This is China! blog

I recently had lunch with a group of young Chinese in a Suzhou restaurant. They were all in their mid-twenties, young professionals employed in manufacturing, software development and even film. Lost in my own thoughts while supping on a plate of fried rice I heard them talking about Chongqing and Chinese Communist Party. I perked up and offered that surely in Suzhou there was no such thing going on.

“Oh no,” one of the party said. She was a young lady named Lizzie. Lizzie looked over at the would-be film director, Stan, a good-natured, soft-spoken creative type. Lizzie said, “A big Chinese manufacturer of telecomms equipment is requiring its staff to practice singing, aren’t they?” The director agreed.

Apparently, the different departments in the company have ongoing singing competitions judged by top executives at the company. Groups within the departments are required to go to local KTV (Karaoke) parlors to improve their singing skills. The company pays for the singing sessions at the parlors, which are typically better known as venues in which the average Zhou can follow the subtitled cues that scroll along the bottom of TV screens from which boom tunes sung by top singers from the Mainland, Hong Kong and Taiwan. The Carpenters and Eagles are also popular groups to lip-sync. More expensive KTV halls have requisite pretty hostesses to accompany groups of heavy drinking businessmen. I don’t expect, though, the company encouraging the red song sing-a-longs is picking up the tab on alchohol.

One of the young men at the table explained that attending the KTV parlors to practice singing the red songs was compulsory, like showing up for work. The group seemed more amused than disgusted by the corporate compulsory crooning.

Still, you have to wonder if under different circumstances, they too might just follow the leader, suck up their true feelings, and join in the singing with a passion better left in a tragic past.

Technorati Tags: middle class, social trends

The GM of a European company told me yesterday the local power utility in Suzhou Industrial Park served the company notice a couple days ago the company will have to shut down operations for seven or eight days during the summer. The company, I know, has been running two shifts a day to keep up with demand. The company employs several thousand staff. He told me his company had submitted a formal letter to the power bureau to ask if the factory could turn its lights off for fewer than the days the utility had requested. The GM is awaiting a response.

A British engineering manager confirmed the power bureau sent his company in SIP, as well. The letter requests a certain number of days during which the factory is closed during the summer. Companies have to submit a schedule of the dates of closure to the utility soonest.

I write in more depth about the dynamics surrounding the power outages in a research note, titled, “And the Rains Came: The Impact of Recent Flooding on Electricity Generation for China Operations”.

Technorati Tags: natural resources

I recently wrote a couple posts on my book blog ChinaInsideOut.info about worker unrest disrupting company operations in China, and even entire communities. Zengcheng, in Guangdong province, seems to have settled back down to being the jeans manufacturing capital of the world. The one city alone generates 40-percent the jeans Americans slip over their buttocks. Migrant workers got sick and tired of being treated like second-class citizens and revolted en masse. Staff at a factory owned by Citizen, the Japanese manufacturer of the watch brand of the same name, also recently staged an industrial action.

I’ve written more in-depth about the impact the spate of unrest is having on China-based operations and the knock-on effects on supply chains of international companies that rely heavily on China being a stable Workshop of the World. The report is called, “Social Unrest in China: Implications for Foreign Invested Enterprises”. One of the interesting points I turned up in my research for the report was the overwhelming number of companies at which workers are staging proletariat-style revolts are Asian: Taiwanese and Japanese, mainly, with some Hong Kong investors I suspect are predominantly Chinese Mainlanders “round-tripping”; that is, setting up HK investment vehicles to re-invest in the Mainland as foreign companies: helps in reducing local tax burdens and makes it easier to get their income out of China.

I’ve always been of the mind Asian investors tend to treat their employees as liabilities, disposable; while Western companies invested for the long-term in China tend to treat their staff as assets to take care of and encourage. People don’t like being treated as liabilities. Of course, their are exceptions in both camps; however, I’ve found few exceptions over the years.

Read more about the report here.

Related posts from ChinaInsideOut.info:

The Unrested in China

Workers Still Unrested

Yesterday I delivered a talk to the Shanghai Foreign Correspondents Club (SFCC) on the energy challenges China is facing. For instance, power shortages are so severe in Yiyang, a small city in Hunan province, that homes and businesses receive power only every third day. Chinese suppliers in the Yangtze River Delta have also seen their electricity supplies become erratic, making it difficult on a day-to-day basis – according to foreign factory managers I know in the area – to ensure they receive the components and parts their suppliers promise. The cap will eventually be raised to bail out ailing power suppliers, a fifth of the more than 450 of which may be facing bankruptcy, according to a source in a New York Times article.

Though the much discussed issue of the government-enforced cap on coal prices at which power plants are forced to buy coal is important, I focused during the talk on the most enduring challenge the country faces in meeting increasing requirements to produce electricity for its modernizing country: water – or rather, the dearth of it. Again this year, hydropower dams in the southwest are generating power below capacity. Coal mines in the north are unable to operate due to a lack of water. And – to my estimation – aggressive plans to build nuclear plants along the Yangtze and Yellow rivers will have to change due to the lack of water flowing the concourses (and what to do with waste river water in the event of a Fukushima-style event).

The knock-on effects for the energy sector include greater opportunities for growth in the wind and solar power industries, and increased emphasis on energy efficiency, especially in its dreadfully wasteful property sector. However, by 2020 – when China’s energy requirements are set to double from the 2010 level of 1,000-gigawatts -  these alternatives will account for less than five percent of the total portfolio for energy generation. China’s big bet to take hydropower from generating its current level of about 20% of the nation’s energy to 25% by 2020 just may not be realized. The abundant sources of water the country has banked on for thousands of years may simply no longer be available in the quantities it has planned for its new and enlarged cities.

Coal – and the sort that’s even dirtier, lees refined stuff Chinese power plants have been burning  this past decade – may become an even more prevalent source of energy. Last year coal accounted for 83% of power generation; it may well gain ground as the waters recede.

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

I admit I do have two pet peeves about living in China: scalpers and line jumpers – if there’s a line. Few things make me as mad-as-hell-and-I’m-not-going-to-take-it-anymore as people who do either of both: I get quite vocal in Chinese  language at the infraction (which happens all too often here), and have no problem shaming the assailant into civility.

And so it comes as little surprise to me that a couple weeks ago the China Daily reported an Apple worker was involved in an altercation that involved a couple supposed scalpers getting scraped up when they attempted to jump the queue that had formed to buy the new iPad 2 at the Sanlitun store in Beijing. The queue dissolved into mayhem with Chinese characteristics when the crowd saw staff shuddering the store after the run-in. The event seemed to roll up all those grubby elements that sometimes makes living in China a bit of a struggle, no matter the nationality.

I’m just glad I wasn’t the Apple employee who engaged the scalping line-jumpers. I certainly would not have endeared myself to local authorities for fracas I might have contributed to.

image credit: China Daily

An expat friend of mine recently regaled me with stories of how Chinese men with money attempt to woo his Chinese girlfriend. The young lady in question – we’ll call her Ling Ling (not her real name), works in an expensive jewelry shop. And she is attractive by any definition. At least, the fiancees who come into the shop with their brides-to-be think so. Apparently, after the men buy their paramours and themselves matching wedding rings, the men will later return to the shop without the loves of their lives in tow. Instead, they will approach Ling Ling, ask her to suggest another women’s ring – one she finds tasteful – buy it, then present it to her with an invitation for dinner. Now, my friend assures me she never accepts the ring or the invitation. Or the clothing.

A middle-aged Chinese businessman saw Ling Ling in a mall and asked her to help him shop for clothes for his mother, who was in her seventies, apparently. Ling Ling, with long, languorous legs, a narrow waist and an excellent posture said to the man, “You’re mother is built like me?” The man assured Ling Ling she was, and asked again for her help. Ling Ling demurred, and suffered being a clothing dummy for an hour or so while the man held various youngish blouses and skirts up to her figure to imagine how old ma-ma would look.Purchases completed, the man passed all the bags of clothes to Ling Ling, assuring her it was all for her. Again, with the perfunctory invitation to dinner.  Ling Ling passed the bags back to the man, who quickly pressed them back. She eventually won the tug-o-war, and walked off, astonished.

My expat friend, for his part, knows he’s out-manned and out-gunned: he’s got no where the ways and means to outbid the newly monied and morally challenged Chinese competition. All’s he got, pretty much, is love. Which may not be enough in these times.

Technorati Tags: middle class, social 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

I met up recently with a acquaintance from the States, a charming business professor who has traveled to China several times over the past few years. She told me a story that did surprise me a bit, simply because I know such things happen; however, not to anyone I’d ever known before.

She told me that while traveling the year before with her group of EMBA students in Beijing she returned to her hotel room after a meal to find her notebook replaced with a new writing pad and all the photos on her camera of the trip in China wiped clean from the memory (or, perhaps, the memory card had been replaced). Presumably, the notebook contained her observations and ruminations about how China is opening up to the world in business, politics and society, and how the government is embracing internationalization with a spirit of rapprochement and relaxed engagement.

Just goes to show: just because you’re paranoid, doesn’t mean they’re not out to get you.

image credit: charactertherapist.blogspot.com

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