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2004-03-05 China-Japan-Koreas

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Posted by Super Hose 2004-03-05 9:13:17 AM|| || Front Page|| [5 views since 2007-05-07] Top

#1 Diplomatic ties with Liberia aren't really worth much.* Defense expenditures have traditionally risen with the growth of the Chinese economy. (Although most of the growth is in the coastal areas, the inland areas are being pulled along - a rising tide lifts all boats). Given the size of China's population, it's clear that China will become a big player in the decades ahead, assuming reasonably rapid growth continues**. Total nominal GDP is already at 1/4 Japan's level. This gap is likely to narrow, as China only needs to be at 1/10 Japan's income level on a per capita basis in order to reach Japan's total nominal GDP (China has 10x the population).

* Trade ties are another matter - but most countries will trade with other countries regardless of diplomatic relations. This was how South Africa managed to purchase oil to run its industries throughout its diplomatic isolation.

** When income levels reach $3K per annum (about 10 years hence), growth will slow substantially, but not necessarily grind to a complete halt. Countries already at these income levels (Thailand, Malaysia, et al) will also have grown their incomes, preserving a gap that will keep Chinese labor competitive on a cost basis.

Posted by Zhang Fei 2004-3-5 10:26:50 AM|| 2004-3-5 10:26:50 AM|| Front Page Top

#2 Countries already at these income levels (Thailand, Malaysia, et al) will also have grown their incomes, preserving a gap that will keep Chinese labor competitive on a cost basis.

Actually, it's the narrowing of the gap that will substantially slow the Chinese economy.

Posted by Zhang Fei 2004-3-5 10:29:32 AM|| 2004-3-5 10:29:32 AM|| Front Page Top

#3 When income levels reach $3K per annum (about 10 years hence), growth will slow substantially,

ZF any idea what percentage of China's growth is due solely to labour cost differential? I've a hunch it will be less and less important.

Posted by Shipman 2004-3-5 11:33:16 AM|| 2004-3-5 11:33:16 AM|| Front Page Top

#4 Sophistication? New approach? Bull. This is the same diplomatic arm twisting China has been using since 1948. Reporters need to read a few history books before they open their mouth.

Posted by john 2004-3-5 12:28:02 PM|| 2004-3-5 12:28:02 PM|| Front Page Top

#5 ZF any idea what percentage of China's growth is due solely to labour cost differential? I've a hunch it will be less and less important.

Chinese growth is entirely due to labor cost differential. Most of the plants that used to be based in Northeast Asia (Japan, Korea, Taiwan, Hong Kong), Southeast Asia (Malaysia, Thailand, Singapore) or Mexico* have moved to China because of this cost differential. Most of the goods made in Chinese plants is re-exported - the Chinese market remains tiny relative to the developed markets. The potential is there, but both the economy and the market will take some time to develop, and growth in both areas will slow down substantially, once the differential narrows.

Cheap labor matters because China's business environment isn't ideal. Doing business in China is not for the faint of heart - expropriation by well-connected locals (or from officials using locals as frontmen) is enough of a hazard I personally know of people who've been gypped. With (typically required) Chinese partners, a deal is never a deal - things are always subject to renegotiation - unless the deal is in their favor. (And having a contract means very little - judges are routinely bought, plus the fact that foreigners are felt to have a responsibility to the local partner's disproportionate enrichment that overrides any detailed provisions written into a contract. In Chinese legal proceedings, foreigner's interests basically don't count).

* Mexican unskilled labor makes a few dollars an hour at the maquiladoras right across the border. Chinese unskilled labor makes a few dollars a day, for an 11-hour day. For labor-intensive work, there's no substitute for low wages.

Posted by Zhang Fei 2004-3-5 12:52:30 PM|| 2004-3-5 12:52:30 PM|| Front Page Top

#6 I don't imagine that you have to throw much money in the directions of benefits when you move into China; unemployment benefits, paid sick leave and 401K contributions are unlikely to be demanded by the Chinese "labor unions." Workman's Compensation, EPA regulations and Tort attacks are also non-players. All their is to pay is the kickbacks and protection money - what a bargain.

Does anyone know if the Japanese work force still expects lifetime employment after hiring?

Posted by Super Hose 2004-3-5 3:59:25 PM|| 2004-3-5 3:59:25 PM|| Front Page Top

#7 Thanks Zhang Fei, I didn't realize the differential in wages was that large between China and Mexico.

Posted by Shipman 2004-3-5 4:18:50 PM|| 2004-3-5 4:18:50 PM|| Front Page Top

#8 Gee, the Chinese gave Liberia cleaner water, something the UN's supposed to do, right, Bono?

Isn't that why you go to Congress to get more of my tax money?

I said a long time ago, Bono could get 24 of his rich rock star friends together and contribute $1 m each for clean water for one if those African countries, I forgot which one, and they could have had clean water w/in a short period of time. But NOOOOOO, he comes to Congress w/his hand out.

Posted by Anonymous2u 2004-3-5 5:18:36 PM|| 2004-3-5 5:18:36 PM|| Front Page Top

#9 Shipman: Thanks Zhang Fei, I didn't realize the differential in wages was that large between China and Mexico.

I've spoken to a few people who operate plants in China's boomtowns - the wealthy coastal cities that are the subject of major league hype from both the major newspapers and the business media. For unskilled labor, the monthly wage for a 9-hour-day (excluding the 1-3/4 hour lunchtime siesta) 6-day-week position is about 500 yuan per month. Divided by the exchange rate of 8.2RMB per dollar, 9 hours a day, 25 days a month gives me an hourly rate of just $0.27 per hour. There is no way a Mexican maquiladora worker earning $2 an hour can compete with his Chinese counterpart.

But if the Chinese worker were making $1 per hour, many plant owners would probably move to Mexico - shipping costs and convenience are also important - China is almost 10,000 miles away, whereas Mexico is just across the Rio Grande. The Chinese are not superior workers by any means, and plants in China encounter significant problems with shrinkage - meaning significant security measures need to be taken to prevent equipment and finished goods from just walking. When you add these factors in, it becomes pretty clear that Chinese crowing about the inevitability of super-growth for decades is not supported by the other factors that will impact both indigenous and foreign investment. Note that when the wage gap narrows, Chinese businesses that are tired of being shaken down by Chinese government officials will move their operations overseas. This will negatively impact domestic Chinese economic growth.

Posted by Zhang Fei 2004-3-5 5:59:59 PM|| 2004-3-5 5:59:59 PM|| Front Page Top

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