How Much of China's Export Industry Is Owned by U.S. Corporations? 14 comments
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I don't know much about China but I know about free zones.
From 1990 to 1995 my partner and I wrote the "playbook" to entice foreign companies into the Jebel Ali Free Zone in Dubai. During that period the number of companies went from 500 to 3,000 (an increase of an average of about 40% a year). We also set up interviews with the new arrivals in to understand what were the deciding factors, and we worked out how much the zone contributed to the development of Dubai. It was considerable, in my opinion the main driver of the Dubai economy which grew in nominal terms at a rate of 15% a year since 1990 was free zones (real estate came later and that was driven by the economic growth not the other way around).
The way a free zone works is that it attracts companies that would not normally invest in a country due to problems with red-tape, corruption, organized crime, or lack of infrastructure; what they get in return is cheap labor, low taxes, security, good infrastructure, and most important a break from government meddling, plus the ultimate cherry on the cake, the option of 100% ownership; what the host country gets is the spillover supporting the new arrivals, housing, and services etc.
In JAFZ the main driver was never cheap labor, there were minimum wages, and minimum standards for health and safety and environmental controls, so if your bag is to use child labor in a polluted and dangerous industry, and pay peanuts, free zones are not the place, and there are plenty of other places where you can do that.
The basic offer to the foreign companies was that they could bring their technology and more important their market access and distribution channels, and do the real money-making work outside the meddling gaze of big government and unions, it was a way to suck the juice out of operations that were based in developed countries that had lost sight of the idea that ultimately, unless there is freedom and free markets, there is nothing. What the previous hosts lost, was the spillover economic activity that you get from having manufacturing physically located on your soil.
We used to benchmark China. It's interesting that over the past fifteen years the places that have grown like crazy all have free zones. The other day, after a break of over ten years, I thought I'd have another look.
Free Zones in China:
Shenzhen was the first Special Economic Zone (SZE), it manufactures 14% of China's exports; set up in 1979 it is the largest one of five set up about that time. I couldn't find numbers for all the other four, but from the numbers I managed to find I reckon those five together generate about 25% of China's exports.
Depending on your definitions there are another 49 to 95 other free zones in China, called Technology Development Zones or Industrial Zones, all of which give special privileges to foreign companies, many allow 100% ownership.
After Hong Kong, on a cumulative basis USA is the largest investor into free zones in China, in the five years up to 2005 the USA provided an average of 9% of the Foreign Direct Investment (FDI), and the Virgin Islands (where a lot of US Corporations are nominally headquartered, provided 12%).
In 2007 about 25% of China's exports went to USA; which is about the ratio of FDI investment. I suspect that a large proportion of those exports were US Corporations, or companies de-facto controlled by US Corporations, deciding the do the "juicy" part of their manufacturing outside of the USA.
That could explain why stocks of US corporations are (relatively) healthy in spite of the fact that manufacturing is down, and why it's likely that the recovery might be broadly "jobless".
It also explains why the idea of "bashing" China for the current account deficit is pointless, as is the debate of the value of the Yuan. All China provided was an environment where free markets and free enterprise could prosper, Yankee know how and ingenuity did the rest. There is no reason why America can't do that, but "Stimulus Packages" and intrusive government, won't achieve it.
Perhaps it's time for America to get back to its roots? I'm reminded of Edward Deming who invented the idea of modern quality control. Spurned in USA, his ideas were embraced in Japan.
And guess who makes the best quality cars. There is a reason for that.
Disclosure: No positions.
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Thank you. Very important points that need to be kept in mind by those who agnonize about trade deficits and call for protectionism. We are slouching towards socialism. China is marching towards capitalism, however slowly. Our ingenuity is being crushed by the neocons' trillion dollar foreign entaglements:
costofwar.com/
You mean like our own country?
I traveled extensively during my 36 years in uniform. I travel extensively today. I often had spirited discussions with friends in democratic nations that embraced cradle-to-grave social welfare, they attacking and me responding with a spirited defense of the benefits properly-regulated free markets WITHOUT government over-intervention or favoritism of some groups, sectors, industries or blocs of voters.
It's embarrassing now to be asked to defend my government which is embracing the same mistakes China, Sweden, Hungary et al have tossed on to the garbage heap of history as unworkable. They have caught on to the truth of the old adage:
When Ivan owns one cow, and the cow is sick, it is Ivan who stays up all night to nurse it back to health. That cow is his livelihood. When Ivan and 99 of his closest friends own 100 cows, and some cows are sick, it's always "someone else's" responsibility -- maybe the government's -- to take care of the herd.
Substitute Johnny for Ivan and you create a nation that passes China on the road as they are coming the direction we are leaving behind. Enough. A nation of enlightened capitalist entrepreneurs is what gave us our strength and spirit. We need to stop complaining about China or any other nation and tend the home fires.
1. A large part of the tire import from China are tires these companies made themselves in China.
2. These companies do not want to make the entry level tires because there is no profit in it.
3. If tire duty is added to the price of Chinese tires. The consumer will suffer. They have to pay more.
4. Some of the consumer may decide to keep the worned tires longer because they can not affort new more expensive tires. When this happen, some people will be driving with unsave tires. They can be a danger to themselves as well as others.
5. If China reteliate agaist tire duty. We will get into a trade war that every one lose.
6. When we stop buying Chinese made products and if these products are made by our companies, everyone lose.
I was always impressed how Americans are (or perhaps used to be) quite happy if you told them they got it completely wrong, they would listen, if you convince them they would say "OK 100% change". I was also always impressed by the generosity of spirit of Americans I met, it pains me to review their current circumstances.
USA used to be a free-market economy and that's why it was so dynamic, but it got hijacked by crony capitalists, now it's the turn of the socialists.
By the way a better story about Ivan goes like this:
Ivan's neighbor had a goat, he used to milk it, and take the milk to the market and sell it, then he took the money and bought another goat, after some time he had ten goats.
Ivan was jealous, he prayed to God, "Please God, Ivan has ten goats and I have nothing, please help me"
God deliberated,l finally he sent a message - "I will help you".
Ivan was overjoyed, he exclaimed, "Thank you thank you, so now you will kill my neighbor's goats"?
On Sep 04 10:19 AM Joseph L. Shaefer wrote:
> "...countries that had lost sight of the idea that ultimately, unless
> there is freedom and free markets, there is nothing."
>
> You mean like our own country?
>
> I traveled extensively during my 36 years in uniform. I travel extensively
> today. I often had spirited discussions with friends in democratic
> nations that embraced cradle-to-grave social welfare, they attacking
> and me responding with a spirited defense of the benefits properly-regulated
> free markets WITHOUT government over-intervention or favoritism of
> some groups, sectors, industries or blocs of voters.
>
> It's embarrassing now to be asked to defend my government which is
> embracing the same mistakes China, Sweden, Hungary et al have tossed
> on to the garbage heap of history as unworkable. They have caught
> on to the truth of the old adage:
>
> When Ivan owns one cow, and the cow is sick, it is Ivan who stays
> up all night to nurse it back to health. That cow is his livelihood.
> When Ivan and 99 of his closest friends own 100 cows, and some cows
> are sick, it's always "someone else's" responsibility -- maybe the
> government's -- to take care of the herd.
>
> Substitute Johnny for Ivan and you create a nation that passes China
> on the road as they are coming the direction we are leaving behind.
> Enough. A nation of enlightened capitalist entrepreneurs is what
> gave us our strength and spirit. We need to stop complaining about
> China or any other nation and tend the home fires.
Anyone who has bothered to follow Chinese labor laws --or lack thereof--understands that U.S. labor simply cannot compete without descending into sweat shops.
Any recovery we have will be relatively weak in terms of jobs. The middle and working class in America will continued to be punished.
I have yet to hear anyone concretely describe the engine of the U.S. recovery with resorting to platitudes and old bromides.
How much is owned by Chinese?
How much is owned by Japanese?
My point which may be wrong is that I suspect that cheap labor is a very small part of the reason companies chose to manufacture in China rather than USA.
Also I suspect that US corporations generally treat their labor very decently and increasing they insist that their sub-contractors do, it is the local firms that squeeze out every last drop of blood.
My experience in JAFZ was that labor was a very small part of the equation, it was consistency and certainty of what the rules were going to be, good infrastructure, and lack of unions (you don't have to have unions to get labor treated properly, there is no reason why a government cannot impose minimum standards for everyone).
On Sep 04 09:16 PM Stormybear wrote:
> In point of fact, foreign companies inside China account for 80%
> of Chinese exports.
>
> Anyone who has bothered to follow Chinese labor laws --or lack thereof--understands
> that U.S. labor simply cannot compete without descending into sweat
> shops.
>
> Any recovery we have will be relatively weak in terms of jobs. The
> middle and working class in America will continued to be punished.
>
>
> I have yet to hear anyone concretely describe the engine of the U.S.
> recovery with resorting to platitudes and old bromides.
Very enlightening about free zones in China. I've long noted the disappearance of "enterprise zones" in this country. Take the most depressed area of Detroit, cut taxes and regulations to the bone and you'll see a renaissance that wouldn't escape anyone's attention. That's exactly why the idea has lain dormant for decades now.
"Can do" is now supplanted by the crony capitalists that gave us the amazingly incompetent Katrina aftermath. And, what happened to the new construction at the Trade Towers site?
Eisenhower cared enough to describe the crony capitalist/militaristi... incest he saw as the "military-industrial complex." The ascendence of crony capitalists.
Now, we have lawyers and bureaucrats swarming like locusts spewing talk of "rights" while they bleed us and show us how to bleed ourselves. Americans should be doing, not blathering and invading.
The MSM is an unfortunate example. None of what I learned here is found in mainstream articles. Instead of hard-bitten, cigar-chomping editors who had some courage, newsmedia is bound and gagged by PC, and crony ownership.
Thanks for much enlightenment.
Foreign companies involved in joint ventures with Chinese concerns (local and national gov't as well as private) seem to be the basic make-up of most exporters. The foreign companies are allowed to operate in China as minority owners so that control stays local and expertise is transferred to the joint venture. The Free Trade Zone is a dynamic image but it is only an image to a limited extent for which the author has extrapolated as the the reason for export success.
I'm not convinced, though, that this is a principal cause of persistent unemployment even as the economy seems to be recovering. "Offshoring" of jobs accounts for a small fraction of total job losses, even now. The recession caused unemployment to jump, but I think the underlying cause is an ongoing transformation of our economy that policy makers have not responded to and may not even yet recognize.
A hundred years ago, 40% of the American work force was employed in agriculture. Today less than 2% are, but we produce far more agricultural commodities than we did 100 years ago. The same thing is happening now in manufacturing. As manufacturing becomes more knowledge- and technology-intensive, more goods can be produced with far fewer people. The days when people with little education could pull themselves into the middle class with high-paying jobs at the steel mill or the car factory are gone, and neither business nor government has even begun to think of the consequences for our society.