Behind the Curtain Launches

Please cue the virtual drum roll. Here we go. Behind the Curtain is officially launched.

After close to 30 years working on US-China relations in the US government and private sector (see bio on the “About Hank Levine” page) I have developed some strong views on the subject. What I bring to the blogosphere is the perspective of a long-time practitioner, someone who has spent countless hours with Chinese counterparts questioning, negotiating, berating, being berated, arguing, and, above all, trying to move issues forward in practical ways toward mutually acceptable resolutions. And, I have spent even greater countless hours in meetings with colleagues in the US government and US companies, working to shape their views and plans of action in directions that I think would yield the greatest advancement of US public and business interests in our relations with China.

In other words, I have seen first hand how the sausage of US-China relations is made, and even helped turn the handle on the meat grinder from time to time.

I have had some successes over the years and also bear the scars received on the many occasions I stumbled and fell in my efforts. This blog is my attempt to take the accumulated experience of those years of effort and apply them to events as they are unfolding today in the most important bilateral relationship that each of the two countries has. I hope readers of the blog will feel they gain some increased understanding of current bilateral developments from it. But anyway, I hope to hear comments from those who see a value here and those who don’t.

NB:  Before starting this blog I touched base with my college housemate, David Weinberger, who is a widely quoted author and speaker on how the internet is changing the way we think and act.  I need to offer my thanks here to David for his helpful thoughts.  His blog (on internet stuff) is at:  http://www.hyperorg.com/blogger/

Advertisements
Explore posts in the same categories: China, Environment, Human Rights, Investment, IPR, Trade

8 Comments on “Behind the Curtain Launches”

  1. bob Says:

    Long live Behind the Curtain: a welcome addition indeed.

    Regarding Coke and Huiyuan: seems to be another demonstration of the growing power of the Chinese blogosphere. It is remarkable how quickly the Chinese leadership caves to pressures from this source. I generally agree with your point: no way there is any valid anti-trust or monopolistic rationale or the decision.

    I also have a hunch that Coke may not be too upset that they will be denied Huiyuan. The Huiyuan auction dates back at least 4 years and has been a long and grueling exercise for Coke and all the other bidders. I sense the deal price and conditions hark back to pre-financial-meltdown China M&A conditions — i.e. insane euphoria on the part of foreign buyers. Somewhere I saw that Coke would have been paying 45 times earnings. It could well be that Huiyuan overplayed its hand.

    Regarding Unocal, I always thought that ruckus raised by Congress and others wasn’t quite as ignorant and xenophobic as seems to be the wisdom today. CNOOC was and remains a government-controlled entity. Standing behind CNOOC to insure they wouldn’t be outbid was the Chinese government in the form of state policy banks, etc. On the other hand, neither Exxon nor Unocal nor anybody else would be permitted to acquire CNOOC. This is hardly free trade and it didn’t surprise me at all that many voices objected. Should all of our assets be for sale to the Chinese government ?

    • levinehank Says:

      Interesting perspective re Coke attitude toward the denial of the acquisition. Re CNOOC and UNOCAL, think we part company. If Chinese government-funded enterprises want to buy US assets at a fair (or better than fair) market price, it is the shareholders of the companies being acquired (mostly Americans) that benefit. Of course, if there is some truly sensitive technology involved that should be looked at (and that is what our CFIUS process is for). In the case of UNOCAL, who cares who owns the oil and gas? It’s all fungible after all, no? And if China persists in continuing major non-market behaviors (such as a significant state owned sector which is not open to acquisition by foreign firms) I don’t see that we want to take an reciprocal approach.

      • bob Says:

        Hank

        Further to your comments on CNOOC- Unocal:

        Yes, you are giving us some of the classical economics/ “maximize shareholder value” thinking. There is a body of thought, however, that reminds us of the importance of ownership to a nation. I recall an analysis somewhere of Thailand’s industry, where large swathes are controlled by Japanese or American companies. The knowledge-intensive jobs, the key decisions, the original research, the IPR etc are the preserve of the home office. Very little important stuff is left to the subsidiaries out in the colonies.

        This is one of those cases where the economists are utterly tone-deaf to the political aspects of these things. The lao bai xing understand the situation intuitively. They know that other countries aren’t playing by the rules of classical economics. They sense that China has a strategic national purpose in what they are doing and who they are buying. They understand that China isn’t trying to buy Unocal to “increase shareholder value”. They have seen US industry hollowed-out and replaced by Wall St speculators. It should be no surprise that deals like this run into heavy flack.

      • levinehank Says:

        Bob: Thanks for the comment. A few thoughts in response:

        1) Based on your comments, what is your view of the Chinese government denial of the Coke/Huiyuan deal and the collapse of the Carlyle/Xugong acquisition? Reasonable actions because the laobaixing in China have deep political concerns about having their industry dominated by foreign companies that will keep all the knowledge-intensive jobs, key decisions, original research, etc. at home? Or ok because we know that firms like Coke and Carlyle are purely driven by shareholder interest and that makes everything ok?

        2) I guess I question the underpinnings of your second paragraph. You seem to be saying that CNOOC is part of a Chinese government directed effort to: do what?? Buy up the world’s supply of oil and horde it? Even if this is so, does this make sense? Will China really be able to horde the oil and bring us to our knees?

        3) Re the “political aspects of these things” I agree with you that CNOOC/UNOCAL deal; Dubai Ports; Coke/Huiyuan; Carlyle/Xugong; Japanese purchase of Rockefeller Center in the 1970s; virtually all M&A activity by foreign companies in Japan; etc. strike a sensitive political chord with the domestic audiences. This doesn’t mean that such sentiments, if used to guide policy, would be good for the individual countries.

        4) The Thailand analogy is interesting. If I lived in a (relatively) small country that was dominated by foreign companies I might have a somewhat more emotional perspective on all this than I do. However, do you think the US is on the verge of being colonized by Chinese companies? Would the CNOOC acquisition of UNOCAL have tipped the balance on this?

        5) The argument I’ve always made to my Chinese counterparts was that policies of protectionism, “indigenous innovation” (to the extent this is just a form of protectionism backed by industrial policies) over the long run will not produce the kind of globally competitive Chinese firms the country wants. You think this is a good strategy for them? Or, a good strategy for the US?

  2. Zlockenhiver Says:

    Hank (Henry) – Congratulations on your new blog. I like to check in every couple of decades or so. Last time I saw you we had a nice dinner at a Chinese restaurant and the next thing I know (15 years later) you’re the Consul General in Shanghai. I regularly read your former housemate’s blog and will make this a regular destination because I can’t imagine anyone has greater insight into current relations with China. I’d like to hear from you “off-line” if you get a chance. Regards to your family.

  3. bob Says:

    Hank:

    Some responses, in order:

    1. Coke/ Huiyuan: not reasonable, but understandable. As I mentioned in a previous comment, I feel that the xenophobic Chinese blogs got involved and brought that deal to an end. Coke is a big, easy target with a lot of baggage. Besides, many economists have noted that every country needs to have its own carbonated sugar water industry if their people are to have any dignity at all.

    2. CNOOC is owned by the Chinese government. Unless this circumstance occurred at random, I assume the government has a strategic purpose for owning them. What that purpose is, I am not sure, but could make some guesses. I think the Chinese government wanted to acquire oil and gas reserves along with the IP of Unocal.

    Other countries have horded oil. OPEC for example, and they brought us to our knees, twice. I will ask you, did this make sense for the OPEC countries ? I think China has taken note of this instability and unreliability and is acting accordingly, in Sudan, Nigeria, etc. China is too (natural) resource poor to bring us to our knees with oil. However, would they like to bring the US to its knees ? Again, you can answer that one.

    3. The only common theme in the examples here are that they were all controversial. Otherwise they are a lot of apples and oranges.

    My main problem is with cross-border deals involving a government buyer at one end, and a private company at the other. CNOOC and Dubai Ports fall into this category. In neither case did I feel the issue was “national security”. It is more the issue of fairness and reciprocity. There was no way that CNOOC was going to be outbid by private interests in the Unocal case, with the Chinese government behind them.

    4. Ouch, reductio ad absurdam. No, I don’t think there is an imminent threat of US colonization by China. However, I am certain there are many who look at who owns our treasury bonds, $ 2 trillion in foreign reserves, etc and are reaching a different conclusion.

    I don’t think the argument — ” Well, we aren’t on the verge of colonization, so what’s the problem in allowing a few unfair deals to get done ?” — is a strong one in any event.

    Also, I think if you lived in a small economically colonized country, you would have more than an emotional reaction. You would probably have very practical ones, like “I will never get a good job here at Dupont, because those jobs go to gweilos somewhere else”.

    5. What has been the Chinese response to your argument ? Would they argue that Japan’s global auto dominance would have happened faster without industrial policy ?

    Bob

    • levinehank Says:

      Bob: I remember when we used to do this in person in Shanghai. May be better at a distance. And others who happen on this dialogue can perhaps benefit from the back and forth. Clearly think you and I come to these issues with some different assumptions about China and globalization. Some further thoughts:

      • Coke/Huiyuan: “not reasonable, but understandable”. This is basic concern I have about your approach. You emphasize reciprocity and you seem to support letting public emotion rule policy. To me this is a recipe for a downward spiral into Smoot-Hawley and a Great Depression. If Coke/Huiyuan is understandable, what say we block a couple of Chinese investments in the US in response (in the interest of fairness and reciprocity)? I’d rather stick with principles such as maintaining an open investment climate, which have served us well for a long time.

      • CNOOC: although owned by Chinese government, not clear to me that every deal is directed by the Chinese government, as part of a great master plan. But even if we assume it is, still not sure I care. Are you suggesting that Chinese plan is to take control of world oil supplies? I just don’t buy it. Further, I don’t believe China wants to bring the US to its knees. I don’t see China as the new Soviet Union. But if you believe China is out to conquer the world (via resource acquisition) driven by a desire to bring the US and others to their knees, then we’ve probably taken this part of the discussion as far as it can go. We’ll just have to disagree on this one.

      • “only common theme…here are that they were all controversial”: that’s exactly my point. You seem to accept public anger as a good justification for policy. What I’m saying is that this is a recipe for global economic collapse.

      • “I don’t think the argument,“well, we aren’t on the verge of colonization, so what’s the problem in allowing a few unfair deals to get done?” is a strong one…”: You emphasize “unfairness”, but unfair to who? Seems to me fair to let the stockholders of UNOCAL benefit to the maximum degree if this is the way a Chinese SOE wants to spend its money. And if there is no danger of “colonization”, what is the problem, really? Once CNOOC has the oil and gas, what are they going to do with it other than sell it at prevailing world prices (and therefore maybe realize they overspent in buying the company).

      • “if you lived in a small economically colonized country, you would have more than an emotional reaction. You would probably have very practical ones, like “I will never get a good job here at Dupont, because those jobs go to gweilos somewhere else”: is that really how you see the behavior of major multinationals around the world? Seems to me that in China companies have been trying to localize management as fast as they can. Sure, many of the very top jobs for now are gweilos who have been with the multinationals for years and know the global business. But over time I think it is the gweilos who should be worried about their ability to compete with the Chinese. And in Malaysia, Thailand, Poland, etc. is it the case that multinationals don’t try to localize management? And what about all the lower level employment these firms are creating through their investments?

      • Re Japan: autos is a success for Japan (more their ability or incompetence of US companies?), but name another sector where they have duplicated this? Remember the Japanese government “supercomputer project” of the 1970s? Where is that today? Chinese interlocators may indeed point to the Japanese auto industry; my response is: fine, but overall do you want your economy to look like Japan’s eventually, or the US? (Note: I would not urge the Chinese to copy the excesses and lack of oversight of the past eight years in the US. However, over the last 50 years I think our system stacks up pretty well compared to Japan and other protectionist countries and I believe it will over the next 50 too).

      • bob Says:

        Hank:

        I will give it a rest on CNOOC, etc. I don’t think it is necessarily that we disagree so much, as it is you are an optimist and I am a bit more cynical.

        Read Krugman about how well our system has worked over the past 50 years. As for the next 50, you are a brave man to predict this in the midst of the current economic collapse. Luckily, as Keynes said, in the long run we will all be dead, and the mortality tables say neither one of us will be on hand 50 years out.

        Bob


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: