Confucianism and Trade Imbalances

The enlightened dictatorship of money

Posts Tagged ‘complexity

The hierarchical logic of the Chinese language

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What number is halfway between 1 and 9?  Is it 5, or 3?  I have a graduate degree, and I’ve read The Black Swan, so I’m quite comfortable answering 3.  This also a natural answer for children, traditional peoples, and animals, according to researchers at MIT.  But logarithmic thinking is apparently driven out of people with an intermediate level of education. How could one go about teaching logs without scary multiplication tables and the constant e?  One of the best ways I could think of would be the Chinese language (as an example of fractals in general, but again those can be scary for kids.) For instance, take the pictogram for heart.

This character can be used separately, or in combination with other characters to form ‘words’ (which were not really a concept in Chinese at all until outside contact was established.)


Literally, “inside the heart” = psychology (or just “inside the heart”).  But the character can also be squeezed into portions of other characters, as a “radical.”

情  患  恭  必

So shish kebab (I’ll let you figure out which one that is) your heart = disaster or anguish.  But then there’s chengyu, another level above words consisting, typically, of four characters, generally with some logic to their placement.  For instance:


“heart goes up, heart goes down.”  Sometimes, chengyu also have history behind them, something like an inside joke (although the heart character doesn’t lend itself to good examples of this, as far as I know.) So the Chinese language is built around this concept of nested levels, of the type you get by using power laws, very different from the Western logical, grammatical mindset.


Written by Maofucious

November 24, 2012 at 10:47 AM

Posted in Confucianism

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IQ, language, and political economy

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There hasn’t yet been enough controversy on this blog, so I will now talk about race and intelligence.

The American Conservative (who I don’t normally read) has an article on how Asian IQs seem to be invariant to economic development.  Asians in general (now I’m talking about Asian immigrants to the US) aren’t rewarded for their above-average IQs.  This guy (apparently an academic who wants to remain anonymous) thinks it’s because their verbal-analytic skills lag other races, compared with visuospatial skills. This shortcoming makes it more difficult for them develop lawyer-type skill sets, and it ultimately impacts economic growth.  I won’t comment on his theory of an IQ cutoff for economic development, and gaussian vs. linear regression, but I did notice that the way he treats his data to subtract 6.5 points from Asian IQ statistics.

All of this fits into my preconceived notions of how the Chinese language fits in with the culture.  (The Chinese language is a cultural foundation for all Confucian societies.)  Chinese has no grammar, using classifications and complex rules of the type lawyers would be expected to understand.  At best, all of its rules are situational, applying to groups of a few words.  (In policy terms, I would relate this to industrial growth policies.)  The language is also hierarchical (with an obvious political analogy) as certain themes reappear in related contexts.  I think the best way to illustrate this might be in reference to my point in the last post about little kingdoms and geography.  Place names typically have two characters.  One of those characters is likely to be some kind of moniker for the area as a whole, and so you are likely to see that character in the names of smaller districts (down to danwei) within the district, or around the  district.  One example off the top of my head is Guangdong province, which borders Guangxi and has Guangzhou as its capital.  (Dong is east; Xi is west; and zhou might be translated as -ville; although these transformations don’t always follow these sorts of formulas.)  This process is replicated in the the highly transparent evolution of the characters themselves.

This sort of setup makes it natural to base economic growth on evolutionary trial and error, arbitrated by face. This entire process creates a strong sense of conservatism that helps mediate between the highs and lows of economic development – what the American Conservative article was getting at.  Also, I suspect this relation to characters and geography has something to do with why Asians’ visuospatial skills are so well developed.

None of this, by the way, says anything about the direction of the causality.

Written by Maofucious

September 22, 2012 at 9:38 PM

An update on the short-selling situation

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There have been a number of worrying developments following the accounting standoff, which has already seen Deloitte employees threatened with life inprisonment for doing their job.  The WSJ reported in July on how short sellers are now feeling their safety is being threatened.  The Globe and Mail has an excellent article on how local police in Henan Province allowed themselves to be used as sock-puppets for a company that wanted to investigate a short seller.  The Canadian researcher may end up in prison for two years on charges of “disseminating false facts to impair another person’s commercial reputation.”

The state-run Xinhua service, demonstrating a surprising lack of understanding of Western capital markets for a media organization that has international aspirations, had an editorial last week calling for the SEC to “seriously investigate the short sellers” for unspecified charges.  Well, the SEC can’t just make short-selling illegal retroactively – the writer/editor seems to think that they can just make up charges to fit the political situation.

But I will give them the benefit of the doubt,and assume ignorance, rather than the level of planning implied by a Reuters piece calling this an “official editorial.”  The question is, where does that ignorance come from?  The author clearly had some reason to think the US would do that.  I have two ideas:

  • Defamation laws in Asia are much stronger than in most Western countries, because of the social role of face. In China, it can be a criminal offense.  If you report negatively on somebody, you better have it right. Part of the deal right now is that short sellers have been attacking companies that were apparently better prepared for it.
  • From more of an economics standpoint, Asians don’t have very well-developed attitudes towards risky investments.  The Hong Kong Stock Exchange weeds out risky stocks, which go on to the US. The American attitude is that with risk must come disclosure, but by avoiding risky investments, there is no need to strongly consider alternate viewpoints.

Now, my thought is that these two points are one and the same.  Face, as a social structure, implies a certain attitude towards risk, because if you have face, you don’t want to lose it at the end of the trading day.

Written by Maofucious

September 13, 2012 at 9:41 AM

Do either of the US presidential candidates care about the economy?

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If they do, they might want to take a careful look at a situation that’s developing in this part of the world.

Chovanec writes about a standoff that’s developing between US and Chinese stock regulatory authorities.  China is refusing to let Chinese accountants turn over information about Chinese companies listed on the US stock market, on the basis of “state secrets.”  As he writes, the current baseline scenario is for the SEC to simply delist all Chinese companies, within the next year or so.

This is very bad for the US economy – particularly if there are any long-term precedents being set here.  It will hinder efforts to increase American exports, a goal Obama has committed himself to.  Romney also agrees that exports are important to US economic growth, as he has promised a muscular response to currency manipulation.  Guess what?  This is currency manipulation!  Currency manipulation involves restrictions on the capital account.  If US companies can’t invest in China, while Chinese companies and the government can invest in the US, then the difference will be made up in the current account, or the trade balance, for reasons too complicated to explain here.  (It’s an accounting identity, holding a couple of other minor factors constant.)  A few billion dollars of investment money to China a year would translate to an equivalent amount of export sales to the US.  These numbers add up quickly.

So this is a very important issue from an American perspective – particularly thinking about what the American-listed Chinese stock market could become in the future.  But how about from the Chinese perspective?  It is also just as important.  The Chinese stock market has been stagnant for three years, largely because of accounting irregularities.  In response, companies tried to come to the US, using reverse mergers to avoid regulatory scrutiny.  After some scandals last year uncovered by short-sellers Muddy Waters, that tactic also failed, and Chinese companies have been largely unable to raise money on Wall Street either.  One of the main problems with increased transparency is that party officials don’t want their assets to be revealed (i.e. – an example from the last couple of days that apparently got Bloomberg banned from China.)  They are extremely sensitive to accusations of elitism – see the uproar over the fact that US Ambassador to China John Locke actually buys his own coffee at Starbucks.  So US negotiators should be able to push this point; the Chinese have zero bargaining power.

What can be done then (on the US side)?  Chovanec offers the following solution.

I was pondering the irresistible-force-meets-immovable-object dilemma here last night when I happened across a seemingly unrelated passage in Jim Fallows’ new book China Airborne, which offered a glimmer of hope.

In 1997, Jim relates, three Chinese airlines — Air China, China Eastern, and China Southern — had just been awarded or applied for very prestigious and strategically important routes to the United States, and had purchased brand-new state-of-the-art Boeing planes to fly those routes, with many further orders expected.  However, the safety record of Chinese airlines in the 1990s was atrocious.  In order to actually fly those routes, the airlines required approval from the U.S. Department of Transportation (DOT), the parent body of the FAA.  The DOT, at the FAA’s urging, demanded “confirmation that China’s regulatory standards, as applied by the CAAC, conformed to the worldwide guidelines laid out by international agreements.”  Until then, it was no fly.

The Chinese were furious, believing the Americans had double-crossed them by selling the planes and then reneging on the routes.  The whole thing could have concluded in respective chest-beating and a very ugly, damaging stand-off.  Instead, Boeing took the initiative (since its future sales were on the line) through a series of seminars, tours, and training sessions to reconcile the two points of view.  Key to its success was the way it handled Chinese sensitivities…

With due respect to his idea, I’m quoting it because it’s the exact wrong way to conduct the public diplomacy on this issue.  Airplanes convey the idea that something is complex, beyond the reasoning of the average citizen.  If that’s the attitude Americans or Chinese have towards this problem, it will be forgotten, and the status quo solution will prevail.  The message that needs to be conveyed is that Chinese companies are already capable of doing the actions required (no matter if they’re not world class), but that the government has been standing in their way, for no legitimate reason.  American politicians should take a stand here on principle, not let this become some kind of technical negotiation.  The more awareness there is for this issue, the better for the American position.  This issue gives politicians an opportunity to talk about the trade deficit, human rights, and foreign policy leadership all in one sentence – and all during an election year.  There’s no way they could screw this one up, is there?

There is much at stake here.  I’m going to go out on a limb to say that this is the most important economic crossroads for China since it joined the WTO in 2001.  In some ways, accountants are even more powerful than reporters, because nobody accuses them of bias.  It’s always possible that this is being used as a negotiating point for something else, some part of China’s grand scheme, and that things will smooth over naturally in due time.  But it really appears to be a larger culture clash: the Chinese side has been digging their heels in ever since the Muddy Waters incident – which they apparently blame on the investigators rather than the perpetrators. Whatever the case may be, until that part becomes more clear, this should be the American position.

Written by Maofucious

July 1, 2012 at 11:39 PM

Human factors blindness

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James Fallows’ new book China Airborne has been receiving high praise from unusual suspects, including Tyler Cowen (a micro- guy with no particular interest in China, who said it was one of his favorite books this year), and The Peking Duck, who declared upfront that “few topics could bore me as much as avionics and the aerospace industry” before praising it highly.  So I really need to get a hold of a copy – but in any case, I already have a few comments based on a portion quoted in The Peking Duck’s review.

but [China] lacks the “soft” ingredients necessary for a fully functioning, world-leading aerospace establishment. These include standards that apply consistently across the country rather than depending on the whim and favor of local potentates. Or smooth, quick coordination among civil, military and commercial organizations.

These “soft” ingredients are a huge part of air safety.  About a decade ago, Korean Airways was on the verge of going bust because of air safety concerns, before experiencing major improvements.  These concerns were largely of the “soft” variety, and particularly relating to Asian culture: copilots would not speak up to pilots’ mistakes; former military pilots were promoted unfairly; expat pilots were treated poorly.  The leap from an organization that meets expectations most of the time and on that never makes a mistake – as airlines are expected to do – is largely based on culture, not technology.

In February, a flight going into Haikou was forced to divert due to weather.  Long story short, it received a runaround from three airports before landing in Shenzhen with only a few minutes’ worth of fuel left.  A Chinese media account of the story from last week notes that the Shenzhen airport communicated with the plane using non-standard language, causing a misunderstanding that caused it to first attempt another landing in Guangzhou (which was also rejected due to weather).  It also notes that the airport staff would be dealt with “severely,” with no further explanation of the exact communication problem.  This example illustrates how important it is to be unambiguously clear when you have a ticking time bomb-type of situation.  And the Chinese (or Asian) educational system, with its fixation on multiple choice tests, does not really teach communication very well.  (For all you English teachers out there, don’t let you students convince you that they have writing skills in their native language – just not English!)

I don’t want to say any more about this particular situation, not being an expert.  In general, however, I note a blindness in Asian cultures towards human problems (beyond simple punishment), and a fixation on technological solutions.  This attitude can be seen in Japan, towards Fukishima; in China, towards the Great Leap Forward Famine, and in countless other situations.  One situation that I learned about last week in a lecture from an NGO working in North Korea is that they see their food situation as their number one priority, and fuel as second.  The NGO wants to move them towards mechanized agriculture, which requires – fuel.  But they can’t get the North Korean bureaucrats to see the problems as being connected in any way, and they won’t sway from the above language.  Most other types of Asians can at least see how technical factors can often relate to each other, but even then the human factors seem to go over their head.

The implications of this mindset go far beyond air safety.  In fact, this forms the basis for an almost stupidly simple way to explain Asian trade imbalances: whereas increasing supply is a technological problem, getting people to spend more and increase demand is a human problem, and thus more difficult for them recognize and solve.  It can get more complicated from there, but that’s the core.

Written by Maofucious

June 28, 2012 at 12:08 AM

Language and reality

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Hello world, this is my new blog, which is still under construction and will improve over the next few weeks as I figure how to use the WordPress interface.

The subjects of this blog, as the title indicates, will be Chinese culture and economic imbalances.  The vast majority of my posts will include at least something related to one or other of those topics.  I may also have a thing to say about Europe, because their economic imbalances are quite analogous to those in East Asia; I’ll also go deeper into Chinese (and other Asian) culture than you might really need to know to understand trade.  In any case, it will be a sociological perspective on the economic forces shaping the world for now and at least the next few years.

So what exactly, the reader asks, does Confucianism have to do with trade imbalances?  Well, if it isn’t obvious already, then there’s no way I could really explain it to you.  As spoken in the timeless classic the Dao De Jing:

The Dao that can be spoken is not the eternal Dao.  The name that can be named is not the eternal name.


Which is to say, you’ll have to keep up with my blog (ha ha).   Having quoted those famous words, though, I should offer my own bit of interpretation.

My way of looking at Daoism and other Chinese philosophies is that the meanings are inseparable from the words that describe them (a point that’s especially important for non-native Chinese speakers).  Look again at the Chinese: the entire passage uses a total of five unique characters.  “Dao” and “name” function as both nouns and verbs (“Dao” as a verb tends to mean “to know” in modern Chinese.)  So the meta-meaning one might draw from that passage is one of utter simplicity, everything functioning in its exact place.

At the same time, there is another dynamic going on, totally opposite of this simplicity, encapsulated by the frequent use of the term “technocratic.”  This term tends to imply that political relations are so complicated that the body politic becomes an effective ‘black box,’ not worthy of further dissection.  My contention is that this dynamic between stupidly simple and absurdly complex – a very different dynamic than the good and evil we see from Abrahamic religions – is the best way to dissect Asian politics and economics.  (This sense of morality makes its way into rule of law.  I don’t want to enter the debate with some Mississippi judges about whether religion is the basis for rule of law – there could just as easily be causal pathways the other way around, from the culture to the religion – since it is reasonably clear that the two build on each other symbiotically.)

I will refer frequently to linguistic analysis in order to make my points, as language both shapes and is shaped by reality.  So there will be a few Chinese lessons at some point.

Leave some comments about how this blog really lives up to its subtitle – I may get a “testimonials” section going at some point, and I could feature you!

Written by Maofucious

June 21, 2012 at 3:27 AM

Posted in Confucianism

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