China Challenges

Chinese Migrants Move to the Cities

While America and Europe battle the social implications of illegal immigration, China faces massive internal movement of people from the countryside to the urban centers.  Newsweek International reports in its August 8 issue: 

According to China's State Statistics Bureau, the nation lost 8.6 million hectares of farmland between 1986 and 2003—and the speed at which land is being devoured by new roads, factories and reservoirs is stunning.

In 2003, the latest period with available figures, China's cropland shrank by 2 percent. As the land goes, so go the farmers: Wang Chunguang, a Chinese government sociologist, estimates that 50 million farmers have lost their land to development in the past decade, a number he expects to rise to more than 100 million in the next decade.

In addition, the Communist Party expects the migration of between 30 million and 40 million Chinese over the next decade as a result of "depleted or degraded [natural] resources" due to pollution and desertification. Nearly all will move to cities.

Together with 120 million short-term migrants, this population upheaval is creating a social problem that, until now, China's leaders had managed to prevent—urban slums and rural shantytowns.

"Five years ago slums were not visible in Beijing," says Jing Jun, a sociologist at Beijing's Qinghua University. "But now they are everywhere." Beijing's biggest, located just west of Qinghua, he says, covers seven square kilometers.

Like impoverished areas around the world—from Rio de Janeiro to Mumbai—China's emerging slums and shantytowns fuel the spread of crime, disease and dissent. All of which threatens to fracture Chinese society and hamper the country's rapid economic growth.

Since the Communist Party took control of China in 1949, its leaders have managed the gargantuan population with strong-arm tactics. Citizens are issued identity cards at birth that tie them to their home locality.

Until two years ago Beijing police made frequent sweeps to round up illegal migrants, who were sent back to their hometowns with one-way tickets and orders to stay put. Without local-residence cards, migrants were cut off from social services like schools, welfare and local job markets.

But now the central government is encouraging migration, to consolidate the country's agricultural sector and to help relieve rural poverty. The shifting priorities have sparked new urban policies. Although almost all of Beijing's migrants work under the table, in 2003 the government opened public schools to migrant children for the first time.

The government has also scrapped a decades-old vagrancy law that had allowed police to detain and expel anyone without proper residence permits. Without the law, Chinese police can no longer force migrants to leave cities.

Migration is driven mainly by dreams of a better life. The income gap between farmers and urban manufacturing workers has been widening steadily. The average annual rural income in China is $317—about 10 percent of Beijing's officially reported $2,900.

In the past most migrants left their spouses and children at home, to tend the fields while they labored in the cities. But having sold or lost their property, many now bring their families with them. The problem is, the loss of rural farmland is eliminating the migrants' traditional safety net—the freedom to return to the land if their city lives turn bad.

Read the full article at:

http://www.msnbc.msn.com/id/8767989/site/newsweek/

China's Health Care Crisis

This story comes from Saturday's South China Morning Post:

Mainland health-care reform has been a failure and has turned medical services into the exclusive privilege of the rich, according to a top-level think-tank advising the central government.

Hospitals were guilty of extortion, some doctors made patients more sick so they would buy more treatment, and institutions focused on lucrative hi-tech medicine at the expense of basic health care, the State Council's Development Research Centre said.

From giving universal health care at no cost 20 years ago, China's public health system had become one of the least efficient and least equitable in the world.

That unfairness, and the impossibility for most people of obtaining medical care, threatened economic development and social stability, the centre said in a study notable for its unusual bluntness.

It said the government was wrong to "ignore its responsibility" to provide medical services as a public good and had turned medical institutions into cash-hungry, money-making businesses.

The World Health Organisation ranks China fourth-worst for the fairness of its allocation of medical resources. The study was jointly commissioned by the WHO and the Development Research Centre.

China Included in Emissions Pact

China makes a nonbinding deal to protect the environment from greenhouse gas emissions.  The Washington Times reports:

The United States and five Asia-Pacific countries have concluded an agreement to deploy new technologies aimed at reducing greenhouse gas emissions as an alternative to the Kyoto Protocol on climate change, U.S. and Australian officials said yesterday.

The legally nonbinding deal, to be signed by China, India, Japan, Australia and South Korea as well as the United States, goes beyond the 1997 Kyoto accord by limiting emissions from Asia's two rapidly developing giants -- China and India -- as well as by developed countries.

Pirate Nation

In my view, the most important challenge for Western governments in their economic relationship with Beijing is the Communist's unwillingness to seriously crackdown on intellectual property violations. 

Consider the following stories mentioned by Mr. Ted Fishman in his book China Inc:

Ford Motor blames counterfeiters of auto parts for $2 billion a year in lost sales.  The Commerce Department estimates that automotive companies could hire 210,000 more employees if the counterfeit auto trade disappeared.

A Beijing court ruled against Toyota when the company brought a suit against Geely, one of China's largest private manufacturers.  Toyota complained that Geely used Toyota's logo on one of its cars and the Toyota name to sell it.  The court ruled that China did not recognize Toyota's logo, one of the best-known corporate marks in the world.

A Shenzhen company makes fake Cisco and 3Com network cards.

Food counterfeiters have targeted Coke, Starbucks, Budweiser, and several foreign cheese brands.

Fake merchandise is a $250 billion-a-year business around the world.   

High-Tech Migration - Reality or Myth

After reading the doom and gloom picture painted by New York Times columnist Thomas Friedman in his latest bestseller, The World is Flat, many will come away with the impression that Intel and IBM can't wait to move more and more of their best jobs to Asia where there is an endless army of talented and hardworking engineers and scientists.

To meet the challenge of "flatism", where many types of digitized work can be easily performed by cheaper foreign labor in India, China, or Russia, Mr. Friedman argues America needs a "comprehensive, energetic and focused response as we did meeting the challenge of communism."

Similar to the space race of the in the late 1950's, it requires a society to study harder in science, math, and engineering in order to reach the new frontiers of knowledge.    

While it is true many labor-intensive industries have been hit hard by growing Chinese exports (with textiles as a prime example), the reality is Intel, IBM, Dell, and countless others still think this is still a pretty good place to open factories and create new jobs.

Unique Advantages.  As noted by Michelle Kessler in USA Today, consider some recent announcements by some high-tech giants: Chip-maker Intel has announced plans to build a cutting-edge semiconductor plant in Chandler, Arizona., near Phoenix. The plant, which will cost $3 billion, will employ about 1,000 workers when completed in 2007.

In addition, Intel also said it would spend $105 million to revamp an old factory in New Mexico that is now idle. About 300 jobs will be created there.

Despite claims made by labor unions and their liberal allies in the media, many other tech firms are building U.S. plants, too.

Personal-computer maker Dell recently broke ground on a giant factory in North Carolina, while computer memory-maker Infineon Technologies expanded its Virginia plant last year. And giant IBM opened a huge chipmaking plant in New York in 2002.

While the Semiconductor Industry Association, a trade group, estimates that two-thirds of the newest kind of chip factories will be built in Asia, Intel Senior Vice President Robert Baker says the USA is still the best place for Intel's new plant. "Arizona offers some unique advantages," he told USA Today.

While lower labor costs in Asia are indeed attractive, corporate executives must consider a variety of factors in their location decisions.  When compared to these developing countries in Asia, our key advantages continue to be skilled labor, strong intellectual property protection, and local government tax breaks.

Needless to say, employees who manufacture extremely high-tech products, such as computer chips, must be able to understand statistics and scientific principles.  Despite Mr. Friedman's warnings about the decline high school achievement in math and science, Intel's Mr. Baker says, "We're very pleased with the education system here in Arizona."

Honest Companies Wanted.  Overlooked by Mr. Friedman, strict enforcement of patent and copyright laws is also critical consideration. 

The simple fact is the USA has some of the world's strongest, best-enforced patent-protection laws. As many tech companies have painfully realized their intellectual property in other countries is not always secure.

Consider the following story in Mr. Ted Fishman's new book China Inc. 

Chinese officials in the southern city of Shenzhen raided an electronics manufacturing group that ran four factories making fake DVD players labeled Toshiba, Panasonic, Sony, Sanyo, and others.  Prior to the raid, the group won a government reward for being "an honest private company." 

Big versus Small.  Before they announce the location of a new plant, major firms are often able to play cities off against each other in search of a series of tax incentives.

In their negotiation with local government officials, corporate executives always stress that high-tech factories require massive up-front investments in fixed assets and equipment.

In exchange for the large number of high-paying Intel will generate, the rich multinational got a huge boost this year from a new Arizona law that allows companies to cut income taxes if they spend at least $1 billion in capital investments.

While Intel's decision while generate thousands of other jobs in the area, why should this giant with a market capitalization of many billions of dollars earn a major tax break? 

The fact is most new job creation comes from smaller firms that are often struggling to pay for employee health care and rising property taxes imposed by liberal politicians.   

Keeping it Close. Another factor often overlooked is management control.  Instead of moving it overseas and dealing with numerous cultural and legal complexities, keeping a new factory close to the firm's headquarters allows managers to keep a close eye on it, and respond quickly when unexpected problems develop.

Problems may not be what you expect, and a firm's reputation can be damaged overnight.  As many Americans have realized, many Western firms in a number of industries have set up customer service operations in English-speaking India.

The other day I received a telephone call about my credit card that will expire in a few weeks.  After a few words, I realized the call operator was half-way around the world in India speaking with a heavy British-accent.  Struggling to catch his meaning, I soon felt frustrated trying to answer a long list of questions.   

Conclusion. As the world becomes "flatter," America faces a new set of challenges and opportunities.  While we must continue to make investments in education opportunities and public infrastructure, it is important not underestimate America's hidden strengths.         

Interested in China?  Visit my weblog at:
http://chinachallenges.blogs.com/my_weblog/

References:
USA Today Article
www.usatoday.com/tech/techinvestor/corporatenews/2005-07-25-factory-usat_x.htm

Thomas L. Friedman
The World is Flat: A Brief History of the Twenty-first Century (2005)

Ted C. Fishman
China Inc.  (2005)

Americans and the Dropping of the Bomb

American views on the ending of World War II in the Pacific are changing. 

Few Americans realize that Japan's invasion of northeast China started in 1931, ten years before Pearl Harbor.  While President Truman's decision led to 200,000 Japanese deaths, an invasion of Japan would have been much more tragic and deadly.

Stop and consider what these survey results mean President Bush's global war on terror?  Japan is one of Bush's strongest allies. 

Mr. Greg Mitchell at http://www.editorandpublisher.com writes:

As the 60th anniversary of the atomic bombings of Japan approach in two weeks, one major poll shows that Americans, in a historical switch, now appear about equally divided on the decision to use the bomb.

Polling by the Associated Press, announced today, found that 24% of Americans "strongly approve" dropping the first atomic bombs on Hiroshima and Nagasaki and another 24% "somewhat approve." But 23% "somewhat disapprove" and 24% "strongly disapprove." Another 6% are not sure.

Polls in past years have generally shown strong majority support for the use of the bomb, although the "pro" count has slowly subsided over the years.

The poll of 1,000 adults in the United States was conducted for the AP by Ipsos, an international polling company, from July 5-10. The poll has a margin of sampling error of plus or minus 3 percentage points.

The polling, and a separate survey in Japan carried out by Kyodo, also found that more Americans than Japanese expect another world war in their lifetime. Most people in both countries believe the first use of a nuclear weapon is never justified, although nearly half of the Americans obviously make an exception for the 1945 examples, which killed at least 200,000, the vast majority of them civilians.

Japan surrendered within days of the use of the atomic weapons, but historians differ on whether that country would have given up, in the same time frame, even if the bombs had not been used, due to the Russians' entry into the war against them and other factors.

Modernists or Hawks?

Washington continues to fight over China.  What camp do you agree with?  This comes from the New York Times:

In China, there are  two camps - the security hawks and the economic modernists, according to China analysts.

The modernists see China joining the United States as the second great economic power of the 21st century, and the two nations sharing the gains from increased trade ties and global growth.

The hawks regard that view as naïve, and fret that American policy is to remain the world's only superpower and to curb China's rise. So China's response, the hawks say, is to try to erode United States hegemony and reduce America's power to hold China down.

Both faces of China have been evident recently. Two weeks ago, a senior Chinese military official, Maj. Gen. Zhu Chenghu, said China should use nuclear weapons against the United States if the American military intervenes in any conflict over Taiwan.

Then, bowing to pressure from the United States and other trading partners, China announced last Thursday that it would no longer peg its currency tightly to the dollar. It is a measured step, and it will not do much to moderate China's huge trade surplus with the United States anytime soon. But the move is a sign of flexibility and accommodation.

"Do we see each other inevitably as antagonists, or do we see a world of globalization from which both sides benefit? That is the big issue," said Kenneth Lieberthal, a senior official in the National Security Council during the Clinton administration.

Before China, there was Japan

In the ongoing discussion about the yuan adjustment, this comes the Christian Science Monitor editorial:

The US has been here before with another burgeoning Asian economic giant.

In 1985, the US persuaded Japan to shift the value of its currency to slow down the Japanese dominance of many manufacturing markets in the US. Washington felt Japan had taken too much advantage of the American generosity after World War II to keep the US market wide open to Japanese goods and to help keep the yen at artificially low values.

During the cold war, many friendly Asian nations such as Japan enjoyed US trade privileges. Building up those economies was important to the US, and to eventually creating democracies in the region. But by the 1980s, the US rightly began to demand reciprocity in currency trading regimes and in market openings.

While the US hopes China may someday become democratic, right now that prospect is slim. And the US doesn't share Beijing's concern that it needs rapid economic growth to create jobs for its millions of restless peasants and to maintain stability. US sights are set on treating China as an equal trading partner, one that plays by the same open-market rules.

China's decision to unpeg the yuan is a significant step in that direction. Still left unclear, however, is just how much Beijing's central bank will be allowed to let the yuan dip down to its real market value - and thus make Chinese exports more expensive and American imports less expensive.

Under the "managed float" system set up by Beijing last week, the yuan could slowly drop in value by 6 percent a month. By year's end, China should at least reduce the yuan by more than 15 percent in order for the world to see a real crimp in China's price advantage and to end pressure from Congress.

Moving from a "fixed" currency scheme to a flexible exchange rate means China has finally entered the global financial system as the major economic power it is - 10th in the world. More progress is needed to truly free the yuan. But this financial Great Wall has been broken. The market forces can now march through.

Limited Impact on Trade Flows

The analysis of the yuan revalution continues.  Mr. Louis Uchitelle in the New York Times makes thr following comments:

The revaluation that the Chinese initiated Thursday, even if it is the first step in what turns out to be an orderly devaluation of the dollar against the yuan and other Asian currencies, is not by itself enough to resolve the imbalance in America's international accounts.

The challenge will come once the price of imports begins to rise. At that point, Americans will have to produce for themselves much more of what they consume - or pay a lot more for the privilege of importing.

Ideally, the process would involve America's becoming a much bigger producing nation, even stepping up its exports to Asia, while Asia - and especially China - takes on more of the role of consumer.

That is not an easy transformation. Americans now produce only about 75 percent of the merchandise they purchase, importing the rest. That is down from 90 percent or so a decade ago, according to various studies. The percentage was even higher in the late 1980's, the last time the dollar went through a long, similarly managed decline - in those pre-euro days - against the German, French and Japanese currencies.

As the dollar fell, manufacturing did revive in the United States. Exports jumped and the trade deficit shrank, but the interest rate manipulation involved in managing the currency helped to produce the stock market crash in October 1987, or so some economists argue.

The QQ Identity Crackdown

The Chinese government's crackdown on the Internet continues, according to Saturday's South China Morning Post, based in Hong Kong.  It reports:

A plan by the mainland's dominant instant messenger portal, QQ, to require that organisers and governors of chat groups register their real names has triggered a storm of protest among users. QQ has more than 400 million registered users, and membership is required to take part in its chat groups.

The portal has about 1.5 million frequent users, many of them university students.

A spokesman for Shenzhen Tencent, which runs QQ, said the identity registration requirement had been launched "under the guidance of Shenzhen public security authorities" and was designed to protect information on the internet. The company said the plan would also prevent the spread of harmful information, but refused to say when it would be implemented.

The Chinese Fight CAFTA

Liberal labor unions have found an unlikely ally in the upcoming fight in the House of Representatives against the Central American Free Trade Agreement (CAFTA). The Chinese.

Running radio advertisements across America calling CAFTA the little brother of NAFTA, the free trade agreement signed into law by that liberal Democratic icon, Bill Clinton back in 1993, the labor unions are using the same old protectionist rhetoric that has proven time and again to destroy jobs rather than save them.

Despite fears of a "giant sucking sound" (to quote the quixotic 1992 American presidential candidate Ross Perot) of U.S. manufacturing jobs fleeing to Mexico after the North American Free Trade Agreement was implemented, most Americans enjoyed an economic expansion as trade boomed across the southern border.

With the final passage of CAFTA too close to call in the House, more than a decade after NAFTA, it is the Chinese who are concerned that it will be their jobs making that sucking sound.

After bashing Beijing for years for stealing jobs and their so-called currency manipulation, the labor unions are welcoming the Middle Kingdom’s quiet entry into the legislative battle against a U.S.-initiated trade agreement with five Central American nations (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) and the Caribbean's Dominican Republic. 

Despite China’s entry into the WTO and recent announcement that it will allow its currency to be more flexible in the future, President Hu Jintao must view the CAFTA accord as both an economic and geopolitical threat.

With the yuan expected to appreciate and slow down China’s export machine, Beijing doesn’t want to lose its tight grip over millions of relatively simple, labor-intensive jobs to the CAFTA countries that may gain cost advantages as a result of lower tariffs and shipping expenses.

With the ending of the Multi Fiber Arrangement quota system on yarns, fabrics, and finished textiles, China has come to dominant international textile production with massive surges of exports to the US and Europe since January. With millions of migrant workers willing to work long hours at rock-bottom wages, China has bankrupted many textile firms in other developing countries trying to serve the large Western markets.

If it passes the House and receives President Bush’s signature, CAFTA would enhance the competitiveness of the Central American factories that pay higher wages than China and rely on more American cotton.

Beijing also realizes the diplomatic significance of CAFTA in its ongoing battle to someday convince Taiwan into entering reunification talks with the mainland. All of the CAFTA countries still maintain official diplomatic relations with Taipei and not the People’s Republic in Beijing.

Disregarding its past praise of free trade principles, Beijing is afraid of experiencing its own sucking sound. While most of Washington is applauding China’s yuan adjustment, Beijing is playing a more undercover game to protect its own interests. Desperately trying to protect millions of jobs and maintain social stability, Beijing realizes it must join the democratic dance.

References:

Heritage Foundation Article

http://www.heritage.org/Research/TradeandForeignAid/wm778.cfm

Still Many Unknowns about New Yuan Policy

It is too early to predict how the new yuan policy will effect trade and capital flows between China and it major trading partners.  Many questions still need to be answered.  This is how BusinessWeek analyzes the current situation:

China says it will "manage" its currency by allowing its value to float up and down within limits. It will measure the yuan's value against a basket of other nations' currencies, instead of just one, such as the U.S. dollar.

But Beijing is leaving itself plenty of room. China didn't announce the currencies in the market basket, or how much weight each would carry. That's a vital factor. Also, China says each day it will choose one currency from the basket to be the reference currency -- but it apparently won't say which one.

Chinese Cyber Storm Coming

This article at AmericanThinker.com is a must read.  Check it out.

http://www.americanthinker.com/articles.php?article_id=4665

Chinese Takeover Bids Rejected

With the yuan finally allowed appreciate in value (which makes dollars cheaper), Americans should expect more cash-rich Chinese firms trying to buy their American rivals.  As widely reported, two leading Chinese firms have failed to presuade American shareholders to accept their takeover offer.

The International Herald Tribune reports:

Two of China's most ambitious companies were dealt setbacks in their attempts to take over major American corporate brands, as the board of the oil company Unocal endorsed a sweetened takeover offer from Chevron over a higher bid from Cnooc on Wednesday and Haier Group abandoned its bid for the appliance maker Maytag.

Unocal's decision in favor of Chevron came after Haier Group, a Chinese conglomerate, dropped its $1.28 billion bid for Maytag. Haier said it was not prepared for a takeover battle with Whirlpool, a rival bidder.

Impact of the Yuan Adjustment

In the years ahead, China's move will have many implications on the global economy.  In an instant analysis, BusinessWeek writes:

China will be watched for the extent to which it triggers a broader adjustment in currencies across the region. After the announcement, the yen rose 2% vs. the dollar. Bank of Japan officials were quoted in wire-service stories as saying they welcome the decision, adding that it will help make Chinese growth more balanced and sustainable.

Another effect of the revaluation might be seen in the energy markets. Sources contacted by Action Economics indicate the removal of the yuan-dollar peg could lift crude oil prices significantly, as it will give China an instant discount on dollar-denominated oil imports.

The Yuan is Freed

The South China Morning Post reports:

China on Thursday revalued its currency for the first time in about a decade, scrapping the peg to the US dollar in favour of a basket of currencies.

The currency is now valued at 8.11 yuan to the US dollar compared to the old rate of 8.2765 yuan, effectively a 2 per cent revaluation. 

"From today, the renminbi rate against the US dollar will appreciate by 2 per cent," the People's Bank of China said on its website. "One US dollar will exchange for 8.11 yuan."

Facts from Fishman's New Book

In his new book China Inc., Mr. Ted Fishman analyzes many social and political trends that will impact China’s economic future. He writes:

Right now, China has only 80 percent of the energy it needs to run smoothly. With more than 14,000 new cars joining the traffic jams in China’s major cities every day, the country needed an additional 1 million barrels of oil every day in 2004 to fuel its economic growth.

China is the source of as much as 40 percent of the air pollution in Japan and South Korea. Japan, which has suffered from Chinese acid rain for a generation, pays the Chinese to clean up their power plants. From 1997 to 2002, Japan provided $3.1 billion in loans and aid to Chinese environmental projects.

Chinese birth records show there 118 baby boys for every 100 baby girls. The world norm is 106 boys for every 100 girls. Doctors with ultrasound machines do a brisk business in detecting the sex of unborn children, and in the abortion of girls. More than 50,000 babies, nearly all girls, have been adopted by foreign families since 1991, 35,000 of them by US families.

According to the World Resources Institute, China’s poverty rate 4.6 percent, but more than 47 percent of the population lives on less than $2 a day. China’s official poverty statistics can be confusing, because some of China’s very poor may subsist on their own farms but still have extremely low incomes. Rural per capita incomes are, for example, well below those of Mexico and most of Latin America.

The Deception of Trade Stats

Mike Moore, the former leader of the WTO, writes in the South China Morning Post:

The biggest investors in the US last year were Switzerland (US$878 billion) and Japan (US$431 billion). Beijing invested only US$8 billion,  while the US invested US$105 billion in China.

But trade figures and investment perceptions are now out of date: they represent an old reality, from before our more borderless world. What is a trade surplus or deficit? What happens when Dell sells a computer made in China, with some input from elsewhere?

On paper, it looks like a US deficit with China. But when the profits go to Dell and Microsoft (which supplies the operating system), and the chip powering it comes from Intel, what does this mean to the statistics?

Trade Deficits are Not Always Bad

In an article titled America's Truth Deficit, Mr. William Greider makes the following case against free trade.  One key point many liberals try make people believe is that America's trade deficit is a sign of economic weakness.  This is not true.  Consider this my own experience.

Some years ago when I lived in Japan, I was shocked to discover that a single apple costs over $1.  I loved apples, but I was not going to pay that unreasonable price.  Today, most of the apples consumed in Japan are imported from southeast Asia.  Yes, Japan is more financially indebted, but its consumers greatly benefit from cheaper prices.  The farmers in Japan who use to grow apples need to search for another fruit to produce.

Mr. William Greider writes: 

During the cold war, as the Soviet economic system slowly unraveled, internal reform was impossible because highly placed officials who recognized the systemic disorders could not talk about them honestly. The United States is now in an equivalent predicament. Its weakening position in the global trading system is obvious and ominous, yet leaders in politics, business, finance and the news media are not willing to discuss candidly what is happening and why. Instead, they recycle the usual bromides about the benefits of free trade and assurances that everything will work out for the best.

Much like Soviet leaders, the American establishment is enthralled by utopian convictions - the market orthodoxy of free trade globalization. The United States is heading for yet another record trade deficit in 2005, possibly 25 percent larger than last year's. Our economy's international debt position - accumulated from many years of tolerating larger and larger trade deficits - began compounding ferociously in the last five years. Our net foreign indebtedness is now more than 25 percent of gross domestic product and at the current pace will reach 50 percent in four or five years.

In Search of a Balanced Immigration Policy

Americans have a conflicting, and often contradictory, imagine of immigrants. Living in a nation built with the blood and sweat of these new arrivals, most Americans have always welcomed hardworking, law-abiding immigrants in search of freedom and opportunity.

While trying to attract thousands of talented immigrants each year to attend our universities and bring their cultural understanding to corporate boardrooms, President Bush is under increasing pressure from his conservative supporters to clamp down on illegals and reduce the threat of international terrorism.

With the Statute of Liberty representing the ideals of this great land, millions of immigrants arrived to our shores to achieve their version of the American dream. Visit any major university and you will find many professors speaking English as a second (or maybe even a third) language. When they do decide to return to their homeland, they will carry with them a better understanding of our culture that will hopefully promote peace and cooperation.

If we enact reasonable immigration policies in the future, America will continue to enjoy this so-called brain gain. As an American teacher in Japan and China for the past nine years, I have always been impressed with the determination many young people have for obtaining a visa and starting a new life overseas.

But the sad fact is, too many foreign students and workers decide to overstay their visas and continue to live here illegally. Measuring the economic and social impact of immigrants, both legal and illegal, is a complex issue hampered by irrational fear and misunderstanding.

For years conservatives have rightfully complained about the social problems created by illegal immigration. For more than two decades, America's illegal aliens have been the target of national attention, largely for the problems they generate.

Because of the growing benefits they provide the US economy, a number of leading liberal experts are advocating more illegals be given the opportunity to become full-fledged citizens. But do we really want to reward these aliens for trying to hide from our laws?

With their willingness to accept manual labor jobs, and work in the harshest of conditions, immigrants have replaced thousands of native Americans in a variety of labor-intensive industries ranging from restaurant servers to construction laborers. As the residents of southern states have painfully realized, their growing numbers have put downward pressure on U.S. wages and new demands on schools, hospitals, and other public services.

At the same time, immigrants have created new businesses of their own, and become a growing market segment for countless others. In a recent cover story on illegals, Businessweek explained how many big U.S. consumer companies -- banks, insurers, mortgage lenders, credit-card outfits, phone carriers, and others -- have decided that a market of 11 million or so potential customers is simply too big to ignore.

By catering to the unique needs of undocumented customers, these businesses are helping to bring a large part of the underground economy into the mainstream. According to Dr. Raul Hinojosa, a professor of political economy at UCLA, the total goods and services that they consume through their paycheck, plus all that they produce for their employers, is close to about $800 billion. And the benefits to for employers do not stop there. They're also producing at relatively lower costs because the undocumented population typically gets about 20% less in wages than if they were legalized, Dr. Hinojosa explains. This leads to lower prices for consumers and higher profits to employers.

In effect, more firms are legalizing (and legitimizing) millions of people who technically have no right to be here. With more undocumented immigrants paying income and property taxes, they have eased the taxpayer strain for the schools, health care, roads, and other services we all use.

An issue of often overlooked in immigration debate is how it changes America's demographic trends. According to Pew Research, 84% of illegals are young, between the ages of 18 and 44, and in their prime working years. In comparison, the same figure is only 60% for natives.

If we decided to close our borders and crackdown on immigration, America would find itself with an aging population, and unable to afford its most basic social obligations. We definitely don’t want to follow the path of some Asian countries like Japan and South Korea. After years of promoting the ideals of a homogenous society and a declining birth rate, they are starting to pay the social price.

In the next few years, Japan will plunge into a period of shrinking population that will have a serious impact on the nation's economy and society, especially the national pension system. The Japanese government has warned that the population will start shrinking in 2007 and decline to about 100 million in 2050.

Immigration poses many challenges for our society with no easy answers. While we enjoy the benefits of hard-working immigrants, an open-border policy is definitely not possible with terrorists able to carry nuclear bombs in suitcases. While rejecting the emotional appeals of both the left and the right, I hope a sensible balance can be struck.

References:

Japan Times

http://www.japantimes.com/cgi-bin/geted.pl5?ed20050717a1.htm

Business Week Online Cover Story and Pew Research

http://www.businessweek.com/magazine/content/05_29/b3943001_mz001.htm

Dr. Raul Hinojosa Interview

http://www.businessweek.com/magazine/content/05_29/b3943005_mz001.htm

Fishman's New Book

These days I am busy reading Ted Fishman's new book China Inc.  This is a must read for all Americans who want to understand today's China.

Some interesting tidbits:

There are 220 million "surplus workers" in China's central and western regions.  The number of people of people working in the USA is about 140 million.

There are 186 MBA programs in China.

On average, American firms make a 42 percent return on their China operations.

Chinese War Victims Seek Help

The Japan Times today reports:

<>

About 40 Chinese plan to file a petition with Prime Minister Junichiro Koizumi next month demanding an apology, medical care and life support for injuries they sustained from a toxic gas leak from chemical weapons abandoned in China by the Imperial Japanese Army, according to their lawyers.

If they see that Japan is not addressing their plight adequately after the petition is filed Aug. 4, the group will bring a lawsuit seeking an apology and damages, the lawyers said at a recent news conference in Tokyo.

So far no suit has been lodged by the victims.

Aug. 4 marks the second anniversary of a deadly chemical weapons leak from barrels that were discovered at a construction site. One accidentally broke, killing one local resident and injuring 43 others in the city of Qiqihar in Heilongjang Province.

Japan has paid China 300 million yen in the name of "costs for the disposal of chemical weapons abandoned" in the city after the war.

New War Museum in Tokyo

One of the many conflicts between Japan and China is the abuse of China "comfort women" by Japanese soliders during World War II.  The Japan Times reports:
In a bid to keep wartime sexual violence against women in people's minds, female activists in Japan are set to open a museum in Tokyo to collect and display materials mainly about those who were forced into sexual slavery for the Imperial Japanese Army during the war.

Warning Over Taiwan

China is prepared to use nuclear weapons against the United States in the event of a conflict over Taiwan, Western newspapers quoted a senior Chinese military officer as saying Thursday.

Stressing that he was giving his personal views, not official policy, Gen. Zhu Chenghu said that "if the Americans are determined to interfere ... we will be determined to respond."

Zhu said China would prepare itself for the destruction of all of its cities east of Xian - a city in central China - while "the Americans will have to be prepared that hundreds ... of cities will be destroyed by the Chinese."

Zhu, who also teaches at China's National Defense University, is reputed to be a "hawk," the papers said, calling his warning the most specific by a senior Chinese official in nearly a decade.

Social Stability Warning

The American Foreign Policy Council at http://www.afpc.org makes the following statement:

Analysts are warning that China risks serious social instability unless it quickly tackles widespread discontent over land seizures carried out by regional officials in recent weeks.

The Agence France Presse reports that violent public protests throughout China are steadily increasing, and citizen dissatisfaction with authorities have already sparked three violent clashes, underscoring what increasingly looks like a breakdown of the social contract between local party mandarins and citizens.

Bush Expects Yuan Change by August

The Financial Times has reported the Bush Administration expects China to revalue its currency in August ahead of a planned visit to Washington by President Hu Jintao.

Senators Charles Schumer and Lindsey Graham, co-sponsors of a bill that would impose a 27.5 per cent tariff on Chinese imports in the absence of a change in the mainland’s forex system, agreed to delay a vote after being assured Beijing would revalue of the yuan, it said.

The newspaper also said that the US Treasury had told Beijing it needs to revalue the yuan by at least ten per cent against the dollar to prevent the US Congress from enacting protectionist legislation.

It added that China was considering introducing a currency regime similar to the managed float operated by Singapore, one where the yuan would be pegged to a basket of currencies reflecting the country’s weight in world trade.

Battle in the East China Sea

The conflicts between Japan and China continue. My friend Mr. Thomas Lifson published the following article at American Thinker.com. He writes:

While the world is preoccupied with the Middle East, a serious conflict is brewing in East Asia, between two powers with a history of military conflagration rather fresh in mind. For centuries Japan and China have disputed the ownership of the small island chain which the Japanese call the Senkaku Islands and the Chinese call the Diaoyu Islands. The islands themselves are of little value, but the ocean rights, notably including the right to drill for oil, are of ever-greater economic and strategic interest. A major oil field is thought to lie there.

Now, Japan has actually awarded a Japanese oil company drilling rights in the economic zone it claims, based on its contention to exercise sovereignty over the Senkakus. The oil company carries the provocative name Teikoku Oil, which means “Imperial Oil” and echoes the rhetoric under which Japan ravaged China in the Twentieth Century.

Japan’s move follows an increasingly shrill campaign in China whipping up violent demonstrations against Japan in many cities. Chinese spokesmen are demanding with regularity a more “sincere” apology from Japan over its wartime actions, despite many such apologies already on the record.

Two major powers, with historical antagonism, making increasingly threatening statements and moves, is a topic our press prefers to ignore. Drilling is not imminent, but Japan's move represents a definite escalation in tensions. China is all but certain to respond. Be warned, this could lead to big, big trouble.

China By The Numbers

Consider the following numbers from Time Magazine:

Mobile phone text messages last year: 218 Billion

Percentage of Chinese with a positive view of US-China relations: 63%

Communist party officials disciplined for curruption last year: 170,850.

Percentage of counterfeiting goods seized at U.S. borders that come from China: 66%

Percentage of urban Chinese with a college education: 5.6%

Percentage of rural Chinese with a college education: 0.2%

Estimated number of ballistic missiles pointed at Taiwan: 700.

Estimated number of smokers: 350 million.

World ranking in auto deaths: 1

The Two China Camps

Writing in Newsweek International, Mr. Jeffrey E. Garten discusses how Washington is split over China policy.  I am in the second group. He writes:

One camp wants to contain China. It has supporters on the left and right, united by fear that this new power threatens jobs worldwide, and stands as a major obstacle to progress on human rights. Its capital is the Pentagon, led by Secretary of Defense Donald Rumsfeld, which worries that China's economic might will translate into a military and political challenge to U.S. supremacy. Its chief complaint is that China doesn't play by the rules; for example, by building a trade surplus in ways that constitute aggressive mercantilism.

The opposing group, which includes many CEOs, top U.S. officials like Alan Greenspan, and much of the U.S. foreign-policy establishment, argues for unfettered engagement. It argues that the more of a stake China has in global commerce, the more Beijing must play by the rules.

Apologize or No Service

While most of our elected leaders in Washington are focused on the global war on terror and the upcoming Supreme Court confirmation battle in the Senate, the American people seem to be overlooking other key trends and events around the world.

One worrying trend that deserves much more attention is the growing Cold War between China and Japan. As an American who has taught young people in both countries, I have experienced this growing divide firsthand.   

In its attempt to instill a sense of nationalism in young people, the Communists in Beijing have quietly encouraged expressions of hatred against the Japanese. 

Earlier this spring, thousands of young Chinese went to the streets in many cities to protest Japan's perceived inability to "sincerely apologize" for their wartime crimes against innocent Chinese and Prime Minister Junichro Koizumi's controversial visits to the Yasukuni Shrine near Tokyo.

While many of my students here in Shanghai love Japanese pop culture and animation, they will never forgive the Japanese.

While economic trade between the two Asian giants is growing rapidly, the situation seems to be taking another turn for the worse. 

Consider the following story in the Japan Times on July 13:

A Western-style restaurant in the northeastern Chinese city of Jilin has hung a sign requiring Japanese customers to apologize for what China sees as Japan's wartime crimes, a local newspaper reported.

The City Evening News of Jilin reported Saturday the eatery posted a sign saying, "Japanese people are barred from entry."

If Japanese customers come, the newspaper said, staff will ask them to take a "correct" view of wartime history and apologize for the 1931-1945 occupation of Chinese territory.

The Jilin newspaper quotes a restaurant boss surnamed Tian as saying he welcomes Japanese customers who share his view of occupation history.

"We totally welcome those Japanese customers who can correctly view history," Tian reportedly said. "But as for those customers who still refuse to admit to history, we want to say we don't like them."

Since the sign went up, the restaurant boss has reported no Japanese customers but says he does not mind as long as his warning prompts young Chinese not to forget history, according to the paper.

Imagine for a moment if a resturant in London or New York tried a similar tactic against all Muslims who wanted to be served.

China versus CAFTA

John Tkacik, Jr., a Senior Research Fellow in China Policy in the Asian Studies Center at The Heritage Foundation, made two interesting connections between China and the Congressional debate over the Central American Free Trade Agreement.  He wrote:

In the Multi Fiber Arrangement world of quota-free trade in yarns, fabrics, and finished textiles, the Central American Free Trade Agreement (CAFTA) represents a direct threat to China’s growing power—indeed, its near-monopoly—in world textile production. If passed, CAFTA would enhance the competitiveness of Central American factories that pay higher wages than China and predominantly use U.S. cotton. But if CAFTA fails, U.S. cotton exports to Central America will come to an end, while U.S. imports of Chinese textiles—with little or no U.S. content—soar.

It is perhaps a minor footnote in the congressional debate over CAFTA that all the countries involved maintain diplomatic ties with Taiwan and not with China. But this fact is remarkably important to China and partly explains China’s efforts in recent years to make inroads in Central America. China has launched a major diplomatic offensive in Central America and the Caribbean to stamp out Taiwan’s diplomatic legitimacy in the region and supplant Taiwan’s influence among these young democracies with its own.

CAFTA’s defeat, therefore, would be a double victory for China. Central America would be left with the message that the United States is simply not interested in its fledgling democracies. And Congress would do China the favor of taking out one of its few remaining competitors in the U.S. textile market.

A Growing Car Culture

In today's New York Times, Howard French writes:

As people in this richest of Chinese cities have grown more and more affluent, they have displayed an American-style passion for the automobile. But for Shanghai, as for much of China, getting rich and growing attached to cars have increasingly gone hand in hand, and have produced side effects familiar in cities that have long been addicted to automobiles - from filthy air and stressful, marathon commutes to sharply rising oil consumption.

China accounts for about 12 percent of the world's energy demand, but its consumption is growing at more than four times the global rate, sending Chinese oil company executives on an increasingly frantic search for overseas supplies. The country's top environmental officials have warned of ecological and economic doom if China continues to follow this pattern. But in cities like Shanghai, where automobiles account for 70 percent to 80 percent of air pollution, nothing seems capable of stopping, or even slowing, the rapid rise of a car culture.

Western Educational Opportunities

As an American business teacher at a private foreign school in Shanghai, this article in the SCMP also caught my attention.  The number of foreign-funded schools on the mainland is rapidly increasing.  My school, for example, is a Sino-Canadian joint-venture.   The city of Ningbo is near Shanghai.   

From September, Chinese students will be able to take courses in English taught by foreign professors, and obtain a British degree - without leaving the mainland.

The University of Nottingham will formally open its campus in Ningbo , Zhejiang province - the first foreign-run university on the mainland since the September 2003 rule changes allowing such institutions.

Closer Sino-Russian Political Ties

With major implications for US foreign policy, Chinese President Hu Jintao strengthened the Sino-Russian political relationship during an official visit to Moscow in late June. 

While the Washington has focused much attention on China's bid to buy Unocal and it's refusal to revalue the yuan, China continues its quest to be the dominant force in Central Asian affairs in years to come.

With her deep understanding of Russia, Secretary of State Dr. Condi Rice should be increasingly concerned about this growing geopolitical alliance.

President Hu and his Russian counterpart Putin reached an agreement that reflected the deepening strategic co-operation between the two countries. It reiterated their common goal of "building a multipolar world" - one in which the US is not the sole superpower - and a "new international order".

Without specifically mentioning the invasion of Iraq, the Sino-Russian statement declared that "differences and disputes must be settled peacefully, without the adoption of unilateral action and coercive policy, and without resort to the threat of force or the use of force".

The agreement also calls for closer military cooperation. The two countries held their first intergovernmental talks on security issues this year - apparently on China's initiative - and they plan to hold their first joint military exercises in China in August. 

After a brief visit to Beijing on June 11, Dr. Rice said Sino-US relations had "great momentum" but she raised concerns about China's military build-up.

While bilateral trade hit a record of $20 billion last year, with both Hu and Putin agreed that much more growth is possible in the years ahead.

As its economy races ahead at almost 10 percent a year, China desperately needs Russia's vast supply of oil and other natural resources. Current trade flows are still only  tiny fraction when compared the Middle Kingdom's other East Asian neighbors, Japan and South Korea.

Closely watched in Tokyo, the key topic of discussion was a new pipeline that will carry Siberian oil to China.  Dismissing the objections from the  Japanese, Russia selected a pipeline route that made it easier for Beijing to receive the oil, rather than be shipped to Tokyo.

Although China and the Soviet Union have a history of mistrust since their diplomatic breakup in the 1960's, Beijing and Russia have turned into strategic partners. They feel they can develop a relationship of trust with each other that neither can hope to develop with Washington.

But while Beijing's relations with Washington and Tokyo are constrained for political reasons, its relations with Russia - while a source of satisfaction for their political content - still lack the substantial economic base necessary to support a genuinely healthy and well-rounded relationship.

Sino-Japan Free Trade Talks

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The Japan Times is reporting that Chinese Ambassador to Japan Wang Yi called on the Japanese business community to launch preparations for negotiations on a bilateral free-trade agreement.

"Japan and China should start a private-sector study on a bilateral FTA," Wang told a seminar, dubbed the Japan Productivity Center for Socio-Economic Development.

Congress Expresses Concern over China Deal

The Hill newspaper reports that the Senate won't follow the House on China.   
Despite last week's 398 to 15 House vote expressing public concern that a Chinese takeover bid for Unocal is a national security risk, neither Senate Majority Leader Bill Frist (R-Tenn.) nor Minority Leader Harry Reid (D-Nev.) is planning to introduce a similar resolution in the Senate.

Last week's second significant House vote on China, to prevent a national security review of the Unocal offer from CNOOC, the Chinese oil company, is also unlikely to halt the process, according to comments from deputy Secretary of State Robert Zoellick. His boss, Secretary of State Condoleezza Rice, is scheduled to visit China this weekend.

Investment Comparision

Newsweek notes an interesting comparison.

In 2004, Chinese firms accounted for only $490 million of U.S. direct investment out of the total foreign direct investment of $1.5 trillion (that's foreign ownership of U.S. firms, factories and real estate).

Meanwhile, U.S. multinationals have $2.1 trillion of foreign investment, including $15 billion in China.

Overcoming the Historical Divide

With the sixtieth anniversary of the end of World War II in the Pacific coming later this summer, diplomatic tensions between Japan and its Asian neighbors are bound to flare up again. Under increasing pressure from voters to improve relations with China and South Korea, two countries that bore the brunt of Japan’s wartime brutality, Prime Minister Junichiro Koizumi is desperately searching for way to show respect to the 2.5 million soldiers who gave their lives and maintain a working relationship with leaders across Asia.

As an American who has taught young people in both China and Japan and listened to my grandfather talk numerous times about his experiences as solider near Tokyo during the Allied Occupation in the late 1940’s, I have intently followed this growing debate and becoming increasing pessimistic that people in these two great countries can overcome their historical mistrust of each other.

Starting in August 2001, Koizumi's annual visits to the controversial Shinto-based Yasukuni Shrine near Tokyo, which served as a spiritual pillar for Japanese nationalism during the 1930s and 1940s and now honors 14 Class-A war criminals along with the war dead, has drawn intense criticism from both home and abroad. An increasing number of Japanese now believe the prime minister should stay away from Yasukuni this summer.

With a strong sense of nationalistic victimhood, nearly all Chinese believe the visits by the prime minister indicate Japan has not seriously searched its soul over its war responsibility. In April, thousands of angry young Chinese took to the streets in Beijing, Shanghai, and Shenzhen to protest Japan’s inability to “sincerely” apologize for its wartime aggression. When told about Prime Minister Koizumi’s apology in Indonesia in early May, many of my Chinese students just reply that it is too little and too late.

Seeking a way out of this impasse, many Japanese support the concept of building a new secular memorial for the war dead. But despite growing attention for the proposal, originating in December 2002, it is unlikely to put an end to Tokyo's diplomatic woes even if it were to be adopted, largely because Koizumi appears determined to continue his contentious visits Yasukuni.

One of Koizumi's key constituents is the Japan War-Bereaved Families Association, one of the strongest pressure groups for the conservative Liberal Democratic Party and the main supporter of Yasukuni Shrine. The group strongly opposes construction of a new war memorial because it could replace the shrine as the spiritual bastion for patriotism in Japan.

Responding to this concern, Koizumi has repeatedly stressed that a new national memorial hall "would not replace" Yasukuni and that the construction of such a facility would not prevent future prime ministers from visiting, arguing the government cannot prohibit them from going because, he claimed, such visits are "private" in the first place.

Many Asians strongly object to Koizumi’s claim that these visits are private. As the head of the national government, it is assumed by many, Koizumi is representing the true feelings of most Japanese.

At the same time, Koizumi is also feeling heat from business groups that have billions of dollars of investment across the region. With the local economy in held back by slow domestic consumption, leading firms like Sony and Honda are increasing dependant on expanding sales in the fast-growing Chinese market.

Failing to understand the interdependency between the region’s two largest economies, many Chinese protests organizers were advocating a boycott of Japanese-made products in April. Today there are more than 20,000 Japanese companies in China employing an estimated 9.2 million people. These firms indirectly create millions of more jobs by purchasing components and materials from local firms. Sony, for instance, says that by the year 2008, its sales in China will exceed those in Japan.

Even worse, Toyota has reported had difficulty recruiting new workers because more Chinese have come to believe that they will not be treated fairly by Japanese managers and given the promotions and training they deserve. Surveys show that Chinese university graduates would much rather work for an American or European company.

Many experts say that Sino-Japan relations are at an all-time low since diplomatic ties were forged in 1972. Koizumi’s strong defense of his repeated Yasukuni visits have clearly damaged relations Asian region and created another risk for the global economy. Can stronger economic ties help repair relations and help restore trust? Only time will tell, but the outlook is not so bright.

Happy Birthday!

Have a safe and happy Fourth of July!  Blog again soon.

China Investment Facts

In the Christain Science Monitor, Mr. David Francis provides some interesting data about China's growing economic influence.  He writes:

In the past four years, China has sunk at least $11 billion into foreign plants, offices, and firms.

Perhaps some Hong Kong money should be added to that total. Hong Kong, now part of China, made $39.7 billion of foreign direct investment last year, and $24.3 billion over the previous three years combined.

The US, though, has invested almost $700 billion abroad in those four years.

Last year alone, outflows of foreign direct investment from the US reached an all-time record of $252 billion, up from $141 billion the year before.

Last year, the US deficit with China was $162 billion, or 24 percent of its total trade deficit.

To many economists, China's trade surplus with the US does not necessarily mean that the yuan is overvalued.

In relation to China's gross domestic product, that is, its total output of goods and services, China's global surplus is smaller than that of Germany, the Netherlands, Thailand, Argentina, Malaysia, and Singapore.

Moreover, much of the pileup of dollars in China's central bank has not been due to a trade surplus, but rather to both genuine long-term foreign investment and speculative inflows.

By the end of 2004, China's foreign-exchange reserves had risen from $200 billion to $600 billion in just three years.

In a new report, the OECD counts $151 billion of foreign direct investment in China in the past three years.

Foreign investors have been putting huge amounts of money into Chinese real estate, possibly creating a property price bubble.

The investors hope to get a special profit kick from a revaluation of the yuan at some point.

One China, Many Interpretations

Since President Nixon made his historic journey to Communist China in 1972, the most contentious in Sino-American relations has been the status of Taiwan. With the possible exception of their hatred for rightward-leaning Japanese politicians like Prime Minister Junichiro Koizumi, nothing gets the average Chinese citizen more emotional than the dream of Taiwan returning to the “motherland.”

After more than 55 years trying to convince the island’s residents of the potential benefits of reunification, Beijing has made little more than symbolic progress in the past year.

As President Bush prepares for an official visit to Beijing during the fall, he should strongly defend Taiwan’s right to self-determination while maintaining a constructive relationship with Beijing. One of the key challenges in American foreign policy is trying to develop a long-term strategy to manage China’s rise as an economic and political power, and at the same time, maintaining peace and economic cooperation across the Taiwan Straits.

Secede from Who? In December, Beijing formulated the so-called “Anti-Secession Law” that was intended to rein in President Chen Shui-bian and his advocates for a separate political identity and greater independence. Even by Chinese standards, where numerous written laws are randomly enforced and serve only to promote the country’s image abroad, this Law was unnecessary.

Just six days before its announcement, Chen and his pro-independence supporters in Democratic Party suffered an unexpected defeat in local legislative elections. The vote reflected waning political sentiment on the island for constitutional reforms affecting its status as the Republic of China.

With the level of economic interdependence growing by the day, the pragmatic Taiwanese voter sent a clear message to Chen that they were not in the mood for antagonizing Beijing and threatening the island’s economic stability. Businessweek has calculated that Taiwanese firms have invested some $100 billion in the mainland over the past two decades and China currently buys three-quarters of Taiwan’s exports.

National Disunity. The Anti-Secession Law also serves a domestic purpose. With few cultural similarities across a vast landmass, the Law gives the Communists one more tool to promote the feeling of national unity. As the slow, and sometimes painful, transition to the market economy continues, China is hampered by a growing income disparity and regional differences between the booming coastal cities of Shanghai and Shenzhen and much poorer hinterland.

And the cultural disunity is not just economic. While most Chinese speak Mandarin, there are numerous regional dialects that make verbal communication nearly impossible between poorly-educated migrants from inland provinces and their urban counterparts.

The Taiwan issue also involves conflicting historical interpretations. While Americans tend to focus more on the future, Chinese love to discuss their long 5,000 year history. During my five years in China, my friends always seem to tell me I need to consider the historical context before I start asking difficult questions.

So just in case you fell asleep during your high school history class, here is brief refresher.

After a bloody civil war in the late 1940’s, the Nationalist leaders fled to Taiwan after the Communists took control and moved the capital to Beijing. With thousands of screaming followers on Tiananmen Square, the beloved Chairman Mao Zedong proclaiming the founding of the People’s Republic on October 1, 1948. Over the next thirty years, Mao instigated numerous border disputes, including India, Vietnam, the former Soviet Union, North Korea, and the invasion of Tibet.

Logically, you may ask, how can Taiwan secede from a Republic it has never been a part of? My good Chinese friend, and loyal Party member, Lee became very annoyed when I asked him this question. He can’t seem to comprehend Taiwan’s desire for autonomy from Beijing’s control.

While it may have achieved its domestic objectives, the Law has clearly backfired outside the mainland. Shortly after it was approved by Beijing’s toothless People’s Congress, it fanned the flames of Taiwanese pride and led to large protest on the streets of Taipei. More importantly, the Law swayed opinions in Paris and Berlin. Under intense pressure from Washington, the European Union dropped it plan to end an arms embargo against Beijing, put in place after the horrors of Tiananmen Square in 1989.

Journey of Peace. Earlier this spring, two leading opponents of Chen’s policies have made historic visits to the mainland. First, Nationalist chairman Lien Chan ended sixty years of hostilities with the Communists with a “journey of peace” and a handshake with Chinese President Hu Jintao. Next came James Soong Chu-yu, head of the People First Party. Upon his arrival, Mr Soong has called his mainland tour a "bridge-building visit".

Given the result of the most recent legislative elections on May 14, the Taiwanese voters seem to have rejected their call for a more conciliatory tone with Beijing and vindicated Chen’s hard-liner stance.

Strategic Partner or Strategic Competitor. What strategy should President Bush’s foreign policy team, led by Secretary of State Dr. Condellezza Rice, follow in the next few years to maintain the peace and stability in a region that the global economy derives so much of its innovation and entrepreneurial spirit?

For starters, Bush should push for even more economic integration. The one million or so Taiwanese who live on the mainland provide critical management and technical know-how in a country with millions of highly motivated, yet undereducated, laborers.

Some conservative supporters at the Heritage Foundation are pressuring the Administration to clearly define its interpretation of the often-repeated phrase, “One China”. In a nation that places a premium on straight-talking and blunt politicians (like Senator McCain and John Bolton), our foreign policy towards East Asia for the past 30 years seems to evolve around an elusive definition of the so-called “One China” principle.

Is it time for the United States to end decades of “strategic ambiguity” and avoid a potential misunderstanding that could lead Washington into conflict across the Straits? The answer is no.

If it’s not broken, don’t try to fix it. While offering both sides access to the large American market, Washington has some leverage in both Taipei and Beijing. While providing Taipei access to some of the Pentagon’s advanced military technology, American gives Taiwan some sense of security against Beijing’s growing military capabilities.

Call me naïve, but President Bush should not worry so much about Beijing’s harsh rhetoric that is intended to improve the Party’s image among the masses. If Bush focused more on trade issues and pressuring Beijing to follow its obligations to World Trade Organization’s America’s long-term interests would be much better served.