Friday, October 31, 2008

Curiously, Premier Wen Jiabao penned an editorial on the journal Science. That's nice and all, but can one read a bit more into it. The key passage is "We advocate free academic debate under a lively academic atmosphere, where curiosity-driven exploration is encouraged and failure tolerated." I am especially struck by "failure tolerated." He has been under quite a bit of criticism lately for overdoing macroeconomic control. May this be a self defense, basically saying that he relied on scientific evidence in applying the policies and even if there are some unpleasant consequences now, they should be "tolerated?" Not sure....

Science 31 October 2008:
Vol. 322. no. 5902, p. 649
DOI: 10.1126/science.1166843

Prev | Table of Contents | Next
Science and China's Modernization
Wen Jiabao1

Figure 1
The history of modernization is in essence a history of scientific and technological progress. Scientific discovery and technological inventions have brought about new civilizations, modern industries, and the rise and fall of nations. China is now engaged in a modernization drive unprecedented in the history of humankind.

Over the past half century, China has made great achievements in basic science and technological innovation. It now ranks among the top nations in the annual number of papers published internationally and patent applications filed. China has also made achievements in such areas as manned space flight, high-performance computers, super-large-scale integrated circuits, and third-generation telecommunications technology. High-tech industry has experienced rapid growth, accounting for over 15% of the manufacturing industry.

Francis Bacon, the 16th-century English philosopher, referred to science as a means to improve humankind's lot. Today, the hybrid rice variety developed by Chinese scientists has been adopted for planting in over three million hectares and has become a "golden key" to meeting China's own food needs and boosting world cereal production. Scientific and technological development in the realm of health has also increased average life expectancy in China to that in developed countries.

To encourage further innovation, the Chinese government has formulated a Mid- to Long-Term Plan for Development of Science and Technology (2006-2020), which highlights research in the basic sciences and frontier technologies, with priority given to energy, water resources, and environmental protection. We strive to develop independent intellectual property rights in areas of information technology and new materials, while strengthening the application of biotechnology to agriculture, industry, population, and health.

The future of China's science and technology depends fundamentally on how we attract, train, and use young scientific talents today. Thus, at the core of our science and technology policy is attracting a diverse range of talents, especially young people, into science and providing them with an environment that brings out the best of their creative ideas.

In the field of science and technology, we will intensify institutional reform, restructure scientific research, rationally allocate public resources, and enhance innovation capability. We advocate free academic debate under a lively academic atmosphere, where curiosity-driven exploration is encouraged and failure tolerated.

Science has no boundaries. China's endeavors in science and technology need to be more integrated with those of the world, and the world needs a China that is vibrant and able to deliver more in science and technology. Just as collisions generate sparks, exchange and communication enrich imagination and creativity. Many Chinese scientists have stepped into the international academic arena, where they and their foreign colleagues learn from each other and jointly contribute to the worldwide development of science and technology.

To encourage the learning and application of science among the general public, we need to embrace a scientific culture by promoting scientific rationality while cherishing Chinese cultural heritage. Enlightened by science, the rich and profound Chinese culture is bound to shine more gloriously.

I firmly believe that science is the ultimate revolution. At a time when the current global financial turmoil is dealing a heavy blow to the world economy, it has become all the more important to rely on scientific and technological progress to promote growth in the real economy. Economic and social development must rely on science and technology, and science and technology must serve economic and social development. We will rely on science and technology to promote economic restructuring, transform development patterns, safeguard food and energy security, and address global climate change. We are confident that China will reap a rich harvest in science and technology and that this will have positive and far-reaching effects on human civilization and the well-being of humankind.


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Tuesday, October 28, 2008

My new Blog post for RGE Monitor

Big Bad Banks are Back
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Victor Shih | Oct 28, 2008

I just saw a pretty alarming figure today from the 21st Century Economic Herald. I attach it here for readers' reference, but unfortunately, it is in Chinese. Let me explain though. The rows basically show changes in non-performing loans in 100m RMB unit and in percentage for state banks, joint-stock banks, city commercial banks, agricultural commercial banks (RCCs), and foreign banks respectively. The columns are 1Q08, 2Q08, 3Q08, and change between 1/1/08 and 3Q. Although overall, banks were able to achieve "double declines," an important CBRC target that seeks to decrease both NPL amount and NPL ratio. However, as we can see on the second row with figures, much of the work is done by the joint stock banks. For the state banks (ICBC, ABC, BOC, and CCB) shown on the first row with figures, 2Q and 3Q NPL amount actually increased by 10 billion and 14 billion RMB respectively. As a percentage, that is a small increase, but it is the first such increase in a few years. Overall, state banks, which control like 60% of the market, saw an increase of 2.4 billion in NPLs. Granted, that is a tiny amount. However, please bear in mind that the state banks are in the mean time writing off loans every quarter (if readers know by how much, please share, but my guess is 2-300b RMB a quarter). Also, the loans that show up as NPLs now were already in trouble at the beginning of the year. I think in most places, real estate developers didn't get in serious trouble until June or so. Thus, as we move toward first and second quarter next year, the loans that are currently overdue (not non performing) will become NPLs. I think the market is reacting to this now and will continue to react as such until the true scope of the problem is known.

The up side of the story, however, is that the joint-stock banks are holding up remarkably well in the current environment. Of course, some of them, like Industrial Bank, may be in trouble in the future. However, thus far, they have managed to hold down NPL ratios. The real estate problem will hit them hard, but perhaps better corporate governance will keep them from too much trouble. This accords with my paper from a couple years back showing joint-stock banks as the best performing banks in China. For the foreign banks, they begin with a clean balance sheet, but they are now facing the first real challenge of doing business in China. This will be a true test of whether their due diligence works in China. I suspect that there will be some nasty surprises for many.

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The new monetary policy committee list just came out. Basically, Yi Gang replaced Wu Xiaoling, while Ma Jiantang replaced Xie Fuzhan. All pretty normal except that Yi Gang is the first "sea turtle" to be in that committee. Since it is advisory, I don't think it is that significant. Now if Yi Gang becomes governor.....

货币政策委员会新名单公布 易纲马建堂入选
http://www.sina.com.cn 2008年10月28日 08:50 新浪财经

  新浪财经讯 央行网站近日公布最新货币政策委员会委员名单,其中央行副行长易纲、国家统计局长马建堂,接替央行原副行长吴晓灵和国家统计局原局长谢伏瞻,进入新一届货币政策委员会。



  周小川(货币政策委员会主席)    中国人民银行行长

  尤 权    国务院副秘书长

  朱之鑫    国家发展改革委员会副主任

  李 勇    财政部副部长

  苏 宁    中国人民银行副行长

  易 纲    中国人民银行副行长

  马建堂    国家统计局局长

  胡晓炼    国家外汇管理局局长

  刘明康    中国银行(3.03,0.06,2.02%,吧)业监督管理委员会主席

  尚福林    中国证券监督管理委员会主席

  吴定富    中国保险监督管理委员会主席

  蒋超良    中国银行业协会会长

  樊 纲    中国经济体制改革研究会副会长

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Friday, October 24, 2008

"back problems" We can also add this to CITIC Pacific's problems in Hong Kong. It would be interesting to see if these two officials were involved with the real estate dealings of the two cities and that their escape had something to do with it.


Chinese official overstays in France, prompting corruption speculations
+ -
12:57, October 23, 2008

A municipal official from eastern China's Zhejiang Province has overstayed about 20 days on a visit to Europe, prompting speculation he had fled the country because of corruption.

Yang Xianghong, Party Secretary of Lucheng District in Wenzhou City, departed on Sept. 19 on a 12-day tour to Europe. He left the delegation just before the return trip in the name of visiting his daughter in France, a Wenzhou government official told Xinhua.

Later he claimed he had to stay in France for a medical treatment for his back problem. Yang delivered a resignation letter to the municipal Party committee, saying that his back pain was severe and the work pressure was too much for him to handle, according to the source.

The municipal government demanded his return and to be treated at home. Yang, however, refused.

The 52-year-old was promoted last year to a standing member of Wenzhou municipal Party committee, while still holding his district chief job.

He had a surgery in April 2007 on his recurring back pain, sources told Xinhua. Yang had confided to some of his peers since last year that he wanted to step down because of "the bad health and there were some people against him."

His overstay in France has sparked speculation that he had fled for fear of potential corruption charges. Yang Xiuzhu, a corrupt Zhejiang provincial official, fled to the United States in April 2003 with millions of U.S. dollars.

Source: Xinhua

Dear Professor Shih
Could you please draw for readers attention to the following event:

Royal Holloway University of London
Tuesday 3rd February 2009 17.30-19.00 GMT



This event will be broadcast live and will available for download soon after the event on http://backdoorbroadcasting.net
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Sunday, October 19, 2008

Is Wen about to lose his job? According to an article in Kaifang Magazine in HK, Wen is under severe criticism for saying that human rights and democracy are "universal values." Veteran ideology official Chen Kuiyuan at CASS and an article published in the RMRB criticized such "universal values." Does this mean Wen is in deep trouble? I don't think so. I think some people were undoubtedly displeased by Wen's loose words, but unless a major movement is inspired by Wen's words, he should keep his job. He might have to make a self criticism at a "party life meeting" in Zhongnanhai. I think the other leaders know that if they remove Wen, they might have a bigger problem on their hands since he is so popular.

The Times

Hardliners in bid to oust China’s PM
Michael Sheridan, Far East Correspondent

China's most popular politician Wen Jiabao, the prime minister, has become a target for Communist party hardliners and could be forced from office, according to an influential magazine in Hong Kong.

Its report is a rare insight into the struggle over the future of China between political reformers and guardians of the police state.

The prime minister’s popularity rose this year as he comforted the victims of the earthquake in Sichuan province, visited people caught up in disastrous snowstorms and defended China’s unyielding policy on Tibet. A 66-year-old known as “grandpa”, he has his own page on Facebook, the social networking website seen by millions.

Rivalries inside the party have broken out behind the facade of unity erected for the Olympic Games, said Kaifang (Open), the monthly magazine that is known for its political sources inside China and its publication of information banned in the media.

It said hardliners in the party’s propaganda department and at the People’s Daily newspaper had orchestrated a campaign of abuse directed at Wen’s supposed support for universal values such as democracy and human rights. “China’s ship of reform is on the rocks and risks sinking,” Kaifang said in its analysis. “The party needs to find a scapegoat.”

Last week important land reforms were put on hold. Wen has also been passed over for the job of heading a prestigious committee, the magazine said.

It listed several press attacks which, as is often the case in Chinese politics, did not identify their victim but left no doubt among those in the know as to who it was.

The most prominent critic was Chen Kuiyuan, vice-chairman of the Chinese People’s Political Consultative Conference, a rubber-stamp body whose title sums up everything it is not. “Some in China want to dance to the West’s tune,” wrote Chen.

The People’s Daily of September 10 printed a column headlined “How to see through the theory of so-called universal values”.

Today the prime minister is seen by many ordinary Chinese as a friendly face at the apex of power. He has been compared to the veteran revolutionary Zhou Enlai, who is claimed to have moderated the worst crimes of Maoism.

Suspicions about Wen’s authoritarian credentials date back to 1989 when he went into Tiananmen Square to meet demonstrators at the side of his boss Zhao Ziyang, the reformist general secretary of the Communist party.

Within days of that encounter – captured in a photograph still recognised all over China – the tanks rolled in, Zhao was purged and the young Wen vanished into temporary obscurity.

He quietly conformed and made his way back through the ranks to become prime minister in 2003. Last March he was reappointed for a second five-year term under President Hu Jintao. The duo have guided China to the left in economics, with policies to strengthen workers’ rights and to preserve a dominant role for the state in the market economy.

Wen appears to have laid himself open to criticism by talking in general terms about the values of democracy and human rights in interviews with the foreign media.

There is no evidence, however, that he deviates from the official line that China cannot afford democracy now because it would bring chaos.

Nonetheless, Kaifang said that the president would be happy to jettison his prime minister because it would alter the balance of power between factions and fortify his own position.

Political analysts say Li Keqiang, the colourless vice-premier, would step up if Wen was forced out.

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Thursday, October 16, 2008

Incentives Faced by CIC Managers

I just finished a paper for a conference at Cornell organized by Kirshner and Helleiner. They asked me to write a piece on the CIC, which may be timely because the fx reserve in China just increased to 1.9 trillion. I basically evaluated whether it would be realistic for the CIC to replicate the performance of Temasek or GIC. My conclusion was that the political incentives facing CIC managers are vastly different from those facing Singaporean managers. I attach the executive summary below. If you are interested in the full paper, please email me.

A Creature of the Government: the China Investment Corporation

Victor Shih
Department of Political Science, Northwestern University

Executive Summary

* Despite the fervent wish of the CIC’s management team, this entity will not be able to replicate the concentrated focus on profitability driving Singapore’s GIC and Temasek Holding.

* The underlying reason is that CIC bureaucrats are governed by a factionalized and constantly changing elite leadership, which contrasts sharply with the stable dominance of the Lee family in Singapore. This produces the following pathologies:

* With bureaucratic rivals and different factions represented on the CIC board, the relevant players take into account the impact of a major investment on bureaucratic and factional balance of power.
* When disagreements emerge between bureaucratic or factional rivals, deadlock ensues in the CIC.
* To the extent that the political leadership agrees on major actions undertaken by the CIC, it is likely to be a political move where profit is not the main consideration.
* With much shorter time horizon than managers of the Singaporean funds, CIC managers will seek short-term political benefits, which may include paying off relevant political actors to further their post-CIC careers.

* The Blackstone debacle and subsequent failed investment in Morgan Stanley squashed any initial hope of relative autonomy. The current declining market further weakens CIC managers’ incentive to do well, since it is very easy to blame the market.

* Behavioral expectations in the future include:

* CIC will avoid large stakes in the midst of the turmoil, but will instead instruct its fund managers to take small stakes in a group of financial institutions.
* CIC may form additional private equity joint ventures because they allow CIC to acquire major stakes while spreading political risks and minimizing media scrutiny.
* CIC will become a major lobbying group on behalf of the major state banks because over half of its capital is invested in Chinese banks.
* Although foreign policy will be a minor consideration for CIC managers, even the mobilization of a small share of CIC and SAFE assets can make a substantial difference in developing countries.
* With the formation of CIC subsidiaries, China now has a maze of channels to project its financial resources for foreign policy objectives.

* For Western policy makers, the main challenge will be to keep track of an increasing array of financial institutions related to the Chinese government and to discern patterns of coordinated actions that may have strategic implications.

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Wednesday, October 15, 2008

Quick note, I know some of you out there have asked me for the data on provincial factional ties with standing committee members. I finally managed to post the data (1978-2006) on my research website. Please feel free to download and play with it. Also, I posted a couple of new papers.


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Tuesday, October 14, 2008

As is often said, all roads to hell began with good intention. President Hu Jintao wanted to improve the letter and visitation (xinfang) system. Basically, he called for local leaders to directly deal with petitioners and directly solve issues they complain about. A month or so ago, we learned that the State Letters and Visitation Bureau would be folded directly into the State Council Head Office, which I thought was a pretty good sign. However, we now see Zhou Yongkang, the internal security czar of China, holding a meeting on "improving the quality of petitioning work." His remarks were ominous and vague, like "稳定是硬任务、是第一责任(stability is a hard target, is a first responsibility)" and that local leaders should "完善配套措施和运行机制 (perfect supplementary measures and operating systems." What does that mean? There is a basic political opportunity structure cycle story at work here. That is, when petitioners perceive that the central government is more willing to redress their grievance, many "latent" petitioners become willing to engage in petition, thus causing a massive spike in the number of petitioners. Then it becomes beyond the government's ability to handle it, and they must call in the thugs. Then the opposite message is sent, and the number of petitioners dwindles. But then, social tension increases, and eventually you have a series of massive riots, which prompt the central leadership to relax the petitioning system. I would say we are in mid cycle when the number of petitioners are overwhelming local officials--in come Zhou Yongkang!

周永康:总结成功经验 完善长效机制 不断提高信访工作水平

2008年10月14日20:48 来源:新华社
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总结成功经验 完善长效机制 不断提高信访工作水平






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