The Rooseveltian phase in China

Guardian story by way of WPR's Media Roundup.

Makes me think of TR's initial stuff and then the huge infrastructure push with FDR, this Hoover Dam-like monstrosity planned for Tibet--the biggest dam in human history (38 gigawatt).  Will save tons of CO2, but will likewise change the environmental landscape big time.

But China feels compelled to network and integrate its western provinces--its great inland bridge to the larger energy and mineral resources in Central  and Southwest Asia.

And frankly, tightening the grip makes sense politically, whereas landlocked states do not.

The key for China:  making all this integration seem like a connectivity bonanza that allows economic development, networking toward the richer and better connected coasts, but also allows for increasing political self-rule--less unitary and more federal.  

That's the only way you make economic development work over such a large terrain.

Almost 30 dams are currently planned or being built along this crucial Tibetan river (Bahmaputra).

China: looking to take next step toward global brands

Usual excellent stuff from WAPO's John Pomfret.

The lead:

Quick: Think of a Chinese brand name.

Japan has Sony. Mexico has Corona. Germany has BMW. South Korea? Samsung.

And China has . . . ?

If you're stumped, you're not alone. And for China, that is an enormous problem.

Last year, China overtook Germany to become the world's largest exporter, and this year it could surpass Japan as the world's No. 2 economy. But as China gains international heft, its lack of global brands threatens its dream of becoming a superpower.

No big marquee brands means China is stuck doing the global grunt work in factory cities while designers and engineers overseas reap the profits. Much of Apple's iPhone, for example, is made in China. But if a high-end version costs $750, China is lucky to hold on to $25. For a pair of Nikes, it's four pennies on the dollar.

"We've lost a bucketload of money to foreigners because they have brands and we don't," complained Fan Chunyong, the secretary general of the China Industrial Overseas Development and Planning Association. "Our clothes are Italian, French, German, so the profits are all leaving China. . . . We need to create brands, and fast."

The problem is exacerbated by China's lack of successful innovation and its reliance on stitching and welding together products that are imagined, invented and designed by others. A failure to innovate means China is trapped paying enormous amounts in patent royalties and licensing fees to foreigners who are.

China's government has responded in typically lavish fashion, launching a multibillion-dollar effort to create brands, encourage innovation and protect its market from foreign domination.

Through tax breaks and subsidies, China has embraced what it calls "a going-out strategy," backing firms seeking to buy foreign businesses, snap up natural resources or expand their footprint overseas.

Domestically, it has launched the "indigenous innovation" program to encourage its companies to manufacture high-tech goods by forcing foreign firms to hand over their trade secrets and patents if they want to sell their products there.

Since 2007, thousands of Chinese businessmen have attended government-sponsored seminars on "going out," learning everything from how to do battle with domineering Americans and Britons during conference calls to why a Chinese boss should think twice about publicly humiliating his wayward foreign workers -- as he'd do to his staff at home.

China has also moved to re-brand China itself. Late last year, when memories of China's poisoned pet food and deadly milk were still fresh, the Ministry of Commerce contracted with the global advertising giant DDB for a $300,000 ad showing a series of high-tech products, from top-of-the-line running shoes to an iPod.

As a guitar wails, a voice intones: "When it says 'Made in China,' what it really means is made in China, made with the world."

This is always the tough stretch that I think about when people start predicting China's inevitable domination of the global economy.  Brands a lot more complex that most prognosticators imagine.  I mean, just look at BP all of a sudden--from "beyond petroleum" to beyond pathetic.  You can hire ad agencies to hawk your stuff, but that's just surface sheen.  The real brand loyalty comes in the ability to offer compelling innovation, excellent services, and the like.  That sort of capacity can't be ordered from above; it has to be nurtured from below.  A bunch of guys sitting around a table in Beijing won't be able to pick winners consistently, and in their failures, legitimacy will be lost, grumbling will ensue, and that much more resources will be wasted on policing people and their dangerous thoughts instead of winning hearts and minds and brand loyalists through modeled behavior.  Single-party states simply aren't cool, and they will never will be.

More excellent analysis:

In recent months, the Western media have hyperventilated with stories about China's going-out strategy and about Chinese firms buying up the globe -- Oil! Gas! Cars! -- and even investing in the United States. In 2000, China had $28 billion in overseas investments; this year, it could break $200 billion.

But a little perspective: Even if China's total foreign direct investment hits $200 billion, it still pales in comparison to smaller economies, such as Singapore's, Russia's and Brazil's. And China has plunked down only about $17 billion in rich countries, equivalent to the overseas assets of a single medium-ranked Fortune 500 company.

The 34 Chinese companies on the Fortune 500 list basically operate in China only. The world's three biggest banks are Chinese, but none is among the world's top 50, ranked by the extent of their geographical spread.

"Moving forward another 10 years," said Kenneth J. DeWoskin, chairman of Deloitte's China Research and Insight Center, "it's hard to see how viable Chinese companies will be if they just stay in China."

China's attempts to fight what it sees as the stranglehold of foreign patents and intellectual property rights have also had hiccups.

China is estimated to have paid foreign firms more than $100 billion in royalties to use mobile telephone technology developed in the West, according to executives of Western communications companies.

So in the late 1990s, it decided to develop its own. But after more than $30 billion in development costs, its unique technology still has fewer than 20 million users in a market of more than 500 million.

Handset makers have told China's government that they won't produce phones equipped with the new technology unless they are given subsidies. And China has resorted to giving away the technology to Romania and South Korea to encourage broader use.

"China is still stuck," said Joerg Wuttke, former president of the European Union Chamber of Commerce in China and a 25-year veteran of doing business in China. "There is a huge disconnect between the money spent in universities and the lack of products."

China also faces enormous challenges to creating globalized firms. Studies of Chinese executives show that they spend far more time with government officials -- who in China are the key to their profits -- than with customers, who are the key to international success.

"Chinese executives like me need to spend a generation outside China to learn how business is done around the world," said Hua Dongyi, who chairs a massive Chinese mining company in Australia but has also built roads in Algeria and infrastructure in Sudan.

Remember that line:  Chinese execs spend far more time with their party bosses than focusing on customers.

In a nutshell, there's the Achilles heel of state capitalism.

And that's not a problem you can fix by throwing more $$$ at it.

Rest of the story is about how Lenovo's purchase of IBM computer production was a rare success.

As always, Pomfret captures reality in China--absent hype--better than anybody else.

Whither Central Asia: the South Korean model

An exploration by Banyan in The Economist of the lack of progress toward democracy in Central Asia--and why it will matter more in coming years.

Nice point:  "Central" Central Asia is not, but rather a true periphery--or in my vernacular the Gap's hernia in Asia.

Key point I've been making for a long time WRT the Shanghai Cooperation Organisation:  "Not only America but also Russia and China view the region as a bulwark against militant Islam."  It either goes NE from the Persian Gulf or SW into Africa--or both. We create Africom in Africa as our instrument of bulwark, and Russia and China instinctively reach for what becomes the SCO.  Same concept, similar execution.

But what really seals Central Asia off from radical Islam is being pulled into China's economic orbit, thanks to mineral and energy resources--a 50-fold increase in trade since 1990.  Meanwhile, the West offers aid and advice.

But it's South Korea's growing presence that is the subject here, as well as the admiration for its national development model held by Uzbek president Islam Karimov, who is allegedly obsessed with the nation and its "cleanliness and order."

The analysis:

Yet Mr Karimov and others seem fundamentally to misunderstand the Korean model.  Although government resources were channelled to favoured companies, these firms then had fiercely to compete among themselves and on world markets.  In Central Asia the most successful companies are sinecures of nepotism.

What is more, South Korea's transition to liberal democracy entailed grassroots activism as well as top-down guidance.

Meaning the educated growing middle class was crucial.

Meanwhile, China is described as learning from Kyrgyzstan's mistakes by cracking down on its own NGOs.  

Sounds like China's got the wrong model.

Post-colonial approaches to Africa

FT analysis full-pager by Tom Burgis highlights China's relationship with Niger over uranium mining.

The opening gambit:

Following the same bargain it has struck across the continent – swapping infrastructure and cash for resources to sustain its breakneck growth – China has secured access not only to another source of African oil but also to what is perhaps the single commodity considered more sensitive than crude: uranium. It has also turned Niger into a bellwether for those who fear that the struggle to secure the continent’s resources risks re-creating the ruinous brinkmanship of the cold war.

The loser in this particular thrust?  France's Areva, which enjoyed a 40-year monopoly on Niger uranium. Given the level of development in Niger, I would say that competition wouldn't be a bad step.

Naturally, any such journey is contentious:

From 2004, when he became the first president in Niger’s history to be re-elected, Mr Tandja set about loosening Niamey’s umbilical bond to Paris. From 2007, Niger granted some 150 new permits to prospect for uranium, which accounts for up to half its export earnings. Relations with France reached their nadir when his government accused Areva of funding the Tuareg rebels of the Sahara who kidnapped expatriates and laid landmines in the northern mining region, demanding a greater share of the uranium spoils. Two senior Areva officials were ejected from the country in spite of French denials.

The fruits of Mr. Tandja's boldness became quickly apparent:

The competition has seen work start on Niger’s first refinery and a $700m hydroelectric barrage, not to mention hundreds of millions of dollars in “signature bonuses”, courtesy of Beijing. It helped the country wring tougher terms from France before granting permission for Areva’s vast new mine, which will make the country the world’s second-biggest uranium producer after Kazakhstan.

But apparently Mr. Tandja's closeness to China led to his political downfall:

Yet a February coup d’etat heightened the anxiety of those who see danger in a stand-off. Although ethnic rivalries and opportunism played their part in the putsch, Mamadou Tandja became the first African leader whose downfall could be traced directly to his embrace of Chinese suitors. “It was because Tandja had Chinese money that he felt he could mock the European Union, Ecowas [the regional bloc], the US,” says Mohamed Bazoum, a former minister who now serves on the “consultative council” created by the military junta that seized power.

The US concern?  Naturally, it's all about terrorists getting their hands on WMD --namely, Al-Qaeda's local offshoot.

China's take on things?  The usual:

Perhaps Mr Tandja had not acquainted himself with China’s policy of non-interference in the domestic affairs of African states. When young officers stormed the presidential palace on February 18, Beijing was as silent as it had been while he amassed power. The toppled president remains under lock and key. The junta pledged elections by February and has barred its own members from contesting them – so those overseeing the transition are not themselves participants. The soldiers have signalled they have no plans to break with China, although they intend to audit all Tandja-era mining permits.

They will do business with whomever is in power--not a particularly Chinese trait.

And don't think the Chinese are backing off due to the recent volatility:

Xia Huang, China’s ambassador in Niamey, says Beijing’s bonds to Niger are unshaken and that grander projects are in the offing, including pipelines and coal-fired power stations. China, he says, has offered Africa a “more profitable option” than other partners have. With a little overstatement, he adds: “This country has already seen uranium extraction for nearly 40 years. But when one sees that the direct revenues from uranium are more or less equivalent to those derived from the export of onions each year, there’s a problem.”

Nice point, great piece.

Asia: it's not just intensive growth, but inclusive growth that's required

Banyan piece in The Economist.

Nice start:

SHINY Asia’s rapid economic growth over the past two decades, driven by cheap land and labour, technological change and the play of globalisation, has had a spectacularly improving effect on the lives of hundreds of millions. Since 1990 the number of those in extreme poverty, defined as earning less than $1 a day, has been halved, to under a fifth of developing Asia’s people.

So far so miraculous. Yet the shiny face has a tarnished flip side. Poverty and the vulnerabilities associated with it remain entrenched. Further, inequalities are rising fast. The realisation is spurring a rethink among development experts. Until recently, economic growth and social policy were thought of separately. Inequalities and social exclusion, as Sarah Cook of the United Nations Research Institute for Social Development puts it, were viewed as a residual outcome of necessary market-led growth. The development response was to get markets right first and then deal with any remaining pockets of the poor. Persistent poverty and growing social exclusion call the approach into question.

When you move up to the $2-day threshold, about half of Asia is still impoverished.

As for villains, many in the region still point fingers at the IMF for its harsh adjustment programs after the "flu" of 1998.  China here is given high marks for expanding its healthcare and low marks for treating as invisible the illegal rural folk now living in cities.

Most crucially, the advice is to "get your political house in order":

In China, with mounting inequalities and disparate interests that need accommodating, it is not clear that the country’s political system, top-heavy and authoritarian, is up to the task. Not that democracies have fared much better: witness India, Indonesia and the Philippines, where the presidential election this week underscored how power and wealth lie in the hands of a few families.

They do, however, offer the poor a better chance of genuine electoral retribution; unlike, for example, most Central Asian countries. Until April’s coup in abject Kyrgyzstan, the ruling clan attempted to commandeer almost the entire state economy. 

In short, Banyan is not buying any inherent superiority of the Chinese model.  The easy growth is done.  Now comes the hard part.

Brazilian favelas: subject to modern COIN reformating?

By way of Craig Nordin, a post on Tech Crunch by Sarah Lacy.

Gist:

While it’s hard to match the lack of infrastructure like water and sewage systems in an Indian slum, there’s little that can compare to the violence of a Rio favela. So it was understandable, as I entered a Rio favela a few weeks ago that my guides kept impressing on me that a year ago I couldn’t under any circumstances have come here. One year ago, a cab wouldn’t have taken me here. One year ago, no one would even deliver pizza here.

What’s changed in a year? Specifically, the city is doing something about the problem, embarking on a project of “pacification.” As it was explained to me, newly-trained, SWAT-style cops take each favela back, driving out the drug dealers, by any means necessary, in a recognition that the situation isn’t just a bad neighborhood, it’s an urban war-zone. Being new to the force, these police officers have a clean slate with the residents of the favela, and so are able to continue to protect it, keeping the peace. So far, eight favelas have been pacified. Residents I spoke with talked about the relief of being out from under the daily violence: Suddenly they can be a part of the city. But many are still wary. “This is the best I’ve seen the community in a long time, but I’m still scared,” said Nivea Mendes of the pacified favela Babilonia. “Very few people trust the government. They are just out for an election. I’m still skeptical.” Put another way, even though they’re physically gone, the drug dealers still have power in these neighborhoods—for now.

There’s another tactical problem with pacification that never would have occurred to me: Violence aside, the move basically shoved the richest people – the criminals -  out of the favela, creating a need for a new livelihood for merchants and survival-level entrepreneurs (like the boy to your right and his family) in these neighborhoods. This is where technology is coming in.

For more than ten years a non-profit organization called CDI has been giving favela residents a different kind of freedom, setting up computer labs and offering training in everything from basic computer services to IT skills.

What caught my eye:  this is peacetime COIN or SysAdmin at its best.

Chart of the day: China's internal immigration rule-set clash

Great piece in The Economist about the hukou registration system that classifies all Chinese are either rural and urban--and only stealthily shall the two meet.

Current purpose is simple:  keep rural folk from migrating to cities too fast.  China is urbanizing at a rate never before seen in history.  In fact, it's the single biggest migration in human history--by sheer size.

What the chart shows:  Officially in Chongqing, roughly 24m people live in the countryside and maybe 9m live in the cities.  But in truth, the cities hold more like 19m, meaning 10m rural folk have migrated there "illegally."

The system is sort of China's internal immigration process: the richer city folk holding off the poorer rural migrants who move in and take all the 3D jobs (dirty, dangerous, difficult). Like the US and its immigration issues, this system is failing to work as intended, hence the many calls for reform.

Classic rule-set clash:  government wants to control the people flow, but the economic development says otherwise.

US accounts for 1/2 global defense spending; China the same in RR

Map found here

FT story on Bank of China investing $1.1B in China railway per government direction, resulting in 15% stake. This just after announcement of $900M investment in high-speed Shanghai-Beijing line, something on which the BoC may actually get its money back.

China is spending $120B on RRs this year.  The most fantastic estimates of Chinese defense spending land in the same range.

The US spends in the range of $600-700B on defense and nowhere near any such number on RRs, which get less maintenance money each year that the interstate system does.

One World Bank expert says China's RR expansion is the biggest thing since the US built its interstate highway system.  China, BTW, is just finishing up its own such system.

China schools attacks

Per the FT (Hille):

When a man with a cleaver walked into a kindergarten in China's Shaanxi province on Wednesday and hacked seven children and their teacher to death, shock was not the first public reaction.

After six such attacks in as many weeks, the mood among parents is approaching panic.

As one woman pleaded:  "We cannot feel safe any more.  How come they can't stop this?"

How come? Cause the government is too damn busy reading all your text messages.

This latest attacker, according to Oster in the WSJ (5/13) , showed no signs of mental illness, was well-off by local standards and was a member of the village government.  Naturally, the Party comes under fire: 

"These cases pose a challenge to the government because it's being criticized for its weak social administration," said Ma Ai, a leading sociologist at the China University of Politics, Science and Law. "The government may be blamed if it can't protect its citizens—especially vulnerable children. I think these attacks are more and more like terrorism."

Sign of the times:  popular children's write pens a song called, "I want to come home alive."

Dear uncles and aunts
I am in the school
If you are dissatisified
Please petition the government
I want to go home alive!

Nice.

Wen (premier) feels compelled to address the issue (Wong, NYT):

In a brief television interview, Mr. Wen told Phoenix Television, based in Hong Kong, that the government attached “great importance” to investigating the assaults, in which 17 people have been killed and nearly 100 wounded. All the assailants have been middle-aged men armed with knives or tools and acting alone.

Apart from taking powerful security measures, we also need to solve the deeper reasons behind this issue, including resolving social tensions, reconciling disputes and enhancing mediation at the grass-roots level,” he said. “We are sparing no effort in all of the above works.

In discussing the attacks, however, Mr. Wen did not address the possibility that some of the attackers might have been mentally ill.

Under orders from China’s central propaganda department, most of the main Chinese news organizations have declined to run follow-up stories on Wednesday’s attack, which took place in Linchang Village, in Shaanxi Province. China Daily, an English-language newspaper aimed at foreigners, was an exception — it ran a front-page headline on Friday that said "School Security Beefed" and carried Mr. Wen’s comments. Chinese officials say reports about the attacks could incite more copycat assaults, and in any case the propaganda department is often quick to order a blackout on news that points to deep social disturbances in China.

Two of the attackers in the first four episodes were diagnosed with a mental ilness, a topic that the Chinese often avoid discussing. Interviews conducted by The Associated Press in Linchang indicate that the killer there, Wu Huanming, 48, was an unbalanced person . . .

So event though such attacks are rare in China, the combination of middle class parents, precious only-children and media coverage is creating a lot of public pressure on the government to do something.

Another sign of social stress:  higher rates for suicide among Chinese factory workers.

The problem is when the ants start marching

When all the little ants are marching / Red and black antennas waving / They all do it the same / They all do it the same way ...

So says Dave Matthews.

The reference here (WSJ story) involves Chinese college graduates who call themselves the "ant tribe" because they can't find post-grad jobs but nonetheless stick around Beijing's outskirts, squeaking out a cheap life while hoping for something to come along.

Term comes from a recent popular book that surveyed such students, one that inspired "both admiration for the young people's striving and indignation at their living conditions."

Sort of sounds like a Chinese "Rent."

This year's class of 2010 hits the job market at 6.3m strong, and more than 100k are expected to take up an ant-like residency on Beijing's margins.  Imagine five guys sharing 130 square feet, or getting by encapsulated in a "capsule" apartment that measures 8 feet by 28 (!) inches.

The popular "song of the ants" is neither Jonathan Larson- or Dave Matthews-like, and yet the punch line resonates well enough:

Though we have nothing, we are tough in spirit

Though we have nothing, we are still dreaming

Though we have nothing, we still have power

I think Bill Clinton created something like 8m jobs across two terms.  The Chinese need to create a noticeably higher figure every year.  The country's total labor supply grows about 25m per year.

A society under stress, with mental health patients who go untreated

Two Sky Canaves stories in the WSJ.

Makes you realize that American who got killed at the Olympics by a mentally-ill knife-wielding Chinese was just at the wrong place at the wrong time.

Two knife attacks in two days at Chinese schools (44 kids and 4 adults wounded!), following an equally bizarre attack in late March that left 8 kids dead.  Second story says a total of five attacks have unfolded in the past six weeks for a grand total of 11 dead and 70 injured.  Police fear the usual copy-catting effect.

But the attacks highlight a sense of growing social unease and the undeniable reality that most mentally-ill people in China are on their own.  Estimates run to almost 175 million, "and the vast majority of them have never received treatment," according to a Columbia U study.

Why go after kids?  In this upwardly mobile society, they are the ultimate status symbols.

You know how much American parents would freak out if similar events were happening here, and the Chinese are no different.  I know a lot of Chinese with the classic one kid to worry over, and the amount of attention that kid gets is stunning--even by obsessive US standards.  And if you cross them on the subject, they will get very mad--very fast, as we saw with the recent earthquakes.

So China orders police patrols, etc., but that alone won't calm parents when three-year-olds are being knifed in their school.

Again, the unease is larger than just these crimes.  It's a sense of accumulated ills amidst all this tumultuous development:

China's remarkable economic growth over the past three decades, while bringing hundreds of millions of people out of poverty, has been accompanied by the emergence of complex problems that tend to undermine the ideals of a "harmonious society," which Beijing sees as necessary to maintaining the legitimacy of the ruling Communist Party. Official corruption, rising income inequality and a frayed social-security system are among the most pressing issues, and now violent crime may be added to the mix.

"These attackers basically belong to the category of suicide attackers," says Ma Ai, a professor of criminal psychology at the China University of Political Science and Law in Beijing. "They can't expect that they can get away from police after they commit the crimes." To prevent future outbreaks of violence, Mr. Ma says it is necessary "to gradually eliminate the breeding grounds for their hatred toward society."

The motives for the attacks are confused. But the sense of rage toward society, and the way it is targeting children, has thrown a spotlight on the changes that have swept through China. Much has been made of the widening gap between the urban rich and the rural poor and the resentments engendered by corrupt and high-handed officials who hold sway over the lives of ordinary Chinese.

Beyond that, China's dash toward prosperity has placed huge psychological strains on those striving to stay ahead and on those unable to keep up. The mentally ill are among the most vulnerable members of a society that struggles to provide basic health care for large sections of the rural population.

China hasn't seen the kind of random street violence that blights urban life in some Western countries, but the school attacks point to a growing problem among individuals who nurse deep grievances against society and are ready to blow at any moment.

You have to go back to America's 1890s to find similar stress:  the previous 25 years following the Civil War were so stunning in their growth and discombobulation, and government services--corrupt as their were until civil service reform kicked in--simply failed to keep up with the growing needs.  Dealing with crime in major cities?  Hell, NYC didn't get the NYPD really going until the mid 1840s and it's not until the mid-1890s, when Teddy Roosevelt becomes a police commissioner, that you start to see the serious reforms begin.

My sense of the cops in China whenever I see them out and about is that they deal with numbers we can't begin to imagine.  They always look stressed and overworked and a bit behind events.  Far from impressing me as a police state, I find myself usually thinking that they should be more cops around--given the constant crowds everywhere you go.