Saturday, January 01, 2005

Obstacles to China development

The possibility of social unrest in China due to widening inequality has been widely discussed. Here is some recent coverage from the Times.

But just as problematic is the vast misallocation of resources resulting from local government corruption, lack of transparency and absence of rule of law (i.e., "crony capitalism"). See here for an example involving the Apex scandal and export of TVs and DVD players. Apex is one of the largest distributors of DVD players and TVs in the US, and is primarily responsible for driving the price of DVD players below $50 dollars. Now it appears that Sichuan Changhong Electric Appliance, their main supplier, will report as much as $500M in losses due to lack of payment from Apex, stretching over a year. How could Apex get away with this? Who was paid off? The Times suggests that a Party boss and former Changhong executive was involved and has been sacked over the affair.

The head of a leading research institute in Beijing once said to me in this regard that "hardware is easy, software is hard" - meaning that it is easier to build factories, roads and airports than to implement a functioning market system and civil society with transparency and rule of law. The transition from a low-trust society (where the people don't trust their government, or even their neighbors) to a high-trust society (where things like the financial and legal systems are expected to work, and do) is difficult.
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12 comments:

Anonymous said...

Important post indeed. Forgive the inconstant reponse, but travels make for curious breaks. Several years ago, there was a dinner for Jiang Zemin and from the informal remarks about our outer table I had just your impression. But, why should we be surprised that trust is such a problem and may be recognized as such by the leadership? Has this not been a prototypical problem for centuries? There is an animated series for children on PBS written in part by Amy Tan which I have watched several times, and I am struck that several themes of the series are your themes.

Oh, since you were kind enough to wonder. My field is modern philosophy, at least I like to think so :), so I am forever learning how to think.

5:06 PM
Anonymous said...

Ah, Amy Tan's stories are of Sagwa. Sagwa is a kitten, a curious kitten, living in the home of a local governor in imperial China. I must read the stories that form the animated series. Yes :) Also, I must go back to reading Jonathan Spence.

6:54 PM
Anonymous said...

Oh, it is Anne, really.

6:55 PM
Anonymous said...

http://www.nytimes.com/2005/01/01/opinion/01diamond.html?ex=1105623826&ei=1&en=7a2db42ac5a2101f

The Ends of the World as We Know Them
By JARED DIAMOND

Los Angeles — NEW Year's weekend traditionally is a time for us to reflect, and to make resolutions based on our reflections. In this fresh year, with the United States seemingly at the height of its power and at the start of a new presidential term, Americans are increasingly concerned and divided about where we are going. How long can America remain ascendant? Where will we stand 10 years from now, or even next year?

7:24 PM
Steve Hsu said...

Yesterday I was at a dinner hosted by a well-known China scholar in the history department. There were graduate students there from China, several from Bei-da. I asked several of them about corruption, and the responses ranged from "many local officials are corrupt" to "all officials are corrupt". Resources in China are being directed to build showcase skyscrapers when some peasant children cannot afford to pay their primary school fees.

I think trust is very important because it increases the efficiency of a society. Francis Fukuyama wrote about this some time ago. Corruption and crime are all frictional forces that make life harder for and cause resources to be misallocated. Fukuyama characterizes countries like Sweden or Japan as high trust, the US and UK as medium high, and places like China or Brazil as low trust.

BTW, thanks for the REIT info - I will have a look. Happy holidays! (Alas, almost over as our quarter starts tomorrow...)

2:02 PM
Anonymous said...

Agreed. I range from hopeful to doubtful. African friends uniformly look to China with social envy, for the sense of history they believe will serve to continue the Chinese development process. Are they naive? Is social structure so much more conducive to sustained development now in China than in Nigeria? If I am hopeful about China, what of Brazil? I think the social potential in China more secure than Brazil, but China appears to be influening Brazil for the better. Round and round and round.

Wishes for our year :)

Anne

7:02 PM
Anonymous said...

http://www.nytimes.com/2005/01/03/international/asia/03china.html?ex=1105761392&ei=1&en=b2f3ba2d309e53b3

A Village Grows Rich Off Its Main Export: Its Daughters
By HOWARD W. FRENCH

LANGLE, China - There are two kinds of families in this village: the relatively rich, who live in tiled villas with air-conditioning, and those who still hunt in the wooded hills with bow and arrow and send their sons off to become Buddhist monks when there are too many mouths to feed.

Such distinctions once lay in questions like who tills their paddies by hand under the broad, open skies in this rice-growing region of southwestern China, and who owns a water buffalo to perform the backbreaking work. But more and more these days, relative prosperity is tied to which families have daughters, many of whom go to Thailand and Malaysia to work in brothels.

'If you don't go to Thailand and you are a young woman here, what can you do,' said Ye Xiang, 20, whose features still had the pudgy look of a teenager's. 'You plant and you harvest. But in Thailand and Malaysia, I heard it was pretty easy to earn money, so I went.'

At least 20 other young women from this tiny hamlet, which clings to a hillside just off a side road near the Mekong River, have headed off to foreign lands to work in the sex trade. 'All of the girls would like to go, but some have to take care of their parents,' Ms. Ye said.

In this regard, there is nothing peculiar about Langle, at least nothing peculiar for this part of Yunnan Province, whose women are favorites in the brothel industry from Thailand - whose national language is related to their own dialect - to Singapore.

Experts say that in some local villages a majority of women in their 20's work in this trade, leaving almost no family untouched and the young men without mates. Not long ago, many of the recruits were kidnapped to become modern-day sex slaves, but these days the trade has become largely voluntary.

Anne

10:00 AM
Anonymous said...

Steve

Why do you think saving rates are so high among Chinese families? Would you guess the difference between China and Mexico is a function of family cohesiveness and sharing? I do not take national holusehold saving rates as a reflection of the strength of a social safety net. There must be much much more. Why should Sweden have so high a rate and America so low? But, what of China?

10:07 AM
Anonymous said...

When we think about China running a trade deficit, I do not know how that is possible given China's social structure and a fierce desire to determine its own development path. Also, the high household saving level makes it hard to think of China running much of a trade deficit any time soon. After all, look how successful Japan was between 1950 and 1990 developing with a surplus. I agree China must limit the accumulation of dollar reserves, and yet and yet China grows apace. What am I missing?

Anne

11:16 AM
Steve Hsu said...

Anne,

I have no explanation for the variation in savings rates, other than to say there are probably cultural factors as well as economic ones.

I think China actually runs only a slight surplus or deficit in total trade - the big surplus is with the US and the deficit is with Japan, Korea, Taiwan, etc. This looks a bit as if they are importing components from those countries, assembling in China, and shipping to the US - just a caricature, but with a kernel of truth.

The article about the daughters is pretty bizarre, but Yunnan is right on the border with Thailand, where the sex industry has been going on for some time.

1:29 PM
Anonymous said...

http://www.nytimes.com/2005/01/04/business/worldbusiness/04yum.html?pagewanted=all&position=

India's Boom Spreads to Smaller Cities
By SARITHA RAI

COIMBATORE, India - When the first Kentucky Fried Chicken outlet opened in India, in the technology hub of Bangalore in 1995, the welcoming committee was largely absent. It was just four years after India opened its economy to outsiders, and the outlet quickly became a target of irate farmers, Hindu nationalists and others decrying what they saw as the encroachment of the corrupt, and corruptive, West.

KFC's parent, Yum Brands, now has 100 KFC and Pizza Hut restaurants in India, 30 opened in 2004, and a goal of 1,000 by 2014. To realize such growth, the chains have begun a seemingly inexorable march into the country's smaller boomtowns, cities like Coimbatore and Cochin in the south, and Jaipur and Meerut in the north, where middle-class Indians - who increasingly crave localized Western foods, regional flavors and ingredients infused into the pizza, pasta or poultry - have hailed their arrival....

As India's galloping economy has extended to its smaller cities, a younger population with expendable income is finding many Western and upmarket domestic products, brands and services increasingly accessible.

Anne

12:14 PM
Unknown said...

I’ve been doing some serious research about the positioning of buttons in forms in general. And what I’ve come up with is to put the “Primary Action”-button left-aligned with the form. One of the reasons for doing this is that the eye automatically searches for a new form element to the left just under the previous element.

IT developer

12:31 AM

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