Harry Rowen's blog

Harry Rowen, a longtime professor of public policy and management at Stanford and East Asia specialist, wrote commentary for this ‘blog’ hosted by the Walter H. Shorenstein Asia-Pacific Research Center (APARC). Updated frequently, this page features his thoughts on current events in East Asia and explore policy issues facing China, Japan, Korea and the Pacific Rim, staying close to current headlines. 

Drawing from his years of experience in government and academia, Rowen examined topics on higher education and propose possible solutions to challenges shared across nations. His ‘blog’ is intended to bring forth new ideas and encourage critical analysis. He welcomes feedback to hrowen@stanford.edu.

Rowen was a senior fellow at the Hoover Institution, a professor of public policy and management emeritus at Stanford's Graduate School of Business, and a former director of Shorenstein APARC. He was a noted expert on international security, economic development and the high-tech industries in Asia and the United States.

October 14, 2015

In China, all the economic news that is fit to print must "inspire confidence" (But the serious issue is how the economy is performing)

According to Tom Mitchell of the Financial Times, China’s economic data for September would not be collated until October but the Party had already decided it must be cheering news so the Xinhua News Agency’s “Creative Planning Center” was ordered to produce it.

“The focus for the month of September will be strengthening economic propaganda and…promoting the discourse on China’s bright economic future and the superiority of China’s system,” the party’s propaganda department said in a directive to national media outlets.

That “bright future” picture has been clouded by bleak economic data and falling share prices.  Financial turmoil was further fostered by August’s currency devaluation which produced a global stock market rout.

A photograph of the latest directive was posted online by the California-based China Digital Times (CDT). “They want to control how the media frames and interprets [economic data], making sure that they all focus on positive things,” said Xiao Qiang, CDT founder.

CDT also posted a notice from the chief editor’s office at the Xinhua news agency that reiterated the need to “stabilise expectations and inspire confidence.” The notice instructed staff to “please plan related reporting” and send their story ideas to the Creative Planning Center.

Chinese journalists who do not follow party instructions can face severe punishment. In August, a reporter for a leading financial magazine was detained by police and allegedly confessed to causing “panic and disorder” on the stock markets in July.

Leaders then went on a public relations offensive, having been largely silent during the stock market intervention in July and August’s devaluation of the renminbi.

Speaking at a foreign investor conference, Premier Li Keqiang said his government did not want to drive down the value of the renminbi and that the stock market intervention had “successfully forestalled potential systemic financial risks.”

The central bank remained silent for two days after devaluing the renminbi 1.9 per cent against the dollar on Aug. 11 and adjusting its mechanism for setting the currency’s daily dollar “reference rate.”

The ensuing policy confusion and intervention in the foreign exchange market dented investor confidence in the government, whose reputation for economic competence suffered a further blow when its efforts to prop up the Shanghai and Shenzhen stock exchanges were quietly abandoned.

With the economy growing at its slowest rate in a quarter century and recent data largely negative, the government has a challenge in meeting its growth target of “about 7 percent” for the full year.

“The situation this time is rather severe,” said Zhang Lifan, a Beijing-based historian and government critic. “Once there is a problem with economic growth, there could be a problem with the government’s legitimacy. People will start to question the party’s ability to govern.”

David Bandurski at the University of Hong Kong’s China Media Project said it was rare for the propaganda department to issue written rather than oral directives for fear they might leak. “Economic troubles have been a focus of concern in the party’s news and propaganda work lately,” he added. “The content of these purported propaganda instructions fits with what official state media have been pushing for the last few months.”

An official whose name and phone number appeared on the Xinhua article declined to comment. The party propaganda department could not be reached for comment.

October 1, 2015

The limitless urge to control: Now public dancing (12 dances to be approved by experts)

You might think middle-aged women dancing in public would not need a bureaucracy to control it. Not so in China. Sometimes neighbors complain that the music is too loud. So rather than have an ordinance limiting the sound volume, one that might vary by district and time of day, the government has set up an office to deal with this threat to social harmony: a "public square dancing management mechanism" will manage dancing in accordance with existing laws and will be "under government leadership," the Xinhua news agency reported recently.

“Square dancing has become a hot topic in China, with stories on dancing 'damas' - a word referring to middle-aged and elderly women - lighting up state media.”

But disputes have increased. A man in Beijing who could not bear the loud music played by dancers was jailed for six months after he fired a gun into the air in protest, the China Daily reported last year.

In Wuhan, a dispute between enthusiastic "damas" and their irritated neighbors made headlines in 2013 when the residents threw coins, rocks and ultimately faeces at the group in an effort to make them stop.

The China Daily said in March that authorities had hired an "expert panel" to choreograph 12 state-approved dances. The government statement won plaudits from users of Sina Weibo." It is good to ensure that damas will never disturb citizens close to residential areas," one person said online. "It is definitely necessary to discipline them," added another.

Xinhua said that in the future public dancing would no longer vary from place to place but would become “a nationally unified, scientifically crafted new activity that brings positive energy to the people.”

Guidelines on when and where dance activities should be held, and how loud the music should be, have yet to be developed, but preparations are underway for a national outdoor dancing association to “strengthen management and promote healthy development” of the activity, according to a report on the website of China Culture Daily, the official newspaper of the Ministry of Culture.

September 17, 2015

China’s Northeast Asia perplex

Consider the following:

  1. China wants American forces out of Asia.
  1. But if they were gone, the Republic of Korea (ROK/South Korea) would have a strong incentive to get nuclear weapons given that the Democratic People's Republic of Korea (DPRK/North Korea) has them.
  1. And so would Japan whose anti-nuclear commitment might not survive both Koreas having these weapons.
  1. So the American military presence helps to avert a nuclear-armed South Korea and Japan.
  1. Might China’s leaders conclude that the Americans shouldn’t leave now or do they have confidence in their power to deal with the ROK and Japan – especially given the fraught relations between the two?

When the DPRK invaded the South in 1950 it would have occupied the whole peninsula, but for American military intervention. Today the situation is reversed. The per capita income difference across the Demilitarized Zone (DMZ) is probably the greatest of any border in the world at a ratio of 20:1. North Korea’s sorry state is vividly displayed in nighttime photos from space that show a black hole between China and South Korea. This economic difference is reflected in a disparity in conventional military power.

However, the North does have some cards to play:

  1. The threat from its conventional forces is formidable in one respect: the North’s artillery just north of the DMZ could seriously damage Seoul before being destroyed.
  1. It has long played the game of threatening to collapse with resulting chaos, including refugees fleeing across the DMZ and possible loss of control of its nuclear weapons (“loose nukes”). So to forestall these dangers and (largely self-inflicted) famines, others have sent it food and fuel.
  1. What then is the prospect of North Korea giving up these weapons given that negotiations to that end among six countries (DPRK, ROK, China, Russia, Japan, United States) were suspended six years ago? The parties have been talking about resuming them, but haven’t done so.
  1. The North’s violations of agreements bode ill for any new ones. For instance, in 1992 the International Atomic Energy Agency found that it had diverted plutonium from civilian programs to military ones. That led to the 1994 Agreed Framework in which the North agreed to freeze its plutonium weapons program in exchange for two reactors; it collapsed when the United States accused the North of cheating – a charge denied by the North. In 2005, the North agreed to suspend its nuclear program in return for diplomatic rewards and energy help but negotiations ended in 2008 with the North refusing inspections to verify compliance.
  1. Making matters even more fraught are its nuclear weapon tests, with the third one in 2013, in defiance of U.N. sanctions.
  1. Hope springs eternal. In May of this year, the ROK’s representative to the talks said that the five governments had reached “a certain degree of consensus” on restarting the process with the immediate aim of “proving North Korea’s sincerity towards the talks.”

This isn’t a very high bar; it is sincerity toward talks, not sincerity toward giving up nuclear weapons. More attention should be given on why the North has these weapons.

There seem to be three main reasons:

  1. As a deterrent against a more powerful South and a still more powerful South plus the United States.
  1. To pose a coercive threat against the South and Japan and, based on recent missile tests and statements, to U.S. territory.
  1. As a means of extorting payments of food and fuel from others.
  1. If one accepts some combination of these reasons as valid, one can see why the North hangs on tightly to its nukes. Back to how the Chinese might view this scene. Arguably it is with mixed feelings. The North provides a buffer in keeping ROK, and especially American, forces at a distance. Recall that when General MacArthur sent U.N. forces to the Chinese border in 1950, China sent troops into the North to drive them away. On other hand, the North could start a war, which might end up causing a lot of trouble for China.
  1. Finally, there is a question about the North’s political stability. (My personal record on this topic is dismal; years ago I predicted that a political upheaval would long since have occurred).

Repressive, rigid systems sometimes suddenly collapse, such as the communist powers in Eastern Europe and the Soviet Union. The North having nuclear weapons makes this possibility especially worrying.

Many things might happen there ranging from the status quo lasting for years to come, to peaceful unification, with many less happy possibilities in between.

The Chinese leadership, having been surprised by the events in Tiananmen Square in 1989, is presumably alert to such a possibility in Pyongyang but might not be able to forestall events damaging to its interests. China has good reason to be perplexed.

August 28, 2015

Why the United States should (not) care about China's stock market

The sharp fall in Chinese stock prices, 40 percent since their peak in early June, has reverberated around the world, triggering declines in other markets. That event highlighted the importance of the Chinese economy to the world – including the United States. It is imperative, however, to identify the ways in which China’s stock market turbulence is important and those in which it is not (or not yet).       

The economies of China and the United States are not as dependent upon each other as one could presume, at least in terms of trade.

The United States exported $124 billion worth of goods and services to China last year, making it the third-largest export market for U.S. goods behind Canada and Mexico, but only about 0.7 percent of U.S. gross domestic product (GDP). This is not very much, but enough to slow U.S. growth by a few tenths of a percentage point if exports were to drop sharply.

From the Chinese side, the United States supplied only six percent of China’s imports last year, well behind Japan and South Korea.

What makes the Chinese economy important for the United States, however, is its ownership of U.S. Treasury securities and its growth rate.

China is one of the largest foreign bearers of U.S Treasury holdings. As of February this year, it owned $1.2 trillion in Treasuries, about one-fifth of the public debt held by foreign countries.

China has consistently reported growth of 9 percent a year since 1990. Its per capita income is at $7,000 – still far below most other leading countries – and slowing is to be expected, but China can probably still achieve an average growth of 6 percent every year until 2030. This would put its per capita income around $17,000, on par with Mexico, Brazil and Bulgaria. China’s GDP would be about $16 trillion, second to the United States, then probably reach $24 trillion by 2030.

But caution is in order, Lant Pritchett and Lawrence Summers explain.1 They write:

“There are substantial reasons that China and India may grow much less rapidly than is currently anticipated. Most importantly, history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth.

“We suggest that salient characteristics of China—high levels of state control and corruption along with high measures of authoritarian rule—make a discontinuous decline in growth even more likely than general experience would suggest. China’s growth record in the past 35 years has been remarkable, and nothing in our analysis suggests that a sharp slowdown is inevitable. Still, our analysis suggests that forecasters and planners looking at China would do well to contemplate a much wider range of outcomes than are typically considered.”

Recent turbulence in Chinese stock prices fits the Prichett and Summers’ conclusion.

Stock prices are also an imperfect indicator of future economic performance. While China has systemic importance to the global economy, it would be imprudent to make assumptions based on short-term shifts.

One aspect that has not gotten enough attention is the performance of Chinese stocks over longer periods. The Shanghai Index is about where it was five years ago and, as of Aug. 26, has been up 30 percent over the past 12 months. This performance must be disappointing to many investors, but it is no disaster.

As Nobelist economist, Paul Samuelson, once said of the New York exchange: “The stock market has called nine of the last five recessions.”

But history aside, China will likely have the world’s largest economy in the not so distant future. While it might take longer than many people assumed, it’s a very possible reality. That alone is one reason why Americans should care.

1. Lant Pritchett and Lawrence Summers. Asiaphoria Meets Regression to the Mean.” National Bureau of Economic Research Working Paper No. 29573, October 2014.

August 20, 2015

The Chinese people are becoming better educated; It is good for society, but is it good for the Party?

The level of schooling of the Chinese people is growing rapidly, an accomplishment of major benefit for them, but both positive and negative for the ruling party. (My blog post on April 6, 2015, was on the related topic of China’s growth in human capital).

Some data on China are these:

Average years of schooling among people over 25 years of age

1980: 3.7

1990: 4.9

2000: 6.6

2010: 7.5

This is a commendable record. China’s level of schooling attainment now is about the same as Thailand, Ecuador and Indonesia. It is far greater than India’s 4.4 years, but it is far behind that of Northern/Western Europe and the United States which are at 13, South Korea at 12 and Japan at 11.5 years.

Arguably this is the most important contribution of the Chinese Communist Party to the welfare of the people and to national power in the 66 years since it gained control.

Schooling brings many benefits, one of which is making people more productive. This raises the question: which comes first, education or democracy or are they jointly determined? This is not a settled issue viewed globally. However, the case of China is clear: schooling attainment has increased greatly but democracy has not (yet) arrived.

Barro and Lee estimate the return to every additional year of schooling at 10 percent at the secondary level and 17.9 percent at the tertiary level.1 This finding suggests that on average, the wage differential between a secondary-school graduate and a primary-school graduate is around 77 percent, and the wage differential between a college graduate and a primary-school graduate is around 240 percent. (For Indonesia, Esther Duflo estimates the return on investment in schooling to be 6.8 percent to 10.6 percent).2

The negative for the Party is that sooner or later an educated people will see to its demise. At least the worldwide pattern of relations between schooling levels and freedoms supports this inference. In 2010, all developing countries (non-Organization for Economic Cooperation and Development (OECD) ones; i.e. the rich countries) whose people over 25 years of age had at least 12 years of schooling were rated “free” by Freedom House. Of those with 11-12 years, Russia, Azerbaijan and Belarus were “unfree” and Ukraine was “partly free.” Of the nine countries with 10-11 years of schooling (Kazakhstan, Uzbekistan, Pakistan, Armenia, Sri Lanka, Samoa, Cuba, Bulgaria and Trinidad/Tobago), all were “free” except Cuba (“unfree").

At the low end of schooling attainment among others were: Vietnam (5.5 years of schooling and “not free”), Iraq (5.6 years/“not free”), Moldova (5.8 years/“partly free”), Egypt (6.2 years/”not free”), Tunisia (6.5 years/”free”), El Salvador (6.5 years/”free”), Oman (6.8 years/”not free”) and Kuwait (7.2 years/”partly free”).

Looking ahead, most, if not all, the countries lagging in the schooling of their peoples will catch up with the leaders (in quantity if not quality) and China will be no exception. If the current levels of Europe and North America – around 12 years - are taken as the norm and China continues to close the attainment gap with them at one year per decade, continuing the trend from 2000-2010, by 2020 it will reach 8.5 years in 2020 and 9.5 in 2030. That would leave it well behind the OECD countries and perhaps it will do better than that.

As observed above, the Chinese people will benefit but the Party in the long-run probably will not.

1. Robert J. Barro and Jong-Wha Lee. “A new data set of educational attainment in the world, 1950–2010.” National Bureau of Economic Research Working Paper No. 15902, April 2010.

2. Esther Duflo. “Schooling and labor market consequences of school construction in Indonesia: Evidence from an unusual policy experiment.” American Economic Review 91(4): 795-813, 2001.

August 17, 2015

How to report stock market crashes in China: Find positive (and ignore critical scholars)

Here is the July 9 Nikkei story: “China's propaganda authorities have demanded that domestic media outlets prevent the country's tumbling stock market from turning into criticism against the Communist Party and the government, sources with knowledge of the order said Thursday. Shanghai's main stock index has dropped 30 percent since its peak in mid-June.

“The party's Publicity Department issued an urgent order to news media telling them not to report this crash and to highlight positive aspects of the government's economic policies, the sources said.

“The order from the powerful propaganda apparatus reflects the Chinese leadership's serious concern that the plummeting stock market could lead to angry protests and social unrest.

The instruction came at a time when anxieties and frustrations are growing among individual Chinese investors, who account for about 80 percent of all transactions in China's equity markets, and the government is struggling to arrest the sell-off despite rolling out a series of measures.

Other points mentioned in the directive include that the media must report calmly and "objectively" about stock prices, and guide public opinion to help investors "rationally" understand the current situation, the sources said.

It also said Chinese journalists and editors should report positively about the future of country's economy, asking them not to use comments of scholars and other experts who are critical of the government's policies.

The market's rally started in November after China's central bank cut interest rates, for the first time since July 2012, as part of efforts to shore up the sluggish economy and Beijing's decision to open up stock trading in Shanghai more than ever before to international investors.

The rapid rise in stock prices had attracted many Chinese novice investors and promoted them to conduct margin trading, the practice of purchasing shares by using borrowed funds from brokerages, with the hope of maximizing their gains. Now they are saddled with big debts.

The American financier, J.P. Morgan, said of the stock market: “It will fluctuate,” evidently a rule that also applies to China. 

August 6, 2015

How long will the Communist Party rule China?

Until 2015 was my forecast in 1996, published in an article titled "The Short March" in the journal The National Interest.

In China, the Party has been in power for 66 years, since 1949. In the Soviet Union, the Party ruled for 72 years, from 1917 to 1989. The Chinese Communist Party faces no discernable threats but Xi Jinping and other leaders sometimes appear insecure or show a combination of insecurity and arrogance. They know well the fate of other ruling communist parties and especially see Gorbachev’s glasnost and perestroika as fatal moves that they will not repeat.

Much has changed in China since 1949. Several major ones include:

Although the Party gets credit for these accomplishments, they are not favorable for its long-term future, especially the rise in the level of education. Countries with well-schooled populations are, with one exception, “free” according to the Freedom House rating system. (The exception is Singapore which gets a “partly free” rating). Today, China is rated “unfree.” Countries with ratings close to it include South Sudan, Eritrea and Cuba. Unless China turns out to be different from all other countries, it is hard to see how an educated, prosperous, increasingly cosmopolitan people can remain in that status.

Think back to 1989, Communism had a bad year. From ruling in 31 countries, the number quickly shrank to three: China, North Korea and Vietnam, with the latter two dependent on support from China. Although Party rule survived, the Tiananmen Square events of that year revealed a seriously discontented population (at least in Beijing). In China today, there continue to be demonstrations, some large, on a host of issues: pollution, land takings and working conditions. While none pose a direct challenge to Party control, social unrest is an indicator of underlying dissatisfaction.

The Party has three legitimizing elements: Communist ideology, nationalism and peoples’ growing incomes. On ideology, a Pew Research Center report from July 2012 showed the Chinese respondents to the question, “Are people better off in a free market economy?” at 74 percent, ahead of Germany, the United States and the United Kingdom. As for nationalism, this is often expressed by the Party reminding people of the crimes committed by Japan (70 or more years ago) and, less stridently, the dangers posed by the United States.

Then there is Xi’s “China Dream.” He began promoting the phrase in Nov. 2012. It is widely used in official announcements and has become the embodiment of the ideology of his leadership. According to the Party's theoretical journal Qiushi, the Chinese Dream is about Chinese prosperity, collective effort, socialism and national glory. Xi has described it as “national rejuvenation, improvement of people’s livelihoods, prosperity, construction of a better society and a strengthened military.” Also, that young people should “dare to dream” and  “work assiduously to fulfill the dreams and contribute to the revitalization of the nation.”

Rapidly growing income is arguably seen as crucial for the Party’s rule and a pronounced economic growth slowdown would threaten it. But a slow-down is inevitable; economies cannot keep growing at 9-10 percent a year. The only questions then are when it will happen and by how much?

These questions are addressed by Lawrence Summers and Lant Pritchett in "Asiaphoria Meets Regression to the Mean," a National Bureau of Economic Research working paper. They write: “history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth. Indeed, regression to the mean is the empirically most salient feature of economic growth.”

Summers and Pritchett add the following considerations: 

The Party’s perception of the importance of sustained growth was evident in its near panic reaction to the sharp decline in stock prices in early July 2015. A Financial Times story (July 17, 2015) reported that the government allocated $1.7 trillion to a fund with the purpose of propping up the market. This sort of financial turbulence is endemic to market economies so it is interesting that a stock market swing unsettled the leaders. 

No one knows how long the Party will rule, but its leaders are better positioned to sense dangers than we are. 

July 30, 2015

China’s birthrate has fallen: Is it a disaster or a boon?

Opinion is divided. Economist Nicholas Eberstadt says it is a very bad thing; The sociologist, Baozhen Luo, has a more positive view.

Eberstadt says that China is neglecting its biggest economic asset: its people. Cited in The National Interest (Sept. 25, 2014), he estimates “that even if Beijing were to eliminate its one-child policy today, Chinese economic growth would still decline in the 2020s, because the next generation’s working-age population is already so markedly small.

“Since implementation in 1979, the one-child policy has reduced China’s population by an estimated 400 million people. In addition to creating a gender imbalance, numerically favoring men over women, the policy also skewed the age demographic.

“Economists estimate that China’s elderly population will increase 60 percent by 2020, even as the working-age population decreases by nearly 35 percent. This type of demographic shift is unprecedented and presents serious challenges to the economic health of the nation. Studies suggest that as a direct result of the one-child policy, China’s annual projected GDP growth rate will likely decline from 7.2 percent in 2013 to around 6.1 percent by 2020.

“Projected GDP growth rate is driven by three factors: labor, capital and total factor productivity. The one-child policy has directly impacted two of these three factors by reducing the labor supply and inadvertently decreasing the ratio of working-age population to the elderly population. As the population ages and there are no able-bodied replacements, total factor productivity will undeniably decline.

Economic tumult in China is, at this point, inevitable—even if the Chinese government reverses the one-child policy today. Why? Because those who will constitute the working-age population of the 2020s and the 2030s have already been born; the size of this particular subset of the population cannot increase.

 “Although the Chinese Communist Party (CCP) announced a relaxation in the one-child policy…studies estimate that this will allow for only 1 million additional births, a meager increase in the context of China’s typical experience of 16 million births per year.”

Eberstadt is not alone in predicting trouble. In 2012, Cai Fang, a demographer at the Chinese Academy of Social Sciences, issued a dire warning: “There’s now no doubt China will be old before it is rich.”

Over the past 65 years, life expectancy in China has more than doubled, from 35 years to roughly 75, as the fertility rate has plunged. Many fear that if these trends continue, China’s population will age faster than the country can accommodate.

In 2014, the share of China’s population older than 60 reached roughly 15 percent; demographers predict that figure will double by 2050, reaching the equivalent of nearly 450 million people, or about one-quarter of the world’s elderly. China’s median age will skyrocket, from roughly 35 to 46 and as more people move out of their working years, the country’s economic productivity will plummet. And as its growth slows, China will find itself without the resources to provide for its elderly, who will become a financial burden.

Baozhen Luo in Foreign Affairs (May/June 2015) disagrees. She says these demographic problems are overrated. “For one thing, although China’s working-age population has been shrinking, its employment rate has been increasing steadily, as has the productivity of those entering the work force. For another, since around 2000 the Chinese government has aggressively prioritized the creation and expansion of public welfare programs to support the elderly.

“In 2007, Chinese President Hu Jintao signaled that the country’s aging population had become a political priority when he included proposals for their well-being in his report to the 17th National Congress of the Party. In 2009, Beijing enacted major reforms of its pension and health-care systems, and in 2013, an amended version of the country’s elderly rights law went into effect, calling for a comprehensive system for eldercare at the national and local levels. Put simply, as its population ages, China will not be caught off-guard.”

Some observations:

July 9, 2015

Trade data can mislead: The iPod, iPad and iPhone examples

Last year the United States exported $124 billion in goods and imported $468 billion from China, leaving a bilateral deficit of $343 billion. This trade deficit is widely seen as a bad thing, although it is not clear that it should be.

For one, trade is multilateral, making the balance between any two countries far from the whole story. For another, it means that Americans consumed more Chinese goods than vice versa which implies that the Chinese lent us the difference. What is wrong with that? We got the goods and the Chinese got an IOU. And, reported trade data can be deceptive.

For example, the reported value of an iPhone shipped from China is about $250 and that amount times the number of units imported enters into our total merchandise imports from that country. However, Kenneth L. Kraemer, Greg Linden, and Jason Dedrick of the University of California, Irvine, University of California, Berkeley and Syracuse University, respectively, examined the distribution of value along the supply chain, and reported in a paper in July 2011, that Apple should capture that value in the data. Apple develops the software and designs and markets the product within U.S. borders.

The authors estimated that Apple kept 58% of the sales price of the iPhone 4, a far greater amount than any other firm in the supply chain received. After Apple, the next biggest beneficiaries were Korean companies such as LG and Samsung, who provided the display and memory chips, and whose gross profits accounted for 5% and 7%, respectively, of the sales price.

China’s role was quite small. The authors estimated the value-added in China to this product to be around $10, a lot less than the $250 reported import value.

There are two lessons here: One is not to accept the face amounts reported on trade (exports as well as imports) as definitive. Components of a product might come from various countries and the values added by design, logistic management and other functions can be significant. The other lesson is about the role of China. Much of the public concern about the U.S.-China trade deficit derives from poor understanding of trade data, as illustrated by the iPhone example.

Those interested in our trade with China, as analysts, business people and, especially, policymakers, should look at the numbers with a skeptical eye.

June 18, 2015

The shadowy realities of press censorship in China

China’s constitution guarantees freedom of speech, the press and expression – unless they reveal “state secrets.” So, what is a state secret? You will find out if you say something the authorities don’t like.

To help you, China has issued guidelines on sensitive topics (such as the seven unmentionables described in my earlier blog post).

China set up the State Internet Information Office to tighten party control over the Internet in response to online calls for demonstrations inspired by the uprisings of the Arab Spring.

One estimate is that there are about 100,000 people monitoring the Internet. The high cost of doing this reveals its importance to the authorities.

Encouraging the media to censor itself is at the core of the Chinese Communist Party’s strategy. According to Jamil Anderlini of the Financial Times, the government warned Sina, an online news service, it will be shut down if it does not “improve censorship.”

Its executives were summoned to meet with the Cyberspace Administration of China (CAC) and criticized for spreading “illegal information” and “violating morality”, according to a statement from CAC. Sina was accused of improperly censoring user accounts as well as “engaging in media hype” and allowing the spread of “rumors”, pornography and “messages advocating heresies,” a reference to banned religious movements such as Falun Gong.

Censorship guidelines are circulated every week by the Party’s propaganda department and the Bureau of Internet Affairs. Dangerous websites are blocked as are controversial photos and search terms. The government is especially keen on blocking reports of official corruption.

It also doesn’t like stories about leaders’ wealth. Websites of Bloomberg and the New York Times were blocked after running reports on the wealth of then-Party Secretary Xi Jinping and Premier Wen Jiabao.

The CAC has the Golden Shield Project, known as the “Great Firewall” which throttles Internet bandwidth, filters keywords, and blocks access to some websites, Twitter, Google, Gmail, Facebook and YouTube among them. It also induces journalists through dismissals, demotions, libel lawsuits , fines, arrests and forced televised confessions to censor themselves.

Sina executives promised to do better censoring of its websites and to publish more stories displaying “positive energy,” the CAC said.

Sina has run into trouble before with its Twitter-like Sina Weibo service. Several high-profile Weibo bloggers with millions of followers had their accounts shut down or have been warned not to post anything that might make the Party or its leaders look bad.

In its World Press Freedom Index 2015, Reporters Without Borders ranked China 176 out of 180 countries, ahead only of Syria, Turkmenistan, North Korea and Eritrea and behind Sudan. If China tries hard enough maybe it will fall to dead last.

President Xi is running an ideological campaign against the perceived dangers of “western ideas” and personally leads a special Party committee to oversee all matters relating to the Internet. Does he fear ideas? Oh, only Western ones. 

June 4, 2015

The Chinese build a "ghost city" (but not intentionally)

Ghost towns, places whose economic function no longer exists, are found throughout the world, some of which have become tourist attractions such as Bannack, Montana; Calico, California; and Centralia, Pennsylvania in the United States; Barkerville, British Columbia; Craco in Italy; Elizabeth Bay and Kolmanskop in Namibia; and Pripyat in Ukraine.

Now China has the Kangbashi New Area in the city of Ordos, one of the main cities of Inner Mongolia that was to be the futuristic jewel in China’s crown of city-states. The concept was “build it and they will come.”

It hasn’t turned out that way. Deadlines weren’t met, loans went unpaid, and investors pulled out before projects were finished, leaving entire blocks of unfinished towers, some rising fifty stories high above the desert. Planned to accommodate over one million people, Kangbashi has only 20,000.

High costs put off many would-be inhabitants and many people who moved there have abandoned their homes and left town.

The futuristic airport terminal building has fountains and hanging baskets, chic coffee shops and sub-lit escalators glowing in shades of green and blue. All it lacks is people.

The locals insist that they will come and that these beautiful buildings couldn’t stay empty forever. To them, it is inconceivable that all of this hard work might have been for nothing, leaving 98% of this 355-square kilometer area abandoned.

In place of completed office buildings, however, Kangbashi has a series of hollow fingers rising to the sky; the shells of would-be towers, one after another, row after row, vanishing off into the distance.

One of them could have been the headquarters of a bank; forty floors of office space, wrapped in a shell of mirrored panels. Unmaintained, however, the reflective scales have fallen away in great swathes exposing the bare concrete beneath. It’s not even finished and already in need of a makeover.

Developers around the world make mistakes and sometimes go bankrupt. However, China does things on a huge scale; this is true of both its successes and failures. In the case of Kangbashi, China has made a breakthrough: building an entire ghost town. And, herein leaving a highly visible monument of folly.

May 20, 2015

Chinese state owned companies: Bigger but better?

The Chinese economy is slowing; one of President Xi Jinping’s responses is to consolidate state-owned enterprises (SOEs) into fewer firms that will be easier for him to control. Wendy Leutert of the Brookings Institution writes: “He evidently believes that he is a superior manager and can run this large part of the Chinese economy better than anyone else.”

She points out that SOEs are a relic of China’s communist past but still contribute nearly a third of its GDP and continue to have preferential access to credit. The government owns more than a hundred firms, concentrated in such sectors as defense, petroleum and power.

The average number of subsidiaries has grown from 82 in 2003 to 191 in 2010. However, conspicuously absent from this housecleaning is the trash can—a standardized process is for the worst performers to be privatized or go bankrupt. The losers become a continuing drain on the economy.

To assess the likelihood of Xi’s succeeding in his attempt at consolidation, consider what makes for an efficient, productive economy. These include: 

President Xi’s program is inconsistent with some of these principles.

Advocates of consolidation argue that it combines complementary capacities, thereby boosting companies’ efficiency and competitiveness. They point to the coming fusion of two state-owned nuclear firms, State Nuclear Power Technology (SNPT) and China Power Investment Corporation (CPI), into a $96 billion corporate giant.

However, bringing SOEs together won’t produce the global industrial champions that China craves. Instead, it is likely to increase existing inefficiencies and create new ones. The basic problem is that the government, not market forces, is determining which state-owned companies are restructured and how.

Beijing should cut their privileged access to bank loans and specify which protected sectors will be opened to greater competition. And, it should establish a standardized and transparent process to close struggling firms and privatize their assets instead of simply merging or bailing them out.

Leutert writes that if the Xi administration isn’t ready to give markets a decisive role it should at least improve oversight and incentives. For example, it could hold executives accountable for internal audits and their strengthening of boards of directors.

Even more importantly, Beijing should link compensation to market performance and reward top managers who achieve productivity and profitability gains. In contrast, the Chinese Communist Party plans to cut company leaders’ pay by up to 50 percent. Doing this amidst an anti-corruption crackdown may appeal to the crowd but won’t motivate better performance.

The success of the program to reform SOEs depends on the government giving up control to market forces. Not doing this will drag the slowing economy down even further.

Failure to act will also hurt SOEs' competitiveness globally and threaten growing partnerships with governments and companies abroad. If the leaders continue to block market forces in favor of government control, China will be worse off.

May 14, 2015

Why is the Chinese elite buying options to leave?

In the May/June issue of Foreign Affairs magazine, Perry Link reports that Chinese elite are sending money and family members to Hong Kong, Australia, Canada and the United States and are making large real estate investments abroad. Women are also having babies in Hong Kong which gives the children the right to live there.

He says that insecurity is widespread in China. There is tainted food, water and air, corruption and chicanery. There has been an erosion of trust. Moreover, the Internet and people’s determination to assert rights makes it far harder for the government to keep its population in line than in the time of Mao.

Link says that Chinese President Xi Jinping, observing this behavior, is pursuing Mao-like policies of centralization and an anti-corruption campaign. Going after elites and the military has dangers, but if he doesn’t press forward he likely will be seen as just another ordinary ruler and will lose popular support.

Why do members of China’s elite want to leave? Perhaps to some, the system looks unstable and they fear they could lose their wealth. Polluted air in the cities is another reason and there is also the perceived low quality of educational institutions.

The numbers of Chinese students who go to the West for college, and even high school, have risen sharply in recent years. Xi Jinping’s daughter graduated from Harvard, Jiang Zemin’s son has a doctorate from Drexel, one of Deng Xiaoping’s grandsons was born in the United States.

Another benefit of emigration is convenience in placing money overseas in cities like Vancouver. Some years ago while visiting Vancouver I learned that the real estate market was being bolstered by money from Hong Kong. On asking why this was happening I learned that Canada has an Immigrant Investor Program under which a permanent resident visa would be granted to people who make a substantial investment, currently CAD 800,000, while also meeting other requirements including a net worth of CAD 1.6 million. Enough Chinese meet these tests to have an impact on the price of housing.

Basically, legal émigré status is an insurance policy against an unpredictable future: life in the West offers security that life in China, despite government expenditures of hundreds of billions of yuan per year on “political stability,” cannot offer.

If the Chinese elite were confident in their system of Leninist capitalism there would not be a huge budget for domestic repression, nor would a Nobel Peace laureate, Liu Xiaobo, be in prison. Lacking such confidence, more than a few are looking to leave.

Orville Schell notes the Chinese elite find Western criticisms of their one-party rule to be condescending but that reveals their ambivalence about the West. If they were really confident in the superiority of their system they might simply pity the misguided West. That they feel “condescended to” shows that they are still according the West an elevated position.

Schell has also warned about dangerous possible consequences for the rest of the world as a result of China’s own insecurities. Link agrees, “Indeed I believe that China’s inner insecurity makes the danger even worse. An insecure rival can have sharper elbows, and be less predictable than a secure competitor.”

Schell, in his reply, said that China’s great accomplishments, beginning with Deng Xiaoping’s reforms in the 1970 after more than a century of failure, have given the Party grounds for pride and a significant measure of confidence. Many Chinese share that sentiment but also remain doubtful about the durability of their political system. As Link points out, this wariness leads the wealthy to send their children abroad to be educated, buy real estate overseas, put funds in offshore banks, and seek U.S. green cards and even citizenship, hardly hallmarks of confidence in their own country’s domestic future.

Link sees a dangerous combination brewing. When some success leads to pride, arrogance and nationalism, and when, as he suggests, these impulses merge with a sense of historical victimization, insecurity, and the indignity of being condescended to in a quest for respect, China could become more defensive, pugnacious and truculent.

One consequence would be to lessen the chances of finding ways of cooperating with the United States and other Western-style democracies on such critical issues as climate change, pandemics and nuclear proliferation. Another is the risk that a minor disagreement could lead to something much bigger.

May 7, 2015

Power corrupts: American and Chinese parallels 

Consider the following observations about power:

Before going further, think about the definition of corruption.  In America, as elsewhere, it is illegal for a politician to accept money for personal use. In 1973, U.S. Vice President Spiro Agnew resigned after having been charged with accepting bribes of more than $100,000. Had he told his putative bribers to give the money to his political action committee probably all would have been well.

Regarding President Xi, as he rose in the Party, his family’s business interests grew to include minerals, real estate and mobile-phone equipment, reportedly in companies with total assets of $376 million. These included an 18 percent indirect stake in a rare-earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company. (The figures don’t account for liabilities and thus don’t reflect the family’s net worth).

No assets were traced to Xi, his wife Peng Liyuan or their daughter nor is there any indication that Xi intervened to advance his relatives’ business transactions, or of any wrongdoing by Xi or his extended family.

Although the investments are obscured by many holding companies, government restrictions on access to company documents and online censorship, they are identified in regulatory filings.

The trail (followed by Bloomberg) led to a villa in Hong Kong with an estimated value of $31.5 million. The family purportedly owns at least six other Hong Kong properties with a combined estimated value of $24.1 million.

For a closer American parallel than Vice President Agnew, one also involving first ladies, there is President Lyndon Johnson and his wife, Ladybird. (Disclosure: I worked for President Johnson). Ladybird used an inheritance to bankroll her husband’s congressional campaign, then bought a radio station (KTBC) and then a TV station, which soon made them millionaires.

In 1943, the year she bought the KTBC radio station, the Federal Communications Commission (FCC), which reviewed all broadcast-license transfers, was close to being abolished. Johnson kept that from happening. His wife soon got permission to broadcast 24 hours a day and over much more of Texas. Then, the FCC approved a request to quintuple its power. When Johnson asked the president of CBS radio if the station could become a CBS affiliate and carry its lucrative programming, he didn't have to say why. CBS approved his request. Johnson induced powerful companies to advertise on the station. He had worked for years to achieve power and now was using it to make money. By 1948, he was a millionaire.

This American case suggests caution in judging allegations of corruption in China. It clearly is a serious problem, but our own record isn’t spotless either.

April 30, 2015

Don’t publicize your weather predictions; You may get in trouble, even if right

According to a CHINA REAL TIME report, on April 29, 2015 the Chinese Meteorological Administration banned amateurs from publicizing their own weather reports, saying that only official authorities are allowed to offer such forecasts. The regulation covers weather predictions involving “clouds, wind direction, wind speed, air temperature, humidity levels” as well as visibility and more. Those who distribute false or manipulated weather information and “create a negative impact on society” with such reports are liable to be fined as much as 50,000 yuan (around $8,000).

Shanghai recreational meteorologist Ni Shun said he thought the regulation was aimed at hobbyists with a hunger for fame who exaggerate forecasts to terrify people. “For example, saying that a level-six typhoon is coming, which easily makes people get scared,” he said.

Amateur weather buffs have been around a long time and around the world. Thomas Jefferson catalogued the temperature and precipitation at Monticello and the United Kingdom’s Royal Meteorological Society has many hobbyists.

As in other domains of life, the Chinese people will be protected from false information through having access only to official data (but officials need to be especially careful where the wind blows next).

April 23, 2015

A challenge to Xi Jinping: How much repression is the right amount? (Warning: Don’t dance in public for exercise)

Sarah Cook of Freedom House (in “Confronting the Limitations of Chinese Communist Party Repression”) raises that question because the Chinese authorities have detained female activists who were planning a protest against sexual harassment.

Cook points out that one should not be shocked because, under Xi Jinping’s leadership, the Party has become increasingly intolerant of activities that earlier had been accepted such as private gatherings and those of people considered economic elite or with official ties. However, Xi making himself the arbiter of the control of information exposes the leadership to blame for abuses.

The Party on many issues faces a trade-off between control and legitimacy. She says it uses a “containment strategy” which (1) contains the target population of “dissidents” (limiting those subject to the harshest forms of repression); (2) contains the blame (shifting the blame for state violence against ordinary citizens to local officials or the victims themselves); and (3) contains the news (restricts content deemed threatening to the Party, but without suppressing all news not generated by official government sources).

Freedom House researchers evaluated changes in the level of repression for 17 categories of targets between the two years before November 2012 (when Xi became president) and the period since then. The 17 categories include not just dissidents, activists, and minorities, human rights lawyers, online opinion leaders, civic-minded business people, academics, but also Party members who face detention and abuse within the Party’s extralegal shuanggui disciplinary system. The total comes to tens of millions of people.

In 11 out of the 17 categories, Freedom House saw an increase in arrests, imprisonment, beatings, and other forms of abuse. The victims included people who until recently were considered to be safe: prominent social media commentators, civic-minded entrepreneurs, labor rights activists and public health organizations. Now women’s rights activists have joined that list.

The expanded crackdown under Xi’s leadership has “neutralized” some perceived threats. Public political debate and the political role of microblogs have faded. Detentions have largely silenced charismatic, credible and popular critics like the activist lawyers Xu Zhiyong and Pu Zhiqiang, setting back grassroots reformist initiatives like the New Citizens Movement.

Restrictions on content once experienced by only a few professional journalists now affect tens of millions of internet users. Regulations that limit apolitical activities – on TV shows like The Big Bang Theory, using Google’s email service or dancing in public for exercise – provoke public ridicule. Freedom House finds that even some security personnel and censors have grown more sympathetic to victims of political and religious persecution.

As repression expands, the dark side of the party-state affects the lives of many more people. And by harshly punishing even activists who try to work within the system, the leadership is signaling that such efforts are futile and that incremental change is not possible. This risks increasing the numbers who see direct confrontation and the end of one-party rule as the only solution. Some might turn toward violence.

Nevertheless, fear of the regime seems to be diminishing. Civil society is proving resilient and participation in human rights activities is growing.

April 16, 2015

More scientific papers are being published in China - and so is the number of fakes

Chinese researchers have published an increasing share of scientific papers in journals listed in the Science Citation Index (SCI). From very few in 2001, citations grew to 9.5% in 2011, second in the world to America, the Economist reported in 2013.

From 2002 to 2012, more than 1 million Chinese papers were published in SCI journals; they ranked sixth for the number of times cited by others.

The journal, Nature, reported that in 2012 the number of Chinese papers in its 18 affiliated research publications rose by 35% from 2011. Also that this “adds to the growing body of evidence that China is fast becoming a global leader in scientific publishing and scientific research.”

However, in 2010, Nature had reported that a government survey showed a third of more than 6,000 scientific researchers at six leading institutions admitted to plagiarism, falsification or fabrication.

Also, a survey of 32,000 scientists, conducted by the China Association for Science and Technology, found more than 55 percent of researchers polled knew someone guilty of academic fraud.

Survey results like this suggest that academic fakery in China is a very serious problem for in the country's research community; when fraud becomes common it keeps fraudsters from being revealed or, if this happens, from being reprimanded for their transgressions.

A feature of China's research system is that research grants and promotions are awarded on the basis of the number of articles published, not on the quality of the original research. This has fostered an industry of plagiarism, invented research and fake journals that Wuhan University estimated in 2009 was worth $150 million, a fivefold increase from just two years earlier.

Anyone who has served on academic review committees knows (or should know) that one does not count articles, one reads them and discusses them with peers to determine their quality. China’s academia will continue to suffer until this becomes standard practice.

April 9, 2015

Pressures to reform China's higher education system

The Chinese people have long highly valued education. For centuries, its imperial examination system was the most organized in the world. From the seventh century to the 20th, it controlled entrance to the Emperor’s civil service; scholars spent years preparing for them.

But Mao Zedong’s Great Cultural Revolution from 1966 lasted for a decade and did serious damage. By the time universities resumed normal admissions in the late 1970s, only about a quarter of a million students were attending out of a population of nearly 1 billion people.

Since then, admissions have exploded. By 2012, China was turning out nearly 7 million graduates a year, three-quarters of those who sat the nationwide college entrance exam, known as the gaokao, compared to the less than five percent of those who took the exam in 1977.

The goal is to educate 40 percent of those of university age by 2020. Thirty-four percent of that age group were in higher education in 2013.

But critics say the system doesn’t turn out creative thinkers. “The kids with the best memory and ability to conform to the system succeed; their number one quality is an ability to take orders and be micromanaged,” says Jiang Xueqin, education consultant. “That kind of student is easy to manage at junior levels, but at senior levels they have never learned the things that allow them to be good managers,” he says, echoing complaints often heard from multinational employers in China.

Beijing is trying to reform the system – and the much-hated gaokao. But halfway through the plan period, the years 2010-20, not much has happened. Parents and children, increasingly exposed to overseas education through travel, are less willing to accept the system, which relies on years of rote learning and memorization to pass an exam whose relevance is increasingly questioned.

The number of students taking the gaokao has fallen from a high of 10 million in 2007 to 9.4 million last year, partly because it requires at least a year of near round-the-clock study, sometimes with the support of a parent who must give up a job to ensure the test taker can devote every waking moment to hitting the books. Only those with the best scores can enter the top universities; the rest are left in mediocre provincial institutions or studying subjects not of their choice.

The problem is that universities are run by the government. “They are overly bureaucratic and have no autonomy,” says Xiong Bingqi, vice president of the 21st Century Education Research Institute in Beijing. “You end up with 1,000 universities that are all alike – and they focus too much on scale and not enough on quality,” he says.

The reform calls for power to be moved from the central to local governments and then to universities. Schools would also be given more autonomy in choosing students, and students in choosing schools, and there would be a relaxation of the gaokao.

Frustration with the system led in 2007 to setting up a revolutionary new university, the South University of Science and Technology in Shenzhen, which tried admitting students without the gaokao, but soon it gave in to pressure from central government to use gaokao scores as the main criterion for admission. The reformist head of the university was replaced by a government appointee.

“The experiment at the South University of Science and Technology has failed,” says Xiong of the 21st Century Education Research Institute. Little of the ambitious reform plan has been implemented. “University heads are still appointed by government and have administrative ranks, and there is still no clear path agreed to reform the gaokao,” says Xiong.

Some people were at first optimistic about the education reforms but reality has disappointed them,” he says. “Therefore, more and more choose to send their kids to study abroad.”

So now, Chinese parents have the choice of forcing their child to endure the ordeal of the gaokao to get one of the few seats at a top local university, or saving and sacrificing even more to send their only child overseas to study. No one is predicting that students will stop fleeing the Chinese educational system anytime soon.

April 2, 2015

Chinese Nobelists exist – but not in China

Chinese researchers and science commentators lament the fact that no scientist working in China has received the Nobel Prize in Physics, Chemistry, Physiology and Medicine, or Economics (the “hard” topics as distinct from those in Literature and Peace). 

Eight people born in China have been awarded the Prize for their work in these topics:     

      Tsung-Dao Lee and Chen Ning Yang (Physics)

      Chen Ning (Physics)

      Samuel C.C. Ting (Physics)

      Yuan T. Lee (Chemistry)

      Steven Chu (Physics)

      Daniel C. Tsui (Physics)

      Roger Y. Tsien (Chemistry)

      Charles K. Kao (Physics)

All eight received the award while working outside of mainland China, six in the United States, one in France, and one who divides his time between the United Kingdom and Hong Kong.

Why is this? Several (related) possibilities come to mind:

Yet, China's higher education system is changing and enrollment is rising to unprecedented levels; what impact will this have? A blog post next week will examine these trends.

March 26, 2015

Why are Japan’s relations with South Korea and China troubled while Germany’s with Poland, France and others in Europe are not?

Anti-Japanese attitudes appear to be rising in parts of Asia, such as in cities like Chongqing that were major bombing targets during World War II. More broadly, why do China’s and South Korea’s leaders and others voice hostility to Japan more than a half-century after its sins were committed?

There is nothing comparable in Europe regarding Germany. German behavior before and during WW II was heinous. It began the war by attacking Poland and then France and then others. The murder of six million Jews was a uniquely savage act. Yet Germany’s relations with the other European nations today are quite normal.

In both cases, the events took place over 65 years ago. During Japan’s occupation of Korea, the so-called “comfort women,” were forced into prostitution. Japanese governments have apologized for this atrocious behavior but South Korean President Park Geun-hye says that those apologies aren’t good enough. She wants a deeper bow, so to speak. However, Japan’s Prime Minister Shinzo Abe says that the issue has been exaggerated and there have been enough apologies.

As one should expect, this issue is more than about long-ago behavior. South Korea-China relations are warming and the Chinese are happy to see discord between Japan and South Korea and to tap on the wedge between them. A Chinese Foreign Ministry spokesperson has recently urged Japan to take steps to handle the problems of its historical legacy.

One might infer that China has no problematic historical legacies. However, Beijing’s Tiananmen Square is overlooked by a portrait of Chairman Mao whose “Great Leap Forward” caused deaths estimated by demographers at 18 to 32 million. Historian Frank Dikötter says that it "motivated one of the most deadly mass killings of human history."

What accounts for the difference in attitudes in East Asia toward Japan and in Europe toward Germany?

One difference is in symbolically significant behavior shown by Japanese leaders who periodically visit the Yasakuni Shrine which contains the remains of Japanese “war criminals” (many of whose crimes were also heinous). Any comparable action by German leaders will not happen. On the contrary, Berlin has the Holocaust Museum, a memorial to the six million Jews killed by the Nazis. There is no ambiguity in German national symbols about its Nazi past.

There is no museum in Tokyo about its war crimes. Nor is there one in Beijing about its sins, or at the very least its grievous errors, a fact that Prime Minster Abe could note but won’t. Doing so would not help Sino-Japanese relations.

March 19, 2015

A new president, a new political theory; to help you remember, they are numbered

A question: Tell me, what was Jiang Zemin’s No. 2? The smartest girl in the class, or the political junkie with a good memory, will hold up her hand and say: “It was the orientation of China’s advanced culture.”

Jiang pronounced the “Three Represents” in the year 2000. The other two were “social productive forces” and “the fundamental interests of the majority.”  (One wonders about the fundamental interests of the minority). Further, “These are the inexorable requirements for maintaining and developing socialism, and the logical conclusion our Party has reached through hard exploration and great praxis.”

President Xi Jinping continues the numerological tradition but with one more of them: His “Four Comprehensives” are “comprehensively building a moderately prosperous society, deepening reform, governing the country according to rule by law, and enforcing strict party discipline.” (Illustrating his practicality, note that President Xi sets the goal of only a “moderately” prosperous society).

There had been an earlier significant four; “The Gang of Four”: Mao Zedong's last wife Jiang Qing; Zhang Chunqiao, Yao Wenyuan, and Wang Hongwen. They came to a bad end.

Xi should have known better than to have chosen the number “four.” It is unlucky (because it sounds like “death”). Some buildings don’t have a (numbered) fourth floor; some Singapore buses don’t have number plates if they would end in the number four. The early Nokia cell phones product line went from three to five.

The West also has its phobias about numbers. Many buildings have floors 12 to 14 without one in between.

March 12, 2015

The seven Chinese unmentionables

There is a rumor circulating that journalists and college teachers in China are being told to avoid seven “unmentionable topics”: universal values, press freedom, civil society, citizens' rights, the party's historical aberrations, the "privileged capitalistic class,” and the independence of the judiciary.

So what if a student asks: “I’ve heard that millions of people died because of Chairman Mao’s Great Leap Forward. Is this true?”

Or, “The land my uncle’s family has farmed for years has been taken away and a shopping center is being built there. He was paid very little and says that the developer rides around in a fancy car.”

Or, “My sister has returned from the United States and tells me about news stories on the great wealth former premier Jiang Zemin acquired while in office.”

What is the teacher supposed to say? “I can’t talk about these things.”

To have “unmentionable topics” in higher education is to handicap it by discouraging intellectual exploration. The authorities aspire for China to become a leading nation in many fields, but this won’t happen if students are discouraged from asking politically incorrect questions.

March 5, 2015

China is roiling the waters of the South China Sea

Six countries have (conflicting) claims on the South China Sea: Vietnam, the Philippines, the Peoples Republic of China, Taiwan (counting China twice), Malaysia, and Brunei.

China’s is much the most expansive as shown in the nine-dash line, which gives almost the entire area to it. China, then ruled by the Kuomintang party, drew it and the new Chinese passport shows it.

This topic came up at the July 2010 ASEAN Regional Forum meeting. Several nations were pushing the United States to reassert a larger role in the South China Sea. Secretary of State Hillary Clinton endorsed these demands—declaring that freedom on the South China Sea was in America’s “national interest.”           

Chinese Foreign Minister Yang Jiechi responded, “China is a big country and other countries are small countries, and that’s just a fact,” looking at the Foreign Minister of Singapore, the redoubtable George Yeo.

Facts on the seabed

The Chinese are changing the facts on the seabed by building an airstrip on one reef and putting a drilling rig on another. Images show dredgers creating a harbor large enough for tankers and major surface combatants. Vietnam claims that a Chinese Coast Guard vessel smashed into a Vietnam Marine Police one.           

In early 2013, the Philippines launched a case under the UN Convention on Law of the Seas against China’s claims and its Foreign Minister says China’s behavior "is a threat to all of us." The Chinese Deputy Foreign Minister responded by accusing Manila of making "trouble out of nothing.”

According to the Australian Carl Thayer, Vietnam’s strategy is not to confront China on the oil rig but to deter it from doing more by creating circumstance where China would have to accept the status quo or escalate. This would entail risks for China because Vietnamese forces would be operating alongside two United States allies.

Before the oil rig crisis, Vietnam proposed a trilateral security dialogue with the United States and Japan. Such an arrangement could be a means for working out a strategy to deter China. However, it has received a temporizing response from Japan. Vietnam, which has tried to get Japan and the Philippines to interact more with their maritime forces, hopes to conduct joint exercises, including patrols in the South China Sea. They would be on the high seas and in Vietnam’s Economic Zone transversing China’s nine-dash line.

Vietnam is also considering speeding up an agreement for cooperation in which the U.S. Coast Guard would send ships to Vietnamese waters for joint training. Vietnam recently joined the Proliferation Security Initiative, which could enable the United States to help it better to monitor its maritime zone of responsibility.

Another Vietnamese option is to open Cam Ranh Bay to American, Japanese or other friendly nations’ vessels.

Also, unarmed U.S. Navy maritime surveillance aircraft based in the Philippines could move occasionally to Vietnam and carry out joint missions. U.S. military personnel could fly on Vietnamese planes as observers, and vice versa.

Vietnamese officials expect China to continue aggressive naval actions in the South China Sea and see such moves as providing opportunities for the United States and Japan to conduct naval exercises and maritime surveillance flights with Vietnam.

Such a strategy would enable the United States to do something tangible to back up its opposition to the use of threats to settle territorial disputes. It would not require the United States to confront China directly but rather would put the burden on China to decide whether or not to risk attacking Vietnamese vessels and aircraft operating with the Philippines and Japan, some of which might have U.S. military personnel on board.

Cooperation in Southeast Asia

One result of China’s bullying is increased cooperation between the Philippines and Vietnam. Walden Bellow, a member of the Philippine House of Representatives, has argued that, “The Philippines and Vietnam are natural allies in their common struggle against China’s drive for hegemony in East Asia. Already partners in ASEAN, the two are likely to be driven closer together by Beijing’s increasingly brazen displays of power as it enforces its claim to some 80 percent of the South China Sea.”           

A major step occurred in 2012 with the signing of a MOU on the Enhancement of Mutual Cooperation and Information Sharing between the two navies which includes a hotline between the headquarters of their coast guards to monitor maritime incidents such as piracy and incursions into territorial waters. They also agreed to have coordinated maritime patrols in their overlapping waters. However, a cautious Vietnam has been reluctant to move to joint exercises involving the exchange of combat skills, an activity China has warned them not to undertake. So the idea of joint naval patrols was shelved in favor of football and basketball matches between naval personnel stationed in the Spratly Islands.

In sum, the Philippines and Vietnam will develop close political-diplomatic ties to counter Chinese assertiveness in the South China Sea. At present, there seem to be no plans to develop an anti-China military alliance. However, much depends on future Chinese behavior. The recent trend suggests that there will be more action in the South China Sea.

Photo caption: South China Sea nine-dash line. Credit: CC/Google Images

Feb. 26, 2015

How to promote intellectual mediocrity (fire teachers who don’t toe the Party line)

On Jan. 19, the leadership of China issued guidelines demanding that universities make a priority of ideological loyalty to the Chinese Communist Party, Marxism and President Xi Jinping’s ideas. The education minister, Yuan Guirien, called for a ban on textbooks that promote such Western values as the rule of law, civil society and human rights. Zhu Jidong, an official of the China Academy of Social Sciences, has argued that the authorities must “eliminate the teachers who often publish criticism attacking the party and socialism before we can truly uphold virtue and condemn evil.” Also, “Never allow teachers to grumble and vent in the classroom, passing on their unhealthy emotions to students.” Peking University’s website endorses this position saying that since Chinese universities have socialist qualities they should offer socialist education.

“Higher education has been designated as a major battleground of ideological struggle,” said Zhang Xuezhong, a lawyer in Shanghai who was banned from teaching in 2013 for spreading dangerous ideas, and “This won’t be the final step; there’ll be more to come.” But he said Chinese society was so diverse and exposed to outside information, even with censorship, that enforcing Marxist purity was nigh on impossible.

This line is not new and might have something to do with the exodus of experts in many fields in recent years. The leadership faces a challenge in reconciling the aim of broadly-based Chinese excellence with Party-driven repression. Indeed, there is push back with some academics asserting the importance of freedom of expression. One of them even pointed out that Karl Marx was a Westerner.             

One problem in carrying out this order is that many foreign textbooks are used in economics departments and the publishing house of Tsinghua University has reprinted a series of journalism textbooks in their original English. News Reporting and Writing, the publishing houses of Peking University and Renmin University, have printed foreign textbooks for the humanities, business and law. “We use foreign textbooks, but when the teacher is lecturing, they’ll add a Chinese spin,” Zhou Jianbo, a professor of economics at Peking University, said in an interview. “If you want to change this, it’ll take a huge amount of effort,” he said.

This topic is clearly important for Xi who, despite his other responsibilities, has been leading a Politburo study session on applying Marxist-Leninist dialectical materialism to policy. He has given officials a primer in the philosophy of Marx and Engels. 

One might think there is a contradiction here between the recent capitalist successes of China and the ideology Xi preaches. However, Chairman Mao, with his deep understanding of such matters, suggested that because all existence is the result of contradiction don’t worry about the divide between capitalism and socialism.

Feb. 19, 2015

Even more Chinese students are coming here - and more are returning home

There has been an enormous increase in the demand for higher education among the Chinese people. College enrollments have tripled in the past 15 years. The number of Chinese studying in the United States has grown even more, nearly five-fold over the past ten years to 274,000 in 2013. This is about one-third of the foreign student total and the largest number from any foreign country. They are about equally divided between undergraduate and graduate studies.

Students also go in sizable numbers to the United Kingdom and other Anglophone countries, which suggests that some combination of the quality of their universities and the opportunity to improve English language skills are motivators.

"Harvard Girl" (2000) was a best-selling book for parents on how to raise their children to get into top-tier universities overseas. It was written by the parents of a Chinese girl who was admitted to Harvard University, and led the way for a series of copycat books.

While many students have been historically been staying after finishing their studies, as China's economy continues to grow more students are going home because of better job prospects there than in Europe and the United States.

  • An increase in the educational level of the people. Before 1949, approximately 20 percent of the population was literate. Now it is close to 90 percent (with non-Chinese ethnic minorities lagging far behind).
  • A large growth in incomes, from $600 in 1950 to $7,500 per capita in 2014.
  • Advances in technology, including communications, the Internet, high-speed trains and much more.
  • A surge in international travel.
  • Unlike the Soviet Union, there is a low probability that China, 90 percent Han, will break up.
  • If Party leaders are insecure, might they stir up some foreign trouble to get the people to rally around?
  • What might a world with a rich and powerful China be like? Especially if it is still ruled by a Leninist party. Or, if politically pluralistic?
  • Might there be a Chinese “Monroe Doctrine;” “Asia for the Asians”?
  • Would Japan react to the rise of a powerful China by reassuming a great power role? What circumstances might encourage this including a weak United States?
  1. Even if China’s growth rate declines from 7.2 percent in 2013 to around 6.1 percent by 2020, that would still leave it at an exceptionally high rate, one rarely achieved by any country for such a period. It implies that the gross product in 2020 will be around $14 trillion (in 2015 dollars) versus $7,800 billion today. Thus, China will have many more resources available for the care of its elderly.
  2. The United States also has the problem of an aging population. The full retirement age was 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959. Congress cited improvements in the health of older people and increases in average life expectancy as reasons for increasing the retirement age. The same logic would seem to apply to China and that sooner or later it will increase the age for full benefits.
  3. Therefore, the China aging problem looks manageable.
  • High quality inputs of physical and human capital, and technology.
  • Active labor and capital markets.
  • A limited role for government which should set rules for companies and not try to run them, promote competition, assure freedom of entry of new firms and be open to foreign investments and to imports.
  • Well-structured business institutions. For example, shareholders’ interests need to be adequately represented in public corporations.
  • Provision for bankruptcy, an orderly process for losers to leave the market.
  1. One of the most familiar dictum’s in Western political literature is Lord Acton’s: “Power corrupts and absolute power corrupts absolutely.”
  2. The Chinese Communist Party has an approximation to absolute power, hence from this (Western) perspective one should expect it to be absolutely corrupt.
  3. Chinese President Xi Jinping is on a big anti-corruption campaign.
  • The countries where they have chosen to work have superior laboratories.
  • They offer better support for young investigators – who tend to stay.
  • Research communities form around leading scientists who work in these favored destinations.
  • (My guess), the cultural environment in China does not encourage deviant ideas, those necessary for work deserving the Prize.