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Sunday, September 04, 2005



Well deserved by The Peking Duck, it's always been a good China-related site (it easily attracts more comments than any other China blog that I've ever seen) but lately guest blogger Martyn has been writing some real gems. He loves economic issues above all else so I look forward to a steady stream of China economy posts coming from The Peking Duck during his guest blogging spell.

His best recent post was picked up by InstaPundit and many other sites. It's a superb post called Oil Wars and here is the link, essential reading:


Edward Hugh

"has been writing some real gems."

I'm a bit jaundiced on this John. I'll give you some examples of some of the gems I found:

talking about oil:

"any rise in domestic prices would have a huge and negative impact on the economy"

any rise? any rise? a huge impact? This is ridiculous and is theatre, not analysis. Please see James Hamilton and Oil Drum on the China oil topic.

"This huge contribution to the nation’s GDP will be directly threatened if high oil prices continue."

Ditto. They - the Chinese administration - have a problem. They have to change, they have to adapt, like the US after Katrina. We still don't know whether the next important move in oil prices will be up or down.

"The only solution would be to loosen the domestic caps on petrol prices and risk spiraling inflation.."

"Inflation remains one of the Chinese Communist Party’s biggest fears."

Obviously they are going to have to move away from subsidised prices, but as for the rest, he's just plain wrong here, it's deflation that's the big fear (for China and the rest of the planet as a knock-on), inflation is falling, and now comes the overcapacity problem.

"because, if it does spiral out of control.."

the whole idea seems to be that China is about to blow up in front of our faces any minute.

"However, US and European trade representatives might take heart from a new research report by the National Development and Reform Commission which warns that China will soon struggle to maintain its booming export levels"

Now I don't see why anyone is going to take heart here. This issue is pretty thoroughly covered over at Brad Setser's blog. The 30% y-o-y growth rate for exports, and - Andy Xie now - the high investment rate, are just unsustainable. China is suffering from a huge excess savings problem, and the government has to find a way to free up those savings and channel them into internal consumption. If not...

The effect will not be 'heart warming'. We need to get clear the difference between exports by volume and exports by price here. It is the latter that cannot continue at this rate. But supply and demand here will work to fix prices, and since the production will be there - following the inversment binge - the volume could rise sharply at lower prices. Hence a big headache for Europe and the US in terms of threats to domestic industries. Of course, were this to happen, consumers could expect very cheap prices.

Now why am I being so pedantic? Well Chinese economics tend to get politicised very quickly, and I think we need to refrain from emotive commentary like that I have cited above. Basically there has been a school of thought right from the start that China couldn't 'do it' (let alone India). We should be very careful of these kind of approaches. Peking Duck is a great blog,and I think Richard who runs it is a great guy, but I don't think it's a great blog for economic analysis on China. When we worked together on the old Living in China page he admitted to me he was a bit of a cracked record on the China economy, and it shows on the blog. Sun Bin is certainly well worth a read here. The above mentioned Brad Setser too (and regular commenters me and james Wang among many others, the comments there are generally great). Then there's Fons Tuinstra at China Herald:


Fons also runs the website China Biz. So there is plenty of material knocking around the blog world. And then, when in doubt, you can always turn to Andy Xie for an original insight.


I disagree Hugh (and remember that it's a guest blogger writing most of the economy articles not Richard). You've picked out one or two phrases and sentences and, as you say, are being very pedantic with no thought at all to the conclusions of said articles.

I think you're being way too harsh here. That oil post was linked by more than 30 websites and you're picking out random sentences and critcising them.

You can be as pedantic as you like but his trackbacks appear to be outnumbering those of this site. Or am I being pedantic now?


Also, you lost all respect with me by recommending the shameless self-publicist Andy Xie. I've met the guy, don't forget that.

Edward Hugh

"and you're picking out random sentences and critcising them."

No, what I'm objecting to is the tone, and slighly hysterical feel of the posts. As I said, I am distinguishing between Richard (the Peking Duck)and the guest poster: I just don't think he's in the same ballpark as the people I mention.I think it is possible to say things like this objectively, without getting emotive. I simply think it's a question of analysis.

"but his trackbacks appear to be outnumbering those of this site"

Well this is fine. I am very happy for him. But that doesn't mean I have to agree with him.

"with no thought at all to the conclusions of said articles"

If the argument's wrong, and I'm saying it is, then the conclusions automatically fall. If you then want to maintain them you have to rebuild with new arguments.That's how things go.

"you lost all respect with me by recommending the shameless self-publicist Andy Xie"

You are John perfectly entitled to your opinions.That's what discussion is about. What you haven't touched on is any of the substance of my objections.


I agree with John I'm afraid. The PekingDuck is a China blog, not a economy blog. The economy posts I've read have been good and written in a way that laymen can understand. Dry, analytical economy sites like this one will never become mass market or popular like PD. Perhaps you have no wish to, fine.

However, please don't critcise the economy posts on a mass-market blog just because they are written in a way that appeals to people.

I notice you picked out some very short sentences above. Well, I just went over to PD and cut and pasted a random paragraph or two from the "forex" post, please, in your wisdom, tell us lesser-mortals what is ECONOMICALLY wrong with it:

"Some Chinese officials argue that the money would be better spent recapitalizing the state banks or to import oil and build up strategic reserves, of which it has none. Others say the money should be used to fund overseas acquisitions by Chinese firms.Conservatives want to keep the money in financial instruments. They say, quite rightly, that the inflow of hot money is only a temporary phenomenon and point to the billions of dollars of liabilities in bad loans held by the state banks, pension and welfare liabilities and debts owed by securities firms.

There is also the possibility of trade disputes or a trade war with the US or the EU, which would sharply reduce the trade surplus, or a financial crisis at home or in Asia.

China's wealth is not as substantial as it appears; in per capita terms, it's still very poor. The country needs the reserves to absorb financial and other shocks that lie ahead."

Edward Hugh

"please don't critcise the economy posts on a mass-market blog"

Hi Mark,

Well I'm sorry to be causing all this fuss, but in the first place I would like to point out that I am pretty even handed here. Last week I was posting here having a very strong go at the Economist for irresponsibly - in my view - suggesting that Katrina could push not only the US economy (which I doubt) but also the world economy into recession. I think time will prove me right. And secondly, I do myself write economics posts on a mass market blog - AFOE.

Now I don't expect the same standards from Martyn - who may well be feeling his way - as I do from the Economist. What I do expect is that if someone says that - and remember someone like Brad Setser is a mass market blog - that someone is writing 'real gems' then they conform to some sort of standard. I mean if he said Martyn was making a 'noble effort' I could understand.

Having said that, and looking at the "oil wars" post, it is clear that Martyn may not wish to argue that he is really an economics blogger, and in this sense I would agree I may be judging him too harshly.

Now as I suggested to Peter, my sentences weren't selected at random, they were selected because they seemed to condition the argument, and and as such I think they mislead the reader.

"Some Chinese officials argue that the money would be better spent recapitalizing the state banks or to import oil and build up strategic reserves, of which it has none."

I'm afraid this is simply wrong. China has been building strategic oil reserves for some months now, and the guy who everyone hates - Andy Xie - was again pointing out some time back that this build up in strategic reserves may have been one of the factors causing the increase in global prices, in the same way that the release of some IEA stocks has just brought them down a bit.

Obviously i could nit pick some more, like here:

"They say, quite rightly, that the inflow of hot money is only a temporary phenomenon "

Well, we don't *know* at the moment that this is only a temporary phenomenon, we are going to have to wait and see. This depends, as with so many other topics in economics on many other things. It also depends on the meaning of the word 'temporary'.

or this:

"China's wealth is not as substantial as it appears; in per capita terms, it's still very poor. The country needs the reserves to absorb financial and other shocks that lie ahead.""

Now clearly China is still a poor country (although not now I think among the very poor). But it does have substantial wealth in one area: human capital.

And you see I mention this, because in the last para of the Export Bust he says:

"To date, China’s economy has benefited greatly from a formula of subsidized inputs, including raw materials and oil, huge amounts of FDI (Foreign Direct Investment) and tax benefits for exporters. This led to an export-driven economy and high levels of export-driven growth. This method was always unsustainable in the long run and now it looks about time for China to look for another formula for continued growth."

And the interesting detail is that he doesn't mention in that list of things from which China has benefited what Peter Dooley, who is probably the leading academic China authority in the US, thinks is the main resource: its deep labour supply.

"Calling the scale of unemployment in China today "no less a problem than the Great Depression," Dooley said that as long as China remains locked into U.S. securities, the dollar will remain strong and U.S. consumers will continue to gobble up Chinese-manufactured goods. That consumption is financing China's own rapid development--employing its enormous work force, raising wages, and ultimately creating a nation of Chinese consumers with an unparalleled appetite for goods and services. Unlike the strategies that failed in Latin America, today's scenario eliminates protectionist policies and "makes developing countries compete from the start in international markets,"

So the US is propping up China, and China is propping up the US. And Dooley estimates that this can go on for a decade. Brad Setser and Nouriel Roubini question this, but somehow 'our Martyn' misses the whole discussion.

"However, please don't critcise the economy posts on a mass-market blog"

The thing is there are publications like the WSJ and Bloomberg where you can often find sweeping statements and superficial analysis. Otoh there are places like the FT or the Economist where normally relatively sobre analysis is served up which can be assimilated by the layman. Rational expectations theory assumes this is not impossible in principle anyway. And I have spent a good part of my life trying to defend reasonable standards of economic argument. Unless you want people's worst stereotypes of blogs top be confirmed, I don't see why we should start changing all that now.

Edward Hugh

What I'm really trying to get at here, both in the post on the Economist, and in this debate on China, is that these two legs are about the most stable thing the global economy has got going right now.

So I don't think that the US consumer is on his last legs (yet, this doesn't mean s/he won't be at some stage, but there's juice in the old lemon yet awhile) and that China isn't about to spiral out of control, precise because the US consumer is there to guarantee that - despite whatever local difficulties may be arising - this won't happen. You don't think all those people would be sinking all that money in FDI if it wasn't like this, now do you?

I hope Martyn doesn't take this personally, this is not my intention, and I hope people will, like our host New economist was recommending, read Peking Duck (and eat some of it too, I love the stuff).

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