If right-wingnut Glenn Beck needs a China hater on the tube, he usually calls Gordon G. Chang. Chang is always good for talking bad about China. In 2001, Gordon Chang published a book titled. “The Coming Collapse of China.” In it, he predicted that China would implode by 2006, if not earlier, due to the mass of non-performing loans in Chinese state banks. Much to the chagrin of Chang, China is still standing. It must give Chang heart palpitations that the Chinese economy grew more than three times since he penned his doomsday book. To add injury to irony, instead of a China syndrome caused by the meltdown of  Chinese banks, a non-performing global financing firm called Lehman Brothers started a chain reaction in 2008 that brought the world financial system to the brink of nuclear winter.

China ranks as the world’s third largest economy since it passed by Germany in 2007. China is likely to overtake Japan to become the world’s second largest economy, either this year or by 2010. In the world of Gordon Chang, all this growth must be as real as a Gucci bag at China’s notorious fake markets.
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A year ago, the 21st Century Business Herald reported that SAIC might buy GM and Dongfeng might buy Chrysler. TTAC was the first to break the story in the USA. As a result, our servers melted down, and we were accused of driving down GM’s and Chrysler’s stock price. Usually, buyout rumors drive prices up. But GM and Chrysler had only one way to go: Down. Months later, GM and Chrysler went bankrupt. They became a ward of the US government. Chrysler was given away to Fiat. GM was trimmed down to the barest minimum and is still owned by the US government. And the China story turned out to be a myth.

Following this, stories of Chinese car companies buying US car companies became a regular staple. Up to now, it is mostly talk and little action.
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President Obama paid his outstanding union dues and slapped a 35 percent punitive tariff on Chinese car and light truck tires exported to the USA. The new duty will take effect on September 26 and comes in addition to an existing 4 percent duty, Reuters reports. Everybody, except for the United Steelworkers, agrees that this is one of the most boneheaded decisions of the new administration.

No American tire manufacturer supported the case. Cooper Tire even publicly opposed it. No wonder: US tire companies are the biggest offenders (in the eyes of the United Steelworkers), having moved most if not all of their budget segment tire production to low labor cost overseas sites. Chinese tires are not in the USA because China wants to rape and pillage the market. Chinese tires are here, because US tire companies set up joint ventures in China to make what the market demands: Tires for less.

China is not the only exporter of budget tires to the USA. According to the Wall Street Journal, 43 percent of the tires sold in the USA are imported. Only 11 percent are imported from China. The far larger share is imported from low labor cost countries such as Malaysia, India, or Central Europe. What the boneheaded decision does is simply shift tire production from China to other low cost producing countries. These countries can take advantage of 11 percent of the tires effectively removed from the US market. The low cost producers can raise their prices until the market settles. The American consumer will bear the cost. Not a single new job is created in US tire companies. Jobs will be lost at tire distributors and dealers. This decision achieves nothing for America except higher prices and troubles with China.

The American Consuming Industries Trade Action Coalition wrote in a letter to the US Trade Representative John Kirk: “The absence of tires from China in the market will raise costs to downstream consuming industries, including automobile manufacturers, will limit consumer choices and affect most seriously those with the fewest resources. Thus, these tariffs will be the most regressive of taxes.”

“Those with the fewest resources” (i.e., the poor) are easiest sold on buying the import-restriction Kool-Aid. They drink it in big gulps: Imports bad for jobs. When they find out that fewer low cost imports mean higher prices, that they still have no jobs, and that their welfare check buys much less, then it’s too late.

The complaint by the US Steelworkers does not allege unfair trade practices. No longer needed. In US law, there is a special anti-China provision, called section 421. The Hong Kong Trade Development Council explains the complicated law in the most succinct way: “Under Section 421, the USITC determines whether a specific product from the mainland is being imported into the U.S. in such increased quantities, or under such conditions, as to cause or threaten to cause market disruption. ‘Market disruption’ is defined as rapidly increasing imports, either absolutely or relatively, so as to cause or threaten to cause material injury to a U.S. domestic industry. If the USITC makes an affirmative determination it proposes a remedy, which the president may or may not implement.”

The USITC is the United States International Trade Commission, “an independent, quasi-judicial federal agency that provides trade policy advice to both the legislative and executive branches of government.” The USITC is often called the International Trade Commission to give it a fake supranational flair. It’s pure US government.

“Market disruption” is a vague concept. If anyone feels disrupted by Chinese imports, they can petition the USITC. If the USITC accepts it and takes it to the president, and if he signs it, no more Chinese imports. Under Bush, for all his failings, every section 421 petition that reached his desk was rejected: He had to decide on strategically important goods such as wire hangers, steel pipe, brake drums and rotors and “pedestal actuators,” a component used in scooters for the disabled. All voted down.

Obama approved the first 421 petition that was put before him. China and US companies are rightly afraid that this will trigger a flurry of section 421 cases. “Multinational companies such as Caterpillar Inc., Citigroup Inc. and Microsoft Corp. have urged Obama to refrain from curbing imports, saying it could lead to a “downward protectionist spiral,” writes Bloomberg.

The United Steelworkers based their complaint on the allegation that Chinese tires had cost a paltry 5,000 union jobs over a number of years. Which of course is bunk. The jobs were lost because US consumers increasingly refuse to buy the high priced tires, and because US tire companies have reacted to consumer demand and moved their production elsewhere. Only one fourth of the tire imports comes from China.

Understandably, the Chinese are deeply upset. China’s state-run news agency, Xinhua, writes, “This ruling came at a time when the U.S. economy is at an uncertain turning point from the worst recession since World War II.” Officially, China exercises restraint. “Observers said that the president needs his people to help make domestic reform smoother,” is as low as Xinhua wants to publicly stoop.

The verbiage from China’s Ministry of Commerce is stronger: “China expressed strong dissatisfaction and is resolutely opposed to this,” said China’s Ministry of Commerce (MOC) spokesman Yao Jian. “This does not comply with WTO agreements on subsidies. The U.S. used an incorrect method to define and calculate the subsidies, which has resulted in an artificially high subsidy rate, hurting Chinese firms’ interests.”

What China is likely to do is threefold:

One, China will drag the USA in front of the WTO. China will have the tacit or open support from other low-cost countries, including the EU (many low cost countries, such as Poland or Romania are EU members.) The world will also love to slap around a country that demanded free trade as long as free trade was good for America. Note that China mentioned “subsidies.” The bail-outs will come on the table also. WTO proceedings can drag on forever.

Two, China will take some tit-for-tat measures. On the table is a hefty tariff on US auto imports to China. During the first half of the year, China imported more than $1 billion worth of automobiles from the US. China could buy fewer Boeings and more Airbusses. If things get really bad, China could put a dent in the Chinese growth of the automotive ward of the state, GM. Europe will love it all.

Three, Chinese President Hu Jintao will give Obama a tongue-lashing when they meet in Pittsburgh at the G-20 Summit September 24-25. Obama will be gently or not so gently reminded that America’s largest creditor deserves a little better treatment, or the money could be moved elsewhere. Timothy Geithner will also be reminded that his announcement in June that “Chinese assets are very safe” is bunk. The greenback is on its way down. A EURO bought $1.46 today and it’s heading toward $1.50. Come to think of it, a falling dollar is the best protection against cheap imports from all corners of the world: The lower the dollar, the more expensive the imports. A truly free market needs no section 421.

Forbes writes: “The current round of disputes will undoubtedly end up in a trade war, and China, a country extraordinarily dependent on exports, will surely be the biggest loser.”

Don’t bet on it.

America is already involved in two shooting wars which it couldn’t afford would China not buy its bonds. America cannot afford two shooting wars and a trade war with its largest creditor.

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?

China’s central government clearly isn’t enthralled with Tengzhong getting intimate with Hummer. If you want to get a feel for how they really feel, all you need to do is read Xinhua, their official news agency. Xinhua speaks for China’s government—with plausible deniability if something goes wrong. As far as Hummer goes, every single day Xinhua has sown FUD (fear, uncertainty, doubt) about the marriage.

Today’s Hummer Deathwatch, Xinhua style, opens as follows:

“General Motor’s Hummer is considered as an exaggerated and extreme example of a disregard for the environment and there are significant brand negatives for the Chinese company Tengzhong to buy it.”

Xinhua carefully selected “a U.S. financial expert” to say that: one Richard L. Wottrich, managing director, international, at Dresner Partners, an investment banking firm based in Chicago.

In case you’ve never heard of Wottrich (neither have I), Xinhua furnishes a flattering feature list of his achievements: “Wottrich has initiated merger and acquisition transactions in China and has delivered speeches at several influential events such as “2005 Summit of CEOs and Career Managers of Chinese and Foreign Enterprises” in Beijing and the Greater China Business Conference at the Kellogg School of Management, Northwestern University, in 2008.”

After establishing his bonafides, they let Wottrich go postal on the presumptuous planned amalgamation:

“The vehicle is too big, uses too much gas, and is viewed as a toy for the rich. These are rather significant brand negatives for the Chinese company Tengzhong to consider.”

“Hummer is a difficult brand name to reconcile with current global conditions and political thought.”

“The brand is based upon the High Mobility Multipurpose Wheeled Vehicle (HMMWV or Humvee), a military 4WD motor vehicle manufactured by AM General. It is an essential part of the landscape of war in Iraq and Afghanistan.”

“The final consideration is brand name development and new products. What market will Tengzhong focus on? The mature and stable Western markets have the negative views of Hummer mentioned. If they target developing countries, this becomes a symbol of wealth obtainable by few.”

In other words: Bu hao, no good. Give up, already.

Just in case someone hasn’t received the message, Xinhua reminds its readers: “The Hummer and other large vehicles have been a drag on the U.S. auto industry since fuel prices spiked in 2008 and the recession deepened. GM said it sold 5,013 Hummers worldwide in the first quarter, down 62 percent from the 13,050 that it sold in the same period of the previous year.”

What if someone doesn’t put credence in Wottrich? In a separate article, the second so far today on a quiet Saturday morning in Beijing, Xinhua presents an array of Chinese experts who say the deal is a dumb idea. Their crown witness: The Hummer dealer in Tengzhong’s hometown Chengdu.

“I had never heard of the company and was surprised at the news,” said Yang Cheng, general manager of Sanhe Hummer Sales Center, one of the two branches that sold Hummer in Chengdu, capital of Sichuan Province.

“Producing gas-guzzling brands is against the current trend toward energy-saving and emission-reduction,” Zuo Xiaolei, an economist with China Galaxy Securities told Xinhua Saturday. “Meanwhile, the company has no experience in producing passenger vehicles, adding difficulties for the company to manage the brand.”

“Wang Yukun, a researcher with the Yangtze River Delta Research Institute under Beijing-based Tsinghua University, said it would be hard for the buyer to “digest” Hummer.”

“Tengzhong plans to maintain the current management team for Hummer and develop more energy-efficient models, but it is just their fantasies. If the current team could prevent the brand from slumping in any way, they would have done so before,” Wang told Xinhua.

“It’s difficult for a company to digest something dumped by others,” Wang said.

That’s as close to “Tengzhong eats what GM secrets” as you will ever get in the officious Xinhua. Someone—or many—in Beijing are clearly displeased with Tengzhong. My prediction: The formerly unknown Tengzhong company managed to receive buzz from Hummer and can now go back to making cement mixers and bridge pontoons. With so much flak from Beijing, this deal will go down in flames.

Government Motors is launching a barrage of press releases in an attempt to shock and awe all naysayers. All is fine with its Asian operations, they are insulated from the bankruptcy of the mother ship, it’s great business as usual. As far as China (GM’s second largest market behind the United States) is concerned, business never has been better! It seems everybody is counting on the Chinese consumer to bail out the US government’s bailout.

GM China’s Prez, Kevin Wale, opened the salvo in China Daily: “General Motors Corp.’s fast-growing China operation will be unaffected by the parent company’s bankruptcy. Plans to open a new factory within five years will not change, even as GM closes US facilities.” Gettelfinger will be thrilled.

And, yes, “GM China is sticking with a five-year plan to double annual sales to 2 million units and roll out 30 new or updated models.”

More good news: Yesterday, GM China released their May sales—way before anybody else in China. Sales rose 50 percent over May 2008, Gasgoo reports. The Buick New Excelle, based on the Opel Astra Delta II platform, is selling especially well. So is the Buick New Regal, based on the Opel Insignia. And the Chevy Cruze, also a Delta II descendant.

Wale isn’t worried by the fact that many of his moving models are based on Opel technology: “The technology for the vehicles we sell is held by General Motors, and I don’t see any implications from the new structure in Europe.” Magna and its Russian partners may have a different opinion.

The Dept. of The Treasury even denied that there might be a secret deal to keep Opel and Magna out of the U.S.A. and China. “Newspaper accounts that Treasury is insisting that Opel stay out of the U.S. or Chinese markets are incorrect. The U.S. government strongly supports free markets,” Treasury spokeswoman Jenni Engebretsen said.  Treasury keeps a backdoor open: If Magna and GM cut their own deals, then that’s their own business, an unnamed Obama administration official said to Reuters. I zee nozzink, especially not the Sherman act.

GM China sent a statement to Gasgoo, claiming that “the court supervised reinvention of GM in the United States will have no substantial impact on Shanghai GM, and Shanghai GM will continue its normal business operations as usual.” The statement insists that the intellectual property rights of products produced by Shanghai GM will be included in the New GM, and that GM’s joint ventures in China are not included in the court filings. Kudos for the euphemism of the day: Court supervised reinvention. Sure beats extraordinary rendition (a.k.a. “impromptu concert”.)

Readers of Bloomberg are told that GM “did not include its international operations in a filing for bankruptcy protection.”

Readers of the Wall Street Journal receive the same good news: “It is absolutely business as usual in China,” the WSJ cites Kevin Wale. “None of General Motor’s operations outside of the U.S. are included in the Chapter 11 filing, including GM China, our joint ventures and our other China operations.”

TTAC’s B&B know better. A court document filed Monday with the United States Bankruptcy Court Southern District of New York, made available through TTAC’s resident court reporter, Justin Berkowitz, names the following Chinese companies as part of the General Motors bankruptcy: Pan Asia Technical Automotive Center Company, SAIC GM Wuling Automobile Ltd., Shanghai General Motors Corporation, Shanghai GM, Shanghai GM (Shenyeng) Norsom Motors Co. Ltd., Shanghai GM Dongyue Motors Co. Ltd., and Shanghai GM Dongyue Powertrain. That’s only a partial list of GM’s international operations named in the filing.

The list presented to the court was obviously done with care, and wasn’t just a cut & pastie from the latest Sarbanes-Oxley filing. GM Europe, handed over into the care of a trustee appointed by the German government, isn’t there. Also missing is GM’s Australian unit, GM Holden Ltd. Holden “expects to be part of the new GM and will not cut jobs,” Holden’s managing director Mark Reuss said to Bloomberg. Whether the listed companies will finally end up in a “Good GM” or “Bad GM” doesn’t change the fact that they are all included in the filing.

The list of GM’s 50 largest unsecured creditors, also filed on Monday, reads like a Who’s Who of the parts business. Delphi is owed $111 million. Bosch is owed $66 million. Lear Corp. is owed $44 million. Renco Group is owed $37 million. Johnson Controls is owed $32 million. Denso is owed $29 million. TRW is owed $27 million. Magna is owed $26 million. American Axle is owed $26 million. Continental AG is owed $15 million. Tenneco is owed $15 million. Yazaki is owed $14 million. International Components Corp. is owed $12 million. Visteon is owed $10 million. And the list goes on. No wonder that companies on that list have already declared bankruptcy themselves, or are listed as bankruptcy risks. Thousands of smaller suppliers are affected. According to CNN Money, “a vast network of companies outside Detroit are bracing for impact. Suppliers to the auto goliaths are going to feel the aftershocks of the industry’s titanic shift.”

Business as usual? Viewed through the eyes of GM, it probably is business as usual.

US SecTreas Timothy Geithner quickly got out of DC for the Monday curtain call of the artist now known as Government Motors. Geithner went as far as Beijing to distance himself from the performance. Keeping a distance didn’t mean keeping his mouth shut. From Chrysler and GM, “we want a quick, clean exit as soon as conditions permit,” Geithner told students at Peking University in Beijing. Reuters took notes. “We’re very optimistic these firms will emerge from restructuring without further government assistance.” Strangely, everybody shares his optimism . . .

Back home, Geithner’s subalterns at the Presidential Task Force on Automobiles (PTFOA) are digging in for the long haul. To paraphrase Richard Nixon, we’ll have the twenty-five member team (plus assistants) to kick around some more.

It’s not like they need the money; Bloomberg reports that PTFOA bureaucrat-in-chief Steve Rattner is worth some $188m. He’s in it to win it—now that he’s divested shares in Cerberus (Chrysler’s soon-to-ex-owners) and “sold guarantees of as much as $15 million on a credit-default swaps index tied to the secured debt of 100 companies, including General Motors Corp.’s senior secured loans, the filing shows.”

Reuters reports Steve-O will continue to earn his bankruptcy proof government pension “even if General Motors Corp and Chrysler LLC emerge swiftly from bankruptcy this summer.” That’s because “the Obama administration’s autos task force will stay in business—shifting to an investment manager role.” According to the principles laid out in Washington, the US government “will seek to dispose of its ownership stakes as soon as practicable.”

Define “practicable?”

Someone should. Not that the Obama administration isn’t trying. The Washington Post reports that following that infusion, the US Treasury “does not believe or anticipate that any additional assistance to GM will be required,” a senior administration official said Sunday night, calling the restructuring a ‘permanent’ solution.” Final answer?

According to Reuters, one of Geithners officials “declined to project when this would be or how much of the $50 billion in aid extended to GM will be recouped. The restructuring plan was aimed at ‘maximizing taxpayer proceeds’ by ensuring that GM could be profitable even if conditions in the industry remain difficult for years to come.”

Not realizing how deep the foot was in his mouth, Geithner went on to reassure the students and the Chinese government that China’s huge holdings of dollar assets are safe and that he has deep faith in a strong US currency.

“Chinese assets are very safe,” declared Geithner at the Beijing University, where he studied Chinese in 1982.

This time, loud laughter erupted from the student audience. They clearly didn’t buy this one. On the first day of Geithner’s visit to China, China Daily reported that seventeen out of 23 economists in China said they deemed the country’s vast holdings of US bonds “risky.” China Daily is a well-written, and occasionally entertaining government publication. Ever so politely, Geithner is being told that the Chinese government doesn’t share his convictions.

The market didn’t buy Geithner’s faith-based valuations either. The same day he praised the strong dollar in Beijing, the greenback plummeted against world currencies. At the time of this typing, one Euro buys $1.42. The dollar hasn’t been so cheap since last December.

As China sees its dollars getting ravaged by consumption with a different meaning (pulmonary phthisis), Geithner treaded carefully when it came to the Chinese currency. All he said was that it would be nice if China would “continue progress toward a more flexible exchange rate regime.” That remark was ignored as politely as it was made.

Meanwhile, Geithner tries not to be reminded of his major achievement when he had studied in Beijing. He helped organize an international badminton league among his fellow Beijing students, which included participants from Sierra Leone, Iran and North Korea, as the website of his alma mater can’t help to note.

Whether or not Chrysler and GM’s future (or lack thereof) forms a lasting part of Tim Geithner’s legacy is not in doubt. The question: what sort of reputation will be “enjoy?” Will his intervention make things better or worse? The early signals aren’t good. But they never are. And May’s American sales results are headed our way on the same day as GM’s filing. As the old joke goes, it’s always darkest before total black.

Then again, as Market Watch reminds us, “even if all 120,000 GM workers lost their jobs tomorrow, it’d be less than the daily average of 156,000 jobs that have been lost over the past three months.”

Further, “The lost production at Chrysler and GM will reduce gross domestic product by about 0.7 percentage points in the second quarter, not a ‘dramatic’ effect, said Abiel Reinhart, an economist for JPMorgan Chase Bank. Falling auto production cut 1.4 percentage points in the first quarter.’”

So, no matter what happens at Chrysler or GM, Geithner can always claim that a sinking tide lowers all boats. How great is that?

A few weeks of vacation from the blogosphere’s non-stop news cycle can leave a blogger feeling a bit behind the times. Two weeks is an eternity in internet time, but stepping away from the barrage of news, spin, hype and hysteria is good for the sense of perspective. Especially if the down time is spent exploring countries on the local typical family vehicle, complete with two wheels, four speeds and about 100ccs of thundering power. Beyond the sheer novelty of seeing entire families commuting on a moped (”Daddy, Nguyen isn’t staying on his side of the pillion seat”), travel in the developing world shows how insulated America is from the transportation realities of the rest of the world. If the $1,000 entry to the world of moped ownership is a major (if attainable) hurdle for workaday Vietnamese, even sub-$10K vehicles face what a GM sales release might call “a challenging sales environment.” Try to explain the “green premium” for hybrids and plug-in vehicles to an auto-aspirational third-worlder, and watch as the idea of paying more for less room and power draws only puzzled bemusement. Hair shirts, it appears, are strictly a fad for the western and wealthy. Case in point: the world’s first plug-in hybrid, the Chinese BYD F3DM.

BYD’s Corolla-aping PHEV raised more than a few eyebrows (many skeptical) when specs and concepts first appeared. Warren Buffet’s hefty investment into the cell phone battery maker quieted the skeptics and gave green-hued futurists a license to thrill. A 60-mile plug-in range, a multiple-mode hybrid system and a price tag under $25K had American hypermilers factoring in local tax credits and greengasming at the fantasy of it all. But in the world’s new largest market for automobiles, even $20K is a huge amount of money. And it turns out that one society’s eco-fantasy is another society’s overpriced, overly-complex answer to a question nobody has asked.

Xinhua reports (yes, nearly a week ago) that BYD’s F3DM has utterly failed to attract Chinese consumers; the firm has sold only 80 models since it went on sale in December. Apparently 20 of those were bought by the city of Shenzhen (think China’s Detroit) with the rest going to the local branch of China Construction Branch. In fact, BYD never even attempted to target private consumers with the model, despite the fact that an F3DM costs 30-40 percent less than a Toyota Prius (which only sold about 3,500 units in China between 2006 and 2008). Even the government isn’t rushing to put its citizens in the alleged volks-hybrid, offering a $7K hybrid subsidy to fleet buyers only.

Even with government help bringing the F3DM’s price under $20K, fleet sales aren’t as strong as BYD had hoped. Shenzen’s plan to buy more for the city’s taxi fleet is on hold as even BYD officials admit that the price needs to come down. BYD’s CEO Wang Chuanfu says that increasing production volume could help bring the F3DM’s price to a more-realistic $15K, but without institutions stepping up to prime the sales pump, the promise of a sub-$10K PHEV (after government subsidies)—and mass market sales—remain out of reach.

And even though the F3DM isn’t dependent on a charging-station infrastructure, price isn’t the only concern keeping buyers away. BYD faces an image challenge having never made anything more car-like than a laptop battery just a few years ago, and even its much-vaunted battery technology seems to struggle to meet on-paper performance numbers. According to Xinhua (hardly bomb-throwers when it comes to Chinese businesses), the 60-mile electric range is only attainable driving at a steady 30 mph. And recharging from a home wall socket takes nine hours.

But these tradeoffs and the correlating plug-in efficiency rewards only have meaning in the context of price, and here the lesson for Chevy’s Volt are plain to see. GM’s $40K profitless wonder defies fiscal logic on a comparable scale, offering only the most image-conscious greenies a value proposition worth even including. Like the F3DM, the Volt’s target audience (if not consumer) is the government, and the same increased volume-decreased price mirage lingers on the horizon. But unlike China (BYD expects its sales to double for the second year in a row, hitting 400,000 units), America’s demand for automobiles is in double-digit decline. And that includes demand for the much cheaper hybrids that are already available in the marketplace.

But we don’t have theorize about private PHEV sales levels for much longer. Shenzhen rolled out hybrid subsidies for private consumers this month which would cut the price of an F3DM in half, to about $10K. This coincides with a BYD plan to launch “a mass marketing excercise to promote the car to private buyers.” But if the car-crazed, yet pragmatic Chinese do start buying the F3DM, it will be at half the original MSRP, a feat that GM can’t hope to pull off with its Volt. Unless they just slap in powertrains from BYD, which is hedging its consumer-market gamble by offering to license technology to Western firms. In any case, BYD’s consumer sales push will give us some idea of private PHEV demand (and its required stimulus) by the time the Volt launches. Sales trends are easier to follow when they start at 80 units per quarter.

Yesterday, we relayed a Reuters report that SAIC might buy out the Chinese part of GM, that GM might take the money and bail. Today, true to form, the denials arrived. Again according to Reuters, GM says they have no plan to sell shares in its joint venture SAIC. This according to Henry Wong, a spokesman for General Motors China. Reuters is positive that GM held talks with SAIC Motor about selling part of its 50 percent stake in the joint venture, or other assets.  As if on cue, GM’s plan to enter a joint venture with SAIC’s competitor FAW received new traction today. The plan had been on hold for a while.

In the meantime, the speed dating game between Chinese companies and desperate Detroit companies who want to swap their corporate children for cash continues. Today on the radar screen, again: Volvo.  Reuters has picked up indications that Chinese car maker Chery Automobile has held talks with several European auto brands, including Ford’s Volvo, and is interested in an acquisition. What is interesting is that Gasgoo didn’t simply reprint the Reuters report.

They added their own story, in which they quoted the man himself, Yin Tongyao, CEO of Chery as saying Chery would not rule out the possibility of buying a troubled European auto brand, and that “Volvo is believed to be one of the choices.” Now that’s something else.

Gasgoo added that Chery received a 10 billion yuan ($1.47b) loan to fund its global growth from Export-Import Bank of China last December. “We were also granted the flexibility of a credit line by the bank,” Yin added. Knowing that Gasgoo is owned by Chery is adding extra credibility to that story.

“Volvo is the most solid brand compared with other brands the Detroit automakers have put up for sale,” said Yankun Hou, industry analyst with Nomura International. “It could be a big help for Chinese automakers who lack core technology but seek to climb up the ladder.”

As for Chery’s credit line, Nomura’s Hou said: “I think Chery is able to get more money if it will indeed go ahead with a bid for Volvo.”

Chery is one of China’s most aggressive exporters. They have sold their self-developed cars to more than 50 countries, mostly in the developing world. Chery’s been seeking to tap mature markets. An established brand, especially one with a strong safety cachet, might perform miracles on Chinese offerings.

According to Reuters, “the tables have turned for Detroit’s automakers.” Earlier this decade, GM, Ford (kind of), and Chrysler (haphazardly) scoured Asia for automotive bargains, capitalizing on the region’s financial crisis to snap up assets at fire-sale prices. Lately, especially GM used China’s growth machine to make their anemic numbers look good.

Now, Detroit automakers have reached out to Asian automakers to sell their unwanted and unloved brands. “They could be the buyers of last resort, the only ones left with a good bank balance, for now,” said Larry Rinek, automotive consultant at Frost & Sullivan.

“There is also a good chance the overtures will fail,” says Reuters. “The global recession, tight credit and sinking auto sales make any auto asset an extremely tough sell, and Asian automakers have also been forced to scale back production and investment.” But it doesn’t keep them from trying. According to Reuters, Ford has reached out to several Asian companies including Hyundai, SAIC, Geely and Chongqing Changan Auto, about its Volvo brand.

Executives of Kia, led by Kia President Eui-sun Chung, have had discussions with GM over the Saab premium brand.

Last year, Chrysler talked to companies including Renault-Nissan and Hyundai about its Jeep brand or other assets before reaching a pending deal with Italy’s Fiat.

GM and Ford say they have had contact with potential bidders for Saab and Volvo, respectively, but have declined further comment.

In addition to Saab, GM is trying to sell its Hummer SUV line and is reviewing its Saturn brand. Chrysler claims it has three bids for its Viper sports car business.

Reuters: “The wide-ranging talks between Detroit automakers and their Asian counterparts show how the balance of financial power has shifted in the industry over the past decade.”

Things got so bad that Chinese companies may even get what they want for a price every Chinese company would love: “With private equity firms in retreat, analyst say the industry’s distress has opened the way for more transactions that could involve little or no cash,” says Reuters, reminding the world of the deal between Chrysler and Fiat.

Failed four time presidential candidate and god of all ambulance chasers Ralph Nader has found a new enemy: China. The Center for Auto Safety, founded by Ralph Nader with part of the $425K court settlement paid by GM in 1970 for invasion of his privacy, has been researching recalls of Chinese auto parts. Those recalls are now posted on the safety center’s website. The New York Times took the bait, and ran a long story under the headline “Recalls of Chinese Auto Parts Are a Mounting Concern.” If the NYT would have just taken 20 minutes of research, they would have found that they’ve been snowed.

“There are so many automotive products coming in from China that American safety officials can’t keep track of them,” Clarence Ditlow, executive director of the Center for Auto Safety, told the Times. Opening salvo, five miles off target. The U.S. Customs Service has a record of every part entering the country. American safety officials are not mandated to keep track of them. Every part of every country may freely roam the U.S. of A.

So, on it’s own, the Center for Auto Safety went to the trouble of tracking down failed Chinese products.

After an exhaustive search, Nader’s Center for Auto Safety found 24 recalls of Chinese products, listed in the National Highway Traffic Safety Administration’s (NHTSA) records for the years 2007 and 2008. The 24 incidents involve a total of 1.2m products.

The high numbers were caused by three companies.

Eagle Eyes Traffic Industrial Co., Ltd. imported 404.546 replacement headlight assemblies which  ”do not contain required amber side reflectors.” Foreign Tire Sales, Inc. became infamous by importing 255k (some say 450k) Chinese tires which were in danger of tread separation. Harbor Freight Tools imported 295k fuses which took too long to blow.

Ditlow said his review convinces him that “too many Chinese companies are unfamiliar with – or don’t care about – safety standards” in the United States, and thus don’t meet them. According to Ditlow, automotive equipment made in China is less likely to comply with safety standards than the same product made in the United States. “The companies in North America know that process,” Ditlow said.

A quick analysis of the NHTSA database shows that Mr. Ditlow doesn’t know what he is talking about.

The NHTSA database lists 76,525 recalls since 1966. From 2007 to date– the period analyzed by the Center for Auto Safety– NHTSA lists 13,482 recalls. The database identifies the manufacturer or importer of the recalled product. It does not identify the country of origin.

The Center for Auto Safety found 24 products on the list made in China. That amounts to 0.18 percent. The NYT also did not find newsworthy that “China” is the only country listed on Nader’s website under “Import Recalls.” The countries of origin of the remaining 13,458 recalls remain unmentioned.

Also overlooked (and under-reported): during the same period, the database lists 419 recalls by Chrysler LLC, 678 recalls by Ford Motor Co, and a whopping 1,410 recalls by General Motors Corp.

The onus for creating a solid understanding of the safety standards sits squarely on the importer. United States federal law puts responsibility for the safety of the product on the American importer. The importer has to specify the factors that bring the product in compliance with U.S. regulations. The importer must verify that the imported part is in full compliance.

It is very easy to import auto parts to the United States and Canada. Some say, much too easy. There is no oversight. No prior verification is required by a governmental agency or authorized testing entity before the vehicle or equipment can be imported, sold or used. If reason develops to believe that a part does not meet standards, then authorities may conduct tests. If a noncompliance is found, a recall can be ordered.

The rest of the world operates on the principles established by the World Forum for Harmonization of Vehicle Regulations, a body of the United Nations. 58 countries, from Azerbaijan to New Zealand, are signatories to a common set of ECE Regulations for type approval of vehicles and components. Other countries, even if not formally participating in the agreement, recognize the ECE Regulations. They either mirror the ECE regulations content in their own national requirements, or permit the use and importation of ECE-approved vehicles or parts.

More than 120 ECE regulations cover most safety-relevant aspects. Each part or vehicle must successfully be tested as part of the type approval. The tests are performed by accredited, independent labs. Manufacturers must be audited. Production must likewise be in strict compliance with the certification. If non-compliant parts are found, the manufacturer– not the importer–  can lose the certification.

In most countries that signed the agreement, using a non-certified part or vehicle is illegal. This is one of the reasons why one hears very little noise about Chinese quality from European countries. Prodded by Detroit (and most likely the Association of Ambulance Chasers) the U.S.A. refused to join the United Nations body.

And that’s the truth.