Reporting from Workstation 9

The Mystery that is China!

Here's a graph mapping China's and India's CPI yearly inflation for the last 10 years.

I am researching into skill premium effects of Offshoring, and China's inflation data really caught me by surprise. I checked with my friend and he said, in China, they speak more often about deflation.

He did mention though that of recent, with greater social security, consumer spending has gone up and inflation is mush higher. Now it's about 5%.

Anyway, I was reading a report by Abhijeet Banarjee , and he mentioned this about why everybody is running to China

" Is it all a matter of luck? Perhaps people are investing in China because everyone else is. Or is it something deeper? After all, despite being run by a party that calls itself communist, China offers a pro-business environment, security of property, and a docile labor force. Is this what investors are looking for? Or is it China’s ability to produce a seemingly endless supply of competent entrepreneurs who run China’s industry (including most of what foreigners nominally run)? Or should we entertain an altogether more daring possibility: that China’s is a healthy and relatively well-educated labor force, tolerant of the inequalities that markets produce because it has known equality—the accidental gift of 30 years of communism?

The truth is that the Chinese machine has so many potential drivers that it is anybody’s guess why it runs. Moreover, no one really knows why all the forces that should have pushed China the other way—a corrupt and opaque system of governance, a decrepit banking system, dwindling natural resources—have not done more damage. But, then, explaining what happens in a country by examining it in isolation is always an unfair challenge. It is easier and also more useful to look for patterns that hold across a large number of countries... "

This reminds me of the excellent discussion we had in my development class on corruption and economics growth. And surprise surprise(actually no surprise if you've read enough development literature), corruption(in it's many forms) had an insignificant effect on growth..

We discussed how some institutions must have some element of corruption to grow.

Let me exemplify by taking a real life example my father has to deal with everyday. Lets take the rigid labour laws in India. Trade Unionism is making a resurgence in Bangalore. And probably elsewhere, when poor workers see so many young and rich workers they are bound to feel left out of the growth process.

This implies, the trade union BOSS is gonna try and demand for more wage for all his workers, or if he is not that concerned, will threaten to hold a strike, if factory owners don't put money in his pocket. It's corruption that cannot be avoided. It's corruption that helps growth. Interesting ain't it.

Studies also showed decentralized corruption is worse and centralized corruption. But compare India and Indonesia..you get an opposite trend.

Anyway, I have a very nice part time job in the summer studying emerging nations. So be prepared to pick up some FAQ's about countries you wouldn't even have heard of:)

I need sleep!