Your article which claims that Chinese imports are not hurting the South African economy (published on Engineering News Online on October 24), presents a very simplistic view of economic theory, as it does not recognise the longer-term impact of importation or the impact of China’s export subsidisation programme.
In very simple terms, being able to buy goods cheaper, as you indicate, does, in theory, allow individuals to spend more on other goods. However, what is overlooked is that the majority of those buying the goods on offer require jobs to earn the money to be able to make their purchases in the first place.
The more jobs that are lost to imports, the fewer consumers there will be to buy the offered goods. The higher margins and, therefore, greater profitability that retailers, in particular, are currently able to achieve by importing from China or elsewhere will eventually be overwhelmed by a decrease in customers and concomitant declining sales.
Unfortunately, with the need to continually increase profits in the short term, businesses tend to adopt strategies which achieve this aim and overlook the effect such strategies will have on longer-term profitability.
Governments throughout the world have come to realise that an economy based simply on services and consumerism is one built on foundations of sand and that there is a need to have a solid manufacturing base, particularly to address the job needs of those who do not have the educational qualifications to operate in the services sector. They have also come to recognise that, while there are indeed productivity issues that need to be addressed, much of the advantage of China and other such countries is built on direct and indirect subsidies that range from the much-quoted currency manipulation to multi- year freezes on the prices of fuel, electricity, transport and other utilities. All these, and not just worker productivity, contribute to a lack of competitiveness when free markets are pitted against controlled ones.
In manufacturing, critical mass and economies of scale are vital to the reduction of unit costs, and countries such as China, realising this, have used both direct and indirect import measures to suppress competition and added a good dose of government subsidisation to allow them to become the high-volume, low-cost producers they are today.
It is the same viewpoints that are expressed in your article which caused governments to sit back and allow this to happen and which have forced local businesses as well as overseas ones to try to pick up the short-run high-cost scraps that China does not wish to manufacture.
As is the case in economics and finance, things are rarely as simple as they seem to be: short-term benefits often have very negative long-term consequences.
South African Home Textiles Manufacturers