CATCH-22: THE FUTURE OF CHINA
Jeff LoCastro, April 12, 2012
Founder & President, NCCREA
A Catch-22 is a paradoxical situation such that solving one part of a
problem only creates another problem, which ultimately leads back to
the original problem. That is the future of China.
With that said, there is tremendous opportunity in China. It's the Wild
West of the East. It's the 2nd largest economy and the fastest growing
of the legitimate world economies (factoring out Zambia, Jordan,
Lebanon & Qatar). It has achieved this status for primarily one reason:
Availability of low cost labor. Certainly in certain sectors their is a
shortage of labor, but that is due more to a mal-distribution than a
national shortage. Regardless, it's lots of cheap labor that is fueling the
machine. Historically, labor in China has always been cheap. Even the
one-party system can't escape capitalism's core pivot: Supply and
Demand. Lots of bodies, low wages. But, this historical surplus has
created possibly the most inefficient society on the planet. Any
observer (outside of the tourist and business traveler) experiences this
everywhere in everyway.
However, with many Chinese workers acquiring a few more creature
comforts than before there is an audible rumbling here for higher wages.
Even before Foxconn, demands for higher-wages was becoming a bit of a
blue-collar call to arms. The problem is that a systemically inefficient
economy can not sustain real wage growth without significant
consequences. Right now, if Chinese businesses stopped operating
"Chinese" and had to compete, not based on low cost labor but as
efficient operations churning out a high quality, competitively priced
product, easily 2/3 of the Chinese work-force would be immediately
unemployed. That is not just some flippant assertion, but rather an
analysis of the size of the efficient $15 trillion US economy and the
number employed vs. the size of an inefficient $6 trillion economy and
the number of workers it would likely employ given real wage growth.
Even if the Chinese economy grows to equal or surpass the US in terms
of GDP, a $15 trillion economy cannot possibly employ 1.4 billion
people . . . unless you build into the system inherent inefficiencies.
However, if you build into the system these inefficiencies, the economy
cannot possibly create enough value to become an $15 trillion dollar
So as China desperately races in an attempt to be the #1 economy in the
world, more people will need to be employed. The more people
employed, the higher real wages will rise, the higher real wages, the
more efficient businesses will need to become to be competitive, the
more efficient they become the fewer people will be employed. Of
course, efficiency will create value vis-à-vis, GDP, but not on a scale to
absorb 1.4 billion people. Therefore in order to maintain a employment
ratio which the one-party system can tolerate, inefficiencies will remain
systemic, with inefficiencies systemic, there will be no real wage
growth, with no wage growth China remains an economy of low cost
labor. And an economy based on low cost labor will not become #1 in
When will the tipping point occur as to engage Catch-22 ? When will
these contradictory forces achieve a critical mass such that a collision
occurs? No one knows. But until then China remains the new frontier.
And for the entrepreneurial pioneer, the frontier is always a good place
COPYRIGHT 2012 JEFF LOCASTRO
DISTRIBUTED BY NCCREA
CHANGZHI, SHANXI, PRC
Contact the author at: Jeff@NCCREA.com or Jeff@CaliforniaSecured.com
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