ARTICLE: "Feeling the Heat, Not Breathing Fire: A Big Foreign Investment by Beijing Takes a Beating at Home and Abroad," by Keith Bradsher, New York Times, 3 August 2007, p. C1. CORPORATE FOCUS: "Steel Offer in China Tests Players' Resolve: Takeover Bid Shows Scramble in Sector; Doubts About Move," by James T. Areddy, Wall Street Journal, 6 August 2007, p. A9. TECHNOLOGY: "In China, Lenovo Sets Sights on Rusal Market: Computers for $199 to $399 Are Aimed at Farmers in Bid To Reach New Customers," by Jane Spencer, Wall Street Journal, 6 August 2007, p. B2.

Fascinating to watch the domestic backlash already brewing on the Chinese government's recent investment in Blackstone Group, whose share price is falling.

Chinese bloggers, and even some financial media here, have not taken the hammering lying down. They are assiduously tracking the dwindling value of the government stake, and some bloggers and postings in Internet chat room are bitterly questioning Beijing's stock judgment--often in particularly Chinese terms. "O senior officials of the Chinese government, please do not be fooled by sweet-talking wolves dressed in human skin," said one of the seven scathing Internet postings compiled by an anonymous blogger on Sina.com, a Chinese web site. "The foreign reserves are the product of the sweat and blood of the people of China, please invest them with more care!"

Hmm, maybe China's ability to launch strategic investments won't be an easy as everyone assumes. Maybe it will become an even more volatile driver of popular pushes for accountability in the government. More generally, we simply should expect the Chinese to be hard bargainers and demanding investors for the proximate reason that they've become the most capitalistic types on the planet right now and for the ultimate reason that demographic pressures will demand high returns (for all the same reasons why our Boomer money seeks out the highest returns, thus tapping "emerging markets" as an investment opportunity) over the long run. We'll see this domestically in China in the consolidation of industries that otherwise do a bad job collectively in negotiations with overseas suppliers and buyers, tend to pollute at high rates, and generally don't make investments particularly wisely. In cleaning their industries up and rationalizing them, we should expect Chinese firms to become even more competitive, taking what was a sheer wage advantage and turning it into something more, like a sheer competency in selling to the bottom of the pyramid. To that end, better China sells cheap laptops in the Gap than we give them away. As Easterly points out repeatedly in "White Man's Burden," when you give stuff away, no one respects you or the good, but when you make them pay at a rate they can afford, they typically value the good/service far more, getting you the outcome you want. I know, I know, how "immoral" to make poor people pay for life-saving this or that, but the truth is that markets beat welfare every time in changing behavior. Same question I ask time and time again: do you want progress or just credit?