Thursday, March 25, 2010

This is IT

For years, the Chinese Communist Party has benefited from a tidal wave of foreign investment in a slew of sectors, none more dramatic than that in information technology. The cadres had high hopes that IT firms from abroad - unable to resist the lure of "one billion customers" - would come banging on the door of Zhongnanhai, hat in hand and ready to little the information superhighway with whatever tolls or lane restrictions the Communists demanded. Instead, IT may just be the sector that points to the regime's future demise.

It all began with Google, who reacted to the CCP's refusal to address their concerns about censorship and hacking by shifting their search engine base to Hong Kong, where (for now) speech is still largely free, and self-censorship is not demanded (Washington Post). What this means for "one country, two systems" (or, as it has increasingly become, one country, one-and-a-half systems) remains unclear. It's reflection on the business environment in Communist China was far more revealing.

In effect, Google announced to the world that the Communist tyranny was incompatible with its business model. This makes Google arguably the first - and inarguably the largest - firm to make that decision. It shattered the myth that the CCP is a business-friendly regime, while putting a much-needed focus on how the Communists distort the market with their political objectives - to say nothing of their taste for corruption.

Google may not be alone for long. GoDaddy, an internet-domain firm best known in America for advertisements floating somewhere between provocative and bizarre, told a Congressional committee that CCP regulations for domain registration - including one that requires a domain buyer provide photo identification - left them "concerned for the security of individuals" (Daily Telegraph, UK), enough so that they could follow Google out the door.

An even bigger surprise came from India, where Dell is opening up a new computer production plant. According to India's Prime Minister, this could be the start of a dramatic shift (same link):

Mr Singh told the Hindustan Times: "This morning I met the chairman of Dell Corporation. He informed me that they are buying equipment and parts worth $25 billion from China (£16 billion). They would like to shift to safer environment with a climate conducive to enterprise with security of legal system."

. . . According to the Indian media, tax breaks given to Dell make it cheaper for the company to supply the Middle East, Africa and Europe out of India, rather than China.

Read that last line from Singh very carefully: "They would like to shift to safer environment with a climate conducive to enterprise with security of (a) legal system." That is clearly a shot at the Communist tendency to treat the Party card as a license to steal. It appears Michael Dell is getting frustrated with the lack of genuine rule of law in Communist China. If Dell follows through on the Chairman's apparent thinking, it would be the latest and most dramatic example of a growing investment trend away from Communist China in favor of democratic India.

Lest anyone think these are isolated incidents, a new poll from the American Chamber of Commerce revealed that a majority of foreign IT firms are unhappy with the Communist regime, and 37% of them blamed the CCP for damaging their sales. Overall 38% of all foreign firms polled "say they feel increasingly unwelcome to participate and compete in the Chinese market" (Newser).

Not that the Communists themselves are noticing. Mere days after playing the anti-American card against Google (BBC), they resorted to another heavy-handed tactic that makes so many investors squeamish - they tried to burst a housing bubble by banning all land sales (Business Insider).

Clearly, the Chinese Communist Party do not consider "a climate conducive to enterprise" as a top priority. Then again, they never have. What is different today is that many outside investors are noticing, and making decisions accordingly. Those decisions could not only put a crimp in the Communists' corrupt gravy train, but also provide an economic boost to the one rival that worries them as much as America does - India.

The cadres have literally unleashed upon themselves the hallowed (and hackneyed) Chinese curse: they have put themselves in "interesting times."

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