China may have to go communist
WILLIAM PESEK
June 28, 2010 - 1:29PM
               
If these factory strikes continue, China may have to go communist.

It’s tempting to wonder which way China will go. Will it side with demands for higher pay and let strikes broaden? Might it clamp down on this budding Solidarity-style movement to protect the all-important export machine? Or will workers demand a true Communism - not just one that abhors Google?

So far, China has taken the first path, going more the way of capitalism than Communism. It raises the specter of a “Henry Ford moment” in the most populous nation, with both good and bad implications for the global economy.

First, the good news. China’s leaders are taking a page from the industrialist who built Ford Motor. In 1914, Ford doubled the average automaker’s wage to $US5 a day. It made his Model T more affordable to them and provided a model for a stable workforce that formed the core of the US middle class.

It’s a dynamic China needs more of, and signs are that it’s spreading before our eyes. The positive domino effect it unleashes would create a growing domestic market for products factory workers produce. It would accelerate China’s shift from exports to a consumer-led economy.

Toyota, Honda and Nissan Motor, all targets of recent strikes, aren’t in China just to exploit cheap labor. They’re there to tap the biggest market for automobiles. They want to sell their products to their own employees, a la Henry Ford.

It’s the market

All the chatter about foreign companies closing Chinese factories and shifting production elsewhere misses the point. China, for all its quirks and challenges, is THE car market of the next 20 years. It makes no sense to build sedans or trucks in Vietnam or Indonesia to sell in China. Foreign factories are largely in China to stay.

The problem for manufacturers is that workers know it. Average workers also doesn’t need access to Google Inc.’s search engine to know that state-owned companies often treat them better than foreign ones. Perhaps that’s why many of the headline-grabbing walkouts have been among foreign operators. And few workers are about to take on the Chinese state. The risks for any Lech Walesa wannabe in China are clear enough.

Growing pains associated with this phenomenon will spread. Foxconn Technology, the maker of Apple’s iPhones and Hewlett-Packard’s computers, has grappled with a spate of worker suicides. The Taiwanese company can’t seem to up wages fast enough to placate staff.

Wage spikes

Corporate boardrooms the world over will need to adjust. Big, unpredictable wage spikes on the world’s factory floor will hit profitability and affect inflation rates globally. While everyone knew this was coming, it’s arriving sooner than many thought.

Now for the bad news: the environment. Anyone who’s travelled to a major Chinese city recently knows the drill. Take Shanghai. You get in the elevator of your hotel all excited that you’ll have a bird’s eye view of what many consider to be the current centre of the world economy.

You walk into your room on the 50th, 60th or 80th floor of the city’s latest architectural monstrosity and make a beeline to the window. You pull back the curtains and what can you see? Often, nothing. Massive clouds of smog and soot stand between you and the nearly 20 million people below.

Pollution woes

Cities and rivers are already plagued by pollution that can only get worse as larger disposable incomes give Chinese workers the itch to buy more ipods, cars and houses. As factory output grows unabated and more and more vehicles hit the roads, China’s environmental challenge rises exponentially. Yes, China is working on going green - just not fast enough.

China vows to cut carbon emissions per unit of gross domestic product by as much as 45 per cent of 2005 levels by 2020. One of its key initiatives is promoting electric cars. A trial program in five cities offers buyers as much as 50,000 yuan ($8390) toward a plug-in hybrid or 60,000 yuan for a fully battery-powered car.

This policy may do more environmental harm than good. As much as 98 percent of electricity in China’s north, including Beijing, was generated from coal last year. The upshot is that carbon- and sulfur-dioxide emissions from electric vehicles could exceed those from combustion-engine cars.

Choking on growth

China has 1.3 billion people. The question is whether its air is ready for 500 million vehicles churning out emissions. The hope is that China’s leaders will prove as adept at keeping growth on a sustainable path as they have navigating the global crisis. It would be quite a feat.

Yes, China is run by very smart people, yet no industrialising economy has avoided some kind of crisis. If you are wondering what might slam China, runaway pollution deserves a place at the top of the risk list.

Consumers coming into their own is a natural part of an economy’s maturity, something Henry Ford showed America. In China’s case, the ride could be a bumpy one.
Link here:
http://www.smh.com.au/business/c ... -20100628-zdbt.html

Yeah!  How dare the Workers challenge the Party!

Wow. Inflation coming from the demand for a wage increase is how it does happen.  However, given global conditions it does not seem that this price pressure will materialize anytime soon.  What's strange about inflation is people view of what it is going to do changes on a dime.  Right now it's subdued.

Is this the beginning of the end for the Chinese perpetual double digit growth story? First the workers striking for more wages now the downgrading of business confidence. Are we seeing a slow motion repeat of what happened to the Japanese in the 80's? Or just a blip on the journey to economic and military superpower.

European firms sour on China business
June 29, 2010 - 3:09PM
               
AAP
European companies say increasingly unfair, capricious Chinese government interference is making China a less attractive place to do business, according to a survey by the EU business group.
An annual survey of 500 European businesses in China found that 36 per cent believe Chinese government policies have become less fair in the past two years and a slightly higher percentage expect the situation to get worse.
Businesses complained in particular about selective enforcement of laws and regulations, spotty protection of intellectual property rights and opaque processes for company registrations, visas and work permits, the EU Chamber of Commerce in China said.

The chamber's president on Tuesday warned that conditions were dampening enthusiasm for the China market.
"These persisting regulatory challenges temper the attractiveness of China as a long-term investment destination," said chamber president Jacques de Boisseson.
"Our member companies' continued commitment to China as an investment location is not unconditional and would be further bolstered by a clearer and more predictable business environment."
The European complaints match those of other foreign companies who have complained of a worsening business climate in China.
In recent years, Chinese government agencies have blocked several attempted high-profile acquisitions by foreign companies, among them preventing Coca-Cola Co. from buying Huiyuan Juice Group.
Beijing is also trying to promote innovation policies that foreign companies say will force them to turn over proprietary technologies and other information if they want to be eligible to sell products to the government.
Link here:
http://news.smh.com.au/breaking- ... -20100629-zi1r.html

Foxconn 'to move China Apple production' as costs rise
June 30, 2010 - 2:20AM
               
Taiwan high-tech giant Foxconn plans to shift part of its production of Apple gadgets to other parts of the country as it faces rising labour costs, reports said Tuesday.
After a run of suicides and wage hikes, Foxconn will move some manufacturing from Shenzhen to northern Tianjin and central Henan province, the Financial Times said, citing unnamed executives.
Citing local officials, China's official Xinhua news agency said the company plans to build a massive plant in Zhengzhou, capital of Henan, that will initially employ 100,000 people and eventually 300,000.

The company was in talks with officials on details of an agreement for the plant, Xinhua said, adding that Henan had already launched a recruitment drive for the factory's employees.
It did not say what the plant would make.
The company -- which also makes products for Panasonic, Dell, Nokia and other top brands -- also will boost its "investment and product portfolio" in Tianjin, the China Daily said.
The move away from its long-time manufacturing hub in Shenzhen, on the border with Hong Kong, is aimed at containing rising costs, the Financial Times said.
Plans by Foxconn to pass on some higher labour costs were not greeted favourably by Apple, the paper added, citing executives involved in negotiations between the two firms.
No one at Foxconn, the world's biggest electronics contract manufacturer, was immediately available to comment on the reports.
A Hong Kong-based spokeswoman for Apple declined comment on the reports.
This month Foxconn announced salary increases of about 70 percent after 11 Chinese employees apparently committed suicide by jumping from buildings this year, including 10 in Shenzhen.
Labour rights activists have blamed the suicides on tough working conditions at Foxconn and Tuesday's move comes amid increasing unrest at foreign-run factories in China as millions of workers express their discontent at low pay.
Link here:
http://news.smh.com.au/technolog ... -20100629-ziee.html

The unrest due to workers' salaries will persist in Guangdong province but China is massive and as such there is an inexhaustible supply of labour. Factories will just continue to move North. I recently reported on Dandong in the China section, the border town with North Korea and I was there just for the purpose of seeking out cheaper suppliers of goods and there are lots of factories that are still able to produce goods at much lower prices. Just need to install personnel there for training and QA.

It also sound like china not only needs to keep up demand for it's products but increase as there is more labor than needed. Isn't having available surplus labor somethingthat keep prices down and wages down. If there isn't work for all these people what do they do instead.

A lot of these people have a family farm back in their village where they can live comfortably for very little. Higher returns on farm produce, lower taxes and aging parents has seen many walk away from factory jobs in recent years.

How many widgets can China really export? Eventually the export market has to have less of an influence as wages potentially rise, the re-evaluation of the yuan. The domestic market has to eventually tack up the slack if the growth is to continue, and keep people employed and the potential unrest as low as possible.

Sounds like competition may come from Pakistan and Bangladesh and other places like that where labor is abundant.  So that china has competition.

That's only half the battle, governments and economies depend on logistics also and in my opinion no one is beating China in terms of development.