Archive for the ‘Economics’ Category

How to make enemies and alienate people…

October 6, 2014

Here is the FT op-ed I wrote over the weekend. It just went live on their online edition.

Can’t say it is likely to get me many tycoon dinner invites, but I do think it is true:

 

 

October 6, 2014 5:14 pm

Hong Kong should focus its fight on the tycoon economy

The real target is the anti-competitive, anti-consumer economy, writes Joe Studwell
A woman holds a placard at a large pro-democracy protest in Hong Kong on October 1, 2014. Hong Kong has been plunged into the worst political crisis since its 1997 handover as pro-democracy activists take over the streets following China's refusal to grant citizens full universal suffrage. AFP PHOTO / ALEX OGLE (Photo credit should read Alex Ogle/AFP/Getty Images)©AFP

Hong Kong stepped back from the brink on Friday night, when chief executive CY Leung belatedly authorised a senior official to “hold talks” with protesters and those same protesters decided, for now, not to enter government buildings. It was a fortunate outcome. Beijing would characterise the occupation of official property as an attack on the Chinese state.

What Hong Kong needs is not a strategy that backs Xi Jinping, the Chinese president, into a corner, but one that resonates with his own mindset. This is why the protesters should refocus on Hong Kong’s tycoon economy, and the anti-competitive, anti-consumer arrangements that define it. You may think,like the Heritage Foundation, that Hong Kong is a free market. However, except for external trade, it is not. Instead it is what one of the richest men in the city once described to me as “a nice bowl of fish soup”. That soup is fed to the few, making ordinary people poorer, stoking resentment, and indirectly contributing to acute pollution.

Cartels are everywhere in Hong Kong. Supermarkets are a duopoly, one whose pricing power allows the chains to charge higher prices for the same products in some of Hong Kong’s most deprived areas. Drug stores are a duopoly. Buses are a cartel: high-priced, mostly cash-only, running shoddy, dirty diesel vehicles with drivers who earn a pittance. Electricity is provided by two, expensive monopolies that handle everything from generation to distribution, one on Hong Kong island and the other in Kowloon. The container ports are an oligopoly, with the world’s highest handling charges. Yet they will not supply onshore electricity to vessels, which must instead run diesel generators that pollute the city air.

The biggest stitch-up remains the lousy construction standards and sky-high costs in a residential property market dominated by the “Four Families”, which in the 1990s were estimated to be selling property for between two and four times what it cost to develop.

You may think of the territory as a free market but, except for external trade, it is not

Add in the jiggery-pokery of a Boys’ Own stock market with 1970s-style governance, and a taxation system that tycoons circumvent by taking out their money through tax-free dividends, and you begin to get the picture.

Hong Kong has had a Competition Ordinance and a Competition Commission since 2012. But so far nothing has changed. In a striking contrast with mainland China, where the Communist party after 1989 first increased transfer payments to the urban poor, and then increased transfers and cut taxes for the rural poor in the 2000s, the Hong Kong government lets a colonial rentier economy carry merrily on.

Mr Xi launched his new administration with not only a brutal anti-corruption campaign, but also an anti-monopoly drive. Unfortunately he seems unaware that Hong Kong is at least as rigged as the mainland.

So here is a plan. Speak to Mr Xi in terms he understands. Refocus the protests on the cartels. I am no protester, but it is not hard to think of peaceful tactics that would be difficult for the tycoons to ignore as they sweep into their basement car parks and ascend in private elevators to their penthouse offices. Where possible, boycott the cartels.

Would this be the end for the tycoons? Not at all. In my experience they are people of extraordinary entrepreneurial acumen. Like all of us, they enjoy a capacious free lunch. But if that is taken away they will adjust and add more value to the economy by doing so.

It is time for Hong Kong to work for the majority. If the protesters make Mr Xi understand the economic problem, it becomes easier to compromise on the politics – probably with a more open nomination process in 2022. I hold, perhaps wrongly, that Beijing’s intransigence is born of ignorance, not malice.


The writer is author of ‘How Asia Works: success and failure in the world’s most dynamic region’

 

More:

This just went up from Han Donfang. Very much worth a read. The lead explains who he is if you do not know.

And here is a nice piece from The Age about CY Leung trousering US$7m during the sale of his insolvent firm. Now that is leadership.

Actually Dave, you are still rubbish

October 1, 2014

This feels cruel. But I have read Cameron’s ‘greatest ever’ speech to today’s party conference, and it is not very good.

Here is a late-night attempt to parse it and to translate it into plain English (pace Boris, who I don’t much like either).

 

Cameron puffycameron on housing estatecameron hague osborne

 

 

The full text is here.

1. ‘William Hague…greatest living Yorkshireman.’ Obviously not true. I plump lazily for David Hockney. Does he vote Tory?

2. ‘I am not a complicated man.’ This is the problem, Dave.

3. ‘I believe in some simple things.’ You mean simplistic things. File under ‘Farage’.

4. ‘It’s pretty simple really.’ No it is not. See above.

5. ‘The highest employment rate of any major economy.’ Try: the lowest productivity gains of any major economy.

6. ‘£25 billion is actually just 3% of what government spends each year.’ He is talking about proposed new welfare savings. The truth: yes, but you have already backloaded the cuts you promised in this parliament into the next parliament so you would need cut at least double what you are saying. It is undoable short of civil war.

7. We have a new new policy called ‘Starter Homes’. Dave, you are already providing this subsidy. It is growth by asset inflation. It is not sustainable in the absence of productivity gains. Ask George, at least he took a 101 economics course.

8. Some stuff about ‘My 3 young kids go to prole school, we are all in it together.’ Yes, Dave, but not for long. You will move them out of the National Education System at 13 and do your bit in undermining the Big Society you claim to represent.

9. The £41,900 tax-free plus lower-rate threshold will rise to £50,000. Already dealt with in today’s earlier blog post. As I said in the update it is somewhat devious/sloppy accounting. But the main point is that it is undeliverable in combination with a rise in the tax-free rate to £12,500 and all the other stuff that you and George have promised/are promising. George has already reneged on his deficit cutting plan so many times I cannot count and is now running the original Alastair Darling plan. It begins to seem as if all you care about is power, Dave, not honesty.

10. Ed Balls is… ‘a mistake’. This is in fact true.

11. Tristram Hunt, the shadow education secretary, went to a private school but does not agree with the existence of private schools in an optimal education system. That makes him — here is the key term — a ‘hypocrite’. No it doesn’t, Dave. It makes you either a retard or a liar. At least George has the dignity to send his kids to private school the whole way through and publicly not give a fuck.

12. ‘I’ll tell you who we represent.’ No, I will. The ignorant, the angry, the greedy, and people who are having a nice time and don’t notice the world around them.

13. ‘From the country that unravelled DNA…’ DNA was unravelled in Cambridge, not Oxford, Dave, and nobody here votes Tory.

14. ‘It’s about getting people fit to work.’ Exercise for poor, fat cleaners, Dave. Exercise for poor, fat cleaners.

15. ‘Our crime-busting Home Secretary, Theresa May.’ Imagine any Tory Home Secretary as your next-door neighbour. I fucking dare you.

16. ‘I know you want this sorted out so I will go to Brussels.’ Why not just say it: ‘I can’t speak a foreign language — bit like Farage — and I don’t understand history. Even if I like holidays in Italy, they are still wogs.’

17. ‘Our parliament… the British parliament.’ It was created to curtail the antics of inbreds like you. Best not mentioned.

18. ‘If you want those things, vote for me.’ You are going to lose, Dave. You will then spend the next 10 years wishing you had had bigger balls, and ideally a bigger brain too. George will visit you.

19. ‘Our exports to China are doubling.’ Dave, I am losing the will to live. Look at the baseline.

20. ‘I don’t claim to be a perfect leader.’ Ok, all is forgiven. Emigrate.

 

Amazing that it should be 20 things.

I am going to bed and not reading this through, so apologies for typos.

 

Later:

A pretty funny video of Brave Dave following his speech has been posted to Youtube. Here it is. 1.2 million hits already. It contains profanity.

Brave Dave gets his mojo back

October 1, 2014

Cameron 1014

 

Dave Cameroon just gave his Tory party speech. After his imperial weights moment, he is back on form. Cometh the hour, cometh the Etonian.

* £12,500 zero income tax threshold (up from £10,000 in fiscal year 2014-15).

* £50,000 40% income tax threshold (up from £31,866 plus £10,000 tax-free in fiscal year 2014-15). [See update on this.]

Both ‘in the next parliament’.

Just one problem.

It is totally and utterly unaffordable by any rational analysis of the numbers. If you are vaguely economically literate, work your way through these slides from the Office of Budgetary Responsibility. Note that this was a personal presentation by Chairman Chote, and does not reflect any OBR ‘line’. But the numbers and the trend lines are the hardest ones we have. I guess that Brave Dave hasn’t seen them.

Off the top of my head, Brave Dave’s election-pitch cocktail would require GDP growth over 4%, no increase in the cost of borrowing, and further massive cuts to welfare in order to meet the Fat Controller’s debt load targets.

Now breathe in and savour the moment.

Pure Tory Bullshit.

You have got to love it.

But will you vote for it?

 

CHOTE SLIDES1  (pdf. Should open up)

CHOTE SLIDES2  (powerpoint. Should come to you as a download)

 

Update:

I hadn’t read Cameron’s speech directly, relying on Guardian coverage. After a couple of emails I now realise that part of Cameron’s putative higher rate threshold increase is spin. Unlike HMRC, which states tax bands separately (for good reason because there is no single tax-free band at the bottom, it varies slightly for different groups) Cameron’s promise of a £50,000 threshold for the 40% rate is actually a two-band sandwich — the main tax-free band, plus the up-to-40% band. So it has to be compared with fiscal 2014-15’s £10,000 tax free (the standard exemption) plus the current £31,866 40% threshold.

Still, I am not changing the text above. The cuts are undeliverable without completely fanciful assumptions about growth, interest rates and how much more welfare can be cut without widespread civil unrest. And, yes, that is even if Cameron were to wait until the final year of the next parliament, 2020, to deliver the cuts.

What is truly revolting about the Tories is that you could, just about, begin to get towards reasonable assumptions for these cuts — which millions of people would welcome and benefit from — if you increased the two rates of capital gains tax (currently 18% and 28%), and introduced some level of capital gains tax on sales of first homes. But this government, just like the Blair one, is committed to taxing capital less heavily than work. What kind of message does that send to society?

More:

Well I wrote this on 1 October and on 9 October the FT runs a column saying exactly the same thing, also citing OBR numbers. Here it is, but you will need a sub. Of course, the FT is more polite than me, merely accusing Cameron of ‘arrogance’, ‘deceit’, and ‘cooking the books’.

More on 10 November 2014:

The FT has now run a deeper analysis of the OBR numbers, plus latest Treasury receipts, and concludes that to meet Osborne’s austerity targets welfare cuts will have to be massively increased from 2015. This contrasts with recent comments by Brave Dave Cameron — who is either very stupid or a brazen liar — that the worst of austerity is over. In reality, only half of the cuts promised by Osborne have been made. It is all here in the FT, but you will need a subscription. Cameron and the Fat Controller were also told in July by the International Monetary Fund that the UK has no apparent choice but to raise taxes from 2015. And Cameron and the Fat Controller have more recently been severely criticised by the Institute for Fiscal Studies (FT sub needed) over their constant efforts to diddle the numbers.

Tribute in the bag

August 8, 2014

image

Thailand’s latest junta, the National Council for Peace and Order (aka National Council for Underdevelopment as Usual), has confirmed it is committing to a US$23 billion high-speed rail investment. Beyond this I can find very few concrete details. But the expectation is that much of the construction work, as well as the rolling stock, signalling equipment, and even quite basic industrial inputs will be supplied by China. Late last year, before the junta got rid of Thaksin’s little sister, Chinese premier  Li Keqiang was down in Bangkok doing the hard sell. When the junta boys grabbed the reins of power they made a show of putting the deal that was then shaping up on hold. But a few months later it is back in play, albeit possibly with some cuts to the project specification suggested by this Bangkok Post article (see the references to lower speed services).

Although we know nothing of the Chinese financing terms, it looks like the Celestial Empire has done an effective number on its traditional south-east Asian tribute states. First they leaned on the Laotians, the poorest and most biddable group, to agree to the first leg from Kunming through their territory. Now they have the Thais in the bag. Officially, the Malaysians say high speed rail is too expensive for them. But my guess is that the Malaysian government will fold once construction starts on the Kunming to Bangkok legs and sign a deal. The Chinese an easily twist their arms by threatening to buy their palm oil and gas somewhere else. (When I saw Mahathir late last year in KL he told me that he personally he is already in favour of a Chinese high-speed deal, so Beijing has one still-loud voice singing its song already.)

Who is all this investment good news for? It is good news for China’s rail equipment and rail construction firms, into which Beijing has sunk vast sums in order to master high-speed rail technology. And it is good news for bourgeois types like myself, who want fast, clean travel between their preferred Nanyang beaches and mountain retreats and the panda lairs of south-west China.

But we shouldn’t pretend it is good news for south-east Asian economic development. By the time there is a high-speed link all the way from Kunming to Singapore — which could now easily be completed within 10 years — the projects will have cost at least US$60 billion in today’s money. That expenditure will have done almost nothing to increase south-east Asia’s grasp of manufacturing technology, or even its project management capacity, because all the value-added goes to China. At a time when south-east Asia desperately needs to increase manufacturing employment to provide jobs for countries’ young populations, the China high-speed rail deals instead reveal the developmental bankruptcy of regional politicians. Their only strategy in addition to being a proto-colonial resource base for China, is to become a tourist destination for a new Chinese middle class.

 

More

This from Geoff Wade at the Australian Strategic Policy Institute, though I am not convinced all the numbers quoted are accurate.

Jokowi, thankfully

July 27, 2014

This week’s confirmation that Jokowi won the Indonesian presidential election is a relief. The alternative was an administration under Prabowo and his band of western-educated, elitist carpet-baggers.

Indonesia avoided the negative outcome. But it cannot be said that Jokowi guarantees a fundamental change of direction, as many foreign journalists would like to believe. Jokowi is beholden to the PDI-Struggle party of Sukarno’s daughter Megawati, and to the network of Vice President Jusuf Kalla, themselves different stripes of the Indonesian establishment.

Nor does Jokowi have a policy agenda. He stood as an ordinary person who is not corrupt. But a government that rules relatively cleanly and a little more efficiently will be nothing more than a reprise of SBY’s first term, before the ex-general’s team was consumed by corruption-as-usual.

The real game changer in Indonesia would be a manufacturing strategy that creates more semi-skilled employment opportunities and develops indigenous technological skills. An infrastructure build-out would complement this by creating demand for domestically-manufactured inputs. But such a policy shift is probably too much to expect. Since the Asian crisis and IMF intervention Indonesia has settled on a consumer-focused banking system and a proto-colonial raw material export economy. There are lots of vested interests that surround this arrangement. It would be a very big surprise if Jokowi were to upset the IMF’s apple cart.

Choosing poverty

July 2, 2014

Egypt’s General el-Sisi is retaining Tony Blair to advise on economic development. The bill will be picked up by offshore financial centre, the United Arab Emirates. A supporting act will be played by what used to be called Booz and Co., now comically rebranded as Strategy&.

The failure of the Arab Spring in Egypt is complete. Get ready for more poverty, more underdevelopment, and a few multinational companies picking off choice contracts. And then, of course, there is the continuing terrorism that all this implies.

If General el-Sisi wants a book by a general about the basics of effective economic development, he can get a copy of Park Chung Hee’s Our Nation’s Path, and preferably The Country, the Revolution, and I as well, from a decent second-hand bookseller. Indeed there is/was a tattered copy of both, plus Collected Speeches, here for US$33.

On reading these slim but cogent volumes, General el-Sisi would realise the first thing he needed to do was to get rid of Blair, the UAE and Strategy&. Ideally, he’d let Blair come over and then lock him away, thus protecting the rest of the Middle East.

But of course el-Sisi will do no such thing because he’s not in the business of developing the Egyptian economy. He’s in the business of Egyptian business as usual, and killing to that end. Tony’s advice on the Mayfair property market may well be useful.

But mind the bomb.

Visibility on Xi / Heineken government

July 17, 2013

Xi Jinping close

There has been a lot of good quality think-tank and media stuff in the past few weeks about what the new Chinese president Xi Jinping may be thinking and planning. Since what his government implements in the next two to three years will largely decide how far China can go with its developmental project, I am posting some highlights here.

The big lacuna, for me, is that there is no similar debate about what premier Li Keqiang may be thinking and planning and what his capacity to act (semi-) independently of Xi may be. Premiers are also important in the Chinese system and, from time to time, you get ones like Zhao Ziyang or Zhu Rongji who define an era more than the president. Anyhow, the Li side of things is not much addressed here.

 

The background

Recall that Obama did two days of unscripted discussions with Xi in California in June in an effort to find out what is happening in Xi’s head. My sense is that Obama didn’t get a very clear view.

 

1. Francois Godemont’s essay Xi Jingping’s China, published by the European Council on Foreign Relations. Godement has Xi as the new Chinese Big Man, streamlining the bureaucracy and limiting corruption but doing almost zero at the institutional development level. I found this sort of interesting but not compelling in the sense of really giving visibility.

The blurb says Godement argues that:

  • Xi has accumulated more power and more personal authority than any leader since Mao Zedong. His top-down approach will probably leave little room for major political reform or economic liberalisation; his “hardline modernisation” approach seeks instead to combat behaviour such as corruption and loose credit.
  • The economy is the one area where Xi doesn’t seem fully in control. The price he has paid for broad support from party elders and conservatives is also an endorsement of major vested interests, which will constrain those arguing for major economic reform.
  • Xi is ignoring his predecessors’ “low profile” approach to foreign policy, and claims a role for China as a global power. Xi seeks strategic parity with the US while its regional approach is based upon China’s superior strength.

“Xi Jinping is pursuing a neighbourhood policy based on strength in which China subjugates small countries while building a “big power” relationship with the US. Xi seems to want to combine 19th century geopolitics with 20th century Leninist politics, in order to gain the upper hand in the globalised 21st century world.” François Godement

….

2. Here is a resume of what Tim Summers at Chatham House in London thinks we know so far. Again, the expectation seems to be that we are not going to get significant institutional reform or indeed incremental moves in the direction of political pluralism. However the author sees moves in social policy areas like environmental degradation as some sort of half-way house between pure economic reform and more politically sensitive reform. This would have some echoes in 1970s Japan or 1980s Korea. (There is a reference to me at the end. I don’t know Mr Summers.)

China’s Current Reform Agenda

by Dr Tim Summers, Senior Consulting Fellow, Chatham House

There is an ongoing debate about reform in China which centres around questions of how far and how fast reform – political and economic – might go.Political reform – at least in most western discussions – encapsulates the possibility of changes to China’s political system. Under the country’s new leaders there is little sign of fundamental shifts so far, though there are campaigns to clean up the bureaucracy and make the Party-state more responsive.Economic reform is often reduced to greater marketization and a reduction in the state’s role in the economy. This has been prompted partly by a sense that state-owned enterprises have become too powerful, that the private sector has insufficient space to develop, and that factor markets are still too much in the hands of government officials.

Reform in motion

The coming months will see further debate, inside and outside China, about what sort of reforms China’s new leadership might consider. President Xi Jinping confirmed to Barack Obama in California in June that the Party machine was working on a medium and long-term policy plan for comprehensive economic reforms, and precedent suggests that this will be unveiled at this autumn’s Party Plenum.In fact, the new leadership has already set in train some elements of a reform programme. At the National People’s Congress (NPC) in March it was agreed that the railways ministry would be reduced to a policy administration and its operations would be fully corporatized. Other changes to government structure included the establishment of a new, stronger agency for food safety, symbolic of the desire to respond to growing popular concerns.After a meeting of the State Council (cabinet) in May, a subsequent policy document set out the most comprehensive statement of government priorities for economic reform this year since the NPC. Some of these are economic: reforms to the fiscal system, financial sector reform such as further marketization of interest rates and internationalization of the currency, encouraging more private and flexible investment, and freeing up the pricing of resources. There do not appear to be plans to shake up state-owned enterprises. Other points address livelihood issues, such as low income protection, ensuring food and medicine safety, and dealing with the environment.The highlight so far is administrative reform, in particular reducing government approvals needed in certain areas and devolving other responsibilities from the centre to the provinces. These reforms amount to making the government more responsive and efficient, but without changing the fundamental political structures. Part of the motivation is to help stimulate innovation and economic efficiency, but there is also a social element in the suggestion that these reforms could improve the delivery of public services.Social element

Less noticed is the extent to which social and livelihood issues feature. Even when it comes to resource pricing, for example, there are aims to differentiate pricing in electricity, water and gas (planned for some time) to support livelihoods.

Indeed, the ‘economic reform’ document for 2013 has as its guiding principle dealing with the state’s relationship not just with the market, but also with society. A reference to ‘reform dividends’ benefiting people ‘more justly’ highlights the social element. This is not a manifesto for economic efficiency alone.

Social issues have also been prominent on the agenda of the State Council, under new Premier Li Keqiang. According to official accounts of its meetings, major issues discussed over recent months include air pollution, developing the solar panel industry, safety in (industrial) production, providing safe and high quality milk powder, managing the agricultural sector to ensure supply and stable prices, and dealing with the earthquake which hit Sichuan in April.

A social policy emphasis makes a lot of sense. While economists and investors have stressed their desire for market-oriented economic reforms to improve efficiency, from a political perspective the most pressing issues the leadership faces are social and popular concerns.

There were hints of this as soon as Xi Jinping took over from Hu Jintao as head of the Chinese Communist Party back in November. Xi’s first public comments highlighted people’s desire for ‘better education, stable jobs, more income, greater social security, better medical and health care, improved housing conditions and a better environment’.

All of this suggests we should rethink the way we understand ‘reform’ in the Chinese context. Social, or livelihood, issues are at the forefront of Chinese policy making. And economic reform does not just mean the economics of efficiency (to borrow a phrase from Joe Studwell’s How Asia Works), but also addressing social and livelihood issues through the economics of equity.

3. Kerry Brown, once of Chatham House, now based in Australia, has some nice bullets on what we may know about Xi. The final bullet is one I think I would have gone for. What interests me most is to understand the mechanics of the political tendency to increasing consensus and conservatism in fast-developing states. Is it just the effect having more money that encourages politicians to buy off constituencies and avoid confrontation for as long as possible?

The New Leadership in Beijing: Political and Economic Implications

Evidence to Parliament
Kerry Brown, July 2013

This is a submission to the Foreign Affairs Committee, House of Commons, on 2 July 2013.

  • China’s new leadership is one of political scientists, historians, economists, lawyers and social scientists. The era of the technocrats has come to an end.
  • This is a leadership set up for a domestic agenda and that will resist attempts to pull it more deeply into international affairs, which are seen as lying beyond what the elite define as in China’s national interests (preservation of stability, building up economic strength, safeguarding sovereignty), despite the very real pressures that will be put on it to that effect.
  • They view international relations in a more emboldened way than their predecessors, and show their awareness of their country’s new economic status and how this needs to be reflected in how the world talks to and engages with China.
  • Underneath the bolder presentation of reformist intention towards corruption, economic policy and use of political language, the Chinese Communist Party in the 21st century lives with the paradox that a movement founded in revolution has become, in its seventh decade in power, self-preserving, highly cautious, led by people with remarkably little diversity, and extremely conservative.

4. Michael Komesaroff is a thoughtful commodities specialists who writes the Metal Man column in the China Economic Quarterly. I am not posting his presentation because you should register at his Urandaline site in order to get it. However it, and other useful things he posts, are free. Who said that Australians are tighter than Scots? Here is his blurb.

After Hu: More of the same, is the title of a presentation I made in April to the Sydney based clients of UBS. The presentation develops a theme I have been articulating for sometime, namely that Western observers of China are likely to be disappointed in the reforms they seem to be expecting from China’s new leadership.The presentation includes a positive forecast on China’s need to import greater quantities of iron ore, but this is offset by changes in market power so thermal coal is less attractive. After Hu: More of the same can be found here.

You are receiving this e-mail because some time back you registered at my websitewww.urandaline.com.au to receive notification when additions were made to the site.  At the time of registration these are the log in parameters you chose:

5. A macro-economic aside. In terms of the raw economic problem that the new government faces, this graph from Gavekal Dragonomics is useful. It shows how much nominal growth banking lending produces — in other words a proxy for a pure Incremental Capital Output Ratio. The point is that chucking money around is producing diminishing returns, as one would expect at this stage of development, and so structural adjustment and institutional change are suddenly very important as means to improve Chinese bang-for-buck.

The question is whether Xi and Li do only economic structural adjustment — such as interest rate reform, a revision to the centre-provincial fiscal arrangements in place since 1994, more action on welfare transfers and inequality — or whether they add any institutional medicine from education system to legal system to media to political pluralism modernisation.

….

6. More media-type stuff now. This is an op-ed from Russell Leigh Moses, Dean of Academics and Faculty at The Beijing Center for Chinese Studies, who is writing a book on the Chinese political system.

Xi Jinping’s Rare Scolding of Top Party Leaders (Wall Street Journal)

By Russell Leigh Moses

After telling the lower ranks of the Communist Party to shape up and make a clean break from past practice, Chinese leader Xi Jinping has taken aim at a new target:  the Party leadership itself.

And he’s done so with authority and openness from the highest pulpit of politics in China–the Politburo, the very place where the senior leaders sit and make policy.

In a speech at the conclusion of a three-day special meeting that was covered across Party media and took up nearly half of the evening newscast on Tuesday evening, Xi proclaimed that senior members of the Party needed “to play an exemplary role,” and that they had to be “broad-minded enough to reject any selfishness…to adhere to self-respect, self-examination and self-admonition” in their work (in Chinese).

It’s extremely rare for Politburo proceedings to be spoken of in such detail and openness.  And it’s unprecedented in modern times for the Party boss to start taking swings at his colleagues at the top by so directly reminding them of their responsibilities—a move that suggests he might be planning something even stronger soon.

Having just admonished lower-level cadres in a salvo last week, some observers might think that Xi is simply putting on a show here. After all, it’s difficult to demand improvement in the work-styles of the rank and file without at least paying lip-service to the idea that those at the top could stand to do a little better themselves.

But the tone of Xi’s comments and the play they’ve received in the state media suggest this is far more than just rhetorical window dressing.  It wasn’t enough for high officials to “strictly abide by party discipline and act in strict accordance with policies and procedures,” Xi said. Those at the top must also “strictly manage their relatives and their staff and refrain from abuse of power.”

“The sole pursuit” of senior members of the Party, Xi insisted, should be tied to “the Party’s cause and interests” – in other words, “to seek benefits for the Chinese people as a whole.”

Whether it’s misuse of official license plates or the high-end looting of state assets (in Chinese), Xi knows that corruption is not always confined to lower-level cadres.

Xi was careful to concede that there have been some positive developments in the ways by which the Politburo and other Party bodies operate, such as “improvements in research and reporting.”  Meetings have been shortened and presentations streamlined, “enhancing the majority of party members’ and cadres’ sense of purpose, as well as the view of the masses” towards the Party leadership, he noted.

But it’s clearly morality at the top — not the way that decisions are made — that concerns Xi and his allies the most.   As Xi’s speech noted, “as long as Politburo comrades always and everywhere set an example, they can continue to call the shots, for that will have a strong demonstration effect, and the Party will be very powerful.”

But Party leaders “must follow their own strict requirements first.”

Xi’s reprimand seems to imply that some of them are not.  His predecessors talked about the general threat to Party rule from the evils of corruption; but in nearly every case they chose to scold officials in the abstract, instead of smacking them around.  As with so many other efforts, Xi’s being different.

Indeed, such comments raise the very real possibility that Xi has someone specific in mind – that he could be about to strike against one or more of the conservatives who populate the Politburo and who might be standing in the way of further reforms.

Whatever form the next round of fighting takes, Xi and his reformist colleagues are clearly interested in creating a fresh sort of politics, even at the very top of the system.  This is risk-taking and resolution of a high order–and it brings a real political showdown with opponents of Xi’s brand of reform all the closer.

7. And this is an op-ed from Ching Cheong, the venerable Straits Times journalist who was locked up in China for three years accused (among other things) of spying for Taiwan. It talks about Xi’s encounter with Hu Dehua, which was referenced above.

海峡时报 (新加坡)

Opinion  |   Others  |   By Ching Cheong, Senior Writer  2013-06-28

Outspoken China princeling takes on President Xi 

 CHINESE President Xi Jinping’s conservative stance on political reform has led to a major split within the princeling community, whose members share a common interest in preserving the ruling status of the Chinese Communist Party (CCP).

Mr Hu Dehua, the third son of the late party chief Hu Yaobang, openly criticised Mr Xi at a seminar held by the liberal magazine Yan Huang Chunqiu in mid-April. It was by far the most severe criticism lodged against Mr Xi since the latter became CCP general secretary last November.

Mr Hu Yaobang was the CCP general secretary from 1982 to 1987. He was known for “liberating” thousands of senior CCP officials purged by CCP founder Mao Zedong. For this reason, he wielded considerable moral strength within the party. Mr Hu Yaobang’s death in 1989 triggered a massive democracy movement in Tiananmen Square that was put down bloodily.

Thanks to his legacy, his two sons, Deping and Dehua, stood out as symbols of political reform amongst the princelings.

Before Mr Xi became CCP chief last November, he let it be known that he paid a visit to Mr Hu Deping and had a long chat with him. Many considered this an attempt by Mr Xi to build an image as an enlightened leader.

Now, however, Mr Xi has been taken to task by Mr Hu Dehua.

He started with Mr Xi’s speech to party colleagues during his southern tour early this year. In it, the President stated that the Soviet Union collapsed because the party had disarmed itself by allowing the army to be loyal to the country rather than the party. “One lesson to draw is that we should forever grasp firmly the gun and not to disarm ourselves,” the President said.

Mr Xi also lamented that when the country faced disintegration, given the size of the Communist Party of the Soviet Union (CPSU), there was no one “man enough” to come to its defence.

To refute him, Mr Hu Dehua cited Russian Communist Party leader Gennady Zyuganov’s view that the Soviet Union collapsed because the CPSU had monopolised resources, political power and truth. “If this was the case, then there was nothing to regret if the Soviet Union or the CPSU collapsed,” he said.

Mr Hu Dehua then hinted that Mr Xi had misread the reason for the collapse of the CPSU. Mr Hu cited a CCP document of July 14, 1964, entitled On Khrushchov’s Phoney Communism And Its Historical Lessons for the World, saying that there emerged in the Soviet Union a privileged class represented by the CPSU.

“The members of this pivileged stratum have converted the function of serving the masses into the privilege of dominating them. They are abusing their powers over the means of production and of livelihood for the private benefit of their small clique,” the document said.

“The members of this privileged stratum appropriate the fruits of the Soviet people’s labour and pocket incomes that are dozens or even a hundred times those of the average Soviet worker and peasant. They not only secure high incomes in the form of high salaries, high awards, high royalties and a great variety of personal subsidies, but also use their privileged position to appropriate public property by graft and bribery. Completely divorced from the working people of the Soviet Union, they live the parasitical and decadent life of the bourgeoisie,” said the document.

Mr Hu Dehua pointed out that this was the real reason for the collapse of the Soviet Union. Turning to present-day China, which was plagued with problems similar to the Soviet Union’s, he said pointedly: “We blame everyone else, but never try to find problems from within. Is this a correct attitude?

“Why can’t we learn from the Kuomintang (in Taiwan), reform ourselves and get elected, basing our legitimacy on people’s authorisation and not on guns and cannon?” Mr Hu Dehua asked.

He then queried Mr Xi’s remark that no one was “man enough” to save the CPSU. “What does it mean by ‘man enough’?” he asked.

“Driving third-generation battlefield tanks against your own people is ‘man enough’? Or resisting orders to kill your own people and opt to face martial court instead?” he asked.

“When the ruling party faces a crisis, there are two options: to suppress the opposition or to reach reconciliation with the people,” Mr Hu Dehua said.

“We should learn from the experience of Chiang Ching-kuo (the late Taiwanese President who scrapped martial law). Be bold enough to reflect on the Feb 28, 1947 incident (where demonstrators were bloodily suppressed) so that historical pains could be redressed without bloodshed, revenge or purges.”

Clearly, Mr Hu Dehua was referring to the Tiananmen incident.

He then turned to Mr Xi’s latest assertion that one should not use post-reform history to negate the pre-reform years.

Mr Hu argued that without turning its back on the traumatic Cultural Revolution (1966 to 1976), the CCP could not embrace reform and open the door to usher in a period of prosperity.

“If one should not negate the first 30 years, does it mean that we still have to uphold the Cultural Revolution, uphold Mao Zedong’s purges of senior cadres, including his remark that Mr Xi’s father, Xi Zhongxun, was a counter-revolutionary who used novels as a weapon to conduct anti-CCP activities?”

This last question put the Chinese President in an extremely awkward position.

Mr Hu decided recently to release the transcript of his speech on the Web.

Mr Chen Ziming, a dissident branded as the black hand behind the 1989 Tiananmen incident, speculated that the recent salvos of propaganda attacking constitutionalism might have prompted Mr Hu to take Mr Xi to task.

Mr Hu’s open criticism of Mr Xi also suggests that the princeling community is sharply divided over how to preserve the ruling status of the CCP, especially over whether rampant corruption and widespread unrest can be dealt with without political reform.

Do you feel enlightened? I feel very slightly less in the dark. Rather like thousands and thousands of Chinese cadres, not to mention the general population, who are waiting to find out what Xi4Li3 (a homonym of Heineken’s Chinese name Xi3Li4 – you heard it here first) are actually going to do. I don’t mind a bottle of Heineken. But is that all this nation of 1.3 billion can offer us?

Mutual society robber barons

July 16, 2013

I have had an account at the Nationwide Building Society in the UK for 30 years. I believe that mutual societies offer the best way to serve the retail banking needs of ordinary citizens, and that they could and should do more to provide a working capital lending function for industry. I also believe that Lloyds and RBS, most of the equity in which belongs to the public as a result of the global financial crisis, should be mutualised. Sadly, no one in politics has the cojones to propose this.

Nationwide is the biggest building society in the UK, but the people who run it don’t think much like mutual society types. Mostly they impersonate bankers. Right now they are writing down hundreds of millions of pounds of bad loans from their speculation in commercial real estate activity pre-2008. Commercial real estate is a notoriously cyclical sector in which a mutual society has no business playing with its members’ money. The management is only able to pay off this folly because of the state’s provision of nearly free funds via quantitative easing, a policy that will have a fiscal cost for the whole of British society down the road when the Bank of England sells for less the bonds it has bought for more. However the people who run Nationwide are so gormless, or so self-serving, that they believe the profits that QE makes possible reflect their management genius (they being the same people who lost billions in commercial realestate speculation).

So the top boys and girls are paying themselves millions of pounds a year and jacking up their bonuses (details here). They run a bonus structure that operates over periods of 12 months and 36 months when banking cycles in the post-war era have been more like 10-15 years. Are they stupid, or just greedy? I hope they are just stupid.

Whichever, in the Nationwide AGM whose voting closes on the 22nd, I am voting against the remuneration report and the whole miserable lot of them. If you have a Nationwide account I would urge you to consider doing the same thing. If you vote online, do NOT use their immoral and deceptive ‘Quick Vote’ button which lets the chairman vote for you. The chairman, Geoffrey Howe (no relation), trousers £300,000 just for chairing the board. If you have read Asian Godfathers, you will be interested to know he is also chairman of Jardine Lloyd Thompson, which is the modern incarnation of the insurance business of the Keswick/Jardine godfather family of shafting minority shareholder fame…

Nationwide on your side

Weekend reading and viewing

July 13, 2013

1. First up, a farewell piece from Evan Osnos, China correspondent of the New Yorker. All about his poet bin-man friend.

A BILLION STORIES

POSTED BY 
Osnos-qi-290.jpg
In my neighborhood, near the Lama Temple, the men and women in fluorescent orange jumpsuits work for the district sanitation department. Many are migrant workers from the countryside; they sweep the alleys, clean the public restrooms, and collect the trash. Some wear straw farmers’ hats that cast a shadow across their faces, and, I admit, the matching uniforms make it difficult for me to keep them straight. I don’t know if there are three of them or thirty.
One afternoon not long ago, I was chatting with my next-door neighbor, a retiree named Huang Wenyi—a proud Beijinger, born and raised—when one of the sweepers in an orange jumpsuit wandered by. He had tousled hair, sun wrinkles around his eyes, and a smile of jumbled teeth. He approached and pointed to a gray flagstone at our feet. “Can you see the emperor on that rock?” the sweeper asked.
I thought I’d misheard. He said, “I can see an image of the emperor right there on that rock.”
Huang and I looked at the rock and back at the sweeper. Huang was not interested. “What are you bullshitting about?” he asked. “You have no idea what you’re talking about.”
The sweeper smiled and asked, “Are you saying you think I’m not a cultured man?”
“What I’m saying,” Huang said, “is that you’re not making sense.”
The sweeper gave him a look, and turned, instead, to face me. “I can look at anything, and pull the essence from it,” he said. “It doesn’t matter how ordinary something is; in my eyes, it becomes a treasure. Do you believe me?”
Huang was irritated: “Old man, I’m trying to have a chat with our foreign friend here. Can you not disturb us, and go back to your work?”
The sweeper kept talking—faster now, about ancient Chinese poetry, and the great modern writer Lu Xun—some of it too fast, and the references too obscure, for me to understand. He sounded somewhere between interesting and bonkers. Huang had had enough, and he poked fun at the man’s countryside accent. “Come back after you’ve learned to speak Beijing dialect,” he said.
Under his breath, the sweeper said, “As long as it’s a dialect of human beings, it’s legitimate.” But Huang didn’t hear him. He’d waved him away and wandered into his house.
I introduced myself. The sweeper’s name was Qi Xiangfu. He was from Jiangsu Province, and he said he had come to Beijing three months ago. Why did you come, I asked.
“To explore the realm of culture,” he said grandly.
“What kind of culture?”
“Poetry, mainly. Ancient Chinese poetry. During the Tang Dynasty, when poetry was the best, every poet wanted to come to Chang’an,” he said, invoking the name of the ancient capital, the predecessor to Beijing. “I wanted a bigger stage,” he said. “It doesn’t matter whether I succeed or fail. I’m here. That’s what matters.”
It was getting late; before I went inside, Qi said he had competed in poetry competitions. “I won the title of ‘Super King of Chinese Couplets.’ ” In his spare time, he had taken to hosting an online forum about modern Chinese poetry. “You can go online and read about me,” he said.
That night, I typed his name into the Web, and there he was: Qi Xiangfu, the Super King of Chinese Couplets. In the photo, he was handsomely dressed in a bow tie and a jacket; he looked young and confident. Chinese poems are hard for me to understand, and many of his, especially, were impenetrably weird. But I appreciated some moments of grace: “Earth knows the lightness of our feet,” he wrote. “We meet each other there / Between heaven and earth.”
To my surprise, the more I searched about Qi Xiangfu, the more I found of a life lived partly online. He once wrote a short memoir, in which he described himself in the third person, with the formality usually reserved for China’s most famous writers. He wrote that his father died young, and Qi was raised by his uncle. He wrote, of himself, “The first time Qi read Mao’s poem ‘The Long March,’ he resolved that Mao would be the teacher to show him the way. Later, he studied the poetry of Li Bai, Du Fu, Su Dongpu, Lu You, and others, and he made a promise to himself: Become a master of literature.”
He described the first time he ever presented one of his poems to a large group—it was played on a speaker at a construction site—and he described a bus trip in which he met, as he put it, “a girl who sympathized.” They married and it “ended his life of vagrancy.” There were hints of trouble in his life—at one point, he wrote a plea for donations, saying, “Alas, Comrade Qi is having a difficult time”—but something in the spirit of his online persona captivated me.
So much of it was impossible just a few years ago: the journey to the city, the online identity, the interior life so at odds with the image he projected to the world. When I first studied in China, seventeen years ago, the Internet was only a distant rumor. It had reached China two years earlier, but hardly anyone had access. When I brought a modem from the U.S., and tried to plug it into my dorm-room wall in Beijing, the machine emitted a sickly popping sound and never stirred again.
When I moved to Beijing, in 2005, to write, I was accustomed to hearing the story of China’s transformation told in vast, sweeping strokes—involving one fifth of humanity, and great pivots of politics and economics. But, over the next eight years, some of the deepest changes in the lives around me have been intimate and perceptual, buried in daily rhythms that are easy to overlook. A generation ago, foreigners writing about China marvelled most at the sameness of it all. Chairman Mao was the “Emperor of the Blue Ants,” as a memorable book title had it. But in my years in China, I have been seized most of all by the sense that the national narrative, once an ensemble performance, is splintering into a billion stories.
Living in China at this moment, the stories bombard you with such fantastical vividness that you can’t help but write them down and hope to make sense of them later. Writing about China, in The New Yorker, for the past five years, I’ve tried to capture something of this age, to grab a few of these stories out of the air before they slip by. The complexities of individual lives blunt the impulse to impose a neat logic on them, and nobody who stays here for some time remains certain about too much for too long. To impose order on the changes, we seek refuge, of a kind, in statistics. In my years here, the number of airline passengers nationwide doubled; sales of personal computers and cell phones tripled. The length of the Beijing subway quadrupled. But the longer I stayed, the less those impressed me than the dramas that I could never quantify at all.
On Sunday, my wife, Sarabeth, and I are flying out. I’ll be on leave for the next couple of months, wrapping up a book about a few individuals I’ve come to know in China. It will be published next spring, and I’ll be saying more about that later. I’ll resume writing for the magazine this fall, based in Washington, D.C. China is not leaving my blood stream; I’ll be back to write pieces, and, in between, I’ll be writing at Daily Comment and elsewhere about how China looks from afar.
Since we launched this blog, in January of 2009, I’ve written about five hundred posts. This will be the last for a while, and I want to thank you for visiting over the years. There will be much more to come on China on this site, and in the magazine, so I won’t pretend to sum things up. For now, I’ll mention only the fact that returns to me more often, perhaps, than any other: never in modern history has China been more prosperous and functional and connected with the world—and yet, it is the only country in the world with a winner of the Nobel Peace Prize in prison. Contradictions like that have been the essence of this moment.
After I met the street sweeper Qi Xiangfu, I started bumping into him frequently. We swapped phone numbers, and he would send me a poem, now and then, by text message. He typed out the characters on his phone, with the help of a magnifying glass to aid his eyes. Many of his poems were heavy with Communist fervor; others were oracular and strange. But I sympathize with anyone trying to make sense of this place in writing, and I admired his persistence. “I’ve experienced every kind of coldness and indifference from people,” he told me once, “but I’ve also given myself knowledge, all the way up to the university level. I don’t have a diploma. People look down on me when they see me.”
A few weeks ago, Qi told me he had been reassigned to the sanitation department in another part of town; he said he would come back when he could. The last time I saw him, he wasn’t wearing his uniform; he was in street clothes—a crisp white shirt and a black jacket—on his way to see his daughter who worked at a restaurant nearby. He had a book under his arm: “Ten Contemporary Authors of Prose.” For the first time, I saw the two personae, online and real-world, in one. What inspires you, I once asked him.
“When I write,” he said, “anything becomes material. In life, I must be practical, but when I write, it is up to me.”
Photograph, of Evan Osnos and Qi Xiangfu, courtesy of Osnos.
2. Next, a bit of Australian fun. A Kath and Kim movie came out last year. It got terrible reviews, so don’t go see it. However this appearance on Sunrise is pretty funny. Seems like good background to the Ashes series.
3. Next: Oh. Bama! Just to keep piling pressure on the liberal president, here is a Guardian piece about the sale of ambassadorial positions. Sort of Lloyd George goes to Washington. You might want to watch Lou Reed talking about Snowden and Obama again, (if only to watch the put-down of the obsequious female journalist at the end).
4. Now something serious. Christopher Wood, one of the best (perhaps the best) equity analyst in east Asia, doesn’t like his weekly missive reposted. So I am just going to quote a couple of bullets about the income distribution effects of the QE approach to stabilising the global financial crisis. I was banging on about the same thing soon after the crisis hit in 2010 and the QE started:
<The practical way unconventional monetary policies work is to lead to ever more extreme wealth distribution. Wealth distribution would have become much less extreme as a consequence of the 2008 crisis if losses had been imposed on creditors to bust financial institutions in line with capitalist principles, as opposed to the favoured ‘bailout’ approach pursued for the most part by Washington. The ‘great reckoning’ has been deferred to another day as the speculative classes have continued to game the system by resort to carry trades actively encouraged by the Fed and other central bankers. The leverage taken on in such trades is highly risky because of the underlying deflationary trend.>
5. More serious and interesting stuff is Philip Stephens in the FT (sub needed) parsing the Anglo Saxon-created disaster story that is the Middle East.
6. Looking at the Stephens’ canon, I see a piece from June (sub needed) making the case for shutting down the UK Treasury. It would save money and get rid of dangerous incompetents whose follies we, the taxpayers, must finance. I would just add that in shutting the Treasury to save money, government could also shut the Foreign Office, another black hole of self-regarding incompetence. George Osborne is right that we should not waste money. Mainly on people he went to school and university with.
7. Finally, this looks like something useful to do if any UK university students read this blog:
Hi there, My name’s Jonathan Goggs – I’m from an organisation called Team Up, who are establishing a student committee at Cambridge for 2013/14. I would very much appreciate it if you, or one of your colleagues, could circulate the following blurb into an email to all students in the business school, including the enclosed attachments as well. Do let me know if there are any questions from students by responding to this email, or copying me in. “Team Up is passionate about improving social mobility and transforming the prospects of bright young people and we are looking for outstanding university students from Cambridge to join one of our accredited leadership programmes next year. You will be trained in the highly sought-after professional skills to make a genuine difference and empower young people in your community to academic excellence. We believe in developing our university students to foster the skills they need to tackle the UK’s biggest social problem (social mobility) and secure exceptional careers. That’s why, once we’ve processed your application and conducted a short interview, we’ll be running master classes and networking opportunities, in partnership with leading businesses and charities, to give you the tools to lead, inspire and excel. The programme runs for 20 weeks, alongside your degree, and an overview of the year is attached, together with descriptions of the roles you can apply for. Last year our programme partners were Teach First and Bank of America Merrill Lynch and next year we will be partnering with even more organisations in management consultancy, education, social enterprise and finance. Places are competitive, so early applications are encouraged. Over the past two years we’ve received over 2,000 applications and some incredible student feedback – 9 out of 10 students said they enjoyed the programme. At Team Up, we think it’s a tragedy that so many young people are still disqualified from leading universities like Cambridge and fulfilling careers, because they come from low-income, socially disadvantaged backgrounds. If you think the way we do, we’d love to hear from you. To apply, click here.” Kind regards, — Jonathan Goggs Programme Officer | Team Up 18 Victoria Park Square, Bethnal Green, LONDON | E2 9PF E: jonathan.goggs@teamup.org.uk | W: www.teamup.org.uk

Chinese structural adjustment (once more)

July 5, 2013

I am posting two articles from the China Economic Quarterly in 2001, by Tom Rawski and myself, that discussed China’s macro-economic performance during the last ‘structural adjustment’ period, when Zhu Rongji laid off 30 million+ state workers.

The point is that there is a big ‘hard landing’ debate going on just now, as we enter a new structural adjustment period. Rawski showed fairly convincingly in his article that in 98-99 real (as opposed to reported) GDP growth dipped as low as 2-3%. With the benefit of hindsight, this did not, however, lead to economic calamity. Indeed the low growth facilitated structural change as Beijing forced the provinces to adjust local economies to be less wasteful.

No two scenarios are ever the same. However, in discussing what is happening in China today, I think it is useful to look back on that late 90s period before the credit cycle that kicked off in 2002.

Let me know if this link does not work:

Rawski 1998-2000 China data issue

 

More:

FT (sub needed) today has a story on shipbuilder Rongsheng running out of cash. And how they are begging government for money. It reminds how credit starvation is the key weapon in the central government’s arsenal.


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