I am shocked, shocked, I tell you


As the Communists used to say, it’s no accident that Beijing have announced that four executives of the mining behemoth Rio Tinto would finally be put on trial. It came just as annual iron ore contract negotiations reached crescendo. The businessmen [one a naturalized Australian citizen said by company officials to be critical to their operations] are now tagged with lesser charges. But accusations of bribery and purloining proprietary information invite derision when arrests for corruption of high public officials are reported almost daily — even in China’s controlled press.

There is growing concern, however, that this is more than ratcheting up obstacles to foreigners doing business in what has been the world’s fastest growing economy. It follows a year-old statement of “Buy China” which threatened to squeeze foreign investors in more formal ways than in the past. Then there was the blowup between Google and Beijing – ostensibly over whether the American giant would continue to collaborate in censorship but actually concerned with its U.S. customers getting hacked and government favoritism for Google’s China competitor. More recently comes a call for sanctions – strangely from a top military – against American companies as a counter to the Obama Administration selling Taiwan new weapons. This was quickly knocked down by kept Chinese academics pointing out the obvious: the essential role foreign companies play in technology transfers.

But there has to be concern beyond the economic aspects of this new Chinese aggressiveness. More and more, China’s leaders appear to be turning their back on Paramount Leader Deng Xiaoping’s advice when he led the exit two decades ago from Mao Tse-dung’s autarchy. Deng warned that China had a long way to go toward modernization, that it should keep its head down while that long struggle was accomplished. It wasn’t, of course, that Deng was committing China forever to secondary power status: rapid military modernization one of his announced principal goals. But it was the advice of a veteran who twice had escaped Mao’s chopper [as few of his old Communist colleagues had] by hunkering down in his native Szechwan when the going got rough. Later he publicly apologized with tears rolling down his face for failing to prevent millions of his countrymen dying in Mao’s experiments with permanent revolution.

Nowhere has this new Chinese militancy created more friction than with the Obama Administration. Mr. Obama set out early – as elsewhere – to try to characterize his China policy with overtures to Beijing leadership. But reality has caught up with rhetoric here as elsewhere as the President has tried desperately to distinguish his policies from those of former Pres. George W. Bush.

What had been seen as an international accounting problem — the enormous imbalances in U.S.-China trade resulting in unheard of Beijing accumulations of foreign exchange — became critical after the 2008 international financial crisis and the subsequent worldwide recession. Whether it was China’s undervalued currency, its even more important export subsidies, its handicapping imports, its continued flaunting of intellectual property rights costing American and European companies billions — the issues have come trooping home again for Washington.

Mr. Obama’s critical union constituency and the growing Congressional protectionist sentiment – particularly in his own party – are beginning to pinch. A relatively innocuous levy on cheap tires and threats to carry other issues to the World Trade Organization are now the hallmark of the Administration’s China policy. Even Mr. Obama’s Hollywood constituency had to be placated with a late [and unphotographed] visit by the Dalai Lama to the White House.

The Rio Tinto case, forsooth, then becomes a touchstone for larger issues. It not only epitomizes growing tension between Beijing and international business. But it puts into question, as do other economic decisions, the perspicacity of Chinese policymakers.

In the good old days, the ore monopolies negotiated a pacesetting contract with one of the Japanese or Korean steelmakers. But as China has moved into place as the world’s No. 1 steelmaker, Beijing sought to dictate the price – with disastrous results from its own standpoint. A three-month embargo of ore purchases collapsed two years ago in higher prices. Last year Beijing’s refusal to contract simply shifted its purchases to the higher spot market. Meanwhile, government-owned steelmakers and Beijing’s official negotiators feuded behind the scenes.

More generally, Beijing statements dissing the U.S. economy don’t make much sense either. If you are holding almost $2.5 trillion, mostly in dollars, with no place to go what with the Euro in crisis falling against the dollar, and if your export-led economy depends on an early and vibrant American recovery, the U.S. economy’s health becomes one of your primary concerns. Sneaky purchases of U.S. Treasuries so they don’t show up on your official balance sheet in the end is not that clever.

All this talk about Beijing’s holding the whip hand in an extremely complex relationship may be good politics in American campaign sloganeering. But if the Chinese leadership is buying into that propaganda, the world really has a problem on its hands.

Sws-02-20-10

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One response to “I am shocked, shocked, I tell you

  1. Appreaciate for the work you have put into this post, this helps clear away some questions I had.

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