I've got a collection of articles on China that are hanging around on my desk. Let's jump right in:
Drudge is sporting a big headline today: Communist Christmas: Wal-Mart 'Made in China' Inventory to hit $18B:
Following the link we learn:
The world's largest retailer, Wal-Mart Stores Inc, says its inventory of stock produced in China is expected to hit US$18 billion this year, keeping the annual growth rate of over 20 per cent consistent over two years.
Nevertheless, he said China is Wal-Mart's most important supplier in the world.
"If Wal-Mart were an individual economy, it would rank as China's eighth-biggest trading partner, ahead of Russia, Australia and Canada," Xu said.
By the end of September, 2004, the top seven trading partners to the Chinese mainland are the European Union, the United States, Japan, Hong Kong, ASEAN (Association of Southeast Asian Nations), South Korea and China's Taiwan Province, state statistics from the Ministry of Commerce.
Last year, the firm bought US$15 billion products from China, half from direct purchasing, the other from the firm's suppliers in China.
More than 5,000 Chinese enterprises have established steady supply alliances with Wal-Mart.
Good quality and low price are the major attractions of the retailing giant.
So far, more than 70 per cent of the commodities sold in Wal-Mart are made in China.
"Buying more products in China means more job opportunities, which helps the firm win not only the government's hearts, but also the customers' appreciations," said Wang Yao, director of information department under the China General Chamber of Commerce.
In the United States, poor people find it possible to afford cheap "Made In China" products for their daily necessities, Wang said.
Granted, there are a lot of stunning statitistics in this piece, but Drudge's spin, "Communist Christmas" misses the mark. Here's what you should really pay attention to:
- Wal-Mart is a behemoth, the largest retailer and largest employer in the world. As a result, they wield a tremendous amount of power. They use this power to drive prices down which can have both positive and negative consequences for the consumer. (Lower prices can both reduce the quality of goods or spur innovation.) There was a time when there were more regional players in the U.S. retail market. Market consolidation limits choices for consumers and for manufacturers.
- Notice who tops the list of trading partners with China. Did you expect it to be the U.S.? It's actually the EU. U.S. companies literally can't afford to not do business with China, because every other country is driving their prices down by drawing on the inexpensive labor.
- Notice that more than 5,000 Chinese enterprises work with Wal-Mart in China. That's why Drudge misses the mark in his claim "Communist Christmas." Wal-Mart is not buying from state-owned enterprises. They're buying from private firms in China. The truth is that market reforms have changed China from a purely communist nation into one that may more properly be described as Fascist.
- Want proof of that? What name brands do you see when you buy from Wal-Mart? Black and Decker? Conair? Do these sound like Chinese brands? They don't because they aren't. Many US companies manufacture products in China. Often, utilizing the things China is good at, like cheap labor , will allow a US owned company to continue to employ engineers, accountants, marketing, information systems managers, etc. in the US. However, we have to maintain our competitve edge in these areas or these disciplines will eventually be outsourced as the skills of global labor forces increase.
- Another effect of this type of trade with China is the growth of a new middle class in China. This development will change the world in ways we have yet to comprehend.
For example you've been concerned about the price of gas at the pump recently? When you cursed the $2.00 a gallon price tag were your thoughts set on Iraq and the mideast or on China? In spite of common wisdom, China may be more of a driving force.
From the Telegraph, Demand in China fuels oil price:
Oil prices rose back towards $33 a barrel yesterday after the International Energy Agency said that China's booming economy would fuel faster-than-expected growth in world oil demand this year.
China's soaring economy was driving up world consumption, the IEA said, estimating that Chinese oil demand in January hit a record 6.09m bpd, second only to the United States.
Again the Telegraph, "Tension rises as China scours the globe for energy":
The connection, however, lies in an order issued last year by President Hu Jintao to seek secure oil supplies abroad – preferably ones which could not be stopped by America in case of conflict over Taiwan.
.......For the United States and Europe are far more concerned with the even more sensitive issues of China's relations with "pariah states".
In September, China threatened to veto any move to impose sanctions on Sudan over the atrocities in Darfur. It has invested $3 billion in the African country's oil industry, which supplies it with seven per cent of its needs.
Then, this month, it said that it opposed moves to refer Iran's nuclear stand-off with the International Atomic Energy Agency to the United Nations Security Council.
A week before, China's second biggest state oil firm had signed a $70 billion deal for oilfield and natural gas development with Iran, which already supplies 13 per cent of China's needs.
Eurasia Group, a New York-based firm of political analysts, said its oil experts worked out that China was paying such an inflated price for its investment in Brazil that the cost for the oil it ended up with was three times the market price.
"If China's economy falters, which, in my view, appears increasingly likely, then commodity prices will plummet, and with them, the value of the assets that produce them," Jason Kindopp, Eurasia's lead China analyst, said.
"Beijing may end up in a early 1990s Japan situation, where it is forced to sell recently purchased overseas assets for a fraction of what it paid for them."
China's wider aggression to secure oil and gas was the greatest threat to its international standing in the next decade.
"Sudan is the primary example," he said.
"It marks the first time in recent years that China has promised to wield its veto power in the UN Security Council against a petition initiated by the United States and backed by France and Great Britain."
We've become used to the, "It's all about oil!" meme from the left in the U.S. For their enlightenment, we may get to see what implementation of this actually looks like. The US hasn't been willing to overlook genocide in Dafur, or nuclear proliferation in Iran to protect its oil interests. China is signaling that they will overlook both for the sake of oil.
For more food for thought, also read Peter Brookes in the New York Post, Oil Obsession.
The bottom line is China is now awake and will continue to be a growing force in the world economy. It's a reality. It's good news for the west that a middle class is growing and that it's happening in a time when information is more available on a global level. The question is how to win the hearts and minds of the Chinese people?