“Made In China”
“Made In China”
For my entire life it seems that virtually every product I have bought, worn, worked with, or just plain come in contact with was made in China. We all know that China has dominated the world in manufacturing over the last several decades. For nearly 20 years in my career, I have been reading about the Chinese economy, and its cause and effect on the global financial climate. Due to some extensive consulting work for a client, I recently had the opportunity to spend some time in China, and I wanted to share my experience and thoughts first hand with you.
I hear and read the fears that China will soon have “world dominance.” This reminds me of a period in the 80’s and 90’s when Japan carried the same fear across the Pacific Ocean, as they bought up our land and resorts in mass. They took over our factories, and movies such as Gung Ho brought to America and the world that Japanese business management was the new paradigm. While there are many parallel thoughts in the words of current prognosticators that China will soon rule the world economically, my observations on the recent of 2 trips indicate that they face many challenges ahead.
Walking through many shoe, apparel, and raw material factories, I noticed a tremendous amount of excess capacity. Empty factory space, unused equipment, sometimes even 50% or more of the factory lines sitting dormant. Dormitories, including new buildings recently finished in order to house the expected rush of migrants from the rural villages into the working cities, sit vacant. Most impressive (and reminding me of our own recent construction boom and bust), was not just the number, but the percentage of buildings under construction compared with those already established and in use. Some remote towns had as much as 50-80% of its high rises unfinished, and I didn’t see many cranes moving!
China essentially shuts down during Chinese New Year, sending workers home a week before the big event. This year, most of the workers had vacated over 3 weeks prior to the festivities. If there was an abundance of work to be done, this should not be the case. If most of what we consume and even produce goes through China at some point, and with the slowdown spreading from the U.S. to Europe and beyond, it only makes sense that China will experience a slowdown of its own.
There are brand new cargo ships in the 100’s sitting idle off the coast of Hong Kong. They were financed and ordered in 2006/7, delivered complete years later, there is now no use for them. These ships are being auctioned at 20-30% of the original price. Now the banks are cracking down on lending (particularly construction – sound familiar?), so how many of these unfinished buildings are going to remain and for how long? And how will their population control policy affect the availability of a working class in the next few decades? Yes, they have a lot of cash, but will the U.S. just let them sell a trillion or two dollars of treasuries on a whim?
I am not warning against investing in China now or in the near future. But I just don’t know that the hub of seemingly everything that the world consumes can escape these difficult financial times unscathed. A country known for imitating, not innovating, may soon be imitating the same financial challenges the rest of the world is trying to resolve.
Thank you for letting me share my experience with you.
Sincerely,
Bob Krieger, CEO
Perennial Pension & Wealth, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.