Cheap. Fast. Good. Pick Any Two.
For a long time, it was a truism that you could only pick two out of the three desirable characteristics of goods and services.
Today, China is putting the lie to that saying. You can order something online that is quite affordable, have it delivered to your door in a surprisingly short time, and find the quality to be acceptably good too. All thanks to hyper-efficient Chinese manufacturing and supply chains.
This short video explains the revolution that has occurred in the garment industry. At one time, it was believed that the Global South, with its cheap labour, was the place to manufacture clothing. And indeed, countries like Bangladesh have dominated the sector for a while on account of this advantage.
No longer. Automated factories can beat out the cheapest manual labour. While producing goods of consistently higher quality. And with leaner assembly lines that can switch between products faster than any manual system.
China is where all of this is happening.
"Dumping", "Overcapacity", "Subsidies"
As long as China supplied cheap t-shirts and shoes to the West, there was not a murmur of criticism. Chinese products were enthusiastically imported, and they have kept inflation down in importing countries for over a decade.
Today, with China moving up the manufacturing value chain, the tone has changed. The West is responding negatively to Chinese products.
The two common accusations against China are "dumping" and "overcapacity". The allegations are that China is flooding the world market with goods at unnaturally low prices, just to destroy foreign competition and take over the world.
To support the accusations of dumping and overcapacity, critics refer to government subsidies to Chinese industry that result in unnaturally low prices and excessive volumes of goods.
Are these accusations valid?
The terms "dumping" and "overcapacity" are simple to define, and there is no wiggle room on these definitions.
Dumping refers to goods being sold below cost.
Overcapacity means supply exceeds demand.
The Economist, a consistent critic and doomsayer where China is concerned, has put out an article (8 August 2024) that simultaneously refers to overcapacity and bankruptcies.
To my mind, this is actually a sign of a healthy, self-correcting market economy that is functioning without government subsidies. Critics of the "CCP" (Chinese Communist Party) are loath to admit that the Chinese economy is actually capitalist, with a highly competitive market. Where there's competition, only the fittest survive.
The fact that companies are going bankrupt refutes the accusation of government subsidies, which would have kept uncompetitive companies afloat. The survivors, being profitable, are obviously not selling below cost. The accusation of dumping is therefore baseless.
"Overcapacity", even if it exists, is temporary, since market forces are clearly at work, weeding out uncompetitive suppliers and rewarding those that meet demand most efficiently. Indeed, with Chinese exports rising year after year, it's clear that global demand for Chinese goods is only increasing. Supply does not exceed demand. Yards in foreign ports and importers' warehouses would have been filling up in the absence of sufficient demand. Instead, Chinese goods are flying off the shelves. Clearly, the accusation of overcapacity is also baseless.
The Economist's news item linking overcapacity and bankruptcies not only contradicts itself but also effectively refutes all three accusations made against China, i.e., of Chinese government subsidies, of dumping, and of overcapacity.
Much as China's critics would hate to admit it, what this implies is that Chinese industry has raised its level of competitiveness by an order of magnitude, to the extent that no other country can compete with it any more.
In the process, China has also shown the world that there is no inherent trade-off between cheap, fast and good. We can now have it all.
What does this mean for the rest of the world?
Countries like Germany, Japan and Switzerland no longer have an edge over China in terms of quality. China is catching up, if it hasn't already.
Countries of the Global South no longer have a cost advantage over China because of cheap labour. China's aggressive automation and use of industrial AI has beaten the cheapest labour anywhere.
Critics are crying foul with accusations of "government subsidies", "dumping" and "overcapacity", but as my analysis concludes, these accusations are baseless. China is beating the rest of the world fair and square.
And that's why the world now fears China.
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