Un-globalization and the prospects for the Chinese economy

In my presentations on open business models, when I mention the emergence and future potential of open design communities linked to more relocalized production facilities, I always present the hypothesis that, if on the one hand the information globalization will continue and is sensible, on the other hand, the worldwide transportation of far-away goods is not sustainable. It’s the key to my analysis of the logic of the transition to peer to peer economic modes, which I explained in the editorial, P2P and the Feudal Transition.

This was also argued by Sam Rose in our columns, upon the publication of a research report by CIBC world markets.

The report estimates that

“the cost of shipping a 40 foot container from Shanghai to the east coast of the United States is close to $10,000 with oil at $150, about double the 2005 price. By comparison the same container costs just $4,000 to ship from Mexico at $150 per barrel.”

Now comes a commentary and editorial by James Saft in the International Herald Tribune which confirms this analysis, applying it to the development of Asia, and the Chinese model in particular:

James Saft:

The idea that the world was flat — a phrase coined by Thomas Friedman meaning that goods and services could be easily produced in one place and sold across the globe — was one of the crucial underpinnings of China and other Asian export-based economies.

But much of this was predicated on cheap transportation and energy, and with oil at $140 a barrel the sums increasingly don’t add up.

Asia has developed a highly efficient and highly interdependent manufacturing model. Manufacture of a good may begin in very low wage areas like Vietnam, often with materials sourced thousands of miles away, and then be taken to high-tech factories in China for more skilled and high-value finishing, before finally being shipped across the globe to consumers in Europe or the United States.

That model uses lots of energy for transport, a cost that has massively increased. In fact, the proportion of China’s exports that were first imported from elsewhere before being finished and sold on has dropped to 44 percent from over 50 percent last year, moving down as oil moved up.

Globalization was centered around China,” said Jen at Morgan Stanley. “China is going to be one of the major victims. The parts of Asia servicing China, benefiting from China, will also be hurt.”

Jen sees Asian companies as caught in a squeeze, with pressure from their currencies, which are appreciating against the dollar, and further pressure on profit margins from surging wage and energy costs.


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