Blog Profile: Chovanec, A great intimate blog about China

This blog by Patrick Chovanec of Tsinghua University is one of the most intimate blogs about China and its economy that I have come across.  Besides blogging and being a professor, Patrick makes regular appearances on CCTV making comments about government policy and the Chinese Economy. I find this important and that it further solidifies his position as a critical commentator for China because the state run TV has actually allowed for criticism against the central government by him.

Some issues he has covered include highlighting that even though there even though there is little leverage in the Chinese property market unlike the US, but the Chinese property market is still overvalued as the rich use property as a storer of value like gold. Hence the phenomenon of empty cities of luxury malls and apartments have appeared since the rich constantly purchase second, third and even fourth homes. This has led to insufficient housing for the poor as they are unable to keep up with the rising cost of housing. Recently, such exuberance in the property market has led to some Chinese turning to gold as a storer of value.  He also points out that the government policy of imposing transaction taxes on property will be futile as only holding taxes will stop people from using housing as a storer of value which artificially props up the prices.

Elsehwere,  Patrick has also done well to cover the peculiarities of different areas of China in the article, the Nine Nations of China. He also goes on to develop the political influence of each of the Nine Nations here. Notably he revealed that most of the politicians came from the Yellow Land(Beijing, Tianjin, Shandong, Hebei, Henan, Shanxi, Shaanxi) which is the metropolis of China.  He notes that doing business in China requires good knowledge of each nation within China for instance:

When the Sichuan SME Fund was first set up, the managing director – an American friend of mine – wanted to hire a Chinese investment team with the relevant training and experience in private equity.  As I mentioned in The Atlantic article, The Metropolis (the region centered on Shanghai) tends to be the most cosmopolitan and sophisticated region in China, so most of the qualified candidates he initially hired came from there.  He soon found out, though, that they were ill-suited to the task.  None of them could speak the local dialect, and they looked down on the entrepreneurs we were working with as country yokels.  The entrepreneurs, in turn, distrusted the Metropolitans, suspecting they were fast-talking city-slickers out to rip them off.

The individual articles for the Nine Nations are as shown below.

The Yellow Land (Beijing, Tianjin, Shandong, Hebei, Henan, Shanxi, Shaanxi)

The Back Door (Hong Kong, Macau, Guangdong, Hainan)

The Refuge (Sichuan, Chongqing)

The Crossroads (Anhui, Jiangxi, Hubei, Hunan)

Shangri La (Yunnan, Guizhou, Guangxi)

The Rust Belt (Liaoning, Jilin, Heilongjiang)

The Frontier (Inner Mongolia, Ningxia, Gansu, Qinghai, Xinjiang, Tibet)

The Straits (Fujian, Taiwan)

Lastly, on the economic front he discusses that although China posts high GDP growth year after year, but the quality of GDP is poor as most of the stimulus is generated internally by the government and not by true entrepreneurship.  In addition, he points out that appreciation of the Yuan is not the one and be all of resolving trade imbalances with the world.

An undervalued Renminbi may be part of the problem – its peg to a weakened dollar is certainly putting the squeeze on other countries that compete with Chinese exports to the U.S. But my concern is that, even if President Obama succeeded in pressuring China to strengthen the Renminbi, we’d be looking at a replay of the Plaza Accord. Rather than face a difficult economic adjustment, China would find other ways to bolster its export sector, and the imbalance would persist. America’s interests, and the world’s, would be much better served by encouraging China to open its markets to greater competition, foster capital markets that allocate resources more efficiently, and develop a social safety net that makes labor markets more flexible and unlocks the savings of China’s vast population. The President can also help by sending a clear signal that America welcomes Chinese investment, offering China a more productive way to use the dollars it does earn. If progress is made on these fronts, it well help create an environment in which prices do matter, and exchange rates can make a difference in producing lasting outcomes.

If President Obama wants to achieve real results, he should press China on market-oriented reform, not exchange rates.


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