China Law Blog

There has been an implicit contract between the US and Chinese on the government level and corporate levels over the past 20 years: The Chinese will be brought into the WTO world order through exports, and helping to keep US inflation down, while US corporations will be encouraged to go to China as a manufacturing destination to keep production costs down.

Without Chinese-manufactured products, inflation would be much higher; now it is almost non-existent. Looking at leading economic indicators such as labor shortage in factories in Guangdong, it already looks like there will be a major pickup in inflation next year, even without the fear of Chinese-made goods.

Now, all of a sudden, the US mainstream media finds that there are quality issues in goods imported from China.

Now, let me see, do I catch the whiff of US domestic politics here? You bet! I wonder if this has anything to do with setting the agenda for the US 2008 presidential elections? Or is Hank Paulson using this to push for negotiating leverage with Wu Yi after the recent unsuccessful Washington talks in the "strategic dialogue"?

Duh... Most likely, it's all of the above.

The US mainstream media needs a new whipping boy for America's problems; China fits the bill.

For Hu Jintao's administration, the recent problems give him a chance to shake up local party and municipal/village governments, and put in his own teams of reform-minded officials.

So everybody benefits, as long as the hostility does not get out of hand. Of course, managing the confrontation is the great challenge; it could easily get out of hand.

Paul Denlinger --

Well I certainly agree with you that these problems have been there all along and you are probably right as to why the US media has just grabbed onto it with such force, but I am not sure about your assessment on the China side. I don't see how improving quality of China products is a way for Hu Jintao to rid himself of local party officials. Please explain.

Hu wants to introduce a new, cleaner generation of Communist party officials, most of whom come from the party youth organization, where Hu has his roots and built up his base.

In order to remove the old, corrupt officials, most of whom were appointed by Deng Xiaoping and Jiang Zemin, he has to use criticism and public opinion, both foreign and domestic, to build up a groundswell so that Hu can introduce his appointees to clean up the party and put his policies in place. Among some of the policies which Hu wants to emphasize are cleaner growth, and reducing the gap between the rich and the poor. Hu discussed these policy initiatives in a speech he gave on June 25.

Centralized quality assurance will lead to more centralize control over things like pollution and raw material sourcing. Perhaps the same local officials would stay, but they could be stripped of their discretionary power on such matters. Or maybe force local officials to do their job and shut down criminal manufacturers.

Governmental actions on this front are far more significant for the Chinese domestic market than the export market. I agree that any import/exporter or manufacturer who got defective products have only themselves to blame. They should have inspected the manufacturing facilities and got their products tested. However, Chinese consumers have been victims of waves of bad food/fake drug for years and they deserve better from their government.

Dan:

Expect Larry Kudlow to bash you for heresy against US corporations.

Paul:

This has as much to do with holding down US inflation as MNCs being able to utilize near slave labor (both white and blue collared) for maximum profit and finally, after 150 years, be able to realize the huge potential of the vast Chinese market (which they won't be able to do as long as the vast majority of chinese are earning those puny wages and are worked into the ground).

"For Hu Jintao's administration, the recent problems give him a chance to shake up local party and municipal/village governments, and put in his own teams of reform-minded officials."

Hu (and his predecessors) install loyal cadres under the banner of "reform minded" cadres.

Dan:

Only my opinion, but I know that many foreign firms still fail to conduct the due diligence required of them by their own fiduciary obligations. But when there is a lack of transparency, as when local firms deliver what they want, and aren't accountable at producer- or supplier-end, foreign importers are still justified in crying foul. This is no comfort, of course, to anyone, consumer or importer -- but well, the woods are full of suckers.

(Maybe "Never pay up-front" is good advice. At least until MAYBE IN CHINA becomes MADE IN CHINA once again.)

I trust that your appearance on that show was less filled with "frenzied moments" than with intelligent questions and rejoinders!

Cheers

Paul,

There's more than enough opportunity for Hu to find an excuse domestically without having to rely on foreign trade issues. Not to mention the fact that by reducing the number of local officials (particularly limiting the number of local party deputy secretary positions) in the national reshuffle before the CCP congress there's huge room to chuck out the old and bring in the new anyway.

Besides, can't imagine that he's that worried about the grunts anyway. And when it comes to the senior officials who he might actually want to do something with because of their Jiang links, time and time again even when he's had an excuse nothing's happened. Take Zhang Dejiang in Guangdong. Likely to go this year, but by god he's managed to sail through some pretty rough waters in the past (SARS, peasant uprisings etc etc). Took a real effort to get rid of Chen in Shanghai and he practically stood up and said "You're wrong and I'm going to ignore you" in cabinet meetings - an unheard of level of arrogance. Getting rid of these people is a monumental task, and not something likely to be affected by trade issues.

Now you just need to get into your updated look, take a picture, and post it on this blog.

Environmental destruction
Rampant social unrest
Gov't inability to provide clean water or food for its population.
Totally worthless health care system.
Gov't needs to rely on an internet barrier and a huge police force to mantain order.

Is China approaching failed state status?

nanheyangrouchuan:

China WAS a failed state for a long time. It has been a failed state since late Qing. It didn't start recovering until the 80s. The worst fate awaiting China is merely a return to the start but now a failed China will impact the world in a scale unseen before in history.

Many people in the world do not want to see China fail. Not because they love China, but the stake on China is too high. Whether or not the leadership in China can leverage on this unprecedented advantage remained to be seen.

As for the common people of China, I think they will survive. They have survived through much harsher challenge and a failed state or two isn't going to crush them.

The failure of China will take a huge burden off of Asia as well as cool down more than a few border and water disputes. China's nukes can be secured by a combined Indian/Russian/US expedition.

I believe that China's breakup can be effectively managed, starting with the liberation of S. Mongolia, E. Turkestan and Tibet.

The biggest loss will be for the multitude of MNCs, but that is the price of making bad business decisions.

We should not prop up such a horrible government for short term economic gain

I was watching "morning call" and didn't see our hero, what happened?

The sky is falling!!! The sky is falling!!!

Let's have a sense of proportion here.

China isn't anywhere near a failed state. A real failed state is too dangerous for people to go there to tell you how bad it is.

Just a note about how Chinese bureaucratic promotions work. It's very hard to fire a bureaucrat in any system, however is it much easier to "not promote" one. Add in mandatory retirement ages, and you have an "up or out" system that tends to get rid of dead wood.

Also, I doubt Hu has much control over who gets appointed at local levels or if what happens at local levels matches any of the factional issues at higher levels. It's also a mistake to identify one leader or faction with "good reform" and the other with "evil regressivism" things are much more complex than that.

The Party right now is basically a coalition between two factions (one coming out of the Communist Youth League and the interior provinces and the other coming out of the coastal provinces), and for the first time in the history of the People's Republic neither has the will or the ability to play "winner take all" and political positions are a carefully negotiated balance between these two groups.

Environmental destruction
Rampant social unrest
Gov't inability to provide clean water or food for its population.
Totally worthless health care system.
Gov't needs to rely on an internet barrier and a huge police force to mantain order.

with the exception of the 'internet barrier' all of this could apply to the US, in my opinion. Bit of a stretch, but the evidence is clear. Just think about hurricane katrina.

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Your comment shows you know nothing about nor have ever stepped foot in China.

In life you sometimes ultimately have to decide whose side you are on. Nan's comments explain a lot about why I'm on the side of the multi-national corporations, since I think he is seriously out of touch with reality as far as how bad China and the Chinese government is.

Imagine Iraq multiplied by a thousand. My parents lived through that, and one of my goals is not to have anything like that happen in my life.

So I'm on the side of the multinationals.

Twofish:

It is good that you admit that MNCs are propping up the PRC, just like oil and mining companies prop up dictators and warlords. So the whole premise of China as a united, stable nation is false. And don't think that MNCs are there to actually help China, they are there to milk the labor pool, working those kids into the ground with minimal benefits and pay.

NnahaY

Your comments (and the volume of them) demonstrate that you spend most of your life looking at the internet, not engaging with the real world.

China has a huge amount of problems, but I actually feel far safer there than in many parts of the US. And, both countries are a great deal more secure than genuine 'failed states', like zimbabwe, post 'liberation' Iraq or afghanistan.

Comments like this make you look like an uninformed fool. You could clearly do a lot better, in my opinion.

Chris D-E: The gnomes of BJ at work?

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"China has a huge amount of problems, but I actually feel far safer there than in many parts of the US."

Alot of expats say that, until they get accosted for their money. If you are walking down the street with a local girl, ask her about the things people are saying. Being "outside of society" doesn't mean you are not physically present in it.

Tap water in the US is drinkable in nearly 100% of locales up to the point where it enters the residence.

LA consistently the worst air in N. America yet look at the World Bank's, Asia Development Bank's or UN's stats on air quality of various cities and compare. You have to go to Taiyuan to get air that is as clean as LA's (and that is without dust storms).

How many riots in the US this year? Last year including Katrina? How many in China?

Hospital bills are high here but people aren't being given fake medicine, diseased blood or being shaken down for more money while their family member is on the operating table.

No great firewall in the US, I can pull up lots of websites calling Cheney, Bush and Rove every name in the book.

As for my internet time. I do my china bashing on the clock and my experiences in China go far beyond 5 star restaurants, hotel lounges and expat bars.

Institutions are made of people, and people determine how the institutions work. I work in a MNC, and everyday I do my small part to strengthen a system which Nan seems to think is evil. If his view of the world is right, then I am evil for doing my small part to strengthen an evil system.

But I don't think I'm doing evil. The reason I work for the MNC that I'm working for is that I happen to think that this is the best way to help the world.

One day when I am old and grey, I'll write an autobiography, and part of it will be a description of how I started out committed to the student democracy movement in 1989 and ended up being an apologist and sympathizer for multi-national corporations and the Chinese Communist Party.

It all depends on the people you see on each side. The people I work with are smart, decent, ethical people, who want to work hard to make an honest dollar. The overriding philosophy of the place that I work at is that you become rich by making other people rich. If you want to make money, you need to sell, and to sell have to understand people. You need to understand people's languages, their hopes, their fears, their desires, and in understanding people, you develop sympathy for them.

And on the other side I see people like Nan, who are so convinced of their own moral self-righteousness and goodness that they seem incapable of questioning themselves and thinking about the possible damage their policies could cause. They can do no evil, so they think. That's what makes them so dangerous....

So that's why I made the decisions I've made.....

nanheyangrouchuan:

I happened to come across a few blogs on China and am surprised to find out that there are so many comments from you on whatsoever related to China. I am not condoning the bad things China does. But I have to admit your comments are way more bashing than anything close to factual. I googled ¡°nanheyangrouchuan¡± and find why you hate China so much.

From your comments on Business Week, you are a descendent of Indian Dalit father and Uyghur mother. Your father get captured by PLA during 62 Indo-China border war and physically abused. Your maternal side also suffered persecution and be labeled as Islamic terrorist by China. My heart goes out to you! However, I do hope you base your comment more on facts than on some out of context incidents. Your hatred made your otherwise good comments like bigotry.

"I work in a MNC, and everyday I do my small part to strengthen a system which Nan seems to think is evil. If his view of the world is right, then I am evil for doing my small part to strengthen an evil system."

twofish:

I appreciate your opinions, but as far as MNCs' contributions to mankind goes, economic and technological development are the positives. But the negatives are much more well documented and go back to the Dutch and later the English East Indian Tea Company through US banana republics.
The list of crimes committed by MNCs in the name of profit are too long to list. I'm not anti-capitalist as some would suggest, but then again MNCs have nothing to do with capitalism.

Or grandparents. Anyways, you don't like certain truths about China so you bring out the "racist" label. But thanks for the concern.

Somebody op-edited my last comment as "tom smith".

Better or worse as compared to what?

Also the list of crimes committed by people are too long to list, does this make it wrong to be a person?

The focus on money and profits is one thing I like about MNC's. My employer cares about how much money I can make for them (and I can make a huge amount of money for them, and I don't ask for all that much in return). They don't care what I look like, what language I speak, or who I sleep with. One of the nice thing about multi-national corporations is that they are multi-national, in the office you have people from all over the world, all trying to help each other make more money. Being somewhat of a "half-breed" tends to produce suspicion from national governments. Being a half-breed makes me more attractive to an MNC.

And being committed to profit encourages an intellectual curiosity and self-examination that I find refreshing. Does X make us money? Is this the best way of making money? What are the tradeoffs in making money this way? OHMAGOD, doing Y will KILL us!!!!! This self-examination/self-criticism is something that I haven't found that much in academia.

Finally, the fact that in the end, all we are doing is trying to get rich prevents a lot of the self-righteous/self-absorption that I have found in academic circles. Most academics think that they are smarter and morally superior to other people. Most businessmen, don't.

So do you have anything better to offer? Do you really have any alternative ideas on how I can make the world better? If not, you'll find that talent moving toward both MNC's and the CCP (I'm hardly the only one who made the decisions I made) that will cause the system to stay in place rather than change.

What's wrong with that?

"The focus on money and profits is one thing I like about MNC's."

Do you like cheap toxins in your food and defective products? Those practices increase profits as quality products and quality practices increase prices.

Real pollution control? Too costly. Good labor relations? Hire thugs to beat them into accepting low wages and long hours.

That is the way of the MNC.

The CCP makes the world better? Which world do you live in? China today is a barely habitable junkyard of undrinkable water and unbreathable air. And the MNCs come to China to avoid those bothersome pests in the EU, Japanese and US regulatory agencies.

Are you Math on Peking Duck?

Quality increases costs, but it also increases the price that you can charge to the consumer. Most people are willing to pay more for good food and quality products. There is a role for government to make sure that things are properly labelled and that people can have the information to make rational decisions about what they are buying.

Also, I have to ultimate believe what is in front of my eyes rather than what you tell me. The people I work with just don't do the stuff you think MNC's do, and I wouldn't work with them if I thought that they did. I've got skills. I've got choices. I can walk.

As far as making the world better, again I have to trust my own eyes. Take a look at Baghdad where people are afraid to walk on the streets for fear of getting kidnapped or bombed. This was the China of my parents. China has huge problems today, no doubt about it, but air pollution or internet censorship is a small problem compared to warlord (or even worse Japanese) armies roaming the streets shooting people at random or people starving to death and no one really caring.

As far as companies coming to the China to escape regulation.
One of the interesting things in the field that I work in is that the companies are moving in the other direction. No one trusts the Chinese regulators, so Chinese companies are coming to the United States, the EU, and HK to get stamps of approval. In the field I'm working in, Chinese regulators are coming to the United States to learn how the US does things so that they can copy those structures in China.

No I'm not "Math", but I while respect what you believe, I have to act on what I see. China has problems. Huge problems. But what I hear from the CCP and the MNC about how to fix them, makes a thousand times more sense to me than anything that I've heard from you or people who seem have similar ideas as you.

Sorry. That's the way it is.

"But what I hear from the CCP and the MNC about how to fix them, makes a thousand times more sense to me than anything that I've heard from you or people who seem have similar ideas as you."

You would be a poster boy for a true Republican in this country.

This is exactly the thing that left me disenchanted with the Chinese democracy movement.

I tell you that your ideas don't make any sense. What I'd like is some sort of polite dialogue in which you at least try to understand my viewpoint and explain why you disagree with it.

Instead, your response is "you are an X." The reason I start out by saying that I'm an apologist and sympathizer with MNC's and the CCP is so that we can get out of the name calling phase and get to some real dialogue.

One of the factors that left me disenchanted with the student democracy movement was how completely intolerant of dissent and disagreement they were. There really was no room for a loyal opposition. If you disagreed in the slightly way over means and goals, you ended up a traitor to the cause. Finally, I figured that there wasn't any real point to advancing their cause.

In the case of the CCP and MNC's you start out with a common goal, which may be to make China rich and powerful or to make a company rich and powerful. Once you accept that goal, then people will listen to you if you bring up ideas about how to reach that goal. They will listen because they know the consequences of not listening.

A lot of this reflects the basic question of what is democracy. For me democracy is not having some huge revolution that overthrows evil people with good people, but rather the belief that human beings are basically fallible and that rational debate between people with different views ultimately produces better policy.

(And by the way, I think that Bush has really messed up the US, and I'm hoping that one of the candidates will step up to the plate and argue for universal healthcare and a lot more funding for education. Health care costs are killing some industries in the United States (GM for example), and moving that role to taxpayer subsidized universal care makes a lot of sense to me.)

The Chinese democracy movement in TAM square left out the CCP's viewpoint probably because all of those people have had the CCP's viewpoint smothering them all of their lives, so if people standing up to hear their voice heard leaves a bad taste in your mouth, it is you that has the problem. The students wanted dialogue, they didn't attack the army, they didn't attack government buildings or factories, they staged a massive sit-in.

"What I'd like is some sort of polite dialogue in which you at least try to understand my viewpoint and explain why you disagree with it."

I hear your viewpoint from people far more knowledgeable about capitalism and corporations everyday. You are saluting oppression and power. Western countries have already been through the whole "robber baron" and "corporate royalty" thing starting with the power of the Dutch and British East India Tea Companies on up to the US overthrowing a Chilean democracy for US mining companies.

If you knew the history of labor relations in the US and western Europe and the near-civil wars that were occurring (at least in the US) you would know why corporations come to China.
In the US, I don't fear the water coming out of my tap or shower, in China I made it a point to clamp my mouth shut in the shower. I also don't have to fear ex-felons visiting me in my cubicle to make sure I didn't have any problems with my working conditions (a favorite Henry Ford tactic).

The populations of nearly all the western countries were poor before democracy, even if the royalty and military were rich.

The rest of your post is typical pro-CCP circular logic.

What I found in the early 1990's were people who ended up so morally sure of themselves, that they assumed that anyone who disagreed with them was either stupid or evil.

This is dangerous for democracy because there really is no point in having such an inefficient system if people don't have legitimate and valid disputes over the way that the world works, and I've found that both multi-national corporations and the Communist Party are much more tolerant of "loyal opposition" than the people I worked with in the early-1990's.

As far as oppression, one of the things that I've learned is that "having a good heart" doesn't prevent you from being oppressive. The Communists were wonderful people in 1949, far better than the people they kicked out, but power corrupts. People without power do fewer nasty things because they don't have the power to do them, but the question you have to ask when you support a change in power is whether or not the new guys are going to be better or worse than the old guys once they get corrupted, and my conclusion was that the people running the Chinese democracy movement would have ended up being far worse than the CCP once in power.

What keeps the CCP or a MNC from getting too oppressive is the knowledge that that annoying gadfly that they want to shut up might be useful to help them stay in power and make money. People in ideological movements don't have that limitation and so the pattern is that they get in power and then go crazy.

As far as why corporations are going to China, I ask my co-workers and I ask myself since I'm part of the system. It doesn't make any sense to me when you say the motive for going to do business in China is X, when I know that my motives are Y.

The pattern in every Western country with the possible exception of the United States is that people got rich, then they democratized.

"The Communists were wonderful people in 1949, far better than the people they kicked out,"

Would that be the same CCP that ran like bandits around the countryside in the 1920s and early 30s?

"What keeps the CCP or a MNC from getting too oppressive is the knowledge that that annoying gadfly that they want to shut up might be useful to help them stay in power and make money."

The CCP seems to execute alot of annoying gadflies or keep them under life-long house arrest. MNCs just fire them.

". People in ideological movements don't have that limitation and so the pattern is that they get in power and then go crazy."

Mao's rise to power was an ideological movement from the 1920s to the his death. Same with the PRC's pet (the Kim family in NK). So I guess you are right.

"It doesn't make any sense to me when you say the motive for going to do business in China is X, when I know that my motives are Y."

China's economy is export based. MNCs come to China to make stuff at very low cost (including low pay and bad environmental behavior) to sell abroad at higher cost. Sure, there are more chinese consumers, but they are extremely price conscious so profit margins within China are usually very thin.