In the past month or so, we have seen the true China shine through.  Never mind that the growth of the Chinese economy, having been built at the expense of Western & Eastern people, alike – Westerners because it was made possible by strict control of the undervalue of the Yuan vis-à-vis the international market; Easterners because of poor work conditions and pollution - has been made possible, mostly, by a free Western World.  And having told the world, during and after the 2008 Olympics, last August, that it would loosen the flow of information, there have been many recent examples to the contrary.

Towards the end of May, in fear that there would be too much chatter on the internet about the 20th anniversary of the Tiananmen Square debacle, China shut down sites like twitter and fanfou, twitter’s Chinese clone.  Of course, these days, there were many who got through the blockade of the Great Fire Wall, using clones, proxies, and VPN’s.  Then, after that was past, China announced, then, retracted a new rule that would have required that all computers sold in China would come with mandatory censor-ware (spy-ware).  The reason for the software was supposedly to keep kids from getting to porno sites, but the program also had more sinister capabilities.  Of course, the retraction may have had more to do with the fact that people actually found code, in the program, that was lifted from a program for parent control, made by a U.S. company, right down to code that had the U.S. company’s name in it.  Then, China turned it’s wrath on Google, and it was blocked for several days, supposedly because porno could be found, on it.

As soon as those bumps in the road passed, there were race wars in Xinjiang, a Muslim area, annexed to China as one of its autonomous regions (the other being Tibet; the two comprising one-third of the landmass of “China”).  Again, the kneejerk reaction was to close down social networking and other sites, like twitter, fanfou, and facebook.  That only heightened the dread and resulted in false reports on the phantom network, which again got around the Great Fire Wall.  As of the writing of this post, those sites are still blocked.

In the mean time, China has detained the head of Tinto Rio, an Australian iron ore firm and his assistants, purportedly on stealing national secrets.  Note that Rio Tinto had just rejected a large investment in it by a large government controlled Chinese steel maker.  Moreover, the men were detained for three days without informing anyone that they were being detained.  The move has unleashed an international cry foul, and the government has still not made charges against them any clearer except to say that bribery might have been involved.  Of course, the whole law in that area is rather vague, and, technically, foreign firms are not allowed to even take someone out to dinner.  In the meantime, a Chinese, in the U.S., was convicted of stealing defense department secrets over a number of year, while working for Boeing.

To add to the fray, one or several Nigerians were either injured or died trying to escape a surprise passport inspection at one of the local clothing market areas, and as a result, a hundred-strong group of their fellow countrymen surrounded the local police station in protest, something completely new in China but which has had potential festering for some time.  Many of my African friends have left either Guangzhou, in particular, or China, completely, saying that, while China seeks to rape their countries of natural resources, it turns around and discriminates against Africans doing business or living in China, and they are not happy with the disparity.  

And to top it off, a blogger, in China, who wrote some blogs about corruption and false police reports, in Fujian Province, was taken away by the local police, a few days ago, and had not been heard from since (all the while, he was telling about his arrest on twitter via his telephone).  Later reports said that a number of bloggers had been jailed.

Doing business and investing require good information and disclosure.  These, along with other reasons that we have discussed in our posts on our blogs plus some private information, are the reasons that we are cautious to invest in businesses, in China.  It is already difficult enough, just to get fair treatment in purchasing goods to resell, in the West, but when it comes to the intricacies of business practice and law, rules and avenues of disclosure, lack of protection of copyrights and trademarks, and the unfair playing field for foreigners versus locals, in Chinese business, we would rather sit on the sidelines and wait for the climate to greatly improve before we jump in.  All the while, the barking dogs try to make their case that China should somehow displace the U.S. and  the U.S. dollar as the economic and financial force in the world (good luck on that one: it's not quantity of people, it's quality).

Although the world puts up with such shenanigans, as parents might with a screaming spoiled child, China will have to learn that they cannot get everything it wants, out of some misguided thoughts of entitlement.  Although you can cheat or get lucky with accruing monetary wealth, the other two things that must be earned, respect and trust, can not be bought or bullied.  Even the run-of-the-mill nouveau riche person has learned that.

C.L. Mattoli, CEO
Red Hill Capital Corporation, Delaware, USA
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