China must draw the right lessons from the failures of its one-child policy — Yasheng Huang

MIT Sloan Prof. Yasheng Huang

MIT Sloan Prof. Yasheng Huang

From South China Morning Post

In 1983, the UN gave China and India awards for their efforts to control the population. The recipient for India was its then prime minister, Indira Gandhi. She famously pushed for a compulsory sterilisation campaign and even suspended elections in order to enforce it. Her programme failed miserably, and one of its enduring effects is a pervasive distrust of India’s health care system, which still plagues public health efforts today.

By contrast, China’s one-child policy was in place for 35 years until this October, when the government announced a shift to a “one couple, two children” policy.

The contrast in duration between the Chinese and Indian population control policies cannot be sharper, and it is this, among other differences, that prompted some Western observers to argue that the authoritarian Chinese system is more capable of enforcing politically tough but economically rational policies.

The reality is much more complicated. It is true that India has a higher fertility rate than China and it is also true that India could not enforce population controls as effectively as China has. But there are many other differences between China and India that would account for a lower fertility rate in China, regardless of policies. Chinese women enjoy a higher socio-economic status than Indian women. Chinese basic education and public health are far superior to those in India. All these factors would have led to a declining fertility rate in China even if China did not have the one-child policy in place.

Read the full article at South China Morning Post.

Yasheng Huang is the International Program Professor in Chinese Economy and Business and a Professor of Global Economics and Management at the MIT Sloan School of Management.

Investors should worry about China’s debt-burdened cities — Deborah Lucas and Doug Criscitello

MIT Sloan Prof. Deborah Lucas

MIT Sloan Prof. Deborah Lucas

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From Fortune

High rates of debt growth by local governments are a cause for concern in any country. In China, where recent turmoil in the equity and foreign-exchange markets has put a spotlight on that country’s economy and growth prospects, increasing levels of borrowing by provincial and other lower levels of government has resulted in local indebtedness rising nearly four-fold since 2008, reaching about 40% of GDP.

Debt growth of that magnitude raises concerns about fiscal sustainability, debt affordability, transparency and accountability. Cautionary tales abound. From New York City in the ‘70s, emerging market countries in the ‘80s, Russia in the ‘90s, and Detroit, Greece and Puerto Rico more recently, there is a long list of governments that have experienced the painful economic repercussions of taking on debt they could not afford.

While the massive debt buildup in China presents challenges, the situation is not as dire as a full-blown debt crisis, a new policy brief from the MIT Center for Finance and Policy by Xun Wu, a visiting scholar, suggests.

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On the Path to Paris, Obama and Xi Invite Stronger Global Climate Ambition — Valerie Karplus

Assistant Professor Valerie Karplus

Assistant Professor Valerie Karplus

From ChinaFAQs

The latest Obama-Xi announcement sends a strong message: the two nations are acting fast to enable a global low carbon transition. Friday’s joint announcement is an unprecedented step by the world’s #1 and #2 emitters to commit, at the highest levels, to a strong set of domestic policies and to reinforce global mechanisms that will help to engage peers ahead of the upcoming landmark climate change negotiations in Paris.

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China’s economic policymakers have to learn to let go if they want to establish credibility — Yasheng Huang

MIT Sloan Prof. Yasheng Huang

MIT Sloan Prof. Yasheng Huang

From South China Morning Post

The ability of the Chinese government to control is undisputed and unparalleled compared with governments in other countries and, indeed, compared with the Chinese state during imperial times. If the stock market does not go up, then prevent it from going down by shutting it down. If too many investors want to cash out their positions at the same time, just charge them with “malicious intent to sell” and arrest them as proverbial chickens to scare off the monkeys.

The problem is that a government so focused on and obsessed with controls is not one that cares about or is particularly good at establishing credibility. A government needs credibility when it tries to convince others to do its bidding without the ability to dictate actions directly.

In his book, The Courage to Act, Ben Bernanke wrote about how US Federal Reserve officials debated and deliberated long and hard about particular words and phrases, and even about the usage of different punctuation marks, in their communiqués with the public.

The reason is that the effectiveness of the Fed does not depend on its ability to arrest people at will but on how it is perceived by market participants – whether it is perceived as being capable, deliberative and above all credible. If the Fed lost the confidence of the market, much of its influence and leverage would evaporate.

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Chinese manufacturing seeks a major upgrade – through the use of robots — Thomas Roemer

MIT Sloan Senior Lecturer Thomas Roemer

MIT Sloan Senior Lecturer Thomas Roemer

From South China Morning Post

When Chinese officials recently announced plans to support investment in robots in China’s manufacturing industries, the reaction in some US circles was one of astonishment, if not incredulity. Much of China’s attraction as a manufacturing powerhouse, after all, has been low labour costs, so turning towards robots would seem like relinquishing a key competitive advantage. In fact, several key drivers explain why this is a very intentional and strategic move.

One key factor is that while China’s labour costs still lag behind those in other key economies, Chinese labour has become relatively expensive compared to nations such as Vietnam and Indonesia. Moreover, Chinese labour costs are increasing at a much faster rate than in the US and, while the gap is still considerable, it is narrowing at a relentless pace. China also faces a labour scarcity in its economic boom centres.

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