Archive for May, 2010

Millions For Food Safety

May 21st, 2010
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While on its way to become the world’s second largest economy, China has just accepted funding for an initiative that might have been self-financed:

The World Bank will provide a $100 million loan to the People’s Republic of China to improve food safety efforts, Food Production Daily reported yesterday. The loan, the bank’s largest ever for a food safety initiative, will fund 70 percent of the China’s initiative to up the safety of agricultural commodities from the Jilin Province.

Foreign Policy’s Evan Feigenbaum recently pointed out that China contributed a paltry $1.5 million towards the $5.3 billion raised for Haiti relief, “less than the cost of a house in some of the tonier suburbs of Shanghai.”

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The Silver Cup Episode

May 21st, 2010
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As a result of writing a book, a number of unusual things have happened to me I suppose, things that might not have otherwise. One of the stranger things has to have been an email I received from an antiques dealer in the UK. He wrote explaining that he and his wife had come into the possession of an antique silver cup, and that I turned up on some China-related research.

I received details about their silver cup, which was engraved. Ten inches high and 5.5 inches wide, it weighed 25.5 troy ounces. The engraving indicated that the cup — a goblet, really — had been dedicated to someone named Midler who had either lived or passed through China in 1867. The resale value of an antique tends to increase with accompanying historical information, and so this British couple was interested in any information about a 19th century link.

1You can click on the image here for a larger view of the cup, and I’ll place a few thumbnails at the bottom, as well.

From the photos, you can make out a few details. Decorated with engraved bamboo leaves, the cup was dedicated to an “A. Midler, Esq.” It was given to this individual, “on his leaving China.” There are other markings, including the name of the engraver — Awing — and Chinese characters on the cup suggest that it was produced in Hong Kong. As was customary in those days, the characters were written from right to left (as opposed to the more common modern convention of left to right).

The Far East saw a large number of Jewish merchants in the 19th century, and so it might have been a possibility, but, no, I wrote to the antiques man and his wife, I had no reason to believe that relatives had ever been to China before I first set foot. Curious, I asked whether the cup might be for sale, and I got a price of 550 British Pounds (US$830).

It crossed my mind that there might be risk in a purchase, so I rang up the dealer directly to ask about assurances. The cup was guaranteed to be “sterling silver or better,” and the couple was willing to conduct a sale through eBay. I looked at the going rate for sterling, and the price for the cup wasn’t far above its “melt value”. Based on weight alone, it was close to what other silver objects sold for online anyway.

I sent details of the cup and my correspondence to friends and family. The response was universal: Everyone suspected a con. I tried to make the case why it might not be, but no amount of information or discussion could convince otherwise. For some reason, the very idea of the cup made people angry. One of my closest friends promised that she would never speak with me again if I was foolish enough to buy the thing. Of course, I had to laugh. As a China manufacturing specialist, I’ve done more than my fair of investigations, and on many projects, I make it my job to ferret out fraud. The reaction of these others was ironic. In this case, I was the only one thinking that the cup might be genuine when everyone else was certain it was a fake.

What a shame, I thought, because I imagined acquiring the piece and displaying it. I figured I might even take it on tour with me. When expatriate friends bragged about their early arrival in China, I would show them my sterling silver artifact and allow them to ponder the possibility that my ancestors had been through the region long before they were born.

The cup might be nonsense, I told one friend, but the antiques dealer and his wife were certainly not con artists. Never mind the good impression I had of the husband while speaking with him by phone. The couple’s eBay rating was 100% perfect; out of over one thousand transactions, not a single negative report had ever been filed! Had the antiques-dealing couple listed other silver pieces adorned with not-too-common surnames, I might have been forced to suspect they were the sort who prey on the desire among some to be associated with famous lineage. But this did not seem to be the case. The couple sold all kinds of silver items, most of them small and unremarkable.

Just as I trust my intuition, I believe my friends to have good instincts. In the end, I agreed with everyone that it was statistically unlikely that a “China antique” bearing my last name should appear on the market, and just as I’d completed a certain impolite book on China. Perhaps the cup was a joke — but initiated by whom? I did research and couldn’t come up with a single other example of a sterling silver cup given as a gift in the 19th century in China. This seemed important. If the cup had been a legitimate relic, strange that there should be no comparable items for sale anywhere.

I didn’t buy the cup, but I felt compelled to come to some sort of conclusion. If the cup was an attempt to defraud, profit didn’t seem to be the motive. There wasn’t enough margin to justify the long odds associated with only a remote possibility of a sale. The cup was probably fake, sure, but then it seemed to have found its way to a genuine antiques dealer. Why? In order to make the object appear more legitimate?  In the end, I wanted to buy it, but only because of the questions raised by such an unlikely fraud. If it really was a fake as the majority of those who heard of it have insisted to me, then why was it produced? Who would go to so much trouble?


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Pirate’s Paradise

May 19th, 2010
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A reader mentions a copyright infringement case involving Expo Shanghai in an email:

The Chinese government spent RMB 10,000,000 [US$1.5 million] commissioning a theme song for the Shanghai World Fair, only to discover two weeks before opening that the song was cribbed from a Japanese song from the 1990s. Rather than scramble to come up with a new song, the Chinese government paid the copyright owner a JPY 300,000,000 [US$3.3 million] royalty.

Japanese papers apparently broke the news, and there’s been some criticism over the last-minute rights deal. China’s use of the song, some say, nearly sanctions the infringement. Not allowing the song to be played might have been a better message to send to an economy seen as a “pirate’s paradise” (盗版天国).

China is of course not the only place where songwriters suffer copyright infringement. The U.S. is home to a number of famous cases, including the one in which George Harrison was sued for “My Sweet Lord,” a rip-off of the Chiffon’s “He’s So Fine.” Even Mozart was said to have been a creative collaborator.

Some of the differences between music copyright infringement in the U.S. and China include (a) in the U.S., it is easier to obtain justice, and (b) fewer folks in China are bothered by piracy generally speaking. As I’ve suggested elsewhere, piracy can be seen in China as a positive value, some even make the claim that it is nothing more than flattery.

I’m sure the Japanese songwriter who picked up that unexpected 300 million yen (US$3.3 million) was indeed flattered.

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Let’s Talk Pharmaceuticals

May 15th, 2010
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Long before my not-long-ago post on FDA, a man in Pennsylvania had run across my book and wrote to tell me about research that he was doing in pharmaceuticals. For those who may be involved in pharma and for many of those concerned about the threat posed by lax controls in supply chains, I present the following bedtime story: Potential Health & Safety Impacts from Pharmaceuticals and Supplements Containing Chinese-Sourced Raw Ingredients. Prepared for the U.S. China Economic and Security Review Commission, the report is detailed. From the first paragraph of the executive summary:

Against the backdrop of recent health and safety concerns caused by tainted, or otherwise unsafe raw materials discovered in imported products from China, this report attempts to address similar concerns on the potential array of health risks to American consumers from imports of specific raw materials supplied by China used in the U.S. manufacture of pharmaceutical and supplement products…

When I was in business school, a group of us made a field trip to the McNeil plant that manufactures Tylenol caplets. It was spotless; not a cart, tool or dustpan was out of place. Having visited that facility and then having later inspected hundreds of factories in China, I can assure you that we have far less to worry about at home than we do abroad. But this is not new information.

The report I mention (above) came out a good month or so before FDA’s recent investigation at McNeil, and I can’t be the only one who finds the timeline disturbing. Just when FDA should be highlighting problems with materials from China, it has turned the spotlight on U.S. manufacturers. It shouldn’t be this way. I’m in touch with a growing number of professionals who work in consumer product safety. Some of these people work for large multinationals, others are in government. Most of these folks are interested in increasing quality standards, in general, but there are, unfortunately, political aspects to the problem. I write on quality issues because they interest me, and in order to promote discussion on a subject that I believe is important to all. My hope is that some who might catch this note will choose to discuss this topic openly with others.

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Dealing In Dollars

May 12th, 2010
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China’s currency is pegged to the U.S. dollar, according to Zachary Karabell, because when the planned economy began to liberalize, the dollar was “the most important avenue of access to the U.S., the world’s most vital and dynamic economy.” He’s got something there. Really. Another line from the WSJ opinion piece that grabbed my attention: “Because much of global trade is conducted in dollars, especially Chinese trade, governments and institutions throughout the world have little choice but to invest in U.S. assets.”

Now, those are two different ideas. On the one hand, China works with U.S. dollars because, like much of the rest of the world, it finds that it has “little choice.” On the other, China’s decision to link with greenbacks — and now to accumulate them in great wh2volumes — has something to do with Beijing’s desire to associate itself with “the world’s most vital and dynamic economy.” In other words, it’s an automatic, economic response, but at the same time there is also a prestige element involved.

I’m suddenly reminded of a real estate deal: At the end of 2009, a group of investors from China acquired the White House Theatre in Branson, Missouri, for $354 million. This was no small transaction, and you really have to wonder how profitable show business is in “The Show Me State.” I may be wrong, but I don’t think there would have been nearly as much investor interest in this property had the theatre been of a different architectural design. The symbolism was not lost on the China Daily anyway, which ran the headline, “Chinese Company Takes Over White House Theatre.”

Just as some in China may fantasize about a “take over,” officials in Beijing derive at least some psychological satisfaction from owning a significant chunk of the American economy (vis-à-vis U.S. dollar-denominated assets). American pundits have looked at massive foreign reserves in China and speculated about what the country might do with them one day (one possibility: “dump” them). Like that theatre in Missouri, there may be no point beyond the symbol of the thing.

While on the issue of foreign reserves, I’d like to correct a misconception, this notion that an “American spending spree” is to blame for the accumulation of now over $2 trillion dollars in China. The Atlantic’s James Fallows has been on the beat for some time, and in one article written last year, he suggested that Nouriel Roubini buys into this line of thinking:

Chinese commentators blame American “overborrowing and excess” for dragging them into a recession. However, [Roubini] states that “even they realize that the very excess of American demand has created a market for Chinese exports.” He adds that although Chinese leaders “would love to be less dependent on American customers and hate having so many of their nation’s foreign assets tied up in U.S. dollars,” they’re now “more worried about keeping Chinese exporters in business. . . .”

Like nearly everyone else on the topic, Roubini exclusively ties demand from American consumers with U.S. dollar accumulation in China, and yet the U.S. takes in only one-fifth of all that China exports!

Other countries have trade imbalances with China, too, and importers from around the world — the other four-fifths — are often paying for China goods with U.S. dollars. These other economies have collectively contributed significantly to the build-up of U.S. dollar-demoniated assets in China, a point often missed in the discourse.

Karabell’s piece is worth a read, if only for this reminder, that the whole world deals in dollars.

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