Suddenly lots of stuff is happening in China, at least based on media coverage. Here are some interesting articles that have come out recently, and quick summaries:
From Tyler Cowen. We are seeing a phase of centralisation. Some of the freedom of expression enjoyed by Chinese academics is being restricted.
Again HT Tyler Cowen. Roderick MacFarquhar argues that Xi Jinping is the most powerful Chinese leader (at least in terms of fewest powerful internal rivals) since Mao, more so than Deng.
(If this is true, then it makes Deng look even better, that or the situation of China in the late 1970s even worse.)
Administrators in the British Raj would often boast how, in a government ruling 250-300 million people, there were only 1000 British civil servants and c.15,000 British military officers. Of course, for every British administrator there would be dozens of Indian subordinates – the boast is double-edged: ‘look at how many collaborators we have’/’look at how many collaborators we need’.
Excluding State-Owned Enterprises (which are huge): “China has only 31 government and party employees per thousand residents. The number of civil servants per thousand residents in France is 95, in the United States, 75, and in Germany 53.” And, of course, the CCP itself has chapters in every company (every Wall-Mart store), comprising up to 10% of the population.
How do you launder money in China? Anne Stevenson-Yang has your answers. They include: insurance payouts, over-generous buyouts from overseas holding companies, assets without a clear value such as art, Macao casinos or just bribing the customs officials. Click through for more.
Chinese local governments depend on land sales for a great deal of their revenue. Turns out China’s property market is peaking, and local governments are running out of land to sell. Say Deutsche Bank analysts: “Our baseline case assumes land sale revenue to drop by 20% yoy in 2015.” In response, the central government will have to ease monetary policy. Deutsche: “We forecast two interest rate cuts and two RRR cuts in 2015. The risk is that there may be more rate and RRR cuts than we forecast.” Indeed we already have one of these a month later.
Although Mark Dow notes that Chinese monetary authorities target credit growth, and that reserve requirements are just one tool (they are happy to use ordinary Open Market Operations, and sterilise, or not, residual balance of payment inflows)
The latest sign that China’s financial system is facing a cash drain
Here is more context on the monetary policy of China. How do you go about sinking your own currency? If subsidising exports through a low yuan, it means the exporters receive more yuan for good than their goods are worth. China needs very high reserve requirements to sterilise these yuan and control inflation. (Pay attention, Eurozone.)
Again hat tip to the indispensible FTAlphaville blog. On China and the prostitution industry: in a land where it is unwise to depend on the legal systsem, other mechanisms of creating trust between business partners and local authorities must be found. Apparently the solution is group trips to brothels: “And when it comes to building up mutual trust, the photos often taken during these miniature orgies provide a rich source of mutual blackmail material that can prove explosive if exposed.”
From 2013, an article on how de Tocqueville’s L’ancien regime et la revolution – key quote: “the most dangerous time for a weak government is when it sets about reforming itself” – is a bestseller in China, with Li Keqiang personally recommending it to his colleagues
Linden, Kraeler and Dedrick (2007) find that China adds $3.70 to the value of an iPod, compared with Apple’s profit margin is $80, for an iPod at that time. I imagine China’s share has increased a bit in the eight years since. High technology manufacturing is a top strategic priority for the government. But here is an example of a more general phenomenon: an environment where skills, capital and demand coincide, to create a productivity leader.
Mark Pettis teaches at Beida (Peking University), and he can go on a bit. The key part is that in China if you lower interest rates, Aggregate Supply may rise faster than Aggregate Demand, causing deflation/disinflation. Read that sentence again.
The mechansim is that most lending is done to businesses, and lowering interest rates will mean they have cheaper credit and can build more capacity. Meanwhile, interest from savings are quite important for consumers (what with China’s high savings rate). If savers receive less they will spend less.
This is worth worrying about. If the Fed or the ECB eases monetary policy, it forces China to respond to protect its exporters. But if you think that the root cause of the Great Recession/Stagnation is that Global aggregate supply has been rising higher than Global aggregate demand for the past fifteen years (and everything that has happened is just swapping these two between different countries), this means monetary easing will not help.
And finally (from Pseudoerasmus). The Tang empire borders extend too far. They never controlled that much of Vietnam and Manchuria at the same time. (And Manchuria only through tributaries.) But understand and reflect: we have very good census data for China going back two millenia.