Archive for the Category China


China is cleaning up fast

Here’s the NYT:

On March 4, 2014, the Chinese premier, Li Keqiang, told almost 3,000 delegates at the National People’s Congress and many more watching live on state television, “We will resolutely declare war against pollution as we declared war against poverty.” . . .

Four years after that declaration, the data is in: China is winning, at record pace. In particular, cities have cut concentrations of fine particulates in the air by 32 percent on average, in just those four years.

Back in 2013, I was very skeptical of claims that pollution was dramatically shortening life expectancy in China.  Despite the following, I’m still skeptical.

To investigate the effects on people’s lives in China, I used two of my studies (more here and here) to convert the fine particulate concentrations into their effect on life spans. . . . Applying this method to the available data from 204 prefectures, residents nationally could expect to live 2.4 years longer on average if the declines in air pollution persisted.

The roughly 20 million residents in Beijing would live an estimated 3.3 years longer, while those in Shijiazhuang would add 5.3 years, and those in Baoding 4.5 years. . . .

The U.S. Clean Air Act is widely regarded as having produced large reductions in air pollution. In the four years after its 1970 enactment, American air pollution declined by 20 percent on average. But it took about a dozen years and the 1981-1982 recession for the United States to achieve the 32 percent reduction China has achieved in just four years.

. . . Bringing all of China into compliance with its own standards would increase average life expectancies by an additional 1.7 years (as measured in the areas where data is available). Complying with the stricter World Health Organization standards instead would yield 4.1 years.

I’m still not buying these claims.  Beijingers currently live to be 82.  Will this reduction in pollution push their life expectancy up to 85.3?  I doubt it.  Would meeting the WHO standards boost life expectancy up an additional 4.1 years to 89.4?  Very unlikely.

To be sure, life expectancy has been rising in Beijing, and will keep rising–perhaps to 85 or 86.  But that was equally true when pollution was getting worse.  The effects of pollution have been exaggerated in the press, as Andrew Gelman so ably pointed out back in 2013.

Having said all that, this news is certainly very good, and means that Chinese RGDP growth was overstated during the boom period of 1980-2012, and is currently being understated.

You knew this was coming

Why am I not surprised?

Chinese President Xi Jinping recently consolidated power. Trump told the gathering: “He’s now president for life. President for life. And he’s great.” Trump added, “I think it’s great. Maybe we’ll give that a shot someday.”

There are a lot of people in China who believe in classical liberal principles.  At one time they respected America.

PS.  If you think presidential character doesn’t matter, read this.

PPS.  I just crossed 10,000,000 views:


Was the dotcom mania “mad”? (And let’s lower the relative status of pessimists)

Tim Harford has a very good piece on bubbles in the FT.  This caught my eye:

Yet even with hindsight things are not always clear. For example, I first became aware of the incipient dotcom bubble in the late 1990s, when a senior colleague told me that the upstart online bookseller was valued at more than every bookseller on the planet. A clearer instance of mania could scarcely be imagined.

But Amazon is worth much more today than at the height of the bubble, and comparing it with any number of booksellers now seems quaint. The dotcom bubble was mad and my colleague correctly diagnosed the lunacy, but he should still have bought and held Amazon stock.

I wish I had bought Amazon in the 1990s, just as I wish I had bought Bitcoin at $12, when I was writing posts claiming that it was not a bubble.  But I didn’t, and given what I knew at the time there was really no reason for me to do so.  But what about the claim that “the dotcom bubble was mad”?  I do recall people saying that in 2002, after the bubble had burst and the NASDAQ fell to 1200.  But is that true?

The argument made in 2002 is that tech valuations made no sense unless you believed that tech companies would push aside old stalwarts like GE, GM and Walmart, and that companies like Apple and Amazon would become the most dominant corporations on Earth.  Well, hasn’t that happened?  Another argument was that you’d have had to believe that all the dotcom companies would be successful.  Actually, if you didn’t know which ones would be successful, it would have made sense to buy an index fund in the NASDAQ.

The NASDAQ peaked at just over 5000 in early 2000, but that was for just a very brief period.  The average “mad” dotcom investor would have purchased stock at some time during 1999 or 2000, probably at a NASDAQ level closer to 3500 or 4000.  NASDAQ is now above 7200, and if you add in dividends it would not be unusual for an investor to have doubled their money over 18 years.  That’s not particularly good for a risky investment, but it’s not horrible.  It’s a higher rate of return than T-bills, but lower than T-bonds.  But keep in mind that T-bond investors lucked out, as actual NGDP growth was far less than expected when T-bonds were yielding 6%, and if people had known what was going to happen to the US economy, yields would have been far lower in 2000.  Alternatively, if NGDP had grown as expected, the NASDAQ would be far higher today.

Just to be clear, even today it seems like the tech market was a bit frothy at the peak in March 2000, I’m not denying that.  But my point is that all of these judgments are provisional.  If people really believe that markets are irrational, they ought to be writing posts in the FT talking about the negative bubble of 2002.  What were those morons thinking when they sold tech stocks when NASDAQ was at 1200?  Were they insane? Were they idiots?  Instead, pessimism is intellectually respectable so the pessimists get off scot-free, while optimists are ridiculed for being wrong.  Why?

Here’s how the FT article starts out

“Prices have reached what looks like a permanently high plateau.” That was Professor Irving Fisher in 1929, prominently reported barely a week before the most brutal stock market crash of the 20th century. He was a rich man, and the greatest economist of the age. The great crash destroyed both his finances and his reputation.

The fact that Fisher’s wrong prediction had any impact on his reputation is a sad commentary on our society.  His forecast should have attracted no more attention than his forecast as to who would win the World Series.  Would Fisher’s reputation have been damaged if he got a baseball game wrong?

And if we really should trash people for their bad calls on the market, why isn’t Robert Shiller’s reputation damaged for his claim that stocks were overpriced in 2011, when in fact it was near the beginning of one of the great bull markets in US history?  Why trash the optimists but not the pessimists?

And why aren’t the Chinese bears being called to account for all their predictions of a crash in the Chinese economy, or of 3% average real GDP growth during the decade of the 2010s?

Just to be clear, I’m not saying anyone’s reputations should be trashed.  My complaint is that other people are trashing great economists like Irving Fisher with no justification at all.

Speaking of China, remember all those predictions that it would get stuck in the middle-income trap?  Read the following from another FT story, and ask yourself how often you read those sorts of things about Turkey, Brazil or other countries that are actually stuck in the middle-income trap:

Here, too, China is catching up. Chinese internet leaders Tencent and Alibaba have a combined valuation of $1tn. Add in another $200bn or so for Baidu, and Netease plus other listed or unlisted companies, such as Toutiao, Meituan and Didi, and the scale of the Chinese market becomes apparent. Trends emerging in China are beginning to shape the future of the global tech landscape. To its dominant role in the supply chain we can now add a “demand chain” aspect to the country. . . .

Massive investments in mobile broadband and a highly competitive handset market means that nearly all of China’s approximately 750m internet users use smartphones. Payments via QR codes, led by Tencent’s WeChat and Alibaba’s Alipay, are making cash obsolete. Dockless bikes line the streets of Chinese cities. The country’s physical infrastructure — roads, high-speed trains and airports — are facilitating as big a boost to consumption as President Eisenhower’s roll out of the Interstate Highway System in the US in the 1950s.

I have lived in Beijing for more than 20 years, yet only in the past year have I felt on returning to London or Silicon Valley that I’m going backwards in time. For urban residents, China is increasingly a study in frictionless living. Hopping on a bike, ordering a meal from a huge range of restaurants, paying for utilities, transferring money to friends — all can be done at the touch of a button. Internet services in the west offer increasing convenience no doubt — but nothing beats the experience in China.

What part of “developed country” is China not going to be able to do by 2035?  Be specific.

Is Christmas even merrier than in 1967?

This graph in the FT caught my eye:

The graph shows two measures of the rate of increase in the “cost of living” in China.  The blue line is the government CPI, while the red line shows the results of public opinion surveys.

At first glance they look pretty similar, but check out the two scales.  Chinese CPI inflation has been running at about 2% in recent years, while the public’s estimate of inflation is around 6%.  The gap was even bigger in the (booming) early 2010s.  So what’s going on here?

This is just one more illustration of my claim that inflation is a pretty meaningless concept.  To economists, it’s the increase in the price of a bundle of goods, adjusted for quality changes.  To the public, it’s the increase in the cost of “living the way we live now.”

Thus if a nice flat panel TV cost $600 today, and a nice black and white TV cost $300 back in 1967, then the public would say that the TV part of the cost of living has doubled, while economists would say that the price of TVs has plunged by something like 90%, because the quality improvements have been so massive.

[In 1967, I frequently had to shake the antenna on top of our TV set, to prevent constant flickering and “snow”.  I didn’t even know that the Wizard of Oz was a color film until I saw it in the theatre at age 35.)

Alternatively, the public would say that Christmas today is about equally merry as in 1967, while economists would say that today’s Christmas is far merrier due to technological progress.

Here’s my take on the Chinese data.  The top line is strongly correlated with growth in NGDP per capita, i.e. average income.  If Chinese living standards are rising rapidly each year, then this factors into what people feel they need to earn to “keep up with the Zhangs”.  They are interested in knowing how much it costs to have a middle class Chinese lifestyle.  Indeed this concept may be even more important in “communist” China than in supposedly materialistic America.

On closer inspection, however, the rise in the perceived Chinese cost of living is a bit less that the rise in NGDP.  And I think that’s due to lifecycle effects.  Thus the older Chinese don’t need all the fancy new gadgets that millennials buy, and hence their cost of living rises a bit less rapidly than the overall rise in NGDP/person.

I’d expect that surveys of American perceptions of inflation would show something similar; a subjective inflation rate that is above the official CPI, but below the growth rate of NGDP/person.  Does anyone know of such a survey?

PS.  The FT article says the Chinese economy is accelerating into 2018.  It looks like those who predicted that the Chinese “bubble” would burst will be wrong for the 40th year in a row.  Indeed 2018 looks like a relatively strong year for the entire global economy.

PPS.  Check out the new Tianjin library:

Merry Christmas and a Happy New Year to all my readers.


Good news from China

The Financial Times has several interesting pieces on recent trends in China:

Chetan Ahya, an economist at Morgan Stanley, said that alongside the decline in the Gini coefficient, China has also improved another measure of inequality, the rural to urban income ratio, from a low of 29.4 per cent in 2004 to 37 per cent by 2016.

The rapid rise in rural incomes means Morgan Stanley now predicts that China will reach the World Bank’s high-income threshold of $13,700 a head by 2025, two years earlier than its previous forecast.

Alongside rising wages, Mr Ahya said equality was also being aided by gradual, if slow, reform of China’s hukou system, which has restricted access to public healthcare, education and housing for the many millions of migrant workers who have flocked to China’s major cities.

The existence of this system meant that, “on an underlying basis, income inequality was actually higher” than the Gini measure suggested, Mr Ahya argued. However, with cities with populations below 500,000 now fully open to migrants, those with populations up to 5m having to accept urban residency applications after five years of social security payments, and Beijing having set a target of giving urban residency status to 100m migrants by 2020, this impediment is starting to be removed.

There is also progress on the environment, something I noticed the last time I went to Beijing:

A lower Gini coefficient also helps de-risk investment in China, Mr Bakkum argued. “The current leadership understand that social inequality and environmental problems can lead to social unrest.”

As an example, he cites the notoriously bad air pollution problems in Beijing, which now finally seem to be being addressed. “They have focused a lot on the environment in Beijing in particular and you can see the difference. The risk of big social unrest because of the environment has come down.”

Another FT article suggests that the Chinese are beginning to heed my “more money, less credit” suggestion:

China’s central bank injected $47bn into its financial system, its largest intervention in nearly a year, in an effort to calm investor fears that Beijing’s crackdown on debt-fuelled growth would put a brake on the country’s rapid expansion.

Please don’t take any of this as an endorsement of the recent political trends in China, which has followed the sort of anti-intellectual nationalism that we see in Russia, Turkey, Poland, Hungary, Philippines, India, and yes, another former leader of the “free world”.

Speaking of China, this is a smart move by the GOP–at least in political terms:

The U.S. Justice Department has threatened to sue Harvard University to force it to turn over documents as it investigates whether the Ivy League school’s admission policies violate civil rights laws.

Citing a 2015 lawsuit that charges the school’s affirmative action policies discriminate against Asian-American applicants, the federal government in a letter set a Dec. 1 deadline for Harvard to hand over documents on its admission policies.

I don’t have an opinion either way on whether this is good public policy, but the Dems are foolishly throwing away votes in the Chinese community by ignoring this issue.  It may not have shown up in the polling yet, but there is a strong move toward the GOP among educated Chinese-Americans, and it’s driven almost exclusively by perceived anti-Asian racism at elite universities.  This should be a strong Democratic issue, as the GOP generally doesn’t believe in these sorts of anti-discrimination lawsuits.  The fact that it’s the GOP doing this and not the Dems is  .  .  .


PS.  The article points out that Brazil has made more progress against “inequality” than China, as seen by the more rapid decline in its Gini coefficient.  So in which country are the poor doing better?  (Hint, compare recent GDP growth rates.)