China, Inc.

[andyfox]

New book by Ted. C. Fishman. From the introduction:

China sews more clothes and stitches more shoes and assembles more toys for the world’s children than any other nation. China has also become the world’s largest maker of consumer electronics, pumping out more TVs, DVD players, and cell phones than any other country. China is now moving quickly and expertly into biotech and computer manufacturing. No country has ever before made a better run at climbing every step of economic development all at once. No country plays the world economic game better than China. No other country shocks the global economic hierarchy like China.

China has between 100 and 160 cities with populations of 1 million or more (American by contrast has 9, while Eastern and Western Europe combined have 36). China is home to close to 1.5 billion people, probably, which would make the official census count of 1.3 billion too low by roughly the population of Germany, France, and the United Kingdom combined. Put another way, China’s uncounted multitude, were it a country on its own, would be the fifth largest in the world.

China is not home to the cheapest workforce in the world. Chinese workers cost more than laborers in the poorer countries of Southeast Asia or Africa. China is the world’s workshop because it sits in a relatively stable part of the globe and offers the world’s manufacturers a reliable, docile, and capable industrial workforce, groomed by government-enforced discipline.

The other great influence lately is the migration of hundreds of millions of peasants from the countryside now that the government allows them to leave. Indeed, the country’s embrace of market capitalism over the last two decades and the end of government support for farmers are combining forces to all but evict peasants from the land. The migration is the largest in human history. Estimates of the number of people who have left for the cities to find work range from 90 to 300 million, numbers that even near the low end match the entire workforce of the Untied States. Move up in the range and the number tops the U.S, and European workforces combined.

By every measure, China’s economy is growing rapidly. In 2003, China’s GDP was $1.4 trillion. By that measure, China was the seventh-largest economy in the world. The economy of the Untied States is still by far the world’s biggest; with a 2003 GDP of $10.1 trillion, it is seven times the size of China’s. (The world economy totaled $36.4 trillion in 2003.)

In China, one dollar buys about what $4.70 does in Indianapolis. The disparity, misleadingly labeled “purchasing power parity,” is reconciled in the U.S. Central Intelligence Agency’s estimation of China’s place among the world’s economies. China’s $1.4 trillion economy, in the CIA’s calculation, looks more like on with a GDP of $6.6 trillion. Put another way, it makes more sense to think of China’s economy as closer to two-thirds the size of the U.S. economy than its is to one-seventh.

The United States, the country against which all others tend to measure themselves, has long had the strongest economic growth among the large industrialized democracies that make up the G7. From 1982 through 2002, GDP growth in the Untied States averaged 3.3 percent. In China, a growth rate twice as high as that of the United States would be seen as a calamity. Chinese officials themselves say the country must grow at better than 7 percent a year to create enough jobs to busy those regularly entering the job market. Since China set about reforming its economy a generation ago, is has grown at an official rate of 9.5 percent. China is closing in on a thirty-year run during which its economy has doubled nearly three times over. The surge has no equal in modern history. Neither Japan’s nor South Korea’s postwar booms come anywhere close. If the United States, which boomed in the eighties and nineties, had grown at China’s rate since 1978 the U.S. economy would be roughly its current size plus two Japanese economies added on.

In 2003, the Chinese sold the United States $152 billion more in goods than they bought. So far, most of China’s gains with American buyers have come at the expense of the other countries that once lured American dollars, especially other Asian economies. Americans—and the world—get more stuff in the bargain. China is winning because it can make what others did for less money. China is beating everyone on price. The U.S. garment industry, for example, was fading long before China stared winning orders at the expense of other Asian and Latin American factories.

For other countries, China has become essential as a customer as well as a supplier. Japan and Germany currently enjoy large trade surpluses with the country because China is now the world’s biggest buyer of factory machinery. In 2003, the Chinese bought 7 percent of the world’s oil, a quarter of all aluminum and steel, nearly a third of the world’s iron ore and coal, and 40 percent of the world’s cement.

One big reason China is growing is that the world keeps feeding it capital. One-third of China’s industrial production was put in place by the half a trillion dollars of foreign money that has flowed into the country since 1978. In 2003, foreigners invested more in building businesses in China than they spent anywhere else in the world. In the past, the United States used to routinely attract the most foreign money, but in 2003 China took a strong lea, pulling in $53 billion to the U.S.’s $40 billion. In 2003, the exports and imports by foreign companies operating in China rose by over 40 percent. Now more than half of China’s trade is controlled by foreign firms, many of which import goods into the country that they then manufacture into exports. Foreign companies have pumped up China’s trade volume enough to make the country the third-largest trading country in the world behind the United States and Germany, and now ahead of Japan.

Certainly, if any country is going to supplant the United States in the world marketplace, China is it. Columbia University economist Jeffrey Sachs advises Americans to prepare for a world where by the year 2050, China’s economy could well be 75 percent bigger than their own.

[andyfox]

-Three hundred million rural Chinese will move to cities in the next fifteen years. China must build urban infrastructure equivalent to Houston's every month to absorb them.

-220 billion text messages were sent over mobile phones in China last year.

-General Motors expects the Chinese automobile market to be bigger than the U.S. market by 2025. Some 74 million Chinese families can now afford to buy cars.

-China has more speakers of English as a second language than America has native English speakers.

-China has more than 300 biotech firms that operate unhindered by animal rights lobbies, religious groups, or ethical standards boards.

-On average, American companies make a 42 percent return on their China operations.

-There are 220 million "surplus workers' in China's central and western regions. The number of people working in the United States is about 140 million.

-Apparel workers in the United States make $9.56 an hour. In El Salvador, apparel workers make $1.65. In China they make between 68 and 88 cents.

-One in ten American jobs is at risk of being "offshored."

-There are 186 MBA programs in China.

-China's sex industry alone needs 1 billion condoms a year.

-China has 320 million people under the age of fourteen, more than the entire population of the United States.

-More people use the Internet in China than in the United States.

[whiskeytown]

and in 20 years, they'll be all out of women....

god help the surrounding countries then...

RB

[natedogg]

Sounds like a good book and the intro is even handed enough that I can't tell if the author is alarmist or not. That's good.


Many american companies, and american entrepreneurs, will become fantastically, astronomically wealthy as a result of China's surging economy (I plan on being one of them, at least to some extent). This will not be from exploiting poor Chinese workers. It will be from providing valuable goods and services to a wealthy nation. A wealthy, 21st century China will almost certainly consume American technology and cultural products as a voracious pace. And they will pay a lot for it.

Many people become alarmed about the growth of China due to their misunderstanding of economics. They think of wealth as a zero-sum game. It is not.

Let me give a pre-emptive nod to Il Mostro. I assume he will comment on the zero-sum nature of oil as a limiting factor. /images/graemlins/smile.gif

I think he's right... as long as our energy needs and means remain static. So that could be the doom of us all, including China. But, for instance, China appears to be leading the way on a nuclear energy revolution....

Now, becoming alarmed at the growth of China due to fears of militarism is another matter, and more well founded if you ask me....

natedogg

[bholdr]

I have long believed that nuclear energy is a long term, safe and clean solution, far, far, superior to oil.

the french get about 60% of their energy from nuclear power.

i'll do some research and post a thread, if i have the time.

[Dynasty]

[ QUOTE ]
Now, becoming alarmed at the growth of China due to fears of militarism is another matter, and more well founded if you ask me....

[/ QUOTE ]

There's no need to be alarmed. Despite some posturing, I don't think China has any interest in military expansion. And, they certianly don't want a confrontation with the U.S.

But, if the U.S. and China ever got into a war with conventional weapons, it would be a slaughter. The gap between the U.S. and China (or Russia or any country) in military technology, capability, and experience is staggering. Peasants can't make good soldiers in the 21st century.

Almost all the economic information Andy poster is good for China, good for the U.S., and good for the world.

[lehighguy]

I haven't read the book, but does he present any reasons why China will not follow in Japan's path. Rapid growth followed by economic malaise. An inability to produce domestic demand for goods and an inability to increase exports because that market is already saturated.

[bholdr]

What follows is mostly drunken speculation, as my economics knowlage includes only 15 cred at the college level... but, here goes!

Rapid growth followed by economic malaise.
their growth is making japan's look like a minor market fluxuation. relitive 'maliase' would only be good growth. they have an almost unlimited pool of capital and cheep labor, as well.

An inability to produce domestic demand for goods
I believe they have this nailed already. Japan's problem was a saturated domestic market, china can consume and consume (1.3 bil now?)

and an inability to increase exports because that market is already saturated.
this doesn't apply when their cheep labor allows them to undercut the competition profitably.



also, their currency is pegged to the dollar.\




all IMHO, of course.

[jj_frap]

I dislike both the Chinese and American governments, and I'm no friend of the Russians or the Saudis either...I'm an anti-authoritarian leftist and I tend to be independent of any nations policy goals...

I've even backed Bush the odd time, although anybody who seriously thinks that China is socialist or that America and China are enemies have got to think again...

There is currently a parasitic relationship (From the persepective of the average person) between the Chinese political elites, the Western political elites (of all ideologies...Chirac, Bush, Clinton, and Martin are all very good to Beijing, and none have much in common on the surface aside from that.), and multi-national interests.

It's no accident that the right-wing parties in Taiwan (Kuomintang, People First Party, New Party) and Hong Kong (Democratic Alliance for the Betterment of Hong Kong, Liberal Party of Hong Kong) are satellites of Beijing while the liberal (Taiwan Solidarity Union, Democratic Progressive Party of Taiwan, Democratic Party of Hong Kong) and socialist (The Frontier Party of Hong Kong, Leung Kwok-hung, April 5th Action) parties are waging a war for liberty, democracy, and equality against far-right Mainland Chinese and big business elite.

Okay...

A small glimpse into my view of global politics.

[jaxmike]

wow, just wow.


[ QUOTE ]
I'm an anti-authoritarian leftist

[/ QUOTE ]

Just say anarchist, its easier.

[fluff]

Somebody direct them to Party Poker please!

[lehighguy]

If I recall, Japan experienced similair if not bettor results in the 50's and 60's. It's basic economic theory as to why economies with low GDP per capita can advance quickly by integrating existing technology. But once they've "caught up" that growth slows.

Having a lot of poeple doesn't mean consumption power. Africa has a lot of people, it doesn't seem to translate well. I'm talking about consumption per person not for the whole country.

As for cheap labor, Japan had the same situation. However, as unemployment lowered and living standards went up thier labor force became quite expensive. Now they build car manufacturing plants in the states because workers here are considered "cheap labor" by Japanese terms.

As for the currency peg, if you do some basic reading on foriegn currency market you'll understand that when a peg funamentally misvalues a currency value it can't continue.

[lehighguy]

P.S. Books with the name Japan Inc. where published by the dozen in the 80s. What ever happened to those.....

[sam h]

[ QUOTE ]
Rapid growth followed by economic malaise. An inability to produce domestic demand for goods and an inability to increase exports because that market is already saturated.

[/ QUOTE ]

This was not really why Japan's economy tanked to begin with. Mostly, the problems have been political and institutional. One set of arrangements was enormously successful at fostering the growth boom of 1955-1980 but became a liability afterwards. Since the collapse, nobody has been willing to really pay the price of reform and the demographics of the country are very bad for growth.

Domestic demand in China is driving a lot of their momentum at this point anyway. Although the export boom is the "proximate cause" of their growth success, the underlying engine of capital infusion and technology transfer relies upon the attractiveness of the Chinese market not just the cheapness of the labor.

[sam h]

Nice post Natedogg.

[jokerthief]

They've lost of one-fifth of agricultural land since 1949 to soil erosion, economic development, and desertification. They're eventually going to have food/water shortages.

[Broken Glass Can]

China continues to execute political opponents, like these in Tibet:

(last two photos are graphic, so you must click on link to view)

http://blog.khan.co.kr/usr/s/h/shoh/9/shoh_20050127211334_4020974_1.jpg
http://blog.khan.co.kr/usr/s/h/shoh/9/shoh_20050127211334_4020974_3.jpg


Photo 3 - Warning: Graphic (http://blog.khan.co.kr/usr/s/h/shoh/9/shoh_20050127211334_4020974_5.jpg)


Photo 4 - Warning: Graphic (http://blog.khan.co.kr/usr/s/h/shoh/9/shoh_20050127211334_4020974_4.jpg)

[lehighguy]

China has its fair share of political and institutional problems. Much more so then Japan I'd say.

I think that there is a certain bias people show when thinking about Asian economies. I think they look at American's, who they think to be lazy, and then look at star asian immigrants and think that Asia is nothing but smart kids and math wizzes. However, I think that the sample size we're dealing with is biased. We're only looking at the best and brightest of China that come over here. There are 1.3 billion peasents over there that aren't necessarily calculus wizzes or hard workers. Morever, just as thier cultures have certain advantages they have major weaknesses as well.

I think poeple use the rise of Asia more as a tool to criticize American habits. Less thought is given to the actual nature of Asia and more to how it can be used to advocate change here.

[andyfox]

Haven't gotten that far yet, but it seems the author feels the scope and scale of the Chinese economy, with it's gigantic population (1/5 of the entire world's) will make the 21st century the Chinese Century. According to a Chinese diplomat in Washington D.C., "All Japan needs to do is to follow China's model and stimulate economic growth. First they ought to get their growth up to around seven or eight percent, and they they should push their stock market up. Then they can be more like China. We know we need economic growth to keep everything together, so we make a point of it." Orville Schell see some of this as a willingness to suspend logic and see only bright tomorrows. To this point, every time the worst is predicted for China's economy, it semes to grow faster.

[lehighguy]

Yeah, if all we have to do to grow the economy is get it around 7 or 8% GDP growth. Lets just do that already.

But seriously, its one thing to grow from small to big, its another to grow from big to gargantuan. Japanese growth rates slowed, and I think China faces an even tougher situation then Japan (aging population, overpopulation, corrupt government, enviormental damage, export based economy, natural resource deficiency). Unlike Japan, with its smaller population, China needs huge infusions of capital and export markets in order to grow. I just don't see how that can continue indefinetly.

I'm not saying China isn't a great growth story. I'm not saying the next two decades aren't going to rock for them. I'm not saying they won't be very influential in the next century. I just think we should stop for a second and really think about all this talk of them surpassing us and leaving us in the dust all of a sudden.

[andyfox]

The China Dream by Joe Studwell sees things similarly to the way you're positing here.

[sam h]

[ QUOTE ]
China has its fair share of political and institutional problems. Much more so then Japan I'd say.


[/ QUOTE ]

This may be true to some extent but a stable political climate and some internal institutions seem to have played a positive role in fueling growth there thus far. There will come a time when those institutions need to change for continued growth and if politics get in the way of that happening, a la Japan, then China's growth trajectory may level out. But that is a far different concern than the problems of internal demand and export saturation you were referring to.

[ QUOTE ]
I think that there is a certain bias people show when thinking about Asian economies. I think they look at American's, who they think to be lazy, and then look at star asian immigrants and think that Asia is nothing but smart kids and math wizzes. However, I think that the sample size we're dealing with is biased. We're only looking at the best and brightest of China that come over here. There are 1.3 billion peasents over there that aren't necessarily calculus wizzes or hard workers. Morever, just as thier cultures have certain advantages they have major weaknesses as well.

[/ QUOTE ]

I guess it depends who the "people" are that you are talking about. Among people who really seriously study China, I don't think many believe that education levels, or even culture in general, has much to do with their recent success.

[zaxx19]

Many american companies, and american entrepreneurs, will become fantastically, astronomically wealthy as a result of China's surging economy (I plan on being one of them, at least to some extent).

NO....they wont ..some will of course but if you look at the patterns so far it hasnt really happened.

If you want to make gobs of money you are gonna need like 50 million on hand for bribes and a huge mammouth business model to structurally offset the inherent fixed costs of doing business in China...got 50 million on hand?

P.S. My uncle is stationed in Singapore and devoted like 7 years to opening up Chinese markets for Ashland oil(or whoever owns it now) he has remarked several times that small business models have absolutely no chance to make profits in China and that any entrepaneurial impulses would better be focised on India. Just some advice...free advice, dont bet on making millions in China selling consultancy IT services or something it just wont happen in the forseeable future.

[lehighguy]

I think we agree on a lot of points here. See my reply to andyfox.

As for "people" I mean the ones watching Lou Dobbs or some other demagouge and complaining about the evil foriegners stealing thier job and how we're gonna be some second class country within the next 50 years.
You know, voters....(shudder)

[BadBoyBenny]

Zaxx makes some corrrect points about the difficulties in doing business in China.

If you plan on doing it, I recommend Blodget's go east young man series that has been going on in Slate Magazine. Not too detailed, but a good primer and he list a bibliography.

If I wanted to bet on china, I would probably bet on companies that are foreign but stand to do a lot of business, like find out what type of cellphones they like, or who makes those 1 billion condoms Andy was talking about. Anyway, the "China is booming" story is not exactly hot off the press, and this may not be the ideal time to inest in china.

[zaxx19]

I dont think the point has really been made perhaps alluded to by myself and another poster but, India probably provides a much more fertile ground for mid and small level investment/ors.

I also believe India and the US will continue to move closer and closer in the next few decades and will eventually form a partnership we presently believe we have with Europe.

China will further consolidate its power in the east( say good bye to Taiwan...even if we dont like it and Japan is in big trouble)but will have problems integrating the west into the more advanced coastal economy. As for Europe(OK western europe) it will become closer and closer to the Islamic world as it inevitably becomes more and more Islamic demographically.

I actually think US-INDIA can be a far more formidable partnership in the future than US- Western Europe ever could have been

Psychotic ramblings of an undergrad perhaps....but then again in 1999 I wrote a paper on the impending conflict between the west and Islam....my teacher wrote: "A bit dramatic isnt it..."

[jj_frap]

[ QUOTE ]
China continues to execute political opponents, like these in Tibet:



[/ QUOTE ]

One of the staunchest Tibet supporters in Canada is far-left former NDP MP Svend Robinson

Tibet's National Democratic Party, which leads the TGIE, is one of the most left-wing political parties in the world...

The aforementioned Svend Robinson looks like Stephen Harper compared to them.

[Il_Mostro]

[ QUOTE ]
I have long believed that nuclear energy is a long term, safe and clean solution, far, far, superior to oil.

the french get about 60% of their energy from nuclear power.

i'll do some research and post a thread, if i have the time.

[/ QUOTE ]
Some people belive this, I am not so sure. If we can crack fusion it looks like we are set for quite a while. But fission is not so certain, there will be problems with uranium, there's not a lot of it, at least not easily accessible.
Breeders show some promise, but I remain unconvinced that they work as well as their proponents claim, for sure there are no real comercial breeders to look at.

[Il_Mostro]

[ QUOTE ]
Let me give a pre-emptive nod to Il Mostro. I assume he will comment on the zero-sum nature of oil as a limiting factor.

[/ QUOTE ]
/images/graemlins/grin.gif
[ QUOTE ]

I think he's right... as long as our energy needs and means remain static. So that could be the doom of us all, including China. But, for instance, China appears to be leading the way on a nuclear energy revolution....

[/ QUOTE ]
Oil and coal are a problem already for China. I remember reading about brownouts in many parts of China lately. I also remember reading (no sources, sorry, don't have the time now) that last year (or at least not very long ago) was the first year that China was a net importer of oil.

If we are indeed close to the peak in oil production I have no doubt there will be a lot of tension between the US and China.

[Il_Mostro]

I belive almost exactly the same can be said for the US.
And, yes, I belive there will be starvation and collapse eventually.