The West need to re-industrialize? – China: world’s factory?

New industrial revolution?

Betting on the West to re-industrialize is absurd, China will continue to be the world’s factory. Did the US import taxes on Chinese goods repatriate jobs? Not at all, despite the consumers prices increase and despite the so call Covid’s effects on shipments costs and raw materials costs, adding to this the extraordinary sense of opportunity of Chinese factories increasing their prices as numerous electricity cuts are in fact paid by Western consumers, this based on an easy principle: less production – higher prices.

Consumers prices are going ballistic, the western world isn’t realizing this fully as the most recent products with prices increased are still under shipment. As example 200,000 containers are right now waiting off Los Angeles port.

Re-industrialize – How?

Few weeks to wait and the results all of these prices increase with directly harm the Middle-class purchasing power, in France the yellow-jackets will be back in the streets and many governments will once again talk about self-sufficiency and strategies to re-industrialize.

China isn’t anymore a country with low labor costs and this fact is very displeasing to Western governments, BEFORE the excuse was the low labor costs, “unbeatable” from a Western perspective.

NOW, the Chinese labor costs could be higher than Europe, the working hours quite similar and the expectations of the labor force identical.

The West destroyed production capacities, they discouraged the only ones having the capacities to maintain and develop inter European industries: the entrepreneurs.

Without entrepreneurs there is no production, the governments don’t have the power to create jobs, they used their power to increase regulations, laws, taxes and administrative burden.

The only exception is when patriots are maintaining and developing industries, having for clients the defense industry, so making profits directly on tax payers.

That’s surely one of the reasons behind the Anti-Chinese campaigns, by exaggerating fears you could justify an increase of the government budget on defense, so to maintain and develop the defense industry and the attached labor force. But then you should raise taxes and once again a wave of potential entrepreneurs will leave your country or simply abandon any idea to create industrial jobs.

Will the West be feed by Chinese products purchased with their salaries obtained by working for the defense industry or generated by civil servants’ jobs?

The West should focus on seducing entrepreneurs, liberating energies by decreasing obstacles and taxes. Although entrepreneurs don’t want to fully admit it; the reasoning behind the decision for an entrepreneur to start a venture and to take risk is to obtain higher rewards.

If you can’t achieve freedom and financial success with at minima 3 times the income of a salary-man doing the same job, it’s better to seek for the security of a civil servant’s job.

Being an entrepreneur is painful, of course a government composed of individuals whom seldom worked in the private sector or even less as entrepreneur has no understanding of the difficulties.

The western world will re-industrialize only if the governments have a knee on the floor, begging the new generation to help, giving credit facilities, erasing stupid regulations and decreasing drastically taxes.

So, the West will not re-industrialize, the prices will go down a little bit, then everybody will calm down, Chinese factories will increase salaries and create jobs, China will continue to conquer by really improving the well-being of its population.

Solution

Under such circumstances, and despite the political attacks, incorporating a Hong Kong company is a short to long term solution to access Mainland China suppliers, ease the payments, and jump the queue of the competition. Credibility and low tax environment in the most pro-business city.

Combined with an efficient Fintech solution to manage currencies, a Hong Kong company setup cost will be reimbursed with the first order in China.

Hong Kong – is the glass half-empty or half-full?

Hong Kong - half-empty or half-full

Hong Kong businesses are suffering from a mandatory quarantine of 21 days at hotel which is barring visitors to land in the city. The health situation is totally under control with ZERO Covid cases but the social and business impacts are great.

Confronted to months of protests followed by confinement and restrictions, with in addition divisive political decisions, the pressure is high to see better days.

Westerners living in the city are often obliged to explain and protect China decisions to their family, friends and business partners living abroad. As a matter of fact, the Asian approach is totally different from the rest of the world.

The health situation was very well managed by most of the Asian countries, social and business impacts were strong and difficult to deal with, but this was only for a relatively short period of time.

Today we see with envy from Hong Kong a western world with no or low travel restrictions, opening public spaces and abandoning face masks, while in the same time Asian countries are enforcing travel restriction and isolated confinements, for a zero-case goal.

This difference of approach isn’t a small detail, it’s symptomatic of a huge difference of values and of acceptance by the population of governmental decisions, as if in the span of few months only the world separated in two.

Hong Kong - half-empty or half-full

Short-term situation for Hong Kong?

It’s very unlikely that Asian countries will accept travels without strict quarantines, Hong Kong is hoping that Mainland Chinese’s will come back and spend time and money in the city and support the economy, with the understanding that visitors from western countries are still considered too dangerous.

The shared opinion in Hong Kong is that mainland Chinese would come back by the end of the year but that the attractivity of Hong Kong has been damaged by months of protests and (even with lower travel restrictions) visitors’ numbers will be low.

The multiples impact on restaurants, hotels, retail shops and to any activities linked to visitors have been (temporary?) managed, the unemployment is by western standards low and the economy is re-starting slowly.

 

Exodus of westerners?

Relocation agents are full of work, everybody knows someone living or intending to leave and this increase a sentiment of solitude for the ones having no such prospect.

The reasons justifying the departure of westerners are to be carefully understood, although many are making use of the recent political changes and the fears of changes in the education sector it’s unlikely that these reasons are the real ones.

Travel’s restrictions are harsh, this obviously impacted a lot more the ones having families abroad plus the common opinion is that this situation will perdure for quite a long time. On a small island like Hong Kong, one of the most expensive location in the world, the pressure is multiplied.

Because of the poor economy a drop of turnover and profitability is harder to manage in a city where everything is expensive, westerners confronted to this situation will have the tendency to blame other factors.

The short-term situation of Hong Kong is therefore likely to be difficult till we do understand if the western world is right to open everything and to allow free travels, if the western countries are doing right and if Asian countries are continuing, whatever the reasons, to restrict freedom to travel the burden will become for many unbearable and then a real exodus of westerners will happen.

If the western experiment fails, if because of Covid variants the overall health situation become out of control the world will face catastrophic consequences, but in the same time China and Hong Kong will, as a show of supremacy, allow more individual freedom.

 

Hong Kong on the long term

The city is a definitive winner, first because China is winning and also because the western countries are in such a situation that compared to what will happen to them in a few months it’s not difficult to do better.

Hong Kong will remain a showcase of Chinese success, mainland china money will pour in the city for economic and, let’s be straight forward, political reasons.

China putted to a halt the concept of foreign interference, Hong Kong is then de facto the perfect location to be showcased as an example of a strong and protective government leading to economic and social success.

The only question which remains is the willingness of the Hong Kong population to be used to expose differences in democratic values between East and West. Although Hong Kong is not the toy of US and Europe it’s also unlikely that the Chinese grip is totally welcomed.

Hong Kong will then have to adapt and to demonstrate to the motherland, by way of economic success with a real improvement of the wellbeing of its inhabitants, that a bit of western attitude is not that a big deal.

Hong Kong tycoons will surely be the victims of this long-term process, after having exploited to the limits the property market, they will be asked to contribute to the economy. The process will not go through taxes, this isn’t the DNA of Hong Kong ,but they will be obliged to contribute to social housing and to create the jobs the city needs.

This time it’s not the Hong Kong government to softly require some support, thanks to the mainland power the property tycoons will have limited choices.