Saturday, August 18, 2018

China Has No Intention Of Altering Its Course In Trade!

It is silly to think China returning to trade talks will result in anything substantial or a quick resolution to current issues. China has little intention of altering its course and will concede nothing in future trade talks. I expect they will even use every last ounce of its power to maximize its leverage over North Korea for its benefit. We need not look far to discover China's intentions and when it refers to its plans the reference extends into trade, OBOR, increased military power and much more. America stands in China's way and as an obstruction to what it envisions as taking its place as the dominant world power. It is the goal of the Chinese Communist Party (CCP) to turn China into a “manufacturing superpower” so advanced in tech manufacturing that it dominates global high-tech markets.

China Excels In "No Nonsense" Manufacturing
China unveiled in 2015 an economic blueprint for this transition and it is known as the "Made in China 2025” program. At its core are 10 tech-related sectors the CCP  wants to develop and it is extensive. It includes advanced information technology, robotics and automated machine tools, aircraft and aircraft components, maritime vessels and marine engineering equipment, advanced rail equipment, new energy vehicles, electrical generation and transmission equipment, agricultural machinery and equipment, new materials, and pharmaceuticals and advanced medical devices. They have integrated this into China's long-term strategy of growth and its OROB initiative. The program builds on existing industrial policies, but with deeper coordination among numerous state agencies. 

A key part of the plan centers around both state-owned and private firms investing in and acquiring foreign companies for the purpose of stealing their technological innovations. Global investment numbers show that in 2016, the top two industries in which Chinese firms engaged in foreign acquisition deals were manufacturing (at about $30 billion) and information technology/software (about $26.4 billion). It is also important to note that in order to receive permission for foreign companies to do business in China it is common for the Chinese to insist the company shares and transfers their tech knowledge to their Chinese joint-venture counterparts which excel in "no-nonsense" manufacturing.

This transfer of technology has been confirmed in reports by both the Office of the U.S. Trade Representative and the EU Chamber of Commerce in China. A 2017 U.S. government survey of the U.S. integrated circuit industry found that 25 companies had to transfer their technology and form joint ventures with Chinese entities as a condition of operating in China. The same intense pressure is put on European companies which is a clear indication that China has no intention of being locked into producing low-end manufacturing of basic goods but is determined to move into high-tech products. Not only can it be seen in the intense pressure they put upon firms to share trade secrets but in China's strong industrial espionage sector which is geared to wrestle away these valuable gems when they are not voluntarily shared.

China Is Building A Slew Of Cutting-Edge Weaponry
To be clear, China still lags behind in technological advances and is rapidly losing its edge as a low-cost producer. In recent years foreign companies that once relied on China’s cheap labor to produce their goods have moved their factories to Southeast Asian countries such as Vietnam, Bangladesh, and India, where operating costs are lower. While claims that higher U.S. productivity and rising operating costs in China will close the cost gap between manufacturing in China versus the United States the idea American firms will bring jobs back to America are far too optimistic and overblown. Even if major multinationals like Nike Inc., Adidas AG, Nikon Corp., and Microsoft Corp. have closed down their Chinese factories due to rising labor and land cost America is not where these factories and jobs are going. Many are slated to move to countries linked to China by its OROB initiative or to be replaced by robots which China intends to build.

Circling back to the issue of China and its strategy going forward, people are naive if they do not recognize China will do everything possible to exploit the distinct advantage a state-driven economy has over free enterprise, With an expanding military armed with a slew of modern cutting-edge weapons produced at home China intends to be ready to flex its muscle if necessary. Predatory in nature, such systems have the ability to quickly exploit the weaknesses of its competitors. It is important we recognize China is a state-run economy based on a business model that is geared to expand by crushing the competition. Subsidizing those companies working within its system in a multitude of ways helps it achieve this goal. Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.

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The second part of this series has now been published and the link is below.

Footnote; The following posts relate to the article above
 http://China State-Driven Business Model.Geared To Expand html

1 comment:

  1. As you've probably already discovered, telling the truth is not profitable.