Your editor is heading in to Washington D.C. this morning, so it’ll be a shorter Money Weekend than usual…
Where do you look to after China?
This week The Wall Street Journal reported:
“Now, the head of Li & Fung Ltd says the times are changing. Wages for the tens of thousands of workers his Hong Kong-based firm indirectly employs are surging: He predicts overall, China’s wages will increase 80 per cent over the next five years. That means prices for Li & Fung’s goods will have to rise, too.”
It’s something we’ve considered over the past few years. And it’s part of what has been troubling your editor in recent weeks… more on this during the week.
If China’s wages and other costs of production rise, how will it cope.
Think about it. China’s manufacturers have a competitive advantage thanks to their low costs.
But if, as is happening, costs are going up, that’s going to create big problems for the Chinese economy… and big problems for the economies that supply China.
So, if China and its suppliers are set to lose, which countries are set to gain?
According to an email sent to your editor late this week by Diggers & Drillers editor, Dr. Alex Cowie:
“According to The Economist, between 2000 and 2010, six of the world’s fastest growing economies were in Sub-Saharan Africa. The only BRIC (Brazil, Russia, India and China) country to make the top 10 was China, which came in second behind Angola – the fastest growing country in the world.”
That’s not all. The same email noted:
“The International Monetary Fund (IMF) says Africa will own seven out of the top 10 places for fastest growing economies between now and 2015. The World Bank raised its forecast for economic growth in Sub-Saharan Africa to 5.3% for 2011 – the highest forecast rate of growth outside Asia.”
What do we make of it? Simply this: China’s going to get the… erm… China treatment.
Economies with the ability to compete directly with China on price will do exactly that. And that’ll create a lot of problems for the Chinese economy.
And it will also call into question the huge infrastructure and building growth. Remember, China has built entire cities based on the anticipated urbanisation of the population.
Anything that slows the economy will necessarily involve slowing urbanisation and that means excess capacity – unoccupied buildings, unused warehouses, closed factories and empty ships.
Anyway, the Africa story isn’t new. In fact, it’s a story Diggers & Drillers editor, Dr. Alex Cowie has been banging on about to his subscribers since last year.
If you’d like to know Dr. Cowie’s favourite African stock tip, click here to read his latest special report.
Money Morning Australia
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
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