Saturday , December 7 2019
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Some updates on China

Summary:
Over at Econlog, I have a post discussing China’s recent decision to beef up the enforcement of intellectual property rights.  Check it out. In other news, China is about to roll out a major land reform: “This is the first time I’ve owned an industrial property,” said Mr Shi, 48, who had rented in seven locations before settling down in Dongheng. “I don’t have to worry about getting kicked out by landlords any more.” Mr Shi’s good fortune is the result of an experiment in land reform that has been rolled out in 33 counties across China. It allows semi-autonomous collectives to sell certain types of rural land to third parties and to keep the bulk of the proceeds. The model, which will be extended to the rest of the country at the beginning of next year, has been lauded as a

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Over at Econlog, I have a post discussing China’s recent decision to beef up the enforcement of intellectual property rights.  Check it out.

In other news, China is about to roll out a major land reform:

“This is the first time I’ve owned an industrial property,” said Mr Shi, 48, who had rented in seven locations before settling down in Dongheng. “I don’t have to worry about getting kicked out by landlords any more.”

Mr Shi’s good fortune is the result of an experiment in land reform that has been rolled out in 33 counties across China. It allows semi-autonomous collectives to sell certain types of rural land to third parties and to keep the bulk of the proceeds.

The model, which will be extended to the rest of the country at the beginning of next year, has been lauded as a means of bringing prosperity to rural businesses and communities and stimulating China’s flagging economy.

The article also points to some downsides with the plan, and I don’t know enough to comment on the specifics.  In the past, however, real estate reform has been a big deal in China.  In the late 1970s, they began giving farmers more property rights, and a couple decades later they allowed urban residents to own their own home.  Both changes had a massive (positive) impact on the Chinese economy.

China is loosening rules on foreign investment:

BASF has broken ground on a $10bn petrochemical complex in southern China, becoming the latest foreign company to increase its presence in the country as Beijing gradually relaxes restrictions on overseas investment.. .

Beijing loosened restrictions that excluded foreign companies from investing or taking ownership stakes in industrial and financial sectors after the pace of growth of foreign direct investment into China slowed to just 3 per cent last year. 

Foreign companies have long been excluded from several high-growth sectors or forced to form joint ventures with Chinese companies. US and European chambers of commerce have called on Beijing to accelerate access for foreign investment. 

The BASF facility, in the city of Zhanjiang, is the first of its kind in China that will be fully owned by the company after Beijing allowed full foreign ownership of chemical “cracking” facilities used to produce plastics. 

Global stocks are up today, partly due to expectations of a phase one trade deal with China.  Another factor was the Hong Kong elections:

The Stoxx Europe 600 Index advanced, with all 19 industry sectors in the green. Equities climbed across Asia, led by those in Hong Kong, where local elections brought a landslide victory to pro-democracy candidates. 

It seems like the markets hope that this leads to fewer protests:

A record turnout helped pro-democracy parties win a majority in 17 of 18 district councils. [Stock market] Bulls hope the poll result will inspire disaffected Hong Kongers to focus on conventional politics rather than street protests.

In my view, Hong Kongers would be wise to continue the street protests, but in a non-violent fashion. Unfortunately, the recent escalation of violence plays right into Beijing’s hands. The Chinese government would prefer not to intervene in Hong Kong, and strangely enough the violence might actual make them less likely to do so.

Some people predicted blood in the streets, similar to Tiananmen Square in 1989. That may still happen, but Beijing may also be content for there to be blood in the streets from clashes between protesters and police. Recall that China doesn’t want to give democratic rights to Hong Kong because they fear it would cause urban Chinese on the mainland to demand similar rights. As long as there is “blood in the streets”, then mainland Chinese will not be attracted to the Hong Kong model.

A better option would be to adopt a two track strategy. Continue the street protests and have their newly elected officials (who admittedly have little power) do as much as they can to improve the economic situation in Hong Kong, especially housing. That should be combined with non-violent street protests to keep the pressure on.

I strongly recommend this Bloomberg article, which points out that violent protests can lead to a counterproductive rise in nationalism:

I, for one, do not mind the fact that my hometown Shanghai has doubled in size, or that my local dialect is no longer the only one heard on the streets. In exchange, I’m exposed to more diverse cuisines when I visit and meet more interesting people. And thanks to the wonderful, hard-working “little brothers” — almost always migrants — I can get bubble tea delivered to my doorstep within half an hour. 

In that sense, the most cosmopolitan Chinese cities now resemble New York. It doesn’t matter where you’re from; as long as you live there, you can call yourself a New Yorker. Hong Kong, on the other hand, has grown bitterly divided into tribal camps — locals, expats, mainlanders and domestic helpers. ..

If the central government had qualms about taking a hard line against the protesters before, it surely doesn’t now that they enjoy negligible support from mainland Chinese. An even simpler strategy would be to let Hong Kong decline slowly. Neighboring Shenzhen, home to local champions such as Huawei Technologies Co Ltd. and Tencent Holdings Ltd., is already keen to steal away high-tech firms. Corporate tax rates at the Qianhai free trade zone, for instance, are lower than Hong Kong’s.

And this is not just a question of money. I am not the only liberal mainlander living in Hong Kong. We naturally root for the city’s democratic advances. After all, why did we leave China in the first place? Why shouldn’t Hong Kong, one of the world’s wealthiest and most global metropolises, be governed by its people?

Yet, our support for the protests is rapidly dwindling because we suspect that the anger on the streets has less and less to do with the city’s political system, and more to do with a nativist dislike of mainlanders and immigrants — not unlike the anger driving populist protests in the U.S. and Europe.

Of course, mainland China is to blame for Hong Kong’s divisions, but nonetheless the local Hong Kongers should avoid playing into China’s hand. Beijing wants it to look like self government in Hong Kong has failed.

Actually, it’s never been tried.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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