Aid from China and Human rights abuses

Excellent article reflecting on a recent academic paper on Chinese aid and human rights abuses.

Instead of going through the arguments again I point you to Chris Blattman's Blog that has the appropriate links. I believe the economists have got it about right here - it is crucial to identify the order of causation.

I believe that this will become an increasingly important topic for empirical researchers and something I will be looking at in the near future data permitting.

Do trade and aid from China increase human rights abuses?

Yesterday, the New York Times lamented the worsening war in Sri Lanka, the rise in human rights abuses, and the emasculation of rights observers. "Gone are the Nordic monitors," it writes, "independent journalists are not allowed anywhere near the front lines."

Today, the blame is apportioned. "Take Aid From China and Take a Pass on Human Rights" proclaims the newspaper. The argument: unconditional aid and trade from China insulates regimes from Western mores and threats of sanctions in a dirty war.

China fear-mongering? Taking the story beyond the evidence? Maybe not.

The Times misses a paper posted last week by economists Erik Meyersson, Nancy Qian, and Gerard Padró-i-Miquel, but it gets the story right. Here newspaper anecdotes get support from some powerful statistics: trade with China predicts human rights abuses. At least in Africa.

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China vrs Thailand

The Silk Road International blog posted an interesting little article where a business man compared doing business in China and Thailand.

I am currently writing academic papers on both countries and this sort of post gives one a flavour of what is happening at ground level. These are therefore posted for my own reference but I think they should of interest to all those interested in the economics of China.

Thailand vs. China [Silk Road International Blog]

1. Were here in Thailand for this client because of the tax and export duty savings over China in their specific product line. The cost differences are substantial and the legal requirements for export are not nearly as burdensome here.

2. Thailand’s infrastructure is at least as good as China’s East Coast’s—ports, airports, toll-ways. Nothing new, I know, but this is one of the major drawbacks of working far inland in China or even close to large cities in Vietnam or Cambodia. The big plus in Thailand is that there are no inter-provincial tariffs or restrictions on the flow of goods like there is in China.

3. Even with the recent wage increases labor is still more expensive in Thailand than in China. I’m seeing cost differences of about $50 to $75 a month between factory workers in China vs. Thailand.

4. The environment is much more “international” in Bangkok than it is in Shenzhen—more so than even Hong Kong, I’d say. Sure there isn’t as much English on signs but the exposure to “the west” is certainly as much or more—To me, Bangkok seems to be becoming more western and Hong Kong more Chinese. There are certainly more foreigners (yes, even in the non touristy sections of town).

5. The advertising is much more sophisticated in Thailand than China where it’s still a relatively immature industry. I was consciously amazed at the higher quality of both radio and out-door media advertising.

6. Nationalism is alive and well in both countries but Thailand’s flavor is much less strident. China seems to be a bit more angry, with something to prove, while Thailand is much more comfortable with it’s unique place in the world.

7. As I work with people in the jewelry industry here I’m constantly being told the same thing when I tell people I live in China, “You know, labor is more expensive here, but you get better quality work too.” Almost to a person, this was the response I heard—more than 10 times in just one day.

8. Thailand has a very well developed export base for automobiles, machinery and electronics, according to the Bangkok Post today. While China does have some of this too, pick-up trucks and hard-drives are especially well developed sub industries in Thailand.

9. Staffing in China is difficult in both retaining top-level local employees as well as low-end factory labor. Thailand has similar tight market in top-level employees. Service levels are much higher in Thailand as is education in general. Professional standards seem, to me, to be higher in Thailand as well.

10. The traffic in both Thailand and China is horrible—but each has it’s own perils. In China you are literally taking your life in your hands when you get into a car—the roads are some of the most deadly in the world. It’s scary, and for good reason. Thailand is completely different—you’re never going fast enough to be in a dangerous situation! The traffic, in Bangkok, is so bad at almost all times of each and every day that estimates are it lowers annual GDP by multiple points!

11. Banking (I can’t believe I’m going to say this); hands down China has better banks—in terms of service and accessibility. In China if you need a bank, you can get one open from 8AM to 5PM 7 days a week. Thailand is 9AM to 3:30PM five days a week and off every holiday known to man.

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Economics is the enemy of the community - or is it?

A link to Dani Rodrik's post on a new book out called "The Dismal Science: How Thinking Like an Economist Undermines Community.". Rodrik is not entirely convinced.

Economics is the enemy of the community

Dani has done work looking at Chinese exports and the possible impact of government intervention on the increasingly high tech nature of Chinese trade.

The paper is called "What's So Special About China's Exports?"

Abstract:
Much more than comparative advantage and free markets have been at play in shaping China's export success. Government policies have helped nurture domestic capabilities in consumer electronics and other advanced areas that would most likely not have developed in their absence. As a result, China has ended up with an export basket that is significantly more sophisticated than what would be normally expected for a country at its income level. This has been an important determinant of China's rapid growth. What matters for China's future growth is not the volume of exports, but whether China will continue to latch on to higher-income products over time.

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Chinese allowed to buy shares abroad?

In a move that could result in a fall in Chinese domestic share prices, the FT today report on the possible liberalisation of share trading in China with Chinese citizens being allowed to buy shares in London, Hong Kong or Tokyo.

That would unleash a wave of money looking for safe havens. This article mentions the fear for local Chinese shares although the government seems keen to push ahead.

China signals it could ease share curbs [FT]

The head of China’s central bank said on Thursday that Chinese citizens could be allowed to invest directly in stocks in London, Tokyo or Singapore as well as in Hong Kong.

A plan to allow the right to invest directly in Hong Kong – which was abruptly suspended late last year – is still on track but could be modified to include markets beyond the territory, Zhou Xiaochuan, governor of the People’s Bank of China said.

He was speaking on the sidelines of the annual meeting of the National People’s Congress, China’s legislature.

The comments from Mr Zhou and other senior officials indicate that Beijing remains committed to reducing controls on offshore investment by its citizens in spite of concern among other parts of the government that such a move could trigger a collapse in the mainland stock market.

Mr Zhou refused to give more details but said that Chinese investors should be allowed to invest directly in other global markets, including London, Japan and Singapore.

“The controls and regulatory approvals we have implemented in the past [on capital flows in and out of China] will be gradually reduced and abolished,” Mr Zhou said. “We will support overseas investments by domestic residents.”

The central bank is trying to encourage outflows of capital from China to relieve pressure on the renminbi and reduce excess liquidity that is feeding rising inflation.

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Mr Zhou’s Thursday comments echoed those of Dai Xianglong, chairman of the National Council for Social Security Fund and until last month mayor of Tianjin, who told the Financial Times last week that the government was still planning to allow individuals to convert renminbi into foreign currencies and make investments in overseas stock markets.

And on Wednesday, Xiao Gang, chairman of Bank of China, also said his bank was working on technical details of the scheme.

In a follow up post, the FT also report on the massive revenues that the Chinese government earnt from its share purchase tax.

Beijing reaps rewards of shares tax [FT]

The increase in a turnover tax on share trading introduced at the height of China’s stock market boom last year has delivered the government a windfall of Rmb182bn in new revenues.

Most of the money, equal to nearly half of the country’s official defence budget, was collected in just seven months following the increase in the stamp tax from 0.1 per cent to 0.3 per cent on each share trade last May.

According to figures released on Wednesday, Beijing collected a total of Rmb200.5bn ($28.2bn, €18.5bn, £14.1bn) in stamp tax on share trading for all of last year, compared with Rmb17.9bn in 2006, an increase of 1,000 per cent year on year.

The surge in collections made the share market nearly as bountiful a source of revenue for the Chinese taxman as the nation’s 1.3bn citizens.

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US says "China to build up military"

A clear placement story in the FT of all papers. The US says that China is to build up it military. Why would it do anything less? Has US spending on defence increased/slowed/remained the same?

With China growing at over 10% a year it is inevitable that some of the tax dollars will be spend upgrading China's military capacity. We have covered this issue before back in September.

The US also complains about a lack of transparency. How much do we really know about US spending?

Chinese Military: Hacking and Transparency

Here is the FT article:

China looks to build up military, says US [FT]

The Chinese military is increasingly developing capabilities, including counter space programmes, to conduct military operations beyond any conflict in the Taiwan Strait, the Pentagon said on Monday.

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The Congressionally mandated report also stressed US concerns about a lack of transparency from China about its military build-up.

“The real story is the continuing development, the continuing modernisation, the continuing acquisition of capabilities and the corresponding and unfortunate lack of understanding, lack of transparency about the intentions behind those and the way they’re going to be deployed,” David Sedney, the deputy assistant secretary of defence for East Asia, said at the Pentagon.

“So what is China going to do with all that?”

The report raised concerns about China’s expanding naval power, saying the Chinese navy was gaining familiarity with open-water operations, and conducting exercises in international waters. It added the Chinese air force was improving the potential strike range of its bombers by enhancing radar systems and aerial refuelling.

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“China recently agreed to begin submitting an annual report to the United Nations on its military expenditures, which would be a positive step toward increasing transparency,” said Mr Skelton. “Also, China’s growing focus on professional military education suggests the U.S. should be pursuing possible opportunities for increased US-China engagement in this area.

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Is China Trapped in Transition?

This is not only an interesting question but one covered by a new report from the Foundation for Law, Justice and Society at Oxford.

Follow the link below to get free access to all of these papers [PDFs].

I believe that China, if it is in any trap at all, will be able to extract itself. The commodity price inflation and environmental decline will not go away but the energy and vitality of the Chinese people should see growth continue apace for a while yet.

Is China Trapped in Transition?

Volume 2: Is China Trapped in Transition? Implications for Future ReformsFront cover of Trapped in Transition Volume

This special report brings together a selection of leading experts to critically evaluate the controversial thesis that China's transition is stalled. The collection of policy briefs addresses how China compares with other countries at a similar level of development; whether China's gradualist approach to reforms has been successful or produced entrenched vested interests capable of blocking further reforms; and the consequences for China and the world were China to become trapped in transition.

Is China Trapped in Transition?
Introduction: Randall Peerenboom

Is China's Transition Trapped and What Should the West Do about it?
Policy Brief 1: Minxin Pei

The Political Economy of China's Transition
Policy Brief 2: Joseph Fewsmith

China's Transition: Predatory State or Developmental Autocracy?
Policy Brief 3: Barry Naughton

China: Suffering from Growth Pains or Doomed to Stagnation?
Policy Brief 4: Dali L. Yang

Are China's Legal Reforms Stalled?
Policy Brief 5: Randall Peerenboom

Traps, Gaps, and Law: Prospects and Challenges for China's Reforms
Policy Brief 6: Jacques deLisle

China's Transition and the Limits of the American Constitutional Perspective
Policy Brief 7: Michael W. Dowdle

The Chinese Banking Sector
Policy Brief 8: Victor Shih

The Role of Foreign Investment in China's Transition
Policy Brief 9: Lester Ross

China's Trapped Transition Reconsidered
Policy Brief 10: Minxin Pei

The truth about profits in China

It is about time that this article was written. For all the talk of China's new billionaires it is clear that many firms are not making profits and that the roads are not paved with gold.

Buying shares in Chinese firms is not a licence to print money - margins are being squeezed and will continue to be so. Once you examine low wage, low skill sectors the problem worsens.

The FT reports:

Margins squeeze bites into China textiles [FT]

One in six Chinese textile companies lost money last year even though prices for the country’s clothing exports increased 8 per cent, according to the chairman of the China National Textile and Apparel Council.

At an industry conference in the southern province of Guangdong, where much of the textile industry is concentrated, Du Yuzhou said 17 per cent of the 44,200 textile companies tracked by the council lost money over the first 11 months of last year. This was in spite of companies benefiting from a fifth ­consecutive year-on-year rise in export prices for textiles.

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