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The world depends on rare earths supplies for automobiles, mobile phones, and jet planes. The Washington Post says the US can take up the strategic vulnerability challenge presented by rare earth's supplies 80% control by China in 2026. The Washington Post looks at the US Rare Earths planning- US government as buyer, faster permitting and predictable rules needed to setup US supply chain by 2030. China's Rare earths monopoly can be loosened but not in 2 years says the Washington Post. It will take 5-7 years by 2030 or 2032. Countries such as the US, Canada, Australia, Malaysia and Brazil are resource rich places where rare earth can be mined by the US. for the US government and US companies. Australia's Lynas is the largest non-Chinese company It has a $96 million contract with the US War Departent. America's MP Materials is building domestic supply and is expanding production at Mountain Pass, California. MP Materials is building a rare earths magnet manufacturing plant in Northlake, Texas for $1.25 billion. MP Materials has a "transformational public-private partnership with the US War Department. As long as the US remains the buyer private companies can step up their development of rare earths around the world in the best locations. European Union and India have a separate plan for rare earths supplies of their own with large investments that should further diversify and create new supply chains for rare earths in Asia, Africa and Latin America. ...

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Grades 1 through 9 in China are not for profit and China's education system is highly important and sensitive for Beijing. Particularly at this time with different ideas in Hong Kong compared to adjoining Shenzen. Uptil now private compnies were allowed to effectively control some schools with contractual agreements and funnel out money through service fees. This practice is now halted by tighter restrictions. Draft legislation is prepared and expected to be finalized this year. 

Earlier 25 companies in the education sector brought $3.8 billion of private capital through IPO's in Hong Kong and the U.S., according to Dealogic. These education companies are seeing shares drop by a half in 2018-2019, as China moves to protect its basic education from what may be seen as wayward ideas and thinking. More so today after the events at Hong Kong schools and universities.

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China's effort under president Xi to expand the state run sector by providing more credit to state run enterprises and expecting private companies to pursue goals of the state's planned economy. Tackling the coronavirus economic impact required state planning and that experience has further renewed the effort to build the state run companies as a reliable partner for the government. There is also a conviction that private companies are unreliable in a large and complex economy as China's.

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This report in DW.com presents a situation where supply of oil runs out as demand way exceeds supply as shale oils in US are depleted, and no new reserves are found. A story in WSJ last week reports that the salty water from shale oil extraction is injected back into reservoirs at a rate that creates serious problems in the Permian Basian of the US including East Texas. The IEA forecast in 2026 shows about 97 million b/d of production and demand slightly exceeding this in both 2030 and 2050 which would suggest defossilization has not taken place. Yet the US pullout from defossilization under DJT is sure to be reversed by future governments in as short as 3 years, and the current DJT policy is simply a response to the cost of living concerns of the majority of Americans. The scenario that fossil fuels will be required forever is promoted by the oil companies and by OPEC+ including Russia. But this situation will reverse as the cost of living crisis and the low wages and incomes, loss of factory jobs, low savings, health care inflation, is tackled under the DJT administration and the US economy becomes stronger with lower inflation.  This scenario of  steady oil demand can be reversed if China and India and Europe push ahead with renewable energy and technological change as is happening today, and will not be seriously impacted when the US joins the battle with its renewable energy push in 2028. This is not just an optimistic scenario, it is a balanced one as private industry in the US will sense this and move ahead with development of new technologies for renewable energy so as not to fall behind and to pioneer on their own. That is the history of innovation in the US for the last 100 years and will not change. ...

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Xi Jinping's experience as Communist Party secretary in eastern Zhejiang province, and in running Shanghai, gave him insights on how the private sector had changed the province and the weakness of state run companies; as well as how state run companies operating efficiently such as SAIC in the automobile industry in Shanghai had achieved success by diversified ownership through listing on the Shanghai Stock Exchange. Studying how Singapore's Temasek has provided efficient management of state owned enterprises, which are run like private companies and have private investors and compete in markets; has reinforced the idea in the Communist Party that state ownership in key sectors can be maintained. The idea being adopted is retaining a majority controlling interest for the state at the same time as transformation of state run enterprises to operate similar to private enterprises takes place. The new plan put out by the Communist Party and the State Council, China's cabinet, takes up reform of the large state owned enterprises in China along these lines. The enterprises will take on private investors, list on stock exchanges, and operate like private companies hiring managers at the market rate. The energy, resources and telecom sector state enterprises will be reorganized as asset investment firms, and these enterprises will be required to operate like private companies to maximize profits, hire managers, and list on stock exchanges. ...

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China's government is taking up stakes in private companies with large debt and needing financing. Private enterprises have less access to cheap bank loans and other types of financing than state owned firms, and are squeezed by China's efforts to reduce pollution and overcapacity. The tariffs war with the U.S. has also hurt the economy and taking stakes in private companies is way to ensure business stability for China. Its an effort to keep employment stable in the private sector that has 60% of the jobs. Zhejiang Great Southeast Company is a plastics packaging company with founder Huang selling his entire 29.5% stake in the company to state owned Zhuji Water Group Co for $168 million. He did this to repay holding company loans for which he pledged two thirds of Zhejiang Company shares. Beijing stepped in to ensure there is no sharp rise in unemployment. In the first 6 months of 2019 Beijing took 47 such stakes, according to Fitch Ratings, with 52 stakes taken for all of 2018.  The purchase of stakes includes state run companies and investment vehicles of local governments. Even this does not reflect the whole effort of China to ensure no sharp increase in unemployment. From October 2018 local authorities and state linked entities put together about $100 billion of "relief funds" very quickly, estimates from TF Securities. These funds are for passive investments, state owned enterprises normally take on a hands-on role in running the companies. Oxford Economics estimate is that China's private sector provides about 60% of all urban jobs in 2017, increasing from 36% in 2010. Researchers say China stepped in in this way after failing to get banks to lend more to the private sector. The tight supervision to reduce risk of supervisory agencies has made it harder for private companies to get loans. Shadow banking and trust loans was an early target, and stock market selloff hurt entrepreneurs who used shares as collateral for loans. ...

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China's civilian and profit oriented enterprises now work for the military and the People's Liberation Army. The spy balloon program has one individual behind it Beijing academic Wu Zhe, who is a member of the Communist party and has formed several private companies to develop balloons, with several patents on the technology, says this report in WSJ. Four of six companies blacklisted by the Commerce Department have ties to Wu Zhe says this report.

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In a two and half hour news conference prime minister Li Keqiang of China gives some insights into the new thinking of China's leadership on issues of trade with the U.S.,charges made against Huawei, and handling China's slowing economy. On Huawei or Chinese tech companies conducting spying for the Chinese government Li Keqiang stated: This is not consistent with Chinese law. This is not how China behaves, We do not do that and will not do that in the future." To tackle the slowing economy Li said the government is reducing taxes and cutting interest rates and the money banks are required to hold as reserves. By reducing expenditures the government will save 1 trillion yuan ($148 billion, collecting higher dividends from state firms, and retrieving unspent state funds allocated earlier. The purpose Li repeatedly emphasized is to free up credit to help private companies and prevent "layoff waves." On the trade issues with the U.S. Li believes it is not possible to uncouple the two countries economies, and said he expected the trade talks to lead to a positive outcome. China's national legislature he said passed a new foreign investment law as proof of its commitment to creating a fair environment for foreign companies, including complaint responding mechanisms, transparency in information disclosure and fast followup in issuing regulations that put the law in effect. ...

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Kristof of the NYT writes about DJT Action in Venezuela January 3, 2026.  Some of the least understood aspects of the US president's language on Venezuela- The president's reference to oil resources is not for the US to benefit from the oil reserves. It is about oil in the sense that the oil industry in Venezuela is in total disrepair and broken from years and decades of nationalization followed by lack of investment, lack of western technology.  Sanctions put a huge price on the Venezuelan economy with the brunt of it borne by ordinary people- the same people that a socialist like Hugo Chavez thought he could help with his erratic ideology. As China, and now India has learned the only way to get ahead in this world for nations is to invest, invest, invest with larger and larger pools of capital, technologies and labour. By alienating the US or EU there is a loss of technologies and of investment so that one is going to bat with only one strike and you are out, so that from Day 1, China under Mao, India under Nehru had lost the race, so did all the "socialist" regimes in the world. Conversely China under Deng and successors, and India under Modi are breaking development records. How does the US change this? First it removes the sanctions on the Venezuelan economy. Second it gives Chevron the green light for increased production. Oil facilities of the Venezuelan oil company will get foreign investment and US investment from American oil companies with returns for both and the state oil revenues invested under a government that is able to invest it free of corruption or it being funneled out of the country to support other regimes in Latin America. This will rebuild the country's health system, its broken infrastructure, restore its finances, and make it in a decade one of the advanced economies in Latin America. But only if- the gangs and other private militias, the other military elements from the two decades of utter mismanagement and drug trafficking are  removed. A new way will have to be devised that the US as to work out ad hoc meaning in the process of doing, invented that meets the conditions of getting this done and the process of reconstruction of Venezuela under the Monroe doctrine of keeping the entire western hemisphere free of such elements. The US achieved this with the help of Great Britain in 1823 when it was only 50 years since it's founding in 1776. The US has the resources in 2026 to make this happen in the interests of the people of the western hemisphere, in the quality of life of people in the western hemisphere. It does not seek any country's resources, it seeks the development of the countries in the western hemisphere in the great tradition of Jefferson, Monroe, Lincoln, FDR and JFK. ...

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The new data security law that went into effect Sept 1, 2021, limits the amount of sensitive information China will share with foreign companies, and investors. All data related activities are subject to government oversight says this report in WSJ, including collection, storage, use and transmission. Companies in China now are reluctant to share information.  Because the law is ambiguous about what is sensitive information this makes companies more reluctant. The result is a China that is more opaque than before. It is driven by antagonism in the US over the effect on American workers of manufacturing and supply chains shifted to China. The response of the Chinese government is to turn the country inward, looking to self sufficiency, data security, and an environment that looks at foreigners with suspicion, says this report in WSJ. The pandemic has increased this view of foreigners in China, after China's experience with a deteriorating trade relationship with the US. Xi Jinping has not left the country since the pandemic started in January 2020. China has also seen an alarming drop in passengers going overseas or coming into China from 50 million in the first 8 months of 2019, to 1 million in the first 8 months of 2021, a drop of 49 million passengers, according to data from the Civil Aviation Administration. Government directives are to minimize foreign travel as a result of the pandemic. People in the US see the operations in China of companies such as Apple and now Tesla as a sign of how well the system of international cooperation is functioning without realizing that these companies never had the understanding of the history and culture of the country after two centuries of struggle against colonialism. When the situation takes a different turn as it has after Mr. Trump raised the issue of American workers and loss of manufacturing, and after the pandemic created unexpected distrust, there is very little these companies have to offer to keep the relationship between two of the world's population blocs, between North America and the closely related population of South America, with the people of China, a billion people on each side. This shows that the relationship cannot be left only to the business and private sector driven by profit and business interests, that all sections of the population in China and in the US need to be involved for a stable relationship with ongoing human and cultural contacts at all levels. ...

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There was some element of reckless behaviour when Britain tossed aside misgivings to let Tories let in private sector investing into companies in the water sector. The WSJ now calls it the world's largest failure in private sector water investment. Today there is eColi in the water in River Thames so much so that in the Oxford Cambridge rowing race rowers were advised not to make contact wih the water. It goes back to Victorian sewers which was a problem not tackled by companies interested in profits in areas that wiser men had decided is best done by public sector investment. These are the hidden failures of the Thatcher/Reagan years that are only now coming to light. The company Thames Water loaded up on debt to pay investors dividends while the company failed to upgrade London's sewer system, which has spilled what amounts to 34,000 Olympic swimming pools of raw sewage into the river since 2020. The US has not been so reckless as most water and sewage systems are still publicly owned. Near central London a matted mountain of wet wipes and sanitary products along with sewage washed into River Thames is called Wet Wipe Island. Thames Water took on so much debt $23 billion that it defaulted on its debt. How could this be in a modern developed nation, and what about all the other infrastructure investments in Britain rusting  from the Industrial Revolution that need investment? Tories have let Britain down. There are lessons for the US and Germany, France, India and China. ...

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George Bush's administration passed healthcare legislation that allowed private pharmaceutical companies not to have to negotiate with Medicare on cost of drugs. It also passed the so called Medicare Modernization Act that created a huge opportunity for profits through Medicare Advantage Plans. The chart in WSJ shows profits it calls a bonanza. What it means is that instead of reducing the costs of providing medical care to elderly Americans it has increased the cost leaving less and less money for infrastructure for roads and bridges and airports that are dilapidated in the US, and less money for essential services in education and health care, transportation, housing. This has reduced the standard of living and quality of life in America. For healthcare it is providing less for higher cost when compared to China, India, Germany, France and the UK. George W Bush administration put America into 2 wars in Asia and the Arab world which also drained resources contributing to a lack of investment in the country in essential infrastructure and services. ...

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People in China with 800 yuan or $114 can now invest in low cost mutual funds. They can invest in 5700 domestic mutual funds offered by Vanguard's partner in China Ant Financial Services Group. Vanguard offers investment advice in assembling mutual funds. The investment advice will depend on algorithms not people to provide investment advice.  Ant owns 51% Vanguard 49%. Chinese investors are known for speculative approach to investing and making risky investments. By contrast Vanguard's approach in the U.S. is more careful and makes a serious effort to reduce risk with its index based mutual funds which it pioneered. China is making an effort to bring American companies into its financial  markets as part of the opening up sought by the U.S. Vanguard CEO Tim Buckley says his goal is "to fundamentally change for the better how individuals in China invest." Vanguard says it has taken the long view having worked for a long time on getting regulatory approval and its own approach for investing to introduce in China. It studied the market since 2018 talking to industry peers, regulators and clients. It says Chinese regulators appreciate Vanguard taking the long view. Today Vanguard's office in China has only 20 employees, and it has stayed away from setting up private investment funds for wealthy individuals and institutions which is permitted for western firms in China such as Fidelity International.  Vanguard's Mr.Bogle pioneered low cost index mutual funds that follow and index as opposed to having mutual fund managers determine investments. This takes the guesswork and individual bias out of the equation as experience has proven that over the long run this approach works best. Vanguard now has $6 trillion in funds under management, and is by far the largest mutual funds company in the world. It now has the potential to tackle a huge market of 900 million individuals in China. ...

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The Adani Group's public offering of $2.5 billion was slightly oversubscribed says the WSJ after a short seller in New York City Nathan Anderson issued a report critical of the company. Adani Group is a set of companies in India that have taken  up the ambitious goals of electrifying India with its population of 1.3 billion so that no home lacks an electric bulb light for children to read. It is under criticism because this means coal mines in Australia provide the coal that provides this electricity when coal is used in China and India to provide much needed electricity. Adani Group is unique in that it is making the rapid transition into renewable energy in line with PM Modi's goal of generating 50% of electricity from renewable energy by 2030.  Adani Total Gas Limited fell by 10%, Adani Green Energy and Adani Transmission made low percentage gains.   Thirty anchor investors provided $734 million including American banks.  This includes Abu Dhabi Investment Authority and Life Insurance Corporation of India. Abu Dhabi based International Holding Company said it would buy $400 million in shares in a public show of support for the Adani Group. Adani Group will use the proceeds to fund capital expenditures on green energy projects, expressway construction and airport improvements and repay some debt. The building of India's Uttar Pradesh Expressway is being done by Adani Group which is similar to what happened under US president Eisenhower in the 1950's in building the first Interstate Highway system in the US. In 1953 after Dwight Eisenhower became president he developed the plan for a national Interstate Highway system that led to the passing of the Federal Aid Highway Act of 1956. This is happening today in India. Airport and port improvements taken up by Adani Group help build India's woefully inadequate freight logistics to make it a part of the US new supply chain after the errors of overconcentration in one country China. Green energy projects help fight climate change where investments are badly needed and governments in the US and India are giving much needed direction and support. It is in this context that the huge growth of the Adani Group can be seen. It is not similar to the Tech company valuations simply because it is like China's effort under state owned companies to match the growing demand for electricity for industrialization. During the British Empire after 1800 capital from India financed the Napoleonic wars, industrialization of Britain, and indirectly industrialization of the United States through British capital invested in the US in the period before 1860. Capital that was diverted from India, and through British trade that impoverished China. As a result the growth in China after 1990, Korea after 1980 and India after 2014 comes in a catchup mode to meet the growing aspirations of hundreds of millions of young people with some companies state or private owned picking up the pace in an unprecedented way. This is the raison d'etre of the Adani Group. China's total installed capacity of electricity has increased from about 500 GW in 2005 to 2500 GW in 2021. This is the story repeating itself in India with Adani Group and other companies such as NTPC, State Grid and Tata Power setting over five fold increase. ...

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Bradsher, Tankersley and Cohen say in this NYT report- US industrial policy under president Biden corrects the failures of the past. Chinese experts in Hong Kong say the US and Europe deindustrialized their economies with pursuing of policies called "neo-liberal" but basically Reagan era policies that Democratic presidents Clinton-Obama imitated. As they deindustrialized it created disaffection among the struggling lower and middle income classes making $35,000-$106,000 that were big losers in the process, creating threats to democracy as financial and tech, plus pharmaceutical sectors took control of the economy. China's success comes from three decades of mastering the ways of practicing industrial policy that it can support private companies with low cost land, additional subsidies that reduce the cost of production and provide a buffer to absorb losses so that it could dominate key industries. Policies where textbooks and economists trained in the US failed utterly and completely leading to dangers to US democracy that we see as opportunities for good paying jobs in manufacturing disappeared for middle and lower income households from 1980 to 2020. These economists trained in the US always said see lower cost Chinese made goods means lower and middle income people pay less, never saying that this means all opportunities for better paying jobs in manufacturing will be lost for these classes in society. The tech and financial sectors had close ties to the new arrangement that turned manufacturing over to China from the Reagan era to the Obama and Trump era. Apple and Tesla and many industries benefitted from manufacturing mostly outsourced to China. ...

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Zhou Xiaochuan, is head of the People's Bank of China since 2002. For a long time Zhou has tried to convince party leaders in China to make financial sector changes. The new leadership of Jinping-Li Keqiang has now adopted most of the road map and priorities drawn up by Xiaochuan. The first is bank deposit insurance, which would especially protect small depositors and provide a basis for new private banks to compete with large state owned banks, creating competition in the financial sector. By supporting creation of privately owned banks impetus could be given to loans to the private sector to rebalance the economy away from state owned banks and state owned enterprises. This is a key goal in the road map drawn up by the think tank Development Research Center (DRC) which has the backing of premier Li Keqiang. Competition from new private banks would let banks compete to offer higher rates to depositors, another goal. In a September article for the Communist Party Seeking Truth magazine, Zhou pointed out the pressing need for " supporting private capital to set up private banks and guide them to position themselves in serving small and micro companies." These new companies especially in tech and information technology fields can be the new drivers for growth in the future as the burst of infrastructure building generated growth slows down. The one area Zhou faces resistance is his idea of opening up China to foreign capital inflows and outflows. Here critics,including younger economists, say this protected China in the Asian financial markets crisis of 1997, and would protect China in the event it faces outflows of the type that are happening in India in 2013 after the U.S. Fed's plan to withdraw from its quantitative easing. Xiaochuan sees the flow of foreign capital as another way for capital to flow to new private companies and balance away from the state owned enterprises, and for China's savers to be able to obtain more attractive returns. Zhou says his plan would include the option for China to reintroduce capial controls in a crisis. As China's debt to GDP ratio is set on a trajectory to approach the levels reached in Japan before its banking crisis there is greater awareness from party leaders about the need for prudence. Xiaochuan has worked with party leader Jinping's key economic advisor Liu He for years, and has the support of He and Jinping for introducing deposit insurance as a top priority. President Jinping and Premier Li Keqiang see the need for Xiaochuan's experience and foresight "as a talent who can be counted on," as the sense of importance of changing the economic structure has deepened in 2013. Mandatory retirement for Xiaochuan at 65 was set aside to give him a third five year term, and his road map long ignored by former premier Wen Biao, is now at the top of China's agenda. ...

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Ford. will still make $8 billion to $11 billion this year even after losses of $3 billion in electric cars. By 2026 Ford says it will earn 8 to 9 percentage points in profit from EV's. Ford is basically investing in the EV industry now for the long run. It is also part of the effort to move away from fossil fuels. Government incentives and subsidies will help companies and buyers of vehicles make the transition to EV's to fight climate change.  Companies that have not invested in EV's such as Toyota risk falling behind in EV's at a time when climate change is a major priority for buyers and governments around the world. Toyota is moving to a new CEO who can better take up the challenge of EV's. Under the previous CEO Mr. Toyoda Toyota clung to a mistaken belief that hybrid cars were all that is needed to reduce use of fossil fuels. German, Chinese and US manufacturers are taking the lead in EV's and Japan has fallen behind.  WSJ has never favored government subsidies and is critical for this reason. Yet it is clear that in some situations such as fighting climate change, building infrastructure, and redesigning the supply chain, government has to take the lead. Eisenhower in the 1950's with a government led effort helped build the national highway system, the first in the world. Biden is making a similar effort on multiple fronts. The redesign of the supply chain comes after private industry without proper direction from the government over concentrated manufacturing in China with Japan as a supplier into China. Presidents Bush and Obama wasted time and resources better devoted to national priorities at home on wars in remote places such as Afghanistan and Iraq. President Biden wrapped up the war in Afghanistan and completely disengaged from an area that is of no constructive interest to America. Resources are now concentrated in the right way on real national priorities from manufacturing at home to fighting climate change, fighting the cost of living crisis and building better infrastructure for workers and families. ...

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Shares of Adani Enterprises went up by 3000% over 5 years putting valuations at extreme levels, says this report in the WSJ. This has created a disconnect between valuations and fundamentals say some experts. Hindenburg Research is a American forensic financial research firm started in 2017 by Nathan Anderson in New York City with 5 employees. It has issued a critical report of the Adani Group companies leading to a loss of 18.5% of its valuation. Adani Group companies make up 5% of the Bombay Stock Exchange and are a big part of its renewable energy effort even though the company had major interests in coal in Australia. Adani is trying to make the switch to renewable solar and wind energy and at the same time meet India's continuing need for coal because of its large population. The situation is similar to China and is poorly understood in the US and Europe, the effort to make large investments in renewable energy even as the company provides energy from fossil fuels. Adani set up the Mundra port in Gujarat helping Gujarat become energy sufficient and making it the most industrialized part of India. The London based Financial Times took a look at the Adani Group long before Hindenburg Research in the last 2 years and concluded that Adani Group companies have grown rapidly because India's effort for industrialization requires aggressive investment and risk taking which none of the other companies including India's Tata and Reliance Group are able to do in infrastructure and energy in the same way that Adani has. Reliance Group has invested in 4G and 5G and setup Jio to create low cost access to fast internet in India. When it comes to roads, airports, coal and renewable energy Adani has invested aggressively. This has created the perception that the Adani Group has benefited from its relations with the government. As the Financial Times put it Adani Group was the only private investor willing to take up the challenge of super sized goals needed for India's rapid growth. In this sense a forensic research company based on short selling is up against a company that has already faced skepticism about its rapid emergence as a renewable energy focused company shifting from fossil fuels, a transition neither Exxon or Chevron in the US have been able to do. ...

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Easwar Prasad, Cornell University economist, and a former head of the IMF's China division, says the new report by the World Bank and the Development Reform Commission (DRC), is part of an effort by government officials in China to push the agenda for change forward during the transition to a new leadership. This includes Premier Wen. There is pushback from large state enterprises. The DRC and the World Bank had called for a change from the current situation to allow more private sector involvement in the economy, which means restricting the growth of the large state owned companies and letting the private sector operate in more parts of the economy. The alternative is to see growth slowing quickly and -some economists- say suddenly without warning. The role of Zhu Rongji, a former prime minister during the period Jiang Zemin was president, in pushing for changes appropriate to the period, is also cited. The last decade under prime minister Wen Biao is seen as one in which China relentlessly pursued its currrent export led model of development with large state run companies and state run banks dominating the economy. This has made change even harder to achieve because of the pushback to preserve the status quo....

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Insights from Jagdish Bhagwati- 1) Poverty actually declined under the previous government, it was displaced by the Congress not because poverty had increased but by the revolution of rising expectations and the democratic processes functioning in India. 2) The pressure cooker democratization in a place like Iraq is different from democracy in India, because India had democratic processes and rule of law under the British, which was followed by democratic processes functioning under the Nehru years and right upto to the present day. This is almost over 100 years of democratic practice. 3) Minority rights were respected by the post independence governments. 4) In China the government thinks riots are caused by inequality and rural-urban prosperity divide. Actually it is more because of the lack of democratic processes functioning in China to accomodate the revolution in rising expectations. 5) From a perspective of longterm sustainable growth this makes India's democratic functioning a better approach. Bhagawati does not mention the advantages in terms of private initiative that are fostered in a system of private capital and private companies. This dates back to the Tata enterprises under the British going back a hundred years....

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A new report, "China: 2030," by the World Bank and the Development Research Center (DRC), has major implications for the course of action taken by new Chinese leaders. The limits to China's economic model with the dominant role of state owned companies has been pointed out in the past. It has now reached a point where China must choose to move to a modified model or face the "middle income trap" of countries like Brazil and Mexico, where income levels and growth reaches a certain level and then decelerates suddenly with little warning. The report makes some major recommendations that would modify the current system. It says the state owned companies should be supervised by asset management firms focussed on commercializing these companies, and not supervised by the State-owned Assets Supervision and Administration Commission (SASAC). The asset management firms would restrict the state owned companies on what areas they participate and sell off businesses to make it possible for private companies to compete. Zoellick says- "China needs to restrict the role of the state-owned companies, break up monopolies, diversify ownership and lower entry barriers to private firms." The state owned companies would be required to pay sharply higher dividends to the government which could then be used for social programs. Currently state owned companies invest in land which is sold by local governments for revenue helping fuel the real estate bubble. Significantly, the report had its origins when it was proposed by Mr. Zoellick, head of the World Bank, during a visit to Beijing in Sept 2010. It was supported by Li Keqiang, then vice premier, and now expected to be the new prime minister of China. The World Bank is widely respected by Chinese leaders because of its assistance during the early stages of reform in the 1980's. The DRC reports to China's State Council, a top governmental institution, and the No. 2 person at DRC, Liu He, is a senior advisor to the Politburo Standing Committee. He helped draft the current five year plan and is close to Li and Xi Jinping, the next president of China. The SASAC has opposed these ideas, especially any shift in its personnel selection of management at the state owned companies, which it shares with the Communist party's personnel department. Respected China economists say China faces large risks of a sudden sharp slowdown because the the state owned companies have largely copied foreign technology and have not generated enough technological advances, which will be needed for the next stage of growth. Lower growth rates could worsen problems in China's banking system leading to a crisis. The Conference Board, estimates China's growth at 8% for 2012, slowing to an average annual growth rate of 6.6% from 2013 to 2016. Barry Eichengreen of UC Berkeley, Donghyun Park of the Asian Development Bank, and Kwanho Shin of Korea University, say the annual growth rate will drop by at least 2 percentage points by 2015....

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Much of the information Friedman says comes from Ruchir Sharma could be seen through simple observation. By the time it is written about so much has already happened. For example Tech firms crowding out innovative new firms starting from scratch is happening since 2000, from the Clinton, Bush and Obama administrations. By the time the concept makes it into the economics textbooks many years later it is obsolete. In economics textbooks of the eighties crowding out referred to governments crowding out private firms in the competition for capital. Concepts of comparitive advantage in economics textbooks were similarly obsolete when Japanese and Chinese competition in the last three decades brought into play a very different model of competition of subsidized private and state run companies focussed on dominating key industries that never made it into textbook economics and theories of experts. Comparitive advantage theory in textbooks were too simplistic not able to account for real life situations in which a determined national competitor could move up the ladder every few years in sophistication and technology to compete in products at many levels. The old textbooks simply said Portugal would make wine because it had some advantages and America with its advantages in steel production would make steel. This kind of theory put many people to sleep as other nations took over American markets- first steel, then electronics, then telecom, and then renewable energy. To protect American workers Robert Lighthizer and other American negotiators of trade with China, Japan, South Korea, used their own head and observation of what was happening. This was a better guide to the best response to protect American workers. Doing what makes sense, doing what works for final delivery point to the intended beneficiary, the American worker, or European worker, or Indian worker, provides a better way to get things done.   ...

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Nicholas Lardy of the Peterson Institute of Intenational Economics, and author of "Sustaining China's Economic Growth After the Global FInancial Crisis," points to the shortcomings in the World Bank/DRC Report "China: 2030." He says the issues raised by the report have been raised before during the last ten years about scaling back the role of state owned companies in development and growth and the way the government allocates resources. The report does not throw light on the why and what prevents this from happening. The report comes at a time when the risks that were brought up earlier, as Peterson says, are now accentuated and much larger. The share of domestic consumption as part of GDP has fallen, a larger share of real estate development in GDP, a bubble in real estate with the involvement of local governments and state owned companies in the speculative behaviours, and an increase in inequality. The report emphasizes that "the role of the government and its relationship to markets and the private sector needs to change fundamentally." To generate the kind of innovation for sustained development the private sector needs to play a larger role....

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China is not experiencing high unemployment in 2012 the way it did in 2009. The lower growth rate of 7-8% is not having an adverse impact on unemployment. This makes it possible for the stimulus this time to be much smaller. There is rising upward pressure on wages. According to the National Bureau of Statistics, CEIC and WSJ, average annual wages at private sector manufacturing companies in current U.S. dollars was up 5% in 2009, 16% in 2010, and 20% in 2011. This is being encouraged by the government as China gradually shifts its economy towards higher domestic consumption and better standards of living for workers. Hon Hai Precision Industry Company added 82,000 workers in China in 2011. Salaries at the Shenzen plant were 2200 yuan or $345 a month in February 2012, an increase of 10%. An April survey by Manpower Group showed that a majority of companies will increase workers or hold employment stable, only 3% of companies will have job cuts. Demographic changes are also playing a part-with fewer people in the 15-19 age range, dropping from 120 million in 2005 to 95 million in 2015, according to UN estimates. The number of migrant workers remains steady at 252 million in 2012, up 4% from 242 million in 2010, according to the Bureau of National Statistics....

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Dow Chemical CEO, Anthony Liveris, is co-chair of the Advanced Manufacturing Partnership, an effort to bring together federal government, industry, universities and other groups to invest in new technologies that would generate good-quality jobs and increase U.S. competitiveness. He writes this letter in the Wall Street Journal to correct two misperceptions. The first, is that government has no significant role in nurturing an environment that is good for business and manufacturing industry. Because other countries, including China, are now operating like companies, it is important not to let the U.S. be in a disadvantageous position. Government has always been involved in its writing of tax and incentive policies, regulations, trade agreements, and creating a climate of certainty. The second, is that the loss of manufacturing capacity and job losses in the last 10 years are different from the job losses in the 1980's. These are not the low tech and less efficient manufacturing job losses of the 1980's, but job losses as a result of moving advanced manufacturing capacity and research and development centers to outside of the U.S. Of the 8 million jobs lost in the last recession, he says two million manufacturing jobs of higher pay and supporting employment in other sectors were lost. His point: its time to focus on expanding manufacturing in the U.S. because manufacturing is the sector with the highest multiplier effect on other sectors. Public-private partnerships are critical to this effort for increasing technology development and increasing investment. This view is supported by other experts....