Looking for Jingang in Nanpi / Sheng Hong

Remote from the downtown of Nanpi,
No person knows Jingang;
The artist mind of Great Tang,
Waiting for a thousand years’ recognating.

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Note: English is not my mother language. As a practice, this poem is translated from my poem in Chinese: 南皮寻金刚。 I hope the experts who master both English and Chinese to offer me some suggestions.

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南皮荒僻处,金刚无人识;
大唐工艺心,留待千年知。

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September 8, 2019

 

Let Information Run Faster than Viruses / Sheng Hong

互联网

There are two main roles in this fight against the novel coronavirus (2019-nCoV) pneumonia. One is virus, the other is information. Coincidentally, the two seemingly different things have one thing in common, that is, they are all communicable. A model to describe the spread of virus, SIR model, can also be used to describe the spread of information. S represents the ratio of uninfected population, I represents that of infected population, R represents that of recovered and immunized population. This model is to predict the trend of disease transmission by describing the changes of the three ratios. It can also be used to study computer viruses, which is very similar to information dissemination. From the perspective of information, these three groups can also be “unknown information group”, “forwarding information group” and “non-forwarding information group”. Therefore, the spread of the two things can be predicted by the same model. Who can win this fight depends on whether the information or the virus spreads faster.

Viruses have some advantages over information. First of all, only when the virus appears and spreads, and shows serious illness, can the alarming information be generated; the information lags behind the virus, and often lags for a long time. However, information has its advantages. The spread of the virus depends on organisms, and can only be spread if the organisms move and contact with other organisms; even if you fly, it will take more than 10 hours from China to the United States. Through the Internet, information can spread to the other end of the world in an instant. In the absence of outside intervention, information should run faster than viruses. This is an important factor for human beings to be able to effectively fight against the virus. Once the information is faster than the virus, people can quickly know the basic characteristics of the virus, such as the infection rate, mortality rate, recovery rate, and the mode of transmission, such as whether or not infected from human to human, people can prepare before the virus arrives, can take appropriate means (such as isolation) to reduce the transmission, and finally eliminate the virus.

Figure 1  Example of SIR mode信息跑过病毒ELegend: × Uninfected population ratio

                * Infected population ratio

                + Recovered population ratio

Note: the ready-made SIR model (Matlab) is used here. The vertical coordinate represents the population ratio (< 0 < 1), and the horizontal coordinate represents the time (day). Infection rate (λ) = 0.8, recovery rate (μ) = 0.2. Looking at the vertical axis, the highest point of infection rate is about 0.4, and the corresponding horizontal axis time is about the 9th day.

Here I use a simple SIR virus model to make a schematic explanation; the data is not the real data. There are two important parameters: infection rate (λ) and recovery rate (μ) in the virus model, and forwarding rate (λ) and non-forwarding rate (μ) in the information model. The transmission speed of the two depends on the virus infection rate and information forwarding rate. Whoever is big will be quick. In the virus transmission model, it is worth noting the ratio of infected population to the total population in the vertical coordinate, and its value on the horizontal axis represents the time (days). Under normal circumstances, information runs faster than viruses. It can be assumed that the rate of information forwarding is twice that of virus infection. On the horizontal axis of Figure 1 and Figure 2, the time of virus infection reaching the highest point is 9 days, while the time of information reaching the highest point is 4 days, obviously information is faster than virus. The highest ratio of people who forward information is 0.6, while the highest ratio of people who are infected by virus is 0.4, which shows that the population covered by information is larger than that infected by virus. This is good for people to prevent in advance, so as to control the development of the virus earlier.

Figure 2  Information dissemination model信息跑过病毒E2Legend: ˗ Unknown information population ratio,

                ˗ Forwarding information population ratio,

                ˗ Non-forwarding information population ratio.

Note: This model is just like the previous model, just changing the virus into information. Change the infection rate (λ) to “forwarding rate (λ)”, and the recovery rate (μ) to “non-forwarding rate (μ)”. Because the information spreads faster than the virus, the value of λ is increased from 0.8 to 1.6, μ remains unchanged and is still equal to 0.2. Looking at the horizontal axis, the highest ratio of forwarding information group is about 0.6, the time is about the fourth day, 5 days faster than the virus. At this time, the infected rate is about 0.2, half less than that on day 9 (see Figure 1).

Fortunately, human beings have long known the importance of free expression and flow of information. Like most other constitutions, China’s constitution has an important principle, which is the principle of “freedom of expression” in Article 35. This principle condenses the lessons of rise and fall, of gain and lose of human civilization history for thousands of years. It is comprehensive. Its basic principle is to let many and scattered information be truthfully and timely expressed, so that others and society can get real information. It also enables experts to analyze the situation with sufficient information and put forward suggestions, so as to accurately deal with relevant problems. Of course, it also includes information about infectious diseases. Adhering to this principle is to maintain an effective and flexible mechanism for the society to deal with various problems. However, if we do not follow the principle of free expression, it will bring problems or even disasters. That is to intervene the normal transmission of information, slow down the speed of information transmission, reduce the amount of valuable information, and let information lose to viruses in the speed competition.

For example, according to an article published in the lancet by Professor Huang Chaolin and others, the earliest case date of the novel coronavirus pneumonia is December 1, rather than December 8 as later said. The first case has no history of seafood market exposure. To the 10th, in the first four cases, three people did not have a history of seafood market exposure, indicating a strong “human infecting human” nature. And, 34% of the 41 cases (as of January 2) analyzed in that paper have no seafood market exposure. This adds to the evidence of “human infecting human”. This is the first chance to fight the novel coronavirus pneumonia more effectively. If such information is not only published in the lancet on January 24, a month and a half later, but only as an academic paper, it will be published at the first time, or at least let Zhong Nanshan, Wang Guangfa and other authoritative experts know about it, and measures to prevent “human infecting human” will be taken greatly in advance. At this time, because Wuhan municipal government artificially suppressed these information, and did not realize the important value of these information, resulting in the information dissemination behind the virus.

Figure 3  Seafood market exposure of patients with the novel coronavirus pneumonia信息跑过病毒3Data Source: Chaolin Huang et al., Clinical features of patients infected with 2019 novel coronavirus in Wuhan, ChinaThe Lancet, January 24, 2020

The second opportunity is that on December 30, eight doctors respectively released information about 2019-nCoV pneumonia, and the Wuhan government detained or admonished the eight citizens for “spreading rumors”. Li Wenliang, one of the doctors, according to the situation of other departments in his hospital, posted in WeChat group of university classmates on December 30 that “seven cases of SARS have been confirmed”, but he was soon talked by the hospital and “admonished” by the police on December 31. Later, on January 7, his department also admitted suspected patients with 2019-nCoV pneumonia. Soon, his family members were infected, and he himself was also infected. It’s about January 10th. Not only that, Wuhan police also publicly declared that they had “dealt with according to law”, and CCTV soon reported, which not only reduced the information of 8 citizens, but also the information of 80 or even 800 citizens. They would not dare to speak out publicly even if they were ill for fear of being “dealt with according to law”, which affected the normal release of information, making the information available to the society seriously less than The real amount of information can not provide more empirical data for the expert prediction model. If the Wuhan government is not busy blocking the news, but to further investigate the information released by them, it is not difficult to come to the conclusion that “human infecting human”. It was also 23 days earlier than the time of subsequent measures.

The third opportunity is that Wang Guangfa, an expert from the first hospital of Peking University, visited Wuhan on December 31. He believed that the epidemic was “preventable and controllable”. Only when he returned to Beijing and got 2019-nCoV pneumonia, could he be identified as “human infecting human”. Zhong Nanshan visited Wuhan on January 19. In an interview with CCTV on January 20, he said that there were local cases in Guangdong Province. He didn’t go to Wuhan himself, but his family had been to Wuhan, from which he concluded that “human infecting human”. It is worth noting that these two authoritative experts make the judgment of “human infecting human” based on their own or local experience. Although they have been to Wuhan recently, they did not use the relevant information from Wuhan official to make the judgment. When the two experts came to the conclusion of “human infecting human”, they did not use advanced equipment or advanced theory. As long as there are family members or doctors infected and no seafood market (or Wuhan) contact history, judgment can be made. On January 11, seven doctors in Wuhan were diagnosed with 2019-nCoV pneumonia (” 2019-nCoV pneumonia’s infecting ‘from human to human’ has been more than a month, a response of Central Disease Control to the dispute in the paper “, Caixin.com, January 30, 2020). This is the third opportunity that the Wuhan municipal government has missed. The information was blocked, but the virus didn’t stop.

Until December 31, the first notice of Wuhan health and Health Commission said that “no obvious human to human transmission”. Zhou Xianwang, mayor of Wuhan, when explained that “why there are ten-thousand people of banquet to be held on January 19”, said that “it is based on our previous judgment that this epidemic is a limited spread between people”. This shows that at this time, he still had no idea about the infectious characteristics of 2019-nCoV pneumonia. It wasn’t until Zhong Nanshan confirmed that “human infecting human” was possible that he realized that the problem was serious. Zhong Nanshan made the judgment publicly on January 20 on CCTV. As the mayor of Wuhan, the birthplace of novel coronavirus pneumonia, he unexpectedly at the same time with us outsiders to know that the disease was “human infecting human” ! What did he do after more than a month of blocking information? If the fight against the 2019-nCoV pneumonia is regarded as a war, the mayor of Wuhan is equivalent to the former enemy’s command, and the “enemy situation” he knew was the same as that of people thousands of miles away. Is he competent? Can he win? They suppress the publication and flow of information, which also leads to their own serious decision-making mistakes. From December 8 to January 22, 2020, when measures were taken, a total of 45 days passed. Assuming an infection rate of 1.3, 134107 people could theoretically be infected. Isn’t missing the opportunities to prevent viruses’ transmission a very serious mistake?

Figure 4 Results of suppressing information dissemination信息跑过病毒4Legend: the same as above.

Note: due to the suppression of information transmission, we reduce the forwarding rate (λ) to 0.6, and increase the non-forwarding rate (μ) to 0.4. As a result, the peak of information dissemination was on the 13th day, and the ratio of people who forwarded information was 0.08. This means that the transmission of information is 4 days slower than that of virus, and the ratio of forwarding population is much lower than that of normal transmission of information (0.6). This means that there are more people infected with the virus than those who know it, and people contact with those who carry the virus, but don’t know how to prevent from them.

Figure 5  Results of suppressing information dissemination and neglecting prevention信息跑过病毒5Legend: same as Figure 1.

Note: because the information is 4 days slower than the virus, the preventive measures cannot be taken in time, resulting in 20% more infected people than that when the information normally flow.

It seems that in the case of incomplete external information, internal information has not been used to provide guidance for government countermeasures. Therefore, Wuhan government’s suppression of 2019-nCoV pneumonia is not for the purpose of “maintaining stability”, but only for their practices in recent years. This is an instinctive suppression of what they see as negative local information. Why? There seems to be no better explanation except to keep the position and career. What they are more concerned about is not the health of the local people, nor that once the disease is transmitted, it will cause serious losses to the whole country or even the world. This kind of suppression of information dissemination works, so that a critic of a county hospital somewhere will be detained by the police. And in the past, they suppressed “negative information”, including the information that forced demolition hurt the people, “urban governance” hurt the peddlers, information about all kinds of work errors and accidents, criticism of the work of government departments, and the situation of swine fever in Africa, etc., which seemed to be successful and had become a habit. Over the years, although their practices have produced serious negative results, they have basically “eliminated” critical information because they have the means of abusing public power to prevent information outflow such as petitions. This time they do it, just as they always do.

In fact, this is not the “patent” of Wuhan government, but the common practice of many local governments in China. Even though the Wuhan government has been outraged and criticized by the majority of the people for its punishing eight persons who told the truth, we still see that many local governments continue to arrest or threaten the people for “rumor telling”. For example, in Wenzhou, Ningbo, Jinhua, Chongqing, Qinhuangdao, Langfang, Hengshui, Xingtai, Chengde and Tianjin, administrative detention of so-called “rumor mongers” has appeared. Although some of the so-called “rumors” are untrue, it has no enough excuse to take administrative coercive measures against “rumor makers”. Because there are many non-governmental and non mandatory ways to deal with rumors, such as readers’ own judgment on the reliability of the source of the news, and the truth can be used to refute the rumors, such as the government’s timely release of information to eliminate the influence of the rumors. Besides, most of the so-called “rumors” are actually the truth. On the other hand, , it is also a rumor to “say ‘being’ as ‘nothing’” or “say ‘more’ as ‘less’”, which is even more terrible than “say ‘nothing’ as ‘being’”. If it is for the sake of social interests, the two rumors should be treated equally. However, the rapid action of the local police shows that many local governments have not changed their bad habit of suppressing Internet speech, which hinders us from obtaining accurate information about the epidemic.

Since China’s constitution has stipulated the principle of “freedom of expression”, it is unconstitutional to suppress the Internet information dissemination. Why do these government officials dare to violate the Constitution? This is because in recent years, some people have misinterpreted the meaning of “network security” by taking advantage of the loopholes in the Cyber Security Law of our country, and used the public power which is temporarily not subject to effective restriction to suppress criticism for one’s own. Cyber Security Law correctly points out that “the state protects the right of citizens, legal persons and other organizations to use the network according to law. To ensure the orderly and free flow of network information in accordance with the law.” (Article 12) However, there are some defects in the law. For example, the basic principle, “freedom of expression” of the Article 35 of the constitution is not clearly reaffirmed in the law, nor is the administrative department of network management clearly defined, nor does it stipulate the judicial department’s decision on the dispute of network violation. As a result, some administrative departments have legislative, judicial and administrative powers, and abuse them without supervision and restriction Network administrative power. As we often see, some police departments arrest citizens because of their comments in WeChat private space. In fact, these practices negate the legislative purpose of the Network Security Law. In the period of 2019-nCoV pneumonia, the suppression of information disclosure is just one manifestation of many violations of citizens’ constitutional rights.

However, this time it’s different. We can’t seal or intercept the virus. Since foreign countries reported 2019-nCoV pneumonia cases later, people have doubted not only the Wuhan government, but also the whole information of China. Thailand reported the first case of 2019-nCoV pneumonia on January 13, Japan 16, South Korea 20, 21, the United States and Australia have confirmed the first case of 2019-nCoV pneumonia. This makes people suspect that other cities in China have closer contacts with Wuhan and there is no corresponding notification. It was not until January 20 that Beijing and Shenzhen first reported the 2019-nCoV pneumonia; on January 21, China Health Commission first reported the 2019-nCoV pneumonia in Shanghai, Guangdong, Sichuan, Yunnan and other provinces and cities. This kind of report is obviously published under the pressure of foreign reports, but there is a long time lag, giving foreigners false information and misleading Chinese experts’ judgment on the disease. This shows that suppressing information disclosure, concealment and delayed reporting is a systematic mistake in China and still plays a negative role.

In fact, suppressing information disclosure and blocking epidemic information not only misled the public, but also misled the government itself. This includes both the Wuhan government and the central government. If Wuhan government eliminated a large number of epidemic information scattered among the people, and also suppressed the hospital information owned by Wuhan government itself, and did not think that these information had any important value, even the simplest judgment of “human infecting human” nature was not grasped in time. If the central government only relied on the channels of Wuhan and Hubei government to obtain information, it could not know the real situation. When the overseas epidemic information is disclosed in time and reflect that the information in mainland China is not real-time, both the central government and the local government will be hit hard. Since the government’s own information is distorted, the government will doubt its original judgment, and do not know what the real situation is, it will panic and overreact. For example, if you don’t know what the mode of infection is, such as air infection, droplet infection, or contact infection; if the case data is not true and sufficient, you can’t estimate the near accurate infection rate, you can’t estimate the ratio of Wuhan residents carrying the virus, you can only suspect that all the Wuhan people may be the virus carriers, you can only take “blocking the city”, which is a high-cost measures.

In today’s highly mature market economy, people’s daily work and livelihood are inseparable from transactions. Trading brings market demand for production, and trading itself creates value. In 2019, Wuhan’s GDP is about 1.5 trillion. If the city is blocked for two months, it will lose 250 billion yuan of GDP. Enlarging to Hubei Province, the GDP in 2019 will be about 45828 trillion yuan, because we don’t know how serious the epidemic situation is in the surrounding cities of Wuhan, but the whole Hubei Province is blocked except for Shennongjia. If the province is blocked for two months, it will lose 763.8 billion yuan of GDP. If the travel is restricted for two months due to the outbreak of 2019-nCoV pneumonia in the whole country except Hubei Province, assuming that the production and transaction are reduced by 20% during this period, the loss of 31501 million yuan, plus the loss of Hubei Province, is about 4% of GDP. At a time when China’s economy was already in a downward trend, it was undoubtedly worse. If we want to trade, we need people to contact with each other. It is possible to infect the virus. People will get sick or even die. However, if the economy falls seriously as a result, many people will also face income decline and even unemployment. Many families will suffer financial disaster, and even somebodies die. This is not something that can be compensated by “dismissal” while without consideration.

Wuhan government blocked the epidemic information and distorted its decision-making, which suddenly brought more impact to the people. As we all know, Wuhan government calls telling the truth “rumor”, so what it tells the people is more likely not the truth, so people have to imagine the worst. This is bound to cause panic. Because Wuhan government suppresses the release of information and does not seriously study the information it can hold, it is at the same time with the national public that Wuhan government knew that the 2019-nCoV pneumonia is “human infecting human” , and it cannot provide further details of the mode of infection, or even there is the statement of “infecting without signs”. Therefore, people cannot judge whether one person infected from the individual characteristics, so they can only judge by where the person live. As a result, Wuhan people and even Hubei people are actually discriminated against. In some areas, Wuhan people are regarded as a virus. In some areas, Wuhan people are forbidden to stay in hotels. In some areas, Wuhan people are caught as thieves. In some areas, their houses are blocked. In some areas, a group of people refuse to take the same plane with Wuhan people. There are many counties and villages to block roads and societies, and places where people are forced to wear masks or leave subways, etc. Even in Wuhan, the government did not prepare at all, but the orders to close the city and prohibit the traffic in the city were very sudden, and did not take into account the traffic needs of medical staff, as well as the normal material and service needs of the citizens.

All of these misdecisions, loss of people and social chaos come from the suppression of free expression. If we don’t eliminate this kind of violation of the Constitution and the right of free expression of citizens, the information we get will still be distorted. Today’s war against 2019-nCoV pneumonia will be difficult to win, or it will end reluctantly depending on the virus cycle and the patient’s self-healing, which is also a war with too long time and heavy losses. In fact, until now, the behavior of suppressing and blocking the free expression of the Internet has repeatedly appeared. In addition to the aforementioned act of detaining a person who publishes information, one of the most common methods is to delete posts or block them. The author refers to several valuable articles, such as “who delayed Wuhan in the end? It’s you guys. “One of the eight ‘rumor mongers’ in Wuhan has finally appeared” and so on have been deleted or blocked on WeChat official account. Some doctors publish information or call for help on the Internet, and are threatened by the police not to publish again. Some patients can’t be diagnosed because the hospital says they don’t have kits; some patients have been diagnosed, but they can’t be admitted because of the lack of beds; some people die at home or in the hospital, using another name, such as “severe pneumonia” to explain the cause of death. These seem to be clever attempts to reduce the number of cases and deaths of 2019-nCoV pneumonia. But the most important ones are those who are refused treatment, forced to go home or wandering without being counted in the statistics. Let them survive by luck and continue to infect others, but they are outside the public’s vision and the epidemic prevention system. In order to prevent the spread of information, let the virus spread.

Therefore, if we want to defeat the novel coronavirus, we must let the information run ahead of the virus. This requires the authenticity and timeliness of information. And timeliness is the authenticity of time. I remember that the victory over SARS in 2003 was mainly due to the government’s deregulation of news at that time becuase of two events. One is the Sun Zhigang incident in March. A college student was killed in a shelter in Guangzhou, arousing severe criticism from the public. The State Council quickly cancelled the system of reception and sending-back, and the interaction between the government and the people achieved a good result. One is SARS. Experts such as Zhong Nanshan and Jiang Yongyan broke through the control of public opinion and told the truth about SARS. The government adjusted itself in time. Meng Xuenong, Mayor of the Beijing, and Zhang Wenkang, Minister of health, resigned for concealing the epidemic. This is not only the punishment they deserve, but also a warning to other officials, setting a precedent for promoting the opening of public opinion space, especially the free reporting of natural disasters, diseases and production accidents. SARS was overcome in such a public opinion environment.

This was called “Hu Wen New Deal” at that time. In that decade, the trend of opening the public opinion space gradually developed. However, in recent years, the public opinion space has been greatly compressed, the independent media has disappeared, and the self media on the Internet has also been strictly controlled. Many administrative departments openly monitor wechat groups in disregard of the Constitution and relevant laws. Its main purpose is not for national security, but to eliminate the exposure and criticism of their mistakes. For criticism, they “creatively” use “provocation and trouble making crime” on the Internet; for the disclosure of the truth, they usually name to “rumor”. Dr. Li Wenliang, one of the eight “rumor mongers”, later described that he was summoned to the Wuhan health and Health Commission in the middle of the night on second day after he released the news. Later, he was repeatedly talked by the supervision department of the hospital and admonished by the police of the police station, saying that the real information he released was “untrue speech”. This practice is both “efficient” and rampant, which completely reverses the definition of “rumor”. Compared with the procrastination of Wuhan municipal government in recognizing the “human infecting human” nature of 2019-nCoV pneumonia and taking measures, suppressing information release can be described as “amazing speed”. It’s more like an accomplice to a virus.

Therefore, if we want to win the war of epidemic prevention, we must let the information freely release and flow, and let it run faster than the virus. To achieve this, we need to reaffirm and implement Article 35 of the Constitution and relevant laws. But the question is, why can’t it be implemented? In recent years, many government administrations have been openly suppressing information freedom and distorting information into wrong data to deceive the upper and lower. This is an open secret, and it has accumulated disadvantages for many years. Their purpose is to cover up their mistakes and even crimes. A fire accident, a traffic accident, an infectious disease, they instinctively understate the number to avoid the corresponding punishment. For example, the State Council has stipulated that local governments should be held criminally responsible for major fire accidents, while “major fire” is defined as more than 30 deaths, and local government officials tend to understate the number of deaths. From the perspective of the government structure, due to the lack of real elections, the court’s independent trial can not be guaranteed, the people have little constraint on the administrative department, and the officials are only responsible for the superiors. The evaluation of the superior to the subordinate generally depends on the data provided by the subordinate. So lower level officials will try their best to hide all kinds of accidents. They use the accusation of “rumor” to shut up the people, not only to deceive the society, but also to deceive their superiors.

Therefore, if we want information to run faster than viruses, we need to eliminate all these acts of suppressing truth and criticism under the guise of “national security”. One of the simplest ways is to punish the abuse of public power by the executive branch of the government for violating Article 35 of the Constitution. Only when the punishment for the above-mentioned acts of suppressing freedom of expression and concealment of data is obviously heavier than the legal punishment they want to avoid, can this phenomenon be eliminated. In fact, the Law of the Prevention and Control of Infectious Diseases has stipulated that “those who fail to perform the duty of informing, reporting or publishing the epidemic situation of infectious diseases according to law, or concealing, lying and delaying reporting of the epidemic situation of infectious diseases” (Article 66, paragraph 1) shall be given administrative sanctions, and those who are serious shall be investigated for criminal responsibility. Although the Supreme Court morally supported the eight “rumor mongers” in Wuhan, the problem is not to pacify them, but to prosecute those who slander them with “rumor maker” in order to “concealing, lying and delaying reporting of infectious diseases”. The law is here. The premise of concealing and lying is to suppress other information sources. Saying the truth to be “rumor” is really rumor, and constitutes an inseparable part of the behavior of “concealing, lying and delaying reporting”; due to the suppression of eight people who disclose the truth, the loss and delay of epidemic information are caused, which makes a large number of people in Wuhan neglect to protect, causing disease and even death, and even infecting the virus to all over China and even the world, with “serious” consequences far beyond the legislator’s imagination. Prosecute them!

 January 31, 2020 at Fivewoods Studio

Published in FT Chinese on January 31, 2020

A Song of Wulanhada Volcano Group / Sheng Hong

Using the fire as knife in far ancient time,
for ten thousand years winds carefully carving ;
God keeping silence generates beauty,
Curves are charming under the Sun’s shining.

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Note: English is not my mother language. As a practice, this poem is translated from my poem in Chinese: 咏乌兰哈达火山群。 I hope the experts who master both English and Chinese to offer me some suggestions.

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太古火为刀,万载风细雕;
天默生至美,日映曲线妖。

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October 1, 2019

A Tour of Jiulongwan / Sheng Hong

Near a creek among hills,
An Autumn tree lonely reddens ;
If no discovering of my mind,
Brilliance is like colorless.

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Note: English is not my mother language. As a practice, this poem is translated from my poem in Chinese: 游红召九龙湾。 I hope the experts who master both English and Chinese to offer me some suggestions.

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山间溪水畔,秋树寂寞红;
若非我心照,灿烂无颜色。

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September 30, 2019

Why a Sino-US “Trade War” Can be Turned into a Win-Win?|Sheng Hong

Signing a trade deal between China and US is a great good thing. Especially for China. I hope that the second phase negotiation start; China will implement the reform of structure, and US will lift all punished tariff. I also hope that China and US will reduce tariffs to zero, and punish those firms who violate the fair rule of market as cases. Reissue the artical of mine written in April of 2018.

中美签约

Standard economic models tell us, both parties of a trade war would lose. How can there be a win-win scenario? This, apparently, is a textbook question, and reality is more complex than the textbooks. For instance, the trade war President Trump wants is not a typical trade war. Freedom is a value that has been cherished by the American people for a long time, and the US government is unlikely to defy the principles of free trade. When President Trump threatened to reduce the trade deficit to China by USD 10million, the target audience was his American constituents, since that was “the main reason he was elected”; it is, apparently “politically incorrect” to raise the trade tariffs against Chinese products simply because of China’s tremendous trade surplus against the US’. This is the unspeakable reason that won’t win the support of other countries in the world. President Trump justified his policy by claiming that trade with China was “unfair”. Apparently, free trade is fair free trade. If it is unfair, it is not worth “defending”.

Then, what’s unfair about it? Firstly, President Trump pointed to technology theft by Chinese firms from American companies, or forced technology transfer to Chinese firms by using market access as leverage; secondly, the Chinese government has been subsidising Chinese enterprises generously, which led to over capacity, oversea dumping, and therefore, lower price in the global level; thirdly, the Chinese government impeded or restricted the free flow of Internet data, which caused about USD 400billion for American companies operating Chinese soil; and lastly, China limits market access against American companies in areas such as telecommunication, credit cards, and movie industries.

From a purely theoretical point of view, all these allegations of “unfair” dealings make sense. The economic textbooks assume that free trade is undertaken with fair market competition. In a fair and effective market, there needs to be protection of intellectual property rights, no discrimination towards different enterprises, no restrictions on market access, and no restrictions on market access by constraining data flow. Regarding these principles, even the freedom-championing Chinese government would concur. However, the problem lies in the authenticity of these accusations; or if these accusations are true, they are likely to be exaggerated as an excuse for protectionism. I think the latter scenario makes more sense.

After four decades of reform and opening-up, China has become a market economy basically, though not completely. The Third Plenary Session of the 18th Communist Party of China (CPC) Central Committee stipulated that “the market should play a deciding role in resource allocation”, which indicated that the Chinese government would carry on marketisation reforms in order to eliminate bad practices and regulations that go against market economy principles, such as infringement of intellectual property rights, discrimination towards different enterprises, restrictions on market access, and limit on the free flow of data, etc.. In this sense, what the US is accusing China happen to be the targets of China’s reforms. They go hand in hand. If the US government has no other schemes, by correcting these wrongs, the Chinese government would not only dodge the US’ accusation, but also benefit itself. Why? Because a complete market economy is good for China.

In the area of intellectual property rights, China is joining the global leaders. Even though the quality of the patents filed needs to be improved, the number of patents ranks No. 1 in the world. Main industries in China has developed to dominate in the world market by scale and technology, most of which relies on self developed intellectual property rights. We can not rule out the fact that there might be particular Chinese firms “stealing” technologies from other countries, or there might be forced technology transfer in a joint venture. But this does not constitute strategic technological advantage. Therefore, it cannot be Chinas national strategy, either. Concerning China’s national interest, enhancing the protection for intellectual property rights, instead of weakening it, would benefit China’s economic growth. If this protection goes beyond the national level into the global level, it implies that intellectual property rights of Chinese firms’ should also be protected overseas, just like that of all other firms from other countries. Therefore, the global system of intellectual property rights needs to be defended so that China’s intellectual property rights are respected beyond its borders. Hence, preventing technology thefts and not forcing foreign companies to hand over their technologies for market access would benefit China, instead of harming it.

When it comes to government subsidies, we are talking mainly about government subsidies for state-owned enterprises. There are two types of enterprises, state-owned and private-owned, in the targeted steel and aluminium industries by the US. These two types of companies are competing. Private-owned companies are impossible to be government subsidised, whereas state-owned enterprises are heavily subsidised. With these subsidies, they would never have survived thanks to their low efficiency. Besides, these state-owed enterprises also occupy government-owned resources. For example, Aluminum Corporation of China Limited(CHALCO) is nicknamed “King of Loss” as a state-owned enterprise that has been making a loss for eight consecutive years with a total volume of RMB 45billion. It lost RMB 16.2billion in 2014 alone, and got government subsidy of RMB 823million. In fact, state-owned enterprise get more than subsidies that are shown in books. Almost all state-owned enterprises enjoy subsidies for using state-owned land for free, and subsidies for getting low interest rate loans. According to a Unirule research, the net asset rate of return in face value of the state-owned and state-controlled enterprises in 2001~2013 was 9.08%, while the real rate of return after deducting the underpaid land rent, cheaper interest rate loans, and royalties for free use of natural resources was -3.67%. That is to say, all of them have been making a loss in their business operations.

These constitute the major reasons for overcapacity in China’s steel and aluminium industries. In these two areas, it is impossible for private-owned enterprises to over produce, since once they do so, they will lose money till they go bankrupt. However, it is another case for state-owned enterprises that tend over produce thanks to free use of land, low interest rate loans, and government subsidies. Therefore, the overcapacity in steel and aluminium industries is not only a global trade issue, but it is first and foremost a market issue in China. Hence, one of the priorities for initiating the supply side reform in 2016 was to cut overcapacity, which also implied reducing state-owned enterprises’ capacity. However, due to the strong government backing for the state-owned enterprises, the task of cutting overcapacity only affected SOEs slightly, and in many localities, it was the private enterprise with little government backing that got squeezed. In doing so, the policy of cutting overcapacity resulted in counterproductive effect, constraining the capacity of private enterprise even more.

In this light, undertaking SOE reforms is the only way to solve the overcapacity issue, and the ultimate goal should be that all SOEs withdraw from profit making areas. Firstly, the monopolistic privileges and government subsidies for SOEs should be cancelled. If we consider free use of state-owned land and getting access to low interest rate loans a low price monopoly for the buyers, then it is quite the type of “administrative monopoly” that the report of the CPC’s 19th party congress resolved to “break”. So, what the US requires actually matches the reform object for China’s domestic need. The overcapacity issue of China’s steel and aluminium industries can only be solved by letting those loss-making companies retreat from the market in a fair market competition where there is no government subsidies. If administrative monopolies and government subsidies are canceled, not only would the overcapacity issue for the steel and aluminium industries be solved, but it would also accelerate the macroeconomic growth. I once estimated that if the real loss of SOEs were zero, giving the total net asset of SOEs(financial and non-financial) was RMB 5.2billion, there would be an extra 3.3% annual GDP growth rate.

Similarly, it would also benefit China to allow the free flow of data. Chinese government is concerned with cyber security and it is absolutely right to stress the cyberspace sovereignty. However, the Internet authorities are expanding their powers thanks to the lack of constraints in the Cybersecurity Law. It is weakening and violating Article 35 of China’s Constitution and also shrinking the digital space in people’s everyday life and work. For instance, without VPNs, scholars cannot access foreign academic websites, such as Google Academics, which is purely non-related to politics. Tourists cannot use Google Maps, or other commercial websites, such as Amazon and Airbnb. Some even cannot visit the websites of Chinese embassies. Needless to say Internet regulations without constraints is in fact suppressing criticism of the government departments and exposures of corruption, which harms the Chinese society deeply. It would also influence the normal life and work of foreigners and foreign companies that are on Chinese soil.

The Fourth Plenum of the 18th CPC Congress emphasised “rule of constitution” that guaranteed the protection of citizens’ constitutional rights. It means Article 35 of the Constitution should be ensured. Article 12 of China’s Cybersecurity Law also stipulates that “The state shall protect the rights of citizens, legal persons and other organizations to use the network in accordance with the law… and guarantee the orderly and free flow of network information in accordance with the law.” In fact, the Chinese government has made certain adjustment recently. In my experience, some of the once hard to access websites are easier to access now, including Google Translate, Amazon, Airbnb, some academic websites, and some news websites, such as the CNN, etc.. This indicates that the Chinese government knows about the damage such constrained data flow by the Firewall has been doing to the country. Besides, in an era where there is such advanced information technology, the certain authorities cannot expect to have their goals met. China’s Constitution and other laws, and the the government’s recent adjustment, do not fall far from the US’s plea to allow free flow of data. All in all, the free flow of information is even more important than free trade, because the uninterrupted exchange of ideas will allow China to better stimulate technological and institutional innovation.

It is slightly more complicated when it comes to free access to market. Telecommunication and banking are administrative monopolies in the first place. Therefore, the first step to take is to break the administrative monopoly in these industries, and open the market to private enterprises. This is also the reform goal of China’s recent efforts. The 19th CPC congress proposed to “fully apply negative lists for market access, eliminate regulations and practices that hinder a unified market and fair competition, and support the development of private enterprises… ” besides “breaking administrative monopolies”. In 2018, a market access negative list has been put in place. In this list, there is no entry restriction for commercial banks and telecommunication basic operations, therefore, all market players, including Chinese private enterprises and foreign ventures are allowed in the market. Mr. LIU He, Vice Premier of China, also said at the Davos Forum that the Chinese government was going to open the financial industry this year. However, there is restriction for market entry in the film industry, which is mainly an ideological concern. It is because of this concern, that Chinese movies as a category of arts lack international competence. If such restrictions are removed, Chinas film industry will surely showcase its capacity in China, and it does not have to fear competition from Hollywood.

Most of the recent commentaries on the “Sino-US Trade War” focus on the “war” too much. Taking a look at China before it joined the WTO, and considering China’s WTO negotiations, we realise the better way is to “talk” instead of “war”. By negotiating, a win-win or a better institutional equilibrium will emerge when countries deal with conflicting interests. WTO rules require China to lower its tariffs and open its domestic market, which made Chinese people believe “wolves were coming” and Chinese companies would be no match for their foreign competitors. However, thanks to the market reforms after joining the WTO, Chinese are inspired to be entrepreneurs, and Chinese companies are winning grounds in the domestic market while China’s achieving surplus in global trade. Foreign companies also expand their profits thanks to China’s market scale. In this background, we see the four decades of Chinese miracle, which also made China confident as it is today. Faced with US pressure, the Chinese government responded reciprocally with caution. It is more important to use this opportunity and promote further reform, open the domestic market, and eliminate, once and for all, the “excuses” that the US is starting a trade war with China for. Doing so is much less risky than when China’s was seeking to join the WTO years ago.

What would be if China removes the bad practices and regulations that are against the market economy principles, such as canceling subsidies and breaking monopolies? The Chinese economy will grow faster, and it will be more competitive in the global market. Then, will China’s trade surplus decrease? No, it will only get bigger. The reason is, even with the government subsidies and cheaper resources, the Chinese SOEs are less efficient, and the average cost for them is still higher than those private enterprise that are without government subsidies. For instance, when CHALCO was losing money in 2016, its private-owned competitor China Hongqiao Group’s shareholders got net profit that amounted to some RMB 5.1 billion. In the steel industry, for the first three quarters of 2016, the margin of profit for private enterprises was 3%, much higher than the average 1.73% of the industry. If the administrative monopoly is broken, e.g., if we break the banking monopoly, the interest rate difference between deposits and loans for commercial banks would be 0.5%~1% lower; if we break the oil and gas monopoly, the retail price before tax for gas will be 21% lower(according to 2015 data); the cost for resources for the whole economy would become lower. Therefore, if the Chinese government keeps the market reforms alive, phasing out SOEs, and replacing them with more efficient private enterprises, with the lower resource cost, these private enterprises will be more competitive in the global market, which would potentially increase China’s trade surplus to the US.

Does this go against President Trump’s goal of cutting the USD 100billion trade deficit? I fact, we need to remember that President Trump is a businessman who’s used to bargain, as a conventional strategy. As mentioned above, he was saying that to his constituents, and he did not mean what he said. In fact, keeping a certain level of trade deficit is good for the US. Why so?Because in a general sense, the US does not run a deficit if we take the US dollar as a commodity. In fact, the US dollar is a more profitable commodity. Accordingly, printing one 100 dollar bill would cost 4 cents, and the rest of that bill’s worth is called Seigniorage. In addition, in many cases, big volumes of trade does not require cash, but numbers in the book, and the seigniorage is much higher. Even with the other cost of keeping the facility needed for maintaining the whole currency system in the US, that cost must not be more than 20%. There is no other single commodity that has a profit margin of 80%. Isn’t it a good business?

Of course, this income is not the only income the US government gets, and it is not the income of private enterprises. However, it is not difficult to transfer this big amount of seigniorage to the citizens. All that’s needed is to lower the tax rate. In effect, it does not only lower the tax burdens by the same amount in US dollars for the enterprises, but it will stimulate private investment, even lead to inflow of foreign investment. The tax reform brought in by President Trump recently is a vivid demonstration. Many American enterprises, such as Apple, and some foreign companies, such as Toyota, has expressed their intention to invest heavily in the US. Where this is investment, there is employment. Is there a better way to “bring jobs back to America”?

However, transferring the benefit of large volumes of seigniorage to the citizens would go against another goal of Trump’s, that is to strengthen its military buildup. Why? Because much of the US defence expenditures rely on the income of seigniorage. In 2016, the defence expenditure per capita was USD 1892, approximately USD 151 higher than the average of other countries. The total defence expenditure of the US is some USD 562.3 billion higher than other countries’ average, which I call the “Empire Cost”. Empirically speaking, this part comes mainly from the seigniorage that the US “sells” through trade deficit. However, the US dollars that have been sold is the obligations the US have for its foreign debtors, so to speak. There are limits when these dollars are used among non-Americans. Therefore, in normal cycles, foreigners uses these hard-earned dollars to buy American assets from Americans. Therefore, we see the trade deficit of the US somehow mirrors the capital surplus shown as below. That is to say, the US retrieves the US dollars through trade deficit in order to maintain balance for the US dollars in the world.

Ever since the 2008 financial crisis, the credibility of the US financial assets decreased, bringing in less capital inflow, and reducing trade deficit. It would require a PhD dissertation to explain the relation between trade deficit and capital surplus, though. As the trade deficit decreased, the income by US seigniorage decreased, too, which can no longer sustain its defence budget.(shown as below) Before 2008, the capital account surplus was higher than US defence expenditure; after 2008, it was lower. This brings pressure to the US financial policy, which explains from the fiscal perspective why under the Obama administration, the US withdrew globally.

To put it in a simple way, since a large part of the national income comes from the seigniorage, and the trade deficit comes from sales of the US dollars, the US fares well fiscally when the trade deficit is large; vice versa. (shown as below) The financial deficit moves to the opposite against the trade deficit. In the chart below, the US ran the biggest financial surplus in 2006 when there was the largest trade deficit; whereas it ran the biggest financial deficit when the trade deficit was at its lowest. Hence, from the financial point of view, a certain level of trade deficit benefits the US.

Defence expenditures claims the biggest chunk of US’s financial expenditure. When the tax revenue and the seigniorage were heavily influenced by the economic environment and the global trade constraints, the defence budget was impacted most heavily. Therefore, Trump’s goal of decreasing the trade deficit goes against his goal of military expansion. Maintaining a fairly large trade deficit is good for maintaining the US military buildup. If the income from seigniorage by trade deficit is transferred to the citizens, it will also limit the military expansion. What’s worth noting is that expanding the military or engaging in military competition will not benefit the US. If the income of seigniorage by trade deficit is used on tax relief, it is essentially good for the US. That is because there is a proper scale of defence budget where its main purpose is to defend the sovereign land and the national interest. When such a budget runs too high, it will distort the behaviour of this country.

With a military that’s too large and powerful, resorting to war to solve problems becomes an easy option. The flaws of the US political institution is there is little limit on its moves towards other countries. And in most cases, misjudgements take place when the current cost and effect analysis overwhelms. That explains the multiple mistakes when it comes to war after the WWII. It is said that when the US government deployed troops to Vietnam, there were only three people who understood Vietnam. In the Iraqi War, massive destruction weapons were not found eventually, but tens of thousands of Iraqi lives and the death of 4500 US soldiers were a result. The US Middle East strategy is a strategy of solving the problems it caused in the first place, which not only destroyed the Middle East, but also involved Europe. In order to deter Iran, the US supported Saddam Hussein; in order to fight against the former Soviet Union, the US supported Bin Laden; in order to counter Bashar al‑Assad, the US created the ISIS. All of them later became US enemies. Perhaps it is because of the excessive military expenditure that these mistakes took place. Therefore, what threatens US security is not the lack of military budget, but the excessive military budget.

With too much to spare in the military, the military-industrial complex achieved what it was set up for; and with this complex, the military budgets grows bigger and bigger. It is the very existence of the iron triangle of Pentagon-military industrial groups-military industrial regions that the US political structure tends to create tension and use force in global decision-making. Originally, the US military expenditure decreased gradually after the Cold War, but with the Afghan War and the Iraqi War, another expenditure that’s up to USD 180 billion for Overseas Contingency Operations(OCO) were added to the normal military expenditure. Therefore, to cut military expenses is to undermine an interest group that takes in interests of war on cost of the national interests of the US. The true interest of the US lies in returning to the balance of global strategy, in order to reduce mistakes. It also lies in joint efforts with other powers of the world to create a peaceful environment for development. It fits the national interest of the US to cut military expenses for tax reforms, and increase the competence of American enterprises.

Therefore, if China keeps its market reforms and trade more fairly with the US, China’s trade surplus will grow even larger; if the US maintains a fairly large trade deficit through fair trade with China and uses the seigniorage in reducing taxes instead of increasings it military expenses, then American investment and employment will increase. If Chinese capital invests in the US due to the lower tax rate, and American capital invests in the Chinese market due to its opening up, the economic bond between these two countries will grow stronger, and a military rivalry is out of the picture. In the long run, the US industries will grow in competence and benefit from the low tax rate, which will reduce the trade deficit. By then, the domestic market of China will be much larger than that of the US, making it an ideal oversea market for American enterprises. Whereas China, with its financial and telecommunication industries maturing through competition, will shift to an economic pattern that balances the trade surplus with a more credible RMB. This is a win-win prospect.

Is it at all possible politically, then? It is. We should understand that Trump’s threat to levy USD 100billion tariffs on Chinese products is a bargaining strategy, waiting for China’s response. Raising the stake is merely for achieving the minimum, instead of the object itself. What Trump wants is a more open and bigger Chinese market. As analysed before the Chinese government has resolved to protect intellectual property rights, break administrative monopolies, maintain fair competition and keep opening up, and it has issued specific rules, regulations, and policies. What the Chinese government needs to do is to speed up this process and implement such measures so that Trump would not feel neglected. It would also look like the Chinese government does all those by its own will instead of under coercion. If this is true, Trump won the trade war before it actually gets started, and a bigger Chinese market is right in front of the eyes of the American enterprises. Trumps also knows the substitutionary relation between military expenses and tax relief, but he pushed reducing taxes in order to cut military expenses as much as possible. Some of his measures come in the form of requiring Japan to shoulder more of military expenses for the deployed US military in Japan, or speeding up the withdrawal of US army from Afghanistan, indicating that he prefers tax reduction than a stronger military. If both parties, China and the US, knows these economic and political interests, the negotiation would not be so difficult.

 

Translated by Mr. MA Junjie

This essay was first published by FT Chinese on Aril 9th, 2018:  http://www.ftchinese.com/story/001077053?archive

Why Economists Live Longer ?/Sheng Hong

Sheng’s note: THis is my speech in last year, I reissue it today again.

茅九十一.jpgA dinner celebrating 91th birthday of Mao Yushi.

 

Why Economists Live Longer?

— Remarks on Mao Yushi’s 90th Birthday Celebration

Sheng Hong

I recall Professor Demsetz once said, economists celebrate their heroes. Professor Mao Yushi is our hero. We don’t normally celebrate him, but today is a special day and we should celebrate him. In two days’ time, January 14th, it will be Professor Mao’s 90th birthday. I am happy to pay tribute to Professor Mao on this special occasion.

Why do we celebrate Professor Mao? We celebrate Professor Mao for his contributions and for his example. His first contribution was his independent discovery of the optimal resource allocation theory, that is, the marginal utility equals the marginal cost, or the marginal profit equals the marginal cost. Some say, this is something discovered by people in the west long time ago, what does this independence rediscovery account for? Of course it matters. The discovery of the same theory in an isolated environment would further prove the universal truth of this theory. On another note, Professor Mao discovered this from his study of the planned economy. Another person, Oskar Lange wanted to apply this to central planning, or “computing market economy”, that is central planners calculating that the marginal cost equals the marginal profit. Professor Mao exceeded Lange and proclaimed that, in the Optimal Allocation Theory, even housewives could do such calculation. Letting tens of thousands of economic entities calculate and make decisions in a decentralised manner, that is true economic liberalism.

Professor Mao’s second contribution is in humanistic economics. He did not stop at the basic economic theories. Different people have different endowment. For example, man and women have different command of violence. If people just pursue the maximisation of their own interest, as homo economicus, there will not be optimal resource allocation, and some will use their advantageous endowment to breach the market rules. Therefore, Professor Mao developed humanistic economics, in other words, “ethics liberalism”. Professor Mao pointed out, in his acceptance speech of the Milton Friedman Prize for Advancing Liberty, “liberalism is about self education, a self-constraint from interfering other people’s liberty.” That is to say, only when those with advantages stop abusing their advantages will there be optimal resource allocation and true liberalism.

Professor Mao’s third contribution concerned the founding of Unirule Institute of Economics by him, a few other economists, and the Daxiang Culture Company. Twenty five years on, Unirule has achieved way over what we initially expected. At first, we only wished to advance economic theories, studies, and development. It’s been much more than that. Unirule has transcended disciplines, cultures, and nurtured its own style and culture, a Unirule Cultural Tradition, indeed. It’s a small tradition. But those traditions that win at last know no size, but only right and wrong. Unirule’s cultural tradition may have a positive influence on the build-up of a new Chinese cultural tradition for the future.

Fourthly, Professor Mao is not a man to talk the talk. Some scholars or theorists may be able to put forward great theories, but they may overlook practice. Professor Mao not only has theories, but also believes in walking the walk. He never overlooks the good deeds no matter how small they seem. He wishes to improve the livelihood of the people by his efforts, especially the less privileged. He created the micro loans fund for Longshuitou Village, which helped the poor people in dire need. He and his friends founded the Fuping Domestic Service School to help those women from the most marginalised and unprivileged conditions.

Fifthly, Professor Mao is a modest man. It’s a modesty deeply rooted in his bone instead a pretended modesty. I remember the first letter that I ever received from Professor Mao ended with “Yushi with regards”. After so many years, he still keeps that ending in every email he wrote to me. It shows that Professor truly believes that he is an ordinary man. Professor Mao is a senior to all of us. He is learned and highly renowned, but he’s not changed by all those things. His modesty is unchanged.

Sixthly, Professor Mao writes concisely. Many of us here today write, but Professor Mao writes in the most clear and simple manner. It is also the most beautiful style. Such a style touches the most souls in the easiest way to get his ideas across. If there were not interference, there were over 20 million followers of his Microblog. His style has facilitated the spread of economic liberalism.

Seventhly, Professor Mao criticises with a good will. Professor Mao never shies back from criticising people or offending others, but he never does that without holding a good will. His criticism is the purest and clearest, without a hint of malevolence. Such criticism is for the correction of one’s deeds and mistakes, which is good for the one getting the criticism, and the society in general. This is also the style of Unirule. We, sometimes, criticise the government or the interest group, which may have come out straightforward. But we have never done so with any malevolence. We only criticise with a good will in heart.

Lastly, I would like to say, we wish Professor Mao a happy birthday and good health. We also believe that Professor Mao will live a long and happy life. Why? Because economists live a long and happy life. Professor Coase had 103 good years, Professor North 95 years, and Hayek over 90 years, too. Why? I think I can explain this with for core concepts of economics.

The first concept is “equilibrium”. Economists don’t believe the more the better, but a proper ratio of different factors, not too much, not too little. That’s the recipe for the best resource allocation. Such an equilibrium among different factors start from the heart and manifests in the balance of one’s heart. Therefore, economists are those with a balanced heart, an inner peace. There will not be imbalance, or extreme emotions. They live longer who have a peaceful heart.

The second concept is “optimisation”. Economists believe there is an optimal solution, a best state. Accordingly, they will find there are flaws in the world, far from perfect. They, therefore, obtain the drive to promote for the ideal world. This gives them a sense of purpose. Professor Mao once said, the “meaning of life” that he finally understood was to “enjoy life”. Did he mean enjoying good food, wine, and colourful entertainment? Obviously not. What he meant was that the process towards an ideal state was enjoyable in itself.

The third concept is “substitution”. When economists say something is not good, they will find a substitution. They would not just claim something is no good without offering a substitution. Getting rid of something bad is sabotage sometimes, while offering a substitution is constructive. Constructiveness is healthy for a society and healthy for a person as well.

The last concept is “marginal”. Marginal means trial and error. Economists don’t believe in once-and-for-all solutions. They don’t expect a super hero falling from the sky and save people from sufferings. Economists believe in step-by-step progress of a society by the collective efforts of the people. That’s because they don’t get disappointed when they don’t hold false faith in the arrival of an ideal society out of the blue. Economists would rather trust in their little but concrete progress day by day that improves the society. They would also take joy in such small steps forward.

Therefore, economists are peaceful, content, healthy, joyous to live a long life. Professor Mao is having a long and happy life. Please join me in raising your glass and wish Professor Mao Yushi a happy birthday, and a long and happy life!

 

This speech is translated by Ma Junjie

On the Sumu Mountain / Sheng Hong

Spring awakes a wood,
In Autumn there will be a hundred red leaves ;
Ice is not yet melted in Summer,
After frosting we still hear sound of water.

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Note: English is not my mother language. As a practice, this poem is translated from my poem in Chinese: 在苏木山上。 I hope the experts who master both English and Chinese to offer me some suggestions.

苏木山2 (2).JPG

春苏一株木,秋来百叶红;
入夏冰未消,霜后闻水声。

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苏木山 (143).JPG

September 29, 2019

Return to Classical Civilizations / Sheng Hong

雪梅.jpg

Return to Classical Civilizations
——My New Year’s Wish

Sheng Hong

The “civilization” here refers not to the modern civilization, but to the classical civilizations, especially the civilization formed in the Axial Age. Isn’t modern civilization more “advanced” and “brilliant” than classical civilization? Why return to classical civilizations?

Classical civilizations originated from the beginning of humanity. When human beings waken up from barbarism, they lighted their eyes with wisdom, saw the causes and consequences of their unconscious actions for tens of thousands of years, and realized the simplest principles of civilization, which were simple and basic. Moses said, “You shall not kill”; Laozi said, “The bestness is like water”; Confucius said, “Do unto others, as you would have them do unto you”; Buddha said, “There is no certain law”; Liu Bang said, “The killers should die, who hurt people and steal should atone for their crimes”; Jesus said, “Blessed are the merciful, for they shall be shown mercy.”

These principles of civilization are the basic and universal rules of the world, and they are simple and easy to implement, thus creating brilliant classical civilizations of mankind. It is the success of these principles of civilizations that brings them respect, development and borrowing. In order to understand the classics of civilizations, there are many interpretations of the classics in later generations, many of which are very successful, but at the same time, they leave space for misinterpreting the classics and even smuggling private goods. In this process, the principles of civilizations are wrapped in luxuriant culture and complicated religious rituals, which makes people lose sight of the original principles of civilizations, and even lose themselves in the “theory” of high mystery.

When people get lost, the best way is to go back to the starting point, so now we should always review the principles of civilizations left by our ancestors. The disaster of the modern world is far greater than that of the past history of mankind, which is caused by the deviation from the principles of classical civilizations. Moreover, making money in the name of worshiping saints, misleading the believers’ minds pursuing the spirit of heaven to fall into the path of lucky superstition. Therefore, to get rid of the fog and return to the source is the most simple and clear answer.

Some people ask, can classical civilizations be superior to modern civilization? The answer is that the reason why classical civilizations are superior to modern civilization is that modern civilization has developed on its basis. If modern civilization has the most superior civilization performance, it is because it is rooted in the principles of classical civilizations; if modern civilization has brought unprecedented disasters to mankind, it must have deviated from the classical civilizations. On the other hand, we cannot prove that the superior performance of classical civilizations is based on the cultural gene derived from modern civilization, nor can we guarantee that classical civilization can be developed from modern civilization.

In fact, the principles of classical civilizations are the bottom line of human civilization. It is possible for modern people to break through it with “modern methods”. For example, for “You shall not kill”, the modern people can make up “nationalism” or “sectarianism” reasons for killing; for “The bestness is as water”, the modern people can use “Leviathan” to subvert; for “Do unto others, as you would have them do unto you”, and “Blessed are the merciful, for they shall be shown mercy.”, modern people can counter against it with “class struggle”; for “There is no certain law”, modern people can use “planned economy” and “compilation of laws” against it; for “Who hurt people and steal should atone for their crimes “, modern people can “perform their duties according to law” to exempt For these, we are determined to focus on the way back to classical civilizations and stick to the bottom line of civilization. Otherwise, we are not civilization.

Classical civilizations also show the most simple and unadorned beauty. People have a dignified manner and elegant diction. The Book of Songs, the Psalms of the Old Testament, Song of Songs, Greek dramas, Mahabharata, etc., are still the acme of beauty that cannot be surpassed today. I remember He Huaihong said that even if Zhou people are useless, at least there is one thing to defend themselves, that is, they are elegant. Most of the diplomacy between countries was poetry response; even when the two countries are at war, they use poems from the Book of Songs to exchange blows. By contrast, how can we not be ashamed of our complacent vulgarity today?

To return to civilization is to worry about breaking through the bottom line of civilization; to return to civilization is to safeguard the conditions why we are civilized people today; to return to civilization is to break all the concise methods of claiming to be “brilliant and mysterious”; to return to civilization is to live gracefully again.

February 19, 2019,simultaneous published in China-review.com and FT Chinese

Why is the Rule of Law a “First-order Macro Policy”? / Sheng Hong

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Concerned with China’s current economic downturn, there are a lot of discussions on macro policies. These discussions are mostly based on macroeconomics and put forward various suggestions on macro policies and their means. However, if we notice that macroeconomics is based on the hypothesis of market system, we will know that if the market system and its premise are not guaranteed, macroeconomics is based on the sand beach, and the discussions based on macroeconomics are meaningless.

For example, the market system is based on the property-rights institution. If the property rights are not protected, the market system is not efficient. Because the core rule of market is competition rule, economics has proved that competition without property rights is inefficient. I have quoted Professor Steven Cheung’s research. He found that in the fishing ground without delimitation of property right, fishermen can enter freely, but with the increase of the number of people entering, the rent value of fishermen (the part of fishing income higher than the social average wage) will be reduced to zero. When commenting on Taiwan’s “375 Rent Reduction” in his The Theory of Share Tenancy, Cheung said that if the rent reduced by the landlords is not transferred exclusively to the specific tenants, the tenants can freely compete for the benefits of rent reduction, and the rent value will dissipate in the competition. In his paper “The Theory of Contract Structure and Nonexclusive Resource “, Professor Steven Cheung concluded that if there are no exclusive property rights for a bounded resource, people will enter freely to compete for the rent value brought by this resource until the rent value dissipates to zero (Steven Cheung, 1970).

Of course, in concrete situations, the state of property rights is not either 100% protected or unprotected, but mostly in the middle. I have used this theory to analyze the property rights of state-owned enterprises in China, and found that this is a kind of “property rights” which has some exclusiveness in a certain period of time and cannot be maintained forever, and outsiders always want to come in and fight for it. Thus, this kind of property rights has evolved out the existing institutions of state-owned enterprises and its complicated and tortuous senior management strategy and tragic outcome. This theory also applies to private enterprises, but the specific situation is different. The problem of property rights faced by private enterprises is security. This refers to both the security of property rights and personal safety. For example, private entrepreneurs would suddenly be jailed, and their property would be “auctioned” at low prices, such as Wu Ying; they would even lose their lives without due process of law, such as Zeng Chengjie; they wouldl be put in prison without any reason, and acquitted 12 years later, but they would lose good opportunities for market development and good prime time, such as Zhang Wenzhong; there are other well-known entrepreneurs, such as Gu Chujun and Mu Qizhong.

More common are unknown businesses and entrepreneurs. In summary, there are several aspects. The first is that without due process of law, entrepreneurs are arrested, enterprises are forced to stop operation, or enterprises’ properties are forced to be “auctioned” at low prices; the second is that enterprises’ properties are forcibly collected by the administrative departments of the government; the third is that all administrative departments violate the Constitution and the Legislative Law, arrogate legislative power, formulate strict regulations, and carp enterprises in an all-round way, and impose severe punishment on tiny errors; fourth, when the administrative department of the government changes its policies, it completely denies the property rights of the private enterprises that do not conform to it, and denies the previous decisions and commitments of the government; fifth, the local government, after attracting enterprises’ investment with preferential policies, repents when it sees more profitable opportunities, and does not bear the liability for breach of contract compensation, or breaks the contract with very low “compensation”; and sixthly, to carry out law enforcement in a way of movement, in fact, is to blur the legal boundary with nonprofessional words, and thus to excuse not following the due process of law, the higher level government stipulates quantitive standard of the movement, and the lower level government, in order to achieve the standard, does not hesitate to wrongly accuse entrepreneurs and shut down enterprises.

In recent years, the cases of property rights and personal injury to entrepreneurs have increased unabated, which have caused a major blow to private enterprises and cannot be retrieved. What’s more, the fact of these injuries has formed the general view of private entrepreneurs, that is, their safety is not guaranteed, thus forming the depreciation expectation of assets. The value of an asset lies not only in its physical characteristics and use value, but also in its security. The market value of the same material assets can vary greatly with different security. Assuming that there is an enterprise with an average annual net profit of 10 million yuan, its net assets or shareholders’ equity can be estimated to be 100 million yuan at 10% return rate on net assets; its market value is about 250 million yuan at 4% discount rate; and its sales volume is about 200 million yuan at 5% net profit rate of sales. If the security of the property rights of the enterprise is not guaranteed by law, there may be 30% probability of loss, then the market value of the enterprise will be devalued by 30%, about 75 million yuan. If the legislature reduces the value-added tax by three percentage points, it will reduce the cost of the enterprise by about 5.2 million yuan; if the central bank reduces the basic interest rate by one percentage point, and if the loan amount of the enterprise is 100 million yuan, it will reduce the interest cost of 1 million yuan. However, for the 75 million yuan of asset value devaluation caused by the decline of security, 6.2 million is less than 1 / 10 of 75 million. As a rational person, will he be encouraged by such trivial 6.2 million yuan to continue production or increase investment, and ignore the loss of 75 million yuan?

Therefore, property right and personal safety are the first-order variables of macro-economy, while tax rate and interest rate are the second-order variables. The so-called “first order” and “second order” borrowed mathematical concepts. Intuitively, the first derivative of distance to time is velocity, and the second derivative is acceleration. From the absolute number of view, the second derivative is much smaller than the first derivative, about 1 / 100 ~ 1 / 10 of the latter. If the speed of 100m race is 10m / s, the acceleration of sprint is about 0.5m/s. The first-order variable determines the basic trend, while the second-order variable only increases or decreases on this basis. Therefore, when the first-order variables have obvious influence on things, the second-order variables can be ignored. Only when the first-order variable is suitable and stable, the second-order variable can play an important role. It is used to describe economic variables. If the human rights and property rights security of private enterprises are not improved significantly, all macro policy variables based on Western macro economics will not be useful. If you say to a person who is in critical condition, “cabbage price has been reduced”, it will not help his health.

This has been proved by the reality since this year. Since the two congresses this year, the Chinese government has implemented a large-scale tax reduction. The value-added tax in the manufacturing industry has been reduced by three percentage points, the transportation and construction industries by one percentage point, and other expenses have been reduced. The government claimed that the tax burden has been reduced by about two trillion yuan. However, China’s economic growth has not improved. Although the National Bureau of Statistics said GDP grew 6.2% in the first three quarters of this year, the Keqiang index was only 3.8%. And since the inflation rate published by the National Bureau of statistics is about 3.8%, the actual economic growth rate is about zero. Taking a look at the situation of two expensive commodities, automobile and real estate. According to the National Bureau of Statistics, the sales volume of completed commercial housing decreased by 10.6% year on year in October this year, and the sales space decreased by 20.4%. This downward trend has lasted for 21 months since February last year; the sales volume of housing for business reflecting the degree of economic activity decreased by 13%. Since July 2018, automobile production has been declining for 22 months. By October 2019, the cumulative year-on-year growth rate is – 14.8%. Commercial housing and automobile not only become the landmark products because of their high price, but also affect the overall economic situation because of their comprehensive and ripple effect.

Figure 1 Sales space and sales volume growth rate of completed commercial housing (%)first order.jpgData source: website of National Bureau of statistics.

Figure 2   Growth rate of automobile output (%)first order2.jpgData source: website of National Bureau of statistics.

Of course, we should also see that the tax cuts promised by the government are not really in place. According to the Ministry of finance, by October this year, the general public budget revenue increased by 3.8%, similar to the Keqiang index; if inflation factor is excluded, the growth rate will be zero, which is still the same as the national economic growth estimated above. This means that the macro tax rate has not been reduced. If we consider that the revenue of government funds has increased by 8.7% year on year, and that the government expenditure is still high, the expenditure of general budget has increased by 8.7%, while the expenditure of government funds has increased by 22.6%, we will know that the proportion of government controlled resources in national income is still rising. The deficit thus expanded needs to be covered by the issuance of government bonds or additional currency (i.e. inflation policy). According to Ricardo equivalence, the government bonds issued are equivalent to increasing the tax burden of future generations, while inflation is directly taxing the people, which still represents the increase of the proportion of government resources occupied. Nevertheless, government tax cuts remain a positive factor, as they at least stem the sustained rise in macro tax rates in the short term. The central government also realized that the tax cut at the beginning of this year was not enough to stop the economic downturn. Mr. Li Keqiang proposed to continue the large-scale tax cut.

It’s a good thing to continue to reduce taxes, but as mentioned above, tax reduction is only a second-order macro policy, which can’t change the current basic trend of China’s economy. One of the most important phenomena is that when the government announced a large-scale tax cut in a high-profile way, China’s total investment has become a negative growth and continued to decline. According to Dacheng Enterprise Research Institute, by September 2019, the national investment growth rate has been negative 4.6%, among which the investment growth rate of private enterprises is negative 12.2%. This clearly shows that even if the central government tries to promote economic growth, people are lack of confidence in the future, especially private entrepreneurs. They are not mainly lack of confidence in macro policies, but more importantly, lack of confidence in their property rights and personal security.

Figure 3 investment growth ratefirst order3Data source: Dacheng Enterprise Research Institute, “Stability and Advancement of China’s Economy, Private Enterprises as the Backbone”, 2019.

There is a lot of evidence to support this judgment. In The Report on the Environmental Index for the Survival and Development of Private Enterprises in China (2016 / 2017), the scores of personal safety and property safety are 7.75 and 7.32 of the 10 point system respectively, which means that entrepreneurs believe that they have a 22.5% probability of personal safety risk and a 26.8% probability of property safety risk. Considering that the harm of personal safety risk is far greater than that of property safety risk, and there is no property safety without personal safety, the 30% probability of property insecurity as in my previous words is rather conservative. According to an expert with long-term observation and study of private enterprises, by 2019, the security problem of private enterprises is not improved, but worsened.

Figure 4 Sub scores of national environment index for survival and development of private enterprises (2016-2017)first order4.jpg

Source: Research team of China entrepreneur research center, The Report on the Environmental Index for the Survival and Development of Private Enterprises in China (2016 / 2017), 2017.

Since there are dangers, there would be actions to avoid them. The possible actions that entrepreneurs feel insecure are investment and emigration to overseas. An entrepreneur with a market value of 250 million yuan is willing to transfer assets at a cost of up to 75 million yuan if he estimates that his property rights will be seized at 30% possibility. Of course, enterprises with larger market value have more motivation and ability to transfer assets. In the above report, 57% of the entrepreneurs interviewed in Zhejiang Province have already or are ready to immigrate overseas, 52% in Jiangsu Province and 27% in Sichuan Province. Since last year, the wave of emigration has been more turbulent. According to Afasia Bank and New World Wealth, there were 15000 rich Chinese immigrants in 2018, up 50% year on year, ranking first in the world. According to Hurun Research Institute, from July 2018 to September 30, 2019, the top 30 richest people in Hurun’s ranking list cashed in a total of 91.85 billion yuan, the most in the past years. This can also be seen from the rapid growth of foreign investment of private enterprises. According to China’s foreign direct investment statistics bulletin, in 2006, non-state-owned enterprises accounted for only 19% of the stock of foreign direct investment, and by 2018, the proportion had reached 52% (Ministry of Commerce, etc., 2007-2019). This certainly includes the business calculation of private entrepreneurs, but there is no doubt that their business calculation includes the consideration of asset security.

The main reason for the personal and property insecurity of private entrepreneurs is that the legal environment in China is still very poor. In the above “Sub score of environment index for survival and development of private enterprises (2016-2017),” judicial justice “only scored 4.2, and its related indicators such as” dependency of public power “,” source of government power “and” government power infringement and checks and balances “scored 2.28, 2.50 and 0.55 respectively, which can be described as” extremely poor “in terms of the 10 point system. Therefore, the insecurity of private entrepreneurs is not mainly from other citizens or enterprises, but from the government administration. The main reason is that the power of these departments has not been effectively constrained, and the judicial system cannot get rid of their interference and independent trial according to law, or even become a tool for administrative departments to infringe on enterprises. As a result, it not only cannot become a just judge and protector when private enterprises are infringed, but also make enterprises more likely to be infringed because of its existence.

This kind of “judicial injustice” is not that the existing laws are too harsh on private enterprises. After building legal system during 40 years of reform and opening up, China’s constitution and legal system basically protect the legitimate rights of citizens and enterprises. “Judicial injustice” means if the administrative department and the judicial department do not follow the due process of law and cannot make a fair decision according to law, the parties have no means of relief, so that people cannot have a general expectation of litigation according to the existing law. People can adjust their behavior without violating the laws if the laws are just strict but can be followed, but if the due process of law is broken, the court’s ruling is not neutral, the unjust cases are frequent or the sentence is excessive, then people will not know what is the legal criterion, and they will not be able to judge what can avoid the disaster of imprisonment, and they will not know how to be safer, and could only fear the whole judicial system. The sense of insecurity comes from the uncertainty and fear of that law enforcement does not enforce the law but may have other purposes. If the law is followed, there are general expectations; if it is not followed, there are numerous possibilities, including the worst.

Some people will say that in recent years, political leaders and the central government have been emphasizing the protection of private entrepreneurs, and have introduced some judicial reform measures specifically aimed at private entrepreneurs. Why does the rule of law environment not improve, but worsen? In 2014, the Fourth Plenary Session of the 18th CPC Central Committee has put forward the task of rule of law; after that, the Supreme Court issued “The Opinions on Equal Protection of the Non-public Economy in Accordance with the Law to Promote the Healthy Development of the Non-public Economy”. In 2016, the CPC Central Committee and the State Council issued “The Opinions on Improving the Property Rights Protection System to Protect Property Rights in Accordance with the Law”, which pointed out that “the use of public power to infringe private property rights, illegal seizure and freezing of private enterprise property and other phenomena occur from time to time”, and required “equal protection of various market agents. We will increase the criminal law protection of non-public property.” After Mr. Xi Jinping held a symposium on private entrepreneurs in November 2018, the Supreme Court and the Supreme Procuratorate proposed “Carefully not to catch private entrepreneurs and not to frozen their properties”. There are many well-known entrepreneurs, such as Gu Chujun, Zhang Wenzhong, Mu Qizhong and so on, whose cases have been or will be retried, some of whom have been rehabilitated or have received mitigated punishment. In 2019, the Supreme Court abolished 103 judicial interpretations “for protect private enterprises”. We cannot say that they are not sincere, and their actions are not big.

So why didn’t it seem to play a big role? First of all, these measures have the obvious characteristics of emergency for the current utility. For example, the 2016 document was largely to cope with the decline of investment growth rate of private enterprises in that year to – 1.2% in July; the symposium in 2018 corresponded to the significant decline of economic growth in that year, and recognized that private enterprises were the backbone of China’s economy. However, since we see the utilitism of these measures, it is difficult not to doubt the stability and sustainability of these measures. Because if the situation improves, it is not so urgent to protect the property rights of private enterprises, it is possible to return to the road of infringing the property rights of private enterprises. To invest, long-term calculations are needed. This is exactly what entrepreneurs have learned in these decades. At the beginning of the reform in the 1980s-1990s, the government gave more care to the private enterprises, but since the 2010’s after the private enterprises developed, the infringement on the private enterprises occurred frequently and became more and more intense. This is jokingly called the process of “raising pigs and killing pigs”. Who knows that the current protection measures are not “raising pigs”?

Second, a government that only emphasizes the protection of some people is not sincere enough. Because “the law is just” has two meanings. One is that the law fairly adjudicates every lawsuit; the other is that it fairly treats all people. So the law protects everyone in this society. As long as one person’s rights are violated, the government must protect them. If we only protect the big profitable enterprises, but not the pancake stand, it is obvious that it is only for the current achievements, not for all citizens to provide equal judicial services. The slogan “carefully not to catch private entrepreneurs” seems to be a special favor for private entrepreneurs, but the implication is that “can catch other people carelessly”. This is still a threat to private entrepreneurs. Because an entrepreneur is a person living in the society not only by himself, he has his own family, children and friends; he is not only a professional who produces GDP, but also needs to live, consume, travel and financial investment in the society. If his relatives and friends can’t get the normal protection of the law, if the house he lives in is threatened to be demolished like Xiangtang’s house, if his children is inoculated the fake vaccine and can’t be rescued, his financial investment is swept away by the financial platform and can’t be recovered, what’s the use of just protecting him and his business?

Third, all these measures are one-way. Take a closer look at the subject of these documents or “opinions”, which refer to the administrative departments or judicial departments of the government, rather than the structure formed by the interaction of all parties as the legal judicial system of our country. If the implementation of protection is only one-sided, then the “carefulness” of “carefully catching and carefully frozening” only lies in the minds of officials. There is no external standard for what is “carefulness” and to what extent, it is only up to them. Even if “carelessness” is not a mistake or even a crime, it is at most an ignorance; then this kind of “protection” is only based on fragile hope. If we really implement the rule of law, we must really implement the judicial structure and procedures stipulated by the Constitution and laws of our country. We must first let the infringed citizens or enterprises directly use this judicial system. First of all, it means that their lawsuit can be accepted. Up to now, we have seen that many enterprises were infringed by local governments and their lawsuits didn’t be accepted by local courts. They were improperly arrested or sealed up, but they could not get the help of lawyers immediately according to law, and they could not correct the mistakes of law enforcement personnel according to law; even sometimes, their lawyers would be threatened.

Fourth, these measures do not have priority when they conflict with other legal or policy documents. These documents protecting private enterprises are mostly called “Opinions”. According to the Legislative Law, “Opinions” are not within the scope of laws and regulations at all. In the process of implementation, if there is another policy document in conflict with it, it will also give priority to those documents. For example, the campaign of “eliminating black and evil”. As long as an enterprise and its entrepreneurs are regarded as evil forces, any “Equal protection” or “Carefully catching and careful frozening” can be forgotten. Another priority over the property rights of private enterprises is the environmental protection policy. Once the short-term goal of environmental protection has been set, enterprises should be forced to move or dismantle (such as pig farms), at least more expensive equipment or raw materials (such as changing coal to gas) should be used, or environmental protection facilities are over requered to hinder the normal operation of enterprises. In fact, there is almost no government regulation that is no “priority” over corporate property rights. A frankly-speaking entrepreneur Cai Xiaopeng once said an extreme example: an enterprise was fined 20000 yuan by “water saving office” for seven drops of water leaking from a tap every minute.

Fifth, there is no fair punishment for those who violate due process of law by using public power to infringe upon citizens and enterprises. Obviously, many cases of infringing the property rights of private enterprises are the “active attack” of administrative officials. “If there was no intervention and influence on judicial justice, no police, procurator or court will make the original judgment on me, and such a major wrong case which can be seen by any non legal professional,” Zhang Wenzhong said. In Professor Xu Xin’s Defense of Innocence, there are some cases where law enforcement officers want to use public power to extort corporate assets (such as the case of Chang Yuxian), or revenge for their own interests (such as the case of Tao Hongyong). The Supreme Court has corrected the injustice of some entrepreneurs in the past one or two years, and seemed to have made a great gesture of protection. But the purpose of redressing the injustice is not only a case, its long-term goal should be to avoid the recurrence of such injustice. Up to now, even the most famous case, Nie Shubin case, has no any person to bear criminal responsibility. Who can guarantee that similar cases will not happen again? If after being found, there is no punishment on maliciously abusing public power for personal gain, it is obvious that these illegal officials are encouraged. What’s the harm for them if they infringe upon private enterprises again?

Therefore, since the security of property rights is the first-order variable of macro-economy, implementing the rule of law to protect property rights is the first-order macro policy. Saying rule of law is a kind of “policy” seems to be a bit demeaning. Because the policy has the meaning of “short-term” and “contingency”, and the principle of rule of law is long-term and stable. However, it seems to us that the effective principle of the rule of law today might not be recognized in the beginning. Even the formation of English common law was a kind of expedient way for the King to compete with the Lords in the beginning. At that time, the jurisdiction was regarded as a kind of property right. But when we realize that this “expediency” is a long-term principle to bring about social prosperity, we should take it as a basic principle. In our country, the reform and opening up was also a stopgap at the beginning. In 1978, the Chinese government’s finance was almost bankrupt; without the implementation of the household contract system, agriculture was still a burden hindering economic development; without the help of the market, people’s food and clothing could not be solved, and even officials were poor. It is said that when Vice Premier Wang Zhen visited Britain in 1978, he was surprised to find that the wages of British cleaners were six times his.

Today, after we have tasted the sweetness of market economy, we also see that economic depression will be caused by violating the principles of market economy. We should know that it is not an expedient to follow the rules of market economy, especially to respect its premise – property-rights institution. Do not be like that you think of the market principle when you are poor, but ignore it after following it to become rich. Instead, we should sincerely respect and abide by the protection of property rights and market rules as the basic rules of society, as the rules that take precedence over all other rights and public power except the right to life and family. Because as Hayek said, what we call civilization develops on the basis of property rights. The development of civilization is “up on the basis of that spontaneous order of actions which is made possible by the delimitation of protected domains of individuals or groups.” At least in terms of expression, we should gradually change the emergency and specific expressions into general and permanent ones. And that’s not enough to believe. Only when a society is quite rich, some entrepreneurs are even so rich that can be compared with a state to stand up for the principle of protecting property rights, we can say that the government’s credit stands the test.

If we realize that the rule of law is a first-order macro policy, the first thing to do is to be sincere. It is to truly implement the rule of law. Otherwise, nothing will make sense. To do this, we should now say that we have the conditions. First, the CPC Central Committee realized the importance of rule of law in theory. This is reflected in the resolution of the Fourth Plenary Session of the 18th CPC Central Committee. The core content of the resolution is “towards rule of law”, which clearly recognizes that “the vitality of law lies in implementation, and the authority of law lies in implementation.” And emphasize ” to strengthen the restriction and supervision of administrative power, improve the mechanism of error correction and accountability”; put forward operable measures, “to take the effectiveness of rule of law construction as an important content to measure the work performance of leading groups and cadres at all levels, and incorporate it into the performance evaluation index system, and take the ability to abide by the law and act in accordance with the law as an important content to inspect cadres.” And so on. Although these claims have not been effectively implemented up to now, they are still worthy of affirmation.

Second, the pressure of economic depression discussed in this paper. Since the “first-order macro policy” does not improve, the “second-order macro policy” is useless, to improve the first-order macro policy is not an option that can be said well but need not be done in fact, nor a measure that does not need to worry, but an urgent matter. If it is not really implemented, no one can be cheated. Ultimately, the party in power and the central government should bear the responsibility. If the rule of law is not implemented, the security concerns of entrepreneurs will not be dispelled, it will be difficult for them to increase investment or even continue production, and economic growth will further decline to depression. The depression not only means that people’s income will be reduced, but also means that the new labors have no employment opportunities. If the economic growth rate is zero, there will be no employment for 13 million new workers every year. This will increase social tension. If the ruling party increases its efforts to maintain stability in a traditional way, it will not only increase government spending, make the tax reduction plan impossible to implement, but also cause widespread and deepening social uncertain and even unrest. Although I said that the implementation of the rule of law should not be utilitarian, this means that the rule of law should be implemented regardless of economic pressure, but it does not exclude that there will be utilitarian results without utilitarian mind.

If we want to truly implement the rule of law, we need to see that the previous measures have not really implemented the rule of law, but have a new perspective. If the government is the supplier of the rule of law, citizens and enterprises are the demanders of the rule of law. The new perspective is to implement the rule of law from the “demand side”. This means to awaken the demand for the rule of law of the demand side, mobilize the demand side’s initiative in the rule of law, and encourage the demand side to require the government according to the rule of law principle; it also means that the administrative department shall not suppress the rights and initiative of the demand side in the rule of law.

The first is to guarantee the right of all citizens, including entrepreneurs, to complain. If rights are violated, but cannot be said, and others do not know, they cannot be protected. Conversely, the suppression on freedom of civil complaints is more sinful than all other violations. “To defend the crime of Patricide is harder than to commit it”, said Roman jurist Paranian. It can also be understood that the crime of defending patricide is greater than patricide. In the same way, suppressing the disclosure of a crime is worse than the crime. Some people say that, didn’t the central government hold a symposium on entrepreneurs? There are two problems with this view. First of all, this kind of symposium is only for the purpose of publicity. Recently, we saw the speech of entrepreneur Cai Xiaopeng at the entrepreneurs symposium held by Central Commission for Discipline Inspection of the Communist Party of China. It turned out to be 2014. The reason why it’s still spreading wildly is that the problem hasn’t been solved. The second is to think that the central government held a forum for entrepreneurs to think that the complaints of entrepreneurs have a channel out, which is another illusion that the channel problems complained by entrepreneurs have been solved. In fact, it’s better to guarantee their rights of free expression than to hold a symposium for entrepreneurs at the top of the government. As long as they are free to complain, do they need to hold a symposium?

Second, we can’t stop redressing only several major wrong cases of entrepreneurs. In 2016, when the national development and Reform Commission discussed the opinions on improving the property rights protection system and protecting property rights in accordance with the law, I and several other scholars mentioned that “a practical redressing case of is better than a dozen document declarations”. However, we didn’t realize that the case of Deng Xiaoping’s “don’t move a fool’s melon seeds” mentioned at the beginning is different from the present case. Deng Xiaoping said this before things happened. So the “fool”, Nian Guangjiu has not been imprisoned for a long time, and this principle has been promoted to the whole country in time, and no more entrepreneurs have been arrested. But this time, some redressing cased of the entrepreneurs are after these famous entrepreneurs have been wronged. The more famous they are, the greater the bad influence they have been wronged, the more administrative departments they have imitated, and the more entrepreneurs they have been harmed. On the other hand, to pacify a few well-known entrepreneurs will also give people the illusion that all the wronged entrepreneurs in the country have been pacified. In fact, their fame just covers up the grievances of countless unknown entrepreneurs.

So what kind of standard is the standard to judge whether “the rule of law is implemented”? The implementation of the rule of law is certainly comprehensive and involves all aspects, but we can have a general and simple standard, which is to see whether due process of law is followed. Legal due process is a concept of common law, but there are similar due process of law in our legal system. First of all, it is a kind of behavior rule without direct purpose. This eliminates the possibility of using the rule of law as a utilitarian tool, let alone for the malicious purpose of plundering property. Any improper purpose will be exposed in the process of due process of law. Second, due process of law is a specific and detailed procedure. Such as that it requires to be informed before administrative punishment (Article 31 of the Administrative Punishment Law), to be allowed to defend (Article 32), to hold hearing (Article 42); if compulsory measures are taken, the party has the right to hire a defender (Article 34 of the Criminal Procedure Law); no one can be forced to prove his crime (Article 52) ; bail pending trial (Article 61); specific facts for the accusation of violation of law; etc. Some jurists point out that the details of due process of law is a good way to prevent the abuse of public power.

In this way, measures to implement the rule of law will be simple and effective. This is to stand on the side of the demanders of the rule of law and protect their reporting, administrative reconsideration or legal proceedings on the basis of due process of law against the acts of any administrative department or judicial department that fails to follow the due process of law. If the relevant administrative departments or judicial organs do not accept them, the demanders of the rule of law can appeal to the higher level, including the appeal to such inadmissibility. Until the central government. What if the central government doesn’t accept it? Then what I said previously is nothing. But I have assumed that they are sincere. For the public, they should not look at how many grievances have been eliminated by the government, but how many grievances have not been eliminated; how many appeals against violations of due process of law have been filed by citizens or enterprises, especially in the early stage, the more such appeals, the better the implementation of the principle of the rule of law. For administrative departments and judicial departments, the Communist Party of China does not want to “observe the law, act in accordance with the law as an important part of examining cadres”? The specific examining content I suggest is how many cases in their jurisdiction have not followed due process of law and have not been corrected.

Of course, in order to implement the rule of law, the implementation of the due process of law should also increase investment. The simplest way is to transfer hundreds of billions of yuan of funds now spent on improper administrative acts to the construction of the rule of law, that is, to increase the number of judges, to safeguard the legitimate rights of parties and lawyers, to establish circuit courts of the central government, and so on. When the due process of law is followed, the abuse of power by administrative officials will be restrained, and the widespread infringement and corruption will be significantly reduced. At the same time, social concepts will change. People will clearly realize that an administrative act that fails to follow the due process of law is an invalid act, and citizens and enterprises can refuse the requirements of the administrative department; when citizens and enterprises report an act that fails to follow the due process of law, it is a legal act that they protect their rights, and they will become the active demand side of the rule of law. Their demands on the administrative departments of the government for due process of law will, in turn, restrict and change the behavior of government officials, and significantly reduce the active infringement on citizens and enterprises.

Some people say that our judicial system lacks this tradition and it is difficult to meet this standard in the short term. Actually not. China has a judicial tradition of following the procedure and pursuing “no wrong, no Indulgence”. In the Song Dynasty, there was an institution, that is, if the suspect cried out for injustice, they would immediately change to another court for retrial (Zhang Li, Humanistic Spirit in the Judicial Culture of the Song Dynasty (Electronic Edition), Hebei People’s publishing house, 2010, pp. 144-145). This tradition even passed to the Qing Dynasty. The famous case of Wang Shuwen was that after the suspect concerned cried out “wrong”  before his excution, he immediately started the retrial procedure, and finally he was redressed (Xu Zhongming, et al., Who is the Real Murderer, Guangxi Normal University Press, pp. 127-191). This is an example of following the procedure to correct a wrong case. Another example is that the wife herself confessed to kill her husband, but was suspected by officials of the Ministry of Justice, and was rejected for retrial three times (Xu Zhongming et al., pp. 1-43). It’s a good example of not relying on confession to prevent torture. After redressing the “Three Archways case”, Hu Chuanjin, who directly made the wrong case and caused the innocent death of two people, was punished to die, while Hong Rukui, who was responsible for the trial of the case, was dismissed and exiled (Xu Zhongming, et al., pp. 230-231). It’s also a good case of pursuing responsibility for a wrong case. The backwardness of the rule of law in our country, for the time being, does not need to be compared with other countries. First of all, it is thousands of years behind China itself.

Now, however, there is an opportunity for change. Turning an expedient solution to the current problem into a basic principle mainly depends on a long-term vision of civilization. Although human’s limited rationality can’t create a basic civilization rule in advance, it should have the ability to recognize when the rule appears. In the 12th century, Henry II set up the royal circuit court to start the common law process, perhaps just in order to compete with lords for judicial power and increase the royal income. By Henry III, the jurisdiction of the royal court extended to “illegal infringement”, and the accusation of this crime “was considered as an effective way to expose and punish the abuse of power by local officials” (Lin Zhiqiang, Between Autocracy and Constitutionalism, Zhongshan University Press, 2016, P. 88). The trial of “illegal infringement” by the royal court greatly reduced the infringement and corruption of local government officials, and at the same time improved the authority of the royal family. Today, if our government takes the implementation of the rule of law and the protection of property rights as the “first-order macro policy”, and clearly knows that this is not only an urgent policy, but also a long-standing constitutional principle, we can use this opportunity to move towards the road of the rule of law. Its significance will transcend the current economic problems, and it is related to the real rejuvenation of Chinese civilization.

[Note] From January to October 2019, estimation of Keqiang index: the growth rate of goods turnover, 5.4% (weight 25%); the growth rate of money supply (M1), 3.3% (weight 35%); the growth rate of power generation, 3.1% (40%). The Keqiang index was 3.8%.

December 11, 2019 in Fivewoods Studio

December 23, 2019 first published in FT Chinese