You know you aren’t in China anymore when you see all the bicyclists stop at a red light at a virtually empty intersection, patiently waiting for the light to change to green before they head on. You know it when at breakfast you see German men sipping from huge glasses of weissbier as they eat their bratwurst. You know it when you enter a relatively upscale restaurant and see unleashed dogs lying on the floor by their owners’ feet. It was refreshing; I was glad to be back in Munich, where I spent my junior year of college studying classical music and German. This attitude was soon tempered, however, as my weekend progressed.

I arrived in Germany on Saturday afternoon around 5 p.m. and was surprised to see just about every business shut down for the day. I had forgotten to bring the recharging cable for my iPod and was certain I could easily find one in downtown Munich and set out for a little walk to do so. My hotel is by Gaertner Platz, right off of Schwannthaler Strasse, a street lined with one electronics shop after another. Whatever kind of electronics item you can think of – mobile phones, computers, disc drives, digital cameras – there’s a store that sells them on Schwannthalerstr.

The only problem was, every single one of them was closed.

In vain I walked from shop to shop. Each had the little sign on its door saying they close at 4 p.m. on Saturday and are closed all day Sunday. Okay. I used to live in Germany, and I had forgotten how seriously they take their weekends. And that’s not a bad thing. But then, when I was back in my hotel lobby, I heard the concierge telling a guest that Monday was a national holiday and that the entire city would be for all intents and purposes shut down. I was not going to get my cable.

I didn’t give up hope, and this morning (Monday) I resumed my quest despite the sudden drop in temperature and an icy rainfall. This time I walked much farther, crossing into Marienplatz (the Munich version of Wangfujing, except it’s incredibly beautiful and bursting with centuries-old culture) and scouring its outer limits. Nothing. Today, not even the restaurants and Internet cafes were open. I had to walk nearly half an hour to find a place where I could get a cup on coffee, and the Internet cafe I’m using now took me even longer to find.

Think about it: For two and a half days, a customer with needs, ready and willing to spend money, cannot find an open shop. I compared this with Hong Kong and with China, where the entrepreneurial spirit, annoying as it can be at times, is always on fire. With six years in Asia, I had never seen anything like this even once. The one exception is perhaps Chinese New Year’s day, when things in Greater China do shut down, but only for a day – and still you can find places that are open. Same in America, where on Christmas and Thanksgiving day most businesses shut down, but again only for a single day.

So basically, the thousands of tourists here and people here on business like me are shit out of luck. Two and a half days – that is a long time to lock down an entire country and bring all commerce to a grinding halt. (The Internet cafe in which I am working now is packed, by the way, because its owner apparently bucked the system and opened its doors. There is so much money to be made for those who really want to compete.)

I like the idea of lots of holidays and a relaxed work week. I think the average American workers gets a wretched deal with their measly 10 vacation days and precious few paid holidays.

However, what I have seen in Germany over the past three days drove home to me the point made in a book I am now reading about China, namely that the old European welfare state, with its promise of a 35-hour work week and lots of state-provided benefits simply cannot survive in today’s globalized world. Not when China is heading straight at them, shaking the foundations of their existence and driving them increasingly into irrelevance.

I love Germany and lived here for more than a year. I speak German (though on this trip the German kept coming out with lots of Chinese) and relate to this country on a deeply personal level. And maybe it was just bad luck that I landed in Munich on the eve of a two-day holiday. But that book I am reading (I’ll write it up over the next few days, and don’t want to give away the title yet) kept comparing Germany and China, and I couldn’t help doing so myself. It talked of the 25-hour workweek for teachers, and the attitude (since disproven at a painful cost) that Germany’s artisans were untouchable and invulnerable to global competition. It talked of a socialized medical system that was literally breaking the back of a nation weighted down already with an unemployment rate above 12 percent.

And yes, I’m conflicted as I write this. I believe in universal healthcare and unions and workers’ rights. But I also believe in competitiveness and pragmatism. As I walked the streets of Munich for two and a half days unable to buy a pen or a simple computer cable, I kept thinking, China is going to crush this country, which is too in love with its own comforts, too unwilling to face the realities of today’s globalized business world.

I know, it’s not that simple. Competition from China is unique in that it is not fair (more about that when I review the book I’m reading), and there is little that countries like Germany can do to defend themselves. Even if they added hours to their workweek and trimmed social spending, China would continue to undercut them and force their great companies to outsource all manufacturing, leaving countless workers in dire straits. But I saw my search for an open shop as a metaphor for what’s wrong with “Old Europe,” stuck in the past and believing it can weather the storm while keeping its ineffective and outdated welfare system intact. China is hungry. Its competitors had better be hungry, too.

I am sure many here see the long holiday and the relaxed working hours as great things, as signs of Germany’s strength, as proof of the efficacy of Germany’s liberal policies. But this comfort and complacency seems to me a trap, especially at a time when Germany’s population is aging, with nowhere near the number of young people to keep financing the strained welfare system.

And meanwhile, China is shaking the world, and places like Germany had better recognize the challenge. Even on CNY day in Beijing, I would have found a place to buy a pen and a cable. Someone’s always out there hustling to close the sale. Those who don’t play with equal determination and agility will be crushed under the behemoth that is Chinese competition.

A most interesting read. I’ve always praised Hu’s shrewd approach to foreign relations, especially his courting of developing countries whose resources will prove vital to China’s continued growth. This tells me China’s leadership does indeed know what it’s doing, at least outside its own borders.

When Greenspan talks, markets listen. Still.

Chinese shares have fallen after former US Federal Reserve head Alan Greenspan said its stock market was overvalued and due for a “dramatic contraction”. His remarks had an impact on markets in the US , Europe and Asia, fanning already prevalent fears of a slowdown in China ‘s booming economy.

Signs that Beijing was trying to rein in its startling growth earlier this year led to a temporary fall in shares. But markets have since risen to levels Mr Greenspan said were “unsustainable”.

Market bubble?

The Shanghai Composite Index dropped as much as 1.5% following Mr Greenspan’s comments before closing down 22.58 points, or 0.5%, at 4151.13. He said Chinese markets had risen by 50% since the start of the year and that this trend could not continue for much longer.

Can the irrational exuberance continue indefinitely? If you think the answer is yes, drop me an email – I have some tulips I’d like to sell you.

Our Man at Xinhua (Beijing Newspeak) posts about the internal struggle to put the mysterious illness gutting Guangdong’s pig population into the proper perspective. Xinhua reports 300 swine down but AP in Hong Kong and other sources have the number much higher. Sadly, we’ve seen this before.

BNS notes that recent media reports on the rise of pork in China–including one YJ and I saw on CCTV one this week–all mention a “rise in prices in Guangdong” but fail to mention any connection to the illness. At this time, nobody seems to know just how serious the problem is, but the post by Beijing Newspeak is not particularly encouraging.

(I strongly encourage everyone to read the linked post before commenting.)

I’ve just been told I need to go to Germany for several days on business so this blog is going to be mighty quiet for the next 10 days or so. Hopefully a guest blogger will jump in and keep things moving (please?).

Richard

Another Times column, directly related to China. (Word file.)

I stopped posting NYT columns a long time ago, but today’s piece by Paul Krugman is directly relevant to our recent conversations. Krugman says this disaster is in part the fault of a free-market, no-regulation mentality fostered by Milton Friedman and taken to dizzying new heights by the Bush administration. Yes, China and others may be exporting bad food, but in the past there was a far greater likelihood of it not reaching your supermarket shelf. You can read the entire piece here. (Word file.)

If you read one blog post today, be sure to make it this one.

Yikes. What next?

Diethylene glycol, a poisonous ingredient in some antifreeze, has been found in 6,000 tubes of toothpaste in Panama, and customs officials there said yesterday that the product appeared to have originated in China.

‘Our preliminary information is that it came from China, but we don’t know that with certainty yet,’ said Daniel Delgado Diamante, Panama’s director of customs. ‘We are still checking all the possible imports to see if there could be other shipments.’

Some of the toothpaste, which arrived several months ago in the free trade zone next to the Panama Canal, was re-exported to the Dominican Republic in seven shipments, customs officials said. A newspaper in Australia reported yesterday that one brand of the toothpaste had been found on supermarket shelves there and had been recalled.

Bad timing, so close to the pet food scandal. This is about to get serious, according to my well-informed sources. One reader, in response to the earlier threads on the poisoned pet food, just sent me an email, before I saw this new story:

This story is escalating and so is opposition to food additives from China. Crackpot Chronicles is following the story in the media. Reports cite examples like:

-Many consumers have…told pet food makers that they want goods that are free of any ingredients from China, according to the Pet Food Institute. (NYT)

-As the recall of tainted pet food mushroomed into an international scandal, two of the largest U.S. food manufacturers [Mission Foods Corp. and Tyson Foods Inc] put out a blanket order to their American suppliers: No more ingredients from China. (L.A. Times)-
The stories inevitably go on to say that such bans are next to impossible, because imported additives are ubiquitous and corporate food interests are heavily invested in their use, however:

* The “Green” movement, currently ultra-chic, encourages a “buy local” policy.
* Consumers themselves are objecting–a groundswell difficult to dodge.
* The fallout and backlash are aggregating

Wu Yi, Vice Premier of China is coming to Washington next week for trade discussions. Let’s hope she gets an earful about this.

But even if government posits an objection and promises to investigate the matter are given, this is unlikely to yield any timely remedy given the historical pace of regulatory reforms. Temporary sanctions might be the best approach, but considering the capital investment imported third-world food additives represent, that will probably be sidestepped.
Continuing informed objection by consumers, blogs and non-aligned public agencies will probably provide the legislative tipping point. The PR tipping point, I believe has been reached.

This is truly an outrage, but it is bipartisan. I doubt US corporate food interests knowingly import adulterated product, but they can be expected to drag their feet regulating it.
Let’s keep the pressure on this issue.

Read her entire post, which now seems almost preternaturally prescient.

This alarming and lengthy article is from a newsletter called Tedbits, sent out by a financial services professional with a dedicated readership, mostly contrarians who don’t buy much of what they read in the mass media or see on CNBC. He outlines just how scary the current Shenzhen/Shanghai stock market bubble is and how it could well generate painful reverberations that will affect all of our lives, whether we’re in China or the US. If you were worried about the state of the US dollar before, just wait until you read this. Sorry for the fearfully long quote, but it’s good.

The Chinese public is in a full blown mania, enormous amounts of their money in at the top, at unbelievably stretched valuations and a rickety banking system with the authorities trying to reign in the mania. Make no mistake in viewing this: this is the recipe that caused the great depression in the United States. A condition the Chinese government will wish to avoid at all costs, just as Bernanke and the US treasury must now avoid a collapse in US asset markets at any cost.

It is now “inflate or die”, and the club has just admitted a new member, and it resides in a place called “BEIJING, CHINA”. The Chinese government’s ability to manage markets and capitalism is going to get a severe test RIGHT NOW, and based on today’s report in the FT they are totally unprepared to understand the enormity of the unintended consequences that can occur if the choose the wrong path to dealing with this. US dollar based Fiat money and credit creation is now moving into the arteries of the Chinese economy and has trickled down to the citizens. What do you think might unfold if the emerging Chinese consumer and the US consumer are knocked out at the same time? It is not a pretty thought. If this happens the Chinese consumer will never emerge as everyone in Beijing and the world hopes for. The great depression of the US repeated in China, exacerbated by an antique banking system that is unable to properly transmit and provide liquidity. You can expect them to handle it the same way Greenspan did, the Hu Jintao put is about to be born. Moral hazards pasted one on top of another….

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