Patrick Chovanec
Encyclopedia
Patrick Robert Chovanec is an associate professor at Tsinghua University
's School of Economics and Management in Beijing, China. A former political aide to senior Republican Party
leaders in the U.S., he is a frequent and influential commentator on China's economy, US-China relations, and other global issues in both the international and Chinese media. China's Global Times
named him one of the 10 foreigners who had the most influence on China in 2009. His blog was named by the Wall Street Journal as one of "The Best Economics Blogs" for 2010.
, in the western suburbs of Chicago
. He attended high school at St. Ignatius College Prep
, in Chicago, and upon graduating in 1988 was one of 141 young Americans invited to the White House
and recognized by President Ronald Reagan
as a Presidential Scholar. His first visit to China took place in 1986, and during college he travelled extensively across East Asia, Central Asia, and the Indian Subcontinent, including a brief period working as a volunteer at Mother Teresa
's Kalighat Home for the Dying
in Calcutta, India. He holds a BA in Political Economy (1993) from Princeton University
, and an MBA in Finance and Accounting (2005) from The Wharton School at the University of Pennsylvania
, where he graduated as a Palmer Scholar in the top 5% of his class. After receiving an ROTC scholarship at Princeton, he served nine years as a transportation and logistics officer in the United States Army Reserve
.
at Project for the Republican Future. The Project's fax memos to Republican leaders, to which Chovanec contributed, were widely credited with orchestrating the political defeat of the Clinton health care plan
in 1993. After the so-called Republican Revolution
of 1994, when the Republican Party
gained majority control of Congress, Chovanec worked for current Speaker of the House John Boehner
, then chairman of the House Republican Conference. As the editor of Legislative Digest
, Chovanec was in charge of internal communication and legislative analysis for all House Republicans, and played a central role in coordinating passage of the Contract with America
. Chovanec directly reported to Barry Jackson
, who went on to serve in the White House
as chief deputy to Karl Rove
, and later replaced Rove as President George W. Bush
's top political advisor.
In 2000, Chovanec was hired by Institutional Investor
to serve as director of their Asia-Pacific Institute, based in Hong Kong
, a private forum for senior heads of financial institutions. He later ran a similar forum, the Global Fixed Income Institute, based in London
, for senior European bond investors. After earning his MBA, Chovanec returned to Asia to work as a private equity
investor for a series of funds focused mainly on China.
In 2008, Chovanec began teaching as an associate professor at Tsinghua University
's School of Economics and Management, located in Beijing, China, in the school's English-language International MBA program developed in conjunction with the MIT Sloan School of Management
. He teaches courses on US-China business relations, the market and regulatory environment for foreign companies in the U.S., and American business history. He has guest lectured at Harvard University
, the MIT Sloan School of Management
, The Wharton School, and John Hopkins SAIS
, and has spoken at the Council on Foreign Relations
, the Chicago Council on Global Affairs and the Woodrow Wilson International Center for Scholars
.
Outside of the classroom, Chovanec is a frequent commentator in both the international and Chinese media. His insights into Chinese economics, business, politics, and culture have been featured on CNN
, BBC
, PBS, NPR
, Voice of America
, and Bloomberg
, as well as in Time
, Newsweek
, Wall Street Journal, Financial Times
, Foreign Policy, The Atlantic, New York Times, Washington Post, Christian Science Monitor, Chicago Tribune
, Los Angeles Times
, and Motley Fool
. He is a regular contributor to Forbes
, China Economic Review
, CCTV News
, China Radio International
, Al-Jazeera, and Seeking Alpha
.
Chovanec serves as a private advisor to numerous corporations, hedge funds, private equity funds, and foreign governments regarding China. He also chairs the Public Policy Development Committee for the American Chamber of Commerce in China (Amcham-China), where he helps coordinate annual publication of the American business community's public policy White Paper on China, as well as its annual Business Climate Survey. Chovanec is also a Senior Fellow with the Goldwater Institute
, a conservative public policy think tank based in Arizona. Since 2011, Chovanec also acts as an Advisor to Fair Observer on matters pertaining to China and the economy.
Chovanec is a Certified Public Accountant
(CPA) registered in the State of Illinois.
, he introduced the idea that Chinese savers have been stockpiling multiple residential units, and willingly leaving them vacant, as a "store of value," like gold. He identified three main reasons for this behavior: (1) the lack of attractive investment alternatives, given China's closed capital account
, (2) a limited track record, given that China had never seen a sustained downturn in real estate since converting to private home ownership in the 1990s, and (3) minimal holding costs, in particular the absence of an annual property holding tax
. Chovanec argues that, despite strong housing demand from rising incomes and urbanization in China, these factors have distorted the market and created a persistent but ultimately unsustainable overhang in high-end housing. He further argues that China's state-inspired lending boom, in response to the global financial crisis, has created a more classic leveraged bubble in commercial real estate. Chovanec contends that while the systemic risk
may look substantially different from the conditions that spawned the U.S. subprime mortgage crisis
, Chinese banks nevertheless have significant exposure to the property market, due to the widespread practice of lending to businesses on the basis of inflated land values as collateral
. Chovanec believes that the Chinese government's recent efforts to "cool" the property market have temporarily "thrown the market into confusion," but have not changed the fundamental dynamics that encourage the Chinese to channel capital into unproductive real estate.
. Chovanec reconciles the apparent discrepancy by arguing that China's monetary expansion has been channeled into asset inflation, including real estate, gold, jade, and other tangible forms of savings, and is only gradually working its way into more general price inflation. He argues that, unless China's economy is quickly weaned from its dependence on "easy credit and cheap money," rising inflation will force Chinese authorities to cut off liquidity, causing a hard landing
.
Chovanec has been equally critical of China's growing tendency, in the wake of the crisis, to favor active state intervention and state-owned enterprises at the expense of continued market opening and private enterprise—a trend summed up in the Chinese expression "guo jin min tui" (国进民退), or "the state advances, the private sector retreats." In October 2010, Chovanec wrote that China's leaders need to stage an encore of Deng Xiaoping
's 1992 Southern Tour, in order to recommit the country to the path of market reform, after a similar period of retrenchment.
. Such a move, he believes, would reduce inflationary pressures on China's economy and enhance the buying power, and hence the living standards, of average Chinese citizens, as well as reducing tensions with China's trading partners. However, he sharply disagrees with Paul Krugman
, and argues that an exclusive focus on rectifying exchange rates as a "silver bullet" is misplaced. Forcing China to strengthen its currency against its will, he contends, would only cause China to shore up its export sector through other means, and would likely result in a replay of the 1985 Plaza Accord
(in which the value of the Japanese yen doubled, yet had virtually no impact on the US-Japan trade imbalance due to structural reasons). Exchange rate reform, Chovanec believes, will only have the desired impact if it is part of a broader economic strategy in which China embraces greater market reform and opening.
's 1981 book, The Nine Nations of North America
. Chovanec noted that while he later became aware that several previous scholars, such as G. William Skinner
had proposed similar regional breakdowns of China, his own "Nine Nations" framework and the regional descriptions that support it are original, based on his private equity investment experiences in China and his travels to every one of China's 31 provinces over the past 25 years. Chovanec has proposed that the "Nine Nations" could provide a valuable framework for conducting market research, economic analysis, and other practical applications.
. His first visit, in October 2008, took him to Pyongyang
, Myohyang-san
, and the northern side of the Korean Demilitarized Zone
. His second trip, in July 2010, took him to the Rajin-Sonbong Economic Special Zone
, in the country's extreme northeast, and across the Khasan
railroad border crossing with Russia
. Chovanec has been interviewed about both trips and has written detailed accounts of his experiences on his blog.
Tsinghua University
Tsinghua University , colloquially known in Chinese as Qinghua, is a university in Beijing, China. The school is one of the nine universities of the C9 League. It was established in 1911 under the name "Tsinghua Xuetang" or "Tsinghua College" and was renamed the "Tsinghua School" one year later...
's School of Economics and Management in Beijing, China. A former political aide to senior Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
leaders in the U.S., he is a frequent and influential commentator on China's economy, US-China relations, and other global issues in both the international and Chinese media. China's Global Times
Global Times
The Global Times is a daily Chinese tabloid under the auspices of the official Chinese Communist Party newspaper, the People's Daily, focusing on international issues...
named him one of the 10 foreigners who had the most influence on China in 2009. His blog was named by the Wall Street Journal as one of "The Best Economics Blogs" for 2010.
Early life and education
Patrick Chovanec was born on February 14, 1970, in LaGrange, Illinois, and was raised in nearby Western Springs, IllinoisWestern Springs, Illinois
Western Springs is a suburb of Chicago located in Cook County, Illinois. As of the 2000 census, the village had a total population of 12,493. It is twinned with Rugeley, United Kingdom....
, in the western suburbs of Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
. He attended high school at St. Ignatius College Prep
St. Ignatius College Prep
Saint Ignatius College Prep is a private, coeducational Jesuit high school located in Chicago, Illinois. The school was founded in Chicago in 1870 by Fr. Arnold Damen, S.J., a Belgian missionary to the United States. The school is coeducational, Catholic, college preparatory and sponsored by the...
, in Chicago, and upon graduating in 1988 was one of 141 young Americans invited to the White House
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...
and recognized by President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
as a Presidential Scholar. His first visit to China took place in 1986, and during college he travelled extensively across East Asia, Central Asia, and the Indian Subcontinent, including a brief period working as a volunteer at Mother Teresa
Mother Teresa
Mother Teresa , born Agnes Gonxha Bojaxhiu , was a Roman Catholic nun of Albanian ethnicity and Indian citizenship, who founded the Missionaries of Charity in Calcutta, India, in 1950...
's Kalighat Home for the Dying
Kalighat Home for the Dying
Kalighat, the Home of the Pure Heart is a hospice for the sick, destitute and the dying in Kalighat, Kolkata , India, established by Mother Teresa. The building was an old abandoned Hindu temple to the goddess Kali, the Hindu goddess of time and change, before she sought permission to use it...
in Calcutta, India. He holds a BA in Political Economy (1993) from Princeton University
Princeton University
Princeton University is a private research university located in Princeton, New Jersey, United States. The school is one of the eight universities of the Ivy League, and is one of the nine Colonial Colleges founded before the American Revolution....
, and an MBA in Finance and Accounting (2005) from The Wharton School at the University of Pennsylvania
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
, where he graduated as a Palmer Scholar in the top 5% of his class. After receiving an ROTC scholarship at Princeton, he served nine years as a transportation and logistics officer in the United States Army Reserve
United States Army Reserve
The United States Army Reserve is the federal reserve force of the United States Army. Together, the Army Reserve and the Army National Guard constitute the reserve components of the United States Army....
.
Career
Upon graduating college, Chovanec worked as a policy aide to Republican strategist William KristolWilliam Kristol
William Kristol is an American neoconservative political analyst and commentator. He is the founder and editor of the political magazine The Weekly Standard and a regular commentator on the Fox News Channel....
at Project for the Republican Future. The Project's fax memos to Republican leaders, to which Chovanec contributed, were widely credited with orchestrating the political defeat of the Clinton health care plan
Clinton health care plan
The Clinton health care plan was a 1993 healthcare reform package proposed by the administration of President Bill Clinton and closely associated with the chair of the task force devising the plan, First Lady of the United States Hillary Rodham Clinton....
in 1993. After the so-called Republican Revolution
Republican Revolution
The Republican Revolution or Revolution of '94 is what the media dubbed Republican Party success in the 1994 U.S. midterm elections, which resulted in a net gain of 54 seats in the House of Representatives, and a pickup of eight seats in the Senate...
of 1994, when the Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
gained majority control of Congress, Chovanec worked for current Speaker of the House John Boehner
John Boehner
John Andrew Boehner is the 61st and current Speaker of the United States House of Representatives. A member of the Republican Party, he is the U.S. Representative from , serving since 1991...
, then chairman of the House Republican Conference. As the editor of Legislative Digest
Legislative Digest
Legislative Digest is an official publication of the House Republican Conference. It serves as the primary source of legislative analysis and preview of floor activity for Republican Members of the United States House of Representatives. As such, it functions as the Republican counterpart to the...
, Chovanec was in charge of internal communication and legislative analysis for all House Republicans, and played a central role in coordinating passage of the Contract with America
Contract with America
The Contract with America was a document released by the United States Republican Party during the 1994 Congressional election campaign. Written by Larry Hunter, who was aided by Newt Gingrich, Robert Walker, Richard Armey, Bill Paxon, Tom DeLay, John Boehner and Jim Nussle, and in part using text...
. Chovanec directly reported to Barry Jackson
Barry Steven Jackson
Barry Steven Jackson is the current chief of staff to U.S. House Speaker John Boehner. He previously served as Senior Advisor to the President for George W. Bush.-Personal:...
, who went on to serve in the White House
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...
as chief deputy to Karl Rove
Karl Rove
Karl Christian Rove was Senior Advisor and Deputy Chief of Staff to former President George W. Bush until Rove's resignation on August 31, 2007. He has headed the Office of Political Affairs, the Office of Public Liaison, and the White House Office of Strategic Initiatives...
, and later replaced Rove as President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
's top political advisor.
In 2000, Chovanec was hired by Institutional Investor
Institutional Investor (magazine)
Institutional Investor magazine is a monthly periodical published by Euromoney Institutional Investor. A separate international edition of the magazine was established in 1976 for readers in Europe and Asia. Capital Cities Communications purchased the magazine in 1984...
to serve as director of their Asia-Pacific Institute, based in Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, a private forum for senior heads of financial institutions. He later ran a similar forum, the Global Fixed Income Institute, based in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, for senior European bond investors. After earning his MBA, Chovanec returned to Asia to work as a private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
investor for a series of funds focused mainly on China.
In 2008, Chovanec began teaching as an associate professor at Tsinghua University
Tsinghua University
Tsinghua University , colloquially known in Chinese as Qinghua, is a university in Beijing, China. The school is one of the nine universities of the C9 League. It was established in 1911 under the name "Tsinghua Xuetang" or "Tsinghua College" and was renamed the "Tsinghua School" one year later...
's School of Economics and Management, located in Beijing, China, in the school's English-language International MBA program developed in conjunction with the MIT Sloan School of Management
MIT Sloan School of Management
The MIT Sloan School of Management is the business school of the Massachusetts Institute of Technology, in Cambridge, Massachusetts....
. He teaches courses on US-China business relations, the market and regulatory environment for foreign companies in the U.S., and American business history. He has guest lectured at Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
, the MIT Sloan School of Management
MIT Sloan School of Management
The MIT Sloan School of Management is the business school of the Massachusetts Institute of Technology, in Cambridge, Massachusetts....
, The Wharton School, and John Hopkins SAIS
Paul H. Nitze School of Advanced International Studies
The Paul H. Nitze School of Advanced International Studies , a division of Johns Hopkins University based in Washington, D.C., is one of the world's leading and most prestigious graduate schools devoted to the study of international affairs, economics, diplomacy, and policy research and...
, and has spoken at the Council on Foreign Relations
Council on Foreign Relations
The Council on Foreign Relations is an American nonprofit nonpartisan membership organization, publisher, and think tank specializing in U.S. foreign policy and international affairs...
, the Chicago Council on Global Affairs and the Woodrow Wilson International Center for Scholars
Woodrow Wilson International Center for Scholars
The Woodrow Wilson International Center for Scholars , located in Washington, D.C., is a United States Presidential Memorial that was established as part of the Smithsonian Institution by an act of Congress in 1968...
.
Outside of the classroom, Chovanec is a frequent commentator in both the international and Chinese media. His insights into Chinese economics, business, politics, and culture have been featured on CNN
CNN
Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...
, BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
, PBS, NPR
NPR
NPR, formerly National Public Radio, is a privately and publicly funded non-profit membership media organization that serves as a national syndicator to a network of 900 public radio stations in the United States. NPR was created in 1970, following congressional passage of the Public Broadcasting...
, Voice of America
Voice of America
Voice of America is the official external broadcast institution of the United States federal government. It is one of five civilian U.S. international broadcasters working under the umbrella of the Broadcasting Board of Governors . VOA provides a wide range of programming for broadcast on radio...
, and Bloomberg
Bloomberg L.P.
Bloomberg L.P. is an American privately held financial software, media, and data company. Bloomberg makes up one third of the $16 billion global financial data market with estimated revenue of $6.9 billion. Bloomberg L.P...
, as well as in Time
Time (magazine)
Time is an American news magazine. A European edition is published from London. Time Europe covers the Middle East, Africa and, since 2003, Latin America. An Asian edition is based in Hong Kong...
, Newsweek
Newsweek
Newsweek is an American weekly news magazine published in New York City. It is distributed throughout the United States and internationally. It is the second-largest news weekly magazine in the U.S., having trailed Time in circulation and advertising revenue for most of its existence...
, Wall Street Journal, Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
, Foreign Policy, The Atlantic, New York Times, Washington Post, Christian Science Monitor, Chicago Tribune
Chicago Tribune
The Chicago Tribune is a major daily newspaper based in Chicago, Illinois, and the flagship publication of the Tribune Company. Formerly self-styled as the "World's Greatest Newspaper" , it remains the most read daily newspaper of the Chicago metropolitan area and the Great Lakes region and is...
, Los Angeles Times
Los Angeles Times
The Los Angeles Times is a daily newspaper published in Los Angeles, California, since 1881. It was the second-largest metropolitan newspaper in circulation in the United States in 2008 and the fourth most widely distributed newspaper in the country....
, and Motley Fool
Motley Fool
The Motley Fool is a multimedia financial-services company that provides financial solutions for investors through various stock, investing, and personal finance products. The Alexandria, Virginia-based private company was founded in July 1993 by co-chairmen and brothers David and Tom Gardner, and...
. He is a regular contributor to Forbes
Forbes
Forbes is an American publishing and media company. Its flagship publication, the Forbes magazine, is published biweekly. Its primary competitors in the national business magazine category are Fortune, which is also published biweekly, and Business Week...
, China Economic Review
China Economic Review
China Economic Review is an independent English-language monthlybusiness magazine and associated website published by China Economic Review Publishing. CER offers information and analysis on business trends in China through its...
, CCTV News
CCTV News
CCTV News may refer to:* CCTV News, the news department itself, of China Central Television* CCTV News , a Chinese language news channel* CCTV NEWS, formerly CCTV-9, an English language news channel...
, China Radio International
China Radio International
China Radio International , the former Radio Beijing and originally Radio Peking, founded on December 3 of 1941, is one of the three state-owned media in China along with China National Radio and China Central Television in the People's Republic of China .As the PRC's external radio station, CRI...
, Al-Jazeera, and Seeking Alpha
Seeking Alpha
Seeking Alpha is a stock market blog that provides free stock market analysis primarily from money managers, investment newsletter writers, and the general public. Alpha is a financial term referring to a stock's performance, relative to the market indexes used by fund managers. So, fund managers...
.
Chovanec serves as a private advisor to numerous corporations, hedge funds, private equity funds, and foreign governments regarding China. He also chairs the Public Policy Development Committee for the American Chamber of Commerce in China (Amcham-China), where he helps coordinate annual publication of the American business community's public policy White Paper on China, as well as its annual Business Climate Survey. Chovanec is also a Senior Fellow with the Goldwater Institute
Goldwater Institute
The Goldwater Institute is a Phoenix, Arizona-based conservative public policy research organization established in 1988. The president is Darcy A. Olsen. The Goldwater Institute advances public policies with emphasis on lower taxes, limited government spending, school choice, and a reduction in...
, a conservative public policy think tank based in Arizona. Since 2011, Chovanec also acts as an Advisor to Fair Observer on matters pertaining to China and the economy.
Chovanec is a Certified Public Accountant
Certified Public Accountant
Certified Public Accountant is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA...
(CPA) registered in the State of Illinois.
China's real estate market
Chovanec was one of the first Western commentators to highlight the threat of a bubble forming in China's real estate market in the wake of the global financial crisis. In an article in the June 2009 issue of Far Eastern Economic ReviewFar Eastern Economic Review
The Far Eastern Economic Review was an English language Asian news magazine started in 1946. It printed its final issue in December 2009. The Hong Kong-based business magazine was originally published weekly...
, he introduced the idea that Chinese savers have been stockpiling multiple residential units, and willingly leaving them vacant, as a "store of value," like gold. He identified three main reasons for this behavior: (1) the lack of attractive investment alternatives, given China's closed capital account
Capital account
The current and capital accounts make up a country's balance of payment . Together these three accounts tell a story about the state of an economy, its economic outlook and its strategies for achieving its desired goals...
, (2) a limited track record, given that China had never seen a sustained downturn in real estate since converting to private home ownership in the 1990s, and (3) minimal holding costs, in particular the absence of an annual property holding tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
. Chovanec argues that, despite strong housing demand from rising incomes and urbanization in China, these factors have distorted the market and created a persistent but ultimately unsustainable overhang in high-end housing. He further argues that China's state-inspired lending boom, in response to the global financial crisis, has created a more classic leveraged bubble in commercial real estate. Chovanec contends that while the systemic risk
Systemic risk
In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system. It can be defined as "financial system instability, potentially catastrophic, caused or exacerbated by...
may look substantially different from the conditions that spawned the U.S. subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
, Chinese banks nevertheless have significant exposure to the property market, due to the widespread practice of lending to businesses on the basis of inflated land values as collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
. Chovanec believes that the Chinese government's recent efforts to "cool" the property market have temporarily "thrown the market into confusion," but have not changed the fundamental dynamics that encourage the Chinese to channel capital into unproductive real estate.
China's post-crisis economic stimulus
Chovanec has been consistently critical of China's stimulus package in response to the global financial crisis, although he admits that China's leaders may have felt they had little alternative at the onset of the crisis. He has stated that the challenge China faces is not quantity of GDP, but quality of GDP (economic investments that would position China for sustainable future growth), and has questioned the economic utility of many of the state-led projects designed to boost China's near-term GDP to achieve the government's target of 8%. Beginning in May 2009, he wrote that the ongoing lending boom by Chinese state-run banks could burden them with sizeable bad debt, as well as reverse a decade's worth of reforms intended to transform those banks into genuine commercial entities. He also contends that the lending boom, by expanding China's money supply more than 50% over the past two years, has created massive inflationary pressure in the Chinese economy, despite low reported increases in CPICPI
A consumer price index is a measure of the average price of consumer goods and services purchased by householdsCPI may also stand for:*Central Port Injection, see fuel injection...
. Chovanec reconciles the apparent discrepancy by arguing that China's monetary expansion has been channeled into asset inflation, including real estate, gold, jade, and other tangible forms of savings, and is only gradually working its way into more general price inflation. He argues that, unless China's economy is quickly weaned from its dependence on "easy credit and cheap money," rising inflation will force Chinese authorities to cut off liquidity, causing a hard landing
Hard landing (economics)
A hard landing in the business cycle is an economy rapidly shifting from growth to slow-growth to flat as it approaches a recession, usually caused by government attempts to slow down inflation...
.
Chovanec has been equally critical of China's growing tendency, in the wake of the crisis, to favor active state intervention and state-owned enterprises at the expense of continued market opening and private enterprise—a trend summed up in the Chinese expression "guo jin min tui" (国进民退), or "the state advances, the private sector retreats." In October 2010, Chovanec wrote that China's leaders need to stage an encore of Deng Xiaoping
Deng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
's 1992 Southern Tour, in order to recommit the country to the path of market reform, after a similar period of retrenchment.
China's currency and exchange rate regime
Chovanec argues that it is in China's own interests to move towards a more flexible exchange rate and a stronger RenminbiRenminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
. Such a move, he believes, would reduce inflationary pressures on China's economy and enhance the buying power, and hence the living standards, of average Chinese citizens, as well as reducing tensions with China's trading partners. However, he sharply disagrees with Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...
, and argues that an exclusive focus on rectifying exchange rates as a "silver bullet" is misplaced. Forcing China to strengthen its currency against its will, he contends, would only cause China to shore up its export sector through other means, and would likely result in a replay of the 1985 Plaza Accord
Plaza Accord
The Plaza Accord or Plaza Agreement was an agreement between the governments of France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets...
(in which the value of the Japanese yen doubled, yet had virtually no impact on the US-Japan trade imbalance due to structural reasons). Exchange rate reform, Chovanec believes, will only have the desired impact if it is part of a broader economic strategy in which China embraces greater market reform and opening.
The Nine Nations of China
In November 2009, Chovanec authored an interactive map-based article in the online version of The Atlantic, titled "The Nine Nations of China," in which he wrote the China can be considered not as a monolithic entity of 1.3 billion people, but as a mosaic of nine distinct regions, each with its own history, character, and dynamics shaping its future. He pointed out that, if each of these regions were actually a separate country, they would account for eight of the 20 most populous nations in the world. Chovanec says his framework was largely inspired by Joel GarreauJoel Garreau
Joel Garreau is an American journalist, scholar and author of Radical Evolution: The Promise and Peril of Enhancing Our Minds, Our Bodies – And What It Means to Be Human, Edge City: Life on the New Frontier and The Nine Nations of North America.In 2010, Garreau became the Lincoln Professor of Law,...
's 1981 book, The Nine Nations of North America
The Nine Nations of North America
The Nine Nations of North America is a book written in 1981 by Joel Garreau. In it, Garreau suggests that North America can be divided into nine regions, or "nations", which have distinctive economic and cultural features...
. Chovanec noted that while he later became aware that several previous scholars, such as G. William Skinner
G. William Skinner
George William Skinner was a leading American anthropologist and scholar of China. Skinner was a leading proponent of the spatial approach to Chinese history, as explained in his Presidential Address to the Association for Asian Studies in 1984...
had proposed similar regional breakdowns of China, his own "Nine Nations" framework and the regional descriptions that support it are original, based on his private equity investment experiences in China and his travels to every one of China's 31 provinces over the past 25 years. Chovanec has proposed that the "Nine Nations" could provide a valuable framework for conducting market research, economic analysis, and other practical applications.
North Korea
Chovanec is one of just over a thousand U.S. citizens to have been permitted to visit North KoreaNorth Korea
The Democratic People’s Republic of Korea , , is a country in East Asia, occupying the northern half of the Korean Peninsula. Its capital and largest city is Pyongyang. The Korean Demilitarized Zone serves as the buffer zone between North Korea and South Korea...
. His first visit, in October 2008, took him to Pyongyang
Pyongyang
Pyongyang is the capital of the Democratic People's Republic of Korea, commonly known as North Korea, and the largest city in the country. Pyongyang is located on the Taedong River and, according to preliminary results from the 2008 population census, has a population of 3,255,388. The city was...
, Myohyang-san
Myohyang-san
Myohyang-san is a mountain in North Korea . The mountain is named after the mystic shapes and fragrances found in the area....
, and the northern side of the Korean Demilitarized Zone
Korean Demilitarized Zone
The Korean Demilitarized Zone is a strip of land running across the Korean Peninsula that serves as a buffer zone between North and South Korea. The DMZ cuts the Korean Peninsula roughly in half, crossing the 38th parallel on an angle, with the west end of the DMZ lying south of the parallel and...
. His second trip, in July 2010, took him to the Rajin-Sonbong Economic Special Zone
Rajin-Sonbong Economic Special Zone
The Rajin-Sonbong Economic Special Zone was established by the North Korean government near Rason to promote economic growth through foreign investment. It is similar to the Special Economic Zone setup by the People's Republic of China and elsewhere to pilot market economics in a designated...
, in the country's extreme northeast, and across the Khasan
Khasan
Khasan is an urban locality in Khasansky District of Primorsky Krai, Russia. Population: Khasan is the only Russian settlement on the border with North Korea. It lies near Lake Khasan and the Tumen River...
railroad border crossing with Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
. Chovanec has been interviewed about both trips and has written detailed accounts of his experiences on his blog.
External links
- Chovanec's official blog
- Patrick Chovanec on Twitter
- Patrick Chovanec's author page on Seeking Alpha
- How Rising Prices Change the Game, Speech by Patrick Chovanec at the Chicago Council on Global Affairs, February 8, 2011
- The Beijing Consensus: Fact or Fallacy Speech by Patrick Chovanec at the Woodrow Wilson International Center for Scholars, June 30, 2011