Silk Road International Blog

I’ll admit, I’m biased. I would much rather live in Thailand than just about anywhere else on the planet. And news today of Thailand’s world #47 ranking in medical technology. And Thailand costs (better than Korea, Japan, Malaysia, and China) supports my desire. Article here.

The only concern I have is if an ambulance was needed, could it get through the traffic?!

On a more serious note, I’ve had three different companies come to me in the last two months asking for help with manufacturing “anywhere but China.” Their words, not mine. Two of the clients are in the toy industry and another in home decor.

Their reasoning? First, the lead paint scares last year are not yet forgotten in the Toy industry. This means that regardless of the quality available, high end Toys can’t have the “made in China” label. Second, the costs of labor in China are rising so rapidly that re-orders are priced to high to keep up with a hot selling toy. Third, marking, marketing, marketing. Fair or not, there are enough consumer groups targeting “made in China” that it’s too sensitive to risk right now–particularly if children’s items are involved.

I moved the majority of production that we do from Thailand to China in 2003 because China had both better prices better/more options. Particularly in Guangdong province. Since then, I’ve seen the prices rise and many factory options (and laborers) move to other provinces within China and many back to SEA (mostly to Cambodia and Vietnam). What is interesting to me is that China is still the source for much of the raw materials that are used in SEA factories. And, unless labor is the major cost contributor to a project the Pearl River Delta still has many advantages over Western China and SEA.

So, for the present and foreseeable future, I’m still going to be living in Shenzhen and working, mostly, in China. But for vacations and plastic surgery I’m definitely going to Thailand!

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China Economic Review notes that labor prices are going to rise due to so many workers from Sichuan going to home.  Richard, at All Roads Lead to China, had some immediate post earthquake thoughts on economic impacts too.  China Herald noted two weeks ago, before the earthquake, that prices were already set to rise 12%.

Workers with ties to Sichuan are certainly going to be interested in going back home, now that there will be jobs there, there will be no reason for them to stay in the East.  The reconstruction work on schools and public buildings alone will take years to complete.  Then there are the roads, utilities and other public infrastructure that must be repaired.  Prior to any of that is the massive clean up effort that has to take place.  Since Sichuan is the most populous province in China, this will mean millions of people and jobs.  here’s hoping that the governments in Sichuan give priority to local workers to help them rebuild their lives and families.

Food prices, already at uncomfortable highs for many, will continue to rise as the earthquake strains both domestic food resources and the central inflation controls.  The 5 million homeless will need to be taken care of for months to come.  How many more don’t have jobs (there may be an answer for some of these) and more than 250,000 are injured (i.e. homeless, jobless and unable to work).  The shift in resource allocation is going to last through the end of the year, at least.

On the 14th, John Ng, from Hong Kong wrote that Toyota and other manufactures in Sichuan had suspended operations and that market reaction to the quake was mixed.

The BBC updated this by saying that Toyota was back in business this week and the cost of construction materials are already rising, by as much as 10%.  The article also points out that the quake is costing companies close to 10 billion dollars.  The China Post doubled the cost estimate.

So what does this mean for the SME who’s using a factory in Dongguan?

For manufactures in Guangdong this amounts to a perfect storm of price increases.  When coupled with the effects of the mature industrial base already here and the addition of China’s new labor law you can see why options to move elsewhere are so attractive.

The quake will directly impact production costs form most of China’s east coast provinces that rely on cheap labor from other provinces.  I’ve said before that unless you can pull complimentary suppliers with you moving to a second tier or third tier city in China is difficult.  But the bottom line is moving without a fully developed supply chain can cost more than you ultimately save–it could also be the ticket to better margins; it will depend on what you manufacture, where you are now and how much of that production process you can honestly duplicate elsewhere.

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In the spirit of being fair and balanced, since my public cursing out at the hands of torch watchers, I have to admit that I have really been touched by the generosity of the millions of everyday Chinese people (and foreigners too) who are taking action, spending their own time and money and helping the people in Sichuan.

There is a great article here about the same things. It has been really neat to see Chinese helping people they don’t even know–this is not a knock, but this is type of “renqing” (or charity/human emotion) is very rare in China. Book after book comments on the lack of philanthropy in China and even other Chinese communities outside of China recognize this as a distinct difference between mainland and overseas Chinese. This could prove to be much more of a coming out party for China than the Olympics. Congratulations, China! Welcome to the 21st century; welcome to the world.

On a somewhat related note, I’m not surprised to find that those kids who participate in sports growing up know how to compete and win and then do so later in life. The Article in The American is specifically about America, but how much of it will translate to Chinese kids in the next decade or so?! The competition in China is already fierce and will only get more so. Parents looking to give their little emperors an edge may now want to consider soccer instead of the oboe.

Now having said that, I have to share part two of the continuing saga that is our apartment complex vs. the Shenzhen subway company. Yup, another wonderfully productive meeting today about where the pollution fans are to be built (not in our garden, we hope). Instead of telling us that if we died they wouldn’t care or that if we protested they’d lock us up “like the previous protesters,” today they just told us to be careful of what we say and who we say it to. What’s the context of this warning? We put up large signs on Sunday afternoon on the apartment buildings facing the street that were, hours later that night, taken down by the police because “they detracted from the look of the downtown area.” No shit?! That was pretty much the point. Good thing I took photos before the signs were taken down.

So Kudo’s to the Chinese people–and I hope that the Chinese that do read this realize that I am impressed by their individual efforts but still very wary of any government with absolute power.

PS> The title of this post comes from a political sign that used to be in Shenzhen (Binhai Rd, Louhu Area). It read: “Struggling for a civilized populace, working toward a civil society.”

**yes, I know the pictures are sideways. I’m working on it.**

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If you’re not here or have not lived through a disaster yourself, you have no idea of the scope of damage and devastation to millions of individual lives.  It is truly heart wrenching to think that possibly more than 200,000 people in China and Myanmar have died in just the last couple of weeks.

So, thanks to Sourcejuice for the link, here is a page with 20+ different charities that you can donate to.

In ‘95 I lived in the area of the quake, Chongqing actually, for a year as an English teacher.  I have been to Chengdu, Dujiangyan and other damaged areas and have friends, former students and co-workers from the area–some of whom I’ve been able to contact and some of whom I have not.

Our prayers, thoughts and financial support go out to all those affected (directly or indirectly).

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First, I used to live in Sichuan and my heart goes out to those folks who are suffering there. If you would like to help the people of Sichuan, go here: Chinese Charity. Don’t let the concern “I don’t know if the money will really get to the people” stop you from doing the right thing.” People do need help.

Second, if you want to know about the “Great Firewall” go here: Chinese Internet explained. It’s quite a good article, even if it’s a bit simplistic and tries to be very PC and non-judgmental (which I hate; he he he).

Third, Burma is China’s problem. As are Sudan, Nigeria and North Korea. But Burma is looking at more than 100,000 (some say up to 400,000) people dead and more on the way as disease and malnutrition start to impact the survivors. Support of this regime is a business decision for the Chinese government.

Fourth, except for most of paragraph 3, this WSJ article is complete crap. Unfortunately, even good publications in a free society have the right to publish garbage.

Fifth, labor rates are going to go up again in Guangdong. I guess I’ll be moving soon.

Sixth, you want to know why you can’t compete with China? The factory is making zero. Really. Side note, if you’re not reading FEER, you should be—of course it’s expensive and the online tools you have to use to read it digitally really really SUCK! But the info is great.

Seventh, If you’re not selling in China, you should be. As deflation from low China prices helped the US economy over the last decade, the new buying power may help pull the world’s largest exporter (yes, it’s still the US) out of its economic slump.

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