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Customer Review

on May 11, 2012
I really enjoyed reading this book. I am hungry to learn more about China and like everyone else trying to workout for myself where it's story is leading it and by implication the rest of the world economy. Reading this book has made me feel like I have substantially improved my understanding of this extraordinary country.

The author is an American of part Chinese heritage. Add to this his economics background and thriving Chinese business in market research and he is well qualified to be a type of ideal "our man in Beijing" correspondent. However he does provide a tangibly sympathetic and pro China (and it's leadership) feel to this book.

I found the "End of Cheap China" thesis suggested in the title to be both less central and not as completely convincing as one could have expected. The book is more like a very good synopsis of what is happening in China generally rather than a focused treatment of this specific economic question. In terms of casting doubt on the thesis of China becoming too expensive for cheap manufacturing, there was a section which detailed the high wages of seamstresses in a furniture factory on the one hand, but then an example of a couple whose husband returned to the countryside because he could not find high paying work in another section. For me a mixed picture emerges rather than a black and white case.

The labour markets in China are obviously tightening a bit, and many would think this is long overdue, but I did not read anything in this book which convinced me that China is likely to see bottom end wage rises like which has happened in South Korea any time soon. Part of the reason why China's rise has been so significant to economists and so invasive in foreign markets, has been the issue of stagnant labour costs alongside rocketing technology advancements. I am not sure whether this book is prescient in that it is highlighting that wage rises are about to surge, or premature, in that the author is over emphasising specific skilled labour markets which are tightening rather than wages across the board. Time will tell.

Interestingly he notes that even in the face of higher labour costs, although some businesses could be tempted to migrate to less developed countries, many enterprises still will find an incentive to remain in China due to positive externalities such as infrastructure. This reminds me of a section in Paul Collier's The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It in which he notes that: "In the 1960s and 1970s the rich world dominated global manufacturing despite having wages that were around forty times as high as those in the developing world. Why did this massive wage gap not make developing countries competitive?" p81-82.

The author is generally very positive about the central party leadership of China, and takes the believable line that many failures and protests are caused by corrupt officials or systems at local level. He tries to make us understand that few in China are unhappy with the central leadership, but it is local issues such as forced evictions by local officials and property developers which cause the visible dissent seen on TV by the West. This kind of sounds plausible, but, much like a large western company, it could be argued that if the central leadership is strong enough and motivated enough, it can usually enforce good practice on it's lower levels. Perhaps this weak ability of the central leadership to enforce good practise on local party officials is intrinsic in a political system where the centre derives no absolute moral authority from an electorate, and instead has to rely on the broader communist party membership for its support and legitimacy? The author seems to have faith that things are improving, so perhaps this enforcement will improve.

Other interesting subjects revealed are: the gradual move towards domestic consumption rather than exports, the worrying state of the food supply chain, the weak enforcement of fake brands (did anyone see the edition of Top Gear from China, the copy cars which the state refused to acknowledge were copies!). He also mentions the strongly growing construction sector and tries to answer fears that many see a bubble forming.

Throughout the book there are boxed snippets of business advice which although they feel out of place at times, seem very incisive and are interesting. For example I can perceive as accurate the observation that there is a distinct attitude of Chinese consumers who will buy extreme luxury designer goods such as Gucci handbags alongside very budget clothes and bypass the Marks and Spencer's middle ground which Western consumers go for. Will cultural proclivities such as these help the West to find export markets in China? Also interesting is the revelation that KFC is considered "healthful" in China because they trust the food supply chain it has more than the domestic brands. Is there a role here for Western companies?

He also acknowledges the fact that the perceived over valuation of China's currency is a divisive issue for many in other countries. He tries to defend the central leadership by presenting the difficult objectives they are pursuing and the perilous dangers they face if things go wrong in their crowded populous country. He notes that the currency stance of the leadership is a: "bottom-up generated policy" p115, but this is equivalent to saying that it is the right policy because it is favoured by Chinese people. This does not make it fair in terms of participating in the world economy. Perhaps the US and other Western governments should equally put tariffs on Chinese imports and equally observe that this is a bottom-up generated decision? (see my profile). He replies to these currency concerns by noting that China's currency has appreciated by 25%, but for me and probably for many other readers I think there is further to go along this route. The over valued currency issue taints his Darwinistic and : "it's [China's] greater adherence to free trade and capitalism than America's" p200, conclusions towards the end, but none the less he is right on the central issue: China is thriving in an arena where the West has previously been dominant, . . . and the West is feeling it!

All in all this book was a good read and I would strongly recommend it.
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