Kidnapping now part of doing business in China?

The FT report on yet another "cost" to doing business in China. This is publicity that China could do without I am sure but I suspect this is the this end of the wedge.

The problem of Chinese customers defaulting on previously agreed deals will also lead to large losses for some importers.

Kidnap alleged in China dispute [FT]

A British scrap metal company has accused Chinese customers of abducting its chief trader for ransom in a case that underlines the challenges of doing business in China.

Goldarrow Metals alleged that Anil Srivastav was seized from a Shanghai airport this month and held for days in a small hotel in the eastern port city of Ningbo.

The company said it was forced to send shipping documents worth $350,000 to Ningbo Yibao Import and Export, a customer, to secure Mr Srivastav’s release after local police and British consular officials refused to intervene.

The affair comes amid mounting friction in the international scrap metal trade caused by a slump in commodity prices. Tens of thousands of tonnes of imported copper and aluminium scrap are reported to be sitting in Chinese ports after local companies defaulted on deals.

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The embassy in Beijing said it did not become involved after concluding it was a business dispute. Ningbo city police confirmed they had been involved in a case involving Guanghe and a foreigner but declined to give further details by telephone.

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Will Hutton on the crisis to hit Asia and China

A thought provoking piece by Will Hutton of "The state we are in" fame in the Tehran Times (of all places who took it from the Observer) addressing the myth that Asia will bail out the global economy.

He makes some good points using simple statistics and logic. Whilst I thought Will's book on China was rather poor this article is on the right track.

He is right to point out the massive level of toxic bank loans from banks to failing companies. They are failing now and it will not be long until this feeds through to a bankng crisis in China and more bailouts.

Will Hutton also touches on the "social unrest" problem that will occur at growth rates of less that 8%. This is coming and it is coming soon.

If 7 to 8 percent growth is better, it will still not stave off a sharp increase in unemployment. Already there is an explosion of what the Chinese call 'incidents' -- social unrest. As the Ministry of Labor has warned, China needs to create jobs with sky-high growth rates if it is to retain social stability.

The article is worth reading in full.

Don't expect China to get the West out of this mess [Tehran Times]

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The first is that Asia, except Japan, remains in essence a subcontractor to the West. Two-thirds of China's exports, for example, are made by foreign companies who essentially reprocess imports of semi-manufactured goods that are then shipped to Europe and the U.S. It is an economy that does not innovate -- it is the great copier and counterfeiter of Western technology. This may change over the next 200 years, but not during the lifetime of most of the people reading this column.

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Nor is Asia set to prop up the shattered Western economy. This is the other fashionable notion peddled until recently. Asia is now so strong and independent of the West, ran the argument, that it has 'decoupled'. It would carry on spending and producing, so partly underwriting the world economy and ameliorate the worst of the coming recession.

Asia's terrified financial markets, coming to terms with their region's vulnerability, are now testimony to this profound misunderstanding. Asia is an exporter and saver, of which the best example is China. It consumes a smaller proportion of GDP than it saves, with total consumption lower than Italy's. If its exports stagnate, as they have with the rise of the renminbi against the dollar and the slowing of American spending, then its economy slows down. The rate of growth has dropped by a quarter over the last 12 months and there is every prospect of a further sizable drop over the next 12.

Nor can investment rise to fill the gap. China is saturated with ports, highways, steel mills, cement and petrochemical plants that operate at a fraction of capacity. As the realization has grown that capacity has run far ahead of now falling demand, China's bubble economy has burst rather like our own. Its stock market has crashed and property prices are collapsing. The manufacturing heart in the Pearl River area near Hong Kong is being destroyed. Half the 2,200 factories in the shoe industry have shut, as have a third of the 3,600 toy factories.

China's ever-growing demand for raw materials is easing. Although the Chinese government says its sheltered banking system is insulated from problems in the West, last week top Chinese investment firm CITIC reported a $2bn loss from taking 'unauthorized' positions in the derivatives markets. China's banking system is a house of cards, with billions of dollars of toxic loans made at the party's request to loss-making enterprises set against tiny amounts of core capital. Some unexpected losses and the results could make the West's financial crisis look tame.

The party is acutely aware of the risk, lowering interest rates and considering a big boost in infrastructure spending. Outsiders seem perplexed at the alarm that growth may subside to 7 percent next year; would that Britain and the West will be so lucky.

But bear in mind two key facts. China managed to grow throughout the Great Leap Forward and Cultural Revolution at nearly 5 percent per annum. The bulk of the adult population still farms tiny plots of hopelessly unproductive land in grinding poverty. All it takes is a tiny fraction of its workers moving from doing nothing in the countryside to doing something in the towns deploying modern technology to produce growth. In these conditions, only 5 percent growth is a crisis.

If 7 to 8 percent growth is better, it will still not stave off a sharp increase in unemployment. Already there is an explosion of what the Chinese call 'incidents' -- social unrest. As the Ministry of Labor has warned, China needs to create jobs with sky-high growth rates if it is to retain social stability.

In which case it must change. It has to consume more and become more innovative and productive. But communism stands as a roadblock.

The party is considering an amazing concession - allowing peasants to be able to buy and sell long leases on their land. This would be the biggest step towards granting property rights to 730 million rural peasants since the Revolution. The reason? The party needs them to use their land as collateral to save less and spend more. It is political dynamite, removing one of the key props of the party's support - its control of villages and land rights. But it must be considered. China is beginning the perilous path to becoming freer because the economy demands it.

Then there is innovation, where its track record is abominable. China accounts for only 0.1 percent of the world's patents that apply in Japan, the EU and the U.S. Economists believe the invention of general-purpose technologies, like the internal combustion engine, internet or airplane, that have massive general application, holds the key to growth and will accelerate in the decades ahead. Not one of this century's general-purpose technologies will be made outside the West and Japan, which have held a monopoly for 300 years. Their lead will widen rather than narrow.

The Chinese government knows it must unblock control of universities, laboratories and business if China is to change this dismal prediction and create the subtle combination of freedom to experiment and incentives in which innovation flourishes. Meanwhile, the West's financial travails are not for ever. Once they are solved, the West will be back, exploiting its capacity to innovate.

Authoritarian Asian capitalism is not about to triumph over the Western liberal variant. China needs to change profoundly if it is to join the first rank of nations as their equal. Meanwhile, don't look to it -- or the rest of Asia -- to soften recession. The West made this mess. It must clear it up itself.

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Big Carnage in Big China: crisis fallout continues

The idea that China could escape the global downturn was always a myth as I have attempted to bang on about in this blog.

We have all heard about factories closing, workers being fired and house prices falling.

But is this just the beginning? Silk Road International Blog have an excellent post on this looking at the effects at "ground zero".

So, How Does the Carnage Look from Ground Level? [Silk Road International Blog]

I spoke with NPR again this week about the “feeling on the ground in southern China.” And while I can’t speak for everyone, I know what I’m seeing across a large spectrum of industries and in a number of cities.

Basically, the euphoria is over. Lack of any real press for the first 8 months of the year and no 3Q numbers until this last week meant that China thought it was immune from the global slow down. Um, it’s time to wake up from the artificially induced “one world, one dream.”

What happened in the US with homes happened in southern China with export factories. They mortgaged their future on the promise of continued growth and now it’s all gone and debts are higher than the value of inefficient factories and increasingly inexpensive labor.

With growth at 9% people are worried. On the street that means a couple of things. First spending will drop and conservative Chinese will save even more. The domestic stock market scared millions of investors 9at least twice in the last decade now) and the US crash compounded that fear. I don’t believe that the domestic economy is as impressive as the govt says. It has never been the savior that MNC’s have dreamed and it’s not going to save the GDP this next year either. People aren’t spending, they aren’t investing, the housing bubble is popping. The milk scandal has totally obscured any of the positives that the 0lympics created. And it just keeps getting worse.

The article then gives 6 good reasons why things are bad and getting worse.

Finally, in point 4 the author of this post alludes to my previous post on the "great social unrest" mystery (see previous posts). We appear to agree on this one.

If I was a betting man, I’d put money on 4Q numbers being below 8.5% and next years numbers even lower. (Honest numbers will be below 8.5% for sure but “official” numbers will not be that low because of the need to control a bit of the domestic collective psychology—like the US will never have another “great depression” because it sound’s so awful, 8.5% is the magic number that has to be hit just to keep the new entrants into the workforce employed in China. A drop below 8.5% and people will start thinking ‘89 again.)

I will like the author to elaborate on what he means by this final statement.

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Hidden costs of coal - $250 billion?

China's reliance on coal is a major contributor to global warming. However, there are also other costs that are incurred closer to home.

What this article does is to highlight the real problems that result from China's reliance on coal. What is also abundantly clear is that there is no simple solution. Demand will keep growing despite any global slowdown and there are few alternatives.

A global solution to the emissions of greenhouse gases is still a long, long way off and this article provides a clear illustration of why.

Hidden Cost Of China's Coal Is $250 Bln – Survey [PlanetArk]

BEIJING - China's dirty and dangerous coal mining industry cost the country a hidden $250 billion last year in lost and damaged lives, wasted energy and environmental devastation, according to a survey launched on Monday.

Pollution affected water, land and air around mines, thousands died and many more were hurt in mining accidents, and acid rain-causing sulphur dioxide and mercury were among dangerous emissions when coal is burnt in factories and power plants.

None of this is reflected in low coal and power prices, according to "The True Cost of Coal", researched over three years by Chinese economists and environmentalists.

"Behind China's large production and consumption of coal ... lie expensive and worrying environmental and social costs," their report warns.

Tariffs would need to rise by around a quarter to reflect the real burden for Chinese society, which in 2007 was 1.7 trillion yuan (US$254.9 billion), they say.

"Currently these costs are paid by the people in China suffering from the damage," Mao Yushi, one of the report's authors and chairman of the Unirule Institute of Economics, told a news conference at the launch of the report.

Experts from the coal heartland of Shanxi province, Peking University, the government's top energy think-tank and the Chinese Centre for Disease control also contributed research.

Last year nearly 3,800 miners died in explosions, flooding and other underground accidents. Although that marked a 20 percent decrease from 2006, it is still the most dangerous mining industry in the world.

For a country short of water and struggling to keep its food and air safe, it is also an environmental liability, said Yang Ailun from Greenpeace, who helped coordinate the report.

Each tonne of coal produced means 2.5 tonnes of water are polluted, while coal mining waste makes up some 40 percent of the country's solid industrial waste, she said.

NO END TO COAL

The key problems identified by the report are government regulations that distort prices and weak oversight that allows miners to get land cheaply, dodge safety and environment laws and ship their coal in dirty, dangerously overloaded trucks.

Extra taxes, stricter enforcement, and an end to the price caps that have kept electricity temptingly cheap would make coal prices more realistic and curb waste, deaths and the worst pollution, the report said.

The good news for a country that relies on the dirty fuel for more than two thirds of its energy is that the big price increase it calls for in the long term would mean only a tiny hit to the economy as efficiency soars and green energy firms prosper.

But for those who dream of a future powered only by windmills and dams, they warn that coal will not lose its dominance in China for decades. The report says the 23 percent price rise it recommends would cause only a 7 percent fall in consumption.

China is already the world's biggest producer and consumer of coal, which provides a cheap, domestic energy source at a time when volatile global oil markets have exacerbated worries about tight supplies.

Demand is growing so fast that its miners have to produce an extra 200 million tonnes a year to keep up, or the equivalent of the entire coal mining industry of major producer Indonesia.

A slight decline in consumption, in place of this frantic expansion, might give the industry room to improve their standards without starving the country of energy.
(US$1=6.845 Yuan)

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Are poor transport networks a brake on China's growth?

Another artice from the recent "Doing Business in China" series in the FT.

In my research where I control of transportation networks odd results are thrown up due to the geography of China and the differences in quality of network across provinces especially for rail.

Whilst certainly true that poor transport networks can act as a brake on growth, I would imagine that China is in a much better position that the perceived competition from India or more recently Vietnam where transport is certainly in a worse state than China. The investment in transport in China in recent years has been enormous and whilst a lot remains to be done China is well on the way.

It is interesting to note how the way the road network operates leads to an increase in bribes and theft. Regulations clearly make this worse than it needs to be.

Missing links [FT]

Distribution and the moving of goods remains one of the biggest headaches for almost every company looking to sell products across China.

The principal reason is the uneven development of the country’s transport sectors, with extremely high spending in some regions and sectors – above all, on the country’s expressway network – but poor overall co-ordination.

The outcome has been not just a hugely fragmented transport industry, with barely any logistics companies offering nationwide services, but also one of the world’s most expensive logistics sectors, with transport and related costs accounting for more than twice the share of gross domestic product as in the US, and about four times as much as in Europe.

On the plus side, provinces across China have spent enormously on developing an expressway network – from having less than 10,000km a decade ago, the country’s total length has grown to 78,000km, second only in total length to the US.

This roll-out is set to continue under a master plan that during the next three decades should see every city with 200,000 or more inhabitants linked into the network.

Ports have also seen heavy spending, especially around China’s main export manufacturing locations: at Shenzhen in Guangdong province, around the Lower Yangtze Delta region centred on Shanghai and at Tianjin, Qingdao and Dalian in the north and north-east.

And the country has some of the world’s biggest and most modern airports, notably at Beijing, Pudong in Shanghai and Guangzhou.

With these three elements in place, China has an excellent infrastructure for importing inputs and materials and exporting finished products – by air, if necessary, as well as by ship.

The country also has some excellent regional networks but its transport shortcomings are exposed when a company tries to move goods from one part of the country to another – links between provinces and major cities remain surprisingly poor.

The most obvious weakness is the country’s rail network, whose total length has barely grown in the past five years.

China’s transport shortcomings can be attributed to a lack of central co-ordination and the large number of competing bodies involved in overseeing the transport and logistics sectors.

Railways, aviation and road each fall under separate ministries or central government commissions: the Ministry of Commerce is responsible for licensing various logistics and other transport services; the National Development and Reform Commission, the state’s main planning body, aims at co-ordinating transport policy but has to fight turf wars with the other local and state entities; and China’s customs and State Administration for Industry and Commerce (the latter with both central and local arms) are also involved in regulating the movement of goods.

Throw in a decentralisation of administrative power that has taken place in the past two decades, and it is unsurprising that while China’s richest regions have successfully been able to fund their own infrastructure programmes, central officials have struggled to impose their will in getting different parts of the country to work together.

Making things worse are a series of additional factors that seriously hinder the movement of goods, and make the whole process a lot more expensive.

First, is that road haulage is an intrinsically more expensive and inefficient way of moving large volumes of goods long distances than railways.

Second, are road charges. China now has 70 per cent of the world’s mileage of toll roads, according to the China Supply Chain Council, which local governments have to levy in order to fund their road-building projects.

And then there is local protectionism, with provinces or cities discriminating against transport and logistics firms from other parts of the country.

The consequence of these factors are multiple changes of goods from one trucking company to another, multiple payment of fees at provincial and city borders, and lots of trucks making empty return journeys.

Such practices, of course, all encourage the demanding of bribes, create opportunities for petty theft, make the tracking of goods all but impossible and – arguably most important of all – build in long delays.

The good news is that improvements are coming. Expenditure on railways has been lifted. This summer saw the opening of a high-speed rail link between Beijing and Tianjin, and at the start of the year work began on a 1,300km high-speed route from Beijing to Shanghai, scheduled for completion in 2013.

Plans have also been announced to increase the total railway length to 120,000 km by 2015 (advanced from an original target of 2020) – a credible figure given that expenditure has been raised to more than £23bn a year, up from an average of less than £9bn a year in the first five years of this decade.

And there are also signs that the central government is looking to exercise tighter control over both planning and funding, and an opening of the logistics sector to greater foreign participation, which between them should both lower barriers between provinces, raise managerial standards and see increased investment in the soft side of the transport industry.

Nonetheless, given the time that it will take for the planned new rail lines to come into operation, a continuing shortage of experienced logistics managers, and the almost certain continued prevalence of local protectionism, distribution is going to remain one of the main obstacles to companies doing business in China – whether Chinese or foreign – for at least a decade.

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The Great "Social Unrest" in China mystery

In my recent experience with Chinese economists I have found them and indeed other academics with an interest in China remarkably reluctant to mention the "social unrest" word in conjunction with a global recession.

Given China's reliance on exports and the number of jobs China has to create just to stand still each year coupled with an increasingly brave populous not (as) scared to speak out it appeared to me that the conditions for "social unrest" were aligning themselves nicely.

Yet this element seems to be absent from serious discussion. Clearly China is still well positioned to crush any unrest but with the eyes of the world increasingly on them it may not be as easy as in previous decades.

It was reassuring therefore to read in this week's economist that someone, somewhere has put a number to the issue. The Economist's number just so happens to match mine.

This means we are getting close. All eyes on China.

Here is the quote in the lead article "Into the Storm" looking at how the emerging world will cope with the current "global downturn" or as I prefer to call it "cliff jump".

In many places—eastern Europe is one example (see article)—financial turmoil is hitting weak governments. But even strong regimes could suffer. Some experts think that China needs growth of 7% a year to contain social unrest. More generally, the coming strife will shape the debate about the integration of the world economy. Unlike many previous emerging-market crises, today’s mess spread from the rich world, largely thanks to increasingly integrated capital markets. If emerging economies collapse—either into a currency crisis or a sharp recession—there will be yet more questioning of the wisdom of globalised finance.

Among the giants, China is in a league of its own, with a $2 trillion arsenal of reserves, a current-account surplus, little connection to foreign banks and a budget surplus that offers lots of room to boost spending. Since the country’s leaders have made clear that they will do whatever it takes to cushion growth, China’s economy is likely to slow—perhaps to 8%—but not collapse. Although that is not enough to save the world economy, such growth in China would put a floor under commodity prices and help other countries in the emerging world.

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China's housing market - built on sand?

One chink of light on the horizon was that China would bail out the world with its continued growth (even at 8%). However, Chinese consumers are not immune. This is especially true if the housing market continues to fall.

The Economist summarise the position nicely.

What goes up [Economist]

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For several years China’s leaders have been trying gently to deflate a housing-market bubble pumped up by huge demand from a fast-growing middle class with few other investment opportunities. In the past few months their efforts have begun to pay off. But economic growth has also begun to slow, the stockmarket is far below last year’s peak and worries are growing about the impact of the global financial crisis. Weaned in unremitting good times, China’s fledgling middle class, whose support the Communist Party sees as crucial, is entering uncharted territory.

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Numerous other property companies around China are similarly beleaguered. The Chinese press says that in September around 100 homeowners in the eastern city of Hangzhou stormed into the offices of Vanke, a big developer, to demand compensation for falling prices. In March a company in the southern city of Shenzhen (pictured above) caused a stir after it cut prices by 20%, by coughing up the difference to about 25 previous buyers of its property. Others have resisted giving cash, but have tried to calm homeowners by offering discounts on management services.

The official press has shown little sympathy for the homeowners’ demands. Taming the housing market has long been a central-government objective. Even so, many local governments are now deeply worried about the downturn. By the second quarter of this year, prices were falling in more than a dozen big and medium-sized cities. Property-related activity makes up a considerable chunk of local governments’ revenue and, as Yi Xianrong of the Chinese Academy of Social Sciences points out, helps to line officials’ pockets.

In recent weeks 18 cities, including Hangzhou and Shanghai, have introduced measures to prop up the market. These include cuts in transaction taxes and even subsidies for homebuyers. Hangzhou has made it easier for rural dwellers who buy homes in the city to obtain urban-residence certificates. These confer access to subsidised education and better health care than in the countryside. Shenzhen, where house-price falls have been among the country’s biggest (see chart), has so far resisted the temptation to intervene. So has Beijing, where the number of residential properties sold during the weeklong national-day holiday earlier this month—usually a brisk period for sales—was down by 72% compared with the holiday in 2007.

For all the grumbling of homeowners wrong-footed by the market’s plunge, the central government is still mindful that a large proportion of middle- and lower-income households have been complaining bitterly about the fast rise in house prices in recent years. This group has a bit of clout too. Since they came to power six years ago, the present bunch of China’s top leaders have been trying to present themselves as more “pro-poor” than those in charge when the country launched its sweeping privatisation of urban housing in 1998 (a move that marked the birth of China’s middle class).

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The State Council called for the construction of government-subsidised housing to be stepped up. This could help stimulate economic growth, about which the government is showing signs of concern. On October 20th the National Bureau of Statistics said that GDP grew in the third quarter by 9%. This was lower than many had expected and the first time in four years a quarterly growth figure was in single digits. One Chinese newspaper said the government was considering the launch of a trillion-yuan fund to help build affordable homes. A bigger supply of cheap housing is hardly likely to boost prices.

Growing demand for homes in the cities, on the other hand, certainly will help. The government wants to move many tens of millions of rural residents into urban areas in the coming decade. Andy Rothman of CLSA, an investment-banking firm, argues in a research note that with household debt “almost non-existent” and state-owned banks ready to lend, buyers will return to the market as the dampening measures are eased. And to keep artificially depressing the housing market, he notes, would anger the middle-class homeowners the party has been cultivating: not a risk China’s leaders are likely to take.

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China's Threat to other Southern Exporters?

There is an ongoing debate on the impact of China on the competitiveness of China's near neighbours and indeed is an area where I have done some work.

The World Economy recently published a paper looking at this threat.

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"Measuring the Competitive Threat from China for Other Southern Exporters"

World Economy, Vol. 31, Issue 10, pp. 1351-1366, October 2008

RHYS JENKINS

LINK HERE.

In recent years there has been a growing literature which analyses the threat which Chinese exports pose to the exports of other developing countries. This paper provides a critique of the standard measures of export similarity which have been used to estimate the threat from China in these studies. Two alternative indices, the Static and the Dynamic Index of Competitive Threat, are developed and estimated for 18 developing countries and compared with estimates for the standard measures. It is shown that the latter tend to underestimate the extent to which countries are threatened by China. They also distort both the rankings of countries according to the extent to which they face competition from China and the direction of change in the competitive threat over time.

Education in China - one of the UK's best exports?

Given the origins of this blog was to provide information to perspective students considering the UK as a destination for undergraduate and postgraduate studies, the recent FT article that examines the role of the UK in China's education system is pertinent.

I believe this blog is still banned in China so my original aims have been somewhat undermined.

Of particular interest is the article on the University of Nottingham's foray into China by means of a Chinese campus development. The point but forward from Nottingham is that all surpluses generated in China will be reinvested in the China campus is an excellent one. As long as the reputation for quality is closely monitored it is likely that the international exposure Nottingham will have gained through this development is potentially worth every penny.

The success of this strategy is evidenced by the increase in the global University rankings that Nottingham has achieved.

New school ties [FT]

Chinese parents have a thirst for British education for their children that creates huge potential opportunities for British companies and charities.

Asked why this is, British education experts all use the same two key words: educated Chinese people worry the “didactic” style of Chinese teaching is less suited than the more “questioning” style of British learning to the increasingly knowledge-based global economy.

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UK universities are also increasingly likely to offer degrees in China. Universities UK, which represents university vice-chancellors, estimates that about 11,000 Chinese students study in their own country for British higher education awards. The market is attractive partly because the fees are less heavily regulated than back home – allowing universities to charge more per student than they can for English and other European Union students coming to the home university in England.

The same universities can charge many students relatively high fees for studying in the UK. But there is a different market for Chinese students who would rather cut living costs and stay close to family by studying at home.

The most common way in which British universities offer degrees in China is through the campus-free model. Staffordshire University is one of many institutions that have enthusiastically embraced this, offering degrees through partnerships in China, India, Pakistan, Sri Lanka, Oman and Europe. Peter Reynolds, director of the international office, says: “Building a reputation overseas helps with our recruitment.”

The University of Nottingham, one of Britain’s elite group of Russell Group universities, has taken the biggest risk of all to entice foreign students by opening its own campuses abroad: one in Malaysia and one in China, at Ningbo near Shanghai in 2004 (see below).

Prof Christine Ennew, pro-vice chancellor for internationalisation at Nottingham University Business School, plays down the financial motive. Prof Ennew wants the foreign campuses simply to generate ”sufficient surpluses” to support their future expansion. “We would like to see both grow significantly over the next three to five years,” she says.

Instead of being a money machine, the campuses in China and Malaysia “are contributing quite significantly to our reputation globally. We’ve moved quite a bit up the Times Higher Education league table” – a worldwide set of rankings based largely on the opinion of academics.

The ambition of Nottingham and its first mover advantage mean that the chances of success are good despite the inherent risks. This is one experiment to watch carefully.

Education and the environment are two of China’s toughest challenges and the University of Nottingham, honorary award winner at the 2007 Cathay Pacific Business Awards, was the first overseas institution allowed to establish a satellite campus inside the country.

In Ningbo, a booming port of 8m people in Zhejiang Province, south of Shanghai, Nottingham’s campus is home to almost 4,000 undergraduate and postgraduate students and more than 250 teaching and administrative staff. In just three years, the university has rolled out first and second degree courses in international business, international communications, international studies, computer science, sustainable development, English studies and engineering.

Demand for English-language education in China is rampant. And while more than 20m students are enrolled in tertiary education in China, critics say that reforms have so far failed to develop a pedagogy that encourages critical and creative thinking.

Prof David Greenaway, the University of Nottingham’s vice-chancellor, says he wants to double student numbers at Ningbo. “I’m not sure we could replicate everything we have here in the UK, from theology to veterinary science,” he says, “but we will be adding natural and social sciences in the next year or two.

“Tuition fees cover the running costs there, and in a couple of years the campus will be generating surpluses which will be reinvested in Ningbo – there’s no intention to suck them back here,” he adds.

Prof Greenaway also wants to increase the number of UK students spending time at Ningbo. While some 50,000 Chinese students study in the UK, considerably fewer British students head in the opposite direction. Of the UK’s 130 universities, only about a dozen have centres for Chinese studies.

“We want to diversify the experience of Nottingham students, so they can spend six months in China,” says Prof Greenaway. “Deep immersion in another culture will make them so much more attractive to employers back in the UK.”

Nottingham has had student exchange agreements and joint research projects with Chinese universities for some time, but signalled its intent to develop a more significant presence in China when it appointed Yang Fujia as its chancellor in 2001. So in 2003, when Chinese law was changed to allow foreign universities to set up, Nottingham was in pole position.

Christine Ennew, pro-vice chancellor responsible for internationalisation, says social networking is a fundamental building block of doing business in China.

“We have a joint venture partner, the Wanli Education Group, but because we have been working in China for quite a long time we have lots of informal networks of people to whom we can turn to for advice and support,” she explains. “It’s very difficult to go in cold to China, so those networks were extremely valuable.

“We were also keen from the outset to signal that we see this as a long-term commitment and that it wasn’t a case of us coming in to tell the Chinese how to do things. It’s a reciprocal arrangement – the Chinese may get benefits from learning about western-style pedagogy, for example, but we also expect benefits in terms of our understanding of China.”

FT: "Bilateral Thinking" - UK-China trade patterns

On October 20th 2008 the FT released a pullout on the general topic of "Doing Business in China."

Included are a number of excellent articles that I will be linking to over the next few days.

The first article reveals the extent of UK bilateral trade with China and discusses the potentially rich rewards. I highlight below some of the more interesting paragraphs.

Bilateral thinking [FT]

It is the second largest exporter of goods and will become the number one within a few years. It is the largest consumer of metals, the biggest emitter of carbon dioxide and will quite soon be the world’s largest consumer of primary energy.

It also offers unrivalled opportunities for British businesses, which already export more to China than to any other Asian country and invest more in the country than any other European nation. Unsurprisingly, the UK government is keen to further strengthen trade and investment links and has increased its support for British-based organisations hoping to enter the Chinese market.

Yet the impact of the global credit crunch has dented investor confidence, as the world waits to see just how sensitive the Chinese economy will be to the slowing economies of Europe and North America. Moreover, the business environment in China remains challenging, with some sectors off-limits to UK businesses, continuing problems in protecting intellectual property rights and inflation boosted by rising commodity prices and labour shortages in the biggest centres.

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The evolving relationship is illustrated by the sharp increase in bilateral trade between the UK and China, which has more than doubled in the past five years. British exports of goods and services to China surged more than 40 per cent in the first half of 2008, while imports increased 10 per cent. The UK is investing in 6,000 projects in China worth more than £8bn, and is by far the biggest recipient of Chinese foreign direct investment in Europe – capturing 11 per cent of the total.

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China’s desire to increase energy efficiency and reduce pollution and carbon emissions is also providing lucrative opportunities for British companies. Investment in renewable energy increased 91 per cent in 2007 to £6.1bn, with most going into mini-hydroelectric generation, solar water heating and wind power.

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China’s Economic Growth 1978–2025

A new paper published in World Development that looks carefully at China's growth patterns over the last 30 years and into the future.

This was written before the current financial crisis so is probably already out of date but useful as an historical piece.

This line from the abstract made me laugh in light of a previous post which notes that China's growth has already fallen below 10%.

Overall, China’s economic growth is likely to continue at current rates through 2015 before it gradually slows.

Economists are never to be trusted.

China’s Economic Growth 1978–2025: What We Know Today About China’s Economic Growth Tomorrow

Carsten A. Holza,
Princeton University, NJ, USA
Hong Kong University of Science and Technology, Kowloon, Hong Kong

Accepted 24 September 2007.
Available online 29 August 2008.

Summary

This paper examines China’s future growth prospects and the potential drivers of future growth using two approaches. It first asks in how far China’s recent economic development matches standard growth patterns identified in development economics and trade theory. Second, GDP is decomposed into income components, which in turn are explained, for the reform period, by the quantity and quality of labor; future GDP can then be re-composed from future labor data available today. Overall, China’s economic growth is likely to continue at current rates through 2015 before it gradually slows. Such a growth has numerous implications.

Key words: economic growth; growth accounting; growth forecasts; development theories; education; China

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What is China thinking?

A good question and one that will be addressed in an up and coming debate arranged by the Institute of Ideas for Sunday 4th November.

Some of the references are also useful and make for excellent reading.

Clearly, they should have Chinaeconomist on the panel to give an economic overview but you can't have everything.

What is China thinking? [Institute of Ideas]

The Beijing Olympics ‘coming out’ party gave a sharp focus to Western concerns about the awakening of the ‘sleeping dragon’; certainly the rise of China is the subject of much debate in the West. With so much of the discussion filtered through the prism of Western preoccupations, however - from fear and loathing, to awe and envy - can we make a balanced assessment of what China really wants, and just what it’s thinking?

What does the dramatic rise of China as a world player mean to China itself? Rapid industrialisation and urbanisation represent undreamt of prosperity for millions of Chinese people, yes, but is it a dream billions can hope to share? Want to share? How is it that the Chinese today conceive of their project and imagine their future? How do they plan to relate to the rest of the world? Is it all harmonious global growth from here on in? Does that include Taiwan? The autonomous regions? Is their dream that industrial modernity leads naturally to growing freedoms, democracy and public participation? As Western commentators debate whether or not liberal democracy is the best thing or not for China, we should start by asking, would the Chinese even vote for it?

Can we expect Enlightenment scientific rationalism to be an inspiring model, or is Confucius back with a vengenance? Will Chinese social networking sites break new ground that we have not even begun to tread, or just follow in well-worn Western footprints? Is China building the 21st century, or conforming to a Western blueprint?

Speakers
Alan Hudson
director, leadership programmes for China, University of Oxford; author, Science and Democracy: Chinese Paths to Modernity
Duncan Hewitt
former BBC China correspondent; author, Getting Rich First: Life in a changing China.
Dr Bingqin Li
lecturer in Social Policy, London School of Economics
Adrian Hornsby
chief editor, Dynamic City Foundation; principal author of The Chinese Dream

Chair:
Sheila Lewis
director, Volanti Consulting; lecturer on local government as part of the Chinese Senior Civil Servants Programme at Oxford University; co-director, Battle for China conference.

Recommended readings
Domino or dynamo?

China is pretty well placed to cushion a global downturn
Economist, 9 October 2008

Management Politics in China Today

In China, for almost a century, restoring national pride has remained an important theme but more significantly, for the moment, the expert and the manager have supplanted the intellectual as the national standard bearer.
Alan Hudson, China Review, September 2008

Getting Rich First: Life in a Changing China

The peasant revolutionary turned lifestyle guru, the former Shaolin monk working on a Shanghai building site, the once-conservative father running a gay hotline - and the teenagers who just want to dress up as their favourite Japanese cartoon characters - welcome to the new China, a nation in motion, where whole streets are rebuilt in a week, car ownership is soaring, education goes private and rural workers migrate to the cities in search of a better life.

Duncan Hewitt, Vintage, 1 May 2008

China slowdown happening fast

The idea that China was ever going to be immune from the global slowdown was laughable. The fall in exports to the US, Japan and Europe will hurt and hurt a lot.

How China copes with the global recession will be interesting to watch. I suspect the landing will be hard with domestic consumers in no position to take up the slack. The pain will really kick in if property prices start falling rapidly. Then we might see a banking crisis and under performing loans that will have knock on effects across the country.

In a series of articles the FT focus on doing business in China and I will be highlighting different topics this week.

To begin with the FT today signals the beginning of the sharp slowdown although those on the street have been aware of these events for some time.

Indicators hint China on verge of slowdown [FT]

China will indicate on Monday whether its economy faces a hard landing when third-quarter gross domestic product figures are announced.

After a bumper 2007, which saw GDP expand nearly 12 per cent, growth in China has been slowing and fell to 10.1 per cent in the second quarter.

Producing steel at a mill in Baotou, China. Steel prices have fallen 20 per cent over the past three months and there are reports of steelmakers closing because of falling demand

Economists expect the economy to have experienced a further slowdown in the third quarter, with growth down to 9.7 per cent.

However, other indicators, from steel prices to housing sales, have suggested that the Chinese economy could be on the verge of a much sharper slump, which would weaken demand for commodities and undermine global growth prospects.

The barrage of negative indicators has increased pressure on the authorities to introduce a fiscal stimulus package and measures to support the property market.

The government has cut interest rates twice in the past month. Senior officials said last week that other steps were being planned.

“The State Council is studying a series of measures and is ready to announce them, as the downward trend has already caught the government’s attention,” said Du Ying, deputy director of the National Development and Reform Commission, the main economic planning agency.

Although the headline figures for the third quarter are expected to show continued strong growth, several economists have sharply cut forecasts for next year.

Ha Jiming, chief economist at China International Capital Corporation in Beijing, predicts that growth will fall to 7.3 per cent if there is not a substantial ­fiscal stimulus.

The more pessimistic mood has been prompted by a sharp slowdown in the property market, which is beginning to have a knock-on effect on other industries.

Steel prices in China have fallen about 20 per cent over the past three months and there are reports of small steelmakers being forced to close because of shrinking demand.

Yuan Gangming, economist at Tsinghua University in Beijing, said at the weekend that the relatively tight ­fiscal policies adopted this year to control inflation were no longer needed. “Many people in China are concerned about the financial crisis but the real problem we face is the slowdown in our domestic economy,” he said.

However, some members of the government believe that fiscal stimulus would be premature, as the economy is still growing at nearly 10 per cent.

Moreover, some leading economists are urging the government not to take rash measures that would boost the economy in the short-term. Yu Yongding at the Chinese Academy of Social Sciences said the government should continue to let the currency appreciate.

“The original intention of renminbi reform was to promote the structural transformation of China’s economy to reduce over-dependence on exports,” he said in a recent magazine article.

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China watches as the financial crisis continues - why?

An article in the Seattle Times considers China's peripheral role in the current financial crisis.

My immediate observation is that this headline is somewhat misleading. China i will be massively impacted by the current crisis. First, consumption in the EU and US will decline rapidly. Chinese exports will plummet. This will lead to the loss of thousands if not hundreds of thousands of jobs. This will necessarily lead to a domestic difficulties for China. The domestic market is simply not developed sufficiently to absorb this fall in demand.

China has every incentive to help stabilise the global financial situation as soon as possible. However, the article correctly points out that China will need every penny to save itself for the reasons outlined above. Saving our skins will not be a top priority and nor should it be.

China has already been burnt buying overseas assets at inflated costs. It may turn out that buying US treasury bonds was a very wise decision despite the historic low returns.


Why China sits on sidelines of financial unrest [Seattle Times]

BEIJING — China sits on a huge pile of money, and its policymakers crave global assets. So why doesn't China spend a little and save the world from global financial meltdown?

Economists give a number of reasons why China prefers to sit on the sidelines of the global turmoil, focusing instead on protecting its economy and maintaining growth powered by consumers at home.

"In this type of global crisis, the best China can do is take care of itself," said Qing Wang, chief economist on China for Morgan Stanley. "Its role in the global economy is still quite small."

An export powerhouse, China has amassed foreign reserves of $1.81 trillion, an unprecedented stockpile, and is awash in the savings of its thrifty citizens. That war chest has drawn cries from other corners of the globe for China to help bail out the global financial system — a cry that's been resisted in China.

Reserves locked up

Economists said it is easy to overlook that China's foreign reserves are already largely locked up — including some $1 trillion in U.S. government bonds.

"The money is already spent. ... It's not sitting there in cash," Wang said.

Earlier this week, Premier Wen Jiabao suggested that the "biggest contribution" China could do to help the global crisis is to maintain "steady and fast growth."

China's economy expanded at a blistering 11.9 percent in 2007, but the pace is slowing markedly. The International Monetary Fund forecasts China's economy will grow 9.7 percent in 2008. Several Wall Street firms forecast 2009 growth at around 8 percent — a significant slide.

The crisis has certainly buffeted China. Its stock exchange in Shanghai has followed the stomach-churning slides of major exchanges elsewhere, although to a milder degree than in Tokyo, which plunged 9.6 percent Friday, or Hong Kong, which sunk 7 percent.

Major stock index

Shanghai's major stock index fell 4.6 percent and has lost two-thirds of its value in a year.

Still, some independent economists suggest that as China weans off its dependence on exports it should use its savings and begin scouring the globe for distressed foreign banks or big companies to buy at fire-sale prices. Or at least buy some more U.S. Treasury bonds in a sign of confidence in the global system.

Others preach caution.

"The financial markets are very sophisticated, and the Chinese players have less experience than elsewhere," said Chen Zhao, an economist at Shanghai's Fudan University. "Chinese players are cautious."

China, after all, has learned painfully that it can lose. Last year, its sovereign wealth fund bought a $5 billion chunk of Morgan Stanley, only to see its investment drop in half, a story repeated with its investment in the Blackstone Group.

"We can't evaluate American assets until the subprime lending crisis is over. We must wait for a time," said Wang Songqi, chief editor of The Banker magazine.

"It's not the bottom of the market yet," Chen added.

Any attempt by China to purchase a large bank or other sensitive asset could raise howls on Capitol Hill, just as happened in 2005 when a China state offshore oil company bid on Unocal, then the ninth-largest oil company in the world, said Andy Rothman, a Shanghai-based economist for CLSA Asia-Pacific.

The Chinese bid was withdrawn, and Unocal was purchased by Chevron.

"How would Congress respond if a Chinese Communist Party-owned bank were to make a bid for a major U.S. bank? You just have to go back a few years to see the reaction to CNOOC's bid for Unocal."

Rothman said China is on the right path of trying to stimulate domestic consumption with few social-safety nets where most families save to pay for education, health care and retirement. Chinese families save an average of 16 percent of their disposable income, he wrote in a research note this week.

In this year's most important political meeting, Communist Party honchos are in a four-day plenary through the weekend to discuss rural reforms that could sustain economic growth, a pillar of the party's legitimacy now that it has largely ditched socialist ideology.

The reforms are expected to "make it easier for farmers to lease or transfer the management rights of their land," the China Daily newspaper said Friday.

Under a collective-ownership system, China's 750 million rural dwellers manage land for 30-year periods through contracts with village or township bodies, but don't own it outright.

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QS Top 200 Universities 2008

One aim of this blog is to advice Chinese postgraduate students on which UK Universities to attend.

An investment in postgraduate training can be significant. It is important to make the correct decision.

My recommendation is to stick to ONLY those UK universities that appear in this top 100 listing.

For economics the key is to cross reference these Universities with the MSc listings on the right hand column of this blog.

Top 200 Universities[topuniversities.com]

1 1 HARVARD University United States
2 2= YALE University United States
3 2= University of CAMBRIDGE United Kingdom
4 2= University of OXFORD United Kingdom
5 7= CALIFORNIA Institute of Technology (Calt... United States
6 5 IMPERIAL College London United Kingdom
7 9 UCL (University College London) United Kingdom
8 7= University of CHICAGO United States
9 10 MASSACHUSETTS Institute of Technology (M... United States
10 11 COLUMBIA University United States
11 14 University of PENNSYLVANIA United States
12 6 PRINCETON University United States
13= 13 DUKE University United States
13= 15 JOHNS HOPKINS University United States
15 20= CORNELL University United States
16 16 AUSTRALIAN National University Australia
17 19 STANFORD University United States
18 38= University of MICHIGAN United States
19 17 University of TOKYO Japan
20 12 MCGILL University Canada
21 20= CARNEGIE MELLON University United States
22 24 KING'S College London United Kingdom
23 23 University of EDINBURGH United Kingdom
24 42 ETH Zurich (Swiss Federal Institute of T... Switzerland
25 25 KYOTO University Japan
26 18 University of HONG KONG Hong Kong
27 32 BROWN University United States
28 26 École Normale Supérieure, PARIS France
29 30 University of MANCHESTER United Kingdom
30= 33= National University of SINGAPORE(NUS) Singapore
30= 41 University of CALIFORNIA, Los Angeles (U... United States
32 37 University of BRISTOL United Kingdom
33 29 NORTHWESTERN University United States
34= 28 ÉCOLE POLYTECHNIQUE France
34= 33= University of BRITISH COLUMBIA Canada
36 22 University of California, BERKELEY United States
37 31 The University of SYDNEY Australia
38 27 The University of MELBOURNE Australia
39 53= HONG KONG University of Science & Techno... Hong Kong
40 49 NEW YORK University (NYU) United States
41 45 University of TORONTO Canada
42 38= The CHINESE University of Hong Kong Hong Kong
43 33= University of QUEENSLAND Australia
44 46 OSAKA University Japan
45 44 University of NEW SOUTH WALES Australia
46 47 BOSTON University United States
47 43 MONASH University Australia
48 93= University of COPENHAGEN Denmark
49 53= TRINITY College Dublin Ireland
50= 117= Ecole Polytechnique Fédérale de LAUSANNE... Switzerland
50= 36 PEKING University China
50= 51= SEOUL National University Korea, South
53 48 University of AMSTERDAM Netherlands
54 71= DARTMOUTH College United States
55 55= University of WISCONSIN-Madison United States
56 40 TSINGHUA University China
57 60 HEIDELBERG Universität Germany
58 58 University of CALIFORNIA, San Diego United States
59 55= University of WASHINGTON United States
60 161= WASHINGTON University in St. Louis United States
61 90= TOKYO Institute of Technology Japan
62 74= EMORY University United States
63 71= UPPSALA University Sweden
64 84 LEIDEN University Netherlands
65 50 The University of AUCKLAND New Zealand
66 59 LONDON School of Economics and Political... United Kingdom
67 89 UTRECHT University Netherlands
68 105 University of GENEVA Switzerland
69 57 University of WARWICK United Kingdom
70 51= University of TEXAS at Austin United States
71 73 University of ILLINOIS United States
72 61 Katholieke Universiteit LEUVEN Belgium
73 83 University of GLASGOW United Kingdom
74 97= University of ALBERTA Canada
75 65= University of BIRMINGHAM United Kingdom
76 68 University of SHEFFIELD United Kingdom
77 69 NANYANG Technological University Singapore
78= 63 DELFT University of Technology Netherlands
78= 92 RICE University United States
78= 67 Technische Universität MÜNCHEN Germany
81= 114= University of AARHUS Denmark
81= 74= University of YORK United Kingdom
83= 97= GEORGIA Institute of Technology United States
83= 64 The University of WESTERN AUSTRALIA Australia
83= 76 University of ST ANDREWS United Kingdom
86 70 University of NOTTINGHAM United Kingdom
87 142= University of MINNESOTA United States
88 106 LUND University Sweden
89 96 University of CALIFORNIA, Davis United States
90 85= CASE WESTERN RESERVE University United States
91= 93= Université de Montréal Canada
91= 100 University of HELSINKI Finland
93= 128 Hebrew University of JERUSALEM Israel
93= 65= Ludwig-Maximilians-Universität München Germany
95 132= KAIST - Korea Advanced Institute of Scie... Korea, South
96 110 University of VIRGINIA United States
97 77= University of PITTSBURGH United States
98 117= University of CALIFORNIA, Santa Barbara United States
99= 77= PURDUE University United States
99= 80= University of SOUTHAMPTON United Kingdom

China going backwards? Economist discusses

The Economist considers whether China is becoming more or less "capitalist". There is a certainly irony about this article written on October 2nd. You can bet that the US and Europe have become less capitalist very quickly as banks become nationalised at an increasing speed.

It is interesting that the reliability of the data is considered such an important element of the story. I have published a number of papers on China are always have this nagging doubt about the quality of the official data I am using.

This is therefore a potentially important book to come out of MIT.

The long march backwards [The Economist]

MOST people, particularly those living outside China, assume that the country’s phenomenal growth and increasing global heft are based on a steady, if not always smooth, transition to capitalism. Thirty years of reforms have freed the economy and it can be only a matter of time until the politics follows.

This gradualist view is wrong, according to an important new book by Yasheng Huang, a professor at Massachusetts Institute of Technology. Original research on China is rare, largely because statistics, though plentiful, are notoriously unreliable. Mr Huang has gone far beyond the superficial data on gross domestic product (GDP) and foreign direct investment that satisfy most researchers. Instead, he has unearthed thousands of long-forgotten pages of memoranda and policy documents issued by bank chairmen, businessmen and state officials. In the process he has discovered two Chinas: one, from not so long ago, vibrant, entrepreneurial and rural; the other, today’s China, urban and controlled by the state.

../

True, China’s cities sprouted gleaming skyscrapers, foreign investment exploded and GDP continued to grow. But it was at a huge cost. As the state reversed course, taxing the countryside to finance urban development, growth in average household income and poverty eradication slowed while income differences and social tensions widened. Rural schools and hospitals were closed, with the result that between 2000 and 2005 the number of illiterate adults increased by 30m. According to Mr Huang, the worst weaknesses of China’s state-led capitalism—a reliance on creaking state companies rather than more efficient private ones, a weak financial sector, pollution and rampant corruption—are increasingly distorting the economy.

The role played by Hong-Kong and Tawain should not be underestimated. The official data also show this. Here is the book's view on this:

But what about the growing cohort of Chinese companies starting to strut the world stage? Surely that is evidence of a healthy and expanding private economy. Mr Huang’s evidence shows that, on closer inspection, these firms are either not really Chinese or not really private. Lenovo, a computer group, has succeeded because it was controlled, financed and run not from mainland China but from Hong Kong (a happy legacy of the founder’s family connections there—not something enjoyed by most Chinese businessmen). The subsidiaries of Haier, a white-goods maker, were also put out of reach of mainland bureaucrats early on. Wahaha, a food producer, Galanz, a maker of microwave ovens, and many others all depended on foreign protection and capital to grow and escape state strictures.

Indeed one of the main, and underappreciated, functions of foreign investment in China has been to play venture capitalist to domestic entrepreneurs. As for Huawei, a telecoms group and one of China’s much vaunted “global” companies, its structure and links to the state are so convoluted that the most diligent China-watchers have little idea if it is a private or state firm. They do, however, agree that Huawei’s opacity is a microcosm of China’s distorted economy.

A book worth reading.

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Inefficient operation: the real "China" problem

I have always wondered why China appears to have such poor energy efficiency numbers. The basic thinking was that China's power plants were using old technologies and no environmental regulation so what do you expect.

I never liked this answer. There had to be something else. This following article tells us that it is not technology but the operation of this technology.

This article provides a far better answer.

MIT report debunks China energy myth [MIT news]

A detailed analysis of powerplants in China by MIT researchers debunks the widespread notion that outmoded energy technology or the utter absence of government regulation is to blame for that country's notorious air-pollution problems. The real issue, the study found, involves complicated interactions between new market forces, new commercial pressures and new types of governmental regulation.

China's power sector has been expanding at a rate roughly equivalent to three to four new coal-fired, 500 megawatt plants coming on line every week, said Edward S. Steinfeld, associate professor of political science at MIT.

After detailed survey and field research involving dozens of managers at 85 power plants across 14 Chinese provinces, Steinfeld and his co-authors, Richard Lester (professor, nuclear science and engineering and director of the MIT Industrial Performance Center) and Edward Cunningham (doctoral candidate, political science) found that in fact most of the new plants have been built to very high technical standards, using some of the most modern technologies available. The problem has to do with the way that energy infrastructure is being operated and the types of coals being burned.

New market pressures encourage plant managers to buy the cheapest, lowest quality and most-polluting coal available, while at the same time idle expensive-to-operate smokestack scrubbers or other cleanup technologies. The physical infrastructure is advanced, but the emissions performance ends up decidedly retrograde.

Understanding the realities of China's energy infrastructure and management is crucial, Steinfeld said, for gaining leverage over the whole gamut of global energy-related challenges. China's electric power sector is vast -- second only to America's in size -- and globally unparalleled in terms of the speed of its growth. "To a significant degree, our planet's energy and environmental future is now being written in China," he and his two co-authors wrote in a recent MIT Industrial Performance Center working paper (PDF available). Findings from the research have also recently been published in The China Economic Quarterly and an additional paper is currently under review at Energy Policy.

Steinfeld, who has been working in China since the late 1980s and has been carrying out this research project there since 2005, said that at present the Chinese government lacks reliable data on how the nation's powerplants are built and operated. Officially available data tend to be collected haphazardly and often by local authorities who have a vested interest in the outcomes. The survey work conducted by Steinfeld and his colleagues represents a first-of-its-kind effort by outsiders to collect unbiased, objective data of this sort at a national level.

One of the most surprising findings was that "the kinds of technology currently being adopted in China are not cheap. They're not buying junk, and in some cases the plants are employing state-of-the-art technology."

The findings suggest that emissions levels from Chinese powerplants, he said, "depend almost entirely on the quality of the coal they use. When they're hit by price spikes, they buy low-grade coal." Lower-grade coal, which produces high levels of sulfur emissions, can be obtained locally, whereas the highest-grade anthracite comes mostly from China's northwest and must travel long distances to the plants, adding greatly to its cost. Contrary to what many outsiders believe, the Chinese state has substantially improved its ability to implement and enforce rules on technology standards. It has been slower, however, to develop such abilities for monitoring the day-to-day operations of energy producers.

In some respects, the situation is more amenable to change than many people had assumed, Steinfeld said. With expanding regulatory capacity and increasingly sophisticated efforts to regulate through market-friendly pricing mechanisms, reformers could achieve change relatively quickly, he said. "At least the technology -- the physical infrastructure of China's energy system -- is not an impediment," he said. Indeed, it can ultimately prove a key asset for achieving better environmental outcomes.

Since coal quality is one important leverage point, "some new regulatory efforts probably need to be focused on the mines and coal markets," Steinfeld suggested. "That's the kind of question that this research begins to allow you to address."

The three co-authors of the study are members of the Industrial Performance Center's China Energy Group. The research was supported by Shell, the MIT Energy Initiative, and the MIT Sloan School of Management China Program.

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Sophie's Choice in Mao's Mass Send Down Movement

A fascinating new paper from Yale economist MARK R. ROSENZWEIG and co-authors. One for the "papers to read" pile. History and economics in one paper.

Altruism, Favoritism, and Guilt in the Allocation of Family Resources: Sophie's Choice in Mao's Mass Send Down Movement

Li Hongbin
Tsinghua University

Mark R. Rosenzweig
Yale University - Economic Growth Center

Junsen Zhang
Chinese University of Hong Kong - Department of Economics; Institute for the Study of Labor (IZA)


September 23, 2008

Yale Economics Department Working Paper No. 54

Yale University Economic Growth Center Discussion Paper No. 965

Abstract:
In this paper, we use new survey data on twins born in urban China, among whom many experienced the consequences of the forced mass rustication movement of the Chinese "cultural revolution," to identify the distinct roles of altruism and guilt in affecting behavior within families. Based on a model depicting the choices of the allocation of parental time and transfers to multiple children incorporating favoritism, altruism and guilt, we show the conditions under which guilt and altruism can be separately identified by experimental variation in parental time with children. Based on within-twins estimates of affected cohorts, we find that parents selected children with lower endowments to be sent down; that parents behaved altruistically, providing more gifts to the sibling with lower earnings and schooling; but also exhibited guilt - given the current state variables of the two children, the child experiencing more years of rustication received significantly higher transfers.

Keywords: Guilt, Altruism, China

JEL Classifications: J12, J13, O12
Working Paper Series