"Let China sleep, for when she wakes, she will shake the world." This famous Napoleon Bonaparte remark was uttered in the 1800s, yet it still applies today, perhaps even more than ever. Led by China, whose economy accounts for some ten percent of the world's gross domestic product, Asia's potential as an economic behemoth still lies largely unrealized, despite the fact of its geographical expanse and its accounting for some 60 percent of the world's population. But anyone who's ever seen a "Made in China" tag (i.e., everyone) or purchased an automotive or electronics product from Japan (practically everyone), can readily attest to the region's economic allure, as evinced by its product diversity, attractive pricing and quick turnaround time.
Through September 2009, China was the world's largest exporter to the United States, at $212.8 billion in sales, according to the U.S. Census Bureau, compared with $ 250.4 billion in sales through September 2008. First overtaking Canada on the Bureau's list in December 2008, China's lead over Canada in the category has increased over the succeeding months. On a year to year basis, in September 2008 China accounted for 15.4 percent of total U.S. imports, compared with Canada's 16.3 percent; through September 2009 China accounted for 19 percent of total U.S. imports, compared with 14.5 percent for Canada.
These increases have come more or less at the same time as many high profile controversies over China-made products in the U.S.: Nearly 20 million toys made for Mattel were recalled in 2007, due to toxic levels of lead in the paint used; federal investigations and a class action lawsuit over Chinese-made drywall that may contain harmful chemicals made headlines in early 2009; four million Toyota automobiles in the U.S. were recalled in November for faulty accelerators, after 95,700 Toyotas were recalled in August due to potential brake system problems. That China's trade with the U.S. has apparently not been overtly affected is a positive, but experts warn that American patience for "Poorly Made in China," won't last forever.
Alexandra Harney, author of the book, The China Price: The True Cost of Chinese Competitive Advantage, which investigates how unregistered Chinese factories cut corners on safety and working conditions to meet multinational companies' demands for ever lower prices, said in an interview, "The world has become addicted to artificially cheap Chinese goods. So what happens in Chinese factories, whether it is a neglect of workers' rights that leads to a surge in labor lawsuits and higher prices for Chinese-made goods, or a disregard for safety standards that prompts the recall of millions of products, or a rapid rise in material costs, affects us all directly."
As the nation's manufacturing sector continues to make its presence on the world stage felt, it must make changes to the way it operates, adds Seth Faison, former journalist and author of South of the Clouds: Exploring the Hidden Realms of China. "Whether it is an American company that is sourcing products that are manufactured in China, or if it is a Chinese company exporting to the United States, they need to find a way that can underscore safety records, the consistent ability to produce reliable consumer goods that are not tainted in any way, and to show that when [unsafe] products come up, they are usually restricted to a small number percentage wise, of total exports in China." Still, says Harney, "Barring a wave of protectionism, it is highly unlikely that the tide of globalization will reverse. China is a player in all major global supply chains today, from vitamin C to airplane parts, and its role will only get bigger."
Taking a brighter view is the National Retail Federation, whose international trade counsel, Erik Autor, attended the China International Home Textile conference and the International Shanghai Home Textile trade fair in August. Autor notes that China is currently the largest supplier of home textiles to the United States, accounting for approximately 45 percent of all U.S. home textile imports and eight percent of the total U.S. market. However, he adds, it is clear that Chinese home textile manufacturers are shifting focus more toward the Chinese domestic market, rather than the U.S. and European export markets. As costs rise in China, Autor notes, Chinese manufacturers will increasingly face greater challenges in competing with manufacturers in such other Asian countries as Vietnam, India, Pakistan and Bangladesh.
The NRF further maintains that the Chinese government has already increased its quality control and safety precautions, and encourages American wholesale buyers to closely monitor their supply chain to make sure that appropriate labor and safety regulations are being observed. China's manufacturing grew in November at its fastest pace in five years, according to an HSBC Holdings survey.
In the meantime, the presence of other Asian-based trading partners is, as Autor notes, expanding. While the ongoing economic crisis has adversely affected such nations as Japan (the world's fourth largest exporter to the U.S., at $67.7 billion in sales through September '09, compared with $107.9 billion through September '08); South Korea (seventh, with $29.1 billion through September '09, compared with $36.7 billion through September '08; and Taiwan (eleventh, with $20.2 billion through September '09, compared with $27.7 billion through September '08), other Asian countries are coming to the fore. The most notable of these are India (13th, with $15.7 billion in sales through September '09) and Singapore (14th, with $11.7 billion for the same period). Those nations first broke the Census Bureau's list of the top 15 exporters to the U.S. in January 2009. India is taking a cautiously optimistic approach to world trade, noting that for October 2009 its total exports decreased by 6.6 percent from October '08; taking solace in the fact that exports had fallen 13.8 percent in September '09 from the previous September. Textiles, autos and auto components are seen as the country's best bet in the global, as well as American marketplace for the near term.
In 2008, Hyundai Motors exported 240,000 cars made in India, with Nissan Motors planning to export 250,000 vehicles manufactured in its India plant by 2011 and General Motors expecting to export about 50,000 India manufactured vehicles by the same year. According to Bloomberg News, India surpassed China as Asia's fourth largest exporter of cars in 2009. The news service reports that Indian labor costs are about ten percent of that in the U.S. and Europe, and raw material costs in the nation are lower by 11 percent. Developing a car from the design stage in India may take $225 million to $250 million, while in Europe it may be $400 million.
Meanwhile, the region's other dominant economy, Japan is still struggling to right itself from an economic downturn that predates the one in the U.S. In December, the Bank of Japan surprised observers by holding an emergency session to examine the yen's recent strength, reportedly at a 14-year high against the U.S. dollar, and its overall effect on the Japanese economy. Japan's economy is primarily export based, and usually leans towards a weak yen policy, in part as a means of maintaining competitive pricing for its products overseas. Japanese industrial output edged up 0.5 percent in October 2009, with increase in factory production and in exports helping to drive a recovery in the nation's economy since the second quarter of the year. "The yen's rise would hurt Japanese companies' earnings, but the volume of output will depend on world demand, after all, and it is expected to continue to recover as the Chinese economy continues to grow and the U.S. economy starts to recover," stated Takuji Aida, an economist with UBS Securities.
"The output numbers missed estimates, and actual demand continues to fall short of corporate expectations that a recovery from the first half of this fiscal year from April will continue with the same momentum," added Tetsuro Sawano, senior fixed income strategist at Mitsubishi UFJ Securities. "Still, the October figure shows output somehow managing to hold its ground in positive territory. The recovery is not about to wilt right away. It just means that positive momentum is weakening and the risk of the economy returning to a plateau is increasing. This is more or less in line with the Bank of Japan's view that there are more downside risks to the economy," he added. "The risk of a second downturn becomes far greater if U.S. year-end demand falls sharply short of corporate expectations."
The picture seems rosier in South Korea, whose economy ministry reported in December that exports to its largest market, China, rose by an extraordinary 52.2 percent for the first 20 days of November over the comparable 2008 period, while exports for the same period to the U.S. increased by 6.1 percent. China and the United States account for one-third of South Korean exports, and electronics and automobiles make up about 40 percent of the country's global shipments.
As noted above, the NRF and others stress that wholesalers should try and educate themselves as best they can about their suppliers and other members of their global supply chain, including, of course, domestic companies. While personally touring textile factories in India are out of most wholesalers' budgets, several other resources are available. One such resource is WholesaleCentral.com, the oldest and largest wholesale-only directory in North America, which responded to buyers' wishes to globally source merchandise by creating its Asian Sources Page. WholesaleCentral Asia connects buyers to the Chinese and Asian wholesale markets to find hot products, manufacturers, wholesalers and exporters, allowing small to medium retailers to compete on price with the larger national chain stores.
WholesaleCentral.com has established itself as the leader among wholesale marketplaces on the Internet and is becoming the definitive source for American buyers of Chinese and Asian products. WholesaleCentral Asia simplifies finding specific products from Asia with the "Asian Sources Power Search." This one-of-a-kind service allows wholesale buyers to search directly from the over 20,000 products featured in the Asian directory. In addition to its extensive directory of wholesale sources, WholesaleCentral Asia offers information on Asian trade regulations and international business guidelines to help educate buyers. For more information, visit the Help Center at www.wholesalecentral.com/asianbuyerhelp.htm.
Top 5 Countries Exporting to the U.S.:
(Cumulative through September 2009, in millions)
1) China $212.8
2) Canada $162.4
3) Mexico $ 125.1
4) Japan $ 67.7
5) Fed. Republic of Germany $ 50.6
Source: U.S. Census Bureau, 2009
Top 5 Regions Exporting to the U.S.:
(Cumulative through September 2009, in millions)
1) APEC $ 735.8
2) OECD $ 625.1
3) NATO Allies $ 345.8
4) Pacific Rim $ 398.0
5) North America $ 291.4
Source: U.S. Census Bureau, 2009
APEC: Asia-Pacific Economic Cooperation (APEC) - Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, Vietnam.
NATO: Belgium, Bulgaria, Canada, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Turkey, United Kingdom.
North America: Canada and Mexico.
OECD: Organization for Economic Cooperation and Development (OECD) - Austria, Australia, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom. Pacific Rim Countries - Australia, Brunei, China, Hong Kong, Indonesia, Japan, Korea, Macao, Malaysia, New Zealand, Papua New Guinea, Philippines, Singapore, Taiwan. Asia Near East - Bahrain, Iran, Iraq, Israel, Jordan.
Pacific Rim: Australia, Brunei, China, Hong Kong, Indonesia, Japan, Korea, Macao, Malaysia, New Zealand, Papua New Guinea, Philippines, Singapore, Taiwan.
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