The power of yuan

By DAVID MOON, Moon Capital Management
July 15, 2007

When Zheng Xiaoyu was head of China's State Food and Drug Administration from 1998 to 2005, his agency approved six medicines that ultimately proved to be fake. One of the counterfeit antibiotics was responsible for the deaths of 10 people.

Add one more to the list. Last week the Chinese government executed Xiaoyu for dereliction of duty and accepting bribes. His top aide was also sentenced to death but given a two-year reprieve, which will likely be commuted to life in prison if officials decide he has been reformed.

In Japan, offenses like these are also serious. When a farm outside Tokyo reported the country's first case of bovine spongiform encephalopathy (mercifully, mad-cow disease) in 2001, a government official resigned in apparent disgrace. This, despite the fact there was no evidence that the official was responsible for actually infecting the heifer with the disease.

But make a mistake like this in China and they put you to death.

Don't mistake the Chinese government as being overly concerned with the safety of its food supply or the health of its citizens. This is the government that ran over its citizens with tanks on live television. No, the Chinese a government is concerned about its reputation in the world's trading markets.

Since the 1970s, I've been reading about the great profits that await U.S. companies when Chinese markets finally open to the west. 'Yes, Coke sells a bunch of cola now, but wait until a zillion Chinese begin drinking the stuff.'

Three decades later, we're still talking about that great untapped market in the East.

The Chinese, however, have a different idea. They look west and see customers, not suppliers. Their expectation is to sell us things. They see the rest of the world as their market, not the other way around.

Executing a former FDA official was a business decision. It's a way of saying, 'Hey U.S., we're going to do everything possible to make our products safe for consumption in your country. Want to buy some candy?'

Money may not be among the noblest objects of desire, but it is a fantastic motivator. Money is often blamed for many of the ills of society. But it seldom gets the credit it deserves.

A few years ago, do you think the state of South Carolina suddenly became concerned about the civil-rights implications of the Confederate battle flags flying all over the state? Or might officials have decided to lower the flag from the state capitol in response to a boycott of South Carolina's number one industry: tourism?

Wal-Mart recently announced a change in its policy toward youthful shoplifters. Previously, the store wouldn't press charges against first-time shoplifters younger than 18. The new limit is 16. Additionally, if the store calls the parents of a child and the guardians don't show up at the store within 60 minutes, the store will call the police, regardless of age.

The company is trying to make more money. It may have an impact on youth crime as a result.

Of course, not as much of an impact as would the government of China.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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