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Security, freedom and international competitaveness

Comments on James Leibold "China tightens its security screws", 26/12/2015

It is uncertain whether the tightening of security in China is a short term or temporary measure or a long term trend, because ironically it is possible to tighten security before serious social and political reforms so to create a better environment for reform. I hope my conjecture is right.

Should the tightening be designed as a long term measure, then there will be significant and serious long term implications.

While in short term the effect may not be clearly evident, the restriction on people’s freedom can have accumulative and long term detrimental effect, including both lower people's utility (satisfaction and happiness) and lower economic productivity.

Nations compete on productivity, creativity and enterprising. If the people of a nation do not have adequate freedom, they will lose out in those crucial and essential areas, resulting in unnecessary disadvantages in international competition. As a result, that nation will sooner or later find out that detrimental consequence and will take measures to correct unnecessary restrictions, that is, to provide freedoms to its people.

While it is a challenge for China now to avoid the so called middle income trap, the longer term challenge will be even greater if and when its people will work in a much more restricted and limited domain than other nations (consider which gives better result: restricted optimisation versus unrestricted optimisation). The lower bound of high income is only a fraction of those of the high income countries at the world income frontier such as the US - the road to catch up will be long and hard.


"Win-win" easy said than done

Comments on Daniel Poon "China sets out its FOCAC focus in Africa", 20/12/2015

I agree with the author for the following: “A central challenge remains in devising a ‘win–win’ institutional mechanism that can contribute to the dynamic growth objectives of both China and its partner countries over time.”

Further, while financing is obviously important, money itself alone is unlikely to be enough to resolve institutional issues.

China should not assume that its model can be easily applicable to or adopted by those partner countries.

China now has a very strong central leadership with great visions. It requires equally strong bureaucratic capacity to realise those visions. They need to act with strong motivation and incentive in the interests of the country, as opposed to simply follow orders. Under the current political environment, it is not completely certain such capable bureaucrats exist in China.

I am not arguing that Chinese bureaucrats are not capable, I would question whether they are willing to take risks when it is necessary to do so.

PS: There are two issues China needs to pay close attention. Firstly, China should uphold very high lending standard in approaching the "One belt one road" initiative and be very careful so that it will not fall into the same trap of the sub-prime lending crisis in the US before the GFC, on an international scale.

Secondly, the "top down" or "top designing" nature of the "one belt one road" strategy/initiative, if not handled carefully, could develop into very political in China. As a result, China must guard so to avoid any tendency into a politically driven campaign. While it is very remote, political campaigns run the risk to repeat the disastrous, costly and painful lessons of the Great Leap Forward.

Further: What I meant is reflected in the following quotation from an article by Gong Fangbin (公方彬), a professor at the Chinese Defence University: “国家开展强力反腐以来,有一个现象引起了各方关注:即不出事也不做事。这个问题不解决,反腐的意义和作用就会大打折扣。”
It means: “Since the strong national anti corruption drive, there has been one phenomena that is the concern of many: Don’t do anything at all, so you don’t look like you are doing anything corrupt”
His article, in Chinese, can be seen: http://news.sina.com.cn/zl/zatan/blog/2015-12-23/10255170/2994662287/b27eeb8f0102wh3h.shtml


Monopoly does not necessarily mean extra economic rent

Comments on Paul Hubbard "Chinese industry: a tale of two sectors", 17/12/2015

In modern economies, the existence of monopoly companies, regardless they are public-owned or private-owned, does not translate to monopoly profits. Utility industries have more monopoly companies.

The reason for that is the regulation of monopolies.

For example, water supply in the ACT, Australia, has been provided by Icon Water, part of the Actew Corporation. The price of water supply is determined by the Independent and Competition and Regulatory Commission, a statutory body.

Further, Actew is owned by the ACT government.

The author also stated that:

"High profit margins from the former (oil industry) compensate for wafer thin margins in the latter (electricity). And at both ends of the spectrum, prices are still determined by state policy, not driven by market competition. Deregulating prices remains a work in progress."

What it says is that there may be distortions in those two sectors in that the price may not reflect accurately the costs. But it is a different matter that there are economic rents that the state is getting from its monopoly SOEs.

So I find the following statement hard to understand:

"Monopoly conglomerates couple the opportunity to extract economic rents with the capacity to control a nationwide bureaucracy."

While the author did not seem to measure, a more important issue is how efficient of the SOEs, given that many argue that they are less efficient.


Paris strategy shows way for China and Taiwan

Comments on Sheryn Lee "Troubled times ahead for Taiwan?" 15/12/2015

It is a very difficult issue to manage the relationship between China and Taiwan.

However, the Paris agreement on climate change out of COP21 shows that difficult challenges can be tackled with creative thinking and approaches. Nearly 200 countries came together and agreed on the agreement, although I have not read the text of the agreement.

Given the historical and current realities across the Taiwan Strait as well as the reform process of the mainland China, some kind of federation with high autonomy may be possible to satisfy both sides.


APEC new focus in the wake of TPP?

Comments on Alan Bollard "APEC’s new focus", 11/12/2015

This article states that “In 2015, as usual, regional integration took centre stage. Several leaders and ministers spoke rather critically about the WTO’s 2001 Doha Round and the upcoming WTO ministerial conference in Nairobi. The general view is that APEC members want multilateral progress, but continued delays are unacceptable. So there was renewed attention on mega-regional agreements.”

If members are interested in multilateralism such as WTO, why don’t they get the APEC into a free trade region?
APEC would do well if it can unify the various free trade agreements in APEC into an APEC wide trade agreement, so it is inclusive of all APEC members (as opposed to exclusive of some) and promotes trade and investments within APEC

China's capacity to build safe high speed rails is as strong as any countries

Comments on Emirza Adi Syailendra "The end of the line for Japanese influence in Indonesia", 13/10/2015

This is just one infrastructure project in Asia and it went China's way. Japan needs not to be too disappointed and there will be many projects in Asia that Japan can be a successful bidder, as the high speed rail project in India has showed.

China has as strong the adequate capacity to build safe high speed rails as Japan does. It is reported that the total length of high speed rails in China is as long as the total of all other countries, although I have not checked for its accuracy.

Any concerns of China's capacity to build safe high speed rail would amount speculation.


Treasurer Morrison's excellent stance on tax reform

Comments on Michelle Grattan "COAG finds agreement on terrorism but still looking for common direction on tax", 11/12/2015

The Treasurer, Scott Morrison, should be commended for arguing that the main problem for governments are spending not revenue and that tax reforms should be undertaken to improve the efficiency of the tax system but not for increasing the overall level of tax intake. Let’s hope he will stick to it and will be supported by the Prime Minister, Malcolm Turnball.

The states, if they wish, should levy their own taxes. Why can’t any of the states and territories, levy their own GST, if they think they need the revenue? Whoever levy additional GST, they should face their own electorate for their action to increase taxes.

Alternatively, they could increase and/or expand their land taxes. Land tax is an efficient tax.



向小田关闭污染企业能根治雾霾吗?” 10/12/2015




A long way ahead for the Yuan to match the US dollar

Comments on Deepanshu Mohan "Is it the end of the dominant dollar?" 10/12/2015

While the Yuan will have an increasing role in international exchanges and as a reserve currency when its inclusion in the SDR takes effects, the initial effects may be relatively small and it will take at least a decade and possibly two before the Yuan to have the possibility to have an equal role as the US dollar.

Likewise, the weight of Yuan in the SDR will take the same length for it to have the prospect of an equal weight as the US dollar.

Of course, it will obviously depend on how China will handle its currency. Will China allow its Yuan as free as the US dollar? The freer a currency, the more likely people want to hold it, all other things equal.

Having said that, the combination of a SDR currency and China's status of a large trading partner for many countries may work in favour of increasing the role of Yuan to be used by many countries to minimise the costs of trade.

Consumption-led growth model for developing countries likely to be an illusion

Comments on Meiyan Wang and Fang Cai "Migrant workers key driver of Chinese consumption", 10/12/2015

It makes perfect sense to provide the same public services and social security to rural-urban migrants. A main question is whether the national and local governments have the means, mainly the revenue to do so. If they have then it will be all fine. If they don’t, then the question is how they can have the revenue to do so.

There should be a national policy mandating a deadline for achieving the equality between rural-urban migrants and the permanent residents, recognising the differential capacity between different regions. The central government may also need to use its financial power to assist some regional governments in the process.

Personally, though, I am a bit sceptical about the consumption-led (more generally a demand driven model) rapid economic growth model for a developing economy. If consumption can lead the development of a developing country, then every country could do it easily. The basic logic is that you have the income in hand first before you can consume.

I think it is conceptually easier to have production-driven through a combination of investment and productivity enhancing, supply-driven model (using international trade to balance the difference between production and consumption). While the current surplus capacities in some industries in China represent a serious problem and may take years to be overcome, businesses and the government need to consider how to raise productivity in many other sectors. Surplus in the capacity of some industry can occur in any countries: the current international mining and oil industries are examples.

Having said that, there will be an effect on growth if the rural-urban migrants are afforded equal services as their permanent counterparts.


Ageing and robots in future Asia

Comments on Peter McDonald "Growing old before growing rich in Asia", 9/12/2015

I think Gunther has raised a very good point in terms of the likely widespread using of robots to replace simple and low skilled labour in the coming decades and its implications or interactions with the ageing demography in many countries.

In that context, it may not necessarily a bad thing there is a relative decline in the share of younger and working population, should the prediction of robots to replace labour on a very large scale. It is likely that the education including vocational education needs to train people to be have the skills to use, interact with, change and create robots.

Human capital may play a more important role in the economy and dictate international specialisation and trade.

Nevertheless, it will be important for many to understand such implications.

Climate, air pollution and China's tasks and priority

Comments on ZhongXiang Zhang "How China can go green without it being a struggle", 9/12/2015

No matter how one views it, it would be heroic to think that China can go green without it being a struggle. China has struggled with its severe air pollution so far. Fogs can occur in major cities including Beijing and on a large scale, even though some people say China has made progress in the last few years.

While it is important that China, as the largest emitter and in conjunction with other countries particularly the developed countries and other major developing countries, takes effective measures to tackle global warming, it should probably initially be focused on activities which improve its air quality and the health of its people, given the seriousness of its air pollution as shown in Beijing in recent days where the worst level, Red, is reached.

Cautions are needed in implementing the One Belt One Road inititive

Comments on David Brewster "China’s rocky Silk Road", 9/12/2015

While it is important to recognise its potential in transforming the regional economies in the One Belt One Road (OBOR) if all goes well, China should realise that such an initiative involving so many countries with different social, political and economic situations will inevitably be more difficult than any Chinese domestic initiatives.

China should be realistic and pragmatic about it and apply proper and adequate cost and benefit analysis of each project that is to be funded from international funding. It would be wise to recognise that the domestic model that China operates may not be suitable in the regional and international level.

Without such understanding, it is likely to result in huge wastes and failures. It is imperative for those Chinese officials who are charged with implementing the OBOR initiative not to simply treat the implementation as a domestic political campaign. They need to treat every bit based on their economic merit, as opposed to simple following political orders from their political masters.


China's economic luck unlikely to run out

Comments on Ilan Alon "Is China’s economic luck running out?" 30/09/2015

I would argue that the presence of corruption in China had rose rampantly by 2013 but has fallen since the current leadership took over in 2013. Obviously, President Xi’s anti-corruption campaign has captured some former corruption officials including some very high ranked ones.

The recent financial market turbulances reflect the inexperience and the lack of understanding of financial markets by the current leadership. It has been reported they encouraged people to buy into the market that propelled the Chinese financial markets to about 150% rise in a year. Of course, that kind of exuberance cannot last for ever and sooner or later the valuations would cause corrections: that was exactly what happened in the Chinese stock markets.

Is China’s economic luck running out? It is unlikely in the medium to longer run, even though in the short run, it seems every factor seems to work against China’s economic luck. The Chinese leadership cannot afford to let the economy to slow too much and for too long, as they work out successful strategies to have the Chinese economy back on track to the so called medium to high growth. The Chinese government was for some time reluctant to use fiscal stimulus, but has probably realised it has to use some sort of stimulus before its economic transformation into an innovative and service focused takes shape. It is understandable they were very cautious in using fiscal stimulus given the impact and consequences of the last huge stimulus following the GFC. But it will not be optimal to move from one extreme to another extreme.

Personally, I think the Chinese government should set a target of about 7.2% for the next two decades so it can double in ten years and double again by 2035. That would mirror what Japan did in its “income-doubling plan”.

It will not be easy, but it should be achievable if China can upgrade its economy to greater value-added in the international economic value chain. Of course, if it will help and make it easier should China be successful in taking advantages of the current digital technological and economic disruption and in becoming an innovative economy as its Premier has been calling for. But that will certainly take time. So in the short term, traditional policy tools have to be used. No economy can suddenly become from a traditional to an innovate economy over night. One has to be realistic.


Different ways for a currency to become international reserve

Comments on Yukon Huang "Rationalising China’s exchange rate policy", 28/09/2015

While the author, Yukon Huang argues it is easier to make the Chinese currency a regional reserve currency than a global one, China is probably more interested in making the RMB a global one. A global currency does not mean the stability against a particular major currency. The British pound, the Japanese yen and the euro all have had much greater fluctuations against the US dollar and against each other. So the idea that China must have a stable exchange rate with the US dollar is unnecessary in China's endeavour for the RMB to become a major international currency. If China's authority or its monetary authority has had that idea, that is naïve and unnecessary too.

However, it is probably good to have a stable currency in terms of against a basket of the major international currencies, as opposed to a particular one, even though the US dollar is by far the one used by most countries as the world currency reserve.

I am confounded by the argument that for a currency to become a major international reserve currency its host country must run a trade deficit to do it. There must be more than one way and different ways to make to happen, as lone as there is a need for other countries to hold that currency as a reserve. For example, the host countries can run trade deficits, or purely exchange its currency for another major or a number of other major currencies, so its currency can be available to other countries which need them. The host country can then invest those other currencies internationally, such as buy US bonds and other securities. The host country can, of course also buy gold from other countries.

It seems people see the US has run trade deficits and the US dollar is a major international reserve currency and therefore mistakenly think any host country of an international currency must run trade deficits.


China is friend to both Russia and Ukraine

Comments on Duan Xiaolin "Why the West is wrong about Beijing and Kiev", 22/09/2015

This post appears to be more balanced than those who are unduly concerned with the geopolitical development or its potential development following the Ukraine crisis. Notwithstanding that and irrespective the geopolitical implications of the Ukraine crisis, China has and will likely to continue to adopt a more neutral stance towards both Russia and Ukraine.

Undoubtedly Sino-Russia relations will be strategically more important to China due to the fact that Russia has far a greater international power status militarily, politically and economically than Ukraine and due to the fact China and Russia share a long border, while China and Ukraine does not have direct border relations. Russia is a strong military power and used to be a member of the G8 group. It has very strong military technologies and has abundant natural resources.

But that does not mean that China should forego its relations with Kiev. China can maintain a strong relation with both Russia and Ukraine. China can be friends to both countries. China’s ambiguous attitude in the wake of the Ukraine crisis reflects its balance act. This contrasts to the United States and its Western allies, imposing sanctions on Russia.

Despite the existence of some distrusts between Russia and China, a strong and good bilateral relation is important to both countries, particularly in the face of the containment of both countries by the US and some of its allies. In a mulit-polar world with the US unwilling to accept and share with another power or another rising power, that bilateral relation is likely to be cherished by both countries.


Xi's dual strategies: anti-corruption and Chinese dream

Comments on William H. Overholt "The politics of China’s anti-corruption campaign", 16/09/2015

This is a very interesting discussion about the politics of China’s anti-corruption campaign, though it may have misunderstood some of China’s politics.

China has undergone various social, economic and political reforms (or experiences) since the Communists came to power in late 1949.

While there was little corruption during the pre-cultural revolution period, the cultural revolution period under Mao, political campaigns and class struggles were dominant and the economic system was command and highly planned economy (as far as the industrial economy was concerned). People’s actual living standards may have improved but fairly slowly. Since the reforms and opening policies began, it has been the economy that became the major focus and outstanding results have been achieved. The economic system has also gradually moved to a market economy. People may say the fundamental political system has not changed much apart from the tenures of top leaders are limited to two terms now, corruptions became widespread and engulfed the whole country. People’s living standards at the same time have dramatically improved, even though income inequality has also widened and the environment has worsened.

Many people in China probably wish to have both a system as clean as that period of pre-reforms under Mao and the improvement of living standard since the reforms started. That provides the background for Xi’s anti-corruption campaign and his advocate of the Chinese dream.

Unfortunately, China’s economy has encountered significant headwinds. So while the anti-corruption has been popular among most ordinary Chinese, the slowing of the economic growth may prove to be an offsetting factor in people’s thinking.

Further, it is true that the anti-corruption campaign may have contributed partially, though a very minor part, to the slowing economy due to the reduction in consumption of public money by officials, bureaucrats and compony executives and there might be a period when people may not be sure what to do exactly in terms of implementing reforms, it should be clear enough when new reform measures and plans are required under Xi’s leadership. Due to the anti-corruption and the criteria for performance under the Chinese system, most bureaucrats should not have too many problems with implementing most reforms initiated by the leadership team, as long as the leadership team is united under Xi. However, the slowing economic growth, if not handled well enough, can become a significant check on the popularity of the anti-corruption campaign and may even diminish the support for the current leadership team, thanks to people’s desire to have the better parts of both the pre and the reform periods.


Both China and Japan must work hard for a better relationship

Comments on Akio Takahara "Are Japan–China relations sweetening or souring?" 11/09/2015

The relationship between China and Japan is one of the most important bilateral relations within Asia, given their geographic closeness and the fact they are the two largest economies in Asia and they also represent the largest industrialised and industrialising economies in Asia.

Unfortunately, it seems from time to time problems arise between the two major Asian neighbours, whether it is due to historical or current issues in one of or both countries.

It is inconceivable neither country can become an effective leader in Asia (let alone a world leader) if they cannot handle their bilateral relations well. Both countries need to be mature enough to develop constructive relationship between them.

Chinese yuan has appreciated quite a lot against major international currencies since 2008

Comments on Stephen Olson "Hypocrisy mars RMB devaluation debate", 11/09/2015

While I am not sure whether the Chinese yuan has appreciated by more than 30% against the US dollar since 2008 (I cannot produce that results using some data from the internet), it is a fact that it has appreciated. The issue is not just the appreciation against dollar, but also the appreciation of the US dollar against virtually all major currencies at the same time. The following table shows the appreciation of the US dollar since 11/09/2008.
US Dollar Appreciation of US dollar against major other currencies since 11/09/2008:

Table 1 Changes in US dollar against other major currencies, 11/09/2008 to 10/09/2015
US Dollar
Appreciation of US dollar against major other currencies since 11/09/2008
Euro 1.243727314
British Pound 1.139751852
Indian Rupee 1.456126442
Australian Dollar 1.139451374
Canadian Dollar 1.227951612
Singapore Dollar 0.983935053
Swiss Franc 0.858302022
Malaysian Ringgit 1.254505586
Japanese Yen 1.129265962
Chinese Yuan Renminbi 0.932251339

The US dollar appreciated 24%, 14%, 13% against the euro, the British pound and the Japanese yen respectively from then to yesterday. On the other hand, it depreciated about 7% against the Chinese yuan.


External orientation still the way to go despite external headwinds

Comments on Alok Sheel "China, India and global headwinds", 25/08/2015

The GFC and its aftermaths exposed some weaknesses of high exposure of those economies to external demand/trade through external shocks in economics weakening. Due to the weakening of many industrial economies and their desire to get out of the weaknesses, the so called imbalances became very fashionable, because some industrial economies with trade deficits could get a boost if their trade deficits were reduced. China was a big target or a case of the imbalances.

Willingly or not, trade imbalances may have been reduced over the past few years. Adjustments of trade imbalances may or may not be optimal to the world economy as a whole or any pair of countries which have bilateral trade imbalance. For example, Australia is generally a capital importing country and trade deficits may be needed to balance its capital needs.

Even in a country that my not always need external capitals, from time to time it may be beneficial to use external capitals. In such cases, trade deficits may de desirable.

Furthermore, differential technical changes and productivity rises between countries may cause trade imbalance that may need a period of optimally transitional adjustment that can take relatively long time to complete.

The lessons from the GFC and its aftermaths is not turning to inward looking and deliberately reduce external trade. The lessons should be explore every part of demands, both internal and external to boost growth. It would be a costly mistake to give up external orientation in the age of globalisation and economic integration and to only focus on internal demand. Any reduction of trade to GDP ratio should be based on fully explore both internal and external demand, as opposed to purely internal orientation.


China's economic reforms will go forward rather than backward

Comments on Peter Drysdale "Back to the future in managing the Chinese economy?" 24/08/2015

China is unlikely to go backward in terms of it economic system and management, although its approach to its political situation may be very different with tighter control along the its way to a destiny that is unknown at this stage.

China has benefited enormously from its economic reforms from a command economy to a market economy and through its opening to the outside world through economic integration with the international economy.

Its leadership team, no matter what some of their personal thinking, is unlikely to risk its legitimacy in governing the country by going back to the command economic system. The stakes are too high and the price would be too greater not only for the ordinary Chinese, but also much more for the leadership to do that. China is irrevocably integrated with the international economies and there is no possibility of return to its pre-reform era economic system, irrespective what the productivity of the previous era.

That, however, does not mean that China’s institutions will move in the direction of the US’s of any time soon, particularly its political system.

The interventions in its stock markets and the reactions to the fall of Chinese currency or more than 3% indicate the immaturity of the Chinese authorities in managing financial markets and exchange rate regime rather than a return to a command economic system.

Notwithstanding that, the general trend of economic liberalisation to market driven is clear and there is no point to go back and no point for people both inside and outside China to worry about a potential return to the previous economic system.

China's economic development and its institutions

Comments on Paul Hubbard "If Mao still ran China, China would still be poor", 24/08/2014

While most of Paul Hubbard's arguments in this post may be correct (particularly in regarding the Mao era model) and that includes the title particularly, the point on the middle income trap is a bit confusing, particularly in the context of using the US institutions as a reference point. This is because the high income levels are themselves vastly different from the entry point ($US 12,616 or more on 1/07/2014 by World Bank) to the highest level ($103,050 for Norway), or even the level of the US ($55,200). China's income level was $7,380 then.

Yes, it can be expected China will continue to improve governance and carry out further and possibly continual reforms over the years and decades ahead. But that is very different to catch up with the institutions in the US.

It is possible that China may enter into the ranks of high income countries in a decade. Its institutions, however, can be reasonably expected to be still very different from that of the US's. Further, there is the debate whether China's development and economic growth represents a new and different model, presumably different from that of the US's.

While so far it is difficult to prove the China model, it cannot be completely ruled out at this stage either. It may takes much more time (likely to be several more decades) to prove or disapprove a China model.


China needs to be mature in its exchange rate policy

Comments on Sourabh Gupta "China sheds its dollar shackles", 22/08/2015

A disappointing aspect in the Chinese monetary authority's recent actions was on the third day of its new exchange rate policy, that is, it intervened to prevent the Yuan from falling further and reversed the day's falling trend. While it may be understandable that action was to prevent too rapid depreciation of the Yuan and as a result to avoid currency wars, it was against the stated policy to let the market play a greater role.

From China's economic point of view, the depreciation of about 3% was too little and too late to rest its falling exports, given the real appreciation of the Yuan along with the rise of the US dollar against major currencies, particularly the Euro.

In a sense, it still reflected the timidity of the Chinese monetary authority and possibly the Chinese authority in terms of fearing being labelled as currency manipulator by the US, particularly the US Congress. It has been too coward and has not shown independent and confident leadership skills. That is a pity, to say the least, particularly in the context of the strong downward pressure for its economic growth. They need to be mature and to be seen as mature enough in their dealing with the US.




Tristram Sainsbury: "US global economic leadership: responding to a rising China"

A useful paper for reference, by Tristram Sainsbury "US global economic leadership: responding to a rising China", 19/08/2015. It discussed a few poor responses by the US towards the rise of China, including the AIIB, IMF reforms, and the TPP.

The full report website: http://www.lowyinstitute.org/publications/us-global-economic-leadership-responding-rising-china

Every country needs to learn how to learn, including the advocates

Comments on Emmanuel Jimenez and Elizabeth M. King "Middle income countries need to learn how to learn", 20/08/2015

There appears to be a typo in the third paragraph, where “by 2050, this figure had shrunk to less than one in ten”, the number 2050 should be a smaller number, because it refers to the past but 2050 is in the future.

I was surprised that vocational and adult continuing education is not mentioned in this article, given the focus on leaning new skills or further expanding and or improving existing skills to meet the ever changing work needs.

I would suggest such education had played an important part in raising the average knowledge and skills levels in those tiger countries. As development of new technologies or improves in technologies will play very important roles in this century, vocational and adult continuing education is likely to be as important as the improvement in primary and secondary education, because people need to keep pace with changes in technologies.




China may break the some of the rules of classical economic development

Comments on Indermit Gill and Homi Kharas "Can Asia keep growing through middle income?" 18/08/2015

While Malaysia and Thailand may have been on the middle income list for some time and might be considered as potential victims of middle income trap, China has not been in the ranks of middle income for that long. I am not sure the case of Indonesia given that it has been a democracy for some times already. It is likely to be premature to say that China is a contender for middle income trap, even though China is still under an authoritarian regime.

There is no doubt that China will continue to reform itself on many fronts, it has not shown serious reforms to be a democracy any time soon. It is likely it will remain authoritarian for any foreseeable future. In such a political context, if it falls into the middle income trap, the main political system may be cited as the main reason. However, if it succeeds in graduating from middle income into the ranks of high income countries, one may have to find an exception to some of the institutional arguments.

China may indeed to be a different model of development. Of course we are now all speculate on the Chinese case, even though it may share some of the most important attributes that other successful East Asian high incomers, such as Japan, Singapore, Taiwan and Korea.

Those attributes include but not limited by high saving rates, strong political regimes, good primary and secondary educations, strong entrepreneurship including innovation, open and externally oriented economy and so on.

As for the argument of institutional factors, I think a stable and predictable political system and a gradually reforming to increase efficiency at the national level may be the key, as opposed to a defined western style institutions.


Chinese authorities should be wiser now

Comments on Peter Drysdale "The problems for Asia’s growth", 17/08/2015

China's slowing economic growth is probably greater than the Chinese leadership team expected and adds to the potential that it may fall into the so called middle income trap. There are a number of factors that combined to result in the excessively slowing of the Chinese economy. Surely the prolonged weakening in economic growth in major international economies including the US, and particularly in Europe has been one of the external factors.

The appreciation of the Chinese Renminbi, the yuan, against many currencies as it pegged to and rose together with the US dollar is another headwind as far as external factors are concerned. It has rendered the Chinese exports as a whole uncompetitive. The Chinese authorities were probably too concerned about the pressure from the US to call currency manipulator and didn't act early enough to mitigate its appreciating currency. The recent move by the Chinese authorities to allow greater movement/depreciation against the US dollar indicates how strong the downward pressure of its economic growth rate.

The third factor is the rapid rises in wages in China that contributed to both external and internal problems. Externally it further reduced its international competitiveness so added to the slowing export growth. Internally it may added to the tightening of the labour market due to population growth and demographic change and reduced the employment growth than otherwise.

More importantly from policy point of view, the Chinese authorities were probably too relaxed in its economic management and didn't use enough expansionary policies, in the hope that its consumption may pick up the economic slacks to drive the economy. That policy stance was a combination of the result of the previous huge stimulus in the wake of the GFC and the desire to deleverage. Of course that policy stance became problematic in the context of both external and other internal problems as mentioned.

That policy stance, in the hope of the market would come to rescue, even would not work well in well functioned markets such as the industrialised countries, not to mention in China where the market is not as perfect as those in advanced economies.

The Chinese authorities have probably realised the country's economic problems and have taken actions to stimulate its economy, although it may have been too late and too little. Nevertheless, it is a useful lesson and if they have learned that lesson well, it should be conducive to getting future policies right. That in turn is likely for China to avoid the middle income trap and graduate as early as possible to high income ranks. Hope that is a price paid with a dividend.


A new brave Australia - competition

Another reference article, by Ross Gittins "Competition is the key to a brave new Australia", the Canberra Times, 15/08/2015.

To quote the first two paragraphs to give us an idea what this article is about:

"Under its newish secretary, John Fraser, Treasury has a new slogan. It is proud to be "fiscally conservative, market-oriented and reform-driven". So just what reform does Treasury advocate?

Well, in a speech last week Fraser spelt it out. But first he noted that the key element of market-oriented reform is that it almost always involves heightening competition. He illustrated the point by summarising what happened during the golden age of micro-economic reform in the 1980s and '90s."

Read more: http://www.canberratimes.com.au/business/the-economy/competition-is-the-key-to-a-brave-new-australia-20150814-giyzok.html#ixzz3iybsq0yG

Tessa Morris-Suzuki: Shinzo Abe is rewriting Japanese war history

This is only a reference to a useful and just article by a scholar on Japanese history at the ANU, Professor Tessa Morris-Suzuki "Shinzo Abe divides our region with a rewrite of Japan's war history", 16/08/2015. See the link here to the article at the Canberra Times:
Read more: http://www.canberratimes.com.au/comment/shinzo-abe-divides-region-with-a-rewrite-of-japans-modern-history-20150815-gizxev.html#ixzz3iyZov3VV

Singing swansong for North Korea now is too premature speculation

Comments on the comments by Dennis on "Time to tap Russia and China on North Korean denuclearisation"by Akanksha Sharma, 16/08/2015

The remark by Dennis that "... and China will never put any serious pressure on North Korea to give up their nukes for fear that N Korea will collapse", to the most may be partially correct and possibly very misleading. Yes, China probably does not wish to see the North Korea collapse, but it is not in China's interest to see North Korea really becomes a nuclear power, given its ramifications for geopolitical balance and the excuses the US and Japan use to station missile defence systems in East Asian countries. However, one should not overstate the influence of China on North Korea, given the wayward and unpredictable behaviour of the latter. China has been embarrassed by North Korea many times in recent years.

The predication that North Korea is in its end stage is likely to be a pure speculation and may not turn out to be true. Certainly it is premature to rely hopes on such a speculation. If that was true, then why is there an urgent need to persuade North Korea to give up its nuclear power? We could all just simply wait for its collapse and then rid off its nuclear bombs.

The US should probably not station any troops in the Korean peninsular at all as opposed to not station in the North as you argued.

PS: Dennis made a reply to my comments and as a result, I made the following reply (22:23 pm, 18/08/2015):

I am sure both the South Korean and the Japanese leaders know much better than you in terms of what is best for their respective countries. They should know far better what is in their own countries' interests. It would be arrogant to assume they don't know. I am not sure either country wishes to have become a nuclear power either with or without the persuasion from the US.

Further I am not sure that China didn't apply pressure to North Korea to stop nuclear testing. The public records indicate China did, contrary to your claim that it didn't. Simply ask a question, given Beijing could become a target of North Korea's nuclear missiles, is that in China's interest to not pressure for the North to stop testing?

There is a simple sanity test here.


More transparent in Chinese exchange rate is in the right direction

Comments on Alice de Jonge "Fans of a more open China should welcome the devalued yuan", 13/08/2015

I believe that China will move further in the direction of letting the market play a greater role in determine its exchange rate, even though the PBC has strong power to intervene when it is necessary.

The announcement that the midpoint of the Chinese Yuan and the $US is the close point of the previous day makes the process more transparent in general and the operation closer to market forces in particular. These steps by the PBC is likely to further facilitate China’s desire and objective to internationalise its currency to commensurate with its economic status in the world.

It will be interesting to see how the PBC will determine the midpoint of its exchange rate when there is a clear conflict between the previous day’s close and any information point to a likely significant impact on the Chinese currency that has newly been available since the close.

If it is mechanically following the previous day’s close, people may trade according to the new information to profit from that. And that will likely force the PBC to consider some deviation from the previous day’s close. It may need to assess how much to deviate and in what directions, so the new midpoint is much more aligned with market forces.

PS: in response to comments on the potential impact on Australians and New Zealanders' properties by John Hill:

It is probably less likely for them to sell right now as compared to reduced demand/buyers due to relative movement between the Chinese Yuan and the Aussie dollar.The property bubble may not burst as a result, but its further inflation may be somewhat more checked.


Three of China's strong internet related companies: BAT - 百度,阿里巴巴,和腾讯

This report mentioned China's BAT, three big Chinese internet related company - 百度,阿里巴巴,和腾讯。

"中国互联网创业活力为何碾压日本?" 12/08/2015. Yes, it seems to be true that Japan has been lacked behind in terms of internet related, or mobile phones making. This is very different to its earlier innovations in electronics, such as TVs (such as Sony), as well as cars where Toyota is one of the world's big car manufacturers. That may be related to the so called Japan's lost decades, that is, from the early 1990s to possibly now.

It is useful to know. Of course, there are also other newly established strong tech companies, like some in the making of Chinese branded mobile phones, 华为,小米等。

Facebook Platform is said to be behind many new tech services start-ups

I find this report from the Canberra Times interesting: "The superpower fuelling turbo start-ups", 12/08/2015

It is about Facebook Platform and its role in fuelling many start-ups. It will be good to future new tech services start-ups to know that this is an important way to use it in their new tech services endeavors.

I certainly keep this report as a useful reference.

'Dirty float' may be better than the markets

Comments on Vanessa Desloires "'Dirty float': how China manages its currency", 12/08/2015

While the use of "dirty float" puts a very negative sound to the managed float of a currency, the practice itself may not necessarily be dirty or worse than a free float or completely determined by market. This is because nowadays, speculations in the currency markets are so rampant that for most of the time a currency's market value does not reflect its value determine by economic fundamentals. In addition, there is the phenomenon of overshooting of exchange rate. Those two added together means very large, excessive and persistent deviations of a currency from the economic fundamentals of the home economy.

Economic policies aim at manage the economy so it is stable at full employment with low inflation.

Why shouldn’t the exchange rate be managed to make it stable and reflect the underlying economic fundamentals?

I think it should. Then it comes to the managed floating, the so called dirty floating.

Viewed from this perspective, the managed floating should be commended as opposed to being called dirty float, as long as it is at or close to the economic fundamentals.

Of course, to achieve the goal of being at or close to economic fundamentals requires a clear and transparent mechanism to operate the float and value a currency, so it is not used to gain trade advantages over others by under value the currency too much.

In summary, it may be better to have a relatively stable exchange rate regime based on a clearly defined and transparent framework for many countries if the so wish to do so.

The extreme thinking of market determined exchange rate is always better than the managed one is an illusion when the market does not work well enough to reflect economic fundamentals.


Lower penalties mean more jobs

Comments on Ross Gittins “Don't be sure lower penalties mean more jobs” 10/08/2015

Yes Ross, you have a point in that the general equilibrium effects may be much smaller than the partial effects to those businesses that may open longer or start to open on weekends than otherwise. 

Notwithstanding your point, there is likely to be some net positive or benefiting effects, even though it is difficult to estimate the net effects.

Reflection on war and peace - at the 70th anniversary of the end of WWII

Comments on Tessa Morris-Suzuki “70 years on, peace remains incomplete”, 8/08/2015

Yes, the 70th anniversary of the end of the second world war should be a time for reflections of costs of terrible wars and the benefits of lasting peace for the Asian and Pacific region. It would be terrible to have another and second period of cold war in the world.

The US is currently the sole superpower in every sense and it is only interested in maintaining its military, economic and political superiority over any other individual countries. In that context, the rise of China poses significant challenges to the US. China has risen to the second largest economy only behind the US and it is expected that it will overcome the US as the largest economy in the world in the not so distant future (even though some have argued that China has already been the world largest economy in purchasing power parity terms). As the Chinese economy grows further at a significantly faster speed, its military expenditures are likely to grow to be commensurate with its economic power. Given its much larger population, it won't be too long for it to catch up with the US militarily, at least in terms of military expenditures. That will be likely to cause concerns and insecurity in the US. As a result, the US will continue to take measures to contain China as much as possible.

On China's part, it has been used to the containment by the US, even though the future containment is likely to be different from the past, as an increasingly felt insecure in US may take more stringent containment strategies.

While China is a minor nuclear power, particularly as compared to the US and Russia, its industrial capacities as the world's factories mean it could become a nuclear power if it really faced with stringent security threats and if it chose to do so. Let's hope it will never be necessary for China to choose that route, given that route could mean other minor nuclear powers could do the same.

Russia is still a superpower in terms of its nuclear weapons and the recent events in Ukraine and the deterioration between Russia and the West is a reminder of Russia's power as well as its vulnerabilities.

China and Russia are likely to maintain a good bilateral relationship in the face of the containment by the US.

So what lies ahead will, to a large degree, depend on how the US to choose its future and the strategies towards newly emerging and definitely growing powers.

I hope my above concerns, out of the reflection of war and peace at the 70th anniversary of the end of the second world war, will be proven to be wrong and will never be realised.

Snow or not - China gears up for winter Olympic games in 2022

Comments on Xu Guoqi “No snow, no worries? China gears up for its first serious Olympics”, 7/08/2015

The current leader, President Xi, has set important goals for China to achieve, characterised by the dual (double) centenaries. One is the centenary of the founding of the Chinese Communist Party and the other is the founding of the People's Republic of China. By 2022, China will have past one of its dual centuries, that is, the centenary of the founding of the Chinese Communist Party in 2021. It will still have nearly 3 decades for the centenary of the People's Republic of China from 2022 to 2049.

There are 7 years to the winter Olympic games in Beijing in 2022. China has now encountered significant headwind in its economic growth that post challenges for its catch up with the US as the world largest economy and that stirs up the fear of and concerns for the middle income trap. Nevertheless, by 2022 it should be clear whether China has been able to overcome the middle income trap or not.

PS: As to whether there will be natural snow or China will have to use man-induced snow for the 2022 Winter Olympic Games, only time will tell, given that Beijing and the cities that to be part of the venues to host the winter games are in snow zone.

China and US looking past each other on trade and investment - for very different reasons

Comments on Gary Clyde Hufbauer “China, US looking past each other on trade and investment” 7/08/2015

There is a very significant difference between the reason why China is not included in the TPP and the reason why the US is not in the AIIB. China has been deliberately excluded by the US (and possibly Japan), while the US has deliberately chosen not to join the AIIB, and also lobbied its allies not to join it).

The US has demonstrated that it has been containing China’s rise not only militarily but also economically.

However, whether the US attempts to do those will be in its own interest or not is yet to be seen. It will likely damage its own interests more than damage to China’s.


No point for US to preach its high standards

Comments on Paul Hubbard "China takes the lead on the silk road", 5/08/2015

In relation to the following paragraph, China should reject the US offer politely, given it is not a member of the AIID:

"Nevertheless, the United States and Japan both chose not to become founding members of the bank. This was driven partly by concerns that the AIIB would undermine the lending standards of the World Bank and Asian Development Bank, which these powers have traditionally led. But despite early lobbying from the United States, key allies — including Australia, South Korea and the United Kingdom — eventually joined the rush to the new institution. And the United States has pledged to ‘engage directly with China’ to help the AIIB implement the high-quality standards it seeks."

There is no point for the US, that is not interested in joining the AIID, to preach how it can help with its high quality standards. That is not too much different from the actions of hypocrisy, self indulgence and arrogance.

Aged pension too disadvantages own savings for superannuation

Comments on Sally Rose "Million-dollar super targets labelled scare campaign", 4/08/2015

The aged pension is too discriminatory against savings from own superannuation contributions, in terms of once a person reaches the threshold, he/she does not get any aged pension. Just compare two persons with almost identical situations in terms of wages and salaries, but one saves, say 5%, more for superannuation and the other doesn't. If the person with own contributions to super just reached the threshold income for aged pension. The person will have the same income with his/her superannuation as the other one with aged pension. The same outcome, but the person with additional contribution to own superannuation has sacrificed its living standard for almost nothing. Worse still, own superannuation may not be index as generously as the aged pension.

Is it fair? Obviously it is not.

As a result, there should be some reforms to the aged pension system to encourage people to save without adversely affecting their entitlement to aged pensions.


China needs a realistic view on other mega free trade agreements

Comments on He Fan and Xiaoming Pan "China’s negotiation strategies at the crossroads of international trade" 4/08/2015

I have a number of comments on this post.

Firstly, I am not sure the authors really means that "at home, China’s reliance on export-oriented growth faces an unprecedented challenge in the face of shrinking global demand". Has the global demand really shrinked or has the growth slowed?

Secondly, is the remark that "Facilitating GVCs is the leading cause of the proliferation of regional and mega-regional trade negotiations, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP)", correct? Is facilitating GVCs really the leading cause for TPP and TTIP? If it is then there would be huge holes or gaps in those two trade agreements, because China, a very important and the most important country in the value chains of many manufacturing activities is not in either of those two, and it has been deliberately excluded from the TPP that would defeat the purpose of facilitating the GVCs.

Thirdly, while the authors are correct in saying that "in the post-GFC world, exports are evidently no longer the engine of China’s economy", it does not necessarily or automatically mean that exports will never be an engine of growth for ever. In that sense, the new normal in relation to exports may be temporary rather than being permanent. As a result, the remarks that "the ‘new normal’ requires adjustments in domestic economic policies and externally-oriented trade policies and strategies. Trade strategies that are compatible with China’s domestic conditions will help China achieve a stable shift to the new normal", may need some caution, as the situation with exports may change when the global economy puts behind, the temporary "new normal", that is the consequences of the GFC and back to its real "normal".

Alternatively, the exports orientation should not be sacrificed but should adapt to the ever changing world economy and to grab every opportunity to increase trade and exports.

Fourthly, the remark that “in the Pacific Rim, while RCEP and the TPP complement each other in terms of their membership scope and issue coverage, they are in competition to offer the first update to the international trade rules of the WTO”, may represent an one-sided fantasy or day dreaming on the authors part, because the US does and will not think in that way. The authors also indirectly or implicitly acknowledged this point in the statement “despite its increasing trade power and enthusiasm to join international trade rule-making, China is currently excluded from TPP negotiations.”

The following paragraph also reflects the contradictory of the claim of the complementarity of the TPP and RECP: “At the same time, some new sensitive issues — such as SOEs, the environment and labour — pose challenges for China in 21st century trade negotiations and joining the TPP. Handled badly, they can also be impediments to genuinely free trade. The environment was once an area in which Chinese standards once diverged from most developed countries, but today Chinese standards in many areas exceed those of even some TPP member countries.

Further, the authors also remarked that “the mega-regionals could either turn out to be a stumbling block for genuinely global free trade or pave the way to reaching a multilateral deal within the WTO’s framework.” It is another reflection of some of the contradictions in the authors’ arguments earlier on, as here the so called comlementarity gives way to problems. But that is where China’s approach to trade negotiations should be focused on, that is to say, on what is happening as opposed to what some fantasy may point to.

Nevertheless, I do share the view that China’s SOEs needs to be handled with care, creativity and boldness, by China and its leaders. Some reforms are needed in that particular areas, so China will not be disadvantaged due to its SOEs.

Finally the last sentence by the authors, while understandable, still hinges on wining the sympathy of those which deliberately do not have for China: “the internal reform of the Chinese economy and its changing role in the global economy provide common ground for China, a large developing country, and developed countries to work on their divergence and to agree to a new set of rules.” It is a miserable position to be.

Yes to an independent umpire to enforce parliamentary entitlement rules

Comments on Alan Fels "Wanted: an independent umpire to set and enforce clear parliamentary entitlement rules", 4/08/2015

The proposal to have an independent body to enforce the rules for parliamentarians is a good one. It should be carefully considered and included in the recommendations in the review announced by the Prime Minister Tony Abbott.

The current practice of having the Department of Finance to do such similar work means it is toothless tiger, given that there have been so many misuses already exposed and highly publicised. One can only imagine how many there are more misuses that have not been exposed.

To have the head of the Remuneration Tribunal as the co-chair of the review is a joke, given that the tribunal in the past has granted outrageous increases in the pay to parliamentarians, something like dozens or even around 50 percent in one go.

Those were not consistent with community or public expectations. That tribunal has lost its creditability due to those ridiculous magnitudes of increases.

As a result, the tribunal needs fundamental reforms to reflects community standards and expectations.

Turton's ridiculous comments on Japan's new security laws

Comments on Michael Turton's comments on "Storm brews over Japan’s new security laws" by Ben Ascione, 4/08/2015

Your comments are extremely biased and disappointing.

There are two points regarding your comments. Firstly, leaving aside how those bills will affect China and its security, the Senkaku/Diayu Island is at least a disputed territory, not undisputed Japanese territory as you biasedly claimed.

Secondly, China will not kill Taiwanese and the unification of Taiwan with the mainland is not annexation.

There is another point, that is, China is not the aggressor as you claimed, both China and Taiwan claim the Diayu/Sankaku Island as their own territory.


China's leaders should be a little wiser re knowledge available in cyber space

Comments on Greg Austin "2015 is the year of Chinese cyber power", 2/08/2015

China, while understandably blacklisted some US technology companies due to their role in spying other countries for the US government, should be encouraged to have adequate freedom and democracy in cyber space.

It is in its own interests to allow its people to access what is available in the cyber space to simply stay with the world in terms of information and technological developments. Otherwise it will make its people unfairly disadvantaged due to the loss of so much information available in the cyber space.

Competitions between nations in the cyber space will play an important role in positioning a nation in the world. China's block of many web contents places it in a damaged and disadvantaged position.

A suggestion to the editors of the eastasiaforum

Comments on Arthur Stockwin "Japan’s defence and diplomacy heading in the wrong direction", 2/08/2015

This is a suggestion to the editors of the eastasiaforum.

Ii is very disappointing to see that while there are so many Chinese scholars and scholars who are involved in Chinese/China studies (whether it is economics, politics, cultural, historical or whatever), working in Australian tertiary institutions and particularly at the Australian National University (ANU), there are very few who are actively involved in the eastasiaforum. I don't know whether they are not interested in this at all, because of the forum's rating or something else?

I am sure it is worthwhile to be involved to contribute to the building up of public goods for the benefit of the public. Some of them surely should have known better the facts or better knowledges regarding China, such as the war reparations were received and compensations for comfort women as Cathy Yang claimed, , due to the nature of their professional work.

I would suggest the editors of eastasiaforum should reflect on that and identify the key reasons as to why, and encourage those to be actively involved in the forum.

PS: When I compare the eastasiaforum and the conversation, it seems the former is quite slow to have comments appear with the article, as opposed to the latter. The latter has the default for any comments to appear after they were provided and take out those they deem not to meet the standards for one reason or another. The former, however, has the default that does not allow any comments to appear automatically and only allow they to appear after some time. There is a clear difference between the two.

The editors should improve their work in this regard. They should not delay the appearance of comments due to their slowness.

A crude joke - the head of the Remuneration Tribunal as co-chair to review politicians travel entitlements

Comments on Michelle Grattan "Bronwyn Bishop finally resigns as speaker", 2/08/2015

It is disappointing to have the head of the Remuneration Tribunal John Conde included in the review panel as the co-head, along side with former head of the Finance department David Tune.

The Remuneration Tribunal has long lost its creditability due to its granting of extremely generous salary increases to Australian politicians in the past when the government in both main political persuasion did not allow the increase in the wages and salaries of APS employees to allow for inflation, and ask them to demonstrate productivity improvement.

As a result, to have the head of that tribunal to review the extraordinary costs of politicians's entitlements, about half of billion dollars as reported recently is a bit of joke, given the tribunal's role in the proliferations of politicians remunerations.

It is a crude joke to have the head of the Remuneration Tribunal as the co-chair to conduct such a review. The Remuneration Tribunal and the politicians seem to have extraordinarily conflict of interests.

Perhaps there should be a review of the Remuneration Tribunal actions in the past in the context of the wages and salaries of APS employees.

I have no knowledge how members of that tribunal are appointed, but they seemed to act out of steps with the Australian community in general.

Equivalence between ETS and a carbon tax

Comments on David Hodgkinson, and Rebecca Johnston "Politics aside, a simple carbon tax makes more sense than a convoluted emissions trading scheme", 2/08/2015

While the two do have significant differences, they also share some commonality, or equivalence. For example, the ETS implies a equivalent price or tax to the carbon tax when the target of emissions is set as the exactly same that a carbon tax would achieve. Of course, there are other conditions that would need to meet. For example, the ETS must be a national and include all emissions sources where the carbon tax would apply to and the ETS market needs to be efficient and there is only one national price.

While the Abbott politics has hit hard on carbon taxes imposed by ALP government, there is no point to deny the equivalence of an well functioned ETS and a carbon tax.

To do it is just too cowardly in the wake of the very effective attack on the ALP government's carbon tax. Those who attempt to battle the Abbott anti carbon tax mantra should do better than that.

Cathy Yang's extraordinary arrogant claims!

Comments on Cathy Yang's comments on "Japan’s defence and diplomacy heading in the wrong direction", 2/08/2015

Cathy Yang, it seems your statements are wrong and have no basis in terms of, I quote, "War reparations were received, compensations for comfort women were offered."

China has never received war reparations and many ordinary Chinese have been unhappy or angry for that, partly it was past Chinese communist leaders who decided not to ask for war reparations when China and Japan established diplomatic relations during Mao and Zhou era.

As far as I am aware, no compensations for comfort women were offered to Chinese nationals involved.

Can you supply evidence to back up your claims please?

Your claim that "China will never attack, or take the US nor Japan by forces" implies you can foretell the future regarding to Chinese leaders actions in terms of China's relations with the US or Japan. That is extremely extraordinary and arrogant. How do you have that power?


Rational debate on Australia-China free trade agreement is needed

Comments on James Laurenceson "Why fears over the Australia–China FTA are overblown", 31/07/2015

Thanks for the author to clear the air and to explain what the Australia-China Free Trade Agreement is about and particularly some of the issues that unions are trying to oppose.

There have been a lot of arguments, many of which are biased and based on the worst scenarios including Australia does not enforce on what they are specified in the agreement and should and will if the government or its relevant agencies carry out their duties normally.

Those arguments, including some on the Conversation website show hysteria and desperation, try to stir up nationalistic sentiments.

They ware completely unwarranted from the point of any rational analysis.


Even a Nobel Prize laureate economist can be wrong with the Aussie housing market

Comments on ABC report by Peter Ryan "Housing bubble could burn investors, warns Nobel Prize-winning economist", 30/07/2015

A Nobel Prize laureate economist, Professor Vernon Smith, is reported saying that Sydney and Melbourne's real estate markets are showing every sign of being in a dangerous price bubble, and speculating investors could get burnt when a down turn occurs.

I quote some paragraphs from the Peter Ryan's report:

'"Sydney real estate is growing faster than your other cities and Melbourne has a similar experience," Professor Smith told the ABC.'

'"In so far that it's investors speculating and wanting to resell at a profit, some of them are going to be disappointed when things turn around," Professor Smith said.'

Although Professor Smith cautioned a little by stating losses and risk taking can be a normal part of the free economies:

'"But free economies involve losses. If you're not willing to take the losses you can't really brag about the gains.

'"Prices go up and to some extent that will include some speculation. But a good bit of this might just be normal functioning of the capitalist economy."'

As I have argued before that the Australian housing market cannot analysed in isolation from its unique features and a seemingly bubble can be sustained if the external factors do not go against it.

So, in a sense, a Nobel Prize laureate economist may not necessarily always get the fact right, particularly as far as the Australian housing market is concerned. The main reason for that lies the unique Australian housing market that differs from most other industrialised countries, particular the US. Applying a general theory to a quite different market is bound to miss the mark.

How should Australia's GST compare with OECD average?

Comments on ABC Fact Check "Do Australians pay less GST than people in other OECD nations?" 30/07/2015

The comparison of GST with other OECD countries' GST or VAT, in this fact check, while apparently correct, masks the size effect of the different OECD countries and that makes a quite difference in its conclusion.

For example, the four countries which have a lower ratio of GST/VAT revenue to GDP include two of the OECD largest economies, namely the USA and Japan, as well as another G7 countries, that is Canada.

If the different sizes of the OECD economies is taken into account, then a different picture emerges and Australia does not fair too badly as the nominal comparison suggested. Australia could sit much closer to the average GST/VAT GDP ratio weighted by GDP.

So, this is an important point that the fact check should at least mention or better still discuss it.

From the second Chart in ABC Fact Check we can see that the ratio of GST/VAT to GDP is less than 5% for the US, and less than 6% for Japan, while it was stated by the ABC Fact Check that Australia's is 7/5%.

How much is China's per capita income?

Comments on Zhengjun Zhang and Sarah Du "China needs to turn its capital ideas into SOE reform", 30/07/2015

Are the facts in the following paragraph all correct?

"China has several quite unique characteristics. It has a large population (close to 1.4 billion); it is a middle income country with US$3200 per capita disposable income in 2014; and it is a transition economy that is still developing its market mechanisms and institutional systems. With these characteristics, China needs to keep a large toolbox to deal with potential challenges on its development path."

I just had a look at the China section of the CIA's World Facebook that states the Chinese economy was $10.36 trillion in 2014. With the population less than 1.4 billion, that would imply a bit over $7,000, more than double of the $3,200 used by the authors in this post.

How can the difference be so large? One of the two must be seriously incorrect.

My impression of memory is that China's per capita income was more likely greater than US$5,000 in 2014.

PS: Sorry, I didn't realise the authors were talking about disposable income as opposed to per capita income when I questioned its use. My apology.

But, why did they use disposable income in such context? Isn't it strange? Isn't per capita income better and more in line with most discussions?  It certainly caused confusion to me, at least, because many people may naturally think it was per capita income as an indicator of the income level there.

PPS: In the wake of the previous post titled "Is China a market economy?" by Gary Clyde Hufbauer and Cathleen Cimino-Isaacs, China should probably consider the potential of its SOEs and particularly its governance and public disclosure of relevant information to make the Chinese a market economy, if the argument that it is not a market economy has merits.

Only domestic consideration is not enough and any international implications must be taken into account. Otherwise, China may encounter more problems in trade and investment, including anti dumping against its SOEs exports as well as overseas investment by SOEs.

Having said that, I am personally not sure the argument that China is not a market economy is meritorious.


China is a market economy

Comments on Gary Clyde Hufbauer and Cathleen Cimino-Isaacs "Is China a market economy?" 29/07/2015

While it was understandable that at the time when China joint the WTO, it was not unreasonable to regard some parts of the Chinese economy were not market economy, it is no longer reasonable to use that as a trade barrier or as a tool for anti dumping purpose. Fifteen years have past since then and China has changed a lot. Yes, there are some sectors where there may be monopolies, duopolies or oligopolies still operate, but they are not too different from some western and industrialised countries. For example, some utility industries in Australia operate as monopolies or oligopolies.

The following paragraph from the author is telling that it is not a legal issue as opposed to a policy one. It is a form of imperialism in action:

"Whether the United States takes a hard-line mix-and-match approach, rather than grant China market economy status across the board, could well turn on policy considerations rather than legal parsing. Among these considerations will be the general atmosphere of commercial relations with China in 2015 and 2016, including the evolution of the renminbi exchange rate (devaluation would inspire a hard-line approach) and the outcome of the US–China Bilateral Investment Treaty negotiations (success would have the opposite effect)."

The authors' recommendations are not particularly unreasonable in that any firms whether they are state owned or not, should publish any information as an ordinary firm would. However, there is a danger that those recommendations could be abused and used for more than what are recommended for.

Further the accusations of China manipulates its currency does not have merits at all. One cannot use trade surplus or deficit with a country alone as a test of whether a currency is fair valued or not. China can have surplus with some countries and deficits with some other countries as well as about balanced trade with the rest. The US have run trade deficits with many countries for very long time and those countries include free exchange countries. If surplus or deficit is the sole measure, then why the free exchange rate countries have not had their currencies moved in the direction to balance their trade with the US?

PS: I have had a look at the Eastasiaforum website and could not find my comments there even by 9.23 am, 30 July 2015. Maybe the use of the phrase imperialism caused the editors some headaches. I only meant economic imperialism, in the sense similar to past imperialists which, when they were losing their former powers, tried to create difficulties for either new comers of new power or left some difficulties to their former colonies. In Chinese, the phrase "垂死挣扎“ adequately describes such behaviours.


Why is the Free Trade Area of the Asia Pacific little known?

Comments on Chen Dongxiao "China aims to set the regional cooperation agenda", 28/07/2015

It is surprising that there is little mentioning of or discussions about the Free Trade Area of the Asia Pacific (FTAAP) promoted by China and the Conference of Interaction and Confidence-Building Measures in Asia (CICA) as the author mentioned in this post.

There are plenty of discussions about the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP)—the two leading regional trade negotiation groups in the Asia Pacific but little is known of the FTAAP, even though the author says the FTAAP "can provide an overarching framework that transcends the narratives of competition between the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP)".

The author also says that China’s endorsement of the FTAAP demonstrates its commitment to more open, liberalised and high-quality trade and investment, as well as a more integrated regional economy.

I am a bit confused by who was the initiator of FTAAP, given that it is said China was promoting and endorsing it?

On security issues and China's initiative of New Neighbourhood Diplomacy and its guidelines, how does that link or connect with its perceived more assertive and aggressive behaviour in the South China Sea, that apparently upset a number of its neighbours?


TPP will be a mixed blessing for Australia

Comments on Shiro Armstrong "The race to a risky Trans-Pacific Partnership deal", 27/07/2015

Whether it is willingly or unwillingly on Australia's part, the Trans-Pacific Partnership (TPP) may prove to be a mixed blessing for Australia indeed, given that China is Australia's largest market and that Australia relies very heavily on Chinese economy to perform. China is excluded from the TPP and will suffer as a result of the trade diversion effects away from its exports. If China's exports is negatively affected by the TPP, then it in turn will have a negative effect on Australia.

But more seriously than that, the intention of the US and Japan to contain China's (and possibly India's too) rise economically as shown in their approach to the TPP memberships, there may be a long term and lasting damage to a number of bilateral relationships. In the future those countries which are deliberately excluded by the US and japan may take potentially remedy measures, whether it is retaliatory or purely a natural response.

The Chinese and Indians may not openly say anything but in their heart and minds it is crystal clear what the TPP is about and what it means for them. It may be forgiven sooner or later, but it will not be easily forgotten.

The damages have already been done and let's hope they would be contained without spiral out of control.

The share of world GDP of TPP members is about 54%

Comments on Shiro Armstrong "The race to a risky Trans-Pacific Partnership deal", 27/07/2015

Is the GDP of all the 12 TPP members combined really 60% of the world’s total? My calculation based on the most recent World Bank’s GDP data (in current $US) for 2014 suggests it was 53.7%, or 54%, that is a 10% smaller than 60%.

Please note that there is no data for New Zealand so its 2013 figure plus 5% was used as an estimate.

There are some other countries whose data are not available for 2014 too, but they, including Taiwan, are mostly small economies.

PS: I haven't calculate the trade shares.


An Economics professor's serious mistake

Comments on Flavio Menezes "FactCheck: is the GST as efficient but less equitable than income tax?" 24/07/2015

This "Fact Check" from Flavio Menezes is so extraordinarily wrong that it does not pass the common sense or insanity text. The first sentence in its verdict , that is I quote "The Assistant Shadow Treasurer is correct that the efficiency of the GST as a tax is similar to that of income tax", is spectacularly incorrect and wrong.

That verdict even blatantly contradicts or ignores or misunderstands the review provided by Professor John Freebairn that the so called Fact Check was presumably engaged as an expert opinion. It is a serious and appalling error or error in judgement, understanding, or simply oversight or negligence on Flavio Menezes' part. How did that happen Flavio Menezes, a Professor of Economics at The University of Queensland, is beyond comprehension.

In terms of efficiency, the GST, which is a flat with a rate of 10% as currently applied even though there are exemptions such as fresh food, health etc, is much more efficient than the Australian income tax which is very progressive in the tax rates ranging from 0 to effectively 47% if the medicare levy is included. There is virtually no argument about the relative efficiency among economists and most politicians know that also.

In terms of distributional effect, the progressive nature of the income tax is much more favourable to low income people because they are taxed proportionately at lower rates and tax the high income people much more heavily.

PS: Of course, in order to derive his erroneous conclusion, Professor Flavio Menezes used a flat income tax. We all know that is purely an assumption and is far from what the very progressive Australian income tax system is.

No good to exaggerate the uncertainty and confuse people on Watermark coal mine

Comments Matthew Currell "Shenhua mine’s water uncertainty means we should proceed with caution", 24/07/2015

The author of this post, Matthew Currell seems to think he is better positioned than the federal environment minister in relation to the environmental issues regarding to the Shenhua Watermark coal mine in NSW. The minister has reasonably adequate information before him when he approved the mine, including presumably the twice reports by the Independent Expert Scientific Committee (on large coal mining and coal seam gas) that has carefully examined the groundwater assessments done on behalf of Shenhua on two occasions, as the author acknowledged.

And there are also further processes and hurdles to be past before the mine starts. As the author put it: "Shenhua still needs a license from NSW, and approval of further plans around water management from the federal government."

Then the author strangely has argued the following:

"The Federal and NSW governments still have a chance to prevent the Shenhua mine from going ahead, and would have strong support from rural Australians and others who are concerned about the environmental impacts in doing so.

"This decision will be critical in setting the future direction and priorities of the country – continuing with business as usual, or progressing to a new era of strategic thinking about long-term natural resources protection.

"Both the economic and environmental risks of continued expansion of coal mining for export in Australia have been highlighted recently. Whether the warnings are heeded may have enormous future consequences.

It seems the author is so biased and strongly against the mine irrespective what the merit of the mine is and what the Independent Expert Scientific Committee has found and will find.

Maybe that is the best an extreme environmentalist would do.

Michael Downing's unscientific idea regarding the Shenhua's Watermark coal mine

Comments on Michael Downing's arguments in his comments on "Shenhua mine’s water uncertainty means we should proceed with caution", 24/07/2015

Why take the figure of a "best estimate" of the cost for rehabilitation of a mine site and double it and apply a license fee to accumulate that figure, as you argued? Why double the best estimate? Is that a scientific approach, or an arbitrary impost?

Isn't your argument a layer of more red types?

Further, isn't it the case that the responsibility for rehabilitation of a mine is for the miner to do? If that is the case, are you advocate that the responsibility of rehabilitation be transferred to the government that would impose the extra license fee?

No need to be arrogant and Europe centric

Comments on Maaike Okano-Heijmans and Daniel Lanting "Europe finds the China connection", 24/07/2015

This post seems completely European centric. It is quite one sided advocate for the European standards and I am not sure that is either the best way for all European countries to work with China or indeed for a better world.

First, are the European standards the best standards with no room to improve? I think those people who hold that view may be too arrogant and out of touch.

Secondly, if it is to work with China in a collaborative way, why should only the European standards need to be followed and why not also consider a compromise between the European standards and the presumably different Chinese or Asian standards?

Given the quite diverse situations among the European countries, the benefits and otherwise of working with China may be quite different. As a result, the member states of Europe are likely to seek more cooperative solutions as opposed to the authors' advocate of a consolidated approach to hold the European standards.

On China's part, it is likely to invest in countries where maximum benefits for both partners can be expected to achieve.

PS, what a title that is quite different from its content.


National Living Wage proposed in the UK: no more than a catch up with Australia

Comments on Matthew Wood "Wage policy ‘coup’ marks debasing of politics by hyper-democracy", 23/07/2015

In terms of living wages, Australia has arguably done it already. I remember reading an article possibly in the Conversation that explained the workplace relations in Australia and its minimum wages.

That article mentioned that in the past there was a case where the judge defined minimum wages as something that can sustain a reasonable family life. In another word, Australia's minimum wages are far from the market driven minimum wages when demand for and supply of labour are in equilibrium.

In reality, the minimum wages in Australia are much higher than in the US and the UK, as much as twice or more than in those countries.

In comparison, the proposal for the introduction of a National Living Wage in the UK by Chancellor George Osborne, irrespective its merits or otherwise, to the most is a catch up to the Australian practice that has been in place for a long time.