Clashing with China

Theodore Roosevelt once opined: Speak softly and carry a big stick. When you listen to our political leaders speaking about China these days, you get the impression that they have turned it around: They speak loudly and carry a twig.

Of late, the peanut gallery is cheering Joe Biden for his brilliant statesmanship. Apparently, he managed to align the G7 in a confrontation against China. And, keep in mind, we have more bureaucrats and regulators per capita than does China. There, that will show them.

Better yet, our Chairman of the Joint Chiefs of Staff has taken some time off from anti-racist training and has  assured us that China is not about to invade Taiwan. There, you can relax. As for the possibility that China might not be planning to invade Taiwan, but more likely would like to enter into a series of diplomatic agreements that would achieve the same result, no one has anything to say.

Anyway, Biden’s theatrics are nice. But, we feel compelled to look at a couple of facts on the ground. Make of them what you will.

The first has come about through the Trump administration trade deal. We might call it constructive engagement. And surely it is important that the Chinese arm of the firm will be wholly owned by America. That represents a giant leap forward. Reuters has the story:

BlackRock Inc (BLK.N) has become the first global asset manager licensed to start a wholly owned onshore mutual fund business in China, as the government opens up the country's $3.5 trillion mutual fund industry.

BlackRock, the world's biggest asset manager, on Friday said the China Securities Regulatory Commission (CSRC) had given its Chinese fund management unit approval to begin operations.

China scrapped foreign ownership caps in its mutual fund and securities sectors on April 1, 2020, under a Sino-U.S. trade deal.

"We are honored to be in a position in which we can support more Chinese investors access financial markets," BlackRock Chief Executive Officer Larry Fink said in a statement on Friday.

You know and I know, that a market that large is very enticing for American asset managers. Apparently, and strangely, they are not quaking in their boots about the Chinese Communist Party.

It's always interesting to follow the money...

Going down the list, we discover that Apple-- you know Apple-- is now doing most of its manufacturing in China. It has moved more operations from Taiwan. The Nikkei reports:

China now boasts more Apple suppliers than any other country, a sign that Washington's attempt to untangle U.S. and Chinese supply chains has had little impact on the world's most valuable tech company.

Of Apple's top 200 suppliers in 2020, 51 were based in China, including Hong Kong, according to a Nikkei Asia analysis of the Apple Supplier List released last week, up from 42 in 2018 and knocking Taiwan out of the top spot for the first time. Apple did not release data for 2019.

Chinese suppliers have also helped Apple build production capacity in other Asian countries as part of the company's strategy to diversify its supply chain.

The Apple Supplier List covers 98% of the company's spending on materials, manufacturing and assembly for the preceding fiscal year. Though it does not disclose procurement values for each company, the report serves as a barometer of Apple's reliance on suppliers from different parts of the world. The report has been released almost every year since 2013.

Apple is known for its rigorous quality standards, and the rise of Chinese suppliers speaks to the country's growing manufacturing and tech capabilities, as well as to its competitive prices.

It would be nice if China were producing junk products. But, apparently, that is not the case. It would certainly be nice if we had the capacity and the manpower to produce in America, but that is apparently not the case either.

And then Microsoft-- you know Microsoft-- is expanding its operations in China, rapidly.

Caixin reports:

Microsoft Corp. plans to add four new data centers within China by early 2022 in a wider effort to expand its service capacity across Asia, according to people familiar with its strategy who asked not to be named as its details are not public.

Microsoft’s expansion in China is among the fastest for the company on the continent and in March it announced plans to expand its data center network with a greater presence in the northern region around Beijing. 

The Redmond, Washington-based tech giant already has six data centers in the country, operated by local partner 21Vianet, and now seeks to capitalize on a global surge in demand for internet services during the pandemic.

A Microsoft spokesman declined to comment.

The rapid growth is driven by Chinese businesses, slow to digitize in years past, now migrating to the cloud. New regulations, including a sweeping set of data security edicts coming into effect in September, are also prompting domestic and foreign enterprises to shift to local data management and boosting IT spending. The cloud market in China is expected to grow to $46 billion in 2023, according to a government white paper cited by Microsoft.

Think about it this way. Our military is currently sharpening its critical skills by reading the stupidities of Ibram X. Kendi. And our schoolchildren are being indoctrinated in critical race theory. Meritocracy is being replaced by idiotocracy.

Rhetorical bluster aside, if we want to compete we need to bring more than social justice warriors to the arena. Most serious people understand that hostile rhetoric, speaking loudly, means that you are weak... and that you are losing.