What must the Chinese think of Halloween (to say nothing of Mardi Gras)?

Well, finally recovered from Halloween. Kids had a great time, as did the adults. And yes, ALL of the store-bought costumes were Made in China. How odd it must be to mass produce accoutrement for another country’s holidays. What would an American printing company think if it were asked to print ghost money or bake moon cakes for China?

One of our sales reps, Allan Tsang, directed me to this film, Mardi Gras: Made in China. I’ve only seen the trailer (and it is NOT SAFE FOR WORK), but I will have to track down the full version pronto. And not for that reason. Get your mind out of the gutter.

How bizarre and fascinating that the currency for drunken debauchery and exhibitionism (which also fuels the Girls Gone Wild DVD empire – and no, I will not provide a link) are plastic beads made by earnest teenaged factory workers half way around the world in Fuzhou Province. What a world.

More thoughts on coal

070116 shunde

Here’s an interesting article from my home town paper, The Roanoke Times, on the new carbon capture technology being tested at a power plant in West (By God) Virginia. The technology is interesting to me, especially since I once considered becoming a geologist, but this is the part of the article I found most interesting:

[Mike] Morris [Chairman of American Electric Power (AEP)] and a host of others stressed Friday that coal will fuel power generation for decades to come, both in this country and many others. He said AEP agrees there is enough evidence to believe there is a link between human activity and climate change. But he said the United States has “the financial and technical wherewithal to address the issue.”

Some environmental groups encourage carbon capture efforts such as the one at Mountaineer. Others ask tough questions.

John Steelman is program manager for the Natural Resources Defense Council’s Climate Center.

“We support the use of carbon capture,” Steelman said Thursday. “We believe that for the next few decades the United States and other countries, including China, are going to use coal in significant quantities.”

And this is a critical time, he said, to limit emissions of climate-changing greenhouse gases.

John Blair is president of Valley Watch, a small environmental group in Indiana whose primary focus is the lower Ohio River Valley. The organization has fought coal-fired power plants since Valley Watch’s founding in 1981.

Blair said he has been following the development of the carbon capture and storage system at Mountaineer.

“The Alstom technique is kind of fascinating, I must say,” Blair said. [ed. – emphasis added]

The first thing that made me pause was the assertion that the USA can afford this. As someone who’s still living with campaign commercials for the Virginia’s Governor’s race, the cost of electricity is a MAJOR issue on people’s minds. As a business owner that gets 100% its power from AEP, the cost of coal fired power has a definite and immediate impact on the bottom line. I am all for energy alternatives, but let’s take off the rose colored glasses about the costs involved.

I am also interested to see somebody finally acknowledging that China (and India) are going to use coal because it is what is available and affordable (front end cost, not a nearly impossible to calculate “environmental cost”). Whether or not carbon sequestration works or is applicable in China on a large scale is something to watch. I would like to see some rational enforcement of safety in the Chinese coal mining industry (which is flat out horrific) and particulate emissions from Chinese power plants, as that is the immediate driver of the human cost of pollution in China. I am genuinely concerned with the smog in Chinese cities, as our team at PassageMaker (some of my closest friends) live and work in it everyday.

So to brighten your weekend, a lovely photo of the air quality in south China!

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Meet the PassageMaker Sales Team!

My biggest project this year is the development of an international team of sales representatives to promote PassageMaker. While the roster is not complete by any stretch, we have a good start, with representatives in Brazil, Europe, Mexico and the USA. We will be adding more photos and bios shortly, and I will post updates as appropriate.

We are currently seeking representation in India. If anyone is interested, please contact me directly.

I love it when a plan comes together…

Boy, were the trade shows REALLY different this October

I’ve written about this before. Mike Bellamy asked me to avoid politics in this blog. Which is mostly fine, because generally I am sick of politics.

But there are times when it is really, really, really, reeeeaaaaally hard, and this is one of those times. Why? Well, I’ve been going through the follow-ups from the recent Global Sources trade shows and one thing stands out like a sore thumb – the shortage of Americans in attendance.

I’ve spent the last 7 months putting together a group of sales reps to better serve our clients and help PassageMaker grow. We have 8 reps serving USA and Canada (more on the way), but my top priority was to establish reps in key foreign markets – Mexico, Brazil and Europe are already place, and I am working on covering the rest of the globe – but I had no idea this effort would pay off so soon.

Easily 85% of the follow-ups are non-USA leads. In years past, at least 60-70% were American. The reason for this reversal is disheartening. The USA is mired in recession, with a shortage of business credit, rising unemployment, etc.; while the rest of the world is recovering nicely. It does not have to be this way. As a small business owner, it is mighty disheartening to see so much indecision and ineptitude in Washington. When you have no clue what to expect next, caution dictates you batten down the hatches. The economy will not really get going again until people can plan for the future. And the solons in DC haven’t a clue the havoc they are creating.

And that is the extent of my political commentary for today. Have a great weekend.

Superfusion: How China and America Became One Economy

Very interesting podcast sent by Dan Welygan, formerly a project manager for PassageMaker, and now our sales rep covering Washington and Oregon.

I was interested to hear the author’s view of Tiananmen, and it is largely spot on. His story on KFC ignores that they pioneered this Asian-flavored version of an American also-ran for 20+ years in Japan before KFC entered China. He doesn’t understand the historical legacy of Buick in China (it was the car of the Emperor), but he is exactly right about China’s willingness to accept direct foreign investment. India is the prime example of a country that shot itself in the foot by closing off foreign investors. I think many Indians realize this is a big factor in why they trail their rival.

Well worth your time to listen.

China, US to boost quality control

Julien Roger, Managing Director of our sister company, China Quality Focus, sent me this short article on a declaration of China’s commitment to improving quality control.

Now the cynic in me would like to make a snarky comment on the pointlessness of such government pronouncements right about now, but I won’t for two reasons:

  1. Many of the quality problems pinned on Chinese manufacturers are at least 50% the fault of foreign buyers who fail to define expectations, perform proper due diligence, establish effective quality control regimes, etc., to say nothing of those clients who expect the vendor to do the engineering for them. Then when the design fails, they blame the vendor instead of themselves. PassageMaker exists to help our clients avoid each of these pitfalls and it is the reason why we created our Endorsed Service Provider network. The reputation for poor quality is a major issue for China, and the government is dead serious about rectifying the situation.
  2. As with so many areas of their society and economy – industrialization, intellectual property law, financial infrastructure – there has been astounding progress in just a few short years. Certainly there is still a long way to go, but the improvements are real. When I first went to China, I had to buy our vendor basic measuring devices like calipers, height gauges, surface plates, etc., and train them how to use them. Now there are numerous testing laboratories in every major city and companies like China Quality Focus and PassageMaker thrive by providing customized quality control and quality assurance solutions. The net effect of our efforts and those of the Chinese manufacturers is a measurable improvement in a short period of time.

China is still a darned challenging place to do business, and I don’t see that changing. If I didn’t believe PassageMaker had a bright future ahead of it helping our clients succeed on Planet China, I wouldn’t waste my time here. But I do see the progress China is making, and have to give credit where credit is due.

The Law of Conservation of Filth

The Law of Conservation of Filth: In order for something to get clean, something else must get dirty.

Corollary to the Law of Conservation of Filth: It is possible for everything to get dirty and nothing to get clean.

This is one of Murphy’s Laws. I used it in my answer when asked recently about whether “green” technology had caught on yet in China. Short answer, not yet.

Sadly, many products are just plain dirty to make and China is using the energy resources they have available (coal), and the production technologies that are easiest and least costly to adopt – that is the “brown” versions. Environmentalism as currently practiced in the West is essentially a luxury good, and I have yet to see a “green” technology that actually costs less than the “brown” alternative. Only by penalizing the “brown” and subsidizing the “green” can the case be made.

That is not to say that things aren’t changing in China. This article on the recent record-setting pollution in Hong Kong highlights the issue:

The problem of air pollution in Hong Kong prompted Australia earlier this year to include a health alert in its advice to travellers to the southern Chinese city, warning that it could aggravate some medical conditions.

Pollution has in recent years become an increasing health and economic headache for the authorities in the city of seven million.

Emissions from the factory belt in southern China over Hong Kong’s northern border combined with local emissions from power plants and transport to generate a thick haze over the city for large parts of last year.

The government has stepped up efforts to cut vehicle emissions, including offering tax concessions to users of environmentally-friendly hybrids.

Now the article does not make completely clear which government is trying to curb vehicle emissions – the Hong Kong Special Administrative Region’s (HKSAR) relatively independent government or the PRC government across the border. I suspect it is HKSAR, as I have seen no such effort in PRC, and it makes sense for HKSAR to do so. It is a wealthy city and clean air is a sign that you’ve reached a level of affluence where the manufacturing and resource extraction is no longer the driver of your economy (e.g., Singapore).

Most of the great cities around the world have traveled this path. The early industrial towns of England had skies so black with coal soot that children developed rickets from lack of sunshine. The industrial hinterlands of New York City poisoned the oyster beds surrounding the city, forcing a culinary switch from the local seafood to hotdogs. The Cuyahoga River famously caught fire in Cleveland in 1969 (and at least 9 other times going back to 1868). Rob Gifford in his brilliant book, China Road, writes about the terror of bicycling through a northern Chinese coal town.

I am not trying to weigh in on global warming or pollution in general. Everyone wants clean air and water. It is just that the Kyoto Protocol was doomed to failure on Day 1, as it exempted the developing world, especially China and India. It also failed to recognize that wealth is created in the manufacturing sector, and changing production methods and energy sources was not going to be easy or inexpensive. Such improvements can only be effectively implemented with a level playing field (compliance costs equal to all competitors). In a free trade environment, the cost advantages to sourcing in China, Mexico, India, etc., insured that the Protocol would fail. No wonder the US Senate voted unanimously to reject it. While some in the developed world may speak blithely about bankrupting core industries like coal, China and India do not have the luxury (yet) to pursue such a path. They each have over a billion overwhelmingly poor mouths to feed.

PassageMaker can help find Chinese firms who use green technology – like the Hong Kong-owned plating company we found for one project that recycles 100% of its effluent – as our clients’ require it. However, such suppliers are the exception to the rule and always more expensive. Our Sourcing Feasibility Study is just that – a study to determine if the client’s goals are feasible. Often clients want a “green” product for a “brown” price. And most of the time, that’s not feasible. Yet.

China steps up, slowly but surely

In my post yesterday, I wrote that China was not embracing “green” technologies… yet.

This article in The Washington Post gives a good overview of the steps China is taking to make that ‘yet’ come quickly. Nuclear may not be everyone’s idea of clean energy, and certainly there is a large CO2 cost upfront to build the reactors, but once past the hurdle, you aren’t burning coal anymore. As someone who was once lost on the streets of Beijing in clouds of coal smoke, this would be a very good thing.

OK, so I was blind drunk at the time, but less than 100 ft of visibility is still really, really bad pollution. I make the point to American environmentalists all the time – you really don’t know what pollution looks like if you’ve never left southwest Virginia. Heck, I would argue you don’t have a clue until you’ve left the United States

China in general is progressing at an astonishing rate – industrialization, legal framework, financial systems, the largest mass migration in human history – and hopefully rational environmental policies follow suit. As I see it, the Chinese labor pool is so vast (at least until the demographic time bomb that is the one-child policy causes an economic implosion in about 30-40 years) that they can maintain their manufacturing cost advantage and still provide a (marginally) healthier environment for their citizens.

I hope for the sake of our staff in Shenzhen, that the government gives this effort more than lip service.

Global economy has no substitute for falling dollar

Short Sunday post – interesting opinion piece in the Times of London on the dollar, including why the Chinese renminbi (RMB) is not a substitute (yet). As long as the RMB remains pegged to the dollar, Chinese exports will have a substantial cost advantage.

The saddest part of the article (from my perspective anyway, and it’s my blog) is that the dollar’s ultimate fall has far more to do with American policy than the emergence of China. Key paragraphs:

Still, doubts about the dollar’s future persist. Its recent decline may be consistent with its performance in previous currency cycles. And the drop might be due to a willingness by investors to take on more risk now that the recession seems to be ending, rather than to a lack of faith in the safety of the dollar. But investors remain worried that the dollar’s decline, so far acceptably gradual, will turn into a rout, perhaps not next year, but in 2011.

Ben Bernanke, Federal Reserve Board chairman, says that this can be avoided if two policy steps are taken. First, the American government must make “a clear commitment to substantially reduce federal deficits over time”. Second, Asian countries must boost domestic demand so that they don’t have to rely so heavily on exports to America, and allow their currencies to appreciate against the dollar so that the US trade deficit continues to fall as a percentage of American GDP.

What Bernanke did not say, perhaps because he was playing the discreet central banker, is that neither of these things is likely. The Obama administration has already pencilled in eye-watering deficits for a decade and more, and is in the process of adding perhaps another $1trillion to the US deficit by “reforming” healthcare — claims of savings are somewhere between delusions and lies. It will then turn its attention to the energy sector, and the subsidies required to fund its green revolution.

Meanwhile, the Chinese are unlikely to allow their currency to appreciate in value, and other Asian nations will continue to intervene to prevent their currencies from rising against both the dollar and renminbi. Trade imbalances will, therefore, persist.

Which puts the ball right back in the Fed’s court. Unless Bernanke drains liquidity from the financial system, and shrinks the Fed’s balance sheet by winding down $2 trillion in support programs — and does so precisely when the recovery takes hold so as not to cause a relapse by moving too early — the dollar’s decline will accelerate, shattering confidence in its long-term value. One well-respected expert tells me that in two to five years the dollar will no longer be considered safe enough to be the currency in which the world does business. Its replacement: separate deals in local currencies — the Chinese paying for Brazil’s oil in renminbi, which the Brazilians use to purchase stuff made in China — and the International Monetary Fund’s drawing rights, bits of paper backed by a basket of currencies, including but not limited to the dollar. That would mark the end of an era which has seen world trade flourish and millions emerge from poverty. Sad.

Suffice it to say, as an American and as a businessman who’s made a considerable investment in China, I like the status quo. The dollar peg makes PassageMaker’s job much easier. I hope that the author of this opinion piece is wrong and that Washington finds the sense to turn things around. I would rather not have to negotiate a currency swap every time we arrange a shipment for our clients.

A Rivalry on the Roof of the World

I haven’t read TIME magazine regularly in years. My parents had a subscription and I read it weekly as a adolescent. When I was living in the UK and then later in Singapore, I started reading The Economist as a far more comprehensive weekly news magazine than either TIME or Newsweek. Both of those magazines engage in panic journalism – headlines always screaming about the latest end of the world – whereas The Economist and the Asian Wall Street Journal (which I picked up in Taiwan) were more reliable for sober news. However, I spotted this interesting (if a bit overwrought) article on the tensions between India and China. Regular readers on this blog know that the ultimate goal for PassageMaker is to expand into all the emerging production centers around the world, first with sales offices, followed by Sourcing/Assembly Centers, making our model of Trust & Transparency truly global. First up with most likely be Mexico, but India is high on the list.

PassageMaker has a number of long-term Indian clients, and during October’s trade shows, our team met with many Indian businessmen currently doing sourcing in China or looking to start. While there is competition between the two countries, there is also the recognition that China is the more developed industrial nation and the locale to sets the “world price”. I don’t get the feeling a shooting war is on the horizon. Tension, yes, but there are still many opportunities for Indian buyers, and PassageMaker has years of experience helping our Indian clients succeed in China.