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(More customer reviews)"China Inc" reminds me of the "Japan Inc" of the 1980's. The Japanese business model, at the time, was very successful and feared by many as superior to our own. Since then, we've had the longest economic expansion in our history and Japan has had the longest recession since the end of World War II. Should we feel complacent? Definitely not. The economic juggernaut that is emerging in China is different and it will be more difficult to compete against. Our present government policies and our patterns of consumption are feeding the beast. We are a primary component of China Inc.
Ted C. Fishman is a veteran journalist and former commodities trader who has traveled widely in China and interviewed many workers, managers, and exucutives of Chinese and American companies. He gives us an avalanche of facts detailing the incredible growth that the Chinese economy has experienced in the last 20 years (averaging about 10% annually as opposed to our meager 3%). Can this growth rate be sustained. Fishman doesn't have the answer but he gives us a multitude of statistics to draw our own conclusions.
There is, in retail and manufacturing circles, something known as "the China price." Goods manufactured in China cost anywhere from 30% to 50% less than what they could possibly be made for in the US, in many cases it is less than the cost of materials. American multinationals - such as GM and Wal-Mart - are telling their suppliers to meet the China price or else - which means that the suppliers either set up shop in China or go out of business. Never mind trying to compete on price, China has an abundance of production workers that are willing to work for 40 cents an hour. Even at the high end they have chip designers that are willing the work for $2,000 a month, overtime included. The supply of labor is almost endless, keeping wages at a minimum. Anywhere from 100 to 300 million people migrated from farms to factories in the last two decades. China also graduates more scientists and engineers than the US, making the high-tech industries increasingly more competitive. And among the scientists and engineers that graduate from Americian universities one will find a large percentage are Chinese that will go back to China to work, even at a lower salary.
By meeting the China price multinationals are accelerating the industrialization of China by moving production there and, by the same token, they are deindustrializing here. It has been a major factor in the 2.7 million jobs lost in manufacturing since 2000. Even many small and medium size companies have no choice: move to China or go out of business.
Multinationals alone are not to blame, the American consumer has a seemingly endless appetite for low-cost goods. Low-cost Chinese goods have saved the American consumer more money than last year's tax cuts. What this leads to is a gigantic trade deficit with China of about 150 billion a year - and climbing (the US balance-of-payments deficit is nearly a record 6% of GDP). Add this to the record federal budget deficit and it should come as no surprise that the value of the dollar is in decline. If this situation is not rectified the global financial system will be in for a shock.
The Chinese are benefiting from our relationship in the short and the long term, the US is benefiting in the short term because they are receiving low-cost goods, however the long term outlook for the US is grim. Not only do the Chinese buy up many of the T-bills that finance our federal budget deficits, they buy up mortgages on the secondary market in order to keep us supplied with low-cost money. They are, in effect, lending us money to buy their products. The burgeoning trade and federal budget deficits are a serious problem. It is, however, not a Chinese problem, it's an American problem. The only legitimate complaint that we can make is that they keep the yuan tied to the dollar. No matter how low the dollar goes it won't help close the trade deficit with China.
Fishman has an excellent chapter called "Pirate Nation." He describes how setting up production in China is a double-edged sword for American companies. Everyone knows that these products are studied, analyzed, and reproduced perhaps with a few minor differences for local color. For example, GM spent billions of dollars producing a car for the local market. It was exhibited at the Shanghai Auto Show with a sticker price of $9,000. At the same show a Chinese auto company had basically the same car - called the Chery - for only $6,000. The Chinese auto company was owned in part by Shanghai Auto, GM's local joint-venture partner. Similarly, Microsoft is well aware of the fact that only about 10% of its software is actually purchased and the other 90% is pirated; they have no choice but to stay in the Chinese market. Indeed, at the World Economic Forum, Bill Gates seemed more optimistic about the Chinese economy than the American economy.
China contiues to develop at a frantic pace. They add 4 to 6 million cell phone subscribers every month - over a year they would be adding as many as the entire cell phone market of Germany. The Chinese are adding infrastructure every month that is the equivalent of a Houston, Texas. They are in fact lifting more people out of poverty than any country in the history of the world. We can all applaud their achievements.
While I was reading this book, I kept thinking this is good news for China, bad news for the US. This book should be read by those who are concerned about America's place in the 21st century, because it might well be known as the Chinese Century. China, too, faces some daunting challenges but they seem to have the edge in optimism and dynamism - that which America had at the beginning of the 20th century.
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