Is Chinese Cheap Labor a Myth?

[WJK]

I am an optimist on China-U.S. relationship.

China and U.S. honeymoon started when at the late stage of Cold war both began to see USSR as the greater threat. China wanted to modernize its economy and U.S. wanted to gain access to the biggest population market. Both benefiteed handsomely.

China pledged her loyalty to US by launching the “border defense war” with Vietnam that lasted more than ten years. It basically crippled the Vietnam economy.

China played a supporting role (with U.S.) in supporting afghanistan anti-Soviet resistance force. This helped in giving Soviet Union its own version of “Vietnam war” and crippled USSR badly.

China helped to stabilize the dollar by pledging to buy treasury bills. Trade surplus in China is recycled and lent back to U.S. Same deal as the U.S.-Saudi petrodollar deal. Low cost goods keep inflation under control. This is why we have multiple rounds lf QE but still relatively low inflation.

Most of the export affiliated to U.S. market are Made by Chinese contractors who take orders from American MNCs. Most margins of the profits by retained by U.S. companies. Just look like how corporate America has benefited greatly from China over the years.

A lot of the Chinese political and Business elites’ money and assets are in U.S. and city of London, boosting the financial sector economy of the west. Their children have U.S. passports.

There was a Chinese security officer who said China and U.S. are a couple who quarrel during the day time but sleep together on the same bed at night. I fully agree with that analysis.

Trump wants to make a new deal but I don’t see any progress. All I can see is Trump is creating market moving news that seems to be creating opportunity for “INSIDERS trading” for himself. I don’t think American public is going to have patience for a trade war that gives no immediate result. Once the joker gets kicked out of office hopefully a more moderate Joe Biden will bring back the sanity and put business back to usual.

I don’t think U.S. top concern is in changing China’s political structure. All the good deals across the two nations have be done because China has been ran by one single party.

I also see both sides of the issue. But, I'm cautious and Conservative by nature. I see a change in the general American attitude. It is similar to the change against Japan around 1990. I just don't know how much China will give or how much the USA will back down. There are some basic changes happening there in their market. They are moving slightly away from exports and toward their domestic market. Their banking system has some problems with undeclared bad or unproducing loans. These next few years are going to be interesting.

 

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[Kevin88660]

I also see both sides of the issue. But, I'm cautious and Conservative by nature. I see a change in the general American attitude. It is similar to the change against Japan around 1990. I just don't know how much China will give or how much the USA will back down. There are some basic changes happening there in their market. They are moving slightly away from exports and toward their domestic market. Their banking system has some problems with undeclared bad or unproducing loans. These next few years are going to be interesting.

I also see both sides of the issue. But, I'm cautious and Conservative by nature. I see a change in the general American attitude. It is similar to the change against Japan around 1990. I just don't know how much China will give or how much the USA will back down. There are some basic changes happening there in their market. They are moving slightly away from exports and toward their domestic market. Their banking system has some problems with undeclared bad or unproducing loans. These next few years are going to be interesting.

I like the Japan analogy.

What has to happen is rmb appreciation like Japan did it. I am positioning my assets accordingly.

 

[WJK]

I like the Japan analogy.

What has to happen is rmb appreciation like Japan did it. I am positioning my assets accordingly.

I was at ground zero on the Japan melt-down. I was a commercial RE appraiser in Los Angeles, with a side gig of doing some commercial appraising. We went from the Japanese buying A class, downtown office buildings and taking out full-page ads in the LA Times saying they were going to buy more -- and then dumping those properties to meet margin calls for their stock positions in Japan. The American public had turned against buying Japanese goods. And that was only part of their woes. They've never recovered.

And the PC came in at the same time. I was the "trophy wife" of a guy who was an executive-level consultant (with a long term contract) to one of the major oil companies. They had 2, 52-floor buildings where he had his office, also downtown LA. The oil company sold those 2 twin buildings to a Japanese company before the crash. The oil company built another building on the wrong side of the freeway (bad neighborhood) -- and only occupied 3 or 4 floors. All the secretaries and receptionists were laid off. The remaining employees were given laptops and told to make appointments for "shared office time".

It threw us, in LA, into a decade of recession and it threw Japan into a place it has never climbed out of. We had "see-through" office buildings. Those were skyscrapers that had no tenants. It started with the A-class buildings and snaked down into the B, C and D markets. We had so many vacant warehouses and industrial buildings from the on-time delivery that the PC made possible.

As a note -- I've been seeing some of the same trends in the commercial market for a long time... due to on-line shopping...

Back to your comments -- all these dire days have made me head shy. Things can and do go wrong. One of my best friends is my very valuable devil's advocate. Hal tells me everything that can go wrong with my ideas and deals. If I cannot live with the worst, I can NOT make that decision. Otherwise, I must take a pass. My life is based upon taking calculated risks. I know my risk tolerance levels -- and those tolerances have been tested at times with some pretty remarkable losses.

 

[Kid]

I am an optimist on China-U.S. relationship.

China and U.S. honeymoon started when at the late stage of Cold war both began to see USSR as the greater threat. China wanted to modernize its economy and U.S. wanted to gain access to the biggest population market. Both benefiteed handsomely.

China pledged her loyalty to US by launching the “border defense war” with Vietnam that lasted more than ten years. It basically crippled the Vietnam economy.

China played a supporting role (with U.S.) in supporting afghanistan anti-Soviet resistance force. This helped in giving Soviet Union its own version of “Vietnam war” and crippled USSR badly.

China helped to stabilize the dollar by pledging to buy treasury bills. Trade surplus in China is recycled and lent back to U.S. Same deal as the U.S.-Saudi petrodollar deal. Low cost goods keep inflation under control. This is why we have multiple rounds lf QE but still relatively low inflation.

Most of the export affiliated to U.S. market are Made by Chinese contractors who take orders from American MNCs. Most margins of the profits by retained by U.S. companies. Just look like how corporate America has benefited greatly from China over the years.

A lot of the Chinese political and Business elites’ money and assets are in U.S. and city of London, boosting the financial sector economy of the west. Their children have U.S. passports.

There was a Chinese security officer who said China and U.S. are a couple who quarrel during the day time but sleep together on the same bed at night. I fully agree with that analysis.

Trump wants to make a new deal but I don’t see any progress. All I can see is Trump is creating market moving news that seems to be creating opportunity for “INSIDERS trading” for himself. I don’t think American public is going to have patience for a trade war that gives no immediate result. Once the joker gets kicked out of office hopefully a more moderate Joe Biden will bring back the sanity and put business back to usual.

I don’t think U.S. top concern is in changing China’s political structure. All the good deals across the two nations have be done because China has been ran by one single party.

So it's a reciprocal deal... for now...

 

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[WJK]

So it's a reciprocal deal... for now...

I'm not sure about that. It's more like a Mexican stand-off...

 

[Kevin88660]

I was at ground zero on the Japan melt-down. I was a commercial RE appraiser in Los Angeles, with a side gig of doing some commercial appraising. We went from the Japanese buying A class, downtown office buildings and taking out full-page ads in the LA Times saying they were going to buy more -- and then dumping those properties to meet margin calls for their stock positions in Japan. The American public had turned against buying Japanese goods. And that was only part of their woes. They've never recovered.

And the PC came in at the same time. I was the "trophy wife" of a guy who was an executive-level consultant (with a long term contract) to one of the major oil companies. They had 2, 52-floor buildings where he had his office, also downtown LA. The oil company sold those 2 twin buildings to a Japanese company before the crash. The oil company built another building on the wrong side of the freeway (bad neighborhood) -- and only occupied 3 or 4 floors. All the secretaries and receptionists were laid off. The remaining employees were given laptops and told to make appointments for "shared office time".

It threw us, in LA, into a decade of recession and it threw Japan into a place it has never climbed out of. We had "see-through" office buildings. Those were skyscrapers that had no tenants. It started with the A-class buildings and snaked down into the B, C and D markets. We had so many vacant warehouses and industrial buildings from the on-time delivery that the PC made possible.

As a note -- I've been seeing some of the same trends in the commercial market for a long time... due to on-line shopping...

Back to your comments -- all these dire days have made me head shy. Things can and do go wrong. One of my best friends is my very valuable devil's advocate. Hal tells me everything that can go wrong with my ideas and deals. If I cannot live with the worst, I can NOT make that decision. Otherwise, I must take a pass. My life is based upon taking calculated risks. I know my risk tolerance levels -- and those tolerances have been tested at times with some pretty remarkable losses.

I like your experience.

I only read about these Japanese bubbles through reading online and listening to older folks who talk about it.

I even dig out Forbes articles that showed richest in the world in the 80s used to be occupied by Japanese property developers.

 

[Kevin88660]

So it's a reciprocal deal... for now...

The problem with the status quo us that while American MNNs have benefited from globalization and China, the trickle down effect didn’t happen. Apple is a good example, keeping its cash at tax heaven places in Ireland, getting its products manufactured by Chinese contractors and have its R and D centers in Singapore.

Trump needs to know what he wants from China. I see now he keeps flipping back and forth without a reasonable final goal and agenda.

If I am Trump I will let China do RMB internationalization and RMB appreciation. Allow the gulf countries to sell oil in Yuan.

In return I will demand this much richer China, infrastructure investment in U.S. and lend RMB debt to U.S. at below market interest to fund our universal basic income project. RMB capital market business has to be all given to New York, no share to rivals like London, Hong Kong, Tokyo or Singapore.

I will relax U.S. military presence in East Asia, in return China has to buy most of its food from U.S. I think the Chinese would be to do the deal. Right now they are forcing domestic food production even though its more costly for food security reason. I am sure they are likely to give up food security for geopolitical security.

In my opinion U.S. should hug China tightly so that both can gain dominating advantage over the rest of the world. But Trump is pushing everyone away whereas China is doing deal with everyone. If that goes on 15 years later U.S. will sink to be a better version of Latin America economy (a fusion of panama and Argentina). Abundant cheap food, devalued currency, world center for commerce and finance, but nothing much else.

 

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[WJK]

I like your experience.

I only read about these Japanese bubbles through reading online and listening to older folks who talk about it.

I even dig out Forbes articles that showed richest in the world in the 80s used to be occupied by Japanese property developers.

I started in 1976 as a RE salesman in my early 20s. That was 43 years ago. I started selling RE and doing equity purchases in the LA ghetto, now called flips. By the time the Japanese meltdown happened, I was brokering, buying, selling, appraising and playing the-good-wife to a powerful man.

Your right. Japanese investors were into Class A developing or investing. They were very sure of themselves. But, they were able to buy stock on margins within their national stock market. When the Japanese stock market collapsed, they had margin calls. It was more important to them to keep their stock positions in their home corporations rather than their properties located here.

At that time, in their culture, they went to work for one corporation out of college and they worked for them for their entire lives. There was no other career path. And it was all men. (Married Japanese women didn't work at that time.) Their stock positions were all tied up with their employment. If they lost or gave up their employment, they were socially ruined forever. There was a great deal of conflict between their investment interests here and employment duties there.

When the American public turned on Japanese goods, their sales here fell like a rock. It was cars, TVs and all kinds of electronic goods.

By the way, all of this took down the whole Savings and Loans industry. (Wall Street stepped into that lending vacuum.) I was hired a few times to be on the audit crew that went in for the Feds to close those banks or chains of Savings and Loans. I was hired to evaluate the major loan portfolios owned by those institutions. I've seen a lot of these deals I'm telling you about.

 

[Kevin88660]

I started in 1976 as a RE salesman in my early 20s. That was 43 years ago. I started selling RE and doing equity purchases in the LA ghetto, now called flips. By the time the Japanese meltdown happened, I was brokering, buying, selling, appraising and playing the-good-wife to a powerful man.

Your right. Japanese investors were into Class A developing or investing. They were very sure of themselves. But, they were able to buy stock on margins within their national stock market. When the Japanese stock market collapsed, they had margin calls. It was more important to them to keep their stock positions in their home corporations rather than their properties located here.

At that time, in their culture, they went to work for one corporation out of college and they worked for them for their entire lives. There was no other career path. And it was all men. (Married Japanese women didn't work at that time.) Their stock positions were all tied up with their employment. If they lost or gave up their employment, they were socially ruined forever. There was a great deal of conflict between their investment interests here and employment duties there.

When the American public turned on Japanese goods, their sales here fell like a rock. It was cars, TVs and all kinds of electronic goods.

By the way, all of this took down the whole Savings and Loans industry. (Wall Street stepped into that lending vacuum.) I was hired a few times to be on the audit crew that went in for the Feds to close those banks or chains of Savings and Loans. I was hired to evaluate the major loan portfolios owned by those institutions. I've seen a lot of these deals I'm telling you about.

Thanks for sharing I enjoyed these stories.

Why did the Japanese sales stopped? My understanding was that after Plaza accord Yen basically more than doubled in value. So a lot of the manufacturing was moving into Indonesia, Thailand, Singapore, Taiwan. When I was a child (in Singapore) I still remember using things made in Thailand and Indonesia, the components of digital gadgets. After early 2000s China took over everything.

But I feel that in todays context there isn’t a replacement for China even if there is a major RMB appreciation. Chinese labor force has better quality. And there is a economy of production chain there that you cannot replicate elsewhere quickly. As Chinese are becoming consumers the proximity is a good thing.

Eventually RMB appreciation will be a major income redistribution within China, as profit margin for export business decline while workers get a larger share of the economic pie.

 

[WJK]

Thanks for sharing I enjoyed these stories.

Why did the Japanese sales stopped? My understanding was that after Plaza accord Yen basically more than doubled in value. So a lot of the manufacturing was moving into Indonesia, Thailand, Singapore, Taiwan. When I was a child (in Singapore) I still remember using things made in Thailand and Indonesia, the components of digital gadgets. After early 2000s China took over everything.

But I feel that in todays context there isn’t a replacement for China even if there is a major RMB appreciation. Chinese labor force has better quality. And there is a economy of production chain there that you cannot replicate elsewhere quickly. As Chinese are becoming consumers the proximity is a good thing.

Eventually RMB appreciation will be a major income redistribution within China, as profit margin for export business decline while workers get a larger share of the economic pie.

The way that I remember it, American all the sudden looked up and Japan was manufacturing everything. The had captured our TV market by undercutting our manufactures. Most of ours went out of business. They sold goods below costs to increase their market share and then made up the profits domestically. Their TVs were cheaper here and more expensive in Japan. They put in an inspection program for their cars that were relatively newer. We didn't. Many people there had to replace cars that weren't worn out. We had a glut of used Japanese engines and parts -- which they sold here. I bought a couple of engines for my vehicles. That when they started manufacturing some of their cars here. The business community and unions were on their ears against Japan and its business practices. There was a lot of press about their culture and their business systems, and it wasn't pretty. They had gone from making cheap party favors to making important items. It was the beginning of globalism. Then they started to use the money to buy our RE and they bragged about it with full-page ads. That was the final straw with a lot of people. I hope I've answered your question.

 

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[Striver]

In one industry I know well, there have been many attempts to automate the process using robotics, and they have all been a total failure, mainly due to a huge reject rate. The robots can't seem to detect tiny faults in the work.

2 weeks ago, at the Las Vegas Convention Center, a robot poured and handed to me a draft beer. I was impressed!

Needless to say, there was a long line at this booth! haha