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China´s low sales volume…

By Frank-Jürgen Richter

Khaleej Times, March 6, 2012

How can it be? Usually sales staffs are sacked if they can´t do their job, and it is hardly the conventional storyline we might hear from marketing executives. Indeed, it is not what we hear from the likes of Huawei, Haier or Yu Yuan.

They are as active as ever, looking for sales at home, and especially overseas; and it is just the same story from the myriad of suppliers to the likes of Foxxcon who assemble Apple´s i-family for export to the US. Nor is such hyper-activity confined to coastal region of China – there is unprecedented growth in goods flow along the Yangtze both up and down stream; and the port of Shanghai is now the world´s biggest container port shifting almost 32 million TEU last year (over 400 million tons of goods).

Yet the Western press, notably in the US, riles against the “Made in China” labels that can be found on very many consumer goods: and we are told they `own´ the US Treasury also. We may thus be forgiven in thinking that China has expanded greatly without us really noticing. It is true that the US imports a large chunk from China – about $350 billion. But that is only 2.3 per cent of its $14.5 trillion economy – we must maintain a sense of perspective, not only in the US but across the globe.

Further, China does own a large quantity of US Treasury debt (about $1.14 trillion: or 7.8 per cent of $14.6 trillion US total debt); Japan follows with $937 billion, and the UK is third in line ($397 billion).

A report from the Federal Reserve Bank of San Francisco (FRBSF) in August 2011 answers some of these questions – but they seem not to have filtered through to the `average Joe´ or to the US President´s office. Firstly it is true that the US takes imports from China – in GDP terms about 2.5 per cent from China, but it imports a further 13.5 per cent from the rest of the world: in reality the US is somewhat closed, as 88.5 per cent of consumer spending is upon goods made in the US. Practically 2/3 of US spending are on local services, and surprisingly (given the contrarian hype) 2/3 of US durable goods bought are made in the US. The China label, however, is obvious on many goods we use daily – our clothing and shoes, furniture and household equipment.

We ought also to be careful to note that China is probably not able to pass on its own domestic inflation since much of the content of Chinese assembled goods comprise parts imported from other nations for assembly in China. The FRBSF notes the iPhone in particular – costing about $500 in the US had a production cost in China of $179 of which only $6.50 reflected the assembly labour cost. Foxxcon, as well as others, depend on world pricing, so their `costs´ ought to be lifted to reflect other countries financial problems.

One of China´s problems may be its modesty. Really! Over the years it has quietly progressed, creating the development regions (that we despise wrongly, as noted above) and vastly extended its infrastructure of roads, railways, waterways and airports. Of course that has increased its resource needs, especially of energy. It has thus become the world´s heaviest polluter. But again we must place this in context. Its government has promised a 40 per cent reduction in its energy intensity from 2005 levels by 2020; and it seems to have achieved a 20 per cent reduction by 2010 even while chasing economic growth.

It has achieved this in part through strong central pressure to remove polluting factories and power plants substituting instead modern efficient equipment. Those acts help circulate cash both on new assets and labour through this processes of change, and then later in the new production processes. China cannot do this entirely alone; it relies on imports of technology and cooperative knowledge exchange working within a well-conducted economic diplomacy.

What the US and other leaders in the developed world must heed is the Chinese model of strong central government guidance pressed on its people. Democracy is all well and good, but it allows procrastination and an inclination to allow market forces to hold sway. Thus the US Treasury has a heavy obligation to support their unemployed: it is similar across most of the developed world. So why not undertake greater dirigisme and direct firms to re-employ and get cash flowing once more? Then we might grumble less against the successful Chinese.

Frank-Jürgen Richter is founder and chairman of Horasis, a global business community