Chinese Car Trolls

In case anyone was still worried about Chinese world domination ... this is the kind of innovation the country is betting their future on:


http://www.bbc.com/autos/story/20150818-youxia-ranger-x-is-totally-not-a-tesla

"We are no longer surprise by Cinese carmakers paying legally questionable homage to successful Western models"

"The driver interacts with that system through a vertically oriented 17in touchscreen display, much like the driver of a Model S would interact with that car’s vertically oriented 17in display. Small world. "

The idiots who sent this bunch of posers their investment dollars got exactly what they deserved. You are what you invest in.

Woah, China!

Forget The Vest ... fear THIS:

On Monday, China's premier Wen Jiabao lowered the economy's growth target to 7.5 percent from 8 percent, where it has stood for years.  - AP

Early, of course, to sing a dirge but China's "golden era" of ridiculous growth at all costs seems to be getting a bit more expensive these days. Expect to SLOWLY see:

• Reduction in expenditures for extravagant infrastructure projects
• Asset management shift from their current stance (overweight US Treasuries) to something more akin to Singapore's Temasek
• A review of the commercial tax and licensing structure (hopefully not a Chinese Raj)
• A harder line on international trade, both in terms of limitations and in terms of tariffs
• An attempt to diversify labor-intensive businesses across labor pools (inner-China manufacturing zones, African investment zones) 
• Industrialization deeper into inner-China
• All of which will help pay for increased, but highly-targeted social support funding including medical care and pensions, as well as their continued military build-up
• Targeted efforts to increase enforcement, probably with a focus on IP law, financial regulation, governance (as the Economist said a few weeks back, the Chinese government is the only group that has actually read the entire Dodd-Frank act)
• Maybe even some efforts to address environmental sustainability issues

Breaking News: Market Share Stolen by Hackers!

A Wall Street Journal article today carries the following quote:

Chinese state television has broadcast footage of what two experts on the Chinese military say appears to be a military institute demonstrating software designed to attack websites in the U.S.

DailyTech blog captured screenshots including the image below.

This further supports my prediction in a January 2010 blog post What Will Tomorrow (Today?) Bring: Virtual War.

"Make no mistake, this is
Cyber Warfare."

It is now undeniable: we are engaged in a new Cyber Cold War which represents the most unconventional and asymmetric war the world has ever seen. Control is extremely decentralized. Weapons are easily acquired. The risk of retaliation is low. Battles are waged remotely. The prosecutors and victims of the war can be anyone or any group of people. Governments, individuals, and businesses are all players, like it or not.

The WSJ article shows, however, that more conventional power structures are now on the battlefield. Many in the LulzSec group may have simply been bored, over-caffeinated students who wanted some celebrity. However, security insiders increasingly see hard evidence to support the WSJ's case: governments, particularly those of Russia, China, and the US are quietly backing attacks.

Many people would laugh at the notion that a foreign military might wage an online attack on a US financial institution. Consider, however, two factors which might give them motivation:

1. Sovereign Wealth Funds (SWFs) increasingly own debt and equity of governments AND businesses. This gives them a financial interest in the success (or failure) of certain companies as well as economies. Hack a bank, leak a headline, and watch the share price drop until a buying opportunity has emerged.
2. Many emerging market countries have discovered that they don't have to create an economy as big as the US in order to have companies which compete on a global scale. These companies can be jump-started with some quiet government support. As a result, it has become common policy to support "national champions" which successfully compete against the largest and most mature global (though still mostly US-based) companies. Government-sponsored hackers might help these champions by hacking the competition and stealing trade information or by creating bad headlines.
   

Like it or not, we have to acknowledge that certain governments have the means, the motive, and the opportunity to commit cyber attacks against financial institutions. In all likelihood, this has been going on for at least several years. Consider a March 2009 Telegraph.co.uk article:

"A vast Chinese cyber-espionage network, codenamed GhostNet, has penetrated 103 countries and infects at least a dozen new computers every week, according to researchers ... [GhostNet] is the latest sign of China's determination to win a future 'information war'... In 2003, the Chinese army announced the creation of 'information warfare units'."

Fox News added to the story:

"The Chinese government on Monday denied it was behind GhostNet"

Banking has the notion of security at its core. Think of a bank branch and you'll instantly visualize vaults, armed guards and video surveillance. Behind the scenes, banks all have hardened ATMs, teller stick-up procedures, passwords and permissions. In other words, security is tightly integrated with their physical channels.

It is also tightly integrated into their physical products through watermarks, microdot printing on checks, serial numbers on other financial instruments, signature specimens, etc.

Ironically, banks have been dangerously slow to understand how this relates to the online world. Today's banks are dot-coms. Online banking is now a core product. Moreover, it is the "face of the bank" for many customers. It is the gateway or channel through which all other products and services are offered.

Dot-com execs have an advantage in the realm of security and fraud inasmuch as their core product is a piece of technology which intrinsically has a set of permissions and security controls built in. The tools their engineers use also have permissions and security controls at their core. Bank execs need to think like dot-commers. Online security and fraud prevention are just as intrinsic to their core products as signature cards, credit scores, personal relationships, and armed guards once were.

The logical conclusion is that banks need to be organized, staffed, and run more like dot-com businesses to survive in the current Cyber Cold War. Security must be "baked in" to everything they do, just as credit scores and ratings have been baked into lending and trading decisions for decades. Executives should make no mistake: on the current battlefield, market share is not stolen by a bank down the street who might lure customers away with better rates and free toasters. Market share is "stolen" by hackers who ruin the bank's reputation or steals clients' identities and thus causes customers to flee.

It is no longer a sci-fi fantasy that these hackers may be shadow agents of a competitor or even a government intent on manipulating markets, economies, or even specific businesses.

Take THAT Paranoid Saudi/UAE/India

(ad placed by the government of Bahrain in the August 19th Economist)

What Will Tomorrow (Today?) Bring: Virtual War

Given China's love for child labor, these guys may be teens, but it's not idle curiosity that is motivating them. Nor individual malice. Make no mistake, this is Cyber Warfare.

Researchers identify command servers behind Google attack

The cyber-assault came to light on Tuesday when Google disclosed to the public that the Gmail Web service was targeted in a highly-organized attack in late December. Google said that the intrusion attempt originated from China and was executed with the goal of obtaining information about political dissidents ...

"The source IPs and drop server of the attack correspond to a single foreign entity consisting either of agents of the Chinese state or proxies thereof," the report says ...

http://arstechnica.com/security/news/2010/01/researchers-identify-command-servers-behind-google-attack.ars

What Will Tomorrow Bring: Chinese Reverse Migration

As I blogged a while back, China's key success factor, as well as competitive advantage is it's access to a nearly-unlimited pool of unskilled, impoverished labor.

When the US needs more cheap labor, we turn a blind eye at the southern border for a while. When China needs the same, they simply open the tap slightly by granting a few thousand (or million) migration permits allowing poor western farmers to migrate to the cities in search of menial jobs, at which they're assured to make triple what they could in their home village. You see, in China, you must have a permit to live in the affluent cities of the coast.

As we've seen time and again in history, and as Marx and Engels were kind enough to highlight, growing income disparity pisses off the less fortunate. As such, there has long been fear (as Deng was acutely aware) that coastal modernization, liberalization, and the consequent wealth creation might ignite a repeat of the People's Revolution. Hence the restrictions on the mobility of the peasant class. Conventional wisdom holds that the only way to avoid revolution is with political reform and liberalization. However, the Chinese commies have so far avoided making any painful (for them) changes. Instead, whether intentional or by necessity, the government has allowed a continual trickle of peasants to flow east to partake, thus releasing just enough steam to keep unrest down to a manageable magnitude.

For those migrant workers lucky enough to be allowed into "the city," the transition must arouse a mix of ambition, hope, confusion, and humiliation. Up to that point, they have led traditional agrarian lives just as their ancestors had for hundreds of years. Then suddenly they find themselves witnessing first-hand the "foreign" trappings of wealth being played out on Chinese territory ... and by (Fendi-clad) Chinese. This is a lifestyle they never aspired to ... until they arrived in the city. But once they're exposed to it, this lifestyle must become a thing to covet, or at least worthy of animosity. Unlike America, however, the Chinese government makes it clear that migrant workers should not hold such aspirations. Their proletarian lot is fixed. They are to work. The caste system is alive and well in towns like Shanghai and Beijing.

At least the work was always there ... and at least these people could count on sending money home to make their families wealthy by local standards ... to be enjoyed when (if) they ever reunite. At the same time, they've been keenly aware that this right could be revoked by government fiat. Between them, these two forces have maintained a strong incentive for migrant workers NOT to rock the boat.

Oddly, the world financial downturn may grant them their wish. As China's growth rate has slowed, it's demand for incremental labor has evaporated. For the first time since Mao, unemployment is shockingly on the rise. Keep in mind that "official" numbers never count the western farmers, so the conclusion is that this unemployment spike is happening on the coast. That means workers who have migrated east in the last 10 years are, for the first time, not able to find work.

Some may choose to return home to their villages, as they always planned to do. However, others may have to go against their will. While it's denied by the government, unemployed migrant workers quite often have their permits cancelled by the government. This forces them to return home or go underground. It's a tidy way for the commies to keep unemployment just where they want it.

The government's tea-leaf-readers have suggested that they may not be able to count on a quiet reverse migration this time around. It is possible that critical mass of disgruntled migrant workers may choose to stand up for themselves. This plays into the prevailing theory that an increase in Chinese unemployment might unleash a wave of pent-up social unrest. As we remember from 1989, China doesn't like unrest.

And that's why they've taken the unprecedented and fascinating Keynesian steps to stimulate the economy such as subsidizing private enterprises to take on (or at least keep) workers they don't need. These are the same enterprises the government only grudgingly allowed to emerge ten years ago. Quite an interesting turn of events!

Train Station photo credit: AP via AFP/Getty

Follow Up: Yeah, What HE Said!

Fear mongering, China style:

“I have lived for three-fourths of the last century, and I can tell you with certainty: should China embrace the parliamentary democracy of the Western world, the only result would be that 1.3 billion Chinese people would not have enough food to eat.”
– Jiang Zemin, President of the People’s Republic of China (1993 to 2003)

I guess Greenspan and Jiang will just have to agree to disagree.

残奥会倒计时一周年晚会 刘德华演唱 ... Inharmonious, Even in Chinese

My second-ever blog post talked about what I thought was wrong and right with China. Eighteen months later I visited the country for the first time and posted a follow-up blog based on what I saw.

Now, more than 3 and a half years later, they've made incredible and undeniable progress, as we all knew they would ... It's the old "damn the torpedoes, full steam ahead!" Unfortunately, those torpedoes are bigger, more numerous, and closer than ever before. Every day, with every move, a few more torpedoes crash into the Chinese hull. From time to time, they wander into storms and scrape reefs, but for now their charge is relentless, most visibly over the upcoming weeks as we all watch their Olympics. We will ooh! and aah! and some will whisper "they've beat us!"

But hold! Each impact, scrape, and squall takes its toll. We need look no further than Newtonian Law (applied to Economics) to know that SS China's rate of progress necessarily and permanently slows every time it runs across resistance. Each battle scar makes the craft slightly less hydro-dynamic. At some point, the Chinese people will tire of the turbulence and demand a smoother ride. Eventually, they'll realize that they need to modernize and reinforce their craft to make it long-lasting. All of these will inevitably slow their progress.

At the end of this blog, you'll find a table of the main torpedoes currently in the water and pinging. I list what's wrong and what's right with their response to each over the last few years.

As I've said before, it will take China a hundred years to fully recover from their current barrage-laden charge, to repair and upgrade their craft, and to find the safe, stable, deep and open waters where "We" (the US, Japan, and Europe) spend most of our time. We've been through the gauntlet already. We've forged much new territory and it has never been a smooth ride. Today, our people want a cautious hand at the wheel in order to foresee and prevent disturbances. We want a sure financial return on our investment. Plus, we want low costs (financial, political, ecological, and human). All of which explain why we no longer have China's appetite for showing off.

Chinese may think they can "control" their way to a permanently elevated cruise speed. Millions of ex-Communist technocrats have found that they can apply old Marx and Engels to a concept very de rigeur in Western business: performance metrics and control. This has been employed to tremendous fanfare in preparation for the Olympics ... and also to impressive effect. Today, those directing the Chinese economic ship are not in it for the money, but for the power and the growth.

At some point the populace will demand a bigger and more assured share of the spoils. Maybe even a say in how things are done. Someday, China's government will have to start listening to their people and considering the human side of their choices ... So far, they've shown their tone-deafness in this area. No wonder: these are "softer" criteria. It's tough to measure, control, and set targets for national unity or happiness. ISO has no international standard for maximization of human potential ... yet these are all critical once the voice of the people must be considered.

What are these soft criteria? I'm giving a stratospheric view of very human-level concepts. Let's swoop down and get a little more concrete with a few very human tales:

• Wu Ping and the Nail House: The story of a government-anointed real estate developer's battle against a peasant family for their hovel and land, complete with scandal and standoff. It ends with a wrecking ball for the hovel and a phantom payment for the peasants. Phantom because they mysteriously disappear before the money can be paid.


• The Journalists, the Censors, and the Spies: Before they even arrived, foreign journalists had something to gripe about. It came to light that China (with the complicity of the IOC) would be censoring their Internet connections, in contradiction to earlier promises. More insidious, perhaps, is the US Government's warning that visitors should avoid taking their cell phones and laptops to the games to avoid the risk that their devices might get infected with government-sponsored invisible spyware.
  
• China's Special Woebegone Games: (finally, an explanation of the blog's title!) The stereotype is that disabled people in China are hidden to avoid shame. There is no ADA in China. Worldwide, Paralympic athletes will take every opportunity to tell you they want no special treatment. Their event is about self-sufficient, highly trained athletes in ruthless head-to-head competition. It is NOT about creating a fantasy land of love and self-esteem where everyone is a winner. That's the Special Olympics. Which is why they're none too excited about the Chinese Paralympic Committee's official theme song "Everyone is Number One" ("残奥会倒计时一周年晚会 刘德华演唱"). Not to mention they've one-upped our cultural icon Garrison Keillor's Woebegone Effect ("Welcome to Lake Woebegone where ... all the children are above average.")

Torpedoes in the Water!!

If I were captain of SS China, these are the issues I'd be losing sleep over:

Ridiculous is as Ridiculous does

The US government and media obsess over a lotta ridiculous stuff ... unfortunately to the preclusion of solving some of our major issues. Whether or not this is intentional (as I supposed recently) doesn't matter. The consequence is the same: the nation gets distracted and divided with trivialities and victim-less issues while the major issues continue to grow ... and to quietly bleed us all dry.

Happily (?) we're in good company. The news recently has carried a bevy of similar symptoms from across the globe. Here are some ridiculous things that ridiculous people are wasting our time on:

Turkey has banned the AK party which is currently running the government. This makes it illegal for their current PM (Gul) to be PM. Great idea, dumbasses! What better way to show that a Muslim country can be stable and progressive and modern than to disregard the will of the majority in a military quasi-coup on the fear-mongering premise that Gul is imposing Sharia law. Evidence? He wants women to have the freedom (not the requirement, mind you) to wear headscarfs at university. I'm sure the EU is ecstatic that they let you in now. I guarantee this has single-handedly cost the entire country several percentage points of GDP over the next few years.
Meanwhile, the Kurd question looms, ignored, as a true threat to Turkish sovereignty.

South Koreans have spent half their summer protesting and rioting over the government's decision to allow imports of US beef. The sharpest of these tacks has suggested the PM should be fired and the government recalled in a no-confidence vote. That would be a great way to spend taxpayer dollars. Dude - if you're bored, there are better hobbies than getting water-cannoned or arrested. All of this because they're afraid of the sliver-thin chance of importing mad cow ... and the rhetoric that Korean ranchers (oh, yes - they even wear cowboy hats!) would lose money.
Meanwhile, North Korea shows it's just a misfit teenager who needs a little love and attention to keep it from going Columbine on the World's ass. Oh, and the billionaire patriarch of Samsung Lee Kun Hee is finally convicted for his 60 years of tax evasion and market manipulation ... but nobody's rioting over the destruction of the rule of law ... the fact that the Korean judicial branch dragged their feet for decades until he was old enough for them to justify handing down a suspended sentence ... Nobody wants to say anything about the 60 years of too-cozy relations between the government and chaebols (national champion conglomerates) which allows this kind of bad behavior.

Italy has contributed to the decline of the rule of law by passing a law which gives the senior-most politicians (particularly PM Berlusconi) immunity from prosecution. Great. This guy's been raping (financially and um ... otherwise) the country for 25 years with no concern for the law. Even the famously "make love not war" Italians took a break from cigs, espressos, and whistling at girls to mount massive protests.
Meanwhile the Italian economy is toppling into recession. If it makes you feel any better, guys, the rest of Europe is right behind you ... although you're the country Nouriel Roubini singled out at Davos "unfortunately, the lack of serious economic reforms in Italy implies that there is a growing risk that Italy may end up like Argentina" and fall out of the EMU. Ouch. Oh, and maybe you guys should get off the Vespas and into bed ... the Italian fertility rate is half what it was in your grandparents' day.

And the whopper: Russia and China showed they were willing to go bat for moral rectitude by refusing to allow even the weakest of penalties against Mugabe and his pack of animals in the UN security council.
Meanwhile ... the international organization which is supposed to save us all from ourselves proves once again how useless it is. The world seems satisfied to do nothing in the face of the most heinous treatment of the world's most down-trodden.

Don't think this behavior is confined to these countries. It's in everyone's backyard.