China Challenges

A Cold Economic Winter in Suzhou

Willam Dodson at the This is China! blog writes:

Government officials from a local Suzhou district economic development zone recently visited our office. The three of them - though only one talked - wanted to fill us in on the happenings in their Zone and to encourage us to point foreign investors to their area. Seems foreign investment in their area has slowed down considerably. The district is about 30% Western investment; the rest is Chinese - Hong Kong and Taiwanese, mostly.

They have a couple dozen newly built factory spaces, single-floor, two-floor and three-floor that are going unused. And open land for greenfield projects, to boot.

They told me they recently visited every Western company in their district as a self-promotion exercise and to gauge investor sentiment in the area. Most companies, they said, are looking forward to a decline in business going into 2009, but are expecting by the autumn of next year to begin to see a recovery. Most of the Western companies in their area are selling into the China market, B2B.

By comparison, local gossip has it that Asian exporters like Asus is laying off 10,000 staff, a sixth of its operation; Sony 1,000 employees, while another Asian operator is rumoured to be mulling its own local downsizing. A Western exporter decreased operating hours to three days a week, without laying anyone off.

Winter has arrived in Suzhou.

Source:

http://silkrc.com/chinadialogs/

Happy Thanksgiving!

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China is Losing its Manufacturing Luster

Businessweek reports:

Two years of disastrous quality-control breakdowns, from foul fish and lead-tainted toys to poisoned drugs and dairy products, are taking their toll on China's allure as a manufacturing platform. A new study by supply-chain consulting firm AMR Research found that quality concerns are among the chief reasons U.S. manufacturers are scaling back plans to source more goods from China.

Instead, U.S. companies are looking harder at Mexico and other locales closer to home when exploring where to put new capacity. The findings are based on a survey of 130 U.S. manufacturers, ranging from producers of drugs (BusinessWeek, 9/4/08) and computers to auto parts. The survey, completed in mid-October, found a sharp swing in attitudes toward China since May, when AMR conducted a similar study.

The reasons for the shift suggest serious problems for China's export machine that go far beyond the concerns over rising costs for wages, shipping, and materials that got a lot of attention earlier this year.

To read more:

http://www.businessweek.com/bwdaily/dnflash/content/nov2008/db20081126_315336.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

America's FCPA takes on bribery and corruption

The AsiaBizBlog reports:

The American Foreign Corrupt Practices Act seeks to criminalize bribery of foreign officials -- not of American officials -- by regulating and punishing the conduct of Americans doing business globally. In its "Report of the Committee on Banking, Housing and Urban Affairs to Accompany S. 305...May 2 (legislative day, March 28), 1977," the U.S. Senate noted:

The statute covers payments made to foreign officials for the purposes of obtaining business or influencing legislation or regulations. The statue does not, therefore, cover so-called "grease payments" such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.

The word "corruptly" is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position in order to wrongfully direct business to the payor or his client, or to obtain preferential legislation or a favorable regulation. The word "corruptly" connotes an evil motive or purpose, an intent to wrongfully influence the recipient. It does not require that the act be fully consummated, or succeed in producing the desired outcome.

Did you too see the word? I had to read it twice to make sure "evil" was not a typo. Hmmm.... This is, without doubt, activist legislation that seeks to influence global behavior indirectly by holding Americans to account. Does that sound right to you, when many of the nations it seeks to indirectly regulate employ bribery as a common and ordinary way of life? Isn't it their responsibility to clean up their own mess? Why am I to be punished for behaving as they would in their own land?

To read more:

http://www.asiabizblog.com/archives/2008/11/the_american_fo.htm

Communists blast new Guns N' Roses album

AP reports:

A newspaper published by China's ruling Communist Party is blasting the latest Guns N' Roses album as an attack on the Chinese nation.

Delayed since recording began in 1994, "Chinese Democracy" hit stores in the U.S. on Sunday, although it is unlikely to be sold legally in China, where censors maintain tight control over films, music and publications.

In an article Monday headlined "American band releases album venomously attacking China," the Global Times said unidentified Chinese Internet users had described the album as part of a plot by some in the West to "grasp and control the world using democracy as a pawn."

To read more:

http://www.google.com/hostednews/ap/article/ALeqM5hkaycL9W9_NgZ3n542AK57Wph1YgD94L9F100

China to Cut Tariffs

Reuters reports:

China will cut tariffs on agricultural and non-agricultural products by 20 to 30 percent, the China Securities Journal quoted a senior trade official as saying on Monday.

Zhang Xiangchen, the ambassador at the Chinese Permanent Mission to the World Trade Organization (WTO), did not give a time frame or other details.

The average tariff on agricultural products is 15.2 percent, down from 54 percent before China joined the WTO in 2001, the paper said.

Source:

http://www.reuters.com/article/worldNews/idUSTRE4AN05720081124

More US Students Choose to Study in China

The NY Times reports:

The number of Americans studying in China increased by 25 percent, and the number of Chinese students studying at American universities increased by 20 percent last year, according to the report, “Open Doors 2008.”

“Interest in China is growing dramatically, and I think we’ll see even sharper increases in next year’s report,” said Allan E. Goodman, president of the institute. “People used to go to China to study the history and language, and many still do, but with China looming so large in all our futures, there’s been a real shift, and more students go for an understanding of what’s happening economically and politically.”

To read more:

http://www.nytimes.com/2008/11/17/education/17exchange.html?ref=asia

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Chinese Automakers seek bailout, too

The NYT reports:

Do Chinese automakers need a bailout?

China’s car industry is quietly pressing Beijing for government help as it copes with a jarring slowdown, top Chinese auto executives said in interviews here on Tuesday.

This autumn, after six years of 20 percent or more annual growth, vehicle sales were flat or slightly negative, a shock to an industry that has borrowed heavily to build ever more factories for a market that had once seemed insatiable.

Citing the $25 billion in loans that Congress has already approved to help American automakers increase green research, and the additional $25 billion in loans the American industry is seeking this week to cope with a hobbled economy, Chinese executives are now telling the government here that they also need emergency measures. They are seeking lower taxes on new cars, lower fuel prices and increased grants for research into hybrid cars and new technology.

To read more:

http://www.nytimes.com/2008/11/19/business/worldbusiness/19chinaauto.html?_r=1&oref=slogin

The Asian Innovation and Talent Debate Continues

Arindam Bhattacharya writes in Businessweek: 

Most people in the U.S. and elsewhere in the West think of China and India largely as sources for inexpensive products and services. Few know that China, India, and other developing countries are taking center stage in the global war for innovation and talent.

Consider some important benchmarks: Scientists and engineers in China, India, and Russia are now producing an estimated 150,000 scientific and technical papers annually, more than many Western European nations. According to a Thomson Reuters review of 8,700 research journals worldwide, U.S. scientists led all others with slightly more than 25% of the total. Japan and Germany were next, with about 6.5% each, followed by France, Britain, and China, at 6% each. Brazil, Russia, India, and China, the so-called BRIC countries, produced more than 10% of the total—a number that is growing. If current trends continue, the developing countries could reach U.S. levels in fewer than 10 years.

The rapidly developing economies also now claim an estimated two-thirds of all engineers, a vital talent pool, while many Western countries face talent scarcities. Asian scientists and students are returning home from the West in record numbers—with those numbers increasing at approximately 13% per year. China and India are investing heavily in research and development, with China alone spending $136 billion on R&D in 2007, second only to the U.S. and ahead of Japan.

China and India also now boast some of the world's top science and research universities, including the seven-campus Indian Institutes of Technology as well as Beijing's Tsinghua University, which has more than 2,400 alumni in Silicon Valley alone. These trends have helped many Chinese and Indian companies aggregate a critical mass of talent, which is having a profound impact on their ability to innovate and compete in the global economy.

To read more:

http://www.businessweek.com/print/globalbiz/content/nov2008/gb20081117_964178.htm

My view on this issue back in 2005 can be found here:

As I noted here last week, a new study from Duke University suggests the so—called engineering gap between America and its Asian rivals China and India is a myth.  Now BusinessWeek has uncovered some possible reasons behind this "propaganda" and the detrimental effect it is having America's current high—tech workers.

After discussing the sensitive issue with the author of the Duke study Dr. Vivek Wadhwa, Mr. Pete Engardio writes:

The bottom line is that America's engineering crisis is a myth, Wadhwa argues. Both sides in the globalization debate are "spreading propaganda," he contends. India and China are using inflated engineering numbers because they want to draw more foreign investment, while fearmongers in the U.S. use dubious data either to support their case for protectionism, to lobby for greater government spending on higher education and research, or to justify their offshore investments.

Some liberals have made scary predictions that all of our best jobs are migrating to low cost Asian countries.  Promoted by New York Times columnist Thomas Friedman in his best—selling book The World is Flat, this fearmongering is demoralizing some American engineers.

To read more:

http://www.americanthinker.com/blog/2005/12/more_on_the_engineering_crisis.html

Microsoft Shifts Strategy in China

Newsweek reports:

For Microsoft, the problem with doing business in China comes down mainly to one thing: piracy. Touts line the street outside a new $80 million Microsoft research center in Beijing, steering customers through alleys to run-down apartments where bootleg copies of Microsoft Office and Word are peddled for about $1, at least $199 less than the global retail price. Ninety percent of Microsoft products used in China are pirated, and for years the company battled back with its signature mix of bullying and intimidation. But in China the government has been sympathetic to the pirates, openly hostile to the Microsoft monopoly and officially embraced Linux, the free rival to Windows. Cheap software has been critical to China's economic boom, and Beijing saw no upside to forcing citizens with an average annual income of $1,000 to spend much of it on Windows.

The new Microsoft China strategy attempts to create a constituency for full-price software, starting with the political and business elite. This means improving customer support for big Chinese companies, helping Beijing develop a domestic software industry trained on and tied to Microsoft products, sharing more technology than it normally would and easing up on buyers of pirated software (but not on pirates). In September Microsoft made Timothy Chen its new China CEO and the face of its softer strategy. Chen, a 10-year veteran of Motorola China, says he was drawn by a mandate from the top—Gates and Ballmer—to revamp the Microsoft operation. "They all wanted to see an integrated China strategy, a road map," says Chen. He has dropped "the threatening-letter approach" and focused on recruiting large corporations as paying customers: "If we do that, I think then the legal users will come."

Source:

http://www.newsweek.com/

Rethinking the Social Compact in China

The FT reports:

Late last week, outside the gates of a recently closed shoe factory, two migrant workers got into a heated exchange about the rapidly evolving social compact between government and labour in China’s manufacturing heartland.

“I worked here for six years, and others for more than 10. Who is going to compensate us?” asked Xu Miao, who by law is owed one month’s salary for every year he was employed by the Weixu Shoe Factory in Dongguan, a big manufacturing centre in southern Guangdong province. Mr Xu’s boss absconded on November 1, abandoning a 4,000-strong workforce that had not been paid for at least two months and suppliers claiming debts of Rmb100m ($14.7m, €11.3m, £9.3m).

To read more:

http://www.ft.com/cms/s/0/b3576dbc-af46-11dd-a4bf-000077b07658.html

The Impact of China's Stimulus Package

John Browne writes:

The announcement of a massive stimulus package of almost $600 billion shows that China means business not just in reviving, but also in rejuvenating its economy.

As both America and China confront the prospect of a global depression, both countries have chosen to fend off potential unrest with liberal government spending. But the Chinese move is bolder and more likely to succeed.

The most remarkable aspect of the Chinese stimulus plan is its enormous size. Despite the massive publicity surrounding its formidable growth rate, the Chinese economy is still ‘only’ one-fifth the size of America’s. Relative to its economy, China’s stimulus package would be the equivalent of a $3 trillion package in America.

The Bush-Greenspan asset booms were so extreme, and the resulting deleveraging so massive, that government actions in multiples of trillions of dollars are needed to make any meaningful impact in slowing the asset bust.

Based on this yardstick we can see that the differences in the Chinese and American approaches could not be more dramatic. The divergence bodes ill for the future.

To read more:

http://seekingalpha.com/article/105754-china-gets-it-right-but-hurts-america

 

Microsoft Accused Of Patent Infringement

China Tech News reports:

China E-commerce Info Tech Company has sued Microsoft (MSFT) for patent infringement because of the use of RSS within its Vista operating system.

According to local media, Wang Jianbo, the chairman of China E-commerce, stated the company applied for a patent for RSS service in 2005, and obtained the patent certificate in December 2007 from China's State Intellectual Property Office with patent number being No. ZL 2005 1 0022721.3. Wang says Microsoft adopted the technology in Vista without the company's authorization.

China E-commerce is a small company based in Xi'an, Shaanxi Province. Now the Xi'an Intermediate People's Court has accepted the case in which China E-commerce requests Microsoft to stop the infringement and stop selling Vista, which adopted RSS technology in China.

To read more:

http://www.chinatechnews.com/2008/11/12/7971-microsoft-accused-of-patent-infringement-in-china/

How China Helps America's Poor

The American reported:

The Broda-Romalis paper, “Inequality and Prices: Does China Benefit the Poor in America?,” shows that from 1994 to 2005, much of the increase in U.S. income inequality was actually offset by a decline in the price index of the goods that poorer households consume. Inflation for the richest 10 percent of U.S. households, which tend to spend more on services, was 6 percent higher than inflation for the poorest 10 percent, which tend to spend more on nondurable goods, the type of goods often imported from China and sold at Wal-Mart.

Broda and Romalis found that in the sectors where Chinese imports have increased the most (especially nondurable goods such as canned food and clothing), prices have fallen dramatically. They estimate that about one-third of the price decline for the poor is directly associated with rising imports from China. “In the sectors where there is no Chinese presence,” Broda says, “inflation has been more than 20 percent.”

“In the ’60s, all the talk was about trying to win the war against poverty,” he adds. “The bottom line with our study is that we may have won the war against poverty without even noticing it. Here we have Congress debating why the poor in America haven’t been able to grasp the great economic growth we’ve seen in the last 30 years. ‘It’s been only concentrated in the top 1 percent,’ they say. And, absolutely, that segment has grown a lot. But that doesn’t mean that the poor haven’t been able to access part of that progress.

Redefining Made in China

AmCham's Insight reports:

The 21st Century Business Herald newspaper also revealed in August that 60,000 – or one-fifth – of the 300,000 small- and middle-sized firms in the coastal manufacturing city of Wenzhou have closed this year. Two months later, in October, with the global financial crisis becoming more entrenched, the export situation worsened. Tens of thousands of export-based manufacturers have closed down in Guangdong Province, home to a hub of textile, apparel and home accessories manufacturing centers. 

But it is not just the garment and textile industries that are coming under fire. Another manufacturing sector confronting the effects of plummeting export orders is toy production. In October, Liang Mei, vice chairman of the China Toy Association, noted, “It is the most difficult time in decades for the Chinese toy industry.”

Some 3,631 Chinese toy exporters, representing over 50 percent of the industry, have ceased trading in 2008, according to Chinese Customs. Small toy producers, with sales of US$100,000 or less, make up most of the closures – a follow-on result of the contraction of export demand in the U.S. and Europe.

Apparel exports from China to the U.S. dropped to US$4.8 billion between January and August 2008, down 6.4 percent compared to the same period last year. Meanwhile, apparel exports to the U.S. from Vietnam during the same period grew 23 percent year-on-year, as it leapfrogged Mexico as the second-largest apparel exporter to the U.S.

To read more:

http://www.amcham-shanghai.org/AmchamPortal/MCMS/Presentation/Publication/Insight/InsightDetail.aspx?Guid={BA577DAA-87BF-4E0B-AAC1-97C01E368D62}

China Carbon Emissions Might Double By 2030

FuturePundit writes:

China's increase in carbon dioxide emissions over the next 20 years will exceed current US emissions.

By 2020, China's burning of fossil fuels could annually emit carbon dioxide equal in mass to 2.5 billion metric tonnes of pure carbon and up to 2.9 billion tonnes, depending on varying scenarios for development and technology, the new report states. By 2030, those annual emissions may reach 3.1 billion tonnes a year and up to 4.0 billion tonnes.

That compares with global carbon emissions of about 8.5 billion tonnes in 2007.

...The U.S. Oak Ridge National Laboratory estimated that the United States emitted about 1.6 billion tonnes of carbon in 2007, compared to China's 1.8 billion tonnes.

I expect Peak Oil will cut into the rate of growth of Chinese CO2 emissions. But most Chinese emissions come from burning coal, not from oil. In fact, the International Atomic Energy Agency estimates that as of 2003 77.1% of China's CO2 emissions came from coal. Almost 9% of China's CO2 emissions come from cement.

To read more:

http://www.futurepundit.com/archives/005676.html