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Made in China
April 18, 2005
Your T-shirt, your denim jean, your socks, your underwear, your running shoes and even your Dell computer are “MADE IN CHINA”.
Now, take a look at the toys you bought for your kids, the wide screen plasma TV and the DVD player you bought for yourself. Hell, they are made in China too.
Is this worrying? Well, it certainly depends on where you are coming from.
For us in China, we think a 54-hour1 week is a luxury but EU has already been talking about a 35-hour week for some time while 48-hour including overtime is the maximum permitted. They have 4-week annual holiday while our only days off are Oct 1 and May 1. We do not even understand what exactly is occupational health and safety and often unknowingly expose ourselves to noxious chemicals, noise, dust or other pollution in the workplace when our companies do not implement any preventive measures. Industrial accidents are on the rise in our working environment.
Despite all these, what we earn in a 54-hour week is no more than what our counterparts in EU will get for a day’s work doing similar thing.
Is this worrying? Again, it will depend on where you are coming from.
We bite our lips. We go on as we know we have a great deal of catching up2 to do. We continue to produce at the expense of our health or at the expense of our environment.
Now it’s only 4 months since the global quotas on Chinese textile was lifted, we already begin to hear that both EU and US are looking for ways to re-impose restrictions on Chinese imports.
This is basically how it works:
A pair of good quality denim jean will cost about US$20 FOB USA and it carries a retail price tag of about US$90 in the States.
For simplicity, let’s say the Chinese will make US$20 which is to cover all materials, labour and shipping costs. The American will make US$70 in this same transaction and he has to cover his selling expenses.
US$90 for a pair a denim jean is not actually cheap even for an average consumer in a rich nation like the USA but he doesn’t mind owning more than a few pairs because he doesn’t have to pay for them, he charges them to his credit cards. The American retailer, at the same time, is quite happy to keep importing the Chinese made denim because of the huge profit margin which does not only allow him to pay huge sums to the company’s directors and millions for an advertising campaign but also leave enough to contribute to his government to buy some sophisticated weaponry to invade or to encircle whatever countries his government don’t particular like, including of course, their creditors.
As for the Chinese, there shouldn’t be too much left from that US$20 after feeding 1.3 billion people. But luckily, the Chinese wears the same old pair of 10% cotton 90% synthetic fabric pants 365 days a year and he doesn’t need a 60” plasma TV. Best of all, the American has been trying everything he can to prevent the Chinese from spending a little of that US$20 on some less-than-state-of-art military equipment. So the Chinese has no choice but to save however little he has left – he buys some T-bills.
Despite the substantial difference in earning in selling the very same pair of denim jean, the American still cannot find a sensible way to balance his books. He blames the Chinese for exporting too much.
The Chinese thinks that he will be able to mitigate the American’s concern if he works harder and hopefully, he will be rich enough to buy himself one extra pair of jean someday. It will no doubt help divert a part of his country’s exports to the domestic market. He knows that he will lose the opportunity to earn 20 American dollars when that someday comes but if the American doesn’t mind reducing his earning by US$70, he is happy enough to forfeit that US$20 just for the sake of a good Sino-American relationship.
In the meantime, I suppose, the only shortcut to address the trade imbalance is to stop buying their T-bills and ask them to pay their bill on time in RMB. The former should help cap the credit limit and the later should help speed up the dollar’s devaluation and reduce its purchasing power.
‘Scapegoat’ is also made in China. And this is worrying.
fn1 The Labour Law in China is not bad and indeed, gives a reasonably high degree of protection for the workers’ rights and interests. The problem is, as usual, that it looks good on paper yet nobody gives it a damn in practice.
fn2- our Gross Domestic Products (GDP) is about US$6,000 per head while for G7, GDP per head is about US$30,000.
Posted to General at April 18, 2005 07:02 PM :
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Comments
I agree with you about most of this stuff - although I think maybe you should throw the chinese gov’t in there with the american gov’t.
The american gov’t (headed by the man I did NOT vote for) encourages consumption, and does not temper things rationally, like emission regulations for factories, in order to keep business running and money flowing. I am generally against this. Equally well, however, the Chinese gov’t refuses to float the RMB. If they were to do this, the RMB would jump to about 3 or 4 RMB to the Dollar instead of 8.17, and prices in the states would soar. If prices soared, the people in the U.S would see just how greedy they’ve been, and if they were forced to live with it because of strict adherence to free trade, we’d be less greedy and more thrifty. A good thing in my books, and I wish we’d do that. Most people disagree with me, however - they like their 60” plasma screen.
However, I’m not so sure it would be good for China, because it would double the price of everything. Which is generally why this hasn’t happened yet.
posted by: Laowai 19790204 at April 20, 2005 12:28 AM
I am not familiar with various macroeconomic models and theories. Even a dramatic re-valuation of RMB, I think, will not help the US very much in terms of job losses and trade deficits.
The cost of labour is China’s competitive advantage. Even RMB is traded tomorrow at 1:1 to the US dollar, it would still be less expensive to produce a pair of denim in China (transportation cost included).
In the longer run, re-valuation of RMB or a freely convertible RMB is inevitable especially when RMB is pegged to the US dollar and the economic growth rate in the US and in China continues to differ by a substantial margin. If the US economy grows at 2% a year while the Chinese economy is growing at 10%+, the only way to maintain the peg is for China to keep raising the interest rates. This can be suicidal for the Chinese.
posted by: China Doll at April 22, 2005 05:58 PM
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