WHY YOU SHOULD GET INVOLVED.

From "Reflections"

Before you judge me remember that I am trying to convince you not to make the same mistakes in China that countless others have made. Keep in mind that I may have jazzed up my story a little to make it more interesting to the reader while still telling a cautionary tale, all under the heading of historical fiction. In this situation would you rather listen to a sinner or a saint? Would you rather listen to someone who has resisted temptation or someone who has given in to it and learned a valuable lesson? Would you rather hear from a player or from someone who has never played the China game? Remember this when you hear economists, politicians and other well meaning folks who have never even stepped inside the lines tell you what you should do.

Enough lives and promising careers have already been ruined. Don't let the multinational's failed China dreams turn into your own economic nightmare. They are being sucked in by the Chinese charade as well as their own greed, ignoring all of the warning signs along the way as they continue to plow good money after bad for a Chinese auto buying public that so far has failed to materialize. Soon they will be faced with a massive over capacity and they will be looking to sell their Chinese made cars - you guessed it - back to you in the US market.

If I am correct, and I sincerely hope I'm not, this will mark the beginning of the end of American middle class life as we know it. Let's take a look at the facts.

Automobile production is the great equalizer in this country. It is the most important of all manufacturing industries. It has the highest spin off ratio of downstream jobs created at around seven or eight. It currently accounts for about 5.6% of our private sector payroll and over 3.3% of our GDP. The average compensation received by employees in the auto industry was $69,500 in 2001, or 60% higher than the average US job. We have abundant local production as well as imports from all parts of the world. American consumers can't control what comes into this country but we certainly can control what ends up in our driveways.

In early June of 2003, after being sure that most foreign auto industry executives were already infected with advanced cases of China fever, the Chinese government floated its long-awaited car industry policy. The policy is clearly aimed at turning China into a major car manufacturing base by 2007. It became effective immediately upon issue. A throw away negotiating ploy, commonly used by Chinese negotiators - to require foreign car makers to use 40% Chinese made parts was quickly dropped but more importantly the 50% Joint Venture foreign ownership limit remained unchanged, unless of course you want to set up the venture for export only - which is the real aim of the policy anyway. The policy also contained several old protectionist wrinkles such as no financing allowed for foreign autos only, foreign autos could not be sold at the same dealerships that sold domestically made autos, limited entry ports into China and cumbersome, expensive import licenses. If all of this wasn't enough to keep imported automobiles out of the China market they topped it all off with duties up to 43%! This is not the way that globalization was supposed to play out. American auto-workers - even at the top of their game, were immediately shut out of this market. There was a limited backlash in the US including a July 31, 2003 article in the Wall Street Journal entitled "Car Makers Worry China is Planning a U-Turn" by David Murphy. It explains how "after vowing to open their market, Beijing proposes barriers to foreign made vehicles." We should have backed off and insisted on a fair trade agreement at that very moment. Instead, infected with the fever, we went ahead thinking we will be able to change things later on with "constructive engagement." My experience indicates that the very first deal you negotiate in China will always be the best. There are always a series of one way concessions on the part of the foreign party that are never reciprocated. The American auto-worker has been had - again.

Despite repeated warnings of the government's intention to start cooling the overheated Chinese economy foreign automakers are still jumping in with both feet. Ignoring predictions of a massive over capacity by as early as 2007, General Motors recently announced their intention to basically double their production capacity in China to 1.3 million vehicles a year including an additional investment of over US$3.0 billion on top of the US$2.0 billion already invested since starting in China five years ago. GM is said to be "focused on the stats" which show a whopping 56% sales increase in China through April of 2004 and a quadrupling of their total profits in China in the first quarter.

Like watching a great illusionist you have to discipline yourself to look away from where the illusionist wants you to look. Scratch beneath the surface. The 56% sales increase for the first four months of 2004 is based on 2003 total sales of just 386,000 cars - vs. the 5.6 million autos GM sold in North America . According to a report in the June 15, 2004 issue of USA Today by David Lynch, "GM's profit of $437 million from China sales seems very impressive if you compare it with the $811 million profit they made in all of North America . And so far this year, that number has quadrupled." Of course that's how it's supposed to work during the early stages of "Chinese jungle capitalism."

The first shot of heroin has to feel great - or else we wouldn't have so many addicts. In order to perpetuate the China dream - you need to have some real, concrete results - and then let the foreign devils run their own projections. Old time China hands are well aware of the scam. Let's see in China there are only eight cars for every one thousand people of driving age compared to nearly one to one in the United States . The USA has 240 million people and China has say 1.3 billion. Take $437 million in profit and divide that by 386,000 cars. Then multiply that by 1.06 billion and you get... a terminal case of China fever. The only problem with this projection is that they might not be able to find a long enough hockey stick to draw the curve.

Don't forget the story of the English gentleman in the 1840's who dreamed "if we could only persuade every person in China to lengthen his shirttail by a foot, we could keep the mills of Lancashire working round the clock."

Just after the conclusion that China will be the largest auto market in the world, surpassing even the US by 2020, there is a one line, cautionary disclaimer - "It's worth remembering that China has disappointed before." Look through the smoke. Already growth is slowing. Selling prices are dropping as competition is settling in.

Our government and corporations have proved to be unwilling and unable to correct the situation. The trade wars' battle lines have advanced to auto dealerships in the US . The battle for toys, toasters, hair dryers and electronics has been lost some time ago. Automobiles are now our last line of defense.

If you're like most people nowadays you will finance your new car with a low interest five year payment plan. Do you really want to make five years of payments to China ?