Volume 39, Issue 8, August  2004

Issue@Hand

Rising Sun

“Historians tell us that China before 1980 and China since 1980 are two entirely different countries. Forget everything you learned about it in high school.” Thus began Carlos Moore, trade specialist for AM & S Trade Center LLC of Chicago, Il., at a conference I attended earlier this year.

“If you are a manufacturer, then China IS in your future,” he said.

“Most economists believe China deliberately underestimates its growth,” he explained. Instead of believing the figures the government puts out, experts like to look at the electrical usage there. Those numbers put growth at 75-90 percent a year.”

Consider all the manufacturing there. China produces an immense amount of product for worldwide consumption. In the United States alone, it provides:

• 95% of all Christmas decorations; • 83% of all small appliances;
• 47% of all furniture; • 31% of all batteries.
Imports of both wood windows and doors and metal windows and doors into the United States are still low, said Moore, but poised for growth. He used kitchen cabinets to plot a similar growth curve. 

“Two years ago, only 2 percent of all kitchen cabinets were imported into the United States from China. Last year, it was 8 percent,” he said. This year, that number is expected to reach double digits.”

Moore says China has a number of key advantages and disadvantages, most stemming from its land and topography. They include an abundant and easily trained labor force—13 million seek to enter the workforce annually; reasonable work ethic and lower wages; and access to a substantial amount of available raw materials and water.

The disadvantages include problems with its workforce, legal system and banks; a lack of efficiency in state-owned companies; its distance from major markets; a dearth of reliable data; and an infrastructure in desperate need of modernization.

Moore feels the biggest disadvantage for U.S. manufacturers are the advantages that the Chinese government creates for itself. Specifically:

• An undervalued exchange rate to promote export industries. Most experts say the yuan is undervalued by 30-40 percent;
• Export subsidies put in place as needed and non-commercial treatment of imports;
• Low environmental, worker health costs;
• Unchecked piracy of intellectual property;
• Expedited permitting, and nebulous rules; 
• Customs violations used as needed.

As a result, it is exceedingly difficult to sell into China.

Moore said there are more anti-dumping petitions filed by U.S. companies against China than by any other country, but that “playing defense is not enough. Manufacturers have to get the government to do more.”

“China will be the number one or two economy in the world in the next 10-15 years,” Moore concluded. “I am reminded of the verse in Tolkien’s The Lord of the Rings:

It doesn’t pay to leave a dragon out of your calculations if you happen to live near one.” —Deb


USG

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