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Surging sectors in 2013

Fast forward: China’s frenetic boom

October 8, 2012
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Safety manufacturers and distributors sourcing products from China, competing against products from China, or selling to China, will find no drop-off in the boom times in the Middle Kingdom in 2013.

Foreign Policy magazine’s Sept/Oct issue lists the 75 most dynamic cities in the world, in terms of population growth (2010-2025) and GDP growth (2010-2025). Cities are ranked by total dollar growth and percentage of GDP growth.

Astonishingly, 13 of the 20 boom towns are located in China, including the top three: Shanghai, Beijing and Tianjin.

Although Shanghai had no skyscrapers in 1980, it now has at least 4,000 — more than twice as many as New York. In 2010, 208 million square feet of real estate, nearly 80 times the square footage of New York’s massive One World Trade Center, was constructed in the city.

Hub for powerhouses

 Overall, 29 of the 75 powerhouse cities are in China — far and away the most of any country on the list. As part of its mad dash toward modernization, China has rapidly urbanized, spawning a slew of massive cities whose size is only tempered by the surprising fact that most people in the West have never heard of them. Despite their relative anonymity, these are the cities likely to drive the world economy during coming decades, according to Foreign Policy economic experts. Some are high-tech manufacturers; others are bathed in smoke produced by the factories that not long ago were a common sight in Western countries.

In a definite sign of the times and the seismic move of global economic power to the East, only three European cities make the list: London, Paris, and Germany’s Rhine-Ruhr area.

Here are the U.S. cities listed among the world’s 75 most dynamic in terms of growth in the next 15 years:

New York (7)

Los Angeles (12)

Houston (22)

Dallas (23)

Washington (25)

Chicago (38)

Miami (44)

Atlanta (48)

Phoenix (54)

San Francisco (57)

San Diego (70)

Philadelphia (71)

Seattle (74)

The index was developed using McKinsey Global Institute’s Cityscope database of 2,600 cities. The index represents one possible scenario of the urban world’s evolution. Cities refer to integrated metropolitan areas, aggregating neighboring cities into a single urban center where appropriate. Estimates are based on underlying demographic and GDP per capita growth projections, and subject to significant uncertainty in evolution of everything from population and migration patterns to per capita GDP growth and exchange rate outlook.

Shanghai’s rocket take-off

Shanghai’s GDP is predicted to balloon from $250.7 billion in 2010 to $1,112.2 trillion in 2025, for total GDP growth of $861.5 billion, a 344% increase. Since being pried open by the British during the First Opium War, Shanghai has served as China’s window to the world. Home to the world’s busiest port, China’s largest stock exchange, and twice as many skyscrapers as in New York, Shanghai today is China’s financial center and most cosmopolitan city. Often called the birthplace of modern China — the Chinese Communist Party was founded there — it is the centerpiece of the country’s rapid march toward prosperity, its glamorous skyline marking the city as a symbol of China’s arrival on the world stage.

New York City, by contrast, is expected to see its GDP growth increase by 32% in the next 15 years.

U.S. urban GDP growth vs China

The top three Chinese cities all are predicted to have a GDP increase of over 300%.

Here are the growth projections for the other ranked U.S. metro areas:

Los Angeles (44%)

Houston (64%)

Dallas (67%)

Washington (53%)

Chicago (33%)

Miami (61%)

Atlanta (57%)

Phoenix (75%)

San Francisco (45%)

San Diego (61%)

Philadelphia (33%)

Seattle (49%)

As you can see, no U.S. city is projected to have GDP growth above 100%.

In contrast, look at some of the growth figures for Chinese countries:

Fuzhou (456%)

Changsha (272%)

Xuhou (499%)

Hefei (296%)

Changzhou (385%)

Xiamen (491%)

Jinan (348%)

Ningbo (358%)

To be sure, the astronomical growth rates of many Chinese cities is due to their current relatively low GDP level.

Mass modernizing

But the mass migration of Chinese workers from the country’s rural areas to urban cities, and the blinding modernization of China’s cities is astounding. For much of the 20th century, the world looked to American cities for a glimpse of the future. Places like New York and Chicago had the tallest skyscrapers, the newest airports, the fastest highways, and the best electricity grids, according to the Foreign Policy survey.

But now, just 12 years into the Asian Century, the city of the future has picked up and moved to China. No less than U.S. Vice President Joe Biden recognized this when he said not long ago, “If I blindfolded Americans and took them into some of the airports or ports in China and then took them to one in any one of your cities, in the middle of the night … and then said, ‘Which one is an American? Which one is in your city in America? And which one’s in China?’ most Americans would say, ‘Well, that great one is in America.’ It’s not.”

The speech raised eyebrows among conservative commentators, but it points out the obvious to anyone who has spent time in Beijing, Hong Kong, or Shanghai (or even lesser-known cities like Shenzhen and Dalian, for that matter).

Smooth sailing

In these cities, visitors arrive at glittering, architecturally arresting airports before being whisked by electric taxis into city centers populated by modular green skyscrapers. In the not-so-distant future, they’ll hop on traffic-straddling buses powered by safe, clean solar panels. With China now spending some $500 billion annually on infrastructure — 9 percent of its GDP, well above the rates in the United States and Europe — and with the country’s population undergoing the largest rural-to-urban migration in human history, the decisions it makes about its cities will affect the future of urban areas everywhere.

China’s economy is stabilizing and will hopefully sail through the crisis toward stronger growth driven by huge domestic demand, global policy makers and economists
said at the 2012 Summer Davos Forum, according to the newspaper China Daily.

China’s economy is in good shape, and has not come to an end of growth after 30 years of reforms and opening-up, Chinese Premier Wen Jiabao said at the opening ceremony of the forum.

“The giant ship of Chinese economy will surely sail ahead quickly yet steadily and reach the shore of a brighter future,” he predicted.

Internal investments

The country is facing economic pressure but the government is confident and able to meet this year’s annual economic target, he said, citing ample fiscal policy space, huge potential in domestic demand, hopeful economic restructuring and a stable political and social environment.

“We’re fully confident that we have the conditions and ability to overcome the difficulties on our way ahead, maintain steady and robust economic growth and achieve development at a higher level and with better quality for a long time to come,” the premier said.

He also called for confidence in the recovery of the world economy from the current downturn, as he did in the opening speeches to all five previous such forums held in China since 2007.

Lackluster global demand and slowing property investment cooled China’s economic growth to 7.6 percent in the second quarter of 2012, the slowest rate since the first quarter of 2009.

Wen said Chinese leaders are “sober-minded” and recognize that there remains a long way to go in industrialization, urbanization and agricultural modernization.

That room for improvement provides China with great development potential in the mid- and long-term, said leading economists and foreign firm officials at the forum.

Justin Yifu Lin, former World Bank chief economist, forecast China can maintain an 8-percent annual growth for another 20 years.

China is now near the development level of Japan and Singapore, with similar models and strategies, while the latter two countries kept growing at an average annual rate of 9.2 percent and 8.6 percent, respectively, for 20 years, Lin said during a forum session.

He rebuffed views on inadequate consumption in China, saying consumption’s share in economic output declined only because its growth was outpaced by investment, which is still much needed in the country and can help improve productivity.

To bolster the softening economy, the Chinese government has reduced interest rates twice this year, cut taxes for small businesses, encouraged private businesses to invest in sectors previously closed to them and fast-tracked construction projects.

Last week, China’s top economic planner approved 55 investment projects worth 1 trillion yuan ($157.7 billion) to build highways, ports and railways across the country, according to China Daily.

Short-term outlook

Li Daokui, former advisor to China’s central bank, forecast China’s economy will bottom out in the third quarter and will pick up in the first or second quarter of next year because of recently announced government investment plans.

“It’s inevitable for China’s economy to see slower growth in the next three to four years, but I don’t expect the slowdown to continue for a decade,” Li said. “With powerful enough reforms, China’s growth will be higher in the latter part of the next decade.”

Reforms he viewed as necessary include improving the legal foundation for the market economy and establishing an effective welfare system.

The outlook for China’s economy is positive in the mid- and long-term and the growth will probably regain momentum next year through more stimulus policies after the coming government reshuffle, according to Lu Haiqing, corporate affairs senior vice president of Tesco China.

The British retail giant plans to open 16 new stores and develop several commercial property projects in China this fiscal year (March 2012-end of February 2013), Lu told Xinhua in an interview during the forum.

China’s lower growth target has slowed foreign firms’ expansion in China but the country remains a top choice for investment as other markets of the world are even much weaker than China, he said.

“If you ask a CEO of any multinational company which is the most important country besides their home country, it must be China,” Lu said. “Because the market is there.”

Chinese manufacturing sector

Increasingly, companies around the world take advantage of the Chinese manufacturing opportunity, with its low labor rates and expanding infrastructure, according to Macrotech Marketing Associates.

Besides the low labor rate in China, of great import to its manufacturing performance is the ever-improving economic infrastructure. Throughout China, transportation networks are being upgraded to facilitate the large volume of exports being produced in its factories.

More facts, as compiled by Macrotech Marketing:

  China manufacturing is becoming very complex and high technology oriented. It is shifting from an assembly base to a full scale manufacturing center for multinational companies.

  Chinese companies are now competing globally in Component Design & Manufacturing, Surface Mount Technology, PCBs, Network Hardware, PCs, TVs, refrigerators, auto parts, and much, much more.

  Manufactured goods have replaced raw materials as the top export item, accounting for more than 80 percent of total exports.

  Chinese manufacturing grew 12% a year between 1998 and 2002.

  China is now the fourth largest producer of manufactured goods in the world.

  Its world market share in manufacturing has grown from 1.4% in 1980 to 7.3% in 2004.

  China’s exports from outsourcing are expected to grow 45% over the next five years.

  The Chinese government provides continued incentives to both foreign and domestic companies.

  Of the top 500 companies in the world, 400 companies have invested and manufactured in China.

Safety equipment in China

Just last month, from Sept. 18 – 20, the 6th annual COS+H China International Occupational Safety and Health Exhibition was held in the China National Convention Center in Beijing. The organizer was Messe Dusseldorf China, Ltd., with headquarters in Beijing. As with the firms’ every-other-year A+A Safety Trade Fair in Germany, the Chinese version also runs every two years.

This year, COS+H China attracted 189 exhibitors and 10,188 visitors. U.S. safety trade shows such as the National Safety Congress, the American Industrial Hygiene Conference and Expo, and the American Society of Safety Engineers annual Professional Development Conference and Expo attract hundreds more exhibitors than COS+H, but only the NSC comes close to COS+H’s 10,000+ attendance.

According to Messe Dusseldorf China, the Chinese economy remains one of significant growth despite worldwide economic uncertainties that have marked the past few years. And as China continues to modernize its infrastructure and liberalize its economy, and particularly in keeping with its standing within the World Trade Organization (WTO), worldwide industry standards of occupational safety and health requirements will drive the demand for this industry for many years to come.

Questions are beginning to be asked: who is going to be wearing the safety equipment sold by thousands of Chinese suppliers and also global safety equipment multinationals? The seemingly endless flow of young Chinese workers who helped to create the country’s economic miracle has now finally “dried up”, according to a leading economist, in an article published last year in the London newspaper The Telegraph.

For decades, China has been able to rely on its vast workforce to manufacture a host of goods more cheaply and efficiently than anywhere else in the world.

But now China’s leaders are worrying that the country’s one-child policy has begun to stem the tide of young workers ready to step forward into the country’s factories.

“Each year, the number of new workers joining factories is smaller than the number of old workers who are retiring,” said Zhang Zheng, an economist at the elite Guanghua School of Management at Peking University. “The supply has dried up,” he added.

Last year, according to his calculations, only 154 million people under 30 were part of China’s enormous 550 million-strong industrial workforce.

Mr. Zhang added that it was not just demographics that was sapping the workforce of younger staff, but also the growing ambition of young Chinese to pursue further education and then white-collar jobs.

The shortage of young workers is a headache for Chinese factory bosses, who need workers who can put up with long hours and work that demands physical strength, precision and good eyesight.

As a result, wages have shot up by anything from 15 percent to 40 percent in some areas, making China a more expensive location for foreign companies to manufacture their goods.

“Chinese companies have to accept the fact they have to raise wages,” said Mr. Zhang. “And foreign clients will have to accept that China is not just a place to manufacture cheap goods. Without rising prices, fewer Chinese companies will be willing to take orders,” he added.

Labor unrest

Of course the most notorious story concerning China’s industrial workforce involves the Apple, Inc. contract manufacturer Foxconn. Foxconn is actually based in Taiwan, and has 13 factories in nine Chinese cities, more than in any other country.

The scale of the company is immense. Foxconn’s largest factory worldwide is in Longhua, Shenzhen, where hundreds of thousands of workers (varying counts include 230,000, 300,000, and 450,000) are employed at the Longhua Science & Technology Park, a walled campus sometimes referred to as “Foxconn City” or “iPod City”. Covering about 1.16 square miles (3 square km), it includes 15 factories, worker dormitories, a swimming pool, a fire brigade, its own television network (Foxconn TV), and a city centre with a grocery store, bank, restaurants, bookstore and hospital.

 While some workers live in surrounding towns and villages, others live and work inside the complex; a quarter of the employees live in the dormitories, and many of them work up to 12 hours a day for 6 days each week.

 Another of Foxconn’s factory “cites” is Zhengzhou Technology Park in Zhengzhou, Henan province where it is reported 120,000 employees work.

Foxconn continues to expand, and planned factories include sites at Chengdu in Sichuan province and Wuhan in Hubei province.

Allegations of poor working conditions have been made on a number of occasions. News reports highlight the long working hours,discrimination against mainland Chinese workers by their Taiwanese co-workers,and lack of working relationships at the company. Although Foxconn was found to be compliant in the majority of areas when Apple Inc. audited the maker of its iPods and iPhones in 2007, the audit did substantiate a few of the allegations. 

There have been a number of suicides of Foxconn workers. One was the high profile death of a worker after the loss of a prototype and the others, a series of suicides linked to low pay in 2010. Suicides of Foxconn workers have continued into 2012, with one in June 2012. The rate has substantially reduced since 2010 however.

In reaction to a spate of worker suicides where fourteen died in 2010, a report by 20 Chinese universities described Foxconn factories as labour camps and detailed widespread worker abuse and illegal overtime. In response to the suicides, Foxconn installed suicide-prevention netting at some facilities, and it promised to offer substantially higher wages at its Shenzhen production bases. Workers were also forced to sign a legally binding document guaranteeing that they and their descendants would not sue the company as a result of unexpected death, self-injury, or suicide.

 Dating back to at least 2010, China has been hit with waves of labor unrest, including strikes and partial shutdowns of factories, underscoring what experts call one of the most dramatic effects of three decades of startling growth, according to an article in The Washington Post. A seemingly endless supply of cheap labor is drying up, and workers are no longer willing to endure sweatshop-like conditions.

China’s export-driven growth has long been linked to its abundance of workers — mostly migrants from the impoverished countryside who jumped at the chance to escape a hardscrabble rural life to toil long hours in factories for meager wages.

If they were unhappy, they rarely expressed it through action, and if they did, they were quickly fired and replaced from among the hundreds of others waiting outside the factory gates.

Shifting demographics, including years of effective population control through the government’s “one child” policy, have left China short of younger workers, particularly in the crucial 15-25 age group that many factories rely on most. These young workers don’t have to travel far from home like their parents did to find work. They are more aware of their rights. And having grown up in a more prosperous China, they are demanding a fairer share.

“The first generation of migrant workers made a lot of money compared with their poor life before,” Cai He, dean of sociology at Sun Yat-sen University, told The Washington Post.”But right now the majority of migrant workers are in their 20s. They were born in the 1980s. Most of them have no farming experience and “are more sensitive to the disparity between the wealth of the city and their own poverty.”

These young workers are asserting those rights in the form of work stoppages, slowdowns and demands for higher wages and shorter hours. The unrest was highlighted by a strike in May, 2010 at Honda’s transmission factory in the city of Foshan, where hundreds of workers walked off the job. The Japanese carmaker had to shut its four assembly plants in China.

Bus and taxi drivers also have staged strikes in 2010, affecting tens of thousands of passengers.

While labor unrest has become increasingly common across China in the past two years, experts said, most incidents typically go unreported.

“We’re having major problems with labor unrest right now,” said Sunil Balani, a Hong Kong-based businessman who exports garments to Europe from Chinese factories. “Some of our factories are running 30, maybe 40 percent empty at times.”

In mid-2008, China introduced a labor law that allows workers with grievances to file complaints and opens a new mechanism for mediation. Publication of the law probably made workers more aware of their rights, experts said.

Since the law went into effect, the number of known complaints has doubled to about 700,000, and they “are going up even faster now,” Mary Gallagher of the University of Michigan, an expert on Chinese labor, told The Washington Post.

“This is the thin end of a very long wedge,” Arthur Kroeber, managing director of GaveKal-Dragonomics, a research firm, told The Washington Post. He said the number of 15- to 24-year-olds in China is set to fall by one-third over the next dozen years, from 225 million today to 150 million in 2022.

Kroeber noted that as the number of young workers declines, the number of factories needing laborers has increased rapidly. “This is the beginning of a long process in which bargaining power is going to shift from the company to the workers,” he said.

Potential benefits to U.S. manufacturers

Labor unrest at companies including Honda Motor Co., electronics giant Foxconn and, on Friday, a parts supplier for Toyota Motor Corp. has shifted attention in China toward the gap between rich and poor and the sustainability of cheap labor. It also comes as minimum wages are rising in a handful of provinces and cities.

Workers have not shared in China’s booming economy. In 1999, the ratio of Chinese laborers’ income to the gross domestic product was 53%. Today it has declined to 40% — compared with 57% in the U.S.

Many economists have long argued that boosting Chinese household income is a key to resolving the yawning trade imbalance with the U.S., which grew to $19.3 billion in April — up $2.4 billion from March.

In theory, getting more money into the hands of ordinary Chinese would spur the buying of goods and services. That would take pressure off Beijing to rely on exports to keep its share of the economy humming and would give U.S. manufacturers a more level playing field.

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