the blog of the guy who wrote

that book about china

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 volumes — 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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FDA is going easy on China. In the heparin case, it concluded its investigation without ever suggesting the source of the problem:

The Food and Drug Administration failed to pursue several ’specific and credible leads’ that might have identified culprits in China during the 2008 crisis involving contaminated imported heparin, according to a congressional investigation.

Meanwhile, following a “consultation” with the FDA, McNeil has been pressured into issuing a voluntary recall of over 40 medications affecting children. The recall sounds serious, but we have been told that there is no real danger to the public. As someone who has worked in manufacturing, I would have preferred details on just how far “out of spec” the products were.

FDA is playing politics. That’s my working hypothesis. After setting up offices in China — an unprecedented move — the agency learned only that additional scandals out of China are inevitable, and that the biggest quality failures are yet to come. And, unable to prevent disaster, FDA’s next best move was to build the case that, “America has problems, too.”

I don’t think issues at home will do anything to diminish the actual challenge out of China. The most insidious kinds of quality failures involve game-playing, and Chinese versions of quality failure are quite often not the same. Some may miss the difference between “process errors” and “willful shenanigans,” and the distinction must be put on the table when discussing quality issues. Even though the McNeil recall affects children — this is actually a theme with a lot of recalls of US-made products (e.g., cookie dough, peanut butter) — it is by no means like the heparin case, which involved elaborate counterfeiting and which led to many deaths.

I hope I’m wrong about politics playing a part in these cases involving FDA.

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China may be the largest auto market in the world, but its expressways are empty. The reason is that they are privatized, and it costs drivers an average of 12 cents/mile to use them. When gas runs $3/gallon in the U.S., it’s close to $4 in China; expensive tolls can more than double the figure to an effective cost of $8/gallon+. While not having to suffer traffic congestion and pollution sounds attractive, there is underutilization on the expressways, and the economic cost of long-distance travel poses a challenge to a nation trying to convince its people to move away from dense cities on the coast and into the interior. China will invest $300 billion in high-speed rail, and it will spend another $62 billion to construct 100 new airports. Many have suggested these are the signs of progress. I’ve hinted in an article for Forbes that these investments may instead hint at China’s inability to get people riding down the highway.

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China has recently been hit with a number of food and drug scandals. As I’ve written before, two of China’s primary causes of quality failures involve either (a) the country’s “saving habit” taken to an extreme or (b) a “counterfeiting culture” that leaves buyers wondering whether they have purchased the real thing. Going to keep this post short and list a brief description of the scandal, with a web link.

Case One: Nearly two tons of pesticide-tainted chives were destroyed in Qingdao.

Case Two: Researchers believe that as much as 1/10 of all cooking oil used in China is used oil.

Case Three: Vegetable sellers have been caught dyeing green beans to make them appear more fresh.

Case Four: Excessive heat may have caused vaccines to go bad, leading to the deaths of several children.

Case Five: Producers have been bleaching flour using quicklime, a harmful substance.

One of the greatest threats to consumers at home remains China’s food supply chain. America’s Food and Drug Administration (FDA) has set up offices in China, an unprecedented move, one that suggests authorities understand the risks that are present. And perhaps knowing that the next big food or drug scandal out of China is unavoidable, U.S. media have concentrated attention on problems in our supply chain (because if we have our own issues, then China doesn’t look quite as bad — get it?).

China’s case is more worrisome than America’s. One of the reasons that this is true is that vendors there are more willing to risk lives to save only the smallest amounts of money. Sellers in China also go out of their way to alter their merchandise, doing it often in a way that makes detection difficult. This second source of product quality failures involving the “counterfeit culture” is what concerns the most.

I look at the scandals in that list above and think most about cases “three” and “five,” and maybe “two.”

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A number of people have been made upset by the cover of Poorly Made in China. You would think that their problem has been with the title, but in fact it is the graphic design that has raised ire. Here are two letters published by Chemical & Engineering News, in response to a book review it printed.

I’m a Chinese grad student studying chemistry in North America, and usually C&EN is one of my favorite publications. However, the review of the book Poorly Made in China makes me feel extremely uncomfortable. The word “CHINA” with a broken A on the book’s cover and reproduced in the review is very insulting. How would you feel if you saw “USA” or “CANADA” with a broken A?  – Chao Fang (Toronto)

The review of Poorly Made in China was interesting, and the reviewer gave interesting advice on doing business in China. What troubles me is the book’s cover, which was reprinted in the magazine. It makes one question the political position of the book’s author, its publisher, and even the review’s publisher toward China and the intent behind torturing the word “CHINA.” – Yong-Kang Zhang (San Jose)

A little background: While in the middle of writing the book, my publisher sent over a cover design that was was a concept meant to convey the idea of “quality fade.” One of the letters was nearly transparent. I thought that it made the title too hard to read. I suggested they tilt the last letter instead, and I mentioned something like a position of 2 o’clock. The designers took the basic idea but made it their own. The final result was a book jacket that catches the eye and which won a design award at a book fair.

On the picture posted here, I caught this in a small bookshop – Freefall by Joseph Stiglitz placed on a shelf next to Poorly Made in China. I’d seen Stiglitz’s recently-published book online and didn’t think too much about its cover design. Placed side-by-side, though, the similarities are curious. If only his publisher had chosen to flip a different letter, and could they not have gone for a color other than scarlet? Anyway, I should probably thank his publisher, since they’ve given me an answer to those who want to complain about a dangling “A.”

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Poorly Made in China will soon be available in Chinese. For those who don’t know, Chinese can be written in one of two forms. Simplified characters are used in China, and traditional characters are used in Hong Kong, Macau and Taiwan. My publisher just sold the right to Orthodox Chinese, or traditional characters.

There’s still no word on whether a anyone on the mainland is willing to translate, but we are talking with publishers there. That’s all I can offer on the subject at this time (and thanks to the many who have asked when we can expect a version for China).

Also on the foreign rights front, we just sold transltaion to Indonesia. I have no idea about the book market there, but Indonesia is the world’s fourth most populous nation with 230,000,000 people, and so we are adding a large number of potential readers with this rights deal. Poorly Made in China is making the rounds. Stay tuned.

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Story One: Hacking of Energizer Duo Battery Chargers. Energizer battery chargers made in China have been found to have “trojans” loaded onto them, so that when the devices are plugged into a computer via USB port, a backdoor is left on the machine that makes it possible for someone to hack it from afar. This sort of news of course raises questions like: Who is behind the malware, and why did they do it?

Marcus Sachs, a former National Security Council member and a member of the CSIS Commission on Cyber Security under the Obama administration, is downplaying the incident. In an article on CNET, he suggests that China may have once had problems with malware — back in the old days, meaning 2007? — but that things have changed. LOL moment: His suggestion that the malware is just a bit of shmootz, an issue with hygiene:

If the Trojan does date back to 2007, that is around the same time that there was a rash of products like digital photo frames hitting U.S. shelves infected with malware, said Marcus Sachs, director of the SANS Internet Storm Center. ”This may simply be from that time frame when all the factories in China were not clean and many were putting malware onto stuff, not intentionally but because the hygiene wasn’t good…”

Story Two: Tainted Chinese Fluoride. A water works company in Massachusetts has been getting its fluoride from China, and it believes that what they’ve been receiving is actually a kind of counterfeit. From one report:

Department of Public Works Director Rob Desmarais said after he mixes the white powder with water, 40 percent of it will not dissolve. ”I don’t know what it is,” Desmarais said. “It’s not soluble, and it doesn’t appear to be sodium fluoride. So we are not quite sure what it is.”

Desmarais said the residue clogs his machines and makes it difficult to get a consistent level of fluoride in the town’s water. Since April the fluoride pumps in Amesbury have been turned off and they will stay that way until Desmarais can find out what’s in the fluoride that’s imported from China.

Because this one affects public water supplies, some are suggesting it is a homeland security issue. I don’t know about the categorization, but I know that there are persistent quality problems out of China, and that these problems are often of the intentional variety.

I am more concerned about the fluoride case than the trojan case. The high level of game-playing in China manufacturing processes combined with a cultural inclination towards counterfeiting goods, mixed in with the nature of chemistry, suggests a high level of risk associated with chemical products in particular, one that is not appropriately being factored into the bilateral trade picture.

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Weeks before China’s annual People’s Congress, I suggested that China would not announce a currency revaluation, despite predictions made by some. I gave partial reasoning, here:

Many in the U.S. believe “China is in a bubble.” This may be the case, but it is not a sentiment shared by average Chinese. In South China, compared with a couple of years ago, the buzz has gone, and people are no longer as optimistic as they once were. There’s more grumbling about corruption. Macroeconomic numbers suggest rocketing growth, but on the ground there’s this odd feeling that the air has been let out of the tire.

Looking into my crystal ball, I suggested that Premier Wen Jiabao would instead focus his address on the yawning gap between rich and poor in China. I had to do some looking around online, but here’s something that I picked up today from a news agency out of Latin America:

The speech touched on many issues, but on a number of occasions the premier spoke about the need to make China a fairer society. “We will not only make the ‘pie’ of social wealth bigger by developing the economy, but also distribute it well,” Mr Wen told about 3,000 delegates, returning to a theme that he has often spoken about during his premiership. “[We will] resolutely reverse the widening income gap,” he added later, in a speech that lasted more than two hours.

I would have preferred a quote, but there was no explicit mention of this aspect in their article, “China Premier Details Economic Plan. Now, what do we make of all that earlier commentary coming from the U.S. on a possible currency revaluation out of China? These weren’t predictions at all, it turns out, but are signs of desperation from an American economy that is in much worse shape than many of its leaders are willing to admit. Beijing knows this, by the way.

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Library Journal just published its best business books of 2009 list, and we again made the cut. By way of background, Library Journal is the most widely circulated publication for librarians in the United States. The periodical was founded in the 19th century by Melvil Dewey, the guy who invented the Dewey Decimal System. Some of us are actually old enough to remember what this is, or what it was like to find a book using a card catalogue! I’ve spent more than my fair share of time in libraries, and so this latest piece of news is a bit of fun, as well.

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Audio books are a public good.

They get material to those who struggle with learning disabilities, and they are helpful to so many who simply can’t find the time to read. Others are disadvantaged in other ways. I know someone who gets travel sick when reading from a book on a plane. Another, a close family friend, is struggling through advanced stages of ALS (Lou Gehrig’s Disease) and can no longer hold a book, or turn a page.

Several months ago, when Audible.com got in touch and asked whether I wouldn’t mind narrating Poorly Made in China, I agreed to get involved.

At one point or another, I have purchased and listened to books that are professionally narrated, and I have found many such productions to be lacking. The few author-narrated books I’ve managed to catch, including Elizabeth Gilbert’s Eat, Pray, Love and Malcolm Gladwell’s What the Dog Saw convinced that there is at least some value in having an author read his or her own material.

The audio version of Poorly Made in China runs 8 hours and 3 minutes. For those interested, a sample is available on Audible.com.

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