Why Everyone Should Read the "Nationalist Stuff"

If you read The Art of the Deal, you
should also read this.

Recently, a prominent China scholar said during a podcast that he never read the two collected volumes of Xi Jinping's speeches.  He found the speeches too repetitive and meaningless to read.  While I agree with his characterization of the speeches, I think his decision not to read them shows a frightening sense of arrogance.  Even today, prominent players in the China watching community continue to ignore important works of Chinese propaganda.  As a result, they miss out on important insight into the regime including its goals and core values.  For example, Xi Jinping's speeches contain numerous speeches referencing the Chinese race.  Yet, few China scholars reference Beijing's efforts to create a united block of politically involved citizens throughout the overseas Chinese community.  

In the book Tiger Trap, a CIA translator tells a field agent that they don't bother to translate the "nationalist stuff".  I found this statement incredibly frightening.  Considering the amount of nationalist stories printed by the Chinese state media, the CIA must not bother translating 90% of state media.  The events chronicled  book took place in the 1990's.  I sincerely hope the CIA has changed this terrible policy.    

Chinese state media plays a fundamental role in the Chinese Communist Party's efforts to shape public opinion both inside and outside of China.  Mostly, the media parrots the office party line.  Regardless of the position taken by Chinese state media, the content of 
What it produces offers indispensable information for formulating the US's China policy.  Chinese citizens receive a steady diet of patriotic propaganda, and its ubiquity shapes the unconscious opinions of the average Chinese citizen.  The idea that America's spy agency didn't bother to translate and catalog nationalist statements in the Chinese press shows a massive amount of hubris.   

Many of Xi's speeches contained important foreshadowing of China's recent policy shifts.  For example, his speech in 2013 that called China a "maritime" power.  Chinese propaganda helps telegraph the goals and the perceived threats to China's communist regime.  Only a fool would fail to read and study the words of his adversary.       

Trade Wars and Technology Transfers

China's rise as tech powerhouse shouldn't surprise anyone.  The Chinese Communist Party actively encourages technology transfers between foreign companies and their Chinese partners.  Most foreign companies operating in China must form a joint venture with a Chinese company.  This forced transfer of intellectual property underpinned China's rise as a technology and manufacturing powerhouse.  Now, China plans to unleash its national champions onto the global marketplace.  The real questions is, how can American and foreign companies compete? 

Several things facilitated China's rapid development.  First, China encouraged foreign companies to manufacture in the country.  These foreign companies brought money, capital, and knowledge.  Second, China's large population and cheap labor made it attractive to the foreign companies.  Finally, Chinese employees and joint ventures acquired knowledge and skills from their foreign employers and foreign partners.  Many of these former employees and current/former partners built competing companies.  Effectively, foreign companies often indirectly created their future Chinese competitors. 

Today, foreign companies face an unfavorable regulatory environment in China and increased competition from Chinese companies in foreign markets.  In many industries, foreign companies cannot hope to remain competitive in the Chinese market for very much longer.  The CCP continues to squeeze foreign companies operating in China with a lethal combination of regulations and nationalism.  General Secretary Xi routine calls on his countrymen to close the technology gap between China and the Untied States and lessen China's dependence on foreign technology.  Simultaneously, he pushes for collaboration between China's technology companies and the Chinese military.

It's pathetic it took the United States this long to wake up.  The trade war has thrown China off balance, but the United States shouldn't hesitate to go for the jugular.  Paying a few extra cents for the stuff you buy at Walmart is a small price to pay for securing America's technological and strategic advantages.       

Crowning an Emperor: China Abolishes Term Limits for Xi Jinping

Emperor Xi courtesy of the
Economist

Today (2/25/2018), news broke that China would abolish term limits for the "President" and "Vice-President" of the nation.  The amendment to China's Constitution will remove a clause that limits the terms of the President and Vice-President to two consecutive terms.  This is huge news for two reasons.  First, the change effectively makes it easier for Xi Jinping to remain in power past 2023.  Something already expected to happen.  Second, it marks a titanic shift in policy for the communist party and the nation.  Term limits for Chinese leaders became the norm after the death of Mao Zedong in 1976.  Now, China has jumped into the abyss by muddying the waters of its already murky leadership succession process.       

For a regime that prizes stability uber alles, allowing a 64-year-old man to rule until his death doesn't sound like a good policy decision.  Famously, the Chinese Communist Party has an obsession with the collapse of the Soviet Union.  Many argue that the instability caused by the Soviet Union's rapid succession of leaders in the early and mid-1980's caused the collapse of the country.  It is possible that the term limits in China sought to prevent similar issues to those caused by the cascading deaths of Brezhnev, Andropov, and Chernenko.  Like many in the former Soviet Union, the Chinese leadership has an abysmal opinion of the Soviet Union's final leader Mikhail Gorbachev.  In a famous quote attributed to Xi Jinping, Xi said that the Soviet Union collapsed because no one was man enough to stand up and defend it.  Ironically, China’s constitutional change risks placing the country in a similar situation to the Soviet Union in the early 1980’s. 

         

Thus far, the earth-shattering news hasn't received much attention in China.  Even the foreign language divisions of China's state-owned news outlets haven't directly addressed the news.  Xinhua buried the lead deep on a page of pending constitutional amendments (see link below).  However, many Hong Kong news outlets, such as the South China Morning Post, ran the news on the front page of their websites.  Regardless of how little ink the constitutional change receives in China, it will fundamental alter the trajectory of China and the world.   

http://www.xinhuanet.com/english/2018-02/25/c_136999410.htm

 

The Grey Market for Foreign Products in China

Foreign baby formula 
is worth its weight 
in gold in China!

Daigou's are overseas Chinese who either work, travel, or study in a foreign country and sell items purchased abroad for resale in China.  They take advantage of price differences between the products sold in China and the same products sold in the rest of the world.  Recently, daigou's have received a great deal of attention in the press.  News outlets continually chronical high-profile shortages of baby formula in Australia, Hong Kong, and elsewhere caused by Chinese middlemen buying the product in bulk for resale in China.  Several factors contribute for the demand for foreign products in China.  First, Chinese consumers do not trust domestic brands because of a series of deadly safety scares.  Second, Chinese consumers often prefer foreign brands because of their status and higher quality.  

Designer bags are very
popular

Chinese consumers who purchase foreign products in China must pay high and clandestine taxes.  These taxes dramatically increase the prices of popular consumer products in China.  In many cases, the government levies these high taxes on foreign brands made in China.  Milk powder, luxury bags, vitamin supplements, and electronics are popular items sold by daigou’s.  In November of 2017, the Chinese government cut the average import tax from 17.3% to 7.7%.  However, the incredibly opaque method of how, when, and at what rate the government levies import taxes makes this claim suspect.   

Chinese consumers circumvent the high taxes by buying products through daigou's.  They buy products while abroad and ship the products back to China for sale at a markup.  Despite the costs and time involved in this practice, it is still cheaper for Chinese consumers to buy products through daigou's than from retail outlets in China.  The fact that many of the products purchased abroad and sold by daigou's in China have "made in China" stamped on the back of them makes this practice incredibly surreal.  For example, something is:

1.  Made at a factory in China

2.  Shipped to a port    

3.  Loaded on a ship and shipped across the Pacific Ocean

4.  Unloaded at a port in America

5.  Loaded onto a truck and shipped across the country

6.  Unloaded and put on display in a store

7.  Purchased by a daigou (after they receive an order from a consumer back in China)

8.  Purchased, packaged, and shipped by the daigou

9.  Sent to a sorting facility

10.  Shipped to a port 

11.  Loaded onto a ship 

12.  Sent across the Pacific Ocean

13.  Unloaded at a port in China

14.  Shipped by truck to a sorting facility

15.  Delivered by a delivery service to the Chinese consumer in China

And the item still costs less than if the Chinese consumer bought it off the shelf at their local store!

Items like this a 
listed on
WeChat accounts

Daigou's use the Chinese social media platform WeChat to list products available for purchase in stores.  Daigou’s take pictures of the items and upload them as a “WeChat Moment,” which is similar to a Facebook “Status Update.”  Go to a Costco or Wal-Mart in any major city, and you will likely find Chinese people taking pictures of products with their phone.  They work as daigou’s.  People in the daigou's social circle can view the products and place orders by forwarding a message to the diagou using the app.  Often, purchasers pay for the items through Alipay or some other form of virtual wallet (think Apple Pay but Alibaba branded).  

Some daigou's have the ability to carry the items they've sold through customs.  You'll see hundreds of daigou's at the Shenzhen and Hong Kong border.  Follow the link to see a YouTube video about the border.  Whenever I arrive at Beijing Capital Airport, I rarely see anyone go through the line to declare items at customs.  Even individual travelers with five or six suitcases go through the "nothing to declare" line without a problem.  It's painfully obvious that these people are daigou's returning to China with items purchased abroad.  

This watch likely
comes with at least
a 50% markup in
China

So why don't customs officials stop them and make them pay taxes on the suitcases full of items they've purchased for resale?  There's a lot of speculation about why the Chinese government turns a blind eye to daigou's.  I think it's because it allows overseas Chinese to generate wealth without having them interact with us "natives."  Feel free to speculate in the comments below....

https://www.youtube.com/watch?v=YQm5FZMforg

http://www.scmp.com/news/china/policies-politics/article/2121377/china-cuts-import-tariffs-range-consumer-goods

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11979837