About Lenses

It is the play of the ray of the light through the center of the lens that determines the point of image creation .http://www.univ-lemans.fr/enseignements/physique/02/optigeo/lentille.html

Rational Periodic

Chinese Bailout

from Le Monde, Nov. 19, 2008
Jean-François Huchet

AN OVERVIEW OF THE CHINESE BAILOUT

The annoucement of a vast plan to stimulate the Chinese economy, more important than that awaited by most analysts, is a sure sign of worry on the part of the government in Peking with respect to a rapid deterioration in economic indicators. It is yet too soon to give a detailed analysis of the impact of this plan. Yet its size - almost 546 billion dollars (431,3 billion euros and thus almost 16% of Gross Domestic Product) - does show that the optimistic view of a China getting through without too many challenges the world economic crisis without government intervention was becoming impossible to sustain. What are the elements that could have led the Chinese authorities to intervene so massively?

First of all, the importance of domestic repercussions to a drop in exports. A drop in the orders from foreign buyers has cascading consequences for the myriad of small to medium enterprises that act as sub-contractors and furnish semi-finished products to firms (Chinese as well as foreign) that operate and export from Chinese territory. Statistics don't fully show these effects.

As well, these sub-contracting Chinese SMEs find themselves operating on a trades basis in geographically delimited industrial parcs. The economic and social consequences of a drop in exports becomes amplified in certain geographic zones of the delta of the Pearl River near Hong Kong or in the provinces surrounding Shanghaï.

And, these contracting Chinese SMEs work on high volumes of large orders to off-set very low profit margins per produced unit, this because of the fierce competition these firms constitute for each other and in view of the little value-added for the foreign firms that sell the finished product in the United States or Europe.

A loss of orders from foreign clients thus might have catastrophic effects for the least organized sub-contractors. In a context where it is always difficult for SMEs to obtain loans from large public banks, which prefer making loans to state-owned enterprises, these sub-contractors have no liquidity with which to pay for raw materials and salaries.

Secondly, a natural re-orientation of Chinese growth toward Chinese consumption, an objective announced by the government as early as 2003, seems to have had difficulty being achieved in a significant manner over a few short months. Chinese households build up precautionary savings to meet education costs, but also in response to insufficient or absent social policies with respect to retirement and health. On top of these structural considerations, one would have to count in equally two circumstantial phenomena which would certainly have a negative impact in the coming months on the consumption patterns of households.

Even while it is still difficult for us to measure, in particular because of the opacity concerning the identity of holders of share acounts in China, the abrupt collapse since last spring of the Stock Exchanges of Shanghaï (- 65%) and Hong Kong ( - 50%) should affect the anticipated revenues of the middle classes. Furthermore, the psychological impact of the international crisis, which had largely by-passed urban Chinese households during the Asian crisis of 1998, seemed this time to touch them more directly. These factors were starting to have a negative impact on real estate, which is one of the principal pillars of Chinese growth since the middle of the 1990s.

It is thus not a coincidence if beyond the traditional infrastructure expenses for which there is no doubt still a lot to be done in China, the bailout plan seems to give a lion's share to social expenses and help to real estate for those of intermediate income. The size of the announced stimulus package as well seems designed to counter the negative psychological effects of the international crisis on the Chinese consumer. The stimulus package also allows China to deflect the criticisms which would have certainly arisen on the deficit in internal consumption and the excess in savings, which contribute to imbalances at the world level.

This stimulus plan nonetheless raises a few questions. First of all the manner of its financing. With a public debt close to 16% of GDP and a fiscal surplus which should rise to 2% this year, Chines authorities have more room to manoeuvre than they did in 1998. Yet many anaslysts question the true margin enjoyed with respect to taxation. Things could be tighter than official statistics show.

At a time when tax revenues should go down steeply, the quick growth of certain structural expenses, which are beyond control in view of their social character, will continue thus putting in place a welfare state, a central element in the pursuit of endogenous growth. Yet this analysis also points to the existence of a non taken-into-account debt concerning retirement expenses and defaulting loans in public banks, which risk growing rapidly in the present context.

It would thus not seem surprising to see the State require from public entities, such as state-owned enterprises or state banks which have seen their profits go up considerably in the last few years, to contribute for a part of this effort, thus avoiding a too large budgetary deficit. Indeed, the annoucement defines an effort over two years, without mention of whether this is new money (which would be a massive sum) or whether it encompasses what the State had already decided to invest.

Yet, one might wish to question the short term impact of increased public spending in promoting spending by households. One can only applaud the efforts of the Chinese government on the social front, but it will surely be many years for social protection and education systems to be sufficiently transformed for it to have a deep impact on savings behaviour or consumption.

These questions aside, the announcement of a bailout plan shows once more a remarkable capacity for macroecenomic leadership on the part of the Chinese government, which might well enable it to soft-land its economy with a growth rate close to 8% for the year 2009.

Trader News

Berlin Old and New

www.spiegel.de/video/video-39727.html

Stoïc

From: Gilles Prod'homme, "Preparing for happiness, The Way of the Stoïcs", Eyrolles 2008.

Another difficult notion for a contemporary thinker: the bloc-universe of the Stoïcs is not static. In effect, it evolves according to an eternal cosmic cycle: initially, the artist fire manifests the universe, which, like all that is alive, is subject to birth and death. In the view of the school of Stoïcism, the Universe appears only to disappear again in a sort of final fire. This is the universal conflagration. At the end of a cosmic night, impossible to evaluate in terms of human time, and in which God contemplates his own essence, a new reality becomes manifest. And everything begins anew since each one of us relives the same events: Socrates once more walks the streets of Athens, Plato again writes his dialogues. This is palingenesis. Let us note in passing that this cyclical form of creations and dissolutions shows deep similarities with the system of the Days of God or Manvantaras of hindu gnosticism. Nietzsche's notion of an eternal return also echoes, in certain aspects, the speculations of the pre-Socratics and first Stoïcs.