Spiegel: Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union…
…Bulgaria, the EU’s poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.
Expect to see a lot more of this in coming years.. As wealth and consumption increases, China will also begin to import more from developed countries, including more finished goods.
I’d like to start a game.
Read the post, then guess whether it is Tyler or Alex.
Sometimes it is easy to tell but this one could have been a Tyler post.
Multiple colorful graphs, cartoons or diagrams is likely Alex. So also anything to do with kidneys or patents. Paintings or food is Tyler.
The hint is the line “by Alex Tabarok” under the title.
Alex explains how to win the game
http://marginalrevolution.com/marginalrevolution/2007/05/tyler_v_alex_gu.html
Yep. The last one.
Alex is more angry!
I’ve driven a GWM truck. I was impressed. The price is even more impressive.
My current daily driver is a Great Wall Haval (it has also been called Hover and H5). The chassis design is late model 4Runner licensed from Toyota, the engine is built by Mitsubishi, and the EFI computer comes from GM.
It’s a pretty decent car for the money. My only complaints so far are that it’s got more squeaks and rattles than I’d expect from a new car, and the tensioning mechanism for the serpentine belt is completely ass.
Since I can’t edit, forgot to mention that GWM is also building copies of the original boxy Scion xB (Coolbear) and the Scion xA (Florid).
I heard Idaho lawmakers were trying to allow China to create one of their economic zones outside of Boise. That would be interesting.
What exactly is a Chinese economic zone? Is that like Macao in reverse?
no labor laws, no environmental laws, no rule of law at all. Just a bunch of slaves and their owner, local party member or his relative ready to put the screws into people so that the Iphone doesnt get scratches easily so that poor Steve Jobs doesnt suffer anxiety because of it.
So it comes full circle. The USA wants to offer China extra-territorial rights on US soil and you have people like Tyler Cowen cheering it on.
Some states have made such zones for Toyota. Foxconn in reverse.
“became the first” aside from the Shanghai Automotive (SIAC) plant in Longbridge UK?
SAIC merely bought an existing plant (Rover). The Bulgarian site appears to be a brand new factory.
Some mfg people have told me the advantage in China today isn’t so much labor cost (which is an increasingly smaller part of the equation) as the huge difference in environmental standards.
What about lawsuits? A finger lost to a hydraulic press might be valued differently in China versus America.
I was lumping that into labor costs, but yes, and that’s particularly important in mining.
So as predicted by economists, green regs just push dirty production to Third World countries. Paging Larry Summers!
Yeah, because EU member Bulgaria isn’t any different from a Third World country.
Well, apart from having to follow EU environmental and labor regulations.
So where will the world’s demand for pot metal be satisfied?
I’ll move to Bulgaria just for the cheap rents.
How does this differ from Hyundai opening a plant in Mississippi?
Very similar, an oasis of cheap labor, low taxes (to say nothing of the incentives the state threw at them.) One might quibble with the “workers are considered well-educated” thing.
I’m surprised that there was no mention of tax, energy, or supply chain implications. Building cars in Bulgaria makes them local EU products. Further, there’s no need to expend all that oil to move the cars to market. Finally, you’re not tying up your capital on boatload of cars that has to travel halfway around the world.
Since there is a glut of boats in the world, and shippers are paying people to buy from them, i dont think the transportation costs matter at all. Thank you, Chinese state shipping yards!
There might be a glut but sending an assembled car halfway across the world definitely isn’t free. I assume the shipper-paying part was a joke?
As wealth and consumption increases, China will also begin to import more from developed countries, including more finished goods
If consumption increases I suppose it would be kind of hard for consumption of things from more developed countries not to increase. But what if consumption does not increase? China does not have a counter-productive welfare state or a totally helpless underclass. Yet, I suppose. That means people have to save for everything. That is why something like 60 percent of China’s GDP is saved. They have to pay for their own medical care (no insurance worth a damn either), their own retirement (remember the One Child policy), their children’s education and so on. Those costs may rise as the middle class become richer – a peasant only has to save for middle school, a middle class person has to save for university. A peasant may be happy with some random herbs passed off as Traditional Chinese medicine. A middle class person will fear long and debilitating illnesses.
So it is entirely possible, given China’s long history of virtually no one consuming anything, that they will continue to save rather than spend. It is true that China has a small percentage of idiotic rich, but will most people do that? I think it is possible they won’t. It is hard to see how they could spend less, but they might. How might the world economy cope with a billion people all saving and desperate to export but not inclined to buy anything?
Your last question should be titled “US industrial policy since the late 1970′s”. China solved our inflation problem, but at what cost?
That’s an unrealistic expectation. The succeeding generations will turn out to be voracious consumers; the Indian consumer transformation between 1990-2005 was incredible. It only takes the passing away of the generation that has a vivid collective memory of scarcity and stagnation.
Well what India does says nothing about what China might do. All Asians aren’t the same you know.
It would be more interesting to look at Hong Kong or Taiwan. But I think we can agree we won’t know until they do.
“China Outsources to Europe”
What a misleading summary. The cars that Great Wall assembles in Bulgaria will not be shipped back for sale in China, they will be sold in Europe or North Africa. Its exactly like Toyota, Honda, Mercedes, etc. doing assembly and some manufacturing in the US. Is that really outsourcing?
The real narrative:
“Chinese cars on a road near you: China continues to move up the export value chain just like Japan, Taiwan, and Korea already have.”
It’s not amazing that they’re doing it, it’s amazing that they’re taking so long.
Wages in Bulgaria are higher than China, the same with GDP per capita – so, this is not outsourcing. The Chinese are willing to expand sales in EU so Bulgaria with its 10% flat tax is a natural place to build a factory.
I’m curious about Bulgarian and Chinese manufacturing quality COMBINED.
I do not believe that Eastern Europe will be long term value added resource for China for its labor issues. It is much easier to use North Korean workers. China is allowing North Korean workers come over the boarder now and also has set up a zone for china factories to set up in and use NK workers. They are also much better to be able to go into NK like the world entered China in Shenzhen…I have lived in HK since 89 and understand by now the direction of what works and does not work.
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