Europe Is Now China's Sweatshop As Great Wall Starts Building Cars In Bulgaria

Tyler Durden's picture

When it comes to labor-wage parity, nowhere has this topic been more debated than in the context of China and the US. Specifically, with US wages declining consistently for the past 3 years despite commodity price inflation spiking with a 2-3 month lag following every coordinated central bank printing episode (such as the one we are experiencing now), many have proffered their predictions as to when Chinese secular inflation would make wage pay equivalent on both sides of the Pacific, and stop the exporting of jobs from the US to China (a good discussion on the topic can be found in "With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?"). And while labor equivalency between China and the US likely still has a ways to go, we have now crossed a critical Rubicon, as Chinese and European wages, at least in one part of European Union, have caught up. Net result, as Spiegel reports, carmaker "Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union in the latest move suggesting the country's carmakers are seeking to establish a beachhead into the European market." Yes, that's right: it is now cheaper for China to make cars in the European Union: "It used to be that European carmakers opened plants to assemble their cars in China. Now the Chinese have turned the tables with the opening of their first factory in Bulgaria, an EU country with low labor costs and taxes. Increasingly, Chinese carmakers are setting their sights on the European and American automobile markets." The ramifications of this landmark development are massive for virtually every aspect of the economy: for domestic labor migration, for inflation, for the trade balance, and certainly for US workers.

From Spiegel:

Bulgarian Prime Minister Boyko Borisov on Tuesday attended the opening of Great Wall's new factory in the northern Bulgarian village of Bahovitsa. The plant is to be operated jointly by Great Wall and the Bulgarian firm Litex Motors.

 

For years, European carmakers like Volkswagen have established large joint ventures in order to gain footholds in the Chinese market, but now the tables appear to be turning.

 

"Stepping on the European market is our strategy," Great Wall CEO Wang Fengying said at the opening festivities.

 

Within three to five years, the company plans to produce an entire line of models in Bahovitsa to be sold in Europe, she said. Test assembly of the Voleex C10 and the Steed 5 pick-up truck, which sell for 16,000 to 25,000 leva (€8,200 to €12,800), began already in November.

 

In the midterm, Great Wall plans to assemble around 50,000 automobiles per year at the 500,000 square meter plant. The number of workers is expected to grow from the current total of 120 to 2,000. Initially, the company plans to sell its vehicles primarily in Bulgaria and neighboring Eastern European countries like Serbia and Macedonia, but it later plans to expand into other EU countries.

...

Great Wall is China's largest manufacturer of sports-utility vehicles and operates plants in around a dozen countries, including Russia, Indonesia, Egypt and Ukraine.

Yesterday Bulgaria, a poor EU member, but an EU member nonetheless...

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.

...today Greece

...And tomorrow all of Europe, and then America?

So the real question is if Chinese wages can no longer compete with those in a poor EU member, just how high are they? And how long before China, for so many years a happy mercantilist importer of Bernanke's monetary inflation courtesy of its currency peg, is no longer competitive with ever growing parts of the EU, and then America? Does this mean that China's cheap labor force has pleateaued and the labor migration of peasants moving from the periphery to the cities no longer provides cheap labor? This was the topic of an extended analysis by SocGen from early January (posted here), of which the salient chart is presented below. Today's news will certainly force everyone to have a second long, hard look at the chart in the top left as it means that the Chinese labor force may indeed have topped out.

Aside from demographics, the macroeconomic implications on foreign trade and capital flows are monumental: most immediately for the US, it puts today's Wal Mart miss in a very different perspective, as it means that China is no longer the source of cheap commoditized produce, which in turn means that the entire discount retail vertical may have entered the secular sunsetting phase. It also means that Chinese producer margins are about to turn negative, and China is about to replay all the same EPS boosting gimmicks that America has gone through in the past 3 years, only in China, where there is no safety net, no jobless insurance claims, no EUCs, and no extended benefits (not to mention anything else), a wave of terminations will lead to far more unpleasant consequences than a bunch of unemployed people sitting on their coaches playing Xbox and watching GOP presidential debates. Most importantly, it means that going forward China will have zero tolerance for Fed monetary expansion as any hot money will immediately set off an inflationary forest fire as China suddenly finds itself with absolutely no output gap slack (unlike America which allegedly has more than enough, even though it is really just a secular regression to the mean shift).

In short, the implications, both good and bad, are huge.

And while this may be merely the proverbial canary in the Bulgarian coalmine for now, it will soon be followed by a murder of crows and then a kettle of vultures. Because the Pandora's box has just been opened.

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bogey4's picture

I'm sorry but Bulgaria is not Europe.

slaughterer's picture

The Chinese own us all already.  We just do not fully realize it yet.  

Careless Whisper's picture

just a matter of time before they open a car plant in detroit.

Coke and Hookers's picture

The Chinese already have significant operations in the third world so why not Detroit? ;-)

Michael's picture

That stupid cunt Pelosi is also a bitch.

Now you know the reason for my avitar.

Harlequin001's picture

and soon we will all be competing for these new low paid jobs...

Welcome to fiat nirvana...

trav7777's picture

china builds totally shitty cars that nobody wants...the only place in europe that would buy them IS bulgaria and other trash countries

Snidley Whipsnae's picture

Lest we not forget; "Along with other Central and Eastern European vehicles marketed in the West during the 20th century — such as Lada and Škoda - the Yugo was subjected to derision by critics who pointed to its use of old-generation Fiat technology and to alleged issues with build quality and reliability. The Yugo was voted Car Talk's worst car of the millennium."

http://en.wikipedia.org/wiki/Zastava_Koral

EmileLargo's picture

Skoda has had a huge turn around. It is now one of the most reliable cars in the world. Volkswagen bought it and turned it around

Matt's picture

Judging by their choice of Bulgaria, I would expect them to open their car plant somewhere like West Virginia, or Arkansas.

smiler03's picture

I think the Chinese might have a shock when it comes to selling cars. Most "engineered" products from China have a built in obsolescence time of about two weeks. Unless they can dramatically change this then their cars will just be considered the "Lada" of Europe.

On a positive note this can only improve the Bulgarian GDP. 

http://uncyclopedia.wikia.com/wiki/Lada

Buckaroo Banzai's picture

An old Russian joke: If you see a Bulgarian in the street, beat him. He will know the reason why.

LetThemEatRand's picture

Weren't Russians of that era evil Commie Ruskies?   I guess when anyone says something really unpleasant and derogatory about another entire country full of people -- no matter how much you disapprove of the person speaking --  you approve.  Nicely done.  

Buckaroo Banzai's picture

What the fuck is wrong with you? It's a joke. Get over yourself.

prole's picture

You are the biggest joke on this forum

LetThemEatRand's picture

No you are the biggest joke.  Everything you say bounces off me and sticks..  Or it is rubber and I'm glue.... Or something.  Asshat.

Harlequin001's picture

The Russians weren't very good at jokes, were they...

chindit13's picture

I remember this one.....

A group of Soviet soldiers are listening to a speech by a senior apparatchik extolling the virtues of Communism.  The speaker says, "Soon, our glorious People's Aircraft Company will be producing private jets so that every comrade will have his own."

One of the soldiers speaks to another, "Igor, why we need jets for everyone?"

The other replies, "Boris!  You idiot!  What if you are in Minsk and you hear there is bread for sale in Kiev?"

AndTheRest's picture

In Soviet Russia, Joke gets You!

Harlequin001's picture

with all this debt and plunging wages you soon won't be able to afford anything but a Lada of Europe...

Cathartes Aura's picture

still waiting for someone to mention the rising costs of gas for all these cars, and jobless owners. . .

laomei's picture

Actually Chinese cars have improved by leaps and bounds and are quite economical now.  Not the safest little cars on the road, but they are cheap and it's more economical to build them in Europe than it is to export them... with the additional benefit of not having to slap "made in china" on them, which sets aside many fears and concerns regardless of it not making any real difference.

 

Question for ya... you need a new car, you don't need it do to very much, but you want gadgets and a decent ride with good fuel economy.  5k euro is totally something worth considering.

 

What do you think would happen in the US if it was poassible to get a QQ for $4k~$6k new?  Your other options being very overpriced new cars or a used car with problems that will cost even more than that?  Hell, you take the QQ, I know I would.  Cheap to buy, cheap to repair and if it completely dies you won't be out a huge amount of money.

Matt's picture

Europe already has some cheap local cars, like the Dacia. I don't know if they fixed the problems with them or not, but the chinese cars had low compression and poor emissions, so they caused a lot of pollution. And we aren't just taking CO2, we're talking back to the 80s smog.

prole's picture

They won't open any plants in Detriot, until they can BUY Detriot.  (They already can, I mean until our traitors let them)

If they can only open plants, once our traitors let them do that, which I don't know if they will, because the Chinese will make much better cars than "we" do, they will prefer to open plants in Carolina, Texas.

trav7777's picture

have you ever actually SEEN a chinese product made by a chinese company?

prole's picture

uhhhh, like this computer I'm using right now for example?

Have you ever seen a "Walmart store?" It's filled with Americans like me happily merrily handing over their dollars for Chinese gear. IF-- and I say IF  this stuff is such Krap, how come we customers keep going back?

Look I get it: You don't like Chinese Gear. Fine with me. I'm not telling you what to like or what to buy. Please be free, exercise your freedom. But why are people telling me I can't buy a Chinese car? Who are these fvcking cocksuckers? I don't care if you want to buy a Chinese car or not. But why are these imbeciles not allowing me to purchase the car I want?

If I am not allowed to buy a Chinese car I'm going to sell me car and buy the best condition Pinto I can find just to spite that fvcking retarded anti-Rand Commie.

trav7777's picture

I don't shop at walmart.

Yes, there are millions of you handing your money over for chinese shit.  that is why I call you idiots.

The people telling you you cannot buy chinky cars are the ones who will have to extricate your half-dead body from the thing if you collide with a stop sign.

smiler03's picture

Where are you Akak with the blobbing monologue?

laomei's picture

Chinese cars have honestly gotten much much much better than they used to be.  And they will continue to get better as well.

 

Chinese products can also be very high quality... it all really just comes down to what importers are willing to pay for.  There's more profit to be made on cheap crap that breaks than there is on high quality stuff that lasts.  And it's really as simple as that.  As China moves up the value chain and poor quality is no longer a viable option for plants (as it loses government support), all you'll see is that blame shift on to some other country and China will have it's own niches... much as Japan and Korea have done.

Buck Johnson's picture

Just wait until they start coming to america because of our cheap labor.  You can almost see the implosion of our economy and future even now.

LetThemEatRand's picture

We are truly in a race to the bottom.  The amazing thing is that so many are cheering it on. How brilliant to convince the sheep that more of their wool needs to be sold to buy a bigger and more efficient slaughterhouse. 

LowProfile's picture

See, there you go again, sounding rational for a change.

No matter.  You'll say something statist in a few minutes or so and wreck it, I'm sure.

LetThemEatRand's picture

It's called complex thought and complex solutions, Low Profile.  Not everything is solved with simple ideology.  The same oligarchs who are building the slaughterhouse have you convinced that the answer is to further eliminate the checks and balances that we need to keep them at bay.  Like labor laws enforced by the State.   I'm teeing it up for you on purpose.  Tell us all about why the oligarchs would stop behaving badly if we just stopped regulating them or forcing them to bribe public officials.

Stack Trace's picture

But I thought trickle down economics worked and that rich people created jobs. /sarcasm off

StychoKiller's picture

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence.  Destroyers seize gold and leave to its owners a counterfeit pile of paper.  This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.  Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.  Watch for the day when it bounces, marked, 'Account overdrawn.'"

"When you have made evil the means of survival, do not expect men to remain good.  Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral.  Do not expect them to produce, when production is punished and looting rewarded.  Do not ask, 'Who is destroying the world?  You are."

Burnbright's picture

Or it could be the Oligarchs have you convinced that regulations actually regulate the oligarchs and not ordinary people like yourself, allowing themselves a great ogopolly. 

Keep telling yourself regulations actually acomplish something orther than pricing compitition out of the market. 

Kobe Beef's picture

That's how the chaebol system works in Korea. Wow. Global chaebolism. ugh. I just threw up in my mouth. Tastes like kimchee.

Matt's picture

So you think we should deregulate nuclear power and let anyone who wants to, to build a nuclear reactor? what about nuclear bombs, should anyone be able to have one of those?

I mean, the main libertarian property rights counter argument is that if you damage someones property, they will sue you, but what if you are long dead before that happens? how do you punish dead people to stop living people from doing the same thing?

Eally Ucked's picture

you must be a bit under educated, before you post check your facts. As of latestes info Bulgaria is the state bordering California, on the right hand and a bit up from it.

ACP's picture

Hey, don't flame this guy, he's right. Bulgaria still has a work ethic...

...that is, until they get an evil, fat central banker who wants to destroy said work ethic and brainwash the public into thinking the path to freedom is eternal dependence upon the government, ahem, central bankers.

Bunga Bunga's picture

Bulgaria is an EU member.

Average labor cost in Bulgaria is EUR 1.51, while EU average is 19.65 EUR. Minimum wage is 75 Euros/month. I guess it's already cheaper than China if you account for shipping and import tariffs.

http://www.investbulgaria.com/CostOfLaborInBulgaria.php