PN China Blog - English

Sichuan firm expands export to ASEAN

Tue, 09 Mar 2010 15:31:43 -0500

A bio-plastic manufacturer in Chengdu, Sichuan province, is ready to take advantage of the China-ASEAN (the Association of Southeast Asian Nations) free trade agreement and increase its export of bio-resin film.

Ye wenbin, general manager of Sichuan Corn-T Biology Technology Co. Ltd., has come up with a business plan to export PLA film to ASEAN countries, where the film is processed into bags and then exported to Europe.

Under the free trade agreement, which started on Jan. 1, China and the six richest ASEAN members -- Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand -- eliminated tariffs and barriers to investment on more than 90 percent of the products traded between China and ASEAN, or more than 7,000 products. The zero-tariff status is expected to extend to the four new ASEAN members -- Cambodia, Laos, Myanmar and Vietnam -- by 2015.

Thanks to the zero-tariff, Ye told the Western China Metropolis Daily, orders from Singapore, Thai and Malaysia are on the rise.

Corn-T makes both PLA resin and film, according to a speech Ye gave last year. The company priced PLA film for 30,000 yuan (US$4,394) per metric ton and claimed annual sales of 6 million yuan (US$878,818).

The China-ASEAN free-trade agreement is the world's third-largest regional agreement in terms of economic value, after only the EU and NAFTA.

Continue to decipher labor shortage

Thu, 04 Mar 2010 14:37:42 -0500

The particular lifestyle of Chinese migrant workers usually is marked by these characteristics:

1. Low base salary, long (paid) overtime all year round;

2. Undesirable living conditions: shared dorm rooms, lousy cafeteria food, etc.;

3. None or insufficient health insurance, social security and other benefits;

4. Difficulty in children's schooling: They are charged extra, lofty fees to go to public schools in the city;

5. Ineligibility for local government-subsidized housing for low-income households;

6. Oftentimes, separation from spouse and family.

During the heydays, migrant workers coped with these hardships, believing the pay back was worthwhile and hoping things would get better. As the global financial crisis battered the export sector, however, their hopes were shattered, leading them to rethink their jobs and life paths.

Here are some thought-provoking readers' comments from the WSJ article I mentioned in my previous post.

The most direct cause of the labor crisis is the fact that many factory owners in the Pearl River Delta vanished overnight. [In 2009, many such cases occurred. Local governments had to intervene and compensate abandoned workers for their overdue wages.]

I live in Shenzhen, where basic-level factory jobs pay 1,000 yuan [US$146.5] a month. That's about twice as much as 15 years ago. But during the same time period, GDP grew fivefold, consumer prices doubled, and housing prices increased 10 times. Therefore, being a migrant worker here is most exhausting and hopeless...

The labor shortage doesn't have much to do with the one-child policy. You can see a lot of people idling around and playing Mahjong, no matter where you go. [It's because the pay is too low.] Government employees make more than 10 times than a factory workers. Unless you are desperate, [who would want to work in a factory?]

Living standards in rural areas have improved a lot. Farmers' income is catching up with low-level city jobs, while the living expenses are very low in small towns and villages. Plus, living in your home village is very relaxing and stress-free. I regret going to college and staying in a big city. My life could have been happier if I had stayed in my hometown.

The so-called labor shortage is a blessing. It shows that people are defending their rights to live a decent life. My company also suffers from lack of workers and we can't finish order on time. But I still am glad for the future of China.

Other comments argued that some college graduates in cities are paid not much more than factory workers, hinting that labor wages are fair. But that's a story for another day - the oversupply of college graduates across China.

Decipher China's labor shortage

Tue, 02 Mar 2010 10:55:11 -0500

By definition, a labor shortage forms when the number of jobs outnumbers available workers. On the surface, the giant gap between the two variables has been created in China by fast recovering businesses and unmatched supply of migrant workers.

A Wall Street Journal article looked into the issue in depth and summarized four factors:

1. Structural problem: "Many of the outstanding job vacancies are due to a lack of skilled workers as segments of China's export industry crawl up the value chain." Meantime, younger migrant workers aren't interested in low-paying, physically demanding work.

2. Growing income at home for farmers. "Farming is becoming more rewarding than cleaning skyscraper windows in some places." Some farmers live on rental income of their farmland to large state agricultural enterprises.

3. "...The construction boom and fast economic growth in second-tier inland cities such as Chongqing, Wuhan and Nanchang. Many migrant workers prefer these places because salaries are in some cases almost on par with Shanghai's and it's simply closer to home."

4. Generation gap. While migrant workers in their late 40s or early 50s are gradually returning home, their children, who have been raised in relatively good conditions, are under much less pressure to make hard money in order support themselves or their (smaller) families, thanks to the one child policy.

The analysis is solid, but nonetheless incomplete. A quick glimpse of the 74 comments (all written in Chinese, some by self-claimed migrant workers) on this article reveals one simple, pragmatic problem: low wages and lack of protection.

(To be continued.)

Quantify China's labor shortage

Mon, 01 Mar 2010 16:45:47 -0500

Let the numbers tell the story. Just in Guangdong province, there are shortages of 800,000 workers in Shenzhen, 200,000 in Guangzhou, and 150,000 in Quanzhou. Up north in Wenzhou city, Zhejiang province, that number has hit a million, according to labor bureaus.

The steaming hot labor market has turned 180 degrees from a year ago, when factories laid off millions of workers. For the time being, at least, it looks like many of the migrant workers who lost their jobs and went back to their home villages are not returning to the host cities.

"You can walk into any factory and get a job," a New York Times report quoted a 22-year-old plastics worker in Guangzhou saying.

Manufacturing giant Foxconn Technology Group said it had 50,000 vacant positions after the Chinese New Year. In order to solve the problem, the company told Xinhua News Agency, a referral system was put in place, with on-site recruitment open even during the holidays.

Companies and government officials expect more migrant workers to return after the Feb. 28 Lantern Festival. Shenzhen city is planning to organize 573 job fairs in the next two months.

No raises despite worker shortage

Fri, 26 Feb 2010 17:06:08 -0500

While factories in China's manufacturing hub in the Pearl River Delta continue to suffer labor shortage, especially after the Chinese New Year, most companies are not willing to raise wages to attract workers.

A recent survey by the local labor department in Shenzhen's Longgang district reveals that only 15 percent of the 103 surveyed firms plan to give very modest raises. Most of the surveyed companies are plastics and electronic manufacturers, according to a report from Nanfang Daily.

These companies believe that the main reason for the latest labor shortage is limited supply of migrant workers. About 70 percent of these companies said their current headcount is lower than a year ago.

Based on published data, the average monthly wage in Shenzhen was 1,600 yuan (US$234) in 2007 and 1,800 yuan (US$264) in both 2008 and 2009 -- overtime pay included. In other words, wages increased 12.5 percent in 2008 but became stagnant in 2009.

China debuts credit rating for plastics firms (1)

Fri, 19 Feb 2010 16:12:33 -0500

The biggest question hovering over any Western business looking for partners, suppliers or distributors in China probably is whether the Chinese candidate is trustworthy, reflecting the lack of credibility and a track record system in that nation. The question plagues Chinese domestic companies as well.

The China Plastics Processing Industry Association, a quasi-governmental organization based in Beijing, has started to tackle that problem with an unprecedented "enterprise credit evaluation" program.

According to CPPIA's official documents, with the approval from China's Minister of Commerce, the trade group is working with "third-party experts" to rate plastic firms on a voluntary basis.

CPPIA said the program is not for profit, but to serve the industry. It charges a "preliminary rating fee" of 9,000 yuan (US$1,397), plus other fees in later stages, to initiate such a comprehensive credit evaluation of a business entity.

The first group of 41 companies in the program all received AAA in the preliminary rating, I assume the highest score possible. The list was posted on CPPIA's Web site for public review and comments for 10 days.

Trade groups bicker over melamine housewares

Wed, 17 Feb 2010 15:58:14 -0500

Just like how oxo-biodegradable plastics recently raised debates in the U.S., household items that contain melamine, such as tray and plates, have been in the spotlight in China, fueled by the long-lasting quibbling between two Beijing-based trade associations in the past couple of years.

A new round of debate started just before the Chinese New Year, as the International Food Packaging Association labeled melamine trays as potentially dangerous, which prompted a quick response from the China Plastics Processing Industry Association's subdivision of melamine plastic products.

In a news release, CPPIA said the criticism of melamine products is unfounded. "As long as the consumer follow the manufacturer's instruction -- such as avoid using melamine products in a microwave oven and avoid exposing them to high heat, these products are safe." The release called IFPA's warning "misleading."

IFPA, however, pointed out in a Dec 2009 research paper that the use of melamine is not its target of attack. The real problem lies in the widely available substandard "melamine" products in China. The manufacturers of these "fake melamine products" take short cuts by using cheaper urea-formaldehyde resin underneath a thin layer of melamine on the surface.

Even though the Chinese government has been trying to regulate melamine household products by requiring production approvals, the measures have yet shown real effects in fending off subpar products.

IFPA's warning to the public on melamine trays in general has some merit, but since the average consumer has no capacity to evaluate the quality, the warning could adversely affect those companies that make standard quality melamine products.

The "misery" of Made-in-China

Fri, 12 Feb 2010 16:50:38 -0500

The global recession didn't make a dent in the dominance of Chinese products in the global market. According to a column (in Chinese only) on the Chinese Web site of the Wall Street Journal, however, Chinese exports are still in a "miserable" situation.

The author, Liu Gang, defined the "misery" as an extracting but unrewarding task.

On the surface, he said, the Chinese government subsidizes Chinese manufacturers to sell products at lower prices in overseas markets than in the domestic market. Ultimately, it is foreign consumers that Beijing really is subsidizing, while domestic Chinese consumers are charged premium prices for the same products.

"We use our money to subsidize foreign consumers and still get criticized by them, why both?" Liu was quick to answer his own question: "The only benefit is domestic jobs."

Then, why doesn't China replace these export-focused jobs with positions that serve the domestic market? The reasoning usually stops at an ostensible statement: domestic demand is still limited.

Is that really so?

Beijing, as I see it, has been making efforts to boost domestic consumption, by providing subsidies to auto and appliances purchases, for instance.

But the best way to bolster Chinese purchasing power is to reduce the non-manufacturing costs associated with an inefficient distribution/retail system and the lack of trust and credibility.

Why would shrewd Chinese factories export their products for razor-thin profit, when the same products are sold for significantly higher prices in the home market? Because it's a headache to get paid by domestic buyers, companies have told me over and over.

Liu called for the government to take real action to reduce distribution costs and restore business credibility and trust. He even suggested using export subsidies to vouch for domestic payments. That way, he said, made-in-China products will be able increase sales within China, rather than suffering low margin and getting scolded overseas.

Happy Chinese New Year

Thu, 11 Feb 2010 16:00:42 -0500

For those who are like me -- struggling with my 2010 New Year's resolutions, let's give ourselves a second chance, with the lunar New Year, also called the Chinese New Year or the Spring Festival -- for it's the start of the spring season on the lunar calendar.

The zodiac sign for 2010 is the fierce, brave and competitive tiger, boding well for the year to come, which, coincidentally, will kick off on Sunday Feb 14, also Saint Valentine's Day.

I'd like to take this opportunity to thank you, our readers, for your continued interest in Plastics News, the PN China sites, and the China Blog, and wish you a prosperous lunar New Year!

Realities facing the housewares industry

Thu, 11 Feb 2010 15:10:17 -0500

Here is my quiz of the day for you: do U.S. households spend the most on A. housewares, B. dairy products, or C. fruits and vegetables?

The answer, according to the International Housewares Association (IHA), is that U.S. households spent more on housewares than on dairy products, and just slightly less than on fruits and vegetables.

In its fresh-off-the-press State of the Industry report, IHA said the average U.S. household spent $609 on housewares in 2008.

Based on data from its annual membership survey and government stats, IHA gave some good insights that may help U.S. manufacturers to better position themselves:

• More than half (58 percent) of IHA member companies produce all their products offshore. Another third (34 percent) make some products in the U.S. • Virtual retailers distributed 13 percent of the 2008 housewares sales, which was slightly down from 2007, but gains were seen from manufacturers' direct-to-consumer Web sites. • Housewares manufacturers may need to follow their audiences closely as they "migrate from the traditional print media to online options." • Consumers are becoming thriftier and more price-sensitive for the immediate future.

I look forward to covering this year's International Housewares Show, scheduled for March 13-16 at Chicago's McCormick Place, with my colleague Rhoda Miel. Our past coverage focused on latest global business and design trends, Made-in-USA products, sustainability, and so on.

Moreover, we plan to do some video reporting at this year's show. We welcome news leads and ideas.

Think you know China?

Wed, 03 Feb 2010 17:12:14 -0500

P.T. Black, a lifestyle research consultant in Shanghai, listed what he sees as "the eight most common misunderstandings about China" in an interesting column published in our sister publication AdAgeChina.

The top item on his list was "China is America in the '50s (or Japan in the '80s, or Mexico in the '90s or ...)." Black argued: "Everybody loves a good historic analogy, but China is too big, too complex and too thoroughly integrated with the rest of the world. The country's consumer culture is leapfrogging its own unique path."

That reminded me of some heated discussion at the US-China Global Brand Summit I was invited to attend last fall. An American consultant with quite a bit of China experience stated that China is America in the '90s, which doesn't sound so bad, especially considering the relatively slow growth in the U.S. in the past two decades.

Still, the comment was challenged by a Chinese professor from Beijing University, who claimed that the time element is tricky in the comparative analysis of two nations. It makes better sense to compare snapshots of two countries at the same point in time.

That argument is valid in the sense that China currently has so many characteristics that the U.S. didn't have in the '90s or '50s, such as the 384 million Internet users, and a 50 percent penetration rate of mobile phones.

As Black rightly alluded, China's consumers are catching up with their peers in the West. From electronics to high fashion to luxury cars, the savvy and sophisticated Chinese wealthy are at the very forefront of global consumer trends. Chinese children are growing up watching Sesame Street, Harry Potter and American Idol, while their grandparents may still have a collection of Mao's Little Red Book.

The landscape is just as complex and diverse in manufacturing. State-of-art factories and very dated technologies co-exist in peace, serving different sections of the vast spectrum of global consumers.

No matter whether a Chinese company exports to America or Africa, making iPhones or soap boxes, as long as it makes money, it will continue to exist and contribute to the Chinese economy. That's why China is unique.

Real wages dip sharply in Taiwan

Thu, 28 Jan 2010 17:12:29 -0500

Over the past decade, Taiwan - one of the Four Asian Tigers - has seen its economy continue to expand, but real wages have gone the other direction. The plastics processing industry is among those that have suffered double-digit decline of inflation-adjusted wages.

Taiwan's real GDP grew 17.5 percent in the past 10 years, after deducting inflation from the 29.4 percent nominal rate, according to government stats quoted by a recent report in the Taiwanese publication Business Weekly.

However, real wages shrank 4.3 percent during the same time period.

The plastics processing, machinery/equipment, and auto and auto parts manufacturing industries have seen double-digit deceases of real wages.

The Business Weekly article, "Who stole my hard-earned money?", listed a number of reasons to blame, the top being globalization, especially outsourcing to the Chinese mainland and other lower-cost regions.

Even more thought-provoking are Taiwanese readers' comments.

Reader "KK" wrote: "...Taiwan corporations constantly focus on cost reduction measures such as outsourcing and offshore manufacturing... They only want to make more money and give no thoughts to the support they received from the people and the society in Taiwan when their businesses first started. There are no national boundaries for greedy businesspeople." [Translation]

Reader "Jeff" disagreed: "Don't blame businesspeople. The global market has no national boundaries indeed. Businesses only need to abide by the laws and pay taxes. ... The big problem is what we have the government for. If the government offers no solution but to blame the macro environment, the individuals just have to do as they see fit." [Translation]

All these sound a little Déjà vu to me. Don't we have the same dilemma here in the U.S.?

Chinese molder wins trademark case against Mercedes-Benz

Wed, 27 Jan 2010 15:47:26 -0500

Where is the line drawn between a similar trademark and a confusingly similar trademark, the latter deemed an infringement? How does the Chinese government assess the "likelihood of confusion"?

In a recent case, a small Chinese firm defended its trademark against disputes from a leading multinational automaker.

Let's take a look at the visuals below. To the left is a trademark owned by Zhejiang Xunda Plastic & Mould Co. Ltd., side by side with the famous Mercedes-Benz emblem.

Xunda, a manufacturer of molds and injection molded auto and motorcycle parts in Taizhou, Zhejiang province, selected the trademark design created by a design firm in 2004, Taizhou Daily reported.

During the public comment period of the trademark registration process in 2006, Mercedes-Benz filed a claim arguing that Xunda's trademark could confuse customers into thinking that they were buying products from Mercedes-Benz.

According to Chinese trademark law, Xunda was ordered to cease the use of the trademark while the case was under review. So Xunda refrained from using the logo between 2006 and 2009, until the State Administration for Industry & Commerce recently ruled in favor of Xunda in a final judgment.

"We never thought about mimicking an existing famous brand," Xunda Chairman Lin Huazhi told Taizhou Daily, "We have established our brand in our own circle, mostly motorcycles and electric bikes."

Why is Lenovo closing an India plant?

Mon, 25 Jan 2010 14:47:05 -0500

Lenovo is shutting down one of its two computer manufacturing plants in India, a country known for its IT sector and low-cost manufacturing. Why?

According to PC World, the Chinese computer giant made the move due to declining market share in India.

The company may expand the capacity at the facility at Pondicherry, which became part of Lenovo through its acquisition of IBM's PC business in 2005.

To say the least, Lenovo overestimated its ability to expand in India.

Although it seems logical that Chinese products would fit the Indian market at bargain prices, Chinese companies haven't found it easy to succeed in India for various reasons.

In Lenovo's case, it has the advantage of local production, which should offer both lower-than-China cost and better responsiveness to the Indian market.

Lenovo's India management also invested heavily on marketing and advertising in India. In 2008, Lenovo achieved its highest brand awareness outside China in India and aimed to become No. 1 in the market.

Two years passed. Lenovo India has slipped from the third place in the market to the fifth. What didn't work?

Some readers' comments from the Times of India, expressing disappointment in the quality of Lenovo laptops and its customer service, might shed some light.

But if quality were a company-wide issue, how would we explain Lenovo's predominant success in the home court -- 30 percent market share, twice as much as the closest follower?

We may need to look deeper into China and India's differences in consumer culture, user expectations and brand nationalism.

What you need to know about China's 2009

Fri, 22 Jan 2010 17:11:40 -0500

As the old Chinese saying goes, a hero is known in the times of misfortune (Luan Shi Chu Ying Xiong). China has, in the past year, passed several milestones while much of the rest of the world still struggles with economic recoveries.

I compiled the following list of important facts about the latest economic trends in China and global power shift. 1. China's Gross Domestic Product (GDP) resumed double digit growth in the fourth quarter of 2009. The country easily beat its 8 percent annual growth target - a goal deemed the minimum needed to create jobs and preserve social stability - and grew 8.7 percent for all of 2009, instilling confidence in industries and consumers. 2. China has officially become the world's largest auto market. Auto sales reached 12.64 million units in 2009, a nearly 50 percent increase over 2008. For auto makers and suppliers, the next four years may not witness the same neck-breaking growth rate, but China will continue to dominate the emerging economies and outstrip mature markets. 3. For the first time since 1987, China's rural consumption growth outpaced urban consumption growth in 2009. This is largely due to the subsidies and trade-in programs for purchases of cars, appliances and electronics in the vast rural market. These product categories use a good amount of plastic parts and components, helping the plastics industry offset the sharp decline of exports.