No the average Chinese person cannot afford a Lenovo laptop produced there. However, there are over a billion Chinese people and they do buy and sell a lot of things that are produced domestically. Since China doesn't produce a lot of the components that go into that Lenovo laptop, and they only make a relatively small markup on assembling the parts, producing that laptop doesn't contribute as much to their economy as you might think.
China makes money on high volumes with relatively low profit margins. The laptop that is assembled there may sell for $1000, but it doesn't contribute $1000 to their economy. It likely only contributes a small fraction of that $1000 to their economy. Meanwhile they have over a billion people who need things for domestic consumption.
Exports are a very significant part of the Chinese economy. Having to percent of an economy's growth being due to and increase in the net value of their exports is very significant, because the trickle down effects on the economy from that business tend to remain within the domestic economy and grow the domestic economy even more.
However, at the same time, it is a relatively small part of the overall economy, which means that China is less susceptible to economic troubles in the countries they export to than people might think.
It also means that a lot of money that people think we are pumping into China's economy is really being pumped into the economies of the countries that supply them with the components they assemble.
I have little doubt that China is working to change this, and is trying to build their own domestic capacity to build more of those components in China, and that is likely where they plan a lot of their future growth to come from. It doesn't mean we shouldn't worry about China. It just means we should understand where they are and where they are headed.
***”significant, because the trickle down effects on the economy from that business tend to remain within the domestic economy and grow the domestic economy even more.”
Other than it was taught as a “multiplication effect” (At least as taught to us years ago), not a trickle down which is usually used in conjunction with Reaganomics, we are in complete agreement. That’s semantics-
It’s not only Lenovo’s, it’s also Cisco routers/switches/access point etc etc etc. The consumer in China consumes a lot and most of that is spent on essentials like food, water, shelter……….. The component of their economy that is industrial and technologically based is heavily export dependent! A lot of the capital development is even financed through foreign investments.
***“ It also means that a lot of money that people think we are pumping into China’s economy is really being pumped into the economies of the countries that supply them with the components they assemble.”
It all goes back to why Freidman is correct in stating that trade deficits are more or less meaningless. Another topic the media like to zoom in on because it has a perceived negative interpretation by the layperson, and they can baffle you with big numbers and charts and graphs spanning some arbitrary time period (Usually a span chosen to show the greatest variance) which in the end means nothing.
*** “ China makes money on high volumes with relatively low profit margins”
True.
But the bottom line remains that the argument in this article is false. China is very dependent on exports, at least for now, and even there we agree that China is trying hard to change this.
“and they only make a relatively small markup on assembling the parts, producing that laptop doesn’t contribute as much to their economy as you might think.”
This type of propaganda makes me puke - and to think that much of this is State Dept generated is very discouraging.
Do you know how many manufacturing facilities in this country have been put out of business by product wholly made in China?
They are Counterfieting GM cars, ferraris, Caterpillar engines, specialty gearboxes, multi million dollar extrusion lines,...you name it.
This article glosses over the magnitude but you get the idea.
http://usinfo.state.gov/ei/Archive/2006/Mar/14-403976.html