China Syndrome

There has been great condemnation recently because China has been selling its goods on the world market at prices below what other countries, especially the U.S., can produce. It has been called exporting deflation.

The major reason for these extremely low prices has been their labor costs which I am told are about $100 per month for ordinary factory workers. Even factories in Mexico are being closed and shipped to China because of the labor differential. These extremes in production costs are literally putting many, many companies out of business. When you look at the labels in almost any store you will note the product is made in some Asian country. As far as you, the consumer, is concerned you are buying a product at a good value. Political considerations aside there is no question this has been beneficial to retail buyers.

Is there any reason China should act otherwise? No, they are acting like any businessman. Yes, I realize it is a country, but countries do the same as businesses just on a larger scale.

Suppose you and I each own a hamburger franchise. I have a McDonalds and you have a Berger King across the street. We each sell our hamburgers for 99 cents. The competition is equal. You also own a huge cattle ranch and slaughter house/packing plant as well as a large bakery and you want to increase your retail food business so you pass along the savings you make from the meat production and bakery to the burger stand. You reduce the price to 75 cents and now make a profit of 20 cents per burger whereas I only make 10 cents and must sell it for 99 cents. When someone wants a hamburger where do you think they will go?

I can scream all I want about how unfair this is, but so what. He is not selling at a loss and even if I lower my price I can't go low enough to make a profit. I eventually will lose all my customers to him and will go out of business. Is that fair? Sorry, but fair doesn't count. That's business.

China is selling hamburgers (whatever) cheap, but they are of equal quality. Consumers want both quality and price (value) and don't care where it comes from. Countries are complaining that they are selling "too cheap". No they are not because they are making a reasonable profit. One of their production tools (cheap labor) is so good that businesses from all over the world are moving there to take advantage of it. If they don't they will be out of business. You can't blame them.

Over the next 10 to 20 years China can become the world's leading country because of their economic development. They don't have the overhead (translation - central government, entitlement programs, lawyers, labor unions, etc.) we do so they will be able to keep costs down. Eventually (many years) their central government will slowly evolve toward giving more to their people, but it is going to be decades. In the meantime, learn to speak Chinese.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870

---

The Stock Market Investor?s Worst Enemy

Every stock market investor faces one primal enemy. An enemy... Read More

Outsourcing

It's about time someone spoke the truth concerning outsourcing. The... Read More

What the Hell is a Stock option?

A 'stock option' is a contract between two parties giving... Read More

Frog In The Pot

You remember the story about the frog that was put... Read More

Buying Mutual Funds

It looks like the market is ready to start up... Read More

A Good Fund Manager

Every Wall Street analyst, financial planner and broker will tell... Read More

VooDoo Training For the Stock Market

If you go to Haiti or other places in the... Read More

The Club

Yesterday I received my monthly issue of MONEY magazine. This... Read More

Wal-Mart: Discount Store, Discounted Stock?

As GuruFocus updates the stock buys and sells of gurus,... Read More

A Penny for Your Stocks

According to Investopedia Inc. the penny stock market has seen... Read More

Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies

Peter is a professional trader, Paul is not. Peter has... Read More

Pathways

During our travel down life's path we come to many... Read More

Why Technical Indicators

The fight continues to rage among traders who use technical... Read More

How Much Information Do You Need?

You have decided to buy some stock or mutual funds,... Read More

Lemmings Are Gathering

Before they go over the cliff to their destruction these... Read More

Defining a Long-Term Investment in the Stock Market

For some "long term" would mean holding a stock position... Read More

The Stock Trading Plan - Why You Must Have One To Trade Successfully

This is the continuing story of our two imaginary traders,... Read More

Enron Cure

Let's hope you did not have any of the Enron... Read More

Trading Tips No 6: The High Cost of Low Cost Stock Market Information

It has been said that low cost or even free... Read More

Hedge Funds

You read and hear a lot about hedge funds. Unfortunately,... Read More

Stock Loans

Hedge current portfolio positions and gain access to capital resources... Read More

Mutual Fund Ball and Chain

The broker told me not to sell because the mutual... Read More

The Three Little Pigs Went to the Stock Market

Three little pigs went to the market to stock up... Read More

The Big Bad Bear

The big bad bear is stirring again. So far he... Read More

Shadow Bull

As one of my regular readers you know I have... Read More

Can?t Stand The Heat

It seems that every day I turn on the TV... Read More

Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market

In a previously written article, we expanded the use of... Read More

Successful Trading ? Establish Your Risk Level

Before you embark upon a journey of trading stocks or... Read More

Inertia Syndrome

When it comes to buying a stock or mutual fund... Read More

What Can Model Airplanes Teach You About Trading?

I was devastated!I just couldn't believe it. I was 10... Read More

No Load Mutual Funds or Exchange Traded Funds (ETFs)?

If you are fed up with early redemption charges and... Read More

Economists #2

Economists know more about how the fragments of society work... Read More

Investment Attorneys and Garbage Stocks

How is it possible that trash Companies are posting less... Read More