Monday, December 3, 2012

Underestimating China Again

CHINA


China has a massive economic engine and much fuel.  People will admit to this--then ignore it.

China elevated 500,000,000 (half a billion) people out of poverty.  More than 1/3 of their population.  168% of the US population.  Still, we quibble about the numbers.


Quibbling

Experts quibble about whether the Chinese economy will grow 8% or 7.5%.  To validate the importance of their insights, they point out that this is significant.  What they don't point out is that these numbers are not topical.

Some experts quibble using cliches, slogans, and platitudes.  Risk on. Risk off.  Hard landing. Soft landing.  Clever?  Concise?  Yes. Conclusive?  Informative?  Pertinent?  No.


Ice Cream Scoops

For the purposes of insight, consider the ice cream scoop.  My sister uses the same ice cream scoop to serve ice cream to her children that my parents used to serve ice cream over 50 years ago.

Some argue that with products lasting over 50 years, eventually there will be no need to manufacture ice cream scoops. These people ignore population growth.  Eventually, the common lament was that US manufacturers were engaging in a form of planned obsolescence.  Not quite. But the concept is applicable.

Then Americans began buying plastic (disposable) ice creams scoops, manufactured in China,  at The Dollar Store.  Experts predicted the collapse of American manufacturing.  To solve the problem, experts began to exhort the virtues of the entrepreneur,  Innovation, and of course, cutting taxes on the rich.

The more academic began focusing on facts and numbers from China.

  • The population is aging.
  • Wages are rising.
  • The Chinese economy  needs more domestic consumption
  • The Chinese economy is declining due to the global economic decline
  • New Chinese leaders may or may not pursue the path of economic growth
  • Etc.
Some or all of this may be true. Still, this displays far more knowledge than understanding.

If wages rise, the one dollar ice cream scoop may soon cost two dollars.  However, that is not the problem.  The issue, seldom if ever discussed, is "what happens when China enters the upscale, high-end, ice cream scoop market?"  

Will you pay $17.00 for an ice cream scoop at Macy's or $10.00 for an ice cream scoop at Bed, Bath, and Beyond?  The Rolls Royce may lose all cachet with a discount Rolls the same way the Buick (The Bankers Car) lost cachet with the Buick Arrow.  However, will China compete successfully with Mercedes?

We were so obsessed by the fear that the Japanese Toyota would compete with the Chevy Impala that we never saw The Lexus competing with the Lincoln and the Cadillac. The Chinese know what happened with the Japanese and American auto industries.  Why would anyone believe that the Chinese are any less capable?  What happens when China tools up to compete in the luxury car market?


Domestic Consumption

When the wages of Chinese workers rises, so too will domestic consumption.


Declining Global Economy

The declining global economy is presenting an opportunity for China to invest globally. 

If China can elevate 500,000,000 Chinese people out of poverty, how many people around the world will they be able to elevate out of poverty.  To cut costs, China may soon begin outsourcing.  Elevating people around the world out of poverty; creating foreign markets; and forging economic and diplomatic bonds.  People around the world will soon prefer doing business with people who are not part of the Euro-centric Empirical Hegemony.  They may prefer doing business with people who look like themselves.  Follow the path of the trajectory.


Global Growth

I once pointed out that China knows it won't stay in business very long if it puts its customers out of business.  Still, China does have the opportunity to rise with the tide of rising global economies.  And do so better if they are part of the reason why global economies are risings.


The Haves and the Have-Nots

Metaphorically speaking, the haves are increasing arithmetically. The have-nots are increasing geometrically.  There is flux, though.  However that is a topic I will cover elsewhere. None-the-less, China is investing in Global Growth.


The Aging Population

True. China's one-child policy resulted in an aging population.  Soon, that may change to a two-child population.  Still, consider this.  If we, at three hundred million people, triple our population, we will have about a billion people.  What happens when China goes from 1.3 billion people to 3.1 billion people?  What happens when India's population increases from 1 billion people to 2 billion people.  What happens when the world Muslim population increases from 2.1 million people to 4.2 million people.  With a bit of simplistic arithmetic, we may see that the ratio is about the same.  However, what about the actual numbers?

Chinese exports will definitely rise with the increasing global population, the increases in affluence resulting from Chinese foreign investment, and China's domestic consumption will definitely increase with its rising and increasingly more affluent population.

Warmest regards,

Slim

If you find anything herein to be helpful, please don't hesitate to send me a really tricked-out MacPro and to tuck a few dollars into the envelope along with the thank-you note.


Contact information:

LinkedIn Profile





Copyright © 2012 Robert Asken as Slim Fairview
All rights reserved.

No comments: