After I came to the U.S. and witnessed the way Americans spent their money, I started to understand how "globalization" works: Americans consume, Chinese save. And that is the engine of the 21st century global economy. For a while, I thought this could work well for a decade or so, but apparently things were not walking, they were running, at a much faster speed than I assumed.
For one thing, the Chinese save too much. They sell everything now to the whole world, not just America, but they rarely spend. Why? one, income disparity is unbelievably high; second, without proper social safety net, no one dares to waste money; third, most resources are in the hands of monopolies, particularly housing, which squeeze people's wallet thin.
For another thing, the Americans spend too much. Getting money is easy, everyone, the Chinese, Japanese, Koreas, Europeans, Singaporeans, and Saudis, is willing to borrow money to the Americans. Why not, America is not african, you will get your money back, besides, who else lives on debt? The creativity of the Wall Street financial engineers makes borrowing almost an art with mathematical beauty. After all, human greed overwhelms all: if you can consume and enjoy today, why wait until tomorrow? Plus, there is a little war going on over there, costing $ 300 million a day. If Americans forgot to pay their ballooning mortgage and causing a lost of $400 billion, don't worry, Wall Streeters will just gas them with $3 a gallon and borrow from other sovereign funds to hedge off the problem.
However, this cannot last. The engine works only if the lender is generous and the debtor is conservative. Otherwise the harmony will be disturbed and the engine broken.
Now the chain reaction starts to unravel. When the Blackstone said they want money, CIC invested; when Morgan Stanley said they need money, CIC invested again; when Citi said they desire money, CDB stumbled. Before I get on, may I ask where are we heading?
The Chinese government may curb inflation by issuing executive orders and the American government may stimulate the economy by injecting $140 billion, but both may fail to achieve their goal, unless they can fix the engin: help Chinese to spend and Americans to save.
Of course, Dual-Core will be promising, with EU-China engine works together with the U.S.-China one, but be realistic, Europeans are thrifty and stingy, if the latter doesn't work, how long do youn think the former will last?
1/16/2008
Chinese cars are coming?
Not yet, but soon. That's the answer you get from the Detroit auto show.
There are simply too many problems for the auto makers in China to figure out before they can set foot on American soil. Yes, Chinese cars are relatively cheap (before Tata's $2500 motor car), but at what cost? safety, quality, service... And, apparently the Chinese automakers are not sincere about opening up the American market: they didn't even do their homework on English and PowerPoint! The fact is business in China are fighting for low price, not sophistication. Though they have improved productivity rapidly thanks to the vast investment in machinery, their marketing, sales, and after market services are still far behind American market standard. Finally, there's a Pacific Ocean of culture that the automakers have to overcome. They have to design cars specifically for American consumer, no less than a challenge to make cars.
However, if the Chinese are determined to thrust into the American market, undoubtedly world No.1, they will achieve it sooner or later. The best way is through M&A and outsourcing marketing, service, and R&D.
With the rising capital market in China, it's easier to finance the expansion of the auto industry overseas. Overall, this process will be quick. The Chinese auto industry is using Mao's rural surrounding urban model to improving its global position. New markets in developing countries will help China to acquire better knowledge soon.
No matter what, cars from China should be perceived as a pure gain for America as long as they are properly regulated by American agencies: 1. they will lower the price; 2. they will create jobs and opportunities in both countries; 3. they can absorb some of the huge surplus in the Chinese Treasury by for of state investment in the auto industry (better than pouring money into American financial asset alone).
There are simply too many problems for the auto makers in China to figure out before they can set foot on American soil. Yes, Chinese cars are relatively cheap (before Tata's $2500 motor car), but at what cost? safety, quality, service... And, apparently the Chinese automakers are not sincere about opening up the American market: they didn't even do their homework on English and PowerPoint! The fact is business in China are fighting for low price, not sophistication. Though they have improved productivity rapidly thanks to the vast investment in machinery, their marketing, sales, and after market services are still far behind American market standard. Finally, there's a Pacific Ocean of culture that the automakers have to overcome. They have to design cars specifically for American consumer, no less than a challenge to make cars.
However, if the Chinese are determined to thrust into the American market, undoubtedly world No.1, they will achieve it sooner or later. The best way is through M&A and outsourcing marketing, service, and R&D.
With the rising capital market in China, it's easier to finance the expansion of the auto industry overseas. Overall, this process will be quick. The Chinese auto industry is using Mao's rural surrounding urban model to improving its global position. New markets in developing countries will help China to acquire better knowledge soon.
No matter what, cars from China should be perceived as a pure gain for America as long as they are properly regulated by American agencies: 1. they will lower the price; 2. they will create jobs and opportunities in both countries; 3. they can absorb some of the huge surplus in the Chinese Treasury by for of state investment in the auto industry (better than pouring money into American financial asset alone).
1/13/2008
Buy Taiwan Stocks!
Unstable political arena in Taiwan and dire economic outlook in America dragged the Taiwan stock market down in the beginning of the new year. Last year, Taiwan stock index run like a roller coaster, just as dazzling as the Shanghai index. But people are too shocked by the crazy "Chinese small investor", and the "infected" Hong Kong market, they forgot Taiwan had a wonderful ride before. This quarter, I believe, for long term investors there will be a golden opportunity. Taiwan's strength is consumer electronics and if you look at the fundamentals, they remain strong. If we learned something from yesterday's Taiwan election, that would be "it's the economy, stupid!" Well, apparently, Chen "local" forgot there is something called "global" and obviously, going global for Taiwan means openning up to the Mainland. Now with the KMT holding the majority in the TW legislative Yuan and a very possible KMT president making policies in the office 68 days from now, we should expect that many agreements made between the CCP and the KMT will be honored gradually. Direct flight, tourism, CEPA, and incoming investment can be flooding in within 2 years. After presidential election, we may expect 4 years relative stable political management, and it will be a great opportunity for Taiwan to reinvest in education, health care, infrastructure, and international competitiveness. Friendly cross strait relations may benefit Taiwan business in terms of bigger market, more contracts, and better treatment, which will help Taiwan companies to fend off the impact of the U.S. recession. Besides, current Taiwan stock average PE ratio is about 1/3-1/4 that of the mainland A shares, and as attractive (maybe even better) as the Hong Kong ones. In any case, Taiwan people spoke and democracy consolidated. Finally, there's some light.
Suggestions to the American government: be a better broker, make a clear stand and push two sides to sit down, talk, and make progress, create a regional security mechanism to maintain peace and stability but leave cross strait negotiation to the Chinese alone.
Suggestions to the Chinese governement: enlarge beneficial package to the Taiwanese, find a way to allow Taiwan to participate in more non-sovereign international organizations, give the opportunity to Taiwan elites and allow them to work as professionals in international organizations as well as in mainland China, exchange democratic election experience on the village level and health care system, cooperate on environment, technology, and any possible area.
Suggestions to the American government: be a better broker, make a clear stand and push two sides to sit down, talk, and make progress, create a regional security mechanism to maintain peace and stability but leave cross strait negotiation to the Chinese alone.
Suggestions to the Chinese governement: enlarge beneficial package to the Taiwanese, find a way to allow Taiwan to participate in more non-sovereign international organizations, give the opportunity to Taiwan elites and allow them to work as professionals in international organizations as well as in mainland China, exchange democratic election experience on the village level and health care system, cooperate on environment, technology, and any possible area.
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