9/23 TBC Insider Digest
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Insider Digest 9/23/21: The Relationship Between the Chinese Government & Economic Development (Part 1)
Housekeeping / Announcements …
TBCI Singapore Meetup: Thanks to Bev for posting!
Voice Chat is on for tomorrow! Same time as always in Discord, 9AM EST / 9PM Asia time.
If you missed our livestreaming ecommerce chat with Ray… it was very good! But no worries, I will be sharing an early edit with you in the next week or so. Ray is actively looking for talent to join his US-focused ecommerce startup (but based in China). You can add him on LinkedIn here.
Now for some posts. I decided to do an experiment this week and summarize for you all a brand new highly rated bestseller in China called “Putting Oneself Inside: The Chinese Government and Economic Development.” It’s written by an economics professor at Fudan who was educated abroad named Xiaohuan Lan. Lan noted that even in China, the curriculum taught mostly Western concepts of economics that did not reflect the reality on the ground in China. His is not the only book on this subject but perhaps one of the best primers. You see, lots of folks in China aren’t educated about this either! I think I captured most of the book, and I think you’ll find it very clear and straightforward, and probably more than a little surprising.
Chapter 1: Local Government Powers & Responsibilities
The balance between central and local government is really difficult — 1) maintaining unity is necessary, but 2) the size of the country necessitates that local government must be in charge for daily operations. First line of Romance of Three Kingdoms tells us that "The empire, long divided, must unite; long united, must divide. Thus it has ever been" and we can see in the last 2000 years of Chinese history, the relative "peaceful & unified" time is only 950 or 45%, with conflict / broken accounting for 55%. Which shows us how difficult it is to manage this balance. Thus the Chinese constitution notes that while the central government leads, the local government is expected to take initiative.
Chapter 2: Finance, Taxation and Government Action
Land Finance first steps: in China, agricultural land is collectively owned, city land is owned by the government, thus the former must be converted to the latter before you can construct commercial or residential real estate on it. Thus government land is much more valuable than farm land. But this has caused a huge disparity between urban and rural areas, surging real estate costs, etc. In proposed 2020 reforms, the first thing was to unify this gap between city and village.
Chapter 3: Government Investment, Fundraising and Debt
By law, local governments cannot get debt from banks, and before 2015, could not issue debt securities, so if they wanted to invest, must form a special company. Most of these companies are wholly government owned, and called "local government fundraising platforms." Their official names often have "construction investment" or "investment development" in it, so they're also called "city investment companies."
Chapter 4: Government's Role in Industrialization
In real life, the difference between "market" and "government" is not black and white, just combinations of different incentives. Since China began with a state-controlled economy, that's why local governments control lots of resources (land, finance, SOEs, etc.) and unavoidably get into the business of investing in real assets. Depending on the industry — steel is different from semiconductors, for instance — the cooperation between governments and corporations is very different. This chapter is on some landmark case studies, but does not necessarily mean they are the best.
In case you missed it …
There were many files shared in Discord, including an excellent series on China from a leading investment bank by Yunfei, a few articles from hc-72 on Evergrande. We have two new channels called #macro and #fintech in addition to #gaming now. I won’t be re-posting the files here, please reach if you’re having trouble with the software. But please join us there, I think you’ll enjoy it, as it’s quickly become the most active part of TBCI!
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