183. Flying Bird

The cover photo was taken last week by West Lake. This “E-person” grandpa was skating with a speaker playing the Titanic theme song, looking so happy. It reminds me of Tang Dynasty’s song “Flying Bird”: “Everyone once longed to be a flying bird, traveling between the sky and the sun, flying over the endless long wilderness…” The only difference is the vibe—one soft, one bold.

Record the down-to-earth trending technologies seen every week, and publish them here after screening. If you find it good, you can follow this weekly to get update notifications.

TradingView: A solid financial tool
https://cn.tradingview.com/markets/world-stocks/worlds-largest-companies/
If you’re into learning personal finance, TradingView is very useful, especially for stock investors. You can clearly see world stock rankings and multi-dimensional analysis, like the “World’s Largest Companies by Market Cap.” I often use it to analyze stocks I’m interested in from a scientific perspective before buying.

Emergent Mind: A great AI learning site
https://emergentmind.com/
Emergent Mind scrapes the latest AI research papers from arXiv and uses GPT to summarize them. You can filter by category, trend, and time. Great for research—best enjoyed with a focused mind.

Full-Stack DS / DA Career Handbook
https://jace-yang.github.io/Full-Stack_Data-Analyst/intro.html
A handbook for full-stack Data Science/Data Analysis roles, compiled by Jace, a Columbia DS student. Perfect for beginners and includes many domestic case studies.

whats.new: A new type of address bar shortcut
http://whats.new/
Google’s whats.new service is a fantastic idea. js.new creates a new JS project on CodeSandbox, docs.new opens a new Google Doc, sheets.new for spreadsheets, and gist.new for code snippets.

Random Notes

Jensen Huang’s Caltech Commencement Speech
https://youtube.com/watch?v=Sc48ToLIQAY
Watched Jensen Huang’s Caltech speech on YouTube. He shared insights on AI, Nvidia’s transition, and some life lessons. Very grounded and worth watching.

Reading Notes: “置身事内” (Being Systemic)
https://tw93.fun/2024-06-30/china.html
I recently finished “置身事内: The Chinese Government and Economic Development”. I skimmed it last year, and with Hangzhou raining for days on end lately, staying home and reading to the sound of the rain felt great. It is a good book worth reading twice, so I spent some time copying down the points I liked as a memo.

There is a pattern in China’s economy: regions sitting on administrative borders, especially provincial borders, are generally less developed.
China is vast, but its population is extremely unevenly distributed. If you draw a straight line from Aihui in Heilongjiang (south of today’s Heihe) to Tengchong in Yunnan and split the country in two, the east holds 43% of the land and 94% of the population, while the west holds 57% of the land and only 6% of the population.
In 2019, 18 of Zhejiang’s 53 counties (including county-level cities) were among the country’s top 100 counties. In some other provinces, though, the “province directly governs counties” reform ran into at least two problems. The first is that the province could not keep up. Before the reform a province managed 12 cities on average, afterwards 52 cities and counties. Money and power went to the counties, but supervision did not follow, and all sorts of disorder appeared at the county level, such as rampant land-related corruption.
Gathering and passing on information takes a great deal of time and effort: superiors keep relaying downwards, subordinates keep reporting upwards, and peers keep coordinating, which is why a defining feature of working inside the system is “mountains of documents and seas of meetings”. As carriers of information, documents and meetings also became carriers of power, and an elaborate system of documents and meetings became an indispensable part of how power works.
Most of the information and phenomena the public sees are already the outcome of a negotiation, and students without much life experience easily mistake the outcome for the process.
Power, in essence, is the question of who gets to make the call when things cannot be made clear.
To understand what the government really intends and where it is heading, reading documents is not enough, you also have to look at where government money flows and how much of it, so public finance has never been a purely economic matter.
To understand how the government governs and operates, first understand how power and resources are distributed within it, both vertically between levels of government and horizontally between governments at the same level.
The functions of each level of government in China are basically the same, and the higher level leads the lower. In principle the higher level has the final say over all of the lower level’s work and can overturn any decision. But the higher level cannot hold and process all the information, so many matters are in practice handled entirely by the lower level. Even when the higher level wants to step in, it often has to rely on information the lower level provides. When a superior inspects work, for example, they listen to a report from the subordinates, and whether that report is reliable they may not know. Without an independent source of information, the superior can be led by the nose. So although the higher level nominally has the final say, a “formal authority”, the lower level has a lot of autonomy in practice because information is complex and hard to process, a “real authority”. Keeping these two kinds of authority in balance is the key to an effective government. If the lower level has a clear information advantage and bears most of the consequences, it should decide on its own. If it has the information advantage but the consequences matter a lot to the higher level, the higher level is likely to intervene more. Intervention, however, can dampen the lower level’s motivation, so the result is not necessarily better for the higher level.
Because information is complex, unreliable information is everywhere, and power and responsibility are highly personal, the rules and regulations inside the system cannot fully replace personal trust. When promoting subordinates, superiors look at ability, but for key positions they try to place people they can trust.
Behind a successful policy is successful negotiation and compromise rather than mechanical orders and execution, so understanding conflicts of interest and how they are coordinated and resolved is the basis for understanding policy.
The way local governments in China drive economic growth has three features: in urbanization, “land over people”; in the competition for investment, “scale and expansion first”; and in the economic structure, “investment and production over consumption”.
“Land finance” covers not only the huge income from transferring land-use rights but also the various taxes tied to using and developing land. Local governments were never really out to make money by selling land, what they want is the industrial and commercial activity that developed land attracts.
The economist Steven Cheung once offered an analogy: a local government is like a shopping mall, and attracting investment is like bringing in shops. A shop pays only a low entry fee (like the transfer fee for industrial land) but shares its revenue with the mall (like value-added tax, which is shared as long as there is turnover, whether the shop makes a profit or not). The mall wants to maximise its total income, so it has to balance entry fees against rent and one shop against another. Some shops are famous and bring in more foot traffic, so the mall can waive their entry fee, lower their share, or even pay them to come (like the subsidies local governments give companies).
This land-centred urbanization ignores the real core of urbanization: people. Land prices are pulled up by housing prices, housing prices are paid by ordinary people, and mortgages are repaid out of buyers’ incomes. So capitalizing land is in essence capitalizing personal income, and what holds up housing and land prices is people’s income. Once people are ignored, once we forget that urbanization should serve people and create a better environment and higher incomes for them, urbanization goes astray.
Local governments do not only create an environment for economic growth, they take part in it deeply themselves, and nowhere is this clearer than in attracting investment.
The most prominent feature of the imbalance in China’s economic structure is weak consumption… household income was transferred to governments and companies and turned into infrastructure such as roads and high-speed rail, and into factories and machinery, while consumer goods such as cars and home appliances make up a relatively small share… In the early stage of development, shifting more resources from household consumption into capital accumulation, into infrastructure and factories, can effectively get the economy off the ground, upgrade industry and raise productivity and incomes, but once the economy reaches a certain stage this approach is no longer sustainable.
Real estate is often called the “mother of economic cycles”, and the root lies in its built-in conflict between supply and demand: on one side, banks can create almost unlimited new purchasing power through mortgages; on the other, the supply of non-renewable urban land is limited. This conflict often produces cycles of asset bubbles and busts and is the core source of instability in finance and real estate. Because real estate is tied not only to banks but also to the wealth and consumption of countless households, its impact is huge.
Rising housing prices not only add to mortgage debt but also widen the gap between rich and poor, which in turn pushes lower-income people to borrow in order to consume, a phenomenon known as “trickle-down consumption”. Among people in debt, the burden on lower-income people is especially heavy, and when household debt stays high it is hard to withstand a recession, especially one triggered by falling housing prices. Nearly all the wealth of lower-income people is their home, most of it a mortgage owed to the bank, so they are highly leveraged and easily hit when prices fall.
To defuse the risk of household debt, besides curbing the rise in housing prices, the fundamental fix is to raise incomes, especially for low and middle-income people, and encourage them to work where there are more opportunities and higher pay, so that regional gaps in development and income become a chance for lower-income people to get ahead rather than a barrier to moving.
The accumulated gap in wealth is generally far larger than the yearly gap in income, because people with wealth find it easier to accumulate more, earn higher returns on assets, and have more ways to invest and to deal with risk.
When buying land, developed countries generally require companies to use their own capital, while China allows developers to borrow money to “buy land”, which encourages developers to bid up land prices and stockpile land. The stockpiled land can then be pledged to raise more loans and stockpile even more land, so developers’ size and debt keep snowballing.
The average total assets per household in Beijing (gross, before deducting mortgages and other debts) are 8.93 million yuan, and 8.07 million in Shanghai, six to seven times those of Xinjiang (1.28 million) and Jilin (1.42 million). Most of this gap comes from housing prices. Rising housing prices also widen inequality within the same city. Cities with high housing prices tend to have high vacancy rates too: many people cannot afford a home while many homes sit empty. Counting all household wealth including housing, according to the People’s Bank of China survey above, in 2019 the richest 10% held 49% of total wealth, while the poorest 40% held only 8%. Rising housing prices not only add to mortgage debt but also widen the gap between rich and poor, which in turn pushes lower-income people to borrow in order to consume, a phenomenon known as “trickle-down consumption” that is common in developed countries. From 2014 to 2017, the savings of the lowest-earning 50% in China were basically zero or even negative (spending more than they earned). From 2015 on, personal consumer loans such as credit cards, Ant Huabei and JD Baitiao surged. According to the People’s Bank of China data on the payment system, from 2016 to 2018 the outstanding credit owed on bank credit and debit cards grew by nearly 30% a year on average. In 2019, credit card risks surfaced and banks hit the brakes one after another.
Household debt in China is close to that of developed countries, government debt is lower, but corporate debt is far higher.
The ballast of Chinese people’s wealth is their homes, while for Americans it is financial assets. This big difference helps explain some basic policies of the two countries, such as China’s attention to the housing market and America’s attention to the stock market.
Building up debt, or “adding leverage”, is a process of more business dealings between people, and it drives prosperity. Debt contraction, or “deleveraging”, is a process of less business activity, and it brings recession.
When household debt stays high, it is hard to withstand a recession, especially one triggered by falling housing prices. Nearly all the wealth of lower-income people is their home, most of it a mortgage owed to the bank, so they are highly leveraged and easily hit when prices fall. In the 2008 US mortgage crisis, one in four mortgages was underwater, and many poor people’s assets were wiped out overnight. From 2007 to 2010, the net worth of the poorest 20% of Americans fell from an average of 30,000 dollars to almost zero, while the richest 20% lost less than 10%, from an average of 3.2 million dollars to 2.9 million, and only briefly. By 2016, as stocks and housing rebounded, the real wealth (adjusted for inflation) of the richest 10% was 16% higher than before the crisis, while the real wealth of the bottom 50% had been cut in half, back to its 1971 level. Forty years of savings, gone after one crisis.
Overall, whether through bankruptcy reorganization or liquidation, China still has a long way to go in reforming and building the system for companies to exit.
New energy technology has to enter the market before it has a competitive edge, and at that point there are only two options: impose a high carbon tax or fossil fuel tax on traditional energy to raise its cost and make room for new energy, or subsidize the new energy industry directly. The first is clearly uneconomical, because in the early days traditional energy holds more than 90% of the market and is cheap, so taxing it heavily would greatly increase the tax burden and cause huge distortions. The more sensible approach is to subsidize new energy directly to speed up its technical progress and cost reduction, then, as its market share grows and its costs approach those of traditional energy, gradually cut the subsidies while taxing traditional energy to speed up its exit.
From the overall model of economic development down to specific industrial policies, there is no answer that works everywhere regardless of context, each problem has to be analysed on its own terms and adjusted as reality changes. Policy tools have to keep evolving because government capacity and market conditions keep evolving. In this sense, understanding how developed countries actually developed, the specific difficulties they faced and how they got out of them, is more instructive than grand talk about the “Washington Consensus”.

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