By on June 17, 2009

China is becoming the new America, while America is becoming the old China. Jack Perkowski thinks it’s happening right now. Jack is an Old China Hand and a colleague in the automotive parts business. He’s an American and a Yale graduate. Fifteen years ago, he came to China and started ASIMCO, an auto component manufacturing company. In January, Perkowski left the company. The global decline in the business didn’t spare ASIMCO. Perkowski is a true Lao Wai, which literally translates into “Old Foreigner” in Mandarin. From one of the first in China, we inherited a lot of his experience. Some is chronicled in Perkowski’s book Managing the Dragon, which made the bestseller lists. Most is regularly updated in Perkowski’s blog that goes by the same name. In a recent post, he left us some interesting thoughts. Some may find them revolting, even seditious.

During my time here, China has become the third largest economy in the world, the world’s largest market for cars, computers, cell phones and a host of other products, and the country has accumulated $2 trillion of foreign currency reserves. China is now the single largest investor in the United States, unthinkable in 1994 when China had less than $50 billion of reserves.

As the single largest creditor, is China worried about where the U.S. of A. are going? Perkowski sure thinks so:

Given all that has transpired, the leaders at Zhongnanhai must be scratching their heads, wondering what their counterparts in the United States are up to. It began with Enron, Worldcom, Tyco and a host of accounting scandals. In a flash, the financial statements of Chinese companies were just as believable and just as transparent, if not more so, than those of U.S. companies. Then it was Bear Stearns, Lehman, AIG, Bank of America, Freddie Mac, Fannie Mae, Citicorp and the meltdown of the U.S. financial industry. Hoping to learn how to develop its own financial system, China encouraged investments in its state-owned banks by leading U.S. players. Maybe they aren’t such good examples to follow after all?

While China is trying to divest itself from state-owned companies, what is China’s largest debtor doing? Just the opposite.

But the sharp left turn that the Obama Administration has taken since coming to power must really have China’s leaders wondering. Not just the banks, but now large industrial companies, are owned by the U.S. government, and the United States is doing what any government does when it owns companies—it meddles, and political, not economic, considerations are taking precedence.

The takeover of the car industry by the US government reminds Perkowski of the bad old days in China. The courts ignoring the law? Employment for the working masses trumps turning a profit? Where does one still find these egregious practices?

Rather than let the bankruptcy system work as it has over the years to restructure companies, billions of dollars, much of which will never be recovered, have been pumped into General Motors and Chrysler, two companies that represent less than 30 percent of the U.S. automobile market and have been losing market share to foreign-owned companies that now also happen to manufacture in the United States-all in the name of saving the jobs of the United Auto Workers, whose support played an important role in getting the current administration elected.

Central planners deciding the direction of the companies? Heads of state-owned enterprises serving at the pleasure of party bosses?

An administration-appointed car czar, not the company’s board of directors, has fired the General Motors chairman and CEO and installed a new CEO, president and chairman. General Motors is told what plants it cannot close and where its offices should be located. Barney Frank personally called the General Motors CEO to reverse a decision to close a GM distribution facility in his district, and President Obama himself assured Detroit’s mayor that GM’s headquarters would remain in Detroit, rather than move to a neighboring suburb. Undoubtedly, the Obama Administration and Congress will tell their management appointees what types of cars GM should produce. Toyota, Honda, Nissan, Hyundai and their U.S. workers must be delighted with this turn of events.

At least we can find solace in the fact that there still is justice in America. Perkowski is beginning to have his doubts.

As for the vaunted ‘rule of law’ that the United States has been known for, ask the GM and Chrysler secured bondholders what they think. And as for manufacturing statistics—Americans are being told that the administration will ‘save or create’ 600,000 jobs this summer, a statistic that the Wall Street Journal has labeled an ‘immeasurable metric.’

I there anything that doesn’t remind Perkowski of the times before Deng Xiaoping? Yes. China was never ruled by Russian Emperors, who were famous for mistreating their serfs:

A newly appointed pay czar (there are now more than 20 such ‘czars’ in Washington) will now review the compensation of the top 100 managers of any company that has received support from the government.

So what does Perkowski suggest?

Somewhere along the line, the United States picked up that socialist economic playbook that Deng Xiaoping was smart enough to throw away. Perhaps the U.S. should ‘follow Deng’ and go back to what got the United States, and now China, to where it is today?

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24 Comments on “Editorial: What Would Deng Xiaoping Do?...”


  • avatar
    UnclePete

    Nothing revolting about what he is saying – this piece hits the nail on the head. As a libertarian, I’ve shaken my head over so many of the recent business decisions the government has made that I think I’ve hurt my neck!

  • avatar
    gogogodzilla

    It won’t be long before American emmigrants will be telling jokes in their new homelands about, “In Soviet Amerika…”

    :-(

  • avatar
    savuporo

    The New America and Old China thing maps in quite a few areas. In spaceflight for instance:
    http://www.transterrestrial.com/?p=19667

  • avatar
    niky

    More Socialist than Communist…

    Still… it’s even more depressing when it’s summarized in this manner…

  • avatar
    mpresley

    I suggest that anyone who can, visit the mainland. I spent a month in Shenzhen, never visiting the east before. Mao appears only on souvenir ashtrays and their currency. Deng Xiaoping is seen as the liberator–in a capitalist sense. The Chinese I met loved Americans, or at least their ideal conception of America as a capitalist country. Sure, there are a lot of problems in China. But I have as much faith in their ability to succeed (maybe more), than ours, at this time in our history. It’s sad, really, to think of where we’ve come, and where we are going. The good news is that the Chinese mostly like us, so we’ve got that going for us when they take over!

  • avatar
    GS650G

    It’s amazing so many people would sacrifice their freedom for free stuff from the government. Especially when stuff is never free.

  • avatar
    ttacgreg

    To my mind, this current situation the USA is due to mismanagement and incompetence on the part of both government and industries. The abandonment of trust busting (allowing the “too big to fail” factor to develop), the corruption of our government (it is clearly for sale via election funding and lobbyists), and the triumph of ideology over reason, the shift from producing a bigger pie to scrambling to grab the biggest piece of the existing (or even dwindling?) pie, and the evolution in our culture in my lifetime from a “we are in this together” outlook to one of “you are on your own” come to mind as factors that have led to the current mess. I am largely convinced by the course of recent events particularly in the financial industry bailout, that the plutocrats in charge are still looting the USA even as the economy is stumbling.
    I been pondering lately the idea that the lower say, 95% to 99 % of the population really cannot continue to support / afford the top 1-5% who are sucking up the lion’s share of the wealth.

  • avatar
    au6553

    “Favorable tax policies, free land, and bureaucratic tape cutting have all been used to promote investment, which the Chinese understand is the lifeblood of any economy.”

    This isn’t an embrace of capitalism. Land isn’t free. If the govt gives it to Megacorp., the government hasn’t opened the free market, it has sponsored Megacorp, tilting the playing field in their favor. It has taken a resource that was owned in common by the country and privatized it in exchange for – wait for it – nothing. Same with a favorable tax deal. If the govt. gives Megacorp. a million dollar tax break to locate itself in a province, that is really state sponsorship of that company. And how do you get those kind of deals for your company? By A. Being rich and B. Having political connections. You have unwittingly stumbled upon the true reason that China has risen to crush the United States, and it’s really not very clever at all. China eliminates barriers to the free flow of capital. Democratically enacted impediments to realizing the maximum return on capital investments can be crushed in the blink of an eye by a Chinese government that answers only to a select few who are rich and politically connected. With this dictatorial regime, you can stomp unions, ignore environmental concerns, and ignore health and safety concerns, and most importantly, you can ignore the costs associated with them which would minimize returns on capital investment. You can also give away state owned land and sweetheart tax deals to private companies as well, never fearing any reprisal at a ballot box. It’s not as though the United States didn’t do the same exact same thing. In the 19th century, we gave away land to rail roads for nothing. Heck, we built the automotive companies an interstate on which to sell their products. We shot at unions, we allowed companies to dump toxins on public land, and we knowingly allowed workers to get injured on the job, knowing it was cheaper to just get another one when that one was unable to work anymore. That’s China today. That’s the “secret” of their success. It’s not an embrace of capitalism, it’s an embrace of corporate capitalism, where the rich and politically connected enjoy the “gloriousness of being rich,” while everyone else eeks out a dismal and dangerous living under their complete control. But the absolute worst part of it all is that this protected class will, just like this guy, thereafter pretend they ascended to their position through their own hardwork and ingenuity, ignoring that they received a mountain of direct and indirect state subsidies to get them there.

  • avatar

    au6553: The Chinese government doesn’t give away land. Never does. There is no private (or corporate) land ownership in China. All you get is a 50 year lease if you are a company or a 75 year lease if you are a private person. You pay “rent” to the government.

  • avatar
    Martin Schwoerer

    What would Den Xiaoping do? Well, what did he (probably) do? He had demonstrators in Tiananmen shot. So much for freedom. Oh yes, the most important freedom is that of commerce. That’s what the Chinese would like us to believe. But why should we buy it?

  • avatar
    volvo

    To paraphrase Bertel:

    The US government doesn’t give away land. Never does. There is no private (or corporate) land ownership in the US. All you get is a 1 year lease. If you don’t pay your “lease” payment(known in the US as property taxes) each year the taxing agency takes back the land and leases it to another party.

    If any of you think you “own” your real property just fail to pay taxes levied or put it to some use not approved of by local authorities.

    Not that this taxing and regulation is necessarily a bad thing but one shouldn’t go around with the illusion that you really “own” a property.

  • avatar

    Volvo: To round out the story, I was just offered the lease of a good sized private island in China for less than what I had paid the Southampton Township in annual property taxes ….

    I declined nonetheless.

  • avatar
    Paul Niedermeyer

    Yes indeed, let’s go back to where China is today. Where the government filters my internet. Where the small and weak are thrown out of their houses and farms without compensation for re-development. Where environmental degradation is rampant. Where folks have to save 25% of their income, because if they get sick, it’s cash or else. Where babies are fed melamine-tainted milk. I could go on and on…

    It’s very easy to pick and chose, to find the specific extremes of our societies, like Jack Perkowski has done, and I have just done here, that represent the worst sides of each country. And while I may be more than a bit unhappy with some of the things that have happened in the US, and certain trends, I have no desire to be thrown into the Wild West/Robber Baron Days of yore.

    Countries evolve, like people. China is an 18 year-old, brimming with hormones, and pimples too. The US and Europe can’t go back there; we’ve been there. We need to act like the responsible middle aged countries we are. Fix our problems, but don’t throw the baby out with the bath water. And don’t try to go back to being a teenager again.

  • avatar
    wsn

    Martin Schwoerer :
    June 17th, 2009 at 11:30 am

    What would Den Xiaoping do? Well, what did he (probably) do? He had demonstrators in Tiananmen shot. So much for freedom. Oh yes, the most important freedom is that of commerce. That’s what the Chinese would like us to believe. But why should we buy it?

    ——————————————

    What did he do?

    He arrested Chairman Mao’s wife and remaining minions. Reversed almost all of Chairman Mao’s policies.

    He disbanded state farms (no, not the insurance company) and let farmers grow whatever they want. The complete opposite to what Chairman Obama is doing to GM now.

    The Tienanmen massacre is an undeniable black eye to this otherwise brilliant politician. But it’s a black eye shared by many. Didn’t the American government shot protesters dead as recently as the 1960s?

  • avatar
    wsn

    # volvo :
    June 17th, 2009 at 12:08 pm

    Not that this taxing and regulation is necessarily a bad thing but one shouldn’t go around with the illusion that you really “own” a property.

    —————————————–

    Very true. To “own” a piece of land. You better have your own armed force. And at this age, you better have your own nuke ready. Otherwise, if you don’t have WMD, people may come to hang you.

  • avatar

    WSN: Kent State was 1970 ….

  • avatar
    50merc

    This is a great piece, Bertel, and Perkowski is a well-informed person to whom we should listen.

    This is not the first time America has been a chronic borrower. In the 19th century we depended on foreign capital, mainly from Britain, to build infrastructure and enterprises. That is, back then we borrowed to invest; now we borrow to consume. No wonder the Chinese are beginning to worry how we’ll ever pay them back.

    It’s regrettable that articles draw comments from those who need to exhibit their ideological chips on their shoulders. “Didn’t the American government shot protesters dead as recently as the 1960s?” Are you really suggesting that the government decided to kill protesters? Kent State is the only such deaths I recall, and they resulted from putting green troops without proper training and supervision into a fearsome and disorderly confrontation. It was a tragedy, not policy.

  • avatar
    topgun

    I have to agree with Mr. Perkowski here. Heavy handed interventions in the private economy by the govt hardly constitutes the stuff a capitalist society is made of. However to claim that ‘new’ China is somehow ‘free’ and more capitalist than the ‘new’ US is a bit of stretch. We at least have a democratic system of governance, a free, independent press and several other rights that the Chinese don’t enjoy. When the Chinese govt allows a site like TTAC to operate without trying to censor it or imprison its writers/commenters, then come and talk to me about the existence of the ‘rule of law’ in China.

  • avatar
    mpresley

    First, there are no illusions about the Chinese government. It’s essentially one party, and any significant changes must flow up and down (mostly down–but not always) via the CCP. Nevertheless, as the article points out, the rule of law in the US, as witnessed by the recent treatment of the secured creditors, is questionable. China is only beginning to formulate a rule of law. Under the Communists the law was (and still is to some degree) a rather loose term. Most Chinese likely believe their country is ascendant, and ours is breaking down. I agree with them, to a large part. Who knows what the next two generations will show?

  • avatar
    agenthex

    This isn’t an embrace of capitalism. Land isn’t free. If the govt gives it to Megacorp., the government hasn’t opened the free market, it has sponsored Megacorp, tilting the playing field in their favor. It has taken a resource that was owned in common by the country and privatized it in exchange for – wait for it – nothing. Same with a favorable tax deal. If the govt. gives Megacorp. a million dollar tax break to locate itself in a province, that is really state sponsorship of that company. And how do you get those kind of deals for your company? By A. Being rich and B. Having political connections. You have unwittingly stumbled upon the true reason that China has risen to crush the United States, and it’s really not very clever at all. China eliminates barriers to the free flow of capital. Democratically enacted impediments to realizing the maximum return on capital investments can be crushed in the blink of an eye by a Chinese government that answers only to a select few who are rich and politically connected. With this dictatorial regime, you can stomp unions, ignore environmental concerns, and ignore health and safety concerns, and most importantly, you can ignore the costs associated with them which would minimize returns on capital investment. You can also give away state owned land and sweetheart tax deals to private companies as well, never fearing any reprisal at a ballot box. It’s not as though the United States didn’t do the same exact same thing. In the 19th century, we gave away land to rail roads for nothing. Heck, we built the automotive companies an interstate on which to sell their products. We shot at unions, we allowed companies to dump toxins on public land, and we knowingly allowed workers to get injured on the job, knowing it was cheaper to just get another one when that one was unable to work anymore. That’s China today. That’s the “secret” of their success. It’s not an embrace of capitalism, it’s an embrace of corporate capitalism, where the rich and politically connected enjoy the “gloriousness of being rich,” while everyone else eeks out a dismal and dangerous living under their complete control. But the absolute worst part of it all is that this protected class will, just like this guy, thereafter pretend they ascended to their position through their own hardwork and ingenuity, ignoring that they received a mountain of direct and indirect state subsidies to get them there.

    Excellent post.

    The only addition I’d make is to further disambiguate what “government” means in this case. Government as it applies here essential means the autocratic control that all wealth seeks. This is not the same idea of governance that more democratic societies should aspire to.

  • avatar
    agenthex

    As for the vaunted ‘rule of law’ that the United States has been known for, ask the GM and Chrysler secured bondholders what they think.

    Ironically this only shows how centralized and controlled the flow of news and information is in this country, because this whole “rule of law” deal recently is one giant lie.

    The communists have yet implement a system so transparent and persuasive, so we are still unquestionably ahead in this regard.

  • avatar
    M. Report

    @ Bertel Schmitt @ WSN : Kent State was 1970

    Yes, and Waco was 1993.
    As mentioned below, the Kent State shootings are
    at least understandable, if not forgivable;
    As a (quickly squelched) commentator on Waco said:
    “This is about Sovereignty” , and he was right;
    Defy the State, kill its minions, and suffer
    extermination to the last man, woman, and child.

    @ 50merc:
    Green troops, fear, disorder; Tragedy, not policy.

    The College students and the National Guard troops
    were the upper and lower halves of the same local
    group of youths. March the Lower down the
    street while the Upper throws things, and the
    Upper females hurl _really_ hurtful taunts and
    offers, and see what you get; Not tragedy, but
    shameful incompetence on the part of the adults
    who were supposed to be in control.

    Anyone care to predict how our current Lords and
    Masters (Yes, that is how they see themselves)
    will react in an analogous situation ?

  • avatar

    When the Chinese govt allows a site like TTAC to operate without trying to censor it or imprison its writers/commenters, then come and talk to me about the existence of the ‘rule of law’ in China.

    Niu shi, as they say here. I have been living in Beijing for four years. I write daily for TTAC, and once a week for Gasgoo, in China. I am not typing this from a cell. I invite you to come, talk to me, about the rule of law if you desire, and have a look for yourself.

    From the immigration procedures, which are ten times more pleasant and faster than what expects a tourist in the USA, through your departure, you will have the time of your life.

  • avatar

    Everyone want to bash the Chinese, just as they did the Japanese in the 1980′s.


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