Wednesday, November 17, 2010
Wake up Call on China
My point is that the Chinese by dint of hard work and strategic cooperation would have risen in the world economy but someone over there in the secret councils in Beijing decided that the old state run model of centralized production wasn't paying the bills and needed a kick start. And what a kick start it was and has been. And the model was this: Open up China to the wonders of comparative advantage, let the yellowhairs come and build their factories with tax advantages galore and a starving population from the country willing to work at slave labor wages, sell salad shooters to Americans and take the enormous profit generated to buy treasuries. But here is where the Chinese were crucially foxy and the US government was criminally insane. The Chinese said we will build your salad shooters but we want you to send over the machinery and the technology to build those shooters. Of course it didn't stop with salad shooters. It soon began to include machine tools, building materials, computers,textiles,solar and wind technology and now aircraft manufacturing. They made transfer of the technology and the machines a precondition of the deals and our government was stupid and greedy enough to permit and encourage the destruction of the American economy. The Chinese didn't destroy and take over our economy, we actively encouraged it.
Now again, this is no conspiracy. If you recall at the time in the 1980's when the Chinese ascent began, we had an imbecile running the Federal Reserve and a demented retired actor running the country who told us we were a nation of ideas, and would not miss these dirty manufacturing jobs. This was the dawn of the computer age and consumerism, cheap gasoline, the toppling of the Berlin Wall and the Soviet Union dissolving before our eyes. And so began globalization, shutting down American Plants who paid living wage jobs to uneducated folks who could afford to buy American cars, shoes, clothes and tools and appliances and live in their slab boxes in the suburbs. I guess you could call it some early post industrial version of the American Dream. What we have here then is analogous to a war and it is hard to argue that America has won any battles and if we don't start winning a few pretty soon, it will be all over.
The Chinese are sitting on cash, a pile of treasuries,and agency debt. They have not come by this cash hoard by sheer hard work. They have ignored patents, intellectual property laws and have stolen machinery outright as well as engaging in cyber theft and espionage. They are just doing what a lot of countries have done but on a huge scale, What I find most ominous is that the Chinese have been making big energy deals with any country willing to sign an exclusive contract with them and of late they are using those treasuries to buy up mines and mining companies all over the world supplying only China. They are willing now to retaliate against anyone who crosses them. When a Chinese trawler strayed into disputed waters last month near Japan and banged into a Japanese Coast Guard vessel, the skipper and ship were impounded and the Chinese immediately cut off deliveries of crucial metals and rare earths to Japan. For a country like Japan which relies on these metals for export, that was big deal. Whatever. Maybe it was payback for the Rape of Nanking but it got the world's attention. The Chinese play for keeps. They are spending money like a drunken sailor buying up every crucial asset in sight. But remember this: It was money that we gave to them and if we keep giving it to them, in time, they will own us. What we can do about winning a skirmish or two in this war will be the subject of an upcoming blog. Now a disclaimer:A few years back our family hosted a choir from the University of Nanjing and it was an eye opening experience to meet such fine and warm people. I became an instant fan of the Chinese people and their rich and varied culture and history. I think we have more to learn from them that they from us.