Why China's Economy Is OK but China's Government Is Not | Hacker News Reader

Why China's Economy Is OK but China's Government Is Not

globalreports.columbia.edu

75 pointslx61 comments

Most Chinese, I ever spoke to, talk about how corrupt their government is. Isn't that something that Xi was trying to make country less corrupt? From that perspective, I am not entirely sure if government has enough trust from people that is eroded by this fall in stock market. People may stop trusting government's recommendation for investing in stock market, if they ever did, but I am not sure if this is radical enough of a change to trigger any political changes in the government.

I'd wager that many Americans would also talk about how corrupt our government is. Maybe it's corrupt in a different way or to a lesser extent, but any government of any size will have some level of corruption, and most will have a higher perceived amount of corruption than the reality suggests (because discovered exhibits of corruption will be interesting news and thereby over-observed).

I really wish people would take corruption seriously enough to study it as a professional discipline. It is one of the most important and difficult problems in human history, and there's a lot of room for innovation in dealing with it.

>and most will have a higher perceived amount of corruption than the reality suggests (because discovered exhibits of corruption will be interesting news and thereby over-observed).

You could argue that most corruption is not reported because it is effectively legal. Like nepotism, for instance.

Technically speaking nepotism means family but people generally use the term to mean friends and colleagues.

On one hand hiring people you know over people you don't know is bad and corrupt. On the other hand it's literally what everyone does because it's the logical, sane, smart decision to make. The #1 way to hire good people for any company is for employees to recommend friends and past co-workers.

You're missing the point - companies compete in the open market and recommendations may be signals used in the hiring process, but not in evaluating somebody's performance on job. If a hire doesn't work out, usually it parts ways with the company, with the evaluation period being meant to make this painless and it's in a company's best interest to hire the best people, otherwise it's not able to compete.

But a public institution is not subject to market forces. A public institution doesn't have to compete, won't go bankrupt, being part of government has tremendous influence on other people's lives and is always financed by other people's taxes. Now that changes the equation quite a lot.

>On the other hand it's literally what everyone does because it's the logical, sane, smart decision to make.

What you are forgetting to point out is that companies practicing nepotism have found a local efficiency maximum. That, right now, nepotism is the best way to hire the right people.

Ideally, there would be better methods to evaluate people, and the value in discovering those methods is quite clear.

nepotism, noun

The practice among those with power or influence of favoring relatives or friends, especially by giving them jobs.

... i think you're mistaking the original meaning with its definition.

Nepotism is favoritism granted to relatives https://en.m.wikipedia.org/wiki/Nepotism

: the unfair practice by a powerful person of giving jobs and other favors to relatives http://www.merriam-webster.com/dictionary/nepotism

No, I'm right. Originally it's a familial term. But modern usage includes friends.

I agree. My country of origin is Bulgaria, which has its own bad reputation in that matter ( corruption ). I would say what stops our country from collapsing is the EU and the democratic constitution which has a political pluralism principles inside. Even though the term politician in my country is associated with corruption there's always a refreshing fear of a ruling party shift that keeps the country going.

IMHO Communists in China haven't got any of these real worries and the country lives In sandbox with millions of people as a workforce. That being considered economic crisis like that are expected and what is even worse ( again... In my opinion ) is that things will not change if the sandbox model continues.

The key feature of democracy is not necessarily having people choose their own rules, but instead enabling peaceful power transitions.

Any place where people can still legitimately change the government through democracy is likely to have a reasonable cap on the corruption levels, but that still assumes other functioning parts of society, like an independent judiciary, free press, freedom of speech and association, etc.

Most of those things aren't the case in China, so, absent evidence, you'd have to assume China is more corrupt.

A huge chunk of legal theory is about negating conflicts of interest.

https://en.wikipedia.org/wiki/Conflict_of_interest

From Judicial Disqualification, to the very core of our adversarial judicial system (Fruit of the Poisonous tree, etc. etc.), it is definitely a well studied subject in the US.

The solution is pretty simple. If someone in power has a conflict of interest, then the law should be rewritten to resolve it. Typically, the US seems to do it by introducing an adversary of some kind. (ie: The NYPD are considered 'corrupt' behind the 'Blue Wall of Silence'. So an adversary has been introduced: the Civilian Complaint Review Board. The Civilian Complaint Review Board not only reviews complaints, but has been granted judicial power to subpoena individual officers and force them to testify before court)

In fact, our very constitution was designed around this principle.

* The President enforces laws, but is not allowed to write the laws.

* The Congress writes the laws, but cannot enforce the law. Congress is further divided into two different houses (Senate and House) with differing responsibilities, as writing the law is considered the most powerful position of this country. Only when both chambers agree do laws move forward.

* When questions of enforcement come into play, the Judicial branch resolves it by interpreting the laws.

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Unfortunately, large swaths of red tape and political theory dance is expensive. So even the Federal Government cuts corners sometimes... but even more so with local governments.

When some country town can only afford one Sheriff for their entire police department (which is a huge chunk of the country btw), I'm gonna bet you that the town won't be able to afford a "Civilian Complaint Review Board" like New York City can.

A good example is St. Louis County / Ferguson right now. Their Police Department has been shown to be incompetent at best. But they can't even afford Police Cameras! They tried to buy cameras this past year, and the only way they were able to afford cameras was through funds seized from the populace (either traffic fines or other sources...). Such a source of money isn't enough to handle the ongoing storage costs of police cameras. (To say nothing about the conflicts of interest involved in a Police Force with guns who rely on parking tickets, fines, and court fees to fund key parts of their department...)

So Ferguson / St. Louis County will remain in the dark, without police cameras... at least until that city / county can afford them.

Still... Ferguson and St. Louis County are learning. They are probably going to implement civilian review boards soon. http://www.stltoday.com/news/local/govt-and-politics/ferguso...

But for a county that can't even afford police cameras properly, I bet you that the rollout of this new agency will be slow at best.

I still think a lot more research needs to go into it. Specifically in the field of computer ethics, and general AI. (I don't want judges interpreting the law, I want safe machines doing it.)

There goes common law, jury nullification and case precedent out of the window. Everything is now a literal legalist reading.

I absolutely despise the meme that's so popular here saying that the law is like code and should be totally automated. It's not. It's very fuzzy and that's a huge benefit.

You're assuming all these things like they are necessary or something? I want computers that don't have those exact problems. That's why it needs more research. So we don't have literal legal readings. We could have machines that understand context and manage it in a transparent and verifiable manner.

Judges already do this and they do it quite well. Have you ever read a court case? They even do it within the social concerns of the time. Look at gay marriage. The major problems with the courts are mandatory sentencing, plea bargains, over the top laws (like some drug laws) and access for the poor. None of these bar the last one would really benefit with technology.

They don't do it particularly well, unless you think "time since lunch at time of parole hearing" is a strong predictor of criminal recidivism.

http://www.economist.com/node/18557594

Judges and juries don't understand logic, science, or technology and instead rely solely on show-and-tell presentations from paid 'experts'[1].

It scares the shit out of me that my life would ever be in the hands of a bunch of glorified arts students in conjunction with random members of the population.

[1] https://en.wikipedia.org/wiki/Sally_Clark

I guess I can't speak for the British system. And yeah im sure we can cite horrendous abuse and lapses of judgements all day. In general, I'm saying that judges write out their opinions and their reasoning in the open, very clearly, in the US.

There's a difference between writing down a justification for actions you've already taken and having your entire internal thought process open to public review.

I don't know what you're talking about. When a judge writes his or her findings of fact, it details his justifications for his determinations. If you want his internal thought processes, I don't think a machine can help you there. A machine can't think. It can only decide a flowchart set of rules, something that won't work in a criminal court setting. You can't go lenient on someone who deserves it, or hard one someone who doesn't, which is the whole role of "justice". This is a justice system we have in the US, not a vengeance system.

Well, I'm certainly not going to take you at your word for any of this.

Look I want strong AI too. But I'm unsure that this is going to a viable avenue to producing one. Furthermore, I'm not even sure the a strong AI will necessarily be incorruptible, I even less confident about those people that build and certify it to be so.

Well they're definitely not going to be incorruptible if you don't pay anyone to do the research necessary to make them that way. There is a huge market for corruptible AI. The way we are doing it now is no worse than completely unregulated voting machines.

I am only suggesting that there is a different approach.

I don't think I would want that. It sounds clinically nice, but I'm not sure we'd want that in practice --just imagine a Robocop force.

A change like this would likely be similar to the changes brought about when judicial discretion was ejected in favor of strict sentencing.

Then Congress will be writing code. Not just code, but unbreakable, uninterpreted code. Do you think Congress will get it right 100% of the time?

The Judicial branch and Executive branch benefit from the "fuzziness". If Congress fails to move, the President can make a move without them. If Congress is ever unclear, then the Judicial Branch gains a touch of power as they make a landmark ruling.

In fact, the _huge_ size of laws today are attempts at making Congress's intent more clear. 3000+ Pages of "Affordable Care Act" and yet the intent remained unclear (tax vs penalty? Tax Deductions to marketplaces run by "the state". Does "the state" mean the government in general? Or does it mean "state" as in Florida?)

The famous "Tomato is a Fruit or Vegetable??" case "Nix v. Hedden" is all you need to know about Congress's inability to write clear laws... no matter how hard they try. This country has a knack of finding corner cases to the law making them horribly important in laughable ways.

In any case, "code that is law" sounds like a horrible idea. Congress barely reads laws as it is, and instead outsources the job to "the expert" lobbyists.

Part of the problem is that expert Congressmen / Congresswomen learn that they can make more money by working for private business lobbying firms than staying in Congress. So they leave Congress (and leave all the political crap behind)... and write laws and legal arguments for businesses.

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And even then, Congress gets a lot of things wrong when they are 100% clear anyway. Most judges don't like sentencing minor Marijuana smokers to jail... but when Congress writes "Minimum Sentencing Laws", guess what? The Judge is _forced_ to do so, even if the individual judge disagrees with the law.

In this case where Congress is so wrong with law, it is more beneficial to leave more power to the judge and jury. Even if you do think that Marijuana is evil and horrible, most people agree that sending someone to jail over it is a mistake. (where the jailed man will only get access to more drugs and contacts). Send drug users to the hospital, send them to get cured. Don't send them to jail where it will only get worse.

Congress would not be the first place I'd implement such a thing. I'd start with automated forum moderators and then maybe move on from there once they prove themselves better than humans. Maybe a small civil court handling parking tickets. Let's not assume too much, here.

So you'd want AIs to write the law too?

So you would have AIs not only writing the laws, but interpreting them. And you're not worried about conflicts of interest one bit? What happens when the AIs write a law stating that only AIs can have jobs? Or if an AI writes a law that says "kill all humans" ?

The law needs to be written by somebody. And Congress... despite all of its faults... is the best organization we know of at writing laws.

You're ignoring literally centuries of political theory btw. This is one of the most studied subjects in America right now. I would suggest reading "Roberts Rules of Order" for the base mechanism of how meetings are run and how to organize a group to make a decision.

The vast vast vast majority of Congressional decisions and Judicial decisions take place as rigorously as code. Its not the "interpretation" of law where mistakes are made... most commonly, it is the writing of law which causes controversy.

In any case, even the writing of laws is extremely algorithmic.

https://en.wikipedia.org/wiki/Robert's_Rules_of_Order

Robert's Rules of Order don't necessarily match up with the Senate's rules or the House's rules... but the concepts are very similar. (In particular, there is a time limit to debate in the House, while there isn't one in the Senate. Both differ from Robert's Rules where individuals are only allowed to speak twice per meeting).

Regardless, Parlamentary Theory is extremely codified. And if you listen to CSpan for just 5 minutes, you'll notice that Congress (Specificall the House) talks in a very algorithmic manner. (Individual Representatives reserving time down to the _minute_ to talk about their arguments).

I'm not ignoring anything, you're just wildly jumping to conclusions.

Computers making moral choices? No, thank you.

Larger and authoritarian government tends to be far more corrupt and more importantly tend to interfere lot more in economy. While American politicians are surely corrupt they have relatively far lesser control on economy as their Chinese of Indian counterparts.

That is why net worth of American politicians is so less but if you look at Chinese or Indian politicians it is a different picture.

I don't think size makes much difference. See any banana republic or African countries run by "strongmen".

It probably has more to do with education and progress. The more education and progress there is the less corruption. But little or minimal corruption does not mean open society either. You can have an autocratic system with low corruption.

> The more education and progress there is the less corruption.

Do you think a ruling class can be educated into not pursuing their personal gain at everyone else's expense?

It's not that complicated. 2 + 2 = 4, and "fucking people over is bad mm'kay?"

The problem is that opportunities for "corruption", wealth and power are the main reasons why psychopaths seek political office to begin with. They don't go there to help others.

I think education elucidates the populace into not accepting corruption so readily --to understand that while it may be 'natural' it's not okay and it can be contained.

A more educated population tends to demand more reason.

> A more educated population tends to demand more reason.

Not when it's "educated" by the government itself.

The public education system is a brainwashing program, to make us unquestioningly obedient to authority, and to think we need more government intervention in everything.

Degree matters. As biased toward certain groups as the US justice system is, it still resembles the rule of law.

The more the government is involved in managing the economy, the more corrupt it (usually) gets.

China's economy, while allowing private ownership, is heavily influenced/controlled by the government. Hence corruption.

The US economy has turned statist - cue in the lobbyists looking for favors.

Xi is trying to save the system by eradicating corrupt parts of the bureaucracy and suppressing his enemies in the party, however, the cost of these actions are not cheap.

The bureaucracy once took the responsibility of helping finance and invest in local economy in the past decades. The anti-corruption campaign had already hurt the incentives of the cadres of various levels. Many of them are just waiting until the end of this movement, contributing negatively to the situation.

Yea they do talk about how corrupt it is, but they believe that Western governments of more developed countries are equally corrupt.

China's working age population peaked four years ago, currently they are losing over a million workers a year. Property values are down around 6% year over year, shadow banking is collapsing, I'm going to humbly disagree with the title of this thread

Yep, China's population pyramid looks like Japan's in the late 80s, only with a sex imbalance.

They can easily resolve it with a three child policy....

Right, because the effects of that will be felt immediately....

Better late then then never!

Perhaps its best if population gradually declined....

The one child policy was always madness for future demographics. The numbers generated and the sex imbalance are crazy to look at.

I do not understand why China is unable to divert its resources at this point to things like better education. Strong independent domestic institutions.

The biggest problem was assuming that the market players are rational in the absence of information.

Markets only works with information. Its seems pointless to talk about the one without the other.

If someone had 100 dollars. The difference in yield between 2% and 7% is not as big of a deal as transparency.

Since loosing your entire 100 dollars is much more worse.

As someone who is close to india. I find it amusing whenever people tell me how much better China is compared to india and that maybe india should be more like China. Multinationals constantly complain about Indian red-tape not realizing that its not so simple to displace farmers to build a highways in a democracy. I also see the same thing happening in america with people like Donald trump openly saying that China is beating the US.

It seems capitalists really like china - which says a lot more about capitalism then it does about china.

The same capitalism also moved a billion people out of absolute poverty. It's not all black and white by any means. China's communist history royally screwed over the country from 1949-1978, and autocratic capitalism was the drastic measure necessary to change the people's lives for the better.

Obviously the country is no longer remotely the same today, and the central communist government is trying hard to adapt (i,e keep developing the country while making sure they hold absolute political power).

There is no doubt that free(er) markets in China have not only helped the Chinese people to a better life, but through the magic of free(ish) trade, have made the lives of people throughout the world better.

The one thing China does better than places like the US is in the savings rate. Everyone could learn from that.

'Savings' is not a worthwhile goal in and of itself.

If all you do with your savings is stuff it under the mattress or lend it to banks who in turn lend it to homebuyers to perpetuate the greatest property bubble in history... you're going to have a bad time.

Savings are a necessary pre-requisite for investment. On balance it is better to have savings than debt.

Creating bubbles in certain asset classes is usually the fault of differential tax or regulation treatment for that class. It can be avoided by not creating special classes.

The story of savings being stuffed into mattresses is usually followed by some type of incorrect Keynesian thinking. It's so rare that it is not a problem. A 'general glut' as it used to be called has nothing to do with hoarding savings.

Grass is always greener on the other side but when you look at the larger picture it is certainly clear that while 600M Indians still ear dirt, Chinese people have almost tripled their per capita income in 20 years. Which is pretty significant and India will take another 15 years to reach where China is today. That matters a lot on the ground.

It is true that China is bearing US. Look at how China has appropriated South China sea. See how any geo-political decisions taken by American government needs to factor in Chinese interests. It is only matter of time before US become China's bitch on international stage.

China's economy is definitely not OK.

The distortion in the system are massive, the main things that work well (and extremely well) is the export sector. BUT China's export sector has always been more dependent on foreign investment, foreign management and external inputs. Even the height of it's manufacturing boom, China could run a trade deficit because its export sector was so oriented to labor-intensive final assembly activity. The real estate sector is well know for its ungoldly distortedness, it's science establishment is riddled with fraud, it's economic statistics are generally falsified. The pollution produced by it's industry (and corrupt state) is now making a true deadly impact on its society but the pollution is also a product of its energy sector's costs being falsified and so-forth.

I was hoping the author would provide further elaboration on why he thinks China's economy is doing ok when I read the title. However, there does not seem to be much substantiation for why he thinks China is doing ok. It would be ironic if he had based it on China's release of GDP growth figures.

"For all the frenzy, the economy is still growing, if somewhat sluggishly by Chinese standards, and most ordinary citizens are not invested in the market. What's at stake is the government's credibility."

Tyler Cowen had a great post on the government's incentives in this stage of China's development, it's worth a read. [1]

> But recall that the “citizen trust contract” with policymakers is ultimately a fragile one and based on a series of quite short-term evaluations. When the tailwinds are less positive, the policymakers must take on a much shorter time horizon. They will prop up stock prices now, or try to, even if that is foolish.

…

> The same leadership structure can perform either very well or very poorly, with both the same leaders and the same citizens. And the switch can come fairly quickly, and be occasioned by events which are significant but not transformative on a world-historic or even a country-historic scale.

[1] http://marginalrevolution.com/marginalrevolution/2015/07/a-v...

I think 'OK' is being used very loosely. And I believe a bad government will help lead to a bad economy (although some may debate that with a government closer to home)

> And I believe a bad government

Depends of what "bad" means. If it means bad AT controlling the Economy, that may be a good thing for the private sector. If it's bad as in, controlling the Economy in a way that is damaging to industries/entrepreneurs, that may indeed be a very bad thing.

The Chinese economy isn't doing ok.

- Imports and exports have been crashing lower. [1]

- They've spent decades lying about their unemployment rate, leaving it mostly unchanged around 4.x% perpetually. [2] It's likely far higher, some good estimates peg it around 2 to 2.5 times higher.

- They've rapidly become one of the most indebted nations. Most of that occurred in just seven or eight years, taking on debt of epic proportions in record time. They took their total debt to GDP ratio from around 158% in 2007 to over 300% today. [3] [4] [5]

- They have perhaps 500 million people living on ~$3 per day. Most of those people are poor farmers, not allowed to own the farm land they work on. In any mid-tier or above economy, about 400+ million of those people would be unemployed, because farming productivity would be vastly higher. Instead, in China farming productivity is held artificially low, because those people would have nothing to do otherwise. South Korean farmers are upwards of 40 times more productive than Chinese farmers. [6]

- Since the great recession when China's boom ended, they've turned to stimulus programs and debt to fake growth, and have inflated at least two major asset bubbles, in real estate and equities. Both of which are now falling. The article notes that if you had bought stocks a year ago, you'd still be up nicely - I've noticed articles keep saying that as the market keeps falling, pretty soon it'll no longer be true. Then what?

- They had to aggressively devalue their currency, as a next to last ditch effort to shore up falling exports, and tumbling competitiveness.

- Return on invested capital domestically has been falling for years. As has the return on debt.

- Capital is rapidly fleeing China, to the tune of roughly 3/4 of a trillion dollars in the prior year. [7]

- China has begun eating their foreign reserves, consuming upwards of $300 billion over the last 12 to 14 months. [8] They have significant reserves of course, however only half of those are accessible without causing serious consequences for the global economy and their biggest customers.

- China may have vaporized $6.8 trillion on worthless investments. [9] The estimates could be off by a lot and it would still be a massive sum.

- China has spent hundreds of billions of dollars trying to prop up their stock market bubble. The fall of that bubble, and the fall of their real estate bubble, will wipe out perhaps $10 plus trillion of assets. That removes a lot of assets that are needed to help offset their huge debt burden.

- China no longer has a significant advantage in manufacturing costs. Countries such as the US, Mexico and Vietnam are increasingly competitive versus China in manufacturing.

- Container rates for Asia and China are crashing, indicating deep economic problems. [10]

- Core industries like steel are falling hard. [11] [12]

This list just keeps going.

[1] http://www.businessinsider.com/chinas-imports-hitting-record...

[2] http://www.economist.com/blogs/freeexchange/2015/08/unemploy...

[3] http://www.bloomberg.com/news/articles/2015-07-15/china-s-de...

[4] http://www.wsj.com/articles/chinas-debt-bombs-1435512036

[5] http://www.bbc.com/news/business-26225205

[6] http://www.businessinsider.com/chinese-farmer-productivity-2...

[7] http://news.investors.com/ibd-editorials/072715-763627-china...

[8] http://www.bloomberg.com/news/articles/2015-08-18/china-rese...

[9] http://www.cnbc.com/2014/11/27/china-has-wasted-68-trillion-...

[10] http://gcaptain.com/asia-europe-container-freight-rates-have...

[11] http://www.bloomberg.com/news/articles/2015-06-11/china-stee...

[12] http://www.bloomberg.com/news/articles/2015-08-09/china-stee...

We have several tons of scrap steel I was going to recycle. It was quoted at 2 cents a pound US! Last year scrap got 7 cents, and a year or so before that it was 11 cents. It was not worth hauling it in, maybe I will make sculptures with it instead.

That is a very big drop in price! No wonder the iron ore price has dropped through the floor.

I wonder if the innovation needed, then, is a mobile recycling plant rather than having to haul the raw goods to the scrapyard. I'm sure such a thing is pie in the sky, but I've seen the mobile sawmills in action, they're quite a sight to behold.

we will turn the stuff into garden art or something. They are the remnant skeletons from plasma cutting parts. 4'x8' sheets with 6" holes in them basically.

the art will go for a few dollars a pound, if we are lucky. But it is slow, and more complicated than just scrapping the stuff and getting cash today.

> The Chinese economy is doing OK

A bunch of ghost cities would beg to differ. Apparently this guy thinks malinvestment on a massive scale has no effect on an economy.

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