California Coast

I can never get enough of these.

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Look Ma, He doesn't let me spy on his new toy on his curbside

That's essentially what The Pentagon said in a story that breaks out to media. USNS Impeccable, the sonar equipped Navy spy-ship was turned away about 75 miles off the coast of Hainan island, and near the Chinese submarine base.

China, in rebuttal, emphasized that the incident happened in Exclusive Economic Zone, which extends 200 nautical miles, or 230 miles, from coastline. In general, ships are free of passage in EEZ, but navy spy-ships certainly raises flags. NYT reports that "The United States and other nations consider the area as lying in international waters. " In fact, it is governed by UNCLOS, which the United States accepted all but Part XI as customary international law, although it hasn't ratified it.

In reality, spy incidents like this happens all the time. Although, the U.S. is probably the only country who thinks it has the right to lay hands on anybody's ass - or spy on toys. It's not clear to me whether it's because the ship finally gets intolerably close to the Chinese, or the Chinese patrols suddenly decides to act like they some backbone after the Russia sinking cargo ship incident. Either way, for the U.S. to protest and claim "oh they laid some woods to block our passage" is pretty amusing.

NYT gets one thing right. It draws some similarity to the spy plane incident. Whether who is the initial provoker, it offers some test for the new President. And I'm guessing the Chinese Navy would be a winner out of this too, since it is hotly debated the need to build a Naval Carrier in China. In incidents like this can possibly sway the support.

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Dark Comedies in Crisis Time

These are the times of dark comedy. They make you laugh out loud, and deeply sad at the same time. Even the best New Year's Movie wouldn't have scripted it. (This year's Chinese New Year's Movie, If You Are The One wasn't very good.)

From CNN, the story of Chinese mistress contest taking tragic turn:

A married Chinese businessman who could no longer afford five mistresses held a competition to decide which one to keep.

...

When the economy soured, the businessman apparently decided to let go of all but one mistress.

He staged a private talent show in May, without telling the women his intentions. An instructor from a local modeling agency judged the women on the way they looked, how they sang and how much alcohol they could hold, the Shanghai Daily said.

The judge knocked out Yu in the first round of the competition based on her looks. Angry, she decided to exact revenge by telling her lover and the four other women to accompany her on a sightseeing trip before she returned to her home province, the media reports said.

It was during the trip that Yu reportedly drove the car off the cliff.

If you think only laymen are able to provide laughs, you would be wrong.

Zhang Weiying, a prominent Chinese Economist who got his degree from Oxford and a proponent of market reforms, suggests solving China's consumption stimulus problem by giving each citizen a share of the massive foreign reserve. All government assets really belongs to the people anyway, he was quoted saying in open talks, so if we give it back to the people, maybe they can spend it as they see fit.

Hold on, Prof. Zhang, do you really understand what Foreign Reserve is? Official foreign reserve, although sounds like government asset, doesn't really belongs to the government. Every time someone, say an exporting company, brings in foreign currency, like Dollar, and he exchange it with the central bank to domestic currency creates foreign reserve. China has massive foreign reserve only because the central bank forces companies to sell most of foreign exchange holdings to the central bank, and China exports far more than imports. So, although those reserves are "official", they don't really belong to the government. For every reserve deposit that is created on the central bank's balance sheet, there is debt to the private sector in RMB created. If you were to everyone a share of the reserve, and he/she was about to spend it, which requires converting into domestic currency, you would end up creating money twice. Stimulating? Yes. But what a wonderfully messy world would it be.

Not to mention, the U.S. government and the whole financial world would be in panic. In normal times, it actually makes sense to leave the foreign currency and thus risk management decision in the private hands. But, not in crisis times. Imagine now again, an average person is allotted a share of $10,000. He would worry about the value of those dollar immediately. Now, given all the jittery about Dollar, and prospects of the U.S. bailout programs, he would most likely want to exchange at least a large share of that into RMB just to be safe. Since, nobody is stupid, they all know others have the same worry, the best way to preserve value is to run ahead of everyone else in selling dollar. Bam! you created equivalent of bank runs in exchange rate market. On the contrary, the current arrangement, however unsound it was before, has advantage of stability. The Chinese Central Bank has to taken into account the loss of value on their remaining large holdings when it plans to sell dollar.

Mr Zhang's suggestion seems to deserve a hearty laugh. But considering he is one of government's hey advisers, it is actually far less amusing.

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When idiots run asylum

Once upon a time, when we were young and restless - yes we did - we would touch upon these unpleasant political topics. My roommates would refer to Chinese intolerance, extreme in times like cultural revolution, as "asylum".

I had a slightly different take. "Asylum isn't that bad", I would inject my comments, "Asylum actually has its own rules. It depends on who is running it. It only gets that much worse when idiots, or inmates are running it."

That was a distant memory.

Then, when a friend talked about forming a group on Doudan, a Chinese social network, my reaction was that I would only form a group if it was about "the more you read, the more counter-revolutionary you become."

The phrase that later became the group title was an actually phrase from the Cultural Revolution. It was used as my contempt for Douban, and that unduly adulation of an "educated person". "Counter-revolution" was, of course, a word long buried in the history book. No one actually use it in everyday life, except, maybe, to jeer. My tenet of the group was that too much reading wasn't always desirable, it would stymie your original thinking, especially if you half-understand half-cooked ideas or facts. (In fact, that's my understanding of the original intent of the slogan.)

It was never an active group - as lazy as I am, you can always expect that. If I remember it correctly, the longest thread in the group was about "what would you request your daughter to read or not to read", with about 15 replies.

Fast forward to today. I got an email, informing me that the group was dismembered due to "violation of related laws and regulations". I believe it was due to Douban's voluntary compliance of internet censorship. Frankly, although not that I care, I can't quite make out what regulation it specifically violates. But the incident does reminds me of the conversation about asylum we had many many years ago.

I can't pinpoint whether the group was dismembered because of the asylum, or who runs it. But I would like to think I had a point.

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Super "Balls"

It wouldn't be Superbowl if it didn't give us some ads to talk about.

Apparently, AshleyMadison.com managed to slip their new commercial (youtube) into the Super Bowl after being formally rejected by the NFL and NBC from airing nationwide. For those of you don't want to google, the website, a Canadian company, is a dating site geared toward married people who want to have affairs. Yes, that's the sole focus of that website!

Ironically, the current economic environment has something to do with the slippage of the standard. According to its CEO, "The effects of the current recession are so profound that many local stations were willing to accept Ashley Madison advertising dollars." And what's more, "In this current economic climate," he adds, "Divorce isn't an option for many women who are stuck in unhappy marriages. We want them to know there's a service just for them."

Oh, this isn't just a North American thing. I've heard stories from my relatives about Chinese white collar girls advertised themselves to be "second wife", allegedly to weather the economic storm.

Ads from the dating website isn't the only banned commercial Super Bowl. A pro-life video portraying President Obama as an unborn child has also been rejected by NBC-TV, alongside with a PETA commercial.

Sometime, you wonder what the world has come into. You know, there is Super Bowl, and then, there is super "balls", as in somebody's got the "ball".

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What does Obama want of China?

The evidence of policy stance of the new administration towards China is scarce. The only significant comment comes from Tim Geithner, the Treasury Secretary. In talking about the U.S. economic policy, he says that "strong dollar is in the national interest of the U.S.". However, turning to China, he also says of China "manipulating" its currency value, meaning, RMB needs to appreciate.

Now let's set aside first China's right to "manage" (as the U.S. often did during the 80s) exchange rates. Let's try to decipher what the heck he really means. So, in Geithner's mind, China needs to appreciate currency value against dollar, which is against the national interest of the U.S. Maybe he is being deliberately ambiguous? Not likely, he isn't Fed Chairman. Or he may imply the Dollar needs to be strong against other major currencies, like Euro, but weak against RMB. That would imply that RMB appreciates way more against the Euro, which doesn't seem likely, not to mention trillions of IOU notes U.S. issued to China - and continued Chinese support that needs for the new debt. Of course, in the event of RMB appreciation, it automatically deflates. Therefore, the only consistent interpretation, it seems, is that Dollar needs to be "strong" in order to support the bailout plan, but the U.S. wants to get an upper hand in the "currency manipulation" blame game, so it can pressure China to appreciate RMB and thus alleviate the U.S. debt burden later.

I suspect this would be the central theme in US-China relationship during early part of the administration. It would be very interesting to see how this plays out.

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China's New Year Shopping List

With a retrenching U.S. economy and stash of foreign reserve. What's on China's new year shopping list as "Niu (ox)" year approaches? Early indications are that they are not blowing cash on the wall street, like what Japanese did in the nineties. In stead, China keeps her eyes on talent and human resources.

Reports of CIC (China Investment Corp.)'s headhunting in New York has received some media coverage. With much less fanfare, Chinese colleges and universities are making a major push to hire faculties on the U.S. academic market. Record number of schools were present in this year's ASSA meetings (for Economics, Finance, and Social Science). With many of the U.S. markets in hiring freeze and improved incentive packages, they expect better success than previous years. According to a Dean of Beijing University, China has large demand for fiscal theorists now that government surplus creates a happy problem to have, but a problem nevertheless. Even Chinese astronomy observatories are throwing a banquet reception in the field's U.S. annual meetings. Not to be left out, Chinese industries are also quietly making the recruiting push, they don't usually make high-profile noise, but they pop up here and there.

I am not sure this is due to low risk appetite in overseas investing or simply brilliant strategic planning, or, China learning from the experience of the Japanese, but this is not the first time Chinese sophistication surprises me. Cue the Mastercard ads...priceless.

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The Great...What do they know?

I'm really not in a position to spend time writing right now. But here is a perfect dark humor I come across when doing some work.

You wouldn't be short that Time would run a cover of The New Hard Times, given the current situation. But maybe you would be amused that just a year ago Times (UK) ran a column of Welcome to the Great Moderation. Great Moderation is a term that is used to describe the peaceful growth the world has been enjoying. It has caught some fire in the circle of policy makers. I have come across at least one FedRB's research paper that used the term in the title. The subtitle of the January Times piece says:

Historians will marvel at the stability of our era

Maybe the author is mocked by his ten-year-old son right now. It begs the question: what does commentators really know. Yeah, sure, historians will marvel about something.

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Is China graduated from "Original Sin"

Some more quick thoughts about the sizable Chinese stimulus package:

Is China graduated from the class of emerging markets, which are often characterized by inability to borrow in the local currency - the original sin, and countercyclical fiscal policy? Many people in the west are in shock of the size of stimulus that was announced. Although the true figure is hard to verify - I have no idea how they arrive at that figure - China is acting more like a matured economy on that front.

Upon further investigation of the detail though, China is unique in many aspects. Perhaps it should not be in the EM class at the first place.

• Most of the announced stimulus is directive to state-owned companies to invest and expand. The U.S. has been urging its banks to lend more also, but I bet China would have more success in cajoling its companies.
  
• China enjoys high saving rate. Although many argue the approach has been mercantilism, the high reserve comes in handy in a time of crisis like the current one.
• The mere size of a diversified economy. Countries like Chile and Brazil, and possibly Russia who relies a lot on oil revenue, are more likely to be subject to a turn-of-trade shock from their commodity exports. Although China's external component of GDP is about 70%, which is alarmingly high, China also enjoys the advantage of sheer size and a more diversified economy.
  

This reminds me of a New Yorker critics piece:

If the invention of derivatives was the financial world’s modernist dawn, the current crisis is unsettlingly like the birth of postmodernism. For anyone who studied literature in college in the past few decades, there is a weird familiarity about the current crisis: value, in the realm of finance capital, evokes the elusive nature of meaning in deconstructionism. According to Jacques Derrida, the doyen of the school, meaning can never be precisely located; instead, it is always “deferred,” moved elsewhere, located in other meanings, which refer and defer to other meanings—a snake permanently and necessarily eating its own tail. This process is fluid and constant, but at moments the perpetual process of deferral stalls and collapses in on itself. Derrida called this moment an “aporia,” from a Greek term meaning “impasse.” There is something both amusing and appalling about seeing his theories acted out in the world markets to such cataclysmic effect. Anyone invited to attend a meeting of the G-8 financial ministers would be well advised not to draw their attention to this.

He could be talking about market characterization terminology. Developing, underdeveloped, emerging, BRIC, what else?

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Here and There

• A trip to grocery store, $68.
  A cup of Spanish Latte, $3.80.
  Keeping the marriage between men and women? $75 million.
• If politicians like an average voter can not be trusted to lead, can you trust voters to pick the right person?
• Taiwan, violence broke out upon Chinese official's visit to negotiate direct trade deals. A CCTV female reporter was also attacked during the "siege". Taiwan may think of itself as a vibrant democracy, it has much to learn from the relative tranquility on American streets where close to half of the people don't agree with the person elected.
  
  If the government should be "by the people, for the people", what if "people" are unruly and violent, happy to take cheap shots, being exploited by politicians in the process?
  
  I'm not sure what exactly people on the Taipei streets wanted to achieve, it seemed like a whole a lot for nothing, but here are some perspectives from the top, take your pick:
  Ma Ying-jeou:"Tsai(DDP Chairwoman) was responsible for (instigating) the clashes."
  Tsai:"The government that forces people to go into the streets should be held responsible." Hmmm, I'm disappointed in Cornell (where Tsai got JS.)
  
• One way to weather the storm in an economic downterm is to take money from haves to have-nots. Then the economic wheel can keep turning. Fiscal stimulus may be one politically acceptable way to do that. By fiscal expansion, government debt would be later financed by increased taxes, which would be shouldered of larger proportion by high-earners, or if not sufficiently financed, would cause inflation, which would bring savers' real wealth down. Large inflation is as ugly as a recession, so is to be avoided. Therefore, the tax burden is to be shared one way or the other.
  
  While the U.S. congress is contemplating a second stimulus, Chinese government unveils a large stimulus package, featuring mostly State-driven investment project. The success of it depends on who it really benefits - it should be the poor - and how it will be financed later.

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Trick or Treat

“Only Thing We Have to Fear Is Fear Itself,” that's a famous line from Roosevelt's first presidential speech. People wanted him, in comparison to hapless Hoover, to succeed so much that FDR had to hire many additional workers to handle mails from well-wishers.

The election will be over tonight. In the process, Palin went from the most popular governor in the country to be edified on SNL and a Tina Fey double. Republicans complained so much about media bias, it would probably put Chinese grievance in shame. That will be over also for her, win, or in the most likely case, lose.

We don't yet know what Obama is going to do, although we know his promises add up to 85 pages. Energy policy will probably be the first to gather enough political will to pass, although coal industry is already trembling in fear. Many Chinese are enamored with him, the way they saw a young, handsome, and energetic politician in Clinton, bill, that is. But his China policy is harder to differentiate. We only know he leans against more free trade, that he opposes NAFTA. Somehow, these issues were not even debated, not on the level of "lipstick on a pig" at least.[Speaking of trade policy, it used to be that American workers are more productive than others, so free-trade naturally favors the U.S., but that edge is rapidly waning, so does the appetite for free-trade. This election, more than anything, is a referendum on American people's acceptance in The U.S. new reality in the world. They don't worry about "the world leader" anymore than "give me the bread today". I wonder what Krugman thinks, since he was a strong proponant for free-trade in his more academic years.]

Oh, we also know that when slightly annoyed, while McCain has that it's-so-ridiculous-it's-laughable look, Obama has a more solemn what-the-heck-he's-talking-about look. As FDR could testify, personality plays a large part in a president's initial success.

The season of well-wish should not wait for January. Some will ask the "trick-or-treat" question, but the Hallowing is already over.

P.s. Here's another paragraph in the same FDR speech that is as interesting to read this time around:

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

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Sweet Organic Yogurt

My organic yogurt tastes sweet.

It makes me curious since I can't seem to find sugar in its listed ingredients. Upon further investigation though, I find the curiously worded "evaporated cane juice". "That's sugar" - my third grade science education saves me from puzzlingly over this myth for the rest of my life.

But I feel almost guilty. We are not suppose to think through these things. We like our yogurt organic and low-fat, we like sweet taste to help our happy digestion, but we don't like the word "sugar" on our otherwise healthy yogurt. "Evaporated cane juice", the geeky sound of it makes us feel so much better.

In Chinese idioms, there was a fable about "three in the morning, four for the evening". Once was a man who raised monkeys, he became poorer and had to bargain to cut their food. "I'd promise each of y9u three chestnuts in the morning and four for the evening." The monkeys were angry, "How can you treat us so poor!". "Then how about four in the morning and three in the evening?" the man re-offered. "That's much better", the monkeys were satisfied with his concession and jumped off triumphantly.

The modern day version of the story in the U.S. is probably presidential election. I don't know Barack Obama would keep his promises without raising taxes, nor do I know how McCain would balance his budget by cutting Pork Barrel Projects. No matter, all we care is whether Palin sounds stupid in interviews or eloquent in debates, or what "pro-America" really means. With Peggy Noonan weighting with mighty wordsmithship, is there any doubt this is more of a battle of words than anything else? Inside-out China lead to to an interesting article about verbage, but I see us more of prisoners of words. The challenge of the art is how to tell us we are in trouble without saying the word "trouble", or in McCains case, how to reassure the fundamental is sound without uttering the word "sound". Modern Homo Sapiens are not that different from old-time primates.

Certains words are to be avoided. While I'd love to be in that room to see the drama, no one in the media would utter nationalization or sociolization outright. If we were to sustain bailouts and revamps without otherwise changing our economic habit or raising our own taxes, we will sure shedding some of our burden to the next generation. But we don't want to hear that, we prefer to call it economic "smoothing". The chinese, being an old civilization surely understand the power of words, how else can you find naked capitalism basking under the glory of socialism? In a new market de-regulation, the China Security Overseeing Commitee calls the newly allowed short selling "security financing" (融券）. My suspicion is that "shorting" would sound too much capitalist and unpleasant.

Give us our sweet yogurt, but never say sugar. You are in business.

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Calling All Monet

Fall color is beginning to be in full swing. For kids, they don't worry about the financial crisis, nor do they have the agony of your football team losing, all they call is the 16th birthday of Hanna Montana! Yay! For adults, nothing is quite like a sunny weekend to brush the mood up. I find the pictures loose a bit of color and brightness, so I decide to leave one of them dark and in black and white in protest.

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Next Big Step in China?

This autumn is a bit extra chilly. I don't hear the topic of trade policy and China from the presidential debates when turmoil on the Wall Street is all the rage, but let's not lose sight on changes in China that could have potentially significant effect on the world economy for years to come.

China is said to address agriculture policy on the coming parliament conventions. The new policy would "allow agriculture land to circulate". Many believe the wording is a cover for capitalization of the agri-land, and a prelude to complete privatization.

Whether privatize or not, a new wave of land concentration and corporation of agriculture production are in sight. Many of those who are now called "migrant workers" will then simply be called "workers". Many of them, for one reason or another, will sell their land asset and become permanently labor force, whether in urban factories or on the newly formed agriculture corporations. Many of the young in China's rural areas have already left their home. Years after, a young man who wants to start up on agriculture will have the same problem as young ones in Indiana - it's difficult to get into since land will be difficult to lease or purchase. After the private capital pours into agriculture, there will be no longer an excuse to keep the price of agriculture products down, thus changing the relative price of Chinese economy. And since China is so big, it will have profound effect on the world economic structure too. [On a side note, the word "farmer" will no longer has a connotation of slightness in China.]

It's hard to judge if the new direction of the policy will be successful. But if the process in the cities are of any guidance, we can probably anticipate that the increase in productivity and the economy will be there but rights of individuals will be encroached in many cases. As economists would say, economists care not the redistribution problem until there is a crisis.

It all seems remote compared to the financial crisis we are in. However, some argues what happens in China is the single most important factor shaping our changing world. The integration of China into the world economy has realigned world's manufacturing industry and jobs; the cuddling of foreign capital and poor protection of workers rights has put pressure on the negotiation positions American workers are in; etc. The dead-weight will be cast, the credit issuance will resume. The next step of what China is going to do will have prolonged effects for years to come.

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