Had a discussion the other day with two super knowledgeable China people. Both of these people are businesspeople. Both are fluent in Chinese. Both have been living in China for at least a decade. One is a marketing person. The conversation started with my bemoaning how my favorite restaurant in Qingdao so rapidly deteriorated, in every respect. These two people said that virtually always happens and then they proceeded to give me the chronology of what happens to so many good restaurants in China:

1. Restaurant opens with nice space, really good chef, plenty of staff, and no skimping on ingredients.

2.  Restaurant gets really popular and then chef asks for more money and when that is refused, he or she leaves. New, cheaper chef comes in and food quality starts to decline.

3.  Decline in quality from #2 above leads to a small decline in customers.

4.  Seeking to make up for the decline in customers, the restaurant owner starts skimping on the ingredients. Maybe they go from top quality fresh spices to cheaper dried spices.

5.  Decline in the quality of ingredients leads to a decline in the number of customers.

6.  Seeking to make up for the decline in customers, the restaurant owner lays off some staff and starts skimping on overall upkeep of the restaurant.

7.  Decline in customers accelerates and restaurant eventually shuts down.

8.  Owner blames new restaurant down the street for the problems.

We then started talking about how we had seen the same sort of thing with some Chinese products and Chinese suppliers of product to foreign buyers. We talked of how this sort of decline is nearly inevitable if you believe price is what drives your customers.

There is a whole lot of the above going on with Chinese companies and this sort of business is not going to endear one to Western buyers. But we three also talked about Chinese companies we knew that had very consciously broken the above mold and by having done so were thriving in both China and overseas.

Is the above what is holding back Chinese companies from better competing in the West? Is this changing? I say “yes,” to both though I think it will all take a long time.

Sadly, we see “vendor fade” too often.  Clients come to PassageMaker and China Quality Focus because after many good shipments, all of a sudden everything is garbage.  Shipments late, containers of defects, warranty claims out the wazoo.   The value a supplier provides – especially smaller suppliers – is often dependent on a plant manager, production engineer, quality manager, etc., that the Western buyer probably never even met.  That person leaves and the whole place goes off the rails.

Part of our job is to dig into the supplier and try and identify where these potential fault zones are, though there’s often little we can do other than catch the fade when it starts and take corrective action.  We can’t run the supplier’s company for him.

One of the reasons we perform Sourcing Feasibility Studies is to have a bench to go to if the first team fades.  For most customers, we recommend having parallel supply chains – at least two vendors making the components.  I often recommend that one of those suppliers be in the client’s home market.  Little counter-intuitive for a company based in China, but our ultimate goal is the customer’s success.

To put that in perspective for those of you who don’t like sushi and teppanyaki, my last trip to our favorite place here in the States ran over US$100 for a very modest date night meal.

I know I have eaten and drunk over 1000 RMB worth at some of our gorge sessions.  As I have written before, I have no idea how they stay in business.

What puts this in mind was this powerful piece by Reason TV, How to save a dying ocean from overfishing…, which primarily discusses the Japanese and USA role in overfishing.  Those roles are well documented (for two great books on the subject, read Mark Kurlansky’s Cod and The Big Oyster).

What is not mentioned at all – and I find it quite curious – is Chinese overfishing.  This has been reported on for years (see here, here and here for examples going back nearly a decade), so I find it very curious that they were omitted from the article.

In any case, I am sure the next iteration of this study will have to involve the seafood appetites of the growing Chinese middle class.  One of the things I love about being in China is the exquisite seafood dishes.  While a great deal of the seafood is now farmed, I know I’ve eaten wild fish, usually the daily special.

I like the concept of a market based solution as proposed in the article, and modern China is so thoroughly capitalist that such a plan would work well.

• MSNBC – Clinton says world must respond to N. Korea
• Financial Times – US warns over Beijing’s ‘assertiveness’
• DER SPIEGEL  – Interview with Economist Nouriel Roubini: ‘We Will Have Even More Crises in the Future’ (hat tip Matt)
• Real Clear Politics – Depression 2010? (whether you agree with him or not, this future is not clear or bright – there is much excitement yet to come I fear)
• Reuters – Factbox: Sources of tension between China and the U.S.
• Reuters – China and U.S. look to close world’s biggest trade gap
• Reuters (again) – Clinton avoids China disputes, hands out teddy bears (avoid confrontation and carry a teddy bear – not exactly what the Teddy for whom the bear is named advised, but then he never had to deal with being in debt to your competitors)
• CNBC – US Plays Down European Crisis but China Worried (as they should be)
• USA TODAY – Private pay shrinks to historic lows as gov’t payouts rise (that’ll work)
• Reuters (yet again) – How Greek debt crisis could save America (God, I hope so)

Maybe get to some travel blogging tomorrow.  Or not.  You’ll have to check back to see.

Too many American industries rely on illegal labor to remain cost competitive, thus the constant drama on the border issue.

The China nearly every Westerner sees is the coastal veneer.  The majority of China still dwells in the poor, mostly agrarian interior.  Their source of cheap labor in internal.

And as this article in Slate by Brett Edkins points out, in a sense, many of those Chinese migrant workers are “illegal” anyway.  Key paragraphs:

The United States could begin by conceding one of China’s principal arguments: Human rights are not just about individual liberty, but also economic opportunity. The Chinese “economic miracle,” which lifted 500 million people out of poverty in just one generation, is itself an unprecedented human rights achievement. Yet it gave rise to other pressing human rights concerns, including an issue that threatens to destabilize China’s Communist regime—growing discrimination against the roughly 200 million Chinese citizens who left their rural homes to find jobs in China’s booming cities.

In many ways, these rural migrants resemble undocumented immigrants in the United States. In China, they provide indispensible labor for vast urban construction projects and work in menial jobs as guards, waiters, cooks, or barbers. They are often mistreated by employers, generally live in poor conditions, and receive few social benefits and limited protection from the police. And their children are regularly denied public education.

Chinese newspapers, “Netizens,” and even Communist officials are calling for reforms. Their main target is China’s 50-year-old household registration, or hukou, system. Began as part of China’s state-run economy, the hukou system labels individuals as “rural” or “urban,” indicating their proper place of residence and binding laborers to the land. Today, rural residents are permitted to travel to the cities, but they can still be fined or forcibly returned home if they are caught working or living outside their designated hukou. Obtaining a temporary urban-residency permit from the police is beyond the means of most migrants, requiring a fee and employment documentation. Permanently changing one’s hukou by attending university or joining the military or the Communist Party is similarly out of reach.

Life for a city dweller with a rural hukou is difficult. Their hukou denies them urban welfare and access to public housing. It also excludes them from publicly funded health-insurance schemes. Since fewer than 3 percent can afford health insurance, most avoid medical care altogether. City judges often impose harsher sentences on rural migrants, and employers frequently withhold wages, knowing undocumented workers cannot complain to police without risking exposure.

I will admit I not a fan of the author’s wording, “undocumented migrants”.  If you illegally cross a national border anywhere else in the world (including Mexico), you’ve broken the law.  Only in the modern American journalist and politician world does that deserve an obscurant euphemism.

However, the point of the article is that despite the rapid advances, parts of the Chinese state are stuck in the Maoist past.  One good thing about dealing with PassageMaker, you know our employees are treated well and legal.  As a foreign owned firm, the government would come down on us like a ton of bricks were it otherwise.

Regardless, I am happy to see people in China, including members of the Communist Party, start to address the problem.

This article appeared on ChinaSMACK today, Naked Chinese Girl Mentally Ill, Traumatized, or On Drugs?

The frontal images are pixelated, the rear images are not.  I would argue that this is harmless, but you judge the culture of your office.  WATCH AT YOUR OWN RISK.

I post it for the following reasons:

1. The event takes place in Shenzhen.  I swear this is Luohu district.  The background looks so familiar, I bet this is near our old office.
2. Notice the way she just walks through traffic and then hops the barrier fence – the one designed specifically to keep people from walking out into traffic.  This is not a sign of mental illness.  EVERYBODY does this in China.
3. Notice the barely controlled chaos – the masses of people, the traffic, the noise.  This is not because there is a pretty young woman running around naked.  This is all day everyday in Shenzhen and every other place I’ve been in China.  Most Americans cannot imagine the demographic density of Asia.
4. Notice the unguarded construction site.  While major digs with have walls built around them, it’s very common for smaller projects to be completely wide open, with people walking right through the middle, dodging around the construction workers.
5. In my experience, the Chinese gawp at anything that outside the norm, including tall, fat white guys walking down the street.  You should see some of the looks I get walking through Liantang.
6. They are also charitable and helpful in my experience.  Maybe it is because I am a lao wai, but I don’t think Kitty Genovese would have happened in China.  There is a genuine effort to help her.
7. The bare feet.  The Chinese know that the streets in the major cities are beyond filthy.  EVERYONE wears slippers around the house and would NEVER walk barefoot on the street.  This is sure sign this is not a stunt.  Even if she were a model paid to act crazy for some bizarre promotion, I am confident she would have retrieved her flip flops.  That’s why the camera pans down to capture the image of the abandoned footwear.
8. The omnipresent and yet soft police presence.  Cops are everywhere in Chinese cities.  Yet, I have never seen them bestir themselves for anything.  I mean look at how the cop DOESN’T react when she climbs from the back seat of the cop car into the front seat.  That would be impossible for a dozen reasons in an American police car – handcuffs, barriers, cops tasering you and then beating the crap out of you to name a few.  I am almost convinced that as long as you don’t murder, rape, steal, sell drugs, or criticize the government, you can get away with anything.  Jaywalking, reckless driving, spitting on the sidewalk, littering, public drunkenness, panhandling – those are all just fine.  Indeed, it can be argued they are integral parts of Chinese culture.
9. She’s naked.  I mean, come on…

Have a great weekend!

These hotels were already anachronisms in Taipei 12 years ago when I lived there, but China was far more conservative.

Now, it has changed dramatically, and China is as sexually liberated as any place on earth.  I say this without any judgment on whether this is a good our bad thing, but it is true that China has opened to the world in more ways than just economics in the last 30 years.

This article from the AP, “Swingers’ case tests sexual limits in China“, highlights the dramatic changes.

The US engagement with China has always been predicated on the concept that through trade we would alter their society and thus diffuse any potential conflict.

Can you imagine a more Western defense than, “How can I disturb social order? What happens in my house is a private matter.”?  Summed up in those two sentences are concepts of personal privacy and private property that would would have been incomprehensible 20 years ago.

How much China has changed since then…

Since my return from China two weeks ago, I have been working like crazy trying to bag all the new business raining down on PassageMaker, SafePassage and China Quality Focus.  The world economy is not out of the woods but we are definitely seeing an explosion of new RFQs, led by Australia.  They are booming exporting the raw materials for China’s industry.  Let’s all raise our glasses to Australia!  More on that later…

I have been picking away at the travel log in my minimal spare time, but here are some interesting articles (some a bit old, but nonetheless).

• Nixon wasn’t so bad after all – USSR planned nuclear attack on China in 1969 – and Tricky Dick stopped World War III.  This is the kind of stuff you do as President that you can’t talk about, you have to hope historians get it right.
• From Instapundit, a link to great blog about Japan, Ampontan.  Today’s post is called Lame and Shameless, about ridiculous Western reporting on Japan.  I am reminded of Andrea Martins, our representative in Brazil, who was actually born and raised in Beijing, the first and only Caucasian I’ve met who truly speaks native-level Mandarin.  She told me once that if you visit China for a week, you can write a book.  Stay for a month, you can write an article.  Live there for 25 years, you have nothing to say.
• Every once in a while you need to remind yourself how utterly insignificant you really are – Jupiter loses one of its stripes and scientists are stumped as to why.
• Every once in a while you need to remind yourself how great your life really is – N.Korean women up for sale in China: activist.  Tragic and terrible.  I hope China steps up.
• Interesting article from Mother Jones.  Yes, really.  The Last Taboo.
• The New York Times finally realizes that many jobs aren’t ever coming back – The New Poor: In Job Market Shift, Some Workers Are Left Behind.
• Speaking of vomiting…U.S. posts 19th straight monthly budget deficit.  (hat tip to Dave Learn)
• Dear God, let’s hope so – N.J. gov. sets tone for US – I have heard Christie speak, and it is QUITE refreshing.  He sounds like a no-nonsense CEO sent in to save a company on the ropes.  Math doesn’t lie.  There is no money tree.  You  have to cut spending.  However, if you could just raise taxes on The Real Housewives of New Jersey and leave the rest of the state alone, I think you could sell that.  My God, what tacky people.  The rise of China should be seen as largely a good thing, and maybe the Chinese economy will grow larger than the USA’s, but that was never a foregone conclusion.  Our current political leadership across the board seems hellbent on making sure it happens ASAP though.  As someone who has business interests in both USA and PRC, I just wish the USA would quit shooting itself in the foot.  We businessmen would be just fine if we knew from one day to the next what was coming out of Washington.
• Globish – I love it.  What a great word.  And the author nails it; I have had similar experiences many, many times in the Chinese-speaking world.
• And finally, I can’t resist – Dog on the menu for Chinese astronauts.  Actually, dog is pretty tasty, though I’ve only had it prepared in Korean restaurants in China, so I haven’t tried the Chinese version.  Have to put that on the to-do list.

A gloomy mood might seem to be justified at the moment. Unemployment is nearing 10%. We have just witnessed a bitter financial crisis, a series of debt-deepening bailouts and a bruising fight over health care. Conservatives fret that we’re running out of time to tackle the entitlement crisis. Liberals fret that we’re running out of time to tackle the climate crisis. Roughly 60% of poll respondents say that America is on the wrong track. Meanwhile, China has resumed its torrid economic growth and has become for the U.S. what Japan was in the 1980s—the seemingly unstoppable Asian force that will soon leave America’s economy behind.

How to respond? “Declinists have always projected America’s imminent demise,” the editors of Newsweek wrote earlier this month. “For a change, they’re onto something.” Joel Kotkin would disagree. In fact, he is in a cheerful mood, in part because he has been thinking less about the present than about the near future, when the news, he says, is likely to be much brighter, at least for America.

“In stark contrast to its rapidly aging rivals,” Mr. Kotkin writes in “The Next Hundred Million,” “America’s population is expected to expand dramatically in coming decades.” He points to a slowly rising birth rate and to the continuing in-migration of young workers from poorer countries. Most of America’s population growth between 2000 and 2050, he notes, “will be in its racial minorities, particularly Asians and Hispanics, as well as in a growing mixed-race population.” No other developed country, he says, “will enjoy such ethnic diversity.”

For Mr. Kotkin, population growth translates into economic vitality—the capacity to create wealth, raise the standard of living and meet the burdens of future commitments. Thus a country with a youthful demographic, in relative terms, enjoys a big advantage over its global counterparts. In the next four decades, Mr. Kotkin observes, “most of the developed countries in both Europe and Asia will become veritable old-age homes” because of stagnant population growth. And the economies of these countries, already devoted to a vast welfare-state apparatus, will face crushing pension obligations—but without the young workers to defray the cost.

Inevitably, Europe and Asia will decline, Mr. Kotkin predicts, and America will thrive. Indeed, the U.S. will emerge, he says, “as the most affluent, culturally rich, and successful nation in human history.” What about the billion-person behemoth across the Pacific? Not to worry. Mr. Kotkin thinks that, by midcentury, China’s one-child policy will cause it, too, to suffer from the burdens of an aging population.

If Mr. Kotkin is right about America’s “next hundred million” people being the key to its happy destiny, where are these people going to live? In the suburbs, he believes—and why not? For most Americans, Mr. Kotkin writes, the suburbs represent “the best, most practical choice for raising their families and enjoying the benefits of community.” He adds that, even with one hundred million more people, the U.S. “will still be only one sixth as crowded as Germany.” In short, there is lots of room to grow.

Mr. Kotkin’s vision of America’s next four decades—expanding, browning, adapting and thriving—is largely convincing. He’s no Pollyanna, however. He worries especially that upward mobility is more difficult than it once was and that class polarization is a real possibility, because a knowledge economy like America’s tends to widen class divisions. The result is “an expanding affluent class of the highly educated, a stubbornly impoverished population, and a shrinking middle class.”

Here is one area where Mr. Kotkin might have said more. The collapse of the family in America’s underclass persists—with more families than not headed by single mothers. Mr. Kotkin is delighted to report that the family in America is taking ever new shapes, adapting and “resurging” in different forms. This claim may well be true for the broad middle class. But in that stubbornly impoverished sector, the family isn’t resurging at all. America’s relatively high birthrate—a source of national strength generally, as Mr. Kotkin says—contains a large percentage of out-of-wedlock births. In some urban neighborhoods, the rate stands close to 70%. The most “successful nation in human history” still has some work to do.

Mr. Schulz is editor of American.com, the Journal of the American Enterprise Institute, and co-author of “From Poverty to Prosperity” (Encounter, 2009).

The demographic challenges of China are indeed real and as Mark Steyn pointed out in his much darker book, America Alone, demographics are destiny.  What concerns me (and I imagine the Chinese government) more immediately than the aging is the dearth of women.  The combination of the one child policy, modern medicine and Chines cultural preference for boys has led to tens of millions of men who will never find mates.  The women simply weren’t born.

Some of this is offset by female immigration from other Asian countries, mainly Vietnam and the Philippines, but that is only an option for someone wealthy enough to pay for a wife.

In short, I am not afraid of China.  It is a dynamic and fun place, much as Japan and Korea were during their booms.  But America can only fail if we defeat ourselves.  Sometimes I think some of us are trying…

Have a great weekend.

Not that China is necessarily our enemy, but they are certainly a competitor, and I don’t normally borrow money from my competitors.  Some interesting articles covering all sides of the USA declining(?) debate and other silliness.

• America On The Rise – I sure hope so, and the author’s demographic points are very valid
• 10 Mega-Themes That Spell The End Of Western Dominance – for a contrary view, if a bit overly pessimistic IMAO
• How America Can Rise Again – a very good overview of our dynamic creative culture and moribund political system – he had me until he started pointing to the Carter Administration as his example – please – but overall a very worthwhile article (hat tip to David Bradley)
• Foreigners cut Treasury stakes; rates could rise – if the US government was spending this borrowed money on upgrading our infrastructure, that would be one thing…
• Foreign demand falls for Treasuries – more detail
• Jitters over China’s waning taste for T-bills – more if you can stand it
• Uncle Sam vs the Dragon – this is a good strategic overview
• EXCLUSIVE: Help Wanted — ‘Arrogant Americans’ Need Not Apply – worth a laugh
• Flip-flop diplomacy with the Dalai Lama
• The Global Debt Bomb – interesting interactive report – I feel like I need an aspirin
• China to release pollution-fighting fish in lake – and this is just odd

Sorry nothing more for today, too much catch-up from Chinese New Year.