Wednesday, September 19, 2018

China: A true paper tiger - By Paul Dvorak

So you think both China and the current trade war are a threat to the U.S.?
With corrupt one-party rule; a disintegrating environment, where heavy metals are routinely dumped in the nearest landfill, generating skyrocketing cancer rates the government will not publish; and falsified economic data that would clearly show a plunging economy, there was one important element of this degenerating Chinese economy everyone had ignored.  That was the inability of the Chinese government to protect its own intellectual property.
As someone who traveled to China for the last eighteen years and lived in the country for seven of them, I declare that the fact that you can go to any local street corner and buy any current American movie or TV series for about 80 cents, or buy literally any counterfeit branded product for a fraction of the cost of an original, should have been a clear indicator of where this China economy was headed.  If a county and government cannot protect innovation and invention and must rely completely on low-wage labor to attract investment and industry, that country's economic model will not survive.
If you develop any original product or innovation with the company you are working with in China, you can be assured that you will see the same exact product at the next industry show after the development is stolen by a member of your management team and quickly sold to the highest bidder.
Because of the general China government policy of extorting intellectual property from any foreign firm wishing to access this large market, along with the total absence of a protected patent process in the country itself, research and development on any technology, medical advancement, or product innovation simply do not exist.  Why develop innovation when the company or factory down the street can easily access and reproduce it without as much as an injunction?
This is all simple.  The Chinese economy was based on cheap labor and not innovation and increased productivity, like the U.S.  As the ruling party needs to raise the minimum wages to keep the masses docile, and always in fear of revolt and revolution, which, we forget, is how they initially came to power, multi-national companies are leaving in droves to find the next country with even lower wages.  Without the innovation and protected intellectual property, there is no reason for the companies to stay, and the labor-based economy crashes, which is what China is currently experiencing.  
This factor alone will keep China on a negative economic trajectory, regardless of how the Communist Party tries to manipulate currency and markets to keep the population employed.  With $40 trillion of debt (someone had to finance the ghost cities) and a flawed economic model, the coming revolution is inevitable.  The current trade war enacted by our president is purely a function of all the years he has conducted business this environment and his recognition that simple tariffs are enough to send the fragile economy to the bottom and likely to ignite unrest from a population that just wants a job.  All he is doing is nudging China off the cliff.  He may go down in history, as Ronald Regan did, as a defender of capitalism and liberty and a destroyer of communism.
This just may be Donald Trump's greatest legacy: the end of one-party communist rule in China, a true paper tiger.