Silk Road International Blog

As the Chinese government slowly, ever so slowly, allows the RMB to strengthen against the US Dollar, US politicians cheer from the sidelines—patting themselves on the back for being able to influence the Chinese monolith. Yea, right.

US politicians have about as much influence in China policy decisions as the does the Dali Lama—that would be zero to none, in case you didn’t know. If anything, their ignorant grandstanding and annual calls for China’s head on a platter over human rights and artificially high currency valuations probably push the proud Chinese bureaucracy the other direction.

But in the fight over a more accurately valued RMB the US politicians have an unlikely ally. Chinese financial analysts agree too that this is the best move for the Chinese economy in the long run. The problem for US law makers, who think in 2, 4 and 6 year cycles is that the Chinese think in terms of 5 year plans (at the shortest) and dynasty and legacy building on the long end. This means that there will be continued movement in the RMB, but at a paltry 3% a year. At most.

But since must of us live in the short run, this change is immediately felt on the bottom line. For Chinese manufacturers everything they export is now 3% more expensive each year. This increase is a threat to their competitiveness at a time when India and Vietnam are competing for more and more of the labor intensive Chinese market.

Logically then, for you, the mid to small US manufacturer or distributor, this means that everything you buy from China is going to be at least 3% more expensive each and every year—even if all other variables are held constant. And, unfortunately those other variables are not stagnant. Interest rates in China are being pushed up by a desire to limit credit and cool off growth (11% this year). That means that available cash for factories financing projects is increasingly limited. In addition to money, resource materials such as oil, copper, steel and labor prices are all on the rise (some due to market forces, some not).

While these increases in cost are real, China is in no way pricing it self out of the world market for labor intensive production. Rather manufacturing is moving inland—out of the cities and into the undeveloped Chinese countryside. China still has an infrastructure that better than Vietnam’s or India’s and a government that is committed to continued, but stabilized, growth of the Chinese economy—with or without the support of US politicians.

Tags: Business by david
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Right on que, China provides the world with the answer to the question “why is China still haunted by the China Threat?”

China’s Ambassador to the US said to the BBC:

“The moment Taiwan declares independence, supported by whoever, China will have no choice,” he said. “We will do the business through whatever means available to the government. Nobody should have any illusions on that. We will do the business at any cost.”

He added: “It’s not a matter of how big Taiwan is, but for China, one inch of the territory is more valuable than the life of our people. We will never concede on that.”

For full text, click here.

Defending territory is understandble and even worth of support. But the final line is the kicker–people don’t matter to the Chinese governement.

That’s the threat.

Tags: Politics by david
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In a recent article posted in the China Daily, the Chinese editor asks: Why is China always haunted by the “China Threat?” Of course, his answer is that any fears about China are illogical, based on ancient stereo types and/or put out by China’s “enemies” or those who are afraid of sharing power with China. In support of his answers he lists off billions of dollars worth of statistics, FDI, GNP, import/export quantities and then rehashes the old line of China as “peaceful neighbor,” and pathetic historical whipping boy.

If the problem is that the question of the China threat is still being asked, why does he, or the rest of the Chinese government/education/propaganda machine think that the same old ineffective (by their own admission) answers will solve the problem?

I don’t know why others consider China a threat—see my previous posts. But I do know why the “official” answers are not effective. The response to the “China Threat” question provides some insight to the reasons for the continuation of the “threat.” So I thought I’d tackle the official point of view ever so briefly.

1. If China really wants to fight “foreign propaganda” that projects China as a threat, the China Daily is probably the single worst possible news outlet to use. If there truly is legitimacy to the arguments put forth by the Chinese government there needs to be an editorial (at least) in a major foreign newspaper. Better yet, an academic study in a periodical or respected journal related to Asian politics. The China Daily reaches only news-starved foreigners in China, and Chinese studying English. CCTV is an equally illegitimate source.
2. General answers and random economic statistics in response to a general unreferenced question are not close to scientific and certainly not convincing. The world (the UN, the World Bank, independent foundations, research institutions and scholars) are all pointing to specific documented problems such as: the instability of the Chinese government, the insolvency of the Chinese banking system, the increasing lack of government control over crime, graft, and poverty, the inability or unwillingness of China to be a responsible neighbor (N.Korea, Pakistan, South China Sea Islands), lack of health care, uneven development, rise of (hidden) military expenditures, lack of governmental and corporate transparency, etc. etc. China apologists continually quoting the same FDI statistics doesn’t resolve any of these concerns. In fact it just perpetuates the image of China as an out-of-touch bureaucracy that is increasingly intransient and bellicose with nothing new to say.
3. The fact that Chinese apologists (e.g. the People’s Daily) are still asking this question at all says a number of things about the perceptions of the apologists themselves. First, insecurity is a dominant feature in the Chinese mentality—my personally experience is that there are no other people in Asia that are as concerned about what the world thinks of them as are the Chinese. I have often said that the Chinese have a national insecurity complex. Common expressions of this insecurity are: “But we have a 5000 year long history!” “We have 3.5 billion people but can’t find 12 decent football players.” “We will always hate the Japanese.” “America is only 250 years old, how come it is so powerful?” Second, a fear of attack from others (Japan, the US, Vietnam, the world political bodies, etc.) is a constant in the minds of the “historically” oppressed Chinese. Whether from a history of invasion or the government’s constant barrage of misinformation of both, Chinese apologists seem to be in perpetual fear of an imminent attack from abroad. The reality is that instability at home is a much bigger threat.
4. A threat by any other name… While China is not a threat to the US, the US certainly is in danger of losing it’s position as the world’s only super power, economically at least, with the rise of China. But, like I’ve said before, China isn’t a threat as much as are a lack of quality education and major consumer debt in the US. Maybe the US is also using the specter of a powerful China to deflect domestic criticism. Hmmm….

I think that this is the answer—the China threat lives on mostly in the minds of Chinese who see themselves as victims of the global system in general and of American (previously British) capitalism in specific. They deflect criticism of current domestic situations by harping on the “threat” and persecution from the outside. The world both salivates over China’s markets and shudders in fear of its lack of transparency, standards and ethics in business.

China’s own lack of domestic stability and paranoid bureaucracy is the only “China threat.” And this threat is only a threat to China itself.

Tags: Politics by david
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Sometimes it’s just amazing what can be accomplished in China. The fact that I live in the middle of the worlds largest industrial zone (Guangdong Province) means that within 3 hours, in any direction, I can be at a factory for just about any given product sold the world over—really just about anything and everything is exported from the Pearl River Delta. Taken collectively, Shenzhen, Guangzhou and Hong Kong, is the busiest export area in China—yes, more so than the overly promoted Shanghai, Ningbo, Zhijiang area.

So on Monday I visited 5 different factories—it took 16 hours. But I was able to confirm a mold at one factory, approve some died colors at a second factory, do print checks on 2 SKU’s of product packaging at a third, confirm assembly of a DIY kit at a fourth, and pick up production samples and do Outgoing QC at the last one.

I didn’t schedule the day like that. Some factories canceled previously scheduled Sunday visits and others were ready earlier than the scheduled Tuesday visit. But just the fact that all these factory options are available and in such close proximity is absolutely amazing. I saw production that was to be shipped to the EU, the US and Australia. Goods going to Wal-Mart, Target, Michael’s and others.

I can go from the highest of High Tech industrial parks to almost substance farming in literally a 30 minute drive. Sometimes I think that I’m in the Wild West with no laws but money. Sometimes I feel like I’m living on Gilligan’s Island and need the professor to peddle faster to make the intent work. Sometimes it’s Star Trek as I look down from the 11th story of a 40+story building in the financial district at the Ferraris, Bentley’s and Lamborghinis below. It’s never boring and it’s always changing.

For example: A new elementary school was built and will be in use in less than 90 days. Three shipping export/import visas were applied for and delivered in less than 36 hours—they typically take 5 business days. The US Olympic Basketball team is just up the road (yea, I think that’s a big deal for China) for two days. Wal-Mart is China 5th largest trading partner/country. More than 200,000 people a year move into Shenzhen. Shenzhen has the highest per capita income in China—about $12,000 a year—while more than half of China makes less than $300 a year.

Today I’m off to two more factories and the US vs. Brazil basketball game.

Tags: Business, Culture by david
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More news has come out on the freezing of North Korean assets in Macao. Last week I wrote and said that the freezing of assets was just a political maneuver and didn’t really mean anything. Guess what? I was right. The freezing of assets took place months ago to help the Bank of China’s IPO and the release of the news this last week was timed to quell the rising tide of criticism against China for their position on NK. Here’s a link.

And another step back

The Ministry of Information Industry has confirmed that “a clamp-down on foreign internet companies was imminent and some foreign internet companies could be stripped of their operating licenses.” This is coming as the internet is starting to boom in China and both the flow of information and money are enticing the Chinese central government to get involved. China has the second biggest internet market in the world, behind the US.

It is not surprising that both of these issues about government control have more to do with money than concrete solutions to problems. While information is power and no one knows face like the Chinese, the bottom line is that the government, to stay legitimate must be at least financially viable. With more than 87,000 illegal protests in China last year alone and government corruption at new highs the government needs to be at least financially viable to maintain legitimacy and control. And since the government is directly responsible for 38% of GDP and employees about 1/3 of the urban work force government financial viability directly affects hundreds of millions of people!

Tags: Business, Culture by david
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