Engineering Inc. - July/August 2007 - 7

mARkET WATCh NEWS & NoTES China Flexing Its Global Economic Muscle By Joe Salimando W hether it’s construction, manufacturing, exports or infrastructure investment, when considering the hot spots in the global marketplace, China is rapidly moving to the top of the list. Consider these facts: n rom Morgan Stanley’s F Stephen Roach: “In 2006, fixed asset investment exceeded 45 percent of Chinese GDP … a record for any major economy in the world … China’s annual growth in fixed investment has averaged 26 percent over the past four years.” n hina “… is set to overC take the U.S. to become the world’s second-largest exporter of merchandise goods (Germany is first). In the second half of 2006, they actually surpassed those of the United States.”—from an Agence France-Presse summary of a World Trade Organization report. n nergy demand is soaring E in China thanks to “the huge investment in steel, aluminum, cement and other plants,” a study from the Peterson Institute for International Economics shows, as quoted in the Financial Times. n China’s merchandise “ exports grew twelve-fold over the last 15 years, compared with a tripling in world trade.”—from John Lipsky of the International Monetary Fund. “About 100 million people have moved from rural to urban areas over the past two decades.” n Of 120 chemical plants “ being built throughout the world with price tags of $1 billion or more, one is in the U.S. and 50 are in China.”—from an article by Chuck Yorke (a performance improvement specialist) and Jim Garrick (a consultant on lean process improvement). n ross National Income in G China—on a per-capita basis—has increased by a factor of five from 1990 to 2004, according to World Bank figures. In 2004, the GNI figure for the U.S. was $41,440; in China, it was $1,500. Low Labor Costs TABLE oNE Comparative Wages, Selected Countries (As of May 7, 2007) CoUNTRY AvG. moNThLY WAGE IN U.S. $ Australia China (Beijing) Malaysia New Zealand Philippines (Metro Manila) Taiwan Thailand Vietnam $1,680.71 $58.32 to $101.10 $195.05 to $446.53 $1,361.29 to $1,435.14 $72.46 to $220.50 $475.82 $130.85 to $174.78 $29.25 to $37.60 A recent Government Accountability Office report shows that the average perhour wage (in 2004) in China was 67 cents—or about 3 percent of the average U.S. industrial worker wage. Low workforce costs have prompted many manufacturers to move factories from the U.S. and other Western nations—including Mexico— to Asian destinations. The same report shows China was in third place in total exports in 2006 (at $969 billion) and gaining on the U.S. ($1.037 trillion), with Germany in first place ($1.112 trillion). See Table One for a look at comparison wages in several other countries. New Considerations Note: The 2005 U.S. average manufacturing wage of $23.65/hour at 160 hours per month means the U.S. average amounts to approximately $3,784. Source: National Wages & Productivity Commission, Dept. of Labor and Employment, Republic of the Philippines. There are reports that China soon will have to address considerations other than low wages and speed-to-market to further its industrial development and growth. n recent report from The A Conference Board notes that productivity, not wages, is the key to international manufacturing growth. Wages are rising rapidly in the low-cost countries—potentially eroding the cost advantage they have had. Moves to low-wage countries “often are not the bargain they seem when wages are adjusted for low productivity,” according to the group. n n BusinessWeek, a Chinese I government official was quoted as follows: “People talked about China’s unlimited labor supply. We should revise that. China is facing a limited supply of labor.” n Asian countries have “ accounted for 82 percent of the U.S. manufactured goods deficit so far this year,” the National Association of Manufacturers said in a report. That’s good for the exporters—unless it provokes a response such as the U.S. recently filing an unfair trade complaint against China. Much of what occurs throughout the world marketplace also is affected ENGINEERING INC. JULY / AUGUST 2007

Engineering Inc. - July/August 2007

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