Obama should take a new approach to China

While there are numerous difficult hurdles facing Obama’s next administration, China does not have to be one. All it takes is a fundamental change in its approach regarding China and the bilateral relationship.

The first step to resetting the bilateral relationship is to recognize the campaign rhetoric on China for what it was: nonsense. Both candidates felt obliged to savage China for our ills but the voters saw through the political ruse and did not pay any attention.

Who’s the currency manipulator? We are. No one can be expected to keep up with our printing presses run by the Fed. Even so, the renminbi has appreciated by about 32%, since it was taken off the peg to the dollar.

Let’s also not talk about outsourcing jobs as if companies are committing grand larceny. Private enterprises make rational decisions. They send the work to China or elsewhere because it makes economic sense. When it ceases to make sense, the work comes back as some have.

Adding an import duty on goods invariably backfire as has been the case with the much talked about 30% duty on auto tires made in China. A few hundred jobs may have been preserved but all American consumers ended up paying significantly more for their tires and most of the tires were still foreign made, just not from China.

Raising tariffs also prompts retaliation. In a tit-for-tat, China raised tariffs on American chicken which may have cost as many jobs on Tyson’s assembly line as the gains at the Goodyear plant. Time and again, nobody wins in trade wars.

China has an apparent huge trade surplus with the US and we hold that against China as well. But why should we object to being able to buy our iPad and stuffed animals at a much lower price than if made in the US?

Furthermore, as many economists have pointed out the trade surplus is not exactly what we say it is. For example, the added value of China labor in an iPad is about 2% of the total cost. Many of the components and assemblies are made in Japan, Korea and Taiwan and even some in the US but China gets all the “credit” for the import value.

It’s not as if enjoying a trade surplus when doing business with the US is some extraordinary aberration. The US has a trade deficit with 98 countries because this is the way our American economy works.

One of the first principles of the Chinese classic, Sun Zi’s Art of War, is to know your counterparts, be they friend or foe, before engagement. Perhaps it’s time that we take a look at how China regards this bilateral relationship to gain the more solid understanding of what actions to take.

The Chinese public continued to be fascinated by the presidential election. Apparent exercise of democracy in action made the people in China wishful that some would rub off in China.

The financial tsunami of 2008 and aftermath had shaken the Chinese confidence in America’s ability to manage its finances and has cause them to diversify their hard currency holdings and to make the renminbi more accepted as an international currency. The trauma however has not changed China’s regard of the US as a vital economic partner.

It simply is not in China’s national interest to consider the US a hostile competitor. China has its own laundry list of internal challenges and do not need the distraction of external confrontations.

For more than a decade the leaders of Beijing have been talking about the urgency of combating graft. Endemic corruption saps the economy and more importantly erodes the legitimacy of those in power. While success in overcoming corruption is problematic, it will be the foremost preoccupation of the incoming leaders.

Secondly, even though the US has a serious unemployment problem; it pales by orders of magnitude to the one Beijing has to face. Just finding jobs for the approximate 8 million college graduates every year is beyond American comprehension.

Although Obama’s pivot to Asia defused accusations during the campaign for being soft on China, he needs to review the consequences of this policy.

Occupying foreign lands may have been a western tradition, but it is not for China. In early 15^th century, the Chinese had the world’s mightiest navy and could have colonized the many places Admiral Zheng He and his sailors visited, but they did not.

It is not in the Chinese DNA to compete with the US for world hegemony. However, if China’s sovereignty is being tested by US activity in Asia, China will not quietly stand by. Rather than enhancing stability, the American increase military presence has encouraged Japan, Philippines and Vietnam to be more energetic in contesting the islands off China’s coast.

In response, China raised the stakes by establishing the Sansha City on one of the Paracel Islands in the middle of South China Seas. The city will own an enlarged runway, a desalination plant and other related infrastructure for future tourism. The city along with a military garrison will administer over 200 islets and sand bars along with two million square km of water.

Sansha, in midst of South China Seas, enjoys significant logistical advantage over the nearest US marines in Australia. Such asymmetrical arrangement is the only basis that China would counter unfriendly acts from America--in other words, relatively modest investment by China that would offset considerably more investment by the US.

China has no appetite to match US military might on a dollar for dollar basis.

It’s time the US reexamine the concept of strategic ambiguity in dealing with China. It simply has not worked. Sometimes friendly, sometimes hostile, sometimes cajoling and sometimes imposing has merely led to a permanently rocky relationship. Both the US and China can better deploy their energy on other issues than managing the ups and downs of the bilateral relationship.

With the incoming new generation of leaders, Obama should try a new approach: be transparent. Lay all the cards on the table and agree on those issues the two countries can work together and put others on hold—an approach Deng Xiaoping would applaud.

The US can’t really afford to allocate money it doesn’t have to build up a military presence that would only increase tension in Asia. With China, cooperation trumps confrontation.

An edit version has been posted on China-US Focus.


Jack Perkowski is well known investor in China. Read his careful debunking of Obama's complaint about China's alleged unfair subsidy of its auto industry.

About Peng Liyuan, wife of Xi Jinping

If Peng Liyuan, the next first lady of China, is a representative of what the new leadership is like, there is hope for China. South China Morning Post provided a lengthy profile on her with two interesting video clips.

The first clip of nearly 12 minutes long was produced (with English subtitles) to raise awareness of young children with HIV in China. She starred as the visiting dignitary (ambassador for children with AIDs) to a remote Anhui village with many orphans, shunned by society because they are HIV carriers and in many cases became orphans because their parents died of AIDs. This video was produced in 2006. In this documentary, Ms. Peng held the children, played with them, taught them songs and generally showed what a loving mother can be like to kids that have not experienced much joy in their young lives.

The second clip show she singing in a national day celebration and was filmed in 2011.

The videos showed a warm and selfless human being and that bodes well for China.

What's Next for America?

The US presidential election is finally over. Now comes the hard part: having to deal with reality.

Over six billion dollars had been spent by the two political parties during the long arduous campaign. Almost none of it were used to explain how each candidate propose to solve the really, really hard challenges confronting the next administration.

Both Romney and Obama seemed to lack the confidence that American voters can stomach bad news or be told the harsh reality. Instead each tried to outdo the other in bombastic platitudes, grandiose promises and deceptive innuendos. 

Now the American public will hold their collective breath (and nose) to see if Obama and the Congress can hammer out a solution that will keep the economy from going over the fiscal cliff. The campaign gave no hint on how that will be done.

The candidates always conclude their speeches with "God bless America." Whether God will or not, it seems to me, will depend on attributes heretofore rarely sighted in Washington: statesmanship and bipartisanship. 

There is a more to Huawei’s trouble with Congress than meets the eye.

Huawei’s debacle with US Congress raises troubling questions at many levels. Huawei will be paying a heavy price for a colossal failure to communicate across the two cultures, but this story is more than about just one company.

Huawei initiated the dialogue by inviting a Congressional investigation of its company operations. The House Select Committee on Intelligence responded but did not give Huawei officials the desired endorsement. Instead, the House Committee specifically recommends that the US government and private sector entities do no business with Huawei on the ground that their equipment constitutes a national security risk--a devastating hit on Huawei’s reputation that could hurt Huawei’s business around the world.

Based on the company’s past engagements in the US market, Huawei should have anticipated a hostile reception. Its past attempts to make a minority investment in a floundering 3Com and an acquisition of a relative start-up were stymied by the US government as a perceived threat to the US national security.

The company is said to have spent hundreds of thousands of dollars on consultants and Washington lobbyists to help Huawei deal with the Congressional committee. Apparently these advisors did not appreciate the rather formidable built-in bias Huawei needed to overcome. Drawing from their investigative report, it is clear that the Committee began on the presumption that Huawei represents a real threat to national security. Nothing in the eleven-month investigation changed their minds.

Just the mere possibility that cyber espionage can take place via Huawei equipment was enough to brand Huawei a risk to national security. To overcome the bias, Huawei would have had to prove that Huawei equipment could never host cyber attack against the US, obviously not a stand Huawei could take credibly.

By way of mitigating the Committee’s concern, Huawei offered to have all their equipment thoroughly tested and certified by an independent laboratory before the equipment could be introduced into the US market similar to the arrangement accepted by the government of Great Britain. The Congressional Committee rejected Huawei’s proposal for the following reasons: (1) The US market is too large for any testing to be sufficiently comprehensive. (2) The testing only applies to the configuration being tested but the configuration could be altered subsequently during installation or later upgrades. (3) Such a certification can even encourage a false sense of security and reduced vigilance. In other words, there was no way for Huawei.

The Committee asked Huawei to provide information on their contracts, pricing practice for their products and services and scope of their operations and, recognizing the sensitive nature of the information being sought, offered to receive such information under a confidentiality agreement. Apparently, Huawei did not have the confidence that Congress could keep information confidential and refused to comply. Thus the Committee concluded that Huawei might be selling “at least some of its products in the United States below the costs of production,”--a huge leap indeed based on information the Committee did not get.

The Huawei officials also failed to established empathy with the House Committee—to put it mildly.  Given a Congressional body with no understanding of China or at least none that they would admit to, empathy may have been too much to aspire. The Committee could not even make a distinction between state owned enterprises (SOEs) and privately owned ones. Somehow in their minds, a large successful private enterprise must be connected to the Chinese government, and a sinister connection at that.

They insisted on wanting to know about how Ren Zhengfei, Huawei’s founder, was able to leave his SOE employer to start his own company, as if that was unheard of, while actually in the late ‘80s and early ‘90s, people in China were leaving SOEs in droves. How was Ren invited to attend the 12^th National Congress, the Committee asked? Huawei’s answer should have been: Jiang Zemin began to recognize the important role of entrepreneurs in China’s economy and selectively honored them by inviting some to the national confab.

The House Committee’s conclusion on Huawei, as its report readily admitted, was based on hypotheticals and not on specific illegal acts committed by the company. The hypotheticals are easy to conjure. However, the only known successful cyber attack the world knows for certain is the deployment of American made Stuxnet worm on the Iranian centrifuges. Certainly Americans have the bona fides to imagine how cyber attacks can be done.

The Internet is populated with screaming accusations from network security consultants—undoubtedly looking for work—pointing to China as the source of rampant cyber attacks, thus providing cover for Congressional paranoia. The Committee does claim to have smoking guns describing Huawei wrongdoings but these are classified and not available to the public.  

In a way, this is reminiscent of the Cox Committee’s investigation in the late 1990’s on the alleged espionage activities of Chinese in America. The unclassified part of the Cox Committee report painted a lurid picture of Chinese espionage running amuck in America. Tens of thousand storefronts in America registered to Chinese entities were cells and every ethnic Chinese was a potential spy for China. The Cox Committee also assured the public that they had smoking guns though consigned to the classified section of the report and not available to the public.

By now the smoke from the Cox Report has largely dissipated and the only concrete result was the arrest of Los Alamos scientist, Dr. Wen Ho Lee. He spent nine months in solitary confinement before the presiding judge apologized to Lee and threw out the case. The legacy of the hysteria created by the Cox Committee investigation is a lingering suspicion of the loyalty of Chinese Americans and the erosion of the idea that US Congress behaves honorably.

Sadly, politicians have continued to find profit in taking pot shots at China. The incumbent President Obama, a Nobel Peace laureate no less, proclaimed a military pivot to Asia, and thus encouraging conflict in the waters around China, to show that he is not soft on China. His opponent, Romney, promises to declare a trade war against China on the day he takes office—if elected. Members of Congress regularly take the floor to blame China for all the economic woes in America. None of the American leaders of any stature have spoken about the importance of getting along with China.

Bashing China has no apparent down side for American politicians unless and until the bilateral relations between the two most powerful nations spiral out of control leading to tragic consequences. The challenge for the incoming leaders of Beijing is to strike a balance between being more transparent to ameliorate American feelings and reassuring its own constituents that China’s sovereignty is not being compromised by American demands. It will be up to the American people to punish mindless China bashing by voting the offenders out of the office and encourage leaders that recognize the importance of promoting mutual trust between the two nations.

What’s at stake is the future peace and prosperity of the world depending on China and the US getting along without rancor.

_______________________________

A shorter version appeared in China-US Focus.

American Cover Up of Japan's WWII Atrocities by Unit 731

Those accused of committing war crimes in World War II were tried in Nuremberg and Tokyo. Sometime after the conclusion of those war crime trials, in December 1949, 12 Japanese physicians and military officers were tried for their crimes against humanity. The trial was held in Khabarovsk, Russia and the testimony described acts of horror and brutality beyond imagination. Americans are unaware of these crimes because General Douglas MacArthur, at the time in charge of occupation of Japan, suppressed the findings.

I was recently reminded of this part of WWII history when I came across an 8-page article published on June 5, 2001 in The Japan Times about the trial of Unit 731. This biological research unit was established in Harbin by Japan's military hidden behind a wall and a veil of secrecy. No outsiders knew what was going inside the camp. 

Most of the information in this blog is derived from the article in Japan Times, generally recognized as the equivalent New York Times of Japan. The following passages taken verbatim from the article give some "color" to the accusation of war crimes:

The crowds (at the trial) heard about doctors who subjected their victims--termed "logs"--to all kinds of experiments: injection with animals' blood, exposure to syphilis, hanging upside down until death, surgical removal of their stomachs with the esophagus then attached to the intestines, amputation of arms and reattachment on the opposite side. Some 10,000 people were reported to have died in Japan's 26 known killing laboratories in China, Japan and other occupied countries.

Unit 731's physicians, preparing to fight in the Soviet Union or Alaska, would experiment on victims in the bitter Harbin weather, where winter temperatures can fall into the minus 40s Celsius. Guards would strip a victim, tie him to a post outdoors and freeze his arm to the elbow by dousing him with water, researchers say. Once the lower limb was frozen solid, doctors would test their frostbite treatment, then amputate the damaged part of the arm. The the guards would repeat the process on the victim's upper arm to the shoulder. Another test, another amputation. After the victim's arms were gone, the doctors moved on to the legs.

When the prisoner was reduced to a head and torso, orderlies would lug him elsewhere in the compound and use him for experiments involving bubonic plague or other pathogens. Virtually no one survived. Unit 731 found a ready supply of human guinea pigs: members of resistance movements, children who strayed too closed to the outer perimeter, a teenage girl found carrying a pistol, Mongolians, Koreans, Russians. Any non-Japanese, really, was a potential victim.

While Soviet officials deliberated on what to do with them (after the war), Gen. Douglas MacArthur secretly granted immunity to the physicians of Unit 731 in exchange for providing America with their research on biological weapons. Presented with evidence that downed US airmen had been victims of grotesque experiments, MacArthur suppressed the information.

MacArthur's action outraged Stalin and he ordered a trial of Unit 731 doctors then in Russian hands. The trial ended in 5 days and the accused were found guilty and sent to prison, none were executed. In 1956, except for one that committed suicide behind bars, rest were quietly sent back to Japan and released. Lt.-Col. Naito Ryoichi, one of the military doctors, founded Japan Blood Bank that later became Green Cross. General Ishii Shiro, leader of Unit 731, was never caught and tried; he died of throat cancer in his own bed in 1959.

As the Japan Times article pointed out, the Khabarovsk trial casts light on a wound that still festers in Asian international relations. Anger at Japan runs deep in both Koreas, China, the Philippines and other nations occupied in World War II to whom Japan has never paid reparations or issued a satisfactory apology.

The trial revealed that the Japanese military was planning to attack San Diego with kamikaze piloted planes loaded with fleas infected with bubonic plague. Hiroshima and Nagasaki intervened and the plan was never carried out. Had it been otherwise, American might think differently about the pains of WWII.

What's Next for House Committee on Intelligence?

Fresh from their head-line grabbing investigation of Chinese Telecommunications companies Huawei and ZTE, Chairman Mike Rogers and Ranking Member C.A. Ruppersberger of House Select Committee on Intelligence (the spy kind and not related to IQ kind) announced that the Committee will next investigate how the Chinese acquisition of AMC Theaters will adversely affect national security.

AMC is the second largest chain of cinema theaters in North America with over 5300 screens. Each screen is a potential conduit for messages to corrupt our American youth, Chairman Rogers said.

Studies have shown that flashing subliminal messages at the moviegoers in between frames can induce involuntary purchase of soda pop and junk food. The Committee intends to ask Dalian Wanda, the acquirer, if the company intends to insidiously suggest to the American audience to gorge on chop suey.

The Committee also intends to ask Dalian Wanda as to its connection to the Chinese government and the PLA. Given that the company is based in the city where Bo Xilai was once mayor, we can presume the company has unsavory intentions and the Committee intends to find out what that is.

Dalian Wanda might offer to let an independent third party vet all the prospective projectionists before they are hired but that proposal will be rejected by the Committee. It will be too easy for the Chinese owner to slip in secret agents while the operating projectionists go on bathroom breaks and insert messages that turn the minds of American youth into mush. (Thanks to video games from Japan, the minds of American young people are already in a fragile state but that's a topic for another investigation.)

Chairman Rogers regrets that he did not initiate similar investigations when Wanxiang began to acquire auto parts companies in the US, including many in his home state of Michigan. Now Wanxiang USA is probably too big to tackle.

While the acquisitions saved many of those companies from going out of business and thus kept many employed, there is no telling what dastardly deeds that can be done to undermine the security of the US. For instance, spare auto parts could be manipulated to fail when put into American made cars and thus give Chinese cars an unfair economic advantage.

Sensors on the auto parts can be designed to send sensitive intelligence (the spy kind, not the smarts kind) back to Beijing and we wouldn’t even know it. For instance, the sensor could be telling Beijing that certain Senator is not at the office but his car is parked in his mistress’s garage.

As investigations by the Cox Committee have proven a decade or so earlier, every entity from China registered in the US is spying on us. If we begin on the presumption that the Chinese are up to no good, we will be able to sleep better at nights.

The House Select Committee on Intelligence (the spy kind not related to intelligence) intends to safeguard our national security. We stand on the premise that we don’t want the Chinese here and we don’t want Chinese investments here. They can take their American dollars and invest elsewhere.

This pseudo press release with tongue firmly planted in the cheek may seem ludicrous but is inspired by the actions of the House Committee on Huawei and ZTE and the pervasive paranoia currently afflicting American politics.

Let a Japanese Professor Explain the East China Sea Dispute

It has come to my attention that a well respected scholar from Japan, Professor Yabuki, has spoken about the dispute involving the Diaoyu/Senkaku controversy. One fascinating pieces of information is that Japan's Ministry of Foreign Affairs has been hiding certain facts of the meeting in 1971 between Japan's Prime Minister Tanaka and China's Zhou Enlai. Non-disclosure has allowed Japan to insist on certain denials and perpetuate the difference in China's position vs. Japan's current position.

A Typical Wrong Headed American View of the East China Sea Dispute

A young American entrepreneur based in Shanghai wrote an op-ed piece about the dispute between China and Japan over the islands in the East China Sea that is typical of American hubris and lack of familiarity with recent world history. Like most American pundits, Nance failed to address the US role complicit in creating the origin of the dispute in East China Sea. 

According to the terms of unconditional surrender demanded by the leaders of the Allies and accepted by Japan to end WWII, Japan gave up any claims to the islands in dispute with China, Korea and Russia. Korea and Russia took possession but China was not allowed to do so by the US because of an altered geopolitical landscape after the War.

In 1972, when the US returned administrative control of Okinawa to Japan, which was already contrary to the terms of surrender, the US compounded the wrong by including Diaoyu/Senkaku islands as part of the package. Whether this was done deliberately or not is a debate for another occasion, but the US must accept responsibility for causing the lingering dispute.

If it was in the US national interest to overlook Japan's lot as the defeated nation then, surely it is in our national interest to reconsider what's good for America now. I believe what's right and good for America is to acknowledge and retract a mistake that was made then and that the US will not side with Japan on this issue now. Once that declaration has been made, I am convinced that the tension will die down quickly.

I wrote my views on this matter on an earlier post.

The US must stay out of East China Sea Dispute

Further to my blog at the end of last month, Ignatius Ding, a noted Silicon Valley activist, has elaborated on the historical and legal perspective of the dispute between China and Japan, worth reading by all concerned Americans. This has been posted in the San Jose Mercury News.