So it is in people’s self-interest for China to do anything it can to help the US economy, and for the US can do anything it can to help the Chinese economy.

About CNOOC and Dubai ports. National security was just a smokescreen and wasn’t the real issue. Money was. Chervon wanted to win the Unocal deal so they pulled out all of the public relations people, talked about national security, and managed to give a microphone to people that are normally ignored. (US China Security Review Commission, I’m talking about you……..)

That’s how the game is played. CNOOC made some strategic mistakes, due to a lack of understanding about the US business environment. It should have gotten its public relations, lobbyists, and media consultants ready at the start of the game.

Also, CNOOC was operating at the limits of its cash flow. (Contrary to what you hear in the media, the Chinese government doesn’t give subsidies to SOE’s for overseas accquistions). Also, CNOOC was slow out of the starting gate because the CEO had to convince the board of directors that the deal was a good idea, and Chinese CEO’s weren’t used to deal with active boards. Finally, it’s not clear to me whether the deal was in CNOOC’s interests or in the interests of the Chinese state or the Chinese people who were CNOOC’s majority shareholders. There is a fundamental conflict of interest between the management of the company who tend to want to build financial empires, and the shareholders who find these empires costly.

If you want to do business in the United States, the most important things are to have good “guanxi” (connections) and to understand and respect the local culture.

Finally, there really wasn’t much support I could see within the Chinese government for CNOOC’s takeover of Unocal. The PRC has $1 trillion in foreign exchange reserves. It could have easily written CNOOC a big check. It didn’t. The concern of the Communist Party was that once a rich uncle writes a big check for one of his nephews, all of his other nephews are going to come in line for their checks. Things like the China Investment Corporation are intended to regulate this.

I would be very surprised if China does not revalue, not for the sake of the West, but because it is in its own national interest.

The problems of the US are relatively easy, as least in principle, to solve. Defense and healthcare spending are too high. Taxation of the upper 0.1% is too low, as is investment in technology and infrastructure. Some industries need de-consolidation. Elections need to be cleaned up.

All of these are, in principle, much easier to resolve than the challenges China faces. The political leadership of both nations is, in my quiet opinion, very similar, with the single exception that the Chinese leadership has not yet been in a position to behave openly with the hubris that the American leadership has.

That time may come, too. The only difference, after all, is behavior vs. attitude.

America’s Global competitiveness problem isn’t the responsiblity of the Chinese to solve. Period.

From this week’s Newsweek magazine,
http://www.msnbc.msn.com/id/21047401/site/newsweek/

The global economic turbulence isn’t emanating from the East, as it did during the Asian financial crisis 10 years ago, but from the West. “This time around, the financial indiscipline and lack of respect for risk is not coming from inexperienced emerging institutions, but so-called experienced institutions losing their head,” says van Agtmael. “The overborrowing, overconsuming and underinvestment is now in the U.S., while emerging markets are accumulating reserves, building their infrastructure and, to some extent, bailing the world economy out because of their strong demand growth.”

Americans are annoyed as hell at the Chinese. The U.S. Congress thinks it knows how. Citing hazy national-security concerns, Washington’s lawmakers barred China from taking over Unocal, a California oil company, in 2005 and last year forced Dubai port operator DP World to sell its U.S. operations. More recently, there’s been political grousing over Borse Dubai’s bid for 20 percent of NASDAQ. But it’s unlikely that protectionism will stem the tide of suitors.

Also I think it has taken so long because it’s only in the last two months do you have enough data that something is definitely wrong with PRC currency policy to convince the skeptics.

It is true that the populist faction doesn’t have a deep grasp of monetary policy and foreign trade, but on the other than the “coastal faction” doesn’t have a good grasp of rural administration and agricultural policy. The nice thing is that these two groups are not in a “zero-sum” situation and they have been able to work with each other quite well.

Chinese policy is *not* about short-term politics (well at least not more than other places). The thing that drives everything is the long term desire to keep the party in power. It’s totally unthinkable to me that the PRC leadership is going to wait until after the Olympics to do anything, because they will still be around when that happens.

In the parts of China where Chinese growth stats even somewhat correlate with reality, inflation is almost certainly higher than the PRC admits, and the PRC knows it, imo.