What the renminbi means for US inflation | vox - Research-based policy analysis and commentary from leading economists

What the renminbi means for American inflation

Raphael Auer
21 February 2011

This column says that low US inflation over the last 15 years is partly attributable to cheap Chinese imports. It argues that if the US trade deficit is reduced – via either Chinese inflation or a nominal appreciation of the renminbi – this disinflationary effect will be reduced. It says that the resulting inflationary impulse could be severe.

China’s recent inflation is turning heads (Raede and Volz 2011, Cavallo and Díaz 2011). At first thought, the recent rise of inflation in China seems to be reassuring news for US policymakers concerned with the trade deficit. On the one hand, price increases in China make US firms more competitive, and on the other, high inflation may also goad China into letting the renminbi appreciate at an accelerated pace to lower the cost of imported goods. Thoughts along these lines have lead treasury secretary Timothy Geithner to note that current economic developments “will bring about the necessary adjustment in exchange rates” without any need for further intervention by policymakers.

What has not entered this policy discussion, however, is that the trade deficit with China arose for a reason, namely that Chinese goods are dirt cheap. In fact, the increasing importance of cheap imports was a major contributing factor to the low-inflation environment of the last decade (see on this site Auer and Fischer 2008).

If the US trade deficit is reduced via either Chinese inflation or a nominal appreciation of the renminbi, the disinflationary effect of cheap Chinese imports will be reversed. Given that nearly a sixth of all US consumption of manufactured goods is actually made in China, any real appreciation would have a substantial direct impact on inflation due to the weight of Chinese goods in America's inflation indexes. In a recent study (Auer 2011), I document that such an appreciation might also substantially alter the competitive environment on many US markets and consequently lead to widespread inflationary dynamics.

The study examines the 2005 to 2008 period when the Chinese government let the renminbi appreciate by a combined 17% against the dollar. Matching this appreciation with sectoral US price data, it documents how a higher renminbi translates into higher import prices and, in turn, how this affects the prices that domestic firms charge. Overall, the results suggest that in the covered sectors, a 1% appreciation of the renminbi causes American producer prices to increase by a little over half a percentage point.

Figure 1. A 25% renminbi appreciation and US producer price inflation

Figure 1 uses these findings to simulate the effect of a renminbi appreciation on producer price inflation. In both scenarios the yuan appreciates by 25%, with the appreciation being spread over either 10 or 25 months. For example, these simulations suggests that a 25% appreciation spread over 10 months is equivalent to a temporary 5 percentage points (!) shock on US producer prices.

Inflation in China will have enormous consequences for the course of US inflation. The key question is, of course, what can one do about it? Many argue not much – a real appreciation in China will sooner or later feed into American inflation, in one of two ways:

  • First, it can be achieved via a controlled nominal appreciation of the renminbi.
  • Second, in the absence of such an appreciation it will come via inflation in China, since – as Paul Krugman bluntly puts it – inflation is merely “the market’s way of undoing currency manipulation”.

However, this does not imply that there are no policy options. While the spillover of Chinese inflation into US prices is unavoidable, its timing can be controlled via the timing of the appreciation. US inflation is still low at the current juncture; the core CPI gained a muted 0.8% during 2010 and the ample excess capacity (recently estimated to equal 4%-5% of GDP by Morgan Stanley) suggests that there is no imminent danger of high inflation during 2011.

The inflationary outlook might be very different a year or two down the road. Energy commodities rose by 7.5% in December 2010 alone and across the globe, investors are preparing for a long-lasting commodity rally. These commodity price hikes are likely to affect producer prices and consumer inflation within a couple of years. Although a fully-fledged recovery of the housing market is not foreseeable, it is still highly likely that prices for shelter will increase at a much higher rate in 2013 than the 0.4% increase observed during 2010. What if we add to this upside inflation risk a marked real appreciation of the renminbi, for example taking place during mid 2012?

Given that inflation is still low, but surely on the rise, isn’t now the optimal time for the renminbi to appreciate? A swift appreciation of China's currency on the order of magnitude of 5%-10% followed by a return to the current slow appreciation policy might just be what is needed to contain inflation on both sides of the Pacific. Such a policy would increase short-term inflationary pressure in the US, but not beyond acceptable levels. Since this policy would ease inflationary pressure at home, without disrupting the Chinese export sector, the Chinese government, as well, should be more willing than ever to support such a revaluation.

Author's note: The views expressed in this column are those of the author and do not necessarily reflect those of the Swiss National Bank.

A shorter version of this column was published on 3 February 2011 on the Free Exchange Blog.


Auer, RA (2011), “Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi”, Working Paper 68, Globalisation of Monetary Policy Institute, Federal Reserve Bank of Dallas.
Auer, RA and AM Fischer (2008), “The impact of low-income economies on US inflation”, VoxEU.org, 13 June.
Auer, RA (2010a), "The effect of low-wage import competition on US inflationary pressure", Journal of Monetary Economics, 57(4):491-503.
Auer, RA (2010b), “Globalisation and Inflation in Europe”, VoxEU.org, 13 June.
Auer, RA, K Degen, and AM Fischer (2010), “Globalisation and inflation in Europe", CEPR Discussion Paper 6451.
Cavallo, Domingo and Fernando Díaz (2011), “China’s dilemma:Higher inflation or deflation of exportables”, VoxEU.org, 17 February.
Reade, J James and Ulrich Volz (2011), “Chinese inflation, monetary policy and the dollar peg”, VoxEU.org, 17 February.


Quick Notes from Beijing - James Fallows | The Atlantic

By James Fallows

Thanks very much to the latest guest team for their ongoing dispatches. Herewith, on a sanity break from other duties, some quick notes on what I first notice compared with my latest stint here last summer:

1) Pollution in Beijing itself has been as bad as the very worst I remember from the olden era. The view below (11am China time, Feb 23) has been more or less unvarying for the past four days. PM2.5 readings[1] through that period have been steadily[2] in the "hazardous" or "beyond index" category. I don't recall a stretch this bad, this long, before. Offered less as complaint than as reality check.

Thumbnail image for BJFeb23.jpg

2) Prices are higher for everything, especially food. By Western standards they are of course very low. But by Western standards people's incomes are also very low. I see why there is so much talk about the disruptive effects of inflation. (Letting the RMB go up faster would help, but that's a topic for some other time.)

3) Internet blockages and social media interference seem worse than I remember experiencing between 2006 and 2009, except in the tensest Tibet-riot periods. Even VPNs[3] sometimes don't work or are slow -- especially this past weekend when no one knew how serious the "Jasmine" demonstrations would become. To illustrate the difference this can make even if you're willing to shell out (as most Chinese citizens wouldn't be[4]) $60 a year for a VPN to get around Great Firewall restrictions, here is a download screen showing progress on a file I was trying to save, from a server in the US:


If you can't read the small print, it's estimating 1 hour and 31 minutes to finish downloading a 34MB file. As it happened, shortly thereafter the connection improved and the file eventually loaded in "only" about eight minutes. But extrapolate that as an efficiency tax on the system as a whole. As I have mentioned many times, the whole setup here is quite an amazing combination of laissez-faire/chaos and cumbersome over-control. As many other people have mentioned, this is accompanied at the moment by a big media campaign[5] pointing to the Middle East as an example of the kind of disorder China must avoid. The situation makes all the more startling the UN Security Council statement about Libya that China (along with other Permanent Members) approved yesterday:

>>The members of the Security Council underlined the need for the Government of Libya to respect the freedom of peaceful assembly and of expression, including freedom of the press. They called for the immediate lifting of restrictions on all forms of the media.<<

Emphasis mine, to indicate freedoms specifically not respected in China when inconvenient for the government and notably limited right at the moment. Lack of self-awareness on the government's part? Deciding that looking hypocritical was the lesser evil, versus standing alongside Qaddafi? Can't be sure.

4) Smiley curve. As mentioned in the magazine here[6] and on this site here[7], many "made in China" exports are actually mere repackaging of high-value components from Japan, Germany, Korea, the United States, or someplace else. China is a huge export power, but not as huge as it seems. Latest evidence in this McKinsey report[8] (free registration required). It said that if you separate the "real" Chinese content from what is counted as total Chinese exports, exports accounted for only about 1/5th of the recent increase in China's GDP -- rather than 1/3, as most reports would suggest, or nearly 2/3rds, as reported a few years ago. China still has a big trade surplus; it still relies too much on exports for growth; its economy is still out of balance with the rest of the world's. But the picture is a little different from the way it's usually portrayed. Here's the main McKinsey chart showing export-growth as a share of Chinese GDP increase:

Back to typing, and back to this week's guests.


Finally Official: China Takes the #2 Spot

by Damien Ma

Japan has confirmed it. China indeed emerged from 2010 as the world's second largest economy after the United States, at $5.88 trillion to Japan's $5.47 trillion. (In case you're wondering, that's just above 1/3 of the U.S. economy.) Last time when China overtook Japan in a single quarter in 2010, I asked the question "so now what?" Judging by some of the latest reactions from a small sampling of Chinese, helpfully compiled by the WSJ, they seem to largely reflect my previous sentiment. Anything but celebratory, the new status seems to only highlight the deficiencies, large and small, that have accompanied that stellar GDP performance. 

This kind of self-deprecation is commonplace, and you hear Chinese officials often describe Chinese industry as "big but not strong," like a pliable giant that could stumble and easily hurt itself. And of course, the dearth of international Chinese brands has proven a huge conundrum for policymakers in China. At a hotpot dinner over the Chinese new year, I engaged with others in one of my favorite topics to explore: why China's cultural appeal (or "soft power") is not commensurate with its seeming economic heft. Since Japan is being used here for comparison, it seems to me that Japanese cultural products had much broader appeal and resonance globally at a similar stage of development. Not to mention the eventual "just-in-time" industrial model that found wide favor and spawned imitators. 

It's certainly not for the lack of talent and creative energy in China. Check out, for example, these guys rap battling in Beijing. It looks like a scene straight outta 8 Mile, except replace a pale Eminem with a frizzy-haired Xinjianger Ma Jun (he might even be Uighur -- marginalized minority, liberated in hip hop?) schooling the other guy on stage. 

2010 Iron Mic Freestyle Battle Finals - Yugong Yishan, Beijing, China - 2010/10/27 from Matthew Niederhauser on Vimeo.

Or what about this four-year old Chinese kid flooring an audience on the streets of LA with his Michael Jackson moves (the kid seriously breaks it down around the 2:15 mark).  

One reaction, given the current breathless commentary on "China does it best" might be "Oh no, the Chinese are outmaneuvering us in rap and street dancing! They're training an army of 4-year-olds to erode our comparative advantage in spontaneity and bottom-up creative output! What's next, stealing our Broadway jobs??!!" I think Gary Shteyngart captured this exaggerated view of Chinese omnipotence best in his recent "Super Sad True Love Story", in which the denizens of a spiritless New York live in mortal fear of the Chinese central banker arriving to take his country's money back (which Ben Bernanke apparently revealed to be an eye-popping $2 trillion). 

But in fact, these episodes demonstrate the acute resilience of American soft power and appeal. There's not much "indigenous innovation" in those videos, only talented co-optation of what was pioneered in the American urban cauldron. And those migrant worker DIY rockers I wrote about rode to fame on a cover rather than an original, and now seem to be facing copyright troubles. Nonetheless, these grassroots creative elements are highly encouraging. I hope sooner rather than later, China will be exporting products that are um ... more effective than that ad in Times Square during Hu Jintao's visit.  

Note: the rap battle video is from photographer Matthew Niederhauser, who has done some great work on documenting the underground music scene in China. He has more at his site. 

Damien Ma is a China analyst at Eurasia Group.

Its quite a big deal for China to officially pass Japan as the world's second largest economy in GDP terms. However, while the US may be clearly in the cross-hairs of the rising Chinese economic juggernaut, it will be many generations before China supplants the US as the epicenter of popular culture.


China's reaction: Build a wall | The Economist

Build a wall

The Year of the Rabbit starts badly

China's reaction

Feb 3rd 2011 | BEIJING | from PRINT EDITION

THE Chinese Communist Party’s Publicity Department (or Propaganda Department, a closer rendering of the Chinese) is adept at controlling news from abroad that might inflame sentiment at home. As communism collapsed in Eastern Europe 20 years ago, it kept all but the barest news out of the domestic media, jammed foreign broadcasts and ordered vigilance over fax machines.

In response to the unrest in Egypt, the department has apparently instructed the Chinese media to use only dispatches sent by the official news agency, Xinhua, and either to bury news of events there or play up aspects that show the costs of turmoil. Reporting the travails of stranded Chinese tourists, or the government’s noble attempts to rescue them, is fine, but sympathy with the protesters is taboo. The department’s instructions to the media are, as usual, a secret, but their effect is clear.

The party has also been busy trying to control the internet. Twitter has been blocked in China since 2009, but home-grown versions are hugely popular. Anyone trying to follow postings by users with an interest in Egypt, however, might struggle. Merely searching for the word “Egypt” in Sina Weibo, one of China’s leading Twitter-like services, produces a warning that “according to the relevant laws, regulations and policies, the search results have not been displayed”. On Baidu, a big news portal, a prominent list of “hot search terms” includes “the return of compatriots stranded in Egypt”, but nothing else.

Related topics

Chinese news reports have briefly mentioned the disruption of internet and mobile-phone services in Egypt. They have not, however, discussed China’s pioneering use of such techniques to impede the mobilisation of crowds. Use of the internet and mobile phones for international calls and text-messaging was cut off for months in the far-western region of Xinjiang after ethnic clashes there in 2009.

On February 1st the party’s main mouthpiece, the People’s Daily, relegated Egyptian politics to five terse paragraphs on page three but published a full page of articles under the headline, “The Internet is Warming the Whole of Society”. The internet, one scholar was quoted as saying, is a “great promoter of social change”. The party knows that all too well.

from PRINT EDITION | Briefing

Its always interesting to watch the Chinese media react to events with significant geopolitical implications because of the overt control over the media exerted by Beijing. Revolutions rarely carry the historical significance of these past weeks events in Eygpt, and the moment has clearly not been lost on the leaders of the Chinese Communist Party.

I cannot say that I totally understand why the Chinese political leaders fear such news making it into the hands and minds of the Chinese people. Its not as if the people aren't well aware that they are in control of the status quo in China, of course they understand that if they wanted a new government it would almost certainly be theirs to take. If anything, IMHO, the party is the chosen vehicle of the people as the fast means of achieving prestige and respect as a culture/civilization on the global stage.


FT.com / China in fresh interest rate rise

China in fresh interest rate rise

By Patti Waldmeir in Shanghai and Robert Cookson in Hong Kong

Published: February 8 2011 11:58 | Last updated: February 8 2011 11:58

China has raised benchmark interest rates for the third time since October, as Beijing intensifies its battle against stubbornly high inflation.

The benchmark one-year lending rate would rise to 6.06 per cent from 5.81 per cent, effective from Wednesday, the People’s Bank of China said on its website on Tuesday. The one-year deposit rate will rise to 3 per cent from 2.75 per cent but longer term deposit rates will rise by as much as 45 basis points.

“The goal is to encourage savers to keep their money in bank deposits rather than shifting to equities or property,” said Mark Williams of Capital Economics.

The timing of the increase, which came on the final day of the week-long Chinese new year holiday, appeared to be aimed at avoiding unsettling global and domestic markets. The previous increase came on Christmas day.

“Clearly, Chinese policymakers are increasingly focused on fighting inflation and asset price bubbles,” said Dariusz Kowalczyk, economist at Crédit Agricole. The fact that deposit rates were raised by more than lending rates “shows the determination to bring the real savings rate closer to positive territory”, he said.

The rate rise comes as China seeks to curb rising inflation, particularly in food prices, following a huge expansion in the money supply in the wake of the financial crisis. Goldman Sachs forecasts that year-on-year consumer price inflation in China is likely to have risen to 5.3 per cent in January from 4.6 per cent in December.

In addition to interest rate rises, Beijing has sought to tighten liquidity in the economy by raising the amount of deposits that China’s biggest lenders must hold on reserve with the central bank.

“For China, the year of rabbit is the year of inflation,” said Qu Hongbin, greater China chief economist at HSBC. “Given that growth is still strong, Beijing can now fight against inflation single-mindedly”. Most economists expect a further interest rate rise and a further increase in bank reserve ratios in coming months.

Last month, the PBoC increased the reserve requirement ratio for China’s biggest banks by 0.5 percentage points to 19.5 per cent, its highest level since reserve requirements were introduced in the mid-1980s and the eighth such move since the start of 2010.

Jing Ulrich, head of China equities for JPMorgan, said she expected inflation to remain high in spite of the move. “We expect that inflation will remain elevated in the next several months due to a number of factors, including rising food prices, as well as inflation passed through from increasing wages, commodities prices, and possibly energy costs if they are liberalised.”

via ft.com

Chinese central bankers take action to cool inflation by raising interest rates again (eighth consecutive such move) to 3% from 2.75% for the one-year benchmark lending rate.


China follows British footsteps to African wealth | BBC News

China follows British footsteps to African wealth

Chinese railway worker on Benguela track

By Justin Rowlatt
BBC News, Angola

Chinese investment in Angola is bringing back to life one of the greatest rail routes in Africa, the Benguela Railway. In return, China gets oil - but are accusations of a colonial-style scramble for resources fair?

The passengers squatted beside the railway tracks. It was impossible to tell how many there were.

In the darkness their bodies merged with great shapeless bundles of luggage, but there were certainly hundreds.

Then with the first flush of dawn, and bang on time, the bright beam of headlights appeared in the far distance.

The crowd immediately began to stir and jostle for position, even before the train had eased to a halt.

They threw up their boxes and bags into the open cattle trucks and scruffy passenger carriages, then scrambled after them.

Map of Benguela Railway route
The line stretches from Angola's west coast to the Zambia border

Tony, the railway official who was looking after us, urged us to get moving too.

"It will not wait for you," he warned.

He hurried down to the very last carriage, and gestured at us to board this battered old compartment.

"You can leave your things safely here," he said.

We did as he said and climbed up the steps, and into another world.

Teak-lined stateroom

The contrast with modern Africa could not have been greater.

We were in a teak-lined stateroom, the windows shaded by slatted blinds.

Justin Rowlatt has embarked on a global journey to explore the effects of China's policy of "going out" into the world to secure the energy and raw materials its rapidly growing economy needs.
A two-part documentary series will air on BBC Two in early 2011.
He will also be reporting regularly for the BBC News website.

There was a table with a crisp white tablecloth surrounded by four heavy chairs and, in the ceiling, a big silver fan.

We had stepped back into Edwardian England.

Tony laughed at my astonishment. He had known we would be impressed.

"You should feel at home," he teased.

"This is one of the original British carriages, where the directors of the railway company would travel."

Our grand accommodation was a remnant of what was once one of the great routes of Africa - the Benguela Railway.

It was an engineering triumph, stretching 1,000 miles up from the Angolan coast, right into the southern Congo.

Some people mutter that it is really just another scramble for oil and other resources

The railway took almost 30 years to build and cost the equivalent of hundreds of millions of pounds - as well as the lives of many of the indentured labourers who worked on it.

But little remains of the glory of the Benguela now. Until very recently all but a tiny stretch of the line was closed.

The railway was one of the many victims of Angola's 27-year-long civil war.

Now it is being rebuilt. Not, needless to say, by the British, but by the Chinese.

Back in Luanda, the Angolan capital, I had heard a lot of anxiety about the Chinese move into Africa.

Some people mutter that it is really just another scramble for oil and other resources.

It is true that Angola has some of the biggest oil reserves in Africa.

But as I looked around at the expensive fittings in our state car on rails, it looked as if motives of the men who built this railway were pretty similar.

The Benguela railway was not a philanthropic project, but a business investment. It was built to ship out the incredible copper wealth of central Africa.

Rolling supermarket

As soon as the train pulled into the first station - a dusty stop in the middle of dry scrubland - it was clear that the recent Chinese work on the railway is providing economic benefits too.

Those huge bundles I had seen by the passengers were thrown open.

Our people have been fighting for so long, they don't know how to build anymore
Angolan woman

Inside were huge mounds of tomatoes, onions, greens, dried fish and great bloody lumps of meat.

The hundreds of people waiting surged forward, yelling and rushing from one carriage to another to barter for the goods on offer.

I realised that this train was, in effect, a rolling supermarket and the passengers were small businessmen and women.

"I couldn't do this before the railway was fixed," one large woman selling plump red tomatoes told me.

"Before, I had to travel by car which was much more expensive."

She giggled shyly and acknowledged that she was making better money now. "I am not rich, but a bit richer," she told me.

So how did these traders feel about the Chinese helping to refurbish the line?

They all agreed that the Chinese were very hard workers and had done a fine job.

But should the work not have gone to Angolans, I wanted to know?

"Our people have been fighting for so long, they don't know how to build any more," the woman with the tomatoes told me with a wry smile.

Fair deal?

Of course the Chinese labourers get paid - and their wages come out of a cheap loan which the Chinese government made to the Angolan government.

And that loan, in turn, is paid for in oil.

So in some sense oil money is still the motive.

Opened in 1928 to transport copper deposits
It consists of 840 miles (1344 kilometres) of track
Twenty-seven years of civil war destroyed much of the railway

But, as the train grunted and clanked on through the savannah, with its occasional vivid red acacia tree, it seemed to me that what was happening now was very different from what the British had done here.

The Angolan oil which pays off that loan is now sold abroad at the prevailing market rate.

Very different terms from those of the British, who carted hundreds of millions of tons of precious African copper down this line without paying anyone a penny for it.

So, while it may be tempting to see today's China as just another imperial power out to exploit the riches of Africa, it seemed to me that there is a big difference between the Chinese presence and the British one.

Though, sitting back in my state car as the train rattled on up the line, I had to admit those British railway pioneers did know how to travel in style.

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The Chinese have been wisely exporting their culture to the developing world in hopes of spreading their uniquely Chinese model for economic development, much the same way the west was able to export its model of free market capitalism to emerging markets post-WWII up until Reagan and the collapse of the Soviet Union. I have been blogging about this phenomenon for years, but the mainstream press is finally starting to wake up.


Chinese family businesses: Dusk for the patriarchs | The Economist

Chinese family businesses

COMPANIES can survive for hundreds of years. Their founders cannot. Hence the problem that eventually faces all family-owned firms: how to hand over from one generation to the next. In Stanley Ho’s case, the transition is proving stormy.

Mr Ho is the gambling king of Macau: the founder of an empire that includes casinos, ferries, an airline, hotels and commercial property. He is also 89 years old, in poor health and less lucid than he once was. His four families are fighting like harpies over his assets, which are held within an array of complex structures.

It is messy: Mr Ho (pictured, with his third wife and their daughter) had four concurrent “wives” in a territory that does not recognise polygamy. Three are still alive, plus at least 16 children. Mr Ho apparently had a stroke in 2009, prompting his relatives to start struggling for control.

Their feud has become a YouTube sensation. Every few days, a wheelchair-bound Mr Ho issues a statement that contradicts his previous one: either accusing his relatives of robbery or exonerating them. Throngs of Hong Kongers have joined the journalists outside the family’s many opulent residences, straining for the latest whispers. Two photographers have had their feet run over by limousines.

The Ho saga has prompted fresh scrutiny of other firms that will soon face succession tussles. A major investor in two of Mr Ho’s Macau companies (one controlling casinos, the other ferries) is Cheng Yu-tung, 85, who runs his own swelling conglomerate, New World Development, with unresolved succession issues.

At Sun Hung Kai, Hong Kong’s largest property owner, the succession seemed settled in 1990 with the death of the founder and management passing to his three sons. But turmoil erupted in 2008 when the founder’s then 79-year-old widow, Kwong Siu-hing, emerged as the true power, pushing out her eldest son, Walter, who had been chief executive. On Sun Hung Kai’s board sits Lee Shau-kee, 82, who runs another property company, Henderson Land, with its own succession issues.

Any talk in Hong Kong about succession soon touches upon Li Ka-shing, 82, the territory’s richest resident, whose empire encompasses utilities and property. Much of his wealth has been pledged to charity, but no one knows who will run his firms when Mr Li dies. When he was abruptly hospitalised in 2006, shares in his listed companies immediately sank.

Many Hong Kong tycoons are getting old (see table). Typically, their fortunes date back to the early post-war years, when Hong Kong was a desolate rock, Macau was in decline and Singapore was a swamp. They built empires while keeping tight personal control, often using bewildering interlinked corporate structures.

Within a few years, dozens of publicly listed (but family-controlled) Asian companies will change hands. If history is any guide, the process will hurt, says Joseph Fan, a professor at the Chinese University of Hong Kong. A study he jointly conducted of 250 companies in Hong Kong, Taiwan and Singapore controlled by Chinese families found that successions tended to coincide with tremendous destruction of value (see chart).

There are exceptions. Sir Run Run Shaw, a 103-year-old media mogul, appears to be retiring in peace. On January 26th he announced that he would sell his controlling stake in TVB, Hong Kong’s largest television network, for more than $1 billion. It was the last public link to an empire that once included the largest private film studio in the world. Mr Shaw retired from active management on his 100th birthday, in favour of a much younger manager, his then 77-year-old second wife, Mona Fong.

Many patriarchs built their fortunes with risky bets: movies, the first casino, manufacturing. But many have shifted into merely collecting rents from property and related businesses (ports, hotels, retail) or from government concessions (electricity, telecommunications, gas, casino licences).

The simplicity of the underlying businesses may account for the ferocity of the family battles—it is not hard to make money if you own a casino near mainland China these days. However, in areas that are genuinely competitive, such as banking, Hong Kong’s family firms have been largely elbowed aside by multinationals.

Patriarchs add value in two ways that do not appear on balance-sheets, says Mr Fan. Their reputation ensures that banks will lend money to their companies. And their relationships with government are often lucrative. Alas, these strengths are hard to bequeath to one’s children. Which is why some Asian empires will struggle to outlive their founders.

Very interesting article on the tumultuous fall of Hong Kong's great 20th century tycoons, or the inglorious rise of the next generation of Chinese business leaders, depending on your perspective.