China: It would be wise to have a backup plan
By Michael Knell, Canadian correspondent -- Furniture Today, August 5, 2002
I've been giving a lot of thought to China these days. The world's most heavily populated country and one of the few remaining Communist states is having a significant impact on the furniture industry, not only in the United States but in Canada as well.
Many Canadian producers have joined their American counterparts, hopping on anything that flies to Shanghai and Hong Kong to make deals with the ever-increasing number of factories in the People's Republic.
Everybody cites the cost of labor as the No. 1 reason for jumping the fence. In truth, wages, benefits and working conditions in China aren't all that advanced from those of our grandfathers in the '30s.
Henry Ford once noted he was obligated to pay wages that were low enough to ensure competitiveness but high enough so his employees could buy the product he was making. He knew his employees also were his customers. Sometimes, I think we've forgotten this economic fact.
An article in the Toronto Star suggested the China gravy train may not chug along much longer. In this view, there's bound to be a struggle for political power in the not too distant future, which some analysts believe may be bloody, brutal and long.
Propelling that crisis will be a stagnating Chinese economy unable to provide jobs for the flood of peasants leaving the countryside for cities. Growing unemployment will give rise to social and political instability. Factories may be humming now, but some believe that, since the Asian financial crisis of 1997, overall growth rates really have been about half the official figures.
Sino-American relations also are not as cozy as they seem. The U.S.-China Security Review Commission, an agency of Congress, has called for a much tougher line on China because of its support for terrorist-sponsoring and other states that present serious security problems to America and her allies.
The panel has recommended economic sanctions be employed in the event of continued Chinese weapon sales, and that access to U.S. capital markets be forbidden to companies involved in the transfer of weapons technology. "The U.S. must be prepared for all possible contingencies," the commission said.
China may become embroiled in conflicts throughout Asia, involving not only Taiwan but Pakistan and India as well. Any and all could have an impact on policy and on China's ability to attract foreign investment. The article also pointed out that "Communist party rule in China is based on raw power and the willingness to use it...."
All of these things could affect our industry. I'm not suggesting for a moment that we get out of China. But I am suggesting we have a backup plan and that we be more cautious in climbing aboard the train. For when the (you know what) hits the fan, we're gonna get splattered.
