China, Trump, and the Future

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At NEPCON recently, I sat down with Hamed El-Abd of WKK to discuss China’s fluctuating economy, the impact of the U.S. presidential election, and the overall craziness of doing business in modern day China.

Barry Matties: Hamed, you were telling me about how the market conditions are changing quickly here in China. Can you expand on that a bit?

Hamed El-Abd: China is a quick up and down always, but what's happened in the last couple of weeks is that we've seen the start of an uptick. The logic behind the uptick is the central government has been very concerned about a lot of companies leaving China. Everyone is wanting to leave China because the costs are out of control—they’re too high. The central government has decided to freeze factory wages for the next two years, and this has been reflected at this show right away. Look how many people have been at the show. Normally you don't have this turnout, over the last couple of years the show has been slower and this year it has been very busy. People are here. They're looking. They're serious. They haven't been buying for the last three years, so now all of this frustration is coming out. They need to buy equipment to be competitive.

Matties: Is this an unprecedented move for them to put a freeze on wages?

El-Abd: They haven't done this before, really.

Matties: This is a new strategy.

El-Abd: Yes, this is a new strategy. Of course, if you're a factory worker you're not going to like it, but you're not going to like it if you don't have a job, either.

Matties: Also, with automation coming in, factory workers are in a tough position.

El-Abd: I don't think that people, the average guy, has understood automation yet. Even the factory managers haven't understood the automation yet. When automation does come in, they're looking at it like, "I need to replace people." They could give a damn about what happens to the guy that you just laid off. You laid off a hundred people, two hundred people, they're not thinking that way. They're focused on how to automate to replace these people so that it costs less. Later, in a few more years, when these robots are going to be everywhere, and when you've replaced all these people and the people start losing their jobs, then you have a problem. That problem is equally the same in the United States, in Mexico, and in Europe. It's going to be the same.

Matties: That's why Trump is so popular at this moment. I mean for that very reason. Whether you like his politics or not, it's a popular statement to come out and say, "I'm here to bring jobs back." Not to make it a political conversation.

El-Abd: But if you bring robots to the U.S. those people are still unemployed.

Matties: Many believe that in the U.S., with the mix and volume of work we do, will warrant robots. People are less interested in automation and more interested in process step elimination. I think you can gain a lot more by reducing process steps than you can by putting handling equipment in. Maybe some companies have the ability to do both, but in America a lot of companies don't. They have to make those choices.

El-Abd: I understand your point. I see it, but look at that machine [Nano Dimension machine in our past issue]. It has the ability to produce a multi-layer board with 3D printing. You don't need a lot of people for doing that. Now this is a prototype, fine. How soon before that technology translates to mass production? It's coming. It's not long. That's what I'm trying to say. We're talking about a ten-year period. Within a ten-year period, there's going to be so much automation of all different types that people won't have jobs. Factory-type people won't have jobs. It doesn't matter if you don't have a factory job here in China or in the United States. We need to be thinking about what’s going to happen to all these people. Trump's not thinking that way. The people here, they're just worried about the jobs leaving, the factories leaving. They're not concerned yet with the implications.

Matties: They don't understand the impact. They haven't felt it really because factories have moved west to China or they migrate to wherever the jobs are.

El-Abd: Or they're going to Vietnam or wherever—they're leaving here. They're leaving here and what else are they people going to do? These are factory worker jobs.

Matties: With the wage increases that have come, I look around and real estate prices are through the roof here. People are still spending money. Bicycles are gone. Nice cars are everywhere. Is it a transition to more of a recreational society—a service society? Golf courses, RVs, campgrounds, things that China doesn't really have yet, but there's a whole industry, a service sector, that could be developed. Is that where we're headed?

El-Abd: I think that they are going in that direction. They see how America is enamored with sports. They're trying to get the Chinese people to be very sports-minded. I don't know if you noticed it but they opened their first soccer sports academy. It is absolutely amazing. It's a beautiful, humongous campus with a hundred soccer fields. Then they said they're going to open 20,000 of these by 2017. Twenty thousand schools by 2017 that are like this, only for soccer? I was amazed. I said, "Did I get that number right?" Yeah, that's the right number. Oh, wow.

Then they have golf camps. They're learning baseball. They're learning rugby. All these things that are not native to the area. They see how rugby generates income in Hong Kong for the Rugby Sevens, how much money they make. The Hong Kong people, even though they're Chinese, they watch it. They get involved in it. They want to do something like that.

Matties: The other thing that I heard in new market development is the new Chinese Hollywood, where they’re starting to make Western-style movies that will appeal to the West.

El-Abd: They want to compete with Hollywood. They can do that.

Matties: Getting back to the wage freezes and automation, it's not without a plan to take care of these people it seems.

El-Abd: No, I don't think that building a Hollywood is because they're going to lose all these other jobs. I think that they're just going to have additional things. They haven't figured out yet how much of an impact losing all these other jobs is going to be in ten years’ time.

Matties: They're creating whole new sectors.

El-Abd: They're creating whole new things, yes. Hopefully, these new sectors will take some of these people up. Again, you're talking about factory level people, who are less educated, and that’s very different than doing jobs for a Hollywood set and things like that. It's different.


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