I spent Christmas in China. That hardly qualifies me to predict the fortunes of this vast country, or its economic boom. According to a report in The Times last week, it’s now eating up 26% of the world’s steel, 32% of all rice, nearly half the cement, and it’s home to more than half of all the world’s pigs!
But I can at least offer you my observations. And to be honest I am still shaking from my four-day journey into Guandong, with my brother-in-law at the wheel…
Overhead signs indicating the slow lane and the overtaking lane might just as well not have existed as he wove his way along a crowded highway, stopping only at the several toll stations where pretty Chinese girls, dressed in 1960s style PanAm stewardess uniforms, collected the cash that, presumably, pays for the roads.
There is a speed limit, but my brother-in-law explained that as a favoured investor into China, he is immune from prosecution. This is just as well, because the authorities can remotely measure traffic speed, and he told of a friend from Hong Kong who had been presented with a bill for £15,000 of speeding fines.
He also told us that many drivers in China have not passed any driving test. They have simply bought licenses, and still have the same road sense they had in their cycling days. Apparently the authorities are tightening up on this.
Next day my brother-in-law took us to his factory, the first of three that we visited. His company makes infant clothes for retail customers in Europe. The factory has the capacity to make about 10,000 items a day, for which he would receive no more than £2 each. He employs about 400 workers who come from all over China to earn £70 per month. They live, as many as eight to a room, in an accommodation block next door to the factory.
This industry is still labour intensive. Apart from embroidery, very little of the process is mechanised. The dying of the cloth, the cutting, sewing, ironing and packing all involves large teams of people. High quality is ensured by attention to detail. In the last process before they are packaged, each item is waved in front of a giant air suction machine, just to remove any speck of dust.
On another day we visited a factory producing wrought iron garden and conservatory furniture exclusively for American retailer Pier One. We saw another factory making home electrical goods such as rice cookers and kettles. Both also employed around 400 staff, who again earned under £100 per month and lived on-site. The garden furniture firm was having a bad year and had been forced to disengage staff – a quick process with no compensation.
We met a local official who explained that this part of China has been designated by the central government as THE area for home appliance assembly operations, enabling it to build its own hinterland of suppliers.
And when I asked one factory owner whether the Government controlled output, he said that ‘Sometimes they just turn the power off.’
In other words, the Chinese economy is closely controlled – crudely, perhaps. But the Government can pull levers to head off any threat of overheating, and I found this reassuring.
However, a private equity investment banker I met in Hong Kong was dismissive of the whole Guandong region. He described the businesses as low margin and highly competitive.
‘All the high technology businesses are around Shanghai,’ he told me, which is a vastly bigger region than the Pearl River Delta adjoining Hong Kong.
But all the same Guangdong has a population of some 75 million souls, and as we drove along the highway, apart from an occasional sighting of a row of Chinese cabbage, the view was urban for as far as the eye could see.
Buildings of a mere six or eight storeys were dwarfed by huge skyscrapers. Factories and flats sit side by side, the latter distinguishable only by the row of washing hanging out to dry on every balcony.
Every now and then we would cross a vast, lazy river, with barges moving silently and bridged by massive iron structures. The sheer scale of the construction achievement is mind-boggling, but its result is less than attractive.
Neon lights provide the only colour to this drab landscape, shrouded as it is by a thick layer of brown air. No wonder one of our hosts, who had visited us in Oxford, included amongst his holiday snaps a picture of a blue English sky.
It may not be pretty, but at close quarters urban life is modern. The standard of living seems quite high and is no doubt transformed over recent years. There are no beggars in the streets. There are surprisingly few bicycles – these have been replaced by motor cycles and cars. Western influence, however, is notable largely by its absence. With the inevitable exceptions of McDonalds and KFC, China seems able to live without western consumer goods.
There is a television in every room – why, I don’t know because the schedules seem to contain little more than censored news bulletins and cheap soap operas. And just about all the TVs are big, flat screen and plasma. With no legacy of bakerlite telephones or bulky old TV sets, China has leapt straight to the latest technology.
My iPod mini – a Christmas present – was scoffed at! Most people I met seemed to have handsets that took photos, played music and did a great deal else besides.
And the future? When we visited a primary school, a class of immaculate looking children, dressed in the school uniform of sky-blue track suits, were singing ‘1- 2-3-4-5, Once I caught a fish alive…’ in English. They arrive at school at 7.30am and leave at 5pm – with homework. They are well behaved and industrious. The IT room had 60 PCs and the headmaster told me that about half the children had access to a computer at home.
Education is very important, a real priority for a people starved of it during the long communist era. It is hard to see how other countries can compete with a people who prize education and hard work, and on such a scale too.
Workers of the West – beware!
By Tom Bulford for Red Hot Penny Shares.
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