Thursday, January 15, 2009

Expect More China Headlines

I saw this today, and was completely unsurprised. China has surpassed yet another industrialized country in the size of its economy -- this time, Germany -- and now stands as the third largest economy on the planet behind the United States and (close to China's grasp) Japan. China has been working to move production from textiles and toys to heavy industry, and to be a finished goods producer rather than a source of raw materials.

When Warren Buffett explained why the United States is a long-term buy, he pointed out that the United States adds three million households per year -- three million households needing homes, home repair, transportation, food, fuel, entertainment, clothing, education, and every other thing humans need. Because the US is growing, the businesses that serve it successfully will do well. Q.E.D. Now, think about the size and growth of China, which is not only growing in size but increasing in consumption and in quality-of-life demands.

The movement of China into the ranks of first-class industrialized economies will be the major project for the 21st century. (Africa could in theory, but in practice remains at present too consumed with internal struggle to make genuine quality of life gains.) China won't find it easy -- personal freedoms will continue to be a problem -- and China's efforts to put on a respectable public face may lead it into embarrassment or at least into foolishness for years. However, China will become a major economic power as its people increase in productive capacity (from improvements in infrastructure, education, and investment) and its national output increases in quality.

Made In Japan was kind of a joke for a while in the postwar period, an indicator of cheap knock-off products not of the quality one expected from domestic producers. City names like USSA, intended to enable truthful location-of-manufacuture labels to fool unwary Americans to think they are buying a domestic product, were a symptom of the quality gap. But think about today. Would you be more confident in the quality of a Detroit-assembled GM engine, or a Japanese-assembled Toyota engine? In increasing numbers, Americans are voting for the Japanese products on quality grounds.

China will follow the same path, and for the same reasons.

No comments: