I’ve grown fond of drinking milk imported from South Korea. It’s quite tasty, pasteurized and safe to drink. The French and New Zealand brands sold in Chinese supermarkets tend to be of the irradiated sort that can stand preserved on a shelf for a very long time. The China melamine scandal of the Fall of 2008 put me off drinking local milk, just when I had decided to go back to drinking the stuff. The last two weeks, though, and I’ve not been able to buy the South Korean brand because of an embargo China has placed on the stuff. I think the embargo has to do with the fierce competition the Chinese dairy industry still faces after its meltdown in the Fall of 2008, but I could be wrong – Koreans in China seem unclear on why their dairy isn’t getting across the border.

It seems the Chinese dairy industry is up to its old tricks again. Authorities in various provinces such as Guizhou, Sichuan and Jiangsu have swept market shelves clean of the brands, all of which hail from east-central to north China: Shanghai, Liaoning, Shandong, Hebei. According to a spokesman for the industry, melamine-tainted products were still available in the supply chain after the 2008 crackdown. A relaxation of oversight as well as graft contributed to the scandal after-shock.

The lack of transparency in regulation and enforcement compounded with government collusion with business interests puts a great many supply chains in China in jeopardy. The close social relationships between suppliers and producers amplifies knock-on effects in the same way a megaphone amplifies a whisper. If Western companies in China that rely on supply chains whose operations and inter-relationships are opaque, companies need to aggressively revisit suppliers and put in place systems and controls that keep operations above-board.

It does no good to get caught up in the backwash of someone else’s greed.

Further reading: NYT, China Daily

See also:

Managing the Message

Eating Their Young

Managing Black Dragons

Thar Be Black Dragons in China

The Black Swans of China

The People Made Me Do It

Finally, in My Backyard

Follow up:  China Begins Emergency Check of Dairy Products (NYT)

I just scored 133 points in the UK’s Premiere League Fantasy Football (Soccer) competition. That lifted me from 20th place to 17th place (there are only 20 places – my British counterparts in our Suzhou group are relentless ). My place at the bottom of the roster has a lot in common with Chinese football’s own position, a lot of which has to do with collusion and corruption (not mine, theirs). Police are investigating three football officials after the arrest of 21 other officials, players and club managers during the past three month s. Allegations of match-fixing and gambling on football matches are rife. As proud of Chinese are of their international sports heroes, and despite how enthusiastic they are about football, they all despair at their domestic teams and international lineup.

Football in China is also one of the few international sports the government has not institutionalized to the same extent as gymnastics, archery, ping pong or a couple other sports. However, it could be argued that State-directed sports programs are just as tainted as the officials themselves. Indeed, it seems almost weekly the government is arresting one corrupt official or another.

Then again, if there’s hope for my Premiere League fantasy team, there’s hope got to be hope for China’s own fantasy.

More reading: FT

My access to google (.cn and .com) are still intact, so the Chinese government has yet to retaliate against Google’s face-losing (for the government) accusation that the government sponsored a Spectre-like attack (for you Bond fans) on Google customer accounts (including, most recently revealed, several foreign journalists in Beijing). The Google gauntlet the multinational has thrown at the feet of China’s leadership has highlighted the concerns other multinationals have about their cyber-security. If Google’s email accounts can be hacked by a shadow organization in China, then certainly theirs can be, as well. At least, I hope that’s how their thinking goes. A recent poll showed that members of the American Chamber of Commerce in China (Beijing) stated, “we are concerned about the security of commercial correspondence, data and networks.”  The cyber-kerfuffle has also exacerbated a blow-back State-side, in which Chinese companies are increasingly under suspicion of being launch pads for cyber-attacks on American companies. Whether the Chinese government actually directed the attacks on Google accounts (as well as a score other American companies), the government must be increasingly cognizant of Newton’s Theory of Globalization: for every action there is an equal and opposite reaction (well, maybe it’s a corollary).

Though I do expect a rapprochement between Google and the Chinese government, I don’t expect the powers that be to end its cyber-intrusions into personal and commercial spaces. Companies based in China, then, should work into their IT controls frequent all-data back-ups to headquarters in their home countries. One never knows now when China-based systems might be compromised, and a blanket blackout Xinjiang-style might be placed on commercial hubs in China.

There may come a point when control becomes mightier than the Yuan.

Read more: Cyber attacks aimed at defense groups; US to increase scrutiny of China companies

Also see:

Googling Africa

Will China be In-grown or Grown-Up?

Broken Web

Are Your Employees Trustworthy?

Googleplexed

About Face the About Face

Protecting Copying Rights

A Chinese minister recently likened Google’s promise to stop self-censoring links the Chinese government considers illicit to Chinese companies polluting and exploiting their way through Africa without consideration for African mores and laws. It’s a comparison that badly misfires. The Minister chose to compare Google’s behavior in China with the clear and wanton exploitation of entire nations on the continent. Though at surface China’s investment in African infrastructure has benefited some communities, many African nations are beginning to put the breaks on Chinese laissez faire investment that sees a one-way extraction of natural resources with little else than roads to show for a debit that can never be repaid to the bit of Mother Nature for which they are charged as stewards. From accusations of Chinese companies bribing entire governments through shoddy workmanship, Chinese companies are not endearing themselves to African citizens to the same extent Google has opened up the world to Chinese internet users. Should one of China’s oil companies threaten to pull out of Nigeria, for instance, will African citizens lay flowers at thesteps of the oil company’s Africa office? I doubt it.

Read more: WSJ

See also:

Chinese Overseas Direct Investment Hits a Wall

New Prescription Needed: Blurring a Bi-polar World

African Terms of Endearment

What do “Canto Motto”, “OChirly” or “Masfor.SU”, and BRJ (short for “The Best Raiment of Jauntiness”) all have in common? I am increasingly seeing these and similarly other odd sounding names on storefronts in second- and third-tier cities in China (I am partial to the “Time Lord” – as an avid Dr Who fan, Tom Baker generation – which sells clocks). Chinese brands masquerade, copy and elaborate on Western brands like Zara and Donna Karan to appeal to Chinese consumers who have broken through the ground floor of the new middle class from China’s socioeconomic basement. China’s interior will present Western brands serious competition in terms of name brand recognition and cachet as Chinese brands tailored to Chinese tastes entrench themselves in consumer orientations. Western brands in clothing and white goods and automobiles will also have difficulty appealing to cost conscious consumers in China’s interior as Chinese do indeed have more disposable income, but not enough to splurge on an LV bag or a Gucci pull-over – especially if the buyers’ friends and family are simply unfamiliar with or unappreciative of styles that reflect little of their tastes. And yet, it’s the x-tier cities in the interior – like Jingzhou , Shouguang , Jinjiang and Shuangliu- that are racking up adolescent double-digit GDP growth rates while the eastern seaboard settles for middle-aged single-digit growth. So, though Western brands do have a future in China’s roughed interior; the battle, though, will be uphill from here.

More reading: China’s hinterland picks up the baton, China turns its gaze inward for growth

Past posts:

Moving On Up

Drink a Bag of Tea

Better information might have helped Marie

I’ve come to realize in recently having had my China visa renewed just how much more strict authorities have become in their dealings with foreign residents than in the past. Westerners that live here believe Chinese leniency for the sloppiness and/or laziness of Westerners ended as the 2008 Olympics approached. Now, with the leadership having steered the economy from the Scylla of global financial meltdown, it’s been bolder about the place of foreign investment in China. It sees no Charybdis.

Tom Friedman wrote recently in the New York Times that China’s government elite has a choice in whether it will permit its society to participate in the global Flow of information that will be the competitive fount for the 21-century’s innovative companies, or whether – by shutting Google down in the country – it will choose to close in on itself, so starving its home-grown companies from the vitality of ideas and perspectives circulating through the world wide web. Will the leadership be in-grown or grown-up?

I have very seldom seen leadership cliques surrender up power and wealth to forces they could not control, without first ensuring they would not lose the wealth they had accumulated and without making sure their power would dissipate into historic obsolescence. Usually, power-cliques that run companies and societies will sacrifice evolution  of the organization in favor of maintaining and consolidating power, if evolution means the new condition dissolves some of their power. Of course, we all say from the outside, “that’s suicidal.” “No organization wants to suicide.” The management of American corporations is based on this precept; hence, we allow listed companies to choose and pay for their own auditors; we imagine that the masters of the universe on Wall Street would never do anything to endanger the markets; and we believe societies would never attack other countries.And yet we have Enrons, Arthur Andersons, Wall Street, a couple of world wars and regional conflagrations that seem unending. The dissolution of apartheid in South Africa is one of the rare instances in the world in which the elite chose to devolve its power.

Consistently, when events come down to the power-clique deciding whether it should survive or its ward should evolve beyond it, the clique has chosen self-preservation. So, though I do believe the CCP and Google will actually come to a rapprochement during this round, I expect the powers that be to continue on the path its set itself to accrete wealth and power, and to consolidate it for the forseeable future, albeit more softly-softly than before.

Though China is nowhere close to melting itself down, the leadership’s entrenchment and refusal to diffuse power – even to its technology vanguard – can only lead to a China increasingly detached from the world.

Previous post: The Enron Effect and China

It was Andrew Hupert, adjunct professor at New York University’s Shanghai campus and author of the China Solved blog, who first brought up to me China’s trend toward what he called the Fractured Web, at a cafe in Shanghai during the summer of 2009. He saw the powers that be as having no interest in lifting the blocks on such Western internet institutions as Facebook, Youtube, Blogger and others. Indeed, bending the internet inward with the Great Firewall of China would relieve its fledgling internet companies a leg up on international competition, and reinforce the level of self-censorship the Party desires in the burgeoning information age.

Google’s revolt against cyber-intrusions and censorship has brought a spotlight on the degree to which apparatchiks have been able to bend internet space and fold China’s engagement with the world in on itself. The Financial Times, in particular, has an extended article on the evolution of China’s internet self-involvement, which, though certainly has government impetus, is also driven by cultural preferences and linguistic shortcomings.

As the FT rightly points out, though, “In spite of heightened censorship in the past year – leading to Google’s complaints – the internet is still the freest space in Chinese society.”

Past blog post: One Country, Two Webs

A Western friend, a General Manager, told me he had been requested to attend a meeting called by Suzhou Industrial Park government officials.  He chose to blow it off and have his Chinese plant manager attend, instead. He already knew what the meeting was about: how to manage employee disenchantment.

Several thousand employees of the Taiwanese-owned factory Wintek in Suzhou Industrial Park had violently disagreed with its management the week before; and hundreds of employees from companies around the  Park protested at the  Park’s Labor bureau at the weekend about a new policy that prohibited them from withdrawing funds their companies had deposited into a housing fund the Park manages.  Both events were more akin to revolt, sparked by expectations Chinese employees have of the upcoming Spring Festival squeezed through a funnel of  privations from the previous year. In other words, they wanted the right to money they had stashed away or waited for as the traditional Spring Festival bonus. Typically, a sizable minority of staff pick up and return to their hometowns at Spring Festival, never to return: to find husbands and wives; to get married; to start businesses of their own with savings and the help of their families.

The network effect of interconnected privations and expectations – Spring Festival, a tough year operationally, lack of bonuses and the possibility they would not be able to take savings home with them – created an avalanche of worker disgruntlement.

Both instances have been resolved: the Taiwanese company relenting on the bonuses; and by SIP administration relenting on the withdrawal of funds.

In general, Western companies invested in the region tend to err on the side of generosity toward their employees; whereas overseas Chinese concerns have their own interests at heart. Western companies, then, should have little fear of events overtaking their operations, as long as they extended even a modicum of respect toward their employees during the economic downturn last year.

Operations and administrators who were either cheap(er) or (more) autocratic during the downturn might see a higher staff  turn-over than usual after Spring Festival this year. If not the occasional revolt.

Further reading: CDT, Apple Insider

The possibility that Google employees were involved in facilitating the cyber-attack on their own company brings up serious questions about the security of companies overall that operate in China. Is your company safe from your own employees?

With the dissolution of Communist ideology in a profane society, most Chinese have taken on the mantle of nationalism to fill a collective existential void. The basis of this form of nationalism is the wrong that other countries have done China in the past. That includes the Opium Wars;the 21 powers that entered Beijing’s gates after the Boxer Rebellion in 1900;  plus Japan, with the  the atrocities its soldiers committed during its War of Aggression. Daily and nightly television programming and state-run papers in China rabbit on about the incursions as though they had happened just yesterday; meanwhile, most of the rest of the world has moved on to other challenges and to creating new chapters of history. Still, the leadership drones on in Cultural-Revolution fashion about building a strong, self-sufficient nation – even if it is at the expense of the trust other countries place in the Chinese experiment.

Companies in highly sensitive industries – especially those in which technology development has an abiding relationship with their home-country’s national interests – perhaps should be concerned with vetting employees a little more closely than in the past, and with creating monitoring systems and internal controls that act as firewalls against complete enterprise compromise.

It seems Western brands of open-ness and sense of “fair play” may not fit snugly in China’s chip on its shoulder.

Further reading: Reuters, CNET

As I sidled up to the counter in a Starbucks in Suzhou recently, the attendant – already well aware of my taste for espresso – called out the order to the barrista and then asked me, “Have you seen Avatar?” I didn’t know the Chinese name of the movie, so it took me a few seconds to figure out what she was on about. She chattered on, “It’s supposed to be amazing!” She pointed to the barrista, “He waited two hours in at the box office to get tickets. He said it was worth the wait.” The young man attending to my espresso grinned sheepishly.

Chinese officials are shutting down Avatar in about two-thirds of its movie theaters throughout the country. The movie has been wildly successful in the country, despite any allusions to military excursions far from home. Though foreign films are allowed to stay in China only about ten days, the film still apparently has a lot of pent up demand. China only has about 2,500 theatres and mostly those at or near middle class level will be able to see the film. Seating several hundred people at a time for a film that demands it be watched on a big screen (with or without the 3D glasses), means several hundred million people will be sorely disappointed when Chow Yun Fat (easily one of the greatest actors in the world, in my book) will stroke his pointy white beard as Confucius on Replacement Screens.

Though it would be considered rude and culturally regressive in China to protest the screening of Confucius in place of a glossy American sci-fi adventure film, I wouldn’t be surprised if many would-be theatre-goers simply did not attend screenings of the historical fiction. Certainly, DVD sales of Avatar will accelerate more quickly and in greater volume, much to the delight of the DVD black market in the country.

In any event, look forward to lines into remaining Avatar screens to be even longer, and demand to increase through word-of-mouth. It looks like it will be a while before I see the film, as I have little patience for waiting in lines with the chattering masses.

An espresso, anyone?

Further reading: NYT

Updates: Avatar survives on Chinese Screens (WSJ), China’s zeal for Avatar crowds out Confucius (NYT)