There were two interesting and related articles Wednesday, both suggesting that the CBRC continues to be worried about the lending boom and is making what attempt it can to slow the growth of future problems. The first article, from Bloomberg, was about the CBRC’s plan to tighten rules for personal loans:
China’s banking regulator said it plans to tighten rules on personal loans, seeking to prevent the misuse of funds and curb “irregularities,” especially in lending for auto and real-estate purchases. The regulations, now being circulated in draft form, are aimed at ensuring loans enter the real economy rather than for speculative purposes, according to a China Banking Regulatory Commission statement posted on its Web site today.
This story has already drawn so much cynical comment from Chinese and foreign observers that I won’t say much more about it. The second article has Liu Mingkang, head of the China Banking Regulatory Commission, worrying about “blind” expansion among the smaller city banks. In my last entry I discussed the fact that the bulk of new lending seems to be occurring at the level of city banks and cooperatives, perhaps because they are more easily controlled by cash-strapped local governments, and this may have the result of increasing distress among these banks in the event of an economic downturn.
Perhaps policymakers agree. According to Xinhua:
Chinese city commercial banks should avoid aiming to expand in terms of size and speed, and ranking among peers, Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a statement posted on the commission’s website Wednesday. The foundation of the country’s economic recovery was not yet solid, and city banks should pursue prudent growth and pay more attention to and prepare for economic changes, he said.
China’s 136 city commercial banks achieved an average capital adequacy ratio of 13 percent by the end of 2008. Non-performing loans ratios stood at 2.3 percent and the provision coverage ratio was 114 percent. By the end of June, total assets of city commercial lenders hit5 trillion yuan (732 billion U.S. dollars), up 37.9 percent from a year ago.
Neither of these concerns is especially new, but I have to add that it is becoming harder to go more than a day or two without seeing yet another announcement by the authorities warning about the consequences of the mad dash in credit expansion. I am not an insider, of course, but it seems to me that we have been getting a rising crescendo of rumors about conflicts and disagreements within policy-making circles about the ultimate consequences of the fiscal and credit stimulus, and it is pretty clear that a lot of people in senior positions are very worried.
Part of the worry, of course, is about rising protectionism. Today Vice Premier Wang Qishan, who by the way has not turned out to be nearly as visibly active in economic affairs over the past two years as I expected, met in Hangzhou with U.S. Trade Representative Ron Kirk, Commerce Secretary Gary Locke, and Secretary of Agriculture Tom Vilsack. According to an article in Bloomberg:
The governments of China and the U.S. must “stand firmly together against trade protectionism,” Chinese Vice Premier Wang Qishan said today at a meeting with U.S. officials in eastern China’s Hangzhou city. His comment underscores an effort to resolve disputes between the two economies, which have $409 billion of trade between them.
Ron Kirk’s more neutral response was that trade frictions are a “normal part of a growing, mature relationship” that should not derail broader bilateral ties. I don’t want to read too much meaning into these comments, but they do seem to symbolize the growing distance between the perceived interests of the two countries.
Matters weren’t helped by reports of a largely symbolic upcoming launch, by China, of an investigation into whether US carmakers are being unfairly subsidized by the government. I say this is largely symbolic because I think most US cars sold in China are made here in China. The Financial Times article on the subject referred to the investigation as Beijing’s “turning the tables” on Washington. It may well be, but I would imagine that if each country started investigating export subsidies in the other country China would have a hard time winning the argument, and as the trade surplus country most reliant on export markets to absorb its exess capacity, it would be the more vulnerable to trade disputes. This is not a good argument in which to engage.
Diversifying investment
Meanwhile, and perhaps as a reaction to the sense that too much of the burden of growth is being borne by the government, directly or though the banks, it seems that policymakers want to diversify the funding source. Wednesday’s People’s Daily has this to say:
China will take more measures to encourage private investment in the next stage of its 4-trillion-yuan ($585 billion) stimulus package, an official with the National Development and Reform Commission (NDRC) said Tuesday. The NDRC, the country’s top economic planner, will allocate 3 billion yuan of government investment for small and medium-sized enterprises (SMEs) to promote their innovation capability, energy saving and emission reduction, and production condition improvement, said the official.
The government will roll out policies to shore up private investment in expanding market threshold and improving administrative service, according to the official. The official added that the stimulus investment will support more livelihood projects, and promote innovation and environment protection though he did not elaborate on any specific investment plans. The NDRC will also strengthen supervision over investment programs to avoid fund abuse and overcapacity, according to the official.
If they are able to decentralize investment decision-making I think that will mostly be positive, since the more we push decision-making down into the hands of people closer to the ground the more informed and intelligent the decisions are likely to be. I am not convinced however that this is going to happen very quickly. Previous attempts to diversify decision-making – for example the much-vaunted governance reform of the banks – ended up creating more heat than light. It is not easy to give up control.
There was another interesting bit in Xinhua Wednesday, this time about industrial profits.
Industrial enterprises in China’s 22 regions reported a combined profit of 1.55 trillion yuan (227.5 billion U.S. dollars) in first nine months, down 9.1 percent year on year, the National Bureau of Statistics (NBS) said Wednesday. NBS statistics showed the decline was 4 percentage points less than that of January-August period.
Altogether 35 of the 39 major industrial sectors realized profit growth or smaller profit declines compared with the first eight months, said the NBS. Core business revenues of those companies reached 28.8 trillion yuan in the first nine months, up 3.4 percent from a year earlier. The growth rate was 1.5 percentage points higher than that of the first eight months. The accounts receivable of enterprises in the 22 regions stood at about 3.56 trillion yuan at the end of September, up 10.6 percent year on year.
A number of my economist friends are very puzzled that furious economic growth seems to come hand-in-hand with declining profitability. I am not sure I fully understand why this might be happening, but I will add that to me profitability is not a very useful measure of economic value-added in China since, as I see it, there are huge subsidies provided to manufacturers in China in the form especially of low interest rates – as well, of course, as other things such has controlled prices for land, energy and other commodities. In that case changes in profitability are at least as likely to reflect changes in the nature of the subsidies as they are to reflect changes in underlying economic conditions.
To return to a subject carried in my last two posts, the People’s Daily also had an interesting comment (titled “Metal stockpile sell-off unlikely”) on commodity stockpiling, probably in response to the increasing discussions on that topic.
Chinese investors holding metal inventories are unlikely to sell them quickly because of adequate levels of cash on hand, a senior executive at Sucden Financial Ltd said yesterday. The downside risk to metals prices is limited due to high liquidity, Jeremy Goldwyn, who oversees business development in Asia for London-based Sucden, said in an interview at a Hong Kong conference. Copper prices may rise to record levels sometime next year, said Goldwyn.
Inventories of copper at warehouses monitored by the Shanghai Futures Exchange are more than five times the level at the beginning of the year after 4 trillion yuan in stimulus spending and State stockpiling boosted imports to a record. Prices in London have more than doubled this year on record Chinese imports. “The view is that China has seen high imports and that these inventory levels were maybe getting excessive and maybe forming a downward pressure on imports and demand,” Martin Squires, executive director at JPMorgan Securities Ltd in London, said.
Consumer stockpiles of copper, excluding government inventories, could be as much as 600,000 to 700,000 metric tons, said Squires. Inventories of copper at Shanghai warehouses stood at 95,976 tons last week, up from 17,822 tons at the start of the year. China’s copper imports more than doubled in the first nine months to 2.6 million metric tons, according to customs data.
Private Chinese investors may have stockpiled more than 50,000 tons of copper and as much as 20,000 tons of nickel, Goldwyn said on Sept 17. Chinese smelters may have between 200,000 and 300,000 tons of lead stockpiled, he said then. Gauging metals demand in China is notoriously difficult amid increased speculation by retail investors. A possible overhang in supply amid high imports and production threatens to damp demand, Chen Hongzhou, vice-manager of the marketing department at Chinalco Luoyang Copper Co, said.
University rankings
Finally, and this is on a completely different subject, although one that interests me a great deal and might interest readers looking for some color on China, People’s Daily Tuesday hailed the creation of “China’s Ivy League”.
China‘s Ministry of Education voiced on Monday its support for the formation of C9, an academic conference comprising nine domestic prestigious universities and referred to as China’s Ivy League by some experts.
Xu Mei, the ministry’s spokeswoman, said the establishment of the conference is a “helpful attempt that is conducive to the country’s construction of high-quality colleges, cultivation of top-notch innovative talents and enhanced cooperation and exchanges between Chinese universities and their foreign counterparts.”
On October 12, nine institutions of higher learning including the elite Peking University and Tsinghua Univerisity signed cooperative agreements that featured flexible student exchange programs, deepened cooperation on the training of postgraduates, and establishment of a credit system that allows students to win credits through attending classes in member universities of C9.
Other universities are Zhejiang University, Harbin Institute of Technology, Fudan University, Shanghai Jiao Tong University, Nanjing University, University of Science and Technology of China, and Xi’an Jiaotong University.
For those not familiar with the hierarchy within Chinese university system, there are two schools that are considered without reservation to be at the pinnacle of China’s universities, Peking University (known popularly as Beida) and Tsinghua University. Both are in Beijing’s northwestern Haidian district (also known as the university district since most of Beijing’s most famous schools are located here) and in fact across the street from each other. I was lucky enough to teach at both, my first four years at Tsinghua and now, for four years and counting, at Beida, and I have to say that they probably have on average the smartest student bodies in the world.
To get an idea of their dominance, every year the national exams produce two “provincial champions” for each of mainland China’s 31 provinces, municipalities (the four that have provincial status), and autonomous regions – one for each of the two high-school study tracks, hard sciences and humanities. Of these, on occasion you might get one of the “provincial champions” choosing to go to a school other than Beida or Tsinghua, but most years every single one will choose to attend either of the two premier universities. Beida tends to get more overall, and Tsinghua tends to get more of the hard science champions, although in recent years the discreet competition between the two has suddenly burst out into the open and the gloves taken off. They have been much more aggressive about offering scholarship money to the top candidates in an effort to affect their choice (by the way, you cannot apply to more than one school).
Below these two there are a number of highly selective universities that compete for the rest of the students. I was pretty aware that all the named schools except the last two were part of China’s “Ivy league”, but of course there are other highly selective schools that might have had Ivy pretensions. In particular I was under the assumption that Sun Yat Sen University, the Foreign Service University in Beijing (although perhaps too specialized), and Nankai University in Tianjing might have qualified as being among the most selective, along with one or two others, like Wuhan and Jilin and maybe even People’s University in Beijing (popularly known as Renda). For those interested, CASS ranks the top schools, although I am not sure about the criteria.
Beida versus Tsinghua
Because I spent so many years in both I am often asked about the differences between the top two schools, and I have to say that to me the differences are not nearly as great as are popularly supposed. They both draw from nearly the same pool of students but there have been and still are some small cultural differences that seem to be wearing away over time. Tsinghua has historically been heavily male while Beida historically had a slightly larger percentage of females, probably reflecting the fact that Tsinghua was for a long time primarily an engineering school (MIT is often invoked as a model) whereas Beida specialized in arts and pure sciences. Both are moving towards a more balanced student body and academic orientation although Beida is where you still are more likely to find a philosopher or a physicist and Tsinghua an engineer.
I am very involved in helping my students get jobs in the financial services industry and so I know that Beida is by far the favorite school among global investment banks – probably placing more students in these highly-desired jobs than the next two schools combined (Tsinghua and Fudan). Finance is the top major at each school, or one of the top two, meaning that it has the highest minimum required admission score for students who have taken the all-important gaokou, the university entrance exam that most high-school seniors take. To give an example of how popular it is, last year 24 “provincial champions” chose to enter the Guanghua School of Management at Beida, the most prestigious of the three faculties in Beida that offer economics/finance majors. I suspect that the School of Economics and Management at Tsinghua has a similar number, implying that around two-thirds of China’s stop students want to be bankers.
I like to think that Beida’s success in placing students in these jobs is because of my influence, but I suspect that it is more because Beida is in the front line in China in liberalizing and reforming education. Beida students are far more likely, for example, to be required and able to take courses outside their major than students from other schools, including Tsinghua, and tend to have much more varied resumes. You are more likely to meet a Beida finance major chattering excitedly about his philosophy or literature class than one from Tsinghua. They also tend to be more encouraged to have outside activities and internships. Given the extremely narrow specialization and heavy course burden of Chinese universities I think this is unquestionably a good thing, and creates more well-rounded students with greater leadership potential.
Beida is famous in modern Chinese history as being the cradle of Chinese cultural and political change. In my first year there I asked one of my students, a sophomore from Shandong province, why he had decided to come to Beida rather than Tsinghua. He smiled shyly but also a little proudly and said: “Because Beida is the edge of history.” What a great answer!
But even there I suspect that the differences between the two schools are more apparent than real. In my experience Tsinghua students are as likely to be politically active (and even fairly radical) as Beida students, and I have political discussions at equally high levels of sophistication at both schools, although perhaps my sample is heavily distorted because at both schools I dealt mostly with economy and finance majors. Tsinghua’s engineers on average may be less politically sophisticated than Beida’s philosophy or government majors.
There is by the way, and perfectly in line with conventional views about philosophers and engineers, a wide-spread perception that Beida-educated leaders are more imaginative and Tsinghua-educated leaders more effective. A Tsingua professor even told me two years ago that given the risky changes China is undergoing, the Standing Committee needs more Beida graduates and fewer Tsinghua graduates.
Most of these kids at these two schools, however, are amazingly bright and hard-working, a description I would extend to the students of any of China’s top universities. With such a huge population all so eager to get into the top schools (and China is so hierarchical that everyone pretty much ranks the schools in exactly the same way – although recently there has been a rankings scandal), you can be sure that students at any of the listed schools are pretty impressive.
This is part of the reason I have stayed so long in China – for me there are few things as much fun as teaching very bright kids. Unfortunately I think the quality of education is pretty low, and especially inappropriate for the brightest students. Such bright kids need less rote work and memorization and more opportunities to think outside the box – a practice frowned upon within the educational system. In that sense I think Beida is a real leader, moving Chinese elite education in a much better direction overall.
I enjoyed this article – particularly the comparison of Beida and Tsinghua University. I’m currently studying Chinese at BLCU and one of my classmates is considering Beida…now I know why!
Perhaps declining profitability is a system of collapsing marginal returns on invested capital? This would dovetail with ridiculous levels of fixed asset investment, no?
see http://www.scribd.com/doc/21544021/PIVOT-CAPITAL-MANAGEMENT-China-s-Investment-Boom-the-Great-Leap-Into-the-Unknown
I agree with you that Beida and Tsinghua have some of the smartest, on average, student bodies in the world. They deserve their spots at the top. And yet, in my experience, a much, much larger portion of exchange students from there than other universities (around the world) seem to plagiarize and cheat on assignments. It’s not an indicator of intelligence, but it was shocking to me. Any thoughts on this anecdotal evidence?
From personal experience, I certainly wouldn’t say Beida & Tsinghua have on average the smartest student bodies in the world. US universities like Caltech and MIT certainly have smarter student bodies. Statistically, it is also quite impossible for universities with 15,000 undergraduates drawn from a domestic talent pool (even if the largest domestic talent pool there is in the world) to compete in average student quality with a university that enroll 864 students from a global talent pool (Caltech 2008). Not to mention that the best Chinese high school students nowadays go directly to elite US universities rather than staying home.
In terms of alumni academic achievement, Tsinghua & Beida are not even the best in China. That title belongs to the University of Science and Technology, which is the largest supplier of scientific research talent to the US graduate schools and can claim more alumni as tenured faculties in US universities than Tsinghua & Beida combined.
Professor, I feel your judgement biased.
Michael,
I echo the thoughts on quality of people from Beida and Tsinghua. We have a number my organization and they are clearly top performers. Sadly, others who have impressive degrees from lesser schools, are horrible. Beware in China of people carrying degrees…that means nothing. This is why I am skeptical about the great statistics about the number of graduates each year with technical degrees. I’ll take an undergraduate from Beida any day over a PHD from a lesser school. Of course, the right thing to do is spend a lot of time with new hire candidates in face to face interviews. Avoid the guanxi hires!!!!
As to decentralizing investment decision making, I would welcome that development but I think there is also evidence of an increasing move toward centralizing decision making. Power projects now must all receive NDRC approval, whereas previously, they needed only provincial approval. But the rogue plants built with the tacit support of local and provincial governments is a hot (forgive the pun) topic. Same issue in steel.
Interesting to watch the CBRC’s move to try to take some air out of the property and equity market bubbles. I can only think of the little Dutch boy trying to plug the leaking dyke. In this case, the dyke is holding back the huge liquidity sloshing around in the economy. Plug a hole with one regulation and another leak springs up somewhere else!
How interesting to hear about Chinese universities.
I appreciate the write up.
or dike. Bu hao yi si:-(
http://www.timeshighereducation.co.uk/story.asp?sectioncode=26&storycode=408794&c=2
Here is an interesting article on Chinese university education from yesterday!
and for those interested in such things, the TOP 200 rankings for the whole world
http://www.timeshighereducation.co.uk/hybrid.asp?typeCode=438
Prof Pettis, I am a bit poor with history, was one / both of these two universities founded with the US reparations for the boxer rebellion? I seem to remember hearing such a story?
I would like to see the govt. here splash out on founding an entirely new university (maybe 2), basing it inland or in the far south, and setting up huge scholarship and funding systems to make sure they can equal Tsinghua and Beida, alleviate the immense pressure on students to get into the top 2 (slightly) and offer education to those unable to cover the fees.
Does anybody know any information about the Tsinghua group – i believe run by the president’s son, and supposedly with strong connections to the university of the same name? (also responsible for the ridiculous Nutech x-ray machines on Beijing’s subways – i suspect some nepotism here, and a bribery case in africa).
Are these metals being bought on margin or with bank loans…? I think not, bought with cash.
Seems this is what outsiders/MSM do not understand about China and the Chinese. But you live in China so maybe you should verify if such metal inventories are bought with loans. You see many of these stories nowadays about Chinese speculating, and they are essentially correct, BUT they fail to mention that these assets/metals are purchased for cash without margin or loan. That is not speculating (or much LESS speculation), IMO. Not much different than the rural Indians wearing their [gold] bank accounts around their necks, arms, and fingers.
Appears the Chinese people trust copper in a warehouse or pigfarm more than they do cash deposits in a Chinese bank. This does not seem totally unreasonable to me, especially given the low interest rates on savings.
I really enjoy your articles and comments.
I disagree that the best Chinese students go directly to US universities. I know a lot of top-notch students who chose to stay in China for their undergrad degree rather than deal with the expense of US universities and the hassle of getting visas. A lot of these students would rather come to the US for a graduate degree, which in many fields is still more or less free. Of course there still are some good students who will come to the US from wealthy families that can afford the expense, but on average I’d say that student is less “chi ku” than the student from maybe Gansu or wherever who studied his butt off to beat out nearly everyone else in the province and become one of a handful from the province admitted to Beida or Qing Hua. Overall, I believe the US “brain drain” is less prevalent than it used to be. In addition, I know a large number of Chinese with US graduate degrees who have gone back to China because there aren’t enough desirable employment opportunities in the US, just take a look at applications for H1B visas.
Mike, I can’t wait for the NYC shows, I’ve got a couple of friends excited to go as well, one of whom is a huge Xiao He fan.
My sample size is sample, I think three, but the Baidu graduates at my ‘elite’ American law school easily outperformed the vast majority of their classmates. All three are going to top 3 law firms in NYC.
I didn’t think my praise of Tsinghua and Beida students would be so controversial here and on other sites that carry my blog – I actually had to delete a few comments that were not very useful to the discussion – but I guess any discussion of university rankings is controversial. As I left class today one of my students told me that this entry has already been reprinted and discussed in many student websites around the country. He also told me that most people were in agreement with my comments, especially on the differences between the two main schools, even though I tried to suggest that the differences are less than the stereotypes suggest.
Ender, cheating and plagiarism is a real problem, both here and with Chinese students abroad. The dean of one Ivy League graduate school once told me that Chinese students represented less than 5% of the student body at the school but over 80% of disciplinary actions involving plagiarizing. I am not sure why this is the case, but at least part of the reason must have to do with very different ideas about what constitutes plagiarizing. I remember in my first year at Tsinghua, when my graduate students were required to hand in research papers (never again will I do that), I was astonished to find, after wading through pages and pages of obviously lifted writing without citations, that one student had submitted nearly two pages in his paper with writing that was incredibly familiar to me. I suddenly realized that the two pages had been lifted from one of my own books, without any citation. Since we recognize in the West that plagiarizing is cheating, and can lead at best to a failing grade and at worst to expulsion, one would assume that any student who was plagiarizing would try to avoid getting caught, but when a student plagiarizes the book of the professor reading the paper, it is pretty clear that avoiding detection was not part of the plan at all. So what was he thinking?
J, I am not sure I agree with your statistics. If everyone in the US were trying to get into Caltech, the much smaller student body might well imply a more selective ratio, but perceptions of quality in US education are much less hierarchical. No two schools in the US, not even Harvard, will be targeted by all the best students in the way Tsinghua or Beida are. There are at least ten schools, and maybe more, in the US that have priority for different students. For example I was the top student in my high-school, and although my parents forced me to apply to two other schools as backups, another Ivy League school and one of the top two English schools, there was never any question in my mind about going to Columbia and New York City.
Even though I was a physics major the idea of going to such a specialized science school as CalTech had no interest for me. In fact I also didn’t want to apply to MIT, thinking that it was too limited to science and engineering to be of interest to someone like me who liked phsysics but wanted to be in a more “literary” environment. I am pretty sure that a lot of American student besides me have had very different ranking systems, whereas in China the pressure to get students into Tsingua and Beida is so relentless (top high-schools advertise mainly by listing the number of last year’s graduates that got in), that very few students who can get in would choose to go to other schools.
I also have to disagree with your claim that supplying scientific research talent to US graduate schools is a very strong proxy for the quality of the student body. This clearly creates a bias towards academics and towards science, but it is not clear to me that the smartest students overwhelmingly choose either. If we were to use other measures to measure intelligence the results would be very different. For example I am always impressed by schools that produce the most interesting and innovative artists, writers and musicians, and by that measure I suspect UST would barely make the top fifty in China, whereas Tsinghua and Beida, like other big schools in Beijing, would do particularly well (with Beijing Institute of Technology, for some reason, being a real hotbed for music). Similarly if we expanded our definition of intelligence to include China’s leading intellectuals, or the top political, business or financial leaders of China, Beida and Tsinghua do very, very well.
But I would qualify my claim that on average they probably have the smartest students by saying that there is a very tight distribution around that average. One of the glories for me of places like Harvard, Princeton or Columbia is that the discretionary admissions process allows them to admit the kinds of eccentric geniuses that might otherwise score very badly in standardized tests. I guess Einstein himself would have had trouble getting into a very selective school, and of course would never have been admitted to Tsinghua or Beida. The nature of the intelligence of the Beida/Tsinghua student body seems to me to be much more uniform.
Houhui, I think Tsinghua was originally built around and American high-school, and yes, both Tsinghua and Beida, as well as several other schools, were funded largely out of the American “share” of the reparations payments, all of which I believe was used either to build schools in China or to pay for Chinese students to study abroad.
Marks, there are supposedly strict limits on margin financing, but of course money is fungible and there is a lot of anecdotal evidence that margin rules are bent. In addition forward purchases or purchases in futures markets are automatically on margin.
Matt, some very good Chinese undergraduates do go abroad, but just given the weight of numbers I agree that most of the top students stay in China. The problem for the top students is not always money, since most of them come on scholarship, but also language. Buy the way I am not sure if the brain drain is better or worse. My understanding is that most Chinese students in the US, especially the top ones, still generally end up staying in the US. At any rate we really need to get long data series before we can know because in the short term volatility in migration patterns is always highly correlated with the economic cycle.
I hope to see you and your friends at the New York shows, Matt. Xiao He really is an astonishing musician and he is pretty excited about going. This is his first vist to the US and he just got marrried last Saturday, so lots of things are happening to him.
This furore over the rankings post is (with no offence to anyone) rather amusing. Sounds pretty much a typically asian phenomenon – the handwringing and outrage etc. Though having looked briefly at the times ranking , some deans and university higher ups are probably having apoplexy right about now – frankly how do you score international staff? The very idea of some contemplating throwing themselves into the isis has really livened up halloween!
It’ll really be interesting to see how those loans are kept out of those greedy speculative grasping hands. The very price and volume of the speculative runs on metals and other commodities would indicate margin trading no?
Michael,
I think it’s great that yo’are able to help your students get some of the most desirable jobs in the financial industry. However, given that the Beida students are among the smartest in all of China, don’t you think this is a waste of talent? I think there’s no doubt that – measured by the value-added of their work/output – investment bankers are vastly overpaid.
It is not a crime for a Chinese individual to be driven by pecuniary interests (i.e., to pursue a job in the financial industry), but don’t you think if this continues, China will move towards the same direction that other financial centres such as NY or London have moved to, where you waste an awful lot of human resources in the banking industry by paying them generously for moving money from A to B instead of performing other jobs with a larger substantial value-added for the real economy?
To cut it short, as with any other country, do you think it’s the best thing for China if most of its smartest graduates become bankers?
Dragonbay, although I think a well-functioning financial market has a very positive impact on growth, and China desperately needs one, no, I do not think it is at all a good thing that finance draws such a heavy proportion of the most talented, and I know that even many of Beida’s finance professors are a bothered by this. The good news, I guess, is that in the late years of previous globalization cycles the relative importance and profitability of finance has always surged and, with it, the number of top students who were interested in finance as a career.
After the end of the cycle, however, finance declines sharply in importance over a several year period and becomes much less of a draw for the most talented and ambitious. Remember that in the very first paragraph of “The Great Gatsby” Nick Carraway decides to become a bond salesman after graduating from Yale largely because that is what everybody else in his class did. A decade later he would have never made that choice. I suspect that in three of four years investment banking will draw a much smaller group of top gaduates, in China and elsewhere.
Mr Pettis
nice shot from fitzgerald but unfortunately some of the brightest on both sides of the atlantic have for decades gone straight into banking , except perhaps during the depression and war years? There was an interesting article in the nyt regarding pay in relation to the banking industry; would be interesting to hear from an experienced alumnus of the industry? what do you think?
I hail from the computer science side of life, working with a major research consortium that counts as members virtually all of the R1′s in the States. We’ve also got heavy international partnerships with Europe and many countries across Asia.
I’ve worked with students ascending the ranks of both Universities mentioned, mostly as their professors recruited me as an expert in the field for graduate projects they were undertaking. The kids stunned me with their aptitude and knowledge. Frankly, my encounters with Beida students — far more than anything I’ve encountered domestically — have filled me with hope for innovation and advancement in the future.
MIT and Stanford are both hollow shells of what they once were. I’ve been repeatedly and distinctly underwhelmed by both the choices made by administrations and bean-counting CIO’s across U.S. higher ed, and the lack of work ethic and practical skills in the student body. All the money and prestige in the States goes into facilities and football and basketball teams. It’s embarrassing.
Grad students in Japan were the most mediocre I’ve encountered, which seemed strange to me since they’re sharp people who don’t travel or study abroad as often; contacts there report the good talent gets an undergrad only before being slurped up by the corporate world.
Hey Michael,
Thanks for the wonderful response and it is a great pleasure to know that we both went to Columbia and majored in Physics (though I was actually in applied physics, in the fu foundation school of engineering).
There is of course no objective measurement of talent and I agree academic research achievement may not be the best proxy. My judgment, ultimately, is framed by my own experience, which includes knowing quite many Beida/Tsinghua-ers who are less than impressive.
Also, that Beida & Tsinghua are the target of every student in the nation may be true, save, perhaps, for Shanghai. Most kids in my high school (one of the best in Shanghai) prefer Fudan to Beida/Tsinghua, with the best of them coming directly to the U.S. for undergrad study on full scholarships.
Hello from Russia!
Can I quote a post “No teme” in your blog with the link to you?
comparing Beida and tsinghua is just like comparing harvard with MIT, and it is really of very limited value, if there is any. They are both top schools. It makes academicians proud. Chinese political system is closed system, and there is no free press. It is controlled by the central government. Many children of high rank party officials go to beida, and that’s why beida is the edge of history. Chinese history is not history of people, and it is history of emperor.
It is also pretty scary when almost all the top talents want to be bankers. what kind of society will it be when the top talents all become bankers?
I guess you won’t comment on the corruption in China. Corruption takes on a new meaning there. I don’t know if it is true or not, but I heard all the high ranking party members are either Master graduates or Ph.D graduates regardless their real education levels. I hope this is not true, but who really knows? I guess the same can be said about the GDP also.
The Chinese educational system is rather weird. It encourges students to memorize, and take down nearly every single word by the teacher. Yet it produces a generation of argumentative persons who can think of 1001 ways to prove you wrong.
I guess there’s some merits to the learning system. However, the examination system should change to allow freedom in thinking.
I don’t think it’s suprising that Chinese education is very much based on rote learning. 50 years ago, with hundreds of millions of illiterate people to educate, how can the government quickly educate them all? Rote learning. There’s some historical/cultural reasons for rote learning too, such as how Confucian classics were traditionally taught, but I like the functional explanation better. Anyway, training teachers to bring out the creative fervor of students without screwing up and giving them subpar education is very tough to do. It requires years of observing how students respond etc… For a country worried mostly about bringing the majority of the population to a desired standard level, rote learning is much more efficient. The average teacher won’t have to think as hard when making and marking tests either (don’t have to try to think too hard to find new and interesting problems). In this way, you can produce more teachers who can then teach student en mass.
I suspect as China catches up, rote learning will become less valuable. China’s educational style will eventually begin to change and accomodate to new demands for creative thinking.