NYT: As its Economy Sprints Ahead, China's People Are Left Behind

Barboza, David (October 9, 2011), As Its Economy Sprints Ahead, China’s People Are Left Behind, New York Times:New York

The New York Times, as part of its series on the Chinese Economy, recently published a very interesting article on the nature of Chinese economic growth, its reliance on being driven by large (mostly state owned) enterprises that are in turn reliant on cheap loans from Chinese government owned banks.  No news there; however the interesting point the article makes is that this system runs at the experience of the average Chinese saver (and there are a lot of them in a country that has one of the highest savings rates in the world) in a system that essentially reallocates the country's wealth from China's still relatively poor saving middle class to the wealthy.  This is largely achieved due to the relatively high level of inflation in the country (currently at around 6%) and the low interest rates (currently at around 3%) that banks give to depositors who save with them.  This essentially means ( in a crude calculation) that Chinese depositors are suffering from an unseen tax on their savings (through inflation) of 3% a year.  Money that is essentially used to subsidise these cheap loans that state banks are giving to state owned companies that in turn is playing a role in driving the country's booming housing market and is, in turn, making housing too expensive for most people to afford. 

The full article can be read here: http://www.nytimes.com/2011/10/10/business/global/households-pay-a-price-for-chinas-growth.html?_r=1&ref=business&src=me&pagewanted=all

China's soft (not hard) landing

Roach, Stephen S. (September 30, 2011). China’s Landing – Soft not Hard, Project Syndicate, retrieved October 4, 2011.

Business as usual in Beijing*

A while ago I posted a piece by the famously pessimistic Nouriel Roubini (the man that successfully predicted the Crash of 2008) about his similarly pessimistic outlook for the future of the Chinese economy.  Recently Stephen Roach (of Yale University) published an article that is more upbeat and argues that although it looks likely that China's economy will slow down it will enjoy a relatively welcome 'soft landing' as opposed to Roubini's tragic 'hard landing'.

Although Roach notes a number of the serious economic problems that the Chinese economy is currently facing - such as the serious property bubble, reducing property inflation and the US$1.7 trillion of local-government debt - he also notes a number of factors that the economy has going for it, such as the unprecedented large urbanisation of China and the ample liquidity of Chinese banks to absorb potential losses. He also correctly points out that the government is taking the risks of the property bubble seriously and is taking measures to crack down on property speculation as well as seeking to reduce inflation and food inflation in particular (the biggest driver of inflation in the country).

This leads him to conclude that although the Chinese economy is slowing down in the mid-term future it is likely that it will be soft gradual show down that will allow the economy to adequately adapt to the new pace of change.

You can read the article here: http://www.project-syndicate.org/commentary/roach9/English

Do Chinese extraction (mining, oil & gas) activities in Africa overlap with areas of conservation value?

In April 2011 I wrote a report for Conservation International (CI) on Chinese mining, oil and gas extraction operations in eleven African countries were CI has a significant presence and in the context of their geographical locations to biological diverse environments.  The report also looks at how CI could possibly catalyse a working relationship with important and responsible Chinese corporations with a view to help them mitigate any negative environmental impact their operations might have.  The good folks at Conservation International have allowed me to openly publish a report which can be down loaded and read here.

Read the report on Scribd: http://www.scribd.com/doc/63493026/Chinese-MOG-Operations-in-Africa-Conservation-International

BMF presentation notes

Many apologies for the lateness of this post.  I have been meaning to do a post on the presentation I gave to the Black Managerial Forum on the 19th August for a couple of days now.  Without further delay here it is, below you will find links to articles that I have published previously on this blog as well as the PPT I gave and the article that I wrote and Fahamu published that the PPT was based on.

• BMF Power Point Presentation
• The Chinese Economic Growth Miracle: Lessons for South Africa (pdf)
• Recommended reading list on the Chinese economy
• Recommended reading list on Chinese politics

China Media Project: Chinese media report flight of state assets

 This article by the China Media Project very briefly discusses an issue that has been a big concern in China for a long time now and one that China is often bringing up in its relations with the US and Canda.  I am of course talking about the problem of cronic government corruption that has led to at least 16,000 officals stealing an estimated US$123.6 billion since 1995. Disapearing with that money to other countries with which China does not have an extradition treaty.  To tell the truth I am not so sure if China has an extradition treaty with any country yet but it certainly does not have one with the Western countries that these officials flee to.

UK Parliamentary discussion: Rebalancing UK trade and investment with China

In this discussion by a UK parliamentary panel (HoC Business, Innovation and Skills Committee) looks at how how the UK can expand its business with China and be more competitive in the country.  It is rather long at just over two hours but it is worth watching.  Many subjects are covered in this discussion such as:

• A brief introduction into how China developed
• China's business culture
• Why Germany is so successful in the country
• The complex nature of who owns Chinese companies
• China's respect of IP 
• Many others

Some things that have come out in this discussion include:

• The need for cultural training and support for British business people hoping to do business in the country.
• The UK's major export industry, if you will, (finance) is not some thing that China is interested in yet but Germany's sophisticated manufacturing industry is some thing they are interested in.  
•  The need for financial and technical support by government for SMEs going into China.

Here is a quick introduction on the UK parliamentary home page:

Rebalancing the economy: trade and investment
Witnesses

1. Stephen Phillips, Chief Executive, China-Britain Business Council, Dr Kerry Brown, Head of Asia Programme, Chatham House, Professor Peter Nolan, Cambridge University
2. Paul Anderson, International Sales Director, JSR Genetics Ltd, Steve Young, Head of Business Development and Sales, Surrey Satellite Technology Ltd, Simon Carter, and Joan Turley

(TED) Angela Belcher: Using nature to grow batteries

Introduction from TED:

Inspired by an abalone shell, Angela Belcher programs viruses to make elegant nanoscale structures that humans can use. Selecting for high-performing genes through directed evolution, she's produced viruses that can construct powerful new batteries, clean hydrogen fuels and record-breaking solar cells. At TEDxCaltech, she shows us how it's done.

The presentation can be viewed on TED's website here:

Creating jobs (This American Life)

 In this episode of This American Life the Planet Money team look at how to make jobs in the USA.  With a current unemployment rate of 8.7%* it has become a pressing political issue.

Some of the jargon in economic development circles in the USA today:

• Smoke stack chasing: establishing one large anchor industry
• Clusters: getting many companies in the same or closely related industries to setup business in one area.
• Creative cities: attracting young, smart, well educated and entrepreneurial  people to move into your town/city
• Economic gardening: help local residents become entrepreneurs.

The program goes on to note that the USA is still the largest producer in the world even though China looks set to overtake it by 2012.  They also noted that unemployment in the US today is actually relatively low amongst the well educated.  It is those people without even a high school education that have a very high unemployment rate.  They also noted need to have what is known as a "high school plus" education to get a decent - middle class - manufacturing job in a developed economy.  'High school plus' basically refers to having a high school education plus some sort of additional technical training. 

*  U.S. Bureau of Labor Statistics - Last updated May 7, 2011, retrieved: 18 May 2011.

President Hu addresses convention marking Tsinghua's centennial celebration

The address celebrating Tsinghua's centennial by President Hu can be viewed here.

http://english.cntv.cn/program/newsupdate/20110424/102980.shtml

In the address President Hu underlines and reaffirms the importance of creating an "innovation" economy to the future success of China.  Stating that only by making greater investments in human capital and encouraging innovation will China be able to grow further into the future and become a "moderately wealthy" country.

The other issue that Hu's speech addresses that is of interest to me is the admittance that China's educational, and university educational system in particular is in need of improvement on many levels to become internationally competitive.

Nouriel Roubini's thoughts on China's future growth. Long term... not that good.

Just another housing development in the city of Shijiazhuang, Hebei province.  Some are concerned that there is an increasing level of overcapacity in the Chinese housing market that is fueling a property bubble.  Others disagree that there is any over capacity at all as the largest rural-urban migration in history continues in China.

Recently Nouriel Roubini, the famously pessimistic economist that very accurately predicted the 2008 economic crisis, wrote an article on China's mid to long term economic prospects.  His conclusion?  Well with a heading like "China's Bad Growth Bet" its not surprising that the country's economic future might not be as rosy many of us would like to believe.  In an article published first on Project Synidcate and then on Al Jazeera four days later he argues that due to rapidly increasing levels of over capacity -which is in turn due to consistently massive investments in capital stock- the country is likely to fine its economic growth suddenly hitting a wall.  Instead of a gradual slowdown in economic growth the decline will be sudden and painful.  As Roubini says:

The problem, of course, is that no country can be productive enough to reinvest 50 per cent of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem. China is rife with over investment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

Its interesting to note that this observation of rampant overcapacity as a constant factor of China's economic growth was also noted by Jack Perkowski (the founder of ASIMCO) in his outstanding book about his experiences in setting up his firm in China in the 1990s.  Perkowski notes the massive overcapacity of Chinese steel producers in China during the 1990s and points out why this is such a persistent factor of China's economic development. This does lead one to question weather this feature of overcapacity is just a normal component of China's economic development that has been around for a while and will just be shrugged off like it has in the past as either demand expands to meet the overcapacity or banks and industry get rich enough, due to the overall increasing prosperity of the country, to afford to write off the bad investments. 

However Roubini's core point that no one can continue to invest so much in capital stock without eventually running into some sort of problem is all too true.  Adam Smith would certainly agree with Roubini on this one.  In the Wealth of Nations Smith makes a number of references to over investment causing "over trading" and thereby triggering painful economic contractions to rectify economy or industry concerned.  On the other hand China has experienced over investment in particular sectors of its economy before and managed to 'power' through them under the momentum of the country's overall economic growth.  Such was the case with steel production in the 90s.  Either way, only time can tell.

You can read Perkowski's blog here:
You can read Roubini's blog here:

Owning Toxie the Toxic Asset

A mortgage brokerage in the US advertising subprime mortgages in July 2008.

The infamous toxic asset, widely blamed for the pre-2007 property bubble and resulting economic crash of 2008.  They were all over the news during the crash but although almost everyone knows about them and how bad they are very few people really know what they are and how they work.  Even fewer people know that you, yes you, can buy and own a toxic asset.  In an nutshell a toxic asset is a collection of pieces of bank mortgage portfolios.  Which is another way of saying they are slices of slices of peoples mortgages

In this episode of This American life from November 2010 tells the tail of a toxic asset that the Planet Money team bought and tried to unpack to get some idea of whose mortgages they had bought.  In the end their toxic asset, which they named Toxie, dies a death that only a toxic asset can die when enough mortgages in that portfolio default and the asset gets "frozen."

You can listen to this facanating episode of This American Life here.

The Economist: Comparing Chinese provinces with countries

I want to thank Cui Zhiyuan for letting me know about this interactive map that the Economist recently put out.  The map is a comparison of Chinese provinces with countries in the rest of the world.  The map charts which countries in the rest of the world are the economic and demographic equivalent to Chinese provinces.   The map puts into perspective the shear size of China's economy and population.

You can see the map for your self on the Economist's website here.

Europe's 1848 is North Africa's 2011

The Great Chartist Meeting on Kennington Common, 10 April 1848.

Protesters march on Avenue Habib Bourguiba in downtown Tunis, 14 Jan 2011.

With a the current wave of protests, revolts, and revolutions sweeping across the Arab world these days understanding waves of popular revolts has become more important.  Particularly when those protests, revolts and revolutions are focused on a specific geographical area and are all making, what amounts to, the same demand from their corrupt, autocratic and dictatorial governments.  That demand being for greater liberty.

This is not the first time the world has seen such waves of protests against bad governments by the people calling for greater civil and political rights.  In 1848 a wave of popular protests and revolutions swept through Europe effecting almost every country on the continent.  The only countries that did not experience a revolution during this period were the United Kingdom, Netherlands, Ottoman Empire, and the Russian Empire.  The United Kingdom and the Netherlands already had popular revolutions in the 17th century (the UK had the Glorious Revolution whist the Netherlands fought a bitter war with the Spanish Empire to declare its self a republic followed by the Batavian Revolution) and were on the road to expanding their peoples liberties whist both the Ottoman Empire and the Russian Empire would have to wait another 60 or so years before they would experience revolutions of their own.  The Ottoman Empire's revolution lead by Attaturk would transform what was left of the Ottoman Empire into modern day Turkey.  The Russian Empire experienced many revolts before the successful October Revolution and very brutal Russian civil war transformed the empire into the Soviet Union.

In many ways Europe before 1848, much like the Arab World today, was ripe for popular protests and a change of government.  An popular press expanding and extending political awareness amongst the people of industrializing Europe.  Similar in effect to the emergence of Al Jazeera and other Arab satellite channels in addition to the introduction of the internet in the Arab World today.  Europe at the time had also been experiencing a series of economic downturns and rising food prices.  Also similar to the stagnant economies, high unemployment, and rising food prices in the Arab World today.  All of this leading to increasing levels of poverty amongst the working poor.  The spread of modern ideologies, most notably liberalism, in pre-1848 Europe also contributed greatly to the revolutions as people were presented with new ideas of how they should be governed and what rights they were or should be entitled to.  Again, this is similar to the spread of liberal and other modern ideologies coming from the West through the process of globalisation in the Arab World today.

On this note of shared revolutionary experiences in both the Europe of 1848 and the Middle East & North Africa of today that I recommend the following book by Mike Rapport on the revolutions of 1848.  It will be of great interest to anyone with a strong interest in this sort of popular wave revolutions.

 1848: Year of Revolution, by Mike Rapport, Basic Books, 2009.  Purchase at B&N.com | Purchase at Amazon.com
Since I have not finished reading my copy yet here is a review by Gilbert Taylor from Booklist:

In this account of a turbulent year in which most European thrones were shaken or toppled, Rapport smoothly blends drama of battles on the barricades and perspective on the causes and consequences. As ever in revolution, severe economic distress of workers dovetailed with protest by liberals and radicals to ignite a political explosion, initially in Italy but contagiously in France. Rapport’s telling of the February Revolution in Paris, and of ensuing popular revolts in Prussia, the Hapsburg Empire, and the Italian states, periodically pauses for his keen observations about disagreements within the temporarily triumphant revolutionary camps. After the political revolutions, discord between liberals hoping to establish constitutional order and radicals fomenting social revolution gave conservatives and reactionaries openings to mount counterrevolutions. Such are the political labels of the contending forces, but Rapport’s emphasis on leaders installed in the history books about 1848—including Mazzini, Kossuth, Bismarck, and Marx—reminds readers of the force these key individuals exerted on the course of events. Striking an excellent balance between narrative and explanation, Rapport will engage the history audience. --Gilbert Taylor --This text refers to the Hardcover edition.

Al Jazeera's daily blog on the situation in Libia:  http://blogs.aljazeera.net/node/4621/middle-east/2011/02/17/live-blog-libya#feb17

Radiolab: What Does Technology Want?

A carbon filament lamp.

In this radio program from Radiolab Steven Johnson (author of Where Good Ideas Come From) and Kevin Kelly (author of What Technology Wants) discuss how and why inventions and ideas come about at perticular times.  Pointing out that certain inventions, such as the light bulb, will be invented by many different people in different places within the same short period of time.  Even though this invention might not have even been conceived of only a few years before.  For example, apparently there were up to twenty two different inventors of different versions of the incandescent light bulb before Thomas Edison invented is own version.  The version that would light up the world.

They go on to discuss why this is the case, noting that many inventions and ideas -lets just call them innovations- require other related innovations to come before them.  They note that each successful innovation builds off many different innovations that come before them.  For example, the light bulb could never have been invented with out advances in vacuum technology and glass blowing techniques that would allow a vacuum to be produced inside an incandescent light bulb.  Not to mention the need for electricity to have been developed before hand along with an effective method of reliably and economically generating it.

I think Isaac Newton said this best when he said:  "If I have seen further it is only by standing on the shoulders of giants."

You can listen to the full show on Radiolab here.

Quote of the show: "You are technology."
It makes more sense then it sounds when you hear the show.

BBC Documentary: "The Chinese Are Coming"

This documentory series by the BBC looks at China's commercial expansion into the rest of the world.  Presented by Justin Rowlatt the series first looks at China's increasing involvement in southern Africa and then moves on to South America, North America and the rest of the world. 

The first two episodes, which you can watch below, were first aired on the 8 February 2011.  It is well worth watching to anyone with an interest in Sino-African relations.

Program summery on BBC 2 can be seen here.

BBC Documentary: "The Chinese Are Coming" (Part 1 of 4) 

BBC Documentary: "The Chinese Are Coming" (Part 2 of 4)  

BBC Documentary: "The Chinese Are Coming" (Part 3 of 4)

BBC Documentary: "The Chinese Are Coming" (Part 4 of 4)

A story of political and economic success from Barbados

Parliament building of Barbados where in 1991 the people came up with a remarkable solution to a common big problem.

This episode of This American Life (episode: 410 Social Contract) from June 2010 deals with "the social contract and what happend to it during dire economic times."  The first act looks at a classical case of what usually happens when a government is faced with a shrinking budget, increasing defecates and must make budget cuts, the current (2010) state of New York state's budget and the political gridlock that is preventing the state from making the nessersary compromises, both political and economic, to save the states finances.

The second act, 37miniuts into the show, is more interesting.  It looks at one of those rare cases when people came together to make the necessary compromises to save the government from a almost going bankrupt.  Although in this case it was more a matter of running out of foreign exchange then a classical bankruptcy.  But for a small island nation such as Barbados, the subject of this segment of the show, running out of foreign currency can be just as bad.  

The segment goes on to make a startling comparison between Jamaca and Barbados.  Two very similar Afro-Caribbean countries in terms of economic well being at independence and with a similar parliamentary political system and culture.   Today one is poor, corrupt and politically intolerant of opposition, the other is inclusive, united and has strong social institutions to build compromises that enhance the welfare of everyone on the island.  Needless to say, the troubled nation is Jamaica and the successful one is Barbados.

The account of Barbados's problem, a fiscal problem brought about by an economic recession, and the way in which different segments of society (labour unions, employers, government, and others) can together to solve this problem and the positive social institutions that remain from the crisis that serve as a forum for dialogue and cooperation between these groups today is nothing short of inspiring. 

Prologue of act II:

We hear recordings from all over the country—and the world—of politicians arguing over budgets. (2 minutes) 

Act Two. If You Were Stranded on a Desert Island and Could Only Bring One Economic Plan...  Why is it that Barbados and Jamaica faced almost identical financial crises, but now Jamaica is incredibly poor and Barbados is prospering? Alex Blumberg reports on the surprising strategy Barbados used to survive its crisis. Alex first learned about this story from a paper by Peter Blair Henry, the dean of the Stern School of Business at New York University. (22 minutes)

 Listen to the show here:

Chinese Politics Recomened Reading list

Governing China: From Revolution to Reform (Second Edition), By Kenneth Lieberthal, 2003. Purchase at B&N.com | Purchase at Amazon.com
Because I am feeling lazy right now here is a review by Reed Business Information:
In the past decade, China's dramatic economic growth has captured the world's attention. But there is still lingering uncertainty about its future, emerging from the inconsistencies of China's current political situation. The long history of periodic political turmoil has revealed some fundamental and inherent weaknesses of the Chinese political system. Lieberthal, an experienced China scholar, provides a systematic approach toward an understanding of the complex governing organizations of China from its imperial past, through the 20th-century revolutions, both Nationalist and Communist, until the current regime. Unlike many other China experts, Lieberthal doesn't make any predictions. Through a close look at the largest bureaucratic structures, the actual allocations of power in front and behind the organizational facade, he illuminates the difficult issues and challenges facing contemporary China. Highly recommended.?Mark Meng, St. John's Univ. Lib., New York
Copyright 1995 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.


What Does China Think?, By Mark Leonard, published by Fourth Estate, 2008.  Purchase at B&N.com | Purchase at Amazon.com
This delightfully short and concise book (only 164 pages long) gives the reader a fascinating insight into how policy makers and interlectuals in China see the world in which they will play an ever increasing role in shaping in the future.  I was particularly delighted to see one of my own professors from Tsinghua Unviersity, Cui Zhiyuan, featured in the book.  The author, Mark Leonard, is one of the most important and influential on British  and European foreign policy.





The Party: The Secret World of China's Communist Rulers, By Richard Mcgregor, Harper, 2010.  Purchase at B&N.com | Purchase at Amazon.com
Mcgregor begins his well researched and revelatory book with a comparison between the Vatican and the Chinese Communist Party.  Noting their shared cultures of impenetrability, secrecy, and pervasive influence. 
 is a journalist for the Financial Times.  Mcgregor looks at the party's influence over China's economy, military and local governments.  Describing a Leninist political system that is at odds with Western standards of management and transparency.  He has highlighted the need for the party to evolve in an the context of the 1989 crackdown, globalization, and technological innovations; providing insight into how the party has and has not been able to adapt.

China's Communist Party: Atrophy and Adaptation, By David Shambaugh, University of California Press, 2009. Purchase at B&N.com | Purchase at Amazon.com 

Few issues affect the future of China--and hence all the nations that interact with China--more than the nature of its ruling party and government. In this timely study, David Shambaugh assesses the strengths and weaknesses, durability, adaptability, and potential longevity of China's Communist Party (CCP). He argues that although the CCP has been in a protracted state of atrophy, it has undertaken a number of adaptive measures aimed at reinventing itself and strengthening its rule. Shambaugh's investigation draws on a unique set of inner-Party documents and interviews, and he finds that China's Communist Party is resilient and will continue to retain its grip on power.
Copub: Woodrow Wilson Center Press 

 Personal note: I have it on good authority that this book is now banned in China.  Having read this rather dry but penetrating and well researched book I can only conclude that it was most likely banned because it discusses too many uncomfortable truths and provides strong insight into the thinking behind much of the Communist party's decision making process.  Conclusion, in this case a Chinese government ban is a vote of confidence in the book's authenticity and the power of its analysis.  And if my source is wrong and it isn't banned, well it is still worth reading for anyone with a strong interest in post Cold-War Chinese Communist Party thinking.
- Douglas Scott

China's Political System: Modernization and Tradition, By June Teufel Dreyer, Longman Publishing Group; 8th Revised edition edition, 2011.  Purchase at Amazon.com 

"Dreyer provides a comprehensive and up-to-date survey of China's political, economic and social landscape. Rather than providing a static overview of existing institutions and processes, the author convincingly shows how the lasting struggle between external influence and China's own tradition underlies changes in China's political system."--Yi Edward Yang, James Madison University

Profile of Justin Yifu Lin by Evan Osnos

 This article written by The New Yorker's correspondent in Beijing, Evan Osnos, traces the life of one of China's most important economic reformers, Justin Yifu Lin.  Lin is with out a doubt one of the most important people in the story of China's economic rise, particularly in the early years during the 1980s.  The article tells the Lin's fascinating life story from his early days as a student leader in Taiwan to his dramatic arrival in mainland China as well as his development as an economist and his role in creating the policies that have helped fuel China's spectacular growth. 

You can read the abstract of his article here however if you want to read the full article you will need to buy it from the New Yorker or read it in the October 11th 2010 edition of the New Yorker Magazine.

This American Life: What is money?

Stone money near the village of Gachpar on the island of Yap. 
This object is about 8 feet or 2.4 meters high.

On the 7 January 2011 This American Life broadcast a show on the invention of money and what it is. 


The section where Jacob, one of the shows producers, talks about the island of Yap and their unique currency is a perfect illustration of how money, whether it is fiat money or gold or stone, only has value because everyone in society believes it has value.  The fact that they chose to use worked stone from a far away island that is 200km from Yap also illustrates that the only true value of anything is in a persons labour.  These stones represent an investment of the islands surplus labour in a form that is tangible and that does not loose intrinsic value over time or though weir and tear thereby making them a perfect medium of exchange (in other words: money).

Prologue from This American Life:

Ira Glass speaks with several members of the Planet Money team, who all found themselves—in the course of their reporting—independently asking the same stoner-ish question: What is money? Ira and Planet Money producer Jacob Goldstein discuss a pre-industrial society on the island of Yap that used giant stones as currency. The book that Jacob read about Yap is called The Island of Stone Money. (10 minutes)

Listen to the show here.