To compensate neighbours for lost jobs, China recently announced a “go global” campaign in which CEOs of Chinese companies are encouraged to seek investment opportunities in South-East Asia. As part of this effort, the Bank of China has opened branches in Thailand, Malaysia, and Singapore, and soon will reopen one in Jakarta.
One greatly improved bilateral relationship is that between China and Indonesia. Earlier this year, China’s state-owned offshore oil company, CNOOC, bought a large Indonesian oil and gas field owned by Spain’s Repsol-YPF for US$ 585 million. More recently, another oil company, PetroChina, outbid four rivals to buy the Indonesian assets of Devon Energy Corporation for US$ 262 million.
For her part Indonesian President Megawati Sukarnoputri has buried hostilities going back to 1965 and has visited China twice in the past year, hoping to convince Beijing to award Jakarta a US$ 9 billion liquid natural gas contract to power the industries of southern China.
China is already a leading manufacturer. Singapore, for example, has lost more than 42,000 jobs to China in the last five years because of China's lower cost of doing business. And lower labour costs may cause multinationals in Malaysia to relocate their assembly plants to the mainland. Prime Minister Mahathir Mohamad has told Malaysians to stop viewing China as a “black hole” sucking foreign investment away from Asean. “We want to live with the fact that there is a China and it is going to be very prosperous, very big and economically powerful,” said Mahathir.
Increasingly, the US is finding itself in the same shoes Great Britain found itself towards the end of the 19th century, says Goldman Sachs Vice Chairman Courtis. “Back then, the UK was the dominant power in Europe and in the world, but a declining one,” says Courtis. “The US must realise that there is no power that is capable of dominating all of Asia. It’s not Japan, not India, and it’s certainly not China.” Maybe it is not the US either. Laurence Brahm, an American lawyer and entrepreneur based in Beijing and a noted author on China, claims American ideologues are trying to shift the blame overseas for what is clearly an American economic crisis. In addition, Brahm says China really isn’t competition for the US, not anywhere near. “China is just a US$ 1 trillion economy, while the US is a US$ 10 trillion economy,” says Brahm. “Let’s not forget that.”
In addition, Brahm says conservative Republicans gloss over the fact that America benefits hugely from China. He relates a personal story Chinese Premier Zhu Rongji shared with him. "Zhu was visiting the US and he needed a new pair of running shoes,” says Brahm, the author of the recent biography on the premier, Zhu Rongji and the Transformation of Modern China. “He sent an aide to go buy him a pair of Nikes. The pair of running shoes was ‘Made in China,’ but came with a price tag of $130. Zhu was surprised it was so expensive. He asked the aide to check the freight-on-board price of the pair of shoes when it left China’s ports.
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The aide came back and said ‘$5.’ Zhu was shocked. ‘You mean to say our manufacturers made only $5?’ the premier asked with incredulity. What the premier told me sums up the entire Sino-US relations for you. Much of the rest of that $130 price tag was pure profit for Nike and the American retailers.” In other words, good Sino-US relations are a winning combination, albeit with America winning much more handsomely than China.
The fact that American corporations and shareholders enrich themselves by sub-contracting out to China and that America’s middle-class consumers benefit by being able to buy at affordable prices at discounters like Wal-Mart or Kmart falls on deaf ears on Capitol Hill, say critics.
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New York's Wall Street: bracing itself for challenges from the East
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Insiders within President George W. Bush’s conservative faction are causing strains with China by encouraging stronger military ties with Taiwan’s pro-independence ruling Democratic Progressive Party.
Last year, the Bush administration authorised the sale of US$ 6.4 billion worth of advanced weapons to Taipei, angering Beijing, which claims sovereignty over the island, which broke away from the mainland after the 1949 Chinese civil war. Shortly after the resolution of the spy plane crisis of April 2001, Bush vowed to “do what it takes to defend” Taiwan if China launched an unprovoked attack on the island.
“The Taiwan issue is going to be the most important factor affecting Sino-US relations in the long run,” says Steven Xu, head of economics research for Societe Generale Securities in Asia. “Sometimes down the road there has to be a closure to this issue and clearly it is in US interests to maintain the status quo — helping Taiwan to remain ‘de facto independent’ while mouthing adherence to the ‘One China Policy.’ So you can see the source of the clash.”
The spy plane crisis of 2001 was in part precipitated by China’s bellicose threats against Taiwan, according to Beijing’s critics. The US EP-3 aircraft was reported to be spying on the latest models of Chinese naval frigates practising an “invasion of an off-shore island” when it was forced down by Chinese jet fighters.
In 1996, the US sent an aircraft carrier group to the Taiwan Strait while China was lobbing missiles over the island after its then President, Lee Teng-hui, declared that “there were two states” across the Taiwan Strait. |
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American entrepreneur and author Brahm says he believes that cooler heads will prevail in Washington, Beijing and Taipei: “In Taiwan, domestic politics is tied to the US,” says Brahm. “There always will be some tough talk in Taipei and in Beijing. But if you look at the huge amount of Taiwanese money that is pouring into China these days, you’re talking about a de facto economic integration for all ‘Chinese’ peoples across the strait. All Chinese – whether in Beijing or in Taipei – focus their attention on money these days.” Adds Brahm, “the economic integration will be the driving force keeping the Taiwan issue on keel.”
Since Taiwan and China began trading with each other in the late 1980s, Taiwanese corporations have invested US$ 100 billion on the mainland. Some 50,000 Taiwanese companies employ more than 10 million workers in China today. Global Sources Chairman and Chief Executive Hinrichs says he is optimistic that conflict can be averted, both across the Taiwan Strait, as well as between Beijing and Washington: “Both countries have a lot to gain by making sure that peace happens,” says Hinrichs. “We have no choice but to live in harmony.”
Hopefully, the optimists will carry the day. In the end, the Eagle must learn to live with the Dragon.
Can the Asian tigers roar again?
For decades, America claimed its economic strength was based on banking transparency and honest equity markets. It denounced the Chinese concept of guanxi and blamed crony capitalism for much of Asia’s instability. Were Washington’s criticisms justified? It certainly seemed so in 1997 when South-East Asia’s seemingly unstoppable growth was abruptly brought to a halt under the weight of countless bad loans.
As the money gushed out of Asia, Washington ordered the region to swallow its IMF medicine, then invited those venture capitalists still standing to invest in American dotcoms attempting to forge what was foolishly called the New Economy. Now, five years later, the venture capital has evaporated, the dotcoms are bankrupt and most of the new economy has been exposed as a fraudulent scheme abetted by greedy accountants. In America, global investors are heading towards the exits, securities firms are bleeding money and the euro is worth slightly more than the dollar for the first time in two and a half years. Can Asia regain its former economic growth? Probably, but first structural reforms are needed, particularly in China, which has become one of the world’s most stratified societies thanks ironically to the Communist party’s embrace of wealthy entrepreneurs.
According to the Chinese Academy of Social Scientists, 80 per cent of China’s US$ 894 billion in bank deposits is held in 20 per cent of the country’s accounts. Neither China nor the US will ever be a paradise for workers. But workers, like institutional investors, must have confidence in financial markets and government regulators before an economy can grow.|
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