Posted on 05/27/2007 6:40:37 PM PDT by TigerLikesRooster
Half of S.Korean Businesses in China in the Red
In mid-December of last year, the executives and employees of a medium-size South Korean leather company in China ran away under cover of night. About 30 South Korean executives and employees of company "S", including its president, fled to a nearby city and eventually left China, leaving the factory and facilities behind.
Company S had been losing money because of a price war with Chinese competitors. It left behind debts of tens of millions of dollars owed to banks and skipped out on paying the wages of some 300 Chinese workers.
A lot of South Korean businesses are operating in China, but one out of every two is failing. An increasing number of owners and employees flee by night because of the difficulty of surviving there.
Based on an analysis of year-end financial statements from 2005 of 598 South Korean companies operating in China, the Export-Import Bank of Korea said Sunday that 51.8 percent of those businesses are operating at a loss.
Fifty-five percent of small and medium-size South Korean businesses based in China are suffering losses, while 46.7 percent of South Korean conglomerates operating there are suffering losses.
Why are South Korean companies doing so poorly in China? It's because they are becoming less and less competitive, with Chinese wages rising sharply and new, more competitive Chinese enterprises coming into play.
Another report by the Export-Import Bank shows that South Korean companies in China registered a 1.3 percent profit margin on sales (for 2005). This is far below the average ratio (6 to 7 percent) of listed companies in South Korea.
Moreover, the top 58 best performing South Korean companies showed a declining net margin for three recent years -- 6.5 percent in 2003, 3.5 percent in 2004, and 2.3 percent in 2005.
Early this year the South Korean Embassy in China conducted an on-site survey in areas where South Korean enterprises are clustered. In Dongguan in the southern province of Guangdong, the number of South Korean textiles, apparel and toy companies dropped from 40 to 15. The officials of most of the defunct companies disappeared in the night.
Experts say that the time when South Korean companies could take advantage of low Chinese wages is over. Hong Suk-woo, deputy minister for trade and investment policy at the Ministry of Commerce, Industry and Energy, said, "We need to change our strategy for the Chinese market from low-value added, labor-intensive industries to high-value added ones, and to switch focus from exports to third countries to domestic consumption in China."
South Korean companies have made a total of 15,909 investments in China and invested US$16.9 billion from 1998 until late last year.
Investments in China for anything not intended for export are for $uckers.
That's a rhetorical question. China had pegged the RMB to USD for years. Only recently, in the last year, have they allowed a small amount of float, based on a basket of currencies. Last month they increased the daily amount of float (I think it's now +/- 0.5%).
The Chinese are not idiots. If they allowed it to immediately float, Asian markets would have had wild fluctuations based on speculation, and it would not be good for any country.
So, in response to your question, my view is that the Chinese have been working to make life better for their people using the methods that are available.
You are completely sold on the ‘Chinese model’ then. I suggest you pick up a book or two in your free time and read them. It does not matter what they are about. It might pull you out of your delusion.
The Chinese culture is probably more "conservative" than you could ever guess. The Chinese people are inspired by America and American initiatives. They want to take their place in the world community, and the socialist government is pursuing every option available. Therefore, the 'Chinese Model' you refer to is a work-in-process.
Pay attention, because if we don't help lead the way, then we'll end up in the dust.
Wealth of Nations...
Unfair trade results in a delayed catastrophe for China.
They give us valuable goods, we give them worthless paper. Our paper loses more and more value, while their currency increases in value.
Eventually, wehn the selling pressure stops, our currency rises to its proper level. MEanwhile, don’t travel outside the country unless you have bags of money... Or buy oil for that matter!
Eventually, their currency will be uncompetitive, and they will wind up with high unemployment, and declining profits. Their extended economy will be built on loand, which the people and companies cannot repay.
Sound like Japan? Yup, Japan was supposedly eating our lunch, and was going to rule the world. In 1989 the Nikkei was actually briefly more valuable than the US Stock Market. Since the high of 40k on the nikkei, it is now, nearly 20 years later, at about 17k.
I am in Finance, but never really understood this until I read PJ O Rourke on the Wealth of Nations. PJ is very funny, and WON was a very important book, written back in about 1774, by Adam Smith I think. Adam Smith’s advice to an importing nation of England, was not to worry about a trade imbalance, and to certainly not start imposing tarifs.
We’ll end up in the dust...
Yup, just like Japan right?
While China is certainly a very strong economy, it is being built with sticks, if not straw. Anyone investing money right now in China, is going to lose a whole pile of dough, and it’s not going to take a whole lot longer.
I’m not an “expert” on China, and maybe that helps. But I am an expert on econ and finance. China is in a bubble economy, and it will blow up just like every other bubble economy. China missed an opportunity to play on the up and up, and will eventually wind up with a very weak internal economy, with a billion really pissed off people.
I hear a lot of grumbling in S. Korea and Japan. If you go ahead, it is your choice. I won't be getting in the way. Just do not drag others with you. We have a different idea.
Over 1.25 million Chinese are closing their bank accounts weekly and opening up brokerage accounts. Anyone who has ever been to Las Vegas, Atlantic City, Foxwoods/Mohegan Sun Ct or Macau knows that Chinese are degenerate gamblers willing to risk everything in hopes of hitting the big score. Usually the bomb out and this time will be no different.
And, I would agree with your comments. Certainly, no economy is nearly as strong as the US economy. However, is it really a bubble, what are the indicators you're using?
Remember, even though the US is it's largest trading partner, we are not their only trading partner. China has been gaining trade in other parts of South America, Asia, Africa, and in Europe. I can hardly claim to be an expert in anything, let alone finance... but, well over a billion people makes me think that the recent Chinese market fluctuations are really not that significant. Especially since China's government is actively trying to cool their economy.
Between the one-child policy, the effects of Chinese-scale pollution on human fertility, the general breakdown of public health financing, and the effects of collapse of regulation of the food, beverage and drug industries on human fertility (add toxic waste to the food supply),
I expect overall Chinese fertility to drop in the very near future to South Korea’s or worse (i.e., under 1.0), China’s population growth to cease, its population average age to soar much, much faster than expected, and then its population to crash.
Demographic projections even absent all this indicate that American’s population growth in absolute numbers will exceed China’s in no more than 20-30 years.
I’d imagine, that economic success in China, has created a very powerful breed of risk takers and speculators in China. They do already have that kind of nature anyway... Borrowed money, invested, needs to be repaid. I’ll be willing to bet, that the banking system in China is built on hope of repayment...
Oh, let them have their fun. ANd boy can you make people mad when you say the party is ending, or will soon. I tried to warn people about the tech wreck here int he late 90’s, but people just had that look in their eyes. You may now recognize that look in the typical real estate investment idiot we see now.
Remember Rebel W/O a cause? Can you figure out, why a MANSION, was completely run down and vacant, near the observatory???? Think about that for a minute, and what that means about real estate booms and busts.
Interesting comments.
Nothing sucks worse than being poor, after you tasted wealth. A billion people are going to be so pissed... Not like they will blame themselves you know! Who knows, maybe this crumbles red china?
Interesting comments about birth rates. Yes, as their society becomes more and more expensive too, will birth rates decline. BMW’s are much more fun than babies to most people...
I got 4 kids, and boy am I “rich”. I hate poeple that put wealth over having a family.
Man, have you hit the nail on the head! Everything in China is built on repayment. But isn't that true with the credit system in the US? More controlled, for sure, but the system in China is based on relationships more than any mathematical formula... That's the source of concern for all involved.
There are many people in China pulling their savings out and dumping it into the stock market at unprecedented rates. Most of which are relying on word of mouth investment tips... I'd say 90% of them have no idea how a market economy works, and that they'll certainly end up loosing their shirts.
But, will this ruin their economy? I don't believe it would because the risk takers are still only a small percentage of the population.
It’s funny many people mentioned Japan in the late 80’s, how their Econ crashed and US had the last laugh. But nobody mentioned all of that happened because of Japan caved in to US pressure and revalued their Yen by 50% ...
Now we want to just repeat the history, destory China’s Econ just like we destroied Japan’s by forcing them to revalue their currency. But I doubt Chinese is that stupid.
The birth rates and aging population in China are a big concern for the Chinese people. They are definitely considering changing the one-child policy. They’ve also realised that the one-child policy creates kids that are spoiled rotten, called the 4-2-1 syndrome (4 grandparents, 2 parents, and one kid). There is a growing number of people in China who are having two and three kids, regardless of the consequences (all financial BTW), because they too have the same belief as you.
If there is no huge bubble built up in Japan, there would have been no big crash. Japan made themselves vulnerable for economic downturn.
China is welcome to sustain current currency value if they so desire. As I said, it will open the avenue for a different kind of shock.
My point is that a lot of Chinese who want to have children will find themselves unable to do so because of reduced fertility due to pollution and a poisoned food supply. And that is starting to bite right now. It happened in Russia too.
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