U.S. Nuts…The Chinese Want Them

In the grand finale of blog posts on this site (for this course term at least), I have decided to take a light-hearted approach to the serious topic I have been commenting on for the past few months.

In a recent Wall Street Journal article titled “Shell Shock: China Demand Reshapes U.S. Pecan Business”, the recent phenomenon of Chinese increased demand for pecans was discussed.

 Pecans are as all-American as anything can be. Washington and Jefferson grew them. They are the state nut of Arkansas, Alabama and Texas. The U.S. grows about two-thirds of the world’s pecans and chews most of them itself.

For generations, pecan prices have fallen with bumper crops and soared with lousy ones. But lately, they’ve only been going up. A pound of pecans in the shell fetched $2.14 on average last year, according to the U.S Department of Agriculture, nearly double what they brought three years earlier.

The reason: The Chinese want our nuts.

Quite honestly when I was reading this article I burst out laughing. Although there is nothing odd about the article, I found the WSJ’s play on words for “the reason” to be quite funny.

All jokes aside however the article was actually very interesting from an economic perspective. Five years ago in China, almonds were considered the preferred nut. However after a string of advertisements in China, claiming that pecans resulted in better health and a longer life, demand immediately spiked for the pecans.  Why this is so intriguing is how it has affected the landscape of the pecan industry. Prices have been driven up rapidly wherever one is trying to purchase the nut, which makes sense from a supply/demand perspective. The supply of pecans has not changed, but the number of people that want increased vastly. Thus, prices rose accordingly.

In the U.S., pecan orchards have seen land values increase as a result of the heightened demand for the nut. While five years ago the orchards typically cost between $3000-$3800 dollars per acre, today they cost between $4500 and $6000 an acre. Pretty big jump I would say.

All in all I actually really like looking at this article because its not terribly serious, but highlights the main idea of my blog: globalization and its inescapable reality. Whether we are looking at policies on education, free speech, or simply changes in pecan consumption, it is clear that actions undertaken by China will affect the U.S., and vice-versa. This leads me to conclude by saying…keep a heads up as to how these countries make decisions; whatever it is they do will undoubtedly impact the other.

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Tip of the Iceberg?

In an interesting turn of events, Brazil has passed China as the number one destination for private equity investments. In the economic and political realm this is an important occurrence as it is evidence of many of the different topics I have previously discussed in regards to China. This includes potential political instability, an economy stifled by restrictions, and consistent issues with human rights.

Brazil is less competitive and is perceived as having little or no political risk.

-Sarah Alexander, CEO/President of Emerging Market Private Equity Association

Is this the most significant thing to ever happen? Certainly not. However, it shows that the world is apprehensive about China’s future. Private Equity is a form of investment in which the investor gives money to a company and in return gains a significant portion of said company. What is important to note here is the aspect of ownership, and that as China’s fall in the rankings is evident of people’s decreased willingness to take ownership of a Chinese entity do to uncertainty. 24% of private equity investors cited political risk as a factor deterring their investment in China whereas in Brazil only 3% voiced this concern.

Do not get me wrong however—China is still number two in the world and is regarded by many as a highly attractive investment opportunity. The growth potential is tremendous as is shown by its 9.7% growth rate this previous quarter, and opportunities are present.

As I previously noted what interests me most about the change is the actual change itself. In some of my older posts I discussed the fact that at some point in the near future I thought signs of instability in China would emerge. This may not be a massive situation, however it is indicative of the larger issue at hand: people are skeptical of China because of the way it operates. I firmly believe that it is only a matter of time before we see some massive changes.

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Arresting the Artist

Not to beat a topic to topic into the ground, but I am once again dedicate a post to the notion of Chinese “voice suppression.” However, rather than this being a case in which a protest or gathering is broken up, a unique situation has arisen: a once beloved Chinese artist has now been arrested due to his growing political position which challenges the current communist government.

“Whether Ai Weiwei is right or wrong, this is still really big news, a really hot topic. I never thought, never thought, that the domestic media would actually lose the power of speech, and act both deaf and dumb. Sad, really sad.”

-Liu Xiaoyuan, Weiwei’s lawyer

Ai Weiwei

Al Weiwei, one of China’s most famous artists, has been arrested on dissent charges. The Chinese government has been on a six week campaign to reign in public opposition to their operations, and Weiwei made no exception. His detainment is of the upmost interest for in 2008 he was one a trusted cultural ambassador for China when they hosted the Olympics.  He even helped design the Bird Nest stadium that garnered so much praise during the event. Weiwei however boycotted the opening ceremonies to demonstrate his opposing views to China’s current political system. Since boycotting the games, his sentiment has only become more and more public, and in the wake of the recent uprisings in the Middle East, the Chinese government could tolerate Weiwei no more. When trying to board a flight on Sunday morning from Beijeng to Hong Kong, police took him. Similarly his apartment was searched and his wife also detained.He has not yet contacted his lawyer leading many to believe he is in some sort of odd legal scenario without boundaries.

As I have alluded to in previous posts, there is certainly something brewing in China in regards to human rights. Clearly the government understands this for they have made several blatant attempts, like arresting Weiwei, that show their desire to end the dissent. As more and more instances like these occur I become more inclined to believing that something big is going to happen in the near future. Although in my previous posts I noted I did not think that a major revolution could be around the corner, I am relaxing that opinion. I think the more public instances in which the government aggressively tries to combat opposition occur, the more likely we are to see uprisings. Weiwei has 70,000 followers on Twitter.

The Birds Nest

I’m sure they are not particularly thrilled he was just yanked off the streets because he wasn’t on the communist bandwagon.

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How to Spread the Word Without an Effective Means?

Over the past few weeks, the notion of media impacting political changes has been mentioned quite frequently. Specifically, heavy attention has been drawn to the use of Facebook and Twitter in regards to their role in the crisis in Egypt, and now Libya. Protestors and activists used both of these social mediums to stage gatherings, and many believe they were the tools of success. However one thing that is not mentioned is the fact that one key element of society must be in place for any social medium to successfully operate: freedom of speech.

In a March 24th article in PC World magazine, co-founder of Twitter, Biz Stone, discusses the company’s role in the recent uprisings, as well as its possible relationship with the China. When asked about such relationship between the, Mr. Stone replied by stating:

“Our philosophy is that open exchange of information can have a positive global impact, and that’s not China’s philosophy.”

Regardless however, Mr. Stone did say that the company was searching for new ways of becoming an effective company within China. With over 100 million users, Twitter is growing on a daily basis.

So how are all these things intertwined? I really think that within the next two years, freedom of speech rights will become a more pressing issue within China. The recent demonstrations in Egypt and Libya show the discontent of massive amounts of people with their governments and their ability to use social mediums to address their concerns. In China, I noted the Jasmine Revolution in support of democracy. It was immediately stifled. It showed however that some Chinese people are dissatisfied with their lack of freedom, and I am curious as to what will be done in response. Since Twitter does not exist, and practically all other social mediums are censored to the upmost degree, how will meaningful gatherings and protests be able to occur? I can’t say from experience, but I can imagine organizing such things require an immense amount of effort and carefulness. This is why Twitter is so valuable for such circumstances; it is simple and effective in that it reaches tremendous numbers of people.

I’m not claiming that massive unrest will hit China soon, but in the event that people do decide to make a change, how will the word be spread?

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Background on Chinese Currency Debate

One of the consistently hot topics between China and the U.S. when it comes to the economy is that of the Yuan, the Chinese currency (also known as the renminbi). The country’s currency policy is a frequent topic in the news and a disputed one at that, so in this post I will briefly overview some of the issues at hand.

Modernized countries, such as the U.S., Japan, England, Germany, etc., operate on a “floating” exchange rate system. What this means is that their currencies, such as the dollar, fluctuate in value based off demand. So as more people view the dollar to be valuable and thus want to hold it, its price rises accordingly. On the flip side, if people do not think favorably of the dollar, its price falls. It’s “floating” in the sense that its prices are dictated by the market.

China’s currency in contrast is “fixed”, or in economic terms, “pegged.” This means that policy makers set a certain value for the Yuan, giving it no flexibility in regards to pricing. When pegged, the value of a currency is set in relation to a stronger, more stable currency. Pegging countries, which are typically modernizing nations, often turn to the dollar as a counterpart. China has done this since the early 1980’s, and which has allowed the country to experience controllable economic growth. Pegging one’s currency affords a great deal of control over an economy as it allows set prices, thus ruling out the possibility of excessive inflation that sometimes accompanies rapid growth.

For the entire duration of its relationship with the dollar, the Yuan has been set at a very low price. Thus, Chinese goods are relatively inexpensive for individuals using the dollar. This explains why 1/3 of all Chinese exports go to the U.S. On the other hand, although it is cheap for to buy Chinese goods with the dollar, it is extremely expensive to buy dollar-based goods with the Yuan. It is no surprise that Chinese imports are very low for a country of their size.

Having a general understanding of how different currency systems operate is key to grasping the main arguments both for and against the pegged Yuan. In the eyes of Americans, there are two approaches. First, many believe no problem exist since buying Chinese goods is so cheap. Taking a different point of view, many individuals, like American policy makers, believe Chinese goods are so cheap it hurts American producers. They claim it creates an uncompetitive environment since the prices are too low to compete with. The Chinese argue that they must keep their currency fixed at current levels so that they may have firm control over stability in the marketplace. There really is no right or wrong answer. It just depends on which position you take as a viewpoint. American product makers feel it’s unfair that China keeps prices artificially low, whereas other American companies love the fact they can buy their materials on the cheap.

In June 2010, China allowed their currency to float a little bit off of its fixed rate. Many American policy makers saw this seen as a step in the right direction, however much fluctuation still needs to happen. Currently, one U.S. dollar is worth 6.5689 Chinese Yuan, and the Chinese government has remained steadfast in claiming that they do not plan on changing their policies on currency anytime soon.

As the globalization discussions continue in regards to the U.S. and China, currency is certainly something to watch.

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Response To Japanese Disaster-Duke, China, and U.S.

Although both extremely busy with an extensive list of internal affairs, both China and the United States offered aid to Japan, which was recently hit with one a devastating earthquake and tsunami. The death toll is feared to be over 10,000 people, and although the country has one of the best natural disaster responses in the world, it is still in dire need of help from abroad. The magnitude of the earthquake was recorded at an 8.9, which qualifies among the most severe. The destruction of an earthquake with that magnitude can “totally destroy communities.” Earthquakes such as these occur every 5 to 10 years.

Devastating Effects of Japanese Tsunami

The U.S. Department of Defense issued a statement expressing its deepest condolences to Japan and its citizens. In a news conference a few days ago, U.S. Ambassador to Japan, John V. Roos, spoke of the U.S. readiness to “support emergency relief efforts and minimize human suffering.” So far, the U.S. military has rerouted several ships, sent helicopters, and directed planes with emergency packets towards the coasts of Japan. President Obama claimed, “The images of destruction and flooding coming out of Japan are simply heartbreaking.” U.S. citizens have also gotten involved as small assessment teams and charitable groups have been dispatched to help.

The Chinese response to this tremendous disaster has also been immediate and substantial. Chinese Premier Wen Jaibo sent a message to Japanese Prime Minister Naoto Kan offering not only his sincerest condolences, but also support. Although no direct military commitment has been reported, hundreds of Chinese humanitarian workers have headed to Japan with emergency supplies. China’s Red Cross Society donated roughly $152,000 to the relief effort, and Chinese billionaire and philanthropist Chen Guangbiao has also committed to giving an equally large sum.

It is good to know that both the U.S. and China step up when needed most, and I’m interested to see how this catastrophe is perceived on Duke’s campus. Will it be another occasion where students table on the plaza, and a small portion of money is donated? Or will a group of students actively seek to travel to the country such as many other U.S. and Chinese citizens? In the coming weeks I will look to see whether or not students a status quo manner or if they will be more aggressive, such as working to send small groups of people or assembling aid packages. Do not get me wrong, raising money is very admirable. However in order for the effects of this tsunami to be well known and for students to make a palpable difference, other efforts outside of fund raising will have to occur.

Chinese citizen Fei Ye said a few days ago “When confronting natural disasters, there are no Chinese or Japanese, but only global citizens.” Thus far the U.S. and Chinese governments have taken this notion to heart. Will Duke students?

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Duke’s Chinese Campus

The notion that Duke expands its global horizons is nothing new. As a university, it continually strives to better diversify its student body by nationality. Similarly Duke students are encouraged to visit foreign lands for a semester or year to become more knowledgeable both academically and culturally. As globalization has become more imminent, Duke’s focus on becoming a more worldly institution has only grown.  In fact, the university has partnered with Chinese University Wuhan to open its first campus outside of the U.S.  According to administrators, the Kushan, China campus will “create new opportunities for education, research and public service.”

As was first reported in January of 2010, Duke initially planned on collaborating with Shanghai Jiau Tong University to establish the new campus, however the partnership fell through last summer after the idea of supporting an institution in province outside of their own was far too much for Shanghai Jiau Tong to bear. Due to Chinese Ministry of Education laws, a Chinese University must agree to support any foreign education institutions located within the country. Once Shanghai Jiau Tong dropped out of the picture, Duke needed to find a partner and fast. Fortunately, Wuhan University stepped in and will co-sponsor the entity.

In all, costs could rise as high as $11 million over the next five years. Around half, $5.5 million or so, will be for construction oversight. To date, the building of the campus has made progress, however at a slower than hoped rate. The completion date has been bumped back from sometime in 2011 to 2012.

Although many universities offer programs to study abroad for their students, such as Duke in Berlin, or Duke in Madrid, the concept of creating an entirely new campus takes the notion to a whole new level. Details as to whether or not current students will be able to study at the new campus have not been discussed, however the fact that facilities are actually being created with the Duke name on them is incredible. I would not be surprised if more and more universities looked to try a concept like this. It certainly gives Duke a leg up in global education landscape. The curriculum will be centered on interdisciplinary studies as well as programs created by the Fuqua School of Business. It will provide a unique learning experience for those who attend.

As I read learn more about the concept there are a few thoughts that come to mind. How will Chinese laws regarding free information acquisition affect Duke’s philosophy on education? Clearly, Duke will adhere to the policies of its host nation, but I wonder if it will change the university’s nature that promotes constant curiosity and need to dig for more information. Secondly, I can’t stop thinking how innovative this concept is. I really believe this is the first of many projects like this to come, and I am extremely impressed with Duke’s ambition to become more global.

I plan on following this story and will post updates on my blog as they come!

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