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?