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Quotulatiousness

November 16, 2011

Don’t expect China to save your economy

Filed under: China, Economics, Government, Media — Tags: , , , , , — Nicholas @ 09:19

Jon, my former virtual landlord, sent along this link which should pour cold water on the notion that China will step in to save the economies of other countries:

China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse.

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis — on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.

The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.

In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.

Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.”

China, for all its amazing growth and rising economic prospects for (some of) its population, is still not a modern economy. The government — specifically the military — is too deeply involved at far deeper levels than other governments and the reported economic figures may or may not have any relationship with reality. When your boss is a general, he has ways of ensuring that you report the “right” results that a civilian CEO cannot match. It’s not just your job you risk by reporting unwelcome results.

I’ve ridden this hobby horse, as Jon calls it, many times over the years.

February 17, 2011

Victor Shih interview on China’s economy

Filed under: China, Economics, Military, Politics — Tags: , , , , — Nicholas @ 07:35

The Browser interviews Victor Shih:

What do people get most wrong when they think of the Chinese economy?

The biggest misperception about China is that it’s a dynamic market economy — it isn’t. It’s a fast-growing, state-dominated economy with some dynamic, private-market aspects. If you look at investment, a main driver of growth, much of it is going to state-owned enterprises (SOEs) or shareholding companies dominated by state entities. Or it’s going directly to government investments carried out at a central or local level. The misperception has abated recently following Richard McGregor’s book on the Chinese Communist Party. People are realising that the party is still behind much of what happens in China.

[. . .]

Your first choice is Yasheng Huang’s Capitalism with Chinese Characteristics. I believe this book successfully demolishes the idea that China is developing a new economic model called ‘market authoritarianism’.

I think Yasheng goes a little too far with some of his claims. But the broad outline is correct. There was a period of healthy organic growth in the 80s, driven by the de facto private sector. Many township and village enterprises were collectives or owned by the local government. But in reality they were private enterprises. This changed in the mid-90s, especially with the adoption of the ‘grasping the large and letting the small go’ policy that circumvented the special interests in the state sector. When Deng Xiaoping was alive, his executive vice premier, Zhu Rongji, wanted to bankrupt or merge many of the smaller state-owned enterprises into larger ones. It was a political tactic to further reform. And it worked.

The problem was that it created these giant, state-owned enterprises. Recent statistics reveal the state sector made a profit of 2 trillion renminbi last year, of which the 122 largest SOEs made 1.35 trillion. They have combined assets of over 10 trillion dollars and have become an enormously resourceful and powerful interest group. Their CEOs have numerous ties with top political leaders and sit on the party’s central committee. Most bank loans, issued bonds and stock-listing proceeds in the system go to these conglomerates. There’s still a private sector but it has been squeezed tremendously, especially in the last two years.

[. . .]

Most investment bankers like to talk things up, but that’s not something we can accuse Carl of doing.

By the late 90s, China’s banks were technically insolvent because the non-performing loans ratio was 40 to 50 per cent. Carl’s still a big fan of Zhu Rongji, the former prime minister. One of Zhu’s greatest achievements was to ‘solve’ the problems in the banking sector by setting up asset-management companies and recapitalising the banks. Today, of course, the banks are still lending very recklessly despite a lot of reform — the formation of credit and risk-management committees, for example. The banks continue to require bailouts and recapitalisation from the Chinese government, which props them up so that they can sell these bank shares to the public in Hong Kong or Shanghai. Carl sees this process as a kind of Ponzi scheme.

April 9, 2022

It wasn’t the Wuhan Coronavirus that crippled the world economy — it was government reaction to the pandemic

Filed under: Cancon, China, Europe, Government, Health, Media, USA — Tags: , , , — Nicholas @ 03:00

Dan Sanchez points out the undeniable truth that most of the economic damage we’ve sustained over the last two years wasn’t due to the pandemic itself, but to the incredibly disruptive public health measures almost every western government implemented in response (with huge connivance on the part of the legacy media and the social media companies):

… it will not be the coronavirus making us poorer, but the fallacy, embraced by officials from Beijing to DC, that central planners can manage society-wide problems, like “healing” a global pandemic or “fixing” a global supply chain.

As the great economists Ludwig von Mises and F.A. Hayek explained, societies and economies are inconceivably complex, and it is literally impossible for anyone to centrally plan something so far beyond their comprehension. To think otherwise is, as Hayek called it, a “fatal conceit”.

The fatal conceit of central planners is manifest in the very term “global supply chain”. The metaphor of a “chain” portrays the economy as something static and linear: something simple enough for a single mind to “fix”.

But, as Leonard Read vividly showed in his classic essay “I, Pencil”, even a seemingly simple good like a pencil is not the product of a single supply chain. Every good in the economy is descended from a vast “family tree” of innumerable factors of production. And all the family trees of all goods are intricately interconnected, making the economy, not a “chain”, but as economist Murray Rothbard depicted it, “a highly complex, interacting latticework of exchanges”.

This vast, dynamic latticework is self-healing and self-fixing: through the actions and interactions of its constituent individuals. Blundering, arrogant central planners only get in the way and make things worse.

That has been the lesson of free-market economists and social theorists going back to Adam Smith. The western world partly embraced that lesson, and it flourished as a result, becoming a beacon to the world. Starting in the 1970s, even Communist China emulated its example, opening up its markets. This was a humanitarian miracle for the Chinese people and a boon for us all. If not for Chinese manufacturing being integrated into the global division of labor, it is hard to imagine the west having the modern high-tech living standards and super-comfortable working conditions we enjoy (however precariously) today.

Whereas once China liberalized in emulation of the west, now the leaders of the “free world” are emulating (and, in the case of Canada’s prime minister, openly admiring) the authoritarianism of the CCP. As crises continue to mount, it is clear that this turn toward tyranny is putting our future at risk.

January 22, 2022

“China’s statistics remain in the hands of officials who carefully do everything possible to make sure China’s image remains unblemished”

Filed under: China, Government, Health — Tags: , , , , , — Nicholas @ 03:00

I’ve been a disbeliever in official Chinese statistics for many years — one of the first repeat topics on the blog in 2004 was the unreliable nature of Chinese government statistics on economic growth. As a result, I find it very easy to believe that the Chinese statistics on deaths due to the Wuhan Coronavirus pandemic are unreliable, as John Horvat explains:

Wuhan Institute of Virology.
Wikimedia Commons.

As the latest wave of COVID cases surges in the West, all is quiet in the East. It has always been quiet. Millions have died from the coronavirus epidemic as it sweeps the world. However, few consider it strange that the nation where the virus first appeared amid an entirely unprotected public of 1.3 billion people should record a mere 4,636 fatalities over the past three years.

China’s statistics remain in the hands of officials who carefully do everything possible to make sure China’s image remains unblemished. They claim that low numbers are due to the communist nation’s brutal “zero tolerance” policies. China is presented as a model for the West.

Some voices are appearing that dispute this claim. One expert says the fatality figures are likely closer to 1.7 million. This figure would put China in the same camp as the rest of the world. It would also point to the failure of the world’s strictest lockdown and explain the recent shutdowns of whole cities and regions due to the virus, which supposedly kills no one in China.

[…]

Communist parties have always used statistics as a tool and weapon to advance their agenda. Officials feel free to change the numbers to reflect well upon the state, which controls everything. Truth is whatever furthers the fortunes of the party. If statistics must be changed as a result, there is no problem. Hence the notorious unreliability of communist statistics.

The problem is complicated by anxious officials who must report good news to party leaders or face the consequences of their failures, including death. Zero tolerance numbers may be statistically impossible and even absurd, but most officials prefer their survival over inconvenient truths.

Also disturbing is the complicity of Western media that repeat the cooked numbers of communist regimes. Few dare to question impossible figures or “follow the science” when leftist prestige is involved. During the long Cold War, the West presented the Soviet Union as the second-largest economy. When the Berlin Wall fell, the actual size of the economy was found to be significantly less.

Even in a centrally planned socialist state, incentives matter. In the west, failing to meet expected standards may get you fired (unless you work for the government), but in authoritarian states like China it can get you shot or exiled to a remote labour camp for years or decades. The top statisticians know that the numbers they work on are … massaged … at every stage even before they are aggregated for regional or national reporting, but there is literally no point in telling the truth and there is much to be gained by “scenario-ing them rosily” because your bosses will only accept good news regardless of reality.

June 6, 2021

QotD: The Soviet Union in the Cold War, China today

Filed under: China, History, Media, Quotations, Russia, USA — Tags: , , , , , — Nicholas @ 01:00

Back in the days of the Cold War, much was said about the titanic power of the Soviet Union. The USSR, we were told, was a superpower the equal of the United States, possibly even superior. This meme was spread by lefties who wanted the USSR to win, by sincere pacifists hoping to stop war before it could begin, and by an enormous cohort of liberals who repeated it because they heard it from the first two. (Much liberalism can be explained this way. It’s the ultimate “I heard it from somebody” ideology.)

Needless to say, it was gibbering nonsense. The late ’80s Soviet collapse revealed that the USSR was never any kind of power at all – an economy that didn’t produce, weapons that didn’t work, a populace addicted to drink and overwhelmed with despair. “Bulgaria with nukes” is how someone characterized it, and truer words were never spoken. That remains the case today, despite Vlad Putin’s chest-beating, and it’s likely to remain the case as far ahead as anyone can see.

The same trope is being repeated regarding China. China, we are told, is the coming nation. The second largest economy on Earth, soon to be the first. A billion and a half people, each more educated than any American; a military power second to none, with advanced weapons of a nature that we can only gape at. A country exercising its power over vast reaches of the Pacific and moving into the Indian Ocean, Africa, and the Mideast with no one to oppose it.

We hear this from the likes of Thomas Friedman, who has spent much of his career looking for his personal Mussolini. It’s repeated by deeper figures across the political spectrum. In fact, it can be said without exaggeration to have become received wisdom.

There’s no point in asking how true this is. The proper question to ask is whether it embodies any truth at all.

J.R. Dunn, “The Myth of China as Superpower”, American Thinker, 2019-01-09.

April 8, 2020

Debunking the claim that “80% of America’s drugs come from China”

Filed under: Business, China, Health, Media, USA — Tags: , , , , — Nicholas @ 03:00

Eric Boehm tries to sort out where the startling claim came from … because it’s not true:

While reading about the COVID-19 outbreak, you’ve probably encountered this particularly shocking statistic at one time or another: 80 percent of America’s pharmaceutical drug supply comes from China.

It’s a statistic that has made the rounds in right-wing publications for a while — offered as proof that China-heavy global supply chains are putting Americans at risk — but it has also popped up in mainstream outlets, including in pieces published in Politico and The Atlantic. Wherever it is deployed, the stat carries an unstated implication: What if China decides to cut us off in the middle of a pandemic? Could America face a dramatic shortage of key pharmaceutical drugs at the moment when we are most in need? And that distorted claim that says America has been too reliant on China has been seized by politicians like Sen. Josh Hawley (R–Mo.) as evidence that globalization has undermined America’s pandemic response.

[…]

How much is a lot? “In all, 80 percent of the U.S. supply of antibiotics are made in China,” [Politico contributors Doug Palmer and Finbarr Bermingham] wrote, linking back to a press release from Sen. Chuck Grassley (R–Iowa).

But that’s not what the press release says.

Grassley’s statement was publicizing a letter Grassley sent on August 9 to the Department of Health and Human Services (HHS) and the FDA, asking them to conduct more inspections of foreign drug manufacturing facilities to make sure they meet American standards.

“Unbeknownst to many consumers … 80 percent of Active Pharmaceutical Ingredients are produced abroad, the majority in China and India,” Grassley wrote.

There’s the first bit of context collapse: the authors of the Politico piece merged Grassley’s “80 percent … are produced abroad” into “80 percent … are made in China.”

All of this also raises another question: Where is Grassley getting that information? His letter sources that claim to a 2016 Government Accountability Office report which itself cited FDA data on pharmaceutical manufacturers around the world. And that report makes it clear that the U.S. has a diverse supply chain for drugs that goes well beyond India and China.

“Nearly 40 percent of finished drugs and approximately 80 percent of active pharmaceutical ingredients (API) are manufactured in registered establishments in more than 150 countries,” is how the GAO summed up America’s pharmaceutical supply chain.

In two jumps, we’ve gone from “80 percent of American drugs are manufactured in more than 150 countries around the world” to “80 percent of drugs come from two countries” to “80 percent of drugs come from China.”

Now, a further complication. The FDA only tracks drug manufacturing facilities — not the supply chains of specific drugs.

That “lack of structural transparency and available supply chain data about drugs,” researchers at the University of Minnesota researchers wrote last month, is one of the reasons why making accurate assessments about potential drug shortages is difficult. Indeed, it was this same bit of missing information that Grassley was encouraging the FDA to address back in August.

Source: FDA; Safeguarding Pharmaceutical Supply Chains in a Global Economy, October 2019.

March 2, 2020

Downfall of the Superpower China – Ming and Qing Dynasty l HISTORY OF CHINA

Filed under: China, Economics, History — Tags: , , , — Nicholas @ 02:00

IT’S HISTORY
Published 17 Aug 2015

With the dynasties of the Ming and the Qing came social security and flourishing international trade. The White Lotus Movement advocated progressive thinking in the time of the conservative Ming dynasty. In 1616 the Qing dynasty came to power. Also known as the Manchu dynasty, the Qing refused to open their borders to limitless trade which led to frustrated European merchants. This caused hostility and mistrust of the “barbaric Chinese”. Shortly thereafter China’s economy lost its race against European Colonialism and would lose military influence after gunpowder reached Europe. All about the fall of the former Chinese superpower in this episode on IT’S HISTORY!

» SOURCES
Videos: British Pathé (https://www.youtube.com/user/britishp…)
Pictures: mainly Picture Alliance
Content:
Twitchett, Denis and Loewe, Michael. The Cambridge History of China. Cambridge University Press.
Wilkinson, Endymion, Chinese History: A New Manual. Harvard University, Asia Center
Loewe, Michael; Shaughnessy, Edward L. The Cambridge History of Ancient China. Cambridge University Press
John M. Roberts A Short History of the World. Oxford University Press
Xu, Pingfang The Formation of Chinese Civilization: An Archaeological Perspective. Yale University Press.
Fairbank, J. K.; Goldman, M. China: A New History. Harvard University Press. ”

» ABOUT US
IT’S HISTORY is a ride through history – Join us discovering the world’s most important eras in IN TIME, BIOGRAPHIES of the GREATEST MINDS and the most important INVENTIONS.

» HOW CAN I SUPPORT YOUR CHANNEL?
You can support us by sharing our videos with your friends and spreading the word about our work.

» CAN I EMBED YOUR VIDEOS ON MY WEBSITE?
Of course, you can embed our videos on your website. We are happy if you show our channel to your friends, fellow students, classmates, professors, teachers or neighbors. Or just share our videos on Facebook, Twitter, Reddit etc. Subscribe to our channel and like our videos with a thumbs up.

» CAN I SHOW YOUR VIDEOS IN CLASS?
Of course! Tell your teachers or professors about our channel and our videos. We’re happy if we can contribute with our videos.

» CREDITS
Presented by: Guy Kiddey
Script by: Guy Kiddey
Directed by: Daniel Czepelczauer
Director of Photography: Markus Kretzschmar
Music: Markus Kretzschmar
Sound Design: Bojan Novic
Editing: Markus Kretzschmar

A Mediakraft Networks original channel
Based on a concept by Florian Wittig and Daniel Czepelczauer
Executive Producers: Astrid Deinhard-Olsson, Spartacus Olsson
Head of Production: Michael Wendt
Producer: Daniel Czepelczauer
Social Media Manager: Laura Pagan and Florian Wittig

Contains material licensed from British Pathé
All rights reserved – © Mediakraft Networks GmbH, 2015

February 23, 2020

China’s government and the coronavirus epidemic

Filed under: Bureaucracy, China, Government, Health, Media — Tags: , , , , , , , — Nicholas @ 05:00

In Quillette, Aaron Sarin shows how the Chinese government has systematically failed to respond adequately to the epidemic which broke out late in 2019in Wuhan and risks “losing the Mandate of Heaven”:

As of this writing, the epidemic’s death toll is still rising, and many of these deaths can ultimately be traced to the paranoid rigidity of the Xi Jinping administration. By late December 2019, doctors in Wuhan were already sounding the alarm over cases of what appeared to them to be SARS. Instead of listening to their warnings, the authorities summoned eight of these doctors for a dressing-down. They were warned of the punishments they could face for “rumour-mongering.” News of their detention was broadcast to tens of millions: a clear message to anyone else who might have been thinking about discussing viruses in public.

The Party’s leaders actually knew enough to be worried by this point — they alerted the World Health Organisation on December 31st — and yet still they hid the truth from the public. This neurotic obsession with secrecy has certainly cost lives. If the medical community had been informed of the outbreak back in December, hospitals could have stockpiled the necessary supplies. But now there are drastic shortages, and patients are dying in hallways and waiting rooms.

Even the critics of authoritarian dictatorship will usually agree that the system beats democracy for sheer efficiency, but the coronavirus debacle has turned that old wisdom on its head. Where we might have expected cold and methodical governance, we have found dithering bureaucrats, unable to take a step in any direction, paralysed by what Xu Zhangrun calls “systemic impotence.” Weeks went by and citizens swarmed in and out of Wuhan, picking up the virus and transporting it to the far corners of the country. Local government officials stayed quiet, wary of the heavy hand of Xi Jinping. On January 23rd, a citywide quarantine was finally announced, but eight long hours passed before it was enacted — time enough for a million or more to flee the city.

The Wuhan lockdown was repeated in other parts of the country (most recently the southern megacity of Guangzhou), and some observers praised the speed with which new hospitals were constructed from scratch. These very visible displays of its power aside, the Party has moved far too slowly at every stage of the crisis. Diagnostic testing required samples to be sent all the way to a laboratory in Beijing, and this delayed the distribution of testing kits to many of the hospitals in Wuhan. Even when testing kits were available, patients still found themselves trapped in a Kafka-esque web of bureaucracy. According to Reuters, the tests have been refused to people who fail to make it through a complex reporting system involving hospital authorities, district authorities, city health authorities, and disease control officials.

None of this should come as a surprise. The cliché about the efficiency of authoritarian systems was always, on closer analysis, something of a low-resolution image. In the old days of the Soviet Union, speedy industrial growth obscured the reality of a fragile system largely devoid of autonomous decision making. During the 1920s, the Communist Party’s state planning committee Gosplan was established with the impressive-sounding mission of creating a series of five-year plans to govern the economy. But over the next 70 years, the vast majority of these plans were radically revised and rewritten, or more frequently ignored altogether in favour of Joseph Stalin’s arbitrary dictates. Indeed, Gosplan actively tried to avoid making decisions at all, because committee members knew Stalin would have them shot and replaced if their ideas produced unwelcome results. In the end, fear saps the efficiency of all authoritarian regimes, and the Chinese Communist Party is no exception.

Li Wenliang has emerged as the most vivid symbol of the Party’s latest failure. Li was one of the Wuhan doctors disgraced for discussing the coronavirus on social media. A few days after his police warning, he contracted the virus himself, and on February 6th he died. It was during the period of Li’s short illness that the Party apparently realised its error and decided to absolve the doctors, but still the central government would accept no blame for the tragedy. Instead, the Supreme Court (which is controlled by the CCP) scolded the local government in Wuhan — an unusual move, no doubt designed to create a scapegoat for surging public anger. The truth is that the city’s officials had been faced with an impossible job. They obediently followed orders, and now they will be punished for it.

August 28, 2019

And then came Genghis Khan – Sorrow of the Song Dynasty l HISTORY OF CHINA

Filed under: Bureaucracy, China, Economics, History — Tags: , , , — Nicholas @ 04:00

IT’S HISTORY
Published on 10 Aug 2015

The Song dynasty is often described as an early modern economy. It marked a lot of economical changes from previous dynasties. Starting with the decentralisation of power and reduced economical involvement, it brought on industrial growth and agricultural expansion. Although being forced to advance in military technology due to wars with the Liao and the Jurchen, the Song would eventually fall to the Mongols. Crumbling under Genghis Khan’s attacks it would only take one generation until his successor Kublai Khan would declare a new Yuan Dynasty. Find out all about this Epoch on IT’S HISTORY!

» SOURCES
Videos: British Pathé (https://www.youtube.com/user/britishp…)
Pictures: mainly Picture Alliance
Content:
Benn, Charles (2002), China’s Golden Age: Everyday Life in the Tang dynasty, Oxford University Press
Ebrey, Patricia Buckley (1999), The Cambridge Illustrated History of China, Cambridge: Cambridge University Press
Gascoigne, Bamber; Gascoigne, Christina (2003), The Dynasties of China: A History, New York
Levathes, Louise (1994), When China Ruled the Seas, New York: Simon & Schuster
Whitfield, Susan (2004), The Silk Road: Trade, Travel, War and Faith, Chicago: Serindia

» ABOUT US
IT’S HISTORY is a ride through history – Join us discovering the world’s most important eras in IN TIME, BIOGRAPHIES of the GREATEST MINDS and the most important INVENTIONS.

» HOW CAN I SUPPORT YOUR CHANNEL?
You can support us by sharing our videos with your friends and spreading the word about our work.

» CAN I EMBED YOUR VIDEOS ON MY WEBSITE?
Of course, you can embed our videos on your website. We are happy if you show our channel to your friends, fellow students, classmates, professors, teachers or neighbors. Or just share our videos on Facebook, Twitter, Reddit etc. Subscribe to our channel and like our videos with a thumbs up.

» CAN I SHOW YOUR VIDEOS IN CLASS?
Of course! Tell your teachers or professors about our channel and our videos. We’re happy if we can contribute with our videos.

» CREDITS
Presented by: Guy Kiddey
Script by: Guy Kiddey
Directed by: Daniel Czepelczauer
Director of Photography: Markus Kretzschmar
Music: Markus Kretzschmar
Sound Design: Bojan Novic
Editing: Markus Kretzschmar

A Mediakraft Networks original channel
Based on a concept by Florian Wittig and Daniel Czepelczauer
Executive Producers: Astrid Deinhard-Olsson, Spartacus Olsson
Head of Production: Michael Wendt
Producer: Daniel Czepelczauer
Social Media Manager: Laura Pagan and Florian Wittig

Contains material licensed from British Pathé
All rights reserved – © Mediakraft Networks GmbH, 2015

April 8, 2019

Comparing the economic performance of China’s private versus state-owned companies

Filed under: Business, China, Economics, Government — Tags: , , , — Nicholas @ 03:00

If you’ve been following the blog for a while, you’ll know that I’ve long been skeptical of any official economic statistics coming out of China. The reasons for my skepticism are that vast areas of the Chinese economy were owned or controlled by the state and reporting from those entities was performed through layers of officials whose positions and personal well-being depended on those reports being as positive as possible. In a capitalist system, announcing false production or profit figures will eventually be detected (sometimes not as soon as we’d like), and the company loses the trust of customers, suppliers, and banks, making survival much more difficult. In a state-owned organization, everyone in the hierarchy has a vested interest in false information not being uncovered or reported. In a private firm, you could lose your job … in a state-run enterprise, you could be shot or sent to a “re-education camp” along with all your family. The incentive to lie is much stronger when your risks are that high.

Tim Worstall comments on a recent report that compares the performance over time of Chinese private companies, privatized state companies, and companies that are still state-run:

That China has relaxed the governmental grip upon industry in recent decades is true. That China has become very much richer in recent decades is also true. The two are not a coincidence, there’s causality there. However, we hear often enough that it’s the residual control over industry by the government that drives that success. Sure, OK, so the bureaucracy doesn’t specify prices or detailed actions but the general guidance provided by a politically driven bureaucracy explains the outperformance.

Except it doesn’t. Those former state industries still enjoying that government guidance perform worse than the free market firms sadly lacking it. State planning is keeping China poorer than it need be, not aiding its growth.

The report he’s commenting on:

Changing the tiger’s stripes: Reform of Chinese state-owned enterprises in the penumbra of the state
Ann Harrison, Marshall W. Meyer, Will Wang, Linda Zhao, Minyuan Zhao 07 April 2019

The conventional wisdom that privatisation of state-owned enterprises reduces their dependence on the state and yields positive economic benefits has not always been borne out by empirical work. Using a comprehensive dataset from China, this column shows that privatised SOEs continue to benefit from government support in the form of low-interest loans and subsidies relative to private enterprises that have never been state-owned. Although there are clear improvements in performance post-privatisation, privatised SOEs continue to significantly under-perform compared to private firms.

Much of China’s economic growth has been driven by the emergence of a vibrant private sector, today accounting for approximately 60% of GDP and 80% of employment. Conventional wisdom holds that privatisation of state-owned enterprises (SOEs) reduces their dependence on the state and yields positive economic benefits including enhanced firm performance, productivity, and innovation. The pro-privatisation argument is that the state either cannot monitor managers properly or chooses not to pursue efficiency because state interests take precedence over financial results (Boardman and Vining 1989, Vickers and Yarrow 1991, Shleifer and Vishny 1994). Empirical work, however, has produced mixed results on privatisation. For example, DeWenter and Malatesta (2001) found that, among the 500 largest firms globally in 1975, 1985, and 1995, private enterprises had significantly lower costs and higher profits than SOEs. Yet, when they examined a sub-sample of privatised firms, they found inconsistent results – performance increased post-privatisation, while leverage and employment increased mainly pre-privatisation. Market returns from privatisation also differed across countries, positive in Hungary, Poland, and the UK but insignificant elsewhere.

Our research on privatisation in China (Harrison et al. 2019) is unique in several respects. We analyse an extremely large sample of industrial firms, more than 3.5 million firm-years from 1998 to 2013, drawing on the Annual Industrial Survey conducted by the China National Bureau of Statistics. We compare privatised firms with firms that remained state-owned and firms that had never been state-owned. Most importantly, we compare both the performance and dependence on the state of privatised firms with firms having no prior state ownership. Overall, our results indicate selective performance gains from privatisation – privatised firms have greater productivity and are more likely to file patents than firms remaining state-owned even though their return on assets barely improves. The performance effects notwithstanding, privatised firms remain dependent on the state. Subsidies, concessionary interest rates, and loans granted to privatised firms remain at nearly the same levels as those to SOEs. Privatisation changes the behaviour of firms but not firms’ dependence on the state.

A graphical portrayal of the differing performance of the three types of Chinese companies from the report:

Return on assets of state-owned enterprises, privatised state-owned enterprises, and privately-owned enterprises

March 3, 2018

China’s growing presence in the Indian Ocean

Filed under: China, India, Military — Tags: , , — Nicholas @ 05:00

At Strategy Page, a useful primer on recent Chinese moves to set up another facility in India’s sphere of influence, this time in the Maldives:

The Maldive Islands in relation to southern India and Sri Lanka
Image from Google Maps.

China and India are threatening each other over who should do what in Maldive Islands just south of India. This conflict heated up at the end of 2017 when China and the Maldives signed an agreement that allowed China to build and operate a “Joint Ocean Observation Station”. This monitoring station would be built on an atoll that is the closest part of the Maldives to India. Opposition politicians in the Maldives claim China has already taken possession of sixteen small islands and that China has been investing heavily in the Maldives economy and influential politicians.

This agreement was apparently obtained by Chinese bribes and assurances that there would be more Chinese investments. Meanwhile the Maldives government is in chaos over elected officials and the Supreme Court judges disagreeing about who should actually be in charge. The tiny (248 square kilometers spread over 1,192 coral atolls spread over 90,000 square kilometers of water off the southern coast of India) nation has a mostly Moslem (98 percent) population of 430,000 plus 100,000 foreign workers (a third of them illegals). Most of the population is concentrated on about 15 percent of the islands. The per capita income is about $10,000 and most of it is based on tourism followed by fishing. Many young men have been attracted to Islamic terrorism but there is not much religious violence in the Maldives. While a democracy the religious parties and military have kept the government in turmoil by asserting decidedly non-democratic powers.

Over the last decade India has become alarmed at growing Chinese investment in neighboring countries (like Sri Lanka, Maldives and Bangladesh). Chinese firms are more experienced and effective at arranging these foreign investments and India’s smaller neighbors feel more comfortable with investment from distant China rather than neighbor (and sometimes big bully) India. The Chinese economic investments often have military implications, like China building satellite ground stations in Sri Lanka, a major port in Pakistan and now an “Ocean Observation Station” in the Maldives.

China had earlier persuaded the Maldives to join its OBOR (One Belt, One Road) project. The Maldives would be part of the “maritime road” going from Chia, through the newly annexed South China Sea and into the Indian Ocean and sea routes to the Persian Gulf the Suez Canal and East Africa and beyond. The Maldives government has always been unstable and Islamic radicalism is still an issue there. Islamic terrorists were never able to establish themselves in the Maldives, although they tried. In 2007 three men were sentenced to 15 years in prison for carrying out a terror bombing attack three months earlier that wounded a dozen tourists. The Islamic radicals were intent on destroying the tourist industry, which is the main source of income in the Maldives, because they saw it as un-Islamic. Most people on the Maldives did not agree with that, and justice was swift. However, ten Islamic radicals responsible for planning the bombings fled the country the day before the attack and are being sought in Pakistan.

November 27, 2017

China discovers that there’s a (very) limited appetite for shared bikes

Filed under: Business, China, Economics — Tags: , , — Nicholas @ 04:00

In the Guardian, Benjamin Haas reports on what at first might seem to be a vast modern art display:

At first glance the photos vaguely resemble a painting. On closer inspection it might be a giant sculpture or some other art project. But in reality it is a mangled pile of bicycles covering an area roughly the size of a football pitch, and so high that cranes are need to reach the top; cast-offs from the boom and bust of China’s bike sharing industry.

Just two days after China’s number three bike sharing company went bankrupt, a photographer in the south-eastern city of Xiamen captured a bicycle graveyard where thousands have been laid to rest. The pile clearly contains thousands of bikes from each of the top three companies, Mobike, Ofo and the now-defunct Bluegogo.

Tim Worstall draws the correct conclusion from the provided evidence:

We want, irrespective of anything else about the economy, a method of testing ideas to see if they work. Does the application of these scarce resources meet some human need or desire? Does it do so more than an alternative use, is it even adding value at all?

Bike shares, are they a good idea or not? The underlying problem being that expressed and revealed preferences aren’t the same. There’s only so far market research can take you, at some point someone, somewhere, has to go out and do it and see.

Excellent, the Commie Chinese have done so. Vast amounts of capital thrown into this, competing bike share companies, hire costs pennies. And no fucker seems very interested. That is, no, large scale bike share schemes don’t meet any discernible human need or desire, they don’t add value, spending the money on something else will increase human joy and happiness better.

And this is excellent, we’ve tried the idea and it don’t work. Now we can abandon it and go off and do something else therefore.

Which is the great joy of market based systems. They’re the best method we’ve got of finding out which ideas are fuck ups.

Long live markets.

March 11, 2015

China’s “Catch up” growth

Filed under: China, Economics — Tags: , , , — Nicholas @ 02:00

In Forbes, Tim Worstall looks at last week’s announcement that China is (slightly) lowering their economic growth forecast.

On that larger scale though what people are worrying about is this. Catch up growth is easier than growth from the technological frontier. What is meant by this is that it’s a great deal easier to generate economic growth if you have an example in front of you of how to do things. To take a trivial example, if you can go and buy a mobile phone, take it apart to see how it works, it’s a lot easier to copy that technology than it is to invent it for the first time. And this is true of how you make cement, how you put up buildings, how you farm a field and so on. And at root that’s what economic growth is: becoming more efficient at doing all of these things as well as everything else. Each time you become more efficient at doing one task you free up resources to be doing something else. Thus you get both the original thing plus the new one from the same resources: this is the very definition of economic growth.

However, there’s a limit to such catch up growth. In certain areas China is right at that technological frontier (in some areas ahead of the rest of the world in fact). Which is where things become more difficult: there’s no one to copy. Therefore that invention has to happen domestically. This is obviously more difficult. But also it rather requires a certain set of institutions. The rule of law, property rights and so on. These aren’t things that China notably has (although things are very much better than they were decades ago). It’s those headwinds that need to be beaten. Bringing in these new institutions, embedding them in the society and the economy, without causing so much disruption as to slow down growth while they are done.

The standard jargon for this is “middle income trap”. To be crude about it the general feeling is that it’s pretty easy to go from dirt poor to middling income. The essence is really just to stop doing stupid things that hold economic development back. China’s done that very well even though they did start from a very low level of an immense number of very stupid things that Maoism did to hold economic growth back. The middle income trap is where the transition over to those institutions that promote technological frontier growth don’t appear (or are not imposed). And thus the stunning growth peters out.

September 23, 2014

“Rock star economy” leads to first majority government in New Zealand since 1996

Filed under: Economics, Pacific, Politics — Tags: , , , , — Nicholas @ 08:06

Anthony Fensom reports on Saturday’s election results in New Zealand:

New Zealand’s “rock star economy” helped center-right Prime Minister John Key achieve a thumping election victory. But with major trading partner China slowing, are financial market celebrations premature?

The New Zealand dollar, government bonds, and stocks gained after Key’s National Party romped to power in Saturday’s poll, securing its third straight term and the nation’s first majority government since proportional representation was introduced in 1996.

Despite “dirty politics” claims and a late attempted campaign ambush by internet entrepreneur Kim Dotcom, the incumbent National Party won 61 of 121 parliamentary seats and 48.1 percent of the vote, the party’s best result since 1951.

In contrast, the main opposition left-leaning Labour Party, which pledged an expansion of government, secured only 24.7 percent of the vote for its worst performance since 1922. The Greens won 10 percent and New Zealand First 8.9 percent as pre-election predictions of a closer race proved false.

Key pledged to maintain strategic alliances with the Maori, ACT and United Future parties, which won four seats between them, further strengthening his parliamentary majority.

[…]

“Like [Australian Prime Minister] Abbott, Key as a new prime minister inherited a budget and an economy in deep trouble…Six years later, the budget is in surplus, unemployment at 5.6 percent is falling and the economy is growing so strongly the New Zealand Reserve Bank became the first among developed countries to raise interest rates to deter inflation,” noted the Australian Financial Review’s Jennifer Hewett.

“Not only did the Key government cut personal and corporate tax rates, it raised the goods and services tax to 15 percent while steadily reducing government spending over years of ‘zero budgets,’” wrote Hewett, who urged Abbott to “learn some sharp lessons” from Key’s electoral successes.

Key’s party has pledged to cut government debt to 20 percent of gross domestic product (GDP), reduce taxes “when there is room to do so” and create more jobs, aiming to undertake further labor and regulatory reforms as well as boosting the supply of housing.

September 3, 2014

QotD: The relative size of the Chinese economy, historically speaking

Filed under: China, Economics, History, Quotations — Tags: , , — Nicholas @ 00:01

People seem to want to get freaked out about China passing the US in terms of the size of its economy. But in the history of Civilization there have probably been barely 200 years in the last 4000 that China hasn’t been the largest economy in the world. It probably only lost that title in the early 19th century and is just now getting it back. We are in some senses ending an unusual period, not starting one.

Warren Meyer, “It is Historically Unusual for China NOT to be the Largest Economy on Earth”, Coyote Blog, 2014-08-30.

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