Archive for March 29th, 2019

China and Its Western Critics (Is China a good case for MMT?)

March 29, 2019

Andrew Sheng and Xiao Geng in this piece:

Contrary to popular belief in the West, where democratic elections are typically regarded as essential to holding governments responsible for their policies, China’s approach supports accountability. Indeed, the evidence shows that policymaking is responsive to feedback from both the Chinese people and the international community, with leaders correcting mistakes and updating outdated measures as they gain new information.

Such adaptation is supported by two annual meetings that have been held in Beijing every March since 1998: the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). At these gatherings, top officials from China’s State Council, including key ministers and the premier, create detailed reports, identifying the challenges China faces, as well as a blueprint for continued reform and opening up.

The results are shared with delegates attending the meetings and broadcast live to thousands of official delegates and Chinese and foreign reporters. These gatherings thus represent an important window into evolving Chinese policymaking and governance.

At the most recent NPC and CPPCC, Chinese policymakers weighed the backlash against the standard neoliberal economic model, based on free movement of goods, capital, information, and sometimes labor. The advanced economies and the international institutions they lead have long assumed that expanding these freedoms naturally leads to better outcomes for all.

But the neoliberal model has had grave unintended consequences, such as environmental degradation, rising inequality, and the emergence of monopolies (especially in the tech sector). On a more emotional level, globalization and openness has fueled cultural insecurity. As frustration with the advanced economies’ approach has grown, so has mistrust of the experts and elites who championed it.

In response to these anxieties, rational homo economicus has morphed into emotional homo politicus – an agent susceptible to the sirens of nationalism, tribalism, protectionism, and populism.

The result is escalating trade conflicts, rising isolationism, surging anti-immigrant sentiment, and calls for massive increases in social spending, based on concepts like modern monetary theory.

While many in the West sacrifice homo economicus to appease homo politicus, China’s leaders are trying to satisfy both. They know that neglecting the needs of homo politicus could lead to social instability and fragmentation. But they also know that they must respond to internal pressures and rapidly evolving external conditions in ways that make good economic sense.

Not every decision will turn out to be the right one. But in China, when mistakes are made, adjustments follow. While this form of accountability is not perfect, it has produced a track record that is exceptional by any standard.


So how is China trying to balance:

Despite the challenges China faces – including a high debt-to-GDP ratio and volatile stock markets – the country’s leaders have proved adept at securing progress toward these goals. Consumer price index inflation stands at 2.1%. Last year, 13.6 million urban jobs were added, underpinning an unemployment rate of just 5%, and over 18,000 new businesses were launched every day, on average. China’s international trade and payment position is largely balanced.

This is the result of a comprehensive and ever-evolving strategy aimed at improving the quality of life and work, reducing poverty, lowering the tax and regulatory burden for small private businesses, and championing green, innovative, open, and sustainable growth. For example, last year, China reduced its average tariff rate from 9.8% in 2017 to 7.5%; opened another 4,100 kilometers (2,550 miles) of high-speed railways; granted permanent urban residency to 14 million workers from rural areas; and implemented tax and fee cuts that reduced business costs by some CN¥1.3 trillion ($193 billion).

The Chinese authorities have now announced their intention to reduce the tax and social-security burden for business by another CN¥2 trillion, and to increase the fiscal deficit by 0.2 percentage points of GDP, to 2.8%, in order to counter the threat of protectionism-driven global deflation. Moreover, the NPC adopted a new foreign investment law that will reduce barriers to market entry by foreign entities and improve substantially the protection of intellectual property rights.

As the Chinese Central Bank works with the Government and is not shy about this at all, it has elements of MMT.

Why central bankers don’t understand inflation?

March 29, 2019

Frances Coppola in this piece argues that central bankers are trying to fight the demon of low inflation, which ironically they themselves have created:

Central banks have advanced all sorts of explanations for the failure of the inflation demon to awaken. Post-crisis fiscal austerity, which is a considerable drag on both growth and inflation. Globalisation, which forces workers in developed countries to compete with workers in countries where the price of labour is lower. Technological advances that threaten to replace workers with machines. The trend towards longer working lives as the population ages: recent research by the Bank for International Settlements finds that a higher proportion of older people in the workforce puts downwards pressure on wages. The rise of the gig economy, self-employment, casual, temporary and zero-hour contracts, alongside weakening union power, falling union membership and systematic dismantling of collective bargaining.

These explanations all boil down to the same thing. Labour power is much weaker than it was in the 1970s, and is still weakening due to a combination of government policies and global economic forces. Wage rises and inflation are on the floor and are expected to stay there.

Belatedly, central banks are beginning to wake up to their weakness. They have little power to raise inflation when governments are hell-bent on feeding the economic forces that are keeping it down. And although they say they would like to see wages rising, they are simultaneously signalling that if wages rise, they will stamp on them. Why bother raising wages, only to take them away again in higher interest rates?

The Federal Reserve’s Daniel Tarullo has warned that central banks are relying too much on “inflation expectations”. He advises that central banks should wait until inflation starts to rise before raising interest rates. Belatedly, they are now beginning to follow his advice. But in the fight against lowflation, central banks are largely irrelevant. Unless governments actively embark on initiatives to raise incomes and living standards, inflation will remain on the floor whatever central banks do.


Central bank communications in a post-truth world…

March 29, 2019

Not seen an central banker talk about post truth world.

Mr Mugur Isărescu, Governor of the National Bank of Romania. in this speech touches on the topic:


Hong Kong grants licences to virtual banks

March 29, 2019

I had blogged about HK looking to licence virtual banks.

Now they have given licences to 3 such banks with 5 more in pipeline:

The Hong Kong Monetary Authority (HKMA) announced today (27 March 2019) that the Monetary Authority has granted banking licences under the Banking Ordinance to Livi VB Limited, SC Digital Solutions Limited and ZhongAn Virtual Finance Limited for them to operate in the form of a virtual bank. The granting of these banking licences takes effect today.

Mr Norman T.L. Chan, Chief Executive of the HKMA, said, “We are pleased to grant the three virtual banking licences today. The introduction of virtual banks in Hong Kong is a key pillar supporting Hong Kong’s entry into the Smart Banking Era. It is a major milestone in reinforcing Hong Kong’s position as a premier international financial centre. I believe that virtual banks will not only help drive FinTech and innovation, but also bring about brand new customer experiences and further promote financial inclusion in Hong Kong.

“As virtual banks will have no physical branches, they will rely on the internet for customer acquisition and for the delivery of banking services. I believe that virtual banks will have to offer innovative and customer-centric services in order to attract customers. Moreover, in targeting the retail public and SMEs as their main client base, virtual banks should help promote financial inclusion in Hong Kong.

According to their business plans, these three newly licenced virtual banks intend to launch their services within 6 to 9 months.

After the granting of the above banking licences, the number of licensed banks in Hong Kong will be increased to 155.

The HKMA is making good progress in the processing of the remaining 5 virtual bank applications.

155 banks alone in HK.

Here is a speech by Arthur Yuen, Deputy Chief Executive, Hong Kong Monetary Authority giving rationale for their selection and so on…

International Conference on Indian Business & Economic History in Memory of Prof. Dwijendra Tripathi

March 29, 2019

IIM Ahmedabad will be hosting an international conference on Indian business and economic history in memory of Prof. Dwijendra Tripathi on August 29-31, 2019.

Here is the notice for Call for Papers:

The conference invites researchers to submit research papers and ideas to two separate tracks of the conference – PhD Student Workshop and Conference Research Papers.

PhD Student Workshop

The conference will commence on Thursday, August 29th , with a 1-day workshop for PhD students working on Indian business or economic history or keen to explore this research interest in the near future. Students may belong to any disciplinary background. The workshop will provide feedback on the student’s research topics and ideas and have sessions conducted by leading scholars of the field.

To apply, students have to email, their CV, one-page synopsis of their ongoing research and a one-page statement of interest to attend the workshop, before April 30, 2019.

Students from within and outside India are encouraged to apply for the workshop. Women and students from historically marginalized communities are particularly encouraged to apply for the workshop. MPhil and Masters’ level students can also apply if they are able to demonstrate their keenness to work in the field, and the application would require an additional reference letter from their research supervisor.

Selected students will be notified about their applications by May 10, 2019, and are expected to participate in all three days of the conference proceedings. The workshop is fully-funded and covers three days of accommodation and food on the IIMA campus. It also covers the cost of travel to IIMA, not exceeding Rs. 10,000 per participant.

Conference Research Papers
The conference theme is broad with the following suggestive themes covering the Indian subcontinent in the 19th and 20th centuries,

    • The legacy of colonial and princely states on economic development
    • Regional variations in development in historical perspective
    • Urban histories
    • Sector wise histories: eg. Aviation, Media, Advertising, Finance, Real Estate, Coal, etc.
    • Firm level histories
    • Entrepreneurial histories
    • Management histories
    • Histories of business associations
    • Technology transfer and international collaborations

The conference also invites research spanning other time periods and topics.

A 500-1000 word abstract with title and participant’s affiliation, should be submitted to , before April 30. Selected speakers will be notified by May 10, 2019, and full research papers are expected to be submitted by August 1, 2019. For the selected speakers, two days of accommodation and food related expenses at IIMA will be borne by the conference organizers.


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