I have been saying this for years. The trees will not continue to grow into the sky. China will eventually price itself out of the market. It happened before with ‘cheap labour’ countries, and it will happen again. This article from the Sydney Morning Herald sheds some light on this phenomenon, and makes the parallel with what happened in Taiwan.

Welding, with Chinese characteristics … how long can this sort of thing keep going?

Marcus Padley
June 23, 2007

LET me ask you. When did you last see the label “Made in Taiwan”? Anyone in Generations A-W will get the point immediately.

There are certain things about the current boom that will not last. One of them is cheap Chinese labour. Millions of dopey folk with mud on their boots wandering into the cities, eyes agog. They are being put to use and their use is putting tens of per cent into manufacturing company margins across the western world.

Those margins are turning up in share prices. And with so many naive people ready to be exploited, it’s no wonder inflation isn’t spiralling as it should be in China. The Chinese consumer isn’t getting paid enough to push prices.

But it won’t last. Nothing this good ever does. It didn’t in Taiwan. Their citizens went from naivety to sophistication and beyond. They became wealthy.

In China the same thing will happen. The dopey country folk will become a savvy workforce. They will sense their exploitation; they will demand more. Their costs will rise and it will all come to an end. In the past year Chinese labour costs have risen 10 per cent. It’s the beginning of the end.

As they mature, the Chinese will run into a host of social problems. The bedrock of their industrialisation - cheap labour - will thrash and become unreliable. As it does the western profit margins will fall, the growth will dissipate and the potential will diminish. In its place will be left a nation trying to sort itself out.

No more will the world be flooded with cheap goods. On top of this the metal and commodity prices will feed through to finished goods prices and the CPI numbers. The oil price and energy prices will also be squeezed. It will all come home to roost in higher inflation and that means higher interest rates and falling bond markets.

The other thing that will not last is the Asian investment in US bond markets and US assets. Their participation in US Treasury auctions is already backing off. They have absurd reserves exposed to one currency and one asset class. With the potential in Asia they’ll start to invest closer to home.

The US is not going to lead us into infinity. Their balance sheet is weak, their profit and loss is unprepared for the costs of the baby boomers and their credit card bill is enormous. Their currency is threatened. It just makes sense for the Asian support of the bond market to weaken and as it does the US bond yields will no longer be held artificially down. Another reason for them to rise.

I remember reading a US study which concluded that when a stock jumped or fell sharply on a price-sensitive announcement it tended to trend in that same direction for the next nine days. In other words, you could sell or buy into the trend on the first trade after a price gap and still make money.

In the same way, the recent big jump in bond yields is a sign. It is the sign of a trend. That’s why the market got so upset about it. But unlike the concerns about the Chinese stockmarket, the bond yield concerns are going to stay, develop and become a much bigger influence.

Look at any of the major long bond yield charts. They are all on the rise, and not just in the last couple of weeks. They have been on their way up since 2003. The message from the recent flick up is that the trend is going to accelerate.

So what do you do if inflation and interest rates are on the way up? Two things:

■ Lock in the mortgage at fixed rates for the next five years.

■ Make the most of this golden window of opportunity while it lasts.

Now is not the time to be cautious about equity markets. There is plenty of play before the problems roost. And anyway, all this is global stuff. Australia will be a great market for many years and we’ll list the reasons why in the Marcus Today newsletter this week.

Marcus Padley is a stockbroker and the author of the daily stockmarket newsletter Marcus Today.

In my own industry, the marine repair and supply sector, the past few years the salaries of my staff have risen by almost 20% per year. Our hourly rates are hardly lower than Singapore, Hong Kong, or Eastern Europe anymore.

China had never anything to offer but cheap labour. There is no creative thinking here, or a drive for innovation. Most efforts of multinational companies to establish at least a part of their R&D activities in China have failed. Quality and delivery time are still quoted as the biggest problems in every field of manufacturing here. With cheap labour as only, and dwindling asset, China will have to redefine it’s role on the global playing field.

The Chinese shipyards are experiencing a boom unlike anything seen before in Japan or Korea. There are yards, which themselves exist for merely 2 - 3 years, whose order books are filled till 2013! However, the prices are booming as well, causing many ship owners to look for India, and the emerging ship building country Vietnam.

According to the General Administration of Civil Aviation in China (CAAC), less than 10% of Chinese pilots have a sufficient knowledge of the English language to meet minimum international aviation standards.

This is leading, on an almost daily basis, to dangerous situations like the incident with Air China flight 981 at JFK airport in New York in the YouTube clip below.

A blog that exposes the red fascists for what they really are is ‘Status of Chinese People’. This should make even Dashan lose his rose-coloured spectacles. Warning, not for the faint of heart at times!

This is what I sometimes quote to my customers, and what I keep telling my sales staff. A friend of mine had this actually printed on the back of his business card:

THE LOWEST BIDDER

It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money - that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the job it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and, if you do that, you will have enough to pay for something better.

JOHN RUSKIN, Author-Economist (Feb. 8, 1819 - Jan. 20, 1900)

What if the Battle of Trafalgar would have to take place in modern times?

Just before the Battle of Trafalgar - a conversation is overheard on the deck of HMS Victory;

Nelson: “Order the signal, Hardy.”
Hardy: “Aye, aye sir.”
Nelson: “Hold on, that’s not what I dictated to Flags. What’s the meaning of this?”
Hardy: “Sorry sir?”
Nelson (reading aloud): ” England expects every person to do his or her duty, regardless of race, gender, sexual orientation, religious persuasion or disability.” “What gobbledygook is this?”
Hardy: “Admiralty policy, I’m afraid, sir. We’re an equal opportunities employer now. We had the devil’s own job getting ‘England’ past the censors, lest it be considered racist.”

Nelson: “Gadzooks, Hardy. Hand me my pipe and tobacco.”
Hardy: “Sorry sir. All naval vessels have now been designated smoke-free working environments.”
Nelson: “In that case, break open the rum ration. Let us splice the main brace to steel the men before battle.”
Hardy: “The rum ration has been abolished, Admiral. Its part of the Government’s policy on binge drinking.”

Nelson: “Good heavens, Hardy. I suppose we’d better get on with it ………..full speed ahead.”
Hardy: “I think you’ll find that there’s a 4 knot speed limit in this stretch of water.”
Nelson: “Damn it man! We are on the eve of the greatest sea battle in
history. We must advance with all dispatch. Report from the crow’s nest please.”
Hardy: “That won’t be possible, sir.”
Nelson: “What?”
Hardy: “Health and Safety have closed the crow’s nest, sir. No harness. And they said that rope ladders don’t meet regulations. They won’t let anyone up there until a proper scaffolding can be erected.”
Nelson: “Then get me the ship’s carpenter without delay, Hardy.”
Hardy: “He’s busy knocking up a wheelchair access to the fo’c’sle Admiral.”
Nelson: “Wheelchair access? I’ve never heard anything so absurd.”
Hardy: “Health and safety again, sir. We have to provide a barrier-free environment for the differently abled.”
Nelson: “Differently abled? I’ve only one arm and one eye and I refuse even to hear mention of the word. I didn’t rise to the rank of admiral by playing the disability card.”
Hardy: “Actually, sir, you did. The Royal Navy is underrepresented in the areas of visual impairment and limb deficiency.”

Nelson: “Whatever next? Give me full sail. The salt spray beckons.”
Hardy: “A couple of problems there too, sir. Health and safety won’t let the crew up the rigging without hard hats. And they don’t want anyone breathing in too much salt - haven’t you seen the adverts?”
Nelson: “I’ve never heard such infamy. Break out the cannon and tell the men to stand by to engage the enemy.”
Hardy: “The men are a bit worried about shooting at anyone, Admiral.”
Nelson: “What? This is mutiny !”
Hardy: “It’s not that, sir. It’s just that they’re afraid of being charged with murder if they actually kill anyone. There’s a couple of legal-aid lawyers on board, watching everyone like hawks.”

Nelson: “Then how are we to sink the Frenchies and the Spanish?”
Hardy: “Actually, sir, we’re not.”
Nelson: “We’re not?”
Hardy: “No, sir. The French and the Spanish are our European partners now. According to the Common Fisheries Policy, we shouldn’t even be in this stretch of water. We could get hit with a claim for compensation.”
Nelson: “But you must hate a Frenchman as you hate the devil.”
Hardy: “I wouldn’t let the ship’s diversity co-ordinator hear you saying that sir. You’ll be up on disciplinary report.”
Nelson: “You must consider every man an enemy, who speaks ill of your King.”
Hardy: “Not any more, sir. We must be inclusive in this multicultural age. Now put on your Kevlar vest; it’s the rules. It could save your life”

Nelson: “Don’t tell me - health and safety. Whatever happened to rum, sodomy and the lash?”
Hardy: As I explained, sir, rum is off the menu! And there’s a ban on corporal punishment.”
Nelson: “What about sodomy?”
Hardy: “I believe that is now legal, sir.”

Nelson: “In that case …kiss me, Hardy.”

Over at MyLaowai’s blog a post that deals with the medical ‘advice’ given to pregnant women in China. I laughed my ass off as I recognized most of it, and it reminded me of the time that Mrs. Mariner was pregnant and she was swamped with similar ‘good advice’ by relatives and friends.

What are some of the peeps thinking here in China when they adopt an English name? Some of the Chinese first names are funny enough if you translate them, with ‘Love the Army’, ‘Little Cow’, and ‘Small Three’ being no rare exceptions.

It gets a lot worse when they choose an English name, either because they are working in a foreign invested company, or because it is ‘fashion’. My previous job was in a big multinational company, and one day I searched the company database for funny English first names. Here is a small selection:

Apple, Bone, Forest (not Gump this time), Stone, Rain, Rainy, Hitler (and he thought it strange that nobody liked him), Seaman, Golf, Echo (yeah, I remember that one, ‘full of empty’ as we say), Sheller, Hiller (spelling error maybe?), Lemon, Volcano, Nono, Spike, Waters, Spice, Spring, Summer, Yoyo, Ocean, and the list goes on.

But what about ‘Wanko’ for a cloths shop in Guangzhou, or the Chinese white wine in a recently opened restaurant in Shanghai which was listed as ‘Little Confused Celestial Being’?

I came upon a blog called ‘Adrift in a sea of phlegm’ by Keir (I don’t know what is worse actually, being adrift here or being stranded). Keir calls a spade a spade, and I like the pictures and link collections on his blog. I found this picture of a convenience item list from a Beijing hotel room. I saw one a few years ago, which was almost exactly the same, but I did not have my camera with me at the time.

Seems there is still a lot of work to be done before the 2008 Olympics. But I must admit the Traveller’s mates are not too expensive. Guess they are Mongolian. Not sure though if 30 RMB is for the whole night.

A good one is the line ‘These product will be charged to your account according to your consumption’. I can see the scene on checking out the next morning: “What do you mean you charge me 15 RMB for a whole can of cunt cleaning spray? I only used about half of it!”

Every now and then I am traveling to Hong Kong. I have to see my eye doctor regularly, I still do all my banking there, and it’s a great place to shop. Besides I have some good friends there, and it’s always good to be away from mainland China for a few days.

One of my friends is living on Lamma island, one of Hong Kong’s outlying islands. He offered me to stay in his house for the weekend. Lamma, also known as ‘Pok Liu Chau’, is the third largest island in Hong Kong. The population is about 10,000. A lot of people live here, and work on Hong Kong island, as the cost of housing is considerably lower on Lamma.

There are ferry services from the Outlying Islands Ferry Pier No. 4 in Central on Hong Kong Island to Yung Shue Wan and Sok Kwu Wan. The ferry takes about 30 minutes. There are also ferries to and from Aberdeen on Hong Kong Island.

My friend lives in Yung Shue Wan in a beautiful house with a roof terrace overlooking the bay on one side, and the hills on the other. There are two very good seafood restaurants in Yung Shue Wan. My favourite is Man Fung Seafood Restaurant. The ‘lobster in cheese sauce’ they are serving, is the best I ever had.

Next to the restaurant is the Island Bar with it’s friendly manager Kumar. A great place to have a good time and meet the locals.

On Lamma you don’t have the feeling you are in Hong Kong. It reminds me more of some places in the Caribbean, or on the North shore of some of the Hawaiian islands.

Lamma also has a few nice beaches, and is great for hiking and fishing. I am already looking forward to my next stay, hopefully soon.