Dialogues on Salt and Iron

Professor Yin-wong Cheung is Hung Hing Ying Chair Professor of International Economics, and Head of the Department of Economics and Finance at City University of Hong Kong. After graduating from the University of Pennsylvania in 1990, he joined the University of California in Santa Cruz, and taught there for over twenty years before joining CityU in 2011. His areas of research include econometrics, applied econometrics, exchange rate dynamics, asset pricing, output fluctuation, and economic issues in Asian Economies. Professor Cheung talks about philanthropy, research in finance, and his readings in Chinese history.

Professor Yin-wong Cheung

The life of an international economist is a busy one and Professor Yin-wong Cheung is just back from the considerably cooler climes of Helsinki where he has been presenting research papers at the Institute for Economies in Transition, Bank of Finland, and the University of Jyväskylä, and discussing research and academic collaboration possibilities.

Apart from being Head of the Department of Economics and Finance, Professor Cheung is the first endowed Chair Professor in the University, the Hung Hing Ying Chair Professor of International Economics. What does this mean to him?

"First of all I would like to express my profound gratitude to the Hung Hing Ying and Leung Hau Ling Charitable Foundation for their support. We are still a relatively young university, and this kind of backing and recognition from the wider community is really important to us."

The Hung Hing Ying family has a long history of philanthropy in Hong Kong tertiary education, and their name graces one of the oldest educational buildings in Hong Kong. How does Professor Cheung see the role of philanthropy in Hong Kong compared to America?

The philanthropic path

"These are different cultures with their own distinctive histories. In the United States the culture of philanthropy in tertiary education has been alive for centuries, and endowments can form a significant part of university income," he notes.

Professor Cheung is no stranger to the United States, having studied for his PhD at the University of Pennsylvania, and spent nearly twenty years on the faculty of the University of California, Santa Cruz.

"Benjamin Franklin helped establish UPenn back in the mid eighteenth century, and he's still very much remembered. I used to walk past his statue everyday on the campus."

Later on UPenn was to pioneer many educational innovations, such as establishing Wharton as the first collegiate business school in 1881.

The tradition of giving endowments to North American education continued down into the 21st century. Some donors were recognized with named buildings or programmes, some preferred to remain anonymous. One of the greatest examples of hidden philanthropy is John D Rockefeller's establishment of the University of Chicago. He steadfastly refused to have his name on the institution.

Professor Cheung clearly finds this broad tradition of American philanthropy to be a force for the good but sounds a cautionary note: "Generally when the ground rules have been established and accepted, it's a hands off situation. But there can be issues around benefactors' micro-management of projects. I am aware of projects which turned sour when there was a little too much input coming from the donors."

RMB valuation

Professor Cheung has for many years engaged in teaching and research on international finance, especially around the more abstruse theories of international finance and practical issues surrounding exchange rate dynamics, publishing extensively in the area.

"The RMB exchange rate issue has been a matter of academic focus at home and abroad for some years. Common consensus would have it that the Renminbi is undervalued and much of the discussion is around its appreciation."

"The internationalization of the RMB should be a process of gradual reform and development."

But Professor Cheung points out that evidence for RMB undervaluation is not foolproof, and may not survive rigorous examination. Also that exchange rate policy alone is not likely to resolve the global trade imbalance issue. Finally, he suggests that the internationalization of the RMB should be a process of gradual reform and development.

"The RMB offshore market development is currently centred in Hong Kong under a transparent regulatory regime. There can be a gradual liberalization in trade with RMB settlements, and capital account items, but it is important not to overheat the market. Meanwhile, government regulation can be adjusted and appropriate open market forces introduced."

A listening Emperor

Professor Cheung believes that it is good to get away from 'the boring world of economics' now and again, and that has led him towards readings in Chinese history, albeit sometimes with a financial flavour.

One book on his shelf is the Political Dialogues in the Zhenguan Reign by WU Jin(吳兢《貞觀政要》). The book offers a historical record of the conversations between Emperor Taizong and his ministers. Professor Cheung explains that these conversations covered a wide range of issues on governing the then Tang Dynasty. Among the numerous valuable insights and lessons, one that is quite striking is Taizong's willingness – even eagerness – to take critical and at times harsh comments from his ministers. He was after all perceived as wielding absolute power as the emperor. It is this willingness to listen to and consider alternative points of view, a quality that Professor Cheung finds frequently lacking in modern politicians, which makes Taizong one of the greatest emperors in Chinese history. Like many classical Chinese writings, Political Dialogues in the Zhenguan Reign is a treasure of wisdom.

Gentlemen in conversation, Eastern Han Dynasty

Debate takes off

Debates on philosophies of economics took place quite early on in China. Discourses on Salt and Iron by HUAN Kuan ( 桓寬《鹽鐵論》) is a transcript of viewpoints discussed in a forum held in 81 BC, initiated by the government during the reign of Emperor Zhao of the Han Dynasty. Professor Cheung believes that the book is the first extensive record of debates on laissez-faire and state interventionist policies. The forum covered a wide range of policies, well beyond the state monopolies of salt and iron, introduced by Emperor Zhao's father, the renowned Emperor Wu.

These policy debates were characterized by praise for state intervention offered by government officials and representatives, and the opposing view emphasizing the merit of the free-market mechanism pronounced by respected and learned scholars(賢良).

The government had to defend not only its economic policies including state monopolies on salt and iron, the nationalisation of the minting of coins/money, and the price stabilisation scheme, but also foreign policies, such as wars against Mongolia, and social and education policies.

"The government line was that by nationalizing the iron industry they could efficiently produce good quality tools, offer good working conditions, and stabilise prices. At the same time the state-owned monopolies would generate much needed funding to cover war expenses without imposing extra tax burdens."

Are quotas working?

"But the scholars pointed out that the monopoly focused on quotas rather than quality, and that the tools produced were of poor quality and expensive. Once the government started to compete with people for profits, it distorted the incentive structure, and induced corruption and abuses of power. So here we see archetypical arguments against government involvement."

While these ideas and arguments are quite standard even for non-specialists these days, they represented quite deep thinking two thousand years ago.

The people voice opinions

"The interesting point is that the government was taking the record of the debate, but the tone of the book was implicitly siding with the public's point of view on the free market! So you see a relative openness in terms of the government body. While the author HUAN Kuan was a government official, he was also a learned scholar."

Professor Cheung believes that there is something to be learned from the historical record, beyond knowledge and wisdom.

"Back in those good old days the debate on government involvement in the economy was already around, and the government actually initiated the discussion. People did not hesitate to voice their opinions, and some were obviously not in line with the official view."

"These discussions, conducted about two thousand years ago, predate any such debate in the western world on economic policies. There was the absolute power of the emperor, but people still enjoyed a relatively open environment to express their views, conduct constructive dialogues with the authorities, and seek consensus."

The Future of the Mind

Professor Cheung's interests reach beyond history, and he has recently been reading the work of the American physicist, and renowned writer on popular science, Michio Kaku, The Future of the Mind: The Scientific Quest to Understand, Enhance, and Empower the Mind.

What attracted Professor Cheung to Dr Kaku's work?

"Michio Kaku's writings, similar to those of Stephen Hawking, offer me a different perspective to look at the world around me – one is nano-scale, the other astronomical. Compared with what we know about universes and galaxies, including Star Trek, we know relatively little about the inner working of our brain, memory, cognition, conscience, and intelligence."

"It's very likely that we will be able to understand memory and ways to recreate and store it outside the brain. This could have profound implications in the medical field. If you can store the memory somewhere then you can reconstruct it."

"With his extensive background interviews, Michio Kaku provides a vivid account of recent developments on the frontier of neuroscience. While the current research on memory and conscience is at an early stage, the implications are quite profound."

But moral issues emerge along with these potential advances in research.

"What would happen if one's memory could be modified and edited? Will the science of the future spell the end of humanity and civilization as we know it today?"

"If nothing else, the book has allowed me to have in-depth conversations with my daughter and son, who are working in the neuroscience and computer industries," says Professor Cheung.

"Right now we communicate using the internet. But there are already experiments where thought is transmitted across continents – a sort of brain network. So today we may be experiencing just the start of the communications revolution."