Dan Drezner and Megan McArdle are among those recommending Saturday Night Live’s opening sketch parodying a joint press conference with President Obama and Chinese President Hu.

Drezner quips that the sketch manages to convey the nature of the relationship much more succinctly than his own 40-page academic treatise.

Note that, although it appears that President Hu has the power because he is repeatedly berating Obama, the content of the skit suggests otherwise.  Hu’s repeated complaints that the United States is, er, “doing sex” to him demonstrates the very limited leverage China has over U.S. policy.

While $800 billion is indeed a lot of money, it’s not as large a chunk of U.S. public debt as widely imagined.  But it’s enough to virtually assure that China will keep lending us more money.

As an aside, I’m bemused that SNL has managed to get away with having a white guy playing Obama for this long, much less having a white guy playing Hu and a white woman affecting the broken English of a Chinese translator.

UPDATE:  Adam Serwer points me to this Jezebel post to let me know that “getting away is relative.”

Dean Baker offers one of many, many alternative responses we could take to China’s policy of an undervalued yuan. As has been pointed out attempting to apply rhetorical pressure to the Chinese authorities is counter-productive but such a move need not require putting overt pressure on the Chinese nor would it require their cooperation:

Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China’s. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan.

The difference in exchange rates would provide an enormous incentive for Chinese businesses and individuals to exchange their yuan at the Treasury rate rather than the official Chinese rate. While this may violate Chinese law, the enormous potential profits would make the law difficult to enforce. In a relatively short period of time, the US exchange rate is likely to become the effective market exchange rate.

Of course, this situation of warring exchange rates would lead to a period of instability and unnecessary hostility between the two countries. However, it would send an important signal that the US government is in control of its dollar destiny: Washington has the ability any time it chooses to push the dollar down to a more reasonable level against the yuan.

As Dr. Baker points out, such a course of action would have a price, and several generations of American politicians, Republicans and Democrats, have shown little appetite for paying a political price in dealing with China, preferring to let the country pay an economic and social price.

Time features an article on the “Five Things the U.S. Can Learn from China” that I can only characterize as surreal. Here are the five lessons:

1. Be Ambitious
2. Education Matters
3. Look After the Elderly
4. Save More
5. Look over the Horizon

For the details you’ll just have to read the article.

On ambition, the article’s author, Bill Powell, returns to a theme often sounded by Tom Friedman which I would summarize as how much you can accomplish when you’ve got an authoritarian government.

On education, the United States spends more on it than any country in the world, more per student, and more as a percentage of GDP than France, the United Kingdom, or China. Whether the money is well spent is another question entirely. We misspend. It is the American way.

However, when you’re a country of more than a billion people you’re bound to have a lot of smart, talented people and the Chinese authorities see the future of a lot of those smart, talented people being in science and engineering so they’re emphasizing it. In the United States opportunities in science and engineering are doubtful, Americans are savvy readers of the market, and, consequently, American students aren’t pursuing science and engineering (except in healthcare where there is clearly a future).

However, China’s elite don’t represent the whole story. China has millions and millions of people who are illiterate and are likely to stay that way, perhaps 30% of the population or more (there are some claims that the rate of illiteracy in China is much, much higher). How should we learn from the Chinese on education? Should we abandon universal education?

Look after the elderly! Forsooth. China has no national system of social insurance. In China looking after the elderly means in the family. Were we to emulate China in this we’d abolish Social Security and Medicare outright. Note: I don’t advocate this. I think that properly constructed social insurance and subsidizing healthcare for the elderly is freedom-enhancing. Needless to say what we’ve got now is not properly constructed.

And that’s intimately related to why the Chinese save. The Chinese save because they’re afraid of the future and because they have little choice. Were we to heed the lesson of the Chinese in this we’d reduce our social safety net rather than extend it.

I do think that there are lessons we should learn from China and many of them are object lessons. China is a great country with great people hobbled by cultural baggage and a corrupt, evil, authoritarian government whose oligarchs hoard the bulk of China’s wealth for themselves and their families. The notion that China is to be emulated is nuts.

Inspired no doubt by President Obama’s visit to China, American editorial writers and columnists are seizing on the opportunity to pile on China. In his column today Paul Krugman takes China to task over its policy on its currency:

Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

I think that Dr. Krugman is right about this and further believe that the asset inflation that has put us into the fix that we’re in right now can be traced to China’s decision to establish an effective peg of the yuan to the dollar by using the earnings it derived from its export to buy dollars and dollar-denominated securities. This decision followed a recession in China which underscored for them their problems in controlling their currency in the absence of such a peg.

That policy has been abetted by American politicians of both parties who’ve shrewdly observed that borrowing has been politically less painful than raising taxes or curtailing spending. That’s a process that may be grinding to a halt as observed by Niall Ferguson and Moritz Schularick:

Intervening in the currency market served two goals for China: by keeping the renminbi from rising against the dollar, it promoted the competitiveness of Chinese exports; second, it allowed China to build up foreign currency reserves (primarily in dollars) as a cushion against the risks associated with growing financial integration, painfully illustrated by the experience of other countries in the Asian crisis of the late 1990s. The result was that by 2000 China had currency reserves of $165 billion; they now stand at $2.3 trillion, of which at least 70 percent are dollar-denominated.

This intervention caused a growing distortion in the global cost of capital, significantly reducing long-term interest rates and helping to inflate the real estate bubble in the United States, with ultimately disastrous consequences. In essence, Chimerica constituted a credit line from the People’s Republic to the United States that allowed Americans to save nothing and bet the house on … well, the house.

[…]

Given the bursting of the debt and housing bubbles, Americans will have to kick their addiction to cheap money and easy credit. The Chinese authorities understand that heavily indebted American consumers cannot be relied on to return as buyers of Chinese goods on the scale of the period up to 2007. And they dislike their exposure to the American currency in the form of dollar-denominated reserve assets of close to $2 trillion. The Chinese authorities are “long” the dollar like no foreign power in history, and that makes them very nervous.

Writing in The Guardian Ambrose Evans-Pritchard draws what I think is the correct conclusion about China’s policy:

It is fashionable to talk of America as the supplicant. That misreads the strategic balance. Washington can bring China to its knees at any time by shutting markets. There is no symmetry here. Any move by Beijing to liquidate its holdings of US Treasuries could be neutralized – in extremis – by capital controls. Well-armed sovereign states can do whatever they want.

If provoked, the US has the economic depth to retreat into near autarky (with NAFTA) and retool its industries behind tariff walls – as Britain did in the 1930s under Imperial Preference. In such circumstances, China would collapse. Mao statues would be toppled by street riots.

The editors of the New York Times are also correct in reminding us that China’s trade policies aren’t the only issue we need to discuss with them:

Ever since Richard Nixon opened the door in 1972, all presidents have faced a balancing act with China. For President Obama, who arrived in China on Sunday, the challenge is even tougher and more urgent. He needs Beijing’s help on a host of hugely important and extremely difficult problems, including stabilizing the global financial system, curbing global warming, prying away North Korea’s nuclear weapons, and ensuring that Iran doesn’t get to build any.

To do that he needs to encourage China to play an even stronger international role — but also curb some of its darker instincts, including its mistreatment of its own citizens, its less than savory relationships with countries like Sudan and its tendency to bully its neighbors.

If you need an illustration of the urgency of encouraging China’s leaders to take environmental considerations more seriously, this photo essay on pollution in China should be enough a chamber of horrors to convince you. I don’t believe this is something we can be satisfied with leaving to China as a purely internal matter for several reasons. First, Americans and Europeans have been complicit in China’s environmental degradation by exporting our heavy industry to China; many of those polluting companies in China have American and European parents. Second, Chinese air pollution crosses the Pacific to pollute our air and our water, too. Further, as long as China maintains its present course there are no steps we can take which will reduce our carbon production enough to avoid serious effects. That is not to say we should not use resources more efficiently: we should. However, no plan which doesn’t include China is worth a damn.

Today marks the 30th anniversary of the seizing of the U. S. embassy in Tehran by factions of the revolution that overthrew the shah. President Obama has issued a statement on the occasion which I will reproduce in full here:

Thirty years ago today, the American Embassy in Tehran was seized. The 444 days that began on November 4, 1979 deeply affected the lives of courageous Americans who were unjustly held hostage, and we owe these Americans and their families our gratitude for their extraordinary service and sacrifice.

This event helped set the United States and Iran on a path of sustained suspicion, mistrust, and confrontation. I have made it clear that the United States of America wants to move beyond this past, and seeks a relationship with the Islamic Republic of Iran based upon mutual interests and mutual respect. We do not interfere in Iran’s internal affairs. We have condemned terrorist attacks against Iran. We have recognized Iran’s international right to peaceful nuclear power. We have demonstrated our willingness to take confidence-building steps along with others in the international community. We have accepted a proposal by the International Atomic Energy Agency to meet Iran’s request for assistance in meeting the medical needs of its people. We have made clear that if Iran lives up to the obligations that every nation has, it will have a path to a more prosperous and productive relationship with the international community.

Iran must choose. We have heard for thirty years what the Iranian government is against; the question, now, is what kind of future it is for. The American people have great respect for the people of Iran and their rich history. The world continues to bear witness to their powerful calls for justice, and their courageous pursuit of universal rights. It is time for the Iranian government to decide whether it wants to focus on the past, or whether it will make the choices that will open the door to greater opportunity, prosperity, and justice for its people.

I find the statement strangely detached. In every action and statement, including its non-responsive retort this very week to the offer to end its nuclear enrichment program made by the governments of the United Kingdom, France, Germany, Russia, and the United States, the leaders of the Iranian government have demonstrated that they have already made their choice. Ray Tayekh of the Council on Foreign Relations states the situation quite plainly:

Dealing with Iran has always been a complicated enterprise with moral hazards. The persistent mistake that the West has made is to place the nuclear issue above all other concerns. The Iran problem is not limited to illicit nuclear activities, and it is somewhat incomprehensible that the United States and other nations can contemplate nuclear transactions with a regime that maintains links to a range of terrorist organizations and engages in brutal domestic repression. Western officials would be smart to disabuse Iran of the notion that its nuclear infractions are the only source of disagreement. Iran’s hard-liners need to know that should they launch their much-advertised crackdown, the price for such conduct may be termination of any dialogue with the West. Only through such a policy can the United States advance its strategic objectives while standing up for its moral values.

Iran’s support for terrorist organizations and domestic repression are manifest this very day. Its leaders have made their choice and the time for counter-offers is over while the time for consequences has arrived.

We should implement consequences for Iran as stern as we can make them, non-violent in nature but punitive in quality. We should muster all of the permanent members of the Security Council to participate in these measures but be prepared to proceed without them. A peaceful, prosperous, and just Iran is in Russian and Chinese interests as it is in ours and, if they elect to support tyranny in Iran, Russia and China should be made aware that this latest tyranny in Iran will eventually end and the Iranian people will know who supported the tyrants and who opposed them.

Starting in two weeks, users from countries who don’t use the Latin alphabet will find using the Internet much easier, FT reports.

Latin script’s monopoly in internet domain names will end next month, a development that could usher in a fresh wave of internet usage from Bulgaria to China.

So far, finding web addresses has required some basic familiarity with Latin letters – a deterrent for many, particularly older users. Fully opening cyberspace to scripts ranging from Amharic to Tamil will also give even greater prominence to search engines, say experts. The country designation of addresses – such as .ir for Iran and .kr for South Korea – has always been written in Latin. But at a meeting in Seoul, the Internet Corporation for Assigned Names and Numbers, a non-profit group that co-ordinates website domains, said it would start from November 16 to take applications for national codes written in Cyrillic, Arabic, Korean and Chinese. Other scripts will follow and the first non-Latin domains will go live in 2010.

“This is only the first step, but it is an incredibly big one and a historic move toward the internationalisation of the internet,” said Rod Beckstrom, Icann’s president. “We just made the internet much more accessible to millions of people in regions such as Asia, the Middle East and Russia.”

About half of the world’s 1.6bn internet users are speakers of languages that do not use Latin script, said Icann. China has the world’s greatest number of internet users, estimated at 340m. “This is a huge and positive change in internet history. This will bring access for more people to get to know the internet without even a basic knowledge of English letters, for example many of our senior citizens,” said Wang Peng, senior project manager at HiChina, the country’s leading internet service provider

Changing two letters such as .cn may appear a small step, but computer experts say many people in China do not know how to switch the keyboard to Latin letters, instead finding websites by following links. Being able to type addresses themselves could take users to more minority interest sites, a factor with important political implications in China.

My initial reaction was that this will really undermine the connectedness of the Web, turning URLs into a Tower of Babel.  But, having never encountered a keyboard problem more significant than wishing there were an easier way to type umlauts, it never occurred to me how much of an inhibition the Latin alphabet was.  Having to switch between keyboard sets and having to recognize long strings of characters in foreign symbols is a rather huge barrier to entry.

UPDATE:  PC World’s Jacqueline Emigh points to some drawbacks, some of which occurred to me but go beyond my technical expertise.

Yet on the other hand, the new names carry risks for new security concerns and general user confusion. Some fear the Web might grow increasingly fragmented into areas easily accessible only to those conversant in local languages.

[...]

How will you be able to type the domain names of international Web sites when your keyboard doesn’t support their character sets? It would be logistically just about impossible for a PC maker to supply a keyboard supporting the Western “ABC” alphabet, along with the disparate character sets used in all of these tongues, for example: Japanese, Arabic, Greek, Hebrew, Cyrillic, and the Central and European languages.

[...]

It looks as though we could see the development of a whole new class of Web domains that most people won’t be able to get to easily — even though they might be able to find those Web sites with a search engine.

Certainly language translation services and technology may be the biggest winners with today’s news. I predict both will flourish along with an international land grab for variations of the word “sex” dot-com.

Of the last, there’s not much doubt.

In this morning’s Washington Post Prince Turki al-Faisal of the Kingdom of Saudi Arabia, former director general of their intelligence service and also their former ambassador to the United States offers President Obama some advice on how to proceed in Afghanistan with which I find I am in almost complete agreement. His advice consists of six action items:

• There is no viable opposition to Karzai in Afghanistan. He is a fact. Deal with it.
• Concentrate on fighting foreign terrorists and build bridges with the Taliban.
• Fix the Durand Line.
• Meet with the security and intelligence departments of Pakistan, Afghanistan, Russia, China, and the Kingdom of Saudi Arabia to devise ways of eliminating Al Qaeda’s leadership. Nobody has more on the line than the Saudis in that battle and Russia and China are at greater risk than we are from them.
• Exert influence to induce Pakistan and India to resolve the matter of Kashmir.
• Use measures similar to those used in Turkey (in which the U. S. bought the entire crop directly from farmers, something I’ve been suggesting, and allowed them to plant alternative crops).

Read the whole thing. I’m hoping that John Burgess will weigh in on this. John, are you there?

Thomas Friedman’s latest column, in which he argues Communist China’s system is preferable to ours because it “can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century,” has quite naturally generated a heated response in the blogosphere, with everyone from Reason editor Matt Welch to National Review’s Jonah Goldberg to American University lawprof Kenneth Anderson to Nick Denton’s Gawker ridiculing Friedman’s thinking and/or questioning his patriotism.

In my New Atlanticist post, “Chinese Autocracy vs. American Democracy,” I cut the old boy a bit of slack.

To be sure, Friedman elides some of the minor advantages America’s system has over China’s, such as freedom of speech, religion, press, assembly, access to the Internet and others too numerous to mention.  But Friedman, who’s been to China and talked with its cab drivers to gain fascinating insights about how the world works, knows this.

Frustrations and pique aside, Friedman doesn’t really prefer China’s system to America’s at all.   Rather, he prefers to a particular set of policy outcomes that China’s “enlightened” government can impose on its people without consequence, that our own more-or-less accountable representatives can not.   But that’s rather like preferring Fascism for the timeliness of its trains.

Especially if you make your living as an opinion writer.

Jamil Anderlini, writing in the Financial Times has an interesting if unsurprising column today, wondering if the always-rosy official statistics on Chinese economic growth aren’t departing from reality with even greater determination than usual:

China’s gross domestic product figures are among the world’s most closely watched since they can move markets or boost hopes of an imminent recovery.

But the latest set of first-half numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation.

GDP totalled Rmb15,376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics.

All but seven of the regions reported GDP growth rates above the bureau’s first-half figure of 7.1 per cent. At the start of the year, Beijing set 8 per cent as China’s growth target for the year.

It probably doesn’t help that ordinary Chinese people find their government’s figures ludicrous:

The Global Times, controlled by the People’s Daily, the Communist party mouthpiece, reported that the public reacted with “banter and sarcasm” to NBS figures showing average urban wages in China rose 13 per cent in the first half to $2,142.

It quoted an online poll showing 88 per cent of respondents doubted the official numbers.

An editorial on Tuesday in the China Daily, the government’s English-language mouthpiece, quoted another survey that found 91 per cent of respondents sceptical of official data, up from 79 per cent in 2007.

The government has responded by producing a publicity campaign. Among the works of the campaign is a song, I’m proud to be a brick in the statistical building of the republic. Everybody sing!

I can almost hear the heads of readers at OTB hitting their desks as they fall into a confused slumber at this news. Let me suggest some reasons that China’s actual level of growth is important to us:

1. The slower China’s growth, the less their inclination to buy our debt, which at the margins will increase the interest we’ll need to pay on future debt.
2. The slower China’s growth, the greater their inclination to sell off some of the Treasury bonds they’ve got to fund their own stimulus package (which, interestingly, the Chinese are using to buy flatscreen TV’s. But I digress), which at the margins will increase the interest we’ll need to pay on future debt.
3. The slower China’s growth, the greater the degree of civil unrest in the country. That’s not good news for anybody.
4. Goldman-Sachs is still touting its China portfolio strategy.

From Seeking Alpha:

Sometimes “professional” investment research resembles little more than a day trader rag with nicer charts and fancier wording to make the reader feel less guilty and more professional about the kind of “investing” he or she is actually performing. Thus we point to Goldman’s (GS) recent China “Portfolio Strategy” dated July 31st where they tell us to basically keep buying the Chinese market based on government support for the economy and a “favorable liquidity setup”. We’re told to buy on dips, “stay engaged” (i.e. keep generating commissions), and trade earnings surprises. Is this professional investing or what your college roommate was doing during the dotcom bubble? It’s hard to tell the difference.

Is GS selling something that they know is riskier than they’re claiming? Now where have I heard that before?

UPDATE

On a related note Victor Shih observes that electrical usage by small and medium enterprises in China dropped by a jaw-dropping 50% during the first half of 2009 compared to the same period last year.

I’ve got to admit that these two stories, taken together, have me a mite worried about the economic situation in China. First, a Chinese bank regulator is warning that imprudent loans are causing a credit bubble in China:

China’s top banking regulator on Sunday warned of the risks from surging bank lending, singling out the dangers of unhealthy growth in the property market.

“(We) must control the risk of real estate loans,” said Liu Mingkang, the head of the China Banking Regulatory Commission, adding that measures must be taken to better evaluate the creditworthiness of borrowers.

Liu said bank lending had helped stabilize the economy so far but made one of his strongest calls yet to banks to guard against taking excessive risks.

“In the first half of the year, our country’s banking loans expanded rapidly and helped play an important role in stabilizing the economy, but the loans growth has led to accumulated risks also increasing,” he was quoted as saying in a statement on the China Banking Regulatory Commission website.

Hat tip: Glenn Reynolds

On top of that an “econophysicist” has predicted that the Chinese stock market will collapse within the next week:

The boom and bust nature of economics is one of the most puzzling aspects of the modern world. In the last year or so, many people have learned to their cost that when bubbles burst, businesses, jobs, and livelihoods can go with them.

So an obvious question arises: can we spot bubbles when they occur and predict when they are about to burst? One group of theorists say that they can and have used their techniques to make an extraordinary prediction.

First, they say that they’ve found the telltale signs of a bubble in the growth rate of the Shanghai Composite stock-market index. And second, they say that this bubble will burst between July 17 and 27.

That’s a brave move, so let’s look at it in more detail. The theorist behind this prediction is Didier Sornette at the Swiss Federal Institute of Technology, in Zurich, who has pioneered the study of market bubbles. Last year, he used his method for spotting bubbles to reveal that oil prices where dangerously inflated.

The telltale sign of a bubble, he says, is a faster than exponential growth rate caused by a positive feedback mechanism that generates this nonlinear growth.

The faster than exponential growth rate is relatively easy to spot. According to the analysis done by Sornette and a few mates, the Shanghai Composite Index certainly seems to have had a faster than exponential growth–a 69 percent rise since October of last year.

Hat tip: Steve Antler

The authors of the article in Technology Review appear skeptical of the methodology used for the prediction, appropriately I think.

I’ve never had much truck with the “China will pull the world out of its economic slump” notion but a serious economic downturn in China would be very bad news, indeed. I’ve long thought that China’s economy was a lot weaker and less stable than it was being credited for and a country of more than a billion people teetering on the brink of poverty going into economic collapse is no laughing matter.

Events are taking place in China that I didn’t want to let pass without comment. China’s Ministry of State Security has apprehended and detained four employees of the large Anglo-Australian mining company Rio Tinto including a senior executive :

SHANGHAI — On July 5, officials from China’s Ministry of State Security took four employees of the Anglo-Australian mining giant Rio Tinto into custody here.

Rio Tinto was not told what happened to the employees; neither were their families. One of the four was a high-ranking executive and an Australian citizen. But the Australian government was also in the dark.

A few days later, only after Rio Tinto had issued a public statement that said the company did not know why the four had been detained, did an answer come from Beijing: they were being held on charges of stealing state secrets, spying on China and harming the country’s interests.

Beyond that it’s not really clear whether this is merely hard bargaining on the part of the Chinese authorities, corporate espionage which in China is not distinguished clearly from the other kind, or there is something more involved. Perhaps the Chinese authorities thought the four had swine flu. Or were Uighurs.

Regardless of their reasons this is really very high-handed action on the part of the Chinese authorities. It is not the proper conduct of a modern state at all. If China is to be a great power it should behave like one. At the very least the Australian government should have been notified.

This is yet another reminder to Western companies that it is prudent to be very, very cautious in doing business with China.

Update

The story is developing:

SHANGHAI — The Chinese authorities have detained or questioned at least seven Chinese steel industry executives in a broadening corruption investigation connected to the detentions last week of four employees of the mining giant Rio Tinto, the state-controlled news media reported Monday.

The investigation, which began with accusations that the four Rio Tinto workers had conspired to steal state secrets, has rapidly widened, according to accounts on government Web sites and Chinese news media. It now includes accusations of widespread bribery in business dealings, as well as allegations that the four workers paid for detailed government trade and manufacturing data to give Rio Tinto executives an edge in iron-ore negotiations with Chinese state-controlled steelmakers.

Hat tip: DC Loser in comments

I find that the update makes the story even more puzzling rather than less so. Was the sin of the Chinese executives accepting bribes or neglecting to pass the appropriate cut on up? We’ll probably never know the real story.

The image above is a picture of a Chinese “century egg”.

According to NYT op-ed contributor Russell Leigh Moses the Chinese authorities have employed a successful and repeatable formula in controlling the protests in Xinjiang Province that have claimed more than 150 lives.

Step 1: Cut off cellphone and Internet Access

Many Chinese officials are quite sophisticated in their responses to threats to their governance, and they are not tone-deaf to technology. Cellphone service and Internet access were both blocked within a few hours of the first demonstrations in Xinjiang.

Step 2: Control the message

When word of the unrest cascaded out, much of the news was artfully managed by officials. Friends of mine in Beijing received unsolicited messages on their cellphones that provided the government version of the unrest. Government representatives handed out discs with pictures taken by state news organizations.

The state news media talked up the looting and burning of Han businesses but said nothing about attacks on Uighur establishments, and repeated mantras about stability and order.

Step 3: Crack down forcefully

Rumors ran rampant in the run-up to these riots, but at the end of the day, bullets flew faster and struck harder than netizens’ bulletins.

Step 4: Reward successful repression of dissent

Party cadres know that Beijing’s leadership is largely composed of officials who have not been shy about using force when protests emerged. For example, the crushing of dissent that took place in Beijing and Tibet in 1989 is seen by Chinese decision-makers and the cadres they sponsor as creating the conditions for economic reform. Party members seem to be keenly aware that that those who supported the crackdowns were quickly helicoptered into high-level positions.

An authoritarian regime with the will to crush dissent and the wherewithal to do so can stay in power indefinitely. Those are critical differences between the Chinese regime and the Soviet. The Chinese regime still has the willingness to crack down with whatever force is necessary to keep itself in control and, buoyed with trade dollars, it has plenty of resources to do it with.

Above paramilitary police patrol in Urumqi, capital of Xinjiang Province.

Yesterday Glenn Reynolds linked to an article in Der Spiegel complaining about “Obama’s mistakes”:

Just as the US public initially rallied behind the war President Bush — even to the point of re-electing him — Americans have now thrown their support behind the debt president Obama. The mistakes of the Bush administration are now widely accepted. The mistakes of the Obama administration are still not recognized as such. They are seen as the truth.

Glenn follows the link with a quote from a reader:

“The piece drips with der Spiegel’s typical anti-Americanism, but when your spending alarms even the Europeans, it’s time to reconsider.”

The article is worth reading if only because it illustrates nicely a point I made before the election: Germans will be suspicious of the American president because he’s the American president, not merely because of the policies he’s supported. Any foreseeable American president is bound to make decisions that won’t make Germany happy.

Frankly, I doubt that the Germans are particularly concerned about our spending. Rather, I suspect they’re complaining that we don’t tax ourselves enough.

According to the OECD the tax to GDP ratio in the United States is about 28.3% as of 2007, the most recent year for which they have statistics, while for Germans it’s about 36%. By German standards we’re undertaxed and getting more so rapidly. Our public debt to GDP ratio is rising rapidly, too, from where it is now (which has been roughly the same as Germany or France) into the same territory as Belgium’s or even Japan’s.

Would Germany be happier if we behaved more like Germany? Frankly, I doubt it. If we did we’d be spending less than 2% of our GDP on our military which means that there would be little counterbalance to a resurgent Russia. Further, until very recently Germany has been one of the few countries running a trade surplus with China. Simply stated the Chinese factories producing consumer goods for sale in the United States are built and stocked with German machines. If we behaved like Germany we’d have been running a trade surplus with China which means that the Germans wouldn’t have been able to sell all that heavy machinery to the Chinese.

In my view the bottom line is that very little that we could do would make Germany happy and, consequently, what they think isn’t that interesting to us.

The BBC is reporting that China National Radio has said that the Chinese government will reject a Chinese firm’s acquisition of the Hummer division of General Motors:

A Chinese firm’s bid to buy the gas-guzzling Hummer car brand will be blocked on environmental grounds, according to Chinese state radio.

Sichuan Tengzhong Heavy Industrial Machinery emerged as the surprise buyer for the brand earlier this year.

But China National Radio said Hummer is at odds with the country’s planning agency’s attempts to decrease pollution from Chinese manufacturers.

But Sichuan Tengzhong disputed the accuracy of the radio report.

“The fact that it is from an article from a state media organisation does not mean it is government policy,” the company said in a statement.

“Some people may have views and speculation, but the Chinese government has a process that we respect.”

The acquisition from General Motors needs Chinese regulatory approval.

CNR is quoted as saying that Sichuan Tengzhong “lacks experience in car production”.

I’ve got to admit that I found this very surprising. My take on the acquisition has been that STHIM was picking up Hummer at fire sale prices in order to acquire the dealer network and gain a foothold in the U. S. market for its own products. The Chinese company is a manufacturer of highway construction equipment and has been getting increasingly into heavy truck production in recent years. I didn’t think it was entirely a coincidence that shortly after the U. S. Congress passed a huge domestic stimulus package which included quite a bit of road and bridge building that a Chinese company that produces road and bridge building equipment would make a move that gives it a position in the American market.

In recent weeks there’s been quite a bit of speculation about the deal. See also here.

If the story proves true I suspect that it has more to do with internal Chinese politics than it does with the rationality of the acquisition or environmental considerations. And if the deal flops, it wouldn’t be particularly good news for GM which is trying to shed brands and maybe pick up a little cash.

Paul Samuelson has written a rather short and bleak article on our current economic situation.

Up until now, China has been willing to hold her recycled resources in the form of lowest-yield U.S. Treasury bills. That’s still good news. But almost certainly it cannot and will not last.

Some day — maybe even soon — China will turn pessimistic on the U.S. dollar. That means lethal troubles for the future U.S. economy. When a disorderly run against the dollar occurs, I believe a truly global financial panic is to be feared.

China, Japan and Korea now hold dollars not because they think dollars will stay safe. Why then? They do this primarily because that is a way that can prolong their export-led growth.

I am not alone in this paranoid future balance-of-payment fear. Warren Buffett, for one, has turned protectionist. Alas, protectionism may well soon become more maligned.

President Obama struggles to support free trade. But as a canny centrist president, he will be very pressed to compromise. And he will be under new chronic pressures. His experts should right now be making plans for America to become subordinate to China where world economic leadership is concerned.

The Obama team is a good one. But will they act prudently to adjust to America’s becoming the secondary global society? In the chess game of geopolitics between now and 2050, much stormy weather will take place. Now is the time to prepare for what the future will likely be.

About 4 months ago I hinted at something like this. Back then I wrote,

As I’ve noted in my last post and in comments to other posts that currently the U.S. relies to a considerable extent on foreigners to buy U.S. government debt. Further, without these foreign buyers of U.S. government debt the U.S. would likely have to offer its debt at a higher interest rate.

At the same time the current recession will likely result in a budget deficit of at least a trillion dollars this year and probably next. Further, we have TARP, the current stimulus plan and a $75 billion dollar proposal to help bailout homeowners sideways on their mortgages and talk of TARP 2.0. All of this could add close to $2.3 trillion dollars to the national debt. Adding on the deficits just due to reduced tax revenues and we are looking at $4.3 trillion dollars, at least. Currently the national debt is around $10 trillion. So in a few years we could be looking at a national debt of $14 trillion dollars. [1]

In addition as I have mentioned several times Medicare and Social Security are in actuarial imbalance to the tune of at least $40 trillion dollars. Further, the problem with Social Security and Medicare are not that far off.

All of this combined could make foreign buyers of U.S. government debt very cautious of buying even more. The U.S. could have to offer such debt at a higher interest rate. The effects of this would be to reduce potential economic growth for the foreseeable future.

Now we have this story,

Foreign demand for long-term U.S. financial assets fell in April as both China and Japan trimmed their holdings of Treasury securities.

The Treasury Department said Monday that net purchases of stocks, notes and bonds obtained by foreigners fell to $11.2 billion in April, from $55.4 billion in March.

China, the largest holder of U.S. Treasury securities, trimmed its holdings to $763.5 billion in April, from $767.9 billion in March. Japan, the second largest holder of Treasury securities, reduced its holdings to $685.9 billion, from $686.7 billion a month earlier.

Treasury Secretary Timothy Geithner traveled to Beijing earlier this month to assure the Chinese government that the Obama administration is determined to get control of an exploding U.S. budget deficit, which is projected to hit a record $1.84 trillion this year.

China’s holdings of Treasury securities represent about 10 percent of America’s publicly held debt.

The administration has said while its aggressive moves to fight the recession and a severe financial crisis will push up the budget deficit temporarily, it intends to reduce the deficit as soon as the economic situation permits.

And that final comment about reducing the deficit is just short term, the longer term picture is indeed bleak. Medicare, Social Security, Obama Care, and so forth will likely mean that the deficits will start to rise shortly after the end President Obama’s first term in office. The Chinese, Japanese, and other investors are not stupid. They have undoubtedly read the reports on Medicare, Social Security and so forth. They also likely know that pledges to reduce budget deficits are standard political cheap talk as well.

With the government’s borrowing needs soaring, there have been some concerns that foreign interest in holding U.S. debt might falter, causing interest rates to rise.

The administration contends that recent increases in the interest rates for U.S. Treasury securities were not a sign of investor unease but a reflection of improving economic conditions.

Yeah, a great economic recovery is just around the corner (ask Brad DeLong). Don’t get me wrong, I want DeLong to be right and I have to eat my words. It is just that in looking at data I have available, data Prof. Hamilton has put together, and keeping in mind the long lag time for unemployment to recover from the past two recessions I don’t think Brad DeLong is going to be right.

I think the answer to Paul Samuelson’s question is no.