Even though China has overtaken Japan as the world’s second largest economy in 2010, its GDP per capita ranked #86 out of 164 countries in 2009. Japan was ranked 19. China’s GDP per capita in 2010 was $4,300. In comparison, that for the US and Japan are $47,100 and $42,500 respectively. Both are nearly 10 times bigger than China.
The US GDP was $14.62 trillion in 2010. Those for China and Japan are $5.74 and $5.39 trillion respectively. So, when will the Chinese economy surpass the US? Some say 2020 while others predict 2025. But one thing is for sure, this is an inevitable event.
China’s inflation rate for January 2011 was 4.9%. But, this is not necessary a bad thing. As wages outpace productivity, workers’ share of the economy will rise – thus boosting consumption. Wage- driven inflation would help to narrow China’s trade surplus through a higher price for its exports. This could be a better way of rebalancing the economy than an outright appreciation of the Yuan. The latter modus operandi would cause big job losses in export firms. A gradual appreciation of the Yuan would also be unpalatable as it attracts large speculative capital inflows.
Inflation would help accelerate China’s GDP in US$ terms. Any appreciation of the Yuan would be helpful too. Whatever it is, a GDP per capita of $4,300 has ample room to grow. China has the technology and the entrepreneurial drive needed for growth. So, there should be no surprise that China would eventually be the number 1 economy someday.
Thursday, February 24, 2011
Thursday, February 10, 2011
The myth on Japanese productivity
The US GDP for 2010 is about 15.3 trillion while that for Japan is 5.1 trillion. In terms of GDP per capita, the US is at $47,132 compared to Japan’s $33,828. This means the US is still far more productive than Japan. In actual fact, Japan’s overall productivity rate is only 72% that of the US.
The American worker remains the most productive in the world. Germany comes in second. Next is Japan. The US’s biggest productivity lead is in services. In manufacturing, Japan is more productive in machine tools, consumer electronics and motor vehicles. However, it is far behind the US in telecommunications and software industries.
Japan’s productivity growth rate was high in the 1970s and 1980s. This was due to strong government involvement in the economy and the permanent employment system. However, this same stimulus is now hindering Japan’s productivity. Japanese manufacturers now have some of the world’s highest production costs. Overregulation – be it governmental or company-wide, is stifling Japan’s productivity growth. That’s why Japanese consumers are paying on average one-third more for goods and services than Americans.
The American worker remains the most productive in the world. Germany comes in second. Next is Japan. The US’s biggest productivity lead is in services. In manufacturing, Japan is more productive in machine tools, consumer electronics and motor vehicles. However, it is far behind the US in telecommunications and software industries.
Japan’s productivity growth rate was high in the 1970s and 1980s. This was due to strong government involvement in the economy and the permanent employment system. However, this same stimulus is now hindering Japan’s productivity. Japanese manufacturers now have some of the world’s highest production costs. Overregulation – be it governmental or company-wide, is stifling Japan’s productivity growth. That’s why Japanese consumers are paying on average one-third more for goods and services than Americans.
Sunday, January 30, 2011
Steve Jobs
Below is a description of Steve developed by a Wharton's advanced management programme class which I think is very good.
Steve Jobs's natural talent is to imagine not only what consumers want now but also what they will want in the future -- and pay a premium price for. He searches for discontinuities in the external landscape. He figures out trajectories of new opportunities. Then he conceives and executes not only differentiated products that yield high margin and high brand recognition, but also business models that will exploit them most profitably.
He views a product as an experience, not just an object. He can visualize what it will look and feel like, and can then execute it to near perfection. He makes advanced technology friendly to consumers based on his uncommon talent for connecting it to user experience. He has an innate feel for design, convenience, simplicity, and elegance in the product. He connects the best ideas from widely diverse disciplines to create the consumer experience he's striving for. He figures out precisely what problems need to be solved, however impossible they may seem, and searches for the best people to solve them, regardless of their status.
He is a master of communications. He crafts simple messages that connect with audiences, leveraging his record of innovation to create buzz and build demand for a new product even before it is launched. He relates with consumers, employees, and partners, and turns them into rabid fans. He builds their trust in him, in Apple, and in the Apple brand.
Steve Jobs's natural talent is to imagine not only what consumers want now but also what they will want in the future -- and pay a premium price for. He searches for discontinuities in the external landscape. He figures out trajectories of new opportunities. Then he conceives and executes not only differentiated products that yield high margin and high brand recognition, but also business models that will exploit them most profitably.
He views a product as an experience, not just an object. He can visualize what it will look and feel like, and can then execute it to near perfection. He makes advanced technology friendly to consumers based on his uncommon talent for connecting it to user experience. He has an innate feel for design, convenience, simplicity, and elegance in the product. He connects the best ideas from widely diverse disciplines to create the consumer experience he's striving for. He figures out precisely what problems need to be solved, however impossible they may seem, and searches for the best people to solve them, regardless of their status.
He is a master of communications. He crafts simple messages that connect with audiences, leveraging his record of innovation to create buzz and build demand for a new product even before it is launched. He relates with consumers, employees, and partners, and turns them into rabid fans. He builds their trust in him, in Apple, and in the Apple brand.
Tuesday, January 25, 2011
Suicides in Foxconn
‘In 20 years, there will be only 2 companies: Foxconn will make everything and Wal-Mart will sell them.’ That may be a joke. But it does give an indication of how huge Foxconn is.
Foxconn was founded by Terry Gou in 1974. Today it is a colossal contract manufacturer of electronics employing over 800,000 people in more than 20 factories across China. Its revenue is about $55 billion in 2010. It does business with renowned companies like IBM, Cisco, Microsoft, Nokia, Sony, Hewlett-Packard and Apple.
Its factory in Longhua, Shenzhen has a workforce of 300,000 and occupies an area of 2.1 sq. km. It is a self-contained campus with all the basic facilities like hospital, restaurants, banks, Olympic-sized swimming pool, grocery store, internet cafe and a bookstore.
A spate of suicides brought the firm to the limelight. A lot is said about stress being the cause of the suicides – the workers do long hours under inhospitable conditions and poor living conditions in the dormitories. However, there may be a twist to this. It is suspected that some of them may have done it for money. The average worker earns about 2000 Yuan per month. But, the company pays 100,000 Yuan compensation to the family of anyone dying on site. To the unstable 20 year-old, the thought of that much money going to their parents could be attractive.
Foxconn was founded by Terry Gou in 1974. Today it is a colossal contract manufacturer of electronics employing over 800,000 people in more than 20 factories across China. Its revenue is about $55 billion in 2010. It does business with renowned companies like IBM, Cisco, Microsoft, Nokia, Sony, Hewlett-Packard and Apple.
Its factory in Longhua, Shenzhen has a workforce of 300,000 and occupies an area of 2.1 sq. km. It is a self-contained campus with all the basic facilities like hospital, restaurants, banks, Olympic-sized swimming pool, grocery store, internet cafe and a bookstore.
A spate of suicides brought the firm to the limelight. A lot is said about stress being the cause of the suicides – the workers do long hours under inhospitable conditions and poor living conditions in the dormitories. However, there may be a twist to this. It is suspected that some of them may have done it for money. The average worker earns about 2000 Yuan per month. But, the company pays 100,000 Yuan compensation to the family of anyone dying on site. To the unstable 20 year-old, the thought of that much money going to their parents could be attractive.
Monday, January 3, 2011
World car production
In 2009, China became the world’s largest car manufacturing country. It produced a total of 13.79 million units. Out of this, 4.57 million units or 44% were from domestic branded companies. However, total export was only 332400 units – which mean that its domestic consumption is more than 13.4 million units. In comparison, Japan and USA produced 7.93 million and 5.7 million units respectively in the same year.
In contrast, Japan has seen a decline in the number of vehicles produced. From 11.6 million units in both 2007 and 2008, it came down to 7.93 in 2009.
For 2010, China is targeted to produce a total of about 16.4 mil vehicles. Japan will remain as the no.2 with a projected figure of 8.87 mil. The US will have a good year in car production and is expected to cross the line at 7.8 mil. Next is Germany with a total of 5.77 mil.
South Korea came in fifth and produced a total of 3.5 mil vehicles in 2009. It is expected to churn out 4.2 mil units in 2010. Of this, 63% or 2.67 mil units will be exported. Its manufacturers are very aggressively pushing new and improved models. Expect them to up their production and exports as well.
India is a country with a huge potential market for vehicles. Its current production is about 1.0 mil. Expect their factories to increase their output when the consumption power improves.
Asia now produces about 30 mil vehicles a year or about half the world production. With increasing demand coming from Asia, it can be expected that Asia will be the new vehicle manufacturing hub of the world.
In contrast, Japan has seen a decline in the number of vehicles produced. From 11.6 million units in both 2007 and 2008, it came down to 7.93 in 2009.
For 2010, China is targeted to produce a total of about 16.4 mil vehicles. Japan will remain as the no.2 with a projected figure of 8.87 mil. The US will have a good year in car production and is expected to cross the line at 7.8 mil. Next is Germany with a total of 5.77 mil.
South Korea came in fifth and produced a total of 3.5 mil vehicles in 2009. It is expected to churn out 4.2 mil units in 2010. Of this, 63% or 2.67 mil units will be exported. Its manufacturers are very aggressively pushing new and improved models. Expect them to up their production and exports as well.
India is a country with a huge potential market for vehicles. Its current production is about 1.0 mil. Expect their factories to increase their output when the consumption power improves.
Asia now produces about 30 mil vehicles a year or about half the world production. With increasing demand coming from Asia, it can be expected that Asia will be the new vehicle manufacturing hub of the world.
Monday, December 27, 2010
China the world's largest economy
China’s GDP in 2009 is about $5 trillion whilst that of the US is $14 trillion – nearly 3 times larger. China overtook Japan to be the 2nd largest economy this year. So, when will China overtake the US to be the world’s largest economy?
The relative GDP figures of 2 countries depend not just on the growth rate. It is also impacted by things like inflation and currency exchange rate. China, which traditionally has a higher inflation rate, will get a boost on its GDP from inflation. Similarly, a strengthening Yuan will help bolster its value of goods and services produced.
In the last decade, the real GDP growth averaged 10.5% for China and 1.7% in America; inflation averaged 3.8% and 2.2% respectively. Since 2005, the Yuan has appreciated an average of 4.2% annually.
Extrapolating from the past, conservatively, we assume an average growth rate over the next decade of 7.5% for China and 2.5% for the US, inflation rate of 4% and 1.5% respectively and the Yuan gaining 3% per year, China should pass the US as the biggest economy in the world by 2020. If, however, China’s growth falters to 5%, then the overtaking date would be 2022 – a mere 2 years later.
So, it is no more a question of whether China will overtake the US as the world’s biggest economy. Rather, it is a matter of when only.
The relative GDP figures of 2 countries depend not just on the growth rate. It is also impacted by things like inflation and currency exchange rate. China, which traditionally has a higher inflation rate, will get a boost on its GDP from inflation. Similarly, a strengthening Yuan will help bolster its value of goods and services produced.
In the last decade, the real GDP growth averaged 10.5% for China and 1.7% in America; inflation averaged 3.8% and 2.2% respectively. Since 2005, the Yuan has appreciated an average of 4.2% annually.
Extrapolating from the past, conservatively, we assume an average growth rate over the next decade of 7.5% for China and 2.5% for the US, inflation rate of 4% and 1.5% respectively and the Yuan gaining 3% per year, China should pass the US as the biggest economy in the world by 2020. If, however, China’s growth falters to 5%, then the overtaking date would be 2022 – a mere 2 years later.
So, it is no more a question of whether China will overtake the US as the world’s biggest economy. Rather, it is a matter of when only.
Wednesday, December 1, 2010
Stewed in the Irish juice
Up to the late 80s, Ireland was a backwater economy – with high unemployment & huge government debt. In 1987, the unemployment rate was 18 % and the government’s debt was 120 % of the GDP. It was largely an agricultural economy.
Then the government pushed through dramatic economic reforms. Corporate taxes and business regulations were lowered. This opened the economy to the rest of Europe and attracted a lot of biotechnology and high tech investments. The country prospered. Its per capita income growth rate shot to 6 % from the historical rate of 3.5 %. Similarly, its GDP growth touched a figure of 10 %.
Wages rose and with it prices. Housing became a good investment. The banks borrowed huge amounts from the international wholesale market and loaned it to the domestic housing market. The feed of easy liquidity engendered a huge housing boom and it snowballed. House prices, construction company stocks, land prices and all things related to construction skyrocketed. By late 2006, the average new house costs 10 times the average earnings.
The boom peaked in late 2006. By the middle of 2007, unsold housing units began to accumulate. Banks began to feel the heat. In late September 2008, a run started in the wholesale markets on Anglo Irish Bank. It was quite clear that the domino effect or contagion would take hold. The government took the unusual step of guaranteeing all deposits and senior debt in the six Irish banks, nationalized Anglo Irish and invested 3.5 billion Euros in two other banks. And that is the start of the Irish economic decline.
Then the government pushed through dramatic economic reforms. Corporate taxes and business regulations were lowered. This opened the economy to the rest of Europe and attracted a lot of biotechnology and high tech investments. The country prospered. Its per capita income growth rate shot to 6 % from the historical rate of 3.5 %. Similarly, its GDP growth touched a figure of 10 %.
Wages rose and with it prices. Housing became a good investment. The banks borrowed huge amounts from the international wholesale market and loaned it to the domestic housing market. The feed of easy liquidity engendered a huge housing boom and it snowballed. House prices, construction company stocks, land prices and all things related to construction skyrocketed. By late 2006, the average new house costs 10 times the average earnings.
The boom peaked in late 2006. By the middle of 2007, unsold housing units began to accumulate. Banks began to feel the heat. In late September 2008, a run started in the wholesale markets on Anglo Irish Bank. It was quite clear that the domino effect or contagion would take hold. The government took the unusual step of guaranteeing all deposits and senior debt in the six Irish banks, nationalized Anglo Irish and invested 3.5 billion Euros in two other banks. And that is the start of the Irish economic decline.
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