continuously updated blog about China & India
You will be living in their world, very soon
Beware the Waking Dragon
I sincerely hope this is mere ‘sabre rattling‘ as nobody knows what the unintended consequnces of such a move would trigger. Total global economic meltdown? A new Sino-Japanese war which then draws in the US, Russia, Japan, North and South Korea, Taiwan, … and on to WW3? Who knows!
Reuters: “Mexico has been on the wrong side of China’s economic boom for the last decade, but is now seeing an upturn in its fortunes as the Asian powerhouse’s economy slows and international stock pickers look to hedge their bets.
Fund managers are shifting the composition of their portfolios to protect themselves against further slowing in China. That is bad news for exporter Brazil, but good news for Mexico, which has low trade exposure to Asia and which is starting to claw back the export share and wage competitiveness it lost to China.
After China joined the World Trade Organization in 2001, Brazil boomed due to a seemingly endless Chinese appetite for soybeans and iron ore, while Mexico’s manufacturers struggled to compete with cheap goods in their main U.S. market.
Brazil has grown almost twice as fast as Mexico in the last decade and overtook its northern rival as Latin America’s biggest economy in 2005, becoming a darling of investors.
But a recent soft patch in Brazil and a slowdown in China’s breakneck growth are prompting some investors to take another look at Mexico’s strong ties to the United States and the chances its new president will undertake major reforms that could push up growth.”
via Analysis: China worries spur Mexico stock market flows | Reuters.
Nothing ever stands still. At one time Japan was the destination of all new and high tech; then came South Korea’s turn; soon followed by China. But the laws of physics say that everything seeks equilibrium and the lowest common denominator (water seeks its own level). So as China’s minimum wages rise (by law – at 10 to 15% pa), other countries that appeared to be expensive are slowly becoming competitive. China, of course, will not stand still either; but will move up the value chain, as it has been doing steadily over the last 5 to 10 years.
Another small but inexorable step towards the reduction of American dominance. We are seeing the beginning of the end of the ‘American century’.
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UK Telegraph: “China past and present: review
By Rana Mitter7:00AM BST 10 Sep 2012Comment
Two books on China explain why the country’s rise to superpower status is still far from inevitable
A vision of the Chinese future in a 1982 propaganda poster Photo: Alamy
Some time this autumn, the Chinese Communist Party will announce the date of the 18th Party Congress. Among the Party’s priorities will be two major issues: the need to project Chinese power more widely in the world, and the consolidation of a system of welfare that will prevent the country’s social discontent from spilling over into outright rebellion. These themes are at the centre of these two important books which, taken together, illustrate why the rise of China is far from inexorable.
Odd Arne Westad’s Restless Empire has two main purposes. The first is to provide an overview of China’s engagement with the world over the past three centuries. Westad starts with an important piece of myth-busting, arguing strongly against the idea that China has been an inward-looking society closed to the rest of the world. Whether it was the trade in silks and porcelains that made China part of a global trading network during the Ming and Qing dynasties that lasted from the 14th century to the 20th, or the forced engagement with the West that came with imperialism, China has always been connected with the wider world. Westad is particularly acute on the Cold War period, using impressive documentation to argue that China’s relationship to the rest of East Asia was not just communist, but Confucian in the ties that Mao nurtured with his ideological “younger brothers” such as Kim Il-sung and Ho Chi Minh (even if the family quickly became dysfunctional).
The second aim emerges in the last two chapters, which concern the foreign policy crises facing China today. Westad firmly rejects the received wisdom that China is set to become a global superpower, dominating policy on everything from international intervention to energy resources. Despite its rhetoric, China has in practice been almost entirely passive or reactive in the past few decades. China shows pleasure in being treated as a global player, but shows little sign of knowing what to do with that power other than criticising the United States. “China has to learn,” he says drily, “that sticking it in the eye of the world’s hyperpower may bring short-term gratification, but it does not amount to a grand strategy in international politics.”
Some of the reasons that China’s leadership may be distracted from visions of world domination are made clear in Gerard Lemos’s The End of the Chinese Dream. Lemos spent four years working in Chongqing, the city that has become notorious for the Bo Xilai murder scandal, but his account is of a less lurid but equally troubling failing in Chinese government. He examines the model of welfarist authoritarianism with which the Chinese Communist Party is attempting to gain the “performance legitimacy” that might keep it in power, and finds it seriously wanting. When the Maoist “iron rice bowl” of guaranteed employment, pensions and health care broke down as China privatised its economy in the Nineties, millions of urban and rural Chinese found themselves left behind as others got rich. Figures tell part of the story: food inflation ran at over 18 per cent in 2008, and some analysts expect that health care costs will rise by 11 per cent annually into the middle of the next decade. But the participants in the surveys that Lemos organised add human voices to the statistics: one among the hundreds he records is the 39-year-old woman who declares “Losing my job [changed my life]. I have no money to see the doctor.” She tells Lemos that she fears she’ll be unable to find “the education fee for my children’s education”. The “Chinese dream” of a middle-class existence with a flat, car, and high-quality education for the next generation has only become a reality in the last decade or two. Now it looks as if it may be slipping out of the grasp of millions even before they have had a chance to aspire to it.
Both writers make poignantly clear the obstacles to China becoming a global leader. At bottom, China does not have a vision of what a Chinese-led world would look like. Nor does its domestic political model of party-led authoritarianism export well to the rest of the world. African and Latin American nations may welcome Chinese investment and on occasion find it expedient to use the threat of Beijing to squeeze concessions from Washington. But however shaky these countries’ engagement with democratisation, they do not seriously tout the “Chinese model” as an alternative, because it is clear that China has not solved its most pressing problems: a demographic crisis exacerbated by the one-child policy, a creaking welfare system, and slowing growth.”
via China past and present: review – Telegraph.
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Xinhua: “China on Monday requested to negotiate with the U.S. over countervailing duties (CVDs) levied by it against Chinese tyres within the trade dispute settlement mechanism of the World Trade Organization (WTO).
“Through consultations within the WTO trade dispute settlement mechanism, the Chinese side hopes the U.S. can correct its wrong-doing and properly deal with concerns from China,” said Shen Danyang, a spokesman for the Ministry of Commerce (MOC).
In a statement on MOC’s website, Shen said China has reiterated its stance on different occasions that it resolutely opposes the abuse of trade remedy rules or trade protectionism. He added that China will exercise its rights as a WTO member to protect the legitimate interests of domestic industries.
China’s request for consultation came after the U.S. Court of Appeals for the Federal Circuit passed a so-called GPX bill earlier this year to authorize the U.S. Department of Commerce (DOC) to apply CVDs to “non-market economy” countries.
The bill, a remedy for the Tariff Act of 1930, overturned a previous federal court ruling that the U.S. DOC did not have legal authority to impose CVDs on goods from non-market economy countries and gives an application retroactive period since Nov. 20, 2006.
Shen said the U.S. has for many years kept launching countervailing probes against Chinese products without legal support of U.S. laws.
The GPX bill will place Chinese enterprises under an uncertain legal environment and violates WTO rules on transparency and procedural justice, Shen said.
According to the MOC, the trade dispute on tyres involves 24 types of tyre products worth about 7.23 billion U.S. dollars.”
via China files WTO complaint against U.S. CVDs – Xinhua | English.news.cn.
NY Times: “The Obama administration plans to file a broad trade case at the World Trade Organization in Geneva on Monday accusing China of unfairly subsidizing its exports of autos and auto parts, a senior administration official said late Sunday, in a move with clear political implications for the presidential elections less than two months away.
The W.T.O. case accuses China of providing at least $1 billion worth of subsidies from 2009 to 2011 for exports of autos and auto parts. While China exports virtually no fully assembled cars to the United States, it has rapidly expanded exports to developing countries, and those exports compete to some extent with cars exported or designed in the United States.
President Obama plans to announce the move on Monday during a visit to Ohio, one of the most important of the battleground states and a place where the president is trying to capitalize on his bailout of the auto industry. A poll by NBC News, The Wall Street Journal and Marist College last week showed Mr. Obama building a significant lead in Ohio.”
via United States to File W.T.O. Case Against China Over Cars – NYTimes.com.
China Daily: “Home Depot Inc, the largest home-improvement retailer in the United States, said it is closing its remaining seven big box stores in China as it shifts its focus to specialty and online outlets in the world’s second-largest economy.
The move will affect about 850 employees, and the company will record an after-tax charge of about $160 million, or 10 cents per diluted share, in the third quarter, it said in a statement issued on Thursday.
Employees of Home Depot gather outside the company’s Xi’an store on Friday as the home-improvement retailer declared that it will close all its seven stores in China. [Photo/China Daily]
“Closing stores is always a difficult decision,” said Frank Blake, the company’s chairman and CEO. “We’ve learned a great deal over the last six years in China, and our new approach leverages that experience.”
The company said it will keep its two recently launched specialty outlets – a paint and flooring store and a home decoration shop – in Tianjin.
It is also in talks with several Chinese e-commerce websites to explore selling its products online, it said, a combination believed to be more adequate to Chinese customers’ needs and shopping preferences.
The Atlanta-based seller of building materials and home-improvement products will also keep its R&D team in China, as well as the 170 workers in its sourcing offices in Shanghai and Shenzhen, the statement said.
Home Depot has 2,249 retail stores in operation globally. Excluding the charges related to the store closures, Home Depot expects its fiscal 2012 diluted earnings per share to rise 19 percent to $2.95 for the year.
The company’s success story in the global market did not translate well in China, where the do-it-yourself home decoration-retailing concept has failed to inspire Chinese homeowners, industry analysts said.
The US company acquired a local peer, The Home Way, in 2006 and took over its 12 outlets in China. However, it has closed five outlets since 2009. The company has also replaced three top executives since its establishment in the country, a move that did not alter its sales decline.
Though specialized home-improvement retail is an upcoming trend, Home Depot arrived in China too early, at a time when the country’s decoration culture and consumption behaviors were not ready for the concept, said Chen Lei, a retail analyst at China Galaxy Securities. Despite the construction boom, the low labor costs made the DIY decoration concept irrelevant, he said.
Chinese homeowners rarely paint houses or lay out wooden floors themselves. Rather, they prefer to hire decoration companies, which often find products with more competitive prices from local building material stores, Chen said.
In addition, the company’s strengths in the United States, including its lower prices due to its global sourcing channels, have been diluted in China.
“You can always find local brands that are cheaper, and consumers in various regions have very different preferences,” Chen said. “Winning the market through a price war is not going to work for a foreign retailer in China.””
via Home Depot closes stores as it shifts focus |Companies |chinadaily.com.cn.
The Times: “We can’t compete with China on wages and are living beyond our means. We must retrench before we grow again
Two numbers — $135 and $12 — explain why Britain’s and Europe’s economies are stagnant or shrinking. Pundits and economists have lined up with suggestions about how to stimulate our economy: more quantitative easing; clever schemes such as “funding for lending”; while others say enough of austerity, let’s stop the cuts. But all that assumes that growth is the natural order of things.
None of these proposals will solve our problems because they ignore the two numbers $135 and $12. The first is what the average worker in the West earns per day; the second what the average worker in urban China earns.
This inequality in pay is the main reason our economy is in peril. What entitles the rich world’s 500 million workers to salaries ten times greater than the 1.1 billion workers in urban bits of the developing world who toil and study so much harder, let alone nearly 100 times greater than the 1.3 billion adults who live in rural poverty?
In the global marketplace it is now impossible to preserve well-paid jobs for Westerners. Many of those jobs have gone or are going south or east. In the 1950s the most successful company by market capitalisation was General Motors. In 1955 it employed nearly half a million Americans and 80,000 foreigners. Today Apple, the world’s biggest company, employs 4,000 Americans and more than 700,000 overseas contractors. And in jobs that have not moved, wages are under severe downward pressure: US high- school dropouts now earn less in real terms than their dropout grandfathers.
It was not always like that. For 55 years after the Second World War annual growth in jobs in Western economies was about 2 per cent and real wages grew by about 3 per cent year after year. The idea that we would all earn more without having to work harder, and that there would be jobs for our children, became a democratic “right”. But this right is now broken because, starting in 1990, developing nations ditched the failed socialist and Marxist policies that kept them poor. Since 2000 China’s economy has quintupled — while jobs, wages and GDP growth over the cycle for Western economies was, with few exceptions, negative.
For the first time in centuries we have to compete on a level playing field. We cannot compete on wages. Do we have other advantages that will protect our living standards? Aren’t Europe’s workers better educated? More creative? No: 10,000 science PhDs graduated from Chinese universities last year. In 1995, global patents granted to China amounted to 0.5 per cent of the total; in 2010 it had reached 9 per cent and is rising exponentially. Our best universities are educating many future business leaders and scientists of developing countries. Our advantage in physical and intellectual capital is eroding fast. What the developing world does not create, it can steal; the global value of counterfeit and pirated goods is forecast to rise by $1.5 trillion by 2015.
Most importantly, we consume more and invest less. China’s investment levels (however misdirected some of those investments may be) have risen to almost half of GDP, while the West is at about 15 per cent and falling. The truth is that Western nations have been living beyond their means. Our build-up in total debt — corporate, individual and government — has now become an enormous overhang. The UK is more indebted than Greece, Spain or Italy and only Japan and Ireland’s total debt per head is greater than ours.
So how do we get out of this mess?
…”
By Jon Moynihan, , 15 August 2012 | PA Consulting Group
via The Times – $135 – $12 = the pay gap the West can’t bridge, 15 August 2012 | PA Consulting Group.
Analyst Presents A Terrifying Vision: THE DECLINE OF THE WEST (businessinsider.com)
WSJ: “As the script now reads, Wanxiang — China’s largest auto parts maker — plays the role of a clever opportunist in the unfolding tragedy of American competitiveness.
Here is an excerpt from the most recent episode:
A leading American maker of batteries for electric vehicles, A123 Systems, secures hundreds of millions of dollars in grants from Washington D.C and the State of Michigan.
A123 Systems, recently offered a $450 lifeline by China’s Wanxiang Group, makes lithium-ion car batteries at this plant in Michigan.
A123 quickly earns awards for both its innovative culture and its technical advances. But before long, the company encounters business difficulties, faces imminent bankruptcy and scrambles for money.
Wanxiang arrives with fistfuls of cash, takes control of A123 and inherits some of the world’s most advanced battery technology. Wanxiang is further encouraged as policy makers in Beijing promise $10,000 rebates to Chinese electric car buyers. The future is bright.
It is fair to say that Wanxiang, a private company based in Zhejiang, has broken no rules. Wanxiang sees a straight-up business deal in which it pays market price for a cash-starved company that is on the verge of failure.
However, what many American taxpayers see is bad business, a sham. And they sense a deeply troubling pattern for the future: America develops technology – subsidized with generous tax dollars – only to see it purloined, borrowed or, in this case, purchased on the cheap by firms from competing nations.
How can America possibly sustain its culture of innovation when assets are so vulnerable to cherry picking by cash-rich Chinese companies? This issue — not last month’s unemployment rate — should be the central issue as the U.S. tries to decide who will be its president for the next four years.”
via China Deal to Acquire U.S. Battery Maker A123 is Just the Beginning – China Real Time Report – WSJ.
The Times: “Soft power is sometimes defined as a way of achieving the outcome you desire without using force. In Britain’s case, this has traditionally been exercised using subtle diplomacy, cultural and legal institutions.
The United States exercises soft power through its culture, films and music, too, but it also does through the ubiquity of the US dollar.
With power comes responsibility. There is a danger now that, in seeking to use the dollar’s reserve currency status to achieve US foreign policy aims, America is undermining that power. A key criticism of the US sanctions on Iran, particularly the ban on Iranian banks from using the Swift payments system, is that it has created incentives for other countries to trade with Iran without using dollars. Iran itself has exploited this by using its own currency in bilateral trade deals with India, China, Russia and Japan.
It is a small step from finding ways of trading with Iran without using dollars to trading with each other without using dollars, something that has been noted by the People’s Bank of China, whose officials are talking increasingly loudly about how and when the yuan might become a global reserve currency.
The aggression shown by the New York State Department of Financial Services towards Standard Chartered has just created another incentive to avoid doing business in dollars.”
via It may be unfair, but the damage is done | The Times.
It’s called shooting oneself in the foot. It’s also another case of the Law of Unintended Consequences. See also:
continuously updated blog about China & India
continuously updated blog about China & India
continuously updated blog about China & India
CHINDIA ALERT: You'll be living in their world, very soon 