China update
Not Really 'Made in China'
Yet two academic researchers estimate that Apple Inc.'s iPhone—one of the best-selling U.S. technology products—actually added $1.9 billion to the U.S. trade deficit with China last year.
How is this possible? The researchers say traditional ways of measuring global trade produce the number but fail to reflect the complexities of global commerce where the design, manufacturing and assembly of products often involve several countries.
"A distorted picture" is the result, they say, one that exaggerates trade imbalances between nations.
Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.
So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.
Judging by the din at its factory here one recent day, the Spanish company Gamesa may seem to be a thriving player in the Chinese wind energy industry it helped create.
But Gamesa has learned the hard way, as other foreign manufacturers have, that competing for China’s lucrative business means playing by strict house rules that are often stacked in Beijing’s favor.
Nearly all the components that Gamesa assembles into million-dollar turbines here, for example, are made by local suppliers — companies Gamesa trained to meet onerous local content requirements. And these same suppliers undermine Gamesa by selling parts to its Chinese competitors — wind turbine makers that barely existed in 2005, when Gamesa controlled more than a third of the Chinese market.
But in the five years since, the upstarts have grabbed more than 85 percent of the wind turbine market, aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies that are the main buyers of the equipment. Gamesa’s market share now is only 3 percent.
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The story of Gamesa in China follows an industrial arc traced in other businesses, like desktop computers and solar panels. Chinese companies acquire the latest Western technology by various means and then take advantage of government policies to become the world’s dominant, low-cost suppliers.
Wind turbines made by Chinese manufacturers sell for an average of $600,000 a megawatt, compared with $800,000 or more for Western models made from Chinese parts, and even higher prices for European and American machines. Yet, Western banks have been leery of lending wind farms money to buy the Chinese equipment because of concerns about its reliability, according to Robert Todd, the Hong Kong-based director of the renewable energy, resources and energy group at HSBC.
But with the American wind industry in the doldrums, there are few other big investments pending. The American Wind Energy Association estimates that this year only 5,500 megawatts of new capacity has been added in the United States. That is only about half of last year’s total — and far less than the 17,600 megawatts, or more, being installed this year in China, which has provided more subsidies and set more renewable energy targets for its utilities.
Mao's Great Leap to Famine
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