Who's Afraid of China?

We are, and so are the Japanese. But for all the wrong reasons. Today's New York Times tells a story of how China's economy will soon overtake Japan's -- and by implication ours. It ends with a peal of doom: "China," says a Japanese think tanker, "is about to leave everyone behind in a big way."

Except it won't. Remember the exploding tires? The blood thinner that killed Americans as they lay in their hospital beds? The infant formula that sickened and killed thousands and thousands of Chinese infants? These are not exceptions to the rule. These are not a few bad apples. This is business as usual in China. It's risky to make things there. Risky and expensive.

You need to go to the factory floor to see why. By the time you get your raw materials, whether chemicals or plastics or milk solids or whatever, they've passed through several middlemen. You, in turn, must farm out some of your work to smaller firms to handle parts of the job that you can't. All the players in China's labyrinthine supply chain that touch the goods add risk. And cost.

Until now, the Chinese have been able to price their products so cheaply, in large part, because of currency controls and export rebates. So what has looked like a whopping competitive edge to us is actually a distortion in the market. Don't be fooled. If China struggles to make drugs, food, and engineered goods safely and reliably, not only is China not about to overtake us, but in biting off more than it can chew, China is rashly exposing its companies and the Made In China brand to a lot of risk.

Before it can become a true manufacturing juggernaut, and not just a giant assembler of imported components, China has lots of work to do. Work that I think will take generations. China must rationalize its sprawling supply chains, acculturate its workforce to quality, change the very way its corporations are governed and its laws enforced. This is not going to happen anytime soon.

Meanwhile, China needs modern goods and services to keep its economy -- and middle class -- growing. Modern hospitals and airports, infrastructure and power grids. The Chinese can fabricate a lot of this stuff -- that is, put together the parts. But in terms of making the stuff themselves, especially the goods that require a high degree of engineering and safety, China bucks up against the limits of its own capability and must import. From countries like America and Japan and Germany. That's why, despite our economic doldrums, our exports to China keep rising. China needs what we make.

We can take some heart that Japan's plan, according to the NYT, is to shy away from exports and focus on goosing internal consumption...from its aging, shrinking population. Good luck with that. Meanwhile, China's huge, modern, urban middle class will keep growing, and its imports of modern goods and services will, too. That's wonderful news in this recession. China's demand plays right into the sweet spot of our economy. We need to stop fearing the Big Bad China and start capitalizing on its growth. We'll create jobs here at home and help replenish our savings if we do.

 

Comments

[1will]

Remember the exploding tires, contaminated baby formula and deadly blood thinner from China?
Good. You're alone.
America continued to buy Chinese products after all of these incidents and Wal Mart sales did not suffer. The trend will continue. Chinese products may be considered junk but this junk is cheap enough that Americans will continue to buy it. This is especially true as the economy tanks and big box discount stores carry more and more Chinese goods.
Want quality and long lasting products. Buy Japanese, Korean and American. Want cheap clothing, bikes and tires. Buy Chinese because that's all that Wal Mart and Target stocks.
Things will have to get much worse before Americans dump Chinese products.
This is especially true as the current Administration makes it more costly for American businesses (higher taxes) to do business. As long as Obama continues to make American companies less conpetitive Chinese goods will look even better. Yes, we may pass by the Chinese made baby formula on our way to the Chinese made radios and batteries. That's about as far as it will go.

[timmyturner]

Ban imports from China all together. Or at least until they improve their manufacturing practices.

[skyshoes]

I made a brief foray into the Chinese offshoreing kludge. The Chinese "owner" of the business I met with was granted millions to have a huge facility built and financed by the government. I told him I had all my designs on a computerized milling machine and he ought to get one for accuracy and to simplify and increase production (he had twenty five people working where we used one) he had over all five hundred employees in his facility.... He replied " Oh no we are here because we employ people".. "We want our people to work".

"Work " is not a concept considered valuable in the U.S. any more. Wall street often jumps UP when unemployment numbers come out! Why? The Mitt Romney's of the world, the international corporations, and the vulture capitalists that have taken over the United states government. They ( and by attrition the collective WE ) are getting their (our) A** handed to them (us) by the PEOPLES Republic of China. Leadership vs greed and sellouts.. We are no longer "We the people"...

[dadw5boys]

All over the USA Engineers are being laid off and under paid so if China needs help all they have to do is Outsource and they get quailty help with design, spec's, and quality quickly. They are willing to pay for what they get.

[arvay]

Do we remember the rationalizations about Japan when they were considered a threat?

The first postwar Japanese manufactured goods had quality problems, and they acquired a reputation for shoddiness. Well that's certainly changed!

Their banks loaned their companies money at a loss , their industries were a big plot by the Japanese government to topple America from its greatness.

Japanese tariffs kept put many American products and agricultural goods.

This is particularly amusing:

"By the time you get your raw materials, whether chemicals or plastics or milk solids or whatever, they've passed through several middlemen. You, in turn, must farm out some of your work to smaller firms to handle parts of the job that you can't. All the players in China's labyrinthine supply chain that touch the goods add risk. And cost."

We have similar "middlemen" here too, they're called suppliers."

[dadw5boys]

The Chinesse Drugs also made the USA look at the FDA for making drugs enter into our Medical Care System so easy. "IF A DRUG IS BETTER THAN TAKING A SUGAR PILL " for any disease or problem makes it OK for use on the American People ?
That was the FDA Republican Policy since Regean !!!!

How many LIVERS DID Tylenol kill ? Because it was not studied and no one bothered to say HEY THE IS A REALLY STRONG DRUG AND IT DOES A LOT OF HARM CUT THE DOSAGE TO 1/4 FAST !!!!!
Hundreds of DEAD KIDS later when Democrates get control of the FDA changes come fast. That means Doctors knew the cause but were afraid of the DRUG COMPANY LAWYERS !!!!!!!!

[brandnewstuff]

Great article and loved others comments on The HP

[Realization]

I can't think of any reason why we should allow our foreign competitors any handicap points for even one second longer. For China that means that we get the exchange rate right, negate the effect of capital controls (try reviewing any Chinese investment here), identify and deal with industrial promotion strategies (aerospace and cars for starters), and seriously penalize IPR violations, etc. The list goes on and on. We should be using Section 421 a couple times a week.

Same for Korea. Korean cars imported to the U.S. should have all the same costs that foreign cars have in Korea. And this should last for about 20 years beyond real market opening on their part. "Real" means no more barriers, formal or informal, than there are here including distribution systems, advertising, etc.

Same for Japan. And by the way, the NYT has it wrong that Japan is focusing more on domestic demand. Pushing it to some extent, yes. But also subsidizing export industries. Watch what they do not what they say.

[StJames]

China has another problem...an aging population. The 1-child rule means they will not have enough working age people to meet the demands of manufacturing and agriculture in the not too distant future. It seems so strange in a country of over 1 billion people. But many will be too old to work and many too young.

[dadw5boys]

What you should worry about is that China and India will Graduate more kids with Genius IQ's every years that the USA has Students !!!!!!!!!!!

[yappnmutt]

this blog kinda flies in the face of what i know. i was in japan during the 60s and early 70s when they switched from a junk manufacturer to the best manufacturer of high quality high tech goods.

the chinese are going through the same stages. motorola and othe companies are outsourcing research and development to china(and india). china is already the largest manufacturer of high tech parts and equipment in the world. the usa still makes manufacturing equipment, machinery and leads in computer tech and systems but the edge is slipping because it makes sense to the manufacturer to make their own stuff.

so, yes, the usa should take advantage of what it can but the trend is not in its favor in the long run unless the demand for these products grows domestically.

[dante]

I'll bet anyone who posts a comment, including myself, are using Chinese assembled computers.

But their problem is not so much in production, or science, or in money -- it is the problem of poisoning themselves and us.

[sawdustinhershoes]

Personally, if I could totally avoid Chinese products, then I would.

The Chinese do not have the expertise and quality control to ensure that their end-products are not toxic. I believe that American entreprenures who specialize in American grown and manufactured products will be the next wave of successful businesses. People want organic food and clothing, they want their children's toys to be untainted. They want to buy products made in the USA and made through green processes.

I think many Americans already don't trust Chinese products.

[StJames]

Yes, so do I. I paid $90.00 for a blouse that was made in China...and not well made. I'm sure we could make it in the U.S. for that amount of money. Paid $1,700.00 for a kitchen table and stools. Three months later the finish began peeling off the table top. Six months later a stool had to be replaced. Nine months later I had to take all the stools apart and reassembled them. I would not have purchased the set if I had known in advance in was made in China. Will be sure never to make that mistake again. Could have purchased a similar set for the same money, made right here in North Carolina. Wish I had.

[EinChicago]

I hear you. My wife and I were shopping for ski jackets this weekend and found some nice columbia jackets. Then I saw on the tag that they were made in China and walked away. There is no way that any "Made in China" jacket is wortyh $200. $20, perhaps. But companies are moving production to China for rock bottom prices without reflecting the savings in the price. Seeing Made in China on Walmart stuff is acceptable as that is part of the equation; trade off outsourcing for low cost products. But high-end products made in china is not acceptable.