‘Made in China’: the dilemma


China is the showcase of the world with ‘Expo 2010 Shanghai China’.  Still classified by the IMF as a developing country, its economic health, its strong membership of the G-20, its permanent seat on the United Nations Security Council, its Shanghai stock market ranked 5thworldwide, 4 of its companies in the world’s top 10, the largest standing army in the world, its nuclear capabilities point more towards China as a global superpower

China’s current economic strength adds to its global superpower status:

  • China is primarily a market economy based on private property ownership
  • Best Current Account Balance in the world1
  • The world’s 2nd largest economy measured on Purchasing Power Parity (PPP)1
  • The 3rd country worldwide on market value of publicly traded shares1
  • The world’s 3rd largest country for investment in research and development as % of GDP1
  • The 4th largest GDP real growth worldwide in 2009 at +8.7%1
  • China contrary to public belief does not just copy products. In 2009, 582,000 patents were registered in China.  Based on 2008 figures, China registered more than twice the number of US patents.3
  • China is not only about manufacturing: Services provided 40.5% of GDP (33.2% of workforce) in 2009, (Industry 48.6% of GDP for 27.2% of workforce), Agriculture (10.9% of GDP for 39.5% of labour force)1
  • Although China is the world’s biggest producer of Carbon dioxide due largely to its current
    over-dependence on coal, China has fully grasped the eco-friendly economic potential benefits and is the world’s leading investor in renewable energy technologies.
  • China does not live in isolation: it is a leading player in free trade areas and security pacts amongst APAC nations and other developing countries1, especially in Africa, using its full power to influence the world economy and world order.

The 2010 economic outlook strengthens China global superpower status:

In 2010, the differential between China, the US and the Euro Zone is going to widen even further:

  • Expected 2010 GDP Growth: China +8.6%, US +2.4%, Euro Zone +0.6%
  • Expected 2010 Consumers Expenditure: China +8.8%, US +1.2%, Euro Zone +0.4%
  • Expected 2010 Investments: China +11.1%, US +1.9%, Euro Zone -0.2%6

Why is China so successful?

  • Manufacturing as a low-cost producer: combination of cheap labour, good infrastructure, medium level of technology and skill, relatively high productivity, favourable government policy
  • Undervalued exchange rate which can be seen as anti-competitive2

Why are foreign companies so attracted by China?

  • A current largely untapped market of already 100 million middle-class residents and over 800,000 super-rich.  China is the world’s second consumer of luxury goods after Japan. 

Improvements made in China:

  • The poverty rate has been reduced despite a widening rural-urban income gap and a still low per capita income (ranked 128th worldwide).1 Literacy has also increased dramatically.
  • So has the life expectancy which has gone from 50 years old in 1950 to 73 years old in 20094, but this is now also the number 1 issue for China for the future, with an ageing population.2

Other Challenges for China:

  • Some analysts are predicting a ‘China bubble’ due to an unsustainable and artificial growth rate
  • Pressure from younger generation for higher wages as shown recently at Honda & Foxconn

THE DILEMMA:

China is the world’s 2nd largest exporter.1The paradox is that 55% of Chinese exports are conducted by joint ventures and foreign companies.  This can be explained by the average hourly labour cost of $1.64 in China (vs. $24.59 in the USA and $37.66 in France).5 THIS IS THE DILEMMA: WHAT WORK IS GOING TO BE LEFT FOR THE SO-CALLED DEVELOPED COUNTRIES AND WHERE IS THE RECOVERY GOING TO COME FROM? WITH SUCH A LABOUR COST DIFFERENCE, DEVELOPED COUNTRIES ARE UNLIKELY TO RE-LOCALISE THEIR INDUSTRIES IN ORDER TO BOOST THEIR OWN RECOVERY.

References

1 ‘CIA World Factbook’; 2 ‘Le Monde Bilan Economie 2010’; 3 ‘China Office of Intellectual Property and US Office of Patents and Registered Trademarks’; 4 ‘World Health Organization’; 5 ‘Enjeux Les Echos May 2010’; 6 ‘The Economist – The World in 2010’

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