Sinomania!

It was extremely disappointing to hear President Obama talk only of competition with China in his 2011 State of the Union address to the American Congress. Chinese children learn science and math at an earlier age, Chinese trains are faster, and China's airports are newer we are told. It seems Obama's "Sputnik Moment" for the current generation is that we must compete with China. This is thinly veiled indication that we are in a new Cold War with China where we will compete for technology, resources (oil in particular), and the minds of our youth. And what an awkward Cold War it is - Beijing buys Washington's debts, essentially paying for its own containment. And unlike the previous Cold War there are no centers devoted to researching, studying, and understanding the Chinese. Worse Washington and the American people wallow in utter ignorance of what really makes up the vast nation we call China and its complex government. Congress calls Chinese President Hu a "dictator" while oblivious to the huge ideological differences between the four major factions within the 70+ million strong Chinese Communist Party and unaware of the Chinese political process from village election to the workings of the party conferences. Dangerous times are ahead....

Headline writers this afternoon say President Obama "urged" China to stop controlling its currency. What did Obama say exactly? Long into a banal booster speech at the annual meeting of the Export-Import Bank of the United States (a federal government agency), Obama said

It surprises me Obama continues to spend political capital in a pointless pursuit to coerce Beijing to appreciate its currency. Washington can urge China all it wants but Beijing has made its position on Renminbi very clear. Just this week at the National People's Congress session China said the Yuan's unofficial peg to the US dollar will end and appreciation up to 10% over the short to medium term is expected.

A move by Beijing to drastically create a more "market-oriented" exchange rate would mean reducing China's dollar holdings in favor of other currencies or gold. Is this ultimately what Washington really wants? It is also hard to argue that the exchange rate of the Yuan is that out of whack for US exporters when China is year after year the fastest growing market for US exports.

A far better use of rhetoric and effort would be for Obama to push Beijing to fulfill its promise to enter into the WTO Government Procurement Agreement (GPA) and open up potentially billion$ in opportunities to American businesses. So far no moves on the GPA have been made by US Trade Rep Ron Kirk or anyone else in the Obama administration. Why not?....

After just 4 years in China Google wants to take its ball and go home. The snap decision is a surprise for a company famous for not losing its cool. Co-founder Sergey Brin is behind the decision to pull the plug on Google China. Brin, born in the Soviet Union, wants to embody Google’s pompous corporate motto “do no evil.” Yet his company had no problem appeasing Beijing’s Internet regulations while it tried to build its business and brand in China. And Brin himself admits that Google blocks material in the USA, France, and Germany - just to name a few instances. A simple warrant is all Google requires to hand over to US feds data on its users going back 180 days.

Last week Google’s chief Legal Officer flamed China’s central government (and by association Chinese people) on the official Google blog with a cryptic ultimatum that it may “shut down Google.cn, and potentially our offices in China” over a hacker attack. But could Google’s knee-jerk reaction become one of the biggest corporate blunders in American history?

Google first tried to enter China the Yahoo! way by buying a Chinese Internet company. But Google went small taking only a 2% stake in Baidu the leading Chinese search engine portal. Google set up its China business in January 2006 choosing the Chinese name “Gu Ge” meaning “harvesting song.” A few months later Google partnered with China Mobile and invested $50 million for a venture to develop mobile services. Not long after that Google sold its stake in Baidu after Baidu went public on NASDAQ and pocketed a nice return of approximately $63 million. Google chose Taiwan born Kai-fu Lee to head up the Beijing office and said it was in it for the long haul, a must for any foreign business in China.

But Google couldn’t bring it. Kai-fu Lee quit Google China last year to head a Beijing venture capital firm to nurture Chinese Internet startups that will compete directly with Google. Four years on Google is no match for Baidu which consistently claims over 60% of the Chinese search market. Google’s share is flat and falling. According to marketing research company comScore Google’s share of the Chinese search market sank to just 14% last November. And search is just one failure of Google in China.

Google’s main focus in China is mobile phones and related services. Investments in Chinese companies such as Xunlei (a video download service) all seemed to fizzle and somehow end up in Baidu or another company’s favor. China Mobile, with more subscribers than any other telecom, now plans to open its own apps store and develop its own services. Google had plans to launch smart phones in China based on its Android operating system. That was cancelled this week.

The loss of what will most likely be the world’s largest market for smart phones and the apps and mobile advertising that come with them means Google’s showdown has serious implications for its future. Sure most Americans think Google is number 1 everywhere in everything but need Google be reminded that at its peak in 2000 Yahoo! shares also cost three digits and its market capitalization of $120 billion was not far off Google’s worth today?

Google dropped its bomb on China in a blog post with links to reports of the overtly anti-China US-China Economic and Security Review Commission. Within hours Secretary of State Hillary Clinton announced she had been “briefed” by Google and helped spin a media cycle in which Google purchased ads in print media and online to imply its business entanglements are a human rights issue.

Fact is Google is embedded in the Obama White House. Google was the number 3 contributor to the Obama campaign. CEO Eric Schmidt (sitting next to Obama in the photo) sits on the President's Council of Science and Technology Advisers. Three other Google executives are in White House positions including Sonal Shah of Google global development and Andrew McLaughlin head of Global Public Policy and Government Affairs for Google who is the White House's Deputy Technology "czar".


On his first official visit to China Obama told a group of Shanghai youths that the USA considered unfettered Internet access a universal human right and tut-tutted over censorship. Last week Secretary Clinton enshrined the view in her lengthy “Internet Freedom” speech. Billed as a major policy initiative the speech mentioned China throughout and contained a direct ultimatum to Beijing to “conduct a thorough review of the cyber intrusions that led Google to make its announcement.” Afterwards Hillary took questions from an audience filled with plants from front groups and organizations affiliated with the NED (National Endowment for Democracy).

The scold on Internet Freedom is odd considering Hillary believed the Internet needed “gatekeepers” back in 1998. And how relevant is Internet Freedom for the world? Fully a quarter of Americans do not even have the Internet in their homes and broadband access in the USA is one of the lowest in the so-called “developed” world. But to Obama’s crowd America equals the Internet and the Internet equals Google.

NO EVIDENCE FOUND

Google was not alone in the hacker attack. Over 30 multinationals were affected by what was apparently called “Operation Aurora.” But there is no evidence the Chinese government was behind it. American Internet security firms Verisign, Adobe, and McAfee pointed fingers and Microsoft admitted that an unrevealed flaw in Internet Explorer was used by the culprits. Google even suspected its own employees. Headlines in the mainstream media declared “Evidence Found for Chinese Attack” (to quote the New York Times’s lead) when a malware sleuth found a circumstantial link but no direct evidence of Chinese involvement. The attack could just as likely have been a psyop from a rival company or government intent on framing Beijing.

Google now says it wants to stay in China and is working behind the scenes with Beijing regulators. And Google’s co-founders will sell enough stock to reduce their control down to 48% indicating the company may yet be run on business pragmatism over emotion. But the message that China attacked Google is sticking and the incident shows clearly who guides China policy in the Obama White House.

(c) copyright, Ben Calmes 2010
(Disclaimer: the author owns shares of Google via a mutual fund)

This writer hoped that President Obama would have his eyes wide open for his first trip to China - take it in, allow himself to see past the warped perceptions nearly every American has about the Celestial Empire. Sadly, he started his visit with yet another lecture on "human rights,” now defined by the USA as uncensored Internet access. Obama told a crowd of perky Fudan University students in Shanghai that: "...freedoms of expression and worship -- of access to information and political participation -- we believe are universal rights." As the USA continues to run the infamous Guantanamo detention camps, CIA black jails, and conduct military occupations around the world, it remains absurd to lecture other countries on "human rights". Not long before his death, Nixon - architect of the rapprochement with China - said that it was time to drop "human rights" as a wedge issue with China. The issue may have had some leverage in Clinton’s first term but is meaningless today. The Chinese people are not going to rise up and overthrow their government because the websites of state-controlled (BBC) and wealthy conservatives’ media in Western nations are sometimes blocked on the mainland.

Now in Beijing, Obama will meet privately with President Hu tomorrow (Tuesday) and visit the Forbidden City and the Great Wall....

A week of Asian summits begins tomorrow with the APEC 2009 meeting in Singapore and President Obama's first official junket to China with stops in Shanghai and Beijing. Chinese President Hu is already in Singapore celebrating close ties with the independent Chinese city-state that oversees the world's most precarious shipping choke point. During APEC Hu will meet with Taiwan President Ma's envoy Lien Chan, Kuomintang Party chairman.

In Beijing Obama will have his first official state visit with Chinese Communist Party leaders and already in the USA various right wing interests are pushing for Obama to confront the "ChiComs" with their pet issues such as "human rights" and the need to forcibly appreciate the Chinese currency. Word is Obama will pressure Beijing on climate change. Here's an idea: rather than try fruitlessly to get China to accept sweeping agreements to regulate CO2 emissions and accept Western nation mandates about global warming why not agree to explore a program for both the USA and China to reduce reliance on coal for electric power generation?....

During the 2008 Presidential campaign candidate Obama agreed many times with American industry groups and unions that Beijing "manipulated" its currency. Perhaps not understanding the impact of the "M" word in USA-China relations Obama's Treasury Secretary Tim Geithner also said as much in his confirmation hearings. But as so often happens when candidates come to power the complexities and realities of China relations compel an about-face.

Today the US Dept. of the Treasury released its semiannual Report to Congress on International and Exchange Rate Policies with the decision that China does not "manipulate" its currency. With somewhat contorted logic Treasury says that since the renminbi remains stable against the dollar it follows the movement of the dollar against other currencies although it is still "undervalued." The report revealed that China is anticipated to account for 2/3 of global growth in 2010. The reaction of Congress awaits....

Prior to President Obama's first visit to China in November the US-China Joint Commission on Commerce and Trade (JCCT) will meet in Hangzhou, Zhejiang Province, for its 20th session. The JCCT is one of the oldest high level forums between Beijing and Washington - established under President Reagan to coordinate trade and foreign direct investment. Will the JCCT address Obama's tire tariff and the long list of Chinese products America's unions want anti-dumping duties? ....

Big labor is pushing hard for President Obama to declare China a currency manipulator when his Treasury department must report to Congress next week. Obama maintained that Beijing manipulated the Yuan exchange rate up to the eve of the presidential election and as freshman Senator from labor stronghold Illinois. Now the AFL-CIO and others want Obama to live up to his rhetoric. Will he disappoint them as he has so many other supporters?

If labor doesn't get their way, which most economists say would be detrimental to both nation's trade and finances, expect a big push for anti-dumping countervailing duties from Congress and the Commerce department. The USA has not accused any nation of manipulating its currency since 1994 when it last leveled that designation on China (see graph at left)....

New York is the scene for a blizzard of China pow wows as President Hu Jintao met with the new Japanese Prime Minister Hatoyama and President Obama. Hatoyama waxed eloquently about turning the East China Sea into a "sea of fraternity" and proposing the creation of an East Asian Community based on the EU model. Hu invited Hatoyama to Beijing for a regional summit in December.

Meanwhile Obama and Hu met again on the sidelines of the UN and made no mention of recent trade disputes. Both reiterated with little enthusiasm the desire for cooperation. Obama will visit China in November.....

The White House revealed that Presidents Obama and Hu will meet for bi-lateral talks next week (Sept. 22) during the UN General Assembly. No indication what will be on the table but trade talk will most likely predominate as Beijing may restrict chicken imports in retaliation to Obama's tire tariffs....

President Obama has tasked the National Economic Council and the National Security Agency with a review of the USA's export control system. The Aerospace Industries Association welcomed the news and will work with the effort. Readers will recall that during the USA-China Strategic and Economic Dialogue lessening restrictions on certain high technology products (super computers, satellites, etc.) exports to China was discussed. The effort is a first step in undoing the restrictions placed on exports to China during former President Clinton's first term in response to the shameful Cox Committee investigations into whether technology "secrets" had been given to China.

Exports of high-value technology products to China could well become a potentially huge and lucrative new market for an American industry that still has an advantage and help close the gap in the US-China trade deficit....

The first Obama Administration China summit concludes today. The "Strategic and Economic Dialogue" takes USA-China relations a step further away from "strategic competitor" under W and back to the late Bill Clinton era (post 1996) view of China as a "partner."

The word "partner" or "partnership" is mentioned four times in Obama's largely complimentary speech. The speech gives clues to what Obama expects of China: 1) coordination on economic growth and recovery; 2) cooperation on alternative energy to reduce both nations' dependence on oil imports and air pollution; 3) coordination to stop nuclear proliferation, citing Korea and Iran in particular; and 4) cooperation in "confronting transnational threats" (terrorism) with Obama mentioning "increased ties between our militaries."

Overall, Obama's China policy - as defined by his speech - is refreshingly realistic and pays only lip service to ineffectual issues such as "human rights," "currency manipulation," and without one mention of Taiwan, a clear signal that his administration may be the first in over 60 years to not have a "Taiwan Straits Crisis".

Some key points Obama made:

"We can't predict with certainty what the future will bring, but we can be certain about the issues that will define our times. And we also know this: The relationship between the United States and China will shape the 21st century, which makes it as important as any bilateral relationship in the world. That really must underpin our partnership. That is the responsibility that together we bear."

"[T]he United States and China share mutual interests. If we advance those interests through cooperation, our people will benefit and the world will be better off"......

In its entirety for posterity:

Statement On Bilateral Meeting With President Hu Of China

Office of the Press Secretary, 04.01.09, 10:47 AM EDT

Hu and Obama discuss U.S.-China relations.

On April 1, 2009, President Barack Obama of the U.S. and President Hu Jintao of China met on the sidelines of the G-20 Financial Summit in London. The two heads of state had an extensive exchange of views on U.S.-China relations and global issues of common interest, and reached the following points of agreement:

I. Toward Enhanced U.S.-China Relations

The two sides agreed to work together to build a positive, cooperative and comprehensive U.S.-China relationship for the 21st century and to maintain and strengthen exchanges at all levels. President Hu Jintao invited President Obama to visit China in the second half of this year, and President Obama accepted the invitation with pleasure.

The two sides decided to establish the "U.S.-China Strategic and Economic Dialogue." U.S. Secretary of State Hillary Clinton and Chinese State Councilor Dai Bingguo will chair the "Strategic Track," and U.S. Secretary of the Treasury Timothy Geithner and Chinese Vice Premier Wang Qishan will chair the "Economic Track" of the Dialogue, each as special representatives of their respective presidents. The two sides will hold the first round of the dialogue in Washington, D.C., this summer. The two sides stated that they will continue to advance mutually beneficial cooperation in economics and trade through the mechanism of the high-level Joint Commission on Commerce and Trade.

The two sides agreed to further deepen mutually beneficial cooperation in a wide range of areas, including economy and trade, counterterrorism, law enforcement, science and technology, education, culture and health. They also agreed to resume and expand consultations on non-proliferation and other international security topics. They welcomed further exchanges between the national legislatures, local authorities, academics, young people and other sectors. The two sides agreed to resume the human rights dialogue as soon as possible.

Both sides share a commitment to military-to-military relations and will work for their continued improvement and development. The two sides agreed that Admiral Gary Roughead, U.S Chief of Naval Operations, will visit China upon invitation in April to attend events marking the 60th anniversary of the founding of the Navy of the Chinese People's Liberation Army. The U.S. looks forward to visits by senior Chinese military leaders this year.

The two sides agreed to maintain close communication and coordination and to work together for the settlement of conflicts and reduction of tensions that contribute to global and regional instability, including the denuclearization of the Korean Peninsula, the Iranian nuclear issue, Sudan humanitarian issues and the situation in South Asia.

The two sides agreed to intensify policy dialogue and practical cooperation in energy, the environment and climate change building on the China-U.S. Ten Year Energy and Environment Cooperation Framework, carry out active cooperation in energy efficiency, renewable energy, and clean energy technologies and work with other parties concerned for positive results at the Copenhagen conference.

II. Strengthening Economic and Financial Cooperation

The two presidents discussed challenges facing the global economy and financial system. They pledged that, as two major economies, the U.S. and China will work together, as well as with other countries, to help the world economy return to strong growth and to strengthen the international financial system so a crisis of this magnitude never happens again.

The two presidents welcomed the fiscal stimulus measures taken by the other, and agreed that these measures were already playing a stabilizing role for the global economy. They also agreed that strong financial systems were essential for restoring growth, and they welcomed the commitment of both countries to address issues in this area. President Obama underlined the commitment of the United States to implement the American Recovery and Reinvestment Act and the Financial Stability Plan. He underscored that once recovery is firmly established, the United States will act to cut the U.S. fiscal deficit in half and bring the deficit down to a level that is sustainable. President Hu emphasized China's commitment to strengthen and improve macroeconomic control and expand domestic demand, particularly consumer demand, to ensure sustainable growth, and ensure steady and relatively fast economic development.

The two presidents agreed the international financial institutions should have more resources to help emerging market and developing nations withstand the shortfall in capital, and the two countries will take actions toward this goal. China and the United States agreed to work together to resolutely support global trade and investment flows that benefit all. To that end, they are committed to resist protectionism and ensure sound and stable U.S.-China trade relations.

President Hu and President Obama discussed regulatory and supervisory changes needed to reform and strengthen the global financial system, including regulatory standards. President Hu welcomed the recent U.S. announcement of a comprehensive financial regulatory reform agenda. President Obama welcomed the commitment of China to continue the development and reform of its financial system.

The Presidents agreed on the need for sweeping changes in the governance structure of international financial institutions.

President Obama underscored that such changes were needed so that these organizations better reflect the growing weight of dynamic emerging market economies in the global system.

President Hu and President Obama concluded that continued close cooperation between the United States and China was critical at this time to maintain the health of the world economy and would remain so in the future. They both recognized that as major economies, the United States and China have a need to work together, as well as with other countries, to promote the smooth functioning of the international financial system and the steady growth of the world economy.

To this end, the two sides will exchange views and intensify coordination and cooperation on global economic and financial issues, climate change and energy, and other important issues through the Strategic and Economic Dialogue that the two countries have decided to establish.

President Obama's Press Secretary Robert Gibbs confirmed to reporters that Obama called Chinese President Hu Jintao Friday (our sources say the call occurred last Friday) although details of the conversation remain sketchy. It was revealed that Obama and Hu will have their first face to face meeting at the G20 summit in London on April 2...