This is China! blog

David Pilling writes in his column in the Financial Times about the confusion China’s policy of “non-interference” in the affairs of nations – including its own – is beginning to create both at home and abroad. It’s workers in other lands are increasingly becoming marks for disgruntled guerrilla fighters, greedy warlords and merciless pirates. Keeping out of the domestic frays that are typically the cause of the seizures is becoming difficult for China’s leadership. One day, the country may just have to send in the marines, as an increasingly vocal citizenry is demanding.

Life outside the Great Firewall is about to become a lot more complicated than two thousand years of collecting tribute from neighbors ever prepared it for.

Technorati Tags: globalization

The recent squabbles between Hong Kong citizens and mainland political and media commentators reminds me of a story a Hong Kong lady told me about what angers HK people so much about their over-bearing cousin. The Wall Street Journal has written several articles about the incidents, which seem so far to have been more vocal than violent. Of late, protesting Hong Kong residents are raising placards branding the Mainlanders visiting HK as locusts.

The Hong Kong woman told me that Mainlanders gather at any of a handful of towns at MTR metro stations on the Mainland side of the border. The MTR is the Hong-Kong company that runs the city’s subway system. Just after their water has broken, and while in labor, the Mainland mothers-to-be rush to the metro line to the emergency rooms of hospitals on the HK side of the border. Talk about an uncomfortable – and possibly, unsightly – ride for other passengers on the unfortunate carriage. The emergency rooms of publicly funded hospitals are obligated to accept all-comers. The result for the newborn? Instant HK passport, education and social services.

Private HK clinics are not so keen to see the flow of Mainland birthing-tourists restricted, as they apparently make a huge amount of money from the business, according to the woman. Still, it’s the social welfare that finds itself under yet more pressure with each additional birth from a Mainlander, whether the infant is born in a public hospital or private clinic.

Locusts should be so clever.

It was September, and an angry mob of 500 villagers were breaking through the chain-link fence of a solar cell factory belonging to Jinko Solar Holding Company, intent on ransacking the premises. A torrential rainfall had flooded the company’s mismanaged vats of toxic waste and carried the contaminated water into a nearby stream in Haining, Zhejiang province. On the day after the deluge, residents in the area reported seeing dead fish floating in the surrounding waters for hundreds of square yards.

The problem was a result of both government ineptitude and corporate inaction. Though the local Environmental Protection Bureau (EPB) punished the facility five months before the incident for improperly storing and managing the waste, the factory had continued to operate as usual. Jinko Solar was supposed to have paid a fine of RMB470,000 (US$73,600) and shut down the plant until its waste management system was robust.

But by the time the autumn rains had swept through, the facility had yet to act on any of the injunctions the EPB had set against it. The result was a rampage by angry local citizens that caused thousands of dollars in damage and demoted the “green credentials” of the New York Stock Exchange-listed company.

This is the irony of green- and clean-technology manufacturing in China: Without the proper technology, safety controls and management procedures in place, the manufacturing processes can be terribly polluting. In China’s rush to gain market share and satisfy its voracious appetite for energy, officials and companies have pulled out many safety stops and unhinged production goals from economic fundamentals.

Read the rest of my January 2012 China cleantech column here …

A Canadian acquaintance and I recently had a discussion about the state of China’s animation industry as part of the services outsourcing platform China has been promoting to the world. Mark has been an animator based in China for more than twelve years, mostly for Western productions. This year he took up a long-term project with a Chinese production company, which is creating a 3D animated movie. Mark was seeing that the animation industry in China had almost completely turned to create productions for the domestic market. “Costs are simply no longer competitive,” he said, “The Americans are doing their stuff in-house, now.” Quality and sophistication of the animations, as well, has a long way to go. Don’t expect any animated films or television series on the order of the Japanese “Ghost in the Shell” from Chinese studios perhaps in this lifetime (for reasons that are just political as they are technical).

Now that I have a toddler of my own I find myself flicking through local Chinese TV stations to find children’s programming that’s interesting for ME to watch. It doesn’t exist – at least, the stuff that’s domestically made. It’s all South-Park style animation – flat, basic shapes put together with citrus-sliced smiles. South Park animators, though, draw their characters with affect. Chinese domestic animators, I think, don’t have the budgets or the delivery schedules or the skills or the technology or the patience to produce Japanese-style animations (anime). I think the best Chinese animators are working for the gaming industry, where they can copy World of Warcraft and other popular universes.

Of course, salary inflation in China and salary deflation in the West have rebalanced the flow of animation work, dealing a blow not just to animation as a services outsourcing industry, but also to software application development, back office administration and other long-distance support services.

Seeing Chinese services outsourcing for international customers on the same scale as Indian-style platforms is as likely as seeing a well-drawn children’s animated feature come out of China with international appeal. A very long shot at best.

I’ve just finished reading Tim Harford’s new book, “Adapt: ‘Why Success Always Starts with Failure“, in which he discusses situations that present Fundamentally Unidentified Questions (FUQs). Econometrician Josh Angrist actually came up with the concept and the term (and the acronym), Hartford writes.

A prime example of a FUQed situation Hartford offers includes the effect of carbon dioxide emissions on the world’s climate. No one knows for sure what – if any – outcome there will be from fouling the air as we have since the beginning of the industrial revolution, since we cannot run control experiments with another earth that, for instance, has no emissions produced by industrialization.The implications for earth and human civilization are ultimately unanswerable. We’ll know when we get there, in other words.

As I was reading this chapter I thought about China and its great experiment to build a sustainable society founded on socialism with Chinese characteristics; or, read another way, capitalism run wild with an autocracy as steward. It’s rather a unique experiment in world history, given that it involves nearly a fifth of humanity building infrastructure and manufacturing stuff at a pace never before seen in human history.

This weeks’ Economist Magazine (September 2, 2011 issue)  also put me in mind of the extent to which China is FUQed. The magazine’s survey of Chinese business structures includes basically four different kinds of experiments, all vying for viability in China:

1. completely State-owned Enterprises (SOEs);
2. joint ventures between SOEs and foreign manufacturers involving technology transfers and market access;
3. fully privately-owned Chinese companies in which the government frequently mettles;
4. local government champions

As the Economist writes, “At the very least, they constitute an important series of large-scale economic experiments with implications for China’s economy and, because of China’s size, the world, too.”

Now that’s got to be F*@#ed up.

I’ve always advocated that looking to what Wenzhou business is doing around the country is a leading indicator of where the rest of Chinese business will be following. They were amongst the first Chinese to burst onto the export manufacturing scene in the 1980s: Zhejiang province – compared with northern China, especially – was relatively free of the encumbrance of State-owned Enterprises. They were also amongst the first of the migrant workers to settle in the periphery of Beijing in the early 1990s to set up small manufacturing and trading operations, and to have their settlements destroyed and the migrants sent packing home.

Their revenge since that time has been to build an export base in the city that manufactures the majority of the world’s trinkets, including cigarette lighters 60-percent, apparently), creating one of the highest concentrations of millionaires in the country. Wenzhou wives are reputed to work in local circles to pool their money to buy up real estate around the country, in cities in Shanghai, then to sell off the properties after they’ve risen in value.

Now, Wenzhou is signaling exporters are increasingly having a difficult time getting bank loans to continue or expand operations. The Wall Street Journal reported, “that 90-percent of Wenzhou’s 360,000 small businesses” are not able to get loans for their businesses from local banks. So, what, you might say, it’s been tough for most small and medium sized businesses in China anyway.

Even Chinese consider Wenzhou people special businesspeople, however. Wenzhounese are especially cliquey. They have especially tight ties within their business community and with one another throughout China. The tight circles of relationship and reciprocal obligation are called guanxi in China. So, if Wenzhou guanxi with their local banks is not enough to facilitate loans with their own ilk, that’s as clear an indicator as any that the SME-exporters in other parts of the country are in for a tough time.

The report concludes that some of the Wenzhou businesses are on the verge of closing down. We may be at the threshold of another export manufacturing shakeout in China, very much like that which began in the Fall of 2007.

Stay tuned.

Technorati Tags: Doing Business in China, economic trends

AP Photo

A China Realtime Report cited a Weibo text that had sounded off about the recent, fatal accident between two high-speed trains running the Hangzhou-Wenzhou line. The message – from a Chinese national – was so well written, succinct and accurate I had to pass it on:

“When a country is corrupt to the point that a single lightning strike can cause a train crash, the passing of a truck can collapse a bridge, and drinking a few bags of milk powder can cause kidney stones, none of us are exempted,” wrote another Weibo user. “China today is a train traveling through a lightning storm. None of us are spectators; all of us are passengers.”

“Egads!” I thought to myself, “I’m one of those passengers!”

Technorati Tags: middle class, social trends, urbanization

The central government may actually be coming to the realization that infrastructure development efforts of the past couple years at least have simply been unsustainable from a quality and quantity point of view. The bullet train accident on the Hangzhou-Wenzhou line this past weekend  as well as problems on the Beijing-Shanghai line have clearly shown up the faults in such a muscular approach to modernization.

However, the probability of additional incidents occurring has increased as government authorities have sent out a directive to media channels to focus on the rescue efforts; journalists are to avoid reporting on the causes and repercussions of the crash, according to the Wall Street Journal. Of course, all manner of cover-ups will likely ensue, as the problem with the trains is systemic – the train accident was symptomatic of a wider web involving ignorance, arrogance and corruption.

The incident has seen the shares of the listed train companies involved in the accident plummet, and governments once interested in purchasing Chinese “re-innovated” train technology are reconsidering their options. World opinion about Made in China, however, has remained on a par, however.

Little short of a long stretch of miracles as far as the eye can see will convince the world China’s investments overseas are about little more than a resource grab or money-for-crap schemes.

Technorati Tags: china, economic trends, globalization

The Wall Street Journal has a DIY Guide to Exposing Dodgy Companies that reminded me of a due diligence trip I took in China a couple years ago. I was leading a group of European investors through deepest Zhejiang province. They were interested in acquiring a Chinese company in the home decoration industry. We had identified three potential targets. All it took, though, was a visit to the first company for the group of straight-laced Westerners to understand how businesses operate in China – and just what sort of business model many Chinese companies are attempting to export to the world.

Two brothers in their early thirties owned that first company. The factory was actually in the middle of the city, in a compound that had once been the site of a State-Owned Enterprise. The brothers were soft-spoken, courteous even, and solicitous. Settled in the spare conference room, the parties talked about the business and prospects for growth. The Europeans asked to see the accounting records for the company. One of the brothers and an assistant, a young woman in a factory smock, brought out two great ledgers, hand-written. Two books? the Europeans queried.

“Oh, one book is for us and the other for the tax authorities,” one of the brothers answered blithely. “They don’t want us to report too much income, so we have to keep the records elsewhere.,” he explained. Apparently, the difference in actual vs. reported was negotiated and channeled to tax patrons. Neither of the brothers considered maintaining at least two sets of books or tax negotiations or contorted shareholding structures at all improper. It was just the way things ran in China. Visits to the remaining two targets revealed the same modus operandi.

It’s no wonder, then, that Chinese businesses seem genuinely aggrieved that Western shareholders and stock exchanges consider their business dealings improper at best, down-right illegal at their most dramatic. After all, what’s worked for a society for thousands of years must be good for the rest of the world.

Mustn’t it?

image credit: factsanddetails.com

Angela Merkel, Prime Minister of Germany, isn’t even imagining a day when a German nuclear plant might meltdown in her backyard. And given that Germany doesn’t have a very big back yard, it’s probably well and good. Chinese suppliers – especially of solar power photovoltaic (PV) modules – must be dancing in their factory compounds. Overcapacity of production of PV cells and modules in China has driven profits for the hundreds of PV manufacturers that piled into the marketplace the last three years. Germany’s recision last year of feed-in tariffs that made it affordable for German investors to buy Chinese solar power products had hit Chinese suppliers hard. Now, the game is on.

Prepare to see even more Chinese PV manufacturers crowd into the game.

Further reading: BBC

image credit: morrisonworldnews.com

Technorati Tags: renewable energy