“We have very significant economic interests in our relationship with China, a strong and growing China benefits the United States, just as a strong and growing United States is good for China. (1)” -Geithner
While public and private funds are earmarked for companies and organizations working with China, one has to wonder just what is in it for the US? The numbers behind China’s dramatic growth allow us to see just how China has been enriched by joining the WTO and opening up to the world, but were is the silver lining that we were promised?
The fact is that the Chinese, through a process of manipulation of the RMB2, discriminatory public works projects (3) and rampant intellectual property theft (4), has little for us to share.
To hear the mainstream media tell it, however, China is our savior, like the second coming. If only we can bear with China as she modernizes, then one day we too shall reap the benefits of the US-China relationship, but will this ever come true? And if so, what will the US look like at that time?
The US economy has been on the skids for a decade now. This time-frame coincides with China’s entry into the WTO, but was also effected by the events of 9/11. The elephant in the room, however, is why the US fails to take action against China, even in the most manageable of ways.
The apologists claim that it is dangerous to start a trade war with communist China. Really?
In the last fiscal quarter, the US set an all-time record trade deficit with the People’s Republic of China (5). This means that in the history of mankind, no country has ever had such a large deficit of what it sold a country compared to what it purchased from them (6).
Should we fear a trade war? Who is really in the drivers seat? We need to be more aggressive in forcing the Chinese to obey the rules that they agreed to upon joining the WTO, and Intellectual Property Rights is a good start.
A little known secret is that foreign firms have been good to China, it’s no wonder they seldom clue us in to the realities of doing business there. China has built a safe haven for human rights and ecological abuses that are too appealing for business to pass up.
What China Has Gained
Over the past three decades, China's GDP or the value of all goods and services produced has increased fourteen fold (7). Aside from that, the country has gone from a country littered with drab, run down ten-tiered buildings to the home of just under half of all skyscrapers on the planet.
The Chinese people themselves have not done so badly either. Over the past decade, on average, a new Chinese billionaire is minted every twenty days.
And what's not to love about being a member of the communist party? Ninety percent of all Chinese billionaires hail from this strata.
As a matter of fact the accumulated worth of China's richest legislators (8) - read as communists - is $909 billion. Not bad for a civil servant whose base annual salary is comparable to an office worker back home.
And who do the Chinese have to thank for that growth? Foreign enterprises and investment.
Did you know that over 40% of China's GDP growth is attributable to foreign companies, governments and businesses (10) and not the Chinese? This is true.
According to Yu Xing, almost half of all the value of all the goods and services produced by China over the past thirty years comes as a direct result of foreign involvement in China (11). With so much foreign cash being poured into the 'Chinese miracle', it is no wonder big business shields us from those inconvenient Chinese truths about abuse and neglect.
While the Chinese are constructing record setting numbers of tall buildings and railways that go fast, we in America are battling double digit unemployment. But is it really their fault? Are the Chinese to blame for our misfortune?
It could be argued that part of our unemployment is structural and due to the natural progression of a developing country, China has taken those jobs that we in the US are 'over-qualified for' or 'unwilling to do' - or so goes the corporate meme.
Fair enough. Lets ignore the fact that as of last year, the US was still a larger manufacturing country than China, and focus on the service industry instead.
Intellectual Property Rights
“The failure to protect intellectual property rights in the Chinese market leads to massive theft and piracy, and in turn improves the short-term competitiveness of Chinese firms....a weak legal environment allows Beijing to intervene in the market for IP [intellectual property] and help its own companies 're-innovate competing IPR as a substitute to foreign technologies. (12)”
At the same time US firms are rushing to catch the Chinese meteor, the software, movie and music industries are being robbed blind.
The Chinese have a host of laws and statutes which purport to protect foreign copyrights and trademarks within the People's Republic of China. The reality, however, is that what China promises and what actually happens, can be worlds apart.
Due to low fines and a high threshold for criminal prosecution, Chinese pirates operate comfortably, even when prosecuted (13). The result is an ecosystem of 'knock off everything'.
I've blogged before about the knock-off meat, toilet paper, wine and even Conan O'brien show, but what is being done about it?
If one has never been to China, it is hard to fathom the depth and scope of piracy here. A common joke amongst expats is that it's harder to find a 'real' movie DVD or song, than a pirated one.
The impact of China's intellectual property rights (IPR) violations is lost money and jobs for those companies that create value through innovation.
Consider the fact that China is the second largest market for computer hardware in the world, yet it purchases less software than Canada and Italy. The fact is that the Chinese are buying what they must and stealing what they can.
The availability and tolerance of and for copyright infringing works is beyond belief (14).
The news is even worse for the music industry. China's official tolerance of illegal movie and music sharing websites such as Baidu (15), enable an epic loss for the foreign music industry. Chinese official sources estimate that over 80% of China's 500 million people use the Internet to access music (16), but do not pay for it.
That means that over 400 million Chinese are enjoying pirated music for free. Yet the U.S. music industry spends more effort getting federal prosecutors to arrest U.S. teenagers for downloading free music than they do trying to collect money owed them from China.
The Economic Impact if China Cleaned Up Its Act
The problem is that Chinese websites make money from ads, thus they use illicit copies of movies and music to attract eyeballs to their sites.
Thus, companies like Baidu (17), which is a Chinese company listed on the US NASDAQ, provides the link to illegal downloads so that they can drive ad revenue. The sad fact is that it is estimated that 99% of all foreign music that the Chinese enjoy, has not been paid for (18).
To put this into perspective, one need only compare that legitimate US music sales were $7.9 Billion in 2009, compared to only $59 Million in China. (A difference of $7,310,000,000!)
The Chinese are no better when it comes to utilizing pirated software as well. In 2011, China's President promised that the central government would try to stop using pirated software (19).
Yes, Hu Jintao, the leader of China's communist party and President admitted that the communist party of China is running pirated software in their offices. He then said that at the national level, they would try to purchase and run legal software. And remember, this is not your father's China.
China is now the second largest economy in the world. Surely a country with as much money as China can spare some change for legitimate software?
What's worse is the fact that the communists, through 'anti-foreign' bids, do not allow US manufacturers into some of the most lucrative segments of China (20). The communist party, through SOE's spend more than U$1 trillion annually on governmental purchases alone (21).
How much of that trillion could the US get if the Chinese would enforce the IPR laws that they have in effect? What a boon for us if we could only get China to live up to their word.
The Impact on the U.S.
Steve Ballmer has told China that 90% of all Microsoft product in the People's Republic is pirated (22).
It has been estimated that if China were to abide by the laws already on the books and respect intellectual property rights, from 923,000 to 2.1 million jobs would be created back home.
If this were to happen, we could offset the 2.4 million jobs we have off-shored from 1999-2009.
When China's next President X ijinping, visited the US, we squandered a great opportunity to address this issue. Instead, U.S. officials patted themselves on the back for 'convincing' the Chinese to allow a few more American movies there.
I have posted this before, so will not belabor that point here (23).
What the pandering politicians and talking heads do not wish to address is how serious the issue of piracy is in China. Whenever the theme comes up, we are told that China is 'in transition; and still a 'developing' country.
After thirty years of open doors and over a decade of operating in the WTO, isn't it about time that China steps up and changes? Should we allow them to knock off our goods while making excuses for actions we do not tolerate anywhere else?
Why are the facts and realities of China not being articulated by the mainstream press and corporate figureheads? Of course, China has promised to make good on their WTO promises, but their actions tell a far different story.
The doctrine that enters only into the ear is like the repast one takes in a dream.
References & Image Credits:
(2) Global Security
(5) Buy American Challenge
(6) Buy American Challenge 2
(8) Brazilian Bubble
(10) Global Security
(11) Global Security
(12) Global Security
(13) Global Security
(15) Baidu (american stock? ) allows ads to be run next to pirated content
(16) Global Security
(18)(19)(20)(21) Global Security
(22) Network World
(23) In essence, the Chinese only allowed 14 more US made movies to enter the Chinese theaters. This is in violation of WTO agreements but yet the current administration lauded this event. Upon joinging the WTO, China was to open their market to foreign movies but to this day they still do not heed this accord. The Chinese only allow 20 US movies to be shown in one calendar year.