The oil weapon can jeopardize Alberta Oil Investment and Canada economy

Saudi Arabia will force the price of oil down, in an effort to put political pressure on Iran and Russia, according to the President of Saudi Arabia Oil Policies and Strategic Expectations Center.

Saudi Arabia plans to sell oil cheap for political reasons, one analyst says.

·         L'Arabie saoudite a précipité la dégringolade en vendant au rabais pour garder ses parts de marché. En août, 400 000 barils de pétrole saoudien n'avaient pas trouvé preneurs.

·         Grâce au pétrole de schiste, la production des États-Unis dépasse les 8 millions de barils par jour. Les Américains ont donc grandement coupé leurs importations et veulent maintenant devenir un important exportateur.

Cette baisse résulte d’une combinaison de facteurs.

Les premiers tiennent à l’offre. La situation en Irak est moins préoccupante, la Libye recommence à produire, la production russe n’est pas affectée par la crise ukrainienne et l’offre américaine d’huile de schiste monte en puissance. Face à cette offre abondante, la demande elle n’est pas au rendez-vous car l’économie mondiale n’est pas florissante : l’Europe patine et la vigueur du dynamisme chinois suscite des interrogations. (1)

Justement à quoi joue l’Arabie Saoudite ?

Il y a plusieurs hypothèses.

L’Arabie Saoudite, confrontée à la montée en puissance de la production américaine qui était l’un de ses principaux clients, ne veut plus perdre de parts de marché et donc joue sur les volumes.

Elle serait donc engagée dans un bras de fer avec les États-Unis : avec un prix du baril sous pression la rentabilité des sites de production américains d’huile de schiste est dégradée car les coûts d’exploitation y sont beaucoup plus élevés que pour le pétrole conventionnel. Nombre de projets d’investissements ne verront pas le jour si le prix de vente du baril n’est pas à la hauteur des coûts de production.

Une deuxième hypothèse, contraire à celle du bras de fer, serait celle d’une alliance entre les États-Unis et l’Arabie Saoudite. Pour des raisons géopolitiques, ils joueraient la carte de la baisse du prix du pétrole pour nuire à la Russie et à l’Iran. (2)

Alberta

L’Arabie Saoudite a tout simplement décidé de faire baisser le prix du baril de pétrole , au Canada, les faibles prix du pétrole coûteront cher à l'Alberta.

Certains projets pourraient même être retardés si les prix continuaient de descendre jusqu'à 70 $, comme certains le prédisent.

Les prévisions des projets albertains sont basées
sur un baril de pétrole à
97 $.

Par contre, les américains sont capables de :

“Even at $75 a barrel or perhaps below, U.S. oil production would almost certainly grow in 2015 an 2016, not changing much the need for OPEC to cut if the market is to be balanced. Even if such a price war were ensuing, the Saudis would end up punishing themselves in our view.

They could sustain the pain of $60 a barrel oil for a while, but definitely not forever.”,  Réf: l’article à la fin du carnet.


Extrait de : Baisse des prix du pétrole, le pacte secret entre les Etats-Unis et l’Arabie Saoudite, Repéré par Eric Leser,  Salte, 12.10.2014

Un accord secret a été établi entre les Etats-Unis et l’Arabie Saoudite et nous en voyons peu à peu les contours se dessiner. C’est ce qu’expliquent à la fois le Wall Street Journalet plus en détail encore le blog spécialisé dans la finance Zerohedge, souvent très bien informé.

Le premier signe d’un réchauffement des relations entre l’Arabie Saoudite et les Etats-Unis,devenues très tendues après le soutien de Washington aux révolutions arabes et aux Frères Musulmans notamment en Egypte, l’Arabie Saoudite s’est jointe officiellement aux Etats-Unis et aux occidentaux dans le combat contre l’Etat Islamique en Irak et en Syrie. Mais il y a deux autres parties encore plus importante à cet accord négocié par le Secrétaire d’Etat John Kerry.

La première, écrit le Wall Street Journal, c’est que «le processus a permis aux Saoudiens de faire pression sur les Etats-Unis pour obtenir un engagement d’entraîner les rebelles combattant Bashar el-Assad (le dictateur syrien), dont le renversement est toujours considéré par les Saoudiens comme une priorité».

La deuxième partie de l’accord, c’est le prix du pétrole, qui est une arme de premier plan dans la guerre que se livrent au Moyen-Orient les sunnites et les chiites et leurs alliés. D’un côté donc, l’Arabie Saoudite, la Turquie, la Jordanie, l’Egypte et le Qatar et de l’autre l’Iran, la Syrie de Bashar el-Assad et le Hezbollah libanais.

As it happens, though, the Obama administration is also wielding the oil weapon against two of the world’s leading producers, Iran and Russia. These efforts, which include embargoes and trade sanctions, are likely to have a far greater impact on world output, reflecting White House confidence that, in the pursuit of U.S. strategic interests, anything goes. (1).

L’Arabie Saoudite a tout simplement décidé de faire baisser le prix du baril de pétrole, il lui suffit d'ouvrir un peu plus les vannes, pour peser économiquement et politiquement sur l’Iran et sur son allié et soutien la Russie.

Opec Price Cruch

Si au cours des trois derniers mois, le prix du baril a baissé de plus de 20% et est passé ainsi de 115 dollars à moins de 90 dollars vendredi 10 octobre, c’est directement à la suite d’une décision saoudienne reconnait Rashid Abanmy, Président du Saudi Arabia Oil Policies and Strategic Expectations Center qui est installé à Riyad.

Avec l’arme du pétrole, l’Arabie Saoudite entend contraindre l’Iran a limiter ses ambitions d’armement nucléaire et obtenir de la Russie qu’elle cesse de soutenir à bout de bras le régime de Bashar el-Assad. Deux objectifs que partagent maintenant l'administration Obama.

Selon les calculs effectués par plusieurs études économiques, l’Iran a besoin pour équilibrer son budget et soutenir une économie affectée par des années d'embargo et de mauvaise gestion d’un baril de pétrole à 140 dollars et la Russie de Poutine d’un prix du baril supérieur à 100 dollars. Pour le magazine Forbes, la baisse des cours du pétrole est ainsi bien plus dangereuse pour l’économie russe qui est en récession et pour Vladimir Poutine que les sanctions financières décidées par les occidentaux après l’annexion de la Crimée et le soutien militaire aux indépendantistes de l’est de l’Ukraine.


Extrait de : Why Oil Is Plunging: The Other Part Of The "Secret Deal" Between The US And Saudi Arabia, Tyler Durden's, Zero hedge, 10/11/2014

Two weeks ago, we revealed one part of the "Secret Deal" between the US and Saudi Arabia: namely what the US 'brought to the table' as part of its grand alliance strategy in the middle east, which proudly revealed Saudi Arabia to be "aligned" with the US against ISIS, when in reality John Kerry was merely doing Saudi Arabia's will when the WSJ reported that "the process gave the Saudis leverage to extract a fresh U.S. commitment to beef up training for rebels fighting Mr. Assad, whose demise the Saudis still see as a top priority."

What was not clear is what was the other part: what did the Saudis bring to the table, or said otherwise, how exactly it was that Saudi Arabia would compensate the US for bombing the Assad infrastructure until the hated Syrian leader was toppled, creating a power vacuum in his wake that would allow Syria, Qatar, Jordan and/or Turkey to divide the spoils of war as they saw fit.

A glimpse of the answer was provided earlier in the article "The Oil Weapon: A New Way To Wage War", because at the end of the day it is always about oil, and leverage.

The full answer comes courtesy of Anadolu Agency, which explains not only the big picture involving Saudi Arabia and its biggest asset, oil, but also the latest fracturing of OPEC at the behest of Saudi Arabia...

Saudi Arabia will force the price of oil down, in an effort to put political pressure on Iran and Russia, according to the President of Saudi Arabia Oil Policies and Strategic Expectations Center.

Saudi Arabia plans to sell oil cheap for political reasons, one analyst says.

To pressure Iran to limit its nuclear program, and to change Russia's position on Syria, Riyadh will sell oil below the average spot price at $50 to $60 per barrel in the Asian markets and North America, says Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center. The marked decrease in the price of oil in the last three months, to $92 from $115 per barrel, was caused by Saudi Arabia, according to Abanmy.

With oil demand declining, the ostensible reason for the price drop is to attract new clients, Abanmy said, but the real reason is political. Saudi Arabia wants to get Iran to limit its nuclear energy expansion, and to make Russia change its position of support for the Assad Regime in Syria. Both countries depend heavily on petroleum exports for revenue, and a lower oil price means less money coming in, Abanmy pointed out. The Gulf states will be less affected by the price drop, he added.

The Organization of the Petroleum Exporting Countries, which is the technical arbiter of the price of oil for Saudi Arabia and the 11 other countries that make up the group, won't be able to affect Saudi Arabia's decision, Abanmy maintained.

The organization's decisions are only recommendations and are not binding for the member oil producing countries, he explained.

Today's Brent closing price: $90. Russia's oil price budget for the period 2015-2017? $100. Which means much more "forced Brent liquidation" is in the cards in the coming weeks as America's suddenly once again very strategic ally, Saudi Arabia, does everything in its power to break Putin.


Extrait de : Saudi Arabia to pressure Russia, Iran with price of oil, By Nihan Cabbaroglu , Anadolu Agency, 10 October 2014

Saudi Arabia plans to sell oil cheap for political reasons, one analyst says.

To pressure Iran to limit its nuclear program, and to change Russia's position on Syria, Riyadh will sell oil below the average spot price at $50 to $60 per barrel in the Asian markets and North America, says Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center.

The marked decrease in the price of oil in the last three months, to $92 from $115 per barrel, was caused by Saudi Arabia, according to Abanmy.

With oil demand declining, the ostensible reason for the price drop is to attract new clients, Abanmy said, but the real reason is political. Saudi Arabia wants to get Iran to limit its nuclear energy expansion, and to make Russia change its position of support for the Assad Regime in Syria. Both countries depend heavily on petroleum exports for revenue, and a lower oil price means less money coming in, Abanmy pointed out. The Gulf states will be less affected by the price drop, he added.

The Organization of the Petroleum Exporting Countries, which is the technical arbiter of the price of oil for Saudi Arabia and the 11 other countries that make up the group, won't be able to affect Saudi Arabia's decision, Abanmy maintained.

The organization's decisions are only recomendations and are not binding for the member oil producing countries, he explained.

Another analyst took issue with Abanmy's views, however. Caspian Strategy Institute analyst  Mubariz Hasanov told Anadolu Agency (AA), that a single country cannot have much effect on oil prices.

“The U.S. and Saudi Arabia alone do not have the power to seriously affect oil prices”, Hasanov insisted. “No country has this kind of power, unless it starts a war or executes a strong embargo, as was done in 1973.”

All other efforts could only have a limited and temporary effect on oil prices, Hasanov said, "If the price of oil is going to fall by 5 percent for economic reasons, political efforts to decrease it can only make it 5.5 percent, not 10 percent.”


Extrait de: In Alberta, anxiety grows over declining oil prices, Jeffrey Jones , The Globe and Mail, Oct. 15 2014, 10:54 PM EDT

Alberta’s oil patch and government are watching nervously as the slump in world oil markets threatens the province’s economic boom.

The price of West Texas Intermediate (WTI) crude, a grade used as a benchmark in pricing, fell slightly to $81.78 (U.S) a barrel on Wednesday, extending a recent rout that has taken it down 10 per cent this month alone. Oil prices have tumbled as the demand for crude in major economies has fallen and producing countries have stared each other down, refusing to cut output for fear of losing market share.

Crude futures slip again due to an abundant supply. As Melanie Ralph reports the global market appears to be shifting from an era of scarcity, potentially damaging sanctions-hit Russia.   

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Vidéo : Winners and losers of low oil prices

Why Canadian oil patch investors should be tracking U.S. crude price

For Alberta, the oil plunge is rekindling bitter memories. In the financial crisis of late 2008 and early 2009, skidding oil prices and a credit crunch forced the Canadian industry to cancel or shelve as much as $90-billion (Canadian) worth of energy expansion plans, many in the oil sands. At the time, WTI sank below $40 (U.S.) a barrel.

Suddenly, some high-cost projects in Alberta are again at risk, and sustained weak pricing could hamper the industry’s current forecast for oil sands output to double over the next decade.

Any cutbacks will reverberate through the Alberta economy, which has driven economic growth in Canada in recent years.

Energy prices weigh “extremely heavily” on the whole Alberta economy, said Douglas Porter, chief economist at BMO Capital Markets. “Now that we’ve seen oil prices correct so heavily, there is a risk that the damage spreads far beyond just the energy sector,” he said.

A recent study by BMO Nesbitt Burns pegged the average cost of developing an oil-sands mine and operating it profitably at about $90 per barrel, well above the current price of crude. For example, the study said, costs at CNOOC Ltd.’s Long Lake project are well over $100 a barrel, and costs for the Suncor Energy Inc.-Total SA Fort Hills development, now under construction, are above $90.

Investors have already driven down the share prices of oil producers amid growing fears that profit margins will be squeezed and plans delayed or cancelled.

However, many well-established oil projects remain profitable at current or lower prices. The core operations of Suncor and Syncrude Canada Ltd. have costs of less than $50 a barrel. Some steam-driven oil sands projects, such as MEG Energy Corp.’s Christina Lake development and Imperial Oil Ltd.’s Cold Lake venture, have costs under $65, according to the study, giving them breathing room.

Other factors are also working in favour of the energy sector now compared with the financial crisis. Credit remains available, the falling Canadian dollar is cushioning the blow of weaker oil prices, and demand for Alberta’s domestic heavy crude remains strong.

Still, some fear the shaky crude market will erode investor and consumer confidence, and hinder job growth and the real estate market in the province of four million people.

The Progressive Conservative government, under new Premier Jim Prentice, is watching the situation closely, but points out that the province is in a good position to weather the current downturn because its budget assumptions early in the year underestimated oil prices. As recently as August, the government said its operational surplus was on track to hit $3.2-billion (Canadian), up more than half a billion from the March prediction.

The WTI oil price could fall as far as $75 (U.S.) a barrel if OPEC members cut production at their Nov. 27 meeting, and $60 if they refuse to act, said Martin King, analyst at FirstEnergy Capital Corp. The length of the downturn will be key, however, he said.

“With the price meltdown here, if you want to call it that – it’s only really been dramatic over the last 10 days – to start basing annual budgets and everything on a 10-day movement in crude oil prices is ridiculous, where it is going up or going down,” Mr. King said.

The oil rout has been cited as pushing the Canadian dollar to five-year lows. The loonie fetched 88.87 U.S. cents late on Wednesday. As a major exporter, the oil patch benefits from a weaker domestic currency because oil is priced in U.S. dollars. As a result, these companies take in the stronger U.S. dollars from sales and spend Canadian dollars on operations.

And the discount on Western Canadian Select, the benchmark for prices of Canadian heavy oil, has been unusually narrow at less than $13 a barrel below WTI, compared with as much as $40 late last year. Canadian oil has traditionally been priced lower because bottlenecks getting it to U.S. markets created a surplus. Because of new U.S. pipelines and more capacity for shipping crude by rail, the difference has narrowed.

That has counteracted the effect of weakening world oil prices on export revenues for energy producers as well as the government’s take, said Amina Beecroft, president of A2B2 Analytics Inc., which tracks the impact of oil and currency on the province’s finances. In Alberta’s current budget, every 1 per cent change in the heavy oil discount translates into $274-million in government revenue, Dr. Beecroft said. “As the differential gets narrower, that’s additional revenue,” she said.

Alberta remains a magnet for job seekers. Unemployment in September was 4.4 per cent, well below the national jobless rate of 6.8 per cent. And the province’s finances are strong, Mr. Porter said.

Still, BMO forecasts growth there will slip below 3 per cent next year from about 3.5 per cent this year. “By any other yardstick, growth of almost 3 per cent would still be very good, but it does mark a slowdown for the province,” he said. “And that’s based on our assumption that oil prices do come back a little bit in 2015.”


Extrait de: Can Saudis beat North Dakota in an oil price war?, MarketWatch, William Watch, Oct 8, 2014

NEW YORK (MarketWatch) — With oil prices tumbling — and dragging gasoline prices at U.S. pumps further below $4 a gallon — investors wonder if Saudi Arabia will cut production in an effort to stop the slide.

Don’t count on it.

In a note, commodity strategists led by Seth Kleinman at Citi argue that the Saudis aren’t likely to throttle back output, in part because they apparently “think that they can win any price war” with U.S. shale producers.

In other words, Saudi producers are playing a long game, confident that “full cycle” shale production costs are considerably more than their own.

As Julian Jessop, head of commodities at Capital Economics points out, there is precedent. Saudi Arabia responded to a glut of non-OPEC oil in the latter half of the 1980s by increasing its own output, successfully eroding the profitability of other producers, including those in the North Sea, he said.

Oil futures remained under pressure Wednesday, with the price of light, sweet crude for November delivery CLX4, +0.66%  on the New York Mercantile Exchange falling $1.54, or 1.7%, to $87.31 a barrel, hitting the lowest price for a most-active contract since April 2013 after data showed a further rise in U.S. crude supplies. ICE November Brent crude futures UK:LCOX4  fell 58 cents, or 0.6%, to $91.53 a barrel, setting a two-year low.

Saudi Arabia earlier this month cut the official selling price for its crude, according to news reports, a move that put additional pressure on oil prices at the time.

The Citi analysts say the Saudis might be right to think they can win a price war, but only up to a point.

Comments by Saudi officials indicate they continue to believe shale oil requires a price of $90 a barrel to be profitable, the analysts noted. While the Saudis think this represents a new floor for oil prices, the floor is actually falling as shale-oil production technology continues to improve, Citi said. (It costs just a few dollars a barrel to extract Saudi Arabian oil, but the International Monetary Fund in September estimated that the “breakeven” price required to balance the country’s budget rose to $89 a barrel in 2013 from $78 in 2012.)

Moreover, this supposed floor reflects the “full cycle costs” of production, they said, arguing that this overlooks the fact that many producers in North Dakota, Texas and elsewhere have already acquired acreage, contracted rigs and even hedged crude prices.

“We think what counts at this stage is half-cycle costs, which are in the significantly lower band of $37 to $45 a barrel. This means that the floor is falling and may not be nearly as firm as the Saudi view assumes,” they wrote.

Even at $75 a barrel or perhaps below, U.S. oil production would almost certainly grow in 2015 an 2016, not changing much the need for OPEC to cut if the market is to be balanced. Even if such a price war were ensuing, the Saudis would end up punishing themselves in our view. They could sustain the pain of $60 a barrel oil for a while, but definitely not forever.”

The bottom line, they said, is that the Saudis could conceivably win a price war, but it would be a “painful, pyrrhic and short-lived” victory as the price floor for shale continues to fall.


 

China lacks innovation? Take another look

 Extrait de: China lacks innovation? Take another look, Key Trends in Globalisation, 10 October 2014

Until recently, the big myth about China's companies was their lack of innovation. That view is now being reassessed in a series of Western studies analyzing rapid innovation by China's firms.

Ming Zeng's and Peter Williamson's Dragons at Your Door, Dan Breznitz's and Michael Murphree's Run of the Red Queen, Vijay Govendarajan's and Chris Trimble's Reverse Innovation, and Amitava Chattopadhyay's and Rajeev Batra's The New Emerging Market Multinationals are just a few of the studies showing that China's companies are no longer competing just on low wages, but also on strong innovation.

One reason Western analysts are just now waking up to this fact is that they that have been looking in the wrong place and relying on a wrong definition of innovation. As Breznitz and Murphree correctly put it:

"They look for the fabled creature of "true" innovation - a novel-product, innovation-based industry resembling the Silicon Valley. If they see it, they declare innovation policies a success; if they don't, they warn that China's growth is not sustainable."

But in reality, the pair said:

"For China, excelling in other kinds of innovation has been the key to economic growth. China has become the global center for many different stages of production. It has also developed a formidable competitive capacity to innovate in different segments of research, development and production that are as critical for economic growth as many novel-product innovations."

Stage of innovation

China is certainly not strong yet at the type of innovation illustrated by Apple's iPhone or iPad. But there is no reason to think China should be strong at this stage of its economic development.

China's per capita GDP today is equivalent to Japan's in 1964 or South Korea's in 1986. At those times, the two countries, as China is today, were no longer dominated by agricultural populations but had evolved into middle-income economies. At those times, Japan and South Korea led the world in steelmaking, shipbuilding, construction equipment and similar mid-technology industries - exactly the industries where China is becoming dominant today.

The introduction of new products is far from being the only criterion for innovation.

Take a US car, as an example.

·         The World Trade Organization found that only 37 percent of the value of that car is added in the US,

·         30 percent is created in South Korea,

·         17.5 percent comes from Japan and so it goes.

·         Non-US companies contribute 63 percent of the value chain, and in many parts of it, significant innovation can be introduced by independent companies.

The old integrated production that characterized Ford-style mass production in the 20th century - iron going in one end of the factory and cars coming out of the other - is increasingly disappearing.

In its place, numerous global specialist companies contribute to the final product in what might aptly be termed the "dispersed innovation network."

An excellent study of how this creates opportunities for innovation at many different parts of the productive chain can be found in the book The New Industrial Revolution, by Financial Times reporter Peter Marsh.

As Breznitz and Murphree put it: "While American companies formerly had the organizational and innovative capabilities to run such large-scale operations, even in its heyday the American production system was focused on mass production and could not flexibly produce an array of products in the same place on the same production lines.

Currently, capabilities of ultra mass-flexible production are unique to China."

A classic case is China's Wanxiang Group, which became the world's leading supplier of universal joints for automobile drive shafts before expanding into a wider range of automobile components.

No threat

When Wanxiang first entered the market, US auto-parts company Visteon dismissed it as no threat. "Visteon doesn't treat Wanxiang as a competitor," said Visteon's director of Asian-Pacific purchasing. "We are treating them as supplier of components for auto parts."

The magnitude of this underestimation was illustrated by Wanxiang's development. The company initially focused its strategy on the relentless improvement, both technically and in cost, of universal joints.

In time, it became the world's largest world supplier of these parts.

Wanxiang got its first foreign order from the Schiller Group, then a leading US auto-parts supplier. When Wanxiang refused to operate only as Schiller's original equipment manufacturer, Schiller took away its business. By 1998, Wanxiang had so outmaneuvered Schiller internationally that the latter offered itself for sale to Wanxiang for only US$19 million.

After selling the factories but retaining the intellectual property, Wanxiang acquired the key remaining technical assets of Schiller for only US$420,000.

By 2005, Wanxiang operated 38 companies in eight countries. It expanded from universal joints to other parts of the automotive drive systems - to brakes and finally to the whole chassis. Meanwhile, Visteon went bankrupt. Another example of radical innovation in China is the high-performance computer manufacturer Dawning.

Cost advantages

Dawning started with imported processors but rapidly developed its own motherboards, coding and modified operating systems. Because interactions between processors account for 50 percent of a computer's performance improvements and superior chips for only 20 percent, Dawning concentrated its research on the former.

It didn't even have to use the latest and most expensive processors to achieve world-class performance. That gave it enormous cost advantages over foreign competitors. By 2010 Dawning had produced the world's second-fastest supercomputer and was introducing its own chip line Loongson. Another classic case is China International Marine Containers Group (CIMC), the world's No. 1 producer of containers.

The company, which was dominant in China's domestic market, expanded internationally by focusing on reducing costs – not by cutting wages but by radical innovations in raw materials procurement, transport and international financing.

As a result, CIMC reduced materials costs by 33 percent, and manufacturing and overhead costs by 46 percent. Consequently, even when competitors moved production to China, they couldn't produce as cheaply as CIMC.

CIMC then showed innovative ability when expanding into specialized containers. To start producing refrigerated containers, it purchased a production line from Germany's Graaff. In China, CIMC re-engineered the production line four times until it was ahead of competitors, both technologically and in terms of cost. By 2005 Graaf, was bankrupt.

A further recent example is China's Broad Group, which has developed a modular building system allowing construction of a 30-story building in 15 days. No Western company can match that. To make the point, Broad recorded the construction cycle for YouTube - where it has been watched by five million people.

Far from being "no good at innovation," China's companies are among the world's best at it. China is succeeding at just the type of innovation that is most important at its stage of economic development.

As the recent outpourings of books shows, it wasn't the case that China's companies weren't innovating; it was a case of analysts not understanding what was going on.

*   *   *

This article originally appeared in Shanghai Daily on 10 September 2012.

Quoi faire ?

Il faut rééquilibrer la situation on ne peut plus accepter des déficits commerciales avec les pays immergents, produits finis pour produits finis. (1)


How America Is Turning into a 3rd World Nation in 4 Easy Steps

This "protectionist" approach to trade transformed the United States into the world's largest exporter of manufactured goods, which built and sustained an enormous middle class of Americans working in factories collecting high wages.

Then the forces of globalization crept in, extolling the virtues of a world economy free from national boundaries and protections for domestic manufacturing.

With Reagan's Revolution in the 1980's, Alexander Hamilton's 11-point plant was scrapped. Tariffs were ditched and then Bill Clinton moved into the White House in the 1990's and continued Reagan's trade policies and committed the United States to so-called Free Trade agreements like GATT, NAFTA, and the WTO, removing all the protections that had kept our domestic manufacturing industries safe from foreign corporate predators for two centuries.

In the 1992 Presidential debate, third-party candidate Ross Perot famously warned about a "giant sucking sound" of American jobs going south of the border to low-wage nations.

Perot was right, but no one in our government listened to him.

In the 1960's, one-in-three Americans worked in manufacturing, producing things of lasting wealth. Today, after jumping head first into one free trade agreement after another, only one-in-ten Americans works in manufacturing.

Over the last decade, 50,000 manufacturing plants in the United States have closed down and five million manufacturing jobs have been lost. They didn't disappear, they just moved away to low-wage factories like Foxconn, in foreign nations.

Before Reagan won the White House, the United States was the world's largest importer of raw goods and exporter of manufactured goods as well as the world's largest creditor.

But today, we're the world's largest exporter of raw materials and importer of manufactured good. (2)

No surprise, we're also the world's largest debtor.

WHEN MANUFACTURING DIES, THE ECONOMY GOES WITH IT.


 

China is now a place can not be beat on speed, flexibility, and know-how !

Il est intéressant de connaître nos principaux compétiteurs, pour le Canada, en ordre d’importance : les États-Unis, la Chine et le Mexique.

Les deux prochains carnets traiteront particulièrement de la Chine, de plus avec les effets pervers de la mondialisation débridée.


Extrait de : The changing pattern of foreign investment in China, Key Trends in Globalisation, 21 October 2014

Inbound investment into China continues to be the highest for any developing economy - US$101 billion in 2013 on UN data.

But the pattern of investment in China is changing significantly as the country develops, and this trend will inevitably become more pronounced. China refusing to acknowledge and internalise that only 30% of the world’s population now lives in countries with a higher per capita GDP than China leads to confusion on the key issues in foreign investment.

In the first decades after the start of China's economic reforms in 1978, inward foreign direct investment (FDI) was primarily undertaken by overseas companies to create a base for exports. Although this was helpful in China's early stage of "reform and opening up," the investment was frequently very low value added. For example, a 2009 study found China received only 2 percent of worldwide wages paid for iPod production despite the fact that every iPod, at that time the world's most successful consumer product, was manufactured in China.

As recently as 2010, the majority of China's exports came from foreign-owned companies. Among large exporters, the role of foreign investment was even greater - of the top 200 exporting companies in 2009, 153 were foreign-funded. Only among small and medium size exporters were Chinese companies dominant and Alibaba's original success was creating the Internet systems that connect these Chinese companies to their foreign markets.

There is nothing mysterious about that. The most important fact about the United States in this century is that middle-class incomes are stagnating.. Even in a relatively prosperous age, this decline of the middle class is more than an economic issue. It is also a political one.

But in a careful study of U.S. local labour markets, the three academics have found that trade and technology had very different consequences for jobs.

The big surprise, at least for believers in the classic liberal economic view that trade benefits both parties, is the strong and negative impact of globalization on U.S. workers. Prof. Autor estimates it accounts for 15 to 20 per cent of jobs lost.

“U.S.-China trade is almost a one-way street.

This trade relationship doesn’t clearly give you the benefit that you can sell a lot of stuff to your trade partner.

Shipping middle-class jobs to China, or hollowing them out with machines, is a win for smart managers and their shareholders. We call the result higher productivity.

But looked at through the lens of middle-class jobs, it is a loss. (1)

But as China's economy has developed, the reason for its attractiveness to foreign companies has radically changed. In comparative international terms, China is no longer a low-wage economy. On World Bank data, only 30 percent of the world's population now lives in countries with a higher per capita GDP than China, and wages will be approximately proportional to this. In Southeast Asia and South Asia, every developing country except Malaysia now has a lower per capita GDP than China.

GPD above China

For many foreign companies aiming at exporting, China's unrivalled skill in major manufacturing fields has become the country's main attraction. A U.S. study, with the self-explanatory title "Why Apple builds iPhones (and everything else) in China," spells this out clearly. The New York Times posed the question, "What does China have that America lacks?" The conclusion was:

"Quite a lot.

·         China has more mid-level engineers, a more flexible workforce, and gigantic factories that can ramp up production at the drop of a hat.

·         China also offers tech firms a one-stop solution.

·         'The entire supply chain is in China now,' a former high-ranking Apple executive tells The Times.

·         'You need a thousand rubber gaskets? That's the factory next door.

·         You need a million screws? That factory is a block away.

·         You need that screw made a little bit different? It will take three hours.'"

C’est exactement ce qui s’est passé avec la mondialisation débridée,
 le savoir-faire et tout l’écosystème manufacturier s’est déplacé vers la Chine.

Indeed, the example of the iPhone, now the world's most successful consumer product, graphically shows how China's manufacturing capability saved what is now a triumph from a potential PR disaster. As the New York Times noted:

"A little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. For weeks, he had been carrying a prototype of the device in his pocket. Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen… People will carry this phone in their pocket, he said. … 'I won't sell a product that gets scratched,' he said tensely. The only solution was using unscratchable glass instead. 'I want a glass screen, and I want it perfect in six weeks.' After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go."

The result was that when the screens arrived: "the workers were assembling 10,000 iPhones a day within 96 hours.

Another example: Apple had originally estimated that it would take nine months to hire the 8,700 qualified industrial engineers needed to oversee production of the iPhone; in China, it took 15 days."

Low wages are therefore no longer China's key attraction for foreign investors.

"Wages actually aren't that big a part of the cost of making consumer electronics… Paying American wages to build iPhones would add only about US$65 to the retail price of each handset, according to analysts' estimates. That's an amount Apple could likely afford. And in fact, China no longer offers rock-bottom wages.

But when it did, it used that window 'to innovate the entire way supply chains work,' says Sarah Lacy at Pando Daily.

China is now 'a place other countries can beat on sheer cost, but not on speed, flexibility, and know-how.'"

Délocalisations et dumping n’ont été rendue possibles que grâce aux décisions stratégiques évoquées plus haut, prises en toute conscience par les dirigeants occidentaux, sous l’influence des Etats-Unis : l’abaissement des barrières douanières et la libération des mouvements de capitaux. (2)

The second fundamental feature of the new situation for inward FDI is that since 2007, China has not only been an export base, but it has also been the world's most rapidly growing market in dollar terms as well as in percentage terms. This will only continue. This is a result of the fact that although the U.S. remains the world's largest economy, at market exchange rates, China's growth rate is almost three times that of the U.S. Consequently, as shown in the chart, in 2013 China's increase in GDP was US$1,038 billion compared to US$555 billion for the U.S., i.e. China's dollar GDP increased by almost twice as much as it did in the United States.

Annual increase in GDP

La loi de Say, cependant, nous dit que “l’achat d’un produit ne peut être fait qu’avec la valeur d’un autre ”. Il voulait dire par là qu’il faut produire des choses pour pouvoir en acheter d’autres. C’est normalement vrai… sauf quand on imprime la devise de réserve mondiale. Dans ce cas, on a le privilège exorbitant de ne devoir produire que de la “monnaie”.

Ou, pour voir les choses autrement, le déficit commercial accumulé depuis 1971 se monte en gros à 8 000 milliards de dollars. C’est à ce point que l’échange “produits contre produits” est déséquilibré.

Les étrangers produisent des biens ;
les Américains ne produisent que de l’argent
.

Imaginez que la composante “main-d’oeuvre” des biens se monte à 50%. Cela signifie que les travailleurs américains ont laissé échapper l’équivalent de 4 000 milliards de dollars de revenus. Répartissez cette somme sur l’intégralité de la main-d’oeuvre masculine, et chacun serait 80 000 $ plus riche. Plus important, sans le recul général de leur industrie, les Américains auraient désormais plus d’emplois et des salaires plus élevés. (3)

China's unparalleled market expansion presents decisive advantages for potential company growth. In stagnant or more slowly growing markets, such as the U.S. and Europe, to achieve rapid growth most companies have to increase market share.

In China, in contrast, rapid growth can be achieved without gaining market share but simply through ongoing market expansion - an easier prospect. FDI is therefore increasingly taking advantage of China's domestic market, not for exports. A further result, consequently, is that FDI increasingly flows into the service sector, which primarily serves China's domestic market and not exports. In 2013, 52 percent of inward FDI went into China's service sector.

But if China's market expansion is the world's fastest, there is no doubt competition for companies engaged in FDI is becoming tougher in certain respects. In its earlier stages of development, China so badly needed FDI that it offered formal tax concessions and regulatory enforcement was sometimes lax. Tax concessions are already largely abolished, and lax enforcement is being tightened.

The latter includes dealing with criminality - in 2010 RTZ employees in China admitted taking kickbacks and recently GlaxoSmithKline was fined US$490 million after it was found to have bribed doctors to sell its drugs. Anti-competitive behavior is also being clamped down on. This year six infant milk powder companies were convicted of price fixing, and fined US$110 million, while 12 Japanese auto-parts makers were also fined US$200 million for the same offence.

Foreign companies investing in China continue to enjoy clear advantages in key sectors. These include in advanced technology industries, apart from defence - for example high end computer services and civil aircraft production; highly concentrated global industries dominated by global producers such as automobiles, and non-financial services in general - for example supermarkets and fast food chains. But in medium technology, or many rapidly growing industries, Chinese companies are increasingly tough competitors - Lenovo not only dominates China's domestic computer market but has become the number 1 PC producer globally, while China's smartphone manufacturers, such as Xiaomi, Lenovo and Huawei, are increasingly effective in domestic competition with Apple and Samsung.

Given the size and growth of China's market, inward FDI will remain at very high levels. But the days of China as a cheap labor export base are ended – because the majority of the world’s population is now at a lower level of economic development than China. Only by accurately analysing its real stage of development, and therefore its real position in the world economy, can China realistically assess its strengths and weaknesses in attracting foreign investment.

In a person modesty is admirable. But in serious economic matters neither boasting nor excessive modesty is a virtue – only realism. To navigate a ship must have an accurate chart – if it does not there is a danger it will hit a reef. The same applies not only to foreign investment but to China’s economic policy in general.