Chart of the day: India needs spectacular growth no less than China

WSJ front-pager.

Point to remember:  India needs to score in that magic 8 percent ranger to continue cranking enough new jobs--just like China.

In the West, I think we just don't appreciation what a grind that it for them, since we haven't been in that phase of growth for decades now (having matured).  But this is a huge deal for the planet:  between China and India we're talking about a billion and a half poor people that the West doesn't need to worry about--by and large.  They may be poor, but things are improving and there's no great unrest.  Absent the government efforts to make that fabulous growth happen, we could easily end up owning that aggregate problem on some level (aid or worse).

Something to remember as we contemplate our duty in helping run this world:  a huge chunk of responsibility has been taken off our plate by India's and China's rise, and all we have to do is shape their trajectory for the betterment of the world.

And these are good problems/challenges to have--as in, they beat the hell out of the alternative, especially since India and China joining the global economy gave it its critical mass over the pass couple of decades.

So I say, always err on the side of letting them have their way while they're pursuing this unbelievable collective good for the planet.  Push where we can, but always keep in mind what a win their twin rise represents for our international liberal trade order-cum-globalization.

A good measure of social stress in China--and rising expectations

Great reporting piece in the NYT.

The guts:

Forget the calls by many Chinese patients for more honest, better-qualified doctors. What this city’s 27 public hospitals really needed, officials decided last month, was police officers.

And not just at the entrance, but as deputy administrators. The goal: to keep disgruntled patients and their relatives from attacking the doctors.

The decision was quickly reversed after Chinese health experts assailed it, arguing that the police were public servants, not doctors’ personal bodyguards.

But officials in this northeastern industrial hub of nearly eight million people had a point. Chinese hospitals are dangerous places to work. In 2006, the last year the Health Ministry published statistics on hospital violence, attacks by patients or their relatives injured more than 5,500 medical workers.

“I think the police should have a permanent base here,” said a neurosurgeon at Shengjing Hospital. “I always feel this element of danger.”

In June alone, a doctor was stabbed to death in Shandong Province by the son of a patient who had died of liver cancer. Three doctors were severely burned in Shanxi Province when a patient set fire to a hospital office. A pediatrician in Fujian Province was also injured after leaping out a fifth-floor window to escape angry relatives of a newborn who had died under his care.

Over the past year, families of deceased patients have forced doctors to don mourning clothes as a sign of atonement for poor care, and organized protests to bar hospital entrances. Four years ago, 2,000 people rioted at a hospital after reports that a 3-year-old was refused treatment because his grandfather could not pay $82 in upfront fees. The child died.

Such episodes are to some extent standard fare in China, where protests over myriad issues have been on the rise. Officials at all levels of government are on guard against unrest that could spiral and threaten the Communist Party’s power.

Doctors and nurses say the strains in the relations between them and patients’ relatives are often the result of unrealistic expectations by poor families who, having traveled far and exhausted their savings on care, expect medical miracles.

But the violence also reflects much wider discontent with China’s public health care system. Although the government, under Communist leadership, once offered rudimentary health care at nominal prices, it pulled back in the 1990s, leaving hospitals largely to fend for themselves in the new market economy.

By 2000, the World Health Organization ranked China’s health system as one of the world’s most inequitable, 188th among 191 nations. Nearly two of every five sick people went untreated. Only one in 10 had health insurance.

Over the past seven years, the state has intervened anew, with notable results. It has narrowed if not eliminated the gap in public health care spending with other developing nations of similar income levels, health experts say, pouring tens of billions of dollars into government insurance plans and hospital construction.

The World Bank estimates that more than three in four Chinese are now insured, although coverage is often basic. And far more people are getting care: the World Bank says hospital admissions in rural counties have doubled in five years.

“That is a steep, steep increase,” said Jack Langenbrunner, human development coordinator at the World Bank’s Beijing office. “We haven’t seen that in any other country.”

Still, across much of China, the quality of care remains low. Almost half the nation’s doctors have no better than a high school degree, according to the Organization for Economic Cooperation and Development. Many village doctors did not make it past junior high school.

Primary care is scarce, so public hospitals — notorious for excessive fees — are typically patients’ first stop in cities, even for minor ailments. One survey estimated that a fifth of hospital patients suffer from no more than a cold or flu. Chinese health experts estimate that a third to a half of patients are hospitalized for no good reason.

Once admitted, patients are at risk of needless surgery; for instance, one of every two Chinese newborns is delivered by Caesarean sections, a rate three times higher than health experts recommend.

Patients appear to be even more likely to get useless prescriptions . . ..

There are plenty of such Marxian dynamics on the road of rapid development--when rising expectations outstrip the ability of the state to respond.

And when that state is non-democratic, the public tends to go to extremes to express its displeasure.

A defining indication of Old Core evolution: women PhDs outnumber males

image here

WAPO story on new report that says, for the first time in history, the number of PhDs being granted to women outnumber those of men.

I've made this citation in the past:  when women outnumber men in big industries (like the law or medicine), then your economy has truly reached the apex of mature development.

My mom was pregnant ten times in the first twenty years or so of marriage with my dad.  When the babies stopped, she went on to three sequential careers in county social services, then the law, and finally (and still at 85) as an author.  Now, her long life gives her that amazing productivity (on both scales) and that surprising balance (two decades of cranking babies and four decades of work), so she's an avatar of what comes next (and this is a great point that George Friedman makes in "The Next 100 Years"): women go from maybe 50-70% of their adult lives being consumed by children-making and rearing--in the blink of an historical eye--to a fantastically lower child burden (like maybe as little as 10% of their possible working life since they have 1-2 kids and work for so long into their later years).  Just releasing all that potential is a social revolution in and of itself, and American-style globalization has an amazing ability to trigger that development.  

Any smart economist will tell you that the "miracle" of any nation's rapid rise ALWAYS involves turning the women onto labor opportunities outside the home.  That process is the most comprehensive nugget of a social revolution tale that you can locate in modernization/industrialization/globalization.

And when you reach the far-side accomplishment like the one cited here, you know you've basically completed the journey in terms of making opportunity balanced by gender.

I keep having to tell my kids that women lived very different and subordinate lives from about 10,000BC until around the time of my childhood (early 1960s) and then everything changed!  That alone makes this the most amazing time in human history, and thus, the best time in human history to be someone who tracks systemic change and thinks systematically about the future.

As a side note, that's why I find watching "Mad Men" so fascinating, because it captures all this in the before and edge-of-transformation sense.

And that's also why I'm a happy guy with two sons and four daughters.  I've always said that there is nothing in this life (save lifting heavy objects and fighting) that I'd rather do with guys than with women.

To sum up:  the journey from the Gap to the Core is one of demographic aging and feminization of leading service industries (like law, education, medicine).

Chart of the Day: China goes inland for cheaper labor

WSJ story on how Hon Hai, the "world's biggest contract manufacturer of electronics," is heading inland in search of cheaper labor.  The shift, as detailed in the chart, will be profound.  Big investment bets being placed in major inland cities.  The dream is a natural one, insource inland to prevent too much job flight to neighbors and help the country "retain its role as the world's factory floor for decades."  Hon Hai chairman Terry Gou dismisses the notion that competing neighbors will ever be able to displace China.

Besides the geographic shift inland to capture labor costs estimated to be 2/3rds of those along the coast, there is a philosophical shift: this time around Hon Hai has no ambition to create and run entire factory towns within which the company is responsible for housing, healthcare, etc.

Democracy slowly gaining ground in Iraq

WSJ op-ed that argues democratic habits are taking hold in the Iraqi parliament, despite the gridlock on the new government.

A reasonably optimistic take that shows it'll take many years before we know how much Iraq gained versus how much both Iraq and the US sacrificed--and how much impact Iraqi democracy has on the wider region.

As usual, Austin Bay (one of the two co-authors) impresses with his ability to peer pas the conventional pessimism.

A second Daily Star op-ed by Safa A. Hussein, an Iraqi government official with some real history, focuses on the dog that isn't barking:

Iraq is undergoing swift and deep social, political and economic change. There is competition over the distribution or re-distribution of power among political entities: a struggle between the pre-2003 and post-2003 power-holders, and competition among diverse post-2003 parties themselves. There are fears of losing power or of the abuse of power by others, and concern over the distribution of power and wealth among the central government, the Kurdistan region and the provinces, the disposition of disputed areas with the Kurds and relations with neighboring countries.

These struggles are often colored by sectarian and ethnic divides, and further complicated by politics of fear driven by Iraq’s political history of oppression, making compromise more difficult. The good thing, however, is that so far the political parties are referring to the Constitution and courts in their disputes, not resorting to violence.

Given these complexities, there is no quick fix.

Again, we have a surfeit of experts willing to admit defeat, but too few willing to spot the progress--like four fre elections in a row in a region that barely knows of such things.

China: Will fail, but too big to let fail

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Guardian op-ed by way of WPR's Media Roundup.  Fascinating piece.

Very sensible run down to start off:

There is no question that China's growth has been anything short of exceptional. However, that success may have run its course. China will have to rise again in order to rebalance growth while reducing inequality and environmental degradation. The plight of 1.6 billion people depends on it, and the entire world economy. The global community should do all it can to help China succeed.

Like Japan, South Korea, and others before, China has deployed a hybrid mix of state and market-led forces to globalise its economy over the past 30 years. Like its East Asian predecessors the Chinese miracle has been built on exports to the west. The results have been unprecedented, with a growth rate of approximately 10% that has lifted 566 million people over the $1.08 "extreme poverty" threshold set by the World Bank.

Yet the Chinese model is not sustainable in the long run. It has created severe inequalities and environmental degradation and has contributed to the global imbalances that were at the root of the financial crisis. There is an across the board consensus that China needs to diversify demand toward its domestic market.

Yilmaz Akyuz, chief economist of the South Centre, estimates that close to 60% of China's imports are used in the export sector and only 15% of imports are for domestic consumption. 

All sensibly rendered, especially noting the non-uniquenes of the China model.

But here's where Chinese incrementalism cannot be condemned:

The west can't have its cake and eat it too. The west can't tell China to increase domestic demand and rebalance its economy through domestic consumption (without increasing carbon dioxide emissions), and at the same time shun China's incremental approach to to monetary policy, strikes and wage increases, policies for financial stability, and green industrial innovation. China should be enabled to succeed. A country of 1.6 billion people that is now one of the only rudders working in the global economy is too big to fail.

So an argument for focusing on direction over degree--as in, is China slowly moving in the right direction?  And not obsessing too much over speed.

Why?  Simply put, no one wants to own the problem of a ship-wrecked Chinese economy.

Excellent, intelligent piece.

The narrowing definition of success in China

Newsweek blurb noting how China's top schools increasingly draw overwhelmingly from the urban elite.

Insider estimates on Tsinghua and Peking U (the MIT and Harvard of China's universities, respectively) say that only about 1% of the students hail from rural areas, which is amazing considering that close to half of the population live there.  That kind of set-up means somebody like me (hailing from Boscobel, population 2,200 and decidedly rural) never gets into a Harvard (where some local snobs asked me, upon my arrival, how long I'd been in the country).  

This doesn't mean rural kids don't get into universities, just that they're overwhelming restricted to the lesser schools.  In the past, standardized tests meant a certain portion of rural kids got into top universities, but today a lot of other attributes are considered--like foreign language skills, which favor the urban elites.

Bottom line:  the party elite will increasingly grow out of touch with the common man if this educational trend continues.

The Russian brain drain--very Blade Runner-ish

Anybody still watching?

Newsweek blurb (Newsweek is just columns and blurbs now, and virtually no reporting) on how Russia's professional class is fleeing the country.

So who gets left behind?  Not the get-up-and-go types, because--increasingly--they've gotten up and gone, boding very badly for Russia's business DNA pool. 

Reminds me of the death-and-dying vibe of Earthicans (Futurama term) left behind in "Blade Runner."  A very negative sign.

And once gone, Russian businessmen do not return out of fear of being jailed by policy, who are "colluding with organized criminals to seize control of legitimate businesses."

Putin started this whole trend; now Medvedev tries to reverse by decrying "legal nihilism."

Until the regime gets serious about this, Russia has only a present--no future.

Chart of the day: democracy in Africa

From Economist story that declares, "The democracy bug is fitfully catching on.

I would argue two observations:  First, the impact of South Africa is crucial for the beachhead in the south; and America has had some role in enabling the weaker beachhead in the West.

Good underlying trend seen in second accompanying chart:

If the Chinese and Indians and Arab sovereign wealth funds now represent the dominant economic dynamic in the region, then you cannot say that it's resulted in more coups, even if the progress toward serious democracy is "fitful."

The growth China needs and that we all want it to have

Pull back that lens, comrade!

One FT op-ed and two full-pager analyses.

The op-ed from Yu Yongding, a Chinese academic and former official of the Chinese central bank:  the fear of lots of wasted investment with this public-spending infrastructure splurge, plus deep concern over the stunning rise in housing costs over the past couple of years.  The good news?  Chinese tightening of the money supply seems to be working.  Problem is, any slowdown always freaks the central gov, which now considers pumping more money back in.

Better the gov stands firm, says Yu, and let housing prices drop. Chinese banks have the assets to deal with even a 30% dive in prices.

The bigger problems:  "over-dependence on investment and external demand, an unacceptably wide gap in incomes, too few social goods and an underdevelopment of the service sector." Reforms and anti-corruption efforts have also slowed.

Over time, Yu says, the investment route (or what I refer to as extensive growth) will reach natural ceilings "imposed by social, environmental and natural resources."  Meanwhile, China's push for more exports is creating a bad backlash abroad.

The conclusion:

China has concentrated obsessively on GDP growth for far too long.  But growth is not a good excuse for postponing much-needed structural adjustment.

And adjustments naturally translate into slowdowns:  hence the op-ed's title that "China needs slower, better growth."

The two full-pagers give some sense of the regional danger (can Asia sustain enough growth to become the engine of the global economy for the next stretch?) and the internal hope (China's second-tier cities in the next geographic band inward from the coast now service as the engine of growth for the nation itself.

I think the latter, which I've talked about years ago in previous books, is finally coming to pass--and just in time.  It's good for China's stability, the region's economic trajectory, and the world economy at large.  As I always say in briefs, we don't want to own the problem of China's interior poor, thus we must accept that China's protectionism and "cheating" will need to continue for some time.

After the interior belt is developed, however, all China is left with is the vast, relatively uninhabited West.

For now, the competition is clear enough:  when the coastal jobs go, do they go to Vietnam and others in the region?  Or do they go inland?

Tricky row for China to hoe.  Can't be too piggy, but need to be selfish enough.

However much China succeeds, its vision is turned somewhat inward--not necessarily a good thing for the world at large.

Heavy will lay the crown of world’s biggest energy consumer

Series of WSJ and FT stories on the International Energy Agency declaring China the world’s energy demand center, an old slide of mine that goes back to the year 2000.

Humble China disputes the charge!  The IEA counters that China’s official figures have been so bad in the past that they’ve led lots of energy trackers to issue projections that are routinely ratcheted up or down with great statistical violence over the years.  I can attest to this:  when I put out the Asian Energy Futures report a decade ago, I was forced, within a year, to amend the report because the new Dept. of Energy figures so altered its projections on China in just one year’s time that it rendered the report stunning obsolete in some of its assumptions. 

The latest IEA numbers put China at 2.52T metric tones of oil equivalent, about 4% higher than the US, which was the world’s largest consumer of energy for the vast majority of the 20^th century—as in, since it rose to economic prominence in the earliest years of the century.

China is claiming this happened only because the US was in recession and the IEA botched its numbers on China’s actual use, but this is a nonsense reply in terms of clear trends.  China is simply on a rocketing course, so arguing about which month it actually overtakes the US is silly.  Look at it this way, in 2000, the US consumed twice the energy of China and just a decade later China consumes slightly more than America.  Our annual efficiency improvement now stands at 2.5%, while China’s is 1.7%.

And understand that China uses coal to a stunning degree (well over half its energy), while the US share is dropping from its historical range of 40%, thanks to increased use of gas.

Now, at first blush, everyone on both sides will take this as a matter of ego, as in, “check out how powerful China has become!”

But over time the reality will set in:  China is now the most vulnerable economy in the world, and it doesn’t have a military that matches that immense dependency.

Then all we have to do is sit back and see how China likes that new burden, because all the world’s antiglobalization forces, both “soft” and deterministically kinetic, will catch on to this new reality soon enough.

Chinese in the Rear View Mirror May Appear Larger than They Are

FT story on how the West’s diet industry “drools over China’s desire to lose weight.”

Fat Chinese?  Yup.  A stunningly fast outcome of the one-child policy is the supersizing of the “little emperors,” who are supposed to fight over insufficient number of Chinese women WRT marriage AND take care of their parents and grandparents in their old age AND (according to whack-job Western demographers) somehow be willing to join the military and fight overseas wars because of their “surplus” status AND (according to this story) will have to do all these things while fighting their own personal battles of the bulge.

These poor fellows.

Better read Paul French’s book, already out:  “Fat China:  How Expanding Waistlines are Changing a Nation.”

Remember such trends when you scan all these “China will rule the world” tomes and fend off the litany of expert predictions of why we must go to war with China over developing region resources.  China isn’t merely moving up the production scale with speed, it’s likewise moving up the Western scale of social problems with equal speed.

I mean, how many “literate peasants” do you expect will be willing to lay down their lives in overseas adventures for these chubby little emperors back home?  Given China’s loooong history of military adventurism distant from its shores (hmm, where did I put that volume?)?

Many-fat destiny beckons . . . 

The unique practices die once the isolation ends and connectivity rules

NYT story on how polyandry (a wife shared by two or more men) dies out rather rapidly in remote, northern India, once the connectivity of globalization ends its isolation--and presumably the restrictions that led to the practice.

Details:

Now 70 and a widow who is still married— one of her husbands is dead — Ms. Devi is a ghost of another time, one of a shrinking handful of people who still live in families here that follow the ancient practice of polyandry. In the remote villages of this Himalayan valley, polyandry, the practice of multiple men marrying one wife, was for centuries a practical solution to a set of geographic, economic and meteorological problems.

People here survived off small farms hewed from the mountainsides at an altitude of 11,000 feet, and dividing property among several sons would leave each with too little land to feed a family. A harsh mountain winter ends the short planting season abruptly. The margin between starvation and survival is slender.

“We used to work and eat,” Ms. Devi said, her face etched by decades of blistering winters, her fingers thick from summers of tilling the soil. “There was no time for anything else. When three brothers share one lady, they all come back to one house. They share everything.”

Polyandry has been practiced here for centuries, but in a single generation it has all but vanished. That is a remarkably swift development in a country where social change, despite rapid economic growth, leaping technological advances and the relentless march of globalization, happens with aching slowness, if at all.

After centuries of static isolation, so much has changed here in the Lahaul Valley in the past half-century — first roads and cars, then telephones and satellite television dishes, and now cellphones and broadband Internet connections — that a complete social revolution has taken place. Not one of Ms. Devi’s five children lives in a polyandrous family.

“Times have changed,” Ms. Devi said. “Now nobody marries like this.”

You see this all the time with connectivity.  Think of the Mormons with polygamy in isolated Utah, until they want to join the United States for real and they decide to ditch the practice, with the usual hardcores holding on.  Same will happen with female circumcision in places like Kurdistan as it opens up to globalization.

Time and again, "sacred traditions" are ditched because they either no longer are necessary or because they hold you back in your interactions with the larger world.

I wave such cultural distinctiveness a fond farewell.

Brazil pushes the soft power

Economist story on Brazil's punching-above-its-weight approach to foreign aid:

ONE of the most successful post-earthquake initiatives in Haiti is the expansion of Lèt Agogo (Lots of Milk, in Creole), a dairy co-operative, into a project encouraging mothers to take their children to school in exchange for free meals. It is based on Bolsa Família, a Brazilian welfare scheme, and financed with Brazilian government money. In Mali cotton yields are soaring at an experimental farm run by Embrapa, a Brazilian research outfit. Odebrecht, a Brazilian construction firm, is building much of Angola’s water supply and is one of the biggest contractors in Africa.

Without attracting much attention, Brazil is fast becoming one of the world’s biggest providers of help to poor countries. Official figures do not reflect this. The Brazilian Co-operation Agency (ABC), which runs “technical assistance” (advisory and scientific projects), has a budget of just 52m reais ($30m) this year. But studies by Britain’s Overseas Development Institute and Canada’s International Development Research Centre estimate that other Brazilian institutions spend 15 times more than ABC’s budget on their own technical-assistance programmes. The country’s contribution to the United Nations Development Programme (UNDP) is $20m-25m a year, but the true value of the goods and services it provides, thinks the UNDP’s head in Brazil, is $100m. Add the $300m Brazil gives in kind to the World Food Programme; a $350m commitment to Haiti; bits and bobs for Gaza; and the $3.3 billion in commercial loans that Brazilian firms have got in poor countries since 2008 from the state development bank (BNDES, akin to China’s state-backed loans), and the value of all Brazilian development aid broadly defined could reach $4 billion a year (see table). That is less than China, but similar to generous donors such as Sweden and Canada—and, unlike theirs, Brazil’s contributions are soaring. ABC’s spending has trebled since 2008.

"Far reaching implications" are explored in the piece, but hard to see anything but pure upside for the system. China can use the competition, and whatever Brazil's ambitions are, its heart is in the right place.

Biggest worries are that the aid flow is growing too much too fast.

A new breed of young female workers in China

NYT story, which presents not-your-average, just-off-the-farm-and-willing-to-work-at-any-price female laborer:

If Wang Jinyan, an unemployed factory worker with a middle school education, had a résumé, it might start out like this: “Objective: seeking well-paid, slow-paced assembly-line work in air-conditioned plant with Sundays off, free wireless Internet and washing machines in dormitory. Friendly boss a plus.”

As she eased her way along a gantlet of recruiters in this manufacturing megalopolis one recent afternoon, Ms. Wang, 25, was in no particular rush to find a job. An underwear company was offering subsidized meals and factory worker fashion shows. The maker of electric heaters promised seven-and-a-half-hour days. “If you’re good, you can work in quality control and won’t have to stand all day,” bragged a woman hawking jobs for a shoe manufacturer.

Ms. Wang flashed an unmistakable look of ennui and popped open an umbrella to shield her fair complexion from the South China sun. “They always make these jobs sound better than they really are,” she said, turning away. “Besides, I don’t do shoes. Can’t stand the smell of glue.”

Assertive, self-possessed workers like Ms. Wang have become a challenge for the industrial titans of the Pearl River Delta that once filled their mammoth workshops with an endless stream of pliant labor from China’s rural belly.

In recent months, as the country’s export-driven juggernaut has been revived and many migrants have found jobs closer to home, the balance of power in places like Zhongshan has shifted, forcing employers to compete for new workers — and to prevent seasoned ones from defecting to sweeter prospects.

Long predicted by demographers, China starts a long uphill climb on labor costs and demands.  The supply of young workers has peaked and will drop by a third over the next decade or so.

As usual now, we are told that this generation ain't interested in the "eat bitterness" sacrifices of their parents, nor are they interested in returning to the land:

Guo Yuhua, a sociologist at Tsinghua University, said the new cohort of itinerant workers was better educated, Internet-savvy and covetous of the urban niceties they discovered after leaving the farm. “They want a life just like city folk, and they have no interest in going back to being farmers,” said Ms. Guo, who studies China’s 230 million-strong migrant population.

Listen to this 28-year-old male laborer:

“Money is important, but it’s also important to have less pressure in your life.”

WHAAAT?

The generational divide should strike any developing/developed economy as familiar:  parents see lazy kids who expect entitlements and kids see parents afraid to buck the system and make their legitimate demands known.

I would say the ideological infection is complete.

More aid versus better government: the illusion of Live Aid's success--in retrospect

Brutal bit of analysis in WSJ op-ed by John-Clark Levin (who has a hyphenated first name, I ask you?).

Ground zero for the famine 25 years ago was Ethiopia, hence my newly heightened interest.

$283M raised, but a subsequent BBC investigation says that "so much of the money went to arms instead of food that it may have prolonged and deepened Ethiopia's humanitarian catastrophe."

The later UN relief effort in Somalia wasn't much better, as 80% of the food aid was stolen, such was the bad security situation, which only stabilized after the US Marines showed up in 1992.  Once we withdrew after "Black Hawk Down," the situation once again deteriorated there.

Now fast forward to 2006, when severe drought once again struck. This time, Kenya and Ethiopia, with relatively stable governments, were able to cope far better than lawless Somalia. The easing of food shortages in the Congo over the past five years happened for similar reasons--better local governance.

Levin's point:  "Famine and poverty cannot be solved with charity alone.  We can only stop them by putting an end to corruption and instability."

A certain administering to the system, I might call it. 

Chart of the day: China's banks moving on up

Economist story on IPO for China's huge Agricultural Bank, which, BTW, raised about $19B and will end up with $22B when all is said and done--the biggest IPO in history when all the additional possible shares are issued.

The event, says The Economist, "ends a decade-long process to transform China’s huge financial institutions from wards of the state to banks that resemble publicly listed firms in the rich world."

Now that the catch-up has occurred, warns the newspaper,
"success will force the model to change."

So no "Beijing consensus," says The Economist.  "Though neat, such a conclusion looks wrongheaded."

Not that Ag Bank's future isn't bright. It has 320m customers and only 1% of them have mortgages, so growth is guaranteed.

And yes, the government could easily loan and spend its way out of the Great Recession by commanding banks to lend like crazy.

But:

Even admirers, though, cannot fail to spot China's bad-debt problem. Those who think capitalist democracies have an unrivaled talent for generating dud loans should consider the Middle Kingdom.

Bad, politically motivated management in the past meant that by the late 1990s, almost a third of all loans in China were to zombie state-run enterprises, thus requiring China to lead the world in bank bailouts for most of the last decade.

The latest binge, as the newspaper calls it, is likely to trigger similar dynamics in the sense of overbuilding capacity.  Yes, the gov can afford the hit, but that's mostly because the Chinese save at such a high rate, meaning banks don't need to turn to debt markets.

Real change to the system will come, as always, with success.  The more the middle class emerges, the more banks will need to clear up space on balance sheets to loan out money to individuals and small firms, and "The heavy lifting of financing infrastructure and state companies will shift to bond markets."

In the end, China's banking system will not be all that different from the West's.

The concluding argument of the editorial:

China’s banks could then end up looking a lot like banks elsewhere, although the state will still have control. Yet even that could change gradually. At current growth rates China’s banks will need capital injections every few years. The government may tire of these shakedowns—its participation in this year’s equity raisings has been a little grudging—and allow its stake to be diluted instead. And, as China’s banks claim their rightful place among the global leaders, they will find doing big foreign deals is hard when the government has a hand on the steering wheel. The rise of China’s banks is stunning and a little frightening. Yet they are not the pallbearers of market-based finance, just a work in progress.

Beware the bullshit artists who claim China is somehow making a new model of development happen.

The Chinese dream by way of a generation of rising "little emperors"

Pu Yi--not the last little emperor capable of wreaking havoc in China.

FT op-ed by Geoff Dyer on the Me Generation of single children in China, "who want more from their lives than their parents could dream of."

Dyer contextualizes the recent labor unrest as part of a generational shift.  Past generations may have been willing to "eat bitterness," but the upcoming crop is not.  Long gone are the 18-year-old females just off the farm who will take any abuse the system heaps on them--just to hold onto that factory job.

According to Chinese economist, Andy Xie:

Today's young adults and their parents may as well be from different centuries.  They want to settle down in big cities and have interesting, well-paying jobs--just like their counterparts in other countries.

Remember that when you're sold the Chinese threat of--as Robert Kaplan so eloquently put it--a "literate peasantry" hell-bent on conquering the world for its resource needs.  The generational shift described here doesn't sound like a cohort willing to sacrifice all that much.  Instead it sounds like one ready for its due entitlements up front.

For the tens of millions of young Chinese graduates, buying a flat is a central part of their plan to live a modern, middle-class life. Young Chinese men feel the social pressure the most. The first time someone told me his chances of getting married would be ruined if he could not buy an apartment, I thought he was joking, yet it is a refrain one hears constantly. Chinese mothers-in-law to-be, it seems, can be an unforgiving bunch.

Yes, when poked, these angry young men will sound off in the most nationalistic ways, but don't assume that translates into a willingness to march on Beijing's call.

... it is not a contradiction for young people to be more patriotic, but also more demanding and individualistic.  Modernisation has unleashed powerful forces--pride and confidence in China's achievements but also high expectations about the life that can be lived. The signs of restlessness among young Chinese make for a less predictable political future.

Whenever I've had the chance to lecture before Chinese college students, I've always come away impressed by the fierceness of their Kantian mindset: they fervently believe that China can have a good life and never be forced to fight any ways to defend it. I think that's naive, but I also think it shows how little stomach exists within this Me Generation for fighting their way to the top.

In short, the 5GW struggle has already been won.

Love--Chinese style

WAPO story on Dating Game-like TV show that has the morality police incensed.  Lady pictured above was an audience fave.

"If You Are the One" is a Chinese television phenomenon, one of many popular matchmaking shows on which young people seek mates amid ribald jokes from the host and occasional racy comments from guests.

Audiences loved all the titillation, until last month -- when Chinese government censors came down hard. After a contestant indicated she was angling for a wealthy man with a flashy car, government nannies ordered all matchmaking shows to cut the sexual innuendo, uphold traditional values and ban any talk of women "gold digging."

The censorship is the latest and most public example of the government's new crackdown on vice and perceived immorality. It comes even as China becomes more freewheeling and open, with people increasingly pushing the boundaries in matters involving taste, sex and money -- and the intersection of the three.

As China moves toward more affluence, it'll get far harder for the government to police this sort of thing. Same thing happened to America in its "rising" 1950s, particularly with cars going mainstream.  And we didn't even have the Internet!

If every Chinese bought just one . . .

NYT story by Keith Bradsher raising the usual bugaboo about China's middle class dooming the planet to environmental ruin--if it replicates the West's consumption trajectory.

My usual reply is that it cannot, simply because China won't be able to acquire enough energy to power all that growth unless it is channeled differently--i.e., you can't get there from here.

The basics:

Premier Wen Jiabao has promised to use an “iron hand” this summer to make his nation more energy efficient. The central government has ordered cities to close inefficient factories by September, like the vast Guangzhou Steel mill here, where most of the 6,000 workers will be laid off or pushed into early retirement.

Already, in the last three years, China has shut down more than a thousand older coal-fired power plants that used technology of the sort still common in the United States. China has also surpassed the rest of the world as the biggest investor in wind turbines and other clean energy technology. And it has dictated tough new energy standards for lighting and gas mileage for cars.

But even as Beijing imposes the world’s most rigorous national energy campaign, the effort is being overwhelmed by the billionfold demands of Chinese consumers.

Chinese and Western energy experts worry that China’s energy challenge could become the world’s problem — possibly dooming any international efforts to place meaningful limits on global warming.

If China cannot meet its own energy-efficiency targets, the chances of avoiding widespread environmental damage from rising temperatures “are very close to zero,” said Fatih Birol, the chief economist of the International Energy Agency in Paris.

Aspiring to a more Western standard of living, in many cases with the government’s encouragement, China’s population, 1.3 billion strong, is clamoring for more and bigger cars, for electricity-dependent home appliances and for more creature comforts like air-conditioned shopping malls.

As a result, China is actually becoming even less energy efficient. And because most of its energy is still produced by burning fossil fuels, China’s emission of carbon dioxide — a so-called greenhouse gas — is growing worse. This past winter and spring showed the largest six-month increase in tonnage ever by a single country.

I learned this first in my workshops with Cantor Fitzgerald:  with energy use doubling (or more)  across China in a generation's time, it gets awfully hard to shift those percentages of coal versus gas versus renewable, etc. You race like crazy just to stay in place.

In many ways, this is why it's impossible for America to dream of overtaking China on alternative energy: we just don't have the same vast necessity that they face. Simply put, the world needs China to become the global leader in this realm, because nobody but China can afford to make it happen in China.