Quotulatiousness

February 18, 2011

The internet in China: hidden powers of persuasion

Filed under: China, Government, Technology — Tags: , , , , — Nicholas @ 08:52

A look at how the internet in China has the power to (sometimes) punish corrupt officials and influence the government:

Corruption and viral marketing has provided the Chinese government with a powerful tool for controlling public opinion. It all began when Chinese companies realized that they could hurt competitors by planting damaging rumors on the Internet. This, even in China, is illegal. But the corruption in China being what it is, there was little risk of getting the police to hunt down and punish the perpetrators. This was partly because the marketing firms, hired by companies to burnish their image, or defame competitors, was careful to have other small outfits get on the Internet to actually do the work, and be careful to not be traceable. So the cops, when forced by companies to do something (often because the owner of the offended firm was well-connected politically), were stymied at first. But the police, declaring it a national security issue, eventually discovered how this was done. But this did not stop all these negative campaigns. To defend themselves, companies that were attacked by these Internet disinformation campaigns, fought back.

This use of negative tactics soon fell out of favor, as all those tarnished companies lost sales. So these Internet based opinion manipulation turned to praising your own products. About this time, the government discovered what was going on, and began to use these marketing companies, and their subcontractors, to change opinions towards government policies. There was a pressing need for this, because all this Internet opinion manipulation had started out, over the last decade, as a popular uprising against government corruption, mistreatment and media manipulation. This “online army” was not organized, except by outrage at government, or individual, wrongdoing. For example, many government officials, and their high-spirited offspring, injure or steal from ordinary citizens, and get away with it. These officials have enough political clout to make the police leave them alone. But once the online army gets onto these stories, everyone in the country knows, and is angry. There are over 400 million Internet users in China, a country of 1,400 million. When a lot of people on the Internet get angry enough, the story, and anger, explodes through the Chinese Internet community. China carefully monitors Chinese Internet use, and tries to block unwelcome information or discussions. But when the outrage on a particular item becomes too large, it’s better to just arrest and punish the guy whose misbehavior got the online army going in the first place.

Who knew that sockpuppeting would be such a valuable online tactic in China? It might not just be limited to China, however:

If the Chinese wanted to use this tool in other countries, they would require posters who are familiar with the language and culture of the target population. That’s difficult skill to acquire, especially for at least a few hundred posters required (to hit, regularly, hundreds of message boards, chat rooms and so on). Done right, you can shift opinions among millions of people in a few days. Done wrong, you fail. And if you’re operating in a foreign country, you might get found out. But the opportunity is there.

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.

February 3, 2011

Urban China: growth market for luxury goods

Filed under: China, Economics — Tags: , — Nicholas @ 07:42

The most liberalized areas of China have become a magnet for the purveyors of ostentatious luxury items:

The Chinese may have an age-old reputation as great savers, but China’s young people are now making up for generations of lost spending time.

Compared with the austere youth of China’s older generations, who went through the turmoil of the Cultural Revolution and strove to build savings in a nation without a social safety net, the young, raised in an unprecedentedly wealthy China, are spending freely.

[. . .]

As the world’s fastest growing luxury market, China’s appetite for high-end Western branded goods is fast becoming insatiable, with predictions by Boston Consulting Group suggesting that within five years, 29 percent of global luxury product consumption will come from China. And while European and US luxury sales are making a slow recovery after the global financial crisis, China—relatively untouched and still optimistic—remains the most important market for luxury retailers. Indeed, this was the theme behind last year’s 5th Annual China Luxury Summit, which was given the grandiose subtitle of ‘China Luxury Market: An Oasis of Hope and Possibility’.

China as the deus ex machina of the luxury world is a concept familiar to European retailers. Last Saturday, for example, the Italian luxury brand Prada staged its first fashion show in Beijing. Like French cosmetics and perfume brand L’Occitane, which listed in Hong Kong last year, Prada is expected to have an initial public offering in Hong Kong.

No need to reiterate that this is only a phenomenon in the urbanized areas of China: the vast majority of Chinese consumers are unable to access the fast growing markets and still live to a large extent under the direct control of the party.

January 27, 2011

Viewing the new plutocrats: Indian and Chinese variants

Filed under: China, Economics, Government, India — Tags: , — Nicholas @ 07:40

The Economist has a compare-and-contrast piece on how the ultra-rich are viewed in India and in China:

India’s movers and shakers all seem to know each other. The Indian elite have created their own islands, frowns a cabinet minister: “It’s a bit unhealthy.” They send their kids to private schools. They have their own water and electricity. So they barely notice how bad the government is at delivering power, water and schooling to the other 1.2 billion Indians.

Yet to many Indians the nation’s tycoons are heroes. A few made their fortunes corruptly, but the software moguls of Bangalore created a huge export industry out of nothing, and many others helped to spur India’s galloping growth. Ratan Tata, the soon-to-retire boss of a conglomerate that produces everything from tea to cars, lives modestly and treats his employees well. The brothers Anil and Mukesh Ambani are more controversial, but they have turned the family business into two global giants, with interests from chemicals to entertainment.

Some Indian gazillionaires are flashy. Mukesh Ambani’s house has 27 stories, three helipads and three floors of hanging gardens. Vijay Mallya, a beer-and-airlines magnate, constantly amuses the newspaper-reading public with his speedboats and sports teams. But for most of the country’s elite the most conspicuous item of consumption is sending their children to university in America.

India’s super-rich are very different from their Chinese counterparts, however:

The relationship between rich and poor in China is different. China’s stellar growth has lifted some 500m people out of poverty. Much of the credit belongs to Chinese entrepreneurs. Since Mao’s boot was lifted from their necks, they have built marvels, from the skyscrapers of Shanghai to the factories of Guangdong. Yet mainland Chinese business leaders operate in the shadow of a secretive and unaccountable ruling party. To get on, many join it. Some do so reluctantly, to avoid being crushed. Others do so gladly, hoping to use the power of the state to enrich themselves.

Individual party members are not entirely above the law. If a local bigwig behaves so appallingly that the resulting protests are heard in Beijing, the party may cut him down to size. In October last year the son of Li Gang, a senior police officer in Baoding, killed a pedestrian while allegedly drink-driving. He sped off, shouting, “report me if you dare; my dad is Li Gang!”

News of the incident went viral in the Chinese blogosphere. Pop songs with the refrain “My dad is Li Gang!” quickly circulated. Li Gang was forced to make a televised apology. His son was arrested. China’s leaders would like the 95% of the population who are not members to think that the party cares. But the most revealing fact is that Mr Li junior evidently thought he could get away it.

January 26, 2011

Nostalgia for the Dreadnought era?

Filed under: China, Economics, Germany, History, WW1 — Tags: — Nicholas @ 09:03

Ambrose Evans-Pritchard finds the parallels between the rise of Imperial Germany in the years leading up to the first world war and attitudes toward China today:

And we all learned how the Kaiser overplayed his hand. That much was obvious.

Yet it is difficult to pin-point exactly when the normal pattern of great power jostling began to metamorphose into something more dangerous, leading to two rival, entrenched, and heavily armed alliance structures unable or unwilling to avert the drift towards conflict. The Long Peace died by a thousand cuts, a snub here, a Dreadnought there, the race for oil.

[. . .]

Is China now where Germany was in 1900? Possibly. There are certainly hints of menace from some quarters in Beijing. Defence minister Liang Guanglie said over New Year that China’s armed forces are “pushing forward preparations for military conflict in every strategic direction”.

Professor Huang Jing from Singapore’s Lee Kwan Yew School and a former adviser to China’s Army, said Beijing is losing its grip on the colonels.

“The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. This is very dangerous. They are on a collision course with a US-dominated system,” he said.

The problem with drawing parallels from history is that it’s never as neat and clean-cut as you’d expect. First, China is supposed to be like Kaiser Wilhelm’s Germany, then more like Japan after WW1. I have to say I’m not totally following this line of thought. But, getting back to today’s situation:

There is a new edge to Chinese naval policy in the South China Sea, causing Japan, Vietnam, Indonesia, and the Philippines to cleave closer to the US alliance. Has Beijing studied how German naval ambitions upset the careful diplomatic legacy of Bismarck and pushed an ambivalent Britain towards the Entente, even to the point of accepting alliance with Tsarist autocracy?

Factions in Beijing appear to think that China will win a trade war if Washington ever imposes sanctions to counter Chinese mercantilism. That is a fatal misjudgement. The lesson of Smoot-Hawley and the 1930s is that surplus states suffer crippling depressions when the guillotine comes down on free trade; while deficit states can muddle through, reviving their industries behind barriers. Demand is the most precious commodity of all in a world of excess supply.

H/T to Jon, my former virtual landlord, for the link.

January 23, 2011

Lawrence Solomon on the coming crash in China

Filed under: China, Economics, Government — Tags: , , — Nicholas @ 12:17

If you think I’ve been too chipper and dismissive on the medium-to-long term issues that could cause a Chinese meltdown, you’ll enjoy Lawrence Solomon’s article:

In China, the resentments are palpable. Many of the 300 million people who have risen out of poverty flaunt their new wealth, often egregiously so. This is especially so with the new class of rich, all but non-existent just a few years ago, which now includes some 500,000 millionaires and 200 billionaires. Worse, the gap between rich and poor has been increasing. Ominously, the bottom billion views as illegitimate the wealth of the top 300 million.

How did so many become so rich so quickly? For the most part, through corruption. Twenty years ago, the Communist Party decided that “getting rich is glorious,” giving the green light to lawless capitalism. The rulers in China started by awarding themselves and their families the lion’s share of the state’s resources in the guise of privatization, and by selling licences and other access to the economy to cronies in exchange for bribes. The system of corruption, and the public acceptance of corruption, is now pervasive — even minor officials in government backwaters are now able to enrich themselves handsomely.

[. . .]

The corruption extends to the enforcement of regulatory standards for health and safety, which few in China trust. In recent years China has endured a tainted milk scandal and a tainted blood scandal, each of which implicated corrupt officials in widespread death and debilitation. In a devastating 2008 earthquake, some 90,000 perished, one-third of them children buried alive in 7,000 shoddily built “tofu schools” that skimped on materials. Nearby buildings for the elites that met building standards, including a school for the children of the rich, were largely unscathed.

[. . .]

China is a powder keg that could explode at any moment. And if it does explode, chaos could ensue — as the Chinese are only too well aware, the country has a brutal history of carnage at the hands of unruly mobs. For this reason, corrupt officials inside China, likely by the tens of thousands, have made contingency plans, obtaining foreign passports, buying second homes abroad, establishing their families and businesses abroad, or otherwise planning their escapes. Also for this reason, much of the middle class supports the government’s increasingly repressive efforts.

Compared to my rather milder criticisms, this is strong stuff indeed.

H/T to my former virtual landlord for the link, who referred to this as my “hobby horse in full gallop”.

January 21, 2011

Remaking Red Dawn as a metaphor for US fear of China

Filed under: China, Economics, Media, USA — Tags: , , , , — Nicholas @ 12:59

David Harsanyi notes the remake of the 1980’s movie Red Dawn with the Chinese taking the place of the original film’s Soviet and Cuban troops:

Doubtlessly, the remake will be entertaining and offer a far more plausible plot line than the original — seeing that the Chinese, well, they have a proper army. Producers will almost certainly capitalize on a growing alarmism regarding China’s growth. Few issues, in fact, can bring right and left together in this polarized world of ours than a shared knowledge that China is bad news.

Now, the American populace can typically be divided into two categories: 1. Those who don’t care one whit about foreign policy. 2. Newspaper editors.

So before Chinese President Hu Jintao was here meeting with the president, Andrew Kohut of the Pew Research Center took to the pages of The Wall Street Journal and explained what we think about the topic.

Apparently, 47 percent of those he surveyed cited China as the world’s top economic power. (Only 31 percent properly identified it as the U.S., which has an economy nearly three times the size.) Another Pew survey from last year found that 47 percent of us consider China’s growth a “bad thing” for the United States. A new CNN poll found that 58 percent of us believe that China’s “wealth and economic power” are a threat to the U.S.

I’m certain our relationship with China is layered with international complexity and fraught with danger. But why would we fear the aspects of China’s ascendancy — its “wealth and economic power” — that pose the least threat to United States? Unlike ideological clashes, economic competition can be mutually beneficial. A country with real economic wealth is typically free and doesn’t look kindly on radical behavior. Suicide bombers rarely drive top-of-the-line BMWs.

I have a long history of doubting the stated size and growth of the Chinese economy and therefore feeling that the “threat” they pose is overstated. Overall, the economic growth in China is a good thing, both for China and for the world economy, but there’s still too much malignancy from the “bad old days” of the command economy that haven’t been properly dealt with. China is big, and getting bigger, but will face severe problems the longer these historical artifacts remain unexamined and unresolved.

January 20, 2011

In case you weren’t worried enough about the rise of China

Filed under: China, Economics, Government, Media, USA — Tags: , , , — Nicholas @ 16:23

The Wall Street Journal rounds up the leading indicators of the current “USA sliding down the ladder” worries:

Of all the differences between dictatorship and democracy, probably none is so overlooked as the ability of the former to project strength, and the penchant of the latter to obsess about its own weakness.

In 1957 the Soviets launched Sputnik and the U.S. went into a paroxysm of nerves about our supposed backwardness in matters ballistic. Throughout the 1980s Americans lived with “Japan as Number One” (the title of a book by Harvard professor Ezra Vogel, though the literature was extensive) and wondered whether Mitsubishi’s purchase of Rockefeller Center qualified as a threat to American sovereignty.

Now there’s China, whose President is visiting the U.S. this week amid a new bout of American hypochondria. In an op-ed last week in these pages, Andrew Kohut of the Pew Research Center noted that a plurality of Americans, 47%, are under the erroneous impression that China is the world’s leading economy. News reports regarding Chinese military strides, or the academic prowess of Shanghai high school students, contribute to Western perceptions of Chinese ascendancy. So does the false notion that Beijing’s holdings of U.S. debt amounts to a sword of Damocles over Washington’s head.

Oh, we nearly forgot: Tough-as-nails Chinese mothers are raising child prodigies (a billion of them!) while their Western counterparts indulge their kids with lessons in finger-painting.

There you go, more than enough to keep you up late tonight worrying about the inevitability of China’s rise to top economic dog in the pack. Of course, most of it is misinterpretation of the facts, but you can worry about it if you want.

H/T to Jon, my former virtual landlord, for the link.

January 18, 2011

Singapore diplomats caught speaking very undiplomatically

Filed under: Asia, China, India, Japan — Tags: , , , , — Nicholas @ 08:15

Sometimes, the information in the various WikiLeaks releases shocks and surprises. Other times, it merely confirms common beliefs:

Singaporean officials are putting up a brave face after highly embarrassing Wikileaks’ disclosures. They have rubbished the leaked cables as “cocktail talk” and accused the media of blowing the casual remarks out of context. Singapore-specific cables have shown that diplomats and officials of this tiny but prosperous city state have scant regard for leaders of neighboring countries and have insulted their neighbors with disparaging remarks.

[. . .]

Tommy Koh, a senior diplomat of Singapore, took pot shots at Japan and said that Japan was “the big fat loser” in the larger strategic matrix as China’s relations with ASEAN nations continued to improve. This is not insulting had Koh stopped at that only. However, the Singaporean diplomat blabbed on and blamed Japan’s “stupidity, bad leadership, and lack of vision.” Koh dragged in the Indians as well and called India “stupid” for being “half-in, half-out” of ASEAN.

Another leaked cable quotes Peter Ho, Singapore’s former Minister of Foreign Affairs and Permanent Secretary, telling a U.S. official in March 2008 that Malaysian Prime Minister Najib Razak was an “opportunist”. Another Singapore diplomat remarked senior colleague in Singapore’s foreign ministry, Bilahari Kausikan, told US Deputy Secretary of Defence for South that ousted Thailand leader Thaksin Shinawatra was ‘corrupt’, along with “everyone else, including the opposition.”

The art of diplomacy is saying in public what your government wants everyone to believe, while saying to your government what is really happening.

January 12, 2011

“Tiger mother”: Chinese-style parenting

Filed under: China, USA — Tags: , , — Nicholas @ 12:38

If you think typical western parenting styles have not served children well, you might be interested in Amy Chua’s new book:

The Tiger, Chua explains, is “the living symbol of strength and power”, inspiring fear and respect. And as a “Tiger mother” herself, she assumed the absolute right to dictate her children’s activities and demand rigorous academic standards of them at all times, ridiculing them if necessary to spur them on to greater efforts.

Her children were never allowed to attend a sleepover, have a playdate, watch TV or choose their own extracurricular activities. They were also expected to be top in every subject (except gym and drama) and never get anything other than A-grades — because, Chua explains, Chinese parents believe it is their responsibility to ensure their children’s academic achievement above everything else.

Chua argues that western parents. with their emphasis on nurturing their children’s self-esteem and allowing free expression, have set their children up to accept mediocrity. “Western parents are concerned about their children’s psyches. Chinese parents aren’t. They assume strength, not fragility, and as a result they behave very differently,” she says. If their child doesn’t achieve perfect exam results, the Chinese parent assumes it’s because he or she didn’t work hard enough. “That’s why the solution to substandard performance is always to excoriate, punish and shame the child,” Chua says. And it is crucial for a mother to have the “fortitude” to override her children’s preferences, because to enjoy anything you have to be good at it, to be good at it you have to work, and children on their own never wish to work, she adds.

Update: Barbara Kay disagrees with Chua about the need to oppress your children to get them to excel:

This article and the book will spark furious discussion in the media. Coincidentally, in today’s Post, Dan Gardner’s column, “From Haiti to Harvard, culture matters,” bolsters the idea that culture is the single greatest predictor for academic success, and it is well worth reading in tandem with “Why Chinese mothers are superior.” He is right, of course, even though political correctness forbids us to say so, and even though Ms Chua’s extreme methods are unnecessary, as the Jewish experience — high expectations, high sensitivity to children’s psychic needs — proves.

It’s too bad Ms Chua’s extremism will become the focus of interest. The larger issue is worthy of respectful attention. As Gardner notes, the reason Asian students are so wildly disproportionately represented in universities (3% of the population, about 25% on campus) is because they came from homes in which “Chinese mothers” ruled the roost. It isn’t racism to say so.

Update, 23 January: Lawrence Solomon thinks the threat of “Tiger Mothers” is overstated:

The statistics seem to bear her out — Asians disproportionately make it to elite schools in the West — they represent 5% of the U.S. population but 20% of the student body at Ivy League schools, for example. No one can but marvel at the uniformly successful students turned out by the “tenacious practice, practice, practice” and “rote repetition” that she considers “crucial for excellence.”

But such statistics don’t tell the whole story. In truth, Chinese Mothers fare poorly in achieving excellence compared with western mothers, even western mothers burdened by political correctness.

[. . .]

Practice and rote learning have their limits. While imposing single-minded discipline on children will dramatically raise test scores and technical proficiency, and for most children may represent the best strategy for accomplishment and satisfaction, it can come at the cost of curbing the creativity necessary for true excellence. Chinese Mothers make great moms, as evidenced by the unusual cohesiveness of the Chinese family: Chinese kids clearly understand whatever berating they absorb as the tough love intended. Chua is justified in saying western parents are doing their underperforming kids no favours in failing to confront them.

But Western parents retain the edge in producing the next generation of creators — those whose breakthroughs will cure cancer or supplant the Internet. Here, too, Chua may be pointing to the right balance in her personal life, by choosing as her husband and father of her children someone who is anything but single-minded. Jed Rubenfeld, an American Jew determined to avoid a career in academia, waffled as a student, starting with philosophy and psychology at Princeton, switching to acting at Julliard, then moving to law at Harvard before accepting an academic position at Yale, where he is now professor and assistant dean of law.

Update, 2 February: Bryan Caplan (who has an upcoming book, Selfish Reasons to Have More Kids) addresses the downside of the Tiger Mother approach:

No wonder Chua confesses that, “For the first few weeks after Lulu’s decision [to radically reduce her musical practice time], I wandered around the house like person who’d lost their mission, their reason for living.” If I’d lived through thousands of hours of drudgery and cruelty for nothing, I’d be despondent, too.

But hasn’t all the musical practice indelibly shaped Chua’s children’s characters? Highly unlikely. Behavioral genetics finds roughly zero effect of parents on personality. And contrary to teachers’ fantasies about changing their students’ lives, learning is highly specific. Practicing X makes you better at X — and little else. Furthermore, the effects of environmental intervention erode over time — that’s fade-out for you. Chua seems to know this on some level: She favorably quotes a music teacher who says that, “Every day you don’t practice is a day that you’re getting worse.”

But all social science aside, Chua’s own life history raises severe doubts about the character-shaping power of mastering an instrument. Yes, she practiced piano as a child, but not to excellence. And what became of her? She became a Yale professor and best-selling author anyway!

In the most insightful passage in Battle Hymn of the Tiger Mother, cost-benefit analysis finally makes an appearance:

Why torture yourself and your child? What’s the point? If your child doesn’t like something — hates it — what good is forcing her to do it?

But Chua immediately represses her thought crime: “As a Chinese mother I could never give in to that way of thinking.” My response: You can and should give in, because this way of thinking is true. Cost-benefit analysis is not a Western prejudice. “Give up when the costs exceed the benefits” is one of the universally-valid maxims that allows millions of Chinese businesses to survive and thrive. Why shouldn’t Chinese mothers use it too?

December 18, 2010

Unwelcome discoveries in China’s past

Filed under: China, History, Science — Tags: , — Nicholas @ 12:38

Strategy Page looks at some recent archaeological and DNA study results that are not popular with China’s government:

Chinese scientists, conducting genetic research in western China, recently tested the people in an ancient, and remote, village, and found that the DNA of the villagers was 56 percent Caucasian (Indo-European). The current theory is that these people are descendants of Roman soldiers who were long rumored to have established an outpost on this eastern end of the ancient Silk Road (the caravan route from China to the Middle East.) The Chinese are not happy with findings like this.

The Chinese government has long been uneasy about archeologists and anthropologists finding evidence of European peoples living, and settling, in western China thousands of years ago. The Chinese have a high opinion of themselves (often justified), but because of the European role in humiliating China in the 18th and 19th centuries, they are uncomfortable with the idea that the damn Europeans have been in their neighborhood even earlier. Earlier discoveries included very old (more than 3,000 years ago) burial sites containing tall, blonde, warriors. There was also a village of ancient Jews in western China, where the people had only stopped practicing Jewish religious rituals in the last century.

[. . .]

The Chinese may be unhappy simply because they have to give the “northern barbarians” credit for driving the Indo-Aryan tribes away, rather than letting Chinese soldiers do it. Thus it’s currently a big deal in China anytime Chinese technology, or diplomats, beats the Westerners. In the Chinese universe, it’s the supreme insult for foreigners to best the Chinese, militarily or otherwise. But for the last few centuries, that is what happened. China isn’t really looking for a war with the West, but politicians find it easy to win approval by playing up the might of the motherland, and what China can do (in theory) if anyone messes with us. That process induces some amnesia about what has really happened in the past, but that’s what nationalism and demagoguery are all about.

The fascinating economics of Chinese manufacturing

Filed under: China, Economics, Tools, Woodworking — Tags: , — Nicholas @ 11:17

An interesting post at the Bridge City Tools blog about how Americans (and Canadians) are actually willing to pay the outrageous price of $5 for a single 1/8″ drill bit:

About 10 years ago I was in an OEM Chinese factory that made bench grinders. You have seen them, 1/2 HP motor, two 6” grinding wheels, pig tail cord, a small plastic face shield and no nameplate — these would be attached by the American companies that bought them. The total cost per grinder, landed in the US was $7.15. Of course at this price it would be asking too much for a UL tag.

These grinders were, and still are being sold here and the prices range from $49 to $200 — awesome margins by any standard.

Behind the factory floor there was a small mountain of insulated wire that had been pulled from old cars, appliances, televisions and the like and it was replenished daily. Surrounding the wire mountain were a couple of dozen women who were stripping the wire of insulation. These wire remnants were then spliced together and used in the grinder motor windings. Completely illegal, and dangerous. But cheap.

I thought I was shocked until I walked into the factory section that made twist drill bits. Here they were making, for the AMERICAN MARKET, those 59, 89, 119 pc drill sets found at the box stores and other discount joints for $19.95. Again, there were rows of women who were dipping the bits in what looked like Easter egg dye.

I asked the interpreter what they were doing. He replied, “They are making all the bits the same color as these four.” The four bits he pointed out were the 1/8”, 1/4”, 3/8” and the 1/2”.

I asked why.

I learned that those four bits were properly hardened. The remaining 115 bits were made with what I call pot metal. The reason?

“Because those are the only four hole sizes that Americans use.”

I asked, as politely as I could, if there was any guilt or remorse for duping their American customers. The reply was shocking.

“In America, if it cost less than $20, nobody complains about quality — everybody in China knows this.”

It’s an interesting explanation . . . and has the ring of truth to it: I’ve got several sets of drill bits, most of them bought from a reputable source (Lee Valley Tools), but I have one “big” set bought from a big box store (I think it’s branded as DeWalt, but probably made in China).

Most of the sizes of drill I use in woodworking are from the Lee Valley sets, but I think I’ve only used the 1/16″ and 1/8″ bits from the big box set. I wonder what’d happen if I tested all the rest of that set?

I have to admit being guilty of this:

More recently, I found myself at the local paint shop to purchase a Purdy paint brush — I have always liked them. So when I walked into the store I asked the sales rep to show me the most expensive brushes…

“I don’t get asked that very often…” he replied.

I then learned that the cheapest brushes outsell the flagged end bristle brushes by about 20 to one. The reason?

So people can throw them away rather than clean them.

In my defence, I can say that I get several uses from each of the “disposable” brushes because I do clean them after each use, but I do eventually throw them away. Once the quality of the applied stain or finish starts getting worse, it’s time to get rid of the brush.

December 7, 2010

Chinese official acknowledged that official data is unreliable

Filed under: Bureaucracy, China, Economics, Railways — Tags: , , , , — Nicholas @ 07:32

I’ve been saying this for years now: China’s official GDP and associated economic numbers are just not reliable:

A senior Chinese official said in 2007 that much of the country’s local economic data are unreliable, according to a leaked diplomatic cable published by the WikiLeaks website.

The official, Li Keqiang, was at the time Communist Party secretary of the northeastern province of Liaoning, and has since been promoted to vice premier. Since landing that position, he has overseen many of the central government’s efforts to improve the quality of its economic statistics, which continue to face many questions over their accuracy and consistency.

[. . .]

China’s Foreign Ministry has said it will not comment on the content of the diplomatic cables published by WikiLeaks. The leaked cable reports comments Mr. Li made in a dinner in Beijing with then-U.S. Ambassador Clark Randt on March 12, 2007. His remarks focused on the challenges of administering the province of Liaoning, which because of its legacy of failed state-owned enterprises was burdened with a large number of unemployed workers.

“When evaluating Liaoning’s economy, he focuses on three figures: 1) electricity consumption, which was up 10% in Liaoning last year; 2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and 3) amount of loans disbursed, which also tends to be accurate given the interest fees charged,” the cable says.

“By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are ‘for reference only,’ he said smiling,” the cable reads. “GDP figures are ‘man-made’ and therefore unreliable,” the cable paraphrases Mr. Li as saying.

As I said back in February, the reason for the made up numbers is inherent in the Chinese system:

In this way, the PLA stopped being just the customer/end user. They cut out the middleman and absorbed the entire supply chain. The PLA became a significant economic player in the Chinese industrial economy . . . and this is still true today. The generals aren’t formally in charge, but they own the companies that do military production.

So what? So let’s look at how a civilian corporation’s incentives differ from one owned directly by the army. In a civilian corporation, the CEO runs the business with an eye to generating the largest profit possible while staying (for the most part) within the law. A CEO who deviates from this to ride a favourite hobby horse will eventually face the wrath of the stockholders who want that maximized profit. There are natural limits on how much freedom to invest in uneconomic activity any CEO will be given. Sensible stockholders don’t try to micromanage the firm, but do raise questions if too much of the company’s efforts are devoted to things clearly not related to the company’s long term benefit. Company accounts can be rigged, for a time, to show misleading results, but eventually (Enron, Worldcom, etc.) the truth will out.

A Chinese firm that’s owned by the army? Profit may be nice, but the “CEO” reports to a different master: the guys with the guns. The company accounts will show exactly what the guys with the guns want them to show . . . and the oversight and auditing committee members carry submachine guns. You’re told that your target is 10% growth? Don’t you think that the reported result will be at least 10%? Because your life may depend on the reported results being acceptable.

As my former virtual landlord says, this is one of my hobbyhorses:

December 4, 2010

Looking for the remains of Zheng He’s treasure fleet

Filed under: Africa, China, History — Tags: , , , , — Nicholas @ 12:22

Virginia Postrel looks at the latest archaeological expedition in the Indian Ocean:

A team of Chinese archeologists arrived in Kenya last week, headed for waters surrounding the Lamu archipelago on the country’s northern coast. They hadn’t made the trip to study local history. They came to recover a lost Chinese past.

In the early 1400s, nearly a century before Vasco da Gama reached eastern Africa, Chinese records say that the great admiral Zheng He took his vast fleet of treasure ships as far as Kenya’s northern Swahili coast. Zheng visited the Sultan of Malindi, the most powerful local ruler, and brought back exotic gifts, including a giraffe. “Africa was China’s El Dorado — the land of rare and precious things, mysterious and unfathomable,” writes Louise Levathes in her 1994 history of Zheng’s voyages, “When China Ruled the Seas.”

Now the Chinese government is funding a three-year, $3 million project, in cooperation with the National Museums of Kenya, to find and analyze evidence of Zheng’s visits. The underwater search for shipwrecks follows a dig last summer in the village of Mambrui that unearthed a rare coin carried only by emissaries of the Chinese emperor, as well as a large fragment of a green-glazed porcelain bowl whose fine workmanship befits an imperial envoy. Although Ming-era porcelains are nothing new in Mambrui — Chinese porcelains fill the local museum and decorate a centuries-old tomb — the latest finds suggest that the wares came not through Arab merchants but directly from China.

China’s brief dabbling in overseas exploration ended fairly suddenly, but there was no technical reason that they could not have continued. It would be a very different world indeed if the Emperor hadn’t decided to ignore everything outside the Middle Kingdom.

The real problem with contemporary China’s version of the Zheng He story is that it omits the ending. In the century after Zheng’s death in 1433, emperors cut back on shipbuilding and exploration. When private merchants replaced the old tribute trade, the central authorities banned those ships as well. Building a ship with more than two masts became a crime punishable by death. Going to sea in a multimasted ship, even to trade, was also forbidden. Zheng’s logs were hidden or destroyed, lest they encourage future expeditions. To the Confucians who controlled the court, writes Ms. Levathes, “a desire for contact with the outside world meant that China itself needed something from abroad and was therefore not strong and self-sufficient.”

November 25, 2010

Even China may not be able to afford their High Speed Rail network

Filed under: China, Economics, Japan, Railways, Technology — Tags: , — Nicholas @ 00:24

By way of Hit and Run, a brief note of caution about the headlong pace of construction of China’s High Speed Rail:

The Chinese Academy of Sciences (CAS) reported to the State Council recently, urging the large-scale high-speed railway construction projects in China to be re-evaluated. The CAS worries that China may not be able to afford such a large-scale construction of high-speed rail, and such a large scale high-speed rail network may not be practical.

[. . .] Under the current plan, the central government has approved to build, by 2020, 16,000 km of high speed rail providing access to about 90% of the Chinese population.

[. . .]

The report submitted by the Chinese Academy of Sciences said China’s high-speed rail construction has caused debt that has already reached unsustainable levels; particularly since the end of 2008, the government introduced a stimulus plan to fight the global economic crisis and the size of local government borrowing is already very high

As Ronald Bailey points out, China is now occupying the same position in American thoughts that Japan did thirty years ago — the economic juggernaut that is poised to crush weak and defenceless American business. The recent gushing about how wonderful China’s HSR system is and how America should build one too are really just echoes of the 1980’s lament on how Japan’s economic model worked so much better than messy US mixed-market capitalism.

Back in the 1980s, I was a producer for a national weekly PBS foreign policy show called American Interests. We ran a lot of nifty programs on various aspects of the Cold War. Another abiding obsession of the chattering classes was the coming triumph of Japan Inc. over a hapless America. We regularly broadcast shows featuring the likes of Robert Reich, Chalmers Johnson (see H&R obit from yesterday), and Clyde Prestowitz predicting that the wise bureaucrats at the helm of Japan’s Ministry of International Trade and Industry deftly deploying their industrial policy jujitsu would soon bury us Yanks. As evidence, critics of undirected American capitalism pointed out that Japan’s economy was growing at 6 to 8 percent per year. Japan was exporting its way to prosperity and the U.S. was running a huge trade deficit with the East Asian powerhouse. Japan could do no wrong and America could do no right. Then the Japanese bubble burst.

Twenty years later, the new meme of would-be industrial policy mavens is China Inc. Promoters include Thomas Friedman and Clyde Prestowitz. China is growing at a blistering pace of 10 percent per year and exporting its way to prosperity. Once again, we are told that East Asian capitalism directed from the top by wise bureaucrats is going to outcompete the United States and toss us into the dustbin of histoy.

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