Google's Trouble Started at the Top

According to the Guardian's review of Wikileaks' release of US diplomatic cables (link here), a member of the Chinese Politburo ordered hacker attacks on Google after searching his own name on the international version of the search engine and finding articles critical of himself.

Hua Hong over Grace

The always pending but never completed merger of Grace and Hua Hong is a step closer to being realized now that Ulrich Schumacher has stepped down as CEO and President of Grace and Gacre VP and former Hua Hong executive, William Yu Wang, has taken over as President.  It sounds if Schumacher went down fighting as he tried to become CEO of the Grace-Hua Hong JV fab, Huali, before resigning as CEO and President of Grace (link here).  Could the fact that the CEO position is still vacant mean Grace anticipates a full merger with Hua Hong sooner rather than later?

Nonsense Number One

China is now being heralded as the world leader in patent filings (link here), but this world number one reveals very little about China's innovation prowess or lack thereof.  First of all, counting filings (applications) rather than approved patents is rather silly.  Anyone can apply to Harvard Law School.  What is impressive is getting into Harvard Law School.  Second, China is busy filing lots of patents in China where the process of approving patents is lax at best.  If (when?) China overtakes Germany or Japan in patents received from the USPTO or some other respectable patenting office, then and only then should we sit up and take notice.  Third, there are different types of patents representing different levels of innovation.  For example, in the USPTO system, the inherent innovation behind utility patents is all else being equal much higher than that for design patents.

China ends ban on rare earth exports to Japan but damage is already done

In line with many of its other recent foreign policy foibles that have served only to irritate its neighbors and drive them into a closer embrace with the US, China's rare earth export ban directed at Japan was just plain dumb.  It served to heighten everyone's concerns about relying on China so now everyone will look for alternative rare earth suppliers.  On top of that, it heightens the alarm already felt about China's perceived increasing willingness to use its economic leverage to squeeze its trading partners.  And it puts the spotlight on how opaque China's descionmaking process is as there were rumors but no official confirmation of the ban for days.  Lifting the ban (link on lifting here) does not undue this damage.

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.