Crisis? What crisis? Business as Usual in China

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Talk everywhere is of crisis and panic emanating from the US financial centers. Yet in China, a different yet familiar kind of crisis is playing itself out.  

Because of strict regulation and an overwhelming domestic focus, as FT.com put it, Chinese financial institutions are not overly exposed to US subprime-related assets or firms, yet China's overall economy, with its reliance on exports and with China's substantial dollar-dominated foreign exchange reserves, will inevitably suffer from a slowing US economy. As Wall Street wallows in a bad dream / nightmare, there are indications that China, while not gripped in panic, may be heading for some storm clouds of its own. While the impact of the Olympics is still unclear, industrial production growth plunged to a six-year low of 12.8% in August; car inventories hit a four-year high in June; air traffic has slowed sharply; and electricity output has dropped. While Chinese exports have remained robust, expanding 22% in the first eight months of 2008, the contraction in Europe and the US could make this period the calm before the storm - before Wall Street's bad dream turns into storm clouds over China's exports-dependent economy. In this context it is possible to discern how China's slightly slowing economy could proceed to slowing more rapidly, reaching what Leo Lewis at The Times referred to as a psychological turning point of single-digit growth.
 
Although the slowdown in the US and Europe will harm China's exports, in another view, Western consumers might only increase their demand for cheaper, Chinese-made goods. Speakers at this year's Trans-Pacific Maritime Asia conference (h/t 3PLwire) uniformly agreed that, despite the current weak global economy, China will remain the supplier of choice for manufactured products. Jonathan Beard, MD of GHK Hong Kong Ltd., noted that exports through China ports rose 13% in the first half of 2008, and other speakers lauded China's established manufacturing relationships, supply chain infrastructure, port infrastructure and political stability: even in these times China is a safe bet and will remain so.       

Yet if China sourcing seems set in theory to emerge unscathed from the current financial crisis, what of the reputation for quality and safety concerns associated with products made in China? The Made in China brand has once more been enveloped in crisis with the ongoing milk powder scandal. The fallout has generated vigorous online debate in which some Chinese netizens even called for a boycott of all products made in China, and China Youth Daily columnist Liu Yibin (h/t China Media Project) suggested that the best medicine for enterprises lacking conscience would be to simply allow them to die. Yet for those who do quality control for a living in China, its less of a crisis than merely business as usual. At the Silk Road blog, David Dayton writes:
As the milk powder scandal shows, out in the trenches, over the past year, nothing’s really changed...We still have the same issues with factories not meeting agreed upon standards, not understanding those standards in the first place, substituting cheaper domestic products in place of more expensive imported ones, using uncontrolled sub-suppliers, working rejected product back into approved stock, and of course purposeful and natural quality fade issues.

And Dayton is not hopeful of seeing any changes soon. He's not holding his breath, at least not until the next crisis. 

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1 Comments

Barry said:

A belated comeback for the China Sourcing Blog after a quiet few weeks. My apologies for the lack of postings of late, I have felt the absence keenly. suffice it to say I was rather occupied shuttling between airports and organizing visas. Regular postings will commence again after the first week of October.

Barry

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