Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Is the Chinese government moving against Taiwanese and Japanese corporations?
Over the last month, strikes have broken out against many factories of Japanese and Taiwanese corporations in China, leading to huge wage increases. There have been many theories laid out as to why the strikes are occurring. For example, when Associated Press reported the story, they reported the following possible explanations:
These theories do not explain why only Japanese and Taiwanese factories have been involved. Other articles have proposed that Japanese and Taiwanese factories pay lower wages than western factories or that Japanese and Taiwanese factories tend to employ workers from the same home towns, making worker unity more likely.
All of these explanations are indeed possible, but I have a different one. I suspect that the Chinese government is specifically targeting Japanese and Taiwanese factories in order to make them less competitive than Chinese-owned factories within the Chinese market as part of a foreign policy which is targeting these countries.
My theory is supported by the clear involvement of the Chinese Communist Party in permitting the strikes and controlling their message. The following comes from a report about Chinese unions put together by The Economist:
If, indeed, Japanese and Taiwanese factories are being targeted by the Chinese government, why? One possible explanation was given by a Chinese admiral. John Pomfret of the Washington Post reports:
But President Obama's Secretary of Defense Gates and Secretary of State Clinton think that Guan was just an "anomaly." Pomfret reports:
According to Pomfret, Gates and Clinton are deluding themselves. He reports:
I am not a China expert, but I do know enough to take Admiral Guan's words very seriously. I know that the ultimate power in China is held by the Chinese military. That's why, ever since the People's Liberation Army ended Mao's Cultural Revolution, the most powerful political position in the Chinese Communist Party has been the head of the military committee.
The truth is that China has no intention of letting in our goods. In 2009, while the Chinese economy grew by 8.7%, the Chinese government was preventing American imports from growing even one iota. They did so through a wide variety of tariff and non-tariff barriers. In November and December, they issued new directives, which they have since put on hold, that foreign corporations must move their Research and Development to China in order to be able to continue to sell to the sizable government-controlled portion of the Chinese market.
According to the latest U.S. monthly trade report (released June 10 by the BEA), American exports to China went down from $7.4 billion in March to $6.6 billion in April, despite estimated current growth of the Chinese economy of between 10% and 13%. Meanwhile our imports from China soared from $24.3 billion in March to $25.9 billion in April, despite the slight overall decline of our April imports, reflecting our current economic stagnation.
If China is indeed moving against Japan and Taiwan now. They are sure to move against the United States. The only question is when.
We have a choice. We could continue to delude ourselves that China will soon start letting in our products, while China grows by 10% per year and our economy stagnates. Or we could adopt the realistic policy of requiring balanced trade, as permitted by a special WTO rule for trade deficit countries.
Comment by Raj Kumar, 6/14/2010:
There is lot of merit in the views expressed. Chinese will create problems for many foreign manufactrers and force them to sell their factories at throw away prices. New form of trade war. Having been to USA so many times I often wonder why americans import all sorts of garbage from CHina? Can't Americans learn to live without these garbage items? I am sure they will learn now, though the hard way.
Comment by Michael Turton, 6/14/2010:
You missed an important news article from Epoch Times, the Falungong mouthpiece. They are not always reliable, but I think this article is:
You might want to read my post on this too:
Response to this comment by Howard Richman, 6/15/2010:
Journal of Economic Literature:
Atlantic Economic Journal: