Dean Barber

China This and China That

In Uncategorized on October 29, 2012 at 5:21 am

China killed my old grey cat. Well, maybe not. She was 18 years old, but if I take what I have been reading to heart, I wouldn’t put it past them.

You see, I have learned that I live amidst a spy cabal. Right across the street from where I live and work in Plano, Texas, sits the North American headquarters of Chinese tech giant Huawei Technologies. Now our most esteemed U.S. House of Representatives (and we know they always get things right) says my neighbor poses a security threat to the United States because of the risk of cyber espionage linked to the Chinese government.

Following an 11-month investigation about the business practices of Huawei and ZTE Corp, the House Intelligence Committee recently released a report stating that the two companies “could undermine core U.S. national-security interests” and therefore the U.S. “should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies.”

No question about it, doing business while Chinese can and has raised scrutiny in this country.  And based on a large number of corporate spying cases involving China recently, with formal complaints resulting to the World Trade Organization by the U.S., Japan and the European Union, I can understand why

In November 2011, 14 U.S. intelligence agencies issued a report describing a far-reaching industrial espionage campaign by Chinese spy agencies. This campaign to essentially steal technology apparently has been long running and targets biotechnology, telecommunications, and nanotechnology, as well as clean energy. One U.S. metallurgical company lost technology to China’s hackers that cost $1 billion and 20 years to develop, U.S. officials said last year.

Political leaders and intelligence officials in the U.S. and Europe are coming to a disturbing conclusion. “It’s the greatest transfer of wealth in history,” General Keith Alexander, director of the National Security Agency, said at a security conference at New York’s Fordham University in January.

Now I do not know if there are Chinese secret agents lurking about in my neighborhood. There very well could be. There are certainly many employees of Huawei all around me and I must commend them for being a particularly polite crew.

If they are hell bent on stealing intellectual property and eventual world domination, they give no inklings of it. Of course, discretion is the better part of valor in the spy business.

A Huawei spokesman called the Congressional report ” little more than an exercise in China-bashing and misguided protectionism.” In short, the telecom equipment maker is saying that we are being too paranoid and xenophobic.

The charge is one that deserves some introspective consideration. Are we essentially just being racist jerks or we rightfully concerned about protecting our intellectual capital and property rights?  I happen to believe in the latter, knowing full well that protectionism does not always serve our better angels.

President Obama and Mitt Romney have both found it useful to engage in some tough talk directed at China during the presidential campaign. And while some of the rhetoric of China as a “cheater” may prove true, keep in mind that it is also easy to scapegoat.

China is not to blame for why 47 percent of Detroit’s adult population is functionally illiterate. China is not the reason why half the kids in some major U.S. cities do not graduate from high school. China is in no way responsible for why the World Economic Forum ranked the United States as No. 48 in quality of math and science education.

You don’t hear the two candidates talk about that very much.

I think the evidence is clear that China has been engaging in some predatory, state-sanctioned practices that we need to counter, including being a major source of international computer hacking and cyber-attacks. But if we’re looking for a guilty party, a bogeyman during this Halloween season, let us never shy away from the mirror to get a glimpse of at least one culprit.

We most certainly now view China as a rival and a collision course or showdown of some sorts seems to be in the offing. But I believe and hope that our economies are too intrinsically linked to each other for a shooting war to result. But be aware that we truly are now engaged in an economic cold war with China. That’s already happening.

The Obama administration has 10 cases now pending against Beijing at the WTO in an effort to use trade rules to reduce China’s large bilateral trade surplus with the U.S. In the first seven months of this year, China sold $174 billion more in goods to the U.S. than it bought from the U.S. The bilateral trade gap between the two countries in 2011 was $295 billion.

In one of those pending cases before the WTO, the U.S. has charged China of providing at least $1 billion in illegal subsidies to Chinese auto and auto parts exporters from 2009-2011, helping them essentially unfairly win business from U.S. manufacturers in the $350 billion U.S. market.

The U.S. usually prevails in such cases, but I’m not so sure that turning to a world court is the answer. However the WTO rules, the Chinese will continue to operate their state-run, centralized version of capitalism, which remains focused on corning the market in buying raw materials in virtually all parts of the globe as well as penetrating markets with their finished goods.

We have never faced such a strategic rival as this before — a one-party state with a voracious commodity appetite and with the financial capability of making investments around the world. These guys are playing for the long term and they’re playing for keeps. Never forget that.

We may not be able to effectively thwart China in Africa or Asia, but we can play some hard ball here at home. We can (and have) essentially barred at least some Chinese investment in this country on grounds of national security. And we can slap tariffs when dumping is apparent.

The Obama administration recently rejected a bid by Chinese firm Ralls Corp. to build four wind farm projects near an Oregon-based naval facility, the first foreign investment to be barred in the U.S. in 22 years. The administration has also introduced tariffs on Chinese-made solar panels and tires.

By the way, if a Chinese company wanted to engage me to help them find a suitable site for manufacturing startup operations in the U.S., I would most likely want to help them. Unless, of course, the feds came knocking in the middle of the night to dissuade me otherwise.

But I would hope to enter the deal knowing full well that most of the Chinese companies investing capital resources around the world are either majority state-owned or maintain intricate government links. By western standards, where there is more pressure for corporate transparency, Chinese companies seem far more secretive and opaque. I wouldn’t expect them to tell me too much.

And there lies the rub. We suspect that these companies are essentially tentacles of a government that is not only a strategic rival to the US, but engages in a state-run centralized form of capitalism that has essentially been running circles around us. In such a scenario, some form of industrial espionage may not be the exception, but almost the norm. Again, no Chinese client company would confide in me on any such terms.

China’s economy has grown at an average of around 10 percent a year for the past three decades, allowing it to propel past the competition to become the world’s second largest economy. Along the way, an emerging middle class have evolved, which is not a bad thing. A growing middle class may force democratic reforms.

We have all heard about how growth has slowed in China and how the country may be in for a hard landing. There is no question that the economy has lost steam more dramatically than expected. Europe’s debt crisis and lackluster growth in the United States have sapped demand for China’s exports.

The growth slowed last quarter in China to its lowest level since early 2009 at 7.4 percent. But we would kill to have a growth rate of 7.4 percent, with the U.S. economy growing at an annual rate of 2 percent. Apparently, there has been no widespread social unrest as job losses in China have not been significant.

In short, the threat of China is not going away. It will remain a powerhouse and may I suggest even a trading enemy because of its state sponsored capitalism. We can continue to go the WTO route or we can play hard ball and essentially and block them from investing in markets that are sensitive to our national security. We can also slap tariffs on them, knowing full well that they are, in effect, doing the same by deliberately making our manufactured goods more expensive by 10 to 20 percent with their currency manipulation.

We can also consider adopting government policies to advance economic interests, particularly when it comes to manufacturing. (We currently have the highest corporate tax rates in the world.) And I do believe there is a role for the federal government here in underwriting basic research.

Now here is a crazy thought. Just as there are Small Business Development Centers around the country, why not consider creating a similar network of manufacturing technology incubators. It might be anathema to some free marketers who are wary of big government (and I am no fan of big government), but manufacturing in this country must be encouraged, and yes, even protected.

There, I said it. The “P-word.” I am waiting for the lightning to strike.

I hope this blog is not viewed as an exercise of paranoia and xenophobia. Heck, a little paranoia might not be so bad.

But It gives me great solace that when a couple of my friends and I will periodically pick and sing our American old-time hillbilly music out by the “cement pond” in nearby Bishop Park, Chinese people, probably most of them employees of Huawei, seem particularly drawn to us. Groups of them will form around us, smiling and nodding, as we engage in our barbaric twang.

I believe that is conclusive proof that even the Chinese can have bad taste. Now how can I not have a special affinity for such a nice people?

Dean Barber is the principal of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at dbarber@barberadvisors.com Please visit our website at www.barberadvisors.com

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  1. Well,,, at least they’re not establishing fenced compounds with prisoner / slave labor. Not yet, anyway (although there are reports of them doing something similar in the oil sands). I’ve been to a plant in South Carolina where they have established probably the first new fridge factory in the USA 40 years. I think they will act in their own best interests, I don’t think there’s anything too ideological about it. And I think they will test compliance regulations – as most mega-multis will. They certainly are very active in borrowing technology (ask RIM). Will China ever see a democratic revolution on top of an economic one and allow them to become fair traders? Not in our lifetimes.

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