“The China Price”
Posted : February 24, 2005 at 6:38 pm [IST]
I wrote about the Chinese miracle in manufacturing. I have been reading about the same extensively for some days here in US. Here is some more on the subject. Everyone in US- economists, union officials, and small manufacturers are concerned about the devastation Chinese competitors are inflicting on U.S. industries, from kitchenware and car tires to electronic circuit boards
“The China price.” are the three scariest words in U.S. industry today. In general, it means 30% to 50% less. In the worst cases, it means below even the cost of materials. Makers of apparel, footwear, electric appliances, and plastics products have been shutting U.S. factories for decades, knowing wellthe futility of trying to match the China price. In process, US have lost 2.7 million manufacturing jobs since 2000. Meanwhile, America’s deficit with China keeps soaring to new records. It is likely to pass $150 billion this year.
It is not only true for mundane sunset industries equipped with antiquated technology, but also for one with a state-of-the-art plant. A tenfold surge in high-quality Chinese imports at “below American manufacturing costs” threatens even the makers of precision machine tools andplastic molds that essentially support the America’s industrial architecture. Now, manufacturers and workers who had once held their business against imports mostly because their businesses required advanced skills, heavy investment, and proximity to customers are also worried lot. Many of these companies are in the small-to-midsize sector and make up 37% of U.S. manufacturing. The China price is even being felt in high tech. Even for the maker of high-end circuit boards for aerospace and automotive customers, the prospect is bleak. The buyer can get the same board from China for 40% less. Chinese exports of advanced networking gear are already affecting prices. And many predict that China could eventually become a major car exporter.
Multinationals have accelerated the mainland’s industrialization by shifting production there, and midsize companies that can are following suit. Ohio State University business professor Oded Shenkar, author of the new book The Chinese Century, gives his view straight: “If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won’t work.” Chinese producers can make the same adjustments. “You need an entirely new business model to compete.”America has survived import waves before, from Japan, South Korea, and Mexico. And it has lived with China for two decades. But something very different is happening. The assumption has long been that the U.S. and other industrialized nations will keep leading in knowledge-intensive industries while developing nations focus on lower-skill sectors. That’s now open to debate. “What is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech,” says Harvard University economist Richard B. Freeman. “Combine the two, and America has a problem.”On one side, the benefits of the relationship with China are enormous.
After years of struggling to crack the mainland market, U.S. multinationals from General Motors (GM ) to Procter & Gamble (PG ) and Motorola (MOT ) are finally reaping rich profits. MNCs are making cell phones, shampoo, autos, and PCs in China and selling them to Chinas middle class of some 100 million people, a group that should more than double in size by 2010. So for them, their commercial success in China is important to their competitiveness worldwide.By outsourcing components and hardware from China, U.S. companies have sharply boosted their return on capital. China’s trade barriers continue to come down. Because of its agreement to enter the World Trade Organization in 2001, big new opportunities will emerge for U.S. insurers, banks, and retailers. China’s surging demand for raw materials and commodities has driven prices up worldwide. The cheap cost of Chinese goods has kept inflation low in the U.S. and fueled a consumer boom that helped America weather a recession and kept global growth on track.
But what does it cost to US? While U.S. consumers binge on Chinese-made goods, the U.S. balance-of-payments deficit is nearing a record 6% of gross domestic product. Many even fears the possibility of impeding cracks in the global financial system.
- Indra
Category: Manufacturing |
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