China Bullying to Prosperity

Watching China bully Wal-Mart Stores this week—and watching Wal-Mart prostrate itself under the beating—is an embarrassing reminder of a simple fact: Watching China bully Wal-Mart this week is an embarrassing reminder of a simple fact: China, the world’s fastest growing major market, has the upper hand with U.S. business. Its array of protectionist barriers, weak rule of law, and siren-like market make events like this all but inevitable. This state of play may also be one reason Congress is fulminating again over China’s currency. The Senate this week passed a bill that could penalize China for keeping its currency artificially weak, which makes the country’s products cheap in global markets.

Currency offers a simple focus that plays well with constituents. So currency has become a dangerous proxy for much else that’s wrong with doing business in China. So Wal-Mart dropped to its knees. The company apologized, issued a statement declaring “the rights of consumers were infringed,” and said it accepted the 15-day forced closure of its stores as an opportunity “to focus on implementing corrective actions.” In a phone interview, a Wal-Mart regional executive in Hong Kong was similarly obsequious—and circumspect, lest he ruffle feathers in Chongqing. Pressed, he said there were past issues with the stores, but declined to elaborate. Chinese officials said the issues entailed numerous violations, including fraudulent advertising and selling expired food. An American executive in Beijing who watches these matters says the Wal-Mart saga is less about substance and more about the bigger problems U.S. business has with China. “You walk into any Chinese supermarket and can find things sold past their expiration date,” he says. “Wal-Mart has done more to secure the safety of the food supply.” Borrowing an old Chinese saying, he adds, “It’s just an extraordinary example of killing the chicken to scare the monkeys,” with the food industry the chicken, and the rest of foreign business the monkeys. The message to companies: Know your place and pay obeisance.

That strong arm is evident in other venues. For two years U.S. companies have been fighting new government procurement rules that give preference to Chinese products. Beijing finally abandoned the rules this year, but apparently not the preference. The rules are part of a broader industrial policy to promote “indigenous innovation” in China, or innovation that China owns. It’s with this goal in mind that China virtually requires many foreign industrial and technology companies entering the market to form a joint venture with a state-owned firm and to transfer technology to China. Hungry for sales, U.S. companies have piled in, handing over top-of-the-line technology in aviation, autos, electronics, energy and more. “This technology toll booth is troublesome; a large number of the companies I talk to have this concern,” says Bob Hormats, the State Department’s top economic official. U.S. firms, he says, “have to pay the high price of giving up very good technology” that Chinese companies then use to compete in global markets. “It weakens our economic base, our ability to create jobs and the profitability of our companies.”

Jim Rogers called it! They do appear to have the upper hand. Check out Jaymie’s Comment with Video:
http://www.asiancemagazine.com/news/2011/10/06/us-blasts-china-over-yuan#comments

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