China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

When will an Asian Win the Nobel Prize in Economics?

October 1, 2014

So far, we have not seen many winners of the Nobel Prize in Economics – or more exactly “The Riksbank’s Prize in Economic Sciences in Memory of Alfred Nobel” – who had their roots in emerging countries. Arthur Lewis (1979) from St.Lucia and Amartya Sen from India (1998) were two positive exceptions. But what about the chances that an Asian economist may win the Nobel Prize this year again?

There are altogether 200-300 serious candidates for the Nobel Prize in Economics. Usually, the award goes to American economists – but not necessarily. Among candidates with Asian roots – Israel and Japan excluded in this context – I see clearly Avinash Dixit as the strongest candidate for 2014(born in Mumbai, India) , nowadays working as a professor at Princeton University, dealing with microeconomics, industrial organization, public economics, international trade plus growth and development theories. Dixit is also included in my own list of the “Top 10 Favorites” that will be published on October 3.

Dixit’s main challengers from Asia should be free trade supporter Jagdish Bhagwati (New York University) from India and Partha Dasgupta (University of Cambridge) from Bangladesh. Dasgupta has done important research on the environment which is so badly needed for emerging countries – but also on poverty, nutrition and knowledge. One should not either forget the very important field research of Abhijit Banerjee (MIT) with focus on development economics, many times taking research results from his home country India. The main outsider with roots in Asia could be Hashem Pesaran (with roots in Iran, econometrics and empirical macroeconomics). Sendhil Mullainathan – born in Tami Nadu/India – can develop to a serious Nobel Prize candidate but is currently still by far too young (research areas: behavioral finance, development economics).

Another well-known and important economist from the emerging-country world is, of course, Hernando de Soto from Peru (corruption, informal economy, institutions). (Almost) the whole continent of South America is still waiting that the Nobel Prize Committee will give him the highest award for economic research. However, it may be the case that de Soto is judged as not being sufficiently anchored in the academic economic world of models and mathematics.

But if this year’s Nobel Prize in Economics is not going to one of the names mentioned above it remains possible that other representatives of “growth and development” will be awarded, probably from the U.S. This would be another way to put more emphasis on emerging markets.

On October 13, we will know more about it. Competition with other economists and research areas is tough.

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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The Chinese Real Estate Conundrum

September 3, 2014

Finally, we can read almost daily that there is an increasing price pressure on Chinese property markets. I would not doubt this fact as such. I have seen with my own eyes the substantial number of Chinese residential buildings that were more or less completely dark in the evening. Either many apartments were not sold – or they were bought for mere speculative reasons without physical occupancy of these places. But I have no idea about the contribution of these two price-squeezing factors to the price pressure currently taking place in Chinese cities.

So, what about the future and risks coming from the real estate sector in China? I would say that we are facing another of these Chinese statistical and policy question marks. The fact that Chinese property prices are under pressure is even confirmed by official statistics. It is also obvious that Chinese residential developers many times are offering substantial price cuts. Another interesting signal lies in the decision by quite a number of cities to reduce existing restrictions on the purchase of apartments. And China shows continuous weakness in economic growth.

We should also be aware of the unclear issue concerning the number of real estate developers that may be in troubles and the banks’ real exposure when it comes to more critical lending to the real estate sector. In these respects, transparency is not really existing (which – by the way – mostly was not the case either before the eruption of the well-known real estate crises in our part of the world).

In my view, the current real estate concerns are more a short-term or medium-term issue than a long-term issue. The urbanization of China will continue and create a strongly rising demand for apartments in particularly the metropolitan areas. Thus, the risk analysis for the forthcoming 5-10 years or so will be more difficult.

My best guess is that Chinese authorities would intervene if any serious real estate crisis was to happen. If such interventions really would help is a very different question – to a high extent depending on the degree of the deregulation of the capital account.

Here we may have one of the major risks if Chinese decision-makers were to deregulate cross-border financial movements too quickly.

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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The Chinese Reform Process in a European Perspective

August 6, 2014

Paper for the SNEE Conference in Mölle / Sweden, May 20-23, 2014

Abstract

During the Third Plenum of the Central Committee of the Communist Party in November 2013, China’s political leadership implemented a relatively far-reaching reform program, covering many economic, social and political areas. On paper, the Chinese reform plans appear to be very progressive yet at the same time there are many conflicts of goals inherent in these policy strategies. Finding appropriate preferences for these different conflicts of goals will be difficult.

This introductory description of the paper leads us directly to the need for interdisciplinary research. In this paper an attempt is made to give the most important reform areas a natural interdisciplinary nexus. The objective is to show that China’s economic future cannot be analyzed and predicted without broader analytical tools. It is not mainly an issue of numerical long-term GDP forecasts.

Forecasts about the Chinese economy should focus more on the understanding of the Chinese political, social and the economic system rather than quantitative research. In order to gather some empirical evidence, a survey has been prepared with members of our (LNU’s) China Survey Panel. Hopefully, statistical quality and transparency will be improved during this ongoing reform process in order to stimulate a gradual improvement in the statistical conditions for quantitative analysis.

Some of the main reform challenges are exemplified by the further deregulation of the Chinese financial sector. The academic issue of sequencing seems to be particularly complicated when applied in real life. Can China learn from the Swedish financial deregulation process – and its failures?

There is no doubt that the outcome of the Chinese reform process will also be of great importance for the European (global) corporate sector. There is every reason for Europe, the U.S., and many other countries, organizations, and corporations to optimize their future cooperation with China in line with its necessary and implemented reforms. In other words: Europe (and the U.S.) should be very interested in contributing to a successful Chinese reform process as much as possible and whenever appropriate. Major Chinese reform disappointments would be scary since the European and American economies would not be prepared for such a reversal. This is a mostly forgotten risk.

Read the full article – SNEE 2014.pdf

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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