China like Wal-Mart? by Shawn Halladay www.leasingnotes.com
No, China does is not planning to establish an ILC in Utah, but, in other respects, it is acting in a similar fashion as Wal-Mart does with its suppliers. As I mentioned in my last post, the growth of the Chinese economy is putting pressure on the availability of resources throughout the world. This demand has caused the prices of most commodities to increase substantially. The Wall Street Journal reported yesterday that “China's economy is a driving force behind the recent surge in demand and price for oil, copper and a host of commodities.” Back to the Wal-Mart comparison. The Journal also reported that China is trying to use its buying power to obtain lower prices from its suppliers. This would mean good news for the rest of the world if (1) they can do it, and (2) the lower prices flow through to other consuming nations. Techniques include not buying certain commodities, stockpiling raw materials, and seeking out other alternatives. The process is not going smoothly, however. For instance, China did refuse to sign new liquefied natural gas contracts last year because it thought the prices were too high. The alternative was to boost power production from coal-fired plants using domestic coal, a move that further damages the environment (believe me, they have enough smog already.) Another factor working against their price reduction strategy is the fact that they badly need many of the commodities for which they are trying to reduce prices if they are to maintain future economic growth. Welcome to the good old supply and demand conundrum. I guess everything cannot be controlled through a central committee. I am all for lower gasoline prices when I fill up my truck, but I don't know if China can pull it off. Yes, everyone wants to obtain access to such a potentially large market, just as do Wal-Mart's suppliers. But, given that many of the commodities are nonrenewable resources, and there are other economies that are big consumers, what is the incentive for producers to lower prices? They can sell elsewhere with no problem. This is not a choice for Wal-Mart's suppliers. If you are interested in China and want to get a good overview of how leasing works there, you can read the Equipment Leasing & Finance Foundation report that I and several other Alta principals authored. that I and several other Alta principals authored: http://leasingnews.org/PDF/China_Report_FINAL.pdf Subscribe to Leasing Notes: www.leasingnotes.com
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