Greetings from Shanghai! China comments and articles

1. Greetings from Shanghai! I just arrived on the first stop of my one-week, three-city trip in Asia, during which I'll be doing free investing seminars here on Sunday (Oct. 14), Singapore on Tuesday (Oct. 16), and we just added Hong Kong on Thursday (Oct. 18). If you or anyone you know would like more information or register to attend, please click here, here or here, respectively.

All the rest of the items in this email relate to China.

2. Kudos to Bloomberg for the scoop on this bombshell of a story: The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies. There are very few things that Trump and his opponents agree on, but one of them is that China needs to start playing by the rules. (I can't download an excerpt because the story is blocked here – LOL!)

3. A few days ago I caught up with my source who first gave me the story (that I subsequently verified and took to 60 Minutes) that Lumber Liquidators was selling toxic Chinese-made, formaldehyde-drenched laminate flooring to unsuspecting American families. I was pleased to hear from him that the industry in China has cleaned up its act and is no longer sending any toxic flooring to the U.S. – chalk one up for whistleblowers!

4. To this day, I'm not sure if LL's senior management knew that they were selling dangerous, mis-labeled flooring – it's possible they were so incompetent that they didn't. All of the lawsuits and investigations didn't reveal any smoking guns and many foreign companies get sold all manner of bad products if they source in China and don't know what they're doing, as Paul Midler documented in his first book a few years ago, Poorly Made In China: An Insider's Account of the China Production Game. He's recently published a new, broader book that I also recommend, What's Wrong with China. It's very blunt and politically incorrect – but spot on I think. Here's the description from the back cover:

What's Wrong with China is the widely anticipated follow-up to Paul Midler's Poorly Made in China, an exposé of China manufacturing practices. Applying a wider lens in this account, he reveals many of the deep problems affecting Chinese society as a whole. Once again, Midler delivers the goods by rejecting commonly held notions, breaking down old myths, and providing fresh explanations of lesser-understood cultural phenomena.

5. Lastly, I enjoyed this short essay, Kevin Rudd's reflections from China 35 years on. Rudd is president of the Asia Society Policy Institute in New York and a former foreign minister and prime minister of Australia.

I visited China several times over the summer. Not the capital. But Shanghai, Xian and Chengdu. I hadn't been to Chengdu, the capital of Sichuan, since I was carrying bags for the then-prime minister of Australia, R.J. Hawke, back in 1986. Hawkie, as we refer to him down under, still holds the Oxford University record for downing a "yard glass" of appalling English ale in 11 seconds back in 1954. Hawkie's feat was recorded at the same Oxford pub that a young Bill Clinton smoked but never inhaled 20 years later. Great university, Oxford.

I've now lived or worked in China or traveled there more than 100 times over the last 35 years. So I have some basis for comparison on what's changing in the Middle Kingdom. Three things stand out.

First, the level of sophistication in China's second cities is staggering. Walking out into the streets of Chengdu and Xian increasingly feels like being in Tokyo and Singapore. I'm sure things outside the provincial capitals are rougher, particularly when you hit the countryside. But many of China's big cities are now as advanced as those anywhere in the world — with transport and telecommunications infrastructure better than New York or Sydney.

Second, talking to average Chinese entrepreneurs, not the huge corporate leaders who make most of the headlines, there's a sober mood at present. They fear reform has stalled in the domestic economy, and they worry about the impact of the American trade war on Chinese growth. Falling Chinese business confidence is causing many to postpone investment decisions. Therefore, get ready for much softer real Chinese growth numbers by year's end, making greater fiscal and monetary policy intervention more probable.

Then there's the environment and climate. There's a palpable shift in sentiment about the need to clean the place up. As of 2012, the country was an environmental wreck, and because of unrestricted carbon emissions (the product of decades of unrestrained industrial growth), a problem for the planet. Now the Communist Party accepts the climate science. Provincial governors and mayors are assessed on their environmental and carbon performance, no longer just growth. And the public is indicating that it won't put up with life-threatening pollution levels anymore. Chinese environmental nonprofits have sprung up across the country. So change is afoot. Not enough. Not fast enough. Not yet comprehensive. But China is no longer in denial.

China still has a thousand challenges on its hands. But in an age when the United States-China relationship is starting to slide off the rails, sometimes it's useful to have a sense of what's happening outside national capitals and the official class that inhabits them.