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East Beats West

East Beats West. The Rise of China & It’s Implications for the U.S. Economy & HR Professionals. Two Goals. A Quick Overview of the 2007 Economy & U.S. Housing Market Discuss How the Emergence of China Will Affect HR Professionals in the Coming Decades.

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East Beats West

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  1. East Beats West The Rise of China & It’s Implications for the U.S. Economy & HR Professionals

  2. Two Goals • A Quick Overview of the 2007 Economy & U.S. Housing Market • Discuss How the Emergence of China Will Affect HR Professionals in the Coming Decades

  3. A Review & Preview of the U.S. Housing Market In Two Power Point Slides

  4. LAST YEAR

  5. THIS YEAR !!!!Reduced!!!!

  6. The 2007 Outlook • Falling Oil & Commodity Prices • Moderating Inflation • Low long-term interest rates & mortgage rates • A global economic boom • Asia on fire • Germany out of doldrums • Latin American Samba • The U.S. War Economy

  7. The 2007 Outlook • Soft Landing for the housing and auto sectors? • Maybe – the global warming effect • An endlessly resilient consumer? • Growth in the 1.5 to 2.5% range? • Depends on whether China will finance U.S. “twin deficits”

  8. The Budget Deficit

  9. The Trade Deficit

  10. The Chinese Dollar Dilemma • U.S. tax cuts put money directly in the hands of U.S. consumers • The Fed’s easy money policy coupled with Chinese currency manipulation stimulates a boom in re-fi cashouts • Flush U.S. consumers go to Walmart and binge on cheap Chinese goods • U.S. dollars build up in Chinese banks.

  11. The Asian Dollar Dilemma • Chinese recycle dollars back into U.S. treasury bills to prevent the dollar from weakening • Koreans, Japanese and Taiwanese forced to do the same thing • A flood of Asian capital keeps long term interest rates and mortage rates low • What happens when China stops accommodating our consumption? • Soaring interest rates & Inflation • Housing market collapse? • Recession?

  12. A China Primer

  13. China vs. the U.S. • Roughly same geographic area • Almost five times the population • Less cultivatable/habitable land

  14. The Chinese Economy • 10% GDP annually since 1980 • Economy has doubled three times • Over 100 cities with more than 1 million people

  15. The World’s Factory Floor • >70% of DVDs & toys • >50% of bikes, cameras, shoes, telephones • >1/3rd of air conditioners, color TVs, computer monitors, microwave ovens • Dominant in furniture, jeans, refrigerators, washing machines, underwear

  16. The “China Price”

  17. Weapons of Mass Production • Wages < $1/hr • Unemployment rate >10%! • 300-500 million peasants waiting in wings

  18. Industrial Network Clustering • Entire cities specialize in industry or segment • Leilu (bicycles), Yanbun (underwear), Hongmei (textiles) • Reduced transportation costs • Huge supply chain efficiencies & information externalities

  19. FDI • >$60 billion a year • U.S., Japan, S. Korea, Taiwan, Hong Kong • Latest technology = lowest cost production • Latest management techniques • Mercantilist aspects • Round tripping of capital • Lax regulatory environment

  20. China’s 21st Century Mercantilism I • Blatant currency manipulator • 20-40% undervalued • Flagrant violations of WTO • Export subsidies • Cheap energy, land, capital

  21. China’s 21st Century Mercantilism II • Counterfeiting & Piracy • The World’s Pirate Nation • Not just DVDs and Louis Vuitton • Environmental & Health/Safety Standards • World’s most polluted nation • World’s most dangerous workplace

  22. The Environmental Scorecard I • 16 of 20 most polluted cities • Largest SO2 emitter • Second largest CO2 emitter • ¼ of mercury pollution • Regional: Acid rain • Global: Chinese “chog”

  23. The Environmental Scorecard II • 70% of rivers polluted • Half of population exposed to water contaminated by human waste • Liver & stomach cancers an epidemic • Red tide rising

  24. The HR Nightmare

  25. China’s March Across the Value Chain • Assembly • Production • Design • R&D

  26. China’s March Up the Value Chain • Tube socks • TVs • Autos • Biotech & Pharmaceuticals • Aircraft & Shipbuilding

  27. HR Implications • Permanent Wage & Job Shocks • Depressed wage levels for several decades • More Limited Job Opportunities • Less permanent employment • Even “local” industries like real estate at risk

  28. Solutions? • U.S. lives within means • China abandons mercantilist policies • A day of reckoning is likely ahead • Don’t fall in love with China!

  29. The Well-Timed Strategy • Sign up for the free weekly newsletter at: http://www.peternavarro.com

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