MMA’s Moon sees opportunities in China

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Published: May 1,2006

Pearl — Concerns in the U.S. over the potential threats posed by China’s growing economy are increasing, particularly among domestic manufacturers, and a look at the numbers tell why. A nation of 1.3 billion people, China’s economy was nearly stagnant 20 years ago, but is now growing at a rate of more than 9% annually, approximately three times the rate of the U.S. It now produces 75% of the world’s toys, 58% of the clothes and 29% of all mobile phones. And, this growth is being fueled by a number of factors with which U.S. companies find hard or impossible to compete — cheap labor, undervalued currency, lack of environmental regulations and associated costs, among other factors.

Jay C. Moon, CEcD, president and CEO of the Mississippi Manufacturers Association (MMA), carried these worries with him on a recent trip to China. And while he found some of these concerns to be valid, Moon came home with renewed optimism.
Moon said, “I recently returned from a two-week visit to the major cities of Chinese political and commercial activity — Hong Kong, Beijing and Shanghai. Based upon my observations and the briefings I received from governmental leaders, journalists and academic researchers, a picture is emerging of a China as an economic force perched precariously on a bubble of deep, potentially ruinous problems that can and will severely affect its ability to sustain and maintain its current position in the world’s economy. I definitely was feeling better when I left.”

Moon, who gave his findings from his trip April 24 at Pearl-based Trilogy Communication Inc., listed a myriad of issues confronting China today. He began with one area that is a perceived strongpoint of the Chinese economy — workforce.

According to Moon, recent Chinese policies have created the perfect employment storm.

“China has begun a slow transition from thousands of state-owned and operated businesses to the privatization of their manufacturing base,” said Moon, who added that approximately two-thirds of Chinese businesses are now privatized. “This move has dispossessed hundreds of thousands of Chinese from jobs formerly offered through inefficient state-run operations. As private sector operations acquire more of this business and higher levels of technology are introduced, even more Chinese will lose their jobs. Currently, the unofficial unemployment rate is estimated to be 12%.

“Equally problematic is China’s one-child-per-family rule. Restricting family size to one child is slowing the flow of young Chinese into the job market. As their society ages, there are few social safety nets that will support their people similar to our Social Security or Medicaid systems. It is projected by 2010, the Chinese government must fill a $110-billion pension system gap.

Shrinking jobs and prospects to fill those jobs are another challenge. “Wage rates (a nationwide average of $35 per week), while low by U.S. standards, are increasing, and some businesses have actually relocated to even lower wage markets such as Vietnam,” Moon said.

China’s healthcare system is practically nonexistent, and where it is available, it is too expensive for the average Chinese citizen. However, problems with the country’s communist government outstrip even the healthcare woes, according to Moon.

“The Chinese Communist Party is widely viewed as completely corrupt,” he said. “As it struggles to maintain its hold on power, deal with massive social issues and maintain a growing economy, the party must come to grips with mounting human rights issues, open access to information, transparency in their financial systems, protection of intellectual property rights and an effective legal system. This is a tall order even for the most developed of nations.”

Moon listed other systemic problems in China. China’s financial system is predominately composed of state-run banks, which boast tremendous deposits due to the lack of a viable stock market. But, there is little transparency, and the true state of Chinese banks is open to conjecture.

Moon said judges are largely former military men with little or no legal background or experience. Due to an almost total lack of Chinese research and development, intellectual property crime is rampant, but non-Chinese plaintiffs hold little chance of a fair trial. “Odds are, you’re going to lose,” Moon said.

Moon pointed out that many in the 1970s and 1980s viewed Japan as the emerging global manufacturing power. But that growth stalled, and Moon said that was due to a number of the same issues facing today’s China. He said he felt that China was going to have to deal with these issues sooner rather than later, and added that there may be a catalyst — the 2008 Summer Olympics, which are to be held in China.

“They know the media will converge on them. They are not going to be able to control the world’s media,” Moon said.
“Is China formidable as an ascendant economic power? That is certainly the case. However, can it fix what it needs to fix and maintain current levels of growth? Many don’t believe it can. As the world continues to watch developments in China, American manufacturers can be assured that the Chinese economic growth rates in the long run are not sustainable. Through innovation, sound management and the effective use of technology, U.S. manufacturing will survive and flourish in the 21st Century.”

Contact MBJ staff writer Wally Northway at northway@msbusiness.com.

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