"Every day we wait in this nation, China is going to eat our lunch," Sen. Lindsey Graham (R-S.C.) said this month. Arguing for nuclear power, as well as renewable energy sources and cleaner ways to use coal, Graham said: "The Chinese don't need 60 votes. I guess they just need one guy's vote over there -- and that guy's voted. . . . And we're stuck in neutral here."

It is certainly untrue that one man decides policy. Coming from a southern republican, it reads like an indirect argument for a strong man in America who might override collective decision making -- a political failing of those in DC, including the man who uttered the comment.

It is thus imperative for those of us who write on China -- journalists and bloggers, corporate consultants and Congressional aides -- to write seeing what really is. This requires an offloading of the burden of one's own buy-in to the collective psyche of the moment. Invisible and incorporeal, it is nonetheless a weight which perverts an accurate reflection of truth.

Warrants were carried out on the Michigan offices of Yazaki Corp. in Canton, Denso International America Inc., in Southfield, and Tokai Rika Co., also known as Tram, in Plymouth, an FBI spokeswoman confirmed Wednesday.

"The Antitrust Division is investigating the possibility of anti-competitive cartel conduct of automotive electronic components suppliers," said Department of Justice spokeswoman Gina Talamona.

Prior to the federal bailout of GM, GMAC, Chrysler and Chrysler Financial, the Department of Transportation was relatively inactive with regard to Toyota safety issues. Surely, the Justice Department had not been involved. After the bailout, we see significant activity. What other agency will descend upon this company? Not I alone consider the dramatic change in Toyota's fortunes -- and now its suppliers -- with great suspicion, which the administration has brushed away like so much dander.

Yesterday, Secretary LaHood was asked before Congress if the the fact of US investment in the auto industry would have any impact upon the Toyota investigation. He immediately promised it wouldn't (I am looking for an mp3 or transcript of his testimony, which I heard over the radio.) With any administration, but especially with this strongly pro-statist group manning the helm, who can possibly believe such glib nonsense, especially when federal actions belie it?

We now have the US, as a regulator cum stakeholder, launching a criminal probe against a competitor. Do you not find this as frightening as I do?

Richard McCormack, editor of Manufacturing & Technology News, writes:

The United States is not a desirable place to build a new semiconductor wafer fabrication (fab) plant. Such plants are massive, costing upwards of $8 billion and generating thousands of direct and indirect high-paying jobs, spinoff revenue for local communities and massive investments in research, equipment and materials. Semiconductors sit at the top of the electronics industry pyramid. The United States invented the technology, but it's become a small player as measured by global production.

In 2009, 16 fabs began construction throughout the world. One of them was in the United States, according to Daniel Tracy, senior director of industry research and statistics at Semiconductor Equipment Materials International.

...

China led the world last year in new semiconductor factory construction, with six fabs, followed by Taiwan with five, and Korea, Japan, the European Union and Southeast Asia, all with one apiece.

...

The United States does lead the world in one category, however: closures. In 2009, 27 fabs closed worldwide, with 15 of them in the United States (followed by four in Europe, four in Japan, two in China, one in Korea and one in Southeast Asia). The number of closures last year almost doubled from the previous year, when 15 fabs were shut down worldwide, again, with the largest number in the United States (at four).

Why is the United States losing out on the next phase of the semiconductor boom? "It's not direct labor," says George Scalise, president of the Semiconductor Industry Association. "It's not materials -- they cost the same everywhere. If you go down the list of expenses, every-thing is the same, except for tax policies and subsidies." [Emphasis added.]

Read the rest here.

“Here’s a list of the people who’ve been infected with my Trojan horse,” he says, working from a dingy apartment on the outskirts of this city in central China. “They don’t even know what’s happened.”

Worthwhile reading.

Not so Chinese commercial espionage, which is far from a new story. I distinctly remember in the early 1990s the Taiwanese visitor to a certain bearing manufacturing in the United States, discovered wearing shoes with magnetized metal soles to catch iron filings during a factory tour.

But Chinese commercial espionage is "evidently" well-funded and coordinated. An MI5 report, leaked to the Sunday Times, contains details of interest, including this:

A leaked MI5 document says that undercover intelligence officers from the People’s Liberation Army and the Ministry of Public Security have also approached UK businessmen at trade fairs and exhibitions with the offer of “gifts” and “lavish hospitality”.

The gifts — cameras and memory sticks — have been found to contain electronic Trojan bugs which provide the Chinese with remote access to users’ computers.

Granted, given the prevalence of virus activity and the near absence of antivirus applications in use in China, it is always possible that rogue applications find their way onto "gifts." It has also been rumored -- and I believe unproven, correct me if I'm wrong -- that applications to ease ingress by hackers have been installed unto computer hardware at certain Chinese factories.

Need I say it? if you are senior executive or assistant to such an officer in a sensitive industry or multinational, beware of strangers -- especially PLA or PSB people -- bringing gifts.

Google CEO Schmidt at Davos: 'We like what China is doing in terms of growth ... we just don't like censorship. We hope that will change and we can apply some pressure to make things better for the Chinese people.

Uh oh.

This is worse than merely shooting oneself in the foot, is it not? Direct foreign criticism of Chinese "internal affairs" declaimed to the world's elite political leadership.

One must question this move as simply more Google shadow boxing. Despite its threat to remove web filtering, Google does not appear to have done so. Similarly, a postponement is simply that. The delay of a marketing expense will have no effect on top-level cadres, other than to demonstrate weakness of resolve. Why?

Because Google can't extricate itself from China. Think of the likely effect "leaving China" on the introduction into world markets of the Nexus, the new Google phone. After all, the product itself will be manufactured in China (where else?). Apple must be jumping for joy.

(Even were Google to leave, Chinese authorities would still welcome revenues resulting from the contract manufacturing of the Nexus, but the threat of being cut off from supply would remain.)

If Google's Board believes its announcement serves to generate public pressure from foreign investors, I think it is much mistaken. Could they suffer from grandiose notions of its importance in Chinese affairs? China can do very well without Google. After all, China has its own Google: Baidu, modeled in its image.

Google is vulnerable, and in China the strong prey upon the weak without mercy. American manufacturers and even end-users, including the United States armed forces, now plainly see how vulnerable they have become to the agglomeration of manufacturing resources in China, the purported need to sell in China and the compromises that must be made to do so.

Google (GOOG.O) is investigating whether one or more employees may have helped facilitate a cyber-attack from China that the U.S search giant said it was a victim of in mid-December, two sources told Reuters on Monday.

Extraordinary -- unnamed sources. Unnamed and yet virtually identified?

The sources, who are familiar with the situation, told Reuters that the attack, which targeted people who have access to specific parts of Google networks, may have been facilitated by people working in Google China's office.

In other words, other Google employees with an ax to grind? American executives who are sick and tired of surveillance? The PR department?

Furthermore, despite Google's claim to cease filtering, it is not evident that the company has made any change in Web search filtering.

This is a strange game of cat and mouse. We know what the cat wishes to do. What exactly is the mouse doing?

The New York Times has removed or revised two quotations from an article it published on January 13, originally titled, "China's Exit Threatens China's Internet," by David Barboza, et al. The revised article, running at the same URL as the original, is entitled, "Baidu’s Gain from Departure Could Be China’s Loss." Among the quotations removed is that of Anne Stevenson Yang, whom I quoted in yesterday's post. (See post below.) Yes, that quote was there and is now gone. Along with this one: "It's the epitaph for US online involvement here."

In addition, the following quote from the original story was partially revised.

“Baidu keeps a great relationship with the government,” says Hong Bo, a consultant at 5G, a Beijing-based consulting firm. “If the government wants something removed it will do it immediately. On the other hand, everything with Google has to go through its headquarters.”

The revised article curiously allows the writer to ventriloquize the first sentence:

Baidu’s strong relationship with the government contributed to its rise. “If the government wants something removed, it will do it immediately,” said Hong Bo, a consultant with 5G, a Beijing consultancy. “On the other hand, everything with Google has to go through its headquarters.”

Other than these changes, the articles appear similar. So, why were any changes made? Why were quotes dropped?

[H/T to a friend.]

Lawyers suing China for 2.2 billion dollars in an Internet-censoring software piracy case said they came under cyberattack this week.

Attorneys at the California law firm of Gipson Hoffman & Pancione said that on Monday they began receiving "Trojan emails" crafted to trick them into opening files booby-trapped with malicious software code.

Download the original complaints filed in federal court in California.

Cybersitter v. People's Republic of China, et al.

Cybersitter v. CBS Interactive

I was thrilled to read Anne Stevenson Yang's forthright and accurate assessment of foreign involvement in Chinese media. Finally, a non-Chinese within China is willing to state the obvious to a public audience. Brava!

And what elicited the comment? Google's threat to pull out of China because of cyberattacks, originating in China, leading to theft of company intellectual property and instrusion into Gmail accounts, ostensibly belonging to users with connections to human rights movements. Don Clarke's post on the topic is worth reading.

Perhaps 30 years ago, I came into possession of a 1960's US Department of the Army treatise on China, entitled, "China: Ruthless Enemy or Paper Tiger?" It may still sit on the shelf in my library. Is Google a Paper Tiger?

Note: the company announced it was "considering" quitting the market.

These attacks and the surveillance they have uncovered--combined with the attempts over the past year to further limit free speech on the web--have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

What does Google hope to gain announcing a mere possibility of "withdrawal" from China? Surely, by now, the company has accumulated enough wisdom to know that they have been on the losing end of a hopeless battle with the Party. Furthermore, the abrupt decision to end compliance with government censorship requirements is a direct assault on the leadership, akin to the jester throwing down the gauntlet at the Black Knight -- within his castle. The company cannot hope to alter the activities of its massive and muscular propaganda organ, it's vast surveillance functions, all freely exercised. Party leadership will be incensed and take appropriate action, as one might expect of them. I do not see any way back from this precipitous decision.

On the other hand, business has been tough for Google in China, partly because of the business model which they had hoped to transplant, dependent upon substantially greater freedoms of expression than the Party is willing to tolerate, even from foreign entities with clout. As a result, Baidu -- with its hand-in-glove relationship with media censors and administrators -- has eaten Google's proverbial lunch. This seems as good a reason as any for Google to surrender while appearing to save face.

]]> http://www.asiabizblog.com/archives/2010/01/video_chinas_go.htm http://www.asiabizblog.com/archives/2010/01/video_chinas_go.htm China After the Meltdown Fri, 08 Jan 2010 15:02:56 +0000 I've heard this same argument, in its various iterations, from so many people over the past 15 years that I'm not surprised to see James Chanos, a well-known short seller, join the club, even at this late date.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

Notwithstanding his record of contrarian success, Mr. Chanos is but another Westerner to see past the smoke and mirrors to conclude that the end is near. (If you have been reading this blog over the past eight years of its existence, you will have read of many such prognostications.) If one could only find Chinese who agree.

[UPDATE (Jan. 11, 2010): Even more - yawn! - bubble talk. I don't mean this. I mean this.]

Animation demands a large amount of upfront capital, particularly from the beginning; the cost may amount to 10,000 Yuan per minute. Later, the cost might be reduced to a few thousand Yuan per minute. However, China’s TV stations can pay very little and differ greatly. Some small TV stations may only pay 10 Yuan per minute, and the fee may increase to 80-100 Yuan per minute for larger stations. The largest China Central TV may pay a few hundred Yuan per minute.

Obscure TV stations have even asked you to pay the cost. Therefore, it can be said that you “lose a penny as you put a penny” in developing original animation. Then you may do sums, on average, we would be able to recover the investment, in theory, only when the animation was broadcasted on dozens of TV stations. In general, we are able to recover 40% of our investment through TV media.

Will the US respond in kind? Are you kidding? That would be protectionist!