The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
July 16, 2007
When it comes to Chinese economic growth, this is the type of story to which we have become accustomed...
Goldman Sachs said it is forecasting second quarter GDP growth for China of 11 pct year-on-year, overcoming the high base from a year earlier, with CPI growth of 4 pct for June.
... and this is the type of picture we have come to expect:
That sort of data is impressive -- even scary -- but Jeremy Haft, writing in today's Wall Street Journal (page A12 in the print edition), suggests there may be less to those pictures than meets the eye:
If you visited a typical Chinese factory, you'd see why. It lacks capital, technology and know-how. Its workers place obedience over quality. And it sits along an endless chain of middlemen.
On average, it takes China 17 separate parties to produce a product that would take us three. Unlike Japan in the 1980s, little companies drive China's economic growth, not big ones. China's industries are composed of hundreds of thousands of tiny factories and farms -- plus traders, brokers, haulers and agents, all of whom take control of the goods and materials but add little value to the product. With every additional player in the chain, the cost, risk and time grow. Effective quality control in this environment is difficult.
So is effective cost control. Despite cheap labor, making goods in China is often more expensive than in the U.S. Far from being a bottomless ATM of cheap consumer goods, China is a risky, costly and time-consuming place to do business.
Yet polls show a majority of Americans believe China has mastered basic manufacturing -- and it's now barreling into our high-tech backyard. That's false. As the product recalls demonstrate, China can barely make low-value goods reliably, much less higher-value ones. The problems are structural, not the result of a few bad apples.
To that last point, consider this not-long-ago assessment from the OECD:
China’s staggering economic growth rate has stood at almost 10% for the last 20 years. One cause is strong exports underpinned by low production costs. Information and communication technology now claim the lion’s share of China’s export trade, accounting for approximately 30% of its exports in 2005. The year before, China ranked as the largest exporter of IT products, outstripping the EU, Japan and the US. Since 1996, China’s IT goods trade has been growing at almost 32% a year...
That certainly sounds like some "barreling into our high-tech backyard," but the underlying reality is complicated:
Some 55% of China’s total exports are attributed to production and assembly-related activities, and 58% of these are driven by foreign enterprises, of which 38% are entirely foreign-owned. In fact, among the top 10 high-technology companies by revenue, not one of them is Chinese...
Although regarded as the world’s largest potential IT market, China has not reaped the full benefit of its large-scale IT output, particularly in terms of productivity. Apart from mobile phones, the vast majority of Chinese do not yet use IT. In general, IT spending is lower in China (about 4.5% of GDP in 2005) than in leading OECD countries (about 9% of GDP in 2005).
One paradox is that while low IT costs brought about by China’s competitive supply has helped OECD-based firms upgrade, reorganise and boost productivity, the actual uptake of IT within Chinese firms is lagging behind too. Notions like supply-chain management, resource planning or knowledge management software that are standard currency in dynamic OECD firms are still rather undeveloped in China.
All of which leads Mr. Haft to suggest that the Chinese century may take awhile to develop:
To compete head-to-head with the American economy, China will have to revolutionize the very way its industries are organized. It must shake out the thousands of low-value middlemen and integrate the tiny factories into larger, more competitive companies. It must train a workforce in modern technology and business practices. And, it must instill transparency and a uniform rule of law. Such an effort could span generations.
TrackBack URL for this entry:
Listed below are links to blogs that reference China Skeptic :
China's product quality
Via David Altig, a WSJ piece that's skeptical of China's ability to ascend the product quality ladder: China's industries are composed of hundreds of thousands of tiny factories and farms -- plus traders, brokers, haulers and agents, all of whom take c... [Read More]
Tracked on Jul 18, 2007 5:26:46 PM
China's Economic Growth: Grounds for Skepticism?
China's economic growth topped 11 percent in the first quarter, which is pretty darn fast. For comparison, we think that long-run U.S. growth is about 3 percent. (Both figures are inflation adjusted.) There are skeptics. Macroblog has a good commentary [Read More]
Tracked on Jul 21, 2007 2:53:10 PM
- Part-Time Workers Are Less Likely to Get a Pay Raise
- Learning about an ML-Driven Economy
- Hitting a Cyclical High: The Wage Growth Premium from Changing Jobs
- Thoughts on a Long-Run Monetary Policy Framework, Part 4: Flexible Price-Level Targeting in the Big Picture
- Thoughts on a Long-Run Monetary Policy Framework, Part 3: An Example of Flexible Price-Level Targeting
- Thoughts on a Long-Run Monetary Policy Framework, Part 2: The Principle of Bounded Nominal Uncertainty
- Thoughts on a Long-Run Monetary Policy Framework: Framing the Question
- What Are Businesses Saying about Tax Reform Now?
- A First Look at Employment
- Weighting the Wage Growth Tracker
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- November 2017
- October 2017
- September 2017
- August 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth