China’s Wasted Capital

China has been criticized for being both a miser and wantonly in global trade circles. Its critics bash it both for careless over-investing at home and for depressing world demand through excessive thrift. In fact, it is not the size of Chinese domestic capital investments that stands out, but rather the misguided content of the investments. Considering the size of its economy, China actually needs to create much more capital than it currently possesses in order to reach levels comparable to those of the U.S. or Japan (see Graph 1).

China’s capital stock amounted to about 2.5 times China’s GDP in 2008, according to the APO, which was the same as America’s figure and much lower than Japan’s

Forty-four percent of China’s economic growth is due to brute accumulation of capital. The fact that much of this capital is useless contributes to the fact that Chinese growth model does not increase the living standard of Chinese citizens as well as it could. For one thing, Chinese citizens’ money in bank deposits is deprived of growth because of government-capped interest rates. In terms of trade, the renminbi’s low exchange rate suppresses consumption (by making imports expensive) and supports production of exports. Sadly, the proceeds that the government extracts from its citizens by capping the interest rate and stifling consumption gets malinvested “in speculative assets or excess capacity.”

The ones responsible for the malinvestment of Chinese citizens’ capital are local governments and SOEs (State-Owned Enterprises). It is their doing that 30 per cent of China’s GDP has become driven by demand from the property and construction centres. The officials have made revenues by buying cheap land from farmers who cannot sell directly to developers and who have to accept what the government is willing to pay. They have built cities, expecting urbanization to push people into them, before creating job opportunities for them. The city of Kanbashi, which was designed for 300,000 people, is today occupied by less than 30,000. Its Genghis Khan Square, comparable in size to Beijing’s Tiananmen Square, is utterly desolate.

The urban center of Kangbashi (Ordos, Inner Mongolia) is swept by a single woman every day

Models of housing at the Noble City development sits on display in the new Kangbashi section of Ordos

In a paper called “Das (Wasted) Kapital”, David Dollar and Shang-Jin Wei “reckon that two-thirds of the capital employed by the SOEs should have been invested by private firms instead” mainly because so much of the capital used by SOEs has been left to rot outside. The SOE justify their investments by their incredibly high “profitability”. But the investments are only profitable because of the lack of competition in the markets that the SOEs occupy. What’s more, the SOEs’ input of land, energy and credit are artificially cheap. It is not surprising then that Unirule, a Beijing think-tank, has shown that “the SOEs’ profits from 2001 to 2008 would have turned into big losses had they paid the market rate for their loans and land.”

 

Old houses are demolished to make space for construction projects of local governments and SOEs

Miles and miles of empty houses in Huaxi village

China needs to change its growth model as quickly as possible because its economic growth itself is growing. Thus, as China acquires more know-how, better technology and development techniques, it produces more and more capital, which the government squanders. A good solution was proposed by Premier Li Keqiang, who urged “the introduction of a property tax, the reduction of local governments’ over-reliance on land auctions, the construction of housing in rural land designated for commercial development, and a change in education, welfare and household registration rules to reduce distortions – to ‘stamp out the phenomenon of families spending tens of thousands of dollars on unlivable pigeon-coop-sized houses near elite schools’.”


Still, there are scholars who believe that China’s priority should not be better efficiency in economic growth or raising the living standard, but growth itself. Scott Sumner of Bentley University argues that even if it does not produce “everything in the right order”, China ought to “produce lots more of almost everything”. These more optimistic scholars argue that China should produce as much as it can, until its capital per capita ratio and GDP level reach those of the U.S. and Japan. Xi Jinping’s announcement of a huge new economic zone in Xiongan, with the infrastructure build-out intended to cover 2000sq km (a size similar to the city of Shenzhen with 12 million people), indicates that his economic conviction belongs to the same boat. While he is president, China will have to deal with being called a miser and a wanton.

Russian in?

Lithuania, the small, southernmost Baltic state, has reached out for international military support due a surge of Russia’s presence in the region.

While Lithuania has a minuscule amount of ethnic Russians, making a pro-Russian rebellion largely from within its own borders as has been the case in Ukraine unlikely, Russia’s influence on the Baltic region seems very plausible. Lithuania has warned the West throughout the past few years about Russia’s growing impact in the region, which has largely come from fake news seeking to destabilize Lithuania from within. False claims regarding German soldiers raping a girl were mysteriously e-mailed to the president of the Lithuanian Parliament, as well as a story that incorrectly reported a chemical assault on U.S. soldiers in nearby Estonia. Russia’s recent behavior in its apparent attempts to impact the French and U.S. elections have stirred up added attention from the West on any potential Russian propaganda, especially when it occurs in a country with such geographic proximity to Russia. That country’s leader, Vladimir Putin, recently deployed nuclear-capable Iskander ballistic missiles to Kaliningrad, the Russian territory that borders Lithuania’s southeast.

Unlike Lithuania, Belarus, which shares a large border on Lithuania’s southeast, does have a significant Russian population, raising slight concerns over the ‘autonomy’ of a country already heavily influenced by Russia.

A joint military exercise between Belarus and Russian soldiers planned for September has done nothing to quell Lithuania’s concerns over Russia’s aggressive attitude. Despite claims that the exercise will not consist of more than 13,000 troops, Russia’s military exercises in the caucasus last year were only supposed to include 12,000 troops. Instead 120,000 soldiers participated. Intel suggests the possibility of the joint  training exceeding 100,000 soldiers and even including nuclear weapons training in a country with an already significant Russian military presence.

On May 9th in Lithuania’s capital city of Vilnius Lithuania’s President, Dalia Grybauskaite, met with U.S. Secretary of Defense, Jim Mattis. Grybauskaite requested a stronger presence of the U.S. military in Lithuania, noting NATO’s inability to act decisively as opposed to U.S. forces. The U.S. has had 150 soldiers in the country since 2014, but Grybauskaite is making a case for additional support in deterring the Russians from the Baltic region. Grybauskaite made a point that “It is important to have adequate response capabilities against possible threats,” clearly demonstrating her desire for a stronger U.S. presence in her country.


(Lithuanian President Dalia Grybauskaite)

Lithuania’s Defense Minister Karoblis even labeled the September military drills to be conducted by Russia and Belarus as a “simulation of an offensive character against NATO.” Lithuania as well as the other Baltic states received encouragement from the visit of U.S. Secretary of Defense, Jim Mattis, who met with his counterparts of Lithuania, Latvia, and Estonia in a Lithuanian town a day after his meeting with President Grybauskaite. Mattis reassured the states of the commitment of the U.S. in protecting its NATO allies, despite prior comments made by President Trump. NATO is expected to conduct a large air defense exercise in Lithuania in July, and has pledged 4,000 troops to rotate along its eastern border in the countries of Poland, Lithuania, Latvia, and Estonia.

(Jim Mattis second from left, Karoblis far left)
Russia’s intentions towards the West certainly do not look to be improving. Its military ‘practice’ with Belarus in September has only further escalated the tensions between Russia and the West that are pushing the world scarily back in the direction of a Cold War. What just months ago seemed like a soaring relationship between the U.S. and the Russian Federation, now continues to crumble, contributing to the chaos of American politics at home and abroad.

Region Profile: China’s Xinjiang Autonomous Region

Though China’s encroachment in the South China Sea has rightly deserved the scrutiny it’s seen in the eyes of the media, there is another, much more insidious policy underway on the other side of the world’s most populous nation.

Meet the Uighurs.

If you haven’t heard of them, don’t worry: you won’t find “Uighurstan” or the equivalent on any geography quizzes, or on the map for that matter. Xinjiang (or “New Borders”), as it is called by the Chinese, is a Central Asian region that has long been conquered by empire after empire, most recently by the People’s Republic of China in 1949.  The Han presence in Xinjiang goes back millennia, but it has been by no means constant. The Chinese first occupied the area during the Tang Dynasty (pictured below), in order to maintain greater control of the Silk Road. Their hold was tenuous, however, local and Tibetan forces along the Silk Road intermittently seized control of the Road  until the Tang Dynasty’s collapse c. 900.

(borders are approximate; other sources show much narrower band of control)
(Borders are approximate; other sources argue much more limited Chinese control at the time)

As is common among desert regions, Xinjiang has been often invaded but rarely controlled. Gokturks, Mongols, Tibetans, and Russians play as crucial a role as the Uighurs or Han in its history. It was ultimately the Uighurs, a Turkic nomadic people with a long history in the steppes of Central Asia, who settled the region, subsequently adopting a lifestyle of agriculture, pastoralism, and trade. Even to this day, a few hunters and Silk-Road traders preserve the ancient traditions of the semi-nomadic Uighurs. The first Uighur kingdom in the region was founded around 1000 AD, and it was around this time that a majority of Uighurs began converting to Islam.

Western Tourists on a caravan ride through the Taklamakan Desert, Xinjiang, China
Western Tourists on a caravan ride through the Taklamakan Desert, Xinjiang.

But recently, however, Xinjiang’s most recent conquerors have taken measures to ensure that their control remains permanent. Unlike the Tang, the modern Han Chinese have adopted a policy of settlement rather than occupation. In the past half-century, the population has shifted from almost entirely Uighur to majority Han:

Since 2008, the Han population has grown even more, to just over 50%, though the numbers are contested.
Since 2008, the Han population has grown even more, to just over 50%, though the numbers are contested.

The Han have moved into the area en masse to capitalize on President Xi’s ‘pet project’ of reinventing  the Silk Road for modern oil and food industry transport, settling mainly in administrative strongpoints like the ancient trade city of Urumqi. Many of the biggest cities are concentrated in the north of the region, along the path of the old Silk Road.

Population demographics by district in Xinjiang. Red is Han, Black is Uighur. A prominent north-south divide is visible.
Population demographics by district in Xinjiang. Red is Han, Black is Uighur. A prominent north-south divide is visible.

Many native Uighurs have not taken kindly to the usurpation of their   homeland. Some have reacted violently, launching terrorist attacks against Han settlers in the region as well as larger cities in China proper. In 2009, a riot in Urumqi against the Han led to 200 deaths. As a result of these attacks, and the global stress on anti-terrorism efforts after 9/11, China has had comparative free reign in suppressing Uighur separatist efforts. It certainly doesn’t help the Uighur cause that Islam is a key part of their group identity and one of the many rallying points against the officially atheist People’s Republic.

Commentators have condemned the Chinese government for (what they view as) exaggerating the extremist tendencies in Xinjiang to further their own ends. Though China recognizes the 55 minority ethnic groups living within their nation, almost all power resides with the Han or (to a lesser extent) the closely-related Hui. Since the consolidation of China’s modern borders in the Communist takeover following WWII, two other sizable minorities have been severely oppressed. In the province of Inner Mongolia, the Mongolian population has either been out populated or entirely assimilated by the Han. In Tibet, religious persecution has forced the Dalai Lama and many other Tibetan (Theravada) Buddhists out of the country. The Uighurs, however, seem to be under cultural attack from the Han, who (perhaps deliberately) place advertisements offensive to Islam in religiously-significant cities, or force students to break fast during Ramadan. Whether these actions are deliberate, or a result of cultural misunderstanding, is difficult to discern. Perhaps that is exactly how China wants it.

Provinces, districts, and autonomous regions of China.
Provinces, districts, and autonomous regions of China.

In this era of growing tribalism, it is troubling, though hardly surprising, to see a nation with the power to supplant a centuries-old ethnic group in only a few decades. The world has changed since the genocides of the early 20th century, but newer, subtler methods have come to supplant genocide by force. Genocide by industrialization, by destruction of culture, and by out-population, are the weapons of the age. Demographically, Xinjiang’s destiny is already set: even if all the Uighurs united, they would be numerically outmatched by the Han in Xinjiang alone, not to mention the rest of China. The Han are richer, stronger, better-trained, adapted to the modern world, and simply too big to be stopped. The only choice left to the Uighurs is to dwindle as a minority in their own home, one more victim in the global march towards consolidation and the cultural domination of superpowers.

How Can Iceland be so Cru-whale to Harmless Creatures?

A minke whale being slaughtered on a whaling vessel in Iceland
A minke whale being slaughtered on a whaling vessel in Iceland

When people hear the word “whaling,” they normally think of Japan. Japan claims to kill whales for “scientific research,” even though vessels that are killing the whales suddenly become anxious and secretive when a camera crew rolls around?  Well, Japan may be in the limelight most of the time, but Iceland is just as bad as Japan, maybe even worse.  Here’s why.

Whaling in Iceland isn’t a big industry.  A man named Kristjan Loftsson owns the only company that kills whales.  Now, this may not be that bad, right?  Only one company?  Well, here’s the thing.  In Iceland, they kill two different types of whales, the solitary minke whale and the endangered fin whale.  Minke whale meat is mainly appealing to tourists, who are trying the “Icelandic cuisine” that they don’t really eat.  Fin whale meat, however, is unappetizing in Iceland, and it gets shipped off to Japan, where it’s not even that big, either.

Kristjan Loftsson, Icelandic fishing magnate, holds a box of frozen whale meat during a Bloomberg Television interview at the Hvalfjordur whaling station in Hvalfjordur, Iceland, on Monday, Aug. 10, 2015. Iceland is one of the last pro-whaling countries, for historical reasons (in Icelandic "stranded whale" means "great luck"), and, thanks to a long-standing, stubborn determination not to be lectured to by the outside world. Photographer: Arnaldur Halldorsson/Bloomberg
Kristjan Loftsson, Icelandic fishing magnate, holds a box of frozen whale meat during a Bloomberg Television interview at the Hvalfjordur whaling station in Hvalfjordur, Iceland, on Monday, Aug. 10, 2015. Iceland is one of the last pro-whaling countries, for historical reasons (in Icelandic “stranded whale” means “great luck”), and, thanks to a long-standing, stubborn determination not to be lectured to by the outside world. Photographer: Arnaldur Halldorsson/Bloomberg

Here are some numbers from the past years regarding Icelandic whaling up to 2015.  The numbers have increased in the past decade.  What is even more disconcerting is that the number of minke whales that are being hunted is significantly less than the number of fin whales, despite the fact that Icelanders actually personally use minke whales.

The number of minke whales killed from 1987 to 2015.
The number of minke whales killed from 1987 to 2015.  From Whale and Dolphin Conservation Society
The number of fin whales killed from 1987 to 2015.
The number of fin whales killed from 1987 to 2015.  From Whale and Dolphin Conservation Society
The total number of whales (minke and fin) killed from 1987 to 2015.
The total number of whales (minke and fin) killed from 1987 to 2015.  From Whale and Dolphin Conservation Society

The past two years, whaling trips targeting fin whales have been cancelled because of a lack of demand in Japan.  Minke whales, however, are still being hunted.  

So how is it that the Icelandic people are able to hunt whales, despite the fact that it is illegal everywhere else?  They’ve found a loophole in the deal with the International Whaling Commission (IWC), where they could continue “scientific whaling,” up until 1992 when they left the IWC.  They rejoined in 2002, and established a “quota” they they must reach/cannot go over for each year.  They say that it is an important part of their culture, and that their economy would not do well if they stopped whaling.  This is not true whatsoever, because they barely gain any profit from trade with Japan, which is what Iceland says is where some of their income comes from.
So why do they continue whaling?  That is the question we all must ask, because the senseless slaughter of innocent creatures is not condoned by anyone, except maybe the “scientific” community.