Does China Really Depend On The U.S. Economy?
By Paul Midler | April 5, 2008
Many are saying that a downturn in the U.S. economy will necessarily have a negative impact on China. David Frum, a former speech writer for George W. Bush, reflected this sentiment at NPR:
“Probably no major economy has ever depended so much on one partner as China now depends on the United States. Eighty percent of China’s GDP derives from international trade, and the United States is far and away the top destination for Chinese merchandise exports.”
At the other end of the argument, some suggest that China is immune to our economic woes. The China economy is not “coupled” with the U.S. economy, they insist. Oddly enough, these comments are coming from the same sort who suggest that China’s rise necessarily lifts the U.S. economy (it is as if China’s economy were connected to the U.S. by a one-way valve — China can pump up our economy, but even our biggest problems cannot deflate theirs).
There is an overemphasis placed on the U.S. economy’s significance in China’s equation, and it needs a rethink. International trade may account for most of China’s GDP, and we may be China’s most significant trading partner, but the U.S. takes only one-fifth of China exports. That’s all – and we account for an even smaller proportion of profitability for China manufacturers.
Let me explain how we matter less…
The U.S. is a modern and well-coordinated economy. Its businesses enjoy economies of scale and its supply chain networks are efficient. One of the greatest ironies in the global economy is that products sold in the U.S. – the world’s wealthiest country – are often priced lower than the same products sold in many lesser developed economies. I once manufactured a product in China that retailed in the U.S. for a dollar and on a trip to Brazil found the same item selling for close to five dollars.
American importers purchase in large quantities, and because they do (and for other reasons I won’t go into here) U.S. importers receive significant discounts. The liberal argument is that we should feel sorry for China. The prices we are paying are too low, they say, but this claim takes in only a limited view. The reality is that China manufacturers earn a higher margin on products they produce for other markets, and that extra margin offsets some of the discounts we receive.
At a typical Chinese factory, a single buyer from the U.S. might account for as much as half of the factory’s book of business but almost none of its bottom line. The bulk of the supplier’s profitability instead comes from a large number of smaller customers — mostly non-U.S. — who willingly pay higher prices.
Since factories earn less profit on their U.S. accounts, it stands to reason that a downturn in the U.S. economy would affect China less. What needs to be taken into account is not a direct bilateral link, but the more complex dynamic between the U.S. and the global economy. A recession in the U.S. should affect China only to the extent that such a downturn affects the world more broadly.
Topics: China | 10 Comments »
Survey: Testing Affects Price
By Paul Midler | March 29, 2008
The Wall Street Journal ran an article on an American company producing quality suits in China. The suits are nearly as good as high-end suits you find made in Italy. Interesting piece, but let’s set aside so that I can introduce a survey.
Williams Loft, a distributor of mattress products, ran the recent survey. The company sent out requests for quotation (RFQ) to twelve suppliers in China. Each was given the exact same set of specifications. The company did nothing with the quotes, but went back to the same factories six weeks later. On the follow-up, they mentioned in passing that they would be verifying quality through a testing agency. Guess what the impact was of mentioning a third-party tester: Ten out of twelve factories immediately moved to raise prices by an average of 20%. Why would a factory raise its prices after learning that customer would be checking quality?
Back to the WSJ article where the idea is that quality is up. I’m not so sure much has changed. Manufacturers have for some time now been in the position to make a product at virtually any quality level. The bigger variable is whether the customer is getting what has been ordered.
Links:
H/t: China Law Blog
Forbes: Dealing With China’s ‘Quality Fade’
Topics: China | No Comments »
Unfortunate China Conference Title Of The Day: “One World, One Web”
By Paul Midler | March 28, 2008
The 17th International World Wide Web Conference will be held in Beijing (Apr 21-25). I got a chuckle out of the title for the conference - “One World, One Web”. Looks interesting, but what a horribly named theme. Web surfers inside Mainland China most certainly do not experience the Internet in the same way as outsiders. Even Hong Kongers enjoy a more liberated online experience.
The World Wide Web Conference is a global event bringing together key researchers, innovators, decision-makers, technologists, businesses, and standards bodies working to shape the Web. Since its inception in 1994, the WWW conference has become the annual venue for international discussions and debate on the future evolution of the Web. The main theme of the conference is “One World, One Web”. The conference will explore how Web access is moving from the desktop to cell phones and TV screens, and how most users are moving from passive browsing experiences on the Internet to active participation in building Web communities.
Topics: China | 1 Comment »
NYT: China’s Faltering Security Forces
By Paul Midler | March 24, 2008
In the comment section on a recent post, we suggested that events in Tibet revealed an amount of ineptitude among Chinese leadership.
I suspect that patience has been confused with indecisivenesses. When Beijing made its move, it made its move all right. There is nothing subtle about military force.
The New York Times ran a piece that is worth a look.
The absence of police officers emboldened the Tibetan crowds, which terrorized Chinese residents, toppled fire trucks and hurled stones into Chinese-owned shops. In turn, escalating violence touched off a sweeping crackdown and provided fodder for a propaganda-fueled nationalist backlash against Tibetans across the rest of China that is still under way.
Topics: China | 2 Comments »
Tibet: Monks Need Stuff, Too
By Paul Midler | March 21, 2008
Tibet is falling apart because some are poor, suggests Abraham Lustgarten in a Washington Post article.
“Tibetan culture is so deeply rooted here,” the owner told me. “I don’t think it will be diluted — it’s important for business.” Yet looking around, I saw no Tibetan employees, and Tibetans represented only a smattering of customers. The bar served mostly Chinese businessmen and army officers, whose tabs could run as high as $2,000, several times the per capita income in Tibet.
Topics: China | 3 Comments »
China: Patient, Subtle and Sophisticated?
By Paul Midler | March 21, 2008
In a recent blog post over at TheAtlantic.com, James Fallows described Chinese government leaders as (1) patient, (2) subtle and (3) sophisticated. TCG has a slightly different perspective, what about you? What adjectives would you use to best describe leadership in China today?
Topics: China | 9 Comments »
China Slams Western Media
By Paul Midler | March 20, 2008
Western media is biased. It doesn’t understand the situation. But please keep out, if you don’t mind! From an editorial at People’s Daily:
Probably the whole world is on tiptoes, eager to find out what’s going on in Lhasa and other Tibetan-inhabited regions in western China. While we highly appreciate the efforts of the global media in seeking facts and providing accurate, objective and timely reporting, we are somewhat disappointed to find, from time to time, rather biased news coverage.
…How come the riot in Lhasa, which featured violent manslaughter, arson and sabotage of public facilities by ransacking mobs, was being used by some people in the West against China? Is it because they really know too little about China and China’s Tibet; whatever they know always comes from the so-called “Tibetan government in exile” and other anti-China cliques?
Topics: China | 5 Comments »
Taiwan Elections
By Paul Midler | March 20, 2008
Someone asked me recently who I thought would win the upcoming election in Taiwan. I hadn’t been paying attention to it, really, but it struck me that we haven’t heard much news out of China. Since Beijing was so quiet on this one, their least favorite party - the DPP - was probably going to lose. If DPP was pulling ahead, Beijing would have ordered tanks to the coast, or else they would have tossed a few missiles into the Taiwan Strait.
Topics: China | 4 Comments »
Arthur Waldron at Commentary
By Paul Midler | March 20, 2008
Arthur Waldron, a sharp academic, has written a poignant piece at Commentary. He understands the China game well:
The officially-expressed lack of condemnation of the latest installment in China’s decades-long destruction of Tibet is proof that the smart money figures the fix is in. Beijing will crush things without any outsiders having a chance to watch; no one will dare ask tough questions or criticize; things will then get back to “normal,” where China stories are all about trade and the Olympics.
Topics: China | 1 Comment »
Alibaba Stock Tumbles
By Paul Midler | March 18, 2008
Alibaba shares have fallen to below their IPO price. It took a few months, but, as we suggested, it was inevitable. This IPO was the largest of its kind, and it was promoted heavily by the media. At the very height of the hype - when everyone was asking how Jack Ma did it - we asked whether the company was really worth US$7.8bn. Never mind the run up that followed the stock issue; the price put on the initial offering was itself too rich.
The problem has always been with the company’s core business - Alibaba.com. As someone involved in trade and manufacturing, I didn’t get it anyway. The website is nothing more than a directory. The company collects a simple fee from manufacturers who wish to list their company’s name and details. It’s not like eBay where the website gets a small slice of every transaction. The unit’s revenue model depends on having lots of factories willing to list for a fee.
Many recent reports have claimed that factories in China are going out of business. I believe that these reports are exaggerated, but think about it for a moment. If there will be fewer factories, what would that do to revenue at Alibaba.com? The stock has fallen in part because of failed earnings expectations, but investors maybe are putting it all together. Alibaba.com’s star could not be rising if the number of factories in China is falling.
Related links:
Irrationally Exuberant: Is Alibaba.com Really Worth US$7.8bn?
Cigarette Smuggling: Alibaba & The Forty Thieves
Guangdong Manufacturers: “The Reports Of Our Death Have Been Greatly Exaggerated”
Topics: China | 8 Comments »
Baseball In China
By Paul Midler | March 16, 2008
It was MLB’s big debut in China this weekend, with the San Diego Padres beating the LA Dodgers in an exhibition match. It had the feeling of history in the making, according to some. An article posted at MLB.com, which included player impressions of China, was an instant classic:
“On the bus back from the Great Wall, I was saying to Xavier [Paul], I’m from Mississippi and he’s from Louisiana and I wish the boys back home could see us now,” said John Lindsey, in his 13th professional season and still looking for his first Major League at-bat. “I’m sure my parents are proud that their baby is in China.”
“Yeah, I’m from the country,” said Paul, who hails from Slidell, La. “A lot of people from my hometown think this is Mars. You can’t beat it. I really didn’t expect Beijing to be so modernized. It’s like New York or something.”
Can we get it over with already and introduce chewing tobacco?
Topics: China | 5 Comments »
Vanity Fair Article
By Paul Midler | March 16, 2008
An article in Vanity Fair makes for some very good reading. It’s written by William Langewiesche. Here’s a piece:
Cleaning up for the Olympics is a time-honored tradition. The Germans, for example, swept Berlin’s Gypsies into prison camps and temporarily took down the signs banning Jews from public places. They even loosened their restrictions on homosexuality, demonstrating the largesse of the Fascist creed while personally serving no small number of Nazis as well. For the German government, it became crucial that the Olympics do Germany proud. China is not Nazi Germany, and indeed is led by a particularly pragmatic regime, but its political culture is shallow, and it seems to have been overcome by a similar mood.
Here’s another bit:
The games will open on August 8—on 8/8/2008—at 8:08 p.m. Eight is considered to be a lucky number because in Mandarin it sounds like the word for “fortune” or “prosperity.” Beijing will be well mannered, and I myself will gladly be gone. August 8? I think I’ll head offshore for a few days of sailing on the far side of the world, safely beyond television range.
I know a number of China-based people who are of this mindset. They don’t want to be anywhere near the Games this summer.
Topics: China | 3 Comments »
China Wants More
By Paul Midler | March 15, 2008
China wants its foreign companies to do more, the Shanghai Daily has reported. About 3,000 people were surveyed, many of whom work for large multinational corporations. About 90% of those who responded felt that MNCs had made a contribution to China’s development, but only around 22% found that these same companies were doing enough today. The poll also suggested that nearly 80% saw evidence of discrimination against local employees within these companies.
Topics: China | 2 Comments »
John Fraser on Tibet
By Paul Midler | March 15, 2008
The Chinese: Portrait of a People was written by John Fraser, a journalist with Canada’s Globe and Mail back in the 1970s. While it’s been some time since I looked through the book, when riots broke out in Lhasa, I thought of it. Some excerpts, in case they are of interest.
On how the Chinese then felt about living in Tibet:
“Most Chinese who are sent by the central government to Tibet resent the posting and have to be bribed with extra pay and perquisites. As soon as they can return to the interior, they do so. If they are required for long periods, they make sure their children get a proper Chinese education back in Sichuan province or one of the coastal cities. The Tibetan diet, which rests on the sturdy foundation of yak’s milk and its by-products, strikes the Chinese settlers as revolting, and at great expense the government imports more tolerable fare from the interior.”
On China’s inalienable rights:
“The myth of Chinese respect for Tibetan history and culture was so easy to dissolve as to be laughable. Literally, every historic site or religious buildling to which we were taken had been chosen by our Chinese hosts not to give us more insight into Tibet but to point out the ‘inalienable right’ of China to rule Tibet.”
On bad moods in Tibet:
“Visitors are told that the high altitude of Tibet often puts people in a bad temper, although I suspect it was more to do with the high hypocrisy of the Chinese Government.”
On the inevitability of continued conflict:
“Since they won’t adopt Chinese culture, they will always - however subliminally - represent a threat to the Chinese government and therefore have to be controlled. Hence the policy. Anyone with an open mind and honest eyes learns quickly that it is a policy of containment first, ultimately leading to absorption.”
Oh. There was one more detail that the book had introduced. The Chinese had closed all but about 10 of 16,000 monasteries by 1959. This was a statistic made available to foreign correspondents in the summer of 1979.
Topics: China | 2 Comments »
Tibet: What’s Coming Next?
By Paul Midler | March 14, 2008
It seems that all hell is breaking loose in Tibet. It’s been nearly 20 years since Lhasa has seen such violence and rioting, and Chinese political leaders must at this very moment be contemplating their next move. NPR’s Anthony Kuhn ran an interesting segment, pointing out one detail worth a mention:
“…when the last wave of major unrest shook Tibet — in 1989 — the region’s Communist Party boss did not hesitate to unleash a harsh military and political crackdown. That boss, Hu Jintao, is now China’s president.”
Topics: China | 4 Comments »