GE’s Jeff Immelt Surprised That Chinese Interests Are Different

July 5th, 2010

In a recent statement, GE’s CEO Jeff Immelt expressed surprise and dismay that the Chinese government and business interests are pursuing moves that will seemingly make the Chinese market less friendly and accessible to western companies. Then, he went one step further, accusing the Chinese of the attempted “colonization” of other countries.

Shortly after making the statement, GE seemed to take a step back from his statement, saying that his remarks were made out of context.

China’s opening up the west and western investment has been predicated on access to the Chinese domestic market in return for the west’s sharing of technology and access to western export markets. Since 1979, this has worked to a large extent: Chinese joint ventures and startups got technology, and Chinese consumers got access to western consumer brands such as Coca-Cola, McDonald’s and KFC. In late 2008 though, the financial crisis forced western consumers to tighten up their spending, and the Chinese government had to quickly motivate Chinese consumers to spend, making up for the excess production capacity opened up by the collapse of western consumer spending. At the same time, Chinese government stimulus packages have driven development in green- and clean-tech technologies, which will be major technology and manufacturing growth areas over this century. China is a leader in the production of the rare earths which are crucial in the development of these new energy sources and has signaled to the west that they should seek alternative sources for materials besides China. Unfortunately, most of this information has not been properly covered in the western media.

To recap, the key technologies of the future are technologies which most western companies did not heavily invest in, and is one which Chinese companies are now leaders, and following 2008, the export markets’ collapse, western imports of Chinese goods have fallen off the cliff. As Europe tightens its belt further to wean itself off excess debt, it’s natural to expect Chinese exports to the EU to be largely anemic. As for the US, one of the few things which all sides seem to agree on is that the country has excess debt, and the problem needs to be addressed somehow.

In light of this situation, the west really has very little room for leverage in pushing China for anything. Why would Jeff Immelt, or anyone else, expect China to do anything else except pursue its own interests in light of this situation? And why should he expect those interests to be the same as the west’s? It’s not as if the west has been a shining example of responsibility, success and accountability for the whole world.

Where Jeff Immelt veered off into politics was his use of the sensitive word “colonization”. For most westerners who do not follow the Glenn Beck school of racial harmony, equality and justice, colonization is associated with a largely shameful period in western history, which left a scar on its relations with Africa and India. Saying that Chinese intentions are the same as the west in the 19th century is an over-simplification, and it is too early to say how China and Chinese corporations will behave. For the most part, Chinese government policy and Chinese companies have had a laser-focus on mineral extraction and business, to the exclusion of everything else. They have shown no interest in getting Africans to adopt Chinese language, textbooks and beliefs, as did most of the European colonial powers in the 19th century. For this reason, Jeff Immelt’s choice of the word “colonization” was unfortunate. In most cases, projecting past injustices onto the future don’t help us to gain further insights; instead, they appeal to the worst sides of our character and create further misunderstanding.

Countries like India have shown that they are very good at defending their own business interests and squeezing business concessions from China; they do not need help from the west.

If only the American taxpayer had been so well-protected!

Small Things Which Say A Lot

December 7th, 2008

For a long time, I have been telling my friends that China is not going to use its foreign exchange reserves to bail out the US and the rest of the world. Aside from the fact that China does not feel like a superpower, it is becoming apparent with each passing day that China has very real problems of its own, and is going to have use its own reserves to help itself.

Another popular argument is that the newly rich Chinese consumers will go out and spend their yuan, helping the newly poor west out of its self-made predicament.

I have a few stories to tell you which make me doubt this.

Recently, at an apartment in Beijing, I went out to take the garbage, which is in the common area of the building near the elevators. Shortly after going into this area, I noticed that the only lights in the area, which has no windows, were two low-energy consumption bulbs on the other side of the area. Nothing else was on except for those two bulbs, including the stairwell, which was completely black and did not have any lights on. Obviously, the building management company, in an effort to save electricity, had turned off the lights to less than what I would consider safe.

So these are the same guys who are going to bail out western consumers from their problems? Hmmm….

Anyone who has stayed in China for any length of time will find small cards which have a photo of an attractive young woman smiling prettily, with a rate card and mobile phone number on the back. On these cards, the young woman will offer “massage services” with services called 西班牙骑士 and 综合保健 offered. Sometimes the cards mention that the young woman is a university student.

Now, what caught my attention recently was that their rates had gone down! The most expensive package 综合保健 or Total Healthcare Package had gone down from 398 yuan to 298 yuan. My guess is that the market was pulling back, and these young women were asking for less, at least according to my completely informal China Masseuse Index.

Then yesterday I flew from Beijing to Shenzhen. On arrival at Shenzhen airport, I took a small 20+ person bus to downtown Shenzhen. During the ride, as we were going downhill, I noticed that the bus mysteriously went silent. Then, it occurred to me that the bus driver had turned off the engine to save gasoline/petrol costs and was coasting downhill until we reached the toll booth. After we reached the toll booth, he restarted the engine, and we were on our way.

Taken in isolation, I would have said that each would at most, have been an interesting and amusing anomaly. Taken together, they paint a picture of a society which is indeed worried about the future, and is doing its best to cut expenses.

So that, from the street, is my reasoning for thinking why China will not help the west. It has too many problems of its own.

UPDATE: Caijing, the leading economics and business magazine in China, has a short report which supports my observations about falling energy demand from Chinese consumers. (h/t to Bill Bishop)

When Worst-Case Scenarios Become Best-Case Scenarios

March 26th, 2008

airpollution.jpeg
Environmental experts paint a bleak picture of the future when the subject comes to global warming. Now, it turns out because of the rapid increase in energy needs in China, what were originally worst-case scenarios for global warming will now, almost surely, turn into best-case scenarios.

This is because many of the decisions for new power plants and energy have been pushed from Beijing down to the provincial levels, and simply put, the provinces have more incentive to produce more energy than to decrease carbon emissions. What was a bad situation becomes much worse, not just for China, but for the whole world. While the US has previously been the world’s worst emitter of hydrocarbons, China is on the path to replacing the US to become a hydrocarbon emitting country on a much grander scale, and in a league of its own. This will lead to much greater condemnation of China in the international press and also in China’s more vocal domestic arena of public opinion which uses the Internet as its main venue.

Richard Carson, a professor at the University of San Diego, is the leading expert on China’s carbon emissions, and he has co-authored a paper on his measurements and forecasts for carbon emissions based on his on-the-ground work in China. You can read about it here.

Not Changing Fast Enough (Part I)

March 15th, 2008

tankers.jpg

This week’s Economist has a lead article and section on “The New Colonialists” which covers China’s expansion and search for natural resources on a global scale.

For many Chinese, being equated with colonialism is a bad thing, because Chinese have historically seen themselves as victims of colonialism, having had Hong Kong taken away by the British, and the Unequal Treaties with the leading European powers in the 19th century. When the Chinese see themselves portrayed as new colonialists, they go into hedgehog mode, curling up and sometimes fighting back against their western critics who are criticized for not understanding or being sympathetic to the Chinese point of view.

This kind of attitude is not helpful for the western critics, and is not helpful for the Chinese. The issues are real, and they are too serious to be trivialized, and for people to get into nationalistic shouting matches. The effects are huge, as they will affect the overall health of the planet.

Over the past thirty years, China has adopted an open economic development policy to raise the standard of living of the Chinese people. This policy has been enormously successful, unleashing the traditional Chinese ethics of curiosity about technology, thriftiness and hard work to elevate their standard of living dramatically. Today, China has the second largest economy in the world, trailing only the US, which is now currently undergoing a dramatic readjustment following the growing subprime mortgage debacle.

The party has been forcefully pushing a policy of development, and more significantly, urbanization of China, and plans to move more and more Chinese into cities. Throughout its long history, China has traditionally been a country mostly made up of farmers, engineers and small business people. The plan is for many of the farmers to become cityslickers, eating at restaurants, taking subways, and working in office towers.

The trouble with having so many big cities is that they are huge consumers of energy, which is why China now has to go overseas to satisfy this huge demand. Securing energy resources also means getting entangled in the affairs of many countries which are frankly, not very well-run. This in turn means that the country’s foreign policy has to feed its energy needs.

This is how America’s foreign policy and domestic energy policy got so screwed up. In Washington DC and across the nation, there is a strong and influential pro-Israel lobby, while the country depends on many middle-eastern countries which are hostile to Israel for its energy needs. These contradictions are unresolvable, and have resulted in the rise of middle-eastern terrorism and eventually in the 9/11 attacks.

Seeing these problems, it would seem to make sense that the Chinese leadership would find a new model for China’s economic development which did not depend so much on an outdated 19th century European mercantilist model for economic development in the 21st century.

China: Environmental and Healthcare Superpower?

November 3rd, 2007

Sure, today it sounds like some kind of a joke.

But there are early signs that this may indeed be the case. After all, these are two huge issues which are, shall we say, pretty serious matters in China today? Yet there are early signs that point to China, or Chinese companies, possibly being able to take a lead in fixing some of the problems created by rampant development over the past thirty years.

Chinese companies have played a role in mapping out the human genome project, and have recently sequenced the first Asian genome in Shenzhen. Worldwide, 2007 has been a banner year in helping our understanding of the genome and how diseases are transmitted and/or inherited.

With its rapidly aging population, the Chinese government has a special incentive for taking care of its population and keeping them working well past retirement age. This is especially important for people with rare or special skills.

Everyone knows that the environmental situation is a mess because of massive overbuilding and inefficient industries which are manufacturing just to keep their doors open. As oil prices go up, the Chinese government has a special interest in developing new non-petroleum alternative energies which produce no or very few hydrocarbons, and do not affect the environment badly as some of the current technologies.

A few companies have already started to develop new products, but the market is still young.

On the government side, the Chinese government is already taking an active role in cleanup, as evidenced by its plan to clean up Lake Tai. I believe that in the next 10 years the government will take steps to retire or roll back the Three Gorges Dam, as the project is already being openly criticized in government publications. Premier Wen Jiabao has been the main spokesman for environmental causes in the Chinese government, and he has personally staked his reputation on cleaning up the Chinese environment.

Since the Chinese government has put its reputation behind healthcare and the environment, my belief is that these two fields will become as important to this generation as computer hardware and software were for the previous generation. Many of the breakthroughs which are now occurring in these two fields have been made possible by IT breakthroughs.

Besides, the smart money is already going there…