Off the Coast

It really isn't surprising to anyone who has lived in China or follows the news of the country. But, this article popped up today about foreign companies leaving the coastal manufacturing areas of China.

The article begins with tales of workers demanding higher wages and better working conditions, such as the Honda plant strike in Foshan. It then goes into the attractiveness of sending some of the manufacturing jobs back to the U.S. or Mexico, or even some other Southeast Asian countries that don't have the manpower or infrastructure of China.

It only glances over the migration of factory jobs to inland cities. These cities are cropping up because of better roads and transportation improvements that make such factories competitive with their coastal counterparts. Inland cities are also more attractive to migrant workers because they might be closer to home and the standard of living is much lower, enabling workers to save more money. These cities are also attractive to smaller businesses and factories because the costs are lower--construction, rent, and wages are significantly lower than in places like Shenzhen and Shanghai. Only some of the rising cost of business in major cities is attributed to the rising exchange rate of the Yuan--the minimum wage increases in the regions plays a more important role.

Around Spring Festival, China Daily ran an article about the lack of returning employees to the major industrial cities of Guangdong Province. The estimated shortage of workers was in the hundreds of thousands. There was speculation then that the employees who didn't plan to return to their jobs were searching for work closer to home. Of course, Spring Festival is also the time of year for job hopping around China, which means most factories were already searching for new employees.

The next phase of the migration of factories is converting the old factory districts. What will become of the enormous factories around coastal cities? Some of these structures were built to accommodate more than 100,000 workers. What can be done with structures than take up so much space? In Shenzhen and Guangzhou, private schools and universities are opening up outside the center of the cities--Shenzhen has three top-tier graduate schools that share a campus in the northern city limits; and Beijing converted its old factories near the airport into the 798 arts district.

A silver lining to the exodus of manufacturing jobs from major cities may be that the heavily inflated real estate market will become more reasonable. Of course, such predictions have been made before and nothing has changed. In the coming year I'm certain there will be more predictions about real estate, the Yuan, foreign business, and overall manufacturing from the "experts" that will be proven wrong, just as they have been in the past.

The China Price

I noticed over the last couple weeks that garlic became more expensive. I usually spent $1 for a sleeve of five heads of garlic. Now I've seen prices rise slightly by 25 to 50 cents. Not a big deal for a lot of garlic (and we do use a lot in our cooking).

In a news brief in the Shenzhen Daily, it seems the price increase is more alarming. In the city of Shenzhen, the wholesale price of garlic has doubled in the past week to 7 Yuan per half kilogram (close to a pound). Considering most of the garlic around here is imported from China, and a sleeve is about a pound, the price increase is actually quite minimal. This could lead to a greater price hike in the next few weeks in the US.

I just hope I don't have to change my recipes to include less garlic.

Gone Fishing

Do you know where your fish is from? There are plenty of people who want to buy fish that is local (or at least domestic) because they think it helps the economy and it's the green thing to do. Well, maybe it isn't. From CNN again, comes an article stating that fish caught in Alaskan waters is shipped to China for processing before returning to the US for consumption. Looks like my salmon traveled more than I did in the last year.

This is really a surprise. A few weeks ago I was at the grocery store and noticed a package of frozen salmon that was significantly cheaper than the thawed fillets being sold in the seafood department. The package had an American flag on it, and some cheesy American-imagery name. But, it also said "Product of China." I was confused because I know salmon is not a local fish in China. I thought that maybe someone opened a salmon farm in China or the US was allowing Chinese fishermen in the Alaskan waters. Turns out I was wrong about both.

The question now is, how long does it take to process the fish and get it back for sale in the US?

Revaluing the Yuan (Again)

A post at China Law Blog and an article in China Daily reminded me that I wrote about the possibility of China revaluing its currency and the effects that it may have on the Chinese and American economies.

The China Daily article quotes IMF economist, Olivier Blanchard as saying that a revalued Yuan will improve the US economy, but will not solve the severe economic problems of the country. However, Blanchard also said that China should appreciate the currency by about 20 percent.

Looking back on what I previously wrote, Blanchard's statement makes sense. I still believe that if China allows its currency to appreciate it will help businesses in the US as they will be able to sell more products at lower prices in China. But, it will not create jobs in the US. In the long term, it won't help enough.

It is possible that China will act soon on the Yuan. The country is in a strong position to do what it pleases with currency. The reason I believe the Chinese government may act soon is because it sold off $34 billion in US Treasury debt. It may look like it is economic retaliation for arms sales to Taiwan, but it may also be that China wants more profit. If the Yuan appreciates 20 percent, the Chinese government will lose money on the US Treasuries it purchased. It's smart financial planning to cash in those holdings early.

Even with signs that the Yuan will be revalued, it's anyone's guess if it will happen. I doubt it will appreciate 20 percent in the near future as China prefers to slowly adjust the exchange rate.

A Game of Chicken

It's time for another round of tit for tat.

After my first year in China, the government imposed new restrictions on visas for Americans (among others). Americans were charged more than other nationalities for visas, and the multiple-entry and long-term tourist visas were eliminated. The reasoning was that Chinese citizens had difficulty obtaining US visas and the price was higher than for other nationalities. Of course, that didn't bother me much because I didn't have to pay for my visas through work (though obtaining Jia's US visas were difficult).

Now, because the US imposed dumping tariffs on Chinese-made tires, China is now doing the same for US chicken parts. I already knew that the US exported large quantities of frozen chicken feet to China, but I didn't realize chicken wings were also included (I thought Americans ate enough Buffalo wings to keep those parts at home).

The article claims that the feet and wings are "virtually worthless" in the US. As I've never seen chicken feet for sale at the major grocery stores, I would agree with that statement. However, wings are usually sold in packages for about 99 cents a pound, which is cheaper than other parts of the chicken, but more expensive than chicken leg quarters.

The article also states that individual companies can appeal the tariff, thus significantly reducing it for that particular company. Therefore, larger companies like Tyson will have lower tariffs on their chicken parts. I'm not sure if this is standard practice in such situations, but what would happen if every chicken part importer appealed the government's ruling?

Revaluing the Yuan

Since Obama planned his trip to China there has been speculation as to whether or not he'd press China to revalue the Yuan. Rumors of revaluation pop up at least once a year, and occassionally the rumors are true (when I first moved to China at the end of 2005, the exchange rate was a little more than 8 to the dollar; when I left it was about 6.8 to the dollar--I should've saved more money). The value the US would like to see is probably along the lines of the standard of living, which would be around 2-3RMB to the dollar, but that is unlikely to happen for a long time.

Revaluing the Yuan is a touchy subject in China--many view it as pressure from Western powers to slow the Chinese economy or just a plot to destroy the economy (I had more than a few students write essays about this subject with little to no supporting details). Many Americans believe that a stronger Yuan will help the American economy, while many Chinese believe that a stronger Yuan will hurt the Chinese economy.

In the short term, a revalued Yuan won't do much of anything. It will improve the Chinese buying power of non-Chinese products, which are extremely expensive when considering the standard of living in China. But, it will also make Chinese products more expensive abroad, which could lead to people spending less on Chinese-made products. It is not likely to make Chinese products more expensive in China, which is the real fear of the working class there.

The fear that the Chinese government has is that a revalued Yuan will force foreign companies to move to cheaper countries. Some companies have already done so, but it was more about the rise of minimum wage in areas like Shenzhen (minimum wage is 1000RMB per month). Most companies can't move to countries with cheaper labor because those countries don't have the infrastructure or number of laborers that China has. Also, it costs money to build a factory and train new workers. The exodus of manufacturing jobs from China will not happen quickly--it's more likely that it may happen gradually over the next 10 or 20 years. This gives Chinese companies ample time to adapt to the changes.

The greatest fear should come from American businesses. With a stronger Yuan, Chinese businesses will have more money to spend abroad, which they would happily spend on acquiring foreign businesses and product lines (such as Hummer). Acquiring such companies and product lines will improve the image and quality of Chinese products abroad. And, Chinese businesses are not likely to keep manufacturing units in the US, thus costing more jobs in the American economy.

Maoist the White House

Since moving back to the US I've been amazed by the commercialization of President Obama--I've seen his face on a lot of cheap products. I guess it's a good marketing ploy in such a poor economy. In some ways it is reminiscent of all the kitschy Mao Zedong memorabilia (or Mao-morabilia) for sale in all the tourist traps in China (I recently read about Mao snowglobes and glow-in-the-dark Mao figures).

Now that America's love affair with President Obama is waning, other countries are still showing their support through new and questionable marketing campaigns featuring the commander-in-chief's image. We've already seen him advertising real estate and the non-copyright-infringing Blockberry in China.

Now, they're even putting his image in place of Chairman Mao. That's right folks, for a limited time you can purchase your own Oba Mao t-shirts in China (original link). Maybe you tell the vendors that he's your president they'll give you the very best international friend price.

Piracy in China?

If you didn't get the sarcasm in the title, you probably work for the media. This isn't the first time I've read an article about China that was old news to anyone who actually knows anything about China. Reuters makes it sound shocking that intellectual property thieves are selling illegal copies of Windows 7 only a week before its release. I've got news for Reuters, bootleggers have been selling illegal copies of Windows 7 for more than a year.

There is some logic in the article from analyst Matthew Cheung: "If you're trying to sell a program that costs 2,000 yuan to a student living on 400 yuan a month, that's simply not going to work out for most consumers." Really? Thank you, captain obvious.

It's not so much the individual users that software companies have a problem with--personal computers are still not as common as they are in the US. The major problem is Internet cafes and businesses that use pirated software--and the people who get the pirated software for these businesses don't usually buy it on the streets.

The media really needs to stop blowing these stories out of proportion. It might help if the people they hired to write these stories knew anything about China.

Friday's Metaphor

On our tour through Bali, we took a trip to Turtle Island (it was part of the package--something for the four kids in the group to enjoy). I think this photo from the boat ride to the island sums up my feelings about the US economy.

Humming a Chinese Tune

It seems that the all-American gas guzzler is soon to be made in China. Sichuan Tengzhong Heavy Industrial Machinery Co. is expected to purchase the Hummer brand from GM because GM has followed one of the worst business models over the last twenty years or so.

This is not a done deal and I won't speculate on if the US and Chinese governments approve this sale. Although, US military contracts come to mind for reasons to veto the sale on this end. But, what would it mean if Hummer were made in China? It would probably be cheaper for Tengzhong to produce the behemoth in China and ship it to the US, therefore I'll go with such a scenario.

The majority of Hummer owners in the US are conservatives. How will they feel if they walk into a dealership to purchase another Hummer that is no longer made in the US? Will they trust a car made in China? That last question depends on the person--there are plenty of Americans who are becoming more protective about products that are made at home, and there is a lot of skepticism as to the quality of Chinese-made products.

So far, no Chinese car companies have broken into the US market. If we look at Japanese and Korean car makers, it took them some years before the American public bought large numbers of their vehicles. There are also fewer people buying gas guzzlers because of high fuel prices, not to mention the SUV price tag. How long is Tengzhong willing to wait before the American public begins buying its Hummers?

Tengzhong can probably depend on high demand for the Hummer in China. There are relatively few around Asia now. The Chinese are beginning to lean toward the mentality that bigger is better when it comes to cars (wonder where they got that idea?). So, it seems that there won't be a shortage of buyers on the mainland. But how many of these enormous vehicles can the roads in China hold? Traffic is bad enough right now; a few thousand Hummers will just make it worse.

Where's the Crisis?

I would've never guessed there was an economic crisis going on by viewing the scene yesterday. We drove to Woodbury Commons in New York to walk around and possibly buy something if the right deal came around. Really, we just went there because the weather didn't look good enough to go into Manhattan for the day--and we really wanted to go to a museum.

Woodbury Commons is the high-end shopper's paradise. It's a strip mall that is enormous--we walked around for four hours and didn't see everything there. There was not a single empty storefront--it was mostly luxury-brand outlets like Gucci, Calvin Klein, and Armani. It was pretty much everything that I couldn't afford even with huge discounts. But I'm not their target market.

Almost everyone walking around the shopping center--and there were hundreds of people packed in there--had bags from various shops. Quite a few of the people going around did not speak English--I overheard French, Spanish, Chinese, Russian, and German, as well as a few I couldn't identify. It was almost as crowded as walking through a shopping mall in China (without all the annoying staff shouting "Hulloooo!" at me).

I suppose this shows that the wealthy have nothing to worry about, and it's just the average folks who are getting screwed by the recession.

Chinglish Spam

Over the last couple months I've noticed an increase in the amount of spam I've received on my main e-mail address. Most of the spam has been from electronics manufacturers in China. I guess they think I want to buy the junk that American companies no longer want to purchase.

Today, a line caught my attention. "maybe it cant ends the hateful and horrible economic crisis,cooperating with us,however,you would save partial expense.dont hesitate,let'go shopping with happiness!"

I never knew the economic crisis had a hateful personality. And how much would I actually save with only a "partial expense"? The quality of writing in this e-mail (complete with Chinese phone number) is far worse than most of what my students used to hand in (plagiarized assignments not withstanding).

Economic Wonders

From the Shanghai Daily comes the tale of a woman who drove a car off a cliff, killing her and injuring five others. And the reason was oddly connected to the economy.

It seems the young woman was one of five mistresses to a married businessman. Due to the economic climate, he was forced to lay off these expensive ladies, but decided he could at least afford to keep one. This brought about a contest to see who was the best mistress (not too many details as to what this contest involved, though appearance and drinking skills were up there).

This whole ordeal should serve as a lesson to everyone to avoid getting in the car with the loser of a best mistress contest behind the wheel.

UPDATE: The original article was found to be fabricated and plagiarized. Supposedly, a similar incident occurred elsewhere in China and a lazy reporter changed the location and details.

Omens

It can be difficult to gauge just how bad the US economy is from reading the doom and gloom articles online. It helps to actively seek employment in the US to get an idea of how hard the publishing industry has been hit.

Last night, I got the best reading of how the economy really is. I was talking with my parents about moving back in March and how difficult it is searching for jobs. I mentioned that if a job comes along in China that offers me at least $30,000 a year, I'd be willing to stay here. My mother agreed. This is shocking because my mother has been begging me to move home since I got here. If this is her response, I know things must be really bad back in the states.

Holidays Upon Us

I remember being shocked by the Christmas commerialism my first year in Shenzhen--I really didn't expect such an embrace of a Western religious holiday (granted, most of it was centered around the Bao'an district Wal-mart). I didn't realize then that China just enjoyed Christmas sans Christ.

This year looks like more people in my area have taken to celebrating Christmas. My current apartment building has decorations and a tree up, as does my old complex (I don't remember that last year). All of the small shops along my street are filled with cheap Christmas decorations that the children are grabbing up.

Considering orders from factories are well below levels of previous years, I have to wonder if instead of exporting the decorations and such that the factories are just selling the products to local vendors. I don't know this for sure, but it does seem like a logical possibility.

Some things about Christmas in China:

Last time I went to Carrefour, they were playing a dance remix of "Jingle Bells" with Chinese lyrics. I may not like it, but I'd rather listen to the original version as it does sound less annoying.

My co-worker said that Chinese enjoy celebrating all Western holidays. I pointed out that they didn't celebrate Hanukkah. I'm going to try to educate them on Festivus (I have a Seinfeld DVD).

Tomorrow (Christmas Day), I'm going out to dinner with a friend and his visiting parents. We're going to have a Jewish Christmas dinner at a Muslim-Chinese restaurant. Jia and I will probably then watch another classic James Bond movie.

RIP Detroit

Although I'm on the other side of the world, I still pay attention to the economic news of America. In fact, the Chinese news is filled with economic news from that capitalist society I call home. And I get to hear all about how ridiculous the auto industry in Detroit can be. Even the executives' decision to fly private jets to DC the first time around to plead poverty made its way into the Chinese broadcast.

Now, after I've read the reasons why the bailout plan failed in the Senate, I can say this: Let the "Big 3" fail. They've had thirty years to reinvent themselves and fix their problems and they have failed miserably. I'm sure some companies in other countries will buy up some parts of their operations and turn a profit in the future.

As for the United Auto Workers, I think they're a bunch of idiots. The companies they work for are going bankrupt and they don't help them gain public funding by refusing to take a pay cut so that they would make the same amount of money that other auto workers make at Japanese companies that operate in the US. If I was given the choice between a pay cut and losing my job, I'd probably take the pay cut. The UAW is just as stupid as the executives that run the auto industry. You people deserve to fail.

Yes, I realize this is going to have a tremendously negative effect on the economy as a whole, but it's worth the lesson in basic business sense. The government does not have the responsibility to help every private company that took too many risks or made too many poor decisions. The American auto industry dug its own grave a long time ago.

Brother, Can You Spare a Kuai?

China has been getting hit hard by the US financial crisis and the outlook continues to look grim. Jobs, particularly in southern China, are being lost rapidly. Economic growth estimates have been revised numerous times over the past couple months--the prediction has gone from about 10% to 7%, and could decline further. And, amidst it all, the government is taking action.

Beijing's economic stimulus plan as well as its rhetoric has raised the level of optimism among the some of the public. But, is the plan enough to keep the population employed and complacent? A little over a month ago, a major toy manufacturer closed its doors without warning, owing back wages and causing a furor throughout the country. Another in Dongguan has now closed, sparking a riot of infuriated ex-employees. I have read estimates that millions will be out of work in a year in the Pearl River Delta.

I have heard plenty of predictions as to China's future and economic downfall since arriving here. There were also pessimistic predictions concerning the Summer Olympics. So far, China has proved the naysayers wrong. And it may continue to do so.

This economic crisis poses an incredible challenge to China that it may not recover from in the near future. However, this same crisis may be just what the country needs to take the next step in its development.

Beijing is pushing ahead with infrastructure projects to improve the quality of life and to maintain employment among the growing migrant population. The central bank has also slashed interest rates in an effort to increase investment (though that is more of a short-term fix). Most surprisingly, the government is pumping 350 billion Yuan (more than $50 billion) into environmental protection--though no word yet on what this will include.

The hope is that the difficult times ahead will change businesses. The manufacturers are the ones will get hit hardest unless they adapt. I've heard a lot of preaching from the government about the need for technological advancements, but not much has been developed thus far. This could bring the innovation that is seriously lacking to the businesses on the mainland.

The entire 4 trillion Yuan economic package could change the Chinese economy for the better. Or, it may simply help the manufacturers stay in business long enough to ride out the recession and continue with business as usual in a few years, which won't bring about any long-term benefits for the public.