Douglas Roberts Dimick

China: These Trade Numbers Are Awful

M,

Deutsche Bank - Equity Research HK/China Daily Update - 12 ...
By Garfield(Garfield)
Deutsche Bank - Equity Research Today's Highlights: We downgrade earnings forecasts of China banking sector due to more our bearish macroeconomic forecasts (CMB downgraded to Hold, TPs cut for all other banks). ...


Have you seen any discussion as to why all this commenced a month after the Beijing Olympics?

I was tracking capital and HR flow-reversals away from China since June. Redirection favored certain Eastern European countries and India.

I am "positioning" (via my book, Foreign Capital Investment Banking for China, due out in late January by Wuhan University Press in Beijing) that central government planners might consider immediate, significant policy revisions to realign WTO obligations with current policies and practices...

Rule of law is a mantra that could advance if not save China's cause to preclude erosion what it has gained these past years since being awarded the games...

What is the utility of this banter about China being so important for the world economy with its $2t foreign capital reserves?

Some $1.5t of currency trades everyday on the Forex. The US Dollar is the underlying currency on one of the two sides of all those trades some 84% of the time.

Consistent refusals (not failures) to "meaningfully" open media, banking, and finance sectors of China have not gone unnoticed -- among toxic toys, espionage, IPR (not DVDs) theft, etc…

There appears to be a disconnection. Inbound-outbound comprehension among central as well as provincial leaders is myopic, shaded by guanxi commitments focused only on domestic concerns. Fair enough, the same holds true within US and EU configurations.

The difference is that a rule of law via code moderates those protectionist reverberations over there. Over here, even the cash-bloated UAE is complaining that trade with China is one-way to an unacceptable point – we might note their bankers (not Chinese).

Is a shift now emerging? Can you confirm?

I call it the "otherway" response by US and EU concentrics. Tiring of China’s lack of accommodation to open key markets, centrist concerns (non-emotive, balance sheet types) are nominating Mexico and much of Latin America, which in recent months started gaining promotional focus among manufacturing associations. EU brethren are doing the same with former communist block countries – hence Russia attempting to draw a line with its timid, all but impotent military incursion during the games (also worth of note regarding timing).

If the party centrists here do not act quickly (12 months, tops) to make good on prior trade (a la WTO) commitments as well as send some of that foreign cap to develop offshore guanxi, then they stand to face one thing worse than a bunch of empty housing and commercial development complexes…empty buildings surrounded by filled streets of angered citizenry.

Shortly after arriving in March 2006, I came to the conclusion that the government here was either setting itself up with or being set up by US-EU related nation building interests. In the year of the Rat, it is now clear that the Chinese guanxi-go-go-boys (and girls) took the cheese.

The bill came due post 30 day grace period upon the closing ceremony.

Funny thing… given all the self-imploded rhetoric trickling out (and down) from government and party appendages, it appears that no one really understands what is going on. This possibility became apparent on the day that China’s (non- stimulating) stimulus package was announced, which appears not much more than the Chinese version of a bailout plan for its SOE’s.

There then comes the rub… making your comments so true about China confronting a far more painful reality than its US-EU counterparts...

Compounding the problem here, unlike in the US, the party-government matrix already owns or controls China’s hubs of finance and industry. Therefore, in effect, it is only bailing out itself, a bankrupt system, which is what it was recognized to be upon Openness and Reform was so declared.

My two years of research here detail a shell game built upon a ponzi scheme. Again, fair enough, Wall Street does it par excel lance…

However, EU and US shoulders bear hundreds of years of experience with cyclical economic gyrations. China? 20 at best – not any 5,000 years.

I had an epiphany yesterday en route to a guanxi-fueled hot springs visit with a former student’s family – father is a securities firm branch manager. Most of the guys driving (or being driven around in) those black Audis were peddling bikes just 10-15 years ago.

Where does that leave us?

Well, trade numbers are the least of the problem…

dr

China Isn’t Losing Its Competitive Edge

M,

In my book, I address China's higher-technology sectors emergence issue.

As FDI and HR flows reverse away from China toward Latin America, India, and segments of the EU, quality and IPR characteristics of Chinese business practices for the past decade are coming to roost. See recent manufactures association report of recent.

Central government state planners need leverage. Legal as well as standards and practices reforms are paramount now to gap up from a low cost, low quality sweatshop conglomeration toward those higher tech areas.

As I observed in a prior commentary to you, a form of federalism can be useful here. Washing machines and hot water heaters are similar to a turkey for each family in the voting precinct -- granted, though, a durable not consumable.

From an IB perspective, China has been losing its competitive edge during the past year. RMB appreciation is not the systemic flaw.

Alas, as first with Japan and then Korea, the system which marshaled resources to achieve economic order and development now becomes the governor impeding further emergence.

dr

Should China Raise Wages?

M,

Having been here for since March 2006 with two years of book research, this issue presents a if not thee paradox to China's emergence, politically a la social-economic.

I have dined with labor union officials from Beijing thanks to my adopted brother, who made his fortune in selling cold beer.

Take a look at the Chinese constitution...

dr

China Continues Downward Revisions

Oops... racial desegregation... typo... sorry

China Continues Downward Revisions

Hi MRH,

I think I understand your theme...

With the election of Obama, I am reminded of President Kennedy's use of the Amry to force racial segregation at University of Alabama -- see movie, Forrest Gump.

The direction I was seeking from Michael was along the lines of entitlement theory, whereby the central government would impose legal requirements for funding of provincial programs.

It is my estimation that the standing committee can guide the Hu Administration toward legitimizing an independent judiciary at the provincial level via block funding of stimulus programs via central government agency oversight.

See Marbury vs. Madison, which is how the US Supreme Court commenced ensuring its validity as a one of the three branches of government based on a system of checks and balances.

The standing committee here may accomplish the same...

dr

China Continues Downward Revisions

Michael,

I moved to China in March 2006. During the past two years of research for my book (Foreign Capital Investment Banking for China), I found mostly indirect evidence that "safeguards" are systemic or symbiotic -- more like symbolic -- within this "constitutionalized" quasi-feudalistic system of governance.

Money and rules: neither of which exist here as doctrinal constructs so transposed and codified. Currency is restricted based on fiscal and political selectiveness relative to monetary metrics; rule of law is subjugated to prevailing political doctrine(s).

Your implied call for accountability is based on a common sense mandate for maintaining social harmony -- as to who can stomach what and how much around here, right?

How ironic... Common Sense.

During September, while reducing my 630 page text to the publisher's requested 200 page limit, I found myself frequently reflecting upon undergraduate and juris doctorate studies of the Federalist Papers. I am considering whether we here are now there...

Hu et al may usher in an era establishing rule of law via codification of Federalist precepts as conditions precedent for provinical allocations of (or block) funding.

How? Just as we did at varying times of our American story... with money.

Why should there be details about how much stimulus as well as where and when and to whom? Let those provincial "little emperors" feel the heat of local discontent -- just enough so they are pliable when it comes to rule of law stricture being mandated from upon a mantle of entitlement theory.

Central planners are neither constitutionally constrained to act here based on provincial rights nor politically franchised to finance a subordinated guanxi-system of micro-development programs. Tax rebates and credits directed to natural and corporate citizenry are perhaps more efficient if not directly effective measures for stimulus.

The "Feds" do it to the states. In tern, the states do it to the counties and municipalities. Why get creative?

Central government planners have an opportunity here. Hopefully, this opening window in China's evolution will not be screened for only fiscal accountability and inspector general audits.

Does power of the purse support such a lofty pursuit? To wit: advance openness and reform for all Chinese people as well as us, those foreign guests who have vested hopes for a world-integrated partner that shares similar values -- as well as a liberated currency defended by fixed principles of law.

Given your vantage point, I am curious...

dr