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Further reforms needed in China

Comments on Susan Shirk "Can China’s leaders harness support for change?", 25/10/2013, http://www.eastasiaforum.org/2013/10/23/can-chinas-leaders-harness-support-for-change/

My feel is that it should be fairly easy to have the support of the vast majority of the Chinese people for further and sensible economic reforms, perhaps easier than it was 3 decades ago, when it was so difficult for people to struggle between the planning system and a market system, so that Deng invented the phrase “cross rivers through touching stones” and used that gradual approach to carry out reforms.
Nowadays, the market system has been almost fully embraced by the nation (apart from perhaps some of the monopoly state owned firms) and many people are currently the victim of monopolies as well as some economic policies including macroeconomic policies that give preferential treatment of the state monopolies at the expense of the vast majority of the people, such as low deposit rate and high lending rate with state owned firms treated favourably, the restrictive household registration system, the monopolistic pricing by state owned firms, etc.
Given there are high ranking officials in or associate with some state owned firms under investigations or prosecutions for corruptions or bribery or some misbehaviours, the resistance from vested interests in state owned big firms may not be as strong as many people thought.

There should also be real decentralisation in fiscal powers from the central to local governments, and at the same time to move the ocal government away from excessively relying on revenue from land sales and the use of grey banking for their finance.
However, any further reforms must have a focus of economy wide benefits and national interests that may mean starting with lifting
any restrictions for domestic players as the first step.


Shanghai Free Trade Zone - Benefits likely outweighed by costs

Comments on  Bo Chen "Pilot free trade zone in Shanghai to build open economy", 20/10/2013, http://www.eastasiaforum.org/2013/10/19/pilot-free-trade-zone-in-shanghai-to-build-open-economy

While there may be some merits in experimenting a FTZ in China and Shanghai is certainly a good place to do it, many in China may equally feel whether it would create another venue of corruption for officials and people in power positions given the rampant and widespread corruption in China including many high level officials who are exposed and the likelihood more are on the way.

China needs not and should not be concerned by the TPP at any time soon. It is unlikely to achieve what the US has been trying to do, given the diversity of its members and the different ability to wear the shocks of the US approach. As a result, there is no need to be fearful of it.
There are better ways in China to further economic reforms than a free trade zone with special policies that are always inevitably taken advantage by people seeking rents to profit from it.
Internal banking and finance reforms to reflect the costs and benefit of finance, deposit and loans and to allow private banking and finance firms to compete and to bring the grey or semi grey banking into open and give those legitimate roles, for example, will go a long way for better resource allocation.
More than 3 decades of economic reforms and open door policies should be ripe enough to see the benefits of widespread and nation wide reforms as opposed to generating differences and fragmenting the national market.
A FTZ is now more likely to serve as a new source of resource misallocation rather than to improve it.

Australia is too small compared to the US

Comments on Robert Gottliebsen "Skinny returns sing a shameful tune", 22/10/2013, http://www.businessspectator.com.au/article/2013/10/22/markets/skinny-returns-sing-shameful-tune

Robert, there may be some more fundamental macro factors in play than what you analysed.

The Australian stock market and its investment market too is small and is at the mercy of international capital movement, while the US enjoys the benefit of being safe heaven status.

Further, QEs and its resultant low interest rates in the US has been conducive to its capital returns including both the real economy and the stock markets there.

Back in Australia here, while the interest is at historic lows, it has been and still is significantly higher than that in the US.

IMF regime needs rethinking and a redesign

Comments on Stephen Grenville "

In the line of rogue US firepower

", 22/10/2013, http://www.businessspectator.com.au/article/2013/10/22/economy/line-rogue-us-firepower

There is a fundamental inconsistency in macro economic policies between the flexible exchange rate that can overshoot for a significant period of time and affect the real economy and import and export prices and the monetary policy for price stability.
This reflects a failure in mainstream economics and a gap in logic economic thinking.
Of course, the inability or the limited ability of most countries to defend the value of their currencies can be a factor.

But this should not be an excuse for failures in economic thinking to design a capable international or world monetary regime that can have both the benefits of currency flexibility and the stability of prices including for both tradable goods and services.


Balanced and unbalanced growth again

Comments on Edward Oughton "Connecting China’s broadband ambitions to development",5/10/2013,http://www.eastasiaforum.org/2013/10/03/connecting-chinas-broadband-ambitions-to-development/

Balanced economic growth perhaps needs s clear definition. This is because it is not clear how the idea of balanced growth needs to be reconciled with comparative advantage theory in international trade.

To illustrate the point, if every country has the same economic structure, is that a balanced or unbalanced world economy?

Secondly, if comparative advantage theory has relevance (as I suppose it does), it means a country’s economic structure is to a large degree determined by its comparative advantage. Then it follows that the balanced growth must be consistent with this path of growth along the lines of changing comparative advantage.

PS: These comments seem to be at odd with the title, this is because the article started with the following: "Premier Li Keqiang recently stressed at the World Economic Forum that structural economic reform is pivotal if China is to achieve a sustainable economic growth trajectory.

China evidently needs to balance its economy to avoid overreliance on its manufacturing base. The government’s latest plan to invest $US323 billion in expanding fixed-line and wireless broadband connectivity will bring it one step closer to this goal by helping to spur the development of its service sector."

It seems people are so with balance and imbalance and it is very fashionable.


China's growth: how unbalanced is it?

Comments on Yukon Huang "Understanding China’s unbalanced growth", 1/10/2013, http://www.eastasiaforum.org/2013/09/30/understanding-chinas-unbalanced-growth/

Yukon Huang provides an interesting and fresh analysis of the causes of the Chinese aggregate economic composition and the link to the past transitional experiences of Japan and Korea is particular insightful.

It is difficult if not impossible to achieve fast rapid economic growth and rapid urbanisation for a long and sustained period in a huge country like China with high consumption and low investment, because urbanisation by nature requires huge investment in housing and infrastructure.
The notion of imbalance between investment and consumption in the China case is itself confused with the so called external balance particularly when major industrialised countries have been struggling in the wake of the GFC.
External balance, however, can be more easily understood because there is an external demand constraint.
The so called investment and consumption, however, is harder to understand in theory as Huang mentioned. That is because as long as investment is supported by savings particularly when there is demand for investment like housing and infrastructure associated with urbanisation, it is hard to call it imbalance.
People including economists should not simply apply the aggregate proportion norms in the mature and industrialised economies to rapidly industrialising and urbanising countries.
It is a wrong approach.