Crystal meth and sweet-talking wolves

Or, how to fix Wall Street's credit crunch and China's overvalued yuan while making everyone involved equally unhappy.

Published August 6, 2007 9:16PM (EDT)

Last Thursday, New York Times reporter Eduardo Porter opined that the arrest of Zhenli Ye Gon, a Chinese emigrant to Mexico, on charges of importing methamphetamine ingredients into Mexico from China, "underscores how the same process of global sourcing that ripped apart the integrated industries of the 20th century, replacing them with networks of production scattered around the globe, is reconfiguring the drug trade, too."

Porter observed that this dire manifestation of globalization occurred against a backdrop of competition in which China's even-lower-cost labor has pummeled Mexico: "Reports in recent years that some of the maquiladora plants along Mexico's northern border have decamped to China have sent Mexicans into paroxysms of economic anxiety."

It has been oft surmised that one reason Mexico's economy did not benefit as much from NAFTA as advocates of trade liberalization had predicted is that China stole its thunder. But the news from China isn't all bad for Mexico. On July 26, Lenovo, the Chinese computer manufacturer that sent a globalization frisson throughout the entire high-tech world when it bought IBM's PC division in 2005, announced plans to set up new manufacturing plants in Mexico and India. The Mexico plant is expected to assemble 5 million personal computers annually, for export to both North and South America.

Location still means something, even in a flat, flat, flat world. Lenovo's move mirrors the strategy of some of Taiwan's big contract electronics manufacturers, who have set up shop in Eastern Europe so as to better serve markets in the EU. Will it assuage fears of maquiladora migration? Certainly not all by its lonesome, but the offshoring by a classic offshoree offers at least a hint of how globalization doesn't have to be a zero-sum game for any two participants.

Which is a point well worth considering as the political heat on China grows in the U.S. Congress. The buzz among China watchers last week was that this time, American politicians mean it when they threaten to pass legislation aiming to punish China for currency "manipulation." As reported by the Washington Post, the votes may finally be in place for a veto-proof bill.

Maybe so. But who needs congressional action when you've got sweet-talking wolves dressed in human skin? On Friday, Keith Bradsher reported in the New York Times that anonymous Chinese bloggers have been griping about China's apparently ill-timed investment in the private equity firm Blackstone. Blackstone's share price has slumped ever since its public offering, "pushing down the value of the [Chinese] government's investment by more than $500 million in just six weeks, ever since the company went public." Ouch!

Bradsher quotes one blogger who equated Blackstone with the "foreign thieves who pillaged our forefathers":

O senior officials of the Chinese government, please do not be fooled by sweet-talking wolves dressed in human skin... The foreign reserves are the product of the sweat and blood of the people of China, please invest them with more care!"

Much as How the World Works is titillated by the image of Blackstone's Stephen Schwartzman piloting a gunboat up the Yangtze River, intent on securing lucrative extraterritoriality for Western imperialists, I suspect that his company's faltering stock price is as unwelcome to him as it is to China. But the spectacle does offer a tantalizing possibility.

Maybe, instead of levying punitive tariffs on Chinese goods in retaliation for an overvalued yuan, Congress should simply require that China pay for its currency sins by investing its oodles of cash directly in the private equity firms and hedge funds in the U.S. that are suddenly having a hard time locating sources of cheap credit. If, at the same time, Congress removes the loopholes that allow the principals of these financial institutions to avoid paying their fair share of taxes, and in turn, employs that revenue to compensate workers whose wages are being depressed by Chinese competition, everyone ends up winning ... and losing!

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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