Straszheim Analyzes China
In his republished Forbes.com Op-Ed, China Buys Wall Street, economist and China expert Donald H. Straszheim wrote with poorly guarded optimism about heavy investment in cheap Wall Street stocks by Chinese sovereign funds and firms. Straszheim was once Global Chief Economist at Merrill Lynch and now heads China initiatives at Roth Capital Partners.
Straszheim discussed China Investment Company's investment in Morgan Stanley and Blackstone and how far CITIC Securities was into Bear Stearns. He told of CNOOC's (Chinese state oil and gas) unsuccessful 2005 attempt to buy a controlling stake in Unocal led Chinese firms to a more passive investing strategy that eschews directorships and control. For now.
Straszheim, whose work since 2006 has involved winning over Chinese officials for his firm's initiatives in mainland China, tells us (surprise-surprise) about the bright side of Chinese investment in top US financials. Straszheim does mention Western powers' unease that China's investments will become geopolitical instead of straight investments. He writes:
Yet his tone echoes that of a therapist helping a child patient come to terms with accepting her single parent's forced marriage to an unfair, authoritarian abuser to whom the therapist owes back rent. Don't worry, he seems to say, it's not that bad. Where is the explicit disclosure of the extent of Straszheim's stake in China? Or his firm's? It would help readers weigh his words.
Straszheim portrays China's plunge into US financials as an opportunity for China's finance sector to learn more about free market financial systems. This is darkly ridiculous given what has just happened to the US financial sector. I can hear Chinese officials now, their yellow-starred epaulets clicking against austere cement floors as they roll around laughing at visions of the Politburo Standing Committee of the PRC leaping from their seats to hear the latest Western financial sector wisdom.
Two more of Straszheim's thoughts bear closer scrutiny for what they imply:
Astounding. With the US buying into its own banks and China buying into US financials, Straszheim's words chill anyone with a memory of what the US stood against in the 20th Century. Yet there he is, extolling as virtue the visit of the government agent at the door.
In another eerie piece, Straszheim writes of watching China's censors at work on his Beijing hotel's TV during the Olympics:
Despite this, he sums up the piece:
I do not think Mr. Straszheim wants to upset the Chinese government, nor does he remember what America is. Chinese officials are the gatekeepers of what his firm wants from China. He confesses and avoids for China's regime, stating its sins softly to blunt public perception of their outrage; he implies that stopping regime tyranny over Tibet, for example, is not worth interrupting the flow of money (between China and his firm?).
Similar to how Wall Street firms bought into bad paper, too many China experts and US officials have bought into China while granting unwarranted political credit to the regime in exchange for lucrative market access. Where are the political results promised from free trade with China? People are still imprisoned and sometimes killed for protesting in China; China strictly censors its press and Internet; China coerces Internet firms into helping it censor its people in exchange for official access to markets; and China has subsidized its surplus-building economy over the years to obtain its current advantage.
China should have to make its money from the US the old fashioned way. Non-level playing fields are not old fashioned.
Mike,
Happy New Year,
This is a very reasoned and thoughtful look at Sino-American relationships -and as much as we disagreed about Georgia - we do agree about the threat inherent within our dealings with the PRC .
December 31, 2008 6:54 PM | Reply | Permalink
Al, HNY to you too, and thanks for saying so.
December 31, 2008 9:36 PM | Reply | Permalink
Mike,
Dickday & seashell seem to missing the bigger picture of our relationship with the PRC - soon we will be direct global competitors with the Communist Party China- for scarce resources such as precioua metals for jet engines.
That said I am still way more worried about the military-industrial-financial -neo con complex that masquareded as our legitimate US National Leadership the last eight years -And Mike before you go prissy on me and want 'details" I would invite you to goggle Chris Cox , deregulation, SEC, & Madoff for starters. Then you might want to revisit all the gwb43 appointees that have been convicted of various crimes.
This is not to say that the PRC is not an inherent threat - but we need look no further then the OVP office and Addington's doings to see a clear and present danger to our Country ...
January 1, 2009 1:18 PM | Reply | Permalink
Al, thanks for the comment. Details aren't prissy. For instance, a properly maintained rudder is a detail on a boat. Or, a life jacket.
I've no comment on the Neocons as exhaustive commentary has been made on that subject. I've made my own points there in older posts. I think caution is required in the 'exit interview' with the Neocons. You ought to read a book I can get no one here to comment on: Warrior Politics by Robert Kaplan, published in 2002. It's a prescription for the US to adopt imperial means, albeit covert, to deal with nasty enemies abroad. He calls for a "pagan ethos" for the US government. In other words, more like China's regime: Machiavellian.
The government of China is run by human beings. In that there is both hope and danger. What I object to is the official and commercial blindness by US actors with respect to who that leadership is and what the fallout from its actions will be if the people of the US must accept what has been given to this regime. We've already been handed a 700 billion dollar debt by those, some of whom have allowed China to play on a slanted economic field for decades.
January 1, 2009 4:39 PM | Reply | Permalink
Mike,
None of the Kaplan assertive assumptions are vaild . We cannot have a Pax Americana in an asymmetric global environment -particular where those globally environments are hostile guerilla wars. The surge worked in al Anbar because we got all the Sunni Shieks on our payroll. I guarantee you that if we went back inand tried to permanently occupy Ramadi - we would be back fighting an allout insurgency.
Now we might be able to put enough PRCT with the necessary security in parts of Afghanistan to begin to build an Awakening in say Paktia - but we will never successfully permanently occupy any part of that country.
We need to give the LOCALS something to say yes too - plus we need to exploit the growing schism in the Umma between the Wahabees and the followers of al Quiada - the religious leaders in Saudia Arabia are turning on Zawhiri because its apostate behavior to kill fellow Muslims. We can only pray that this might be the beginings of an Islamic Reformation - hey maybe they will have their on Hundred Year War ...
Meanwhile we need to keep watch on that Blue Water Navy that the Princelings are laying keels for now - yeah the Chinese really did buy two air craft carriers from the Russians-which they are tricking out with military know how they stole from us -and have updated . China will be a potential adversary for the foreseeable future.
But we really need to keep a watch on the neo cons as they exit the building. Bushco has really done great damage to these United States .
Mike I would also recommend two books to you - "Operation Hotel California -& The Darkside - read those and then you will know why we need to have law n order restored to These United States.
And yes a rudder and life jackets are good to have on any boat or ship ..
January 1, 2009 7:41 PM | Reply | Permalink
I don't know. We have more prisoners in our prisons than China and China has four times the population of the U.S. The pigs who run this country's economy not only withhold our country's riches from 90 percent of the population but they are the same pigs who are making money from labor in China.
If our country had 1.2 to 1.4 billion people what legislation would you initiate to control the population?
China censors its people and wiretaps its people.
We do too. but to a lesser extent.
Like I said, I don't know.
December 31, 2008 8:00 PM | Reply | Permalink
With an unaccountable regime run by one party, I'd wager that the prisons are spacier in China in part because the population control method includes forced labor and summary execution. In any case, would you trust Chinese data about its prisons after the Olympics propaganda layers came to light?
On pigs and the economy, could you be more specific?
December 31, 2008 9:56 PM | Reply | Permalink
Sure, but you have to be able to read the front pages of WSJ, NYT, LAT, Chicago Trib, Mpls. Trib,along with scores of other periodicals as we;; as the top blogs. It takes time.
The pigs at the SEC selected by w to run our entire economic system into the ground.
The pigs in the Republican Party who make health insurance companies and drug companies the beneficiaries of a capitalist welfare fund and keep 50 million people without any access to health care and another 50 million people without adequate access to health care.
The pigs who run our so-called department of labor which, along with the Republican Party, do not even wish to make the sub standard poverty laden hourly wage of $7/hr and legislate right to work laws in an attempt to destroy the only labor force in the country who make a middle class wage.
The pigs who have run the DOJ for the last eight years and have done everything in their power to keep from putting white collar criminals in prison and confiscating their property.
I really do not have three hours to continue this.
December 31, 2008 10:16 PM | Reply | Permalink
OK. Thanks for the response.
December 31, 2008 11:19 PM | Reply | Permalink
Mike, the date of Straszheim's column in Forbes was Dec. 27, 2007 and most, if not all, of what he wrote no longer applies.
Right from the start of 2008, the headlines were pretty much all alike: Western banks face SWF backlash, pointing out that
and Enormous' Bank Losses Unrecognized, flatly stating thatAnd indeed, the SWFs have not jumped in, including China's. Among other things, it just goes to show what a difference a year can make.
December 31, 2008 11:20 PM | Reply | Permalink
Happy New Year Seashell, no gotcha for you here. China's still vested in the green trap door:
http://www.chinastakes.com/story.aspx?id=911
http://blogs.wsj.com/deals/2008/12/10/china-the-power-behind-the-700-billion-bailout/
A quote from the above link:
"According to US Treasury International Capital reporting system figures, China’s holding of the US national debt at the end of October grew by $65.9 billion over September, the largest monthly growth this year, to $652.9 billion. After overtaking Japan in September, China maintains its status as America’s largest creditor."
See also:
http://www.reuters.com/article/asiaDealsNews/idUSTRE4B91MB20081210
http://www.bloomberg.com/apps/news?pid=20601068&sid=amp0TvJtVOpI&refer=home
Straszheim's Op-Ed shows how Western 'experts' with conflicts of interest seem to ignore so many glaring deficits in their prognostications about great things coming out of the China trade relationship for the US. The Op-Ed in question is very similar to the sort of gloss jobs that interested players have been doing for China for some time.
I do not argue against trade or improving ties with China. Not at all. However, I do not think the realists have been realistic about the imbalanced political-economic returns for the US as a whole in the relationship. I believe that the non-level playing field issue should get equal billing with the gloss jobs.
January 1, 2009 3:36 AM | Reply | Permalink
Happy New Year to you, Mike. Not trying for a gotcha, but you are kinda talking treasuries and banks here, which are different. Yes, China keeps on buying US treasuries, which is nothing new. It was CICs foray into buying shares of US banks that your original Straszheim article was referring to and that I subsequently commented on. The difference is in ownership of assets, so to speak. Buying US treasuries does not give China a say so in how the US operates. Owning shares of Morgan Stanley, even though passively bought for now, could conceivably at some point, give China the right to act as any other shareholder with a large numbers of shares, a right to say how the firm operates. The shares of Blackstone and Morgan Stanley that China currently owns were bought before the financial meltdown. It is telling that they have not bought more shares of any of the financial banks, which would have assuredly welcomed them, and would have been available at fire sale prices.
Having said that, it is interesting that CIC is looking at AIGs life insurance unit. That must be the one part of AIG that didn't get nailed by its Financial Products implosion. Thanks for the links.
With that sorted out, what non-level playing field are you referring to in the US, China relationship?
January 1, 2009 4:58 AM | Reply | Permalink
Seashell, thanks for the thoughtful response. I do not see a great distinction among entities owned, established by, subject to and ultimately feeding, the Chinese regime. It is a command economy, and influence flows from the ultimate authority.
The leveraging of purse power or investment influence, passive or directive, goes ultimately to the regime's interest. Where one Chinese entity appears constrained, another entity may indirectly apply leverage to free it. Because it is a command economy, power flows to the command in putting anything on the negotiation or renegotiation table that the state desires.
Bank, Sovereign Fund, China's politburo -- it doesn't matter when all of these are subject to the central regime in visible and invisible ways. If you go back and read Straszheim's piece republished by Forbes days ago, it explicitly sets forth China's regime strategy of state market dominance. Were we to analogize this Chinese world commerce to US interstate commerce, you would see constitutional restrictions on US states as market participants via the commerce clause. Internationally, China has no such constraint.
Unchecked government intervention and spying within China's economic entities is the norm. Where unwritten rules apply and are enforced without any free press to inform the world of it, no one is free of coercion. The government's bidding will be done. If the PLA can assert large scale brute and deadly force over civilian areas purportedly part of China (Tibet) what can it not do within its commercial entities?
The non-level playing field I referred to is that upon which the current relationship b/w our countries has been based: the US playing largely by market economy rules and China playing by command economy rules -- an unfair competition where human resources may be used as fodder as they are in China while private entities are subject to laws, courts and collective bargaining here.
Western officials and investors look the other way because of the perpetual promise of Chinese market share "tomorrow" and increasing Chinese ownership and purse-string leverage here. If China doesn't get a financial return, rest assured, it will impose a political one somewhere, and expect the US to do what it has been doing so well in the past: clam up.
January 1, 2009 4:06 PM | Reply | Permalink
One other point you made ... that China does not have the influence in holding US treasuries that it has by investing in US banks is well taken.
What Straszheim points out is the obvious for a command economy: that purse strings turn geopolitical. Once that happens, political conflict is on the way. Some may say turnabout's fair play, but those folks do not remember the fundamental difference between the US and China as polities. We have already seen totalitarian influence make Yahoo and Google jump by enforcing the China regime's command to censor political and/or religious speech.
Who is next? US business and government must confront the character of the Chinese regime, or American citizens may find that Chinese leverage can affect their domestic rights, much less their livelihoods.
January 1, 2009 4:47 PM | Reply | Permalink
OK, I think I get where you are coming from, although it has to be argued that globalization is not based on fairness, despite what its cheerleaders promise. The US is well known for taking advantage of LDCs when it comes to agriculture products.
China's human rights record is fairly well known. However, China has proceeded on the basis that free trade between countries does not give other countries the right to interfere in its national sovereignty. Another problem is the ability of the US to protest against China has been lessened by two developments: 1. Its own loss in the moral arena from its denial of the applicability of the Geneva Conventions and 2. Its dependence on Chinese wealth to sustain its markets.
How do you expect the US to confront China based on these realities?
January 1, 2009 9:48 PM | Reply | Permalink
Seashell,
Given the two constraints you mentioned loss of our moral authority regarding Geneva Convention & dependence on Chinese wealth to sustain our markets are actually two salient that we must address -If we have credible acountabilty for abu Gharib, an illegal occupation of a soveriegn country , a complete roll back of the Cheneyaddington unitarian executive that would take care of the first problem-we would reclaim our moral standing.
Then if we did truly move to reinvent our economy by truly going green - electric hybrids , a national smart grid ect -then that might actually make us a world leader in markets again -We might begin to export green technology -generating jobs here - and that would at least mitigate the second problem -that is we might actually become less dependent on the Chinese for our economic survival.
This is why we must make sure that Obama44 carries through with the many campaign promises made -especially on energy independence & restoring our good name.
Finally I believe if we do solve both of these national problems it would mean we where less likely to have to confront the Chinese- which in the end is a win win for everyone .
January 2, 2009 7:29 PM | Reply | Permalink
Seashell, in the US one administration may hurt credibility or even do deals with the devil. However, because of our system, in at least 4 to 8 years, another will have the opportunity to make it right. That is one out.
Financial dependence realized through acquiescing to unfair competition for decades is not exactly legitimate. There should be a financial adjustment to account for the trade disparities between US-China all of these years.
January 3, 2009 3:24 AM | Reply | Permalink