Category Archives: China

Are We to Rest by the Side of the Road as China Pedals Away on the Surrey Bike?

Imagine China right now is a surrey bike built for four people, with China as the driver and other Asian countries of the region filling the three remaining seats, all pedaling together to make the bike go. Imagine that at first the path forward is a bit steep and that the surrey bike needs some help pushing it up hill. So China bargains with Uncle Sam, “If you will push the surrey bike from behind, I will feed you corn for free as you push.” Uncle Sam thinks it a great deal and begins to thrust China and the other Asian countries forward as they pedal in front together on that surrey bike.

After a while, the bike begins to pick up speed and Uncle Sam has to push a little faster, almost jogging a bit to keep up with the surrey. Uncle Sam clamors for a bit more corn because the exercise of keeping up with the accelerating surrey is a chore. As China shoves more and more corn into his chubby little mouth, Uncle Sam begins to puff under the weight of his effort, and tire from the speed at which the surrey bike is now travelling. Finally, Uncle Sam gives out from the strain, having given all he had to helping that surrey bike begin its journey.

As China and the others speed away pedaling in unison down the path to the future in their region’s surrey bike, Uncle Sam falls over along the side of the road from exhaustion for he is no longer needed. He forlornly looks at the distant spoons that no longer will point his way but will only feed those that are on the bike together. On the back of the bike is a bag filled to overflowing with words stenciled on the back, “U.S. Seed Corn.”

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Filed under China, Economic Crisis, Foreign Policy, Free Trade, social trajectory

America Must Default Now

Remember the classic story of the leak in the dike? A young boy hiking along a dike in Holland stuck his finger in a leak that threatened to collapse the dike and let the waters of the North Sea rush in to destroy his village. He stayed the night holding fast to his duty until the men of the village came to find him and to repair the leak. The legend goes that this small boy, acting on his sense of duty, saved his community with his single act of bravery and that all of Holland might have perished had he not. Perhaps not the prime moral of the story but as important, had the village leaders not found this young patriot and quickly repaired the dike, he would have perished and his bravery would have been in vain. It took a village to ultimately stop the dike from collapsing.

The Tea Party has been America’s little Dutch boy. Tea Partiers claim that America’s debt is as ominous as the stormy North Sea bearing down on the dikes of Holland, threatening to destroy our economy. They also suggest that just as the dikes of Holland held back the seas, America’s economy must hold strong against our national debt to keep it from limiting our future. Seeing our historic deficits as powerful enough leaks to collapse our nation’s credit, in 2010, the Tea Party rose up to stick their finger in the dike, pledging to stop America’s excessive public debt from growing further until we could agree on a path for recovery. In the meantime, other leaks have sprung up on America’s dike.

Clearly, our Federal budget is not the only ill that is afflicting us. Another little Dutch boy, the Occupy Wall Street movement, with just as much valor and patriotism as the Tea Party, has now climbed the dike to stick its finger in political leaks as equally important as our federal deficit. Occupiers have identified the illicit bond between Wall Street bankers and our politicians that threatens to diminish America’s future and they pledge to remain on the dike until all of America can persuade our leaders to relieve both the Tea Party and the Occupy Wall Streeters from their patriotic duties.

Unlike Holland, where village leaders relieved the little Dutch boy’s first aid plugging of the leak by repairing their dike, our nation’s leaders have been conspicuously absent in rushing in to relieve our patriotic Tea Party and Occupy Wall Streeters from their first aid missions. Our President and presidential candidates are reluctant to present bold reformation plans, Congress’s Super Committee is unable to compromise on material Federal budget reductions, the rest of Congress is unwilling to put forth substantial jobs bills or to work on restructuring a healthier business environment, our state and local governments are dangerously close to insolvency by refusing to resize to fit lower tax revenues, our banks are refusing to restructure upside down mortgages that are stagnating America’s private economy, and our multinational corporations are unwilling to reinvest in America’s workforce.

Without substantial and coordinated efforts by all in leadership to increase our national productive output, to support corresponding jobs that can sustain a right sized government budget, and to reduce our public debt that is stagnating economic growth, America’s dike will collapse. Whatever we do going forward to solve our leadership crisis, whatever the terms of restructure, Our leaders must know that Middle America will not complacently wither through decades of high unemployment nor will our military complex accept the eventual severe lack of domestic military resupply capability that will result from such languishing. America must now face the inevitability of “DEFAULT”.

The word default is an enemy of the state yet its effects are already sinisterly invading our country. Our Federal government has already defaulted on the value of the dollar with its stimulus and quantitative easing. Our state and local governments have already defaulted on public services to keep bloated public employees in place. Our multinational corporations have already defaulted on America employment by slashing work forces to sustain profitability through the monetary collapse. Our bankers have already defaulted on their obligations to provide financial liquidity, first by choosing to bet against America and then by creating the monetary implosion that sent millions of Americans into foreclosure and bankruptcy. Now, the American people must join in this cacophony of defaults by forcing a restructuring of America’s business and political environment to sustain our families and our country into the 21st century.

Americans must default on our support of indefinite extensions of trillion dollar budget deficits that reflect commitments to unsupportable baby boomer ideals of social justice and vast military dominance. We must default on our submission to government policies supporting unrealized promises that free trade and globalization would enrich all Americans. We must default on our acceptance of the status quo shenanigans of a financially democratized two party system that places the overwhelming benefit of the few over the welfare of the many. And as importantly, we must default on subservience to the mountain of debt that has been yoked to our economic future for the benefit of bankers, multinational businesses and political parties.

Ultimately, the legal power of Americans to default rests in Government acting on our behalf. However, rather than focusing on these transformative needs of the electorate, America’s government representatives are locked in an addictive trance, fixated on meeting the desires of powerful masters. To constitutionally affect change, we will have to break the grotesque relationship between Wall Street, multinational corporations, and Congress; one in which Congress depends upon bankers’ and businessmen’s’ financial elixir for re-election, where Congress has the power to dole out favors, contracts, tax breaks, and laws in return for their election fix, and where bankers have the power to print money to support Congress’s illicit behavior. If America is to ensure an equitable solution in which our Congress, bankers and businesses help to fix the mess they’ve made, we must forever sever our enabling support for this addictive relationship.

If we do not act to break these addictive bonds, our Federal Government will most certainly continue to provide cover for banks and businesses while authorizing massive deficits that expand its growing $15 trillion dollar debt. If not forced by the Tea Party or international credit rating agencies to finally face its unsustainable lack of institutional moral fiber and financially driven dearth of governing judgment and foresight, Congress will recklessly inflate our dollars beyond any semblance as a safe store of value. But private debtors do not have the luxury to print money. Private debts can only be repaid by the output of our people. We now have to decide if our output will be used to invest in America’s future or to pay our mounting Federal debt.

Certainly our multinational corporations have been given free rein to invest where they will and to employ whom they will. Because of substantial market opportunities to the East, America’s ignorance in creating a hostile business environment at home, and our bankers, businessmen, and politicians’ complicity in exploiting both, our multinational corporations have chosen to invest overseas. Yet somehow, America’s politicians hoped that our businesses, which are made up of citizens of this great country, would also act as model “virtual citizens” making business decisions in the best interests of all Americans. Our government even went as far as to dictate from the decisions of our Supreme Court these hopes. The Federal Government’s complicity with bankers and multinational corporations would be much more guilt free if they could imagine businesses having a patriotic conscience, but alas the vast majority do not. Our businesses are hardwired for maximum, risk adjusted profit and for the reasons previously mentioned, maximum profits exist offshore.

No American Dutch boy movement has yet risen to force government to soberly recognize business’s profit nature. Until such a movement pressures Congress, it most likely will not create laws to protect the public from the more destructive nature to our economy of business’s international profit motive, nor will it attempt to find win-win solutions to harness this profit motive for the mutual benefit of both multinational businesses and our people.

Certainly America’s bankers have created their own free rein to conduct at will commerce by the power of their purse. Unfortunately, this rein has been out of alignment with America’s domestic interest for decades. Now that our bankers have indebted America beyond our ability to pay, they will fight any attempts by others to loosen their financial hold on our political system. America’s bankers would have Congress force us to stagnate in debt for decades while China surges past us into the new millennium, and why not?

Bankers used our debt to place investment bets on China’s rising over the past three decades, and in so doing shorted America’s future. They now are counting on Americans to pay this historic debt to protect their clients’ and their own disproportionate, concentrated, and increasingly risky investments in China. Because they placed their mountain of eggs in one basket, A sure bet is that our banker’s actions going forward will be singularly focused on ensuring that America complies with the terms of our debt obligations, whether or not they are in our best interests.

The Occupy Wall Street movement has become the little Dutch boy in defense of America’s interests against international bankers and they have rightfully begun asking if we should follow the terms that have been structured by America’s bankers. Our bankers set the initial terms of indebting America beyond its means to repay. They reneged on terms of protecting us from over indebtedness and covered up their own complicity in doing so. And now that they have extracted maximum debt from America, our bankers are threatening to destroy our economy if we even question their bastardization of the American financial system.

Occupiers are rightfully asking why our bankers set lending terms to soar America’s debts to levels that they knew through historical ratios could never expect to be paid without a high degree of default. Why were bankers comfortable in doing so? Were they hoping that the American ethic of fiscal responsibility would hold even when seduced into unchartered waters of financial servitude? It seems that betting banks’ fortunes on mere hope would be too risky. Did they expect that banks could dictate to our government that it subordinate the will of the electorate to that of America’s financially elite, even if excessive debt deteriorated America’s future? This strategy was successfully exploited before and therefore less risky, but given the emergence of social media democracy, it is becoming self delusional. Whatever their reasoning at the start of the housing Ponzi, bankers’ fortunes are now so dependent on maintaining the status quo that they will defend it with all available measures, even if exposed to the light of day.

Given the stagnating wages of our citizens for the past three decades, Occupy Wall Streeters are right to question why bankers did not meet their obligations to protect America from excessive debt. The prime reason that America awards bankers the right to charge us interest is because we expect our bankers to discern who is capable of repaying debt, and to judiciously discriminate by providing loans only to those that meet repayment qualifications. It is for this sole risk mitigation responsibility of protecting America from excessive debt that we pay America’s bankers such a disproportionate percentage of America’s wealth. Otherwise, we could pay technicians much less to merely print and distribute money.

Occupy Wall Streeters are right to question our bankers why in the height of the frenzy they threw away loan ratios that historically protected Americans from default. Why as America’s debt began to dramatically climb beyond the safety of these ratios did our bankers ignore warning signs and press for even more debt? Why did they pass out credit cards like Halloween treats? Why did our bankers create even more, no income verification, zero money down, speculative debt instruments to extend this bubble to unprecedented heights? Why when some Americans asked why loan ratios were no longer employed, did America’s bankers tell them that we had entered a new economy in which the old ratios no longer applied, one in which appreciating real estate values now dominated the loan equation?

Based on our bankers’ logic, housing prices could just continue to inflate forever without end. The fallacy in their folly to forget fundamentals was that underlying debt has to be paid by the wages of America’s citizens, and these wages were not rising but were in fact stagnating. When the housing bubble burst, we sadly realized that there was no new economy, but instead that greed had only temporarily supplanted old ratios and finance fundamentals. In the wake of America’s monetary collapse, with ratios now re-established, and with debt far exceeding them, America is now faced with the reality of choosing between stagnation and default!

Finally, Wall Streeters are right to ask why America’s bankers are threatening that if we do not honor our public and private debts then they will destroy our economy. What a spurious argument! Were not our bankers complicit in driving America to this debt precipice of their own making? And now that we have arrived at this critical juncture, are not these same bankers arguing that if we fail to honor the predicament in which they placed us that they will cut us off from future credit and capital? Yet theirs is a hollow threat, because it is only by America’s authority that America’s bankers are even given the right to create credit and capital from thin air on our behalf.

Without the self delusional support of a Fed like central bank to cover their losses, European bankers do not need to be cajoled by an Occupy Wall Street movement to accept partial responsibility for excessive European debt in order to stave off full absorption of a complete default. When German led banks first told the Greeks that they must surrender their livelihoods and enter into decades of an austerity program to repay their bank debts, the Greeks simply said “NUTS!” European bankers have since struggled but have finally and responsibly put forth their newest Greece restructuring plan including a bank “forgiveness” of 50% of Greece’s debt held by the banks. And Greece will most likely not be the last to see its debt reduced as other European countries will ultimately demand equitable treatment as well.

America’s bankers are not ready to accept default. Surrounded by the Fed and both political parties, they are well hidden from public view. Yet America’s little Dutch boys are on the dike exposing their defenses. The Tea Party will continue to press Congress to stop the spending. Without the cover of political largesse to mollify the masses, many of America’s politicians will then be forced to take sides, either openly exposing their support for globalist policies in a vain attempt to gain financial backing for re-election in the face of the electorate, or retreating from previous indefensible positions to save their political feathers from the onslaught of social media exposure. As more Dutch boy politicians are elected, America’s bankers will be left exposed in the open.

Occupy Wall Streeters will continue to root out America’s bankers, exposing unpatriotic profiteering. They should have no illusions that banks will respond to sit-ins or even to riots by agreeing to absorb debts as did the European banks. Yet in clarifying through their movement for the American people our bankers’ complicity, America’s social democracy will build political will to force a realignment of political power that will insist on equitable treatment of debt in America just as elsewhere across Europe.

For what other choice will our bankers have in the end really? When debt becomes so excessive that it strains the ability of a nation to repay it, then it loses its character of debt. If a nation defaults on its debt and international banks cannot force it to repay, then the banks have only the choices of either forfeiting their debt, as the European banks have chosen to do, or exchanging their debt for equity if allowed by the nation and as I have proposed in my set of solutions.

Once America’s little Dutch boys persuade America’s leadership to join Europe’s leadership in returning our nations to economic health, our bankers will have no choice but to join the ranks of the disillusioned and disheartened elite. America’s bankers will finally meet Europe’s bankers in dispassionately determining how they will discharge our excessive debt. When America’s banks accept their partial responsibility for America’s failure to thrive, Americans’ debt of $54 trillion dollars which threatens to stagnate our economy for decades, leading to even greater job losses and further threatening our national security, will be held back behind the water tight dikes of a renewed and prosperous future.

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Filed under American Governance, American Media, American Politics, China, European Crisis, Job Voucher Plan, Multinational Corporations, National Security, Social Media Democracy

European Bank Announcement is the Latest Step in Deleveraging the China Bubble from Debt to Equity

In 1979 when China opened its doors to prospectors, millions rushed in bug-eyed on the prize. They scurried for trillions of dollars of capital to plop down factories on their newly acquired claims. Those trillions first came from EurAmerica’s savings, that currency that had already been acquired through decades of previous achievements. When that was not enough to satisfy the frenzy, they buggered trillions more in future obligations of EurAmerica’s citizens on the promise that these glorious gold seams of the East would make EurAmerica rich beyond its wildest dreams.

And why not…EurAmerica had grown obese on other stakes plopped down around the world. We created equity from thin air to offset the obligations of third world and emerging countries and spent the arbitrage from our financial creations to feast in our homeland for decades. Yet none of these opportunities held a candle to China’s mother load. China would once again be the feast to engorge all our known senses with pleasure and reward. So EurAmerica indebted herself beyond all reasonable abilities to repay, knowing that this gold seam would pay off by its own merit.

But how could it pay off? Were not these same factories supplying EurAmerica with goods that their own citizens would have otherwise supplied? Were not these same factories paid for by the obligations of “EurAmerica’s citizens to work into the future to pay off the debts they had incurred in order to build these factories? And if these EurAmericans could not work to pay their debts to gain the riches they had hoped for from these factories, how could they buy the products that would eventually pay them the riches they had sought? It seems this time around, the door that was opened in China was the hinge of a Venus Fly Trap and EurAmerica was the fly.

Now that we have incurred this massive debt and our scheme for getting rich was found to be yet another Ponzi of get rich quick avarice to be piled on the heap of human foibles, it is now time to clean up the mess from the last three decades’ party. People will have to pay for this latest excess just as all in human history before us. Europe languished for 22 years after its 1871 financial extraction to fund America’s railroads. Some countries like Russia rose up from those excess in political system revolutionary defiance. Others chose military aggression while still others congregated in socialist shifts of wealth redistribution to deleverage the world from its dilemma.

We cannot yet predict the world shifting power struggle that will ultimately emerge from this great crisis. However, what started as Europe’s riots and later erupted into an Arab Spring in reaction to Wall Street’s grand foray was again played out in yesterday’s announcement by Europe’s leadership as another step in the unraveling puzzle. The information age has shifted the balance of power and bankers can easily see that 2011 will not be a repeat of 1871. Infighting will continue as EurAmerica sorts out who will pay the costs of financial obligations from this great extraction. But Europe’s announcement was a break through nonetheless.

European Banks will eat a distasteful sum. Their shareholders will pay the price as much as they can. Some banks will call upon the European Financial Stability Facility, which will in turn call upon governments, which will look for handouts and push for further austerity, which will in turn lower GDP growth, which will further exacerbate the debt crisis. In the end, a massive debt overhang will have to be managed by all of EurAmerica in a deleveraging and slower GDP growth, if not retracting, environment.

Banks only have so much in reserves and even those may be grossly overstated as a result of credit reserve requirement manipulations during the 1990s including bank reserve sweep accounts and parent/subsidiary loans that have as of now extended bank credits 1.1 trillion beyond bank deposits. EurAmerican governments could take all their reserves and destroy our international banking functions just as banks could take much of the housing stock, destroying millions of lives and our nation’s economic futures. Governments and central banks could print money throughout EurAmerica and destroy national economies for decades. And then what….

When a debt load becomes so excessive that it cannot be paid by the annual output of its guarantors, it becomes in essence equity. All of this past three decade Great EurAmerican Capital Extraction creditors, from our wealthy elite to retirees on fixed incomes, “own” pieces of the thousands of factories on the shores of the East. They may not have bargained for that outcome but that is what they got. Right now, rather than accept this eventuality, creditors are willing to shave their loan returns in order to keep their position of being first to be repaid rather than suffer what is amounting to an even greater uncertainty for equity shareholders. And thus we have the announcement from Europe’s banks.

In the end, accepting that their loan position is untenable and must be converted to equity will be the ultimate solution. That position is hard to swallow for many reasons just yet. European banks and governments had been playing a dangerous game of chicken, both refusing to budge on movement toward resolving this debt leverage. For now, the dangerous game of chicken stalemating any movement toward the final solution and putting the entire world in jeopardy has had a “great” move among many more to follow.

My solution for America’s turnaround: Convert debt overhang to equity. Clean up credit through credit amnesty. Put all unemployed people in domestic work opportunities through free market job voucher program. Turn on the switch and go.

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Filed under China, Economic Crisis, European Crisis, Federal Reservre, Foreign Policy, World Sustainability

China’s was a Planned Extraction

As a medical professional, I am interested in the existence of virulent viruses that can infect the body so quickly that the very defenses the body uses to stop the infection kill the body in the process of defense. While the Europeans that came to America were resistant to certain diseases that had existed on their continent for centuries, these same diseases wiped out the indigenous people of North and Central America, killing off as many as 90 percent of their population in just a few short decades. And the world waits for the next pandemic, for which all of mankind has no defenses, to spread across the globe.

In economic terms, the West infected China’s economy with pandemic beginning in 1839, destroying its ability to sustain its citizens and precipitating the death of 40 million in the ensuing years. Ours was an economic pandemic brought about by the forced addiction of China’s population to opium at the point of a gunboat. Our virus was intended to exploit China’s entire population for the benefit of cheap tea and forced reciprocal “fair” trade.

Autoimmunity, another bizarre infliction of the human body, occurs when the body attacks itself, purging perfectly good tissues as if they were foreign invaders. In economic and political terms, China was more intent in the 19th and 20th century to practice autoimmunity upon her own citizens killing over 70 million through 1971 when the Cultural Revolution ended.

The Qing dynasty that had lasted from 1644 began to fail with the Opium wars. Afterwards, the lack of a culturally sustaining strong middle class allowed a series of reforms and violent reactions to reforms leading to successive rebellions which ended in the fall of the dynasty in 1911. From that point, China fell into factions of warlord fighting that ended in a 22 year civil war ending with WWII. Having been helped by the Soviet Union, China emerged as the world’s largest communist state. But these violent swings between reform and rebellion continued through the 1970s.

When China’s leader Mao chose to modernize China within the realm of her communist structure beginning in 1958 with the “Great Leap Forward”, he intended to bring China forward from an agrarian society to an industrial one by placing uneducated farmers in massive scale industrial facilities. The result was a loss of tens of millions of peasants through starvation. Mao temporarily lost power to more liberal elements that began to assert education and capitalism.

To regain power, Mao initiated the Cultural Revolution in 1966 that lasted until his death in 1976. His goal was to enforce socialism in the country by removing capitalist and cultural elements from China and imposing his orthodoxy. He removed party leaders through violent class struggle and inspired China’s youth to form Red Guard groups around the country. The movement then spread to the military and to the party itself.

After his death, Deng Xiaoping, who had been sent off earlier to re-education camps, returned the country to an educated path toward industrialization and modernization. The “Four modernizations” were begun in 1978 and China opened its doors to outside investment in 1979.

Beginning with the West’s gunboat diplomacy that precipitated the fall of China’s long lived dynasty, China ruptured her culture within waves of reforms and rebellions struggling between modernizing to meet the threats of the West and isolating from its decadence. What emerged in 1979 was a perfected structure and strategy intended to rebuild China by drawing the capital of the West to her shores while maintaining her cultural integrity from within.

China had learned from her earlier starts and fits of reforms, her grand failure of the Great Leap Forward, her class struggles of the Cultural Revolution, from forty years of running the largest country in the world through centralized planning of communism, and from observations of Japan’s and ASEAN’s manipulation of the West’s capitalistic and international banking systems to create a perfected strategy that would extract the maximum value of capital from the West onto her shores in the 30 years of the “Great Extraction.”

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Filed under China, Foreign Policy

China Does Some Chest Thumping

This article was published by Asian News International on September 21, 2011.

A commentary on China’s interests in the lands and seas surrounding it and the need for counter measures by states situated in China’s periphery.

China’s rulers have a problem. They are not sure if they can continue to portray the image of a country interested in a peaceful rise without this coming into direct conflict with a desire to reassert newly defined core interests. All of 2010 saw more assertive Chinese foreign policy activity in its periphery, possibly reflecting a tussle of some sorts in Beijing between an assertive People’s Liberation Army (PLA) which may want a bigger role in foreign policy in the decade ahead, and a political leadership that is now going to be in transition as Mr Hu Jintao prepares to hand over power to his selected successor, Xi Jinping, by 2012. This would explain this display of assertiveness within each power centre, notably the PLA and the Party hierarchy, which have positioned themselves inside China and against the US (where there will be presidential elections in end-2012).

Recent reactions in the Chinese media to the visit of the Indian ship INS Airavat are only a reassertion of China’s aggressive stance. China had taken umbrage at US secretary of state Hillary Clinton’s July 2010 remarks in Hanoi on creating an international mechanism to resolve this issue, and this has been particularly visible in the past few weeks. Earlier, Dai Bingguo conveyed to Ms Clinton in May 2010 that China regarded its claims to the South China Sea as a core national interest.

The Chinese carried out a live ammunition PLA Navy exercise in the South China Sea on July 26, 2010 followed by another exercise on August 3 along the Yellow Sea coast — the other area of contention. The Chinese conducted exercises there in April and June this year, and were now asserting that China opposed any foreign ships entering the sea or adjacent waters; they even vehemently opposed joint US-South Korean exercises there.

The message in these demarches to the US was in keeping with protecting China’s core interests in the adjacent seas and telling the US that the western Pacific was China’s sphere of interest and influence. It suggested a division of zones of influence between the Eastern and Western Pacific. The US and China have their own geostrategic rivalries to settle, and the Chinese may have assessed that their moment has come.

China’s reaction to the visit of the Indian ship has to be seen in this context – it is part belief in its history, part knee jerk, part bullying, part worrying about energy resources, and part suspicion about the growing India-Vietnam-US triangular relationship in the South China Sea. The influential Communist Party-managed newspaper, Global Times, was somewhat hysterical when, in its editorial of September 16, it warned India that any deal with Vietnam would be ‘serious political provocation’ which could ‘push China to the limit’. It described the ONGC’s (Oil and Natural Gas Corporation) Vietnam deal as a reflection of Indian ambitions. The newspaper went on to say that while China was sincere about its peaceful rise it would not give up its right to use other means to protect its interest.

China cherished its friendship with India but this did not mean that China valued this above all else. It referred to India’s intervention in the Dalai Lama issue and ended with the warning that ‘we should not leave the world with the impression that China is only focused on economic development nor should we pursue the reputation of being a peaceful power,’… Clearly, there is a debate ongoing inside the sanctum sanctorum of the Chinese Communist Party.

China’s reaction is also a reflection of its concern for energy resources. China has only 1.1% of the world’s known energy reserves but consumes 10.4 % of the world’s oil production and 20.1 % of total energy consumption in the world. The mismatch is obvious and will grow more in the years ahead. Naturally, China views the disputed South China Sea zone and its energy reserves with special interest. Some estimates state that the known reserves of the South China Sea are twice as much as China’s reserves of oil and that there is also plenty of natural gas in the sea.

The Indian reaction to this charge by Beijing has been firm in pointing out that India’s cooperation with Vietnam or with any other country ‘is always as per international laws, norms and conventions…’ India has also pointed out China’s role in the disputed part of POK (Pakistan Occupied Kashmir) where China may be on the verge of using the territory for developing communication links with Afghanistan. Obviously, China is planning for a post-US phase in Afghanistan, access to its mineral resources, and an ultimately linking to Iran and the Gulf. It would not want the region to be solely India’s sphere of influence. India has also to keep its own vulnerabilities in Arunachal Pradesh in mind; even though outright war is unlikely it should expect both economic cooperation and periodic tensions with China. China-India relations will not be determined by strict bilateral terms. As both countries rise, there will be competition in other spheres – for markets, resources and influence.

Yet China remains concerned with its intricate trade and financial links with the US, and also with the security of its trade and supply routes that transit the Malacca Straits. It has endeavoured to develop extensive land routes through Central Asia, but these are inadequate. It is a matter of time before China will make its presence more visible in the Indian Ocean. It has port facilities in Kyaukpyu, Hambantota and Gwadar, and a presence in the Arabian Sea, where it battles Somali pirates. China has expanded its contacts with Iran and has developed strong ties with Burma.

It is of course entirely feasible that China would have reacted in this manner even if there was not the question of energy reserves present in the South China Sea. It would have had more to do with its own perception as zhongguo – the “Middle Kingdom” or the “Central Country”, where neighbouring countries were considered to be vassal states and which accepted the Emperor in Beijing as the supreme power in the region.

Thus while New Delhi agonises over challenges across land frontiers, ignoring the new challenge in the Indian Ocean would hurt Indian interests. There is need to plan counter measures in China’s periphery from now. Perpetual whining about China’s grand designs will not help.

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America’s Asian Military Bases Must be Re-engineered, Resized, and Replaced

As America continues its campaign to subdue threats of militant Islam, cells of Al Qaida are now quietly sitting out the Arab Spring, reducing their threat to the United States even further. Yet our decade long focus on diminishing threats in the Middle East has drawn our attention away from a much greater threat to our national security, that of an escalating and interconnected Asian economy. China’s regional political and economic power now challenges a cornerstone of America’s foreign policy, the regional stability provided by our omnipresent military. Ultimately, a weaker American military role threatens the very security that America’s multinational corporations counted on when they embarked on a historic transfer of wealth from America to the East during the past three decades.

At the end of WWII in 1945, the United States placed massive encampments both in Germany and in Japan which later became our forward bases to deter communism during the Cold War. After WWII, the U.S. along with Russia separated Korea into North and South. This action created war in 1950, after which we set up bases along South Korea’s DMZ. America’s dual military Asian front still includes 129 military sites in Japan, three quarters of which are located on the islands of Okinawa, and 117 military sites in South Korea.

America’s placement of troops in Asia, our successful containment of communism, the Soviets distraction in Afghanistan for a decade beginning in 1979, and China’s simultaneous opening of their economy to the West gave American capitalists the relative safety to flood the East with investments. America’s factories throughout Asia coupled with “free trade” policies in the West supported East Asia’s phenomenal growth and strengthened regional political ties that built an economic juggernaut with China at its hub. The subsequent rise of China to preeminence has created a magnet that is drawing Japan and both Koreas toward her future. Their shifting alliances from the West to the East are now building momentum to pull the ground beneath America’s Asian bases out from under us.

A political battle ensued in 2008 in Japan to close the flagship of America’s Japanese military bases, our military complex on the islands of Okinawa. Located 1,800 kilometers southwest of Tokyo, the islands of Okinawa were occupied by 110,000 Japanese forces in a battle toward the end of the WWII that ended in the death of 150,000 of its civilians in the bloodiest battle of the war. Afterward, to the resentment of the Okinawans, the United States built a military complex covering over 20 percent of the main island that continues to house over half of the U.S. military personnel in Japan to this day.

Resentment to America’s occupation of Okinawa has increased over the years and with Japan’s growing ties to the rest of Asia, support for America’s continued military presence is waning. Japan no longer requires our military for defense, now that it supports its own highly advanced self defense force of 250,000 with the sixth largest military budget in the world. Our negative cultural influences in Japan, including crimes, noise, pollution, and our nuclear footprint have also created growing animosity.

In 2008, the progressive wave that swept Barak Obama to power in America also placed Yukio Hatoyama in the seat of power in Japan. Born into a Japanese democratic family dynasty similar to America’s Kennedys, upon his election Prime Minister Hatoyama promised to move Japan away from an American centric focus to strengthen Asian ties. In his short term in office, he stopped support for America’s Afghanistan efforts and warmed relations with both Korea and China, recognizing the East’s future importance to the fate of Japan. One of Hatoyama’s main campaign promises was to close the American bases located in Okinawa. When he was unable to accomplish this critical goal, he resigned in 2009. However, his leadership represented a rising tide among the Japanese people toward the East.

In 1991, Japan opened normalization talks with North Korea by formally apologizing for its occupation from 1910 to 1945. And though Japan’s war crimes still affect her relationship with China, Japan is now China’s largest trading partner. Nonetheless, in August of 2011, China called Japan’s questioning of her “overbearing military build-up” irresponsible. China increased its military spending 12 percent this year to $100 billion. (At this rate of increase, China’s military budget would equal America’s in 15 years)

Like Japan, South Korea has claimed the United States as an ally since WWII. As North Korea has one of the world’s largest standing armies of 1.2 million men as opposed to South Korea’s 700,000, and as North Korea also has a substantial advantage over South Korea in offensive weapons, the United States has continued to be an effective deterrent. Yet South Korea is also becoming weary of our continued military presence.

After having been liberated from Japanese occupation in 1945 and after having repelled China out of its country in 1950, South Korea officially opened ties to Japan in 1965 and to China in 1992. After announcing its sunshine policy in 1998, South Korea significantly advanced its relationship with North Korea and has been re-orienting itself toward reunification of the peninsula ever since. While still an ally of the U.S., South Korea nonetheless has become the most active promoter of strong ties between Asian countries including China. Both countries have been aggressively investing in their mutual neighbor, North Korea. China holds enormous sway with North Korea, as 75 percent of North Korea’s trade is with China alone.

After establishing diplomatic relations in 1992, in just ten short years, South Korea advanced China as its number one trading partner in 2003, surpassing the United States. In 2008, the two countries announced their relationship as a “strategic cooperative partnership.” With South Korea’s aggressive Sino-shift, nationalists within the country are actively questioning America’s involvement. The Korean War is less prominent in their minds and they are resistant to America’s new terrorism focus. Most recently, South Korean citizens have opposed a naval base on the island of Jeju that allegedly will be a transit for U.S. warships opposing China. However, as recent as today, South Korean officials denied that the United States will use the base for an offensive purpose.

China seems to be disciplining South Korea into its fold. Over the past decade, skirmishes between North and South Korea have given each the opportunity to exert their dominance. After multiple provocations by North Korea prodded South Korea to take a more firm military stance in 2008, North Korea sank a South Korean Navy vessel in 2010, prompting the U.S. to hold joint naval exercises with South Korea in the contested waters of the Yellow Sea in response. North Korea then attacked a small South Korean Island in the Yellow Sea.

Instead of siding with South Korea over this incident, China rebuked her. Recognizing her growing interdependence with China, South Korea’s response to China has since been to press even harder for diplomatic and economic relations while giving lip service to the United States of her continuing need for military and diplomatic ties.

Ultimately, the path forward for South Korea, North Korea, and China is clear, albeit potentially rocky. China and South Korea are aiming for $300 billion in bilateral trade within four years and their trade is growing at 22 percent per year. Negotiations toward a free trade agreement are also ongoing. For peace, stability and prosperity of the region, South Korea and China will ultimately build a path through and including North Korea in trilateral agreement, eventually reuniting the two Koreas.

What do Japan and South Korea’s overtures to the rest of Asia mean to the United States? We may find that soon our bases in both countries that we used to extend the strength of our military and to provide political stability that multiplied our economic strength coming out of WWII and that of our trading partners, will no longer be political acceptable to either Japan or Korea. The era of our military proximity to China may end.

Yet we no longer use these bases to contain communist aggression. The Cold War is over and war with China is unlikely in the near term. Maintaining bases in Japan and South Korea as deterrents to war is costly, and bases for counter terrorism in such places as Indonesia, certainly do not call for such a large footprint. Our proximity to China and to a militarized North Korea does present a surprise advantage to any future enemy attack, à la Pearl Harbor. We do still have defense commitments both to South Korea and to Taiwan but what is the size footprint required for those diminishing needs?

We are in Asia to hold onto the remaining power we gained in WWII, yet China’s political and economic alliances have usurped the protective military measures that once bound the East to America. As China gains economic strength and pressures our commodity and trading relationships, protection of shipping lanes from our major trading partners to the United States will become a critical priority. That priority will likely require, however, a different mix of bases than we currently operate. As we develop a stronger military corridor, in the interim, U.S. interests in South East Asia will be well defended by its allies Philippines, Singapore and Thailand.

While the East Asian region may benefit just as South Korea is now by keeping America as a counterbalance to any potential future China aggression, East Asia will certainly not allow the United States military to pursue any containment policy aimed at slowing China’s growth. America therefore needs to rethink its military role going forward in Asia with an eye on protecting our transplanted manufacturing that is vital to our economic and national security. However, the massive post war forward base mentality that is draining America’s military budget while no longer achieving earlier vital objectives is not in our nation’s best interest.

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China May Call EurAmerica’s Bluff and Let the Western Financial System Collapse

Brazil taught the world that what was behind the Wizard of Oz’s curtain was pure smoke and mirrors. When two MBA’s transformed Brazil’s rapidly deteriorating economy by simply creating a second currency and stating that it, unlike its hyper-inflating counterpart, had a constant value, and by sternly imposing political discipline on the new currency, they showed the world that currency is not the purview of international banks that create it from thin air. Currency is the will of a nation to share its productivity on an equitable basis.

China had not learned this lesson at the end of the barrel of EurAmerica’s gunboat diplomacy and suffered millions of casualties in the years after 1840 as a result. But China has learned it since and has taken advantage of her hard won understanding by playing the West’s own mirage of money against its immobile institutions. Through sophisticated manipulation of our businesses, banks, and politicians, China has reaped the rewards of EurAmerican pursuit of maximum quarterly profits and interest rates. The entirety of EurAmerica is now neck deep in its own debt that has provided China with tens of thousands of factories at EurAmerica’s workers’ detriment. Our citizens will languish in decades of debt repayment, wage decline and underemployment as a result.

Now that EurAmerican leadership has transferred massive amounts of real wealth to China’s shores, building the armaments of the world’s next century of commerce, our captains of industry, fathers of finance, and patrons of politics are now asking her to protect the financial instruments that procured those resources. Certainly, after how the West scourged China less than two centuries ago, she owes no allegiance to the West’s economy. In fact, China may already have ascertained that the end game cannot afford a prosperous West in the face of China’s emerging commodity and consumption needs.

If China does not responsibly act to assist the global crisis, she will surely suffer in the short term from it. However, as the Long Depression of 1871 proved, the country emerging from the depression with the abundance of real assets emerges more quickly and with a stronger position to consolidate hegemonic power. And the Great Depression proved that the country holding the world’s financial wealth emerges as the dominant reserve currency. In that case, America held the majority of the world’s gold.

It may be in China’s strategic best interest then to allow the world to financially collapse. China has the productive assets. She has a surplus of fiat money. She has the commodity relationships. She has built a substantial reserve of gold bullion as a backup source to restart her economy. And more importantly, China’s state run bank recognizes that the curtain protecting the Emerald City protects only a fiat monetary system built upon the premise of an existing western caste system commanding allegiance to debt derived money.

If EurAmerica collapses, it will take years for our political system to sort out a restructuring of power and debt obligations. In the meantime, China will surge ahead in re-establishing a world order built on a constructive new monetary and credit system with China at the center. She will then selectively engage with companies and institutions of the West as she strategically sees fit. Our current debt and credit default swap bubble has created dinosaurs of the West walking aimlessly into financial tar pits. It is unfortunately a house of cards that and I am afraid China is going all in to call EurAmerica’s bluff.


Filed under China, Economic Crisis, U.S. Monetary Policy

On My Birthday, I Agreed that America is Nowhere near Middle Aged, So She Should Stop Her Midlife Crisis

I celebrated my 51st birthday yesterday surrounded by my 5 kids. They took me out deep sea fishing (caught a 5 foot black tip shark) and made me sweat with a tennis pro before going to the spa, having a terrific dinner out and finishing with a night of gift giving. It was such a great day that I almost forgot I was 51.

When I turned 50, I made believe that it was just one step away from my 40s. At 50, I tried to deny that my vigorous youth was slipping away or that my powerful purchasing parity had peaked its prosperity. I was not ready to accept that from this point on, I would slide ever so slowly down into a slumbering non-existence.

But now at 51, I am squarely surrounded by 50 and 52. I must acquiesce to the fact that my more virile years may be behind me. I must settle down from my midlife crisis, finish my mourning for my hegemonic mid years and begin to accept that where I am at 51 is a new beginning to finding peace, productivity, and prosperity in my last quarter century.

America is but 235 years old, hardly in my position. America is not a nation heading for its golden years as many would have you believe. Why is she acting like me, pouting about her aging features? Why is she accepting her fate as it is being told by those who have hijacked our future? Are we really in our midlife crisis or have we been hypnotized by those who would have us believe we must willingly hand it over to those fledgling industrialists to the East? Who reading this post truly believes that the Chinese are better able to lead the world into the 21st century than America?

If so, state your case. As for me, even if I have but a quarter century left to give to my country, I intend to make it a virile thrust for America. Remember folks, in 235 years, America could only stack a baby born in 1776 on top of a baby born in 1856 on top of a baby born in 1936, just three short lifetimes. America cannot possibly be in our golden years when only three consecutive people have lived their lifes as Americans. So snap out of it. Shake off the psychological bindings that international globalizationists would like you to bound with for their hegemonic slaughter and get back out there and fight for America now!

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Filed under American Governance, American Innovation, China, Innovation, Jobs

The Gingerbread Corporate Man (A Bedtime Story)

After having travelled across the Atlantic Ocean to build their little stone baking mill, an elderly American couple wished for a son. Knowing that America considers corporations to be citizens, they decided to bake a gingerbread corporate man. They added equal amounts of capital, toil, and love to bake their son. Upon coming out of the oven, he immediately began to delight his parents.

He worked side by side bringing them prosperity and joy. However, as he grew older and collected more capital unto himself, he grew haughty and began to think, “Why do I toil for the benefits of my parents. I am the capital of flour and sugar, and they are but mere laborers.” So one day to his parents’ horror, he ran down the dirt road for other worlds singing, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man.”

As he ran down the path, he happened upon the mayor of the town who asked, “May I take but an arm or a leg to help feed the townspeople?” The gingerbread corporate man would have none of it, running away shouting, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man!”

A little further down the road he met a tree hugging, spotted owl who exclaimed, “Slow down your development! I want to eat you.” But sidestepping the owl’s advances, he ran away shouting, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man!”

Over the Wall, he dropped to the street finding a gaggle of banker geese honking, “Don’t stop! We will collect all of the flour and sugar in America and give it to you for your journey.” The gingerbread corporate man, thought a moment and asked, “You don’t want to eat me?” “No”, they cackled. “We want to eat a bit of every bag of flour and sugar we take from the little old ladies of America and give the rest to you so that you grow big.” “You’ve got yourselves a deal!” shouted the gingerbread corporate man as he ran down the street.

As he neared the seashore, he came upon a bevy of bakers from the baker’s union who shouted, “Stop, you have all our flour and we will be without a livelihood if you run away.” “Will you bake until the midnight hours toiling in heat?” asked the gingerbread corporate man. “No, will you let us eat you?” retorted the baking guild. Instead, he ran down to the sea shouting, “Run, run as fast as you can, you can’t catch me, I’m the gingerbread corporate man!”

As he reached the shore looking back toward the mayor, spotted owl, gaggle of geese, and bakers all running after him, the gingerbread corporate man shouted, “Oh no! They will catch me. How can I cross this deep ocean?” At that moment, he came upon a crafty Huli Jing, a Chinese fox lingering at the shore. The fox exclaimed, “Climb upon my tail and I will swim across the Pacific.” “You won’t eat me?” asked the Gingerbread corporate man. “Of course not”, said the Chinese fox, “I want to help you.”

As the gingerbread man climbed aboard, he brought the huge bags of flour and sugar that weighed down the fox. The fox said, “Climb upon my back so you won’t get wet.” As they swam closer and closer to China, the gingerbread man added more and more of the capital onto himself, making him bigger and bigger, weighing down the sly fox further.

When China appeared on the horizon, the fox said, “You are much too big and powerful for my back and I am tired. If you want to enter China, you must bring all your fast ideas with you and hop upon my nose to keep dry.” Wanting to escape the Americans who wanted to eat him, the gingerbread corporate man did as he was told.

As soon as they reached the Eastern shore, the Huli Jing tossed the gingerbread corporate man into the air, opened his mouth, and snap, that was the end of the Gingerbread Corporate man!

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Filed under American Governance, China, Multinational Corporations, U.S. Tax Policy

America Must Force Her Politicians to Acknowledge that American Factories are Better than Free Trade

China now commands a majority of all the hegemonic commodity relationships of the Earth, processing the following within her shores:
… 53% of the world’s cement
… 48% of the world’s iron ore
… 47% of the world’s coal
… And the majority of just about every major commodity.

In 2010, China produced 11 times more steel than the United States and set a new world record by manufacturing and selling over 18 million vehicles in 2010. These are not the statistics of a country on the heels of the United States, or even more naively, on the wane. They are the statistics of the greatest industrial strength of the world.

To prepare for this phenomenal level of production, China installed supporting infrastructure, taking on debt. Some experts have suggested that China’s governmental debt obligation now exceeds 150 percent of her GDP, much higher than the United States’ total governmental debt ratio at 122 percent and slightly higher than Greece’s 140 percent debt ratio. Since Greece is the whipping boy of the world right now, causing its government to incite riots as it attempts to curtail its governmental spending, why is it that the world’s credit rating agencies are not downgrading China’s credit rating when her debt ratio is worse?

Why is it that a week before S&P came out to disparage America’s credit rating, she was egged on by Dagong, China’s premier rating agency? A week before S&P gave Fonda like cover for China’s government to chastise America for our government’s debt, Dagong bypassed her own government’s sizable debt issue and downgraded the United States’ credit rating for having a debt that is 30 percent lower as a percentage of GDP than Dagong’s own country’s debt. The question is, did S&P get it right?

The answer may be better understood by looking at the reason for each country’s debt. During a business upswing, the debt a country takes on may be indicative of their future financial strength and not their financial straits. In the case of China, that has been experiencing three decades of meteoric rise in productive capacity, her government has been increasing debt to place infrastructure ahead of production. While China has played the edge of keeping her business cycle from turning down while greatly investing in infrastructure investment that at times significantly precedes production, China’s ability to eventually pay her debt is much greater than the United States, whose productive capacity has not been keeping up with our government’s spending for decades.

China’s surge of infrastructure and productive capacity has preceded government revenues, but will ultimately be covered by her rising private economy, even if inefficiently. However, in America’s stagnant economy that is not rising as fast as its government’s debt obligations, our rising government debt will ultimately choke off private business growth and cause an even greater debt ratio to occur.

China’s debt has been used for infrastructure to support productivity increases. However, the United States’ federal debt has been overwhelmed by military and entitlement payments, which ultimately takes from productive business growth. Our consumer debt is worse. Instead of investing in domestic long term efficient assets, our excessive consumer debt has left us with huge piles of plastic landfill rubbish and large tracks of unused, foreclosed, and obsolescing housing. However, some consumer debt, including home equity debt, was used to funnel money into the stock market, much of which found its way to China as equity for Chinese foreign direct investments.

China’s private economy is strapped with high debt that is susceptible to economic downturn. Variability of cash flow during the peaks and troughs of business cycles have historically set the amount of equity needed to sustain businesses in different industries. However, at the zenith of financial bubbles like we experienced, historical debt/equity ratios are thrown out in favor of getting the deal done. Many China deals were highly leveraged, 100 percent debt, non-recourse loans.

At the coming trough of this exaggerated business cycle, China may have factories that cannot pay their debt payments, tens of thousands that cannot be lifted off their foundations and returned to the equity investors. If this cycle, trends hugely negative, lenders will be forced to restructure loans causing Western equity investors not to receive the returns they had hoped and evaporating trillions of equity from the New York Stock Exchange, equity that was provided from the West.

Unlike equity in normal business cycles, this equity came from millions of Westerners hawking their home equity collateral for loans that were then reinvested as equity in China deals. If the business cycle makes an excessive swing, the debt acquired by Americans and other westerners to provide the equity for China’s deals will go into default and creditors will foreclose on the collateral of those assets to cover losses. In this world economic monetary retraction, all suffer but China has the best of the bad outcomes.

While China positioned herself to transition through this potentially worst upcoming economic retraction in history in much better condition than the West, this does not mean that the United States should sit idly by and waste whatever pre-trough time we have left. It is critical for America’s national security that we bring a few jobs back to America’s shores. America has the largest military power ever assembled. Yet China has the ability to re-supply her military at an alarmingly faster rate than we can re-supply ours. This made the difference in WWII as in most large wars of attrition, and America has left her manufacturing flank grossly unprotected.

So a critical factor for our national security and economy is to help businesses that employ the American workforce to improve competiveness. Ultimately, the differential cost of operating in America versus overseas, weighted for risks, has to be driven to zero to assist those companies that wish to remain in America to stay competitive and to survive. Yet businesses are continuing to leave America for China and other emerging countries, suggesting that in some cases the cost burden asked of our businesses is too high.

For the 40,000 factories that have left America for China, they have been driven by financial choices: (1) the cost of supplying America is less in China even including transportation back to the U.S. (2) the cost of supplying both the U.S. and China is reduced by building larger capacity in China to supply both countries or (3) the cost of not building in China is too great, because China will not give access to her market unless factories to supply it are built in China.

To stave off further loss of businesses to overseas locations and to entice others back to America, for the choices above (1) costs of factories to supply our domestic markets must be driven down to match leading edge international costs. For (2) if the market is greater in China (a huge advantage for her) the cost of building capacity in America large enough to also supply China, with the corresponding scale efficiencies, must overcome the much greater transportation costs of moving many more goods to China than the fewer goods consumed in America. For (3) the costs of building in the U.S. must now also overcome lost opportunity costs of losing China’s market.

Certainly (1) driving down costs to match international costs is fraught with political traps such as minimum wages that must be managed to succeed. (1) However, building capacity to fulfill local demand is much easier than (3) overcoming opportunity costs of being closed out of China’s markets. Yet, if we accept premise (3), we are accepting an unlevel playing field imposed by China.

Corporations understand China’s imposition and do not react as if it as unlevel. MNCs do not have loyalty to build in any one country and therefore do not see building in China to gain access to Chinese market as a detriment per se. MNCs see the opportunity to build mega factories to supply both China and the U.S. as an economic boon. However, that is because China’s building impositions have thus far not caused other countries to respond negatively with tariffs and other retributions. (Why?)

No, the detriment is to the government of the United States and to our working class. Our government’s politicians, who have not yet taken actions in favor of America’s working class, must finally be forced to acknowledge that America’s middle class and the American government that is supported by their taxes has different motives than the multinational corporations that fly our flag. We should do everything in our power to see that our government’s and corporations’ interests align but when they do not, we can no longer feign ignorance.

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Filed under American Governance, China, Free Trade, Multinational Corporations