Political Risk Latin America Blog @PolRiskLatam

Google in China – A thorny lesson unfolds

Posted in News and Articles, Political Risk by politicalrisklatam on February 8, 2010

by Anthony Harrington, for QFinance, January 20, 2010.

What to do? Doing business with the world’s second largest economy, which looks like it may become the world’s largest economy within the working life of today’s 20-year-olds, is a “no brainer” from a strategic point of view. Granted, China is not a Western democracy, but it is more and more embracing market economy practices, and some economists would argue that you can’t be a little bit pro free market any more than you can be a little bit pregnant.

Markets are either free or they are not, the argument goes, and where they are not the strain created by the heavy thumb of the regulator or the government pressing on the scales generates its own absurdities. After a bit that either causes the regulator or the government so much embarrassment that the choice is either for them to bow out or to give the whole free market notion the bullet. Since China is making mega billions out of trade, the latter option looks highly unlikely.

Those who disagree with this “completely free or not free” philosophy point to the fact that China has actually done pretty well out of some aspects of state control, as in setting the value of the renminbi against the dollar, keeping China’s exports cheap and the West’s imports dear, and racking up enormous balance-of-trade surpluses. True, this created a credit bubble when the Chinese dollar mountains recycled back into US Treasuries, making credit cheaper and cheaper, but hey, would you rather be a world class debtor or a massively rich creditor?…(continue reading)

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