Yale University’s Finance Professor Chen Zhiwu on China’s Economy and Its Rule-by-Law Shortcomings

Yale University School of Management Finance professor   陈志武  Chen Zhiwu’s book 非理性亢奋 [Irrational Exuberance] 2nd ed published December 2010  discusses Chinese finance and its problems. He concludes that the lack of an independent judiciary and rule of law are serious shortcomings.  Professor Chen has a web page on the Yale School of Management websitehttp://mba.yale.edu/faculty/profiles/chen.shtml and a Chinese language blog at sina.com http://blog.sina.com.cn/chenzhiwu , a blog outside the firewall at http://www.bullogger.com/blogs/chenzhiwu/ and a micro blog which has 2.4 million “fans” following it at http://t.sina.com.cn/chenzhiwu

The topics Chen addresses are familiar to undergraduate economists; the application of these ideas to analyzing the Chinese economy makes the book especially interesting.  Chen is clearly not one of those who believes in a special Chinese model that creates its own new economics as it goes along. Chen has written several other popular books on the Chinese economy including Why are Chinese Hard-working but Not Rich? http://product.dangdang.com/product.aspx?product_id=20986528

A hint of the contents can be seen from the chapters titles which include:

  • Is the Chinese stock market getting worse?
  • Irrational Exuberance — the world telecoms bust
  • The danger of a stock market bubble — explaining the US stock market crisis
  • Why does China’s economic future depend on press freedom?
  • A free media is an indispensable part of a market economy
  • A case study of the media and the market’s effectiveness in oversight of a company
  • From libel suits can be seen the legal difficulties of media speech
  • Class action suits are an effective way of protecting the rights of stockholders
  • How does the US handle the problem of insider trading?

Systematic economic critiques of the PRC system like Prof. Chen’s are apparently OK with the Party but not political critiques of the Charter o8 variety that fit in nicely with  Prof. Chen’s points. Prof. Chen, for example, says that the fact that Chinese cannot buy and sell land is a serious obstacle to individual Chinese building their wealth. If China followed Prof. Chen’s suggestions and adopted media freedom, free buying of selling of land, independent judiciary and rule of law implementing Liu Xiao*bo’s and Charter o8’s ideas would be far off.  Yet Liu Xiao*bo is in jail and Prof. Chen is welcome in China, gives lectures in China, and his books are published here. Ran Yun*fei told me last year that the difference between someone who is considered a dangerous dissident and someone considered fairly acceptable is not just their views, but their relationships with the powerful and influential in society. Perhaps there is something like that going on here? Or could it be there is some version of Senator Barry Goldwater’s old slogan “In your heart, you know he’s right?”. It didn’t work for Liu though.

Perhaps Chen’s critiques are seen as merely academic (although the book is well-written and organized and seems to attract many readers — students are passing around PDF copies online; Currency Wars did well despite is 5th rate sources such a jewwatch.com just because there is a great demand for well written books on economics and finance. ) and not subversive. SASS scholar Yu Jianrong 于建嵘 is another example of a person who makes sharp criticisms of the system but still seems to be seen as not an enemy of the people by the Party, and at most a source of contradictions among the people. That is, in the political system of the people’s democratic dictatorship.

Many websites carry the 2008 edition of Chen Zhiwu’s book; the 2010 edition that I bought in a Chongqing bookstore I also found on dangdang.com

http://product.dangdang.com/product.aspx?product_id=20986527

Prof. Chen traces the effects of lack of transparency due to an ineffective regulatory system, unwillingness of the courts to take up lawsuits on financial cases (he notes courts will generally only take a civil suit if a company has already lost a criminal case), orders by the propaganda department to media not to report a certain matter or to report it in a certain way.  This means that investors have little reliable information and make it hard to choose between good companies and bad companies, and increase the temptation of companies to cheat their investors. He mentions Economics Nobelist George Akerlof’s work on adverse selection here.http://en.wikipedia.org/wiki/The_Market_for_Lemons

[This discussion of little investor information to choose between good and bad companies on the securities market because of media control and poor regulators and ineffective courts reminds me of the problem China has suppressing crazy rumors that spread quickly and find many believers.  A bit of a stretch, but perhaps there is a similar process going on in society with high media control and low trust — an adverse selection process going on against accurate information since the authorities have low credibility and have a history of discouraging people from speaking out, especially if the “accurate information” conflicts with officially certified accurate information.]

One effect he notes is that on average in any given week the number of stocks that move together with a general market trend of up or down is about 90% on the Chinese market and about 60% on the U.S. financial markets which are much more transparent (pp. 35 – 39), not just as a result of more effective financial markets regulation, but of being embedded in a rule by law system in which information flows freely.

Chen said that state-owned monopolies can use their monopoly power to boost their incomes at the expense of average citizens, but unlike in western countries, the monopoly problem is not somewhat ameliorated by a flow of income from publicly-held monopolies back to average citizens.  This meliorating effect occurs in many western countries where stocks are widely held but not in China.   This and other problems of asymmetric information and power aggravates the skewing of the income distribution in China.   The lack of widespread participation in financial markets and the problem of land not being private (“dead capital”) in China are severe obstacles to the financial opportunities of the average Chinese.  Diversifying wealth means that savings rates can decline and people will feel wealthier; this will help increase consumption and help bring capital alive. (pp. 3  – 22)

Chen said the quality of the Chinese stock market is declining.  There was much enthusiasm after the Securities Law was passed in 1999 and in 2001 some financial magazines exposed wrongdoings of some listed companies.  In 2001, however, the first securities holder to bring a case to court was told by the court that it would not accept the case.  In 2003 there were two important cases, but the penalties imposed were relatively small, and in other cases the courts refused to hear a civil suit unless the accused company had already lost a criminal case.   During 2000 – 2005 the number of cases brought and the median penalty imposed fell steadily.  (pp.  39 – 41)

Chen devotes a long chapter (pp. 101 – 189) to explaining why media freedom is essential to the future of the Chinese economy.  中国经济前情为何离不开新闻自由
Chen begins the chapter “Although the problem of official corruption and the lack of trust in Chinese society is becoming more and more serious, and is a problem felt keenly by all sectors of society, reports on this problems are always restricted and the media is censored. The propaganda departments that manage the media are constantly sending out documents or making a phone call in order to orally “get in touch” to order that the media not report on certain topics that are  “sensitive” or “not beneficial to social stability”.   What effect does the strengthening of censorship have on the Chinese economy?  In other words, what economic benefits do we get from the media freedom?  Is media freedom worth something?  Naturally we are all happy about the rapid growth of the Chinese economy, and so might find it hard to understand why someone would say “media freedom is very important for the Chinese economy”.  Indeed, for centuries media freedom has been for centuries thought of as a completely political institution and useful for oversight of the activities of those who govern society and as a check on government power.

However, media freedom is essential for the deepening of the Chinese economy, for reducing economic corruption, and for promoting market trading.  More media freedom will also be needed to increase employment in China.  [to summarize where he goes from there,  the service sector is poorly developed in China, China’s economic growth is tied to manufacturing and construction, areas in which the quality of institutions and information symmetry are much less important than in the service sector, where the greatest opportunity for creating new jobs lies.   China’s economic model has benefited much from exporting but by becoming the “workshop of the world”, terrible pressures have been placed on China’s environment and resources…. Justice Brandeis  (p. 128) said “sunlight is the best disinfectant” and so information freedom helps fight corruption and boosts information symmetry in financial markets.

Chen also wrote a chapter on “The Law and Wealth” in which he points out that passing many laws does not equal the rule of law and that although the Standing Committee of the National People’s Congress does have legislative power and the government executive departments do not, in practice laws passed by the NPC do not constrain the executive departments of government. (p. 199).  He discusses the PRC Law on Investment in Securities http://e.3edu.net/flyy/E_5227.html and issues such as under what circumstances are laws regulating a particular sector needed and the Investment law (pp. 194 – 198) and what should be the respective roles of the securities regulators, the courts and the National People’s Congress in regulating the securities sector, the discussing the experiences of the UK, the USA, and China in regulating the securities sector.

 

 

我最近正在读牙鲁大学管理学院终身金融教授陈志武先生讨论中国经济包括政治经深层问题的巨作《非理性亢奋》(新版)。

陈教授认为中国的贫富差距,股东市场一系列的问题,服务业站在国家总收入百分之比,与老百姓借款难因为在现有的制度下不能自由地买卖土地就不能用土地来担保贷款。《非理性亢奋》里面讨论的问题包括市场上信息不对称 [asymmetry of information] 经济学里的重要观念。他指的不是股东市场而已。 水果市场也如此。

陈教授介绍中国市场上的信息不对称一些原因如缺乏新闻自由与司法部不独立。

行政部门的权力大,没有有效的受法律的制裁,法律写法不当给行政部门权力太大包括招租(权利换钱)机会。

从《非理性亢奋》可以看得出来重要的论点:

  • 法治和产权保护是普及“股权致富”的基础
  • 财富是国有还是私有,决定了人们的财富
  • 为什么中国股市质量在下降?
  • 中国经济前景为何离不开新闻自由?
  • 新闻自由是中国经济未来增长的必要基础
  • 证监会,法院与人大– 如何分管证卷市场
  • 集体诉讼是保护股民有效方法

身为还没有拔脱资产阶级思想的美国人,我很注意到陈教授提出的中国经济深层问题与最近特别受党的关怀那些批评中国的一个党独大人民民主战争制度的异议分子的思想一致。 如果像我一个没有学会辩证法的美国人能看得出来,很多中国人应该比我更跟清楚。

结论好像是尊重公民权,民主,法治也是发财之道。

下面有英文述评。

http://product.dangdang.com/product.aspx?product_id=20986527

非理性亢奋(新版)

非理性亢奋(新版)

作  者:陈志武

出 版 社:中信出版社

出版品牌:中信出 版社

出版时间:2010年12月

定  价:39.00

I S B N :9787508623443

所属分类: 经管  >  经济

标  签:财经管理  经 济  经济学理论

编辑推荐

年度财经图书大奖获奖图书,《为什么中国人 勤劳而不富 有》姊妹篇,你能仅靠工资致富吗,年度财经图书大奖获得者,著名经济学家陈志武教授告诉我们,现代社会致富的基本途径是“股权致 富”。因此,必须以公正而 完善的法治保护产权,信息自由流动以加强市场平衡,完善金融市场以促进资源配置。

内容简介

你能仅靠工资致富吗?为什么现代社会出现了那 么多“富可敌 国”的富豪?他们致富靠的是什么?《非理性亢奋》告诉我们,现代社会致富的基本途径是“股权致富”。股权能通过金融市场放大自己 的价值,把未来的利润变成 现在的财产,使得财富数额不断扩大。因此,必须以公正而完善的法治保护产权,信息自由流动以加强市场平衡,完善金融市场以促进资 源配置在这些因素的共同作 用下,人们的财富才能越来越多。

作者简介

陈志武,美国耶鲁大学管理学院金融学 终身教授、北 京大学光华管理学院特聘教授、长江商学院访问教授。金融学和金融资产定价领域最具有创造力和最活跃的学者之一。获得过美国默顿· 米勒(诺贝尔经济学奖得 主)研究奖、芝加哥期权交易所研究奖等多项重大奖励。2000年,在一项颇得全球经济学家首肯的世界经济学家排名中,名列第 202位(在前1000名中, 仅有19人来自中国)。2006年,被《华尔街电讯》评为中国十大最具影响力的经济学家之一。   1990年获得耶鲁大学金融经济学博士学位,1995年获聘为俄亥俄州立大学副教授。1998年创办Value Engine(价值引擎)公司,2001年与两个合伙人创办了Zebra对冲基金公司。   先后出版了《为什么中国人勤劳而不富有》,《非理性亢奋》、《金融的逻辑》、《24堂财富课》、《陈志武说中国经济》等著 作,其中《为什么中国人勤劳 而不富有》获年度财经图书大奖,并被多家媒体推荐为当年最值得珍藏的财经图书。   主要研究方向:市场监管、资本市场、证券投资管理、公司治理、公司财务与组织战略、股票定价等。

目录

自序
  • 金融与财富
  • 股市与财富
  • 媒体与财富
  • 法律与财富

媒体评论

说到经济学理论,我没有办法跟那 些经过严格理论训练的人相比,比如钱颖一、许成刚、陈志武、白重恩等,他们常常能用现代经济学的源流把事情说得很清楚。                     ——著名经济学家、国务院发展研究中心研究员 吴敬琏   改变中国目前国富民穷的状况,一方面可以减税,另一方面,就是陈志武教授所讲的,要改变资产配置。                     ——著名经济学家、中欧国际工商学院经济学和金融学教授 许小年   陈志武教授的著作深入浅出,说理透彻,把财富创造的制度基础讲得很清楚,是难得的通俗经济学读物。                     ——著名学者,清华大学历史系教授 秦晖   陈志武教授具有健全的政治经济学视野,这样的视野在国内经济学术界是少见的。他对纷繁的现实进行了技术经济学的逻辑分析,进 而进行了法律与政治的分析,从而更为准确地解释了一个令人困惑的问题为什么中国人勤劳而不富有,甚至连基本的安宁也无从享有。                     ——独立学者,九鼎公共事务研究所研究员 秋风   陈先生一针见血地指出了财富增长的制度性内涵,使我们明白,仅有个人的机遇和聪明才智是不够的,在勤劳和富有之间还有一座必 须建造的桥梁——好的市场经济制度。                     ——著名财经媒体人、《财经》杂志主编 何力

 

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