the blog of the guy who wrote

that book about china

Toyota’s recent recall of 4.2 million vehicles has been pretty dramatic, and the media has pitched this story as one that highlights quality problems outside of China. This recall is going to tarnish Japan’s image as a producer of quality products, they say. China is not alone, Japan is having its own quality control crisis!

The company responsible for sourcing the faulty accelerator pedals, CTS Corporation, is American, which suggests an American quality crisis, not one that is Japanese. It made me wonder anyway when the media was going to connect the dots by telling us whether CTS was sourcing the product overseas. I’ve been waiting for days for this information: Where were those accelerator pedals actually made?

My suspicion – not yet confirmed – is that the accelerator pedals were “Made in China.” One reason for guessing this is that the recall directly affected cars produced in China. It seems unlikely that the United States would make a part like this and ship it to China, a low-cost producer. It seems somewhat more likely that an auto assembly plant in China would want to source the component close to home (given the price advantage, and proximity) – and that if China were a place to source accelerator pedals, then these components were likely shipped to auto plants around the world.

And then there was the list of 200+ pedal accelerator suppliers that I found on Alibaba.com this morning. On its own, not a compelling piece of evidence, perhaps, but at least a suggestion that China does in fact produce such assemblies in great volumes. And here’s another detail: CTS Corporation’s largest manufacturing facility outside of the United States is located in China.

More than anything, what’s convinced me is the media spin. Too many in the press have taken the opportunity to jump on Japan’s case. And what really set off an alarm has been the way in which Chinese officials commended Toyota on a fine job of “handling the crisis.” Here’s a piece of advice you can put in your pocket: Anytime you see Chinese government officials praising the Japanese when they have the opportunity to slam them, be on guard.

China on Friday welcomed moves by Japanese auto giant Toyota and Ford of the United States to recall or suspend production of some cars due to safety risks…China itself has been criticized worldwide for a raft of product safety scandals in recent years involving dangerous foods, and toys with its manufacturing industry being blamed as poorly regulated and corrupted.

Don’t know why China is sweet on Japan when it tends to be tough, but here is a press release, available at CTS Corporation’s website, which points to the geographical source of the accelerator pedals:

CTS Corporation (NYSE: CTS) today announced that CTS Automotive Products has been awarded a $22 million production program for its Electronic Throttle Control (ETC) Accelerator Pedal Modules from a major Japanese vehicle manufacturer…CTS recently won the North American business for this same platform of this popular model and is working towards penetrating additional wins for this platform in Europe. The pedal modules will be manufactured in Zhongshan, China with the first deliveries starting in 2011.  Revenues from this award are expected to reach approximately $22 million over the five-year life of the program.

Japan has built a strong reputation for quality that is well deserved, and it is unfair that the press has taken the position that the accelerator modules are a “Japanese problem.” We don’t know yet whether the faulty parts originated in China, but it seems likely.

Toyota is facing its fifth auto recall in China, and I now wonder how many of these cases are really a “boomerang effect” involving China-made parts. It raises an interesting question anyway: If Japanese companies are incapable of ensuring the quality of products they have made in China, then can anyone else be expected to do so?

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Time Magazine has published a piece in which Jim McGregor remarks that foreigners are “angry and disillusioned.” There has been a lot of this sort of talk in the media these past few days. In the wake of the Google case, many are suggesting that things are changing in China. There has been a paradigm shift, and a number of pundits would like to take credit for taking the country’s pulse.

I would instead like to take credit for predicting the future.

It’s been almost two years since I wrote my piece on profit zero for Far Eastern Economic Review, an article in which I was clear in suggesting that things were changing in China — and for the worst. I was specifically referring to the new way in which Chinese were looking at those foreign companies and countries that helped bring China to where it is today. This idea about a changing, chilly attitude was not empty talk or a shot in the dark, but a conclusion based on experience. Go ahead and read what I wrote in March 2008:

Foreign companies invested large sums while dreaming of enormous potential, and China benefited as foreign investment accelerated domestic growth. One of the big questions going forward is whether the government will allow foreign companies to compete unfettered, or whether they will burden foreign firms with increased taxes, regulation and the unequal enforcement of laws that were meant to apply to foreign and domestic firms in equal measure. China has been more open than either Japan or Korea at comparable stages in economic development—but one has the sense that profit zero will play out on the macro scale, that the day will come when the nation will come to see the work of foreigners as largely done.

My editor on the piece (not the editor-in-chief of the publication) questioned my conclusions. Others who read the article after its publication thought I was out of my mind. You have to remember that in early 2008, publications like Time were busying themselves by talking up China’s “rising middle class.” Articles on the big opportunity in China made me think instead of Western greed. Look at where we are today anyway — precisely where we are (i.e., Google) — and ask whether what I wrote above was not at least a little prescient!

Again, the article was written two years ago.

In my book, Poorly Made in China, I developed the theme further, suggesting that the importer-supplier relationship might be seen as an allegory for US-China relations. I made the controversial claim that “wealthy companies” in China tend to behave worse than “poor companies,” and that China as a nation will become more difficult to work with as it rises. This is the opposite of what US politicians and business leaders predicted in the early 1990s when the decision was made to delink human rights and other reforms in China with the economic opportunity at hand. I was early, if not first, in making certain, related claims.

It is important to make a distinction that while I suggested doom and gloom, I’m not talking about China collapsing under the weight of Communism. This conclusion was what we got from Gordon G. Chang in his book, The Coming Collapse of China. You want find echoes of these conclusions in James McGregor’s own book, One Billion Customers.

Financial Times ran a piece by Gideon Rachman, in which the journalist also seemed to be cribbing notes. Rather than quote what he’s written, I’ll link over to his piece and then supply a complete excerpt from the conclusion of my book. When I wrote the section below, there was no “Google case” to use as a springboard, or as evidence. I was not a newspaperman who came to conclusions through brief interviews, and from scanning blogs. My thoughts on the situation were based on real-life experiences in business. Make of it what you will, this is the end of my book (the last page):

“When the United States pushed for greater levels of bilateral trade with China in the 1990s, it was under the assumption that China would become easier to work with as it rose to prosperity. If the importer-manufacturer relationship has shown anything, though, it is that the opposite is true. As Chinese manufacturers have grown bigger and wealthier, they have managed to find — and to exercise — more leverage in their relationships with buyers.

The manufacturer-importer relationship can be seen as an allegory for the future of relations between the United States and China, and one of the challenges going forward will be learning how to engage China. Some leaders feel that they have only the political past to use as a guide; but in fact, they have many microcosmic examples to take from business, and in those models can be found an appreciation for a variety of strategies and tactics.

When it comes to free trade, taking a backward step is many orders of magnitude less desirable than not moving forward toward increased levels of openness. During the Clinton Administration, when Most Favored Nation status for China was debated in Congress, there was a chance for the United States to hold out for political and economic reform in China, but the opportunity was lost.

Improved structural conditions made possible then might have more appropriately set the stage for stability going forward. Instead, American politicians and business leaders rushed headlong into greater levels of interdependency with China, a nation whose reliability is questionable.

This decision, to fling open wide the doors of trade with China — before we were ready, before China was ready, before we understood what we were getting into; an action motivated by our own greed — this decision more than anything else was the one thing related to China that was truly poorly made.”

No matter whether you are a reporter, an executive, a politician or an investor — there is a value in getting certain things right, and in getting them right early. There is risk in taking a contrarian view, and reward in validation.

One final note. I am in the middle of a book tour through Asia. Having completed a number of successful talks in Thailand and Hong Kong, I will soon be speaking in Singapore. One of my talks there is closed to the public, the other is open. Outside of these talks, I am meeting with journalists and others who have asked to speak with me. If you are professionally involved in the subject of China and would like a more detailed explanation of anything I’ve written, welcome to drop a line. I’ve been enjoying discussing my book while on the road. As always, welcome dialogue on this very important topic.

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Inc. just published their list of “Best Books for Business Owners of 2009.” Poorly Made in China was selected and turned up alongside some great books, including Outliers: The Story of Success by Malcolm Gladwell, How the Mighty Fall by Jim Collins, and I Love You More Than My Dog by Jeanne Bliss.

This is the third time that the title has made a best-books list for the year. The Economist was the first, and the second appearance was at Investopedia, which is owned by Forbes.

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The Economist just published its “Best Books of 2009,” and a certain small book on China has made the list.

Poorly Made in China is in excellent company. The three other titles in the economics and business section of the list include Too Big to Fail by Andrew Ross Sorkin, Lords of Finance by Liaquat Ahamed, and How Markets Fail by John Cassidy.

It is a wonderful distinction. Thanks to all who offered notes of congratulation.

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Barack Obama is scheduled to visit China next week, and in advance of his visit, Beijing has chosen some unusual words. To gain support for a political agenda, which includes efforts in Tibet, Chinese authorities are reminding BHO that he is black:

“He is a black president, and he understands the slavery abolition movement and Lincoln’s major significance for that movement…[We] hope that President Obama, more than any other foreign leader, can better, more deeply grasp China’s stance on protecting national sovereignty and territorial integrity.”

The comments came from Qin Gang, a Foreign Ministry spokesman, and the media is making much of what has been said — especially this invocation of Abraham Lincoln. While the reference seems fresh and unusual, I’m afraid to say that it’s old news.

I am here thinking of Zhu Rongji’s historic visit to the United States in April 1999. During that trip, ZRJ, then Premier of the People’s Republic of China, and President Bill Clinton gave a press conference. They stood together, going back and forth over various issues. At one point, Taiwan came up. Zhu unexpectedly broadsided Clinton in front of the media by connecting the Civil War with its significance on the Taiwan question. I’ve been unsuccessful in retrieving the video, but I did manage to find a quote:

“Abraham Lincoln, in order to maintain the unity of the United States…resorted to the use of force….so, I think Abraham Lincoln, president, is a model, is an example.”

Bill Clinton’s characteristic cool was broken by the mention of Lincoln. In the press conference, he could be seen fumbling for an appropriate response. If memory serves, he may have appeared agitated. Journalists trying to place next week’s high-level meeting in historical context may wish to hunt down the video to see it for themselves.

It was not the first time that a Chinese official made use of Lincoln anyway, and Zhu may have been taking an example from his boss, Jiang Zimen. Then leader of the People’s Republic of China, Jiang was fond of quoting from the Declaration of Independence as well as from Lincoln’s Gettysburg Address. He quoted from these when he met with US officials and found that the references suited his purpose.

This one facet of Chinese culture I find fascinating, and I’ve seen it done often. Businesspersons will take a belief or value held by the other side and use it to their advantage in negotiations. I wonder if the time will ever come when US political leaders will do the same. Instead of quoting Chinese idioms as a means of ingratiating themselves before their counterparts in China, foreign diplomats might want to learn how to use such ancient references as a way to gain political ground.

Obama may want to remind the Chinese of Mencius (孟子), an ancient Chinese philosopher, for example. A contemporary of Confucius, Mencius is arguably the second-most important thinker out of the ancient Chinese past. His thoughts on government are in fact admirable. Something that he believed: “The people are the most important element of a nation. The spirit of the land and grain are next. The sovereign is the least.”

It’s reminiscent of the Gettysburg Address, actually. You know. A government of the people, by the people, for the people…

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Poorly Made in China continues to do well. For those interested, a quick roundup of good news from around the world:

1. Bangkok Post. In a recent editorial, the Thai newspaper said that the book is “strongly recommended,” especially for those who want to study Chinese business practices.

2. Financial Times. A brief review was printed along with mentions of two others, noting that there has been a shift from quantity to quality in books on China. An unusual side note: Poorly Made in China was a nominee for the Financial Times and Goldman Sachs business book of 2009. It was exciting there for a while. In the end, just glad to see that we at least made their paper, and pleased that the book was (appropriately) mentioned in the travel section!

3. Germany Chamber of Commerce. In the group’s October-November 2009 publication, the Shanghai-based club had some nice things to say about the book (“strong meat with a sweet note”).

4. Globe and Mail. The Canadian paper wrote about how China has a long way to go in the area of quality control. One of the points from the article: Chinese workers cannot often afford the products that they manufacture. I made a point of it in the book, that this is a contributing factory to quality failures.

5. Business Times (Singapore). “Chronicling The China Rip-Off” was the title of this book review by Victor Fic. He praised the book as a meaningful warning and asked: “Is China listening?” Unfortunately, the article is locked behind a firewall.

6. Audible. Poorly Made in China has been picked up by Audible, the audio company now owned by Amazon.com. It may take a while to produce, but this is good news for those who prefer the sound of a book to the look of it.

You might notice that all of the publications mentioned above are foreign. Not a single American publication. I don’t know why U.S. media has not been on top of this title, but they might have been more aggressive on the reporting– especially given how much is at stake for consumers in America.

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When it comes to discussing sensitive subjects, folks in China are characteristically illusive polite. Interestingly enough, they can also come across as uniquely forthright.

On the subject of death, Mainland Chinese can be frank to the extreme. It’s fascinating, especially when you consider that this cultural trait was more than likely reinforced by the Cultural Revolution, a dark period of 20th century history during which tens of millions quite literally starved and the threat of death was everywhere.

The sign here is from a boulevard located in South China, and even those who don’t read Chinese can gather its meaning.

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Looks like a White House visit with the Dalai Lama has been cancelled. From this morning’s Washington Post:

“In an attempt to gain favor with China, the United States pressured Tibetan representatives to postpone a meeting between the Dalai Lama and President Obama until after Obama’s summit with his Chinese counterpart, Hu Jintao, scheduled for next month, according to diplomats, government officials and other sources familiar with the talks. For the first time since 1991, the Tibetan spiritual leader will visit Washington this week and not meet with the president. Since 1991, he has been here 10 times.”

According to some, the sudden change is about economics.

“Samdhong Rinpoche, the Tibetan prime minister-in-exile, has accused the United States and other Western nations of ‘appeasement’ toward China as its economic weight grows. ”Today, economic interests are much greater than other interests,” he said.

On the one hand, it is disturbing to see the White House may be bowing to political pressure. On the other, far too much importance has been placed on this religious leader. The Dalai Lama of course means a lot to Tibetans, but he has become a silly symbol for Americans, the point having once been suggested by Bill Murray.

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Speaking of boys who cry wolf, I’d like to return to a favorite subject. Seriously, there is still not enough attention being paid to the state of consumer product safety in this country, and I remain concerned that our biggest product quality failures from China are yet to come. Just this morning, USA Today published an article on the large number of policy “czars” that Barack Obama has in place. There was no mention of a quality czar anywhere in the mix.

“Depending on who’s counting, there are anywhere from 18 new policy ‘czars’ in the Obama administration to several dozen. Critics ranging from conservative talk show host Glenn Beck to moderate Republican Susan Collins to liberal Democrat Russ Feingold say President Obama is trying to centralize authority in the White House and shield his policies from congressional oversight.”

The czar pheneomnon is perhaps a little odd. For more background, here is a quick entry from Wikipedia…

“In the United States the title ‘czar’ is a slang term for certain high-level civil servants, such as the ‘drug czar‘ for the director of the Office of National Drug Control Policy, ‘terrorism czar’ for a Presidential advisor on terrorism policy, “cybersecurity czar” for the highest-ranking Department of Homeland Security official on computer security and information security policy, and ‘war czar‘ to oversee the wars in Iraq and Afghanistan…One of the earliest known usages of the term was for Judge Kenesaw Mountain Landis, who was named commissioner of baseball, with broad powers to clean up the sport after it had been dirtied by the Black Sox scandal of 1919.

Many in Congress are critical of Obama’s czar plan, according to USA Today…

“‘The question is: What do these guys do, and how much are they costing us?’ says Rep. Jack Kingston, R-Ga. He is sponsoring a bill to withhold funding from any top policy adviser not confirmed by the Senate, which signs off on Cabinet secretaries and other top officials.”

Others, of course, defend the President…

“Sen. Dick Durbin, D-Ill., complains the issue has been driven by ‘partisan commentators’ who are ’suggesting this is somehow a new phenomenon that’s threatening our democracy.’ The White House’s czars, he says, are just expert advisers, not part of a ‘Muscovite conspiracy.’

My own takes it that there is no problem to have a network of special advisors in the White House, but, if we do not already have a quality czar, we need to establish one as soon as possible. Such an official could advise the President while serving as a bridge among public and private groups with shared interests (e.g., FDA, CPSC, Chicken Council, Food and Water Watch). Product failures out of China are a new kind of beast anyway, and consumer product safety ought to be at the very top of the administration’s priority list.

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Thomas Friedman has a new Sputnik article out, and the suggestion in his opinion piece is that Red China wants to become Green China. “I believe this Chinese decision to go green,” he says, “is the 21st-century equivalent of the Soviet Union’s 1957 launch of Sputnik—the world’s first Earth-orbiting satellite.”

The reference had a familiar ring. Turns out that it’s actually the NYT columnist’s fifth time referencing Sputnik in such a fashion (Earlier Friedman/Sputnik moments can be found in Dec 04, Jun 05, Jan 06, and Nov 06).

Could it be that recycling metaphors is Friedman’s way of helping save the planet?

I have less of a problem with tired historical analogies than with the way Friedman pins certain motivations on the Chinese. It is simply not the case that they have experienced a tectonic shift in thinking on the environment, that at the grassroots level everyone there is suddenly “going green.” And by no means are we the passive beneficiaries of any production trend.

“When China decides it has to go green out of necessity, watch out. You will not just be buying your toys from China. You will buy your next electric car, solar panels, batteries and energy-efficiency software from China.”

China’s Communist Party may have recently announced change for political reasons–the government want to be seen by the global community as doing something–but the motivation for the manufacture of so-called clean technologies is profit driven.

Most in China don’t worry about using anything but the cheapest forms of energy. Certain technologies are attractive to industrialist because there is demand abroad. While these technologies may eventually become widespread, the emphasis for now remains on export opportunities.

Friedman has chosen to write about environmentalism precisely because his (American) readers have the subject on their minds. In China, there is no similar concern. The level of environmental consciousness in the country is abysmal. Utterly.

There’s a point at the beginning of Poorly Made in China where I am standing with an industrialist outside a nickel-plating factory in South China, looking with him out over a polluted landscape. When I complain about the stench, the factory boss at my side criticizes me, suggesting there we have “cultural differences” on the subject of pollution.

Industrialists resent pressure to clean up their act, and even Mainland Chinese who are not directly involved in industry share this view (because they do not want to slowdown the dream of a China that is supremely powerful and very wealthy). China is gripped by a mania for money, and the emphasis is on growth at any cost. The rivers really do run black, and the only real concern over “greening” involves the pursuit of American dollars.

Battery power is taking off in China, not for philosophical reasons, but because it’s a dirty business. The technology behind batteries has changed little since the 1950s. They are made with lead. China’s manufacturing advantage in this area is cultural. Manufacturers are more than willing to jump into projects involving hazard to worker and community health. China is producing energy-saving devices precisely because the people there cares less, not more, about things like the environment and safety.

Friedman’s article was published over the same weekend that yet another lead scandal was underway. This time, 121 children have been found with the toxic substance in their systems. In recent months, thousands of children have been diagnosed with lead poisoning in China.

I would like to agree with Friedman, but when it comes to the environment, it is China–not America–that needs a Sputnik moment. I don’t know what might produce such a trigger, but Chinese ought to want a better quality of life. With too many there behaving badly, though, environmental risk is ubiquitous. In all honesty, there are few parks in the country in which one dares to sit on the grass…and there are fewer people who give a damn about it either.

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