Cultural Economy

In the old days, before about 1890, there was no field of economics.  There was only political economy, rightly reflecting the link between institutions and laws and the incentives they created.  As Acemoglu and Robinson pointed out in Why Nations Fail, what we call economics arises from the interplay of culture and institutions, and to think that economics is the same for all is to think poorly.

I want to point out some of the ways in which economic thinking can differ across cultures, and explain some of what we see in development in China, and in foreign countries with Chinese companies. 

Economic issues are necessarily paramount for any national leader.  Right now, both Mr. Xi and Mr. Trump derive their legitimacy from promises to achieve national greatness again, and for both, this fervent hope has much citizen – that is, cultural – support.  For Trump, the political slogan is Make America Great Again; for Xi, Made in China 2025, or perhaps, Socialism with Chinese Characteristics for a New Era.  

In China, this promise is more than a political slogan – more than, it’s the economy, stupid.  For Xi and CCP, the promise of development is at the heart of the promise to the Chinese people. All other values are to serve that purpose.  That has been CCP policy since inception.  The CCP Constitution is pretty clear –

In leading the cause of socialism, the Communist Party of China must persist in taking economic development as the central task, making all other work subordinate to and serve this central task.

Chinese development internally has been one of the world’s great stories – from extreme deprivation and depression to dual tier markets and township village enterprises and some land rights and property rights and competition law and insurance and stock markets and financial markets of all kinds.  The infrastructure miracle is the obvious sign of change for investors and foreigners alike.  But China doesn’t seek to export its development model.  It is understood that China is sui generis – except for infrastructure, where the universal model always seems to be, if you build it, they will come.

Many revenue-generating infrastructure projects within China seem structured as loss leaders for economic development, to the benefit of the local party chief.  There just isn’t any way for the completed project to throw off enough cash to pay for all construction and development and operating costs. One sees this in some expressways, subways, some high speed train lines, some airports and ports. The completed projects are beautifully appointed white elephants. How can this go on, year after year, across China?  Where is the ROI calculation?  Where is the money coming from? Who is eating the losses?

One has to understand the difference in ways of understanding economics in China and the west.  This means understanding how culture drives incentives. Economic interpretations are culturally implanted. Thinking about long and short term can be different. Thinking about goals can be different.  What is rational can be different. Let me give you some examples. First, from the savings side of the market.

Example 1 – bank savings 

It is about as fundamental an economic idea as there is.  When returns go up, people invest more and restrain consumption.  Interest rates go up, people will save more, and restrain consumption.  At the national level, macroeconomists have to figure out the impact of potential changes in interest rates, exchange rates, employment rates and investment.  What will people do? And while every situation has its own special character, when one has been making judgments for a while, one gets a feel.   So it was with some surprise that I saw Chinese policy makers discussing the impact of a rise in interest rates on savings.  This was at a time that policy makers were debating whether to allow rates on bank savings to rise, giving citizens a bit more of a return on their money, commensurate with growth in the economy, and ever-so-slightly slowing demand for money from developers and governments.

But what’s to discuss?  If interest rates go up, people put more money in the bank.  That is how the world works.

But maybe not always.  Our standard assumption, seldom noted, is that people are unconstrained in their choice to save or consume – that is, people are free to alter their spending or savings pattern as they wish.  For many savers in China – for most of us in the real world – that is not true.  You know the deep cultural importance attached to education in China.  Families, grandparents, will sacrifice mightily to save enough money to send their star student off to college, maybe high school, in America.  That may take extreme savings over a fifteen year period, but the investment is considered worth it.   If the grandparents have a defined monetary goal – $50,000 in fifteen years, then savings of $240 per month are required if interest rates on bank savings are 2%.  Returns in the real economy might be 7%, or 10%, but savers never see those returns.   But suppose policy makers allow interest rates to rise – say to 5%.  Then monthly savings of $193 are required to meet the future monetary goal, and perhaps grandma and grandpa can eat a little better, or afford the medicine they sacrificed for the cause.  Current consumption instead of savings.  The policy question is then, will they spend the extra $47 per month, or save it?  If you are a policymaker, how do you think about the goals of savings?  If you raise interest rates, will people put more money in the bank – or less?  Without some handle on the cultural features of savings, you don’t know.  And don’t let libertarians or advisors whose understanding of economics includes no psychology or human behavior tell you that economics has no cultural biases. 

Example 2 – trust and good faith

Getting to Yes is the well-known book on negotiating by Roger Fisher and William Ury.  I think everyone in the world who has ever taken a negotiation course has read this book.  In it, Fisher and Ury lay out the major principles for successful business negotiating over time – focus on interests, not positions; try to invent options for mutual gains; quantify or be clear about goals and measures of success. They are well aware that some negotiators lie, cheat, and distract, for the sake of the bargain.  But a general assumption in the US at least, is that the parties are negotiating in good faith – meaning a sincere intention to deal fairly with others.  In American contract law, good faith means that one party will not act so as to destroy the ability of the other side to receive intended benefits.

That is decidedly not a good assumption in negotiating in China.  The best known classics of war, and negotiating, in China are san shi liu ji, 36 Stratagems, and sun zi bing fa, the Art of War, by Sunzi.   Both are studied closely by students and businessmen.  Both emphasize deception, misdirection, and secrecy in dealing with the enemy.

With apologies to Chinese businessmen who have been highly successful by acting in open and principled ways with Chinese and foreigners, good faith is not a good assumption.  Stories about misunderstandings in completed negotiations or the irrelevance of a signed contract can be attributed to cultural differences. This is part of learning the turf.  But other problems, such as quality fadetheft of molds and IP, even kidnapping of American business people over payment disputes, are not cultural, but simply describe dishonest behavior.  This, when negotiations in China are designed to take extra time in order to build relationships.

Even within a company, growth plans can be secret, the province of only the owner. Survival and growth in the market is akin to warfare. Sunzi tells us that deception is a necessity, even when dealing with subordinates. 

5:19 Energy – Thus one who is skillful at keeping the enemy on the move maintains deceitful appearances, according to which the enemy will act.

6:9 Weak Points and Strong O divine art of subtlety and secrecy! Through you we learn to be invisible, through you inaudible; and hence we can hold the enemy’s fate in our hands.

11:35,36 The Nine Situations  It is the business of a general to be quiet and thus ensure secrecy; upright and just, and thus maintain order… He must be able to mystify his officers and men by false reports and appearances, Literally, “to deceive their eyes and ears”and thus keep them in total ignorance.

Per Sunzi, and per common practice, implementation in business or government can then be undertaken without clarity for underlings. It is a powerful tool in both business and government. Clarity for CCP underlings is not required when leaders are the only source of truth and know the goal.  For leaders, lack of clarity permits use of oppression when unclear laws are violated. For citizens, lack of clarity requires self-censorship in word and deed. In business, proper use of unclarity and deception might induce the “other side” in any negotiation to reveal its secrets or preferences, or even act rashly when confronted with apparent delay or indecision.  In the best of times, trust in good intentions is limited.  There is no good faith in the absence of relationship built over time.

This is both a powerful tool and a crippling handicap in Chinese international infrastructure deals.  Initial lightning speed and mystery in decision-making overwhelm opposition, but in the longer term, substantial good will is lost.  We dealt with that problem in the US – the model of government action as “decide, announce, defend” became too costly in time and lawsuits.  Better is “discuss, decide, build.”  But that isn’t necessary in an authoritarian state.

Example 3 – infrastructure investment

We are all astounded by the sheer extent of Chinese infrastructure investment in the last ten years.  The stimulus in 2008 was far larger, as a per cent of the economy, than the American one.  But those of us with some boots on the ground are also astounded at the sheer wastefulness of some of that investment.  We know that these projects are financed by bank loans, and those loans come due in three years or so – banks are not long term lenders.  And aside from projects taking three years to build, we have the experience of (theoretical) revenue generating projects that cannot possibly generate enough money to pay for construction and interest and operations.  No way.  A favorite example of mine is a new expressway built from Shanghai to Pudong, where the international airport is located, completed about 2008.  My first trip to the airport in 2008 was uneventful, for the simple reason that there were hardly any other vehicles on the road for 30 miles.  I mean, nearly zero.  At the time, this was a new expressway, and I suppose the information of its availability could have been scarce.  Possibly.  But I used that expressway at least twice a year for eight years, and the level of congestion hardly changed, anytime of the day or night, weekend or not.  Nearly no traffic.

There were simply too many other competing routes to the airport.  Big mistakes are possible everywhere in the world on infrastructure projects, the US being no exception, but we see similar stories repeated across China.  Transportation economists and engineers work pretty hard to forecast traffic and revenues, consider alternative routes and toll costs, and while the results are less than perfectly accurate, they are a decent guide to the investment decision.  But voters in the US, not to mention bond holders, would be more than a little exercised if their investment produced no ability to repay after so much planning.  Is there a different calculus in China?

Chinese planners have the means to make perfectly rational decisions about such matters.  So how can such revenue-short projects get built over and over again – aside from the pressure on local officials whose promotions depend upon generation of a target level of GDP in their three or five year term, and the need to spend following the huge 2008 stimulus.  Is the investment planning really for a twenty year horizon, at which time future demand will be sufficient to pay off the loans?  (I did transportation planning and economics work for some years.  There is no twenty-year projection of expressway use that is worth the spending of electrons to produce).

There is a way to make sense of these deadbeat projects, whether they are expressways, high speed train lines, airports or commercial ports.  And there is a way to understand the difference with western decision-making.  Given that the real decision is a political one, even more so than in the US, the trick is to consider than the long term doesn’t really matter.  A little bit of the cynical Wall Street IBG, YBG – by the time it matters, I’ll be gone, you’ll be gone.

How to understand this?  A simple chart from econ 101 should help.  A key point to understand is that the construction contractors, lenders, and local government investors in these projects are either government entities or heavily government-compromised.  While many big SOE make big profits, the companies can have political goals as well.  This means that they are not strict profit maximizers, in basic econ terms.  This also means that someone will take care of them in times of trouble.

Many, if not most, expressway projects in China are constructed by SOE as what we call B-O-T projects – build, operate, and transfer.  The concept is that the SOE contractor borrows the money to build the expressway, and receives tolls for a period of time – twenty years, let us say – to repay the loan and provide profits for the contractor. At some point in the future, the right to receive tolls reverts to the original government owner of the expressway.

But what happens when tolls are nowhere near enough to pay back loans?  This is a rather common problem.  Or would be a problem in the US.  Two particular ideas of “capitalism with Chinese characteristics” pertain here.

  • Loans for construction are bank loans, but the borrower may include local governments where the branch of the lending bank is located and even though loans come due every three years or so, the loans can be rolled over again … and again. That is part of what the SASAC (State Asset Supervision and Administration Commission) does – help borrowers roll loans among different local lenders. At some point in the future, someone will have to deal with these problem loans – perhaps one of the “bad banks” created for that purpose. But that is not now.  Just FYI, my favorite expressway to Pudong is now being handled by the one of the SASAC units in Zhejiang.
  • But wouldn’t the construction companies get cold feet, or nervous about not receiving planned income or having to repay the banks? Not necessarily.  In many recent cases, the borrower is actually a partnership between local governments and an SOE contractor.  And here is a neat trick, that could – theoretically – explain how the contractor can sleep at night.

How do regular retail stores decide to close for the evening, or the season?  How does a Starbucks decide to close at 10:00 PM, and then, miraculously, reopen at 6:00 AM?  Why not stay open all night?  Or, the ski lodge – open for five months a year, then close for seven months, and reopen?  How can this work, with mortgages and taxes and rents to pay?

The econ 101 answer is that businesses will shut down temporarily when revenues cannot cover average variable costs – for Starbucks, the cost of salaries and cups and coffee and heat or a/c.  If these variable costs can be covered, then the store will remain open.  If not, then close down and reopen when there will be enough customers – in the morning – that you can reliably cover average total costs.  In the morning, you will begin taking in enough revenue to cover operating costs and the bank loans and interest and rent and insurance and other fixed costs and make a profit. In the short run, you stay open if you can cover average variable cost.  In the long run, you have to cover all the other costs as well, but that is the long run. This is also the situation for the Chinese expressway with little traffic.

Stay with me on this, and the graphic representation will help.

In the figure below, you can see that the price P of the good is still above average variable cost AVC at the quantity Q being sold.  In this case, the seller should remain open, as long as the seller is confident that sales will pick up at some point in the near future (the morning) and sales quantities will then be at or above average total cost ATC.  Think of the price here as the price of the average sale at 2:00 AM; by 11:00 AM, both the average sale and the quantity sold will be greater, putting the company into a profitable situation again.

  • Even though the firm is not earning any economic profit, it is earning enough to pay their laborers (AVC), and thus it incurs less loss compared to the whole of average fixed cost.
  • In this situation, the company should continue producing the product.
  • P = MR > AVC , P = MR < ATC –> point where MC = MR minimize its loss
  • Economic loss = Q (ATC – P)
  • When AVC < P < ATC, the firm can stay open as long as they can cover the AVC
  • If a firm can cover all of the AVC and even part of the fixed costs, they will lose less than shutting down, as MR < ATC
    • Shutting down would mean losing everything and still have to pay for fixed costs, while in the loss minimizing case, costs are still covered.

Source: Welker’s Wikinomics

The same concept can apply to Chinese construction companies in BOT projects.  Loan servicing costs don’t really matter.  Someone, sometime, will deal with that, in the long run. If tolls from cars and trucks – and tolls are very high in China* – can cover operating costs – labor to collect tolls and trim bushes – then the project can remain open.

*Example – passenger car tolls for the 600 mile trip from Hangzhou to Jingzhou, in Hubei Province, are about 500 yuan, one way – say $75.

This is only a theoretical example.  I don’t really know if this is the thinking behind expressway projects that will never make money with debt taken into account. More likely is the the leader at some point said, proceed, and at that point, money became no obstacle.  And obviously some projects can pay their debts. You can see why big projects are often development projects, with revenues from related operations – retail stores, sales of apartments, rental from offices – rather than simply infrastructure projects.  Just like the building of the transcontinental railroad in the US, where the railroads were given land to use for non-railroad revenue.

The example shows what could be a rationale for continuing to operate the expressway.  And a positive spin on this story would be that to a much greater extent than in the US, Chinese infrastructure projects are expected to pay for themselves. 

When they cannot pay for themselves, loans are, in fact, rolled over again and again.  At some point, these projects with negative economic value must be recognized as such, and GDP will suffer as the project is written down to some value via sale to a third party, all the partners and the bank will need to take a big hit, or else someone – some government – will need to continually feed money into the project to cover debts.  This process usually happens quickly in the US, in bankruptcy.  In China, the process can take many years, but that is what the “bad banks” are for – to take the otherwise uneconomic projects and run them until they can be sold to someone or debt finally paid off by the Ministry of Finance.  The current idea is to convert the bank debt into bonds owned by the banks, and let the banks sell the bonds to (haha!) foreign investors.  Win-win!

Example 4 – stock investing

Stock markets were originally intended to accomplish two tasks – provide a source of funds for SOE, and “privatize” some of the risk. These efforts succeeded, and now most companies on the Shanghai stock exchange are SOE, with private funds supplementing a major government position, either ownership or management. Two way foreign and domestic stock market trade between Shanghai and Hong Kong has been allowed since 2014, and there is now an rmb clearing function in London, meaning trades can be settled in rmb outside of China. Now the government is pushing quite hard to get foreign investors directly into stocks and bonds in China.

My own somewhat cynical view is that this is not in the long term interest of Hong Kong or London – or foreign investors.  As long as CCP controls markets in China – and Mr. Xi is reestablishing the “Party is fundamental in all markets” philosophy – markets will not receive the sort of information needed to function efficiently.  Observe how much markets in China are affected by news reports or a speech by a particular high level official.  And observe the somewhat herd-like behavior of Chinese in purchases – a good word from the government suggests safety and profitability in a nation critically short of widespread basic economic news, not to mention divergent views. 

Michael Pettis does a superb job in pointing out the structure and pitfalls of China investing. He is one of the few China macroeconomic analysts with both western and Chinese investment trading experience, as well as the academic chops to put all in context.  Those interested in China financial markets should not miss a posting, now hosted at the Carnegie Center for International Peace.  Every post is rich.

Pettis writes most about overinvestment and the necessary macro adjustments, but his writing about the stock markets is also insightful. Writing in late 2013, he made an important point –  The recent Nobel Prizes in economics suggest both that markets are efficient, and that they are not. In fact they are likely to be efficient under certain conditions and inefficient under others.

Pettis argues that stock markets can be efficient at allocating capital under some conditions and not others.  He sees the need for an appropriate mix of three different kinds of investors, with different investment profiles, which he terms fundamental investors, relative value investors, and speculators. 

It is now 2019.  I don’t follow the Chinese stock market, and perhaps Pettis now has a different view.  But the fundamental conditions seem unchanged to me, if not more destabilizing than they were in 2015 and before.

He defines the three segments as follows –

  • Fundamental investment, also called value investment, involves buying assets in order to earn the economic value generated over the life of the investment. When investors attempt to project and assess the long-term cash flows generated by an asset, to discount those cash flows at some rate that acknowledges the riskiness of those projections, and to determine what an appropriate price is, they are acting as fundamental investors.

These investors are buying the long term trend of the economy, or the long term prospects for an individual company.  They want good financial information on companies.

  • Relative value investing, which includes arbitrage, involves exploiting pricing inefficiencies to make low-risk profits. Relative value investors may not have a clear idea of the fundamental value of an asset, but this doesn’t matter to them. They hope to compare assets and determine whether one asset is over- or underpriced relative to another, and if so, to profit from an eventual convergence in prices.

These investors are buying the shorter term trend in the market, and perhaps choosing among individuals stocks in one industry, based on what information they have.

  • Speculation is actually a group of related investment strategies that take advantage of information that will have an immediate effect on prices by causing short-term changes in supply or demand factors that may affect an asset’s price in the hours, days, or weeks to come. These changes may be only temporarily and may eventually reverse themselves, but by trading quickly, speculators can profit from short-term expected price changes.

These investors are looking at price changes over a span of minutes, hours, or days.  They respond to signals that are clearly not fundamental to the growth of the economy, such as insider behavior or political announcements.

Michael Pettis. The Difficult Politics of Economic Adjustment. China Financial Markets, November 11, 2013. Now at Carnegie Endowment for International Peace as When Are Markets Rational?  Note – versions of this newsletter are available online, but for the most part they do not include this stock market analysis.  The stock market portion of the post is at Naked Capitalism.

Pettis argues that stock markets in China are inefficient because the data necessary for fundamental investors – good macroeconomic data, honest financial statements, clear corporate governance – is lacking; and China has few value investors, because the conditions they need – ability to trade frequently and quickly at low cost, and ability to short securities – is also absent.  Speculators, he says, trade against very short term trend information, and are unconcerned about long term market fundamentals for a particular company.  China stock markets are dominated by speculators.

One could categorize these three investor types as having long, medium, and short term horizons.  Each type of investor looks at different information or analyzes the same information differently, and an efficient market can result when all information is available on which to trade.  Without a good mix of all three, markets lose flexibility, and don’t allocate capital well.  The Chinese markets are necessarily dominated by speculators – roughly 80% of stocks are held by retail traders, mostly individuals. The top ten listed companies on the Shanghai exchange are SOE, and most of the companies and the values are in government owned companies.  China has pension funds and insurance companies that can take a long term view; but even those industries cannot get access to trustworthy and general fundamental information on companies.  As a result, markets can be very volatile.

Example from Financial Times, September 27, 2017 –


When China’s vice-minister of industry said this month that Beijing was considering setting a deadline to ban sales of fossil fuel-powered cars, most auto industry experts did not overreact. The official did not offer any timetable, and rich countries such as Britain and France have set distant deadlines of 2040. Judging by the market reaction in Hong Kong, however, investors could be forgiven for thinking the statement was a bombshell. Shares in BYD, China’s largest producer of electric vehicles, surged to a record that day and are up more than 60 per cent this month. After BYD’s chairman speculated China’s deadline could be 2030 — in what experts said was more of a lobbying effort than a prediction — shares in the group’s separately listed mobile-handset unit also hit a record, despite the fact the company is not even involved in cars.

Not even involved in cars.

Even today, 80% of the listed companies on exchanges are SOE.  There can be little investor confidence in any market data, from government or an individual company.  Pettis notes that even credit decisions must become speculative, because when bankruptcy is a political decision and not an economic outcome, lending decisions are driven not by considerations of economic value but by political calculations.  See the example of Pudong expressway construction above. 

There are plenty of other ways in which “economics with Chinese characteristics” is different from that in the US – some of those ways make much more sense than what we think of as normal economics.  I thought it would be fun to point out some differences – for good or for ill – that could lead to cultural, institutional, and even economic change in the US.  After all, we import just about everything else from China.  Ideas may be next – after all, Mr. Trump and the GOP follow Mr. Xi and CCP in political philosophy in so many ways now.  Lightning speed and mystery and decision-making for the oligarchs and financial instability – no infrastructure, so far, though.

A Note on City Size and Political Economy

Among the China superlatives that we have heard for the last two decades is the fantastic growth in city size – Pudong in Shanghai from fishing and farming villages to the world’s most recognizable skyline; similarly for Shenzhen, Guangdong, and literally dozens of places most of us have never heard of. 

 
Source: Lujiazui 2016.jpg

The US has ten or eleven cities now with a population of at least one million; China has scores, and many of them growing from seemingly nothing.  China has about four times the population of the US, but far more than four times the number of larger-than-1,000,000 population cities – by 2018, well over a hundred.  100 cities bigger than Liverpool.  What gives?  We think we understand the concept of growing economies, and the concept of city growth; but how can these superlatives be so?   A couple of ideas, and some clarification on terms –

1.  urbanization is not only a global phenomenon, it is a modern economy phenomenon – farm-to-factory increased densities of cities a great deal in the Industrial Revolution, but the modern service-oriented economy demands (and allows for) even much greater densities of people, and, moreover, pulls people into the biggest and most diverse cities at a higher rate than in past decades.  There are scale effects – the biggest and most successful tend to get even bigger. (We will ignore the ancient forces that created megacities of a thousand or two thousand years ago – Kaifeng (largest city in the world early in the Song Dynasty, with a population of about 600,000) and Hangzhou, the largest city in the world in the late Song and Yuan dynasties, and into the early Ming,  and Rome, about a million population until the collapse;  and after the collapse of Rome, no place in western or northern Europe until London, about 1700)

List of Cities in China        List of Largest European Cities in History

There was a time in China when manufacturing was conducted each within its own walled danwei, and inside the urban area. Each danwei had its own housing, entertainment areas, and shopping.  Each danwei was the Chinese version of Pullman, the ideal city created by George Pullman in the 1880s)  Pullman, Chicago  This was the Maoist era when land had no value. In the opening and reform under Deng, land began to have realizable value.  In the last three decades, Chinese local governments have undertaken policies to encourage or force manufacturing to relocate to the outskirts, opening large swaths of urban land to development of housing and offices and shopping.  This is American suburbanization of industry conducted at pace and at a time when necessary manufacturing access to river transport had long past.  So, a frenzied catching up.  Think of the demand for oil, before and after invention of the internal combustion engine.  The oil just laid around for millions of years, before it suddenly achieved value.

2.  government fiscal policy matters – After Mao, Chinese cities became the focus of development.  “If we want development, we want cities to grow.”  China supported cities and helped them grow.  “Stadtluft macht frei,” the old saying about the medieval urban place, that “city air makes one free,” was true in China in both senses – that of opportunity for the individual and relative independence of the place from domineering control by a greater unit of government.  In the US, cities were strangled by federal policy, administrative law, and political fragmentation.  The strangulation continues today – Chinese laugh at our inability to build tunnels under the Hudson, fix subways or airports, or let cities grow.  Among cities in China, as in the US, there is the rough and tumble of leader and administrative negotiation over infrastructure expansion and competition for location of business and facilities.  A difference is that in China, there is always a leader with enough power to say yes, and then all the pieces fall into place, and development can happen.  In the US, with heavily fragmented political power buttressed by rule of law, everyone has the power to say “no,” and no one has the power to say “yes,” and force implementation.  Delay is built in to American growth in a way that does not exist in China. The political fragmentation that starves American cities in favor of its suburbs doesn’t exist when the political boundaries of cities in China are so much greater than boundaries in America.

3.  definitions matter – This is the most important distinction between American and Chinese cities for understanding the proliferation of huge Chinese cities.   Briefly, counties in the US are generally larger than cities, and counties are contiguous across the US – one moves from one county into another.  In China, counties are subunits of cities and cities are contiguous – one moves from Hangzhou (city) to Jiaxing (city).  In the US, cities are generally quite small – Chicago is only 225 square miles (590 square kilometers) and New York is only 302 square miles (784 square kilometers). The surrounding suburban area dwarfs central city area.

Every city in China has a substantial rural area – even Beijing and Shanghai.   A city in China can have mountains and large lakes, in addition to farm land.  As you know, there are no mountains or farmland in New York or Chicago.  There are historical reasons for the large area of subprovincial and prefecture-level cities, but another reason for concentration of people and development is the historical government fear over food security.  By law, and enforced pretty fiercely, each province must maintain at least 84% of its land in rural, or let us say, non-urban development land.  This regulation is passed on to cities under the province’s jurisdiction.  The Land Bureau in each city receives an allocation of land each year that can be converted to construction land; without the allocation from the central government and the province, no additional land conversion can take place.  Some of you know about the truly enormous fill-in-the-ocean projects in some Chinese cities – Dongtou County in Wenzhou is one example, but there are others.  This project calls for filling in hundreds of square miles of ocean, creating land for development.  Why?  Wenzhou is a fast growing city (despite the overbuilding of the last decade) and it is surrounded by hills and mountains that make expansion impossible.  So, a solution- create more land.

With unitary government – all power derives from Beijing – it is feasible, and relatively common, for cities to merge and become one administrative place, and for formerly rural counties to become districts of cities.  So areas of cities and population totals are a bit less reliable than those in the US, since change in areas and even definitions is more frequent.  I encountered problems establishing a population for Hangzhou, a place I know pretty well.  For example, Xiaoshan was a county-level city, an independent unit of government (sort of).  In 2001, it became a district of Hangzhou, and Xiaoshan as a separate city disappeared.  The population and the area of Hangzhou increased substantially. Similarly for the Yuhang district of Hangzhou – merged into Hangzhou in  2001, and Lin’an in 2017.  Population and area can grow substantially just by administrative fiat. 

4.  comparing apples with apples – What makes sense from a political science or administrative perspective is to compare roughly similar sized areas.  Hangzhou has a population of 8.7 million, about the same as New York, and three times that of Chicago.  But Hangzhou is 16,847 square kilometers; New York is 784; Chicago is 590.  What is roughly comparable in area with Hangzhou is the metropolitan planning area of Chicago, including seven or ten counties.  The seven counties of northeastern Illinois still have some farmland, and are about 10,387 square kilometers – that is Chicago plus all the land around its satellite cities – Waukegan, Elgin, Aurora, Joliet, Gary.   And still, Hangzhou is substantially larger, at 16,847 square kilometers.  The population of that larger Chicago planning area is 9.5 million for the seven counties.

5.  examples, using area and population –

Hangzhou is the capital of Zhejiang province, and one of the most economically developed cities in China.  Dalian, in Liaoning province, is a rarity in China – a city that is better known than its provincial capital, Shenyang. Dalian, too, is a growing city.  I pick these two places because I know them reasonably well, and they are certainly characteristic of the size relations in Chinese cities.  See the table below.  Data is from published sources, wiki and Chinese government estimates, but I make no claims to precision.  The urban population of Hangzhou (means what?) is said to be about 5.6 million in the 2010 Census; Shenyang, about 5.7 million, Shanghai 20.2, and Dalian, 3.9.  For “urban,” my own preference is to use the districts of a city, as inexact as that may be.  Some comparisons –

Place                           Area, km2                   Population, x 106       Population density, per km2

Liaoning Province          145,900                        43.9                         300                        

Zhejiang Province          101,800                        55.6                         550

Illinois State                  150,000                        12.8                          89.4

New York State              141,300                        19.9                        159

Note that Liaoning and Zhejiang are of roughly similar size as the States of Illinois and New York.   Here you see the roughly 4x greater population in China.  Zhejiang has significantly larger GDP than Liaoning; New York, more than Illinois

Shenyang                         12,980                         8.3   (2010)                  640

 – urban districts                     571                        3.8                            6,655

Shenyang

Dalian                               13,237                         6.7   (2010)                   532

 – urban districts                    550                          2.1  (2015 est.)          7,721

Dalian

Hangzhou                        16,847                         9.4   (2017 estimate)     570

 – urban districts                   706                          3.7                              5,240

Hangzhou

  List of Cities in China by Population and Built-up Area

Shanghai                           6,341                       24.0  (2017 est.)            3,800

 Shanghai

note – these data define Shanghai as only urban, which is not the case from casual observation.  Better data would show Shanghai urban area as much more dense than indicated above.

New York                            784                         8.7                           10,400

Shanghai is close to twenty times the size of New York City in area, with about three times the population.

Cook County                      4,230                        5.2                              2,129

City of Chicago                      590                        2.7                              4,594

Chicago planning area       10,387                        9.5   seven counties

The “urban districts” of Hangzhou are reported at 706 km2, and 3.7 million people.  I know the Yuhang district quite well, and that is not included in the urban district data.  Yuhang is now quite densely built-up suburban, with the main offices for Alibaba and many other companies, and thousands of new apartments.  So, as always, data is only … data.

But one can see that the urban and suburban part of Hangzhou (districts) is much closer to the size of Chicago, and much closer in population.   The population densities of the urban districts of Shenyang, Dalian, Hangzhou, and even Shanghai are reasonably close to those for New York and Chicago.  Again, some liberal allowances are needed for interpretation of the data. 

6.  for decades, political career advancement was partly determined by GDP advancement – Chinese have always valued cities as seats of power, in a way that Americans have not.  Without exception – I think – the provincial capital is the largest city by population in any province. Political power is united with economic power. Compare with American state capitals.  After Deng, and opening up, the advancement of political careers depended in part upon achieving a target rate of GDP growth in the province, city, county, or district.   In addition to feeling modern economic pressures, leaders in China competed to grow their own economies, and growth was most easily defined by real estate growth.  So, the pressures to urbanize in a country with no history of suburban trains-to-downtown to permit office sector workers to live far from their jobs.  Concentration was important for GDP growth as well as for satisfying the needs of a modern economy.  (Don’t get me started on short term v long term GDP growth, or the impact of excessive bad debts.  Careers are made or lost in five years). 

7.  GDP growth is easy when you have determined goals and the power to achieve them –  as a last note, I want to point out that the development goals in American urban planning and Chinese urban planning were at one point broadly similar –  to provide for more people, more GDP generated, more taxes paid locally.  There have always been local exceptions, and quality of life is more of a concern in planning now in the US than was the case thirty or forty years ago, and certainly more of a concern than is currently the case in China.  But let me leave you with an understanding of how easy it can be to achieve GDP growth, if one has the power to control land and location of people and businesses and the growth goal is quantifiable.

As you might know, the National Development and Reform Commission, the economic planning arm of the central government, establishes a target GDP growth for each year in the Five Year Plan.  Five Year Plans  That national growth rate is then allocated, with some give and take, to individual provinces, and from provinces to cities.  A mayor of a city understands what his targets are, and he has five years in which to perform, at which time he is judged on performance and suitability for advancement in governance.

With a target of X% growth per year, how can one accomplish such a task?  Quite simple, really.  Every piece of the built environment – housing, offices, factories, subways, expressways, universities, hospitals, airports, ports, even recreational facilities – has some estimated cost of construction.  While urban planning in China can be quite detailed and sophisticated, planning and implementation are distinct.  If one needs to achieve Y billions of yuan in growth, representing X% GDP growth, all one need do is add up the potential projects, create some new projects if needed, and get started on building.  Not so hard when you control all the land, the developers and contractors and lenders are mostly state owned businesses with goals similar to your own, and there is little to no power to oppose what is decreed.  Lead, follow, or get out of the way is a known sentiment in China. 

If you have made it to the end of this piece, I hope you have the idea that while China is densely populated, the densities are not so far from those in normal urban areas in the US.  Much of the city growth in China in the last three decades is the result of policies to encourage urbanization, city consolidation, and the ability of governments to focus development in ways absolutely unavailable in the US.  Nothing mysterious here – just a different set of policies and priorities.  I tell my Chinese friends that Hangzhou is like Chicago; and Shanghai is like New York, except that there are more Chinese in New York.  Always good for a laugh.

The Light Touch of No Government Regulation

Summer, 2011 

In the socialist economy of China, government regulation is often as derided, or ignored, as in any of the tea party fantasies coming out of prole-land or Romney-Ryanville.

A key example is elevator operation in China, particularly in the non-western oriented buildings  (meaning buildings that have Chinese oriented businesses, not buildings that don’t have a western wall on the outside).    I can’t really speak to elevator safety, or emergency situations.   I don’t inspect limit switches, or floor leveling software, or cables, or brakes.   I have seen some heat-activated floor selection buttons, which have long been a no-no in the heavily regulated US, but what I really want to talk about is elevator floor selection software.

Back in the good old days, elevator floor selection programs were one of the homework problems for simulation courses in system dynamics.    You have several floors, and varying demands for service coming from those different floors, and pretty much everyone wants to go either up or down.   But some people on one floor could have demands to go up, and others to go down.   And some demand is to go all the way down, and some demand is to go down one floor.  And you could satisfy some of the down demand by chance, as it were, if someone on an upper floor happens to want to get off on a floor where someone who wants to go down is waiting to get on.  And you can have an elevator that has satisfied all its demand, the market for elevator service has cleared, and now the elevator is free as a bird, to do as it wishes.   What should it do?   And you have limited supply of elevators.   You want to serve your customers in the least time – or some other optimization.     It actually is a fairly complicated market problem.

I have absolutely zero knowledge of current US elevator operating software.  No doubt by this time, the programs used in the US are so standard that the tweaking is about how long the doors should stay open, and the tweaking is done by some two year community college graduate in Bangalore.

But you can see the heavy hand of the government in the heavily regulated markets in the US.   Ever try to use the “door close”  button in a US elevator?   Has this button ever worked on an elevator in the US, in the last forty years?   Why do we even have this button, except as a way to frustrate people, and remind them of the heavy hand of the government in the nanny state – “no, you can not choose to close the door faster, because someone might have their feelings hurt by the automatic-safety-sensor-door hitting their purse as YOU try to close the door.”  In China, the “door close”  button works, everywhere, and it works great.

Market fundamentalism works.    Is there demand for the door to close?  Ok, close the door!   No waiting and speculating about how someone’s feelings might be hurt.   Satisfy the demand.

Now I will admit to different operating conditions in China.   There are four times the number of people as in the US, and between 8:45 and 9:00 on a weekday morning, probably half of the Chinese population is trying to get on the elevator to go to work.   And one cannot design the market system to handle the peak demands.   I mean, even at the heavily regulated parking in suburban US shopping malls, there is sometimes no place to park on those peak days before Christmas.   Sometimes, the market just does not clear in a reasonable amount of time, even with government supervision.

And perhaps my experience is unusual, having lived here for only three years and really used, repeatedly, elevators in only about four different buildings.    I can’t claim operating experience in a statistically significant sample of Chinese elevators.   So don’t treat this as a scientific study;  it is anecdotal, only.   Caveat emptor.

But in China, elevator floor selection software is clearly written with the free market in mind.    Yes, the “door close” buttons work;  but it is far more market-friendly for the elevator cab than that.   Supply makes the rules.   No wishy-washy Keynesianism for the elevator cab.    You want me to provide supply for your elevator demand?  Play by my supply rules.

I have figured out the basic operating principle for free market elevator service in China.    It is, in fact, the Marshall Field dictum – the customer is always right.   The current customer, that is.    The customer you have now, in front of you, inside the elevator, is always right; anyone pushing a button on some other floor is only a potential customer;  you don’t know when demand from that customer will just fade away, and you stop and there is no one there.   So, stick with the customer you have, and don’t worry about the future.    Short termism.     That future customer might decide to go to the bathroom while waiting, and you stop, and the demand is gone.  In the meantime, you are delaying your current customer;  don’t do that.    That potential future customer could do something else – walk up or down a floor, and not tell you, the elevator operating software, about their changed behavior; or they could decide to take the elevator in a different building, or something.    No.  Don’t respond to speculative demand.   Dance with who brung you.

US government regulation would probably require some balancing of demand, and consideration of the feelings and the waiting time of the potential customers, and more such.   So there would be more stopping, and more weighing of the demands from future customers.   Not here.

So let me tell you about getting to my regular Wednesday morning location, the architect/engineering office GA in Hangzhou.    Today was a bit unusual, but not so much.

Went to Starbucks early, got some coffee and looked at some blogs and email.  Left for GA.   It took about 20 minutes to get to the GA offices, in heavy traffic about 8:30.   Distance of the GA offices from the Starbucks, about a mile.  But, rush hour traffic,  Ok.     Traffic in China is also free market oriented, but that is another story.

Parked in the basement garage of the office building where GA is located.   Parked on the B2 level, the lower basement, since that is where the unassigned parking is.    Usually, I get to park in one of the surface spots just adjacent to the main building entry, but today, at 8:50, the parking spots outside the building were filled with people (demand) waiting to get on one of the 5 elevators (supply).    In a sign of creeping government regulation in China,  the building manager has changed the way in which elevator demand at the first floor is satisfied.    In the good old days of a few months ago, when markets ruled, the appearance of supply (an elevator door opens) meant a wild dash for the door.   A hundred people would rush the door, and the strongest and closest to the door when it opened would have their demand satisfied.   (People getting off the elevator are former customers of the elevator, so they are old news.   Screw ‘em.   They have to fight their way out from the people rushing in.   Sometimes, I think people wanting to get off just don’t make it.   Not nimble enough for the market. The same is true, of course, for people getting off the subway train.)

Now, the building management has put in red velvet line control ropes, and everyone has to queue up, one by one, to get on the next elevator.   Hence, in the good old days, with survival of the fittest demand satisfaction, all the demand could fit in the elevator lobby in tight balls of humanity.   No one dared stand more than an inch from the person in front of them, or someone would use the free market to cut into the crowd in front of you.  Now, probably with government regulation creeping in, everybody in long straight lines, the demand at the first floor spills out of the building lobby into the parking lot spaces outside, where I would normally park.

GA is on the 11th floor.   I park in the subbasement.  I have 13 floors to go.

I push the elevator button on the B2 level, and wait.   For a while.  

As an American, conditioned to regulation,  I know elevator demand is being satisfied upstairs, I should wait my turn, so some delay is unfortunately necessary.

After about ten minutes, now about 9:00, I get a stirring.   Some long hidden, free market impulse comes over me.    I can play this game.   I am going to outsmart the market.   I will walk up, not to the first floor, where demand is still heavy, but to a different floor, say the 5th floor, where I can guess that some people will be leaving, and upward demand will be pretty close to zero.    Floors 2, 3, or 4 might not be high enough to ensure that some demand will be getting off, but by the 5th floor, I am pretty confident of getting my demand satisfied.

Now that is 7 floors, but in free market China, that is not a problem for most people.  I have seen 7 and 8 floor walk up apartment buildings, so I don’t feel too bad being part of the market demand. 

At 5, I get out of the stairway, and confidently wait for the elevator to satisfy me.   And, sure enough, an up supply elevator soon stops.  Success!

But, you know, the free market isn’t free.   Even in China, there are weight limits to elevator cabs, and when the weight limit is reached, the bell rings, and the elevator won’t move until someone gets off.   And Chinese are actually rather remarkably good about the last person who gets on taking responsibility for getting off, if the elevator cab decides that she weighs a kilogram too much.  Social mores.  And the elevator cabs, knowing that they are the only source of supply, can be pretty finicky about the weight limits.

But we have to keep in mind that market for elevator service works in favor of the elevator, not the customers.   Even free markets have rules, and the rules are written by the friends of the elevator cab, not the customers.  

The pretty full elevator cab stops for me at the 5th floor, and the door opens, but no one gets off.   I try to get on, but the bell rings, and I step off.   Have to wait for more supply, later.

But sometimes, the elevator cab decides that even with no one getting on, it just seems all a bit too much, and the supply chain breaks down.   I don’t get on, but the elevator weight limit bell rings anyway, and the elevator won’t move.   So a girl who probably got on at the first floor gets off, to ease the load on the poor overworked elevator cab.   But the cab is still not happy, and the bell rings again, and the cab won’t move.   So another girl gets off, and the cab is happy, and the door closes.

We now have three of us standing on the 5th floor, waiting to go up.   It is about 9:15 by this point, but demand is still heavy.

The first girl is smart, and finds a way around the market.   She pushes the down button, and supply appears, and she and I ride down to the first floor.  Our other 5th floor companion declined to join us, and waited on 5.  At the first floor, the horde tries to get on.   But we are on the elevator, so too bad for them.   A few of them make it. 

The rest of the ride is uneventful, except on the way up, we stop at 5, for the girl who did not join us on the ride down.   She tries to get on, but the weight bell rings.   Her demand will have to wait until even later to be satisfied.    You have to be quick-witted to survive in the elevator market.

So there you have the glory of market fundamentalism.   Supply tries to satisfy demand, and the market eventually clears, but those most willing to pay, with shoulder pushes and quick wit, still have an advantage over the “queue up” government regulators.    And I now have the advantage of morning exercise, walking up seven floors.   It really is the best of all possible worlds.

Got to GA about 9:25.   Took longer to get up to the 11th floor than to drive to the building in heavy traffic.    But I am happy, because I feel I was able to outsmart the elevator floor selection software design market fundamentalists.

I can play this game.

At the Alamo in Hangzhou

Summer, 2004 

One of the fun things to do in Hangzhou is attend the Romance of the Song Dynasty Show.   The Song Dynasty extended for about 300 years, ending in about 1275, with the conquest of the Mongols.   Now I don’t think there are many people in the US who would attend a show titled the Romance of the late Dark Ages, or the Romance of the Era of the Imperial and Magnificent Church.   This was the 1200’s, and we all believe in the progress of history.  But Barbara Tuchman subtitled her famous book about the 14th Century, the next century, the Calamitous 14th Century.    So this emphasis on romance just feels …. sort of misplaced, to me, the westerner. 

Except that this is China.  Now, really, not even I take the Romance of the Song Dynasty performance as a historically accurate guide to events.   The lasers, smoke effects, and stage lighting are probably later inventions.  But the Song is one of the most celebrated and sophisticated of Chinese dynasties, and Hangzhou was the capital city in the late Song, so there is some local promotion going on here too.   When Hangzhou was the capital of the Song, it was one of the wealthiest and largest cities in the world.

The show is only part of a replica Song dynasty Hangzhou, with many streets with shops and costumes for the tourists to wear, and trinkets to buy, and a water-splashing festival and torch festival and an embroidered ball throwing event (a husband selection process, maybe as good as any).

The big show is on a big stage, in a partly open air theater with hundreds of raked seats. The fixed stage is deep and wide – suffice it to say that it accommodates horses, and more than one at a time.  The close-in rows of seats are on a turntable, and retract to uncover a water feature, really pretty necessary in south China.

There are several episodes of the beautifully costumed and choreographed dancing, with fabulous costumes and dozens of dancers and the backflips and leaps you are accustomed to seeing in Shen Yun.  These are part of the main story, the glory of the Song and its extinguishing by the Mongols.

One of the set pieces is a battle, probably the battle of Lin’an in 1275, in which Song forces prepared for one of their last stands against the attacking Mongols.  The staged stone fort housing the Song defenders looks for all the world like the south wall at the Alamo. 

Mongols amassed.  The Alamo -er, Lin’an – in the background

Source: TripAdvisor

I am pretty sure  that the Mongols had far superior numbers at Lin’an, as did the Mexicans. The attacking Mongols have cannons, as did the Mexican army, that sound pretty loud in the performance space, and the attackers are using short ladders, just like at the Alamo, and the defenders are beating them off with the ends of their pikes, and above it all stands Yue Fei, a Song leader, dressed in fabulous military costumed splendor, looking like William Barrett Travis.   The attackers have horses, on stage, and from what I can gather, the result at the Alamo was about the same as the result about 561 years earlier at Lin’an – all the defenders were killed, but the victory was short lived.  Months later, the rebel Texans defeated the Republic of Mexico, and created the Republic of Texas.  About 90 years later, the Ming rousted the ruling Yuan dynasty and drove them out of China, and the battle became an iconic struggle.  I am pretty sure that Yue Fei would have written something similar to Travis’ last appeal from the Alamo –

I am determined to sustain myself as long as possible & die like a soldier
who never forgets what is due to his own honor & that of his country—Victory or Death

 – although he might have referenced the Song emperor rather than the country.  History does seem to rhyme.

Health Reform, 2010

May, 2010 

Brenna and I had colds.   Not so bad, but she wanted to go to Shanghai to the Expo in a few days, so I thought we should make sure there was no serious problem developing.   No fun walking around the Expo with some hacking cough.

My cough had descended into my chest, sort of a bad sign, so I called my people at the school about a medical visit.

Pay first, then see doctor … about $0.58 … each

Students here seem to get sick a lot, which I attribute to the lack of heat in the dorms when it is actually freezing outside, or maybe to their relative lack of exposure to coffee, sugar, fat, and high-fructose corn syrup.  Anyway, a lot of students call me to say that they are in the hospital, for two or three or five days.    They are being treated for some variation on cold like symptoms.   I did not want some school nurse telling me I had to go to the hospital for three days.   I was not that sick, and neither was Brenna.   What I wanted was to make sure we did not have some weird disease, and if needed get a shot or some medicine stronger than coffee, sugar, fat, and high fructose corn syrup.

The school arranged a car and driver to take us to the real hospital, not the school clinic.   (The school clinic is where the students go, and the faculty also unless they have something really serious).

Those who think that China is some mono-formulaic culture, with no innovative capability, are, of course, wrong in many ways.  In the US, we have been using public private partnerships to bring more flexibility and cost control to construction and management of projects. So, too, in China.  Our school, ZUST, is a government school, but the management of daily maintenance, cleaning, food service provision, is contracted out, just like in regular American schools.

Contracting out includes providing the school with cars and drivers for transporting faculty to far off meetings, or picking up people from airports, or taking foreign experts like me to the hospital.   The cost is not small.   A trip to the Hangzhou airport is billed at about 250 rmb, which is about $36.   A taxi is a little more than half that amount (note – this was in 2010).   But, convenience and no buying of cars and servicing them and depreciation and driver overtime and health care and pensions and vacation pay (not).   Whatever.

The cost for a trip to the hospital, near xihu, should be about 75 rmb if done in a taxi.  About $11.  For the school car, the cost is double (they want to charge for both directions) – rmb 150, about $22. The school will pick that up, of course, for foreign experts like me. Not for regular faculty.   “Take the bus.”

It probably would have been possible to navigate through the hospital without assistance from someone who speaks Chinese.  Pretty much everyone working in the hospital has had at least some English, many probably have a lot of English, and pointing at my throat and coughing works pretty well as an indicator of the problem.

I took along some reinforcements anyway.   Dr. Dang, the Ph.D. marketing professor, agreed to go along and manage the process for us.  Good idea, since I did not know the procedure anyway.

Once in the door, one is directed to the payment window.   This is the Chinese version of giving people at the front desk your insurance card.   No need to sign waivers of anything. No need to show passports or proof of employment at the school.  “Sick?  Ok. Pay up.  Sign here.”

Economics suggests that in a monopoly system, prices should be above marginal cost. Economics also suggests that if prices are too low, the system will be abused and there will be excess demand, and probably long lines by which to ration care. So we have a problem here, as you shall see.

There were, in fact, two people in line ahead of us to pay our visit fee. We must have stood in line for at least three minutes, waiting, waiting, waiting.    When we got to the counter, we explained the reason for the visit (so the clerk could direct us to the right department), she handed us a bill for this initial visit.   Total for Brenna and me, 8 rmb.  $1.16. $0.58 each.

We were directed upstairs to the respiratory department (I know, because all the signs are in English, and even in Chinese).    Again, there was someone ahead of us seeing the doctor.   We were forced to wait in the hall, again, for what seemed like ten minutes but was probably more like five.

We walked in, explained our problem to the doctor, who listened to our chests, asked a few questions (fever?  How long?  Other medical problems?)  and prescribed some medicine.  I asked if he was giving us zhongyao or xiyao, Chinese medicine or western medicine.   He laughed, and said we were not sick enough for zhongyao, but he would give us some anyway.

I think if we had had more time, I could have asked him what he thought of the Knicks and Bulls, but we wanted to get out of the hospital so we could go shopping.

We went back downstairs to the pharmacy, stood in line once again for about three minutes, gave the clerk our prescription, and waited.   And waited more, this time for at least five minutes.    We got bottles of Robitussin, just like in the US, but with Chinese labeling.   But Robitussin, in the same style font and package design.   Just like in Walgreen’s.   And some zhongyao, not like in Walgreen’s, but take two pills twice a day.

The pharmacy cost was a little high. Total for Brenna and me, the same medicines for each, about 200 rmb, about $29.  Dr. Dang said that the pharmacy is where the doctors make their money, since they receive- I dunno- commissions, or kickbacks, or profits, or something from the sale of the meds.   Just like in the US. Hard to support a family, I guess, on doctor visits of $0.58.   Even in China.

To celebrate, we let the school driver go home alone, and we went shopping for coffee filters. Carrefour, the French retailer, was about three blocks from the hospital.

But the cost of the car and the driver was only about 50 rmb less than the cost of the doctor, the hospital, and the medicine.   I could write more about this, but I will let you all have that discussion.   Socialized medicine.  Gini curve.   Price above marginal cost.  Returns to education.   Benefits of being the odd one in the group.  And, as you will see below, maybe the perils of underinvestment.

Health care in China is not always wonderful.   A good friend of mine had thyroid cancer several years ago, had part of her thyroid removed, and now takes thyroid medicine every day.   Not such a big deal.   But the dosage of the med needs to be carefully controlled, because the side effects- sleeplessness, irritability, inability to concentrate- can be significant.

China does not have a history of personal physicians.   You have a chart, and whichever doctor is available when you come is the doctor you see.   Sort of like buying hot dogs at the local stand.   You can’t always get your dog from Mortie, the guy who gives you extra fries with that.   Personal physicians are available, of course, but that gets into money that most people do not have.

So the monitoring of the meds can be a little iffy.   Doses need to be changed with body changes, and it seems that not all doctors are equally well-informed about practices.    My own online research suggests that beta blockers can be used to mitigate the side effects, but Chinese doctors do not want to add a medicine on top of a medicine.   Bad harmony.   So side effects are just that.   Side effects.   Live with it.

My friend is in Dalian, which is an international city on the coast.   Not some rural county in the interior.   But the ranks of cancer specialists seem a little thin.  Using a little of my guanxi, I called a zhengfu guanyuan government official IIT student who is a doctor, to see if he could find better treatment for my friend than she was getting.  We got referred back to the same doctor my friend had been seeing.    So no progress there.  Maybe she is getting the best care there is.

I am sure there is a way to deal in a more sophisticated way with thyroid cancer side effects, but I cannot find it.   But I have never before confronted the possibility that there might be better care easily available, but I could not have it.   That’s what I get for living in a city in the US.   But my guess is that even with better universal care in the US, that possibility will confront more and more people over the next couple of decades.   Rationing, not by price, but by location.   I know this has been the case in poor areas in the US, and in China, for as long as there has been sophisticated medicine.   If you want to drive a few hours to get treatment, maybe you can have it.   But if you need to do that every week, or every two weeks, or once a month, better be prepared to not use up sick days for other illnesses.    I have already seen that for specialty surgery in the US.   I won’t be surprised to see it extend to more prosaic treatment, as rural areas empty out.

People suggest that China will become more like the US, and the US will become more like China.    Could be right, for more things than we think.