Global Fastener News

2004 FIN – Taylor: China is Importer with Huge Consumer Potential

June 17
00:00 2013

November 30, 2004 FIN – As head of East-West Logistics, Jim Taylor is often asked when manufacturing jobs will return to the U.S. and things will get back to normal.

“If you truly believe that [is going to happen], you’re really missing the boat about what’s happening in China and the world, Taylor replied during the seminar “Dragon Fire: The Impact of the People’s Republic of China on the U.S. Economy sponsored by the Western Association of Fastener Distributors.
Taylor and co-presenter Bruce Darling of Porteous Fastener Co. agreed that China has transformed itself during the past two decades from a rural economy into the “world’s factory.”
Taylor told an audience of more than 50 fastener executives that China’s economic statistics are “staggering.” Over 50% of the world’s clothes, cameras and DVD players are produced in China, while more than 40% of the world’s computers are assembled there. China makes 35% of all cell phones, 30% of all new TVs and nearly a quarter of all new washing machines.
Most importantly to fastener producers, China is expected to become the world’s second largest auto manufacturer by the end of the decade, trailing only the U.S. Taylor noted that one prominent Harvard economist forecasts that all car manufacturing will go to China by 2025.
Some international analysts predict the 21st century will belong to China, Taylor commented. More than $500 billion in foreign capital has poured into the Asian country over the past 10 years, driving annual double-digit growth.
“Foreign companies have basically built China’s infrastructure. It’s all being paid for by the rest of the world,” Taylor explained.
With undervalued land, inexpensive labor, and basically no taxes on profits, China has stormed onto the world stage as an economic powerhouse with enormous potential.
Many people make the mistake of blaming China for the loss of manufacturing jobs in the U.S., Taylor stated.
“Low-cost exports are a by-product of the industrial revolution in China.”
China Will Only Get Stronger
China is not the first country in modern history to supplant American jobs with cheap labor, Taylor reminded his audience. Japan emerged from World War II as a global manufacturing center, followed by Taiwan. However, growth for both was curtailed by limited populations.
“That’s not going to happen in China because they have an unlimited supply of cheap labor,” Taylor commented.
In contrast, China is a country of 1.3 billion people, with an estimated labor force of 778 million. The median age is 31.8 years, and the literacy rate in China is nearly 91%. China’s deep labor pool isn’t the country’s only abundant resource, Taylor insisted. China is home to vast raw material supplies, from coal and oil to aluminum and zinc. “Pretty much, you name it, they’ve got it, which gives them a huge advantage.

Cultural Background on China
In his presentation Taylor attempted to correct some misconceptions about China and its people. He played traditional Chinese music in the background as he explained the roots of Chinese culture.
“We think of China as a communist country. In actuality, it is the single oldest, most established culture in history. For the past 2000 years, China has been more capitalistic than any other country. There is no one more capitalistic in nature than a Chinese person,” Taylor noted.
That enterprising spirit has been restrained by Communist Party policies over the past 60 years. However, as the government began instituting more enlightened economic policies the Chinese people looked to America as a model for success, Taylor stated.
Despite these facts, China is still perceived as simply the world’s largest source of inexpensive labor.
What many people fail to realize is that factory jobs have infused the Asian giant with new personal wealth, transforming its population from an agrarian people to a massive consumer market that can only grow as more workers move into the cities. China’s per capita income has steadily risen since the mid-1990s, nearly doubling from $730 to $1,240. More than 200 million people will enter the middle class in China by 2010. The average Chinese worker saves 50% of his wages, and more than half of all cars bought in China are purchased with cash.
In 2004, China will import more goods than it exports, according to Taylor.
“In our lifetime, it will be the largest marketplace in the world,” Taylor predicted. If for no other reason, proximity to emerging consumer markets is a strong reason to begin manufacturing in China, Taylor noted.

Darling: China’s Progress Problematic
China’s bottomless thirst for steel has contributed to worldwide shortages that have affected the fastener industry and other steel consumers. But the Communist Party has taken steps to slow economic growth to a manageable pace, Darling explained.
For example, officials have removed half of the steel from the blueprints for the Olympic coliseum.
Other shortages, such as electricity, have affected the fastener industry directly by limiting production. In addition, China’s inadequate rail service can’t deliver the quantity of raw materials needed by manufacturers, Darling explained. And the country’s congested ports can’t keep up with export production.
Darling and Taylor could not agree on how much steel prices will increase in the coming year.
“I’m not here to tell you the price increases are over, Darling noted.
Darling said early indicators suggest a more stable steel market in 2005, while Taylor quoted one source as saying China Steel would boost prices 20% next year. However, the two experts agreed that U.S. fastener manufacturing would not disappear in the coming decades. Darling explained that long lead times and unreliable deliveries will keep some U.S. companies in business as dependable “job shops.”
“Our industry isn’t about to go out of business. We’re here to stay, Darling emphasized.
To stay competitive, Darling advised partnering closely with producers to share user information so that product is produced to “real usage” instead of speculation. ©2004/2012 Fastener Industry News.
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