China Research

I often get questions by companies and journalists about future growth potential in Chinese regions and metropolitan areas. Historically, I have visited a number of these places myself, but certainly not all of them. For this reason, I am really glad that the Milken Institute recently has developed and published a geographical ranking called the ”Milken Institute Best-Performing Cities China Index”, ranking 34 large tier- 1 and tier-2 Chinese cities and totally 232, somewhat smaller so-called tier-3 cities.

Particularly encouraging is that the whole project has been conducted by Perry Wong from the Milken Institute. Perry Wong – whom I have known and appreciated for quite some time – is not only one the best regional economists in the United States – but he also is familiar with the language. Certainly an ideal combination for an analysis of the most successful and promising cities in China. I am sure that Perry is aware of the statistical limitations in China. However, I am also sure that he carefully considered the nine indicators that finally have been included in the index. An annually updating is planned.

Consequently, the ”Best Performing Cities China Index” for China should be a helpful tool for corporate decisions that concern (foreign) companies’ investments, sales and purchasing in China. I have been waiting for this kind of information for a long time.

 

       Ranking *

       First- and second-tier cities                 Third-tier cities

 

1. Chengdu                                               1.   Suzhou
2. Shanghai                                               2.   Nantong
3. Tianjin                                                3.   Yangzhou
4. Dalian                                                 4.   Suqian
5. Nanjing                                                5.   Taizhou
6. Hefei                                                  6.   Qingyang
7. Xiamen                                                 7.   Changzhou
8. Changchun                                            8.   Wuxi
9. Chongqing                                             9.   Ji’an
10. Shenzhen                                             10. Yichang

 

Source: Milken Institute, Santa Monica

 

 

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

 

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According to different articles in media – also at home – the conclusion could be made that China soon will be introducing full convertibility of its currency, the yuan. Such a step would, of course, have far-reaching consequences for all companies all over the globe dealing with China, Swedish companies included. In previous articles, I have always explained such a surprising and sudden step as risky and premature. Instead, I have been pleading strongly for a very gradual introduction of full convertibility of the Chinese currency. Therefore, the news from this morning made me quite astonished.

However, things do not seem to be that exciting. I have checked different Chinese sources – the press included – and have just found that ”China will gradually make the yuan convertible on the current account…” (Xinhua November 3). The ambitions to internationalize the yuan seem to be much higher at this stage of financial deregulation.

Here we go again: gradual deregulation is the melody of the Chinese. This is certainly the right way to move forward when it comes to financial cross-border deregulation. Improvements of the domestic financial market, however, are more urgent – and should timewise be put in the first place. Sequencing – i.e. domestic financial reforms before the complete opening-up of the capital account and full currency convertibility – matters also in this context.

 

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

 

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Presentation by Hubert Fromlet, Linnaeus University, at LNU’s annual conference “Baltic Sea Region and China Day” in Kalmar on
October 19, 2015

Summary

I wrote already in my latest, spontaneous blog that I really appreciate the choice of Angus Deaton as this year’s winner of the Nobel Prize in Economics. I had him on my list of probable winners several years in a row, also in 2014. But since I had no opportunity to update this list of candidates in the last few weeks, I wanted at least to present my list of six preferred research areas. Among these preferred research areas were development economics/poverty and consumption/savings – very much aiming at the important research by Angus Deaton. In private, I found that it should be his turn – now in 2015.

Deaton made it finally. This choice is a good answer to discussants who do not regard economics as sufficiently scientific. Of course, it seemed to be difficult at certain occasions in the past to single out the benefits for humanity that were expected by certain observers to come from the research of the winners of the “Riksbank’s Prize in Economic Sciences in Memory of Alfred Nobel”. This time, this benefit analysis seems to be much easier or at least more obvious.

Let’s look – for exemplification – at China for some moments. Since 2012/2013, we know that China wants to create a new economic growth model by giving (private) consumption considerably more space as a driving force for economic growth than so far. Currently – if we trust Chinese GDP statistics for a moment – consumption stands for about 40 percent of GDP. This is considerably lower than in other comparable emerging economies. The Chinese have until now – as far as I know – not mentioned an objective for the future percentage share of consumption. Up to 50 percent in one decade or so may sound realistic.

The future application of a number of results and recommendations from Deaton’s research may make the difficult Chinese transit road to more consumption (somewhat) less bumpy. The Chinese may, for example – with Deaton’s research and conclusions as a starting point – look at

# the need of using best possible statistics and of improving statistical quality (urgent),

# the need of measuring certain statistics more correctly and – often – more frequently (urgent),

# the importance of household surveys as such and their quality (urgent to start up),

# methods to manage repeated individual data surveys for time series,

# systematic classification of income groups via micro data
=> from micro to macro (urgent),

# patterns of consumption between different income groups, from poor to wealthy people,

# reactions of the urban and rural population on policy/income changes
=> from micro to macro,

# classification of consumption choices, composition of consumption goods
=> from micro to macro,

# distribution between consumption and its natural counterpart – household savings,

# the link from individual consumption behavior to macro aggregate numbers and conclusions,

# welfare measurements for(mainly) poverty

To summarize: China can learn from Deaton’s research. The importance of Deaton’s research can be mainly explained by his ambition to use good statistical standards and to create working links from individual (micro) data to macro (aggregate) levels. (Repeated) surveys serve as an important instrument. Deaton deals with the economy of households. But I believe that parts of his research methods also could be applied to the corporate sector. The link between micro and macro is an approach that we also use in parts of our university’s emerging market research – but also the other way around, i.e. the link from macro to micro when helpful.

The more China will be learning about its different consumption patterns, the better the chances of (partial) success in China’s new growth policy. Such a development would be good for companies dealing with consumption goods and services in China – and for the Chinese nation as well.

 

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

 

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