Just a coincidence I looked at this post again and saw quite a few new entries.

Re SOEs: from your point of view you are entirely right (and I agree my “SOE”is not strictly so. If you believe that it is OK for a government to let individuals who happen to run state-controlled firms treat those as real “capitalist” firms, but without either capitalist (market) discipline or bureacratic (party, whatever) discipline my decidedly non-marxist new-institutionalist economics tells me you are going to get pretty wird incentives, even if they are different from bureaucratic ones.

And I see that you agree that de facto, the Centre does not get too involved in what SOEs do. And of course, theoretically they can. But I do not think that it is plausible that there are delicate enough mechanisms (rather that the various sledgehammers) readily available (of course they can be developed) to make/keep SOEs efficient and “market respecting” (which is very different from being profitable due to market power, however much that type of profitability is cherished by shareholders and managers alike in capitalist democracies, which is then , or should be, countered by gvt regulation to prevent the expensive externalities of market failure.

That is basically my main criticism of many Asian rapid development cases (hesitate to call them models, too sui generis): mobilizing production on the basis of preexisting human capital was a brilliant strategy at the time (Korea, Taiwan) following the success in militaristic precedents like Imperial Germany and Japan, as well as the spectacular success of Manchukuo (alas politically incorrect). It did a lot of things better than bureaucratic socialism (aka marxism leninism) but it had one weak spot. Sooner or later the state would lose control over the Frankenstein businesses it had created. And businesses (state- or privately owned does not matter in this context), without the presence of developed. properly institutionalized and fair markets to prevent true (not marxist jargon) would focus on exploitation of the bulk of the population. I guess China’s domestic economy can easily develop the same pathologies as Japan’s. And pse do not refer to the US as a place that has pathologies of its own, those are well known, understood and so entrenched that it will take generations to change without very dramatic events intervening. I just meant to say that China does not have to make the same mistakes as others.

Re Stern Hu: I guess you are right. The term dual national was used loosely, like “SOE”. Although he has hardly lived in Australia (less than 2 yrs I believe) he is an Aussie citizen and gets the commensurate attention. And it is unlikely that he resides in the PRC on the basis of an invalid (and probably long expired) Chinese passport. But it will be interesting to see what comes out. One of the things that has changed (and will change more) is that iron ore used to be traded on fixed price term contracts that were renegiotated annually. Those did not offer much scope for decentralized corruption and were easy to monitor. During especially the last year more and more iron ore is traded on a spot basis, with pricing that is much more difficult to monitor, especially given the presence of China-based trading firms (absent in the term market). It would be odd that such an increase of opportunity would not foster increased central scrutiny into the prevalence of irregular activities. The interesting thing is that Rio was a relative latecomer to spot iron ore. BHP has been doing this for years. No investigations going on there, apparently. There are rumours that a big part of the excess iron ore imports (over current production use) were for account of two (local) trading firms.

But ethnic Chinese are not dual nationals under PRC law because by acquiring foreign citizenship they are considered to have renounced their PRC citizenship. If the PRC finds that you have entered the PRC with a PRC passport and you are a citizen of another nation, they can seize your PRC passport, remove your citizenship, and deport you.

This doesn’t cause issues because in situations where there is a problem you usually *want* the PRC to seize your passport, remove your citizenship, and deport you.

There is an interesting story about a Dutch citizen of Chinese ancestry that was arrested. The Dutch ambassador was going to angrily *demand* that the PRC treat that person exactly like a local before the person’s defense attorney told him that that would not be a good idea.

I just didn’t think the GOPers were listening!

(But, you’re off base with the printing Rmb and the Chinese government savings bits. Government isn’t the one making money on trade; that would be 60% foreign-invested companies, 30% Chinese SMEs and 10% Chinese SOEs. The excess savings is mainly in the corporate sector.)

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Rien Huizer,

Chinese households are doing just fine. They are earning many multiples of what they earned 20 or 30 years ago. Prices are low and they haven’t developed bad habits such as having an inefficient car for every driver or living off of credit cards.

I accept your point (as noted above) about corporate savings, but don’t dismiss households.

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Twofish,

Ethnic Chinese with foreign and PRC passports who enter China on the foreign passport are granted the status of foreigner in matters such as consular services when arrested. Those who enter on PRC passports or other travel documents do not.

De facto recognition of dual nationality.

Probably not since much of the savings is intended to shore up the pension system.

To Much Fed: Same thing in the USA? Since the few own most of the stock market, do excess corporate profits lead to wealth/income inequality?

Probably not. You have to distinguish between shareholders and management. The more money shareholders make, the less management makes. Shareholding in the US is very highly distributed which means that in most cases, shareholders have essentially zero control over a company.

The structure of most US corporations resembles the Communist Party with the Board being the Politburo. This resemblance is not accidental as the Soviets looked toward the US in the 1920′s on how to organize the CPSU.

This is very common in Chinese business. The big SOE’s tend to list in Hong Kong and NYSE because no one trusts the PRC officials, and the recent mess on Wall Street is going to seriously hurt business there.

Under Chinese law, an “SOE” is 100% owned by the state. People use SOE loosely because the division between what is an SOE and what isn’t is (intentionally) fuzzy.

Beijing has quite a bit of control through SASAC and the Party Organization Committee, but in most situations it has decided not to use it. The problem is that the job of a manager is to manage. If you second guess the managers, then you need another set of managers and then another set of managers and then another set of managers. Either let the managers do their jobs, or fire them, and the Party-state is a good position to fire managers when they don’t make money.

Also there is a huge interest in expanding markets but not with the large SOE’s which is considered to be a “solved” problem. The big thing that the government is trying to push markets to do is to have a private equity system that helps develop small/medium enterprises.

One thing about corporate governance is that every country in the world does things differently, and in some cases *very* differently, and I don’t see that the way that China structures its industries to be particularly unworkable.

Also because so much of the economy is owned by the state, you get to see market like interactions. For example, the Communist Party has no particular reason to favor banks over oil companies, or one oil company over another oil company, or one province over another. Because the political pull for these sorts of things are even, the Party lets the market sort things out.

The thing about SOE’s is that when the SOE’s makes a lot of money, managers benefit, this is a good thing. The larger the amount of money that the SOE has in the bank, the nicer office you get and the more you can pay yourself. What the government has said to the SOE’s is that the government takes X% in tax, and everything else you get to keep.

The reason the government really doesn’t want to take too much money is what is the point of making a profit, if the government comes in and takes all of it? Conversely, if you are an SOE and you start losing money, then your office isn’t going to be as big.