In the midst of economic downturn, we see a surge in productivity since firms are generating good output with fewer workers. Many companies are also adopting the new pay band system which results in lower incomes for the same work. Meanwhile, people over 40 are being let go with their duties being handed to the younger ones who don’t get a raise. Moreover, global wage arbitrage would seem to persist.
The economic downturn the world has experienced may boil down to job creation. That may be the only thing that matters at this point. Instead we see job losses but a surge in productivity.
The U.S experience teaches us a lot. By the mid 1940, the U.S. did have the solid manufacturing base while other countries suffer in the aftermath of WWII. America manufactured top quality electronics, airplanes, cars and food and exported them to the world, providing enough jobs to go around. What has happened since then? Outsourcing manufacturing jobs to China in exchange for massive borrowing from it has generated not only the destruction of the industrial base but a debt culture.
Perhaps this economic debacle points to the importance of working in production of essentials in a self-sufficient way without outsourcing manufacturing to other global locations. Further, we have to recognize the fact that with technology advancing, there would be even less labor intensive world. The labor glut is a worldwide thing.
While we agree with the basic idea that a country has to base its economy around jobs, the challenge lies in how to come up with a real driver for real jobs. This may require a shift in their economic models both for the export-driven and consumption-driven economies. This may also require the elimination of fantasy jobs derived from fake wealth. Public policy does indeed matter if it serves the people’s interests. Corporations may have to reflect on where their profits mostly go to? In the meantime, people may have to change their perspectives on life and accept a much simpler life style.
Saturday, November 28, 2009
Friday, November 27, 2009
The Dubai Mess and the Coming Economic Reality
There have been many reports and analyses on the Dubai mess this week, so I would just point out that we live in a world where financial matters are interwoven. The Dubai incident may be just one of many situations that are being held under wraps.
The bottom line is we are all long the real world economy. The entire world may have to bear the economic debacle in the meantime.
The bottom line is we are all long the real world economy. The entire world may have to bear the economic debacle in the meantime.
Thursday, November 26, 2009
Worrisome Technology Transfer to China by Korean LCD Panel Makers and China’s Intentions
I have recently posted several pieces on Korean high-tech firms’ strategic focus change and new investments in the Chinese market.
Samsung and LG Display are the top two LCD panel makers in the global flat-panel display market and are setting up their LCD fabs in China. Their strategic investments looked rather worrisome due to several factors.
For one, there is a concern for Korea’s high-tech knowledge and know-how transfer to China. The Korean LCD panel makers claim that since they are already setting up the next generation fab lines (10th and 11th generations) in Korea, so building 7.5th and 8th generation fabs, respectively in China wouldn’t remain a matter of grave concern. However, some experts worry that sooner or later the Chinese would catch upon on high-tech process technologies, which would lead to other important technologies like solar batteries and OLED.
High-tech manufacturing capacity is one of the strongest competitive edges Korea has had. The two Korean high-tech firms contend that since the global LCD market is maturing and shrinking, they have no choice but to aggressively invest in the growing Chinese consumer market. Yet the question is: Why do they have to build LCD fabs in China? To export LCD panels and LCD TVs to the U.S. and other advanced economies, Korean high-tech firms have manufactured them mostly in Korea.
Again, China is Korea’s largest trading partner. Korean high-tech firms have shifted their strategic focus in China from a base of exports to other countries to the export market itself with enormous market growth potential.
Meanwhile, the Chinese government is reportedly attempting to raise the current tariffs of 3 percent on LCD panels. It has also been asking the two Korean LCD panel makers to invest LCD fabs in China.
China has been accumulating its high tech capacity and building its high-tech infrastructure which can be served as the backbone of further innovation for other high-tech products. Further, it will have the solid skilled people base. All their paths and policy undertaking the Chinese has taken seem to point to the locus of R&D and manufacturing shifting to China.
This move sparks some concerns: for instance, what is the ultimate motive behind China’s intentions to build its high-tech capabilities? Do the Chinese regard them as a means to build wealth for the well-being of the general public, raising standards of living?
Korea has never fully developed such supplier infrastructure as materials, capital goods, and specialty logic chips, while some Korean high-tech forms have become global leaders in several high tech fields like memory chips, LCD panels/TVs, and mobile phones. Its competitive edge lies in the scale-intensive hardware high-tech products. Lacking solid high-tech supplier infrastructure, strong engineering schools and a robust venture capital industry, high-tech manufacturing and R&D capacity is one of a few sources of competitiveness for Korea. Korea still faces a technology deficit problem.
LCD panels and TVs have been the major export items of Korea. By handing over Korea’s technological capacity to China a little by a little and moving its manufacturing operations to China, Korea may lose its path of sustainable growth. The two Harvard professors Pisano and Shih warn of the consequences of the U.S. manufacturing decline. Korea may head for the same fate as I noted in a prior post on the mobile phone business.
Given China’s aggressive technology accumulation drive and its clever technology transfer strategy, acquiring the next generation high-tech process and design technologies seems to be a matter of time. The notion of technonationalism seems to be very much alive in China.
Korea has come a long way to accumulate its high-tech R&D capacity, production process skills, and fab know-how. And yet, the Chinese may soon develop their own indigenous innovation capacity in several high-tech areas which may surpass Korean’s. Where would Korea’s technological competitiveness lie then?
Samsung and LG Display are the top two LCD panel makers in the global flat-panel display market and are setting up their LCD fabs in China. Their strategic investments looked rather worrisome due to several factors.
For one, there is a concern for Korea’s high-tech knowledge and know-how transfer to China. The Korean LCD panel makers claim that since they are already setting up the next generation fab lines (10th and 11th generations) in Korea, so building 7.5th and 8th generation fabs, respectively in China wouldn’t remain a matter of grave concern. However, some experts worry that sooner or later the Chinese would catch upon on high-tech process technologies, which would lead to other important technologies like solar batteries and OLED.
High-tech manufacturing capacity is one of the strongest competitive edges Korea has had. The two Korean high-tech firms contend that since the global LCD market is maturing and shrinking, they have no choice but to aggressively invest in the growing Chinese consumer market. Yet the question is: Why do they have to build LCD fabs in China? To export LCD panels and LCD TVs to the U.S. and other advanced economies, Korean high-tech firms have manufactured them mostly in Korea.
Again, China is Korea’s largest trading partner. Korean high-tech firms have shifted their strategic focus in China from a base of exports to other countries to the export market itself with enormous market growth potential.
Meanwhile, the Chinese government is reportedly attempting to raise the current tariffs of 3 percent on LCD panels. It has also been asking the two Korean LCD panel makers to invest LCD fabs in China.
China has been accumulating its high tech capacity and building its high-tech infrastructure which can be served as the backbone of further innovation for other high-tech products. Further, it will have the solid skilled people base. All their paths and policy undertaking the Chinese has taken seem to point to the locus of R&D and manufacturing shifting to China.
This move sparks some concerns: for instance, what is the ultimate motive behind China’s intentions to build its high-tech capabilities? Do the Chinese regard them as a means to build wealth for the well-being of the general public, raising standards of living?
Korea has never fully developed such supplier infrastructure as materials, capital goods, and specialty logic chips, while some Korean high-tech forms have become global leaders in several high tech fields like memory chips, LCD panels/TVs, and mobile phones. Its competitive edge lies in the scale-intensive hardware high-tech products. Lacking solid high-tech supplier infrastructure, strong engineering schools and a robust venture capital industry, high-tech manufacturing and R&D capacity is one of a few sources of competitiveness for Korea. Korea still faces a technology deficit problem.
LCD panels and TVs have been the major export items of Korea. By handing over Korea’s technological capacity to China a little by a little and moving its manufacturing operations to China, Korea may lose its path of sustainable growth. The two Harvard professors Pisano and Shih warn of the consequences of the U.S. manufacturing decline. Korea may head for the same fate as I noted in a prior post on the mobile phone business.
Given China’s aggressive technology accumulation drive and its clever technology transfer strategy, acquiring the next generation high-tech process and design technologies seems to be a matter of time. The notion of technonationalism seems to be very much alive in China.
Korea has come a long way to accumulate its high-tech R&D capacity, production process skills, and fab know-how. And yet, the Chinese may soon develop their own indigenous innovation capacity in several high-tech areas which may surpass Korean’s. Where would Korea’s technological competitiveness lie then?
Wednesday, November 25, 2009
Korean Chipmakers’ Impressive Performance but Hynix Up for Resale
According to iSuppli, the two Korean chipmakers, Samsung and Hynix account for a record high 57.25% market share in the global memory sector in Q3. Samsung is the only chipmaker which has achieved revenue growth in 2009 with 1.3% sales increase YOY among the top 10 semiconductor companies.
In the mean time, according to Korea Exchange Bank, nine creditors of Hynix, the world’s second largest memory chip maker, agreed to the resale of Hynix. They will launch a public offer for a majority stake in the chipmaker next month.
In the mean time, according to Korea Exchange Bank, nine creditors of Hynix, the world’s second largest memory chip maker, agreed to the resale of Hynix. They will launch a public offer for a majority stake in the chipmaker next month.
Monday, November 23, 2009
IMF Chief Warns of Second Bailout in the West and Asset Bubble in the East
From Times Online:
The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.
"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates.
In his speech, Mr Strauss-Kahn also warned that the huge amounts of capital being pumped into China could fuel a pan-Asian bubble.
His comments come after warnings from economists that the economic conditions in China and the rest of Asia are such that asset prices could rip free of their fundamental values unless the bubble threat is addressed.
The Chinese banking sector is currently the scene of an unprecedented frenzy of new lending, which could reach up to 11,000 billion yuan (£97.7 billion) by the end of this year.
Mr Strauss-Khan said that the old paradigm of growth generation based on households in the US was dead. The future sources of growth and the recovery will "depend on a new balance between the US and deficit countries on one hand and emerging markets and surplus countries on the other".
http://business.timesonline.co.uk/tol/business/economics/article6928147.ece
The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.
"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates.
In his speech, Mr Strauss-Kahn also warned that the huge amounts of capital being pumped into China could fuel a pan-Asian bubble.
His comments come after warnings from economists that the economic conditions in China and the rest of Asia are such that asset prices could rip free of their fundamental values unless the bubble threat is addressed.
The Chinese banking sector is currently the scene of an unprecedented frenzy of new lending, which could reach up to 11,000 billion yuan (£97.7 billion) by the end of this year.
Mr Strauss-Khan said that the old paradigm of growth generation based on households in the US was dead. The future sources of growth and the recovery will "depend on a new balance between the US and deficit countries on one hand and emerging markets and surplus countries on the other".
http://business.timesonline.co.uk/tol/business/economics/article6928147.ece
Sunday, November 22, 2009
Hong Kong’s Central Banker Admits Asset Bubble Blowing
Most of Asian economies are experiencing the asset bubble like the U.S., and Mr. Chan, chief executive of the Hong Kong Monetary Authority, admits there is major bubble blowing.
However, officials don’t seem to willingly correct the situation until all asset bubbles burst.
From Market Watch:
“With interest rates exceptionally low and with abundant liquidity around the world, Hong Kong faces the potential risk next year that asset prices may go up sharply and become increasingly disconnected from economic fundamentals," said Norman Chan, chief executive of the Hong Kong Monetary Authority, in a statement posted on the agency's Web site.
Chan said Hong Kong wasn't alone in facing these risks, as many other Asian economies were experiencing similar problems arising from substantial fund inflows.
"We can be certain that the larger an asset bubble has become, the greater will be the damage when the bubble bursts," Chan said.
http://www.marketwatch.com/story/hong-kongs-central-banker-sounds-bubble-alert-2009-11-20
However, officials don’t seem to willingly correct the situation until all asset bubbles burst.
From Market Watch:
“With interest rates exceptionally low and with abundant liquidity around the world, Hong Kong faces the potential risk next year that asset prices may go up sharply and become increasingly disconnected from economic fundamentals," said Norman Chan, chief executive of the Hong Kong Monetary Authority, in a statement posted on the agency's Web site.
Chan said Hong Kong wasn't alone in facing these risks, as many other Asian economies were experiencing similar problems arising from substantial fund inflows.
"We can be certain that the larger an asset bubble has become, the greater will be the damage when the bubble bursts," Chan said.
http://www.marketwatch.com/story/hong-kongs-central-banker-sounds-bubble-alert-2009-11-20
Friday, November 20, 2009
China in the Lead Holding the U.S. Debt, Followed by Japan
From Zero Hedge:
As recently as 1970, foreign holders of U.S. debt were essentially non-existent. But their slice of our obligation pie has steadily increased, especially over the past two decades, until now foreign governments and international investors hold about 35% of Treasuries, as the following chart reveals...
Of about $11 trillion in U.S. debt, foreigners have about $3.8 trillion, with China in the lead at nearly $1 trillion and Japan not far behind at around $750 billion.
Most likely, though, this trend has already leveled off. The Chinese, Japanese, Russians, and Indians have openly announced their decision to cut back on further purchases and existing holdings of U.S. government debt. Beyond that, the source of funds previously allocated to their purchases -- trade surpluses -- has declined sharply with the recession. As a consequence, going forward, foreign buying is more apt to shrink than increase...
Adding it all together, even under the most conservative of assumptions, there are simply not enough buyers to cover the accelerating federal deficits. That leaves the lender of last resort, the Federal Reserve, as the only remaining candidate to satisfy the government’s grotesque appetite for funding. There is no viable alternative.
The Fed will take up the slack in the only way open to it, by printing money out of thin air and exchanging it for promises from the Treasury. That means an escalation of monetary inflation and, somewhere down the road, serious price inflation as well. We don’t know exactly when that will happen, only that it must...
www.zerohedge.com/article/guest-post-what-if-they-stop-buying-our-debt#comments
As recently as 1970, foreign holders of U.S. debt were essentially non-existent. But their slice of our obligation pie has steadily increased, especially over the past two decades, until now foreign governments and international investors hold about 35% of Treasuries, as the following chart reveals...
Of about $11 trillion in U.S. debt, foreigners have about $3.8 trillion, with China in the lead at nearly $1 trillion and Japan not far behind at around $750 billion.
Most likely, though, this trend has already leveled off. The Chinese, Japanese, Russians, and Indians have openly announced their decision to cut back on further purchases and existing holdings of U.S. government debt. Beyond that, the source of funds previously allocated to their purchases -- trade surpluses -- has declined sharply with the recession. As a consequence, going forward, foreign buying is more apt to shrink than increase...
Adding it all together, even under the most conservative of assumptions, there are simply not enough buyers to cover the accelerating federal deficits. That leaves the lender of last resort, the Federal Reserve, as the only remaining candidate to satisfy the government’s grotesque appetite for funding. There is no viable alternative.
The Fed will take up the slack in the only way open to it, by printing money out of thin air and exchanging it for promises from the Treasury. That means an escalation of monetary inflation and, somewhere down the road, serious price inflation as well. We don’t know exactly when that will happen, only that it must...
www.zerohedge.com/article/guest-post-what-if-they-stop-buying-our-debt#comments
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