Buffett once said: An outstanding company can predict what may happen in the future. However, it doesn't necessarily know when this will happen.
We are under the impact of today's very specific epidemic. If you feel at a loss and confused, and don't know what the future will be like, you might as well follow the director of the World Politics Research Center of China Foreign Affairs University, author of "Pivot" and "Spillover", and political economist Let’s travel together to one year into the future to see what will happen.
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Will the United States usher in a financial crisis?
Let’s first look at the United States. In one year’s time, the U.S. stock market will return to a reasonable level.
One of the most important topics discussed recently is the plummeting U.S. stock market, with four circuit breakers in a row. Buffett has only seen circuit breakers for five days in his life, but we have seen four circuit breakers in ten days.
Is the U.S. economy about to collapse? And will it face an economic crisis even more severe than that of 1929? There has indeed been discussion on the Internet recently, saying that this crisis may be more serious than that of 1929.
But if you take a closer look at various economic indicators in the United States, you will find that there is no major problem with the health of various financial institutions in the United States. It is just that in the past year, the U.S. stock market has been in a high bull market, which it should have experienced. A callback process.
Just because of the arrival of this epidemic, the U.S. stock market has passively corrected, and the correction has been very strong.
What problems will this cause?
Because 70% of U.S. residents’ property allocation and GDP is supported by consumption, and 70% of U.S. residents’ asset allocation is placed in the financial market. means that once the stock market crashes, it may lead to a significant decline in residents' spending power.
As I just said, the so-called crash of the U.S. stock market was actually caused by the correction of the epidemic, which resulted in a diving posture. In fact, financial institutions have no problem.
So one year from now, we expect the U.S. stock market to return to a reasonable level.
Let’s briefly define the U.S. stock market crash. It can be said that it will bring about a recession in the U.S. economy because people’s spending power has dropped. But economic recession does mean financial crisis.
As long as it is not a financial crisis, recovery will not be difficult. When the epidemic passes and the U.S. consumer power recovers, the economy will naturally recover.
In fact, China's economic growth depends to a large extent on the world market's consumption capacity of Chinese manufactured goods. If the consumption capacity of the United States does not recover, it will be very difficult for the Chinese economy to recover.
China, what will happen?
In the past year, China's service and manufacturing industries have been decimated, and many small and medium-sized enterprises have closed down.
However, even if these companies fail, the market demand, production equipment and technical personnel still exist, and can be taken over and absorbed by those companies that can survive, making them stronger.
Therefore, I would like to say to small and medium-sized enterprises that what you have to do is to find ways to survive and make yourself the one who can absorb the nutrients of others.
So today, one year later, looking back on the past year, it can be said that China's society and economy have undergone a large-scale reshuffle in the past year.
Regarding China's manufacturing industry, many people have said in recent years that China has lost its status as the "world's factory". However, whether it is the previous Sino-US trade friction or this epidemic, China's manufacturing industry has not undergone substantial changes. transfer.
Why?
The reason is that China has unique and huge advantages. (this will be analyzed below)
And on this topic, we can start from Vietnam.
Since the Sino-US trade friction, there have been many predictions from the outside world that Vietnam may become the next world factory.
In the summer of 2019, in order to better answer this question, my team and I went to Vietnam to conduct in-depth research. We wanted to see what the logic of this so-called manufacturing transfer is and what it means to Vietnam. What does it mean to China? What impact will it have on China's manufacturing industry?
Why Vietnam?
First of all, Vietnam’s population is not small. The number in 2018 was 96 million, and it is growing rapidly. The population structure is very young, and labor costs are low, probably less than one-third of China’s.
Furthermore, Vietnam's foreign trade conditions are very favorable. Vietnam has a free trade relationship with the United States, and has also signed a series of treaties with Europe, which provides almost zero tariffs. In addition, Vietnam belongs to the Confucian cultural circle and is actively participating in the world.
Finally, Vietnam has a strong government in terms of political system. Strong government has both good and bad qualities, but from the perspective of manufacturing alone, the existence of strong government is a plus.
On October 2, 2019, Samsung transferred its last mobile phone factory in mainland China, Huizhou, Guangdong, to Vietnam.
So many people lamented that this means that China’s mobile phone industry is about to die. You see, even Samsung is gone.
However, after investigating in Vietnam, we came to a different conclusion - in fact, it is not that the entire mobile phone industry has been relocated, but that a certain link in mobile phone production has been relocated. After the
link is moved, it still has a strong dependence on China in the upstream production.
What is this concept?
30 years ago, most products in the world were produced within a single country. Today, most products are produced across multiple countries.
In other words, a complex product has actually been broken down into multiple processes during the production process, and the multiple processes are distributed in different factories, and these factories may be distributed in different countries.
There is another very interesting news: In October 2019, although Samsung announced the closure of its last mobile phone factory in mainland China, Samsung headquarters subsequently released a message saying that in 2020, it planned to sell 20% of Samsung mobile phones - 30% of mobile phone production capacity is handed over to ODM for production.
What is ODM? This is just to complete the production, and also complete the design together with the contractor. In other words, half of the design of the product is completed by the foundry and the contractor. This is called ODM.
As far as ODM is concerned, China has an overwhelming advantage. Therefore, Samsung plans to hand over 20% to 30% of its mobile phone production capacity to ODM factories in 2020, which means that most of it will be transferred back to mainland China.
After looking at the high-tech mobile phone industry, let’s take a look at Vietnam’s low-tech industry. In a sense, low-tech industries can absorb more labor.
So I also visited some low-tech industries in Vietnam, such as shoe factories, furniture factories, etc. One particularly impressive story happened in a furniture factory. When
went to interview the owner of a furniture factory, he asked him if all of your production could be purchased locally in Vietnam? Is there a complete local supply chain demand to form a complete localized production?
He said that I can indeed purchase a lot of things in Vietnam, but it seems that this answer is not appropriate. Why?
For example, after furniture is produced, it is mainly exported to the United States. When the furniture is shipped to the United States, it needs to be packed in large packaging boxes. It is true that these cartons can be purchased locally in Vietnam, but the problem is that the cardboard of the Vietnamese manufacturers of cartons has to be purchased in China.
So, in this sense, do you think it is considered a local purchase in Vietnam?
From high-tech sectors to low-tech industries, with these two cases, we can find that the so-called transfer of China's manufacturing industry to Vietnam seems to be different from what we imagined.
Next, let’s take a look at some specific data in Vietnam. We will find more interesting things worthy of in-depth discussion.
Vietnam’s GDP in 2018 was US$242.5 billion. What is this concept in China? It is equivalent to about two-thirds of Shenzhen and 90% of Suzhou. In other words, if Vietnam is ranked among cities in China, it will probably rank eighth, between Suzhou and Chengdu.
Take another look at its import and export data. In 2018, Vietnam's total import and export trade reached US$480.9 billion, and its dependence on foreign trade was 200% of GDP.
With a total import and export volume of more than 480 billion U.S. dollars, the trade surplus achieved was 6.52 billion U.S. dollars. If the surplus is divided by the total import and export volume, the surplus rate is a few 1.3%, which is very small, but this is already the highest in Vietnam in the past five years. of a year.
Based on such a low surplus rate, we can know that Vietnam is currently importing and exporting heavily, and can only do very basic processing, and the profit added value is very limited.
Can Vietnam replace China?
Some people say that in the 1970s, China was the same as Vietnam is today. It could only do rudimentary processing. But now China has become the world's factory. So in 20 years, can Vietnam copy China's path?
The answer to this question is actually very simple. If you want to become the next world factory, it is very important to have a complete industrial system. Without a complete industrial system, we will definitely not be able to become the world's factory.
To have a complete industrial system, heavy and chemical industries are essential.
In the industrial economy, the heavy and chemical industry is approximately equal to the infrastructure of the modern economy. Because a large number of raw materials, materials, and industrial machines are produced based on the heavy chemical industry.
An important prerequisite for China to become the world's factory is that China has its own heavy and chemical industry.
Then why can’t Vietnam establish its own heavy chemical industry system?
Because Vietnam follows a free market economy, under this system, with good foreign trade conditions and low tariffs, factories from other countries are willing to move here. However, the characteristics of the heavy and chemical industry are high investment, low employment, and long return time. Its development requires strong government intervention and investment regardless of cost, but this is contrary to the free market economy.
Therefore, Vietnam cannot generate heavy and chemical industries purely by relying on the market process.
Can the Vietnamese government provide strong support? If Vietnam tries to do this, the United States is likely to directly kick it out of its free trade partners. Without the conditions for free trade, why would manufacturing industries from other countries move to Vietnam?
What are the possibilities for Vietnam’s future development? I asked Nguyen Decheng, director of the Institute of Economic Policy at the Vietnam University of International Business and Economics, about this issue. He said that the best state for Vietnam to develop is a state between Taiwan, China and Malaysia. And it needs to form a deep embedded relationship with China's industrial system.
Through the above data and cases, we can draw the conclusion that the so-called transfer of China's manufacturing industry to Vietnam is actually not a transfer, but an overflow of China's manufacturing industry.
What is overflow? This side is full and needs to overflow. After the overflow is over, this side is still full, and there is also more outside.
Vietnam is not a substitute relationship for China's manufacturing industry at all, but a relationship that supports each other and moves forward together for a better future.
China's powerful supply chain advantages are unparalleled
Finally, the reason why China's manufacturing industry is irreplaceable is that China's supply chain network is powerful.
China's small and medium-sized enterprises, especially the small and medium-sized private enterprises in the southeastern coastal areas, are specialized to an incredible degree. The most extreme example is that I have seen manufacturers that produce telescopic antennas. Each manufacturer only produces one section. It is so specialized that only one mold is enough. Multiple local manufacturers are supporting each other.
Once a product is specialized to this level, it has been reduced to extremely basic component elements.After being restored to such basic elements, it will bring about an effect, and the universality of the product will be particularly good.
is like Lego bricks. One manufacturer only produces Lego bricks of a specific shape. Different manufacturers produce Lego bricks of different specific shapes. These Lego bricks will be matched with each other to produce all kinds of strange products.
At this time, a single enterprise is used as a unit and is extremely specialized to ensure efficiency. All enterprises together form a huge network, and enterprises can continuously and dynamically combine supporting relationships with each other.
is based on the entire network, and the internal supporting relationships are constantly and dynamically reorganized. takes the network as a unit to ensure its flexibility, and takes a single enterprise as a unit to ensure efficiency. Once the
supply chain network evolves, the next important qualitative change will begin. 's ultra-large-scale supply chain network changes the cost structure.
Once it reaches this level, it will form the Matthew Effect, and the comprehensive cost control ability will be greatly improved. Compared with other countries and places, they will have less and less advantages in cost, so they will move to China on a large scale.
Most of the world's mid- and low-end manufacturing industries have moved to China, forming a finality of transfer - can get in, but cannot get out. Only companies that are sensitive to low supply chain demand and long-distance logistics costs can go out, such as glass. China's Fuyao Glass has built a factory in the United States to meet the needs of the American market.
What are China’s advantages? China’s advantage lies in mid- to low-end manufacturing, and what is the most important foundation for mid- to low-end manufacturing? cost advantage.
China is unparalleled in terms of cost advantage. The reason why China can obtain this cost advantage is because the innovative economy of the United States and other European and American countries has led to the demand for large-scale outsourcing, and the large-scale outsourcing demand has given rise to a large-scale supply chain network in China. The large-scale supply chain network has caused cost changes in the entire production process, so China is almost invincible in terms of comprehensive cost control.
The mid- to low-end manufacturing industry based on cost advantages is China's huge comparative advantage today, which the world must accept and recognize.
Looking at the West, it also has its advantages, which is high-end manufacturing.
And high-end manufacturing is not based on cost advantages, but on technical advantages . For China's mid-to-low-end manufacturing industry, if we do not grasp the most cutting-edge technology trends and product concept trends in the industry, we will not know how to prepare goods and reserve production capacity at the domestic supply chain level. , I don’t know how to make strategic planning for future enterprises.
In this case, when making investment decisions, you will be conservative and slow. Therefore, in its implementation stage, because the high-end technology, technical routes, and concepts of products are all led by Western countries, China cannot do without the West in this sense.
This will bring about a result: China and the West are highly interdependent. So recently I saw on the Internet that some people were gloating over Western countries because of the epidemic, mocking them for not even copying their homework. This is very inappropriate.
This epidemic has given us a big reminder in this multi-layered hyper-internet era: we need to open up the pattern, need in-depth cooperation from the world, and further require us to have more in-depth reforms.
