Years of Poems and Spirits

Just read this article, “How China Turned Around A Dismal Air-Safety Record” on WSJ. After a slew of bad publicity of everything China, this article is a welcome relief.

Some quotes:
“Today, China is an acclaimed global leader in air safety. Despite frequent double-digit annual growth in the number of hours its airlines fly, their most recent fatal-accident rates are lower than America’s and Europe’s.”

“The combination of top-down mandates, aggressive enforcement and expert advice yielded results.”

“China has emerged as the envy of developing countries struggling with too many planes, too few pilots and inadequate airports. The FAA wants to use the CAAC model to help India expand its aviation safely. “

A discussion during the International Finance class got me thinking: what are China’s options with so much trade surplus?

We all know that at least 70% of China’s trillion dollar foreign reserves are in dollar denominated assets, mainly in treasury securities which yield around 4-5%. Take out the inflation factor, it is more like “deposit” than “investment”.

What is the alternative? Buying higher-yield securities at the expense of higher risk? It is easy to say but rather difficult to execute. For example, it is not a scaleable solution.

What else? How about buying capital goods from the U.S. (goods used for production) and produce more at home? For example, buying heavy equipments, high-end computers, etc. from the U.S. and produce more domestically. Instead, the Chinese choose to buy financial assets from the U.S., some of which will come back as FDI.

It is as if the Chinese are saying, we may have all the production factors–land, natural resources, labor, infrastructure, etc.–but we don’t know how to use them to generate returns higher than 4%. Therefore, we will give you the money and take just 4%.

It is a strange conclusion but seems to be a logical one. I asked the professor about the difference between buying financial assets and capital goods. I wonder whether it is the same as having the U.S. acting as a financial advisor/asset manager plus entreprenuer. I am not sure whether she got my question or not.

1. 9/29: Rachel Lake, exit 63 off I-90. Nice 4-miler with a pretty steep last mile. But since I have done Mailbox Peak already, this one was not intimidating. Went with Jackson School friends. Two guys in excellent shape and I had a hard time keep up with them. But the view was spectacular. It was my first time to see snow and full fall foliage together. I thought I had seen enough so did not bring a camera. Felt like a fool looking at this view.

2. 10/5: Lake Ingalls, exit 85 off I-90. First time ever camping on foot-deep snow. Temperature around freezing in the night. Needed some upgrades for winter camping.

Originally planned to go to the Enchantments with Steve and XiaoJun. However, the weather forecast was inconclusive and the ranger answering our phone calls was pretty determined to talk us out of it. After hours of debate, we decided to cancel the trip.

Song was game to go to a lighter hike to see the larch trees. I knew about Ingalls and had been there a summer before. It was a very good hike. Not all larch trees are peaking at the moment but those did looked awesome in full snow.