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Pieces of China, Economist Patrick Chovanec, 7.30.20

Pieces of China, Economist Patrick Chovanec, 7.30.20

Pieces of China is an online series using objects to tell the story of China.


In our ninth episode, we explore the railway bond from 1911 that sparked a revolution. with economist Patrick Chovanec. The Hukuang Railway Bond highlighted in this conversation can also inform us about the historic tensions between international trade and investment and economic nationalism that continue to impact U.S.-China relations today.

Patrick Chovanec is an economic advisor for Silvercrest Asset Management. He also teaches part-time as an Adjunct Professor at Columbia University’s School of International and Public Affairs. Before Silvercrest he was an Associate Professor of Practice at Tsinghua University’s School of Economics and Management in Beijing, where he also served as Chairman of the Public Policy Development Committee for the American Chamber of Commerce in China.


Selected Quotes from the Program from Patrick Chovanec:

One of the ways China was trying to catch up was to build railroads to link the country and to industrialize. The problem was this wasn’t working out very well, and only 10% of the planned tracks have been laid, and they weren’t making the progress they wanted. So in 1911, they decided to dilute the existing shareholders and recapitalize the railroad and issue bonds to foreigners bringing in foreign capital. The problem was that everyone in China was not very happy about being diluted.

The nationalism and protests the bond stoked led to a series of events that overthrew the emperor of China.

The broader lesson from this is nationalism is always an issue when it comes to foreign investment. It’s true when it comes to China and continues to be true in China. There is still a lot of sensitivity to this period, and the role foreigners played in owning assets in China.

So, when China or any other country tries to bring in foreign investment or tries to develop, it always has to contend with the issue of nationalism. So nationalism remains a key element in the dynamic in the Chinese discussion about the way forward.

This is not just a relic from the past; it’s an interesting basis for talking about nationalism in theory because it has popped up again.

In fact, during Trump administration, when it was clear there were going to be trade tensions with China, some of the larger bondholders met with President Trump and said we would like you to present this as a demand to China to pay these bonds. That changes the nature of the trade negotiations. We have to be careful here because what would happen if they were to honor these bonds and hold it to issue. It wouldn’t reduce US debt or reparations. The people who would get paid would be the bondholders, not the US treasury.

There is this illusion in Washington that American companies are all in China just to produce exports for the US markets, so why don’t we just bring them all back. But in fact, that’s not a thing, and a lot of companies, US, European, and others are in China at least to hope to sell in the Chinese market and many cases much more than hope. …So the idea that we are going to cut ties with China suddenly, economic ties included, is I think highly unrealistic. However, companies have to realize that they are entering very uncharted territory when it comes to the kind of hostility and sniping that has started and deepened between the US and China.

Full Video of Pieces of China with Patrick Chovanec


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