China will begin making cars in Bulgaria, to enter the European market. This article in der Spiegel hits on three points I make, that people find controversial, relating to cheap labor fallacy, China's debt strategy, and export strategy.
1. If world trade is about cheap labor, then why is China outsourcing products? Bulgaria may have lower labor rates than other parts of the EU, but they are higher than in China. What Bulgaria has is cheap management. That is what China is exploiting in Bulgaria. Bulgarian labor is a part of the cost of a car, but efficient cheap management trumps all. But do note, economic recover is coming to Bulgaria, because prices have fallen. The US Govt is doing everything it can to stop prices form falling. We cannot have economic recovery until prices fall dramatically, across the board, wiping out debts and debt-holders.
2. China owns a lot of debt, US Treasuries in particular. The USA world political strategy and domestic security is based on China being trapped by owning so much USA debt. It seemed obvious to me long ago that China would simply use this debt as collateral to build an infrastructure world wide that serves China. When that debt goes bad, it will be Bulgaria hurt by the Americans, not China. Worldwide people will love China for the factory, hate America for the bad debt. Why this is not obvious I do not know.
3. The best way to build and export market is to import first. China I following 3M here, in buying from Europe, as a way to sell to Europe. I had dinner with a top 3M exec back in 1977 in China. He explained 3Ms strategy to me. At the time China's rules on foreign investment were 1. A foreign company could not own more than 49% of a Chinese company. 2. Everything a joint venture made had to be exported. 3. The profits could not be expatriated. 4. They could not make anything China already makes. Within five years China had waived all these conditions in 3M's case.
I suppose lawyers hear much nonsense from outsiders regarding their work, as do doctors, etc... and so it is with international trade. This is one reason why regulations do not work... the regulators have no idea what they are talking about. So they turn to lobbyists for help writing the rules. What a mess when you try to centrally command an economy.
1. If world trade is about cheap labor, then why is China outsourcing products? Bulgaria may have lower labor rates than other parts of the EU, but they are higher than in China. What Bulgaria has is cheap management. That is what China is exploiting in Bulgaria. Bulgarian labor is a part of the cost of a car, but efficient cheap management trumps all. But do note, economic recover is coming to Bulgaria, because prices have fallen. The US Govt is doing everything it can to stop prices form falling. We cannot have economic recovery until prices fall dramatically, across the board, wiping out debts and debt-holders.
2. China owns a lot of debt, US Treasuries in particular. The USA world political strategy and domestic security is based on China being trapped by owning so much USA debt. It seemed obvious to me long ago that China would simply use this debt as collateral to build an infrastructure world wide that serves China. When that debt goes bad, it will be Bulgaria hurt by the Americans, not China. Worldwide people will love China for the factory, hate America for the bad debt. Why this is not obvious I do not know.
3. The best way to build and export market is to import first. China I following 3M here, in buying from Europe, as a way to sell to Europe. I had dinner with a top 3M exec back in 1977 in China. He explained 3Ms strategy to me. At the time China's rules on foreign investment were 1. A foreign company could not own more than 49% of a Chinese company. 2. Everything a joint venture made had to be exported. 3. The profits could not be expatriated. 4. They could not make anything China already makes. Within five years China had waived all these conditions in 3M's case.
I suppose lawyers hear much nonsense from outsiders regarding their work, as do doctors, etc... and so it is with international trade. This is one reason why regulations do not work... the regulators have no idea what they are talking about. So they turn to lobbyists for help writing the rules. What a mess when you try to centrally command an economy.
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