Posts Tagged ‘China’s Weaknesses’

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THE OPPORTUNITY OF THE CENTURY

August 10, 2012

Yesterday, as I wrestled with “unemployment” and why the law of supply & demand were not working to meet the needs on both sides of the issue, the review of Friedman’s  “The World is Flat” reminded me  of that key concept “Our Job is to invent the future while everyone else does what we’ve already invented.”

So many applications in today’s world could (and should) reflect that, but top of mind is an article I read this week in THIRTY TWO, written by Guy Eggers entitled “The Opportunity of the Century: China hits the Great Wall and the Midwest looks ahead”.  To do justice to the thinking behind this piece, one should read it in its entirety at www.thirtytwomag.com , but essentially the world (and specifically China) is following the US lead in economic development and will need to eventually reset, just as we are now doing.

He reminds us of movies and news pundits of the 1980s that depicted scenarios of the Japanese running the world and future space wars with the Soviet Union in the 2000s.  In other words, don’t get caught up in the scare tactics – Just like Japan and the Soviet Union, China will not overtake and conquer the US.

He reminds us that our economy is at least twice the size of China, our closest competitor; our military is “light years” ahead of all others and our navy is larger than all the world’s navies combined, which puts us in control of global sea commerce; and are uniquely positioned at the center of the world’s largest trade routes and we have a stable and growing population.   In short, “it is easy to forget that we currently live in a world that has been shaped by American ingenuity and ideas.”

And with that, he builds his case. 

Eggers carefully reveals some basic cracks in the China façade. …too many people who are too poor to buy any of the goods they produce so cheaply…If the state cannot offer increased prosperity, the whole system could be put into question….the nightmare created by one-child policy of 1979, with an emphasis on male children will create a massive gender imbalance with 30 million more men than women by 2020.  Not only will this upset societal norms towards women, and may lead to males fleeing China in search of wives, but familial culture is heading towards one single male responsible for 4 grandparents and 2 parents dependent for care and support upon that one single pampered male, who at the same time has incredible pressure to succeed, and very little disposable income.  In short, the inexhaustible supply of cheap labor that supported China’s  growth, will soon come to an end – leaving economic distress and political unrest…and there’s more.

Eggers goes on to explain that although China owns 6-8% of our debt, that represents almost 20% of its GDP…all that it has earned in selling goods to us has been reinvested in us, but the numbers show we need not fear them as they have a huge stake in seeing the United States succeed….it is already the most polluted country on the planet with an economy less than half the size of the US.  The total cost of outdoor air and water pollution (respiratory diseases, cancer, shortages of water) represents 6% of China’s total wealth and production… a real estate bubble  is about to crash with almost 40% of  China’s GDP state owned and growing…and finally, Chinese companies operate on profit margins of 1-2% – not the 30-40% of US companies.  It is sustainable only if cheap labor and the right to pollute continues.  If wages increase, the business model will break.

Per Eggers, the problems of our biggest potential rival in the world far exceed our own. The problems we now face are not insurmountable.  The end of China’s dramatic growth also signifies the end of old ways of doing business that no longer make sense.

Having addressed the misperceptions that most of us have regarding China, Eggers then focuses on the future.  “The Midwest with its reputation for ingenuity, hard work and common sense will be a t the helm of the recovery of the American Dream”.

Eggers acknowledges the structural issues still to be addressed in the US, but counters with the idea that we have an opportunity that presents itself only every century or so.  An old system has failed, resistance to change is down, and there is an urgent need to create something new.

He ends by issuing this challenge:

Rather than keep supporting a system that is fundamentally broken, we should harness the collective spirit and creative energies that so define this great nation to create a new business paradigm that truly reflects our values and vision for the world and that will lead to renewed growth and sustainable prosperity…let’s not leave this to the banks, the oil companies and the Chinese to build…Let’s get back to creative, innovative, and smart.  Let’s build the world that we would like to see, together.  We have done it before and we can do it again.

If you ponder the legitimacy of Eggers vision of opportunity, read the August 8 STRIB article entitled “Bubble bursts in China’s shipyards”  and, like me, you may ask the question…could we be seeing the first “crack”?

 

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