IPR, Innovation and Economic Growth

It is a well known fact that there is almost nil IPR protection in China. You can get fake software, music, phones, bags, purses, clothes, designer items, luxury items, and the list goes on. Worse, the Chinese government does nothing to protect the IPR of foreign companies. In fact the first thing that someone who wants to do business in China is told is that -> Your IPR won’t be protected. Full stop. Nothing can be done.

So how is IPR related to economy. Lack of protection of IPR discourages companies from innovation. Everyone wants to sit and wait and does not want to spend on R&D. Companies know that their products will be copied sooner rather than later. As a result, there is little focus on innovation and R&D. This results in the Chinese economy being a low value economy, and impedes the modernization of the Chinese economy.

The Chinese premier talked about IPR protection in March of this year, and the role it will play in innovation and economic progress. “Wen emphasized importance of possessing intellectual property rights and encouraged companies to strengthen research and development and make breakthroughs in core technologies.”
http://www.chinaipr.gov.cn/news/government/251866.shtml

Here is another government version about improvements in IPR protection:
http://www.chinadaily.com.cn/bizchina/2009-06/15/content_8284673.htm

There is also a risk that if China does not protect other countries’ IPR, in the future these countries will not protect Chinese IPR rights.So when China eventually become s a developed economy other developing countries such as those in Africa will blatantly copy Chinese products. And China would have no right to say anything.

The author sincerely hopes that the movement towards IPR protection is genuine and Rapid.

Karthik

Mainland feeds Hong Kong property, Macau casinos

PART II

So far this year, US$477.3 million has entered the Hong Kong property market via the immigration and investment program. Add in the myriad other ways of moving money from the mainland to Hong Kong – overseas business accounts, doctoring procurement contracts, pooling money from family members, carrying in suitcases full of cash – and you have a compelling reason why housing prices in the territory have risen 30% since January.

Here is another article that gives some more details.

http://www.chinaeconomicreview.com/today-in-china/2009_11_23/Mainland_feeds_Hong_Kong_property_Macau_casinos.html

Karthik

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PART I

http://online.wsj.com/article/SB125892674691559713.html?mg=com-wsj#articleTabs%3Darticle

An article in today’s Wall Street Journal discusses the massive outflow of yuan from mainland China and the impact this has on Real Estate prices in primarily Hong Kong. The 30% rise in property prices in HK so far this year is partly attributed to cash rich mainlanders pouring money into HK, pushing property prices to unreachable levels for a majority of the local population. The Chinese government allows a maximum of $50kUSD to be converted to foreign currencies but massive amounts of “illegal” cash is carried across the border and invested in HK. Offshore accounts are also used frequently to circumvent this 50kUSD limit. So far this year $477 million have been invested in the HK property market from mainland Chinese. The article suggests that the $HK6.5million limit for immigration status to HK as one of the main drivers for the investments. Many rich Chinese see HK as an opportunity to put their kids through a better education system as well as access to a more open system. The article does highlight that the inflow of money to the Chinese market is still MUCH greater than the outflow and that illegal outflow may be, to a certain extent, encouraged by the government to take some pressure of the yuan.

My opinion: I believe that the outflow of money from mainland China will continue until China reaches the same level of living (education, healthcare, judicial system etc) as HK. At the moment HK provides access to a “better life” for many mainlanders. I strongly sense that it would be wise to increase the maximum amount of annual capital conversion allowed (currently 50k). This would create a greater transparency and an opportunity adjust policies accordingly.

Erik

China Grapples With Pressure Over Currency Controls

Dear all,

http://online.wsj.com/article/SB125847918433852321.html

The currency debates goes on. See  you in class, we’ll discuss! What I am worried about is that an artifically low yuan will delay strucutral changes in the economy, such as moving from a manufacturing society to a service society.

China’s blunt talk for Obama

http://online.wsj.com/article/SB125826103009548975.html?mod=WSJ_hps_MIDDLEThirdNews

Article from today’s WSJ on Obama’s trip to China, and the challenges/debates that are expected to be highlighted. The article raises concerns that Obama’s trip might be overshadowed by conflicts over the valuation of the renminbi, the weak dollar, as well as the trade wars. All this has been revisited in earlier discussions, but we cannot but reemphasize the different point of views between Chinese and US policyholders. In the article, the top Chinese banking regulator claims that a weak dollar and low interest rates are great threats to the recovery of the world economy, creating asset bubbles and speculation. It is interesting to note that how the US, more often than not mentions the undervalued yuan as the key risk for asset bubbles; while China emphasizes the weak dollar and US monetary policies as the main concern for global imbalances.

About the UncleMilton Team !

Hi All:

We have created a page with a little bit of info about the team members. Since we are the only all-international student team, we thought this might help our other local classmates know more about our personal side. We have been enjoying the classroom discussions, and look forward to you suggestions/comments/opinions.

Here is the link : http://unclemilton.wordpress.com/about/

Thanks.
Karthik

Chinese hint at stronger renminbi

Today’s frontpage of FT covers a story of how China’s central bank hints for a possible appreciation of the renminbi. Quote: “The People’s Bank of China said foreign exchange policy would take into account ‘capital flows and major currency movements’, a pointed reference to the large speculative inflows of capital that China is receiving and the US dollar weakness.”

To us this relates closely to the Bank of America article that is posted on the class website. http://ihome.ust.hk/~dxie/Econ512/Two%20Views.pdf

It appears that the Central Bank favors the monetarist view of the current macroeconomic situation in China. See you all in class!

Chinese Property Market: A Bubble ?

There has been a lot of recent talk about the recent run up in chinese home prices. We have also discussed this issue in the class. Here are some articles that talk about this bubble:

1)http://seekingalpha.com/article/166939-china-s-huge-property-bubble
2)http://www.chinadaily.com.cn/china/2009-11/04/content_8911064.htm
3)http://www.chinadaily.com.cn/china/2009-11/11/content_8946445.htm

BUT, the World Bank issued a report a few days back, saying it sees no property bubble. What do you think ???
4)http://www.marketwatch.com/story/world-bank-sees-no-bubble-in-chinese-real-estate-2009-11-04

Here is one more report, and I like the phrase used by the person:  ” It is not appropriate to use the ‘B’ word yet “.
5)http://blogs.wsj.com/chinarealtime/2009/08/05/china-property-bubble-in-the-making/

We believe that there are some serious concerns about the booming Chinese real estate market, but things have not yet gone completely out of hand. The government should take quick steps to mitigate the problem.

* You may skip reading links 1,2 and 3 ;  and just read links 4 and 5. (in case you are short of time)

Burning ambition

http://www.ft.com/cms/s/0/3bd28922-c8e3-11de-8f9d-00144feabdc0.html

Referring to yesterday’s classroom discussion about the strategic importance of oil, above analysis from Wednesday’s Financial Times discusses China’s increased presence in Kazakhstan to secure energy assets (oil, gas etc). The article highlights China’s need to lock up and secure energy resources around the world to support its internal growth. Beyond Kazakhstan we are also informed of how Chinese oil companies (Sinopec, CNPC & Cnooc) have a foothold in Brazil, Angola, Russia, Iran, Iraq, Burma and Sudan partnering with western companies and local governments to ensure energy and resources.

We believe that this article highlights the trend that we have seen over the past years with Chinese companies securing resources around the world, be it oil, iron ore or steel. With hundreds of millions of citizens expected to move into the middle class over the next few decades China will need to have access to natural resources to support increased consumption be it cars, cell phones, air travels, TVs etc. We believe that the fight over finite resources will contribute to drive inflation higher. Also, we cannot but ponder how the world is going to solve the problem of ever increasing need for finite resources.  This involves not only China but all emerging economies and leaves the international community with a great challenge. We expect the race for resources to accelerate  and consider success in this “hunt” of utmost strategic importance for China going forward.

An Eye for an Eye makes the Whole World Blind !

It is widely agreed that the Smoot-Hawley Tariff Act of 1930 widened and deepened the Great Depression. The act increased U.S. tariffs to give a boost to the domestic U.S. industry. Other countries retaliated and increased their own tariffs. The overall increased level of tariffs led to a dip in international trade. And it is this steep drop in international trade that prolonged the Great Depression. Historians, economists and U.S. congressmen understand the ill-effects of the Smoot-Hawley act.

But still, during the current recession, the same mistakes were repeated. U.S. started increasing tariffs starting with duties on Canadian Steel. The other countries including China retaliated, and global trade fell once again. So were the lessons not learnt from the previous episode? Or is it that political pressure takes precedence during such times, and short term moves are more important than a long term pragmatic solution? Will a more powerful WTO help avoid such mistakes in the future? As the title of the article suggests, a narrow selfish approach will only worsen such recessions. Governments need to come closer, build trust and ensure that this is the last time such a folly is repeated.

External Link: Smoot Hawley Act

CIC Invests $55bn of warchest

Please find link to article from Thursday’s Financial Times (due to copyright issues we are not allowed to paste the article): 

http://www.ft.com/cms/s/0/3769f3b4-c42b-11de-8de6-00144feab49a.html?nclick_check=1

This article highlights what we believe to be one of the key issues in global macroeconomics, i.e. China’s ever increasing SWF capital and its search for assests in which to invest and receive adequate returns. The article mentions how “…Chinese officials have repeatedly expressed concern over the stability of the US dollar and the potential for US policies to precipitate a slide in its exchange rate.”  

Let us provide a brief background of what we believe created the financial crisis and refer this to the current problems at hand desribed in the article:

United States bought Chinese goods creating a surplus in China’s net export account. China has used these surplus funds to buy US treasury bills (i.e. supporting the dollar) pushing the yields on government bonds downward. Granted that the spread between T-bills and mortgage rates remains consistent lending costs for real estate and other asset classes move downward in tandem with T-bill yields. Lower mortgage rates allowed for an appreciation in real estate prices and higher presumed wealth for US citizens. Higher net worth was “liquified” through second and third mortgages whereafter this additional liquidity facilitated additional consumption of Chinese goods increasing the Chinese level of dollar reserves.  Then came the financial crisis with plummeting real estate prices, depletion of US consumer wealth and a weaker dollar… Can and will this “marriage” continue? ”Marriage” referring to US’s dependence of China to sustain its support and belief in US government bonds and China’s dependence on the US to finance its export industry. This brings us back to our two initial concerns:

1) To what extent will China Investment Corp (i.e. the part of SWF set up to optimize returns on parts of SWF capital) diversify its assets portfolio away from US T-bills?

2) If they do, is the role of the greenback as “world currency” threatened?

One may also link the article to the issue of maturing global markets and the increasing difficulty many SWF’s face in finding assets with surplus returns. We leave this to a later debate…Let it rip!