Shenzhen Diary : Da-fen Oil Painting Village

Counterfeit’s of famous paintings at Da-fen

Vladmir Putin’s portraits are a common sight at Da-fen

 The development of Shenzhen has been through the concerted efforts of the government and its people but what is often ignored are the small pockets of thriving novelty industries that have brought the spotlight to Shenzhen all across the world. One such industry is the oil painting industry centered on the dafen oil painting village. Started by a businessman from Hong Kong named Huang Jiang in the 1980’s, the oil painting soon became a thriving business community with more than 3000 artists replicating or producing more than 6000 paintings a day. And the rapid development of Shenzhen along with the increased demand for oil painting replicas the easy supply of which comes from the village made this obscure area in Shenzhen, one of the most visited places in Shenzhen. Most of the artists who work are well trained in the art and some are capable of producing a score of replicas in a day.

I visited Da-fen last month. The village developed as a gated enclave was a delight right from the start. I was greeted by the iconic ‘hand holding the paintbrush’ at the gates of the village signifying of what is to come next. I immediately fell in love with what I saw next. Streets lined with beautiful paintings stacked upon each other, artists deep in thought contemplating their next brushstroke, art connoisseurs and critics looking for that one perfect painting from the lot. The dafen enclave sometimes reminded me of medieval Europe or of the streets of Paris where painters lined up to earn a living painting portraits. The da fen enclave supports over 3000 families involved in the business. It comes as no surprise that the streets and shops are bustling with children. “Most shops are family owned. I like working as a painter here, it is good life for my family away from the overcrowded city and the pay is good too”, said Hu Liling, when asked about his life at dafen. “And most foreign people call my kid sweet when they visit my shop”, he laughingly adds.

Hu LiLing at work.

The business at the village can be categorized into many types. Painters like Hu Liling run small inclusive shops selling portraits or simple replicas on a small scale. Hu, undertakes portraits too. He said that it is a new fad among the rich Chinese, to have their portrait adorns their living room. He charges anywhere between 400 to 1000 RMB for a portrait. “Sometimes I get invited to people’s homes to draw. I charge more than 2000 for that”, he said. “Tourists love getting their portrait drawn too.  Charge them extra. I charge extra because when they go back they tell their friends the painting costs thousands of dollars, so I don’t mind charging a few hundred kuai’s extra”, he says laughing hysterically.Custom made paintings at da-fen can range from subtle family portraits to quirky and oddballs such as a painting of ‘you naked except a Napoleonic cap riding a fire breathing laser shooting T-rex’ picture to the left.

Pauwel, a friend of mine with a painting of himself riding a fire-breathing T-rex.

Others like John, he preferred his English name, own large galleries that cater exclusively to orders from overseas. John, in his art gallery employs more than 70 artists and undertakes orders from Europe, North America etc. He said the most demanded paintings are those of exotic sceneries from China and India. “People in the west just love the natural beauty of the east. Probably because they don’t have it”, he said with apparent seriousness when asked about this unusual demand.

After talking to John, I spent the rest of the day taking a stroll on the streets of dafen experiencing sights from Paris, London and Venice right here in Shenzhen. My day at dafen came to an end with a cup of Turkish coffee at a small café  as the sun set on the village and shops closed to prepare for another day.  

Is China surrounded by countries afraid of her power ?

*This first appeared as an answer to a similar question on Quora. It can be accessed here

‘Power’ is an extremely relative term. I am not sure in which context the OP used it here. It will be easier to answer this question is the intended meaning of ‘power’ is explained more. I will nonetheless try my best to answer it. 

It is indeed true China is a regional power, its levels of consumption are increasing, it is growing strong militarily etc. but China is nowhere close to being a power strong enough to be able to intimidate its neighbors, even the smallest ones. David Shambaugh wrote an excellent article on the mis-perception of Chinese power titled The Illusion of Chinese Power in The National Interest . He writes,

“A mini-industry of “China rise” prognosticators has emerged over the past decade, all painting a picture of a twenty-first-century world in which China is a dominant actor. This belief is understandable and widespread—but wrong”

• China is a single dimensional power, its only strength is its economy which is still dependent on manufacturing rather than consumption that it makes it highly susceptible to external shocks.
• China is militarily weaker than many of its Asian counterparts including Japan. People’s Liberation Army is not battle ready, its navy is weaker than Indian navy, its air force is weaker than Japan’s.

It is indeed true that China is quite hostile in recent years to its neighbors with whom she shares a disputed maritime boundary.  Chinese navy regularly violates the UNCLOS [1] inviting condemnation from all over the world. A good example of this is the establishment of an oil rig by the PLA in Vietnam’s territorial waters. But this is as far as it gets. A dispute regarding South China sea has never been an extended one because even China know that it is in their interest to avoid a long stand-off with any of its neighbors.

Let us look at individual countries surrounding China :

• Japan, South Korea, Singapore and Taiwan: Any unilateral action by China against any of the three will be followed by a swift and harsh retaliation by United States of America. These three nations have no reason to fear China.
• Thailand and Philippines: Same as Japan, South Korea, Singapore and Taiwan although the retaliation by USA might be slower in this case.
• Indonesia and Vietnam: They are quite vocal and their tirades against China plentiful. I agree that they fear Chinese aggression on a regular basis but as the case of Vietnam proved, those incursions are mere symbolic.
• Russia:  Its shear size warrants its safety. No reason to be scared here too.
• India: Tricky, militarily India is equal to China in all respects and is even stronger in some namely the navy and ballistic missile technology. in terms of economics, China is far ahead of India. Nuclear deterrence is what ensures mutual non-aggression here. India has no reason to fear China either.

Lastly, we live in a globalized world where multilateral institutions like the United Nations wield significant influence in global politics. Article 2 Clause 4 of the United Nations Charter states that,

All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations.

It is simply not possible for one nation to constantly petrify its neighboring countries without a proper reason (the reason which bears the consent of major global powers). China is no exception to this rule.

[1] United Nations Convention on the Law of the Sea.

 Edit: The reference to India being militarily equal to China is very broad and keeps in mind several future defense acquisitions. A friend of mine, Kirish Rajrightly pointed out that the PLA is quite advanced in its air strike capabilities and border area infrastructure. I still maintain that Indian Navy is superior to PLA Navy, with 2 functional carrier groups. Indian Navy is stretched to the limit though because of the larger coastline it has to defend.

Note: I fundamentally disagree by Neel Kumar‘s use of the word ‘tiny’ to describe the countries around China unless the word is used in its literal sense to signify area. Japan and Taiwan are two of China’s smallest neighbors area wise, but are militarily almost equal to China, their economy is much more robust to macroeconomic shocks than Chinese economy and they are technologically way ahead of China.

Advantages(or disadvantages) of APT over CAPM with an example

This post first appeared as an answer to a similar question on Quora. It can be accessed here

I will try to answer this question in the simplest way possible. I am assuming you want to know why would anyone use CAPM now that we have APT or how to choose between using CAPM and APT.

*I will skip the mathematical representation of both. 

Background: Even though general form CAPM can be derived as a special case of APT, CAPM precedes APT by more than a decade and was in vogue with economists till the late 1970’s.

Capital Asset Pricing Model: CAPM’s theoretical base lies in the assumption that the only source of idiosyncratic risk for a security is the market itself in which it is traded, not the external macroeconomic factors of the country where the market is located. This does not mean that the CAPM ignored macroeconomic shocks completely. CAPM assumes that all macroeconomic shocks affect the market as a whole and that shock in its entirety trickles down to all the securities traded in the market. That CAPM ignores macroeconomic shocks is a myth.

CAPM indeed fails empirically now but the failure is highly circumstantial.[1]CAPM’s underlying assumption is true for a less developed economy and financial market. With the advent of hedging and the development of financial markets itself, asset pricing theories too evolved. However, CAPM still remains one of the most widely studied asset pricing theorem because of its strong theoretical background and relevance in many emerging markets.

Arbitrage Pricing Theory: Arbitrage Pricing Theory, the most famous successor to the CAPM was introduced by Stephen Ross in the mid 1970’s. APT in essence is a mere extension of CAPM. APT introduced the concept of factors in asset pricing where factors are quantified macroeconomic shocks.  While all sources of risk were clubbed together in CAPM, APT says that different securities have different sources of risk because of different exposure to the various ‘factors’.

Difference between CAMP and APT: The APT’s use of factors is what justifies its use as a more realistic asset pricing theorem. Take the simple example of stocks of oil companies. The price of oil stocks will vary a lot with oil price shocks, tensions in the Middle East etc but will not be affected much by spike in inflation, changes in bond yields.

• If we calculate the expected returns of this stock using CAPM, the market risk would have incorporated all sources of risk, that may of may not affect oil companies directly.
• If we calculate the expected returns using APT, we don’t have to use the aggregate risk of the market. Instead we just use those factors of the real economy that affect oil companies. The expected returns in this case are more realistic because of the correct value of underlying risk.

Which one should you use ?

Herein lies the catch. It is very difficult even for very skilled macroeconomists to identify the ‘factors’ that may affect the price of individual stocks correctly. In many cases factors identified might not be supported by sound economic theory but a hunch or by past data both of which are not exactly rational. CAPM on the other hand relies on the market as the only source of risk and aggregated market risk can calculated with less difficulty. Even though CAPM is criticized on the grounds that it is too easy, it is still the only asset pricing theorem which has both a rock solid theoretical background and is easy of usage. [2]

[1] The earliest version of CAPM fails empirical tests. CAPM itself has evolved to keep up with financial development. ICAPM, Black CAPM and several other variants of CAPM have been tested to be sound empirically.
[2] This is the famous Roll’s Critique.

Note: I would be happy to provide a more mathematical answer to this question. Post it in the comments section if you want me to do so. Dr. Zvi Bodie’s textbook titled ‘Investments’ has an excellent chapter on factor models and the CAPM.  Interested readers can look it up

 

What are some of best recent researches in Economics/Finance focusing on India ?

*This post first appeared as an answer to a similar question on Quora. The same can be accessed here

 

There is very little pioneering research done or being done in Economics and Finance on India for several reasons. Firstly, Indian economic history is not unique, right from the socialist era to the free market era, there are numerous other example of similar nations available. Secondly, Indian Statistical Authorities have never been really good at maintaining databases that are large enough to support data intensive research in Economics/Finance. I believe the second reason is more pertinent. A couple of professors here at Peking University actually gave up their research on India mid-way for lack of data.

Despite that, I can think of a three prominent studies in Economics though released recently that might interest you.

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Surnames and Social Mobility

Prof. Gregory Clark from University of California, Davis recently concluded his study on intergenerational mobility in India by tracking rare surnames, a unique and simple method he developed as a metric to measure intergenerational mobility. India in this case proved to be an ideal subject because of the prominent culture of fixed surnames that pass down generations after generations.
He concludes that social mobility in India has not changed significantly from 1860’s to 2012. He also concludes that success is easily predictable from lineage in India and ancestry not skill is what predominantly determines whether will you will be successful or not. He replicated that study in Sweden, United States and Japan and found social mobility to be similarly rigid. [1]
This in essence nullifies all the policy based attempts by the Government of India to reduce poverty as social mobility as proven by Dr. Clark is robust to policy interventions. All the replications of this study were published as a book this year titled The Son Also Rises: Surnames and the History of Social Mobility [2]

How it can benefit you ?

Dr. Clark’s method of measuring social mobility by tracking rare surnames can be applied to study several social indicators especially in India because surnames are so prominent in Indian culture and they rarely change. I rememberer a PhD student at NUS used it to measure the persistence of research grants being awarded mostly to people with rare surnames higher up in the caste system while another at UC Davis used it to measure social mobility in China.

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Cows as Equity Investments

The following two studies are quite thorough and data oriented but also provide for excellent comic relief especially to a first time reader.

Santosh Anagol in 2013 studied the persistent domestication of cows by rural Indian households, the costs associated with it and the derived profits in a couple of districts of Uttar Pradesh. He concluded that continued cattle rearing in India is against the central tenets of capitalism that people act as rational profit maximizing agents because of negative profits from rearing cows and buffaloes. He explained this practice a religiously significant and hence still continuing.
The debate surrounding this paper was intense because it violated some long standing economic theories. [3][4][5]

This research was refuted in 2014 by Attanasio et. al’s NBER Working Paper in which they directly dismissed Anagol et. al’s findings. This research concluded that Cows are just like equity investments yielding high profits in some years and negative profits in some. Attanasio at. al use a larger dataset spread over three years with one year of drought come to this conclusion. [6]

How can you extend this study ?

I personally have no idea how both the aforementioned groups of economists came up with the original idea in the first place. I would be pleasantly surprised if someone is able to extend these studies. 

In Finance, I doubt if there is any pioneering study on India. Indian equity and debt markets are so similar to the United States and several other countries that there is nothing unique to study about them. However, the lack of good finance theory papers from/about India partly because of lack of good financial economists in Indian schools in a different issue altogether.

Note: I would happily engage in any discussion over this answer in the comments section.

[1] Clark, Gregory, and Zach Landes. “Caste versus Class: Social Mobility in India, 1860.” (2013).
[2] Clark, Gregory. The Son Also Rises: Surnames and the History of Social Mobility. Princeton University Press, 2014.
[3] Anagol, Santosh, Alvin Etang, and Dean Karlan. Continued Existence of Cows Disproves Central Tenets of Capitalism?. No. w19437. National Bureau of Economic Research, 2013.
[4] A more detailed discussion on Anagol’s paper. Cows, Capitalism and Social Embeddedness   – Why Nations Fail – Why Nations Fail by Daron Acemoglu and James Robinson
[5] The Economist’s take on the same Udder people’s money
[6] Holy Cows or Cash Cows?

Why is North Korea so covert ?

*This post first appeared as an answer to the same question on Quora. It can be accessed here 

I am assuming you refer to the restrictions in the inflow/outflow of information imposed by the North Korean government.

Background: North Korea is one of the last surviving communist states in the world. Its abject poverty exceeds those of several African countries and a third of the annual deaths are caused by starvation. Indoctrination is rampant. A couple of professors from Peking University (my current graduate institution) visited North Korea last year for a teaching assignment at Pyongyang University of Science and Technology. By their description, even Professors at North Korea’s ‘premier university’ are not exempt from it.

Reasons for being covert: It is true North Korean government exercises tight control over all information channels because it is under constant threat of espionage from South Korea, United States of America and Japan. However, the bigger reason to control the media is to prevent information from getting in rather than to prevent it from getting out. North Korean citizens are taught an alternate history of the world by the DPRK propaganda machinery, most of which would provide excellent comic relief to any westerner. Examples of which include:

• South Korea is as impoverished as North Korea is because South Korea has bowed to and is under the American sphere of influence. The reason North Korean economy is not able to develop is because America has blocked all the trade routes. A picture of heavily fenced 38th parallel is provided as proof for this counterfactual.

• Even after being impoverished and subdued, North Korea has achieved milestones in science and technology that other countries dream of. Putting a man on the sun by launching the space shuttle in the night is the most comic one. The normal citizens are made to believe that all these are because of them living in a harmonious society doing what the government commands them to do.

It is to prevent the entry of any outside information that might disturb this carefully crafted virtual history the government exercises iron fist control on all means of information exchange including physical travel. Travel within North Korea is restricted to such as extent through internal passports that you can easily find people there who have lived their entire life in a 200 acre commune with no knowledge of what life outside the commune is like.

Now you see, if a sizable population in North Korea by any chance finds out that their immediate neighbor South Korea is a flourishing first world economy with high standards of living, it would mark the decline of Kim Jong Un’s reign and ultimately the communist regime itself. Being ‘covert’ is the only way of ensuring that dissidence is curbed.

Disclaimer: I have never visited North Korea. This answer is based on the the description of poverty in North Korea by a friend of mine and the several interactions I have had with North Korean immigrants while living in China.

ADDENDUM

• Another example of North Korean state media using dubious counter factual events to keep dissidence at bay is their manipulations of results of sporting events. According to a news broadcast that went viral a month back, North Korea has ‘apparently’ won the FIFA World Cup, and defeated Japan, South Korea and USA on their way to the finals.
• North Korean leaders live first world lives while the people starve to death.Kim Jong Il was famous for importing expensive liquor from all over the world.  Iron fist control on the media is also to prevent this from going public.

*This post first appeared as an answer to the same question on Quora. It can be accessed here