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Article Review #1 - China Airs Some Very Dirty Laundry by Chen Wu of BusinessWeek Online (article date - 6/28/2004)

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Introduction

BUS 545 International Business Dr. Chapman International Business Article Reviews Submitted by: Aaron Rogers On: July 6, 2004 Article Review #1 - China Airs Some Very Dirty Laundry by Chen Wu of BusinessWeek Online (article date - 6/28/2004) According to a June 28th BusinessWeek online article, China's Auditor General Li Jinhua surprised lots of people by uncovering billions of dollars of embezzlement and monetary losses due to investment mismanagement and fraud in a recent annual report to the Chinese legislature. While the accusation came as no surprise, what was surprising was the level of corruption and the state-owned enterprises to which most of the corruption charges belonged. Of the organizations that exhibited the most fraud were the state-owned Industrial & Commerce Bank of China, China Life (parent of NYSE listed China Life Insurance), The Bank of Communication, China State Power, 41 different state agencies, and the General Administration of Sports. To summarize some of the findings, at the ICBC alone, nearly $2 billion dollars of illegal loans were discovered and this on top of $8.3 billion in fraud and financial irregularities reported in January of this year! A China State Power, the General Auditor's report uncovered more than $947 million worth of losses due to bad investment decisions, illegal loans, and blind lending practices in the years from 1998 to 2002. ...read more.

Middle

Deloitte's report further predicted that by 2010, global financial institutions will have moved 20% of their operating costs to low-wage countries. This job off-shoring trend is one that is troublesome to me as an IT professional, but one that I clearly understand from the perspective of management. The negative implications of off-shoring seem obvious: increased unemployment, job demotion, and/or lack of advancement for IT workers whose jobs are being replaced, and political and media backlash, but off-shoring has its positive sides as well as its negatives. Companies that off-shore jobs to low-wage countries benefit from the resulting operating cost savings. The costs savings can generally be applied directly to the company's bottom line, which results in higher net profits to the shareholders. The real question here is not whether or not off-shoring is "worth it" financially, because it clearly is. The question is whether or not off-shoring is ethically "worth-it". If U.S. based companies continue to send IT and CS jobs to low-wage countries at the rate they currently maintain, the unemployment rate in the US will trend upward and the displaced workers will be forced into a position where they must change accepts lower paying jobs in order to remain employed in the industry. In some cases, accepting a lower-paying job may mean that the spouse must also seek work, or if already working, more hours to supplement the lost income. ...read more.

Conclusion

Among the many problems in Latin America is its economic dependence on commodities for more than 50% of its exports. Johnson states that "...commodity driven economies are politically explosive: they tend to reproduce plantation societies and mining towns, not create an expanding and increasingly well-educated middle class, and they make Latin America more vulnerable than most to highly cyclical demand in richer nations." In spite of all the troubles, most Latin American politicians know what needs to be done. There needs to be another wave of reform to create a real working private sector. Regulations in Latin America need to be eased and the ineffective court system needs to be over-hauled. Knowing what needs to be done, and doing it, though are two different things. If the economic and political turmoil in Latin America continues, the world could see a rash of governments topple and new wave of dictatorships in place in many countries including Bolivia, Ecuador, Peru, and others. The newly created totalitarian governments will more than likely not be on friendly terms with the US and will probably tighten trade regulations and raise import tariffs to unacceptable levels thereby essentially shutting out foreign goods and capital. While this may increase local jobs in the short-term, history has proven these methods will fail in the long term (Russia, China, North Korea, North Vietnam, etc...). Latin America needs strong-willed and strong-voiced leaders to step up and implement true economic reform and win back the trust of their various peoples. ...read more.

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