China's Crises Will Pass, With Help

Old Fan prides himself on his chicken-choosing abilities. He is comfortable declaring the superiority of his chicken dishes above all others, due in large part to the fine chickens he manages to wriggle out of the hawkers' hands. But now the hawkers have upped the ante: Old Fan's most recent chicken-procuring mission ended in disaster when he discovered that the kidneys had been removed!

"Kidneys go for 15RMB a pound in some places," explains his daughter. "Of course there will be chicken kidney thieves amongst the hawkers!"

Old Fan sighs despondently and mutters under his breath about the plight of the Chinese consumer. The constant vigilance, constant doubt. It's tiring and stressful, and as anyone who has been cheated knows, the humiliating fury is matched only by the euphoria of getting over on someone else.

Chinese consumers are used to shoddy plastics, poisonous soybean oil, fake electronics, and even the lowly chicken kidney thief. Forks bend and break, washing machines rumble and collapse, hucksters and scammers abound. American consumers may have forgotten what this feels like. We have been reminded recently by a spate of recalls involving Chinese-made goods that put profit above all else, except perhaps the thrill of getting over.

The Chinese government announced the closure of 180 factories that were operating below standards after the massive recalls from the states. For good measure, the Chinese also seized two shipments of rotten fruit from the U.S. and lamented new regulations that would hinder trade and damage the U.S. above all.

The Chinese would rather make this a political issue in the open arena, bluntly hinting that the recalls are more about the U.S.-China trade imbalance than the lack of competency of Chinese manufacturers and their government overseers. But the truth is that China is undergoing a natural phenomenon – one that all of the developed nations of the world struggled with. The scope is the major difference between China and the rest of the world – and the timing.

Confusion Reigns

Luo Shao Jun looks bewildered and besieged behind his over-large teak desk. He ships hundreds of containers filled with plastic jugs all over the planet. His best customers are in Africa and South America. His most implacable are in North America and Europe. He continually faces recalls, accusations of shoddy work, and pressure to conform to Western business practices. He has the most modern factories in Foshan, Canton province. He has hundreds of qualified workers with generous pay. Managers scurry around filling out dozens of forms. Luo himself is constantly upgrading, learning, seeking partnerships and new technologies.

"I don't understand it," he says plaintively one day to an almost absolute stranger. "Why are they always saying our goods are bad and low grade?"

Far to the west in Sichuan, Nabors management sit across from their Chinese partners in Guanghan near Chengdu. The situation is tense. The Chinese are months behind in their production, and Nabors is bleeding money all over the place.

"OK," says Dave from Nabors. "Ask them: why they are late, when they will be done, and whether or not the problem will be fixed for future orders."

"OK," responds Wu. "Tell him: we are trying very hard to meet the standards of our colleague and partner. The standards are so high that we have to hold classes for our people, which costs money. Perhaps if these standards were relaxed, we would be able to finish on time and both save a ton of money."

Confusion reigns.

In the end, the situation dawns on Nabors. Their partner bites off as much as it can chew – as much as everybody in the room can chew together – and worries about the consequences later. Growth. Expansion. More orders. More technology. Growth. At all costs. And the Westerners need us. We are the cheapest, and they have already spent so much to be here. We do not need them.

The Chinese foreman Chen listens with a sardonic grin as Tex explains the intricacies of rig production and the correct method for paint application. Chen is visibly bored. He yells back to his boss, escorting the Nabors management out of the factory, "Are you gonna calm these laowai down or what?"

In Foshan, Boss Luo takes another tour of his factory and decides to hire a young Canadian ex-Peace Corps volunteer to help him deal with the foreigners. One of their ideas: make sure the plaque on the gate corresponds with the foreign client who is visiting. That way, they won't realize the factory deals with several of their competitors. It will make those Germans feel better.

Moral, Political, or Economic?

There is already talk of a moral crisis in China as the pursuit of riches turns women into shallow gold-diggers and men into ruthless pirates. The Party paints slogans exhorting the masses in every village, in every town, across white walls surrounding almost every construction site in almost every city. It is the old Communist way.

It does not work. Nothing works – except money!

Is this so uncommon? In the 1850s, the West was won with the scalps of natives and the hides of the buffalo. Dickens described London for us during the Industrial Revolution. Should anything surprise us now? Just 30 years ago the Black Hills were ravaged and strip-mined, and all who stood in the way were harassed and imprisoned by the FBI. Howard Zinn tells us of National Guard units brought out to quell demonstrating miners in Colorado. The moral crisis will pass. But only after it has been made into a political issue.

Is the U.S. using shoddy exports as an excuse to further a political agenda? Of course. But the political agenda follows the serendipitous. Politicians rarely set the agenda – they conform to it, react to it, change their flags based on its whims. Seek to control it with well-placed speeches and appropriate legislation. If anything, a political backlash in the U.S., where the FDA actually works a lot of the time, will result in a massive retooling in Chinese factories.

The political crises will pass, but only after the market changes the agenda, thereby forcing politicians to change their flags.

Stricter regulations concerning imports from abroad – especially from China – are a response to public demand. Chinese exporters suffering from lost orders and recalled goods will find shelter beneath the wing of the Communist Party, but only until the foreigners have redirected their attention elsewhere. Domestically, thousands of factories and their bosses will be destroyed, and their assets will be seized and passed out to other, more qualified candidates. Embarrassment is the best weapon when facing China.

And time. No country has ever developed so quickly, with so many people riding the wave. For every man with an invention, there are 100,000 with the gumption to steal it. For every factory with expensive equipment, there are 100,000 with rickety machines pumping out knockoffs.

This is the scope we are talking about here. For every person struggling in the U.S., there are nine struggling in China.

So along with embarrassment and time, we should consider business. Every factory that shuts down is a factory that needs help.