China Challenges

UAW Rejects GM's Plans to Export China-made Cars to US

The FT reports:

General Motors revealed plans on Thursday to build a small car in the US, capitalising on lower labour costs wrung from the United Auto Workers union as part of the ailing carmaker's restructuring.

GM, which is set to file for Chapter 11 bankruptcy protection on Monday, presented the as-yet-unnamed small car as an example of how its restructuring will revive its domestic operations by bringing down costs and making the cars that Americans want to buy.

Besides high labour costs, heavy competition from used vehicles and volatile demand have held down prices of small cars, deterring carmakers from building them in the US or Canada. Ford Motor is set to produce its small Ford Fiesta in Mexico, starting next year.

Fritz Henderson, GM's chief executive, said: “It takes a special effort by everyone to bring a domestically produced small car to market in a cost-competitive and profitable way – but that is what we are going to do together.”

GM's smallest model, the Chevrolet Aveo, is built in South Korea by GM Daewoo, a joint venture. The new model will be about the same size as the Aveo, classified as a B-segment vehicle.

GM said that it would spend $500m-$600m to retool a mothballed assembly and stamping plant, providing a capacity of 160,000 cars a year. It declined to identify the plant but said it would employ about 1,200 people.

GM indicated earlier this year that it would meet future demand for small cars by importing them from its operations in China.

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Murder Case Creates Uproar in China

WSJ:

A hotel employee whose arrest for the murder of an official sparked a wave of national sympathy in China after her lawyers said she was fighting off a rape attack has been released on bail, the state-controlled Xinhua news agency said.

The case is the latest in a series of scandals in China involving alleged abuse by the rich or powerful.

Deng Yujiao, 21, was arrested May 10 after she allegedly stabbed two local government officials with a fruit knife in the Xiongfeng Hotel in central Hubei province, killing one of them.

Dalian Conflicted over Japanese Investment

The LA Times reports:

Dalian, a Japanese military hub in the colonial years that still bears the stamp of the past, features direct flights to Japan and hotels catering to the Japanese. Many road signs are in Chinese and Japanese.

At a business zone called the Dalian Software Park, Japanese firms make up a quarter of the 450 tenants. Local universities are crowded with thousands of young Chinese studying Japanese, many of them seeking software careers. Others staff new business call centers where multilingual Chinese workers serve the needs of customers in Tokyo and other cities across Japan.

When Ito drives on roads with names like Japanese First Street and Japanese Fragrance Street, he said, Dalian feels like a second home.

"The troubled history between Japan and China is not that remote, but it is in the past," the 52-year-old said. "The new generation seems to have put this behind them. They want to move on."

Yet Dalian remains conflicted. Although Japanese business provides jobs and development capital, many of Dalian's 6 million residents still carry the scars of a war with Japan's Imperial Army.

Seeking Moral Leadership in China

Businessweek says:

Deeper conversation with Chinese entrepreneurs, corporate leaders, and academics indicate that the search for a Chinese moral compass is real and comes from the populace, not just from above. Interviews and surveys with young Chinese business people show the same. They seek meaning and guidance in a society that has been cut off from its traditional roots for a century, culminating of course in the Cultural Revolution. Many are reaching back to Buddhism and Confucius as well as writings of the Taoists and the legalists for orientation and a basis for developing integrity.

A Step Toward Real Global Standards

Here are some snapshots of what we see these days. A 45-year-old Shanghai MBA from a top-ranked Western business school, with experience working with successful entrepreneurs and who is the founder of his own investment firm, has over the last three years become so deeply Buddhist that he rises to meditate at 5 a.m. daily, eats little, works hard but gives away much of his income. "What do I actually need?" he asks. "Very little for myself." An older executive running a midsized company opens a business presentation with a slide on Taoism and states that China seems to have a religion of money but in fact must learn to rely on the Doctrine of the Mean or the balance exemplified by the symbol of the Yin and Yang.

Guns in China

Dan Harris at the China Law Blog writes:

I had this discussion the last time I was in China and one of the lawyers (in front of many other Chinese lawyers from his firm) said it is a good thing China is so tough on guns because if it were not, there would be 1.0 billion people in China, not 1.3 billion and everyone knows who the .3 billion would be and that is why the government is so tough on guns. I raised my eyebrows, smiled, laughed, and then said nothing.

Apparently Chinese government toughness on guns is declining as reports of guns in China seem to be increasing. James Areddy, a crackerjack China reporter for the Wall Street Journal, recently blogged on this in a post entitled, "Bang! Bang! Shots In Shanghai." The post is mostly about a recent gunfight in Shanghai but it also discusses other violence in China involving firearms. For more on guns in China, check out this 2008 WSJ article.

China's Lenovo Struggles Along

EngagingChina blog notes:

More bad news from Lenovo, the HK-based PC maker, which was once seen as the poster-child for a new wave of Chinese multinationals poised to take on the west. Worldwide PC shipments dropped 8.2% year-on-year in the first three months of this year, while the market as a whole only fell 7%. Consolidated sales for the period, its fourth fiscal quarter, fell by more than a quarter to $2.8bn, while gross profit declined 49%.

Results for the 2009 fiscal year are no better. Restructuring charges pushed it into a pre-tax loss of $188m and while its PC shipments grew 2.2%, tumbling average prices meant that consolidated sales from continuing operations dropped 8.9% , while its gross profit margin for the fiscal year slumped to 11.9% from 15% earlier.

China's Reaction to Huntsman

The New Yorker China blog says:

Reading the Chinese media coverage of the appointment of Utah Gov. Jon Huntsman, Jr. (Chinese name Hong Bopei), as the new U.S. Ambassador to China, three things are clear:

1) The Chinese took special note that Obama personally announced Huntsman, which is being interpreted by the Chinese press as a sign that Obama takes the job seriously even though Huntsman is not an Administration insider. The Chinese are acutely aware that Huntsman is not a close friend of the President, in contrast to his predecessor Clark T. Randt, who had been a D.K.E. frat-brother of George W. Bush and was known for a level of personal access to the President that stood out among other ambassadors. Smart move to have a high-profile Huntsman intro by POTUS.

2) Huntsman is being described in some Chinese reports as a “hardliner,” in the words of China Business News, though their evidence is slim. The paper paraphrased Michael Green of Georgetown saying the nominee “is no ‘panda-hugger,’” and the appointment “demonstrates that Obama on some issues wants to show ‘toughness.’”

China's Baidu hit with striking workers in Shenzen

The WSJ reports:

Executives of Baidu Inc., China's leading Internet search company, held talks over the weekend with striking workers who say they are angry over salary cuts and new sales commission policies that they believe are designed to force them out of their jobs.

Hundreds of Baidu employees in southern China have either stayed home or gone to the office and refused to work since May 4.

The industrial action burst into the open on Friday, when several hundred employees of the Shenzhen office marched to their local labor bureau to file a complaint against the company, according to strikers and officials in the labor bureau. In the nearby city of Guangzhou, the labor bureau said it had received complaints from "scores" of employees.

Has the China Price Disappeared?

Businessweek reports:

Over the past three years, in fact, the once-formidable China Price edge has all but disappeared for a number of manufactured goods, according to a new study by Southfield (Mich.) consulting firm AlixPartners, To illustrate its point, Alix assessed the total cost of ownership of five categories of machined products, such as large, cast-aluminum engine parts requiring significant labor and small mass-produced plastic components requiring little labor.

Alix found there has been a dramatic cost shift since 2005. Then, the "total landed cost," meaning price after an item had arrived at a West Coast shipping port, was 22% cheaper on average for Chinese parts than those American-made in the sample AlixPartners studied. By yearend 2008, however, the average price gap with the U.S. had dropped to a mere 5.5%, which is often not large enough to be worth the hassle of sourcing something from halfway around the world.

The more surprising reversal is the comparison with Mexico. While China was around 5% cheaper on average than Mexico in 2005, China is now 20% more expensive. Compared with the U.S., the Mexico Price edge widened to 25% from 16%. "A couple of years ago, outsourcing to China was a no-brainer" says AlixPartners Managing Director Stephen Maurer. "Right now, Mexico looks super attractive."

To illustrate the change, Maurer cites a machined aluminum engine part, for which labor typically accounts for about 30% to 35% of the manufacturing cost. It would have cost $25 in 2005 to make that part in the U.S. The same part would have been made in China for $17. Today, he says, the U.S. price will have risen to $29. But the Chinese-made part will be $25. The Mexico Price? Around $20.

GM to Import Chinese-made cars to the US in 2011

The CER reports:

General Motors (GM) wants to begin importing Chinese-built vehicles to the US in 2011, the Wall Street Journal reported. The company currently makes vehicles in China for sale exclusively in Asia but it believes it can save on manufacturing costs by shipping cars to the US as well. GM revealed its plans, which will eliminate 21,000 local jobs, as part of a broader cost-cutting strategy submitted to the US Congress. GM plans to ship 17,335 Chinese-built vehicles to the US in 2011, rising to more than 38,000 the following year and above 53,000 in 2013. The company also wants to increase imports from other countries, including South Korea, Japan and Mexico. The United Auto Workers union opposes the plan, arguing that GM - which is suriving on government handouts - shouldn't use taxpayer money to subsidize US job losses.

One Year Ago in Shanghai. . .

The Shanghai Daily:

A YEAR ago yesterday the ground trembled in Shanghai, shaking high rises and sending fearful residents and office workers into the streets, wondering what act of man or nature had so completely unsettled their sense of wellbeing.

It wasn't long before the news media were reporting a major earthquake had struck Sichuan Province. Though there was no immediate casualty toll, many locals were well aware that if the buildings swayed half a country away from the epicenter, the quake must have been an extremely powerful event, with profound consequences.

A year later, we know the outcome: The 8.0-magnitude quake - the worst in decades - left 90,000 dead or missing and 5 million people homeless.

And yesterday Shanghai remembered.

Is China Boxing Itself In?

 Randy Pollock writes in the LA Times:

 Which country -- the United States or China -- will make the 21st century its own?

When President Obama recently called for American young people "to be makers of things" and focus on subjects such as science and engineering, it was partly a nod to China's rapid growth. Had he lived, taught and consulted in China for the last 33 months, as I have, he might have urged American students first to follow his example and study the liberal arts. Only technical knowledge complemented by well-honed critical and creative thinking skills can help us regain our innovative edge. China's traditional lack of emphasis on teaching these skills could undermine its efforts to develop its own innovative economy.

I once challenged my Chinese MBA students to brainstorm "two-hour business plans." I divided them into six groups, gave them detailed instructions and an example: a restaurant chain. The more original their idea, the better, I stressed -- and we'd vote for a prize winner. The word "prize" energized the room. Laptops flew open. Fingers pounded. Voices roared. Packs of cookies were ripped open and shared. Not a single person text-messaged. I'd touched a nerve.

In the end, five of the six groups presented plans for, you guessed it, restaurant chains. The sixth proposed a catering service. Why risk a unique solution when the instructor has let it slip he likes the food business?

Though I admitted the time limit had been difficult, I expressed my disappointment and reiterated what I had expected -- originality -- and why. But they'd been so enthusiastic that I couldn't deny them a winner. After a polite discussion of the merits of each idea, the Haagen-Dazs gift certificates were awarded, but not without controversy. Runners-up later complained that an identical concept had been featured on CCTV the night before.

My students weren't recent college grads. They were middle managers, financial analysts and marketers from state-owned enterprises and multinational companies.

China's Geely Going After Saab?

Businessweek reports:

Is Geely, which trades in Hong Kong and is controlled by Zhejiang Geely Holding, based in the eastern Chinese city of Hangzhou, interested in picking up the Swedish pieces of GM and Ford? Lawrence Ang, an executive director of the Hong Kong-listed subsidiary, says there is no truth to either report. "We are not bidding for Volvo," he says, "and not for Saab." However, Ang does allow that talks might be taking place between Geely's parent company and the Detroit pair. "I can only speak on behalf of the listed company," he says. "So maybe it's the holding company, but not us." Wang Ziliang, spokesman for Zhejiang Geely, did not answer calls to his office.

Economic Stimulus! Chinese Officials Asked to SMOKE MORE!

Reuters reports:

A county government in central China has rescinded an order which was intended to make officials smoke more to help the local economy, local authorities said on Tuesday.

Functionaries in Gongan county in rural Hubei province had been ordered to smoke at least 23,000 packs of cigarettes a year, worth nearly 4 million yuan ($586,700), to cushion government finances, according to regional media reports.

Those who failed to meet smoking targets or were caught smoking brands from other provinces would have been fined, the reports added, citing a government document issued earlier this year.

But the government has now backtracked after an uproar in the local press criticising the policy as being harmful to health and a waste of public money.

"We decided to remove this edict," said a statement placed on the county government's website (www.gongan.gov.cn), saying it violated regulations about the issuing of notices.

Exiting Manufacturing, Can Haier Become a Global Brand?

The CER reports:

Shandong-based manufacturer Haier is one of the best-known white goods manufacturers in China's crowded market, but the company's production lines may soon be grinding to a halt. In March, Chairman and CEO Zhang Ruimin announced that Haier was leaving direct manufacturing and concentrating on building the company's brand and service network.

Despite Haier's fame as a manufacturer, the move was not unexpected, said Kent Kedl, general manager of Technomic Asia, a market strategy consultancy.

“It's a very natural progression. I don't think that's a surprise... that’s the way all brands need to go. They start off with the manufacturing [and then] move to being a product developer and marketer.”

A natural progression it may be, but many observers question whether Haier will be able to carry out its transition

For Western children, how important is learning Chinese?

When I was a high school student in the late 1980s, learning Japanese was the craze. The New Yorker China Blog notes:

Sobering fact of the day: Only eleven per cent of Americans think it is very important to learn Chinese, while eighty-two per cent of Chinese think it is very important to learn English. This, thanks to surveys conducted by the Chicago Council on Global Affairs, described today at the National Chinese Language Conference. (Comforting fact: Despite the survey results, the conference is packed, with nearly nine hundred educators intent on expanding Chinese-language education. Chicago Public Schools have the largest Chinese-teaching program in America, with twelve hundred students learning Chinese. )

CER: Some Expats in China Prefer Socialism

The CER Editors blog says:

Following the enactment of the Labor Contract Law in 2008, the collective groans of rage from foreign invested firms in China rose to the heavens, where they fell on the deaf ears of the Celestial Judiciary. A certain Western chamber of commerce made such a stink about it in their house magazine that the Chinese government allegedly threatened to hurl the unruly not-quite-registered chamber from the country.

While Chinese firms were quieter (lacking their own magazine, perhaps), as demand for export products plummeted and exporters found themselves unable to quickly lay off workers they no longer needed, they also objected, again to deaf ears.

To date, most of the coverage of this issue has focused on the law’s effect on the Chinese manufacturing sector. What has not been widely discussed is the fact that the Labor Contract Law, unlike certain other legislation, does not apply only to Chinese employees. Yes, expat managers, lawyers and all around running dogs are also entitled to full protection of their contracts. This has produced a new and darkly entertaining phenomenon: expatriates who once ridiculed the Chinese legal system as arbitrary, xenophobic and opaque (swiping at socialism with Chinese characteristics on the way) are now thanking the Celestial Edict that allows them to sue their employers for firing them without cause in the name of cost-cutting. To be fair, not all expats objected to the law, or hated socialism, and there is nothing hypocritical about them taking advantage of their new rights. But I think it’s fair to assume that in the financial services, manufacturing outsourcing and consulting sectors, such people are few and far between. Or at least, they were.

Professor Dares to Compare how Asians and Americans Think

Forbes reports:

Richard Nisbett used to be a universalist. Like many cognitive scientists, the University of Michigan professor held that all people--from the Kung tribe that forages in southern Africa to programmers in Silicon Valley--process sensory information the same way. But after visiting Peking University in 1982 and partnering with an Asian researcher, Nisbett found his beliefs challenged.

He embarked on a project to probe the thought processes of East Asians and European Americans. His experiment presented subjects with a virtual aquarium on a computer screen.

"The Americans would say, 'I saw three big fish swimming off to the left. They had pink fins.' They went for the biggest, brightest moving object and focused on that and on its attributes," Nisbett explains. "The Japanese in that study would start by saying, 'Well, I saw what looked like a stream. The water was green. There were rocks and shells on the bottom. There were three big fish swimming off to the left.'"

In other studies Nisbett discovered that East Asians have an easier time remembering objects when they are presented with the same background against which they were first seen. By contrast, context doesn't seem to affect Western recognition of an object.