Comments on: Have China’s manufacturing powers been exaggerated? http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/ Thu, 14 Oct 2010 13:09:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: T. McNamee http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86292 T. McNamee Tue, 25 Apr 2006 19:24:19 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86292 I'm confused at terminology 'value added'. De Jonquieres claiming there is little 'value added' in China strikes me as a pretty ridiculous statement, especially after stating that China is the worlds largest workshop. If labour is not value added, what is? When assembling $5 worth of components adds $3 to the sale price of that item (even though the cost of value added may only have been $0.10) then it is easy to understand why the trade imbalance with China is so high. I would feel more comfortable with the whole scenario where the Chinese people to actually be working in conditions other than those that perpetuated their economic quandary (i.e. earning wages so low that their economic condition only marginally improves over time). Companies like Delphi, once clear of their US responsibilities will be able to substitute well-paid union jobs for subsistance labor rates in China while holding on to profitable contracts and ditching non-profitable ones (or turning them into profitable ones by manufacturing in China). I don't see much advantage to US workers or Chinese workers, only to Delphi profits and the US consumer (if s/he has a job, maybe s/he can afford to buy one of GMs cheaper cars, filled with Delphi China components...) I’m confused at terminology ‘value added’. De Jonquieres claiming there is little ‘value added’ in China strikes me as a pretty ridiculous statement, especially after stating that China is the worlds largest workshop. If labour is not value added, what is? When assembling $5 worth of components adds $3 to the sale price of that item (even though the cost of value added may only have been $0.10) then it is easy to understand why the trade imbalance with China is so high. I would feel more comfortable with the whole scenario where the Chinese people to actually be working in conditions other than those that perpetuated their economic quandary (i.e. earning wages so low that their economic condition only marginally improves over time). Companies like Delphi, once clear of their US responsibilities will be able to substitute well-paid union jobs for subsistance labor rates in China while holding on to profitable contracts and ditching non-profitable ones (or turning them into profitable ones by manufacturing in China). I don’t see much advantage to US workers or Chinese workers, only to Delphi profits and the US consumer (if s/he has a job, maybe s/he can afford to buy one of GMs cheaper cars, filled with Delphi China components…)

]]> By: jck http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86291 jck Tue, 18 Apr 2006 10:20:08 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86291 I put up a chart on Shanghai real estate http://www.aleablog.com surprise...surprise... I put up a chart on Shanghai real estate
http://www.aleablog.com
surprise…surprise…

]]> By: Guest http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86290 Guest Tue, 18 Apr 2006 08:56:45 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86290 Brad, I think it depends on your definition of value added I guess. To me value added means profitability. The ROE of the Shanghai and Shenzhen indices is between 5-6%. Since most of that is manufacturing and materials I won't bother segmenting ROE by sector but since the US is so service dependent I will segment. The ROE of the listed US manufacturing sector is around 20%. These numbers are mostly back of the envelop but even if China was slightly higher and the US was slightly lower it still reflects the fact that US manufacturing is very value added and Chinese manufacturing is value destructive. 6% isn't above anyone's cost of capital. Profit is supposed to act as a signal to encourage investment. In the case of China this signal doesn't work so you have significant over-investment. I was in China 2 years ago and met management of many of the listed companies. Although some of the SOEs talk a good game (thanks to their western bankers) their numbers say otherwise. They are mainly focused on market share gain and volume growth. Profitability is a minor consideration. Don't even bother asking about strategic issues because all you will get is McKinsey BS regurgitated line-for-line. Not that over the long-run China won't adjust and improve but just that right now I can't buy into the fact that China is doing much in the way of value added manufacturing. If they are they are hiding it well because I didn't see any signs of it. Brad,

I think it depends on your definition of value added I guess. To me value added means profitability. The ROE of the Shanghai and Shenzhen indices is between 5-6%. Since most of that is manufacturing and materials I won’t bother segmenting ROE by sector but since the US is so service dependent I will segment. The ROE of the listed US manufacturing sector is around 20%. These numbers are mostly back of the envelop but even if China was slightly higher and the US was slightly lower it still reflects the fact that US manufacturing is very value added and Chinese manufacturing is value destructive. 6% isn’t above anyone’s cost of capital. Profit is supposed to act as a signal to encourage investment. In the case of China this signal doesn’t work so you have significant over-investment. I was in China 2 years ago and met management of many of the listed companies. Although some of the SOEs talk a good game (thanks to their western bankers) their numbers say otherwise. They are mainly focused on market share gain and volume growth. Profitability is a minor consideration. Don’t even bother asking about strategic issues because all you will get is McKinsey BS regurgitated line-for-line.

Not that over the long-run China won’t adjust and improve but just that right now I can’t buy into the fact that China is doing much in the way of value added manufacturing. If they are they are hiding it well because I didn’t see any signs of it.

]]> By: ReformerRay http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86289 ReformerRay Mon, 17 Apr 2006 16:26:04 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86289 Brad is so right on this issue. The direction of change is critical. The fact that the U. S. still has some export ability is a residual, left over from past glories. The share that manufacturing industries have of all private industries share of U. S. value added was 23% in 1980 and 14% in 2004. The decline has been especially steep since 1998, going from 18% to 14%. The share that manufacturing industries have of all corporate profits were 44% in 1980 and 17% in 2005. The decline has been especially steep since 1998, going from 25% to 17%. Anyone who has relatives who will be residing in the U. S. in the next two decades should read these numbers and weep. Why is it that so many people are determined to avoid looking at reality? Brad is so right on this issue.

The direction of change is critical. The fact that the U. S. still has some export ability is a residual, left over from past glories.

The share that manufacturing industries have of all private industries share of U. S. value added was 23% in 1980 and 14% in 2004. The decline has been especially steep since 1998, going from 18% to 14%.

The share that manufacturing industries have of all corporate profits were 44% in 1980 and 17% in 2005. The decline has been especially steep since 1998, going from 25% to 17%.

Anyone who has relatives who will be residing in the U. S. in the next two decades should read these numbers and weep. Why is it that so many people are determined to avoid looking at reality?

]]> By: sunbin http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86288 sunbin Mon, 17 Apr 2006 09:29:14 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86288 so you entered NAFTA, knowing that you have your competitive advantage in some areas and disadvantage in others. hoping that you can sell more Boing planes than buying Camrys from Canada. The problem is, if this disadvantage is structural (Healthcare?) and it is such an important factor as to change the decision of a factory site. are you going to fix yourself? or are you going to shut the gate? so you entered NAFTA, knowing that you have your competitive advantage in some areas and disadvantage in others. hoping that you can sell more Boing planes than buying Camrys from Canada.

The problem is, if this disadvantage is structural (Healthcare?) and it is such an important factor as to change the decision of a factory site. are you going to fix yourself? or are you going to shut the gate?

]]> By: sunbin http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86287 sunbin Mon, 17 Apr 2006 09:25:35 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86287 healthcare cost. this is an important question. not sure if brad will address this. IMO it is just too expensive, physicians and pharmacos are making too much, in almost every country, esp in US. healthcare cost. this is an important question.

not sure if brad will address this.

IMO it is just too expensive, physicians and pharmacos are making too much, in almost every country, esp in US.

]]> By: sunbin http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86286 sunbin Mon, 17 Apr 2006 09:23:10 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86286 @me, it is easy to verify JH's case. just check the total number of car part manufacturing jobs, and the total employment number of auto industry in US. if you cannot find that data, total number of made in USA car may also be indicative. toyota of course will open a factory in canada, canadians also buy cars. but the cost is pretty high to ship one from SC to BC. @me,

it is easy to verify JH’s case.
just check the total number of car part manufacturing jobs, and the total employment number of auto industry in US.
if you cannot find that data, total number of made in USA car may also be indicative.

toyota of course will open a factory in canada, canadians also buy cars. but the cost is pretty high to ship one from SC to BC.

]]> By: me http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86285 me Mon, 17 Apr 2006 09:05:42 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86285 I understand now John, but Toyota did just announce a new plant for Canada, not the US and cited healthcare as a major reason. I understand now John, but Toyota did just announce a new plant for Canada, not the US and cited healthcare as a major reason.

]]> By: Guest http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86284 Guest Mon, 17 Apr 2006 07:23:13 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86284 <a href="http://business.timesonline.co.uk/article/0,,13132-2137778,00.html">New Surge by China Ousts UK as No 4 Economy</a> <a href="http://www.bloomberg.com/apps/news?pid=10000103&sid=a5gy1wrRmM2E">Foreigners Added $86.9 Billion in US Assets in Feb</a> New Surge by China Ousts UK as No 4 Economy

Foreigners Added $86.9 Billion in US Assets in Feb

]]> By: John Hunter http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86283 John Hunter Mon, 17 Apr 2006 06:57:35 +0000 http://blogs.cfr.org/setser/2006/04/15/have-china-s-manufacturing-powers-been-exaggerated/#comment-86283 What I meant by Delphi's manufacturing had "moved" to Toyota was that cars GM was manufacturing are now manufactured by Toyota. So if Delphi plants close, many won't move to China they will just close. <a href="http://www.toyota.com/about/usa/usdata/us_production_growth.html">Toyota has been adding capacity</a> (their own and suppliers) in the USA but they have struggled to keep up their growth of sales. So they import more cars from overseas than they would like (I think the same is true for suppliers - Toyota suppliers based in North America will continue to grow as they can develop those suppliers). They will increase the percentage of manufacturing done in the USA for the USA market because they see that as the best way to manufacture within the system of managing a worldwide company. What I meant by Delphi’s manufacturing had “moved” to Toyota was that cars GM was manufacturing are now manufactured by Toyota. So if Delphi plants close, many won’t move to China they will just close. Toyota has been adding capacity (their own and suppliers) in the USA but they have struggled to keep up their growth of sales. So they import more cars from overseas than they would like (I think the same is true for suppliers – Toyota suppliers based in North America will continue to grow as they can develop those suppliers). They will increase the percentage of manufacturing done in the USA for the USA market because they see that as the best way to manufacture within the system of managing a worldwide company.

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