President Trump suddenly imposed tariffs on $200 billion of Chinese products to 25%. The Chinese government immediately responded to impose the same tariffs on $60 billion of American goods. Apart from the drastic reaction of the stock markets of the two countries, we heard a lot of shouts for war. It seems that the trade war has officially begun. Both sides are claiming that they can win in this battle. This seems familiar. We have seen a lot in human history. Edward Gibbon, author of The Decline and Fall of the Roman Empire, once said, “History is, to put it bluntly, a record of human crime, folly and misfortune.” The greatest “crime” is war, and what leads to war is “stupidity”, and the result of war is “misfortune”. When a war is over, people often find that compared with the disasters brought about by war, the cause of war is often a trivial matter. For example, World War I. The so-called “stupidity” is the wrong calculation. Generally, people often overestimate their winning rate. The result is that the loser thinks in advance he can win, and the winner thinks he won’t pay too much.
President Trump was wrong in his calculating to impose tariffs on Chinese products. He said tariff increases had no negative impact, but only increased the revenue of the U.S. government. As President of the United States, he seems to have no concept of seigniorage. I have pointed out that if the dollar is also counted as a commodity, the United States has no trade deficit. The dollar is the most profitable of all U.S. exports. If the technical and institutional costs of issuing US dollars are 20%, the profit margin is as high as 80%. If Trump wants to reduce the $200 billion trade deficit by imposing a 25% tariff on $500 billion of Chinese goods, the U.S. government will get $75 billion in tariff revenue (some of which are paid by American citizens), but reduce the $200 billion Seigniorage tax, which is obviously not worth it. What’s more, seigniorage revenue is an additional part of U.S. national income, which can be used to equalize the higher-than-world-average portion of U.S. military expenditure. Reducing the trade deficit means reducing seigniorage revenue, and reducing resources for military expenditure.
Some would argue that the dollars foreigners earn through trade are their creditor’s rights to the United States, not the income of the United States. Perhaps this is where Trump and his economic advisers’ vague understanding of seigniorage. As long as we regard paper money as gold and silver, we know that money is a commodity. Its utility is to facilitate transactions and thus has independent value, which can be seen from the independent value of Bitcoin. This independent value will be recognized as long as people believe it, and insufficient-value money and even paper money can emerge. The advantage over gold and silver is that the seigniorage profit of paper money is very high, and through artificial monetary policy, even a large amount of outflow will not make the domestic money supply insufficient. In fact, the US dollar exported through trade deficit and returned to the United States in the form of purchasing US financial assets, especially US Treasury bonds, enabled the seigniorage revenue to actually allocate resources to the military industry of the country in the form of US government orders to enterprises.
On the other hand, some people in China have made calculations in favor of China. As Mr. GAO Lingyun, Institute of World Politics and Economics, Chinese Academy of Social Sciences, points out, 90% of Trump’s tariffs are borne by Americans and only 10% by Chinese. Even if the algorithm is correct, it is obviously only a simple and comparative static calculation. As we know, the calculation of Chinese as producers is different from that of Americans as consumers. For consumers, if the goods are expensive, they can buy less or not. They can also buy similar products produced in other countries. The more tariff costs American consumers bear, the higher the price of Chinese consumer goods they buy, because there is price elasticity, the less they buy. This will become more pronounced over time. Reducing the total demand for Chinese goods will reduce the orders of Chinese producers. The misleading thing about static estimates is that they only see short-term reactions, such as China’s trade surplus with the United States rising in 2018 without falling, while temporarily failing to see negative long-term results. In fact, by the first quarter of 2019, China’s exports to the United States had fallen by 8.5% compared with the same period last year.
As a producer, 25% of 10% is 2.5%, which is fatal for manufacturing enterprises whose normal net profit of sales is less than 5%. This can completely offset the effect of China’s massive tax cuts this year (2%). In recent years (2012-2016), the return on net assets of China’s manufacturing industry minus risk-free interest rates and reasonable risk premiums, averaged about -2.6% (SHENG Hong, “government share expands, profit margins are exhausted”, 2018), and capital is no longer profitable. Considering the reduction of total demand, the idle rate of equipment will be increased and the unit cost will be increased. In the long run, a large number of Chinese enterprises and foreign-funded enterprises in China have to consider reducing or even closing their production capacity in China and transferring to other countries. Similar products produced in these countries will eventually replace Chinese products in the U.S. market. Permanent loss of market is a significant loss of customer assets, the amount of which should be estimated by the future discount value of the total reduced profits each year. For example, if the annual loss of profits is $10 billion and the discount rate is 4%, the discount value of future earnings is about $250 billion. If various factors, such as labor and land, are taken into account, the loss will be calculated in terms of added value, which is $60 billion in terms of manufacturing value added rate of 30%, and the loss of customer assets will be as high as $1500 billion.
In fact, it is a simple common sense of economics that trade brings trade dividends. This trade dividend is divided into producer surplus and consumer surplus and is shared by producers and consumers. Reducing a transaction will reduce the corresponding producer surplus and consumer surplus. In an undisturbed market, an existing trade partnership is the best relationship. If a seller threats not to sell or a buyer not to buy as the weapon for a trade war, it is impossible to harm the other party without loss. Because they leave the traditional trading partners, they can only find suboptimal partners, that is, sellers can only sell at a lower price than the original price, and buyers can only buy at a higher price than the original price. So when we see people saying what kind of “weapon” with we can “win” in trade wars, we must understand that even if we can win, we would be worse than “no fight”. It hasn’t been calculated yet that the losses caused by the other side’s retaliation and repeated retaliation between the two sides. More importantly, we must not use this as a basis to stimulate our fighting passion and push the conflict that may be peacefully resolved into a state of war.
It should be said that because of the complexity of economic system and human society, human beings have no ability to calculate all the losses that a trade war may bring. Hayek once said, “The direct effects of any interference with the market order will be near and clearly visible in most cases, while the more indirect and remote effects will mostly be unknown and will therefore be disregarded. We shall never be aware of all the costs of achieving particular results by such interference.” Compared with non-trade, distorted trade, or restricted trade, the value of free trade is not only static producer surplus and consumer surplus, but also the deepening of division of labor and specialization caused by the expansion of market scale brought by trade. The market information system formed by trade guides producer’s investment decision-making and stimulates innovation inspiration, and the business model The change of business models, technical means and production technology caused by trade competition, and the new institutional arrangement formed by the change of contract modes; all of them will bring about unexpected efficiency improvement, cost reduction and market expansion. So when free trade is distorted and restricted, the losses we suffer are incalculable. If someone says they can count and claim that one side can win, it’s probably not because of patriotism. We need to keep a high degree of vigilance.
Although we cannot quantify and compare the losses of all parties in the trade war, we do know one of the most basic and simplest criteria: free trade is better than non-trade, distorted trade and restricted trade. This means that, at least among roughly equal trading partners, free trade will bring benefits to either side, while non-trade, distorted trade and restricted trade will bring disadvantages. The best trade negotiations must aim at following the principles of free trade rather than calculating the specific gains and losses of trade wars by what means. The worst strategy is based on the so-called calculation. Therefore, the ultimate goal of this Sino-US trade negotiations should be to improve existing trade relations and move towards a more equitable free trade. Trump’s tariff stick should be used only as a means of facilitating negotiations and correcting distortions, not as an end in itself.
Unfortunately, it now seems that the tariff stick has come. It has two disadvantages. First, it makes Sino-US trade relations more far away from free trade, which not only increases trade restrictions, but also makes the market more distorted. In China, non-state-owned enterprises have the real ability to export and compete with other enterprises in the world market. Not only are state-owned enterprises inefficient and unable to compete with other enterprises in the world, but they also have monopoly power in the domestic market in addition to huge subsidies. Even in this case, the nominal return on net assets of state-owned enterprises is significantly lower than that of private enterprises without these subsidies, such as the return on net assets of non-state-owned industrial enterprises in 2013 is 15.64%, and the return on net assets of state-owned enterprises is only 8.73%. This shows that the inefficiency of state-owned enterprises completely offsets the benefits of subsidies. With such low efficiency, most state-owned enterprises cannot compete in the international market.
Therefore, the real cause of the high trade deficit in the United States is mainly China’s private enterprises and foreign-funded enterprises. According to the Ministry of Commerce, according to March 2019 data, state-owned enterprises account for only 10% of the total export volume, and the remaining 90% of the export volume is created by private enterprises and foreign-funded enterprises. As a result, the bulk of Trump’s tariffs are imposed on private enterprises and foreign-funded enterprises without government subsidies. This is not to correct market distortions, but to punish companies that follow market rules, and make the market more distorted. Consideration should also be given to the $60 billion in US goods that have been tariffed because of the Chinese government’s counter-measures, whose producers are also innocent. If only $20 billion of the $260 billion is the commodity of state-owned enterprises, it would be equivalent to punishing and correcting $20 billion (7.7%) of unfair trade, by imposing tariffs on $240 billion (92.3%) of fair trade. It’s not fair, also foolish.
Figure 1 Export share of various kinds of Chinese Enterprises
Data source: Ministry of Commerce website (http://data.mofcom.gov.cn/hwmy/imexComType.shtml).
Secondly, it may shift the focus of trade negotiations and focus the attention of both sides on tariff wars, and on this basis, carry out further retaliation against each other. The original purpose may be completely forgotten. The general imposition of tariffs on Chinese goods has caused widespread losses to private enterprises and foreign-funded enterprises. They will rise up against this measure, and become the political motive force of negotiation that seemingly safeguards the interests of the state while protecting the monopoly interests of state-owned enterprises. It is precisely because Trump’s tariff stick did not hit state-owned enterprises, so they are not afraid of such tariff war, but hide under the shell of “national interests” and do their best to influence China’s trade negotiations, so as to deviate from China’s overall national interests and benefit them. Private enterprises and foreign enterprises that follow the market rules are their hostages. Once the tariff stick smashes, they hide among the hostages and will not be directly injured. They even snicker. On the other hand, Trump, in order to punish a handful of enterprises for unfair trade, has generally harmed Chinese enterprises, especially private enterprises, making them enthusiastic and resentful, supporting state-owned enterprises with nationalist attitudes. This, on the contrary, prevents China and the United States from reaching agreement on correcting unfair trade and following the principle of free trade. Further, the resulting Chinese counteraction is more likely to lead the two sides into a vicious circle of mutual retaliation, so that they may forget what they were negotiating for.
What is the negotiation for? As has been said before, the purpose of negotiations is free trade. To make it concrete, it should be the principle of fair trade and the rule of law. Following fair trade rules is to eliminate all unfair phenomena, including subsidies, restrictions on entry, infringement of intellectual property rights, concessions, monopolies and other preferential policies, while the rule of law is to use the compulsory force of the state to fairly adjudicate trade disputes. Fair trade is voluntary in most cases, while in a few cases it requires the compulsory maintenance of the rule of law. Therefore, the rule of law is also an important system of fair trade. Moreover, the principle of fair trade and the rule of law are the basic consensus of the two countries and their governments. We needn’t say anything about the US side. The Chinese government stresses that “the market plays a decisive role in resource allocation” at home and that the principle of free trade with foreign countries goes hand in hand with the principle of fair trade. The Fourth Plenary Session of the Eighteenth Central Committee of the Communist Party of China emphasizes the construction of a “country ruled by law, a government ruled by law and a society ruled by law”. Although there are many problems violating the rule of law in reality, in principle, efforts should be made towards the realization of the rule of law. Therefore, this is the principle basis of Sino-US trade negotiations. We can use the principle of fair trade and the rule of law to measure the means of negotiation used by both sides in trade negotiations and the text of the agreement to be reached.
Liu He pointed out that an important disagreement in this round of Sino-US trade negotiations is that the Chinese side requests that after reaching an agreement in the negotiations, the US side should cancel the tariffs, 25%, already imposed on China’s $60 billion commodities and 10% on $200 billion. This is clearly a normal requirement. And as mentioned above, this measure actually violates the goal of the negotiations – fair trade, imposing tariffs on innocent Chinese non-state-owned enterprises, and is a blow to the principle of fair trade itself. Similarly, according to the Wall Street Journal, it is against the principle of fair trade that the United States requires a reduction of the trade deficit with China by $200 billion by 2020. If this requirement becomes an intergovernmental agreement, the Chinese government will either increase purchases by government agencies or state-owned enterprises, or force private enterprises to buy it. This will not be a market behavior based on cost-benefit calculation, but will greatly reduce the efficiency of resource allocation, and even bring false demand information to American enterprises. In this process, government agencies and state-owned enterprises will also increase their weight in China’s economy. They may also ask for government subsidies to execute administrative orders for purchases. This is clearly not fair trade.
Of course, China is in a period of strategic transformation from its current stage of development. As I have proposed, China should change from “Made in China” to “China Market” and open up a larger domestic market to contribute to the world economy. At the same time, because of the “gigantic- country effect”, that is, according to Professor Krugman’s new trade theory, “in free trade, larger countries will have advantages”, China as the largest country has the greatest advantages”; although China is still ranked low in technological and institutional competitiveness (the 13th in 2018, according to the Swiss Lausanne School of Management), there is a trade surplus with countries and regions ranked before it (such as the U.S. ranks No.1). This shows that China has the strength to achieve equal or even unilateral free trade relations. Therefore, the fair rule of reducing the trade balance between China and the United States is to implement the equivalent tariff rate and other non-tariff arrangements between China and the United States, that is, China can first reduce the tariff rate to the level of the United States, and further, China and the United States can implement zero tariffs with each other. Thus, the Sino-US trade agreement can achieve this principle of reciprocity to replace the mandatory requirement of reducing the balance of $200 billion by 2020.
Figure 2 Weighted average import tariffs imposed by China and the United States on each other’s products
Data source: World Bank, World Integrated Trade Solution.
Considering the asymmetry of tariff rates between China and the United States so far, the weighted average tariff rate of the United States on Chinese goods is 2.9%, while that of China is 6.3% (2016). Once the tariff rate is equal, the trade gap between China and the United States will gradually narrow. When this problem is solved, only structural problems will be solved, and the scope of the problem will be greatly reduced. Moreover, on structural issues, China and the United States are less antagonistic, and the principle of reciprocity can play a more effective role at this time. The structural issues raised by the United States include the protection of intellectual property rights, the opening of the domestic market, the subsidy of state-owned enterprises, the free flow of Internet data and so on. All these problems are also structural in China.
For example, for the intellectual property system, different types of enterprises have different performance. Non-state-owned enterprises mainly depend on the intellectual property system, and their effective patents account for 97% of all patents, while the effective patents of state-owned enterprises only account for 3% (2016, National Statistical Office), they rely more on the so-called national research fund, which is about 800 billion yuan per year. As I pointed out in the article “Rule of law is the core technology”, it is precisely because of the lack of an effective incentive and restraint system in the National Research Fund system, the inefficiency of its use and the fact that only 20-30% of the patented scientific research achievements are applied for, that the state-owned scientific research institutions and state-owned enterprises are more focused on introducing technology. Because a large number of state-owned enterprises are in monopoly industries, only they have the ability to force foreign enterprises to transfer technology at low prices, such as high-speed rail technology. The reform of China’s scientific research system is to reduce the government’s Research Fund for applied research to state-owned scientific research departments for 500~ 600 billion yuan per year, to use more funds for basic research, and to make state-owned scientific research institutions more dependent on the intellectual property system for applied research. Therefore, Chinese society needs to further improve the intellectual property system and strengthen the protection of intellectual property rights. This is in line with the requirements of the US side.
Again, the problem of administrative monopoly is a problem that Chinese society has been trying to solve for a long time, but it is difficult to solve. Some state-owned enterprises have long monopolized oil, banking, telecommunications, railways and salt industries. According to our estimates, the welfare losses caused by these administrative monopolies reached 2273.4 billion yuan in 2013 (Unirule Institute of Economics, Causes, Behaviors and Elimination of China’s Administrative Monopoly (Second Edition, 2015). They not only bring enormous loss of efficiency, but also unfair redistribution of wealth. Monopoly interest groups are an important obstacle to the further marketization and legalization of China. Although there is no corresponding legislative basis for the establishment of these monopolies, even if successive governments want to break monopolies, such as Premier WEN Jiabao proposed breaking oil monopoly and Bank Monopoly, two “Non-state Enterprises 36 Articles” emphasize opening up the monopolized market to private enterprises, shortening the negative list of market access, and the Nineteenth National Congress of the Communist Party explicitly proposed “breaking administrative monopoly”. However, there has been little real progress in the confrontation of monopolistic interest groups. However, it is still the case at home, which is manifested by international problems, and is regarded as a problem that China’s market is not open to foreign enterprises. In fact, this is also a structural issue in China, and is the goal of reform. This is in line with the pressure of the US side to open up China’s domestic market.
The free flow of information on the Internet is also a structural problem. Although China’s Cyber Security Law stipulates that “the state protects the rights of citizens, legal persons and other organizations to use the Internet in accordance with the law,…”, “to ensure the orderly and free flow of network information according to law.” However, in violation of Article 35 of the Constitution and the Law on Network Security, the relevant administrative departments set up firewalls, which, besides suppressing attempts to expose corruption and criticize abuse of power, selectively prevented foreign enterprises from entering the Chinese market. The beneficiaries are the competitors of these overseas enterprises in China. For example, restrict Google, Twitter, Facebook, Yahoo, YouTube, Instagram, WordPress,… And cloud computing services, etc., are unfairly protecting domestic counterparts and hurting domestic consumers. These enterprises, especially the platform monopoly enterprises, not only without a bottom line invade the privacy field of citizens and enterprises by using the convenience of providing network services, but also arbitrarily close the websites, microblogs, WeChat public numbers, live broadcasts and other network media with commercial value, violate Article 40 of the Constitution to arbitrarily invade and close personal WeChat which accumulated communication resources and being necessary communication tool. The beneficiaries of restricting the free flow of data are only a few monopolistic and power-abused interest groups. Most Chinese enterprises, citizens and even government agencies are victims.
This structural inequality is isomorphic at home and abroad. One country protects the intellectual property rights of domestic enterprises while protecting the intellectual property rights of foreign enterprises; another country cannot effectively protect the intellectual property rights of domestic enterprises, so it cannot respect the intellectual property rights of foreign enterprises; one country provides subsidies to some domestic enterprises, which not only compete in the domestic market, but also export to another country; another country does not provide subsidies to all domestic enterprises, there are no enterprises enjoyed governmental subsidies to export to foreign countries; some industries in one country are only open to some enterprises, not to other domestic enterprises, also not to foreign enterprises; while the domestic market in another country is open to all enterprises, while all non-key industries are open to foreign enterprises; and the Internet in one country restricts the entry of domestic enterprises, also restrict the entry of foreign enterprises, while the internet of another country has no access restrictions at home, and no access restrictions on foreign countries. These structural inequalities between China and the United States and structural inequities in China are actually a problem. The United States put forward “structural reform” in the negotiations, and the Chinese government put forward “supply-side structural reform” in 2016. Its main content is to solve structural problems by promoting marketization and reducing government intervention. In this seemingly irreconcilable area, China and the United States actually have a common ground and mutual needs. The solution is the principle of reciprocity in structure.
For example, under the premise of tariff rate reciprocity, to the enterprises who enforced the enterprises of another country to transfer technology by monopolizing the domestic market, another country should impose restrictions on the entrance of these enterprises in the markets of another country; one country should impose high tariffs on such import enterprises, which enjoy governmental subsidies, for offsetting the advantages of the subsidies; these subsidies include free land, low-interest loans and low-price royalties. In the case of monopolizing the domestic market, especially the monopoly power obtained by administrative order, which prevents other enterprises and enterprises of another country from entering the same kind of market, another country may also take corresponding measures to prohibit them from entering the same kind of market in that country; in the case of domestic competitors blocking Internet enterprises of another country from entering its own market, another country shall also prohibit such enterprises from entering the country’s Internet market. As long as we adopt this structural principle of reciprocity, we find that trade negotiations only need to discuss the equivalence of tariff rates and non-tariff measures. Other issues can be placed outside trade negotiations and only structural negotiations can be conducted. In this way, the general tariff war can be avoided, and innocent enterprises that follow market rules cannot be hurt. The effect can be immediate if the pressure is directly applied to the parties involved in unfair trade. While solving structural problems, it will also have a positive impact on Sino-US trade balance.
To the issue of implement that The United States emphasizes, the best way is the rule of law, which is consistent with the direction toward rule of law decided by the Fourth Plenary Session of the Eighteenth Central Committee of the Communist Party of China. Since the reform and opening up, China has gradually established a relatively reasonable legal system through long-term legislative work. In view of the above structural problems, there are corresponding legal provisions to solve them. Its biggest problem is that it cannot be effectively implemented. In the above-mentioned “Decision”, it emphasizes “improving the system to ensure the independent and impartial exercise of judicial and procuratorial powers according to law”, and makes specific provisions that party and government leaders should not interfere in and interfere in the judiciary. This is the joint point of joint efforts between China and the United States. The principle of the rule of law is “no connivance, no wronging”. It’s much better than waving a tariff stick indiscriminately. And the law and due process can only be activated in litigation, and can also produce the role of a model case in society. Therefore, it is necessary to solve the problem through case litigation in the judicial system, so as not to harm the majority of innocent people, but also more targeted. Considering the lack of legal capacity of individual enterprises, the U.S. government can also set up a comprehensive legal aid program to help enterprises. In China, the promotion and implementation of the rule of law also requires specific litigation cases. Therefore, this arrangement should not only be regarded as a substitute for tariff measures, but also as a help and promotion to the construction of the rule of law in China.
Finally, the principle of structural equivalence should also be embodied in textual equivalence and mutual respect. Seeing the U.S. Negotiation Text disclosed by the Wall Street Journal, if it is true, seems to show some emotional and inappropriate universal judgement. This is a detail, but it may eventually hamper the agreement. Since we believe that unfair trade is not a general problem, but a structural one, the universal judgements to a country is wrong. The real war is not between the United States and China, but between the two principles, between free and fair trade and distorted and restricted trade, between trade and war, so the text of the agreement should not be disrespectful to one country at all. What really deserves no respect is distorted and restricted trade, and war. So all the above principles of equivalence can be expressed in a balanced way. For example, subsidies to trade and investment by either party should be prohibited and punished, monopolies by either party should be broken, infringements of intellectual property rights by either party should be stopped, and compensate for those who are infringed, and the Internet of either party should be free and unimpeded, and so on. This is fair in principle, but in specific cases, it may impose greater constraints on specific entities that violate fair trade rules. This is just as the law is fair, but it plays a different role for offenders and law-abiders.
Once the general tariff confrontation is replaced by the principle of structural equivalence, the scope will be 7.7% or one thirteenth of the original tariff confrontation. This not only greatly reduces the cost of confrontation, but also makes compromise easier and agreement easier to reach, so as to solve the problems that should have been solved. Otherwise, the corpses are everywhere, and the blood flows in vain. Punishments are not upon the criminals. The illegal are at large, and the problem still exists. People don’t know why they fight. Faced with those who advocate a trade war “at all costs”, people will ask why they cannot compromise with one percent or one thousandth of the price they want to pay for a trade war to reach an agreement that can greatly reduce current losses and benefit future generations. This part of the price is paid by the people who should pay, that is, those who do not follow the rules of the market. We can’t support Chinese people who don’t follow fair market rules and hurt other Chinese people just because we are Chinese. When structurality is combined with the principle of reciprocity, compromise is not sacrifice, but the necessary cost of achieving better results, just like the cost of any investment. Because the principle of reciprocity itself is a priceless treasure of mankind. For China, the principle of reciprocity can not only solve international disputes, but also solve the reform problems that China has to solve domestically. It shows the prospect of continuing the road of reform and opening up that has been going on for more than 40 years, so that China’s miracle shocked the world once again.
Recently, I saw Mr. MA Xiaoye’s clarification of “the principle of reciprocity”, and I think it is very necessary. I want to emphasize that the principle of reciprocity was not invented by Americans. China has a long tradition. Confucius said, “do not impose on others what you yourself do not desire” Isn’t it the principle of reciprocity? If you do not want other people’s high tariffs, you should not impose them on others; if you do not want your intellectual property rights to be infringed, you should not infringe on other people’s intellectual property rights; if you do not want others to prevent them from entering their market, you should not prevent others from entering your own market; if you do not want others to get subsidies and gain advantages, you cannot get subsidies to gain advantages. 。 Mencius said that monopolists are “contemptible men”, so the idea of breaking monopoly has existed in China since ancient times. The civil elites in On Salt and Iron states that “Emperor does not say more or less, princes do not say benefit or cost, and officials do not say win or lose”. It means that government departments cannot do business, so state-owned enterprises should reform and finally withdraw from history. In terms of structural reform, China and the United States have not only a consensus in principle, complementary interests, but also cultural overlap. Think of this, feel that there is no important things to fight in the world; if there is no wisdom, there will be a war without reason. Was Edward Gibbon wrong?
May 25, 2019 at Fivewoods Studio
May 29, 2019 firstly published by both FT Chinese and China-review Weekly