A Stunning Visualization of China’s Air Pollution

 

NASA image: Satellites Map Fine Aerosol Pollution Over China

Were you thinking of a China holiday perhaps? The interactive images in this Atlantic article might dampen your enthusiasm: 

(…) China’s censors have tremendous power in print, online, and even in public spaces such as Tiananmen Square. But when it comes to air pollution, even the Chinese government can’t obscure the facts. People see and breathe it every day.

The debate over whose statistics are most “accurate” can be confusing — how to sort out truth from spin? That’s why a group of us at the Asia Society decided to launch China Air Daily, a website that provides up-to-date information on air pollution in the country’s largest urban sectors, and even compares them to major cities from elsewhere in the world. 

So if you need to fly to China, check out China Air Daily first.

China estimate of the day

Here’s a useful perspective on China’s infrastructure spend-up from GK Dragonomics via Tyler Cowen:

Another study, by Andrew Batson and Janet Zhang at GK Dragonomics, a Beijing-based research firm, finds that China still has less than one-quarter as much capital per person as America had achieved in 1930, when it was at roughly the same level of development as China today.

Here is more, and I thank David Levey for the pointer. The post as a whole considers whether China is overinvesting and concludes maybe not. Here are further debates on how China is doing.

[From China estimate of the day]

The Apple Boycott: People Are Spouting Nonsense about Chinese Manufacturing

Tim Worstall at Forbes tackles some of the lies and uninformed rubbish of the daily news cycle. Tim credits the NYT series as being the source of the anguish, but surely a lot of this nonsense derives from the “theater” of the now-discredited Mike Daisey. If you are quoting the execrable Daisey from the This American Life episode then you need to study RETRACTING “MR. DAISEY AND THE APPLE FACTORY”:

Ira (Glass) writes:

I have difficult news. We’ve learned that Mike Daisey’s story about Apple in China – which we broadcast in January – contained significant fabrications. We’re retracting the story because we can’t vouch for its truth. This is not a story we commissioned. It was an excerpt of Mike Daisey’s acclaimed one-man show “The Agony and the Ecstasy of Steve Jobs,” in which he talks about visiting a factory in China that makes iPhones and other Apple products.

The China correspondent for the public radio show Marketplace tracked down the interpreter that Daisey hired when he visited Shenzhen China. The interpreter disputed much of what Daisey has been saying on stage and on our show. On this week’s episode of This American Life, we will devote the entire hour to detailing the errors in “Mr. Daisey Goes to the Apple Factory.”

Daisey lied to me and to This American Life producer Brian Reed during the fact checking we did on the story, before it was broadcast. That doesn’t excuse the fact that we never should’ve put this on the air. In the end, this was our mistake.

We’re horrified to have let something like this onto public radio. Many dedicated reporters and editors – our friends and colleagues – have worked for years to build the reputation for accuracy and integrity that the journalism on public radio enjoys. It’s trusted by so many people for good reason. Our program adheres to the same journalistic standards as the other national shows, and in this case, we did not live up to those standards.

It is shocking how gullible are the producers of This American Life. It seems obvious to me that they wanted to believe Mike Daisey’s emotional story about big bad Apple destroying the lives of underage workers making iPads. So they did not factcheck properly – “the story was so good it must be true”. The only good news is that they are taking some very small responsibility for their mistakes in giving credence to Mike Daisey’s lies. But they take no responsibility for any harm done to the workers at Apple. Not a single word of apology to Apple, Apple workers or Apple shareholders. Not a single word.

Back to Tim Worstall at Forbes:

It would appear that there’s momentum being gained for the idea of boycotting Apple‘s products over conditions in the company’s manufacturing chain in China. This is a very silly idea and there is much nonsense being spouted about those conditions.

Apple, the computer giant whose sleek products have become a mainstay of modern life, is dealing with a public relations disaster and the threat of calls for a boycott of its iPhones and iPads.

The company’s public image took a dive after revelations about working conditions in the factories of some of its network of Chinese suppliers. The allegations, reported at length in the New York Times, build on previous concerns about abuses at firms that Apple uses to make its bestselling computers and phones. Now the dreaded word “boycott” has started to appear in media coverage of its activities.

“Should consumers boycott Apple?” asked a column in the Los Angeles Times as it recounted details of the bad PR fallout.

Two of the New York Times articles are here and here. Dan Lyons weighs in here.

Essentially, the list of charges is that the near 1 million people who work for Foxconn (about 230,000 of whom produce products for Apple, the others assembling for Dell, HP, just about every electronics company in fact) have to work long hours for low pay in dangerous conditions.

Well, yes, they’re poor people living in a poor country. That’s what being poor means, having to work extremely hard to make very little. Yes, that is a harsh thing to say but then reality can indeed be harsh.

To show that it’s not just uncaring neoliberals like myself who say such things why not try reading Paul Krugman on the subject of sweatshops? Specifically, here, on what would happen if we were to try and stop the manufacturing being done in such poor places:

First of all, even if we could assure the workers in Third World export industries of higher wages and better working conditions, this would do nothing for the peasants, day laborers, scavengers, and so on who make up the bulk of these countries’ populations. At best, forcing developing countries to adhere to our labor standards would create a privileged labor aristocracy, leaving the poor majority no better off.

And it might not even do that. The advantages of established First World industries are still formidable. The only reason developing countries have been able to compete with those industries is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-oriented growth, for all its injustice, has been a huge boon for the workers in those nations, anything that curtails that growth is very much against their interests. A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries.

And a very important point, again from Professor Krugman, about what determines the wages that are paid:

Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn’t happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.

Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, “what would happen if people who work for such low wages manage to achieve Western productivity?” The economist’s answer is, “if they achieve Western productivity, they will be paid Western wages” — as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).

I quote at such length because it is an extremely important point. Wages paid to manufacturing workers in China are not determined by the productivity of those specific workers. They are not determined by US wages, by the profits that Apple makes nor even by the good intentions of the creative types that purchase Apple products. They are determined by the wages paid by other jobs in China and that is itself determined by the average level of productivity across the Chinese economy.

But now to the specific complaints that are being made. There are three that are being repeated around the intertubes as being particularly outrageous.

(…)

Tim’s graphic above summarizes some of Tim’s following points. But best to get over to Forbes to read the whole thing which includes all the resource-links that I left out above.

China: banks look increasingly unstable

China’s banks benefit from regulated spreads – the banks can only lose money via bad loans. But they do not book the majority of their bad loans, so reported profits are a fiction. The regulated spreads implement the Beijing policy of financial repression – transfers from savers (who earning next to nothing) to borrowers (who pay below market rates).

Beijing has driven Chinese growth by credit-driven spending, much of that wasted. This spending is driving up price levels but has not generated productivity gains. Result is 4.5% inflation, massive unrecognized bad loans, while businesses can’t get needed credit. Now what?

This WSJ editorial has it about right:

The optimistic spin on Beijing’s latest monetary easing is that policy makers are choosing to focus on growth instead of worrying about inflation, and maybe that’s true. But it pays to consider a less rosy alternative explanation: Beijing might not be “balancing” growth versus inflation—and it might not have much of a choice.

At first blush the move announced Saturday—a cut in the required reserve ratio governing what percentage of deposits banks much store with the central bank—seems like more of China’s monetary same. The measure releases roughly 400 billion yuan ($63.5 billion) into the banking system. The conventional explanation is that Beijing is worried about access to credit becoming too tight for businesses and, since everyone claims inflation will dissipate later this year, is engaging in some prudent pump-priming. Tinkering with reserve ratios is one of Beijing’s favorite policy tools.

But something has changed this time around: capital outflows. That fine-tuning approach presupposes a system in which capital controls keep money more or less locked inside the system. Before now, money not deposited with the central bank could be used only for credit creation.

Increasingly, another option is opening up—sending or keeping money abroad. Some $34 billion might have left China in the last three months of 2011. There are also signs that some exporters are keeping their earnings in dollars offshore rather than converting to yuan and putting that money into the banking system.

January saw a return to net inflows, but then banks face another drain on liquidity, increasing competition for depositors. Banks are creating a range of “wealth-management products,” which are often risky credit-related products that create substantial off-balance-sheet liabilities, in an effort to woo depositors. There’s frequently a big mismatch not only between the high interest rates offered on these products and the regulated low rates banks can charge on loans, but also between the short maturities of deposit products and the longer terms of loans.

All of this together seems to be putting a liquidity squeeze on the banks. (…)

(…) It might seem odd to worry about inflation, capital outflows and tight liquidity at the same time, but that’s a consequence of China’s distorted financial system. Because allocation of capital remains politicized, a significant portion of the credit stimulus has gone into wasteful projects; since that money is not creating real growth or productivity gains, it chases too few goods at higher prices.

Meanwhile, those who need cash—including bankers and small and medium-sized businesses—can’t get it. Liquidity injections might help bankers with short-term funding. But absent broader reform, that cash will only follow earlier credit down the inflationary rabbit hole.

(…)

This highlights what is set to become China’s most serious policy dilemma of 2012: how to balance the risk of inflation against the risk of financial instability. This is a far more perilous tightrope than the old growth-vs.-inflation acrobatics.

Read the whole thing »

China: Debt will be rolled onto the government balance sheet

(…) although I don’t think it is a certainty, I am expecting that the most likely economic outcome for China for the rest of this decade is a combination of much slower growth and rapidly rising government debt. Privatizing assets and using the proceeds to shore up household wealth, directly or indirectly, is politically tough to do.

Michael Pettis analysis of China’s debt and consumption repression:

Contrary to some recent research reports cited in the press I do not think we have seen any substantial rebalancing of the economy towards consumption in 2011. This is largely an argument being made by economists who did not see why Chinese consumption repression was all along at the heart of the growth model. These economists are now too quick, I think, to hail evidence of a surge in consumption, but I find the evidence very weak and more importantly I am convinced that there cannot be a sustainable surge in consumption as long as the investment-driven growth model is maintained and as long as debt continues to rise unsustainably.

And as for debt, it is still rising quickly. As regular readers know I have always argued that the rise in Chinese debt, as bad as it is, was not going to lead to a banking collapse or any other sort of financial collapse because of the way local and specific debt problems would be “resolved”. Debt would simply be rolled onto the government balance sheet.

(…)

See also Simon Rabinovitch China tells banks to roll over loans

China has instructed its banks to embark on a mammoth roll-over of loans to local governments, delaying the country’s reckoning with debts that have clouded its economic prospects.

China’s stimulus response to the global financial crisis saddled its provinces and cities with Rmb10.7tn ($1.7tn) in debts – about a quarter of the country’s output – and more than half those loans are scheduled to come due over the next three years.

[in the comments]:

@Dr. Richard – Nouriel Roubini had a wonderful video yesterday in which he interviewed Patrick Chovenac of Tsinghua University about the very bad financial situation in China; this video was released, before the postponement in payments was announced. One of the most important issues they raised is that about half of all of China;s GDP is export driven and an additional large portion is driven by capital investment (e.g. in housing and infrastructure). But these sectors are already at a dead standstill in growth. So, even though China’s official figures may show that GDP growth has slowed to about 8%, that figure cannot be true, and it is more likely that the real figure is a much lower 4% or so. Chovenac said that, in his view, CHINA IS ALREADY HAVING A HARD LANDING..

Regarding your question, Roubini and Chovenac explored the possibility that there would need to be some sort of roll over of the type that now has been announced; and they explained that such a “nominal” default would have real consequences for China’s growth. What will happen when the loan principal is not repaid is that the money that would otherwise return to the banks and be available for new investment will no longer be available. The impact would normally be an extraordinary contraction in bank funds available for lending. But the Chinese leadership does not want this to happen, given its need for about 7% GDP growth to prevent social unrest — particularly in the year when they are transitioning to new leadersip.. So China will have to increase the pool of funds by monetary or fiscal easing. Either easing approach would result in inflation, which also has adverse consequences for social unrest.

Nuclear safety projects launched in China

This looks like smart policy:

A series of research and development (R&D) projects has been launched by China’s National Energy Administration (NEA) to improve the country’s emergency response capabilities at nuclear power plants in the event of an extreme disaster.

The NEA said that the projects are aimed at improving safety-related technology employed in Chinese nuclear power plants, taking into account lessons learned from the Fukushima accident in Japan.

A total of thirteen R&D projects are to be conducted by China National Nuclear Corporation (CNNC), China Guangdong Nuclear Power Corporation (CGNPC) and the Institute of Nuclear and New Energy Technology in cooperation with Tsinghua University. Engineers and researchers will work to develop advanced nuclear power safety technology through targeted research and plant site analyses, the NEA said.

The R&D projects will include the development of passive emergency power supply and cooling water systems, as well as development of passive containment heat removal systems. The projects will also analyse the impact of multiple simultaneous external events and response measures. Research into beyond design basis earthquake and external flooding, as well as measures for the prevention and mitigation of used fuel accidents will also be conducted. Projects will also cover beyond design basis accident mitigation equipment and systems, while others are aimed at developing hydrogen control devices and emergency rescue robots. Other projects will study the monitoring and treatment of contaminated ground and water.

All the projects are expected to be completed by 2013. According to the NEA, implementation of the results will improve the safety of China’s second-generation nuclear power plant technology by lowering the probability of large early radioactive releases and reactor core damage.

Researched and written
by World Nuclear News

[From Nuclear safety projects launched in China]

The Secret Agreement that Revolutionized China

Alex Tabarrock offers some remarkable history on Marginal Revolution. Talk about a natural experiment!

In our principles textbook, Modern Principles: Macroeconomics, Tyler and I illustrate the importance of property rights with the incentive effects of collective farming and the secret agreement of Xiaogang village. We write:

http://www.chinatoday.com.cn/ctenglish/se/download/site127/20090710/00142ad54b730bc0ee3d02.jpegFarmers from 18 households in Xiaogang signed a secret life-and-death agreement ending collective farming with their thumbprints. (From Cowen and Tabarrok, Modern Principles: Macroeconomics)

The Great Leap Forward was a great leap backward – agricultural land was less productive in 1978 than it had been in 1949 when the communists took over. In 1978, however, farmers in the village of Xiaogang held a secret meeting. The farmers agreed to divide the communal land and assign it to individuals – each farmer had to produce a quota for the government but anything he or she produced in excess of the quota they would keep. The agreement violated government policy and as a result the farmers also pledged that if any of them were to be killed or jailed the others would raise his or her children until the age of 18. [The actual agreement is shown at right.]

The change from collective property rights to something closer to private property rights had an immediate effect, investment, work effort and productivity increased. “You can’t be lazy when you work for your family and yourself,” said one of the farmers.

Word of the secret agreement leaked out and local bureaucrats cut off Xiaogang from fertilizer, seeds and pesticides. But amazingly, before Xiaogang could be stopped, farmers in other villages also began to abandon collective property. In Beijing, Mao Zedong was dead and a new set of rulers, seeing the productivity improvements, decided to let the experiment proceed.

(…)

Read the whole thing »

China’s Rigid Currency Policy Threatens Growth

Eswar Prasad, Senior Fellow at Brookings, writing for the WSJ June 2011:

(…)

China’s currency regime is now beginning to look more like political dogma rather than sound policy. The rigid policy threatens to upset the delicate balance between keeping growth strong and inflation at moderate levels.

(…) In this scenario, a significant currency appreciation would serve the dual objectives of tamping down inflation and helping to shift the balance of growth toward private consumption. A more flexible currency would also give the central bank a freer hand in changing interest rates. A rising yuan would raise the purchasing power of domestic households, first directly through the fall in the price of imported goods and second by giving the central bank room to raise deposit rates, so that households get a better rate of return on their savings.

Yes, there has been some apparent progress on the currency front. Much was made of last June’s announcement by Beijing that it would let the yuan slowly appreciate. Over the past year, the yuan has appreciated by about 5% against the dollar, or about 7% to 8% in inflation-adjusted terms. But if we consider that the dollar has been in broad retreat against other major currencies, the yuan’s trade-weighted multilateral exchange rate—which determines its overall export competitiveness—has been relatively flat. This has kept pressure on the currency to appreciate.

And China’s central bank continues to intervene massively in foreign exchange markets to keep the yuan’s value stable, suggesting the currency is still significantly undervalued. Such intervention boosts the stock of international reserves by about $200 billion each quarter, adding to the government’s headache as this inevitably means more purchases of U.S. treasuries.

Beijing can avoid this headache if it frees up the yuan-dollar rate. Given the direction the dollar is headed, China could easily allow its currency to appreciate more without losing much in terms of its overall export competitiveness.

The mantra that a significant shift in currency policy is in China’s own interest is now truer than ever. Policy makers should realize that the impact of inflation could be much worse for overall growth: Once the inflation genie escapes from its bottle, the sort of drastic policy actions that will be needed to cool things off will hurt the economy a lot more than a few lost jobs in the exporting sector now.

(via Instapaper)

The Renminbi’s Role in the Global Monetary System

There’s an excellent audio (and video available) podcast of the captioned Brookings seminar. The topic is the just-released paper “The Renminbi’s Role in the Global Monetary System” [PDF] by prof. Eswar Prasad and Lei (Sandy) Ye.

Stephen Roach commented that he had been reading twenty-five papers on the Renminbi — but this is the only one you need to read. Here’s the panel:

Moderator

Greg Ip

U.S. Economics Editor
The Economist

Panelists

Donald Kohn

Senior Fellow, Economic Studies

Eswar Prasad

Senior Fellow, Global Economy and Development

Stephen Roach

Senior Lecturer and Senior Fellow of the Jackson Institute, Yale University
Non-Executive Chairman of Asia, Morgan Stanley

There is a full transcript.

Low-Carbon Development in the United States and China

Brookings recently published the audio of the captioned Feb 2, 2012 seminar; led off by Qi Ye of the Climate Policy Initiative (CPI) and Tsinghua University.

Also on the panel was DOE’s Casey Delhotal, Director, East Asian Affairs. Very interesting commentary on the US/China cooperation, especially the IP issues.

Altogether a very worthwhile conference, though I was disappointed there was no discussion of US/China nuclear cooperation, especially 4th generation.

The Brookings transcript is here.

The Qi Ye presentation slides are here.

China’s 11th five-year plan is here.