MYTHS AND OLD TRUTHS - EVERYTHING HAS CHANGED BUT THE SLOGANS

Napoleon said, “China is a sleeping giant, let her sleep.” China’s success is now a cliché, the fear that China’s success would vacuum up and hollow out the other Asian success stories has been proved wrong, Southeast Asia is now a vital platform in the global supply line. China’s growth has lifted Japan out of her economic stupor and has contributed more to global growth than the U.S., EU or Japan over the past few years. China’s $650 billion reserves are being deployed to invest offshore. The West, who strongly pushed for a more open investment regime in China as a condition for China’s entry into the World Trade Organisation, now face an aggressive, even bold, China on a buying spree.

Twenty years ago the fear was of a Japanese takeover of the U.S., this fear was misplaced. The big difference now is that Chinese investors are frequently state-owned but as a U.S. Senator said, Japan was small and an ally. China has offered US$1.28 billion for iconic appliance manufacturer, Maytag, and has purchased IBM’s personal computer division for US$1.75 billion. But what has caused U.S. concern is the bid for the U.S.’s global energy company, Unocal. Ten years ago China did not import any oil, now it’s the 2nd biggest energy importer. Unocal’s reserves are mainly in Asia and the Caspian. Their US$18.5 billion bid has attracted the attention of Washington’s ruling elites, symbolising the new economic fault lines. The U.S. Congress has voted overwhelmingly to express alarm at China’s bid. But is this all overdone? Yes. The U.S. has partnerships with many state-owned oil companies - -- Unocal represents just 1% of U.S. oil consumption. Guess who the biggest investors in the U.S. are? In 2004, Switzerland invested $878 billion. Japan, $431 billion, China invested only $8 billion. The U.S. invested $105 billion in China.

Trade figures and investment perceptions are now out of date, representing an old reality before our more borderless world. What is a trade surplus or deficit? What happens when Dell sells a computer made in China, with inputs elsewhere which on paper looks like a U.S. deficit with China, but when the profits go to Dell and to Microsoft, whose operating system and the chip powering it comes from Intel, what does this now mean to the statistics? The iron laws of economics have not been broken by the Chinese dragon puffing away. Politicians respond to complex issues with predictable, tired slogans which substitute for policy. Senators threaten China with a tough, new 27.5% tariff conditional upon China revaluing its currency, the yuan, which is pegged to the U.S. dollar. That would slash the profits of Standard & Poor 500 companies by 8% or $50 billion.

When China realigns its currency, input costs for every business in the global economy will rise, U.S. costs for financing government debt will go up, the firesale of Chinese business will end. What if China slowed down its investment in U.S. Treasury debts, the U.S. will have to raise interest rates, inflationary pressures in large part tamed because of productivity, increases based on low-cost high tech inputs and lower consumer costs will rise. China has said it will examine its currency at its own time and when it suits their domestic interests - believe them.

Like everyone else, I was rapt that Africa’s needs dominated the meeting of G8 leaders in Scotland. But energy price increases over the past 12 months will wipe out all these aid promises if oil goes as predicted to $80 a barrel.

Conservation is another word for efficiency. Great energy producers like Mexico, Venezuela and Indonesia have such inefficiencies they have to import many oil products. Indonesia spends more on oil subsidies than they do in health for their people. It’s getting interesting when Greece and Turkey announce a joint gas pipeline, with a Greek Prime Minister visiting Turkey to announce the deal. The first visit of a Greek Prime Minister to Turkey in over 40 years. A pipeline is planned through Pakistan to India, from Bangladesh to India, and from Egypt to Israel, bringing Myanmar and eventually Iran into the global loop. Russia will soon supply Europe with most of her energy needs. Our interconnected world, where we are all each others customers and no-one can succeed unless everyone succeeds, has changed everything except the slogans.