China, Bicycles, and Culture

I love Macro Polo. I read it regularly and urge anyone with a passing interest in China to give it a browse. I also love Macro Polo’s most recent post  about bikes in China. The love I have for the post is deep, because in the recesses of my heart exists a counterweight of hate for bicycles in Beijing. The almost romantic whirl of millions of wheel spokes captures many visitor’s hearts. The cursing of average commuters funneled into artificially narrow sidewalks induces PTSD for others.

I loved my bike in China. I loved that the back brakes didn’t work. I loved joining a throng of pedestrians and motorists with one governing rule: there are no rules. The secret to appreciating a foreign culture is to live as they do: eat their food, speak their language, and hurl concise insults at motorists you play chicken with.  My bike wasn’t just a way to drastically shorten my commute (leave it locked near your subway exit of choice), it was a quintessential manifestation of modern China, good and bad.

I have roughly 4,000 pictures of my time in Asia. One of the first folders I created is simply titled ‘bikes.’  These are my favorites.

Shared bikes in Beijing’s CBD clog sidewalks. Rush hour pedestrian traffic is greatly constrained due to this.

Users can pay more for ‘cooler’ bikes. Note the width of the tires in the second photo.

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Bikes can be found everywhere due to an army of shirtless men that deposit bikes (bikes are equipped with GPS) in high traffic areas.

Bikes can be found in crosswalks. Note the couple struggling to make their way across.

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Bikes can be found in rivers.

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Bikes can be found in piles.

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Most importantly, bikes can be found clogging sidewalks.

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There are many types of bikes. Pictured above are university bikes (清华大学).

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Bikes pulled by dogs.

Unwanted Bikes

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Really unwanted bikes.

In France in the 1880s, the cheapest model of bicycle listed in catalogs and sales brochures cost the equivalent of six months of the average worker’s wage. And this was a relatively rudimentary bicycle, “which had wheels covered with just a strip of solid rubber and only one brake that pressed directly against the front rim.” Technological progress made it possible to reduce the price to one month’s wage by 1910. Progress continued, and by the 1960s one could buy a quality bicycle inFrance for less than a week’s average wage. One can use bikes in France to see how purchasing power rose by a factor of 40 between 1890 and 1970.  Transportation, whether by Toyota or trike, matters.

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Thanks for reading.

中国芯和风险

 

10年前,北京曾有索爱全球最大工厂、诺基亚中国最大工厂,天津曾有摩托罗拉全球最大工厂。配合京东方、中芯国际,再加上北京最为发达的互联网产业,从组装加工、到高端零部件、到上层应用的移动时代全产业链,原本应该诞生在京津地区。

然而,京津押宝的三家顶尖手机外企全跪了,而原本被视为“山寨”的珠三角本土企业:华为、oppo、vivo,却崛起成为世界巨头(小米也不在北京生产)。

于是,长三角的台资/美资PC产业链、珠三角的内资手机产业链,加上与之配套的面板/芯片/零部件厂商,随着产业转移,大规模在以长江流域为主的内陆省会开花结果(最北达到西安、太原、郑州一线)。

而伴随着京津外资手机厂的倒闭,京津冀缺乏能容纳大量劳动力的PC/手机制造工厂,面板/芯片厂的新产能也不再落户京津冀。

于是,除了北京发达的互联网和金融产业外,津冀经济增长的新动能就消失了,再加上对高耗能高污染重工业的打压,津冀就愈发尴尬。

未来5-10年,伴随着人口老龄化,内陆省会和区域中心城市的产业、人口竞争将日趋激烈。吸引更多的产业人口、研发人才,争夺到电子和汽车产业链条的更多环节。特别的,如果能像珠三角一样培育出自己的消费电子品牌,那么其迈向人均3万美元中等发达世界的道路就打通了。

而中国芯、中国屏、中国车的例子都告诉我们,不要过于仰仗外资企业,外资企业的目的和市场化内资企业是不同的。外资的目的在于绕过中国的关税壁垒(在中国建芯片/面板/汽车厂)、在于降低成本。

而一个有志气的市场化内资企业,其目的则是向上向下打通产业链、打出自己的品牌、下力气研发(或者收购)容易被卡脖子的关键环节、拓展自己的生存空间,把自己的命运和国家的需求无形中捆绑在了一起:

  • 大连英特尔、无锡海力士、西安三星,典型的外资。来华目的只是为了便宜的土地、优惠的税费、以及绕过中国的关税,对当地经济有短期促进作用,但不可能依靠他们来构建起一套完整的产业链。
  • 中兴是内资,但不是有志气的内资,更像一个安逸的集成外包商。
  • 华为、腾讯、阿里、吉利、长城、京东方等等,属于“有志气的内资”,虽然各自达到的水准不同,离世界一流水平也还有差距,但他们的总体方向,是在市场中寻求突破和拓展,是他们在带领中国在各领域前行。

于是,问题就很清晰了。“中国芯”和一流水平的差距有多大?我们要依靠谁来实现中国集成电路产业的突破?

总结一下:我国目前62万片/月产能的12寸芯片厂中,有46万片/月(74%)是外资/合资厂。大陆目前最大、最先进的芯片代工厂中芯国际,其年营收只有台积电的1/10,技术差距为5-6年。

13 Questions for Stephen Roach

Dr. Stephen Roach has a Ph.D. in economics from NYU, was chairman of Morgan Stanley Asia, and regularly teaches at Yale. For years I have listened to Dr. Roach opine about the nature of the world’s current/capital account imbalances. Dr. Roach’s prognosis about the imbalance origins, particularly regarding the trade relationship of America and China- of which he wrote a book (Unbalanced), are remarkably consistent.  Perhaps most remarkable is how wrong his consistent and well published statements are.

To be clear, this blog post aims to do three things. First, we will examine what Dr. Roach believes to be the origins of trade and capital imbalances. Second, we will concisely examine national income identities. Lastly, we will list questions that shed light on the magnitude to which Dr. Roach is mistaken.

Before I begin, I feel the need to clarify that my worldview is strongly shaped by  the uneven current/capital accounts, however accounting identities have limited utility. It is extremely important to know their limitation. For example, extrapolating a current account surplus (surplus of savings over investment) to reflect financial market health is nonsensical. My point here is that it is entirely possible to misunderstand national income accounting and still provide great wisdom to the study of economics or the health of financial markets.

 

 

Dr. Stephen Roach often published that America’s trade deficit is a result of poor savings

Problems with the American Consumer

America’s trade deficit, a topic of much debate (This link is to Bernake’s 2005 speech. It is worth reading), is rooted in the poor consumer culture of American people and American corporations. This is the ideology of Stephen Roach. His book, which I linked above, outlines this nicely. Similar in idea and scope are publications from 2011 and this August, the latter of which sparked this blog post. He writes the following in his most recent article (emphasis added):

Despite the US government’s recent upward revision to personal saving data, the overall national saving rate, which drives the current account, remains woefully deficient. And the major surplus countries – Germany, China, and Japan – have been only too happy to go along for the ride

Economies running current-account deficits tend to suffer from a deficiency of domestic saving. Lacking in saving and wanting to invest, consume, and grow, they have no choice but to borrow surplus saving from others, which gives rise to current-account and trade deficits with the rest of the world. The opposite is the case for countries with current-account surpluses. They are afflicted by subpar consumption, excess saving, and chronic trade surpluses…

America’s consume-now-save-later mindset, which is at the heart of its current-account deficit, is deeply embedded in its political economy. The US tax code has long been biased toward low saving and debt-financed consumption; the deductibility of mortgage interest, the absence of any value-added or national sales tax, and a dearth of saving incentives are especially problematic.

Again, because it is worth repeating, Dr. Roach believes that America has run a cumulative $9.1 trillion current account deficit from 2000-2017 due to a poor savings culture and mismanaged political economy.

 

Independent and Dependent Variables

Don’t panic. It’s a pretty simple equation, and our real intention is to differentiate independent and dependent variables.

(M – X)   =   (I – S) +   (G – T)

This says that a trade deficit (imports-M- less exports-X) is equal to the savings deficit (investment-I- less saving-S) plus the government’s fiscal deficit (government spending-G- less its tax revenue-T). You could also write the following:

 Trade deficit = Total investment – (Household savings + Business savings – Fiscal deficit)

Dr. Roach advocates for the United States to raise savings so that the difference between total investment and savings, which is equal to the trade deficit, will shrink. What he assumes is that the trade deficit is a dependent variable. It isn’t. The United States trade deficit, relative to domestic policy, is an independent variable manufactured abroad. The United States, with its open capital market and international reserve currency, is forced to accept investment from countries whom choose to artificially raise their savings. If the American trade deficit is an independent variable manufactured by foreign excess savings, it is also true that America’s fiscal deficit is not a cause of the trade deficit.

Questions below will guide readers to the correct answer, however let me summarizes the two points of view regarding the source of America’s trade deficit.

1.) Dr. Roach writes that Americans, for a breadth of reasons, save too little and consume too much. The world, particularly China, uses this consumer culture to export their domestic saving surplus.

2.) I believe a set of countries suppress domestic consumption by transferring household wealth to industry. This wealth transfer increases savings that must be exported abroad. America is the easiest country to export this domestic savings.

Questions For Stephen Roach

The following questions will help you identify causality in America’s balance of payments imbalance. Question 13 is best to start with if new to the subject.

1.) Which American entities save too little?

2.) Are  Corporate savings too low?

3.) How would America increase household savings? Redistribution of wealth from wealthy households to non-wealthy households would cause a net drop in savings because wealthy households save a higher percentage of income.

4.) How will policies that raise American savings not raise income inequality (see question 3)?

5.) Does America have such large domestic investment needs that it needs to cumulatively import $9 trillion of capital over 18 years to fund its needs? Why would developing countries fund this?

6.) Can American banks, some of the world’s largest, fund America’s investment needs? If not, why?

7.) How has America, with historically low interest rates, bid up the cost of capital to attract foreign savings to fund the investment gap?

8.) What kind of institutions are driving American capital account surplus investments?

9.) What changed in 1976, 1987, and 1991 to reverse the movement of America’s current account?

10.)  How do wage suppressing policies affect the country that implements them? What is the affect on the balance of payments to them and their trading partners?

11.) Can Dr. Roach’s trade theory be applied to other cases? For example, what changed in the early 1990s, when Germany was considered the “sick man of Europe,” to today where Germany runs large trade surpluses? How  has the Hartz concept affected Germany’s balance of payments? (As an aside, German transfers of wealth from households to industry is now being pushed as a development model)

12.) Why does China, a developing country, export savings?

13.) Could every country adopt an East Asian development model, where wealth is transferred from savers and consumers to exporters and producers through low interest rates, environmental degradation, undervalued currency, and industry protection? Why or why not?

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Final Thoughts

In Brazil from 1965 to 1974 GDP grew annually by 11%. The authoritarian, one party state promoted rapid industrialization by relocating workers to coastal urban areas. In the 1970s petrodollars were recycled from OPEC nations to South America. These petrodollars largely missed Europe and America because of economic stagnation. Brazil’s import of capital caused them to run a trade deficit, slightly slowing growth. This capital came to have great effect on the future of Brazil as it encouraged further wasteful investment and the eventual breakdown of the Brazilian economy. The capital account flows changed Brazil’s trade balance. The capital account matters.

In the late 20th century and certainly in the 21st century, capital account movement drives trade. Policies in Germany, China, Japan, and Korea that transfer wealth to industry raise savings which the rest of the world is forced to absorb.  Dr. Roach’s trade model misses this.

Economics and finance lends itself to a worldview. Dr. Roach’s theory paints an incomplete worldview in which the United States is free from foreign influence. It paints a theory in which the United States has the tools to address the return of beggar thy neighbor economic policy that dominated the 19th and early 20th century. It is wrong, and I hope that by exploring the questions above, you may learn why.