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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The end of China’s growth model — Yasheng Huang

MIT Sloan Prof. Yasheng Huang

MIT Sloan Prof. Yasheng Huang

From The Boston Globe

Stock markets continue to respond strongly to China’s economic woes, fearing a crippling slowdown since China suddenly devalued its currency two weeks ago — a move widely interpreted as a desperate attempt to support growth.

But Chinese growth in the future will be limited until the government makes fairly substantive structural reforms.

China’s growth model is one in which the role of the state in the economy has become more intrusive. For years, many US observers hailed China’s government-led and investment-heavy model as a pillar of strength. Their favorite comparison is between the spunky new airports in Beijing and Shanghai and the supposedly dilapidated New York JFK and Los Angeles airports. While comparison has an element of convenience to it — you have to depart from a US airport and arrive at a Chinese airport when you visit China — the “airportology’’ is flawed, because it doesn’t take into account that China has clearly overbuilt, and at a considerable cost to its middle class.

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The economic future of China-Latin America relations — Stuart Krusell

Director of MIT Sloan's Office of International Programs Stuart Krusell

Director of MIT Sloan’s Office of International Programs Stuart Krusell

What do the economies of Latin America and China have in common? They are both extremely interdependent on the other for growth.

China purchases a significant percentage of raw materials from Latin America, which are used in the manufacturing of goods. Many of those goods are then sold back to Latin America. This cycle has increased over the last decade, as China’s trade with the region has surged more than 20-fold since 2000. So while they are competitors, they also are trade partners. It’s a slice of globalization that is representative of the larger world.

China and Latin America’s relationship becomes even more intriguing when you consider the geo-political environments of both regions. What is the impact of Brazil’s elections on its trade partnership? Populist rhetoric to keep jobs local and not to be so dependent on China is appealing to many, but what happens to the region’s economy if trade with China decreases? Further, how do the corruption investigations in China impact trade? If China’s GDP is affected, it could mean the country is buying fewer natural resources from Latin America.

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