Jubak's Journal
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What China needs now: unions
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Instead, we should be going after the other end of the trade deficit by increasing the demand for U.S. and other goods from the developed world. We can't achieve that by putting the currency markets on the job. Private consumption in China last year averaged $520 a person. Think that average Chinese spending $520 a year is going to fill a trade gap running at $170 billion a year if there's a 10% drop in the price of U.S. goods?
To get that average Chinese to spend more, period -- and to spend more on U.S. goods -- he or she has got to make more money. Average real wages did climb 11% in 2004, and that did increase labor costs per hour by about 15% in 2004. But that only took the national average labor cost per hour to $1 from 87 cents.
At this rate, in five years, the Chinese average labor cost per hour will have doubled from $1 in 2004 to $2.01. That sure won't stop a lot of U.S. jobs from being shipped to China, and it sure won't provide a lot more demand for U.S. imports.
To do that -- to slow the move of U.S. (and Japanese and European) jobs to China and to increase Chinese demand for U.S. goods -- we should be doing everything we can to help Chinese workers get higher wages.
The challenge
And they do need help. The official Chinese rate of unemployment is about 4.5%. Outside estimates put it closer to 10%. And that's after years of better-than-9% economic growth. One problem is that even with China's drastic but successful population-control measures, the Chinese population added 149 million people, 10% more people, from 2003-2004. At 9% growth, the Chinese are basically adding enough jobs to stay even with population growth.
The problem is bigger than that, though. Many of the Chinese now counted as employed are working at jobs in money-losing state-run companies. These jobs are really just a state-run "make work" program. Other Chinese, especially in the countryside and smaller towns and cities, are underemployed. Estimates put as many as 100 million in this category.
It's tough enough to get your wages up if there are 80 million unemployed and 100 million underemployed workers in the national labor pool. It's even harder if you aren't allowed to organize in order to demand higher wages and higher benefits.
China's 'unions'
Following the path blazed by Lenin and the Bolsheviks after they seized power in Russia, one of the first tasks of the Chinese Communists after they gained power was to abolish all independent trade unions. Chinese workers can join unions, but only official unions backed and controlled by the Communist party.
Workers who try to organize independent unions, or to stage protests to demand higher wages or better working conditions, are liable to find themselves in a state-run psychiatric hospital or facing long prison terms.
That hasn't ended protests, however. It's just made them more ad hoc as demonstrators with a grievance, but without a formal organization that would challenge the Communist Party's monopoly on power, come together to confront factory or government officials. Estimates from within the Communist Party itself put the number of such protests at 60,000 in 2003, and that number shows an annual growth rate of 17% during the last decade.
These protests often result in a one-time payment -- in effect, a bribe to the demonstrators so they'll go home. They have been much less successful at tackling some structural issues, such as severance pay when a state-owned factory closes down, or health and safety issues in China's notoriously polluted industrial sector, or unemployment benefits that can be as low as $20 a month.
A long road ahead
After the U.S. emerged as a global economic power in the years following the civil war, U.S. workers fought, often in violent pitched battles against corporate goons and government soldiers, for the right to organize and for a bigger share of the economic pie. It took a good 60 or 70 years for workers to win that battle here. It's a measure of the success of those workers that today so many of us can think of unions as dinosaurs that have outlived their usefulness.
Chinese workers are just at the beginning of that battle for recognition and better pay. They've got a long way to go, and in many ways they face a tougher battle against their own economic system than U.S. workers did in the 19th century.
Anything we can do to speed them along that path is not only an act of altruism but also an act of pure selfishness. The faster the Chinese get rich, the better off those of us who live in the U.S., Europe and Japan will be.
The AFL-CIO has petitioned the Bush administration to impose trade sanctions against China if the country does not enforce workers' rights, and to negotiate an agreement with China that would reduce those sanctions if China complies. It's a start. You can find out more about the union petition here.
Changes to Jubak's Picks
Sell Tejon Ranch
If I owned Tejon Ranch (TRC, news, msgs) in the real world, I'd take some profits off the table here and hold onto the rest of my position. For long-term investors, this play on one of the few big undeveloped parcels of land north of Los Angeles is a long-term hold. But in Jubak's Picks, it's all or none, so I have to take my profits by selling the entire position. The stock has climbed above my $47 target price, and the stock has actually sold off after the company's very solid first-quarter earnings announced on May 5. The stock's chart has looked increasingly shaky since the middle of February, and now the 50-day moving average is in a clear downtrend. I think this signals a correction in the shares to be followed by base-building and then, finally, another advance. I'm going to let that play out over the next few months and see if I get another entry point into the stock. I'm selling with a 28% gain since I added the shares to Jubak's Picks on Oct. 3, 2003. (Full disclosure: I will sell my shares of Tejon Ranch three days after this column is posted.)
New developments on past columns
Now, only cheap stocks will make you money
On April 26, Schlumberger (SLB, news, msgs) reported first-quarter 2005 earnings of 65 cents a share (excluding one-time items). That was 4 cents a share above the Wall Street consensus. Revenue at $3.16 grew 18% from the first quarter of 2004, and came in 3% above analyst expectations. Of course, I like the higher-than-expected earnings -- largely a result of improved operating margins in the North American market. But I love what the company is doing with its extra cash. In the quarter, Schlumberger paid down its net debt by $159 million to $1.3 billion and announced that it would increase its capital budget for 2005 by 15%. That extra money will go into expanding the company's presence in emerging oil markets and introducing new oil field and exploration technologies, already Schlumberger's strong suit. As of May 10, I'm raising my target price to $77 by September 2005 from the previous $75 by June 2005. (Full disclosure: I own shares of Schlumberger.)
5 oil stocks for a dividend bonus
In my May 3 column '5 oil stocks for a dividend bonus,' I cited St. Mary Land & Exploration (SM, news, msgs) as an example of an oil stock that paid "nothing" in dividends. That was a mistake. St. Mary Land & Exploration, as a number of people at the company have been good enough to point out, pays a semi-annual dividend of 5 cents a share. I regret the error.
Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Schlumberger and Tejon Ranch. He does not own short positions in any stock mentioned in this column.
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