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Monday, March 1, 2010
There’s a bull in the china shop

Many people may be discussing round the dinner table how various businesses and indeed industries (textiles to name just one) in South Africa are under threat from the East. Many businesses have been liquidated as a result of the rise in China and some industries are slowly disappearing.  China is now the world’s largest exporter, exporting goods to the value of around US $ 1.2 trillion (i.e. $ 1 200 000 000 000) in 2009 alone!

A large portion of the exporters are poor quality, but there’s no doubt that as China continues to industrialise the quality of goods will improve. Right now they are more interested in gaining entry into new markets and increasing their share of the pie. The accompanying graph from Visio Capital, courtesy Seed Investments, demonstrates clearly the trends emerging.
Comments Mike Browne of Seed Investments, ‘In the past there were sayings like “Jap crap”, and I recall many people refusing to buy any electronics out of Korea unless they were sold at bargain basement prices. Nowadays these countries are market leaders in many industries and their products are often sold at a premium, and I have no doubt that it will be the same with China in due course.’
Companies and industries under threat in SA need to look at their business model and decide whether they can compete with China, or perhaps alter their model to remain in business. ‘If the company can’t do this and isn’t protected by the government (although even the efficacy of government protection is debateable) there is a large likelihood that they will eventually be forced out of business.’

South Africa can ill afford job losses so government and private industry alike needs to look at developing those labour intensive industries where SA has a competitive advantage to maximise job creation. Ultimately cheaper goods for South African consumers (whether produced locally or abroad) is good for the local consumer.
It won’t be easy, says Browne, but if the government can balance job creation and inflation moderation (through importing more competitively priced goods) then they will have done a good job. It is clear that China is a waking giant and it would be foolish for South Africa to ignore this giant.

Copyright © Insurance Times and Investments® Vol:23.3 1st March, 2010
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