Posted on 03/09/2003 9:46:51 AM PST by sarcasm
PENANG, Malaysia (Reuters) - A few days into the new year, the workers of local electronics maker Unico learned the hard way about the brute force of China's industrial revolution.
The Malaysian firm had been providing computer motherboards to chip giant Intel Corp, which runs a big assembly plant just down the road, when a Chinese rival grabbed the contract by offering to do the job for about half the price.
At a stroke, half of Unico's 1,600 work force was laid off.
``We make very good products -- high quality, fast delivery. Unfortunately, China's running a lot cheaper than us. That's the name of the game,'' said Alex Soon, Unico's chief financial officer.
It's a game that's being played at breakneck speed across Asia. Hardly a day goes by without a company announcing plans to open a plant in China to tap into the country's unbeatably low labor costs and fast-growing market of 1.3 billion consumers.
For all the dislocations that China's emergence as the workshop of the world is causing, people in Penang at least show remarkably little bitterness toward their neighbor to the North.
``We were in the same position in the '70s as China is today,'' said K. Veeriah, the Penang secretary of the Malaysian Trades Union Congress. ``We've come full circle. A lot of people don't understand the impact that China is going to have over the next five years, but I don't think there's any resentment.''
MOVING UP THE LADDER
Indeed, if China's rivals respond nimbly by developing new skills, they should be able to carve out niches in higher-margin industries where China cannot compete and take advantage of rising Chinese demand for tourism, health and education services.
Last week, U.S.-based computer hard disk drive maker Maxtor Corp flagged job losses among its Singapore work force of 8,000 once a $115 million plant it plans to build in the Chinese city of Suzhou comes on stream in 2005.
But a day earlier Mandarin Oriental Hotel Group said it planned a second upscale hotel in Hong Kong to cater to the growing number of visitors from mainland China.
China already has a voracious appetite for energy, commodities, raw materials and equipment to feed its industrial machine, leading Jim Walker, chief economist at CLSA Emerging Markets, to call it the golden goose of the global economy.
Japan believes China has an unfair advantage by artificially holding down its yuan currency, which is pegged at around 8.28 per dollar, and wants a revaluation that would curb its exports and thus boost Japan's own sluggish, export-dependent economy.
But Walker argues that would kill the China goose: cutting China's export income would reduce its demand for imports.
``What we would all rather have -- a moribund but competitive Japan or a competitive and dynamic China? The question is rhetorical because the answer is so obvious,'' Walker said.
``China is on the move and it is a massive benefit for everyone in the global economy,'' he said in a note to clients.
Jun Ma of Deutsche Bank agreed. He calculates that China accounted for 65 percent of total world import growth in 2002.percent of the world's production of steel, copper and aluminum on its way to becoming the world's second-largest economy -- it is now No. 6 -- by 2017.
DON'T BLAME CHINA FOR DEFLATION
Another fear stoked by the competitive pricing that cost Unico its Intel contract is that China is exporting deflation.
Most economists take the view that a generalized fall in prices is caused by inadequate demand in an economy and say it is a fallacy that China is driving down prices across the globe.
Yes, the price of manufactured goods is dropping, but the prices of palm oil and many industrial commodities are soaring.
``China contributes both inflation and deflation to the world market, depending on the labor intensity of the sectors in question,'' Ma said in a report. ``The net China impact on aggregate world prices is very mild.''
That's cold comfort for businessmen in Penang, who say a growing array of imported Chinese consumer goods sell in the shops for less than it costs to make similar products locally.
``How are we going to compete with that? It's a dangerous trend,'' said Cheah See Kian, who runs a business manufacturing traditional Chinese medicines.
Textbooks say Penang should respond by abandoning low-margin manufacturing and move into more sophisticated and lucrative sectors such as design and development.
This is in fact already happening, but given a local skills shortage and China's own ambitions to clamber up the value-added ladder, officials know the transition will be tough.
Foreign direct investment into Malaysia is being lured away by China, fanning fears that the broad industrial base that Penang has built over the past generation will be hollowed out.
``All the textiles, the plastics, the commodity stuff will all leave, just like they did from the U.S. 20-30 years ago and from Singapore in the last 10 years. So Malaysia is facing it 30 years later -- it's not a surprise,'' Soon, the Unico executive, said.
NO LONGER THE COURTED MAIDENS
Indeed, rather than taking China head-on in manufacturing, some economists think Southeast Asian countries should play to their strengths and focus on natural resources and tourism.
``That's a more realistic option, if you ask me, than to keep saying we are going to compete with China in manufacturing at the high end, because China is moving fast into the high end as well,'' said Toh Kin Woon, the Penang state executive councilor for economic planning.
But Daniel Lian, an economist with Morgan Stanley in Singapore, has his doubts. In 2002, manufactured exports from Malaysia, Singapore, Thailand, Indonesia and the Philippines accounted for 54 percent of the five countries' combined gross domestic product of $566 billion.
Lian estimates that $90 billion of these exports, or 30 percent of the total, will be lost to China within a decade, while annual receipts from a Chinese-fueled tourism boom cannot realistically exceed $20 billion to $25 billion.
``Tourism cannot replace manufacturing,'' he said in a report.
Maintaining -- let alone raising -- living standards during what Morgan Stanley calls ``The Chinese Decade'' will thus tax policy makers in the rest of Asia to the limit.
Reforms to clean up failed banks, improve education and allocate capital better will become more important than ever.
``The wave has been and gone. The manufacturing boom is over, for Southeast Asia at least,'' said Boonler Somchit, executive director of the Penang Skills Development Center. ``China can only grow. We grow old. We are no longer the courted maidens.''
Knee-jerk BS. Christian slave labor? WTF. Especially the X-tian part. Red China? Pretty soon they'll be more Capitalist than us.
I keep wondering just what the "more sophisticated and lucrative sectors" consist of these days.
Oh, I know, class-action lawsuits. That must be where the big money money is...
Or maybe politics...
Aside: My neighbor is in the "tool" business. Wrenches, files, that sort of thing. He told me that the largest foundry in Canada just folded up after 140 years in business. Their biggest customer, Cincinnati Milicron, was not placing any orders due the the depression here in the U.S.
My reply 5:
Human labor under socialism is like oil under the desserts of the Middle East. And it is the business of socialism to "O.P.E.C." labor such as the O.P.E.C. Nations control oil.The interest of American businesses in "opening up free trade with socialism" will be a "ball and chain" around the right of self-governance. No democratic-republican-thinking and freedom-loving people will be able to resist peacefully, I am afraid, the economic "mood swings" which the socialists will be able to affect, should American businesses further tie themselves to the price of labor in socialist countries.
Because whenever the socialists want to wield power, they can adjust "the spigot" at the socialist-controlled "labor fields" and sour the generally-more- "conservative administration" of the United States of America. The socialists can simply increase the price and problems of labor.
This is the international interest of the Red Chinese (among other socialists): to control the "labor fields." The communists now have control over territories within the Western Hemisphere. And my concerns are two-fold:
The Red Chinese military installations in Cuba. The Red Chinese missiles --- in the Western Hemisphere --- aimed at U.S. forces and the territories of the U.S.A, let alone aimed at our allies, as well as at countries which the "Reds" seek to intimidate.The short-term thinking which does not focus upon the price of freedom, whereby American businesses will give up some as they seek a next quarter's report reflecting the lower price of labor ... in Cuba. Very tantalizing indeed.
And the moment that Fidel Castro, "The Maximum Leader," does not want a "conservative" American President, how difficult will it be for the price of labor in the Socialist Hemisphere to shoot up? And thence, American businesses will find themselves wanting to lower their costs, and therefore they will conclude that they need to "contribute" large amounts of protection money to the socialist candidate?
On the public's part, the way to giving in to such tyranny, is paved with soothing re-assurances of good intentions, such as, that "socialism" is about "being a social liberal." But upon arrival, socialism is much more about the usurption of the boardroom ... from on high ... and it is always nationalizing control over the economy and the peoples' every aspect of their culture, their lives, and their livelihood.
The purchase of labor from socialist countries is the aim of Clintonism; and it is the lust of too many, among American businesses.
And at the cost is our Liberty.
I hate to say it, but the war is here...
I am not alarmed by what Red China may do to Taiwan. Because the Red Chinese do not seek the destruction of Taiwan. "Victory" over Taiwan, is measured by the strength of intimidation in the balance of power known as "face" in the Orient...
The most awsome power that freedom-loving people have to fear, is that socialism can control them by means that are not generally military.
And the greatest means is fear --- the most striking talent of "President" Clinton and his minions.
I would expect that "President" Clinton will conjure up in the public's mind, some sort of "biological terrorism" -type threat, which would require his holding onto the Office or transferring power to Al Gore and suspending the Fall '00 elections. "President" Clinton is the "time bomb" who is un-predictable; ask the Secret Service.
He is a fear-monger. People are in a panic, thinking that "something must be done about" whatever "President" Clinton has set forth as the thing to be feared. The people have nearly, utterly, forgotten about the limits of power --- of the federal government --- and the rights of the people within their States, to resolve the threats to their homes, communities, and the States via their State legislatures.
The matter of the right to keep and bear Arms, falls under the rights of people and the States to wrestle with the topic of being "well regulated," according to the Second Amendment.
The matter of "biological terrorism" falls under the jurisdiction of the federal government. Tick. Tock. What will the Clinton mind think up for the next crisis du jour?
And a link to: Granting Permanent Normal Trade - to Red China - a Trojan Horse?
(1) Link to: U.S. Information Agency [files, text:] Energy Dept. July 20 on U.S.-China Oil/Gas Conference
The meetings are being held under the auspices of the United States-China Forum on Environment and Development co-chaired by Vice-President Al Gore and Premier Zhu Rongji... (Following is the text of the press release):United States Department of Energy
July 20, 1999
U.S., China, to Explore Policies to Accelerate Commercial Cooperation in Oil and Gas Sectors
Houston Conference to include more than 100 oil and gas and government officials
More than 100 U.S. and Chinese oil and gas industry and government officials are gathering in Houston today to explore opportunities to accelerate commercial cooperation in the development of reliable and economical sources of oil and natural gas. The meetings, which will run through July 22, are being held under the auspices of the United States-China Forum on Environment and Development co-chaired by Vice-President Al Gore and Premier Zhu Rongji. The Second U.S.-China Oil and Gas Industry Forum is being held at Rice University's Baker Institute for Public Policy, Baker Hall, 6100 Main Street, Houston, TX. A joint press availability with U.S. and Chinese officials will be held on Thursday, July 22, at 12:00 noon.
The United States' oil and gas industry, already the largest foreign investor in China's petroleum sector, aims to increase oil and gas exploration and development and infrastructure projects with the Chinese oil and gas industry. The forum, which will help facilitate new policy and investment opportunities, follows the initial earlier forum meeting held last November in Beijing. The Houston meetings will focus on natural gas and oil policy, including: mutual access to information, acreage and downstream markets; policies to promote private investment in China's petroleum sector; the US perspective on business practices; energy technology; lessons learned from operations in China and other countries; and regional infrastructure opportunities.
China's economic growth has made it the second largest energy consuming nation in the world, while the United States is the largest. Both nations share the goal of improving energy security while protecting the environment through policies that promote investment in oil and gas development, energy efficiency, renewable energy and clean coal technology.
The U.S. delegation is being led by Robert Gee, Assistant Secretary for Fossil Energy; and Jan Kalicki, Counselor to the Department of Commerce; and will include other representatives from the Office of the Vice President, and the Departments of Commerce, Energy, and State. China's delegation is being led by State Development Planning Commission Deputy Secretary General Zhang Guobao and Consul General Wu Zurong.
(end text)
(2) CSIS - Middle East Studies Program [Center for Strategic and International Studies]
The Changing Geopolitics of Energy -- Party VI
(3) Link to: Energy Information Administration's [Report on Red] China [energy production synopsis as of April 2000]
(4) Link to: James A. Baker III Institute for Public Policy, at Rice University, "China's Growing Energy Dependence"
"Some analysts worry that China's dependence on the same energy supplies as its neighbors and Western industrial nations will prompt heightened competition in the energy arena and drive Asian regional arms races. Kent Calder notes that "Expansionist, confrontationist strategies, not to mention the acquisition of nuclear weapons, offer some attractive prospects of gain to regional powers, such as preferential access to energy resources and sea lanes in the South China Sea. The costs of armament and preparation for war, conversely, become less onerous as East Asia grows increasingly affluent. This combination of wealth and bellicosity is a recipe for disaster." But such predictions have already missed the mark on several counts and are likely to continue to do so."
(5) Link to: Clinton praises oil deal that bypasses Russia and Iran [ABC News 11/18/99] vs.: Russia Route Best for Kazakhstan Oil, Russian Official Says [Bloomberg.com 05/18/2000]
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