China loves to flatter.

China loves to flatter.

[Note: The reason we share these views this morning—not necessarily for their immediate currency impact—but because we think the bloom is coming off the rose in China in so many ways. There was a long piece about China which appeared in this week’s Economist magazine. Basic message we took away was we (the West) should be very afraid of them. All of this stuff we think will weigh on China at the margin at a time when growth seems likely to decelerate. We aren’t expecting a recession in China. But we do believe any move from 10% level toward 6-7% changes the dynamics in a very big way and will have a major currency impact over time.]

For Christmas, what’s worse than donating money to a charity in someone else’s name?

Stealing their presents.

So here is the Xinhua headline:

Chinese renewable energy firms encouraged to invest in U.S. market

And here’s the lead paragraph of the story:

BEIJING, Dec. 6 (Xinhua) — A senior official of China’s National Energy Administration (NEA) encouraged Chinese firms to invest in the renewable energy market of the United States to boost their competitiveness in the international market.

Why is China encouraging Chinese firms to send money outside of China? Another paragraph:

He noted that the U.S. wind power market has great potential but is short of funding in the wake of the international financial crisis. However, there remains opportunities for many Chinese wind power enterprises with strong expertise and funding.

Opportunities? Ok.

Opportunistic? Yep. Bring some money over to the US, learn the system and the technology, then bring back that knowledge – “there remain opportunities for many Chinese wind power enterprises …”

This plan, based on my speculation, would be less direct than some of China’s past business ventures. The Wall Street Journal this week discussed the process of China buying arms (including a Sukhoi-27 fighter jet) from Russia after the Soviet Union collapsed.

“After decades of importing and reverse-engineering Russian arms, China has reached a tipping point: It now can produce many of its own advanced weapons—including high-tech fighter jets like the Su-27—and is on the verge of building an aircraft carrier.

“Not only have Chinese engineers cloned the prized Su-27’s avionics and radar but they are fitting it with the last piece in the technological puzzle, a Chinese jet engine.

“In the past two years, Beijing hasn’t placed a major order from Moscow.

“Now, China is starting to export much of this weaponry, undercutting Russia in the developing world, and potentially altering the military balance in several of the world’s flash points.”

Mimicry is the sincerest form of flattery.

In the US we all understand that our esteemed politicians and mega-CEOs love being flattered. And boy have they been soaking up the glory from their decisions to send large chunks of business operations to China over the last 10 years or so.

And China, to thank them for employing Chinese labor, figures it would be flattering to replicate them, their technology, and their processes. It’s only the respectable thing to do.

But things have changed … at least from one side of the several-sided coin (popular among several-handed economists). That is, the US populous has woken up.

We know the pressure that a resurging US middle class has brought to the US political landscape, thus far primarily applied to government spending and budget deficits. The concept is simple: we’re sick and tired of big-government spending and the requisite tax-payer financing of it.

But it does not stop there – unemployment is still a major issue, keeping questions about US economic recovery swirling. That of course brings attention to Federal Reserve’s quantitative easing and its potential impact on the US dollar.

The average citizen knows, or is at least showing a refreshing desire to learn, a lot more about the US economic situation and its position among global economies. Thus, China is most certainly on their radar screens for many reasons. As our administration emphasizes the need to grow our exports (and the common understanding is that this means refurbishing jobs in manufacturing and industry in the US), China’s mercantilist trade policies are cast under a brighter light.

We now know it as Currency Wars, regardless of whether or not that’s the most appropriate term; perhaps Global Imbalances and the War of Attrition is more appropriate? Either way, the general population knows that global dealings have for one reason or another become very lop-sided.

Gaining steam, thus, is the potential for the US to impose extreme “protectionist” measures on trade with China. Congress is already tossing around ideas. But if China continues to operate in a way that amounts to Grand Theft Intellectual Property, then the screams from the middle class are going to reach fever pitch.

Much of America is scared that we’re watching the greatest nation that ever lived slowly wither away right in front of us. And we’re increasingly told that China is on an inevitable path to becoming the new most powerful nation on this earth. Of course China has quite a few substantial obstacles before that goal is achieved; but they believe that’s ultimately going to happen.

The latest revelation into Chinese data production doesn’t help. The blogosphere is all over the Wikileaks releases that discuss how Chinese GDP numbers are made up. Many people already held this belief, that China cooks its books, but Wikileaks will lend some credibility and bring greater attention. The question is: do China and the China “story” lose any credibility?

There is, of course, this:

Bank of China sets up third branch in Germany

Bank of China set up its third branch in Germany, the Duesseldorf branch in North Rhine-Westphalia (NRW) on Monday. (Xinhua/Ban Wei)

If China chooses to move deeper into the Eurozone and starts reverse-engineering the Eurozone banking system, maybe the US has nothing to worry about.