Saturday, October 2, 2010

China Acting Up

China, the proverbial bull in the China shop, is acting petulantly and throwing its weight around.

First there’s the fishing trawler incident with Japan. News accounts refer to the Senkaku Islands as disputed territory, but they’ve been in Japan’s control since the late 19th century, so after a good deal more than a century, ‘disputed’ doesn’t usually include provocations. For all intents and purposes, after that length of time, control by Japan has to be accepted unless or until that country decides to relinquish that territory peacefully. It’s natural then that Japan would take offence when another country’s fishing boat encroaches on its waters. The Japanese patrol boats ordered the Chinese trawler to stop, but instead the Chinese captain directed a sharp turn and purposely rammed the two patrol boats. The trawler was then boarded and the Chinese sailors detained. The crew was released after a few days but the captain held.

China put up a holy stink about the matter and insisted the captain be released or Japan would suffer the consequences of a souring of relations and it would be all their fault. Exports of rare earth metals to Japan were temporarily halted as kind of a warning. As mentioned in a recent post, rare earths are essential in many high tech applications and China controls 97% of the market. Japan released the captain earlier than they wanted to try to placate China but it then demanded compensation from Japan and an abject apology.

This brings up three points. China is currently also threatening Norway over the possibility that a Chinese dissident recently sentenced to 18 years in prison for advocating democracy may be nominated for a Nobel Prize. In China’s eyes that would be interfering in its internal affairs and commercial relations would suffer if he’s given the prize. Now that everybody wants to make money there or use it as a cheap production base, and as a result has made it rich, China feels it can bludgeon its way to dictate other country’s policies, not even realizing or understanding that they are democracies and can’t order events like Chinese leaders.

The second point is the many territorial claims China has staked against other countries’ lands and international waters. China claims nearly all of India’s Arunchal Pradesh state in its northeast, though it’s always been a part of India, because it says it was historically Tibet. The entire South China Sea is claimed by China including areas that are practically in view of Malaysia, Vietnam, Brunei and the Philippines, though the furthest reach of their claim is nearly 1000 miles from the nearest Chinese province. It is an important shipping route for a large part of the world’s commerce and every other country considers most of it to be international waters.

The third factor is the country’s need to feed the nationalism it has been stoking for decades. This helps it deflect criticism of itself. If the government is seen to be weak in the people’s eyes they will feel a backlash. Maybe you noticed that all the recent strikes, which are illegal in China but were allowed this time, were against Japanese owned companies.

The second major front in China’s relationship with the world is its manipulation of its currency. By most estimates it is undervalued by 25% to 40%. That makes Chinese goods far cheaper than they otherwise would be and allows the country to sell a lot more around the world than if their currency was subject to the marketplace, as the currencies of all other major economies are. As a result of pressure last summer, China announced it would allow its Yuan to float more widely. This was a cynical ploy to stall and deflect American action; the currency has been allowed to rise only 2% since that announcement.

As a result, the issue is back on the front burner with the US congress threatening action against China via the WTO. Premier Wen Jia Bao made a speech recently to outline his country’s position. He said three things worthy of note. First he said there’d be widespread job losses and social unrest in his country if the currency was revalued. He went on to say America doesn’t produce anything anymore; and the US would have to buy from somewhere anyway.

On the first point he’s justifying Chinese currency manipulation by saying Chinese jobs are more important than jobs in other countries. China is exporting unemployment as well as goods. On the point of America no longer manufacturing anything, an undervalued Yuan obviously is part of the reason. If the Yuan were allowed to float freely and its value went up 40%, then a lot of US manufacturing would become competitive, especially if/when energy costs rise.

The example of Pendleton Woolen Mills is a telling indicator of America’s potential to be competitive. The company produces high end shirts. Some years back they closed their last factory in America because it cost a dollar more to produce in Oregon than China; that in a shirt that retails for $50. The hundreds of workers affected were very unhappy to lose their jobs, but bottom lines don’t give a shit about people. The Oregon plant was only 10% of their total production and it’s a profitable company so they could’ve easily kept the plant open. America can’t compete on items that are sold cheaply, but clearly could on more expensive quality goods.

While the US is fixated on its huge trade deficit with China, probably the biggest losers from Chinese manipulation are other developing countries, which never seems to enter into the discussion. Why are Chinese garment jobs more important than those in Cambodia, Bangladesh, Turkey or Haiti? Cambodia has a hard time competing with China but the picture would change drastically if China’s money was fairly valued. Last I read, the cost differential was about 23% in China’s favor. I’m much more concerned about Cambodia and the other poor countries that are losing out from China’s actions, than about America, which has the resources to take care of its people if it actually wanted.

America likes to promote democracy around the world, even fight wars in its name, but when it comes to commerce, free-enterprise-loving, conservative businesspeople much prefer producing in one-party, autocratic states. The more the workers are exploited and denied basic human and organizing rights the better the conditions for making money. Meanwhile their personal greed and indifference to the health of American society has bestowed great wealth and consequently power to a country that likes to play by its own rules, throw its weight around and now act the bully.

1 comment:

Anonymous said...

Your case is well made. It might be argued that the rest of the world is now beginning to pay the price for the selling-out of Tibet, another country with little or no cultural connection to China, where no real security issues exist and which is also being (has been?)systematically consumed. The unwisdom of "feeding the crocodile", as Churchill put it, becomes clear.