Watch out for China

The West should not fuel this totalitarian regime's economic assault.

By ODED TYRAH
November 1, 2005 22:44

 
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China is the greatest enemy of the Western economy and society. The world does not yet sense the full power of its peril, but it will soon become apparent. The Western world will then awaken from the illusions of cooperation and its sophisticated willingness, as it were, to take advantage of China's latent economic potential. Once again it will become evident that the naivet in the world, and in Israel, has been shattered by reality. Israel, which imitates Europe on this matter, courts openings with the Chinese and pays a socioeconomic price of which we have yet to become aware. China is a dangerous combination of a totalitarian regime overseeing a selectively open economy. This amalgam enables it to build infrastructure for business at a rate that is unknown elsewhere in the world. Concurrently, the Chinese can open or close their economy to the world, according to their moods and interests. When they want to construct a six-lane highway between the suburbs of Shanghai and the central business district, they just draw a line on a map and set a date for completion. Anyone residing along the line on the map receives a three-month warning to take his belongings and relocate. In the new location, relatively good apartments are waiting, publicly built. At the end of the three months the groundbreaking and steamrolling equipment goes into action and levels the homes along the route marked on the map. Within a short amount of time, the highway is constructed. In China, they haven't heard about regional commissions or objections. The selective openness to the world economy is expressed in various ways. The Chinese levy taxes on imports and on the export of raw materials when it serves them. They subsidize capital and expenses, and they set the exchange rate in accordance with the needs of the Chinese economy, as is their way. And the world keeps quiet. An example of this selective openness lies in agreements with European automotive manufacturers. The agreement enables the manufacture of Western automobiles in China for China's own needs, without export to other countries. This agreement will continue as long as the Chinese feel that they are not yet ready to export cars. At a certain point they will copy the plans for the automobiles and market them throughout the world. In China, intellectual property is not taken seriously. Every patent is copied, even those of foreign partners who work in tandem, within China itself, on the basis of that very patent. The Chinese partner will set up his own plant, across the road, using the patent of the partner from abroad. China hoards foreign currency from all over the world and uses the turnover from its exports to purchase US debentures. In this way, totalitarian China accumulates economic "atomic weapons" that can manipulate currency exchange rates, including for the US dollar. As a totalitarian country, China is less susceptible to a trade war with America than the US is. The probability of the US closing its market to Chinese imports is less than the probability of the Chinese activating their various points of leverage over the American economy. Therefore, China has the upper hand. China consumes vast amounts of raw materials and energy. As a consequence, the prices of these are rising to previously unknown heights. At the same time, China exports finished products to the world at low prices, causing prices to drop everywhere. Western industries, which must contend with both rising raw materials prices and falling prices for their manufactured goods, suffer considerable damage to their profits. This brings about layoffs, salary reductions and social strife. This is true with regard to all types of products, whether traditional or hi-tech. None are immune to the Chinese assault. TODAY, A zero-sum game is taking place between the Chinese and the world economies. In this game, which is likely to continue for decades, the world is retreating from the Chinese dragon, whose tail strikes at every economic event. When the economy of China grows by a percentage point above expectations, the dragon's tail strikes one way; when China grows by a shade less than expected, the tail strikes another way. It always hurts. In either case, the world economy will be flooded with cheap products in every sector of technology, and it will collapse, Israel included. Israel, regrettably, is playing various peculiar games. We are trying to take advantage of the Chinese market and do not understand that we are getting caught in this superpower's web. We have opened ourselves up to imports from China at the expense of our allies in Europe and the US, thus damaging the interests of our economic allies that have free trade agreements with us. We can't receive billions per year in foreign assistance from the US on one hand, and import products from China that were previously purchased in the US and Europe on the other. Moreover, when we purchase Chinese products we are increasing the regime's dollar reserves and, in so doing, strengthening its ability to withstand a crisis with the West. This is a betrayal of allies during wartime. Aside from that, we are sowing the seeds of a crisis that would deliver a severe blow to our own economy and our nation's well-being. The writer is president of the glass manufacturing company Phoenicia America-Israel and served recently as president of the Israeli Chambers of Commerce.

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