Chinese sovereign debt default likely?

Comments on Yiping Huang, Peking University, “Is a Chinese sovereign debt default likely?”, 28 May 2017

This post raises a number of interesting questions.

Firstly, about the argument of that the recent downgrading of China’s credit rating by Moody’s “could turn out to be more a warning of past problems than a prediction of future risks”. One can certainly argue one way or another on this particular rating by Moody’s, but did Moody’s change its methodologies in this specific case? Unless it actually did or it made some errors in the process, one should probably accept the rating or the approach. Certainly, one could argue whether its general approaches or methodologies are effective and reflective of future outlook or current status, but that is a quite different point. Having said that, it is inevitable that actions and reactions will occur regardless of the actual merits of the rating, particularly when it is a negative rating of China’s outlook or credit.
Secondly, does this downgrading in rating really and necessarily mean significantly heightened risks of a default of sovereign debts by China? That is likely to be a very long distance to bridge. A default means its inability to pay its debts at the time when they are due. It is largely a ‘cash flow’ issue and a ‘cash management’ issue. Does or will China realistically face this kind of scenario in the near future covered by the rating period, that is, its current assets/revenues fall short of its current liabilities? I would be extremely surprised to see that occur.
Thirdly, in the third reason that the author explained for why China’s money supply to GDP ratio is high, it is said: “And third, there is an inherent acceleration mechanism in China’s monetary policy. The money supply expands in good times in order to facilitate an increase in economic activity, but it also expands in bad times to stabilise the economy and the market.” Does that mean China’s money supply always accelerates, that is, both when the economy is expanding quickly and when it is in trouble in maintaining steady growth? If that is true, then isn’t that also one of the main reasons for its high money supply to GDP ratio?
Fourthly, it is said that there are not as many investment opportunities in China as in other countries (presumably industrialised countries), and that, limited opportunities for people to invest, have led to financial problems moves from one area to another in China. Why could China develop more investment opportunities or markets? What have been the main impediments to the development of more investment opportunities?

Government guarantees, reforms and growth in China

Comments on Jiao Wang, University of Melbourne, “No more ‘straight Aas’ for China?”

31/052017

While any governments should take it as their own responsibility to prevent systematic or even fairly large-scale failures of banks, financial firms and other major firms (even with the so called potential too big to fail situations or scenarios), a blanket guarantee may create serious moral hazard problems. As a result, a good policy of government guarantee (explicit or implicit) should only be set to the degree that some failures of banks, financial or other types of big firms are allowed, or only guarantee those at the margin with significant financial and other forms of penalties.

Such a policy, in conjunction with other forms of prudential supervisions, will be able to prevent large scale or systematic failures that can jeopardize the whole system, while still provide sufficient incentives to those entities for them to avoid the moral hazard issue.

While it is understandable that structural and other deeper economic reforms may have some effects on the growth rate of the economy, it is often too easy to argue that the government should not pursue growth simply because reforms need to be undertaken. I think one has to balance reforms and growth, particularly one has to be careful not to create unnecessary excuses for not to work hard on the growth front.

China is still a developing economy and there is still a long way to go and a lot of potential for high growth to catch up with the industrialised world. Any waste in terms of growth, that is, not being able to achieve its full potential should not be accepted as good performance.

Flexibility and creativity key to resolving nuclear issues and tensions on the Korea Peninsula

Comments on Moon Chung-in, Seoul: “Diplomatically denuclearising North Korea”,

26/052017

The author should be commended for this excellent proposal/approach as shown in this post. To achieve the paramount goal of denuclearisation in the Korea Peninsula, it may be necessary that everyone should do some compromise.

I think the offer of suspension of joint military exercises between the US and South Korea in conjunction with asking the North Korea to freeze its nuclear and missile programs is particularly constructive and very helpful, because it is a suggestion of a useful compromise from both of the opposite sides.

I think, depending on the progress in future negotiations of the relevant parties, it may also be helpful and desirable to consider some sort of security guarantee agreement. Such a guarantee may involve the four other parties outside the Korea Peninsula, namely the US, China, Russia and Japan, as guarantors.

Of course, such guarantee should not preclude the possibility of Korean unification, should both parties on the Korea Peninsula wish and agree to do so. But it should only be up to the two Koreas as opposed to any outsiders.

Once again, I highly commend the author for the excellent ideas presented in this post.

A good deal for China?

Comments on Dong Dong Zhang “What does their trade deal tell us about US–China relations?”, 24/05/2017

While it may be understandable that it seems from the post that the deal was very much one-sided, that is, give the US so much and China so little, given the so hard rhetoric Trump had against China for a while, I am still surprised the one-sided nature!

Is that really the case?

People have started talking about possible impeachment in the US now. How would people in China including its leadership view such a deal in the longer term in this context, that is, the Trump administration may not necessarily last for too long?

再过二三十年，更会另眼看中国

对 二什齋米辰峰 [转载]血淋淋的事实——中国要赶上美国还要多少年？的评论，21/05/2017：

我看这文中讲的有一定道理，但尚有些悲观。中国很可能会经历一个量变到质变的过程，在摘完低枝果后会被逼走上高科技高创新高质量的经济体。这个过程有多长？估计还得二十到三十年左右。也就是说，在建国一百周年时，中国经济很可能具有与美国真正竞争能力平起平坐的水平。
苹果的历史有多少年？谷歌多少年？很多事实说明几十年是可以大有作为的。要有雄心，有恒信，有创心！

Reforming the Hukou system requires more top-level design

Comments on Bingqin Li, UNSW: "China going nowhere on hukou reform", 19/05/2017

It is likely to be one of the most difficult reform tasks in China to reform its Hukou system, given the fragmented nature of government services responsibilities including school education and some other social security as mentioned by the author.
Acknowledging the difficulties, what does the author see is the most practical way or ways to undertake Hokou reforms?
Arguably, a top-level design should have a well considered and thought-through framework and practical ideas to go forward.
It may be helpful to have a coordination and adjustment program by the central government to facilitate the expansion and provision of services such as school education, in addition to the portable social security provisions. It may involve some additional funding from the central government, although a substantial part of that funding could come from those regions where there are net negative population migration, that is people/students are moving away to other regions.

US high-tech leadership offshoring?

Comments on Andrew Kennedy, ANU "Is the United States offshoring high-tech leadership to China?" 17/05/2017  

Could the author clarify the situation in the following paragraph please on whether it is more economical from the users’ point of view, that is, value for money given cheaper prices but shorter durability?  Quote from the post: “And fourth, overseas R&D often complements the work done at home, rather than substituting for it. Firms doing R&D abroad may be trying to tap into expertise not readily available in their home country, or they may be adapting products for foreign markets in an effort to promote local sales — a task more easily done in that market. Such adaptation may actually make a product less advanced. One global wind power firm, for example, re-designed its gearbox in China to make it less expensive — but in doing so it cut the durability of the product in half.”  The durability was cut by half, what about the price, was it cut by half or almost by half, taking into account compounding interest rate or discounted present value? 

It seems that there are both advantages and disadvantages for big tech firms to have some of their R&D activities in developing countries including China where the business environment including the effects of politics may not be as ideal as in their home countries or in developed countries. Certainly the challenges faced by multinationals in China raised in this post should give food for thought to China as it aims to develop into a developed country sooner or later. 

While the author is focused on whether the US is offshoring its high-tech leadership to China or not and obviously that is a very important issue both for the US and others involved including other developing countries, arguably there will be newcomers to the high-tech leadership roles from other countries and that will in turn in the future influence whether the US will offshore its leadership in this regard, won't it?

Developing countries beware: cheaper in price but less advanced

Comment on Andrew Kennedy, ANU: "Is the United States offshoring high-tech leadership to China?", 17/05/2017

Could the author clarify the situation in the following paragraph please on whether it is more economical from the users’ point of view, that is, value for money given cheaper prices but shorter durability?
Quote from the post: “And fourth, overseas R&D often complements the work done at home, rather than substituting for it. Firms doing R&D abroad may be trying to tap into expertise not readily available in their home country, or they may be adapting products for foreign markets in an effort to promote local sales — a task more easily done in that market. Such adaptation may actually make a product less advanced. One global wind power firm, for example, re-designed its gearbox in China to make it less expensive — but in doing so it cut the durability of the product in half.”
The durability was cut by half, what about the price, was it cut by half or almost by half, taking into account compounding interest rate or discounted present value?
It seems that there are both advantages and disadvantages for big tech firms to have some of their R&D activities in developing countries including China where the business environment including the effects of politics may not be as ideal as in their home countries or in developed countries. Certainly the challenges faced by multinationals in China raised in this post should give food for thought to China as it aims to develop into a developed country sooner or later.

Both optimism and caution are needed for the One Belt And One Road project

Comments on Sourabh Gupta, ICAS: “The Belt and Road Initiative should learn from paths already travelled”, 17/05/2017

I highly appreciate the positive views of the author in terms of the BRI as well as the argument for caution and learning from the paths already travelled, because both are important for the success of BRI.
Given the scale of the BRI, it is essential to plan and coordinate the whole projects and to take into account the broader world economic conditions and developments.
Perhaps there is a strong need to establish a modelling framework to undertake the planning, implementation and monitoring of the whole BRI (incorporating all the economies involved as well as the rest of the world which may be further divided into a few major economic blocks), in addition to the planning and cost and benefit study of each individual project.

The purpose of China’s Belt and Road Initiative is not to challenge US-led order

Comments on Hugh White, ANU: “China’s Belt and Road Initiative to challenge US-led order”, 9/05/2017

While there will be strategic implications as White alluded, it would still be a better world if the world cooperates rather than purely and adversely competes.
China has not deliberately excluded any countries from joining that initiative, even though some countries deliberately choose to boycott that initiative and want some others to follow them in doing that.
It is important to have an open mind as opposed to the kind of zero-sum games or even rivalries.

I would interpret China's one-belt and one road initiative as a positive contribution to the world economy inclusive of many countries, as opposed to challenging the existing US-led world order.

Trump unlikely to make any country great

Comments on Abdul Basit, RSIS: “Will Trump make South Asia great again?” 5/05/2017

While it may sound as emotional, it is highly likely that Trump will not make either the America or any other countries great!

For America, it is because he is working against the comparative advantages, both short and long terms, of the USA, period. As a result, he will damage the long-term interests of the USA. It just like to use ice/heroin to improve one’s health, particularly long term effects.

For others, does he have any desire or intention to them great when he campaigned with the slogan ‘make America great again’? Any benefits which any other countries may actually get as a result will be accidental. Alternatively, his attempts to make America great again by working against its comparative advantages may unintentionally benefit its competitors. And many may be considered as such competitors.

Don't correct errors by making errors deliberately

Comments on John Daley, Chief Executive Officer, Grattan Institute and Danielle Wood,

Fellow, Australian Perspectives, Grattan Institute: “Why biased budget forecasts make poor politics”, 5/05/2017

While budget forecast biases are concerning, the authors made like it has been the making of politicians or the Treasurer, as opposed to be a product of the Treasury which are bureaucrats. Unless the authors implied that there has been a conspiracy between the Treasurers and the Treasury staff, the kind of confusing generated by the authors are quite unhelpful in addressing the problems they say wanting to be addressed. Maybe the authors think that the Treasurers should force the Treasuries to make unbiased forecasts, or take some punishing measures if biases are consistent!

Besides, proposing another approach, that is implied by the mentioned conservative approach, is hardly helpful, because that is purposefully making wrong forecasts, as opposed to unbiased forecasts that should be aimed and achieved. Why do you need to do that, purely to cheat yourselves?

Perhaps, the authors of the post should consider having a more independent assessment of Treasury forecasts to see if there have been systematic biases existing, even though there was one assessment done that I suspect may not necessarily completely independent of Treasury if it was commissioned by the latter, or at least some may argue that its independence may have been compromised to some degree given its funding/commission source.

On a personal note, I do have some suspect that it seems there were some systematic biases as the authors pointed out that it was under-estimation and over-estimation of revenues year after year during the Costello and the period followed that respectively. But it needs to be further tested using a robust methodology.

Turnbull may not be any different in approach to US ally relationship

Comments on Tony Walker, Adjunct Professor, School of Communications, La Trobe University: “History can provide many lessons for Turnbull as he prepares for Trump meeting”, 3/5/2017

What you argue is obviously correct, even though it is easy said than done. Apart from some of the unbalanced nature in the relationship between the two countries, there is also an issue of being politically correct that makes few in the government dare to argue for an more meaningful, equal and beneficial relationship between Australia and the USA. This latter point applies to both major parties equally.

Turnbull now embraces Gonski school funding approach

Comments on Michelle Grattan, Professorial Fellow, University of Canberra: “Turnbull announces schools funding and a new Gonski review”, 3/05/2017

While it is understandable to have doubt about and to be cynical at the Coalition government’s turn of event in education, we should give reasonable benefit of doubt that this change of heart and its embrace of Gonski to some degree may be a good thing, given that the two major parties now are all not opposed to Gonski.

If both cooperates with bipartisan support, then it will be a good thing for school education and students in Australia.

Second airport in Sydney and fast train linking Canberra to Sydney

Comments on Michelle Grattan, Professorial Fellow, University of Canberra: “Government to build second Sydney airport”, 3/05/201

Has the government done a comparative study on which would be the most beneficial and economic option to resolve the expected increase in air travel around Sydney, of the following two options: first one as the government proposal for an airport in and the second one is to build fast train between Sydney and Canberra as the first of potentially a longer eastern coast fast train line connecting Brisbane and Melbourne/Geelong? The latter would also have other benefits than simple another airport would offer.

A better approach to sharing ideas and beliefs for a better world

Comments on Jieun Baek, Oxford University: “Send North Korea media before missiles”,
2/05/2017

Firstly, I appreciate the idea and proposal by the author to send media before missiles to North Korea to avoid war and achieve better outcomes for all parties concerned, particularly those in the region which may be directly affected by a war in a huge way as opposed to those parties outside the region which may not be affected much by such a war in the Korea peninsular.

Secondly, I think we need to go beyond and above the purpose of spreading or achieving liberal democracy everywhere in the world and instead to aim at purely information and ideas sharing without hoping our own system and beliefs will prevail and dominate others'.

Now it is probably a fact that no significant forces, organisations and countries are still trying to spread communism and trying to achieve communist revolutions in other countries following the collapse of the former USSR and the East Communist bloc and the introduction of reforms and open door policy in China.

However, we have continued to see the efforts and actions including some not so subtle ones to transform the world into all liberal democracy, such as the Arab Springs and the color revolutions in some other countries.

I think it is time that we need to redefine ideas competition for the benefit of all human beings and that we don't impose our own onto others and let people to choose. Maybe that is true democracy!

Better first things first on North Korea nuclear issues

Comments on Tom Le, Pomona College: “Living with failure on the Korean Peninsula”, 3/05/2017

While it is a legitimate concern on the human right conditions of the people in North Korea, the task of dealing with the NK nuclear and missiles issue is so paramount that it would not be very helpful to mix these two issues together. Besides, while it is admirable to have high international standards in terms of human rights, it should for most cases be left to each country to handle it. Essentially that should be the responsibility of the government of each country.

In terms of the NK nuclear and missiles issues, I tend to agree with China that every side needs, has to or must give a little so that every side can gain from a settlement of the issues. That means the US should be mindful enough not to continue to post a threat to the existence of the NK irrespective what and what kind of regimes it may have. They may have a regime we don’t like, but we should not attempt too much in having each regime in the world to our own like.

I think if every side is sincere enough to resolve the issues and rid of the Korea peninsular off nuclear weapons, I don’t think it is impossible to achieve. But we need to focus on the main issues and make our best effort to do that. We should definitely avoid mingle too many issues together unnecessarily.