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Posts Tagged ‘China’

Age of Ambition: Chasing Fortune, Truth, and Faith in the New China. Evan Osnos wrote an engaging and insightful book on today’s China. In his words, the book “is an account of the collision of two forces: aspiration and authoritarianism.”

The hardest part about writing from China was not navigating the authoritarian bureaucracy or the occasional stint in a policy station. It was the problem of proportions: How much of the drama was light and how much was dark? How much was about opportunity and how much was about repression?

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Now and then, a surge of patriotism provided a form and direction to people’s lives, but it was, as the Japanese author Haruki Murakami wrote of nationalism in his own country, “like cheap liquor”: “It gets you drunk after only a few shots and makes you hysterical,” he wrote, “but after your drunken rampage you are left with nothing but an awful headache the next morning.”

I long for a day when people are less nationalistic, and anyone could travel and live in any country he/she wants.

If there’s a clear trade-off, to what extent is having a say and control over our life more important than a capable government who can make our country strong and prosperous?

PS: Evan’s book has the most detailed account of Justin Lin’s experience I’ve come across.

Floating on a Malayan Breeze: Travels in Malaysia and Singapore. Observations of the different culture and lifestyle between Malaysian and Singaporean, as well as racial and political background.

The Social Animal: The Hidden Sources of Love, Character, and Achievement. Overall I enjoyed reading about the fictional characters that David Brooks created to illustrate a range of social science findings and philosophy. There are plenty of sensible advice on learning, happiness, and success, but I think some of the findings are not as robust as he makes them seem to be.

we are primarily wanderers, not decision makers…We wander across an environment of people and possibilities. As we wander, the mind makes a near-infinite number of value judgments, which accumulate to form goals, ambitions, dreams, desires, and ways of doing things.

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The truth is, starting even before we are born, we inherit a great river of knowledge, a great flow of patterns coming from many ages and many sources. The information that comes from deep in the evolutionary past, we call genetics. The information revealed thousands of years ago, we call religion. The information passed along from hundreds of years ago, we call culture. The information passed along from decades age, we call family, and the information offered years, months, days, or hours ago, we call education and advice.

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But looking at her son, Julia didn’t really get the sense that the unsupervised Harold, the non-homework Harold, the uncontrolled Harold was really free. This Harold, which some philosophers celebrate as the epitome of innocence and delight, was really a prisoner of his impulses. Freedom without structure is its own slavery.

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“The real great man is the man who makes every man feel great,” the British writer G. K. Chesterton wrote.

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“There is no craving or demand of the human mind more constant and insatiable than that for exercise and employment,” the Scottish philosopher David Hume wrote, “and this desire seems the foundation of most of our passions and pursuits.”

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Recognition and wealth, she had learned, do not produce happiness, but they do liberate you from the worries that plague people who lack but desire these things.

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Life is change, and the happy life is a series of gentle, stimulating, melodic changes.

 

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Timelapse video of 49 cities

Bloomberg & Chinese censorship

Short anime background intro on China’s 3rd Plenum

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I just finished Michael Pettis’ new book on China recommended by Tyler. He uses a neat framework to think about China’s growth and how it fits in the global system. I’m probably more optimistic about China’s long-term growth outlook than Michael Pettis, although we might be thinking in a different time horizon.

Things I agree:

1) Continue rising debt to GDP is not sustainable, and at some point debt will be rising faster than debt-servicing capacity.

2) The structure of the economy (implicit government guarantee, distorted price signal, etc.) makes it vulnerable to capital misallocation, and the surge in credit and investment to GDP ratios suggest there are lots of wasteful investments.

3) Economists are bad at predicting turning points and adjusting their expectations during major turns in growth cycle.

Things I don’t necessarily agree:

1) The assumption that China must rebalance toward a greater reliance on consumption. I don’t think consumption is inherently better than investment from a growth prospective (it matters for income distribution and social welfare, but that’s a different question). A debt-fueled consumption boom is probably worse than a debt-fueled investment boom. Michael Pettis noted that wasting money is always value destroying, but consumption is about spending money with no monetary return, while bad investment might still earn some returns. In general the classification between consumption and investment is not well-defined (housing, education, types of investments, etc.).

One could argue that investment is more likely to be debt-financed relative to consumption and hence less sustainable, or that stronger consumption could encourage investments in the service-producing sectors that are likely less capital intensive. Those are valid points for rebalancing but don’t change my view about consumption versus investment. I think investment helps drive long-run productivity growth, while consumption is the ultimate end, and there is a trade-off to be made by each country. I see debt-financed investment and types of investments as the main problems, not investment per se.

A few other issues regarding consumption share: Data are not very good so we probably should assign less weight to the level of consumption to GDP. Singapore also has a very low consumption share but its model seems to be sustainable. Admittedly Singapore is a small economy and China probably won’t get away with the type of current account surplus Singapore has. My point is that for sustainable economic growth, institutions are likely the key, not consumption level.

2) I think China’s growth is more likely to slow sharply at some point as the economy deleverage, but I don’t think a lost decade of very slow growth is a necessary outcome. Reforms are key, and China is slowly moving forward. FX appreciation and strong wage growth have been happening, There are also some limited progress on improving social safety net and hukou reforms, while gradual liberalization of interest rates, further hukou and land reforms, and energy price reforms are also on the agenda. These are all steps that should help redistribute income to the households.

I think the party leaders’ main objective is to stay in power. As long as reforms are consistent with this goal, I think they will continue to pursue them. The progress might be too slow to solve the existing problems, with lots of powerful vested interests trying to stifle reforms. But there are not many emerging economies where the top leaders seem to be serious about reforms.

Assuming China hits the debt limit and growth slows down sharply, my base case is that this will help trigger some serious and difficult reforms, like what happened during Zhu Rongji’s time. The government and state-owned enterprises will likely have to shoulder the bad debts, and they seem to have enough resources to do so (i.e. selling assets).

I’m more worried about political and social instability, a topic Michel Pettis doesn’t focus on in the book. Barring major instability, I’m relatively optimistic about China’s long-term economic outlook.

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paper by Dani Rodrik summarizing his recent works on growth & development. In his view the two dynamics behind growth are 1) development of fundamental capabilities in human capital and institutions [structural reforms], and 2) structural transformation [industrialization and moving labor into high productivity industries]. The first is slow and difficult, and most successful catch-up stories follow the second method until they reach middle-income [resource rich countries exception]. At that point the first dynamic would also be needed to break into high income level.

He noted that successful economic transitions rarely grown rapidly because of across the board institutional reforms, but most marked by sequential relaxation of one binding constraint after another, using policy tools that are tailored to local circumstances.

He noted six stylized facts about economic growth: 1) Growth has increased over time. Asia growth rate is incredible/unprecedented. 2) Convergence has been the exception rather than the rule [no tendency for poor countries to growth faster than rich countries]. 3) Economic development goes with productive diversification [not specialization]. 4) Industrialization and manufacturing exports have been the most reliable levers for rapid and sustained growth in the past. 5) Manufacturing industries are special in that they tend to exhibit unconditional convergences. 6) Most successful economies have not been ones with least state intervention

He is less optimistic about catch-up in other developing economies (like Africa or India) in the future due to 1) weaker Western growth which could lead to less tolerance for industrial policies, 2) change in manufacturing industries towards more capital and skill intensive, and changes in global supply chains with less positive spill-over for developing countries, 3) increased global competition, esp. from China, and 4) increased environmental awareness/concerns.

Applying Rodrik’s framework, China needs to continue to reform its institutions to move up. I think it fares well on the human capital front. India is more concerning. Its rigid labor law & socialist policies hinder growth in the manufacturing sector. It’d need to find sectors that can help employ large numbers of relatively unskilled workers, absorb foreign technology, and build linkages with domestic economies. Otherwise it’d likely continue to perform below its potential. Opening up to multi-brand retail would be a good start, but so far no international multi-brand have entered yet, likely due to policy & political uncertainty and unclear requirements.

Abstract: Developing countries will face stronger headwinds in the decades ahead, both because the global economy is likely to be significantly less buoyant than in recent decades and because technological changes are rendering manufacturing more capital and skill intensive. Desirable policies will continue to share features that have served successful countries well in the past, but growth strategies will differ in their emphasis. Ultimately, growth will depend primarily on what happens at home. The challenge is therefore to design an architecture that respects the domestic priorities of individual countries while ensuring that major cross-border spillovers and global public goods are addressed

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Average is over: Powering America Beyond the Age of the Great Stagnation

Self-recommending. Tyler argues that as we get better at measuring productivity, market will increasingly reward people who can work well with machines/artificial intelligence and who are good at marketing and making people feel good. These people are likely to be self-motivated and conscientious. I think these are also people who are open to experimentation, more resilient to failure (grit), and adaptable. To the extent that genes determine a significant part of our personality and temperament and meta-cognition and that they are not easy to change, I tend to agree with Tyler’s conclusion that income inequality trend will continue.  The positive note is that this doesn’t mean the low-income people cannot still enjoy a relatively decent life of cheap entertainment.

Links to interviews: EconTalk,  nprTechCrunch

How to Get Filthy Rich in Rising Asia

A novel about life: luck, growing up, falling in love, what it takes to be successful, decline, and ageing. I like the portrayal of the transient nature of most things in life.

Wealth and Power: China’s Long March to the Twenty-first Century

An interesting read on China’s modern history, focusing on some of the main characters involved. A good starting point to understand Chinese nationalism and the motivations behind the top leaders.

Here is an interview with Orville Schell.

Money Mischief: Episodes in Monetary History

A good, non-technical guide to monetary policy with historical examples. Surprised I didn’t read this earlier.

How China Became Capitalist

Market oriented reforms, pragmatic leadership, and willingness to experiment are some of the key elements to China successful development. China is lucky to have Deng Xiaoping and Zhu Rongji. Coase and Wang ends with a quote by Adam Smith: “The great source of both the misery and disorders of human life, seems to arise from over-rating the difference between one permanent situation and another…”

Lee Kuan Yew: The Grand Master’s Insights on China, the United States, and the World

A short book summarizing Lee’s views. Always interesting to hear what this opinionated visionary has to say.

Korea: The impossible country

Entertaining read to learn more about South Korea’s history and culture and some of the social and economic issues it faces.

The Year Without Pants: WordPress.com and the Future of Work

Scott Berkun on his experience at WordPress and thoughts on the future of work. Similar to Tyler’s view, I read him as saying that those who are self-motivated and can communicate effectively will do well, and learning from experimentation will become increasingly important.

China’s Urban Billion: The story behind the biggest migration in human history

Good overview on how China’s been urbanizing and the various problems it faces. Hukou reforms are complicated as they need to go hand in hand with fiscal reforms to address local government revenue, land reforms and property rights, education and retraining, and city planning and environmental impact. These are likely topics that the central government will address in its upcoming plenum in November.

In Spite of the Gods: The Rise of Modern India

Helps me better understand India’s politics and economy and the tremendous challenges it faces.

Top Dog: The Science of Winning and Losing

Po Bronson and Ashley Merryma summarize research on competition. Some takeaways (not sure if they are robust): Competition helps to improve our performance and facilitates creative output. Better competitors are those better at controlling their psychological state. “Performance is facilitated and learning is impaired by the presence of spectators.” Positive pep talks don’t help much, while thinking about the potential obstacles helps. Boys and girls might thrive in different competitive environment.

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