Everybody seems suddenly to like China - Isn't it suspicious?
montblanc  Updated: 2004-01-30 15:53

Isn't it suspicious? Everybody seems to like China, or most of it, this days. The China beating has very much died down for the moment.

From the glorious Chinese spring festival in Paris, costing nearly a million Dollars, along the traveling path of Chinese President Hu Jintao, up to the mountain meeting of 2500 businessmen, politicians and academics in Davos, China and the Chinese were mostly lauded. Only some "defenders of human rights" made some noises or preached boycott.

At the World Economic Forum WEF in Davos was openly said that we live now a Economic World War, in which nearly all means are used, including flattery. This view was not really disputed, but kept silent as the event seeks to create optimism and a "positive" mood,

This brings up the question: "How much of all the actual China lauding is sincere and if not, what are the motives".

I was listening (over Internet video) to more than 35 hours of debate among businessmen, politicians and academics in Davos, being attentive, among others, to every word which was said or hinted about China and consequences which could touch China. I did this out of personal interest and also as a Service to this forum in which I participate since some months.

For other purposes, I claim a strict copyright under my real name: Erich REYHL

...and now to my report:

Already the setup of the 34th WEF meeting ( I participated physically in the first 25 years) was revealing the spirit:

This years WEF meeting drew most speakers out of the countries of the "coalition of the willing" which invaded Iraq. Examples were, US Vice President Cheney, US Attorney General Ashcroft, US Trade Secretary Evans, British Foreign Minister Straw, the president of Poland, high ranking Italians etc.

Germany and France were rather absent. Mainland China also. Russia played very low key.

Another interesting cluster of attendants were the high ranking political representatives from Turkey, Iran, Georgia, Pakistan. This is significant in the context of the penetration of Central Asia.

Another surprise to many at the Davos Meeting was the generally cheering friendliness with China from the Iraq coalition. For my taste it was too much friendliness to be sincere. But it appeared that nobody in the above group wants to say (for the moment) something which could alienate the good graces of the Chinese Government or the Chinese people.

This brought me to the following conclusions, which show that China has temporarily at least, a very strong non military position toward the United States and others:

1. Profits. China is the second most profitable market in the world, directly behind the US, with an average profit of 14 percent. This profit vary very much from east to west in China.
2. Growth. The industrialized nations need China badly as continued growth engine and growth showpiece. There was not much doubt that China can keep up the high yearly growth rate of nearly 10 percent at least in 2004. An earlier then expected realignment of the Dollar/RMB rate could alter this forecasts, but probably not lower than 2 percent points. The main reasons for the positive assessment are: First a "big Jump" of investments into China from foreign businessmen after they have completed now a trial period in the past and: Second an untapped potential buying power of Chinese. China seemed to many "a big ocean of idle money", pointing to the high savings by Chinese of nearly 100 percent of the national product. It was suggested that the Chinese should be animated to spend more money on consumption instead of putting it into banks, which were considered as "mostly insane" because of alleged 40 percent "non-performing" lending (paying no interest or not being paid back).
3. Foreign trade. China has its advantages and disadvantages. The advantages are, that China is not very vulnerable to foreign trade pressures of different kind. Only 8 per cent of Chinas income is derived from foreign trade and 92 percent produced inside its borders. Foreign businessmen see in this figures an very high potential to expand their exports to China. On the other hand, imports from China play a considerable role in flattening the changes of competitiveness between the Dollar and Euro Areas, The former competitiveness between the big trade areas Japan, Europe and USA is badly shaken out of the former equilibrium because of the Dollar devaluation to the Euro. To keep imported inflation down, stemming form the devalued Dollar, the Dollar Area needs cheap goods from China. On the other side, the Euro Area needs to mix into its exports cheap parts from China and partial outsourcing of its production to China to compensate for its partially loss of competition, due to the Euro revaluation.
4. Foreign Exchange. Businessmen in Davos think that the actual exchange rate of the RMB to the Dollar will not last for ever and could be lifted within this year. There was talk about an "window of opportunity" of only nine months to invest in China with the actual exchange rate. Later it could be more expensive in Dollars to invest. Actually US businessmen in China are not making a big effort to expatriate their gains in Dollars. They park their dues in RBM inside China, for later investment or awaiting a Dollar gain after revaluation of the Yuan. It is expected that China will buy some more US state bonds to cover the big and increasing state deficits in the USA.
5. Competitiveness of China. China should not only be seen as a low wage country. Low wages are disappearing along the eastern coast of China and must be found in the western part of country. Other costs than wages are playing an increasing role in the evaluation of Chinas competitiveness. The Chinese productivity was considered "generally low". A CEO said, that a car can still be produced cheaper in Japan despite the fact that a Japanese worker earns 20 times more than the worker in a Chinese car factory. The attention should much more be put on the question if China can become a "low cost" country instead a "low wage" country.
6. The Americanization of China. "Big progress" was signaled in Davos, especially through the large adoption of the English language by the Chinese. US Trade Secretary Evans said that when he had a talk to some 400 students in China no one required translation. Some 60,000 Chinese are studying in the US and Evans think that a big number of them will bolster the life in China and the relation between China and the English speaking world. A Swiss banker even stated, that there are more English speaking people in China than in North America. This views clashes very much with what is said on this CD Forums.
7. Geopolitics. The attention to the Taiwan and North Korea issues was very low in Davos. Few seem to expect an early clash. But the expansion of the Chinese economic boom in its "East" towards its western part, got quite some attention. One considered that China needs to favor and push, probably with the help of "Western" businessmen, the economic development in its "West", if only to stop the internal migration. The more so when the Chinese growth should reverse or slow, which was considered as "not to exclude, as any upturn ends in a downturn". Some even made a parallel with the American drive to the American west. The link was also made between the development of the Chinese West and the race to open up the economical "non-performing" Central Asia. It is permitted to conclude from what was said in Davos, that the race to Central Asia is opened from both sides, This sheds another light to the Iraq conflict.

Good lecture

I did my best to concentrate 35 hours of discussion to a quarter an hour reading - which is a concentration of 1:140.

The above content represents the view of the author only.

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