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2010 October 08 Friday
Jim Chanos: China And Law Of Diminishing Returns

Back in January 2010 billionaire hedge fund investor Jim Chanos gave a good talk on the distortions in China's economy. China's central planners are throwing more and more resources at trying to maintain its growth rate. They can not sustain this approach and he sees a big bubble waiting to burst. Worth watching.

The best quote in the speech: "China has embraced capitalism to keep in place the socialist elites whereas in the West, apparently, we have embraced socialism to keep in place the interests of the capitalist elites". How true.

Chanos outlines the scale of the Chinese bubble. For example, the office space build-out was on course back in January to create 5 feet by 5 feet of office space for every man, woman, and child in China. The size of the overbuild is breathtaking.

He also wonders at the end whether China can move up the value chain the way, for example, South Korea has done. Beyond the current bubble that will matter most in the long run.

By Randall Parker    2010 October 08 08:41 PM Entry Permalink | Comments (5)
2010 September 25 Saturday
China Wants Free Western Electric Vehicle Tech

The Wall Street Journal reports on a plan by China's Ministry of Industry and Information Technology to force foreign auto makers to hand over electric car technologies in ventures where they would have only minority stakes.

The draft suggests that the government could compel foreign auto makers that want to produce electric vehicles in China to share critical technologies by requiring the companies to enter joint ventures in which they are limited to a minority stake, the executives say.

The plan is "tantamount to China strong-arming foreign auto makers to give up battery, electric-motor, and control technology in exchange for market access," says a senior executive at one foreign car maker. "We don't like it."

The United States let China join the World Trade Organization, granted China Most Favored Nation status, and let China run a huge trade surplus with its exports to the US. Now China wants to force American, European, and Japanese car makers and suppliers to hand over huge amounts of intellectual property that is key to their future competitiveness. Cheeky.

It was supposed to be okay to have lots of US factories shifted to China because we'd still make lots of money off of intellectual property. This is the Chinese way of saying they want it all. Will they also insist on owning the mines and farms that produce raw materials and farm products that they import?

So will the US Congress stand idly by while the Chinese implement this policy? I'm expecting complaints but no substantial policy responses.

By Randall Parker    2010 September 25 03:05 PM Entry Permalink | Comments (1)
2010 August 16 Monday
Krugman On China Mercantilistic Trade Policy

Paul Krugman thinks we need to do more than just lecture the Chinese on trade.

I agree with everything this NYT editorial has to say about the economics of widening international imbalances. Where I disagree is on the issue of negotiating strategy. My colleagues believe that we should lecture the Chinese on what a bad thing they’re doing, but not actually threaten sanctions, lest we start a trade war. My belief is that this gets us nowhere.

I disagree with Paul Krugman about many things. But on trade policy toward China I agree. Passiveness in the face of mercantilist trade policy is foolish. But China does much more including large scale intellectual property theft and large scale computer attacks to steal source code and data. Enough already.

Aside: American corporations need to cooperate with each other to systematically collect data on attempted penetrations. They need to allow penetrations to reach into specially designed lab environments in order to find viruses and malware that has gone undetected. New methods of attack should be discovered much more quickly.

By Randall Parker    2010 August 16 11:48 PM Entry Permalink | Comments (10)
2010 August 07 Saturday
China Business Expanding In Iran

China is partying with Iran like there's no way Israel will attack.

China’s vice premier, Li Keqiang, told Iran’s visiting oil minister Friday that trade between the two countries is achieving “fruitful results.”

Fruitful indeed. China’s investors and traders are now filling a vacuum in Iran as businesses from many other nations, especially in Europe, pull out to comply with the latest call from the UN Security Council for nations to impose sanctions on Iran. (China voted for the resolution but is largely ignoring it.)

So get this: China goes along with the US and the EU in putting sanctions on Iran. Then China uses the opening that those sanctions create in order to win more business in Iran. The Western countries basically have pulled back from doing business with Iran in order to let China take over markets that Western countries previously dominated. Welcome to the 21st century.

Western policy makers can find other countries to sanction and thereby help Chian capture still more markets.

This puts the Israelis in a difficult position with the dimming of their hopes of pressuring Iran to stop nuclear weapons development. Will the Israelis launch a massive air strike in Iran? Do the Israelis even have the means to launch a strike on a scale sufficient to substantially delay Iranian nuclear weapons development?

Would the Israelis focus most of their attack on Iran's oil fields in order to make the Iranians unable to afford a nuclear weapons development?

Meanwhile, the Chinese are working on weapons that would make US aircraft carriers unusable anywhere near China.

U.S. naval planners are scrambling to deal with what analysts say is a game-changing weapon being developed by China — an unprecedented carrier-killing missile called the Dong Feng 21D that could be launched from land with enough accuracy to penetrate the defenses of even the most advanced moving aircraft carrier at a distance of more than 1,500 kilometers (900 miles).

Analysts say final testing of the missile could come as soon as the end of this year, though questions remain about how fast China will be able to perfect its accuracy to the level needed to threaten a moving carrier at sea.

The US government needs to come up with a foreign policy that doesn't require the US to possess unchallenged military dominance. The US military is in relative decline and continued Chinese economic growth will eventually make the Chinese more powerful.

By Randall Parker    2010 August 07 08:26 PM Entry Permalink | Comments (10)
2010 August 03 Tuesday
Domestic Smart Phone OS For China

Remember when US businesses heavily lobbied Congress to pass Most Favored Nation trade status for China? Supposedly this was going to open up China for American business. But the Chinese are very mercantilist. The Chinese government wants a domestic Chinese smart phone operating system.

Having long memories, China's Ministry of Information Industry officials recall their selection of GSM, the 2G European digital standard, under the brilliant former MII Minister Wu Ji-chuan, as the Chinese mobile standard in the mid-1990s. The GSM selection ushered into China foreign network equipment and mobile phone vendors (Ericsson and Nokia, by holding important GSM patents, occupied an advantageous position for GSM network and handset development, which left Chinese firms in catch-up mode). MII grudgingly worked with foreign suppliers, which made possible the enormous increase of Chinese mobile subscribers, and also concluded that a domestic mobile industry was strategically important for the Chinese state and economy. So this nationalist outlook led to MII adopting a Chinese 3G standard — TD-SCDMA — which became a long saga for network deployment.

Crucially, all current mobile smart phone platforms – Android, Symbian, iOS 4, Windows Phone 7, WebOS, BlackBerry, and others – pose a problem to Chinese authorities: like the 1990s GSM and CDMA network standards, all are foreign-made. Foreign firms, according to MII, take revenues from Chinese enterprises (like carriers’ networks) and consumers, as well as having the potential to embed socially “harmful” software apps into handsets, including mobile search for politically sensitive topics. Ultimately, a China-domestic smart phone operating system (with Chinese-made apps) plus a domestic mobile search engine will be the best strategic 3G smart phone combination for MII. Hence, MII will certainly lobby China Mobile, China Unicom and China Telecom (the three Chinese mobile carriers) to push handset suppliers like Lenovo and Huawei (plus other OEMs for new tablets, auto apps, TV set-top boxes) to adopt new Chinese mobile platforms.

Microsoft, Google, and other big lights of American software have dim future prospects in China. The Chinese government will see to that.

China has a big enough internal market that it can pursue the same trade policy the United States followed in the 19th century: protect domestic industries from foreign competition so that domestic markets are serviced by companies that have their loyalties firmly for the nation and so that the elites that profit from economic growth will be domestic elites. This policy worked well for the United States, btw.

Contrast this with the free trade globalism of our own elites which admits to no doubts in Ricardo's fairly simple model of comparative advantage (or am I being unfair to Ricardo?). Which will do better in the long run?

By Randall Parker    2010 August 03 08:53 PM Entry Permalink | Comments (3)
Low Consumer Debt In China

One of the things China has going for it: little consumer debt.

COLUMBIA, Mo. ­— The Chinese government has made several reforms to its economic policies in recent years. Despite these reforms, a new study shows that Chinese households are not utilizing their credit market to its fullest extent. Rui Yao, a researcher in the department of Personal Financial Planning in the College of Human Environmental Sciences at the University of Missouri, says a recent survey of urban Chinese households shows that the Chinese credit market remains underdeveloped.

“On average, Chinese urban households own very little debt, which indicates that they are not utilizing debt to level their life-cycle consumption,” Yao said. “While it is good that Chinese households aren’t overspending, refraining from taking advantage of the credit market is slowing the Chinese economy.”

It is my impression that local governments in China are far more deeply in debt and the banks have lent too much to dodgy businesses. Have the local governments sold their debt to state banks or consumer savers? If a bubble bursts in China it will be with business loans or governments hitting funding problems. The Chinese government will have to bail out its banks or risk a massive run on the banks.

While we hear a lot about a big real estate price bubble in China the prices there have not been driven up by excess mortgage issuance.

Yao studied the data collected by researchers at Tsinghua University in Beijing, during a 2008 survey of urban Chinese households. The survey showed that only 11 percent of Chinese urban households held any kind of debt, compared to nearly 80 percent of U.S. households. The survey also revealed that while more than 85 percent of Chinese households owned residential properties, less than 10 percent hold a mortgage on their property. This is compared to the U.S., where more than 70 percent of households have a current mortgage on their homes

The study reports a 50% savings rate among Chinese consumers. Are they saving up to buy houses? Or saving for retirement?

Speaking as someone who has a high savings rate, I'm either saving for retirement or rejuvenation therapies. Imagine hundreds of millions of aging Chinese trying to withdraw their money from government banks in order to buy rejuvenation therapies. I expect China to become the biggest market for rejuvenation therapies.

Update: Note in the comments the comments by Zoolbia about intra-family lending in China to fund property speculation. If this is true then I'm still puzzled. Family size in China is small. How many relatives are behind each housing purchase? How distant are the relatives from the buyers?

By Randall Parker    2010 August 03 08:10 PM Entry Permalink | Comments (5)
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.

By Randall Parker    2010 May 14 05:27 PM Entry Permalink | Comments (0)
2010 May 09 Sunday
China Buying Up Natural Resources

After reviewing a number of deals where government-backed Chinese oil and mining companies have bought into projects and companies for resource extraction around the world Michael T. Klare argues that the United States and other Western nations are going to be shocked over how much the Chinese are getting control of.

Chinese companies like CNPC, Sinopec, and Chinalco are hardly alone in seeking control of valuable foreign resource assets.  Major Western firms as well as state-owned companies in India, Russia, Brazil, and other countries have also been shopping for such properties.  Few, however, have been as determined or single-minded as Chinese firms in taking advantage of the relatively low prices that followed the global recession, and few have the sort of deep pockets available to such companies, thanks to the willingness of the China Development Bank and other government agencies to offer munificent financial backing. 

When the United States and other Western nations finally recover from the Great Recession, therefore, they will discover that the global resource chessboard has been tilted strongly in China’s favor.  Energy and mineral producers that once directed their production -- and often their political allegiance -- to the U.S., Japan, and Western Europe now view China as a major customer and patron.  In one eye-catching sign of this shift, Saudi Arabia announced recently that it had sold more oil to China last year than to the United States, previously its largest and most pampered customer.  “We believe this is a long-term transition,” said Khalid A. al-Falih, president and chief executive of Saudi Aramco, the state-owned oil giant.  “Demographic and economic trends are making it clear -- the writing is on the wall.  China is the growth market for petroleum.”

China's government is aggressively pushing to get control of the natural resources it needs. By contrast, the United States government's only policy moves toward dealing with Peak Oil are driven by Anthropogenic Global Warming (AGW) fears. I'm not saying that AGW isn't a real problem. But Peak Oil is going to cause an economic depression starting some time in the next 10 years and the US government's suppression of official acceptance of Peak Oil is not helping.

If you doubt there's a big shift in allocation of oil then check out Rembrandt Koppelaar's Oil Watch Monthly for April 2010 (PDF) and look at the graphs for oil consumption trends for China, India and various Western countries. Compare pages 8 and 9 with page 13.

Klare has developed his argument at greater length in his book (which I've just started reading): Rising Powers, Shrinking Planet: The New Geopolitics of Energy.

By Randall Parker    2010 May 09 06:26 PM Entry Permalink | Comments (3)
2010 April 24 Saturday
Pat Buchanan: The Chinese Century

Move over Rover, the Chinese are taking over.

“Thank you, Hu Jintao, and thank you, China,” said Hugo Chavez, as he announced a $20 billion loan from Beijing, to be repaid in Venezuelan oil.

The Chinese just threw Chavez a life-preserver. For Venezuela is reeling from 25 percent inflation, government-induced blackouts to cope with energy shortages and an economy that shrank by 3.3 percent in 2009.

Where did China get that $20 billion? From us. From consumers at Wal-Mart. That $20 billion is 1 percent of the $2 trillion in trade surpluses Beijing has run up with the United States over two decades.

Beijing is using its trillions of dollars in reserves, piled up from exports to America, to cut deals to lock up strategic resources for the coming struggle with the United States for hegemony in Asia and the world.

Yes, we are providing the Chinese with the cash and technology they are using to out-compete us for a dwindling supply of oil and minerals. Our living standards will decline as a result.

America was once like today's China.

The Chinese of 2010 call to mind 19th century Americans who shoved aside Mexicans, Indians and Spanish to populate a continent, build a mighty nation, challenge the British Empire — superpower of the day — and swiftly move past her in manufacturing to become first nation on earth. Men were as awed by America then as they are by China today.

America seems a declining superpower. She cannot defend her borders, balance her budgets or win her wars. Her educational system at the primary and secondary level is a shambles. In the first decade of the century, she lost one of every three manufacturing jobs. In this second decade, she is looking at trillion-dollar deficits to 2020. The world is losing confidence in her ability to manage her surging national debt.

America is not going to get a grip on the situation. People want stuff now. The welfare state is too mature. Unfunded entitlements, government worker pension plans, Peak Oil, and demographic decline doom America to a sovereign debt crisis and lower living standards. Debt is going to drive up interest rates. Households with heavy credit card debt will be especially hard hit. Note the heavy indebtedness of renters in that last link. That's probably mostly credit card debt. Credit cards are a major cause of America's decline in my view. Though mortgage debt is much larger.

By Randall Parker    2010 April 24 09:10 AM Entry Permalink | Comments (18)
2010 March 20 Saturday
China Squeezing Out Foreign Wind Turbine Makers

In the future your job might be lost when the Chinese government decides to dominate the industry you work in.

WASHINGTON – U.S. companies are getting squeezed out of the big Chinese wind-power market even as Dallas investors are bringing Chinese firms here via a big wind farm in Texas, according to a new industry report.

"They've used every measure you could possibly think of to enhance production of renewable energy equipment in China," said report author Alan Wolff of the trade law firm Dewey & LeBoeuf LLP.

I want to know for which industries will the Chinese government allow foreign companies to compete in the long run? Which industries will suddenly get targeted for Chinese domination the way wind turbines have been?

Chinese wind turbine developers will build up expertise in their protected domestic market that they can use to penetrate other markets.

Six years ago, foreign wind turbine manufacturers held 82 percent of the Chinese market, but they now have a 10 percent share, according to the Dewey & LeBoeuf study.

The Chinese government is strongly mercantilist. They have a large and growing market of 1.3 billion people. Enforcement of the "One Child" policy is weakening and might even be phased out. So they change achieve very high economies of scale while flaunting world trade rules. How will the Western nations respond as China's mercantilist policies cost more Western corporations their leading positions in a growing variety of industries?

By Randall Parker    2010 March 20 12:17 PM Entry Permalink | Comments (10)
2010 March 16 Tuesday
China Gaming World Trade Organization

China is playing us and we are letting the Chinese government do it. We sure have stupid leaders in both major political parties in the United States. America's decline is evident in its bad leadership.

China had a $198 billion trade surplus with the rest of the world last year, with its exports to the United States outpacing imports by more than four to one. Despite that, in the last 12 months, Beijing has filed more cases with the W.T.O.’s powerful trade tribunals in Geneva than any other country complaining about another’s trade practices.

In addition, Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions.

How about a new change to World Trade Organization rules that states any country that runs a trade surplus in excess of 1% of GDP can't file complaints about the behavior of other countries before the WTO?

By Randall Parker    2010 March 16 10:36 PM Entry Permalink | Comments (6)
2010 January 30 Saturday
China Upset On US-Taiwan Arms Deal

Xinhua bluntly delivers a warning to the United States.

WASHINGTON, Jan. 30 (Xinhua) -- Ignoring repeated solemn representations made by China, the U.S. government on Friday notified Congress of its nearly 6.4 billion-U.S.-dollar arms sale package to Taiwan.

The sale is a wrong decision, which not only undermines China's national security interests and her national unification cause, but also once again hurts the national feelings of the Chinese people.

Moreover, it also will cause serious damage to the overall cooperation and relationship between China and the United States.

Frankly speaking, U.S. arms sales to Taiwan have become a chronic disease that has been disturbing China-U.S. ties for a long period of time.

China's GDP is still less than a third of US levels. But it'll probably be over a half US levels in 5 years or so.

The Washington Post has an interesting article on how this latest episode fits with a recent trend where China's triumphalist attitude is worrying countries around the world. Once China becomes the most powerful country I expect political elites in many countries to look back with nostalgia on the era of American dominance.

China's indignant reaction to the announcement of U.S. plans to sell weapons to Taiwan appears to be in keeping with a new triumphalist attitude from Beijing that is worrying governments and analysts across the globe.

From the Copenhagen climate change conference to Internet freedom to China's border with India, China observers have noticed a tough tone emanating from its government, its representatives and influential analysts from its state-funded think tanks.

Calling in U.S. Ambassador Jon Huntsman on Saturday, Chinese Vice Foreign Minister He Yafei said the United States would be responsible for "serious repercussions" if it did not reverse the decision to sell Taiwan $6.4 billion worth of helicopters, Patriot Advanced Capability-3 missiles, minesweepers and communications gear. The reaction came even though China has known for months about the planned deal, U.S. officials said.

Since Boeing is making some of the weapons for Taiwan this bodes well for future Airbus aircraft sales to China at the expense of Boeing. Though eventually China will stop buying from Western aircraft makers and use mercantilist policies to create a national champion in aircraft manufacture.

US firms are threatened.

WASHINGTON -- China curtailed military exchanges with the United States on Saturday and threatened to sanction U.S. firms in retaliation for proposed American weapon sales to Taiwan.

The moves signaled a souring of relations between the world's two largest economies.

The decline of US power and influence is going to make life more difficult for countries that will fall into China's sphere of influence.

By Randall Parker    2010 January 30 09:01 PM Entry Permalink | Comments (5)
2010 January 22 Friday
Operation Aurora China Attack Very Sophisticated

A bit of a diplomatic flap has developed out of the China internet attack on Google, Adobe, and other companies.

WASHINGTON — Tensions between China and the United States over Internet policy deepened Friday, with the Chinese government accusing Secretary of State Hillary Rodham Clinton of jeopardizing relations between the two countries with her criticism of Chinese censorship.

The Obama administration said it stood by Mrs. Clinton’s words and repeated its demand that Beijing provide a more detailed response to Google’s allegations that its computer network had been infiltrated by hackers based in China. But the United States held off lodging a formal diplomatic protest, suggesting that administration officials were still uncertain about how hard to push China on the matter.

Criticizing China amounts to jeopardizing relations. Attacking American companies to steal their intellectual property? Nothing new here. Move along.

“Operation Aurora” indicates to me that the Chinese government is willing to attack large numbers of Western (mostly American) corporations to steal their technology and otherwise mess with them. This isn't really new news except for the method used. China's all about intellectual property theft. But the scale of the attack ought to make Westerners pause and think about a mid 21st century dominated by China.

Hackers seeking source code from Google, Adobe and dozens of other high-profile companies used unprecedented tactics that combined encryption, stealth programming and an unknown hole in Internet Explorer, according to new details released by the anti-virus firm McAfee.

“We have never ever, outside of the defense industry, seen commercial industrial companies come under that level of sophisticated attack,” says Dmitri Alperovitch, vice president of threat research for McAfee. “It’s totally changing the threat model.”

This article from Wired is worth a full read.

Employees out surfing the internet ought to be viewed as akin to tools of corporate spies. Corporate firewalls can be defeated by a hole in a browser (like the one Chinese hackers used in MS Internet Explorer which Microsoft took over 5 months to close or the Adobe Acrobat zero day vulnerability also used) or one corrupt employee. Inner firewalls for servers are at risk because even the PCs of admins (who have extensive rights for getting into servers) can be compromised. How can corporations with very valuable intellectual property protect that IP from the Chinese government?

By Randall Parker    2010 January 22 07:36 PM Entry Permalink | Comments (7)
2010 January 18 Monday
Which Way China?

Have American politicians and pundits deluded themselves about China's eventual embrace of democracy and a free press? We've certainly plenty of other recent delusions of our elites (democratization's chance in the Middle East, Iraq's supposed WMD program, the foundations of the latest financial bubble to burst) to point to as demonstrations of elite foolishness.

Both Bill Clinton and George W. Bush firmly believed that free trade and, in particular, the information age would make political change in China irresistible. On a visit to China in 1998, Mr Clinton proclaimed: “In this global information age, when economic success is built on ideas, personal freedom is essential to the greatness of any nation.” A year later, Mr Bush made a similar point: “Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy ... Trade freely with the Chinese and time is on our side.”

The two presidents were reflecting the conventional wisdom among America’s most influential pundits. Tom Friedman, New York Times columnist and author of best-selling books on globalisation, once proclaimed bluntly: “China’s going to have a free press. Globalisation will drive it.” Robert Wright, one of Mr Clinton’s favourite thinkers, argued that if China chose to block free access to the internet, “the price would be dismal economic failure”.

So far, the facts are refusing to conform to the theory. China has continued to censor new and old media, but this has hardly condemned it to “dismal economic failure”. On the contrary, China is now the world’s second largest economy and its largest exporter, with foreign reserves above $2,000bn.

Will China have freedom of the press 30 years from now? Want to make a prediction on this? I'm thinking NO myself. Of course, China could get a democracy and as a result become more nationalistic and pushy on the world stage. Obviously democracy hasn't kept the US from engaging in foolhardy foreign adventures. Also, industrialization didn't prevent Japan from trying to build an empire (or the US for that matter).

China's already acting uppity in ways not expected until 2025. Some think it is because the Chinese see us as in decline.

Beijing's virtual snub of talks in New York on Saturday on Iran's nuclear program was just the latest example of what many China watchers see as a growing assertion of its self-interest.

One Western political leader, according to an associate, said after Beijing took the lead in blocking a deal at last month's Copenhagen climate talks, he had not expected China to be throwing its weight around in such a way for another 10 to 15 years.

China's government is going to do whatever it thinks will keep its economy growing. That means saying no emissions restraints aimed at global warming, no to pleas to import more goods to balance trade, and otherwise no to anything that the Chinese ruling elite sees as holding the potential to slow economic growth. If the Chinese economy slows it'll be because an inevitable bursting bubble due to overexpansion of credit by government. All developing countries go thru bubble bursts. Just read the book I linked to for the details (I'm still reading it myself).

By Randall Parker    2010 January 18 11:40 PM Entry Permalink | Comments (11)
2010 January 14 Thursday
Over 30 Companies Targeted In Chinese Attack

The Google-China flap is turning out to be about more than Google.

More than 30 companies were attacked simultaneously through an undiscovered software security hole. The incursions appear to have had the blessing of the Chinese government, if not its direct involvement.

Royalty in Europe used to support the depradations of pirates against rival states. This seems like a modern parallel.

Last year a cyber attack took place against a larger number of companies.

The concerted assault also bears similarities to one on 100 companies last year, according to security experts at iDefense. So it shouldn’t be dismissed as a one-off or rogue operation.

Google managed to get into a computer in Taiwan from which attacks were launched.

It managed to gain access to a computer in Taiwan that it suspected of being the source of the attacks. Peering inside that machine, company engineers actually saw evidence of the aftermath of the attacks, not only at Google, but also at at least 33 other companies, including Adobe Systems, Northrop Grumman and Juniper Networks, according to a government consultant who has spoken with the investigators.

Were all these other companies oblivious to the attacks before smart engineers at Google figured it out?

The Googlers aren't clear as to the motives for the attack. My guess: multiple goals. Go after dissidents. Steal technological secrets. Get insights into political and commercial competitors.

Besides being unable to firmly establish the source of the attacks, Google investigators have been unable to determine the goal: to gain commercial advantage; insert spyware; break into the Gmail accounts of Chinese dissidents and American experts on China who frequently exchange e-mail messages with administration officials; or all three. In fact, at least one prominent Washington research organization with close ties to administration officials was among those hacked, according to one person familiar with the episode.

China is going to become the most powerful nation in the world. My advice: Do not create online accounts with Chinese companies.

The Washington Post has a piece that dwells on the diplomatic angle.

The United States has until now addressed cyberattacks "separately from diplomatic relations" with China and other countries, "but increasingly, this is more and more difficult to do," said Susan Shirk, a China expert at the University of California at San Diego. "So it's definitely complicating foreign policy relations in that sense."

Rob Knake, a cybersecurity expert with the Council on Foreign Relations, said that a "reluctance" to raise the issue of Internet censorship with China "is no longer a tenable position."

The Chinese government still has deniability. Good luck with those diplomatic protests. I'm sure the Chinese will file those protests the same place as they file protests against currency rate fixing and other mercantilist practices.

By Randall Parker    2010 January 14 11:28 PM Entry Permalink | Comments (1)
2010 January 12 Tuesday
Google Might Pull Out Of China

The Chinese government has already stacked the deck in favor of domestic search engine companies. Now an internet attack on Google computer servers in China has Google threatening to pull out of China entirely.

In a blog posting by David Drummond, the corporate development and chief legal officer, Google said that it had found a “highly sophisticated and targeted attack on our corporate infrastructure originating from China.”

“These attacks and the surveillance they have uncovered — combined with the attempts over the past year to further limit free speech on the web — have led us to conclude that we should review the feasibility of our business operations in China,” Mr. Drummond wrote in a blog post.

Internet search is one of the industries where the mercantilists who run China aren't going to let a foreign company become a big player anyhow. So it is not like Google loses that much by withdrawing. Google already suffers reputation damage by restricting or censoring search results in China in order to satisfy the censors in the Chinese government.

Neither Google nor the US government want to publically admit that the Chinese government carries out cyber attacks against them.

In a separate development, Google officials said, the company discovered that the Gmail accounts of dozens of China human rights advocates in the United States, China and Europe "appear to have been routinely accessed by third parties." The hacking occurred most likely through phishing scams -- luring users to download malicious software by opening innocent-looking e-mails -- or malware placed on users' computers, rather than by breaking into Google's corporate infrastructure, the company said.

China is among a handful of countries considered to have impressive cyber offensive capabilities, but U.S. officials have refrained from publicly accusing the country because determining with certainty who is behind an attack is quite difficult.

The next largest and most powerful country in the world plays by rules that are just not cricket. In the 21st century less democratic and less open China is going to become much more powerful and the West's appeal as role model will weaken.

Global Equities Research analyst Trip Chowdhry claims that Google gets 8-10% of their revenue from China. I find that hard to believe because Google is not the biggest search player in China and Google dominates most other markets. Anyone know if Chowdhry is correct?

Update: The native search engines more thoroughly censor. So if Google leaves the Chinese people will have a harder time learning the truth about political topics.

Frank He, research analyst at BOCI Research in Hong Kong, said home-grown players such as Baidu program their search engines to more effectively censor content on issues sensitive to Chinese authorities -- such as Tibet's autonomy or the Tiananmen Square massacre -- than Google.

A Google search on China's Communist party, for example, gives much different results than the same search on baidu.com, he said. "Baidu plays smart in China, they know the local culture."

With all the censorship within China I would expect search results to be skewed simply because fewer web sites link to pages that contain truths inconvenient to the Chinese Communist Party.

Google's marketshare in China is unclear.

According to data from comScore Inc., Baidu's share of the Chinese search market stood at 62.2% as of November, compared to Google's 14.1%. Analysys International, a research firm based in Beijing, pegged Baidu's fourth-quarter market share at 58.4%, compared with 35.6% for Google.

Google probably gets more searchers from people who are looking for info about censored news. So Google's exit would have a disproportionate effect on those looking for censored news.

By Randall Parker    2010 January 12 10:54 PM Entry Permalink | Comments (2)
2009 December 28 Monday
Ordos II: China's Empty City

The American real estate bubble is big because we have a large economy with a large and foolish government capable of creating such a bubble. But while China's economy is still smaller than that of the United States the Chinese planners can create distortions on a level that far exceeds anything that we have in the US. Check out Ordos II in Inner Mongolia, a massive empty planned city:

I worry when I come across stories of massive misallocations of capital in China because a big downturn in the Chinese economy could set off a much bigger world recession. How can China sustain its economic growth if the market is that distorted?

By Randall Parker    2009 December 28 05:45 PM Entry Permalink | Comments (9)
2009 December 23 Wednesday
China Real Estate Bubble Next To Pop?

Double dip recession anyone?

“Once the bubble pops, our economic growth will stop,” warns Yi Xianrong, a researcher at the Chinese Academy of Social Sciences’ Finance Research Center. On Dec. 27, China Premier Wen Jiabao told news agency Xinhua that “property prices have risen too quickly.” He pledged a crackdown on speculators.

Halt of economic growth in China would be deflationary for the rest of the world. China's demand for oil could drop and lower oil prices. Commodities prices would fall across the board.

Real estate bubbles are great for renters.

Although parallels with other bubble markets, the China bubble is not quite so easy to understand. In some places, demand for upper middle class housing is so hot it can’t be satisfied. In others, speculators keep driving up prices for land, luxury apartments, and villas even though local rents are actually dropping because tenants are scarce. What’s clear is that the bubble is inflating at the rich end, while little low- cost housing gets built for middle and low-income Chinese.

The article points to a part of Beijing where apartments sell for 80 times average annual income of the city's residents. America's real estate bubble was wimpy by comparison. What's 5 or even 10 times annual income as compared to 80 times annual income? Once again China beats America in an economic competition. We make a bubble. They make a more distorted bubble.

Can the Chinese government keep the Chinese economy growing?

I'm reminded of Jim Rogers on the US economy. China is also using debt to reflate its economy. Though Jim Rogers is far more optimistic about China.

"It's getting worse, not better."
That's how Jim Rogers responds to the recent talk of improvement from President Obama, Treasury Secretary Geithner and Fed Chairman Bernanke, among others.

"Papering over the problem is not going to solve America's problem," Rogers says. "The idea you can solve a problem of too much debt and too much consumption with more consumption and more debt defies belief. I cannot believe that grownups would stand there and say that."

The Chinese are also effectively papering over the problem. They pursued a massively expansionist monetary policy in 2009. How much damage will the Chinese economy suffer from an end to their real estate boom?

Update: Why is the Chinese government pursuing such a reckless economic policy in order to keep the economy growing? Christopher Hayes points out that China's government derives its legitimacy from rapid economic growth and fears a rebellious population should the growth stop.

There is no formal social contract that regulates the relationship between members of this ruling class and the people they rule, but there does seem to be an implicit one. It is roughly this: we (the government) provide you (the citizens) with 8 to10 percent annual GDP growth, 24 million new jobs a year and the chance to win the capitalist lottery of sending your son or daughter off to a prestigious school with the promise of a life of industrialized luxury. In exchange: you don't question the legitimacy of the Chinese Communist Party.

This is not the easiest contract for the government to uphold, and it has already shown some signs of fraying. As recently as 2007, there were 80,000 protests a year in China, and the Internet has given a platform to increasingly rambunctious critics of government policies. The most potent issue is corruption, which captured wide public attention in the wake of the 2008 Sichuan earthquake, when many blamed corruption for the fact that school buildings that collapsed had dodged building codes. Several Chinese officials told us corruption was the biggest threat the party faces, the "threat from within," as one put it. Despite high-profile "crackdowns" (such as a trial currently under way in Chongqing involving 9,000 suspects), a recent China News Agency poll shows that corruption remains the number-one issue on the minds of Chinese citizens.

Corruption aside, there are also the raw economic challenges of maintaining hypergrowth, particularly at a moment of global contraction. Exports make up 35 percent of Chinese GDP; in the past year they fell by 25 percent. There are 6 million recent college graduates who need to find jobs. One Chinese hedge fund manager showed us an article for a newspaper about new graduates flooding a job fair, where the ratio of attendees to jobs was 7.5 to 1. What would happen, I asked one local party official in Yinchuan, a city near the infamous Three Gorges Dam, if unemployment in China went to 10 percent? Before he answered by saying that such a situation would be impossible under the current system, one of our chaperones, a very savvy diplomat who had served in the foreign ministry, leaned over to me and said, sotto voce, "The government would collapse." He chuckled after he said it, but I think he was only half joking.

Can the Communist Party stay in power?

On the bright side, the Communist Party is a bulwark against communism. The Communist Party also opposes democracy that will lead to socialism and stealing from the rich to give to the poor.

Xu argued that this is all part of the plan: "Let's look at our neighboring Asian countries," he said. "South Korea: its peak developing speed was reached using military rule.... Indonesia was successful during the reign of Suharto but recently it faces stalemate and difficulties." The reason that democracy is an obstacle to economic progress, Xu said, is that "the poor people want to divide the property of the rich people.... If we Chinese copied the directly elected situation today, people will say, 'I want everyone to have a good job.' Someone will say, 'I will divide the property of the rich people to poor people,' and he will be elected. It is useless: parity will not solve the problem of economic development. That is why we are taking a gradual and step-by-step approach in reform. As Mr. Deng said, we will cross the river by touching the stones. We will not get ourselves drowned, and we will cross the river."

By Randall Parker    2009 December 23 05:15 PM Entry Permalink | Comments (0)
2009 November 12 Thursday
Complainers In China Go To Jail

The country which is on course to become the most powerful in the world has a government that secretly jails rural people who travel to cities to submit complaints at government offices. The 21st century will be the century of economically advanced despotism.

For the past six years, citizens have been held without communication in so-called black jails, often located in state-owned hotels, nursing homes and psychiatric hospitals, according to a new report from the human rights group.

Most of the detainees are from rural areas and travel to major cities to submit grievances at petitions and appeals offices, which address cases without going to court, Human Rights Watch said.

If diversity is strength then the differences in China's political system make the world a stronger place.

Incentives work to change the behavior of government workers. The jails cut down on the metrics used to measure grievances.

But the rights group said the jails are becoming more popular because officials are penalized if too many grievances come from their jurisdictions. Areas with fewer complaints are rewarded, it said.

By Randall Parker    2009 November 12 09:14 PM Entry Permalink | Comments (10)
2009 October 13 Tuesday
China Increasing Export Marketshare

China rises. Expect it to rise and rise and rise.

The most striking gains have come in the United States, where China has displaced Canada this year as the largest supplier of imports.

In the first seven months of 2008, just under 15 percent of American imports came from China. Over the same period this year, 19 percent did. Meanwhile, Canada’s share of American imports fell to 14.5 percent, from nearly 17 percent.

Besides increasing its share of many American markets, China is increasing the value of exports in absolute terms in some categories. In knit apparel, for instance, American imports from China jumped 10 percent through July of this year — while America’s imports from Mexico, Honduras, Guatemala and El Salvador plunged 19 to 24 percent in each country, according to Global Trade Information Services.

All these countries can not compete against China. The engineered high savings and high investment regime of China is grinding out the goods while not buying much in return. What I wonder: At some point will the rest of the world adopt protectionist policies in response?

Chinese exports have dropped less than those of other major exporters.

The results have been impressive. All told, in the first half of 2009, China exported $521 billion worth of clothes, toys, electronics, grains and other commodities to the rest of the world.

Though that represented a 22 percent decrease from the first half of 2008, it compares favorably to other major exporters. German exports have fallen 34 percent over the same period. Japanese exports were down 37 percent and American exports 24 percent, according to Global Trade Information Services.

Japanese exports and German exports were down more than American exports. Why?

Billionaire investor Jim Rogers says the 21st century belongs to China.

According to Rogers, the 19th century was the era of the British Empire and the 20th century was the U.S.’ heyday. But the 21st century is China’s (though the rest of Asia is definitely going to get a boost too).

The reasons for this are many, but some points brought up by Rogers include the following:

1. The Chinese want to live like we do;
2. They are more eager to work;
3. They are better at saving;
4. There are 1.5 billion Chinese citizens (and 3 billion people in all of Asia), and we owe them money. They are, according to Rogers, “among the best capitalists in the world.”

There will be some setbacks, of course, Rogers says, but these are opportunities. “If you see setbacks in China, you should pick up the phone and get more involved,” he advised, before adding his favorite refrain, “The best advice of any kind that I can give you is to teach your children and grandchildren Chinese.”

Which Chinese companies will do best in the long term? Which Western companies will become roadkill?

When will the majority of American people answer a poll and say they believe the United States is less important and less powerful than China? 2030? 2040?

By Randall Parker    2009 October 13 10:35 PM Entry Permalink | Comments (19)
2009 October 06 Tuesday
Obama Spurns Dalai Lama For China

Does Richard Gere disapprove? Will liberal-lefties remove their Free Tibet bumper stickers from their Volvos? Or did they fail to reapply those bumper stickers when they traded up to Toyota Priuses? Barack kowtows. Kinda sad. The US President didn't use to be so weak he had to kowtow. I'm feeling nostalgic.

President Barack Obama has refused to meet the Dalai Lama in Washington this week in a move to curry favour with the Chinese.

I would say it is all about the Benjamins. But it is more like it is all about the Maos. The renminbi currency has pictures of Chairman Mao on it.

The Empire State Building is joining in the spirit. Will the Dalai Lama be barred from entering the Empire State Building? How soon till he's barred from entering the US?

Tonight the Empire State Building will be awash in red and yellow. But instead of honoring a singer intrinsically linked to the city, holidays , or something crassly commercial, the Empire State Building, as reported by the Agence France Presse, will "honor the 60th Anniversary of communist China."

By Randall Parker    2009 October 06 12:07 AM Entry Permalink | Comments (5)
2009 October 04 Sunday
China GDP To Pass Japan In 2010

That's China coming up in your rear view mirror.

Though recent wild currency swings could delay the reckoning, many economists expect Japan to cede its rank as the world’s second-largest economy sometime next year, as much as five years earlier than previously forecast.

China's rise is accelerating Japan's decline. The same is happening between China and the United States as factories leave and China bids up the prices of oil and other commodities. The US gets less oil so that China can buy more.

China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral.

To repeat: Rising Chinese buying power is increasing the competition for natural resources. Some of those natural resources (most notably oil) are either nearing or past their global production peak. This puts China's prosperity in competition with America's and Europe's prosperity. Mind you, what I'm saying is heresy.

Remember the good times because some day people aren't going to believe how you are living now.

By Randall Parker    2009 October 04 02:56 PM Entry Permalink | Comments (9)
2009 September 07 Monday
China: Complain About Child Lead Poisoning And Get Arrested

Imagine first having your children get lead poisoning from a factory and then get arrested for protesting.

BEIJING – Police in central China detained 15 parents for a violent protest over factory pollution that left hundreds of local children with lead poisoning, and accused them of links to the banned Falun Gong spiritual movement, villagers said Wednesday.

Villagers mocked the accusation, saying authorities were using the charge to take revenge against parents involved in the Aug. 8 unrest in Hunan province's Wenping township, that broke out after more than 1,300 children were poisoned by emissions from a manganese processing plant. Falun Gong practitioners are relentlessly persecuted by Chinese authorities.

Will China's corruption and lack of democracy put a ceiling on its economic development? Will economic development eventually force the leaders of China to at least institute local elections?

Since China looks on course to become the most powerful country in the world its corruption, pollution, and rising ability to influence other governments matters to the rest of us. I think we can count on many in our own elites to become corrupted by China's money. I think we can also count on larger scale Chinese intellectual property theft. Plus, Chinese pollution and Chinese resource consumption will continue to rise.

By Randall Parker    2009 September 07 08:02 PM Entry Permalink | Comments (3)
2009 July 26 Sunday
China To Accelerate Overseas Acquisitions

The Financial Times reports that the Chinese government will encourage Chinese companies to do more overseas acquisitions.

Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country’s premier, said in comments published on Tuesday.

“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,” he told Chinese diplomats late on Monday.

The Chinese government has intentionally run a large trade surplus and built up a $2 trillion reserve in foreign holdings - much of it in US sovereign debt. So they have the cash needed to do the buying.

But other governments block some Chinese acquisitions for national security and commercial competitiveness reasons.

The U.S. effectively blocked a takeover of 3Com by Bain Capital and Huawei Technologies. Some of 3Com's assets were deemed "strategic," meaning China should never get its hands on technology that might be counter to American interests.

The most significant example of a fight between a sovereign government and China's M&A power was the death of a deal between Chinese mining company Chinalco and Rio Tinto (RTP). Chinalco planned to put almost $20 billion into the metals company.

As the biggest importer of almost all commodities (with the exception of oil where the US buys more) China has a vested interest in getting control of foreign mines and oil fields.

China has long been scouring the globe for energy and commodities to feed its thrumming economy. What is new is the leadership’s determination to increase outbound foreign direct investment, or O.F.D.I., as it weans the economy off low-value, export-oriented manufacturing. The deal by Sinopec, the largest Chinese oil refiner, to buy the Swiss oil explorer Addax for $7.24 billion last month was China’s largest overseas acquisition yet.

Letting the Chinese get control of more mineral resources is a bad idea. China already restricts export of a variety of minerals including rare ones not available elsewhere.

The complaint, filed with the World Trade Organization by the European Union as well as the U.S., accused China of restricting exports of various materials including zinc and coke, a key component for making steel, by establishing export quotas, duties and other restraints.

European industries have been complaining about these restrictions for years.

The European Commission said on June 23 that it has heard concerns for a number of years from European industries about Chinese export restrictions, namely quotas, export duties and minimum export prices, which China applies on key raw materials, such as yellow phosphorous, bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide and zinc – many of which cannot be sourced elsewhere.

Yet China is buying pieces and controlling interests in companies which operate mines that extract rare earth metals outside of China.

Copper is not the only metal China seeks to control and Teck is not the only acquisition China has made in the resource sector. In what could be a further indication of China’s tightening grip on the supply side, the China Non-Ferrous Metals Mining (Group) Co., Ltd. (CNMC) recently acquired controlling interest in the Australian rare earth project developer Lynas Corporation Ltd. (Lynas). The full transaction, comprising a combination of equity, debt and loan guarantees, is valued at US$366 million and provides a glimpse of what rare metal companies are really worth.

What is at stake? See this recent post from The Oil Drum on oil and minerals scarcity. Starting around slide 12 the presentation shifts toward mineral reserves and where minerals get produced. Does slide 18 really represent the future for minerals availability? Will other major reserves for rare earth minerals be found outside of China? Also see this post by André Diederen about minerals scarcity. China's export restrictions aside, if the situation with minerals reserves is really that dire we are in trouble.

By Randall Parker    2009 July 26 03:21 PM Entry Permalink | Comments (3)
2009 July 08 Wednesday
Chinese Attacks On Uighurs Started Latest Round Of Violence?

Being an ethnic minority can have big downsides. Therefore I do not want to become an ethnic minority. Sounds like the Chinese attacked the Uighurs first.

The trouble started when rumors began to spread that Turkic-speaking, mainly Muslim Uighur migrant workers at the toy plant had raped Chinese women. Allegations also were posted online, and they traveled through the Han community.

Police would eventually say the charges were untrue. But as word spread of further alleged sexual assaults, enraged Han workers attacked their Uighur co-workers.

The Chinese government has been importing Han Chinese to dilute the numbers of ethnic Uighurs in Xinjiang because the provice has lots of oil and because the Han do not want to see China shrink due to secession of Xinjiang. This use of immigrants to control a subject population should serve as a lesson for American net taxpayers.

The trigger for the inter-ethnic violence actually originated in Guangdong province.

Sunday's riots started when around 3,000 ethnic Uighurs, including many high-school and college students, gathered to protest ethnically motivated killings in a factory in China's southern Guangdong province. The riots turned violent but, thanks to China's information firewall, no one knows exactly why. State-run media report that Uighurs had attacked Han Chinese and count at least 156 people killed and more than 1,000 injured.

The Asian Wall Street Journal editorial I'm excerpting here is full of all sorts of wrong and foolish sentiment.

Like Beijing's brutal response to the Tibet riots, a crackdown will only strengthen the Uighurs' pro-independence movement.

The puny Uighur population is less than 1% of the Han Chinese population. The Han are going to swamp the Uighur and the Han will be totally ruthless in effectively suppressing dissent. The desire to be free isn't a strong feeling that is on the march around the world, lots of mythology not withstanding.

It makes sense for the Uighurs to oppose Han Chinese rule. The Han are more successful, powerful, and have higher status. The relative status of the Uighurs declines when Han Chinese move in. The Han government officials prefer their fellow Han co-ethnics. Uighur cultural and religious beliefs are opposed by the Han. The Uighurs can see the writing on the wall.

Peter Ford of the Christian Science Monitor reports that the Uighurs live in fear of the the Chinese secret police.

Getting any Uighurs in Urumqi to talk on Monday was impossible. Their Internet access had been cut off, most of their phones, too, and those whom foreign journalists reached were too terrified of the government to say anything.

Xinjiang, an allegedly autonomous region, is the hardest place I have ever worked. The atmosphere of repression is Stalinist. For a week last year I tried to gauge ordinary people’s feelings there about the authorities. Not one person I spoke to would give his real name, and most whom I approached wanted nothing to do with me.

Glad I'm not there. But here in America lots of people post with pseudonyms on blogs. Some of those pseudonymous writers have justified fears. Though most people who use pseudonyms say things that do not require secret identities. Every time you see a pseudonym in a comment ask if that comment contains something that necessitates hiding one's identity to say it. Rarely does it seem necessary.

By Randall Parker    2009 July 08 12:00 AM Entry Permalink | Comments (11)
2009 June 13 Saturday
Obama Administration Suckers For China On Energy Tech

This is what a sucker sounds like.

BONN, Germany – China wants the United States to deliver top of the line technology as part of a new global warming agreement, the chief U.S. climate negotiator said Thursday.

Jonathan Pershing, who was part of a U.S. delegation that returned this week from Beijing, said the Chinese are looking to the U.S. for ideas and technology to retool its high-carbon industry.

"They want from us technology, and we want from them action," Pershing said on the sidelines of U.N. climate talks. "There's room for agreement there."

The Chinese could already buy technology. They are only negotiating for technology with the Obama Administration because they do not want to pay for it and they think the Obamanauts are foolish enough to think that giving it away in exchange for a climate deal will yield a better result than making them pay for it. In reality China's leaders are not going to impose large costs on their economy to cut CO2 emissions. Anything they do in exchange for technology will be steps they would have taken anyway. Take for example a bigger Chinese nuclear power program. They are scaling it up already because their air has become barely breathable and their coal reserves will run out eventually.

The Chinese hold plenty of US dollar debt they could use to buy cleaner energy technology from the United States.

China is the largest U.S. creditor, holding $767.9 billion of U.S. debt as of March, according to Treasury Department figures. Japan is second with $686.7 billion. Brazil holds $126.6 billion, while Russia has $138.4 billion.

In April alone the US trade deficit with China was $16.8 billion out of a total of $29.2 billion.

The deficit with China, which often causes tensions between the two nations, widened by 7.3% to $16.8bn.

By Randall Parker    2009 June 13 04:41 PM Entry Permalink | Comments (1)
2009 March 25 Wednesday
China Wants New Reserve Currency To Replace Dollar

Imagine what China will be like once its economy is double the size of the US economy.

BEIJING -- China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S. role in the world economy.

The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis.

Such a move would make it harder for China to maintain a large trade surplus with the US. China's currency might some day replace the US dollar as the world's reserve currency. But such a turn of events would reduce the power of the Chinese government to control trade and economic growth in China.

The Chinese could try to turn a group of currencies into a replacement for the dollar. But such a grouping would be very hard to manage. What would be the initial ratio between the currencies and how might the ratio change as different economies grow at different speeds?

The growth of Chinese economic power makes me worry about what happens when the Chinese become unhappy with freedom of speech and press in other countries. China has cut off Youtube due to a video showing Chinese soldiers beating Tibetan monks.

Earlier in the week, the BBC reported from Beijing that China cut off access to the website because it carried a video showing soldiers beating monks and other Tibetans.

The graphic video was released by Tibetan exiles and showed hundreds of uniformed Chinese troops swarming through a Tibetan monastery. It included footage of a group of troops beating a man with batons.

Turkey bans Youtube even while trying to become a member of the European Union. The Euro countries should not let Turkey into the EU. Turkey isn't compatible with secular liberal democracies.

China is not alone in prohibiting access to YouTube. Over the years several other countries have done the same thing.

Earlier this month Bangladesh blocked the site for 36 hours after a video was posted showing a tense meeting between the prime minister and angry army officials after a mutiny by border guards in Dhaka that left more than 70 people dead.

The site is presently being blocked in Turkey.

By Randall Parker    2009 March 25 11:24 PM Entry Permalink | Comments (5)
2009 February 23 Monday
China Shopping For Assets

Low commodity and stock market prices make resource extraction companies a relative bargain compared to what they were 9 months ago. Eventual economic recovery will drive a rise in commodities prices. The Mandarins in Beijing see this as an opportunity. The government of China is buying into natural resources companies around the world.

The China Development Bank, for example, is financing China's biggest-ever foreign investment – a $19.5 billion bid by the mostly state-owned Aluminum Corp. of China for an 18 percent slice of Rio Tinto. The Australian mining company desperately needs the cash in order to pay off $19 billion in debt over the next two years.

That deal, still to be approved by Australian regulators, is seen here as a pathfinder. "It illustrates Chinese state business's strong capacity ... and gathered experience for state-owned firms to operate abroad in the future," explained an article published earlier this month in People's Daily.

Other recent multibillion-dollar deals include the purchase by China Petrochemical Corp., the country's second-largest oil producer, of Canada's Tanganyika Oil, which works in Syria, and the bid that China Minmetals has made for OZ Minerals, an Australian zinc producer on the verge of bankruptcy.

The Chinese are making oil deals with Russia and other countries. See the full text of the article.

China is already the biggest buyer of all commodities except oil (and maybe except natural gas?). China will eventually become the biggest buyer of all commodities with no exceptions. So these moves make sense.

By Randall Parker    2009 February 23 07:48 PM Entry Permalink | Comments (0)
2008 September 27 Saturday
China Astronaut Space Report Before Lift-Off

Is this cool or what?

China's state news agency published a despatch from the country's three latest astronauts describing their first night in space before they had even left Earth.

The Xinhua agency, which has sometimes been accused of carrying state propaganda, took down the story and blamed it on a "technical error".

Shades of Capricorn One. But this isn't a movie. This is real life. Maybe Chinese propagandists got the idea from the movie?

By Randall Parker    2008 September 27 12:14 AM Entry Permalink | Comments (1)
2008 August 03 Sunday
How Many Viewers On Hit Chinese TV Shows?

The satirical web site The Onion draws attention to China's enormous population with an article about a Chinese TV show that failed since it had only 180 million viewers.

BEIJING—Hijinx Of The Masses, a Chinese sitcom about 16 twentysomethings who live above a tea shop, was canceled Monday after the series premiere was only able to draw a disappointing 180 million viewers.

I was recently watching a real lecture by a UC Berkeley prof of mechanical engineering and he mentioned that China now has more commercial building space than the United States. China is rapidly growing past the US by many measures and will continue to do so by many other measures.

By Randall Parker    2008 August 03 12:32 AM Entry Permalink | Comments (2)
2008 August 02 Saturday
China Nears US In Number Of Physics Papers Published

China continues its rapid ascent toward displacing the United States as most powerful country in the world.

Judged by the astonishing increase in journal papers written by scientists in China, there can be little doubt that China is finding its place as one of the world's scientific power houses. Michael Banks, Physics World's News Editor, quantifies this surge in scientific output from China and asks whether quality matches quantity in August's Physics World.

Nanoscience, quantum computing and high-temperature superconductivity are three of the cutting-edge areas of physics that have seen particularly large increases. Published journal articles in nanoscience, for example, with at least one co-author based in China, have seen a 10-fold increase since the beginning of the millennium, rising to more than 10,500 in 2007.

China has already overtaken the UK and Germany in the number of physics papers published and is beginning to nip at the heels of the United States. If China's output continues to increase at its current pace, the country will be publishing more articles in physics - and indeed all of science - than the US by 2012.

Quantity alone however is not enough. The number of times a journal paper is cited by other academics in their own journal papers is often used as a guide to journal papers' quality. Unfortunately for China, they are currently a long way from the national citation top spot, ranked in 65th for physics, just ahead of Kuwait, with an average of 4.12 citations for each of the papers published.

As China has only just started to publish large volumes of work, it is not a fair reflection. Werner Marx, an information scientist from the Max Planck Institute for Solid State Research in Stuttgart, Germany, who carried out a bibliometric study for the Physics World article, said, "The figure is still quite impressive, and I estimate this will rise substantially in the next few years."

We are going to witness a big downturn in American exceptionalism rhetoric as China surpasses the United States as top in science, technology, total economic output, and many other measures. Both the Left and Right in America are in for a rude awakening as this happens. The argument that liberalism is one right way to organize a society is going to take some heavy hits as rather illiberal China becomes the dominant power and many societies try to ape China rather than the United States. Liberal Manifest Destiny isn't going to happen.

By Randall Parker    2008 August 02 08:55 PM Entry Permalink | Comments (17)
2008 July 14 Monday
Chinese Seen As Quietly Fighting For More Rights

Will the Chinese become strong supporters of limits on state power and for protection of individual rights?

WASHINGTON, DC—While the 2008 summer Olympics in Beijing has elicited a rallying cry for human rights among high-profile activists and organizations outside China, ordinary Chinese citizens are mobilizing to fight for their rights inside the rapidly changing country, according to sociologist Ching Kwan Lee, writing in the summer issue of the American Sociological Association's Contexts magazine.

As per capita income rises what people want changes. As they satisfy some basic needs they shift toward wanting to satisfy an expanding list of desires. Really poor people want food and shelter. People living in nice houses turn their attention toward clean air and a greater say in local governance. Various sorts of rights are preferences that people pay more attention to as they can afford to. I expect greater demand for rights in China as living standards rise.

"Ordinary Chinese workers, homeowners and farmers have emerged as unlikely activists in a quiet revolution that is filling the gaps between central government law-making and the rights violations and corruption of local governments," said Lee, a sociologist at the University of California-Los Angeles who studies rights activism in China and Chinese investments in Africa. "This emerging rights mobilization has failed to attract the level of attention paid to other human rights activism directed at China, yet citizen activism inside the country is creating the potential for much broader social change."

One can understand why people want property rights. They want to protect what they've managed to accumulate. But will they move on to eventually wanting right to freedom of political speech and right to limit government powers in ways that resemble the kinds of restrictions on government we see in some Western countries?

In contrast to traditional activism appealing to universal notions of human rights, this grassroots movement among everyday people in China invokes "the protection of lawful rights," or weiquan. This activism focuses on specific rights prescribed by Chinese law, such as labor, property and rural land rights.

According to Lee, growing unrest over social injustice, as well as wealth and power gaps in Chinese society—due to the country's rapid economic development—has led to three decades of market reform and legal proliferation by the central government in Beijing.

However, in many local Chinese governments, the central government's legal reform suffers at the hand of economic and fiscal decentralization, as local governments pursue revenue and resources above all else. In this climate, Lee asserts, local governments are prone to violate citizens' rights through vested interests and the collusion of local officials with employers, investors and land developers.

Collusion of political players to violate citizens' rights happen everywhere. The difference is a matter of degree. People get their rights violated in part because they individually do not feel they have enough power to fight for themselves and are not sufficiently motivated to fight for the rights of others. How motivated will the Chinese people become to support the rights of others?

By Randall Parker    2008 July 14 10:45 PM Entry Permalink | Comments (2)
2008 June 05 Thursday
China And India Compete For Influence

The oil for India and China moves through sea lanes that both countries would like to control.

For decades the world relied on the powerful U.S. Navy to protect this vital sea lane. But as India and China gain economic heft, they are moving to expand their control of the waterway, sparking a new — and potentially dangerous — rivalry between Asia's emerging giants.

China has given massive aid to Indian Ocean nations, signing friendship pacts, building ports in Pakistan and Bangladesh as well as Sri Lanka, and reportedly setting up a listening post on one of Myanmar's islands near the strategic Strait of Malacca.

Now, India is trying to parry China's moves. It beat out China for a port project in Myanmar. And, flush with cash from its expanding economy, India is beefing up its military, with the expansion seemingly aimed at China. Washington and, to a lesser extent, Tokyo are encouraging India's role as a counterweight to growing Chinese power.

India's Navy probably won't be able to compete with the greater wealth that China will be able to invest in the Chinese Navy.

Pallavi Aiyar, a reporter from India who has recently written a book about China, says China's poor are on par with India's middle class.

Forever being asked, “Which is better, China or India?” Ms. Aiyar tackles the question. Though she says her perspective sometimes changes from day-to-day, in the main, she believes that society’s poorest are better off in China. In Ms. Aiyar’s experience, with respect to the availability of work, food, shelter, commodities, community and health-care, China’s poorest may rank alongside India’s middle-class. On the other hand, she writes that she found China to be an un-intellectual land, a place where the heated dissent that characterizes a pleasurable debate in India has been drilled out of the population’s repertoire of social interactions. For those lucky enough to count the demands of their intellect above those of their stomach, Ms. Aiyar thinks India provides a more comfortable environment.

China uses 9% of the world's oil while India uses only 3%. China is the more rapidly growing country and I expect Chinese affluence and influence to continue to grow faster than India's for decades to come.

By Randall Parker    2008 June 05 11:28 PM Entry Permalink | Comments (8)
2008 March 11 Tuesday
China Air Pollution Obstacle For Olympic Athletes

When pondering business and vacation trips to China be sure to consider the damage to your health. The world record holder for the marathon refuses to run the marathon in Beijing's polluted air.

The world's fastest long-distance runner said yesterday he will not compete in the marathon at the Beijing Olympic Games because of the city's choking air pollution, a move that is prompting runners of all levels to reassess the net health benefits of going for a jog in the smog.

"The pollution in China is a threat to my health and it would be difficult for me to run 42 kilometres in my current condition," Haile Gebrselassie, the 34-year-old Ethiopian who many enthusiasts call the best distance runner of all time, told Reuters.

Gebrselassie is still going to race the 10000 meter. He has asthma and figures a marathon in Beijing's polluted air could do permanent damage to his sensitive lungs.

A friend who went to China told me that at one point she had to pull over the car she was driving to throw up because the air was so bad it had made her sick to her stomach. But of course Chinese officials paint a rosier picture.

"I believe the air quality will only become better and better in Beijing," Foreign Minister Yang Jiechi said when asked about running eat Haile Gebrselassie's plans to skip the Olympic marathon because of pollution worries.

An Olympic tennis player might drop out too.

Justine Henin, the world’s top-ranked women’s tennis player and the 2004 Olympic gold medalist, said she was considering not competing in the Olympics because of air-quality concerns.

The International Olympic Committee made a serious mistake when it chose Beijing for the Olympics.

China's environmental protection agency is very small.

Environmentalists applauded the move to give the relatively small and weak environmental agency more clout, but noted that it is unclear how much additional budget allocation or staffing it will receive. The current State Environmental Protection Administration has about 300 employees, not including affiliated institutions. By comparison, the U.S. Environmental Protection Agency has about 18,000 employees and an annual budget of about $7 billion.

So many people in China are very poor that the trade off between pollution control and economic growth in China is really not the same as in Western countries. Unfortunately the rest of the world part of what China dumps into the air and water.

By Randall Parker    2008 March 11 11:08 PM Entry Permalink | Comments (5)
2008 February 04 Monday
China Expected To Use Half Of World Minerals Soon

While Europe's elites try to convince America's elites to reduce fossil fuels usage to prevent global warming and while American elites argue about how best to waste massive sums of money in a pointless war in Iraq at the same time the Chinese are on course to make the Americans and Europeans steadily less important in the world. While we distract ourselves with foolishness the Chinese are busy creating an industrial civilization and burning through coal, minerals, and other natural resources at a rate that makes Western usage pale in comparison. In many categories the Chinese are soon going to use more than half the world's output.

The rapid industrialisation of China’s economy means that it is likely to consume a majority of the world’s supply of all the major metals and minerals, potentially leading to clashes with other countries over access to resources. Rio Tinto, the world’s second-largest miner, said last week that China already accounted for 47 per cent of all iron ore consumption, 32 per cent of aluminium and 25 per cent of copper.

Tom Albanese, Rio’s chief executive, has predicted that within the next couple of years this will move to 58 per cent of all iron ore, 45 per cent of aluminium and a third of all copper. He said: “Even with the assumption that the current growth intensity will slow, we are looking at China consuming a higher percentage of global supply.”

The only raw material the United States uses more of than China is oil.

The Chinese are doing deals to ensure their access to raw materials.

Back in the UK, Anglo American, which has its own iron ore businesses, announced a surprise strategic partnership with China Development Bank, the state-owned finance house headed by Chen Yuan which is bankrolling Chinalco's stake-building in Rio Tinto. Anglo and the bank will develop a range of mining projects together, primarily in Africa, where the Chinese have had significant success in convincing governments to favour Chinese companies over Western rivals. The Chinese have invested heavily in countries such as Angola, throwing in free infrastructure on top of very favourable terms to secure their energy supplies.

But sources close to the Anglo-China Development Bank tie-up say the Chinese have had considerable production difficulties and that the link-up with Anglo will give them access to the company's mining and logistics expertise.

Major mineral extraction companies are feeling the effects of Chinese business clout. The Chinese are busy pursuing access to minerals around the world.

BHP Billiton, the world's largest mining company, has rebuffed an approach from Chinalco to discuss the Chinese company's acquisition of a 12 per cent stake in Rio Tinto.

The state-owned aluminium producer is understood to have written to Don Argus, the BHP chairman, “hoping to open a dialogue” after blocking BHP's £65billion bid for Rio.

BHP received the faxed letter on Friday, as Chinalco's £7.1 billion share raid was being announced. The Chinese are not thought to have received a reply.

When Chinese resource companies buy stakes in international resource companies the Chinese government becomes the real owner.

What does Chinalco want? BHP will hope it is merely motivated by industrial logic as an aluminum producer. Were Chinalco thinking only along those lines, it might encourage a Rio Tinto-BHP tie-up. Its shareholding could then be a front-row seat at the talks, with which it might buy cast-off assets, and catapult itself into the global mining mega-league.

But such thinking looks naive. Chinalco is a state-owned firm being bankrolled by a state-owned lender in the most ambitious country in the world. From a political perspective, a BHP-Rio Tinto deal is highly undesirable. China's steelmakers worry BHP and Rio Tinto would use their combined 35% market share to crank up iron-ore prices. That might fuel the inflationary pressures that worry Chinese politicians, too. A politically motivated interloper might prefer to block BHP's bid, or launch its own.

America is wasting precious time, energy, money, and lives in the Middle East. The war in Iraq is a very bad investment. While the Chinese concentrate on business we have dissipated our energies on war, financial shell games, and feeding of an unsustainable welfare state. We need to wake up and snap back to reality.

By Randall Parker    2008 February 04 08:10 PM Entry Permalink | Comments (10)
2007 December 16 Sunday
China Displacing US And Russian Influence In Central Asia

China is exporting into and investing deeply in Central Asia, displacing US and Russian influence in the process.

China today is reaching deep into Central Asia to tap oil and gas reserves, using pipelines and investments to challenge Russia's monopoly on gas shipments and to thwart Moscow's hopes of controlling a bigger share of the region's oil.

In recent years, China and Russia have forged a strategic alliance, as part of a group called the Shanghai Cooperation Organization, to squeeze the United States out of Central Asia, after the U.S. established military bases here. They have largely succeeded.

However, friction is developing between the two neighboring giants. And given China's 1.3 billion people and its economic strength, it seems certain that Russia, with its dwindling population and economy based narrowly on energy, will increasingly be on the defensive.

Of course, Russia's two-century presence in region gives it potent advantages in trying to preserve its influence.

But Niklas Swanstrom of Johns Hopkins University's School of Advanced International Studies argues China is succeeding in using "soft power" - judiciously apportioned aid, aggressive diplomacy and massive investment - to shove Russia aside.

"China will be the dominant player over time," he predicts.

Neoconservative military strategizing will come to nothing compared to a massive growing economy exporting large volumes of finished goods and importing large volumes of raw materials. The money spent on the stupid Iraqi war would be far better spent eliminating US dependence on imported oil. For the weekly cost of the Iraq war we could complete 1 nuclear reactor per week. Then we could shift all of our heating to ground sink heat pumps powered by nuclear electricity and shift most rail and a portion of vehicle transportation to electricity.

The China-Kazakhstan border is like the US-Mexico border.

Nowhere, perhaps, is China's presence more starkly evident than at Khorgos, straddling the Kazakh-China border.

On the Kazakh side sits a sleepy village, a mosque and arid steppes where shepherds ride horseback. On the Chinese side sprawls a city, its skyline punctuated by two construction cranes, the skeletons of several large buildings and a massive white arch topped by two scarlet Chinese flags.

Talipzhan Suleimanov, a captain in the Kazakh border service in Khorgos, stood outside his ramshackle post and pointed at the gleaming Chinese city across a dry riverbed.

"This looks like the U.S.-Mexican border," he said. "We are the Mexicans, because the Chinese are so much more advanced."

While George W. Bush and allies have pursued their losing strategy of what Steve Sailer calls "Invade the world, invite the world, in hock to the world" the Chinese have been busy building up capital stock, making fancier things, and pursuing commerce. The hope of the neocons to have continued influence on foreign affairs depends on the US continuing to be a world power. But that neocon hope will most certainly die unless the neocons start supporting policies that seek to reverse the financial and demographic trends that will otherwise make the United States into a second tier power.

By Randall Parker    2007 December 16 12:19 PM Entry Permalink | Comments (1)
2007 November 22 Thursday
China Favoritism For Domestic Businesses Increases

I still remember when our elites assured us that giving China membership in the World Trade Organization was supposed to open up Chinese markets to our exports. What a naive era that was. Private equity is one of many industries where the Chinese government is working to build an unlevel playing field.

Beijing is encouraging domestic equity funds to supplant global private equity titans such as Carlyle (CYL.UL: Quote, Profile, Research) on Chinese turf, but their small size and lack of experience mean it will be years before they threaten their international rivals.

The government has stepped up its efforts to bolster home-grown private equity by allowing yuan currency fund-raising, erecting hurdles for foreign rivals and encouraging IPOs on domestic markets.

Shouldn't we make our playing field less even for Chinese exporters?

The annual report fo the US-China Economic and Security Review Commission find that the Chinese are engaging in lots of espionage to steal US technology.

Chinese espionage poses "the single greatest risk" to the security of US technology, a panel has told Congress.

China is pursuing new technology "aggressively", it says, legitimately through research and business deals and illegally through industrial espionage.

China has also "embraced destructive warfare techniques", the report says, enabling it to carry out cyber attacks on other countries' infrastructure.

US companies should think twice about hiring Chinese nationals to do technological development. When those Chinese nationals leave to get jobs at Chinese companies any secrets and source code they had access to stands a good chance of going with them.

To read that report from the US-China Economic and Security Review Commission here are your choices (all PDF format): Press Release, 2007 Report to Congress, 2007 Report Introduction, 2007 Report Executive Summary, and 2007 Recommendations to Congress.

China is moving in several directions that are unfavorable (though unsurprising) from a Western perspective. Here is an excerpt from Chairman Carolyn Bartholomew’s opening statement on the release of the 2007 Annual Report to Congress (PDF)

The Commission’s conclusions as presented in this report are a mixture of good news and bad. China has taken a constructive role in reaching agreement among six nations to dismantle North Korea’s nuclear weapons production capacity. China has agreed to send a combat engineering battalion to Sudan to help with the U.N.’s peacekeeping and reconstruction activities there, and is showing signs of interest in strengthening its export control system to limit proliferation. China’s economic policies have helped lift 200 million of its people out of poverty, and its leaders also have begun to acknowledge the widespread environmental degradation of China’s air and water.

But, this past year revealed some disturbing trends in China. Rather than continue down the path towards a more market-based economy, China reversed course. In its 11th Five Year Plan, Beijing listed a dozen industries that it retains under central government control and ownership. These industries include information technology, telecommunications, shipping, civil aviation, and steel. This is problematic for several reasons. For one, these industries are more likely to receive the kinds of subsides, such as export-dependent tax cuts and low interest rate loans, that will continue to make them unfair global competitors. For another, by walling off a large sector of the economy from public ownership, China isn’t fulfilling the expectations of the members of the World Trade Organization who voted to admit China in 2001. China’s actions certainly violate the spirit and principles of the WTO. Free and fair trade depends on a market approach to international commerce, rather than a contest among governments and their closely owned and subsidized industries.

While speaking of subsidies and violations of free market principles, it is worth noting here that China is continuing to manipulate the value of its currency in order to gain an unfair export advantage. Meanwhile, China has not fulfilled its many promises to protect the intellectual property of foreign business software and entertainment companies from rampant piracy, just to cite two industries important to the U.S. economy. Nor has China reduced the many subsidies provided to exporting industries in China. As of this year, both of these issues are subjects of formal complaints before the World Trade Organization, a development that the Commission has advocated in the past.

The Commission has examined China’s energy and environmental policies over the past year as well. China’s lack of energy efficiency and poor enforcement of environmental regulations, are creating devastating environmental effects that threaten China, the United States, and other nations. China’s strategy for acquiring energy resources—a reliance on acquiring oil at the wellhead rather than through the international markets, for example—also concerns the Commissioners. As a result, China continues to invest in countries whose governments perpetuate human rights abuse, such as Sudan, Iran and Burma. China’s energy use patterns have also added substantially to the air pollution over the Western United States.

China's industrialization is driving up the prices of food, oil, coal, iron ore, and other raw materials. China's industrialization is also generating an increasing amount of pollution on an enormous scale. Plus, they are stealing our intellectual property on a similarly enormous scale.

By Randall Parker    2007 November 22 08:01 PM Entry Permalink | Comments (9)
2007 November 17 Saturday
China Raising Regulatory Trade Barriers

Their huge trade surpluses aren't big enough for them.

WASHINGTON, Nov. 15 — Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices — but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors, despite efforts by Treasury Secretary Henry M. Paulson Jr. to ease economic tensions.

Some months back I predicted that the declining dollar would, by lowering the Chinese currency against the Euro, stoke up European opposition to Chinese trade surpluses. This decline in the Chinese currency happened because the Chinese currency is pegged to the dollar and the dollar declined due to the huge US trade deficits. How twisted is that? European officials are showing increasing impatience with Chinese trade surpluses.

PARIS: Admitting that dialogue and cooperation with Beijing have failed to secure concessions for Europe, the European Union's top trade official has called for more aggressive action - in line with the United States - to hit back at Beijing.

In a document filled with hard-hitting criticism of what he terms the "Chinese juggernaut," Peter Mandelson, the European trade commissioner, said the EU should align policy more closely with Washington and be more ready to take cases against China to the World Trade Organization.

The Chinese trade deficit with Europe is rising at about $22 million per hour.

According to the European Commission, the EU trade deficit with China rose by one-fifth last year and is rising at €15 million an hour, a higher rate than that of the United States.

Beijing is now Europe's largest source of manufactured imports. But the bloc, with 27 countries and a population of around 470 million people, exports less to China than to Switzerland. Non-tariff barriers and regulatory discrimination cost European companies an estimated €20 billion a year.

Remember when Americans were told that Congress had to approve China's entry into the World Trade Organization in order to open Chinese markets to American goods? Huge numbers of lobbyists pushed for this. They sure suckered us.

China's trade surplus is up a shocking 59% this year so far.

China's trade surplus for the first 10 months jumped a massive 59 percent to $212.4 billion, according to figures released by the General Administration of Customs. The annual surplus already has surpassed the full-year record of $177.5 billion set in 2006.

October's trade gap rose to $27 billion, up 13.6 percent from the same month last year, according to the customs data. The previous monthly record high was $26.9 billion in June.

The Chinese trade surplus with the United States rose.

China's trade surplus with the United States rose 12 percent to $15.7 billion on total two-way trade of $26.7 billion, according to the customs agency.

The Chinese surplus with Europe rose much more rapidly. Why? The US dollar decline against the Euro translates into a Chinese yuan decline against the Euro because the Chinese fix the value of their currency against the US dollar. So Chinese goods have become cheaper as the US dollar has declined.

The surplus with Europe, China's biggest trading partner, rose nearly 50 percent to $13.9 billion on total trade of $31.4 billion, the agency reported.

The Europeans aren't going to be as tolerant of a big trade deficit with China the way US policy makers have been. US policy makers and economists are excessively enthralled with the supposedly (but not really) free market. It is hard to see how a fixed currency exchange rate or systematic intellectual property theft or regulatory biases against non-Chinese companies add up to something that can be called a free market.

By Randall Parker    2007 November 17 12:51 PM Entry Permalink | Comments (5)
2007 October 11 Thursday
China Regulates Reincarnation

Whereas the United States has a more laissez faire approach to reincarnation.

The Western liberal media had a laugh in August when China's State Administration of Religious Affairs announced Order No. 5, a law covering "the management measures for the reincarnation of living Buddhas in Tibetan Buddhism." This "important move to institutionalize management on reincarnation" basically prohibits Buddhist monks from returning from the dead without government permission: No one outside China can influence the reincarnation process; only monasteries in China can apply for permission.

What fun. So if you want to get reincarnated in China you had better get on friendly terms with a Chinese monastery. Picture all sorts of people with fatal illnesses the world over traveling to China to get a monastery to apply for permission to reincarnate them when they die.

China uses the same strategy that American elites like to use: replace a group with a huge demographic influx of some other group.

In recent years, the Chinese have changed their strategy in Tibet: In addition to military coercion, they increasingly rely on ethnic and economic colonization. Lhasa is transforming into a Chinese version of the capitalist Wild West, with karaoke bars and Disney-like Buddhist theme parks.

In short, the media image of brutal Chinese soldiers terrorizing Buddhist monks conceals a much more effective American-style socioeconomic transformation: In a decade or two, Tibetans will be reduced to the status of the Native Americans in the United States.

This practice hasn't just been done to the Native Americans. American industries like to bring in huge waves of foreigners in order to drive down wages. This gets done today in agriculture, construction, and other industries. In the past auto companies, the meat packing industry, and other industries brought in immigrant groups to lower wages. The difference with China's elites is they want the Han Chinese majority to supplant the minorities. Whereas in the United States elites want to replace the majority with minorities.

By Randall Parker    2007 October 11 08:24 PM Entry Permalink | Comments (1)
2007 March 05 Monday
China Ups Military Spending 17.8%

Just as the Bush Administration appointed Nicholas Negroponte to manage the US relationship with China the Chinese made a big percentage increase in their defense budget.

Apparently by coincidence, the Chinese government chose the same moment to announce that its declared military expenditures for 2007 will amount to $44.94 billion, an increase of 17.8 percent.

According to Pentagon estimates, that declared total represents about a third of actual military spending if equipment purchases are taken into account. But even that would amount to only a fraction of the U.S. military budget, which is proposed to rise to about $623 billion for fiscal 2008.

The difference is narrower than the numbers suggest. The US military has to pay some multiple of what the Chinese pay their soldiers.

The US military is eventually going to become the second most powerful military in the world. Continued economic growth in China with a population more than 4 times larger will make the Chinese economy bigger and they'll have plenty of technology for creating a powerful military.

The western democracies aren't growing in population as fast as the rest of the world. Also, much of the population growth in the West comes from groups that do poorly in school and in the private sector. So the Western democracies are going to continue to dwindle in relative importance on the world stage. The West peaked in world power over 100 years ago when Europeans made up about a quarter of the world's population and they controlled the world far more thoroughly than they do today. Increases in absolute affluence in the West and triumphalist talk have obscured this longer term trend.

By Randall Parker    2007 March 05 10:20 PM Entry Permalink | Comments (18)
2007 February 02 Friday
China Swings Toward Economic Nationalism

A recurring ParaPundit theme: Do not trust what your elites tell you. They are wrong and/or deceitful with depressing regularity. Remember when we were told that World Trade Organization (WTO) membership for China would open up a huge market for our products and would be a boon for our companies?

Since the mid-1990s, China has aggressively courted foreign investment, crediting capital from abroad with helping it become a world economic power. In recent months, however, the Chinese government, saying it needs to protect homegrown companies from unfair competition, has thrown a multitude of new regulations at foreign firms seeking to do business in China.

While some believe the new restrictions -- which affect several sectors, including real estate, retailing, shipbuilding, banking and insurance -- may be only temporary measures to control growth, others worry that there's a larger political issue: that economic nationalism or even protectionism is rising.

First off, we found we could sell little to China as compared to what the Chinese would sell to us and they manipulated currency exchange rates to assure this. Now they aren't even going to let US companies benefit from Chinese economic growth.

American companies are pulling back on their China plans because legal changes block them.

Last month, eBay said it would close its Web site in China, saying it was facing difficulties because Chinese regulations limit the types of financial transactions foreign companies can conduct. In November, Warner Bros. International Cinemas, part of Time Warner, which had been planning a massive expansion in China, abruptly announced plans to close operations in the country. It cited a recent policy change that no longer allowed foreign companies to control domestic theaters except in a handful of large cities.

The full article lists an assortment of new regulations restricting foreign investments. The Chinese are nationalistic. They are becoming more anti-foreigner. They also have over a billion people, a rapidly growing economy, and values that are quite different from our own. The West has peaked demographically. As a percentage of the world's population white people peaked about 100 years ago and then went into a continuous decline ever since. The world of the future is going to be less supportive of free societies - unless the way people around the world use offspring genetic engineering turns the tide back toward cognitive qualities that make people more individualistic.

By Randall Parker    2007 February 02 05:44 PM Entry Permalink | Comments (5)
2006 October 07 Saturday
China Attacks US Satellites With Laser Tests

The next Cold War is starting up in little spurts.

China has fired high-power lasers at U.S. spy satellites flying over its territory in what experts see as a test of Chinese ability to blind the spacecraft, according to sources. It remains unclear how many times the ground-based laser was tested against U.S. spacecraft or whether it was successful.

But the combination of China’s efforts and advances in Russian satellite jamming capabilities illustrate vulnerabilities to the U.S. space network are at the core of U.S. Air Force plans to develop new space architectures and highly classified systems, according to sources.

...

According to top officials, however, China not only has the capability, but has exercised it. It is not clear when China first used lasers to attack American satellites. Sources would only say that there have been several tests over the past several years.

“The Chinese are very strategically minded and are extremely active in this arena,” said one senior former Pentagon official. “They really believe all the stuff written in the 1980s about the high frontier and are looking at symmetrical and asymmetrical means to offset American dominance in space.”

They are not inclined to show us more respect than this?

By Randall Parker    2006 October 07 02:14 PM Entry Permalink | Comments (6)
2006 March 05 Sunday
Will China Pull World Into Global Depression?

In an article in Foreign Policy Minxin Pei spells out the problems facing China's economy.

But before we all start learning Chinese and marveling at the accomplishments of the Chinese Communist Party, we might want to pause for a moment. Upon close examination, China’s record loses some of its luster. China’s economic performance since 1979, for example, is actually less impressive than that of its East Asian neighbors, such as Japan, South Korea, and Taiwan, during comparable periods of growth. Its banking system, which costs Beijing about 30 percent of annual GDP in bailouts, is saddled with nonperforming loans and is probably the most fragile in Asia. The comparison with India is especially striking. In six major industrial sectors (ranging from autos to telecom), from 1999 to 2003, Indian companies delivered rates of return on investment that were 80 to 200 percent higher than their Chinese counterparts. The often breathless conventional wisdom on China’s economic reform overlooks major flaws that render many predictions about China’s trajectory misleading, if not downright hazardous.

...

The Chinese state remains deeply entrenched in the economy. According to official data for 2003, the state directly accounted for 38 percent of the country’s GDP and employed 85 million people (about one third of the urban workforce). For its part, the formal private sector in urban areas employed only 67 million people. A research report by the financial firm UBS argues that the private sector in China accounts for no more than 30 percent of the economy. These figures are startling even for Asia, where there is a tradition of heavy state involvement in the economy. State-owned enterprises in most Asian countries contribute about 5 percent of GDP. In India, traditionally considered a socialist economy, state-owned firms generate less than 7 percent of GDP.

The Chinese government still owns most of the economy.

But China’s tentacles are even more securely wrapped around the economy than these figures suggest. First, Beijing continues to own the bulk of capital. In 2003, the state controlled $1.2 trillion worth of capital stock, or 56 percent of the country’s fixed industrial assets. Second, the state remains, as befits a quintessentially Leninist regime, securely in control of the “commanding heights” of the economy: It is either a monopolist or a dominant player in the most important sectors, including financial services, banking, telecommunications, energy, steel, automobiles, natural resources, and transportation. It protects its monopoly profits in these sectors by blocking private domestic firms and foreign companies from entering the market (although in a few sectors, such as steel, telecom, and automobiles, there is competition among state firms). Third, the government maintains tight control over most investment projects through the power to issue long-term bank credit and grant land-use rights.

This strengthens my belief that Western capitalists looking to build up big markets in China are going to come to tears. The Chinese government will prevent any of them from becoming too successful. Meanwhile, China's pursuing a strategy for capital accumulation that has as much in common with Stalin's rapid industrialization of the Soviet Union as it does on Western models of free market capitalism.

Pei sees the state corporations as vast patronage systems that the government depends on to maintain control of the economy as a whole. The thing that strikes me about this is just how little countries change. The Arabs are not about to become liberal democrats. The Russians are sliding back toward the pattern of authoritarian central control that has marked the country for centuries.

Tyler Cowen fears an economic depression China and America.

More specifically, how about a bone-crunching, bubble-bursting, no soft landing, Chinese auto crash-style depression within the next seven years? This is also my biggest worry for the U.S. economy, I might add.

If you are not convinced, raise your right hand and repeat after me: "China in the 20th century had two major revolutions, a civil war, a World War, The Great Leap Forward [sic], mass starvation, the Cultural Revolution, arguably the most tyrannical dictator ever and he didn't even brush his teeth, and now they will go from rags to riches without even a business cycle burp."  I don't think you can do it with a straight face.

While the US industrialization process was marred by some severe economic downturns optimists can argue that our understanding of macroeconomics and monetary policy are much greater now. So the Chinese ought to be able to avoid our past mistakes. However, by that logic they should already have taken steps to avoid huge losses in their banking system. Also, their corruption and government involvement in their economy are both far greater than was the case in 19th and early 20th century US history.

If China goes down I have a hard time seeing how the US will manage to avoid a parallel depression. Picture the Chinese suddenly stopping the purchase of US bonds and instead selling them to use the money to bail out their own collapsed economy. The US would experience very high interest rates, a sharp rise in import prices, and even though the US Dollar might decline export sales would still drop as the whole world economy contracted.

Looked at in this light the lowering of Western trade barriers to Chinese goods may turn out to have been a reckless and irresponsible move because it allowed the major economies of the world to become vulnerable to events in an unstable state. Of course, the same can be said about Western dependence on Middle Eastern oil. The West might be one well placed bomb attack on Saudi Arabia's main oil processing facility away from at least a severe recession. But a severe recession in the West would probably drive China into a depression which would probably then suck the rest of the world even further down.

Here's what I want to know: If the Chinese experience an economic meltdown will they switch to a more private system of capital ownership in response? If they do then they will emerge from their depression more firmly on course to become the most powerful country in the world.

Also, will a future economic crisis catalyze reform demands for democracy? Will the tough times of a depression so reduce the ability of the government to buy off potential opponents that a democratic revolution becomes possible? Or will any revolution just lead back to authoritarianism? Read Pei's whole article and make your guess.

By Randall Parker    2006 March 05 03:44 PM Entry Permalink | Comments (19)
2006 February 19 Sunday
China May Buy Complete DaimlerChrysler BMW Engine Plant

A Chinese car company may ship an entire high tech engine plant from Brazil to China.

In the latest sign of this country's manufacturing ambitions, a major Chinese company, hand-in-hand with the Communist Party, is bidding to buy from DaimlerChrysler and BMW a car engine plant in Brazil. Because the plant is so sophisticated, it is far more feasible for the Chinese carmaker, the Lifan Group, to go through such an effort to move it 8,300 miles, rather than to develop its own technology in this industrial hub in western China, the company's president said Thursday. If the purchase succeeds — and it is early in the process — China could leapfrog competitors like South Korea to catch up with Japan, Germany and the United States in selling some of the most fuel-efficient yet comfortable cars on the market, like the Honda Civic or the Toyota Corolla.

The guy negotiating the deal for the Chinese car company isn't from the car company. He's a senior Chinese Communist Party official. Think about that. Of course the banks in China will probably be ordered to lend money to finance the deal. Some would have us believe that the massive US budget deficit at 5.8% of GDP is just the product of the natural workings of the market. I see currency markets and capital markets manipulated by governments and am highly skeptical of this claim.

Will DaimlerChrysler and BMW join other companies in selling the Chinese technology that'll get used to undersell them?

Ford and GM look increasingly like road kill run down by globalisation and the United Auto Workers. How can Ford and GM avoid bankruptcy once Chinese cars made with very cheap labor and embodying lots of Western technology hit the market in the United States? As things stand now GM is bleeding cash and is a few years away from bankruptcy already. That road to bankruptcy could get accelerated by events at GM's former division Delphi. Delphi's employees might go on strike when Delphi, now operating under a bankruptcy filing, cuts wages and benefits. A halt of Delphi's production lines would, in turn, stop many GM production lines. Can't build cars without engine, brake, and transmisson controllers.

About Delphi, here's what I wonder: How quickly could Delphi shift production abroad or into plants in other states in event of a strike? Also, how rapidly could GM substitute controllers from other controller makers? GM could do some engineering work in advance to qualify some controllers as drop-in replacements should Delphi go out on strike. Might be prudent to do that, especially for models that sell at healthy profits.

By Randall Parker    2006 February 19 04:13 PM Entry Permalink | Comments (27)
2005 December 04 Sunday
China To Develop New Interpretation Of Marxism

The official ideology will not be abandoned as a source of political legitimacy.

BEIJING, Dec. 4 -- The Communist Party has launched a campaign among political leaders and senior academics to modernize Chinese Marxism, seeking to reconcile increasingly obvious contradictions between the government's founding ideology and its broad free-market reforms.

The campaign involves the allocation of millions of dollars to produce new translations of Marxist literature and to update texts for secondary school and university students obliged to study the official philosophy, officials said. In addition, the campaign will promote more research on how Marxism can be redefined to inform China's policies even as private enterprise increasingly becomes the basis of its economy, they explained.

This reminds me of the Protestant Reformation and the resulting Catholic Reformation in their later stages. Certainly it is not an exact analogy. But they are trying to reconcile their official (albeit secular) faith with modernity. Where will the Chinese go with this? Will they produce a new revisionist interpretation of Marxism where the leaders are still the vanguard of proletariat and hence still justified in ruling by dictatorship? If they are the vanguard and the masses have to go through a capitalist phase before seeing the communist light then that would justify having the leaders rule over the emerging middle class reactionary bourgeoisie.

Imagine the Muslims still had a Caliphate that could order an updating of Islam just as the Chinese are trying to modernise Marxism. Such a modernization might make dealing with Muslims a lot easier for the rest of us.

By Randall Parker    2005 December 04 08:00 PM Entry Permalink | Comments (5)
2005 May 29 Sunday
Does China Want To Make The World Safe For Autocracy?

Robert Kagan argues against the conventional wisdom that wise policies can "manage" the rise of China to produce a favorable outcome. Attempts to manage China fly in the face of a historical record of failed attempts "manage" the rise of Germany, Japan, and other powers in the past.

The security structures of East Asia, the Western liberal values that so dominate our thinking, the "liberal world order" we favor -- this is the "international system" into which we would "integrate" China. But isn't it possible that China does not want to be integrated into a political and security system that it had no part in shaping and that conforms neither to its ambitions nor to its own autocratic and hierarchical principles of rule? Might not China, like all rising powers of the past, including the United States, want to reshape the international system to suit its own purposes, commensurate with its new power, and to make the world safe for its autocracy? Yes, the Chinese want the prosperity that comes from integration in the global economy, but might they believe, as the Japanese did a century ago, that the purpose of getting rich is not to join the international system but to change it?

Kagan argues that the Chinese really want to see US influence in Asia to decline and that the values and goals of the Chinese are sufficiently different that US and Chinese interests will inevitably clash. He also argues that the US already has a containment policy toward China even as US policymakers attempt to deny this.

Kagan's essay strikes me as pretty reasonable. Go read the whole thing. China already supports elements of an illiberal world order in North Korea, Zimbabwe, and elsewhere. The extent of China's economic rise will determine the extent of the growth of Chinese influence. If, as I expect, China becomes the wealthiest country in the world illiberal autocracy will gain against liberal democracy.

By Randall Parker    2005 May 29 10:52 AM Entry Permalink | Comments (5)
2005 March 15 Tuesday
Four Key Questions On China

From the perspective of non-Chinese East Asians, Americans, and Europeans here are what I see as the key questions about China's future:

  1. Can China as an authoritarian free market system continue to grow toward Western levels of per capita GDP?
  2. Will rising living standards inevitably lead to unstoppable pressures for democracy in China?
  3. If China becomes a democracy will it become a liberal democracy with protection of indivdual rights including political speech rights at levels that begin to approach the political speech rights of Europeans? (keep in mind that Americans have much stronger political speech rights than Europeans and even more than Brits or Canadians and so I'm setting a lower bar here)
  4. Would democracy make China more or less aggressive toward Taiwan and neighboring countries?

One argument advanced for why China has to become a democracy is that only a democracy will be able to control corruption well enough to prevent corrupt officials from undermining private enterprise. But first note that China has to achieve only a quarter of American per capita GDP in order to have a much larger economy than the United States. If corruption prevents China from becoming more than a third as efficient as the United States then China will still become the most powerful country in the world.

One argument made against non-democratic systems is that the quality of the leadership will typically change much more from generation to generation than is the case with democracy. Democracy will not reach peaks of good government as high as the best dictators have managed. But it will not hit troughs in leadership quality (or so the argument goes) that are as low as that which will be found when, say, a king's eldest son is a moron. However, note that a period of relatively good dictatorial leadership can last for decades. China might well be on such a roll.

We should be reluctant to assume that dictatorships always will turn in worse economic records than democracies for another reason: Most of the countries that are poor failed states and not democracies may not be failed states because of a lack of democracy. Rather, they may be failed states economically for the same reasons that they failed to achieve or sustain liberal democracy. Instead of democracy that is making some states wealthy other factors (e.g. intelligence distributions, culture, religion, location, etc) may be making some countries both wealthy and capable of supporting a democracy.

One advantage of democracy is that the ballot box sometimes provides an effective means to limit the excesses of corruption. However, in the current era democracy also comes with Robin Hood voters who vote for taxes to fund welfare state transfer payments. While democracy is a net benefit for many countries it is far from clear that a better economic growth is an assured outcome of democracy in all societies at all times.

When dictators have both sufficient virtue and a firm grasp of market economics then one potential gain from a dictatorial system could be a more pragmatic Benthamite utilitarian approach to managing a society. The Chinese have an obvious successful modern model for this approach to government with Lee Kuan Yew who ruled Singapore for decades in an only superficially democratic system. But can an undemocratically chosen much larger mainland Chinese government possibly become as well run and uncorrupt as Singapore became under Lee Kuan Yew?

The question of how well run pre-democratic or non-democratic China will be in the future depends in large part on how leaders will be chosen in absence of mass vote. One possibility is something akin to early American and early British democracy where only land owners or title holders were allowed to vote. There is a mechanism for how this could be accomplished without public elections. China still has an official communist party. The party now attracts the new capitalists of China as members. One potential direction of development for China's political system would be to develop a leadership selection system where the wealthiest become party members and choose regional and national leaders. Anyone know whether China's capitalists are getting involved in selecting party leaders? Or do the capitalists limit themselves to just bribing whoever is in power?

I do not view the transition of China toward Western style liberal democracy as inevitable. My guess is that the Chinese are more interested in having a "good emperor" than in having a democracy. To some extent they may even have enough animosity toward Westerners for some of them to see democracy as not authentically Chinese. Still, maybe China will become a democracy some day. Maybe China will even become a liberal democracy with widely popular protections for free political speech. But in my mind this outcome is still in doubt.

Nor do I believe that democracy would necessarily make China into a benign nation in relation to the rest of the world. Intensely nationalistic feelings in China - especially among professionals and intellectuals - have been compared by some commentators to those of Wilhelmine Germany. The Chinese strike me as feeling aggrieved with a lot of resentment toward Japan, Europe, and the United States.

Okay, I hear some of you saying "But I just know that economic development will lead to democracy in China". Well, okay, maybe you are right. That still leaves one problem: timing. Germany eventually became a liberal market democracy. But unfortunately it industrialised and carried on a couple of really big wars before making the transition into "nothing to worry about here folks" category of countries. Japan went through a similar rough transition period. Will China?

By Randall Parker    2005 March 15 05:32 PM Entry Permalink | Comments (20)
2005 March 13 Sunday
China Threatens Taiwan And Lures Away Old US Allies

China is becoming more bold in its bid to capture Taiwan.

BEIJING Mar 8, 2005 — China unveiled a law Tuesday authorizing an attack if Taiwan moves toward formal independence, increasing pressure on the self-ruled island while warning other countries not to interfere. The United States said Beijing should reconsider.

Taiwan denounced the legislation as a "blank check to invade" and announced war games aimed at repelling an attack.

China is trying to undermine US alliances in East Asia.

China has warned Australia to be careful about the way it treats the ANZUS alliance with the US in dealing with the Sino-US conflict over Taiwan.

Beijing is reportedly demanding the Howard government review the 50-year-old military pact, saying the alliance could threaten regional stability if Australia is drawn into taking sides on the Taiwan issue.

South Korean President Roh Moo-hyun says South Korea will resist US efforts to use South Korea as a base from which to defend Taiwan.

"I clearly state that the U.S. Forces Korea should not be involved in disputes in Northeast Asia without our consent," Roh said in a speech at an Air Force Academy commencement ceremony.

It was the first formal response from the country's leader to a U.S. plan to use its troops in South Korea as a regional force, with missions to handle conflicts outside the peninsula.

Joshua Kurlantzick has written an important article in Prospect Magazine surveying changing attitudes in an increasingly powerful China and among East Asian countries toward China.

This growth has created a new confidence among ordinary Chinese; many believe that the government has been correct to focus on economic rather than political liberalisation. After Tiananmen there has been no anti-Mao campaign in China as there was an anti-Stalin campaign in Russia. This confidence convinces Chinese that their country should take a leading role in the world, even if it means challenging the US. The Asian affairs writer Daniel Snider reports that ordinary Chinese boast "about how Japan and South Korea now depend on selling their goods to China." Chinese strategists are advocating a "great power mentality" in foreign affairs.

In the past, state media, still the main source of information for most Chinese, rarely mentioned foreign policy. Today they constantly feature China's successes abroad, and harp on the problems of the US. Papers like the People's Daily run endless commentaries on America's "failing" foreign policies from unfriendly sources, such as Arab newspapers. Historians appear in the press to discuss China's imperial-era control of Vietnam, Korea and other parts of Asia. And as a 2002 report by the US congressional commission on China showed, official media often characterise the US as a "hegemon" or an "imperialist"—even comparing it to Nazi Germany.

The booming economy has lured overseas Chinese back to China, including former Tiananmen dissidents who have traded their pro-democracy stances for power and wealth. Several former dissidents have become hi-tech entrepreneurs and have backed a code of internet self-censorship.

Kurlantzick reports that while in public and in diplomatic channels China non-interference opposition to pressures from American in private they are talking about domination of Asia and creation of an empire.

Many members of the Chinese elite recognise that this advocacy of "multipolarity" and "non-interference," masks an aspiration to convert "comprehensive national power" into dominance, even military dominance of Asia. Beijing has not dropped its claims over the entire South China sea, and still refers to many parts of Asia as virtual Chinese possessions. In private, Chinese leaders admit that their goal is to build an empire in the region. And when it suits it China often acts unilaterally, as it has done by damming its part of the Mekong river despite protests that it has destroyed the livelihoods of thousands of Thais, Cambodians and Laotians who depend on its water.

Kurlantzick lists Burma, Laos, Thailand, and East Timor as countries which now assign greater importance to their relations with China than their relations with the United States. He notes that a number of other countries, notably South Korea, while not primarily oriented toward China are no longer reliable allies to the United States. The decline in American influence is well under way. But for cultural and historical reasons some countries may resist being captured in China's orbit. Vietnam, for example, sees China as an ancient and enduring enemy. The animosity between Japan and China makes Japanese subservience to China less likely. Filipinos and Indonesians resent their own Chinese economic elites and this may translate into greater resistance to China's overtures. However, Indonesian Muslim resentments toward America have reached such an intensity that China has an opening with Indonesia. The Australians are also likely to resist Chinese dominance. But all of these countries are going to develop far larger trade relationships with China than with the United States and money talks.

Kurlantzick sees the Bush Administration's single-minded focus on the war against terrorists as causing the priorities of Asians to be ignored and for Asian countries to feel ill treated by Washington DC. Kurlantzick advocates wiser policies by the Bush Administration to prevent so many East Asian countries from drifting into China's orbit. Certainly the Bush Administration has exacerbated the problem and accelerated the drift away from Washington. But the underlying cause of this trend is China's own continued economic development combined with the fact that some not-exactly-liberal governments (and not-exactly-liberal populations in many cases) in the region prefer to have their primary diplomatic relationship be with another unliberal regime.

Barring a revolution or war China looks on course to become the second largest economy and eventually the largest economy in the world. Authoritarian China will promote a different set of priorities around the world and serve as a very different role model than has democratic and liberal America. The continued rise of China is not a development that I'm looking forward to.

By Randall Parker    2005 March 13 06:01 PM Entry Permalink | Comments (25)
2005 March 11 Friday
China Iran Ties Undermining US Leverage On Iran

Kenneth Pollack thinks the US and Europe could stop Iran's nuclear program with the threat of economic sanctions combined with an offer of great trade ties if Iran would just give up ints nuclear weapons development efforts.

Although Iranian leaders agree on the strategic value of a strong nuclear program, they are divided over just how strong it should be. Conservative ideologues press for a nuclear breakout in defiance of international opinion, whereas conservative realists argue that restraint best serves Iran's interests. The ideologues, who view a conflict with the United States as inevitable, believe that the only way to ensure the survival of the Islamic Republic—and its ideals—is to equip it with an independent nuclear capability. Ali Akbar Nateq-Nuri, a conservative presidential candidate in 1997 and now an influential adviser to Khamenei, dismissed Tehran's recent negotiations with the Europeans, noting, "Fortunately, the opinion polls show that 75 to 80 percent of Iranians want to resist and [to] continue our program and reject humiliation." In the cosmology of such hard-liners, nuclear arms have not only strategic value, but also currency in domestic politics. Iranian conservatives see their defiance of the Great Satan as a means of mobilizing nationalistic opinion behind a revolution that has gradually lost popular legitimacy.

In contrast, the clerical realists warn that, with Iran under intense international scrutiny, any act of provocation by Tehran would lead other states to embrace Washington's punitive approach and further isolate the theocratic regime. In an interview in 2002, the pragmatic minister of defense, Ali Shamkhani, warned that the "existence of nuclear weapons will turn us into a threat to others that could be exploited in a dangerous way to harm our relations with the countries of the region." The economic dimension of nuclear diplomacy is also pushing the pragmatists toward restraint, as Iran's feeble economy can ill afford the imposition of multilateral sanctions. "If there [are] domestic and foreign conflicts, foreign capital will not flow into the country," Rafsanjani has warned. "In fact, such conflicts will lead to the flight of capital from this country."

While Pollack places great importance on the power of economic sanctions to bring Iran to shelve its nuclear weapons development program trends in trade are well along the way toward making that threat very hollow. The United States and the EU are going to become less important in world trade as China, India and other south and east Asian countries develop.

The Iranians are moving to reduce their reliance on customer countries that are allied with the United States. Iranian Oil Minister Bijan Namdar Zanganeh says Iran is going to replace Japan with China as Iran's biggest oil customer.

"Japan is our number one energy importer for historical reasons . . . but we would like to give preference to exports to China," Zanganeh was quoted as saying in China Business Weekly magazine.

China is protecting Iran from sanctions in the UN Security Council.

Earlier this month, Chinese Foreign Minister Li Zhaoxing, who has just crowned a year of negotiations between the two countries, paid a rare visit to Tehran. In a meeting with Iranian President Mohammad Khatami, Li said Beijing would oppose US efforts to refer Iran to the UN Security Council over its nuclear program.

China would probably be joined by Russia and perhaps even France in voting in the UN Security Council against trade sanctions on Iran.

China will increasing be able to supply Iran with any goods that the EU and America refuse to sell.

In turn, China has become a major exporter of manufactured goods to Iran, including computer systems, household appliances and cars. "They have industry and we have energy resources," said Ali Akbar Salehi, Iran's former representative to the International Atomic Energy Agency.

China's trade with Iran also is weakening the impact on Iranian policy of various U.S. economic embargoes, analysts here say. "Sanctions are not effective nowadays because we have many options in secondary markets, like China," said Hossein Shariatmadari, a leading conservative theorist and editor.

China's demand for energy is rising very rapidly.

In 2003, China raced past Japan to become the world's second biggest consumer of petroleum products after the US.

In 2004, its thirst grew by 15%, while its output only rose 2%.

China is helping Iran develop a stronger weapons manufacturing capability.

The US Central Intelligence Agency has submitted a report to US Congress stating that Chinese companies have "helped Iran move toward its goal of becoming self-sufficient in the production of ballistic missiles". In the ongoing controversy over Iran's uranium enrichment program, China has also opposed bringing the issue before the UN Security Council, and has even threatened to veto any resolution that is brought against Iran.

China and Iran are signing massive oil and natural gas development deals.

TEHRAN -- Speaking of business as unusual. A mere two months ago, the news of a China-Kazakhstan pipeline agreement, worth US$3.5 billion, raised some eyebrows in the world press, some hinting that China's economic foreign policy may be on the verge of a new leap forward. A clue to the fact that such anticipation may have totally understated the case was last week's signing of a mega-gas deal between Beijing and Tehran worth $100 billion. Billed as the "deal of the century" by various commentators, this agreement is likely to increase by another $50 to $100 billion, bringing the total close to $200 billion, when a similar oil agreement, currently being negotiated, is inked not too far from now.

US influence on the world has peaked. Rumoured plans for a US air strike against Iran's nuclear weapons development facilities are probably the only practical option available for delaying Iran's nuclear program. But even air strikes will not prevent Iran from eventually developing nuclear weapons. Also those air strikes will cost the United States diplomatically. My guess is that the Bush Administration will probably carry out those air strikes. Though I'm unsure on this point.

The Bush Administration is unlikely to strike hard at Iranian oil and natural gas production facilities because to do so would cause skyrocketing energy prices. The US economy would suffer along with the rest of the world and the United States would be widely (and correctly) seen as responsible for bringing on a world economic recession. My guess is that even Bush will shrink from making such a move.

By Randall Parker    2005 March 11 12:09 PM Entry Permalink | Comments (17)
2005 March 09 Wednesday
What Will China Do In The World?

Newsweek has an article about the increasing "soft power" influence of China as the Chinese economy continues to grow and its trade increases.

Beijing's diplomats are tireless salesmen. While America's emissaries rail against tyranny and terror—and vow to spread democracy throughout the world—China's envoys aren't pushing any kind of ideology. And they're not squeamish about human rights; they've cut deals with Burma, Cuba, Sudan, just about anybody. The only thing Beijing asks for is new opportunities for Chinese entrepreneurs to trade and invest—and a promise that its foreign friends will support China's claims on the island of Taiwan. The Beijing official says: "We don't preach like the U.S. does."

Note the non-judgemental utilitarian approach that the Chinese take toward foreign policy. An increasing number of countries are going to see in China an alternative to dealing with a preachy and pushy Washington DC power structure. US influence is set to decline dramatically in the coming decades.

With the growth of Chinese power and influence in mind I am trying to come up with a list of questions about China's likely longer term ambitions. One underlying assumption to these questions is that China's economy will continue to grow more rapidly than the US economy for the next few decades and its energy and other raw materials imports will grow along with its economy.

  • Will China be able to bring Taiwan under control from Beijing?
  • Will China's territorial ambitions extend beyond Taiwan? If so, where?
  • Will Chinese commercial domination of some Asian economies become so great that it will use that domination to force those countries to adopt trade rules with the United States and Europe that are less favorable?
  • Will Chinese troops be used to prop up select regimes that have lots of oil? Sudan comes to mind.
  • Will China encourage more Middle Eastern regimes to develop nuclear weapons capabilities as a way for China to decrease US influence in the Middle East?
  • Will China's government eventually extend as much protection to foreign intellectual property rights as the US and European governments do? Or will Chinese theft of foreign intellectual property become a permanent feature of their legal regime?
  • Will China eventually manage to intimidate Japan into a more submissive position or will Japan become defined by its determination to remain independent of China? Currently Japan appears to be moving in a direction of greater defensiveness and resentment of China even as Japanese business embraces investment in China wholeheartedly.
  • Will large numbers of Chinese men work in the near abroad managing factories in Southeast Asian countries and use their presence to become political powers in those countries?
  • Will elites with tight business connections to China stage coups with Chinese government support to overthrow democratically elected governments that are seen as harmful to Chinese business interests or Chinese national security interests?

I do not have answers to these questions. I also suspect I'm leaving out some important questions about China's role in the world in the future. What do you all think? What do you see China doing in the world in the future?

By Randall Parker    2005 March 09 10:46 AM Entry Permalink | Comments (41)
2004 December 28 Tuesday
Will China Develop Rule Of Law And Press Freedoms?

Philip P. Pan of the Washington Post has written a very interesting article on a court case over a lawsuit brought by Fuyang China party secretary against two authors of a book that makes corruption and abuse of power charges against the party secretary and other party officials.

More than a quarter-century after launching economic reforms while continuing to restrict political freedom, the Chinese Communist Party remains in firm control of the courts. Most judges are party members, appointed by party leaders and required to carry out party orders. But the government's claims of support for legal reform and human rights, and an influx of information about Western legal concepts, have fueled public demands for a more independent judiciary.

China's citizens are asserting their rights and going to court in record numbers. About 4.4 million civil cases were filed in the last year, more than double the total a decade ago. Behind this surge in legal activity is a belief that everyone, even party officials, can be held accountable under the law, a belief promoted by a new generation of lawyers, judges and legal scholars trained after the death of Communist Party Chairman Mao Zedong.

The party appears torn by this rising legal consciousness. It recognizes the value of an impartial judicial system to resolve disputes in a country with growing social tensions and an emerging capitalist economy, and it sees the potential of citizen lawsuits to curb corruption and improve governance. But it is also afraid that rule of law and independent courts might threaten its monopoly on power.

This report addresses what is perhaps the most important issue for determining how far China's industrialization can go: will China have independent courts that protect the rights of individual Chinese citizens from the tyranny of all levels of officialdom? Will China get rule of law or will it continue to have rule of bureaucrats? It is an enormously important question for China and for the world as a whole.

This article provides an account of a court case brought by a local party secretary Zhang Xide against the authors of a book which documented the corruption of Chinese officials. A sharp attorney defending the writers used the need to prove the accuracy of the book to turn the court case effectively into a trial of Zhang Xide. The judges that presided over this case refuse to announce a decision because they do not want to anger their superiors by ruling against the party secretary and yet they also do not want to anger the peasants.

Pu ended with a subtle plea to the judges to defy their party superiors.

"Obviously, there is room for you to be creative," he said. "If you are appropriately creative, your efforts and morals will lead society toward the further development of civilization and democracy. Your names will go down in history. . . . Your judgment will show whether the judiciary in China can shoulder its responsibility to promote the development of society."

But the lawyers said the judges have told them they cannot decide the case, which suggests that higher-level party officials are involved. The party's deliberations have been complicated because accounts of the trial have been published on the Internet and in Hong Kong. In a sign of the party's indecision, several officials have contacted the authors and their attorneys and urged them to settle the case.

So far, the authors have refused. "Settling isn't an option," Chen said recently. "We've come this far. We want a verdict."

One question is what will happen about issues relating to freedom of the press. My guess is that the Chinese government is not going to allow total unrestricted criticism of the government. However it is conceivable that the higher levels of the Chinese government might decide to instruct judges to allow local officials to be criticised while still telling them to protect higher level officials against writings by reporters and book authors.

Another question is about rule of law for doing business. Will the Chinese government instruct the courts to protect businesses against the predations of government officials? Will contract enforcement be fairly uniform regardless of whether some business has sons of important officials in management? Just how far China can develop economically depends in large part on whether contracts are enforceable and whether businesses can operate free of extortion by corrupt officials.

By Randall Parker    2004 December 28 02:59 AM Entry Permalink | Comments (7)
2004 July 11 Sunday
China Becoming Much Larger Portion Of World Economy

Writing for The National Interest David Hale examines the sheer scale of China's economic growth.

China has developed a voracious appetite for raw materials. Its commodity imports cost $140 billion last year, and its trade deficit on them was $100 billion. China's imports of iron ore have increased from 14 million tons in 1990 to 148 million in 2003. China's imports of aluminum have shot up from 1 million tons to 5.6 million tons. Imports of refined copper have risen from 20,000 tons in 1990 to over 1.2 million tons last year. Imports of platinum have leaped from 20,000 ounces in 1993 to 1.6 million last year. Imports of nickel have risen from zero to 61,500 tons during 2003. The impact of China's raw material demand on global trade has been so dramatic that shipping rates have quadrupled during the past 18 months.

There are now some commodities in which China is a larger consumer than the United States. In late 2003 China accounted for 20.6 percent of global copper demand compared to 16 percent for the United States. In 2005 China will probably account for 21 percent of global aluminum demand compared to 20 percent for the United States. China also accounts for 35 percent of global coal production, 20 percent of zinc output, 20 percent of magnesium output and 16 percent of phosphate output. This is all the more remarkable given that China's real GDP is probably half of America's. And since the real incomes of China's people are only now rising to levels that generate large demands for material goods such as autos, appliances and houses, its consumption of raw materials is poised for explosive growth.

China now makes more steel than the United States and Japan combined. If China fllows a path of development that repeats the experience of Japan then China will eventually consume more steel per capita than the United States. With its much larger population China could eventually consume 5 times more steel than the US does per year. Whether the political system of China can maintain stablity and develop a legal framework that can support an economy of such complexity remains to be seen. But my guess is that China will surpass the United States as the world's largest economy in the first half of the 21st century.

At the moment the Chinese government is applying the regulatory and monetary brakes to cool off an overheating economy.

The torrid Chinese demand for raw material last fall and winter has largely evaporated, as credit-starved companies drew down their supplies and stopped placing new orders. Prices slumped in commodities markets as a result. As the lines of ships waiting to unload cargo at Chinese ports dwindled, ocean bulk freight rates tumbled as well, falling by more than half on some routes after shooting up seven or eightfold last year and early this year.

...

"Our orders came down 75 percent," said Harry Banga, vice chairman of the Noble Group, a big Hong Kong-based commodities and shipping business. "Not only ours, but everybody else's.

An industrializing economy can through depressions and still recover and regain a high level momentum. The United States had a number of severe economic downturns while it was developing most rapidly. But after each downturn rapid growth eventually resumed. China may be in for a bumpy ride. But unless it descends into civil war I expect it to eventually become the largest economy in the world. There is nothing inevitable that is going to keep the United States as undisputed most powerful country.

By Randall Parker    2004 July 11 09:09 PM Entry Permalink | Comments (15)
2003 November 20 Thursday
China Threatens War Against Taiwan For Splittist Tendencies

Wang Zaixi, vice-minister of Beijing's Taiwan Affairs Office of the State Council, threatens war if Taiwan declares independence.

"If the Taiwan authorities collude with all splittist forces to openly engage in pro-independence activities and challenge the mainland and the one-China principle, the use of force may become unavoidable," Wang said.

The use of the term "war" is quite explicit:

The vice-president of Beijing's Taiwan Affairs Office, Wang Zaixi said "Taiwan's President Chen Shui-Bien's recent pro-separatist activities had crossed Beijing's 'red line' and run the risk of triggering a war with the mainland."

With the mainland growing economically the Chinese government in Beijing is growing in strength. There is a definite window here that is going to close on the Taiwanese. If they do not formally declare independence soon it may become increasingly more difficult to do so in the future.

Beijing mouthpiece China Daily editorializes that the US is goading Taiwanese President Chen to continue his drive toward declared independence.

Chen and his ilk would have never had the temerity to go farther and farther against the will of the Chinese people, including Taiwan compatriots, without support from foreign pro-Taiwan forces, especially those in the United States.

The Taiwan issue would have never become a question without US intervention.

On the one hand, the United States makes its commitment to adhere to the one-China policy and not to support Taiwan independence, but on the other hand, it gives Taiwan oral and material support, thus laying down a serious obstacle to mainland-island reunification.

Note that the Taiwan government has de facto independence and has had it for a long time. China is trying to prevent the Taiwanese from gaining international recognition as an independent country that can not be attacked by the mainland Chinese without a violation of international law.

The coming election in Taiwan and the threat of a referendum for independence in Taiwan are providing the impetus for the Beijing leaders to strike such a threatening posture.

The threat comes as campaigning heats up for Taiwan's March election. President Chen Shui-bian's re-election bid has gained traction in recent weeks with plans for a new constitution and a law that would allow citizens to call for referendums, which could lead to a direct vote on independence. This has angered Beijing, which still considers Taiwan part of China.

Shih Chihyu thinks that China is trying to get the US to use its influence to stop the Taiwanese drive for a formal declaration of independence.

"There is almost no one in Taiwan to stop Chen Shui-bian. And who's going to stop Taiwan independence then? It has to be the United States."

-- Shih Chihyu, professor at National Taiwan University

Keep in mind that these Beijing leaders who want the US to rein in Taiwan are the very same people who enable the continued development of nuclear weapons and the export of missiles and nuclear technology by North Korea. The Beijing leaders supply food and oil crucial for the Pyongyang regime's continued existince and they may also be secretly happy that the North Koreans are pursuing policies that are widening the split between Seoul and Washington DC. My advice to George W. Bush: Stand by and let the Taiwanese hold a referendum to declare independence. We should be for democracy and against totalitarianism.

The Beijing mouthpiece China Daily is unhappy with the degree of access Taiwanese officials have to the US.

Beijing's official China Daily accused the U.S. government of "breaking its decades-old practice of limiting a Taiwan leader's activities in the United States to an unofficial level," by allowing him unhindered access to the media and freedom to travel while in New York.

It also noted that, in Panama, Chen and Secretary of State Colin Powell had "exchanged pleasantries."

The China Daily is reporting all sorts of quotes of official upset.

"Chen's perverse acts have not only aroused the indignation of all Chinese people, but also prompted us to prepare well to crush the conspiracy of Taiwan separatists," said Li Weiyi, a spokesman for the Taiwan Affairs Office of the State Council.

The Bush Administration says they can handle the situation and maintain the peace.

A top George W. Bush administration official, reacting to an apparent rise in cross-strait tensions, has said that the US is more than capable militarily to keep the peace in the Taiwan Strait if needed.

"We have full faith that the question of Taiwan will be resolved peacefully, and it is on this premise that we base our policy regarding Taiwan and the People's Republic of China," Deputy Secretary of State Richard Armitage said in Washington on Tuesday.

But if Taiwanese President Chen Shui-bian wins reelection, amends the constitution to allow direct referenda, and then holds a referendum on independence that wins a majority of the vote what will the Bush Administration do at each of these steps along the way? Will it tell the Taiwanese not to proceed if they want continued US protection? What is the point of US protection if the Taiwanese are only being protected until the Chinese mainlanders can eventually become strong enough militarily to capture the island at some future date when the United States is relatively weaker than China? If you don't think that is going to happen my response is: demography is destiny. How can the US stay economically and militarily stronger than a country that has about 4 and a half times more people, has been industrializing rapidly for a couple of decades running, and that has a populace that is on average at least as bright as Americans?

The Taiwanese say that since they have a democracy they should be allowed to be independent.

"Taiwan is a democratic country. Only its 23 million people have the right to decide its future and what is best for them," a spokesman for Taiwan's cabinet, Lin Chia-lung, said in the statement.

"We can't tolerate interference with our internal affairs by any undemocratic countries," Reuters reports Lin saying.

Taiwanese President Chen refuses to embrace the "One China" policy.

Since taking power on May 20, 2000, the Taiwan leader has refused to embrace the one-China principle that states there is only one China consisting of both the mainland and Taiwan.

China Daily reports the British are sticking with the "One China" policy.

British Defense Secretary Geoff Hoon said Thursday that Britain would make further efforts to strengthen cooperation with China, stressing that his country would stick to the "One China" policy

Canada, like Britain and the United States, does not recognize Taiwan and mostly for economic reasons.

Canada's position in this dispute is pure realpolitik. Canada ought, in theory, to be supportive of Taiwan. Taiwan is democratic; China is not. Taiwan respects human rights; China does not in all instances. According to Transparency International, Taiwan's corruption ranking is much better than China's. In per capita terms, Canada does more trade with Taiwan than China. But the Chrétien government swoons over that huge Chinese market. Mr. Chrétien has made six trips to China as Prime Minister. On Dec. 11, the day before he hands over power to Paul Martin, Mr. Chrétien will welcome China's Premier in Ottawa.

When (as seems likely) the Taiwanese declare indepdendence the United States, Britain, and Canada are going to have to decide whether they put morality or money first. I'm betting on the desire for Chinese mainland trade to prevent an official recognition of Taiwan by any Western government. But it is likely that the US will, for the foreseeable future, be willing to defend Taiwan against a Chinese mainland attack. So the Taiwanese can probably get away with a formal declaration of independence. But as the US becomes economically and militarily weaker relative to China in the coming decades the Taiwanese are going to have to develop a nuclear weapons arsenal if they are going to succeed in maintaining their independence.

Update: Chen has been anathema to Beijing since the 2000 Taiwanese elections.

In 2000, when Mr. Chen was elected leader of Taiwan on an independence platform, in the first real democratic elections on the island - Beijing's reaction was virulent. Not until a year ago was Chen's name allowed to be published in Chinese state media.

By Randall Parker    2003 November 20 02:27 PM Entry Permalink | Comments (18)
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