Beijing, Seoul and the Yellow Sea Commentary from the Oceani

Beijing It is certainly busy times for China. Flights across the Pacific remain full, despite the run-up in oil prices. Those on board the flights include businessmen and more importantly China is a burgeoning tourist destination (in fact a bargain compared to Europe in these days of the plummeting dollar). From the airport to the port at Tianjin revealed the explosion in infrastructure spending. There were literally hundreds of apartment buildings or new factories under construction. The construction at the Tianjin airport zone continues, supplementing the dozens of existing structures. The new apartment boom continues apace with 20 and 40 story structures rapidly going up. In the mean time, the shoddily constructed structures of the Mao era, particularly in Tianjin, are being abandoned and torn down. The highway from Beijing to the port was chockablock with trucks carrying containers to the port for export to the US and the rest of Asia. There were almost as many trucks coming from the port. China has increasingly become an assembly location for consumer goods being designed in Korea and Japan. Both countries already have major automotive assembly operations in the country and the streets have brand names from US, Germany, Japan and Korea. (While I was Consul General in Hamburg, I had a tour at the VW factory in Wolfsburg and then VW CEO Piech underscored the growing importance of the Chinese market to their global operations.) As we went down the highway, I was thinking about the volume of new construction and what might happen if there is a slowdown. These apartments are being built on the assumption that the economy will continue growing at a 10% growth path. There are two possible scenario for the slowdown - exports to the US fall as the US economy cools or China pulls the reins in on the economy after the Olympics. One only needs to remember the decade of the 90's after the Japanese boom collapsed. So, how will China's new found banking system deal with an eventual slowdown The Yellow Sea as a Highway Today is an at-sea day for the cruise. What struck me was the huge volume of inter-coastal freighters going from Japan and Korea to Tianjin. I presume this reflects the flow of semi-manufactures to China for final assembly. Over the past five years, the economies of East Asia have prospered as interregional trade has increased. Given the geography of the area, goods flow by these small freighters using the Yellow Sea. The more apparent route from Korea to China by land is blacked by North Korea. In addition, the Chinese rail system is largely focused on the movement of people, not goods. Thus the solution is that goods are shipped by container on these small coastal freighters. This trend will likely intensify as manufacture and investment flows become more intertwined over time. China has financed an incredible expansion in its highway system by using toll roads, at fairly steep prices for a developing economy. In California, the current debate is on expanding the roads leading out of the ports. The state passed a multi-billion dollar bond package to relieve port congestion. Maybe we should be investing more in toll roads? After all, we're just at the other end of the Yellow Sea Asian Highway. Seoul South Korea has moved into the developed country category. You can see it in Seoul not only in the impressive skyline but also in the incredible shopping districts. The stores were filled with shoppers at mid-day on a Wednesday and the young population seems confident in their own future. This is still the land of the small shopkeeper and the mega-retailers have had limited success. On the way to and from the port of Inchon to Seoul, you could see the small hardware and grocery stores that line the sides of the main highways. Seoul is largely built out but there is incredible amount of in-fill development and renovations to structures that were built during the go-go years of the 70's and 80's. The heavy manufacturing locations have largely left the city but there are nevertheless quite a large number of decaying factories. It's ironic that a country that made its debut on the world market as a low-cost labor country is losing business to countries with even lower wage costs. One common thread of all of the East Asian countries is dealing with congestion. Seoul, with a metropolitan area population of 23 million, faces gridlock 24/7. The same challenge faces Japan, Taiwan and China. Beijing, with a rush to finish infrastructure, has traffic jams throughout the city. As with other cities around the world, you can't seem to build enough highways or public transportation to meet the demand for additional time. The same is true on the US side - - because of the deteriorating state of the interstate routes and railroads, congestion is lengthening time to move goods from the port to the final destination.