Newly powerful China defies Western nations

[Sheilbh]

I see the attitude more like a mix of the Americans of the first half of the last century - with and unwavering belief in their own destiny and rightness - combined with the revanchist impulses of Eastern Europeans or Weimar Germans.

I imagine you'd know far more than me but I'd say it seems more like Wilhelmine Germany.

[Agelastus]

I see the attitude more like a mix of the Americans of the first half of the last century - with and unwavering belief in their own destiny and rightness - combined with the revanchist impulses of Eastern Europeans or Weimar Germans.

I imagine you'd know far more than me but I'd say it seems more like Wilhelmine Germany.

A good analogy, in many ways. They're diplomatic stance on the world stage does put one a bit in mind of Wilhelmine Germany's desire for a "place in the sun". I wouldn't take it too far though. I actually think the Chinese are much more subtle and competent at diplomacy than Wilhelmine Germany ever was.

[jimmy olsen]

Lovely time for a trade war isn't it? 

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/21/AR2010032100380.html

China vows to hit back if targeted by U.S. on yuan
   
By Langi Chiang and Ken Wills
Reuters
Sunday, March 21, 2010; 6:43 AM

BEIJING (Reuters) - Beijing will retaliate if the United States declares China a currency manipulator and imposes trade sanctions, Commerce Minister Chen Deming said on Sunday, firing the latest salvo in a spat over the value of the yuan.

Chen again accused Washington of politicizing the issue ahead of an April 15 deadline for the U.S. Treasury to rule whether China is unfairly holding down its exchange rate to gain a competitive edge in global markets.

"The currency is a sovereign issue and should not be an issue to be discussed between two countries," Chen told the China Development Forum.

"We think the renminbi is not undervalued, but if the U.S. Treasury gave an untrue reply for its own needs, we will wait and see. If such a reply is followed by trade sanctions, I think we will not do nothing. We will also respond if this means litigation under the global legal framework," he added.
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Chen did not specify how Beijing might respond.

Political pressure is growing in Washington to declare China a currency manipulator, with some U.S. senators threatening to slap duties on Chinese products if Beijing does not allow the yuan, also known as the renminbi, to rise.

The head of the Asian Development Bank (ADB) on Sunday joined the chorus of calls for Beijing to abandon the peg of 6.83 yuan to the dollar imposed in mid-2008 to help China's exporters weather the global financial crisis.

In the three years before that, Beijing had let the yuan climb 21 percent against the dollar.

"Greater flexibility in the exchange rate of the yuan would be in the interests of the Chinese economy. Rebalancing is a big challenge and exchange-rate flexibility could contribute to making that process smoother over the years to come," ADB President Haruhiko Kuroda told Reuters.

While it was wrong to rely exclusively on the exchange rate to tilt the economy away from exports and toward consumption, a freer-floating yuan would also strengthen Beijing's control over monetary policy, Kuroda said on the sidelines of the forum.

"When and how should be decided by the Chinese authorities," he said of the switch back to a more flexible currency regime.

The International Monetary Fund and the World Bank both urged China last week to let the yuan resume its ascent.

Some U.S. legislators and think-tanks say the Chinese currency is undervalued by as much as 40 percent, causing imbalances in bilateral and global trade flows.

TRADE SURPLUS 'OVERESTIMATED'

But Chen accused Washington of overestimating the size of China's trade surplus with the United States, putting more pressure on the relationship between the world's biggest and third-biggest economies.

The defiant comments stood in contrast to a ministry statement on Friday that was widely interpreted as an attempt to bridge differences.

The ministry said then that it would send a vice minister to Washington this week to try to ease trade frictions, although it specifically noted that China's currency policy was off-limits.

Speaking on Sunday, Chen said any adjustment to the yuan's value would not by itself resolve global trade imbalances.

China's trade surplus increased while the yuan was gradually appreciating from 2005 to 2008, yet the surplus fell 34 percent last year even though the yuan marked time against the dollar. Chinese trade could even lurch into the red this month.
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"A country's currency appreciation is very limited in helping to rebalance global trade," he said. "I personally expect that China could possibly have a trade deficit in March."

Chen called on all countries to oppose any form of trade protectionism, a theme that echoed an earlier speech by Vice Premier Li Keqiang. Neither official mentioned specific countries.

Vice Minister of Finance Wang Jun, also speaking at the forum, said it was not time yet to talk about exiting the economic stimulus program but added "we should actively study the exit strategy together" with other countries.

(Additional reporting by Alan Wheatley; Editing by Jeremy Laurence and Hans Peters)

[The Minsky Moment]

My understanding is that the Chinese government's internally tightening the vice a bit on Western companies.  For example in Shenzhen or Guangzhou (I forget which) which is apparently used as a test ground for Chinese law they want to make unionisation compulsory in all foreign enterprises with more than 10 employees and they've recently made collective bargaining a requirement in the already unionised joint foreign-Chinese ventures.  If nothing else that will add at least 2% to a companies' labour costs but is also a way for the Chinese government to become far more involved if they so choose.

There's that, there is the rampant theft of IP, then there is the Google affair, and my favorite - the arrest of four Rio Tino execs for the "crime" of reviewing public media reports about Chinese steel companies (which under an Orwellian application of Chinese law, is apparently a form of commercial espionage).

[Camerus]

http://www.ft.com/cms/s/0/3f71bf2c-35f2-11df-aa43-00144feabdc0.html

Rio Tinto courts China as bribery trial begins

By William MacNamara and Patti Waldmeir

Published: March 22 2010 22:48 | Last updated: March 22 2010 22:48

In the nine months since the "Rio Four" were arrested in Shanghai on charges of taking bribes and stealing commercial secrets, speculation has ranged widely on the Chinese government's motivations in the case.

Of many complex political explanations, the favourite was the allegation that the arrests were payback for Rio Tinto's treatment of the Chinese steel industry in 2009, when the mining company resisted steelmakers' demands for a 45 per cent cut in benchmark iron ore prices.

The arrests also came soon after Rio abandoned plans for a $19.5bn (£13bn) capital injection from Chinalco, a Chinese state-owned miner, which led to a loss of face for the Chinese government.

Rio has never commented on the case. Tom Albanese, chief executive, was in Beijing on Monday meeting Chinese premier Wen Jiabao on the same day that his four employees started their trial in Shanghai, a move that may have been designed to mend relations with his biggest customer.

A representative of the London-listed mining company could not confirm what had happened in the courtroom on Monday, after reports that Stern Hu, Rio's head iron ore salesman in China, had admitted taking bribes .


Mr Hu's apparent admission raises questions about Rio's business practices in China. The foreign business community in the country is watching closely to see whether the Chinese government proves its case against the four men, though with media barred from the courtroom and parts of the trial held in secret, the government may struggle to convince observers the main impetus for the trial is not political.

The argument in Tuesday's court session is likely to turn on whether the amounts received by the Rio employees were legitimate commissions relating to iron ore sales, or whether they were illegal bribes.

But whatever the result, it is likely to feed the more general concern that China has recently become a much tougher place to do business. Lawyers who represent multinationals in China say foreign companies should be aware that Chinese laws, which are often vague and ill-enforced, can be used against them if they fall foul of the authorities, or one faction of officialdom.

Divisions appear to exist within the Chinese government over how to handle the Rio case, with the men originally accused of stealing state secrets, and later charged with the lesser crimes of bribery and commercial secrecy violations, in an apparent attempt to defuse the political impact of the case.

If the employees are sentenced after admitting misdeeds, Rio's relations with China could actually improve. The government could gain face by apparently vindicating its legal system. By separating the company from the actions of a few employees, Rio could claim the case was closed and move on to repairing ties with its most important customer. That task would be harder if the company found itself fighting a controversial court case, watched at the highest levels by blue-chip corporations and the Chinese politburo.

Rio is enmeshed in a larger, complex political situation in China that goes beyond a case of alleged middle-management corruption. 

Rio and BHP Billiton, the other top Australian iron ore producer, are trying to change the traditional method of annual negotiations for pricing iron ore, as well as pushing for price rises that could reach record levels this year. Both initiatives depend on support from the state-owned Chinese steelmakers, but antagonism between the miners and the steelmakers last year over iron ore prices may have contributed to Mr Hu's arrest.

Rio is also pushing for an iron ore mining joint venture with BHP in Western Australia that is as controversial as the Rio employees' trial.

Steelmakers are concerned that the two big producers could influence prices by combining operations. Several antitrust authorities round the world are reviewing the proposed venture, and many are watching to see whether China's Ministry of Commerce (Mofcom) launches its own investigation.

Rio has hinted it is putting in place a wider programme to improve Chinese relations. It is trying to approach the right officials in China who can help it understand the extent of its relationship problems and then help solve them.

The first proof of such initiatives was Rio's announcement last week that it will jointly develop the Simandou iron orer deposit in Guinea with Chinalco.

In a speech at the China Development Forum in Beijing on Monday, Mr Albanese said Rio wanted to help Chinese corporations explore for mineral deposits within China. "Our iron ore, copper, aluminium, and other mined products help to build China," Mr Albanese said. "A positive relationship with this market is vital to the continued success of this company."

[The Minsky Moment]

In effect what appears to have happened is a coerced plea agreement: the Chinese backed off the espionage charges in return for an admission on a lesser bribery charge.  Of course because there are no real procedural or substantive safeguards in Chinese legal proceedings (Hu for example was not allowed counsel of his choice and the admissions were made on his behalf by the state lawyers foisted upon him), Hu didn't have any real choice.

China overplayed their hand here - they wanted RT to pull back on huge increases in iron ore prices, but the fact is that they can't get it cheaper from another supplier, so they are stuck.  On the other hand, RT didn't want to alienate its largest customer over the long run.  But these sorts of antics raise real questions for foreign companies about how much they are willing to put up with just to keep access to the China market.  (Google for one has made the decision the other way .)

This is the sort of thing we expect from countries like Libya, but China has aspirations to be a fare more significant player than that.

[Zanza]

My employer has huge problems in China getting the necessary licenses to operate plants or sales outlets. I think the main problem is that China wants technology transfer and does usually not allow for foreign majority ownership in many types of business. Which is not really acceptable in many aspects.

[Siege]

If China is becoming increasingly un-capitalist, why are they still so fucking succesful?

We need a real plan to bring them down.

[KRonn]

http://www.csmonitor.com/Commentary/Opinion/2010/0316/China-the-coming-costs-of-a-superbubble



China: the coming costs of a superbubble

China may seem to have defied the recession and the laws of economics. It hasn't. When China's bubble bursts, the global impact will be severe, spiking US interest rates.



Denver

The world looks at China with envy. China's economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese "Confucian capitalism" – a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will – is superior to our touchy-feely democracy and capitalism. But the grass on China's side of the fence is not as green as it appears.

In fact, China's defiance of the global recession is not a miracle – it's a superbubble. When it deflates, it will spell big trouble for all of us.

To understand the Chinese economy, consider three distinct periods: "Late-stage growth obesity" (the decade prior to 2008); "You lie!" (the time of the financial crisis); and finally, "Steroids 'R' Us" (from the end of the financial crisis to today).

Late-stage growth obesity

About a decade ago, the Chinese government chose a policy of growth at any cost. China's leaders see strong gross domestic product (GDP) growth not just as bragging rights, but as essential for political survival and national stability.

Because China lacks the social safety net of the developed world, unemployed people aren't just inconvenienced by the loss of their jobs, they starve; and hungry people don't complain, they riot and cause political unrest.

Remember the 1994 movie "Speed"? A young cop (Keanu Reeves) had to save passengers on a bus that would explode if its speed dropped below 50 m.p.h. Well, China is like that bus with 1.3 billion people aboard. If the Communist Party can't keep the economy growing at a fast clip, the result will be catastrophic.

To achieve high growth, China kept its currency, the renminbi, at artificially low levels against the dollar. This helped already cheap Chinese-made goods become even cheaper. China turned into a significant exporter to the developed economies.

Normally, if free-market economic forces were at work, the renminbi would have appreciated and the US dollar would have declined. However, had China let this occur, demand for its products would have declined, and its economy wouldn't have grown at roughly 10 percent a year, which it did during the past decade.

The more China sold to the United States, the more dollars it accumulated, and thus the more US Treasuries it bought, driving our interest rates down. US consumers responded to these cheap goods and cheap home loans by going on a buying binge.

However, companies and countries that grow at very high rates for a long time will inevitably suffer from late-stage growth obesity. Consider Starbucks: In 1999, it had 2,000 stores and was adding 1.8 stores a day. In 2007, when it had 10,000 stores, it had to open 5.5 stores a day in a desperate bid to keep growth rates up. This resulted in poor decisions and poor quality – a recipe for disaster.

In China, political pressure for full employment has led to similar late-stage growth obesity. In 2005, China built the largest shopping mall in the world, the New South China Mall: Today it's 99 percent vacant. China also built up a lavish district in a city called Ordos: Today, it's a ghost town.



You lie!

All good things come to an end, and great things come to an end with a bang. When the financial meltdown erupted in 2008, US and global banks started dropping like flies. Countries everywhere suffered contraction.

Even China.

During the crisis, Chinese exports were down more than 25 percent, tonnage of goods shipped through railroads was down by double digits, and electricity use plummeted.

Yet Beijing insisted that China had magically sustained 6 to 8 percent growth.

China lies. It goes to great lengths to maintain appearances, including censoring media and jailing those who write antigovernment articles. That's why we have to rely on hard data instead.

Steroids 'R' Us

Today the global economy is stabilizing, thanks to Uncle Sam and other "uncles" around the world. But the consumers of Chinese-made goods are still in debt, unemployment is high, and banks aren't lending. You might think the Chinese economy would be growing at a lower rate. But no, it is growing again at nearly 10 percent, as though the financial crisis never occurred.

Though this growth appears to be authentic – electricity consumption is back up – it is not sustainable growth, because it is based on an unprecedented stimulus package and extraordinary government involvement in the economy.

In the midst of the financial crisis, in late 2008, Beijing fire-hosed a $568 billion stimulus into the Chinese economy. That's enormous! As a percentage of GDP, it would be like a $2 trillion stimulus in America, nearly triple the size of the one Congress passed last year.

It gets even more interesting. Unlike Western democracies, whose central banks can pump a lot of money into the financial system but can't force banks to lend or consumers and corporations to spend, China can achieve both at lightning speed.

The government controls the banks, so it can make them lend, and it can force state-owned enterprises (one-third of the economy) to borrow and to spend. Also, because the rule of law and human and property rights are still underdeveloped, China can spend infrastructure project money very fast – if a school is in the way of a road the government wants to build, it becomes a casualty for the greater good.

Government is horrible at allocating large amounts of capital, especially at the speed it is done in China. Political decisions (driven by the goal of full employment) are often uneconomical, and corruption and cronyism result in projects that destroy value.

To maintain high employment, China has poured money into infrastructure and real estate projects. This explains why, in 2009, new floor space doubled and residential real estate prices surged 25 percent. This also explains why the Chinese keep building new skyscrapers even though existing ones are still vacant.

The enormous stimulus has exacerbated problems that already existed, threatening to turn China into a less shiny but more drastic version of debt-riddled Dubai, United Arab Emirates.

What happens in China doesn't stay in China. A meltdown there – or even a slowdown – would have severe consequences for the rest of the world.

It will tank the commodity markets. Demand for industrial goods will fall off the cliff. Finally, Chinese appetite for our fine currency will diminish, driving the dollar lower against the renminbi and boosting our interest rates higher. No more 5 percent mortgages and 6 percent car loans.

No shortcuts to greatness

We look at China and are mesmerized by its 1.3 billion people, its achievements of the past decade, its recent economic resiliency, and its ability to achieve spectacular results on the fly. But we have to remember that economic bubbles are usually just a good thing taken too far. The Chinese economy is no exception. Its long-term future may be bright, but in the short run we've got a bubble on our hands.

Everyone wants a shortcut to greatness, but there isn't one. China has been trying to bend the laws of economics for a while, and with the control it exerts over its economy it may seem that it's succeeded.

But this is only a temporary mirage, which must be followed by a painful reality. No, there is no shortcut to greatness – not in personal life, not in politics, and not in economics.

Vitaliy N. Katsenelson is a portfolio manager/director of research at Investment Management Associates in Denver. He is the author of "Active Value Investing: Making Money in Range-Bound Markets."

[jimmy olsen]

http://www.csmonitor.com/Commentary/Opinion/2010/0316/China-the-coming-costs-of-a-superbubble



China: the coming costs of a superbubble

I'm starting to see more of this kind of commentary. I wonder how bad it will be when the bubble bursts?

[Camerus]

More business withdrawals from China, though this time it is just small fry.

http://www.pcworld.com/businesscenter/article/192308/go_daddy_to_stop_registering_cn_domain_names.html

Go Daddy to Stop Registering .cn Domain Names

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By Grant Gross, IDG News Service

GoDaddy.com, the world's largest domain name registrar, will stop registering .cn domains in China after the government there has demanded personal information about people who have purchased domain names from GoDaddy in the past, the company said Wednesday during a hearing in the U.S. Congress.
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GoDaddy's decision, announced at a Congressional-Executive Commission on China (CECC) hearing, comes after the Chinese government has demanded that the registrar provide photo identification, business identification and physically signed registration for all .cn domains registered through GoDaddy.com in the six years the company has been operating in China, said Christine Jones, executive vice president, general counsel and corporate secretary for the Go Daddy Group, GoDaddy.com's parent company.

"We're concerned about the security of the individuals affected by [the] new requirements," Jones said. "Not only that, but we're concerned about the chilling effects we believe the requirements could have on new domain name registrations, and therefore, the free exchange of ideas on the Internet."

Previously, China's domain-name authority, CNNIC, had only required GoDaddy to collect the name, address and e-mail address of .cn customers, and that information is commonly provided when people register domain names worldwide, Jones said. CNNIC requested the additional personal information for all domain owners in February, and it appeared to GoDaddy that the Chinese government was trying to gain more control over who registers domain names, she added.

CNNIC told GoDaddy that if it did not provide the additional information, "the domain names were going to stop working," Jones said. "We have 40 million domain names under management. We've done this a lot. This is the first time any registry has ever asked use to retroactively obtain information on individuals who have registered domain names through our company."

GoDaddy.com's decision to scale back its Chinese business comes two days after Google stopped censoring search results, news information and photos in China. Members of the CECC praised both companies for taking a stand against Chinese censorship and surveillance.

GoDaddy will continue to offer service to its past .cn customers but will register no new .cn domains out of concern for the safety of customers, Jones said.

Google's decision to stop censoring its search results in China is a "remarkable, historic and welcomed action," said Representative Chris Smith, a New Jersey Republican. "Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people."

GoDaddy has several other complaints about doing business in China, Jones said. The company fought off "dozens" of denial-of-service attacks originating from inside China this year, she said.

In addition, an "overwhelming majority" of Web sites promoted by spam e-mail are hosted in China, and the Chinese government seems to be encouraging spamming as a business model, Jones said.

Senator Byron Dorgan, a North Dakota Democrat, said China wants global respect, but respected countries don't censor ideas or lock up citizens without trials.

"China wants to participate in the marketplace -- the marketplace of goods -- but to keep the marketplace of ideas outside of their country," he said. "Respected countries ... don't fear ideas or people or speech."

There were busy signals during multiple calls to the press office at the Chinese Embassy in Washington, D.C., Wednesday afternoon.

[Camerus]

I'm starting to see more of this kind of commentary. I wonder how bad it will be when the bubble bursts?

This kind of impeding doom of the Chinese economy commentary has been going on for at least a decade.  I have a hard time taking it seriously anymore.  When the shit does hit the fan, and like in all countries, it will, the most the pundits will be able to say is that they've predicted 6,000 of the past 1 recessions.   

[Camerus]

But these sorts of antics raise real questions for foreign companies about how much they are willing to put up with just to keep access to the China market.  (Google for one has made the decision the other way .)

I imagine quite a few will be willing to put up with the BS in exchange for access to the Chinese market (RT itself is certainly trying to) - provided they can still make a profit.  Google (which also wasn't close to being the dominant search engine in China) and a few others may be the exception to the rule.

[Grey Fox]

Why would it blow? It's not like the Chinese gov is going to stop doing any of that manipulation anytime soon.

[Neil]

I imagine quite a few will be willing to put up with the BS in exchange for access to the Chinese market (RT itself is certainly trying to) - provided they can still make a profit.  Google (which also wasn't close to being the dominant search engine in China) and a few others may be the exception to the rule.

Their willingness to aid our enemies to make a buck is disconcerting.