The Coming China Wars: Business Dominance Thru Illegal Business-Government Cartels

Last updated on: January 28, 2007 at 2:20 pm by Desh Kapoor

The Coming China Wars: Business Dominance Thru Illegal Business-Government Cartels 2007-01-28T14:20:33-06:00 Desh Kapoor

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I had mentioned the book “The Coming China Wars” in an earlier post. Here is an interesting report on the site of the author of the book.

Total Number of Chinese Billionaires is 15 and Indian Billionaires is 35!

The study was called China Price Project. You can view the report here: China Price Report. The report provides a comprehensive analysis of the 8 major drivers of the advantage that Chinese manufacturers have.

According to the report, the price advantage broken down by the drivers are:

Lower labor costs account: 39%
Industrial network clustering: 16%
Catalytic Foreign Direct Investment: 3%
Export subsides: 17%
Undervalued currency: 11%
Counterfeiting and piracy: 9%
Lax environmental and worker health and safety regulatory regimes: 5%.

This is a very significant finding in many ways. There is a significant chunk of price advantage that stems from bad business practices! I remember 4 or 5 years back, the Non-performing loans of the Chinese National Banks were close to 40%! If at all, they must have gone up. That means these moneys were borrowed by businesses never to be returned back!

I have a friend who had a business of making machines near New Delhi, India. In 1998, he had to close it. The reason: he couldn’t compete with the machines being sold by the Chinese. Their Selling Price AFTER transportation to India was LOWER than my friend’s Cost price!! Knowing how cheap the Indian labour is, this did not make sense in any way!

The only way they could do this was by numerous subsidies and enormous economies of scale!! And that’s what it was. The Chinese had set up factories that were several times the size of my friend’s factory. The question is – how does one get financing for such an endeavour without having a Sales Plan other than one that hinges on dumping!? And WHO gets such financing from WHERE?

Once you start asking such questions you know that these things are possible ONLY when the Government is the one which finances the entire business empire!

Another thing that I found rather intriguing recently was – the Forbes Billionaires list of 2006. If you looked carefully at the list, you will see that the total number of Chinese Billionaires is 15; while the number ofIndian Billionaires is 36!

Given the size of the Chinese economy and its growth for last so many years versus India’s growth of just a decade old and at much slower rate than the Chinese, what would you have expected?? I was thinking these numbers would have been the reverse!! Right? Is this just a coincidence? I don’t think so! This is an indicator of a deeper malaise that the Chinese Economy is beset with – the growth is primarily led by Government effort and NOT by private initiative! The businesses have very little patience for financial and operational integrity, but they thrive on elbowing – often illegal – tactics!

This is why friends it is important that you read the book “The Coming China Wars“

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