China Calling
Part 1

The China I grew up with in the 70’s was red. Mao, the Red Guard, the suppression of human rights; it was big time, cold war communism at its worst. Today China is an emerging nation in a post communist world, and the impact of that emergence will be felt for generations to come. I was recently involved with a translation project in which we had to translate an English script into eight languages, one of which was Simple Chinese. That, my friends, is the definition of oxymoron. Chinese and simple are two words that graphically illustrate another cliché we all heard as school children; “As far as the east is from the west.” The issues surrounding China on all fronts (economically, geo-politically, militarily, environmentally, etc.) are complex and will be topics of debate now and for the foreseeable future.

The focus of this first of two articles will be to lay the groundwork for an attempt at understanding China on these four fronts (economically, geo-politically, militarily, and environmentally). Why take this approach?

As an observer of the futon sofa sleeper category and the furniture industry at large I have watched the shift to Chinese and Asian made goods and the investment of American companies (and American dollars) in Asian real estate, factories, and human resources. Like many of you I have attempted to be circumspect in my opinions, but many times I have reacted to this paradigm shift like an American being invaded by an enemy, not one competing in an increasingly open, global market. The Chinese have a distinct competitive advantage but they also have to deal with huge issues at home and abroad that we have wrestled with and overcome in the last hundred years. Transportation (both infrastructure and vehicular); financial institutions and the flow of money; elementary, secondary, and higher education; the working class as consumers; language barriers at home and globally; rural and urban issues; and myriad other socioeconomic and political subjects will have to be sorted out and addressed at the highest levels of government and down in the trenches every day. Understanding China will not be an easy task. I hope this article will help you better sort out how you will deal with the invasion, because in case you hadn’t noticed China has arrived and they are looking for a place to stay in your living room, den and bedroom.

Information—The Key to Knowledge and Understanding

Vast is a good word when you talk about China. Vast is also very descriptive when you talk about the economic relationship we have with the Chinese. In a recent statement by Robert Kapp, president of the US-China Business Council, in commenting on the Bush Administration’s “tough decisions” on China trade sanctions, and their rejection of a petition calling for higher import taxes, he said, “In a season of intense domestic political conflict, in which US trade policy has already been much debated and will continue to be discussed, the administration has made tough but necessary decisions to stay the course in our vast economic relationship with our third-ranked global trade partner.” Kapp added the following, “In three years, US exports to China have risen by 75%-29% in 2003 over the preceding year. China is the United States' most rapidly growing export market.”

Most of us hear the sound bytes of the mass media which show us a drop of water when they talk about the ocean. The point is, there is a lot more, a vast amount more, of information that needs to be heard, learned, assimilated and understood if we are to survive and thrive during this era of China’s emergence as our global business and hopefully political partner. The more we know the better we will be able to gain the advantages we need to compete. And the more we know the better we can determine how to use our experience on both sides of the cash register to help drive up our exports to China as well.

Managing Growth— The Key to Sustaining Momentum

China is booming, or so it would seem. Many facets of China’s economy are in fact booming, but some are in turmoil and others are broken and need to be fixed. One of the problems China faces is its economy is growing too fast. Again comments from the USCBC, “China's impressive economic growth over the past 30 years continues to draw the world's attention. GDP last year officially grew 9.1 percent, the highest rate since 1997. Many independent analysts put growth even higher, in the double digits, pointing to large increases in domestic freight and production of such key goods as electricity, steel, and cement. Per capita GDP passed the $1,000 mark for the first time, a positive sign for Chinese living standards and maturation of the consumer market. Judging by these numbers, China is doing very well indeed.” But there is another side to the coin. In fact there are multiple “other sides”. China needs to better manage the boom cycle. Growing too fast could cause major setbacks. Internal politics and the “inequalities between rich and poor, coast and interior, and rural and urban areas have developed into chasms that the PRC (People’s Republic of China) leadership can no longer ignore. The severe environmental degradation stemming from economic development is also catching the leaders' attention,” again quoting the USCBC.

Changes Are Coming— What They Will Be And When Is The Question

With this many variables it is challenging to be precise and make all the right choices. To illustrate: think about this very small slice of the possibility pie. Again quoting from the USCBC, “Private consumption in China accounted for 45.1 percent of GDP in 2002, whereas it accounted for 70.5 percent in the United States and 64 percent in the European Union. Retail sales have strengthened slightly so far this year, but the consumer mini-boom analysts expected is nowhere to be seen. Possible reasons? Household savings rose 19.2 percent to $1.26 billion at the end of 2003, perhaps signaling that consumers feel a need to save for healthcare, education, housing, pensions, and other services no longer provided by the government.” People are saving money, not spending it. Sounds good to me.

In fact, this effect caused a surplus in goods produced in China that would have been purchased with that $1.26 billion. Now calculate in the fact that official statistics show that net manufacturing jobs have decreased steadily since 1992 in spite of incredible growth rates in the production of goods including commodities like steel and aluminum, machinery and equipment, apparel, footwear, and (you guessed it) furniture and bedding. Efficiency and productivity techniques introduced and directed by American companies and their training experts are effectively putting Chinese workers on the unemployment lines. And you think we have problems.

I could spin this yarn paragraph after paragraph, but I think you get the idea. China is a player in the world marketplace and each business must come to grips with the behemoth. China is so large that any movement, even a slight one, can cause ripples in the fabric here in America and all over the globe.

Most governments, including ours, want China to succeed, but that success needs to be steady, predictable, socially and environmentally sound, and not at the expense of the consuming nations who will buy what China makes and sell her what she needs.

FL

In our next issue we will talk futon furniture and get some feedback from the industry leaders who are doing and about to do business in China. —Editor