Kicking Off a China Discussion: "Land of Saint Louis"

In the next day or two, will try to cover several evolving issues in China: the RMB controversy, repercussions from the Nobel prize, and latest news about its military.

For the moment, a set of links, and a reader message.

- Links about the RMB: Yesterday my colleague Clive Crook posted an item called "Getting Tough with China," essentially arguing that the Chinese government's refusal to let its currency rise in value was becoming a problem for the entire world. Short version of the argument: when economies everywhere are suffering from a collective "failure of demand," the Chinese government's insistence on keeping its currency low, even as it runs chronic (though declining) trade surpluses, makes it that much harder for all other economies to recover. Longer version of the argument, from my perspective, here and here.

Clive Crook is as redoubtable a free-trade advocate as you are going to find, in a tradition running from David "wine and cloth" Ricardo to Jagdish "watch out for trade war!" Bhagwati. If I were the Chinese authorities, I would note this column carefully. As was said (about me, in a different connection), if they have lost Clive Crook on this one, they are in trouble. He does emphasize that the U.S. should try like crazy to avoid this being an "America-vs-China" showdown, and instead make it as collective and international as possible. More tomorrow on this, including discussion of Michael Pettis's latest entry, which to me is different in tone not only from Crook's but also from what Pettis has written before.

- The human reality behind these abstractions. A foreigner who has worked for years in China's manufacturing industry writes about a story that has just struck him, involving one of his Chinese employees. This is long, and not directly responsive to the "should China raise the RMB?" question. But it's an indication of the variety, chaos, emotions and ambitions, and sheer vivid humanity involved in China's recent economic history, which is often hard to keep track of as we parse the latest export or investment figures. The manufacturing person writes (with certain details identifying details altered, at the writer's request):

>>Back at the end the 90's I hired a young girl [at my firm in southern China] to fill an admin role. I remember it clearly as she was our second hire in China and my assistant and I went out to meet her one evening. We arranged to meet her at 7PM in a Snooker hall we talked to her then we talked for a few minutes and agreed that she would be fine. We agreed a salary of somewhere in the region of 1,000 RMB [then about $125] per month.

Over the years we have seen her progress in various roles to head of our Chinese shipping team where she is today. She was always mean (on behalf of the company as well as herself - I don't mean that in a bad way). That trait didn't work to her favor when we gave her a shot at HR! In 2001 we brought the whole company to [Europe] all 14 people for teambuilding. She was one of the two Chinese who travelled there on her maiden voyage out of China. A couple of years later she married an engineer at Huawai as the girls around here do. They bought an apartment they had a baby and they bought a car. Life is great!

A couple of week ago someone in the office said to me did you hear about Emma's [the Chinese woman's] trip to Europe? I hadn't so what I heard is a milestone for globalization amongst other things.

Emma went on a ten day trip to Paris and spent 100,000 RMB [now about $14,600] on a handbag shopping spree! Can you believe it? What's more she was greatly disappointed as Louis Vuitton didn't have the style she wanted. Hermes, Prada and Channel delivered the goods! Somewhere in the region of 10 fancy purses.

This blows me away. Every week we will have a client visit from somewhere in the world and a trip to the counterfeit market is always on the to do list where they will shop for hours for copies of the same handbags for their wives and friends back at home...

I have a "Land of Saint Louis" theory. One of the big weaknesses is that there is no spirituality in China and when they have everything -- the houses, the cars, the handbags -- they still won't be happy. At the weekend they go shopping and they all worship Saint Louis - Louis Vuitton! They even go on pilgrimages to see the Shrine in Paris - his Flagship store!

I think there's hope in here for the western world as I don't think the Chinese are as skilled in global domination as they are perceived to be.... America needs to think outside the box, take what Apple has done and do more of it. Apple has done in electronics what Louis Vuitton has done with handbags. Apple has amassed well over 50 Billion dollars in the past ten years using US design and Chinese manufacturing. On Sunday I was in the busiest Apple store that I have visited (and I have visited many of them) where was it? Shanghai! Who was spending - Emma's, hundreds of them! There were long lines at the checkouts spending RMB that was probably converted from US$ IOU's treasures! As I stood outside the store I could hear a huge sucking sound of dollars back the California!

I think the China Deficit is more or less balanced as all of the products for sale in the store were made in China then exported and then reimported paying some duties to the Chinese revenue and crediting China for with imports. I'm not sure about the net net because, as Wen Jiabao said, in the manufacturing of an iPod only $4.00 stays in China the other $295 comes from elsewhere. (I guess he reads the Atlantic)

So America needs to pick itself up dust itself down and start innovating and designing handbags and gadgets to entice Emma & Co to spend the dollars that Apple paid factories to pay her for the work that she does for me to help Apple get those products to their customers all over the world!<<