Is giant Chinese iPad maker’s threat to replace workers with one million robots credible?

3rd August 2011

Taiwanese magazine Focus Taiwan notes that Foxconn produces iPhones and iPads for Apple and works for Dell, Hewlett-Packard, Nokia and Sony among other Western firms. Much of its workforce is concentrated in the Pearl River area of China, near Hong Kong, a region that was one of China's initial economic success stories.

12 thoughts on “Is giant Chinese iPad maker’s threat to replace workers with one million robots credible?”

  1. GS says:

    good artcile,

    what are the long term ramifications of what you speak of regarding the current ill state of british economy in general.  Not lokoing good is it …
    Does that imply we have weakening currency to look forward to.  The BoE will have to be careful with the QE now … 

    1. Peter Morgan says:

      I think your right. The situation in the UK is not good. Perhaps the worst in Europe, when you take into consideration private and public sector debt and pension obligations. I don’t see any other action than QE and it looks as though that is what we are going to get according to the article below.

      http://www.myfinances.co.uk/savings/2012/02/05/bank-of-england-to-revive-qe-with-50bn-injection-into-econom

      Thanks for your comment.

  2. JW says:

    Hi Peter
    Increasingly nations , especially China, Japan, India and Russia are trading between themselves and with oil supplying nations outside the USD. As their percentage of world trade increases the position of the dollar is under pressure and this together with never-ending QE will see the relative decline in dollar value.
    I think its how sterling adjusts against this that will most determine import/export currency costs.
    Surely investments/transactions through the City in anything other than sterling do not affect the value of streling in the manner you describe? And isn’t the current position of sterling and the UK bond values artificial because of the EZ crisis?   

    1. Peter Morgan says:

      I think you are missing the point I a making it is more about how money moves and perceptions of wealth and investment. Money ‘Shifts’ it doesn’t disperse. When you go to a bank you will pick the bank that gives you the best return and security for that return. The bank will then invest the money with the best investments that give the best returns and security. Therefore money will move to the places with the highest return and most stability. There has to be a reason for the stability and potentially high returns. In the case of America oil purchases in the dollar create that security. This creates a shift in investment to American dollars, which some say is now diminishing, as you pointed out and may be the reason for the American interest in the middle east.

      Stability is one of the attractions that makes money ‘Shift’ as soon as that stability starts to go the money will ‘Shift’ somewhere else because the fund managers will want to invest your money in the safest places. The other factor return also attracts investments and can compensate for the lack of stability if high enough. In the UK we have stability from the financial sector because people get a reasonable return for the stability it provides. If the return is diminished by any kind of tax on transactions the return related to stability will not be worth the investment. In turn fund managers will look for investments elsewhere and the money will ‘Shift’ to the best investment elsewhere. When this happens the pound or dollar will diminish in value and the new currency invested in will appreciate in value due to the demand to hold the currency as an investment vehicle. 

      To address your statement. Yes countries are trading oil in other currencies and this will damage the US. They know this and will try to stop it. QE is a factor and is evidence the financial system is starting to fail. So your statemetn is correct. But so was mine, the American economy is starting to fail and money is about to ‘Shift’ and the currency value will fall.

      The UK is very depedent on the financial sector and foreign investment in its financial products. The pound is an investment vehicle and is currently receiving interest because of the fallout in the EU. If there is an increase in tax on financial transactions the UK and the EU will become less attractive to foreign investors and investment will ‘Shift’ elsewhere. I think you are not taking into the consideration the transfer of existing investment. You tend to get huge ‘Shifts’ in investment when economies start to fail or become less attractive to fund managers.

      I think we are on a brink of a ‘Shift’ of investment. Soon the money saved in the UK and invested from outside will move to safer places if the economic situation deteriorates. Making investments less attractive through reducing return will push this investment away.

      I think you are trying to apply the current situation to something that hasn’t been implemented yet. You say the situation as it stands does not indicate that my argument is true. However the financial transaction tax has not been introduced yet. I am saying what would happen if it was introduced. Therefore the current situation is not an environment you can use to explain how the market would react if it was introduced because it is not currently a factor.

      My statement is, ‘If there is an introduction of a financial transaction tax it will make the pound less attractive to foreign investors as a result of lost return and will in turn reduce demand in the currency as an investment vehicle and reduce the value of the pound’. The deterant in investment will have a consequence to the value of the currency and in turn purchasing power.

      1. JW says:

         Hi Peter
        The real return on UK bonds has been negative recently ( yield minus CPI), so there has been a high price to pay by these investors for the ‘safety’ of sterling you talk about. I surmise the ‘hot money’ has been attracted here , after the USD, because the BoE can ‘print’. Also CHF has been pegged to the Euro recently and there is only so much Yen that anyone wants. The other ‘safe’ currencies like the NOK etc are limited by volume.
        I admit Peter I don’t buy the idea that the rest of the economy should be in any way disadvantaged by the UK following a policy that is designed to attract this ‘hot money’ because it ‘supports the pound’. In my view that sort of thing is likely to blow up in our faces when something else somewhere else in the world happens and the money finds a new home at the click of a mouse.

        1. Peter Morgan says:

          I still think you are missing the point. I don’t see it so much as the pound attracting hot money but the pound itself becomming cold. If the pound as an investment vehicle becomes less attractive due to the reduced return a tax rise would create the money will move to another country. Or perhaps a commodity, which is happening. Gold and silver ar e increasing in price and any movement away from the currency based investment will have an effect on the currency. Especially if the gold is purchased offshore as most is.

          The ‘Shift’ is not so much on current demand but on the stock of investments. The analysis you are making is of the current market and daily transactions, not so much the panic transaction, which could occur as a result of worsening or less attractive economic environment. Also the current market as I stated are irrelevant because the effect I am describing is a hypothetical outcome if the financial transaction tax was introduced. As the tax has not been introduced the idea that the current markets are reflecting as if it has is not possible. Any description of the current market and current operations does not reflect the outcome of something that has not been introduced.

          Perhaps the Swiss peg to the Euro was done specifically to prevent a currency war. Anyway I still stand by my argument.

  3. The past 4 yrs have shown us all why economics is the dismal science.

    As an engineer I feel this article fails to take all sides into account, and seems overly focused on a strong pound for the benefit of the financial industry. Germany provides the evidence. If we are honest then it’s clear that Germany is the worlds greatest country, certainly stronger by far than the UK and USA. When you consider the cost of integrating East Germany it’s even more impressive. Those who have traveled there know the towns are clean, well maintained, and in many parts gorgeous. In contrast vast numbers of people live in poverty in the UK and USA – travel the ‘rust belts’ and you’ll see tragedy on a massive scale. Worse still, Germany routinely thrashes us at football, and athletics! What has made Germany great is industry founded on science and technology, their car manufacturing, chemicals, and electronics are world beaters. This success was founded on both great academic and great vocational education. While there may not be many great universities listed in the THES survey they have clearly succeed in developing true value added enterprises – in this regard, the UK is a miserable failure. 

    Peter M seems to think that all that matters to the UK is selling financial services, this is a mistake and Germany makes my point. Our financial services industry adds little nett value, and we all know the alchemy of CDOs, CMOs, hypothecation and the latent terrorism of re-hypothecation have endangered the worlds economy. Instead of allowing the UKs financial sector to dominate Parliaments agenda we should have been promoting science, technology and industry. Scientists and engineers create value and stability, however, economic policy has favored a very greedy few in the City who have created phantom wealth using derivatives that now threaten global finance.    Paul Volker stated he didn’t think the explosion in investment banking added any real value and I am inclined to agree. Of course, The City would not agree, after all, how else would they justify their obscene remuneration packages just two years after the tax payer was forced to rescue the UK banking system.

    Now consider the wider view, if Peter M is right and a strong pound is good for finance then a weaker pound would be good for industry. And for that matter if you are France and Germany then a ‘tobin’ tax is good for them since money flowing into the alchemist in the City would partly end up being invested in the EU. The EU knows this and that’s one reason they are right to insist on the tax. Britain wants and unfair advantage and went as far as emasculating the laws that govern the City. The issue of re-hypothecation is a case in point and one that may well bring some ugly surprises this year.

    1. Peter Morgan says:

      Hi Silver Surfer

      Actually Germany is an exact example of why point is right. The fact that Germany is in the Euro has a weird effect on their economy. They get high demand from abroad because the weakening the other states in the currency makes their goods cheaper than they would be if they had their own currency. Manufacturuing and exports are directly linked to currency value. Investment and the reasons for that determine prices of the currency.

      The only reason the Germans have had grwoth in manufacturing is because of the artificial currency price being in the Euro has given them. If they were not in the Euro people would have to buy their currency to buy their goods pushing the price up, this is currently absorbed by the weaker states in the Euro. Britain is a net importer and the living standards have been pushed up by the investment in the financial services industry. If that were damaged the living standard would fall and inflation would rise.

      The kind of economy you are suggesting would not be competitive against Germany for this reason. As soon as you produce something people want they will buy your currency to buy it. This will push the price up and make it less competitive. In the city it is different. The thing they are buying is that price rise and stability itself. If you invest in another currency and the price goes up you can buy more goods with it. Anything that deters that will deter investment and interest will fall.

      Thank you for your comment.

      1. Peter M, I beg to differ.

        The German economy was strong before the Union, cast your mind back to the 70s and 80s when Britain was the laughing stock of Europe and the Deutsche Mark was the envy of the BoE.  They didn’t need weak nations in a Union to sell their products – their products sold because – as I pointed out above – their products were world class and deserved a premium. Contrast that with the British auto industry.  And, how can you say the Germans have benefited from an artificially weak Euro? It was trading at 1.60 to the dollar before the cat was let out and markets realized that Greek sovereign debt levels were higher than stated. And who helped them keep the debts off balance sheet? Our friends in the City and in particular Goldman Sachs.  As of today the Euro is in reality still strong against the dollar and yet one in three cars here in Houston is a Mercedes, BMW, Audi, Porsche or VW. As an owner of a Mercedes and Audi i can tell you that quality beats price. That world beating quality was engineered into the products using a talent supply chain that spans a wide range of vocations.

        So suggesting that German exit from the Euro would result in their economy faring less well is questionable and at odds with the strong DM in the 70s, 80, and most of the 90s. My point is that the UK should not have promoted parasitic finance over the interests of manufacturing and industry which struggles to become world class for a whole range of reasons (in fact mostly cultural reasons but finance is a large part of the problem)

        Now the aspect I have never really understood is the capital flow associated with this so called foreign investment in the UKs financial products. This presumably ties back to the vast Financial Sector debts held by the UKs financial institutions. The recent Mckinsey report on national debts shows the Uk has massive external debts. While I realise these debts are supposedly backed by assets its not clear if these are assets like the ones held by the Fed (i.e. shopping malls in derelict new towns). My guess is much of the foreign investment ended up as mortgages in the UK. This would explain the massive housing bubble in the South East and raises the spectre of huge defaults when the bubble bursts. A quick look at the price of a shit hole 2-bed flat in London (+400k?) should make readers understand why the UK has total debts of around 500% of GDP.  Again, alchemists in the City have broken British society and left our kids unable to buy homes in their 30s and 40s. Of course a spiv in the city with a bonus can afford to carry on inflating the price of houses in Richmond, but the bubble will eventually burst and at that point interest rates will rise – and rise. So – I still think your wrong to promote the interests of the City at the expense of the rest of the EU. A tobin tax would seem to be the right thing not just for the EU, but also the UK which desperately needs to deal with house price inflation.  
         

        1. Peter Morgan says:

          Hi Silver Surfer.

          The situation in the Euro with Germany benefiting from exports is well acknowledged by the economic community. The link below provides some arguments for that.

          http://www.moneycontrol.com/news/fii-view/as-europe-suffers-germany-benefitsweak-euro-bgc_649053.html

          In relation to the UK becoming a manufacturing economy like Germany. I think that would take years to change it. I also think the graduates do not have the skills in those areas so you would need an education programme.

          In terms of the city creating problems for the younger generation you are right to a degree. However I would argue the central bank and the government pushed cheap credit on them to make the economy grow and this was a side effect of that.

          Thank you for your comments.

           

          1. Checkmate? Your article was all about the benefit of foreign so-called investment in UK financial products. I suspect it was that money that created the absurd amount of cash available to the UKs housing ponzi scheme. The BoE and FSA were bystanders who palled up with their ‘friends’ in the City. Not good for the UK and not good for our kids. We now face massive inter-generational wealth transfer from young to old all aided by the banks and government. History will judge the boomers as the most greedy of all time… here in the USA the informed joke with me that boomers are like farm hogs….. hogs are known to feed at the trough before their hoglets!  

          2. Peter Morgan says:

            Hi Silver Surfer

            This isn’t a game of chess. The benefit is not the foreign investment in UK products. It is the investment in the currency in it self, the successful return the city makes is part of the attraction, which then creates stability and thus makes the currency more attractive to invest in, perpetual benefit.

            I think you are confusing two things. The value of a successful medium of exchange, which is created through stability, which in the UK was created by the city over centuries of successful trade. The second the missuse of financial products in the UK, which have made money for a few and created a two tier society.

            The two points are not really related in my opinion. The article was more about how money ‘Shifts’ from one currency to another and what creates the attraction effect. If the city starts to fail as it is now there will be a ‘Shift’ of investment elsewhere, which will devalue the purchasing power of the pound.

            Thank you for your comments.

Leave a Reply

Your email address will not be published. Required fields are marked *