This is China! blog

Image Credit: Made-in-China

My column in the China Economic Review analyzes just how China’s back room dealings with Japan and control of supplies of rare earth minerals may leave China trawling in empty waters one day…

The Turbot War of 1995 saw Canada take a Spanish fishing vessel the Canadians claim were over-fishing waters just outside Canada’s Exclusive Economic Zone. Over a span of several weeks battle lines were drawn along Anglo-American and European Continental lines as the British and Irish sided with Canada in the international conflict against, it seemed, every other country in the European Union. At that time, the natural resource under contention was fish. Now at issue between China and Japan are deposits of oil and other natural resources in an island chain the Chinese call the Diaoyutai Islands and the Japanese call the Senkaku.. At stake for the moment is Japan’s access to rare earth metals it uses in its celebrated electronics and motors. Also held hostage is world’s ability to develop clean and renewable energy technologies to ensure the survival of entire societies.

Read more of the column …

Image Credit: zimbio.com

An American neighbor in my apartment complex recently told me how she has removed her daughter from the Suzhou Singapore International School (SSIS) because a large swathe of the student body has become militantly insular. “Only two Korean mothers showed up at a PTA [Parent Teacher Association] meeting. One of the topics under discussion was how to get the Korean students more involved with the rest of the student body. One of the Korean mothers offered,

‘Koreans don’t want to get involved with the other students.’” Koreans now make up about half the student body at SSIS, up from 30% in pre-economic downturn times. Most if not all the Korean students have followed their fathers to Suzhou, where the fathers work for large Korean companies.South Korea’s economy, like China’s own, suffered a downturn of only a few months during the global economic downturn of 2008-2009. Korean companies returned to the Yangtze Delta region with a vengeance. Nevertheless, the Korean students apparently prefer remaining in their tight clique, and don’t seem to have much use for the richness the international setting at the school offers. Also, the American neighbor offered, the children will inevitably return to South Korean schools, where they may well meet bullying if they are too different from the children who did not travel outside the country. The mother felt the education at SSIS was less and less “international” and was catering more and more to Korean predilections.

The same American mother told me the final straw that forced her to move her child to another international school in Suzhou came when her twelve year old daughter bought an attractive file folder from one of the male Korean students. He had assured her the folder could only be found in South Korea, and was worth two hundred yuan. The young girl bargained the fellow down to one hundred yuan. The next day they made the exchange, whereupon the Korean boy extracted several more of the file folders from his back pack and told her he had bought them at a local hyper-market in Suzhou for a fraction of the price he had just charged her. He then used the 100 yuan to buy sweets for his Korean buddies, which all of them ate in front of the girl while laughing at her. “The experience turned all her expectations for working toward a win-win agreement with people on its head. She was really upset,” her mother explained.

But then again, they didn’t used to call Korea before its schism “The Hermit Kingdom” for no reason.

Image Credit: Dante's Purgatorio

A couple of weeks ago at a dinner party with Chinese and expat friends talk turned to the difficulties expats seem to be having renewing their work permits. The topic came up after I’d asked how the visa process was going for a German friend moving to Suzhou from Nanjing. She believed renewal would be easier if she moved to another city in China than if she stayed in Nanjing to pursue another job offer: Nanjing authorities were asking for an unprecedented level of detail about her past working record in Nanjing than she had ever recalled. She’s lived in Nanjing nearly eight years.

A local American small business owner based in Suzhou seconded my Nanjing friend’s observation: he was having more difficulty than ever before in the four years he’s been in business in Suzhou in bringing onboard three other Americans in business support positions. His feeling was that it was not just foreign workers the central and local governments were targeting, but foreign employers, as well. Though he was no Microsoft or GE or Siemens, he definitely felt his business was being treated in ways it hadn’t been before the Great Recessison.

The consensus at the end of the meal was that foreigners increasingly needed to present themselves as not only indispensable to a China business, but also have a title that reflected a relatively high position in the organization. And that despite the central government’s assurances to the contrary, foreign companies in particular were in regulatory purgatory.

Further reading: FT, Bloomberg

My General Manager (GM) friend GM X forwarded me another email he used to explain to HQ just what’s going on now in China. He’s encouraged me to post the message, so other GMs and HQs may benefit from the observations.  GM X is an American with more than eight years in China running factories.  Every day is a new day for him, which is why he’s my friend:

It is becoming clear that there is an inevitable upward price correction coming on all metal products and possibly all products produced in China. The reasons are two fold, Power Limitations and Pollution Control Policy. These new policies came into effect suddenly within the last month. Factories are saying that the policies came without warning and are causing market corrections in pricing to align with the new reality of these policies.

Power Limitations

Several factories have told me that they are being forced to shut down for days at a time to comply with power usage policies that have recently come into practice. The reality of the situation is such that anyway to look at the situation this will cause an increase in prices, due either to increased cost of generating power at the supplier or the decrease in available supply or a combination of both factors. The net result is that by limiting the power, the prices will rise.

This upward pressure has already reached the top tier suppliers from there sub-suppliers, with many sub-vendor refusing to make current orders without in immediate increase in price. It is only a matter of time before the top tier suppliers pass that cost increase along.

Pollution Control Policy

It seems that China is taking immediate action to clean up the industries that she has. Over the past month there has been closures and consolidations in the plating industry in Zhejiang province, due to national level policies. This has caused an immediate reduction in available capacity for plating in the region. Lead time have lengthened and prices have increased practically overnight. There is a reverse auction taking place to secure plating services at the remaining suppliers. The top tier suppliers that are willing to pay the most are getting their orders processed first. This negotiation is taking place on orders that are already in production but are facing being bumped to the end of the line unless the plating supplier’s pricing demands are met. Prices have increased 70% in the past month.

Combined Impact on Steel Prices

The steel market has already been unstable over the past year due to increased demand and the change to spot pricing in the iron ore market. The above policies have aggravated the already tenuous steel market. A very large sheet steel supplier to one of our top tier suppliers, suspended order taking last week and held their stock until price of sheet steel increased sufficiently, then they began to take and fill orders. As you can imagine this type of behavior in the market is causing a spike in steel prices across the board.

Summary

Prices from top tier suppliers are increasing due to raw materials increases, power cost increases (if they generate their own power), and lost capacity due to mandatory power outages.

Technorati Tags: china, economic trends, globalization china

A few days ago I was pushing my son in his stroller with my wife alongside in the courtyard of the apartment complex in which we live. A group of middle-aged Chinese women sat on the round cement walls embracing trees a meter half a meter from the ground. They all had small children gathered round them; or rather, infants, for none of the children seemed to be more than a few months old. The women were either mothers-in-law charged with caring for their grandchildren or aiyi’s (service staff) families had hired to help out around their homes. One of the women called out to my wife and I in Chinese, “Oh, there’s Little Mixed-Blood.” (xiao hun xue) It was one of the mothers-in-law, smiling back beatifically. The other women cooed and gathered round the carriage.

“Did she just call my son Little Mixed-Blood?” I asked my wife. I didn’t know whether to laugh or to be offended. It sounded to my ears so, well, racist.

“Yes,” my wife answered matter-of-factly. She looked at my face, which I knew I had scrunched up like foam ball in a puppy’s mouth.”It’s actually a term of endearment,” she said sweetly. My wife, Chinese herself, basked in the attention her our son was receiving from the neighbors.

I suppose it makes sense in a society in which the gene pool is extraordinarily deep and simultaneously narrow that little boy should already be tagged as different. Difference, of course, can be both a badge of honor and a curse. In this instance, it seems rather more an honor. For the most part mixed-blood children are considered of above intelligence and ability and even good looks. Chinese who find out the partners of Chinese marriage couples are from separate parts of China become quite excited about mixing the gene pool. For instance, if a Beijinger marries someone from Sichuan, that’s a good thing, as the differences will make for a brighter child, goes the thinking.

Oddly, most Chinese parents seem against their child getting together with someone from another region or, especially, another country; however, nine times out of ten, they seem overjoyed at the living, breathing result: a child that is a true bridge between cultures.

Maybe despite their pride in their homogeneity, Chinese are actually deep down know they should shake up the gene pool now and then.

Though I am bald I know what a bad hair day is like (I used to have hair, you know): it’s when you just can’t get that cow lick down or that set of bangs straight or that afro even. It’s also a feeling. The day has started out poorly and you know it’s going to not go as smoothly as you like and you know it’s going to end in tears (yours or “theirs”).

Well, today I had a “bad google” day here in China. I am up to my armpits in copy edit – alligators for my new book (China Inside Out) and the editor expects me to actually be accurate with my footnotes (the sheer nerve!). In some instances that requires my digging up the original article, re-reading it and making sure I said what I meant and meant what I said and annotated it all. I use google to do that. Or, at least, that was my plan today.

But the GFW foiled my plans, with constant “Resets” to my web page searches via google. It wasn’t as though I was googling porn or historical faux pas the powers that be would rather forget (as well as have the rest of the world follow). The GFW also thwarted the vpn I use to get at the North American version of google; access to the search engine was patchy at best.  I was so frustrated and irritated I actually started using alternative search engines like Bing (good for article searches) and dogpile (good for images). As a matter of principal I refuse to use Baidu, as they are in bed with the nefarious technochiks who are getting up my nose while I try to do my work.

The more censors interfere with ubiquitous technologies in the name of leveling a domestic playing field by cheating, the more I root for the other guy. Bending the rules (even if they’re the WTO’s), will only hurt the spectators.

NOTE: The photo above was taken this past summer at a tour of a solar cell factory in China. Thanks to the wise guys I work with for the make-over. -bd

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I was recently interviewed on America’s National Public Radio from the broadcaster’s Shanghai office about the basis of the The United Steel Workers’ (USW) complaint against the Chinese government. The United Steel Workers Union is an 850,000-member strong labor organization in the United States that believes China is unfairly subsidizing its cleantech export industries. Energy-related American jobs the union believes China is sapping including manufacturers who make the steel for wind turbine towers and nuclear reactors and glassworkers who make solar panels and various kinds of incandescent and halogen light bulbs, which are manufactured in China then exported to the United States, according to the New York Times.The union wants the United States government to take the complaint to the World Trade Organization (WTO), to end what it sees is an unfair practice.

You can listen to the podcast interview here, and read the transcript of the interview here.

Further reading: NYT

Image credit: mywindpowersystem.com

Every so often I host a guest blogger with experiences and observations of his or her own in China. From time to time I’ll be hosting the writings of a friend of mine, an American General Manager (GM) who manages businesses in the Shanghai and Suzhou municipalities.

I’ll call him GM X…

The Inmates are Running the Asylum

Or so it would seem to be the case here in China these days. It’s well known that the recent increase in demand from the micro-recovery of the economy and the nationwide labor shortage have cause prices to skyrocket and leads times to lengthen but this stops short of explaining the changes that I am seeing throughout China. There is a general lack of willingness that I have not previously experienced.

The Shanghai Business Review recently reported the European Union Chamber of Commerce has raised further complaints about discrimination against Western companies in the Chinese marketplace. Much of the consolidation occurring in China industry, though, is premature, much like the American teenager who believes at age 15 he’s entitled to drive the family SUV because he’s all grown up. Many of the sectors that rely on extensive R&D and innovative approaches to technology application are wholly immature in China, however. In the September 2010 issue Eurobiz Magazine I write in my China Energy column that:

The overwhelming majority of Chinese engineers and the companies that employ them are quite literally without application knowledge of the technologies required to meet the conditions into which the wind turbines are thrust, especially in the rough conditions of offshore installations. More than a few European General Managers and CEOs have told me Chinese buyers for their components and chemical processes expect the vendors to educate the Chinese on the specifications their parts require. As the CEO of one Danish components maker expressed to me, “We ask them [Chinese buyers] for specifications and they ask us what the specifications should be, since we are ‘the experts’.” The lack of knowledge and experience of domestic wind power components makers of many of the domestic turbine and components makers is a constant theme in discussions with Western vendors. Vendors have found they have to provide additional training and longer sales cycles to potential and current customers in order to make and keep sales in China.

Check out more of the Eurobiz article here.