Hidden Harmonies China Blog

(On January 5, 2012, I sat down with Shaun Rein, founder and Managing Director of the China Market Research Group, to talk about China. He gave us his insights into major events of 2011. You may listen to the podcast or read the transcript below. Click on the play button or right-click on the link to save the podcast for local listening: link. In this hour-long interview, we touched on many topics: pollution, CNN and Christian Bale’s recent run-in with Chinese police, food safety, Weibo, and so on.)

DeWang:2011 was another eventful year for China. Just when her bullet train seems unstoppable, a fatal collision left the whole country in doubt. China achieved space docking, something only the U.S. and Russia have managed. Then there was Tiger Mom.

I have invited a real China expert to weigh in on these events and other events that mattered to China. What were the Chinese narratives? How did the Chinese feel about them? I couldn’t have found a better person to do this with. Read more…

With Obama meeting other East Asian countries in Hawaii these few days, the “American re-engagement with Asia” story is all of a sudden in vogue again. This new way of thinking actually started with President Obama’s promise couple of years ago to double America’s exports in the not too distant future. The goal itself is worthy and is an excellent way to channel America’s energy. Unfortunately, the simple gist of that U.S. ‘re-engagement’ has instead been couched by the U.S. media into some sort of militaristic furtherance, with a suspicious eye casted at China. Such ploy is to dramatize and sell ads (and, sure, by politicians to garner votes). I am happy that the Obama administration still publicly reaffirms the idea that a richer China bodes well for American exporters, because that is the simple truth. Ask Intel, Apple, GM, and Caterpillar. Read more…

By 2020, China’s FTA with ASEAN nations will get another big boost; a 3,900km high-speed railway system linking China’s Kunming through Laos, Thailand, and Malaysia down to Singapore becomes operational and construction has already started. See my hand-drawing in the regional map below to get a sense of scope of this project. China’s trade with the ASEAN countries has sky-rocked to $292.78 billion in 2010, the year the FTA went into effect. ASEAN countries exports to China at $154.56 billion already dwarfed the U.S.’. Read more…

Times certainly are changing. As hundreds of millions Chinese travel for family reunion, increasing number are taking the time to go abroad and indulge themselves.

Chinese tourists have gone on shopping sprees to Japan and then Taiwan in recent years, since US visa is notoriously difficult to obtain (Chinese applicants are denial-based.) Now, it seems US is relaxing tourist visa rule to draw Chinese shoppers to America:
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Should China levy environmental tax on exports? Before offering my thoughts on that question, I’d like to share some news first.

China has announced spending 4 trillion yuan ($601 billion) over the next decade in water projects, mainly to tackle over-exploitation, usage efficiency, and pollution. The country plans to cap water consumption at 670 billion cubic meters, and according to this other recent report, China is now short about 40 billion cubic meters annually.

China’s Ministry of Water Resources also reported severe droughts this year, especially in Shandong, Hebei, Henan, Anhui, Shanxi and Jiangsu provinces. It said that in Hebei Province alone, 370,000 residents are having difficulty getting drinking water due to abnormal rainfall (80% less than normal).
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China President Hu Jintao has landed in U.S. on his official state-to-state visit and was greeted at the airport by U.S. Vice President Biden today.

The U.S. media continues the same old tune: ‘currency manipulation’, ‘human rights’, and etc. I hope Presidents Hu and Obama make pragmatic breakthroughs at the conclusion of this visit.

For now, I would like to take this occasion in highlighting some of our recent posts dispelling this various nonsense in the U.S. media.

In November 2010, a U.S. congressional committee made some astounding remarks against China on the above issues. We where shocked a branch of the U.S. government would stoop so low and take such an unintelligent stance like the media. Allen and I wrote this, “A point by point rebuttal to the 2010 USCC Annual Report.”
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Chinese scientists made breakthrough at the No.404 Factory of China National Nuclear Corp in the Gobi desert in remote Gansu province, enabling the re-use of spent uranium and increasing the efficiency of nuclear fuel by 60 folds.  China’s existing supply of uranium throughout China was estimated to last for 70 years.  With this technology, China now forecasts the supply lasting 3,000 years.

This breakthrough obviously makes nuclear power a much more practical option, because the waste resulting from use is now dramatically reduced.
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Russian President Vladimir Putin and Chinese Premier Wen Jiabao has just jointly announced in St. Petersburg to no longer use the U.S. dollar in their two country’s bilateral trade. China Daily reported the news, headlining, “China, Russia quit dollar.” This is a reaction to the yet another round of printing by the Fed ($600 billion in fact).

“Quantitative easing” are new fancy words the U.S. government use to describe printing money out of thin air. (Would you be surprised if the U.S. media do not refer to this as “currency manipulation”?) At the recent G20 Summit, world leaders were upset at the U.S. for being so irresponsible as the USD is the reserve currency for the world. If Russia and China successfully execute on this arrangement in the coming years, I think other countries could follow suit.

In my prior post, “The 2010 USCC Annual Report is ‘truthless, prejudicial’,” I ranted about the 2010 USCC Annual Report and reiterated Chinese Foreign Ministry call that the report was “truthless” and “prejudicial.” Some of you expressed privately that I should address the report seriously, especially, as this is an “official” position taken by a branch of the U.S. government.

Some of you also responded, since the U.S. is not interested in addressing the systemic problems locally and rather blame foreigners (China especially in this report), then let the U.S. march forward with her madness. In the long run, it will only result in America’s decline. Let it be, so the argument goes.

After giving it some thought, I think China and the rest of the world have a vested interest in America seeing our world for what it is, not to be cloaked in lies and prejudices. Read more…

the Economist recently interviewed Michael Spence (Professor of Economics, Stern School of Business, New York University, and Senior Fellow, the Hoover Institution, Stanford University), and I thought his comments about China, the U.S., and the growth dynamics between the developing countries and the developed countries were rather interesting.

He talks about economics without the politics. It’s almost “weird” to find this type of discussion in America nowadays. He said that China is laying the ground work for transitioning into a more advanced economy over the next decade. He also said that the developing countries will maintain their growth even if the developed countries continue to limp along; the developing economies are no longer as dependent on the developed countries as was a decade ago. Elsewhere, I’ve read him articulating the U.S. has been consuming more than it produces for about a decade now and the U.S. will have to settle into a lower consumption “norm” when it re-emerges.
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Six months ago, I wrote about the “COMAC C919, Challenging the Boeing and Airbus Duopoly.” The aircraft was scheduled for production release in 2016. And looks like the plan is proceeding well. The company has reported 100 of the planes having been pre-ordered by various airlines. So, here we are, six years before release, the C919 has already started making dents in this lucrative industry.

You may follow the above link to see who the suppliers are (for various subsystems of this aircraft) as well as other pertinent information about the market the C919 competes in. The C919 leverages COMAC’s experience from the ARJ21 which is expected to enter service this year.

The orders are making news around the world. Additional coverage by USA Today: “China wants to rival Boeing, Airbus with its C919 ‘big plane’.”

Many in the West have tried to coax China to act more “responsibly.” But is it possible for China to ever act “responsibly”? I don’t think so – not because China is inherently not “responsible,” but because an “irresponsible” China is born out of the imagination of an insecure West. In this atmosphere, the only way for the West to deem China to be “responsible” is for China to stop being an independent polity and tow the Western line. Here is a case in point.

Today James Fallows wrote an interesting article on whether China is merely Self-Interested (as any power is) or “Actively Maligned” against the International Order. I won’t repeat what he wrote, suffice for me to quote his reasonable conclusion that: Read more…

America being the victor of the Cold War means she is the undisputed super power right now. The last two decades could have gone worse, but if we look back, there are a lot of positives. In the context of China, America finally accepted her into the WTO and abolished the discriminatory MFN exclusion. We saw inflow of capital into China which helped China’s continued growth lifting hundreds of millions of people out of abject poverty. We also saw the invasion of Iraq on false pretense of WMD. I am sure there are a lot on peoples mind when thinking about the USA. I wanted to make a list of top five things I think the world should thank this country. I also want to list the top 5 things I wish this country would aspire to. Below are mine. I am really curious what yours are.

Top 5 things the world should thank USA for:

5.	Awesome Hollywood movies
4.	Showing the world having a very open society is possible
3.	A culture of extreme individualism that helps unlock the individual’s abilities (though with really bad side-effects too.)
2.	A world-order that roughly works and generally most gets to develop.
1.	Technological advances in so many areas (Microprocessor, space exploration, medicine, biotech, etc.)

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Despite the moral posturing and smearing campaign against China in the Western media on the currency valuation issue, the essence of the current rebalancing of our world economic system is a fight between the rich and the poor (and between the rich themselves).

The U.S. really doesn’t have this currency valuation issue all that together. Here, NYT reports “Currency Rift With China Exposes Shifting Clout” where Jame D. Wolfensohn, a former president of the World Bank, on what this boils down to:
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Last week, the U.S. Congress passed a bill that authorized the Obama administration to raise tariffs against Chinese goods in response to China’s alleged manipulation of its currency, purportedly to gain an unfair trade advantage. According to this article , while the Obama administration “has not taken a position on the bill … [t]he vote ‘shows lawmakers have serious concerns about this issue…’.” Leaders of the European Union appear also to join the chorus in bashing the Yuan, claiming that the Yuan may hurt prospects of overall European economic recovery. Read more…

The 8th Asia-Europe Meeting (ASEM), a bi-annual event (the previous was in Beijing in 2008), just took place on October 4th and 5th in Brussels, Belgium. It was a big deal. Asia and Europe represent 60% of humanity and 60% of global trade. I like how ASEM state their mission. Below is part of it:
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I thought this was a very accurate characterization by Orville Schell via an op-ed on China Daily of the “dysfunctional” investment relationship between China and the U.S. at the moment. My interpretation? On one hand, China welcomes investment with open arms; think Intel, GM, Caterpillar, and even Google investing in China. That creates tons of jobs in China. American politicians calls that “exporting jobs” to China. Now China wants to “export jobs” to the U.S. through investing, and the American politicians call this a national security issue! (Yes, if Chinese companies invest in the U.S., it would also mean they will derive revenue from the U.S.. That is the same thing already being done by U.S. multinationals like Intel, GM, etc. in China. That’s globalization.) The 50 Congressional Representatives Schell referred to? They are xenophobic, protectionist, and stupid.
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Stan Abrams over at China Hearsay has a good article out today, “U.S. Practices the Art of Zen Protectionism on Huawei.”

(If you follow Huawei, you will know that it is one of the most innovative companies in China, and it has made substantial inroads around the world for its reliable and cost-effective telecom equipment. Actually, if you talk to some Cisco engineers about Huawei, they will tell you Huawei is incredibly innovative. Huawei may even be more active in international bodies defining standards – yes – even more so than Cisco!)

Abrams writes about the recent Huawei failed attempts at acquiring 3Com, 2Wire, and Motorola’s wireless equipment unit, despite offering $100 million more than the competition. He argues this was “blatantly protectionist.” I couldn’t agree more. The only disagreement I have with his article is his characterizing this blatant protectionist act on the U.S.’s part as “Zen.” It is American insecurity and xenophobia; pure and simple. Everyone in China recognize it as such.

In my opinion, this was really a blessing in disguise for Huawei.
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Intel has just announced its Q2 2010 earnings. It is the best quarter in the company’s 42 year history. Some of you might say, “what?!” With the financial crisis in Europe and the U.S., how can this be possible? Here is a direct link to their Q2 2010 report.

You will see in the report Intel’s revenue is derived 57% from “Asia-Pacific” excluding Japan. With Japan’s 11%, the whole of Asia accounts for nearly 70% of Intel’s revenue! China’s roaring economy is likely contributing a significant portion towards this record earnings. It is a little wonder that Intel is building a new fab in China (300mm fab in the northern Dalian using state of the art 90nm technology). Toyota too builds auto plants in the U.S., and for the same reasons: it would be too politically insensitive to not given how much Toyota derives its revenue from the U.S..
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“China unveils first sovereign credit rating report,” and this news is spreading like wild fire in the West. One reason is the report ranking the U.S. lower than China. Here is a brief take on it at Seeking Alpha: “The Unthinkable: U.S. Stripped of AAA Credit Rating by Chinese Agency.” The English version of the report is here. While Dagong Global Credit Rating Co., Ltd. (大公国际资信评估有限公司), has been around in China, this is the first time the rating company reporting on sovereign credit worthiness.
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Zhang Monan is economics researcher with China’s State Information Center and frequently appears on China Daily with her “big picture” takes on the global financial system. She is worthwhile following if you wish to understand how China sees the jostling of control between the now currently dominant developed countries and the emerging developing countries for a fairer share of wealth. In her 2010-07-05 article, “Towards new financial order,” she summarizes the inevitable competition (or “cooperatition” if you will) from developing countries in reshaping our worlds financial institutions. Below are snippets from her article:
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The following is a translation of an op-ed published published in China Review News.

May 27, 2010 – Opinion: the Foxconn Incident is a Reflection of the Growing Pains Associated with China’s Traditional Mode of Development

The recent spate of suicides at Foxconn in China has brought unprecedented attention to this major international manufacturing subcontractor of electronics equipments.  While the causes of these suicides are inevitably complex,  the incidents are a general reflection of the stress the traditional mode of development has wrought on China’s society and provide a warning that change must be brought about soon. Read more…

On 26 March 2010, South Korean (ROK) naval ship, Cheonan was sunk 1.9 km off the southwest coast of Baengnyeong Island. 46 of the 104 sailors were presumed killed. South Korea claims the ship was sunk due to a torpedo attack from North Korea (DPRK). “The cause of this explosion was not immediately determined, although experts said that an external explosion was likely, as the structure of the ship was bent upwards, rather than evenly splitting as would have happened if metal fatigue had been the cause, and that an internal explosion was unlikely, as explosives on board the ship were undamaged.” (Source: Wikipedia.org)

I’ve placed an “x” in red on the map above to indicate where the incident occurred. Note the dotted lines which separate the North from the South.
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The passenger aircraft industry is dominated by Boeing and Airbus. That landscape will start to change in 2016 when Commercial Aircraft Corporation of China (COMAC) (中国商用飞机有限责任公司) officially enters its C919 jetliner into service. It will compete head on against the Boeing 737′s and Airbus A320′s and is expected to be both cheaper and more fuel efficient. China Daily cited a Bloomberg report where Airbus forecasted Asia region alone to buy 8,000 passenger aircrafts (100+ seats) over the next 20 years valuing at $1.2 trillion. The market is huge. It also cited an Aviation Industry Corporation of China (AVIC) report predicting that airlines in China will buy 2,922 large passenger jetliners before the year of 2028. That is in the neighborhood of $400 billion in jetliners. It is obvious that China would have to invest in this industry.

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$1.4 trillion out of thin air

The U.S. government has created out of thin air (“manipulated” into existence if you prefer) $1.4 trillion since September 2008 (around the time of the financial crisis) to March 2010.  (Source: U.S. Fed.) In December 2008, James Grant wrote an article in the WSJ criticizing the Fed “printing like mad … and is the wrong approach with potentially dire consequences.”

What’s the point? Everyone who hold assets denominated in dollar are immediately going to have their wealth diluted in proportion to the amount “printed” (it’s computer based now, and so the physical printing is no longer necessary).  China and Japan are the two largest foreign holders of American debt,  so the value of their holdings decrease.  The vast majority of holders of dollar denominated assets are in fact Americans.  Their purchasing power is now reduced.  Who is “manipulating” who?

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