2023 OCTOBER ISSUE
MARKET REPORT
SHORT READ PART 1
Contents:
Electric Vehicles Manufacturing in Vietnam
New Way of Traveling Lightly
Fukushima’s Water From the Cooling Tower of the Nuclear Reactors Are Ready to Release
Saudi Arabia and China Shows Growing Ties at a Forum
Panama Canal is Met with Draught
ChatGPT – To Be Or Not To Be Is The Question
Struggling for the World Factory
India’s Population Will Surpass China
Written by : Andrew Sia
Share this article!
From the Desk of the Publisher
In this report we wrote about China and there are three articles that are related to China. In today’s world, wherever you turn, you can’t ignore China and it is becoming something that can be quite uneasy in some instances. We feel that we have either to embrace it or to accommodate it as after all it is such a big country with a big market with a lot of very nice and intelligent people.
In another write up of our journal, we reported about the trade shows and we have reported a show that was recently staged in Shanghai—Gucci Cosmos, 180 Studios—from April 28 to June 25 which marked the first stop of this important show covering the 102 years story of Gucci. The next show only started in October 2 and last until January 19, 2024 in London. The show will then move to cities like Paris and Kobe for instance.
But rather always emphasizing and reminding ourselves the challenges we all know, we should explore the possibilities and potentials out there and make our world a better one. What I learned from my older days and it was, “if we can’t fight them, join them.”
Anyway, I have also written in this report the way to travel lightly. We can learn from Japan Airline what they suggest to passengers to travel lightly with only underwear and toothbrush. For the journey, renting outfits by season, size and color. Honestly speaking, I have my reservation and perhaps it is only restricted to Japanese traveling within Japan might work.
Electrical Vehicles Manufacturing in Vietnam – FT, July 10, 2023
Warren Buffett backed Chinese BYD and made it the world’s largest maker of electric or plug-in hybrid vehicles and it is even overtaking Tesla.
Vietnamese carmaker, a company founded six years ago as the company making automobiles. In last year, just three years after selling its first petrol model, VinFast, stop producing petroleum cars to focus on EVs.
VinFast chief executive Le Thi Thu Thuy declared that they are not competing for a shrinking market share and decided only to go after the EVs, the growing market. Its first 999 vehicles arrived in the U.S. in December 2022 and received several poor product reviews. In fact the first cars shipped in May were recalled after the US National Highway Traffic Safety Administration warned that a software error in the dashboard display prevented critical safety information from being shown.
The company’s $23 billion NYSE IPO have had to be downgraded and will now listed via a merger on a lower profile NYSE American exchange. The Vingroup conglomerate will have to put a further $2.5 billion and the VinFast shareholders will have to retain 99% of the shares.
The company is making the loss of $598.3 million for the first quarter of the year.
Its former employees blamed the company for developing the cars in the speed that doesn’t allow the cars to go through testing.
VinFast planned for a plant in North Carolina and already set up 13 showrooms in prestige locations in California to compete with Tesla. But its product is not ready yet.
New Way of Traveling Lightly – FT, July 6, 2023
Japan Airlines is starting a year-long experiment to passengers who are traveling lightly with underwear and toothbrush but to rent out clothes upon arrival without check-in luggage. The outfits can be rented by season, size, formality and color. This scheme is designed for passengers by using a stock prepared by retailers and second-hand garments would be delivered to a hotel ahead of arrival and collected at the end of the stay to be washed and recycled.
Under a current pricing structure, for a woman traveling on a business trip in the summer can pay ¥5,000 (about $35) for a selection of tops, trousers and skirts. For a man to travel on a casual trip in winter can rent faded jeans, a hoodie and a cozy down jacket for ¥7,000 (about $50).
The scheme is known as “Any Wear, Anywhere” led by JAL and collaborate with Sumitomo, a trading house.
The purpose is a 10 kilos reduction in a passenger’s luggage results in an estimated 7.5 kilos cut in carbon emissions.
Fukushima’s Water From the Cooling Tower of the Nuclear Reactors Are Ready to Release – FT, July 5, 2023
In March 2011, the Fukushima nuclear reactors melted after a tsunami knocked out their cooling systems. Subsequently, the water used to cool the reactors became contaminated with radioactive nuclides.
The contaminated water has been treated with an elaborated filtration system to remove the most radioactive material but there has not been an effective way to filter out tritium, a radioactive isotope of hydrogen.
But this time, the UN nuclear watchdog, the International Atomic Energy Agency (IAEA) advised that Japanese handling of the treated radioactive water has been consistent with the international safety standards. The gradual discharge after more than 12 years of treatment can begin sometime around summer. The discharge of one million tons of water is still waiting from IAEA’s approval.
China has rejected the decision and South Korea has expressed the need for the ban on agricultural products from the Fukushima region until the public have shown their relief.
Saudi Arabia and China Showed Growing Ties at a Forum – New York Times, June 13, 2023
At this time, it was the 10th Arab-China business conference, but this time it was also the first time it had been hosted in Saudi Arabia and hundreds of Chinese officials and executives gathered under the grand chandeliers. Among the Chinese companies invited were several of those appeared in the American government’s blacklists for allegations that their activities contribute to the surveillance of Chinese ethnic minorities. These included SenseTime—an artificial intelligence firm specializing in facial recognition—and BGI Group, a genomics company.
During the forum, deals were announced for Chinese companies investing in copper mining and renewable energy in Saudi. It also included a joint venture of research, manufacturing and sales for a Chinese electric vehicle company.
Saudi Arabia praised China as a trusted and best partner in the world although a day ago the U.S. secretary of state, Antony Blinken was there and reaffirmed their relationship after a strain ties. The Saudi foreign minister who said that the kingdom valued the close relationship with the U.S. but has no plan to distance itself from China.
Panama Canal is Met with Draught – New York Times, August 26, 2023
Drought is aggravated by the burning of fossil fuels has slowed down the ship traffic that carries goods in and out of the U.S. through the Panama Canal. Grains grown in the Midwest, make their ways down the Mississippi River by barge before being shipped through the Panama Canal and transport to the rest of the world. The heat and the draught in the Midwest are threatening to dry up the Mississippi River, being a crucial artery for American corn and wheat exports.
This had already happened last year in Europe as it faced the worst dry season in 500 years. It made the Rhine’s water level the lowest and ships were carrying a fraction of their cargo they normally do. The Rhine’s water level is better this year, but the water from the mountain snow and ice has declined.
Same happened in China where the most important river route, Yangtze, also suffered from draught last year and forced the companies to use roads to truck the containers to the seaport.
Not to mention that the hot and dry condition would affect the harvest of grains.
Draught is also a concurrent natural phenomenon during this time the average global temperature is higher because of the El Niño phenomenon. We have also to be aware that this can last years.
Draughts are not the only threat to global supply chains but also the abnormal hot ocean waters are creating supersize storms.
Ocean shipping accounts for 90% of the world’s transportation of goods. Ships have to watch their dead load and to reduce the cargo volume would also means higher shipping costs. Contain ships are using heavy fuel oil which accounts for 3% of global greenhouse gas emissions. Although the shipping industry agreed to be carbon neutral by 2050 and yet this is considered as vague.
ChatGPT – To Be Or Not To Be Is the Question
Those tech giants have promised that the A.I. tools would revolutionize learning. We have seen some public schools try to stop it in order that the administration can spend more time to catch up. Critics have warned that the bots would be more likely to undermine education, overwhelming students with misinformation and even facilitate widespread cheating.
On the other hand, we have read that schools hold workshop on A.I. chatbots, teaching students to generate essays, learn stories and other texts. Their rationale is that the students are going to grow up in a world where ChatGPT is the norm.
We know that ChatGPT is a chatbot developed by OpenAI and a similar bots like Google’s Bard is also openly available.
Children of today have devices that are unfiltered and unfettered at home without any connectivity restriction.
We know that this A.I. tool can write assignments look like the student’s work and generate a rough draft and turn it into a piece of assignment is relatively simple and easy.
We are so used to query search engines like Google and to use chatbots to answer those questions should also be taken as a pragmatic view. It is important for the students to learn the benefits of A.I. by knowing its benefits and drawbacks. To pretend that it is not there is not practical and certainly not the reality.
It is still a very tough question and can only be best answered by the teachers, parents and students collectively and apply the most intelligent approach towards A.I. We have to know that at the end of the day, the students are the one who should benefit the most and can come out proudly claiming that they have mastered the education and after all, A.I. is only a tool that is handy and readily available.
Struggling for the World Factory – WSJ, August 8, 2023
China has been dominating the global manufacturing for three decades already. To topple it is not going to be easy. Its manufacture infrastructure is second to none and its supply chain is still intact. You may say that the time is different now and there have been changes. The workers may have aged and the new generation is unwilling to step in. The market has been matured and we have noticed changes especially during the pandemic. Lately, the geopolitical situation for China is causing problem and people are pulling out manufacturing to other Asian countries.
We haven’t seen any winners, although some businesses have gone to Vietnam. The Vietnam economy grew 5.33% in July-September a year earlier. The government’s target of 6.5% annual growth this year will likely be missed. But this growth is still below the 6-7% expansion recorded before the COVID-19.
Its slowdown falling to a 3.28% GDP growth in its first quarter is due to the decline to a slow global demand, although the second quarter climbed to 4.05% growth.
The country is also running a big problem as its young people don’t want t work in factories. Workers in the 20s are dropping out and look for more interesting jobs in the servicing industry. In response to this tendency, Asian factories have to increase wages and adopt some policies to retain the workers.
It is mentioned that toy and game maker, Hasbro, is facing cost increase with the labor shortage in Vietnam and China. Mattel, the Barbie doll, has found the labor cost increased. Nike also reported for cost increase of its shoes.
Consumers in the U.S. enjoyed the all-time low cost since the 1990s when the manufacturing hubs in China and other Asian countries were drawing the poor farmers into manufacturers in urban cities. This time the younger generation has received better education than their parents and become more savvy with Instagram, TikTok and other social media. There is also the demographic shift where younger people are no longer having children like their parents and want to look for more steady income in the service sector such as sales personnel in the shopping mall or the hospitality sector.
China has a 21% unemployment in June with its urban youths but they are not attracted to work in factories where there is a labor shortage.
Multinational companies have moved out from China because of the geopolitical reason to the neighboring countries in Southeast Asia like Malaysia, Indonesia, Vietnam and even India. But they are facing the same problem as the factory jobs are unattractive to the young people.
Factory wages in Vietnam and China have been going up and the factory operators would have to put in more trainings and initiatives to make the work more interesting and promising. The days of the low wages and strict doctrines are out to retrain workers and not to say to attract new workers.
In the old days, manufacturers would simply move to cheaper countries where they can still apply the low minimum wages. Today these low wage countries, like Myanmar and Ethiopia, where operations are often disrupted by social unrest and civil war. There are nations in Africa and South Asia where there are large labor pools, but many of them are politically unstable, largely lack of infrastructure and trained workforces.
We are aware of India where they have a large population. But it is hard to retain those young factory workers. They prefer farming as it is supported by state welfare programs. Those skill engineers would leave factories for IT jobs. There are many mismatching measures that can’t turn India into a huge manufacturing hub.
The time has changed also. In 2001, Nike was able to claim that their 80% of their workers were in Asia and the typical ones were 22 years of age. But today, the average age of their workers in China is 40, and in Vietnam, they are 30.
The need for factories to be equipped with automation and to train the workers to become capable of operating computer-aided manufacturing is important. To train the managers on the factory floor as mechanical engineering can take the manufacturing one step ahead. This will have to go together with manufacturing facilities with more windows with natural light.
India’s Population Will Surpass China’s – WSJ, April 15, 2023
It has been two centuries that China has been the largest population in the world. The United Nations has mentioned that sometime in this year, India is going to surpass. It is expected that India’s population will hit 1.429 billion by the end of the year, and China will fall to 1.426 billion. India is going to lead by 3 million.
China’s decline in its demography will make it harder to achieve its economic ambitions and to replace the United States as world’s largest economy in according to the critics. But India’s rising population will keep its economy growing and also as the world’s largest democracy, it will be the natural partners and investment destination for the free world. But India’s poverty and its jobless is still the challenge that it has to overcome.
India is expected to grow its population in the next four decades, reaching 1.7 billion in 2063. But on the other hand, China’s population is going to shrink rapidly. India has a young population of 600 million people under the age of 25. It is the only country who has the labor force to takeover China and to become the world factory. But its poor infrastructure and the out-of-date investment rules is going to block the country’s growth.
On the other hand, China’s aging problem with its labor force shrinking and it has a growing numbers of retirees who need pension payments and healthcare. About 203 million people, or 14.3% of China’s population will become 65 and older this year, up from 87.5 million in 2000. Its fertility rate was 1.18 last year. This is well below the 2.1 needed to help to keep the population striving. This is not happening.
But on the other hand, India’s fertility rate is 2.0 and a large population of women of childbearing age. Its population will continue to grow.
China’s medium-term economic growth forecast is around 4% while India is 6%. According to the International Monetary Fund, India has overtaken Britain as the world’s fifth-largest economy recently. Soon it would overtake Germany and Japan as the world’s third-largest economy, behind the U.S. and China in 2029. Its GDP will become more than double to $8.5 billion from $3.4 billion over the next ten years. It was already double of the past decade.
India has 228.9 million people living in poverty, this is about 16.4% of its population. Young people don’t bother to look for jobs as there are insufficient opportunities.
On the other hand, it is too late for China to reverse the demographic slide. China’s workforce is expected to shrink by more than 5% a year. With fewer workers, China’s labor cost will catch up with the advanced economies. Its production-line worker’s salary was $15,000 in 2022. This was more than five times the average salary in India. China has lost its competitiveness to India already.
One thing about India’s support in geopolitical matters, such as condemning Russia’s invasion in Ukraine, has been disappointing to the U.S. India is still buying large quantity of oil from Russia. This time with the Hamas in Gaza, India will have to declare its standing as it has developed into something that can lead to a regional war. India may have to take up its position and act as a responsible player in the international scene.