Cheap goods, expensive real estate and the end of the Chinese economic miracle

bargain storeIt always amazed me how cheap products are in the numerous ‘Bargain’ shops on our busy high street in the cosmopolitan Melbourne suburb I live in.

Just how can you sell pots and pans, knives, gardening utensils and art supplies for just a few dollars and still make a profit?

The answer of course is: Made in China.

The mass industrialisation of China over the last few decades fuelled by a massive inflow of cheap migrant labor from rural villages has created the huge factories (and sweat shops) that produce all these products so incredibly cheaply.

This urbanisation of China has created its 1.3 million Chinese millionaires (projected to reach 2.3 million by 2020) and millions more middle-class Chinese that have helped fuel Australia’s biggest ever housing construction boom as well as push up the prices of prestige real estate in best suburbs of Sydney and Melbourne.

As a property journalist I have reported first hand on this huge wave of Chinese money being spent on Australian real estate and there is of course the many tales of money being flown into the country on private jets to pay in hard cash for multi-million dollar luxury property.

foreign investment in Australia real estate

But it’s these two extremes: mass production of cheap goods and aspirational wealthy and middle-classes that urbanisation has created that have combined, hand-in-glove, to bring about the end of the Chinese miracle and which rightly has Australian economists and global economists so jittery.

How has this happened: well the answer lies in a something called the ‘Lewis turning point’ (named after economist W. Arthur Lewis): a term used in economic development to describe a point at which surplus rural labor reaches a financial zero: in other words when productivity gains starts going backwards.

This is essentially what has happened in China: the wave of cheaper labour that propelled its extraordinary growth for decades  is coming to an end.

China’s population is ageing so there are fewer young workers to carry out the unskilled work plus, with urbanisation many young Chinese people don’t want to work on a factory line for a tiny wage: they want the fruits of economic prosperity – easy, high paying jobs with benefits.

Also impacting on China has been a drop in global demand for its goods, over production and other countries like Vietnam, India and Bangladesh being able to produce them more cheaply.

The end result: factory wages have doubled in the past 7 years, company profits have tumbled and many manufacturers are now looking to shift their factories from China to places like Vietnam  and India, which are much further down the economic development scale, and where they can employ people on much lower wages.

An excellent 15 minute video prepared by the Financial Times tells the story of how China is changing through the eyes of two people:

  • Yang Zonghou, a migrant worker from Hunan province who lost his job in a Japanese toy factory when it closed down last year and is now considering returning to his local village and family.
  • Ha Van Huy, a 28-year-old Vietnamese man who worked illegally for a while in a Chinese factory sewing the fabric layers for headphones and earning twice the salary he earned in Vietnam.

It seemed almost too incredible to fathom that Chinese factories are willing to employ illegal labour from Vietnam but this is indeed happening as “factories that powered the country’s growth for decades are being squeezed by a shortage of workers, rising wages and falling prices” the FT.com video shows.

As Yang Zhanghou explains, whereas in the past Chinese workers were happy to work hard and earn whatever they could, and send a bit back to their families, now  everyone wants easy jobs with benefits.

The factories won’t employ him because he is too old while at the same time the he says the villages are filling up with young people who are “choosing to be at home”.

So where does this leave countries like Australia: staring down the proverbial barrel.

This has already unfolded in the resources slowdown, which was fuelled by China’s previously insatiable demand for raw materials like iron ore, copper and aluminium which drove up commodity prices and generated record profits for Australia mining companies.

With the slowing Chinese economy, demand for these commodities has fallen – and so to have commodity prices as oversupply has set in. In February, the world’s biggest mining company, Australia’s BHP Billiton posted a $7.84 billion loss in its interim results.

Luckily a big drop in the Australian dollar has resurrected sectors like tourism, property and education, though all of them have become increasingly reliant on China’s emerging middle class to fuel their growth.

The FT.com documentary ends by warning that if the slowdown continues, it could force the whole world into a fresh economic crisis.

“If that does not happen, rising labour costs mean consumers will have to pay more for everything…Made in China.”

That of course could spell the end of the Bargain stores on my local shopping strip with their cheap goods.

But it seems an infinitely better option than a world-wide financial crisis.

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The brilliant wit and insight of Bill Bryson

neither here nor thereNeither Here Nor There is a travel book by best-selling author Bill Bryson charting his 1990 trip around Europe and which I recently finished reading.

It had been a long time since I last read a Billy Bryson book, maybe 10 years or more. I went through a phase where I read heaps of them and enjoyed them immensely.

Then, recently, someone brought back a movie from one of those video dispensing kiosks that have sadly replaced Video Stores in our neighbourhood. It was called ‘A Walk in the Woods’ starring Robert Redford, Emma Thompson and Nick Nolte.

Robert Redford played Bill Bryson, Emma Thompson his wife and Nick Nolte, his one-time travel buddy Steven Katz. The film was a dramatisation of Bryson’s book of the same name where he set off, as an unfit, 60-something bloke to walk the 3,500 km Appalachian Trail from Georgia in the South all the way up to Maine on the East Coast (Bryson had returned to live in the US after two decades in England.

It turned out to be a mildly entertaining, somewhat charming buddy movie – Bryson and Katz begrudgingly reunited – trying to do the impossible. Combined with some breath-taking scenery and funny moments (like when Katz seduces a plump, local woman at the laundromat, only to be hunted later by her rifle-toting hill-billy husband) it inspired me to read Bryson again and conveniently I found a copy of Neither here nor There sitting on my shelf.

The travelogue begins with Bryson on a long, uncomfortable bus journey in Norway to see the Northern Lights in Hammerfest (which he does finally see and describe in all their wondrous, spooky glory after wandering the remote town for weeks). Then after returning to England to wait for the coming of Spring, he heads back to Europe to begin the journey proper.

Beginning in Paris,  Bryson travels east through Belgium, Germany, Holland, Denmark, Sweden, Italy, Switzerland, Liechtenstein, Austria, the former Yugoslavia , Bulgaria and finally Turkey.

The great thing about Bryson, and what I believe all great travel writers do is they make you want to pack your bags and do some travelling of your own – but not by telling you that everything you encounter in the world on your travels is wonderful, but by piquing your curiosity.

Bryson is a master at combining the typical sightseeing stuff – museums, cathedrals, art galleries – with the more quirky, unusual places. He wanders of the beaten track, to find a hidden park, an interesting pub or a ruin, throwing in dollops of fascinating history and hilarious and often embarrassing stories about himself

bill bryson

The author Bill Bryson

As a self-deprecating chronicler of his own misadventures, Bryson is in a class of his own. He is happy to share his misadventures with women, descriptions of his less than trim physique and personal style (he comes across as quite geeky) and his penchant for booze, cigarettes and ogling the more attractive specimens of the opposite sex.

 

He also spends a lot of time complaining about the price of hotels and getting angry when he finds a museum he desperately wanted to see closed or is left disappointed by a city or place he thought he would like.  All experiences I could relate to.

I spent four days wandering around Florence, trying to love it, but mostly failing…there was litter everywhere and gypsy beggars constantly importuning and Sengalese street vendors cluttering every sidewalk with their sunglasses and Louis Vuitton luggage.

Bryson’s greatest gift as a writer and storyteller is his very dry, very sardonic sense of humour, which must have been finely honed by his years living in the UK.  Indeed it’s hard to imagine he’s actually American.

He is a very funny writer, something incredible hard to achieve, and I found myself chuckling of even guffawing every couple of pages at some amusing anecdote about local customs or over the top description of a terrible meal, strange hotel or unexpected experience.

Here’s an excerpt from his visit to a sex shop in Hamburg and his musing on inflatable sex dolls:

I was fascinated. Who buys these things? Presumably the manufacturers wouldn’t include a vibrating anus or tits that get hot if the demand wasn’t there? So who’s clamouring for them? And how does one bring himself to make the purchase? Do you tell the person behind the counter it’s for a friend?

Later he muses about what would happen if friends popped over while you were entertaining your “vinyl” friend, thinking that perhaps you have to shove the doll up the chimney and hope no one asks about the extra place setting.

But then he reckons, maybe he is just being a prude. Maybe people discuss their dolls in bars and so he imagines a typical conversation:

“Did I tell you I traded up to an Arabian Nights Model 280. The eyes don’t move but the anus gives good action.”

Also in Hamburg he is perplexed at why gorgeous women grow armpit hair which makes it look as if they are wearing “brillo pads” under their arms, remarking that “I know people think its earthy, but so are turnips”.

But from these hilarious musings, he can shift into serious mode. Following a return visit to the Anne Frank house, he writes:

One picture I hadn’t seen transfixed me. It was a blurry photo of a German soldier taking aim with a rifle at a woman and the baby she was clutching as she cowered besides a trench of bodies. I couldn’t stop staring at it, trying to imagine what sort of person could do such a thing.

From the hilarious to the deadly serious, Bryson keeps you entertaining from the start to finish. Hardly for a moment are you ever bored. The book is full of movement: train journeys, city walks and tumbles down hillsides.

There’s also a certain pleasure in following the adventures of travel writer before the age of the smart phone (and Google maps) and online booking websites.

In an interview to promote a new book a few years back, Bryson said he was  lucky enough to get away with ditching his copy editing job on the London newspapers and becoming a full-time writer.

“Then it was wonderful – there’s no better way to make a living than being a travel writer,” he said.

This passion for travelling and writing about his travels, makes reading Bryson a great pleasure as well.