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Wednesday, July 06, 2005

Growing Pains in China- Buy American

ChicagoBoyz cites an LA Times article reporting that investors are starting to pull out of China.
The LATimes Don Lee reports:

Now, amid rising wage and pension costs, energy shortages, tighter government regulation, traffic bottlenecks and other concerns, some of them are starting to look elsewhere. Their restlessness reflects a dark side to China's economic boom, as growth pains and other issues prompt companies to reconsider starting up or expanding in China.

The protectionists think that competition is to be feared. However, global free market economics teaches us that money will find its way to sound investments. Worker benefits will rise over time and the initial low costs of a developing country can change quickly. Lee also says "employers are struggling with worker shortages.

Meanwhile, Man Without Qualities opines that Chinese investors will continue to invest in the USA because of the value of security (not securities). The soundness of our relatively free market economy, with stable law enforcement, government and workforce, makes investing in America a safe bet. Writes Robert Musil:

By way of example: Many a billionaire family keeps essentially every asset in the United States (consider billionaire American real estate or technology investors, for example). But no wealthy Chinese family would keep all of its assets in that country. It is curious that some economists - such as Paul Krugman - focus excessively on American political risks (the possibility that the United States might deliberately inflate it currency to address its debts, for example, seems to prey on his gnomishly handsome mind), but pay essentially no attention to the vastly more significant Chinese and developing third world political risk as a reason for the American trade deficit.

In my opinion, political risk matters a lot more than most commentators have been allowing, at least before the risk condenses into something obvious and immediate. Consider the effect of the recent dollop of political risk on the euro, a risk essentially ignored until a few weeks before the French referendum - although the structural issues now identified as the causes of the French rejection have long been present. In fact, it is possible that many wealthy third world investors would be willing to accept negative returns on their American investments for a very long time.

Imagine. Safety equals investment. Think of that when you see what's left of South Central LA since the Rodney King riots. The liberals have stopped the police from enforcing the law there. Who would invest in a business there?


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