Is the Chinese Economy a Black Swan?

Following the ideas of Nicholas Taleb, Vitaliy Katsenelson asks whether China is the mother of all Black Swans. Katsenelson's commentary about the Chinese ecnonomy highlights its "tremendous overcapacity" in many areas including real estate and certain industrial sectors. The Chinese Premier Wen Jiabao (2010) also acknowledges the highly complex and intricate nature of the Chinese economy while simultaneously describing China's development as "open", "long-term", "comprehensive" and "mutually beneficial" for foreign investors. Good news perhaps but divergent views about China are aptly captured in Wolf, Bikson, Law, Mitchell and Galama's (2003) earlier assessment of the "challenges, fault lines and potential adversities" facing China. The potential for cracks to appear in the economy, society and the polity are highlighted when the wake of rare and potentially tumultuous events are factored in. For example, harsh economic conditions following a massive and sustained increases in the price of oil, the impact of a significant and prolonged decline in foreign-direct investment (FDI) and/or the internal and external effects of a large-scale war are considered as "black swans" in China's future. However, extreme conditions permeate forecasting about China's future - for example, the impending implosion of the system (Chang, 2002) stands side-by-side with China ruling the world (Jacques, 2009). Other predictions, which don't comtemplate the collaspe of the policical system, highlight adaptation as the key to China's political and economic future.

Refections on the Stern Hu Case

I have just returned from a trip to several tier two cities in China. During the trip, I heard from several Chinese business colleagues about their concerns that Mr Hu's Australian employer had dropped him so suddenly following the resolution of the legal case against him. It appears that many people believe that his employer should have at least supported their employee for a longer period, even in the face of the difficult circumstances and ethical issues that surrounded the case. Some of my colleagues felt that the actions of the company in this respect had sent a negative message about how Australian companies view issues of loyalty and relationships, even in a case like Mr Hu's. No doubt, the Australian company thought that swift action would be read as a positive sign, reinforcing the company's view about the ethical standards it expects its employees to uphold. As always, relationship management is at the forefront of doing business in China.

Sentence of Rio Tinto's Mr Stern Hu to 10 years

The sentence of Australian Rio Tinto executive Mr Stern Hu to 10 years by a Chinese court last month for charges of bribery and appropriating commercial secrets drew comments by the Australian government. Officials interpreted the sentence as "harsh". Others commented on the trial's lack of transparency. However, while the sentence might be harsh given that sentences for "extraordinarily large bribes" in China is somewhere between 5 and 15 years, one might question whether Mr Hu's gain was "extraordinarily large" in the Chinese context. What have not been probed in-depth are the internal machinations of the Chinese government leading up to Mr Hu's trial. China's foreign affairs ministry, closely associated with the case, is considered as the most liberal of China's ministries. However, leading up to the trial, some conservative ministries mooted in the local press that any lenient sentence or deal making in the case would not be appropriate. In this context, Mr Hu's sentence may also reflect a growing influence of more conservative elements within the Chinese leadership. Reading the Chinese political and business environments is never easy.

When China Rules the World

I have just read When China Rules the World: The Rise of the Middle Kingdom and the End of the Western World by Martin Jacques (2009, Penguin, London). The book tackles issues concerned with China's pathway to development; will China adhere to a Western view of economic development or will it follow its own peculiar road map? Two reviews, one by Seth Faison of the Washington Post and another by Will Hutton of The Obseerver provide critical analyses and contrasting views concerning Jacques' claim that China will rule the world as it follows its unique non-Western model for development. However, while Jacques' schooling in marxism is not far below the surface of his text, I found the book to be refreshing, enjoyable and informative read although India's future role in his scenario is neglected - and what about Europe's influence?

While Jacques suggests that China's development will slice through the political, economic and cultural influences of the West, one assumes in this scenario that the ''West'' will simply fade away. But Western countries too have a hand in their own destinies. Will Hutton obesrves that ''China is simultaneously big but poor, powerful but weak'' and this assessment will change only when China's political platform changes. It is a good read- summed, up by Mary Dejevsky in the Independent who suggests that Jacques' thesis will ''provoke argument and is a tour de force across a host of disciplines''.