the main reason is there is just too much competition in China and American companies can't compete there.
Chinese Economics Thread
- Thread starter Norfolk
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the main reason is there is just too much competition in China and American companies can't compete there.
For most industries I think so as well, but my industry has no competition from Chinese companies at the moment and is unlikely to have any for the foreseeable future. The execs at my company are concerned that the growth that was forecasted when the China offices were built has slowed down too much and are pivoting to India instead.
proelite
Junior Member
What industry is this.
Unfortunately it’s somewhat niche so I don’t want to reveal too much but it’s related to computer hardware manufacturing and involves embedded systems for a niche application. We do a mix of manufacturing and hardware/software engineering for a pretty highly regulated industry globally.
India is a major manufacturing power in computer hardware???????????? It has great need for computer hardware engineering services, and not say, sanitation engineering, doctors without borders, UN aid distribution, etc?
I mean, the executive reasoning isn’t that the R&D offices in India are more productive than the Chinese ones. My team works with teams in both countries and the Chinese ones are definitely more productive right now.
The executive reasoning in my company is that the growth in China has slowed down too much compared to earlier forecasts to justify any further investment. They see significant potential in India’s R&D capabilities catching up too. When my company first setup our R&D offices in China 20+ years ago they weren’t exactly shining beacons of productivity for a while either, but we were in it for the long term.
Nope they don't. People here are very knowledgeable about industries but not the broader economy.
I agree with most points, however things have changed. During those years, Chinese investors had property as their major destination for investment, something that makes their wealth grow, and has direct effect on their sentiment.
The problem now is:
- With a richer China comes a need for more focus on wealth (and not economic) management. Hence, capital markets become more important.
- Due to property slump, capital markets become even more important.
- With the focus on internationalization of the RMB, capital markets become important as a way to invest RMB proceeds. Like if you are Saudi Arabia, where can you invest or park your RMB from oil sales? For USD, you have a pretty high interest govt bonds, decent returns on stock market, etc. etc.
- Listed companies in the US don't necessarily need to give out dividends, it's a companies philosophy and many companies have made big without ever giving out dividends. Examples, Amazon, Berkshire Hathaway etc.
- There should be some pressure to get returns, otherwise it will lead to wasteful expenditure. Yes it can lead to short termism, so it has pros and cons.
Hydredabad, India is probably the likely destination of your relocation.
I agree that China needs better equity markets. That said, they have not been a good indicator for China's economy and have never been because of the very fact they aren't very good. In good times, people invest in starting business (and previously real estate) and in bad times they pull out and put into savings.
It takes decades of experience to train a population to ride out the ups and downs of a market. This hasn't happened in China.
The truth is very few stock exchanges are successful outside the West mainly because those markets do not have populations mature enough to keep them sustainable as an actual investment strategy rather than a casino.
And who would blame them when like in China the market could halve? This happened early on in China during the boom years that the market never recovered from the stigma of being a just gambling den.
Add to that the ebb and flow of hot money where developing markets like China always had problems controlling because they always flow to safe havens in New York, London and the West whenever there any hints of trouble. In developing markets, the norm is not stability but masive unpredictable swings -- a local market can be pushed to great heights and then suddenly crushed to lows when everyone takes profit and the hot money flows back to safer havens.
We can't take the markets we see in the US as a model for anywhere else.
The truth is right now Chinese wealth is still preserved in real estate as well as bonds and savings. You just do not appreciate in RE as before.
The market as a capitalization engine for the economy really just occupy a minor secondary role in China. The main driver for investment is the government pushing savings in form bank loans to strategic industries.
With China under attack from the West, this is actually critical. You cannot rely on the vagaries of the stock market to fund sectors China needs.
This is the investment that China had made on its future after popping the RE bubble:
For the country as a whole, I think it is a far better bet than anything the stock market could have done. The dividends from this will start rolling in the coming years.
Maybe at some point when China's per capita income reaches a particular level then the population can leave money in the market and allow it to sustain itself through the peaks and troughs.
I think the main reason is competition in China. If your company is in tech there is no amount of growth in India in the next decade or two that can catch up to even the current demand in China. China's market for chips is around 50% of the global total.
If it could compete and expand market share then staying in China is a no-brainer even if China simply stood still and not grow. But most Westerns firms won't be able to compete against local firms -- any not only because of efficiency or the state of the product but because of geopolitics too.
Also, the adaptation and evolution of technology in China is so fast that a lot of today's leading tech -- like in ICE manufacturing -- can literally be overtaken and rendered obsolete within a few years.