Is China's Loss a Gain for US?

The Chinese miracle may soon peter out (see my blog Explaining the Chinese Miracle).

While the current Chinese’s GDP growth rate with 7.1 percent (lately reduced to 7 percent for 2015) still is healthy and indicates a real increase over the GDP addition for 2014, the rate of increase certainly is decelerating.

There are a number of reasons why this reduction in "rate of growth" happens:

• The unusual high rate of wage increases (some reaching 20 percent per year) for skilled labor makes many companies uncompetitive.

• Chinese companies approach a limit in the amount of goods other countries can import, i.e. experience market saturation.

• There is a limit of how many new technologies can be adopted and exploited.

Since 1997, Chinese manufacturing has been the powerhouse of its export business and therefore proved to be the major contributor of the rapid growth of the Chinese economy as a whole. However, recently the manufacturing sector has become a burden, due to the rise in labor cost and other factors outlined above.

To make things worse, foreign firms having heavily invested in China in order to cash in on the originally low wage structure, now begin to re-evaluate their business plans. Quite a number of these companies begin to look at other Asian countries, whose living standard and wage levels are still behind those of China. Vietnam is a typical country of choice.

As an example, Nokia Corp. plans to move their manufacturing operation from China to Vietnam, laying off 9,000 Chinese workers. Microsoft too announced it will shut down facilities in Beijing and Dongguan, so will the Japanese watchmaker Citizen. According to media reports, other Japanese companies such as Panasonic, Daikin, Sharp, and TDK are also planning to move their operations back to Japan.

While these decisions might have been influenced by the tense political atmosphere between China and Japan, the overriding reason is undoubtedly economic. Even such multinational companies such as Uniqulo, Nike, Foxconn, Funai, and Samson are beginning to set up production facilities in other Asian countries.

This trend, likely to accelerate soon, is beginning to concern the Chinese government, since such an exodus will further crimp the already scaled-back Gross National Product (GDP) for 2015. According to a Chinese spokesperson, . . . "if many of these high-end production facilities are leaving China, the result will be serious."

It is hoped, that U.S. owned firms will see fit to relocate at least part of their current Chinese produced goods back to the U.S. mainland. Such a move would be of great economic benefit despite the current high dollar value.

On the technical side, Microsoft tries to expand its market share in China by making an agreement with the Chinese companies Lenovo and Xiaomi to develop smart devices than will run on the future Windows 10 operating software, which should be available late this summer .

Microsoft at present only has 0.4 percent of the market which is now dominated by Google’s Android and Apples IOS systems. Anybody needing a new computer or laptop may be advised to buy it now before Windows 10 hits the U.S. market and creates another nightmare of even more complication and errors for everybody.

Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also published several books on business management and German history. His book "Hitler's Fate," suggests that Adolf Hitler did not commit suicide and survived World War II. For more of his reports, Go Here Now.