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The Times and China: Pot, Meet Kettle

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The Times has the latest in a string of articles accusing China of “using global trade rules to its advantage” today. With their angry, disapproving tone and several vague references to trade imbalances, one gets the distinct impression that America (and the Times by extension) has a hard time swallowing its own medicine.

Just look at what China is being accused of:

China buys dollars and other foreign currencies — worth several hundred billion dollars a year — by selling more of its own currency, which then depresses its value. That intervention helped Chinese exports to surge 46 percent in February compared with a year earlier.

And:

Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions.

Horrific! Tell me, when was the last time China invaded a country for not selling its main resource in its own currency?

As for the Times’ description of the I.M.F – well, it must be read to be believed:

The International Monetary Fund acts as a kind of watchdog for global economic policy but has no power over countries like China that do not borrow money from it.

Astonishing. The IMF’s true role is that of an economic enforcer on behalf of the United States. It compels “poor” countries to take IMF loans, and when they can’t pay them back, forces the debtors to enact “structural” changes to their economy, changes usually geared towards a neo-liberal agenda. This has happened in Russia, Poland, Argentina, Chile, South Africa, Pakistan, Eastern Europe, and a raft of other countries. The IMF is not so much a “watchdog” as a “police dog”, on behalf of the United States and its “Washington Consensus” economic policies.

Then they accuse China’s “beggar-thy-neighbor” policies as being of the same sort that caused the Great Depression:

Two closely related scourges played a central role in the collapse of world trade in the 1930s: protectionism and beggar-thy-neighbor currency devaluations. World leaders set up two institutions after World War II, now known as the W.T.O. and the I.M.F., to reduce the risk of another Great Depression.

But they neglect to mention the role of US banks and the Smoot-Hawley Tariff, which the US congress enacted in 1930 and began the worldwide trend of “protectionism” during the Great Depression. I mean, this is high school level history here.

Now, there can be no doubt by this point that China is, indeed, keeping its currency devalued in order to boost its export sector. This is common knowledge. But for the Times to blame this whole situation on China belies a real bias on their part.

Remember, it would be impossible for China to keep its currency artificially devalued if the US had not run historic deficits in pursuit of tax cuts and murder in the Middle East. A very weak showing from our “newspaper of record”.

Written by pavanvan

March 15, 2010 at 3:51 pm

The Problem With ‘Green Jobs’

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Bloomberg makes a lot of sense on Obama’s “green jobs” initiative. The problem? Most of those jobs are going to Asia.

Obama is giving billions of dollars in tax breaks to the wind and solar industries to create jobs in the U.S. even as production expands faster overseas. First Solar Inc., the world’s largest maker of thin-film solar-power modules, won $16.3 million to add 200 manufacturing jobs at its Ohio plant, yet 71 percent of its planned factory growth will go to Malaysia. The company employs 4,500 globally.

“The cost of manufacturing here is too expensive compared to Asia,” said Guy Chaffin, chief executive officer of Elite Search International, a Roseville, California-based executive search firm that has found employees for Tempe, Arizona-based First Solar and Solar Millennium AG. “As far as a flood of good jobs coming to the U.S., we’re not seeing it.”

Written by pavanvan

February 12, 2010 at 4:42 pm

China Ready to Dump US Securities

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(c/o ZeroHedge)

This is serious. The Asia Times reports today that China is ready to start selling off its US Treasury Notes, ostensibly as a “punishment” for the recent US sales of arms to Taiwan. I and others previously warned about what would happen if China decided to let go of its dollar holdings – the gist is that China is the only thing standing between the US and catastrophic inflation. Previously these fears were pooh-poohed by establishment figures with the familiar arguments: “China needs us more than we need them”, “Who will China sell its surpluses to?” I even heard someone say, “Without us, the Chinese will be cavemen”. Well, it looks like China might have found itself a new trading partner, if this Asia Times article is any indication:

Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.

It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.

Where do you think we’re getting the money to prosecute these $5,000 per second conflicts in the Middle East? Where did the money for our $2,500,000,000,000 (and counting) bank bailouts come from? China. They make our money real. Without their manufacturing powerhouse backing us up, our dollars are worthless. What, you think the world is going to value our “service economy” at $13,000,000,000,000 per annum if that money weren’t backed by Chinese promises? Not likely. And now those promises are now increasingly under threat.

Be afraid.

Written by pavanvan

February 12, 2010 at 3:25 pm

Chinese Whistleblower Sentenced to Forced-Labor

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From the inimitable Epoch Times:

Sun Xiaodi, an environmental activist who exposed radioactive contamination of the Yangtze River, was sentenced to a forced labor camp along with his daughter. Groups supporting human rights in China are protesting the sentences.

Sun had worked as a warehouse manager at the No. 792 Uranium Mine in Gansu Province. When he became aware that the mine was discharging radioactive material directly into the Yangtze River, he spent more that a decade trying to expose the problem, according to Civil Rights and Livelihood Watch (CRLW) in China.

Sun was able to meet with foreign journalists in June 2004 to describe the environmental degradation that was occurring and provide them with relevant materials and photos of the mine. He has been under constant surveillance for his activities over the years and has been detained several times.

I suppose I need not mention that none of the American mainstream presses bothered to carry this story. Over the past few years, American newspaper readers have seen far less criticism of China’s internally repressive policies. Two years ago we had the Lead Paint Scandal and a year ago the Tainted Milk Scandal, but these were business scandals, not political. Likewise, the Tibet issue, which the American press often denounces, is a case of external repression, not internal. About the long-suffering Falun Gong or the various political pogroms which occur in China on a terrifying scale, the West hears very little. But then one can see why – as our largest creditors, we can scarce afford to rouse the money-dragon.

Written by pavanvan

January 31, 2010 at 2:13 pm

The Chinese Mystique

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Perry Anderson has an excellent round-up of some recent books on the rise of China in this fortnight’s London Review of Books.

An excerpt:

These days Orientalism has a bad name. Edward Said depicted it as a deadly mixture of fantasy and hostility brewed in the West about societies and cultures of the East. He based his portrait on Anglo-French writing about the Near East, where Islam and Christendom battled with each other for centuries before the region fell to Western imperialism in modern times. But the Far East was always another matter. Too far away to be a military or religious threat to Europe, it generated tales not of fear or loathing, but wonder. Marco Polo’s reports of China, now judged mostly hearsay, fixed fabulous images that lasted down to Columbus setting sail for the marvels of Cathay. But when real information about the country arrived in the 17th and 18th centuries, European attitudes towards China tended to remain an awed admiration, rather than fear or condescension. From Bayle and Leibniz to Voltaire and Quesnay, philosophers hailed it as an empire more civilised than Europe itself: not only richer and more populous, but more tolerant and peaceful, a land where there were no priests to practise persecution and offices of the state were filled according to merit, not birth. Even those sceptical of the more extravagant claims for the Middle Kingdom – Montesquieu or Adam Smith – remained puzzled and impressed by its wealth and order.

A drastic change of opinion came in the 19th century, when Western predators became increasingly aware of the relative military weakness and economic backwardness of the Qing empire. China was certainly teeming, but it was also primitive, cruel and superstitious. Respect gave way to contempt, mingled with racist alarm – Sinomania capsizing into Sinophobia. By the early 20th century, after eight foreign forces had stormed their way to Pekin to crush the Boxer Uprising, the ‘yellow peril’ was being widely bandied about among press and politicians, as writers like Jack London or J.H. Hobson conjured up a future Chinese takeover of the world. Within another few decades, the pendulum swung back, as Pearl Buck and Madame Chiang won popular sympathy for China’s gallant struggle against Japan. After 1948, in a further rapid reversal, Red China became the focus of still greater fear and anxiety, a totalitarian nightmare more sinister even than Russia. Today, the high-speed growth of the People’s Republic is transforming Western attitudes once again, attracting excitement and enthusiasm in business and media alike, with a wave of fashion and fascination recalling the chinoiserie of rococo Europe. Sinophobia has by no means disappeared. But another round of Sinomania is in the making.

The review is nuanced, scholarly, and even-handed. Definitely worth a read.

India: A View From the Top

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A very wealthy friend of mine in India sat to discuss the various maladies that plague this dark and beguiling continent:

“Thank you for taking the time to speak with me. What do you make of all this Telangana business? People are really getting agitated about it. On the way here I saw an open-top truck full of activists – there was one policeman and and about twenty people shouting “Jai! Telangana!” at the top of their lungs. I guess they were being taken in or whatever, but the truck stopped at a light and they all climbed over the sides and started laying down in the road! They were shouting “Jai! Telangana! and waving flags the entire time. One SUV screeched to a halt just before hitting one of them.”

- “It’s a problem. But what you have to realize is that this has been boiling up for more than 60 years. I definitely think the central government botched this issue – in fact I can’t see how they could have done a worse job of it. All these contradictory pronouncements, the half-decisions and endless recanting – it’s making these agitations much worse. It’s clear nobody knows what they’re doing. But with that said, you really have to go back in history to understand why these people feel so strongly about this.

Why do you think Andhra Pradesh is even a a state to begin with? Nehru – the first prime minister – he wanted “linguistic” states; every language its own state. This was one of those rare instances where the wants of the population and the politician’s schemes line up perfectly. Before 1956 India was organized much as it had been under the British. But people were angry – a lot of language groups were split up – and the borders themselves were a colonial legacy. At the same time, the politicians saw the value of the idea – Hindi is by far the most prevalent language in India. If you could get all the Hindi-speakers under one political structure, the vote bank would basically decide elections. And so it has, since then. The north is mostly Hindi-speaking; you have Uttar Pradesh, Madhya Pradesh, Bihar – these are some of the largest states. With the way things are organized, the North can overrule the South. I believe you had a similar situation in America.

And you have to ask: were the borders drawn correctly? Did they do a good job? It is very ironic that Andhra Pradesh – the state from which Telangana wishes to secede – was itself the product of a bitter secession movement. Before 1956, this whole area belonged to what was then a Tamil-speaking state. Even now many Telegu villages exist in Tamil Nadu, and all over India there are villages in a similar situation. Remember, this country has 18 distinct “languages” and hundreds upon hundreds of dialects.

So when Andhra Pradesh got its independence from the Madras state, it took the Telangana region, which used to be the Hyderabad state, along with it. They spoke the same language, after all! But no one really asked Telangana if it wanted to come. Later its only rivers were dammed up to provide electricity to the coastal region, diverting them from the Telangana farmlands. That’s a major reason why they’re upset now.

We need to ask ourselves: ‘How do we want our country to be organized?’ ‘Was it even a good idea to have linguistic states’? In my opinion it was not such a great idea – and even if it was, the implementation has been atrocious. Ask me, I think the administrative divisions should be done by population or resources. I think that would make the most sense.”

“It’s interesting that you bring up Nehru. I’ve really noticed a shift in people’s attitudes regarding their erstwhile Prime Minister. Time used to be when his name was almost synonymous with god. What happened?

- “Nehru was a man whose time had come and gone, but nobody knew it. He didn’t know it – and the country certainly didn’t either. They kept voting him back in, more from habit than anything else by the end. Only now are we beginning to realize that many of the problems we just can’t seem to solve sprang up under his rule.

Who else can we blame for Partition? Jinnah, maybe – well, probably. But who gave Jinnah his voice? Who listened to him? Nehru. He was the leader of the largest – indeed, the only – mass political party India had ever known. It was certainly within his power to block Partition. But he went along with it. Why? Well, that’s a mystery – maybe he just wanted to get independence over with and – who knows? – maybe he actually thought the Muslims had a point. But I think he just didn’t care what happened to those desert-and-swamp areas; just so long as he could have his India. You know the day after Independence, he moved right into the former Viceroy’s mansion. That’s when you knew.

Think of Kashmir – Nehru’s home state. Do you think that had something to do with it being incorporated into India? They originally offered a plebiscite, but then they backed down when it looked like the Kashmiris were going to vote to become part of Pakistan. So he let the Hindu king of Kashmir decide. Hence the dispute. But what was done cannot be undone, and now Kashmir finds itself surrounded on three sides by countries who want a piece of it – Pakistan, India and China.

And think of the colossal corruption that went on under his watch! Twenty years after Nehru died, his grandson, Rajiv, calculated that out of every 100 Rupees the Indian government spends, only 15 gets to its intended target. 85% is stolen by bureaucrats! Under whom did this system start? For that matter, who consolidated the Nehru-Gandhi dynasty? Why is India being ruled by an Italian whose sole virtue is that she happened to marry Nehru’s grandson?

He was a vain man, you see. He thought the country would be lost without him; that only he knew how to rule India. So he surrounded himself with people who believed just that. And pretty soon nobody questioned it. And he kept running – and kept winning! After all, he’d convinced the whole country it was unsafe in any other hands. Your George Washington – what did he do in a similar situation? He quit after two terms. Nehru couldn’t do that – or he wouldn’t. Anyway, I can’t be sure anymore that we benefited all that much for his 18 years of rule.”

“But it’s just as you said, isn’t it? There was no one else. Nehru had to run – you know? To what extent is he responsible that no one else came forward? And at any rate, you have to admit Nehru was popular. People adored him, worshiped him even. Surely that played a role as well.”

- “It’s a vicious circle. The people here are extremely susceptible to the cult of personality. You’re surely seen the political posters last election. There’s a reason they all show only faces. Most people, that’s all they recognize. Don’t bother asking about policy. The leader is leader. It’s our duty to vote for him, and that’s that. The people blend their identities in with the leader – they believe in him, you see, because they have little else to believe in.

“Do you think this might relate to the Telangana issue? One thing I remember hearing from the protesters I spoke with was the ‘self-respect’ angle. A lot of people saw this as a battle for their self-respect. I think that’s a big appeal of this K.C. Rao, who’s apparently leading this mob – they see him as a beacon of Telangana self-respect. And I guess I notice that not only Telangana lacks self-respect, but at times Indians do as well. I’ve often heard people describing their own country as a “backwater” and their fellow citizens “second-rate people”.

- “Well to get those sentiments in context you really have to remember what India went through over the last millenium – what it’s still going through. Let’s see, we had 600 years of Muslim rule and… well, let’s say 200 years of British Empire. That’s 800 years of invasion – 800 years of foreign rule. Of slavery, really. I mean, I know people get touchy about that word but “Colonial rule” is nothing but a dressed-up euphemism. For 800 years India was made to feel like dirt, worthy only of scorn. The Muslim invasion badly wounded us, and the British nearly finished off whatever dignity we may still have retained. And it goes deeper than just the mentality – it gets into the genes. 800 years – that’s almost 30 generations of slaves. Slave genes – that’s what developed. That’s why you see such apathy among the public, such slavish devotion to the thieving politicians and thieving West.

“But it goes farther back than that, doesn’t it? What do you think of the caste system? Wasn’t that essentially inward colonialism – inward slavery? I read somewhere that something like 60% of the population were so-called “untouchables”, forbidden to interact with “caste Hindus” and relegated a life of hardship, labor and disappointment.”

- “Oh yes, the caste system is a terrible blight upon our civilization, and it still goes on today. How dare we preach peace to the world when our own house is in such frightening disarray? The Brahmins were slave-masters, yes – and the whole country bowed down to them. And you have to realize the rigidity of the system they devised. Where do you think the idea of karma came about? You hippies in the West, I hear you love talking about karma. Do you know what it means? Karma was a justification for Brahimincal tyranny – a justification for slavery. If you can make people believe that they deserve their station, that it’s no use trying for anything better, that their suffering is due to misdeeds in some imaginary previous life – well, then, you’ve got them exactly where you want them. That’s why for centuries – millennia! – there was no reform movement in Hinduism. Everyone stuck to their place, and in fact, they were proud to do so! This is where the concept of Dharma comes in – the concept of one’s “duty”. They convinced the latrine-cleaners and street sweepers that it was their duty to endure the abuse of the higher castes! You couldn’t possibly imagine a more insidious or effective ideology for controlling slaves.

“But there were reform movements, weren’t there? What about Buddhism?”

- “Buddhism, right – you know what happened to Buddhists in India, don’t you? The Brahmins kicked them all out! They were getting too uppity, and challenging Brahmincal authority. You see all the lower-castes – those 60% of Indians who were the dirt of society – they all began converting to Buddhism en masse. They began to want equality, some fairness in who does what jobs. Obviously you couldn’t have this, so the Brahmins got together and kicked them out. A thousand years later you saw the same thing happen with the Muslim invasion – all the trodden-upon members of society began to convert to Islam. At least as Muslims they’d be equal in theory – as Hindus they were nothing. Likewise when the British showed up with their Christianity. So Hinduism got some big chunks taken out of it – but the system of control was so ingrained that most people stayed. In fact, we didn’t really get a reformer until Swami Vivekananda, and that was in the 19th century, 3000 years after the Vedic Civilization! And then you had Gandhi, who I’m sure meant well, but… well look at the condition of many Indians today. 500,000,000 without regular food supplies. Clearly the reforms haven’t worked.”

“I want to know your views on Pakistan and China. The Pakistani intelligence service – the ISI – is widely blamed for the 26/11 attacks on Mumbai. They’re taking aid from both America and China, and seem to have a single-minded desire for India’s destruction. Will India and Pakistan ever get along? What is the role of the US in all of this?”

- “I’ll say this about Pakistan – they’ve got some clever rulers. Clever! Sometimes I wonder why their people are so impoverished, since their leaders seem to be so smart. But I guess it isn’t cleverness per se – merely dull opportunism. They’re clever like a bully is clever. They understand power. I mean look at the game they’re playing right now; pitting America and China up against one another. And America is playing the same game – pitting Pakistan and India against each other.  All that money America gives to Pakistan – you think it actually goes toward “combating terrorism?” No! It goes to commit atrocities in India. The 26/11 attackers were paid for with American dollars.

But at the same time, America wants India as a bulwark against China. So they court us with civilian nuclear deals and “technical assistance”. To tell you the truth, I really resent that India needs America’s permission to build nuclear reactors – that we’re forced to play their one-sided game. But how can we refuse? They go to Pakistan otherwise. America certainly looks as if it’s warming up to India – but they want to keep a Pakistan strong, too. It’s in America’s interest to keep the Indo-Pakistani rivalry going; only then can America take advantage of both. You’ve heard the phrase ‘divide and rule’? So, no, I don’t see peace between India and Pakistan – at least not for the foreseeable future.

Similarly, China wants a strong Pakistan to keep India weak, which makes perfect sense. China sees India as a threat – not a traditional threat, mind you, but like this nuisance to the east that can only slow their growth. Recently we had a diplomatic situation with China wherein they wanted to dam up a shared river – cutting off flow to India. We really had no choice but to let them do it. And it’s only a matter of time before all the rivers will be dammed. The next wars will be over water. Remember that.

We in India don’t have the political will to meet these threats – in fact, we’d just as soon not hear of them. We’re too wrapped in our own cocoons – too beholden to the grip of tradition to notice or care.”

“That’s a little unfair, isn’t it? I mean, you have to admit that ‘development’ (such as it is) is occuring in India. Millions of people are getting their lives lifted out of poverty. Literacy rates are up, unemployment is down, and people really seem to be breaking out of this cycle of tradition. Wouldn’t you say?”

- Don’t make me laugh! Whatever “development” you see is solely due to the West – due to a desire to emulate the West. What kind of indigenous “development” have you seen in your time here? You think we’re “developed” because rich people can eat Pizza Hut now? You think Microsoft and Wal-Mart constitute social change? We’re exactly in the same position we were in under the British, only now we pledge allegiance to America instead. But the the hundreds of millions of Indian peasants, who still find themselves ground under the heel of starvation and want, this decade of “prosperity” has meant nothing to them. And always remember that these gains of the Indian middle class cannot last. We dithered for too long – we got into the game too late. Most of the oil has already been burned, most of the coal already extracted. We’re playing this ridicilous game of “catch-up to the West”, but the joke is on us. India will never be a first-rate global power. Maybe if we ask nicely China and America will let us into the club. But we’ll always be second-rate. We’ve got too much baggage – too much dead weight.

Sometimes I think we’d be better off as a one-party state, like China or your America. Here nothing ever gets done. We debate and debate, compromise and vote, and in the end we end up with half-decisions, or more usually, no decision at all. This Telangana issue is just one example. I think we have too much democracy. We need someone to tell us what to do – that much is painfully clear. First it was the British, and now America – they say jump, we say ‘how high?’; they say ‘develop’, we say ‘right away, sahib.’

“That’s pretty bleak. Anything else you’d like to add?”

- “We’ve been independent for 60 years. It’s astonishing that we haven’t even begun to solve any of our problems – in fact, they’ve gotten far worse under our watch. Overpopulation, starvation, bonded labor, inequality – these were all crimes we laid at the feet of the British. Who are we to blame now?”

China’s Got That Taint

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The Times gives a nice in-depth scoop on yet another tainted milk scandal in China. The same industrial contaminant, melamine, again found its way into thousands of dairy products, ice creams, frozen yogurts, etc. The last time this was publicized was in 2008, but apparently contamination has occurred continuously throughout. More than 300,000 people were sickened in the 2008 outbreak, and the Chinese government felt itself compelled to execute 2 people over it. As they say, heads will roll.

The article reports that Chinese outlets are quoting the head of the Guandong Dairy Association as saying the contamination was kept quiet “in order to safeguard the good name of the dairy industry.

This, I think, is significant. In the former Soviet Union and Mao-era China, scandals like these occurred at an unprecedented rate – and on a far larger scale. The failure of Stalin’s collectivization, the horrific famine attendant the “Great Leap Forward”, and China’s sham “backyard steel” industry were massive blunders that caused untold human suffering. (The Great Leap Forward alone killed 30,000,000 Chinese peasants.) But what’s striking about these mistakes was that they continued long after the plan’s stupidity became clear. Khrushchev tried planting maize in Russia and kept trying after years of crop failures. Mao continued to force his peasants to make steel in their backyards, long after it became clear that they could only produce worthless pig iron. What made these leaders so blind?

One theory is the hierarchical power structure of both countries. Power there was strictly a top-down affair; everyone had a boss, everyone a subordinate. And the bosses had unusual latitude in “firing” their subordinates.  In those countries (especially during their “great terror” phases; 1936-1945 in the Soviet Union, and 1966-1976 in China) being “fired” meant you were actually shot.

As a result, a culture of abject terror developed – if you were an inspector or some other bureaucrat, you simply couldn’t report bad news, or at least report it and expect not to be arrested the next day. So you had these spectacular failures in practice – but on paper the economy was still chugging along; growing, in fact, at an unprecedented rate.  Solzhenitsyn writes extensively about this system (called Tufkta) in Russia, and I can only imagine it was similar in China.

Over the years, these once-totalitarian countries began to ease the internal repression. They were still nominally one-party states, and you could still get in trouble for joining the wrong organization (see the Falun Gong in China) – but so long as you did your job and weren’t overtly anti-government, you could reasonably expect to avoid being arrested. Yet the same culture of Tuftka, of fudging the numbers to make things “look better” persisted. Hence China’s dizzying (and dubious) GDP growth.

China’s bureaucracy is not well-suited to solving problems like tainted milk. The opportunities for corner-cutting, for graft, are just too great – and after all, its ruling party doesn’t exactly have to stand for election. It will be interesting to see how they reassure the world of the quality of their products; whether they’ll execute a few more low-level functionaries to show us they mean business. For it’s clear that China seeks the world market. And it’s equally clear that Europe and America (as well as China’s domestic population) are not interested in a tainted product.

Written by pavanvan

January 25, 2010 at 3:45 pm

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