China Challenges

Boudreaux on Trade: Failing to Learn from History

Trade and Wages (by Don Boudreaux)

Posted: 27 Mar 2009 06:59 AM PDT

This item is from the Carlisle Journal, 12 November 1846:

FREE TRADE AND WAGES. - The Protectionists used to be fond of asserting that the manufacturers were anxious to repeal the corn laws in order that they might reduce the wages of their workmen. Events have falsified the assertion. In Carlisle the wages of the hand-loom weavers, since the passing of Sir Robert PEEL's measures, have been considerably increased upon certain fabrics, and we understand there is the prospect of a further rise very shortly. The manufacturing population of Carlisle are, we feel happy in adding, in full employment, and we are not aware of any intention among the millowners to resort to the short-time system, now so extensively adopted in Lancashire.

(HT: T. Alan Russell)

Trade is Falling Faster in 2009 Than in 1930

PPI notes:

As G-20 members prepare to meet in London a week from Thursday, some dark predictions. The International Monetary Fund predicts that the world economy will contract by about 1 percent this year: The only such worldwide decline since the 1930s. The World Trade Organization foresees a nine-percent fall in trade, as businesses around the world cut back and families stay out of stores and malls: again the largest decline in trade since the Second World War.

Foreign Men Placed on the Discount Rack by Shanghai Women

The CER Editors Blog notes:

The burly paragons of foreign masculinity that comprise a portion of China Economic Review's editorial team were shocked and dismayed to read in the Shanghai Daily that all their manliness may be for nought. It’s bad enough that demand for our professional talent is on the wane; in the supermarket of love, foreign guys are getting put on the discount rack. Yes, after years of reveling in sordid escapades - including but not limited to heated discussions about AP Style's capitalization rules - we now find that, as Shanghai Daily's headline bluntly puts it, “Foreign men [are] not so attractive.”

The story outlines the results of a survey by online matchmaking site Hongniang.com (see this story about China's online dating industry from our February issue), which showed that the economic crisis has drastically reduced levels of happiness of Chinese women married to foreign men.

Before the crisis, 6,594 women who were married to foreign husbands reported an average score of happiness worth 72. For women aged 25-30 the score was 76 and for women aged 31-40, 68.

After the crisis, the average score dropped to 54 for the 4,377 surveyed, with scores of 63 for the group aged 25-30 and 45 for the group aged 31-40.

Meanwhile, the number of women willing to marry a foreigner fell from 42.5% to 16.8%.

Survey: US gains favor as outsourcing location

ZDNet Asia reports:

Chief financial officers at technology companies are increasingly seeing the U.S. as their most favored outsourcing destination in 2009, according to a survey by consulting firm BDO Seidman.

Among key findings from the 2009 BDO Seidman Technology Outlook Survey:

• Manufacturing (54 percent) and IT services and programming (46 percent) were the two functions most commonly outsourced offshore;
• 62 percent of CFOs at tech companies say they outsource services or manufacturing;
• 22 percent say that the U.S. is the outsourcing destination most likely to be considered in 2009 followed by China at 16 percent and India at 13 percent;
• 19 percent of those surveyed have no interest in additional outsourcing.

FT: China calls for new reserve currency

The FT reports:

China's central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People's Bank of China’s website, Zhou Xiaochuan, the central bank's governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

China's Annual Congress: Press Replay

Peter Ford writes:

For an immediate, and hilarious, insight into just how wooden and unimaginative the Chinese Communist Party's propaganda apparatchiks are, take a look at this website.

Don't worry about the Chinese characters, just scroll down through the pictures. They show you the (nearly identical) front pages of the People's Daily, the ruling party’s official organ, on the opening days of the “National People's Congress” for the past six years, beginning with this year's session, which took place this month.

No wonder these pictures have been circulating on the Chinese blogosphere under the title, “How hard is it to be pictures editor at the People's Daily?”

What is astonishing is that China as a country is in constant motion: Everything about this place, from its economy to its social mores, is changing with extraordinary speed. Yet the men and women in charge of inspiring the masses seem to be stuck in a time warp somewhere circa 1955.

What Is Wrong With Shanghai?

Part One:

Despite its reputation as a global business center, Shanghai's entrepreneurs have a tough time. Yasheng Huang — MIT professor and author of "Capitalism with Chinese Characteristics" — explores the circumstances of a city where policies tend to discriminate against small firms.

Read more here.

Part Two:

Although Shanghai has a high capacity for invention, its nascent culture of entrepreneurship means that the city's patents have little effect on the city’s overall economy. In this Globalist Bookshelf selection from "Capitalism with Chinese Characteristics," Yasheng Huang explains why Shanghai exhibits the classic Soviet syndrome of being inventive but not innovative.

Read more here.

Who Is Afraid of Offshoring?

Many in the United States fear that offshoring research and development to countries like China and India may cause them to overtake the West in innovation. Columbia University's Amar Bhidé argues that those fears are mostly unfounded, because scientific knowledge can easily cross national borders — and bring value to the entire world.

Read more here.

China Seeks More Foreign Experts

Shanghai Daily reports:

UNDER a new program to hire 1,000 overseas specialists, the central government will offer each 1 million yuan (US$146,000) in subsidies.

If employed, they will also be able to enjoy medical care and pensions.

The spokesman of the Organizational Department of the Communist Party of China Central Committee made the announcement yesterday.

The official said an eligible candidate, regardless of his or her nationality, should be aged 55 or younger, should stay in China for six months or longer every year, have an academic title equivalent to professor, or currently work as a senior managing staff with a well-known international company or banking institution.

Candidates can also include those who have developed technologies or patents and those who have set up their own businesses abroad and are familiar with international rules in a certain industry.

Those who want to apply for the program should contact institutions involved in central government-funded innovation programs, laboratories, companies or state-owned banking institutions and high-tech parks.

The Changing Face of Chinese cities

James Fallows writes:

This is an incomplete, opening entry on a subject that's increasingly on my mind: who is responsible for the look and feel of today's enormous, expanding Chinese cities, and who is happy and unhappy about their emerging character.

Two reasons it's on my mind at the moment:
 - Spent several days again in Shanghai, my former home, after being away for eight months;
 - Recently went to the top of Beijing's first true skyscraper, the newly-opened Park Hyatt hotel, and saw the city from an entirely different perspective while on the building's 65th floor.

This is not a "which do you like better?" discussion, which I've learned to finesse in a way that is both politic and true. Having now spent an equal amount of time based in each city, my wife and I have learned to appreciate the virtues of both. Their virtues are different, as Chicago's are from LA's, but are both real. (In short: we've learned more from being in Beijing, and we enjoyed the texture of daily life more in Shanghai. We feel fortunate to have lived in each place.)

Rather the question is why the look and feel of Beijing seem so clearly the represent the direction Chinese cities are heading. To oversimplify what this means: although Shanghai probably contains more people than Beijing, it feels smaller. The roads are narrower, they're more likely to bend or twist, the city unfolds on a smaller scale of neighborhoods and courtyards and little houses. Beijing is bigger and squarer and broader and more grandly imposing. To illustrate: a photo of the intersection outside our building in Beijing, followed by a place we were walking ten days ago in Shanghai.

Capitalism finds voice in China TV

The IHT reports:

At just 31 years old, Rui Chenggang has emerged as the media face of Chinese capitalism: young, smart and, to the dismay of some, deeply nationalistic.

His nightly financial news program attracts 13 million viewers on China Central Television, the nation's biggest state-run network, where Mr. Rui puts tough questions to Wall Street chiefs and Chinese economists while also delivering a dose of optimism about China's outlook.

He also writes a popular blog (blog.sina.com.cn/ruichenggang) infused with patriotic rhetoric. And he recently published a book, "Life Begins at 30," in which he reflects on China's economic miracle and what he sees as the difficult path ahead.

In a foreword to the book, the president of Yale, Richard C. Levin, calls Mr. Rui "an energetic young standard bearer of the New China." Some critics are less generous, calling him a tireless self-promoter and a propaganda tool of the Communist Party.

But Mr. Rui (pronounced Ray), who drives a Jaguar to work and wears Zegna suits, says his goals reach beyond media stardom. He wants to use his celebrity to build bridges with the West and help change world opinion about China, which he says suffers because of biased foreign media coverage and the country's poor training in communication.

China lambasts US move to block Chinese poultry

Businessweek reports:

China is stepping up protests against a U.S. ban on Chinese poultry imports and warning it might retaliate -- one of several trade spats brewing in these hard times.

"It is needless to explain why such discriminative measures are forbidden by the WTO," Zhang Xiangchen, Beijing's deputy envoy to the World Trade Organization, told a meeting in Geneva on Thursday.

China and the U.S. banned each others' poultry in 2004 following an outbreak of bird flu. But China lifted the ban after a few months and complains that the U.S. side has not followed through on a pledge to open its market to Chinese poultry exports.

Since 2004, China has imported more than 4 million tons of U.S. poultry -- mostly feet and other parts of birds that are popular in China but not elsewhere.

Why Offshoring Makes Sense for America

Dinesh C. Sharma writes at YaleGlobal Online:

Yet another reason why companies outsource is to bring new products faster to markets. This happens in two ways. By outsourcing routine functions of their businesses to offshore locations, they have the room to deploy their workforce in core business areas such as getting new customers and developing new products. In some cases, they may outsource segments of the product development process also. Development of chips is a classic case of this phenomenon. In the past few years, the entire design chain of a semiconductor chip has been unbundled. This allows American chip makers and consumer electronics companies to farm out segments of chip design, fabrication and testing to different locations in the world, in order to slash development lead time and achieve faster time to market.

There are other reasons, too, why offshoring makes economic sense to America. For every dollar spent on outsourcing, the US economy receives $1.12 to $1.14 in return, according to estimates made by McKinsey a few years ago. Outsourcing results in far more indirect benefits than direct cost savings to corporations. As head of an Indian information technology firms had said famously that “we use American hardware, software and networking devices; young people who work in our companies buy all American labels – shoes, jeans, watches – see American movies, eat at McDonald, Pizza Hut and Papa John, drink Pepsi and Coke. All this leads to growth of American corporations and that country’s economy.”

The American public is not aware of this magnitude of the outsourcing business. The brouhaha over job loss is mainly due to highly visible operations such as overseas call centers, where US customers directly interface with foreign agents. And this is only a small part of the offshoring pie.

Bone analysis shows 20% of young Chinese athletes lied about age

USA Today reports:

 X-ray bone analysis of 15,000 young Chinese athletes shows about 20% have lied about their ages, provincial sports authorities say.

The analysis was conducted by sports officials in southern Guangdong province and reported on the website of the Southern Metropolis Daily.

The confirmation of age-faking again puts the pressure on Chinese sports officials. Several of China's gold-medal winning female gymnastics at last year's Olympics were widely suspected of being underage, although they were later cleared by officials of the sport's world governing body.

Fallows: Today's China and the Old Soviet Union

James Fallows writes in the Atlantic:

Observers outside China often compare its difficulties to Japan's a generation earlier. Few people inside China think the two economies have much in common—one is full of impoverished peasants, while the other has practically eliminated poverty; one is rushing toward industrialization while the other has been an industrial power for more than a century. But in recent months, I’ve heard countless Americans and a few Europeans ask, “Isn't this just like the ‘Japan scare’ of the 1980s?” The question is shorthand for saying: “Japan seemed unstoppable 20 years ago and has been a sick man ever since. Is ‘rising’ China perhaps due for a similar reassessment?”

From Chinese intellectuals and officials I've more often heard a cautionary comparison to the old Soviet Union, implying that political control and territorial dominion could be undone by economic failure. By this logic, the Chinese Communist Party has no choice but to keep the country's business growing as fast as possible, since a steady increase in material welfare is the real basis of the partys legitimacy. If the economy were ever to stagnate—which is generally understood to mean a growth rate that falls below about 8 percent per year—then a larger share of the Chinese public might register dis content with Communist rule. And then anything could happen.

More US firms in China hit the "Pause Button"

The WSJ reports:

Over a third of U.S. companies in China -- a percentage that has grown sharply in the past year -- say they expect their revenues to drop in 2009, according to a survey by the American Chamber of Commerce in China, reflecting the slowdown in the Chinese economy.

The annual survey to be released Tuesday shows that 35% of Amcham members expect revenue to decrease this year, up significantly from 13% who projected a decline last year.

In all, 39% of respondents are postponing or have canceled planned investments this year, while 21% expect to shrink their China work force. Amcham didn't survey members about their investment and hiring plans last year, so no comparative figures are available.

"A third of the members have hit the pause button," said Amcham Chairman John Watkins, who said that over half the respondents are still optimistic about China's long-term -- or five-year -- outlook. "China continues to be a place of investment, and we need to just get through this year," Mr. Watkins said.

No Revisions to China's Labor Law

China.org reports:

China will not revise the Labor Contract Law to compromise workers' rights as suggested by some people to help enterprises cope with the global financial turmoil, a legislator said Monday.

"The labor contract law has nothing to do with the financial crisis and won't be revised for it," said Xin Chunying, deputy director of the Legislative Affairs Commission of the Standing Committee of the National People's Congress (NPC), China's legislative body.

"China's labor relations are basically stable and orderly, and it can weather through the test of time," she told a press conference on the sidelines of NPC's annual session, when asked if the law will be changed because increased labor costs have led to rising cases of bankruptcy on the Pearl River Delta.

Citing a survey that tracts figures in the first nine months of the 2008, she said the law has indeed driven up enterprises' labor costs by two percent, but it has also greatly curbed labor relations issues that have been afflicting workers as well as employers for years.

Such chronical issues include the tendency of employers avoid signing long-term contracts with employees, the lack of proper protection of workers' rights, said Xin.

China IT Outsourcing - Source for Success

By Brian Schwarz

When Hayden Hong came to Shanghai in September 2005, he was impressed by the Jin Mao Tower in Pudong, then the tallest building on the Chinese mainland. For him, it represented China’s talent and potential. “I arrived at the Pudong Shangri-La Hotel and looked up at this humongous tower. I instantly decided that this city could compete in the world,” he explains.

Inspired, Hong, who had started a number of businesses in the US and who previously worked as a project manager and senior architect at GE, set out to create an IT outsourcing business in the city. Today, his firm, Long Circle, a US-registered company, provides Shanghai-based IT outsourcing services including GPS, mobile, VoIP, wireless, video surveillance, .NET and communication products to high-tech clients from around the world, including Motorola and China Telecom (中国电信).

The growth of firms such as Long Circle is indicative of the rapid emergence of the country as a leading IT outsourcing destination. While in the past many firms were reluctant to outsource operations to China, the country is now rapidly emerging as a serious challenger to global market leader India, while the growth of large Chinese corporations able to compete on a global scale has also opened up an increasingly lucrative domestic outsourcing market. The government has recently introduced a series of tax breaks and incentives aimed at accelerating the industry's development.

However, with the global economy in freefall, and with rising costs and currency appreciation making China less cost-competitive, the industry faces the challenge of repositioning itself if it is to continue its rapid growth.

Read more here.

Underage Chinese Gymnast story will not die

Shanghaiist says:

In a recent interview with a German gymnastics magazine called Leon, the President of the International Gymnastics Federation, a.k.a. FIG, Bruno Grandi criticized the female Chinese Olympic gymnasts as lacking aesthetic beauty and being underage. Grandi said, "The Chinese gymnasts were robots. From a geometrical point of view the moves were very well done, but compare with the way [Nastia] Liukin performs a single movement with artistry. You can see how she continues to move through to the end point. The other is a perfect geometric figure. But a Code [of Points] will never be able to completely reflect aesthetic moment." He went on to say that there was "strong circumstantial evidence" that some of the Chinese gymnasts were underage. Grandi is now serving his fourth four-year term as FIG President

Pettis: The Coming China Meltdown

Micheal Pettis writes at Newsweek:

Economic crises have a way of concentrating minds. In the midst of recession, the United States and China have an unprecedented opportunity to rebalance their economies, one that they must seize in order to mitigate further global economic fallout from the downturn. American policymakers—and, it seems, significant parts of the Chinese policymaking establishment—do not yet fully appreciate the impact of the global crisis on Chinese economic prospects.

Although official estimates put urban unemployment in China at just over 4 percent of the workforce, most unofficial estimates are much higher—closer to 8 percent—and nearly everyone agrees that the figure is set to rise significantly in the next few months. Some credible estimates suggest that even if China were able to achieve the 7.5 percent growth projected in 2009 by the World Bank, unemployment would nonetheless double before the end of the year.

Things will get worse. China has a huge overcapacity problem, with total production exceeding consumption by about 10 percent of GDP.

Labor-related lawsuits in China rise by 95%

The CER notes:

Labor-related lawsuits nearly doubled in China last year mainly due to mass factory shutdowns, the Wall Street Journal reported, citing comments from a senior official with the Supreme People's Court. The number of labor-related lawsuits rose 95% in 2008 and most were filed in the export hub of Guangdong. Approximately 62,400 businesses -- mostly small- and medium-size factories -- were shut down in the province last year and more closings are expected in the next few months. "When they face difficulties, these businesses often reduce their costs by cutting the labor force and salaries," said Shen Deyong, vice president of the Supreme People's Court. Shen also said the new labor contract law which took effect at the beginning of 2008 and the accompanying awareness campaign also contributed to the rise in cases.

Will New Laws Solve China's Food-Safety Problem?

Lawyer Steve Dickinson writes in the WSJ:

The world has discovered in the past two years, and Chinese consumers have known for much longer, that China has a food-safety problem. The case of tainted milk from the Shijiazhuang Sanlu Group, which killed at least six infants and sickened 300,000 more, is just the latest example. But after all this time, Beijing is no closer to a lasting solution. Witness the Food Safety Law approved by the Standing Committee of the National People's Congress on Saturday. It's a perfect example of how Beijing still is barking up the wrong regulatory tree.

The government seems to believe that the food-safety problem arises from inadequate central control and from a lack of clear standards and procedures.

Bosses in China Told to Not to Layoff Workers

The Shanghai Daily reports:

CHINA'S top political adviser Jia Qinglin yesterday urged the private sector not to lay off workers to help maintain social stability amid the global economic turmoil.

Jia, chairman of the 11th National Committee of the Chinese People's Political Consultative Conference, said this in a report delivered at the annual full session of the 11th CPPCC National Committee, which convened yesterday and will run through March 12 at the Great Hall of the People in downtown Beijing.

"National Committee members from the non-public sector of the economy should be encouraged to shoulder their share of social responsibilities," according to the Report on the Work of the Standing Committee of the CPPCC National Committee.

"Advisers should try their best to refrain from laying off any employees, cutting salaries or withholding wages, so as to create a harmonious labor relationship," said Jia.

China's ideal of building a "harmonious society" is facing a stern challenge this year, thanks to massive unemployment as a result of the financial crisis, a rising awareness of civil rights and the role of the Internet in helping people voice grievances.

China's Tourism Slowdown and Coupon Chaos

The Shanghai Daily reports:

POLICE had to be called after a rush to grab free tourism coupons for Hangzhou City, capital of Zhejiang Province, in Shanghai yesterday.

The books were being handed out at the Bank of Hangzhou's two branches in the city - in Huangpu and Yangpu districts.

Although the coupons were not to be distributed until 2pm, some people started to queue up outside the banks from early morning.

After distribution began, police had to be called to maintain order at the Huangpu branch on Jiujiang Road.

There was a similar problem last week when authorities in Changzhou City, Jiangsu Province, tried to distribute coupons worth a total of 1 million yuan (US$146,274) at the Grand Gateway in Xujiahui area.

Distribution was halted yesterday after the event descended into chaos.

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