Adjust or Fall

All across the world economic ministers are asking themselves "What are we to do about China?" Everybody wants to sell their goods here, but inevitably, Chinese goods break through what trade barriers are left in place in the 21st century and swamp the market, putting locals out of business and sending consumers away smiling at the new – lower – prices.

In the US, the powerful American Textile Manufacturers Institute and the U.S. Association of Importers of Textiles and Apparel are gearing up for the end of textile quotas and tariffs next year. They see Chinese textile imports, already expanding (by more than 800% after quotas on baby clothes were lifted), as a dire threat. Textile manufacturers and their political allies hope to keep "special safeguard measures" in place to keep China from "dumping" their goods into the market.

California garlic merchants have surrendered and have begun importing Chinese garlic, which is cheaper by 10 to 20 cents a pound. Amazing, how a nation that lost 30 million or more to starvation 50 years ago is now exporting food to a "breadbasket" nation. Chinese these days can afford to waste food like never before – pigs eat good in China and they are slaughtered by the millions each week to feed a people in love with pork.

In retaliation, the US wants to see China’s currency re-evaluated – say, to 12rmb to the dollar instead of 8.2 as it stands now. Fat chance. Disregarding China’s abhorrence of "interference" of any kind from abroad, only a fool would kill the goose while she still grunts out gold.

How Do They Do It?

The Chinese have a few tricks up their sleeve – and millions of extremely broke, extremely hardy peasants.

One thing China does very well is copy stuff. DVDs, clothes, shoes, cars, highways, marketing methods, music, architecture etc etc. Make it all Chinese.

In Xichang, a dirty town on the Yunnan-Sichuan border – I saw a wonderful copy of KFC: BDK (Best Delicious Chicken) is China’s answer to the big boys from abroad who plan to come in and destroy the local competition with well-honed methods and really deep pockets. BDK has the same color scheme, the same menu, the same ugly interior and that same indescribable smell as America’s beloved KFC.

But their chicken is up to 5 rmb cheaper and they have a foothold in the interior – Xichang is a city of 1 million+. Xichang, like most towns outside of the capitals, is studded with China Construction Bank and China Agriculture Bank towers. There is a Construction Bank outlet on virtually every street in Chengdu, the capital of Sichuan. Thus, is Citibank vanquished.

Cars. Brilliant Automobiles has a new car out, for about $15,000 that looks like a Lexus, but has a Mitsubishi motor under the hood. They are changing that now, due to complaints and a growing bad reputation, but the point remains: No industry in China is taking foreign domination lying down. The Chinese are willing to copy any model, cut any corner and confront the West in any arena in the name of national sovereignty.

Recently, Chinese importer buddies of mine have been asking about "enhancement herbs" such as Nonia, Creatine and OPC. There is a market here in China (surprise). Two months following the first shipment of Creatine, expect Creatone to reach the market, produced by your very own friendly-neighborhood Mr. Ho and his band of peasant women.

These peasants are out of control. Buildings shoot up like rice stalks in China and every building is covered in little hardhat wearing, bare breasted little rock men who ting-ting with their hammers and weld this and that together all day for 600 – 800 rmb a month (less than $100). At night, there are replaced with 200 other peasant fellaz who ting ting and weld weld all night long. The day shift is sweating somewhere else during the night, bringing some incomes as high as $200 a month (1600rmb).

In a month, you got yourself a four star hotel for about $40,000 in construction labor costs.

Imagine walking down a small alley in the far side of town at 5 am and seeing 6 people. You turn the corner into a smaller alley and see 10 more. All around you are high rise apartment buildings filled to the brim with Chinese people. You wade through the same alley during the day. Businessmen contemplate millions of customers, Beijing contemplates millions of cheap workers.

China produces so much that "rejects" or goods that surpassed quota are housed in mammoth warehouses for the locals to haggles over: Prada jackets, Armani suits, Nike apparel of all shapes and sizes, those magnificent open-butt pants that Chinese toddlers sport around town – you name it, any article of clothing is available for a really low price. In Beijing by Sanlitun, the heart of foreign-occupied Beijing, sits a bazaar of 5 maze-like levels of pirate product. All made by the prodigious hands of erstwhile farmers who consider themselves blessed to be done with land taxes and cow dung and making twice what they were.

In an interesting side note, an old law regarding vagrants and beggars has been revised: instead of rounding up all that labor and keeping them in jail until they pay up or die, China has decided to build soup kitchens. The first have already been set up in Beijing, the rest of the country will be quick to follow.

Besides copying skill and cheap labor (which is enough to compete anywhere) Chinese also are infamous cheaters and liars when doing business with foreigners. Stories abound of partners absconding with the cash, copying intellectual property, skimming off of the top, selling secrets to buddies, stonewalling in favor of buddies, giving Mr. Jones’s cash to buddies etc.

This is the peril of a transition economy that didn’t exist 15 years ago. The streets are full of Porsches and BMWs and Lexuses being driven by 20 to 30 somethings who, like the Russians before them and the Americans before them, love to spend thousands at the bar on women and booze and not blink an eye. My Taiwanese and Hong Kong partners tell war stories about spending $8000 in a night on booze. Now they sit in their underwear watching CCTV hoping the Mainland will be gentle.

Laws won’t help the foreign suit either. There are thousands of laws on the books concerning land and taxes and fraud and theft and so on, and every law can be ignored for a price in China. Especially if foreign money is involved. Now other Asians won’t come out and say this about their neighbor, but naive Westerners who are used to the price tag telling the truth howl to high heaven every time they get cheated. Asians shake their head at the foolishness of barbarians.

Another neat trick: keep the cash at home. China’s currency controls enable them to keep a substantial amount of cash on hand to help those poor unfortunate Chinese souls who are speculated upon, trod upon or who are just unconnected. And just in case Soros believes this or that real estate deal is actually a joke meant to line Li Peng’s son’s pockets, well there is more than enough cash in China to cover that bank loan. It is quite doubtful that 1997 will be repeated in China. Foreign businessmen won’t have it, let alone Beijing.

Anybody Seen the Animatrix?

There is one little part in that fine digital set of flics that describes the rise and fall and rise again of Zero 1, the city state of the machines.

Zero 1 was manufacturing so efficiently and so prodigiously that the rest of the world felt obligated to wipe them out violently. It didn’t work and we all became batteries.

How will America handle the auctioning off of its factories to Chinese? A very complex relationship is emerging here:

The Pentagon just released another fine assessment of Chinese capability coupled with a warning that Taiwan may face imminent attack.

China has conquered SE Asia as it never had before and Mahathir and Co. are merely debating how they can make the best out of this situation.

India is getting pushed around by China and is still begging to sell software.

Ahhh, the power of money. China is moving swiftly into every corner of the globe and money and workers follow. Most Asian nations have a substantial Chinese "minority" with substantial economic clout. Although they may be hated in Indonesia and in Thailand as the Jews were throughout their tenure in Europe – they still got the money. The US will "lose" East Asia. Like Mahathir, American policy makers and businessmen must decide how to get the best out of this inevitable development.

This past week marked the 50th anniversary of the end of the Korean War. Everybody has a selective memory concerning this war: The South Koreans fought bravely for their capital, the North Koreans fought bravely for theirs, the US kicked China’s butt, China kicked the US’s butt. Nobody remembers the good stuff: 2 million dead.

The threat China poses to the US is thrown into disarray as soon as Korea is mentioned. Without China, a settlement is probably impossible – that is unless the US sits alone with the DPRK, which is quite unlikely. Americans have a notoriously short memory, those that remember fighting the Chinese at Chosin may find today’s situation strange, but such compromising by the "lone superpower" may be what’s needed in this age.

Many Americans have found the same business practices that made millions back home fall to pieces in Asia, where truth is relative and money rules all. Enough Chinese have spent time in the West and returned to serve their homeland to give China a distinct advantage when it comes to one on one encounters with Westerners.

In order to adjust to a multi-polar world, the lone superpower better get acquainted with those regions, be it the Islamic Middle East, New Capitalist East Asia or the turbulent former USSR.

Garlic growers in California have adjusted while textile manufacturers are attempting to stave off the future. Which path will future Administrations take?