Foxconn and Retail

Foxconn's public announcement that it will venture into retail has the potential of being a real game changer (link here and here).  With GOME on the ropes due to the arrest of its founder and ensuing succession battle, Foxconn's strategy of building up a rural network based upon setting up its own employees in business has the potential to rival Lenovo's rural distribution arm.  It will be interesting to see if the Chinese state tolerates this gambit.  As much as Taiwanese are considered compatriots when the issue of Taiwan's political status comes up, the Chinese state more often than not treats Taiwanese firms as foreign ones.  This can be good (lower corporate taxes) but also bad (many non-tariff barriers to the "strategic" parts of the domestic market blocking Taiwanese firms).

Acer and Founder

The new tie-up between Acer and Founder looks very interesting (see report).  Acer has always dreamed about being a big player in China's PC market and this may (depending on the details of the agreement) finally push Acer into the top ranks in a market that Lenovo still dominates.

Geography, Inequality and the Renminbi

Yukon Huang in the FT (link here) suggests that a fixed exchange rate will help move factories to the interior and thus reduce China's massive inequality.  Therefore, he is against china appreciating its currency.  But recent research challenges the conventional wisdom that geography accounts for a lot of inequality in China.  Benjamin, Brandt, Giles and Wang (Ch. 18) in China's Great Economic Transformation find that at least half and up to 2/3 of inequality is between "neighbors" within a given locale rather than across locales (city or village). Provincial differences account for even less of the inequality.  Urban-rural differences are also not a major source of overall inequality.  However, they did find that the "dynamics of inequality" are different between interior and coastal provinces with a faster increase of inequality within interior provinces due to faster increases in rural inequality and urban-rural income differential in the interior.  Huang would surely jump on the suggestion Benjamin and his colleagues make that one of the reasons for different dynamics of inequality in the coastal provinces is the stronger job growth in the non-state sector there in order for Huang to claim that such dynamics could be transferred to the interior along with the movement of non-state production to those areas.  The question remains how much the transfer of coastal-style non-state sector job growth would reduce the overall level of inequality.  If such a transfer does not solve a lot of the national inequality it does not seem like a very strong argument against appreciating the renminbi.

Legitimate Concerns on Rare Earth Minerals and Beyond

Paul Denlinger is spot on in calling the ability of Molycorp Minerals to get up and running in order to end America's utter dependence on China for rare earth minerals as a (one might say THE) test case for whether the US is serious about preventing a continuation of China's current near monopoly on these resources (link here).  One might go further and state that this is a test case for the American government's resolve in turning around the severe structural weakness of the American economy more generally (i.e. too much consumption, not enough investment and thus not enough production) amidst an international economy where other major players predicate their economic strategies on American excessive consumption (hello China, Germany and Japan) as former World Bank economist and FT columnist, Martin Wolf, has repeatedly emphasized over the past year or so. Beyond the question of US determination to fix these problems is the specific issue of how quickly the dependence on China for rare earth minerals can be terminated.  Denlinger's states that opening a few mines would end dependence, and this may be true, but opening a few of these mines might take a long time.  The Government Accounting Office suggests it might take up to 15 years to end rare earth mineral dependence on China (link here).