13 June 2008

Throwing a Meat Dumpling to Hit a Dog

It's a line from page 215 of James Kynge's book, China Shakes the World, offering up a Chinese expression on the futility of protesting the government.

Knowing dogs as I do, however maliciously-intentioned the dumpling toss is, the dog will never take offence. He may not even waste time to cock his head and quizzically look askance at you. He'll simply scamper over to the offending dumpling, devour it, and hope there's more where that came from.

I guess the line doesn't fully encompass how the Chinese government deals with protest, but it's amusing nonetheless.

I recently read this book poolside while vacationing in Maui, to get some broader insight into the rise of China and potential stumbling blocks along its path to becoming an economic juggernaut. I thought I'd offer up the book's thesis, and some other excerpts that caught my attention. After reading them, perhaps you'll want to find your own bit of paradise and read all 240 pages.

China is no different from the EU or the United States in that "no country can enjoy a competitive edge over everywhere else in everything that it does and makes."

That insight is fundamental to China's situation today because much of the country's prowess in manufacturing has been caused by a strenuous, state-sponsored skewing of domestic economic inputs. The aim of this orchestration of advantage has been to resolve China's most fundamental problem: the creation of jobs. So it keeps the cost of electricity artificially low, prices water at a fraction of its real value, puts a cap on the price of some categories of coal, subsidizes oil to make it cheaper to industry and transport, ensures that workers cannot form independent unions so they have little power to bargain wages upward, barely implements its own environmental law so as not to hobble industry with extra costs, promotes savings so its banks are always flush with capital to lend, and provides generous tax rebates to any company that exports its goods. (p.127)

Kynge then says that China's desire to be the world's leading manufacturer has exposed some weaknesses, namely the outsized need "for energy, resources, education, and respect, which the Chinese are obliged to buy from other parts of the planet."

China has a surplus of human capital, but is lacking the capability for significant domestic oil production and the production of other necessary commodities. Apart from the supposed evil of "speculators", China's ever-expanding thirst for oil is often used to explain the rising cost of oil.

China has significant problems with its brand, whether it's lead in toys, its treatment of the Dalai Lama and Tibetans, or Tiananmen Square circa 1989:

Chinese companies that try to build their own brands...bump up against a series of barriers, not least of which are the associations that go along with their national identity. It is not easy to create an aura of quality, consistency, or "cool" among overseas consumers if the news coverage from your country centers on repression, corruption scandals, worker exploitation, and, for many people, a vague and menacing presence called communism. Thus Chinese firms are condemned to surrender much of the value that comes from making and selling things to foreign companies. (p.171)

Then there are the issues with governmental control of publicly-traded companies:

In the West, stock markets function by allowing the investing public to supervise the actions of corporate decision makers. If investors do not like the strategy of a CEO, they can "vote" against it by selling their shares. But in China the system has been turned on its head, so the bosses of publicly traded companies do not have to suffer the indignity of listening to the opinions of minority shareholders. In fact, every aspect of the system has been designed to extract a maximum of public money while surrendering a minimum of accountability. (p.196)

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