Google’s Holiday Gift To China

There are only three shopping days remaining until Christmas Eve! Have you purchased and wrapped all of the presents on your Gift List?

Some of us, of course, confront more difficult challenges than others in choosing appropriate gifts for recipients. But imagine how tough it must be to select a gift for the world’s largest communist nation!

In a sense, that’s exactly what Google may have delivered for the government of China. On December 13th, the internet services giant announced that it will open a center for basic Artificial Intelligence research in Beijing.

So why is this a gift? Because Google’s services, like Facebook’s, are banned in China. And on December 18th, just five days after Google’s announcement, a Chinese official confirmed the ban by declaring:

That’s a question maybe in many people’s minds, why Google, why Facebook are not yet working and operating in China. If they want to come back, we welcome (them). The condition is that they have to abide by Chinese law and regulations. That is the bottom line. And also that they would not do any harm to Chinese national security and national consumers’ interests.

It’s possible, of course, that Google’s decision will help it gain access to the Chinese market in 2018. If that occurs, its AI Center may be perceived in retrospect as a profitable investment in a new business market.

But what if the Chinese government doesn’t open its market to Google next year? Perhaps the center’s Chinese technology specialists will provide valuable developmental expertise to the American firm. And perhaps those same specialists will learn just as much from Google.

At the moment, though, Google has made a commitment to open an advanced research center in a nation that bans its services from its entire domestic economy. Unless Google’s commitment eventually “pays off” in some substantive manner, it isn’t very difficult to characterize its decision as a gift.

China’s Curious Growth Data

What significant economic news from Asia cheered the global markets last week? The Chinese central bank decided to permit many financial institutions to lend more of their cash deposits to borrowers, a move that is expected to stimulate their economy.

As a result, analysts estimate that 1.5 trillion additional yuan (i.e. approximately $242 billion in American dollars) will be placed into the hands of Chinese businesses. China clearly needs this economic stimulus, given that the nation may miss its annual economic growth target for the first time since 1998.

Oddly enough, though, no one appears to have stopped for a moment to ponder the meaning of an annual target that has not been missed in sixteen years. Indeed, most pundits appear to share the universal assumption that the Chinese economy has been enjoying a perfect winning streak of real growth during that entire period.

Of course, that is certainly possible. And yet, sometimes, entities only appear to achieve an unparalleled string of economic or financial success through the adroit manipulation of statistics. General Electric, for instance, used advanced “earnings management” strategies to generate an astonishingly smooth and consistent string of annual profit announcements during the final years of the twentieth century.

To be sure, Nobel Prize winning economist Paul Krugman and others have cast occasional doubts on the validity of China’s statistical announcements. Nevertheless, generally speaking, most Western news organizations simply accept these announcements at face value and repeat them for public discourse.

So what should we make of this sixteen year Chinese winning streak that suddenly appears to be in peril? If most news organizations are correct, and if the winning streak is a real one, then the sudden threat to its continuation is indeed a serious concern about an unforeseen slump in economic growth.

And yet if the streak is simply a product of an actively “managed” series of economic statistics, then the sudden threat may represent far more than a simple slump. Indeed, it may represent the government’s unwillingness to continue to “manage” its economic statistics, a new position that may portend a long term shift towards a more transparent (and thus a healthier) Chinese economy.