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China Bashing

China's economic success is giving rise to "China bashing" in the West and opening up a whole new can of protectionistic worms as political parties look for a scapegoat to pin their problems on, says the former director of the World Economic Forum's Asia operations.

"We can see that China bashing around the world is an interesting phenomenon," Dr Frank-Jurgen Richter, President of HORASIS told members at the Chamber's November 8 roundtable luncheon. "We have even started to blame China for the rise in oil prices. So everything we don't like we blame on China."

As a result, citizens are increasingly calling on politicians to protect their factory jobs. Eager to win votes, politicians -- and more frighteningly rightist parties -- are only too willing to play on the public's fears to further their own causes. The U.S., for example, used to be considered a symbol of free trade and globalisation. Campaign pledges during the run up to the U.S. presidential election portrayed the U.S. as an increasingly protectionistic nation trying to keep imports out and factories at home.

Protectionistic fears reached flashpoint in the capital of Spain's footwear industry, Elche, in September. Chinese companies had been building up their own manufacturing plants and their own distribution centers in the town for years, but facing falling business, Spanish protesters marched through the town carrying banners reading "Chinese out." The protest took a more menacing turn when two Chinese-owned warehouses and a lorry belonging to a Chinese entrepreneur were set on fire.

"Globalisation and market principles honoured by most of the world's businesses went up in flames along with the shoes in Elche. So it is quite a horrifying scenario if this China bashing continues," Dr Richter warns.

With almost everything now being manufactured in Asia or in China, Europeans just don't want to realise that the manufacturing era in their countries is coming to an end. So the question to ask, Dr Richter says is: "What will happen to Europe?"

On the extreme right of the spectrum, rightist parties are fanning people's fears about their livelihood to get themselves elected and promote their cause. On the other side of the spectrum, the leftists are withdrawing into their shell and turning their backs on globalisation, against foreign influences, and against China.

In the past, when thinking about globalisation, the argument basically went that Western companies were exploiting the developing world by using cheap labour to boost their profits. That changed slightly when developing countries, like Mexico, began going head-to-head with China to attract FDI. Now, we see what Dr Richter calls the south-north globalisation conflict.

"Basically, it is countries like China -- and India by the way -- that are the winners of globalisation, and the West -- Europe and North America -- that are the losers. So it is now reverse globalisation if you will," he says.

Dr Richter suggests two scenarios could emerge as a result of this. One would see China continuing to grow, leaving Europe further behind, and forcing it to de-globalise and de-industrialise. Rightist parties could even come into power, destabilise the entire continent and reverse the successes that Europe has built up over the past 50 years.

"If I tell this to politicians in Europe now they all say that I am crazy. They say, 'Frank that is impossible, you are crazy.' But if the development continues as it is now, there is really a chance that this worst-case scenario will come into being," he warns.

On the other end of the scenario scale, China continues to be an important engine for growth for the world, but Europe reinvents itself and sets its sights on becoming the most competitive region in the world. Businesses downsize, labour laws and subsidies are brought under control, and the continent decides to abandon manufacturing over the long-term and move into knowledge industries, into education, and into services.

"I think this is the only way forward for Europe," Dr Richter says.

Speech     Q & A 

Moving Up the Rankings?

Hong Kong ranked as the world's 21st most competitive economy in the recently released World Economic Forum's Growth Competitiveness Index rankings, up from 24th slot last year. Critics of the survey argue that its fails to capture the true picture of economies' competitiveness because the methodology is outdated.

For example, the top-10 countries have the highest tax rates in the world, while Hong Kong has one of the lowest and simplest tax systems anywhere. Their labour laws are also among the most rigid compared to Hong Kong's liberal laws, and the cost of living in these countries is also among the highest on the planet.

So if Hong Kong wants to move up the rankings, would Henry Tang's proposed goods and services tax, together with the introduction of a labour law and anti-competition law, improve or hurt our ranking in the World Economic Forum's index?

Dr Augusto Lopez-Claros, Chief Economist, World Economic Forum, speaking at the Chamber's November 17 roundtable luncheon, said the survey does not penalise countries for having high tax rates.

"While business communities complain about high taxes, the most competitive economies in the world are paradoxically those that have the highest taxes," he said.

The quality of the labour force in these countries is generally very high because their governments spend huge sums on education and in training their citizens. They are also very transparent about this, so people know exactly how taxes are being spent. Training up people is an expensive and long-term strategy, and businesses concede that at the end of the day, they are the ones who benefit from a more educated workforce, he added.

"However, if the business community were to feel the tax collected would be frittered away, then that economy would be penalised," Dr Lopez-Claros said. "So Hong Kong could go either way depending on how the money was used."

If Hong Kong were to implement legislation for a minimum wage and maximum working hours, the economist said this wouldn't damage our rankings basically because these issues are not accounted for in the survey. With business communities in general adverse to any regulations which impact the labour market, this is something which the survey needs to address, he conceded, adding that WEF's new survey will take into consideration a flexible market. The same is true for anti-competition policies.

Two issues that would help Hong Kong's rankings in the survey considerably, how-ever, are the balancing of public finances, and a higher rate of tertiary education.

"You have a very high budget deficit in Hong Kong, but I don't understand why this is the case when your economy is booming," Dr Lopez-Claros said. "You should be riding on surpluses."

The low number of university graduates in Hong Kong is also a critical factor in the rankings. Finland, which tops the list, has the highest number of university graduates in the world, followed by Taiwan, which ranks fourth on the index.

"Again, I really don't understand why your university enrolment rate is so low," he said. "It is the quality of the workforce which impacts a country's competitiveness and the way to raise this is by making sure your workforce his well educated and well trained."

Speech    Q & A 

Full list of Chamber programmes in November >>