Humans and robots at risk!

August 28th, 2016


Since its devaluation in August 2015, the yuan has depreciated 6.9% against the dollar. After losing about $800 billion of its foreign reserves, China has managed recently to slow capital flight. But the stability came “at the cost of delaying reforms,” said Hung Tran, executive managing director at the Institute of International Finance. To sustain growth, China has postponed overhauls of its state-owned enterprises, many of which are plagued by overcapacity and bad debt. Private fixed-asset investment in June and July registered back-to-back monthly declines from year-earlier levels, the first time that happened since at least 2012. The country’s total debt has climbed to 298% of its gross domestic product from 274% a year ago. A net $55 billion left China in July, according to Goldman Sachs Group Inc., compared with an estimated $49 billion the previous month.

More: Chinese robot makers are heading towards a debt-filled crisis. Growth in demand for industrial robots in China fell by more than 2/3 to 17% in 2015 and yet more than 40 robotics parks have sprouted throughout the country in the last 2 years. Earlier this year, a robot monk that can chant religious mantras, move via voice command and hold a simple conversation was installed in a Buddhist temple near Beijing.

Unfun bonuses: Good piece by Spengler on foreign policy. As for domestic policy, we’re amused by the huffy, self-described constitutional conservatives who blather on about “limited government” when government is spending $7 trillion a year, and putting out over a million pages of regulations per decade, including these lovely contributions to limited government. Great job, guys!

Something you don’t want to see

August 27th, 2016

This. We’re taking a break from China business, politics, and guys who can’t stand up when they’re being paid $100 million to do so. Come to think of it, a B737-700 that does just fine when its CFM56-7B has an uncontained blow-out is very positive compared to these other things.

The answer is simplicity itself

August 26th, 2016

Maybe we’ll tell this guy someday. Hint: you learn it in the first week of Marketing at HBS.

As predicted

August 24th, 2016

We predicted mischief would intensify around the globe, as did others. It’s happening of course. It will be interesting to see if Xi decides to risk bolder action in the South China Sea. May you live in interesting times.

Mystery of the day

August 24th, 2016


A British tourist killed at a hostel in Australia by a Frenchman yelling “Allahu akbar” has been named as Mia Ayliffe-Chung. The man killed Ms Ayliffe-Chung and injured a 30-year-old Briton as well as a dog. “We don’t have a motive yet,” said superintendent Ray Rohweder.

In other news, Theodore Dalrymple reviews a book whose author seemed puzzled about what motivated Jihadi John to begin lopping off heads.

Second sentence

August 23rd, 2016


China’s total debt is now about 2.5x the size of its economy. It takes almost a third of gross domestic product just to service it. Corporations are by far the biggest debtors, especially state-owned enterprises.

1/3 of GDP. Hmmm. And of course the problem is far worse than this because of the WMP’s and so forth. If we all get real lucky, maybe technology can bail us out of a catastrophe, as it has done so many times in the last 140 years. If not, it’s ghostbusters.

$2.3 trillion in “shadow credit”

August 22nd, 2016


The best-performing bank in China is in a struggling city in the northeast where weeds sprout alongside the concrete skeletons of high rises in an industrial zone that mostly looks like a ghost town. Steel plants have laid off tens of thousands of workers. Cranes stand idle on construction sites. Wipe away a spiderweb on a dirty glass door at an empty complex with smashed windows and there’s a notice from the local government demanding rent unpaid since November 2014. Yet the Bank of Tangshan’s financial statements hardly reflect these realities. Instead, this small lender reports the fastest growth of 156 Chinese financial institutions and the lowest level of bad loans, a mere 0.06 percent. Its profit jumped 436 percent in two years and assets soared almost 400 percent since the start of 2014 to 177.9 billion yuan ($26.7 billion). It’s largely driven by shadow lending. The bank is the most prominent example of the off-loan-book wizardry that’s turbo-charging some of China’s small and mid-sized banks, creating opaque risks that could lead to failures, bailouts or liquidity shocks that jolt the nation and global markets in the years ahead.

“It’s a mirage built upon risks,” said He Xuanlai, of Commerzbank AG. The Singapore-based analyst cited smaller banks’ use of so-called “investment receivables” — including asset management plans and wealth management products — to boost lending without facing requirements to bolster capital and loan-loss provisions. “It’s hard to assess the banks’ true asset quality.” This form of shadow lending is so widespread that a survey of 26 banks by Moody’s Investors Service found that they’d quadrupled use of the products since 2012, with small and mid-sized lenders contributing an outsize share. The International Monetary Fund estimates that Chinese banks held $2.3 trillion of shadow credit products at the end of last year

More on this here: “We’re starting to see layers of liabilities built upon the same underlying assets, much like we did with subprime asset-backed securities, collateralized debt obligations, and CDOs-squared in the U.S.”

More numbers

August 21st, 2016


While official jobless numbers haven’t budged, the underemployment rate has jumped to more than 5 percent from near zero in 2010, according to Bai Peiwei, an economics professor at Xiamen University. Bai estimates the rate may be 10 percent in industries with excess capacity, such as unprofitable steel mills and coal mines that have slashed pay, reduced shifts and required unpaid leave. Other projections indicate the employment situation is even worse. An indicator of unemployment and underemployment produced by London-based research firm Fathom Consulting has more than tripled since 2012 to 13.2 percent. The official jobless rate isn’t much help for economists: it’s been virtually unchanged at about 4.1 percent since 2010 even as the economy slowed. The gauge only counts those who register for unemployment benefits in their home towns, which doesn’t take into account 277 million migrant workers.

Well, they could always deploy more people to build artificial islands.

Welcome to the future, or past

August 20th, 2016

We suspect that events such as this in Minneapolis have at their core a smallish cadre of people who pretty much do this for a living. We fondly someone in 1970, maybe Jerry Rubin, leading a chant to a packed New Haven Green: “F Kingston Brewer.” Maybe it was Abbie Hoffman. Then a couple of nights later, while there was plenty of tear gas in the air, Allen Ginsberg gave a surreal recitation of Howl into a microphone somewhere in the distance. That was the fun part. The unfun part was the Panther event at Ingalls Rink. The guards patrolling the aisles snapping their fingers looked serious and scary. The admonition to “seize the time, follow that pig, and when the time is right, you off that pig” did not appear to be said in jest. If things like Minneapolis play out again and again in the coming months, it’s hard to see this working out well for those not firmly on the side of law and order.

A little more on the event at Ingalls Rink can be found here.

A generation, or 2 or 3 or 0, of idiots

August 19th, 2016


Standing before several dozen students in a college classroom, Travis Rieder tries to convince them not to have children. Or at least not too many. He’s at James Madison University in southwest Virginia to talk about a “small-family ethic” — to question the assumptions of a society that sees having children as good, throws parties for expecting parents, and in which parents then pressure their kids to “give them grandchildren.” Why question such assumptions? The prospect of climate catastrophe. For years, people have lamented how bad things might get “for our grandchildren,” but Rieder tells the students that future isn’t so far off anymore. He asks how old they will be in 2036, and, if they are thinking of having kids, how old their kids will be. “Dangerous climate change is going to be happening by then,” he says. “Very, very soon.”

Scientists warn that a catastrophic tipping point is possible in the next few decades. By midcentury, possibly before, the average global temperature is projected to rise by more than 2 degrees Celsius, the point scientists and world leaders agree would trigger cataclysmic consequences. Last year’s historic Paris climate agreement falls short of preventing that, so more drastic cuts in carbon emissions are needed.

without dramatic action, climatologists say, the world is on track to hit 4 degrees Celsius of warming by the end of the century, and worse beyond that. A World Bank report says this must be avoided, and warns of unprecedented heat waves, severe drought and serious impacts on ecosystems and “human systems.” Back in the classroom, Rieder puts this in less technical terms: 4 degrees of warming would be “largely uninhabitable for humans.”

“It’s gonna be post-apocalyptic movie time,” he says. The room is quiet. No one fidgets. Later, a few students say they had no idea the situation was so bad. One says he appreciated the talk but found it terrifying, and hadn’t planned on being so shaken

Maybe these idiots will adopt China’s catastrophic and disgusting one-child policy. Poetic justice somewhere in there.


August 18th, 2016

We’ve come to the point where BOTW has become unreadable. People are quoted and the sentences denoted with quotation marks: “I personally edited every review so I could make sure the opinions voiced by our white writers were in line with the voices of Black writers I was seeking out every day for their opinions on every episode. I am really proud of the diversity.” Well, there’s diversity and diversity. That falls in the latter category, which costs $50K a year or so.

How do you fix shattered cultures?

August 17th, 2016

Maybe WWIII? Anyway, here’s a little of that is going on in Iran and here. Hey, how about Serbia? Or UNC? Crazy, crazy world. We predicted this a long, long time ago (12 years), and it’s only gotten much worse much faster than we dreamed. It can get much better though it is hard to predict what set of catastrophes that will take.

Mischief Indeed

August 16th, 2016


Civilian planes landed on Subi and Mischief reefs for the first time on July 12, giving China three operational runways in the disputed Spratly Islands. Except for a brief visit by a military transport plane to Fiery Cross Reef earlier this year, there is no evidence that Beijing has deployed military aircraft to these outposts. But the rapid construction of reinforced hangars at all three features indicates that this is likely to change. Each of the three islets will soon have hangar space for 24 fighter-jets plus 3-4 larger planes.

The construction on Fiery Cross, Subi, and Mischief reefs follows a standard blueprint. The smallest and most numerous hangars are being built with four to six hangars per building. They can easily accommodate any fighter-jet in the People’s Liberation Army Air Force or Naval Aviation, including the J-11 and Su-30. The second type of hangar is large enough for the H-6 bomber and H-6U refueling tanker, Y-8 transport aircraft, and KJ200 Airborne Warning and Control System plane. The largest of the hangars can accommodate the largest planes in the Chinese fleet — the Y-20 and Il-76 transport planes, Il-78 refueling tanker, and KJ-2000 surveillance aircraft.

In addition to the rapid construction of hangars and other air support infrastructure at Fiery Cross, Subi, and Mischief reefs, other facilities have appeared on the features in recent months. Unidentified hexagonal structures are quickly being built at four locations on each islet—always oriented toward the sea. Work on these structures began in May at Fiery Cross and in July at Subi and Mischief. Each of the features is also now home to a set of three towers, one of which is larger than the other two. The towers do not have domes that would indicate radar or other sensitive arrays, and their location is not consistent, at least in relation to the runway or other infrastructure, across the three islets. These structures do not appear at any of China’s other outposts in the Paracels or Spratlys.

And this: China’s recent construction activity at Subi and Mischief reefs, while undermining anything other than the narrowest possible interpretation of China’s recent claims that it was ceasing such activities, should come as no surprise when viewed against the backdrop of China’s emerging maritime strategy under the leadership of President Xi Jinping. The Xi administration’s increased emphasis on maritime matters was hinted at as early as the 18th Party Congress that brought Xi to power. Former president Hu Jintao, in his valedictory address to the congress, stated that “we should resolutely safeguard China’s maritime rights and interests, and build China into a maritime power.” Though a simple statement, its significance lay in the fact that no Chinese leader had uttered such an intention in nearly 500 years.

500 years, that’s saying something. The US sent B-1’s, B-2’s, and B-52’s to Guam, but the US isn’t serious and China is. To wit: “On Aug. 2, China’s defense minister, Chang Wanquan, even said China must prepare for a ‘people’s war’ at sea.” HT: RF

Tick Tick Tick

August 15th, 2016


Beijing might begin reclamation in the disputed atoll – 230km west of Manila – after leaders gather in Hangzhou next month but before the US presidential election, source says. The atoll, about 230km west of Manila, is claimed by Beijing, Manila and Taipei. Chinese coastguard ships took control of the area in 2012 after a tense stand-off with Philippine vessels. China has sent more than a dozen security vessels near the shoal in recent weeks, compared with the usual two or three, news site Washington Free Beacon reported, citing US defence officials. China appears to be sending a flotilla of hundreds of fishing vessels to the shoal

BTW, do you think the problems in Milwaukee are spontaneous, or perhaps were orchestrated and aimed at David Clarke? Too much of this reads like a novel.

First there was free college…

August 14th, 2016


The 12th time Reinaldo Balocha got malaria, he hardly rested at all. With the fever still rattling his body, he threw a pick ax over his shoulder and got back to work — smashing stones in an illegal gold mine. As a computer technician from a big city, Mr. Balocha was ill-suited for the mines, his soft hands used to working keyboards, not the earth. But Venezuela’s economy collapsed on so many levels that inflation had obliterated his salary, along with his hopes of preserving a middle-class life.

So, like tens of thousands of other people from across the country, Mr. Balocha came to these open, swampy mines scattered across the jungle, looking for a future. Here, waiters, office workers, taxi drivers, college graduates and even civil servants on vacation from their government jobs are out panning for black-market gold, all under the watchful eyes of an armed group that taxes them and threatens to tie them to posts if they disobey.

It is a society turned upside down, a place where educated people abandon once-comfortable jobs in the city for dangerous, backbreaking work in muddy pits, desperate to make ends meet. And it comes with a steep price: Malaria, long driven to the fringes of the country, is festering in the mines and back with a vengeance.

Venezuela was the first nation in the world to be certified by the World Health Organization for eradicating malaria in its most populated areas, beating the United States and other developed countries to that milestone in 1961. It was a huge accomplishment for a small nation, one that helped pave Venezuela’s development as an oil power and fueled hopes that a model to stamp out malaria across the globe was at hand. Since then, the world has dedicated enormous amounts of time and money to beating back the disease, with deaths plummeting by 60 percent in places with malaria in recent years, according to the W.H.O. But in Venezuela, the clock is running backward.

The country’s economic turmoil has brought malaria back, sweeping the disease out of the remote jungle areas where it quietly persisted and spreading it around the nation at levels not seen in Venezuela for 75 years, medical experts say. It all starts with the mines. With the economy in tatters, at least 70,000 people from all walks of life have been streaming into this mining region over the past year, said Jorge Moreno, a leading mosquito expert in Venezuela. As they hunt for gold in watery pits, the perfect breeding ground for the mosquitoes that spread the disease, they are catching malaria by the tens of thousands. Then, with the disease in their blood, they return home to Venezuela’s cities. But because of the economic collapse, there is often no medicine

Geniuses at work. More here.

A thought on MSM and you-know-who

August 13th, 2016


My lazy ass never even considered voting until trump came onto the scene. I assume there are millions more like myself who never got excited about a candidate. Trump has opened my eyes to the corruption, and I thank him for that, no matter the result.

Trump, if elected, will be judged by the Good Vibes crew to be, at best, on his first day in office, the republic’s third worst president, after Buchanan. However, it’s very fun to watch. The guy plays the media like a fiddle, and they reward him with 24/7 outrage, 24/7 bloviation, 24/7 coverage, which is his point after all. We’ll just have to see how this plays out in the real world. Our view is that the Good Vibes nerds are never going to recover.

GUM department store, 2016 edition

August 13th, 2016

Here’s the picture. 40 years ago, we crossed from Colombia to Venezuela on foot in a mountainous region. The trip had something to do with financing a coal company, if we remember correctly. At least that was the story. After crossing the border, we walked into a small village with no amenities; the butcher had strips of meat hanging outside in the hot sun. We were unprepared for what we saw next — 10 year old kids with rickets. plus ça change… HT: PL

Immanentizing the eschaton

August 12th, 2016

Germany. Minnesota. California. We had this figured out more than ten years ago, and it wasn’t that difficult. Their system does not work; if it weren’t for oil, the ME would have less GDP than Finland. Duh!

Fun bonus: OTOH, we have the Good Vibes guys.

Business as usual

August 11th, 2016

China Law Blog:

foreign companies doing business in China so often lose their proprietary information (intellectual property) to their competitors in China. This first post focuses on how so many of these losses arise from what we call leakage — the situation where the foreign company has a contract preventing its Chinese counter-party (usually the manufacturer) from using the foreign company’s proprietary information, but fails to prevent that information from leaking to third parties that are not bound by such a contract.

When our China lawyers draft a manufacturing contract with a Chinese factory one of the main things we engage in is “contract plumbing.” That involves us working to make sure the contract is thoroughly sealed so as to prevent leakage of proprietary information to third parties outside of the contract.

What do we mean by leakage? Most foreign buyers are concerned about the owner of the Chinese factory appropriating their product design and making that product for his own use. Since most Chinese contract manufacturers are direct competitors of the foreign buyer, this is a realistic concern. So we naturally draft the manufacturing contract to prevent this sort of direct appropriation of the product design.

However, experience in China shows that just preventing direct appropriation by the contract manufacturing company is not nearly enough. If you block just the Chinese factory owner from appropriating proprietary information, they will almost inevitably find ways to provide your propriety information to other parties who will make use of the information. Since the factory owner did not commit the deed directly, it will then claim that it is off the hook and simply “not responsible for any misappropriation that may have occurred.”

Sometimes the Chinese factory owner sincerely seeks to maintain control over the product design because its contract with its foreign buyer is valuable and it makes better economic sense for it to maintain good relations with its foreign buyer than to go to the trouble and expense of marketing the appropriated product in the United States and in Europe. In this case, however, there are still other parties involved in the manufacturing process that will benefit from stealing the design from both the foreign buyer and from the Chinese factory owner. In this sort of situation, proprietary product information “leaked” away from the Chinese factory to a third party benefits the third party, not the factory owner.

No matter the cause of the leakage though, the effect is the same. The foreign buyer has lost its proprietary information to a Chinese company

No doubt parties on all sides say the right words in the negotiations leading up to the deal. We imagine that it’s even worse among governments. For some reason we imagine that the Iranians involved in the nuclear negotiations over the last few years say very sophisticated and soothing things behind the scenes with their American counterparts. We also imagine them laughing hysterically when they’re back among themselves recounting the day.

History comes to life

August 10th, 2016

We quoted Thomas Kuhn 12 years ago:

In a sense I am unable to explicate further, the proponents of competing paradigms practice their trades in different worlds. The transfer of allegiance from paradigm to paradigm is a conversion experience that cannot be forced

Now watch this video starting around 3:30. Mr. Prager’s antagonist is genuinely shocked that Prager called Trump’s NRA comments “silly.” Mr. Stelter swims in a lovely stream; the water runs in one direction, and Stelter, his media colleagues, and their political friends all swim in the same direction. They don’t have to paddle too hard because the water only flows one way in their world. The arc of history bends toward justice. The arc bends; the river flows.

Stelter and the others of the Good Vibe have no idea how small is their world, because in their world everyone thinks the same way; even the so-called opposition knows enough to go along to get along, and is often rewarded for doing so — instead of committing outrage after outrage like the object of Stelter’s disgust.

But Prager is also wrong to call the Trump NRA remarks silly. The guy has a different paradigm, and says what he wants to say — perhaps in part to stimulate the Good Vibes guys to outrage. The Good Vibes guys want to burn him at the stake; their anger and outrage is not fake. Once upon a time, Salem in 1692 seemed odd and incomprehensible, now not so much.