Friday, April 25, 2008

Global inflation threat to China's "World Factory"

by:薛涌


Oil, food, all kinds of raw material price increases have been caused by global inflation. In particular the global grain prices last year rose by 50 percent; recently Thailand, Vietnam, India and other major rice exporting countries began restricting the export of rice, some countries simply another under the export ban, resulting in Hong Kong and other places of rice panic, the Chinese had to stand in combat readiness. As the economic structure of different countries, the impact of inflation on the national do not like. China is a low-end manufacturing power, are the most affected countries. Therefore, we need to recognize that inflation and the nature of the challenges posed by the pursuit of an effective response strategies.




Inflation is not just a question of people's livelihood, is also a question of the survival of the manufacturing sector. This is to see the early modern history from the history of the world economy will be able to understand. Before the industrial revolution, people's income for most of the food, almost no remaining consumer purchasing power to industrial products. Therefore, the premise of the industrial revolution, is the agricultural revolution. This agricultural revolution to make a less agricultural population can sustain more industrial population, so that substantial numbers of workers from the land concentrated in the big city may become a factory, while two to improve agricultural production and reduce the prices of agricultural products, Food consumption in the proportion of smaller, so that people eat in the future of the purchasing power of industrial products increased significantly, thus the industrial revolution to create a consumer market. In other words, the relative price of food lower, the industrial revolution is the basic premise. When food prices increase, not only the people's livelihood under pressure, the manufacturing sector is also facing pressure. People can spend in the basket outside the Qianshao, the manufacturing sector in order to maintain their market size, it is necessary to lower the price to sales. Fortunately, in the first half of the Industrial Revolution, technological innovation, constantly, so that manufacturing production costs continue to decline. Every increase in food prices, manufacturing prices are able to maintain the size of the market, and through substantial cost-cutting to maintain or even increase profits. This is also the industrial revolution can maintain its momentum reasons.




Now China has also belong to the industrial era, has not yet entered the post-industrial society, the problems faced by the manufacturing sector, and is very similar to pre-industrial revolution. First of all, on China's domestic market, food consumption in the ordinary people in the proportion of income is quite high. This part of the price rise, the impact on people's livelihood with special emphasis. If all the money spent on food basket, the ability to purchase industrial products significantly reduce the so-called "domestic demand"is not only unable to "pull", but may shrink. This has raised prices to the manufacturing industry to maintain the size of the market demands. Second, in the early industrial revolution, the major European industrial countries, not only in technical innovation, but also in the Americas continue to develop, access to a lot of raw materials, a significant reduction in raw material prices, the prices for industrial products has created good conditions. The international situation China faces the opposite. Now the world already that there had been no new American frontier. Global economic expansion, driven by sharply rising raw material prices, the manufacturing sector to the price cuts are not the conditions, but increase the pressure. Third, when the increase in food prices, industrial prices down and can not be appropriate to maintain the balance between the purchasing power of ordinary people, the entire cost of living would be significantly higher labor costs to the improvement of the manufacturing sector to exert further pressure on the price hikes, formed Prices continue to stimulate a new round of the vicious circle of price increases.




From the international environment, the economy is rising rapidly integrated into the global market. India in the next few decades the population will exceed China, but also much lower age of the population, the labour supply is much more fully, the price of labour is much cheaper. Vietnam in the low-end manufacturing industry, China is emerging as a strong competitor, its population of over 80 million, to 20 years of this century and is expected to more than 100 million, but labor prices are much cheaper, than in the manufacturing sector China more attractive. At present the Guangdong area, a large number of factories have closed the phenomenon. Many low-end manufacturing in China are losing competitiveness.




If artificially depress the value of the RMB, may be able to China's manufacturing industry to provide more opportunities for a few days breathing space. However, the food, oil, all kinds of raw materials rose rapidly, and some have even a double-digit percentage increase, far from being able to lower the value of compensation. Moreover, the low value will only aggravate inflation and stimulate the vicious cycle of the foregoing, the manufacturing sector, the domestic market will shrink as inflation, foreign markets are subject to other low-end country's challenges, will eventually went into a dead end in. Out of this predicament, only to quickly shake off dependence on low-end manufacturing, to a lesser extent dependent on raw materials, higher value-added new industries development. This high-tech, innovative new high-growth industries, the manufacturing sector can not be as large as dependent on the scale, through the pooling of resources of state power "research"can not be more low-value, and so on the protection of the State, but must rely on small Businesses and individuals in a free market of fierce competition. The rise of Microsoft, and so on, are taken this path. Therefore, the state's role is to provide a good market environment in which small enterprises from various regulatory bodies and even interfere with extortion, will be able to enjoy the convenience of financial services to enable the operation of state power more transparent and subject to the supervision of the community. Otherwise, the Chinese economy in the next 20 years will be faced with a serious crisis.

original link:http://blog.sina.com.cn/s/blog_45f00ef401009ld0.html

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