Beijing aground on principle when Morgan Stanley won't 'make nice' and include China stocks
 THERE has been a spreading will in the world to avoid abrasion except in cases of the most obvious evil, and even then to make threats which lapse with depressing regularity.
Perhaps it is the rise of womanly power that has made such an imperative of being nice, playing nice and making nice to such a extent that it has sidelined principle and principled behaviour.
China, which to be fair, has never much cared for principles or principled behaviour, has always mistaken "rule of law" for "obedience to the law". The former is the law standing up as bulwark against the state in defiance if necessary while the other is simply obeying rules.
But in recent times, and in areas where the "make nice" spirit is largely absent has principled reaction and resistance come into play in defiance to China's "tremble and obey" policy in its more aggressive behaviour in recent years.
The worry that coloured German Chancellor Angela Merkel's recent China visit was a controversial EUR4.6 billion (US$5.2 billion) sale of Germany's Kuka AG, an industrial robot maker, to Midea Group Co, China's biggest appliance manufacturer.
What created the worry here is China's longer-term intentions and its willingness to use state power to flout rules if they were found inconvenient in light of changing policy.
Lately, we hear China is in a snit after learning that Morgan Stanley Capital International (MSCI) had decided again not to include Chinese domestic shares in its primary emerging-market stock index.
Surprised, China said that even if it didn't obey the rules, its capital markets were too big to be ignored. Or as Xinhua put it: "International investors should not hold out for the perfect scenario."
Before the MSCI decision, a Chinese regulatory official said eventual inclusion was a "historic certainty". Of course, our "make nice" world has been given plenty of reason for such confidence. In awarding the yuan reserve-currency status last year, the IMF chief Christine Lagarde made exceptions for China rather than holding it to its reform pledges.
Chinese e-commerce company Alibaba operates a shopping platform that allows for an extensive trade in counterfeit goods that cost many US brands dearly.
But rather than forcing Alibaba to uphold intellectual property rights, US regulators permitted the company to list on the very same New York exchange as those US firms.
Moral collapse even extends to beauty pageants. Chinese officials barred Miss Canada from competing in last year's Miss World contest, held in China, because she was an outspoken Falun Gong proponent.
Instead of standing up for her, the standards of the competition and plain, old-fashioned fair play, pageant organisers caved in - as usual.
Nor are other efforts to open China to the world meeting with much success though the reasons are more commercial and technological than arising from demands for special treatment.
A planned high-speed railway between Los Angeles and Las Vegas this month ended when it pulled out of a joint venture with a unit of China Railway Group, the country's second-biggest builder.
That failure speaks to more than just the loss of a multibillion-dollar contract. Again and again, China has fallen short in exporting the know-how behind its high-speed rail network, the world's biggest.
A planned connection between Mexico City and the city of Queretaro was cancelled in 2014 just days after it was awarded to a consortium led by China Railway Construction, another state-controlled builder.
Chinese dominance of a railway network touted by Premier Li Keqiang linking Singapore to the southwestern city of Kunming also suffered a blow last year, after Japan and Thailand signed an agreement to work together on a Bangkok-Chiang Mai high-speed train, a lucrative link in the chain.
China and Japan are now fighting over bidding rights on the last section between Singapore and Kuala Lumpur.
Even Beijing's biggest victory so far, winning a contract to build a high-speed line between Jakarta and Bandung, is tainted by the easy terms that helped get it over the line.
A key advantage for the Chinese consortium over its Japanese rivals was a promise not to request a funding guarantee from the Indonesian government - an unusual, and potentially costly, concession for a multibillion-dollar project.
Does China's failures to win overseas contracts matter? Credit Suisse certainly thinks so, arguing last week that the setback on the Los Angeles-Las Vegas bullet train will hit investor sentiment around Hong Kong-listed shares of China Railway, China Railway Construction, CRRC, and China Railway Signal & Communication, "despite low expectations" around their plans to go global.
What many see from these recent experiences is China's increasing demands for prestige and benefits offered by the global system without abiding by the rules that make that system work, noted a recent Bloomberg commentary by Michael Schuman.
For instance, its leaders are insistent that the country be granted "market" status by the WTO at the end of the year, despite continued massive state intervention in the economy.
To meet MSCI's standards, China would have to follow through on reforms to create more transparent and orderly financial markets.
Those who govern the global economy would be wise to adopt an equally principled attitude, said Mr Schuman in his Bloomberg commentary.
"The whole purpose of embracing China is to encourage more reform-minded elements in the government to press ahead with change, and to convince Beijing's leadership that its interests are better served within the existing system rather than outside of it.
"More importantly, if the global community allows China to break the rules, then there are, in effect, no rules. A globalised world system can't function that way. Neither, ultimately, can China," he said.
In blaming China, Mr Schuman hardly goes far enough. The problem is far more general and widespread than stated. It extends to ignoring standards of performance or cherry picking the ones that will likely bring about the most pleasing "make nice" outcome. What is too often forgotten is the unintended consequences, which could be easily foreseen if one only looked. |
