big teddy
  • Mar
    27
    The trouble with China
    by mike at 8:19am

    TiananmenAnd now for something completely different.

    In the last few months there have been a couple of high profile incidents involving Google, Microsoft and the Chinese Government. Google has been forced to censor certain sites from their Google China search portal and Microsoft has been forced to remove some blogs at the forceful request of the Chinese Government (do it or we block access to these sites). Many have railed againts these two for the actions they have taken, they’d prefer that these companies accepted censure in order to send a moral message to China.
    This of course would never happen. Even relatively benevolent companies such as Google can’t afford to not be in the Chinese market right now. From a business perspective China is the last frontier of untapped consumers and it’s impact in international business is growing at a rapid pace. The corporate world can’t afford to ignore it and those that control these companies (ie. their boards) won’t let them. Not only that but these types of actions would be counterproductive in the intent of those who would like them to ignore these demands. The revolution will occur in China but it’s going to happen with a whisper. Globalization Capitalization and the growth of companies such as Lenovo will do more to turn the tide of democracy in China than any protest.


    Looking at India can give some insight into the growth that China could potentially attain. Currently India has the fourth largest economy in the world and has seen great cultural and social growth in the past 15 years and has done so with essentially a socialist government rooted in thier history as a British colony. They have utilized a planned economy that combines tenets both of capitalist and socialist economic theory in order to manage this growth and is quickly becoming an economic super power. Considering the similarities between China and India in manufacturing and technological growth why isn’t this same sort of social change happening in China as well? While the vast population of India has kept much of it’s wealth fairly dispersed they have seen a fairly considerable increase in the standard of living. But why hasn’t China?

    Perhaps the single biggest factor in maintaining the status quo in China may be something every economist knows but the average joe isn’t aware of. China has historically pegged the exchange rate of it’s money (the yuan) to the dollar. Notice the conisistency of the rate compared to say the Indian Rupee in practical terms what this has meant is that in order to maintain it’s import/export levels China has bought literally billions of dollars in order to maintain this rate. Everytime the yuan would slip against the dollar China would buy more dollars in order to maintain equilibrium. What this means in practical terms is that If an American widget costs 1 dollar at the standard rate of 8 yuan, if the yuan appreciates against the dollar so say the exchange rate becomes 1 US dollar to every 4 yuan, suddenly American producers have to pay twice as much to buy Chinese wares. The “downside” being we’re paying more for Chinese goods. The upside ( for the Chinese ) being that they are suddenly being paid “more” for their production and the standard of living rises. However even this has changed by looking at the graph you notice a sudden depreciation of the yuan about June of last year. Here the Chinese changed their methods and started setting their exchange rate to a “basket” of mainly western currencies. This may be one of the larger human rights coups in a long time and has largely gone unnoticed by those not involved in international finance.

    By taking a long road to a small house we begin to see some of the cracks in the Chinese armor. Globalization is happening in China and the effect of companies such as Microsoft and Google providing services to China does more to effect the Chinese internal dealings and social situation then their absence on a theoretical point.