All Roads Lead to China: Business News, Analysis, and Insights from China

Being recognized as having the world’s best airport, or one of, is something that countries take seriously.  for years, and likely for years to come, the main fight has been between Singapore an Hong Kong.  both of which have amazing airports.  Easy access to city, fast immigration, good food, shopping, stable wireless, and on time arrival/ takeoff.

All things that I personally find to be of importance, and for me make for a great airport.

So, when I saw Beijing Capital airport rank in 5th place and Shanghai Hongqiao at 19, I was left wondering.  Seriously… Beijing at #5?  Only one slot below HK?  Hongqiao 40 places above Pudong?

Perhaps I am simply looking at this the wrong way. Perhaps I am being too critical.

Feel free to review the full list for yourself

Just finished reading China’s Cyberspies Outwit Model for Bond’s Q , Bloomberg’s second piece on China and cyber security, and I was nearly dumbfounded by the fact that the firm at the center of the article didn’t understand (1) they were under threat and (2) did nothing to remove the threats when it was abundantily clear there was a problem.

A few passages to pick out:

QinetiQ treated a series of attacks over the next several months as isolated incidents. The hackers followed a more meticulous strategy: In the first 2 1/2 years, they gathered more than 13,000 internal passwords and raided servers that could give them detailed information about the company and how it was organized — data they would use to devastating effect.

[...]The hackers logged on through the company’s remote access system, just like any employee. It was a trick they were able to use only because QinetiQ didn’t employ two-factor authentication, a simple device that generates a unique code employees enter, along with their usual password, anytime they work from home.

[...]The security teams found evidence that the hackers had burrowed into almost every corner of QinetiQ’s U.S. operations, including production facilities and engineering labs in St. Louis, Pittsburgh, Long Beach, Mississippi, Huntsville, Alabama and Albuquerque, New Mexico, where QinetiQ engineers work on satellite-based espionage, among other projects.

[...]It began to dawn on the security teams that the hackers had established a near permanent presence in the defense contractor’s computers, mining new information almost as soon as it was written onto hard drives. “Oh yeah…they are f’d,” Wallisch wrote to Hoglund in September. (emphasis mine)

Oh yeah…they are f’d…

Having seen several of my own sites and servers attacked over the years, some very very cleaver and specific, the best advice I can given anyone who suspects they have a problem is immediate action. I honestly cannot stress this enough.  This article is about a defense contractor, but hackers are not only focused on getting blue prints of the newest military gadgets.  they are also looking at commercial secrets as well, and from all I have read, you don’t need to be a big firm to garner interest.  You, or your firm, simply need to be interesting enough to a player with the money to spend on a team of university students in any number of countries.

Personally, I have always taken these threats seriously.  Part of that was speaking to friends who managed servers, others who were a bit paranoid, and knowing that as someone who was involved early with the third sector I was always interesting to someone.  I have had to run through offices and servers changing passwords, take sites offline, have tech support come in and clean databases of anything and everything suspect.

With that, I highly recommend you read the article, and I would recommend that you change your passwords often… and be a little more creative than this list.

According to the recent WSJ article, How to Predict the Next Big Bailout:

Real estate agents who help Chinese investors buy homes abroad say they can guess which country is facing financial ruin by the level of restrictions attached to their investment immigration programs. That is, the easier it is for their clients to buy citizenship, the likelier it is for the country’s economy to tip over into crisis.

Which is interesting as for years nearly every time China opened up a new market to the West, that is exactly what “we” said about China.  That it would only throw open a sector after the good deals were gone, the money was gone,and a sucker was needed to keep the house of cards up.

Some of the most difficult, and important, decisions a firm can make are about the balance between price and quality in China.  For many that I have worked with, there is an embedded trust gap in China, yet the pressure to drive costs is simply too powerful to overcome.  It is almost mind boggling at times, and the recent CNBC article Japanese Carmakers Turn to Chinese Parts for China Market I think does a great job of highlighting the struggle (and risk) to find that balance:

A few relevant passages:

Entering China a decade ago, Japan’s automakers relied heavily on parts from their affiliates, or “keiretsu” companies, which were often imported from Japan or elsewhere. To check costs, the automakers urged suppliers to shift production to China – and Honda and Nissan say they can now secure more than 90 percent of their car parts locally depending on brand. But even these parts made by “keiretsu” suppliers at Chinese plants are more expensive than those from Chinese manufacturers as they often rely on materials imported from Japan.

[...] The quality of Chinese-made car parts has improved as manufacturers gain experience, though many still fall short of those made by Japanese rivals, people in the industry say.

“During the trial stages in the lead-up to the Venucia launch, we had quite a few problems that were unthinkable,” Yamazaki said, recalling how sun visors wilted and parts were often delivered with the wrong labels

[...]“The carmakers will never admit that quality will drop, but it will. There’s no doubt about it,” said an executive at a main Japanese supplier to Toyota, Nissan and Honda, who didn’t want to be named as he is not authorised to speak to the media.

“Sure, they’re making suppliers provide samples and so on, but that’s not bullet-proof. Things like the endurance of an auto part are very hard to check unless you actually apply them in cars on the road.”

It is a process that in many ways reminds me of a conversation I had with an electronics executive several years back who said “I wish we could just trust our Chinese suppliers to do the right thing”, but knowing full well that what is needed by firms is a full blown investment in their quality control processes.

Lest the end up with melted car visors, deadly dog treats, lead painted dolls, or relabeled milk powders.

When reading the article Ambulance never came for boy struck by screen in Shanghai, I thought it important to write up a quick post on what to do when a medical emergency happens in Shanghai (and I hope someone in Beijing will insert their thoughts in the comments below) because I know many people really don’t know.

The passage of the article that I feel is the most important is the following:

The boy, his mother, and the restaurant’s owner first went to Shuguang Hospital by taxi, where they were told there was no emergency room.

They were then rushed by car to the nearest hospital with an emergency room, Huangpu District Central Hospital.

There, doctors informed the parents that “they also didn’t have the necessary equipment or medicine to treat the boy”. They suggested they take him to another hospital.

A nurse called for an ambulance at 8:20 pm, but none had come by 9 pm, when the boy was pronounced dead.

With 10+ years in Shanghai now, and an 18 month old son of my own, my heart really turns on this one, as does my blood pressure, because fully staffed ERs that are either specialized in child care or able to take children were within 15 minutes… and regardless of whether or not the ambulance came, or the hospital staff from either hospital was aware of it, it is important that all parents in Shanghai know where to go when things go wrong.

So, before I get into the hospitals themselves, a few points to make clear is that not every hospital is Shanghai is specialized in children, and even those that are, they often specialize in a different condition. So, while getting to an ER that has pediatric care is of tantamount importance, it is also important to know (and research) the fact that you may be driected to another hospital who can give the specialize care.

Another point that should be made clear is that within the expat community there is the belief that Shanghai United and Parkway have the “best” quality of service, but these are not necessarily options depending on the emergency. In fact, as I posted earlier, they are not legally allowed to treat anyone with a fever, and in many cases their pediatric staff is not working evening shifts. So, if you are fortunate enough to be a regular at either of these facilities, then I HIGHLY RECOMMEND that you speak with your pediatric about emergency care. Get them, or the nurses, to give you their thoughts on where you should take your child. particularly if your child has a chronic condition (asthma)

So, with that, here is a list of Shanghai’s children’s hospitals, and my suggestion is that each of you take the time to click through to the hospitals to see where they are in town (so you know which is closest), get a feel for which offer specialized services, and then take the time to write down on a piece of paper the addresses for each so that if you are in an emergency situation you can hand a piece of paper to the cabbie.

• Shanghai Children’s Medical Center (SCMC) – This is Shanghai’s premier facility, and is the hospital that I would recommend over the others. It’s staff are viewed as the most highly trained in China, their equipment is SIEMENS, GE, etc, and a number of their directors have spent time abroad as part of the study/ career
• Children’s Hospital of Shanghai - Shanghai’s oldest children’s facility, this is perhaps the most convenient when you are unable to reach other hospitals as it is only 2-3 minutes by taxi from Jingan temple/ Portman. The facility itself is old, and is certainly at the bottom end of the options, but they have been making investments to the building recently and their staff are friendly.
• Fudan University children’s Hospital – this is the newest of the three facilities, and would be the best for any families living in South Shanghai as it is located in Minhang District. Quality of care would be similar to that found at SCMC
• Xinhua Children’s Hospital – It has been several years since I have been to this facility, and at that time it was in need of investment. BUT, they do have a full (and large) facility with everything from prenatal ICU to cancer/ leukemia wards where early teens are treated. I do not know if they offer VIP style service, but for those in the north of Shanghai, they will be your best bet for emergency care

You can download the map above in PDF form here

A final word of advice.. If something happens, don’t wait. Just get in a cab and go. Ambulances here are little more than glorified (and expensive) cabs that expect to be paid upfront, and given the fact that many of them can do little more than take vitals and offer a cot to lay down on while they fight traffic, my recommendation is to grab the first cab you see and pay the cabbie 500RMB to jump on the sidewalk if necessary.

Again, I would really appreciate it if readers from other cities would add their thoughts about the hospitals in their own cities (Beijing, Chengdu, etc) as this is relatively important information.   The story above is one that should not be repeated for any reason, and for me, the best way to prevent another family from having to experience the same pain is to make sure the information is available and basic preparations can be made.

UPDATE: Was told by my wife that there is actually a free app available called Baby 120 that will map you to the nearest ER in Shanghai.  It connects tot he mapping function of the phone, and has a few basic tags that are useful for selecting which hospital you’d like to send the driver to.  Click here to go to the App store

CNBC recently quoted Patrick Chovanec twitfeed in their article Has China’s Economy Hit a ‘Dead End’?:

“Slowing first quarter 2013 GDP [gross domestic product] growth despite massive credit expansion, much of it off balance sheet, spells bad, bad news for the Chinese economy,” [...] When “exploding” credit growth is met by slower economic growth, this equates to a “dead end,” he added

It certainly is not the first piece that Patrick has written warning of dire consequences to China’s model, but the above line fed into several conversations I have been having about the durability of the economy and the anecdotal “little things” that are appearing.  Taxis are easy to get during rush hour.  Restaurants are empty.  Planes are running half capacity.

PErhaps it is due to H7N9, or the weather getting better, but in another recent CNBC piece ‘Absurd’ Chinese Trade Data Confound Analysts, the following paragraph reminded me games that were once played in the run up to the financial crisis

“While total export growth of 10 percent year on year in March is far more reasonable a number than in January and February, the breakdown of exports by destination veers towards the absurd,” Thornton said, pointing to the fact that China’s exports to Hong Kong, which are re-exported to the European Union and the U.S., grew by an astounding 93 percent year on year in March, but exports to the EU contracted by 14 percent and to the U.S. by 7 percent.

“With pretty weak growth in the EU and the U.S., which are two main global demand centers, we were surprised that China is reporting very healthy trade numbers – there was 20 percent [export growth] in the last month and now 10 percent this month,” Thornton said

It goes without saying, that if H7N9 turns into a full blown crisis, the Chinese economy is going to experience an artificial dip as the masses weather the storm behind closed doors, but if the above passages are really a sign of deeper economic issues, then the artificial dip is going to only exacerbate what is an unsustainable economic model.

H7N9 has spread to Beijing,  is now transmitting human-to-human, and that foreign hospitals have now been told to direct patients with high fevers to head to the nearest level 2 / 3 facility:

According to new government regulations, Shanghai United Family Hospital & Clinics (SHU) is not a designated hospital to exclude the possibility of infection with the Avian Influenza virus. Any patient who has a fever in excess of 38 degrees Celsius and respiratory infection symptoms must go to a fever clinic at any public Level-2 or -3 medical institution in Shanghai. After Avian Influenza infection is ruled out, patients will be allowed to return to SHU for continued medical care.

Were it not for the fact that 10 years ago I spent a month in Beijing during the peak of SARS, the above anecdotes wouldn’t really mean much.  BUT since I was in Beijing for the entire affair, I think it is worth saying that it is time for everyone to tune in to what is likely going to become a very interesting situation over the next few weeks.  Should Beijing find itself with a pandemic on its hands that is

In thinking back to that time, there are a few lessons that I feel are worth sharing as the news comes in.

First, if (as) the shit hits the fan (and I am not saying that it will), face mask counts will be the first sign that something is happening that you should be aware of.  When I was in Beijing, I vividly remember the transition from 1-2 people with masks to empty streets.  It was a process that really only required 3-4 days, and on the day before everyone went home, the sidewalks were filled with face masks.   Designer and otherwise.

Second, if (as) the shit hits the fan (and I am not saying it will), all kinds of products are going to be horded.  Vinegar was a really popular one, but once everyone made the decision they were going to shut themselves in, groceries were emptied out.  Even the expensive expat stores.  instant noodles… faux-meats.. veggies…. GONE. Which for an American was a bit eerie as I had never seen that happen before

Third, if (as) the shit hits the fan (and I am not saying that it will), getting a ride out of country is going to be very difficult, and VERY expensive.  During SARS, that exodus began shortly after the international hospitals shut their doors to anyone with a fever, and the embassies recommended non-essentials to leave country as treatment conditions could no longer be guaranteed.

Finally, if (as) the shit hits the fan (and I am not saying that it will), firms who don’t have contingency plans in place are going to get hammered.  This was perhaps one of the most interesting things to watch while in Beijing.  Motorola was (as I recall it) closed by authorities after an employee tested positive, and there are a number of ways in which SARS can disrupt a business depending on the industry.  During that time, construction sites were closed, events with more than 25 people were shut down, and getting goods in an out of country was made all the more difficult

Just some things to think about as the H7N9 story develops.

With crisis comes opportunity, and in China, where there are no shortages of crisis, many firms are beginning to see an opportunity to enter a market salivating for safety.  Leading the charge are a number of firms looking to bring their food to China, organic and otherwise, and with every crisis foreign firms benefit to the point that Hong Kong’s recently announced fines for anyone exporting more then 2 tins of milk powder.

For some, while importing food by the suitcase may seem to be a solution, for others, this is an opportunity, as the article Mainland milk powder brands turn to overseas contractors speaks to:

The rapid rise of foreign baby formula brands in China has pushed Chinese milk producers to seek milk powder contractors overseas. One foreign milk power manufacturer has started to produce for different clients, including Chinese brands, at the same time, reports the Shanghai-based First Financial Daily.

Setting aside the fact that this practice is not a solution to China’s problems, and will likely do little but drive the price of “better” milk powders up, it needs to be said that firms who allow their products to be sold into this supply chain are opening themselves up to a significant amount of risk.  As the recent article Imported baby formula brand taken off shelves shows:

Xile Lier, Hero Group’s sole authorized China dealer based in Suzhou in neighboring Jiangsu Province, was busted by Suzhou’s quality watchdog in November for blending expired milk powder and an unknown milk source into imported formula, changing production and expiry dates, repackaging them and re-labeling formula for older babies as more expensive milk for younger children, according to a CCTV report yesterday.

The baby formula was marked “100 percent imported dairy source from the Netherlands.”

Perhaps an isolated incident, but one that should serve as a shot across the bow to those who do not understand the complexity of China’s market, or the creativity of firms who are participating in a system that has lax regulations.. and even laxer enforcement of the regulations.

Yet, as the recent coverafge from Rabobank Supply-chain flaws at heart of food scandals highlights, this is a market that is going to grow :

“Food is something that we consume daily and do not think much about, however as China’s standard of living increases, so will China’s demand for healthier and better quality food.”

With demand for safe and healthier food, China’s consumers will look to foreign and global brands to satisfy their demands. This raises questions about what local F&A companies have to do to remain competitive.

“Bigger companies need to step up and set the standard – brands speak for the whole supply chain, and Chinese brands are not valued due to the lack of trust,” Chen said.

So, what is a firm to do?  The market is ripe for your product, but the downside risk is significant enough that others are already seeing problems and talking about walking away?

Simple.  Invest in China in a manner that provides for the greatest long term access, and reduces the short term risks. Which is to say, don’t cut corners, leverage the “experience” of a middleman (to save a few bucks), and put a log on your site.

Selling to China is an attractive proposition, one that many have been speaking of since 2008 when China was forced to decouple its manufacturing sector from the global market by kick starting its domestic market, and there are certainly opportunities for firms to enter this market.  Particularly at a time that consumer confidence in a particular category are at an all time low.  But that doesn’t mean that the opportunity should be taken lightly, asset lightly that is.

Building out a local office to handle the imports and sales is a basic minimum, and leveraging the channels of an established distributor is a good strategy during that time.  But selling to a distributor into the China market without stepping foot in the market, or doing your due diligence on the partner, is a risk that I wouldn’t recommend any firm take.

Lest they too want to find themselves on the wrong side of a product recall gone bad in China.