Author Archives: gaochen

The Auto Market in China

Recently, Volvo Car Corp. made an announcement that China will become its biggest market this year and replace the position of US. This year, Volvo sold 80,000 cars in China, compared with 61,146 in 2013. Fiat and Chrysler also have a positive expectation for China market. They plan to build Jeep vehicles in China for the domestic market starting in late 2015. The booming auto market in China under the background of economic slowdown makes people wonder the reason behind it.

First of all, I think China’s young generation are relative richer than their counterparts in the world. Due to the one-child policy imposed as the basic national policy in 1979, there are millions of Chinese under 30 who are the only children in their families. Different from most of their peers in other countries, this group of young people could enjoy fully financial support from their parents and even grandparents. Most of them don’t need to borrow money for their education and some even own houses before graduation. The special policy make the young generation relative richer and have more disposable money, which have a great impact on various markets such as luxury goods and housing markets. Also, the young people have a huge demand for vehicles. That can explain the reason so many manufactures are moving their emphasis to China and design new types of cars for young people. At recent Beijing auto show, we could find sport-utility vehicles form world famous manufactures such as Mercedes and Porsche. SUVs are not big sellers in the US, however, it seems that they attract the attention of many young people in China. So far BMW has sold 250,000 of its X6 SUVs in China since the model was launched.

Moreover, Chinese high-end customers are willing to try new types of cars. Some high-tech cars like Tesla are becoming more and more popular in China. Tesla started to sell its Model S for $121,000 in China and competed with luxury brands like SMU AG and Volkswagen AG’s Audi. The popularity of Tesla makes the company confident that they could sell 5,000 vehicles in China this year. Also, Chinese government supports the market for so-called green cars. Since these cars could reduce the air pollution and reduce the country’s reliance on oil, the government has promoted the selling for this kind of cars for years. According to Wall Street Journal, central and local governments offer generous incentives to encourage consumers to buy environment friendly cars made by certain Chinese manufactures. Some cities exempt license plate fees while others proved tax exemption for buying these cars.

Therefore, the auto market especially that of high-tech cars would gain an increasing popularity in China. Maybe in the future there would be less demand for vehicles, but at least now we could not see the sign of a decreasing market.

(Revised) China GDP Grows Even Slowers

China’s gross domestic product growth in the first quarter decreased to 7.4% that is the slowest level in 18 months. The continuous economic slowdown of the world’s second-largest economy really makes people worry as China plays a more and more important role in the global market.

Since about three years ago the government started to emphasis the development of financial market and innovation of technology instead of relying on export and governmental investment. Therefore, some economists treated the slowdown of China’s economy as an inevitable sign during the transition. “It’s a move in the right direction,” said ING economist Tim Condon. He thinks 2013 was not a good year for restructuring in China, but the situation could be better in2014. However, China’s GDP growth has fallen to 7.4%, compared with the double-digit growth few years ago. Should we worry about the further slowdown of China’s economy?

There are signs of slowdown in many areas. Due to the control over housing market, the fixed-asset investment that covers machinery, land and buildings slightly increased to 17.6% in the first quarter, which is less than the 17.9% expectation. The growth of retail sales struggled to keep the same level as before. However, the anti-extravagance campaign introduced by the government could seriously affected officials’ consumption of luxury goods such as cars, yachts and tourism. Moreover, bad news also came from its financial market. The local government debt level has become an increasing danger. Defaults also happened on trust loans and corporate bonds since the start of 2014. As more and more problems exposed, Chinese government should really take some measure to stop the trend of slowdown before it is too late.

In the long term the aging population will also be a threat the economy. Right now China still has millions of people trying to get into big cities from rural areas and keep a relative low labor cost. However, the society has shown a very sign that the graying dependents are ballooning because of decades of One-Child Policy. Once the country gets older, not only the economy will lose its vitality but also the social culture would change and seek safety and stability instead of risk and acquire.

Premier Li Keqiang said that China needs to keep economy growing at a speed of 7.2% in order to provide enough employment. Before the figure reaches the bottom line, the government announced a plan of economic stimulus in April. It includes the construction of railroad and rural area.  Other measures such as tax reduce and governmental investment in the market could also be expected as the following steps of the government. On the other hand, the market gave a positive response to the measures of government. The stock markets in Shanghai and Hong Kong went up after the announcement.

Therefore, the economics reform could no longer be an excuse for the slowdown as the GDP growth has almost reached the bottom line. It is time for the government to take actions to activate the economy and labor market as well as recover the growth to a safe level.

China GDP Grows Even Slower

china-gdp-growth-annual

China’s gross domestic product growth in the first quarter decreased to 7.4% that is the slowest level in 18 months. The continuous economic slowdown of the world’s second-largest economy really makes people worry as China plays a more and more important role in the global market.

Since about three years ago the government started to emphasis the development of financial market and innovation of technology instead of relying on export and governmental investment. Therefore, some economists treated the slowdown of China’s economy as an inevitable sign during the transition. “It’s a move in the right direction,” said ING economist Tim Condon. He thinks 2013 was not a good year for restructuring in China, but the situation could be better in2014. However, China’s GDP growth has fallen to 7.4%, compared with the double-digit growth few years ago. Should we worry about the further slowdown of China’s economy?

There are signs of slowdown in many areas. Due to the control over housing market, the fixed-asset investment that covers machinery, land and buildings slightly increased to 17.6% in the first quarter, which is less than the 17.9% expectation. The growth of retail sales struggled to keep the same level as before. However, the anti-extravagance campaign introduced by the government could seriously affected officials’ consumption of luxury goods such as cars, yachts and tourism. Moreover, bad news also came from its financial market. The local government debt level has become an increasing danger. Defaults also happened on trust loans and corporate bonds since the start of 2014. As more and more problems exposed, Chinese government should really take some measure to stop the trend of slowdown before it is too late.

Premier Li Keqiang said that China needs to keep economy growing at a speed of 7.2% in order to provide enough employment. Before the figure reaches the bottom line, the government announced a plan of economic stimulus in April. It includes the construction of railroad and rural area.  Other measures such as tax reduce and governmental investment in the market could also be expected as the following steps of the government. On the other hand, the market gave a positive response to the measures of government. The stock markets in Shanghai and Hong Kong went up after the announcement.

Therefore, the economics reform could no longer be an excuse for the slowdown as the GDP growth has almost reached the bottom line. It is time for the government to take actions and recover it to a safe level.

(Revised) Some Facts About Occupations And Wages

Recently, the Labor Department released a detailed report on 821 occupations and wages in US. According to the Wall Street Journal, the average income of orthodontist is about 196,270 dollars, which surpasses the average 178400 dollars of CEO. Other interesting facts include the average wage of nuclear-power reactors is about 78410 dollars and it is less than the funeral-service managers’ average wage of 80250 dollars. Anesthesiologists make the highest salary among all professions with 235070 dollars on average, while food preparers earn the lowest wage of about 19000 annually. If we take a closer look at the report, we could find more interesting information.

First of all, we can find 10 largest occupations accounted for 21 percent of total employment. Those jobs include retail salespersons, cashiers, food preparation and serving workers, registered nurse, office clerks and so on. All of these ten occupations belong to low paying ones and their wages range from 18880 dollars to 34000 dollars, compared with the mean of all occupations with 46440 dollars. Also, we can find the huge difference between high-wage jobs and low-wage jobs. Anesthesiologists and surgeons who only composed a tiny proportion of overall employment earn more than ten times that wage of workers such as cashiers or salespersons. If we look at the data from the aspect of industries, we could find the financial industry is still the one with highest wages. And among all positions in financial industry, jobs as brokerage or personal financial advisors not only have the high wage level but also attract the most employee, 41 percent of total industry employment. The similar situation could also be found in high-tech companies that hire software developers.

The report to some degree also gives us some guide for choosing majors or future career. According to the report, it is definitely good to be a doctor because such positions almost provide a best return among all jobs. For example, anesthesiologists could make the highest average salary because most of the big surgeries the need of anesthesiologists and therefore hospitals have a huge demand for them. Besides doctors, sectors such as engineering, computer science and finance could be the majors that guarantee a good salary after graduation. According to the website of Forbes, the most promising major is biomedical engineering which has a staring salary of 53800 on average as well as a growth of 82%. The following majors are software engineering, environmental engineering and petroleum engineering with wages ranging from 155000 dollars to 87800 dollars. Finance is definitely another good major for students to study, however, it requires more and more from students such as previous experience and quantitative skills.

Therefore, we could see from the report that the wage gaps between different jobs are huge. It is a good guide for student to consider when they are consider about their career in the future. Although it is also important to choose majors based on our interests, sometimes we might need to be practical and consider the demand of the market in order to find a decent job after graduation.

The Low Participation Rate

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participation

The most recent jobs report shows a continued low participation rate in the labor market. While the unemployment rate has fallen to 6.7%, only 63.2% of Americans 16 or older are participating in the labor market. In the past, the job growth, labor force participation and employment rate had a positive correlation with each other, however, we haven’t seen it for a long time. Although we see a slight decrease in jobless claims that often be treated as a sign of vigorous labor market, we still can’t say the labor market has returned to a healthy state given the lackluster in participation rate.

There could be two possible explanations for the continued low participation rate. It could be a cyclical result of the economics crisis. Some researchers found that there is a positive relation between the employment rate and labor participation. During the recessions before, the market also saw these two elements declined at the same time. If this is the case, we should expect to see a higher participation rate as the economy circumstance became relative stable now. Another explanation is structural factor in the labor market. According some economists at Fed of Chicago, one quarter of the decline in labor-force participation since the Great Recession can be trace to retirements. However, this explanation also has its problem because it can’t explain the low participation rate of young workers. There might be joint effect of these reasons that cause the lasting low participation rate.

In order to encourage people to return to labor market, the government should provide financial subsidy for low-wage workers. For example, the income tax might be a heavy burden for low-wage workers. So the government might want to further cut down it in order to stimulate the participation in labor market. At the same time, the reform for unemployment benefit is necessary. It is true that such benefits like unemployment insurance could largely help jobless to get through during the difficult time. However, we should also notice that some might not want to spend time and energy to find new jobs if they could get jobless benefits easily. Although it is hard to find the balance between helping jobless and discouraging them from going back to work, the policies should make sure getting a job is much more beneficial than dropping from labor market for most of the people.

There has been debate over extending unemployment insurance and raising the minimum wage. However, such measures could only affect the income of some Americans and have less power to encourage people return to the labor market. The government shouldn’t ignore the problem in the low participation rate.

(Revised) The Recent Protest and The Trade between Taiwan and China

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Recently, there was a big protest movement against the bill for cross-strait business agreements with Mainland China in Taiwan. According to Wall Street Journal, a group of students had seized the legislature’s main assembly hall and blocked themselves inside because the Nationalist Party and Communist Party worked out a services trade pact that seems unclear to the public. Currently the bill is still in parliamentary session and the protesters were trying to delay it and engage into the drafting process. The opponents claimed that the services pact is not transparent. They worried that a closer relation between two governments would threat the profit of small companies in Taiwan. Therefore, they asked for rights to oversee the bill. The movement finally clam down after the Legislative Speaker Wang Jinpyng promised not to resume with the bill until they could guarantee the public’s right to oversee the process. Mr. Chen, one of the protest leader said, “Our occupation of the legislature has accomplished a mission for this stage. We understand everyone here has different expectation toward this movement, but after taking stock of what we have attained this will be the best moment for us to walk out of the legislature and continue our mission in different parts of the country.”

There were several protest went on after the relation of Taiwan and Mainland China became more and more intimate. Lots of small businesses in Taiwan start to fear that the big companies would dominate the market and cast more control over the economy of Taiwan. Is the corporation going to diminish after waves of protests? Obviously, the answer is no.

First of all, the Mainland China actually has a growing scale of business with Taiwan. Right now, a third of Taiwan’s annual export would go to Mainland China. And the investments of Taiwan’s companies in the inland have seized enormous profits because of the relative cheap labor and favorable tax conditions. Taiwan’s companies like Foxconn, a company that assemble electronic devices, plan to open more factories to make use of the local labor and larger market. Since the services pact could benefits both Mainland China and Taiwan’s big companies especially, the governments would definitely want to continue their cooperation in the future. Moreover, according to the reveal of Wall Street Journal, the financial organizations are expecting to see more services pacts in the future in order to expand their businesses. Right now the government still limits the scale of Taiwan’s companies by preventing them setting up majority-owned branches. The further open to Taiwan’s companies would provide them more opportunities to expand their businesses and earn more profits.

Some might argue that the further corporation could threat the development of small firms in Taiwan. However, Taiwan’s economy relies more and more on Mainland China to boost its economy. After a long time of slow increase, Taiwan finally had access to the enormous market in inland and lots of Taiwan companies benefit from the services pact. When it comes to the benefit of the whole economy, it is really hard for the Taiwan government to protect the small business from competition at the cost of the cooperating with Mainland China.

In sum, we can see a clear tendency of cooperation between the Nationalist Party and the Communist Party in the future. Taipei has permitted its companies to invest in China since 1990s and last year the direct investment into Mainland China has reached 8.7 billion dollars. Although the businesses from mainland has generated increasing pressure on small firms in Taiwan, the overall economy of both Taiwan and Mainland China have been benefited from the closer cooperation.

The Recent Protest and The Trade between Taiwan and China

Recently, there was a big protest movement against the bill for cross-strait business agreements with Mainland China in Taiwan. According to Wall Street Journal, a group of students had seized the legislature’s main assembly hall and blocked themselves inside because the Nationalist Party and Communist Party worked out a services trade pact that seems unclear to the public. Currently the bill is still in parliamentary session and the protesters were trying to delay it and engage into the drafting process. The opponents claimed that the services pact is not transparent. They worried that a closer relation between two governments would threat the profit of small companies in Taiwan. Therefore, they asked for rights to oversee the bill. The movement finally clam down after the Legislative Speaker Wang Jinpyng promised not to resume with the bill until they could guarantee the public’s right to oversee the process. Mr. Chen, one of the protest leader said, “Our occupation of the legislature has accomplished a mission for this stage. We understand everyone here has different expectation toward this movement, but after taking stock of what we have attained this will be the best moment for us to walk out of the legislature and continue our mission in different parts of the country.”

There were several protest went on after the relation of Taiwan and Mainland China became more and more intimate. Lots of small businesses in Taiwan start to fear that the big companies would dominate the market and cast more control over the economy in Taiwan. Is the corporation going to diminish after waves of protests? Obviously, the answer is no.

The Mainland China actually has a growing business with Taiwan. Right now, a third of Taiwan’s annual export would go to Mainland China. And the investments of Taiwan’s companies in the inland have seized enormous profits because of the relative cheap labor and favorable tax conditions. Taiwan’s companies like Foxconn, a company that assemble electronic devices plan to open more factories to make use of the local labor and larger market. Also, according to the reveal of Wall Street Journal, the financial organizations are expecting to see more services pacts in the future. The government still limits the scale of Taiwan’s companies by preventing them setting up majority-owned branches. The further open to Taiwan’s companies would provide them more opportunities to expand their businesses and earn more profits.

In sum, we can see a clear tendency of cooperation between the Nationalist Party and the Communist Party in the future. Taipei has permitted its companies to invest in China since 1990s and last year the direct investment into Mainland China has reached 8.7 billion dollars. Although the businesses from mainland has generated increasing pressure on small firms in Taiwan, the overall economy of both Taiwan and Mainland China have been benefited from the closer cooperation.

(Revised) A Shrink in Pension Plans

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According to Wall Street Journal, many companies are thinking about cutting down the cost of Pension plans for their employees. Not only do employers face a 52% increase by 2016 in the regulatory cost of administering their pension plans, but also a 150 billion dollars surge in liabilities from longer-living retirees. Ms. Long, head of the corporate strategies group at Morgan Stanley, estimates that the fees could add 20 billion dollars to companies’ 2 trillion in pension obligations. She said,“ it’s definitely causing companies to rethink the benefits of holding a pension.” The growing cost makes some companies plan to choose plans that shift the burden of retirement savings to workers over defined-benefit pensions plans like 401K. The plans cause strong tension between companies and their employees. After learning about the calculation of pension from Professor Kimball and reading A Random Walk Down Wall Street, we could get an idea of why workers have so many complaints about the change.

In the last chapter of A Random Walk Down Wall Street, we learnt that enrolling in pension plan like 401K is actually an effective way avoid taxes on income legally. It works very well for people who want to have a decent life after retirement because they don’t need to pay income taxes on money invested in a retirement plan or on the earnings from this investment until they really start to use the money. The book gave us an example to explain the power of this simple strategy. If we compare the result a 2000 dollars annual contribution to an IRA with an equivalent contribution to a taxable investment (28% tax rate and 10% interest rate), we could find that the former one could give us extra 77000 dollars in 25 years. Even though we only enroll in Keogh plan, the tax-avoided effect is still obvious. Suppose we put 1000 dollars to a Keogh plan for thirty years with fixed-income investments yielding 10%, we would get 17449 dollars. If at the end of the day we need to pay 28% for tax, we still have 12563 dollars. However, if the investment and the interest earned would be taxed, we could only get 5834 after taxes at the end. I also learnt from Professor Kimball’s lecture that we don’t need to save most of our income in order to have a decent life after retirement. For example, if we start to put money into our pension account and we plan to withdraw our saving from the age of 65 for 35 years, in order to have 6000 dollars monthly to enjoy our retirement we only need to save 1500 dollars from now on. Therefore, we should not only choose a pension plan to facilitate our lives but also start to put money in that account early.

However, there’s also something we should notice about the current pension plans like 401K. Recent news of Wall Street Journal recovered the cost of ignoring some paperwork of your pension plan. According to the story, a wealthy executive with three children died suddenly last month. His will states that all his assets should be given to his children. However, the part in his 401K-retirement account which account for a large proportion of his asset could not be inherited by his children because he forgot to update his beneficiary form after his new marriage. Professor Sterk and Professor Leslie at Yeshiva University pointed out that although the savings in retirement account could be determined according our will, the importance of beneficiary-designation forms were often ignored by us.

After the analysis, it’s obvious that the pension plan could have a huge influence on employees’ benefit after retirement. Therefore, the change of it could lead to a tension between companies and employees. It’s shocking to know that some companies have started to transfer pension liabilities to other financial institutions. GM and Verizon shifted about 27 billion dollars and 7.5 billion dollars respectively to Prudential Financial Company, a famous insurance company. Since pension plans could affect the happiness of the life after retirement, we should choose companies that offer a stable security for our welfare.

Some facts about occupations and wages

Recently, the Labor Department released a detailed report on 821 occupations and wages in US. According to the Wall Street Journal, the average income of orthodontist is about 196,270 dollars, which surpasses the average 178400 dollars of CEO. Other interesting facts include the average wage of nuclear-power reactors is about 78410 dollars and it is less than the funeral-service managers’ average wage of 80250 dollars. Anesthesiologists make the highest salary among all professions with 235070 dollars on average, while food preparers earn the lowest wage of about 19000 annually. If we take a closer look at the report, we could find more interesting information.

First of all, we can find 10 largest occupations accounted for 21 percent of total employment. Those jobs include retail salespersons, cashiers, food preparation and serving workers, registered nurse, office clerks and so on. All of these ten occupations belong to low paying ones and their wages range from 18880 dollars to 34000 dollars, compared with the mean of all occupations with 46440 dollars. Also, we can find the huge difference between high-wage jobs and low-wage jobs. Anesthesiologists and surgeons who only composed a tiny proportion of overall employment earn more than ten times that wage of workers such as cashiers or salespersons. If we look at the data from the aspect of industries, we could find the financial industry is still the one with highest wages. And among all positions in financial industry, jobs as brokerage or personal financial advisors not only have the high wage level but also attract the most employee, 41 percent of total industry employment. The similar situation could also be found in high-tech companies that hire software developers.

The report to some degree also gives us some guide for choosing majors or future career. Sectors such as engineering, computer science and finance could be the majors that guarantee a good salary after graduation. According to the website of Forbes, the most promising major is biomedical engineering which has a staring salary of 53800 on average as well as a growth of 82%. The following majors are software engineering, environmental engineering and petroleum engineering with wages ranging from 155000 dollars to 87800 dollars. Finance is definitely another good major for students to study, however, it requires more and more from students including previous experience and quantitative skills.

Therefore, we could see from the report that the wage gaps between different jobs are huge. College students might need to choose their major carefully in order to find a well-paid position after graduation.

A Shrink in Pension Plans

According to Wall Street Journal, many companies are thinking about cutting down the cost of Pension plans for their employees. Not only do employers face a 52% increase by 2-16 in the regulatory cost of administering their pension plans, but also a 150 billion dollars surge in liabilities from longer-living retirees. Ms. Long, head of the corporate strategies group at Morgan Stanley, estimates that the fees could add 20 billion dollars to companies’ 2 trillion in pension obligations. She said,“ it’s definitely causing companies to rethink the benefits of holding a pension.” The growing cost makes some companies plan to choose plans that shift the burden of retirement savings to workers over defined-benefit pensions plans like 401K. The plans cause strong tension between companies and their employees. After learning from Professor Kimball about the calculation of pension and reading A Random Walk Down Wall Street, we could get an idea of why workers have so much complaint about the change.

In the last chapter of A Random Walk Down Wall Street, we learnt that enrolling in pension plan like 401K is actually an effective way avoid taxes on income legally. It works very well for people who want to have a decent life after retirement because they don’t need to pay income taxes on money invested in a retirement plan or on the earnings from this investment until they really start to use the money. The book gave us an example to explain the power of this simple strategy. If we compare the result a 2000 dollars annual contribution to an IRA with an equivalent contribution to a taxable investment (28% tax rate and 10% interest rate), we could find that the former one could give us extra 77000 dollars in 25 years. Even though we only enroll in Keogh plan, the tax-avoided effect is still obvious. Suppose we put 1000 dollars to a Keogh plan for thirty years with fixed-income investments yielding 10%, we would get 17449 dollars. If at the end of the day we need to pay 28% for tax, we still have 12563 dollars. However, if the investment and the interest earned would be taxed, we could only get 5834 after taxes at the end.

After the analysis, it’s obvious that the pension plan could have a huge influence on employees’ benefit after retirement. Therefore, the change of it could lead to a tension between companies and employees. Some companies have started to transfer pension liabilities to other financial institutions. GM and Verizon shifted about 27 billion dollars and 7.5 billion dollars respectively to Prudential Financial Company, a famous insurance company.