February 25th, 2009
03:57 PM GMT
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HONG KONG, China РThis week, I met with a businessman who ships goods from Hong Kong's port all over the world. All he could talk about was the lack of orders especially from the United States. 

Freight movement out of Asia is slowing as orders dry up.
Freight movement out of Asia is slowing as orders dry up.

"It's all about the orders!" he lamented. "There are no orders."

No orders is a bit of an exaggeration. He later calmed down and told me that American retailers were placing orders - but not a lot by his estimation and only to bigger manufacturers they felt confident would be around at least for the next several months.

This lack of confidence is disconcerting for business people in Asia and for the governments who, for decades, relied on the sales of competitively priced goods to countries such as the United States to enrich their impoverished economies.

For the vast majority of exporters out here, the U.S. market is crucial to their survival. In addition, others that support these manufacturers - like the businessman I was speaking to - can't imagine further growth in the region without America's confident spenders.

Already, Japan has posted a record trade deficit. Taiwan's exports are down by over 40 percent from a year ago. Hong Kong's recession is deepening. South Korea is facing a debt crisis as its companies' sales wither.

The businessman I met with isn't normally interested in U.S. politics, but he is this year.

His hope? That President Barack Obama and his aggressive economic agenda will inspire the American people to buy again - and keep the orders coming to Asia.

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June 24th, 2008
09:28 AM GMT
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HONG KONG – Iron ore prices are rising fast and Chinese steelmakers have agreed to pay up. So why should you care?

Because that means chances are high everything you buy that is made of steel – like a new car – is set to get more expensive.

People worldwide are worried about the rising cost of commodities like oil, copper, and tin. And now Chinese firm Baosteel is willing to pay nearly double for iron ore from Anglo-Australian miner Rio Tinto in the industry's biggest ever annual rise. Analysts say it's a sign raw materials are scarce and demand is strong.

Iron ore is a key ingredient to make steel. So the fear now is that this deal will pump up steel prices worldwide at a time when pressure is mounting on central bankers, including those at the U.S. Federal Reserve, to keep inflation in check by tightening lending.

Some people worry about how raising interest rates in the United States could impact its slowing economy. There is also a fear that the higher price of steel will raise costs for manufacturers in China, costs that may have to be passed onto consumers as China sells its goods overseas. They also say the agreement shows how Chinese companies are gaining influence in world commodities markets as they pay top dollar to feed the country's economic expansion. 

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Filed under: Business

April 15th, 2008
12:49 PM GMT
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HONG KONG, China – Americans are used to hearing about the growing influence of China. Every week seems to bring another screaming headline about how the communist nation is an economic juggernaut set to dominate the world. Yet the country may be in danger of losing its competitive edge. Over the past two decades, China has transformed itself into a manufacturing machine. The country has been able to convince companies to set up factories there with its cheap labor, huge market potential, and business-friendly rules. Chinese manufacturers have been churning out everything from T-shirts and toys to television sets for cheap, helping to keep global consumer prices down. These exports have been fueling China's economic boom, accounting for roughly 40 percent of gross domestic product.

New labor laws are likely to make China less competitive.
New labor laws are likely to make China less competitive.

However, soaring costs are now threatening China's manufacturing might. Prices of fuel and raw materials are up, eating into manufacturers' dwindling profit margins. Surging prices of food staples such as pork have propelled Chinese inflation to an 11-year high, driving up workers' wages. Wages, by some estimates, are already growing by up to 30 percent every year as companies compete for skilled labor.

In addition, a new labor law, requiring stronger employment contracts, is complicating the hiring and firing process for manufacturers. A dispute arbitration law comes into effect in May. Employers say the new laws restrict them from laying off substandard workers even in times of economic difficulty. They say the rules shifts the bargaining power in favor of employees at a time when factory owners are already facing labor shortages and the possibility of a U.S. recession. These laws, combined with tougher environmental standards, higher corporate taxes, and an appreciating Chinese currency - which makes goods from China more expensive overseas - are adding to manufacturers' financial woes.

These changes are due largely to the Chinese government's recent campaign to start prioritizing human welfare over speedy industrial growth. For decades, authorities emphasized the need for rapid economic development, often overlooking poor working conditions or pollution. The new labor and environmental policies are meant to address those problems, by prodding manufacturers into better corporate behavior. Beijing authorities are also looking to encourage Chinese manufacturers to move away from producing basic goods towards advanced products. They want China to follow in the footsteps of Japan, South Korea, or Taiwan and step up the global manufacturing ladder.

Yet China may not be ready for this economic transition. Unlike its exporting Asian rivals, China has to consider the welfare of over a billion people, many of whom are still unemployed. Low-end manufacturing is a labor-intensive industry, requiring tens of millions of workers. A shift of support away from this sector could lead to an unwelcome loss of jobs at a time when the government is desperately trying to raise the standard of living for the nation's poor and prevent social unrest.

China's economy, though growing fast, is also said to be at a less developed stage than the economies of Japan, South Korea, or Taiwan. Some pundits say consumers there had greater purchasing power than the Chinese do now, allowing governments to rely more on domestic spending as a driver of economic growth. China is in the midst of deploying the same tactic - encouraging citizens to shop - yet the average Chinese consumer is still inclined to save.

Moreover, the competitive environment for countries has dramatically changed. Companies can open and close factories more swiftly than they have been able to in the past as governments compete aggressively to attract investment by offering tax breaks and other financial incentives. In other words, nations can gain and lose competitiveness more quickly than in years prior.

China has already started losing thousands of manufacturers. According to an industry body, the Federation of Hong Kong Industries, over 10-percent of the 70,000 factories operating in the Pearl River Delta, the country's manufacturing belt, will shut their doors this year. Some manufacturers are investing heavily in new equipment and technology, thereby reducing their workforce, but many are moving operations to lower-cost countries such as Vietnam. Beijing's frequent trade rows with Washington are also prompting manufacturers to look to diversify their production bases. Some U.S. politicians, fairly or unfairly, criticize the Chinese for their safety standards and their currency, the yuan. These lawmakers argue the yuan is artificially cheap, contributing to America's ballooning trade deficit.

However, that criticism may soon subside. With the threat of inflation growing in China, authorities there have little choice but to allow the yuan, which only de-pegged from the U.S. dollar in 2005, to appreciate further. A stronger yuan would help reduce import costs and curb economic growth by muting demand for Chinese goods. China's efforts to protect workers' rights and the environment could also silence Beijing's critics in Washington. And though China will likely remain a formidable player in manufacturing due to its economies of scale, the country is no longer the mecca for manufacturers it once was. Other nations stand to benefit if investment is diverted away from China.

China, in the coming years, may appear to be less of a threat to the U.S. economy than it is today.

Watch my report on China's economic shake-up

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Filed under: Business

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