This Day On The Street
Continue to site
ADVERTISEMENT
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

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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
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!
SYM TRADE IT LAST %CHG
AAPL $132.65 1.82%
FB $81.91 0.47%
GOOG $555.37 -1.71%
TSLA $231.55 6.01%
YHOO $44.36 -0.36%

Markets

DOW 18,037.97 -42.17 -0.23%
S&P 500 2,108.92 -8.77 -0.41%
NASDAQ 5,060.2460 -31.8390 -0.63%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs