Upward Revision on Chinese Growth


Just look at these numbers. I know someone is going to writre and tell me all this is a fantasy, but just let me say it doesn't look like it!

China's economic growth accelerated to 9.1 percent in the third quarter, driven by increased investment as Sony Corp. built factories and China United Telecommunications Corp. expanded its network to meet demand. The rate was higher than the 6.7 percent reported in the second quarter and the 8.7 percent median forecast of five economists surveyed by Bloomberg News. Growth for the full year will probably be about 8.5 percent, the pace achieved in the first nine months, National Bureau of Statistics Deputy Director Qiu Xiaohua, said at a press briefing in Beijing.

China's economy, the sixth largest in the world, is growing more than twice as fast as the five biggest -- the U.S., Japan, Germany, the UK and France. Including Hong Kong, China is now the top export destination for South Korea and Taiwan and one of the three biggest overseas markets for Japan, Thailand and Singapore. "China is really the engine that drives the entire region,'' Ford Motor Co. Chief Executive Officer William Clay Ford Jr. said at a separate briefing in the Chinese capital. ``We do expect to expand aggressively in China.'' Ford, the world's No. 2 carmaker, today said it plans to spend as much as $1.5 billion boosting production at its plant in the city of Chongqing, southwestern China. The company, keen to grab a bigger slice of the world's fastest-growing auto market, said it will add a second factory and an engine-making plant.


Sony, the world's second-biggest consumer electronics maker, said it has invested $8 billion so far in China and predicts the country will become its No. 2 market -- behind the U.S. -- within five years. China Unicom, the nation's No. 2 mobile-phone-service provider, ordered a $139 million code- division-multiple-access network from Nortel Networks Corp. in the third quarter. Fixed-asset investment, which includes foreign direct investment and accounts for about a third of China's economy, rose 31 percent in the first nine months of this year as companies such as Sony invested in new plant and machinery, and the government built roads, bridges and dams. That's helping to create jobs and boost incomes in the world's most populous nation.

The government said 6.25 million jobs were created in the first nine months and the official urban jobless rate at end- September was 4.2 percent. The average disposable income in towns and cities -- home to two-fifths of China's 1.3 billion people -- rose 9 percent to 6,347 yuan ($767) in the first nine months of this year, the statistics bureau said today. Even as incomes climb, Chinese wages are among the lowest in the world. The hourly pay for a Chinese manufacturing worker is 61 cents rather than the $16.14 paid in the U.S., according to a study by economists at the Federal Reserve Bank of Dallas. Cheap labor is helping convince Sony, Siemens AG and other overseas companies to choose China as a hub for their operations. Siemens, the world's biggest engineering company, has invested more than $700 million in the 40 units it has in China. Chief Executive Officer Heinrich von Pierer, in an interview Monday with Der Spiegel magazine, said he could hire 12,000 Chinese software programmers for the cost of 2,000 German ones.

Foreign direct investment into China rose 12 percent to $40.2 billion in the first nine months of this year. This directly accounts for about 5 percent of the nation's gross domestic product and the factories built with these funds produce half China's exports. Overseas sales, which make up about 30 percent of the economy, increased 30 percent in the third quarter and factory production rose 32 percent. Retail sales, which account for more than two-fifths of the economy, rose about a 10th. This strong economic performance may help President George W. Bush argue the case for China to adopt a more flexible exchange rate when he holds talks with his Chinese counterpart, Hu Jintao, at the annual Asia-Pacific Economic Cooperation leaders' summit in Bangkok this weekend. The U.S. says the yuan, pegged to the dollar since 1995, doesn't reflect China's robust fundamentals, giving Chinese exporters an unfair advantage.

Even during the second-quarter outbreak of severe acute respiratory syndrome, a deadly virus that led to a slump in consumer spending, tourism and investment in Asia, China's economy grew more than twice as fast as the U.S. In the first quarter of this year, China posted economic growth of 9.9 percent, it's fastest expansion in seven years. "The economy is back to the trend of strong growth because the central bank has been increasing money supply since the second half of 2002,'' said Yusen Kwoh, chief economist at Millennium Capital Services Co. in Shanghai. Growth of M2, the broadest measure of the money supply, exceeded the bank's 18- percent target for a ninth straight month in September.

Still, economic growth may slow in coming months after the central bank, concerned runaway credit poses a risk to economic growth, in June tightened rules governing lending to the property sector and last month raised banks' reserve requirements, a move it estimated would remove some 150 billion yuan from circulation. A modest slowdown may boost investors' confidence. About three-fifths of 66 chief financial officers employed by companies with operations in China said they are concerned the economy is overheating, with almost a third claiming to have been affected by electricity shortages, according to a poll published Monday by CFO Asia, a monthly magazine. "We have had this year a torrid pace of growth in China,'' said Marc Faber, managing director of Marc Faber Ltd., who manages about $100 million and publishes the monthly newsletter Gloom, Boom & Doom Report. ``The faster an economy is growing, the more likely it is that it will have severe setbacks from time to time.'' China's gross domestic product, the value of the goods and services it produced, rose 8 percent to 10.2 trillion yuan last year. GDP in the first nine months of this year was 7.9 trillion yuan.
Source: Bloomberg
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Global Iron Ore Prices Rocket-Up on the Back of China's Growth


I've had a Couple of interesting pieces of feedback about my 'Gloom and Doom Brigade' post last Friday. I will get back to the substance of the feedback when I have more time to do it justice, but for now, to clarify one point. I said that ideas like the Olduvai theory were flawed, and 'flawed probably because it places too much emphasis on resource shortages'. This was to glib and too easy. Indeed I even went so far as to ask: "why is it that only people with flawed ideas interest themselves in these (interesting and important) problems", and in saying this I obviously went too far, too far, because it might be construed by implication that it was my opinion that all who are interested in this are flawed. This is not the case. I was letting rhetoric get the better of me, and expressing frustration that I had not found something better. Don't worry, in the post box people have been busy trying to put me straight. Meantime, since I do thing scarcity of resources can become a problem for all of us, just look at what is about to happen to iron ore prices consequent on China's rapid economic growth:

Cia. Vale do Rio Doce, Rio Tinto Group and other iron ore exporters may win a 9 percent price increase next year as demand soars because of surging Chinese steel production, AME Mineral Economics said.

China's building and construction expansion will catapult Asian steel output to almost equal the rest of the world's production by 2008, the Sydney-based consultancy said.

Surging demand could raise prices to 33.5 U.S. cents a dry long ton unit for ore known as high-grade fines next year, when suppliers, such as BHP Billiton agree on contracts with Japanese and European steelmakers. Prices reached 30.83 U.S. cents for the year beginning April 1 -- up 9 percent from the previous year. "Our expectations are that there would be a substantial increase next year, mainly driven by China,'' Barry Eldridge, managing director of Australian iron ore exporter Portman Ltd., whose shares have gained 53 percent this year, said in an interview. ``On an average day, we'd knock back between eight and 11 inquiries we can't meet. We don't see any slackening in demand for at least two or three years.'' Shares of London-based Rio Tinto have gained 6.5 percent on the Australian Stock Exchange this year and rose 1 cent to A$36.16 today. BHP's shares ended trading down 28 cents, or 2.3 percent, to A$11.82 on the exchange, paring their gain since Jan. 1 to 16 percent. Portman shares were unchanged at A$1.50.

Australia is the world's largest iron ore exporter and the increase in prices is forecast to help boost the nation's earnings from the commodity to a record A$5.97 billion ($4.1 billion) in the year ending June 30, 2004, according to the government's commodity forecaster.

Surging iron ore demand is also benefiting South Korea, where Posco, the country's biggest steelmaker, reported a 32 percent jump in third-quarter profit this month. No. 2-ranked INI Steel Co. said today third-quarter operating profit leaped 47 percent because of higher prices. "Given the tight market conditions expected to prevail through next year, contract prices for premium Australian fines will return to levels not seen since 1991,'' AME said in a faxed statement. Further increases are expected in 2005, it said. In China, the world's largest producer and consumer of steel, investment in fixed assets rose 32 percent in the first eight months of this year as companies such as China United Telecommunications Corp. installed equipment and the government built roads, bridges and dams, the Beijing-based National Bureau of Statistics said last month.

"The sheer scale of the infrastructure development that is taking place in China should see demand for steel products remain strong at least until the Beijing Olympic Games in 2008 and the Shanghai Expo in 2010,'' Brian Kruger, chief financial officer of BHP Steel Ltd., Australia's largest steelmaker, told the American Chamber of Commerce in Australia on Friday in Melbourne. Rising prices are spurring expansion plans for Brazil's Vale, the world's biggest iron ore exporter, Rio Tinto, the second- biggest, and No. 3 ranked BHP, AME said. "Producers are scrambling to expand capacity, consumers are racing to secure supply and the industry is attracting new players like moths to a candle,'' AME said. Rio Tinto said last month Chinese iron ore imports may surge to more than 250 million tons a year by the end of the decade, after importing more than 100 million tons last year. Chinese steel demand may rise to between 275 million and 300 million tons a year, also by the end of the decade, Rio Tinto said.

To meet rising Chinese iron ore demand, Rio is expanding the capacity of its Hamersley Iron mine in Western Australia state. Iron ore accounted for 33 percent of the Anglo-Australian miner's net profit in the first half. Rio, BHP Hamersley will have capacity to export 85 million tons of iron ore in 2004, from 74 million in 2003, Rio has said. Rio's Robe River venture may also expand the capacity of its West Angelas mine to 25 million tons a year, the company said. Melbourne-based BHP is spending $65.5 million accelerating expansion of its iron ore business. Its 85 percent-owned Mining Area C iron ore project in Western Australia will be officially opened Oct. 30. "China's ravenous appetite for iron and steel is powering a global iron ore boom,'' AME said. Global iron ore demand will increase by more than 6 percent this year to 1.1 billion metric tons and reach an annual pace of more than 1.35 billion tons by 2008, the consultancy said.
Source: Bloomberg
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America's 'Productivity Advantage'


Brad had an interesting post some time back that I never got round to commenting on. Now's my opportunity:

The French--and the British (I know: I've shopped in Britain)--are deprived of the opportunity to buy in the equivalent of CostCo and WalMart, and deprived of the opportunity to get lots of good stuff cheap by shopping at high-volume retailers who have taken advantage of the efficiencies of distribution offered by bar codes, POS systems, databases, and all the other information-age inventions that make it possible for retailers and distributors to keep track of stuff.

This doesn't matter much to John Kay: he doesn't have trouble financing his vacation to the Mentonnaise Riviera: "...between Monaco and Italy, the mountains and the sea, Menton is like an island where life flows serenely... Nestled at the foot of the Azur Alps which plunge into the Mediterranean..."

But there are lots of guys living in western Europe for whom the lack of an opportunity to shop at a WalMart equivalent--and thus to shave 50% off the retail margins they pay while shopping in the picturesque marché municipal--is a real loss. True, they would miss out on their "pleasant excursion[s] to pick up some produce in Menton's marché municipal and browse the FT over an espresso in the place Clemenceau." But if they paid less for produce and staples, they might use the money to pay for a better vacation of their own, or perhaps a dishwasher. They are more than picturesque background figures to entertain John Kay's eye: they are people with limited incomes, but with lives and plans of their own.

And it is not a good thing that western Europe today deprives them of their choice. They are not free to choose to shop at Andronico's, Safeway, or CostCo. Even though the fact that they are deprived of that choice does not strike John Kay as a big deal, it is. For them, it is a problem that, in this particular dimension, Europe is not like America.
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Now in one sense Brad is right. we don't have the 'drive and shop' model of the Americans, at the same time we don't have the obesity and life expectancy problems (so we may have some positive - if unmeasured 'externalities'). We do, however have (plenty of) bar codes, POS systems, data bases, and we're getting more by the day. My take is that what we're slow on is extending the supply lines - WalMart style - into China, and getting the real benefits of IT leverage, and that is one of the main 'drags' on the living standards of our 'working classes':

Andrew Tsuei's job is to fill the shelves of Wal-Mart, the world's biggest retailer. He heads a chain of 23 buying offices scouting for goods in 50 countries. Mr Tsuei's own sleek silver and grey HQ is in Shenzhen, a Chinese city so new that it was paddy fields just 25 years ago.

Today Shenzhen is the gateway to the world's biggest manufacturing zone. Shipping-firm Orient Overseas Container Line this year named the world's largest container ship after it - the OOCL Shenzhen. The rise of Shenzhen's Pearl River Delta hinterland into a global manufacturing powerhouse has fuelled admiration, and - increasingly - envy among the top developed nations. China's economy is growing at roughly 8% a year, easily outperforming G7 countries. Economists think it could overtake the United States as the world's biggest economy by mid-century. It has a bigger trade surplus with the US than Japan, Asia's last miracle growth story, and last year it displaced Britain as the world's fifth biggest exporter. China has arrived at the world's top table and the hosts are increasingly nervous. It is accused of sucking jobs and growth from somewhere else - usually the US or Hong Kong - and a vociferous US Congressional lobby wants it punished. US demands for forced currency reforms have been echoed by the International Monetary Fund (IMF) and G7 club of advanced economies. Guangdong province, up the Pearl River from Hong Kong contributes 10% of China's economy, pours out one third of China's exports, and has pulled in one third of China's total foreign investment. Few people around the world had heard of this region until it became the birthplace of the deadly Sars flu outbreak.

But its global economic importance has been snowballing since China's Communist rulers decreed an experiment in capitalist economics there in 1980. A visit to Yantian, one of Shenzhen's two ports, brings home the scale of China's trade. Its 40 cranes can load one container every two minutes, up to 1,200 an hour. "We never stop," says general manager Kenneth Tse, who radiates energy and wears a navy silk tie scattered with golden currency symbols. Construction is going on to double Yantian's capacity by end-2004. Hong Kong remains the biggest container port in the world - also thanks to China's trade. But nine-year old Yantian handled the same amount of goods last year as Felixstowe, the UK's biggest container terminal.

How has the Delta achieved such rapid growth? And can it keep going? Cheap labour is one answer. "Basically what you have to pay somebody to be an assembly line worker is what is costs to get them off the farm," says Prof Michael Enright of Hong Kong University. Real wages have been static for a decade, but there is no shortage of workers. Everywhere, blue blouses hang drying outside factory dormitories, home to 20 million migrants. Manufacturers now come here to be near their suppliers and buyers, not because of the tax breaks that fuelled early growth. "What we see developing in the PRD is basically quite a deep economy," says Prof Enright.

The sheer concentration of suppliers is certainly one reason Mr Tsuei stuffs his shopping trolley here. "Many retailers worry about buying the right thing, then they worry about buying enough of it," he says. At Wal-Mart "we worry about buying enough". "Enough" for him means $12bn (£7.2bn) this year, roughly 10% of the $116bn trade deficit the US clocked up with China in the 12 months to July. Vast amounts of what the world wears comes from here - clothing, footwear, watches, jewellery. In 2001, two thirds of shoes imported to the US came from China, says the World Trade Organisation. But China's exports are getting increasingly hi-tech, something that makes its critics nervous. A fifth of Guangdong's industrial output is now consumer electronics. It is the biggest sector, worth 4.3bn yuan ($500m).

One reason is investment from foreign electronics and telecoms giants like Nokia, IBM, Phillips and Siemens. Foreign firms investing in China do so partly to tap its growing consumer market, but overwhelmingly to produce for export, according to Morgan Stanley chief economist Stephen Roach. He thinks tirades against China's cheap exports are scapegoating it for the problems of the world economy. Chinese officials think so too. "We don't understand why Americans are complaining about us. They should feel thankful to us because we're producing low priced goods they can benefit from," says Chen Weilin, the Guangdong province official in charge of IT development.

China's State Council has come up with a plan to double the region's growth, giving the go-ahead to a huge bridge linking the western side of the Pearl River with Hong Kong. The idea is to bring the west shore within a three hour car drive of Hong Kong, its international airport, foreign investors and financiers and pump it up into another Shenzhen. It should also speed the integration of Hong Kong, a city which is struggling economically after decades of viewing mainlanders as poor relations. Wal-Mart's procurement strategy offers a snapshot of the shifting industrial balance. It buys food and trinkets in Europe - gold chains in Italy, olive oil in Spain, wine in France. And what does Wal-Mart buy in Britain? "Almost nothing - except stores!" laughs Mr Tsuei.
Source: BBC News
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China's New Rich


If you want to know just how lop-sided economic growth in China is right now, just check out Richard Hoogewerf's rich list.

Almost 60 per cent of the wealth collected by the new 100 richest Chinese business people comes from real estate sector, while also new industries on the list like the steel industry ride the building boom, says author Rupert Hoogewerf. IT-entrepreneurs also made their comeback on the list.

William Ding Lei, CEO of www.netease.com is one of the unexpected returnees even as the number one with an estimated capital of 900 million US$. “He is the Bill Gates of China," says Hoogewerf. Ding, together with Charles Zhang of www.sohu.com were also present in the first rich lists Hoogewerf made five years ago, but the dotcom bust wiped much of their capital away. Even last year Ding saw his Nasdaq almost suspended because of accounting problems.

Hoogewerf skirts the question on how sustainable the profits in the IT-industry are nowadays. The IT industry has only four really large Nasdaq-listed players, whose profits are based on SMS and that is under pressure both by government pressure and the fear it might be outdated again soon by more convenient technologies.

“Look at our number ten, Hoogewerf says, “Chen Tianqiao of Shanda Networking only founded his company for online games in 1999. I only noticed him for the first time in the middle of last year.?

The new Rich List shows in more ways the fast changing dynamics. Forty of the top-100 are newcomers. Hoogewerf: “Some people of the old list were pretty upset when they discovered they were listed lower than last year, even though their businesses have been growing very fast over the past year, but others have been growing faster.?The cutoff rate last year was 70 million US$, in 2003 110 million US$. Some businesses double every year, but only now they become sizable, you see them grow very fast, adds Hoogewerf. The higher cutoff rate gives some stability, thinks Hoogewerf. “It is very hard to get that kind of money in one lucky deal.?

About one third of the top-100 has entered politics, either as a member of the CPPCC (23 per cent) or of the National People’s Congress (11 per cent). About a quarter is estimated to be member of the Communist Party. Private business is so large, it cannot ignore politics, and politics cannot ignore the private entrepreneurs, says Hoogewerf.
Source: ChinaBiz
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and here's another piece on the same topic from Yahoo:

A new survey shows the fast transformation of China's economy is producing wealth in areas far away from industries dedicated to serving the country's basic needs, which created the country's first multimillionaires.

China's original push two decades ago toward a market economy was led by entrepreneurs such as Larry Rong Zhijian, who built the country's first international investment company Citic Pacific group, while two brothers from rural Sichuan province addressed shortages on the farm with an animal feed operation.

These people remain among the country's richest today, along with self-styled tycoons who snapped up property before most Chinese thought about the need for new housing and offices. Yet, a new survey on the country's rich suggests that as China's drive toward the global economy gains momentum, it has become less obvious where pots of gold might be hidden. Chinese entrepreneurs are making a fortune catering to a new generation, with business interests ranging from the Internet to confectionaries to soccer.

The country's richest man now is a 32-year-old entrepreneur, William Ding Lei, whose Web-based short-messaging service might be considered frivolity if it and others like it weren't the envy of telecommunication companies everywhere. Even valuing Ding's assets is newfangled for China, since his fortune rises and falls in line with the share price on his 52% stake in NASDAQ-listed NetEase.com Inc. (NTES). This week his worth was around US$1.3 billion, up from US$900 million at the end of September, but he wasn't even considered among the country's wealthiest a year ago. The rankings of China's 100 richest were published Thursday by a 33-year-old English accountant, Rubert Hoogewerf, who has been on their trail for five years. "It gives an idea of how far China has developed," he says. Worth US$300 million, Zhang Yin is perhaps the biggest exporter from the U.S., in terms of volume. Her America Chung Nam Inc. buys wastepaper there and sends it around the world, where it is made into products like boxes to hold six-packs of Coke.

Guo Hao's Agricultural Holdings in Fujian has organic farms, giving him a wealth of US$230 million. Wang Chuanfu is worth US$185 million on the back of a rechargeable battery business called BYD Co. (1211.HK). Wahaha Group's Zong Qinghou makes soft drinks and children's clothes, giving him a wealth of US$145 million. The bottom line is US$110 million this year, whereas it was just US$6.0 million when Hoogewerf's first list was published in 1999. But it still doesn't have anyone from the entertainment industry. And the rich tend to be a provincial bunch, with fewer than eight said to speak "passable English."

China's rich are also increasingly close to the government, with 34 holding a party-appointed post, although Hoogewerf waves off a suggestion the entrepreneurs could be fronts for the state. He says they tell him things like, "as our business grows, it's impossible to avoid politics." Hoogewerf is publishing the list with Euromoney Institutional Investor Plc (ERM.LN). He and New York-based Forbes magazine, which will announce its own ranking of China's rich later this month, parted ways earlier this year in a dispute over control of the list.

Forty of the 100 names this year are new compared with the list published last year in Forbes, which goes some way toward underscoring how topsy-turvy China's move toward a market economy has been. Li Zhaohui, a 22-year-old with wealth of US$290 million, became the youngest person on the list and China's first millionaire heir when his father was killed earlier this year in a business dispute. His control of Shanxi Haixin Iron and Steel Group underscores another trend, steel millionaires, with five of the 10 youngest having some interest in the industry. The Li case also underscores how getting onto the list is sometimes seen in morbid terms. Several of the people who came to public view through lists like Hoogewerf's have fallen extraordinarily hard.

Among those dropping right off this year's rankings is Zhou Zhengyi, a now-discredited Shanghai property tycoon arrested in September after being identified as kingpin in a banking and property scandal that touched high-level bankers and bureaucrats. He was ranked No. 11 with a wealth estimated at US$320 million when the list was published by Forbes in 2002.

His fall followed that of Yang Bin, a one-time envoy to North Korea listed in 2001 as worth US$900 million. He is now serving an 18-year sentence for fraud and bribery in northern China. Hoogewerf says he doesn't accept that Chinese entrepreneurs have "original sin," meaning that succeeding in the country's requires dirty dealing. The consistent anchor to riches in China has remained property, with most of the top-10 and nearly 60% of the overall wealth emerging from the sector. But information about these property multimillionaires can be notoriously sketchy, with Guangdong-based tycoon Zhu Mengyi's Hopson Development (0754.HK) said to be China's biggest real estate developer. "Nobody knows him. He's terribly low key. I couldn't find a photograph of him to save my life," Hoogewerf said.
Source: Yahoo News
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Where are All the Manufacturing Jobs Going?


Well the answere seems to be 'nowhere', and fast, if you accept the arguments Caroline Baum advances in this article. And I'm sure in one sense she's right. Global employment in manufacturing is probably on the way down. There is more: one point she doesn't note about the China syndrome, is that as areas like Guandong grow, wages rise, and the really labour intensive, low, low wage stuff migrates, either to other regions, or out to Vietnam, Cambodia etc. This process is now evident here in Spain, one of the countries mentioned as having gained jobs via the EU. Most of the talk in the business community now is about the displacement of this manufactuing work out to the new EU candidate countries. On the other hand, don't miss her 'optimistic' conclusion: "one day human beings will be redundant in manufacturing production. (Hey, that will free up more of them to man customer and technical support hotlines)". Obviously she hasn't noticed what must now be obvious to Bonobo Land readers: these jobs are migrating to. The bottom line here is that no-one knows what is going to happen. We haven't been here before, and all historical analogies can only have limited value. I really can't get all this straight yet. But cheer up, at least it's going to be an exciting ride!

You know all those U.S. manufacturing jobs that have been high-tailing it to China? China sure is doing a lousy job of holding on to them. China lost 16 million manufacturing jobs, a decline of 15 percent, between 1995 and 2002, according to a study of manufacturing jobs in the 20 largest economies by Joe Carson, director of economic research at Alliance Capital Management. In that same time, U.S. factory employment shrank by 2 million, or 11 percent. In fact, in the seven years ended 2002, the number of China's manufacturing jobs fell at more than double the rate --15 percent versus 7 percent -- of the other countries in the study. (Two of the top 20 economies, Mexico and Brazil, report manufacturing employment in index form, not as actual headcount, and weren't incorporated into Carson's analysis. The payroll changes in that time period weren't large enough to alter the conclusions.) Despite China's addition of nearly 2 million factory jobs in 2002, ``the level of factory jobs (last year) was below 1998's and far below 1995's,'' Carson says.

So who's stealing China's manufacturing jobs? It seems that China's advantage as a low-cost producer hasn't halted the insatiable drive worldwide to replace even dirt- cheap labor with productivity-enhancing equipment. Some 22 million manufacturing jobs were lost globally between 1995 and 2002 as industrial output soared 30 percent, Carson says. It seems that devilish productivity is wreaking havoc with jobs both at home and abroad. Carson's investigation found that only five of the 20 countries increased manufacturing jobs between 1995 and 2002. Three of the five -- Canada, Mexico and Spain -- ``seem to have benefited from regional trade pacts or currency agreements,'' he says. The other two, Taiwan and the Philippines, showed a net 300,000 seven-year gain, large for those economies but small on a global scale. Put in a global evolutionary context, the loss of 2.6 million manufacturing jobs in the U.S. since the start of 2001 looks far less ominous -- at least to folks not seeking elective office. Facts about the extent of the decline in global manufacturing jobs would demolish the economic (not the political) argument for protectionist measures. Both houses of Congress have proposed legislation that would impose stiff tariffs on Chinese imports.


Facts about human capital's decreasing relevance in the manufacturing process would expose the silliness of appointing a manufacturing czar, an initiative announced recently by President George W. Bush. They would upend the misplaced notion that China's undervalued currency -- the yuan has been pegged at 8.3 to the dollar for almost a decade -- is giving the country's manufacturers' a competitive edge and ballooning its trade surplus with the U.S. to $103 billion in 2002. No reasonable degree of yuan appreciation could offset the labor-cost differential between the two countries. U.S. manufacturing workers make about 25 times what an average Chinese factory worker earns, according to statistical agencies in the U.S. and China.

The fact that China is losing factory jobs at a faster rate than the countries from which it is supposedly stealing them just might put to rest the notion of China, job thievery nation. The angst over the fate of U.S. production workers, whose numbers peaked in 1979, is not unlike the epitaph for farm workers in the early 20th century, says Steve Wieting, senior economist at Citigroup Inc. "Real manufacturing output has risen 77 percent even though the number of manufacturing workers has fallen 22 percent since the 1979 peak," Wieting says. Similarly, real farm output rose 96 percent since 1979 with 31 percent fewer agricultural workers. Because output equals income, "something was earned with the gains in manufacturing and farm output during the last 25 years of falling employment in these industries,'' Wieting says. A rising supply of food and consumer goods caused prices to rise more slowly than per-capita income, giving consumers more income to spend on other things -- on services that didn't previously exist. "While manufacturing and farm employment has fallen by 22 percent and 33 percent, respectively, since 1979, total U.S. employment still managed to grow 41 percent,'' Wieting says.

Perhaps one day human beings will be redundant in manufacturing production. (Hey, that will free up more of them to man customer and technical support hotlines!) Hard as expendability is on workers themselves, increased productivity is the way progress is made. "Our studies suggest that hunter-gatherer societies offer full employment for all, simply providing the basic necessities of food and shelter,'' Wieting say. Of course, with all of their resources devoted to providing food and shelter, they have little ``income'' left to consume anything else -- made in China or otherwise.
Source: Caroline Baum, Bloomberg
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Best Guessing the Future of India and China

While I've touched on this topic before, I didn't get round to posting my more considered opinions. Meanwhile it seems that everyone who is anyone has been busy posting about it! The topic in question: the recent Goldman Sachs study on the so-called BRICs (Brazil, Russia, India, China). Matt, for example, over at Fistful of Euros, Reuben at Zoo Station and, of course Brad over at Semi Daily Journal. I think everybody I've mentioned agrees that this paper contains something important, or at least something which is obvious but which needed making explicit. India and China are set to become the biggest players in the global economy, and this is inevitable simply from the demographics. Brad takes issue with the inclusion of Brazil and Russia, while Reuben no-no's Russia. I think Reuben is right. Russia's demography mean it's GDP is more likely to shrink than to grow, but Brazil is a different case. It may not be as big a thing as China and India, but it is arriving at the good moment, and it will make it's presence felt, especially in Latin America. In fact I would probably strip out Russia from the list and add-on Turkey, but here we are talking of a different order of magnitude completely (although Turkey will possibly overtake Russia). How could GS get this bit so wrong, I think because they look principally at dependency ratios and not especially closely at absolute numbers. Russia's situation is possibly even worse than it appears to be, since in addition to the fact, as Reuben points out, that it isn't immigrant friendly, it is actually experiencing emigration. This will only make the position with its working age population worse.

So back to the good news. It is now 'official': India and China are on the way up. But again, another quibble. What GS state is really pretty obvious. What is rather less obvious is the value of trying to make economic, not demographic, projections about all this. We are still arguing about what will be end of year GDP numbers for 2003, we have only vague guesses about what the numbers might be for 2004, and from there on out we are just plain guessing. The orders of magnitude of errors in projections forward over 50 years are just mind blowing. So I think it is a serious error to try and give a kind of 'pseudo scientific' veneer to all this by printing out long pages of numbers. This is quackery.

But since we are guessing, let me make my guess. Reuben says he thinks that numbers offered by GS may in fact be unduly pessimistic. That India and China are coming much more quickly. I agree completely: here's my reasoning. The only thing we have to go on really is the technical change and the demography. Now what if the demography means the OECD world hits protracted deflation. This possibility isn't even considered by GS. But it must be one of the possible agendas, and if we do have deflation (and I think we will) then the GDP's of the OECD countries may well reduce, Japan style. At the same time if we move out of the zone of the economists and into that of the technologists, we find something even more interesting: Ray Kurzweil's 'law of accelerating returns', or as I tend to put it 'things are getting faster, faster'.

The differences between Europe and India/China have as we know built-up over only 200 years. Now if we look for a minute at the macro-structure of change we find it took 10,000 years from the agricultural revolution to the industrial one, but only 200 years to get from the industrial to the information one. What I am trying to say is that what took 200 years to accumulate will take a lot less to reverse, in my view, at the pace we are going a lot less than 35, although clearly I don't know how much less. This, as I said, is only a guess, but it is an educated one, and it seems to me to be as valid as the GS version.

Chinese Politburo Meet on Reform Agenda

It's decision time at the CCP. Very difficult to say in advance just how far reaching these decisions will be. China is changing, but how far and how fast is a matter of big debate and uncertainty.

The Chinese Politburo will meet this weekend to decide how to complete its transition to a market economy by 2010 and to introduce greater accountability among top party officials. This time, a timetable is expected to be set, said the Wall Street Journal on Friday.

The policies set up ten years ago, involving areas as financial reforms and modernisation of the social-security system would be revised and updated during the 24-member Politburo’s meeting. Particular attention will be paid to the money-losing state sector, the privatisation of more state owned enterprises and passing or updating a series of laws necessary to adapt to an open-market economy, reported the US newspaper.

An important topic of discussion will be the proposal of amendment of the constitution concerning private business. The growing concerns from the private sector on how to defend they properties could lead to an amendment proposal to the constitution to give protection to citizens' property rights. This in spite of the fact that Party chief Hu Jintao faces a party division over this traditionally anathema to China's communist system. One option under consideration is to propose a watered-down version of the amendment, such as calling for protection of "citizens' property rights" or of "legal private assets." Several high-profile corruption cases involving private businessmen have provided ammunition for opponents of the proposed change, said the Wall street Journal.

When it comes to party democratisation matters, the Politburo is expected to submit a report on its performance for scrutiny by the Central Committee, the party's 356-member policy-making body, during the plenum. It would be the first time that top leaders will be held accountable to another group, and the arrangement is expected to be formalised with reports given on at least on annual basis. Any amendments would have to be approved by the legislature next March.

Another key item on the agenda is an initiative launched earlier this year to assist northeast China, a once-prosperous centre of heavy industry, now with a huge number of failing factories and high unemployment. Northeast politicians are lobbying for concrete policies to ease the severe unemployment, especially in coal-mining cities where mines are played out. The social-security system currently covers only half the province's three million unemployed, said the US newspaper.

It remains to be seen how much of an impact the plenum's new policies will have. In the past, other leaders have set ambitious timetables for implementing economic reforms without attaining them. Former Premier Zhu Rongji, for example, vowed when he was promoted to the post in the late 1990s that he would reform the state and banking sectors within three years, two tasks that today remain high on the new regime's agenda.
Source: China Biz
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