Tuesday, January 03, 2006

China's Economy Soars in 2005

China posted an economic growth rate of 9.8% in 2005, marking it as the sixth largest economy in the world behind Britain and France. The driving factor behind the surging growth is China's booming service sector. (Asia One: China's 2005 growth rate lifted to 9.8 percent, thanks to new survey ).

While the upswing in the Asian economy is good news for foreign investors amid rather weak economic growth in the US and recessionary pressures in Europe, this news should send shivers down the spines of environmentalists and workers in both manufacturing and service industries world-wide. What that 9.8% economic growth figure doesn't tell you is the number of service industry jobs lost in both the US and the EU as firms in first world countries outsourced those positions in an effort to reduce costs. China's gain is everyone else's loss.

Historically, China has had one of the lowest salary structures in the world, making it a very attractive target for US and European goods manufacturing. Many of the components that make up your clothing and electronics pass through China in one form or another, again thanks to the developed nations seeking lower manufacturing costs. That 9.8% growth rate in China comes at the expense of manufacturing jobs in the West.

What China does not have are comparable environmental standards for manufacturing firms, making Asia an even more enticing target. Adhering to environmental standards in the US is a tremendous economic burden on both the manufacturing and the energy sectors and, coupled with high salary and benefits requirements, is a major reason US manufacturing corporations look to move their operations overseas. It was China's lack of environmental standards and their exclusion from the Kyoto treaty that forced the US to refuse to ratify that same treaty, citing the detrimental impact it would have on the US economy.

It's important to recognize that a comparison between China's economic growth and our own is a mismatched comparison. China does not have our standard of living. It's not even close. The Chinese worker does not receive the type benefits even the minimum wage worker in the US receives. The minimum wage worker in the US also receives more per hour than the Chinese worker does in a day. China's industries are not faced with the same regulation constraints as the American counterpart. Energy costs, environmental restrictions costs, insurance costs, and licensing costs are all significantly higher in the US. It's no wonder the Chinese economy grew at such a high rate.

That high growth rate in China comes with a hefty price tag for the rest of the world, however. The loss of service and manufacturing jobs in the West will be felt for some time to come, however that loss is most noticeable only to those that were directly impacted by outsourcing. Everyone, however, can feel the crunch everytime we pull up at the pumps and see gas prices more than double what they were a year ago. The primary reason for that price surge is the amount of oil being consumed by China. Their oil consumption in the last year has grown faster than their economy, placing tremendous economic pressures on the worldwide oil supply.

Don't expect China to maintain that rate, however. The cost of energy alone is going to dampen their economic enthusiasm. So, too, will a rising standard of living. Chinese workers will begin to demand more western style benefit plans and salary structures, much as what happened in Japan and is happening now in India. As that happens, the attractiveness of the Chinese market will be begin to diminish. So where's the next economic boom? Well, Bangladesh and much of Southeast Asia look promising. So, too, is Central and South America if they are ever able to throw off the yoke Chavez has fastened around their collective necks. Unfortunately, until the effects of outsourcing force an implosion of the US and EU markets, that growth rate will not be experienced here. There are too many forces driving our jobs into the undeveloped world at the moment, and to date our Congress has done little to stop it.


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