Is the Chinese Government Moving Against Japanese and Taiwanese Corporations?

Over the last month, strikes have broken out against many factories of Japanese and Taiwanese corporations in China, leading to huge wage increases. There have been many theories laid out as to why the strikes are occurring. For example, when Associated Press reported the story, they reported the following possible explanations:

Analysts said the recent labor actions were related specifically to job conditions and wages rather than any wider issues such as friction with Japan, which has at times prompted public outbursts against the Japanese in China....

Younger Chinese now seeking work in factories were raised in an era of relative plenty and have less tolerance for highly regimented factory living than older generations familiar with hunger, political unrest and poverty.

These theories do not explain why only Japanese and Taiwanese factories have been involved. Other articles have proposed that Japanese and Taiwanese factories pay lower wages than western factories or that Japanese and Taiwanese factories tend to employ workers from the same home towns, making worker unity more likely.

All of these explanations are indeed possible, but I have a different one. I suspect that the Chinese government is specifically targeting Japanese and Taiwanese factories in order to make them less competitive than Chinese-owned factories within the Chinese market as part of a foreign policy which is targeting these countries.

My theory is supported by the clear involvement of the Chinese Communist Party in permitting the strikes and controlling their message. The following comes from a report about Chinese unions put together by The Economist:

On May 31st more than a hundred high-level union members were sent to the [Honda] factory by the local government. Some scuffled with workers who were trying to get to the gate to talk to reporters. “They’re mafia,” fumed one employee, as another showed a long cut on his face that he blamed on the union men.

If, indeed, Japanese and Taiwanese factories are being targeted by the Chinese government, why? One possible explanation was given by a Chinese Admiral Guan Youfei. John Pomfret of the Washington Post reports:

On May 24 in a vast meeting room inside the grounds of the state guesthouse at Diaoyutai in Beijing, Rear Adm. Guan Youfei of the People's Liberation Army rose to speak.

Known among U.S. officials as a senior "barbarian handler," which means that his job is to deal with foreigners, not lead troops, Guan faced about 65 American officials, part of the biggest delegation the U.S. government has ever sent to China.

Everything, Guan said, that is going right in U.S. relations with China is because of China. Everything, he continued, that is going wrong is the fault of the United States. Guan accused the United States of being a "hegemon" and of plotting to encircle China with strategic alliances. The official saved the bulk of his bile for U.S. arms sales to China's nemesis, Taiwan -- Guan said these prove that the United States views China as an enemy.

But President Obama's Secretary of Defense Gates and Secretary of State Clinton think that Guan was just an "anomaly." Pomfret reports:

U.S. officials have since depicted Guan's three-minute jeremiad as an anomaly. A senior U.S. official traveling on Secretary of State Hillary Rodham Clinton's plane back to the United States dismissed it, saying it was "out of step" with the rest of the two-day Strategic and Economic Dialogue. And last week in Singapore, Defense Secretary Robert M. Gates sought to portray not just Guan, but the whole of the People's Liberation Army, as an outlier intent on blocking better ties with Washington while the rest of China's government moves ahead.

According to Pomfret, Gates and Clinton are deluding themselves. He reports:

But interviews in China with a wide range of experts, Chinese officials and military officers indicate that Guan's rant -- for all its discomfiting bluster -- actually represents the mainstream views of the Chinese Communist Party, and that perhaps the real outliers might be those in China's government who want to side with the United States.

I am not a China expert, but I do know enough to take Admiral Guan's words very seriously. I know that the ultimate power in China is held by the Chinese military. That's why, ever since the People's Liberation Army ended Mao's Cultural Revolution, the most powerful political position in the Chinese Communist Party has been the head of the military committee.

The truth is that China has no intention of letting in our goods. In 2009, while the Chinese economy grew by 8.7%, the Chinese government was preventing American imports from growing even one iota. They did so through a wide variety of tariff and non-tariff barriers. In November and December, they issued new directives, which they have since put on hold, that foreign corporations must move their Research and Development to China in order to be able to continue to sell to the sizable government-controlled portion of the Chinese market.

According to the latest U.S. monthly trade report (released June 10 by the BEA), American exports to China went down from $7.4 billion in March to $6.6 billion in April, despite estimated current growth of the Chinese economy of between 10% and 13%. Meanwhile, our imports from China soared from $24.3 billion in March to $25.9 billion in April, despite the slight overall decline of our April imports, reflecting our current economic stagnation.

If China is indeed moving against Japan and Taiwan now, they are sure to move against the United States. The only question is when.

We have a choice. We could continue to delude ourselves that China is about to start letting in our products, while China grows by 10% per year and our economy stagnates. Or, we could adopt the realistic policy of requiring balanced trade, as permitted by a special WTO rule for trade deficit countries.

Disclosure: I own Chinese yuan through CYB