Category Archives: Economics

Two Chinas

For a long time now, I’ve been shaking my head at the naivety of those who think that China is nirvana for marketers of all sorts of consumer products. “Over 1 billion people, all of them potential customers!” is the clarion call of these excitable people.

In terms of personal income and buying power, what you’ve got in China is essentially two countries. About 200 million people, mainly living along the eastern seaboard, are enjoying many of the benefits of China’s rapid economic expansion. The flow of new wealth does trickle into inner China, but it only trickles. The “other” China, the one made up of 900 million people, is NOT enjoying the benefits of China’s economic expansion. In fact, many of them are seeing their purchasing power drop as China is wracked by unprecedented inflation.

If you want to get a bit of understanding of the real China, take a look at this excellent piece in Time Magazine from a few years ago: “Seeds of Fury”

Bottom Line: If you’re selling something that costs more than a dollar, most people in China can’t afford it. Besides, if there really is a market for what you’re selling in China, the Chinese are very likely going to figure out how to sell the same thing at a lower price than you sell it at, if they haven’t already.

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Filed under China, Economics

China’s Modern History, Summarized

I’m so busy I can’t see straight, but I had to get this link up to Newsweek Beijing Bureau Chief Melinda Liu’s outstanding piece on China’s enormous political, economic, and cultural changes over the past 30 years.  One of the best summaries of China’s modern history I’ve ever seen, and a fascinating read to boot.

Mao to Now“, by Melinda Liu, Newsweek.

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Filed under Business, Economics

The Future of Taiwan-Owned Factories in China

As a follow up to my last post, this article in the Taiwan Journal predicts a possible drop off in Taiwanese investment in China as a result of changes in labor laws that came into effect today. From the article:

Many Taiwanese businesses in the Pearl River Delta area of China may soon shut up shop, in order to dodge surging labor costs brought on by China’s new Employment Contract Law. The new law is widely believed to contain the world’s most complete regulations governing labor-related issues, and is scheduled to take effect on Jan. 1, 2008.

The situation will be miserable,” predicted a Taiwanese businessman on condition of anonymity. “Big firms will take the lead in calling it quits, followed by their suppliers of raw materials and other supporting factories,” he added Dec. 20.

An unofficial survey shows that one third of the Taiwanese firms in the area either have halted their operations or plan to do so in the near future. The area of the Pearl River Delta includes such regions as Dongguan, Shenzhen, Guangzhou and Zhuhai.

With the implementation of the new law on the horizon, businesses in the area are worried about the impact on their bottom lines. Taiwanese firms already have to bear various welfare costs, including pension allocation and medical insurance.

Industry insiders estimate the new law will boost manufacturers’ labor costs by an extra 20 percent. In addition, the new law stipulates that employers must offer open-ended labor contracts to employees with over 10 years of service. Employers must also provide severance pay in case of mass layoffs.

Others are not as concerned:

Wang Jeng-tang, president of the Taipei Computer Association, stated Dec. 19 that the notebook manufacturing industry is likely to be affected by the new law. “Maybe in the future notebook manufacturers will raise their prices a little,” he said, describing the impact of the Chinese action as “limited” and “not necessarily negative.”

As a Taiwan-based consultant, I was particularly interested in this little nugget:

The uncertain situation appears to have triggered a wave of Taiwanese businesses moving back to Taiwan, as reflected in the recent increase in demand for land in Taiwan’s industrial zones.

Taiwan’s Ministry of Economic Affairs reported that the US$1.54 billion subsidy for a preferential rental program for industrial-zone land is already close to depletion. Economic Minister Chen Ruey-long has instructed the Industrial Development Bureau, which oversees the program, to expand the scale of the program to accommodate the flood of applicants for industrial land in Taiwan.

I’d like some confirmation of the statements made in this piece. There are a few too many “unofficial surveys,” “estimates,” and “situations that appear to trigger (certain events)” for my comfort level. I’m not going to comment on whether this is good or bad news. My role has always been to advise individual companies about their businesses. I’ve tried to remain out of political issues, which suits both my role and my natural bent towards pragmatism.

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Filed under Business, Economics, Taiwan

Factories in Taiwan (and China)

I saw this news item about factory closings in Taiwan a few days ago. From the article:

Statistics compiled by the Ministry of Economics Ministry show that in the first 10 months of this year, 2,419 factories closed down — a 60 percent increase over the same period of 2006.

These factories are closing because (1) the businesses they are in are unable to compete with factories in China, Vietnam, Thailand and (2) some of the bosses are closing up shop to move their operations to China.

I don’t know how many of these factories fall into the second category, but I do know that Taiwan’s economy, like the economies of several other developed nations, continues to transform itself from a manufacturing-oriented economy to a high-tech and services oriented economy.

If you’re thinking of sourcing in greater China, my advice is this: Some items are better sourced in Taiwan; some are better sourced in China. You’d do well to check with a consultant before you embark on a sourcing mission to either place. There are several factors to consider, and potential advantages and disadvantages to both places.

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Filed under Business, Economics, Sourcing, Taiwan

Taiwanese Investment in Vietnam

This is one of the more interesting phenomenons in East Asian investment. Recently in Taipei, I’ve run into more and more people who have friends or relatives working in Vietnam. A training client’s husband, a friend of my wifes, our interior decorator’s husband…all of them are working in Vietnam.

A quote from a Vietnam business forum:

As of August 22, 2007, Taiwan has invested roughly US$9.175 billion in 1,706 projects in Vietnam, ranking third among 79 countries and territories with investment capital in Vietnam. In the first eight months of 2007 alone, Taiwanese investors were licensed to invest US$600.5 million in 134 projects and allowed to increase US$279 million in 59 projects.

Several business investors I’ve spoken too have said that Vietnam is the next China; labor is cheaper, the workforce is well-educated and hard working, there are fewer government restrictions on investment.

If you’re considering an OEM relationship overseas, it might be worth giving Vietnam a look. Rule of thumb in manufacturing: Go where the Taiwanese go.

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Filed under Economics, Greater Asia, Taiwan