In a global world, me must keep in touch with what is going on. As I've been stating lately, capital will move from Chinese coasts (where those "rich Chinese" who make $0.85/hour), to inland poorer areas... and then once those people start making massive waves like $0.33/hour... we'll move those factories over to Indonesia and Vietnam. Always a labor force to exploit on this Earth so we can buy things 4 cents cheaper at Walmart.
How much is $120 a month? $4 a day. Or $.50 per hour. Remember, that is the RICHEST province in the country. But we can do much cheaper in Vietnam folks, let's get those factories out of China - those people are making too much money!
- In an effort to calm grousing consumers as prices rise to 11-year highs, China is raising minimum wages across the country, a move analysts fear could further stoke inflation.
- Guangdong, China's richest province, said it plans to raise minimum wages by as much as 18% in some cities starting April 1. The decision followed similar actions in other areas, notably the major cities of Shanghai and Beijing.
- The wage increases, aimed at relieving food and other price pressures, could instead fuel inflation, analysts said. Higher wages are also likely to raise prices of U.S. imports from China, and possibly reduce China's attraction as the world's manufacturing center. (all things we've been talking about since last summer)
- As an example of higher prices, McDonald Corp.'s China stores recently raised the chain's Big Mac price to 12 yuan ($1.7), up 14% from just seven months ago, reflecting higher meat and wheat prices.
- In December, Kentucky Fried Chicken, owned by Yum! Brands Inc. also raised prices in its China stores for the first time in more than three years.
- Since last year, Chinese residents have seen prices of food and other staples increase more than their pay checks, a factor analysts said could potentially unleash social unrest. In light of that, some fear the minimum wage increase came too late. (I always wonder why we never have social unrest here, we just seem to grin and take it - might just be the American mind set of soldiering through, in thick or thin. Now in this country we won't be able to get wage increases to offset inflation because of the threat of moving jobs away from the US - so unlike the 70s when people demanded higher wages to compensate for inflation that won't be so easy this time around - gonna be very interesting to see how it plays out)
- Guangdong will increase the province's minimum wages by an average 13% on April 1, the province's labor bureau said in a news release last week. The southern China province produces about 13% of China's economic output, the most among the country's 32 provinces.
- Minimum wages in the capital city Guangzhou will rise to 860 yuan ($120) per month from 780 yuan, an increase of 10%. Wages of other cities in the province will also get a boost, with those in some inland cities up nearly 18%.
- "The current consensus view is that this year's inflation should peak in the first quarter (that's when Ben says for us too!)," said Lan Xue, an analyst at Citigroup, in a separate research note. However, Xue said "we are getting nervous that not only may we not see a moderation in the second quarter," but that inflation could even continue rising into second half or even 2009. (I doubt it, that would go against what Ben says! Ben would not deceive us!)
Again, we read these stories from country after country. Middle East, Europe, Asia, North America. It's the same story over and over; just change the name of the country. But it does not register with those in power in this country. In fact they continue to preach the exact opposite of what is happening on the ground. Amazing to watch. But hey, we can continue to prop up asset classes (equity market included) with paper money, so we can keep the sheep distracted. Thank god there is no such think as the Dow Jones Inflation Average to keep track of inflation on a day by day basis, or people might notice what is really going on behind the scenes.
3 comments:
Mark:
Thanks for the great blog. Not only is it a wonderful source of information, but it is also often very funny.
That said I have to take issue with your argument that “capital will move from Chinese coasts (where those "rich Chinese" who make $0.85/hour), to inland poorer areas... and then once those people start making massive waves like $0.33/hour... we'll move those factories over to Indonesia and Vietnam.” I think you are correct in arguing that as a result of rising labor and related productions costs (safety and other regulations) in China there will be a shift of manufacturing to lower cost areas. I also agree that eventually this may mean a move by manufactures to Vietnam, Bangladesh, and Indonesia. But I do not think there will be an intermediate stage where manufactures move to China’s inland cities. The factory labor in the coastal areas already comes from the inland rural areas, so labor costs in inland cities might not be any cheaper than Guangdong or Zhejiang. What is more, despite China’s amazing transportation infrastructure build-out (http://www.economist.com/world/asia/PrinterFriendly.cfm?story_id=10697210), increased transportation and related costs in the interior might outweigh any minor saving in labor cost such a move might bring. Finally, government in the coastal areas is accustomed to and welcoming of foreign and quasi-foreign (Taiwan, Hong Kong and SE Asian ethnic Chinese) investment. This might not be quite the case in the interior. While local officials there may talk a good game actually getting them up to speed in dealing with such investment might create a whole series of problems and costs.
As to the idea that China’s inflation will (might) be tackled by the second half of the year, that is completely nuts. Maybe “inflation [might] will peak in the first quarter,” given that the huge spike in pork [the staple meat] prices was in part due to blue ear disease. (At least in Yunnan the provincial government tapped into the [strategic?] pork reserve to ameliorate this issue.) But inflation is going to be back in greater strength unless the government of China allows a faster upward revaluation of the RMB. Part of the problem too seems to be that there is no real outlet for (newly wealthy) Chinese to invest their money. They can only put it in to the slowly deflating A-shares bubble or the also outrageous property market. Of course, the people doing this are not the ones leaving rural Sichuan to work in factories in Donggan, Guangdong for US$ 120 a month. But that is a whole other set of issues which will also only get exacerbated as inflation bites deeper and deeper.
Worth noting, an AP story this week stated the official inflation rate in Vietnam at 15%, one might assume an accurate/unofficial rate to be higher than that. Have to think wage increases may not be far behind. Starting to wonder if manufacturing will have anywhere else to run, political stability is too far off for most African nations.
My belief is an accurate inflation apples to apples would be 10-15% in every country. SOme countries lie to their citizens about it, some don't. But if you go under the assumption that inflation is the same pretty much the world over, then it's relatively benign to compare one country to the next...i.e. Vietnam 15% inflation is similar to China 15% inflation is similar to US 15% inflation. If you look at import figures, US inflation is near 13%. So we'd be "equal" to Vietnam roughly. And China who claims 7% inflation. So wages would still be lower, vis a vie inflation being consistent.
I agree with Africa. I thought that would be the next place but no political stability. Problem there is Western people divided the continent into "countries", not along tribal lines or anything that Africans themselves would divide themself on. Much like Iraq. In secular cultures it's ok, but in highly possessive tribal or religious societies it does not work well for stability.
Post a Comment