Category: RoW

Markets Are Complicated: Foxconn in Tamil Nadu edition

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I wrote this just yesterday, that what “worked in the 1970’s for a village in India will work very differently for a city in China in the 2020’s”.

And as if to do me a favor, RestofWorld.com came out with a lovely story about Foxconn’s struggle to make iPhones in India. As always, please read the whole thing, but if you’re looking for great examples of why getting markets to work across time and space is difficult, this is a great example.

Lots of great takeaways, beginning with this chart:

https://restofworld.org/2023/foxconn-india-iphone-factory/

But data and charts aside, this article is worth reading for fascinating little snippets on the intersection of culture and labor markets:

  1. “In India, Apple’s suppliers have to contend with local policymakers, landowners, and labor groups. The country lacks China’s vast network of material and equipment makers, who compete for Apple orders by cutting their own margins. “Apple has been spoiled in China,” a senior manager at an Apple supplier, who was recently deployed from China to India, told Rest of World. “Here, except labor, everything else is expensive.””
  2. Foxconn has hired women in Tamil Nadu for the most part, and this, it turns out, is how they started off in China as well. Women have, in China, moved now to “less arduous service sector jobs”.
  3. “Hiring a young, female workforce in India comes with its own requirements — which include reassuring doting parents about the safety of their daughters. The company offers workers free food, lodging, and buses to ensure a safe commute at all hours of the day. On days off, women who live in Foxconn hostels have a 6 p.m. curfew; permission is required to spend the night elsewhere. “[If] they go out and not return by a specific time, their parents would be informed,” a former Foxconn HR manager told Rest of World. “[That’s how] they offer trust to their parents.””
  4. “Foxconn also had to find a workaround for employing married women. The company typically requires workers to pass through metal detectors when entering and exiting its factories in order to prevent leaks about upcoming products, according to reports. But in India, married women wear a mangalsutra, a metal pendant; and a metti, a metal toe ring. These workers are searched manually and have their jewelry logged in a notebook.”
  5. “They recounted how a Chinese Foxconn worker became frustrated with a junior Indian technician who repeatedly failed to solve a technical glitch. The Chinese worker fixed it himself and walked away. “He did not teach me,” the translator recalled the Indian worker saying timidly. “How many times should I teach?” the Chinese worker replied.”
  6. The well documented opposition to the move to twelve hour shifts finds mention here, of course, but what I found particularly interesting was the fact that China has only eight hour shifts. Foxconn relies, the article says, on lax enforcement of the country’s labor law to get around this requirement.
  7. Indian workers are getting acquainted with the neijuan culture, and the Chinese workers aren’t sure if this is, all things considered, a good thing.
  8. I’ve met my share of Indians who don’t like to eat food from abroad while traveling, because it is too smelly/exotic/<insert adjective of choice here>. So when I read about Li, a Chinese worker in India being unable to stand the smell of Indian food, and it being “all yellow and mushy stuff”, I couldn’t help but chuckle.
  9. This is probably my favorite bit from the entire article:
    “Both groups have picked up phrases from the other’s language. Sometimes an Indian colleague will greet Li with the common Chinese greeting, “Have you eaten yet?” To which Li will reply in Tamil, “I already ate.””
  10. The article speaks about workers being able to convince their families to delay their marriages, because these workers are now the main bread-winners for their families… but on the other hand, the workers also mention in the same article their fears about being too old for the company to retain them. The age of the worker in question? 26.
  11. And finally this anecdote:
    …
    “During the first week of October, the national holiday celebrating Mahatma Gandhi’s birthday fell on a Monday and created a rare two-day weekend for Foxconn employees. Li planned to visit the Taj Mahal. He would spend a good deal of the weekend in buses and airplanes, but figured it would be worth it — he wanted to have seen it before his time in India was up. But a few days before he was due to leave, Li had to cancel. Management had announced that the factory needed to stay open to meet targets. Sunday would be a workday.”
    …
    reminded me of this one from Studwell’s How Asia Works:
    “After the first steel was poured on 9 June 1973, Park Chung Hee declared an annual National Steel Day to go with the annual National Export Day he had inaugurated in 1964. This being Korea, these were working holidays.”

H/T Mihir Mahajan

Notes from Vietnam

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  1. Half the width of the footpath is for businesses, and this is formally/informally understood. The reason for the “/” is that in some cases, there is a white line running along the length of the footpath that kinda sorta officially sets the boundary.
  2. The other half is not necessarily always for walking, it can be used for parking too. In this sense, walking in Hanoi was very similar to walking in India. Some cafes actually have little wooden blocks that are kept adjacent to the footbath, so that bikes can be pushed onto the footpath. Can be used by paying customers of the cafe only, of course.
  3. Traffic is as chaotic as India, but pedestrians assume that the vehicles will stop for them (and they do). Here, of course, it is the other way around.
  4. Coffee rules. I approve. We stayed next to a lake, and sitting on one of those small chairs and sipping on black coffee is a wonderful way to spend an hour or so.
  5. I couldn’t help but wonder if the word “banh” comes from “pain” in French, which means bread. But apparently not.
  6. The drop-off in quality of visible infrastructure is as startling as it is in India. You know how the areas around where the bigwigs stay and immediately outside the airport in your city are much better than the neighbourhoods where aam janta stays? Hanoi is exactly like that, but marginally cleaner.
  7. You can’t go wrong with the food, and in more ways than one. Almost all of the stalls and shops along the main roads and with fronts opening up on the streets are tourist friendly, and the food is excellent.
  8. When I say tourist friendly, I don’t mean to say the rest of the city is not friendly. I mean the dishes are tourist friendly. Which is why a food tour is recommended – because you’ll never get to even see some of the more “hidden” places. If you’re feeling adventurous, try the balut. I did, but couldn’t manage more than one bite.
  9. There is a lot more to Vietnamese cuisine than just the pho and the banh mi, and the best way to learn about it is to walk, mostly through the old part of town. Walking is also the best way to experience the city.
  10. The higher the rating for a place on Google Maps, and the more the number of ratings, the more likely it is that the place is a favorite with tourists. This is a good example, but there are many such places. This will be good food, but it won’t be truly Vietnamese. It will be a somewhat decent version of heavily touristified Vietnamese cuisine.
  11. But when you’re traveling with a ten year old, that may not be a bad thing. What are you optimizing for?
  12. But while walking to your restaurant of choice, feel free to stop and try as much of the food from the street side shops as you possibly can. Surprises abound on virtually every corner.
  13. I observed shop-owners and friends sit down for a meal in their shops, or in front of their shops, on more than one occasion. A sense of community is palpable, and if not a meal, often a cigarette and a coffee, or a beer. Wonderful.
  14. Staring at your phones isn’t a thing if you are in charge of a streetside shop. At least, isn’t as much of a thing as it is in India. Note that these things are hard to quantify!
  15. Don’t order a dish for yourself in restaurants. Order, instead, lots of small dishes and share.
  16. The food is not spicy. The flavors are, as a rule, more subtle than in, say, Thai cuisine, or Malay cuisine.
  17. Our food tour guide told us that cats are considered unlucky in Vietnam because the meowing of cats sounds similar to the word “poor” in Vietnamese. Huh.
  18. I was hoping for better bakery products.
  19. Don’t waste a meal by going into a truly fancy place. If your time is limited, have every single meal in as many local places as possible.
  20. The Vietnamese National Museum of Fine Arts is well worth a visit, and you could easily spend half a day there, if not more. The ground floor and the third floor were my favorites.
  21. Bottomline: heavily recommended!

Principles of Economics, Chinese Education Edition

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Two of my favorite things to talk about on this blog come together very nicely in this lovely blogpost from Andrew Batson.

I love to talk about whether people have asked, and thought clearly, about the answer to the question “What are you optimizing for?”. And second, opportunity costs are everywhere.

The blogpost is about “The Education of Li Keqiang”, China’s former premier who passed away recently:

The general temptation to see Li as representing an alternative school of thought and the potential for a different political trajectory is as strong as it is unsupported by real evidence.

https://andrewbatson.com/2023/10/29/the-education-of-li-keqiang/

Reading this blog post is a good way to learn a little bit about China’ modern history (and then, of course, to use these learnings to want to learn even more about China’s modern history!).

For example, did you know that college entrance examinations only came to be in China in 1977 (after 1966)? You may want to ask how students got selected in universities before that:

The makeup of the student body was curious as well. None of them had to take an entrance test to gain admission—a surprising development given that China was the historic originator of the concept of qualifying public service examinations. Many of the students we met had spent two to three years working in farms and factories; most of them, they said, got into Beida on the recommendation of the farmers and laborers they had worked with. Other students had previously served in the army and were similarly recommended.
The prerequisites for admission were simple: good health, work experience, and high “political consciousness.” Academic prowess was much less important than a student’s commitment to the ideals of the Chinese revolution and to the belief that working with one’s hands was better than book learning. As part of what Beida officials called the concept of “open-door schooling,” students were expected to extend their education beyond the classroom and to engage in street cleaning, farming, and assisting factory laborers with compiling “revolutionary histories” of their workplaces. These would help develop their moral, physical, ideological and intellectual character, we were told.
The guiding principle for all the subjects was a rigid Maoist perspective, including the doctrines of “combining theory with practice,” of “learning by doing,” and of “being socially relevant.” Students said that high grades were unimportant. Academic performance was rated as excellent, good, or fair but no one failed. Each class automatically moved from one level to another every year. Individual achievement was downplayed. Assignments were completed collectively, including the writing of essays and even sitting for examinations. In another break with tradition, where it once used to take four or six years to complete a degree like physics, the requirement had been reduced to two or three years.

https://www.amazon.in/Class-77-Classmates-Changed-China-ebook/dp/B09ZVB947W/

I haven’t read the book I’ve linked to above, and that excerpt is from Andrew Batson’s blog. But what I note is that China was not optimizing for selecting students on merit, nor was it identifying the best students on merit. You may want to quibble with me about whether judging students on merit is fair or not – but surely we can agree that this was not a good way to decide who your best students were.

Regardless of our opinions about whether this was a good system or otherwise, the Chinese themselves were quite clear that it was very far from being a good system. Soon after Mao’s death, the Chinese decided to optimize for merit. 1977 was the first time (after 1966) that students would be selected in universities on the basis of an entrance examination. Demand, to put it mildly, was high:

According to the memoirs of former vice-premier Li Lanqing, the demand for the college entrance examination was so high that the government ran out of paper on which to print the exams; the problem was solved by using paper that had been allocated for printing Mao’s Selected Works. FlorCruz’s account makes it clear how the return to exam-based meritocracy was very much a form of “class struggle” in reverse, an explicit decision to valorize the groups that had been targets during the Cultural Revolution and downgrade those (the workers, peasants, soldiers) who had been valorized.

https://andrewbatson.com/2023/10/29/the-education-of-li-keqiang/

The post goes on to tell us that Xi was a part of the 1975 batch, while Li Keqiang was a part of the 1977 batch. But in the end, it seems to not have made that much of a difference – Xi and Li were both optimizing for rising up in the CCP, and the liberalism that people “expected” from Li Keqiang therefore never materialized.

The opportunity cost of being liberal was too high, more’s the pity.

What is the Liar’s Dividend?

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Well, what is it? Here’s a definition:

The benefit received by those spreading fake information as a consequence of the environment in which there is a great deal of fake information and hence it is unclear what is real and what is fake.

The first and immediate problem with deep fakes, or pictures generated with AI, isn’t the fact that they exist. Just the idea that it could exist is enough.

Fake images are problematic in and of themselves. But they are also problematic because it is now all too easy to deny that real images are, well, real.

Amid highly emotional discussions about Gaza, many happening on social media platforms that have struggled to shield users against graphic and inaccurate content, trust continues to fray. And now, experts say that malicious agents are taking advantage of A.I.’s availability to dismiss authentic content as fake — a concept known as the liar’s dividend.

https://www.nytimes.com/2023/10/28/business/media/ai-muddies-israel-hamas-war-in-unexpected-way.html

That picture of a murdered (insert religion and nationality of choice here so as to not offend your sensibilities) child?

Real if it is a convenience for our worldview, fake if it isn’t. And it is very, very easy to convince yourself of the truth value of either of these statements, because who can tell these days?

And so fake images being fake isn’t the only problem.

Real images can also be dismissed as being fake. They are being dismissed as being fake.

The greatest trick AI ever pulled, it turns out, was in convincing the world that it might exist.

Here’s the original definition of the liar’s dividend:

Hence what we call the liar’s dividend: this dividend flows, perversely, in proportion to success in educating the public about the dangers of deep fakes

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3213954

Realize the utterly delightful paradox: the better we get at convincing people of the problem of deep fakes, the easier it is to convince them that parts of reality itself are fake.

If you want to make your Monday even cheerier, do read the whole paper.

Ross Douthat and Noah Smith on Asia (kinda)

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The reason I say kinda is because Ross Douthat’s column is titled “Why We Should Fear More Than Middle Eastern War“. Noah Smith’s post, on the other hand, is titled “Asia Is Much More Important to US Interests Than The Middle East“.

But both are really talking about the same thing, if for slightly different reasons: the real fight for the USA is going to be with China, and therefore Asia is what President Biden (and whoever comes next) needs to focus on.

Here’s Ross Douthat:

“It makes sense to talk about China, Iran and Russia as a loose alliance trying to undermine American power, but it is not a trio of equals. Only China is an arguable peer of the United States, only China’s technological and industrial might can hope to match our own, and only China has the capacity to project power globally as well as regionally.”

And here’s Noah:

“The EU and the UK together have more than enough people, industrial capacity, and technology to defend against Russian aggression indefinitely with minimal American assistance, should they choose to do so. The only reason the U.S. remains key to Ukraine’s war effort is that Europe has been reluctant to step fully into that role. Over time, that will hopefully change. But in Asia, China is so strong that U.S. power is indispensable.

In sum, Asia wants and needs the U.S. to protect it. It needs U.S. military power and economic engagement, not to crush China, but to preserve the status quo that has worked so well. Developed Asian countries want to keep being rich and free, and developing Asian countries want to keep getting rich on their own, and to do this they need the U.S. to deter Xi Jinping from trying to upend the modern world’s greatest success story.”

Wish it away as much as you like, there is likely to be a showdown of sorts between America on the one side, and Russia, China and Iran on the other. Who else will be with America, and to what extent (and for what reasons) will only become clearer with time, and ditto for the other side. But it is coming – like I said, like it or not.

By the way, Noah Smith has advice for the United States about how to go about getting the answers to the questions I raised in the previous paragraph:

In Asia, meanwhile, the U.S. should be beefing up both our defensive power and our engagement with other countries. We need to accelerate the supply of defensive weapons to Taiwan, Japan, Vietnam, India, and the Philippines, and to keep building and strengthening and expanding multilateral organizations like the Quad. We need to re-engage economically by re-joining the modified TPP, and by creating a dense network of other economic agreements in Asia. And in general, we just need to pay a lot of attention to the region, making sure our allies and quasi-allies and potential allies know we’re there for the long haul, and won’t suddenly withdraw to go plunge into some foolish conflict in the Middle East.

https://www.noahpinion.blog/p/asia-is-much-more-important-to-us

In effect, both Ross and Noah are asking Biden a question I am fond of asking here (and they’re answering it for him too): what are you optimizing for?

And both of them are saying that America should be optimizing for going up against, and not being defeated by, China.

(The way I chose to frame that last sentence is striking to me, by the way, and I realized it as I was typing it out: not being defeated by China. Not, you understand, defeating China. Quite telling, no?)

Why does this matter for the USA?

China hawks tend to argue that losing a war over Taiwan would be much worse than our post-9/11 debacles, worse than letting Vladimir Putin hold the Donbas and Crimea permanently. You cannot definitively prove this, but I think they’re right: The establishment of Chinese military pre-eminence in East Asia would be a unique geopolitical shock, with dire effects on the viability of America’s alliance systems, on the likelihood of regional wars and arms races and on our ability to maintain the global trading system that undergirds our prosperity at home.

And it’s at home where I fear the effects of such a defeat the most. America has experience losing wars of empire — in Vietnam and Afghanistan, for example, where we were extending ourselves without putting our full might into the fray. But we have no experience being defeated in straightforward combat, not guerrilla war, by a great-power rival and ideological competitor.

Whatever anxieties you have about our current political divisions, whether you fear left-wing disillusionment with America or right-wing disillusionment with democracy or both, such a defeat seems more likely than anything to accelerate us toward a real internal crisis. Which is why, even with other foreign crises burning hot, a debacle in East Asia remains the scenario that the United States should be working most intensely to avert.

https://www.nytimes.com/2023/10/21/opinion/china-taiwan-war.html

And what about India? What is our position, and what should be our position?

The really big wild card here is India, which has a huge population and a reasonably hefty economy. The USSR was India’s protector during the Cold War, and much of India’s military equipment still comes from Russia (though this is starting to shift). So India can’t be expected to enter into any conflict against Russia. But China is a very different matter. China is India’s main military threat, and the two countries have come to blows recently over a disputed border. They are also rivals for influence in the Indo-Pacific region. This is why India has joined the Quad, forging a loose quasi-alliance with the U.S., Japan and Australia whose purpose is obviously to hedge against China.

https://www.noahpinion.blog/p/the-war-economy-sizing-up-the-new

We live in interesting times. On that score, there is no doubt.

One person worth following on Twitter on this topic is Elbridge Colby. This is his pinned tweet, if you’re asking why he is worth following on this issue:

Bottomline: buckle up. Life is about to get very interesting indeed.

Health in America (and Goodhart’s Law)

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Is it better to spend a lot of money on healthcare, and not get great results, or it is better to not spend a lot of money on healthcare, and not get great results?

The United States of America tries to generate data that answers at least the first half of that question:

The country spends about $4.3trn a year on keeping citizens in good nick. That is equivalent to 17% of GDP, twice as much as the average in other rich economies. And yet American adults live shorter lives and American infants die more often than in similarly affluent places.

https://www.economist.com/business/2023/10/08/who-profits-most-from-americas-baffling-health-care-system

And if you are even remotely interested in the question of healthcare and how to get it to work for a country, you know, of course, about pharmaceutical firms and hospitals in America. But in a fascinating article, The Economist tells us about the middlemen in America’s healthcare system.

https://www.economist.com/business/2023/10/08/who-profits-most-from-americas-baffling-health-care-system

What do middlemen do? At their best, they can literally create markets. They can provide useful information to market participants, they can make markets more efficient by reducing search and transaction costs, they can lower risk and they can provide additional services. Has AirBnB made travel easier because of all of these factors? That’s what a middleman can do. So both this post and The Economist article aren’t a complaint about middlemen.

But that being said, the dose does make the poison. If middlemen make the markets more efficient, their revenue expressed as a percentage of national health expenditure shouldn’t be going up much, right? It certainly shouldn’t be nearly doubling!

So what’s going on?

  1. What does the healthcare market consist of? Doctors and patients, of course. But what connects, enables and facilitates interactions between both sides of the market? That’s the “plumbing” of this market – the middlemen. These are the insurance firms, the chemists, the drug distributors and the pharmacy benefit managers (PBM’s). As The Economist puts it, these entities don’t make drugs, and they don’t treat patients.
  2. And yet, they got to keep about 45% of America’s “health-care bill”. Those must be some fancy pipes!
  3. So here’s what happened. Back in 2010, the American government said to insurers that they could no longer eat away at all those dollars in America’s healthcare system. No more than 15% to 20% of collected premiums can end up in your pockets as profits. A measure (profitability) became a target (market efficiency to be defined by limiting profits).
  4. And in these parts, we know what comes next, correct?
  5. “But it imposed no restrictions on what physicians or other intermediaries can earn. The law created an incentive for insurers to buy clinics, pharmacies and the like, and to steer customers to them rather than rival providers. The strategy channels revenue from the profit-capped insurance business to uncapped subsidiaries, which in theory could let insurers keep more of the premiums paid by patients.”
  6. And well, these middlemen went out and bought these “uncapped subsidiaries” – some $325 billion worth of them. Or a 130 different mergers and acquisitions, if you like more than one metric.
  7. So now your healthcare market looks like this: patients go to get treated by doctors. Patients are “connected” to doctors via the plumbing provided by middlemen. But now, the plumbing “owns” the doctors!
  8. Which is when, as an economist, you should want to use the “i” word. What will be the incentive of the doctor? To give you the best treatment possible, or to reduce costs as much as possible for their corporate structure? If they can choose only one among these, which are they likely to choose?
    “For example, many studies have found that after hospitals acquire physician practices, prices increase but quality of care does not. A health-care company that controls many aspects of patient care could raise prices for rivals wishing to access its network. Some also worry about physicians being nudged towards offering the cheapest treatment to patients, lowering the quality of care.”
  9. One shouldn’t throw around such claims or hypotheses without backing it up with data. Is it actually the case that these middlemen are earning excess returns?
    “America’s health-care intermediaries are indeed unusually profitable. Research by Neeraj Sood of the University of Southern California and colleagues found that intermediaries in the health-care supply chain earned annualised excess returns—defined as the difference between their return on invested capital and their weighted-average cost of capital—of 5.9 percentage points between 2013 and 2018, compared with 3.6 for the S&P 500 as a whole.”
  10. Maybe these excess returns will attract competition, and maybe competition will make markets better? Paging Amazon!
    “Perhaps the biggest disruption to big health could come from Amazon. In 2021 its health-care ambitions suffered a setback owing to the closure of Haven Healthcare, a not-for-profit joint venture with JPMorgan Chase, the biggest bank in America, and Berkshire Hathaway, the biggest investment firm. Haven had aimed to cut health-care costs for the trio’s own staff. But despite Haven’s failure, Amazon is still expanding its health-care business. Last year it paid $3.9bn for One Medical, a primary-care provider. It runs Amazon Clinic, an online service offering virtual consultations, and RxPass, which lets members of its Prime subscription service buy unlimited generic drugs for a small fee. John Love, who heads Amazon’s pharmacy business, believes that the tech giant’s focus on customer experience, combined with its vast logistics network, makes it well-suited to shake up the industry.”
  11. But you’d be surprised at how complex any market can be. And healthcare markets are (trust me on this) a whole other story:
    “The entrenched firms have built their networks of doctors, hospitals, insurers and drugmakers over decades. Replicating that takes time and institutional knowledge. Mr Cuban admits that it is difficult to get drugmakers to list branded drugs on his pharmacy, as they are wary of upsetting the large pbms. And without branded drugs and the support of large health insurers, his firm’s reach remains small. The cap on insurers’ profits makes life tough for upstarts in that business, which struggle to compete against the negotiating power of the integrated giants.”
  12. Designing policy around healthcare markets is, as it turns out, quite the challenge. And it is very likely to be a case of one step forward and two steps back at worst, and two steps forward and one step back at best.
  13. But it is oh-so-important to take those steps, and having taken them, to ask if they are taking us in the right direction. Onwards!

Bloomberg on Pakistan’s Endless Economic Crisis

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Robin Brooks on the Whispers from Marrakesh

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Industrial Policy, China Ishtyle

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USD 35,000. That is 29 lakh rupees, give or take.

Imagine you were a public policy analyst working for the Indian government, and an Indian carmaker came to you and said, “I’d like to sell cars, but I haven’t figured out a way to do so profitably just yet. I’d like you to cover my losses per car that I sell, until I turn profitable.”

“OK…”, you respond cautiously. “And how big are your losses per car sold?”

“Well, not much. About USD 35,000. Yes, per car.”

You gulp, the way cartoon characters do when they’re nervous.

“So what kind of support are we talking about in total?”, you ask.

Nio and other companies in China’s sprawling electric car sector have formidable government backing that allows them to withstand such losses and keep growing. When Nio nearly ran out of cash in 2020, a local government immediately injected $1 billion for a 24 percent stake, and a state-controlled bank led a group of other lenders to pump in another $1.6 billion.
Today Nio embodies China’s dominance of electric vehicle innovation and manufacturing, underlining its threat to traditional auto powers in Europe and the United States.

https://www.nytimes.com/2023/10/05/business/nio-china-electric-vehicles.html

“And oh, by the way, I’m also going to launch smartphones, but it’s all good, this is all part of the plan.”

  1. This particular carmaker, Nio, employs 11,000 people in R&D alone.
  2. This particular carmaker, Nio, sold 8,000 cars in the quarter ending June 2023.
  3. It employs 30 (not a typo) technicians to make 300,000 electric car motors a year.
  4. Losses of $835 million in the quarter ending June 2023.
  5. The typical worker in Shanghai, China, earns about $30,000 per year. A worker in rural china will earn lesser.
  6. A typical worker in America earns $110,000 per year. The striking workers want a 40 percent pay raise over four years, plus a paid day off each week.
  7. “Paul Gong, head of Asia automotive research for the bank UBS, predicted that Chinese carmakers would capture a third of the global car market by the end of the decade. Much of the growth in his forecast is a jump in Chinese carmakers’ share of the European market to 20 percent, from just 3 percent now. In China, he said, “the competition is so fierce that it pushes every automaker to develop new technologies.”
  8. Speaking of new technologies – Nio’s product launches saw it sell 18,477 cars in the quarter ending in September.
  9. So what would you do, if you were a European or an American (well ok, maybe not American) automobile manufacturer?
    “In July, Volkswagen paid $700 million for a 4.99 percent stake in XPeng, a money-losing Chinese electric car start-up, putting a valuation of $14 billion on XPeng. Nio received assistance from the Hefei local government, but XPeng has acknowledged assistance from the local government in Wuhan, also in central China. Volkswagen announced in April that it would build a $1.1 billion car development center in the central China city of Hefei. VW will hire 2,000 engineers to do work previously performed at its headquarters in Wolfsburg, Germany, for cars manufactured in China.”
  10. And sure, Nio may be making losses, but BYD posted profits of $1.5 billion. With demand for ICE (internal combustion engine) cars next to non-existent since 2017, Chinese car makers are looking to sell to the world at throwaway prices.
    ” “Why have they driven into exports? Because they have to — what are you going to do, close a factory?” said Bill Russo, a former chief executive of Chrysler China who is now chief executive of Automobility, a Shanghai consultancy.
    All over the world, Chinese automakers are taking market share. Steel and electronics used in cars are cheap in China, giving automakers here an advantage. Local governments in China also give the companies nearly free land, loans at near-zero interest and other subsidies.
    After years of quality gains and technology improvements, Chinese cars, even ones with out-of-fashion combustion engines, are turning heads at industry events like the Munich auto show this week.
    In Australia, Chinese automakers have passed South Korean rivals in sales, and are catching up with Japanese competitors. China has also expanded exports quickly to Mexico and Britain, and is beginning to increase shipments to Belgium and Spain, which have important car-unloading ports that serve as a gateway to other European Union countries.”
  11. And this shows up in a variety of mind-boggling ways:
    “Chinese automakers like BYD and Chery, and the European and Singaporean shipping lines that transport cars for them, have placed almost all of the orders now pending worldwide for 170 car-carrying vessels. Before China’s auto export boom, only four a year were being ordered, said Daniel Nash, head of vehicle carriers at VesselsValue, a London shipping data firm.
    The incentive to build more ships is clear. The cost per day for an automaker to hire a car-carrying ship has soared to $105,000, from $16,000 two years ago, Mr. Nash said. BYD is spending close to $100 million apiece for the construction of what will be the six largest car carriers ever built. Most of the vessels are scheduled for completion in the next three years.”

Prices and Substitutes Matter, China Edition

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