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James Flanigan

For Labor Day, and Your Job, Think China

August 31, 2003|James Flanigan

You should think about one thing this Labor Day: China.

That country, with the world's largest workforce, will have more influence on your job than any single factor in the years to come. That's a threat, and a promise.

The effect on this country of the development of China's vast economy will be, and already is, both heartening and troubling. In any event, the historic process is already happening, so we might as well understand it.

Even though China's economic development is in its infancy, it's setting world production-cost levels -- and ultimately prices -- for many everyday goods. It is the world's largest producer of household appliances, for example, so manufacturers of washers and dryers around the world, from Japan to Italy to the General Electric plant in Louisville, Ky., feel the pressure. So do their employees.

"What China is doing is replicating the industrial world at a lower price," writes Andy Xie, a Hong Kong-based economist for Morgan Stanley in a commentary on the mainland's economy.

And China is doing that with help from U.S. companies, which, taking something of an if-you-can't-beat-em-join-em approach, are investing heavily to help China become a world force in everything from automobiles to computers, and from pharmaceuticals to aerospace.

Consider what the car industry is doing. Ford Motor Co., General Motors Corp. and DaimlerChrysler are pressuring parts suppliers to build state-of-the-art factories in China. U.S.-based suppliers are being told they have to match a "world price" set in China, says Scott Upham of research firm J.D. Power & Associates.

That's noteworthy -- because China isn't a big player in auto parts. Far from it. "It is lacking the technology," says Maryann Keller, an independent analyst of the world automotive industry, "and has poor quality."

That doesn't deter Detroit. Ford President Nicholas Scheele said in July that Ford would buy $1 billion of parts from China in the next year and hoped to boost that to $10 billion a year.

Why are U.S. carmakers pushing China down the parts path? They have to. They have made big investments in ventures with Chinese car firms and need skilled parts suppliers to join them in an integrated production complex. (GM is introducing an engine made in China into the new Chevrolet Equinox sport utility vehicle.)

Of course, there's also the fact that car parts made in China cost 30% to 40% less than those produced in the U.S.

So China is about to impinge on jobs at U.S. parts-making factories in Michigan, Wisconsin, Ohio and other states, and could seriously undermine fledgling parts operations in Mexico. The China factor is bound to be a sore topic in the United Auto Workers Union's negotiations with the U.S. companies.

And China's economic development won't be confined to a single set of labor talks. Says economist Donald Straszheim of Santa Monica, who is opening an office in Beijing to more closely monitor China's economy: "The most important economic issue for the rest of the decade will be job loss in manufacturing -- and increasingly services -- to lower-cost China."

But China's impact on jobs isn't only negative, as Richard Baum, a China scholar at UCLA, points out. "The development of China's economy will greatly increase the wealth of our economy," he says.

When China became the world's largest producer of apparel a few years ago, for example, the role of clothing designers in Los Angeles was bolstered. In fact, says Ilse Metchek, head of the California Fashion Assn., "a delegation of garment makers from Beijing has just visited here" seeking joint-venture partners to develop styles and brands for their clothing. "They want to go beyond just Polo and Gucci and so they come to L.A."

But still, it's the negatives that politicians are shouting about. Last week, it was members of Congress telling Treasury Secretary John Snow to demand that China increase the value of its currency, the yuan, so its goods would be more expensive and therefore less competitive in U.S. markets.

Trouble is, currency values and global economics just aren't that simple. China, which runs a trade surplus totaling about $100 billion a year with the U.S., has invested more than $96 billion in U.S. government securities in the last year. And the effect of such Treasury-bond buying is to keep U.S. interest rates relatively low.

Were China to raise its currency value, and suffer reversals in its development, that kind of investment could diminish, forcing up U.S. interest rates. So China could, and probably will, affect the price of your house -- as well as your job.

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James Flanigan can be reached at jim.flanigan@latimes.com.

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