The Decline of Made-in-China

A weel ago I went to the city of Yi Wu, the international trade center of small commodities, and the city of Dong Guan, the heart of export-oriented made-in-China manufacturing center. Everyone I talked to, from entrepreneurs to workers, feel afflicted by the recession. But there is something puzzling about it, if the western consumers are tightening their belts, shouldn't the cheap made-in-China goods become more attractive to them? My conversations with many entrepreneurs suggest that the current demise of Made-in-China is caused by domestic factors as much as international factors.

Many entrepreneurs admitted that there are still orders from their customers from the West, but often they can no longer meet the needs or compete with suppliers from other developing countries. In the past, it was easy for them to just take advantage of the cheap labor and the lack of environmental regulation. So they didn't make much effort to improve their technology and design, expand their distribution network or build their own brand. Now that they've reached the limit of squeezing labor and environment, they suddenly cannot retain their competativeness.

Insteading of trying to built upon the success of their manufacturing business, many entrepreneurs went to pursue the high profit of financial investment from real estate, stocks to raw commodities (oil, gold, copper, iron ore etc.) In the past several years, the profit margin of all the shoes or toys they produce is often lower than 5%, but speculative investment on real estate, for example, can often bring 100% profit and make them rich immediately. Now that all those bubbles of assets are bursting, they find themselves short of fund to sustain their manufacturing business.

You cannot put the blame entirely on such entrepreneurs. The bureaucrat class also has made the business environment particular tough for entrepreneurs. Many government officials, usually free of public oversight, takes every opportunity to participate in anything profitable. Since they are the gatekeeper of the market place and controls a lot of public resources, few entrepreneurs can succeed without buying their collaboration. Many entrepreneurs felt so frustrated with this corrupted system, that once they get rich, they try to send their children to countries like the US, Canada and Australia and get green cards for the whole family. Actually, the corrupted officials do the same, they also don't want their children to live in a country that they are damaging.

Now the government has made raising domestic consumption a top priority. If the demand from China's large population can indeed be raised, all things made-in-China will find a market, China and even the world's economy can be lifted out of the recession. But there is a reason Chinese economy became so export oriented. The entrepreneurs I talked with has little confidence selling enough goods to Chinese consumers. They know that their workers cannot afford, given the low way, what themselves produce. They know that the tax they paid was squandered by officials rather than spent on the welfare of people. And they know how much they need to pay to the local officials if they want to distribute their goods in local markets. Foreign distributors, like Wal-Mart squeezed these entrepreneurs pretty hard, giving them only a small percentage of the profit from the goods they produce. But such exploitation seems benign compared to the unreasonable demands of local officials.

So this is the situation. Even if you are an honest and creative entrepreneur who tries to change made-in-China's image of bad quality, you will have to face the declining foreign demand, the weak domestic demand, the exploitation of corrupted officials, the strained environment and the temptation to just escape to a more comfortable foreign country. A recession for China's manufacturing sector seems inevitable. But let's hope this recession at least exposes the problems, and force the Chinese society to create a better economic environment.

Spring in Crisis

The Chinese New Year is coming soon, and it's again the time when tens of million migrant workers--who came from the rural areas to work in the cities--finally gets a chance to reunite their family. Their trip is always tough, tickets are hard to get and the trains are incredibly jammed. But many will go home no matter what it takes, we all remember how millions of them stayed in the freezing train stations unwilling to leave though the unexpect snow disastrously blocked many train routes.

This year they face a new problem: they might not come back as there will no longer be jobs for them. With the external demand for all things "made-in-China" diminishing because of the economic crisis, many factories in China have been closed and those that survive are cuting jobs too. Some optimistic economists think China is in better shape than the West, because its huge domestic market can make up for the strained forgeign markets. But the reality is many industries, from car, real-estate to shoes and clothes, cannot find buyers of their products now.

So why is that the huge population in China cannot absorb a little over-production of the manufacturing sector? I think the main problem is unfair distribution of wealth. The peasant turned migrant workers are the backbone of China's economic rise. Their lack of negotiation power with the capitalists for salary, working condition and any welfare has been the main competative advantage of all things "made-in-China". But their low income also prevents them from consuming the goods they produce! Many bureaucrats, entrepreneurs and white collar workers indeed have gained significant purchasing power, but there are only that many apartments and cars they can buy. Also, given the poor health care, education and social security condition, even the middle class dare not cut deep into their savings.

When these unemployed migrant workers go home, they may face another problem: their land might be polluted or occupied for industrial and commerical use. They cannot be peasants anymore. Although they haven't benefited much from the economic development, they have to bear the cost of such development in terms of environmental damage.

Some economists still believe that it's important to keep such a poor population as a pool for cheap labor. But the central government, recognizing the worsening inequality as a threat to social stability, does pass some policies to subsidize agriculture and increase investment in rural area. But their is no quick fix for China's poverty and inequality problem. Before the rural population get a more fair chance to participate in the economy, our economy will probably still sit on the fragile base of the export industry and the bubbly real-esate industry.

huge and empty fortune cookie

“If any would not work neither should he eat”, a huge and empty fortune cookie says.
That's how I became a professional writer for fortune cookies
For the slowest fast-food chain in the world--Panda Depress.
Tonight's recommendation from the chef:
"One man's meat is another's vegetable."
"One man's vegetable is another's butter."
"One man's butter is another's fly."
"Butterfly is butter's dream."
"I believe I can butterfly."
"One person's China is another's America".