For many now.. if you mention economic meltdown or implosion, pictures of Wall Street and Guangzhou come to mind.

However, for those in the earthquake affected regions of China’s southwest provinces, the economic aftershocks are still be felt by many.

In this clip, Nick Macke presents the economic hurdles that are faced in the region.  For me, the most powerful part of the clip was at the camps.  As part of the Hands On Chengdu Community Container program, I just had 2 of my directors return from the camps , and there are a lot of people who simply are looking to get back to work and make a living.

I cannot emphasis the point more than this is an area where people are looking for work in the worst way.  The problem simply lies in the fact that before the area could rebuild, the economic conditions of the US and China’s east coast began to deteriorate, and as the cameras began fading out so did hopes of many investments.

If you are a firm who is looking to develop China’s southwest market, I urge you to look at the earthquake affected regions. The incentives are really good, labor pools are deep, and the logistics conditions have improved so that regional distribution is no longer a problem.

Opening an office in Beijing for the most part is a well beaten path, unless you are of course opening the first China office of the United States Food and Drug Administration.

Certainly a reaction to the last 18 months of press on the quality issues, and certainly a move that comes at a very interesting time (given the recent FDA seizures in the US), I am personally very interested in this development and think that it is a great step in a number of ways:

1) A gateway between both governments at the agency level has been opened
2) The FDA, and other US based agencies, will learn a great deal about the complex issues that are found in China’s supply chain
3) Foreign firms, in China, will have a new platform through which their issues can be elevated (government advocacy), where they can go behind closed doors and work on the issues faced, and then have a”third party” to go through

Where the discussions became interesting was in the details

What will the role of the FDA be in China? What does their opening a store in Beijing mean for US consumers? Is this in response to the recent quality issues?

In addressing this, where I started was to discuss the context of their entrance. For example, China has 120 million farms (US 2 million/ EU 20-30 million), and so it is important to keep in mind that with 5 inspectors sitting in China, there is no credible way they can reach all these farms, much less the consolidators, logistics firms, or food processors.

that , their role was going to be limited to advocacy by pushing for higher standards, assisting China train their own inspectors, and manage the flow of information between the US and Chinese officials when things hit the fan.

Will the FDA be effective in China? Do the inspectors need to “understand China”, and if so how should the inspectors prepare themselves?

YES YES YES YES. and YES. In fact, given the complexity of China’s agricultural industry, it is imperative that they bypass all the expats in Beijing, head straight for the train station, and put on their hip boots.

this is an industry that needs to be seen and felt, not read about. The inspectors need to see what the system is from the ground as China’s break basket is not a single farmer tilling 2000 acres in their self-driven GPS John Deer combine (X Box not included), but it is about a family tilling a 6000 square feet of land. That the quality and application of fertilizers, seeds, and other inputs vary widely, that yields/ qualitie of outputs vary widely, and how all that feed back into the system.

What are the core issues of China’s food/ pharma supply chain? How wide spread are the problems? What role will this group have within that context?

Core problems, which are well documented in this AT Kerney report, are much like many other industries in China… high levels of fragmentation present huge barriers to effective quality control, consistency in quality, and enforcement of regulations… and that as a result, anything can happen.

their role, will essentially be to assist the Chinese government in training up their inspectors, and this is exactly what I think is the best means to their end (safe food). the risks though are huge. What will go into the training, how frequent are the refresher courses, etc will all impact the success of this project, and my hope is that they will start small, build out a core of professionals who will then build out another layer. If they are really smart, they will work hard to market the FDA seal of approval and provide a credible way by which these certifications can be verified. Make these inspectors a lot of money without the back handers, make sure they are doing their job, and get them to preach the gospel.

In closing, it is important to note that this is not a silver bullet, and that many many pieces need to fall into place (land reform, mechanized farming, improved inputs, farmer education, etc…. and that is just on the farm. It is a process that must also happen in the consolidation and processing as well.

1. Chengdu’s GDP ranked third in central and western China for first three quarters
On November 4th, Chengdu Bureau of Statistics published the ranking of the main economic indexes of Chengdu in the first three quarters in comparison with those of cities in Midwest China and of deputy-provincial cities of the country. It is learnt that during the first three quarters, Chengdu has realized GDP of 282.13 billion yuan, ranking 3rd among 17 cities in central and western China, while ranking 6th among 15 Chinese deputy-provincial cities; the average disposable income of urban residents is 12,530 yuan, ranking 4th in Midwest China and 12th among the deputy-provincial cities.

2. West China’s automotive industry is growing up
During the West China Expo, the Chengdu Automotive Industry Investment Introduction Meeting and Project Signing Ceremony was held on October 28th, during which 8 projects were signed, with total investment of 13 billion yuan, including the Automobile Part Manufacturing Industrial Park invested by Nanjin Automobile Group with 5 billion yuan in the Chengdu Economic and Technological Development Zone (CETDZ), Chengdu International Auto Exhibition Center by Hong Kong Reilong Group with 4 billion yuan, and the motordrome by Mintai Group with 2 billion yuan.

It is introduced that with the settlement in the CETDZ of a series of important projects with scale efficiency and driving effect such as Faw-Volkswagen’s third factory, SFTM’s capacity expansion revamp and West China Production Base of Geely, Chengdu’s automotive industry is entering into a phase of accelerated development. The next step the city will take is to fully guarantee the development of the auto industry in multiple aspects from production factors, governmental service to policy support, striving to build the CETDZ into the “West China Automotive Industry New Town” integrated with automobile manufacturing, trading, sports and entertainment with secondary and tertiary industries being developed interactively and harmoniously.

3. Sichuan tourism absorbed 55 billion yuan, Heavenly State revitalizing beautiful scenery
At the “Investment Attraction Meeting of Important Projects for Tourism Revitalizing of Sichuan” and “Signing Ceremony of Tourist Cooperation of Chengdu” held on October 28th, 48 projects of each over hundred million yuan were signed smoothly, with total investment exceeding 55 billion yuan, of which Chengdu signed 24 tourism projects of 37.31 billion yuan.

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If so.. send me an email.  CBS News is working on a 3 part series on the economic impacts in China.  They are interested in all angles on this, but are more interested in speaking to buyers and manufacturers who have some insights… even if nothing is happening to your business.

Contact information is off to the right, and if you don’t mind, send me a couple of lines on your story/ company. Don’t need names and stats… just some basics to give to them.

Shooting is in Beijing and Guangzhou (next week), so best that you are already there.

With another week of gloomy news about the global crisis, you would have thought trade were coming to a standstill, and those that facilitate it.

More than any other week though, this week has been a busy one, and perhaps we should thank the good folks in Beijing for that as Beijing to spend billions on transportation and China to invest 1 tln yuan in transportation were the headlines of the week - need to keep people employed!

the rest of the news shows a lot of movement as well across all sectors, and with many seeing volumes on the downside, I expect we will begin seeing the data in the next few weeks.

I already have heard of a truck maker whose sales are off 96%!  96%… Yikes!

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About a half hour ago I got off the phone with a reporter who was interested in the recent factory shutdowns, specifically in the toy sector. It is an industry that has been under the microscope lately as up to half of toy manufacturer have reportedly shutdown as a result of the global slowdown.

Prior to speaking with the reporter, I decided to do a little homework.  To be honest, I do not deny that factories have shut down, nor do I deny the fact that many are loosing their jobs, but I am having a tough time working out the root causes… and that is what bothers me.

So, with that in mind.  Let’s look at a few of the relevant facts:

1) There is a Global financial crisis that has impacted the global economy at many levels (consumer to country level
2) Toy factories in the Guangdong region are being shut down, proven by the numerous reports available online.
3) Primary victims are smaller factories, but several large factories have also closed

At this point, I would like to take the plane to 50,000 to highlight a few other relevant macroeconomic points

1) On November 11, trade figures were released showing:

Exports in October rose 19.2 percent from a year ago to 128.3 billion dollars, compared with 21.5 percent growth in September,

2) On November 13, economic data was released showing:

Production rose 8.2 percent from a year earlier, the smallest gain in seven years, the statistics bureau said today

Output grew 11.4 percent in September

So, while the GROWTH RATE for each statistic is declining, there is still GROWTH in each of the measurements.  thus, China is still GROWING, but as a percentage of the year before, it is not growing as fast as it did.

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With the last couple of weeks providing a seamless end to the bad economic news, and there seems to be an endless amount of “China” coverage… some of which, I have also written.

In wading through the pool, there is clearly a quality gap of analysis in some areas, there are clearly those who have their hand on the core issues and are providing excellent analysis (Michael Pettis), and then there are some who are trying to squeeze water out of a rock by using a single issue/ anecdote to draw broad brush conclusions.

Now, that being said, I myself have no idea how far this will go.  I have written out a few posts on things I can see happening, and I will continue to do so, but there are a few previous posts that I wrote last year that I thought I would like to bring out of the archives.

Not written about the effects of the credit crisis, early last year I wrote several pieces on China’s bubbles.  At that time, there was a lot of discussion about the pricing of assets, impact of implosions, and what the scariest cases were… so I tried to work through some of them.   The posts themselves are not technical, nor are they mean to highlight any particular policy that would be effective.  I was simply trying to pull out some of the areas I thought were most vulnerable, and what could happen should they (alone or in tandem) “pop”

The Great China Bubblebath: Part 1
The Great China Bubblebath: Part 2
The Great China Bubblebath: Part 3 - Scary Bubbles

Further to that, for those that are interested in getting a real handle on all the posible crack points, I highly suggest you download and spent the weekend with Fault Lines in China’s Economic Terrain (PDF Here)  It is perhaps the most comprehensive piece of writing I have seen on where China’s economic and social vulnerabilities lie, and for anyone writing analysis or making decisions about China… it is a must read.