Economics in China

2010

Excerpt translated from https://github.com/shengcaishizhan/kkndme_tianya.

Economics

1. High inflation and continuous depreciation of currency are determined by the state-owned economic system, which cannot be changed in a short time frame.
2. The state-owned economic system determines that
   1. Government administrative costs are high.
   2. Economics is overly reliant on government investment.
   3. Cost of corruption is astonishingly high.
   4. Export of low value-added products generates foreign exchange earnings, generating large amounts of cash flowing into market, causing inflation.
3. Holding idle cash is risky, more than holding any preservable goods or assets.
4. Demand for assets like bicycles, cars and houses absorbs excessive cash, which ensures commoners has to keep working hard to fight inflation, ensuring stability and prosperity of the society.
5. Currency is designed to exploit commoners via inflation.
6. The government expects property price to rise slowly and steadily, absorbing inflation pressure.

Inflation

1. Employee wages within the system grows with inflation. Those out of the system are dependent on profitability of their industry and company.

Maintaining Stability

1. The bottom line is to ensure food security, i.e. ensuring availability of affordable food.
2. To control food pricing, cash must flow into other assets, especially property.
3. Poor people buying properties with mortgage imposes risks to the financial system.

Property Rights

1. Property rights include the right to use (live in) the property and ownership.
2. Cost of living is reflected in rental prices, not in ownership.
3. It’s the ownership price that absorbs excessive cash, not rental price. Therefore rent-to-sale ratio scales with amount of excessive cash. With large amount of cash issued, rent-to-sale ratio becomes lower.
4. Residential land has a lease of 70 years. Houses with 40 or 50 year lease has many disadvantages, including more expensive infrastructure cost (water, electricity, etc.)

”Land Finance”

1. Value of real estate in China is composed of the house itself and the right to use the land it is built on.
2. Individuals or organizations only have the right to own properties and use the land through ownership and usage rights.

Property Price

1. Housing prices are not determined by the average income (e.g. as reported by the National Bureau of Statistics), but rather by the average income of the elite, because:
   1. The pyramid structure of China society implies that even if only 10% of the population resides at the top, it still constitutes an enormous number of over 100 million people, much higher than the sum of most Western countries.
   2. Only the relationship between supply and demand determines the price of a commodity.
   3. Commodity housing in the center of a first-or-second-tier city is sufficiently scarce for the elite population. For example, some elites in Beijing could easily invest millions in cash to buy houses.
2. Value of property is determined by population, cash (demand) and its position (limited supply).
3. Even if property price “falls”, it will be falling relative to other commodity price, not on its absolute value.
4. Don’t worry about price fluctuation of properties bought for living. Buy it if you can.
5. Long-term investment of property is relatively secure. Short-term trading still has high risk.
6. When inflation outruns mortgage interest, long-term mortgage is profitable.
7. Hong Kong has the highest property pricing in China, because land there is very scarce.

Property Tax

1. Cost of property will eventually be passed on to tenants, including any tax imposed.

Demolition

1. Eventually, most old houses will be demolished to build new ones.
2. Demolition brings city growth.
3. Low-density, short buildings are more likely to be demolished.
4. Two ways to compensate demolition: Cash compensation and Resettlement.

Politics

1. Driven by vested interests, the development of society is inevitably shaped by those who hold power. Even if policies go against the interests of the ruling class, they will likely be difficult to enforce, with few consequences for those who fail to comply. In the end, such policies often end up as empty promises that are never fully realized.
2. PRC is ruled by people, not laws. Therefore, it’s not a capitalism country.

Corruption

From a made-up magazine story:

宇文泰以治国之道问苏绰，二人闭门密谈。

宇文泰问曰：国何以立？

苏绰曰：具官。

问：何为具官？

曰：用贪官，反贪官。

问：既是贪官，如何能用？

曰：为臣者，以忠为大。臣忠则君安。然，臣无利则臣不忠。但官多财寡，奈何？

问：奈何？

曰：君授权与之官，使官以权谋利，官必喜。

问：善。虽官得其利，然寡人所得何在？

曰：官之利，乃君权所授，权之所在，利之所在也，是以官必忠。官忠则江山万世可期。

叹曰：善！然则，既用贪官，又罢贪官，何故？

曰：贪官必用，又必弃之，此乃权术之密奥也。

宇文泰移席，谦恭求教曰：先生教我！

苏绰大笑：天下无不贪之官。贪，何所惧？所惧者不忠也。凡不忠者，必为异己，以罢贪官之名，排除异己，则内可安枕，外得民心，何乐而不为？此其一。其二，官若贪，君必知之，君既知，则官必恐，官愈恐则愈忠，是以罢弃贪官，乃驭官之术也。若不用贪官，何以弃贪官？是以必用又必弃之也。倘若国中皆清廉之官，民必喜，则君必危矣。

问：何故？

曰：清官以清廉为恃，直言强项，犯上非忠，君以何名罢弃之？罢弃清官，则民不喜，不喜则生怨，生怨则国危，是以清官不可用也。

宇文泰大喜。

苏绰厉声曰：君尚有问乎？

宇文泰大惊，曰：尚……尚有乎？

苏绰复厉色问曰：所用者皆为贪官，民怨沸腾，何如？

宇文泰汗下，再移席，匍匐问计。

苏绰笑曰：下旨斥之可也。一而再，再而三，斥其贪婪，恨其无状，使朝野皆知君之恨，使草民皆知君之明，坏法度者，贪官也，国之不国，非君之过，乃贪官之过也，如此则民怨可消。

又问：果有大贪，且民怨愤极者，何如？

曰：杀之可也。抄其家，没其财，如是则民怨息，颂声起，收贿财，又何乐而不为？要而言之：用贪官，以结其忠；罢贪官，以排异己；杀大贪，以平民愤；没其财，以充宫用。此乃千古帝王之术也。