Going to the Factory
May 25, 2010 by Frank
Do you remember your first visit to the factory or to the supplier or joint venture “partner”? I saw this article in the Wall Street Journal this morning and the picture of Hillary Clinton smiling like a school girl made me laugh and remember my first time. Everyone was smiling. In fact, the Chinese are professional smilers (having learned this tactic from the Taiwanese – who are really Chinese). They smiled when they met you, they smiled at that long drawn out lunch with the food that was unrecognizable and not very edible. They smiled in the hot or freezing cold conference room after the long drawn out lunch and during the factory tour. They smiled and shook our hands vigorously on the way out of the factory as they were saying: “China will continue to steadily push forward reform of the renminbi exchange rate formation mechanism in a self-initiated, controllable and gradual manner.”
Oops, I must have remembered incorrectly, because that is a direct quote from the below article. But, it sounds just like the wonderful things that factory owners, suppliers, and “partners” often say to my clients, many of whom need a few more years of disappointment in China before they take off the rose colored glasses and get down to brass tacks.
I have an opinion on the yuan revaluation issue and it isn’t favorable to the U.S., but that is for a different post in a different lifetime. The picture below of Hillary and Geithner smiling with their Chinese hosts just reminded me of how clever and resilient the Chinese are in getting their way in business. Hopefully as you read the below article you might see the same rhetoric and realize it is very similar to what they use in their business practices and it will ultimately prevent you from having to call me. My comments are included.
China’s Hu Pledges Exchange-Rate Reform
U.S. Welcomes President’s Reference to Currency Regime as Beijing and Washington Seek Common Ground in Discussions
By ANDREW BATSON – Wall Street Journal 5-25-2010
BEIJING—Chinese President Hu Jintao opened two days of talks between U.S. and Chinese officials in Beijing by repeating a pledge to continue reform of his country’s exchange-rate regime, an assurance that was welcomed by the U.S. as the two sides sought to display common ground on contentious issues from trade and investment to nuclear proliferation.
U.S.-China Talks
Both countries have in recent months worked hard to repair a deterioration in ties, and Mr. Hu said he hoped the U.S.-China Strategic and Economic Dialogue would help “build a foundation of mutual trust” between nations often at odds despite being linked by trade and large global responsibilities.
He appeared to go out of his way to address U.S. concerns about China’s tightly controlled currency, saying toward the end of his speech that “China will continue to steadily push forward reform of the renminbi exchange-rate formation mechanism in a self-initiated, controllable and gradual manner.”
Mr. Hu’s comment repeated word for word China’s standard language on the issue, but his mention of the exchange rate—which many U.S. lawmakers think China keeps unfairly low to support its exports—stood out in a speech that was otherwise long on generalities and short on specifics. Watch out for generalities and non specificity. That’s why we have contracts. For instance, Mr. Hu didn’t mention international tensions with Iran or North Korea, which Secretary of State Hillary Clinton had singled out earlier as areas where the U.S. and China need to cooperate diplomatically.
This is the one I’m talking about.
The U.S. responded positively to Mr. Hu’s comments, continuing its recent efforts to keep the dispute over the currency from poisoning the broader relationship between the two countries. “We welcome the fact that China’s leaders have recognized that reform of the exchange rate is an important part of their broader reform agenda,” Treasury Secretary Timothy Geithner said in a speech after Mr. Hu’s remarks. But what did it get you?
I think you can see in this picture that he knows he didn’t get anything and has to go back on the same plane with Hillary and then explain to the President how he once again was stonewalled by the Chinese, while Hillary is still happy because her and Bill have become incredibly rich since leaving the White House.
Both sides notably refrained from lecturing or sharp demands during their public comments Monday, and were careful to put their disputes in the context of an economic relationship they said has become a crucial anchor of the global economy. “Our two economies have become inseparable,” said Chinese Vice Premier Wang Qishan.
Trade is a main focus of the U.S.-China talks, with each side seeking assurances that the other’s market will remain open. Mr. Wang said China wants to see steps by the U.S. to improve treatment of Chinese companies investing in the U.S., and to treat China as a “market economy” in trade law, which would raise the burden of proof in antidumping cases and other trade remedies sought by U.S. companies.
U.S. companies are also increasingly concerned about the business environment in China. In fact, they are concerned that a revaluation of the yuan will drive prices higher and lower their profit margins because they can’t raise prices in a deflationary economy. In an interview on Monday, Thomas J. Donohue, the president and chief executive of the U.S. Chamber of Commerce, said that the members of his Washington-based organization haven’t been so concerned about China “backtracking” on opening its economy since China joined the World Trade Organization in 2001—a shift that he said had made them less willing to push back against Congressional moves to restrict trade with China.
Many observers think the debt crisis in Europe and the ensuing swings in financial markets have made it less likely that China will move off its de facto peg anytime soon. U.S. officials have said they didn’t plan to publicly push China on the currency at this week’s talks, in part because they feel such pressure would be ineffective. Pressure is effective when you have the upper hand in negotiations. For most of you, that is a purchase order and having other factories or suppliers on hand that can supply the same product. In a research report Monday, analysts at Standard Chartered said they now think China won’t move away from the peg until the third quarter of this year.
Mr. Wang, the vice premier, said the European debt crisis had “brought many uncertainties to the slowly recovering world economy.” Central-bank Gov. Zhou Xiaochuan briefed reporters Monday about financial issues raised in the dialogue, but didn’t directly answer a question about whether the events in Europe would affect China’s plans on its currency the yuan. “Some issues were not discussed in detail,” Mr. Zhou said.
—James T. Areddy, Aaron Back and Ian Talley contributed to this article.
