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.
2015-12-22
"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
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
2015-12-17
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.
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.
2015-12-15
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.
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.
2015-12-13
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.”
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
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