LyrArc Article Gist
Automobile parts imports into the U.S. have increased from $89 billion in 2008 to $138 billion in 2014, up from only $31.7 billion in 1990. In a huge shift in wages with increasing global competition wages at an American Axle plant in Michigan at $10 an hour are about what Target stores and Wal-mart pay for retail workers. An new generation of workers in manufacturing are seeing a shift from being in the middle class during their parents generation to lower class, with this downward pressure on wages as parts are manufactured in places such as Mexico and China.

LyrArc Article Gist
Compared to the situation in 2008-2009 during the global financial crisis with the excess supply of labor, China in 2012 faces an excess in demand for labor. In 2009 about 20% of migrant workers were unemployed when the crisis hit, and wages dropped 10% for migrant workers, according to the Chinese Academy of Sciences and Stanford University. The situation three years later is one of tight labor markets and higer wages. A large stimulus in not only not needed today in the way it was in 2008-2009 as a way to maintain social stability, it would reduce the benefits of the anti-inflationary steps taken in 2011-2012, by putting more pressure on wages and prices. Manufacturing sector wages increased by 20.1% in 2011, according to China's statistics bureau. This may be why the Chinese government is taking measured steps to avoid creating more bad loans through indiscriminate lending, and being more selective in accelerating development projects in the pipeline. According to Hong Kong's new Chief Executive Officer China plans to have about 7% growth. This shift in approach would help China refocus on growth strategies recommended in the recent Development Reform Commission and World Bank Report on China....

LyrArc Article Gist
China's view on its new Air Defense Zone as expressed by the Foreign Ministry is that if European countries and Japan are entitled to set their own air defense zones then China should be able to set its own zone. The differences with Asian neigbors and the U.S. arises over the fact that this overlaps with the zones of S. Korea, Japan and Taiwan and also covers the area of the disputed Senkaku Islands. Other problems lie in the ambiguous wording and failure to share this information in advance with other countries. As it stands B-52's from the U.S. and Japanese planes entered the zone on Nov. 29, and Chinese fighter jets tracked the planes but there was no incident. U.S. civilian airlines have agreed to follow the rules set by China for the air defense zone, and the U.S. government says it will let the airlines make the decision to follow the zone. The EU protested the setting up of the new air defense zone.

LyrArc Article Gist
Joe Nocera visits two plants built by Gray Construction in N. Carolina. One is a Siemens plant in Charlotte, N.C., and the other is a Caterpillar plant in Winston-Salem. Both towns have community colleges that stress manufacturing skills. Forsyth Tech created a program working with Caterpillar to train its graduates in machining skills needed at the plant. The Caterpillar plant is huge at 850,000 square feet, and makes axles for mining trucks. The Siemens plant will make 280 ton gas turbines. Siemen's manager Richard Voorberg, tells Nocera the labor cost difference is not that much of a factor in highly skilled work, with shipping costs, and other efficiencies being more significant. Gray's backlog of 22 projects suggests a similiar conclusion. The problem is that the number of skilled workers needed in an highly automated plant with complex robotics is small. Caterpillar's plant will need about 500 workers, and the Siemens plant will need about 800 workers. This makes only a small dent in the enormous job losses of the last decade. And in N. Carolina the jobs lost in the furniture industry as the industry moved to China. Dow Chemical CEO, Andrew Liveris, points to the jobs created in the supply chain for every manufacturing job. And Ford Motor Company CEO, Mullaly, points to the innovation required in state of the art manufacturing, that creates sustainable advantage. The process of creating enough manufacturing jobs will take a long time, including shifts to new technologies and new products....

LyrArc Article Gist
Prime minister Abe of Japan and President Jinping of China meet for 25 minutes on the sidelines of the Asia Africa Summit in Indonesia, on April 21, 2015. In a sign of thawing in relations both sides take an active interest in improving relations. This is the 60th anniversary of the Bandung conference in Indonesia, and Japan restated its pledge during the 1955 meeting of Asian and African leaders to not use force in territorial disputes. Abe said he had "deep remorse" for Japan's role in World War II. Xi Jinping's speech covered China's effort to build the "Silk Road" infrastructure projects in Asia and Africa, and said the AIIB bank was seen positively by the international community. Jinping emphasized the joint responsibility of both countries for peaceful development and regional stability. Abe suggested that a communications system for emergencies be established between the two countries and a defense dialogue be setup.

LyrArc Article Gist
Comparison of cost of components and margins for Nokia's Lumia smartphone and the Apple iPhone 4S in 2012. The Lumia 900 retail price is $450 vs. Apple iPhone 4S for $649. Total component cost for Lumia $209 vs. $190 for Apple. Margin of $241 for Lumia vs. $459 for Apple.

LyrArc Article Gist
Manufacturing in the US is adding jobs for the first time since 1997, according to government data. Job growth in 2010 was 1.2%, or 136,000 jobs. IHS Global Insight expects total manufacturing jobs in the US to increase in 2011 to 12 million. Manufacturing will be a modest contributor to job growth according to economists. Economists projections show a gain of 2.5% or 330,000 manufacturing jobs in 2011. Moody's Analytics estimates job growth of 2% a year through 2015. Government incentives, need to replace aging equipment and rehiring in the automobile industry will help manufacturing. At the same time manufacturers are cautious about hiring and increases in automation reduce the need for workers compared to earlier periods. Overall the loss of about 6 million manufacturing jobs since 1997 will not be made up. Yet the improvement is a positive sign as the US faces high unemployment and companies make investment in new factories overseas to meet growth in emerging markets.

LyrArc Article Gist
Strikers at a Honda transmission factory in Hoshan, 100 miles northwest of Hong Kong are asking for raises of $117 or 800 renminbi in cash above the $132 a month or 900 renminbi that they are now paid. About 950 of 1900 workers at the plant are trainees, young people from vocational schools or high schools earn $132 a month. Older employees earn upto 1500 renminbi or $220 a month. The significance of this strike is that the Chinese government is tacitly encouraging the strike as it begins making moves to increase domestic consumption and make the economy less dependent on exports. This requires consumer's having larger purchasing power and higher wages. It also means that China will not remain the low cost manufacturer for manufacture goods makers around the world for very long. Consider the size of the increase and the policy change of the government and this implies a significant shift by China.

LyrArc Article Gist
As David Ignatius points out in his trip to China, the China of post 2010 is a lot of things depending on who you talk to in China- cocky, scared, anxious. He comes away perplexed by the range of questions that come up in his mind. The wealth of the coastal cities is stunning, and at the same time as the leaders insist China is still a poor country with deep regional imbalances, and what is less mentioned, the rising inequality in society. How to pull it all together to make possible a transition to development that is evened out across all regions and sections of society and to allow freedom of expression, is a challenge for the new leadership of Xi Jinping in 2011.

LyrArc Article Gist
Krugman says that Obama better warn the Chinese that they are playing a dangerous game with their currency. He says month after month of the suffering of unemployed workers in the USA is going to look very bad for the Chinese, at the same time as the trade deficit numbers soar again. He asks for urgency from the Obama administration in telling the Chinese to let their currency appreciate . See the related article by Niall Ferguson.

LyrArc Article Gist
Two Harvard economists, Lawrence Summers and Lant Pritchett, say China is likely to revert to the mean of average long term growth of developed countries after this spurt of growth is over. Growth is likely to slow to 6% by 2016, and revert to the mean of 2% for industrialized countries in the long term. Goldman Sachs banker Jim O'Neill, says the growth at a higher rate could be sustained because of urbanization. Summers does not rule out this outcome as he accepts a range of outcomes, with the most likely outcome being a reversion to the mean. The factors often cited for slowing growth are lower of productivity of capital as corruption and close connections determine where capital is allocated, misallocation of capital, large increases in credit in the economy since 2009 leading to bad debt in the financial system, aging society and demographics with increasing numbers of older people. Other reasons are the choices being made by Chinese leaders for slowing down to address the problems of air pollution and contamination of water supplies, inflation in housing prices, overdependence on exports, need to shift to increasing domestic consumer spending but unable to do this with the lack of spending power of large parts of the population because wealth is excessively concentrated in the upper ranks of society. The need to manage these forces ensuring some measure of stability depends on finding ways to reduce the growing concentration of wealth and power, in itself a challenge for the Communist Party elite. A combination of different factors with some still unknown factors are likely to play a part in this reversion to the mean for China, a situation encountered by every country so far in North America, Europe and Japan. This makes it even more important that each developing society structure its development around the most optimal goals with the least costs attached to the development....

LyrArc Article Gist
Tyler Cowan says slower growth in India is a troubling sign in 2012, and as significant if not more than the eurozone crisis. A less mentioned and major problem is the low productivity in agriculture, and he points to Japan, Taiwan, and S. Korea where major increases in agricultural productivity preceded successful industrialization. With growing population and continued growth India will be one of the largest economies in the world. The other major problem is shortages of energy supplies and the inability of state owned company, Coal India, to upgrade technology and increase output.

LyrArc Article Gist
As the focus shifts to the east, the war in April in Ukraine shifts to a prolonged war. It also means that the focus now is also on economic separation of US and European economies from Russia and China. As it was this overdependence that lacked prudence or good sense, that emboldened Russia in its relations with the US and Europe, and China in its relations with neighbors in Asia. This report looks at the arms aid Ukraine may need to defend the region on its eastern border with Russia. Russia plans to focus on the separatist Luhansk and Donbas regions in the east which have sought closer ties with Russia. The war in the east has dragged on already for over 10 years.The rest of Ukraine and particularly western areas near Poland such as Lviv and areas near the Baltics have shown strong sentiment for an independent Ukraine able to choose her own path. Throughout history the Baltics and Poland have had a strong influence on western Ukraine and Russia on eastern Ukraine bordering Russia, with influence swinging one way or the other throughout Ukraine depending on the period in history. After the westernization and modernization of Russia under Peter the Great in the 17th century and of Prussia as a German state independent of the Hapsburgs in Vienna around the same period, geopolitics shifting the balance of power took on a bigger dimension. Putin's actions can only be seen as a throwback to using the tactics of invasion going back to this period in history from 1700 to 1950, when dominant powers France, Austria led by Hapsburg dynasty, and Britain with the Dutch fought wars seeking advantage mostly on territory of German states and Italian states, and in all parts of the world. This also laid the grounds for colonization of large parts of Asia and Africa by Europeans in this contest for dominance through trading companies that traded for profit, and used tax revenues from acquired lands for profit making and military activity. In some ways poor economic choices such as the excessive dependence of the US and European economies and their integration with China and Russia have led to the war. As they created advantages Russia and China did not have in technological capabilities and stronger economies that make war an alternative to support foreign policy goals. In the long term it is this these unsustainable economic choices that will be pulled back following the pandemic for shorter supply chains closer to home. This prudent economic separation could not have happened without recent events, as even now Germany industry says its dependence and integration with Russia is hard to reverse for gas supplies, and American business is only now making the changes away from dependence on China in its supply chain.   ...

LyrArc Article Gist
"China's Superbank," by Henry Sanderson and Michael Forsythe looks at the rise of China Development Bank to provide insights into the two decade real estate boom in China, and the trillions of dollars in loans made by state owned banks to finance China's state owned industries and infrastructure development. The authors say these loans based on land owned by the state, improved with roads and other infrastructure and then sold to industry, have helped finance China's urbanization and industrial development. But it has also created problems including eviction of farmers from the land by local government authorites increasing inequality, led to misallocation of capital on bad projects, and an unsustainable model of development focussed on state owned companies. A major side effect of this is not covered in the book. This is the impact of crowding out of credit for private industry in China, with privately owned business having to pay higher rates in the underground loan market or lacking financing. A major focus of the report "China: 2030" by the World Bank and China's official think tank Development Research Center is on reversing this development to come up with a sustainable development model. The report was supported by World Bank chief Zoellick and China's new prime minister Li Keqiang. "The Great Rebalancing," by Pettis, a finance professor at Beijing University, looks at the other side of the financing of China's boom- the low interest rates on savings for China's consumer. This reduces household incomes and reduces purchasing power as the interest rates are lower than the rate of inflation. Lower value of China's currency also reduces the purchasing power for China's consumers. Estimates show the low interest rates cost China's workers and consumers somewhere in the range of 3 to 8% of GDP annually in bank deposit income. This money is funnelled through the banking system to make more loans for infrastructure and growth at the state owned companies, concentrating exraordinary level of financing in one direction. As a result the consumption share of GDP in China has actually fallen in the two decades of hyper development. This is about 34% compared to 50-55% for other Asian economies....

LyrArc Article Gist
China's premier, Wen Jiabao, opened the National People's Congress, annual meeting of the Chinese parliament, by saying that China had lowered its growth rate to 7.5% from 8%. GDP growth for 2011 was 9.2%. Wen set an inflation target of 4%. The CPI index increased by 5.4% in 2011. Wen set 14% growth target for M2, China's broadest measure of money supply.

LyrArc Article Gist
Glenn Hubbard describes how the difference in approach between Romney and Obama matters, as it did between Carter and Reagan. The basic difference being the importance of getting long term policy on the right track. See the Reagan memo in Groups for the importance of setting the right tone and emphasis on a consistent long term direction, which was advice given in the memo by Shultz and other advisors to Ronald Reagan. The belief in growth from private sector investment and job creation and putting the right policies in place is a distinct difference between the Romney and Obama plans.

LyrArc Article Gist
After overly aggressive bank lending following the financial crisis of 2008 China is now badly overextended. China has also learned from the U.S. experience about the risks inherent in growth generated from a credit boom. In 2009-2010 China was also getting less bang for the buck in terms of the increase in lending needed to generate growth compared to earlier periods. Orlik says don't expect China to help the global economy the way it did in 2009-2011, and that there is no Plan B for China.

LyrArc Article Gist
A new report, "China: 2030," by the World Bank and the Development Research Center (DRC), has major implications for the course of action taken by new Chinese leaders. The limits to China's economic model with the dominant role of state owned companies has been pointed out in the past. It has now reached a point where China must choose to move to a modified model or face the "middle income trap" of countries like Brazil and Mexico, where income levels and growth reaches a certain level and then decelerates suddenly with little warning. The report makes some major recommendations that would modify the current system. It says the state owned companies should be supervised by asset management firms focussed on commercializing these companies, and not supervised by the State-owned Assets Supervision and Administration Commission (SASAC). The asset management firms would restrict the state owned companies on what areas they participate and sell off businesses to make it possible for private companies to compete. Zoellick says- "China needs to restrict the role of the state-owned companies, break up monopolies, diversify ownership and lower entry barriers to private firms." The state owned companies would be required to pay sharply higher dividends to the government which could then be used for social programs. Currently state owned companies invest in land which is sold by local governments for revenue helping fuel the real estate bubble. Significantly, the report had its origins when it was proposed by Mr. Zoellick, head of the World Bank, during a visit to Beijing in Sept 2010. It was supported by Li Keqiang, then vice premier, and now expected to be the new prime minister of China. The World Bank is widely respected by Chinese leaders because of its assistance during the early stages of reform in the 1980's. The DRC reports to China's State Council, a top governmental institution, and the No. 2 person at DRC, Liu He, is a senior advisor to the Politburo Standing Committee. He helped draft the current five year plan and is close to Li and Xi Jinping, the next president of China. The SASAC has opposed these ideas, especially any shift in its personnel selection of management at the state owned companies, which it shares with the Communist party's personnel department. Respected China economists say China faces large risks of a sudden sharp slowdown because the the state owned companies have largely copied foreign technology and have not generated enough technological advances, which will be needed for the next stage of growth. Lower growth rates could worsen problems in China's banking system leading to a crisis. The Conference Board, estimates China's growth at 8% for 2012, slowing to an average annual growth rate of 6.6% from 2013 to 2016. Barry Eichengreen of UC Berkeley, Donghyun Park of the Asian Development Bank, and Kwanho Shin of Korea University, say the annual growth rate will drop by at least 2 percentage points by 2015....