Is Unemployment In China Good For Your Business?
By Paul Midler | February 17, 2008
Someone has declared “the party is over” because of looming unemployment (due to a downturn in the global economy). I have doubts that China’s economy is going to slow so much that it will affect employment , but, anyway, a decrease in demand for labor might be helpful in offseting the effects of “agflation” (agricultural inflation).
What concerns me far more than the cost of labor in China is the quality of labor.
Topics: China | 3 Comments »
Fasten Your Seatbelts: China Pledges To Build Ninety-Seven New Airports
By Paul Midler | January 27, 2008
While the investigation of the Boeing 777 crash carries on, China has announced a progressive plan to build 97 new airports in just twelve years. So many airports! I am sure they would require quite a number of new aircraft. That would be great for Boeing…unless of course the aircraft manufacturing suggests that China had something to do with the crash.
We don’t know whether this is about government officials ‘playing the China game’, or whether this is mere coincidence, but in any case it is impossible to imagine Chinese government officials just sitting on their hands while awaiting the results of an investigation of this nature.
Topics: China | 14 Comments »
Israel To Produce Electric Cars
By Paul Midler | January 21, 2008
On Dec 27, TheChinaGame.com reported on a deal between Israel and China, and there was some speculation that the deal had to do with efforts in Israel to promote the widespread use of electric cars. Looks like we were correct.
The New York Times and others are reporting a major deal involving Renault and Nissan. No word on how China fits into the picture, but my guess is that it will.
The most interesting thing about today’s news is that these cars will be sold to consumers in a way that resembles the way cell phone carriers sell their phones. The company subsidizes the cost of the initial hardware, and then the consumer takes it up the tail pipe (so to speak) for the duration of the contract period.
I have a great idea, by the way: Patent a device that broadcasts an artificial motor noise so that pedestrians can hear these electric things coming.
Can’t tell you the number of times that I’ve been walking down the street in a Chinese city and had one of those electric bikes whip past without warning and at close proximity. It’s a shocker. About the only downside I can see in an electric world is traffic that produces no sound.
By the way, if such a device were to be patented, volume and pitch could be programmed to increase with speed so that a pedestrian with normal hearing would get some idea of the extent to which a threat is imminent.
Topics: China | 4 Comments »
Jet Fuel: The Next Quality Problem To Come Out Of China?
By Paul Midler | January 19, 2008
A Boeing jet crash landed in London last week, and officials are trying to determine what went wrong. Turns out that flight BA038 originated in China, and one very likely possibility according to investigators is that the fuel was contaminated.
Topics: China | 13 Comments »
Trump Building Collapses in NY: Could China Be To Blame?
By Paul Midler | January 15, 2008
Last year, I wrote an article describing fading quality in China, and one of the examples I used involved concrete shoring systems. Here’s the related excerpt:
“One of the most disturbing examples I have encountered while working in China involved the manufacture and importation of aluminum systems used to construct high-rise commercial buildings. These are the systems that support tons of concrete as it is being poured, and their general stability is critical.
The American company that designed and patented the system engineered all key components. It knew exactly how much each part was supposed to weigh, and yet the level of engineering sophistication did not stop the supplier from making a unilateral decision to reduce the specifications. When the “production error” was caught, one aluminum part was found to be weighing less than 90% of its intended weight.
Where did the missing aluminum go? Into the factory owner’s pocket as a cost saving. The only thing passed on to the customer was an increase in product risk. Quality fade is like the straw that broke the camel’s back–only in reverse. Suppliers push the limit by taking more and more out of the equation until they are caught, or until disaster strikes.”
The very next week after the article was published, there were two high-profile collapses of concrete projects under construction, and I mentioned them both on a blog post here at TheChinaGame.com. One was a bridge in Arizona, and the other was a casino in Las Vegas.
This week, we had a particularly high-profile collapse, at a Trump project in Manhattan.
“Preliminary reports indicate the concrete formwork on the 42nd floor failed, leading to part of the formwork collapsing onto the 40th floor. Buildings forensic engineers have determined the new building under construction is not in danger of further collapse and the crane at the site is stable.”
At the time of the bridge and casino collapses, I was in touch with an attorney who was asking me about quality issues in China (he was looking to put together a class-action lawsuit involving defective products made in China). At one point, I changed the subject and suggested that he look into collapsing concrete projects. His response was typical of a lawyer: “Is anyone dead? I can’t touch it unless someone’s dead.”
The good news (make that, bad news) is that someone has died at the Trump building, and another couple may have been injured. Maybe now there will be a little more attention given to the issue, who knows. At the very least, some responsible journalists should get involved and ask why are we seeing more collapses of concrete projects. What is it about construction in 2008 that makes it so much riskier than construction in 1978?
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[I should have more on this issue coming from an industry insider. Check back again in a few days?]
Topics: China | 14 Comments »
Unbelievable: Toy Exports Out Of China Up 20% In 2007!!
By Paul Midler | January 6, 2008
Toy exports out of China were up last year - big time. The country exported US$7bn in the first ten months, which represents a 20% increase over the same period in 2006! Not only were exports up by that much, but the growth rate for the period was 14% higher, as well. It seems that recalls actually helped the situation - can that be possible? In case you’re wondering, by the way, the United States market saw an uptick of 13% during the period, and the European Union saw growth of 30%. The two markets together account for 68% of all toy exports out of China.
Do the glowing statistics mean that Mattel need not have bothered with that kowtow in Beijing then?
I have been trying to think of a logical explanation for these export statistics, and one possibility comes to mind: China held back a great many defective toys, went about producing their replacements, and in the end they exported the good along with a significant portion of the bad.
I received an e-mail - actually, a Facebook invite - from a reader who wanted to point out the dearth of media coverage related to the destruction of recalled toys. Only out of Mexico have we seen any good story: The Mexicans made a show destroying 175,000 toys. Where untold millions of defects wound up this season is really anyone’s guess.
Explanations welcome…
Topics: China | 8 Comments »
The Road East Runs Through The West: Ikenberry on ‘The Rise of China’ in Foreign Affairs (Jan/Feb 2008)
By Paul Midler | January 1, 2008
If you have never picked up a copy of Foreign Affairs before and are a China watcher, I strongly urge you to get a copy of the current edition (Jan/Feb 2008), which includes an excellent article by G. John Ikenberry. I was lucky enough to have had the chance to take an international relations course offered by the author while in graduate school, and I only wish that we had this article to discuss then.
“The Rise of China and the Future of the West” is a piece that calls into question the assumption that China will necessarily replace the United States as hegemonic power. China’s rise is different from that of the United States, the author suggests, because China would be faced with the challenge of toppling not just the global contender, but an international system.
Geopolitics is not a sporting event like the World Series where a playoff ends in a winner-take-all; it’s about building strategic alliances. And while some worry about what might happen should China’s economy become slightly larger than our own, we are reminded that the US is a part of a larger order that includes other leading countries.
“These leading states, most of them advanced liberal democracies, do not always agree, but they are engaged in a continuous process of give-and-take over economics, politics, and security. Power transitions are typically seen as being played out between two countries, a rising state and a declining hegemon, and the order falls as soon as the power balance shifts. But in the current order, the larger aggregation of democratic capitalist states — and the resulting accumulation of geopolitical power — shifts the balance in the order’s favor.”
The United States created the current order at the end of World War II, starting at Bretton Woods. A large number of multilateral institutions assured greater political and economic integration and higher levels of geopolitical stability. China has benefited through participation in a number of these institutions, including the UN Security Council and WTO, among others, and the author predicts that China will increase its level of participation in the system because “the Western order…is hard to overturn and easy to join.”
The author issues a warning, however. He points out that while the US helped create the current world order and that the balance is in the order’s favor, there are risks. The US is not often a willing participant in the order, and he suggests that this is a mistake:
“Many Bush administration officials have been outright hostile to the multilateral, rule-based system that the United States has shaped and led. Such hostility is foolish and dangerous. China will become powerful: it is already on the rise, and the United States’ most powerful strategic weapon is the ability to decide what sort of international order will be in place to receive it.”
One additional warning, but we already knew that this was taking place:
“The strategy here is not simply to ensure that the Western order is open and rule-based. It is also to make sure that the order does not fragment into an array of bilateral and “minilateral” arrangements, causing the United States to find itself tied to only a few key states in various regions. Under such a scenario, China would have an opportunity to build its own set of bilateral and “minilateral” pacts. As a result, the world would be broken into competing U.S. and Chinese spheres.”
Excellent article anyway, and in case you missed the link above, here it is again.
Topics: China | 3 Comments »
China Helps Farmers Purchase Electrical Appliances
By Paul Midler | December 31, 2007
China’s central government announced that it will be helping rural folk by subsidizing the purchase price of electrical appliances. The move was said to be a boost to domestic consumption, but I can’t help think that this is about making the poor classes feel better about missing out on China’s great economic boom.
“Farmers will receive 13 percent rebates in prices for color television sets, refrigerators and mobile phones, the Ministry of Finance said… air conditioners and washing machines would join the subsidy list in the future.”
If Louis XIV were Chinese and alive today, his wife might have offered: “let them eat refrigerated cake”.
Topics: China | 1 Comment »
Sister Cities International: The Oracle Of Municipal Matchmaking
By Paul Midler | December 29, 2007
In case you haven’t heard the news, four new US-China air routes have been announced. Beginning in 2009, the routes will run between: (a) Philadelphia-Beijing; (b) Chicago-Beijing; (c) NY-Shanghai; and (d) Detroit-Shanghai. Great news, but the announcement made me wonder how much thought went into the choices here.
One organization pairs up municipalities as a part of its charter - Sister Cities International. Local government types are involved, and the point is to get your hometown matched up with a “sister city,” or a “twin town”. They say that it’s a diplomacy network, but I suspect that it’s just an excuse for the occasional cross-border boondoggle. No matter the point, it’s always fun to see what city is a sister of what other city.
When I was in Chengdu and discovered that its sister city was Phoenix, I thought: now, that makes sense. Both are western towns, landlocked, and geographically isolated. Traveling over the years, I’ve found myself amazed at how well some of the cities are matched. Just take a look at these examples from China:
1. Shanghai / San Francisco. That kind of makes sense. Both are rather romantic towns with old-fashioned architecture. Tons of tourists.
2. Guangzhou / Los Angeles. Like LA, Guangzhou is a city of immigrants, and it has no real geographic center. Gertrude Stein once said of Los Angeles that the problem was “when you get there, there isn’t any there there.” That pretty much describes the ‘Zhou.
3. Hainan / Hawaii. Tropical island, Hainan, paired up with Maui, Hawaii? That’s a no-brainer.
4. Harbin / Minneapolis. Two cities where the locals don’t just live in the snow - they get off on it. If you want to show a lady in Harbin what a gentleman you are, take her out for an ice cream in the dead of winter. I bet that one makes perfect sense to a Minnesotan.
5. Xishuanbanna / Austin. There’s something to this link. Both are smaller places that are laid back and have tons of character.
6. Beijing / NY & DC. Beijing, the harlot! She’s two-timing it with Washington DC and New York. The double pairing makes sense, though, if you think about it.
7. Qingdao / Miami. Both magnets for retirees.
8. Hefei / Columbus. Hefei in Anhui Province and Columbus, Ohio? Now, that’s just pure genius.
A more complete list of China’s sister cities can be found here. Welcome to leave your own comments related.
Topics: China | 5 Comments »
China, Israel: Making Electric Cars?
By Paul Midler | December 27, 2007
The definition of “global community”, according to Dave Barry, is any three nations that can build a decent car, plus, if he’s not off building houses somewhere, Jimmy Carter.
China’s political clout has never quite matched its car-making capabilities, that’s for sure. And another country that is lacking in the auto-producing capacity is Israel. Now, it seems, the two are getting together, and at least one news source seems to think this JV is about producing electric cars.
“Quantum, an American subsidiary of holding company Israel Corp., announced it was embarking on a joint venture with an unnamed Asian automaker, reported Detroit News. Israel Corp. has now won approval from China’s still heavily centralized government to set up shop in partnership with Chery Automobile. The Israeli partner will take a 45% stake in the venture, worth about $225m, with Chery presumably taking the other 55%. The news of the deal was announced shortly after reports of an ambitious plan to put 10,000 electric cars on Israeli roads by 2010.“
I have doubts about an electric world. One reason is that the oil companies have too much vested interest in keeping from the public any technology that might prove a substitute to petrochemicals. Hydrogen fuel cell technology showed great promise, until major auto companies bought into it. And now the tech languishes in “development”.
China is outside of the oil oligopoly, though, and as a resource-constrained economy it has a vested interest in finding alternatives to fossil fuels. Electric bikes are increasingly popular in the streets of China (well, in “flat” cities anyway), and China is already making small electric Disneyland-style cars that ride fast and smooth. If China can deliver a proper electric car where US auto makers fail, that would really be something. And if they could develop a hydrogen fuel cell vehicle before the West, well, then…
Topics: China | 5 Comments »
Alcatel-Lucent Bribes Chinese, Realizes Solid “ROB”
By Paul Midler | December 27, 2007
Alcatel-Lucent has settled its bribery case with the US Justice Department. The telecoms giant was busted for bribing Chinese officials, the graft having come in the form of lavish trips for their Chinese guests.
The cost of the trips was estimated at hundreds of millions of US dollars, and we can assume that the benefit to the company was in excess of what it had “invested”. And yet the company was ordered to pay only US$2.5mn! This is the brand of democracy we’re talking about when we note the rest of world wants to be more like us.
The multinationals should really create a new business ratio for benchmarking China efforts of this nature. Call it “ROB” - return on bribes. Consider it like an “ROE”, but, more specifically, for graft payouts. Alcatel-Lucent is going to end up paying $2.5mn, but they will have presumably receive hundreds of millions in benefit - and no one is going to jail - hey, that’s a nice “ROB”.
From the article:
The US Justice Department alleged that during those years, Lucent sponsored Chinese official trips to the U.S., Europe, Australia and other countries on the grounds of “factory visits” and “training.” In fact, Lucent had already outsourced most of its manufacturing overseas, and there weren’t any facilities for Chinese officials to see in the traveling destinations. Most of the trips, according to the Department, lasted for two weeks and cost 25,000-55,000 US dollars each.
Analysts say China is a lucrative telecom market, but also one where there’s a high level of business bribery. A case concerning Siemens is still under a bribery probe. But the Lucent case serves as a wakeup call to multinationals in China who are trying to find the balance between playing the “hidden rules of the game” in China and Western business codes.
And in Chinese, here.
Topics: China | 4 Comments »
Pew Research On Attitudes Towards China: It’s About Trade
By Paul Midler | December 19, 2007
The Pew Research Center has published a survey of global attitudes towards China. It’s a simple barometer that asks citizens of various countries whether they have a favorable or unfavorable view. The survey suggests that attitudes are connected to politics, but I see a more direct trade-related link.
Economies that have seen their export sectors devastated have strong negative views towards China. Turkey is one telling example with 53% expressing a negative view. Turkey used to make for Europe many products, but much of that has now gone to China.
Similarly, Italian goods are being made in China, and negative views on China are at 61%. Germany and Japan are both strongly negative towards China, and I think this is about a weakened industrial base in both of those economies.
On the positive side now. In South America, the Chileans are 62% in favor of China. I doubt that Chile has lost anyting to China. I don’t have the numbers in front of me, but I know that China is buying a lot of Chilean wines. Chilean is among my favorite wine in China, and the price-to-quality ratio is on target. I don’t know what else is happening in Chile except wine, but I’m guessing Chile is an easy beneficiary of China’s rise and that few domestic industries are being turned upside down as a result of China’s advantage.
Topics: China | 4 Comments »
Nanking (2007): The Movie Review
By Paul Midler | December 19, 2007
Just received glowing recommendation for a movie that recently earlier this year. Nanking is the title, and a friend is allowing me to reprint his comments on the title. I’ve placed a link to Internet Movie Database (IMDB.com), which is my #1 source for info on the movies. If you happen to be in Manhattan, it’s playing at the Film Forum on Houston Street.
“In the unlikely event you have a chance, I’d recommend seeing Nanking, about how a group of Westerners (mostly American missionaries and German (Nazi!) businessmen) saved thousands, maybe hundreds of thousands, of Chinese from the Rape of Nanking. It’s a moving and informative film where survivors try to grapple with the fact that a bunch of strangers, and wai guo ren at that, actually went to such lengths, and took such risks, to save them. Even 70 years later, the idea that some people are altruistic or may seek to do good when it would be easier not to does not seem to dawn on these senior citizens, whose life encompassed WWII, the Communist Revolution, the Cultural Revolution and the Capitalist Revolution.”
Topics: China | 3 Comments »
Japan Shoots Down Missile In Space
By Paul Midler | December 19, 2007
Japan shot down a ballistic missile in space, high over the Pacific Ocean. This was done in coordination with the United States, and the only thing we can wonder is what China makes of all this. The reaction from Beijing was said to be “muted”, though it added that it “hoped Tokyo’s actions would be positive for peace and trust in Asia.”
China destroyed one of its own satellites in space, leading to great concern over China’s military intentions. I quite like China’s speechlessness over Japan’s recent missile testing, and I wonder where this is all going to lead. None of know what China intends, though it insists “we come in peace”.
When it comes to military involvement, Japan has cold feet - the result of lingering regrets over World War II - but with the US and China both making overtures to Tokyo, it’s going to be interesting to see what role Japan plays in the region in future. The Japan-US missile test is said to be about North Korea, but I can’t help but think this is just as much, if not more, about China.
Topics: China | 2 Comments »
Li & Fung Expanding India Operations
By Paul Midler | December 16, 2007
Li & Fung is looking to double operations in India over the next three years. Today, India accounts for 6% of the revenue. What I wonder is how much of this expansion has to do with rising prices in China.
Even more interesting is that the firm has claimed the expansion will allow the company to leverage the large talent pool of global managers in India. Now, if a Hong Kong company can’t find leadership talent in Mainland China, what does that tell you?
For those who don’t know the company, Li & Fung is one of the largest companies of its kind in the world. Formerly considered a trading company, they do the same thing that outsourcing firms do, but on a much grander scale. They are best known in garments and they have made brand name product for some of the biggest fashion companies in the world. With over 20,000 employees, the firm had reported annual turnover of $10bn last year, and they have offices in over 40 countries.
For more on their business model, I recommend the book, “Competing in a Flat World”, written by Victor Fung, William Fung and Jerry Wind, Professor of Marketing at The Wharton School. The book is available at Amazon.com.
Topics: China | 2 Comments »