Q & A with Shaun Rein, author of The End of Cheap China
What is your background with the Chinese economy?
|Shaun Rein |
I first came to China in the 1990s and studied it as a graduate student at Harvard. At that time, the word "cheap" summed up China. Land prices and salaries were low and the quality of China's production was inferior. It was still difficult to find a decent job. When walking outside the gates of factories, you used to run into swelling crowds of unemployed workers with cardboard signs touting their skill sets in the hopes of finding a job. That has all changed in the last decade due to the job creation spurred by multinationals investing billions of dollars. Now the biggest obstacle to growth in China for most firms is finding talent even with China's large population. What are some of the biggest economic or cultural disruptions happening now in China that people and businesses should pay attention to?
Too many businesses underestimate how fast costs are rising in China and how rising costs won't change anytime soon. In 2011, 21 of China's 31 provinces increased the minimum wage an average of 22%. The government has set a plan to raise the minimum wage by 13% annually for the next five years to spur domestic consumption and wean away the country's reliance on exports. Many companies might be forced to relocate manufacturing to lower cost countries like Indonesia. However, the reality is China's work force and infrastructure is far superior, so China won't lose its dominance in manufacturing. The resulting higher input prices will force companies to accept squeezed margins or they will have to transfer higher costs to end consumers. Instead of being a deflationary force in the global economy, China will export inflation to the rest of the world. Already import prices from China in 2011 in America were up 3.6%, the highest on record. Consumers around the world better get used to seeing higher priced products in stores. What kind of global impact will "the end of cheap China" have?
Aside from higher costs, "the end of cheap China" means that China as a nation will become more powerful in global affairs which could cause more friction. Chinese companies will not only be investing more in countries like Canada to secure access to natural resources but Chinese brands will start selling products abroad and acquiring Western brands, as Chinese auto manufacturer Geeley with its acquisition of the Volvo brand. It also means China's government will take a larger role in global institutions like the United Nations and G20 in order to safeguard its interests. The key to China's rise as a superpower is to ensure that it is integrated enough into world affairs to reduce possible tension and to stop the fear-mongering and hysteria about China's rise.
"Brilliantly written" --Financial Times"A Publishers Weekly Top 10 Business Book of 2012"
"Rein masterfully captures where [consumers] have been and where they dream of going" --Fortune
"Rein combines elegant writing and methodical research. Years of working in China have given him access to important players. Incisive interviews with billionaires, business executives, government officials, and migrant workers guide the pulse of the narrative.... essential reading." --USA Today“Engaging. Full of vivid anecdotes from Chinese billionaires to senior party officials and even prostitutes. For any foreigners thinking about doing business in the Middle Kingdom, 'The End of Cheap China' is a good place to start" --Reuters
"Must Read" --Consulting Magazine
"A Lively Read" --Straits Times
"An Inside Look" --Industry Week
"Compelling, Engaging, Informative" --The Cayman Islands Journal
"Lively, Well-Written Book" --South China Morning Post
"Engaging, highly readable style with real-life examples from vast catalog of China research. For good measure, Rein wedded into China's elite, marrying the granddaughter of 1980s Politburo chairman Marshal Ye Jianying" --Asia Times