Policy Forum

The CFDS publishes roughly bimonthly Policy Forums on current political and economic issues. Articles in our Policy Forum series are commentaries on current political issues. They reflect the opinion of the authors and – although researched to our best knowledge – are not scientific papers. If there are CFDS papers on related issues, they will be referred to in the text.

Policy Forum 8 (May 2019)

Olivier Blanchard - a prominent and leading macroeconomist of the past 2-3 decades and one of the world’s most respected macroeconomists - questioned in his recent speech at the annual American Economic Association Meeting the conventional wisdom that excessive debt is a danger for governments across the world. His central point is that, on average, during the past few decades, nominal interest rates have been lower than the nominal growth rate, which is quite the opposite of what is assumed in most of the textbooks on public finance. Therefore, debt is much less of a problem than previously thought. Blanchard, specifically speaks about the US economy; however, his point is perhaps even more relevant to the Chinese economy.

China has been experiencing a quite high economic growth rate over the past two decades, and at the same time, safe government bonds interest rates have been much lower than the GDP growth rate.  They are expected to remain below nominal growth rates for a long time, at least so long as the People´s Bank of China does not forget that low and stable inflation is the central goal of monetary policy. Price stability is indeed the optimal monetary policy emerging from the new generation of models that have become the workhorse for the analysis of monetary policy, which are called new Keynesian. Therefore, so long as the inflation rate in China remains low and stable and the economy continues to grow at its remarkably high and steady rate, the Chinese government should not worry too much with the supposed costs and risks of government debt, that the rest of the world has been too obsessed with in the past few years.

Read the full article (in English and Chinese)

Policy Forum 7 (March 2019)

Since World War II, Western countries have rich (but not always exciting) experience to use official development aid (ODA) to help poor countries in economic development and political reform. As seen in Figure 1, the total ODA from OECD countries in 2017 reached 144.16 billion USD, compared to 35.67 billion USD in 1960. However, a dismal fact is that no consensus has been achieved so far among economists, even after tons of efforts have been made on the effectiveness of aid. On the one hand, economists such as Jeffrey Sachs believe that foreign aid and technical support are an ideal shortcut for poor countries to improve their people’s living conditions in the areas of sanitation, healthcare and education. In his popular book (The End of Poverty, 2005), he said that “[cutting aid] amounts to a death sentence for more than 6 million Africans a year who die of preventable and treatable causes, including undernourishment, a lack of safe drinking water, malaria, tuberculosis and AIDS” and that “increased financing could help end school fees, pay for more classrooms and teachers, buy school meals that contain locally produced foods and invest in water and power so women and children do not continue to spend their lives fetching water and wood for fuel.” On the other hand, William Easterly, in his great hit White Man’s Burden, argues that foreign aid may crowd out the endogenous drive for development and worsen the institution quality. The highlighted winners from Western aid are the dictators from the “Old Boys Club” in rogue nations.

Read the full article (in English and Chinese)

 

Policy Forum 6 (January 2019)

On 13 September 2017, the European Commission adopted a proposal for a regulation establishing a framework for screening foreign direct investment (FDI) inflows into the EU on grounds of security or public order. Officially the framework serves to enhance cooperation on FDI screening between the Commission and Member States, to increase legal certainty and transparency. However, the cases and relevant statistics shown in the official documents reveal that the EU mainly focuses on the capital from China’s enterprises.

As (for example) mentioned in “China’s International Behaviors” (Medeiros 2009), China tended to contact European countries individually rather than EU since 2005. The European Commission can do nothing when China only contacts the member states regardless of the EU’s requests. However, the EU’s decision making has been unusually efficient this time (see Figure 1): the EU level FDI screening mechanism will most likely be finished in 2019, less than three years since Jean Claude Junker’s statement of “we are not naïve free traders” in 2017.

Read the full article (in English and Chinese)

Policy Forum 5 (November 2018)

I should start this article with a disclaimer. It is slightly unscientific in that it depends a lot on personal experience and anecdotal evidence. Ever since I moved to China, the first question I hear when going home to Germany or visiting the US is “How is the pollution?”, “Can you breathe there?” or “Isn’t’ the smog dangerous for your kids?”. So this is the reply, both of a person who actually likes his home and dislikes people focusing only on the negatives, and the economist who believes that people make a serious lapse in judgment when it comes to pollution and China.

First of all, I have to admit, there are bad days when nobody who can avoid it goes out and where a walk in the park feels like smoking a pack of cigarettes. Yet, overall it seems to me the relevance of smog for everyday life is hugely overrated. A quick internet search will give you some shocking numbers. You can read that the reliance on coal reduces life expectancy by five to six years. Of course, you can also read, that smoking reduces Chinese life expectancy about seven to eight years. However, Chinese life expectancy is only about two years short of the US life expectancy, which means that without smoking and smog Chinese life expectancy would tower over the US by more than a decade? This could only be explained by an exceptionally healthy Chinese lifestyle or an incredibly good medical system. I can tell you that Chinese food is not healthy (which is why I love it) and I have serious doubts that the medical system is that much better than in the West, so in short, those numbers don’t add up.

Read the full article (in English and Chinese)

Policy Forum 4 (September 2018)

Although Chinese and Americans have quite a different taste with regard to most aspects of their lifestyle, they – especially the younger generations - start to share a passion for Superhero movies. The main reason why superheroes attract crowds all over the world is beyond a shared taste for science fiction and explosive fireworks: with their superpowers the heroes protect good guys and punish bad ones. This archetype of a lone hero who serves justice is deeply embedded in American culture and apparently resonates with young people all over the world.

Art is born out of reality but, unfortunately, may be superior to reality. In real life, we lack the superpower to tackle our difficulties and problems although the obstacles and challenges we face might be as evil as in movies. When the last episode of the Dark Knight trilogy was playing in theaters, a mass shooting occurred right in the theater. It is a tragedy not only for the victims but also for society as a whole. When such a horrible killing happens right in front of Batman, it sends a message: there are no superheroes to save ourselves from misery, there is just us. And this creates this desperate wish for one from our midst to rise up to those challenges.

Read the full article (in English and Chinese)

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