Development Bank Research Bulletin

Rafael Correa: another Latin American president with an econ Ph.D.

Rafael Correa has been favored to become the next president of Ecuador, in the upcoming election, probably after a second-round run-off (See the Latin Americanist Blog for a brief). He is very likely to become another Latin American president with a Ph.D. degree in economics (e.g. Ernesto Zedillo, Mexican president 1994-2000, Ph.D. Yale '81)

He has been rumored to be a leftist and a close friend of Hugo Chavez. Nevertheless, as a U.S.-trained economist with a Ph.D degree in economics from the University of Illinois ('01), and a previous degree from Belgium, it is a neccesory strategy for him to campaign under an ultra-leftist and anti-West platform, otherwise other candidates from the far-left can easy attack him and alienate him based on his U.S. education background.

His former professor, Werner Baer, who is a Latin American expert, knows the trick very well: "My guess is that some of the posture he's taking now is because that's the way he hopes to get elected and win votes. Once in power, I doubt that he would be virulently anti-American like Chavez." He said Correa would more likely follow the lead of President Luiz Inacio Lula da Silva of Brazil, who spooked investors with radical discourse as candidate, but once in office "became extremely orthodox in his economic policy."

In April 2005, Correa was appointed economy minister, but he was forced to resign after four months when he failed to consult the president before publicly lambasting the World Bank for denying Ecuador a $100 million loan. He now portrays himself as a “Christian leftist”, and concurs with Chavez’s attack of Bush by adding that "to call Mr. Bush the devil is an insult to the devil" and that “The devil is evil, but intelligent.”

This cheap talk is all understandable and predictable. Do you know of any other easier strategy that can help you accumulate political capital so fast in Latin America?

His professor Baer described Correa as a top-notch economist, which I would not agree.
At least his doctoral dissertation did not appear to confirm it. According to a self-description Correa made when he was still a Ph.D. student in University of Illinois (UIUC), his research was mediocre:

“My dissertation and research interests are Economic Development and International Economics. Specifically, the first part of my dissertation evaluates the effects of liberalization and globalization on the Latin-American economic growth, investment, and productivity. I am using state of the art techniques in instrumental variables and dynamic panel data models. The panel includes 19 Latin-American countries. The second part of the dissertation studies the economic desirability of a monetary union for the Andean countries. In this study, the basic techniques are vector auto-regressive models and disturbances orthogonalization. The third part of the dissertation is an evaluation of the impact of structural reforms on growth, human development and poverty in Latin America.”

However, he is certainly not a leftist! He is simply a political opportunist. We will see.

Financial Times interviews Lula and Alckmin

Financial Times' Richard Lapper and Jonathan Wheatley has made two long interviews with two leading candidates in the upcoming Brazilian presidential election.

Both Lula and Alackmin are the type of politicians who really try to convincing people by making points rather than by making sensational appeals, which is a bless for Brazilian politics. Indeed, from the long-term historic perspetive, Brazil is probably the most peaceful (baring the everyday petty street crims and the recent Sao Paolo riot) nation in the World. Immigrants from different origins, of different skin colors live quite comfortably along each other (relative to other immigrant nations), and even the military coups turned out to be the least bloody than they usually should be.

Let's see what they have to say to all of us, on the future of Brazil, and how they plan to make it a better one:

Interview transcript: Geraldo Alckmin (Centrist)
Interview transcript: Luiz Inacio Lula da Silva (Left)

My general impression is that,   the two's policies are not fundamentally different (partly because Lula is not that type of radical left, and partly because Alckmin really doesn't have anything new and concrete to impress and convince voters), and Alckmin's inexperience is going to cost him dearly.  Alckmin is much less eloquent and charismatic than Lula, and I don't see hard evidence that Alckmin can really get things done despite his repeated claim that "we have a lot of experiences" in this and in that.

I would bet that Lula is going to be re-elected by large margin.

Time of India: "India 12th wealthiest nation in 2005"???

Times of India: “India 12th wealthiest nation in 2005: World Bank”?  Also in the Hindu

Oh my god! India? Wealthiest nation?  Pankaj Mishra's op-ed "The myth of new India" published in the Hindustan Times makes some very good and sober comments on this type of media euphoria: "Mittal is as much an Indian success story as Sergey Brin, the Russian-born co-founder of Google, is proof of Russian's imminent economic superstardom."

A foreigner, if he never walks out of his Indian hotel and reads only Indian newspaper headlines, will certainly get an impression that Indian is the heaven.

Everyday, you are bombarded by headlines like “Asian Development Bank president: India to become a developed nation soon”,   “Indian banks beat Asian peers” “India to beat China in 10 years: BBC survey” (by the way it was actually a survey of Indians),  “No one has actually made any money in China” , so on and so forth.

Any rankings released by any small organizations, so long as India ranks better than Pakistan or China in one of the numerous components of the ranking system, will be highlighted on the same day on Indian newspapers.

The same is true for China, but never to such an extent. Many Chinese are proud of their country as the 4th largest economies in the world, not realizing that the “wealth” has to be divided by 1.3 billion fellow countrymen, and in an terribly unequal way. But I never see any Chinese newspaper headline that portraits China as one of the “richest” or “wealthiest” nations.

When you read Chinese newspapers, except the state media People’s Daily (which by the way cannot be found in most newspaper stands on the streets. i.e., no one buy it), I will say when it comes to economic news, there is not much difference between Chinese newspapers and Indian newspapers. This is not to say that Chinese media is in any sense free, but that Indian newspapers, at least when it comes to economic news, are as propagandist as Chinese ones. The difference is that: Chinese newspapers are forced to, while Indian newspapers choose to, to please readers.

There is a joke that goes like the following. China and India are the same although one has the strictest media censorship in the world while the other has free media. In Chinese newspapers, you always find a lot of articles about the need for reform and how many hidden dangers are ahead of the economy. In Indian newspapers, you will find the same thing: banking sector problems, pollutions, labor unrest......... in China though!

There are actually quite a few academic studies that try to find out the reason why media industry, even with perfect degree of freedom, will still purportedly propagate biased information. One of the reasons, as many researchers point out, is that readers believe only what they want to believe, and when the benefit of finding out the truth is much smaller than the cost, no one bother to find out.

I think it is quite true. If you cannot do anything about the poverty, why bother emphasizing it on a daily basis. The other day, I saw a BBC article, which highlights the number of Indians living under $1/day. A local Indian commented below the article that: “why do you throw out a number every several days about the poverty of India. We don’t need you to tell me that we are poor. We can see it everyday when we goes to work. We don’t need you to repeat it”

It's qutie true. After you spend you real life in a sweatshop, why don't you want to review your real tough life again when you go home to relax.

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.

Morris Goldstein and Nicholas Lardy’s solution to Chinese currency problem

Morris Goldstein and Nicholas Lardy’s solution to the Yuan problem:

“...we propose the following compromise. First, China should implement in the next few months a 10 to 15 percent appreciation of the renminbi relative to the current value of the basket. This could be done either by a revaluation or by allowing market forces to push up the currency’s value. Such a “downpayment” would help to persuade external critics that China is serious about controlling its growing external imbalance. Second, China should widen substantially either the band around the central rate or the daily fluctuation limit. That would provide increased independence for monetary policy, allow scope for further renminbi appreciation and give China experience in managing increased flexibility. Third, to offset some of the contractionary effect of the renminbi appreciation, China should simultaneously implement fiscal expansion. Fourth, China should maintain most capital controls until its banks are further strengthened.

This would still require sizeable real appreciation of the renminbi later, with all the problems that such a phased adjustment entails. If speculative inflows resurge, the authorities would need to choose between an acceleration of renminbi appreciation and a temporary recourse to tighter controls on capital inflows. In the final stage of currency reform—when China’s banking system is more stable—China would float the currency and remove the remaining capital controls. Admittedly, this is not an elegant plan. But if it would break the existing logjam in addressing global payments imbalances, it merits consideration.”

see Goldstein and Lardy's full article in the Finanicla Times

Chinese leadership signals support for further reform

China’s party newspaper People’s Daily carries an editorial today urging members to “unwaveringly uphold reform”. This is supposed to silent the rising leftist advocates and disassociate and distance the top leadership from conservative old guards. The editorial is signed by a famous pseudonym “Zhong Xuanli”, in Chinese rhyming “Central Propaganda Department’s Theoretic  Research Division”

For background of the heated debate, please refer to a previous post in the Bulletin: “Socialism or capitalism? New turning point in China?”

Financial Times:  Chinese leadership signals support for further reform

"The mouthpiece of China’s Communist party on Monday urged that members “unwaveringly uphold reform” in a call seen as an attempt by Beijing’s top leaders to silence opposition to wider foreign and private involvement in the economy.

A People’s Daily newspaper article that received extensive attention from other state media and was clearly intended to represent party policy, said China had no choice but to deepen market reforms and open further to the outside world.

“If we do not drive ahead with reform, not only will we be unable to win new achievements, we will also find it hard to maintain the progress we have made in the past,” the article stated.

Its publication follows unusually open and heated criticism during the past year of government policies on issues such as foreign takeovers of Chinese companies and management buy-outs of state-owned enterprises, all set against a backdrop of rising social inequality."

Other media coverage (more will certainly follow; I am particularly interested in how several major U.S. newspapers will interpret the story tommorow):

Times (U.K.) China's secret row bursts into the open

World Bank says big change in Yuan exchange rate not advisable

As reported by Reuters, World Bank country director for China, David Dollar, thinks that big change in Yuan exchange rate may not be advisable.

“For the exchange rate, I have a lot of sympathy for the Chinese government approaching that cautiously," he said. "I agree with the macro-economists who think that it's in China's interests to allow some appreciation of the currency but I respect the government wanting to make that move gradual."

"A big change in the exchange rate really could have unpredictable effects on economic growth," he said.

"In the developing world we often seen these financial crises together with an exchange rate, macro crisis," Dollar added. "I think it's fair to say that's almost impossible in China ... because it's got about $900 billion in reserve." 

Indeed, revaluation of Yuan is in the interest of Chinese government, and I guess that they already realize that appreciation of the currency is key to China's goal of transformation into a domestic-demand-driven economy. It is understanable that they want to do it gradually, not least not to be seen as yielding to American pressures.

Schumer or Snow: who is the dodging the real issue?

Sen. Charles Schumer, D-N.Y., said Treasury's report last week that declined to brand China as a currency manipulator was ”a technical and legislative dodge.”

"China is a manipulator," Schumer said at a Senate Banking Committee hearing, "and the administration is afraid to say so."

Well, Mr.Schumer can accuse anyone of murder too, but when the experts disagree with him (Treasury department report did not find proof of manipulation), he may want to think carefully again whether he himself is actually dodging the real issue. It is agreed by most economists that U.S. domestic deficits are the real driver of the trade deficits. If you consume more than you produce, what else do you expect to see other than deficits? Are you going to blame obesity problems on European candy makers too?

China's surplus trade with the U.S. only accounts for one quarter of United States' trade deficit, which means that even China balances current account with the U.S. overnight, problems are still there. As Michael Woolfolk (senior currency strategist at the Bank of New York) said, "..government and investors will doubtless still be looking for another nation to blame."

"This is an incredibly important issue for my state," said Sen. Debbie Stabenow, D-Mich. "How many jobs are we going to lose from currency manipulation?"

The answer is none. The products China exports to the U.S. were previously made by South East Asian countries and Latin American countries, at a much higher costs though. Manufacturing jobs are moving from these places to China, not from U.S. mainland.  Even if the Chinese appreciates its currency or U.S. imposes high tariff on Chinese products, it is not going to bring manufacturing jobs back to U.S. It will only divert trades from China to other developing countries, and creates a huge financial burden on American consumers.

Snow acknowledged that "the sentiment is pretty strong to do something against China. The handwriting is on the wall and China needs to act."
That’s damn right. The whole trade issue is about sentiment, not about facts. It is always easy and convenient to blame on foreigners, demonize foreigners, than to face the real issues and one’s own mistakes.

Reference:

Sens. Criticize Treasury on China Currency -  Washington Post

Carlos Slim, a shadow Mexican presidential candidate

International Herald Tribune carries a story about “one of the world's richest men turns to Mexico's future”.

Pro-business policy is indeed good for Mexico, but there is reason why business tycoon shouldn’t participate directly in politics.

“Slim, who has amassed a $30 billion fortune building Latin America's biggest telecommunications empire, has stepped aside from running companies to try to set the economic and social agenda for Mexico. Although he is not running in the July 2 presidential election, Slim has been acting like a candidate. He has been traveling the country by private jet in a campaign to convince the next government to cut energy costs, rid the legal system of corruption and allow more private investment in roads, power plants and the state oil monopoly, Petróleos Mexicanos, or Pemex.
....
Slim's 11-page proposal, called the Chapultepec Accord, after the Mexico City park where it was announced, includes making the police and courts more independent, cutting red tape to make government programs more responsive to the poor, and allowing more private investment in housing, schools, clinics, roads and bridges.

"The only healthy way to invest is if it's a combination of public and private investment," he said.

Slim is preparing to profit if his proposals go forward. In September, Slim created a company called Impulsora del Desarrollo & el Empleo en America Latina, or Ideal, to build roads, waterworks and power plants if Mexico's next president follows his recommendations for more private investment.

Absent in Slim's campaign is a call to force more competition in telecommunications. His flagship company, Teléfonos de México, or Telmex, controls more than 90 percent of the fixed phone lines in Mexico. In the past eight years, Telmex has used the courts to block antitrust rulings designed to reduce its dominance."

China bad loans may reach total of $900 billion; IMF urges China to restrain lending

(1) “China’s total liabilities for non-performing loans may be as high as $900bn, dwarfing official estimates and outstripping the country’s massive foreign exchange reserves, according to a study of Beijing’s bad debt problem. The study, part of Ernst & Young’s annual global survey of NPLs, says China’s big four state banks alone have bad loans worth $358bn, or more than twice official estimates.” – Financial Times

Update (05/15/06): Ernst & Young withdrew the report admiting that the report contains errors and did not go through normal internal approval procedure. But it is not clear whether they do it because of government pressure and/or concerns for losing lucrative clients among Chinese state-owned companies.

(2) “The International Monetary Fund urged China on Tuesday to tighten access to credit, saying that last week's modest interest rate increase was insufficient to stave off economic overheating. China's M2 measure of money supply, which includes all cash and bank deposits, rose 18.8 percent in March from a year earlier to 31.1 trillion yuan, or $3.88 trillion. The value of new lending in China rose more than 60 percent in the first three months from a year earlier.” --- International Herald Tribune

Easterly vs. Sachs: The big push Deja Vu

One of our Bulletin contributors,  Warbug,  already covers the “Easterly vs. Sachs” debate in a previous commentary. Warburg does not think Bill Easterly to be constructive in his new book "The White Men’s Burden". I however think that Professor Jeffrey Sachs is even worse.

Professor Jeffrey Sachs has a lot of big plans. He has a long  “Checklist for Development Economics” that coveres every technical details on how to lift a country out of poverty, but as Arkady Volsky (a  former Soviet official) rightly points out: “People say that Russia should become like Sweden. But the problem is that we don’t have enough Swedes.”

Professor Sachs tells us that a mere $3 per year would help save an African from Malaria, but as Bill Easterly points out: “Doesn't he have a little curiosity about why this easy problem wasn't solved with some of the $568 billion (in today's dollars) in foreign aid given to Africa over the last 43 years?” “What about the World Bank studies in Guinea, Cameroon, Uganda and Tanzania, which estimated that 30 to 70 percent of government drugs disappeared into the black market rather than reaching the patients?”

I absolutely applaud Professor Sachs’ efforts in helping poor people. His plan is absolutely beautiful. But what I can see is that the money he raises will never reach the poor in need. The huge amount of money will simply go into the personal pockets of local corrupted officials. I don't disagree that sometimes we should have beautiful dreams, but don't dream too much, particularly when you are in your day job.

References:
Bill Easterly: The Big Push Deja Vu (PDF file)
A modest proposal (Easterly's review on Sachs' book "The end of poverty"), Washington Post
Sachs' reply  ,  Washington Post

Vietnam kicks off political reforms? Competitive election for national party boss?

The 10th Congress of Vietnamese Community Party started on April 18th and will last for one week. Unprecedentedly, there are two candidates for the post of Communist Party secretary general (the big boss of Vietnam).

Nong Duc Manh, the incumbent, was expected to hold the post for another term. The large scale corruptions in the transport ministry (the PMU18 scandle) that was uncovered  recently however anger the whole nation. Both within and outside the party, the call for Nong Duc Manh’s resignation is gaining momentum. Recently, three famous retired generals that gained their reputations from Vietnam war publicly denounced the government and pushed for reforms.

The communist party eventually decided that another candidate would be nominated to compete for the position, and whether Nong Duc Manh or the other candidate Nguyen Minh Triet (63 years old, who is the party boss of the South Vietnamese boom town Ho Chi Mihn City, and currently ranks the 4th in the national leadership) will become leader of the nation will be decided by Party’s Congress. The results will  be out within one week, and it is clear that both candidates have substantial supports from various fractions within the Vietnamese Communist Party.

The news is being widely cited in Chinese mainstream newspapers, and some comment that: for the past twenty years, Vietnam has been following the footstep of China’s economic reforms, and maybe China can learn from Vietnam too. As coverd by the Bulletin last month, a heated public debate over soicalism vs capitalism, and better privision of public goods through government reforms has been ongoing for some time in China.

Update (4/25/2006): the incumbent Nong Duc Manh has been re-elected.

The two candidates (the new candidate Nguyen Minh Triet on the right)

Chinese GDP grows by 10.2% in first quarter, highest in ten years; Domestic politics and boom-bust cycle in China

New Chinese growth statistics has come out (still not offiical as of today, but it was leaked by the Chinese president himself). In the first quarter of 2006, Chinese economy grew at 10.2%, which is the fastest in the past ten years. Morgan Stanley’s Steve Roach was wrong again (In March he forecasted that there was going to be a slow down)

Anyone who is familiar with the political-business cycle in China, however, will be even more surprised by this new development.

In China, there has been a five-year business cycle coincident with the Communist Party’s national plenary meeting, in which new five-year plans will be discussed and ratified, and most importantly, major personnel decisions will be made.

According to a study done by Chinese economist Fan Gang: during 1977-2003 period, the average GDP growth rate in the Party national meeting year is 10.3%, compared to 11% in the second  year, 9.3%, 8.7%, and 8% in subsequent years. The reason for faster growth rates in first and second years is that local provincial bosses (newly appointed in the meeting) usually tried to impress the national leader by boosting up investment rates, and more than completing their assigned tasks. Such incentives usually fade away gradually over the five year cycle.

Year 2006, however, is the last year of the 2002-2006 political cycle, and based on past experience, should grow at the lowest speed. The economy however grew at the highest speed in ten years. Something must have changed. One speculation is that the incentive structure has changed. In the past, provincial heads worked hard in the first and second year of the cycle to impress their national boss. Now they work hard in the last year to pro-actively build up political capital for their future career which will be decided in the 2007 national meeting of the Communist Party, and the best political capital in China is GDP, GDP, GDP!  At national level, central government wants to slow down the investment boom, but provincial bosses have made up their own minds.

Year 2006 is going to be an exciting year!

Update: Minxin Pei from the Carnegi Endowment also has similar views in its WSJ article: "China is still far from being a free-market economy". A very nice article!

China’s conservative middle class blocks the way to democracy

Will the rise of middle class in China necessarily lead to relaxation of political control? In media discussions that I am aware of, this is at worse taken as a hope, and at best taken as granted, while for most of us the real question is simply “how long will it take?” 

China expert Professor Ken Lieberthal's view is very representative. When interviewd by New York Times, he said: "The spread of middle-class affluence and education across more of the Chinese population should eventually be a force for democratic liberalization, following the pattern of Taiwan and South Korea.'Am I a hundred percent sure I'm right? No, but that's the long-term bet I'd make' "

Jonathan Unger’s article “China’s conservative middle class” in the April issue of Far Eastern Economic Review, however, argues that Chinese middle class is actually a negative force in this process

“The educated middle class is elitist. Many of its members do not want democracy-that is, multiparty elections for the nation's top leaders. Nor did they want this at Tiananmen a decade and a half ago. They did not and do not want China's peasant majority to play a decisive hand in deciding who rules. Most of them hold the rural populace in disdain, and their fear is that the peasants would be swayed by demagogues and vote-buying. They believe that the rural populace is not yet ready to participate in elections. This is ironic, since villagers have been the only ones in China who have been allowed to cast secret ballots to elect their locality's leader.”

Jonathan Unger concludes that Chinese middle class is not the solution, but a barrier.

“The Chinese educated middle class has become a bulwark of the current regime. Summarizing a large survey of political attitudes in Beijing, a recent book by the political scientist Chen Jie concludes that, among all urban groups, "those who perceive themselves to belong to the middle class and who are government bureaucrats are more likely to support the incumbent authorities." Don't expect regime change or democratization any time soon. The rise of China's middle class blocks the way.”

Does the new labor law really harm French youth? Who actually take to Paris streets? The truth is...

French are  taking to streets protesting. Why? They say they are protesting against a newly passed law that gives employers the right to fire workers under the age of 26 during their first two years on the job. They are outraged as it sounds that it gives the right to employers to fire people at their will. For them, it is like “What? You passed a law giving capitalists the right to kill people.....”

What does the law really do?

If I am an employer, and I am (under the old law) not given the right to fire a worker once I hire him; What will I do when making hiring decisions?  First, I am very reluctant to hire any one, as I fear that I may be burdened by him in case the demand for my products turns out lower than expected. Second, I will prefer hire an elder and more experienced worker, as I can know his quality from his previous career. As a result, under previous French labor law that making firing very difficult, unemployment is high and in particular for young people without any working experiences.

The new law is addressing exactly this problem. They give the right to employers to fire young workers under the age of 26 during their first two years on the job. Now I am more comfortable in hiring new and young workers. First, I can hire him when sales are rising and fire him when demands are low. (Note that previous I won’t hire this person in the first place); Second, I am willing to try out a young worker, because compared to an elder worker, it is easier for me to fire him if he turns out to be of low quality.  Thus the law will give many people the change of a first job. This is why the law is known as First Job Contract (The Contrat Premiere Embauche, or CPE)

Many workers are outraged by the word “fire”. But think about it: you can only be fired if you are hired in the first place. If you are unemployed, a law that protects you from being fired is meaningless.  Let me ask you: would it be a great thing if we pass a law permitting people to get anything from grocery stores for free? Isn’t it great? But in that case grocery shops will be empty and shopkeepers will move away and you would starve and cry outside the shops, and the law is meaningless for you. I don’t think I need to elaborate on another example such as passing a law exempting everyone from paying back credit card debts. Does it mean that then you will get unlimited credits from banks?

Why do they take to streets and who are they?!

Now you understand that the law actually helps unemployed young people? But why do they take to streets? French are smart people and they should have already figured out what I say. Yes, they do! And that’s exactly why they don’t take to streets. Ironically, It is another group of people that are protesting, those who are over 26, educated , or unionized. Hey, the “victims” are staying home, why are you instead in such a  hurry?!

As rightly pointed out by a BusinessWeek article,

“The students involved in the most recent demonstrations against the CPE are the ones least likely to be affected by it. That's because university students in France are often nearly 26 by the time they complete their studies. Relatively few would thus fall under the law's purview. Similarly, many of the trade unionists and civil servants protesting the CPE are also unlikely to ever be affected by it because they already have extremely strong job protection. Indeed, the French youth who might benefit the most from the CPE, the immigrant and first-generation youth that burned the suburbs of Paris last year, are rarely seen or heard from in the fevered demonstrations about CPE. "To a certain extent," notes Six, "It's the wrong kids marching in the street."

Now their motive is clear:  it is not about protecting the relatively unskilled young people, it is about protecting their own turf. Under the new law, unskilled young people will be given more chances by employers in trying their first jobs, threatening the job positions of elite college students and trade unionists. When the old law made firing workers very difficult, employers usually prefer experienced workers (who are already unionized) or college graduaes who demonstate their quality by being admitted into colleges and having managed through graduation. Under the new law, everyone is equal, and employers can check out who are of higher quality. Elite college students and unionists do not like this. It's that simple.

It is perfectly understandable that people protest against legislative changes that negatively affect their own interest. But by cheating? By claiming that you are protesting on behalf of those who you actually want to get rid of? Give me a break.

Iraq: war vs. containment

Three Chicago economists (Davis, Murphy, and Topel) have produced a highly controversial paper, as mentioned by R-Squared in a previoius commentary "Chicago economists produce a paper on how war in Iraq helps save Iraqi lives". 

hey evaluate –from the standpoint of 2003—the expected costs of going to war in Iraq versus the costs of continuing the containment policy.  All in all, “going to war was the best decision”.

Policy decisions of such magnitude are usually made under considerable uncertainty, a tight timing, and substantial stress.  Economics can improve the decision making process: by seriously and consistently evaluating all alternatives under the table.  Maybe the best contribution of their paper is that it clearly establishes that the alternative of going to war was not doing nothing.  In fact, the alternative was continued containment or other options.  These had costs, and serious decision-making should consider them as well.

How do the authors arrive to these findings?  As for the benefits and costs of war, they evaluate:

· X number of Iraqi deaths now, versus Y later
· Upfront costs of war, versus prolonged costs of containment
· A big shock to Iraqis today versus a long period of continued economic misfortune
· The humanitarian costs of continued repression under Sadam

Do they do a good job of evaluating the alternatives?  Judge for yourself.

Chicago economists produce a paper on how war in Iraq helps save Iraqi lives

Steven J. Davis, Kevin M. Murphy, and Robert H. Topel, three famous economics professors in the University of Chicago, publish a working paper on how war in Iraq may help save Iraqi lives. It is part of their ongoing academic project studying how to deal with “tyrants, rogue states and terrorists who threaten not only their own people but also others.”

Their analysis indicates that war and forcible regime change will yield large improvements in the economic well-being of most Iraqis relative to their prospects under the containment policy, and that the Iraqi death toll would likely be greater under containment.

“This conclusion follows from some basic observations.
First, the Iraqi economy was in terrible condition before the war, and it would have remained in a sorry state under the policy of containment.
Second, the regime of Saddam Hussein was an economic failure of tremendous proportions. The available evidence suggests that real income per capita fell by roughly 75 percent as a consequence of Saddam’s misrule. In addition, much of Iraq’s greatly diminished output was diverted to an oversized military, an apparatus of terror and repression and the relentless glorification of Saddam.
Third, the removal of sanctions, the expansion of petroleum exports, large-scale reconstruction aid, and the reintegration of Iraq’s economy into the world economy provide a strong basis for economic gains – even in a society with serious institutional weaknesses. If, over the course of a generation, Iraqis recover even half of the economic losses they suffered under Saddam Hussein, then they will be significantly better off in material terms as a consequence of forcible regime change.”

They emphasize that:

“Had containment remained in effect, the historical record suggests that premature Iraqi deaths would have continued indefinitely at the rate of 10,000 to 30,000 per year.”

The working paper can be located at:
War in Iraq versus Containment (longer version)
War in Iraq versus Containment (Shorter version)

Note: Professor Joseph Stiglitz disagrees with them and argues that the costs of war in Iraq could well exceed two trillion US Dollars, if U.S. troops are maintained in Iraq through 2015. See: "The Economic Costs of the Iraq War: An Appraisal Three Years after the Beginning of the Conflict"

Socialism or capitalism? New turning point in China?

New York Times reports that a sharp debate has erupted in China over ideologies, between leftist old guards and reformists.

A Sharp Debate Erupts in China Over Ideologies
BEIJING, March 11 — For the first time in perhaps a decade, the National People's Congress, the Communist Party-run legislature now convened in its annual two-week session, is consumed with an ideological debate over socialism and capitalism that many assumed had been buried by China's long streak of fast economic growth.

NYTimes uses the word “erupt”, but this new development in China has been going on for almost a year. The leftist old guards are using China’s rising income gap and increasing social unrest to raise doubts about economic reforms. The reformists however argue that these problems are not caused by reforms, but the results of too few reforms. They ask for more economic freedom for the private sector and “better provision of public goods” (which is equal to cleaner government and more accountable officials), which they believe is a better solution than “going back to central-planning”.

About 25 and 15 years ago respectively, there were similar debates on directions of reforms, and in both cases the reformists managed to stave off the old guards, with the help of both public sentiments and strongman politics. In both cases, some sorts of public debates were involved. Single party rule notwithstanding, debates are always needed, because “Our government only moves forward when it feels there is a strong consensus," (according to Mao Shoulong, a public- policy specialist at Tsinghua University in Beijing). In the last two times, Chinese reached consensus that “inequality of prosperity  is better than equality of poverty”. And the reason for the newly ignited debate is that "Right now, the consensus is eroding and there is a debate over ideology, which we haven't seen for some time. (again according to Mao Shoulong)" 

What are different this time is that the era of strong-man politics has ended, and there is more tolerance for different opinions, both outside and within the government, so long as what you advocate is consistent with the basic principle that things have to done within the system under the leadership of current government. What is most important is that, people and media are now allowed to talk about it openly by framing it as a debate of “efficiency vs. fairness”, a topic that seems less politics-sensitive.

No matter which side wins this time, the question of “efficiency vs. fairness” will always be raised and debated every several years when the general pubic is not happy about some of the outcomes of the reforms , even in economically and democratically well-developed countries. Thus, the most important thing we should think about is how to institutionalize the consensus-reaching and decision-making rule and process, in order to efficiently and transparently resolve the differences between the reformists and the leftists.

A positive development in recent years is that the private sector is starting to organize some forms of lobby groups attempting to influence public opinions and policy agendas, while the leftists start to rely on Internet to gain supports (although in many cases they go too far in manipulating irrational populist sentiments). Professors also are joining the debate very actively.

Differences are being resolved in a more civilized way now.

India to beat China in 10 years? It takes more than belief to get things done!

What a joke! Decades ago Chinese believed that they would overtake UK and USA soon. It takes more than belief to get things done. Chinese learnt a hard lesson on that. Nowadays, very few Chinese are talking about overtaking any countries. You just keep working, and your life will be better off, and talks just won't get you anywhere. Nevertheless, it is always a good thing that people have hope.

India to beat China in 10 years: BBC survey
NEW DELHI, FEB 9:  A BBC World survey in association with AC Nielson on global indians reveals that India will overtake China in terms of economy growth in the next 10 years. While 57% respondents feel India will become the next Asian superpower in the next 10 years, 55% believe India can win a bid to host the Olympics during the same period and 60% believe that the poor in India will benefit from future economic growth. 

South Korea: an economic superpower in the making

The rise of India has long been attracting economists’ attentions, but very few people realize that in one or two years of time South Korean economy will exceed the size of India.

Despite South Korea’s astonishing achievement in raising its per capita income, in the perception of  many people S. Korea is just another  rich but small country like Singapore, and only draw our  attentions because the troubles of her Northern neighbor.

We haven’t’ realize that she is actually a very populated country, and an economic superpower in the making.

If you are Luxemburg, no one care whether you are rich or not. But we are talking about a country of similar population size as France! And with similar income level as Portugal! And unlike Portugal, it is a very innovative country by the way! By the way, Korea still invests 30% of its GDP, a ratio that is close to China's (40%); and all countries with higher investment ratio than Korea's are poor countries.

Unlike Taiwan that make profit by exploiting cheap labor in China  , South Korea has been manufacturing products under their own global brand names such as Samsung.

Professor Hasung Jang , Dean of Korea University's Business School, who was named Star of Asia by BusinessWeek for his contributions in reforming Korean corporate sector, is very proud of his country’s great industrial competiveness and potential:

“Korea is the only country that boasts of competitiveness in many manufacturing sectors, including automobiles, electronics, steel, shipbuilding, petrochemicals, and IT. It is hard to find a country that has competitiveness comparable to Korea’s. Therefore, we have to make good use of these excellent advantages and draw up growth strategy in this knowledge-based economic era.”

Please imagine a France rising up in East Asia, it is difficult, but try.

Japan has less than three times that of South Korea’s population, and every international  investment bank has a region called Asia (excl. Japan),  I wonder whether in 20 years time we will have a region called Asia (excl. Japan and South Korea)

I would like to refresh you with some basic facts that many of us usually haven’t realized:

(1) South Korea’s population is nearly 50 million. To put this number into perspective, France has a little more than 60 million, and Japan has less than 130 million.
(2) South Korea is the 12th largest economy in the world. By the end of 2005,  at market exchange rate, Korea’s GDP is 726 billion USD, while India’s is 735 billion, and Russia 740 billion. I would say the gap can well be due to estimation errors.
(3) They’ve been through economic crisis and political transitions. Unlike India and China that are still addressing easy problems, Koreans have gone through the tough times, endured the short-term pains, became a democratic country, and further increase of income is just a matter of time.

To Professor Hasung Jang, the big problem is whether the political leadership of the country can make best use of his country’s advantage:

“It seems that the confrontation between conservatives and liberals is getting worse. But what’s more worrisome is that rightists, who are accustomed to the government-led economy and chaebol dominance, and leftists, who are insensitive to global trends, are managing the economy in a manner that runs counter to the global trend,” he said.

Well, at least in Korea political parties try to differentiate themselves in economic policy, whereas in Taiwan no one can win on the platform of better economic policy. Taiwan has one advantage though: they don’t have militant leftists.

For more information on Korea, check CIA factbook

A new buzzword: “Wilhelmine China”

The word “Wilhelmine China” has been getting more and more popular recently. Some people use it to portray the so called “China threat”, which is ridiculously cold-war thinking. But there is indeed some truth in drawing a link between Wihelmine and China, in the sense that it can help China learn from history and prevent the disasters incurred by Wilhelmine Germany.

At least everyone should learn to spell and pronounce Wilhelmine correctly, as I predict it will be used very often in discussions on China issues.

Below I cite Prof. Richard Posner’s reasoning on why China’s current situation resembles Wilhelmine Germany:

“........ the resemblance between China and Wilhelmine Germany (1871–1918)—two aggressively, at times hysterically, nationalistic countries, paranoid about encirclement by potential enemies, and possessed of economic institutions more advanced than their political institutions. That is an explosive combination. It may lead China to invest very heavily in military power and even to become involved in wars that could bring disaster upon it.

Don’t pretend you also have contributed to America’s high productivity

NYTimes columnist David Brooks wrote an article today titled “the nation of the future”

He argues that Americans remain the hardest working people on the face of the earth and the most productive, and thus should not fear about threat from cheap labor in China and India.

Yes, America indeed has the best technology and the smartest engineers in the world, but don’t pretend that an unskilled laborer in an American textile mile is also 10 times more productive than laborers in China and India, and don’t talk as if you’ve also contributed to the rising productivity. As a matter of fact, as productivity improvement is concentrated in small group of smart people, most of us are more likely to be a liability of the process, that the productivity of most of us is stagnating and our incomes rise thanks to the smartest people's generosity .

Hardworking and smart engineers are not owned by David Brooks or any of their fellow Americans, and they have NO responsibility or duty to share their productivity gains forever with other people who don’t spend time in classrooms, who don’t invent any stuff, and the worst,  who spend more time lobbying for various measures to redistribute (steal) money from hardworking people and drive them away.

With free mobility of capital and technology, it will be more difficult to free-ride the productivity improvement of our smartest friends.  So we should pay due respect to them, as least not pretend that we also contribute to the productive improvement and thus should grab some benefit away from them forcefully through labor regulation, taxation etc.

You can also check out Friedman’s book “The World is Flat”

"China hand" Jeffrey Williams to leave Shenzhen Development Bank (China's first bank controlled by foreign investors)

Breaking News: Jeffrey Williams will leave from his position as president of Shenzhen Development Bank (SDB).  SDB became the first Chinese bank controlled by foreigners after Newbridge Capital Group, a Fort Worth-based private-equity firm, acquired 18% of its shares in 2004. After that, Newbridge replaced the whole management and appointed Jeffrey Willams as president. Jeffrey Willams is the former CEO of Standard Chartered Bank in Tawain, and twenty years ago he openned Citibank's first mainland branch in Shenzhen. He is knowned in the industry as a China hand. In 1979, when he made his first trip to China and taught in Beijing University, he earneed the equivalent of $100 a month.

It is still unclear who will be Mr. Williams' new employer. Well, Citigroup recently acquired majority control of Guangdong Development Bank (GDB)- a much bigger player troubled by similar problems. President of GDB sounds a perfect position for Jeffrey Willams.

For NewBridge Capital's involvement in Shenzhen Development Bank, a Business Week article "The Great Bank Overhaul" provides a good review.

Should BB&T bank make loans to "eminent domain" projects?

BB&T won't offer eminent domain loans
JAN. 25: Regional bank BB&T Corp., one of the nation's largest financial institutions, will make no loans to developers who plan to build commercial projects on land taken from private citizens by the government through the power of eminent domain, the company said Wednesday.

Certainly it is wrong for the government to obtain private property through "eminent domain", but I think the management of BB&T Corp by taking this action violates its fiduciary duty to the shareholders. After all, whether BB&T should give up business opportunities (and profit) in such project (however immoral they are) is up to the judgment and decision of the BB&T shareholders. The management of BB&T should not put their ideological belief before the interest of shareholders, becasue they are employed to increase value for shareholders, not as political advocates.

Wal-Mart Bank

Wal-Mart is seeking to establish  a bank in Utah to process credit card, debt card and electronic check transactions from its retail locations. Anti-Wal-Mart groups are furious and argue that Wal-Mart Bank will post threat to the economic health of the nation. I fail to follow how they come to this conclusion. Whenever anything is to affect these small group of people's entrenched interests to the benefit of consumers, they warn us that it is going to hurt the whole nation.

“Federal regulators need to heed Chairman Greenspan’s warning and realize that a Wal-Mart bank would pose serious and grave threat to consumers, community banks and the economic health of this nation,” said Chris Kofinis, communications director for WakeUpWalmart.com, a group funded by the United Food and Commercial Workers union.

Among politicians, Senator Hillary Clinton is the most active opponents against the formation of a Wal-Mart Bank. She never goes shopping in Wal-Mart stores, neither does she needs a Wal-Mart credit card. She doesn't care about those who go and those who need. She even pushs the Federal Deposit Insurance Corporation (FDIC) to hold an unprecedented public hearing on the application. What the hell has Wal-Mart Bank has to do with FDIC? Wal-Mart Bank will not take deposits anyway.

Expecting the birth of the world’s largest bank: the Japanese Post Bank

Guess which financial institution in Japan controls the largest market share in deposit savings? It is not Mizuho; it is not Mitsubishi UFJ; it is not Sumitomo either.

The No.1 position belongs to the Postal Service!  The Postal Savings System (PSS) has 230 trillion yen of deposits in their control, which makes it the largest “bank” not only in Japan, but in the world.

In order to push forward his plan to privatize the Postal Service, Japanese Prime Minister Koizumi called early election and won with land-slide margin. Now the privatizing plan is only a matter of implementation. According to the plan, the savings system will be spinned off from the mail service, and sold to the private sector.

What are the consequences of the privatization?

(1)   Well, we will have the largest bank in the world. I have to inform you though, that the privatization will take place in 2017, not now. Be patient, Koizumi has been pushing for this since 1979 when he served as a junior finance minister.

(2)   Japanese government bond yield will rise, because the profit-maximization oriented PostBank (I guess it will be called PostBank) will not put up with the low return in government bond, and they are going to dump them. Man, more than 20% of outstanding bonds are now in their hands, what will be the market impact, I don’t know.

(3)  U.S.treasury bond yield will go down, because the PostBank will certainly purchase t-bonds to rebalance their portfolio

(4)   I don’t think the PostBank will inject credit into the private sector of Japanese economy, unless they find a really ambitious foreign buyer.

(5)   What will you get if you buy and control the PostBank? Certainly you will obtain a nationwide 100% coverage network and a customer base of 85% of Japan's population. Accepting deposit is not a profitable business, but you can profit from selling other financial services. Eh, I think this is pretty close to Citigroup’s philosophy! Could Citigroup be a potential bidder for the Postal Savings System? It is too early to say, but there is always the possibility.

And who's next? China's Postal Savings System?

Thai Prime Minister's own 96-hours live reality show on poverty reduction

Thai Prime Minister Thaksin produced a live 96-hours reality show in which he is the main actor, with  cameras followed him throughout the countryside of Thailand.  The billionaire politician slept in a tent between visits to villages in the northeastern province of Roi Et, where the average monthly income is about 2,700 baht (US$68; euro55).

Thaksin claims that the main target audience of his show is his government officials, not the public. He wants to show the bureaucrats  how to help the poor.  Many however believe that he is using the show to recovery public support to him which is waning recently.

The response from the public however is very negative. According to a poll, over one-third of the respondents thought that the round-the-clock live broadcast would be “staged” . A local resident told journalists from Strait Times: “ When I woke up this morning, I couldn’t recognize the road in front of my house. They have been paved overnight although no government officials cared about it in the last decade”

A single common Asian currency?

A newspaer article from Korea Daily reports that Asian Development Bank is launching a Asian currency unit. Single Asian Currency Comes a Step Closer to Reality

The Asian single currency, which so far only exists in the minds of economists and officials with international organizations, will take on more concrete reality soon. The Asian Development Bank plans to publicize the Asian currency unit (ACU), a notional unit of exchange based on a "basket" or weighted average of currencies used in the 10 ASEAN member countries plus South Korea, China and Japan, the Yomiuri Shimbun and others reported Friday. But that does not mean that any bills or coins will circulate any time soon. The ACU is only the first step toward the integration of Asian currencies, a “virtual currency” that takes into consideration GDP and trade volume of each of the 13 nations and serves as a gauge for governments to implement foreign exchange policies. So far, Japan and China have tried to make their own national currency into the Asian currency, but their jostling in effect cancelled out the efforts of the other. That is why the ACU is gaining support on the road to a single currency.

It is certainly good for Asia to have a single common currency. It is nevertheless another question whether we will have it soon, and against which currency the future common currency is likely to anchor.

Intra-regional trade is already very important in Asia. China is Japan’s largest import partner. China’s exports account for 18.3% of Japan's imports. Japan is also China's most important import origin country. The potential is even greater. Among the five-pairs of the world’s largest trade partners ( the other four being U.S. and Japan, U.S. and Canada, U.S. and Mexico, France and Germany),  China-Japan has the smallest overlapping of comparative advantages. The region (excluding Japan) is in effect already using a single currency, because every member pegs their currency in some way to US dollar.

Nevertheless, the political realties in Asia create barriers that are almost impossible to overcome. South-east Asian countries are suspicious about China’s ambition in dominating the region. And they don’t want to rely on Japan, either. Europe has multiple powers (U.K, German, France, Italy) that can check each other, and that actually help establishment of peace and cooperation both politically and economically. 

To increase economic cooperation, China and Japan needs to act responsibly, and I hope something can be worked out eventually, but only in the long term I suspect, given Japan's lukewarm attitude toward economic cooperation. Japan's isolationism economic policy and distrust of global integration is deeply rooted in history, and is further reinforced by the domestic problem particularly in the banking sector. I have to say that Japanese-led Asian Development Bank is very enthusiastic in regional cooperation, but how much supports they can obtain from home remains a big question as Japanese offiicals sent to ADB usually do not have much political influence at home.

Korea is another important factor. If Korea can double its income, with its 50 million population (excluding North Korea), it will become a serious global player both economically and politically. Note: France has a populatoin of only 60 million.

Finally, a paper by Professors Alberto Alesina, Robert J. Barro, and Silvana Tenreyro at Harvard University finds that there are little gains for any countries to adopt Japanese Yen as a common currency, mainly becasue low trade integration of Japan with outside world (except with the United States), as well as the low comovement of price and output. Japan is quite an isolated nation economically despite large financial contribution to the United Nations and other international organizations. To increase its role in international community, Japan definitely needs to open up further.

Optimal Currency Areas
Abstract: As the number of independent countries increases and their economies become more integrated, we would expect to observe more multi-country currency unions. This paper explores the pros and cons for different countries to adopt as an anchor the dollar, the euro, or the yen. Although there appear to be reasonably well-defined euro and dollar areas, there does not seem to be a yen area. We also address the question of how trade and co-movements of outputs and prices would respond to the formation of a currency union. This response is important because the decision of a country to join a union would depend on how the union affects trade and co-movements.

What can Kim Jong Il learn from South China?

According to a Japanese TV channel (screenshot below shows Kim's motorcade),  Kim Jong Il is visiting two southern cities of China:  Guangzhou and Shenzhen, located in the  economically most advanced Guangdong province that benefit the most from China's economic reforms in the past twenty years. The costal provine is heavily dependent on FDI,and account for 30% of China's exports. A New York Times article also confirmed Kim's itinerary in China.

Is Kim in China to explore whether economic reforms are good things? Is he still suspicioius about whether  economic prosperity will rotten people's moral standards? I seriously doubt so. Kim is the most informed person in North Korea and he's already experienced all luxury that money (and power) and "evil" capitalism can bring to him, and even an idiot knows that more money and more food is better, at least when you are starving. He probably comes to China to avoid the cold winter in North Korea, I suspect.

Rumor is that Kim is a heavy user of internet. Wonder whether he has a blog. He may well replace the state media with his personal blog. That saves a lot of money, by "disintermediating" between him and his subjects.