After yesterday’s post, Google’s China Game, several lively discussions ensued. On Twitter, on emails with friends around the world, and on the telephone. The topic?
What would China do? And what will it mean?
While there was no consensus, three distinct possibilities were identified.
Nothing/ business as usual
This one is the simplest. In financial muscle comparison, Google, a business with a market capitalisation of approximately US$ 186 Billion and US$ 14.5 Billion in cash is a flea compared to the mammoth, the juggernaut called China, with a GDP of approximately US$ 4.33 Trillion with about US$ 1.6 Trillion cash reserve.
China does not really have to react to Google’s announcement from yesterday.
Denial/ business as usual
Even so, Google’s announcement and allegation of hacking is a public humiliation for China. The US State Department expressed its concern and asked for ‘an explanation’ from China. The White House too is waiting to hear from China. Ooh, remember the cultural cross-wires I mentioned yesterday?
So China responded. With a denial. Worded as follows:
“China’s Internet is open… China has tried creating a favorable environment for Internet. China welcomes international Internet companies to conduct business within the country according to law. China’s law prohibits cyber crimes including hacker attacks.”
There we have it. The denial which may provide a way for Google to salvage its quest for profits in China. And for the US to save face and carry on trading with China. Or which may not. Either way much will be discussed on radio, television and of course, the web.
Trade and technical retaliation/ business as unusual
This is the one to watch. Because this is the long-term game. Not only is the current world order in flux, but the western countries, hitherto world leaders in economic terms, are also in financial dire straits with large deficits.
China meanwhile is the largest exporter, mainly of manufactured goods to the USA, Hong Kong, Japan, Germany and South Korea amongst others. Its cash reserves aside, even the partial list of holdings of its sovereign wealth fund is impressive. China’s main buyers are faced with ailing domestic manufacturing sectors, rising unemployment at home, and aging populations.
Even so, as importing nations feel the pressure to keep standards of living at a level pegging, it seems China really has the importers by the short and curlies. Or does it (read the link in entirety)? If demand for its goods drops, can China keep exporting at the same prices? If it drops prices, the buyer nations can take it to WTO for dumping, the same forum where China has recently complained about the USA. And so on.
The possibilities are endless. It is no longer a one-time game, it is an ongoing game of chess.
It is plain to see that this game goes beyond what individual companies may or may not experience as non-technical or technical (pun intended) trade barriers.
It is about governments, it is about political hegemonies, it is a war of values and freedom (May be! I am not so sure), it is the tug-of-war between the imperatives of the domestic industrial recovery and the obligations to world trade, it is (as my friend Alan wrote yesterday) about the RealEkonomik. It is about the new world order as the financial crisis, the new policy imperatives, the recovery plans and the electorates of democratic countries may drive.
I will go a step further and say: the realpolitik is the realekonomik.
Let battle commence.