Sunday, September 1, 2013

Professor Zhang on Banking Regulations.

From Shenme Gaibian Zhongguo (CITIC Press, 2012), page 177:
Currently, China’s market order is relatively awful, but I believe everyone should also be full of hope. We Chinese throughout history have valued reputation. Looking back on history, many years ago we had contractual relationships. A piece of bamboo split in half, with each person having one end for comparison, was a contract. I previously mentioned Shanxi Remittance Firms. About two hundred years ago they issued what we today call a traveler’s check. They had branches in Saint Petersburg and Kobe. There were no central banks to examine and approve banks, anyone could start one, but there was no fraud. Why do we today have more and more controls, but fraud is also more common? This is an issue that deserves our consideration.

Sunday, August 11, 2013

China to Relocate.

China shocked the world today when it announced its plans to relocated to the North Atlantic.

Now that China is a first world country, it has decided to move into a better neighborhood. The country, and its 5,000 years of continuous civilization, will be moving to the North Atlantic. The project will start next year when Fujian Province is shipped over first. The project is expected to be complete by 2015, when Heilongjiang, the last province to be moved, is reconnected to the rest of the then-North-Atlantic country.

Analysts say that China’s development has always been held back by the fact that weird countries surround it. The biggest offender is Japan, which even China admits has gotten dramatically better over the last fifty years. But there is still North Korea, Burma, and Vietnam, just to name a few weird Asian dictatorships that make China feel guilty by association. Worse, they share a land border with China. 

That does not even touch upon the western side of the country, which connects to five of the Stans. It just is not a region China wants to be near in the future.

Chinese officials were not even aware that they were located near most of these countries before a research assistant at the Chinese Academy of Social Sciences came across old documents comparing China’s economic development to countries other than America, Germany, or Japan. “We were kind of excited to find out we were next to India, another country with thousands of years of civilization. However, they only have about 4,973 years of civilization, but who is counting?” said Chang Wenming, a Deputy Minister of Foreign Affairs.

Qiang Guojia, another deputy, remarked, “There are some nice countries in the region, like South Korea, but can they really compare to a North Atlantic country like Iceland? As for the less desirable neighbors, don’t get me started on the Philippines. It’s a third-rate country that thinks it has a first-rate navy.”

The new location is perfect for the growing upper class. Flight time to New York will be decreased dramatically, which means they can visit their children at university more often. Political elite could also hop over to London for a rimjob from Martin Jacques.

When asked if Macau, Hong Kong, and Taiwan would also be moved, deputy minister Jia Xinwen first re-affirmed that the three areas are integral parts of China. He then stated the logistics of it were still being considered. Macau would definitely be re-located, but mainland decision makers are aware of the benefits of having Hong Kong and Taiwanese people on the other side of the world, even though the two areas would remain inseparable areas of China.

Saturday, August 10, 2013

Goldman Sachs on China.

I saw these articles while browsing Caixin:

08/08/2013: Goldman Sachs' Lloyd Blankfein Says He's Betting on China

05/31/2013: Goldman Sachs Sells Last ICBC Shares

I guess a lot changes in less than three months.

Thursday, July 11, 2013

Freedom Fest, July 11, 2013.

I attended Freedom Fest this year.  Originally, Xingyuan Feng, from the Chinese Academy of Social Sciences, was scheduled to give a speech titled "China Collapse?  Can't Escape Universal Values."  I was excited to see someone representing the China-credit-boom-bear camp.  Unfortunately, he couldn't make it.

Mark and Jo Ann Skousen gave welcome speeches in the morning.  The were followed by an excellent speech by Lawrence W. Reed titled "The Fall of Rome and Modern Parallels."

Between 08:30 and 09:15 there was a Global Financial Summit, including Steve Forbes, Barbara Kolm, Richard Rahn, and Jim Rogers.  Obviously, an amazing panel to discuss the theme of the discussion, "Outlook for the Global Economy."  Unfortunately, the moderator was under the impression that he was part of the panel, so the actual panelists did not have much time to talk.  Jim Rogers was asked a question unrelated to the global economy.  He was obviously jet lagged when he responded, "I thought this discussion was about the outlook for the global economy, so I will talk about something else."  It was the first time in panel history that the moderator went off topic before the panelists.

After that, there was a half hour discussion on threats to constitutional liberties including Bill Norton, Brian Calle, Mary Ruwart, and Matt Kibbe, moderated by Rusty Humphries.

At 10:20, Bert Dohmen was given 10 minutes to give a talk titled "Financial Apocalypse Now ... or Never?"  My favorite part was when he told the audience that gold was going to go down a lot further, and that the problem with the libertarian movement is that it has fallen in love with an investment, which is a bad choice to make.  Ten minutes was not enough, so luckily he was invited to sit on the next panel, "Will the Recovery Last?  All Star Prediction Panel."  It included Travis Brown, Alex Green, Axel Merk, and John Browne, paneled by Mark Skousen.  The highlight of the panel was when Bert Dohmen made the claim that if aliens came down with $1 billion and researched markets, in the end they would still chose to put there money in America.  Axel Merk responded that if aliens came to earth, they would have gold, not dollars.  Later, Dohmen claimed that "America is the best horse in the glue factory."

Afterwards there was a panel on energy.  I don't quite see the connection between the energy industry and the event, except for the fact that it is despised by the Obama industry.  One of the panelists made the claim that the energy industry could only go up.  His next sentence stated that his company was willing to sell related financial products, which means his company is reducing their exposure to the energy industry.

The next section was about alternative investments.  From the beginning, the discussion went way off topic and got weird.  It was a good time for an early lunch.

Art Laffer gave a long speech after lunch.  He made a comment about free trade, adding that "China is not our enemy."  My colleagues and I started the applause.  He was then joined by Jim Rogers and Donald Smith for the "Libertarian Hedge Fund Panel."

In the afternoon, there were too many good sessions going on at the same time.  Gene Epstein debated Warren Coats on the subject "End the Fed?  Can We Adopt a Free Market in Money?"  Bert Dohman spoke on investments.  Steven Horwitz and Gerald O'Driscoll spoke on "Financial Crisis:  The Austrian Perspective."  Barbara Kolm spoke on "The Decline and Fall of Europe."  Hopefully the audio versions of the sessions I missed will be available.

If anyone is in town, please let me know.

Monday, June 24, 2013

Bank Runs and Bad Translations.

A story was posted on Zero Hedge about the Bank of China stopping transfer services.  Before this gets out of hand, I thought I should provide a correct translation of the original article from Caijing.
Following ICBC, Bank of China also experienced problems.  Bank of China's bank-futures transfers stopped temporarily.  Online banking and counter service could not support bank-futures transfers. 
A little past 10:00 in the morning, many residents received text messages from the Bank of China saying, "Because of an error at the Bank of China, customers cannot make bank-futures transfers via the Bank of China.  Please use the Bank of China's online banking, counter service, or other banks' bank-future systems to make transfers.  When the Bank of China's systems recover, we will notify you immediately."  A large number of residents that needed to make bank-futures transfer services found out that they could not do so according to the directions of the text message. 
This reporter called the Bank of China.  The customer service representative said that the bank-futures transfer service had been temporarily suspended.  Online banking and counter service also cannot make bank-futures transfers.  This has already been reported to back-counter system support, but recovery time is not known. 
By noon, a customer service representative from Bank of China said that online banking had already resumed for some customers. 
Yesterday at 10:35am, ICBC experienced systemic paralysis in Beijing and Shanghai, as well as other locations.  ATMs, POSs, and online banking were down for about fifty minutes.  Many services could not be used. 
This systemic disturbance is at ICBC just happens to be at the same time that banks are experiencing "money shortages."  It has lead to rumors, with many people believing ICBC is out of money. 
In regards to this issue, a person in charge at ICBC told reporters in the morning that service difficulties were related to software updates.  After emergency maintenance, services were back to normal at 11:27am. 
ICBC denied rumors that systemic paralysis had anything to do with the "money shortage" over the last two days.
This story has nothing to do with silver.  The Chinese word yín means silver, but can also mean bank.  The article was referring to yínqī zhuǎnzhàng.  It is shorthand for "transfers between banks and futures companies."  Another mistranslated point was about all services going offline.  The intent of the article was to say that bank-futures transfers could not be made online or by going into a bank.Other account transfers and in-bank counter services have not been affected. (I can vouch for this, at least for now.)

I do not think the source of China's problems will come from too little renminbi.  The money supply growth from January to May is at a rate higher than the average over the last 12 years.  A bank run is possible, which I discussed in a post back in December of 2012.  The relevant portion referred to this current article:
The People's Bank of China had issued ¥4.86 trillion in bills and coins. According to the Depository Institutions Survey, currency in circulation, or bills and coins held by the public, (M0) only equaled ¥4.46 trillion. What they've told us–without directly telling us–is that bank vault cash was ¥400.8 billion. 
The next step up the money supply is M1, which equaled ¥26.66 trillion. Since M1 equals M0 plus demand deposits, we can subtract M0 to find that demand deposits equalled ¥22.19 trillion. Here we can calculate our first ratio. Demand deposits can be withdrawn at any time, so the bank will need adequate vault cash. Using our numbers, vault cash only covered 1.80% of demand deposits. According to the St. Louis Fed, U.S. vault cash has never gone below 2.00% of demand deposits. How do you say "It's a Wonderful Life," in Chinese?
I think a more likely scenario is a run on foreign currency at the People's Bank of China.

Monday, June 17, 2013

Book Review: Zai Weiji.

I picked up a copy of Guozhong Xie's Zai Weiji while browsing the Shanghai Bookstore on Fuzhou Road.  I had heard of Mr. Xie before because of his Austrian School leanings.

After buying this book, I read it over the course of a few weeks on airplanes and trains.  Perhaps I should have taken detailed notes, but there are a few main issues that stood out.

Let's start with the bad.  A characteristic of Mr. Xie is that he will make a specific prediction, including timing.  This might be because of his engineering background and role as a chief economist for a bank. However, since the book was written in 2010, and it is now 2013, when he predicts events that do not happen, it hurts his credibility.  The strategy with these kinds of books seems to be throw out as many predictions as possible, and if one of them happens to come true, cite that for eternity.  No one will spend the time writing another book to expose incorrect predictions.  Mr. Xie can probably redeem himself for incorrect predictions because of the major correct calls he has made in the past, such as the Asian Financial Crisis, the Hong Kong property bubble collapse, and deflation in China at the end of the century.

He also makes specific policy recommendations, such as interest rate hikes by 300 basis points, without clueing the reader into his methodology.  Many of the other policy recommendations he proposes are a little too interventionist for my tastes.  He champions Huawei as the future of Chinese innovation and overseas business development.  Huawei, HA!

Since this book is just a compilation of articles, many of the same ideas are repeated relentlessly.  The translation quality of some chapters are better than others.

The main positive aspect of this book is that it is a breathe of fresh air.  Many issues, such as low interest rates leading to bubbles, are from an Austrian perspective.  It also attacks the two main commonly held beliefs about the Chinese economy: (1) The renminbi will only appreciate; and (2) the price of Chinese land will only go up.

The list price is ¥39.80, but it is only ¥24.60 on Amazon.  Since the entire book is made up of translations of English articles written by Mr. Xie in the past and available online for free, English-speakers should not bother buying the book.

Friday, May 17, 2013

The Introduction for the 1962 Translation of F.A. Hayek's The Road to Serfdom is Now on Amazon.

I just published my first translation on Amazon.  It is the Introduction to the 1962 Chinese translation of F.A. Hayek's The Road to Serfdom.
F.A. Hayek's The Road to Serfdom was translated into Chinese in 1962. The Great Leap Forward had failed, and China was making slow moves back towards market reforms after the Great Chinese Famine. A split in Sino-Soviet relations was forming. 
This translation was never meant to circulate publicly. It was considered an "internal document" and was not allowed to leave book collections of high-level institutions. The translator, Weizao Teng, who referred to Hayek as "[A] loyal lackey defending the capitalist system," and believed his books were "[F]ull of poison," wanted to translate the book so that academics could "[C]riticiz[e] modern bourgeois reactionary economic theories." 
According to rumor, Premier Zhu had a copy of this book on his desk while leading economic reforms in the 1990s.