Pay no attention to the huge machine tool behind..

This fascinating post, part of a series on Chinese manufacturing that’s been picked up by BoingBoing, seems to be missing one very significant point. Yes, it’s all very cool; precision-machining billets of cold steel into incredibly perfect moulds that will be used to injection-mould the Chumby, blasting off the rough edges with an electron gun, then polishing them by hand.

But there’s nothing Chinese about that honking gurt machine tool; it’s a Röders TEC RP800, as in Röders GmbH, a 210-year old family metalworking firm from Soltau that boasts it’s both a leader in high-speed routing (the kind with steel bits, not digital ones..) and also a manufacturer of kitchenware favoured by the Bauhaus. They started making the machine tools for their own use, but developed it as a line of business after inventing a guidance mechanism that permitted them to work around 100 times faster. They also make moulds in China on a line of their own machines, in order to deliver to manufacturing clients there quickly; a curious invertion of the recent trend to bring textile manufacturing back closer to European or North American markets, in order to turn around new designs faster.

The Mittelstand, clearly, endures: even if the idea of handing over the company to the 29-year old heir might take some swallowing, Warsteiner beer probably won’t.

Of Population Pyramids and Value Chains

It is by now well known that the main hope for developed societies subject to rapid population ageing who wish to maintain their relative standard of living lies in increasing their collective productivity more rapidly than they increase their dependency ratio via-a-vis the older age groups. Now in the comments thread on the recent ‘Reform is a Dirty Word‘ post I ventured to say that I found it obvious that at some stage we would reach a point where the rate of population ageing was going to outstrip the rate of productivity increase (in which case relative income per capita would inevitaby start to fall). David, unsurprisingly, asked me why I thought this to be the case. I was not happy with the response I offered (which was essentially some ‘rigmarole’ about the biology of ageing which is coming in a separate post), and since that time I have been scratching my head trying to find a simple way to get this point across. Perhaps I now have one.

All you need to get to grips with what follows is a basic understanding of geometry and a vague interest in football.
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Overdue Evaluation (The Prize, by Daniel Yergin)

There is not much market for reviews of books published almost a decade and a half ago, so without further ado, my thoughts on The Prize, by Daniel Yergin. This evaluation is overdue because I started reading the book when I bought it, back in 1997. I put it down around page 400 (which is a little more than halfway), so this review is likely, very likely, to be stronger on the second half of the book.

Yergin’s subtitle is The Epic Quest for Oil, Money & Power, which gives both theme and thesis. The title, if I am remembering an early part of the book correctly, comes from a statement made about oil by Winston Churchill: “The prize was mastery itself.” The argument is that understanding oil is central to understanding the twentieth century and, by extension, the world today. To complaints that the war in Iraq is “all about oil,” the only proper answer is “Of course.” The last century’s major conflicts, and many of its smaller ones, were driven by oil, determined by oil, or both. Without an understanding of oil, much of the period will remain opaque.
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Gazprom, Iran and EU Energy

Well just in case the Iranian situation wasn’t difficult enough in and of itself (or here), there are always some around who will seek to take short-term benefit from the temporary embarassment of others. So this week, as June delivery oil prices spiked up around the 74 dollar a barrel mark, it became just a little bit clearer who might be doing what.
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The Czech Car Growth-Engine?

News today which is of more than passing interest from the Czech Republic. The South Korean industrial group Hyundai has announced that it is going to build its first European car plant at Nosovice. The factory – which is scheduled to cost around one billion euros – should begin production in October 2008 with full capacity of 300,000 vehicles a year being reached in 2009. This new output, when added to added to the 600,000 cars or so produced annually by Volkswagen’s Skoda Auto and the Franco-Japanese joint venture, TPCA, will bring the Czech Republic into the front line – along with Germany, France and Italy – of the European automotive industry.

As elsewhere this will have its good and its bad side.
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Petrol, Petrom, and the President

So, President Basescu is unhappy.

This is not unusual. President Basescu is often unhappy. You’d think that, having won the election last December against Prime Minister Nastase, he’d be at least content. But Basescu is a scrapper, and he’s always looking for a fight, and in recent weeks he’s found one. It’s about petrol, and Petrom.

Perhaps I should explain.
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Narodwagen?

BusinessWeek spills a lot of ink on the rise of the car industry in Central and Eastern Europe. The idea that a lot of manufacturing is headed east is nothing new, but to see the numbers and changes laid out so explicitly gives a much clearer idea of the challenges that Western societies are facing.

Volkswagen [in Germany has] the highest labor costs in the industry — close to $50 an hour for a 28-hour workweek, some 20% over the already high average wage for German auto workers. In contrast, Slovaks [at another VW factory] cost $6 an hour and work a 40-hour week, netting VW annual personnel cost savings of $1.8 billion, according to analysts at Germany’s Bank Sal. Oppenheim. If [Thomas] Schmall [chairman of VW Slovakia] needs to boost production suddenly to meet a surge in demand, the new shifts can be arranged overnight. In Germany, negotiations with unions to alter work-time models can take up to six months and cost more in overtime premiums.

Ouch.
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Your Next Car ‘Made in China’?

China is getting into car manufacture in a big way, but before going further with this, let me sidetrack you to another article in today’s FT. Here you will find two interesting details. Firstly, according to Arthur Kroeber, of China Economic Quarterly, ?Since 2003, China has gone from being a net importer of capital goods to being a net exporter”. I’m still loking for some confirmation of this, but if true, it is very significant. The other detail: overcapacity means there is a continuing price war in China, and factory gate prices are falling. This point needs to be borne in mind by all those who imagine a rise in the value of the Renminbi would produce a comparative increase in ‘mark to market’ prices for consumers. I’m with Morgan Stanley’s Andy Xie here, overcapacity is likely to be such that the ‘pass through’ rate would be minimal, most of the on-costs being absorbed by an ever more deflationary environment in China.

Interestingly enough, Jean Claude Trichet gave three arguments, at the end of his press conference yesterday, in order to justify the urgent necessity for the Lisbon Agenda: ageing, technological changes, and growing global competition (or labour arbitrage in Stephen Roach’s language). I couldn’t agree more.

Now for the cars. Yale Global has reproduced an interesantissimo supplement from the FT:

Automakers may see China as a growing market, but soon they may face unexpected competition from a number of manufacturers who are seeking to export to the West, as well. Several Chinese companies have already begun a trial run in the Middle East to prepare for the US market, the goal of more than two decades of attempts to build a competitive car industry. The Chinese companies will encounter numerous obstacles and opponents ? including the multinational companies that currently dominate the global markets ? but if successful, they could reshape the auto industry. Because the economies of countries like the US and Germany depend heavily on the auto industry, the implications of such a move are substantial. How will the West respond?

Read-on here