THE YEAR OF THE MONKEY AND CHINA'S NEW ROLE IN THE WORLD ECONOMY
DAVOS, SWITZERLAND -- Over the last several years, I have noticed and talked to a number of Chinese reporters at numerous global meetings. I have been impressed with their knowledge and ability to rapidly switch from their mother tongue to English, German, French or Italian. Some might even speak two or three additional languages. At the September 2003 World Trade Organization in Cancun, China along with Brazil and India helped to form a counter group to the developed countries. Here at the World Economic Forum, the word "China" evokes dollar signs. As one Asian businessman said, "Chinese assets in 2004 is good monkey business" (this is the year of the monkey).
The following is about some very serious monkey business. At a workshop devoted to China, Secretary of Commerce Donald Evans pointed out President Bush has been to China twice and he fully supports China's integration into the global market. China has an average household savings rate between 30% to 40%. The total amount of household savings equals 100% of GDP. Our savings rate is between 8% to10% of GDP. It is true that without American spending, the rest of the world would not have jobs. The fact that Americans love to consume and that the multinational corporations have slick marketing ads to tell us what we should look like, how to dress, where to live and what to drive, says it all. Furthermore, Americans no longer keep the bulk of their savings in banks but use the stock market. In another workshop, MorganStanley economist Stephen Roach bashed Americans for not saving in the bank. When I asked him about the fact that there has been a very strong commodification of assets into the stock market and that most American have been told to invest in the market using mutual funds, he debunked them using the stock market because of the Nasdaq crash.
The truth of the matter is Americans don't invest in banks any longer because in 1980 the government passed a law that took away the limit as to what a bank had to pay. Instead, they allowed banks to pay what the "market" would bear. Banks tell us that the market will now bear ½% to 2% on savings and certificates of deposit and charges 9.99% to 21.99% on credit cards. Mr. Roach should know that without these foolish Americans, he would not have a job.
However there is another point to be made with regard to consumers using the bank to save. When the government needs funds, they borrow from the banks (your savings and mine). Because Americans don't save there anymore, it creates a problem for our government to bridge the gap between income and expenses. Instead, they now have to rely on the Japanese and Chinese to buy our Treasury bonds and mortgage backed securities in order to help fund the more than $150B a day the government needs which acts as a line of credit between our income and our expenses.
Another question that this workshop asked was, "Can you make money in China?" The answer is "Lots." The CEO of Nissan, Carlos Ghosn, said that operations needed to be managed very well but it can be very profitable. Furthermore, he said China was second to the U.S. markets in terms of profitability and that profits are also higher than Japan or Europe. Another businessman, Ulrich Schumacher, President and Chief Executive Officer of Infineon Technologies in Germany said that there was not a problem to making money in China and that the timing was right to do it now. He said China has a high level of technical response and their skills are extraordinary. Furthermore, they work three-12 hour shifts, seven days a week boosting productivity over the average German worker who wants the weekends off.
Now why is China so profitable? It is no secret that their people are being paid slave labor wages to work in their factories. With 1.4B people, their slave labor benefits all the countries of the world, thus undermining economies with higher paid employees that are forced to downsize, outsource, privatize and reduce wages. China's average wage is 20% of what is being paid to workers in Malaysia and Taiwan and 10% of what is being paid to workers in Singapore.
Currently there are 200 million Chinese who need to be absorbed into the global workforce. This equates finding jobs for the entire U.S. or European workforce! Think of the kind of consumer spending that will have to be generated by the new emerging market countries like India in order to provide jobs for 200 million people! Think of the imbalances that will create in the U.S.! At every turn, more U.S. plants are moving overseas. As this year opened, Levi Strauss, after 150 years of doing business in America, moved its last U.S. plant to China. It use to be that the troubled high schooler or less than college material kid found a job in the factory and was able to make some kind of life for himself. That is no longer an option. Working at McDonald's is about it.
There are those who say the East is going to invade. I am not sure it is going to be a physical invasion as much as an economical and psychological invasion. While our high school students can't read, Chinese students have learned English and are becoming very IT savvy. Currently, there are 60,000 Chinese students in America. One CEO said that employees in China are fast, adapt well, are innovative and are like sponges when it comes to learning.
Are there downside risks to investing in China? Yes, they like to copy and aren't concerned with intellectual property rights. Furthermore, there are a lot of layers. One CEO said that it is possible for your Human Resources Manager to be a member of the Communist party and the Secretary of Health and Human Services.
With great excitement, Secretary Evans pointed out that the "U.S. is simply trying to create conditions for long term monetary growth. Those conditions that have made the U.S. most important economic engine in the world-that is the key focus in China." My question is, "At what price? Sovereignty? Jobs in America?" Just who will be the monkey in the future?
© 2004 Joan Veon - All Rights Reserved
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"As this year opened, Levi Strauss, after 150 years of doing business in America, moved its last U.S. plant to China. It use to be that the troubled high schooler or less than college material kid found a job in the factory and was able to make some kind of life for himself. That is no longer an option. Working at McDonald's is about it."