The Dragon is Out of Breath

As such a key part of the processes of globalization which have developed our global economy in the past few decades, the manufacturers of China could not hope to escape the deletrious effects of the global economic crisis. As demand falls all over the world for finished manufactured products, Chinese factories have been hard-hit. Although most economic data coming out of China is stir-fried and seasoned by government officials, the monthly manufacturer's survey is one number that is seen as reliable, and in the past couple of months, worrisome. What could once have been explained away as the slowing down of manufacturing during the Olympic Games is now something far worse. After two back to back contractions of this Chinese Manufacturers Purchasing Managers Index (or PM Index), it is clear that this is no longer simply a statistical abberation or short-term correction. 

The problems are becoming apparent in very embarrassing ways. For instance, in the fourth-largest city, Chongqing, taxi cab drivers went on strike to protest the depreciation of what amounts to their standards of living.  Increased competition, fuel shortages, and inflation have driven down the value of their fares, which have not kept up with inflation. Showing the critical nature of cab drivers in the PRC, the strikers demands were met after only one day. 

More embarrassing to the ruling party are cases of party officials fleeing the country with embezzled funds, which according to reports total at least $100 billion. One official by the name of Yang Xianghong left a delegation in Paris under the pretense of visiting his daughter. A similar phenomenon is also rearing its ugly head in the private sector, as factory owners who find themselves unable to pay off obligations sell off everything they can't take with them and disappear, literally overnight, of course taking time to destroy all records on the way out. Behavior like this is perfectly expectable when considering information asymmetry. For instance, the factory owner who realizes how bankrupt his company is before anyone else finds out, will probably take whatever he can get out of his investment of time and money and leave before accountability catches up. party officials likewise have a particular interest. In times of economic distress, it is easy to imagine why enforcement of laws governing economic crimes, such as embezzlement and other forms of corruption, would become much more strict. As China doesn't have very many extradition treaties with other countries due to its continued use of the death penalty,  officials can live very well for a while, if not for the rest of their lives, off of ill-gotten gains, and of course, the more the amount of gains, the longer the official is able to pay legal fees and perhaps bribes to lengthen the extradition process or remove it as a possibility altogether.

In China's third-largest city where I live, Tianjin, the economic problems are slow to be revealed. Although this city depends on manufacturing for a great deal of its economic activity, development here was a key point in the latest 5-year economic development plan. So while the rest of China may be wilting from the lack of fresh orders from overseas and paltry domestic consumption, Tianjin is still booming. For instance, even though China is entering the downward cycle in the property sector as evidenced by the proliferation of empty buildings for sale and ret, just as occured in the United States in the past two years, I can see five separate large-scale construction projects just from my apartment windows. Clearly, in a nation as large as China, economic slowdowns are uneven at best. 

A Question of Origin

Among the many questions surrounding China's economic development and the associated environmental problems, there is rarely any question of responsibility. As the Chinese Communist Party maintains a firm control over all policy measures, it's easy to point the finger and say that they bear all responsibility. However, a couple of recent articles, one from the New York Times and the other from the Wall Street Journal, might lead one to slightly more nuanced conclusions.

The article from the New York Times, describes how Germany, suddenly left without coal to power its industrial juggernaut, sold off the pieces of industry to parties in China. German politicians were able to point at a blue sky and the profit off of the sales and benefit politically, while the factories were set up in China to keep producing the black soot that nearly destroyed the Black Forest.

The article from the Wall Street Journal illustrates Canada's role in the Three Gorges Dam project. In a similar vein, then-Prime Minister Jean Chretien leveraged deals to provide turbines to the project to keep his native province of Quebec from seceding from the confederation.

These stories, if nothing else, should provide anecdotal evidence that policy makers need to consider the ethical implications of international trade. These facilities are still polluting at the same rate, if not more, than they were for their previous owners, and yet they were sold anyway, instead of cleaner alternatives. Are ethical obligations limited to boundaries and citizenship?

If nothing else, these cases provide further evidence that one can make money through immoral business practices. Moral hazard theorists be damned!

In other environmental news from the Middle Kingdom, Beijing recorded its 256th "blue sky day" of the year. Pollution is squarely on the agenda for the next five years, with a new Politburo getting settled into office. Also making news is a website (English, 中文） from the Institute of Public & Environmental Affairs detailing air pollution.

Staring Down the Gunsights

These days there's been a lot of mention of the problematic relationship between the US and China. However, in new developments, the People's Liberation Army is reportedly seeking military nuclear cooperation with the United States. Which enemy do we have in common? Here's a brief background of the latest complications between the Eagle and the Dragon. Here, a pundit from the BBC stumbles through a discussion in the economic problems that have recently surfaced in the form of toy recalls, and at the end interestingly equates it to the military problems. Here, another pundit from the Economist raises the theory that the PLA is not necessarily under direct control of the Party's political leaders. The PLA, of course, has enjoyed a rather privileged position in the hierarchy of power, given it was the proving ground for the first generation of CCP leaders, restored order after the Cultural Revolution, and suppressed the 1989 Tiananmen Square incident. Considering the anti-satellite test, it could mean that the PLA feels entitled to more of a free hand in deciding policy and weapon acquisitions.