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Global Alert From Chongqing: Foxconn Strike Is An Epochal Inflection Point
Submitted by David Stockman via Contra Corner blog,
Foxconn workers are striking again—this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.
So the strikes in Chongqing are of global and potentially epochal significance. It was the two-decades-long flow of quasi-slave labor into the export factories of east China that enabled the major global central banks to go on a money printing rampage like the world has never before seen. The latter was conducted with apparent impunity because during that same period the induction of several hundred million peasants into the world’s factory system caused worldwide prices of consumer goods to fall, even as the money printers were enabling an orgy of credit-fueled spending by American and European households.
Yes, there is an extensive geography west of Chongqing, but here’s what it mostly consists of: mountains, as in the massive Plateau of Tibet; arid lands, culminating in the forbidding expanse of the Gobi Desert; and the factory-less rain forests of southwest China.
In short, there are few rice paddies west of Chongqing to drain because no one lives there. And this means the closing of the world’s cheap labor frontier is at hand.
Indeed, it had been approaching for several years now as Chinese manufacturers desperately migrated westward, attempting to perpetuate a regime of ultra-cheap factory labor. This perverse arrangement is virtually symbolized by Foxconn’s million plus workers in sweatshops throughout China—-factories which keep the likes of Apple, HPQ, Sony, Samsung and all the rest, as well as their American and European customers, in cheap gadgets, cheap electronics and cheap computers. But economically speaking, China’s cheap labor frontier has now it reached its Pacific Ocean equivalent.
So unless Mars is inhabited after all, the last two decades constituted a unique and non-replicable confluence. Accordingly, having used up its reservoir of cheap pre-industrial labor, the world economy is about ready to enter a wholly different era—-one when the massive central bank balance sheet expansion of recent years functions to crush global corporate profits, not just DM factory labor.
Folks, this is how Greenspan, Bernanke, Shirakawa, Trichet, King, Draghi and all the other central bank magicians did it. While they spent years breast-beating about their success in quelling inflation and generating enormous financial wealth effects, while intermittently fretting about “deflation”, their red hot printing presses were generating an altogether more insidious impact deeper down the economic strata.
In the developed world, they fueled household credit binges that were unprecedented. But owing to the vast mobilization of ultra-cheap labor in China and elsewhere in the EM, this credit fueled demand for sneakers, sweaters, furniture, fabrics, flat-screen TVs, computers, tablets, smartphones and the rest of the i-Gadgets did not drive up domestic prices; it was diverted to the booming export factories of east China, Bangladesh etc.
In the developing world markets (DM), on the other hand, the central bank money printers fueled a tsunami of cheap capital, thereby enabling an explosion of factory and infrastructure building and machinery and equipment acquisition. This drastically uneconomic investment boom was financed by yield hungry capital flows from New York, London and Tokyo—abetted by mercantilist currency pegging policies of the People’s Printing Press in China and other EM central banks. After all, the $4 trillion of reserves sitting in the vaults of China’s central bank were not gathered by old fashioned 19th century bankers stocking monetary acorns for a rainy day.
No, it was the handiwork of China’s red capitalist overlords in Beijing. While clinging to power for dear life, they accidently discovered the magical powers of the state’s printing presses, and that unremitting credit expansion could fuel an orgy of building and construction not seen since the pharaohs built the pyramids.
Stated differently, the inexorable consequence of currency pegging in China and the rest of the EM was an eruption of domestic money supplies and banking systems. When the EM central banks bought dollars to keep their exchanges rates low and their exports high they created vast emissions of yen, yuan, won, ringgit, rupiah and the rest.
That’s how China’s credit market debt outstanding soared from $1 trillion in the year 2000 to $25 trillion at present. And it meant that anything in the realm of manufacturing, mining, international shipping and domestic transportation and infrastructure which could be built was built. That was the consequence of endless cheap capital flowing in from global bond markets and domestic banking systems.
Needless to say, the households of Europe and America have at length reached “peak debt”. Spain had a mortgage borrowing binge, for example, that even put Los Vegas and Phoenix to shame. But now the day of reckoning has arrived. Even as the Fed and ECB keep pumping liquidity into the financial markets, they fail to notice that they are not inflating consumer borrowing, just financial asset prices.
Household Leverage Ratio – Click to enlarge
This means that the world’s ballooning capacity to produce and transport “things and stuff” can no longer be supported by exuberant, credit-fueled household spending from the developed world markets (DM). As China’s building boom comes to an end, for example, it finds itself choking on vast excess capacity to produce rebar for high rises, plate steel for ships and concrete for building highways, bridges, office buildings, factories, warehouses and practically everything else.
Indeed, with more than 2 billion tons of annual production capacity, China’s cement industry is 25X the size of its US counterpart. During 2012 and 2013, in fact, it produced more cement than did the US during the entire 20th century.
But the vast excess industrial capacity of China is only part of the central banks’ handiwork. In generating artificially cheap capital financed by fiat credit, not honest private savings from earned incomes, they also enabled the mining and shipping industries to become equally bloated. Yet the imbalances only worsen as the momentum of prior CapEx completions adds to supply—- even as demand falters.
This year will see nearly record expansion of global iron ore production capacity, for example, just as China’s stock piles soar and new orders plummet. Not surprisingly, iron ore prices have been in free fall since early 2014, and at about $80 per ton today they are already down by 60% from the $200/ton peak of 2012.
And this is not just a problem for iron ore commodity speculators or punters in the mining stocks. Instead, mining CapEx is in the process of taking an staggering plunge. The big three miners—-BHP, Rio Tinto and Vale—collectively spent $60 billion in CapEx during the peak year of 2012. That figure is already down to a run rate of $30 billion and will doubtless plunge to $20 billion or even lower as the cycle plays out.
This means, in turn, that CapEx suppliers like Caterpillar and Joy Global will also hit the skids. So will the German machinery and engineering suppliers like Siemens, as China’s orders for factory equipment, high rise elevators, locomotives, and power generating equipment also subside. And then the shrinkage will travel further up the food chain—–hitting high paid labor in the capital goods industries and the out-sourced vendors who supply, maintain and often mange these plants.
In short, the recent age of madcap central bank money printing brought a twin deformation. Its mobilization of the world’s cheap labor reservoir allowed out-of-control central bankers to pull a monetary Alfred E. Neuman. Why worry? There’s no inflation!
Meanwhile, the middle and lower income households throughout the DMs were being wrangled into debt servitude.
And now monumental excess industrial capacity will cause savage price-cutting as competitors scramble to generate enough volume and cash flow to cover the huge fixed costs and bloated balance sheets that attended the global investment boom. The obvious victim will be profit margins throughout the world’s resource extraction and industrial production food chain.
So Chongqing may be far away and hard to pronounce. But the workers striking there are actually marking a crucial inflection point. It is one that denotes the world’s central banks have painted themselves into a corner and that the global economic and financial game of the last two decades is about to change. Big time.
* * *
By Lorraine Luk and Chun Han Wong at the Wall Street Journal
Electronics company Foxconn’s offices in Tuchung, Taiwan, in June. The company said about 1,000 employees walked off the job at a plant in Chongqing, China, for several hours this week. Agence France-Presse/Getty Images
About 1,000 workers at a Foxconn plant in southwest China assembling printers and computers for companies includingwent on strike for several hours this week demanding higher pay.
The Taiwan-based company, formally known as Hon Hai Precision Industry Co. said the workers walked off the job for four hours Wednesday at its production site in Chongqing. About 20 workers went on strike Thursday morning but further details on that stoppage weren’t available.
Foxconn is working with its labor union and workers to resolve the dispute, the company said Thursday in a statement. The company said the strikes didn’t disrupt production.
Management “continuously increased production volumes, and even required individual workers to take on tasks that used to require two workers to handle. The increase in workload wasn’t compensated,” said one worker who declined to be named. He said he participated in the strike.
“Some workers are not happy because the company (Foxconn) has reduced overtime hours, a key component of their salaries,” after H-P cut orders, said a Foxconn official who declined to be named. Workers also demanded the resignation of the factory manager, he said. Also, the company had tried to lay off some workers without paying severance, the official added.
Foxconn filed a complaint with the local police, he said. The reason for the complaint wasn’t clear.
On the Weibo social-media service, users distributed images that appeared show hundreds of workers gathered outside the Chongqing facility Wednesday, waving protest banners as police officers looked on. The police presence at the factory continued Thursday, according to the worker.
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Looks nice. They don't know how good they have it. They could be cleaning body fluids from Boeings between flights at Chicago O'Hare.
The USSA could always export excess labor from Detroit, offer to pay the welfare in china, and solve 2 problems at once.
Answer for shortage of low cost labor:
Wi no mo mei king ai fon! Wi wan mo mo ni! Wi wan chi pu ho fo mei king bei bi!
Chinese with a Russian accent is tough, Boris.
You are try Japanese in Indian accent.
This is a serious question, please avoid a sarcastic answer:
Why can't they just move to another country's cheap labor, i.e. India, Philippines, Indonesia,? The number of people there could keep this game going another 20 years.
They already have, and they do, but to cheaper labor in places like Cambodia and Vietnam and Laos and probably Myanmar now.
North Koreans would die (no pun intended) to get jobs. Rumor ("V" the Rogue Economist) is that China and Russia want to get rid of Kim Jong "Un" for their planned pipelines and their modern neo-silk road trade routes going all the way to both Koreas.
K. Jong Un is a loose cannon and they don't want him around. "V" says that is the real reason "Un" has not been seen for weeks lately, at same time Nork generals have been visiting South Korea.
Cheapest labor on the planet is in North Korea, 25 million people.
They would crap their pants if they got to experience the levels of comfort and freedom America did pre nine elevs.
Africa is the last continent with dirt cheap labor left on the planet. If only those fuckers could keep from bleeding to death out their asses Foxconn would be their in a Shanghai minute.
Chinese have higher IQ;s than Europeans. Sub-Saharan Africans; 70. Moron. Useless.
USSA! U$$A!
Dr. Jim Willie is saying the Scheisse dollar which will replace the dollar and will be used within the USSA will be devalued at least twice. The USSA will be the new very poor China. So Apple can get all the docile serfs they need in the U$$A.
I believe IBM has moved part of its operations from India to SE Asia. The out sourcers have been out sourced.
I can answer your question.
Actually, Fox-conn is a Taiwanese company. Some people in Taiwan especially the rich ones dream about uniting with the mainland under one china. They are demented to think so & never stop investing in the mainland setting up joint ventures with mainlanders.
Even if they want to get out, the chinese would demand a hefty ransom & Taiwanese are left crying for help because the Taiwan govt is powerless in doing anything. Taiwan is a special case because it is not really recognized as a country in the international community. Although never told in Western media, foreign companies are like hostages over there & cannot leave without paying lots of money.
Also, once the chinese learn the skills & get things they want, they make things so hard for their Taiwanese partners so they can get rid of them like demanding exhorbitant rents & holding their merchandise. It happened to a Taiwanese department store & it was on NTDTV.
The moral of the story is: It's not worth doing biz in china after going through all the pain.
The demographics are going to kill china. The problem
isn't cheap labor so much as cheap YOUNG labor.
India is another story. Ebola is going to fix that, though. India's
one country where everybody will get it.
Liberia has great hygiene compared to India.
Like with Black Death, the survivors will be the richer.
Liked this article.
Same - like a new angle on a well-discussed topic, whatever the conclusions. Came across an interesting thought the other day. Alibaba / Amazon etc etc direct shipping models . . . how hard do they hit mass shipping models? Will they have a measurable impact on baltic dry? I have absolutely no idea. But they will impact banking profitablity as they move into testing dircet payment models. Finance industry not ready for that kind of a trim.
I gotta believe Alibaba will only exacerbate their ghost mall problem.
It's at least not about Obie, Ebola, or "soaring" PMs.
LOL. yeah it actually has some content you can think about.
Well there are always college graduates or interns for cheap labors.
just paint their color blue.
If only making something paid more than scorching the coffee beans into a tasteless pile of sludge.
Obviously, this author has never been run over by a tank.
Will it matter? Is there anyone out there still able to afford consumer electronics?
So....Carl Ichan wants APPLE to rapidly complete it share buyback/stock price ramp exercise before the Chinese figure out that APPLE could actually afford to double the pay of all the FOXCONN workers?
GO CHINA!!
Another guy paid by the CIA to write beautiful texts.
Now with photos and maps, interesting.
Lorraine Luk writes about in The Wall Street Journal Hong Kong Bureau technology.
She could put some pictures of people breaking all the way - if you took your ass Hong Kong.
hehe.
Bring in the Irish! Then the Italians! Then the Africans! Then the Latin Americans! Then the huddled masses of North America!
Oh crap. Hope this doesn't slow down iPhone shipments. I won't sleep tonight.
Someone should let the folks in Ecuador and Guatomala that theres work for them in China. Oh but there's no free welfare and foodstamps and free education and free healthcare. Oh well Im not big on rice. I know I spelled Guatomala wrong but who really cares.
There is no such thing as cheap labour .
Wealth creates wealth .
Zero-sum thinking keeps everyone poor .
See http://andreswhy.blogspot.com/2014/09/rogue-swan-tech.html
http://andreswhy.blogspot.com/2014/09/rogue-swan-weapons.html
http://andreswhy.blogspot.com/2014/09/rogue-swan-superhero.html
http://andreswhy.blogspot.com/2005/12/jethro-tull-super-hero.html
The man who created the most wealth :
http://andreswhy.blogspot.com/2008/12/most-influential-human-in-last-tho...
Everyone can be smarter , and the chinese are doing it .
http://andreswhy.blogspot.com/2014/10/prodigies-update-ii.html
Smell the coffee .Get smarter and join the club .
So CHN's Wage Base begins to crawl upwards.
Growth is progressing somewhat; and standard of living for CHN Workers are improving. Note that TWNese Companies (3rd Party w/Wage Arbitrage Interests) are experiencing the Walkouts. Any stories on CHN Firms run by their own having similar problems? It's worth looking btwn the lines for these subtle situations.
Free Traders are planting Factories elsewhere; but the race to the bottom of the Wage Rate still goes on. It's just that CHN is not so "relatively" cheap. Still a bargain considering all the "actually useful" Infrawork being done there.
That should be good news.
Well I dunno, I'd love to believe "So unless Mars is inhabited after all, the last two decades constituted a unique and non-replicable confluence" but I just dunno. If that's true it's excellent news because jobs will start trickling back to the US. If China has excess capacity that'll be their problem, not ours. And, China needs to rebuild about half their infrastructure, cleaner energy generation, maybe some toilets on the trains, all their food adulteration practices. China 3.0 will keep the overall economy humming, I think.
A one-hour strike at Foxconn doesn't ring any bells for me.
What if you just went back to no trade with China; cut off the ships; t hen all the jobs come back to America; assuming t hat's understood to be the purpose of the legislation in the first place. "like, we don't import it ; so forget it ". See, it's a big idea, but its a big problem. and it used to be that way. in 1960 we didn't import anything from China; nothing; it was illegal. could be again. why not ?
that's actually not at all what it means.
the pools of labor previously came off the farms, made their cash and went back to the farms. the newer generation comes to the factories off the farms, makes their money and gets a funny idea in their heads that they don't want to go back to the farms, and their wages do not support setting up a life in the city. still more than enough labor in the pool, it just means you move the factories to a more remote location.
Limacon: Wealth creates wealth .
Mr Bernanke, is that you? Back so soon?
Didn't Indiana Jones stop in Chongqing?
No, that was Ching Chong. :-)
Van Halen : This is a serious question, please avoid a sarcastic answer:
Why can't they just move to another country's cheap labor, i.e. India, Philippines, Indonesia,? The number of people there could keep this game going another 20 years.
They are, they're moving a shit ton of production to Africa.
Yes, I'm not joking.
And maybe that's why there are crises in Sudan, Mediterranean Africa, and now West Africa--all locations of chinese investment. Hmmm...
I confirm. A lot of chinese firms are opening in Ethiopia, where montly wages are 40 US$, compared to 200-300 US$ (and more) in China. They say that "Ethiopia is the new China".
So, the end of cheap labour will be when Africa will go on strike!
His name was fonzannoon
wow, the news cycle absolutely is short and getting shorter and shorter.
So, we'll all just forget Fonz and pretend our lives will be fine?
WRONG! We all knew Fonz and enjoyed his comraderie!
We are better off having known Fonz
HIS NAME WAS FONZANNOON
What happened to Fonz?
Banned by Tyler's I've read, although I cannot get to the crux of why. Prior commenters mentioned a disinformation campaign about stock v flow. Would love to hear more from those who know.
"I cannot get to the crux of why"
I asked the same question yesterday, and got some answers here:
http://www.zerohedge.com/news/2014-10-09/ebola-pandemic-hits-germany-tur...
no, he was banned for jumping the shark on a racially sensitive subject, ZH does have a racial discrimination policy
has nothing to do with what views he holds on the economy, plenty of posters have different views on the economy and discuss them openly, that won't get you banned
A racial discrimination policy?
LOL! Have you read any of the stories here on Ferguson? The comments sections are like a Stormfront class reunion...
I can't imagine WHAT this Fonz guy could have written that would make him stand out from that crowd.
If shit is being made in Africa by these companies, better soak your iPhone in bleach before you use it. Hell, throw the box in the bucket of bleach before you even open it.
Naw, bleach would wreck the screen, just microwave it first!
6.9999999 billion go on stike for a credit limit raise to keep spending.
ok, i think wall street, london, eu and kong will comply. china will keep pegging and convert reserves for even more infastructure buildout. whats 25 trillion. 50 trillion with stairways to mars!
hell, even elevators for fat mericans, wtf a few zeros here and there as long as you all keep the faith it goes on til one of the theives breaks ranks...
so, i hear a thieve ot two is shorting the ponzi, icon, bloomfuck, buffy, ???, maybe even a bond king or queen. ha, don't forget marc said it a hundred times. wow, maybe pay matters...
as the dolla dies with a few bunker busters, kinda like the 4 of july, ha...
sleep tight, everything will be alright, rocka bye baby...The main benefit of unions has been to better distribute labor the rewards of labor. This gives more people a path to finding real and fulfilling work. The cost of inequality is taking a toll on our culture. Robots and new technology have streamlined and increased productivity and at the same time eliminated many jobs. Unions are only part of a much bigger picture in a fast changing world. In the long run do we save money when we shift jobs off to a distant land?
Many other issues exist such as the role of big business, it is good for big business but not necessarily for the masses. Consolidation often means a gain in efficiency, but this often comes at the cost of losing diversity and a "robustness" to both society and the economy. The benefits of efficiency sometimes have a huge hidden cost. How the fruits of labor are divided is important, this includes not just the wage deserved by a common laborer, but how much those in management, top CEO's, and those that can't, or choose not to work, receive. The article below delves into this important and complex world wide issue.
http://brucewilds.blogspot.com/2013/04/society-must-better-divide-labor....
Tyler's ban Fonz but leave this self-absorbed prick to whore his blog? I need a new fight club.
FT had an interesting quote yesterday. 64% of China's millionaires have already or are planning to get the feck out of China. Escaping pressure, pollution as well as seeking a better future for their children were cited as the main reasons. Another New Bolshevik creation.