China Transforming to Meet U.S. Consumer Demands

John Wolz

Speaker Miles Free asked the entire audience of fastener manufacturers and distributors to rise. Those who have shopped at Wal-Mart in the past month were told to sit down. Then Home Depot. Then Target.
After naming just the top three retail importers of Chinese goods, the entire Industrial Fasteners Institute and National Fastener Distributors Association audience was sitting.
Free, director of technology services for the Precision Machined Products Association, noted that the U.S. imported $125 billion of Chinese goods in 2002 while exporting only $22 billion.
For two thousand year, China was mostly isolated from world trade, Free noted. Just as the rural poor migrated to urban areas in the U.S. a century earlier, China today is transforming from an agricultural economy to a manufacturing-based economy, Free pointed out.
The current Chinese demand is not going to slow. The hundreds of millions of Chinese people moving to cities need energy for appliances and transportation, Free explained.
The Clinton administration brought China into the World Trade Organiza-tion to force reforms, Free recalled. WTO membership requires China to lower tariffs, ease non-tariff barriers such as quotas and licensing, deregulate administrative requirements, and reform its banking to make nonperforming loans risk manageable.
The major reform remaining is “floating the Chinese yuan currency,” Free noted. The current situation of the yuan being fixed to the U.S. dollar continues to be “a lightning rod for criticism, overshadowing many of the benefits of a stable relationship of currencies and many of the changes that have taken place as China implements reforms as part of its WTO obligations.”
Pegging the yuan to the dollar gives Chinese manufacturers an advantage because the yuan may be undervalued by 56%, he estimated.
However, it is no longer a question of “whether” the yuan will be revaluated but “when.” Free predicted the change may be soon after the U.S. presidential election.
“Where the Containers Start”
The interest is in China because “this is where the containers start. Customers are here, and this is where the market is for the 21st century,” Free observed.
China”s oil imports set records this year and will account for one-third of increase in global oil demand in the years ahead, Free reported. China”s oil consumption is now second only to the U.S.
China”s steel consumption now totals 250 million tons, or more than the U.S. and Japan combined. The International Steel & Iron Association predicts that China will consume 31% of the world”s total this year.
“We are no longer the sole market of global importance,” Free noted. As jobs and purchasing power increase in China so will demand for western goods and services.
Demand and demographics in Asia have permanently relocated much of the world”s manufacturing capability to Asia, following the inducements of both low-cost labor and foreseen higher demand.
” At $52.7 billion, China surpassed $30 billion for the U.S. in foreign investment in 2002.
” China must build the equivalent of a Philadelphia each month to accommodate the 15 million rural dwellers moving to cities. About 700 million of the 1.3 billion population remains in rural areas.
China has “massive social change coming,” Free predicted.
” China must create 8 million jobs a year to maintain its low 4% unemployment rate. Trends working against increases in employment include rising productivity due to modernized equipment and the government closing of outmoded companies.
” A typical English-speaking engineer can earn $10,000 a year. The minimum manufacturing wage in Southern provinces is $672 a year, and $1,200 a year in Shanghai. U.S. manufacturers must compete against $1,200 a year for labor, Free noted.
Free advised North American companies to watch for opportunities in China.
“As the number of jobs, quality of life and purchasing power improve in these countries, their demand for western goods and services will also climb.”
Thus “our customers have relocated.”
There are plenty of markets. On a tour of China, Free saw people with small totes rather than forklifts. “We did not see heat treating that worked, little automation or barcoding or computers. The new factories will need the latest technology,” Free pointed out.
North American manufacturers still have advantages in quality, Free suggested. \ �2004 FastenerNews.com