Interesting Comment & Analysis today by the Financial Times' Beijing bureau chief, Geoff Dyer, Russia could push China closer to the west. Yeah, that's right, an article about whether China will opt to cozy into the sphere of influence of the West or the Sovi..., uh, Russia. I focused on the origins and early years of the Cold War in undergrad, and I thought I was majoring in history. As Mr. Dyer makes exceedingly clear, the implications of Russia's actions in Georgia on US-China relations are fraught with nuance:
Russia takes US eyes off China as bad guy:
With the US economy slumping and China becoming the world’s biggest emitter of carbon dioxide, Chinese diplomats are worried that different groups in the US will join forces to slam China. So if Russia returns to being the US’s pin-up villain, that suits Beijing just fine.
Mr Saakashvili is the western-educated product of a colour revolution who is lauded by Washington neo-conservatives as a warrior in the battle for democracy. If he is toppled, Beijing will not mourn his departure.
That doesn't mean China would welcome the recognition of tiny breakaway states (think T!b3t, Taiwan, Xinjiang, plus the many border disputes with Bhutan, India, Japan, Malaysia, North Korea, Pakistan, Philippines, Tajikistan, Vietnam, and maybe Brunei):
The biggest problem for China, however, is Russia’s recognition of South Ossetia and Abkhazia as independent states. Independence for small break-away provinces is one of the few subjects that turn Chinese diplomats from cool-headed calculators of national self-interest into brittle ideologues.
Western states like to avoid too much controversy:
Europe has long been eyeing more oil and gas deals with Turkmenistan and Kazakhstan, where China also has significant investments. If instability in the Caucasus scares off European investors, that could create more space for the Chinese.
But, things can't get too hot:
China’s economic success is increasingly fuelled by huge imports of oil and gas that are only going to get larger. Beijing, therefore, does not want to see Russian aggression browbeat a region that is an important energy provider.
Dyer's Conclusion:
China has moved closer to Russia in recent years, but there are clear limits to the alliance that Washington could exploit.
Okay, okay, this is way too late, but I gotta tell you about it.
A couple of days after the Opening Ceremony I was talking to my mom (and here), and what she said to me made me realize that just the Opening Ceremony made the Olympics a huge success for China. Here's the paraphrase:
It was so beautiful. It made me and your father, people who grew up in a time thinking that China was some mysterious, scary, dangerous Communist place, realize that it is no longer so. I want to travel there now, I want to see China and its people.
If this sort of thinking was widespread, then I think it would be hard for China to ask for more of the Olympics than completely reshaping the image that a couple of reasonable middle-aged American held of China.
This intro will be short and I promise not to go too George Washington on ya.
This morning I ran across a Wired blog post on the personalities we adopt when we play video games. I'm kind of the opposite of the author of the post, and I was inspired to write something. Then I figured that I should probably bring China into it, so I searched around for some China video game stuff and found a cool report on China's evolving video game market which should justify me nerding out for a few paragraphs.
The Kind of Gamer I Am The title of Clive Thompson's post gives you a pretty good idea of the type of gamer he is, Games Give Free Rein to the Douchebag Within. If that was too obtuse, here are a couple of excerpts:
What the hell is wrong with me? There are a lot of ways to win at Civilization Revolution that do not involve taking a happy, peaceful city and reducing it to a smoldering gravesite filled with radioactive trinitite. I could, for example, train my country in brilliant artistry, building Wonders of the World -- a "cultural victory," as it's called. Or I could win by becoming a great economic power, enriching my citizens and the global community.
But no. Every time I plunge into a game, I inevitably choose the most Cro-Magnon, "Hulk smash, Hulk destroy" strategy possible.
...
I repeat: What's wrong with me? One of the classic highbrow defenses of videogames is that they allow you to experience new personalities -- to, in the words of Sherry Turkle, create a "second self." This is considered supremely healthy, because self-exploration is generally a good thing.
But what happens if the second self you create inside videogames turns out to be a total dick?
He then writes that studies find that he's probably just "using games to see life from a different perspective."
If this is the healthy and normal thing that people usually do, then I'm really afraid of what my game preferences say about me. I'm the kind of gamer who thinks that Civilization is lacking in complexity, and that Europa Universalis III could use a few more options to tweak tax collection. First-person shooters? The key to online success better be strong teamwork that requires voice-chatting or I'm bored as hell after a few matches
If we're going with Clive's analogy and the life from a different perspective psychoanalysis, I guess that means I'm well on my my way to becoming just another Unfrozen Caveman Lawyer in "meatspace."
Gaming in China In my quest for justifying what I just wrote I found a great 2007 report compiled by KPMG, The video games market in China: Moving Online. The main focus of the long report is the environment for foreign investment in Chinese game companies. Along the way are plenty of sidebars containing charts and case studies of both Chinese game companies such as Shanda, and global game companies such as Microsoft, Nintendo, Sega, and Sony. What I want to comment briefly on is the author's suggestion of where the Chinese pricing model for online multiplayer games is going.
Back in Q4 2005, Shanda (盛大) introduced a new pricing model that swept China, and later the world. Shanda dubbed it "Come-Stay-Pay," and others have called it the pay for free model. Under this pricing model you can play for free but you are charged for fancier weapons, armor, clothes, gadgets, and even experience points. This model worked well in China because it created a low entry barrier for players, and software piracy would not have an opportunity to ravage Shanda's revenues in a country with a piracy rate of ~82%. Shanda experienced problems when this model was first adopted, but the stock market responded when they figured out what Shanda had done. We've also seen this model spread to America. The most notable examples are additional content purchases for the single-player TES: Oblivion (along with some consumer backlash), and song purchases for Rock Band.
The KPMG authors argue that the Come-Stay-Pay model will not endure by analogizing to Hollywood:
The development costs required for online gaming will increasingly necessitate a predictable and foreseeable income stream. The film industry, by comparison, has three such streams: (i) cable rights (ie, syndication) and international sales; (ii) advertising, whether in-film or banner advertising (ie, delivering demographics); and (iii) merchandise. Hollywood may aim for the blockbuster, but production companies have covered their costs by the time a movie is released. Any game company not in the same position should be assessed carefully.
I agree, but I'd make a simpler analogy: to the early days of the internet.
The internet in the late-'90s was pretty cool. Just about everything was free. Sure, you might have to pay for a couple of extra features or the removal of screens asking for donations with shareware programs, or maybe send a donation to freeware developers to make yourself feel generous. I loved that internet -- I'm gonna be telling my grandkids stories about that internet. It was the Wild West, and it was vast. If you search hard enough, you can still find that internet, but much of it and the companies providing mostly free service disappeared with the dotcom crash beginning in 2000.
And really, that internet couldn't hold a candle to the internet of today. Sure, you have to pay for stuff, but the quality of programs and services now available on the internet are superior to anything you got when anything went. I've seen the quality of Chinese games, and they're not on par with what we have in America. But, the settings and pricing make sense for China now. As a gamer, I look forward to the day when I can play a Chinese developed Journey to the West game with the production qualities of an American game financed by pricing models that allow higher development costs.
joe biden’s china stances at China Esquire Obama made a good choice with Biden. Biden can cover a lot of Obama's weaknesses. Let's hope Obama makes another good choice in his China people.
In China and the World Financial markets 18701-1939: Modern Lessons from Historical Globalization by William Goetzmann, Audrey Ukhov and Ning Zhu, the authors use a historical narrative of China's financial markets to show how China can improve its modern financial markets (h/t to The Economist, and good luck finding the article if you don't have access to an academic library database). The authors identify two "key financial motivations," and argue that they are necessary to the health of a capital market which contributes to the health of the global capital market: diversification, and corporate governance. The bad news is that China is still restricting diversification and corporate governance, and the authors argue that both of these contributed heavily to the downfall of Imperial China. The good news is that China is making huge strides to correct its problems these two areas, and preventing a modern collapse of China's financial markets.
The general conclusions reached by these and other researchers studying world capital market liberalizations is that the cost of capital drops as outside investors are given access to local investment projects. There are obviously positive features of this drop in the cost of capital--capital projects previously unattractive because of low rates of return become attractive. Lower interest rates can be an extraordinary boom to the economy ... However, the other side of the coin is that, in the competition for control of domestic assets, the undiversified local investor is at a relative disadvantage.
While Chinese investors were heavily invested in private enterprise in the late 19th and early 20th century, they were not major investors in government projects or in Chinese sovereign debt. The authors argue that this was because of a lack of a liquid capital market for Chinese, and little to no diversification into international finance by Chinese investors preventing steadier returns.
The Economist article cited to earlier heralds the opening of the Shanghai Stock Market to the world. On August 6th, China changed its securities laws to allow foreign companies to list on Shanghai's stock market. This will increase diversification by allowing Chinese to diversify their investments into foreign companies, and allow foreign companies a new source of capital. The article argues by way of Goetzmann et al, that by diversifying into foreign companies Chinese investors should have lower portfolio risk there by allowing them to allocate more capital to the riskier Chinese shares. Thus, theoretically, more capital and less risk for everybody.
Goetzmann et al, offer a few more suggestions for how to improve diversification in the Chinese market, but this is a great start.
Corporate Governance A sentence from Goetzmann et al's article is just as applicable today as it was a century ago:
[T]he trajectory of Chinese financial history is the relative ineffectiveness of legal protection and governance structures for enterprise in China, compared to the extraordinary protections negotiated by foreign investors.
They argue that 100 years ago there were two major obstacles to effective legal protection and governance structures: 1) "stake-holders of various kinds--from local gentry to provincial government officials--wielded considereable power and influence over commercial enterprise;" and 2) concessions extracted from the Chinese government "included near-complete autonomy from Chinese law and taxation, and freedom from local competition--even the right in some cases to issue a separate currency. The first is still prevalent, especially considering the size and power of many SOEs. The second "created severe political problems," and China has been wise in recently eliminating similar concessions today. According to the authors, the best expression of when corporate governance is set within the proper legal framework is when there is equal protection of property rights for both foreign and domestic investors.
The good news is that China is working towards limiting the power and influence of stake-holders through its own version of Sarbanes-Oxley, the Standard Basic for Enterprise Internal Control. This was covered more extensively with plenty of links in a previous post. The gist is that corporate governance standards should be fixed in law when the Standard Basic becomes effective on July 1, 2009.
Conclusion Apparently history repeated itself with the two same problems surfacing each time capital markets have risen in China. However, this should not come as a surprise. As the authors of the article make clear, these same problems existed in just about every capital market including Japan and the US. The difference is that the chaos in China during and after the fall of the Qing dynasty prevented its capital markets from making extensive reforms. Fortunately China is implementing extensive reforms now to prevent the instability that Goetzmann et al argue "led ultimately to a rejection of the international financial system." However, they also argue that the reforms can't be implemented too quickly, or else foreign investors will again have too great of an advantage in China resulting in dire human and political consequences. I'll leave you with their final words:
Given the potential for further integration versus the threat of reversal of recent gains, the lessons of history at this crucial juncture may be doubly important."
Dan Harris at China Law Blog asks some tough questions about China's lack of a talented point guard:
Is it further evidence of the shortcomings of a planned economy? Does China pull out the great athletes for other sports, leaving only tall people for basketball?
Is it further evidence of a lack of innovation or take-chargedness (I know I am making up this word, but it works) in China? Great point guards have to be willing to innovate and take the heat. Is the coaching so tough that no player is willing to step up?
Seriously, why?
I was discussing this with some friends last night. They were telling me that at age 10 kids start to get pulled for sports like basketball. The problem is that an athletic kid with point guard style body type is typically pulled for soccer despite whatever skill and flair they show on the basketball court. "Six foot" Chris Paul might have been good at any sport, but his 5'10" frame would've relegated him to the soccer field despite his basketball genius. In American sports we don't lie about age, we just lie about height and weight. It typically starts in high school as a tool to intimidate the other teams, and continues for such reason, except maybe for college recruiting.
The planned athletic program seems to have done wonders at producing exceptional individual athletes as seen in shooting, weightlifting, and gymnastics (team gymnastics is not a team sport because it is merely the sum of individual performances). But, like in business, team sports depend less on individual prowess, and more on creativity and chemistry which is all but impossible to select for.
To address Dan's questions: We can probably safely ignore the third question, as there is plenty of innovation in China considering the level of development the country has reached. We probably have to turn to the first question. The answer: Skills and techniques can be taught, innovation and creativity cannot. Innovation and creativity can be fostered through access to tools and instructors, but it can't be forced on anybody. Those with the greatest combination of skill and creativity will rise to the top in a free market system that rewards performance. The US system of competitive high school basketball, expensive required university attendance, and a professional system means that our basketball players need to receive approval for their skills on a wide market to make it to the next level. Creativity and not a player's physical attributes are going to mark the point guard, which can probably only reasonably be found in a large competitive market.
"It was part of China's assertion that development doesn't come only through Western, liberal means, but also through Eastern and collective ones," Brooks states. He then broadens this theory to say: "If Asia's success reopens the debate between individualism and collectivism (which seemed closed after the cold war), then it's unlikely that the forces of individualism will sweep the field or even gain an edge." Takeaway? China is a challenge. Not just because it's big and bad but because they think different over there and the Olympic Ceremony proves it.
I wonder if Brooks has ever seen American marching bands, or line dancing, or visited a high school where the coolest kids are always part of a group - say, the football or basketball teams. I would argue that in many way Americans bow more to the group than the Chinese, which explains why the Chinese party-state has been so intent on forcing comformity.
Even more, I wonder if Brooks has ever driven in China (look out for grandma!), or sharpened his elbows in the scrum that forms each time you try to get off an airplane, or tried to get Chinese co-workers to band together. Let's just say in the decade that I've lived in China (over the course of 30 years), I haven't seen or heard much collectivist impulse except when it was rammed down the throats of ordinary Chinese.
And...
Meyerson noted that during the parade of athletes China's flag bearer, Yao Ming, was accompanied by a 9-year-old boy who dug two classmates out of the rubble of the Sichuan earthquake. When asked by NBC why he did it, the boy said "he was a hall monitor and that it was his job to take care of his schoolmates," Meyerson wrote, adding "that answer may tell us more than we want to know."
The boy "was a responsible little part of a well-ordered hierarchy," said Meyerson.From that he concludes that the answer "works brilliantly as an advertisement for an authoritarian power bent on convincing the world that its social and political model is as benign as any democracy's."
What am I missing here? How is a sense of responsibility, instilled in any leader, no matter how small, in any society (ever hear of a class president?), taken as a sign of totalitarian brainwashing or a propaganda campaign? Don't we hear this kind of sentiment in the voices of Americans who go down into mines or back into fires to save their comrades? "I'm the fire chief, I couldn't leave my men behind." And so what if it's a 9-year-old? Bully for him. If anything, China's system discourages the type of initiative evidenced by pint-sized hero. Maybe that's the reason he was marching next to Yao.
A few weeks ago Dan Harris at CLB had a post on the best way to go about developing your "guanxi network," F-ck China Culture Lessons. Give Me Anthony Bourdain With No Reservations. I totally agree with Dan's premise that "bon vivantness" is the best way to cross cultural divides. However, and in a later post Dan briefly covers this, some knowledge and demonstration of genuine appreciation for Chinese culture will go a long ways in developing strong relationships with your coworkers and other Chinese. I'm not talking about avoiding wearing green hats or handing over business cards with two hands, though. No, no, I'm talking about The Great Sage Equaling Heaven -- Sun Wukong.
I've been making my way through the classic novels of China, and I've only got A Dream of Red Mansions left on the list. About a quarter of the way through 3 Kingdoms when Liu Bei is shedding tears of appreciation for the man who fed him his wife when he couldn't catch a wolf I realized that I could never truly understand Chinese culture. But, the stories are intriguing and the culture, like any culture, is fun to learn about. The most fun is unarguably The Journey to the West, and its protagonist, Sun Wukong. To keep things easy, I'm just gonna call him by his name from the TV show, Monkey.
Monkey has proven a gold mine in my ability to build relationships. The most important reason is that Monkey is a lot of fun to talk about and I always enjoy chatting about Monkey. I try to talk to my American friends about Monkey, but I quickly see their eyes glaze over. The second most important reason is that you'll have a hard time finding a Chinese person that isn't also eager to talk about Monkey. What follows is my favorite interaction involving the Great Sage.
One day the husband of one of our attorneys brought a box of peaches to the office for us. I noticed on the side that there was a monkey. Sun Wukong got into a lot of trouble in Heaven by stealing the Heavenly Peaches from the Jade Emperor's Peach Orchard. I asked the Administrative Assistant, "So... Are there monkeys on all the boxes of peaches in China?" She replied in that tone Shanghai girls have when speaking English to Barbarians, and using words that may or may not be taught in elementary school to mean yes, "Of course." Then she added, much more softly and with a smile, "We call him _____ [three syllables, but I recognized Handsome and Monkey], I don't know exactly how to say...." "The Handsome Monkey King?" I offered. "Yes! Yes! Yes!" she said leaning up on her toes and waving her hands in great excitement. On a roll I kept going, "Sun Wukong? Protector of the Horses? Glorious Monkey King? The Great Sage Equaling Heaven?" "Yes! Yes! Yes! Yes!"
We each took a peach for washing. I returned to the break room first, and began paring my peach with a knife. She came back with her peach in both hands biting into it. She cocked her head and stared at my peach for a half-second, straightened her neck, looked at me and said, "You eat your peach so nice... I eat my peach like... Monkey." Much laughter ensued.
In case you haven't heard, The Internet tells us that there's a mass exodus of manufacturing from China in the wake of rising labor costs, and appreciation of the RMB. In a time of rising, or is it falling [?], oil prices The Internet/Reputable Print Media is now telling us that rising shipping costs mean that China is no longer the place for manufacturing. But, The Internet tells us many many perplexing things. And Reputable Print Media? Well... Fortunately, somebody at The Economist decided to look at actual numbers and interview some people in China.
The findings? First off, manufacturing in China is not dropping, but the pace of growth in exports is dropping. So the sky has not yet fallen. For shipping it turns out, prices have increased:
The cost of shipping a standard 40-foot container from Shanghai to America’s east coast, for example, has jumped from $3,000 in 2000 to about $8,000 today.
The article quotes the executive of an American company in Shanghai that shipping costs accounts for 3-4% of the price of a shoe. The same executive says that this is just not a big deal.
There is also plenty of evidence that the Chinese government is taking affirmative steps to overcome these increased shipping costs by increasing the export tax rebates on low-value goods. Clothing products have had their tax rebates increased from 11% to 13%, and bamboo products have had their rebate increased from 5% to 11%.
However, The Economist article fails on one account in that it barely hints at what the real hope behind this increased shipping cost as reason to no longer source from China argument. The real hope is that increased shipping costs would be high enough to force manufacturers to relocate their manufacturing in the US or Europe thus bringing back jobs that have since been rendered obsolete. This is terribly apparent in the Tesla discussion in the New York Times article linked to in the first paragraph. But, the manufacture of a Tesla Roadster is on a different order of manufacturing prowess than, say, a motorcycle helmet. The Economist article interviews the co-founder of one of the world's largest motorcycle helmet manufacturers, and he says that the only places in the world other than Guangdong that make sense for his factories are his two biggest markets, Europe and the USA. But, both of these places have substantially higher labor costs, and the economies of scale are more balanced. This means that he's not leaving for some time to come.
On another note, anybody else not surprised that China is not [yet] the largest market for helmets?
Nice article in today's Shanghai Daily discussing China's Basic Standard for Enterprise Internal Control, Companies face tougher oversight. The Basic Standard is supposed to bring stronger corporate governance to China's listed companies, and is often compared to Sarbanes-Oxley. The Basic Standard is currently in its public comment phase which lasts until September 30, 2008. The Basic Standard will then undergo revisions, and become effective on July 1, 2009. The SD article uses a survey by Protiviti to show why China is strongly in need of stronger corporate governance rules, Corporate Governance Assessment Summary Report on the Top 100 Chinese Listed Companies for 2008.
The report finds that the biggest problem with corporate governance in China's top 100 listed companies is that minority shareholders do not have adequate tools to protect their rights. This renders shareholder meetings a formality, and the decisions of directors and executives are often just a "rubber stamp" of the majority shareholders wishes.
The most startling conclusion of the report is that the overall corporate governance among the top 100 listed Chinese companies has not improved over the past 10 years. Improvement has only been witnessed in two cases: 1) H-share companies, and particularly H-share companies that were listed in the US and thus subject to regulation on several markets; and 2) companies that have taken it upon themselves to adopt stronger corporate governance rules. The report especially lauds those companies that fall into the second category, but finds that the discrepancy between companies with strong governance and lax governance rules is too great to overcome improvements by other companies. The only solution, Protiviti argues, is a legal standard. Come July 1, 2009, China will have just that.
The report also includes a list of Top 20 Chinese companies with the best corporate governance. Here's the top 5:
Ping An
ZTE Corp.
Aluminum Corp. of China Ltd.
Jiangsu Expressway Comp. Ltd.
Yunnan Copper Comp. Ltd.
Here are a couple articles on what it is going to take to for Chinese companies to implement the Basic Standard for Enterprise Internal Control: one from Protiviti; and another from Deolitte.
Think fast! Can you name the sport with the most expensive television rights in the world? With 34.4 billion hours of viewing time 2004, and even more projected in 2008 (and this being a blog with a focus on China) you'd expect that the answer would be the Olympics. But, the IOC is not purely focused on profit; there's also something about spreading the Olympic cheer. Despite this benevolent gesture, the IOC is bringing in $1.7 billion for the TV rights to the Summer Olympics in Beijing. By comparison, the NBA's new broadcast deal is $7.5 billion for 8 years, Major League Baseball is rumored to be ~$900 million, English Premier League is $2.6 billion, and the "big five" soccer leagues of Europe total $11.3 billion. The King of Broadcast Rights is the other football: CBS, ESPN, Fox and NBC paid $3.7 billion for the 2008 rights to broadcast the NFL. (Data from The Economist)
I like the Olympics, but I really like football. The NFL showcases a diverse mixture (of athletic body types) of the most naturally gifted and chemically/nutrionally enhanced athletes in the world, coached by America's most strategic and, arguably, hardest working minds into beating the pulp out of each other while 55,000 fans cheer them on. Football is deep and simple, beautiful and brutal, meticulously planned and spontaneously disrupted, a perfect metaphor for the war sport theoretically evolved to practice for.
And like great warriors, the NFL players bring great stories. Sure, the Olypmics have heartwarming stories and some national rivalry, but a compelling story has to have some drama. In the NFL you get drugs, sex, and (off the field) violence. The NFL also has its heroes, but the most beloved are only so because of their flaws. This is more than just sport, this is great TV.
Which is why American reporters complain about freedom of the press during the Olympics. The Olympics is not just about sports because that would be boring, and the ratings and advertising dollars that are supposed to realize a profit on top of that $1.7 billion would not materialize. This doesn't mean that the Olympics have to be about politics. But, the Olympics are supposed to be about the country hosting them. The reporters are there to tell the story of China, they're not there to tell us what happened during the 100m dash. China's reluctance to let reporters gather their stories is only telling me that the only thing that's going to be worth watching are the Opening and Closing Ceremonies. Compelling Olympic coverage should include the strengths and the flaws of China, we'd only end up liking China more for it, rather than wonder what is not being reported on.
Despite what we've been hearing in the news, air pollution is not just about slower lap times. It's also not just about cancer. Nor is it just about asthma, or any other respiratory problem. And aesthetics are certainly not the main problem. Blue skies are beautiful, but not necessary. Slower lap times and respiratory problems just cause serious problems for career athletes. And cancer? Well if you're old enough you've already got it, and if you're young enough you assume there will be a cure when you get it. So what should air pollution be about? Check out the potential effects on fetal development. A more lengthy and scientific version of the study can be found here. So dirty energy might result in developmental problems that remain with a person for life. Sounds like it's time for a scrubbing.
The more nuanced answer is that technology has proven unable to cleanly produce energy from coal. GreenGen coal power plant should produce energy with a lot less clouds seeded for acid rain, but it is supposed to be a for-profit power plant and the article raises serious doubts as to whether a gassification and CO2 sequestering facility can run profitably. The other technology of turning coal into a liquid also runs afoul of producing twice as much CO2 as burning regular coal and consumes even more energy in the production of the liquid coal.
Li Jungfeng, director of the Chinese Renewable Energy Industries Association, also suggests that the government is unable to enforce the environmental laws thereby preventing China from making the progress against pollution that its laws should provide.
Sounds like something that really needs to be worked out at the Post-Kyoto meetings. My suggestion would be an IAEA like body authorized to conduct impromptu inspections of power facilities and issue penalties if certain amounts of toxins are being emitted from a plant. Penalties could be in the form of either money or decreases in a nation's allowed emissions. The second might be preferable because it would encourage nations to self-enforce the emissions of their countries plants. This then runs into two problems: 1) no inspection would ever be truly impromptu running into the same problem pointed out in the SciAm article where the clean tech is turned on when the local teams arrive; and 2) enforcement of penalties is tough.
Now enough with the fancy talk. When I was coming up with a title for this post, I was just looking for a segue into the following paragraph of historical tidbits from the SciAm article:
The Chinese have been burning coal for centuries. Venetian trader and explorer Marco Polo said that one of the most surprising sights during his travels through Asia in the 13th century was the Chinese practice of burning a strange, black rock for heat—and the mountains along the Silk Road that smoldered due to underground coal fires, like the ones burning throughout the country today. In fact, these underground blazes burn through an estimated 20 million tons of coal a year, the equivalent of the entire coal production of Germany last year.
Say what you want about the superficiality of rankings, but it sure is a lot of fun. And really, what else is there to talk about?
The other day a friend commented to me that some are arguing that the US is becoming more and more socialist by the day with the federal bailouts of Fannie and Freddie and IndyMac, plus all of the other banks. I chuckled and conceded Fannie and Freddie, but noted all the other banks are merely being bailed out by the FDIC which has had the mandate to do this since its inception under the New Deal legislation of the 1930s. We agreed, both on fact and the humor of the situation.
In an opinion piece in today's Shanghai Daily, Rosy statistics mask not-so-pretty picture, Wu Jiayin expresses concern over the statistics purportedly indicating an increase in living standards for Chinese people, and concern that China is not spending enough on its citizens welfare. The gist of the salary concerns:
The trick lies in the statistics themselves. The 18 percent increase refers only to the salaries earned by "urban workers," a term that excludes migrant workers, self-employed business people, and anyone working in the private sector.
With CPI clocking a 7.9% increase in the year to date, Mr. Wu worries that the Chinese people not included in the salary study aren't able to keep up with rising costs. Mr. Wu writes that this would be alright if China spent proportionally as much or more on its citizens medical health, social security and employment. But China spends proportionally less than the US, with medical health, social security and employment expenditures accounting for 15% of total expenditure, 2.4% of GDP, and expenditure per person accounting for 3% of the annual income of an average worker. In the US the respective expenditures are 61%, 11.5%, and 17%.
I like the way Mr. Wu ends his article:
It is just because China is not as rich as the US that the former should spend more of its income on the well-being of its people.
But, as of present the amount that the US spends on technologically advanced medical procedures, and the amount that the EU and US spend on pharmaceutical R&D means that US expenditures include subsidies of technologies that benefit the whole world, and not just its own citizens. And I would certainly argue that our relative wealth means that we should be spending more to improve the health of all.
A recent FT article on Pre-Olympic warnings to China’s fund managers (h/t to The China Vortex) says that the China Securities Regulatory Commission (CSRC) warned fund managers "that companies should be cautious about holding public forums “which may cause market fluctuations”." The article aptly describes this as a "clumsy ... directive to manage the level of the stock market."
I've only got the one course in Corporations, but if China had SEC rules and any of these fund managers have a duty to speak, don't speak, and then make trades, they'd probably be up for 10b-5 liability for insider trading. A BIG criticism of China's markets is that they're opaque. Opacity creates greater uncertainty as investors are unsure about the true health of their investments. With the world in town for a couple of weeks, greater opacity seems a strange solution for stability.
H0pefully, China really is only jumping in bed with Henry Manne for the duration of the Athletic Festival Honoring Zeus.
I've been an embroiled in an oddly compelling debate on Facebook that somehow grew out of comments to a friend's posting a news item from the UK Times, He ventured forth to bring light to the world. Below I'll print quotes from the discussion. Post-modernism has taught me that I'll probably subconsciously selectively quote things that make the position I and those I agree with stronger, and things that make the opposition weaker. Oh well. I haven't fallen for that other part of post-modernism, and I believe that the story of the powerful is the most important story as it will have the greatest effect on the rest of the world. Please feel free to join in. I apologize for the length, but I was having a lot of fun.
Sendhil Panchadsaram:
Oh please, that's such a load of crap. Obama's running to be president of the United States of America. Showing a little respect toward the American flag isn't a very difficult thing to do. The fact that he'd rather put his logo up in its place, rather than side by side, is a very telling sign as to his character. This is also evident with Neil's point, that he cares more about selling his 'product' than he does promoting and honoring this countries symbols(the flag, the troops).
Will:
If the flag and troops, symbols of war and conquest, are America's symbols then we deserve the low global reputation we have.
I was under the impression that liberty and democracy were two of our symbols. I was also under the impression that the Hope evoked by the New World encouraging waves of mass immigration to the US was an American symbol. I was under the impression that the Hope for a better life that drove Americans west was an American symbol. I was under the impression that the Hope America brought to Western Europe, Russia, and China during WWII was an American symbol. I thought the Hope and Determination to rise in socioeconomic class, the American Dream, was an American symbol.
I also thought that America's near genocide of American Indians was an American Symbol. I also thought that great prosperity earned on the backs of African slaves was an American symbol. I also thought that senseless wars to to fight communism and Islam at any cost were American symbols. I also thought that torture was an American symbol.
Obama the product embraces the sweet American symbols and takes a chunk out of the ugly.
McCain ain't bad, but he also ain't Obama.
Sendhil Panchadsaram:
Typical of a liberal seeing America as an oppressive war mongering regime. The American Flag and American Soldier stand for Freedom. The American Soldier has freed and protected more people than anyone else in human history. A billion people have their freedom thanks to America and its military. Fact of the matter is liberals like you are ashamed of our country, thats why you run off to europe and dump all over it.
People like you and Obama are incapable of saying one good thing about this country without having to predicate it with a list of bad things. We are not a perfect nation, but as a whole we are good. We feed and clothe the world. We keep the world safe. The rest of the world is just jealous of us,but make no mistake, they would do anything to come to this country and call themselves an American.
Spare me this we wiped out the Indians garbage and Slavery Stuff. We are also the nation that went to war with itself to free those slaves.
Obama is the product of everything wrong with liberals. He's ashamed of this country. He looks down on the people and institutions that make this country great. He runs off to Europe and acts like he'd rather be EU president than President of the United States. He never speaks of American Exceptionalism. The thing liberals like yourself and Obama fail to ask yourself, is How is it we became the most prosperous, most powerful nation in history in such a short time? It's because our founding fathers realized that free people are capable of great things. They enshrined this freedom in our constitution and it has allowed us to do things no other nation has.
Democrats used to be proud of this country and talked about things like Freedom and American Exceptional ism. Presidents like FDR, Harry Truman, and JFK. Now democrats like Barack Obama are ashamed of this country and fail to understand what makes it great.
Your right about one thing will, Mccain is no Obama. McCain didn't go to prep schools as a kid, and didn't spend his youth prancing around the Ivy Leagues. He didn't get a cushy job right out of law school doing nothing of grand importance. He chose instead to spend a lifetime of service to this country, a tenure of service that came at great personal cost to him. So you're right. Mccain is no Obama. Obama isn't even fit to lick his boots.
Will:
Wow, okay, so Neil called me a retard when he made reference to Forrest Gump logic, but I'm under the impression that you actually believe your thinly veiled insults.
1st paragraph: I'm really interested in your math. 1 billion freed by the American military? The only theater of the only war in which the American military played a decisive role was in the Pacific Theater of WWII, but it was Soviet tanks rolling through China that became the symbol freedom there not America. The Soviets had Europe all wrapped up by the time we started getting involved in operations in Italy, Normandy just sped the process up. You can count the Balkans stuff in the '90s. Until a free regime has been established in the ME, there hasn't been any freeing.
I am certainly not proud of America, but I love her deeply, which is why I have no problem exposing her flaws. And I love being an American because we have the power to shape the country into what we want it to be.
2nd paragraph: If you think the glass is half-full, you're gonna take a drink. If you think the glass is half-empty, you're gonna try and figure out how to fill it up. The bad always comes with the good, and if one doesn't recognize that and try to fix it then the country stagnates. The whole "rest of the world is just jealous of us" attitude reeks of arrogance and will alienate foreigners, something that is bad bad bad for trade.
3rd Paragraph: You can't ignore history (Praise Ford!), it has made us what we are. Also, a not so close historical reading shows that the South seceded because it lost the balance of power to maintain slavery, the North declared war to preserve the Union, and Lincoln did not free the slaves until the war had been underway for a while as a desperate plan to bolster the ranks of the North and foment rebellion in the South.
4th Paragraph: "American exceptionalism" is part of Obama's boilerplate speech. In every speech he says that in no other country in the world could somebody with his background be a candidate for the President of the US. Obama ran off to the EU because "conservatives" were saying that he didn't have foreign policy chops. He deliberately avoided saying things in Germany and France that would've played to the crowd because he knew that this is not what an American candidate should do.
The second half of that paragraph is a gross oversimplification of the development of America, and probably not the most important factor. Countless books have tried to answer it, none is conclusive.
5th Paragraph: One of those dudes was cool. One dragged us into the Cold War. One dragged us into Vietnam. I prefer Ike.
History is complicated.
Sendhil Panchadsaram:
You lost all credibility with this : "I am certainly not proud of America"
Will:
Pride is self-satisfaction with the current state of things. If you're ever satisfied with where you are, then you might as roll over and die. I'm excited to see America grow and thrive, and keeping ourselves open to the world is the way to ensure this. War and conquest is a good way to ensure that the other nations of the world shut their doors to us. Especially as nonpolarity increases.
Adam Burke:
The flag is not an ornament, it should not be printed on swim suits, paper plates, lapel pins, or airplanes - it should be printed on cloth, attached to a rope, and hoisted high above our heads - that is respecting the flag - giving a patriotic man like Obama a hard time for removing a flag from his airplane is an argument I would more likely attribute to a republican drone like Sean Hannity than smart, young people such as ourselves who surely have more valuable points to make than ones they have paraphrased from the sensationalist vultures at Fox News.
Will:
Neil, Surely you know the quote, "Patriotism is the last refuge of a scoundrel"? And surely you know the story behind it: patriotism is fine and to be admired, but when one coopts patriotism for personal gain, one is a scoundrel. Don't join the scoundrels and accuse Obama of being unpatriotic for not making superficial displays of patriotism such as lapel pins (against the code anyways) and hand over the heart. If you've ever been to a sporting event there are tens of thousands of people who don't take off their hat, don't put their hands over their hearts, and cheer before the song is finished, and I hope you wouldn't accuse all of them of being unpatriotic.
Will:
McCain, son and grandson of 4-star admirals. McCain, ranked 5th last in college class. McCain, reputation as hard-partying slacker elevated in rank by daddy and granddaddy's reputation. McCain, married to a model. McCain, given preferential treatment by captors because of his daddy and granddaddy. McCain, numerous extra-marital affairs upon return to America because of wife's medical problems. McCain, starts sleeping with Ms. Hensley, daughter of huge AB distributor. McCain, gets divorce to marry heiress. McCain, gets cushy job with wife's daddy. McCain, best friend of biggest crook of the S&L crisis. McCain, net worth $40 million. McCain's wife, net worth > $100 million.
Obama, worked hard, damn smart, got some damn good grades, went to the best schools in the US, first minority with the presidential nomination for a major party.
Which story is more American, the life of entitlement or the Horatio Alger story?
Sendhil Panchadsaram:
LOL! The fact that you try to rationalize Obama's life as harder than Mccain's shows the rest of us what a complete joke you are. I don't think i've laughed this hard in a while. Thanks for the laugh. You've once again showed us you lack any credibility whatsoever.
Will:
I don't get it... Are you trying to goad me into name calling? If so, I could say you have lost touch with what the Republican party is supposed to be. Bill Clinton's adoption of the traditionally Republican embrace of free trade paved the way for the neoconservative faction of the Republican party to take control through bitterly divisive political schemes. Neocons view the world as a dangerous place that won't be safe until democracies have been installed in every country forcefully or otherwise. 2000 McCain was more in touch with Reagan style Republicanism, but 2008 McCain is running like a modern Republican. I like the Republican party, and I don't want to see it become a parody of conservative paranoid authoritarianism, which is exactly what it is becoming, and exactly what you have fallen prey to in your focus on Obama's perceived lack of patriotism.
All you've shown so far is that you think the image a candidate projects about their love for the country is all that matters. From what I understand, this caused a lot of problems worldwide in the late 19th century and the first half of the 20th century.
I've shown that I think what matters is the image the candidate projects about what the country can become. The Founding Fathers wrote a dynamic Constitution that could be amended not because they thought the past should control the future, but so that their document of freedom could be modified to meet the challenges of tomorrow aware that changing times require new solutions. Look to the vision of the future that the candidates offer, the grass is greener philosophy is what brought people to America, and what continues to drive our risk taking behavior.
Sendhil Panchadsaram:
I'm not trying to goad you into anything. This whole time i thought to take you seriously, but i just realized how silly your arguments are.
I'm done with this, if you feel some childish need to have the last word its yours.
Gotta run, I think i just spotted a black helicopter.
Will:
Sendhil, I'm not a little boy that you can play silly tricks on such as he who displays indifference to the discussion first, wins.
Black Helicopters is currently a Republican thing. Look at Obama, Clinton, HW, Reagan, Nixon, Kennedy, Ike, and FDR. These are/were beasts of men who walked around with their cocks dragging on the floor. They deal with enemies by shrugging and saying, no problem, we don't fear them. Now take a look at McCain, W, Carter, Johnson, and Truman. They've each got swagger, but their politics is we have nothing to fear except Al Qaeda, and Iran, and Mexico, and China, and Russia, and North Korea, and ... Any leader should have fear, but to publicly display your fear reeks of insecurity. Something the leader of the most powerful and wealthy nation in history should not display.
The End ... For Now... Okay, so I get a little belligerent towards the end, but I really was holding my tongue. The only thing I regret is that one of the paragraphs looks like I'm being too hard on McCain. I really do respect McCain and all that he has accomplished. His life might've been harder, but sitting in a POW camp is not an accomplishment, it is an experience. An awful and trying experience, but it does not magically qualify someone for leadership. Rather, it's a good human interest story on which to connect with voters and launch a political career.
Just stumbled across these FT videos documenting the careers of two very different Chinese attorneys (h/t Lawslot). The first video is about a human rights lawyer, and the second video accessed from a link in the first video is about a Jones Day partner. Both are compelling.
Well folks, we are officially one week away from the effective date of China's Anti-Monopoly Law! Aren't you excited?!?
I'm sort of excited, sort of. But not really. But more excited than about the contemporaneous adoption of Henan's judicial etiquette rules, though the AML is certainly less funny.
Let's take a quick look at the law:
Chapter I - General Provisions Just definitions, regulatory body, jurisdiction, purpose, all the same unimportant language in the beginning of any PRC law that doesn't really have any meaning ... until you're getting sued.
Chapters II-III Yawn inducing boring definitions of "Monopolistic Conduct" and "Abuse of Market Dominance." Sure, this law is a big deal for China, but this conduct and its effect on the marketplace was a basic part of our public primary school education when covering late 19th/early 20th century US history. The basic lesson: Standard Oil, Boo! Yellow Journalism Competition ... Yay? National Library Construction, 加油 ("add petrol" in Chinese)!
The more I reflect the less boring these provisions become. China is a country moving from a planned economy where the State and its Enterprises were the monopoly to a market economy in which competition is fostered and protected by antitrust laws. Wait a sec! Chapter I, Article 12, this AML seems to even apply to SOEs? Awesome!
Chapter IV - Concentration of Business Operations This is where a lot of the editorial focus has been. I don't really get why this is such a big deal. If anything, I really appreciate this chapter. Have you ever read the M&A Provisions? They're about as vague and ambiguous as you can get. Between this Chapter and the definitions in Chapter II, you can get a much stronger handle on whether or not your acquisition will be approved by the relevant authority. Which is nice, because I assume that it would suck to have an acquisition vetoed by the relevant authority after months of no weekends and sleepless nights.
Chapter V Abuse of Administrative Power to Eliminate or Restrict Competition See second paragraph of Chapters II-III, above, and final sentence of Conclusion, below. The jury's out, especially without an independent judiciary or a 7th Amendment equivalent.
Chapters VI-VII The scary parts (damages, investigations)... Except for the plaintiff's attorneys. And the defendant's attorneys.
Conclusion The AML is pretty tame and predictable, except maybe in relation to IP rights. What is going to be exciting is how the law is enforced. But that's always the fun part in a civil law jurisdiction. I'm guessing that domestic companies will enjoy greater protection than foreign companies at least until that magical day when the Party Honchos decree that indeed China companies can compete on a fair playing field with the rest of the world, or not, see Chapter V.
Outside Reading 1. Jones Day's thorough Publications team does it again. 2. Matt Young proves that the game metaphor is too fun to pass up. 3. Paul Jones plays it straight (h/t to China Business Law Blog). 4. Dan Harris at CLB links to others in a couple of posts, 1 & 2. 5. CLB team member Steve Dickinson calls it what it is.
Dan Harris at China Law Blog reports on a Pew Study which finds that more Chinese, 41%, have a favorable view of the US than Germans, 31%. For comment Dan writes, "Call me Careyesque, but I think that is pretty good." I ask: why can't it be gooder?
Sure, the arguments for the economy are familiar: give out more H-1Bs, let in more students, eliminate home stay requirements on J's, make it easier to bring in strong brains and skilled workers to the US and our economy will grow stronger not weaker with immigrant talent. But, the other positive of bringing foreigners to America is that it improves our image around the world. This too is probably an old argument, but I'm gonna give you a new story.
A few weeks ago after a few liters at the Shanghai French Concession Paulaner Brauhaus*, a German buddy told me about the history of his relationship with America. The conversation began after some of his German friends told me that Americans are only superficially friendly. As a young man the relationship was hostile, indeed. He hated America and what it stood for, and admittedly not knowing exactly why. Internally I reckoned that it had something to do with America being an occupying force in Germany. Though I think America is pretty dang swell, I've watched Braveheart too many times to not realize that a young man is liable to bear a heavy grudge against an occupier no matter how benign. Nor did I voice my confusion in my friend's decision to come to Florida for a study abroad program despite his grudge against us. But, I was certainly not confused by what he found in America.
He found a significant disconnect between America's foreign policy and image or his perception of America's foreign and image, and the American people. He was surprised by how friendly his host family and classmates were. He was surprised by the eagerness Americans demonstrated in learning about his culture, his family, and him. He was not sure that this hospitality would be found in Europe. I had a feeling that his story was only aimed partially at me, and largely at his friends. And, I'm pretty sure that this is a common story.
So, dangit, let's get more Chinese people over here! Sure, some of 'em might be spies, but the evidence seems to show that they're not very good at spying so the bad apples shouldn't cause a very big tummy ache.
And the story doesn't begin and end with getting Chinese into America. You American students, and not just the ABCs, need to get over to China for some reciprocal cultural learning. Most colleges and law schools will allow you to cross enroll in their study abroad programs, so you don't even need to go to the school to use their study abroad and get the credits transferred. I have no recommendations if you're an undergrad, but I highly recommend Santa Clara Law School's China study abroad program which consists of 4 weeks in the classroom and 4 weeks applying your knowledge at a Chinese law firm.
* For those who want to keep track, that's 4 Paulaner Brauhauses in the past year. I'd rank the French Concession Paulaner second to Nockherberg, beating out The Paulaner Brauhaus by the superior ambiance of the garden and the rocking house band.
The other evening in Shanghai we had a company banquet at a seafood restaurant in Xintiandi. There were mostly sales personnel plus some tech support, marketing and administrative staff. If you hang around any of these China blogs you've almost certainly read a story about how the drinking culture has died out, or how you no longer need to drink to make a sale. I decided to just sit back and let my colleagues explain the drinking and sales connection.
The consensus was that in Shanghai and Beijing you could drink as little as you wanted to without offending anybody. But, if you get too far from either of these cities, especially in the North, then you're in trouble. Which led to much joking and laughing at and with our Sales Manager of North China. The same joke was made about our Northwest guy, our West guy, and our South guy. But, as we were in Shanghai and we weren't trying to sell anything to each other that night, other than the humor of our jokes, we toasted each other throughout the meal.
At one point, one of our sales guys told me a story about the CEO of a company in the South of China who was trying to secure a large contract. The CEO was meeting with a principal of the company and the principal said that they'd purchase 1 unit of the 12 units required for each cup of baijiu toasted. The CEO announced that he'd take 12 cups of baijiu. He then leaned over to his assistant and told him to have an ambulance waiting outside. The CEO awoke in a hospital bed with the full contract. My colleague told me that the greatest payoff came when the CEO returned to his factories. His employees had heard the story and their loyalty skyrocketed after knowing that their boss was willing to commit suicide for the company [his words not mine].
I might've had a slightly different interpretation of the CEO's actions. I'd be a little disturbed by the company's risk analysis.
Rich Brubaker wrote a pretty lengthy post on Albert Keidel's newest policy brief for the Carnegie Endowment, China’s Economic Rise—Fact and Fiction. I completely agree with everything Rich said, but I also want to add my own two cents.
Though I tend to agree with a lot of the scholarship coming out of Carnegie, my interpretation of Keidel's brief is probably skewed by where I found it. Drudge Report is a great source for offbeat news, but there is a definite editorial political bias emerges in the content and lanugage of the headlines. Planting a headline about China overtaking the US economy on Drudge Report is a sure fire way to whip up the passions of young conservatives. Thus it was that I read Keidel's brief less objectively than I might otherwise have.
After reflection, and despite the rider claiming that CE does not take institutional policy positions despite being an institution dedicated to advancing policy, I think this is still a scare piece. In Rich's post he seems to be implying that Keidel's conclusions are supported by assumptions that are all too convenient and not backed up fully enough by figures. This was my impression, too. Unlike your typical Red China scare piece, though, this one tries to scare the US into working with, rather than against, China.
In this vein, one of the most interesting things I thought Keidel pointed out was "The payoff from engagement with autocratic regimes."
Contrary to popular understanding, China did not "open itself" to reforms and global commerce in the 1970s. Rather, the United Staets, which had "closed" China during the Korean War, decided under President Richard Nixon to engage the highly autocratic authorities in Beijing. It might thus be more accurate to say that the United States and China both contributed to "opening" China. The subsequent benefits are obvious, including the evolution of China's more sophisticated and decreasingly autocratic economic and political structures. This experience argues for considering the replacement of blanket U.S. sanctions against other countries with broad-based engagement, keeping an eye on potential benefits several decades hence.
