Development Bank Research Bulletin

Go head, learn Mandarin? There is no need.

The TIME magazine says that now we need to start learning Chinese Mandarin, because “ to an extent, this is a case of history repeating itself—with a twist. Just as Americans started studying Japanese in droves in the 1980s, when Japan's economy was ascendant, so today, as China rises, the world is embracing Mandarin.”

But in any case, Japanese businessmen speak English if they do business with foreigners and it takes a lot of patience for them to wait for you to practice your basic and broken Japanese in the meeting room in a serious negotiation. Japanese may not speak English very fluently, but communication and business can already be done at that level . If it is a very important billion dollar deal, go hire a first-class translator. Language, friction it certainly is, is never a formidable barrier for doing business.

Some basic greetings and conversation skills may be needed, as TIME ends the article by quoting someone who is practicing Chinese: "But we weren't sent here by the company. We're drinking buddies, and decided to do something more constructive with our time than guzzling beer." Indeed, to make your life less boring when meeting Chinese businessmen and on a business trip, this is useful.

But in any case speaking Mandarin (unless you really master the language at decent level) is torture for both you and people on the other side of the negotiation table. True, in South Korea, 160,000 high school and university students are studying the Chinese language, but they are moving to China and many plan to settle there; this is a different story.

Nevertheless, speaking a little bit (not neccesarily much) local language helps you make friends and brings you unexpected favors. According to TIME's Beijing correspondant Susan Jakes:

"The more boldly I stammered through basic conversations, the more people seemed to attach themselves to me as unofficial teachers. In Beijing, a woman once invited me home for dumplings when I said "excuse me" after bumping into her on a crowded subway. A Harbin cop took me driving in his new Mercedes, and a couple I met in line at a bank included me in their family bowling nights. Each invitation was an opportunity to make mistakes and collect new words: "home cooking," "special privilege," "gutter ball." "

Beginner education kit for libertarians: “Free to Choose”, “Commanding Height”, “I, Pencil”

Do you want to become a libertarian? Do you want to learn more but have little patience to finish a book? Here I recommend several classical TV series that you can watch in the evening when you have some free time.

They can be watched or downloaded on Internet, so you don’t need to make any financial investment.

Milton Friedman’s PBS TV series: Free to Choose (1980) 10 Volumes
Link to online video (courtesy of Palmer R. Chitester Fund)
Vol.1  Power of the market
Vol 2  The tyranny of control
Vol.3  Anatomy of a crisis
Vol 4  From Cradle to Grave
Vol.5 Created Equal
Vol.6.  What’s wrong with our schools?
Vol.7.  Who protects the consumer?
Vol.8  Who protects the worker?
Vol.9  How to cure inflation?
Vol.10  How to stay free?

Milton Friedman’s PBS TV series: Free to Choose (1990) 5 Volumes
Link to online video (courtesy of Palmer R. Chitester Fund)
Vol.1 The power of the market
Vol.2 The tyranny of control
Vol.3 The failure of socialism
Vol.4  What’s wrong with our school?
Vol.5  Created Equal

PBS TV series: Commanding Height
Link to online video: (courtesy of PBS)
Episode 1: The Battle of Ideas
Episode 2: The Agony of Reform
Episode 3: The New Rules of the Game

After finishing the videos, if you have 10 minutes for reading, I highly recommend to you a famous short article by Leonard E. Read, titled “I, Pencil”.  The basic idea of the article is that, it is not any easier to manufacture a pencil than to deliver mails; both tasks require coordinations of millions of people with differnet expertise; thus it makes no sense that a pencil can be produced by private sector without a central planner while there are so many services the government claims only she can coordinate and deliver.

The article contains  only 2,300 words, but it may fundamentally influence the way you think about how our economy operates.

If you like all of these material I introduce here, welcome on board, you are a libertarian! And do leave a message here to let me know!

Malaysian Prime Minister fined for speeding

Checks and balances do work in Malaysia. Positive heritage of British rule?

According to Reuters:

KUALA LUMPUR, June 11 (Reuters) - The long arm of Malaysian law has finally caught up with Malaysia's speeding prime minister -- and handed him 11 unpaid traffic fines.

Abdullah Ahmad Badawi, a devout Muslim on a political mission to fight corruption, told local media on Saturday he hadn't been aware of his 1,000 ringgit ($273) bill for traffic offences until the deputy chief of police told him earlier that day.

"I was informed about it just now ...," Abdullah was quoted as telling reporters. "I'll settle all of them on Monday."

The fines were delivered by post and applied to several cars owned by the prime minister, who is usually driven around in official convoys with police escorts.

Five were issued for speeding, four for traffic obstruction and two for parking on the wrong side of the road, the New Straits Times said.

“Irregularities” of US$ 1.1 billion uncovered in Agriculture Bank of China

Is this a news at all? Not anymore. Wake me up next time when they discover “irregularities” of US$ +100 billion.

According to China Daily:

Irregularities involving 8.68 billion yuan (US$1.09 billion) were uncovered in the Agricultural Bank of China's (ABC) 2004 accounts, the National Audit Office said yesterday.

The 51 cases involved 157 bank officials, some of whom conspired with outsiders to embezzle the bank's funds, the audit office said in a report released on its website.

It cited as an example two ABC branches in Suining, a city in Southwest China's Sichuan Province. The branch chiefs colluded with securities brokers to defraud the bank of 118 million yuan (US$14.75 million) in loans, and lost more than 75 million yuan (US$9.38 million) in stock market speculation.

Irregularities were also found in the handling of deposits, bank bills and loans.

William Seidman (former FDIC chairman)’s banking jokes

L.William Sediman was chairman of Federal Deposit Insurance Corporation (FDIC). He has produced numerous banking jokes. Below I put together some of them.

On Russian banking problem:
“Ivan asked his mother – mother, why have I got the biggest feet in the third grade? Is it because my dad was communist? She says, no son, it’s because you’re 19”

On Russian lending problem:
“I went into one small bank and there were three or four of the tougher looking Russians sitting around with AK47s and I said, I know that crime is awful around here, but do you need to have a real army here to defend this small of a bank? They said, well, they are not here to defend the bank, those are the people who collect our loans.”

On Japan banking problem:
“A doctor calls up his patient and says, I have bad news for you and worse news for you. You have only 24 hours to live. The patient says, oh, that’s terrible. What could be worse news? The doctor says, I’ve been trying to get you since yesterday”

On World Bank’s blank check aids
“I was there for the World Bank and we had $2 billion to spend, and if you want to really be treated royally, just wander through Russian with $2 billion that you can provide  them I got so full of caviar that I couldn’t look at a fish egg again.”

On Japan’s stagnation:
“They’ve been in a non-growth economy for many years now... if something like that was going on this country, there would be a revolution. The fact of the matter is in Japan, the average Japanese citizen may be better off than he was seven years ago... since they  have experienced deflation in effect, the average person in Japan is living as well or better than he did in the past. As a matter of fact, the crash in real estate prices ahs allowed lots of Japanese to now live somewhere closer to their work than a two-hour commute by train to Tokyo”

China or India, who’s got sweatshops?

China is known for its labor-intensive low-wage manufacturing. But according to Mercer Human Resource Consulting: software engineers, sales staff, financial analysts and factory workers all earn more in China than India.

AVERAGE ANNUAL PAY-CHINA (in British Sterling)
Project manager: £12,173
Software engineer: £6,998
Accountant: £4,677
Sales rep: £2,649
Production worker: £1,214

AVERAGE ANNUAL PAY-INDIA (in British Sterling)
Project manager: £5,220
Software engineer: £5,344
Accountant: £2,956
Sales rep: £2,464
Production worker: £964

According to a report in The Australian, in the newly-completed Toyota factory in Guangzhou, China, workers, 3500 of them, are paid about $2.70 an hour. Note that these are assembly-line workers, not IIT-educated genius.

Labor regulations never get you higher pay; Market foreces and your own skills do!

Liberalization of imports harms India?

Ashok Sharma in the Indian newspaper Financial Express argues that unilateral and unconditional lowering of tariff for sugar imports harm India

“... the institution of TRQ for sugar import is unilateral and unconditional. We have not in exchange negotiated for raising our low bound tariff rate of 45% on soyabean oil. The policy of unilateral and unconditional liberalisation of imports will weaken India’s negotiating position at WTO. It will endanger domestic production as had been the case with vegetable oil and oilseeds.”

If this were true, then why don’t India raise tariff to 1000% or close the economy completely from international trade then? This should be able to gain India formidable negotiating position at WTO, according to the theory of Mr. Sharma.

Sometimes, busting a myth requires just a little bit of counterfactual thought experiment.

Is Nicholas Kristof an idiot? the "******* vs. Netizens" case

Nicholas Kristof, op-ed columnist of New York Times, publishes an article today describing how he tests the limits of the Internet in China.

He started several blogs in Chinese internet service provider, and find that however political sensitive words he includes in the blogs are not deleted, but are just replaced by ******. He thus claims it to be a victory of Netizens, that Internet police are not able to control numerous blogs mushrooming in China.

Yes, Nicholas, you are very smart that you find this loophole in the system.

But everyone knows it too, just no one else is stupid enough to disclose it publicly.

Everyone, except you, understands that the loophole will be closed once it is disclosed publicly.

Provision of  Internet service, including hosting of blogs, is a very competitive business in China. In order to attract users, most providers will always “walk on the edge of the law” and try to create as little inconvenience to users as possible.

This includes, not removing “sensitive words” as the state censors require; instead, they simply replace the words with ******.  Technically, by doing this, Internet service providers violate the law, but the Internet police don’t bother to interrupt. I guess there is implicit agreement between them: Internet police want a quite life; Internet service providers want profit; Thus, police will leave service providers alone unless big troubles are made that humiliate the Internet police.

As a by product, Chinese netizens get a little bit more freedom than the law provides.

This will be soon gone, after Nicholas Kristof’s stupid move; typically the state will feel very embarrassed and feel publicly humiliated (in New York Times!), and then the Internet police will be reprimanded. And boy, who are the ultimate victims? The netizens!!

I still don’t understand why Nicholas Kristof publicizes this. To raise awareness? I guess everyone already knows that Chinese government censors Internet, and what Nicholas is telling us is no big news. Even when you want to raise awareness, there are many better ways that are much better than publicizing a loophole that has been benefiting Chinese netizens!

Certainly, you will say that the ultimate blame should be the government, and Kristof is only the little boy who tells everyone the Emperor has no clothes.

But why do we care whether the Emperor dresses or not!

See Kristof's op-ed article: "In China it's ******** vs. Netizens"
(Sorry I copy this NYT article without permissoin, but considering the great harm he's done to one hundred million Chinese netizens, I think Nicholas should allow me to violate his copyright for several days as a compensation)

Update: So far the two "test blogs" are yet to be closed down.

Should journalist use lies to fight lies? The Apple “slave” labor case

Apple is running into trouble recently. A recent U.K. newspaper report claims that workers at a Chinese iPod factory were working long hours, for little pay, and in "slave conditions". They were said to have been earning $50 a month (or about $1.60 a day) while working 15-hour shifts. The reporters visited two plants in the crowded country, one close to Shanghai and the other near Hong Kong. One, described as iPod City, was said to have 200,000 workers who lived in dormitories on the site.

Labor compensation is really terrible in China, but I don’t think these journalist should use lies to fight lies.

First, in the two locations where the journalist claim they investigate (I guess one in Kunshan and the other in Shenzhen), it is impossible to hire assembly workers at $50 /month. It is just impossible, not because the employers are benevolent, but because factories next doors will recruit away all you workers at the prevailing market price if you offer only $ 50/month.

Reading the report  carefully (I guess most readers will only remember the headline numbers they throw out instead of finishing the whole report),  however, you will find that $50/month is not the wage, but the net saving after deducting expenses as calucauted by the journalists. Should we say that some American workers are paid zero dollars/month because they rarely save money?

Interestingly, the real monthly salary number (about $100 /month) obtained by the journalists (I guess the number should be real, as journalists do not have incentive to over-report the number) meets the minimum wage requirement, which many labor activists believe to be fair but don't think are actively enforced! The report unexpectedly provides evidence that minimum wage law in China does have teeth!

$100 /month is small sum for British, but it is a lot of money in China. Why don’t the journalist make some attempt to put the number into perspective. In inland provinces, government employees (dream position for most local residents ) are paid $100/month.  $300/month is also three times what Indian workers can get.

Why don’t the journalist tell readers what are the alternative income these workers could get if they don’t have a job in the  factory?  It is a poor country, and $100 /month is exactly the same as the country’s GDP per capita. The average monthly British GDP/per capita is over $2800, will you call a British worker who are paid $2800/month a slave!!

Second, in the past five years, Apple sold 42 million i-Pods. If 200,000 workers are employed to produce i-pods, then each worker produced only 210 i-pods so far.  Don’t you think such productivity is ridiculously low. A Washington Post article reveals that the factory is not owned by Apple, but by a contract manufactures Hon Hai precision Industry, also known as Foxconn electronics Inc.  Foxconn does employ 200,000 workers, but Apple is only a client, and only small fraction of the 200,000 workforce work on i-pods.

I really don’t know why the journalists want to throw out a sensational number of "200,000 workers", and the so-called “iPod city” name, just to exploit the popularity of iPod brand name?  And “the 200,000 workers in one site” description also tries to get readers to have an impression that all 200,000 workers are fit into one dorm room!

I want to say to the journalist of Mail on Sunday (the U.K. newspaper that reports the story): 
The best weapon of journalists is fact and truth, if you degrade yourself to the same level of a lying regime, you bring shame to the whole journalist community!

Interestingly, Mail on Sunday doesn't put the report online. Are you fearing of sunshine?

Reference:
Sweatshop conditions at iPod factory reported
Apple eyes labor conditions at iPod plant

Update:

found that Perry Wu in the ChinaTechNews.com has the same views as mine, in his article "Hyperbolic Apple iPod factory woes"

Sun Bin recommends a blog post "A Chinese view of iPod City", which provides a nice summary of the event and coverage. Thanks.

Outsourcing is good for American job growth! Two data-intensive evidence

As more manufacturing and service jobs are outsourced to developing countries, complaints arise domestically that it is responsible for the “jobless growth” in the U.S.

Two research papers recently produced however provide evidence that outsourcing is actually good for American job growth. 

The first study, authored by Mihir Desai, Fritz Foley, and James Hines Jr., investigates migration of manufacturing production to developing countries. They show  that 10% greater foreign capital investment is associated with 2.2% greater domestic investment, and that 10% greater foreign employee compensation is associated with 4.0% greater domestic employee compensation.

You may ask: “but the growth is not proportional – growth in the U.S. is smaller!”.  But this already is a serious blow to those who believe that the impact should have been negative!  Furthermore, 10% growth in compensation for foreign workers is much smaller than 4% growth in compensation for U.S. workers (who’s pay level starts at least 10 times that of their foreign counterparts.

The second study, authored by Mary Amiti and Shang-Jin Wei, looks into service outsourcing, which is feared by white-collar workers.

They show that,  in each of the past 10 years, the value of US insourcing (i.e. the value of business services expoerted by a country like the U.S., e.g., high-priced business consultants and lawyers in richer countries offering their services to the rest of the world) has been greater than that of US outsourcing! This is true even though the US has been running a trade deficit and an overall current account deficit.

Examining 100 sectors of the U.S. economy, they also show that there  is no evidence that the most outsourcing-intensive sectors have had systematically slower (or negative) job growth in the last decade. In fact, the millwork and plywood sector, the metal coating, engraving, and allied services sector, and the insurance industry have had some of the fastest increases in service outsourcing but at the same time also some of the fastest
rates of job creation.

Study 1: Foreign Direct Investment and Domestic Economic Activity   (pdf file)
Abstract:   How does rising foreign investment influence domestic economic activity? Firms whose foreign operations grow rapidly exhibit coincident rapid growth of domestic operations, but this pattern alone is inconclusive, as foreign and domestic business activities are jointly determined. This study uses foreign GDP growth rates, interacted with lagged firm-specific geographic distributions of foreign investment, to predict changes in foreign investment by a large panel of American firms. Estimates produced using this instrument for changes in foreign activity indicate that 10% greater foreign capital investment is associated with 2.2% greater domestic investment, and that 10% greater foreign employee compensation is associated with 4.0% greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending. The data do not support the popular notion that greater foreign activity crowds out domestic activity by the same firms, instead suggesting the reverse.

Study 2: Fear of Service Outsourcing: Is It Justified?   (pdf file)
Abstract:      The recent media and political attention on service outsourcing from developed to developing countries gives the impression that outsourcing is exploding. As a result, workers in industrial countries are anxious about job losses. This paper aims to establish what are the hypes and what are the facts. The results show that although service outsourcing has been steadily increasing it is still very low, and that in the United States and many other industrial countries "insourcing" is greater than outsourcing. Using the United Kingdom as a case study, we find that job growth at a sectoral level is not negatively related to service outsourcing.
(Also check out Raghuram Rajan and Shang-Jin Wei's op-ed "The non-threat that is outsourcing (pdf file))