The Truth on the US-China Economic Relationship....

I have just read  Mr. Stephen Roach, Academic CEO of Morgan Stanley and it hits a home-run in bringing the quintessential issues of US-China relations to the table.  It removes the economic smoke that our government has painted for election purposes and logically drives home the overwhelming need to focus on the market opportunities that exist in China for the US. With China being the US’s third largest export market with  US exports to China up 53% since 2007, I think your point is made well on the importance “access to the China market”;  however, on the same note, my book that I published in February of this year, “Doing Business with China: Dancing withthe Dragon” focuses on the next logical issue…”How to Access the Chinese Market”.  One of my chapters, “Creating Your Own Access to China” tells owners how to do this, but stresses that our real opportunities in China cannot be achieved unless our Federal and local government start working closely with business to create real long-term strategies to support this effort.   It’s funny…after all my years of doing business with China, I see the Chinese government putting in these supportive functions in their government to assist their businesses to expand to the US (and other markets!) and their efforts have really worked…why are we not doing this too in the US? (I see small glimmers of this but no real strategy). 

If Washington could just stop running for the next election and pandering to every special interest group, and start being proactive and focusing on implementing long term strategies instead of being so reactive...then we could drive a whole new export market to create jobs and opportunities for the US… my book goes into great detail on this matter as well.  This article should be placed in the Wall Street Journal for free… as it could serve as a real public service announcement to wake our country up…Great article.  

Article: America's renminbi fixation, by Stephen Roach, Academic CEO of Morgan Stanley Asia

Is China becoming too Expensive?

The answer is not simple...but it can be answered.  We have to look at some foundational information first to understand the full picture....

China has seen a paradigm shift from a 14.8% GDP annual growth in 2007 (and plus 10% growth  annually for the previous 30 yrs)  to 7.6% GDP annualized growth based on 2012 second quarter numbers.  This is a 50% GDP drop in the last five years.  China's GDP could be a lot higher based on all the infrastructural investment that is lined up...but it's not happening.  This is all related to the cost of doing business in China...the expense.

China is and has been suffering for the last five years from massive shortage of labor.  Simple economics tells us that when supply is limited, then demand and prices go up.  Labor costs have risen more than 13% in just the last year.  Boston Consulting states that the real wages in China will exceed that of Mexico this year most likely.  Imagine if Mexico could get its act together and could start producing something else beside oil... they would have a terrific shipping, time and geographical advantage over China.  It also appears that the US TV manufacturers in Detroit will also continue to enjoy an increasing advantage along with other new factories in the US due to the current economic environment (for a host of reasons); however, is China really getting more expensive in real dollars is the question?  PMF Bancorp has had offices in China since 2004 providing factoring and finance to Chinese companies and their management has reported inflationary increases in the double digits for many business services as well as labor on a yearly basis.

I would argue that China is becoming more comparable in costs to many other developed countries, and therefore is getting more expensive in real terms.  Its impossible for a country with an increasing quality of life such as China to maintain low wages.  It is a benefit to the Chinese and to us in a way that China become gradually more expensive so each country can compete based on its true competitive advantage.

Therefore, imported products that are made in China have been and will continue to get more expensive naturally which has been the general economic prediction for a long time. This will mean our government's vendetta to appreciate the Chinese currency will disappear, and our government will have to find another reason to point to our poor economic situation (could it be the management?!).   For now a stable China through higher wages is not a bad trade off for slightly higher prices at Walmart.  Happy shopping.