New Chinese Brands

This year I taught Chinese students marketing, and in the Microeconomics class I teach to foreign students in China, we covered the value of brands in monopolistically competitive markets. This article touches on many of the things we discussed in both classes. 

Facing rising labor costs and increased competition, business are now thinking more carefully about brand identity, analysts say. 

I hope my microeconomics students can evaluate the above quote from the article in terms of different market structures. 

A First for Pakistan

Congratulations to all my former and present students from Pakistan on the recent election. No matter who you supported, this is good news:

The election was widely hailed as a landmark of democratic progress: One elected government succeeded in completing a full term and prepared to hand off power to another elected government, a first in Pakistan’s history.

The World is Running Out of Oil, Part 3,276

It's hard to imagine, but with stories like this coming out more and more, I can see the day coming when people will be incredulous that educated people once foresaw a day--almost always about 10 years into the future--when the world runs out of oil.

Not likely:

A recent report by the U.S. Government Accountability Office estimated that if half of the oil bound up in the rock of the Green River Formation could be recovered it would be "equal to the entire world's proven oil reserves."

Both the GAO and private industry estimate the amount of oil recoverable to be 3 trillion barrels.

"In the past 100 years — in all of human history -- we have consumed 1 trillion barrels of oil. There are several times that much here," said Roger Day, vice president for operations for American Shale Oil (AMSO).

Bleeding Heart Libertarian

I guess my agreement with this article puts me firmly in the "bleeding heart libertarian" camp, though I'm not very keen on politics or political labels:

Still, some people worry that the Chinese economy will “overtake” the American economy. On its face, that’s like worrying that the Fairfax, Virginia, economy will “overtake” the Falls Church, Virginia economy. But part of the issue here is that people don’t understand the difference between cutting-edge and catch-up growth.

File Under "No Kidding!"

In a good article explaining why there's so much Chinese investment flowing into housing, I found this funny:

Therefore, housing is special because it is much more concrete than other investments.

I like Yichuan Wang's writing style!

End of Cheap China: Exhibit 1

Elsewhere I've blogged about the end of cheap China. Here's an example of this trend, the first of many I expect:

Etched into the base of Google's new wireless home media player that was introduced on Wednesday is its most intriguing feature. On the underside of the Nexus Q is a simple inscription: “Designed and Manufactured in the U.S.A.”

Stay tuned.

Fewer Kids = Economic Decline

Just a few years ago, overpopulation was the greatest "threat" to humanity. What changed?

Demographics.

That's the stark conclusion from James Stock and Mark Watson in this fascinating, and occasionally depressing, new paper. In fact, they say, the future is now. For the last few years, we've weathered the beginning of what demographers have called the grey tsunami. "Most of the slow recovery [in today's job market] is attributable to a long-term slowdown in trend employment growth," Stock and Watson write.

The authors blame two demographic demons for our uncertain future: (1) the plateau in the female labor force participation rate, and (2) the aging of the U.S. workforce. Their underlying logic is that without continued growth in female workers or a significant boost in population, employment and GDP growth will slow, leaving us vulnerable to recessions with "steeper declines and slower recoveries." In such a future, jobless recoveries will be the only recoveries we know.

Turning to Imports

The BBC is reporting this as being caused by a surge in energy prices, but my sense is that it's simply part of a greater general trend: after decades of running trade surpluses, China will go on an importing spree that will last many years.

Side note: every time I see a prediction that China's demand for raw materials is about to collapse, I wait for something like this right around the corner:

According to the trade figures released over the weekend, crude oil shipments hit a record-high of 5.95m barrels per day. China's imports of copper and iron ore also rose during the month.

One last point: if China really does become a voracious importer, expect the complaints to be almost as loud as the complaints against China's exporting. It's irrational, but you can expect to hear things like "China is driving up prices for everything." Just the exact mirror complaint of "China is selling everything too cheaply for us to compete," but the complainers will never see their own irony.

Africa's Singapore?

Go Rwanda!

Yet Rwanda has one huge advantage: the rule of law. No African country has done more to curb corruption. Ministers have been jailed for it. Transparency International, a watchdog, reckons Rwanda is less graft-ridden than Greece or Italy (though companies owned by the ruling party play an outsized role in the economy). “I have never paid a bribe and I don’t know anyone who has had to pay a bribe,” says Josh Ruxin, one of the owners of Heaven, a restaurant in Kigali, the capital.

China's Next Superfast Train?

Even though this article is really about the slowdown in spending on China's rail upgrade, this is the most interesting part to me:

For those craving even faster speeds, CSR Corp, China’s biggest trainmaker, has unveiled a supertrain (pictured above) said to be inspired by the shape of an ancient Chinese sword. It should slice through the air at 500kph.

C'mon, baby!

Big Mac Index

Next semester I'll be teaching International Marketing and Transnational Management classes.

There's no way students will escape these classes without knowing about the Big Mac Index.

Eat to learn.

Guess the Region

In which part of the world has average income grown by one-third since 2000? You might be surprised.

Yet within the club of economies that doubled in size were no less than eight from ____, the region traditionally written off as a hopeless economic backwater. Indeed, that region took 17 of the top 40 spots in the decade's global GDP growth rankings; its GDP is 66 percent larger than it was in 2000.

The emphasis is mine...when one region has 17 of the fastest growing 40 economies in the world, that's worth emphasizing.

You Can Stop Worrying about Overpopulation

But if you really need something to worry about, just put underpopulation in that slot.

Natural Resources and Standard of Living

Natural resource endowments help make a nation prosperous...unless you use them to the almost exclusive benefit of those in power. An example:

Qaddafi's Libya produces 0.27 barrels per citizen per day; the United Arab Emirates (where Dubai is located) produces 0.34 barrels per citizen per day. Yet the average Emirati is three times as wealthy as the average Libyan, according to IMF data on gross domestic product at purchasing power parity per capita. Why are Libyans poorer on average than Mexicans while Emiratis richer than Americans?

Exhibit A: Journalists Are Good at Journalism; Business, Maybe Not

Michael Giberson takes the Wall Street Journal to school for this article about gasoline and crude prices. The "gasoline prices aren't falling as fast as the price of crude" story is hardly breaking new ground, but this time it's not even valid as a storyline:

The mystery of the just-down-13-percent gasoline prices is almost entirely created by trying to treat the NYMEX price as the relevant benchmark, but it isn’t. (As noted here in February.) Currently the Brent price is a better indicator of the world oil market price for crude oil. Our story here, then, is that world oil prices have dropped 18 percent since April while average gasoline prices dropped 13 percent. Hardly a different warranting a headline.

The reporter fully recognizes this point, as he explains, “gasoline prices on the East Coast and even in the Gulf Coast track the price of Brent crude, which analysts view as a better indicator of global prices than Nymex. While Nymex futures are down 30% since April 29, Brent is down 18%.” And the story is accompanied by a graphic, above, which graphically illustrates the point that Brent seems to be the relevant reference point.

So why the struggle to cast this story about gasoline prices that are not falling fast enough?

The whole thing reminds me of something a professor told us often: "Remember, the guys who write for the WSJ are more likely to be experts at journalism than at business. Don't be too ready to learn about your industry from a journalism major."

Yep.

Not an Even Bet

Even if I were a betting man, I wouldn't bet against China now:

The importance of exports as a driver of China's growth is overstated. Exports as a percentage of China's 2010 gross domestic product were 27%, down from 35% in 2007. In value-added terms, the real share of exports is even smaller. UBS economist Wang Tao sees a base case in which falling exports shave a percentage point from China's 2012 GDP growth. With GDP growth expected to be around 9% in 2011, all else being equal, that is hardly a disaster.

Real-estate investment is a key driver of China's growth, equal to around 14% of GDP in 2010. Ghost towns of empty houses raise fears that construction might be set to slow sharply. But with millions moving from the countryside to the city each year, and rising wages driving demand for higher-quality accommodations for existing city dwellers, fundamental demand is strong. The government also has policy options: Borrowing restrictions for developers can be loosened and speculators allowed back into the market.

Spot on.

There are way too many empty apartments in the cities now. But there are still hundreds of millions of people who are going to want to fill them in the coming years. If prices fall, it will simply speed up migration to the cities.

A Big Shift

I remember as a boy reading predictions that the world would run out of oil in 10 years.

That was over 30 years ago. But what's more surprising is the prospect of a huge shift in which regions of the world control the most oil:

Amy Myers Jaffe of Rice University says in the next decade, new oil in the US, Canada and South America could change the center of gravity of the entire global energy supply.

"Some are now saying, in five or 10 years' time, we're a major oil-producing region, where our production is going up," she says.

The US, Jaffe says, could have 2 trillion barrels of oil waiting to be drilled. South America could hold another 2 trillion. And Canada? 2.4 trillion. That's compared to just 1.2 trillion in the Middle East and north Africa.

Skip the article's human interest aspect. This isn't about North Dakota, it's much bigger than that. The section that starts with Jaffe's comments is the real story.

It's Time

This WSJ article on the rise of small-scale manufacturing in Africa is good news all around, and will be assigned reading in my International Management class.

Highlights:

Why Africa doesn't make more stuff has been an enduring mystery of the global economy. As wages rose in manufacturing powerhouses such as China, many economists predicted that factories would flock to cheaper pools of labor in Africa, helping to spur the same sort of rapid industrial growth that lifted living standards across Asia.

On the role China may play:

Africa's industry isn't so different from the modest roots of China's own industrial revolution. In the 1980s, Chinese farmers invested in factories to make goods for rural consumers. Multinationals arrived later to fuel an export boom, according to Zhang Chunlin, an economist at the World Bank in Pretoria who specializes on private-sector development.

China's challenge was "to develop in an imperfect environment," says Mr. Zhang, who once worked at a village brick kiln in the northern China. "That is also Africa's challenge."

Knowledge Problem

These two posts on Yergin's take on peak oil led me to a blog I'd not seen before, Knowledge Problem.

Students know how much I love to use "why we will never run out of oil" as a way to demonstrate the value of thinking like an economist. Now I'm looking though older posts. Like a kid in a candy shop...

Tiger vs. Dragon

The Freakonomics blog has an interesting comparison of China and India in terms of both past GDP growth, and current population trends.



But one thing to keep in mind about demographic projections: they seem more inevitable than they are! Often, demographic trends that seem unstoppably moving in one direction take an unexpected turn.

Still, savvy marketers can't afford to ignore demographics, especially the near-term trends.