Datuk said
...When a ship sailing in a stormy sea with an invisible front side the captain need to apply his common sense that guilded by his previous experiences as well as taking into consideration of the on the spot factors for moving forward to the planned destination.
Thus, the experience (history) and common sense (objectivity of view point) are two helpful gurus for guilding us to sail through the current economy sea.
In my opinion, there were 2 aspects of inter-dependent spending in china, namely consumer spending and infra and capital investments. A strong consumer spending derived from the strong confidence which in turn influence the capital/infra spending and vice versa.
China as we known is a typical export orientated economy. This is to say that the growth factor in CHina for many years has been driven by its "factory of the world" due to it cheapest cost relative to other countries.
However, the comodities boon for the past 3 years had changed this scenario. The external demand has already sunk prior to the olympic games. Apparently, the world is unable to absord and live with this inflation.
lsb said...
Everyone has been wrong on China since Deng opened up including myself. The leaders understood that the strength of a country is in its middle spending class, and China today has over 200m.
China can trade and spend within itself for a period of time while the world stabilized. It has the reserves to do so.
China will continue to confound conventional wisdom.
I often wonder. If the world consumption drops, and China is unable to export its products to the US and Europe, then who will buy them? Products made for the US and Europe markets...are they consumable by the Asian and CHinese markets? Factories fitted with the latest technology at high cost and producing high end products, can these expensive products be sold to fellow Asians and Chinese? Will asians and chinese buyers afford them? Will it suit their taste?
Comments: There is the wrong perception as to why China is still barging along head on when the rest of the world is slowing down, in particular US and Europe... the crux is that China is not producing to sell to the world on their own... it is a fact that some 60%-70% of China exports are by these foreign companies producing in China to export back... this is the crux of the globalisation movement.
China's voracious appetite for global commodities is not for their own consumption, but to satisfy the huge amount of FDI that has been flowing in over the past 10-15 years. Of course, the rise of China as a magnet for FDI has also the effect of bringing up a huge new middle class of consumers, and that kind of feeds off each other. This kind of "new demand" is not so easy to erode as the badge of honour is the "China price".
While the FDI is supposed to generate cheaper manufacturing bases, inadvertently these units will also benefit from the much higher demand from the new China middle class. That's a benefit no one wants to shrug off.
The question about higher commodity prices and materials eroding China's advantage is mistaken because to produce elsewhere would incur the same cost structure. What China does well and cheaper is leveraging on their strong economies of scale in almost every manufacturing process. What started as a global factory is also having a huge domestic demand to further squeeze efficiencies and margins. These economies of scale are hard to beat.
The question is then will these foreign companies shift their manufacturing Chinese base elsewhere? Where can they go? The world has to live in the brave new world of "the China price"... if you cannot compete with the same product and services produced by China, you better close shop. Thats what has been happening in a big way for the last 10 years. Thats also partly why big foreign MNCs everywhere has been able to eke out good margins growth by putting a lot of their manufacturing and processes in China. A slowdown in the US is bad, but not to the extent of shutting their China operations as thats their magic 8 ball. Cuts will be made back in high cost areas back in their local offices. Hence the fear of "who to sell to" is not a China problem.
p/s photos: Melissa Ng Mei Han
7 comments:
Hits the nail on the head, China is its distinctive competence and one super economies of scales that the like the world has not seen before.
Dear Mellisa,
Thank for your comment as i believe the our thoughts will be fine-tuned via the mental interaction and eventually will lead us to get a clearer picture and hopefully be able to thinking ahead for the mutual beneficial of us.
However, we need to set aside our emotional and let the head prevails over the heart.
First thing first, we must be able to recognise and acknowledge that the wealth erosion as aresult of the hyper inflation were caused a lower household disposible income across all over the world. In turn, it will reduce the real demand irrespective the ownership of business entities. There were two central messages revealed in my original write out; provided you had read it carefully.
Firstly, we must be naive if we continuos to ignore the impact of hyper inflation to the world economy and presume everything in business is remained constant in this tougher operating environment.
Secondly, the structure of the hyper inflation in comodities boon was so fragile and supported by the ignorant and greedy of the euphoria hot money. Take for instance, are there any shortages in oil, gold, metal, rice etc ???
No, not at all !
In fact 4 months ago, when the palm oil hit RM 4000-4400/mt, friend of mine in the industry told me that the inventory of palm oil is at the highest level, eqivalent to the level that you can take your shower with it !!
Can the price sustainable under this scenario ??
If you factor into the coming lower demand (due to the competition with alternative product during upcoming slump) and higher supply (due to the maturity of new crop, It's indeed a disastrous if you are in long position for palm oil !!
Furthermore, the extra orinadary profits for companies in oil palm and petrolium industries were not sustainable ! None of them projected a better outlook for the next financial year. This itself spell out the truth !
I am unable to predict presicely the exact timing when the bubble will be bursting.
But if we allow our common sense to prevails over our emotion, then, it wouldn't be too wrong to say that it's around the corner...
Human being never learn from history espacially when the euphoria of quick profit was your friends not too long ago. No surprice for me at all if you were optimistic in such circumstances !
It's indeed a nice experience when reading of your write up.
Yeah China the superpower and super new economy will rule the world
Datuk, taking the cycles into perspective, including the 1929/1930s depression the world wealth has been on the increase ever since. Japan with it bubble correction in the 1980s, still strides on with it doing nothing in terms of economic policies. It is an attrition of the less efficient and a realignment of a new world economic order, it is chaotic but not the doom. I am an optimist, when the trend reverses 09 or later, harvest time in late 10 or 11.
Just dont go in before the reversal is confirmed.
I read a book '' Mr China'' based on a true story of a Wall Street hotshot private equity magnate doing business in China in last decade.
I believe it's still very valid and relevant today, as those who are doing business in China could easily affirm to it.
The cost of doing business might not be as low as it appears on the surface, once all the 'introduction fees' + 'entertainment fees' etc are included.
Some points: 1) the general experience seems to be that the eastern seaboard is not cheap - skilled labour costs ~ Singapore. (2) Costs are much lower and competitive inland, but logistics is the other key issue.
Sorry to nit-pick - Zimbabwe has hit hyper-inflation proportions with multi millions % of inflation.
Double digit inflation is high (and sucks for the people) but is far, far from "hyper-inflation" that has been seen throughout history. If there were global "hyper-inflation" in commodities, oil would be selling for $12 million per barrel and global industry & trade would come to a complete halt. Gold would be selling @$80 million per ounce and I would be building my Mansions in the Bahamas, Hawaii and Australia somewhere. But here I am still stuck in a hut somewhere in Klang Valley.
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