Wednesday Night #1197

See also Jacques Clément on China’s economy and #1197 on Wednesday-Night.com

Introduction
The evening opened with a CBC Commentary from former Wednesday Nighter and Concordia professor Jon Baggaley, now Professor of Educational Technology at Athabasca University. We were reminded how much we miss his articulate interventions and stunning range of ideas. Jon points out that the Tsunami coverage with which we were blanketed for a month has disappeared except from specialized sites.
“In the first two weeks of January, the number of online pages devoted to ‘tsunami’ and ‘Asia’ rocketed from about 3,000 to over 6,000,000!
Now it’s time for the media, TV in particular because so many watch it, to tell us the rest of the story. Is aid reaching the people? Is it the right aid? How has the disaster affected human health? How are the victims coping with the huge psychological trauma of the event.”

China
In honour of the Chinese New Year, guests attempted to unravel the Chinese puzzle, so long the preoccupation of the inhabitants of the western world.  Is the “yellow peril” fear of the nineteenth century coming to be realized and if so, is it really a peril?
With an area of 9.6 million square kilometres, China is the third largest country in the world. Since 1978, the Chinese economy has expanded at a startling rate, with an average 9% annual growth rate and 10% last year. External trade has grown by 15% annually and the surplus with the U.S. is twice as large as that of Japan.
How is this vast area with a population in 2000 of 1.3 billion, governable? Will the growing gap between rich and poor provoke political upheavals to bring about better wages, a State-supported safety net, resulting in a reduction of China’s competitivity? How can the growth of private enterprise and foreign-owned business be compatible with the concept of communism?
Like other large and some smaller countries, China is not one entity, but many different cultures and even ethnic groups. “The Great Divide:Talking back to power“, a recent series in the New York Times, documents the vast gap between the urban rich, concentrated in the South and the rural poor. There are still sizeable cities by western standards in the hinterland but the traveller to these areas notices immediately that unlike the urban South, the population does not receive virtually uncensored news from the rest of the world by telephone and Internet. ‘Uncensored’ is a relative term as Kimon Valskakis reminds us that the authorities try to control the Internet with more than 40,000 Internet police, and in 2002 they managed to block access to Google for an entire week.
For many centuries, the Chinese have been the world’s traders, so it seems incongruous that communism has taken over in this climate. However, Chinese communism is more about who can harness the fruits of classic Chinese, as well as Western, capitalism than it is about philosophical ideals.  Acceptable to high-quality products of Chinese origin are to be found in stores throughout the western world.  Some argue that we should not purchase goods made in China because of the near slave wages paid to the employees in Chinese factories.

[Editor’s Note: Beryl Wajsman in a recent IAPM statement:
“Tens of millions of Chinese are working at an average of 64 cents an hour (and that includes benefits contributed by the state). Beijing-based labor consultant Judith Bannister has pointed out that this vast pool of workers exists because of migration to the cities that was caused by the imposed collectivization of agriculture that drove so many off their land and into urban slums. That provided the cheap labor for the Chinese government that takes 99% of the revenues from the state factories through various Commissions of the Party’s Central Committee. The workers in the sweatshops of the Chinese industrial gulag were a lot better off in their previous agrarian lives.”]
The West also views with concern the reports that prisoners are executed in China for the sole purpose of providing trade in human organs.
Others point out that there is little, if any, correlation between democracy and trade, pointing to Saudi Arabia as a prime example, and that low wages exist in some democratic countries as well.
There is some uneasiness about China purchasing foreign businesses, particularly resource sector businesses, at a rapid rate. China is flush with foreign currency, especially American dollars and in the anticipation of the revaluation of the Yuan and consequent devaluation of the U.S. dollar, it seems the prudent way for them to act now.  A further incentive is the common belief that a major military power requires access to the basic resources that are lacking within China, but which they are able to acquire with accumulated U.S. dollars.
However, it is noted that since the Chinese offer to buy Noranda and Falconbridge 4,000 Chinese miners have died in accidents on 4 sites administered by China Minmetals . Since the beginning of December China has admitted to over 16,000 industrial deaths in state-administered enterprises through accidents and fatigue. The Wall Street Journal entitled a report on these catastrophes “Dying to Work for China…Literally”.
Surprising to many, China has been moving to reduce polluting air emissions, moving from fossil fuels as an energy source to hydroelectric and nuclear energy.
The Three Gorges dam has, however proved to be a mixed blessing, even more so than hydroelectric dams in other parts of the globe.  During the construction period, the villages, towns and coal-fired manufacturing plants were evacuated, but left as they stood without any clean-up attempt; thus, as the waters rose, the structures and their pollutants were simply submerged by the river, and now remain an environmental disaster waiting to happen. The immense size of the dam and the fact that it has been constructed over a geological fault are also cause for concern. Cracks in the dam, first discovered in 1999, multiplied and grew during the construction period.
The growth of China into a superpower appears very real at the moment, but should not be feared.  There have been a series of world superpowers over the years and the world has survived.  The same prediction, made following the end of World War II for Japan, was never realized and in the case of China, this prediction has held currency intermittently for over a century, and something usually intervenes, abruptly interrupting the rapid rise to its perceived potential and destiny.
[Editor’s Note: for more on this topic, interested readers may request from the Nicholsons a copy of Kimon Valaskakis’ paper  LA CHINE HYPERPUISSANCE DU 21EME SIECLE ? Mythe, Rumeur ou Réalité ? It is, unfortunately not available online.]
Conclusion
China provides an attractive country in which to invest in equities, as do other Asian countries and India.

Kyoto, the environment and energy
The Kyoto Protocol  enters into force (becomes a legally-binding agreement) on February 16 (next Wednesday) obligating  the world — beginning with developed nations — to make rapid and significant global cuts in greenhouse gas emissions in order to prevent the onset of dangerous climate change. The Kyoto accord calls for an initial average of 5 percent cuts in greenhouse gas emissions globally, even though emissions reductions ranging from 50 percent to 70 percent are widely believed to be needed in a few decades if irreversible damage to the climate is to be prevented
Considered a clean source of energy, hydro-electric generating stations have peaked in importance because over half of the potential has already been developed.  Even if every country in the world were to meet its commitment to the Kyoto accord, the beneficial effect would be relatively short-lived, giving us a breathing space, so to speak, of approximately ten years in which to develop alternate energy sources.  This is especially so in the use of petroleum, as twenty percent of fossil fuels are currently consumed in transportation.
While there is much debate over the usefulness and benefits of the Kyoto agreement, it should be noted that it can be construed as both a threat and an opportunity. In this country, alternative energy companies see it as an opportunity. Companies with “clean” or low-emission technologies are poised to exploit the market as countries look to meet their commitments under the agreement . “Canadian alternative energy companies see opportunity in Kyoto agreement” Craig Wong, Canadian Press

Québec and healthcare
Québec, in its attempt to provide equal access to medical care throughout the province, is redistributing medical practitioners according to a formula designed to meet that objective.  It appears, however, that this plan will result in urban equalization to rural standards rather than the reverse, as qualified physicians continue to leave Québec for the other provinces providing more freedom of movement and better economic conditions, or to the United States rather than accept these constraints.

Some quotes from the discussion

—Democracy is not necessarily suitable for China

—The fact is that trade does not lead to political realization

—You are talking about a country of contrasts where unlike Beijing … [near] the Mongolian border, the one thing that has impressed me is that you sit around a table and the head of the Communist party is served first. … Who is benefiting from the privatization of (Chinese) assets? … The members of the Communist Party

—If you take the long view, the potential of China has never been realized because of feedback loops and we have to be careful about extrapolating because of this; China may be really reaching its potential and will level off as has happened in Japan

—The Chinese are basically capitalists.  The question in communism is, ‘who holds the levers of power’ 

—There are opportunities for Canada to come in (to China) but they don’t want to deal with the Americans unless they have to.  Canada has a definite advantage

—China is here.  It is here to stay.  They are trying to maintain a balance between rural and urban
I would like my children to learn Chinese

—If the Yuan is undervalued, why are we not buying up China?

—The U.S. dollar is coming out of their [China’s] ears and they know it is going to fall

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The Prologue
Gung Hay Fat Choy!
Wednesday is the beginning of Chinese New Year, 4702 by the Chinese calendar. It is the Year of the Rooster.
And therefore it is appropriate that China be our topic. This week we are happy to have with us Robert Travers who travels to China on a regular basis (he came back at the end of January and returns next week) and has much to say about doing business in that country.
Douglas Lightfoot, a member of the Global Environmental and Climate Change Centre (GEC3) will be joining us for the first time and will no doubt contribute valuable comments on the current world energy situation.
And for a change of focus, one of our Vancouver Wednesday Nighters, Linda Naiman, Founder, CreativityatWork.com and Co-author of Orchestrating Collaboration at Work, will be with us. She is a pioneer in using the arts — drawing, improvisational theater, music, painting, poetry, sculpture, and storytelling—as a basis for improving collaboration at work. Maybe her approach will replace the precepts of Chairman Mao?
China creeps into almost every Wednesday’s conversation, whether because of its insatiable appetite for energy – and therefore Canadian natural resource companies (threat or opportunity?), its powerful economy and increasing rivalry with the U.S., the Great Divide between rich and poor, its environmental problems, or its violation of civil rights.
Norman Webster writes in The Gazette “China, the dirt-poor, flat-on-its-back lummox that I reported from 35 years ago, has turned itself into the 800-pound gorilla of world trade …” and quotes The Economist [which] “calls China’s performance of the last quarter-century ‘probably the most dramatic burst of wealth creation in human history”.
The Wall Street Journal polled a group of economists, some of whom project that China’s economy may overtake the U.S.’s within 20 to 40 years. If its GDP is calculated at purchasing-power parity,then China is already No. 2.
The Report of the National Intelligence Council’s 2020 Project concludes that:
“The likely emergence of China and India … as new major global players … will transform the geopolitical landscape with impacts potentially as dramatic as those in the previous two centuries”.
Meanwhile, back in Canada, RCI reports that the Minister of Industry (David Emerson in case you have forgotten) expresses his concern that if Chinese state enterprises acquire large Canadian industrial firms, they may not operate on the basis of market forces. We wonder of he cleared his message with Cabinet colleague Jim Peterson who had just returned from leading his ” successful Canada Trade Mission to Shanghai, Beijing and Hong Kong, China, the largest ever led by a trade minister”.
Wednesday Nighters have been predicting the revaluation of the Yuan or Renminbi (RMB) within the next six months (and that was at the end of November), even though the Chinese seem to think not, according to an article in the China Business Post. Time not ripe for yuan revaluation