PRC Economy and Industry: News and Discussions

[Hari Seldon]

Rio case spotlights China's 'scary courts'

Multinationals wary of China's legal system are focusing on the upcoming criminal trial of four Rio Tinto employees accused of taking bribes

Don't say you weren't warned only. There is something to having an open, fair and independent legal system, one would think. At the very least, the accuser or accused shouldn't get to sit in judgement of his own case (routine matter involving the gubmint in prc, IMHO).

[Neshant]

More importantly, with interest rates rising, the cost of speculating in commodities is going to get more expensive and riskier.

So conclusion is to start moving out of the CAD now in anticipation of a US rate hike or a RMB being partially revalued (upwards) correct?

[Hari Seldon]

Entertaining persp only, if a tad simplistic. From a wise web wag. Ensoi.

There are some basic points being ignored here:

1. Who runs the banks in China? - The government.

2. Who can forgive debt in China? - The government.

3. Who creates money in China? - The government controlled banks.

4. What would happen if the Chinese government called in its loans? - Mass panic, deflation, and depression.

5. What would happend if the Chinese government called for a debt jubile? - Nothing. Everyone restarts with a clean slate.

6. Can the Yuan be shorted? - No it's pegged to the dollar.

7. What's China's economic future? Anything the government chooses it to be.

China looks terrible from a Western private-banking perspective because the debt has to be paid; But China looks great frrom a central planning perspective, because in the end it's just numbers in a ledger column.

I know, it can't be that simple else every country and its colony would be doing it. Something has to give somewhere but its just that moi couldn't yet put a finger unglee on what that something might be. Resource limits? Trade war? War?

[shynee]

Capital Export, Elasticity Pessimism, and the Renminbi (Wonkish) - More from Paul Krugaman

The final argument I hear about the renminbi is that it’s useless to make demands, because the Chinese will just get their backs up, refusing to bow to external pressure. The right answer is, so?

Here’s how the initial phases of a confrontation would play out – this is actually Fred Bergsten’s scenario, and I think he’s right. First, the United States declares that China is a currency manipulator, and demands that China stop its massive intervention. If China refuses, the United States imposes a countervailing duty on Chinese exports, say 25 percent. The EU quickly follows suit, arguing that if it doesn’t, China’s surplus will be diverted to Europe. I don’t know what Japan does.

Suppose that China then digs in its heels, and refuses to budge. From the US-EU point of view, that’s OK! The problem is China’s surplus, not the value of the renminbi per se – and countervailing duties will do much of the job of eliminating that surplus, even if China refuses to move the exchange rate.

And precisely because the United States can get what it wants whatever China does, the odds are that China would soon give in.

Look, I know that many economists have a visceral dislike for this kind of confrontational policy. But you have to bear in mind that the really outlandish actor here is China: never before in history has a nation followed this drastic a mercantilist policy. And for those who counsel patience, arguing that China can eventually be brought around: the acute damage from China’s currency policy is happening now, while the world is still in a liquidity trap. Getting China to rethink that policy years from now, when (one can hope) advanced economies have returned to more or less full employment, is worth very little.

[Hari Seldon]

China Warns Against U.S. Trade Sanctions

BEIJING--China's commerce minister on Sunday cautioned the U.S. against citing the Chinese currency as a reason for imposing trade sanctions, saying Beijing "won't turn a blind eye" to such moves, as both nations intensify their verbal sparring on the yuan exchange rate.

With China recovering swiftly from the financial crisis even as Europe and the U.S. try to deal with stubbornly high rates of joblessness, Beijing's decision to keep the yuan largely unchanged against the U.S. dollar since July 2008 has increasingly drawn flak. Critics say an undervalued yuan is giving Chinese exporters a competitive edge against exporters elsewhere.

The U.S. Treasury Department must decide by April 15 whether to label China a currency manipulator in its semi-annual report to Congress on the currency policies of its trading partners. Calling China a manipulator would help U.S. lawmakers push for action: Some senators last week introduced legislation that would require the U.S. to slap tariffs and other penalties on nations that fail to address misaligned currencies.

For its part, Beijing has sounded increasingly tough in defending its currency policy, saying it has helped stabilize the world economy and China's economic recovery still needs to be firmed up. Premier Wen Jiabao last Sunday said the local currency isn't undervalued and criticized nations for "pointing fingers" and taking strong measures to force other nations to strengthen their currencies.

MaoA MaoA DollahoAkbar Dollahoakbar

More interestingly, axn from the US-EU axis can hopefully lead to Des clamping down on chini unfair trade practices engaged in in the desi mkt also citing TFTA precedent only.

[Hari Seldon]

U.S. Firms Feel Shut Out in China

BEIJING—A growing number of U.S. companies feel unwelcome in China, according to a new survey by the American Chamber of Commerce in China, as measures aimed at squeezing foreign technology companies out of the vast government-procurement market start to bite.

The survey of Amcham's members adds to evidence of a darkening mood among multinational companies in one of their most important global markets.

Negative sentiment among Amcham's members, which traditionally have been a strong lobby in Washington arguing for more engagement with China, adds to wider risks in U.S.-China relations. On Sunday, China's commerce minister, Chen Deming, warned that China "will not sit back" if the U.S. Treasury Department labels China a currency manipulator and trade sanctions follow.

Oh, the poor poooor US MNCs in china.....the heart bleeds at the sheer scale of the injustice done to them... bring out the candlelight vigils I tell ya!

Jai Hu and MaoA

[svinayak]

http://www.shanghaidaily.com/sp/article ... 395564.htm
http://www.asianewsnet.net/news.php?sec=3&id=5131

Book 'Unhappy China' stirs a controversy
By Fu Qi and Li Huizi |

"UNHAPPY China," a book released this month asserting China's power to lead the world and calling for a radical change in its foreign policies, has caused a stir among some experts and scholars, but has failed to strike a chord among average Chinese.

"Unhappy China -The Great Time, Grand Vision and Our Challenges," intends to "spur, stimulate and wake up" the intellectuals, according to Song Qiang and Huang Jisu, two of a group of five authors, dubbed by analysts as "grassroots intellectuals."

The other three are Song Xiaojun, Wang Xiaodong and Liu Yang.

The book argues that "with Chinese national strength growing at an unprecedented rate, China should stop debasing itself and come to recognize the fact that it has the power to lead the world, and the necessity to break away from Western influence."

The book says "the current financial crisis reflects an overall corruption of the American society."

The book advocates more stern foreign policies.

"We should incorporate retribution and punishment into our diplomatic strategies, especially when dealing with Sino-French relations," referring to the meeting between French President Nicolas Sarkozy and the Tibetan secessionist Dalai Lama last December.

The authors believe ordinary citizens should not be deprived of national development benefits, and that China should have the ambition to re-establish the world order, assume a leadership role among nations and achieve industrial upgrading during the current global financial crisis.

The book comes at a time when a series of events seemingly stirred the nationalistic sentiments among Chinese, such as the public sale of two Chinese cultural relics in France by the global auctioneer Christie's, the dispute of sovereignty over the Nansha Islands with the Philippines, and Western countries' tolerance for the Dalai Lama.

During his recent visit to Europe, the Dalai Lama garnered quite a number of honors, including honorary citizenship in Rome and honorary citizenship in Venice the next day, before arriving in Germany to receive the German Media Prize.

Last year marked a transition for China to step up upon the world's center stage after it hosted a successful Olympic Games, sent the country's first space-walking astronaut and surpassed Germany to become the third-largest economy behind the United States and Japan, the book said.

"But we still feel suppressed that we are sometimes condemned or criticized by the Western world," said Zhang Xiaobo who masterminded the publication.

Zhang was one of the authors of the 1996 bestseller "China Can Say No."

Released on March 12, "Unhappy China" was widely regarded as a follow-up to the 1996 bestseller which, observers believed, signaled the awakening of nationalism among some Chinese intellectuals.

The book was translated into eight languages.

Some of the group of "five grassroots intellectuals" authored both books. Most of them are experienced journalists, editors or TV commentators.

Huang Jisu, one of the five authors and a sociologist and editor of the Chinese version of the Journal of International Social Sciences, said in the mid 1990s that many elite Chinese "blindly admired the Western world and begin to lose confidence in China," but still some intellectuals did not believe China was like "a drowning boat with little hope," - a prevailing thought at the time.

It was in those years that radical intellectuals in China started to speak out against the Western world's shortcomings and reaffirm China's confidence in depending on itself.

Superficial and arrogant

"Both books are about interpreting China-West relations," Zhang explained. "The only difference is that 13 years later, China's role has turned from 'leading itself' into 'leading the world'."

A commentary on news365.com.cn said the book gives full vent to Chinese nationalism and anger toward Western bias about China but in a superficial and arrogant way.

"However, it's necessary to have such a venting," it said.

Although the book is a hit among some academicians and scholars, it doesn't seem to resonate among ordinary readers.

Major book retailers, such as the Beijing Book Mansion in downtown Beijing and the Zhongguancun Book Building, have stocked the book on inconspicuous shelves labeled with "Chinese politics."

Usually best-sellers are placed at entrances for special promotion.

"It does not sell well," said a saleswoman. "Few people linger at this section."

A customer surnamed Wu told Xinhua that the book was "detached from everyday life," and in a time of economic meltdown and heavy work pressure, she would not pay attention to it.

At Douban.com, a popular online community for book, movie and music reviews, the book has been harshly attacked. About 300 out of 400 Netizens gave the book a poor rating.

It was merely "a scrambling of random and irrational thoughts," one post said.

At an online community of major Chinese portal sina.com.cn, a large majority of the 163 blog posts discussing the book voiced opposition.

A Netizen said the book's title was eye-catching and just for the purpose of promotion, while the content was poor and radical.

"It tells us China is good enough. Don't be self-critical. Don't be caught in internal problems. The West is just a paper tiger. What else? Nothing else."

Some scholars also expressed their dissatisfaction with the book.

Shen Dingli, deputy dean of the International Relations Department of the Shanghai-based Fudan University, said the book was "too extreme and nationalistic," which shows some Chinese intellectuals are ridiculous and actually demeaning their own nation.

Shi Yinhong, professor of the Beijing-based Renmin University of China, said the book written by the leftists was full of criticism but lacked "constructive suggestions."

(The authors are senior writers at Xinhua news agency.)

[svinayak]

[wlin]

The capacity utilization of Wuhan-Guangzhou is over 100% again this past week because of Guangzhou people flowing to Wuhan watching Cherry Blossom. This weekend, millions people on Wuhan street watching Cherry Blossom. The ticket for Cherry Blossom is 140 RMB.

Wuhan university has one of the best Cherry Blossom and it is in university campus. So 300K went there, one third of driving their car. University has to sale a ticket of 1 RMB in order to stop the people. I do not think it works. Next year, they can try 100 RMB ticket. You can look at the below picture.

http://deskbar.google.com/news/story?cf ... &scoring=n

I never recalled it happened before. But this year, fueled by people from Guangzhou, ShenZhen and Changsha thanks to the high speed railway, it becomes really big. The March tickets are all booked. The April tickets also heavy booked because QingMing 清明 effect, the holiday that Chinese celebrants to remember and honour their ancestors at grave sites. So people from Guangzhou, Shenzhen travel to back their parents home to spend the QingMing week. After this, will come the May 1st Labor day week. That is the second busiest railway trans week. Then comes the summer travel season. After summer travel, comes the busiest week of whole year: the October 1st National day week. Then fall travel season. The off season for high speed rail is Nov. and Dec. about two months.


[quote="wlin"]correction here, the current capacity utilization 101%， the railway ministry claimed is for all high speed rails not for Wuhan-Changsha. Wuhan-Changsha is about 110%. It is kind of special because spring festival. The official spring transport period started at late Jan and ends at 3/10.

[wlin]

Someone may argue it may hurt China’s export economy. I think first the export importance is extremely overrated. It would a joke to seriously think a 1.3 billon people country’s economy is based on export.

Net Exports are I think around 6% of China's GDP aren't they ? With around $700b exports in a $ 3 or $4T economy, it is pretty sizeable . The Chinese Private sector leads the exports and if the Indian experience with Govt companies and everything is an indication,much of the "formal" employment will be with the private sector. The Govt enterprises are probably not that labor intensive as they would have been 25-30 years ago I guess after all the reorganization and efficiency improvements.

Net export may around 6% sometime back in 2007 or 2008 but not now. 2007 Surplus is 262 billion. 08 Surplus 295Billion, GDP about 4.35 Trillion. So it is about 6-7%. In year 09, the surplus is 196B, one –third lower than 08, while GDP is at 4.7T. It is about 4% now.

The first two month of this year, China surplus is down 50%. I am not surprise if the number turn red some time this year because China’s domestic demand is so hot right now. Maybe March number will show that. I can tell you that Q1 number will be very shocking to a lot of person. My family owns a couple middle size firm and we see our sales increase some 70%, 80%. And we import a lot of stuff and the port was so crowd that we can only get our shipping this month. So expect March number import will be huge. I maybe wrong though. Because it is my own personal observation.

Because the RMB has been acted like an anchor in Asia currency. If RMBs moves, everybody moves. If RMB appreciates, the currency of India, South Korea, Thailand, Vietnam will all moved up.

No. They wont. Not all those countries are strongly correlated with China. There are different factors at work in each economy. Definitely not India.

hey I was in business, man. I remembered several years back, when China first moves RMB, India's currency raising faster than RMB that year. The same thing happened for all other Asia currency. Although they may not hold the ground and dropped eventually. But it is eye opening to me at that time. I think the same thing will happen today.

I really hope USA can keep push because that is probably the only way to move RMB up. I do not bet the idiot Wen can understand all this logic.

Oh, the "Idiot" Wen understands this quite well. The problem is he doesnt care about this and is more concerned about China's internal problems of maintaining growth and stability. From the Chinese govt's perspective, they have an ideal formula that served them absolutely brilliantly for 25 years , and would just like doing more of what has worked so well until now. Unfortunately for them, the old formula cannot work anymore and that is why the Chinese growth model is at an inflection point. It is a fork in the road and hard choices have to be made.

Again, I said this because of my personal experience. Our business almost brought down by his stupid policy back in spring of 2008. Westerners kept saying that this crisis brought China economy down bla bla. Chinese business society knows who should be blamed. This crisis should have nothing with China. It is his 宏观调控 (macroeconomic adjustment ) policy finally hit China economy hard in 08 summer. And then when he claimed he successfully slowed China economy in 08 summer, we got the perfect storm at Sep. 08 which finally brought us down. If you want listen my personal story. The Feb – July 08 is the hardest time I ever remembered. In Q4 08, we are much relived. In Q1 09, we knew we get through it and will grow again because we can get loans again from bank.

And because everybody (not including Westerners of course) knows it is his fault to bring down the economy, he got a really hard time in CCP’s central committee. Those committee members all not idiots, they have many years of experience to govern province or ministry. So after Wen got a hard time, he make a 180 U turn and speeding on it. Then we got economy hot again.

China got the luxury to have two economic engines while many countries got only one. So when economy is hot, you either shut down the domestic engine by tighten credit or shut down the foreign trade engine by rising exchange rate. This guy has kept shutting down the domestic engine since he came into office. This time may be different because a lot of insiders do not want to tight monetary policy and want floating the RMB. Now came out this Obama thing and it becomes political correct to fight the US pressure. So we may back to 08 spring again. The current import surge and suplus reduction give them a perfect reason to say no to US.

[Suraj]

The exchange rate policy vs USD pursued by RBI is very different from what PBoC follows. Just because the Rupee happened to appreciate at a time when the Yuan did does not mean that the latter caused the former. The Rupee has gyrated wildly in recent years, first going down to Rs.49/$ , then appreciating to Rs.38.5/$, then falling right back to Rs.50/$, and now back at ~Rs.46/$ . Personally this much volatility is bad at a time when we're trying to promote exports, but RBI tends to prioritize inflation rate over exchange rates. Here are comparative graphs:
USD-INR
USD-CNY

[Katare]

Chinese honchos join Obama in supporting yuan appreciation

Yang Yuanqing, chief executive officer of Beijing-based computer maker Lenovo Group Ltd, said appreciation would boost consumers’ purchasing power. Qin Xiao, chairman of China Merchants Bank Co, said an end to the yuan’s 20-month peg to the dollar would let lenders set market-based interest rates. Chen Daifu, chairman of Hunan Lengshuijiang Iron & Steel Group Co, said a stronger currency would cut import costs.

[vina]

I told you that they will do down hill skiing after all that Rhetoric or rather as the Chinese say "boasting" (yeah..yeah.. Chinese are big "boasters" onree).

Now the PBoC Governor has made statement that they will resume a gradual "controlled" appreciation of the RMB and not have a sharp rise.

The Chinese I think are stalling for time here and hoping that they can ride this storm out by vague promises and placatory gestures.

Wont do. The problem is immediate and wont go away unless they put a hard timetable on how they are going to dismantle their fixed peg and a deadline when the Yuan will float fully and there is full capital convertibility in China. Nothing else will do.

[shynee]

China Officials Wrestle Publicly Over Currency - NY Times

China May Resume Yuan Float, Avoid Sharp Revaluation - Bloomberg.com

[Bharath.Subramanyam]

.

.

Can this happen?

http://www.dnaindia.com/money/report_a- ... na_1363881

What do experts feel?

[Muppalla]

"STRATFOR sees a race on, but it isn’t a race between the Chinese and the Americans or even China and the world. It’s a race to see what will smash China first, its own internal imbalances or the U.S. decision to take a more mercantilist approach to international trade."

China: Crunch Time By Peter Zeihan

The global system is undergoing profound change. Three powers — Germany, China and Iran — face challenges forcing them to refashion the way they interact with their regions and the world. We are exploring each of these three states in detail in three geopolitical weeklies, highlighting how STRATFOR’s assessments of these states are evolving. First we examined Germany. We now examine China.

U.S.-Chinese relations have become tenser in recent months, with the United States threatening to impose tariffs unless China agrees to revalue its currency and, ideally, allow it to become convertible like the yen or euro. China now follows Japan and Germany as one of the three major economies after the United States. Unlike the other two, it controls its currency’s value, allowing it to decrease the price of its exports and giving it an advantage not only over other exporters to the United States but also over domestic American manufacturers. The same is true in other regions that receive Chinese exports, such as Europe.

What Washington considered tolerable in a small developing economy is intolerable in one of the top five economies. The demand that Beijing raise the value of the yuan, however, poses dramatic challenges for the Chinese, as the ability to control their currency helps drive their exports. The issue is why China insists on controlling its currency, something embedded in the nature of the Chinese economy. A collision with the United States now seems inevitable. It is therefore important to understand the forces driving China, and it is time for STRATFOR to review its analysis of China.

An Inherently Unstable Economic System

China has had an extraordinary run since 1980. But like Japan and Southeast Asia before it, dramatic growth rates cannot maintain themselves in perpetuity. Japan and non-Chinese East Asia didn’t collapse and disappear, but the crises of the 1990s did change the way the region worked. The driving force behind both the 1990 Japanese Crisis and the 1997 East Asian Crisis was that the countries involved did not maintain free capital markets. Those states managed capital to keep costs artificially low, giving them tremendous advantages over countries where capital was rationally priced. Of course, one cannot maintain irrational capital prices in perpetuity (as the United States is learning after its financial crisis); doing so eventually catches up. And this is what is happening in China now.

STRATFOR thus sees the Chinese economic system as inherently unstable. The primary reason why China’s growth has been so impressive is that throughout the period of economic liberalization that has led to rising incomes, the Chinese government has maintained near-total savings capture of its households and businesses. It funnels these massive deposits via state-run banks to state-linked firms at below-market rates. It’s amazing the growth rate a country can achieve and the number of citizens it can employ with a vast supply of 0 percent, relatively consequence-free loans provided from the savings of nearly a billion workers.

It’s also amazing how unprofitable such a country can be. The Chinese system, like the Japanese system before it, works on bulk, churn, maximum employment and market share. The U.S. system of attempting to maximize return on investment through efficiency and profit stands in contrast. The American result is sufficient economic stability to be able to suffer through recessions and emerge stronger. The Chinese result is social stability that wobbles precipitously when exposed to economic hardship. The Chinese people rebel when work is not available and conditions reach extremes. It must be remembered that of China’s 1.3 billion people, more than 600 million urban citizens live on an average of about $7 a day, while 700 million rural people live on an average of $2 a day, and that is according to Beijing’s own well-scrubbed statistics.

Moreover, the Chinese system breeds a flock of other unintended side effects.

There is, of course, the issue of inefficient capital use: When you have an unlimited number of no-consequence loans, you tend to invest in a lot of no-consequence projects for political reasons or just to speculate. In addition to the overall inefficiency of the Chinese system, another result is a large number of property bubbles. Yes, China is a country with a massive need for housing for its citizens, but even so, local governments and property developers collude to build luxury dwellings instead of anything more affordable in urban areas. This puts China in the odd position of having both a glut and a shortage in housing, as well as an outright glut in commercial real estate, where vacancy rates are notoriously high.

There is also the issue of regional disparity. Most of this lending occurs in a handful of coastal regions, transforming them into global powerhouses, while most of the interior — and thereby most of the population — lives in abject poverty.

There is also the issue of consumption. Chinese statistics have always been dodgy, but according to Beijing’s own figures, China has a tiny consumer base. This base is not much larger than that of France, a country with roughly one twentieth China’s population and just over half its gross domestic product (GDP). China’s economic system is obviously geared toward exports, not expanding consumer credit.

Which brings us to the issue of dependence. Since China cannot absorb its own goods, it must export them to keep afloat. The strategy only works when there is endless demand for the goods it makes. For the most part, this demand comes from the United States. But the recent global recession cut Chinese exports by nearly one fifth, and there were no buyers elsewhere to pick up the slack. Meanwhile, to boost household consumption China provided subsidies to Chinese citizens who had little need for — and in some cases little ability to use — a number of big-ticket products. The Chinese now openly fear that exports will not make a sustainable return to previous levels until 2012. And that is a lot of production — and consumption — to subsidize in the meantime. Most countries have another word for this: waste.

This waste can be broken down into two main categories. First, the government roughly tripled the amount of cash it normally directs the state banks to lend to sustain economic activity during the recession. The new loans added up to roughly a third of GDP in a single year. Remember, with no-consequence loans, profitability or even selling goods is not an issue; one must merely continue employing people. Even if China boasted the best loan-quality programs in history, a dramatic increase in lending of that scale is sure to generate mountains of loans that will go bad. Second, not everyone taking out those loans even intends to invest prudently: Chinese estimates indicate that about one-fourth of this lending surge was used to play China’s stock and property markets.

It is not that the Chinese are foolish; that is hardly the case. Given their history and geographical constraints, we would be hard-pressed to come up with a better plan were we to be selected as Party general secretary for a day. Beijing is well aware of all these problems and more and is attempting to mitigate the damage and repair the system. For example, it is considering legalizing portions of what it calls the shadow-lending sector. Think of this as a sort of community bank or credit union that services small businesses. In the past, China wanted total savings capture and centralization to better direct economic efforts, but Beijing is realizing that these smaller entities are more efficient lenders — and that over time they may actually employ more people without subsidization.
But the bottom line is that this sort of repair work is experimental and at the margins, and it doesn’t address the core damage that the financial model continuously inflicts. The Chinese fear their economic strategy has taken them about as far as they can go. STRATFOR used to think that these sorts of internal weaknesses would eventually doom the Chinese system as it did the Japanese system (upon which it is modeled). Now, we’re not so sure.

Since its economic opening in 1978, China has taken advantage of a remarkably friendly economic and political environment. In the 1980s, Washington didn’t obsess overmuch about China, given its focus on the “Evil Empire.” In the 1990s, it was easy for China to pass inconspicuously in global markets, as China was still a relatively small player. Moreover, with all the commodities from the former Soviet Union hitting the global market, prices for everything from oil to copper neared historic lows. No one seemed to fight against China’s booming demand for commodities or rising exports. The 2000s looked like they would be more turbulent, and early in the administration of George W. Bush the EP-3 incident landed the Chinese in Washington’s crosshairs, but then the Sept. 11 attacks happened and U.S. efforts were redirected toward the Islamic world.

Believe it or not, the above are coincidental developments. In fact, there is a structural factor in the global economy that has protected the Chinese system for the past 30 years that is a core tenet of U.S. foreign policy: Bretton Woods.

Rethinking Bretton Woods

Bretton Woods is one of the most misunderstood landmarks in modern history. Most think of it as the formation of the World Bank and International Monetary Fund, and the beginning of the dominance of the U.S. dollar in the international system. It is that, but it is much, much more.

In the aftermath of World War II, Germany and Japan had been crushed, and nearly all of Western Europe lay destitute. Bretton Woods at its core was an agreement between the United States and the Western allies that the allies would be able to export at near-duty-free rates to the U.S. market in order to boost their economies. In exchange, the Americans would be granted wide latitude in determining the security and foreign policy stances of the rebuilding states. In essence, the Americans took what they saw as a minor economic hit in exchange for being able to rewrite first regional, and in time global, economic and military rules of engagement. For the Europeans, Bretton Woods provided the stability, financing and security backbone Europe used first to recover, and in time to thrive. For the Americans, it provided the ability to preserve much of the World War II alliance network into the next era in order to compete with the Soviet Union.

The strategy proved so successful with the Western allies that it was quickly extended to World War II foes Germany and Japan, and shortly thereafter to Korea, Taiwan, Singapore and others. Militarily and economically, it became the bedrock of the anti-Soviet containment strategy. The United States began with substantial trade surpluses with all of these states, simply because they had no productive capacity due to the devastation of war. After a generation of favorable trade practices, surpluses turned into deficits, but the net benefits were so favorable to the Americans that the policies were continued despite the increasing economic hits. The alliance continued to hold, and one result (of many) was the eventual economic destruction of the Soviet Union.

Applying this little history lesson to the question at hand, Bretton Woods is the ultimate reason why the Chinese have succeeded economically for the last generation. As part of Bretton Woods, the United States opens its markets, eschewing protectionist policies in general and mercantilist policies in particular. Eventually the United States extended this privilege to China to turn the tables on the Soviet Union. All China has to do is produce — it doesn’t matter how — and it will have a market to sell to.

But this may be changing. Under President Barack Obama, the United States is considering fundamental changes to the Bretton Woods arrangements. Ostensibly, this is to update the global financial system and reduce the chances of future financial crises. But out of what we have seen so far, the National Export Initiative (NEI) the White House is promulgating is much more mercantilist. It espouses doubling U.S. exports in five years, specifically by targeting additional sales to large developing states, with China at the top of the list.

STRATFOR finds that goal overoptimistic, and the NEI is maddeningly vague as to how it will achieve this goal. But this sort of rhetoric has not come out of the White House since pre-World War II days. Since then, international economic policy in Washington has served as a tool of political and military policy; it has not been a beast unto itself. In other words, the shift in tone in U.S. trade policy is itself enough to suggest big changes, beginning with the idea that the United States actually will compete with the rest of the world in exports.

If — and we must emphasize if — there will be force behind this policy shift, the Chinese are in serious trouble. As we noted before, the Chinese financial system is largely based on the Japanese model, and Japan is a wonderful case study for how this could go down. In the 1980s, the United States was unhappy with the level of Japanese imports. Washington found it quite easy to force the Japanese both to appreciate their currency and accept more exports. Opening the closed Japanese system to even limited foreign competition gutted Japanese banks’ international positions, starting a chain reaction that culminated in the 1990 collapse. Japan has not really recovered since, and as of 2010, total Japanese GDP is only marginally higher than it was 20 years ago.

China’s Limited Options

China, which unlike Japan is not a U.S. ally, would have an even harder time resisting should Washington pressure Beijing to buy more U.S. goods. Dependence upon a certain foreign market means that market can easily force changes in the exporter’s trade policies. Refusal to cooperate means losing access, shutting the exports down. To be sure, the U.S. export initiative does not explicitly call for creating more trade barriers to Chinese goods. But Washington is already brandishing this tool against China anyway, and it will certainly enter China’s calculations about whether to resist the U.S. export policy. Japan’s economy, in 1990 and now, only depended upon international trade for approximately 15 percent of its GDP. For China, that figure is 36 percent, and that is after suffering the hit to exports from the global recession. China’s only recourse would be to stop purchasing U.S. government debt (Beijing can’t simply dump the debt it already holds without taking a monumental loss, because for every seller there must be a buyer), but even this would be a hollow threat.

First, Chinese currency reserves exist because Beijing does not want to invest its income in China. Underdeveloped capital markets cannot absorb such an investment, and the reserves represent the government’s piggybank. Getting a 2 percent return on a rock-solid asset is good enough in China’s eyes. Second, those bond purchases largely fuel U.S. consumers’ ability to purchase Chinese goods. In the event the United States targets Chinese exports, the last thing China would want is to compound the damage. Third, a cold stop in bond purchases would encourage the U.S. administration — and the American economy overall — to balance its budgets. However painful such a transition may be, it would not be much as far as retaliation measures go: “forcing” a competitor to become economically efficient and financially responsible is not a winning strategy. Granted, interest rates would rise in the United States due to the reduction in available capital — the Chinese internal estimate is by 0.75 percentage points — and that could pinch a great many sectors, but that is nothing compared to the tsunami of pain that the Chinese would be feeling.

For Beijing, few alternatives exist to American consumption should Washington limit export access; the United States has more disposable income than all of China’s other markets combined. To dissuade the Americans, China could dangle the carrot of cooperation on sanctions against Iran before Washington, but the United States may already be moving beyond any use for that. Meanwhile, China would strengthen domestic security to protect against the ramifications of U.S. pressure. Beijing perceives the spat with Google and Obama’s meeting with the Dalai Lama as direct attacks by the United States, and it is already bracing for a rockier relationship. While such measures do not help the Chinese economy, they may be Beijing’s only options for preserving internal stability.

In China, fears of this coming storm are becoming palpable — and by no means limited to concerns over the proposed U.S. export strategy. With the Democratic Party in the United States (historically the more protectionist of the two mainstream U.S. political parties) both in charge and worried about major electoral losses, the Chinese fear that midterm U.S. elections will be all about targeting Chinese trade issues. Specifically, they are waiting for April 15, when the U.S. Treasury Department is expected to rule whether China is a currency manipulator — a ruling Beijing fears could unleash a torrent of protectionist moves by the U.S. Congress. Beijing already is deliberating on the extent to which it should seek to defuse American anger. But the Chinese probably are missing the point. If there has already been a decision in Washington to break with Bretton Woods, no number of token changes will make any difference. Such a shift in the U.S. trade posture will see the Americans going for China’s throat (no matter whether by design or unintentionally).

And the United States can do so with disturbing ease. The Americans don’t need a public works program or a job-training program or an export-boosting program. They don’t even have to make better — much less cheaper — goods. They just need to limit Chinese market access, something that can be done with the flick of a pen and manageable pain on the U.S. side.

[Raghav K]

Fake green peas latest food scandal in China

http://www.chinadaily.com.cn/china/2010 ... 664992.htm

"The peas were an unnatural color and had a penetrating odor. After 20 minutes of cooking, the peas did not turn soft but the water turned green," the report said.

[zlin]

China Drawing High-Tech Research From U.S.

http://www.nytimes.com/2010/03/18/busin ... wanted=all

But none of that changes the sense that tectonic shifts are under way.

When Xie Lina, a 26-year-old Applied Materials engineer here, was asked recently whether China would play a big role in clean energy in the future, she was surprised by the question.

“Most of the graduate students in China are chasing this area,” she said. “Of course, China will lead everything.”

[amit]

China Drawing High-Tech Research From U.S.

http://www.nytimes.com/2010/03/18/busin ... wanted=all

But none of that changes the sense that tectonic shifts are under way.

When Xie Lina, a 26-year-old Applied Materials engineer here, was asked recently whether China would play a big role in clean energy in the future, she was surprised by the question.

“Most of the graduate students in China are chasing this area,” she said. “Of course, China will lead everything.”

Zlin,

Best of luck to the hardworking Chinese.

But a note of caution. Hubris can be dangerous and self-defeating. And a patronising West, who are masters of psy-ops will be very helpful in leading you up the garden path. Notice the part which you highlighted.

“Most of the graduate students in China are chasing this area,” she said. “Of course, China will lead everything.”

History they say teaches important lessons. The US lead in technology, especially after the Second World War was/is pinned on the fact that the best and brightest from all over the world (including, my friend China) go there to do research and innovate.

If the thinking is the Chinese will do everything by themselves and still lead the world in everything... well best of luck and let's compare notes 20 years hence.

Also note, it's one thing to build shinny new infrastructure and provide a sea of low cost workers to attract manufacturing and even company specific R&D centres. It's however, a totally different ball game to develop institutions like MIT, CalTech etc and get the best of the best from around the world to come and study, plants roots and become a part of the great innovation eco-system as equal stakeholders.

You will have to change the way society has been built up in the Middle Kingdom since the Communist Revolution to be able to do that - a project that will take at least 50 years and a couple of generations in my opinion.

I get a sense that as China's $$$ go up, they are underestimating the magnitude of what the US of A had been able to achieve in the 20th century as a great melting pot. Anyway as I said earlier best of luck to the Middle Kingdom!

[wlin]

Interesting topic.

I would say China do not want to do everything herself. But in this world, there are a lot of things you can not buy. The bigger your country, the less you can buy. So there are something you have to do it yourself. That is tough, but the rewards is really tempting. One example is China’s space program. China was among the first ones to be willing to join the space station program but was refused by US. So what you do, you have to develop your own system. Another example is Beidou Navigation system, China at first want to join Europe to develop Galileo system. But again US came out to try to limit China’s role in Galileo project and they successes. So China turn around to working on her own Beidou system. Now Beidou got 5 or 6 satellites in the space and Galileo none.
The developed countries is a small elite club so far, there is no way they want to accept big country like China or India to join in. You have to earn it yourself. The closer you to the gate, the more noise you heard. Why the gentleman who earned Nobel prize for his contribution in international trade now wants to block Sino-US trade? Why so many predictions come out about China will crash soon? The reason is simple, they are panic what if Chinese way can work out? If so, The whole building will collapse.

Back to the R&D stuff, I think the China’s competitive advantage in R&D probably even bigger than in the manufacturing. China’s labor cost rises pretty fast in recent years. I can tell that. One worker with 2-3 year experience in my factory can earn 2400 RMB one month plus free meal and shelter. So basically if he want, he can save 2000 RMB per month. That is about 22000 RMB a year. With this saving he can buy a QQ car witth two year saving if he want or he can renovate his house in the countryside. If he can work in construction, he can earn more. So it is not cheap anymore and there is a chance they may not come back next year.

A fresh college graduate probably earns much less than this amount if your major is liberal arts. If you are fresh engineering student, you can expect about 3000 RMB. Of course if you graduate from elite school, you earn much more. What I said is for average school average graduate. So you can see the competitive advantage in labor cost is bigger in the R&D part. And it is not only the labor cost, it is the size of talent pool. China graduate about 6 million college students every year. Two and half million graduate from 4 year college, the rest from 2 or 3 year college. For the 4 year college graduate, 36% of them are engineering major and 11 percent is science major. So the talent pool is there, when it comes to industry, size do matter. China has not fully leveraged this advantage yet. China just starts to do seriously R&D work in the past two or three years. The past R&D is focus on telecommunication industry. Now it start to move to more industries. This is because China got more resource right now.

My brother in law just got tenure in one US top school so I thought I can something about research. The resource China spent in science is still far behind US. For example, every year NIH pour tens of billions of US dollars on bio research. That is more than total govenment budget funding on China R&D. Forget those PPP numbers you saw on west media, that means almost nothing. One China Ph.D student can earn about 1000-2000 RMB per month while one US Ph.D program can offer 20K USD yearly package. So there is no competition here. A fresh Chinese Ph.D. graduate can expect 2000 – 5000 RMB (depending on his major) per month when he got one academic offer. Do you think this kind of income can be attractive? They do offer much better package to foreign educated Ph.D. So the ideal path for one young Chinese who want to pursue academic career in China would be go to States, earn a Ph.D degree and come back to China hunting for a much better paid position instead of staying in China. This not change, nothing will change. I do not think this related to some communist revolution thing. It is pure resource stuff. You do not have resource, you do not a chance to have first tier science.

About the underestimate USA thing, there maybe a little in China public, but not in government level. They do respect the power and magnitude of USA. Chinese have the patience and believe time is on China’s side. For the melting pot, it is great when you are at the top of the world. It is horrible when you at the bottom. Let us see what happened in the future. Sometimes you need to be 100% political correct here. When Europe turns green, when American speaks Spanish, the world will be different.

China Drawing High-Tech Research From U.S.

http://www.nytimes.com/2010/03/18/busin ... wanted=all

Zlin,

Best of luck to the hardworking Chinese.

But a note of caution. Hubris can be dangerous and self-defeating. And a patronising West, who are masters of psy-ops will be very helpful in leading you up the garden path. Notice the part which you highlighted.

“Most of the graduate students in China are chasing this area,” she said. “Of course, China will lead everything.”

History they say teaches important lessons. The US lead in technology, especially after the Second World War was/is pinned on the fact that the best and brightest from all over the world (including, my friend China) go there to do research and innovate.

If the thinking is the Chinese will do everything by themselves and still lead the world in everything... well best of luck and let's compare notes 20 years hence.

Also note, it's one thing to build shinny new infrastructure and provide a sea of low cost workers to attract manufacturing and even company specific R&D centres. It's however, a totally different ball game to develop institutions like MIT, CalTech etc and get the best of the best from around the world to come and study, plants roots and become a part of the great innovation eco-system as equal stakeholders.

You will have to change the way society has been built up in the Middle Kingdom since the Communist Revolution to be able to do that - a project that will take at least 50 years and a couple of generations in my opinion.

I get a sense that as China's $$$ go up, they are underestimating the magnitude of what the US of A had been able to achieve in the 20th century as a great melting pot. Anyway as I said earlier best of luck to the Middle Kingdom!

[ashi]

http://edition.cnn.com/2010/BUSINESS/04 ... index.html

Officials in Beijing are just controlling investment to avoid over-heating. The rest of the economy is still strong," said Mr Lu. "The direction is clear...China is seeing a robust recovery."

While manufacturers in China upped their activity, some Asian countries, including India, South Korea and Australia, saw declines from recent highs.

[Suraj]

China’s Iron Ore Talks With Vale, BHP ‘Pointless,’ Jiangsu Shagang Boss Says

China’s talks with the world’s biggest iron-ore miners are “pointless” as its steelmakers have to accept the higher terms Vale SA negotiated with Japan this week, Jiangsu Shagang Group Co. Chairman Shen Wenrong said.

“We have no options,” Shen, who heads China’s largest privately held steelmaker, said today in a phone interview from Zhangjiagang in Jiangsu province. “Iron ore prices have gone too far. We have to accept it, although we can’t afford it.”

Brazil’s Vale, the largest supplier, set a precedent this week by securing a 90 percent price increase from Sumitomo Metal Industries Co. and shifting to quarterly pricing from a 40-year system of selling iron ore through annual contracts. The World Steel Association asked regulators to probe an “oligopoly” among iron ore miners and the China Iron and Steel Association said it will hold an emergency meeting today to discuss the issue.

[Katare]

ET in the classroom: India refuses 'market economy' status to China

[ArmenT]

China’s Iron Ore Talks With Vale, BHP ‘Pointless,’ Jiangsu Shagang Boss Says

China’s talks with the world’s biggest iron-ore miners are “pointless” as its steelmakers have to accept the higher terms Vale SA negotiated with Japan this week, Jiangsu Shagang Group Co. Chairman Shen Wenrong said.

“We have no options,” Shen, who heads China’s largest privately held steelmaker, said today in a phone interview from Zhangjiagang in Jiangsu province. “Iron ore prices have gone too far. We have to accept it, although we can’t afford it.”

Perhaps this is a stupid question, but why can't Jiangsu Shagang Co. afford it? Can they not correspondingly increase the price of their products? Are they in competition with Chinese government owned steel makers who have "special subsidies"? Or have they bid for so many future contracts that they can no longer fulfill them because of price increases in raw materials? Combinations of all of the above?

[svinayak]

China's economic reforms began in 1978 when 18 rural families met in secret and decided to break up their collective farm (contradicting the communist system) and almost quadrupled their output. (Production had originally fallen 40% when the farms were collectivized.) The government then released most food price controls, and 80% of farmers then repaired and/or improved their homes. Deng (Mao's successor) then toured Singapore, was greatly impressed, and sent hundreds of others. "Special economic zones" suspended anti-business laws, taxes were lowered, and rules streamlined for factories making goods for export. In addition, local officials' promotions were pegged to the number of jobs created - thus, they were quick to build required roads and utilities. In addition, government officials insisted foreign companies use, and teach local workers their latest techniques.

The Elephant and the Dragon" provides excellent information that allows readers to understand the impact of India and China's recent economic transformations. The bad news, however, is that its recommendations are the same old silly nostrums that have little, if any value. However, given the importance of simply helping Americans become more informed on the topic, the fact that the book exploded at least two popular myths, and the difficulty of correcting the problems India and China pose for the U.S., I still rate the book with 5 stars.

China's economic reforms began in 1978 when 18 rural families met in secret and decided to break up their collective farm (contradicting the communist system) and almost quadrupled their output. (Production had originally fallen 40% when the farms were collectivized.) The government then released most food price controls, and 80% of farmers then repaired and/or improved their homes. Deng (Mao's successor) then toured Singapore, was greatly impressed, and sent hundreds of others. "Special economic zones" suspended anti-business laws, taxes were lowered, and rules streamlined for factories making goods for export. In addition, local officials' promotions were pegged to the number of jobs created - thus, they were quick to build required roads and utilities. In addition, government officials insisted foreign companies use, and teach local workers their latest techniques.

A key dimension of our trade deficit with Asia (especially China) is the ESCALATING rate at which it is increasing. For example, in 2000, 30% of the world's toys came from China; only 5 years later it was 75%. It exported $1.3 billion in auto parts in 2001, and nearly $9 billion 4 years later. In 1996, $20 billion of computers and other technical products were exported from China, vs. $180 billion in 2004 - leading all other nations. China now exports more/day (over one 40 ft. container/second) than it sold abroad during all of 1978 - the year it began opening up its economy.

There's more. A McKinsey '05 survey of U.S. companies in China found they bought just 30% of what they could buy in China, and planned to increase that to 50% by '08. Finally, in '05, only 14% of Chinese companies designed their export products in China; by '08 half expect to do so. (Only about 10-20% of a product's U.S. retail value stays in China - the bulk goes to the designer - eg. Intels and Microsofts, and brand-name retailers; when these areas become subject to Chinese competition the sales of U.S. McMansions, BMWs, etc. will plummet.)

Perhaps U.S. efforts will convince China to revalue its currency by about 40%, making U.S. products more attractive. Not likely - the author reports that Chinese leaders estimate an 8% annual GDP growth rate is required to absorb the frustrations of its increasingly discontented interior population (earn only one-fourth that of their coastal brethren) - as well as the slightly more than 50% still employed in state- or collective-owned enterprises. In addition, only 25% of Chinese have health insurance, 14% have pensions, parents must pay an increasing proportion (now 25%) of education costs, enormous pollution and safety costs must be funded, roads and utilities require massive expansion, and Chinese banks are estimated to have $911 billion in bad loans (6X the American S&L crisis). Chinese officials are also well aware that cheaper labor is available in other areas of S.E. Asia, India, Africa, and South America - they cannot afford to push their luck too far. Finally, the U.S. should be careful what it wishes for - revaluing China's currency would put ENORMOUS pressure on those holding large amounts of U.S. dollars, risking a run of inflation for us.

India began allowing foreign investment 13 years after China, and in a begrudging and erratic manner after a new government was confronted with the reality of near bankruptcy. It devalued the currency 20%, lifted restrictions on imports, raised interest rates to 11% to encourage deposits, and eliminated export subsidies. State-owned banking, airline, and oil entities were opened to private investors, and important antimonopoly limits were eliminated for most companies while red tape and corruption and taxes were reduced. In '96, a corruption scandal brought a return of the left-leaning leaders. Sending government leaders to China helped break the resulting impasse.

Offshoring computer programming to India began as a result of Y2K needs. Today, newspaper ads bring 250 applicants/call-center job. Manufacturing, however, suffers from India's lack of good roads, stable electricity sources, and infrequent sailings.

The two popular myths exploded by the book? 1)Democracy is key to success - China's progress (9.6% GDP growth/year) has greatly outpaced that of India's (5.7%/year, over a shorter period), and at least one Indian leader attributes that to China's ability to move more quickly through its authoritarian leadership. 2)China's small steps to economic improvement (eg. try improvements out on a limited basis before going nationwide) worked far better than the "total immersion" recommended by U.S. advisors and attempted by Russia.

Finally, "The Elephant and the Dragon" attempts to offer suggestions for Americans - improve our education system, and invest more in basic research. These suggestions, however, are superficial (at best) because the real problem is that Asians are smart (IQ tests generally show about a ten-point lead vs. Caucasions), more are college-educated than in the U.S., and WILLING TO WORK FOR ONE-TENTH THAT OF AMERICANS! Improving our education (been tried for over three decades, with little or nothing to show for it except vastly increased spending) will do nothing to address this fundamental overall problem. (There still remains another problem regarding the need for improved technical leadership - addressed in the final paragraph.) Focusing on services delivered on site (incapable of outsourcing) is another recommendation offered by some - however, this forgets that this opportunity has already been largely taken over by illegal Mexican immigrants.

I don't have a solid solution either. However, Meredith's material allows some preditions. Since at best only half the savings of Chinese manufacturing now goes to American consumers, and American firms plan to considerably expand their outsourcing of manufacturing and service jobs, it seems likely that the economic spread between American "winners" and "losers" will first increase and then hold steady; at the same time the stock market will continue to rise (18,000?). Eventually, however, fewer Americans will be able to afford current prices for Chinese goods while the Chinese move into design and branding (eg. Korea's Samsung, LG Group, Kia, and Hyundai) - then prices, profits, stock levels, and executive pay will all slide.

"American content" laws enacted under President Reagan to save the American auto industry offer a ray of hope for American workers. They haven't "saved" G.M., Ford, and Chrysler, but they have led to considerable foreign investment in the U.S. and thousands of high-paying jobs from Toyota, Honda, Nissan, Mercedes, BMW, etc.

Two final points. 1)China and India's thirst for raw materials and energy make both more willing to deal with countries verboten to the U.S. - Iran, Venezuela, Sudan, etc. Thus, the U.S. is going to find itself with less and less international influence in the coming years. 2)Top caliber Indians and Chinese are already finding the U.S. less attractive as opportunities quickly grow in their own nations. Many of their expatriates are choosing to return. Thus, the U.S. is going to increasingly need to rely on its own talent, and we sorely need to improve our education for this segment.

http://www.amazon.com/Elephant-Dragon-I ... pd_sim_b_5

[Surya]

Did I miss something?? No posts of the Rio tinto affair with the AUssies.

Lots of in Aussie newspapers but also acceptance of their true impotency.

[amit]

The developed countries is a small elite club so far, there is no way they want to accept big country like China or India to join in. You have to earn it yourself. The closer you to the gate, the more noise you heard. Why the gentleman who earned Nobel prize for his contribution in international trade now wants to block Sino-US trade? Why so many predictions come out about China will crash soon? The reason is simple, they are panic what if Chinese way can work out? If so, The whole building will collapse.

Wlin,

Sorry for the late response, was busy elsewhere.

You have raised many interesting points like the one quoted above. Yes you are absolutely right, no one is going to invite either India or China to the high table, you've got to gate crash, grab a chair by pushing someone off, and then sit down at the table.

In the economic and to a certain extent strategic spheres China has done this smash and grab (please note I don't use this term in any derogatory sense) quite well and India could do well to emulate this.

Back to the R&D stuff, I think the China’s competitive advantage in R&D probably even bigger than in the manufacturing.

However, this is where, I think you are getting it wrong.

Competitive advantage in R&D is important, undoubtedly. And both India and China have the deadly combination of low cost (in terms of Western costs) and high skilled manpower for R&D.

But and this is important IMO, R&D is a by-product of innovation and that's where I think the West, particularly the US has a stranglehold that will take some loosening up of.

So the ideal path for one young Chinese who want to pursue academic career in China would be go to States, earn a Ph.D degree and come back to China hunting for a much better paid position instead of staying in China. This not change, nothing will change. I do not think this related to some communist revolution thing. It is pure resource stuff. You do not have resource, you do not a chance to have first tier science.

This point is exactly what I'm trying to say. The US has an eco-system which makes it worthwhile for bright Indians, Chinese, Germans, Moroccans and what have you to go the States and do research. This eco-system is the main driver of innovation and fundamental research in the US and this innovation is what fuels industrial/sectoral R&D. The US (companies) are not shifting fundamental research to China or India, they are sending out specific R&D.

Consider this. Microsoft has one of its biggest R&D centres in, if I'm not mistaken, in Beijing (or is it Shanghai?). I happen to know that some great work gets done in this centre. However, at the end of the day any longterm credit or benefit from this research goes to Redmond, US, not to any Chinese company. The Motorola Research Lab in India got a CMM Level 5 before its US counterpart. It also does some great work but ultimately the original innovation comes from the US.

The point I'm repeatedly trying to make is that due to a mixture of historic, economic and political reasons, the US is still an attractive place for global talent. And today's research, innovation has to be a global activity involving the best talents from around the world. Just look at the ethnic mix of some departments in top US universities and the you'd realise where lies US advantage in fundamental research. And R&D stems from fundamental research, you can't have it the other way round.

The day when China can make it worthwhile for say a bright Indian student to dream of doing well in studies and going to Beijing or Shanghai for further studies or research and even for settling down (perhaps) or when India can do the same for Chinese students who would dream of coming and studying in Bangalore or Delhi, that's when these two nations can think they've come to the level which the US is today.

Mind you as an Indian, with no particular liking for the US of A (no visceral dislike either, ) it makes me sad that I had write the above paragraph but that's reality. And that's what bring me to the original point I made in my last post on this subject. Unfortunately I get a sense that a large section of your countrymen have become intoxicated with the manufacturing success (admirable success, I must say) and infrastructural boom in China to think that innovation can also be replicated with the same formula.

That's not going to be possible, IMO, unless the society that has been built up over the last 60 years or so by the CCP is dismantled and a new one comes up in its place. How long will that take?

[wlin]

IMHO, the most important thing for R&D is demand. The second is resource. I think every country has the innovation instinct. It is in human nature. The difference is if you have that demand for R&D. If you do have, than do you have the resource to really do it? If you are start from scratch, you probably pick anything you can do to survive, be it reverse-engineering or outsourcing. Then when things under control, your firm become middle size company, then you probably feel the demand to do some R&D work. And luckily, you got the resource to do it. The US got a huge market and they got huge resource. That is it.

For developing counties, you need to start from somewhere to develop yourself. When market develops, you will see the new demand come up and hopeful at that time you have the resource to do it. West media kept saying Chinese can only do the manufacturing and can not be innovative bla bla. From my knowledge, I knew that even build the simplest product would require a lot of knowledge build up and expend the overall knowledge pool. So step by step, you can begin to do something big. Same as you, I do not think China can develop her R&D ability with help from those MNC research centers. It is just another form of outsourcing. All I said is about domestic companies.

For example, like Huawei, it hired 30K employees in R&D department. It invests 2B USD in R&D every year. Consider the low labor cost, the 2B R&D budget means a lot. I have a friend who is senior manager in Huawei India, in fact it is him to introduce me to BR. 

Huawei is a big name right now and West media knows it. But there are many companies that unknown to outside world. For almost any industry, there is some small middle size Chinese company that works hard on R&D. For example, I have two cell-phones, one is Iphone, which I used it in States, the other one is Meizu 8 which I used in China.

You can check the Meizu 8 here.
http://en.meizu.com/
If you are patient, you can experience M8 here.
http://en.meizu.com/m/Taste.html.

A lot of people would say it is just a copy cat of iphone. But M8 is developed using MS Windows CE. If you have some knowledge in this industry, you would knew how difficult to develop it. The man behind MeiZu named J Wong. He is a high school drop out and now 33. He started his company in 2002 to make MP3. You can say it is a copycat, but he made two key improvements: one is it can run 24 hours, the other is it can connect to any PC without driver. These two features are never heard off for MP3 at that time. Then every year, he introduced some new model to the market and eventually became the market leader in China. Although his MP3 is basically a no-name, his MP3 offers a lot of fancy feature and very popular in China. Then in year 2007, he stops MP3 development and put all his money to develop a new cell-phone which is M8. M8 entered market on Feb 09, 8G model sells at 1880RMB/275 USD, 16G model sells at 2380RMB/350 USD. It now sold over 1 million sets. The 3G version is set to out this year which will integrate both Window CE and Android, which is very interesting. Basically he spent all his money on R&D and he has never traveled out of China or even to Beijing and Shanghai.

This is not a single case, BYD is another example. Wang, Chuanfu started to build battery in 1995 and become the largest battery builder and now a front runner in electric car. BYD now hired about 4000 auto engineers in their car division.

I was a CS major, so when my company grows, I want to use ERP to manage my company. I visited SAP and Oracle and found they are apparently not our type. They are just not flexible and too expensive. I finally choice domestic vendors JinDie. I can not say the experience is satisfied but they response very quick, in a way that no foreign vendor can match. In today’s China ERP market, market leader Yongyou got 21% market share. JinDie is a distant number 2 and SAP is number 3, Oracle only 4% share. I bet you would never heard of this from West media.

I will stop talking here and my point is R&D is not something reserved for US. If you want to do it, you can do it.

The developed countries is a small elite club so far, there is no way they want to accept big country like China or India to join in. You have to earn it yourself. The closer you to the gate, the more noise you heard. Why the gentleman who earned Nobel prize for his contribution in international trade now wants to block Sino-US trade? Why so many predictions come out about China will crash soon? The reason is simple, they are panic what if Chinese way can work out? If so, The whole building will collapse.

Wlin,

Sorry for the late response, was busy elsewhere.

You have raised many interesting points like the one quoted above. Yes you are absolutely right, no one is going to invite either India or China to the high table, you've got to gate crash, grab a chair by pushing someone off, and then sit down at the table.

In the economic and to a certain extent strategic spheres China has done this smash and grab (please note I don't use this term in any derogatory sense) quite well and India could do well to emulate this.

Back to the R&D stuff, I think the China’s competitive advantage in R&D probably even bigger than in the manufacturing.

However, this is where, I think you are getting it wrong.

Competitive advantage in R&D is important, undoubtedly. And both India and China have the deadly combination of low cost (in terms of Western costs) and high skilled manpower for R&D.

But and this is important IMO, R&D is a by-product of innovation and that's where I think the West, particularly the US has a stranglehold that will take some loosening up of.

So the ideal path for one young Chinese who want to pursue academic career in China would be go to States, earn a Ph.D degree and come back to China hunting for a much better paid position instead of staying in China. This not change, nothing will change. I do not think this related to some communist revolution thing. It is pure resource stuff. You do not have resource, you do not a chance to have first tier science.

This point is exactly what I'm trying to say. The US has an eco-system which makes it worthwhile for bright Indians, Chinese, Germans, Moroccans and what have you to go the States and do research. This eco-system is the main driver of innovation and fundamental research in the US and this innovation is what fuels industrial/sectoral R&D. The US (companies) are not shifting fundamental research to China or India, they are sending out specific R&D.

Consider this. Microsoft has one of its biggest R&D centres in, if I'm not mistaken, in Beijing (or is it Shanghai?). I happen to know that some great work gets done in this centre. However, at the end of the day any longterm credit or benefit from this research goes to Redmond, US, not to any Chinese company. The Motorola Research Lab in India got a CMM Level 5 before its US counterpart. It also does some great work but ultimately the original innovation comes from the US.

The point I'm repeatedly trying to make is that due to a mixture of historic, economic and political reasons, the US is still an attractive place for global talent. And today's research, innovation has to be a global activity involving the best talents from around the world. Just look at the ethnic mix of some departments in top US universities and the you'd realise where lies US advantage in fundamental research. And R&D stems from fundamental research, you can't have it the other way round.

The day when China can make it worthwhile for say a bright Indian student to dream of doing well in studies and going to Beijing or Shanghai for further studies or research and even for settling down (perhaps) or when India can do the same for Chinese students who would dream of coming and studying in Bangalore or Delhi, that's when these two nations can think they've come to the level which the US is today.

Mind you as an Indian, with no particular liking for the US of A (no visceral dislike either, ) it makes me sad that I had write the above paragraph but that's reality. And that's what bring me to the original point I made in my last post on this subject. Unfortunately I get a sense that a large section of your countrymen have become intoxicated with the manufacturing success (admirable success, I must say) and infrastructural boom in China to think that innovation can also be replicated with the same formula.

That's not going to be possible, IMO, unless the society that has been built up over the last 60 years or so by the CCP is dismantled and a new one comes up in its place. How long will that take?

[svinayak]

http://www.youtube.com/watch?v=uw_O6JuRQWw

April 5 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner, on his first official visit to India, will meet Indian Prime Minister Manmohan Singh, Finance Minister Pranab Mukherjee and other officials tomorrow in New Delhi as the two nations seek to strengthen economic ties. Talks between Geithner and Indian officials will be aimed at expanding U.S. exports and investment in the South Asian nation. Bloomberg's Lizzie O'Leary reports. (Source: Bloomberg)

http://news.google.com/news/more?pz=1&c ... dB3MCq3xDM

[amit]

IMHO, the most important thing for R&D is demand...

Sigh! I guess I'm not just getting through.

One last time. Industrial R&D is the by-product of innovation and research which happens in universities and other centres of learning. And in today's world that innovation happens in a collaborative atmosphere where the best minds of the world work on the same project. And the US is away ahead on this.

I remember I read an article in Reader's Digest many years ago when I was a kid. The article was about Japan in its heydays in the mid 1980s. One US guy went to Japan to visit the factories of Sony, Toyota and all the great brands. He was suitably impressed and though the US has nothing in comparison. (Sounds familiar to something that is happening today, right?).

So he asked quite crestfallen to his Japanese host, surely there isn't anything in the US today that Japan doesn't have and wants? The Japanese guy paused and said yes there is something that Japan wants and wants very badly. The surprised American asked what could that be?

The Japanese replied: CalTech, MIT, Stanford... The list was quite long.

I hope now you understand what I'm trying to say. It's a very, very long haul before China (and yes also India) can produce the eco system which allows such centres to thrive.

Until then China, would be left doing what M8 did. Make a phone that looks like the iPhone (US innovation) run on MS Windows CE (yet another US innovation).

But anyway Wlin, let's agree to disagree on this. Pleasure chatting with you.

[Raghav K]

China's iClone

Cellphones, microchips, cars, even iPhones—there's virtually no high-tech Western product that China's cloners can't copy. Pretty soon, you might even prefer their work

Nearly every type of product can be-and is-cloned in China, sometimes so well that the ripped-off manufacturers inadvertently service the fakes when warranty claims come in . Cloners make air conditioners with the LG brand name in the country's remote west, along what was once the old Silk Road trading route. But cloners don't have to sell their wares under the same brand name: In Anhui province, near the Yangtze River, one of China's biggest auto manufacturers builds a part-for-part replica of a top-selling Chevrolet model, then slaps a new badge on the car. In the south, one cloning operation didn't just copy a technology company's product line-it duplicated the entire company, creating a shadow enterprise with corporate headquarters, factories, and sales and support staff.

http://www.popsci.com/iclone

[Chinmayanand]

OT but maybe not My query is whether Hu and Wen are also reverse engineered like everything in China today , if it is so, can anyone guess the original copies?

[shynee]

Who will pay for China’s bad loans? - mpettis

[wrdos]

CHINA ON TRACK TO BIGGEST HIGH SPEED NETWORK

ft.com
By Jamil Anderlini in Beijing 2010-04-07

As the Harmony Express pulls into the grimy railway station in China's ancient capital of Xi'an, an army of blue-uniformed attendants busily begin polishing its gleaming, sleek exterior.

This is the face of modern rail in China and the latest addition to a burgeoning high-speed network that will be the biggest in the world within five years, according to the government's blueprint.

The expansion plans are staggering: 30,000km of new track to be laid by the middle of the decade at a cost of as much as Rmb4,000bn ($586bn). The results are so impressive that the airline sector is looking on with trepidation.

China's state-controlled carriers are emerging from years of losses and have refocused on the booming domestic travel market, but they are faced with a potentially crippling threat from another arm of the state – the railway sector, led by the Ministry of Railways.

Liu Shaoyong, chairman of China Eastern Airlines, estimates that with high-speed lines under construction throughout China's most populous and economically developed regions, as much as 60 per cent of the domestic commercial aviation market will be affected to some degree.

“[The high-speed rail network] will have a serious impact on the aviation market and will place direct and enduring pressure on the development of China's airline companies,” Mr Liu says.

The effect has already been felt on the newly-opened route between Xi'an and Zhengzhou, 505km away in neighbouring Henan Province.

Joy Airlines, a subsidiary of China Eastern, and Kunpeng Airlines, a subsidiary of Air China, both previously offered regular flights but cancelled all services between the two cities within weeks of the maiden Harmony Express journey in February.

“The airlines have all cancelled their flights to and from Zhengzhou because there aren't enough customers since the high-speed rail line opened,” says an official airline ticket vendor in Xi'an airport.

A trip on the Harmony Express (all of the country's new 350km/h high-speed trains are part of the harmonious network) between Zhengzhou and Xi'an makes it clear why China's airline bosses are so worried.

China's railway stations are old and dirty and attract an array of thieves, pickpockets and scam artists but they are usually in the centre of town instead of far beyond the outskirts of a city where China's cavernous airports are invariably built.

In the case of Xi'an and Zhengzhou and most other major cities in China, travellers who arrive at the airport must either wait for erratic bus services or stand in line for a taxi to drive more than one hour into town on a newly-built toll road.

Flights in China are almost always delayed and passengers must arrive early so that they can pass through rigorous security checks.

Once on the aircraft, the service is perfunctory, the toilets often filthy and the food barely edible.

In contrast, China's shiny new high-speed trains are clean, fast, smooth and almost always on time. There are no excess baggage fees for heavy luggage, security checks are perfunctory and passengers can use their mobile phones.

Probably most concerning for airlines is that train tickets are significantly cheaper than airline tickets, especially when the additional costs of taxis and toll road fees are taken into account.

As the high-speed rail network grows, analysts expect airlines to pull off routes of 500km or less, while up to 40 per cent of air passengers travelling between 500km and 800km will switch to rail. This mirrors a similar trend in Europe over the past two decades as high-speed rail networks have expanded.

The potential impact on the Chinese airlines also raises questions about the viability of dozens of new airports under construction across the country.

As part of Beijing's Rmb4,000bn economic stimulus package to battle the global economic crisis last year, China built and upgraded 22 airports. This year the government has budgeted at least Rmb90bn to expand and build a further 25 airports this year.

Plans to build another 60 airports over the next decade are partly a response to official predictions of passenger volume growth that starts to look wildly optimistic when the rise of high-speed rail is taken into account.

In 2009, about 230m people caught flights within China but the country's civil aviation authority predicts that number will rise to 700m passengers by 2020 and double again to 1.4bn people by 2030.

But a significant proportion of those passengers could soon be catching the Harmony Express instead and wondering why they should ever put up with the inconvenience of flying in China again.

[Ameet]

Judge awards families $2.6M over Chinese drywall

http://news.yahoo.com/s/ap/20100408/ap_ ... se_drywall

A New Orleans federal judge on Thursday awarded seven Virginia families $2.6 million in damages for homes ruined by sulfur-emitting drywall made in China, a decision that could affect how lawsuits by thousands of other homeowners are settled.

It remains to be seen how the plaintiffs can collect from Chinese companies that do not have to respond to U.S courts, although some have talked about getting orders to seize U.S.-bound ships and cargoes from the drywall companies.

Thousands of homeowners, mostly in Florida, Virginia, Mississippi, Alabama and Louisiana, have reported problems with the drywall, which was imported in large quantities during the housing boom and after a string of Gulf Coast hurricanes.

The drywall has been linked to corrosion of wiring, air conditioning units, computers, doorknobs and jewelry, along with possible health effects.

Fallon's ruling covered only property damage and did not look at possible health effects. The first cases with medical claims won't be considered by the court until late 2010 or early 2011.

It was far from certain who would pay for the damages. Civil judgments in U.S. courts aren't enforced in China. Plaintiffs are suing American drywall suppliers, distributors and homebuilders, too.

In this case, the plaintiffs sued Chinese drywall manufacturer Taishan Gypsum Co., which hasn't responded to lawsuits and did not have a lawyer representing it at the February trial.

The ruling noted that Chinese tests were done by a Chinese government agency and not by an independent testing laboratory. The Chinese government agency issued "certificates of quality" based on a protocol that "predates the production of the drywall shipped to the United States by at least two years," the ruling said.

[abhishek_sharma]

What China’s Currency Shift Could Mean

http://roomfordebate.blogs.nytimes.com/ ... ould-mean/

[Atri]

China may raise rates soon, revalue yuan by Oct

How does that fare for PRC, Indian, US and global economy?

[vina]

China on Treadmill to Hell Amid Bubble - Says Jim Chanos

Note dear wrdos , zlin and other Chinese posters. This time, there is actually a timeframe associated and Jim Chanos actually seems to be putting his money where his mouth is.. aka known as BETTING .

[wlin]

It is better to know what his definition of so called “Hell”. Is 9% growth considered Hell or 8%. Chinese already got used to these fortune tellers. First they have the conclusion that China’s economic will crash or go to Hell. Then they got scientific proven because of reason A,B, C and gave a timeframe like 1 or 2 years. Then 1 or 2 years passed, they came out again with the same predication but different reason like reason D, E, F. Sometimes, the fortune teller changed. Like the famous Gordon Chang, who predict The Coming Collapse of China in 2006. Well, he learned his lesson, now he won’t give a timeframe to my knowledge.

This Mr. Chanos apparently a rookie who joined the League, so he gave out timeframe. I am waiting to see his next version of it.

People like to predict, it is better for all these China experts to check what they said years back and see their track record. If in their short career, they never predict one thing right, why you believe they can be right this time. Of course, this gentleman is a rookie and he may have magic.

China on Treadmill to Hell Amid Bubble - Says Jim Chanos

Note dear wrdos , zlin and other Chinese posters. This time, there is actually a timeframe associated and Jim Chanos actually seems to be putting his money where his mouth is.. aka known as BETTING .

[Katare]

At such a high base these kind of growth figures are nothing short of scarily astonishing......

Pre global financial meltdown, No one, absolutely no one forecasted that China would overtake US as largest auto market as early as 2009. The growth is simply amazing, no wonder so many people have hard time believing Chinese numbers. They persistently defy logic and empirical evidence

China passenger car sales up 63 pct in Mar