Wednesday's Top 10: China's 'advantage of backwardness'; The US$14 trln cost of the GFC; Mt Eden manager Serco in deep UK doodoo; 'The naked officials are coming'; Dilbert

Here's my Top 10 links from around the Internet at midday today.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #6 on the transformation in China's economy, which hasn't quite happened yet...

1. 'The advantage of backwardness' - Former World Bank Chief Economist Justin Lin (not the basketballer) is downplaying all the talk in recent weeks about a hard landing in China.

Lin says China still has a lot of urbanisation to do, which will help drive a lot more growth.

It can also take advantage of a lot of technology used elsewhere and yet to be adopted in China.

He's picking growth will stay above 7.5%.

It's certainly a hot topic and relevant for New Zealand. 

There's more below at #2 and #6.

Here's Lin in the FT:

“In the past 33 years the prediction about the coming collapse of the Chinese economy has appeared periodically and that kind of prediction was cherished by many people,” Mr Lin said on Monday. “I’m reasonably confident the Chinese government has the ability to maintain a 7.5 to 8 per cent growth rate.”

Mr Lin said his prediction was partly predicated on Beijing continuing to implement market-oriented reforms and taking counter-cyclical measures to stabilise growth when it slows. He said China still has the “advantage of backwardness” and the potential for technological catch-up when compared with advanced economies. He pointed out that China’s per capita income was just 21 per cent of the US in 2008 in purchasing power terms – a comparable level to Japan’s in 1951, Singapore’s in 1967 and South Korea’s in 1977.

2. And maybe it doesn't matter much anyway - There's also a theory that New Zealand would not be hit too hard by any China slowdown because most of our China-linked growth comes from Chinese consumers buying more quality food and going on holidays. The Chinese slowdown appears to be more about switching from (bad) investment-heavy growth to (good) consumption-heavy growth. 

Here's Tony Alexander in his most recent and always excellent Growing With China report. 

He points to another reason why a China slowdown may (perversely) actually boost New Zealand house prices.

Perversely, the weaker the outlook for China the weaker the outlook for Australia, the lower the net loss of Kiwis across the ditch therefore the greater the population growth rate in New Zealand and the greater the upward pressure on the NZ housing market!

Yet slowing Chinese growth would appear also to be a depressing factor for the NZ economy – especially as now 18.7% of our export receipts come from China and 9.5% of our visitors compared with 7% and 5.7% respectively just before the Free Trade Agreement became effective in October 2008. True. But followers of the long term economic debate in Australia will be aware that Federal and State development efforts are shifting toward how to position Australia less as a supplier of minerals to China and more as its food bowl.

This change is driven partly by the structural easing in China’s rate of growth in demand for minerals, and partly by a realisation that soaring middle income earner numbers are demanding safe, quality food. That is what NZ supplies already. Therefore, although much of the commentary we shall read about China in the near future is likely to be of downbeat nature, for New Zealand the situation is not as bad as for Australia given our high and still rising exports of quality food products to China.

3. US$14 trillion - That's the cost of the Global Financial Crisis as measured in a study by the Federal Reserve of Dallas.

The 2007-09 Financial crisis was associated with a huge loss of economic output and Önancial wealth, psychological consequences and skill atrophy from extended unemployment, an increase in government intervention, and other significant costs. Assuming the Önancial crisis is to blame for these associated ills, an estimate of its cost is needed to weigh against the cost of policies intended to prevent similar episodes. We conservatively estimate that 40 to 90 percent of one year's output ($6 trillion to $14 trillion, the equivalent of $50,000 to $120,000 for every U.S. household) was foregone due to the 2007ñ09 recession.

We also provide several alternative measures of lost consumption, national trauma, and other negative consequences of the worst recession since the 1930s. This more comprehensive evaluation of factors suggests that what the U.S. gave up as a result of the crisis is likely greater than the value of one yearís output.

4. The Germans and the Greeks - Business Insider has a chart here showing how Greek imports collapsed and German exports just kept on surging after 2008. 

The first shows Greek imports (red line) vs. German exports (blue line) since about the introduction of the Euro. Both are indexed to start at 100. As you can see, Greek imports exploded after the Euro’s introduction (as the country got a stronger currency and cheaper access to credit) and this proved to be a gigantic boon to German exporters, who now had a much wealthier end market in Greece. German exports boomed at roughly the same pace as Greek imports (note there’s more to the Euro crisis than just Greece, but it’s a good example to magnify the whole situation)

5. The pressure on Serco - In Britain Serco is in deep trouble. It runs the Mt Eden prison for the government here.

Here's The Guardian with the latest:

Thanks to its contracts for tagging offenders, the company was now the focus of panic at the Ministry of Justice, where it had been discovered that it was one of two contractors that had somehow overcharged the government for its services, possibly by as much as £50m; there were suggestions that one in six of the tags that the state had paid for did not actually exist. How this happened is still unclear, but justice secretary Chris Grayling has said the allegations represent something "wholly indefensible and unacceptable".

The firm that links these three stories together is Serco. Its range of activities, here and abroad, is truly mind-boggling, taking in no end of things that were once done by the state, but are now outsourced to private companies. 

6. 'China is not crashing' - That's the view of Stephen Roach in this Project Syndicate piece where he points to a recent surge in China's services sector:

The rebalancing of any economy – a major structural transformation in the sources of output growth – can hardly be expected to occur overnight. It takes strategy, time, and determination to pull it off. China has an ample supply of all three.

The composition of GDP is probably the worst metric to use in assessing early-stage progress on economic rebalancing. Eventually, of course, GDP composition will provide the acid test of whether China has succeeded. But the key word here is “eventually.”

Far from crashing, the Chinese economy is at a pivotal point. The wheels of rebalancing are turning. While that is not showing up in the composition of final demand (at least not yet), the shift from manufacturing and construction toward services is a far more meaningful indicator at this stage in the transformation.

7. Global downturn - This chart via economonitor showing factory output in China, America and Europe tells the story of a slowdown in the US and  China, but a slight rebound in Europe, or at least northern Europe.

8. 'The naked officials are coming' - Tony Alexander includes some thoughts from a New Zealand citizen of Chinese descent in his latest Growing With China newsletter to explain the apparent influx of Chinese money to Auckland.

There are only three countries in the world currently running an immigration policy in which you can apply for a residency visa before you go to live in there (which is what I did in 2001): Australia, New Zealand and Canada. One survey found out that 20% of private entrepreneurs have already had permanent residency of some developed country, mainly US, Canada, Australia or New Zealand, and 80% of the rest are considering migration.

There is a new Chinese term: Luoguan, or naked official, which means the official has sent everything, except him/herself, out to another country so he/she can run away once he/she smells something wrong with regard to his/her accumulated wealth.

9. A sign of things to come - America's movie studios haven't been paid for the movies now showing in China since the end of last year, Hollywood Reporter says.

The Chinese want to collect a GST on movie receipts. The studios say a new trade agreement between China and America means they don't have to...

Since late 2012, Hollywood studios haven't seen a dime returned from a slew of movies generating big grosses at the Chinese box office, including blockbusters Skyfall, Man of Steel and Star Trek Into Darkness.

Numerous sources tell The Hollywood Reporter that the China Film Group stopped payments pending resolution of a fight over a new 2 percent value-added tax. The China Film Group wants the studios to pay the tax but the studios say that the additional payment would violate a landmark World Trade Organization agreement reached last year between U.S. Vice President Joe Biden and Chinese President Xi Jinping.

10. Totally John Oliver with more on Anthony Wiener. It's the story that just keeps giving.