Another example of why the US should re-industrialize in the Americas

The American appetite for artificially cheap goods made in China has proven to have some very expensive consequences. Simply stated the Chinese national strategy of flooding the US with manufacturing goods has caused a lopsided investment in US housing, decimated basic US manufacturing, imperiled pension funds, military spending and technology transfers adverse to US interests, increased Chinese influence on a global scale, distorted trade patterns, exasperated environmental conditions, and has assisted the Chinese to establish a grip on natural resources.

The US and other western countries were seduced into the China trade with the assumption that they would come out ahead by exporting more high value added products to China. They did not anticipate that the Chinese would ignore intellectual rights, deconstruct their products and then send them right back at them. The Chinese have only just begun. There are responses that should be made, but sooner rather than later.

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A 'Copper Standard' for the world's currency system?

Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.

By Ambrose Evans-Pritchard Telegraph
Last Updated: 2:41PM BST 16 Apr 2009

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."

Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.

The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.

If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.

Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.

While Beijing's fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.

One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.

This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.

The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.

Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".

It is a Good Day for a Firing Squad. Start with Directors of 3Com.

"The defense officials said it is unlikely that the Committee on Foreign Investment in the United States would block the deal because 3Com is being advised on the merger by Goldman Sachs Group Inc., whose former chairman is Treasury Secretary Henry M. Paulson Jr. White House Chief of Staff Joshua B. Bolten also is a former Goldman Sachs executive."

Merger opens U.S. defense to China
By Bill Gertz Washington Times
October 3, 2007

A Chinese company with ties to Beijing's military and past links to Saddam Hussein's army in Iraq and the Taliban will gain access to U.S. defense-network technology under a proposed merger, Pentagon officials say.

Huawei Technologies will merge with the Massachusetts-based 3Com network-equipment manufacturer in a deal announced last week. Huawei has been linked to the U.N. oil-for-food scandal, which involved millions of dollars in payoffs to Saddam's regime during a time of U.N. sanctions.

The announced merger follows a July computer attack on the Pentagon that U.S. intelligence officials say involved Chinese military hackers. The hackers were detected breaking into Pentagon computers, including an e-mail system close to Defense Secretary Robert M. Gates.

"Huawei is up to its eyeballs with the Chinese military," said a defense official concerned about the deal. Huawei was founded in 1988 by a Chinese military officer and got its start building military communications networks.

A second official said the deal comes as the Pentagon has mounted an aggressive effort to thwart large numbers of computer intrusions from Chinese hackers and spies.

"And now we are proposing to sell the PLA a key to our front door. This is a very dangerous trend," the official said, referring to the People's Liberation Army, as the Chinese military is called.

3Com announced Friday the $2.2 billion merger with Bain Capital Partners LLC and noted in a statement that Huawei Technologies will acquire a minority interest and "become a commercial and strategic partner of 3Com."

Rep. Duncan Hunter, California Republican and ranking member of the House Armed Services Committee, said he is worried the deal will lead to the loss of sensitive technology to China.

"Specifically, I have some concerns surrounding the minority position of Huawei Technologies and what control the Chinese company might have over America's sensitive information," Mr. Hunter said. "In addition to encouraging the Pentagon to review how this deal may affect any of its classified contracts, I would encourage the Committee on Foreign Investment in the United States to conduct a thorough review."

A Pentagon spokesman said he is not aware that anyone in the Defense Department has asked Treasury's Committee on Foreign Investment in the United States to investigate the merger. A Treasury spokesman had no comment.

3Com, through a subsidiary, provides the Pentagon and the Army with intrusion-detection equipment, and the merger potentially will provide Huawei access to strategic computer-network vulnerabilities, said defense officials speaking on the condition of anonymity.

Spokesmen for 3Com did not return phone calls or e-mails seeking comment. A spokesman for Bain had no immediate comment. A Huawei spokesman could not be reached for comment.

Defense officials said Huawei's past is the main cause for concern. Huawei technicians were involved in violating U.N. sanctions against Iraq in the early 2000s by illegally providing a fiber-optic network in Iraq that linked the Iraqi military's air-defense network.

The CIA-led Iraq Survey Group stated in its final report that Huawei and two other Chinese firms "illicitly provided transmission switches" for fiber-optic communications in Iraq from 1999 to 2002.

U.S. and British warplanes bombed the Chinese-made fiber-optic network in August 2001 after it was found to be part of Iraqi air-defense missile sites that were firing at U.S. and allied aircraft enforcing a no-fly zone.

Huawei also was involved in building a telephone-switching system in Kabul, Afghanistan, for the ruling Taliban militia prior to its ouster in 2001, according to U.S. intelligence officials.

The defense officials said it is unlikely that the Committee on Foreign Investment in the United States would block the deal because 3Com is being advised on the merger by Goldman Sachs Group Inc., whose former chairman is Treasury Secretary Henry M. Paulson Jr. White House Chief of Staff Joshua B. Bolten also is a former Goldman Sachs executive.

Gary Milhollin, an arms-proliferation specialist with the Wisconsin Project on Nuclear Arms Control, said Huawei was founded by a Chinese military officer and got its start with U.S. technology exports.

"In the past, Huawei has shown it's willing to help America's enemies after importing U.S. technology," he said. "And it has done so in defiance of U.N. regulations. So before we make more U.S. high technology available to Huawei, we should make sure it has changed its ways."

Mata Hari was shot for less. Pity that.

Made in China. Was your Catfish Hooked on Drugs?

When you hear the word, “Icelandic”, one thinks of clear cold fjords, clear crisp air and water, and an unspoiled clean environment. All of which is true. Iceland is what you expect it to be. Seafood from Iceland is excellent. However, we may have an issue here.

Seems as if there is a seafood company called Icelandic USA, which sells US consumers catfish from China. China is about as un-Icelandic as you can get. The only fjords in China are mispelled automobiles. In many places, China is an open sewer, especially the southeast. It is polluted, the air is hideous and the waters may be fit to rinse iron slag but trust me on this one, you do not want your catfish grown in them.

This article in the Washington Post should get lots and lots of attention. It represents a real dilemma with some crucial aspects of free global trade. Free trade between very different cultures can have some very dangerous consequences. Food quality is just one of them.

American growers, farmers and industry operate with many tough and expected regulations designed to protect the American consumer. Free trade with China has ruined many of these producers and made them look like fools to try and compete with a China disconnected from even rudimentary responsible business practices. Better start reading your labels.

Farmed in China's Foul Waters, Imported Fish Treated With Drugs
Traditional Medicine, Banned Chemicals Both Used
By Ariana Eunjung Cha
Washington Post Foreign Service
Friday, July 6, 2007; Page A01

WUGONG LAKE, China -- Perched above the banks of the catfish farm he owns is Zhu Zhiqiu's secret weapon for breeding healthy fish: the medicine shed. Inside are iodine bottles, vitamin packets and Chinese herbal concoctions that he claims substitute for antibiotics.

Zhu's fish farm, in a village on the lower reaches of the Yangtze River, sends about 2.7 million catfish fillets each year to the United States through an importer in Virginia. Despite his best efforts -- he has dozens of employees clearing trash from the water each day, and the fish are fed sacks of fish meal more expensive than rice -- Zhu's fish sometimes get sick. Then he brings out the drugs.

"It's standard practice," he said. "Everyone uses them to keep fish healthy."

Chinese exporters like him have seized much of the U.S. market, accounting for 22 percent of all imports, because their fish are cheaper to raise.

The fish are being raised, however, in a country whose waterways are an ongoing environmental problem, tainted by sewage, pesticides, heavy metals and other pollutants. The situation is worst in the southern half of the country, where Zhu's farm is and where industrial runoff accumulates.

Like other fish farmers throughout the world, catfish growers in China turn to a variety of potions. But the extent to which they use traditional Chinese medicine, which cannot be tested for as easily in the Western countries that import fish, is unusual. Zhu claims to use only safe and legal drugs, but it was clear that some of his competitors have not been so scrupulous.

The competitors spike the water with banned substances to keep their farmed fish alive. Batches of seafood traded at the Shanghai fish market this week, for example, carried the tell-tale greenish tinge of malachite green, a disinfectant powder that has been banned in China for five years because it is a suspected carcinogen but is still commonly used.

Illegal substances like malachite green keep showing up in Chinese seafood shipped to the United States, provoking a partial U.S. ban on such shipments last week. It was the latest development in an ongoing global awakening about the risks of Chinese-made products, from toys tainted with lead paint to pet-food ingredients containing a deadly industrial chemical.

Using illegal disinfectants and antibiotics "is a lazy way of raising fish," Zhu said. "But it is extremely effective."

Many of the "Southern-style" catfish fillets on U.S. grocery shelves these days are indeed from the south -- of China.