157) China’s exports to the world - The Economist

China’s export prospects
Fear of the dragon
The Economist, January 7th 2010

HONG KONG
China’s share of world markets increased during the recession. It will keep rising

MANY people start the new year by resolving to change their old ways. Not China. On December 27th Zhong Shan, the country’s vice-minister of trade, declared that China will continue to increase its share of world exports. Figures due out on January 11th are expected to show that China’s exports in December were higher than a year ago, after 13 months of year-on-year declines. China’s exports fell by around 17% in 2009 as a whole, but other countries’ slumped by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999 (see chart).

China takes an even bigger slice of America’s market. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008.

Trade frictions with the rest of the world are hotting up. On December 30th America’s International Trade Commission approved new tariffs on imports of Chinese steel pipes, which it ruled were being unfairly subsidised. This is the largest case of its kind so far involving China. On December 22nd European Union governments voted to extend anti-dumping duties on shoes imported from China for another 15 months.

Foreigners insist that the main reason for China’s growing market share is that the government in Beijing has kept its currency weak. But there are several other reasons why China’s exports held up better than those of its competitors during the global recession. Lower incomes encouraged consumers to trade down to cheaper goods, and the elimination of global textile quotas in January 2009 allowed China to increase its slice of that market.

How high could China’s market share go? Over the ten years to 2008 China’s exports grew by an annual average of 23% in dollar terms, more than twice as fast as world trade. If it continued to expand at this pace, China might grab around one-quarter of world exports within ten years. That would beat America’s 18% share of world exports in the early 1950s, a figure that has since dropped to 8%. China’s exports are likely to grow more slowly over the next decade, as demand in rich economies remains subdued, but its market share will probably continue to creep up. Projections in the IMF’s World Economic Outlook imply that China’s exports will account for 12% of world trade by 2014.

Its 10% slice this year will equal that achieved by Japan at its peak in 1986, but Japan’s share has since fallen back to less than 5%. Its exporters were badly hurt by the sharp rise in the yen—by more than 100% against the dollar between 1985 and 1988—and many moved their factories abroad, some of them to China. The combined export-market share of the four Asian tigers (Hong Kong, Singapore, South Korea and Taiwan) also peaked at 10% before slipping back. Will China’s exports hit the same barrier as a result of weakening competitiveness, or rising protectionism?

An IMF working paper published in 2009 calculated that if China remained as dependent on exports as in recent years, then to sustain annual GDP growth of 8% its share of world exports would rise to about 17% by 2020. To consider whether that was feasible, the authors analysed the global absorption capacity of three export industries—steel, shipbuilding and machinery. They concluded that to achieve the required export growth, China would have to reduce prices, which would be increasingly hard to manage, whether through productivity gains or a squeeze in profits. In many export industries, particularly steel, margins are already wafer-thin.

However, China’s future export growth is likely to come not from existing industries but from higher-value products, such as computer chips and cars. Japan’s exports also moved swiftly up the value chain, but whereas this was not enough to support durable gains in its market share, China has the advantage of capital controls that will prevent its exchange rate rising as abruptly as Japan’s did in the 1980s. When China does eventually allow the yuan to rise, it will do so gradually.

Another big difference is the vastness of China’s economy. China consists, in effect, of several economies with different wage levels. As Japan moved into higher-value exports, rising productivity pushed up wages, making old industries, such as textiles, uncompetitive. In China, as factories in the richer coastal areas switch to more sophisticated goods, the production of textiles and shoes can move inland where costs remain cheaper. As a result China may be able to remain competitive in a wider range of industries for longer.

Foreign hostility to China’s export dominance is growing. Paul Krugman, the winner of the 2008 Nobel economics prize, wrote recently in the New York Times that by holding down its currency to support exports, China “drains much-needed demand away from a depressed world economy”. He argued that countries that are victims of Chinese mercantilism may be right to take protectionist action.

From Beijing, things look rather different. China’s merchandise exports have collapsed from 36% of GDP in 2007 to around 24% last year. China’s current-account surplus has fallen from 11% to an estimated 6% of GDP. In 2007 net exports accounted for almost three percentage points of China’s GDP growth; last year they were a drag on its growth to the tune of three percentage points. In other words, rather than being a drain on global demand, China helped pull the world economy along during the course of last year.

Foreigners look at only one side of the coin. China’s imports have been stronger than its exports, rebounding by 27% in the year to November, when its exports were still falling. America’s exports to China (its third-largest export market) rose by 13% in the year to October, at the same time as its exports to Canada and Mexico (the two countries above China) fell by 14%.

Some forecasters, such as the IMF, expect China’s trade surplus to start widening again this year unless the government makes bold policy changes, such as revaluing the yuan. However, Chris Wood, an analyst at CLSA, a brokerage, argues that China is doing more for global rebalancing than America. Rebalancing requires that China spends more and America saves more. Mr Wood argues that China is doing more to boost domestic consumption (for example, through incentives to stimulate purchases of cars and consumer durables, and increased health-care spending) than America is doing to boost its saving. America’s total saving rate fell in the third quarter of last year to only 10% of GDP, barely half its level a decade ago. Households saved more, but this was more than offset by increased government “dissaving”.

Strong growth in China’s spending and imports is unlikely to dampen protectionist pressures, however. China’s rising share of world exports will command much more attention. Foreign demands to revalue the yuan will intensify. A new year looks sure to entrench old resentments.

156) Central Asia: Migrants and the Economic Crisis

Central Asia: Migrants and the Economic Crisis
International Crisis Group - Asia Report N°183
5 January 2010

EXECUTIVE SUMMARY
The economic crisis has caused millions of migrant labourers from Tajikistan, Kyrgyzstan and Uzbekistan to lose their jobs in the boom economies of Russia and Kazakhstan. Remittances that kept their relatives afloat have plummeted and many migrants have returned home to certain destitution, putting weak Central Asian governments under severe strain. In Tajikistan half the labour force is without work, while Kyrgyzstan suffers from massive rural unemployment. Before the crisis hit, up to five million people from these countries left home for Russia and Kazakhstan to take on poorly paid and unskilled jobs, often the unpleasant tasks that local people no longer wished to do. Yet at home they were viewed with respect: the most daring members of their society, who were willing to take a jump into the unknown to pull themselves and their families out of poverty. Remittances also boosted their home countries’ economic data, allowing governments with little ability or interest in creating jobs to claim a modest degree of success. By 2008 remittances were providing the equivalent of half Tajikistan’s gross domestic product (GDP), a quarter of Kyrgyzstan’s GDP, and an eighth of Uzbekistan’s.

The economic crisis of 2008-2009 destroyed this semblance of prosperity. First oil prices plummeted, then the crisis rolled through the highly leveraged banking sectors of Russia and Kazakhstan, finally bringing construction – the single largest source of migrant employment – to a near standstill. Migrant labourer quotas were cut, xenophobia increased in Russia, companies laid off migrants or in some cases simply stopped paying them. In the migrants’ home countries, governments first refused to believe the crisis would affect them, then slowly began to assemble a package of largely symbolic and ultimately unsuccessful palliatives. At least several hundred thousand and possibly as many as one million migrant labourers were believed to have returned home by the end of 2009.

The crisis has focused attention on one of the crucial weaknesses of Central Asian governments: the ability of states like Tajikistan and Kyrgyzstan to survive a crisis depends on good external conditions, not good policy. They handled unemployment, for example, by exporting it, did little to create jobs at home, and are now floundering in the face of the crisis. In the past they would have just muddled through. Now problems are building up, and muddling through is becoming less of an option. Migrant labourers also unwittingly performed a valuable political service for Central Asia’s leaders. The export of surplus labour allowed governments to rid themselves for part of the year of the segment of society – especially young men – that is the most likely source of unrest.

The financial crisis and the return of labour migrants sparked predictions of unrest, intensifying the concern that radical Islamists had been making inroads into the labour diaspora. Though there are strong indications of attempts by radical Islamists to recruit among migrant labourers, particularly in Russia, there is not enough data to ascertain the breadth of their success. And while many labourers have returned home, many more are waiting it out in Russia and Kazakhstan, taking even more menial and lower paying work, or surviving on family handouts in the hope that the situation will improve. Many work illegally, at the mercy of corrupt police, officials and dishonest employers; in Russia they are also subject to considerable discrimination and even violence. Opposition leaders in the region have long believed that migrant labourers would one day form the spearhead of an attack on the entrenched and incompetent regimes. This shows no sign of happening yet.

All groups affected by the crisis hope that one day the boom years will come back. The hiring nations look forward to a time when they will again be serious players on the world economic stage. The labourers need the work, because their own countries cannot provide it. The labour exporting governments need, as usual, outside assistance to solve their problems: none of them under their present dispensations are likely to come up with a successful strategy either to reintegrate migrant labourers or find an alternative source of income. The chances are, however, that the story will not end so neatly. Russia and Kazakhstan are likely at best to achieve a sort of sub-optimal recovery – assuming that a second round of economic crisis does not, as many economists predict, hit in Russia.

In all three countries covered in this report, society has been politically inactive or silent for many years. In Tajikistan this is attributed to the still-fresh memories of a brutal civil war; in Kyrgyzstan to disillusion and cynicism that followed the so-called Tulip Revolution of 2005; in Uzbekistan because of a ruthless and often brutal system of top-to-bottom social control. Western pressure has done little to mitigate this behaviour in the past, and pressure is likely to diminish even further as NATO and the U.S. look to Central Asia to host crucial military supply lines to Afghanistan. Past performance in the region is, however, no guarantee of future behaviour. Insecurity is growing, in part domestically generated, in part because of proximity to Afghanistan; infrastructure is collapsing, weak economies are slipping still further. The governments of the region need to take energetic measures to carry out sweeping reforms. The international community needs to pressure them to do so. At the moment, neither seems likely.

Bishkek/Brussels, 5 January 2010

Click here to view the full report as a PDF file.
This document is also available in MS-Word format.

155) China crash - New York Times

Investidor divergente prevê crash econômico na China e suspeita de bolha imobiliária
David Barboza - Xangai
New York Times (FSP), 08/01/2010

James S. Chanos construiu uma das maiores fortunas em Wall Street prevendo o colapso da Enron e de outras empresas altamente valorizadas, cujas histórias eram boas demais para ser verdade.

Agora Chanos, um rico investidor de fundo hedge, está trabalhando para acabar com o mito do maior conglomerado de todos: a China.

Homem em frente a cartaz que mostra a bandeira da China e algumas moedas, durante feira de tecnologia do setor bancário e financeiro, em Pequim. Segundo o mega investidor James S. Chanos, o gigante asiático está próximo de um colapso econômico como o dos Estados Unidos, impulsionado pelo setor imobiliário

Enquanto grande parte do mundo aposta na China para ajudar a tirar a economia global da recessão, Chanos está alertando que a economia hiperestimulada da China está seguindo para um crash, em vez do boom sustentado que a maioria dos economistas prevê. Seu setor imobiliário em ascensão, sustentado pela enxurrada de capital especulativo, parece "Dubai vezes 1.000 -ou pior", irrita-se ele. Chanos suspeita até que Pequim esteja manipulando os livros, fingindo, entre outras coisas, suas taxas de crescimento espantosas de mais de 8%.

"As bolhas são melhor identificadas pelos excessos de crédito, não pelos excessos de valorização", ele disse em uma recente aparição na "CNBC". "E não existe maior excesso de crédito do que na China." Ele está planejando um discurso para o final deste mês, na Universidade de Oxford, para disseminar seu argumento.

Como um proeminente short-seller (vendedor de valores a descoberto) americano -o investidor aposta dinheiro alto no fracasso das estratégias das empresas- a narrativa de Chanos contraria o pensamento predominante em relação à China. A maioria dos economistas e governos espera que o crescimento chinês continue neste ano, sustentado pelo restante de um programa de estímulo do governo de US$ 586 bilhões, iniciado no ano passado e que visa estimular as exportações e o consumo entre os chineses.

Ainda assim, apostar contra a China não será fácil. Como os estrangeiros enfrentam restrições para investir em ações listadas dentro da China, Chanos disse estar buscando outras formas de fazer suas apostas, incluindo se concentrar em empresas ligadas à construção e infraestrutura, que vendem cimento, carvão, aço e minério de ferro.

Chanos, 51 anos, cujo fundo hedge, o Kynikos Associates, com sede em Nova York, administra US$ 6 bilhões, não é o único cético em relação à China. Mas é certamente o mais proeminente e mais ruidoso.

Apesar de todo seu retrospecto de presciência -além de prever o fim da Enron, ele também percebeu os problemas da Tyco International, da rede de restaurantes Boston Market e, mais recentemente, das construtoras de imóveis residenciais e de alguns dos maiores bancos do mundo- seus detratores dizem que ele sabe pouco ou nada a respeito da China ou de sua economia, de forma que seus alertas devem ser ignorados.

Funcionário do banco conta cédulas de Yuan, moeda oficial da China. Nos últimos meses, um crescente número de analistas, e algumas autoridades chinesas, também têm alertado sobre a ameaça do surgimento de bolhas de ativos no país asiático

"Eu considero interessante que pessoas que nem sabiam soletrar China há 10 anos agora são especialistas em China", disse Jim Rogers, que co-fundou o Fundo Quantum com George Soros e atualmente vive em Cingapura. "A China não está em uma bolha."

Os colegas reconhecem que Chanos começou a estudar a economia da China apenas em meados do ano passado e enviou e-mails pedindo a opinião de especialistas.

Mas ele está acompanhado daqueles que veem uma crescente evidência de que o pacote de estímulo da China e os empréstimos bancários agressivos estão criando uma demanda artificial, aumentando o risco de uma onda de empréstimos inadimplentes.

"Na China, ele parece enxergar os excessos nos quais tem apostado contra ao longo de todas estas décadas", disse Jim Grant, um velho amigo e editor da "Grant's Interest Rate Observer", que também prevê uma queda da China. "Ele se concentra nos excessos dos mercados e lucra com eles. Esse é o seu talento e ofício."

Chanos se recusou a ser entrevistado, citando sua contínua pesquisa a respeito da China. Mas ele já está espalhando a visão de que o milagre chinês está cegando os investidores para o risco de que o país está produzindo demais.

"Os chineses correm o risco de produzirem grandes quantidades de bens e produtos que serão incapazes de vender", ele alertou em uma entrevista para a Politico.com, em novembro.

Em dezembro, ele apareceu na "CNBC" para discutir como começou a assumir posições vendidas, na esperança de lucrar com o colapso da China.

Nos últimos meses, um crescente número de analistas, e algumas autoridades chinesas, também têm alertado sobre a ameaça do surgimento de bolhas de ativos na China.

O imenso programa de estímulo do país e o empréstimo bancário recorde, cuja estimativa é de ter dobrado no ano passado em relação a 2008, injetou bilhões de dólares na economia, retomando o crescimento.

Mas muitos analistas agora dizem que o dinheiro, juntamente com o imenso afluxo de "capital especulativo", foi canalizado para os mercados de ação e imobiliário.

O resultado, eles dizem, tem sido alta de preços e uma retomada do boom de construção que estava em andamento no início de 2008 -um que Chanos e outros chamaram de perdulário e exagerado.

"Ocorrerá um colapso", disse Gordon G. Chang, cujo livro, "The Coming Collapse of China" (Random House), alertou sobre esse crash em 2001.

Amigos e colegas dizem que Chanos está à vontade apostando contra a maioria -mesmo quando essa maioria inclui pessoas como Warren E. Buffett e Wilbur L. Ross Jr., duas figuras imponentes do mundo do investimento.

Um divergente por natureza, Chanos pesquisa as empresas, analisa meticulosamente os relatórios públicos de prestação de contas em busca de pistas de contabilidade fraudulenta ou enganosa e então decide se uma ação está sobrevalorizada e pronta para cair. Ele conta com um quadro de 26 funcionários em escritórios em Nova York e Londres, em busca de outras informações relacionadas à China.

"O retrospecto dele é impressionante", disse Byron R. Wien, vice-presidente da Blackstone Advisory Services. "Ele não é um charlatão. E sou uma pessoa que espera alta na China."

Chanos cresceu em Milwaukee, um dos três filhos dos proprietários de uma rede de lavanderias. Em Yale, ele estudou medicina antes de trocá-la por economia, devido ao que descreveu como um interesse apaixonado pela forma como os mercados operam.

Sua filosofia-guia foi descoberta em um livro chamado "The Contrarian Investor", segundo um relato de sua vida em "The Smartest Guys in the Room", um livro que narrou a ascenção e queda da Enron.

Após a faculdade, ele foi para Wall Street, onde trabalhou em uma série de corretoras até abrir sua própria firma, em 1985, devido ao que disse posteriormente ser sua frustração com a forma como os corretores de Wall Street promoviam as ações.

Na Kynikos Associates, ele criou uma firma voltada a apostar na queda dos preços das ações. Suas teorias são resumidas no depoimento que deu ao Comitê de Energia e Comércio da Câmara, em 2002, após o colapso da Enron. Sua firma, ele disse, procura por empresas que parecem exagerar seus lucros, como a Enron; que são vítimas de um plano de negócios falho, como muitas empresas de Internet; ou que praticam "fraude descarada".

O fato de short-sellers serem mal-vistos por alguns em Wall Street, assim como na economia em geral, há muito o incomoda.

Os short-sellers foram acusados de terem intensificado as vendas de ações no final de 2008, antes da prática ter sido temporariamente proibida. Os reguladores agora estão tentando decidir se restringem a prática.

Chanos frequentemente responde aos críticos do short-selling apontando o papel crítico que os short-sellers exerceram na identificação dos problemas na Enron, Boston Market e outros "desastres financeiros" ao longo dos anos.

"Eles frequentemente são aqueles que usam chapéus brancos quando se trata de procurar e identificar os bandidos", ele disse.

Tradução: George El Khouri Andolfato

154) Are Chinese Exports Sensitive to Changes in the Exchange Rate?

Are Chinese Exports Sensitive to Changes in the Exchange Rate?
Shaghil Ahmed1
Board of Governors of the Federal Reserve System
International Finance Discussion Papers
Number 987, December 2009 --- Screen Reader Version*

NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to International Finance Discussion Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Recent IFDPs are available on the Web at http://www.federalreserve.gov/pubs/ifdp/. This paper can be downloaded without charge from the Social Science Research Network electronic library at http://www.ssrn.com/.

Abstract:

This paper builds a model of two types of Chinese exports, those processed and assembled laregely from imported inputs ("processed" exports) and "non-processed" exports. Based on this model, the sensitivity of Chinese exports to exchange rate changes is empirically examined. Unlike previous work, the estimation period includes the net real appreciation of the renminbi that has occurred over the past three years. The results show that greater exchange rate appreciation dampens export growth, both for non-processed and processed exports, with the estimated cumulative price elasticity being substantially greater than unity. When the source of the increase in the Chinese real exchange rate is appreciations against the currencies of other emerging Asian trading partners, the effect on processing exports is positive but insignficant, while the effect on non-processing exports is significantly negative. By contrast, when the source of the increase in the Chinese real exchange rate is appreciation against China's advanced-economy trading partners, the effects on both types of exports are negative. These results are consistent with the predictions of the theoretical model. Counterfactual simulations based on the estimated model strongly suggest that if the trade-weighted real renminbi had appreciated at an annual rate of 10 percent per quarter since mid-2005, Chinese real exports would have been roughly 30 percent lower today. Thus greater exchange rate flexibility could contribute to lowering China's huge trade surplus through restraining growth of exports.

Keywords: China, exchange rate, exports
JEL classification: F31, F32, F41

1 Introduction

China's ballooning current account surplus in recent years (reaching about 10 percent of GDP in 2008) and rapid accumulation of international reserves (to about $2.2 trillion) has raised concerns that Chinese authorities are heavily managing their currency and contributing to global imbalances. At the same time, many also question whether faster currency appreciation would reduce China's trade surplus significantly-one argument being that, given the high import content of Chinese exports, appreciation of the currency need not make Chinese exports more expensive to the rest of the world since the effective cost of the imported inputs would also fall. Despite this tension there is relatively little empirical evidence on how responsive Chinese exports have, in fact, been to currency movements that cover the period since the middle of 2005 when China revalued the renminbi (RMB) and started allowing a moderate appreciation trend, at least until the middle of last year.

This paper provides empirical estimates of the sensitivity of Chinese exports to exchange rate changes. It distinguishes between the effects on "processed" exports (produced using parts and components imported from abroad) and "non-processed" exports (largely sourced from domestic inputs). It also attempts to distinguish between unilateral changes in the Chinese exchange rate and those that are highly correlated with exchange rate changes of other economies in the region from which China imports parts and components, since this distinction is potentially very important when both processed and non-processed exports are being produced.

There are some existing empirical studies that also distinguish between processed and non-processed Chinese exports-Aziz and Li (2007), Cheung, Chinn and Fujii (2008), Garcia-Herero and Koivu (2009), Marquez and Schindler (2007), and Thorbecke and Smith (2008)-and Thorbecke and Smith also consider unilateral versus multilateral (across Asia) real effective exchange rate changes. However, only two of these studies incorporate any part of the period since mid-2005 in their sample period, and none of them consider the period from 2007 to mid-2008, when the pace of appreciation of the RMB apparently was accelerated. All told, the trade-weighted Chinese real exchange rate has appreciated about 13 percent, on net, since the end of 2006. Taking account of the greater recent variability of the exchange rate, this study provides up-to-date estimates and compares these to earlier estimates. Given concerns about possible currency undervaluation it also uses simulations from the empirical model to examine what the behavior of Chinese exports might have been if the RMB had appreciated more in recent years.

Another key distinguishing characteristic of this paper is that it develops a theoretical model of Chinese exports that explicitly incorporates the import of inputs for the production of some types of exports goods. This means that the estimated equations for exports are well-grounded in economic theory, including predictions about the different effects of RMB appreciation when its source is movements against the currencies of other emerging Asian economies and when its source is movements against the currencies of China's other trading partners. The explicit derivation of reduced-form export equations from theory also makes it clear that the estimated relative price elasticity should not be viewed, as it often is, as the slope of the demand curve, and the income elasticity should not be viewed as representing how much the demand curve shifts in response to a change in income, as the equilibrium quantities will incorporate supply-side parameters as well.

The main results of the paper can be summarized as follows: First, including the latest period of greater real exchange rate variability reinforces the conclusions of some earlier studies, such as Marquez and Schindler (2007), which found that Chinese exports respond quite strongly to movements in the real exchange rate, and go against studies which find little effect of exchange rate changes or effects that go in the opposite direction to conventional wisdom. Second, considering the components of the real exchange rate, consistent with the theoretical model, when the source of Chinese real exchange rate appreciation is movements of the RMB against other emerging Asian countries, this does not have a significant effect on Chinese processing exports, but it does have a significant negative effect on Chinese non-processing exports. On the other hand, when the source of the renminbi appreciation is movements against the currencies of non-emerging Asian Chinese trading partners, generally both types of exports go down. Moreover, even though processed exports remain very important for China, increases in non-processed exports have recently accounted for more of the overall increase in exports. Finally, model simulations indicate that the path of total Chinese real exports would have been quite a bit lower if the renminbi had appreciated more in recent years.

Overall, the results suggest that greater exchange rate flexibility could have significant impact on China's trade balance by restraining growth of exports, particularly non-processed exports.

The remainder of the paper is organized as follows. Section 2 sets the scene by discussing key developments in the Chinese external sector in recent years and Section 3 provides a selective review of the existing empirical work in this area. Section 4 presents a simple theoretical model of the behavior of Chinese exports that forms the basis of the empirical specification used. The empirical results on the exchange rate sensitivity of Chinese exports are presented and discussed in Section 5. Section 6 concludes.

Full paper here.

153) China and Africa: a long-term perspective (book review)

Book review:

Deborah Brautigam
The Dragon’s Gift: The Real Story of China in Africa
(Oxford: Oxford University Press, 2009)
Review by Dr. Sean W. Burges (University of Ottawa)

Central argument: China’s engagement with Africa resembles a whole-of-government policy coherent approach to national and international development policy that uses foreign aid instruments to mobilize export and commercial financing with a view to encouraging long-term profitable investments in Africa by Chinese firms in the primary, secondary and tertiary sectors.

Summary: The central theme uniting Brautigam’s book is that the Chinese government has taken a long-term view of what is involved in national development that differs from the approach typically found in OECD-DAC member development agencies. In a phrase redolent of the ‘outward development’ logic found in Latin American countries such as Brazil, Chile and Peru, China decided in the mid-1980s that national development required that the country ‘go global.’ Policy-makers in Beijing examined their own experience during the post-Mao opening and noted that their economic revival was precipitated by massive inflows of Japanese FDI seeking to exploit first Chinese natural resources such as iron ore, then human resources such as abundant cheap labour. Underpinning this development was a period of resource-backed financing that saw Japanese loans and investments for Chinese physical infrastructure secured against guaranteed rights for future purchases of commodities such as iron and coal at market prices. This is the model that is being replicated by the Chinese in Africa and which is also leading to Western concern that China is a new imperialist economic power. Brautigam argues that this concern is misplaced and misses the point of Chinese engagement in Africa.

Exporting the Chinese model: Reflecting on the antecedents for their country’s accelerating economic growth, policy makers in 1990s Beijing placed China in the context of the wider Southeast Asian development experience and noticed that there was a process of ‘creative destruction’. With economic development came a change in the underlying cost-base of production that would cause one industry to die out domestically and move to another country while another, higher-value added industry rose to replace it. The result is a cascading chain redolent of the ‘V’ pattern made by a chevron of flying geese, which is the metaphor Kaname Akamatsu (annex 1) used to describe Southeast Asian industrial development. Inflows of imports and FDI start a process whereby concentration on primary resource extraction comes to be replaced by preliminary manufacturing and eventually more complicated production processes. Brautigam argues that this is the understanding of the national development process that lies at the heart of Chinese engagement with developing areas such as Africa. Development is thus viewed as a cooperative process that will generate returns for both the investor and recipient.

Why is China in Africa? Chinese involvement in Africa is driven by three main factors. The first is a holdover from China’s early communist days, which called for cooperation (not development assistance) between developing countries in the struggle for national progress. An explicit element of this is a stringent public support for national sovereignty and autonomy, resulting in a Paris Declaration-compliant attitude that national development strategies are the business of national governments, not international organizations or development agencies. Chinese loans and grants are consequently bereft of the governance conditionality marking Western development projects. Indeed, Chinese officials interviewed by Brautigam are quite sanguine about corruption, noting that it is a naturally occurring phenomenon in developing countries and an important part of the informal bureaucratic process. That said, there is a underlying commercial imperative to Chinese projects in Africa that requires sustainable results and profitability, which not only mitigates against the excesses of public corruption and juridical insecurity, but also all-but-requires local partners to facilitate successful navigation of the local business environment. This latter aspect is critical because it perforce draws local economic actors into the Chinese economic orbit and facilitates a ‘learning by doing’ approach to manufacturing and exporting that is bolstered by China’s extensive repertoire of technical and professional training programs.

The second element of Chinese development assistance is strictly political: chequebook diplomacy to prevent other countries recognizing Tawain as an independent country rather than the renegade province that it is in Beiing’s eyes. While the sums involved in Chinese development assistance driven by these two factors are not negligible, they are not of the same magnitude as OECD-DAC member ODA expenditures. Lower expenditures are, Brautigam explains, compensated for by a much lower cost base for Chinese development assistance. Simply put, Chinese technical advisors are paid significantly less than their Western counterparts and generally live at the site of the project they are assisting in what would often be considered rudimentary and minimalist dwellings in a Western context. Tolerance for these daily hardships is higher amongst Chinese advisors because the conditions are not always markedly different from what they experience during their daily lives in China.

The third rationale for Chinese involvement in Africa is the cause of concern in the Western development community. In simple terms, China simultaneously views Africa as a source of raw materials, a market, an export platform and a site for profitable foreign direct investment. As Brautigam makes clear, this attitude is not any different than that found in most Western capitals. What is different is the manner in which China is pursuing these four economic incentives for engagement, which in turn contributes to confusion about Chinese development activities on the continent.

Assessing China’s Involvement in Africa: Development financing, termed cooperation by the Chinese government, is not provided as a stand-alone good. Rather, it is used to advance Chinese investment penetration into the recipient economy along the lines of the flying geese model. This creates a complex mix of advantages and disadvantages. On the negative side is the reality that a significant portion of Chinese aid is tied, which reduces its efficacy. The counterbalancing positive is that much of this tied aid is linked to economic development projects which are supported through their formative or regenerative phase by a variety of Chinese national, provincial and private financing mechanisms. Ultimately these projects, which are often joint ventures, must become self-sustaining and profitable. The national prestige factor attached to the projects means that significant efforts are given to making new and legacy projects a success, which has resulted in rapid Chinese reentry into such challenging contexts as Sierra Leone and DRC. The danger is that African or Chinese entrepreneurs do not always do the due diligence for a project and wrongly assume that the Chinese government will continue to support a money-losing venture.

While the story that Brautigam tells of Chinese investment in Africa is, on balance, positive, she is clear that there remain significant frictions. Discussion of industrial sectors such as auto parts in Nigeria and export-processing in Mauritius are presented as evidence that Chinese investment can provide a catalytic spark to ignite a sustainable and competitive industrialization process. In keeping with the ‘flying geese’ model, this spark comes from the transfer of technology, production processes, workplace attitudes and managerial techniques that accompany FDI. The friction is found in cultural dissonances, revolving particularly along different expectations of labour that see Chinese management demanding something at times resembling the long hours and dangerous working conditions found during the European industrial revolution and China’s current economic surge. While this dissonance has not resulted in the massive imports of Chinese labour reported in Western newspaper, it has worked to ensure that the vast majority of managerial positions are filled by Chinese migrants. The suggestion in Brautigam’s text is that this may change with time, in turn reflecting the Chinese attitude that national development is a decades-long process.

Conclusion
The clear conclusion to be drawn from Brautigam’s book is that China’s involvement in Africa cannot be understood if viewed strictly through the lens of OECD-DAC approaches to development assistance. Rather than viewing the continent as needing development assistance, Beijing appears to have simultaneously cast the region as a source for needed natural resources, the next location for out-sourced production and a market for goods produced in China and by locally-based joint ventures. The underlying business focus is critical because it suggests that while China is staunchly avoiding the sorts of conditionality seen in Western development programming, the imperative that ventures be self-sustaining and profitable works to push evolution of the sorts of underlying governance structures that have emerged as the focus of development discourse. A patient approach to the evolution of these structures combines with a contemporary emphasis on the physical infrastructure that forms the backbone of a developed economy to suggest that China has decided to invest and stay in Africa, not take a place as simply another development donor.


About the author
Deborah Brautigam teaches in the International Development program at American University in Washington, DC. She has also held faculty appointments at Columbia University in New York (1987-94), and Silpakorn University in Thailand (1978-79), and has also been a visiting fellow at the University of Liberia in Monrovia, the University of Mauritius, Fourah Bay College in Sierra Leone, and the Christian Michelsen Institute in Bergen, Norway. She has served as a consultant for the United Nations, the World Bank, and the U.S. Agency for International Development in Cambodia, Sri Lanka, Egypt, and various Sub-Saharan African countries.

Brautigam has been a recipient of a Fulbright Senior Regional Research Award for Africa, and a Fulbright-Hays Faculty Research Grant, and has also been awarded fellowships from the Council on Foreign Relations, the Woodrow Wilson International Center for Scholars, and the German Marshall Fund. She is the author of Chinese Aid and African Development: Exporting Green Revolution (St. Martin's Press, 1998) and Aid Dependence and Governance (Almquist & Wiksell, 2000), co-editor of Taxation and State-Building in Developing Countries: Capacity and Consent (Cambridge University Press, 2008) and some two dozen articles and book chapters on foreign aid, the political economy of development, and the politics of economic policy.

Annex 1:
Kaname Akamatsu’s Flying Geese Theory of Economic Development
Kaname Akamatsu, “A Historical Pattern of Economic Growth in Developing Countries,” The Developing Economies (1962): 3-24.
The visual model is that of a ‘V’ of geese flying through the air marked by three types of countries – leading countries, rising countries, and following countries – travelling through seven stages of development.
Stage One – Developing-country industry develops to feed the exchange of native products for industrialized-country products.
Stage Two – Native handicraft industry crumbles because of competition from imports manufactured goods produced in industrialized countries.
Stage Three – Industrialized-country capital and techniques invested in the developing country for large-scale production of primary goods for export and construction of the necessary infrastructure.
Stage Four – Industrialized-country capital turns to preliminary processing of raw materials in the developing country prior to export, establishing an elementary industrial base.
Stage Five – Developing-country capital begins to run the industries processing raw materials. Capital goods are imported from the industrialized countries for the domestic production of consumer goods based on nationally-available raw materials. The developing-country import structure begins a shift from a focus on consumer goods to capital goods.
Stage Six – Manufactured goods in general are produced in the developing country irrespective of where the raw materials are sourced. Imports are dominated by the import of capital goods needed for manufacturing.
Stage Seven – Industrialization of the developing country is so advanced that it becomes possible to export all manner of manufactured consumer goods and local producers begin to supply the capital goods necessary for the production process.
These seven stages overlap and represent the cascading flow in economic complexity and capacity from a ‘lead goose’ down through the rest of the gaggle in which it has invested, first in the production of raw materials and then consumer goods. Perhaps the most apt empirical referent is the shift in production processes from Japan throughout Southeast Asia in the Twentieth Century, which ultimately brought China near to the end of Stage Seven in the first decade of the Twenty-first Century. In this context, China can now be cast as a leading ‘goose’ and a number of African countries as rising ‘geese’ (Ghana, Kenya, Mauritius, South Africa) and following ‘geese’ (DRC, Sierra Leone, Sudan) depending on the nature of their national production structure and penetration of regional and global markets.

152) Investing in China? Get the right information before

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China: Rising Red Star over the East
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* History
* Culture
* Economy

“Poverty is not socialism. To get rich is glorious.” - Deng Xiaoping, China’s former premier

China: Rising Red Star over the East
Discovered in 1974, the Terracotta Army of over 7,000 warriors stands guard over Emperor Qin Shi’s tomb in Xian. Constructed in 209-10 BC by approximately 700,000 craftsmen, no two figures are alike.

Immense, sweeping, complex, chaotic…..each of these adjectives understates the scale and intensity of China.Bordering on 14 Asian countries, the Middle Kingdom is the starting point of the Silk Road, a trading route that first linked China to the Mediterranean Sea in 114 BC. Unleashed from a debilitating, self- imposed cocoon in the early nineteen-eighties, this giant’s subsequent explosive growth is moving the country toward center stage as an economic superpower.

From the strife-ridden rule of Mao to the booming economic prosperity of today, China’s transformation from abject poverty to emerging superpower has been nothing short of remarkable. Yet, for a nation that gave the world inventions such as paper, gunpowder, the compass and printing, this rise should not really be surprising. Rich in history, and proud in its culture, embraced by both mountains and the sea, and abounding in all of nature’s magnificence, the country continues to grow. The world is witnessing the reemergence of a submerged giant. ‘Let a hundred flowers bloom,’ said former Chairman Mao Zedong. Indeed, China as a nation is beginning to do just that. In China’s rich history truly lies its present – and in learning from its arid past lies the key to its future.

History
A history of booms and busts
China’s civilization is one of the world’s oldest – a proud history that runs back more than 4,000 years. Centuries of dynastic rule shattered stability and the nation constantly had to ward off the threat of invaders such as the Mongols. China’s last dynastic rule began in 1644 with the Qing dynasty, a reign that dominated the country until an ignominious slide in the 19th century. With its demise began one of China’s worst periods – the country suffered massive social strife, economic stagnation, an exploding population growth, and increasing assertion of Western influence. A greedy Britain crossed swords with the Qing, resulting in the Opium Wars. This led to the humiliating secession of Hong Kong to Britain on lease for a 99-year period.

China and the World
Nominal GDP ($)Nominal GDP: Gross Domestic Product (GDP) is the value of a nation’s output of goods and services during a period. Nominal GDP is unadjusted for inflation or relative purchasing power. Source of data: The World Bank: $4.4 trillion

GDP RankGDP Rank: Position among all nations, in terms of Nominal GDP. Source of data: The World Bank" 3/186

Per Capita GNI ($)Per Capita GNI: Per Capita Gross National Income (GNI) is the value of a nation’s output of goods and services, together with net income received from abroad, per person. Source of data: The World Bank: $2940

Per Capita GNI RankPer Capita GNI Rank: Position among all nations, in terms of Per Capita GNI. Source of data: The World Bank: 127/210

Population RankPopulation Rank: Position among all nations, in terms of total population. Source of data: U.S. Census Bureau: 1/227

Geographical Area RankGeographical Area Rank: Position among all nations, in terms of total land area. Source of data: The CIA World Fact Book: 4/250

Global Competitiveness RankGlobal Competitiveness Rank: Position among all nations in terms of competitiveness, as ranked by World Economic Forum: 29/133

Economic Freedom Index RankEconomic Freedom Index Rank: Position among all nations in terms of economic freedoms, as ranked by The Heritage Foundation: 132/179

Human Development Index RankHuman Development Index Rank: Position among all nations in terms of overall human development, as ranked by United Nations Development Program: 81/177

China then disintegrated into fragments with various warlords exerting control over their own areas. Increasing public opinion turned against the dynasty, and a revolutionary called Sun Yat-sen formed the Kuomintang or Chinese Nationalist People’s Party. The Republic of China was created, ending the Qing dynasty’s rule. Peace, however, was a long way in coming. Sun Yat-sen’s death saw the rise of a Kuomintang military commander, Chiang Kai-shek, and the beginning of a long struggle with the Chinese Communist Party (CCP) led by Mao Tse-tung. The Japanese invasion of China further plunged the country into turmoil. Japan’s brutal 14-year occupation of China from 1931 to 1945 forced the two rival parties to unite, but eventually the Mao-led CCP triumphed. The Kuomintang fled to Taiwan, and Chiang Kai-shek proclaimed Taiwan as the Republic of China, a title that the island continues to proclaim even today. Mao proclaimed the founding of the People’s Republic of China on October 1, 1949, and ruled with a stranglehold until his death in 1976.

A history of booms and busts
Brushes used for the ancient Chinese art of calligraphy may be made from bamboo or even ivory, silver, or gold.
The CCP, with 70.8 million members, continues to exercise stringent control with the Lenin model of one-party rule. The first constitution of China went into effect in 1954, with the government adopting the present constitution in 1982. The head of state is the President who is elected to a five-year term by the National People’s Congress.

Current President Hu Jintao’s role remains largely ceremonial, while real power is vested with the Premier Wen Jiabao.

Culture
Varied hues of a fascinating tradition
Home to the world’s longest tradition of writing, China’s achievements for the past 3,000 years remain a source of great pride to a people whom until recently had little to love about their recent past. The ancient tradition of calligraphy has fascinated those in the West for whom the brush of silk on paper and the resulting swirl of letters are so different from anything they have ever known.

Chinese folk music too has had a long history, and the 18th century brought with it the now-famous style of drama known as jingxi or the Peking Opera. Dance was an important part of entertainment – especially at the imperial court. Ancient martial art forms such as Kung fu, Taiji, and Wushu continue to remain popular. Han Chinese remains the dominant ethnic group and there are 55 other nationalities including Zhuang, Manchu, Hui, and Miao, Uygur and Tujia.

Reform becomes China's second revolution
With more than 300 million farmers, China ranks first in agricultural output.
The standard language is Mandarin or Putonghua, while major dialects include the Yue or Cantonese, Wu (Shanghaiese) and Minbei (Fuzhou). Although officially the nation is atheist, religion has always played a part in the lives of the Chinese, with Buddhism, Daoism, and Confucianism exerting considerable influence. Chinese cuisine is one of the most varied in the world, and dishes such as Peking Duck have become cult favorites across the globe.

Economy
Reform becomes China's second revolution: China’s economic history
From the last five decades stretching from the beginning of Mao’s repressive regime to Deng Xiaoping’s ‘get rich’ era to present day Jintao’s relatively stable rule, China’s economy cannot be compressed into mere words and cannot be isolated from its chaotic history. Most importantly, the country’s economy cannot be separated from Mao. When it took over the country’s reigns in 1949, the CCP’s initial rule in China was one of economic growth. The series of Five Year Plans helped to sustain the economy initially, but Mao then undertook a series of economic, political and cultural initiatives that had disastrous consequences.

Beginning with the anti-intellectual movement of 1957 poetically dubbed “The Hundred Flowers Campaign,” to the disastrous Great Leap Forward which lasted from 1958 to 1959, and the political experiment called the “Great Proletarian Cultural Revolution” from 1966 to 1976, Mao’s combustive influence drove the country to the brink of ruin. The Great Leap Forward was meant to thrust China onto the global stage by raising industrial and agricultural production. However, Mao’s targets were unrealistic; his implementation of the plan nothing short of bizarre, and the result was one of the worst man-made famines in history. Isolated from the world, China struggled.

China’s planned economy soon began to change. Reforms advocated by Deng Xiaoping eventually began in the late 1970s after Mao’s death. People’s communes were abolished by 1984—after more than 25 years. Government control of the economy gradually reduced. A more market-oriented economy emerged with a huge flux of foreign investment, although the state-owned sector continues to remain the backbone of China’s growth. Beijing now prefers to call this a “socialist market economy.” Growth has been spectacular and GDP quadrupled between 1978 and 1998 - at an average annual rate of 10.2% in the 1980s. Now the world’s fastest growing economy, China ranks only second behind the U.S. with a GDP of $7.9 trillion in 2008 when measured on purchasing power parity. Equally staggering is the fact that China alone has accounted for over 75% of poverty reduction in the developing world over the last 20 years.

Restraints on foreign trade were also relaxed when China joined the World Trade Organization in 2004. Exports continue to be a major driver of growth, with the U.S., Hong Kong, Japan and Singapore as China’s main trading partners.

Despite explosive growth, China remains a developing country with a low per capita income. Agriculture is the leading occupation and involves more than 50% of China’s 1.3 billion population. China is the world's largest producer of rice and wheat and a major producer of sorghum, millet, barley, peanuts, corn, soybeans, and potatoes. The country also ranks first in the production of cash crops such as cotton and tobacco and is the biggest producer of red meat. Besides being one of the largest producers of minerals, coal being the most abundant of them, China is also rich in iron ore, and is the world’s fifth-ranked oil producer.

Industrial production grew at a rate of 12.9% according to 2008 estimates, and accounts for 47% of China’s GDP. Key industries include mining and ore processing, toys, electronics, textiles, automotive, cement, consumer products and telecommunications. Figures alone tell a startling tale – a nation that barely knew how to feed itself is now an industrial giant leading the world in the production of steel, aluminum, copper, cement and coal. In January 2009, China surpassed the U.S. as the world's biggest auto market with vehicle sales reaching 7.2 million in the first seven months of this year (2009). In 2007, China became the world’s top producer of merchant ships.

Reform becomes China's second revolution
China has overtaken Japan and the U.S. as the number one steel producer in the world, with a yearly output of 489.0 million tons.

At the same time, the services sector, which had a weak foundation, has picked up. Growing at a rate of 10% annually in the past 25 years, services accounted for 40.1% of the GDP in 2008.

Statistics alone may not tell the true tale – but a telling sign is that the World Bank's International Comparison Program determined that, in China, one only needs about Yuan 3.4 to buy what would be a dollar's worth of goods on the U.S. market. This has been one of the key drivers of China’s economic spurt - its ability to produce the most goods at the lowest price.

As the world’s fourth largest and most populous nation, China’s population growth of 0.6% is maintained by a controversial government policy that allows only one child per family with allowances for a second child in rural areas. Its enforcement has been equally controversial – and varies, relying largely on social compensation fees to discourage more births.

Consequently, and worryingly, China is one of the most rapidly aging countries in the world. Estimates made in 2009 indicate a birthrate of nearly 14 births per 1,000 and a death rate of 7.06 per 1,000. Life expectancy at birth was estimated at 74.3 years for women and 71.0 for men, or 72.5 years overall. The literacy rate is around 90.9% based on 2000 estimates (CIA World Factbook).

In 2009, according to the CIA World Factbook, China had a total labor force of 807 million, the largest in the world. However, that figure covers a serious problem – imbalances between the private and public sector mean that state-owned enterprises have more workers than needed. From the old China where jobs were assigned, regulated, and controlled by the government, the new China now features more freedom but consequently more insecurity.

Recent developments
The world financial crisis of 2008 pulled China’s meteoric GDP down considerably. The Communist Party had managed to stifle any semblance of revolt by promising and delivering the kind of economic growth that would make struggling European economies turn green with envy. Yet, as the financial world imploded, China found that its export-oriented model would come under severe duress. This prompted a nervous government to introduce one of the largest stimulus programs ever in order to guide China through 2009 and 2010.

The $586 billion package, introduced in November 2008, was primarily aimed at shoring up domestic demand. Included in the package were social and infrastructure spending, earthquake relief as well as extensive subsidies to farms and industries struggling in the wake of the economic downturn. It is that massive stimulus package which helped China achieve a growth rate of 8.9% in the third quarter of 2009. The Chinese central bank also loosened its monetary policy, cutting interest rates, reducing reserve requirements and providing easier loans.

Despite the obvious pumping of state money into the country’s economy, China is definitely showing signs of a revival with private real estate investment picking up and the consumer sector showing increasing resilience. The first three quarters of 2009 also saw a 15.1% rise in retail sales along with a 9.3% spike in income in urban areas and an 8.5% increase in rural areas.

Greatness might come at a cost
China might jump ahead of the U.S. as the world’s leading producer of greenhouse gases by 2010.

Of course, a great deal is dependent on a swift global revival, considering that China still has not managed to wean itself from its over-reliance on exports. Export volumes remain low – down an estimated 20% on a year ago basis in April-May 2009. Financial markets have stabilized in 2009 after the shock crash of 2008, but concerns have been raised as to the extent of a full global recovery. As of June 2009, the World Bank predicts that the Chinese economy will grow at a rate of 7.2% in 2009 and 7.7% the next year. Expectations are that China will manage to overcome this economic tsunami – it is with that expectation that stock markets in China rallied in 2009 – having risen almost 50% since the end of 2008. Liquidity in the domestic financial market and the eased monetary stance helped attract investors again, with turnover in volume terms surpassing even the levels of early 2007.

Greatness might come at a cost
Despite the turmoil of 2008, the world gaze remains firmly on China. Yet, income disparities are rising. Much of the growth has been concentrated along China’s eastern coast and in the south. A large portion of the country’s remote and rural northwest remains poor and underdeveloped. Impoverished farmers are flocking to China’s booming cities – much of the former Shenzhen fishing village’s amazing transformation into a world manufacturing hub can be credited to the province’s huge population of migrants. In 2009, it was estimated that China was experiencing a –0.39 per 1,000 population net migration rate, including a large and growing ‘floating population’ or liudong renkou. That figure is causing a grave imbalance – the country has a surplus of nearly 200 million agricultural workers. The global recession added to the woes of China’s migrant workers, resulting in a series of labor protests across the country.

Based on current trends, China could become the world’s largest exporter by the beginning of the next decade (2010). Yet, the financial crisis and its aftermath have taught China that an overt reliance on an export-oriented model may prove to be detrimental in the long run. Stimulating domestic demand on a consistent basis may prove to be a challenge for the Communist Party. Also, surging inflation in the form of food prices continues to be a source of worry. Inflation hit an 11-year high of 7.1% in January 2008 but dropped quickly thereafter, even stoking fears of a deflationary spiral. Although inflation remains under control at 0.5% in August 2009 compared to the same period a year before, controlling food costs might be one of the biggest challenges that the government may face yet. Corruption remains an endemic curse - of the 180 countries surveyed by Transparency International, China ranked 72nd on the 2008 Corruption Perceptions Index.

China’s massive economic boom has had severe repercussions in the form of a deteriorating environment. From having the warmest winter in 50 years in 2007 to one of the most severe snowstorms in 2008, climate changes are wreaking havoc. China has some of the most polluted cities in the world, and air pollution levels have already reached alarming levels. Nearly 750,000 people die due to air pollution induced problems every year. Around 360 million people lack access to safe drinking water, with more than 70% of China’s rivers and lakes severely polluted. The country’s rapid growth is forcing the government to invest heavily in energy – China remains one of the world’s biggest producers and consumers of coal – and initiatives such as the $25 billion controversial Three Gorges hydropower dam project might cause further disruptions in an already fragile environment.

Health care remains an issue. About 80% of the health and medical care services are concentrated in cities, and timely medical care is not available to more than 100 million people in rural areas. Potential epidemics such as bird flu and the more recent swine flu might cause unimaginable economic consequences if allowed to spread.
Greatness might come at a cost
Nanjing is situated in one of China’s most important economic zones, the Yangtze River Delta.

Relations with key nations remain volatile. Dealings with the U.S. are improving and China’s growth as an economic giant is granting the country the respect it deserves. However, a woeful human rights record remains a blot on the CCP’s performance. The media remains strictly controlled and democracy is a distant speck on an even further horizon. China has set up one of the largest and most sophisticated network of controls for Internet policing – it is estimated that around 30,000 police officers routinely monitor web traffic, forums, and even personal e-mails. Open critics of the government are often arrested and sentenced under flimsy pretexts. Hosting the successful 2008 Olympics may have enhanced the government’s image a bit – but granting political, cultural and literary freedom to its citizens might be the one final way of gaining lasting acceptance in the international community. Meanwhile, ethnic riots continue to surface periodically, with violence in Urumqi, the capital of Xinjiang Province, leaving hundreds dead earlier in 2009.

Beijing’s challenges are immense – it has to steer a country that is so close to its dream of world stardom– yet at the same time, it needs to contain the social strife that has arisen from the country’s rapid development. The government has a goal of quadrupling GDP by 2020 and more than doubling the per capita GDP. Yet, this high growth rate must be maintained without compromising the rural workforce. The financial and social security system must be improved, greater regional integration must be developed, and better international cooperation promoted. Getting rich may be glorious, as Xiaoping wished, but it may not be that easy considering the dichotomy:

In a small village called Haidong in Qinghai Province, dust from the distant Sahara swirls across the mud-caked houses. The air is dry, stifled and hot. A small child of seven walks up the steps leading to the house carrying a pot of water from a well more than three miles away. At night, no bright lights adorn the dark night. In far away eastern China, in Nanjing, Jiangsu Province, a wild party is in place. The lights of the former capital entice. Swirl. Alcohol flows, as does the money. Haidong, it seems, does not exist in China. Yet in reality, it does. This is China’s biggest test of faith – her future will have meaning the day Haidong meets Nanjing.

Postcards from China
China
When U.S. President Barack Obama slapped
a 35% import on Chinese-made tires, he
did so saying that it was a necessary
step to maintain ‘credibility’ in trade
deals. China reacted with predictable
outrage, with the country’s Commerce
Minister Chen Deming calling Obama’s
decision an ‘abuse’ of trade.
Read more

China
The recently concluded Shanghai Auto
Show was an unprecedented success,
especially considering that China
overtook the U.S. as the world's
largest car market earlier this year.
Read more

China
On December 18, 2008, China celebrated
30 years of economic reform. At that
time, Deng Xiaoping set China free to
pursue the economic miracle of getting rich.
Read more

151) Livre-comercio Asean-China: entrada em vigor

Acordos de livre comércio da Asean, da AFTA, e da Asean-China
Entrou em vigor em 1º de janeiro de 2010 esse conjunto de acordos, sob cuja vigência as tarifas são reduzidas para 90% do universo tarifário da AFTA e dos acordos com China, Austrália e Nova Zelândia Eles constituem um mercado de 1,9 bi de consumidores.
De US$ 39,5 trilhões em 2000 e US$ 192,5 trilhões em 2008, é provável que o comércio Asean-China alcance níveis ainda mais significativos.
A China, que tomou recentemente aos EUA o 3º lugar (após Japão e UE) no comércio com a Asean, deverá continuar ascendendo como parceira da região.

150) Gasoduto Turcomenistao-China

GASODUTO TURCOMENISTÃO-CHINA.
Foi inaugurado em 14/12/2009, gasoduto com mais de 1.800 km de extensão e capacidade futura total de 40 bilhões de metros cúbicos/anuais que cruzará o Uzbequistão e o Cazaquistão e fornecerá - pela 1ª vez - gás do Turcomenistão para a China. As autoridades russas afirmam que o gasoduto não afeta a cooperação com a China, incluindo planos para construir gasoduto da Rússia à China. No entanto, os planos russos nessa área são discutidos, sem êxito, há mais de 5 anos.
Enquanto os europeus também se debatem há anos nas discussões sobre o Nabucco, a China avança silenciosa e rapidamente sobre os recursos naturais da Ásia Central garantindo suprimento para as próximas décadas.

149) Mercantilismo da China - protecionismo de retorsao

O mercantilismo chinês
Paulo Guedes
O Globo, Opinião, 4/1/2010, p. 7

Os chineses estão entre os bilhões de eurasianos que mergulharam de cabeça nos mercados globais de trabalho após a rejeição do regime comunista

Há tempos alerto para um dos mais preocupantes fenômenos do panorama econômico mundial: a insistência da China em manter artificialmente desvalorizada a cotação de sua moeda diante do dólar, estimulando a maior penetração de suas exportações nos fluxos de comércio internacional. Por trás desse fenômeno estão as pressões exercidas por um monumental "exército industrial de reserva", na melhor tradição marxista.

Os chineses estão entre os bilhões de eurasianos que mergulharam de cabeça nos mercados globais de trabalho após a rejeição do regime comunista. Com mão de obra sobrando, os salários são extraordinariamente baixos para os padrões ocidentais. É para criar empregos na China, derramando mundo afora o excesso de mão de obra sob forma de exportações, que as autoridades chinesas têm praticado o que o Prêmio Nobel de Economia Paul Krugman agora chama de "predatório mercantilismo chinês". Seu instrumento é a taxa de câmbio artificialmente desvalorizada. Krugman avalia o impacto dessa política de manutenção de um superávit comercial artificialmente elevado: "Nos próximos anos, o mercantilismo chinês pode acabar com 1,4 milhão de empregos apenas nos Estados Unidos. E a China se recusa a tomar conhecimento do problema."

O fenômeno não é novo. Já fora também praticado por décadas pelos japoneses. Havia mesmo uma perversa cumplicidade entre o capitalismo "mercantilista" dos asiáticos e o capitalismo "financista" dos americanos. O forte ritmo de crescimento da produção e do emprego na Ásia era dirigido para o mercado externo. E o excedente da renda sobre o consumo reprimido das formigas asiáticas era reciclado para financiar o excesso de gastos das cigarras americanas, notórias por exageradas taxas de consumo e pelo endividamento compulsivo.

A parceria entre as formigas e as cigarras parecia natural. Os "financistas", dopados pelo excesso de crédito, sustentavam artificialmente um clima de euforia e prosperidade. E os "mercantilistas", bancando a farra dos americanos pelo acúmulo de reservas, manipularam a taxa de cambio para estimular artificialmente o crescimento, roubando empregos em todo o mundo. Enquanto subiu a maré da liquidez global, ninguém percebeu. Mas, quando desceu a maré, apareceu logo um Prêmio Nobel para descobrir quem está nadando pelado.

A retaliação protecionista contra o mercantilismo chinês será uma ameaça crescente no futuro próximo. Uma baixa dinâmica de crescimento, uma legislação trabalhista obsoleta, regimes previdenciários ineficientes e ondas incessantes de imigração fragilizam as economias ocidentais nesta verdadeira guerra mundial por empregos. Particularmente no Brasil, os excessivos encargos sociais e trabalhistas, "conquistas" da social-democracia, são hoje a mais formidável cunha de exclusão social, marginalizando cerca de 50 milhões de brasileiros dos mercados formais de trabalho.

148) China's Policy Responses to the Global Financial Crisis

China's Policy Responses to the Global Financial Crisis
Yongding Yu
Journal of Globalization and Development
Volume 1 / Issue 1 (January 2010), p. 24-
DOI: 10.2202/1948-1837.1044
Available at: http://www.bepress.com/jgd/vol1/iss1/art12

China’s Basic Situation since the Global Financial Crisis
The global financial crisis has hit China quite severely. There was no decoupling as some expected. In 2007, China’s GDP growth rate was 13 percent. In 2008 China’s GDP growth was falling gradually at first, and then after the Lehman Brothers fiasco, it fell in a dramatic fashion. In the first half of 2008, China was still able to manage an annual growth rate of 10.4%. In the third quarter and fourth quarter, the rate fell to 9% and 6.8%, respectively. In the first quarter of 2009, the growth rate fell further to 6.1%. With hindsight, the turning point of China’s growth trajectory happened in September of 2008, and was closely related with the global situation after the Lehman Brothers bankruptcy. The monthly figures of the growth rate of industrial products reflect better the change of fortune of the economy. China’s growth rate of industrial products was 14.7% and 11.4% in August and September of 2008, respectively. It dropped to 8.2% and 5.4% in October and November in the same year, respectively. In February 2008, China’s inflation hit 8.7%, a record high in more than a decade. However, deflation replaced inflation in a matter of few months time. China’s Consumer Price Index (CPI) year over year (YoY) is still
negative, but sequential CPI growth has turned positive.
Impacts of the Global Financial Crisis on the Chinese economy The global financial crisis hit China via mainly the following four channels:
• Direct losses in the American capital market
• Reversal in cross-border capital flows
• Reduction in growth of exports
• Capital losses in foreign exchange reserves

read the paper at: http://www.bepress.com/jgd/vol1/iss1/art12

147) US: For Shanghai Fair, a Famous Fund-Raiser Delivers

Secretary of State Hillary Rodham Clinton in November in Shanghai, site of the next world's fair.

For Shanghai Fair, a Famous Fund-Raiser Delivers
By MARK LANDLER and DAVID BARBOZA
The New York Times, January 2, 2010

WASHINGTON — In the hectic last week before she became secretary of state, Hillary Rodham Clinton squeezed in a Bon Jovi benefit concert in New York, part of a frantic effort to pay off the debt from her presidential campaign. No sooner had she arrived at the State Department than Mrs. Clinton discovered she needed to start raising money all over again.

This time, the cash-starved beneficiary was not her own campaign but the United States, which needed $61 million to finance the construction of a national pavilion at a world’s fair in Shanghai. Under federal law, no public money could be used for the project. And Mrs. Clinton, as a federal official, could no longer solicit private financial donations herself.

So she turned to her well-established network of Clinton fund-raisers, and after negotiating with the State Department’s lawyers about what she could legally do herself to support the project, she mounted an ambitious fund-raising campaign that has netted close to $54 million in barely nine months.

With multimillion-dollar pledges from PepsiCo, General Electric, Chevron and other American corporations, the United States is on track to open a sleek, 60,000-square-foot pavilion at the Shanghai Expo 2010, which runs from May through October.

The prospect of the nation’s chief diplomat asking for money worried government lawyers, according to officials. Referring to the first secretary of state, one lawyer asked, “Would Thomas Jefferson do this?” They imposed strict limits on the kinds of calls or other contacts she could make, allowing her to promote the pavilion but prohibiting any one-on-one appeals for cash.

Despite those restrictions, and a dismal economy, Mrs. Clinton is closing in on her $61 million goal. She is clearly proud of the effort, which staved off what could have been a rupture in American-Chinese relations. In a year in which she has mostly worked to prove herself a loyal member of the Obama team, the campaign also showcases her enduring political drawing power.

“The idea, for many people, of raising more than $50 million would seem really daunting,” Mrs. Clinton said in an interview. “Maybe because I had participated in raising so much money in the past, I wasn’t daunted by it. I knew it was going to be hard under the circumstances.”

By all accounts, the effort to build a national pavilion was near death at the end of the Bush administration. The near-collapse of the global economy, the proximity of the expo to the Beijing Olympics in 2008 and the general ambivalence of the State Department had left U.S.A. Pavilion, the nonprofit group in charge of the project, with little support or money.

“There is a sense in the U.S. that Americans got disenchanted” with world’s fairs, said Nick Winslow, a former Warner Brothers executive who is the president of U.S.A. Pavilion.

With deadlines passing, the Chinese advanced the Americans money to conduct technical work for the pavilion. They raised the issue with former President Jimmy Carter when he visited China last January.

Enter Mrs. Clinton, who made her first trip as secretary of state to Beijing in February and was eager to talk about trade, climate change and the North Korean nuclear threat. Instead, she got an earful about how bad it would be if the United States did not have a presence at the Shanghai Expo.

For the Chinese, the expo is a bookend to the Olympics. Shanghai is spending $45 billion to transform the city, even more than Beijing spent preparing for the Games. Nearly 200 countries have signed on to take part, leaving only the United States and minuscule Andorra as potential no-shows.

“I was dumbfounded that so little attention had been paid to it,” Mrs. Clinton said. “Everyone knows China is going to be an enormously powerful player in the 21st century. They have an expo, which is a kind of rite of passage that countries like to do to show they have arrived. We’re not there? What does that say?”

She said she did not relish the prospect of more fund-raising — “When would it ever end?” she recalled asking herself — but she promised Chinese officials that she would try to raise the money.

There was little support within the State Department. So Mrs. Clinton turned to two major fund-raisers with long ties to the Clinton family: Elizabeth F. Bagley and Jose H. Villarreal.

Mrs. Bagley, who is married to Smith Bagley, an heir to the R. J. Reynolds fortune, was ambassador to Portugal under President Bill Clinton. Mrs. Clinton appointed her to be the department’s special representative for global partnerships, a job that involves rounding up private support for public projects.

Mr. Villarreal, a well-connected San Antonio lawyer, has raised money for Mrs. Clinton as well as for Mr. Clinton, former Vice President Al Gore and Senator John Kerry. In July, Mrs. Clinton named him the commissioner general to the expo.

To kick off the effort, Mrs. Clinton held a conference call with 10 prominent chief executives. Chevron, PepsiCo and General Electric each pledged $5 million. Indra K. Nooyi, the chief executive of PepsiCo, made calls to other chief executives. Mrs. Bagley and Mr. Villarreal also opened their Rolodexes, calling companies with operations in China. Some obvious prospects, like banks, were off limits because they were receiving federal bailout money.

“In the beginning, we had to use a patriotism argument,” said Kris M. Balderston, Mrs. Bagley’s deputy. “The second wave of argument was commercial diplomacy. All of a sudden the companies understood it would be good for them.”

Although Mrs. Bagley is a State Department employee, she said she was advised that she could solicit contributions. She noted that every would-be donor also had to be vetted by lawyers.

Fred Wertheimer, an advocate for stricter regulations for campaign fund-raising, said he was satisfied that the State Department had handled a difficult situation properly.

“It would have been far better if the U.S. government was able to pay for the activity involved, but that does not appear to have been the case,” he said.

While Mrs. Clinton was barred from soliciting individuals, she met with corporate sponsors in Shanghai in November, when she visited the expo site.

Her experience in the political trenches made a difference, Mr. Villarreal said. “Any other diplomat would not have had the broad base of contacts,” he said.

Mrs. Clinton said it was easier raising funds for this project than to pay off campaign debt. “I’m much better at raising money for other people and other causes than I am for myself anyway,” she said, adding, “Even though I’ve obviously raised a lot of money.”

Mark Landler reported from Washington, and David Barboza from Shanghai.

146) China-Asean Free Trade Agreement concluded

Not as free as we might expect. See this:
"Sensitive products include various types of electronic equipment, motor vehicles and automotive parts and chemicals, as well as items such as popcorn, snowboarding equipment and toilet paper."

We could easily agree that toilet paper is a sensitive product, but what about "snowboarding equipment"???
What is the real sensitivity of popcorn for the Asians?
Are they becoming Americans?
-------------
Paulo Roberto de Almeida

Biggest regional trade deal unveiled
By Kevin Brown in Singapore
Financial Times, January 1st, 2010

China and the 10-country Association of South East Asian Nations on Friday launched the final stage of the world’s biggest regional trade agreement, measured by population, in spite of Indonesia’s last-minute attempts at renegotiation.

The launch of the China-Asean Free Trade Agreement, which covers almost 1.9bn people, coincides with the implementation of a similar deal with Australia and New Zealand and a deepening of Asean’s own internal trading agreements.

Taken together with earlier deals with Japan, South Korea and India, the New Year day accord puts south-east Asia at the centre of a series of regional trade agreements extending from Beijing to Wellington and from New Delhi to Tokyo.

The China-Asean deal takes effect following the completion last summer of an agreement on investment rules, the last leg of an eight-year negotiating marathon that produced earlier agreements on goods and services.

Tariffs have been falling since 2005, with 90 per cent of goods due to be tariff free from Friday for China and the six core Asean members – Indonesia, the Philippines, Thailand, Singapore, Malaysia and Brunei. The target is 2015 for the other four – Laos, Cambodia, Burma and Vietnam.

However, the deal remains short of genuine free trade. The trade in goods agreement provides for each country to register hundreds of sensitive goods on which tariffs will continue to apply, in many cases until at least 2020.

Sensitive products include various types of electronic equipment, motor vehicles and automotive parts and chemicals, as well as items such as popcorn, snowboarding equipment and toilet paper.

The deal creates the third largest regional trading agreement by value after the European Union and the North American Free Trade Agreement, covering countries with mutual trade flows of $231bn in 2008 and combined gross domestic product of about $6,000bn, according to China’s ministry of commerce.

Jayant Menon, principal economist in the Asian Development Bank’s office of regional economic integration, said it could eventually lead to a wider trade agreement involving Asean, China, Japan, South Korea and the US – an idea floated in November by Yukio Hatoyama, the Japanese prime minister. “There is a lot of expectation of this FTA,” said Mr Menon.

Surin Pitsuwan, Asean’s secretary-general, said the agreement would allow the Asean countries to benefit more from the growth of China, which is already south-east Asia’s third largest trading partner, with about 11 per cent of total two-way trade. “When China grows, Asean has to ensure that we are on the supply line towards that growth,” he said.

Asean, which has a population of 580m and a combined economy bigger than that of India, has substantial reserves of resources such as oil, natural gas, coal and other commodities that China desperately needs to keep its factories operating.

China, which runs a substantial trade surplus with Asean, stands to benefit hugely from easier access to the bloc as it seeks new Asian markets for goods that can no longer be sold to consumers in Europe and North America.

“China and the Asean countries have many products that complement each other,” Zhang Kening, a director at the ministry of commerce, said earlier this week. “We can see great potential to adjust our trade patterns by importing more from Asean countries.”

The deal remains deeply controversial within the region, where suspicion of China’s economic clout and political ambitions vies with the desire to take advantage of the export potential of its fast-growing economy.

Indonesia has led opposition to the pact, seeking to delay its implementation because of fears that sectors from steel and petrochemicals to cosmetics and herbal medicines would face overwhelming competition from cheap Chinese imports.

Jakarta has announced a review of the impact of the deal, but drew back from tougher action after the industry minister told parliament his attempts to renegotiate elements of the deal with the other 10 countries had failed.

The co-ordinating minister for the economy warned on Wednesday that there could still be clashes between Jakarta and Beijing. “When a nation has cheap products, we must see whether there’s unfair trade in it, such as unfair subsidies,” he said. “We must be proactive.”

145) Authoritarian China - Freedom House Report

CHINA: RESILIENT, SOPHISTICATED AUTHORITARIANISM
Joshua Kurlantzick & Perry Link
Freedom House

Chinese Communist Party leaders have clearly embraced the idea of soft power, and it has become central to their discourse about China’s role in the world. While only five years ago Chinese officials and academics denied they had any lessons to offer to the developing world, today they not only accept this idea but use their training programs for foreign officials to promote aspects of the China model of development.

INTRODUCTION
In 1989, in the wake of the crackdown on prodemocracy protesters in Beijing’s Tiananmen Square, the moral and ideological standing of the Chinese Communist Party (CCP) was at an all-time low. Popular complaints about corruption and special privileges for the elite were widespread. Idealistic language about socialism was seen as empty sloganeering. The Tiananmen killings showed that the “people’s army” could open fire on the people themselves. China’s agricultural economy had been partially liberated, but the urban economy still seemed locked within the iron framework of a work-unit system that was both inefficient and corrupt. No one either inside or outside China saw the country as a model for others.

Now, nearly 20 years later, the prestige of the CCP has risen dramatically on the twin geysers of a long economic boom and a revived Han chauvinism. The expectation that more wealth in China would lead to more democracy (a fond hope in many foreign capitals) has been frustrated as one-party rule persists. Burgeoning wealth remains largely in the hands of a political-economic elite that has successfully co-opted business and intellectual circles; far from forming a middle class that might challenge authority, these groups now have reason to join their rulers in repressing “instability” among the people. Whether such repression can survive the current economic downturn remains to be seen. Meanwhile, the CCP has also deliberately stoked and shaped Chinese nationalism, and many Chinese inside China now feel pride in the CCP’s model of authoritarian development. The party’s "thoughtwork" has come to include—in addition to censorship—the fashioning of textbooks, television documentaries, museums, and other media that spread seriously distorted versions of Chinese history.

A “China model” has also begun to gain currency abroad. It has automatic appeal among authoritarian elites who seek modern formulas for maintaining their power while also growing their economies, and it has begun to win over even average people in a number of developing countries, where decades of free-market reforms have failed to stimulate broad economic growth. China’s rulers, aiming to extend their influence internationally and make gains in the worldwide competition for natural resources, have sought ways to engage foreign elites and foreign publics in “win-win” arrangements. Beijing offers aid and investment with no human rights strings attached, runs training programs in China for foreign officials and students, opens cultural centers (Confucius Institutes) within foreign universities, and offers diplomatic cover to repressive regimes at the United Nations and elsewhere. It has become apparent in recent years that both Beijing and its authoritarian allies around the world see the Chinese system as a viable competitor to democracy. Terms such as democracy and human rights are retained in their lexicons, but they are redefined to serve authoritarian interests. Even in some democratic or recently democratic developing countries, including Thailand, the appeal of the China model has started to grow.

But the China model, although a definite threat to democratic values, is no juggernaut. Its appeal will depend in large part on how the Chinese economy weathers the global downturn, and how any stumbles it might encounter are perceived in the developing world. Moreover, on the domestic front, the CCP is more frightened of its own citizenry than most outside observers realize. “Rights consciousness” has recently been on the rise among the Chinese people, and it is not a phenomenon that fits well with authoritarianism. Similarly, the CCP’s international deal-making strategies have involved foreign elites almost exclusively; ultimate success would require much more support among local nongovernmental organizations, civil society, and the media. In short, Beijing’s challenge to democracy is a crisis in the original sense of the word—the course of events could turn either way.

Domestic Methods of Control>>
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Download the China report
Download the 2009 Freedom in the World China report
Included Files
# China: The Commercialization of Censorship
# Confucius Institutes: Authoritarian Soft Power

144) Mercantilist China, according to Paul Krugman

Chinese New Year
By PAUL KRUGMAN
Op-Ed Columnist
The New York Times, January 1, 2010

It’s the season when pundits traditionally make predictions about the year ahead. Mine concerns international economics: I predict that 2010 will be the year of China. And not in a good way.

Actually, the biggest problems with China involve climate change. But today I want to focus on currency policy.

China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.

Here’s how it works: Unlike the dollar, the euro or the yen, whose values fluctuate freely, China’s currency is pegged by official policy at about 6.8 yuan to the dollar. At this exchange rate, Chinese manufacturing has a large cost advantage over its rivals, leading to huge trade surpluses.

Under normal circumstances, the inflow of dollars from those surpluses would push up the value of China’s currency, unless it was offset by private investors heading the other way. And private investors are trying to get into China, not out of it. But China’s government restricts capital inflows, even as it buys up dollars and parks them abroad, adding to a $2 trillion-plus hoard of foreign exchange reserves.

This policy is good for China’s export-oriented state-industrial complex, not so good for Chinese consumers. But what about the rest of us?

In the past, China’s accumulation of foreign reserves, many of which were invested in American bonds, was arguably doing us a favor by keeping interest rates low — although what we did with those low interest rates was mainly to inflate a housing bubble. But right now the world is awash in cheap money, looking for someplace to go. Short-term interest rates are close to zero; long-term interest rates are higher, but only because investors expect the zero-rate policy to end some day. China’s bond purchases make little or no difference.

Meanwhile, that trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.

The Chinese refuse to acknowledge the problem. Recently Wen Jiabao, the prime minister, dismissed foreign complaints: “On one hand, you are asking for the yuan to appreciate, and on the other hand, you are taking all kinds of protectionist measures.” Indeed: other countries are taking (modest) protectionist measures precisely because China refuses to let its currency rise. And more such measures are entirely appropriate.

Or are they? I usually hear two reasons for not confronting China over its policies. Neither holds water.

First, there’s the claim that we can’t confront the Chinese because they would wreak havoc with the U.S. economy by dumping their hoard of dollars. This is all wrong, and not just because in so doing the Chinese would inflict large losses on themselves. The larger point is that the same forces that make Chinese mercantilism so damaging right now also mean that China has little or no financial leverage.

Again, right now the world is awash in cheap money. So if China were to start selling dollars, there’s no reason to think it would significantly raise U.S. interest rates. It would probably weaken the dollar against other currencies — but that would be good, not bad, for U.S. competitiveness and employment. So if the Chinese do dump dollars, we should send them a thank-you note.

Second, there’s the claim that protectionism is always a bad thing, in any circumstances. If that’s what you believe, however, you learned Econ 101 from the wrong people — because when unemployment is high and the government can’t restore full employment, the usual rules don’t apply.

Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: “With employment less than full ... all the debunked mercantilistic arguments” — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — “turn out to be valid.” He then went on to argue that persistently misaligned exchange rates create “genuine problems for free-trade apologetics.” The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.

The bottom line is that Chinese mercantilism is a growing problem, and the victims of that mercantilism have little to lose from a trade confrontation. So I’d urge China’s government to reconsider its stubbornness. Otherwise, the very mild protectionism it’s currently complaining about will be the start of something much bigger.