China Update
(11/18/2006)
I just got back from China and here are a few points I discussed on CNBC's SquawkBox:
- I was in Beijing on November 7, Election Day. Everyone there knew the results of the election in real time. People in China--especially young people--know a lot more about America than people in the U.S. do about China. It's time for us to learn.
- The Democrat's sweep was important for China because it increases protectionist pressure on the Hill and could lead to a tariff bill.
- Erecting trade barriers against China would be very dumb. It would not reduce the trade deficit. It would increase the U.S. price level, push interest rates up, and worsen the housing crunch.
- China is beginning to take steps to make their currency convertible. This is much more important that the exchange rate. It is currently illegal for people in China to hold foreign currency.
- The big words in China are entrepreneurship and innovation. (I chaired an entrepreneurship forum there last Thursday and handed diplomas to the second graduating class of our university that night.) The Chinese government knows they will not be able to continue growth through manufacturing. There is not enough oil, gas, and coal and the air and water quality is terrible. They have decided to grow by investing in IT (fiber optic communications networks) and human capital (education) to increase productivity. Fighting over textiles is yesterday's war. We should be thinking about where Cisco puts their next R&D facility. China is currently bidding very hard for such operations to relocate to their country.
- The Democrat’s victory here has also killed the chance for the telecom reform bill which would have resulted in huge capital spending on high-speed networks. Not having high-speed networks hurts our U.S. businesses’’ ability to compete in the global market.
- The Chinese capital markets open December 5 to foreign (U.S.) financial firms. There is going to be an Oklahoma land rush to set up shop there.
- The top TV show in China is “Win in China” (see my Wall Street Journal op-ed) where 120,000 young entrepreneurs compete for 10 million RMB ($1.2M) in venture capital financing for their business plan, 20% of the equity, and the CEO job. The final show is December 5. I will be there as one of the judges.
- November 11 was the 5th anniversary of China joining the WTO. It was a very big deal.
- The Olympics are China's coming out party--they will not screw it up. That is why they 'solved' the North Korea problem week before last week.