All right, China has 400 million people accessing the internet and 700 million mobile-phone users. So what you might ask? Of course these figures looked tempting, and it is not likely to be matched anywhere else. These figures have always being the chief attraction for businesses to relocate to China, but although it is salivating, there are other negative issues that are becoming of concern which could put paid to attracting more investments into China. One of the most highly profiled case is that of Google withdrawing from the search market in China. Why is it that a company with a thirty percent market share of the search market suddenly decides to get out of the China market? Was it really the purported censorship issue (as related by Google) that broke the straw? Or was it some other issue like intellectual property theft, or that hacking? Then there was the issue that web host GoDaddy that had decided to stop accepting registration for the dot CN domain. And ominously, and a sign of things to come, the Chinese court have jailed four executives of Rio Tinto for bribery and stealing of Chinese secrets. Of all things, foreigners are charged for corruption in one of the most corrupt countries of the world! What then is going to happen in this great market called China?
Slowly but surely, other issues began to surface. In particular, the way China did not go out of its way to accommodate Google shows that China has of late decided to look inwards again and don't really care a hoot about others, after it had a decade ago opened up its market to the rest of the world. Yes, China had made a pile of money, chiefly from American consumers and have now decided to close its door to do some spring cleaning instead! It was a great experiment by a communist government, and a successful one at that. Another significant issue is the condition set by the Chinese government with regards to government and state procurements. Early in 2010, the Chinese government came out with the edict that it will only allow procurements provided that the supplier must have intellectual properties like patents and trademarks registered in and possessed by Chinese. Not only that, foreign suppliers must relocate their R & D to China and open up their research to Chinese citizens. Suddenly a wall came up, erected to restrict foreign sellers of products and services. It was no small matter as the amount of state procurement was estimated to be about $90 billion in 2008. As the restriction comes in the wake of the revival of western economies, its implementation will surely spark off complaints.
Has the bamboo wall being resurrected again? We must be reminded that a large part of the industrial output in China comes from foreign investments. Now, if they are not now nervous about the restrictions, then they will surely be fidgeting in the coming months. It is evident that there has been a drastic swift in policy and one that comes at a most inappropriate time. Just when the west is depending on the Chinese to buy more of their products, the unjust move might spark off a trade war that will further depress world trades. In another critical move, the Chinese government has begun to sell of their holdings of US treasuries and repatriate the money back to China. This of course has sparked of concern in the money market. There will be dire repercussions all around and chief among the victims will be the US dollar. However, even though China might want to draw down their amount of US bonds, they are afraid that if there is a too drastic a sell off, the US dollar might tumble to an unacceptable value relative to the Chinese Renminbe and thus rendered their remaining bonds worthless. So, the most likely scenario is that the drawdown of the US treasuries will be tightly controlled, and proceed according to the actual situation on the ground.
No matter how we view China, we must be reminded that China is being controlled by a group of cadres with a strong support from the army. It is a country run by guns and we can’t expect it to change in anyway. Its experience with market economy is in no way acceptable by all, and there is an under current of a large sector that has been left out of progress. With diminishing returns from farming due to shrinking farmlands and adverse weather conditions, the rural have-nots are beginning to put pressure on the central government for something to happen to alleviate their sufferings. Of course the Chinese government knows about it, but because of lack of an effective administration and an endemic corruption, much of the aid earmarked for the poor does not reach them in time. The gap between the rich and the poor has widened tremendously, and there is nothing much the government can do about it, except to once again restructure the system to the one they had begun with. And that is the communism that Chairman Mao knew of.
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