TIENANMEN + 20: Chop Sue-Me

Efforts by the Chinese government to suppress press and internet discussions of the twentieth anniversary of the Tienanmen massacre only substantiate my argument that China can never aspire to establishing a full-blown capital market in Shanghai by 2020, which is its stated intention.

China still detains up to 30 democracy protestors who were given the life sentences or death sentences that were commuted to life imprisonment for their activities of 20 years ago. This in addition to the thousands whose lives were forever ruined by the government for the crime of holding a peaceful demonstration.

Basically, I’m no moralist, but who would want to invest in a country where the population has no rights, where there are no effective laws or courts, where disputes are settled on the basis of personal connections to politically powerful figures, where intellectuals, journalists and artists have no freedom of expression that is not officially sanctioned, where financial reporting that can be considered detrimental to financial interests is outlawed under penalty of imprisonment.

Let’s say your company decides to manufacture photovoltaic cells in China and some politically connected guy decides to go into competition against you, stealing your processes; interfering with your suppliers; not allowing you to ship; arranging to have your books audited. What are your going to do, sue him? You can’t even complain to the press, for fear of being charged with economic sabotage. Even if some publication listened to your complaints, they would never publish them!

">This is an old story. Handbag manufacturers who contracted with Chinese contractors found out that the contractors were producing an equivalent amount of pieces, which went out the back door and into the gray goods market. They tried suing them in court and ended up getting judgments for a few hundred measly renminbi. Ultimately, the only way to work in China is by establishing personal contacts, which, in plain English, means paying more out in bribes than your competitors.

I am not even going to address the morality of this mess, because the Republicans have cornered the market in terms of moralistic hypocrisy and I don’t want to contaminate myself by associating with those pricks. But strictly from a standpoint of practicality, the only thing that keeps American corporations in China is the fantastic tax breaks that allow companies to warehouse their profits in offshore banking havens until Congress periodically passes tax amnesties that allow them to repatriate the money tax-free on the basis of promises to invest it, which never happens. The money goes into a black hole of structured finance deals that no auditor can ever hope to decipher.

If Obama keeps his promise to tax these overseas profits at the same rate as domestic income, American producers will make the determination that it’s more practical to set up business in places like Michigan, which has unlimited surplus capacity, a motivated workforce, enforceable laws and functioning courts and governmental transparency.

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Posted on 6/4/2009 ( Permanent Link )
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