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Comprehensive and very readable overview of Chinese economy from a China expert, with especially useful discussions on Chinese SOE’s, financial system, and the validity of Chinese economic statistics (spoiler: They’re fine). Learned some interesting new things from it, despite having already read a considerable amount on this topic over the years. However, there are some rather questionable takes that prevent me from giving it a full five stars.


China is an emerging superpower with a nominal GDP at 70% of the US level (130% in PPP terms). The physical correlates of that are illustrated on the cover of this book – as China’s share of the urban population trebled since 1980, cities and megalopolises have sprouted on the sites of former villages (follow Carl Zha to get a a regular visual dose of such transformations). Yet even as China let go of Maoist lunacies and built up the infrastructure and productive capacity of a First World nation over a single generation, it encountered new problems – pollution, inequality, debt – that some pundits have argued will eventually derail its ascent. This book offers a comprehensive account of the story of the world’s most successful major economic growth story after the heyday of the East Asian tigers, and a more realistic background for analyzing China’s prospects.


Interesting/Important Observations
(1) As I have argued in the past, Maoism was a disaster in economic terms – at the end of it, China had a lower GDP per capita than India, despite their human capital disparity. This is not so surprising when one learns that you had a greater chance of dying on the job than getting fired in late Maoist China (cf. “THE CHINESE ECONOMY” by Barry Naughton). It made the Soviet Gosplan look like a paragon of technocratic efficiency. So no wonder that on Mao’s death, the Politburo decided to adopt the proven East Asian developmental state model instead (based on land reform, export manufacturing, and financial repression).
But Chinese practice differed from Japanese and Korean in two key respects.
First, the state played an even more paramount role, with China relying much more on State-Owned Enterprises (SOEs). In contrast, most Japanese banks and corporations were private, and while many of Korea’s banks were state-owned, the chaebols were generally private; interesting, the most state-dominated economy was Taiwan’s, where all the banks were (and still are) state-owned, and many companies were owned by the state or Guomindang (though these were mostly privatized in the 1980s to early 1990s).
Second, foreign direct investment (FDI) played a much greater role. Counter-intuitively, this was because of the East Asian tigers’ security integration with the US. In exchange, the US “tacitly allowed to run mercantilist economies, shutting out foreign companies from their markets even as their own companies enjoyed easy access to the US market.” As Kroeber argues, this was a deal that China was never going to get – “as the price of admission to the US-dominated world trading system, China would need to give foreign companies substantial market access.”

In Taiwan, the move to representative democracy was a strategic choice made by leader Chiang Ching-kuo in the 1980s in response to the US decision to normalize relations with Beijing (and hence sever formal diplomatic ties with Taipei). Chiang believed that in order for Taiwan to retain its autonomy in a region increasingly influenced by a fast-growing China, it had no choice but to align itself as fully as possible with American political and ideological values. Similarly, South Korea’s military dictatorship was tolerated by Washington during the Cold War, but would not likely have outlasted the fall of the Berlin Wall by very long, even had it not crumbled in the face of embarrassing student-worker protests ahead of the 1988 Summer Olympics in Seoul. By contrast, China’s position outside the US alliance structure means that it has no need to accept the liberal-democratic frxwork.
Would they have happened otherwise? And, more importantly – with China conceivably approaching military superiority in the West Pacific within another 1-2 decades and forcing the US to cede control over the region – will Japan, Korea, and Taiwan remain democracies?


(2) Useful chart of China’s power system: Policy largely determined by “leading small groups” tightly lixed to the Politburo (especially under Xi Jinping) – ministries don’t have much power, are largely tasked with implementation.

中国权力体系图表: 政策很大程度上由与政治局紧密联系的“领导小团体”决定——政府部门没有太多权力,主要是执行任务。(略)

(3) Why isn’t China crushing the Hong Kong protesters under tank treads?
Another facet of the FDI strategy was that much “foreign” investment was not really foreign. Nearly half of inbound direct investment has come from Hong Kong, and while much of that may simply reflect the activities of Hong Kong–based subsidiaries of American or European firms, it is clear that Hong Kong firms have been major investors in the mainland… Moreover, as much as a third of China’s reported FDI may in fact be “round-tripping”—investments by Chinese individuals and companies that are routed through companies in other jurisdictions, especially Hong Kong.


(5) More from the Annals of Maoist Lunacy:


(6) While Kroeber doesn’t make the analogy himself, he would clearly agree with Richard McGregor’s argument in THE PARTY that China’s current political economy may be best described as a Leninist/NEPist state. While it has many vigorous small companies, the “commanding heights” of the economy remain state dominated. This includes three of the ten largest companies in the world (Sinopec, CNPC, State Grid), as well as 82 of the 92 Chinese companies on the Fortune Global 500.
Comparison to Japanese and Korean industrial organization:
Chaebol are diversified conglomerates, typically controlled by a founding family. Like keiretsu, they involve extensive use of cross-shareholdings among related companies. Unlike keiretsu, they are prohibited by law from owning banks. This prohibition on bank ownership was a deliberate choice made in the 1960s by the Korean government, which wanted to make the chaebol dependent on credit from state-owned banks and hence responsive to the government’s policy obxtives. … After much experimentation, the system that evolved in China was that of the “business group” (qiye jituan). The business group was first legally defined in 1987, and over the course of the next fifteen years the central government created about two hundred such groups by corporatizing various ministries and production bureaus. …
SOE business groups typically operate within a single industrial sector. This rule is somewhat elastic and most SOE groups have a cluster of investments in sectors unrelated to their core businesses, often in property, travel services, and restaurants. But these investments are generally modest relative to the core businesses. This single-industry focus distinguishes Chinese business groups from the highly diversified Japanese and Korean conglomerates.
Over the years, the SOEs have been steadily reformed:
1. “Grasping the large, letting go of the small” (抓大放小) in 1995, that is, getting rid of the most ineffective and smallest SOEs and holding on to the largest and potentially most competitive ones.
2. Listing commercially attractive assets in a subsidiary on stock markets, while retaining lower-return investments and politically sensitive projects in an unlisted parent company.
3. Creation of State-Owned Assets Supervision and Administration Commission (SASAC) in 2003, which is a government shareholder in ~200 central SOE business groups.
4. There were plans – at least, as of the time of writing – to make SASAC into a purely regulatory body, and transfer ownership to a set of “asset management companies” broken down by major industry sectors (modeled after Singapore’s Temasek).
While the adjustments were occasionally painful, SOE performance did improve: “The average return on assets in state firms soared from 0.2 percent in 1998 to 5 percent in 2007.”

虽然本书mg电子游戏平台没有做这样的类比,但他显然会同意Richard McGregor在《The Party》的观点:中国目前的政治经济可以用列宁主义/新经济政策主义来做最佳描述。尽管中国有许多充满活力的小企业,但中国经济的“制高点”仍由国家主导。这包括mg电子游戏平台十大企业中的三家(中石化、中石油、国家电网),以及《财富》mg电子游戏平台500强中92家中国企业中的82家。


1. 在1995年,“抓大放小”,也就是说,摆脱最无效的和最小的国有企业
2. 让具有商业吸引力资产的子公司上市,同时保留未上市母公司的低回报mg电子游戏平台和政治敏感项目。
3. 2003年成立国有资产监督管理委员会(国资委),是约200家中央国有企业集团的政府股东。
4. 至少在撰写本文时,中国政府曾计划将国资委打造为一个纯粹的监管机构,并将所有权转让给一系列“资产管理公司”,这些“资产管理公司”按主要行业分类(仿照新加坡淡马锡)。

(7) While state ownership in Russia is high relative to the West – even once dirigiste France – it’s nothing out of the ordinary relative to BRICS, as well as South Korea (which I have argued is Russia’s closest analogue in East Asia). Meanwhile, China is clearly the most state-dominated.


(8) One major thing to bear in mind is that while the SOE system have been criticized for producing monopolies, this is inaccurate:
As noted above, a deliberate feature of the SOE reforms of the 1990s was the creation of multiple, competing state firms even in sectors marked down for central control, such as aviation, telecoms, oil, and electricity generation. In less strategic industries the degree of state-sector fragmentation is even greater: in 2011, for instance, there were 880 SOEs in coal mining, 312 in steel, and 264 in nonferrous metals processing. …
One lesson from this experience is that, for countries making the transition from a socialist planned economy to a market economy, full privatization of state assets is not necessarily the critical step, as many economists believed in the 1990s. The indispensable feature of a market economy is not private property but competition. If state assets are privatized but competition mechanisms remain weak, the results will be poor: one just substitutes private monopolists or oligopolists for state-owned ones.
This is a very legitimate point. While China was carrying out intelligent reforms of its SOE sector, the US-worshipping market Bolsheviks in Russia were giving away the crown jewels of the Soviet economy to shady, well-connected characters. This just led to private monopolists replacing the public ones, with a new class of rapacious oligarchs thrown in for free. But at least the Communists didn’t get back into power in 1996 and that’s all that matters.

(10) Despite its status as a “bureaucratic-authoritarian” state (Kroeber’s descxtion), China is also one of the world’s most decentralized economies.
Interesting, this is a legacy of Maoist-era geostrategic concerns:
Decentralization of production partly resulted from China’s immense geographic diversity and its relatively poor transportation lixs. But it was also a deliberate strategy pursued by Mao Zedong, who believed that China’s best insurance against attack by the Soviet unx or the United States was a system that ensured that production of both daily necessities and military equipment could continue even if one or more major industrial area were wiped out.
… though today’s rationale is more purely political-economic:
Unlike Western analysts, who see a fatal contradiction between a dynamic economy and a tightly controlled political structure, Chinese leaders see the two as complementary. Tight political control provides the stability within which economic activity can be decentralized; and the resulting rapid economic growth in turn enhances the party’s legitimacy for having “delivered the goods” of higher living standards.



(11) We don’t actually know China’s TFR – the SPFC claims ~1.6 children per woman, the Census hints at ~1.1. Amused to see Kroeber take a stab somewhere in the middle:


(12) But the really big demographics story in China is the great rural to urban migration, which Kroeber assess as ~2/3 done as of the time of writing. The World Bank estimates that the excess rural labor supply (i.e., workers not needed to maintain the present level of agricultural production) is somewhere around 100 million people. Accounting for future increases in agricultural productivity, somewhere around 120 to 135 million workers are likely to move from country to city between 2012 and 2030—in other words, about half as many as have already made the move. … An important footnote is that while worker migration to the cities will slow down, movement of nonworking family members to the city will probably pick up, as immigration restrictions are relaxed. This could add as many as 100 million more people to the migrant flow by 2030. At that point, China’s total urban population will be about 1 billion, or roughly 70 percent of the total population.
This syncs with my own tallies. Basically, China’s 2030 will be the RSFSR’s 1980 – the point at which the Russian urban population passed 70% of the total, to max out at 73% a decade later. By the middle of the 2030s, I expect a growing trickle of Central Asian Gastarbeiters rerouting to increasingly labor-starved Chinese cities (as they already are from Russia to South Korea).



(13) Interesting to know that Ethiopia (my favorite African country) and Rwanda are the two fastest growing African countries, and the two African countries that have most closely adopted the Chinese model.
Justin Yifu Lin, who established China’s top economic think tank in the 1990s and served from 2008 to 2011 as chief economist of the World Bank, argues that African countries are in a good position to emulate China’s experience of economic development, using state-led infrastructure investment to attract FDI from companies (including Chinese ones) that no longer find China attractive as a site for low-cost manufacturing.19 Two African countries, Rwanda and Ethiopia, have adopted a more or less explicit policy of imitating the Chinese growth model. Over the past decade Ethiopia has been the fastest-growing economy in Africa, with an average GDP growth rate of 11 percent since 2004. Rwanda is not far behind, at 8 percent.
Despite some of the problems highlighted above, Kroeber is certainly no ideologue, and does highlight that life has become much better:
? While China allocates a prodigious amount of GDP to investment, people are still consuming more – consumer spending increased by 7% annually in 1990-2013.
? They have bought the most cars of any country since 2010, and make up the majority of the world’s international tourists since 2012.
? Labor conditions better than in comparable income countries. Child labor is not a major problem like in much of the Third World.
? Social spending is going up as Hu Jintao rebuilt the tattered safety net to replace the old SOE-based welfare system, including nationwide health insurance schemes, free schooling for nine years, and pension scheme coverage from 200 million to 700 million people.
Meanwhile, many problems that analysts cite as potential mines underneath Chinese economic progress are in reality fairly modest and manageable.
Low efficiency of current investments?
lixBookmark These are summed up in a motto frequently cited by one of China’s leading economists, Justin Lin, who attributes it to Premier Wen Jiabao: “When you multiply any problem by China’s population, it is a very big problem. But when you divide it by China’s population, it becomes very small.” … This observation illuminates a common feature of China’s economy in both the Maoist and reform eras: the main goal throughout has been to mobilize resources. Maximizing the efficiency with which those resources are used has always been a secondary concern. This often distresses economists from rich countries, where virtually all economic growth and improvement in living standards comes from efficiency improvements. Visitors to China observe the waste and inefficiency visible everywhere, and often conclude that the economy will soon hit a crisis. These predictions have so far been wrong, not because observers are wrong about the degree of waste, but because they fail to realize that in a country of China’s size, such waste can be irrelevant so long as it is a by-product of an effective process of meeting basic needs.

Nonetheless, Kroeber does later note that with China’s capital stock/GDP ratio approaching rich country levels, there will be diminishing returns from more capital investment. China will have to become more efficient about resource use.
Growth based on unsustainable currency manipulation?
A low exchange rate played some role in China’s export boom, but no more than a supporting one. From 2001 through 2010, when most experts agreed that China’s exchange rate was undervalued, China’s share of global manufactured exports rose by about 1.1 percentage points a year, from 5 percent to 15 percent. In 2010–2013, when China’s exchange rate appreciated rapidly and other costs such as wages were also rising, China still gained about 0.9 percentage points of global market share each year, to nearly 18 percent in 2013.
Degrading environment?
It is, however, worth putting China’s environmental challenges in international and historical perspective. Every country that has grown rich has gotten quite dirty along the way. Today the headlines are filled with stories about toxic smog in Chinese cities and chemical spills in Chinese rivers. It is easy to forget that four decades ago, almost identical headlines were being written about Japan; and that in the 1960s the United States faced severe air pollution problems in big cities like Pittsburgh and Los Angeles, rivers in industrial regions caught on fire, and localities were rendered unfit to inhabit because of chemical pollution.
Finally, nor is Kroeber unduly worried about Chinese debt. Mortgages are unlikely to be the trigger…
The average down payment for a home purchase in China is well over 30 percent and the legal minimum is 20 percent. On average, urban households carry debt that is less than 50 percent of their annual disposable income. This is a far cry from the United States, where down payments of 5 percent or less were common, and household debt peaked at nearly 130 percent of disposable income. This means that even if house prices fall quite a bit, Chinese homeowners will still have positive equity in their homes and will be able to continue paying off their mortgages. China is unlikely to suffer a housing-related financial crisis.





nor a sovereign debt crisis…
Whatever the level, however, a large and rapid increase in debt, such as we have seen in China since 2008, often does lead to financial crisis. But not necessarily. To have a crisis, you need two things: fast-rising debt, and a trigger event that forces shaky borrowers to pay up or go bankrupt. China has the debt, but not the trigger. The classic trigger for an emerging-market debt crisis is an inability to pay back foreign lenders. …
This is obviously not China’s problem. Its foreign borrowings are small—about 10 percent of GDP—and its gigantic foreign reserves of US$3.5 trillion (nearly 40 percent of GDP) give it plenty of ammunition to ward off a speculative attack and preserve the value of its currency. It runs an annual current account surplus of 2 to 3 percent of GDP, meaning that it has more than enough current income to cover its short-term foreign debts.
… nor from weird financial instruments…
The Financial Stability Board, an international group that monitors shadow banking around the world, found that for the entire world in 2013, nonbank assets accounted for 25 percent of all financial system assets, and were equivalent to 120 percent of world GDP. In the United States, nonbank assets accounted for nearly 60 percent of all financial assets, and equated to 150 percent of GDP. In China, nonbank assets were just 9 percent of financial assets, and a relatively modest 31 percent of GDP. … Second, China’s shadow finance is boring. Almost all of it consists of ordinary bank loans that are routed through nonbank institutions. Virtually all of the exotic features that make shadow banking both difficult to measure and potentially destabilizing in advanced countries are absent in China. China has basically no securitized loans, no derivatives, no collateralized debt obligations, no credit default swaps, few hedge funds and real estate investment trusts, and no structured finance vehicles.


“负责监督mg电子游戏平台影子银行的国际组织金融稳定委员会(Financial Stability Board)发现,2013年mg电子游戏平台非银行资产占金融体系总资产的25%,相当于mg电子游戏平台GDP的120%。在美国,非银行资产占所有金融资产的近60%,相当于GDP的150%。在中国,非银行资产仅占金融资产的9%,占GDP的比例相对较低,为31%。其次,中国的影子金融令人生厌。几乎所有这些贷款都是通过非银行机构发放的普通银行贷款。实际上,所有让影子银行既难以衡量、又可能破坏发达国家稳定的奇特特征,在中国都没有。中mg电子游戏平台本上没有证券化贷款,没有衍生品,没有债务抵押债券,没有信用违约互换,几乎没有对冲基金和房地产mg电子游戏平台信托,也没有结构性金融工具。”

Corruption is certainly bad – though as I have argued with respect to Putin’s Russia, or Orban’s Hungary, is it even possible to maintain sovereignty from the Blue Empire without building up your own elite?
Profiteering from corruption ran right to the top of the political system. The biggest case that the government has acknowledged was that of Zhou Yongkang, who served on the Politburo standing committee in 2007–2012 and ran the nation’s security services. In 2014 Zhou was formally investigated for corruption and expelled from the party; police claimed to have confiscated assets of $14.5 billion from Zhou, his family members, and his business associates. That amount would rank Zhou as seventh in the list of China’s richest people compiled annually by the Shanghai-based Hurun Report. Foreign media have also documented extensive wealth in the immediate family of former prime minister Wen Jiabao (US$3 billion, according to the New York Times) and current president Xi Jinping (US$55 million in Hong Kong property, and investments in companies worth US$2 billion, according to Bloomberg News). The widespread perception that, in the party and government, no one’s hands are clean of corruption is probably accurate.


In any case, Kroeber rightly points out that Chinese economy is dynamic enough to support significant corruption, and in any case, corruption has often served understandable political purposes, such as getting elite consensus for reforms, or purging hostile political factions.
Moreover, those people who steal too much & too flamboyantly do eventually get punished.
Finally, this tacit license to steal was not unlimited. Beginning in the early 1980s, the Communist Party waged a continuous and occasionally intense fight against corruption. … Researchers have found that at most one in ten corrupt officials are ever charged with corruption; but those that are charged are almost invariably convicted, and they face harsh sanctions including prison terms of ten years or more or even death sentences, of which 700 were handed down in corruption cases in the decade to 2008.
Finally, regional inequality is getting better:
By 2004, growth in rural consumption began to catch up to urban levels, and the urban-rural income gap began to shrink in 2009.6 As late as 2005, only a half-dozen provinces had urban wages within 10 percent of the national average. The rest of the country was divided between a handful of provinces, mainly on the coast, with much higher than average wages, and a vast mass of interior provinces with much lower incomes. By 2011 this provincial wage gap had closed: half of provinces had urban wages within 10 percent of the national average, and only the coastal megacities of Beijing, Tianjin, and Shanghai had wages more than 10 percent above the national norm.
So most likely we are not going to see George Friedman’s fevered predictions of the interior regions rising up against the fat cats in the coastal cities anytime soon.



因此,我们很可能不会看到George Friedman对内陆地区的狂热预测:在近期内与沿海城市的“肥猫”(fat cats)相抗衡。