Chinese Cannot Afford Own Goods

Got your attention. Okay, the abstract below echos the header. However, the argument from Henry C K Liu, chairman of the New York-based Liu Investment Group, is much longer and has another emphasis. I haven't time to think it over yet.
Mr. Lui raises a very important question on what is China getting for value. There is something fundamentally amiss when China can produce finished goods, and western businesses can retail them for much less than what it will cost me in raw materials alone, and still make windfall profits. As skilled and cheap as the labor may be China still pays world prices for inputs in energy (oil, coal) and metals (the booming commodities market in copper, zinc, steel.) The numbers just don't add up.
There is no argument that both China and the importing countries are laughing all the way to the bank. As much as I enjoy and benefit from the low prices something has to fall apart eventually on the adage that " if something is too good to be true it usually is." I don't know what that is and I don't have any theories.
Mr. Lui puts some flesh to the problem by providing dollar figures. They will be useful when I think over the problem.
From http://www.atimes.com/atimes/China/FB26Ad01.html

at a greater profit margin for US importers than that enjoyed by Chinese exporters. Thus a $2 toy leaving a US-owned factory in China is a $3 shipment arriving at San Diego. By the time a US consumer buys it for $10 at Wal-Mart, the US economy registers $10 in final sales, less $3 import cost, for a $7 addition to the US GDP. This yields a ratio of GDP gain to import value of two-and-a-third.

part of the US capital account surplus. If half of the $2 export price is used for paying return to foreign capital, then the ratio is in fact negative. The numbers for other product types vary, but the pattern is similar. The $1.439 trillion of imports to the United States in 2002 were directly responsible for some $3.35 trillion of US GDP, almost 32 percent of its $10.45 trillion economy. That is why US policymakers have no incentive to reduce the trade deficit. But during a presidential campaign, blaming it on China's undervalued yuan gets votes.

billion, yielding a $20 billion surplus. The trade volume between China and the US hit a historic high of $126 billion in 2003. China has become America's third-largest trade partner. Chinese imports from the US reached $34 billion, while exports to the US exceeded $92 billion. China's worldwide trade surplus for 2003 was $25.5 billion, meaning that more than half of the surplus from the United States went to cover Chinese deficits with other trading partners.

price, economies that buy from China enjoy a greater GDP growth from trade ($2.15 trillion) than China does. Since China imports at full market price with little markup, China does not enjoy any GDP add-on from its imports. Fair trade between two economies with disparity in wages and living standards then requires a trade surplus for the less advanced economy.

their final market price, $2.15 trillion would be added to China's 2003 GDP of $1.41 trillion, more than doubling it. The higher the trade surplus in China's favor, meaning more goods and services leaving China than entering, the more serious is its adverse impact on China's GDP. Chinese consumers cannot afford the products they produce for export - not because Chinese workers are not productive, but because their wages are too low, which ironically does not make Chinese products as competitive overseas as can be because of high markup by foreign importers.

productivity because sales per employee increase from the factory floor toward delivery to the consumer. Thus the productivity growth in the US has been achieved by having cheap labor doing the producing overseas. Also, the closer final assembly is to retail outlets, the higher its apparent productivity. Through proximity to customers, sellers can gain advantage in the assembly of imported major parts to respond to changing customer orders. Thus US assemblers who outsource their parts can win final sales away from offshore integrated manufacturers who make the same parts and assemble them abroad. Japanese car makers have learned this lesson and are now assembling parts made offshore in the US for the US market.

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

HomeOwnersHub.com is a website for homeowners and building and maintenance pros. It is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.