Depending on the particular industry and how much % of the cost of doing business is low skill payroll your going to get wildly different answers.

Taxes is a large part of the cost of doing business. Labor is a large part of the cost of doing business. Regulations are a large part of the cost of doing business. ***Access to capital markets and a cost of capital can be a huge part of the cost of doing business***. Capital equipment can be a big part of cost of doing business***. Cost of delivery can be a big part of cost of doing business.

China may have cheap low skill labor, but
-There access to low cost of capital is horrible relative to the United States
-There cost of delivery is higher because the products the produce are consumed in other countries(like the US).
-**Their capital equipment and high skilled labor is extremely expensive relative to other countries a consequence of their past artificial pegging
-Their economy and money supply are less stable than the United States.

So basically China has developed a competitive advantage in low skill, low cost of doing business operations like cheap trinket manufacturing. But these same advantages for that type of work completely preclude them from getting into high R&D industries(like Health, tech, etc.), high fixed cost industries(like plane and auto manufacturing) etc. That artificially low currency makes it way to expensive for them to import expensive talent and import expensive machinery, software, etc. to build things like planes, cars, etc.

Plus they are pretty much screwed right now. They are on the edge of a huge crash that will make our sub-prime crash look small in relative terms.

Communist any more. They are actually more like the socialist technocratic states of Europe in the 40s and 50s without the welfare state.

They have state owned enterprise and they utilize capitalism to marshal their resources for the benefit of sovereign power(Japan is a perfect example of that).

Essentially the determination of whether or not a government investment or economic policy is made in China is to the degree that it would boost the GDP calculator not on what maximizes profit. So they drive massive amounts of fixed investment into certain markets so they can hit their GDP target and boost employment levels.

The problem with this approach is that your economy sits on quicksand because if it is directed for sovereign power instead of the highest return vs. risk on capital then its guaranteed that the Chinese will invest in overcapacity(like we have been seeing in their property markets).

And once all these assets get written down one way or another to their real value a lot of the “growth” they’ve built up over the last few years will disappear with it.

Actually if anything they may be artificially holding it up for the last few weeks. Apparently capital wants out of that economy very, very, very badly right now.

If the Chinese don’t allow the currency to appreciate after their upcoming crash they’ll go through a Japan like stagnation for a while. Their exporters are peaking right now and any continued devaluation after the turmoil is just going to come with inflation and essentially a slow moving cap on production because the world wont buy their overcapacity(that is why they need to switch to starting to consume more of their own production).

The factory closings in China are speeding up right now.

The more expensive the cost of doing business is in China the worse it is(so there is your cheap auto parts/components).

The cheap trinkets for example should be holding up fine for now because the fixed costs are so low that they can scale back pretty easily.

But margins across the board are just getting razor thin in China.

The 2 real questions are: What are the chances of their government being toppled…within the next couple years? And will the Chinese government try to take the easy way out in the near future and usher in an era of stagnation and decay in China.

China could profoundly change in the next couple years not just 30 years from now.

That said every country “survives” they just may not do so great,

Only goal is to please the masses with jobs and GDP.

I mean investment is made in China based purely on what will drive the highest addition to the GDP calculator. It is investment that in the name of sovereign power. Sovereign power in the way of jobs, growth, and economic might.

That is a completely different way of doing things than in pure free markets like in the United States. Because United States fixed investment is driven into what lends the most risk adjusted profit.

The difference that creates is that in the United States to the degree they don’t engage a little in what China does practically all of investment is on a stable footing and so sustainable wealth grows.

In China it puts their economy on quicksand(like in Japan) and since fixed investment is directed at what will produce the most to the GDP calculator and employment the answer is always to invest in the same things over and over again and book GDP growth when there is overcapactiy. And eventually you just can’t keep it up anymore and that massive overcapacity like this:

Has to come back to a market clearing price which given how bad it is in China it will a tiny fraction of what it is right now.

The only issue is how long it will take before either the government tries to prop it back up(or it doesn’t), how long until their is social unrest(or it doesn’t happen that much), or maybe if we’re lucky China will do the smart thing which is as close to nothing as possible and let it correct without the gov. being toppled. But we’ll see.

This is much, much bigger.

And this political realities and economic realities.

Its much harder to predict the political realities of the Politburo Standing Committee still ruling China over any specific length of time. We can venture some guesses as to when that may end, but its really tough to tell how much this 2nd factor will force an issue.

In terms of economic realities the Chinese economy is pretty screwed in the very short term. And no matter how much power the PSC has they as JSob pointed out “can’t repeal economic gravity” and so this crash is coming one way or another.

“10 years from now, people like you will say ?of course China was a bubble, they built entire cities that weren?t used?.”

^^^Its always funny to watch people who downplayed the warning signs of others and then act like it was “obvious” after the fact. LOL.