7-31-18 Alaska Business Leader Opines On China

Alaska/China Bedfellows

-Opinion-

China purchases a Papa Bear’s percentage of Alaska’s prodigious seafood market.  No worries, though, because the interaction is largely year to year business interaction between the Communist country and a number of private sector risk takers.

Alaska’s governor believes that the seafood experience bodes well for his plan to finance a $40-60 billion Arctic gas pipeline/LNG project using long term contracts with China as security for a finance plan.

Apples and oranges.

A large number of private sector investors assume the risk that a seafood deal could spoil.  But the multi-billion dollar gas deal would be a contractual relationship between Communist owned Chinese energy and finance companies and an Alaska government-owned scheme controlled by temporarily elected and appointed politicians and bureaucrats.  What could possibly go wrong?

One of Alaska’s most experienced, international energy project leaders is Pete Leathard.   Last week he was offering us and others general comments relating to China.  We asked him for permission to convey that wisdom to our readers who are or could be involved in energy projects with China in the near future. -dh  (Reference: our many editorials on this subject, including this one.  Also: Some Alaska seafood exports escape China’s retaliatory tariffs … FISH FACTOR: Alaska seafood exports hit with tariffs by China Alaska Journal | FISH FACTOR: China poised to snap up even more …)

Pete Leathard, Alaska Business Leader  (Background Synopsis)

Email Correspondence Last Week:

Leathard: I saw the following article that I thought fit what most of us, who have for many years dealt in the international business world, have known were deliberate Chinese Government sanctioned violations of world trade practices and the outright stealing of intellectual property. The positive cash flow China has accumulated has funded its growth as a world leading power.

They have used the influx of positive cash flow internally and also in an aggressive program of investments in third world countries in which Chinese companies are contractually sole-sourced the sales of materials, equipment, labor and management income while the recipients of the investment funds pay them back as loans. It is like being a World Bank type lender but with a self serving double payback. While this practice is not against international law, the greed of the third world countries to accept these loans and the high level of corruption often present in these countries could cause a devastating strain on their financial well being.

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President Trump didn’t start a trade war with China – he’s trying to end and win the trade war that China launched against the U.S. As the president has frequently pointed out, the Chinese have been undermining the world trade system for years, and no country has been hurt more by China’s unfair actions than America.

America’s trade deficit with China  is so large it almost defies comprehension. Since 2012, our yearly deficit in the trade of goods with China has consistently topped $300 billion. Last year, it was over $375.5 billion. In the first five months of this year it topped $150 billion.

A primary reason for this imbalance is that the Chinese have been blocking American manufacturers and food producers for years through discriminatory trade rules and prohibitively expensive import tariffs designed to keep U.S. products out of its domestic markets.

It’s not that American firms are unable to compete with Chinese companies. Rather, it’s because China systematically takes measures to protect its industries and businesses from having to compete with American companies on a level playing field.

The Chinese government gives huge subsidies to its own firms and excludes foreign companies from doing business in China. It regulates foreign firms unfairly, blocks imports through dishonest health and safety rules, and creates China-specific standards to prevent market entry.

In addition, China forces foreign firms to transfer their technology to Chinese companies and comprehensively loots commercial secrets, especially from American firms.

No one (outside of Chinese officials) denies any of this. In March, the U.S.-China Economic and Security Review Commission – a bipartisan congressional advisory body – published a list of 10 ways China cheats on trade called “China’s Technonationalism Toolbox.”

This list includes China’s continued “pervasive industrial espionage against U.S. companies, universities, and the government” as well as…

(MORE HERE)

Harbour: This is a very important message for America in general and for Alaskans in particular.

Leathard: To add to my prior statements I wish to make it clear that I have no ill will towards China. I just wish to portray what I have witnessed in my dealings. I definitely do not categorize the Chinese with a broad brush as Bad. They have been acting in their own best interest and letting the rest of the world protect its own interests. The bad is that we have allowed China to do so.

I believe we have allowed that behavior mainly through short term, self serving greedy interests plus naïvety as to the long term impact. Also I have found with the honest business leaders in the western world we tend to have this notion of “fair play” where in general you do not take advantage of partners. I found that this concept was not followed in the eastern business culture of “looking after ones own interests”. They adamantly protect what they believe is theirs. They expect you to do the same relative to your own. I have heard the phrase from partners more than once, “why should I concern myself with their interests; they are big boys”.

That does not mean they are not honorable you just need to be sure you are both dealing with the same honor playbook.  In the distant past I had many large, personal and business dealings with Chinese companies.  We completed very precise and toughly negotiated contracts which they honored. Relationships are very important but business is business. 
When Governor Tony Knowles (NGP Photo by Dave Harbour) went on his gas trip to China the Government officials told him they wanted the safety of a secure supply of gas from Alaska – as long as Alaska gas price was competitive on the world market with other sources of supply.
If it is in their interest and they take the long term view of economics and could possibly do a deal for Alaska gas. My concern in contracts and deal making is that we may be fielding the equivalent of a high school team against seasoned Pros.
To be sure if they do a deal it will because they see the benefit in their interest and not Alaska’s.
Harbour.  As to a government to government deal with the LNG project, your comment about amateur v. pros applies. 
But we are at an even greater disadvantage.  We are a quasi-sovereign state within a sovereign country subject to lawsuits, changing regs/taxes and international disputes. 
Their team has institutional memory in addition to vast negotiating expertise.  Our government team is composed of temporarily elected and appointed politicians and bureaucrats.  There is one Chinese ‘party’.  There are any number of Alaska ‘parties’ and factions within those parties.  Therefore, even if our current crop of negotiators were as good as theirs, after the next election the Chinese would very likely have the same institutional memory and leaders whereas we might be moving up a whole new farm team. 
That’s why dictatorships seem to be a lot more efficient than democracies, at least in the short run.
That’s also why  democracies and free republics should stay out of business and, instead, support the businesses that have the expertise, institutional memory and risk taking ability to get the best deals possible.
Thanks again for weighing in.  Your experience is extremely valuable to Alaska’s decision makers and trade enthusiasts alike.

Leathard.  I agree very much that Government has no business managing this process.

The problem is that business is not getting support from government.  Instead our Government causes roadblocks that drive up costs. For example, it used to take up to two months to get a permit for (a certain type of) additional development.  I have been told that now it takes sometimes two years to obtain the same permits in relatively benign areas.
My latest take on costs is that the Alaska gas pipeline under present day economics is not financially viable.

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About the Author:

Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska, a Commissioner Emeritus of NARUC, NARUC's Official Representative to IOGCC and Vice Chairman of NARUC's Gas Committee. He served as Gas Committee Chairman of the Western Conference of Public Service Commissioners. He also served as commissioner of the Anchorage Bicentennial Commission and the Anchorage Heritage Land Bank Commission.He earned a Bachelor of Arts Degree: English, at Colorado State University, a Master of Science Degree: Communications-Journalism at Murray State University and graduated from Utility Regulatory School for Commissioners at Michigan State University. He served as a Vice President for Communications and Public Affairs at Alaska Pacific University, taught bank marketing classes at the University of Alaska and was an English teacher at Los Alamos High School.Harbour served in ranks of Private - Captain during a 4-year assignment with the Army in Korea, Idaho, Georgia and Fort Meade and received the Meritorious Service Medal among other commendations.Harbour is also a past Chairman of the Alaska Council on Economic Education, the Alaska Oil & Gas Association Government Affairs Committee, the Anchorage Chamber of Commerce, the Export Council of Alaska and the Department of Commerce's District Export Council. He is a past President of the Alaska Press Club, American Bald Eagle Foundation, Consumer Energy Alliance-Alaska and Common Sense for Alaska.Harbour was instrumental in founding the American Bald Eagle Research Institute (UAS), the Alaska Support Industry Alliance, the Downtown Anchorage Business Partnership, and Arctic Power.He also served as CEO of several small Alaska organizations, including the Anchorage Parking Authority and Action Security, Inc. Harbour is also Chairman Emeritus of the Alaska Oil & Gas Congress.Harbour's wife, Nancy, is a professional, performing arts administrator and his three boys, Todd, Benjamin and William work in the fields of environmental management, energy marketing and medicine.
By |2018-08-02T06:00:39+00:00July 31st, 2018|AGDC, China, Commentary, LNG, Trump Administration Energy Initiatives|0 Comments