One of the first programs I worked on was a study of the agricultural landscape in the Jiangsu province.  I was working with a friend to understand how farmers gained access to market information, how they made decisions about crops to plant, what technologies they were using to improve their yields, and how they took crops to market.

What we found, through several hundred interviews (field team of 4) was fascinating, and when the news of how widespread the milk issue was – it was clear to my friend and I that we were seeing something familiar.

Reading through the New York Times article China’s Dairy Farmers Say They Are Victims, there is a paragraph that I would like to pull out

Every day farmers guide their cows to the village milking station, pump milk directly into the station tanks and then return home, waiting to hear how much they will earn, if their milk passes quality inspections.

This piece was important to me as it showed that farmers were not in control of the storage or sale of their products, something we saw in our study 4 years ago.

In fact, what we found was that it was quite common for farmers to either leave their goods on the roadside for a middleman to pick up, weigh, and pay.. or.. to take to the village grain storage unit.  Either way, the farmers did not have access to the market directly, and as the collectors would aggregate a lot of samples to make a full load, the quality levels were all over the place.
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Real quickly.

Following my post earlier this week on the World Bank’s call on its Quarterly China update, I have been passed the link where readers can go to see the transcript of the call.

In reading through the transcript, there are a few questions that I think were quite interesting, and the responses were as well including the question from Chris Jeffrey on FX sterilization and the three part question by Deborah Chu.

however, and I’ll open this up to you the reader, in the transcript it is said several times that inflation has not gone beyond food to a lare extent, and that the government is taken action to prevent it.

In my mind though, the actions of the government are actually preventing an accurate read of just how serious the spillover is. they have frozen a number of prices for goods in a number of sectors, and while the recent CPI figure was announced at 7.1%, many believe that it is much higher.

So, and I am opening this up for comments, has inflation been largely contained? Or has it been hidden with price freezes?

I have a request in to speak with the leaders of the call for this, but I would enjoy reading any perspectives on this issue as I am growing more and more weary of the statistics I am seeing, and how people read them.

A couple of weeks ago, I threw out the argument that the potential success of Vietnam was severely limited over the next 5 years because their logistics infrastructure was not in place to support large amounts of FDI…

Well, as it turns out the World Bank agrees with me, or at least their recent Logistics Performance Index supports that line of thinking in general. Released November 5, the news release says the report:

a study based on a world survey of international freight forwarders and express carriers, indicates that facilitating the capacity to connect firms, suppliers and consumers, is crucial in a world where predictability and reliability are becoming even more important than costs.

The researchers/ authors did a great job at looking at “logistics” as more than the physical movement of goods on a ship by including telecom, services , gov’t department, and a number of other steps/ pieces that need to exist for the entire process… and then they linked that back to the income levels of a country

In this highly competitive world, the quality of logistics can have a major bearing on a firm’s decisions about which country to locate in, which suppliers to buy from, and which consumer markets to enter.

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Anyone who has lived in China at any point in the last 10 years will attest to the growth of China’s east coast cities. For many who watched China’s rise, one of the most amazing measures was GDP growth, and the fact that China has been able to sustain double digit growth for so many years.

but has it? Or is China smaller than we have been lead to believe by various sources?

Well, if Albert Kiedel of Carnegie’s Endowment for International Peace has read an AD report right, China may actually be 40% smaller than previously thought.

In a little-noticed mid-summer announcement, the Asian Development Bank presented official survey results indicating China’s economy is smaller and poorer than established estimates say. The announcement cited the first authoritative measure of China’s size using purchasing power parity methods. The results tell us that when the World Bank announces its expected PPP data revisions later this year, China’s economy will turn out to be 40 per cent smaller than previously stated.

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In my nearly 6 years in China, it has been incredible to see the interest in China (and the money that followed) skyrocket.  It is a topic that I find myself having more and more as friends talk about how easy it was 5 years ago to buy apartments, as we speak to government officials who are becoming picky about the sectors they are interested in, and with companies who were once dying to meet VCs but are now turning them away because of the glut of domestic capital that can be found.

In the international press, the result of this trend is China being called nationalistic and closed up, but what it really is is a maturing of the economy and the investment profile of China.

and should it come as any surprise? They had been accepting 60 billion USD a year for the last 5 years…

All that aside the recent changes in the investment guidelines for me did hold a couple of interesting surprises.  not because I think that these sectors necessarily should be encouraged, but because what I have seen in the market and what I have heard from Chinese officials would have lead me to think that there was still time in these sectors.

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Following a recent post called Is China Export Led, I recently found another paper written by Albert Kiedel of Carnegie Endowment for International Peace, who wraps up his summary of his article China’s Looming Crisis – Inflation Returns (PDF HERE) by saying:

U.S. intelligence analysis of this overheating risk should refute the conventional wisdom that China’s growth is export-led—it is clearly domestically driven.

Policy makers need to realize that China’s rapid economic rise is homegrown and sustainable. The United States should quietly remind China that harsh handling of inflation-related unrest could seriously damage U.S.-China relations—especially in a U.S. election year.

Far more aggressive than Jon Anderson in attacking common wisdom, Kiedel’s audience is obviously policy makers who he see are looking at China though McCarthy eyeglasses (tinted with Lead painted Barbie)… and that gives his analysis a much different feel (both reports are well written and as a lay person I have no trouble following the logic of either)

In his article, the tied between exports and the economy is actually a secondary concern as his primary concern is that inflation is a real threat to the Chinese economy (he pulls out a lot of stats in support).

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“he believes holds the key to his fortune in China…” That is the end of the sentence started in Part 3 that is finished in Part 4.

so.. the entire statement “Peter has found a man he believes holds the key to his fortune in China..”… and boy oh boy does the next scene say it all (Run Peter RUN!!) .. this man (Cecil Pih) is going to steal your money.. and your product

According to Cecil.. “Doing business in China is like the wild wild west… except they know how to shot better than the cowboys” (By the way, Cecil moved into the lead on best quotes with that)..

Cut to Peter and Cecil describing their partnership and their strategy… starting with Shanghai on the whiteboard, and then moving from there through his “connections, clout, cash, and cultural understanding”

To close the deals .. you need wining, dining, and wenching (I am guessing he means going to KTV and saunas?) – Peter is up for the first two, but uses his age to get out of the third

Bank to Vance who has decided the adventure is something his 9 year old son should be witness to the fact that his partner is ripping Vance off (money, product, and even his land). Following his manager being roughed up, Vance decides to make a surprise visit… and it is clear from the minute he pulls into the driveway just where his money went (new Audi A6 … new office block fully kitted with panoramic windows and leather couches… and a new house with a swimming pool)

and so it is off to dinner where at the end of end of part 4, Vance’s bug fails..

Best Quote:
Cecil – “everything is hot. money is hot. food is hot. the girls are hot.. you really could use your shirt in the wild wild west”

Color Commentary:
Peter – Peter just jumped into a pool that is way beyond his depth. He now has a partner that has “connections to the right people”, says Shanghai is the hardest nut to crack in China, and is unable to pronounce many of the cities he will visit massage parlors in… yikes.. nice choice Peter, but I really think you would have been better off with Ms. Dai’s sister’s father in law.

Vance – I have a feeling Vance is going to force feed his partner over dinner. He has been outright ripped off, and product is not moving. While I am sure Vance knows better than to hit a man while his is down, he might just kick him cause it is easier. Note to Vance – next time you want to build a factory in China (close to wood forests), remember that 97% of all pine enters via the Russian border… not the DPRK. Go to Haierbin, Houhot, or Suifenhe

Tony – No update in part 4… I wonder how the new site manager is working out.

This series has yet to fail me. I am sure that in the end all three are going to come out of this richer than all get out simply because the stage is being set for Vance going to jail, Peter being kidnapped, and Tony crying in the corner of a half built factory. the warning bells could not get any louder, there are bogies in the perimeter, we are going to DEFCON 4.

See you in a few days for Part 5… Hopefully Tony will enter the picture cause I really want to see the factory.

Part 3 starts off with Peter pitching, and it comes out that he has failed to make a single sale after one month – Time to fish or cut bait for Peter. Cut to Tony who has set up a mansion of a store at the SNIEC Cushion Show in Shanghai. .. who is trying to figure out who wants to buy his cushions… or steal his patterns.

“If you want a quarter of a million cushions in 10 weeks, you will get your cushions in ten weeks”

Cut to Tony inspecting the site… which is uh.. way behind schedule. fortunately Tony’s business partner has a family member (her sister’s father in law) who can manage the job (That was convenient…). Tony is scared, and the entire staff goes to lunch at 11am.

Cut to Vance on the Huangpu river and a bit more background on his business. 100+ suppliers for 50,000 bathrooms (a large supply chain for a single person). So… of to the border of North Korea where Vance looks to set up his own operation, and he has a warehouse of equipment that he got on the cheap from bankruptcy auctions (this guy is a true vulture). This scene wraps with Vance driving on top of what should be the foundation of his new factory (he paid 2.7 million RMB for it) and I must say that he took it well. (so did his assistance who got ripped into)….

PArt 3 wraps up with Peter strutting through Shanghai’s Thames town, sitting down for a port, and putting on a strong face… man… I would be freaking at this point (not a single sale in site)

I can’t wait to part 4 … cause the last line was “Peter has found a man…”

Best Quote of the scene:
Vance – “I like to stay here one night (Shanghai). TO get me myself into the spirit and give me that kick up the ass. Look at it (Grand Hyatt) – If someone can build an 88 floor hotel, then why can’t I develop a new bath

Color commentary:
Vance is still going strong even with the fact that his foundation has yet to be poured (really… worse things could have happened).

Tony.. ah Tony. The sister’s father in law of your site manager? Are you kidding? Has it occurred to you to call someone at Jones Lange LaSalle or CM2Hill for help? BEsides having his product designs stolen by 21 year old mobile phone carriers… he has now put all his hopes of China based manufacturing into the hands of his site manager’s sister’s father in law.

Peter – Well, he has at least found himself in Shanghai, and has his feet on the ground. But I am worried given the last line was “he has met a man…”. Asking for a port, waiting for a man, and in his finest suit. I think my premonitions of a shady distributor are coming true.

Honestly, I could not get entertainment like this on satellite.  This series is priceless!  I t is like three blind mice for China.. and I just can’t wait to see how these guys stat putting it all together (at this point, I still think all have a legitimate shot… but no doubt there is more fun to come!)

Stay tuned for part 4… I think it is going to be better than the first 3.

Wuhan has established itself as a city where large amounts of money from foreign companies can be invested. While few foreigners actually enjoy going to this city, Wuhan has a lot of heavy industrial complexes for steel, auto, and coal that require large amounts of investment. With the rapid growth of each of these industries, foreign investment has been put into Wuhan.

While other cities that are seeing a reduction in the number of contracts with and increase in contracted capital though, the number of contracts appears to be steadily increasing, which is a strong sign for Wuhan’s future. As many of the industries that were once restricted (automotive, logistics, and others) become open to wholly owned foreign enterprises, the level of investment will continue to increase.

Areas where the Government of Wuhan is encouraging investment include:

• Automotive
• Bioengineering and Pharmaceutical
• Electronics

East Lake Development Zone, many enterprises are involved in developing and manufacturing optoelectronics & information products. East Lake Developing Zone enjoys wide choices from 100,000 highly educated experts and technicians of 23 universities and 56 research institutes.
Basic Stats: 2o minutes by car to downtown with over 8000 enterprises invested, nearly 2000 enterprises are considered hi-tech (NEC, IBM, Microsoft, etc), average purchase price is 3000RMB/ meter

Wuhan Economic & Technological Development Zone (WEDZ) is a national level development zone approved by the State Council of P.R.C. in April 1993. In April 2000, Export Processing Area was set up in WEDZ, designated by the State Council. WEDZ is located on the north bank of the Yangtze River and has advanced transport facilities. The strategy of WEDZ is to stress on auto industry and hi-tech industry, to develop machinery, electronic, food processing and beverage, building material processing, pharmaceutical and biology engineering as subsidy, and to promote coordinated development of tertiary industry.
Basic Stats: 10km from city center/ 6km from Yangtze container port, 2000+ FIEs (25 Fortune 500) have invested @ average of 100MM RMB,30+ universites nearby, basic labor between 400 – 600RM/ month

We hope you are enjoying our coverage on these zones, and will continue to comment. The next city of focus will be Nanjing

Xiamen’s investment has historically been higher than other cities due to its port, location, and ties within the Taiwanese business community. Dell and other high tech OEMs continue to invest in Xiamen, and it can be expected that many of the small and medium suppliers will soon follow with their own investments.

Electronics, especially optoelctronical and supporting industries, Logistics, Tourism, Software, Game, and Animation.

By the end of 2005, 6887 foreign-funded projects have been approved in Xiamen. About 3500 foreigners, 5000 Taiwainese and 1000 Hong Kong citizens now are living in Xiamen

The government has been reporting that electronics has been their bread and butter recently, even though they are promoting many other. In addition, Logsitics (due to the port) has also become a cricial industry, and given its placement I am certain that it will remain so for a long time.
2 Example Investment Zones:

Haicang Zone is divided into the following four functional areas in line with its overall plan: Haicang Port Area, Xinyang Industrial Area, Southern Industrial Area and Haicang New Urban Area. Areas of speciality include electronics, fine chemicals, plastics and new building materials.
Basic Stats; 5km ot city, 4 areas (Port, XinyangIndustrial, Southern Industrial, New Urban Area), 400 foreign companies invested (Kodak, Toyota, Electrolux,& GM); average investment is 2MM USD; labor cost is avg. 1600RMB/ Month

Xiamen Torch Hi-Tech Industrial Development Zone (XTHTIDZ) was jointly established by the former State Scientific and Technological Commission and Xiamen People’s Government in 1990. With the development and construction in the past 10 years, XTHTIDZ has gradually developed into “one zone with multi parks”. The East Industrial Area encourages development and industrialization in the following sectors: Electronic Information, Software, Machinery, Electrical Engineering and Biomedicine.
Basic Stat: 20 minutes to downtown; Encompasses 11 parks; 1100+ companies invested (Panasonic, Dell, ABB, Fujitsu), 500RMB per meter for purchase, average salary is above 2000RMB/ month

Next up… Wuhan (Macro-profile here)