With 120 employees working for its two plants, Zhejiang Yunlong Co Ltd, located in the city of Jiaxing, supplied football jerseys for the South Africa 2010 World Cup.

“We processed the clothing for World Cup using the fabric materials from Taiwan two years ago. Now, we use our self-developed fabrics with high quality and low cost to produce garments for the Olympics,” said Ren Long, general manager of the company.

The cost for each jersey is $10, 15 percent lower than the previous price, according to Ren.

The 120,000 jerseys will be transported to England for football fans from 17 countries by the end of this month, Ren said.

The world’s largest restaurant chain currently has about 80,000 employees in China, Lisa Howard, a company spokeswoman, told Bloomberg. It will open as many as 250 new locations this year, compared with 200 last year, she said.

The Big Mac seller has sought to compete with Yum! Brands Inc’s KFC and Pizza Hut in China by opening more stores with drive-throughs and promoting value items during lunch.

McDonald’s, which also offers a delivery service in China, generated about 22 percent of revenue from the Asia Pacific, Middle East and Africa region last year.

McDonald’s has more than 33,500 restaurants worldwide, Bloomberg said.

That comes as concerns have arisen over Facebook’s business model, which calls for the company to obtain most of its revenue from advertising. Some analysts now believe that Facebook’s next move as it tries to obtain more revenue will be to enter China, where it doesn’t now offer its product.

Facebook’s original prospectus for its IPO, which was filed with the US Securities and Exchange Commission in February, mentions the word “China” nine times, indicating that “the country is under serious consideration as a new market for the social network”, according to Jon Russell, Asia editor of NextWeb, a technology site.

“It’s very likely that Facebook’s goal is to expand very rapidly,” said Jeffrey Barlow, director of the Berglund Center for Internet Studies at Pacific University in Oregon. “It is looking at China because it’s the only field left open for them.”

During a week-long “roadshow” held before the IPO, investors told Facebook management that they had concerns about the company’s business model and prospects for expansion.

The most popular social-networking site in the world now receives 83 percent of its revenue from selling advertisements, according to eMarketer, a firm that researches digital marketing and media.

General Motors Co said it plans to stop advertising on Facebook after deciding that its ads have had little influence on car buyers, The Wall Street Journal reported this week.

In its IPO filing, Facebook acknowledged that its ad business may slow down as more and more computer users take to logging onto its site through mobile devices. The company’s mobile products do not display advertising.

Even so, Facebook’s ad revenue is projected to increase by more than 60 percent this year, rising to $5.06 billion. But eMarketer Inc projects that this side of Facebook’s business will slow significantly in 2013 and 2014.

The long-term prospects of Facebook’s model are coming under scrutiny. Through eight years of being online, the site has managed to attract 900 million users throughout the world. Each of them, though, only brought the company $1.21 on average in the first quarter of the year, Barlow pointed out.

Facebook’s first-quarter revenue increased by 45 percent year-on-year to $1.06 billion but declined 6 percent from the fourth quarter of 2011. Its net income for the first quarter dropped by 12 percent, to $205 million, from $233 million in the same period last year.

It’s not surprising that Facebook would want to enter China. The country offers the potential of “a great path of growth and new revenue” for the company, said Debbie Williamson, a social-media analyst at eMarketer.

The number of Internet users in China – 513 million – exceeds the entire US population. According to eMarketer estimates, 307 million Chinese are expected to use social networks this year.

The number of new people coming to social media has begun to increase at a slower pace in the US and other Western markets. Yet it continues to rise at a fast pace in China – some forecasts say it will go up by more than 19 percent this year and 2013.

A business model that depends so heavily on ad income might not succeed in China. Williamson said Chinese social networks obtain most of their revenue from users who pay to play games or access premium areas of their sites, not from advertising.

It’s also unclear how Facebook will fare in China as competition is already steep in the country’s social media market.

“China’s Facebook-like sites, such as Renren, are actually under pressure themselves as Sina Weibo’s micro-blogging site is more popular,” Russell said.

Sina Weibo, the leading Chinese micro-blogging service, is sometimes called “the Chinese Twitter” but is actually more like Facebook, Sam Flemming, founder of the social media analytics firm CIC, told eMarketer.

If Facebook enters China, it would have to compete with the domestic micro-blogging sites Sina Weibo and Tencent Weibo, which each have more than 250 million registered members, as well as Renren and other networks.

But Russell said it’s unclear what Facebook could offer that would be attractive specifically to Chinese users.

Isaac Mao, a prominent Chinese blogger and social media researcher, said Facebook will first have to find a niche market in China, saying it will be “very tough for any foreign player to learn the local rules”.

In Barlow’s view, Facebook could make things easier for itself by forming a partnership with a local company, which could also help it overcome linguistic and cultural barriers.

Rumors arose last year saying that Facebook had entered into talks with Baidu.com, China’s top Web search engine, to start a Chinese social-networking site that was separate from Facebook.com.

Facebook’s IPO has heightened the interest in China’s social media market. On Wednesday, news outlets noted that shares of Renren had surged the most in a month, while the Internet bookstore e-Commerce Dangdang Inc hit a three-month high.

“Investors around the world are certainly more aware of China’s social-networking sites,” Barlow said. “It will be good for them (China’s social media) to face competition from Facebook. That will push them to become more sophisticated.”

Beijing DQY Agriculture Technology Co Ltd (DQY) and Virginia-based Smithfield Foods will set up a joint venture co-run by their subsidiaries, Beijing Helee Bio-Energy (HELEE) and Murphy-Brown.

The joint venture will adopt core technologies from HELEE and launch a pig farm biogas project this year, the company said, citing an agreement it signed with the Smithfield Foods in Des Moines, capital of the US state of Iowa.

According to the agreement, the biogas project will produce 3.5 million cubic meters of methane annually and have a power generating capacity of 1 megawatt.

It noted the project will be able to produce 7 million kWh of electricity each year and cut 42,000 tons of carbon dioxide emissions annually.

The two companies also plan to utilize wastes at more than 2,600 pig farms of the Smithfield Foods over the next 10 years, which will lead to the reduction of carbon dioxide emissions by 21 million tons annually, four times the current yearly emission of Chicago.

Smithfield Foods is the largest US meat supplier with a market share in the country of 22.5 percent, while the DQY accounts for 45 percent of the Chinese egg market and has a biogas power project in Beijing that generates 14 million kWh of electricity per year.

The yuan strengthened by 72 basis points Friday to reach an all-time high of 6.2937 against the U.S. dollar, according to the China Foreign Exchange Trading System.

It marked the first time for the currency to dip below 6.30 since China’s central bank announced on June 19, 2010 that it would reform the way in which the yuan’s exchange rate is formed to improve its flexibility. The yuan appreciated by 7.82 percent during the period.

The central parity rate set on Friday also indicated a value increase of 22.4 percent against the greenback since China launched exchange reforms on July 21, 2005, when the country abandoned a decade-old peg to the U.S. dollar by allowing its currency to fluctuate against a basket of currencies.

The exchange rate was 8.11 yuan per U.S. dollar when the reforms were launched.

Analysts say the recent gains of the yuan versus the U.S. dollar were due to both internal and external factors.

“Economic data for December and January has been better than expected, which has eased concerns of a hard landing for the Chinese economy. Stable economic growth has created conditions for the yuan’s rise,” said Liu Dongliang, a senior finance analyst with the China Merchants Bank.

On Thursday, the European Central Bank decided to keep its key interest rate unchanged at 1 percent, erasing uncertainties about its monetary policy. The Bank of England said the central bank will buy an additional 50 billion pounds in assets, mostly British government bonds, in an effort to ease credit and boost the economy.

On the same day, Greek political leaders reached a deal over austerity measures in order to prevent a debt default. Analysts say all of these factors pointed to the downward movement of the dollar.

In December, the yuan continued falling toward the bottom of its official trading band against the U.S. dollar for 12 consecutive trading days, indicating volatility based on investors’ choice of currencies.

However, during the period, the central parity rate of the yuan still strengthened by 166 basis points against the dollar.

In China’s foreign exchange spot market, the yuan is allowed to rise or fall by 0.5 percent from the central parity rate each trading day.

The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.

In 2011, the yuan appreciated 5.1 percent against the dollar. Analysts expect the yuan to appreciate by 3 percent this year. Meanwhile, bi-directional movement by the yuan will become more apparent, an official with the State Administration of Foreign Exchange said.

“There is already no room left for large-scale appreciation of the yuan. Bi-directional fluctuations will strengthen,” Liu said.

Industrial output in Guangdong surged 20.9 percent year-on-year in 2011, but industrial profits only rose 2.4 percent, sharply down from over 30 percent annual growth in 2010, the local bureau of statistics said in a statement.

In a government work report last month, Guangdong Governor Zhu Xiaodan urged optimizing the economic structure and helping local enterprises move up the value chain to boost profit growth.

In Zhejiang, industrial profits rose 9.9 percent year-on-year, 37.4 percentage points lower than the growth pace in 2010, according to the Zhejiang provincial bureau of statistics.

The statistics agencies compiled the industrial profit figures using data collected from industrial businesses with at least 20 million yuan in annual sales revenues each.

Meanwhile, small and micro-enterprises in the Yangtze River and Pearl River deltas and the economic belt surrounding the Bohai Sea also were squeezed by the credit crunch, rises in costs, and declines in orders, according to a survey by e-commerce group Alibaba and Peking University’s National School of Development.

The small and micro-enterprises urged the government to tame inflation to reduce the impact of rises in material and labor costs on profitability, and also cut taxes to reduce their operation burden, according to the survey.

Power grid construction has entered its fastest ever development; main power grids now cover all the cities and most rural areas, with 500-kv grids beginning to replace 220-kv grids for inter-province and inter-region transmission and exchange operations. An international advanced control automation system with computers as the mainstay has been universally adopted, and has proved practical. Now China’s power industry has entered a new era featuring large generating units, large power plants, large power grids, ultra-high voltage and automation.

Thermal, hydro and nuclear power industries are the fastest growing of all industrial sectors. At the end of 2004, the installed capacity of generators totaled 440 million kw, and the total generated electricity came to 2,187 billion kwh, ranking second in the world.

Petroleum and natural gas are important energy resources. For eight years running from 1997 to 2004, annual crude oil output exceeded 160 million tons, ranking fifth in the world. Oil industry development has accelerated the growth of local economies and related industries, such as machinery manufacturing, iron and steel industries, transport and communications. In 1996, China’s natural gas output surpassed 20 billion cu m, a figure that has increased steadily over the following years, reaching 41.49 billion cu m in 2004.

In 2004, China’s nuclear-power-generated electricity topped 50 billion kwh, setting a record high. By 2020, China will build 36-million-kw nuclear power facilities, in addition to the 8.7-million-kw nuclear power generation capacity already in use and under construction.

To relieve the shortage of energy supplies that fetters China’s economic growth, China is developing new energy resources, such as wind, solar, geothermal, and tidal power. Its abundant wind energy resources give China the potential for mass-produced wind power. Between 2001 and 2005, the government invested 1.5 billion yuan in the wind power industry. Some 200,000 small wind generators already play an important power generation role in agricultural and pastoral areas and according to government targets the national installed capacity of wind generators is to increase by one million kw every year, reaching 20 million kw by 2020. Given northern China’s rich wind energy resources, its wind power industry has attracted domestic and overseas investment and Asia’s largest wind power station, with an investment of 10 billion yuan and a capacity of one million kw, will be completed in Inner Mongolia before 2008. Meanwhile, in western China, with a radiation flux of three thousand kwh per day, solar energy has been widely utilized. Asia’s largest demonstration base for solar heating and cooling technologies in Yuzhong County, Gansu Province, has become the training center of applied solar technologies for developing countries.

In our analysis, we combine data from several sources: Census Bureau 2011 U.S. International Trade Data; the Bureau of Labor Statistics 2010 input-output matrix; and personal consumption expenditures (PCE) by category from the U.S. national accounts of the Commerce Department’s Bureau of Economic Analysis. We use the combined data to answer three questions:

•  What fraction of U.S. consumer spending goes for goods labeled “Made in China” and what fraction is spent on goods “Made in the USA”?

•  What part of the cost of goods “Made in China” is actually due to the cost of these imports and what part reflects the value added by U.S. transportation, wholesale, and retail activities? That is, what is the U.S. content of “Made in China”?

•  What part of U.S. consumer spending can be traced to the cost of goods imported from China, taking into account not only goods sold directly to consumers, but also goods used as inputs in intermediate stages of production in the United States?

Share of spending on “Made in China”

Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP.

Import content of U.S. personal consumption expenditures by category
Table 1 shows our calculations of the import content of U.S. household consumption of goods and services. A total of 88.5% of U.S. consumer spending is on items made in the United States. This is largely because services, which make up about two-thirds of spending, are mainly produced locally. The market share of foreign goods is highest in durables, which include cars and electronics. Two-thirds of U.S. durables consumption goes for goods labeled “Made in the USA,” while the other third goes for goods made abroad.

Chinese goods account for 2.7% of U.S. PCE, about one-quarter of the 11.5% foreign share. Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and shoes. In the clothing and shoes category, 35.6% of U.S. consumer purchases in 2010 was of items with the “Made in China” label.

Local content of “Made in China”

Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.

Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.

Total import content of U.S. PCE

Not all goods and services imported into the United States are directly sold to households. Many are used in the production of goods and services in the United States. Hence, part of the 88.5% of spending on goods and services labeled “Made in the USA” pays for imported intermediate goods and services. To properly account for the share of imports in U.S. consumer spending, it’s necessary to take into account the contribution of these imported intermediate inputs. We use input-output tables to compute the contribution of imports to U.S. production of final goods and services. Combining the imported share of U.S.-produced goods and services with imported goods and services directly sold to consumers yields the total import content of PCE.

Table 1 also shows total import content as a fraction of total PCE and its subcategories. When total import content is considered, 13.9% of U.S. consumer spending can be traced to the cost of imported goods and services. This is substantially higher than the 7.3%, which includes only final imported goods and services and leaves out imported intermediates. Imported oil, which makes up a large part of the production costs of the “gasoline, fuel oil, and other energy goods” and “transportation” categories, is the main contributor to this 6.6 percentage point difference.

 
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, and authors’ calculations.
The total share of PCE that goes for goods and services imported from China is 1.9%. This is 0.7 percentage point more than the share of Chinese-produced final goods and services in PCE. This difference is mainly due to the use of intermediate goods imported from China in the U.S. production of services.

Figure 1 plots the total and Chinese import content of U.S. PCE over the past decade. The import content of PCE has been relatively constant at between 11.7% and 14.2%. Import content peaked in 2008 at 14.2%, which was probably due to the spike in oil prices at the time. The share of imports in PCE is slightly lower than in GDP as a whole because the import content of investment goods turns out to be twice as high as that of consumer goods and services.

The fraction of import content attributable to Chinese imports has doubled over the past decade. In 2000, Chinese goods accounted for 0.9% of the content of PCE. In 2010, Chinese goods accounted for 1.9%. The fact that the overall import content of U.S. consumer goods has remained relatively constant while the Chinese share has doubled indicates that Chinese gains have come, in large part, at the expense of other exporting nations.

Broader implications

The import content of U.S. PCE attributable to imports from China is useful in understanding where revenue generated by sales to U.S. households flows. It is also important because it affects to what extent price increases for Chinese goods are likely to pass through to U.S. consumer prices.

China’s 2011 inflation rate is close to 5%. If Chinese exporters were to pass through all their domestic inflation to the prices of goods they sell in the United States, the PCE price index (PCEPI) would only increase by 1.9% of this 5%, reflecting the Chinese share of U.S. consumer goods and services. That would equal a 0.1 percentage point increase in the PCEPI. The inflationary effects would be highest in the industries in which the share of Chinese imports is highest—clothing and shoes, and electronics. In fact, recent data show accelerating price increases for these goods compared with other goods.

However, it does not seem that so far Chinese exporters are fully passing through their domestic inflation. In May 2011, prices of Chinese imports only increased 2.8% from May 2010. This is partly because a large share of Chinese production costs consists of imports from other countries. Xing and Detert (2010) demonstrate this by examining the production costs of an iPhone. In 2009, it cost about $179 in China to produce an iPhone, which sold in the United States for about $500. Thus, $179 of the U.S. retail cost consisted of Chinese imported content. However, only $6.50 was actually due to assembly costs in China. The other $172.50 reflected costs of parts produced in other countries, including $10.75 for parts made in the United States.

Conclusion

 
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, and authors’ calculations.
Figure 2 shows the share of U.S. PCE based on where goods were produced, taking into account intermediate goods production, and the domestic and foreign content of imports. Of the 2.7% of U.S. consumer purchases going to goods labeled “Made in China,” only 1.2% actually represents China-produced content. If we take into account imported intermediate goods, about 13.9% of U.S. consumer spending is attributable to imports, including 1.9% imported from China.

Since the share of PCE attributable to imports from China is less than 2% and some of this can be traced to production in other countries, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States.

By Galina Hale and Bart Hobijn

Galina Hale is a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco.

Bart Hobijn is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco.

http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

To house the store, the company spent 20.05 million pounds purchasing an entire building on nearby South Molton Street, making it the company’s most expensive outlet.

The store is part of the company’s long-term strategy to move upward in the value chain, morphing from a producer of inexpensive “made in China” goods to a global clothing brand that sells “created in China” goods with higher added value.

Gao Dekang, Bosideng’s chairman, founded the company in the east coastal province of Jiangsu in the late 1970s, the same period of time that saw China’s reform and opening up, with policy shifts that have propelled China’s growth ever since.

Like many export-oriented manufacturers in east China, the company soared with the Chinese economy, taking the global market with inexpensive goods, thanks to relatively cheap labor and land costs. But the company’s competitive edge began to diminish when the global financial crisis began in 2008, causing production costs to soar.

“Gone for good is the era of the last 30 years, when Chinese clothing companies dominated the lower end of the global clothing market,” Gao said. “Since the global economic crisis started, the cost of labor and raw materials has been rising in China, while labor costs remain very low in countries like Vietnam and Cambodia. All of this is creating a huge challenge for the Chinese clothing industry.”

Gao said the solution to this problem is to seek out new competitive advantages based on innovation and design.

Bosideng has been doing exactly that. In addition to opening its store in London, the company spent a record high of 658 million yuan (104 million U.S. dollars) on research and development last year.

In the official and academic discourse in China, the move from “made in China” to “created in China” is generally seen as part of the country’s economic transformation and industrial upgrading.

Wang Li, an economist from the Chinese Academy of Social Sciences who previously served as the United Nations’ chief economist in China, said China’s economic takeoff over the last 30 years relied almost entirely on exports and investment, and an adjustment is both necessary and inevitable.

In east China’s Zhejiang province, the Wanxiang Group, a leading global auto parts supplier, began in 1969 as a village-level agricultural machine manufacturer and has thrived in the years since by making and exporting auto parts. The group has now expanded to emerging sectors such as electric vehicles and new energy.

“Developing electric cars is part of our industrial upgrading efforts. Doing this requires a lot of spending and equipment, but electric cars are the future,” said Lu Guanqiu, founder and chairman of the Wanxiang Group.

The Wanxiang Group was hit hard by the global financial crisis, but not in the way one would expect. International demand jumped sharply as the crisis began, forcing the company to boost its global expansion and upgrade its industrial structure, Lu said.

Over the past few years, Wanxiang has purchased two U.S. auto part manufacturers, both of which are suppliers for leading global auto companies and have invested heavily in electric cars themselves.

China is currently in the second year of its 12th Five-Year Plan period (2011-2015), with industrial upgrading set as one of the country’s top priorities for the period.

Zhuang Jian, a senior economist from the Asian Development Bank, said it will be difficult for Chinese companies to change from the “made in China” mentality, adding that although industrial upgrades are expensive and difficult, they are best initiated “sooner than later.”

Nearly six months after the MLK Statue opened to the public, there’s still controversy surrounding the fact that the tribute to the great civil rights leader was made in China and, according to critics, doesn’t look all that much like him.

The sculptor is Lei Yixin, a Chinese. Lei’s granite sculpture of King is about 30 feet tall and features 14 of his quotations carved in stone. But critics have charged in a string of media reports that the selection of a Chinese sculptor resulted in a statue that looks little like King. 

The inscription “I was a drum major for justice, peace, and righteousness.” paraphrased the famous comments made by King at Atlanta’s Ebenezer Baptist Church in 1968.

In February 1968, two months before he was killed, King said, “If you want to say that I was a drum major, say that I was a drum major for justice, say that I was a drum major for peace. I was a drum major for righteousness. And all of the other shallow things will not matter.”

The omission of “if” in the inscription changes the meaning of King’s words.

It was in 1996 that President Clinton signed into law legislation moving the $120 million memorial forward. Three years later, a major design competition was launched and, in 2000, the ROMA Design Group’s proposal was chosen as the winner.

In the end, the granite sculpture’s 159 pieces were transported to the United States from China by boat. The main statue shows King standing with his arms folded, holding a scroll, and gazing out over the water.

The memorial is the first to an African American on the Mall and it is located about halfway between the Jefferson Memorial and the Lincoln Memorial.

But since it was opened to the public in late August, the site has drawn protesters who have distributed pamphlets criticizing the fact that American stone carvers were not chosen to construct the statue and that the granite stone was quarried in China.