Doing business in China: August 2008 Archives

By SPIEGEL ONLINE (Germany)
04 August 2008

China lost its status as the world's cheapest country for manufacturing some time ago. The momentum now seems to be shifting away from outsourcing to the Far East, with one in five Germany companies pulling production out of the country. Chinese workers, they say, are getting too expensive.

Citing fast-climbing labor costs and pesky production quality problems, a growing number of German companies are doing an about face and pulling their manufacturing operations out of China. Some are searching for countries with lower wages while others are returning production to Germany.

The Association of German Engineers (VDI) estimates that one in five of the approximately 1,600 German companies with presences in China is planning to pull out of the market, the Tagesspiegel am Sonntag newspaper reported. "Many, many firms are naïve when they enter into the Chinese market and don't even think about the fact that wages are increasing there," VDI spokesman Sven Renkel told the newspaper.

Rising energy costs, stricter environmental rules, the elimination of many tax incentives, a dearth of skilled workers and the increasing strength of the yuan against the dollar have all pushed production costs up in China. In addition, the country's 8-percent inflation rate has also driven up wages in the past year by as much as 20 percent, Harald Kayer, a partner at the consulting firm PricewaterhouseCoopers (PWC), told the paper. For some companies and industries, China is already getting to be too expensive. They're now looking to other lower-wage countries, like Bangladesh, India or Kazakhstan, where production is cheaper, or they're bringing manufacturing back to Germany, he said.

Chinese companies, too, are increasingly outsourcing production abroad, Eddy Henning, the head of corporate banking at Deutsche Bank in Beijing, told the newspaper. "Someone who just wants to produce T-shirts is more likely to go to Vietnam or Africa," he said. For investors from Europe, Romania and Bulgaria are also competitive with China when it comes to production.

According to Hans Röhm of the consulting firm Deloitte, the companies that are most likely to return to Germany are those that outsourced production out of cost considerations -- including the consumer goods industry and textiles, which both produce in mass quantities.

But manufacturers of high-quality goods are also looking at China with a more critical eye -- at least in the longterm. A dip in quality for these companies could damage their reputation. "That's why we're advising a lot of our customers to consider production in Germany," Röhm told the paper.

Four years ago, Steiff, a world-famous German company that makes high-quality teddy bears, moved part of its production to China. In early July, though, the company announced it would return all manufacturing to Germany.

"For premium products, China is just incalculable," Steiff CEO Martin Frenchen told the Stuttgarter Nachrichten newspaper in July. He said it took six months to train workers to produce the teddy bears' complicated stitching and to meet the company's standards for quality. "By then you might have already lost them to an automobile factory next door that pays more," he added. Despite the company's arduous efforts to produce high quality products in China, Steiff executives weren't satisfied with the end result, Frechen said.

The company also complained of the length of delivery times. Sometimes the ships carrying the company's stuffed animals would take up to three months to get to Germany. For sales successes like the company's stuffed Knut polar bear, of which 80,000 were sold, that waiting period was just too long.

Following a major scandal last year in which researchers discovered that some toys made in China were coated in toxic lead paint, the public's faith in production in the country was shaken, and Steiff decided to end its production in Asia.

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By Jill Drew - The Washington Post | The Seattle Times
August 02, 2008

Ryan Horne loves living in China. He arrived in March from Los Angeles to manage the opening of a club in the heart of the city's night-life district. Drawn by the promise of wealthy investors and an ultra-creative founder, Horne set about trying to shape the "it" factor in Beijing, that quality of sophisticated culture that defines such places as Paris, Tokyo and Manhattan.

"Every aspect is history in the making," said Horne, 25, sinking back onto one of his club's black leather couches, dotted with delicate silk pillows. A chandelier lamp and modern sculpture sat to his left. "Some people here always had money, but money without curiosity means nothing. Now there's more willingness to explore."

But not everyone savors the adventure.

With the Olympic Games just six days away, Beijing is winding tighter each day, and visitors need wander no farther than the city's bar district to experience the preparatory fervor. Police are out in force, carrying out orders to increase security and clean up the district, called Sanlitun, with zeal.

Horne has been summoned to the local police station three times in as many months for somewhat bewildering and intimidating interrogations that last for hours and probe his views on topics from Tibetan separatism to whether Jackie Chan or Jet Li has the best kung fu moves.

The last time the police wanted to see him, an officer came to the club and told an employee to send "the black guy" over.

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By Howard W. French | International Herald Tribune | The New York Times
July 31, 2008

SHANGHAI: This is it for me, folks. I'm finished. Done, meaning this is the last of the regularly scheduled columns readers will see from me in this spot.

I've had the distinct privilege of writing for this space for the past three years, most of that time holding forth on a weekly basis. As much as a privilege, it has been a deeply pleasurable challenge trying to say something interesting and, hopefully, new each time about China and its place in the world.

As a rhythm sets in, so does a humbling sense of hits and misses, guided in great measure by the invaluable feedback of one's readers, and whether one reaps criticism or praise, nitpicking or expansive analysis, it is readers that the column writer comes to cherish most.

As a final installment, this is an occasion meant for parting thoughts, and I offer them herewith. First, as a writer with an innately and sometimes intensely critical bent, one wishes to offer some general observations about China.

What this country has accomplished in the last generation deserves all of our respect. If any doubters remain, the China phenomenon is real. I have eschewed the use of the word miracle, which is often attached to China's development these days, not simply because it has become a cliché, but because it subtly detracts credit where credit is due.

China has achieved the tremendous momentum of growth and change that we journalists are always writing about not by miracle at all, but rather through the hard work and ingenuity of its people. These same factors, along with this society's extraordinary resilience, after experiences in the 20th century that were among the cruelest anywhere, should serve as an inspiration to downtrodden people on other continents.

China's example shows what kinds of remarkable results can follow when governments stop committing colossal blunders and grossly shackling or preying upon their own people. Add universal education to the mix, economic openness and basic law and order almost anywhere, and the results will soon attract that clichéd descriptive: a miracle.

China has had the great fortune of good timing, too, with its reforms coming at the start of a great wave of globalization. And there have been countless other factors behind its success that space won't allow exploring here, but any number of plodding states around the world would do well to learn from its example, from lagging regional giants like Nigeria and Pakistan to borderline failed states like Haiti and Myanmar.

A more interesting question may be, How appropriate is China's model for China itself? Rather than highlighting the country's many successes, the run-up to the Beijing Olympics has ironically spotlighted this country's more retrograde qualities, from environmental devastation and vast class disparities, to a repressive instinct that seems to lurk everywhere here.

This is supposed to be a grand, global celebration, but the people who run the country are so uptight they've frightened their own people, and risk turning off many of their overseas guests - that is, the guests who will make it here despite restrictive visa policies and an atmosphere that leaves no room for spontaneity.

Events of recent months have revealed this to be a deeply reactionary government, a state with manifold reasons for self-confidence, and yet one that seems spooked by its own shadow.

How else to explain the embarrassing need to carefully censor the Internet during the Games, as detailed in this newspaper on Thursday, or the need to jail lawyers, or buy off parents whose children were killed in flimsy schoolhouses during the recent Sichuan earthquake, or to tightly censor journalists, or to ban protests of all sorts?

What this all points to is the emergence of China as a new kind of Potemkin state: a place that invests heavily in the very old-fashioned idea that if you manipulate appearances and control the field of view, reality will gradually bend in the desired direction.

Most have learned from cartoons that the ostrich, by burying its head in the sand, does nothing to make predators disappear. And sure enough, the harder China has tried to exert control, to enforce illusions, the more noticeable the cracks in the façade become.

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