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Electronics Production | June 24, 2010

Why China’s Foxconn will hurt the global economy more than the BP oil spill

The financial markets have been rocked by the BP oil spill. But, there’s another incident – one that happened halfway around the world – that could have a much greater impact on the global economy, according to a new article from Money Morning.
According to investors web site Money Morning, the financial markets have been rocked by the BP oil spill. But, there’s another development – happening halfway around the world – that could have a much greater impact on the global economy, according to a new article from Money Morning.

The incident? The tragic suicides of 10 workers at Foxconn International Holdings in China – all because of a dispute about wages.

Before this month, chances are pretty good that you’d never even heard of Taiwan’s Foxconn International Holdings. And yet, Foxconn is one of the world’s most-important manufacturers – with a list of clients that includes Intel, Sony, Apple and Microsoft.

Now, Foxconn is at the centre of the revolution over labour costs that is currently unfolding in Mainland China.

And, in the wake of China loosening the yuan’s de facto peg to the dollar, the Foxconn incident could prove to be more than an isolated incident. In fact, the Foxconn incident could hit the global economy much harder than even the BP oil spill.

Money Morning contributing editor Martin Hutchinson, a former merchant banker and market historian, thinks that China’s decision to let the yuan appreciate against the U.S. dollar will actually magnify the impact of this incident.

“If the Chinese currency strengthens, the yuan-denominated wage increases will have an even-more-inflationary effect on the cost of China-made goods selling at your local Wal-Mart," says Hutchinson.

Find out more about the “Foxconn Effect” in: Why China’s Foxconn Will Hurt the Global Economy More Than the BP Oil Spill. The full article is posted on the Money Morning web site.

http://moneymorning.com/2010/06/22/foxconn/

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