6 ms·

The Chinese art of selectively enforcing their laws to the detriment of those that won't play ball with the government really makes it hard to believe Xi's pres

The Chinese art of selectively enforcing their laws to the detriment of those that won't play ball with the government really makes it hard to believe Xi's press-tornado of successful anti-corruption measures. The government has been actively extorting international companies into "joint" ventures. These ventures essentially require "treats" (as an insider told me) every several months. These treats would be manufacturing processes, engineering drawings of proprietary IP, or technical training for their engineering staff. Boards of Directors can't ignore the scale of the Chinese market, but it comes at the cost of essentially giving away your business prospects within the country inside of 15 year window. China's current long-term strategy seems to be: 1) Spend an egregious amount to woo top talent [1], [2] 2) Learn from them over the next 5-10 year period [2] 3) Transcend the need for foreigners in China It's a pretty terrifying environment and many Chinese investors are desperate to get their money into foreign investments [3]. Instead of laundering illegally earned money, they are laundering legally earned money that they can't get out of China. At least that is the hearsay that I've heard from several different sources (VC events, friends of friends etc). [1]: https://www.nytimes.com/2017/01/04/world/asia/china-soccer-xi-jinping.html https://www.nytimes.com/2017/01/04/world/asia/china-soccer-x... [2] Qi Lu, Baidu's COO YC interview: https://www.youtube.com/watch?v=WSydk0XzxEE&t=351s https://www.youtube.com/watch?v=WSydk0XzxEE&t=351s [3]: https://www.bloomberg.com/news/articles/2017-01-03/china-drills-down-into-forex-transactions-as-money-exits-abroad https://www.bloomberg.com/news/articles/2017-01-03/china-dri...

Retric 9y ago
Anti corruption is a classic measure to shift weath from one set of former insiders to the new set of insiders. One time pushes are almost meaningless without the creation of new long term institutions. For companies the pressure for managers to create the illusion of progress causes a lot of structural problems. I find companies that stay out of China are better long term prospects and tend to have far better upper management. PS: The other option is to sell one or two generations back so copycats start at a significant disadvantage internationally.
adamiscool8 9y ago
Does this mean China's recent declaration that "Foreign Firms Won't Be Forced to Turn Over Technology" [1] is not to be believed? [1] https://www.bloomberg.com/news/articles/2017-11-10/china-says-foreign-firms-won-t-be-forced-to-turn-over-technology https://www.bloomberg.com/news/articles/2017-11-10/china-say...
- will4274 9y ago
  As the saying goes "thou doth protest too much, methinks." China will SAY anything - you might recall China promising to float its currency in the Bush years when this was a sticking point in trade - a float that happened in name only and so the request to actually float currency remains in US trade negotiations with China.
  - icelancer 9y ago
    >>so the request to actually float currency remains in US trade negotiations with China. While they do their best to ban BTC and other cryptocurrency that will allow for the free exchange of their currency for others.
    - bandrami 9y ago
      Control of monetary supply, a fixed exchange rate, free flow of capital: please choose any two.
- mseebach 9y ago
  It may well be that foreign companies are merely encouraged to participate in mutually beneficial exchanges of know-how. I have no information either way on the subject, but generally, no, it not exactly a novelty that a government announces a grand intention, and mostly even sticks to the letter, but drifts significantly from the spirit when applying the intentions under the constraints of everyday political life. Not because of any specific malice, but because governments are huge beasts the sit on top of a huge intricate web of opaque incentives.
- Chris2048 9y ago
raverbashing 9y ago
Meanwhile they invest in a lot of countries making strategic purchases (while China's citizens buy lots of real estate as a store of value)
- mistermann 9y ago
  ...against the will of the Chinese government, if you're a naive sucker who can't think two moves ahead.
Chris2048 9y ago
Interesting thought: A market for flawed tech/designs. Consider a product that, part-way through development a fatal flaw was discovered. Perhaps, a company can insure itself with a deal whereby if such a flaw is found, the tech design will be bought out at a reasonable price. The insurer then makes use of the design by ... setting up a company based in China manufacturing that product. Over time, China steals poor designs and cripples its reputation..
diminish 9y ago
I have no idea about China or Chinese economy but your whole comment consists of serious-looking references accompanied by "behind the doors" gossips. All your comment makes me doubt regular Economist/NY doom-saying about Chinese economy. Do you have trustable independent references for the below claims? * Selectively enforcing their laws to the detriment * Extorting international companies into "joint" ventures * "Treats" (as an insider told me) every several months. * Hearsay that I've heard from several different sources
- 50CNT 9y ago
  > Selectively enforcing their laws to the detriment Excerpt relating the Weiquan movement[0]: "Recently, some judges have started to believe that to be a judge you just have to strictly apply the law in a case. In fact, this kind of concept is erroneous [...] all the legal formulations have a clear political background and direction [...] We must stamp out the kind of narrow viewpoint that thinks that you can also do court work by having judicial independence." * Extorting international companies into "joint" ventures Look at some of these articles on starting a China JV[1]. Man are the caveats. So many ways to shoot yourself in the foot. Then look at a list of sectors WFOE (Wholly Foreign Owned Enterprises) are allowed in. Then check what licenses are required to operate, and whether this precludes entities with majority foreign control, any amount of foreign investment (e.g. Internet Cultural Media License 网络文化证）, etc. Then look at the costs of acquiring such a license. Remember that your Chinese competitors will likely just ignore that until they're large enough to be fined for it. Remember that they'll get a slap on the wrist as long as they play ball, and you'll get deported. * "Treats" (as an insider told me) every several months. Look at how China ate up high-speed rail in a couple of years. All 国产 now. [0] Huang Jiayou, "Considerations on some issues related to the education in socialist rule of law viewpoints," China Laws (http://www.lawbase.com.cn http://www.lawbase.com.cn ), 13 June 2006. [1] https://www.chinalawblog.com/tag/jv/ https://www.chinalawblog.com/tag/jv/
- DaggerDagger 9y ago
  This whole comment reads like PLA astroturf.
- chairmanwow 9y ago
jackcnreturns 9y ago
I won't go into details of why you're wrong, but let's just say random posters with unknowable credentials shouldn't comment on geopolitical or economic affairs of a foreign country.
- jackcnreturns 9y ago
  Sorry I forgot that random internet posters actually believe their opinion matters.
RobertoG 9y ago
>"The government has been actively extorting international companies into "joint" ventures. These ventures essentially require "treats" (as an insider told me) every several months. These treats would be manufacturing processes, engineering drawings of proprietary IP, or technical training for their engineering staff." That sounds like something that a patriot would do. They want the knowledge for the country so they play to get it. >"Boards of Directors can't ignore the scale of the Chinese market, but it comes at the cost of essentially giving away your business prospects [..]" So, they want the markets but don't want to pay the price. Nobody is forcing them to go to China. >"many Chinese investors are desperate to get their money into foreign investments" Sure, they did well and now they want out, human nature. Unfortunately, capital controls is what China economy needs if they want to keep growing. Without capital controls the growth of the last 20 years would not be possible. Even without special insight, I'm sure that Xi and his mates want more control not less, and that there is a lot of corruption and unfairness in the country, but you shouldn't put, in the same bag, that with the policies that are the reason of the economic success of China.
- bko 9y ago
  > Unfortunately, capital controls is what China economy needs if they want to keep growing. Since when did benefits to "China" surpass benefits to individuals living in China? The state should serve the people, not the other way around.
  - RobertoG 9y ago
    "The state should serve the people, not the other way around." That depends on your political views, but in my book, sure. The only measure of economic success for a country should be the improvement of the lives of their citizens. China's current economic strategy have lifted more than 500 millions of people from poverty. A change of that magnitude have never happened before in history. Do you know how they talk about poverty in the world improving in the last years?. Normally it's not mentioned but it's basically China. About the capital controls, from the NYT article: "The government sets a $50,000 limit on the money Chinese citizens can move out of the country in a year, [..]" It seems to me that the people that feel constrained by this are not the majority of the people in China.
Dowwie 9y ago
China emerged from the bottom of the economic pyramid with this strategy. It wasn't immoral of them to insist that its people wouldn't be exploited in perpetuity, was it?
pipio21 9y ago
China is doing what any country should do. It is not extortion, there is no blackmail here. Foreigners want to be part of the Chinese market? let's make a deal. Nobody forces you to accept this. I say this as a European that actually worked some years in China. I was extremely privileged as engineer and manager as I was making China wealthier. That is not different than Britain hiring the best engineers of the Netherlands(where industrial revolution started) and giving them a good life if they improved the country, until they did not need them anymore of course. The USA did the same thing later with Britain, pirating their industrial machinery, even as it was punished with death. Nor any different from the USA accepting Einstein, von Braun, Sergey Brin, or Elon Musk and giving them the opportunities they lacked in their original places. But in China it is not so much about "secrets" but culture, West culture has evolved from 500 years of extreme changes thanks to Gutenberg press. If you read "The prince" Machiavelli says extreme changes are happening today(in 16th century). Napoleon reads it and say:those changes are nothing compared with those happening today(in 19th century). When you live in China you realize all those accumulated changes were not done at all, as culture was very well controlled so the masses could not access to it. So a revolution happened but inner change of the culture takes time. You say China improving is terrifying. What is terrifying for me that is the extreme differences in poverty in the world. People in poor countries like China are hungry to get out of poverty while people in the west feel entitled to wealth even when the only thing they have done is being born privileged. I travel to Africa frequently as a reminder of all how rich we are and giving value to things we ignore as we take for granted.
- george_ciobanu 9y ago
  Leaving history aside (do we really want to apply 16th century economics rules today? No) your statement that any country would do the same thing is untrue in many ways. There are IP laws that protect a comoany's right to keep its secrets and extract value out of them for a number of years. That's a bit too long in some cases but this is what makes modern economy possible. A company invests tons of money in R&D and then gets it back through patents they can protect. For a government to extort companies to give up their IP is to steal, no mincing words. Especially if the companies and people given access to the information extracted are close to the government, it's just another tool for them to control the economic environment with politics. To claim this is some Robin Hood scheme that will bring equality in the world is to say stealing from rich countries is ok and we should do it more, companies be damned. It's essentially an extreme firm of communism and as someone who lived in that system for a while and is has first hand experience of how frustrating corrupted governments are to doing business, I can point at virtually all attempts to make it work and we can all see how they failed. Chins wants to be competitive at someone else's R&D expense. Edit: China improving is terrifying would you like to have that political system in your country? If yes most of would would rather have freedom of speech which btw allows us to have this conversation without fearing a knock on the door and prison for life.
eighthnate 9y ago
It's curious how when certain countries or topics come up, you invariably get the same comments. China, Russia or even elon musk, there must be a standard template somewhere... > The Chinese art of selectively enforcing their laws to the detriment of those that won't play ball with the government really makes it hard to believe Xi's press-tornado of successful anti-corruption measures. It's not a "chinese" art. It's every government's art. All governments selectively enforce laws. > The government has been actively extorting international companies into "joint" ventures. That's called business, not extortion. Otherwise, everyone is extorting everyone. You do realize that all governments "extort" companies in return for access to their home markets right? > These ventures essentially require "treats" (as an insider told me) every several months. "Insider" told you. Right. Because you are a very important person. That the chinese government force foreign governments to form joint ventures and to share knowledge is a well known as it has been reported widely for decades. > China's current long-term strategy seems to be: That's the strategy of every country - especially every major nation. No major nation is keen of being dependent on a foreign nation.

Retric 9y ago

Anti corruption is a classic measure to shift weath from one set of former insiders to the new set of insiders. One time pushes are almost meaningless without the creation of new long term institutions. For companies the pressure for managers to create the illusion of progress causes a lot of structural problems. I find companies that stay out of China are better long term prospects and tend to have far better upper management. PS: The other option is to sell one or two generations back so copycats start at a significant disadvantage internationally.

adamiscool8 9y ago

Does this mean China's recent declaration that "Foreign Firms Won't Be Forced to Turn Over Technology" [1] is not to be believed? [1] https://www.bloomberg.com/news/articles/2017-11-10/china-says-foreign-firms-won-t-be-forced-to-turn-over-technology https://www.bloomberg.com/news/articles/2017-11-10/china-say...

will4274 9y ago
As the saying goes "thou doth protest too much, methinks." China will SAY anything - you might recall China promising to float its currency in the Bush years when this was a sticking point in trade - a float that happened in name only and so the request to actually float currency remains in US trade negotiations with China.
- icelancer 9y ago
  >>so the request to actually float currency remains in US trade negotiations with China. While they do their best to ban BTC and other cryptocurrency that will allow for the free exchange of their currency for others.
  - bandrami 9y ago
    Control of monetary supply, a fixed exchange rate, free flow of capital: please choose any two.
mseebach 9y ago
It may well be that foreign companies are merely encouraged to participate in mutually beneficial exchanges of know-how. I have no information either way on the subject, but generally, no, it not exactly a novelty that a government announces a grand intention, and mostly even sticks to the letter, but drifts significantly from the spirit when applying the intentions under the constraints of everyday political life. Not because of any specific malice, but because governments are huge beasts the sit on top of a huge intricate web of opaque incentives.
Chris2048 9y ago

raverbashing 9y ago

Meanwhile they invest in a lot of countries making strategic purchases (while China's citizens buy lots of real estate as a store of value)

mistermann 9y ago
...against the will of the Chinese government, if you're a naive sucker who can't think two moves ahead.

Chris2048 9y ago

Interesting thought: A market for flawed tech/designs. Consider a product that, part-way through development a fatal flaw was discovered. Perhaps, a company can insure itself with a deal whereby if such a flaw is found, the tech design will be bought out at a reasonable price. The insurer then makes use of the design by ... setting up a company based in China manufacturing that product. Over time, China steals poor designs and cripples its reputation..

diminish 9y ago

I have no idea about China or Chinese economy but your whole comment consists of serious-looking references accompanied by "behind the doors" gossips. All your comment makes me doubt regular Economist/NY doom-saying about Chinese economy. Do you have trustable independent references for the below claims? * Selectively enforcing their laws to the detriment * Extorting international companies into "joint" ventures * "Treats" (as an insider told me) every several months. * Hearsay that I've heard from several different sources

50CNT 9y ago
> Selectively enforcing their laws to the detriment Excerpt relating the Weiquan movement[0]: "Recently, some judges have started to believe that to be a judge you just have to strictly apply the law in a case. In fact, this kind of concept is erroneous [...] all the legal formulations have a clear political background and direction [...] We must stamp out the kind of narrow viewpoint that thinks that you can also do court work by having judicial independence." * Extorting international companies into "joint" ventures Look at some of these articles on starting a China JV[1]. Man are the caveats. So many ways to shoot yourself in the foot. Then look at a list of sectors WFOE (Wholly Foreign Owned Enterprises) are allowed in. Then check what licenses are required to operate, and whether this precludes entities with majority foreign control, any amount of foreign investment (e.g. Internet Cultural Media License 网络文化证）, etc. Then look at the costs of acquiring such a license. Remember that your Chinese competitors will likely just ignore that until they're large enough to be fined for it. Remember that they'll get a slap on the wrist as long as they play ball, and you'll get deported. * "Treats" (as an insider told me) every several months. Look at how China ate up high-speed rail in a couple of years. All 国产 now. [0] Huang Jiayou, "Considerations on some issues related to the education in socialist rule of law viewpoints," China Laws (http://www.lawbase.com.cn http://www.lawbase.com.cn ), 13 June 2006. [1] https://www.chinalawblog.com/tag/jv/ https://www.chinalawblog.com/tag/jv/
DaggerDagger 9y ago
This whole comment reads like PLA astroturf.
chairmanwow 9y ago

jackcnreturns 9y ago

I won't go into details of why you're wrong, but let's just say random posters with unknowable credentials shouldn't comment on geopolitical or economic affairs of a foreign country.

jackcnreturns 9y ago
Sorry I forgot that random internet posters actually believe their opinion matters.

RobertoG 9y ago

>"The government has been actively extorting international companies into "joint" ventures. These ventures essentially require "treats" (as an insider told me) every several months. These treats would be manufacturing processes, engineering drawings of proprietary IP, or technical training for their engineering staff." That sounds like something that a patriot would do. They want the knowledge for the country so they play to get it. >"Boards of Directors can't ignore the scale of the Chinese market, but it comes at the cost of essentially giving away your business prospects [..]" So, they want the markets but don't want to pay the price. Nobody is forcing them to go to China. >"many Chinese investors are desperate to get their money into foreign investments" Sure, they did well and now they want out, human nature. Unfortunately, capital controls is what China economy needs if they want to keep growing. Without capital controls the growth of the last 20 years would not be possible. Even without special insight, I'm sure that Xi and his mates want more control not less, and that there is a lot of corruption and unfairness in the country, but you shouldn't put, in the same bag, that with the policies that are the reason of the economic success of China.

bko 9y ago
> Unfortunately, capital controls is what China economy needs if they want to keep growing. Since when did benefits to "China" surpass benefits to individuals living in China? The state should serve the people, not the other way around.
- RobertoG 9y ago
  "The state should serve the people, not the other way around." That depends on your political views, but in my book, sure. The only measure of economic success for a country should be the improvement of the lives of their citizens. China's current economic strategy have lifted more than 500 millions of people from poverty. A change of that magnitude have never happened before in history. Do you know how they talk about poverty in the world improving in the last years?. Normally it's not mentioned but it's basically China. About the capital controls, from the NYT article: "The government sets a $50,000 limit on the money Chinese citizens can move out of the country in a year, [..]" It seems to me that the people that feel constrained by this are not the majority of the people in China.

Dowwie 9y ago

China emerged from the bottom of the economic pyramid with this strategy. It wasn't immoral of them to insist that its people wouldn't be exploited in perpetuity, was it?

pipio21 9y ago

China is doing what any country should do. It is not extortion, there is no blackmail here. Foreigners want to be part of the Chinese market? let's make a deal. Nobody forces you to accept this. I say this as a European that actually worked some years in China. I was extremely privileged as engineer and manager as I was making China wealthier. That is not different than Britain hiring the best engineers of the Netherlands(where industrial revolution started) and giving them a good life if they improved the country, until they did not need them anymore of course. The USA did the same thing later with Britain, pirating their industrial machinery, even as it was punished with death. Nor any different from the USA accepting Einstein, von Braun, Sergey Brin, or Elon Musk and giving them the opportunities they lacked in their original places. But in China it is not so much about "secrets" but culture, West culture has evolved from 500 years of extreme changes thanks to Gutenberg press. If you read "The prince" Machiavelli says extreme changes are happening today(in 16th century). Napoleon reads it and say:those changes are nothing compared with those happening today(in 19th century). When you live in China you realize all those accumulated changes were not done at all, as culture was very well controlled so the masses could not access to it. So a revolution happened but inner change of the culture takes time. You say China improving is terrifying. What is terrifying for me that is the extreme differences in poverty in the world. People in poor countries like China are hungry to get out of poverty while people in the west feel entitled to wealth even when the only thing they have done is being born privileged. I travel to Africa frequently as a reminder of all how rich we are and giving value to things we ignore as we take for granted.

george_ciobanu 9y ago
Leaving history aside (do we really want to apply 16th century economics rules today? No) your statement that any country would do the same thing is untrue in many ways. There are IP laws that protect a comoany's right to keep its secrets and extract value out of them for a number of years. That's a bit too long in some cases but this is what makes modern economy possible. A company invests tons of money in R&D and then gets it back through patents they can protect. For a government to extort companies to give up their IP is to steal, no mincing words. Especially if the companies and people given access to the information extracted are close to the government, it's just another tool for them to control the economic environment with politics. To claim this is some Robin Hood scheme that will bring equality in the world is to say stealing from rich countries is ok and we should do it more, companies be damned. It's essentially an extreme firm of communism and as someone who lived in that system for a while and is has first hand experience of how frustrating corrupted governments are to doing business, I can point at virtually all attempts to make it work and we can all see how they failed. Chins wants to be competitive at someone else's R&D expense. Edit: China improving is terrifying would you like to have that political system in your country? If yes most of would would rather have freedom of speech which btw allows us to have this conversation without fearing a knock on the door and prison for life.

eighthnate 9y ago

It's curious how when certain countries or topics come up, you invariably get the same comments. China, Russia or even elon musk, there must be a standard template somewhere... > The Chinese art of selectively enforcing their laws to the detriment of those that won't play ball with the government really makes it hard to believe Xi's press-tornado of successful anti-corruption measures. It's not a "chinese" art. It's every government's art. All governments selectively enforce laws. > The government has been actively extorting international companies into "joint" ventures. That's called business, not extortion. Otherwise, everyone is extorting everyone. You do realize that all governments "extort" companies in return for access to their home markets right? > These ventures essentially require "treats" (as an insider told me) every several months. "Insider" told you. Right. Because you are a very important person. That the chinese government force foreign governments to form joint ventures and to share knowledge is a well known as it has been reported widely for decades. > China's current long-term strategy seems to be: That's the strategy of every country - especially every major nation. No major nation is keen of being dependent on a foreign nation.