Drinking water in Beijing. Or, if the mountain will not come to Muhammad…

…smash the drawing room to pieces!

Remember that old post about moving Beijing? If you’ve forgotten:

China really should consider moving the capital away from Beijing. Any nation, particularly a major power, should choose a location for its capital that allows growth and can respond to challenges. The historical advantages that led Beijing to become China’s capital no longer exist, and the location’s disadvantages are becoming ever more apparent.

…

Quenching Beijing’s thirst has already meant tapping the Hai River and water from neighbouring provinces. Now the Han River is to be diverted for a huge project transferring water from the south to the north. The impact of this project on the lower reaches of the Han River should not be underestimated. It will not necessarily solve water problems in the north, but it may well destroy the environment in the south. Beijing may have moved the Shougang steel plant for the sake of its air quality, but it continues to develop water-intensive industry. Why not move the industry and resources where there is more water?

Plan A, however, is still in effect.

The diversion of water to Beijing for the Olympics and for big hydropower projects threatens the lives of millions of peasant farmers in China’s north-western provinces, according to a senior Chinese government official.

In an interview with the Financial Times, An Qiyuan, a member and former chairman of the Chinese People’s Political Consultative Committee for Shaanxi province and former Communist party chief of Shaanxi, warned of an impending social and environmental disaster because of overuse of scarce water resources.

Beijing will need an estimated 300m cubic metres of additional water just to flush out the polluted and stagnant rivers, canals and lakes in its central areas to put on a clean, environmentally-friendly face for Olympic visitors, according to municipal officials.

The average annual per capita water supply in China is 348 cubic metres, well below the global average and the United Nations definition of “water shortage”, which is anything below 1,000 cubic metres. Beijing’s supply is even lower, at 235 cubic metres. Many experts say these shortages are exacerbated by artificially low prices set by the government.

“Beijing is facing a water crisis and it is fighting for water with neighbouring cities, including Tianjin and Zhangjiakou,” said Wang Jian, a Beijing government employee and activist on water issues. “The price of water does not reflect its true value, but the government has decided to control the price in order to maintain a harmonious society in the run-up to the Olympics.”

The government has launched a grandiose $60bn “south to north water diversion project” that will channel about 1.2bn cubic metres of water a year from wetter southern provinces to the country’s arid north.

Well – if we will insist upon our amusing diversions and displacement activities…

Subjecting technical efficiency to cost-benefit analysis

While I was at the Wall Street Journal:

In a small, damp factory here, blood-smeared men wring pulp from pig intestines, then heat it in concrete vats.

The activity at Yuan Intestine & Casing Factory is the first step in the poorly regulated process of making raw heparin, the main ingredient in a type of blood-thinning medicine that in recent days has come under suspicion in the deaths of four Americans.

More than half the world’s heparin comes from China. The chemical is often extracted from pig entrails in small factories — many as rudimentary as this one, which also manufactures sausage casings from intestines. The heparin eventually ends up in drugs used world-wide by patients having surgery or who need dialysis.

The growing concern over heparin’s safety brings to the forefront the question of whether the raw materials from which it is made — for that matter, the raw materials for any drug derived from animals — should be more tightly controlled. The FDA’s position is that the purification steps in the drug-making process are sufficient to produce a pure product from pig tissue, and that “companies are responsible for sourcing the materials” and “appropriately processing the material.”

The health of the animals from which heparin is extracted can be important to the safety of the drug. Drug makers in the U.S. and Europe stopped using cows — a once-common heparin source — after the discovery of bovine spongiform encephalopathy, or “mad cow” disease, amid concerns that the illness could be passed on.

In China, not all heparin makers answer to drug regulators. That’s partly because some are registered as chemical makers, not drug producers. It’s a legacy of a regulatory system that focuses on finished drugs, not their ingredients, says Shen Chen, a spokesman for the State Food and Drug Administration in Beijing.

This part was interesting:

Mr. Yuan, the owner of the heparin and sausage-casing factory in the village of Yuanlou, is a gregarious man who takes pride in the business he has built. Now 57 years old, he has earned enough money from heparin to send his two sons to university. Mr. Yuan himself never graduated from high school because his family was too poor to pay for school.

He launched the original business in the mid-1980s making sausage casings from intestines. Later he added heparin production.

Funnily enough (sort of), I was being asked, by colleagues, about a related matter just the other day. As a vegan, how do I respond to prescribed pharmaceutical treatments when those drugs may come from animals (the intestines of about 3,000 pigs are required to produce a kilogram of heparin)?

Honestly, I just didn’t know. I don’t know whether drugs are vegan. My guess is that I would ask, and try to find vegan, yet effective, alternatives. At the end of the day if I needed that antibiotic, I’d take it. I’m vegan – but I’m not an idiot. For now, I think I’ll just keep hoping I stay healthy as a (healthy) horse.

More generally, this is our issue: how do we weight technical/productive efficiency (producing things for the lowest possible cost/price/resource use) with, say the risk of harm being caused by the corners cut? For me, this is an issue relating to the value of information.

The known risk of negative side-effects (say, Adrenal, Ovarian or Retroperitoneal hemorrhage, if you’re taking heparin) can be, and are, built into the model for cost-effectiveness employed by health-care systems the world over (risk-adjusted adverse events are negative benefits).

However, there’s this issue: if we agree that a drug is cost-effective, then go and manufacture it (efficiently, productively) in a weird farmhouse in China (for example) and, as a result, suffer four deaths and around 350 allergic reactions among heparin consumers in the US, that is something not a part of the original information set or decision-making.

How, then, do we proceed? It would seem that complexity needs to be considered more fully. When we say “the cost-effectiveness of this compound is this much”, we should be adding “…if it is made for this much in facilities of this quality in these countries.” Pursuing the lowest costs of production overseas has the potential to devalue the information we already had gathered on the benefits vs. the risks of any given pharmaceutical intervention.

Commodities, sovereignty and vertical integration

Aluminum Corporation of China, (Chinalco), suprised everyone, buying into Rio Tinto yesterday.

China on Friday weighed into the bidding battle for the world’s minerals deposits when it launched the largest-ever dawn raid to snap up a 9 per cent stake in Rio Tinto, the UK-listed mining giant at the centre of a takeover battle.

Chinalco, a state-owned mining company, in a joint exercise with Alcoa, the US aluminium group, spent $14bn in a move designed to block a planned $119bn takeover bid from rival miner BHP Billiton.

Together they secured up to 12 per cent in Rio’s London-listed shares. This investment gives them a 9 per cent overall stake in Rio which enjoys dual listing in London and Sydney.

BHP had been expected to launch an offer of three BHP shares for each Rio share on Wednesday, the deadline set by the UK Takeover Panel. But the Chinalco gambit threw BHP’s plans into disarray. Marius Kloppers, its chief executive, will this weekend decide whether to plough on with the bid or walk away.

Surprising because, the last we heard, China had no real intentions of becoming so defensively involved, and no real aspirations as to being able to. Back then, though, I wrote about how in China’s interests such a move was and, clearly, Chinalco has agreed:

A person close to the deal said the Chinese government had been looking at ways to block BHP’s takeover ambitions since late last year, and had finally decided that Chinalco would be the best state-owned enterprise to use as a vehicle.

One leading Rio shareholder said “this is global capitalism for political gain”.

These are the fortunes of war, which – in the world of international finance and commodities – this is. Everyone wants the source material for production, and everyone wants it as inexpensively as possible. If China is frozen out of the bench-mark pricing negotiations, we can hardly grumble when she takes her own initiative to secure the supply of a critical resource. Hey – at least they didn’t invade us and build a bunch of walled sub-cities and the biggest embassy the world has ever seen.

With such a substantial level of foreign engagement it shall be interesting, too, to see how our bottle-neck’d ports go as an international economic/diplomatic complaint.

The only thing heating up in China is commodity prices

Officially, fuel is up anywhere from 8 to 11% over last year, in China (click for larger image):

Of course these are official statistics – possibly implying they are subject to bias but, more specifically, that they are subject to local temporal and geographical variation. Big variation, sometimes: forget not the death-tainted sale of cooking oil in China, last year.

So, given this story:

Severe snowstorms over broad swaths of eastern and central China have wreaked havoc on traffic throughout the country, creating gigantic passenger backups, spawning accidents and leaving at least 24 people dead, according to state news reports.

In many areas, where snow has continued falling for several days, the accumulation has been described as the heaviest in as many as five decades.

…

“Due to the rain, snow and frost, plus increased winter use of coal and electricity and the peak travel season, the job of ensuring coal, electricity and oil supplies and adequate transportation has become quite severe,” said Prime Minister Wen Jiabao in a statement issued late Sunday.

Shanghai’s weather is, according to the BBC, not all that bad:

But (a) I’m not poor. I live in a rich country, making more than enough money to keep myself in heated (in New York, of course, you’ve no choice. Half the time we’re opening windows to keep from being baked alive: NY apartments represent, for me, exactly why building-wide heating is a daft idea), (b) I live where it’s routinely that cold. I’m prepared, my clothes are appropriate, my diet is appropriate (I can cook) and my buildings are made appropriately.

Shanghai – historically – hasn’t had all that bad a January, to date. At its worst, however, its minima have still been at or above freezing, looking at the last 10 years:

Nothing that would prepare a people for snap freezes – particularly poorer/rural people with less insulation (or, mid-winter, spare heating/cooking fuel). It will be interesting to see how cooking and heating oil prices do, for the rest of their winter.

Payments for ecosystem services

This is almost becoming a theme. The commodification and market-formation of carbon-trading has been discussed previously (here and here). So, too, the idea that the environment provides a service that should be supported (given that resource depletion depletes also the ability of the environment to provide that service).

Reduced Emissions from Deforestation in Developing Countries, or REDD, did well at the climate talks in Bali, a short while back. REDD is a deforestation-reduction trading scheme – paying local landowners not to cut down their trees (or not to sell their land to those who will cut down their trees). This follows, say, regulation that prevented the same (hence all the burning of the land – no trees, no trees to cut down, no law broken. The Asian “Brown Cloud”, of course, somebody else’s problem).

Deforestation of this type, one way or the other, accounts for an estimated 18 percent of global human-induced greenhouse (GHG) emissions – the second largest source of anthropogenic emissions, behind energy consumption. So the need to do something is acknowledged (more or less).

China Dialogue has an article running through criticism of the REDD model:

REDD and its closely allied “Payments for Ecosystem Services” hope to put a price on standing forest by tying forest protection to market mechanisms. The logic is that if the price is set high enough, there will be more interest in protecting forests than in logging or selling plantation rights. However, there are several problems with this logic.

First, the scheme depends primarily upon carbon trading to generate its funds; a system which has proved to be so inherently dysfunctional that after eight years of the World Bank Prototype Carbon Fund and two-and-a-half years of the Clean Development Mechanism (CDM), Joint Implementation (JI) and European Emissions Trading Scheme (ETS) the global rate of emissions increases from fossil fuels has doubled and emissions are rising in virtually all developed countries. Using markets does not deal with the drivers of destruction or put in place adequate safeguards to ensure ecosystem protection.

The Kyoto Protocol left rainforests out of carbon trading for well-founded reasons that have still not been addressed. These include the illegitimate transfer of land rights and the displacement (or “leakage”) of logging into new, often pristine regions.

Needless to say, they are not fans. The authors are from Biofuel Watch – a UK-based campaign “against the use of bioenergy from unsustainable sources, i.e. biofuels linked to accelerated climate change, deforestation, bio-diversity losses, human rights abuses, including the impoverishment and dispossession of local populations, water and soil degradation, loss of food sovereignty and food security.”

So – there is a bias here. The signal is not the message, and the message is not the information that would have been to hand. A couple of things about the complaint. First:

There is evidence that deforestation bans and moratoria can work: China, Thailand, Costa Rica and Paraguay have all implemented at least partially successful bans or moratoria. Paraguay achieved an 85% success record in its eastern territory within a single year. Logging companies and some governments are even now calling for payments for non-deforestation. One reporter writing for the Jakarta Post in Bali responded by describing REDD as a set-up for “blackmail”.

Deforestation bans, however, will only work comprehensively if the underlying causes of deforestation are addressed at the same time. The over-consumption of agricultural and forest products, the current rush to biofuels, the corruption and the lack of guarantees for protection of land rights of indigenous and other forest peoples all need to be addressed.

The first part is fine, as far as it goes – which isn’t far. I can police my backyard, sure – but that hardly means me and a cricket bat, or a dozen people so armed, can handle a few blocks. Or the alley full of pimps and dealers. Expansion of the system into meaningfull levels of reduction is the key.

The second is also fine, as far as it goes – again, though, we cannot wish away the tendency of people (in worlds 1st to 3rd) to want more than resources can sustainably supply. The external costs are too far from home. We need to figure out a solution, given that people are, on aggregate, trying to kill their own planet.

Following this:

Bali saw a strong call for a systemic approach to stabilising climate and protecting forests by Friends of the Earth International, the Global Forest Coalition, the World Rainforest Movement, Via Campesina and nearly 60 other organisations who signed the Forest Declaration. The declaration calls for a genuine solution, which combines the twin needs of verifiable fossil-fuel emissions cuts and the total protection of old growth forest ecosystems.

This is also fine, as far as it goes – but you’re not impressing me by telling me that Friends of the Earth International signed such a declaration. White supremacy doesn’t work because KKK-freaks sign a declaration – it fails because the rest of us, with the power, refuse. For a system to work the biggest, worst polluters/emitters have to be on-board. It just won’t work without them.

We don’t like hearing this. We don’t like knowing that the best system for global emission reduction is held hostage to the favour of the people least-inclined to acknowledge or address the problem. Sometimes, though, that’s the way it goes.

There is another flaw in these arguments, which – although I criticise such models, often – is worth pointing out. This is new technology; these markets are young and quite small, relatively speaking. We weren’t killing children born in 1941 because they could fight the war, were we?

This is a similar problem with the Copenhagen Consensus (and that is a link worth following, even though I disagree with some of the outcome): its assumptions. First, that the solutions to climate change are the one’s listed: we know, now of newer and better solutions. Why? New technology, new information.

Similarly, the assumption that a technology will do a certain amount of good, for so long, is flawed. Technological change is endogenous. Reward it, and you promote technological innovation. Increase innovation, and you will most likely get a technological change that increases the effectiveness of achieving the solution. Keep pursing renewables, and you’re likely to hit upon an energy harvesting/storing method (see the latest in batteries) that lets us base-load a grid. Keep trying markets and, through information and synergy, one that works the most efficiently (since all markets are inefficient) will, eventually, emerge.

As Bjorn Lomborg explains in the afore-linked TED talk, the problem at the moment is that we persist in doing nothing, or doing nothing very well.

These authors are correct: such schemes as these are designed to foster economic growth, and economic growth leads to greater resource use. However (a) it doesn’t need, necessarily, to lead to greater resource depletion, and (b) any scheme designed to foster economic decay, decline or atrophy has zero chance of success. So.

Who pays for tomorrow’s drugs?

The Problem

From the Telegraph (originally spotted at Environmental Health News):

Millions of lives could be at risk because the plants which provide the basis of more than half of all prescription drugs face extinction, a new report warns.

The loss of plants and trees which provide natural medicines could provoke a global healthcare crisis, says Botanic Gardens Conservation International (BGCI).

…

Scientists had predicted that biochemistry would allow most drugs to be produced synthetically in the laboratory but in many cases it has proved impossible to reproduce the beneficial compounds found in plants.

The report cites as an example the world’s most widely-used cancer drug, Paclitaxel, which is derived from the bark of several species of yew tree. Its complex chemical structure and biological function has so far made it impossible to produce artificially.

Until recently it took an average of 6 trees to produce a single dose resulting in the decimation of wild yew populations across the world. In China’s Yunnan Province, once famous for its yew forests, 80 per cent were destroyed within a three year period.

“The dramatic decline in a range of yew species, highlights the global extinction crisis that is facing medicinal plant species.” said Sara Oldfield.

Poorer countries will be particularly hard-hit if trees and plants continue to be destroyed at the current rate. The World Health Organisation estimates that 5.3 billion people – 80 per cent of the global population – rely on traditional plant-based medicine as their primary form of healthcare, and in many cases collection and sales of these plants provide their only form of livelihood.

Leaving aside the poor country aspect of the problem, for a moment, as well as the agency problem. Can Economics fix this? Of course – Economics can fix anything!

The Solutions

What would Economics do? The same thing it does with every negative externality: tax the participants of the market causing the harm.

We can take the Pigovian method: tax the drugs that deplete the resource necessary for the drugs, thereby (a) lowering their use (potentially their overuse) and (b) forcing more efficient/sustainable extraction or (c) forcing faster research into synthesised chemical compounds.

We can also take the Coasean approach, which is to tax the use of these drugs for the specific purpose of funding research into solutions to the problem – slightly different to the Pigovian method (for which the motive only has to be lowering consumption).

Alternatively, we can (and should) examine the cross-subsidisation. Given that the depletion of natural resources is a holistic one, much of what we do contributes to the problem. There is a strong case to be made for international regulation of some kind – since the countries where these plants are to be found have little in the way of oversight of their own. Our own governments could add pharmaceuticals to the idea of ‘food security’, and start domestic growth of these plants, so that any given country with the initiative and subsidies (using those taxes, for example) could secure its own supply of the same (or other potential) treatments for future generations.

The difference is as the title of the post suggest: who pays for tomorrow’s drugs? Today’s drug-users, or Today’s everybody (the idea being that (a) we all contribute to the problem, and/or (b) we, or our children, are all potentially Tomorrow’s drug-needers: we all have an investment in insuring ourselves against the catastrophe of no drugs).

Here’s another idea: we’re familiar enough, by now, with the idea of carbon-offsets. We (households or firms) purchase, say, land, somewhere – and that land has trees that off-set our carbon emissions. The Economics behind this (and the surety that the plan will work) is still yet to proved conclusively, as has the science that suggests any such behaviour will save us.

So: why not a market for Pharmaceutical-Resource-Depletion off-sets? Your firm pays some money, and X amount of acres of Hou Po are preserved in China – or planted in South Dakota.

It’s an idea.

The Caveats

Now, to the other issues: that poorer countries are affected first. This is always a problem. We are under no obligation to care, until the extent of the depletion affects us directly (or sufficiently, indirectly). This means it is very hard to affect change. We can be taxed into acting as though we care (when really we are just responding, tropishly, to a price signal) but we will not appreciate that tax at all – and likely punish the poor bastard who tries it. So how to find the incentives that enduce Pharma-plant Conservatism in people/firms is one of, if not the, Economic Problem. It’s the sort of thing with which the Environmental Defense Fund (for example) deals.

Second problem: agency bias. Who are Botanic Gardens Conservation International? According to the Telegraph:

The BGCI has drawn on the work of some of the world’s leading botanists, conservationists, healthcare professionals and traditional healers to identify which medicinal plant species are most at risk and what steps are needed to save them.

Plant conservation is their bag. Meaning that they have a vested interest in us believing, also, in plant conservation. Whether they intend to or not, (and whether they have or not) their bias existed before they ever began researching or writing the report. I’m not suggesting that the report is a lie; I’m not suggesting that we believe nothing until Merck or Pfizer themselves confess to the problem. I’m just saying that we need to attach that piece of information to the information BGCI is giving us – more information equals more and more rational decision-making, after all.

Key Economic Developments and Prospects in the Asia-Pacific Region 2008

By now the report by the United Nations’ Economic and Social Commission for Asia and the Pacific (UNESCAP) has made the news, mostly through its pessimism regarding the US economy – but it has far more within! You can read the entire report here.

Specifically, and as per the IHT link above, it mentions the growth rates of Asian economies (the “AP” in ESCAP):

Eco 1 students! This returns us to the principle of Catch-Up:

Short version: emerging/developing economies, assuming that they have adequate policies in place, will exhibit higher rates of economic growth than developed countries, eventually “catching up”. Compare, in Table 1 of the UN ESCAP report above, the developing/developed economies numbers. That is catch-up. It is also why the bourses of emerging markets will usually out-perform those of developed exchanges.

Another section of interest in the report is Sovereign Wealth Funds, to wit:

Buoyant reserve accumulation by countries in the region is adding to the stock of capital for existing wealth funds. Reserves are increasingly being accumulated not for prudence in times of crisis but as a result of managing currency appreciation. Therefore, there is no limit to the level of reserve accumulation.

It has become increasingly important for Governments to consider setting up sovereign funds as a strategy to obtain a reasonable level of return on their burgeoning capital. In addition, such funds serve to reduce risk by diversifying the assets in which foreign reserves are invested. Existing sovereign funds are also allocating more of their capital to riskier assets. For instance, the Russian Federation uses its stabilization fund partly to meet emergency budget shortfalls and partly for investment purposes.

Sovereign wealth funds have a major potential impact on movements in international financial markets. The volume of capital under their management is at least twice as much as that of hedge funds. Estimates put the current size of the world’s 25 sovereign funds at about $2.5 trillion, with a rise of $450 billion in 2007. It has been forecast that the resources at the disposal of sovereign funds could rise to $12 trillion by 2015. The region’s major established funds are the Government Investment Corporation of Singapore, with holdings of $330 billion; the stabilization fund of the Russian Federation, with assets of about $100 billion; and the Investment Agency of Brunei Darussalam with $30 billion. The Republic of Korea also began its own fund, the Korea Investment Corporation, in 2006 with capital of $20 billion.

The desire to obtain healthy returns on their bulging reserves is also leading other countries in the region to consider setting up their own wealth funds. The year 2007 saw the formation by China of a sovereign wealth fund to invest $200 billion of its foreign reserves in other investments. Investments by the country’s new State Foreign Exchange Investment Corporation will be in financial and strategic assets around the world.

Sovereign wealth funds present a number of challenges for their owners. One is that they are prone to protectionist sentiment from investment-receiving countries because the funds are government entities. In this context, the extent to which investment in a company by a sovereign wealth fund results in voting rights or management control is important. A reasonable amount of information on the investment strategy and portfolio holdings of sovereign wealth funds would also help to reduce concerns from investment-receiving countries.

Currently, most funds are opaque about internal checks and balances, investment strategy and commercial goals.

Surprisingly (for me) was the extent to which the Russian Federation had expanded its holdings of foreign reserves, in 2007:

Although that could just mean I’ve been here too long (I’m forever trying to argue with colleagues here in the US about the latent strength of Russia. The mindset here is that they were soundly defeated and will never be a problem – very English thinking on the issue, frankly).

The report’s discussion of inflation (pinning no small amount of the same on the Money Supplies in Asian and Pacific economies) is very good also. The report is well worth the time of students of economics to read.

Move Beijing to … somewhere else

While my wife and her friend watch seriously weird-ass Russian Winnie-the-Pooh clips (their laptop is turned away from me. I read the books. Everything else was a crime against A. A. Milne). China Dialogue has a truly fascinating article up at the moment. Originally from FTChinese.com.

China really should consider moving the capital away from Beijing. Any nation, particularly a major power, should choose a location for its capital that allows growth and can respond to challenges. The historical advantages that led Beijing to become China’s capital no longer exist, and the location’s disadvantages are becoming ever more apparent.

Yes, the article is an argument that Beijing will not hold as China’s capital (like I said – fascinating). Why move?

First: the location is no longer strategic:

Modern communications and transportation mean there is no need for today’s “emperors” to stay within easy reach of the borders. Ever since the Opium Wars, China’s military threats have come from the east, not the north. The Mongols were pacified, the Soviet Union collapsed and we are on friendly terms with Russia. Keeping the capital in Beijing does not keep us closer to our allies.

Second: the location is not proximate to the clean water that a city of 20m people needs:

Quenching Beijing’s thirst has already meant tapping the Hai River and water from neighbouring provinces. Now the Han River is to be diverted for a huge project transferring water from the south to the north. The impact of this project on the lower reaches of the Han River should not be underestimated. It will not necessarily solve water problems in the north, but it may well destroy the environment in the south. Beijing may have moved the Shougang steel plant for the sake of its air quality, but it continues to develop water-intensive industry. Why not move the industry and resources where there is more water?

Third: Beijing cannot handle the growth:

The centre of power in any country will gather resources towards itself and that will attract people from elsewhere – at home and abroad – to come seek their fortunes. They have every right to do so, and this should not be restricted, but inevitably the pressures on the city are increased … Leaving Beijing as the capital may be the biggest possible mistake.

Their conclusion:

If China were to select a new capital, the ideal location would be a small- or medium-sized city, with undeveloped land for construction, around the lower and middle reaches of the Yangtze River. Such a geographic location would have high environmental capacity and land for government buildings – unlike an already developed city.

Now, to the issues not addressed. I ran through the urbanisation issues back during the Summer. Specifically, I discussed the wonderful book, Planet of Slums, by Mike Davis. In it, he uses (2003) UN HABITAT data to estimate urban slum populations. Guess who wins? China. With 193.8m people and a proportion (urban population that can be categorised as ‘slum’) of 37%. This isn’t the highest proportion (Ethiopa and Chad rode that in with – no kidding – 99.4%), but it is definitely the greatest number. Using the same data, Beijing had – then – a little over 10m people. So build that sort of population growth into the slums as well, and figure out that magnitude.

So to the issue not addressed. If Beijing packs up and moves, will it take those people with it? Some, sure. And many more will re-migrate – but many, many millions will not. Who will care, then, for the resource-poor, slum-laden, destitute Beijing that is no longer the capital of China?

The second issue is the resource use. This (a) will involve a fucking tonne of bad-for-the-environment trucking, shipping, cement, contstruction, steel – you name it; (b) the relocation itself will (i) be expensive, financially and environmentally, and (ii) subsume a lot of public money that will be lost to human, social and environmental capital investment.

Yes, I realise I sound like a (profane) misery-guts. I can’t help it. I just can’t help it. This argument, while – as I said – fascinating, strikes as the urban planning equivalent of loosening one’s belt a few notches, as the solution to obesity. China should, sustainably, channel the resources required into Beijing, constrain urban sprawl/density, deal with urban migration, etc. etc. Yeah – I’m glad it’s not my problem, don’t get me wrong. It’s a wicked problem and I’d be an old man fast if I had to worry about fixing it. What an interesting debate this could become, though.

The factories are closing and the army’s full/I don’t know what I’m going to do

That, of course, not true here. While I finish marking, two flipsides of globalisation for consideration, both from the International Herald Tribune.

In our class, we talk about the key problem of globalisation: that its benefits are spread fairly broadly, but its costs are not – referring, specificall, to lost US jobs. The IHT has an interesting story from India – a story no doubt repeated all over this country, too (with different key features, one can assume, but nevertheless) – about globalisation and the distribution of its impact within a single family.

… the professional letter writer is confronting the fate of middlemen everywhere: to be cut out. In India, the fastest-growing market for mobile phones in the world, calling the village or sending a text message has all but supplanted the practice of dictating your intimacies to someone else.

And so Sawant, 61 years old and by his own guess the author of more than 10,000 of other people’s letters, was sitting idly at his stall on a recent Monday, having earned just 12 cents from an afternoon spent filling out forms, submitting money orders, wrapping parcels – the postal trivialities that have survived the evaporation of his letter-writing trade.

But this is not the familiar story of the artisan flattened by the new economy, because, it turns out, his family has gained more from that economy than it has lost.

Sawant has three children riding the Indian economic boom, including a daughter, Suchitra, who works at Infosys, one of the preeminent Indian outsourcing firms. In the very years that a telecommunications revolution was squashing her father’s business, it was plugging India into the global networks that would allow her industry to explode. Suchitra now earns $9,000 a year, three times as much as her father did at his peak.

Globalization is said to create winners and losers. In the Sawants, it created both. And that duality reflects the furious pace at which entire professions are being invented and entire professions destroyed in the rush to modernize India.

Professional letter-writers are so cool. Here’s some interesting sequelae: what happens as an emergent Middle Class comes to demand the same plasticised, amorphously consumerist quality of life that the rest of us are pretending we enjoy? I put to you that Suchitra’s 9 thou won’t help her find a man, settle down and start a family, while simultaneously supporting her parents. Her parents are probably downwardly socially-mobile, from about this point onwards. Don’t get me wrong: I’m sure this is an improvement, overall. Health care, sanitation, etc. – provided they avoid the slums, urban environmental health must improve. Things just aren’t as symmetric as we would be led to believe.

Second: if our labour all went to India, where’d our manufacturing go?

When residents of this northern Chinese city hang their clothes out to dry, the black fallout from nearby Handan Iron and Steel often sends them back to the wash.

Half a world away, neighbors of ThyssenKrupp’s former steel mill in the Ruhr Valley of Germany once had a similar problem. The white shirts men wore to church on Sundays turned gray by the time they got home.

These two steel towns have an unusual kinship, spanning 5,000 miles and a decade of economic upheaval. They have shared the same hulking blast furnace, dismantled and shipped piece by piece from Germany’s old industrial heartland to Hebei Province, China’s new Ruhr Valley.

The transfer, one of dozens since the late 1990s, contributed to a burst in China’s steel production, which now exceeds that of Germany, Japan and the United States combined. It left Germany with lost jobs and a bad case of postindustrial angst.

But steel mills spewing particulates into the air and sucking electricity from China’s coal-fired power plants account for a big chunk of the country’s surging emissions of sulfur dioxide and carbon dioxide. Germany, in contrast, has cleaned its skies and is now leading the fight against global warming.

In its rush to recreate the industrial revolution that made the West rich, China has absorbed most of the major industries that once made the West dirty. Spurred by strong state support, Chinese companies have become the dominant makers of steel, coke, aluminum, cement, chemicals, leather, paper and other goods that faced high costs, including tougher environmental rules, in other parts of the world. China has become the world’s factory, but also its smokestack.

First, I think it’s hardly fair to suggest that China’s “rush to recreate the industrial revolution that made the West rich” is what caused these problems. Sure, China’s got some pretty ass-headed principles of governance, but we dangled all the cash in their faces, too. Second, was this cool insight:

China’s worsening environment has also upended the geopolitics of global warming. It produces and exports so many goods once made in the West that many wealthy countries can boast of declining carbon emissions, even while the world’s overall emissions are rising quickly, not falling.

China also lacks natural resources, including iron ore, oil and wood, for heavy industry and for its own rising consumer class. So its growth strains the environment as far away as Canada, Brazil, Australia and Indonesia, where it buys raw materials by the shipload.

Not that many people call the West on their emissions scam – the US an excellent (not unique, by any means, but the worst) case in point, with its arguments over not capping emissions. Think an “economy” equivalent of screaming, “but what about the baby?!” All the while, of course, the crap we import is pumping immeasurable shit in the atmosphere, already.

If you’re bored, go read The Storm Cloud of the Nineteenth Century.

Contractionary Monetary policy, China, Paulson, trade deficits…

It’s almost a shame I’m done writing the final exam. Actually I’m not — I can’t get it printed until Monday morning — but it’s probably too long already. The last thing I need is another question in there.

China ordered banks to increase reserves by the most in four years to try to prevent the world’s fastest-growing major economy from overheating.

Lenders must put aside 14.5 percent of deposits as reserves, starting Dec. 25, up from the previous 13.5 percent, the People’s Bank of China said today on its Web site. The ratio is the highest since at least 1987 when the data began and the increase is twice as much as the nine others this year.

Impressive. Bloomberg (the wire service) seems to pin a lot of it on Paulson, though:

The decision comes before a visit to Beijing next week by U.S. Treasury Secretary Henry Paulson, who said Dec. 5 that China’s government should allow the yuan to appreciate at a faster pace to reduce the nation’s record trade surplus.

…

Paulson has argued a stronger yuan would slow the expansion of China’s trade surplus and reduce tension with international trading partners.

“A more flexible currency is especially important now, when the risks of inflation are clearly rising,” Paulson said in a speech in Washington this week.

a) Paulson should be more concerned about his domestic economy than his economy’s balance of payments or terms of trade (I think); (b) exports hire too many people: China clearly would rather deal with this on a slowly, slowly basis — something Paulson could call up Bernanke to have explained. If he’s not too busy dealing with that investigation in Goldman’s CMO shenanigans; and, finally, (c) could we/the US please accept that the demand side of Problems International are usually those to be addressed? China does not have to respond to the fact that we can’t compete, level playing field or not.

We aren’t exactly apologising to every poor bastard we’ve dragged through the Appellate court of the WTO, while dumping our goods in their markets. Nor do we apologise to the poor bastards we put out of business with our food aid.

Bloomberg, meanwhile, seems to be over-selling Paulson’s influence. I would suggest that the strongest correlation with this move is those nine previous increases, rather than Hank Paulson. We can all agree — put them to one side, and I reckon most knowledge Chinese officials would, too — that currency appreciation, rather than Required Reserve Ratio appreciation in the face 18% Money Supply growth, would do more to slow inflation. The choice is whether to slow Bank profitability, or put exporters out of business. The US can move softly, softly and hope for the best — why can’t everyone else?

I shall be interested to see how exposed to foreign capital China is: Australia, for example, is an exposed economy wherein, upon trying to lower the Money Supply to increase Interest Rates to lower Investment to lower Aggregate Demand to lower Inflation, the influx of foreign cash in response to said rate increases had a positive effect on Investment, un-doing the work, but also lowering Net Exports, thanks to currency appreciation (no, I do not like speculators). In that vein, Secretary Paulson could, perhaps, take the time to talk to, say, Goldman Sachs, UBS, Credit Suisse and Morgan Stanley:

Credit Suisse and Morgan Stanley have each signed agreements with Chinese partners to establish mainland investment banking joint ventures.

The deals signal that Beijing is poised to relax a two-year ban on foreign investment in the country’s securities industry.

Only Goldman Sachs and UBS won approvals before China stopped such deals, fearing that overseas companies would dominate the industry.

The inability of most foreign groups to underwrite mainland IPOs or trade domestic securities has proved costly with the stock market booming and A-share listings in Shanghai and Shenzhen raising $60bn this year.

By way of points of reference, the percentage point increase in China’s Required Reserve Ratio is expected to remove around USD51bn from the economy (the economy that made USD470bn or so in loans, this year).

Alternatively, here is a thought-experiment: rather than taking care of their own interests, suppose the finance ministries of the OPEC countries (Arab and otherwise) started actively touring the world, lecturing everyone on how the US should do something about its depreciating currency and record levels of debt.