The Chinese Dragon awakes as the Celtic Tiger quakes
by Gerard Brandon
The Chinese buying up Europe reported in an article in the Financial Times this weekend is a remake of the Japanese financial rush to Europe during and after the oil crisis in the 70's and 80's. It follows the decline of their industrialized production as they moved their production overseas.
There is no doubt that eventually there has to be a rise in the Chinese Yuan and being in a strong financial position in Europe would be of great value when the Chinese currency eventually floats.
The post world-war-II Yen360-$1 has reached Y118-$1 and likely to continue its' slide. Interest rates hikes in the US are likely to slow down rather than increase against the expected Japanese rate increases and will see the dollar slip further. The Chinese see the Euro as a stronger currency and indeed Europe as being less restrictive on where they invest.
Chinese already own US debts.
The Chinese already own a large percentage of the US dollar bond market ($400bn in surplus trade per year). They see the assets in the US as likely to fall as they increase the value of their currency. If the Chinese build a powerhouse of finance in the EU they will have a stronger hand in international finance than if they headed to the US.
Western Society's welfare burden
Over the last 25 years Japan has followed the world financial revolution and moved with the US into softening and services in the final stages of the economic evolution of developed nations. The strain on the issue of Government bonds has been significant as it is estimated that the aging population in 2010 in Japan will only have 3 workers to service the financial needs of a single pensioner whereas back in the 80's this accounted for 9 members of the workforce.
China has seen the US, Japanese and Western European countries like France and Germany suffer from unions and high costs of social welfare and aging population. They have watched as the western societies softened their economies to increase the quality of life for all.
Greatest single migration in human history.
However with the massive 400 million migration and the ability to retain low costs within the Chinese state it is clear that the pressure will not be quite as high over the next 15 years for the Chinese to move along the same lines as Japan and the US without social revolution. In the end with the Chinese birth-control policy (1 child per family) this too poses some problems in the next 30 years.
No one wins a trade war
Tariffs and duties only serve to delay, not stop dumping. Short term policies have a way to reduce inevitable job losses not stop them, and are inefficient. During the 70's and 80's when there was a trade war between Japan and America, the Japanese moved their production to the US, but instead of buying up car production plants they bought up farm machinery production facilities that were in depression at 10 cents on the dollar. Eventually the rot in the US car industry reached its' inevitable crisis point.
Greedy bargain rush
The problems of the West are deeply engrained. It is interesting to note that 125 of the Fortune 500 Companies have R&D facilities in India. There are 600,000 American owned factories in China and increasing at a rate of 60,000 per year. There has been a pivotal balance towards the Asian Tiger. There may have originally been an Asian crisis or initial faltering, but the stealth of the Asian markets have only now been seen as a slow creeping that has lead to a final leap....
Celtic Tiger is on amphetamines.
For instance Irelands' Celtic Tiger is where you can buy clothes for €3 per tee-shirt yet the inflation rate in the last quarter has exceeded 3.5%. The cost of a 15 kilometer taxi-fare is €42 and a bowl of soup in a small café is 4 times greater than in a 3 Star Hotel in Warsaw, Poland.
80% of the output is in domestic construction. It has become a self sustaining domestic market. There has been no growth in exports in the last two years and there is a rise in imports at a faster rate than exports. What the government wants and the brief of Enterprise Ireland is to build up Irish income (not just exports of produce) by whatever means possible to halt the decline in investment which is showing signs of departing to cheaper territories. For instance in 2004 there was $27bn FDI and in 2005 this dropped to $9bn; a 67% decline.
Fear not greed...
The cost of housing continues to rise because of FEAR, not GREED. Fear of not getting onto the property ladder, not greed of losing out on rising property values. This is an exact replica of the run up to the 1987 stock market crash when little old ladies over 70 were rushing in to buy stocks for their pension and the 1988 London property bubble bursting when the central topic of dinner parties was how much your property has increased in value this month. When property investors are paying more than 33 times annual rental income for a 1 bedroom apartment the long term sustainability is impossible. Even greater taxes on property have not slowed the property bubble.
The Bubble will burst...
With property values rising by on average 10% year-on-year it is simply impossible not to see that the problem is about to come to a head, with no soft landing. If Ireland have been running at 2-3% inflation the scene is set for a significant pop in less than 12 months even with the Special Savings Investment Accounts (SSIA). Interest rates in the EU have to rise as Germany moves ahead. Inflation continues to rise and labour costs continue to increase beyond inflation.
Decline of the Corporation, rise of consumer power.
The American or Western Way may not be the only way forward and the West may not in fact be in control of its' own destiny anymore. The corporation has been around for the last 150 years, yet the average life expectancy of a company has been declining and now rarely exceeds 30 years. The likes of Google, Yahoo, E-Bay, Amazon, Allegro, Alibaba and the like can take over the world in 5 years by empowering individuals and Coke, Microsoft, IBM, Merck, Pfizer are in decline. Western Societys' ability to create wealth at the cost of losing production is merely an evolution, not a sustainable model.
Rise of Dragon Power
If China is the production facility of the world then it controls what the world consumes. If the world bypasses the corporations and goes direct to the producer the power of the Chinese will be stronger than any nation as it has the manpower, the production power the military power and eventual political power to decide how the world is to be run.
We must realise that it might have been 20th Century Fox but it has quickly become 21st Century Dragon.
About the Author
Gerard Brandon is editor of Guru Manager Entrepreneur Toolkit. Former founder and CEO of Alltracel Pharmaceuticals Plc 1996-2004 with production and marketing in partners in Japan and China. He is an Entrepreneur of the Year finalist 2005 - Ernst & Young in Ireland
The Chinese buying up Europe reported in an article in the Financial Times this weekend is a remake of the Japanese financial rush to Europe during and after the oil crisis in the 70's and 80's. It follows the decline of their industrialized production as they moved their production overseas.
There is no doubt that eventually there has to be a rise in the Chinese Yuan and being in a strong financial position in Europe would be of great value when the Chinese currency eventually floats.
The post world-war-II Yen360-$1 has reached Y118-$1 and likely to continue its' slide. Interest rates hikes in the US are likely to slow down rather than increase against the expected Japanese rate increases and will see the dollar slip further. The Chinese see the Euro as a stronger currency and indeed Europe as being less restrictive on where they invest.
Chinese already own US debts.
The Chinese already own a large percentage of the US dollar bond market ($400bn in surplus trade per year). They see the assets in the US as likely to fall as they increase the value of their currency. If the Chinese build a powerhouse of finance in the EU they will have a stronger hand in international finance than if they headed to the US.
Western Society's welfare burden
Over the last 25 years Japan has followed the world financial revolution and moved with the US into softening and services in the final stages of the economic evolution of developed nations. The strain on the issue of Government bonds has been significant as it is estimated that the aging population in 2010 in Japan will only have 3 workers to service the financial needs of a single pensioner whereas back in the 80's this accounted for 9 members of the workforce.
China has seen the US, Japanese and Western European countries like France and Germany suffer from unions and high costs of social welfare and aging population. They have watched as the western societies softened their economies to increase the quality of life for all.
Greatest single migration in human history.
However with the massive 400 million migration and the ability to retain low costs within the Chinese state it is clear that the pressure will not be quite as high over the next 15 years for the Chinese to move along the same lines as Japan and the US without social revolution. In the end with the Chinese birth-control policy (1 child per family) this too poses some problems in the next 30 years.
No one wins a trade war
Tariffs and duties only serve to delay, not stop dumping. Short term policies have a way to reduce inevitable job losses not stop them, and are inefficient. During the 70's and 80's when there was a trade war between Japan and America, the Japanese moved their production to the US, but instead of buying up car production plants they bought up farm machinery production facilities that were in depression at 10 cents on the dollar. Eventually the rot in the US car industry reached its' inevitable crisis point.
Greedy bargain rush
The problems of the West are deeply engrained. It is interesting to note that 125 of the Fortune 500 Companies have R&D facilities in India. There are 600,000 American owned factories in China and increasing at a rate of 60,000 per year. There has been a pivotal balance towards the Asian Tiger. There may have originally been an Asian crisis or initial faltering, but the stealth of the Asian markets have only now been seen as a slow creeping that has lead to a final leap....
Celtic Tiger is on amphetamines.
For instance Irelands' Celtic Tiger is where you can buy clothes for €3 per tee-shirt yet the inflation rate in the last quarter has exceeded 3.5%. The cost of a 15 kilometer taxi-fare is €42 and a bowl of soup in a small café is 4 times greater than in a 3 Star Hotel in Warsaw, Poland.
80% of the output is in domestic construction. It has become a self sustaining domestic market. There has been no growth in exports in the last two years and there is a rise in imports at a faster rate than exports. What the government wants and the brief of Enterprise Ireland is to build up Irish income (not just exports of produce) by whatever means possible to halt the decline in investment which is showing signs of departing to cheaper territories. For instance in 2004 there was $27bn FDI and in 2005 this dropped to $9bn; a 67% decline.
Fear not greed...
The cost of housing continues to rise because of FEAR, not GREED. Fear of not getting onto the property ladder, not greed of losing out on rising property values. This is an exact replica of the run up to the 1987 stock market crash when little old ladies over 70 were rushing in to buy stocks for their pension and the 1988 London property bubble bursting when the central topic of dinner parties was how much your property has increased in value this month. When property investors are paying more than 33 times annual rental income for a 1 bedroom apartment the long term sustainability is impossible. Even greater taxes on property have not slowed the property bubble.
The Bubble will burst...
With property values rising by on average 10% year-on-year it is simply impossible not to see that the problem is about to come to a head, with no soft landing. If Ireland have been running at 2-3% inflation the scene is set for a significant pop in less than 12 months even with the Special Savings Investment Accounts (SSIA). Interest rates in the EU have to rise as Germany moves ahead. Inflation continues to rise and labour costs continue to increase beyond inflation.
Decline of the Corporation, rise of consumer power.
The American or Western Way may not be the only way forward and the West may not in fact be in control of its' own destiny anymore. The corporation has been around for the last 150 years, yet the average life expectancy of a company has been declining and now rarely exceeds 30 years. The likes of Google, Yahoo, E-Bay, Amazon, Allegro, Alibaba and the like can take over the world in 5 years by empowering individuals and Coke, Microsoft, IBM, Merck, Pfizer are in decline. Western Societys' ability to create wealth at the cost of losing production is merely an evolution, not a sustainable model.
Rise of Dragon Power
If China is the production facility of the world then it controls what the world consumes. If the world bypasses the corporations and goes direct to the producer the power of the Chinese will be stronger than any nation as it has the manpower, the production power the military power and eventual political power to decide how the world is to be run.
We must realise that it might have been 20th Century Fox but it has quickly become 21st Century Dragon.
About the Author
Gerard Brandon is editor of Guru Manager Entrepreneur Toolkit. Former founder and CEO of Alltracel Pharmaceuticals Plc 1996-2004 with production and marketing in partners in Japan and China. He is an Entrepreneur of the Year finalist 2005 - Ernst & Young in Ireland
posted by KC at 11:15 AM
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