by 
The argument about when or whether China will overtake the United States to become the world's biggest economy is moribund. China is already the most “central” trader in the global economy, and its ability to influence events in dozens of nations far exceeds that of any other country, according to the International Monetary Fund.
This means the world could catch a nasty cold if China's growth falters, or if it fails to efficiently manage its economic expansion and a myriad of fiscal and other structural problems it faces in the near future. The IMF made the observation in its Spillover Report on China issued today. The name says it all: The Spillover Report examines the potential effects of disruptions in any of the five major trading regions (US, the Euro area, China, Japan, and the United Kingdom) on global economic activities.
Obviously, China is now positioned at a junction where its actions could significantly hurt trading partners. And yet, the overall effect of China's integration into the world economy has so far been positive. The world still stands to benefit from China's continued role. However, the Chinese government must carefully chart a path forward for the country; otherwise, its economic evolution and many of the changes being considered now will jeopardize the fiscal health of its trading partners. The IMF outlined these challenges as well as opportunities in the Spillover Report. Here are some highlights culled from the report:
- China ascendant:
- More than the world's manufacturing Mecca:
- Can China keep up this fast growth pace?
- Currency risks:
- Commodity hog and price inflator:
- Asset buying binge ahead?
China is now the first or second largest trading partner of 78 countries with 55 percent of global GDP (versus just 13 countries with 15 percent of global GDP in 2000). From a network perspective, China is now the world’s most “central” trader, with the most sizable connections to other major traders. This means that China can transmit real shocks widely, whether these originate domestically or elsewhere.
The caricature of China as merely a cog in the global supply chain — wherein imported inputs and exported processed goods respond passively to final demand in the G7– is changing. This means China's capacity to originate shocks has risen. China’s export-oriented growth model has resulted in a large expansion of China’s trade and a rapid move up the value-added chain. This has had significant implications for the global supply chain: China’s reliance on processing trade, while large, is on a declining trend.
The sustainability of China’s export-oriented growth model has been questioned — most importantly, in China itself. Indeed, the Chinese authorities recognize the need for economic rebalancing, with greater reliance on consumption, and this is official policy under the 12th Five Year Plan. The key issue for the rest of the world would be its timing, pace and spillover effects.
While many acknowledged that China’s growth had brought benefits, including lower costs and an imperative for firms to raise productivity, some saw an undervalued currency as having displaced employment.
Many counterparts cited China’s role in pulling up commodity prices — a plus for commodity exporters but not for the rest. China has become a dominant importer across a range of commodities. In metals, per capita intensity now rivals that in advanced economies, rising from less than 15 percent of the level of advanced economies in 2000 to almost 90 percent in 2009. Thus, the spillover to world commodity prices is now significant.
The channels of China’s influence on global asset prices are complex. On one hand, that influence is greatly constrained by China’s relatively closed capital account. On the other, the sheer size of China’s savings (the highest in the world in dollar terms), its rising foreign currency reserves (also the largest), and the composition of those reserves, should all affect asset prices.
It's easy to review this Spillover Report and regard it simply as another one of those interesting but barely useful economic analyses. That would be a mistake. Even China's government welcomed the review and is reportedly taking its recommendations seriously. Forward-looking high-tech executives should take a closer look and consider this: The potential outcomes of the scenarios discussed are not improbable, and the future in which they could occur is discomfortingly close.
Interesting article Bolaji, I have kept an eye also on report from Spiral and in my opinion it provides a full picture about spillover of China economy and possible impact, worldwide. I believe another perspective for analyzing events is correlated to the strategy from major economy to move towards China for making business. In case primary reason is basically saving on manufacturing costs and try to take over an incredible market in terms of size, I am convinced all players (foreign countries and China) will lose the game. Foreign company realize a short term profit due to savings, China will increase cash and get back outside to buy all over. It is happening, it is a poor strategy. Otherwise, help China in sharing long terms strategy could mean help local economy in your country of residence.
About Independent Distributors
Because I have read lately a lot of articles and comments with a topic relative to independent distributors I have a messy image about them and a few questions:
What are the characteristics that do a distributor to be named as an independent distributor?
Why to be an independent distributor?
What is the opposite of an independent distributor?
Does a MONOPOLY of manufacturing come to mine????
Look at the history of FOXCONN.
FOXCONN is the prototype of takeing over all manufacturing in the free world.
Remember the states back in the Industrial Revolution days? It was all about manufacturing. Nowadayds U.S. has almost cut down on manufacturing and moved to China. Eventually, Chinese will follow suit. You will see that as they become more developed in the next 50 years or so, it will also be rid of manufacturing. In fact, perhaps the world is becoming more digital it doesn' t even need as much manufacturing.
That's a really good question Nemos.
I thought all distributors are 'Independent'. I thought it was because they were not tied to any particular products or clients independently & are free to sell to anyone.
Your right, but immigrants helped develop the Industrial Revolution in the States.
The US helped spread manufacturing to other countries. A great example is JAPAN. JAPAN has taken its fair share of manufacturing ( cars and electronics). CHINA is taking every countries share, all manufacturing job's. All CHINA wants to do is export not inport. Manual labor job's sweet shop condtions.
India has taken control of computor and cell phone trouble shooting calls. The credit card sales calls come from India when your at home have dinner!
In most case these are US company's trying to make more profit with cheep labor. Where does it stop? More TAXES no job's.
I need to go home and see what credit card company wants me to change cards.
Your job is next.
Lower level tasks will continue to be outsourced to cheaper workforces. The more developed nations realize this, therefore they put more resources into higher level work that cannot and will not be easily moved outside of its borders. So it is almost inevitable that this trend will continue as time progresses.
China is not to be blamed for job loss in the United States or other industrial countries. Most of the jobs that are now outsourced are the ones that are being overlooked in the US and expensive US labour costs have led manufacterers to go to other countries where the price of labour is much lower. That is just how open economy works.
My concern is how China can sustain their growth with their export currently sustained by low wages with effect of poor life style on their workers.
Exactly Jaden, that's the point and hence the sense of my previous post. Speaking about business, Western hasn't to be fascinating only by low costs of salary in China. Strong help for both Western and China should be to share a cross knowledge transfer program, doable to cover manufacturing, processes' quality, work's quality, including life style at work. Otherwise if the focus is only on savings, as consequence, exports from China will meet with difficulties, sooner or later.
It certainly seems like that has been their trend for a long time now, and the prospects of losing the manufacturing base and associated know-how is a great concern.
I assume (dangerous, I know) that at least one motivation to use the term 'authorized' is assurance that product obtained through that channel is not counterfeit. If the perception is, then, that the independent channels pose more risk, some sort of certification or program to assure customers of part authenticity may be very helpful.
Great questions…The supply chain in its historical format has only allowed for three paths to obtain product- factory direct, franchise distribution, and brokers. This methodology has worked well but the industry has matured and as a result a new class of distributors has emerged to fill in the gaps that these three sourcing channels cannot provide. A simple summary would be to say that Independent Distributors provide solutions for the 20% of parts that cause 80% of the headaches. This includes the shortages, obsoletes, excess disposition, but also includes vendor consolidation, value engineering, low cost replacement analysis, and other services!
Your second question regarding the characteristics needed to be an Ind. Disty is interesting. While there are many certifications and qualifications that can help demonstrate proficiency and a committment to quality, I think the thing that seperates independent distributors the most is that they have a complete understanding of the supply chain, and as a result are able to tailor custom solutions to solve those difficult supply chain issues. Staying in that independent distribution category frees them from any contractual obligations to component manufacturers that might prevent them from delivering creative and outside the box solutions.
I hope this sheds some light on your questions and I would to hear from others on whether you think independent distribution can really add value to the supply chain!
This is a great article that brings up very interesting points. No matter how many times you want to rename a product or company, it's still the same component. I think independent distributors definitely have a place in the supply chain. The fact that they are not labeled a certain way is a formality that doesn't change the fact that they carry the same quality products. There should be some sort of certification that might help ease buyer’s minds. As for counterfeits, we all know they have ways of slipping into the supply chain even with the best of authorized distributors.
It will be interesting to see how the Chinese government stays off inflation. China is the new world superpower in terms of importing and exporting. This report sheds some light on some potentially serious faults. If China was to have a major breakdown, the world will feel the ramifications. The Chinese government needs to take a serious look at this report and others that outline potential problem areas and set up plans ahead of time, before it's too late.
Great article on independents. The supply chain has certainly evolved and we have to be clear on its various segments, particularly in quality-critical components. My advice – ask the distributor for its certifications. Some will make them readily available on their sites along with links to key certifiying bodies including IDEA and one you didn't mention – ERAI. Here's the link on that group:
http://www.erai.com/
Hi Mark,
It is great to see another independent on here fighting the good fight. I like the angle you took with it — excellent points. Thanks for sharing your thoughts on this important subject.
-Dawn Gluskin
SolTec Electronics
In agreement with you, independent distributors have a great place in the supply chain. They are of great value in the market place because of packaging and distribution cost to major manufacturers. It is cheaper for the big companies to use them and they make the products more readily available and cheaper to the consumer. Name or no name they carry the same quality product of the same component and value. My suggestion is to verify their certification and to perform quality control and quality assurance of the products.
kunmi
Mark,
You make a great argument and I love the analogy to unauthorized beef. In our world of politically correctness you are correct that everyone is looking to reinvent themselves as they keep moving the cheese. We should however beware of those who can buy their way to prominence. I recently had a customer confide in me that he was duped by the credentials of his supplier. As he explained being an ERAI member required his supplier to pay the subscription and not be reported. He bought military parts from an IDEA member only to find less than one third of their membership had an AS9120 certificate. We are a member of the ERAI who post possible suspect parts and have the highest regard for the work the IDEA administration staff has done for the betterment of their independent members however, certification of its members by itself may provide a layer of assurance that may not protect the customer. Attending a book reading on religion does not make someone a strict practitioner.
As a member of the SAE G-19 for the past two years I have worked with members of IDEA, ERAI, test houses, independent and franchised distributors. Prime contractors, contract manufactures and those from legal and governmental agencies are also in attendance. The committee is chaired by members of NASA as well as people outside the USA.
The purpose and goal of all involved is to safeguard and protect the supply chain throughout the world. Our focus has been to adopt a standard that meet the needs of all who participate in the electronic supply chain. The knee jerk reaction by many companies to only buy from franchised or authorized I believe will change. The ISO9001 and AS9120 third party certification is currently governed by ANAB. These quality standards do not address counterfeiting and having one does not guarantee safety.
My company was one of the first to achieve AS9120 and after 8 aerospace audits we are still formulating the extent of what we shall do in house as inspection and what shall be 3rd party to mitigate counterfeits. My hope is that the new SAE standard that addresses the requirements for independent distribution shall be embraced by the electronics community and lessen the name labels you discussed.
Your term certified distributor may become a reality as we look to ANAB to oversee third party certification of both quality and counterfeit risk mitigation.
PS. A special thanks to my fellow G-19 members and all those who have contributed in the battle to combatcounterfeits.
Matthew Heaphy III
ESCS President
Very interesting article! I really enjoyed it.
I was amazed when I read that the Chinese government was trying to slow down their growth because they were afraid of inflation and other things.
Can the World afford to rely on China?
I agree with the report that maintenance of Chinese economic growth has been a great benefit for partners through the global crises.
However, the major concerns that if China mismanages the economy in the next few years may result in a potential global crises. I think this report should not be casually regarded by partner nations
Particularly,the “forward – looking high – tech executives need to take a closer look and consider the probable future implications of China's economy hard landing should this occur.
Bolaji, agree with your conclusion. It is well stated.
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I am not a big fan of name changing just for the sake of it. As a consumer I get tired of the same old fluff sold under a different name. I know people in the business of selling approved pre-owned certified cars and quite frankly these can be a joke. However there is definitely a good case for using approved/authorized/certified etc. distributors when that product absolutely must work in an application. Examples could be found in medical, aerospace or public transport applications. In less critical applications independents play a great role in offering the customer better choice, flexibility and keener pricing which overall is a good thing for the consumer.
Dawn, An old English adage says: “You don't throw out the baby with the bath water.” Somewhere along the way the electronics supply chain seems to have agreed it is better to ignore this maxim in the rush towards being “perfect.” Independent distributors, or whatever name they are called, obviously provide a service. Why don't we review those services and use it then keep an eye on the faults. There are obviously faults with any other group within the industry but I don't see anyone saying, for instance, that franchised distributors need to go away because OEMs can buy directly from component makers!
There are names and there is a name, names could faked while a name is certified. Independent pose more risk except if authorise or certify is attached.
In addition to your conclusion that executives must take a look at China's economic management, and its implications. I also believe that the manufacturers that have moved to China will need to stay there until America and Europe really get their act together. You and Bolaji are right on the fact that any hitch in China's economy will be a potential global economic collapse.