On getting paid in wads of cash in China

While your humble blogger remains jet-lagged out of his gourd adjusts back to the Western hemisphere, he strongly encourages you to read this fantastic David Barboza story in the New York Times on the predilection in China to use cash for ... well ... everything

Lugging nearly $130,000 in cash into a dealership might sound bizarre, but it’s not exactly uncommon in China, where hotel bills, jewelry purchases and even the lecture fees for visiting scholars are routinely settled with thick wads of renminbi, China’s currency.

This is a country, after all, where home buyers make down payments with trunks filled with cash. And big-city law firms have been known to hire armored cars to deliver the cash needed to pay monthly salaries.

For all China’s modern trappings — the new superhighways, high-speed rail networks and soaring skyscrapers — analysts say this country still prefers to pay for things the old-fashioned way, with ledgers, bill-counting machines and cold, hard cash.

Many experts say it is not a refusal to enter the 21st century as much as wariness, of the government toward its citizens and vice versa (emphasis added).

Now you should definitely read the whole thing, but a few thoughts here: 

1) From a personal perspective, as the occasional visitor to China, I can confirm the wads of cash thing -- but it's a bit more complicated than Barboza suggests. First of all, for U.S. academics at least, the payment isn't in renminbi, but in U.S. dollars. Renminbi is sometimes dispensed for things like per diem reimbursements, but not for honoraria. After all, officially, the RMB is still not convertible to dollars outside of the country, so it wouldn't be very nice to get paid in a currency that is technically useless outside the People's Republic.

There are two other qualifiers here. First, at least with respect to academic honoraria, it's not just China that pays in cash -- so does Japan, for example. Second, speaking as an academic who's received the occasional honorarium, it's friggin' awesome. At some point, someone takes you aside and gives you an envelope stuffed with bills. I know it's impolite to say, but every time it happens, I feel like I'm an earner in Tony Soprano's crew. It's soooooo much more satisfying than getting a check (as is the norm in the U.S.) or receiving a bank transfer three months later than it should be and only after haranguing someone a few times (as is the norm in Europe). 

2) The more substantive point of Barboza's story is how the cash-based system reflects the degree of distrust between the government, Chinese citizens, and the financial system. From a global political economy perspective, this cuts in two directions. On the one hand, it suggests that the effects of a real estate bubble popping in China might have a muted effect on the broad mass of Chinese. After all, if they're holding their assets outside the financial system, then their bigger fear will be currency-gnawing rats (read to the end of Barboza's story) than banks closing. 

On the other hand, it's worth reading articles like this whenever someone suggests that the renminbi will soon be a challenger to the U.S. dollar as an international reserve currency. For that to ever truly happen, China's capital account will have to be one hell of a lot more transparent and liberal than it is now. As it turns out, even China's Superbank isn't actually that super once one digs into the numbers. And if Chinese citizens are trying to avoid dealing with China's financial system and the renminbi, then I seriously doubt global capital markets are going to embrace the RMB as a rival to the dollar. 

Daniel W. Drezner

Four thoughts in Seoul

Your humble blogger has spent the better part of his trip to Seoul at a conference co-sponsored by the Republic of Korea's Ministry of Foreign Affairs and the East Asia Institute. The topic was "New Strategic Thinking:  Planning for Korean Foreign Policy," and I got invited because I edited this a few years ago. I hope that the Korean Foreign Ministry benefitted from it. I certainly learned a few things: 

1) No one knows what the f**k the North Koreans are doing. There were representatives from the United States, United Kingdom, China, Japan and South Korea on the panels. I talked to a lot of them informally during breaks and meals as well. No one had any clue why Pyongyang had ratcheted up tensions to the extent that they did over the past two months. About the only thing approximating a consensus was the belief that the North Koreans were in fact bluffing about starting outright hostilities -- which makes their behavior all the more puzzling. In triggering the shutdown of the Kaesong Industrial Park, the North Koreans cost themselves about $90 million a year that they can't afford to lose.

2) Chinese academics are getting more interesting. As recently as five years ago, my eyes used to glaze over whenever a Chinese academic started speaking at a policy conference. The reason was that there was a 100 percent certainty that the academic would simply repeat standard PRC boilerplate that didn't deviate from official government positions. An academic agreeing with one's government is not a sin, but only parroting official discourse is pretty friggin' useless. 

Something has changed in recent years, however. Maybe I'm being invited to a better class of conferences, but I don't think that's it. Chinese academics are more willing to openly discuss ongoing debates within the Chinese foreign policy community about the wisdom of a certain course of action. At this conference, Qingguo Jia asserted that the Chinese really were rethinking their relationship with North Korea. Now one can debate whether the Standing Politburo is really entertaining such thoughts, but the fact that there's a public conversation about it is pretty interesting. 

3) The best-laid foreign policy plans get destroyed by real-world events. The conference was devoted to how the South Korean government could implement Park Geun-Hye's concept of Trustpolitik that she articulated during her campaign for the presidency. The general consensus was that, at this point, there are very limited ways of building trust with Pyongyang. Furthermore, the likelihood of any confidence-building measures getting scrubbed during the next crisis are very high. 

It is to Park's credit that she seems to recognize this and has yanked ROK workers from Kaesong as a signal of South Korea's resolve. Trustpolitik is a great phrase, but I'm dubious of whether it will accomplish anything. 

4) It's the little things that matter to build mutual goodwill. That's a fancy way of noting the following:  if you are a Caucasian academic in South Korea, can use chopsticks proficiently, and actually like kimchee, your South Korean counterparts will treat you like a god.