Financial companies outside China

The Chinese president Xi said on Tuesday that China would broaden market access for foreign financial services companies. There have been several financial services companies operating in the Chinese mainland, including HSBC, Goldman Sachs. These foreign financial services companies have been focusing on financial services that have to do with (financial) activities in foreign countries, their potential consumer sizes are not as large as the Chinese companies', this will not increase the competition in the Chinese financial sector. There are restrictions to these foreign financial services companies that limit the activities for these companies in China. Moreover, the financial services companies do not share the same financial network with the Chinese financial services companies (including the Chinese companies). The transaction costs for Chinese clients to do businesses with the foreign financial services companies are larger than to do businesses with their local companies. If the Chinese government were willing to reduce the limitations on these foreign financial services companies, the level of competitions in the Chinese financial market would increase significantly. In addition, the many financial services would be introduced to China, the skilful workers in the sector will transport across borders as well, this would improve the services or lower the wages in the sector or both. 

What do people miss out when focusing on the tension between the US and China

American officials have softened the tone when talking about the trade war with China. Many people have paid lots of attention on these two countries only, some may forget about other countries' roles in this trade war.

The current American president has some complaints about Latin American countries including Mexico. If he decides to take actions against these Latin American countries, this might be a chance for China to build good relationships with these Latin American countries. In addition, the European Union could take advantage of the trade war between China and the US. China does not want to spread the trade war, so China will not treat the EU as its enemy through the US launches a trade war on China and most EU countries are traditional allies of the US. The EU is also powerful to control the influence from the US, so it is possible for the EU to get some benefits from both sides. This is the same for Britain. The relationship between Britain and China has been built relatively well via several negotiations between the two countries. The bond between the two countries might be stronger than what we think that there are more Chinese people who move to Britain via Tier 1 Investor Visa than Russians.

The tension between the US and China might be beneficial for other countries including some American allies.

Would a house price fall be socially desirable?

Many people in China are complaining that they cannot afford high house prices at the moment, especially for the young generation. Houses have been a necessity for entering a marriage for people in China because of the culture. The house price issue has been brought up in many important occasions that many social key figures including famous economists and celebrities as well as some important government officials have been publicly discussing the house price issue very often. Because of the wide scale of complains about high house prices, many people do believe it is socially desirable to pull the house prices down. Many governments have used many policies to limit the demands for purchasing houses that they only allow local individuals to purchase a fixed number of houses and put high taxes on purchasing more than one houses.

For many middle class families, they own more than one houses, some may locate in those large cities and have very high values, and some may locate in the small or medium cities and not have very high values. When the house prices fall, this would have significant impacts on these middle class families as their wealth shrinks. In addition, many of them borrow mortgages to purchase houses. Although this will not cause serious problems for banks as the banks only lend a small proportion of the house value to individuals, individuals are less likely to sell their houses because people could expect the house prices will continue to fall.

I have an unmatured idea about how to stabilize the house price and make people more able to purchase houses. Many people in China prefer buying new flats rather than second hand flats. If we are able to make people much easier to sell or buy a second hand flat than to sell or buy a new flat, it is possible to lower the prices for new flats and increase the prices for second hand flats. Moreover, by making people easier to buy or sell a second hand flat, it would increase the demand for old flats and increase the supply for old flats. Then the prices will depend on the scales of the increases in supply and demand. Then it will depend on the economic attractiveness of the cities that if the city is attractive, the demand will always be higher than the supply, and vice versa.

To conclude, the house prices in Beijing, Shanghai, these large cities, are inevitably high, but if we are able to increase the supply of second hand flats by make people easier to borrow to buy second hand flats or other policies, it is possible to lower and stabilize the house prices for small and medium cities.

The break-down of the world organizations

China takes the US to WTO over trade tariff plan, this is not the first time for a country to challenge the US in WTO this year that earlier this year South Korean responded to the US tariffs on the solar industry with WTO tariffs challenge. However, there is a question that if WTO really has the power to impose a global free-trade environment. In addition, this question can be asked about any international organizations, including the UN. For some countries which are relatively small and significantly rely on trading with one particular big country, they are more likely to follow the orders from these international organisations that are led by large countries; however, large countries have significant power to influence or even overturn the decisions of the international organizations.

The efficiency and power of the international organizations are largely dependent on the relationships across large countries. When the relationships are good, the international organizations are powerful and influential; and vice versa. Currently the US has issues with China and Russia that the US launched a trade war with China in order to close the trade gap and the US is also suspicious about the Russian influence in the last presidential. The world political environment largely weakens the power and influence of the international organizations.

From history, we can see that the international organizations are in general founded after major global conflicts or wars. The League of Nations was founded after the first world, the UN was founded after the second world, earlier the modern diplomat system was argued to form after the Napoleon War. In the beginning of these international organizations, countries are really careful about the possible large scale of conflicts; however, after a while, countries become relatively careless and the possibility of conflicts across large countries increases. The nuclear power has limited the possibility of wars between nuclear power countries but we may expect more other forms of conflicts between large countries.

The increased tension between China and the US

The world stock market fell in general when China threatened 50 billion dollars on 1333 American products. China has repeatedly pointed out China does not want a trade war via its officially and unofficially channels.

China passively enters the trade war with the US since the US stroke the first attack on China; however, once China enters this trade war, China has to make its counter-strike on the US. The most immediate effect of this tension focuses on the stock market performance, since the trade war started, the stock market has fallen significantly, especially in the key industries' stocks. The long term effect of the trade war has not impacted the world economy since it only just started. The most recent job releases from many countries have been very pleasing, the unemployment rates in several key countries have fallen to the historical lowest points. The trade war is started by the increasing populism, and the increasing populism is started by the increasing wealth gap. The economic performance is constantly good but the benefits have not been distributed equally. Some governments want to turn the internal problem to be an external problem. This problem can lead to two kinds of outcomes. The first outcome is when the economy is not performing well, it can make people turn their attention back to the economic performance. The other outcome is when the economy is not performing well, it can make people more angry about their situations and want more extreme foreign policies.

To conclude, the current situation adds more uncertainty to the future world economy.

What can be explained by economics and what cannot be explained? 5

Yesterday I suggested that there is a lack of economic explanations about what causes uncertainty and differentiate people's taste. Today I want to further discuss what cannot be explained by economics.

Many economic models and theories assume perfect information; however, in reality, we literally cannot prove that we are able to have perfect information. In economics, imperfect information is often used as supportive argument; of course, there are some economic frameworks about imperfect information. However, these economic frameworks cannot fully describe the complexity of imperfect information in reality. Economics in general refers imperfect information as a systematic problem or an issue that can be solved by technological innovation. However, in my opinion, information is a form of resources or goods. They could have similar characteristics as public goods, but they do have a special property. Information has a upper barrier of consumption that individuals (including companies) cannot consume information beyond their abilities.

Economics does not combine the abilities of individuals to consume information with other theories which requires information conditions.

What can be explained by economics and what cannot be explained? 4

I have talked many things that can be explained by economics and today I want to talk about the things that cannot be explained by economics. Here I need to say these things may not be able to explained by myself only or just cannot be explained yet.

In general, every phenomena can only be partially explained by economics. For example, when we face perfect substitution, such as Pepsi and Coca Cola, many of us still have some preferences; and economics cannot explain why some people prefer one over the other. In general, we can summarise some problems as probability problems, just like we suggest there is a probability for someone to prefer Pepsi over Coca Cola. Economics cannot fully explain people's tastes, then many economists suggest it is just an issue of probabilities, this conclusion might not be rigorous enough.

In addition, there are other probability explanations that seem not very rigorous. For example, in finance, we usually give a probability for a state to happen, then based on these states' probabilities, we calculate expected outcomes. Furthermore, we tend to assume an event has a particular probability distribution. However, can we really make these probability assumptions? This is just like flipping a coin. If we know the force and other key factors, we may be able to predict the outcome of flipping a coin.

Therefore, in economics, it is possible that the concepts of randomness and probabilities and uncertainty are used too often without much deep thinking.