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.