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Asia has built a web of economic interdependence which China would be ill-advised to unravel
IN 1999 ANDY CHAN, a middle-aged Hong Kong businessman, set up a company in Shenzhen, just over the border on the Chinese mainland, making pretty sets of bath soap to fill American Christmas stockings. They were sold at $10 apiece at retailers like Walmart. His firm made and shipped them, by the hundreds of thousands in each steel container, for just $4. In the first few years his firm made a bomb. He paid his workers a pittance, 290 yuan (then $35) a month, and imported his raw materials from Malaysia for next to nothing. But then China's exchange rate soared, his workers' wages rose almost tenfold, the authorities started enforcing overtime rules and competition turned brutal. The business collapsed. Now he is a taxi driver. "You can't do this business in Shenzhen any more unless you break the law. You have to go to South-East Asia," he says bitterly.
Hard as it is on Mr Chan, trade in East Asia is ruthlessly opportunistic. Since Japanese multinationals put the "Flying Geese" model of manufacturing into practice in the 1980s, Asian factories have migrated, via the continent's "miracle" economies, to China and South-East Asia. Fuelled largely by foreign investment, they are on a permanent quest for cheaper labour and greater efficiency. As cities along China's throbbing coastline are priced out of the market, inland locations such as Chongqing, or lower-wage countries like Vietnam and Cambodia, have become the new goslings.
But the image of flying geese is no longer as fitting as it once was, because the production apparatus has become more like a spider's web, with components flitting in all directions and goods crossing and recrossing borders. Victor and William Fung, owners of Li and Fung, a Hong-Kong-based company that helps orchestrate these supply chains, have said that this network has "ripped the roof off the factory". Suppliers can now be anywhere. In their book, "Competing in a Flat World" (written with Yoram Wind), the two Fungs use the example of a pair of shorts they made for an American retailer. The buttons came from China, the zips from Japan, the yarn was spun in Bangladesh and woven into fabric...