China

China’s Politburo

In the past few months I’ve heard from both Eric Drexler and from Thomas Friedman’s The World is Flat that the Chinese government is run by engineers. This sounds important enough that I checked for confirmation on the web.
this page says “Every member of the Politburo in China is an engineer.”
An article titled Made in China: The Revenge of the Nerds reinforces the point.
This must imply some interesting things about the policies of the Chinese government. I wish I could predict whether this is the result of forces that will persist for a significant time or whether (as this page hints) it was a one-time result of Deng Xiaoping’s personality.

Buy the Yuan?

I’m curious how U.S. politicians are rationalizing their support for tariffs to punish China for keeping the yuan high (i.e. propping up the dollar). There’s an obvious alternative if it’s as clear as most people claim that the yuan is undervalued: have the U.S. government buy as many yuan as it can. That would make it more expensive for China to keep the yuan down at a probable profit to the U.S.
There may be some Chinese rules which pose obstacles to doing this, but I doubt the U.S. politicians are able to know that they couldn’t get around such rules.
Note that I didn’t ask what their real motives are (tariffs benefit special interests more than buying the yuan would, which provides a strong hint). I’m interested in what excuses they would give.

The latest issue of my favorite investment advisory newsletter, The Whitebox Market Observer, has a good point about industrializing countries:

It is nonsense to think that China as a whole will become rich because the Chinese individually are poor. The ugly truth is that poor people don’t matter. They don’t matter as consumers because they don’t have any money; they don’t matter as producers because once they start producing they do not stay poor for long. Show me a persistently poor factory worker and I will show you a rotten factory, no threat to the U.S. or anyone else.

and goes on to note the similarities with Japan of the 1960s and Taiwan and South Korea of the 1970s, which started competing with U.S. companies using low wages to make up for their mediocre reputation for quality, and within about two decades switched to competing on quality.

Book Review: Commodifying Communism : Business, Trust, and Politics in a Chinese City by David L. Wank

This book does a good job of describing typical small business activity in a city that the author lived in for a couple of years.

I have long been puzzled by the reports that China has a booming economy in spite of widespread corruption and hardly any rule of law, when those problems seem to ensure poverty elsewhere.

This book does a good deal to resolve this mystery. It suggests that Fukuyama’s claim that “there is a relatively low degree of trust in Chinese society the moment one steps outside the family circle” is misleading because the Chinese notions of family ties aren’t as rigid as in the west. Family-style trust is more like a commodity that can be readily acquired by most people who have decent reputations, via friend of a friend type connections between people. And the networks of reputation do well at ensuring the reasonableness of corrupt or arbitrary actors.

It would be nice if we could copy the good parts of these aspects of Chinese culture, but I suspect that’s as hard as copying the social capital that Fukuyama describes in his book Trust.

Here’s one isolated provocative comment to which I haven’t figured how to respond:

The premise that inequalities stemming from differential access to political capital are reprehensible, while those stemming from imbalances in access to economic capital are not, is a value judgment that elides how political power is always implicated in the structure of markets.