China trade
I know from this post and my last one, it might seem like I just hate everything right now, but it's not really true. I'm just having fun analyzing stuff and ranting lately. Also having discussions here with fellow Americans about the subject is triggering some weird thought processes. Lots and lots of tangents in this one.
I'm planning to completely cut myself off from all news and ADD-style entertainment though, so I should be back to more introspective type stuff soon.
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China's current position in the global economy strikes me as similar to their position in the mid-17th century. It's largely one sided; goods flow out of China, and money flows in.
This applies more so to the Western world, and less so to the current third world, since China's investment in Africa has been staggering -- almost as if they're cultivating an economic successor. After all, as the Chinese middle class grows, they're going to need somewhere to make cheap products to buy too. With Chinese labor costs going up, that's certainly not going to be in the factory down the road.
A little bit of history first, I guess. In the mid 1700s, the British empire was going bankrupt because of its subjects' insatiable demand for Chinese tea, silk, and porcelain. The problem was that the British made nothing the Chinese wanted (except nice guns, cannons, and ships, which the British naturally wouldn't sell). So the only thing Britain could pay with was silver. And since they were on a gold standard, they were really paying with borrowed silver.
And so goods flowed from China to Britain, and money flowed from Britain to China, and Britain gradually sunk into greater and greater debt.
Sound familiar?
Britain's solution to the problem was simple, elegant, and well… kind of evil: opium. They grew copious amounts of opium in India, started importing it to China, and with an instant repeat customer base of addicted Chinese, the flow of silver reversed.
This of course was unacceptable to the Qing dynasty -- better known as the very last one -- and so to put it shortly, many people died, and China has had a bigass chip on its shoulder ever since.
The fundamental issue is this:
If you're competing in a global economy, you have between 1/5 and 1/6 of the world's population, you are largely in direct and authoritative control of their access to information and goods, and your economy is generally self-sufficient, congratulations: you are now playing on God mode.
Your population doesn't need, want, or even know about anything the outside world is producing (even if they're busily doing so in the factory across the street). On the other hand, you have the ability to make or buy whatever you or anyone else needs or wants, at a lower price than anyone else can.
Once you've been doing that for a while, you now have all the money, and can do pretty much whatever you want on the economic front.
This is what China was doing in the mid-1700s, and this is pretty much what we're seeing now. Back then, the short-term solution for Britain was opium. The slightly longer term solution was to blast the hell out of anything within reach of their cannons, sail a little farther along the coast and do it a few more times… then force China to sign a series of humiliating treaties that put things on a more even keel.
Now, there's really no alternative.
So what's to be done?
Well, looking around at the people here in China, the only thing that they're really hell-bent on importing (aside from iPhones) is Western culture (and I guess iPhones kind of count for that too). Movies, music, video games, software, and brands.
The problem is, nobody but the rich pays for any of it. Any movie is instantly available on DVD out on the street a day or so after it's released in theaters, or for streaming on any of several free services. Any music is available for download or streaming, complete with karaoke-style subtitles. Video games and software are of course downloadable, or you can buy them on disc for at any computer market for basically the cost of the disc. Anything copiable is copied and sold for vastly lower prices, and/or with more Chinese-centric features.
And brands? A pair of Levi's jeans will cost you about $200-250 in a high end shopping mall. Next door or in the basement, you can buy a pair of knockoffs for $10. And I'm told that even in the name brand stores, a good portion (estimates vary, but I've heard anywhere from 50 to 100%) of the inventory are knockoffs, purchased by the branch/city/regional managers to resell and pad their own bottom line.
Google showed up; and Baidu appeared in 2000. Now Google's pulled out of China, and everyone uses Baidu. Does that website on the right look a little familiar?
America's biggest export to China is creativity and lifestyle. Trouble is, those things are easily duplicated, and nobody has the nerve to go to the Chinese government and say "hey, you know… if you paid us something for all this stuff, or enforced some laws here and there, we would all be a little bit richer for the exchange." In truth, everyone in the U.S. is probably too busy ripping MP3s and downloading movies to bother anyway.
Economists are forever complaining that the Chinese don't consume enough compared to their Western counterparts, who are forever running up credit card debt to buy that new gadget or handbag.
I'm pretty sure they're wrong.
Chinese consume plenty; the money just never ends up leaving China.
In a way, it's common sense; one could buy an iPhone for full retail price, or walk down to the local black market and buy a knockoff with the exact same look, and more or less the same functionality, for an eighth of the price.
It's a well-known trick for factories here:
- Obtain a lucrative contract for a foreign product for, say, 100,000 units.
- Run off your 100,000 units and deliver them, with a few thousand extra for possible manufacturing defects.
- Switch to lower grade materials, run off another 50,000 to sell on the black market.
- Pocket the proceeds.
A lot of people point to the undervalued Yuan as the reason; personally I think that's a little simplistic. I think I have it pretty well figured out; China's keeping the RMB undervalued while it develops Africa to service its coming consumer economy; once Africa starts producing, boom… RMB appreciates, imports are cheaper, and say hello to "Made in by China in Ethiopia" labels on everything you buy.
And after Ethiopia gets rich and starts looking around for people to make their iPhone 9Gs, maybe we'll be in a position to fire up our manufacturing industries again. Who knows… are global economies cyclical? There was always some "new world" out there before to give economic growth a new bump, or a global disaster/war to kill off a huge part of the population to effectively do the same thing. Could MRSA be the solution to our collective economic crises?
Anyway, It's a fundamentally different attitude. My girlfriend is usually puzzled when I show her the little doodads I buy from REI, or the other little things I bring back from the States with me. She steadfastly maintains that I'm a dumbass: Since I could buy essentially the same thing for a tenth of the price at the street market down the block, why would I even bother? She's absolutely amazed by the 100% guarantee REI offers; if it was here in China, she contends, the reaction would be swift and universal:
First, people would be skeptical and think whoever was in charge was a little crazy.
Second, once word got out, the store would be robbed blind and go out of business almost immediately.
There are a few things that either haven't made it to market here yet, or are simply out of reach for the majority of Chinese. Things like my Circulon Infinite omelet pan, with some fancy nonstick coating. The fact that I can fry an egg in this skillet without any oil is mind-blowing to JJ, whose impression of fried eggs has been cultivated by the technique commonly used in Wuhan restaurants: scramble them in a deep-fryer them until they just start to firm up, then scoop them out and throw them on a plate.
These pans would sell like mad over here… if a) people knew about them, and b) Chinese import taxes and price gouging didn't make them a $300 investment for a local. I paid $25 for this thing on Amazon. And I'm pretty sure if I looked hard enough, I'd find a "Made in China" stamp on it.
Another would be things like my Vibram FiveFingers. I get long stares from people on the street while wearing them, and everyone asks me about them; where I got them, how much they cost, and so on.
Just last week I found a photo of a factory in China churning out copies of these by the thousand.
The only reason they're still practically unheard of in China? The duplicators are making a killing off of eBay, selling to Americans looking for a deal on the hard-to-find shoes.
I think this will make it very, very difficult for anyone to do business with China in the coming years. What we have to offer them are soft and creative skills, where duplicating the results are a matter of more or less pushing a button. Meanwhile, China's education system is getting better, and its students are becoming more aware, analytical, and ever more ambitious.
Despite the tone of my previous post, I still believe in the States; as easy as it is to dismiss us as a collection of Krispy Kreme-sucking lard beasts, there is a certain flexibility of attitude, thought, and empathy that comes with being a nation built from without rather than exclusively from within, and it is difficult to adjust for that when you have about 30 centuries' worth of shared language, tradition, and history, and a more recent history -- several hundred years' worth -- of extreme isolationism.
And you know what? There's plenty of room for high quality American made products in a Chinese market; we just need labor unions to do the job they're supposed to do -- prevent abuse -- rather than try to milk every last dollar out of any organization silly enough to employ their members under the current arrangements.
There is a small but rapidly growing segment of the population here that is increasingly interested in conservation. This is something that has been lost in the recent breakneck race for capitalist profits, and doesn't show in the general population yet -- litter and pollution is omnipresent, and everything is disposable -- but people are starting to learn the value of (among other things) buying a high quality product once, rather than buying a cheap alternative that you have to replace every few months. So there's a small window of opportunity here, where U.S. products can insert themselves as premium, long-lasting brands in contrast to the local, more disposable products. As long as they're remotely affordabe, at any rate.
Though to be perfectly fair… Americans haven't really learned this lesson yet either, and we've had a hell of a lot longer with the reality. So maybe I'm just full of it and we just need to keep a tighter grip on our fricking money.