Any statistics coming out of China always carry a caveat: beware of the quality of the information given its source. The reasons for bias are well documented, such as a bureaucratic infrastructure that grew out of the need to meet growth quotas during the height of the planned economy era. Actually gathering the information is difficult also simply because there are a lot of people in China.

Another objection, albeit anecdotal: every ten years China conducts a national census. At first this struck me as an efficient process, given that local bureaus can rely on Neighborhood Committees (another holdover from the communist period, sort of the state-sanctioned equivalent of a community organization) to send people around to all of the homes within the neighborhood to gather detailed demographic information.

So alone I sit one Sunday afternoon minding my own business. A loud knock comes at the door – and behold, it is a demographer, one of the older neighbor ladies who has been tasked with surveying residents. I open the door, “Oh” – she says “You’re not from around here. So you’re renting?” We go through her list – she wants to know I.D. number (“Oh that’s right you people don’t have those”), marital status, education, employment, name, age, home address (“Are you sure Pie-uh-nee-ar (Pioneer) Road doesn’t have Chinese characters? I need to write Chinese characters.”) After collecting what she wants, she heads off, and I return to my previous engagement.

About an hour later she comes back – I open the door and she says “Oh. Oh yeah wait. I was here already. SORRY!” No worries – there are lots of buildings, and many Unit 202s here in sunny Bamboo-Park-New-Village.

Another hour passes, and she returns a third time. This time it’s “OHHH darn I’m wrong again. I’ve already talked to you. I’m sorry.”

If we assume that grandma-citizen-demographer was average, then it stands to reason that even something as basic as the census might have considerable upward bias, purely from being oversampled by a factor of three. And hereafter, Shanghai’s population suddenly triples. National planners develop ulcers. The world again is astounded by China’s rapid growth.

This post from VoxEU has lots of interesting data – real estate indices and price to rent ratios, by city – and concludes that continued price increases are unsustainable. Regulators have even come out warning about a decline later this year. Whether this produces a U.S. style cascade (unlikely) hinges on whether or not the system is highly leveraged; this article from Mish provides some interesting anecdotal accounts of informal lending creating de facto, if not de jure loans that are linked to housing. Any sort of systemic threat to China’s growth prospects though seem more likely to come from general infrastructure spending (see previous post); of which housing prices are an ancillary side effect. More on this as I collect more information.

Other real estate: on a crappy NYT story note, this fine piece of journalism chronicles the very authentic experience of Mrs. Bradford, an American who moves to sleepy exotic Shanghai and lives in an ~Rmb13,200 flat (well above the monthly income of an average Shanghainese resident) which she furnished for USD15,000 (roughly the equivalent to two years’ worth of income for, again, your average Shanghainese family). It sounds like a nice place, though calling it ‘authentic’ is nauseating, even if it is in the real estate section. They should know that going native in Shanghai means living in a 1980s Communist cement edifice for USD200 a month and slaying cockroaches with one’s bare hands.

Expats love to rant about how wonderful China’s infrastructure is – reliable wireless in cities, extensive subway systems, and incredible cell phone reception – many of us are particularly fond of the rail system. The high speed segments in particular are quite nice. These aren’t free, however, as this article indicates that Minsheng Bank analysts concluded that the Railway Ministry currently has Rmb1tr in liabilities (representing an assets to debt ratio of over 55%). Last year the servicing cost was approximately Rmb40bn; which incidentally is enough to build the oft-discussed maglev between Hangzhou and Shanghai (cementing the former’s status as just another one of Puxi’s suburbs).

When the ultra-high speed was opened between Shanghai and Nanjing had its inaugural opening, the Railway Bureau shut down the high speed trains on the same route, so that people had to take the slightly faster (and significantly more expensive) option. Locals indicated that this was a face saving maneuver. Tickets on the newer, faster trains are seen as expensive in general, and its a hot button social issue (particularly since those it affects most – migrants – are in the least capable position to shoulder price increases).

The answer of course is that 8% growth will soak up all of the current costs of infrastructure development (at least until this is finished). While this particular bit of Sinocentric-doctrine is rarely called into question, it would be interesting to examine more information on costs and projected revenues. Given that national GDP is somewhere between USD5-9tr (depending on your preferred methods of measuring exchange), this is a very significant number. HT IS.

Yasheng Huang’s much praised Capitalism with Chinese Characteristics has a short section in the update about China’s 2008 Labor Contract Law reforms:

On January 1, 2008, China put into effect a new labor law that requires businesses to offer permanent employment to workers with more than 10 years of employment. This new labor law will be very damaging to the economy. Labor market rigidity will reduce the incentives of entrepreneurs to create businesses and will drive away existing businesses to countries such as Vietnam and India. Aggregate employment may drop and thus further exacerbate the weaknesses of domestic demand, even though the intention of the law is to provide relief to China’s long suffering labor…

… There is little recognition that many of the social problems in China today are a result of a malfunctioning economic process, such as the blockage of small-scale entrepreneurship, and that the right recipe to correct these distortions is further liberalization. The 2008 labor law is one of many examples.  (Huang 2008, p. 297)

Throughout the book Huang is very critical of the constraints placed upon local entrepreneurial activity, as well as the pro-government and pro-foreign bias of many of the investment policies promoted in the 1990s and early 2000s.  He acknowledges that Hu Jintao has been a positive force in reversing some of these trends, though using the same set of state-centric tools to support rural development.

The interviews I conducted in Wuhan were primarily concerned with whether the 2008 labor law succeeded in providing basic contract enforcement to workers, regardless of permanent or non-permanent status (personally I’m not sure what the legal distinction is between the two categories; presumably the former are much more difficult to fire.) One of the justifications given for the labor contract law was that, prior to 2008, a large number of migrant workers would not even be given copies of their contract. This obviously meant that they had little recourse in the event of a labor dispute. Still need to write more about that. In general, most of those I interviewed were positive about the impacts from the contract reform, and would use the normal dispute resolution process in the event of a problem. Admittedly I only talked to those who didn’t yet run into any problems, though many indicated they were familiar with someone who had (garnishment of wages being the most common.)

“China is too pro-foreign” and “policy changes risk shipping Chinese jobs overseas.” Both true; not things one hears much as of late.

I always thought that my preference in filters washed out any blue sky that had been in the original photograph. Turns out that’s not the case. There’s just very little blue sky in the rest of China.

Having opined extensively on this topic previously, I will attempt to be brief. My general feeling has always been that appreciation is inevitable, and calls for it were somewhat self-serving and probably detrimental. Regardless, the scale of ensuing changes will of course depend on how fast appreciation occurs. Maoxian projects that the Rmb could reach 5 to the dollar by 2020, which seems a bit conservative, given that 2007-2009 were rather unique in terms of market performance. Though there’s no explicit relationship between equities and currency trades, it seems evident that policy makers use major indices as barometers, and no properly Confucian party apparatchik wants to be behind a yuan revaluation if exports collapse and riots start.

Recent inflation figures probably gave pro-appreciation groups (Ministry of Finance, PBoC) the cover they needed to push this through. I’m less convinced that the move was blatant a nod to G20 as some other commentators believe, though timing was still an issue. Properly Confucian party apparatchiks absolutely do not want to be seen as heeding foreign demands, and the last several weeks have been the only time period in recent memory where there hasn’t been a high-profile meeting with some barbarian global dignitary calling for a yuan revaluation. After the G20 meeting would have been unthinkable,

There’s obviously a a large amount of concern that short-term inflows will rush into China, so much so that authorities will in all likelihood depreciate in order to send a signal. After that, volatility and an upward (downward?) trend to a stronger Rmb.