- The Washington Times - Sunday, February 13, 2011

OPINION/ANALYSIS:

As scientists learn ever more about genetics, they may soon discover the Chinese have two unique strands of DNA: a gambling gene and another for hospitality. The first, of course, explains why Macau is the odds-on favorite to replace Las Vegas as world’s No. 1 wagering destination. The second gene suggests why few escape the lure of a Chinese campaign to win visitors’ hearts and minds.

Looking at a new shift in Beijing’s economic strategy, one has to chalk it up to that gambling gene. Intoxicated with turning into “the world’s factory,” Beijing now plans to sail right past its old strategy of collaborative development with foreign multinationals. The new approach adapts wily leader Deng Xiaoping’s dying instructions two decades ago to hide China’s capacities from the world until the country had achieved his four modernizations.

That naive Western business leaders play along is a clear demonstration of the usefulness of the second Chinese gene - the ability to vamp any visitor with promises of far-off prosperity beyond their wildest dreams. Of course, Frederick Engels, Marx’s more literary companion, explained it all more than a century ago when he observed that capitalists in their greed would compete with one another to sell the rope to their own executioners.

Since the middle of 2010, Chinese authorities - as a muddled but highly informative U.S. Chamber of Commerce report concludes - have shifted from defense to offense. Years of studying their acknowledged dependence on foreign technology for economic progress has culminated in the proposing of 16 new “megaprojects.” With them they aim:

1) To provide new opportunities for stealing foreign technology. Now, before any technology can be introduced into China, it must be intensely “studied” - in fact, stolen ?- even before it enters the market. Another innovation is the increased allocation of “patents” to Chinese firms with virtually no verification, making it almost impossible for foreign competitors to pursue legal indemnification for losses.

2) To restore the primacy of the state-owned enterprises, or SOEs, those giant behemoths notorious not just for their inefficiency and corruption but for their political clout. Some $25 billion out of Beijing’s huge 2008 stimulus package, originally aimed at warding off contagion from the world’s economic collapse, have been allocated to the SOEs to produce “indigenous innovation.”

3) To continue to ensnare foreign companies. Beijing will suggest that, in return for continued technology transfers, foreign players will get a share of the ever-growing Chinese market. They will also be offered participation in new technologies in China using government funds. But increasingly, “import substitution,” that protectionist policy which crippled much of the Third World before “globalization” became fashionable, will be the de facto government policy.

Beijing’s new turn is loaded with risk. The record of Chinese domestic innovation during the current boom is miserable. Eighty percent of China’s major firms do not have research and development operations at all. One reason may be it has been so easy to rent or steal needed technologies from outsiders. But there may be even more important - if difficult to evaluate - cultural factors.

Although China was historically been a leader in basic scientific development, it was the West that picked up on many of those breakthroughs to initiate the industrial revolution that soon left China far behind. Why? One answer lies in China’s intense bureaucratization, in part arising from the need for huge collective enterprises and the need for central control of water resources. Another, of course, is that Chinese learning has always put the emphasis on rote memorization and an inordinate, even religious, respect for what has gone before. It may be no accident, as the communists used to say, that a post-Marxist, post-Maoist Beijing is turning back to Confucianism. (A statue of Confucius was recently installed in Tiananmen Square alongside a huge portrait of Mao.) With its emphasis on ritual, Confucianism represents the antithesis of the restless European mind. An even greater threat to the new effort to promote innovation and originality may be the pervasive corruption permeating Chinese life today, which means vast sums promised for basic research and commercial development will be wasted or stolen.

China is also taking other risks. Despite an intense campaign, Beijing has not been able to lure home more than a few of the more than 62,000 Chinese scholars in the U.S., many involved in advanced technological research. With ties in both cultures, the expatriates have been critical to transferring technology. The new Beijing strategy may jeopardize that relationship as American businesses and the U.S. government grow increasingly cautious about bilateral dealing.

True, economic development in East Asia has always been full of warfare over intellectual property. Japan, Taiwan and South Korea have been major culprits. But the Chinese pour salt in the wound by selling products overseas based on stolen technology from the buyers. Thus former California Gov. Arnold Schwarzenegger found himself talking to the Chinese about proposed federally subsidized high-speed rail projects based on their theft from three foreign companies that had been operating in China. At the moment, Washington is grappling with the proposed purchase by Huawei, a Chinese entity with military connections, of an American information technology company with the Pentagon as a client.

Beijing’s gamble, if successful, would ensure continued giant leaps forward, but like Mao’s infamous economic ploys, this one could prove catastrophic.

- Sol Sanders, veteran foreign correspondent, writes weekly on the intersection of economics, business and politics. He can be reached at sol.sanders@cox.net.

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