Is Interest in China Fading?

Wednesday, August 1, 2007 5:59

48 hours ago, I posted this question on a Linkedin board to see what responses Linked in Users (more than 12 million users) came back with:

This summer seems to be much slower across the board, and I am curious if it is because of the recent coverage of China’s quality issues, if it is regulatory, or if it is because everyone has already been to China and got the tshirt.

As there responses began being posted (there are currently 20), I realized that I should have clarified this question by stating that a few friends and I were discussing how the new sourcing RFQ had fallen off lately and that we were not sure if this was seasonal, political, currency related, or due to the current news… but there was a definite slowdown.

Without the clarification though, the responses proved to be so interesting that I decided to let the question run, and I wanted to share some of the more interesting responses ( I have edited for length, if interested in seeing the entire thread, you can Click Here):

From Samuel
Interest in China may be fading but that is a temporrary phenomenon from which, I feel, China will evolve stronger and better. Seasoned and qualified managers, processes and quality controls compliant with standards established by recognized industry groups must be put in place. Last but not least the employees must be fully trained in the procedures and standards. As China recognizes the need to formalize and put these changes in place it will evolve into a better and stronger industrial force to reckon with.

From Radu P

The Chinese economy is fundamentally out of balance and has been for a while. Some investors/partners may have gotten cold feet. IMHO these are the main questions:
1) how long will the boom last, given that it is primarily driven by government demand (infrastructure) as opposed to consumer demand. l to increase then the return on the infrastructure investments will be long and hard.
2) Financial opaqueness, at least compared to developed economies. Investors in China have little info to make rational decisions.
3) The RMB story. I am of the opinion that China should be able whatever they please with their currency.
4) The Party has lost the plot.
5) the energy problem; at these growth rates they better figure out fusion soon.

From Ray
Like any economic growth, it will not be a straight line upwards.
There will be fits and starts and drops and spurts, but from everything I am seeing it will continue to trend up as the Chinese economy has tasted capitalism, and the population shift from rural agricultural life to urban areas seems irreversible.

From Usha
Well — it really depends on what kind of interest in China you feel has slowed down and from whom. For example, media coverage of China has increased. US Government scrutiny of China has increased. More Americans are following the Chinese stock markets than before. And China remains the factory floor for the world. However, many more companies, and the US goverment, have become increasingly aware of isues such as how and why Chinese goods are flooding our markets; and how very difficult it is to make profits in China.

From Yair
I believe the press in the US and Europe is focusing solely on the NEGATIVE news coming from China in a sort of frenzy – contaminated food is one example – and this is compounded with the anti-China legislation in the US being debated. I personally do not look at mainstream media for info, news, and data on China – so I haven’t noticed much slower interest.

From Dave
I think it just feels like that to some of us who have been here for a while and some of the luster and newness may be wearing off.

From Eric (of Freight Dawg)
Interest in China never fades. Its too big. However what is “interesting” about China changes from time to time just like the US, Europe and other markets. Quality has been a focus lately and I think thats good. The Chinese economy relative to internal inflation, fixed currency and infrastructural stress is also worrisome, but can be dealt with.

And the responses only get more and more interesting as the thread continues.

For anyone interested in seeing the full thread, I encourage you to click here. The responses are from persons with a wide background, and each has their perspective.

to keep the ball rolling though, I hope you will add your comments as well to this thread and to my clarification as follows:

As pointed out by a few responses, the answer to the question is it depends on what aspect of “China” on looks at, and as pointed out it may even depend on what particular region of China one is looking at.

for the purposes of this discussion, I was originally interested in thoughts on sourcing only. I , like others, have seen an increase in the factory investment and research for entry work, however new RFQ for products made in China and exported abroad have slowed significantly for myself and a few others.

Some of the issues are pretty clear (quality and RMB), but now that I have thought about it a bit more, I am interested in what political/ peer pressure companies may be feeling in the U.S./ E.U. right now. I once had a client that wwas very gaurded about their company name getting out as one that outsourced to China, and I am curious if that is a growing trend or if this is just a phase. .

So, I hope you will share your perspective and add to the thread below by sharing your comments.

Both comments and pings are currently closed.

3 Responses to “Is Interest in China Fading?”

  1. nanheyangrouchuan says:

    August 2nd, 2007 at 3:16 pm

    The opinion piece copied below is an interesting and informative overview of
    the problems in China. It conveys the impression (though it doesn’t explicitly
    state it) that China is descending into a fascist-form of anarchy and could
    soon (a few years) suffer a major economic collapse, if it doesn’t drag the
    rest of the world into something worse.

    China is a troubling question to me. Are we seeing the rise of the next Nazi
    Germany, but one with enormously greater danger attached to it because of
    greater population, modern economic power, and potentially great military
    power? Greater yet, because Republicans and the Democrats alike seem bent on
    reducing the U.S. to second-rate status?

    Or will the Chinese people, emerging from decades of communist rule, be
    unwilling to give up new freedoms and prosperity and resist imperialistic
    ambitions of their government?

    I honestly don’t know for sure. I’ve talked to a Chinese ex-patriot at work
    about this (I think his father was somehow in the Party apparatus, cause he was
    protected as a child during Mao’s cultural revolution), and also an
    ex-Taiwanese (also at work), who both have given me fascinating perspectives I
    haven’t found in any Western sources. Both are surprisingly (to me) well read
    and informed of the geopolitics even if they don’t have the big philosophic
    perspective. I’ve also had third-hand knowledge from others who know people
    from China, or have visited China. Mixed, uncertain opinions from all with an
    undercurrent of worry.

    I’m tempted to say the opinion piece below tells a story with an inexorable
    logic that flows along with that undercurrent, and frightens me.

    Is China a major threat to the world? I don’t feel qualified enough to pass
    that judgment — I’m simply not knowledgable enough. From an Objectivist
    perspective, I haven’t identified the philosophic fundamentals well enough —
    but anyone who’s read Atlas Shrugged can see frightening, though imperfect
    parallels. Unlike the world of John Galt, which explodes in anarchy because
    the motor of economic power stops when the men of ability go on strike, China
    sounds like a country about to explode because of a motor running out of
    control and far into the red (forgive the pun, and it has three entendres
    here), fueled by the ambitions of a quasi-fascist communist government that is
    pumping in an explosive mixture of influence peddlng, stock market
    manipulation, currency inflation, intellectual property theft and a host of
    other ills too numerous to list at this time of night.

    I disagree with one implied contention of the op-ed. The problem is not
    insufficient regulation of Chinese businesses. I think the Chinese government,
    while nominally communist (much as the Nazis were nominally Socialist) has
    simply morphed into a fascist super-state (like the Nazis did, as explained so
    well in Peikoff’s book, “Ominous Parallels”). The power of the government has
    extended itself to rampant corruption by pull-peddlers of the kind Cuffy Meigs
    and Orren Boyle and Jim Taggart would feel right at home with. That’s the
    primary cause of the trumpeted problems of poisoned food and defective products
    and the cover-ups and murders surrounding them. In the long run, and in the
    big picture, these are symptoms of a greater disease, but in the short run,
    just a red herring (last pun); companies that want to do business with China
    will simply strengthen quality control standards or risk fatal litigation.

    The pro and con of what’s unwrapping in China seems almost too dynamic to
    analyze and reduce to a clear principle, but my inclination is to reduce the
    problem to its simplest essentials: The desire for a people to be free and
    prosperous is not a fundamental; the ideas they hold are. The people in China
    do not yet hold the right ideas. They want to be free, but they don’t know
    why. This makes them terribly vulnerable to the power-lusters of any statist
    government.

    Likewise, the government of China, however much it has loosened the reigns,
    does not yet have the right ideas. It doesn’t know its proper function. The
    Chinese people may have been granted greater freedom of action and freedom to
    prosper, and superficially some official respect for property rights has
    appeared, but any “rights” their government seems to have granted seem to be
    only for the purpose of buttering up the milch cow.

    The operative word is “granted”. A cow that has a “granted” right to exist,
    rather than an actual right to exist, could just as easily be slaughtered as it
    could be milked.

    Under a genuinely free, non-threatening government, rights are not “granted”,
    they are inalienable. In the absence of that idea — inalienability of
    natural rights — a government that appears to have an overweening desire for
    power concerns me.

    More succinctly, my simple inclination is to say: in principle a fascist
    government with a philosophically unschooled populace (at least, unschooled in
    a philosophy of reason and rights) has to be a threat. We shall see.

    http://www.worldtribune.com/worldtribune/WTARC/2007/s7_27.asp
    Friday, July 27, 2007
    Sol Sanders, “China in crisis: Export disaster, eco-mess threaten Party’s
    economic gameplan”

    Perhaps it tells us something about contemporary America that food and
    medicine adulteration in products the Chinese use themselves and increasing
    sell the world should come to light because American pets suffered. It was no
    secret that the nominally Communist Chinese regime had for decades looked the
    other way when scandals involving Party members or government officials came to
    light concerning lapses in health and safety standards.

    But the current continuous foreign – and even domestic — media reporting
    of poisoned products for pet food, adulterated tooth paste, deadly cough syrup,
    fish products containing cryogenics, defective pharmaceuticals, dumplings which
    may or may not have been stuffed with cardboard, etc., etc., are all part of a
    pattern of the virtually complete failure of Chinese regulatory agencies.

    It is not as new story. When the 72-year-old Dr. Jiang Yanyong in 2003 exposed
    the outbreak of China’s SARS, a deadly respiratory virus which could have
    turned into an international pandemic, he and his wife were arrested and the
    government attempted to continue to cover up the whole outbreak. –

    A half million people suffered from the negligence of the responsible
    authorities and the greed of the underground “blood heads” organizing the sale
    of blood for plasma in the villages in eastern and southern Henan Province.
    This led directly to the eruption and spread of AIDS to whole villages. Again
    the authorities tried to hush it up.

    Although the death toll in Chinese coal mines was officially put 661 in the
    first three months of this year, less than the official figures last year, the
    official State Administration for Coal Mine Safety Supervision reported a
    succession of “cover ups” of fatal accidents in March. China, with vast
    reserves and a desperate need for energy, accounts for around one-third of the
    world’s coal output, but accounts for four-fifths of industry deaths — 50
    times higher than in the United States, the world’s second largest producer,
    but also even ten times higher per ton of coal than in India where accidents
    are also far too prevalent.

    These are only a few examples of a failure of a rapidly growing economy to
    cope with the demands for health and safety required of any modernizing
    society. True, China’s rapid growth rates make it difficult to institute new
    safety and health requirements. An impoverished society is trying to catch up
    and environmental concerns, as one Chinese spokesman has said bluntly recently,
    will have to take lower priority to economic development.

    But just as environmental concerns now threaten the water supply for some of
    China’s largest cities and industrial water resources may curtail that very
    development, the bad publicity for China’s exports has taken on economic
    consequences. The China brand is increasingly becoming suspect in foreign
    markets.

    Toward the end of July, faced with potential boycotts of Chinese products
    abroad and a massive array of reports of inferior products, the government has
    set up a team of top officials to steer efforts at repairing the stained
    reputation of the country’s food and products at home and abroad. The
    government gave no details of how the new agency would operate – especially
    important given the already existing proliferation of half a dozen regulatory
    agencies with conflicting jurisdictions.

    The execution of the head of China’s food and drug regulatory agency for
    taking bribes to validate pharmaceuticals and the sentencing of a second
    official of the agency also to death was intended to tell the world Beijing
    means business. It also dramatized the acceptance by Beijing authorities that
    the problem has now become a critical politico-economic issue, perhaps at home,
    but certainly abroad..

    The reason is clear: China’s economic development program is overwhelmingly
    dependent on its export-led product manufacturing and sale of intermediates and
    components overseas. The avalanche of reports of faulty manufacturing and
    adulteration threatens that whole economic program. A government media report
    in July claimed that 19.1 per cent of goods for domestic consumption checked in
    the first half of this year failed quality standards. Among smaller
    manufacturers, the failure rate was 27.1 percent. The statistics are probably
    not less bogus than other statistics that take on imaginative and creative
    aspects in the China environment.

    But having virtually abandoned any ideological or national goals except
    economic growth – however unequal and limited to elite in the major port
    cities – the very raison d’etre of the regime is now jeopardized by this
    sudden explosion of revelations about the seriousness of the problem of
    inadequate standards and Party greed gone berserk.

    Nor is it clear that despite Herculean efforts to remake Beijing, it would be
    able to provide a healthy environment for next year’s Olympic games. The
    regime has stake a great deal on the Games as an international accolade which
    crowns “a rising China’s” ambitions and progress. The Chinese capital
    suffers a perennial water shortage – the government has a massive canal
    underway to bring water from the south to the north across much of China and
    with many barriers. Its frequent dust storms — the loess blowing in from the
    increasing march of desertification now extending only a few miles west of the
    capital — leads to an almost permanent haze now worsened by the exhaust of a
    growing automobile traffic and unrestricted belching of fumes and particles
    from new industry..

    It is far from certain, then, that the central government will be able to
    bring the whole chaotic mess under control because of the fissures opening in a
    one-party regime which is now functioning on pure opportunism.

    Several factors lead to this speculation:

    The Chinese Communist Party leaders appear to have lost control over local
    cadre, particularly in the rural areas. With no substantial investment in
    agriculture there are falling living standards in the countryside by all
    estimates of international organizations – and, indeed, by the Chinese
    economists themselves where they have been allowed to publish. Legitimate tax
    collection has given way to extortion by the local Party cadre. They have
    become the principal entrepreneurs as well in most instances since they have
    the only access to capital and the use of government fiat for appropriation of
    land and other resources. Increasingly they thumb their nose at the central
    government which is, nevertheless, given the nature of the state dependent on
    them for cohesion and order. Again, a situation pertains as the old saying
    about Chinese imperial governments, “The emperor’s writ stops at the
    village gate”.

    In the major provinces and the larger cities, Party officials also blackmail
    the government with the proposition – which has validity – that unless they
    are given a free hand to pursue development, the government’s principal
    virtually only goal of rapid economic development will not be met. With the
    residue of a formerly failed centrally planned economy including giant moribund
    state enterprises, the country is dependent on these new relatively progressive
    enterprises for economic progress. Therefore, in instance after instance
    reported in the official media, when the government has intervened to impose
    higher standards of environmental controls or to curtail questionable
    infrastructure projects or to enforce intellectual property rights for foreign
    owners, Beijing has had to back down in the face of local Party “economic
    warlords”.

    Mining is the perfect case study of central-government relations with local
    government in China,” says Arthur Kroeber, editor of the China Economic
    Quarterly. “The clash is between the central government’s desires and the local
    government’s pressing economic needs, and in 99 cases out of 100, local
    government wins out.”

    So Beijing resorts to the kind of band-aid announcements of new regulatory
    devices that would make it appear that it takes the problems seriously and is
    solving it: it embargoes cargoes of food and raw materials from the U.S.,
    damning them as inferior merchandise, in a tit-for-tat operation and to prove
    the problem is universal and no better in the West and Japan than in China. It
    issues public relations statement after statement that the whole problem is
    being addressed. But these moves are only propaganda which does not address
    fundamental problems.

    It is not racist [nor “culturally intolerant” or any of those other PC
    charges] to point out that cleanliness has never had a very high priority in
    China’s incredibly rich and varied cultural history and inheritance. The
    Chinese Communists and their intellectual fellow travelers who came to power in
    1949 recognized – as had earlier reformers –that the issue was one that had
    to be addressed if traditional Chinese custom was to be overcome. And so you
    had the incredible things such as the “no flies in China” campaign, or at
    least what was sold to starry-eyed foreign visitors as a new beginning for
    Chinese sanitary and health standards. But like so many of the projects of the
    Maoist era – not excluding the so-called “barefoot doctors” in rural
    areas – the reports of success were largely the imagination of the visitors
    and government propaganda than they concrete reforms. [The continued insistence
    that a health care infrastructure and other social emoluments under the Maoist
    regime had been allowed to lapse are observations of those who did not know the
    era and depend on official propaganda of that time.]

    With a Party Congress looming on the horizon, President Hu Jintao and his
    fellow apparatchik Prime Minister When Jiabao are now exerting all their
    efforts to maintain their always precarious hold on power. The sacking of the
    Shanghai Party chairman in late July was one more evidence of the backroom
    games being played out among leaders in a Party which once had a grip on the
    country through terror and charismatic leadership but now is dissolving into
    irrelevance on every major issue, not excluding environmental concerns.

    ——————————————————————————

    Sol W. Sanders, ([email protected]), is an Asian specialist with more than 25
    years in the region, and a former correspondent for Business Week, U.S. News &
    World Report and United Press International. He writes weekly for World
    Tribune.com and East-Asia-Intel.com.
    —– End forwarded message —–

  2. Sanjay Wadnavi says:

    August 4th, 2007 at 9:56 am

    The interest is changing, and more towards India. Just take a look at the excellent http://www.2point6billion.com site to see how even some of the previously China focused businesses are now developing a strategy for India. Bi-lateral trade is set to quadruple between the two countries and foreign investment is very hot in India right at this moment. Yet only the one site above covers this at the moment. That will change, but yes, the focus of investment into Asia is moving away from the PRC. The Elephant has stood up next to the Dragon, and it’s shade is affecting the previous brightness of China

  3. Rich says:

    August 5th, 2007 at 1:54 am

    Sanjay,

    I like your statement that the Elephant has stood up next to the Elephant, and I like the site that you mentioned. Chris and his team have several good publications (online and paper based) here in China as well.

    India is something that has been discussed for a while now, but I still have reservations. On what level do you see interest in India, and on what scale do you think the investment will go to in India?

    Speaking from a logistics perspective, I have spoken to a number of international firms (trucking, express, and warehousing) and they were left with the choice: China or India.

    From a manufacturing perspective, the choice between India and China is even more complicated as India is not as suitable for U.S. markets.

    I would be interested in hearing other thoughts as I have no experience in India.