NPR; Morning Edition, December 8, 2008 · Over the past quarter century, one trade relationship has been central to the process of economic globalization — Chinese factories exporting products, and American consumers buying them.
The current economic crisis signals a change in that relationship, and the gradual decline in China's role as factory to the world.
China has tried to decrease its reliance on export industries and, for now, the country has resorted to propping up its export sector out of fear that its collapse could lead to unemployment and social unrest.
Many of the dress shoes and sneakers that end up on sale at Sears and Family Dollar begin their journey halfway around the world under the sewing machines of the Feng Tai Footwear Company, located in Dongguan city in the southern Guangdong Province's Pearl River Delta.
Eddie Lam, Feng Tai's CEO, says this is one of the toughest times he's seen since he moved his factory here from Hong Kong nearly 30 years ago.
"All of a sudden they call us and say, hey, they want to split those shipments into three shipments instead of one big shipment," Lam says. "And then six months down the road they only take half of it, and you're stuck with them."
One bright spot in the Pearl River Delta is that most American companies there are surviving. At the Dahon bicycle factory, workers make tire rims for the company's folding bikes. The bikes' patented technology is a hit with consumers who want to save energy and storage space. The company's founder, David Hon, says he anticipated the economic changes now under way.
"Three or four years ago, when we saw the thing coming, the groundswell of everything coming, we started to do domestic marketing and sales of our product," Hon says. "And that took a couple of years, and finally took off a couple of years ago."
The problem is that now neither American nor Chinese consumers have the appetite to buy all the products the delta produces. China's industrial oversupply and America's overconsumption have become the main factors in a major global imbalance that is now undergoing a correction.
There's two ways production [can] come down. One way is the way it happened to America in the 1930s, where basically American overproduction collapsed," Pettis says. "We could have that in China — China overproduction could collapse. China may try to protect it, by exporting more, but my fear is that that creates a trade war, in which case it will have to come back to China."
Pettis points out that 80 years ago, the tables were turned — it was the U.S. that was exporting its oversupply of goods to Europe. And its efforts to protect those exports, such as the Smoot-Hawley Tariff Act of 1930, led to a bruising trade war, falling foreign trade and an even harder economic landing.
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The current economic crisis signals a change in that relationship, and the gradual decline in China's role as factory to the world.
China has tried to decrease its reliance on export industries and, for now, the country has resorted to propping up its export sector out of fear that its collapse could lead to unemployment and social unrest.
Many of the dress shoes and sneakers that end up on sale at Sears and Family Dollar begin their journey halfway around the world under the sewing machines of the Feng Tai Footwear Company, located in Dongguan city in the southern Guangdong Province's Pearl River Delta.
Eddie Lam, Feng Tai's CEO, says this is one of the toughest times he's seen since he moved his factory here from Hong Kong nearly 30 years ago.
"All of a sudden they call us and say, hey, they want to split those shipments into three shipments instead of one big shipment," Lam says. "And then six months down the road they only take half of it, and you're stuck with them."
One bright spot in the Pearl River Delta is that most American companies there are surviving. At the Dahon bicycle factory, workers make tire rims for the company's folding bikes. The bikes' patented technology is a hit with consumers who want to save energy and storage space. The company's founder, David Hon, says he anticipated the economic changes now under way.
"Three or four years ago, when we saw the thing coming, the groundswell of everything coming, we started to do domestic marketing and sales of our product," Hon says. "And that took a couple of years, and finally took off a couple of years ago."
The problem is that now neither American nor Chinese consumers have the appetite to buy all the products the delta produces. China's industrial oversupply and America's overconsumption have become the main factors in a major global imbalance that is now undergoing a correction.
There's two ways production [can] come down. One way is the way it happened to America in the 1930s, where basically American overproduction collapsed," Pettis says. "We could have that in China — China overproduction could collapse. China may try to protect it, by exporting more, but my fear is that that creates a trade war, in which case it will have to come back to China."
Pettis points out that 80 years ago, the tables were turned — it was the U.S. that was exporting its oversupply of goods to Europe. And its efforts to protect those exports, such as the Smoot-Hawley Tariff Act of 1930, led to a bruising trade war, falling foreign trade and an even harder economic landing.
More
