Taylor: Chinese Domestic Market is the Draw

Jason Sandefur

With approximately one-quarter of the world�s population, the Chinese consumer market is a bigger draw for manufacturing than low labor rates, importer Jim Taylor told the Western Association of Fastener Distributors.\
�If your customers and competition aren�t there already, they soon will be,� Taylor declared.
�The ability to make almost anything in China with high quality and a very reasonable cost and then sell it to the huge domestic market is reshaping the global economy,� the president of Scottsdale, AZ-based East-West Logistics stated.
By 2010, the consumer market in China will be approaching that of North America, he predicted. The GDP is growing at a rate of 6% to 8% per year, and China�s share of world trade will triple to 10% by 2020.
China has a population of 1.3 billion, and over the next five years 200 million people will enter the middle class. Sixty percent will be from the young generation.
Chinese labor rates are one-sixth those of Taiwan, Taylor noted.
�With China�s membership in the World Trade Organization, China has become the world�s version of the �Gold Rush.��
Taylor traced China�s rise to economic power to 1978 when Deng Xiaoping rose to power following Mao Tse-Tung�s death. Deng led sweeping economic changes, including the creation of four economic zones (SEZs). The economic zones created sources for inexpensive land and skilled labor to attract light industries from Hong Kong and Taiwan, and provide technology and foreign investment to undeveloped rural areas. Early success led to more coastal cities being opened to foreign investment.
Infrastructure improvements in the late 1990s led to more industries moving to China. In addition to the coastal development, more industries are moving inland.
Today China offers a huge consumer base, cheap, abundant and skilled labor, a 15% to 20% material cost advantage and favorable foreign investment policies. China entering the World Trade Organization shows �they want to play by the world rules.�
Taylor predicted that labor costs will not go up as fast as other developing nations because of the �inexhaustible� rural population. �Thirty percent of the Chinese population live in cities and steadily have been making more money, but the other 70% still live in the countryside and would jump at the opportunity to make a standard $1,200 a year in a state-run company.�
China�s labor force is not just large and cheap, but 37% of Chinese college graduates are engineers, compared with 6% in the U.S.
Industrial land is half the price of Kuala Lumpur and Bangkok and 60 times cheaper than Yokohama, Japan.
The Chinese government is offering tax holidays and subsidized industrial parks. New companies pay no tax for three years and only 50% of the applicable taxes for the next five years. There is no tax on reinvested profits.
Chinese exports jumped 22.3% during 2002. Imports increased 21.2%.
China exports to the U.S. increased 32% from 2000 to $35 billion by 2002.
Taylor said China �yearns to close its technology gap with Korea and Japan. �The government is offering subsidies and other sweeteners to companies that come up with homegrown alternatives to Microsoft software, Intel microprocessors, Cisco routers and other standards that are the building blocks of an information economy. �
�In a drive to reduce royalty payments on foreign technology and reward local innovators, Beijing seems intent on setting global standards for most products,� Taylor observed. �The only way to get around those payouts in the future is for Beijing to back a domestic standard. The fear is, since China is the biggest market, once the Chinese government sets a standard it will become a world standard that is adopted within a couple years.� �2003 FastenerNews.com