of 3 percent.

Economists are split on the risk posed by consumer prices.

Liang Hong, at Goldman Sachs Group Inc. in Hong Kong, has said inflation is entering a ``perilous zone'' and today predicted ``decisive tightening measures.''

``China's inflation is getting out of control and the government is behind the curve,'' Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong, said in a July 30 note.

Others say the jump in prices is temporary and contained. Non-food inflation slowed to 0.9 percent in July from at least 1 percent in each of the previous five months.

Meat, Eggs

Inflation remains almost entirely food-driven and is likely to drop rapidly ``once supply disruptions have worked themselves out,'' Julian Jessop and Mark Williams, economists at Capital Economics Ltd. in London, wrote in a note.

Food accounts for a third of the consumer-price index. Meat costs surged 45 percent last month from a year earlier and egg prices climbed 31 percent.

China may use administrative measures such as food-price regulation to curb inflation, said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.

Central banks globally are battling inflation as surging world growth forces up food and commodity prices.

Australia's central bank today raised its inflation forecast for this year to 3 percent from 2.5 percent, a week after increasing the benchmark interest rate to an 11-year high.

U.S. Inflation

Consumer prices rose 2.7 percent in the U.S. in June from a year earlier and 2.4 percent in the U.K. In India, the inflation rate was 4.45 percent in the last week of July.

Besides raising the benchmark one-year lending rate to 6.84 percent, the central bank has ordered commercial banks to set aside larger reserves on six occasions this year.

Wage gains, energy costs and expectations of price increases have broadened inflation pressures, the People's Bank of China said last week. Economic indicators are at ``alarming'' levels, the China Securities Journal today quoted Zhang Tao, the central bank's deputy international chief, as saying.

The central government has told officials in regions where inflation has surged to refrain from raising prices this year. It's ordered investigations into price-fixing after complaints about instant-noodle and fast-food costs.

The government may be balancing higher food costs and the risk of increased expectations for inflation against the benefit of improved farmers' incomes, according to Capital Economics.

Tiananmen Square

``This is a delicate calculation: high inflation fueled the anger which culminated in the 1989 Tiananmen protests,'' wrote Williams and Jessop. The army sent tanks and soldiers to clear democracy protestors from Tiananmen Square in Beijing on June 4, 1989, killing as many as 1,000 people, by some accounts.

Inflation has outstripped returns on bank savings. That has encouraged households to switch money to a stock market that the government is trying to cool.

Household savings fell in July by 9.1 billion yuan ($1.2 billion) from the previous month. The CSI 300 Index has climbed 133 percent this year.

China will overtake the U.S. this year as the largest contributor to global growth, according to the International Monetary Fund. The IMF forecasts the nation will account for 15.6 percent of the expansion, versus 15.4 percent for the U.S.

Foreign Direct Investment reaches 12 year high

Friday 10 August 2007

Research paper: "Assessing China's Exchange Rate Regime"

China's exchange rate is seldom out of the news and is a cornerstone of China-US relations. The US want a revaluation to help the record trade deficit between the two countries whilst China is keen to maintain the current rate (subject too a little upward movement every now and then to appease the Americans).

A new NBER paper by Frankel and Wei assess China's exchange rate regime.

Ponder this for a moment. Does a trade inbalance between any two countries really matter in the globalised world? Assume the World consists of 3 countries. China, US and the EU. Now, if the US has a deficit with China of 100 but the EU has a deficit with the US of 100 and also China has a deficit with the EU of 100 then world trade is balanced. The US-China deficit is largely IRRELEVANT. So why all the fuss?

"Assessing China's Exchange Rate Regime"
NBER Working Paper No. W13100

Harvard University - John F. Kennedy School of
Government, National Bureau of Economic Research

International Monetary Fund (IMF) - Research
Department, Centre for Economic Policy Research
(CEPR), National Bureau of Economic Research
(NBER), The Brookings Institution

Full Text:

ABSTRACT: This paper examines two related issues: (a) the implicit methodology used by the US Treasury in determining whether China and America's other trading partners manipulate their exchange rates, and (b) the nature of the Chinese exchange rate regime since July 2005. On the first issue, we investigate the roles of economic variables consistent with the IMF definition of manipulation - the partners' overall current account/GDP, its reserve changes, and the real overvaluation of its currency - but also some variables suggestive of American domestic political considerations - the bilateral trade balance, US unemployment, and an election year dummy. The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important. On the issue of China's de facto exchange rate regime, we apply the technique introduced by Frankel and Wei (1994) to estimate implicit basket weights, adding several refinements. Within 2005, the de facto regime remained a peg to the dollar. However, there was a modest but steady increase in flexibility subsequently. We test whether US pressure has promoted RMB flexibility. We also test whether the recent appreciation against the dollar is due to a trend appreciation against the reference basket or a declining weight on the dollar in the reference basket, and suggest that they have different policy implications.

Thursday 9 August 2007

Food safety, Product Quality and Pesticide Use

So China is spening $1 billion on food safety? This is undoubtedly an attempt to reassure the world that Chinese goods are safe in response to numerous product safety stories that have been a staple of the US and world press in recent months.

The fear is that Chinese exports will be negatively affected and whilst Chinese GDP has been growing rapidly along with domestic consumption and incomes, China is still dependent on its export markets.

A reputation for low quality and dangerous goods can takes years to throw off. This is probably a wise investment. The question is why do they not spend more and why wait so long to do it.

China Spending $1 Billion on Food, Drug Safety [PlantetArk]
BEIJING - China will spend more than $1 billion improving food and drug safety by 2010 and the regulator will be given stronger oversight powers, an official said on Wednesday as fears persist over Chinese products.

China has been struggling to convince the world its produce is safe following a series of scandals over tainted pet food, toys, tyres, toothpaste, medicine and fish.

According to a new poll, US consumers are extremely wary of products made in China, and nearly two-thirds said they would support a boycott of Chinese goods.

China's State Food and Drug Administration spokeswoman, Yan Jiangying, said the government had earmarked 8.8 billion yuan ($1.16 billion) for food and drug safety over the current Five Year Plan, which runs to 2010.

Part of this would be spent on a large, new laboratory, she said, adding this was the first time the spending figure had been made public. Yan did not provide a comparison for previous years.

"Once the Five Year Plan has been completed, the abilities and the base of the regulator will be substantially raised," Yan said. "There will be an enormous improvement in the system for guaranteeing food and drug safety for the public."

New rules would give the watchdog the power to seal factories and seize whatever materials they need when probing sub-standard goods, she added.

Yan said her department would also take the safety message nationwide, starting out in the enormous countryside, home to 60 percent of the 1.3 billion population.

"We will focus on rural food safety," Yan said.

A deputy agriculture minister admitted recently that the backward state of Chinese farming was a major obstacle to raising food safety.

Despite repeated government assurances they are taking a responsible attitude towards food and drug safety, there has been little let up in the barrage of bad news.

State media said on Wednesday, the beginning of the one-year year countdown to the Beijing Olympics, the government would launch a campaign to crack down on the use of highly potent and poisonous pesticides which are banned but still in use.

Five pesticides were banned earlier this year, and the Agriculture Ministry was compiling a blacklist of companies still making them, the official China Daily said.

In rural China there was a problem with farmers improperly using chemicals and spraying them on crops just before they were gathered and sold, the report said.

"As part of the government's food safety strategy, it will educate farmers how to properly use pesticides," the newspaper added.

China uses twice as much pesticide annually as is actually needed which has exacerbated the country's food safety problems, it said. (US $1=7.569 Yuan)

This relates to another story in today's PlanetArk:

China to Crack Down on Banned Pesticide Use

BEIJING - China will launch a campaign to crack down on the use of highly potent and poisonous pesticides which are banned but still in use, a state newspaper said on Wednesday, as fears persist over the country's food safety.

Five pesticides were banned earlier this year, and the Agriculture Ministry was compiling a blacklist of companies still making them, the official China Daily said.

Three companies were still allowed to make the chemicals, it added, but only "in emergency situations to control pests, and under strict government supervision", it added.

In rural China there was a problem with farmers improperly using chemicals and spraying them on crops just before they were gathered and sold, the report said. "As part of the government's food safety strategy, it will educate farmers how to properly use pesticides," the newspaper added.

China uses twice as much pesticide annually as is actually needed which has exacerbated the country's food safety problems, it said.


Tuesday 7 August 2007

Green Leap Forward

Interesting article looking at the environmental problems currently besetting China. This makes for an excellent read even if it is rather alarmist.

The Green Leap Forward [Washington Monthly]

The article is of primary interest for the way it throws around supposed facts. They make interesting reading:

1. Ninety percent of the country’s cities have contaminated groundwater.
2. The World Bank predicts that in the next fifteen years, China’s shortage of clean water will create 30 million “environmental refugees.”
3. As much as 40 percent of the air pollution in Japan and Korea can be traced to China - now China's pollution is becoming a global problem.
4. "On bad days, a quarter of Los Angeles’s smog originates in China." - now that must be an incentive for the US to act.
5. "Just by breathing the city air, Lanzhou’s 3 million residents inhale the equivalent of a pack of cigarettes a day." - there have to be side effects down the line. Just as the UK bans smoking in doors. No such luxury for the Chinese.
6. "Time reported that only 6 percent of Chinese agricultural products imported to the United States are free from pollution." - what is the equivalent figure for US exports I wonder.

This is a good description of the situation in Bejing - no wonder the Chinese are making such effort for the Olympics. Athletes and the equivalent of a packet a fags a day do not go well together.

Like other cities in China, Beijing has a daily weather report and a daily pollution report. On the increasingly crowded freeways, drivers can see only so far ahead; each car leaves a wake in the smog. The dank air creeps inside buildings, into cars, into hotel rooms, leaving you nowhere to escape the distinct smell and the feeling of a weight always on your chest. The sun looks like a flashlight wrapped in cotton gauze, and the sky remains beige no matter the time of day. Most days, the city has no discernible skyline. Most nights, no moonlight or starlight pierces the darkness.

Now lets get to the ECONOMICS. Ultimately this is what is of primary concern for the average Chinese citizen and politican/official. My bold.
More important, environmental problems now threaten the sustainability of China’s economic expansion. Already the costs of environmental cleanup, property damage, and lost productivity are staggering. China’s State Council, the nation’s highest administrative body, reported that pollution cost the country more than $200 billion in 2005, almost 10 percent of the country’s GDP. Industry releases 2,000 tons of airborne mercury each year, which settles into the soil, contaminating 12 million tons of grain each year and threatening food safety, including China’s $31 billion agricultural export market. (Time reported that only 6 percent of Chinese agricultural products imported to the United States are free from pollution.) The future portends to be more alarming still. Water scarcities could shut down paper mills and petrochemical plants. Air pollution in Hong Kong could force a mass exodus of talent (already hedge fund managers are fleeing the smog for Singapore). The country’s deputy environmental director, Pan Yue, has warned, “China’s economic miracle will end soon because the environment can no longer keep pace.”

Even more troubling, the effects of pollution—poisoned water and contaminated fields—are provoking riots in the countryside. Or, as China’s environment minister, Zhou Shengxian, has observed, the environment has become an issue that “triggers social contradictions.” In 2005, the government reported 51,000 pollution “disputes,” many of them violent. More villages each year form local militias to guard water rights. This makes Communist Party leaders deeply uneasy. After all, for millennia China’s history has been defined by dynasties rising and falling, the ruling powers frequently toppled by angry peasants whose welfare was neglected. As Minxin Pei, the director of the China Program at the Carnegie Endowment for International Peace, explained, “The government is willing to tolerate anything but social instability.”

The trouble, and as we have covered numerous times in this blog under the corruption tag, is that it matters not how strict the country's environmental regulations, they are simply not enforced. This article gives us a hint as to why.
The central government no longer maintains a permanent presence in the provincial capitals, so there is no energetic national oversight of what happens in a place like Lanzhou. Local environmental bureaus are supervised and financed not by Beijing but by provincial authorities whose officials would be unable to afford their chauffeur-driven cars without payoffs from potential polluters. As a result, China has numerous national laws that sound wonderful on paper but can’t be enforced. David Lampton, head of the China studies department at Johns Hopkins University’s School for Advanced International Studies, has popularized the term “implementation bias” to describe this phenomenon. He defines it as “the situation in which every central initiative will be distorted in favor of the organization or locality responsible for implementation.”

This breakdown in governance is so pronounced that, in defiance of Beijing’s ambitious targets, the country’s environment is getting worse, not better. Official reports likely understate the problem, but those numbers are troubling enough. Beijing vowed in 2002 to reduce sulfur emissions by 10 percent in three years, yet they climbed by nearly 30 percent. More than 4,000 rogue mines leach mercury into the soil. An estimated one in five power plants operate illegally—enough to fully power the United Kingdom. Last year, Mao Rupai, chair of the congressional environmental committee, estimated that in some far-flung provinces as few as 30 percent of environmental regulations are upheld.

H/T: Conservation Finance

Friday 3 August 2007

The "UK Good University Guide" August 2007

A new "ranking" of "UK Universities" has just been launched with its own website. It also includes a subject breakdown as well as allowing the student to customise the ranking to give a higher weighting (or not weighting at all) to certain aspects.

"The Good University Guide"

This is a good improvement on existing rankings.

The categories that Universities are ranked by are:

1. Student satisfaction - A measure of the view of students of the teaching quality.

2. Research Assessment - A measure of the average quality of research undertaken.

3. Entry Standards - The average UCAS tariff score of new students under 21.

4. Staff-Student ratio - A measure of the average staffing level in the university.

5. Academic Services Spending - The expenditure per student on all academic services.

6. Facilities Spending - The expenditure per student on staff and student facilities.

7. Good Honours - The % of graduates achieving a first or upper 2nd honours degree.

8. Graduate Prospects - A measure of the employability of a university’s graduates.

9. Completion - A measure of the completion rate of those studying at the university.

Personally, I believe that one should customise the ranking and consider most importantly the entry standards (3) and Research Assessment (2). See HERE for more detailed descriptions.

There are numerous problems with the data - two many high scoring Universities supplied their own data. Not good enough. Secondly, the weights applied to give the default table are inappropriate in my opinion.

The Website has other strengths. It gives a review of each city, has a section for overseas students which gives a large number of statistics that I may blog on at a later date. e.g. Table 3 - where do overseas students study. I do NOT believe the numbers in this table however but that argument can wait for another day.

So what about Economics? Here is the top 20 UK Universities using the default weightings. Full listing HERE.

Rank Institution RAE Tariff Destinations Overall
1 LSE 5* A 508 88 100.0
2 Cambridge 5 B 538 92 98.4
3 UCL 5* A 477 86 98.3
4 Warwick 5* B 483 86 96.7
5 Oxford 5 B 538 76 93.8
6 Nottingham 5 A 481 78 93.7
7 Bath 5 B 452 78 91.1
8 Bristol 4 A 449 80 90.7
9 Durham 4 B 473 80 90.3
10 York 5 A 463 66 89.5
11 Southampton 5 A 428 68 88.8
12 St Andrews 4 B 458 76 88.6
13 Edinburgh 4 B 468 74 88.4
14 Exeter 5 B 407 70 87.0
15 Royal Holloway 4 B 369 80 86.3
16 Lancaster 5* B 374 64 86.2
=17 Birmingham 4 B 419 72 85.9
=17 Leeds 5 C 415 74 85.9
19 SOAS 4 B 365 78 85.6
20 Cardiff 5 B 382 68 85.5

I would say that this is a fair approximation but still contains a number of errors. There is the issue of whether "Economics" units within Business Schools should be treated in the same way as stand a lone department. The RAE scores for some of these departments are simply misleading as they did NOT go in as part of the ECONOMICS RAE but may have gone in with Business or development studies thus artificially inflating certain Universities.

There is also the issue that different departments are more suitable for undergraduate than postgraduate where research is far more important.

I will post more on this later but this new site is useful but must be seen in conjunction with other rankings that are listed in the sidebar.

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

Ten Reasons Why You Should Study in Britain

Studying "Economics in the UK": General Links

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

Studying in the UK: Cost of Accommodation

World University Rankings: Rankings and text

"UK University Ranking": large city effect

Thursday 2 August 2007

Economists speak out against US anti-China sentiment

It is good to see the Economics profession standing up to be counted. Of course this has no chance of succeeding but you have to try. I would have signed this petition.

After teaching trade theory for so many years it is good to see that these simple concepts are being brought into the political arena.

We, the undersigned, have serious concerns about the recent protectionist sentiments coming from Congress, especially with regards to China.

By the end of this year, China will most likely be the United States' second largest trading partner. Over the past six years, total trade between the two countries has soared, growing from $116 billion in 2000 to almost $343 billion in 2006. That's an average growth rate of almost 20% a year.

This marvelous growth has led to more affordable goods, higher productivity, strong job growth, and a higher standard of living for both countries. These economic benefits were made possible in large part because both China and the United States embraced freer trade.

As economists, we understand the vital and beneficial role that free trade plays in the world economy. Conversely, we believe that barriers to free trade destroy wealth and benefit no one in the long run. Because of these fundamental economic principles, we sign this letter to advise Congress against imposing retaliatory trade measures against China.

There is no foundation in economics that supports punitive tariffs. China currently supplies American consumers with inexpensive goods and low-interest rate loans. Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment. Worse, such a move will likely encourage China to impose its own tariffs, increasing the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs, and reduced economic growth.

We urge Congress to discard any plans for increased protectionism, and instead urge lawmakers to work towards fostering stronger global economic ties through free trade.

H/T: Mankiw

Wednesday 1 August 2007

Military Spending: The cost of maintaining the biggest army on the planet

The Times article of yesterday provides some interesting facts and figures on the size and cost of maintaing an army of 2.3 million personnel (with another 800,000 reserves).

This post just picks out some of the more interesting numbers.

World’s largest army turns 80 with a show of strength and weakness

As part of the publicity campaign to mark the PLA’s 80th anniversary, the soldiers could reveal that they were woken at 6am in summer and that they earn 200 yuan (£13) a month as privates. But the programme for their daily training, like most other matters, was not open for discussion.

Not a large salary. The worry is that this salary is becoming increasingly worse relative to the wages paid in the private sector. At some point it will become dangerously low.
The budget for the 2.3 million-strong PLA balloons each year, rising 17.8 per cent to 351 billion yuan (£23.4 billion) this year — roughly the same as defence spending in Britain and Japan. That is still one tenth of US military costs. Analysts say that actual spending is much higher, since the figure in the budget does not include significant weapons purchases.

So it Chinese military spending a lot or a little? What is the per capita spending - a lot lower than the UK or France and China is a big country.

Standing force

— China’s combined military forces are almost 2.3 million personnel with a further 800,000 reserves. Paramilitary armed police, border guards and internal security contribute another 1.5 million

— The People’s Liberation Army numbers 1.6 million active troops, divided equally between conscripts and volunteers. They are split into 18 self-contained groups of infantry, artillery and air defence personnel, and are deployed across China’s seven military regions

— Strategic Missile Forces, the nuclear tip of China’s military pyramid, consist of 100,000 personnel and 800 missiles – 46 of these are intercontinental models capable of deploying nuclear warheads at up to 8,000 kilometres (4,500 miles) range

— China’s seas are defended by three fleets with a cumulative complement of 255,000 men, 76 surface vessels and 58 submarines. It has only one nuclear Xia submarine with a ballistic missile capability

— 210,000 serve in China’s air force, which can field more than 2,500 combat aircraft

— Pilots fly mostly retooled Cold Warera craft such as the J-7 Fishbed, based on the Russian MiG-21F, or domestic designs such as the J-8 Finback. China purchased SU-27 fighter bombers from Russia after abandoning domestic attempts to develop an equivalent capable of midair refuelling and maritime combat

Sources: International Institute for Strategic Studies; Federation of American Scientists;

Asia Rising: 40 year review

From the IMF comes a new report.

Asia's striking growth performance has long attracted the interest of both policymakers and researchers. This paper undertakes a cross-country analysis of productivity growth at both the aggregate and sectoral levels.

Asia Rising: A Sectoral Perspective[PDF]

This paper undertakes a cross-country analysis of productivity growth at both the aggregate and sectoral level. It finds that Asia’s remarkable output growth over the past 40 years reflected both high investment, and rapid productivity increases. These factors were in turn supported by the region’s relatively strong institutional and policy environment, which encouraged resource shifts from low- to high-productivity sectors. Looking ahead, sustaining rapid growth requires meeting a number of key challenges: (i) implementing reforms to boost productivity in the increasingly important, but currently lagging, service sectors; (ii) providing policy support for continuing the shift of resources from agriculture to industry and services; (iii) strengthening policy frameworks in late-developing countries.

The IMF's WORLD ECONOMIC OUTLOOK is also a publication worth knowing about.

Factory Life in China

Came across a fascinating blog looking at the "Made in China" phenomenon.

Good videos and interesting stories.

Bunnie's Blog

This is for the "Made in China" category and it gives a real insight into the production set up in China.

I have added this blog to the ChinaEconomic blogroll.

H/T: ResponsibleChina