Cold War 2.0

I meet with one of the speech writers for Secretary of Defense Rumsfeld on Saturday.  We had a nice lunch and good discussion about China.One of the things that we both shared in common was the idea that China, at least militarily, is not really a threat.  Yet.  He had a couple of specific insights into this reasoning that I’d not heard before.First, The Pentagon had received reports about the new China stealth fighter from the Russians that it was a deconstruct of a number of things, but mostly old (1980’s) US stealth tech and Russian jet engine technology and a number of other planes all cobbled together.  Sure, they have a new stealth fighter, but it’s already twenty years out of date, it uses Russian jet engines and it’s not even theirs (all reversed or stolen or purchased tech).Second, a lot of people are scared of China’s new “naval power.”  But many people in DC think, if they want to build an aircraft carrier, let ‘em!  It costs 2-4 billion dollars to build one and then tens of billions more to build the flotilla that it takes to cover it when out at sea.  And those are just the start up costs.  For one boat!  Then they have to staff it, maintain it and build planes for it.  Not only that, but they are borrowing old tech for this too.Third, they still can’t project power past the ring of islands to their east (Japan--Taiwan--Philippines--Indonesia), the mountains to the southwest or the deserts to the northeast.  And who is going to invite a Chinese aircraft carrier and the accompanying destroyer fleet into port for a visit outside of a few African nations?Fourth, for some reason they still can’t build their own jet engines.  The US learned this when a deal with Russia to buy some new engines went south prior to China unveiling their new stealth fighter.But there were two thing that he said that the US and others still needed to be vary wary about.First, Chinese nationalism is like the most virulent nationalism you’ve ever personally experienced, on steroids.  Very few other countries on the planet are infecting their people with such a rabid degree of nationalism as is China.  I’ve seen the text books myself and they teach children that nothing (no one) is more important than the Chinese nation.  This is a power that sometimes leaks out in small doses (tightly controlled pressure releases), for example when the Japanese embassy is attacked or the US embassy is stoned by protesters or when you hear Chinese commenting that all minorities should be either kicked out or locked up (or worse).  It’s expressed by the government in statements like “the Chinese have been oppressed” or other countries want to “keep China down.”  The govt actively supports and promotes this for it’s own purposes.  Labels like “banana” (Yellow/Chinese on the outside, white/Western on the inside) and “friend of China” are more benign examples.  But sometimes the govt can’t control how far the people go with their nationalism.  Ethnic clashes, for example.  The anger and shame spewed at Liu the hurdler when he pulled up lame in the Olympics, is another example.  Or things like “get the F out of here” yelled at me and other foreigners in China.  If you’ve never actually personally lived through a “anti foreigner” moment, then this sounds just like the political trash that's broadcast everyday on US TV.  But I can attest that I’ve never feared for my life, never had any one of my family threatened or been publicly hated because of my nationality in any other country (and I’ve lived in 5 other countries besides China).  But I have felt this in China.1 billion angry Chinese people is very scary.  Think about the power of an entire nation that has never been taught any other value other than the superiority of the Chinese State.Second, while the cold war may have ended in 1989,  2.0 is here now. Now it's the theft of info and the threat of non-military war.  IP theft is not just something that happens in rogue factories, it’s an active policy initiative for both the government gaining new tech and a way for industry, e.g. China, to catch up with the Western powers that have oppressed them for so long.  Sure, courts are getting better at legislating against Chinese companies--they have to to continue to be a safe haven for FDI--but there is very little enforcement of these court decisions.  So, yes, you can sign a contract, take a violator to court and win, but then chances are you’ll get nothing out of it.  Few if any companies that are not forced to do so under penalty of death (e.g. Foxxcon) are taking IP seriously.  Theft is considered patriotic.The most recent government example that my friend shared with me was the last trip that Rumsfeld took to China in Jan.  Since Rumsfeld is in the Chain of Command for the US he is required to have both instant “hotline” access to the Whitehouse and the Pentagon and also he travels with basically a “cone of silence” so that he can communicate 100% securely wherever he is.  And of course he has scores of support and media people that travel with him.  Well, when the entourage arrived in Beijing they were denied the ability to unload ANY of their secure communication equipment.  Not only that, but ALL work or personal phones, cameras and recording devices for ALL the support personal had to be handed over to the Chinese military and all people were issued “new” blackberries to use while they were in China.  The US govt, when it goes to China, just assumes that EVERYTHING that is said and EVERYWHERE ANYONE goes is monitored.Of course this isn’t new.  I was told that this was true about my activities in Chongqing 15 years ago while I was teaching at a university--one student in each class was assigned to spend time with us and monitor our conversations and activities.  Our apartment was bugged and our travel was controlled.  This what I know for a fact--they told us this while we were there.  My then brother-in-law who studied Chinese for the DoD confirmed this and much more about the surveillance of foreigners in China.Now I was just a teacher at a lower level university.  If you have a product that is valuable/unique or if you have a significant amount of money to invest, if you teach, if you have a popular blog or are famous in the least, you can bet that you’re being monitored in China--to what degree, I have no idea, but you can be assured that it will happen.  But I know that my small company has had our blog shut down, we have had people follow us (after we were published in the NYT for opposing the SZ City govt over the subway), and I’ve been stopped and asked for ID when driving my car out of the city.  This is all in addition to the “normal” controls on $ exchange per passport, entry control, house registration, internet censorship and TV news black outs.The point isn’t to scare anyone away from doing business in China.  Rather I believe that if you know what’s going on around you you have a better chance of being successful no matter what you’re doing.  In China you need to know that even though “they are not really communist any more” they were all educated in a very nationalist, very distrusting society.  They were taught to both be polite and to hide their true agendas.  They were taught that foreigners are evil, liars, cheaters and just want to take advantage of China and keep it down.  You’re not trusted and often you’re not liked or even welcome (yes, even if they take you out to dinner).  The bad western economy and banking collapse has just exacerbated these feelings.  The playing field is not level.  Subsidies are being made to just about every factory to export as much as possible, and those subsidies are worth more than your IP agreement.  There is no incentive to tell you the truth--and they’ve told me this directly too (most recently in public at the recent Global Sourcing conference), so do don’t expect to be treated honestly.Don’t get me wrong, I’m not bashing individual Chinese people, I’m just saying the system is not “fair.”  Your “potential” business means nothing to your supplier (and that’s a generous assessment).  Over the past 8 years, far too many westerners have come to me saying they can’t believe that the factory was so nice, and their English was so good, and they signed all the contracts but they still got knocked off!  Deal with it.  You’re not going to change it.  Expect this and move faster or get totally taken advantage of.My biggest fear of China is not the military, but that as they expand their economic power the world will more and more do business in the “Chinese way.”  That’s the China threat that I’m most worried about.