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07-09-2010, 05:20 AM   #1
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Funny how free markets work if they are left alone.

Companies brace for end of cheap made-in-China era

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SHANGHAI (AP) -- Factory workers demanding better wages and working conditions are hastening the eventual end of an era of cheap costs that helped make southern coastal China the world's factory floor.
A series of strikes over the past two months have been a rude wakeup call for the many foreign companies that depend on China's low costs to compete overseas, from makers of Christmas trees to manufacturers of gadgets like the iPad.
Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers are now demanding a bigger share of the profits. The government, meanwhile, is pushing foreign companies to make investments in areas it believes will create greater wealth for China, like high technology.
Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West.
"China is going to go through a very dramatic period. The big companies are starting to exit. We all see the writing on the wall," said Rick Goodwin, a China trade veteran of 22 years, whose company links foreign buyers with Chinese suppliers.
"I have 15 major clients. My job is to give the best advice I can give. I tell it like it is. I tell them, put your helmet on, it's going to get ugly," said Goodwin, who says dissatisfied workers and hard-to-predict exchange rates are his top worries.
Beijing's decision to stop tethering the Chinese currency to the U.S. dollar, allowing it to appreciate and thus boosting costs in yuan, has multiplied the uncertainty for companies already struggling with meager profit margins.
In an about-face mocked on "The Daily Show with Jon Stewart," Wham-O, the company that created the Hula-Hoop and Slip 'n Slide, decided to bring half of its Frisbee production and some production of its other products back to the U.S.
At the other end of the scale, some in research-intensive sectors such as pharmaceutical, biotech and other life sciences companies are also reconsidering China for a range of reasons, including costs and incentives being offered in other countries.
"Life sciences companies have shifted some production back to the U.S. from China. In some cases, the U.S. was becoming cheaper," said Sean Correll, director of consulting services for Burlington, Mass.-based Emptoris.
That may soon become true for publishers, too. Printing a 9-by-9-inch, 334-page hardcover book in China costs about 44 to 45 cents now, with another 3 cents for shipping, says Goodwin. The same book costs 65 to 68 cents to make in the U.S.
"If costs go up by half, it's about the same price as in the U.S. And you don't have 30 days on the water in shipping," he says.
Even with recent increases, wages for Chinese workers are still a fraction of those for Americans. But studies do show China's overall cost advantage is shrinking.
Labor costs have been climbing about 15 percent a year since a 2008 labor contract law that made workers more aware of their rights. Tax preferences for foreign companies ended in 2007. Land, water, energy and shipping costs are on the rise.
In its most recent survey, issued in February, restructuring firm Alix Partners found that overall China was more expensive than Mexico, India, Vietnam, Russia and Romania.
Mexico, in particular, has gained an edge thanks to the North American Free Trade Agreement and fast, inexpensive trucking, says Mike Romeri, an executive with Emptoris, the consulting firm.
Makers of toys and trinkets, Christmas trees and cheap shoes already have folded by the thousands or moved away, some to Vietnam, Indonesia or Cambodia. But those countries lack the huge work force, infrastructure and markets China can offer, and most face the same labor issues as China.
So far, the biggest impact appears to be in and around Shenzhen, a former fishing village in Guangdong province, bordering Hong Kong, that is home to thousands of export manufacturers.
That includes Taiwan-based Foxconn Technology, a supplier of iPhones and iPads to Apple Inc. Foxconn responded to a spate of suicides at its 400,000-worker Shenzhen complex with pay hikes that more than doubled basic monthly worker salaries to $290. Strike-stricken suppliers to Honda Motor Co. and Toyota Motor Corp., among many others, also have hiked wages.
Foxconn refused repeated requests for comment on plans to move much of its manufacturing capacity to central China's impoverished Henan province, where a local government website has advertised for tens of thousands of workers on its behalf.
But among other projects farther inland, Foxconn is teaming up with some of the biggest global computer makers to build what may be the world's largest laptop production hub in Chongqing, a western China city of 32 million where labor costs are estimated to be 20 to 40 percent lower than in coastal cities.
Given the intricate supply chains and logistics systems that have helped make southern China an export manufacturing powerhouse, such changes won't be easy.
But for manufacturers looking to boost sales inside fast-growing China, shifting production to the inland areas where many migrant workers come from, and costs are lower, offers the most realistic alternative.
"The new game is to find a way to do the domestic market," says Goodwin.
Many factories in Foshan, another city in Guangdong that saw strikes at auto parts plants supplying Japan's Honda, have left in the past few months, mostly moving inland to Henan, Hunan and Jiangxi, said Lin Liyuan, dean at the privately run Institute of Territorial Economics in Guangzhou.
Massive investments in roads, railways and other infrastructure are reducing the isolation of the inland cities, part of a decade-old "Develop the West" strategy aimed at shrinking the huge, politically volatile gap in wealth between city dwellers and the country's 600 million farmers.
Gambling that the unrest will not spill over from foreign-owned factories, China's leaders are using the chance to push investment in regions that have lagged the country's industrial boom.
They have little choice. Many of today's factory workers have higher ambitions than their parents, who generally saved their earnings from assembling toys and television sets for retirement in their rural hometowns. They are also choosier about wages and working conditions. "The conflicts are challenging the current set-up of low-wage, low-tech manufacturing, and may catalyze the transformation of China's industrial sector," said Yu Hai, a sociology professor at Shanghai's Fudan University.



07-09-2010, 06:41 AM   #2
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07-09-2010, 06:49 AM   #3
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seems were running out of 3rd world countries to exploit.......
So they have now reached 50's era US..... soon to accelerate through to 70's era US
QuoteQuote:
Many of today's factory workers have higher ambitions than their parents, who generally saved their earnings from assembling toys and television sets for retirement in their rural hometowns
China and MASSIVE gov. giveaways do not spell "free enterprise"
Last thing they need is laisser faire .....
QuoteQuote:
Although the government dominated the economy, the extent of its control was limited by the sheer volume of economic activity. Furthermore, the concept of government supervision of the economy had changed--at least in the minds of the advocates of reform--from one of direct but stifling state control to one of indirect guidance of a more dynamic economy.
China - Roles of the Government and the Party in the Economy
China paper subsidies imperil 5,000 jobs in region | The Columbian
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Paper subsidies from the Chinese government are gouging U.S. manufacturing and could cost 5,000 jobs in Southwest Washington, according to a new analysis by the Economic Policy Institute.

The study, commissioned by the Alliance for American Manufacturing, found that China has fueled its rapidly growing paper industry with more than $33.1 billion in government subsidies, undercutting the U.S. paper industry’s competitive advantages and allowing that country to overtake the U.S. to become the world’s largest producer of paper and paper products.
so if I understand you correctly.. gov should "feed" industry.. and industry should take car of the people... and somehow (without unions) the people will police the industry.....
07-09-2010, 08:22 AM   #4
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The law of one price.

Outsourcing costs to hire backoffice and programming workers in India will reach parity with doing the work stateside in 5-10 years.

07-09-2010, 08:35 AM   #5
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I don't know that one could ever have called the a boom in a socialist dicatorship the result of a free market anyway. There are so many manipulations and controls in effect in China that workers asking for a bit more money is just the beginning of what a truly "free market" might do to that dominance.
07-09-2010, 03:20 PM   #6
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Gee, wonder if this means that when I call a particular credit card company, I will get somebody who can speak "American" English and not speak from a script? (Guess what one of my pet peeves might be?)
07-09-2010, 04:57 PM   #7
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So, it 'works' to rearrange your entire country's infrastructure to an unsustainable modality in a short time, and then admit monkeying currency might bankrupt your customers and threaten to botch the whole few decades of consumerist overreaching? (Not to mention turn all the debt you're owed into vaporized numbers?)

There may be some 'works' in there, but nothing but all-or-nothing thinking says the world had to do it the hard way, mess up the world, and see if we can recover. From here. When we should have been doing the sustainable long since.

Notably, it seems that while China are no longer 'Commies,' the 'free market' hasn't exactly brought wonders of openness and enlightenment, just commercialism. Still under control. or else.
07-09-2010, 05:06 PM   #8
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QuoteOriginally posted by subeeds Quote
Gee, wonder if this means that when I call a particular credit card company, I will get somebody who can speak "American" English and not speak from a script? (Guess what one of my pet peeves might be?)
Ummm... no. Call centers AKA "Centers of Excellence" in Orwellian corporate-speak entail wet-ware scripting that otherwise would be outsourced to you via web site. These Centers of Excellence would be sited where English is spoken well, i.e. not China, but yes India. And some of the COE employees take this seriously, studying American English and so on.

But the essence of the COE is to 'manage' the customer via pre-directed scripts by people who have no authority beyond what is in the manual.

07-10-2010, 11:24 AM   #9
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That's actually one reason why these calling centers aren't still in America: they used to be a major source of student and low-wage employment, here. There are a lot of tech-support jokes as a legacy, but the real reason they were outsourced wasn't the cheaper labor overseas, considering all the complaints: it was the *calling scripts.* The job was tolerable: drudgery, but tolerable, until corporate America decided to hang everyone's job on reciting the same scripts over and over again.

People just couldn't take it, even those you'd really think couldn't afford to be unemployed, and the turnover was ridiculous. . Some would do the job, but none would stay willingly. The turnover ended up meaning the deal got worse for any who stayed, and then became practice, and soon enough, they just couldn't keep up a workforce.

Sitting in a cubicle to talk to people is just different from being hired as a human tape recorder. The former's a little dismal, the latter's *maddening.*
07-10-2010, 02:31 PM   #10
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To anybody still under the illusion that free markets are the surest way to economic nirvana I suggest they take a close look at Ireland and its miraculous boom otherwise known as the Celtic Tiger. It is now an equally miraculous bust (Celtic Car Crash) with the country having the highest per capita national debt in the developed world.

How come? Total non control of the moneyed and crooked is the basic answer. The incestuous relationship between banks, politicians and businessmen, especially property developers, ensured a corrupt money grabbing ethos amongst the country's movers and shakers and we are all now paying the price. Tax fiddles were legion and deliberately ignored by banks and government, planning permission was dependent upon who you were and how fat were the envelopes you passed across whilst business decisions were more often based on boosting the ego rather than balancing the books.

It's all coming out in the wash and it's not a pretty sight, but so steeped is the political system in cronyism and short terminism that I despair of the fundamental changes in attitude that are required ever taking taking place. Perhaps if we had a good honest socialist like Obama then there might be some hope!
07-10-2010, 02:46 PM   #11
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Justin:

QuoteQuote:
Tax fiddles were legion and deliberately ignored by banks and government,
But... If government hadn't enacted punitive taxes then no-one would need to ignore/evade them - a phenomenon demonstrated by Kennedy, (I believe), and Reagan who cut taxes and increased overall government revenues. But the Left don't want you to know that.
07-10-2010, 03:06 PM   #12
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Maybe you should look at the complete Reagan record...

According to Josh Green, writing for Washington Monthly, Reagan’s 1982 tax hike raised $100 billion over three years, which at the time was the biggest tax increase since World War II. He also raised the tax on gasoline that year, as Sen. Simpson noted, and then raised taxes overall again in 1984 — the year he was reelected — by $50 billion over three years, primarily by rewriting the code to close business loopholes. In his second term, Reagan’s historic Tax Reform Act of 1986 increased taxes on corporations by $120 billion over five years — the largest corporate tax increase in history.
07-10-2010, 03:06 PM   #13
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QuoteOriginally posted by GingeM Quote
Justin:



But... If government hadn't enacted punitive taxes then no-one would need to ignore/evade them - a phenomenon demonstrated by Kennedy, (I believe), and Reagan who cut taxes and increased overall government revenues. But the Left don't want you to know that.
But.... Punitive taxes were never enacted.

In the UK I handed roughly a third of my income over to the government in direct taxation. Here in Ireland it is less than 10% Sure the public services are not as competent but nor is there a vast military machine to keep wasting money on and the country did build its reputation on having a low tax regime in the good years.
07-10-2010, 04:11 PM   #14
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interesting article.....
QuoteQuote:
This was the slogan for the Fianna Fail party in its 2007 re-election campaign: “A lot done. More to do.” This was before the crash in the property market and the near-implosion of the banking system that’s required billions in recapitalization. Those words take on a new meaning in 2010.

Rewind to 2007. This is what former Prime Minister Bertie Ahern told those naysayers who warned him that the economy was overheating:

“Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide…”

He apologized afterward for his remarks and, when he resigned in 2008 after 11 years in power amid a scandal over his own personal finances rather than those of the country’s, then-Finance Minister Brian Cowen, who took over as prime minister, stood solemnly by his side.

Both prime minister and finance minister played a part in the country’s downfall. But Ahern’s remarks gave an insight into a government that believed itself to be invincible. Ireland was riding high on a boom helped by weak regulation and banks recklessly lending billions of euros to developers.

Here’s a report that the government isn’t shouting about: According to InsolvencyJournal.ie, almost 800 companies in Ireland went out of business in the first six months of 2010, up 27% on the same period a year ago. One in three of those companies were in construction.

Imagine Ireland was the patient and the Fianna Fail-led government the doctor. The same doctor that made the patient gravely ill is now trying to make him feel better. Here’s a more appropriate slogan for the next general election: “A lot of damage done, more resuscitation to do.”
Irish Economy Is Still on Life Support - The Source - WSJ
Hooray for capitalism.. long live de-regulation...... sorry.... I got a bit excited.
SOMEHOW we can surely blame this on Obama and socialism...
Ireland Officially Exits Recession - WSJ.com
BTW: I'm definately not qualified to discuss Irish economics but it seemd like a good jump in place...
07-10-2010, 07:31 PM   #15
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Sure the public services are not as competent but nor is there a vast military machine to keep wasting money on
But Ireland never was or has been an international power with global interests... In fact, if you lot can find your way out of the pub we'd all be surprised...
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