This is China! blog

Yesterday a British friend texted me he was concerned his factory in Suzhou would not have electricity that day. Already, some of the company’s suppliers were unable to fill orders because they had no electricity. The China Daily recently reported: “China is likely to face the most severe power shortage in its history this summer, with the electricity shortfall increasing to at least 30 gigawatts (gW) and estimated to peak at 40 gW, officials said.”

The outages will be most severely as the summer weather hots up, with Beijing, Tianjin, Shanghai and industrial provinces of Hebei, Jiangsu and Zhejiang potentially the hardest hit this summer.

Much of the shortfall has to do with the government-controlled price at which steam coal is sold to power stations; the price is lower than market prices, so coal producers are simply choosing not to sell their coal to the electricity generators. The government, for its part, is loathe to lift the ceiling on coal prices, as inflationary pressures are already aggravating a populace edgy for the good life – which, of course, requires increasing amounts of electricity.

However, judging by my electricity bills this past summer, I’m also loathe to see my electricity bills increase any further.

Further reading: Power shortages may be worse than the worst

image credit: marketwatch.pk

Technorati Tags: china, economic trends

It seems a Chinese export has caught the private equity group up in the questionable activities of a couple of its investments:  fakery. According to the Financial Times,

China Forestry, a Hong Kong-listed plantation operator in which Carlyle has an 11 per cent stake, and China Agritech, a Nasdaq-listed fertiliser maker in which Carlyle has a 22 per cent stake, have both had their shares suspended from trading in recent months.

First off, Carlyle should have known better. Any company that skirts the hard work involved in setting one’s glass house in order for all the world to see inside is clearly sneaking in under financial regulatory radars: it’s like buying your way into  MIT – frankly, either you got what it takes to qualify for the big time or you don’t. Other signs included China Agritech going through three auditors in three years and China Forestry’s auditor KPMG said books and records were incomplete.

Carlyle internal auditors definitely should have red-carded the companies and protected investors.

Sometimes, though, the money is just too good to ignore.

image credit: 12economics.edublogs.org

The Wall Street Journal recently ran a piece about Western companies putting together contingency plans in case China falls to pieces or explodes or does both. It’s not a bad bit of advise. Within the eight short years I’ve been based in China I’ve seen multiple instances of the society rejecting foreign-direct investment the same way a kidney-replacement patient’s body rejects a new organ.

Interestingly, most of the rejection has been of Asian companies; expressly, Taiwanese (Foxconn) and Japanese (most recently the car plants in the south whose workers went on strike while Foxconn staff was suicidal; and the rampant protests in Chinese cities against the Japanese in 2005). Mostly, Western companies, which in general tend to pay their workers more than their Asian FDI counterparts and – again, generally – tend to treat their staff with a bit more respect  than Asian investors – have gotten off with little more than job-hopping youngsters who will quit and join another company for a 50 RMB raise in salary.

Still, that’s not to say that Western companies should be complacent about social upheaval in China that could affect their operations. Recall the boycotts of French brands and retailers in 2008, when the French government made gestures that drew the ire of Chinese hardliners: Carrefoure and Auschan had a tough time of it while thousands of Chinese protesters all but ransacked the hypermarkets. American businesses must remember the ritual stoning of the American embassy in 1999 (oops, we bombed which embassy?) and then again in 2001 (spy planes like us).

As I write in my book, I am of the mind that the Chinese leadership has the ways and means to completely shut down the Chinese internet  and blackout all communications for the entire country in the way it had during the Xinjiang protests of 2008. It was months before communications was restored to an entire province.

That was just a warm-up.

Is your company prepared for a real performance?

image credits: moebesart.com

Technorati Tags: china, globalization

In the years I’ve lived and worked in China I’ve visited likely over 70 economic development zones throughout the country. I do have to say the Chengdu Tianfu Software Park was one of the most well thought-out, professional zones I’ve ever surveyed. Top notch countries from around the world set up there own backoffices in the Park, with some creating data backup centers too. The back-offices take care of the routine data crunching every company has, albeit in the Park at a lower cost.

The staff in the marketing department of the management company that oversees the Park was professional to a T, and congenial as well. The management company has also created a sub-area specifically to incubate small software development start-ups with anywhere from three to five young and inspired souls fresh out of University, in some instances. The management company also has its own application development outsourcing outfit for companies within the Park, and its own lab to create embedded software for hardware companies.

For multinationals looking to secure their data, outsource their back-office routines, or develop software at a fraction of the cost of what’s available along China’s east coast or even in India, check out Chengdu before it too becomes a victim of its own success.

image credit: www-dev.aaxischina.com

Near-hysteria has destocked shelves along China’s eastern seaboard of salt. I first heard of the rationing of salt in restaurants when I was in Shanghai yesterday, eating lunch with Chinese friends. I wanted to put salt on my french fries. One of my companions offered to get the salt for me from the order counter. She mumbled something about salt being precious. I thought it was an odd comment. I looked around at the other tables in the restaurant to see none of them had salt shakers. I didn’t think anything more of it.

My wife later that evening told me over dinner how our ayi had bought a kilogram of salt. “It was so expensive,” she told me, “a single small bag can now cost 15 rmb.” Bags used to cost a couple yuan. She explained to me the near-hysteria with which Chinese consumers were buying up salt in fear of atomic radiation blowing in from Japan should a reactor explode at the Fukushima nuclear plant. The iodine in salt, so Chinese wisdom holds, will protect consumers from radiation poisoning. She told me, “I said to the ayi, ‘What are you going to do, eat handfuls of salt?” She said the ayi had no response.

The government has remained mum on the subject, perhaps theorizing that because there is no solution should there actually be contamination, that at least salt is cauterizing pedestrian anxieties.

I joked with a Suzhou taxi driver the next day that Chinese hospitals will indeed see a dramatic uptick in the number of admittances due to fears of radioactive contamination as consumers, intent on seeing some return on their investments, imbibe so so much salt high blood pressure forces them to visit their local clinics.

Salt producers must be laughing all the way to the bank.

One of the most interesting classes I took in University was about the Peloponnesian War, during which Athens and Sparta went after one another throats with a vengeance (yes, it was ONE course). Great stuff; really got the imaginative juices roiling.

Well, how about a New York Times article in which one of my favorite wars is actually used as a parallel with China’s rise within the context of a world dominated by a single superpower: the USA. David Sanger makes the point that

“What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta.”

Sanger called the misconceptions both sides nursed The Thucydides Trap, after the author of the history of the Peloponnesian War. The length of the conflict, the casualties on both sides, and the economic toll, it could be argued, made it easier decades later for a true outsider – Philip II of Macedon – to pick up all of Greece.

Technorati Tags: china, economic trends, globalization

Janet Carmosky writes in her most recent Forbes online column:

Here is my best summary of the real attitude of China on the question of wanting to take over the USA: We “Don’t want to, don’t need to, kinda busy, and respect and need the USA way too much.”

The upshot is that China’s leadership has way too much on its hands to rock the boat too much, and understands the relationships within a polarity more clearly than America does (which always seems to need some external bogey man to buck itself up). Good, insightful reading.

And check out her previous article in the same venue on Peak Stuff:

Most everyone who follows energy knows “Peak Oil” as the moment when even the optimists can no longer postpone confronting the limitations of fossil fuel supply. Today I’m writing about “Peak Stuff”, a term I coined about 5 minutes ago to describe the point after which humanity realizes it cannot afford, does not need, and is better off without what can simply be called “Stuff.”

I absolutely love the term and it has stuck in my brain ever since reading it a couple weeks ago. I’m always looking for opportunities to lob the expression at someone in conversation.

Keep up the good work.

Technorati Tags: china, economic trends, globalization

The ineluctable Paul French, co-author most recently of Fat China, and China editor for the UK print and online periodical Ethical Corporation, recently interviewed me about the nature of labor shortages in the Yangtze River Delta (my stomping grounds) and how foreign companies are responding to the change in employment climate.

He also puts in a couple nice plugs for my book, China Inside Out.

You’ll find Paul’s interview with me on the state of the Yangtze River Delta on the page titled, “China Wages in 2011 and labour shortages in the Yangtze River Delta – A podcast with Bill Dodson”.

image credit: newshopper.sulekha.com

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An American friend who works with software development teams around the world gave me a sobering assessment of how talent in the IT sector has moved around the world. She told me over coffee a few days ago, “The Indians have peaked. They’re not as sharp as they used to be. They’re mediocre.” She should know; she’s married to an Indian and ran her own IT outsourcing shop on-the-ground in India. I asked her what she thinks happened to the talent.

She answered, “They sharpest ones took their money and left. And the country hasn’t cultivated the rest.” She was enthusiastic about the Dutch, who are producing some “amazing” technologies, she said. She’s also working with a Finnish team. “The Finns are doing some cutting-edge stuff,” she added. So what else is there to do during those long, cold, dark winter days, I wanted to quip (but didn’t). I asked her about the Chinese software team she had been working with six months ago.

“They were so-so. Nothing really sparkling. And now, because the economy in the States has been so bad, American developers are now costing me about the same price.” She gave me an example. “A Chinese team leader quoted me a price of 300 rmb per hour for a programmer. That’s more than $20 and hour: I can get a really good American programmer for that price – and we’ll have a cultural affinity that I’ll never have with the Chinese, even though they may just be a fifteen minute drive down the road from me (in Suzhou).”

Who knows, perhaps one day American Born Chinese will man call centers from the States to support customers in Mainland China.

Technorati Tags: china, economic trends, globalization

Andrew Hupert makes the point in his latest China Economic Review column that western companies should be thankful for the central government’s efforts at controlling the flow of information across the internet, marking out Chinese space and that other world out there. Essentially, he says, the GFW reduces the competition Chinese companies can present MNCs, as well as keeps Chinese professionals dumbed-down (my term). It certainly keeps the country from leaping into the international innovation leagues.