US Slaps Duties on China's Coated Paper Products

An interesting development although I'm not sure I agree with the position being a consummate free trader. According to the NAM's Shopfloor - it's "the first time that the law has been used in relation to non-market economies."

If they aren't just slapping a blanket duty on paper in general, then are they suggesting that the subisidies from the Chinese government occur in the value added side of the equation? Apparently NewPage who brought the suit and the US commerce department said "several Chinese companies were found to receive subsidies in the form of tax breaks, debt forgiveness and loans."

This may be a trade mechanism that they'll be using across more industries given how broad they are defining government subsidies. I mean it's not like American states give tax breaks for companies locating in their districts do they? Further, the fundamental premise of trade is that it creates value for both parties in the transaction. Not sure if it's of comfort but in the past, the US has instead applied anti-dumping tariffs to countries like China. And according to Forbes, has filed 31 cases against China since 2001. That said, it looks like more of a political move, as the Bush Administration aims to renew fast track trade negotiating authority that expires in June.

'Rage' over Labour and Wages

A key employee, who's a few years younger than me, is quite the character. He came bursting into the office all in a huff after lunch saying he would never eat at KFC or McDonald's again . This over something about pay. As an aside, it is a source of constant amusement and sometimes frustration since he gets into these moods every once in a while - full of indignation over foreigners hurting poor Chinese people. I just tend to roll my eyes.

This is what he was talking about. I think Imagethief does a fantastic job of illustrating how stupid both McDonald's and KFC come across even though their position may ultimately turn out to be perfectly valid. Apparently both KFC and McDonald's are being accused of underpaying their student workers - and not by much, but you wouldn't really realize that by the coverage.

As someone who doesn't in general think that it makes sense to have a minimum wage in the first place, I suppose context is required to see the world through my employee's sometimes highly hypocritical eyes. I mean compared to other local companies out there, I pointed out that McDonald's and KFC probably do far better - but according to him Chinese people hurting other Chinese people is ok... but those dang foreigners, that's a whole different ball of wax. (He tells me from time to time that I'm also a Chinese person, but I tell him that I'm a Hong Kong person - inferring the latter isn't a subset of the former. This drives the nationalist in him nuts)

We had to have a going away dinner for a colleague today and after that outburst, as we were deciding where we should go, I suggested that we go to McDonald's with as serious a face as I could muster and he just glared at me.

During more serious moments I might otherwise consider what implications nationalism for the relatively educated masses will have on the future of China - particularly for Hong Kong, Taiwan but also Japan and North Korea. This is after a guy who took part on street protests over Japan last year. Then again, it's far too late in the evening to do that now.

I wonder how much of a real impact this recent press coverage has had although it's been quite clearly well publicized here in Guangzhou. I will ponder just that impact while I chomp on a Sausage and Egg McMuffin tomorrow morning for breakfast.

Why the French and Chinese Goverments get along so well?

In a conversation with a local employee not so long ago, we came to discuss how he liked France because they had been apparently so helpful to China. But while France riots away (H/T Instapundit), here's an alternate theory.

An Answer to my Prayers... Autoproxy for Blogspot

Just as I was starting to whine.... In case anyone can't live without their favorite blogspot blogs (no, I really can't), check out this post. One little addendum, is that for Mozilla 1.50, the entry for where you put where to find the proxy file is as follows:

Tools --> Options --> Connection Settings

The downside is that I really don't have a good excuse anymore not to post. Now if only I can figure out what to do about my email. I use Yahoo business mail because I like the filter (the amount of junkmail that I potentially get in the course of a day borders on horrific).

A small upside to this is that I've discovered RSS readers and I gotta say that they really do save a ton of time.

Grrr.... damn the creeping censors...

Ok now it's just starting to really annoy me. Over the past week, the censors have really started to creep out in terms of what they're not letting people in China read. They've started to selectively block a number of other blogs that aren't either Typepad or Blogspot. Blogspot is blocked entirely (though not blogger.com - hence my ability to post but not see what I've posted). Fortunately, I've discovered RSS feeds and readers :) (but if anyone knows a good proxy from China, please feel free to post in the comments that get mailed to me). The real annoying part though is that they're not doing it all at once but they're adding to the list of blocked sites - and ones that I read no less, pretty quickly.

Perhaps the worst part at the moment is that they've blocked my pop3 mail server for work. I've known about this issue in the past but it had been getting better (i.e. I was able to use it increasingly more before it got cut off in the past).

I may decide to keep posting anyway though my real excuse is that I've been swamped with work lately. I do however dread - absolutely dread - the day when they cut off my access to www.opinionjournal.com and www.wsj.com - it's not like I can read those on RSS.

I've been thinking about a few posts to make - e.g. the jaw dropping costs of social security taxes in China, crossing the road like a giggling school girl every morning, and an ode to McDonald's. I might just post or wait until I get back to Hong Kong next week. And in testament to the wild East, someone tried to stab the HR director to death with a knife at a company I know over an HR dispute - there's almost no comparison between the comfort level that I have here versus where our office was before in the outskirts of Shenzhen (ie. for the comfort of the parental units, I have some now - not that I ever really told them that I didn't have that before).

In the meantime, I would recommend Shenzhen Undercover - someone who has been posting more frequently and consistently than me but is a better writer (though he may be a bit left of center). He's posted a bit on what he seems to infer to be corruption but of all the stories I've heard, this one seems pretty light by comparison to some of the crazy things I've heard and seen.

Technical Difficulties (or perhaps not)

The powers that be have blocked blogspot websites from within China at least over the past few days. I have no idea if this is a regular occurence or if this is back to a permanent thing. I think it's a reminder though that China has a long ways to go in understanding politics and free markets. I can post but I can' really see what I've posted. Granted I have also been quite busy lately and I hope to talk about that as well.

Should Democracy or Economic Growth come first?

Catching up on reading blogs over the weekend, Greg Mankiw points to an interesting debate from WSJ's Econoblog that asks "Is Democracy the Best Setting for Strong Economic Growth?"

I tend to agree with Daron Acemoglu's concluding remarks:

Democracy doesn't strongly predict economic growth, at least not in the short run. [...] Sustained economic growth requires secure property rights and a level playing field for generating new technologies and entry by new firms. Democracy is the best guarantor for such sustained economic growth. Economic growth generates various vested interests, ranging from landed elites to businessmen in declining industries to privileged workers. These vested interests will try to block the introduction of new technologies and stop the entry of new firms. Democracy is not perfect, but with its more egalitarian distribution of political power, it will have greater resistance against vested interests than autocracy.

What democracy brings can be replicated through benevolent autocracies/dictatorships. Markets are more efficient for driving innovation because it's made up of millions of little experiments jockeying to best reap the rewards of what the future might bring in what Joseph Schumpeter has termed "creative destruction". Autocracies often create barriers to new experiments favoring dominent or entrenched firms. As a form of government then, democracy tends to force change promoting a better meritocracy.

China inevitably comes up in this conversation. While the current regime ought to be applauded for making communism more pliable than Marx ever considered, they're still only making up for lost time. China remains a mere fraction of the economic force they were only a few hundred years ago. As far as China has come, there still exists a huge question mark on what's happened to all those state sanctioned, underperforming and crony loans that will never be repaid - an amount that could top $1 trillion dollars. Now imagine the scenario if depositors (and Chinese people tend to be savers) lost confidence in their financial system (it's one of those reasons why I think it's rather foolish for outsiders to press for fast and dramatic currency regime reform given that it could spark a run on domestic institutions).

Democracy tends to promote the spread of new ideas. While only a few years ago, blogger seemed to be behind the great firewall of China, wikipedia continues to be. Only a year ago, I wasn't even able to access my (paid) yahoo account through pop3. When I called Yahoo! on this, they told me it was because these accounts were blocked from within China. That said, the fact I seem to be now able to access my account is promising but may not bode well in keeping a populace unhappy with political machinations of the day at bay.

Another reason that representative democracies tend to produce more sustained growth is that they provide greater stability with a political outlet for dissent (not always the case obviously) and political succession tends not to be a bloody mess.

This isn't to say that in democracies bad loans and loans to cronies can't happen (ref: 1980s S&L crisis) or that you can't have instability (ref: Iraq), it just tends to be better other forms of government.

For some observers, China is a powder keg waiting to ignite. It bears considering that the argument for market reforms wasn't so much that China's government wanted them but rather didn't have a choice. From what I've seen locally and from what others have observed, your average joe might not have extraterritorial ambitions, but they can be fiercely nationalistic and can be ruthless about dealing with internal matters - under which they consider both Taiwan and Tibet to be.

But back to the question of which comes first - democracy or economic growth. I personally don't question that the two are two sides of the same coin, but given the difficulties of achieving the former, it would seem to me that the latter tends to need to come first. Further, I also have little doubt that the latter builds pressure for the former. China is indeed in for interesting times if this proves to be the case.

Two Models to Grow From

While I think there's little doubt over China's phenomenal economic growth to date, a friend keeps reminding me to let him know "when the party's over" so he can consider repositioning his portfolio. China's recent successes isn't so much about what it's done right as it's arguably about their past failures.

China's just starting to catch up and it will take some time before it really is the economic behemoth everyone seems to already think it is. Despite all its growth, it bears recalling that China only surpassed the GDP of Italy, France and the UK at the end of 2005 despite each having only around 60 million people compared to China's 1 billion or so. And compare China's estimated $2.5 trillion GDP to the USA's $13.2 trillion. of As William Dodson writes:

I always bring to students' and participants' minds when I lecture that until the mid-1800s China represented 30% of the world's GDP for more than a thousand years. As one Chinese put it, "China just had a bad couple hundred years."

China has much to learn from two leading lights - particularly the one that they took over from the British - Hong Kong, and the other, Ireland. From John Fund in American.com:

Looking back, Milton Friedman said that in the 1990s he offered three words of advice to countries escaping communism: privatize, privatize, privatize. “But I was wrong,” he said shortly before his death. “That wasn’t enough. It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law.” Economist Robert Lawson, co-author of the Economic Freedom of the World annual report, published by Canada’s Fraser institute, concurs: “Giving people property rights and the ability to settle disputes peacefully and fairly—that is the number-one thing that matters.”

Lawson notes that the two top countries on his economic freedom index are Hong Kong and Singapore. Neither is particularly democratic, but both once belonged to Britain and adhered to that nation’s common-law traditions, built from bottom-up practical experience over centuries.

Next they should consider Ireland's successes despite being previously an economic basket case they've led old Europe in growth. From Cato's Chris Edwards in the National Review:

Irish government spending fell from more than 50 percent of GDP in the 1980s to 34 percent by 2005. For Europe that is a triumph of restraint, given that the average size of government across 25 EU countries today is 47 percent of GDP.

And Ireland has steadily reduced its tax rates. The top individual income tax rate was cut from 65 percent in 1985 to 42 percent today. The capital-gains tax rate was cut from 40 to 20 percent in 1999.

However, the key to Ireland’s success has been its excellent tax climate for business. In 1980, Ireland established a corporate tax rate for manufacturing of just ten percent. That low rate was subsequently extended to high-technology, financial services, and other industries. More recently, Ireland established a flat 12.5 percent tax rate on all corporations — one of the lowest rates in the world, and just one-third of the U.S. rate.

Low business tax rates have helped Ireland attract huge inflows of foreign investment. Given the country’s modest size, it boosts a high-tech industry second to none. Intel, Dell, and Microsoft are among the island’s biggest exporters. Ireland also hosts booming insurance, banking, money management, and pharmaceutical industries.

While I won't argue that either Hong Kong or Ireland are perfect (from what I've seen, Hong Kong still can go a ways), I think they illustrate just how far China can go - that while a crash is almost inevitable, continued structural reforms will mean that they emerge better and stronger than before.

The "Culture" Myth

I can't say that I've ever been a fan of the idea that culture drives behaviour. In China, as with everywhere else in the world, people respond to incentives. As with work in Uganda, I've been suspicious of the argument that people there value family more, any more than relationships are so much more important here in China or anywhere else for that matter.

Beyond the (allegedly) bonding effects of offering free flowing booze and sex and the idea that by making a buyer/client your friend they'll be more inclined to buy from you, relationship building here I think takes on particular importance. It's the simple theory that you're less likely to be swindled by doing so and one just can't rely on such things as contract law or property law where such outlandish ideas (at least to communists) have only recently been codified/established. Yes, for communists in China, to be a capitalist is bizarrely glorious.

In some ways it seems stunning that it's not overwhelming for those in the two generations before me who have seen so much change. To hear what my parents went through, and their parents in turn, seems entirely foreign compared to the relatively stable existence in the West. From the cultural revolution and daughters forced to denounce their parents to avoid savage beatings (it's surreal to hear this stuff first hand) to my grandmother smuggling food into the country side in the dead of night to feed her nieces and nephews seems a world away from the rapid development and what might have only a few decades ago been denounced as the 'Western decadence', short term and seemingly money seeking China of today.

With a seemingly unenforceable legal system, a rapid level of development and so much money sloshing around, it's not surprising that there's also been so much temptation from many who would otherwise be farmers who come to cities with next to nothing in search of money. In the few years that I've worked here, I've seen any number of swindles that it's truly nerve racking and something I have to be cognizant of and concerned about. I think outsiders deal with it in different ways, I know of those who now don't bother trusting their China staff anymore treating them like children and taking away nearly all responsibility - and these are even guys from HK. On the other hand, I get the sense that so many of these people have only been trained with management techniques from the 60s and 70s (I'm told that local managers and Taiwanese managers are even worse).

My goal is to build a different kind of company - it's important for my staff to see working as more than just a paycheck. It's a bit ironic and perhaps hypocritical that I don't see culture as a good excuse for not getting things done but that I intend to use it as an enabler and a tool for self-enforcement in my own company. I know there are those out there who see this as hopelessly idealistic and I probably am, but I've decided that I want to at least try.

Returning soon...

Blogging is going to be light for the next few days (as it has been for the past few). I am kind of relocating to Guangzhou for a few months as I work to change the way we work and the way our organization thinks. As noted in a previous email, it's going to be an interesting challenge (that's supposed to be some Chinese curse incidentally - 'may you live in interesting times').

My company is going through a number of changes, most of them preparing for the growth that we're expecting - and compounding the difficulties in any growing organization is a significant language barrier (I don't speak mandarin and most of them don't speak cantonese or english). I have to get up to speed and I have to do it quickly and in the midst of all of this we are adding a new accounting/ERP system and all the fun that comes with that.

This could actually be a new direction for this blog but I need to consider what I want/can talk about. My ultimate goal is to change the DNA of our company. It may seem excessively naive of me particularly as a bit of an outsider in China, and to that end it can get a little irritating when people dismiss your ideas as an outsider but from what I've found, it's just a matter of patience. Though I may not have much of that, I'd like to think that I make up for it in persistance.

I'd like to do in China what is already challenging for some in North America - having those who work with me feel that it's their company as well, optimizing around everyone's strengths, improving revenue and profitability metrics per team member and sharing in that wealth, and improving transparent communication and improving on trust. I'd like to document some of where I hope to head (and why), my successes and failures in the hopes that it may be useful for readers and myself later on.

A Quiet Genocide

What is happening in Zimbabwe is a failure of international diplomacy. It defies reason that African leaders have traditionally tried to speak as a block, defending each others' shortcomings when these shortcomings include brutal murders and oppression. These leaders become complicit in each others' misdeeds and should answer for them. With all the time spent on AIDS and malaria, I wonder sometimes if the leading killer of the people of Africa isn't corrupt and genocidal governments.

I do wonder how those who support Chavez reconcile his support for Mugabe. Here's an article from The New Republic that requires a subscription, but it's worth reading the whole thing:

It all began with Mugabe's land seizures in 2000, in which he booted white farmers from the property they owned and replaced them with political hacks who have no interest in agriculture. The results were disastrous. Zimbabwe annually requires 1.8 million metric tons of maize. Yet, in 2006, for instance, it faced an 850,000 metric ton deficit -- of which planned imports would cover just 60 percent, with only 28 percent of that delivered by December. The country also requires 400,000 tons of wheat annually, yet, last year, it produced only 218,000 tons by the government's count -- meaning the true total was likely far less. As early as 2002, the BBC was reporting that people in Matabeleland, the southern region of the country where the minority Ndebele tribe lives, were starving. That same year, on the eve of a massive drought, the Minister of Zimbabwean State Security said, "We would be better off with only six million people--with our own who support the liberation struggle. We don't want all these extra people." Today, according to the World Food Program, 38 percent of Zimbabweans are malnourished.

Hat Tip: Instapundit.

Peak Oil Questioned...

Via Instapundit - Tim Blair quoting the New York Times:

There is still a minority view, held largely by a small band of retired petroleum geologists and some members of Congress, that oil production has peaked, but the theory has been fading.

It's good news though perhaps not so much for the neo-Malthusians who have one less argument with which to attempt shaming us with. The article points to new technology and reserves that were previously too expensive to reach.

The Politics of Alternative Energy

An interesting article from Arnold Kling at TCS Daily on the hot air generated from the competition for energy subsidies:

The competition for politically-driven profits is known as rent-seeking. The end result of rent-seeking is that the gains to private firms from government subsidies are dissipated through competition. In the end, only lobbyists and corrupt government officials benefit. The politics of global warming and the alleged oil/terrorism link are creating the conditions for an orgy of rent-seeking relative to energy.

Chances are, lobbyists will use up more energy than is produced by alternative energy subsidies. As for carbon dioxide emissions, cap-and-trade and energy subsidies certainly will increase the amount of jets flown by corporate executives to plead with politicians in Washington, Eurocrats in Brussels, and United Nations officials in New York. The net result is that the concentration of greenhouse gases probably will be higher, not lower.

You may want to read the whole thing.

Do Trade Deficits Matter?

I've seen two interesting posts this weekend on the trade deficit. One from Club for Growth and the other from Greg Mankiw.

From Club for Growth that quotes from Adam Smith:

Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses, and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies, may be, and commonly is disadvantageous to the country in whose favor it is meant to be established...But that trade which, without force or constraint, is naturally and regularly carried on between any two places, is always advantageous, though not always equally so, to both.

From Greg Mankiw quoting CEA Chair Eddie Lazear:

On the trade deficit: The reason for the trade deficit ... is primarily, to my mind, the capital account surplus. It's not the trade deficit per se. It's that people want to invest in the United States. ... I think of that as a good thing.

As a matter of obvious disclosure this is an issue that has a direct impact on my business. It's also an issue that I knew full well getting into this business that I brushed off as something that has more to do with politics than economics. As Adam Smith pointed out, when a trade takes place, when you buy from me or when I buy from you, we both win. By buying a product or service, I'm saying that it's worth equal to, or more than the money I paid for it.

In my business, many of the products that we bring over are components and subassemblies - basically stuff to use stuff. The wrinkle is that much of these products in turn get exported around the world - another words, the imports allow our clients to be competitive on the global markets. But consider the ridiculousness of it, quoting from a 2004 WSJ article, one blog points out:

Apple's profit margin on iPods could run above 40%, based on production cost data from Wedbush Morgan Securities, whereas Kessler estimates the China-side profit to be in single digits, quite possibly below 5%.

So consider that when the politicians complain about the trade deficit with China. Remember the remarkably low unemployment in the US and Canada, and the rising incomes in both. It's not the trade deficit that matters, it's the income that does.

Land Reform the Silver Bullet for Iraq?

Using markets to defeat terrorism. How novel, and yet, not so much. Austin Bay follows up on his own blog on using land reform and registration of property rights in providing the average citizen the incentive to make the government work:

In the 1990s, Schafer noted, Peru turned the “land reform” tables on the Communists. Property right reform helped defeat Peru’s “Maoist” Shining Path guerrilla movement.

“The Third World is not populated by proletariats, it’s populated by entrepreneurs– successful small business people,” Schafer said. (And that is what I’ve seen in the time I’ve spent in developing nations.) He added: “If you are someone who is surviving and raising a family by taking a bunch of bananas from out the city and bringing it in (to sell) you are an entrepreneur. You understand business —by low sell high And if you come to them and say you want to extend credit to them they understand that.”

In Schafer’s view, property right reform gives Iraqi Prime Minister Nouri al-Maliki’s government a very powerful political weapon, one that has war-winning potential.

Schafer supplied some fascinating evidence. According to Schafer, less than five percent of Iraq’s cultivatable agricultural land is “freehold” (owned with clear title). 95 percent of the cultivatable land in Iraq is therefore “dead” (illiquid) and cannot be used as security for a bank loan. “Iraqi farmers who lack clear title can’t get (bank) loans,” Schaefer said. That limits economic creativity, particularly in a population demonstrably successful at small business operations. Schafer believes that 95 percent of family homes in Iraq also lack clear, secure title.

“Prime Minister Maliki needs to go on television,” Schaefer advised, “and say “Citizens of Iraq, 95 percent of the property in this country is not legally in your name. You don’t have title to your own land or your own houses. We’re going to change that right now.””

I would suggest that you read the whole thing. If only more governments in Africa and the developing world would take that advice.

The Dark Continent is literally the Dark Continent

Mark Perry from the University of Michigan notes a photo of Africa taken by NASA satellites August 21, 2001 at night under the heading: "What Does Economic Freedom Look Like at Night?":

Continues Perry: "According to the 2007 Heritage Foundation's Economic Freedom of the World in Five Regions, the economic freedom of Sub-Saharan Africa is the lowest in the world, and the economic freedom of Europe is the second highest in the world, just slightly behind the Americas." Hat tip goes to Club for Growth's Andrew Roth who notes "Someone smart once said that the only way to make a nation prosperous is to make the people prosperous. That's not happening in Africa." The people of Africa deserve better and ought to expect more of their politicians.

It's pretty encouraging with the development and rising prominence of the Heritage Foundation's Economic Freedom Index, Transparency International's multiple indices and following behind, the World Bank's Doing Business index, adding pressure to the acceptance of the idea that poverty isn't caused by the lack of resources, but rather a symptom of poor governance.

Property Rights, an Oil Trust & Iraq

From Austin Bay at TCS Daily:

The Iraqi government should consider two other economic reforms.

A logical follow-on is the establishment of an Iraqi "oil trust" program, similar to the one implemented by the state of Alaska where every qualified citizen gets a share of state oil revenues. An oil trust would put several hundred dollars a year into the pockets of every adult Iraqi -- that serves as an instant economic "fire-starter." The oil trust immediately invests everyone in the economic success of Iraq's new democratic government.

Clarifying and affirming individual property rights is another important reform. Peruvian economist Hernando De Soto's "Mystery of Capital" (published in 2000) argued that Egypt's poor have around $240 billion in "dead capital," most of it tied up in property that they cannot properly mortgage. De Soto said that individual property rights and a legal system that protected contracts would instantly energize Egypt's sclerotic economy.

These ideas are pretty exciting and something that I think more countries in places like Africa should enact - as more often than not, resources become more of a curse than a blessing (be they diamonds or oil). Those who know me know that I've been generally supportive of the War in Iraq. I've been somewhat puzzled by those who would have preferred stability and a false peace when it led to September 11th.

Iraq represents a new departure for the middle east and its economy represents quite a bright spot. To cut and run now would be disastrous sending the message to muslim extremists that they've won. In today's rabidly partisan climate when Americans tire of the attrition in Iraq and much of the rest of the world envies American power, I worry that Democrats and their would be international allies seek a political victory at a cost none of us can ultimately afford. It is encouraging however that the average American still wants to win in Iraq. In an Alison-in-Wonderland world, it feels like Americans are again left with the responsibility of defending the world when much of the world wishes they would fail.

Where to go from here...

It's probably a bit early to be at a crossroads for this blog since I've only really been blogging for 2 months now but I still haven't told many people about it. I'm trying to get better at writing, I haven't really had the inclination to do as much independent stock research but at the same time, I'm not quite sure this eclectic mix of commentary/rants is the best way to develop my blog.

To date, most of my comments are reactionary and largely impersonal - responding or critiquing various news articles and editorials that pop up. I think I've got a few interesting bits that I can write about so maybe now's a good time to introduce a bit more about myself particularly since I'm at a crossroads - terming it as being the beginning of a new adventure in my career might be more apt. I have a business degree from Wilfrid Laurier University, I call Waterloo, Ontario home but I've worked as an investment banker in NYC and as an intern in auditing locally, but also for a period at a microfinance institution in Uganda so it's been a bit of an eclectic mix.

I'm in the middle of buying out my business partners in a company called Riverstone Manufacturing (you can see the link on the left hand side). We help firms manage production of components and subassemblies overseas. Our offices in HK are going to stay the same at least for a little bit while our offices in China are moving to Guangzhou and come March 12th I'll be joining them for up to 3 months to start.

Given that this isn't an anonymous blog, there are a number of issues that I can obviously not go into detail about since some day, someone - clients, friends and possibly, would be dates (dare to dream?), will search my name and my company name and find this blog. On the other hand, I'm pretty excited and hope to share some details with those who are interested in my journey to come.

The S&P 500 Index turns 50

From Jeremy J. Siegel and Jeremy Schwartz in the Wall Street Journal (Subscription required, or use Congoo):

From its inception on March 1, 1957, through the end of last year, the average annual return of the S&P 500 Index, which today comprises almost 80% of the value of all U.S. stocks, has been 10.83%, a return that most active equity managers have found very difficult to match. The changing composition of the index also mirrors larger changes in the economic landscape. Because of mergers, bankruptcies and other corporate changes, almost 1,000 new companies have been added to the index, as others were dropped, since its inception.

In 1957 the technology, health-care, and financial sectors, which today comprise almost one-half the index's value, made up a mere 6% of the index. The financial sector was particularly small in the 1950s and 1960s since commercial and investment banks, as well as brokerage houses, were not included in the S&P 500 until the 1970s.

I think there are two interesting points here. The first is that if you accept that the S&P 500 represent the largest and strongest basket of companies in the US (if not the world), the level of change in that basket is amazing. Its growth represents the present value of the innovation they have developed.

The second, is for those cynics out there who claim free markets just make the rich richer, and big companies just get bigger. Think of that, in the last 50 years, the S&P 500 has turned over twice - and where some industries have slowed down and petered out while others have grown - with many of the largest firms either in their infancy or even non-existent 50 years ago. The reason markets have been so successful where central planners have failed, is that the future is unknown.

The market is a collection of millions of different experiments optimizing to profitability - i.e. society's wants, needs and desires. These simultaneous experiments are able to respond far more efficiently than government's heavy (and slow) hand. The more efficient the market, the better the allocation of capital allowing the most successful experiments to grow (and be copied). As a corollary, markets will always be better able at responding to society's challenges so long as the future is unknown.

US Treasury Secretary Paulson Defends Trade

I'm shamelessly copying this from Greg Mankiw's site. Economic liberty has too few quotable/charismatic defenders (but that could just as well be that it's not deemed interesting enough to make the news). What we do hear is the protectionists like Lou Dobbs and it's easier for a politician to cave into empathy for low paying jobs, doing what they think feels right, instead of doing what they likely know is right.

Anyway, here's US Treasury Secretary Paulson:

trade helps Americans provide for their families. When special interests seek protection in the name of low-wage workers, we should acknowledge that limitations on imports do not benefit the vast majority of Americans. They deny people the freedom to choose from a broader array of goods and services, and impose a cruel tax on people who rely on low prices to stretch their family budgets. The cost of protectionism falls most heavily on those who are least able to afford it – the poor and the elderly.