China Rejoinder (by Binkius Hippo)

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Hi, Tim: You recently posted an email, “A Response to China Deal” and the article is so misleading and paints such a false narrative that I have to wonder if it’s a Communist Party cyber-ops fake news attempt to obfuscate the truth. If you could post my rebuttal, I would appreciate it.

Let me start with this introductory pre-amble. The single largest problem with business in China is not the negotiations, not the contracts, nor the law. Very simply, what matters in the end is if the terms of the agreement are Verifiable and Enforceable. It doesn’t matter what you agree to, what you sign, or what the law is in China. What matters is if the deal you have made is Verifiable and Enforceable. If you can’t get this, all you got are seashells.

The email brought up payment systems and how the “innovative” Chinese systems are better than the western systems. The truth is that VISA and Mastercard have been trying to get into China and already have agreements and court rulings for full market access in China. In 2001 (18 years ago), China promised full, unrestricted access. In 2010, the USA fought and won against China in WTO court. The problem is Enforcement of the agreement. China Union Pay still holds 90% of the market with the majority of the rest held by Chinese online payment platforms. VISA and Mastercard are effectively locked out of the Chinese market by the Communist Party.

This is not a case of innovation or the Chinese having a superior product. The Communists want absolute control of capital flows and are willing to deal with the micro-lender financial disaster that their online pay platforms have created (that’s another story too long for the scope of this one article). Financial safeguards built into the superior VISA and Mastercard platform would’ve prevented the micro-lender fiasco that is now playing out in China, but VISA and Mastercard are effectively locked out of the Chinese market.

There are 1.6 – 1.8 billion captive proles forced to use the Communist state sponsored pay platforms. That is why the Chinese platforms are so successful. Not innovation, not superior financial security/stability, but because the Communists have mandated only Chinese companies will have access to the Chinese payment system (this is probably for political stability reasons because: Stalinism).

I’m going to have to go on an aside here. There is almost no innovation in China (unless you count fraud). It’s all just copying western ideas and then relying on the protection of the Communist party for protection from superior foreign competition and international law. Because my work career has had long periods of idle time due to the business cycle for heavy industrial construction, I have been able to acquire certifications in fields far outside my postgraduate studies. Among them is factory certification from BMW and Ducati as a mechanic.

During my last trip back to the States, a friend asked me to help on repairs to one of his vehicles. When we went to the auto parts store, I was surprised to find that the parts jobber offered me two choices on parts (I’ve been gone a long time): OEM or China. I asked him which one was better. He replied, “OEM of course”, but if you’re doing the work yourself it’s because you can’t afford to go to a dealer or shop, so you’ll probably want the China part at the China price. The OEM part is better. The China part is cheaper. I have a choice because it’s a free market. In China you often don’t have a choice because the market is locked up tight. You have to take the inferior product because the superior foreign product is not available or horribly limited.

Chinese auto purchasers vastly, vastly prefer foreign brands. They know the domestic brands have horrible quality. Another aside – I haven’t had time to fully research this, but since Volvo auto was bought out by the Chinese, it seems that Volvo has dropped from consistently finishing in the top 10 in quality to finishing near the bottom of the USA quality rankings on new cars.

So it is with software. If you’ve had the displeasure of using Chinese software, you’ll realize most of it is utter crap. The root programming language for computer science is English. The Asian languages are as far away from English in grammar and logic as is humanly possible. A Chinese programmer must first think in English, then into the programming language to write code.

That is why software is a one-way street from west-to-east. No one uses Chinese software in the west because none of it is even remotely competitive. Here in Taiwan, all of the heavy lifting in code is done by imported east-Indian engineers because they speak an Indo-European language so the grammar logic allows them to program better than any Asian programmer can.

Chinese software exists because of two reasons: (1) Translation problems and (2) Communist protection. The email says Facebook and Whatsapp “have been trying to catch up to Tencent’s WeChat for years (if not more than a decade)”. This is just utter idiocy written by someone who has never tried to use Chinese software.

Chinese software is incredibly poorly written in comparison to American software (just like the Chinese realize that foreign built cars and parts are better), but the Chinese have to use Chinese software because, and I can’t believe the email author doesn’t realize this, FB and WA are BANNED in China! You are looking to get “disappeared” if you use a VPN to access FB or WA in China. It’s easy to innovate in a market when all of your competition is BANNED from participating in the market and the enforceable penalty is end-user “disappearance”. All you have to do is copy/reverse-engineer the western code because the Communists will protect you from international IP law.

Seriously. If Tencent’s WeChat is so stupendous, why aren’t the social-media generation all over it? Millennials will switch software platforms faster than than fast-fashion if they find something better. You use the Communist WeChat because using the American Whatsapp will result in your family getting billed for the bullet the Secret Police put into the back of your head. That’s some serious technological innovation!

I used a lot of Autocad. You do not even want to imagine the cluster-f*ck that Chinese CAD programs are. Chinese engineers, in my experience, will use a Chinese-language version of Autocad before using their home-brew nastiness. Same with operating systems and basically any other professional software in China.

Again, if there is so much innovation happening in China, why am I not using an American-language version of a domestic Chinese web-browser? Another aside I don’t have time with is the number of illegal copies of Windows OS in China. I honestly think America could win a cyber war with China by just refusing security updates to pirate copies of Microsoft Windows. Within 30 days, Russian hackers will have ransomwared nearly every computer in China.

Chinese industrialization is based on cheap prices. The price is cheaper because of two reasons. (1) You can do things to people and the environment that are considered immoral or illegal in the west. (2) Costs are lower because R&D, innovation and technology is simply copied, transferred or stolen from the west in either joint-ventures or espionage or just plain reverse engineering… and all without legal repercussions because of the protection of the Communist Party.

Ok, I have to get back on topic. The one thing I haven’t made clear in my prior posts, and I think the average American doesn’t realize, is why IP is the root of the China trade war.

Let me give you some numbers. The Communists’ Beijing news mouthpiece, Xinhua, estimates that 40% of e-commerce in China is counterfeit. This is not some partisan-anti-China statistic. This is the Communists saying 40%. Now, as everyone knows, the Communists have a way of “massaging” their data, but just for simplicity, let’s just say it’s 40%.

If Trump wants IP to be included in a verifiable, enforceable agreement, Alibaba would lose 40% of its business overnight. Imagine China telling Trump to cut Amazon’s business by 40%. Is this something China is going to willingly allow? (Actually, given it’s Trump and Bezos owns Amazon, Trump would kill an American champion to spite a political enemy.)

Another example is ZTE. This is a Chinese national telecom champion. It is completely reliant on advanced integrated circuits from the USA/Taiwan/Japan. The threat of USA sanctions limiting exports of these chips nearly bankrupted ZTE until Trump backed off. Note that Trump backed off (the email article says that Trump would never back down, but in the case of ZTE, Trump did back down).

Now, imagine if China had the power to bankrupt Apple by withholding a vital component. China cannot create advanced integrated circuits because Stalinism cannot produce such technology. Only western, constitutional democracies with: human rights, civil society and a free press can produce these chips. Silicon Valley, the great chip foundries of Taiwan and the research centers of Tsukuba Science City in Japan are simply not possible under Chinese Stalinism. It just sounds like science fiction so I want to say it again: Silicon Valley, the great chip foundries of Taiwan and the research centers of Tsukuba Science City in Japan!

The problem is that the Alibaba/Amazon, ZTE/Apple issue is systemic in China. Basically EVERY large company in EVERY industry in China operates this way. Because the national champions in China are either outright SOEs or are de facto SOEs the scale of the problem is immense. For China to acquiesce to the demands of international IP law would mean a devastation of Chinese industry, commerce and finance. The Chinese companies for the most part can only compete on price and are dependent on copying/stealing/acquiring foreign technology and innovation. The Chinese companies are completely dependent on the Communists keeping competition out and sucking in as much IP as possible.

This is why seashells are so important here. Without Verifiable and Enforceable trade agreements, China will VISA-and-Mastercard the issue. It’s been 18 years since China agreed to fair access in the payments arena. Today, a Chinese prole still cannot obtain a VISA or Mastercard in China and foreign visitors can only use the cards in limited situations. China will agree to anything, but without Verification and Enforcement, the agreements are just seashells.

The problem with the main-stream media is that they are not accurately reporting the situation. When Trump said that “trade wars are easy to win” I don’t think he realized what he was getting himself into. This is some serious Brer’Rabbit and the tar baby sh*t. This is not about soybeans or cheap stuff at Walmart and Dollar General (although these are the seashells China will offer first).

This is about the ability of China to become a great power. The enactment of international IP law and fair access of foreign competition into China will absolutely devastate the Chinese economy and in all likelihood prevent it from ever being able to challenge pax Americana in the Pacific.

One more aside. In the pre-amble to the Pacific war, the Japanese empire’s limiting economic factor was access to raw materials, in particular fuel oil and hard metals. The western powers, especially America sought to restrict Japan’s access to these industrial commodities. Japan, refusing to back down after the failure of trade talks that in effect curtailed and limited its ability to become a great power would eventually send an answer to the United States on December 7, 1941.

What the USA is demanding in the current trade talks with China are very similar to what happened in pre-WW2 Japan (of all the presidents, why, why must we have someone as incompetent as Trump handling this level of negotiation without a functioning State Department?). The USA will withhold the raw materials (advanced integrated circuits) that China needs to become a world power unless China opens its markets.

Chinese companies, for the most part will be gutted by superior foreign competition if China opens its markets, which will prevent China from become a world power. It’s a Catch-22 for China with uncomfortable similarities to Imperial Japan in 1941. History does not repeat, but it has a horrible way of rhyming…

The problem with fake news is that any instigator can, in a few minutes, spew nonsense about Chinese software/business innovation, but it takes hours to de-bunk the non-sense. The internet has unleashed something primal and awful. Marxist-Leninist and Fascist systems are best suited for taking advantage of this new information war because they answer primal, animal desires that can be satisfied in simple(ton) bites of distorted data. The forces of freedom, liberty and justice are slow to muster against such foes because they call to a higher human, not animal, aspiration.