Posted on 12/07/2003 3:54:18 AM PST by sarcasm
MEXICO CITY - During the Nov. 1 Day of the Dead celebrations in Mexico, most of the candles used in church altars were made with wax imported from China. A sizable part of the ''Viva Mexico'' baseball caps and Mexican flags sold on the streets were also made in China.
It's not only happening in Mexico. Increasingly, China is eating Latin America's lunch. Low-cost Chinese goods -- textiles, shoes, toys and electronics -- are flooding Latin American markets and pushing many Latin American exports out of the U.S. and European markets.
Last year, Mexico alone lost more than 250,000 jobs in the maquiladora assembly industry along the Mexican-U.S. border, in what economists say is largely a result of Chinese competition. Now, other countries stretching from Central America to Argentina are feeling the pinch. Central American apparel producers, Brazilian leather good exporters and Colombian wire makers are rapidly losing business to China's 72-cent-an-hour wages, a bargain when considering Latin America's average $2.30 hourly factory wage.
''China is hurting us in textile, apparel, shoes, tools, almost every export industry,'' says Miguel Lacayo, El Salvador's minister of economy. ``I've been told by several buyers such as Walmart, ``I'm sorry, but we have to make our purchases in the cheapest place in the world.''
While Latin America's overall exports have grown modestly in recent years, China's are booming. China's total exports grew by an average of more than 17 percent a year from 1992 to 2002. By comparison, Latin American exports grew by an average of 5.6 percent, according to the Andean Development Corp., a regional bank.
Mexico has been the biggest loser of the Chinese onslaught.
According to the latest U.S. trade figures, China continues to widen its lead over Mexico as the second-largest exporter of goods to the United States, after Canada. China now accounts for 11.7 percent of overall U.S. imports, while Mexico's share stands at 11 percent.
And within Mexico, Chinese-made computers, telephone and video equipment and textile goods -- many of them smuggled in to circumvent Mexico's high import tariffs on Chinese products -- are flooding the market.
Sixty percent of the candles sold for the Nov. 1 Day of the Dead street processions and church altar ceremonies -- which account for the biggest annual candle sales in Mexico -- were made with China-imported wax, industry officials say. Chinese wax sales to Mexico have soared from $3 million in 1991 to $49 million in 2002, according to the Canacintra umbrella group of Mexican manufacturing associations.
Some Mexican candle manufacturers say Chinese wax is of better quality than Mexico's, and that they are not against raw wax imports from China. But they are anxious over the possibility that Mexico may lift its 105 percent import duties on finished candles from China.
''If the government lifts these tariff barriers, it's going to be the end of all candle producers in Mexico,'' says José Méndez, general manager of Petrowax, a 20-employee candle maker in Mexico City. ``It would have a devastating effect: There are up to 2,000 candle companies in the country, and most employ about 10 people each.''
SHOE WARS
COPIES OF BRAZIL'S TOP
WARES SOLD CHEAPLY
In Brazil, shoe manufacturers are alarmed by China's cutthroat prices. China produces six billion pairs of shoes a year, more than any other country, while Brazil produces 600 million pairs a year.
Chinese shoe manufacturers have also moved from low-cost shoes to the upper end of the market. They are spotting Brazil's top-selling shoes and duplicating them with synthetic materials and lower labor costs at factories back home. Then they place the replica beside the original leather version on the displays of Brazilian stores at a fraction of the price.
''While the Brazilian-made leather shoe is offered at $28, its seemingly identical Chinese copy sells at an irresistible $6,'' says Ivanio Batista, executive director of Franca footwear labor union. ``For a shopper, it's an easy choice.''
Batista's union is demanding that the Brazilian government limit imports of Chinese shoes. It's unfair competition, he says, because China subsidizes its shoe exporters.
In addition, many Chinese manufacturing firms are owned by the government, and can thus afford to implement long-term plans to win foreign markets without the pressures to make an immediate profit.
In Colombia, Fernando Caballero, general manager of EMCO Cables, a large wire rope manufacturer, fears China may soon monopolize Latin America's entire low-end cable market.
His company used to make large profits by selling wire rope to Chilean lumber companies, which used it to tie up wood shipments. Now, that niche is gone, he says.
''China has been producing wire rope for only four years, but it has flooded the market with products at a 25 percent discount,'' Caballero says. ``They have eaten away EMCO's exports to Chile and Mexico.''
Like many U.S. manufacturers, Caballero also complains about the under-valuation of the Chinese currency, which makes Chinese goods cheaper. Beijing ''is artificially keeping the currency undervalued by 30 to 40 percent,'' he says.
In the Dominican Republic, the shoe and apparel industries have been crippled by Chinese competition, officials say. Celso Marranzini, a former president of the National Business Council, saw his own 900-employee shoe company go under because of Chinese competition.
About 15 years ago, the Dominican Republic's footwear industry employed more than 200,000 workers, he says. Today, it employs no more than 10,000. Marranzini now owns shoe stores that sell imported products, many of them from China.
In Argentina, thread manufacturers are also feeling the pinch, even if their domestic market is protected by government tariffs and quotas.
Platex, one of Argentina's largest cotton and synthetic goods manufacturers, has already stopped producing synthetic threads and synthetic-natural combinations, which until not long ago made up 30 percent of its production, company director Jorge Sorabilla says. Now, it only produces natural fibers, he says.
But the China threat to Latin America goes far beyond exports. In addition to flooding world markets with cheap products, China is siphoning off foreign investments that used to go to Latin America and the Caribbean.
Foreign direct investment to Latin America and the Caribbean plummeted from $84 billion in 2001 to $56 billion in 2002, according to a recent U.N. World Investment Report. Investments in China's manufacturing and services, meanwhile, have gone up steadily in recent years, reaching an unprecedented $53 billion in 2002, the study showed.
Among the companies that have moved some of their operations from Latin America to China in recent years are Philips, Mitsubishi, Microsoft, Hasbro and Canon.
A NEW MARKET
LATIN AMERICAN FIRMS
MAKE INROADS IN CHINA
Yet it might not be all bad news for Latin America.
On the brighter side, China's gradual economic opening is giving Latin American companies a golden opportunity to penetrate a previously untapped and giant market of 1.3 billion people. Brazilian, Argentine and Chilean companies are already making inroads into China's domestic market.
Argentina, coming out from its worst economic crisis in modern history, is seeing booming agricultural exports to China. In the first six months this year, Argentina's total exports to China skyrocketed, turning China into Argentina's single largest agricultural export market.
Two Argentine wine conglomerates, Spadone and Norton, have already positioned themselves to profit from a growing Chinese taste for wine, buying multimillion-dollar warehouses around Beijing.
Diego Avila, a prominent Argentine businessman who has a stake in Spadone's venture, said the group is also looking for opportunities in the sports sector, such as starting soccer academies or selling merchandise of well-known Argentine soccer clubs.
''The Chinese don't have many sources of entertainment, and they now have more free time and a higher income,'' Avila says. ``We want to take advantage of that.''
Brazil's sales of soybeans, cars and iron to China are booming, too.
In the first six months of this year, Brazil enjoyed a $2.5 billion trade surplus with China. According to Apex-Brazil, the Brazilian government export promotion agency, China has risen from Brazil's 12th-biggest foreign market in 2000 to the second-largest, after the United States, this year.
For the time being, however, most Latin American countries are losing more exports to the U.S. and European markets than they are gaining in China.
On the other hand, economists say, if Latin American countries become more competitive and start producing more sophisticated goods -- where China tends to be weaker -- they could end up with the best of both worlds: recovering their share of the U.S. and European markets, while gaining a giant new market in China.
A growing view in Washington and among Latin America's pro-free market economists is that the real threat to Latin American economies is not China but their own lack of competitiveness.
World Bank studies have found that many Latin American countries have expensive telephone and e-mail communications systems, which make them less competitive than China or other East Asian competitors.
''Mexico has the problem of Telmex,'' says Daniel Lederman, referring to the company he says holds a virtual monopoly in Mexico's communication system. ``That raises communications costs, leaving Mexico unable to offset China's cheaper production costs.''
A Telmex spokeswoman in Mexico City said the company's prices are competitive internationally.
SHIPPING COSTS DECLINE
CREATE HIGH-END GOODS,
ECONOMISTS ADVISE
While Latin American countries will always enjoy a geographic advantage -- it takes only three days to ship goods from central Mexico to the U.S. market, while products from China take at least two weeks -- proximity alone will not guarantee greater Latin American exports in the future, economists say. World shipping costs are going down as bigger and more rapid ships are crossing the oceans.
Andean Development Corp. economists say Latin America's best bet is to produce increasingly more sophisticated goods.
''Apparel manufacturers in Colombia or Venezuela should concentrate on high-end, fashionable consumer goods sold at departments like Saks,'' said Miguel Castilla, an ADC economist. ``These goods require greater interaction with U.S. design teams, as well as a fast delivery.''
But many Latin American leaders say it may take more than that.
Reflecting the feelings of many of his colleagues, Mexican President Vicente Fox said in a Nov. 10 speech that the United States and Latin America should create a European Union-like bloc to counter China's growing economic might. Looking to sign a deal by 2005, 34 countries in the region are negotiating a Free Trade Area of the Americas to establish a hemisphere-wide trade bloc that would create a market of 800 million people.
China ''is siphoning off jobs from here in Mexico, from the United States and Canada, from Japan, and from many Latin American countries,'' Fox said. ``What we need is to integrate the governments of the Americas, the parliaments of the Americas, the investors and the business people.''
I couldn't agree more.
Fox said: "What we need is to integrate the governments of the Americas, the parliaments of the Americas, the investors and the business people."
I'll veto that.
People are foregoing Japanese and even local products in favor of the significantly cheaper Chinese junk.
And they know its junk, for example a Chinese bicycle will last 3 or 4 years, a Japanese model 5 to 10 years. But the Chinese stuff is less than half the price.
You name the product - rice cookers, fans, motorcycles, pot & pans - the Chinese are undercutting everything, everywhere.
You may not have the chance.
Amen!
Yes --- Mexico can send us millions of it's unemployed --- but we have to keep all ours and theirs and provide a nice living for them. America is losing millions of jobs but bringing in millions of new unemployed or marginally employed people and the taxpayers of today and the future must provide a good living standard and the best but free health care for everybody.
Yes, actually it is illegal to ship shoes into Mexico from any of the Far East nations. China, Korea, Malaysia, etc. UPS and the USPS have these import rules posted on their websites. I am curious how the author is contending that Chinese shoes are flooding the market. Maybe in countries other than Mexico...
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Right. By sending 2,000,000 people a year over the border to annex California, Arizona, and Texas as suburbs of Mexico City and financing the annexation through the United States system of social services.
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