Wednesday, August 1, 2012

Is China’s decline permanent?


Yes, China is in decline. But not just due to negative Global economic struggles. China has entrenched problems that are contributing to its decline. Are these problems intractable?

Following are significant but an incomplete list of its problems:

● Manufacturing processes and systems are at the same capability level as were in-place in the USA in the 1970s. Relatively inefficient production operations coupled with the sizable increase in hourly factory labor wages are reducing profit margins and free cash flow. A large percentage of Chinese company owners and managers do not have knowledge of the more productive methods of operating.

● The absence of trucking and freight forwarding capabilities to support expansion into lower labor cost Western China. In addition, it is difficult and costly to get quality managers to move to these remote areas.

● China needs to maintain its historic growth rates to ensure that capital is available to clean up its environmental problems. In addition, high employment levels must be available to mitigate the current increases in social protests and riots.

There are several other negatives for China. Click on these links to see further details:

Not exactly the same as Japan since China’s leaders have a history of responding and changing its formulas. But some of its entrenched problems will not be easily solved and China’s pendulum will swing to the negative side of the ledger.


August 23rd New York Times article, Manufacturing in China Slows, reporting on a worsening economy.

Business Week’s November 15 article, “Xi takesChina's helm with many tough challenges”, further documents the serious problems facing China’s new leader.