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that book about china

Someone forwarded me an article by Malcolm Moore of UK’s The Telegraph, and its theme is a familiar one:

“Doing business in China is getting harder, not easier, according to European businesses…the business climate is getting worse…[T]here had been ‘a slowdown, and in some cases partial reversal, of the reforms of recent years.’”

This trend is one of the points of “Poorly Made in China,” and it also coincides with the theme of an article I wrote eighteen months ago. For anyone who may find the view of interest, a small excerpt:

“One of the big questions going forward is whether the [Chinese] 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.”

What do we make of a place that is becoming increasingly difficult to work with over time? What does the trend suggest about things to come? China was supposed to become a more convenient partner as it grew and became more successful. This was the promise made by U.S. politicians and advisors.

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Financial Times published an article last week that led me to learn about “The Foreign Manufacturers Legal Accountability Act of 2009.” First, something about the article. The 3,000-word piece highlights an accident that involves China-made fireworks and a related legal battle:

“The story of the accident that maimed Robert Silverman, and his subsequent quest for damages, starts in 1994, during an Independence Day fireworks display he was mounting in Annapolis, Maryland, and winds through interminable court hearings, depositions and writs. It tells us much about how – in a world where anyone can sell into any market – domestic legal systems are ill-prepared to protect consumers damaged by foreign-made products. And because the company that Silverman sued is Chinese, it tells us much about modern China and the way it does business.”

The case was brought to a Pennsylvania court, which awarded the plaintiff millions in damages — $7 million — but the Chinese company responsible for the fireworks chose a “do nothing and hope that it will go away” strategy, which effectively worked.

The article’s conclusion…

“Past chances to bring China to heel — in the days before it became the manufacturing powerhouse it is now - have been missed…”

…is similar to a point made on the last page of my book:

During the Clinton Administration…there was a chance for the United States to hold out for political and economic reform in China, but the opportunity was lost.

Curious about the article, I got in touch last week with one of those interviewed. Thomas Gowen is an attorney who practices out of Philadelphia. He has testified before Congress, arguing that we should pass laws that make it possible to hold foreign companies accountable for faulty products. He told me about the recently introduce bill – The Foreign Manufacturers Legal Accountability Act of 2009 — proposed by Senator Sheldon Whitehouse earlier this year, which may close a “loophole” that an increasing numbers of lawyers have been taking advantage of.

Gowen explained that foreign companies sued for product failure are using something called the “Asahi Motion” as a defense. Asahi, which was decided by the U.S. Supreme Court in 1987, enables corporations to get out of product liability by claiming that they had no idea their wares would wind up in a given jurisdiction.

For example, a consumer in Massachusetts who suffers injury from a product made in China may sue the overseas supplier. The supplier responds by saying its importer was not based in Massachusetts, but in California. It had no idea the product sold to California might wind up in a state on the U.S. East Coast. (So much for Thomas Friedman and his “flat world” thesis.)

The number of cases that cite Asahi, according to Gowan, has risen sharply in recent years. This is due in part due to the success that attorneys have had with the defense. While on the phone with me, Gowan did a search on Lexis and noted that Asahi has been cited 5,953 times. The figure was up sharply since his congressional testimony given just a few months ago.

Many have criticized me for not offering solutions in my book, but I have made suggestions — in talks and online. To improve the quality situation in China, one thing that we can do is make it easier to bring suit against those who originate quality problems. Importers are not to blame, but those who produce faulty goods. There is a carrot in China with no stick. It is in our interest to support a bill like the Foreign Manufacturers Legal Accountability Act, and, if China knows what’s good for it, it will provide leadership that makes such legislation unnecessary.

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Note: Image at the top is an advertisement from the New York Times this past week. It is part of a “cash for clunkers” program launched by Toys R Us. The campaign invites consumers to bring in old baby products in exchange for those made by certain branded firms. The move is related to safety concerns, and I have previously written about the link between China and baby product failures. I’ve also written something about problems with Chinese fireworks.

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Drywall has been a big story, but not all media outlets have handled it in the same manner. I thought that it would be instructive to do a side-by-side comparison of two newspapers and their coverage.

For those who don’t have a clue about the failure, bad drywall imported from China has been placed in as many as 100,000 homes. The level of property damage is on a par with a major hurricane disaster, and there are likely to be untold health effects, as well.

CASE A: Wall Street Journal

Wall Street Journal took a recent, sharp turn in its coverage of the drywall case. For the longest time, it denied or downplayed any threat. To see WSJ’s turnabout, we start at the beginning of the year.

January 12: WSJ mentions China drywall for the first time, noting only that it has been cited in “building woes.” Health officials were quoted as claiming that there was “no immediate health threat.”

February 6: Casting the problem as all but insignificant, WSJ blogs asked: “Is Chinese Drywall the New Mold?” and they made attorneys on the case out to be predators:

“Florida lawyers have filed at least three separate lawsuits against the manufacturers and installers of the problematic drywall, including one case seeking class action status. A law firm in Bonita Springs, Fla., has created the Web site, www.defective-chinese-drywall-lawsuit.com, trolling for plaintiffs. ‘Victim of defective Chinese drywall in your house? We can help,’ the Web site beckons.”

March 30: In a piece about a bill promoted by two U.S. Senators, WSJ emphasizes the “rotten-egg smell” coming from the bad drywall, but then they toned down any threat to health:

Florida’s health department said preliminary tests show there’s no “specific” health hazard associated with the sulfur-based gases coming from the drywall, but the agency is conducting additional tests.

March 31: WSJ’s Asia offices post a blog piece offering, “A Chinese View of Drywall Issues,” and details from a report released in China.

The report quotes Xu Luoyi, head of the National Building Materials Industrial Technology Supervisory Research Center, extensively as defending the quality of Chinese drywall. He notes that there haven’t been reports of people suffering negative health impacts from Chinese-made drywall in any places where it has been used, either inside or outside of China. Xu said the problems could also be attributed to environmental factors such as climate.

July 16: For the first time, WSJ hints at the scope of the problem, suggesting by way of a quote that as many as 100,000 homes may be affected. The article details a few health claims and mentions in passing that the gypsum may be synthetic. The minor mention of fake gypsum is what they call in journalism, “burying the lede.”

August 6: Boom! WSJ publishes “The Prisoners of Drywall,” in which the full extent of the problem is revealed. WSJ’s turnabout has them putting a human face on the suffering by zeroing in on one family affected by the defective product. This is months after lesser publications have highlighted the problem:

“The Cramers—along with thousands of other homeowners in Florida and elsewhere—now believe that imported Chinese drywall is making them sick and destroying their property. The drywall, which is used in walls and ceilings, is emitting sulfur-compound gases that homeowners have described as giving off a sour or “rotten egg” odor. Many blame the fumes for eye, skin and breathing irritation and nosebleeds, as well as the corrosion of copper pipes, electrical wiring and air conditioners.”

The tone change is striking. This last piece was done as exposé, and you have to wonder where WSJ has been all the previous months. For the timeline comparison, coverage by a South Florida newspaper comes next.

CASE B: Sun Sentinel

The newspaper was successful in providing great, early work, but it pulled the plug on coverage. Sun Sentinel not only stopped, but seems to have gone so far as to scrub their website.

Note: Every one of the articles listed below is currently unavailable at the newspaper’s site. I managed to find approximate dates, partial article titles, and original links anyway.

April 6: America Needs to Send a Stronger Message to China

“So it’s time for our government to send the message loud and clear: Enough is enough, China. Fix the problem or else. Drywall imported from China during…”

April 6: Crist Asks for Help Studying Chinese Drywall

“The drywall, imported from China during the building boom of 2002 to 2006, has been blamed for foul odors, corroded copper pipes and wires, and respiratory…”

April 6: Gov. Charlie Crist Says He’ll Seek Federal Aid to Test China

“Once he determines the air quality is dangerous for citizens, we hope the next step is a state of emergency.” Parkland Mayor Michael Udine invited Wexler…”

April 9: Residents Seek Help for Chinese Drywall Issue

“Espinal is one of the many homeowners in Heron Bay whose lives have been thrown off the rails due to the use of Chinese drywall in the construction of their…”

April 13: Wexler No Resident

“After touring neighborhoods tainted by effects of Chinese drywall, US Rep. Robert Wexler said, ‘I’ve never seen anything like this’…”

June 12: What’s Known About Chinese Drywall

“Some drywall imported from China between 2002 and 2006 seems to cause problems. In the past year or so…”

June 14: Bad Drywall Leaves Owners Frustrated, Fearful

“After hurricanes, foreclosures and dizzying price declines, contaminated drywall from China is the latest hardship facing homeowners…”

I don’t know which is worse, now — that WSJ has been slow in coming around, or that Sun Sentinel, early in running with the story, may have later got cold feet.

Sun Sentinel’s missing-link problem, by the way, is a very good argument for not cutting library microform budgets. No matter the reason or excuse in the case, newspaper articles like these should remain accessible to the public. Or, am I wrong?

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An article just out this morning suggests why Beijing is upset with Rio Tinto. It is not about a deal gone sour, or the theft of state secrets by Stern Hu. Apparently, Rio’s crime was simply that the Australian mining company was very good at gathering market data.

Rio’s negotiating advantage over its Chinese customers was and continues to be that it collates information systematically and analyses it intelligently. This advantage is compounded because Rio is dealing with a steel association that acts as if it has no idea how far China’s steel and iron ore industry has moved beyond its powers of command.

It would be strange if Rio were ‘’stealing” state or commercial secrets because there is no Chinese mill, mine or official who has confidential information worth knowing.

Rio Tinto’s intelligence advantage over the Chinese steel industry was more powerful and less sinister. Hu is nevertheless paying the price.

The Sydney Morning Herald just published the article, and it is definitely worth a read.

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There’s debate out there regarding the value of endorsements. How much should a reader weigh back-cover book blurbs, for example, when deciding whether or not to purchase a certain book?

Readers often suspect what is taken as fact in publishing — that blurbs are not done for the reader, but for the blurber. Freakonomics co-author, Stephen J. Dubner, is convinced that these kinds of endorsements don’t matter one bit to the success of a book, and comic-strip creator, Scott Adams, poked fun at the practice of logrolling by asking fans to come up with funny blurbs for one of his collections:

“This book was so good, I showed it to my wife and said, ‘This is how sex is supposed to feel like.” – Richard Yee

“A book so overflowing with brilliance and wit, it actually improves the quality of nearby books!” – Paul Roub

“Like peanut butter for the soul.” – John Coleman

Endorsements can also come in the form of book reviews, and given the choice between a blurb and a review, a book buyer probably wants to go with the review. There’s good reason. Blurbs are almost always positive, but reviews can go either way. So far, almost everything that has been said in the press about “Poorly Made in China” has been positive. But because first-time authors are often given a break, I’m inclined to take such praise with a grain of a salt.

Having just said that, here is another thumbs-up review, this one from China Economic Review. The reveiwer promises that the book “will change your life,” and that it is nuanced. I don’t know about life-changing, but nuanced sounds nice…

Of all the endorsement types, my hands-down favorite is the unsolicited reader’s note. I haven’t asked for these messages, but they come in. The best ones are from those fighting the good fight in China. Here’s a sample from earlier this week. If there’s time, I will run others:

I read a review of Poorly Made in China in the Asia Times and subsequently on Danwei, and I immediately ordered a copy.  I read very few books on China, as I find most of them to be overly simplistic and frequently inaccurate, so when I read the reviews of your book, I was intrigued that you set out to accurately describe the on-the-ground realities of the manufacturing industry in South China.

I work for a firm that conducts corporate investigations, risk mitigation, etc.  Given my location, the overwhelming majority of my job centers on anti-counterfeiting investigations and various interrelated loss prevention activities dealing with gray market problems, supply chain security, etc.  As you might imagine, I have seen my fair share of factories in Guangdong, Fujian, Zhejiang, etc., many of which make products that I never knew existed.  My firm has dealt with every manner of scam, fraud, and cheat out there, although I’m 100% sure that I will continue to be surprised.

My friends and colleagues who work in marketing or finance in Shanghai and Beijing are enamored with the New China in that sort of starry-eyed way that is so often reflected in the mainstream literature and media about China (I don’t think I need to name authors’ names–I get the sense you know to what I am referring), so much so that I feel like we sometimes live on another planet.  Thus, I found your book exceedingly refreshing; the level of insight and the general narrative you present hit so close to home.  You’re one of the few China Hands that I’ve read that seem to really “get it”, and your book feels like the China that I know.

Flattered to be on the receiving end of this kind of stuff. Like peanut butter for the soul…

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New York Times published an article that is bound to be the subject of online chatter in the next couple of days. China, as it turns out, is a refuge for hacks, a place filled with second-raters, a destination for American kids who have given up on the hope of finding work at home.

American graduates traveling abroad for work is no new theme, and here I am reminded of “Liar’s Poker” by Michael Lewis. In that book about Wall Street greed in the late 1980s, the author described how he worked in London to take advantage of an opportunity there. A snippet:

None of my activities in the first couple of months made so much as a dent on the bottom line of Salomon Brothers, but all were highly entertaining. What was more important than immediate results, I figured, was my education. I was niggled by those first few months by the feeling of being a charlatan. I kept blowing people up. I didn’t know anything. I had never managed money. I didn’t even know anyone who had made any real money, only a few heirs. Yet I was holding myself out as a great expert on matters of finance. I was telling people what to do with millions of dollars when the largest financial complication I had ever encountered was a $325 overdraft in my account at the Chase Manhattan Bank. The only thing that saved me in meeting after meeting in the early days at Salomon was that the people I dealt with knew even less. London is, or was, a great refuge for hacks.

There are many things that could be said about the NYT article. One thing that strikes me is how many are moving to China now without language training. This fact, as I point out in “Poorly Made in China,” runs counter to claims made by international theorists along the lines that the world will soon be speaking Mandarin. How is it that American youth can function so well in China without mastering the language? The reverse case is certainly not likely. International relations theorists such as Fareed Zakaria (a disciple of Samuel Huntington) ought to weigh in on this subject at some point, as it is curious.

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No product category stirs more passions on the quality issue than baby products, and I have been asked by many new parents why more hasn’t been done.

To be frank, I don’t know how to respond. Politicians have dealt with product failures in this area by focusing on toys, but the challenge is much broader.

As a resource for those who may have interest, I’m listing a number of recalls that have affected new parents. This is just a scratch on the surface. For a return of literally thousands of hits, conduct your own search at the website managed by U.S. Consumer Product Safety Commission:

1. Cribs — Two million cribs recalled.
2. High Chairs — Fasteners could come loose, making it so that the seatback could “recline unexpectedly.”
3. Boosters — The buckle on these chairs was coming undone without warning.
4. Doorway Jumpers — Toys that were attached to the doorway jumper could come detached, posing a choking hazard.
5. Stair gates —  These are the devices that prevent young children from falling down stairs. The hinges of the China-made product can break.
6. Baby floats — About 4 million baby floats were recalled after it was found that the leg straps meant to hold the children into the device were tearing, causing babies to fall through the floats.

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There are those who wish to believe that there is no problem in China. “Japan had the same quality problem once,” I am often reminded.

Asked to defend my position, I like to point out that never in the history of the world has a major economy been compelled to send thousands of quality control representative into a major foreign market to do the job that its manufacturers are either unable or unwilling to do for themselves.

The U.S. FDA has set up its first overseas office recently, and, now, the U.S. Consumer Product Safety Commission is following suit. This unprecedented move to establish a federal office in a foreign economy should be seen as evidence of a serious problem:

U.S. regulators announced plans Thursday to set up a Beijing office to help ensure Chinese exports are safe for Americans following a slew of recalls involving everything from pet food to children’s toys. The U.S. Consumer Product Safety Commission was seeking to establish a permanent presence overseas for the first time to better cooperate with Chinese regulators and companies so the country’s products are up to U.S. standards, the agency’s chairwoman Inez Tenenbaum said.

Andy Rothman, an economist with CLSA, was on NPR, suggesting — correctly — that just a few American inspectors are not going to solve the problem, but then he took a wrong turn:

The onus really has to come on the American companies that are bringing these products into the U.S.

That’s a nice thought, but it’s not feasible. Importers are not in a position to guarantee much, not anymore than a police chief can guarantee a zero crime rate.

Importers don’t stand a chance anyway against unscrupulous operators in China. Information is not often openly shared by factory owners, and third-party testing is no match for operators who seek to circumvent laboratory controls. I have written on this subject at length, and I can’t include the complete argument here. All I can do is point folks to the book.

In the end, the “onus” is not on importers but on government. American importers are doing the best they can. And individual consumers cannot be charged with shifting foreign economic policy through efforts to avoid products that are made in China. Government sets the rules of the game, and in the end we are all muddling our way through economic policy decisions made by national leaders some time ago. Having opened the sluice gates without weighing the consequences, some would blame the water that’s come rushing in.

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Recently, I was interviewed by the managing editor of Digital Journal, who wanted me to talk about how Chinese workers suffered in sweatshop-like conditions. He was surprised that I refused to acknowledge the generally preconceived notion. After providing a sound bite, I sent along a copy of a picture that I took years ago, which accompanied the article.

Some background here. The image at the top-left was created for a brochure that a U.S. client was putting together for customers who wanted assurances that workers in China were not abused, or otherwise taken advantage of. The other photo, at the bottom-right, was from work on a metals project.

In some of the talks I’ve given, I have thrown these pictures up on a screen. I have asked whether these individuals appear unhappy. Those who have challenged my rather pragmatic views on China manufacturing felt compelled to come up with explanations for the smiles.  

No, these people were not paid to mug for the camera. Nor were they coerced in any way. Management allowed the pictures to be taken, but did not signal workers to respond one way or another. Yes, I tended to work with factory owners who treated their workers well. This may have made a difference. Then again, these scenes were so common in South China.

The worker in the bottom picture has no shirt on, by the way, because of the extreme heat and lack of air conditioning in the plant. I don’t know about you, but he looks happier than any American I’ve ever seen in his day job, and he probably earns less than $100/month. This is cultural, and one of the reasons that China has drawn so many orders from around the world. And it goes beyond the common explanation of 吃苦 (eating bitterness).

In any event, food for thought. Anyone wishing to comment or complain is welcome to send a direct note to: paulmidler [@] gmail [dot] com.

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“The Entrepreneur” is the name of a new documentary that details the misadventures of Malcolm Bricklin, an American who dreamed of importing inexpensive, luxury cars from China. This documentary is available for free online.

The film reflects the hubris displayed by American importers in China, and for this reason some similarities might be drawn to my book. I particularly enjoyed how the movie attempted to convey emotional aspects of deal-making in China, and a few of my favorite “tactics” can been seen — including the rather common gambit whereby factory bosses take a deal entirely off the table, unwinding the progress of several days worth of negotiations, done at just the right moment to maximize the frustration of the foreign delegation.

Some might say that Bricklin is a nut, and while there is no doubt on that account, it was still interesting to see how it didn’t stop Chery Automobile from entertaining his fantasies and collecting a few million in the process. The silver screen is probably not the ideal medium for conveying the nuances of a China deal, but for what it’s worth…

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