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“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
This statement has been variously attributed to Mark Twain and Charles Kettering, but it originated in the 1800’s from American humorist Josh Billings. As is often the case, humor carries a great deal of truth in it. Here is a fine example. US—China: Do you believe things that “ain’t so?”
McKinsey is a highly respected global consultancy, whose outlook on 2015 made many important points. Here are excerpts:
- "Improving productivity and efficiency will remain the key to maintaining profitability for many companies, given lower economic growth … ."
- "The impact of technology as it eliminates jobs in services and manufacturing will become even greater … ."
- "As a result, the government will keep a sharper focus on net job creation and the quality of those new positions."
- "Companies will hire even more information technologists to keep up in the race to exploit technology better than their competitors."
- "The push to lower pollution, and now carbon emissions, will lead to even greater investment in domestic solar and wind farms… ."
The McKinsey commentary that followed expanded on business and economic conditions.
“…experiencing lower growth, greater competition, and more volatility, it won’t only be multinational companies having these conversations. Similar questions will be asked by senior executives…”
“…it will be a debate about … consumers and how they will behave in a slowing economy and, ultimately, the extent to which they will be the driver of economic growth over the next few years. …”
Jobs and employment was a major area discussed. Things are changing rapidly, but some things seem inevitable.
“…workers are pricing themselves out of the market… The cost of technology that substitutes for labor in factories has plummeted, displacing more and more workers. …”
“…Service industries will also be affected. … Telecommunications, financial services, and retail are all being challenged by “people lite” Internet-based business models from new competitors, which have already led them to substantially reduce hiring."
“…Overall, the momentum of their wealth generation will slow dramatically after a decade of remarkable acceleration. And if they have children graduating from college in 2015, they will likely see them struggle to get a good job. … [Emphasis added]
What happens with jobs determines what happens with income, which in turn leads consumers to curtail spending, which further slows growth in the economy. Up to this point, readers are imagining the McKinsey outlook is talking about the USA, its economy, job market/workers, and consumers.
WRONG! These remarks were about China! These remarks came from the McKinsey paper entitled “What could happen in China in 2015.”
Surprising? Perhaps, perhaps not. China is moving rapidly from an LDC (Less Developed Country) into a global economic power. With that development comes the downsides/problems of a “Developing Country,” and a change in China’s competitive position.
Over the past few decades, American companies that have become dependent on China as the low cost source for manufactured goods are in for a rude awakening (if these McKinsey projections come true—and every indication is that they are). The best American companies will once again be able to compete. Here is the final shocker: “…The best Chinese private companies are as capital intensive as an equivalent factory in the United States."
The “rule-of-thumb” has been that Chinese products must cost 15% less than American goods to be a better value. Maybe that "ain’t so" any more. US West Coast port congestion (labor disputes) has worsened what was already a long, slow supply chain. US Retailers were hurt in 4Q of 2014 by port congestion; some goods didn’t arrive for the peak sales period. Many retailers/suppliers used alternatives—East Coast ports and the Panama Canal. This route is both slower and more costly, making Chinese suppliers less economically competitive.
China has other problems too. Its growth, which hides a “multitude of sins,” is slowing. Its debt is climbing, due to government spending to prop up China's falling growth rate; 7% this year is a stretch, and don't be surprised when it drops to 6.5% or less next year.
LAND: China may be a huge country, but only 25% of its land mass is arable. Of that arable land, 20% of it is polluted by heavy metals and other toxic compounds, and not usable for growing anything for human consumption—for decades, maybe longer.
WATER: Decades of irresponsible pollution has also tainted China’s water. It is so polluted that even in the most modern cities (Shanghai, Beijing, Guangzhou, etc.) the water cannot be used for human consumption without boiling it first.
AIR: The air quality is so bad, and levels of particulate matter so high in China’s air (orders of magnitude higher than what is safe to breathe) that simply breathing the air is dangerous, (and possibly carcinogenic). Visibility is terrible; good days are murky; bad days are so smoggy that auto and air traffic slowed—or stopped. The sun is seldom visible.
LABOR: Despite billions of Chinese people, skilled labor is in short supply and labor costs are skyrocketing. Bottom line: as China becomes a global powerhouse in technology, military might, cyber-theft, and satellite technology, it is facing a deterioration in its traditional base of power: manufacturing.
Perhaps the old saying,saying, “What goes around, comes around” applies, and US manufacturing will once again be competitive. In the 1970s & 1980s the US feared Japanese competition, which was fierce; but the US survived it. Since then China has been the big, fearsome threat. Perhaps China is not so invincible after all. However, as a developed country (technologically) China presents a different kind of threat to the USA.
Only if American leadership “sees the light,” and the American people use their ingenuity and rediscover their will to work, will this next decade once again be an American decade.
Now reconsider the question. US—China: Do you believe things that “ain’t so?” The answer must be a resounding "yes!"