2010 May 14 Friday
China Turns More Mercantilist

America's elite descended upon Congress during the Clinton Administration to push for China's membership in the World Trade Organization. Chinese WTO membership was supposed to open up Chinese markets to US goods. Ha! Instead, we lowered our trade barriers to China and have been running huge trade deficits with them ever since. China's now shifting even more heavily toward policies that give native companies preferences over foreign companies in winning business. The Chinese elite see us as losers and see our economic system as unworthy of emulation.

This has many multinational executives deeply worried. They say severe recessions and the near collapse of banking systems in many Western countries a year ago, coupled with China’s relatively robust economic performance, have persuaded Chinese policy makers that Western policies of free trade and open markets do not work as well as previously thought, and that new industrial policies are worth trying. “They say, ‘Don’t show us broken models; we’re looking for a completely different way,’ and you see a much greater willingness to experiment with completely untested policies,” said a senior executive at a multinational who insisted on anonymity for fear of retaliation by Chinese regulators.

For example, China is squeezing out foreign wind turbine makers. Western companies license technology to Chinese companies and the technology licensing generates less money than being able to sell products that Western companies build.

While the Chinese pay royalties to the foreign firms, those payments don’t come close to making up for the business the foreign companies are losing in China, according to Emerging Energy Research’s Hays. China’s so-called “buy local” policy steers most state- financed energy contracts to domestic players, said Magued Eldaief, a GE Energy executive who formerly oversaw the Fairfield, Connecticut, company’s Asia Pacific unit. “There’s no question preference is given to Chinese companies,” Eldaief said. “It’s a reality you have to live with.”

Chinese companies are going to challenge Western companies outside of China. This is going to be like Japan's exports in the 1970s and 1980s but on a far larger scale.

Share |      By Randall Parker at 2010 May 14 05:27 PM  China


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