Over good part of last quarter the thinking part of the world was
busy analysing the Chinese stock market crash and what the future
beholds for the middle kingdom. We have done our bit of analysis and it
is as below.
China and Chinese economy was the result of a globalised economy. The
then Godfathers of the world economy prescribed nations to produce only
what they are good at, and import stuff if it was made cheap somewhere
in the world. Asian tiger economies were the first to make use of this
precription, but China perfected it. China became the manufacturing back
yard for most of the goods consumed in the world. The scale allowed it
to reduce cost and supported by cheap credit the export boomed and so
the economy.
But everything in world come with a shelf life, even economic models
too. It now seems that this strategy has run its course and shelf life
for this model is now nearing expiry date.
China mostly operated at the commoditised technology. Unlike Japan
where the products are of high end technology Chinese products were
mostly low end mass produced stuff. The driving edge of these products
was cost. But increasingly nations found that this Chinese intervention
in market was detrimental in the long term. Take an example of a case
where a country is manufacturing ceramic cutlery. Now there are hundered
or more companies making the same stuff. But a single trader importing
the stuff from China disturbs the whole market. A single consignment
from China kills the price in market. And margins of all the local
players are eroded bringing hardship to employees and other stake
holders. Obama was the first to realise it and gave thrust for
manufacturing in America. Other countries followed. As more and more
countries venture out to protect the local players and create jobs in
their country it seems the whole Chinese economic model has run its
course.
So what is in store for China?. The Gurus now started predicting the
fall of communist party and even chaos in China. Is all that gloom for
china? It doesnt seem so.
China has learnt that dumping cottage industry and low end technology
stuff only antagonises communities and governments. The solution lies
in moving up the technology ladder. For example today there is not a
single Chinese company that come to our mind when we think about
companies like GE, Siemens, Boeing, Komatsu, Caterpillar, Hitachi,
Philips etc. These must be the new targets that China must now focus on.
Nations also will welcome these products, unlike the commoditised low
end technology products. High end Chinese products will drive down the
prices of these MNC’s and these are products that play as a input role
in the economic growth. And this will herald a new era of technological
leadership in world. Life will not be same for so called todays
developed countries.
But it will not be easy for China to make this transition. An
authoritarian system is good for a assembly line economy, where there is
no originality in output generated. Pundits say that to move up the
technology ladder and innovation a free thinking society is must and not
one which is trained to think through established matrix.
Chinese are one of the most practical societies in the world, and they will find their own ways.
Lets await for a China version 2.1 , because that is good for the developing part of the world..
Please let us know your thoughts on indussprouts@gmail.com
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