Chen Guan--the obstacle to Chinese economic development?

A strange phenomenon in China is the concept of Chen Guan, and the controversy surrounding it. From a purely economic point of view, the power and existence of this force stymies the growth of small entrepreneurship in urban areas, which in turn has some serious implications for economic welfare.

The existence of the peddlers and vendors would serve as a cushion for peripheral individuals during the transition period. Utilizing available capital and combining it with some talent and mostly diligence, people without a steady income can maintain a living after income shocks, introduced by such events as massive-layoff during the reforms of state-owned enterprises. The existence of peddlers and vendors in turn assures a cheap market which will further alleviate the economic woes of families confronted with income shocks.

However, abstaining from regulation is not without potential problems. the first concern is the source of the commodities. It has been common for individuals to steal things from the state-owned enterprises and sell them later. However, this concern should not so much an argument against eliminating Chen Guan as an argument for state-owned enterprise's reform.

Second, the concern of the adverse selection. This proposition is odd, concerning the disasters over the food safety regulation in recent years. Food safety regulation is of more importance than the quality control of those small commodities and yet the government has failed to address this problem. The real problem, clearly does not lie in the sales section.

Third, the concern of crowding out "mainstream economic activities". From this point of view, the deregulation of peddlers would lead to an increase in the number of peddlers since the "job" is no longer troubled with risks posed by Chenguan. This change in the relative reward would pose a threat the profitability of shops and department stores. The logic is sound. But whether the possible result pointed out would actually take place depends upon two things 1) the elasticities of the supply of the peddlers 2) the cross elasticities of the peddlers' goods and goods sold in regular stores. Neither of these has available empirical data for us to draw conclusions, though the chances that the worry might come true is indeed good.

Even with this possible consequences, some economists most notably, Prof. Huang in MIT Sloan School of Management argues that the real driving force behind China's development is these small peddlers, instead of those crony capitalists and business tycoons, whose sources of income are questionable at best. he envisions China to be a country of small entrepreneurs. I am not going to analyze his point in detail, but I need to point out that he has put more emphasis upon welfare economics which might not be the preponderant concern of this nation, longing for prosperity. In Clifford Geertz's Peddlers and princes it has been documented that a nation of peddlers can enjoy economic development or near-take-off, but not anything more ambitious. The competitiveness of the nation, might need to be elevated through strategic planning. Once again I am not arguing for the existing government policies, which is inefficient and corrupt. The goals are justified, while the methods needs transformation.

Let me return to the original topic of Chen Guan. I have not reached anything conclusive ,as to whether to eliminate this force, yet. The benefits are clear and desirable and the possible consequences are likely. Even though I do not have enough empirical data to give me a clear calculation result, it is my estimate and intuition that the benefits of curbing this force at least would outweigh the drawbacks, especially when we take non-economic concerns into consideration.

带一本书去巴黎

quoted from my best friend's best friend's blog. I should definitely read this book sometime. Thank you, XX, for recommending me such a wonderful blog

《带一本书去巴黎》给了几个人看了，他们也都写下了异常精彩的篇章。回想自己当初看的时候就说要写下一点什么，始终没有提起精神来认真写下，空余万千思绪在心头。

这两天，看了xx、向子和小猪写的文章，又忍不住留了很长的评论。既然是这样，我想倒不如整理一下这些评论，顺便梳理一下自己的思路，算是留一点积淀。

林达带着他们的《九三年》来到巴黎。巴黎确实是个文化积淀极深的圣地，每一处遗迹背后都有深重的历史。不知道有意还是无意，他们所游历的地方，往往能和大革命前后那段充满争议的岁月联系起来；于是，他们也借机回顾了一下大革命的历史，也顺便道出了他们的思考。

在我看来，法国大革命，其实就是有识之士的改革精神，与民众对现实的不满结合起来的产物。知识分子希望利用民众的力量完成社会变革，却不知道民众的要求远在他们的目的之外，更不知道他们没有能力制约民众的力量。民众的力量被发动以后，革命形势失去控制，知识分子们骑虎难下，裹挟着法兰西走向动荡。相比起那些深受人文主义、启蒙思想熏陶的上层知识分子，下层的民众对于“民主”“变革”只是有个简单而模糊的概念而已；当民众们有机会时，他们只会选择最简单直接的手段——暴力革命——来实现他们的目标。

可能和性格有关，我好像一直都不大喜欢“革命”这个词——这个词通常意味着流血与冲突，甚至是可怕的狂热。很明显，林达对过分狂热的暴力革命不太感冒，而我也正正偏向温和改革。但是，但凡社会改革，总归要有人民的支持才能完成；远离民意的闭门造车式的改革，是注定要失败的。相比起当一个有煽动力的领袖，当一个改革家要更为困难。因为后者，不能任由民意驰骋，不能放任“多数的暴政”；他们总是要当磨心，苦心经营，如履薄冰，一个不小心，就要承受身败业衰的后果，压力是无比巨大的。当然，二者也有一个很不美好的共同点：他们都很有可能为自己的事业付出沉重的代价，比如生命。

自1789年开始，法兰西经历近百年的动荡，无论如何这不能说是一件太好的事。我看到大家的文章貌似都对法国大革命有一点批判，或者说，有一点重新的思考。但是在这里，我却想重申教科书上的观点：法国大革命是一场进步运动。不论如何，法国大革命（包括其后续）推动了法国社会的进步，最终确立了现代国家制度，并且让更多人（包括法国人和其他国家地区的人）的思想得以进步。为了推动社会进步，在不同的时刻，社会可能需要不同方式的变革，而不论这种方式是暴力革命或是温和改革，都是最终必须推进的，这里面有一定的历史必然性。所以，改革和革命本身其实并无高下之分，关键只是在于如何选择，以及如何将变革对社会的危害减到最低。

小猪将文革与法国大革命联系起来了。是的，这两个时代的人民的精神状态，确实有相似之处。这种狂热，来源于民众对革命、对社会的不认识。人类本身一点都不高贵，只有有思想力的人，并能用理性指导行动的人，才应当是社会的尺度。因此，思想的革命，必须是社会革命的先导。

写到这里，我想我们的同龄人们（乃至其他的一些人）也应该从中看到一点什么。我很少看到我的同龄人们赞同文革的那种狂热状态的，却是经常看到他们对他人、对社会发出偏激的、霸道的意见。如果我们总是以偏激的态度看待一切，我们又和那些历史中我们不认可的人有什么不同呢？千万不要做落在猪身上的乌鸦。学会平和与妥协，是真正的成熟。

大家也有联系到中国的民主法制发展，但是我不想讲这一部分。总觉得那有违我的初衷；而且，这种联系未必一定很恰当。一千个人心中有一千个哈姆雷特。看同一本书，大家有不同的感悟，互相交流产生思想的沟通与碰撞，是相当美好的一件事。也说到了，每个人都可以自由地以理性的方式表达意见，并且每个人都尊重其他人以理性方式表达的意见，这才可以造就民主。

最后鸣谢xx、向子和小猪，是你们督促了我这个懒鬼，做一点有益的思考。

Illusion and Disillusion--Change of sino-Us relationship

Almost all websites display news on the debate of exchange rate of RMB to Us dollar. Almost all western media, led by Paul Krugmna attacked Chinese "exchange rate manipulation". all western media ridicule the response of Chinese prime minister Wen. They conclude that China is becoming less cooperative with its gaining of power. Is that the reality?

The truth is China is getting disillusioned by the acts of US. For years, China has been soft diplomatically toward US, taking almost accomodating stances toward US foreign policy, not much complaint when US foreign policy threatened its own interest. It culminated when Jiang Zemin when asked about US military deployment in Asia, commented : China welcomes US involvement. China did not confront US in the hope that US would later take a less confrontational attitude toward China. It is within asian philosophy that when someone is antagonistic toward you, bear it without complaint, the other side will change with time. This is clearly NOT happening. With time, Us has taken this non-confrontation as acquiesce. Continued arm-sale to Taiwan, unfair comments on Tibet (where CIA was heavily involved in the past), and all other small provocation never stopped. I read millions of media coverage on China, which make doubt if I were ever in China the year before. The distortion is beyond imagination and it seems the yellow journalism were everywhere. Chinese leaders may be getting disillusioned, perhaps, that confrontation is all that it can expect from US. Then why should China continue taking an accomodating stance? Absolutely no reason.

Moreover, many western people viewed Chinese exchange rate as outraging and they deem it disobedient of China not to follow what the US suggest--revalue.

Is RMB undervalued? the answer will come soon. but first look at the history.

In 1997, US treasury "advised" China to devalue RMB drasticallty. China refused. Ensuing were flooding comments ridiculing Chines foolhardy attempt to keep RMB strong.

For the more than 10 years that followed, RMB barely depreciated IN REAL TERMS. and in the recent years, it has offset all its depreciation with more conspicuous appreciation, though not enough to satisfy Americans. The puzzle is, a currency that thought need to be devalued, how come it suddenly become undervalued, without any depreciation (improved economic development has been adjusted with REAL term calculation)?

Economists point to the fact that China has such a huge reserve. This is as convincing as economists pointed out that high inflation keep unemployment low in the past. We still understand so little of economics to get a conclusive answer. And Partial answers can be ridiculously wrong--just like philips curve. Having listened to a political economy professor from Brown, I now understand more about this. The reserve exist simply because of America limit what China can import. China wants to buy high-tech machines to replace its own crap at home, but America will not let it. It is just like there are two people, A buys from B freely, but will not let B buy what he wants. Isn't it then ridiculous for A to complain that B will simply not buy from A? People point to PPP. another crap. The sample is problematic at best and I do not want to get into that detail now. And the crap with tradeable and nontradeable. How we draw the line makes a difference. Is the high-tech machine tradable?

Why should China listen to US on its OWN monetary policy, anyway? Let's suppose China did. before 1997, US and World Bank advised that it is inefficient for China to keep so much reserve. Suppose China listened, then when aisian financial crisis hurt, China would need IMF too. then it will have to devalue like Korea. then in 2010, China will again to revalue. Without depreciation in 1997, China is asked to revalue 20% minimum now. Imagine a drastic depreciation in 1997. Chinese RMB will be so volatile that will decimate its trade sector, esp. with its crappy financial sector. Then China will no longer be talked about by ECON students as an example of "growth miracle" but instead will be analysed as " growth disaster" For now, it might be just "diplomatic disaster"? But who cares? It is the life of its domestic people the leaders should care, not those people, trying to find a scapegoat frenetically.