FROM PHOENIX, ARIZONAGLOBAL AFFAIRS
Phoenix 1. Chinese Follies Revisited
A 10-year Forecast Comes True: Intel Hits Chinese Wall (of Regulation)
1. China Follies Revisited
PHOENIX, March 13 - "Those who do not learn from history are doomed to repeat it," goes an old proverb, with the emphasis on "doomed." Count IBM and Intel among such unfortunates. Intel has just hit the Chinese wall (of regulation).
Almost 10 years ago, almost to the day, we first warned about the upcoming "China Follies". The Annex Bulletin "Mountain Shook, Mouse Was Born" (Mar 1994) actually dealt with the former IBM chairman and CEO's first "vision statement." It was short on vision and long on follies:
And what brought on such a warning? Here's an excerpt from that March 1994 Annex Bulletin:
(the preceding slides were taken from Annex Research presentations and workshops delivered in the 1994-1998 time frame)
Fast-forward from March 25, 1994 to March 10, 2004, and you'll see one of the consequences of "China Follies." Intel became today the first major American company to hit the Chinese wall (of regulation). The company said it could be forced to stop selling some computer chips in China because it can't meet a June 1 deadline for compliance with a new Chinese government rule, the Wall Street Journal reported this afternoon in a front page story.
And what is that new Chinese government rule? A unique security standard developed by Beijing. So it could spy on its citizens? Nothing new there...
It doesn't take a communist country to want to engage in such surreptitious activities. Just check out what the National Security Agency, or the Homeland Security, or the FBI and CIA are up to at home and abroad. The new aspect of the spy game is that the Chinese government is using security as a way of handicapping foreign chipmakers. Yes, the same gullible ones Beijing had lured to build factories in China, such as Intel in 1994.
No wonder some Washington Old Boys who have been spearheading the 15-year globalists' "conquest of China" on behalf of the New World Order, and its admission to the World Trade Organization (WTO), are now crying foul (see China: Real Cold War Winner, Mar 2002, and Who Lost China?, Aug. 1999).
Last week, three U.S. cabinet members - Secretary of State Colin Powell, Commerce Secretary Donald Evans and Trade Representative Robert Zoellick - reportedly wrote a letter to Chinese leaders that said the rule is "inconsistent" with China's WTO commitments.
"Tough luck," is probably the response they will get. "Should have thought about that before you poured over half a trillion dollars of western multinationals' money into China" (see China Now Bigger Than U.S.!, Jan 26).
In fact, some Chinese officials have said as much using different words.
Chen Yuping, a director at the China Academy of Telecommunication Research under the Ministry of Information Industry, brushed off Intel's warning that it might have to stop shipping certain chips to China. "Eventually, Chinese companies will take up your market share," he said, according to the Journal story. "We have chip makers too, so we don't have to depend on your products to survive."
So as you can see, it's a new trick in an old Chinese game - beating the West at its game. British textile manufacturers experienced that more than 100 years ago. American chip makers are getting it today.
The Chinese are doing it what they've always done... fattening up the foreign Golden Geese while nurturing their own. Once their own offspring are strong enough to compete, they kill the foreign Golden Geese and keep gold (the western investments in China).
"Those who do not learn from history are doomed to repeat it." Funny how you don't hear Intel or IBM now boasting about the benefits they are reaping from cheap labor rates in China.
Well, China is evidently doing a turn-about-face, its membership in the WTO notwithstanding. But what about India? Can the new darling of western multinationals be far behind?
Well, we think its change of heart is probably years away. Sooner or later, however, the Indian government will also have to choose - support the indigenous companies or lose some of the western investments. Among the local Indian companies that are already feeling the pinch are Infosys Technologies Ltd. and Wipro Ltd., both of Bombay (also see A Passage FROM India, Mar 2004, for reasons why).
Meanwhile, there seems to be a sucker born every day. In another story that broke today, CSC said it would more than triple its staff in India to about 5,000 people, the Reuters news service reported March 10.
CSC is a relative late-comer to the India-bound job export frenzy (see "A Passage to India", July 22, 2003). IBM, for example, already has about 10,000 people there and will be adding another 3,000 or so this year.
CSC said it is investing $12 million to expand into a new facility the southern Indian city of Hyderabad that will employ 1,000 people by the end of the year. CSC also has one center in the central Indian city of Indore and three units in the northern township of Noida, outside New Delhi.
Any similarities between what CSC announced today about its new investments in India, and what Intel did in China 10 years ago, when it opened its first plant, are, of course, coincidental. Really?
Hoops, Scrap, TIPS, Trade Deficits, Foreign Ownership Soar, Spirits Slump... Before the Ides of March
Everybody knows that what goes up must come down. It's called the "law of gravity." Even stock prices and power, including that of an omnipotent Caesar, conform to that law, not just basketballs.
As with every rule, however, there are exceptions that serve to confirm it. Hoops, scrap, TIPS and trade deficits are among the exceptions. They are all soaring as we approach the Ides of March.
The Ides of March? What are they?
Everybody who's been touched by classical education also knows about the "beware the Ides of March"-warning that Julius Caesar had reportedly received (the Ides can fall either on the 13th of the 15th of the month, according to the Roman calendar). The word the Roman emperor got was that betrayal was brewing in the Senate.
Despite the warning, Julius' "secret service agents" were asleep at the switch 2048 years ago on 3/15, as ours were on 9/11. Brutus, Cassius and other Senate coup plotters stabbed Julius Caesar to death at the foot of the Pompey statuein the Pompey theater in the temple of Venus, where the Senate happened to be meeting that day. "Et tu, Brutus," ("You, too, Brutus") were Caesar's last words.
What followed was civil war in which Octavian (later Caesar Augustus) and Mark Antony teamed up against the assassins, and chased them all the way to Greece. (Any similarities with our Caesar's "war on terrorism" and his pursuit of Osama bin Laden and Saddam Hussein is, we are sure, coincidental). J
As befits the protagonists of a Greek tragedy, Cassius and Brutus eventually committed suicide rather than face defeat and capture. Too bad Osama and Saddam are unlikely to. They are students of the Koran instead of the Aeschylus, Sophocles or Euripides dramas.
But back to the hoops, scrap, TIPS, and trade deficits...
American college basketball teams' hopes and hoops are soaring with every slam dunk as "March madness" (basketball playoffs) grips the country. Unfortunately, so are the scrap metal prices, the TIPS (Treasury Inflation Protected Securities) and trade deficits...
"At a time when toys, televisions and other products made in China are flooding into the United States, helping push the trade deficit to record levels, there is at least one American product for which China has a nearly insatiable demand — industrial junk," the New York Times reported today in a front page story (see China’s Need for Metal Keeps U.S. Scrap Dealers Scrounging).
Sales of scrap metal to China have surged, and the prices are soaring. The price of scrap steel, for example, has soared to more than $300 a ton, compared with about $156 a ton at the end of 2003 and $77 at the beginning of 2001, according to the Emergency Steel Scrap Coalition.
David Pan, a Chinese-born scrap metal buyer from Los Angeles, is even negotiating to buy the remains of a steel factory in Utah, according to the Times. He would ship it, as scrap, to his native country.
"China is hungry" Pan told the Times. No kidding. But not hungry for rice anymore, its traditional staple. Thanks to $596 billion the foreign multinationals have invested in new factories in China since the end of the Cold War (see China Now Bigger Than U.S.!, Jan 26), it is now hungry for scrap.
Exporting the Rust Belt
"One man's trash is another man's treasure," goes an old saw (not the metal one J). "One man's loss is another man's gain," goes another.
While American steel mills are biting the dust in the Rust Belt, China's State Development and Reform Commission has just announced that fixed investment in steel mills rose 90 percent in 2003, and will nearly double by 2005 over last year's levels.
So besides the millions of Rust Belt and other manufacturing jobs that the U.S. multinationals have already exported to China, we are now exporting the Rust Belt itself.
"Hurrah!" Ralph Nader and his Greens and the EPA (Environment Protection Agency) should be cheering. China seems to acting as a giant eco-Hoover cleaning up the American countryside from the remnants of the industrial era pollution. And it's doing it for free.
But... (there is always a but). Some American businesses are crying foul, according to the Times. The Chinese buyers are driving up scrap prices, yet they are able to sell finished products made from that scrap for less than U.S. manufacturers can.
American copper companies, for example, contend that China is subsidizing importers of copper scrap and exporters of finished products, in part through tax rebates. Joe Mayer, president and general counsel of the Copper and Brass Fabricators Council, told the Times that the group may file a trade complaint about this. "The faucets from China are coming into the United States at less than the metal value that we would have to pay," Mr. Mayer said.
So what we have in this country today is a case of reverse colonialism. We, the New World Order's penultimate colonist, are exporting money, jobs, raw materials and scrap to third world countries so we can import finished products from them.
Is that madness or what? Not so, the globalist defenders of "free trade" argue. For, American consumers benefit from cheaper prices from such imports.
But that's "fools' gold," the detractors retort. For, the U.S. taxpayers are paying for it in a different way. America's soaring national debt, along with record trade and current account deficits, are among the consequences. We are paying for cheap imports with borrowed money.
That's as if a home owner were to take out a mortgage to pay for groceries and other consumables. If you add the cost of financing (read higher taxes) to the prices American consumers pay, the cheap imports won't look so cheap anymore.
Trade Deficits Soar...
The U.S. trade deficit climbed to a monthly record of $43.1 billion in January, as imports continued to flood in from China, the Times reported on March 10. American exports were also hurt by slumping demand from Europe and other parts of the world despite the slumping U.S. dollar that should have made our products cheaper abroad.
Even though the U.S. has been running trade deficits for many years, the gap between exports and imports has widened sharply over the last few years. The trade deficit reached an annual record of $489.4 billion in 2003. That represents 4.5% of the nation's gross domestic product, up from 4% in 2002, and 1.9% in 1990.
The trade deficit with China also reached a record $124 billion last year, as China has pegged its currency to the dollar, thus offsetting any advantages that American companies may have enjoyed because of the dollar's slide. As a result, America is now importing more goods from China than from all European Union countries put together.
This means that the American jobs are this country's best-selling export. The U.S. Labor Department reported last week that the economy has lost about 2.2 million jobs since January 2001 (i.e., since the start of George W. Bush's term in office).
The soaring trade deficit has also led to a huge increase in overall United States indebtedness to the rest of the world. The nation's net foreign obligations, which include debt and the claim on American profits by foreign investors, are equal to more than one-quarter of total American output.
Which means that the globalist economic policies that have been pursued by both the Democrats (under Bill Clinton) and the Republicans (under the two Bushes) since the end of the Cold War, effectively mean that the Americans are working for the banks. Yet even the bankers are getting worried now. What good is a customer/consumer who goes bankrupt and can't pay his/her debts?
Current Account Deficits, Foreign Ownership Soar...
The U.S. current account deficit, the primary gauge of trade and foreign investors' appetite for U.S. assets, also hit a record for all of last year, the government said on Friday, according to a March 12 Reuters report. For all of 2003, the current account deficit reached an all-time high of $541.8 billion, up from $480.9 billion in 2002.
But the weak U.S. dollar that both the Fed (Federal Reserve Board) and the Bush administration officials are hailing as "good for the country," has had at least one tangible effect. It has increased the foreign ownership of America. Official foreign purchases of devalued U.S. assets in the fourth quarter rose $19.1 billion over the third quarter to $64.4 billion, according to the Reuters report. For the full year2003, foreign official assets in the United States more than doubled to a record $207.7 billion, from $94.9 billion in 2002.
Ever heard of TIPS? No, not the kind you leave for the waiter in a restaurant. We are talking about Treasury Inflation Protected Securities (TIPS). No big deal if you haven't. After all, Wall Street has been trying to bury them for years. TIPS are meant for "buy and hold"-investors. And those are not the kind that are near and dear the Wall Street traders' hearts.
Besides, with inflation at record low levels, who would need to buy insurance against it? Well, perhaps those investors who look to the future instead of to the past?
The TIPS, which U.S. Treasury issuing in 1997, pay the investor a set interest rate, and their principal gains in value along with the rise in the Consumer Price Index. The TIPS are now being snapped up by individual investors as well as pension funds and others who are concerned that inflation could erode their returns in coming years, according to a story in today's New York Times.
As a result, the TIPS market, which is estimated at about $200 billion, could double from $30 billion last year, to $60 billion in 2004, according to the Times. That's still a tiny portion of the total Treasury market ($3.6 trillion), but the fact that it is growing so fast is an indicator of another underlying investors' worry with which we have not had go grapple for years.
A report by the University of Michigan showed a preliminary reading of consumer sentiment slipped in March for a second month, as the lack of new jobs, as well as higher gasoline prices, took a toll on consumer spirits, the Bloomberg news wire reported today (March 13).
"Consumer confidence fell in March as Americans grew more pessimistic about the outlook for an economy that is creating the fewest jobs at this stage of expansion than in any recovery since World War II," the Bloomberg report said.
The University of Michigan's preliminary index of consumer sentiment declined to 94.1 from 94.4 in February, when confidence fell by the most since the terrorist attacks in September 2001.
Let's summarize... Hoops, scrap, TIPS, trade and current account deficits, the national debt and the foreign ownership of America are all soaring, while jobs and consumer spirits are slumping. And President Bush is telling the nation on his campaign trail how good we are having it; how strong America's economic recovery is?
Hm... Wonder if he went back to drinking? J (stealing the line from David Letterman).
Everybody knows that what goes up must come down. It's called the "law of gravity." Even stock prices and power, including that of an omnipotent Caesar, conform to that law. And "those who do not learn from history are doomed to repeat it."
But don't get us wrong. There is nothing wrong with fair competition, including that for jobs. If the Chinese or the Indians are willing to work for wages 10 times lower than the Americans without either government's intervention, more power to them. But there is plenty wrong with duping the population of the world's once most prosperous country into becoming the global bankers' stooges. And that's what successive Washington administrations and the acquiescent Congress have been doing (honorable exceptions noted).
After all, aren't national leaders supposed to defend national interests? Evidently not anymore; not in this country, anyway; not in a plutocracy. With the increasing concentration of power in the hands of an ever smaller number of people, one cannot help but recall another lesson to be learned from history.
Ancient Rome's Juvenal (a.d. 60-130) wondered about a similar situation some 20 centuries ago: "Quis custodiet ipses custodes?" ("Who will guard the guards?"). And that's our "beware of the Ides of March"-message.
Also, check out some of some other reports on American affairs...
of the World Unite," "Bush
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Also, check out... Djurdjevic's CHRONICLES magazine columns: "ON THE BRINK OF MADNESS", "A BEAR IN SHEEP'S CLOTHING", "WALL STREET BOOM, MAIN STREET DOOM", "PERPETUAL WAR FOR PERPETUAL COMMERCE", "WIPING OUT THE MIDDLE CLASS", "WALL STREET'S FINANCIAL TERRORISM"
Or Djurdjevic's WASHINGTON TIMES columns: "Christianity Under Siege," "Silence Over Persecuted Christians", "Chinese Dragon Wagging Macedonian Tail," "An Ugly Double Standard in Kosovo Conflict?", "NATO's Bullyboys", "Kosovo: Why Are We Involved?", and "Ginning Up Another Crisis"
Or Djurdjevic's NEW DAWN (Australia) magazine columns: "Macedonia: Another Farcical American Oil War," "Anti-Christian Crusades," "Blood for Oil, Drugs for Arms", "Washington's Crisis Factory," and "New Iron Curtain Over Europe"