This is China! blog

Jeffrey Garten, a professor at Yale, has suggested that America in its weakened financial condition after the Great Recession of 2008-2009 should take to the same strategy of multi-lateral engagement with China. With the U.S. banking system discredited and two wars continuing to stretch its military and its finances, America is at a disadvantage in trying to balance out Chinese assertiveness. Instead, Garten suggests the United States should lead the way toward working with other nations to build international institutions, like the World Trade Organization (WTO),”where China is obliged to play by the rules that a number of leading countries have subscribed to, and which has an orderly process of adjudication. While it still has leadership clout, the centrepiece of US efforts ought to be marshalling multilateral support for other such arrangements.” Examples of such “captive multi-lateral” efforts include an enforceable international climate change treaty, internet operation and a strengthened global monetary system.

Further reading: FT

Previous posts:

China in Lilliput

Pulling a “Google” on China

National Malfeasance

I recently listened to a wonderful podcast on BBC about the life of “China’s Forgotten Admiral”, Zheng He. Zheng He, a Muslim eunuch, matched up the navigation technologies of the Arabs with the ship-building prowess of the Ming Dynasty to create the largest commercial armada the world had ever seen. The fleet sailed from the east coast of China around southeast Asia and into the Indian Sea to Ceylon (now Sri Lanka) and even to the east coast of Africa.

It seems that with in the modern age the Chinese have made the trek again, much to India’s consternation. The Indians and Chinese are already in contention over such issues as melting Himalayan glaciers, the Dalai Lama and China’s poke-you-in-the-eye support of Pakistan. Now China is providing funds to Sri Lanka to rebuild its war-torn infrastructure,

Meanwhile, all India seems to be able to do given its vast domestic challenges and querrelous and highly fragmented form of democracy is announce its displeasure with its ancient neighbor.

Though China is not seeking tribute from the smaller nations as it had six hundred years ago, the ghost of Zheng He is alive and well.

Further reading: NYT

Past posts:

China Overseas Investment: No Big Deal

New Prescription Needed: Blurring a Bi-polar World

Crouching Dragon, Flailing Elephant

For All the Tea in China: A Wonderful Book

With talk of China taking over the world with its horde of Treasury bills and its investments overseas in American companies and natural resource deposits, and its unconstructive spoiling tactics at the UN and the Copenhagen Climate Conference, China has shown an astonishing lack of world leadership. Expressions of displeasure are, well, rather archaic, harkening back to when the Emperors could declare, “Off with his head!” or “Call up the armies!” or “Death by a thousand slices!”.

As Peter Mandelson points out in a New York Times Op Ed piece, China needs to own up to all the international responsibilities encumbent on being an economic superpower. Mandelson is First Secretary of State for the British government. In many ways, China is perfectly situated to take on such a mantle, as its domestic issues mirror the world’s challenges so well: over-population, exhaustion of natural resources, how to get along with one’s very foreign neighbors, global climate change impact on its economy.

China instead would prefer to play the third-world card or the injury card of the violated handmaiden when called on to offer constructive frameworks to managing in the world at large. When it does figure out it should contribute something to global dialog, it more often than not “expresses its anger”.

As Mandelson so well states, “We may have to show some patience, and nerves for the occasional friction, but one way or another, we all need China to succeed and we all need China to start leading.”

One day, we can hope, Chinese leadership will understand: Proclamation is not Leadership.

Past posts:

Just Because You’re Paranoid …

Pulling a “Google” on China

Mirror Mirror: Seeing Beyond the Polls

China in Lilliput

After witnessing the synergy between people power and media technologies in Iran, China’s leadership has been especially leary of the same sort of upset happening to their rule. The more militarily-minded are especially concerned about frontal assaults on their internet security. The Communist Party’s Global Times wrote in December last year that an unsuspecting government worker opened an email that let loose a worm that sucked away information specific to a submarine program.

The New York Times reports that for the last two years the Chinese national government has been investing more heavily in local hardware and software. The article notes that the effort is somewhat contradictory (this is China, after all), in that the state-of-the art equipment and programs come from the West, while China’s are very much still a work in promise (recall Green Dam blocking software, which was riddled by security holes).

In addition to wanting to control the content Chinese users receive, the leadership also wants to make sure that the next generation infrastructure and protocols allow them to keep their committee-finger on the button. In other words, if they feel they need to completely shut down China’s internet in, for instance, time of war or extreme social discontent, they will be able to as effectively as they had Xinjiang last summer.

Western businesses invested in China should be sure they have frequent back-ups of their financial and operational data to their home countries, lest the PRC decide international business be damned, political survival takes precedence. The economic testosterone coursing through arthritic arteries in Beijing believing it can go it alone, if it must.

But then again, just because they’re paranoid, doesn’t mean someone isn’t out to get them.

Past posts:

Broken Web

Wired for Addiction

The Internet Opens Up to the World

One Country, Two Webs

Keeping Tabs on Netizens

China’s Identity Wars

When Big Brother Might Be Your Own Brother

The Human Flesh Search

How to be picked up by a Techno-chik in China

Virtually Blocked

The American Security and Exchange Commission (SEC) recently released a list of Chinese holdings in American companies listed on American stock exchanges total US$9 billion. Companies include: Apple, Coca Cola, Johnson & Johnson, Motorola and Visa. the source of the investments is China’s sovereign fund, the China Investment Corporation (CIC). Sounds like a lot of money from an investment point of view, but it’s not. For one, the CIC has US$300 billion to invest abroad. For another, US$9 billion is nothing compared to the U.S. stock of Foreign Direct Investment (FDI) of over US$2.1 trillion in 2007. The UK led the way back then with over US$410 billion in investments, with Japan number 2 at about half that amount.

Though China’s investment flow into the USA has increased 30% from 2004 to 2008, other countries have really been going to town buying American assets, with Spain accelerating investment holdings in the United States by 60%, India by 64% and the United Arab Emirates(UAE) by 210% to contribute to about US$94 billion in FDI to the States in 2008!

Don’t expect China to be making too many high-profile investments in the States in the near-future, either through the CIC or through the real heavy-weight, the SAFE, the StateAdministration for Foreign Exchange, which is actually responsible for over-seeing the U$2.1 trillion in foreign reserves. Instead, China is seeding much of its investments in its own backyard, in Southeast Asia, where the natives are more hospitable to Chinese money and overseas Chinese already have extensive networks; and in primary industries centered around mining and refinement of ores and petroleum. Private Chinese companies like to buy distressed companies (read: cheap), try to turn them around, and sell them on for a higher price after lifting important technologies from targets.

And why not: a bargain is a terrible thing to waste.

Further reading: CRS Report for Congress, International Trade Administration Presentation 2008

Past posts:

Managing Outbound Chinese Investors

Chinese Overseas Direct Investment Hits a Wall

African Terms of Endearment

China effectively spoiled the West’s attempts at the Copenhagen Climate Conference  at getting well-defined emissions targets and inspections. China achieved this by cobbling together a group of developing countries whose governments have always felt aggrieved the West had been exploiting their economic weakness to diabolical ends, and muting their economic development to eliminate competition. China was quite happy with the outcome, if local media is any indication.

Now, Vietnam wants to do the same thing in the politically and militarily sensitive Spratly Islands, just off the coast of China and Vietnam and the Philipines and Malaysia and Brunei, all of which lay claim to the island chain. The outcroppings of rock and the surrounding waters have been found rich in oil and natural gas. China does not like other countries using the same strategy it used in Copenhagen.

China has already sent its naval vessels to patrol the area, much like a dog marks his territory, and has set up a “research” station on one of the islands. The Chinese navy has also captured scores of Vietnamese fishermen who ply the waters in the area and confiscated their boats.

China knows it needs to tread warily outside its borders, lest it find itself bound by its Lilliputian neighbors who are taking grave offense at Chinese adventures.

Further reading: NYT

Last time I was in old Shanghai to buy a couple prints I was expected to pay for my purchases. Which I did, as I was able to bargain the accommodating proprietress down on price to an ego-soothing level.

Sotheby’s, though,  has been having a devil of a time getting paid for items Chinese new-money has been winning auctions for. Most high profile are two mainland Chinese buyers who failed to pay for five Chinese paintings and an antique incense burner for US$270,000. Of course, it was Christie’s who hosted the auction last year in which a Mainland dealer won the bid for two zodiac statues taken from the Summer Palace in 1860. Though he won the bid, he did not have any money to pay for his “patriotic” act, nor did he have the government’s patronage in what turned out to be a career-ending move for the former art dealer.

In 2008 Sotheby’s had to sue a Mainland buyer for payment; and in 2006 a Chinese buyer over two Chinese paintings.

Sotheby’s puts the lapse in good manners down to the lack of experience Chinese buyers have in international markets, especially in the bidding process.

Either that, or Chinese bidders think it’s all just a bit of good fun.

The disputes highlight a challenge for Sotheby’s, which is increasing its dealings with less experienced buyers from new markets such as China, who are not familiar with international bidding rules. As China’s economy continued its break-neck growth in the past few years, many people turned to overseas markets to park their new-found wealth, buying everything from properties to wines.

Further reading: FT, BBC

The Chinese policy to keep its currency value artificially low is beginning to urk its neighbors in East Asia as well Latin American countries, not to mention the long-running complaints the European Union and America have been voicing for years. Whereas before the global economic downturn China urged patience with a revaluation of the Yuan, now it is simply mute or, even less constructive, defiant. It’s clear, though, that more than just the American and European economies are beginning to feel the great sucking sound into Chinese factories from international buyers: countries still far down the economic development curve are also feeling the inequity China’s intransigence is creating.

As Arvind Subramanian, an economist at the Peterson Institute in Washington DC, writes in an essay for the Financial Times, “Emerging market and developing countries must do a ‘Google’ on China” and multilaterally work together to present to China it operates in a world of international inter-dependencies and, as such, needs “reminding it of its international responsibilities as a large, systemically important trader.”

Further reading: FT

See also:

National Malfeasance

China: The Misunderstood Energy Giant

Will China be In-grown or Grown-Up?

Chinese Overseas Direct Investment Hits a Wall

I just received my electricity bill for the last couple months of winter. Whoever said coal-generated power in China was cheap hasn’t lived in Greater Shanghai. Now I really understand why so many Chinese south of the Yangtze River don’t even turn on their heating, even in the depths of winter. Save money!

Western countries seem to be standing aside and allowing China to capture the cost-effective end of the renewable energies market. According to the New York Times, China already produces the most solar panels and wind turbines in the world. “Yet many Western and Chinese executives expect China to prevail in the energy-technology race,” the Times writes. Domestic subsidies to buyers and energy producers (as well as the occasional diktat) the society already investing in less-polluting sources of energy than America and Europe. The sheer size of the market serves to further drive prices down. Of course, little is said about the processes and energy-efficiency of the manufacture of the renewable energy devices.

Now, from a global markets point of view, the country seems to be able to export the products to countries that have been politicking about investing in low-cost energy alternatives. But, as Ma Lingjuan, deputy managing director of China’s renewable energy association notes, “Every country, including the United States and in Europe, wants a low cost of renewable energy. Now China has reached that level, but it gets criticized by the rest of the world.”

My, aren’t we sensitive.

Further reading: NYT

The Chinese rocket scientist Qian Xuesan once asked, “Why does China produce so many clever people, but so few geniuses?” He died last year at the age of 97, since when a plethora of answers have been bandied about in cafes, bulletin boards and social networks. Still, it’s said Bill Gates once quipped, “If a genius is one-in-a-million, then China has more than a lot geniuses”.

So why haven’t all those clever souls and unsung geniuses not created a more innovative Chinese society? China, it’s true, excels at innovation, but not disruptive Innovation. “Small i” innovation is about patching and work-arounds – the work of clever people. “Big I” Innovation is about changing the course of markets and even of societies – the work of genius. Chinese culture and history have always been supportive of “small i” innovation, due to the capricious nature of local government policies and decisions; and due to dramatic turns of events – revolts, revolutions, banditry, dynastic dissolution – that quickly destroy the fruits of labor. Hence, the tendency of so many constructions and creations in Chinese society to be just “good enough”; after all, who knows how long such works will be able to stand?

The Chinese government throughout the ages has not supported disruptive innovation in the vein of the Western style. Western entrepreneurs look forward to upsetting the apple cart (Americans, in general, more than Europeans); Chinese rule throughout history has not inculcated the Western sense of Innovation through its laws (meant to maintain stability); arbitrary application of the laws (meant to maintain local control as conditions change); or through the value it places on copying/memorization in education (meant to “harmonize” thinking and behavior).

The current government trend toward absorption of parts of the private sector (guojinmintui) by the State does not bode well for Innovation in China; nor does the march toward heavily bounding the internet from international flows of information. Increasingly, any Chinese Innovation will first of all develop from the requirements of the country’s home market; the technology and information walls the government is putting in place will severely inhibit Innovation applicability in international markets.

Now that’s just plain dumb

Read more:  NYT