If You Build It, They Will Come (Part II)

Sunday, May 20, 2007 2:37

Peter Hessler at National Geographic has just written a brilliant piece entitled China’s Instant Cities, that is a must read.

Entitled China’s Boom Towns, this piece is a journey into Zhejiang’s entrepreneurial heart to uncover just how the province has established itself as the richest in China.

Hessler has done a great job of building the story here, and through his 8 pages, did a fantastic job of detailing just what many of us are seeing in China.

Starting off with a bit of a intro piece to what will be ground zero for the article, Hessler shows how in a matter of a half an hour and a few cigarettes a building can be completely redesigned, and that the entrepreneurial spirit of Wenzhou finds little value in supply chain management consultants, lean design, or perhaps EHS:

First, he sketched the room’s exterior walls. Then he started designing; every pen stroke represented a wall to be installed, and the factory began to take shape before our eyes. He drew two lines in the southwest corner: a future machine room. Next to that, a chemist’s laboratory, followed by a storeroom and a secondary machine room. Boss Wang, the uncle, studied the page and said, “We don’t need this room.”

They conferred and then scratched it out. In 27 minutes, they had finished designing the ground floor, and we went upstairs. More cigarettes. Boss Gao flipped over the paper.

“This is too small for an office.”

“Put the wall here instead. That’s big enough.”

“Can you build another wall here?”

In 23 minutes, they designed an office, a hallway, and three living rooms for factory managers. On the top floor, the workers’ dormitories required another 14 minutes. All told, they had mapped out a 21,500-square-foot (2,000 square meters) factory, from bottom to top, in one hour and four minutes. Boss Gao handed the scrap of paper to the contractor. The man asked when they wanted the estimate.

“How about this afternoon?”

Following that, the article moves into a little bit of background of Wenzhou, and how it became famous for its business model:

But Wenzhou had the priceless capital of native instinct. Families opened tiny workshops, often with fewer than a dozen workers, and they produced simple goods. Over time, workshops blossomed into full-scale factories, and Wenzhou came to dominate certain low-tech industries. Today, one-quarter of all shoes bought in China come from Wenzhou. The city makes 70 percent of the world’s cigarette lighters. Over 90 percent of Wenzhou’s economy is private.

Further:

Although nearly 80 percent of all Zhejiang entrepreneurs have a formal education of only eight years or less, the province has become the richest in China by most measures.

And that is just the first page of his story… and the rest of the article focuses on the industry, business environment, managers, and employees of that 35 minute “just add water” factory.

Through this article there are two key points that I think are made:

1) RAMPANT GROWTH AT THE SPEED OF LIGHT

Throughout China (Shanghai, Beijing, and Guangzhou are at their tail ends), cities have literally been growing out of the fields. It is something I tried to capture in my post Chengdu: If you built it… they will come last year, and it is something that I have seen nearly every day in one fashion or another.

In the last 5 years, every city in China in the first, second, and third tiers have invested a incalculable amount of money into new roads, airports, roads, buildings, factories, and everything else needed to build and sustain a village, town, or province. As Hassler writes… it happens in phases:

The first time I visited the factory, the road in front was dirt, and the development zone’s billboards were mostly blank. By my second visit, six weeks later, the Yintai real estate company had posted an advertisement. The road was being paved during my third trip. On the fourth, I saw a woman drive the front left wheel of her Honda into an open manhole. The manhole covers were installed by my fifth visit. A medical clinic appeared before the sixth trip. Sidewalks and streetlights by the seventh. Trees and bus stops by the eighth.

Factory production didn’t wait for finished infrastructure, and neither did daily life.

The speed at which this happens… Shanghai built 10 Manhattans in 10 years.

It is 24/7, non-stop, unadulterated, building….

It starts with mobile phone numbers going up on the wall, next to follow is a backhoe and a water hose, then the donkey cart train moves in, and after 18 months a shiny 40 story building (or 20) are completed…

I have seen it in Beijing, in Shanghai, in Chengdu, in Xi’an, in Kunming, and in a dozen smaller towns.. and it never ceases to amaze me just how fast things in China can move.
2) LABOR IS AT THE MERCY OF MANAGEMENT

Many underdeveloped and developing nations around the world are known for having lax labor regulations, but in China the issue is not so much one of regulation.. it is one of enforcement. Currently, as we pointed out in China’s Draft Labor Law: Some Comments, the Chinese government is putting into place a sweeping reform of labor laws in China to protect the average Zhou (pronounced Joe)… and we see why it is needed through Hessler’s writing:

When Yashun struggled, the bosses cut Mechanic Luo’s salary in half, and then they stopped paying him at all. Perversely, this reflected his value—he was the only person who understood the Machine. During a crisis, small Chinese factories sometimes withhold salaries, because workers won’t leave when they’re owed money. Everything came to a head in July, when Mechanic Luo’s wife was about to give birth. She was in his hometown in Hubei Province, and he told me that this would be their second child.

The bosses refused to grant leave. On July 27, the baby was delivered by C-section, and Mechanic Luo told the bosses that he absolutely needed to return, to help his wife recover from surgery. Finally, they agreed, but they balked on paying the back salary. That evening, when I took Mechanic Luo out for a celebratory dinner, negotiations were still in progress. In the end, the bosses paid one-third of what they owed him, and he promised to return within a week.

3) RAMPANT GROWTH HAS A COST AND IS UNSUSTAINABLE

Following the above, it there is anything that moves at a more blistering pace than growth, it is the pace by why business moves in China.. and how in the end that pace, and lack of planning, has implications:

From the airport, driving south along the coast, I started with hinges—a stretch of road where the vast majority of billboards advertised every possible variation of the piece of metal used to swing a door. A mile later, the ads shifted to electric plugs and adapters. Then I reached a neighborhood of electric switches, followed by fluorescent light bulbs, then faucets.

And while from a buyer perspective, this township specialization is a good thing (concentration of suppliers offers not only selection, but visible competition puts pressure on prices to come down).. and as Hassler points out, the only thing to do for many is to try and stay ahead of the pack and go either up the chain,or be first mover:

That’s one weakness of the Wenzhou Model. Entrepreneurs produce goods that require little capital and low technology, which makes it easy for neighbors to jump in. Boss Wang, the uncle, had slipped into the same pattern. Previously, he had manufactured the steel under wire for women’s brassieres, and his profits had dropped steadily. When the two men joined forces, they decided to continue manufacturing under wire, but their goal was to find a more profitable main product.

and in the end, factories that are put into place at the speed of light… move at the same pace:

By November, the Machine was turning out 100,000 rings daily, and the bosses had installed a bigger assembly line for under wire. But like everybody in Lishui, they had gambled on rapid growth, hoping to expand to 60 workers by the end of the first year. In fact, they had only 20, and the building was three times bigger than necessary. “It’s still too early,” Boss Wang grumbled, when I asked about Lishui’s development. “If we have to get a part, or do anything related to machinery, we have to go all the way to Wenzhou.”

That month, the bosses decided to relocate the factory. The decision was instant; there was no consultation with Mechanic Luo or anybody else. Boss Gao found two available buildings in the marshlands north of Wenzhou, and then they consulted the feng shui expert. His advice was unequivocal: November 28 was also the eighth day of the lunar month, and you can’t do better than double eights.

Wrap-up:

China is going through the biggest country-wide transformation ever seen. 400 million peasants will move from the farm to the city, it is the biggest market for cement, steel, and cranes, second largest importer of oil, the largest market for mobile phones, has more internet users than anyone else… and we have yet to see China’s countryside enjoy the fruits of the last 10 years.

What strikes me most about this article is that Hessler’s article does such a good job of getting the various angles covered, and the depth of the covered… and what is scary, is that his chronicle is only of one city, and there are hundreds just like it across China.

Living in China is an experience that will define my life for sure, and everyday that I am here I feel fortunate. I am witness to some amazing things, but more and more, I am beginning to ask myself

Is hypergrowth sustainable? and if not… how bad could it get. It is a topic that I cover more on Crossroads than on All Roads, but please leave your comments with your thoughts on the article and the question above.

You can leave a response, or trackback from your own site.

Leave a Reply