Yesterday, Mark DeWeaver did an interview with U.S. News & World Reports regarding his recently published book on China: Animal Spirits with Chinese Characteristics.
Below is the interview:
Also viewable at Google Hangout.
I previously interviewed Mark for TLS and reviewed Animal Spirits for TLS.
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There are certain books in life that upon reading them you think to yourself “I feel not only smarter but this is exactly the book I would like to have written.”
And that is in summation what Animal Spirits with Chinese Characteristics embodies. It is written by nine-year China veteran Mark DeWeaver, now the hedge fund manager of Quantrarian Capital Management in Washington DC. In addition to having worked as a broker and financial analyst in Guangdong (the most populous province on the mainland) and Hong Kong, DeWeaver received his PhD in economics from the University of Hawaii. The title alludes to the ‘animal spirits’ invoked seventy-five years ago by John Maynard Keynes to describe how emotions influence human behaviors. The other part of the title comes from Deng Xiaoping’s “reform and opening up” (改革开放) liberalization process that began in 1978 – what Deng called “socialism with Chinese characteristics.”
One of the shortcomings of many China-related non-fiction books today is that they generally try to discuss something that is impossible to penetrate: how and why the Standing Committee makes decisions. Volumes have been and will continue to be written about the purported inner workings of Zhongnanhai (中南海), the Party headquarters in Beijing, yet this amounts to little more than the modern-day equivalent of Kremlinology. Or as the popular and fitting English expression germanely (sic) describes this seemingly futile divination activity: trying to read the tea leaves in China (tasseography). [Keep reading…]
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A reader (Alice) recently emailed me a rather interesting claim, that China is well on its way of becoming a $123 trillion economy. Alice links to a MarketWatch piece that repeats some of the same flawed myths that Michael Pettis and others continually debunk. Pettis for example argues convincingly in his latest piece (not up yet on his site) that China today is more like Japan in the late ’80s and thus will be growing at much smaller percentages in the future.
In contrast, the MW piece essentially says:
1. China grew ~8-10% annually over the past three decades
2. ???
3. China continues to grow ~8-10% for infinity plus one
The MW piece in turn quotes from a slightly older Foreign Policy piece, written by Robert Fogel, whom argues a very bullish case for China based on five criteria.
The first of which, Fogel notes that educational investment pursued by Chinese policy makers will somehow reap large dividends. Par for the course, a recent WSJ article notes that the US and UK spend the most per student and that Chinese policy makers are trying another top-down approach to overtake the US in this metric as well — by pumping out ever larger numbers of graduates. Yet ceteris paribus, quantity of graduates does not equal quality. Or in other words massive state funding does not necessarily equal to (!=) massive gains in worker productivity. Their approach is indirectly debunked at the WSJ (here) and by a piece I recently wrote.
Fogel’s piece also suggests that there will be continued, substantial contributions from the rural countryside. While there is no doubt that Chinese subsistence farmers (~45% of the population) that average roughly $1,100 in earnings each year will probably continue to be measurably productive and generate wealth, it does not follow that they will somehow generate massive GDP multiplier coefficients. If that were the decisive case then rural-heavy, developing countries like India, Indonesia and Pakistan are all up for double & triple digit trillion dollar economies soon as well. [Keep reading…]
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To preface, let me say one positive thing about China: I have yet to be fearful at night. That is to say, I am not worried about my physical safety while walking the streets at night. And the same thing can be said with my time in Korea, Japan and Taiwan as well.
Now on to the show. One common myth espoused by some misinformed analysts is that Chinese policy making is done by a meritocracy. That ironically redundant as it sounds, central planners in China are somehow better at central planning than central planners elsewhere.
This of course is obtuse: if socialism cannot work due to its inherent inability to rationally allocate resources (e.g., all distribution methods are arbitrary, lacking an organic pricing mechanism), then central planning cannot work in China as well.
Thus, at least one notable financier has gone on record saying, not only has no real estate bubble, but that there is little government intervention in the property marketplace.
Well after large amounts of their own 2008 stimulus funding ended up in various asset classes including property, real estate prices rose markedly (and then fell), and rather than allowing the free market to clear the path towards more affordable housing, something funny happened.
Or as Mises or Robert Higgs might say, interventionism begets further interventionism:
- China starts construction on 5.8 million low-income housing units (Xinhua)
- China’s Housing Plan Hits Local Hurdles (WSJ)
This will end well.
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When should an entrepreneur or firm consume capital instead of accumulate it? Earlier this week Google executive chairman Eric Schmidt debated techno-guru-investor Peter Thiel regarding innovation and finance — and never once used the word capital.
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