HENRY IN CHINA, A NEW OPERA BUFFA?

Henry Paulson and company’s economic mission to China has already steeped itself in Asiatic thinking on the eve of its departure. Hoping to dampen expectations of announcing actual results in reining in the unsustainable trade balances, mismatched currency exchange rates, and clashes in policy, Paulson has advised us not to expect much. In this he echoes the life-style strategy of China’s first philosopher and founder of one if its key religions, Taoism. Lao Tzu, who lived around 625 BC said, “He who has no expectations, has no disappointments.” Certainly a truism for now and for the ages.

Henry Paulson, Ben Bernanke and at least five other major cabinet ministers must make a policy pilgrimage to set straight the mistakes of every previous treasury chief and U.S. government official. Unfortunately, all those previous missions, like John W. Snow’s 2003 trip have resulted in the same thing…they have made the reality worse. Past results include a growing trade deficit, no real flexibility on exchange rates, more rampant piracy across more categories (it’s no longer just movies and software, it’s now pharmaceuticals and auto design), no progress on copyright or trademark law, no plan to recycle the trillion ‘manu-dollars’ other than the distorting short-term treasury purchases. Additionally, there has never been and probably will not be agreement on key end-of-world issues, like North Korea’s nuclear proliferation or little annoyances like, Taiwan, Iraq, Iran, or the ever-dense cloud of pollution which threatens India’s harvests and Malibu’s sunsets alike.

It’s not the texts of Taoism however that can give us the proper analogy for this road show farce to the east. The analogy can best be found in the world of opera -- specifically, Puccini’s Turandot. Set amid the court of ancient Peking, a nasty princess Turandot is into loping off the heads of potential suitors who cannot solve a riddle and thus win her hand in marriage. Enter a gallant hero, the prince of Persia, who will conquer where others have failed. There are some operatic side themes, like slave girls in love and blind fathers, but we not need concern ourselves with them here.
If Henry Paulson is the prince and the Chinese leader Hu Jintao is Turandot, Wen Jiabao and Wu Yi China’s other prime ministers must be Turandot’s advisors Ping and Pang. As Henry travels to China to save the day, what are the riddles to be solved? Let me offer some suggestions: What keeps expanding yet ever remains the same? What reaches the sun but stays at home? And finally, What gets endless attention but never blushes? If Henry could only answer, “the renminbi,” he might win the cold but beautiful hand of Turandot and save the denizens of Peking, oops, I mean Beijing.
Riddle one explained: there are now a trillion dollars in currency reserve funds sloshing around the central bank of Beijing. The rate of the trade deficit is accelerating each month with record deficits being set with every new calendar page. Yet, there is no depreciation to this currency. In the real world of free markets, when something expands like oil production and there is too much of it, there is a fall in value or price, not so in the manipulated Chinese renminbi.
Second riddle explained: When a similar pile of yen was earned by the Japanese two decades ago, it was recycled into the world economy. Remember the Japanese purchase of Rockefeller Center, Pebble Beach, Columbia Pictures and the entire state of Hawaii? And, they came to Fifth Avenue by the millions to buy stuff. The Chinese do no such thing. Harkening back to the days of the Quing Dynasty, when all westerners were “barbarians’ and there was nothing we had that they wanted, all that cash is staying at home in a vault called short term treasury purchases.
Riddle three explained: This is the umpteenth mission to China to fix these problems. Like Turandot’s previous unsuccessful riddle answers, they have gone home defeated, their heads lopped off later. Talk, talk, talk, meeting, meeting, meeting, and all the economic and political issues get far worse. The Chinese have no interest in a level playing field. They impose barrier after barrier to protect their own manufacturers and service industries. They steal patent after patent, rip off and download software program after software program, copy auto design after auto design. They favor their G3 phone developers by delaying engineering approvals until their local models are ready.
And what does the United States do? It talks about the pain. The renminbi surplus and trade imbalances that threaten the entire business world (the euro zone is now in the same mess) get a lot of attention but no action. Like a storied courtesan, no one can take her by the hand to the altar of true free trade. The Chinese renminbi remains impervious to all offers of change and modernity.
Westerners have become addicts to the process of ever and ever cheaper goods. Jobs, industries (remember the southern textile industry) are sacrificed for discounts and cost savings. The entire fabric of Western society, from the small shoemakers of the Veneto to the football-sized factories of the Midwest auto parts suppliers, has disappeared. Lost to the cost-less gods. Bankrupt companies, busted pension plans, health careless retirees are all victims of the made-in-China syndrome. But, things sure are cheap at Wal-Mart.
We hope Henry and his entire entourage have the same happy ending that Puccini’s librettists gave Turandot and the Prince of Persia. He is revealed to be Prince Calaf and she lightens up enough to laugh and love him, the citizens are spared further executions and it appears enlightenment will reign from this union of love.
Can Henry solve the riddle of the renminbi? If so, he should only need three acts and three hours to wrap it up. After all, Puccini did.