03.26.08
Posted in Cross Cultural, Logistics, Oceania Cruise at 12:32 pm by Administrator
South Korea has moved into the developed country category. You can see it in Seoul not only in the impressive skyline but also in the incredible shopping districts. The stores were filled with shoppers at mid-day on a Wednesday and the young population seems confident in their own future. This is still the land of the small shopkeeper and the mega-retailers have had limited success. On the way to and from the port of Inchon to Seoul, you could see the small hardware and grocery stores that line the sides of the main highways.
Seoul is largely built out but there is incredible amount of in-fill development and renovations to structures that were built during the go-go years of the 70’s and 80’s. The heavy manufacturing locations have largely left the city but there are nevertheless quite a large number of decaying factories. It’s ironic that a country that made its debut on the world market as a low-cost labor country is losing business to countries with even lower wage costs.
One common thread of all of the East Asian countries is dealing with congestion. Seoul, with a metropolitan area population of 23 million, faces gridlock 24/7. The same challenge faces Japan, Taiwan and China. Beijing, with a rush to finish infrastructure, has traffic jams throughout the city. As with other cities around the world, you can’t seem to build enough highways or public transportation to meet the demand for additional time. The same is true on the US side – - because of the deteriorating state of the interstate routes and railroads, congestion is lengthening time to move goods from the port to the final destination.
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Posted in Logistics, Oceania Cruise at 12:30 pm by Administrator
Today is an at-sea day for the cruise. What struck me was the huge volume of inter-coastal freighters going from Japan and Korea to Tianjin. I presume this reflects the flow of semi-manufactures to China for final assembly.
Over the past five years, the economies of East Asia have prospered as interregional trade has increased. Given the geography of the area, goods flow by these small freighters using the Yellow Sea. The more apparent route from Korea to China by land is blacked by North Korea. In addition, the Chinese rail system is largely focused on the movement of people, not goods. Thus the solution is that goods are shipped by container on these small coastal freighters. This trend will likely intensify as manufacture and investment flows become more intertwined over time.
China has financed an incredible expansion in its highway system by using toll roads, at fairly steep prices for a developing economy. In California, the current debate is on expanding the roads leading out of the ports. The state passed a multi-billion dollar bond package to relieve port congestion. Maybe we should be investing more in toll roads? After all, we’re just at the other end of the Yellow Sea Asian Highway.
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Posted in Economic Analysis, Oceania Cruise, Trade Policy at 12:28 pm by Administrator
It is certainly busy times for China. Flights across the Pacific remain full, despite the run-up in oil prices. Those on board the flights include businessmen and more importantly China is a burgeoning tourist destination (in fact a bargain compared to Europe in these days of the plummeting dollar).
From the airport to the port at Tianjin revealed the explosion in infrastructure spending. There were literally hundreds of apartment buildings or new factories under construction. The construction at the Tianjin airport zone continues, supplementing the dozens of existing structures.
The new apartment boom continues apace with 20 and 40 story structures rapidly going up. In the mean time, the shoddily constructed structures of the Mao era, particularly in Tianjin, are being abandoned and torn down.
The highway from Beijing to the port was chockablock with trucks carrying containers to the port for export to the US and the rest of Asia. There were almost as many trucks coming from the port. China has increasingly become an assembly location for consumer goods being designed in Korea and Japan. Both countries already have major automotive assembly operations in the country and the streets have brand names from US, Germany, Japan and Korea. (While I was Consul General in Hamburg, I had a tour at the VW factory in Wolfsburg and then VW CEO Piech underscored the growing importance of the Chinese market to their global operations.)
As we went down the highway, I was thinking about the volume of new construction and what might happen if there is a slowdown. These apartments are being built on the assumption that the economy will continue growing at a 10% growth path. There are two possible scenario for the slowdown – exports to the US fall as the US economy cools or China pulls the reins in on the economy after the Olympics. One only needs to remember the decade of the 90’s after the Japanese boom collapsed. So, how will China’s new found banking system deal with an eventual slowdown?
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03.14.08
Posted in Trade Policy at 4:06 am by Administrator
As the Democrat party race for the nomination has tightened, trade became a major issue in the debate. Hillary Clinton claims that the US needs to take a second look at NAFTA and negotiate a better deal. Barak Obama made similar statements while campaigning in Ohio, although an aide explained to a Canadian diplomat that the statements were just political posturing.
The bulk of the academic studies come to the conclusion that NAFTA had little impact on employment in the US and that there was a net contribution to economic growth. In fact, the greatest growth in imports came from China and the value increase in oil imports as crude prices have soared. In the traditional manufacturing areas of the mid-west, jobs have been dwindling for decades as new technologies have moved in and high-labor content has moved off-shore. Many manufacturing processes have been automated. I remember touring a Caterpillar factory in the 1990’s in which an entire line used to make transmission gears had been automated. What was surprising was not the absence of workers but the fact that the machine could consistently manufacture gears to tolerances that were 10x better than the best master lathesman could do. The sad fact is that most of these jobs would have gone in any case and the workers were caught in the middle. The frustration by the states which had lost many of these jobs without seeing new opportunities replace them focused on NAFTA. States like California which also lost manufacturing jobs were able to replace them with new jobs scarcely mention free trade arrangements.
I do think there is one issue about NAFTA and job losses that does bear discussion. Mexico opened its borders under NAFTA, particularly to agricultural products. The result was that traditional subsistence level farms in southern Mexico failed and the peasants fled to large cities in Mexico and to the US. Some studies of immigration in the US suggest that over 8 percent of the Mexican population has moved to the US in the past 15 years. Many African countries that have experienced civil conflicts have not displaced such a large percentage of their populations.
The US could have learned an important lesson from the EU with its expansions. The EU gave billions in development aid to the new entrants to build infrastructure and jobs to avoid large migrations of workers for jobs. This clearly worked with the expansion to Spain and Portugal and to a good extent with admission of the former East Bloc countries. The US should make part of its policy a determined policy to help out with economic development in Mexico and Central America to ensure that local citizens find good jobs at home where they will buy goods manufactured in the US.
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03.06.08
Posted in Oceania Cruise at 4:39 am by Administrator
I’ll be the enrichment lecturer on Oceania Cruise Line’s Nautica which will sail from Beijing on March 24. Other ports along the cruise include Inchon (Seoul), Shanghai, Hiroshima, Kobe (Kyoto), Okinawa, Taipei and Hong Kong. The topics of my lectures will concern business and politics in the above nations. I’ll be blogging from along the way talking about my impressions of these burgeoning Asian nations. For more information about the cruise see OceaniaCruise Lines. Send me your questions over the next few weeks.
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