World Development has a recent special issue looking at the impact of Asian drivers on the developing World. The quality of papers in World Development is usually average to good.
Some interesting papers and some "not so interesting" papers. Special issues can often mean a lower average quality of contribution.
The Impact of Asian Drivers on the Developing World
Introduction: The Impact of Asian Drivers on the Developing World
Pages 197-209
Raphael Kaplinsky and Dirk Messner
Asian Growth and Trade Poles: India, China, and East and Southeast Asia
Pages 210-234
Scott McDonald, Sherman Robinson and Karen Thierfelder
The Impact of China on Latin America and the Caribbean
Pages 235-253
Rhys Jenkins, Enrique Dussel Peters and Mauricio Mesquita Moreira
Do the Asian Drivers Undermine Export-oriented Industrialization in SSA
Pages 254-273
Raphael Kaplinsky and Mike Morris
Global Governance and Developing Countries: The Implications of the Rise of China
Pages 274-292
Jing Gu, John Humphrey and Dirk Messner
Do the Asian Drivers Pull their Diplomatic Weight China, India, and the United Nations
Pages 293-307
Andrew F. Cooper and Thomas Fues
China’s Capacities for Mitigating Climate Change
Pages 308-324
Carmen Richerzhagen and Imme Scholz
Breakthrough China’s and India’s Transition from Production to Innovation
Pages 325-344
Tilman Altenburg, Hubert Schmitz and Andreas Stamm
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A 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 including economic growth, inequality, stockmarket, shares, exchange rates, the environment, foreign direct investment, WTO and much more
Wednesday 27 February 2008
Tuesday 26 February 2008
Capitalists take control of China - labour left with less
Karl Marx would have a field day. It is clear that capitalism now has China in its icy grip. The workers are, as always, being exploited.
Below is an interesting artcile from the Peterson Institute. I tend to agree with most of the arguments raised. Technological progress has certainly played a part (driven partically by foreign direct investment).
What Is China Doing to Its Workers?
The article concludes:
Below is an interesting artcile from the Peterson Institute. I tend to agree with most of the arguments raised. Technological progress has certainly played a part (driven partically by foreign direct investment).
What Is China Doing to Its Workers?
Is the dramatic decline in labor's share of the economic pie ominous?
A silent revolution has been taking place in China. Somehow, without anyone noticing, the capitalists have upended the People's Republic. Over the past few years, they have effected a significant redistribution of income away from workers. This might well be the mother of all redistributions.
Normally, in most countries, the distribution of income between labor and capital changes not at all or very slowly. For example, in the United States, the share of the economic pie going to workers has been, with some small exceptions, roughly stable in the postwar period. In China itself, this share was roughly stable for over 25 years since the Chinese economy took an outward turn in 1978.
But recently there have been tectonic shifts. Between 2002 and 2005, according to Berkeley economists, Chong-En Bai, Chang-Tai Hsieh, and Yingyi Qian, the share of the economic output going to workers decreased by about 8 percentage points, from about 50 percent of GDP to 42 percent of GDP. Which means that China—yes, the People's Republic—now has perhaps the lowest labor share of any major country in the world.
The article concludes:
How might this decline in labor's share—a source of potential social disaffection and unrest—be reversed? To begin with, it is likely that public pressure will force the government to share the large returns to capital with savers, thereby improving household investment income. Most Chinese savers, who have their money in the Chinese banking system, today obtain zero or negative returns. And they have become wise to this large disparity. Thus, the government has been forced to list more firms in the stock market so that households can enjoy some of the high returns that companies are making. Households have also been investing heavily in the real estate market. But this government strategy has limits because stock and real estate prices are exceptionally high, and as they return to earth, households could be left with depreciated assets and poor returns, which might do little to increase their income.
Over a longer period, further economic forces will come into play. New entrants will emerge and bid away the excessive return to capital. But the big question is this: What if these forces are too weak or too slow, and the public becomes impatient? Will the decline in labor's share of the economic pie be reversed through political change? That may be China's big question.
Sunday 24 February 2008
When and by how much will China revalue?
An interesting partial debate between Michael Pettis or China Financial Markets and Jonathan Anderson of UBS.
I tend to agree with Anderson that there will not be a one off revaluation but that the exchange rate will be allowed to slowly drift upwards and not have to be revalued by 15-20% in one go as suggested by Pettis.
Pettis relies on China being "forced" to revalue. I believe China is able to absorb alot more that Pettis predicts before it will be "forced" to do anything even if the pain is significant. Those that feel the pain will not be able to efficiently transmit this pain to those that make the decision.
Should we expect a one-off jump or more gradual appreciation of the renminbi?[China Financial Markets]
I tend to agree with Anderson that there will not be a one off revaluation but that the exchange rate will be allowed to slowly drift upwards and not have to be revalued by 15-20% in one go as suggested by Pettis.
Pettis relies on China being "forced" to revalue. I believe China is able to absorb alot more that Pettis predicts before it will be "forced" to do anything even if the pain is significant. Those that feel the pain will not be able to efficiently transmit this pain to those that make the decision.
Should we expect a one-off jump or more gradual appreciation of the renminbi?[China Financial Markets]
In a recent report Jonathan Anderson of UBS explains why he doesn’t think China will adjust the currency via a large one-off revaluation. As regular readers of my blog know, I have been arguing since early 2007 that there is a high probability that the financial authorities will eventually be forced into a one-off (15-20%) revaluation, although I am uncertain about the timing.
Wednesday 20 February 2008
Economic Returns to Communist Party Membership
Sometimes economists do write interesting papers. This looks like a great one and another paper to add to the pile.
This paper has just come out in the Economic Journal (a top journal). It may be hard to get access to this paper. A friendly academic should be able to help. I have included the email addresses of the authors.
I tend to believe the results that seem entirely plausible. Yes, you earn 10% more if you are a memeber BUT it is those characteristics that made you a member that are important.
"Economic Returns to Communist Party Membership: Evidence from Urban Chinese Twins"
Economic Journal, Vol. 117, Issue 523, pp. 1504-1520, October 2007
HONGBIN LI, Chinese University of Hong Kong
Email: lhongbin@cuhk.edu.hk
PAK WAI LIU, Chinese University of Hong Kong
Email: pakwailiu@cuhk.edu.hk
JUNSEN ZHANG, Chinese University of Hong Kong
Email: jszhang@cuhk.edu.hk
NING MA, Chinese University of Hong Kong
Email: johnson80528@yahoo.com.cn
This article estimates the returns to membership of the Chinese Communist Party using unique twins data we collected from China. Our OLS estimate shows a Party premium of 10%, but the within-twin-pair estimate becomes zero. One interpretation is that the OLS premium is due to omitted ability and family background. This interpretation suggests that Party members fare well not because of their political status but because of the superior ability that made them Party members. The estimates are also consistent with another interpretation that Party membership not only has its own effect but also has an external effect on siblings.
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This paper has just come out in the Economic Journal (a top journal). It may be hard to get access to this paper. A friendly academic should be able to help. I have included the email addresses of the authors.
I tend to believe the results that seem entirely plausible. Yes, you earn 10% more if you are a memeber BUT it is those characteristics that made you a member that are important.
Party members fare well not because of their political status but because of the superior ability that made them Party members.
"Economic Returns to Communist Party Membership: Evidence from Urban Chinese Twins"
Economic Journal, Vol. 117, Issue 523, pp. 1504-1520, October 2007
HONGBIN LI, Chinese University of Hong Kong
Email: lhongbin@cuhk.edu.hk
PAK WAI LIU, Chinese University of Hong Kong
Email: pakwailiu@cuhk.edu.hk
JUNSEN ZHANG, Chinese University of Hong Kong
Email: jszhang@cuhk.edu.hk
NING MA, Chinese University of Hong Kong
Email: johnson80528@yahoo.com.cn
This article estimates the returns to membership of the Chinese Communist Party using unique twins data we collected from China. Our OLS estimate shows a Party premium of 10%, but the within-twin-pair estimate becomes zero. One interpretation is that the OLS premium is due to omitted ability and family background. This interpretation suggests that Party members fare well not because of their political status but because of the superior ability that made them Party members. The estimates are also consistent with another interpretation that Party membership not only has its own effect but also has an external effect on siblings.
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Monday 18 February 2008
Offshore investing for Chinese slowing
In an article in today's FT the ability of Chinese nationals of invest offshore is discussed. The obvious finding is that Chinese nationals still lack expertise to invest in international markets. Home bias is a well known and in China's case it is likely to be exacerbated by limited information.
Offshore investing out of favour in China [FT]
The explanation is clear:
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Offshore investing out of favour in China [FT]
According to a survey by a Chinese securities journal last week, more than half of Chinese individual and institutional investors think domestic investors do not have the knowledge or skills necessary to invest wisely in global markets.
That pessimistic view is reflected in the performance of the first Chinese mutual funds based on offshore investments, all of which are down more than 20 per cent since they debuted late last year.
The avalanche of retail interest in offshore investments last year has evaporated as the markets drop and China’s so-called qualified domestic institutional investor (QDII) scheme once again falls out of favour.
Last year, following a groundbreaking reform, Chinese fund managers launched four funds dedicated to investing abroad, all of which sold out within hours of opening to subscriptions and received many times the offshore investment quotas of $5bn (£2.5bn, €3.4bn) each granted to them by the Chinese government.
The explanation is clear:
China still operates a largely closed capital account, strictly controlling the flow of funds in and out of the country’s capital markets, but the former British colony of Hong Kong has long been integrated into the global economy and is regarded almost as a separate country when it comes to economic matters.
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Saturday 16 February 2008
Do families spend more on boys than on girls?
An age old issue in China. However, the results might be surprising showing that rural China has no firm preference for spending on boys. I need to read the paper closely to make sure the methodology is robust but the results are plausible. In a one child family it makes sense to invest equally in education as an investment.
Do families spend more on boys than on girls? Empirical evidence from rural China
is a paper that has come out in the latest issue of China Economic Review (the premier China specific economics journal).
Do families spend more on boys than on girls? Empirical evidence from rural Chinastar, open
Yiu-fai Daniel LEE
Social Science Division Hong Kong University of Science and Technology, Clearwater Bay, Sai Kung, Hong Kong
Received 11 April 2005; accepted 20 June 2007. Available online 23 December 2007.
Abstract
The issue of gender bias bears both theoretical significance and policy relevance. Using a household level dataset obtained from the China Standards of Living Survey 1995, this paper tests the gender bias hypothesis in terms of household consumption expenditures in rural China. To the contrary of the general impression that Chinese people have a strong cultural preference for sons, we do not find any strong evidence to support the hypothesis that boys are favored in rural China. We subject our baseline results to robustness checks from the implications of the bargaining approach and the preference for sons argument.
Keywords: Household production and intrahousehold allocation; Economics of gender; China
JEL classification codes: D13; J16; O53
Do families spend more on boys than on girls? Empirical evidence from rural China
is a paper that has come out in the latest issue of China Economic Review (the premier China specific economics journal).
Do families spend more on boys than on girls? Empirical evidence from rural Chinastar, open
Yiu-fai Daniel LEE
Social Science Division Hong Kong University of Science and Technology, Clearwater Bay, Sai Kung, Hong Kong
Received 11 April 2005; accepted 20 June 2007. Available online 23 December 2007.
Abstract
The issue of gender bias bears both theoretical significance and policy relevance. Using a household level dataset obtained from the China Standards of Living Survey 1995, this paper tests the gender bias hypothesis in terms of household consumption expenditures in rural China. To the contrary of the general impression that Chinese people have a strong cultural preference for sons, we do not find any strong evidence to support the hypothesis that boys are favored in rural China. We subject our baseline results to robustness checks from the implications of the bargaining approach and the preference for sons argument.
Keywords: Household production and intrahousehold allocation; Economics of gender; China
JEL classification codes: D13; J16; O53
Friday 15 February 2008
"My Life in China"
An interesting series of articles charting the life of Jean-Pierre Lehmann throughout six decades of living in China. He covers a decade a day starting in the 1950s.
China in My Life — A Personal Journey: The 1950s
China in My Life — A Personal Journey: The 1950s
While 2008 is the "Year of China," many people only know the country through headlines, political rhetoric and economic data — and cannot consider China from a first-person historical perspective. In this six-part series, Jean-Pierre Lehmann examines China from his personal experiences beginning five decades ago. In this first installment, he explores the perceptions and realities of China in the immediate post-World War II period.
Property share price crash - not before time
To say that there are asset bubbles in China is an understatement. The restrictions on alternative investments means money has been ploughed into A shares and property or both (shares of property companies). This has led to some spectacularly bad investments.
The FT report on the share prices of property companies. These have been a classic "short play" for a while. I suspect there is further to fall. The complicating factor of course is that it is not possible to predict what the government will do. If they wants shares to rise, they will rise.
China’s property market prepares for shake-up [FT]
The FT report on the share prices of property companies. These have been a classic "short play" for a while. I suspect there is further to fall. The complicating factor of course is that it is not possible to predict what the government will do. If they wants shares to rise, they will rise.
China’s property market prepares for shake-up [FT]
A real estate agency closing hundreds of branches while the owner of another absconds; property developers cancelling fundraisings and debt spreads widening dramatically; house prices slumping – these sound like recent tales from the US housing market.
Yet these events have happened in the past three months in China, as some parts of the country’s housing market have shown signs of real stress.
Shares in many of China’s largest listed property developers have fallen more than 50 per cent from their highs of last year in the face of investor fears that some developers might be forced into bankruptcy.
After a couple of years of rapid investment, Chinese developers have been caught between two forces – government efforts to slow economic growth and the global credit crunch. The authorities have taken unusually strong measures to limit credit growth and have promised to introduce a tough new policy to reduce developers’ holdings of unused land.
Monday 11 February 2008
Short list of 100 to manage China's $30bn
Not before time China is going to employ outsiders in the investment of $30bn. The Chinese government has already lost billions buying US paper and there is no doubt that outside expertise is needed.
China fund gears up for $30bn drive [FT]
This is why they need to make the correct decsion. The Chinese people will only put up with so many terrible investments.
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China fund gears up for $30bn drive [FT]
China’s $200bn sovereign wealth fund is preparing to grant mandates of as much as $30bn to international fund managers and is expected to receive another injection of capital for its offshore investments from the country’s $1,530bn in foreign exchange reserves.
China Investment Corp is about to notify shortlisted candidates from more than 100 applicants hoping to manage its investments in global equity markets and is planning to put about $4bn into a fund managed by JC Flowers, the US private equity firm, that will target ailing financial institutions.
This is why they need to make the correct decsion. The Chinese people will only put up with so many terrible investments.
China’s foreign exchange reserves are increasing by nearly $40bn a month, reaching $1,530bn by the end of December. The bulk of these funds is invested in low-risk overseas assets such as government bonds, particularly US Treasuries. Beijing has mandated CIC to make riskier investments in the hope of earning better returns on a portion of those reserves.
But CIC and the large Chinese financial institutions that have ventured abroad are under immense pressure to make smart investments rather than just shovel money out the door. CIC’s Blackstone investment has been criticised as it has lost more than 40 per cent of its value after a steep drop in Blackstone shares. Ping An Insurance, the country’s second-largest insurer, has also been blasted for its $2.7bn purchase late last year of 4.2 per cent of Belgo-Dutch financial group Fortis, whose shares have dropped about 30 per cent since then.
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Saturday 9 February 2008
Asian interdependence and the US recession
After writing the previous "Has China's growth peaked" I hinted at the interdependence of Asian countries and their subsequent relationship with the US and EU.
When one looks at the raw numbers, e.g. the % of exports to the US it might not appear to be that high. However, when one takes its account the exports of intermediate goods to other Asian countries that are then exported to the US and EU you can see that the problem goes a lot deeper. There are many academic papers that are looking at production networks and fragmentation in Asia and I may even have written one of two of them.
This is the important quote with numbers. Intuitively they appear to be about right.
I do not believe the de-coupling story. This is one of those pre-recession stories of hope that "the world has changed" when it hasn't. A US recesission will bite hard let there be no doubt.
Asia economies hope for happy divorce [FT]
Exactly.
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When one looks at the raw numbers, e.g. the % of exports to the US it might not appear to be that high. However, when one takes its account the exports of intermediate goods to other Asian countries that are then exported to the US and EU you can see that the problem goes a lot deeper. There are many academic papers that are looking at production networks and fragmentation in Asia and I may even have written one of two of them.
This is the important quote with numbers. Intuitively they appear to be about right.
Asian exports to the US appear to be just 18 per cent. But, the real amount, including all the “goods in process”, might be more than 30 per cent, he calculates.
I do not believe the de-coupling story. This is one of those pre-recession stories of hope that "the world has changed" when it hasn't. A US recesission will bite hard let there be no doubt.
Asia economies hope for happy divorce [FT]
Asia’s export-dependent economies are hoping that decoupling – the notion that the rest of the world can grow even with the US in recession – will hold true.
There have been signs. Over the past year, Japanese shipments to China have risen by 15 per cent, to Europe and other Asian nations by 11.5 per cent, and to the “rest of world”, including the oil-flush Middle East, by 25 per cent.
Still, exports to the US have been fading fast, down 1.7 per cent on the year, and because Japan’s eagerly awaited recovery in domestic demand has never materialised, its economy has been running on only one (export-led) engine. This fiscal year its economy is expected to grow by what analysts describe as a disappointing 1.3 per cent.
Peter Morgan, chief economist for Asia Pacific at HSBC, says that one of the chinks in decoupling’s armour is Europe.
The region has been happily sucking in Asian imports thanks to its strong currency and reasonably good economic performance. But as Asian currencies appreciate, against the euro as well as the dollar, and European economies slow, that will change. “That is going to take away one of the legs of the stool,” he says.
Exports to the Middle East, which accounts for a fairly modest but rapidly growing portion of Asian exports, should hold up assuming demand for oil stays firm. But the foundations of intra-Asian trade, on which much of the argument about export diversification rests, could be more rickety than they appear.
“One thing to remember is that a lot of exports to China are just passing through,” says Mr Morgan, referring to China’s role as an assembly plant for Asian components.
Asian exports to the US appear to be just 18 per cent. But, the real amount, including all the “goods in process”, might be more than 30 per cent, he calculates.
Thailand is a good example. Recent economic growth has been powered primarily by exports, about 12.5 per cent of which went directly to the US last year, down from about 20 per cent when the previous US recession struck in 2001.
Yet Thailand is not as insulated as this might suggest. Sethaput Suthiwart-Narueput, chief economist at SCB Securities, says Bangkok remains vulnerable to a US slowdown since most of its exports to China – about 9.5 per cent of total shipments, up from 4.4 per cent in 2001 – are components used to make goods bound for the US.
The picture is not black and white and decoupling is not an “either/or phenomenon”, says Paul Sheard, global chief economist at Lehman Brothers. Asia emerged relatively unscathed from the 1991 US recession but was much harder hit by the “tech recession” of 2001. Similarly, this time, depending on the precise nature of any downturn, commodity-rich Australia, Indonesia and Malaysia might fare better than, say, countries specialising in electronics, such as Taiwan or South Korea.
Indonesia, for example, has already noticed its non-oil and gas exports slowing to the US. Mari Pangestu, trade minister, told the Financial Times: “Our strategy now is to diversify markets and diversify products. We think the growth market is still Asia, although if the US does fall into recession it will have an impact on the high-growth economies.”
The US remains India’s largest export market, reducing the country’s chances of surviving a US downturn unscathed. The Reserve Bank of India says it has already seen a slowdown in the crucial software and services exports.
By contrast, Australia’s reliance on US exports has substantially diminished. Tim Harcourt, chief economist at the Australian Trade Commission, points out that the US share of Australia’s exports has fallen from 10 per cent to just 6 per cent as “Australia has benefited from the global economy firing on more cylinders than usual.”
China and the health of its economy could be a key factor for many others in Asia. If China’s role as the world’s assembly plant is vulnerable to a US downturn, its infrastructure-led demand is less so. Barring the truly unexpected, even a US recession is not likely to push Chinese growth much below 9 per cent, against 11.4 per cent last year.
Depending on the components of that growth, there could be more demand for, say, raw materials and construction equipment and less for components and factory machinery.
That could slow, but not throttle, growth in some Asian economies. For example, both Singapore and Malaysia have seen a slowdown in their biggest export category, electronics.
But, according to Kit Wei Zheng, a Citigroup economist, Singapore is unlikely to suffer as big a slump as in 2001 because it has diversified into other export areas, including pharmaceuticals. Likewise, Malaysia is partly cushioned by the global demand for palm oil.
Diversification will only go so far, however, particularly if US consumption nosedives, says Mr Sheard. “Asia, centred on China, has become even more interlinked into the global economy, the driving impetus of which has been the US,” he said. It is hard to be global and decoupled at the same time.
Exactly.
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Has China's growth peaked?
This is the question that the FT ask in today's paper. Again, this is not a surprise and most economists would forcast a reduction in growth this year to perhaps single digit.
A US recession would not help. Even though the US and EU do not take the majority of exports from China, even exports to China's ASEAN neighbours will fall as they themselves depend on exports to these regions.
The saviour has to be domestic demand. However, although there is no doubt that the Chinese middle class is growing strongly, poverty levels are still very high, disposable income low and savings rates high.
China’s economic growth passes its peak [FT]
So is this bad news? Far from it. This "breather" might be just what China needs especially given environmental considerations.
China Financial Markets also has a take on the effect of a US recession- the title gets straight to the point. Pettis agrees with me (or I agree with him) on decoupling.
A US slowdown won’t help China [China Financial Markets]
Exactly.
A US recession would not help. Even though the US and EU do not take the majority of exports from China, even exports to China's ASEAN neighbours will fall as they themselves depend on exports to these regions.
The saviour has to be domestic demand. However, although there is no doubt that the Chinese middle class is growing strongly, poverty levels are still very high, disposable income low and savings rates high.
China’s economic growth passes its peak [FT]
Behind the headline forecasts of decelerating Chinese output in 2008 lies a more significant trend that may mark a long-awaited turning point for the economy and its global impact.
Chinese and World Bank economists have significantly downgraded forecasts for China’s national growth in recent weeks – from 11.4 per cent in 2007 to maybe two percentage points lower this year.
But more importantly, the 11.4 per cent expansion in 2007 – the fifth consecutive year of double-digit increase – could represent the peak in headline growth for China for the foreseeable future.
In short, thanks to slowing global and US economies, China may never be able to grow as quickly again as it did last year.
So is this bad news? Far from it. This "breather" might be just what China needs especially given environmental considerations.
The Chinese government, far from being alarmed at such a turnaround in growth, would largely welcome it.
The slowdown could dovetail with Beijing’s own aims to moderate the contentious trade surplus and, at the same time, recalibrate growth away from heavy industry in favour of consumption and services.
“If China is able to rebalance the economy, making it less intensive in resources and capital, cleaner and more widely shared, growth of 9-10 per cent a year for long periods would be the [outcome] developing countries across the world are looking for,” said Louis Kuijs of the World Bank in Beijing.
The surge of recent years in investment in heavy industry, such as steel, aluminium and cement, has strained energy resources, contributed hugely to greenhouse gas emissions and pollution and created few jobs.
Such a cocktail is anathema to Chinese leaders, who face pressure at home to create more jobs – especially with exports in relative decline – and from abroad to tackle carbon emissions.
China Financial Markets also has a take on the effect of a US recession- the title gets straight to the point. Pettis agrees with me (or I agree with him) on decoupling.
A US slowdown won’t help China [China Financial Markets]
../
Last time I was here, in July, a lot of people asked me about the “decoupling” thesis, and not everyone was terrible pleased (or in agreement) when I said I thought the idea was mostly nonsense, based partly on mistaken premises and partly on wishful thinking.
Now, it seems, no one takes the idea of decoupling seriously at all. Everyone is convinced that a sharp slowdown in the US will be disastrous for the rest of the world. This is one idea whose death seems to have come quick and hard. In fact, the most noticeable aspect of my trip here is the sheer gloom and worry about the state of the US and world economy. It has been a while since I have seen so much pessimism and nervousness.
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Talk of rising inflation and a slowing economy brings us straight back to the topic of China. Xinhua yesterday reported that the “U.S. slowdown could be opportunity, not crisis, for China.” They report that a number of Chinese economists believe that a US slowdown, by reducing the growth rate of exports, could help rebalance Chinese growth, towards a healthier mix of investment, exports and consumption and would help relieve monetary expansion.
To their credit few Chinese have taken the decoupling thesis very seriously, but if they expect a US slowdown to help resolve their domestic problems I think they are missing the point. One economist mentioned in the article, Zheng Jingping, a researcher with the National Statistics Bureau, did get focus on the key issue when he noted that “it was not export growth but the trade surplus that would be the key issue”. This is exactly right. If China’s exports decline, and Chinese imports decline also so keeping the trade surplus high, China will get hit by a double whammy. The reduction in exports will hurt economic growth but the high trade surplus will keep China’s furious money expansion going, so continuing to put upward pressure on investment and industrial production. The “rebalancing” would consist of an even greater share of investment as part of total GDP growth. This would be a worst-case outcome.
Could exports slow while causing a decline in imports? Yes, in fact it is highly likely. Remember that nearly half of Chinese exports are recycled imports, and any slowdown in the very important and lively export sector might indirectly affect Chinese overall consumption by increasing uncertainty. But even if there is a small decline in the trade surplus, that is not enough. In order to halt the money-creating monster that China’s currency regime has become, we need the trade surplus (and hot-money inflows) to decline substantially.
Exactly.
Thursday 7 February 2008
Can China continue to feed itself?
China is no stranger to famine and mass starvation. The cause this time might not be megalomaniac politicians but ruthless capitalism leading to global warming.
This recent research paper addresses an interesting issue in my opinion. Given the cold spell in China at the moment this might appear to be a badly timed article.
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Can China continue feeding itself ? the impact of climate change on agriculture
Date: 2008-01-01
By: Zhang, Lijuan
Rozelle, Scott
Huang, Jikun
Dinar, Ariel
Mendelsohn, Robert
Wang, Jinxia
URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:4470&r=env [PDF]
Several studies addressing the supply and demand for food in China suggest that the nation can largely meet its needs in the coming decades. However, these studies do not consider the effects of climate change. This paper examines whether near future expected changes in climate are likely to alter this picture. The authors analyze the effect of temperature and precipitation on net crop revenues using a cross section consisting of both rainfed and irrigated farms. Based on survey data from 8,405 households across 28 provinces, the results of th e Ricardian analysis demonstrate that global warming is likely to be harmful to China but the impacts are likely to be very different in each region. The mid latitude region of China may benefit from warming but the southern and northern regions are likely to be damaged by warming. More precipitation is beneficial to Chinese farmers except in the wet southeast. Irrigated and rainfed farmers have similar responses to precipitation but not to temperature. Warmer temperatures may benefit irrigated farms but they are likely to harm rainfed farms. Finally, seasonal effects vary and are offsetting. Although we were able to measure the direct effect of precipitation and temperature, we could not capture the effects of change in water flow which will be very important in China. Can China continue feeding itself if climate changes? Based on the empirical results, the likely gains realized by some farmers will nearly offset the losses that will occur to other farmers in China. If future climate scenarios lead to significant reductions in water, there may be large damages not addressed in this study.
This recent research paper addresses an interesting issue in my opinion. Given the cold spell in China at the moment this might appear to be a badly timed article.
--------------------------------------------
Can China continue feeding itself ? the impact of climate change on agriculture
Date: 2008-01-01
By: Zhang, Lijuan
Rozelle, Scott
Huang, Jikun
Dinar, Ariel
Mendelsohn, Robert
Wang, Jinxia
URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:4470&r=env [PDF]
Several studies addressing the supply and demand for food in China suggest that the nation can largely meet its needs in the coming decades. However, these studies do not consider the effects of climate change. This paper examines whether near future expected changes in climate are likely to alter this picture. The authors analyze the effect of temperature and precipitation on net crop revenues using a cross section consisting of both rainfed and irrigated farms. Based on survey data from 8,405 households across 28 provinces, the results of th e Ricardian analysis demonstrate that global warming is likely to be harmful to China but the impacts are likely to be very different in each region. The mid latitude region of China may benefit from warming but the southern and northern regions are likely to be damaged by warming. More precipitation is beneficial to Chinese farmers except in the wet southeast. Irrigated and rainfed farmers have similar responses to precipitation but not to temperature. Warmer temperatures may benefit irrigated farms but they are likely to harm rainfed farms. Finally, seasonal effects vary and are offsetting. Although we were able to measure the direct effect of precipitation and temperature, we could not capture the effects of change in water flow which will be very important in China. Can China continue feeding itself if climate changes? Based on the empirical results, the likely gains realized by some farmers will nearly offset the losses that will occur to other farmers in China. If future climate scenarios lead to significant reductions in water, there may be large damages not addressed in this study.
Wednesday 6 February 2008
Banking in China: more evidence
In a follow up to the previous post we go Macro. This time I "borrow" my post from China Financial Markets.
Here is just the first 3 paragraphs.
More on why high share prices don’t mean Chinese banks are in good shape [China Financial Markets]
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Here is just the first 3 paragraphs.
More on why high share prices don’t mean Chinese banks are in good shape [China Financial Markets]
In several earlier entries on this blog (for example see October 3: “Should Chinese banks acquire banks abroad?”), I have used the option framework to value Chinese banks and to try to correct what I believe to be a very widely-held but incorrect assumption – that the high prices investors are willing to pay for Chinese banks indicate that investors have judged the banking reforms in China to have been successful and the banks in good shape. In fact, it is precisely because Chinese banks are still so uncertain and volatile that they are so expensive (and of course the fact that their home market may be experiencing a stock market bubble doesn’t hurt).
As I have pointed out in those previous entries, shares in bankrupt banks are the closest things to call options on a country’s underlying economy, and in a rapidly reforming economy like China’s, these options should be extremely valuable. In those entries I often mention the Mexican banking experience as a very illuminating example for China.
Actually there are dozens of good examples of bad banks with high prices besides the Mexican one, but for personal reason I am most familiar with Mexico. In the early 1990s I headed the Latin American bond and bank debt trading team at First Boston when it was hired in 1990, under the leadership of Pedro-Pablo Kuczynski, to advise the Mexican government on the privatization of its banking system via an auction process. Although the “Chinese wall” between bankers and traders prevented me from being fully involved in the auctions, I was part of the team that advised the government on debt and market-related issues and very close to the whole process.
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Banking in China: Anecdotal evidence of incompetence
One of my over riding fears for China's continued prosperity is the state of the Chinese banking system.
I suspect there are massive bad loan provisions being covered up that could unravel at any time.
This story from Chinalawyerblog says it all. This is a good example where one should take micro level evidence and project it to the macro-level. China has a long way to go that there should be no doubt.
Lose Your Wallet? China Gets Stuck [China Lawyer Blog]
This is the innocent story of a lost wallet in China. After successfully and efficiently closing bank accounts from the US and Hong Kong our man goes local:
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I suspect there are massive bad loan provisions being covered up that could unravel at any time.
This story from Chinalawyerblog says it all. This is a good example where one should take micro level evidence and project it to the macro-level. China has a long way to go that there should be no doubt.
Lose Your Wallet? China Gets Stuck [China Lawyer Blog]
This is the innocent story of a lost wallet in China. After successfully and efficiently closing bank accounts from the US and Hong Kong our man goes local:
Finally, dealing with Chinese was exactly what dealing with China itself entails. China is a land of bureaucracy and useless rules, and everyone who lives here spends their life constantly trying to find ways around these rules. I had to go to five banks to get my Chinese ATM cards replaced. Each required me to a) wait at least 45 minutes, b) repeatedly enter my password, c) speak with 3+ staff members, d) get multiple forms stamped with red official stamps, and e) leave with a hand of papers and a date 7-14 days in the future to return and wait again in line to get my card and my money. Here are the specifics.
First, I went to China Construction Bank. They knew me from daily transactions there, but explained that national law here requires that I wait 7 working days after a card is lost to get it replaced. They charged a US$1 fee to replace the card itself, and since I didn’t have any money they just deducted it from my account, but like the other banks did not let me withdraw money from the account though I was broke. That was a major inconvenience, but the manager just offered to lend me US$30 in the interim.
Second, at China Industrial and Commerce Bank I had a 65 minute wait, including time spent in the “advance waiting area.” The teller had trouble finding my account using my passport, and when he did find it he discovered that they had originally entered my name on their computer without my middle name, although the passport was the same number of course. As a result, the teller repeatedly consulted with the bank’s in-house management, and they concluded that in addition to seven working days, they would need an extra week to confirm that the original documentation I submitted to open the account was the same as the passport I was there showing to them. This was crazy since the name and passport matched, and because three employees there recognized me. So they told me to return in 14 business days, then realized I had not paid the US$1 fee to get a new card. I told them I had no money, since I didn’t have access to the account, and rather than deducting this paltry amount from my account, they told me that without the US$1 to cover the cost of a new card I would have to start this process again after finding someone to give me US$1, then return to the bank, line up again, and probably go through the whole haggle with the boss. Eventually, one of the employees who recognized me just gave me the US$1 fee.
The third bank was CITIC. Here, I encountered the equivalent to the “unnecessary bottleneck-breakthrough” situation that drives foreigners crazy in China. The teller pointed out that my account was opened at a branch 500 meters away, and that I was therefore required to go to that branch to get the card reissued (imagine if I opened it in different province). When I protested that I wanted to get the matter resolved at this branch, she suggested a workaround: she advised me to open a new account with her, put the new account on my same Internet banking service as my old account, transfer the money on the internet from the old account to the new account, then permanently ignore the old account. This worked perfectly, although it made me sick to realize that these people were enforcing rules then helping me find ways to avoid them.
The fourth bank was China Merchants. This was a repeat of the CITIC bank, but it took more time since the bank was busier. We created a new account and transferred everything from the old account to the new account to avoid the mandatory 7 day waiting period. It took me an extra hour to do this, though, since the tellers encountered repeated errors identifying my new account, since their internet banking system differentiates “Jeff Brauer” and “jeffbrauer” (no space) and it deletes spaces on its own.
Finally, the last bank visit of the day was Minsheng bank. This was the only bank were I didn’t lose the card, although since it had been so long since I last used it I didn’t remember the password. The result? New passwords, like new cards, require a 14 day wait, even though I had my passport there, and I couldn’t withdraw any money from the account.
The result? China will be a century behind the USA for a very long time, I think. Also a great chance for foreign banks to compete here if the PRC government ever gives them that opportunity.
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Monday 4 February 2008
World Bank sees lower growth in China
Given the state of the world economy with predictions of country specific recessions (US) and a general global down turn the World Bank are not exactly going out on a limb predicting a slow down in China.
The de-coupling theory never held water in my opinion although the Chinese economy is beginning to generate its own momentum based on domestic demand and consumption. However, getting the savings rate down will still be difficult.
World Bank forecasts slower China growth [FT]
The de-coupling theory never held water in my opinion although the Chinese economy is beginning to generate its own momentum based on domestic demand and consumption. However, getting the savings rate down will still be difficult.
World Bank forecasts slower China growth [FT]
The World Bank on Monday scaled back its projection for Chinese growth and raised its forecast for inflation but said Beijing was in a strong position to stoke demand if the global economy turns down sharply.
The bank said in a quarterly update that it now expects gross domestic product to expand 9.6 per cent in 2008, which would be the slowest growth since 2002.
In its previous report in September, just as the global credit crunch was intensifying, the bank projected 10.8 per cent growth in 2008.
“Given the current uncertainty about the global outlook, the risks are larger than normal, especially the downside risks,” the bank said.
But the lender’s Beijing economists said China was well placed to cope with a moderate global slowdown thanks to robust domestic fundamentals, including high profitability and improving consumption.
“China enters 2008 with very strong momentum in the domestic economy,” Louis Kuijs, senior economist told a news conference.
China could easily pump up the economy further if needed by relaxing fiscal policy – China has a tiny budget deficit – or by easing credit curbs that the central bank has been enforcing to prevent overheating.
“Inflation concerns make lowering interest rates or relaxing liquidity management less obvious. Uncertainties in the outlook call for vigilance and flexibility,” the report said.
The bank now expects consumer prices to rise 4.6 per cent on average this year, up from 3.8 per cent projected in September.
Inflation in the year to December was 6.5 per cent, close to an 11-year high, and financial markets suspect the rate will top 7 per cent in January and February because of food shortages caused by the worst winter weather in 50 years.
The bank expects the impact of the fierce weather on output and prices to be temporary and says inflationary pressures should ebb later in the year, not least because the rate of increase in international food prices will slow.
But there were also upside risks to inflation from higher land use fees, cuts in export tax rebates and the costs of complying with new labour laws, the bank said.
It said the global slowdown could have a silver lining for China by helping to reduce the economy’s reliance on exports, which have grown much less rapidly than imports in recent months.
The bank expects China’s current account surplus, the broadest measure of trade, to fall to 9.3 per cent of GDP this year from an estimated 11.0 per cent in 2007.
“We may be closer to a moderation in the growth of China’s trade surplus,” Mr Kuijs said.
Friday 1 February 2008
Inflation Storm Ahead
The severe storms in China will have serious consequences for firms that reply on brisk holiday trading. However, the more worrying issue is the effect the storm damage will have on food prices.
Jan. 30 (Bloomberg) -- Rain and snowstorms in China have ``severely'' damaged rapeseed, vegetables, wheat and other crops in 16 provinces, hampering the government's measures to increase agricultural production and curb inflation.
As much as 103 million mu (17 million acres) of crops were damaged, including 1.8 million acres that were completely destroyed, and the damage may spread as more storms are expected, the ministry of agriculture said in a statement on its Web site.
China boosted farming subsidies last year to increase food production as meat and oilseed shortages stoked inflation and threatened social stability.
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