China will not take over the world. I can explain why with a single penny. You may remember this old math bet: Would you rather have $1,000 or a penny that doubles in value every day for a month? Most choose the $1,000, right? Not even close. A penny doubling each day will end up with over $5 million! That’s the problem with China’s competitiveness — wages are soaring so fast that they are losing manufacturing jobs. Of course, it took workers jumping out windows to their death to give them more bargaining power, but the rickshaw has left the station.
Li & Fung, the firm that supplies your shirts to Abercrombie, Nordstrom, and (the Dollar Store?), laments that its costs have already jumped 15% this year. Target just announced that it can’t afford to source from China. Coach disclosed that by 2015, it would slash China purchases from 80 percent to less than half. No wonder I saw so many bustling dealmakers during my recent visit to Vietnam. Despite the political/military disaster that is Pakistan, the Pakistan economy is climbing at a 3% pace! Why? Because firms want to leave China’s textile factories, not build more. They’ll risk bombs to save the money.
There’s good news, of course, in rising wages. What is the Chinese middle class beginning to do….go shopping! Forget all the hype you hear about over-caffeinated American consumers. New York’s Fifth Avenue and the “miracle mile” of Michigan Avenue in Chicago look like flea markets compared to spanking new malls in Shanghai and Beijing. Now all the U.S. has to do is make things worth buying. Thank goodness for exporters like Caterpillar, Disney, Boeing, and Apple. Yes, I know many Apple parts are made in China, but the brains and design come from California. Soon the iPad will be as common in China as chopsticks — and worth a heck of a lot more than a couple frail sticks of wood.