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Sex and Trade Surplus in China
By Economic Forecasts & Opinions
Concerns over the global imbalance resulting from large Chinese current account surplus and large U.S. current account deficits has many economists and politicians locked in heated debates. Some experts, including Paul Krugman, propose measures focusing on changing China’s exchange-rate policy and trade barriers.
Indeed, the household savings rate in China went from about 16% of disposable income in 1990 to over 30% today. The comparable rate in the U.S. was about 3% before the crisis, and 6% in recent months.
The economic consequences are global as the excess savings directly impacts China's balance of trade and current account surplus. Many economists have asked the question - Why do the Chinese save so much?
Some attribute it to a lack of a social safety net on health care, pensions, etc. as well as anxiety over future inflation. Others have cited the high level of savings comes from Chinese corporations rather than households.
While they all could be contributory factors; a recent paper by economists Shan-Jin Wei of Columbia University and Xiaobo Zhangk of the International Food Policy offers a different explanation - social policy.
The two economists suggest that sex selection in China has led to intense competition for brides. Savings rates have shot up as families strive to boost their sons' odds of marriage. (See graph)
Their study hypothesized that the strict 30-plus-year old one-child-per-family plan is the primary driver of the high savings rate. This, coupled with a cultural preference for male offspring, has led to a significant imbalance between the number of male and female children born to its citizens.
Statistically speaking, this translates into about one in five Chinese men out of the marriage market when the current generation of children grows up. The resulting pressure might incentivize men and parents with sons to increase savings in order to have a competitive edge in the marriage market.
The paper estimates that about half of the increase in the savings rate over the last 25 years can be attributed to the rise in the sex ratio imbalance. The authors further argue that:
"None of the discussions [on global imbalance] have brought family planning policies or women's rights to the table .... Our research, however, suggests that this is a serious omission."
The authors also point out that even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households.
This conclusion actually brings up part of the point I've raised in previous articles. That is, China needs time to push through difficult economic and social reforms to increase investment and consumption, while reducing savings rate at home before it can allow its currency to float freely against the dollar.
These reforms could take up to 10 years to implement. And only when the productivity of China reaches that of the United States will the two countries’ price structures converge.
Resolving these global imbalances requires all major surplus and deficit countries to work through a complex adjustment process. One can only implement a proper policy through rational discussion over and understanding of the diagnosis.
Imposing one's own standard and values onto others and expecting them to bow in acceptance, which is a centuries-old operating model of the West, breeds only geopolitical conflicts and tensions.
"What you do not wish upon yourself, extend not to others." ~ Confucius
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Ni Hao. Thanks for the insight . Sometimes I get so sick of the re-hash of some model's predictive power, and the partisan bickering that comes about after some non-conforming datum. Here we have an example that looks first at human action (the most primal at that ) and postulates the possible outcome. As for trade between "free people", it does not exist. There can be only people, that are "free to trade".
Stupid people need government to tell them what they can read and what they cannot read. Google... just let it be.
I view it in much simpler way. Over the last 50 years we all decided that all WORLD trade in any way and and form is beneficial to all. Such a view became an absolute fact, dogma and group think in a way. However when analysed closely, there are certain cases where the trade becomes beneficial mostly to one side, while the other side loses. Despite such a possibility and facts indicating it might be true, the group-think will continue the old course. They will continue to focus only on the data that self justifies their beliefs until it is too late to fix the equation and too obvious that they were wrong.
What you are proposing is too just close our eyes on the Chinese intervention into the currency market and their protectionism of their own industries on all other levels, through subsidized loans, not enforcing the proprietary laws and requirements of anyone who wants to sell locally to buy local components or open up local production.
The question in the end, do they manipulate the trade or not? Are they fully committed to their WTO entry obligations, now years after getting an entry into the WTO?
If the answer is NO, there is no need to wait.
It is true that there are number of economies that have the fixed rate policy, however none are as large as the Chinese economy and none have such a large impact on the world balance of trade.
We, US have been waiting for them to play fairly for over twenty years, twenty years is more than enough. The longer we wait, the longer we keep losing. And as the word trade, it is always beneficial ONLY when both parties involved are playing fairly and are on the same stance when it comes to labor, environment and similar regulations.
As of Paul K., while he does have a blue line bias to rise the issue, rising such an issue and having been trained as an economist takes some real BALLS because such a view goes against mainstream view within the economics. Now, the fact that it goes against the mainstream, does not automatically makes it wrong. The best way to view or analyse this particular situation is through the game theory rather than through the classical economic frame, and the game theory would show that some of the payouts for one of the players - us are losing payouts in the long run.
It is possible that while having cheap export in certain industries, out benefits in the long run will be lower than out costs. In particular benefits of of us consumers having dirt cheap high tech goods are lower than the benefits of having a bit more expensive goods but made by the local industries, while employing LOCAL talent. To sum it up, when it comes to having cheap exports in the low end of production will benefit us in the short and long term, having the cheap exports due to subsidies and zero environmental & related regulations in the high end industries will hurt us much more than benefit us in the long run. If Chinese will continue dumping their exports & having an exchange rate that is fixed in the long term is nothing but dumping, we will lose more in terms of sum of benefits by having those industries but paying higher cost than we will gain, mostly as consumers from the trade with China.
While the world trade between fair partners on the same economic level of development is NONE ZERO sum game, the game between one partner that always plays unfairly becomes a ZERO sum game. Which means that ultimately one side - us will lose much more than it gains in the long run.
p.s. Most business leaders who oppose idea of forcing the Chinese to making their currency flexible are doing so just because it goes along with their long standing views and not necessary because they took into the consideration all of the related data and other implications. You could look at out social mobility data or inflation adjusted earning power of an average American in the last twenty years, and you will see that the trade with them made us a loser and seized to be a none zero sum game.+1000. I'm for free trade among free people.
All these pseudo-Libertarians pimping for China on Wall Street are just talking their books or trying to drum up IPO business. It's sickening. They have (shock!!) no real principles at all.
But I do feel sorry for the average Chinese in many respects. Foremost among which is that the crackdown on porn is going to be especially tough on those poor wankers who cannot afford wives. At least they'll be able to get some exercise in the fresh air of the Bird's Nest to work off their frustrations.
LOL
what about the surplus women in Thailand ?
I agree with you, I am one of those people. I see china as an untapped massive oil field for porn. I've been trying to find a way into China but it's almost impossible and trying to find a server that is both out of china and able to operate in china with porn is hard. Sooner or later they are going to have to open up the valves in order to have some form of release for there society. China has a population of 1.3 billion taking the statistical half being men and half women there are 650 million men. Then if one out of every 5 men won't have a chance (I think that is very conservative, google around and research about the coming China social explosion of less girls than boys) then that would make it that 130 million men aren't in the running.
I don't think that the Chinese will be able to find 130 million suitable mail order brides. Kidnapping (which has occurred) beyond the noise level doesn't make for good relations with surrounding countries.
130 million men in forced bachelorhood might cause anger and frustration of another sort with the gov't. The gov't will then need to redirect that anger and disenchantment. That's the part that really worries me.