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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.