The NY Times had a solid article called “China’s Expanding Economic Empire” in today’s paper. It describes how China is using its’ state owned companies to expand globally, particularly in Africa, South America, the Middle East, and Asia.
Ultimately, thanks to the deposits of over a billion Chinese savers, China Inc. has been able to acquire strategic assets worldwide.
In addition to using their savings and financial discipline to acquire companies, China has infrastructure capabilities honed from building out their country and is able to bring staff locally to complete projects such as pipelines, railroads, mines and factories, thereby re-cycling their financial investments back into their own service companies.
The article discusses Greenland, where China has proposed to come in and develop their vast resources in return for access to commodities only if the local government by-passes wage laws and other restrictions to allow the Chinese to being in their own labor. Since no one else is offering to develop Greenland and their native workforce is ill-equipped to meet the challenge of modern infrastructure development and operations, it will be China’s by default.
However, the article does not mention anywhere the key variable that keeps Western countries non-competitive in these regions – our own laws against corruption and bribery which are likely the only way to win bids throughout most of the developing world (the Foreign Corrupt Practices Act). China has no compunction about working with anyone and doing whatever it takes to win these bids.
In addition, China doesn’t care about its reputation with the local workforce, unless things get really bad (i.e. people start getting shot). China brings its own value chain end to end, from the initial financing, to awarding bids to Chinese companies, to China pushing their surplus (skilled) labor and their own infrastructure even to support their staff (i.e. bringing in their own food). Western companies try to bring in the local work force and are sensitive to local suppliers on a relative basis.
While the article is generally full of relevant facts and analysis (except for the critical omission of the Foreign Corrupt Practices Act, which basically gave the world to China on a platter), it ends on a completely false two paragraphs.
As China becomes a global player and a fierce competitor… its political system and state capitalist ideology pose a threat. It is therefore essential that Western governments stick to what has been the core of Western prosperity: the rule of law, political freedom, and fair competition… giving up on our commitment to human rights, or being compliant in the face of rapacious state capitalism, will hurt Western countries in the long term. It is China that needs to adapt to the world, not the other way around.
I am frankly astonished that the editor let them add these paragraphs to let the article end on such a false note. There is no evidence that our methods of not complying with local practices is working; in fact the entire article proves that our Western methods are failing.
If a country is led by a strongman you need to deal with a strongman or you won’t be in business; this is obvious, the Chinese know it, and we don’t have a chance in h*ll of competing with it. As a result, we are handing the Chinese the world on a platter. We will ultimately adapt to China, not the other way around.
Cross posted at LITGM
There’s a law in Britain too against bribing people in those parts of the world where you won’t get contracts otherwise. I have often idly wondered why it was brought in. Now I realise that perhaps China bribed politicians to introduce it. What a pleasing logical circle that makes.
One wonders if the NYT ever pays foreigners for information or tips?
The US Foreign Corrupt Practices Act is a real hindrance to American business – from personal experience. I never got in trouble but only by being so careful my usefulness was limited.
I personally think China is a house of cards. They are becoming more authoritarian at home. Here is one explanation of why a successful businessman is leaving. Lots of successful Chinese are also leaving.
Stratfor has an interesting map showing that China is lightly populated in a huge inner region. The wealth is all in the coastal region. Tensions between the two are growing. China has the same bad lending practices that Japan had in the 70s. We of course are imitating this with zero interest rates but I was struck by the first quote about Chinese savers. Friedman’s book, The Next 100 Years discusses this issue and estimates that bad loans in China amount to 1/3 of the GDP. There are lots of ghost cities that must eventually eventually result in consequences.
A recent CBS 60 Minutes report in the US exposed dozens of new cities in China sitting empty – with the apartments snapped up as investments by the nation’s wealthy middle class, then sitting empty as the owners fail to find tenants who can meet the rent.
Financial experts fear the ghost town explosion will lead to a housing bubble burst, following China’s real estate boom which came after the government changed its policy 15 years ago and allowed people to buy their homes.
This is so much like Japan that it seems eerie.
Another point on China’s future is at the WSJ.
Since they have a pay wall, I’ll quote a couple of items.
China’s elderly are poor, sick and depressed in alarming numbers, according to the first large-scale survey of those over 60, an immense challenge for Beijing and one of the greatest long-term vulnerabilities of the Chinese economy.
The survey of living conditions for China’s 185 million elderly paints a bleak picture that defies the efforts of the government to build what it calls a “harmonious society,” one dedicated to human welfare rather than simply economic growth. Of the generation that built China’s economic boom, 22.9%—or 42.4 million—live in poverty with consumption of less than 3,200 yuan a year ($522).
Another point.
Other countries will also see a rise in the dependency ratio. But the pace of aging in China is particularly marked—a consequence of the one-child policy.
The survey finds that 88.7% of the elderly who require assistance with daily activities receive it from family members. But the one-child policy and the migration of many young people to China’s cities for work threaten to erode the traditional approach of children caring for elderly parents.
China is also unique in encountering a serious problem with aging while still a poor country. “Other countries are old and rich,” said Albert Park, a professor at Hong Kong University of Science and Technology and another survey leader. “China will be old at a relatively early stage in its development.”
One of my medical students a couple of years ago had graduated from Beijing University. Her mother was a professor there. She told me that she chose to come to the US because she was concerned about her parents’ old age. She is now a surgery resident.
I just don’t see the challenges from China although we could have another situation like Japan in WWII where the country lost its mind.
Those
JapaneseChinese are taking over everything, dammit!!!Gosh, that sounds familiar!?!?!
}}} This is so much like Japan that it seems eerie.
Not at all.
This is
Our Rich Bastards Are Smarter Than Their Rich Bastards, v2.0
.
}}} If a country is led by a strongman you need to deal with a strongman or you won’t be in business; this is obvious, the Chinese know it, and we don’t have a chance in h*ll of competing with it. As a result, we are handing the Chinese the world on a platter. We will ultimately adapt to China, not the other way around.
Foo. I would fear more the chances of economic collapse. With an excess of males thanks to the less-than-brilliant parents vs. the ‘single child’ rule (any family with a female at this point will be able to marry her much higher up the status ladder than anyone with a male), the chances of them going militaristic to deal with that excess of males is substantially higher. If China remains economically stable, the males can compete for mates by economic/business status. If not, you may be looking at Jingoism as a distraction, form of competition, and sop for the excessive y chromos.
Would the countries in which American companies could bribe local strongmen extend to Chicago?
I don’t think China is going to go down Japan’s path for one reason. Their demographics look a lot better now than Japan’s did. I know they’ve got a shortage of women, but there’s not shortage of young workers. If anything that will probably make them more motivated. As their export industries lose their comparative advantage in labor they will still have a lot of room to grow domestically.
The one fascinating thing in that column is Greenland. This to me could be a sign of China overreaching and could be the turning point from its overseas investment to its internal focus.
Chinese are probably not just a little bit jealous over western mining development in their backyard in Mongolia. Moving into Greenland could be thought of as a nice counter-strike.
The Artic region has gathered a lot of attention because the ice is melting, sea lanes are opening, and so is the fabled Northwest Passage. That is the route ships would take from the Baffin Bay to China.
So the bet is not on whether resources are there or not (and there’s still no guarantee that there is a whole lot there). The bet is on global warming keeping the shipping routes open. Very risky in my opinion considering climate science data has about as much credibility these days as Chinese economic data.
China’s demographics are as bad as Japan’s, just displaced by about 30 years. Link
The Chinese leaders know this and it will make them very dangerous for the next 15 years.
Mrs Davis, you bring a up a good point and that is China’s one child policy has slowed population growth down.
However, I’m not buying the Japanese style demographic implosion story. I think that is something Japan would like us to believe, but it is something unproven.
The big difference is women. Even though China has that gender imbalance, they have the highest female labor participation rate in Asia.
Guess who has the lowest?
Japan has the lowest in the developed world.
China already has many career women in management and authority positions now, so it’s not inconceivable that the gender problem could be self-correcting over time.
Nonetheless, I think your right about China being a threat to peace and stability. I don’t think it’s going to be with us though. The problems will be with China’s neighbors to the west.