rom the observation level of the Beijing Bell Tower in the heart of the city, a sheer expanse of humanity unfolds before you. Crumbling, tile-roofed homes line the ancient alleys encircling the base of the tower. Opulent new hotels span the outskirts and in the distance, imposing skyscrapers remind you that this is a nation of 1.3 billion people. This is China.
In the past decade, no nation has captured the imagination — and concern — of the Westernized world like the People’s Republic of China. Manufacturers aspire to produce products there, U.S. companies lament the rising cost of materials at the hand of China’s rampant consumption and, in the balance, the country itself is fighting to forge a dazzling new future.
China’s unbridled development is awe-inspiring. But by eating up world materials to keep pace with its growth, the country has left U.S. pool companies with price increases, materials shortages and a renewed concern over the cost of doing business.
The reality is that China is no longer a developing land. It is an emerging economic powerhouse, and the next century just may belong to it.
The price of growth
In 2004, China’s GDP grew at a rate of 9.5 percent, nearly twice that of other
nations.
“For the past 27 years, China has been growing so fast, but the reasons are complicated,” says Shu-Gang Wang, Ph.D., associate professor of economics at Peking University in Beijing. “The most important challenge right now is that the system is not fully a market economy. China is different from the United States. It is in an economic transition, and in addition to the market forces, there are government forces at play. It’s changing daily.”
Despite this, Wang says that a number of factors will keep China’s development steaming full speed ahead. For one, Beijing’s successful bid to host the 2008 Olympic Games jump-started the government’s modernization plans nationwide. In fact, the China Trade Commission reports that in the next few years, Olympic-related construction will contribute 1.5 percentage points annually to the country’s GDP. What’s more, the growing popularity of American culture has brought Western tastes, styles and goods to Chinese citizens — including luxury homes and swimming pools. (See “China’s pool boom”)
“Construction is the fastest-growing industry in China, especially here in Beijing,” Wang says. “The major difference between developing countries and developed countries is construction. You don’t see many new skyscrapers being built in Los Angeles, but there are many here.”
Nearly every modern industry, from IT to sports equipment, is emerging in China simultaneously. “Half of the world’s industries are going to build factories in China,” Wang says.
Pool equipment manufacturers are no exception. In recent years, the Chinese government has welcomed foreign investment, going so far as to grant Westerners preferable tax and regulatory treatment. As a result, American labels such as Hayward, Pentair, Jacuzzi and Astral eagerly leapt across the Pacific Ocean.
But for many, the meteoric rise of China has been a cause for growing concern. The cheap Chinese labor market slashes costs for products developed there. Between 1998 and 2004, prices fell in nearly every product category in which China was the top exporter. And with the United States purchasing more than $150 billion in Chinese goods annually, it’s no wonder corporate America is fretting over its bottom lines.
The rise of China may lead to the demise of the American manufacturing industry, says Brett Kingstone, CEO of Super Vision International, a fiberoptics lighting maker in Orlando, Fla. “China is very much a double-edged sword,” says Kingstone, who outlines his concerns in his book, The Real War Against America: China’s Intellectual Property Theft (Specialty Publishing Co., 2005).
“In the pool industry, it’s no secret,” he says. “Everything from fittings to valves to pumps is knocked off. The big problem is that the American companies invest in the technology, and research and development, and the Chinese turn around and make your product in environments where there is no control, no quality.”
Stateside dangers
Even as China pressures U.S. manufacturers to compete with its low-priced goods, it’s squeezing them from another direction. The country’s voracious demand for raw materials has caused virtually every commodity price to spike. And the trend is for bigger amounts yet to come.
Take fuel, for example. The country is the world’s second largest consumer of oil after the United States, with demand of more than 6.5 million barrels per day. By 2025, the U.S. Energy Information Administration projects that number will nearly triple. Couple that with war and uncertainty in the Middle East, and fuel prices have skyrocketed. At press time, oil was just under $59 per barrel, up more than 75 percent since early 2004.
What’s more, China utilizes more steel and aluminum than any other country in the world. “China uses half the world’s cement supply and more than the United States,” Wang of Peking University says. “This affects the consumption in the world. There is a shortage of electricity in the provinces that are growing fast, too fast. ”
That’s a problem for U.S. pool builders and installers as well. “Our concrete and steel reinforcing costs have gone up significantly,” says Manny Griego, owner of Exotic Waterworlds in Santa Ana, Calif. “China’s infrastructure is growing at such a fantastic rate, [it’s] starting to affect other areas of our economy like the dry wall industry, too.”
Equally as challenging are the solutions. “Our members have had to increase the price of their pools,” says Dick Covert, executive director of the Master Pools Guild, an association of pool builders based in Richmond, Va. “They also might be slower to build because they’re waiting two or three days extra. It just takes longer to get [materials.]”
Covert says that some builders have put clauses in their contracts saying prices are subject to change. Others have shortened the time they will honor a quote down to 30 days. In more remote parts of the Midwest, some builders have banded together to buy and store materials in bulk, thus saving on costs. In the end, however, price increases may be the only real solution.
“Obviously, our costs go up to our consumers [because] we raise prices accordingly. We have no choice,” Griego says. “It’s to the point that if we were cutting the same deals we were two years ago, we wouldn’t be making any money. So we have to raise the costs and it affects those people who are buying. I think maybe the smaller fish, the people who have their own techniques or designs, are still going to get big. Either they’ll be looking for us or we’ll be looking for them.”
The reality is that in the next few decades no segment of the pool industry will operate in the same way again. Adjusting to the emergence of China will take time and proper planning. “It’s not as easy as it seems,” says Bill Kent, president of HornerXpress Worldwide, a pool equipment distributor based in Fort Lauderdale, Fla. “China is an important force in the world. It’s part of the world’s new economic system, and that’s not necessarily a bad thing.”
