Steven Ng-Sheong Cheung ( born December 1, 1935) is a Hong Kong-born American economist who specializes in the fields of

transaction cost In economics, a transaction cost is a cost incurred when making an economic trade when participating in a market. The idea that transactions form the basis of economic thinking was introduced by the institutional economist John R. Commons in 1 ...

s and

property right The right to property, or the right to own property (cf. ownership), is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typicall ...

s, following the approach of

new institutional economics New Institutional Economics (NIE) is an economic perspective that attempts to extend economics by focusing on the institutions (that is to say the social and legal norms and rules) that underlie economic activity and with analysis beyond earlier ...

. He achieved his public fame with an economic analysis on China open-door policy after the 1980s. In his studies of economics, he focuses on economic explanation that is based on real world observation (an observation first approach). He is also the first to introduce concepts from the

Chicago School of Economics The Chicago school of economics is a Neoclassical economics, neoclassical Schools of economic thought, school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and populari ...

, especially

price theory Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the ...

, into China. In 2016, Cheung claimed to have written "1,500 articles and 20 books in Chinese" during his academic career. He obtained his PhD in economics from

UCLA The University of California, Los Angeles (UCLA) is a public land-grant research university in Los Angeles, California, United States. Its academic roots were established in 1881 as a normal school then known as the southern branch of the C ...

, where his teachers were the American economists

Armen Alchian Armen Albert Alchian (; April 12, 1914February 19, 2013) was an American economist who made major contributions to microeconomic theory and the theory of the firm. He spent almost his entire career at the University of California, Los Angeles (UCL ...

and

Jack Hirshleifer Jack Hirshleifer (August 26, 1925 – July 26, 2005) was an American economist and long-time professor at the University of California, Los Angeles. He received a B.S. in 1945 and a Ph.D. in 1950 from Harvard University. He worked at the RAND ...

. He taught in the Department of Economics at the

University of Washington The University of Washington (UW and informally U-Dub or U Dub) is a public research university in Seattle, Washington, United States. Founded in 1861, the University of Washington is one of the oldest universities on the West Coast of the Uni ...

from 1969 to 1982, and then at the

University of Hong Kong The University of Hong Kong (HKU) is a public research university in Pokfulam, Hong Kong. It was founded in 1887 as the Hong Kong College of Medicine for Chinese by the London Missionary Society and formally established as the University of ...

from 1982 to 2000. During this period, Cheung reformed the syllabus of Hong Kong's

A-level The A-level (Advanced Level) is a subject-based qualification conferred as part of the General Certificate of Education, as well as a school leaving qualification offered by the educational bodies in the United Kingdom and the educational ...

Economics examination, adding the concepts of the postulate of constrained maximization,

methodology In its most common sense, methodology is the study of research methods. However, the term can also refer to the methods themselves or to the philosophical discussion of associated background assumptions. A method is a structured procedure for bri ...

, transaction cost and property right, most of which originate from the theories of the Chicago school.

Academic career

Hakka The Hakka (), sometimes also referred to as Hakka-speaking Chinese, or Hakka Chinese, or Hakkas, are a southern Han Chinese subgroup whose principal settlements and ancestral homes are dispersed widely across the provinces of southern China ...

of Huiyang,

Guangdong ) means "wide" or "vast", and has been associated with the region since the creation of Guang Prefecture in AD 226. The name "''Guang''" ultimately came from Guangxin ( zh, labels=no, first=t, t= , s=广信), an outpost established in Han dynasty ...

ancestry born in

Hong Kong Hong Kong)., Legally Hong Kong, China in international treaties and organizations. is a special administrative region of China. With 7.5 million residents in a territory, Hong Kong is the fourth most densely populated region in the wor ...

in 1935, Cheung fled to

mainland China "Mainland China", also referred to as "the Chinese mainland", is a Geopolitics, geopolitical term defined as the territory under direct administration of the People's Republic of China (PRC) in the aftermath of the Chinese Civil War. In addit ...

in 1941 due to the

Japanese occupation of Hong Kong The Japanese occupation of Hong Kong began when the governor of Hong Kong, Mark Aitchison Young, surrendered the British Crown colony of British Hong Kong, Hong Kong to the Empire of Japan on 25 December 1941. His surrender occurred after Batt ...

. From 1959 to 1967, he studied economics at

and prepared a PhD dissertation. From 1967 to 1969, he did postdoctoral research at the

University of Chicago The University of Chicago (UChicago, Chicago, or UChi) is a Private university, private research university in Chicago, Illinois, United States. Its main campus is in the Hyde Park, Chicago, Hyde Park neighborhood on Chicago's South Side, Chic ...

, analysing share tenancy and variable rural land resource allocation, and was hired as an assistant professor after impressing

Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and ...

in a debate. In 1969, he moved to the

where he taught until 1982. Under the advice of several friends, including

Ronald Coase Ronald Harry Coase (; 29 December 1910 – 2 September 2013) was a British economist and author. Coase was educated at the London School of Economics, where he was a member of the faculty until 1951. He was the Clifton R. Musser Professor of Eco ...

, he returned to Hong Kong as a professor in

to support the economic reforms of China. Unlike modern mainstream economists, Cheung's analysis does not rely on advanced mathematical techniques but solely on the two basic building blocks of price theory: one is the axiom of constrained maximisation and the other, the law of demand (one that already incorporates the law of diminishing marginal returns). One of the constraints which he emphasizes most is transaction cost (or better termed institutional cost). His theory of share tenancy has enhanced the understanding of contractual arrangement, which was largely ignored by neo-classical economists. According to Cheung,

sharecropping Sharecropping is a legal arrangement in which a landowner allows a tenant (sharecropper) to use the land in return for a share of the crops produced on that land. Sharecropping is not to be conflated with tenant farming, providing the tenant a ...

is not necessarily exploitative. It will achieve the same efficient allocation as labor markets under competition and zero transaction costs (Cheung, 1968). In the presence of transaction costs, sharecropping can be efficient by lowering the monitoring costs of wage contracts and increasing risk-sharing benefits relative to rent contracts (Cheung, 1969). This implication is revolutionary; sharecropping was perceived as an inferior arrangement for years. After the publication o
"The Fable of the Bees: An Economic Investigation"
(Cheung 1973), our perception of

externalities In economics, an externality is an indirect cost (external cost) or indirect benefit (external benefit) to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced ...

is no longer the same: as long as corresponding property rights are clearly delineated, OR transaction cost is zero, externalities can be internalized through private negotiation/contract arrangement without government intervention. In 1983, Cheung published probably his most important journal article, "The Contractual Nature of the Firm". While a firm cannot be defined easily, Cheung interprets it as a kind of contractual arrangement being used to replace the market (i.e. price mechanism) to reduce transaction costs (e.g. the cost of price searching). Cheung once stated that when he finished writing the article, he knew that it would become a work that will last generations, and still be read a hundred years later. Thus, " ebeheld the sky and laughed." Outside of the academic world, Steven Cheung is most well known for his numerous writings directed at a popular audience, especially the Chinese public. He is also known for his famous wit; in 1969 he wrote an article "Irving Fisher and the Red Guards", published in the renowned ''

Journal of Political Economy The ''Journal of Political Economy'' is a monthly peer-reviewed academic journal published by the University of Chicago Press. Established by James Laurence Laughlin in 1892, it covers both theoretical and empirical economics. In the past, the ...

'', arguing

ironically Irony, in its broadest sense, is the juxtaposition of what, on the surface, appears to be the case with what is actually or expected to be the case. Originally a rhetorical device and literary technique, in modern times irony has also come t ...

that the activities of the

Red Guards The Red Guards () were a mass, student-led, paramilitary social movement mobilized by Chairman Mao Zedong in 1966 until their abolition in 1968, during the first phase of the Cultural Revolution, which he had instituted.Teiwes According to a ...

in China stemmed from their use of a "refined concept of capital". Unbeknownst to the readers, the article was written under considerable emotional pain; his close friend, the

table tennis Table tennis (also known as ping-pong) is a racket sport derived from tennis but distinguished by its playing surface being atop a stationary table, rather than the Tennis court, court on which players stand. Either individually or in teams of ...

champion Rong Guotuan, had just committed suicide after being tortured by the Red Guards. Cheung maintained a lifelong friendship with former mentors

and

, the latter of whom officiated his wedding. He accompanied Friedman in his numerous tours of China, and was present when Friedman met with Chinese leader

Zhao Ziyang Zhao Ziyang; pronounced (17 October 1919 – 17 January 2005) was a Chinese politician. He served as the 3rd premier of China from 1980 to 1987, as vice chairman of the Chinese Communist Party (CCP) from 1981 to 1982, and as the CCP general ...

to discuss economic reforms. Cheung was also an avid photographer. He took the most iconic photo of Milton Friedman, which was featured on the cover of Friedman's treatise ''

Capitalism and Freedom ''Capitalism and Freedom'' is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It has sold more than half a million copies since 1962 an ...

''.

Criticism

While referring to Cheung's "brilliant, valiant attempt" to prove that sharecropping does not affect incentives of the workers,

Joseph E. Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, political activist, and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2 ...

credited Cheung's "unreasonable assumptions, especially concerning information" for motivating him to develop the theories of the role of information in economics.

Practical research

In order to understand real life phenomena, he personally engaged in numerous economic activities, such as fish farming, selling citrus fruit, inspecting the petroleum industry, and haggling over the price of antiques. He has criticized the isolation of most economists from real life problems.

Contribution to economics and China's economic development

Cheung's contribution to economics and China's economic development can be roughly grouped in the following areas, #

New Institutional Economics New Institutional Economics (NIE) is an economic perspective that attempts to extend economics by focusing on the institutions (that is to say the social and legal norms and rules) that underlie economic activity and with analysis beyond earlier ...

## how different kinds of contractual arrangement affect transaction costs, which are often ignored by neoclassical economists ## realizing the importance of transaction costs (as Cheung often mentions in his writings, if there is no transaction costs (the original starting point assumption by Coase), there is no difference in using different institutional arrangements (e.g. market or government)). ## the nature of the firm (a government, to a certain extent, is a firm and can be more efficient than the market in some areas), #

Methodology In its most common sense, methodology is the study of research methods. However, the term can also refer to the methods themselves or to the philosophical discussion of associated background assumptions. A method is a structured procedure for bri ...

## emphasis on economic explanation (according to Cheung, economic explanation is the ONLY objective of the study of economics); ## the analysis of relevant and observable real world constraints: Adam Smith's tradition, ## downward sloping demand curve: Neoclassical tradition, ## theories must be potentially refutable but not yet refuted (Cheung considers many mainstream concepts not observable, leading to the non-refutable nature of many theories (such as utilities, welfare)) ## focus on capturing the underlying and relevant constraints to explain economic phenomena that might seem odd and strange on the surface. # China's economic development ## Considerable influence among the Chinese speaking population (most of his works after 1982 are written in Chinese); ## Prediction of China's institutional reform (which, in general, has been quite accurate) ## Analysis of the deficiencies in the Chinese state owned enterprises

Comments on China's modernization

He wrote many books (in Chinese) commenting on China's modernization programs from an economic point of view. In the 1980s, Cheung predicted and strongly supported an economic transformation of China as a

market economy A market economy is an economic system in which the decisions regarding investment, production, and distribution to the consumers are guided by the price signals created by the forces of supply and demand. The major characteristic of a mark ...

. However, in that decade, China went through serious inflation, leading to strong economic, political and social tensions. However, after 1992, China continued to reform economically. Cheung claimed that most of his predictions have come true. One of his major ideas, the replacing of

state-owned enterprise A state-owned enterprise (SOE) is a business entity created or owned by a national or local government, either through an executive order or legislation. SOEs aim to generate profit for the government, prevent private sector monopolies, provide goo ...

s by private enterprises, turns out to be very consistent with the direction taken by Chinese political leaders and policy makers. Later on, after the leaders of Shanghai began economic reforms, he predicted that it would immediately become one of the financial centers of the world, surpassing Hong Kong. The prediction was met with heavy skepticism, but turned out to be correct in some respect. As of 31 January 2015,

Shanghai Stock Exchange The Shanghai Stock Exchange (, SSE) is a stock exchange based in the city of Shanghai, China. It is one of the three stock exchanges operating independently in mainland China, the others being the Beijing Stock Exchange and the Shenzhen Stock ...

overtook the

Hong Kong Stock Exchange The Stock Exchange of Hong Kong (, SEHK, also known as Hong Kong Stock Exchange) is a stock exchange based in Hong Kong. It is one of the largest stock exchanges in Asia and the List of major stock exchanges, 9th largest globally by market ...

in terms of market capitalization. However, Shanghai has yet to catch up with Hong Kong in terms of financial infrastructure, and Shanghai's dream of overtaking Hong Kong has yet to be fully fulfilled.

Legal troubles

On January 28, 2003, Cheung was

indicted An indictment ( ) is a formal accusation that a person has committed a crime. In jurisdictions that use the concept of felonies, the most serious criminal offense is a felony; jurisdictions that do not use that concept often use that of an indi ...

on thirteen counts by a US federal

grand jury A grand jury is a jury empowered by law to conduct legal proceedings, investigate potential criminal conduct, and determine whether criminal charges should be brought. A grand jury may subpoena physical evidence or a person to testify. A grand ju ...

. The charges consisted of six counts of filing a false income tax return, six counts of filing false foreign bank account reports, and one count of Conspiracy to Defraud the United States. Cheung was accused of failing to report incomes from Hong Kong parking lots and other business. As a U.S. citizen, Cheung is obliged to report incomes from anywhere in the world, even if he does not reside in the United States. The law is uncommon in other countries. Cheung insists that he relied on the advice of his tax consultant, and did not know he was supposed to report the income in question. Experts have said that ignorance of the U.S. tax policy is common among U.S. expatriates; the U.S. government generally does not pursue investigations of failures to report overseas income for non-residents. When discovered, offenders are often simply requested to turn in the unpaid tax. It is unknown why the U.S. government chose to investigate Cheung, and further to pursue a federal grand jury indictment; journalists have suspected ulterior motives. Originally a professor at

, because of the past

extradition In an extradition, one Jurisdiction (area), jurisdiction delivers a person Suspect, accused or Conviction, convicted of committing a crime in another jurisdiction, into the custody of the other's law enforcement. It is a cooperative law enforc ...

agreements between the US and Hong Kong, Cheung has since stayed in

, a jurisdiction that has no such agreements with America. He now writes books and works as a columnist for the Chinese website ifeng.com. Occasionally, he pays visits to various universities in mainland China. From 1998 to 2003, Cheung's company, Steven N. S. Cheung Inc. had a subsidiary in Seattle called Thesaurus Fine Arts, which specialized in Asian antique pieces. The store closed whe
a series of investigative reports in the ''Seattle Times''
alleged that many of the antiques were fake. In 2004, the Washington State Attorney General filed consumer fraud charges against Thesaurus Fine Arts. In 2005, Thesaurus Fine Arts settled for up to $550,000 in fines, attorney fees, and restitution. Cheung was dropped from the case as a result. Cheung has denied ownership of Thesaurus. Thesaurus is a subsidiary of Steven N. S. Cheung Inc., but it is claimed that Cheung is "not an officer, director or shareholder" of Thesaurus.

Notable works

Doctoral thesis

* 1969 ''The Theory of Share Tenancy'',

University of Chicago Press The University of Chicago Press is the university press of the University of Chicago, a Private university, private research university in Chicago, Illinois. It is the largest and one of the oldest university presses in the United States. It pu ...

. Reprinted in June 2000 by Arcadia Press.

Selected books for general audiences

* 1988 ''Orange Sellers Say'', Sichuan People 's Publishing House * 2001 ''Economic Explanation'', Arcadia Press, Reprinted in December 2002 by Arcadia Press ** ''Book I, The Science of Demand'' ** ''Book II, The Behavior of Supply'' ** ''Book III, The Choice of Institutional Arrangements'' * 2007 ''The Economic Structure of China'', Arcadia Press * 2010 ''Currency Strategy Thesis'', Arcadia Press * 2010 ''New Orange Sellers Say'', Arcadia Press, Reprinted in May 2011 by Arcadia Press * 2011 ''Economic Explanation'' (2nd ed.), Arcadia Press ** ''Book I, The Science of Demand'' ** ''Book II, Income and Cost'' ** ''Book III, Price Taking and Price Searching'' ** ''Book IV, The Choice of Institutional Arrangements'' * 2014 ''Economic Explanation'' (3rd ed.), Arcadia Press * 2017 ''Economic Explanation'' (4th ed.), Arcadia Press ** ''Book I, The Science of Demand'' ** ''Book II, Income and Cost'' ** ''Book III, Price Taking and Price Searching'' ** ''Book IV, The General Theory of Contract'' ** ''Book V, The State Theory and the Theoretical Structure of Economic Explanation''

Selected journal articles

* 1968 "Private property rights and sharecropping", ''

'', Vol. 76, Issue 6, pp. 1107–1122. * 1969 "Transaction Costs, Risk Aversion, and the Choice of Contractual Arrangements", ''

Journal of Law and Economics ''The Journal of Law and Economics'' is an academic journal published by the University of Chicago Press. It publishes articles on the economic analysis of regulation and the behavior of regulated firms, the political economy of legislation and leg ...

'', Vol. 12, Issue 1, pp. 23–42. * 1970 "The Structure of a Contract and the Theory of a Non-Exclusive Resource", ''Journal of Law and Economics'', Vol. 13, Issue 1, pp. 49–70. * 1972 "Enforcement of Property Rights in Children, and the Marriage Contract", ''Economic Journal'', Vol. 82, Issue 326, pp. 641–657. * 1973 "The Fable of the Bees: An Economic Investigation", ''Journal of Law and Economics'', Vol. 16, Issue 1, pp. 11–33. * 1974 "A Theory of Price Control", ''Journal of Law and Economics'', Vol. 17, Issue 1, pp. 53–71. * 1975 "Roofs or Stars: The Stated Intents and Actual Effects of a Rents Ordinance", ''Economic Inquiry'', Volume 13, Issue 1, pp. 1–21. * 1977 "Why are better seats 'underpriced'", ''Economic Inquiry'', Volume 15, Issue 4, pp. 513–522. * 1982 "Property Rights in Trade Secrets", ''Economic Inquiry'', Volume 20, Issue 1, pp. 40–53. * 1983 "The Contractual Nature of The Firm", ''Journal of Law and Economics'', Vol. 26, Issue 1, pp. 1–26. * 1995 "Economic Interactions: China vis-a-vis Hong Kong", ''Contemporary Economic Policy'', Vol. 13, Issue 1, pp. 1–9. * 1996 "A Simplistic General Equilibrium Theory of Corruption", ''Contemporary Economic Policy'', Vol. 14, Issue 3, pp. 1–5. * 1998 "

Deng Xiaoping Deng Xiaoping also Romanization of Chinese, romanised as Teng Hsiao-p'ing; born Xiansheng (). (22 August 190419 February 1997) was a Chinese statesman, revolutionary, and political theorist who served as the paramount leader of the People's R ...

's Great Transformation", ''Contemporary Economic Policy'', Vol. 16, Issue 2, pp. 125–135. * 1998 "The Curse of Democracy as an Instrument of Reform in Collapsed Communist Economies", ''Contemporary Economic Policy'', Volume 16, Issue 2, pp. 247–249.

References

External links

Steven Cheung's official blog (in Simplified Chinese)

Steven Cheung's video interviews (with Chinese subtitles)

Seattle Times investigative reports on Thesaurus Fine Arts
{{DEFAULTSORT:Cheung, Steven 1935 births Living people American businesspeople convicted of crimes American people of Chinese descent American people of Hakka descent American people convicted of tax crimes Hong Kong economists Hong Kong emigrants to the United States Hong Kong people of Hakka descent People from Huizhou Law and economics scholars New institutional economists People from Huiyang University of California, Los Angeles alumni Hakka scientists 20th-century American economists 20th-century Chinese economists