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Discussion: (17 comments)

  1. Citizen B.

    “It’s also important to remember that China’s manufacturing workforce is estimated to be around 100 million and could be as high as 120 million, compared to America’s manufacturing employment of less than 12 million.”

    and yet, the China Manufacturing Purchasing Manager Index cites a negative reading for the “number of employed persons” in the October survey.

  2. PeakTrader

    2011 Report: China manufacturing hourly labor rate, compensation costs impact EMS (Electronics manufacturing services)

    “China’s manufacturing employment continued to grow from a total of 97.91 million at the end of 2007 to 99.01 million at year end 2008.

    Though manufacturing workers in China are earning more than ever before, average hourly compensation costs were only $1.36 in 2008.

    China’s hourly compensation costs remain far below those of many of its East Asian neighbors like Japan ($27.80) and Taiwan ($8.68), but are roughly on par with those of others like the Philippines ($1.68).

    Even as China ascends as a major economic player in the global economy, its position in the international landscape of labor costs has not changed dramatically.

    As measured in U.S. dollars, Chinese hourly labor compensation costs in manufacturing were roughly 4% of those in the United States and about 3% of those in the Euro Area in 2008.

    As of the end of 2008, China’s employed population was reported to be 775 million, constituting 58% of the country’s total population. Of the population ages 15 to 64, 77% was employed, which is high from an international comparative perspective.

    Meanwhile, youth population ages 0 to 14 has shrunk to an unusually small proportion of the population for a developing country.

    Indeed, a key determinant of China’s paradoxically tightening labor market is low fertility.

    China’s family planning and one-child policies have significantly reduced fertility and kept it low during most years since the 1970s and today manufacturing employers are reporting that they cannot get the rural migrant workers to return to urban units, and are having difficulty luring new employees as well.”

    1. PeakTrader

      That steep rise in China’s manufacturing output is not only the result of selling its goods too cheaply and lending its dollars too cheaply, generating virtuous cycles of consumption-investment for its trading partners, particularly the U.S., it’s also the result of huge demographic shifts in China.

      China’s fertility rate declined from 5.9 in 1966 to 2.6 in 1980 and to 1.6 in 2010. So, China will have a huge retired population (past its prime) and a relatively tiny working population (in its prime).

      1. PeakTrader

        According to the following chart, China’s population growth will slow further and decline in the 2030s:

        http://www.worldlifeexpectancy.com/country-health-profile/china

  3. PeakTrader

    It’s interesting to compare China with Japan and the U.S.. (Japan peaked around 1990), although the accuracy of the data is uncertain.

  4. Mark, I am interested in where you got your estimate of the number of Chinese that are employed in manufacturing.

    1. Here’s one source from the BLS: “The country’s official data showed 83 million manufacturing employees in 2002, but that figure is likely to be understated; the actual number was probably closer to 109 million.”

      Here’s another BLS source: “China’s manufacturing employment continued to grow from a total of 97.91 million at the end of 2007 to 99.01 million at yearend 2008.”

  5. Gene Hayward

    From the first graph and looking at the slope of the US line, it does not seem like the gains to china were at the expense of the US. There appears to be no leveling off of US output from a historical perspective and the US seems to not have missed too much of a beat. Could that be right?? Seems counter intuitive.

    1. Gene

      Could that be right?? Seems counter intuitive.

      Only if you think there’s a fixed pie of demand and that capital plays no part in increased production.

      The gains for china are NOT at the expense of the US, despite what those who are economically innumerate tell you.

      1. Hey ron h you might find a chuckle or two here

  6. China has peaked and the US will take over #1 very soon again!

    Those chart don’t lie.

  7. PeakTrader

    It should be noted, there’s huge foreign demand for U.S. dollars and most of those dollars flow back to the U.S., one way or another.

    Income Flows from U.S. Foreign Assets and Liabilities
    Federal Reserve Bank of New York
    November 14, 2012

    Foreign investors placed roughly $1.0 trillion in U.S. assets in 2011, pushing the total value of their claims on the United States to $20.6 trillion. Over the same period, U.S. investors placed $0.5 trillion abroad, bringing total U.S. holdings of foreign assets to $16.4 trillion. One might expect that the large gap of -$4.2 trillion between U.S. assets and liabilities would come with a substantial servicing burden. Yet U.S. income receipts easily exceed payments abroad. As we explain in this post, a key reason is that foreign investments in the United States are weighted toward interest-bearing assets currently paying a low rate of return while U.S. investments abroad are weighted toward multinationals’ foreign operations and other corporate claims earning a much higher rate of return.

    U.S. investors earned a much higher rate of return on multinationals’ foreign operations and similar corporate holdings than did foreign investors here, 10.7 percent versus 5.8 percent, respectively. The superior U.S. rate of return on FDI, as well as the greater tilt in U.S. foreign investments toward FDI, accounts for the $322 billion income surplus recorded in this category in 2011…The United States has earned a substantial premium on FDI investments at least since the 1960s.

    ******

    Foreign investors pour $102 billion into U.S. assets
    July 17, 2012

    Foreign purchases of U.S. assets surged to $101.7 billion in May, compared with net sales of $8.2 billion in April, according to the Treasury International Capital (TIC) report. Private investors bought a total of $60.3 billion, while public institutions purchased $41.4 billion of U.S.assets.

    Foreign investors bought a total of $45.9 billion of U.S. Treasury bonds and notes in May, compared with net purchases of $38.7 billion in April.

    Demand for U.S. Treasury securities has been robust, with public and private investors outside the United States buying a net $464 billion over the last 12 months.

    The yield on the 10-year U.S. Treasury note slid to a record low of 1.44% Monday, as ongoing signs of weak global growth kept the flight to safety alive and well. Investors tend to snap up Treasuries during times of uncertainty because they’re backed by the U.S. government.

    “Despite the downgrade of U.S.sovereign debt last August and little subsequent progress on deficit reduction, foreigners remain enamored with U.S. Treasury debt,” analysts at Wells Fargo wrote in a note to clients. “Apparently, America’s fiscal problems do not look so bad when compared to the situation in Europe, which has festered for more than two years.”

    ******

    Appetite for Bonds High
    September 18, 2012

    The deficit also narrowed because the surplus on income—the difference between money Americans make on foreign assets and money earned by foreigners on U.S. assets—increased last quarter to $55.5 billion from $47.4 billion. Unilateral current transfers, such as foreign aid and money sent to families living abroad, rose slightly, adding to the deficit.

  8. Gene Hayward

    If Boeing produces and sells a 747 to china for $200 million and china sells us 10M small appliances at $20 each—trade is balanced–all else equal. The public does not see the plane flying around Asia but they see the appliances in Walmart everyday, hence the mantra “we don’t make anything anymore”. Is 1 plane for 10M toaster ovens an even trade-off? I think so but guessing that is a minority opinion relative to the population at large.

    1. PeakTrader

      Much of the U.S. trade deficit with China, which hit a record high recently, is importing our own goods.

      The hidden downside of Santa’s little helpers
      The Irish Times
      December 21, 2002

      “An investigation into the price of a Mattel Barbie doll, half of which is made in China, found that of the $10 retail price, $8 goes to transportation, marketing, retailing, wholesale and profit for Mattel.

      Of the remaining $2, $1 is shared by the management and transportation in Hong Kong, and 65 cents is shared by the raw materials from Taiwan, Japan, the US and Saudi Arabia. The remaining 35 cents is earned by producers in China for providing factory sites, labour and electricity.

      Toy factories hire the least-skilled workers…Sixty per cent are young women between 17 and 23 years old who live cramped in company dormitories, 15 to a room, earning just 30 cents an hour and often inhaling spray paints, glue fumes and toxic dust.”

      1. PeakTrader

        And the U.S. sells that Boeing 747 at a world price, while China sells those “10M small appliances at $20 each” too cheaply, to induce U.S. demand, and sells them even more cheaply over time, to maintain employment, because of diminishing U.S. marginal utility.

        1. PeakTrader

          The U.S. is still the largest manufacturer in the world, because U.S. multinationals produce goods all over the world. Much of those goods come back to the U.S., at lower prices and higher profits.

  9. I am surprised that an economist would post production figures in ‘current dollars’. The standard comparison is with ‘constant dollars’, which means adjusted for inflation. Go to the same UN database and look up 2011 output at constant 2005 dollars, and see that China still lags US manufacturing output (1.8 trillion to 2.3 trillion). The gap is closing so there is no illusion that China is rising. But US output is still rising and it is not yet time to call the switch in rank.

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