A Question of Honor
Posted by Larry Doyle on March 13, 2009 1:00 PM |
On January 31st, I wrote a lighthearted piece, Know Your Customer, about my personal experience with an Asian counterparty. The lesson I learned from that experience back in the late 1980’s was that business dealings in Asia are ultimately “a question of honor.” Are you honorable in your manner? Are you honorable in your engagement? Are you honorable on a going forward basis? Are you honorable in both word and deed? Obviously in a meaningful relationship, this code of honor must run both ways.
Our relationship with the People’s Republic of China hinges on American consumers’ purchase of Chinese exports and ongoing Chinese purchase of U.S. government debt. As I just highlighted in my most recent piece, Chinese exports fell 26% in February 2009. Numbers like that will make any government uneasy. During challenging economic periods, the tenuous nature of any economic relationship is captured in understanding the nuances of the Prisoner’s Dilemma.
Well, the Chinese occupant of the cell next door appears to be getting increasingly nervous. He just slipped us a note inquiring whether we will “honor” our promises in protecting his investments. The full note reads, China’s Premier Wen Worried on Safety of Treasuries.
Is this a mere sign of a nervous investor? Hardly. There is no doubt that the Chinese Premier is launching a shot across our bow prior to the highly anticipated G-20 Meeting in the U.K early next month. Please recall that the surplus nations in our global economy, primarily China, have very limited voting power in our global financial intermediaries, such as the IMF. This Chinese statement is an attempt to create increased leverage over the negotiations which will transform the global economic landscape.