"The China Price" - The best business article I have seen in years.

Interesting article,

I run several websites and have outsourced design / script creation & installation to several foreign countries. India and Russia stand out as leaders in this field.

I worked with guys in Peru, Germany and lots of places. /no matter where you go, the trick is finding someone dependable, but that's true here in the states as well.

Some of these guys / gals are tickled pink to work for $5 to $7 per hour for the exact same work that might cost you $50 to $150 in the US.

There are some items that the shipping cost / delivery times have so far prohibited China from competing. One biggie is packaging.

Custom packaging ... cardboard boxes to be exact. They can compete in plastic bags and such, but it's surprising how many products are shiped in a cardboard box.

Custom orders need to be delivered near a given day. You need plenty of trees. Shipping is a high cost. If you have to ship trees or roll stock to your manufacturing plant, that doubles your shipping cost.

Heck, I could do some deals if I could find a way to compete in this area

 

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SouthAmerica: Reply to Wilburbear


I just mentioned the example of the shoe business in Brazil to make a point.

You have a solid and long standing business, and produce anything (in this case shoes) of very high quality and decent price.

The Chinese comes from nowhere and in a matter of 3 years they put your entire industry out of business. The speed at which they put you out of business is unbelievable.

I had a friend that had an import business in NYC, and he imported all kinds of high-end stuff from Brazil such as shoes, belts, women purses, leather traveling bags, etc.

He knew the leather industry very well, and he told me that overnight the Chinese started producing all these things in China with the highest level of quality, as good as the best stuff made in Italy or in Brazil, but for less than half of the price of its competitors.

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It is the same when south american farmers want to enter the European banana market. If EU opens its market at the WTO negociation, farmers in former carabean colonies will go out of business within few months.

 

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June 1, 2005

SouthAmerica: Here is some interesting information from the “Fortune Global Forum” that took place in Beijing, China two weeks ago.


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May 25, 2005

“Fortune Global Forum celebrates corporate profiteering in China”

Some 800 economists, top government officials and business leaders from global corporate giants gathered in Beijing on May 16 for the 9th “Fortune Global Forum”, hosted by New York-based Fortune business magazine.

The presence of hundreds of CEOs demonstrated the degree to which global capital depends on China as a crucial production base and source of cheap labour. This year’s theme, “China and the New Asian Century”, focused on plans for billions of dollars of further investment in Chinese-based auto production, energy projects, capital markets and third generation (3G) communication technology.

Fortune’s senior editor David Kirkpatrick declared: “So many of the companies that our magazine are working with are getting more and more interested in China everyday. I think the concept is that China is more and more integrated into the world economy than it has ever been before. And as a result, we need to understand the changing China and so do the Fortune 500 CEOs.”

More than a dozen private jets arrived in Beijing, carrying some of the world’s most powerful capitalists. Time Warner CEO Richard Parsons summed up their enthusiasm: “We are happy to choose Beijing as the venture for the forum, and we will make it become a focal point of the world business circle.”

… Some 5,000 firms in China supply US retail giant WalMart, which last year purchased over 10 percent of total US imports from China—or $18 billion worth of goods. Most of these suppliers, whether Chinese or foreign-run, are sweatshops churning out shoes, toys, clothes, home appliances or consumer electronics. WalMart also has 45 retail outlets in China, with more planned. CEO John Menze, who was at the conference, took the opportunity to attend the opening ceremony of WalMart’s newest shopping plaza in Beijing.

… A significant example of how a declining company seeks to maintain its position by entering into China is General Motors. Its CEO, Richard Wagoner, commented during the conference that China is now the US auto company’s second largest market, with half a million units sold last year. As a result, GM made $417 million in profit in China—one of the few places it is making money. Even though GM has recently had its debt reduced to junk-bond status, the firm is planning to invest another $3 billion to double its capacity in China to 1.3 million units by 2007.

… China’s own corporate weight is negligible. Just 16 Chinese companies, mostly state-owned monopolies, qualified to enter Fortune’s Global 500 list last year. The assets of the so-called “China 500”—the largest Chinese-based firms—represent only 5.61 percent of those of the Global 500, while their profits represent just 5.22 percent and revenue 7.3 percent.

As a result, the expansion of the Chinese economy and the continued growth of Chinese enterprises are still completely dependent upon the continued massive inflow of foreign capital and technology that has marked the past 15 years in particular.

Politically, the attractiveness of China to world capital rests on the Stalinist regime’s ruthless police-state repression of the Chinese working class and rural poor, ensuring an apparently inexhaustible supply of cheap, compliant labour.

… In 1989, Western leaders and the media shed crocodile tears over the massacre of workers and youth in Beijing’s Tiananmen Square, while hailing the end of Stalinist regimes in Eastern Europe as a victory of “democracy over dictatorship”. It did not take the corporate elite long, however, to recognise that the 1989 repression was a sign that Beijing was prepared to crush any opposition to the impact of its pro-market policies. From 1992 on, China became the largest destination for FDI in the developing world.

The fulsome praise for the Chinese regime’s “one-party state” also reflects a sentiment in corporate circles that anti-democratic methods will be necessary to ram through pro-market policies in the US and elsewhere in the face of deepening social polarisation.

The “silliness” referred to by Fortune expresses the contempt of big business for the democratic rights of working people and any opposition to the continuing decline in their living standards.

Since 1998, the Chinese regime has sacked 27 million workers and shut down of thousands of state-owned factories. Police and paramilitary forces have suppressed waves of protests and demonstrations in working class communities. Fortune magazine wants similar methods applied in other countries.

… Morgan Stanley chief economist Stephen Roach was representative. China, he warned, had to put “stability before everything”. The country’s high economic growth, he pointed out, was unsustainable due to the inevitable bursting of the country’s investment bubble and its dependence on exports to the “most unstable” major economy, the United States. A recession in the US would have tremendous repercussions on China.

To offset the danger of external pressure plunging China into downturn, some economists are calling for a shift to domestic consumption as the motor of economic growth. Roach noted, however, that “household consumption [in China] fell to a record low of 42 percent of Chinese gross domestic product (GDP)—the smallest consumption share of any major economy in the world” in 2004.

The low level of consumer spending expresses the fact that the huge influx of foreign investment has not translated into better living conditions for the Chinese masses. Rather, the restructuring of the old state-owned sector has led to millions of workers being laid off. Free-market policies in rural areas have driven tens of millions of poor peasants off the land and forced them seek work in the cities and free trade zones as super-exploited labour.

As wages and rural incomes stagnate or even fall behind economic growth, ordinary people face a deepening social crisis. They are no longer provided with guaranteed jobs, health care, public housing or education. Employers refusing to pay wages or workers being laid off overnight are common occurrences in China. The constant insecurity lies behind China’s high saving rate. Ordinary working people have to put aside a significant proportion of their incomes to safeguard against the prospect of suddenly losing their jobs or having family members fall ill.

For hundreds of millions of Chinese workers and peasants, the economic processes celebrated by the Fortune Global Forum mean appalling working and living conditions, a burgeoning gap between rich and poor and rampant official corruption, all enforced by pervasive political repression.

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SouthAmerica: After I posted some information in the PBS message board on April 2, 2005 regarding the “China Price” someone who is a regular member of that board (Darkmoon) asked a few questions, and here are my answers to his questions regarding China.


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SouthAmerica: Quoting from my article about OUTSOURCING:

The Disappearing Job - Worldwide.

Another study published in October 2003 said: “Economists at Alliance Capital Management LP in New York looked at employment trends in 20 large economies and found that from 1995 to 2002, more than 22 million jobs in the manufacturing sector were eliminated, a decline of more than 11%.

Contrary to conventional U.S. beliefs, the research found that American manufacturing workers weren't the biggest losers. The U.S. lost about two million manufacturing jobs in the 1995-2002 period, an 11% drop. But Brazil had a 20% decline. Japan's factory work force shed 16% of its jobs, while China's was down 15%.

Joseph Carson, director of global economic research at Alliance, says the reasons for the declines are similar across the globe: Gains in technology and competitive pressure have forced factories to become more efficient, allowing them to boost output with far fewer workers. Indeed, even as manufacturing employment declined, says Mr. Carson, global industrial output rose more than 30%.”


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April 2, 2005

SouthAmerica: Right now China and Japan are funding the US standard of living. They keep selling all their goods in the US and lend the US the money for Americans to continue to buy their stuff on credit.

If the Chinese and Japanese central bankers were not lending a ton of money to the US the interest rate in the US would be sky high, in turn affecting the real estate market, the stock market, and the entire American economy.

Let me give an example of what China and Japan are doing regarding the US economy. China and Japan are the bankers in this case, and they are lending a ton of money to the US; its customer.

If China and Japan were a multinational corporation, by now they would have stopped lending the money to the US some time ago. If they did still lend any money to the US they would demand a much higher interest rate for their money.

But China and Japan are not corporations and their central banks don’t act as corporations; they are more interested in keeping the people in China and in Japan employed. That is why they still lending money to the US and keep piling up sky high all that debt from the United States.

China has a major problem keeping its labor force of 800 million people employed - out of an estimated total population of 1.3 billion people. China has to import as many jobs as they can from around the world.

Think of China as a bank that keep lending money to you even though all you are doing is living out of this line of credit. The banker knows that he is losing money on this deal, but he is not lending money for the profits that is generated. The major goal of this banker is not profits; he decided to lend you the money to keep his work force employed.

By holding all these i.o.u.’s from the United States in dollars, China and Japan are taking a beating in the value of their portfolios when compared with alternative investments in Euros, in gold, and other currencies.

There are millions of people in financial trouble in the United States today. And George Bush’s tax breaks does not help these people at all, since they pay no income tax.

When you are unemployed and have no income, you also don’t have to pay any income tax; no even the minimum alternative tax. It works this way for millions of Americans: Zero income = Zero income tax = Zero purchasing power.


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April 2, 2005

SouthAmerica: In my opinion China will not invade Taiwan for obvious reasons. China would invade Taiwan only as a last resort in case Taiwan actually declares its independence.

China’s invasion of Taiwan can’t be considered as an occupation such as the US in Iraq.
Taiwan was part of China; it is just a matter of a country re-unification.

China does not want to damage Taiwan in any way; they need the Taiwanese people’s know how to further China’s rise to the status of a superpower.

The Taiwanese people are very clever and they are very good businessmen, they understand very well the capitalist system and they have an outstanding record in developing their economy and new markets since 1949.

China needs Taiwan, and Taiwan needs the Chinese massive market, it will be a win-win situation for both parties when they finally reunite in the near future. I have no doubts eventually - China and Taiwan will reunite in a peaceful manner.


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Part 1 of 2

Part 2 will follow.

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SouthAmerica: Here is Part 2 of 2


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Darkmoon wrote: As your stats reveal, China's dilemma was figuring out how to manage its immense internal problems. Of course I don't have proof, but I'd be willing to bet quite a bit that China won't be invading Taiwan anytime soon. Its approach will be the soft sell. For example, have you been following the recent 'scandal' that the opposition party in Taiwan the venerable Kuomintang party has had secret talks with the Chinese? Hmm, I wonder what they possibly could be talking about.... If the opposition party wins the next national election, Taiwan will be the next Hong Kong in a decade.


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April 2 2005

SouthAmerica: I have a hard time trying to figure out how to fix things in Brazil a country with less than 200 million people. I have no idea how anyone can run the Chinese economy.

In reality China is two-countries in one, in the same manner that Brazil is two-countries in one. In Brazil we have 80 million people living a life no different than a life of an average European, or an average American, then we have the other Brazil of over 100 million people living in complete poverty.

In China we probably have 150 million Chinese living the good life; with a good job and a decent standard of living, and then you have the other China with 1.2 billion or more people living in poverty.

I heard in the radio the other day that 70 percent of the Chinese population today who are peasants - still living out of their local agricultural system. But as China economy develops in the near future, these people will be displaced and they will flood the already overpopulated major Chinese towns. If only half of these people decide to move to the large Chinese cities plus the regular growth of the population, we are talking about 600 or 700 million people moving to town. The Chinese will need to build approximately 30 new cities of the size of Sao Paulo or Mexico City (about 20 million people)

Where do you put 30 new cities with 20 million people each? You need a reservoir of water for each city, an infrastructure and everything else that a big city needs.

If anything I find amazing that China is doing so well, and doesn’t blow itself up into a nasty civil war between the have’s and have not’s people.

China is doing very well in the global economy, but even though China is taking away a lot of jobs from the US, Europe and South America, China still losing more jobs from their old structure than they are wining with the new ball game – Only Brazil had a bigger loss of manufacturing jobs during the period 1995 – 2002 than China. The major economies of the world had a net loss of over 22 million manufacturing jobs during that period.

China has over 100 million people unemployed today; and many millions more are underemployed.

I find China to be a mind-bogging place to me. If I were in charge of the economic development of China I would not know where to start.

Let me put in perspective to you: look at the United States supposed to be the richest country in the world, but when you look around the infrastructure of the country it is very old and obsolete and in disrepair; the subway system in New York needs at least $ 17 billion dollars in the next 5 years just to keep the system from collapsing. Plus the New York water system, the power grid, and so on need many more billions of new investments.

Then you go around the United States and you find out that the same story is going on in city after city. To bring the current US infrastructure to an acceptable level the US government needs to make at least $ 1.6 trillion dollars investment.

If the United States with only 295 million people can’t keep up its infrastructure in decent shape, can you imagine the problem that the Chinese must have with 1.3 billion people?

How do you provide health care and education for 1.3 billion people? How 1.3 billion people move inside a country a little bigger than the US? Everything about China is mind-boggling to me; how to supply water to the population? How about the transportation system? How they are able to feed 1.3 billion people?

I agree with you that the Chinese leadership is “not” a bunch of morons; otherwise if they were then China would be in big trouble today.

Can you imagine George W. Bush as president of China? That place would be in chaos in no time. I can see him saying to the Chinese people: “for now on you people can have as many babies as you want.” He would start here, and from there would be all down hill for the Chinese. After a few years in office, he probably would break a Chinese record, and he would be considered the worst Chinese leader in 4,000 years.
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Darkmoon wrote: I think you bring out a very good point not talked about enough. The sheer complexity of feeding, clothing, employing 1.3 billion people is indeed mind-boggling.

You point out the scary prospect of building 20 more Mexico Cities, and the energy, water, etc that would be needed to support such megapolises. To this, I think they will have to find a way to quantum leap over western style development somewhat and find ways to invigorate the rural areas and discourage urban flight. If not, as some world systems theorists I read recently account, China's path to economic superpowerdom will have many bumps.


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SouthAmerica: I see many articles talking about the flexibility of the US job market as compared with European, and Japanese labor markets.

What a bunch of BS.

There is no safety net in the United States today. And the American system is not that good at creating new jobs. For a country that believe that they are very good at creating jobs and want to tell all the other counties around the world how to restructure their economies to be more efficient and make the best use of its labor force, in my opinion the track record of the US economy it is pathetic.

Over 50 % of the unemployed in the United States today has at least a college education. And people from the US has the balls to say to Europeans and South American countries that they have to change their labor laws to be more flexible to market demand.

Here in NJ, the NJ Labor department has an office set up to help unemployed-people who have at least a college education. I met many people at that office who got their education in the best American universities, and they were not able to find a job.

No one in his right mind would blame most of this people’s unemployment on his or her lack of skills. If anything the American job market system is the most wasteful system in the world – when they can’t create opportunities for such a pool of well-educated and talented people.

It is a joke to me that the US economy was able to create only 110,000 jobs for the month of March 2005. This is the best that the US government and American businesses can do?
When you start looking at the quality of the data then you find that the situation it is even more pathetic when the jobs counted as being created are jobs that were shifted from one government agency to another (EX: from FBI or CIA to Homeland Security) the statistics just show the job at the Homeland Security as a new job creation, when that person maybe was transferred from one of the other government agencies.

The other jobs that are counted as newly created jobs are part-time jobs with no benefits, or jobs making close to minimum wage at Wal-Mart or Targets. The job market in the US it is a pathetic tragedy.

And American companies are helping the American job market get even worse; since they are replacing labor with new technologies, they are outsourcing good paying American jobs by the millions to foreign lands, and they are merging corporations to eliminate thousands of jobs at the time. (EX: Gillett and P&G)

Here in the US the system has a problem creating enough jobs to keep the US population fully employed. The best these guys can do is in the range of 100,000 to 200,000 jobs per month (and includes a lot of BS jobs to inflate these figures)

Now going back to China. How do you create a job for all these unemployed Chinese, and the other ones in the pipeline?

How many new jobs China has to create per year to keep its population employed? And remember China’s economy is not using technology of 50 years ago and trying to employ as many people as they can. China is turning themselves also into a state-of-the-art economy with advanced technologies in many areas, and that implies an efficient use of labor and new technologies.

How do you balance all of this?

China can’t use the American model of economic development. China has to create a state-of-the-art economy of the future. They can’t have a highway system such as the US, and our planet can’t afford to have 1 billion Chinese people driving SUV’s.

China has to come out with an entire new system of transportation, and more efficient housing to improve the standard of living of their people, but at the same time not creating all the wastefulness and pollution that the American economy imposes in the rest of the world.

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The author correctly identifies the Chinese economic system as Stalinist. The Stalinist system combined two elements: an average wage much lower than the market wage and high bonuses available for a few showcase workers which served as an incentive. Earlier Lenin conceived of a New Economic Policy which was state coercion combined with market based incentives.

Wall Street loves this kind of system: central control with market incentives. These are the same kind of people who said the South couldn't give up slavery because the economy required it.

Throughout the centuries these people have always existed believing nothing would get done unless you forced someone to work for free or tricked someone out of their wages. In many parts of the world, such beliefs still exist such as in the gang-dominated economy of Bagdad or in the worker-debt scams they run in India or Asia.

Wall Street loved Lenin because of his NEP. They loved Stalin. If you read the press of the time he was that era's 'China.' Wall Street did business with the militarists of Japan and they thought Hitler was a good business bet. Wall Street loves China now for the same reasons: its a system which is a near as you can get to slavery without actually bringing back the whips and shackles.

 

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China's (Petty) Fiscal Crimes
By Sebastian Mallaby

Washington Post - Monday, June 6, 2005; Page A19

For an example of what stokes anti-Americanism, consider the current tone on Capitol Hill toward China's economic policies.

China is getting hammered for its currency peg, its violation of intellectual property rights and its bad habit of supplying Americans with cheap clothing. All this is supposed to be sinister, evil and unfair. Fully 67 senators back a bill that would impose a 27.5 percent tariff on all Chinese goods unless Beijing ups the value of its currency. Bowing to congressional pressure, the Bush administration recently announced quotas on imports of Chinese clothing.

This is crazy. China's political system is odious, and its arms buildup is menacing. But its economic performance is neither sinister nor evil: It lifted 400 million people above the $1-a-day line between 1981 and 2001, a period when the net progress against poverty in the rest of the world was zero. And China's growth is not unfair. To the contrary, China has become a better global economic citizen than reasonable observers could have predicted.

You think China does not abide by international rules? To meet the terms of its accession to the World Trade Organization, China abolished or amended 2,600 legal statutes and regulations, as Neil C. Hughes notes in the latest issue of Foreign Affairs. The compliance continues: China is pressing ahead with its WTO commitment to open its capital markets to foreign competition by 2007.

You think China discriminates against imports? Between 2000 and 2004, China's imports from the United States doubled. China imported 60 percent more American goods than France last year, although the French economy is bigger.

You think China discriminates against foreign investors? In the past 25 years, China has taken in 10 times more foreign investment than Japan did between 1945 and 2000. As a result, more than half of China's exports are made by foreign subsidiaries.

You think China nonetheless contributes in a major way to the U.S. trade deficit? Actually, China's current account surplus (trade plus a few other cross-border payments) last year was just over half the size of Germany's, although it's true that China's is expanding quickly.

Look, the U.S. current account deficit with the rest of the world came to $666 billion in 2004. There's no way this can be blamed on the Chinese surplus, which came to a mere $56 billion. Members of Congress who worry about the world's unbalanced trading pattern should paint those numbers on their walls: China's contribution to the imbalance last year was one-twelfth the size of America's.

Congress is beating up China for its clothing exports because of a surge early this year. Fair enough, you might suppose; surges suggest cheating. But this particular surge happened because Chinese exports had previously been suppressed by protectionist quotas. Now the Bush administration is reimposing quotas all over again. If anyone can be accused of distorting markets in an unfair way, it's the United States rather than China.

Congress is also beating up China for its currency policy and its piracy of U.S. intellectual property. Yes, China pegs the yuan to the dollar, a policy that keeps its value artificially low and its exports artificially competitive. And yes, Chinese pirates rip off American music and software. But Congress should keep this misbehavior in perspective.

China's cheap currency, like America's budget deficit, contributes to a lopsided global economy. But neither the United States nor China is going to change unless change serves its own interests.

The cheap currency policy creates inflationary pressures in China, and at some point it should go. But the Chinese have kept the lid on inflation so far; meanwhile, it creates manufacturing jobs for the millions who are deserting the countryside or leaving inefficient state-run enterprises.

Besides, even if the Chinese revalued the yuan substantially -- say, by 10 or 15 percent -- and even if other Asian exporters followed, the result would be a fairly modest dent in the U.S. current account deficit. China's currency policy is an economic misdemeanor rather than a felony.

Equally, Chinese piracy is real, and it presents a bigger threat to the United States than exports of T-shirts and bras: The clothing industry is marginal to U.S. prosperity, whereas intellectual property is central. But some level of piracy is endemic in all developing countries, which have an interest in spreading software around cheaply rather than rewarding the foreigners who invented it. Given this logic, it's striking that China does have good anti-piracy laws on its books. Although enforcement remains a problem, the Chinese are at least working on it.

To put these quarrels in perspective, Congress should recall its debates over China's WTO membership five years ago. Then, it seemed reasonable to predict that Chinese cheating would create a flood of complaints to the WTO's dispute-settlement tribunals, causing the system to grind to a halt.

The really big news is that this has not happened. Relative to older Asian tigers, notably South Korea and Japan, China has developed in an open, import-friendly way. It is trying to play by global economic rules, even if its record isn't perfect.

But who does have a perfect record, anyway? Not the Europeans, whose inflation-fighting sado-monetarism holds back global growth. Not the Japanese, who are the kings of farm protectionism. And not, for that matter, the U.S. Congress itself. What's Congress doing about the U.S. budget deficit, about egregious farm subsidies or about the scandal of U.S. anti-dumping laws that are rigged against foreigners? No more than China is doing about its problems, actually.


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other thing: everybody ever looked up any china stock index over the last five years? surprisingly bad performance?

 

You completely missed out the gulags, a.k.a. slave camps.