Can a rational person have great passion?
Known to be rational, economists usually seem to be lack of passion when they work. However, this illusion of mine was broken by the book, “Rational Passion: the Chinese architects in the international palace of economics”, recommended by Prof. Tao Zhigang this morning.
It is a book collecting the profiles and conversations with reporters of 16 famous Chinese economists. Why would Prof. Tao recommend this book rather than some other economics textbooks to broaden my knowledge of economics?
“It seems that you do not know those big names in Economics?” said Prof. Tao in the discussion this morning. Yes, I’m so ignorant of those economists and top development of economics. Learning economics for only two years at an introductory level, I aim more on the basic economic sense which need to be cultivated step by step. Before I entered university as a student majoring economics and finance, I even mistook economics for the calculation of money exchange. In the past two years, I began to know what economics really is, but I need to know more before I can go further.
Apart from Prof. Tao, I only have a little knowledge with Qian Yingyi and have heard the name of Bai Chong-en. I still have much to do before I can catch the development of economics.
My knowledge of Prof. Qian is also from the project I am doing under the instruction of Prof. Tao. I was recommended to read his paper “The Process of China’s Market Transition (1979-98): The Evolutionary, Historical, and Comparative Perspectives”. It gave me a clear view of the development of the market transition in China with a unexpected foundation in the early years of PRC to the current situation. It also first time reminded me the difference of planned economy between the former Soviet Union and China.
The profiles and conversations in the book give me a clearer picture of this Chinese economist and extend my understanding of China’s economic development from his paper to a much wider range.
As a Chinese, we have our advantages to review the development of China. We know much more about the culture and more details than foreigners. We also feel the real change and see the unsatisfactory issues in our life. That is the good resources of our knowledge on China’s development. However, it also brings some side effect. We are too familiar with the situation that we might underestimate some improvements without notice and regard some problems as unique ones of China.
Sometimes we may use too much concepts from western culture but ignore some practical issues. As a result, this may also bring pessimism. A good example is how to view political development without a western way of democracy. Actually, democracy is just one part of politics. In the western civilizations, they may put democracy as the base of the development. However, in an eastern culture, rule of law may play a more important role. That’s why we can see the present economic and social development under the improvement of rule of law. As a result, though the nominal political development has not been much touched as is defined as popular election, the real political development is already underway and have exerted its great power in China.
Showing posts with label China's economy. Show all posts
Showing posts with label China's economy. Show all posts
27 June, 2007
01 June, 2007
Can You Keep up with China’s Stock Market?
Just a week ago, Chinese officials were defending that the rise of stamp duties was a rumor. Just two days ago, the stamp duties were suddenly nearly tripled. This was followed by a vaporized 1,240 billion market value in the stock market or 6.5% market value. The next day, it dropped another 10% but rebounded miraculously. Even my instructor in Macroeconomics wrote a comment before the sudden rebound and has to update it. Can you keep up the pace with China’s Stock Market?
One editorial in FTChinese.com told you to “relax about China’s stock market”. It sounds interesting when you are facing the sudden drop and someone is shouting against the government’s honesty and the harsh policies facing them. However, there are some truths in it.
When I expressed my concern for the collapse of China’s stock market two weeks ago, a friend of mine pacified my with the assertion that the China’s whole economy would not be influenced too much even in the worst situation that the stock market collapse. This was the same assertion as the editorial.
China’s stock market is somewhat independent and has few relations with other markets. It is bad when outside regards it as a huge opportunity for investment. However, it is good news if the opportunity turns into a burden as it is out of control itself. The limited opportunity of investment goes along with the limited risk in it.
What’s more, the assertion that the market would turn sour is still not a certain one as the yesterday’s rebound gave many people a surprise. The most important thing now probably is to try to keep up with the update information of China’s stock market.
One editorial in FTChinese.com told you to “relax about China’s stock market”. It sounds interesting when you are facing the sudden drop and someone is shouting against the government’s honesty and the harsh policies facing them. However, there are some truths in it.
When I expressed my concern for the collapse of China’s stock market two weeks ago, a friend of mine pacified my with the assertion that the China’s whole economy would not be influenced too much even in the worst situation that the stock market collapse. This was the same assertion as the editorial.
China’s stock market is somewhat independent and has few relations with other markets. It is bad when outside regards it as a huge opportunity for investment. However, it is good news if the opportunity turns into a burden as it is out of control itself. The limited opportunity of investment goes along with the limited risk in it.
What’s more, the assertion that the market would turn sour is still not a certain one as the yesterday’s rebound gave many people a surprise. The most important thing now probably is to try to keep up with the update information of China’s stock market.
14 May, 2007
China’s Economy Is at a Critical Point
News on China’s economy is always popular. In recent days, reports about China’s economy are catching eyes particularly. “China Regulator Urges Investor Awareness of Stock Market Risks”, “China's Inflation Probably Broke Central Bank Target”, “China Money Supply Rises 17.1%, Exceeding Target” and etc. (Headlines from Bloomberg.com) Those headlines are delivering the same message: China’s economy is at a critical point.
Then what is the clue for these problems? One bold guess is the unexpected inflation. It seems reasonable that since the inflation is 3.1% (an estimated number from Bloomberg. com), the negative real interest rate has forced citizens to give up saving at banks as a traditional way of investment and to turn to other financial assets, stocks in particular. In the first quarter this year, 8.58 million new accounts have been opened at brokerages. In contrast, the number for last whole year was only 5.38 million. And the investment of stocks also explains the breaking of the China’s money supply target partially. Many people even try to borrow money to buy stocks which increases the M1 greatly.
Where does the inflation come from? It may result from undervalued RMB. When RMB is undervalued, we can see great trade surplus and higher demand for RMB. To stable the exchange rate of RMB, China’s government purchases a lot US Treasury bond to create demand for US dollar artificially. This method may not give US economy a great impact as I mentioned in “A Brief Overview on RMB and the US Dollar” (May 8th), but it may have great side-effect on Chinese domestic market. One effect is mainly caused by the constant payment of Chinese Yuan, which may lead to the excess printing of RMB and cause an excess money supply. The ending of the circle is a higher inflation rate.
Whatever the reason is, it is a critical point of China’s economy. The flood of new shareholders is not from the elites or at least people with financial know-how. However, they are those who have little understanding of the risks of financial investment. The once popular saying, “there are risks in the stock market, and you should be careful when you enter it” does not prevent the irrational growth of shareholders. If the increase in stock investment could not be contained immediately, an economic bubble would be easily forming at a quick pace, especially for China, such a large and immature economy.
It is reasonable to predict that the government will try to tight its monetary policy (to raise the interest rate) seriously, as the former changes in policies do not work effectively.
Then what is the clue for these problems? One bold guess is the unexpected inflation. It seems reasonable that since the inflation is 3.1% (an estimated number from Bloomberg. com), the negative real interest rate has forced citizens to give up saving at banks as a traditional way of investment and to turn to other financial assets, stocks in particular. In the first quarter this year, 8.58 million new accounts have been opened at brokerages. In contrast, the number for last whole year was only 5.38 million. And the investment of stocks also explains the breaking of the China’s money supply target partially. Many people even try to borrow money to buy stocks which increases the M1 greatly.
Where does the inflation come from? It may result from undervalued RMB. When RMB is undervalued, we can see great trade surplus and higher demand for RMB. To stable the exchange rate of RMB, China’s government purchases a lot US Treasury bond to create demand for US dollar artificially. This method may not give US economy a great impact as I mentioned in “A Brief Overview on RMB and the US Dollar” (May 8th), but it may have great side-effect on Chinese domestic market. One effect is mainly caused by the constant payment of Chinese Yuan, which may lead to the excess printing of RMB and cause an excess money supply. The ending of the circle is a higher inflation rate.
Whatever the reason is, it is a critical point of China’s economy. The flood of new shareholders is not from the elites or at least people with financial know-how. However, they are those who have little understanding of the risks of financial investment. The once popular saying, “there are risks in the stock market, and you should be careful when you enter it” does not prevent the irrational growth of shareholders. If the increase in stock investment could not be contained immediately, an economic bubble would be easily forming at a quick pace, especially for China, such a large and immature economy.
It is reasonable to predict that the government will try to tight its monetary policy (to raise the interest rate) seriously, as the former changes in policies do not work effectively.
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