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Tuesday, October 28, 2003

"Soybeans are the currency.''

Following my series of posts on the raw-materials impact of Chinese growth, this news from Bloomberg about the soybean impact in Brazil and Argentina is very much to the point. Even though it's long I'm posting the article in full in case the link goes dead. It's the story that has everything: the distorting impact of super-rapid growth from a giant, the ecological impact in Amazonia, genetically modified foods, industrial agriculture, subsidies, our move up the food chain. It's all there. Incredible! Thoughts please.

Vicente Luiz Costa Beber cleared 700 hectares (1,729 acres) of tropical scrub on the edge of Brazil's Amazon to double the size of his soybean farm in five years. This month, he is planting an additional 250 hectares on farms bought from neighbors, encouraged by surging demand from China and the highest prices in six years. "I can sell anything I plant, and that's hard to pass up,'' Beber, 42, said in an interview at his farm in Nova Mutum in Brazil's Mato Grosso state. Farmers from Brazil's rain forests to Argentina's pampas doubled soybean production since 1997 as China boosted soybean imports more than five-fold. At the same time, a shortage of suitable land restricted expansion in the U.S., the world's biggest soybean producer, to 2.2 percent. The U.S. predicts Brazil will surpass it as the No. 1 exporter in 2004. The growth in soybean production in Brazil, where farmers this year increased plantings by an area the size of Israel, means agriculture and related businesses now account for 29 percent of gross domestic product, 46 percent of exports and more than a third of jobs, according to government figures. While the expansion helped boost Brazil's trade surplus and the real to strengthen 24 percent against the dollar, it also makes South America's biggest economy vulnerable to declines in global prices and demand for soybeans, said Zeina Latif, an economist at HSBC Holdings Plc's Brazilian unit in Sao Paulo. "It's a problem for Brazil,'' Latif said in an interview.

On Thursday, Brazil said foreign sales of soybeans will reach $8 billion, or 13 percent of exports, this year and probably rise to at least $8.8 billion 2004. In Argentina, expansion in soybeans accounted for a fifth of the country's 7.6 percent economic growth in the first nine months, according to Luis Secco y Asociados, a Buenos Aires research firm. The boom also boosted revenue of Bunge Ltd., Cargill Inc. and other companies that trade and process soybeans in the two countries. China, which expects to boost soybean imports 10 percent to 22 million metric tons in 2003, on Wednesday bought 454,000 tons of U.S. beans, pushing soy futures prices in Chicago to their highest in more than six years. China's purchases and a drought in the U.S., where this year's harvest is the smallest since 1996, have boosted prices 47 percent since the end of July. China, whose economy is growing at an annual rate of 9.1 percent a year, needs soybeans to produce meal that fattens livestock and oil used to make processed foods such as potato chips and margarine. Soybeans, cultivated in China as far back as 1000 B.C., were introduced in Europe and the U.S. in the 19th century.

"As Chinese become richer they are moving up the food chain and consuming higher protein food, especially more animal protein,'' said Lester Brown, president and founder of Washington- based Earth Policy Institute. ``That requires ever-expanding imports of soybeans to produce soybean meal to supplement grain in livestock and poultry rations.'' Brazil and Argentina have become dependent on soybeans after a record $95 billion default by Argentina caused both nations' currencies to tumble. To achieve higher prices and greater access to world markets the two countries have made ending farm subsidies in the U.S. and Europe a deal-breaker in World Trade Organization talks to reduce barriers to investment, services and commerce. In Beber's town, soybeans lured so many workers that local officials are building three new schools and carving four boulevards leading to new housing developments. In Pergamino, a soybean farming town 300 kilometers (186 miles) north of Buenos Aires, Carlos Genoud's furniture factory, Pergamino Maderas SA, has a three-month backlog of orders from farmers flush with cash.

``This soybean boom has been like Christmas and the lottery wrapped into one,'' Genoud, president of Pergamino's chamber of commerce, said in an interview.

Bunge Ltd, the world's largest oilseed processor, has benefited from rising production, said Raul Padilla, who runs Bunge's business in Argentina. "The soybean boom in the region is very positive for Bunge,'' said Padilla. ``Given the huge interests we have, this allows us to maintain a high level of utilization of our crush capacity, helping reduce costs and maximize the return on our assets.'' Cargill Inc.'s public affairs director in Buenos Aires, Hugo Krajnc, declined to comment. The surge in soybean output has been helped by Monsanto Co.'s genetically modified seeds. In Argentina, 90 percent of the crop is from such seeds, which allow farmers to produce at lower cost by reducing the need for herbicides and increasing the amount of unspoiled soybeans.

In Brazil, President Luiz Inacio Lula da Silva in September waived a ban on the use of the Monsanto seeds and may ask the legislature to make it permanent. Currently, about 10 percent of the Brazilian crop is genetically modified, according to the Brazilian Agricultural and Cattle Farmers Confederation. Soybeans and their products now account for a quarter of Argentina's exports, up from 11 percent 10 years ago, generating foreign currency that helped increase central bank reserves by more than a quarter this year to $13.4 billion. It also helped the peso rise 18 percent against the dollar following last year's 70 percent depreciation of the Argentine currency. For Brazil, farming and agribusiness ``is the country's biggest industry by far,'' Agriculture Minister Roberto Rodrigues said in a speech to farm leaders in Rio de Janeiro on Oct. 21. "If it weren't for agriculture we could have had a recession,'' said HSBC's Latif.

For now, the boom is leading farmers from Para, Goias and other farming states to clear swaths of Amazon forest.

Mato Grosso Governor Blairo Maggi, who, with 113,000 hectares under cultivation, is himself the world's biggest soybean farmer, wants to build a highway from his state to a grain port in Santarem on the Amazon River to overcome what farmers say is the main obstacle to growth of Brazilian agriculture: the country's poor roads, railways and ports. Beber has to send soybeans by truck on a 2 1/2-day, 2,100- kilometer journey to the southern Atlantic port of Paranagua on a two-lane highway so riddled with potholes the size of bathtubs that he loses about 10 percent of each cargo along the way. Construction of the highway would make more of the Amazon vulnerable to deforestation, said Stephan Schwartzman, a Latin America specialist at Environmental Defense. In Acre and Rondonia states in the northwestern Amazon, for instance, farmers have cleared swaths of rain forest along highways to plant soybeans.

In their quest to increase output, Argentine farmers now grow soybeans in fields previously used for corn or cattle and even use patches of wasteland. The municipality of Pergamino is making extra money renting out highway shoulders farmers who want to plant more soybeans. "There isn't an inch of land that is not planted,'' Miguel Saadi, who runs a grain silo, said in an interview in Pergamino. As their soybean production expands, Brazil and Argentina are trying to force the U.S. and Europe to end agricultural subsidies they say reduce market prices and undermine the ability of developing countries to compete in world markets. World Trade Organization talks in Mexico collapsed last month after poor countries refused to discuss proposals to reduce barriers to investment and services such as banking unless the U.S. and European Union agreed to cut farm aid.

In talks to form a free-trade zone spanning the Americas, the U.S. this month accused Brazil of alienating other countries in the region by demanding an end to farm subsidies before negotiating lower barriers on services. Neither Argentina nor Brazil pays subsidies to soybean farmers, while the U.S. paid $671 million in soybean subsidies last year. In Argentina, the government taxes soybean exports 20 percent. "Argentina and Brazil are the most efficient soy production areas in the world,'' Bunge's Padilla said in an interview in Buenos Aires. ``Without the subsidies in the northern hemisphere, both countries could be getting even better prices.'' Beber, in Nova Mutum, produces an average 4.2 metric tons of soybeans per hectare (58 bushels per acre), almost double yields in the U.S., said Agmar Lima, Nova Mutum's agriculture secretary. ``And I do that though this land is really among the worst in the world,'' Beber said. Beber spreads 500 kilos (1,102 pounds) of fertilizer on each hectare of soybeans, a mix of minerals such as calcium and molybdenum that make the orange earth more productive. Like most Brazilian farmers, he plants without tilling the soil to preserve spent soy and corn stalks as organic fertilizer.

In towns such as Nova Mutum, soybeans dominate the economy so much that they have come to be considered as good as cash. The going price for a four-bedroom home with a pool in a new housing development on the edge of town is 10,000, 60-kilo bags of soybeans, each worth about $10. To buy a John Deere harvester, a farmer need only transfer 20,000 of the 60-kilo bags into the dealer's account at one of the silos on the edge of town. "Soybeans are the economy here,'' Lima said in an interview at the two-month-old town hall, which was built with a surge in tax revenue that resulted from rising soybean production. "People have forgotten the value of things in paper money,'' Lima said. "Soybeans are the currency.''
Source: Bloomberg

Disappearing Manufacturing Jobs: A Worldwide Phenomenon

Bloomberg's Caroline Baum re-iterates a fair point here. Manufacturing jobs aren't being stolen from anywhere, since technological change means that even with rising output employment is gowing down: globally. This is why there's no 'lump of labour' to share out. Of course this isn't quite the same thing as saying that articles which were previously made in the US are not now made in China (there is a little slight of hand somewhere here), but still, the reductions in China are impressive. This is why the global impact of China is still likely to be deflationary: all the surplus labour continues to exert downward pressure on wages. On the productivity numbers, we are bound to get the 'usual arguments' that always surround these, but please not the low (very low, and continuingly low) Italian performance:

Last month, in a Labor Day appeal to union workers, President George W. Bush announced the appointment of a new manufacturing czar. He could have saved himself the ridicule. The government doesn't create jobs; the private sector does. A domestic manufacturing czar isn't going to bring back the 2.6 million factory jobs lost on Bush's watch, or stanch the losses, when the problem is global in nature.

So while a figurehead czar will do far less damage than any of the protectionist measures wafting through the Capitol, it won't fix the problem. Manufacturing jobs are disappearing around the world, according to a recent study by Alliance Capital Management, reported in this column two weeks ago. No one is stealing jobs from us. Something -- productivity -- is. Nowhere are manufacturing jobs vanishing more rapidly than in China, the presumed villain in this tale. The study by Alliance's global economic research department, headed up by Joe Carson, created a flurry of interest when it was reported in the Wall Street Journal last week because the results were contrary to what was commonly believed. The Commerce Department, the Treasury, Federal Reserve District Banks, manufacturing trade associations (national and state), lobbyists and the media all wanted the results of the study. (Aren't some of these folks the ones who should be producing the data?)

Prompted by intense interest in what's quickly becoming the No. 1 myth (China is stealing our manufacturing jobs) and what could become the No. 1 problem (protectionist trade sanctions), Carson's group mined international industry data on manufacturing production workers (the folks who actually make things). The economists found that China is even less of a thief than previously thought.

The initial study found a decline of 16 million manufacturing jobs in China from 1995 through 2002. Further digging unearthed a total loss of 25 million. The initial finding of a 2 million increase in manufacturing jobs in China since 1999 morphed into a loss in every year since 1995. "All of China's 28 industry categories showed losses between 1995 and 2002,'' Carson says. ``Only two industries -- garments and electrical and telecom equipment -- experienced positive job growth since 1999.'' China's huge contraction in manufacturing jobs is largely the result of shuttering inefficient state-owned enterprises. Employment at SOEs, both manufacturing and non-manufacturing, fell by two-thirds since 1995, Carson says.

Employment in private enterprises has risen sharply as many workers from the defunct SOEs are absorbed. However, neither China's rapid economic growth -- 9.1 percent in the last year -- nor growing ``number of private sector enterprises has been large enough to offset the drop in factory jobs at state-owned enterprises,'' Carson says. ``Productivity is killing inefficient industries in China in the same way it is here.''

The results of the second Alliance study found more global manufacturing job losses than on first blush. Over 31 million manufacturing jobs vanished worldwide from 1995-2002, versus an initial estimate of 22 million. Factory employment declined in every year in the biggest 20 economies in the world and in almost every year in the three major regions (North America, non-Japan Asia and Europe).

Europe ranked No. 1 -- in terms of the fewest number of manufacturing job losses (2 percent) in the seven-year period of the study. No surprise there: The continent's rigid labor laws deny businesses the flexibility to fire workers during lean economic times.

When it comes to things that really matter, such as the standard of living (an outgrowth of productivity growth), Europe loses its star ranking, based on international comparisons of manufacturing productivity in 14 economies by the U.S. Bureau of Labor Statistics. While the BLS doesn't aggregate country data, Germany, Europe's largest economy, saw output per manufacturing hour increase an average 2.4 percent from 1995 to 2000 and less than 2 percent in 2001-2002. That compares with an average rise of 4.5 percent (1995-2000) and 3.4 percent (2001-2002) in the U.S. One European country, Sweden, topped the U.S. in manufacturing productivity growth, but its weighting isn't big enough to raise the European average by much.

Italy recorded average annual manufacturing productivity growth of less than 1 percent in the last seven years. The U.K. and the Netherlands got the booby prize in 2002 in the BLS comparison, with growth rates of 0.4 percent and 0.5 percent, respectively. Both countries had average annual manufacturing productivity growth of 2.5 percent in 1995-2000. Europe hasn't benefited from the innovations in information technology to the same extent as the U.S. in the past decade. Since the technology itself is available everywhere, the assumption is Europe's structural rigidities are to blame. Europe will have to liberalize its economy in order to reap the full benefits of productivity-enhancing equipment. If companies had more leeway to fire workers, shorten the workweek and cut generous benefits, maybe it would have been the bureaucrats in Brussels who dreamed up the idea of a manufacturing czar instead of President Bush.
Source: Bloomberg

It's the Services Stupid

Following up on the last post, and pushing as hard as I can, Dutch free-trader and China blogger Fons Tuinstra is going for this from much the same direction that I am. For those of you who don't read the fistful comments section (shame on you!) he has a couple of nice pieces on China itself:

"Yet another signal that China will be hitting the services in a hard way. McDonalds asked Leo Burnett China to do the commercial of their new slogan in a host of languages, writes the Far Eastern Economic Review today. (not for free available).The paper writes: "In McDonald's history, all of our creative direction was led by America. But we now said: "Let the best ideas win'," says Larry Light, the global chief marketing officer of McDonald's. And in a competition for pitches from ad firms from around the world, China came top with half a dozen ideas. The competitors even voted the China team the most imaginative of McDonald's global network."


"It's the services, you stupid!

While the US manufacturers keep on complaining about unfair competition from China, the real battle for jobs is taking place in the service sector, today again the HSBC shows. An article in the Wall Street Journal says that the banking conglomerate will shed 4,000 jobs in the UK over the next three years, because work is going to India, China and Malaysia. No low-end jobs, but data processing and call centers, mainly backoffice work.

I have visited in the past one of the HSBC data processing centers here in Shanghai. While the work in itself is very repetitive and even boring after say, ten minutes, you do need rather good English skills to grasp the meaning of the forms and letters you have to deduct the data from. Call centers seems more a thing for India, although I have heard stories that also neighboring Hangzhou has some of them."

Chinese Government Debt Upgrade

This is a very curious one. According to one widely held theory, the Chinese financial system is supposed to be near to collapse, with bad debt and non-performing loans rife accross the board. This news seems to offer another picture, with rating agencies upgrading, and investors comfortable with Chinese government debt. Undoutedly somewhere in the middle lies the truth.

China made a spectacular return to the international bond markets on Wednesday with a combination $1.5bn dollar and euro-denominated issue at prices very close to those achieved by western government agencies. The strength of the country's foreign currency reserves means that China has no need for the extra funding, but the response to the issue demonstrates investors' appetite for Chinese debt. The issue of a "benchmark" government bond will also make it easier for Chinese companies to tap the global bond markets.

The issue came shortly after Moody's Investors Service, one of the top three rating agencies, boosted China's sovereign rating one notch from A3 to A2.

The 10-year $1bn dollar portion was offered at 53 basis points over US treasuries and the five-year E400m euro tranche at seven basis points above Euribor, the rate at which European banks lend to each other. The market had expected yields to be two and three basis points higher respectively. The spread is the lowest-ever for an Asian issuer apart from Japan, with the dollar tranche priced roughly at the same level as that of US agencies, which have an implicit government guarantee. Fannie Mae and Freddie Mac, the two federal agencies that fund US mortgages, were trading yesterday at 48 basis points and 53.25 basis points over US Treasuries.
Source: Financial Times

Turning the Heat Up on Trade

Meantime on the trade front we may be in for another turn of the screw. Given then intransigence of Beijing on the currency issue, turning the heat up at the WTO may be a more politically viable strategy for the US. The bang per decibell rate could be higher, at least at the ballotbox. Of course, on another time-honoured theory, a good way to head-off problems is to position yourself at the head off the race and then lead the pack well away from main street by turning down the nearest convenient cul-de-sac.

The US is ratcheting up pressure on China to abide by its commitments in the World Trade Organisation in an effort to defuse domestic political demands to begin penalising Chinese exports to the US.

Robert Zoellick, the US trade representative, on Wednesday warned that Chinese access to the US market depended on "fair" two-way trade.

"I believe in open markets [and] I think the United States' market should remain open, but the only way that we can maintain open markets is if American exporters have an opportunity to export here," he said in Beijing.

That followed similar statements in Washington late on Tuesday by Grant Aldonas, undersecretary of Commerce, who arrives in China on Friday with Commerce secretary Don Evans to continue pressing the trade issue.

"We expect action from the Chinese," he told a hearing of members of Congress who were demanding stronger action. "The time has come to measure up," he said, stressing that the US had been patient in waiting for China to meet its WTO commitments. "There's a point at which the bill comes due and that point is now."

The language is the toughest yet from the top two trade officials in the US. Ratcheting up the pressure over WTO compliance would be the easiest way for the administration to show immediate progress with China, given Beijing's reluctance to revalue the renminbi. Several bills currently circulating in Congress would slap tariffs on Chinese imports unless China moves quickly to revalue. Mr Zoellick repeatedly linked US willingness to keep its market open to Beijing's willingness to resolve problems over such issues as intellectual property violations and controls on agricultural imports. "We need to make progress on [these issues] and we need to make progress soon," said Mr Zoellick.

The US has yet to bring any dispute cases against China since it joined the WTO in 2001, which has angered Congress, as the bilateral trade deficit ballooned to $103bn (€87bn) last year and $65bn in the first seven months of this year.

Mr Aldonas said that China could respond by eliminating its rebate of value-added taxes for exports, which Beijing announced last week would be reduced by an average of three percentage points. He also said the Chinese government should use only legally-purchased software as a way of combating piracy. In spite of all the strong words, the administration has been trying to discourage a congressional backlash against trade with China.
Source: Financial Times

China's Growing Telecom Clout

The nascent China Teelecom industry is making its presence felt in Geneva:

China's leading telecommunications equipment makers are taking to the global stage in every sense. The ambition of Huawei and ZTE to expand internationally on the back of their success in a growing domestic market was displayed in the sizes of their stands at last week's ITU Telecom World 2003 in Geneva, the quadrennial showcase for the big telecoms companies. Measured by floor space, Huawei and ZTE could argue they were bigger global equipment players than Cisco Systems and Alcatel. Both stands beat Cisco's in size and scope, while France's Alcatel, which spent E14m ($16.3m) on its booth last time at Telecom World 1999, was nowhere to be seen, saying it could no longer justify the expense.

The dominance of Asian displays - including a three-storey tower block that took Samsung five weeks to erect - was seen as a clear message from the region that it had arrived as a telecoms powerhouse. In spite of a recession that has seen many European and American equipment makers and carriers go to the wall over the past four years, their Asian counterparts have survived and thrived. "We have the largest stand in the whole China booth at 526 square metres," said Richard Lee, Huawei's international advertising and promotions manager. "The Geneva show really helps us to build up our brand, not only in Europe but globally."

Until now, Huawei has been known outside Asia more for a patent row with Cisco than for its network equipment. "Cisco [litigation] did not slow us down. We withdrew our products in the US and now both sides have decided to stay litigation," said Mr Lee. With 2002 revenues of $2.7bn, Huawei figures in 16th place in Gartner's global top 20 of equipment makers - well behind number one Nokia on $28.3bn, Cisco at $19.2bn and Alcatel at $13.2bn. But expected 2003 revenues of $3.5bn should lift it above companies such as Panasonic and a restructured Marconi - another no-show in Geneva following its huge display four years ago. Much of Huawei's growth has been fuelled by its home market where a nation of 1.3bn people is quickly taking to mobile telephony and the internet, while fixed-line phone access is being extended in rural areas.

China is already the world's largest telecommunications market by subscribers, yet teledensity - the number of telephones in use for every 100 people - is still fewer than 40, compared with 50-70 in Europe. Spending on networks is expected to increase in China in 2004, according to International Data Corp, the research firm. China's telecoms companies are spending on their networks in the high 20s as a percentage of revenues, compared with an industry average of 10 per cent.

IDC predicted last week that China would account for 48 per cent - or $15.8bn - of the region's spending on network equipment compared with an estimated 44 per cent share in 2003. The figures excluded Japan. ZTE has enjoyed success selling to developing countries such as Nigeria, India and Zambia, as well as in its home market. Shi Lirong, vice-president, told a news conference in Geneva the company was earning 25 per cent of its revenues overseas and aimed to double this to 50 per cent by 2008, when it expected annual sales of $10bn. It is just behind Huawei in Gartner's league table with $1.4bn in revenues last year.

Both Huawei and ZTE insist their success is built on the quality of their products and research and development as much as the lower costs of labour and manufacturing in China. Huawei has research centres in Silicon Valley, Stockholm, Dallas and Moscow, as well as in China, where it is developing a 3G standard - TD-SCDMA - in partnership with Siemens. It was also number two behind Alcatel in the last quarter in the world market for DSL broadband equipment, while ZTE was promoting its "end-to-end solutions" for mobile networks at the show. "Huawei and ZTE are now spending a lot on R&D and are punching above their weight there," says Dean Eyers, worldwide director of telecoms at the Gartner research firm. "A lot of their focus has been on price and they are not ahead of the innovation curve at this phase. But [Geneva] has put them on the radar screen and they absolutely could have an impact on a global scale."
Source: Financial Times

Asia at the Crossroads

Stephen Roach yesterday, on a topic you've been hearing quite a bit about recently at China Economy Watch:

Asia’s wrenching financial crisis of 1997-98 marked a critical turning point for the region that we are only now beginning to understand. The ascendancy of China is the most obvious and important hallmark of the post-crisis era. But the awakening of India is not without potentially profound implications as well. The road has been considerably rougher for the so-called newly industrialized economies of Asia -- Korea, Singapore, Taiwan, and Hong Kong. Meanwhile, Japan has languished in its post-bubble malaise. The balance of economic power is in the process of shifting in Asia. Old Asia is floundering and a New Asia is emerging. That poses profound challenges for the region and for the broader global economy.

Relative growth disparities between New and Old Asia leave little doubt as to the shifting sources of regional economic growth. Since 1990, China’s economy has tripled in size in real terms, while India’s has doubled. Over the same period, 1990 to 2003, the Japanese economy has increased by only 15%. The math of economic development obviously makes it much easier for poor countries to grow far more rapidly than rich ones. Yet China and India still have a long way to go in catching up with Japan. While convergence in overall GDP terms could occur at some point in the next 20-30 years, on a per capita basis -- the most relevant comparison in terms of living standards -- it will take considerably longer. In 2002, real output per capita in Japan was still about 40 times greater than in China and nearly 100 times that of India. Based on an extrapolation of recent trends -- an heroic assumption, to be sure -- Chinese convergence with Japan in per capita terms is unlikely for another 40-50 years; in the case of India, it could take considerably longer.

Outsourcing itself is not the breakthrough. Offshore production options through normal trade channels have been around for decades. What’s new is the breadth and depth of such platforms. What’s also new is the Internet -- the means by which these platforms can now be connected to globalized distribution systems. Moreover, there’s also a new urgency to such outsourcing, driven by the heightened imperatives of cost-control. Lacking in pricing leverage and awash in excess capacity, companies in the high-cost developed world have made the global labor arbitrage a key tactic of competitive survival. In manufacturing, this manifests itself in the form of a massive wave of foreign direct investment into China; FDI into China hit $53 billion in 2002, making it the largest recipient of such flows in the world. In services, the Internet has been the ultimate enabler of technology diffusion and knowledge-based output -- central to new global platforms that open the door to vast legions of low-wage white-collar workers. Courtesy of the global labor arbitrage, the growing role of China and India arises out of shared necessity -- theirs as well as ours.

Nor is there really any effective limit to what the Chinas and Indias of the world can offer up as cost-effective substitutes to the high-wage developed world. Both nations, which collectively account for nearly 40% of the world’s population, have the functional equivalent of infinite supplies of excess labor. China has an urban workforce that amounts to about 400 million, and in India the nonagricultural workforce is estimated at 167 million. Both of these vast nations, of course, still have a large portion of economic activity tied up in traditional agriculture -- 15% of total value added in the case of China and 25% for India. At the same time, they also suffer from a huge deficiency in agricultural productivity; US farm workers, for example, are more than 125 times more productive than their Indian counterparts and 150 times more productive than those in China, according to the World Bank. In many respects, that only enhances the pipeline of candidates for the global labor arbitrage. As agricultural productivity rises and farm workers are displaced, the expansion of low-cost labor pools available for outsourcing platforms has no end in sight.

Wage comparisons are the obvious icing on the cake for the global labor arbitrage: Over the 1995-99 period, World Bank data put Chinese manufacturing labor costs on a per worker basis at about 2.5% of those in Japan and the United States; for India, the ratio works out closer to 4%. Moreover, China’s labor costs are only a small fraction of those in the newly industrialized Asian economies -- 3.5% of those in Singapore and 7% of those in Korea and Hong Kong. Not surprisingly, these wage differentials match up with comparable economy-wide productivity disparities. But that’s precisely the point: Outsourcing platforms are high-performance pockets in low-wage, low-productivity economies such as China and India. Foreign-funded subsidiaries in China now employ some 3.5 million workers, up more than 3.5 times over the past decade; the number is double that if subsidiaries funded in Hong Kong, Taiwan, and Macao are included. Similar trends are evident in services outsourcing. India currently employs about 650,000 professionals in IT services, a figure that is expected to more than triple over the next five years, according to one study (see The IT Industry in India: Strategic Review 2002, published by India’s National Association of Software & Service Companies with McKinsey & Co.). Courtesy of the global labor arbitrage, increasingly well-educated work forces in both countries have become agents of dramatic change in Asia and the broader global economy. Barring a breakdown in trade liberalization and globalization, all this paints a rapidly changing picture of Asia.
Source: Morgan Stanley Global Economic Forum

Monday, October 20, 2003

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

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

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.

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

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

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

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

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

China Envy at Fever Pitch?

Some plusses and some minuses in this article by William Pessek in Bloomberg. India never was a 'basket case' for anyone with eyes. India's 'moment of opportunity' is not just a moment either. But at the same time we may not be all the way in yet. Growth in the IT sector is spectacular, but India is enorous and poor. 700 million people live in it's villages, and, although the birthrate is coming down fast, population momentum means that the numbers will keep going up for some time to come. How to cushion this rise, this is India's big problem, and it seems to be all to do with the balance between the rural and the urban. And remember, even if GDP is rising fast, it could be some time yet before per capita incomes really start to rise. ( Thanks to Rueben at the zoo station for the link. I see he's also picked up the topic of PLOS Biology ).

China-envy is reaching a fever pitch as nations struggle to compete with the world's most dynamic economy. The China-all-the-time mindset is making it difficult forothers in Asia to get attention. Nowhere is that truer than India. Even though Asia's third biggest economy may grow more than 7 percent this fiscal year, India is struggling to get onto more executives and investors radar screens. Those who ignore India may regret it. "The India story is a good story and it's likely to get even better", says Rajeev Malik, an economist at J.P. Morgan Chase &Co. Granted, India is getting more headlines as stocks rise, bond yields grind lower and the currency, the rupee, appreciates. Its benchmark stock index is up 49 percent this year in U.S. dollar terms, shining a brightening spotlight on one of the world's fastest-growing economies.

Yet many of India's attributes are being taken for granted, especially among corporate executives. Asking about different economies in Asia, you often get similar answers. China's economy? "Oh yes, we're excited about it", investors say. Japan? "Looking better." Thailand and Indonesia? "Sure, we're paying attention." And India?"Hmmm, well we've got big concerns about the place."

China bulls aren't necessarily wrong. The most populous nation has remarkable potential and its meteoric rise spotlights India's economic backwardness. Twenty years ago, India and China were close competitors, both struggling to pull their mushrooming populations out of poverty. Now India is being left behind. Ignoring India's long-run potential, however, could be one of the biggest mistakes executives and institutional investors make in the next decade. India has myriad problems. Even if the country grows the 7.1 percent groups like the National Council for Applied Economic Research expect, it may not be fast enough to raise 400 million of its 1 billion people out of poverty. New Delhi says it needs 8 percent growth over the next decade to do that. Dodgy infrastructure and notorious bureaucracy continue to steer away the kind of long-term investment China gets loads of.

Yet India is no longer a basket case, and it's likely to be one of the great investment surprise stories of the next decade. There's a reason Boeing Co., Motorola, Australian phone company Telstra Corp. and Accenture Ltd., which manages services and computers for clients including AT&T Corp., have all announced investments in India in the last 12 months. Its appeal lies as much in its pool of software engineers and English-speaking graduates as its billion-person market.

Southeast Asia also is eying India's promise. Last year, India got its first invite to the annual summit of Association of Southeast Asian Nations (ASEAN), yet Prime Minister Atal Bihari Vajpayee played second fiddle to Chinese officials. At last week's summit, Vajpayee was signing trade agreements with ASEAN. Where India has an advantage over China is the nature of its economy. China's is a political one and its success comes from a top-down approach to things. India, for all its problems, is a bottom-up economy in which entrepreneurs are pushing the government to reform and streamline. That tension could give India an edge in the long run. China's boom isn't hollow, per se, but it's heavily dependent on foreign direct investment (FDI); the economy mostly serves the demands and needs of foreign-owned firms in foreign markets. It explains the dearth of internationally known Chinese companies that operate on a global scale and market their products abroad. You would be hard pressed to find a global investor who hasn't heard of Indian software firms like Infosys Technologies Ltd. or Wipro Ltd. Ditto for drugmakers like Ranbaxy Laboratories Ltd. and Dr. Reddy's Laboratories Ltd. The presence of such names explains why India is attracting increased institutional investment, while China isn't.

The question is how much China's rise shakes India out of complacency and catalyzes officials to modernize the economy. Privatization Minister Arun Shourie, whose progress in selling state assets has impressed many investors, warns that China's economy could surpass India's by six times over the next 15 years if the current pace of reform continues. Shourie argues that India's improving growth environment offers a "moment of opportunity" but "only a moment." It's an important point. New Delhi's bureaucracy gets in the way of that opportunity. Entrenched bureaucrats resist change because of political differences, not sound economics. While that's true anywhere, not every nation is dealing with such crushing poverty. Once India begins attracting more foreign direct investment, its comparative advantages over China "like entrepreneurial and management skills" might be reinforced and boost Indian growth. "Countries in Asia seem to be fighting for a shrinking FDI pool," says Gene Frieda, a strategist at the Royal Bank of Scotland. "That won't last forever, though." One sign of hope is the rupee's rise. It indicates a sense of economic maturity and confidence. It's attracting capital into Indian markets, boosting stocks, reducing interest rates and allowing the central bank to keep borrowing costs low. It also is prompting the government to step up plans to repay more high-cost overseas debt before it matures. China is going places, but so is India.
Source: William Pessek Jr, Bllomberg

Sunday, October 12, 2003

US Trade Balance With China Deteriorates

Latest data on the US trade deficit shows the balance with China continues to deteriorate. I have a feeling we will be hearing more about this. For the rest, we shouldn't draw too many conclusions, August is definitely an 'untypical' month.

The US trade gap with China widened to a record high in August even as America's overall deficit unexpectedly shrank. Figures released yesterday by the US commerce department showed the US deficit shrank to $39.21bn (£23.4bn) compared with a revised $40.03bn in July. It was the lowest gap in six months and undershot expectations that the deficit would widen to more than $41bn. But the bilateral deficit with China widened to$11.7bn in August, breaking the $11.3bn record set only a month previously. The widening is likely to worry US manufacturers, already concerned about the effect China's currency peg is having on US competitiveness. Most estimates suggest the tightly controlled renminbi is undervalued by at least 20 per cent.

Economists forecast the gap would swell further in the months ahead."Part of the reason is the currency in that the dollar is adjusting lower elsewhere, but it can't against the renminbi," said Ian Morris, economist at HSBC in New York. The National Association of Manufacturers warned that a continuation of the trend - where imports from China are six times greater than US exports to China - would result in the bilateral annual trade gap tripling in five years to more than $300bn. The narrowing of the overall US deficit led analysts to forecast even higher third-quarter growth in the US, with some suggesting gross domestic product could grow by as much as 6 per cent.

"This could take an already good number and turn it into an amazing one," said Carl Weinberg, at High Frequency Economics. Both US exports and imports fell in August. A 2.5 per cent fall in imports was led by a 13 per cent decline in imported cars and car parts. Exports fell 2.7 per cent, the biggest monthly drop since September 2001. Analysts said the August data were likely to have been affected by poor global activity and, more locally, by the blackout that paralysed large areas of the east coast. On the services side, both imports and exports set a new record and the services surplus widened by 5.6 per cent to $5.2bn in August.
Source:Financial Times

Problems With Large Scale Domestic Appliances

Today is the day of the hard-look at potential problems in China. Obviously this article identifies one possible negative mix: Lack of marketing experience, bureaucratic state management influence, and absence of propriety technology. Still, learning is the name of the game.

China tumbles in white goods

Many of China's leading washing machine makers have been bought out or gone bankrupt in recent months, confounding expectations the mainland's low-cost manufacturers would become dominant international players. With the exception of Haier, the country's largest white-goods company, Chinese washing machine manufacturers have fallen by the wayside as foreign brands have doubled or in some cases tripled market share in China since 2000.

The foreign share of total washing machines sales in China has gone from about 15 per cent in 2000 to more than 25 per cent in the first six months of this year. But in some of the most profitable lines, such as fully automatic machines, the foreign share has gone from 15 per cent in 1999 to 42 per cent of the national market now. "A few years ago, foreign companies were not very familiar with the Chinese market, but they have made great strides in brand recognition and service," said Xu Jun of China Securities in Shanghai. The foreign brands that have carved out significant market share include Whirlpool, LG Electronics, Samsung, Siemens and Matsushita's National Panasonic.

Even with nearly 20 per cent of the market, Little Swan, one of China's best known brands, plunged into the red this year and the government's controlling stake was sold to a private entrepreneur in Nanjing. "Competition in the home appliance market is cut-throat - it is very hard not to lose money," said Chen Weinong, an investor relations official at Little Swan, in Wuxi, near Shanghai. Royalstar, whose brands are the third-largest sellers in China, has been bought by Elco Industries, an Israeli company, after struggling to maintain profitability for some years.

Another brand, Little Duck, a listed manufacturer in Shenzhen, southern China, is in talks with a local lorry making company after two consecutive years of losses. "We are still doing well in terms of market share, but several years of price wars have cut our margins very thin," said Wang Jinxia, a spokeswoman. "On top of that, since last year, prices of raw materials have risen; steel prices have gone up 40 per cent and plastics by 20 per cent."

Until recently, growing Chinese exports of goods such as washing machines, fridges and television sets had prompted speculation that local companies could become global players in consumer electronics and white goods. While China might still create some global champions, weak brand management, state ownership and lack of proprietary technology has made it difficult for its companies to be anything other than low-cost producers, and vulnerable to aggressive foreign competitors, even in their home market. The restructuring of Chinese industry, however, has been made easier by Beijing's backing of sell-offs of state-owned shares by city and provincial governments.
Source: Financial Times

China's Coming Collapse?

Here's another book about China, Gordon G Chang's Coming Collapse of China. Again two Amazon reviews give a good flavour of the argument. An remember, I am not endorsing these arguments, I am simply recognising that they exist:

From 1978 through the mid-1990s, China had the fastest-growing economy in the world, and it appeared poised to dominate Asia, and beyond, in the near future. But after focusing on facts rather than theory and looking at the conditions behind the spectacular numbers, Gordon Chang presents the People's Republic as a study in wasted potential: "Peer beneath the surface, and there is a weak China, one that is in long-term decline and even on the verge of collapse. The symptoms of decay are to be seen everywhere." For a nation that has always taken a long view of history, time is quickly running out. Chang believes China has about five years to get its economy in order before it suffers a crippling financial collapse--a timeline he seriously doubts can be met.
By failing to complete its reformation, China has maintained an illusion of progress, Chang explains, but in reality has caused more problems than opportunities for would-be entrepreneurs and foreign investors. Because reform has not been fast enough or comprehensive enough, China is unable to benefit from its modernization or keep up technologically with much of the world. The government's reluctance to get rid of state-owned enterprises has not only rendered China uncompetitive just as it prepares to join the World Trade Organization, but is causing the banks--which were forced to lend money to SOEs--to fail alongside them. Widespread unemployment, corruption within the Communist party, millions of resentful peasants, and a general lack of leadership further threaten stability. The Communist party "knows how to suppress but it no longer has the power to lead," Chang writes, arguing that the party is maintaining control only through the use of brute force and the people's instinct for obedience--popular support that could deteriorate as soon as the economy plunges. Simultaneously, societal ills such as gambling, drugs, and prostitution have become huge problems.

Stuck between Communism and capitalism, "China is drifting, unwilling to go forward as fast as it must and unable to turn back." It is uncertain what will be in the way when the giant finally falls.
Reviewer: Shawn Carkonen

At a time when almost everybody is enthusing about China and its economic prospects, this is a sobering book. Chang argues that the economic and political system of the People's Republic is teetering on the verge of collapse; in 5 to 10 years after China's accession to the World Trade Organization (WTO) the whole house of cards will finally fall, and the Communist Party will be ousted from power in an eruption of violence. In Chang's opinion, neither the economic nor the political system can be reformed; the regime in Beijing will not win time during a slow process of reform ("crossing the river by feeling the stones"), but just make things worse as even more money is squandered by inefficient State Owned Enterprises and the corrupt Communist Party.

It is usually when people get overly optimistic and write books like "Dow 36,000" or "China as No. 1: The New Superpower Takes Center Stage" that things take a turn for the worse. Therefore, we should be glad that someone provides an antidote to the euphoria. After all, China and its 1.3 billion inhabitants produce an annual Gross Domestic Product (GDP) of just about the size of Italy's GDP. Italy has about 58 million inhabitants - and nobody considers Italy a superpower.

Gordon Chang's diagnosis is to the point. His prognosis, however, is debatable. After working for three years in Shanghai, I can only underline what Chang says about the sorry state of China's State Owned Enterprises and its banks. Doing business in China requires a good portion of sarcasm, and a lot of hope that despite the flaws in the system the whole state simply cannot collapse. In the words of a former executive of ING Bank: "The bad news is that the Big Four [banks] are insolvent; the good news is that they're sovereign." Chang's prognosis that China will collapse after 5 years because the country will honour its commitments to the WTO and open its economy to international competition is not very convincing. China will find ways to curb competition where it sees fit. Japan and the EU have been successful in protecting their agricultural interests for decades, and foreign banks have not managed to get a real foothold in the big Japanese market to this very day. In my opinion, the Chinese will be even more inventive in finding means to keep foreign products and services out of their country. No, the WTO is not the nemesis of Communism in China. Will the Communist Party be overthrown in a violent revolution? I would not bet on it. The Communist regimes in Eastern Europe went with a whimper (not a bang). Which will it be in China? I don't know. I don't pretend to know.

"The Coming Collapse of China" is an angry book written by the son of a man who "left China before the end of the Second World War and [the son] grew up hearing him say that Mao Zedong's regime would have to fall." The son returned to China to work as a lawyer in Shanghai. When he wrote this book - his first - it was a polemic in which he pounded away at the evils of Communism and predicted that Jiang Zemin's regime would have to fall. However, he would have written a better book if he had not tried to play the prophet (and defender of his father's faith). The best parts of the book are the stories in which he lets others speak for themselves, or when he pokes fun at the authorities. Unfortunately, he comes across as self-opinionated too many times. But don't let it irritate you: listen to the message even if you find the messenger annoying at times.
Reviewer: Boyse

The China Trap?

Those of you who are still labouring under the weight of my latest bout of blathering about fertility, fear not. Worse is to come. I am now trying to get into doing some sort of halfway-serious assessment of the China debate. In preparation I am looking round the arguments. One pole can be found in Joe Studwell's The China Dream . In fact I find one of the Amazon reviewers sum this line of argument up pretty well:

There's an incredible amount of hype about China's economic market. Its huge population, high-skilled low-wage work force, and relative political stability for a developing country all act as a powerful lure to multinationals eager to set up shop and begin selling to one-quarter of the world's population. Under tough negotiations from Chinese officials, these companies tend to give away the kitchen sink to ensure they get access to the huge market. But what do they get in return?

Joe Studwell does a service to the informed public by clearly demonstrating that almost all the businesses who have gone to China have gotten next to nothing for their technology transfers, special fees, and tremendous time and effort they've dedicated to the market. Almost uniformly, they have high-balled their expected sales and profits from the Middle Kingdom and found immense barriers such as unseen regulations and fees, corrupt officials, unenforced laws, local spin-offs to their products, etc., that should have sent them packing. Yet almost all of them push on, undeterred.

As Studwell explains, the reason for this is an old phenomenon among Western businessmen he calls "The China Dream." Despite continual setbacks, these hard-headed businessmen are too attracted to the possibility that they have something to sell that even a small percentage of Chinese may want to buy. Those huge potential numbers are too much of an enticement to businesses to easily let go of their foothold in China.

But Studwell's book is more than just about the experience of foreign businessmen in China. It also shows that the China market is becoming a trap for the Chinese people themselves. They work hard and save, and the government confiscates and then destroys their money by trapping it in state-owned banks that are insolvent because they lend to state-owned enterprises that are unproductive.

"The China Dream" is well-written and informative. Its thesis is provocative, but well supported. Studwell argues there is no rational basis for much of China's economic success and that most of its market is as closed and overregulated as the Soviet Union's. This book should be required reading for every CEO of a multinational who dreams of selling in China.
Reviewer: Jeffrey Steele