China Counting: How the West Was Lost

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Sentiment has shifted, though. VIPKid is a company that teachers have raved about, praising its management, curriculum and flexibility in giving chronically underpaid American teachers a way to make extra money on their own schedule. But some workers now think the company has to loosen its policies — or face pressure to classify them as employees.

Postmedia is pleased to bring you a new commenting experience. We are committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. We ask you to keep your comments relevant and respectful. Visit our community guidelines for more information. Bloomberg News. Peter Elstrom and David Ramli. Filed under Entrepreneur. Kevin Carmichael: Central bankers could be made more accountable to legislatures, not the presidents and prime ministers who appoint them. Investors should also expect slower EPS growth from market leaders.

Comments Postmedia is pleased to bring you a new commenting experience. Sign in to Comment. As the ancient Emperor said to his taxpaying peasants — tremble and obey! Western economic theory is thus challenged in its pervasive failure to govern markets. Chinese pragmatic theory is working and its success is global. Asian poverty is much more radical.

There is a mandate from below in China; the Party will make sure it continues in its national dream by serving its non-democratic people, using force if necessary, knowing that revolution is the default response to political failure. So how will the Chinese begin to behave under the changing rules of a global game? Will the West be forced to obey, to kowtow and tug its forelock, cap in hand, asking for a bail-out?

Cash is king and, as the US Treasury knows, most of it is held in the East. So do not expect Chinese cash to be spent in the West; China will use it for internal stability and external control. This book explains why and where. Poetical but practical! If only the Chinese had democracy, if only they had a proper taxation system, if only they had a better legal system, if only their 3 4 China counting military was not quite so strong, if only they had open government, if only they would be more like us.

Significance of new clothes

But they have not and are not. They behave differently. They solve problems differently. They are, in body and soul, quite different. Just how different is addressed in Part I. First, China is a low trust country. Second, China is not used to dealing with foreigners. Third, China is a vast nation of different tribes and dialects. Thus suspicion of anyone outside a local group or community is almost paranoid in its nature. The Chinese will never give it up, so we must place it in its context. Relational networks and connections control Chinese practices and behavior. In the West, unfortunately, the network concept has become confused with social connections.

Chinese networks are systems, systems for exchange of knowledge and goods without internal waste but with maximum future gain. The systems, the networks, are called guanxi. They also call their transactional and information system guanxi. There is a cost associated with guanxi. Better still, think mobile phone networks: there is both a cost of using a network and a cost of linking to another.

These networks therefore generate internal trust to counter external uncertainty. To maintain this link across communities and different tribes, there is a demand for future reciprocity. Within guanxi there is both trust and resources, but also always a future return or obligation called renqing. The context is clear. Practice opportunistic behavior by taking advantage of those who are not connected.

Damn the environment unless it affects the personal network. Expand the military and do not respect any treaties signed under duress. China is a society tied down by its lack of trust. It will not take the lead in global affairs but will respond to positive and negative behavior — it will reciprocate in kind. What implications for international behavior arise from such a brief introduction to the Chinese context? First, any reliance on legal controls implies that the terms should be as simple as possible law schools, please note.

Second, a long-term agreement is a short one kept open. Agreements are uncertain unless a trusting relationship of mutual reciprocity exists. Therefore, in global terms, the guardians of the cultural and mineral resources of Africa and the Middle East should prefer a Chinese relationship to a North American contract. The former suits cultural preferences for relational deals, while the latter does not. Chinese practices and their network dynamics need to be viewed as a group control and interpreted in a holistic fashion.

Westerners are too individualistic. There are many alternatives open to challenge in Western formal problem solving. The Chinese, on the other hand, are practical people and seek action. It works. Forming an opinion The important Western question, however, is not how China behaves, but how that behavior affects the West.

Unfortunately, Chinese society makes for a distrustful and complex reading of itself, of its neighbors and of foreigners. The movement from imperial Chinese values through foreign occupation and domestic civil wars to communism and then capitalism would turn the heads of most.

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Without a central governing control, a defense against practical, theoretical and ideological change, any nation would have been split apart. The central control is necessarily strong and often defends itself by copying the West. The democratically elected Senator McCarthy in the USA was allowed an autocratic pursuit of anyone with apparent communist connections, and hurt many in his zeal.

What appears right at a certain time may be proved wrong later, but China is still testing the waters. In the modern United Kingdom UK , the British police are using anti-terrorist legislation to extend powers into autocratic surveillance and the arrest of non-terrorists. Even Icelandic bank assets were seized in the UK during the credit crunch, using anti-terror laws. China happily copies such totalitarian examples of democratic penal law.

First, by any means for example, with a visitor visa , get into the UK and go to Northern Ireland. Have a baby and apply for its citizenship under Republic of Ireland regulations UK refuses citizenship in such visitor cases. An Irish passport, however, will be issued.

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China watches this in wonder and thinks to itself — no way would we let that happen, these legal human rights issues are absurdities. The Chinese opinion of the West is therefore mixed. It sees certain democratic actions as being useful in its desire to improve itself and maintain its control over a growing and more demanding population.

It also sees legislative attempts, designed to ensure that Western Introduction political desires are met, as creating unforeseen loopholes actually detrimental to those desires. Fit the law to the context and decide which Kafkaesque penalty to apply and when. Ignorance of the law is not a defence, but avoidance of the law, through guanxi connections, is quite acceptable. In China, most of Article 19 on freedom of information is subject to scrutiny. For the USA and other Western countries, the war on terror appears a regress rather than a progress.

It is poor Western behavior that quickly transforms the relationship between developed and developing nations into mutual distrust and subsequent retaliatory action. The developed nations protected their own desires, not to control warming, but rather to retain democratic power.

To place a burden on voters, such as limiting fossil fuel usage, is seen as political suicide. Just tax voters claim it is a green tax but do not otherwise limit their freedom to spend. Democracy could save the planet, but elected politicians would rather have power and taxation revenue in their pockets. Now that China is a major creditor nation, it has a much stronger power base to challenge the West.

It can take up opportunities to improve the lot of its people by expanding domestically, through the present recession, and can ignore demands for international change, claiming that internal affairs are its own business. Fossil fuel — coal — will continue to be a major source of its energy 7 8 China counting needs.

External resource requirements will be protected by military strength and further expansion of its naval power will protect its seaboard and shipping routes. Finally, advances in its science and technology will ensure a lessening demand for US and EU assistance in health, infrastructure and computing.

This does not mean that there is no reciprocity; quite the opposite, in fact. There is an obligation from Africa, a debt due to China. The problem for Africa is that the Chinese obligation never goes away. The future behavior of Africa will be closely monitored in Beijing. If we were to give Africa any advice it would be to repay that obligation as fast as possible.

China is tying in Africa and it is cheaper to cut those ties sooner rather than later. For the USA, however, we fear the worst. To the south, Australia and Indonesia are key sources of minerals and liquid natural gas. Hydroelectric stations fed by Himalayan glaciers and coal from dangerous pits will provide the bulk of home-grown power generation into the s.

Europe, of course, will argue internally and, unless it can make common cause, will also fail. To put it bluntly, China is afraid of the democratic process, and the resulting attitude to foreign wars and domestic protection. To use external strife to generate political power is not unusual.

But it is not unusual. The fear for China is that the creation of hostility against it, a simple political ruse and matched by emotional outbursts, is a clear and present possible future. The recession is the key. The rest is history — but that dreadful history resulted in the invention of the nuclear bomb and its terrible use against humanity. The next war, when it comes, is already preceded by the invention and use of the bomb but also, regrettably, by its forgotten effects. Do we forecast China versus the USA in a nuclear shootout? The future is bleak because the West has let the market run ahead of its social needs.

Look again at the Declaration of Human Rights.

It does not focus on preserving market economies, it concentrates on preserving society and the peoples of the world. The democratic market took over, bubbles were blown — and burst. The global recession, however, can be a force for good by turning people away from market consumerism. And here, China should be invited to advise rather than follow — but too late.

Governments in the USA and Europe have decided to encourage more spending rather than less. Market forces will fail, just as they fail regularly; capitalism is essentially destructive. China will certainly suffer from the recession but not, for example, as badly as Japan did in the s. Another defence is the strong family value system in China, so that mere obedience to the government or its institutions is unlikely. Domestic and regional expansion will ease the recessionary chill — warmed by a military overcoat. The recession may be a problem for some but it is the solution that will be a problem for many.

Will the world move to protect society, or will politicians move to protect their power? IV Introduction China is a poor country yet, paradoxically, awash with funds from every side. This accumulation of capital is unprecedented in the history of any national economy. However, Chinese banks are also valued far too high compared to their stricken Western brothers.

From being public service institutions as lenders to state-owned enterprises, the banks have become conduits for the delivery of commercial lending and risk management, ostensibly to acceptable accounting and reporting standards. On the liabilities side, the true extent of bad or unrecoverable loans is masked or baldly understated. But not by stimulating consumer demand — China is run by technocrats, and infrastructure development is seen as key to present employment needs and the future success of the nation.

A slowdown in external demand 11 12 China counting for manufactured goods is exposing Chinese overcapacity and its reliance on cheap labor with Vietnam, Laos and Cambodia competing on low-value products.

The wall of money from maternal mattresses altered the structure of the Chinese market: there are no market fundamentals by Western standards. The belief in Chinese society that the market is underwritten by the Party is persuasive and puts the Party under constant pressure from its people. Chinese governmental strategy depends upon balancing the tension between domestic societal needs with the market stimulus needed to preserve that society. The balance is a cleft stick with two messages: social stability versus economic uncertainty.

In some respects, China has recognized what the West has lost: the need for some type of equilibrium between society and market. Simply, by trial and error but governed by an overwhelming sense that failure could lead to chaos. China, it must be remembered, leapfrogs over problems into the future — knocking down mistakes and setting up the next. The West consolidates as it goes, creating cracks but papering them over to hide the disasters.

The primary difference between these two practices will result, structurally, in China being stronger and the West weaker. China also manages the gymnastic feat of going forward while looking back remember the futuristic Olympic opening ceremony with its Confucian, not communist, overtones and is counting down to its imperial past at the centre of the world.

Much of Part I is a summary and update of our previous book, China Calling. The world has changed dramatically since its publication in , but its foundations, its historical behavioral patterns, have not. How we react to new problems is shaped by our experience of past ones. Economic believers in J. Keynes will stimulate to succeed but quantitative easing is not the Chinese way. There is a major difference in the politics, opportunistic behavior, environment, might and its uses and societal templates that guide the two factions of the globe.

Understanding that difference should help to ease the present mutual mistrust and lessen global tension. The following sections in Part I are aimed at explaining the difference: 1. The nature of Chinese history is revolutionary rather than democratic. The Party is the new lieutenant of the imperial command and is continuing in its change from policing the people to leading the nation.

Its mandate, however, needs continuing massage, and we discuss whether an increasing number of foreign and internal crises are prompting more rebels in Chinese society to take action. Part I therefore brings the reader up to date with China as it stands in Camoens, The Luciad X. Particularly hard hit is southern China, with factory redundancies in their thousands. Ships that carried those cargoes are now anchored around the islands that dot the Pearl River delta — awaiting orders.

But orders are few and far between. Contracts are being rewritten. Relationships are fraying. The Chinese work with those they know. If you do not know a candidate for power, why vote for him or her? Even worse, having previously protected themselves from imperial control, why throw that protection away with an electoral registration?

And actually voting where the ballot is traceable as in the UK to the individual voter on the electoral list, is surely impossible in a low-trust country? Democracy depends on trust and that is an elusive, often frail, construct 15 China counting 16 in modern global politics. In China, trust in someone you have not met is almost non-existent. With the collapse of the commune system and the closing of most of the state-owned enterprises, peasant farmers and farmhands are thrown back on their own resources and have to fend for themselves. They can just about scratch a living from the land they inhabit, but without another activity — sale of handicrafts, local crops and fruit — life is extremely hard, often quite desperate.

As a result, farm workers all over China can often only meet land taxes by further reducing their ancestral holdings. The damage caused to the politically disenfranchised masses, by turning farmland into factories, is now coming back to haunt the Party. Social stability is seen as being linked to, but more important than, economic growth. Fear is overcoming traditional guanxi protection.

Not a good democratic omen. The West, however, has traditionally trusted its legal and regulatory systems, but even they are now under considerable scrutiny. Their past failures are well publicized. Protection from the chill winds of recession rests, for all, with the family. The Chinese have always relied on their relationships for help and assistance and, as global complexity increases, these relationships remain effective but are undergoing stress tests.

Past Western demands for strong legal systems are not being ignored, but are being postponed. Just as the West might feel it can ignore UN resolutions if it feels like having a foreign war, so the Chinese will also turn their blind eye to legal precedents. Rules are chosen as and when they are needed. The problem This change in Chinese political characteristics has not received the studied Western attention it merits.

Chinese strategies, for example, allow remnants of communist planning to survive, and Politics recent experience indicates that there has been much trial and error reform. Legal systems change slowly, and arbitration provides a handy midway point for the Chinese. That eccentricity is now well established as a failure in world governance. The West must now recognize itself as an equal player in the global game. The West points to disruptions in geographic and cultural clashes within China, but does not recognize them simply as divergences between tribes.

Chinese farmers know their local land ownership, and the building developers know local political power. The disturbances in Tibet certainly foment fear and anger — on both sides. In mid-March , the foreign news services, such as the BBC and CNN, were jammed by the Chinese authorities, and pictures of suppression were prevented from reaching residents in China. Paradoxically, in preventing insurrection against the state, China is following international precedents and international law. We did not interfere in Northern Ireland, nor in Iraq, nor in Grenada, nor in other parts of the world that are not our internal concern, the Chinese cry.

Where we trade is another matter from where we politicize. That fear, though, has now spread to the USA. Fears that China will control American debt continue to grow unabated. US debt, from an American perspective, has raced past the Chinese to become a global issue. There is an unstable equilibrium in the global economy — a shift to the East. And with fear comes emotional 17 China counting 18 decision-making.

Protectionism in the West is denied but is in hand. Uncontrolled open markets have damaged the West, so Western central banks control their own free capitalist banks — just like China controls its free state-owned enterprises, especially its banks. Political management is advancing rapidly in a region that is still shaking off past colonial shackles and post-war communist ideals, a region that is undergoing shocks to its domestic systems as it adjusts to global ways of doing things.

The major regional force to be reckoned with is that of China and Chinese values. That force can be channeled, with the West providing help rather than hindrance. Internal affairs In the lead up to the return of Hong Kong to China in , negotiations were often frayed, with attempts at democracy in Hong Kong being treated by China as insulting. Open democratic freedoms had not been extended under British rule but there was a mad rush to put them in place before the handover. Strangely, that is always true no matter the nature of the negotiations.

It is only at the end of the negotiations when the deal is done that the statement can be seen to be true or false, constructive or destructive. But negotiations are always useful. China, however, draws a line between internal and external negotiations. Internal negotiations are not to be interfered with nor pressured by external political statements. Is democracy just possibly a mental space, inhabited partly by those who see it as a realpolitik distraction to keep dissidents preoccupied, and partly by those who see it as a Western failure Politics in governance?

There are several immovable, non-negotiable issues which stand as roadblocks to more democratic freedoms. These are, in order of intractability: recognition of human rights; Taiwan; Tibet; and Xinjiang autonomy. Taiwan and Tibet remain intractable borders of control for China. A future stand-off between the two great nations is likely. China will only talk to those who recognize its borders and territories as integral parts of the country.

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But Xinjiang is the last stop before the Muslim steppes — a border between Han and Islam, clearly demarcated in the riots of Both Taiwan and China recognize, at the internal political level, that there is only one China, but that its nature is dual. There will be some types of alliance, already working economically, which should allow an accommodation at the diplomatic and ultimately at the political level.

Not so for Tibet. There is, in Chinese eyes, a clear support for secession by Western countries, with France and Germany most recently bearing the brunt of Chinese anger at their welcoming of the Dalai Lama. There is a continuing fear of a lack of stability spilling over into neighboring regions. Both the Party and the people are scared of a da luan, a great chaos that could result from economic and territorial collapse and the subsequent revolt and vengeance of the masses.

China sees a similar problem for chaos in the West, but from the vengeance of the new middle classes rather than from the old poor. Those who saved and are now in poverty, those who went for the American dream and are now in poverty, those who see Wall Street as protected but Main Street as open to the desert winds, are all suffering. The Chinese doubt it.

The world is too unstable to allow democracy a free rein. Total control, preferably centralized, is needed. Cash is going into the capitalist banking systems. China could, almost single-handed, assist the developing world — but at the cost of and loss to the West. They have re-emerged vigorously after many decades of suppression. Mao outlawed Confucianism as being feudal, and the Party line is still that all religion is superstition.

Politics There have been cases, for example, of US messianic zeal easily converting overseas Chinese on educational programs in the USA to Christianity. Beijing then quickly switched government training courses to the less evangelical UK. State atheism is used much as the Nazis used it in Germany, to create an ideology of invincibility in war, or by the French revolutionaries to overthrow their monarchy and establish an entirely new order of absolute equality and justice before the law of mankind. The reality is that the theories of Party dogma have become quite detached from the ancient practices of the people.

What this means is that the real power to move people to action and to order the outcome of events is reverting to the village headmen and clan leaders. The Party has progressively cut back taxes as a gesture of appeasement to the people. Thrown back on their own resources, local authorities are developing a spirit of entrepreneurialism to help them replace these revenues. The Falun Gong movement and the Christian Church are still held in great suspicion and closely monitored. The numbers of their followers are rising and producing precious mental oxygen in a country where people are accustomed not to breathe too deeply for fear of inhaling either toxins or persecution.

The fresh air and space created by these forced measures of personal autonomy are restoring to the Chinese people their natural stoicism and initiative. Such internal change is happening, but in a systemic fashion — through trial and error and without external interference. There is some similarity between Christian ethics and Confucian moral guidance. The difference between the moral value systems — and it is a big difference — is that Western ethics are based on the individual doing what their personal conscience believes is right, while Confucian morality depends on the individual doing what the group believes is harmonious.

Western values are shaped largely by a sense of individual guilt; while Chinese values are driven largely by an anxiety to avoid group shame. Chinese leaders understand this, but the West tends to ignore it. Individual rights are not the same as group rights. They intersect, of course, as rather different notions of honor and integrity. Harmony within a community is important. The Chinese do not enshrine any form of human rights legislation. How can it be enforced? Group behavior is self-correcting and so is group economic behavior — unless the groups are of opposing nations.

Chinese controls govern Chinese group behavior. It is the group versus the individual that sets the differences between East and West. Unfortunately, Smith also pointed out that the invisible hand is often challenged by the individual seeking to better the market. That is why Western individualistic rational man failed in Japan.

He will also fail in China. Chinese economic strategies are very long-term. The Chinese leadership is turning its trading and manufacturing expertise into a market economy, but this economy is based on collectivist, not communist or capitalist ideals. The Chinese surplus has outgrown its own borders and has moved overseas. However, these are at present small adjustments compared with the real investment lines being laid down in Africa, the Middle East and Latin America.

In Africa, China established special economic zones in Nigeria, Tanzania, Zambia and Mauritius, clusters for Chinese companies, with import duties and tax incentives designed to induce these companies to set up permanent bases on the continent. Large amounts are also being poured into infrastructure. And the investments are, of course, politically directed. Political direction is also provided in the trading of currencies, as the Chinese fear of the US dollar weakening is driving bilateral exchange. A minor market, ramped and rampant, causing global fright? Could the sophistication of Western hedging systems, of computerized arbitrage, of incredibly expensive fund managers, count for so little?

Can China not remain a global workhouse keeping Western electorates with low attention spans sweet with cheap consumables? The Chinese dream is diverse but it does not include foreigners, their chaotic markets and post hoc regulatory controls. Control of China, by China, and for China, is a central policy of Beijing. Of course, Asia does have its foreigners; its own diversity. There is considerable variety in the characteristics and habits of mind of the East Asian peoples.

In Europe also, considerable variety exists across borders — the Germans, Italians and Finns, for example, have very different languages and cultural identities. Local Asian governments know this but may not admit it. Their problems are primarily those of cohesion — keeping the indigenous population under control — and their problems increase in inverse ratio to stock market valuations. Race riots are not the sole preserve of Los Angeles.

As both Western and Asian protectionism increases, we believe that China will become embroiled in anti-Chinese sentiment in Asia. Malaysian democratic elections in continue to cause concern to the ruling Bumiputra, who see local ethnic Chinese and Indian votes as challenging. The Japanese may continue to suffer from historical mistrust but they do not make up an important component of overseas populations except perhaps in Hawaii and Peru. Jealousy of Chinese trading abilities elsewhere in Asia and Wall Street will increase with political support for regional expansion, backed by at least the threat of military pressure, emanating from Beijing.

Taiwan cross-strait recognition is another major step on the road to consolidating Chinese power. Therefore, regionalization, not globalization, is the prime political challenge for the Party. We must remember that the Chinese government and state-owned enterprises are run, in the main, by Politics engineering graduates. In other words, Chinese diplomacy is not one of smooth words and soft actions. It is often calculated with slide rule precision and if it means brinkmanship then it will be brinkmanship with something up the sleeve. Gnawing slowly away at the problem will ultimately bring the solution.

But it will be a solution based on equilibrium. Do not tell the Chinese to do something that you would not do yourself a Confucian refrain. So do not invade Iraq and tell China to leave Tibet. Chinese policy is practical and primarily regional. It is here that the West is worried. The large state-owned investment entities have been accepted as wise investors — Kuwaitis, Norwegians and others have used sovereign wealth funds to recycle petrodollars. But China, through the China Investment Corporation, plays by different rules. It is recycling imported dollars in a non-transparent way and possibly in a speculative manner.

Again, Western hypocrisy comes to the fore. Opaque hedge funds are acceptable, whereas opaque Chinese sovereign funds are not. Two points of principle must be made to explain the concerns. First, the retention of relational controls in a Chinese organization with a hierarchical reporting and response structure does not comply with Western legal governance for corporate responsibility. In large Chinese listed companies, the state is the only controlling stakeholder think Bank of China and its tax rebates, and its waivers on bad loan provisions.

In any entrepreneurial publicly listed com- 25 26 China counting panies, the controlling family is the stakeholder think Li Ka-Shing, or the Australian—American—Asian Rupert Murdoch. Western constitutions and legal systems enshrine and safeguard the rights of the individual. The key provisions made have evolved from the principles of morality, justice, equity or fairness and pluralism, which form the basis of the common law. Notions such as equality before the law and habeas corpus — which requires anyone detained or arrested to have a legal hearing before further detention or imprisonment — have their British roots in the Magna Carta of and are the bedrock of values, legal precedent and case law governing the behavior of individuals in society.

Although democracy is based on the rule of law and allows a government to govern only with the consent of the people, abuses of power are quite common, precisely because the existence of power is a matter of law, not of fact. Individuals need recourse not just to legal redress — which may take some time and be expensive — but, more urgently and more importantly, to a very present help in times of trouble, which the Chinese culture provides.

Rich individuals were apparently duped through qualitative assurances very Chinese at social and sporting clubs into believing that the investment fund manager Bernard Madoff could make you a solid return no matter the state of the market. Smell a rat?

The rich, famous and wealthy including fund managers who played with the money of the not-so-rich did not act with due diligence. They became some of the people all of the time. But did the regulatory and legal system of the West protect them from their foolhardiness? Of course not! The West is just as penal as the Chinese legal system except that Madoff gets life behind bars and Chinese crooks get eternal life below ground.

Politics In China there exists a protective system of networks where one does not deal with anyone who is not deemed trustworthy. But in its binding power of obligation, it has the socially institutional force of law. Its use is never based simply on an altruistic granting or exchange of favours. It is the essence of Chinese political negotiation, it is renqing, the human obligation, that governs the deal making. The country sees the main concern in international relations shifting to and from military and territorial issues, and between economic and trading issues.

It recognizes that the rate and impact of interdependence in the international networked economy is increasing. It is for the West to recognize that China relies on networked reciprocity if China is needed to reduce instability in the world. About face? In the aftermath of the Olympics in Beijing and the run-up to the Expo in Shanghai in , China presents a smiling, accommodating face. It will now begin to assert itself forcefully through its relational power, with a hardening of its negotiating stance on trade and human rights issues.

But China will still have a point. There is no way that such daily turnover was related to trade in anything beyond currencies themselves. The Asian currency crisis of was not so long ago, it still rankles, and suspicion is reinforced by the Wall Street debacle. The Chinese currency will not strengthen under speculative forces but the Chinese government will gradually engineer a continuing but slow increase in the renminbi versus the US dollar.

China had a bad experience of the West in the nineteenth and twentieth centuries, and there remains a deep-seated feeling that reparations are in order to redress the damage done. Its currency exchange rate gives it a massive advantage, underpinning production, exports and jobs. It is looking to engage mainly with foreign companies that will bring it innovative processes to advance its technology swiftly, enhance its export-driven industries, and provide jobs, particularly in rural and inland areas. If the foreign companies do not buy into China, then China will buy into them.

But it depends how you buy into China. Buying a famous brand — such as the attempt by Coca-Cola to buy Huiyuan fruit juice drinks company in — is not the same as righting the failures of a smaller enterprise or expanding a small to medium enterprise SME into a multinational enterprise MNE. US allegations of Chinese brand protection arise whilst some argue that it is tit-for-tat because of the past US denial of the oil company Unocal to China. We disagree. This is China saying that it does not need buyouts of successful brands and companies — it does not need cash.

China needs growth investment and seed money accompanied by new technology. Politics Political direction Directed protectionism always plays a part in Chinese politics. That applies also to Chinese Party cadres. The phrasing is important. It reinforces the Chinese stance that a pragmatic, protective, pick-n-mix strategy is their way forward. There is scant likelihood that China will move in the direction of Korean- or Taiwan-style democratization in the short-to-medium term.

Because of tough thought-control in the media and with continuing restricted internet access, the vast majority of Chinese are quite ill-informed about the true nature and state of affairs outside China. Even with free choice, who can defend the prostitution of Western political parties to big business, to spin and vote-buying, to lobby groups? Trading votes for money is illegal, but buying political clout is only a matter of interpretation.

Perhaps it is Western-style democracy, not Chinese-style communism that is the true illusion. In fact, he has extremely limited room for maneuver within this designated space without in some way widening the scope of his mandate to draw to himself from civil society some real power and authority to act. Against him is ranged the army like a huge potential landslip. They rely on his patronage, as do Party cadres, to maintain their wealth, property and business activities.

This bizarre balance of totalitarian socialism with laissez-faire capitalism is highly precarious and the major cause of chronic tension and uncertainty within the current regime. The Old Guard of retired generals and Party members, as well as the young princelings, the 29 China counting 30 rising heirs of Party cadres and thus of natural privilege, are mired in the machinations and plottings of an almost medieval statecraft. The Party is aiming at internal future stability through the formation of communist dynasties!

The real Grand Question that is now posed is this: how on earth is this dynastic tension and uncertainty to be eased without some gradual systemic shift towards legitimizing the dissent and opposition of the dispossessed and disenfranchised in China — which will otherwise fester and ferment into even more uncontainable revolt and further rebellion? The answer, of course, lies in the area of greatest paradox: how to reconcile the burning patriotism every Chinese person feels with the feelings of hatred provoked by the impasse of fear, a fear of losing control over personal destiny.

In short, how can China create and enfranchise a loyal opposition and stop treating dissenters as enemies of the state? This will require the most extraordinary moral courage from Chinese intellectuals — whose fear is still a palpable obstacle to progress in this direction. Human nature is human nature — fear will cause the head to be withdrawn below the parapet.

But it is not just the Chinese fear of systemic chaos that is so present and alarming. Political tension We argue that the hidden levers of power in China are being subjected to such unprecedented stresses and strains in recent years that traditional guanxi network mechanisms have warped and been forced to adapt in accommodating new pressures from below. The Party is now very much alive to the gaping disparity in the distribution of new wealth and attempts to address this by infrastructure packages allocated primarily to greater access between rural and urban centers.

Whose is the more just and rightful claim? Here lies the rub, and the dilemma. Once the economy is marketized, then the price of this land bubbles way beyond the meager means of landed peasants to repossess it as their own, and their sense of dispossession grows mordantly keen. Lower land prices are now paying off in smallholding sustenance. It is not what you measure that matters but when you measure it.

This demonstrated yet again, in a peculiarly forthright way, how measure and degree are largely relative matters in China. China is shadow boxing with its demons — oxymorons creating the harmonious choice of referee. It is ridiculous, a travesty of the concept of concord or harmony, this imposition of a collective cast of mind on the thinking and behavior of an entire people. He thought that the best government was by a philosopher king with a court of wisest advisers — roughly what the current Chinese leadership apparently aspires to. Their problem is that, having done away with their emperor and very nearly with Confucius as well , the Chinese leadership is made up of technocrats who are visionary on structures but somewhat short of the spirit of free enquiry and debate.

This is why they fear democracy, because it could produce chaos, with people claiming that they know what is best for them and, goodness gracious, demanding autonomy, argument and choice — in other words something beyond the passing contentment brought on by shopping for consumer goods. Certainly, the politicians boldly assert that the country would not suffer anything but a minor slowdown.

There is a clear desire for China to become the second-largest world economy, supplanting Japan, in the years after Economists often produce arguments on what causes an economy to grow, but do Politics not often get the moral reasons correct. And thinking is always massaged by politicians. As in ancient Greece, fully three-quarters and more of the people remain excluded from participatory government.

The country remains in an intractable bind of mutual suspicion, fear and contained anger between government and governed, not too dissimilar to Confucian times. And, dare we say it, not too distant from present Western democracies. Politically both West and East are facing similar problems. Others must not put pressure on our currency. Table I. The USA thus has a problem not just with China.

Tax havens and the Russians are now holding a fair amount of US debt. From a political standpoint, China probably succeeded the most. It had no announced agenda but came to listen. If the West would listen to its democracies then its politicians might have a better grasp of what is required by society. However, political hypocrisy remains high. The UK has sleaze. The Western democracies can be interpreted, to paraphrase President Abraham Lincoln, as governing the people by a party for the power.

The Chinese are more pragmatic, governing a people by the Party for a purpose. Global linkages create perspectives not previously anticipated by North American and European business. Rational thinking in the East and West is asymmetrical, yet because something is foreign we all tend to assume that it is better or worse than our homespun values.

Chinese values, however, are distinctly opportunistic. In our book China Calling we provide a description of Chinese values and how they govern behavior. We show how opportunities are mixed with opportunism self-interest seeking with guile. We also say that the Chinese door was held open with wads of cash. As Time magazine pointed out in March , we see Hunan Valin buying China, however, 36 Opportunism also met its match when Libya defended itself against any purchase of Calgary-based Verenex Energy — a company with stakes in Libya.

In other words, China is not only buying, lending and procuring, it is also attempting strategic positions, thus making the oilrich and ore-rich very wary of the real intentions of the Chinese. A deal that looked good during the depressed commodity prices of spring looked greedy by the summer. The detention of Stern Hu, the Chinese-born Australian executive of RTZ, may be a sign that his part in the guanxi obligation system is under review. The problem China, it is noted, does not recognize stakeholders.

Traditional imperialist ways continue to consider workers as paid servants — part of the household but not of its decision-making. Shareholders have bought shares and are free to sell them. The Chinese may have a point here; Western regulators were concerned about hedge-fund buying on margin for short-term shareholder ploys, but did little about it until it was too late.

The executive, however, did no wrong in the eyes of the company stakeholder — the Chinese government. And it will happen again when Chinese state funds are at risk overseas. The communist blinker on the Confucian eye of the Chinese trader has not dimmed an ability to spot a deal in the making. But do not let that word communism fool you — Mao maintained a traditional, imperialist hierarchy. And so does the present Chinese state: it is following several millennia of centralized control.

When doing deals, Western theory argues for a control over networked opportunism through contract law, but also notes that, as a contract grows more complex, governance decreases. The Chinese welcome complex deals. A simple deal, evidenced, for example, by bills of 37 China counting 38 exchange or lading, is not a problem for the Chinese. They would prefer, however, international law for basic governance systems but with relational controls controlling opportunistic behavior whenever arrangements get complex. Caveat regulator — the regulatory authorities must be wary and watchful. The Chinese use the transaction activity globally to expand relational resources when larger deals are essential.

Legal advice often follows, rather than precedes, the deal. The Chinese will thus rely on arbitration procedures rather than confrontation in courts of law, but will prefer arbitration after, rather than before, action. If Chinese networks are to be understood, then the prevalence of maximizing any potential options for future deals must be accepted. The guanxi system does this through the creation of renqing reciprocal obligations. There is a manipulative element. There is, therefore, the potential for breakdown. Knowing you have granted an option but not knowing its size or timing can be stressful.

High levels of internal network trust ease the fear. It is therefore not a question of greed overcoming fear when the Chinese invest in a risky deal, but of greed overcoming guanxi. Where there is a lack of networked connections, as in the case of peasants rising up against prefectural authorities, distrustful confrontation will follow. Chinese global exchange is integrating but the system of networks is fragile. Clear consideration, with an unequivocal trust in international legal enforcement, is required to ease tensions. Relational trust depends on acceptance as partners within a network.

The potential for confrontation can be lessened with mutual respect — but that takes time. The solution Our solution is therefore simple. It is economic exchange, the driver of trade over millennia, which is forcing change. This change is affecting basic individual values, the values derived from past national and family struggles for survival. The bankers, brokers and advisors are not guilt-free.

Complexity in the West creates chances for the sharp operator. Opportunistic Chinese are therefore not likely to feel intimidated by complex arrangements. Indeed, the more complex a deal, the better the opportunity to imitate Western failures to enforce its terms. The Chinese will therefore look for opportunities overseas where the rules are clear. The capitalist system is good at laying down rules, and the Chinese are seizing their chance. It is preferable, cash in hand, to purchase a company than to start up as a competitor. The Chinese just raise cash.

How old-fashioned — and sensible. But RTZ shareholders, notwithstanding a change in their company chairman and a tweak in the terms of the bid, felt they were better off without a major Chinese shareholding. Innovation in developing an industry is amended by the Chinese to imitate and survive through merger and acquisition. It is much simpler to copy the controls already widespread in a global institution or industry than to change them in a creative fashion. Partial innovation is a result of change caused by old solutions not matching new problems.

The true revolution for paradigm change occurs when a totally new perspective resolves more problems in better ways. Deng Xiaoping recognized this when he started the Age of Reform in the late s. Economic expansion is allowed, military control is not, but then one is necessary to protect the other. The Chinese imitate quickly where the rules are simple. Where imitation by the Chinese is a threat, the Western opportunistic solution must be to accelerate consolidation through its own mergers or acquisitions, using size as the defensive resource. The problem is that, unlike American football, switching from large defensive teams to swift attack teams is time-consuming.

The West is slow to change. For example, the banking crisis can be put into an imitative context. Claiming that nobody in the West can put an accurate value on a stock percentage of a Chinese state-owned bank without fooling themselves, the articles have proved to be red herrings and misdirected. The tables have been turned on the clever journalists. Which system is the worse? The value of a relationship in China is, it must now be repeated, not purely monetary but rests in its network potential.

At an interface, when negotiating or analyzing investment strategies, it is necessary to establish the information network level in advance. How much information is passed between the two parties is dependent on the levels of trust. At the network periphery, low levels of trust imply low levels of information.

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The West must realize that trust cannot be bought; it must be earned. Becoming trustworthy is the challenge. An investment into a network guanxi connections is one of time and of relational development. Losing relationships can be expensive in the long run. The prime mover instinct within Chinese management is high. Failures result not so much from actions as from prevarications. This division will become more and more apparent as the world approaches the mid-century. With the BRIC meetings in Russia during the summer of , it is clear that these countries are seeking a grouping of nations to challenge Western economic dominance.

Better the head of a chicken than the tail of an ox. In China, there is a tendency to less moderation, increased opportunism, decreased mutual dependency, and changes in traditional ways. These changes must not be confused with individual destinies. The Chinese traditionally dislike teamwork, as it means working across networks and not comfortably within them. Teamwork links individuals and, traditionally, the Chinese links with each other, and with Westerners, are fraught.

Foreigners are increasingly part of the extended relationship. The guanxi networks are primarily information and transaction networks. They are controls over bad behavior using ostracism as the penalty. It is the increasingly knowledgeable and increasingly specialized network that will make the opportunistic move overseas. It may not be an organization in the Western sense, but it is a company of prime movers in an economic sense.