It is not right to consider China a developing nation in 2009 and beyond.

This was the case when I first started doing business there. An example from the past.

Once, on my first morning in Ningbo, China, I got up early (jet lag can be a real *&@%) and found that there was no electricity and no water.  I walked down to the front desk and was told that electricity and water were always turned off between 10pm and 7am.  Now, that was a developing nation.  But it was also twenty years ago and times have changed.

Chinese leaders love to play on their ‘developing nation’ status.  Gives them credibility for all the social/political and economic decisions they make without any real debate.   You can’t say twenty-first century politics are involved because all critical decisions are made at the top by leaders who have no higher authority (the people) to worry about.  That’s the beauty, if you care to call it that, of Communism in its Chinese form.  Decisions are easily made, quickly implemented and subject the decision makers to few if any consequences.  But those decisions often violate human rights and economic fairness.

It works for them, but because of generations of communist policy the Chinese leaders can’t effectively relate to America or Americans.  And we don’t really understand them all the time.

For example, once I was met with a high-ranking local Communist party official (with his cadre of about 10 ‘assistants’) to discuss ‘terms’ for making my patented products in their fine city.  Turns out he was also was the President of the local factory that wanted to make our products for us (where me met).   This was a dingy dickensonion kind of place that just didn’t feel right to me.  No heat at all in the conference room of the executive building.  Nor was there any heat provided on the factory floor.  And can’t even bring myself to describe the toilet facilities.

Boy was I naive, I learned later that the factory was owned and operated by the Red Army.  It ‘employed’ people who were housed in dorms on site (8 or ten to a room), worked 12-14 hour days seven days a week and apparently never left.  The big iron gate was always closed and guarded and the ten foot high brick fence around the factory and related property was topped with a three foot section of barbed wire that would have scared away Brer Rabbit).  Draw your own conclusions but mine was all about ‘forced’ labor.  No wonder they could offer prices that were a fraction of those in Taiwan or Hong Kong.  And the profits went to the military, no doubt.

This local leader began by joking that if America believed China was abusing its people then we should let more of them emigrate to California (a place most Chinese think is like heaven).  He suggested we start with two or three hundred, then he smiled and added million.  Three hundred million?  Yes, he replied.  Then he added that they wouldn’t even be missed in China.

Boy did that give me some perspective.

The factory’s idea of quality control was something that barely worked.  Mine of course was something that worked well, was made of really good raw materials and looked real good.

We never could get together.

I hope this is giving you a sense of the enormous divide that separates our two nations . . . philosophically, economically, politically and socially.

Yet, in spite of all the immense differences China should NOT be considered a developing nation and should NOT be given the free rein developed nations allow those who are disadvantaged.

China must be held socially accountable — and this goes double for economic and military issues.

Their refusal to float the Renminbi (the ‘peoples’ money’) or Yuan (the name of the currency denomination that is equivalent to our dollar) provides an unfair trading advantage.  It increases their exports (because good are cheaper) and decreases their imports (‘cuz our goods are more expensive) thus contributing to the incredible trade imbalance between China and America (think in the neighborhood of half a $trillion per year–or one good Obama stimulus package).

China’s defense of such unfair practice?  “Oh, but we are a developing nation.  It is necessary for us to level the field.”

Tiresome to our diplomats.

How does one measure developed and developing nations anyway?  Putting the gross economic issues aside (average wages, for example), how about the availability of consumer products and especially luxury items.  Think cars, cell-phones, TV’s, computers and such.  This measure sure reflects reality in places that lack such (we consider) amenities.

And so the news last week that China has passed the United States as the biggest market for cars.  Chinese sales are expected to be 12.7 million in 2009, while U.S. sales are forecast at 10.3 million.  Oh, and by the way the Chinese total is an increase of 44% over the previous year!!  Cell phones?  China has more in use.  Computers?  China.  Students in technical Universities?  China.  Miles of high-speed rail?  China (by thousands of miles).

But this car deal is big.  Think of the implications to fuel usage, the cost of oil, pollution, green house gases, steel and other raw material costs.  Huge, baby!  And then there are the jobs, factories and suppliers to make all that possible.  Wow!

Developing nation?  Baloney.  China’s military power is second only to ours.  China’s technology is third to the U.S. and Russia.  China’s population is first (4 times the U.S.’s).  China’s economy is first right now in every meaningful way, with near double digit growth and holdings of  more than $2 trillion of other nations currencies (yes they have a surplus — something other ‘developed’ nations can only dream of right now).

The infamous G7(or is nearly irrelevant now (the largest economies in the world — i.e. Global 7).  The real decisions are at the G2 level and those two are China and the U.S.  No other nation is really close.

Developing nation?  Baloney.  We, and the rest of the world have to stop even thinking about China as a developing nation — they are not.

China has put men into space, has nuclear weapons and the delivery systems to drop them anywhere in the world, a military (in terms of soldiers) the size of Russia and the U.S. combined.

Drop the pretext.  The four or five  most developed nations in the world today include China in just about everybody’’s reckoning.

China has to be taken seriously, held to developed nation accountability and treated as the most powerful ‘partner’ of the United States (remember Obama doesn’t want to think in terms of enemies or friends — not such a bad idea really).

Oh, and by the way, Russia is devolving under Putin (and his puppet Medvedev).  The first of what I will call undeveloping nations (although Cuba probably sets the standard there).  I don’t think they want to be anybody’s ‘partner’ and that egoistic and Machiavellian approach is part of their problem.

Thanks for the photo to flickr’s francisodiez

In point of fact, the last few years have found some countries (primarily oil exporting nations — OPEC and others) using the Euro (because it was temporarily stronger — but sure as heck not more stable).? This was a natural impact of the $’s weakness during the economically misguided ‘Bush’ Presidency.? This proved to be a short lived and wrong move.? The $ has strenghtened and is still the international ‘reserve’ currency, while the Euro has declined a lot in the last few months.

I didn’t worry too much about Premier Jiabao’s posturing, considering it a sort of warning to the U.S. to better manage its currency and banks (one must remember here that China owns about $1 Trillion, with a ‘T’, of U.S. debt — Treasury bonds, Fannie and Freddie bonds, and such).? Hey we are obligated to treat our creditors pretty well.? Face it, we need their money to finance the incredible deficit Obama’s stimulus and social programs are creating.

However, yesterday’s announcement by the IMF (The International Monetary Fund — set up and funded by the ‘richer’ countries of the world to help finance development of the ‘poorer’ countries) was the kicker for me.? I am? seeing the writing on the wall.? The IMF was trying to raise an additional $500 billion to help in their ‘charitable’ efforts ($100 billion each from the U.S., Euro-Zone, and Japan . . . with the rest coming from the other G-20 nations, including China).? The money was supposed to be by way of a loan and President Obama has been pushing Congress to approve ‘our’ $100 billion.

This changed yesterday–at a meeting in Washington D.C. no less.? China (along with India and Brasil . . . but we all know who the mover was) pushed to have the money provided by way of bonds, not loans.? And China prevailed.? They will be funding their ‘bonds’ right away.

There are subtle differences between loans and bonds.? Bonds are typically guaranteed, while loans most often are not.? Bonds can be traded and loans usually can not.? There are other differences too but the important thing is that China got all the attention and the ?win? while our Treasury Secretary (who spoke earlier in the day) appealed for follow-thru on the loans and was ignored.? The win is symbolic of China’s up and coming power and stature among the ‘developing’ nations.

This is dangerous stuff.? We needn’t worry about China trying to cash in on their $1 trillion of ‘bonds’ owed by us–they sell us way too much and they know we need their money to buy their exports (at least right now).? But we had better start worrying about their influence in world-wide financial and economic markets.

All of this is really fitting together.? China was not merely ’stretching’ a few weeks ago.? China was setting the table.? They are tired of U.S. and U.S. Dollar domination of world markets.? The recent comments by China’s Premier must be added to the recent writing of Zhou Xiaochuan, the governor of the People’s Bank of China.? Together, they can only be construed as attacks on the Dollar (and our economy).? Zhou Xiaochuan writes that he wants a new kind of currency to replace the $ — something he calls ’special drawing rights’ or SDRs that is managed (read controlled) by the IMF.

Now, you must be starting to see the danger.? Give China nominal control of the IMF (and that is the direction things are going) and they will control the SDRs (here is a bet:? about a year after they have control of the IMF they will change the name from SDR to Yuan — and have complete control).? Yikes.? These guys are smart, they are aggressive and they are throwing logs on the fire!

President Obama is a nice guy, and he is getting the reputation of being too nice.? He can’t let this latest (no longer subtle) move by China play out.? Taken in total, these words by Chinese leaders demand action.? It is time for this administration to step up to the plate and take a full swing at the threat.

America simply can’t permit these attacks to go on without some kind of firm rebuttal.

I don’t want to be spending Chinese Yuan the nest time I go to Mexico on vacation, or Italy (or Cuba for that matter).

There is a reason the mighty $$ is the world’s reserve currency.? It is more stable and more reliable, over time, than any other currency.? Our government is also more stable and more reliable, over time, than any other government.? Together those facts trump anything China can bring to the plate.

In the case of currency and economics, stability and reliability are paramount.? Think about the multi-million % inflation in Zimbabwe if you aren’t sure.

Secretary Giethner, and Larry Summers (the President’s key Economic advisor) need to start responding with tough but honest rhetoric of our own.? The President should step in as well, particularly if Premier Wen Jiabao starts spouting off again.? Let’s start touting the $ and touting our response to the recession.? Both are good and effective (in America the recession will end this year, probably this quarter, due to the massive stimulus).

Allowing the Yuan to become the reserve currency in third world and developing nations would be a huge mistake and a huge threat to our economic system.? The Yuan is controlled and manipulated by the Chinese Government with absolutely NO transparency.? We can’t let China become the ‘best’ partner to every third world, or developing nation.? We have to start taking positive and lasting economic action in those countries too.? We have to create an atmosphere of credibility that will enhance our own international stature.

The Dollar, and our economic system, may have faults but, by golly, they are safe, sound, secure, and are not manipulated unmercifully at the whim of a single leader (or powerful and secretive minority).

Don’t permit China to think they can get away with this nefarious plot.? Let’s make nice, but do it firmly.

I like the Yuan and have a bunch of them that I have kept from various trips dating back into the ‘8o’s.? But I don’t intend to ever spend them.? They are strictly for show-and-tell.

I like the Dollar even better.? My dollars I intend to spend . . . and I intend to keep on spending them wherever I travel in the world.? They are not for show-and-tell, they are for spending!

The Yuan: prettty and interesting.

The Dollar: important, valuable and easy to spend anywhere, anytime.

Just another thing that makes America great.

Let’s keep it that way!

Thanks for the photo to flickr’s jimmiehomeschoolmom

Recent rhetoric ( surchur.com) is not helping our relations with China.? This is a ploy, in my opinion, by Chinese leaders, to take the focus off troubles at home.? And it is a dangerous mistake.

This fairly recent?development by our economic partner/adversary?deserves some elucidation…and a word or two of cautionary warning.? Start with this.? Bully’s are not usually as strong as they act.? I had a problem with one once in?10th grade.? He was bigger, meaner and uglier.? He was a dude.? He also went down like a ton of bricks when I’d had enough (yeah, but I was the one that got in trouble at school, how does that work?).

First, China is openly beginning to?bring pressure to bear on the ‘American’ model in international finance and economic venues (like the G-20 conference).? Sure, we have failed in our own dilegence, and we have let?our capitalist model run beserk for a while, but let’s face it China is a far cry from achieving the long-term prosperity that our model has generated for decades (centuries).?

There is more to it than that.

Many of?China’s worried citizens, 9% of whom are unemployed (imagine 60 million+ people without jobs wandering the streets!) want the $2 trillion of U.S. debt their government owns to be returned and spent at home.? They also want the government to get tougher with us.? Some of their more vocal dissidents too (the government lets anti-Americanism flow freely, but not criticism of their own system).? Their leaders are behind this believe me.? It is a ploy, a tactic, and should not be allowed the light of day.

While the $2 trillion is a?tremendous lever against the U.S. and seems to be an equally tremendous?potential benefit for China, there is no reason to believe that button will be pushed.? Sure, $2 trillion is a lot for?improving their infrastructure, for their growing military (including a proposed aircraft carrier), for social spending or whatever.? But, that is not a real alternative.??A short term ‘fix’ at best.? Their leaders would be mistaken to?continue suggesting such a path?(even with?further internal pressure–though I doubt that pressure?is independently real).?

Our leaders must know it is a shallow threat and have to treat it as such.

China has the largest positive trade balance in the world (over $310 billion in the last 12 months–on total exports of about $1.4 trillion).? Where does much of that come from?? The U.S.!? We of course have the largest trade deficit (nearly $800 billion in the last 12 months).? Much, if not?all,?of that comes from our relationship with China.? That could end in an instant with trade barriers and further ridiculous ‘hints’ from them would encourage our rapacious, and hasty (usually only when inadvisable), Congress to act.

If China begins to?play recalcitrant in their financial ‘arrangement’ with the U.S. their trade balance would fall off a cliff . . . and unemployment would worsen rapidly.? That is a risk they simply cannot take.? Another 10 million or so added to their unemployment lines would be just enough to encourage open dissension.? Revolution.? Maybe.? No one wants that in today’s economic turmoil.

So, BHO and his team need to be firm when dealing with China.? Trade imbalances need to be fixed.? Currency imbalances need to be fixed.? Negative rhetoric needs to be stopped.? China needs to contribute more to the world-wide financial and economic crisis and forget about isolating?and distancing themselves from their original capitalist model (the U.S.’s by the way).?

Stop the negative vibes, China.? You need to make friendly with us, dudes, we are not (really) the bully here.? Let me be frank.? We need you to sell us the cheap inexpensive goods that fill the ‘five-high’ shelves in Walmart.? Shucks, I am not sure you can even buy a T.V. that isn’t made in China today, let alone one from Walmart (that I am sure of).? Yet, you need us to buy those goods.? And at ever increasing volumes.? At least for the forseeable future.?

Hu Jintao, start talking up the American/ Sino realtionship, we ought to be buddies, dude.? Make goodie – goodie with Barrack.? While you are at it, start paying your part of the international bill this recession has left.? China is not completely innocent in this scenario.? Start recognizing it takes two to Tango.? If you want to dance with ‘the star’ you’d better listen to the beat of the music.? Truth is I don’t even care if you become the star.? We’ll still be glad to dance (with all 1.3 billion of your partners for our 300 million).

As for our part.?? BHO should realize the hollowness of?the Chinese Rhetoric (what? A new currency to replace the $$ — yeah, Europe thought that would work too) and start playing hardball if it continues.? We are sure as heck not going to do all of this alone — our wonderful legislative branch (it hurts to say that) won’t let it happen.? Believe it, dude.

America can’t fight the worldwide recession on its own.? We don’t need to.? China needs to do?their part and stop whining.? Free trade means just that, free–open–transparent–competitive.? Try it for a change, China.

Let the Yuan float or trade freely against the $$ or any other currency.? I don’t care about the internal implications.? It’s a flat world.? Deal with it.? Start pushing your own consumer economy.? Let them buy American for a change.

I learned a long time ago.? You push a bigger guy too much and soon he is going to push back.? Goes the other way, too.? I realize that as well.? Stop pushing , Hu Jintao and all of your endlessly communist buddies.? Let your people think and act for themselves.

Worked for us.? Still is too, just see what happens a year or two down the road.?

Sure, America screws it up bad at times.? But, we innovate and create and pretty soon we are the prom queen (or king) again.

Gotta love it dude.

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thanks for the flickr pic from chesi – photos cc