Google and the Larger China Challenge

Includes: FXI, GOOG
by: Peter Morici
Google’s (NASDAQ:GOOG) censorship struggle with Beijing crystallizes the challenge China poses to American global leadership.
Until the Google imbroglio, we heard much about China’s undervalued currency and subsidized exports, rough treatment of foreign investors and purchases of US debt, but not enough about Beijing’s restrictions on unfretted access to information, expression and self determination.
Americans believe individuals, free to think, speak and chart their own lives, best guide the progress of nations. Governments draw legitimacy from collective approval, because the people, collectively, are the sovereign.
Democracy and markets are as essential to what is American as words and paper are to books. Our political and economic institutions organize competition among individual ideas and enterprise that define our civic and material lives.
Democracy and markets are mutually reinforcing. Markets work best when personal freedoms are protected. Democracy best safeguards those freedoms.
Championing these values, the United States has worked tirelessly with allies in Europe and elsewhere to create international institutions that protect human rights and foster free markets.
China is not a Western nation as, for example, Japan and Taiwan have become, nor is it in transition to a democratic state.
China has an authoritarian government with no plans or timetable for relinquishing power. By word and deed, the Communist Party assumes parental authority over Chinese citizens, and asserts sovereignty, without their consent.
China embraces market reforms only as necessary and seeks to participate in global markets only on its own terms
China accomplishes rapid growth by exploiting its working class and by appropriating other people’s technology. It openly embraces as a development strategy a hugely undervalued currency that imposes unemployment on Western nations and keeps living standards of ordinary Chinese workers artificially low. China’s prosperous middle class is built on the backs of factory labor paid less than the value it creates.
To sell in China, Beijing requires foreign companies to produce in China through joint ventures and then transfer prized technologies to local partners. Now, having extracted the knowhow it needs, China is tightening the noose on foreign companies, causing them to consider withdrawing and leaving behind formidable new competitors.
During the Cold War, US engaged the Soviet Union, believing the Russian people would see, through example, the power of individual liberty and compel change from within. Applying that strategy to China is folly.
The Soviet Union collapsed, not because Russians bought into Jeffersonian ideas, but because the Soviet economy failed. China's economy is succeeding. Don't look for its leaders to call for free elections any time soon.
Beijing boasts that China soon will be making the international rules of the game. To sustain the Communist Party’s grip, Beijing has a strong interest in selling its brand of authoritarian capitalism to its neighbors, and making international institutions much less supportive of human rights and free markets.
To secure oil and other resources and extend influence, China is building a blue-water navy and spending massively to modernize its military. Seen in this context, the present policy of merely engaging China is unwise.
Rather, plainly acknowledging what China is and imposing explicit costs when its actions harm others makes more sense.
For US industries harmed by subsidized imports, countervailing duties can provide redress and better promote trade and jobs creation based on comparative advantages. And broader trade if China does not revalue its yuan and respect intellectual property rights.
It is high time to confront the fact that China is not evolving into a democratic society with a market economy, and it easily could morph into a fascist menace with global reach.
Failing to act contributes to China's success and supports its agenda.
To do otherwise is appeasement, and history has taught us the harsh wages of such a policy.
Disclosure: No positions