The Big Mac index for currencies is a well known feature of the Economist newspaper, but the Big Mac wage index has never really taken hold. AsiaPundit expects that this alternative index is of less value than the currency index; the latter is not a serious study and the Economist admits it’s mostly in jest. The wage-related index should be enjoyed with equal grains of salt (as would be done with a tequila shot).

Wages are harder to empirically measure than prices or input costs. There are additional variables. 

AsiaPundit has lived in Kuwait - where McDonald’s employees are low-paid migrant labor; in Singapore - where McD’s employees often are retirees or the disabled; and in Canada, where the employees are mostly teenagers holding their first jobs. In each country the wage would be close to the bottom of the scale.

However, in China the McDonald’s wages - where in major coastal centers English-speaking staff are also employed - the average wage is likely well above the average rural income.

So, like the currency index, this is something is interesting - but it doesn’t necessarily disclose much that is useful.:

Ashenfelter devises inventive real-world tests to illuminate labor economics, by Eric Quiñones, Princeton Weekly Bulletin: To address the current debate about whether China’s and India’s growing economies will soon rival that of the United States, Princeton economist Orley Ashenfelter poses a simple question: What is the going rate for flipping burgers?

Ashenfelter is conducting a study of McDonald’s employees’ wages in many countries to illustrate the relative strength of their economies, and early results indicate that developing nations still have a long climb. While the average hourly “McWage” is around $6 in the United States and other western nations, the same job in China, India and other developing countries pays less than 50 cents.

“A Big Mac is the same everywhere. The job is the same,” Ashenfelter said. “What makes a country wealthy is the wage rate that the market can guarantee for someone who wants to work. To most people in the developed world, a $6 job would seem to not be much of an accomplishment — in fact, it is a huge accomplishment that most of the world cannot yet even aspire to.” …

Technorati Tags: asia, china, east asia, economy

Via Far Outliers, Fareed Zakaria hosts a discussion between two economists on the different paths China and India have taken in growing their economies. There’s not much new analysis in this for people who follow such things, but the ideas are presented clearly and are a good starting point.

Yasheng Huang: Yeah; essentially the Chinese economic miracle is a result of Chinese labor being cheap and very productive rather than the result of the capital accumulated by the Chinese capitalists and–and this is one of the principal reasons why even with eight or nine percentage growth rate every year we do not see the emergence of the world-class Chinese companies coming out of that economy.

Fareed Zakaria: Now what–why is that–because most people would say if you go to China you certainly see this. There’s a very strong entrepreneurial spirit in China, that certainly–

Yasheng Huang: That’s right; yeah.

Fareed Zakaria: You know to the extent that genetics or culture matter, they seem to be fine. I mean you look at Southeast Asia it’s all Chinese entrepreneurs.

Yasheng Huang: Yeah, absolutely; the Chinese entrepreneurs do very well outside of China. China–Chinese have this animal spirit, the business acumen capabilities and let me add a substantial engineering and scientific capability. The main issue is not a lack of these capabilities or entrepreneurial drives; the main reason is the lack of a financial system supportive of these entrepreneurial initiatives and growth. So you can get Chinese company up and running to a certain level; after that they stop growing because you need outside financing; you need outside capital; they can’t get bank loans; they can’t get listed on the Shanghai Stock Exchange or Shin Jin Stock Exchange and from that perspective Indian firms have done much better because they have access to financing; they have access to legal protection in a way that the Chinese entrepreneurs so far have lacked.

Technorati Tags: asia, economy, china, east asia, economy, india, south asia

After the sudden of burst of activity last week, when every second post here was about internet companies in China, AsiaPundit was not going to touch the topic today. However, Tom Zeller Jr today said something in the New York Times that struck a nerve.:

What if Chinese law required Internet companies to reveal the identities of all users who forwarded really bad e-mail jokes, lame chain letters or any messages containing the terms “free speech,” “Tiananmen Square” or “Super Freak,” because such activities carried a 10-year prison term?

“With all due respect to the memory of Rick James, the king of funk,” an executive might say, “we must abide by the laws of the countries in which we operate.”

And what if — as a mark of good faith for being permitted to do business in what any rational observer has to admit is now the most tantalizing Internet and technology market on the planet — an executive from each company were required to assist, mano a mano, in the beating of an imprisoned blogger?

While Tom makes a few interesting points, AsiaPundit is going to be “irrational” and suggest that China’s internet market is far from the most tantalizing on the planet. Off the top of the head, AsiaPundit would suggest that the most-tantalizing internet markets are — in descending order — the wealthy and tech-savvy United States, followed by the EU, e-commerce friendly Japan and possibly then the well-wired South Korea. China would certainly be in the top-10, and maybe even the top five, but it’s not the most tantalizing by a longshot.

Here’s a note from a MarketWatch item on Google’s prospects in China, issued after the China censorship issue was announced but ahead of the company’s earnings announcement. ():

One Wall Street analyst wrote in a report that Google’s China decision could cost more than it’s worth in the short term.

“We do not see meaningful revenue” in China for Google in the near term, UBS analyst Benjamin Schachter told clients Wednesday.

“We are concerned that the inevitable negative PR will damage Google’s brand,” wrote Schachter, who has a buy rating on Google shares.

Schachter downgraded Google to neutral after the earnings announcement, via Dow Jones:

UBS cut Google Inc. (GOOG) to neutral from buy, due to concerns over international revenue growth and the rising investment needed to potentially improve performance in key international markets.

The analysts said that while it agrees with Google that these markets provide important potential opportunities, it may take “longer than expected to effectively monetize them.”

UBS’ China analyst was bearish on the company’s prospects here ahead of the formal launch of the China portal:

Eric Wen, the UBS Internet analyst based in Asia, sums up what he believes are some of the prevailing issues in China for Google in a research report published this month.

Mr. Wen believes that Google is still testing the waters, and does not yet have a clear China strategy. Google has partnered with NetEase and Sina uses Google for some of its technology, but Google.com is facing a dilemma in China. The company recently began conforming to Chinese censorship standards, but Mr. Wen believes that Chinese users chose Google precisely because it was not censored. By conforming to the government standards, Google is trying to enable itself to enter the market in terms of attracting local businesses to advertise. However, by conforming, Google loses its differentiator. This is a dilemma for Google and the reason Mr. Wen believes that Google will not dominate the Chinese search market.

As Bill Bishop noted, China is not an essential market for Google to be in financially:

I am guessing that Google will be happy if they can generate $30M in revenue in China in 2006. Baidu, the market leader, is projected to generate somewhere between $65-70M in revenue in 2006. I believe Google is expected to generate over $8B in revenue worldwide in 2006. If my math is anywhere in the ballpark, China will account for LESS THAN 2 DAYS of Google’s 2006 revenue. And given the economics of the keyword value chain in China, that revenue should be significantly lower margin revenue than is US revenue. So if the China business went away, would investors care?

Perry Wu, in an exceptionally bearish item, says bluntly that Google will have about as much success as its Western rivals who are also getting lambasted on blogs, in the press and Congress. Basically, very little.:

Yahoo (YHOO) tried many times to adapt. As far back as 1998 (or Web 0.98 Beta) when its then-VP, Heather Killen, made high-profile visits to China, the Western Internet company tried to sit at the Chinese banquet table. But Yahoo finally gave up last year when it bought a billion dollar stake in China’s Alibaba.com and then gave Alibaba the rights to run Yahoo! China. There was not even a whimper from the company as its Chinese portal was torn down and replaced with a simple search engine. Sohu (SOHU), Sina (SINA), and Netease (NTES) had finally beaten the foreign interloper.

Lycos tried too. It bought firms like Myrice.com. Netscape tried, via AOL. MSN has also been bobbling along with a few victories here and a few setbacks there–nothing much to be proud of.

All of these companies have one thing in common: they entered China to win, but left only remnants of their power after a few years’ struggle. Chinese history is filled with tales of foreigners coming to the Middle Kingdom with money, but leaving the country poor, confused and embarrassed. Ask Chris Patten.

While the UBS boys, Wu, Bishop and others may be a touch , none are irrational. China’s internet penetration rate is still growing at an impressive pace, but the rate is slowing and the average user is still not deep-pocketed.

There’s a great deal of cash to be made in providing infrastructure for the build out of third-generation networks and broadband capacity, but there’s not a lot yet there for search- or advertising-based business models; certainly not when compared to Western markets.

Zeller is not the first pundit to hype the China market, most commentary seems to assume that the companies that are active here are putting principle at risk over in order to get massive returns. That’s far from true.

Technorati Tags: asia, blogs, censorship, china, cisco, east asia, economy, , japan, korea, media, microsoft, northeast asia, yahoo

From Asia Business Intelligence a post on how counterfeiters work and why the business is attractive.:

In the 1980s, my cousin did business in Taiwan. Being a profligate entertainer of major customers, he once decided to impress by holding an emperor’s banquet (金玉滿堂) at the Hilton in Hsi Men Ting (西門町), the older downtown section of Taipei (台北). The centerpiece of the table was bear paw (熊掌), a traditional delicacy in Chinese cuisine, favored by only the very wealthiest. In the Taipei of the 1980s, a prepared dish of bear paw cost a King’s Ransom of nearly US$750, equivalent to the monthly salary of an office worker. A raw paw was shown to the guests before it was cooked. If I remember correctly, his guests were enormously impressed.

Several years later, a lady who had worked as a waitress in that same restaurant told me there was but one real paw in the refrigerator. Whenever the dish was ordered, the paw was trotted out to show the beaming guests and then immediately returned to cold storage. The chef would proceed to cook whatever meat he might have lying around that was less common than beef – alligator, venison, elk – and far less expensive. !Profit! And with just a little sleight of hand it descends in sheets. The crux of the bear paw con is dual, requiring a customer who’s neither ever tasted bear nor sees the paw cut up and cooked.

Yes, counterfeiting is a classic con. It needs but a sure thing — a paying customer. An entrepreneur with energy, capital, nerve, imagination and a great product may still fail. The counterfeiting of an established brand requires similar elements, within a business environment favorable to the unimpeded trespass upon individual property rights, to allow the con to flourish. Bear paw is an established delicacy in Chinese cuisine.

Counterfeiters in China have established world-class CD duplication facilities (capital); harnessed the production power of entire villages (energy); threatened the lives of children with fake infant formula (nerve); built secret manufactories or factories in ship containers for mobility (imagination). But there’s virtually no economic risk. Someone else has built and crossed that bridge. The brand has already been established. The buyer is a certainty.

Technorati Tags: asia, china, east asia, economy, northeast asia, taiwan

Via the Globalization Institute, sad news that is reaching us late:

Sir John Cowperthwaite was the main figure responsible for Hong Kong’s economic transformation, lifting millions of people out of poverty. While scholars like Milton Friedman and F. A. Hayek put an intellectual case for the free markets, it was Cowperthwaite who provided the textbook example showing laissez-faire policies leading to swift economic development. His practical example provided confidence to the Thatcher and Reagan governments, and was a key influence in China’s post-Mao economic liberalisation.

Cowperthwaite read classics at St Andrews and Christ’s College, Cambridge. While waiting to be called up by the Cameronians (Scottish Rifles), he went back to St Andrews to study economics. This Scottish education imbibed him with the ideas of the Enlightenment, especially the work of Adam Smith, who had been born nearby in Kirkcaldy. He was a liberal in the 19th century sense, believing that countries should open up to trade unilaterally. In 1941, he joined the Colonial Administrative Service in Hong Kong. When it fell to the Japanese, he was seconded to Sierra Leone as a district officer, before returning in 1946 to help the colony’s economic recovery. "Upon arrival," the Far Eastern Economic Review put it, "he found it recovering quite nicely without him." He quickly worked his way up the ranks and was made Financial Secretary in 1961, in charge of its economic policy for a decade.

When he became Financial Secretary, the average Hong Kong resident earned about a quarter of someone living in Britain. By the early 90s, average incomes were higher than Britain’s. Cowperthwaite made Hong Kong the most economically free economy in the world and pursued free trade, refusing to make its citizens buy expensive locally-produced goods if they could import cheaper products from elsewhere. Income tax was never more than a flat rate of fifteen percent. The colony’s lack of natural resources, apart from a harbour, and the fact that it was a food importer, made its success all the more interesting. Cowperthwaite’s policies soon soon attracted the attention of economists like Milton Friedman, whose television series Free to Choose featured Hong Kong’s economic progress in some detail.

Asked what is the key thing poor countries should do, Cowperthwaite once remarked: "They should abolish the Office of National Statistics". In Hong Kong, he refused to collect all but the most superficial statistics, believing that statistics were dangerous: they would led the state to to fiddle about remedying perceived ills, simultaneously hindering the ability of the market economy to work.

Technorati Tags: asia, east asia, economy, hong kong, northeast asia

That the Chinese love capitalism more than Americans is no surprise. Although the data for the Philippines is eye catching.

Though Mao Tse-tung’s portrait still hangs in Tiananmen Square, a recent poll shows that the Chinese are crazier about capitalism than are Americans. In fact, they top the world-wide rankings in their zeal for free markets. No wonder Mao isn’t smiling.

In a poll conducted for the University of Maryland’s Program on International Policy Attitudes between June and August last year, fully 74% of Chinese citizens said they agreed with the statement "the free enterprise system and free market economy is the best system on which to base the future of the world." The Philippines, at 73%, and the U.S., at 71%, were second and third. The poll, which surveyed 20,791 people in 20 countries, seems like a pretty good snapshot of current sentiment, as such things go.

Remarkable, isn’t it, that residents of the Middle Kingdom have maintained their appreciation of the benefits of free enterprise through six decades of oppression and economic backwardness imposed by their Communist cadres? Then again, for a culture in which common New Year’s greetings include "I wish you happiness and many riches" and "may you make great profits," should we be surprised? Most Hong Kong residents are spending the current Chinese New Year holiday politely distributing packets of crisp new cash to friends and family. They have to earn this gift cash somehow.

(Via East Asia Watch)

Technorati Tags: asia, china, east asia, economy, northeast asia, philippines, southeast asia

The West is red, and so is the Far East and much of the globe. An interactive map pointed to by Thomas Barnett displays each country’s exposure to China, with higher levels of integration indicated by darker shades of red.:

AsiaPundit is a firm integrationist , and welcomes the pink hues that cover the G7 economies. The dark red that covers Sudan, Angola, Kazakhstan and some other disreputable regimes does give AP some pause. (Curiously, no data is available for North Korea).

Technorati Tags: asia, china, east asia, economy, northeast asia

In an essay that could be applied to much of the developing world, Roehlano Briones argues, rightly, that the dominance of flea markets in the Philippines is the result of too much regulation of businesses.:

1. What do you think does this tiangge (flea market) popularity says about the state of Philippine economy and consumer behavior?

Flea markets are a fixture in the Philippine (and many other) economies. As a matter of routine, they do not give receipts, hardly any sort of registration, and hence belong to the underground economy. The underground economy as a whole constitutes over forty percent of Philippine output. Fancy that.

What the undergroundization of the economy tells us (and flea markets is one sign of that) is that cost of going formal is high. According to the World Bank, the Philippines is ranked 113 out of 155 countries in terms of the ease of doing business. Incredible. Who are the best? New Zealand, Singapore, US, Canada, Norway, Hong Kong, in that order. We are 89th in terms of starting a business, 91st in terms of dealing with licenses, 82nd in terms of ease of hiring and firing workers, 92nd in terms of registering property, and a whopping 121st in terms of getting credit. Just to start a business, the average waiting time is 48 days, whereas in developed countries it is only 19.5 days; the cost of starting is up to one-fifth of per capita income, whereas in the latter it’s below 7%. Now should we wonder why the informal economy is so large? And why the informal economy in New Zealand is less than 13% of its national output?

(Photo of Quiapo Market stolen from Scent of Green Bananas)

Technorati Tags: asia, east asia, economy, philippines, southeast asia

Sorry, that title should have been the diminishing returns of Japan’s horror.:

What if Takashi Shimizu (JU-ON, THE GRUDGE) released a movie and nobody came? That’s exactly what happened with last week’s release of his new movie REINCARNATION (RINNE). A relatively well-reviewed flick, even Variety said that "Local and international success look certain…" but then…psyche! The movie came out and made 98 million yen, 45% of what ONE MISSED CALL grossed.

But that’s just part of the pattern of declining J-horror revenues in Japan. RING 2 and the American remake of THE RING both grossed big, and ONE MISSED CALL did pretty well but every other J-horror flick, including the Hollywood remakes, have made less and less money. Nick Rucka gives a nice recap of the history of Japanese horror movies and looks at the creative deadend this particular trend has reached over on Midnight Eye, and Hoga Central provides a handy graph that charts the declining fortunes of the J-horror wave.

J-horror has been yesterday’s news for a while but now it might just be dead enough that producers stop wringing its corpse for a few more cents.

Technorati Tags: asia, east asia, japan, northeast asia

As AsiaPundit noted in a recent item, South Korea had a booming equities market in 2005 - with equity returns up 53.96 percent in local currency terms during the year. So why is AP expecting a bust? While many analysts have said the index has overshot in the past year and have used various accounting measures to suggest that it is already overvalued, AP just has a hunch.:

Here’s a great photo found at the blog of Nyquist Capital.  It’s of a rally to encourage people to invest in the stock market.  The up arrows, gigantic bull, and Rally Korea! sign pretty much gets the message across.  In a way it’s not that much different from those Nasdaq-100 ads with the CEOs of Starbucks, Staples and Microsoft, but in Korea it’s been deemed that there’s a pressing need to broaden participation in the market–in 2005 only 8% of the population owned stock.  Too bad, they’ve really missed out.  I guess that’s why they have a need for this kind of public rally.

One of the strange things about South Korea is that public rallies often work. Moreover, they often work so well that they create brand new problems.  In one of the notable recent examples, the government and banks promoted credit card use to encourage domestic consumerism and reduce tax evasion (cards leave a paper trail). That one worked really, really well.

As the above mentioned Nyquist Capital blog notes:

The shocking thing about this photo is the naked embedded marketing message. Buy now or you will be left behind. This is just one picture, but if this is the tone the exchange wants to set, it looks like the birth of an irrational exuberance investor culture. The folks that run the exchange should realize they are running a market, not a casino.

Technorati Tags: asia, east asia, economy, korea, northeast asia, south korea

It has been months since AsiaPundit posted a China economic roundup, but the void has been filled brilliantly at the New Economist.

Technorati Tags: asia, china, east asia, economy, northeast asia

AsiaPundit is based in Shanghai, a city that the authorities aspire to make itself into a financial center that will rival or overtake Hong Kong. AP has before argued that, no matter what incentives are provided by the authorities, the city has decades to go before it can conceivably catch up. Of course, AP’s previous arguments haven’t considered that Hong Kong would start to create disincentives for its multinationals.:

Coming just days after the conservative Heritage Foundation awarded Hong Kong the top spot in its 2006 Index of Economic Freedom, the local government is debating a  “anti-racism” bill that would require companies to justify their offers of generous "expatriate packages" to foreign employees.

Under the proposed legislation, firms will have to prove the foreign recruit has expertise not readily available in Hong Kong, and permanent residents will not be able to receive such special terms.

The move, outlined by government officials on Tuesday, will force a rethink of long-standing hiring practices before 1997 when the city was a British colony. A local recruitment expert described the law as a "nightmare" and said it would make Hong Kong a less attractive place to do business.

UPDATE: Simon notes the facts of the bill differ depending on what paper you may be reading.

Technorati Tags: asia, china, east asia, economy, hong kong

AsiaPundit hopes to respond to Michael Turton’s rebuttal to the assertion that Taiwan’s KMT is more market oriented than the DPP. However, AsiaPundit will concede immediately that the Heritage Institute’s economic freedom rankings do have significant flaws. It is useful for providing a basic snapshot of economic liberties in relation to what it claims to measure, but by ignoring more unique elements of each market it does provide a distorted view.

Simon has a takedown on Hong Kong’s ranking by the SCMP’s Jake van der Camp here. But Singapore’s ranking as the No.2 freest economy also needs some review.:

In Singapore, it is the government itself that stands in the way of the unfettered private enterprise that the Heritage Foundation’s criteria are supposed to favor. The major real estate, banking, transport, manufacturing and utility companies listed on the stock market are all government-controlled entities. They may be efficient, but is this an economy free of government intervention? The index also claims that "the market sets almost all wages." But actually "wages are based on annual recommendations made by the tripartite National Wages Council."

Tax rates and revenue as a percentage of gross domestic product are low in both cities. But governments control land supply and use it not just to raise money but to redistribute income in an off-the-books manner through publicly developed and managed housing provided with low-cost land, in which 83 percent of Singaporeans and 40 percent of Hong Kong citizens live. In Hong Kong, land prices for the rest are kept especially high, with the result that living space per inhabitant remains very low compared with countries with similar income levels. Land in Hong Kong is sometimes used for subsidizing favored industries and in Singapore tax subsidies - which by definition are discriminatory - are common.

Tax levels in Singapore look quite low. But how free of official imposts are its citizens when compulsory contributions to its Central Provident Fund take 33 percent of wages and are invested largely as the government sees fit, through nontransparent official vehicles such as the Government Investment Corporation? Compulsory savings help toward the accumulation of foreign-exchange reserves and a very high investment ratio. But the rate of return on those assets has been low.

Technorati Tags: asia, east asia, hong kong, northeast asia, singappore, southeast asia

AsiaPundit knew that China’s stock markets would end 2005 at the bottom of the barrel, and that Bursa Malaysia would also rank low. Great gains by South Korean and Japanese markets have been well documented. Still, even for someone who keeps abreast of these things, this chart showing the 2005 performance of global stock markets in local-currency terms contains a few shocks. Not the least of which is that Zimbabwe topped the list.

click to enlarge

There are, of course structural reasons for the odd performances of some markets - China’s are well described here but AsiaPundit admits total ignorance on Zimbabwean equities.

That said, if a booming economy like China can produce negative returns on equity while a basket-case like Zimbabwe produces such stellar results, AsiaPundit would strongly recommend that Pyongyang establish a bourse.

(And if anyone can provide direction to a good article on Zimbabwe stocks it would be appreciated.)

Technorati Tags: asia, china, east asia, economy, malaysia, stocks, puppy, southeast asia

The LA Times reports that Shanghai’s property bubble has popped.:

SHANGHAI — American homeowners wondering what follows a housing bubble can look to China’s largest city.

Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices.

For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.

"The entire industry is scaling back," said Mu Wijie, a regional manager at Century 21 China, who estimated that 3,000 brokerage offices had closed since spring. Real estate agents, whose phones wouldn’t stop ringing a year ago, say their incomes have plunged by two-thirds.

Shanghai’s housing slump is only going to worsen and imperil a significant part of the Chinese economy, says Andy Xie, Morgan Stanley’s chief Asia economist in Hong Kong.

Although the city’s 20 million residents represent less than 2% of China’s population of 1.3 billion, Xie says, Shanghai accounts for an astounding 20% of the country’s property value. About 1 million homes in Shanghai alone — about half the number of housing starts for the entire United States in 2004 — are under construction.

"They’ll remain empty for years," Xie said, adding that a jolting comedown also was in store for other Chinese cities with building booms — including Beijing, Chongqing and Chengdu — though other analysts say the problem is largely confined to Shanghai.

UBS economist Jonathan Anderson, one of the economists who argues that the bubble is confined to Shanghai, issued this as last week’s "chart of the week."

The light green line shows the average rate of property price inflation in the Shanghai market. As you can see, prices went up … and up … and up, at a 30% y/y pace at the peak (and much faster in the high-end residential market). And then, as most everyone expected, the bubble burst and prices slowed sharply (and actually fell by a sizeable amount in the high-end market).

Now turn to the blue line, which shows the nationwide average excluding Shanghai. What happened in the rest of the country? In a word, nothing. Prices were never rising that fast to begin with, accelerated very slightly in 2003 and 2004, and have slowed very slightly since … and that’s about it. The point is that the speculative Shanghai bubble really was just a Shanghai phenomenon.

(h/t  Mish)

Technorati Tags: asia, china, east asia, economy, northeast asia, property bubble, shanghai

Mark Thoma at the Economist’s View posts a rather long but engrossing article on China. There is a lot of meat in it and a number of different - and differing - conclusions that can be drawn. As AsiaPundit has this week been harping on the need to urbanize China, he has chosen the following excerpt:

There was one girl we could talk to here, Zhao Lintao (no relation). She was twelve years old, and proudly spoke the English she’d learned in the overcrowded village school. When we asked her about her life, though, she was soon in tears: her mother had gone to the city to work in a factory and never returned, abandoning her and her sister to her father, who beat them regularly because they were not boys. The government was taking care of her school fees until ninth grade, but after that there would be no more money. Her sister had already given up and dropped out.

Multiply that story by half a billion and you will begin to understand why the biggest migration in the history of the planet is underway in China, why there are always more bodies to sit behind those sewing machines. Tens of millions of people leave desperately poor farms every year to work at the factories that feed Yiwu. By one estimate the country needs to add an urban infrastructure equivalent to Houston every month just to keep pace. More than a hundred cities in China have populations that top a million. And even so, the countryside still bulges.

What struck me about China, in fact, was not so much the teeming cities as that teeming countryside. China has a third of the planet’s farmers and one fourteenth of its farmland. In places, the average farm plot is a sixth of an acre - smaller than many American houses. About 800 million people, roughly 65 percent of China’s population, are crowded onto those tiny farms. And on average they are earning one third the income of city dwellers. It is easy to see why the United Nations predicts that by 2030, sixty percent of Chinese will live in the cities. With a massive effort, that number might be held down to fifty percent. But since about one percent of Americans currently work as farmers, down from 39 percent a century ago, we should be able to understand this tide.

Technorati Tags: asia, china, east asia, economy, northeast asia

Via Marginal Revolution:

Hundreds of millions of Chinese have been lifted out of abject poverty in the last several decades but trust Lester Brown to see the downside (Brown, of course, is sadly joined by Paul Krugman and neo-cons itching for another cold-war).  In his latest book, Brown argues that the Chinese will soon be eating little children.  Well, not exactly, but he does think that Chinese eating will cause little children to die.  Writing in the Washington Post, Bill McKibben summarizes the Brown argument (which he endorses):

    The Chinese, in particular, are constantly converting farmland to factory sites (even as they learn to eat more meat), and they have plenty of American cash stored up to pay for any shortfall. But if they do so, the first casualties will be the world’s really poor nations, already reeling from increases in the price of fuel.

Of course this is an old story for Lester Brown who in 1973 said:

    The soaring demand for food, spurred by continued population growth and rising affluence, has begun to outrun the productive capacity of the world’s farmers and fishermen.  The result has been declining food reserves, skyrocketing food prices, food rationing in three of the world’s most populous countries, intense international competition for exportable food supplies, and export controls on major foodstuffs by the world’s principal food supplier.

Isn’t it amazing how rising affluence leads directly to mass starvation?  Some people just can’t be happy. 

As AsiaPundit noted yesterday "on rural China, one point that is often missed is that agrarian lifestyles will only produce rural-sized incomes….  The longer-term solution (for China’s rural poverty) is allowing the urbanization and retraining of rural populations. "

It can be further noted that China’s rural peoples, like most globally, are heavily dependent on agricultural prices for their incomes. This creates a situation where, a touch bizarrely, rural poverty and malnutrition are often worsened by falling food prices. There is not too little food, there are too many farmers.

An economist AsiaPundit had been speaking with this week during his day job, admittedly one of the outliers on the growth prospects for Chinese consumer spending,  was expecting a slowing in consumer retail spending. In 2005 it was driven by higher rural incomes that were based on strong agriculture prices. Food prices are now falling.

Lower food prices mean that those in rural areas will need to sell more of their crops in order to make more money. In spite of Brown’s argument, rural people’s needs extend well beyond food. Cash is needed for healthcare, education, shelter, retirement and other necessities. As a wise man once said, perhaps Lincoln, "man does not live on bread alone." It’s not like China is some sort of communist utopia.

Technorati Tags: asia, china, east asia, economy, northeast asia

One of the reasons that AsiaPundit objects to calling the Kuomintang pro-communist is that they are far less interventionist economically than the governing DPP. Sun Bin notes the island’s economic freedoms have deteriorated under the Chen Shui-Bian administration:

According to the Heritage Foundation, the economic freedom of Taiwan drops from #26 last year to #37 this year.

Meanwhile, HK stayed at #1, 8 years after reverted to PRC rule. China still ranked low, but its score has improved steadily (note high value in score means unfree).

Taiwan’s score has been in the decline since Chen Shui Bian started to rule the island (score=2.03 in 2000). The only year of improvement was right before the 2004 election (improved slightly from 2.48 to 2.34). It seems safe to expect the decline until 2008 election.

The DDP’s instincts, similar to their opponents across the Strait, have been to meddle rather than further free Taiwan’s economy. The KMT, whatever questions there may be about their foreign cross-Strait policies, are economically further removed from their Beijing counterparts. Calling them pro-communist because they hold dialogue sessions with the CCP isn’t appropriate - no more than it would be to call the Bush administration pro-communist because it dialogues with the Chinese leadership.

That said, the Foreigner has opened a debate on what the Communists should be called:

AsiaPundit favorably reviewed my previous post, but had a small quibble with my referring to Taiwan’s adversaries on the other side of the Strait as "communists".  In truth, I’m not entirely happy with this description myself.  AsiaPundit is right to point out that they ceased to be real communists the day they abandoned the economic model calling for state ownership of the means of production.  One could refer simply to "Beijing" or "the Chinese leadership", but that glosses over the moral nature of the regime.  So what word then, better designates their beliefs and policies?

"Fascist" seems too harsh, because the government in Beijing is not interested in the rigid state control over the economy that the fascists were enamored with.  On the other hand, "authoritarian" is too mild, because the Chinese authorities work very hard to suppress the organizations of civil society (ie: religions) that many authoritarians are content to leave unmolested *.

For China’s CCP to continue to call themselves ‘communist’ is indeed a great a misnomer. But so is the initial adjective in the ‘Democratic’ People’s Republic of Korea. If you call the KMT ‘pro-communist’ because it has dialogue with the CCP, for consistency you would have to call the CCP ‘democratic’ because it supports North Korea.

In terms of cross-Strait politics, calling the CCP ‘pro-nationalist’ would be a better description as it more neatly sums up their own ideology and their fawning over the KMT. Mainland state media has recently taken to praising both the anti-Japanese activities of the CCP and the KMT, so it would be less of a stretch.

That said, AsiaPundit is actually not adverse to fascist. As P.J O’Rourke noted in a late 1990s visit to Shanghai:

I don’t want to disparage private enterprise. The world has political, religious, and intellectual leaders for that. But when a totalitarian government gets cozy with large financial and manufacturing concerns, it rings a 20th century historical bell. I’m thinking how a certain ‘people’s car’-ein Volkswagen-got its start. I’m thinking, ‘Made the trains run on time.’ I’m thinking, ‘Greater Asian Co-Prosperity Sphere.’ There’s a technical name for this political ideology.

Technorati Tags: asia, china, east asia, northeast asia, economy, taiwan

China at the start of this year eliminated its agricultural tax, in an effort to raise rural incomes and eventually unify the taxation system, gaining praise from the US Tax Foundation.:

Last week, China’s move to repeal its agriculture tax made headlines around the world. Although many stories overdramatized the move by labeling the tax "ancient" and "2,600 years old"—the actual tax dates only to 1958—it’s still a significant shift in tax policy for a nation bearing one-fifth of the world’s population.

The repealed agriculture tax was similar to a modern property tax. It was a lump-sum fee paid by farmers based on the amount of cultivated land and number of family members. And as with property taxes, the tax was widely perceived as unfair, for two reasons.

First, the amount of tax was based on a proxy for grain production not income, forcing farmers to bear the same tax burden both in prosperous and lean years. Second, the tax devoured a large portion of farmer’s incomes. While the average agricultural tax amounted to just $36 per family, that’s a hefty tax bite given the annual per capita income of Chinese farmers of around $242 (nearly 15 percent).

Until recently, China has operated parallel tax systems for urban and rural taxpayers. One of the goals in repealing the agricultural tax to unify the tax system and simplify tax rules. It’s hard to argue that it’s isn’t good tax policy. This, along with China’s recent exemption of foreign and domestic investors from capital gains taxes, places the People’s Republic of China closer to the cutting edge of economically sound tax policy than many avowedly capitalist nations.

The tax reform is essential for China in building a more consumer-driven society and removing factors that help maintain disparities between urban and rural residents. It’s only a single step forward though, and in an item yesterday Simon noted that some other policies could be huge steps backwards.:

A new movement, entitled the "new socialist countryside", will be the focus of rural development during the 11th Five-Year Programme. A similar slogan, "building socialist rural areas", appeared in the 1950s, but was later dismissed as part of propaganda about building a utopian society. The latest campaign draws comparisons between the situation on the mainland and South Korea’s experiences 30 years ago…

According to state media, Beijing’s vision of a "new socialist countryside" consists of five components: production growth, affluence, rural civilisation, a clean environment and democracy in the management of local affairs. The vision may look like a holistic approach, but scholars are worried that it may turn into another white-elephant construction spree….

Proper land reform, well-deliniated land rights, open and honest courts that will defend the poor from developer and government land grabs and cops that don’t shoot those defending their patches of earth are all vital. But the control freaks demand progress, and progress can only come with control. The true beauty of the capitalist market system is it works with a minimum of control, not a maximum of it.

AsiaPundit’s general view of the current CCP leadership is that they are far more sincere than their predecessors in wanting to reduce the immense gap between rural and urban Chinese. That’s a good thing, the downside is that they are also less market oriented. We can hope that the ‘new socialist countryside’ is another misnomer and that rural areas will eventually look more like the new ’socialist’ Shanghai.

However, if collectivization and state control remain central tenets for new reforms the new socialist countryside will likely look a lot like the old socialist countryside.

On rural China, one point that is often missed is that agrarian lifestyles will only produce rural-sized incomes (barring, of course, the types of protectionism and subsidies that American, European and East Asian farmers have received - something China would be wise to avoid).

The longer-term solution is allowing the urbanization and retraining of rural populations. China is not just governed by control freaks when it comes to economics, but also when it comes down to the internal movement of its people.

Further reading: Mark Thoma posts an article on China’s development troubles, government statistics (2004) on rural poverty in China. Photo nicked from the IFRC.

Technorati Tags: asia, china, east asia, northeast asia

A new study by the International Labor Organization. summarized by the IHT, reveals that Korea has plenty of room to grow its economy. If only because the staggeringly low worker productivity levels give the land of the morning calm a lot of room for improvement.:

It’s the sort of distinction that leaves you wondering whether to offer praise or pity: South Koreans worked longer hours last year than anyone else on the planet, 30 percent more than Americans and 65 percent longer than the French.

Workers in South Korea put in an average of 2,380 hours in 2004 - about 48 hours a week with a two-week vacation….

France is the world’s most productive country on an hourly basis, according to the KILM. But measured on the basis of each employee, America is leagues ahead of every other country.  In other words, when the French work, they are extremely efficient. But since an employee takes five weeks of vacation or more, he or she produces less for a company over the course of a year than a worker in the United States. …(France is still relatively competitive on a per-employee basis, however, coming in fifth place.)  Measured annually, each employee in the United States last year produced an average of $63,617 worth of goods and services, calculated in 1990 dollars. This is 37 percent more productive than in Britain, 17 percent more than France, 45 percent more than Germany, and 40 percent more than Japan…

As for South Koreans, they could easily cut back on their long hours if they raised their productivity, which on an hourly basis stands at just over one-third the level of the French.

(Via Nomad)

Technorati Tags: asia, east asia, economy, korea, northeast asia, south korea

Via the Mises Economics Blog, an NYT item that reflects on the bursting of Japan’s property bubble and lessons that the US can learn from the experience.:

Mr. Nakashima, a Tokyo city government employee who was then 36, took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell.

Or so he thought. Not long after he bought the apartment, Japan’s property market collapsed. Today, the apartment is worth half what he paid. He said he would like to move closer to the city but cannot: the sale price would not cover the $300,000 he still owes the bank.

With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan. What Americans see may scare them, but they may also learn ways to ease the pain.

To be sure, there are several major differences between Japan in the 1980’s and the United States today. One is the fact that property prices rose much faster and more steeply in Japan, partly because speculators used paper profits from a booming stock market to invest in property, insupportably leveraging the prices of both higher and higher.

AsiaPundit recommends that readers outside the US, for instance Australia and Shanghai residents, also take note.

Technorati Tags: asia, east asia, economy, japan, northeast asia, housing bubble

Although its economy has collapsed, the North Korean state still makes money. Lots of it.. And South Korea’s government doesn’t care.

The National Intelligence Service, in a 1998 report … said North Korea forges and circulates US$100 bank notes worth $15 million a year, and that the counterfeiting is carried out by a firm called February Silver Trading in the suburbs of Pyongyang. The NIS said in reports … the same year and the next that the North operates three banknote forging agencies, and that more than $4.6 million in bogus dollar bills were uncovered in circulation on 13 occasions since 1994. “That North Korea is a dollar counterfeiting country was common knowledge among intelligence officials,” said a former senior NIS official.

Yet suddenly, when the U.S. brings up the question of North Korea’s counterfeiting activities, our government says there is insufficient evidence. That has prompted American officials to accuse our government of lying. The reason for the volte-face is that Seoul is afraid of antagonizing Pyongyang while six-party talks aimed at denuclearizing North Korea hang in the balance. But what if the shoe was on the other foot? If a country hostile to South Korea forged a huge number of our banknotes and circulated them around the world, what should our government do? And if an ostensible ally of ours defended that counterfeiting country, what would we think of that ally? …

And it’s not just the Supernotes, as Nomad points out the North Koreans have also been forging Thai baht, Chinese yuan and other regional currencies.:

One U.S. government official said in an interview, “I read an internal report produced by the U.S. intelligence agency. And you may want to think about why a Thailand diplomat was invited to the symposium on counterfeit currency hosted by the U.S. State Department on December 16.” The symposium on counterfeit currency hosted by the State department was attended by diplomats from countries participating in the six-party talks including South Korea, Japan, China, Russia, some EU member countries, Thailand and Singapore. He added, “If North Korea can forge U.S. dollars, which are known to be the most safeguarded from counterfeiting, perfectly, why wouldn’t it want to do the same for other currencies of neighboring countries.” He made clear that currencies of neighboring countries including Thailand have been counterfeited. To the question, “Does that mean that South Korean won have also been forged?” He answered, “Please, don’t ask more. You can just think about which countries North Korea might feel closer to, and which currencies it would think would be easier to circulate.”

As noted in the originally cited New Economist post, counterfeiting can be considered an act of war. AsiaPundit suggests all offended nations consider it such.

Technorati Tags: asia, china, east asia, economy, korea, north korea, northeast asia, south korea, thailand

Jeff Ooi made an interesting and persuasive argument on how South Korea beats Singapore (interpreted here as LKY vs PCH), but there was still lots of room for debate.

Not so in AsiaPundit’s second round of battles between the founding fathers of modern Asia; Atanu Dey’s  essays on how Lee Kwan Yew beats Jawaharlal Nehru really leave little room for argument. Read Part 1, Part 2: and Part 3 (part 4 pending):

LKY transformed a third-world mosquito infested swamp into a rich developed city state within one generation. An autocrat to the core, he sequenced the changes and orchestrated the development of his city without apologizing for what he had to do. Singapore is one of the least corrupt economies of the world. He made Singaporeans clean up their act, both figuratively and literally. No other dictator has been able to achieve that sort of transformation. It is a random draw from which dictators are drawn. India drew a lousy hand and got saddled with dictators that were incompetent to the core. And staggering from one calamity to another, the country got rid of the dictators and with only a brief break, got a government that is headed by a foreign-born rather reluctantly naturalized citizen of India and supported by a bunch of treasonous communists.

There is sweet irony in LKY delivering the Nehru Memorial Lecture: a successful dictator lecturing the family members of a failed dictator who made a mess of the economy that was so full of promise. Just in case it is not entirely clear, Nehru was a dictator, never mind the fact that there may have been an election. The laws of the universe do not preclude the democratic election of dictators. Adolf Hitler was also elected, and he enjoyed the confidence of the majority just as much as Nehru enjoyed the confidence of the people of the newly minted republic of India. There was no opposition worth its name and Nehru did precisely what he willed.

Based on Nehru’s policy prescriptions, the Indian economy grew at a sorry 2 or 3 percent a year—the aptly named “Nehru rate of growth.” Per capita figures were even more dismal than that because the population grew rapidly. The Nehru dynasty continued to favor policies that kept India locked into the Nehru rate of growth until about 1991. Then economy grew at a more respectable rate but only compared to the Nehru rate of growth. In absolute terms, the “post-reform” growth rate was nothing to write home about. China had been growing for over a decade and at a much faster rate.

Technorati Tags: asia, east asia, economy, india, singapore, south asia, southeast asia

Although both India and China each boast populations of more than a billion souls, the two giants also face severe labor shortages in key areas. Via the New Economist, a Bloomberg column on the situation faced by Indian call centers.:

To maintain its global share of 65 percent in information technology and 46 percent in business-process outsourcing, the country will need 2.3 million professionals by 2010. According to McKinsey’s calculations, India may face a deficit of as many as 500,000 workers. As much as 70 percent of the shortage will crop up in call centers and other back-office businesses, where proficiency in English is the No. 1 prerequisite for landing a job.

People within the Indian outsourcing industry are aware of the problem: A number of executives cite high employee attrition and galloping wages as signs that the labor market for undergraduates in India is getting tighter.

It isn’t obvious why that should be so. In a country where millions of educated young people are unemployed, why do call centers feel compelled to give pay raises of 10 percent to 15 percent a year? Why don’t they boot out the highly paid workers and grab the eager aspirants?

And why do they offer their employees free dance lessons on top of a $4,000 annual wage — worth $36,000 when adjusted for purchasing power in the local currency — when they can’t pass on the increase in costs to the U.S. bank or the European insurance company that is paying for the call centers’ services?

The answers may have a lot to do with India’s education system. A labor shortage is bound to surface unless India’s colleges can produce more employable graduates.

McKinsey produced a similar item on China’s plight a few weeks earlier. While this may raise concerns on whether China and Indian have the human capital needed to sustain their booming economies, overall it should be seen as an amazingly good thing. The end result of this is a push for higher wages and improved education in both countries.

Technorati Tags: asia, china, east asia, economy, india, northeast asia, south asia