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沙发
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发表于 2008-2-18 22:24:25
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[size=large]Echoes of the Storms
True colors show up during a crisis. It is true for a person or a country. The winter storms ahead of the Chinese New Year holiday were the first serious test for China's economy since the SARS crisis in 2003. China's economy has expanded rapidly since the SARS crisis and, measured in US dollar terms, doubled since. On the positive side, China again demonstrated its ability to respond to crisis by mobilizing national resources quickly. China's top-down command structure comes in handy when the whole country needs to focus on one issue. All levels of government agencies and officials were directed to address the emergencies from the storms. Despite hundreds of millions stranded around the country, the crisis passed without a major disturbance.
The crisis also reveals a weakness in China's economic management and a more serious weakness in China's development model. Despite the reputation for economic planning and concentration of economic powers in government agencies that plan, China's economic management has not been as forward looking as it should be. The storms, while severe by the standards of recent years, are not out of ordinary by global standards. Northern Europe, North America, Japan or China's Northeast experiences storms of such magnitude regularly. We don't see chaos like in China this time. The difference is in the ability of underlying infrastructure to handle shocks. China put up its vast infrastructure quickly in the past ten years. The planners didn't do a good job in building a buffer for shock absorption into the system.
The lack of foresight in economic planning has brought costs in other ways. Inflation anticipation, for example, was not very good. The economy was growing very fast in recent years. It is conventional wisdom in economics that inflation is a lagging indicator in an economic cycle. However, the debates in China wasted precious time casting doubts on the causality between growth and inflation. As high inflation takes hold, the credit growth rate is finally brought below nominal GDP growth rate, which implies tightening. During the period of tightening bias, China must be patient in bringing down inflation. Inflation, once established, cannot be brought down quickly. The policy goal should be to contain inflation expectation first and, through a tightening bias in credit policy, to guide inflation down gradually over the next three years.
The shortage of energy resources partially reflects lack of foresight in economic planning. China's coal industry has been moving towards small scale mining, despite the rise of many big state-owned enterprises in the sector. The reason was the role of local authorities in granting mining franchises to connected local businesses with little capital or mining expertise. It has led to an extremely fragmented, undercapitalized, and unsafe industry. The industry would have taken a different course if safety standards had been enforced earlier. It would have driven out the undercapitalized miners. The belated enforcement of mining safety standards has led to closure of many small mines and temporary shortage of coal. The coal shortage during the storms has led to some arguing for reopening unsafe mines. This would be a mistake. The current high price would gradually trigger a supply response from big and safe mines. The government's responsibility is primarily to enforce industry standards. The price mechanism can bring stability to the market overtime.
A more strategic issue is why China didn't bet big on nuclear power. If China had pushed for nuclear power ten years ago, the energy situation would be quite different today. Some may argue that hindsight is also perfect. However, China has so many economic planners who are supposed to have such foresights. Otherwise, why should we have economic planners? The belated response for promoting nuclear power industry is still insufficient. On the current trajectory, nuclear power wouldn't be a major factor in China's energy supply over the next twenty years. China's economic development is probably 80% complete by then. It makes a lot of sense to push nuclear power on a much bigger scale now. China has a big current account surplus and has trouble handing escalating foreign exchange reserves. Why not invest much more on importing nuclear technology? As an aside, China should buy major stakes in the current big players in nuclear power industry. When iron ore price was low, China didn't bother buying up the resources. Now it costs more and more as China wants it. This is another responsibility-securing what China needs in future that China's economic planners have not done well.
China's economic planning system is good at implementing projects and responding to crisis. It is less impressive in anticipating crisis. The problem lies in China's yes-man intellectual culture. Chinese intellectual tradition is the pursuit of political power. Learning is about climbing the bureaucratic ladder. Hence, intellectuals tend to bend for prevailing wind; nothing can be gained by saying something different from what the decision makers want to hear. Hence, despite its size, the opinions in China often coalesce in a narrow range. This culture is good for supporting a powerful government, which brings certain advantages in managing the economy. Its downside is lack of forward looking initiatives that may not popular now but are vital in the future. Strengthening intellectual independence is the key to effective economic planning in China.
As economic planning is not as effective as we had hoped, China should depend more on market force to manage the economy. The principle for economic planning should be that economic planners can prove that they can do better than market. The pricing of food and energy products is at the heart of China's economy today. These two sectors are contributing big time to China's inflation. Should we keep their prices down by force such as administrative fiats or let the high prices to elicit a supply response to cool prices? Some believe that the first approach would prolong rapid growth by keeping inflation down by force. However, as low prices suppress supply responses, inflation will only get worse down the road. Price control is a painkiller that doesn't cure. Conventional economics suggests that the right approach is to hold down inflationary pressure by keeping credit growth below nominal GDP growth and to allow high prices of inflating products to elicit supply and demand responses to restore balance. High growth can resume once the market has restored supply-demand balance. The conventional approach arises out of economic management in many countries and over five decades. China, I suggest, should not reinvent the wheel.
The above issues pale in comparison to what the storms reveal about the fundamental weakness in China's economic development model. Cheap labor fuels China's economic development. The main source of cheap labor is the migrant workers from the countryside. They work at export factories and build infrastructure that support these factories. However, after three decades of economic development, they are still called migrant workers. They are not rooted in cities and return to their villages during Chinese New Year to feel at home. This is not normal. Industrialization and urbanization in other countries saw similar migrant workers in early stages of development. But, migrant workers became rooted quickly. Expensive housing and household registration system are the key impediments to rooting the migrant workers in China's urbanization.
When one travels through Mexico City or Mumbai, one disturbing sign is the sprawl of urban slums. They are blights on their cities and are often dangerous to their inhabitants or intruders. Chinese cities had such slums before 1949. Housing development since had cut down their sizes considerably. The new slums have not emerged. This is why Chinese cities look first world rather than third world cities. However, slums are an important part of urbanization. As migrant workers earn low wages, they can't afford modern housing for their families. The slums offer cheap housing for their families to become rooted in cities. If their children can get proper education, which is not the case in many developing countries, they could get high income jobs and move into modern housing. Of course, without a property education policy, the slum dwellers can get trapped.
To rid of slums, China is paying a high price. The migrant workers often have a bed at factory dormitories or temporary housing at construction sites. They have no place for their families. Hence, their children are left behind in villages with their grand parents. Their children, therefore, don't grow up in cities and, when grown up, could become migrant workers again. These workers often put their hard earned money into building a dream house in their villages. It is probably a waste. Neither they nor their children would be living in the villages. The jobs are in big cities.
I am not advocating bringing back the slums. There are alternatives to make China's urbanization more rooted. The current situation is not only undesirable, but may be unstable. While I admire those who brave the storms to go home, it is not right for hundreds of millions of people not to feel at home where they work and spend most of their time. At some point, they become resentful that they don't have a proper place to stay in the cities and all the buildings that they have built are sold at high prices to a minority for collection and then left empty.
The solution is to vastly expand rental properties. It is possible to keep the total development cost of such rental properties at Rmb 2,000/sq m, as long as local governments don't charge for land. At 5% rental yield, it is viable to set rents at Rmb 8/sq m month. If a migrant family requires 60 sq m, the total rent would be less than Rmb 200/month, which a migrant family can afford in most big cities. Of course, such rental properties should have proper transportation infrastructure for them to commute to work.
China is not short of money for such a housing program. If five hundred million need to settle in such housing, the total supply should be 10 billion sq m at a total cost of Rmb 20 trillion (83% of 2007 GDP). The program can be stretched over 15 years or at 666 mn sq m/year, costing less than 5% of 2008 GDP. China's current account surplus was close to 10% of GDP last year. This surplus capital could be spent on building low cost housing. China essentially needs to spend half of its capital surplus on such a housing program that would ensure China's urbanization successful. China's GDP doubles every seven years. The cost of such a program hence halves to 2.5% of GDP in 2015 and 1.3% of GDP in 2022. China can afford to house its people. Determination, not money, is the issue.
Such a vast program requires a strong central authority to administer. The Untied States established the Department of Housing and Urban Development to administer such a housing program during its urbanization. China could consider adopting a similar administrative system to lead the country's urbanization. To support urbanization and industrialization, China should also establish the Ministry of Transportation and the Ministry of Energy. At present, all these functions reside within the National Development and Reform Commission. Concentrating so much power within one organization may not be so efficient. Neither Japan nor Korea had so much power concentration in one organization.
While housing is the most pressing issue in rooting China's urbanization, education is far more important in ensuring its long-term success. Only the education of the next generation could remove the difference between locals and outsiders. Migrant should cease to be in the vocabulary in the next generation. When the children of the migrant workers grow up college educated and compete for white-collar jobs, urbanization or economic development has succeeded. This is by far the most important hurdle in a country's development success. Japan and Korea made that transition very successfully. Brazil or Mexico didn't. China should follow the examples of the former and avoid the fate of the later.
Household registration system is a massive hurdle in China's urbanization. After 1949, China established the system to stop rural urban migration, as the economy was not able to create jobs. Over several decades, the system created a vast gulf between urban and rural populations. The two worlds only met when the economic reforms brought migrant workers into factories to fuel China's export-led development. Because the living standards had become so different between rural and urban residents, the cities couldn't integrate the rural migrants into the urban system, fearing the high costs. Social security, education and healthcare benefits that cover urban residents incur high costs. If migrant workers can enjoy the same, all villagers would pour into cities that would face certain bankruptcies.
The United States faces a similar problem. Twelve millions of illegal immigrants from Mexico are part of the US economy. Their status disqualifies them from social benefits like social security or Medicare. In some states, their children are not allowed to enter public schools. If the US grants the benefits for citizens to such illegal immigrants, all the Mexicans would come and overwhelm the welfare system in the US. However, the US offers amnesties to illegal immigrants from time to time, which offers citizenships to those who have been in the country for many years. After working for so many years without welfare, they have already contributed enough to the system. Hence, their eligibility for welfare would not overwhelm the system.
Maybe China should consider a similar system. For those who have already worked in a city for ten years, local authorities could recognize them as normal urban citizens and entitled to the same benefits as such. I don't know how many may quality. Maybe 100 million. As urban schools are facing dwindling demand due to the one child policy, this change probably wouldn't overwhelm the education system. In terms of healthcare, Chinese hospitals are already charging for most services anyway. In terms of minimum living standard benefit, there could be a period of waiting before the new residents can quality.
A crisis can turn into an opportunity. The storms have revealed China's strengths and weaknesses. If the lessons can be learnt, it would strengthen the robustness of China's development. China's goal should be to eliminate the difference between migrants and locals. When the families of migrant workers live in cities and spend their New Year's holiday where they work, China's development would have succeeded.
[sign]人生至古谁无屎，有谁大便不用纸？若君拉屎不用纸，莫非你是用手指？[/sign] |
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发表于 2008-2-18 22:20:45
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