This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Headwinds Threaten China's Continued Growth

NEW YORK ( TheStreet) -- For the past 25 years, China has been the world's greatest business story. Not since the emergence of Japan has a country become a world power so quickly. But will China's growth continue unabated?

Forbes predicts China will average 7.3% GDP growth between now and 2020. Given that 2013 GDP growth will come in at about 7.5%, over the next eight years, growth will remain about the same and China will surpass the U.S. as the world's biggest economy soon after 2020. But, is it reasonable to use past trends to forecast the future?

Chinese companies are facing four speed bumps that might bend today's trend lines.

1: Can China Change its Source of Competitive Advantage?

For China to maintain 7.3% growth either global product consumption must increase by 7.3% each year (the World Bank estimates 2013 global GDP growth at 2.4% ), China must capture a higher share of global manufacturing output or China must change its source of competitive advantage.

China's main challenge is rising labor costs. For example, in 2011, IT salary growth was 8% in China vs. 3.1% in the U.S. Then add in 6% 2011 renminbi appreciation and total labor costs in IT increased by 14% in 2011 versus 3.1% in the U.S. The cost gap is closing rapidly.

As happened in the U.S, Japan and Taiwan, low-tech manufacturing such as textiles, furniture and clothes are now leaving China for Sri Lanka, Vietnam and Indonesia.

Companies that want to stay in China and continue to compete on cost will need to automate. Foxconn is a prime example. Foxconn is expanding its robots from 10,000 to one million over three years.

Buying robots is easy. But the resulting business process changes will require Foxconn to dramatically change its workforce management practices -- that's very difficult.

The typical Foxconn employee has been a young adult from the countryside who moved from company to company working in very narrow jobs. The new Foxconn employee will be a technician who understands his/her machine, company business processes, and who can perform as a successful member of a high performing work team.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,031.14 +43.63 0.26%
S&P 500 1,984.13 -1.41 -0.07%
NASDAQ 4,518.9020 -48.6960 -1.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs