This is China! blog

The Financial Times recently published two articles about the increasing number of protests in China after the Foxconn suicides and Honda plant shut-downs spotlighted employee dissatisfaction with salary levels and working conditions. I had written a few posts back how some smaller Western companies in the Suzhou area are being affected by the confidence-building actions down South; however, the FT’s coverage indicates something slightly different afoot in Suzhou’s industrial actions.

“Workers born after the 1980s and 1990s are concerned not just about pay but about safety, rights and respect,” Dong Baohua, professor of law at East China University of Politics and Law, told the FT. A strike leader at Suzhou NSG said “That strike is about pay, ours is about safety conditions,” referring to discontented worker actions in South China.  I would go so far as to proffer that Suzhou is also one of the first manufacturing centers in China to upgrade its industrial policy to attract higher-value manufacturing, R&D and outsourcing services. It began those efforts as early as five years ago: one of the reasons for the outbreak of green algae on Lake Tai (Taihu) – Suzhou pushed lower-end manufacturing westward – to cities like Yixing and Wuxi – which would take the dirtier, more labor-intensive industries like textile and plastics manufacture. Suzhou industries typically have workers with far less education levels than higher-value producers and service sector offerings. Hence, a greater focus in the Greater Shanghai region on quality-of-life aspects of work.

Interestingly, a feature protests in the Yangtze River and Pearl River Deltas share is an extreme distrust workers have for the Party-sponsored and controlled unions in the companies. The trade unions are more a function of Party control and monitoring in the Party’s interests than in either advocating employer or employee concerns. “Low union credibility is contributing to unstable industrial relations, labor analysts say, adding that more disputes are inevitable.”

Of course, further protests are inevitable for plant managers who insist on keeping their heads buried in the sand, instead of acting proactively to address possible worker concerns.

Further reading: FT

Related posts:

Chinese Workers Extorting China Operations

China is Cracking Up

Managing the Return to Normalcy

There’s No Place Like Home: Worker Shortages

My friend Scott Tong, Bureau Chief for Marketplace, a business program on the American radio network NPR, told me a couple days ago he was finally able to get his piece aired on the relationship between baby traffickers in south China and adoption agencies in the States. It took a bit of to-ing and fro-ing, he had told me weeks ago, since producers were concerned the article would rattle the cellophane sensitivities of NPR listeners who themselves had adopted children from China. As interesting as the radio report is Scott’s background article on the meetings he had – or didn’t have – with agency buyers, middlemen and government officials. It all makes for an insightful media treat. And reading from the comments on the page, listeners appreciated Scott’s effort in getting at the heart of an opaque bit of business in China.

Find the report here.

Chinese forums and blogs last week were abuzz about the latest spate of violence in children’s elementary schools here in China. Much of the anguish and anger seem to be targeted at the accelerating income gap in the society, exacerbated by corruption and nonchalance by local government officials. I have my own theory: China has become high-strung.

Just a couple days ago I experienced a perfect example of the degree to which the society has become anxious to the point of breaking, this past Sunday, during the May Holiday festival. Most countries take time off in the first week of May to celebrate May Day. Theoretically, the Chinese masses are supposed to relax during the three day weekend. (translation: shop till you drop, and eat and drink with abandon). Instead, I found myself awoken at 6am on the second day – a Sunday – by the incessant construction of a new collection of high-rises next door to my own. The construction went on until 8pm that evening. (and started up again the third day of the holiday). A bit sleepy during the afternoon, I sought to take a snooze – half-hour would do it, I figured. Instead, fifteen minutes into the nap the canon-booms of fireworks launched me from the comfy sofa. Newlyweds were arriving at their freshly appointed home, and felt the need to frighten away the same evil spirits that had apparently been be-deviling a different set of newlyweds at noon, just a couple hours before.

Literally minutes later a hydraulic drill began carving into the cement walls in the apartment the floor above our own, a common enough occurrence most days of the week. But this was a Sunday afternoon! We called the compound guards to apprehend the offenders, but they were unable to find the culprits, whose timing was immaculate: they stopped when the guards came into the building, and started up again minutes later. I bade my wife farewell in the hopes of spending a couple hours outdoors with mates over a few pints of beer.

While waiting for a taxi at the entrance to the complex of apartments I witnessed a fender-bender between two cars – a small bump, with nary a scrape – after which the drivers of the two cars emerged to begin punching each other. The twenty cars waiting to get past them on the road were not impressed with the display of misplaced testosterone, and blared their horns. The stalled chain of cars were immobilized by the raised barrier along the median, and by the tall wall keeping the cars out of one of the multitude of new construction sites that sliced the thoroughfare into a single lane. Most residents in most cities throughout China find traffic daily frustrated by construction that literally appears overnight, but takes weeks to evaporate.

The rate and massiveness of modernization in China is fraying nerves and sensibilities. Mainland Chinese are stressed beyond comprehension: stressed with change, with catching up with the rest of the world – with each other – and with simply staying in place in a world of accelerating reformation. A culture that for four thousand years has trundled along, metaphorically, at the speed of an ox cart suddenly finds itself ripping through time and space at supersonic speeds. Few individuals or groups can withstand such inhuman stresses without the occasional gripe. Or grisly deed.

A recent survey of the South Korean economy in the Economist Magazine discussed a miscalculation of the largest of South Korea’s companies, or chaebol: They calculated come the Asian Financial crisis of 1997-98 that they were too big to fail, that the government would bail them out of hyper-leveraged Hell they had created for themselves. “They were spectacularly wrong,” The Economist writes. “The conglomerates failed in droves. The collapse of Daewoo in 1999 was followed by the bankruptcy of more than half the then top 30 conglomerates.” The government also gave jail sentences to CEOs and family members.

Since that time, many of the guilty have been pardoned, and balance sheets and corporate governance have become less complex, more transparent. Now, South Korea comes out of the Great Recession more competitive than any other Asian nation – including China, the banks of which have created a 1990s style environment of high leverage and low accountability. Most of the money lent to the State-Owned Enterprises (SOEs) went into real estate speculation and the stock market to support opaque, hyper-complex cross-holdings; not into new product lines and R&D. Meanwhile, Japan seems immobilized by the cemented relationships between its keiretsu, its mordant bureaucracy and its clueless government, all mired in the highest debt-to-GDP ratio of the rich countries.

I’m betting that when loans handed out to SOEs come due the central government will cover the bill, just as they had ten years before when they privatized many of the least competitive SOEs. Without the incentive to be competitive, Chinese SOEs will still remain bloated and uncompetitive on the world stage. Actually, I think the “captains” of those industries will actually be just fine with that.

Related posts:

Eating Their Young

China may still see itself as a relatively poor developing nation struggling to gain global affluence; however, it’s neighbors are increasingly seeing a more muscular China that is willing to exert influence and wield military power at its borders. Wen Liao writes an opinion piece in the Financial Times that discusses the parallel between Baron Otto van Bismarck and his efforts to unify Germany in the late 1800s into a Prussian empire with China’s rise as the historical heavyweight it had always been until the early 1800s. Bismarck sought to balance the relations and perceptions of Germany’s neighbors to ease their anxieties over Germanic ascent in the region. Liao writes, “China’s dilemma is that, like Bismarck’s Germany, it surpasses in power all its neighbours combined (save for Russia with respect to its nuclear arsenal). To avoid the fate of the Second Reich, China must recognise and publicly accept that it is no longer a developing country but a global power with responsibilities that extend beyond its immediate national interests.”

Wen advises Germany to adopt a policy of “ostpolitik,” referring to the good neighbor policy in 1970 of then German Prime Minister Willie Brandt to negotiate with the Soviet Bloc of East German counties to open up trade and facilitate diplomatic relations. Though the Soviet Bloc was not afraid of West Germany’s rising economic power and its cosiness with the Americans, the charm offensive helped paved the way for the re-integration of East and West Germany, less than twenty years later.

With China politically and militarily bulging over its borders, wracking the nerves of Japan, Russia and India, not to mention Vietnam and the Philipines, as well, China needs its own brand Ostpolitik.

Related posts:

China’s Day in the Sun

The Ties that Bind

Pulling a “Google” on China

Japan is not a happy neighbor. While extending a hand to China to bolster trade links and advantages with its out-sized neighbor, it is watching out one eye as the Chinese People’s Liberation Army Navy runs frigates and submarines ever closer to Okinawa. The latest episode happened just a couple days ago with ten Chinese warships and subs passing through international waters near Okinawa. Just a week before, according to the Financial Times, a ship-based Chinese helicopter came within 90 meters (!) of a Japanese destroyer. One can almost see the Chinese pilot thumbing his nose at apoplexic Japanese sailors, just itching to take out the mosquito of a craft.

The United States Navy’s “Sputnik”moment” came in November 2007 when a Chinese Song-class nuclear attack submarine surfaced 160 feet from the U.S. aircraft carrier U.S.S. Kittyhawk. Sputnik was the Soviet Union’s satellite program in the late 1950s that crystallized American fears of losing the race for outer space. The 1000-foot Kittyhawk, with 4,500 personnel on-board, was being escorted by at least a dozen other naval vessels and two submarines when the Chinese sub had apparently been tracking the carrier group for some time, running on super-quiet electric motors. The Chinese crew revealed its presence to the Americans in waterways near Okinawa. American naval leaders were apoplectic at the Cold War tactic, while the diplomatic corp lodged angry complaints with the Chinese government. Beijing offered it had been ignorant of the submarine maneuvers and suggested the encounter was a coincidence. American military leaders had not considered that any of the 13 Song class subs at the time were as advanced as they apparently were.  The surprise served as a rude awakening to American policy makers that the Pacific Ocean was no longer the pre-eminent domain of its navy.

Ultimately, what’s at stake here for Japan and China are untapped sources of energy and national pride. China’s central government, in other words, has a full mandate from its citizenry to force its collective will onto islands off China’s and Japan’s coast that both countries contend are their territory. At the center of contention are the Diaoyu (Senkaku, for the Japanese) islands, Tianwaitian (Kashi) and Chunxiao (Shirakaba), the latter two of which are characterized more as rock outcroppings than as masses of land that come anywhere close to becoming islands. Nonetheless, all lie nearly equidistant from the shores of both economic powers, which are willing to go the military distance to protect their territorial claims as well as potential oil resource riches.

Though in 2008 the two countries agreed to jointly develop gas fields in the disputed seas, China has signaled through military exercises around the outcroppings that it’s not much interested in detente. A dangerous trend indeed.

Further reading: Globe and Mail

A Bogey Man That Will Never Die

Warlords in Suzhou

New Prescription Needed: Blurring a Bi-polar World

The Financial Times recently published an op-ed piece about the effects of RMB revaluation by Yang Yao, director of the China Centre for Economic Research at Peking University and editor of China Economic Quarterly. It doesn’t shed any new light on the fact that revaluation of the Yuan will not in and of itself set right the international flows of currencies – both countries have economic re-structuring to do; however, the article is notable in the reasonable note it sounds, compared to most of the shrill proclamations coming out of Beijing. Worth a read.

Related posts:

Evaluating Revaluation

Doing “a Google” on the RMB

Pulling a “Google” on China

RMB Revaluation: Not So Fast

When – not IF – China revalues its currency more than just the United States will feel the ripples of global economic re balancing. Last time China released its peg from the dollar to a basket of currencies that included the yen, the euro and the dollar the RMB increased 20% in value from 2005 until the global economic downturn in 2008. This time, the world is different, with China far more cash-rich than it was five years ago and exporters in developing counties feeling the squeeze from China artificially holding down the value of its currency. With a release of the dollar-peg countries that import goods into China should benefit, according to an article in the Financial Times. That means countries that export natural resource minerals and foodstuffs into China should see growth in their export industries as the Chinese renew their spending sprees with a stronger Yuan. Countries like Australia, New Zealand and Brazil may see their currencies strengthening as a result of greater demand for their exports.

If the dollar continues its long-term slide the Chinese may diversify further from the US currency into the euro and yen, to protect the value of its reserves. Ultimately, the key to avoiding the dollar from being orphaned as a reserve currency is for America to clean up its balance sheet and force through structural reforms that increase the value of the American worker on the world market and maintain United States’ preeminence as an innovative culture; manufacturing more accountants and lawyers is not the answer to America remaining a world economic leader.

Related posts:

An American friend and I recently discussed how much easier it is to start a multinational company than it was even five years ago. With support from Chinese and American financing the company he and his partners are launching has as many as 175 new products, product combinations and kits within two years from seed investment. With a factory and suppliers based in the Yangtze River Delta, the company has commitments for sales from retailers in the United States, Europe and Russia. My friend believes the combination of Chinese investment (unaffected during the global economic downturn), the relatively low cost of manufacture in China as well as information technology that allows American headquarters in China can effectively communicate with designers in the States and distributors around the world. “The barriers to entry to be a multinational have never been lower,” my friend mused.

Proctor and Gamble watch out!

The Economics Intelligence Unit in association with Accenture and Clifford Chance have just released an insightful study into the character of Chinese M&A overseas. It seems that in many instances Chinese investors bit off more than they could chew, with an incomplete understanding of the foreign climes in which they were investing; a lack of mechanical knowledge about what it takes to integrate a foreign acquisition; a myopic vision that did not extend any further than taking advantage of fire sales; and increasing resistance to Chinese investment in countries who are seeing their own investments in China hampered or even scuppered. Now, with economies in the West believing they’ve gotten through the worst of the global economic downturn, the tables are about to turn on would-be Chinese kingmakers abroad.

Read more about the report and download it here.