In a Reuters article this morning Jonathan Lynn writes about policymakers' concerns at the World Economic Forum in Switzerland. The article lays out more information and detail to follow-up on my post from yesterday. Here's the article:
Policymakers Sound Slarm Over Protectionism
DAVOS, Switzerland (Reuters) – Policymakers sounded the alarm about the growing threat of protectionism on Thursday as new data showed a sharp fall in air freight traffic that signaled a broader slowdown in world trade.
India's trade minister, Kamal Nath, warned at the World Economic Forum that the global economic crisis could fuel protectionism to safeguard national industries and jobs.
He told Reuters that India saw growing signs of protectionism and would respond with its own measures if its exporters were threatened.
"We do fear this because one must recognize that at the heart of globalization lies global competitiveness, and if governments are going to protect their non-competitive production facilities it's not going to be fair trade," he said.
"If there are protectionist measures India will be compelled to also take commensurate measures against those countries which will be good for no one."
Nath cited Dutch authorities' seizure last week of a Brazil-bound shipment of a generic high blood pressure drug made in India. He said India had taken up the issue with the Dutch authorities and the European Union, and hoped to resolve it.
India itself has raised tariffs on steel to protect local producers, a measure trade experts say was aimed at China, which India does not regard as a market economy.
The deepening economic crisis, and the failure to complete the World Trade Organization's long-running Doha round on freeing up global commerce, have raised fears that countries will block their partners' exports to protect jobs at home.
Such protectionism, if it led to tit-for-tat retaliation, would intensify the crisis, as happened in the 1930s during the Great Depression.
SLUMP IN AIR CARGO
In more bad news for the global economy, the International Air Transport Association said international air freight traffic fell 22.6 percent in December compared to a year earlier.
IATA called it an "unprecedented and shocking" drop and said: "There is no clearer description of the slowdown in world trade."
On Wednesday the U.S. House of Representatives approved a controversial "Buy America" provision requiring public works projects funded by an $825 billion stimulus package to use only U.S.-made iron and steel.
European steelmakers have already challenged the move.
The U.S. Chamber of Commerce, which opposed the provision, believes it will be of only limited impact.
"An expansion of the current "Buy American" rules would be a dumb idea, it would be a bad idea because the natural reaction would be for our trade partners to react in kind," Thomas Donohue, president and chief executive of the federation of 3 million U.S. businesses, told Reuters.
"The more difficult it gets the more we have to keep saying 'no isolationism, no protectionism'. We need to keep markets open, we need to keep our ability to sell stuff working and to do that we have to keep our own markets open," Donohue said.
Egyptian Trade Minister Rachid Mohamed Rachid expressed concern on Wednesday at the way countries were rolling out stimulus and bailout packages to defend local industries and called for a more coordinated approach.
Nath said it was important for trading powers to continue efforts to complete the Doha round, launched in late 2001.
"I think that at this point the multilateral trading system more than ever before needs strengthening," he said.
(Reporting by Jonathan Lynn; Editing by Timothy Heritage)
Thursday, January 29, 2009
Tuesday, January 27, 2009
Free Trade Under Fire
Is free trade in danger? It appears to be. The political landscape has changed in the US and the new administration is talking tough about China and its currency policies. Although it appears they are already backing off some now that they are actually in office, there were promises made during the election that will need to be addressed.
The Doha round collapsed and there are few signs there is a positive next step for the WTO. Will governments respond to the current economic problems by erecting the trade barriers that certainly contributed to the great depression? I hope we are all smarter than that.
The collapse of the government in Iceland is an interesting situation. As citizens of other countries protest their economic plight and blame their governments, will these governments respond by attacking the tenets of free trade? Lets hope not.
I don't have the answers, but I do firmly believe that free trade is a great benefit overall. I firmly believe the opposite of free trade causes great problems.
Recently the Obama administration has been talking about transforming the economy to compete in new areas and ways. Focusing on innovation and new industries is the way the US can continue to be successful. Focusing on what others do better or less expensively will only distract us from what we excel at. Dominating green energy and pollution control, like we did the introduction of the computer and the internet, are just two examples of what can help bring the next great period of prosperity for our country.
At OPSA we are involved in green energy projects and look forward to doing more.
The Doha round collapsed and there are few signs there is a positive next step for the WTO. Will governments respond to the current economic problems by erecting the trade barriers that certainly contributed to the great depression? I hope we are all smarter than that.
The collapse of the government in Iceland is an interesting situation. As citizens of other countries protest their economic plight and blame their governments, will these governments respond by attacking the tenets of free trade? Lets hope not.
I don't have the answers, but I do firmly believe that free trade is a great benefit overall. I firmly believe the opposite of free trade causes great problems.
Recently the Obama administration has been talking about transforming the economy to compete in new areas and ways. Focusing on innovation and new industries is the way the US can continue to be successful. Focusing on what others do better or less expensively will only distract us from what we excel at. Dominating green energy and pollution control, like we did the introduction of the computer and the internet, are just two examples of what can help bring the next great period of prosperity for our country.
At OPSA we are involved in green energy projects and look forward to doing more.
Monday, January 26, 2009
gōng xǐ fā cái!
Wishing you prosperity and good fortune! This is a traditional Chinese New Year's wish offered to you on this Lunar New Years Day. May you and your family have a wonderful Year of the Ox.
The ox symbolizes strength, calm, hard work, resolve and tenacity. All of these attributes will be helpful to people all over the world in the coming year.
Happy New Year!
The ox symbolizes strength, calm, hard work, resolve and tenacity. All of these attributes will be helpful to people all over the world in the coming year.
Happy New Year!
Sunday, January 25, 2009
4Q Growth in China Down to 6.8%
The Chinese government reported this week that growth in the fourth quarter was 6.8%. Growth in the third quarter was 9%. Growth for all of 2008 was also 9%, which is a seven year low.
The widely regarded figure of 8% growth needed to employ all the workers entering the workforce each year is also the target GDP growth for 2009. However, several economists are predicting closer to 6% for '09.
It will be very interesting to see what the news is in early February as workers begin returning to factories after the New Year holiday. Will there be more reports of high numbers of closed factories? Will there be any social unrest issues? I don't think so, but we are clearly still in the transition phase of this slowdown where weaker factories close.
The widely regarded figure of 8% growth needed to employ all the workers entering the workforce each year is also the target GDP growth for 2009. However, several economists are predicting closer to 6% for '09.
It will be very interesting to see what the news is in early February as workers begin returning to factories after the New Year holiday. Will there be more reports of high numbers of closed factories? Will there be any social unrest issues? I don't think so, but we are clearly still in the transition phase of this slowdown where weaker factories close.
Tuesday, January 20, 2009
Lunar New Year and Relationships
The Lunar New Year factory shutdowns are in full swing. Many factories are shut down this week and next. It will take into mid-February for many of them to be back at full speed.
With the very difficult economic environment there is no better time to build relationships with your Chinese suppliers than right now. Contact them to see how their business is and how you can work together during this difficult time. Also discuss pricing as it relates to the fall in raw material prices. Maybe you can forgo decreases now in order to escape increases later when inflation hits again. Maybe you negotiated in early 2008 to avoid large increases and your factory partners are now gaining back some of that margin. The point is, use this time to assess and build your partnership. The strongest bonds are built during difficult times.
The Lunar New Year's Day is Monday, January 26th. The new year will be the year of the Ox.
With the very difficult economic environment there is no better time to build relationships with your Chinese suppliers than right now. Contact them to see how their business is and how you can work together during this difficult time. Also discuss pricing as it relates to the fall in raw material prices. Maybe you can forgo decreases now in order to escape increases later when inflation hits again. Maybe you negotiated in early 2008 to avoid large increases and your factory partners are now gaining back some of that margin. The point is, use this time to assess and build your partnership. The strongest bonds are built during difficult times.
The Lunar New Year's Day is Monday, January 26th. The new year will be the year of the Ox.
Tuesday, January 13, 2009
US Trade Deficit with China Shrinks 17.5% in November
The US trade deficit with China plummeted 17.5% last November to its lowest level since June. It is likely December will show another decline according to economists.
The global economy is obviously under great strain. As I've mentioned before, all the stress may turn out to be a good thing in the future. The US government will be forced to deal with its structural deficit in entitlement programs and defense spending. The companies that emerge in China and the USA will be stronger as a result of their survival. American consumerism and debt spending will be moderated.
None of this makes the real-life struggles of losing a job or a home any easier in the short-term. I encourage the folks in these situations to search for opportunities in the adversity. Perseverance and determination are classic American traits. New careers can be exciting and rewarding.
As I've mentioned before, what is required is perspective and communication. At OPSA we are excited about the opportunity to help more companies reduce costs. We are also excited about the expansion plans we are putting in place for 2009. I continue to expect the global economy will improve significantly in 2009.
The global economy is obviously under great strain. As I've mentioned before, all the stress may turn out to be a good thing in the future. The US government will be forced to deal with its structural deficit in entitlement programs and defense spending. The companies that emerge in China and the USA will be stronger as a result of their survival. American consumerism and debt spending will be moderated.
None of this makes the real-life struggles of losing a job or a home any easier in the short-term. I encourage the folks in these situations to search for opportunities in the adversity. Perseverance and determination are classic American traits. New careers can be exciting and rewarding.
As I've mentioned before, what is required is perspective and communication. At OPSA we are excited about the opportunity to help more companies reduce costs. We are also excited about the expansion plans we are putting in place for 2009. I continue to expect the global economy will improve significantly in 2009.
Monday, January 12, 2009
Einar Tangen - Bailout Blurs the Line Between Capitalism and Socialism
I've discussed articles by Mr. Tangen before. He is insightful and interesting. On the 9th he did an interesting analysis on how the US government is buying equity interest in banks and car companies while the Chinese government continues to privatize its state-owned enterprises. I agree with his article and its conclusions. Here is one interesting quote:
"For both the United States and China, the sharp ideological differences between democratic capitalism and communist socialism, which defined the post war world, has become a muddle of mixed measures dictated by economic desires and circumstances."
He is absolutely right. The private enterprise system made the USA a world power. Now we are moving much more towards a socialist system where the government employs many of its citizens. Is this the right direction for the USA?
You can read the article from biztimes.com below. Have a great week.
Bailouts blur the line between capitalism and socialism
By Einar Tangen, for SBT
Published January 9, 2009
Dispatch from China
Deng Xiaoping, the pragmatic visionary who followed Mao, used the phrase, “One Country, Two Systems,” to describe socialist China’s decision to use capitalistic economics.
Since that point, 30 years ago, the difference between the political ideologies and economic policies pursued in the East and the West have become less distinct.
Today, as China deregulates its banks and spins off its state-owned enterprises (SOEs), the United States is nationalizing its banks and bailing out private enterprises.
Some in the United States (mostly, it seems, those who were part of the sequence of events that created the problem) argue that drastic times require drastic measures.
Is it strange that we are being asked to trust the same individuals who created the problem to solve it? Should we be concerned that these pied pipers have voiced no coherent solution other than throwing money at the problem?
There are many such questions, but at the end of the day, we are faced with the fact that we have engaged in actions that contradict the foundations of our ideological principles.
In China, the culture of consumerism and the pursuit of capitalism have severely challenged its socialist ideology.
In response, the Chinese government has been searching for an ideological balance point that can rationalize its contradictory practices and ideologies.
For both the United States and China, the sharp ideological differences between democratic capitalism and communist socialism, which defined the post war world, has become a muddle of mixed measures dictated by economic desires and circumstances.
Instead of clearly drawn differences, we have become more like two countries with one system.
The effect of this ideological morass has yet to be fully digested by either side, but it is something to keep in the back of one’s mind as you go about your business in either country.
When the times are muddled, it is even more important to be clear about business. As recent events have shown (Bernie Madoff), due diligence is not just something you do in a foreign country.
When something is too good to be true, it generally is. When you don’t understand something, don’t get involved, and when it concerns money, it’s not about trust, just verification.
So, when you are looking at a deal at home or abroad, here are some rules to live by:
* If the cost of due diligence is too high, do not do the deal.
* If there is not enough time to do due diligence, do not do the deal.
* There are no substitutes for doing your own due diligence.
* The need to do due diligence is ongoing.
The first three points have been made before. The last one is an overlooked point which is an essential issue, especially during economic downturns.
Due diligence before the deal is essential, and for the same reasons, you have to periodically update your knowledge throughout a business relationship.
The last thing you can afford to do is be caught flatfooted because a previously reliable supplier/partner/client has run into problems or is about to shift direction.
In Shenzhen, China, more than 10,000 businesses went bankrupt in the first seven months of the year. Most were original equipment manufacturers (OEM’s) for foreign companies that found cheaper sources elsewhere.
Interestingly, those companies which had developed their own brands and distribution have so far, for the most part, been able to hang on. In other parts of China, suppliers who were warehousing products for foreign companies, as part of a just-in-time inventory system, suddenly disappeared, along with all the goods, which had already been paid for. You need to stay in touch with your suppliers, partners and customers at as many levels as you can and make sure the message you are receiving is consistent. You need to get independent reports about their financial and management health. You need to be proactive about quality issues and audits. You need to study your suppliers, as well as your customers’ pricing and costs.
For instance, sharp drops in the cost of materials, shipping and energy over the last six months mean that old price quotes are probably too high and can be negotiated down or obtained from other suppliers.
Just as important, you need to look at your relationships and attempt to strengthen them by creating win-win situations that allow you all to go forward. That is the stuff guanxi (friendship) is made of.
Good luck to all in this new year.
Top of Page Top of page
Einar Tangen
About Einar Tangen
Einar Tangen is a former Milwaukee business executive who now lives in Beijing, China, where he advises the Heilongjiang Province on its technology valuations and acquisitions. Tangen previously served as the chairman of Wisconsin’s International Trade Council and is a former advisor to KOTRA (the Korean Government’s Direct Foreign Investment Recruitment Agency). Readers who would like to submit questions to Tangen about doing business in China can send an e-mail to steve.jagler@biztimes.com.
"For both the United States and China, the sharp ideological differences between democratic capitalism and communist socialism, which defined the post war world, has become a muddle of mixed measures dictated by economic desires and circumstances."
He is absolutely right. The private enterprise system made the USA a world power. Now we are moving much more towards a socialist system where the government employs many of its citizens. Is this the right direction for the USA?
You can read the article from biztimes.com below. Have a great week.
Bailouts blur the line between capitalism and socialism
By Einar Tangen, for SBT
Published January 9, 2009
Dispatch from China
Deng Xiaoping, the pragmatic visionary who followed Mao, used the phrase, “One Country, Two Systems,” to describe socialist China’s decision to use capitalistic economics.
Since that point, 30 years ago, the difference between the political ideologies and economic policies pursued in the East and the West have become less distinct.
Today, as China deregulates its banks and spins off its state-owned enterprises (SOEs), the United States is nationalizing its banks and bailing out private enterprises.
Some in the United States (mostly, it seems, those who were part of the sequence of events that created the problem) argue that drastic times require drastic measures.
Is it strange that we are being asked to trust the same individuals who created the problem to solve it? Should we be concerned that these pied pipers have voiced no coherent solution other than throwing money at the problem?
There are many such questions, but at the end of the day, we are faced with the fact that we have engaged in actions that contradict the foundations of our ideological principles.
In China, the culture of consumerism and the pursuit of capitalism have severely challenged its socialist ideology.
In response, the Chinese government has been searching for an ideological balance point that can rationalize its contradictory practices and ideologies.
For both the United States and China, the sharp ideological differences between democratic capitalism and communist socialism, which defined the post war world, has become a muddle of mixed measures dictated by economic desires and circumstances.
Instead of clearly drawn differences, we have become more like two countries with one system.
The effect of this ideological morass has yet to be fully digested by either side, but it is something to keep in the back of one’s mind as you go about your business in either country.
When the times are muddled, it is even more important to be clear about business. As recent events have shown (Bernie Madoff), due diligence is not just something you do in a foreign country.
When something is too good to be true, it generally is. When you don’t understand something, don’t get involved, and when it concerns money, it’s not about trust, just verification.
So, when you are looking at a deal at home or abroad, here are some rules to live by:
* If the cost of due diligence is too high, do not do the deal.
* If there is not enough time to do due diligence, do not do the deal.
* There are no substitutes for doing your own due diligence.
* The need to do due diligence is ongoing.
The first three points have been made before. The last one is an overlooked point which is an essential issue, especially during economic downturns.
Due diligence before the deal is essential, and for the same reasons, you have to periodically update your knowledge throughout a business relationship.
The last thing you can afford to do is be caught flatfooted because a previously reliable supplier/partner/client has run into problems or is about to shift direction.
In Shenzhen, China, more than 10,000 businesses went bankrupt in the first seven months of the year. Most were original equipment manufacturers (OEM’s) for foreign companies that found cheaper sources elsewhere.
Interestingly, those companies which had developed their own brands and distribution have so far, for the most part, been able to hang on. In other parts of China, suppliers who were warehousing products for foreign companies, as part of a just-in-time inventory system, suddenly disappeared, along with all the goods, which had already been paid for. You need to stay in touch with your suppliers, partners and customers at as many levels as you can and make sure the message you are receiving is consistent. You need to get independent reports about their financial and management health. You need to be proactive about quality issues and audits. You need to study your suppliers, as well as your customers’ pricing and costs.
For instance, sharp drops in the cost of materials, shipping and energy over the last six months mean that old price quotes are probably too high and can be negotiated down or obtained from other suppliers.
Just as important, you need to look at your relationships and attempt to strengthen them by creating win-win situations that allow you all to go forward. That is the stuff guanxi (friendship) is made of.
Good luck to all in this new year.
Top of Page Top of page
Einar Tangen
About Einar Tangen
Einar Tangen is a former Milwaukee business executive who now lives in Beijing, China, where he advises the Heilongjiang Province on its technology valuations and acquisitions. Tangen previously served as the chairman of Wisconsin’s International Trade Council and is a former advisor to KOTRA (the Korean Government’s Direct Foreign Investment Recruitment Agency). Readers who would like to submit questions to Tangen about doing business in China can send an e-mail to steve.jagler@biztimes.com.
Thursday, January 8, 2009
Purchasing Managers Index Shows Decline in Chinese Manufacturing
December's Purchasing Managers Index (PMI) in China rose slightly from November's all time low to 41.2. However, a level below 50 indicates shrinkage of the manufacturing sector. This is the third month in a row of contraction.
Monthly export figures are expected to show December was another bad month after the first decline in seven years was recorded in November.
It is being reported that thousands of factories have closed. It will be interesting to see if there are reports of many factories not opening after Chinese New Year.
None of this is a surprise. What it means is November was not the bottom for the Chinese manufacturing sector. We believe things will recover sooner than the media and government seem to be indicating, but we are still in a difficult time. It is a vital time for communication with all partners in the supply chain. Don't let the distance and differences in culture cause you to spend less time talking with you partners in China.
Monthly export figures are expected to show December was another bad month after the first decline in seven years was recorded in November.
It is being reported that thousands of factories have closed. It will be interesting to see if there are reports of many factories not opening after Chinese New Year.
None of this is a surprise. What it means is November was not the bottom for the Chinese manufacturing sector. We believe things will recover sooner than the media and government seem to be indicating, but we are still in a difficult time. It is a vital time for communication with all partners in the supply chain. Don't let the distance and differences in culture cause you to spend less time talking with you partners in China.
Tuesday, January 6, 2009
NY Times Claims Trouble Ahead for US - China Relations
A very interesting NY Times article from December 28 talks about new "cracks" in relations between the US and China. The author points to the global economic situation and the incoming Obama administration as main causes of the new "cracks".
The article goes on the say that US lawmakers, businesses, and unions are preparing new tactics to try and push the Obama administration into forcing China to raise the value of the RMB versus the USD.
If communication continues I see no reason for the stress of the current economic situation to harm US - Chinese relations. In fact, hard times often cause closer relationships among partners. Also, I believe the team President-Elect Obama is putting together is too smart to try and force a partner like China to change fiscal policy. I believe the new administration will work even more closely than the Bush administration has to build bridges with China. Secretary Paulson has done a good job with China and there is a solid foundation to build upon.
Here is the link to the article:
http://www.nytimes.com/2008/12/29/business/economy/29paulson.html?partner=permalink&exprod=permalink
We are now three weeks away from the Chinese lunar new year. Factories are beginning their shutdowns next week already.
The article goes on the say that US lawmakers, businesses, and unions are preparing new tactics to try and push the Obama administration into forcing China to raise the value of the RMB versus the USD.
If communication continues I see no reason for the stress of the current economic situation to harm US - Chinese relations. In fact, hard times often cause closer relationships among partners. Also, I believe the team President-Elect Obama is putting together is too smart to try and force a partner like China to change fiscal policy. I believe the new administration will work even more closely than the Bush administration has to build bridges with China. Secretary Paulson has done a good job with China and there is a solid foundation to build upon.
Here is the link to the article:
http://www.nytimes.com/2008/12/29/business/economy/29paulson.html?partner=permalink&exprod=permalink
We are now three weeks away from the Chinese lunar new year. Factories are beginning their shutdowns next week already.
Monday, January 5, 2009
Happy New Year 2009
Happy New Year 2009! OPSA is coming off it's best year ever in 2008 and looking to take advantage of several opportunities before us in 2009. We are planning a classic "expansion during a recession". Our business is perfectly positioned to take advantage of the current business climate and we're planning to do just that. More on that in many future posts.
I started the year in a similar fashion to last year. I did another polar bear plunge, this time a larger one in Jacksonport, WI. A friend and I jumped into Lake Michigan (all the way under the water is the only way it counts) at noon on January 1 along with about 750 others in one of the largest polar bear plunges in the country.
It was very windy and cold. Floating ice was a significant hazard. The organizers announced the conditions were the worst in the event's 23 year history.
My friend Dave and I couldn't get anyone to come along and take pictures. Everyone in our families' said it was too cold to stand on a frozen beach. So I don't have any pictures of me in the water. You'll have to trust me.
Taking a plunge in a frigid lake is a symbolic kick-off to a big year. Stay tuned!
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