Chinese Junk ( Attention, Mao-Mart Customers! )

National Review ^ | May 28, 2009 | John Derbyshire

[kellynla]

Is China really a modern country? Can China be a modern country? Paul Midler’s book leaves you wondering.

After studying Chinese at college, Midler lived and worked in mainland China through the 1990s before returning to the U.S.A. to take a business degree. In 2001 he went back to China, setting himself up as a consultant to American importers dealing with Chinese manufacturers. This has given him profound insights into the Chinese way of doing business. In Poorly Made in China he shares those insights. After reading his book, you will find yourself thinking carefully before putting Made in China items into your shopping cart.

Midler identifies the features of China’s production environment that make a joke of all the free-trade slogans. There is, for example, “quality fade.” You cut a deal with a Chinese manufacturer to import beauty lotions in plastic bottles. You give precise specifications for the product and container. The first shipments are fine. Then customers begin to complain that the plastic of the bottles is too thin. You squeeze a bottle, it collapses. It turns out that your manufacturer has quietly adjusted the molds so that less plastic goes into making each bottle. Neither the importer nor his customers has been told of the change.

The reason for this:

Factories did not see an attention to quality as something that would improve their business prospects, but merely as a barrier to increased profitability. Working to achieve higher levels of quality did not make me a friend of the factory, but a pariah.

In this, as in much else, the Chinese are great testers of limits. Just how much “quality fade” can a supplier get away with before the business relationship breaks down? You can be sure they will find out, and stop short a millimeter before the electric fence.

Then there is intellectual-property arbitrage. Under pressure from the advanced nations, the flagrant disregard for intellectual-property rights that was on display in China through the 1980s and 1990s has been brought under some measure of control, but much of it has just gone underground. As Midler writes, “Americans somehow imagined that Chinese factories existed to manufacture merchandise only for the United States, but this was not the view from China at all.”

From the point of view of a Chinese manufacturer, the world is divided into “first” and “second” markets. In the first market — North America, Western Europe, Japan, Australia, and some lesser outposts of legal order — new product designs originate, and the designs are protected by patent, trademark, and copyright laws. By all means go along with that: Get business relationships going with customers in those places. Manufacture according to their designs, observe their laws, give them good deals — even sell to them below cost. Then sell knock-offs of their designs to Latin America and the Middle East, where intellectual-property protection is not so valued. This arbitrage game explains the curious fact that Chinese-made products are often more expensive in the developing world than in the U.S.A. That’s where the profits are made.

The most vexing game to Midler was the one in which Chinese manufacturers relentlessly play off importers against buyers. Everyone is trying to make a profit, of course: the manufacturer from the importer, the importer from the U.S. store chain’s buyers, the store chain from the retail customer. The importer is at the Chinese end of this linkage, negotiating with the Chinese manufacturer, and must bear the brunt of Chinese gamesmanship.

Manufacturers are highly skilled at shifting profit margins from the importers to themselves. If a Chinese factory boss knows any English at all, Midler tells us, it is likely to be the phrase: “Price go up!” Whether the manufacturer’s costs actually have gone up is impossible to ascertain, accounting standards in China being, well, Chinese. Since the importer-buyer deal is fixed under American law, the importer must swallow the manufacturer’s price increases, which happened under Chinese law — which is to say, no law at all.

PAGE But then the importer can switch to another manufacturer, right? Not necessarily:

The health and beauty care industry was one that existed in a tight network. Some manufacturers in the industry were even related to one another. Others shared an educational background. . . . Others shared a kinship that was based in part on membership in the Communist Party. And then some had suppliers in common.

How skillful are Chinese manufacturers at gaming the free-trade system? Think three-card monte. One of Midler’s key import contacts in the U.S.A. is a man he calls Bernie. We learn in Chapter 4 that Bernie belongs to the Syrian-Jewish community, the most capable and exclusive of all the world’s “market-dominant minorities.” (They refer to ordinary Jews like Paul Midler rather dismissively as “jay-dubs,” from the consonants in “Jew.”)

Yet with all his savvy and connections, Bernie is outfoxed time and again by the Chinese. He turns the tables on them just once, in Chapter 21, but his advantage is merely temporary. The worldly and confident Jewish diamond dealer in Chapter 15 fares even worse. This would be a mighty King Kong vs. Godzilla clash of market-dominant minorities, except that the Chinese are on their home turf — actually a majority. Outsiders stand no chance.

With his strong background in Chinese history and culture, Midler is able to identify some of the underlying problems. Many of his vexations echo those voiced by foreigners in China for half a millennium or more: a love of excuse and pretense, the elevation of appearance over substance, admiration for unprincipled cleverness, shame a much stronger sanction than guilt. The old stereotype of the Chinese as chronic gamblers has some foundation in the Chinese psyche, too, as Midler notes:

The impression I got at some of the factories that engaged in quality manipulation schemes is that they did so after growing bored with their more conventional successes. . . . There was a great deal of excitement that came with getting a new business off the ground. These manufacturers were thrilled when they signed up their first major customer, and they got another kick from orders that were especially large. When deal flow leveled out, factory owners looked for other ways in which they could capture that hint of thrill.

All these quirks of national character would be harmlessly amusing in a business environment constrained by impartial law and rational politics, as indeed is the case in Hong Kong and Singapore, and increasingly in Taiwan. In mainland China’s barbarously low level of political and legal development, they express as poisonous pathologies — metaphorically poisonous to a healthy capitalist mentality, but sometimes literally poisonous to the unwary consumer, as we have seen in the recent scandals over toys, baby food, and pet food.

None of this will come right until the current odious dictatorship falls and the Chinese have a system of government worthy of their great talents and civilizational glories. Can we do anything to help? We might have, once. Paul Midler:

During the Clinton administration, when Most Favored Nation status for China was debated in Congress, there was a chance for the United States to hold out for political and economic reform in China, but the opportunity was lost. . . . Improved structural conditions made possible then might have more appropriately set the stage for stability going forward. Instead, American politicians and business leaders rushed headlong into greater levels of interdependency with China, a nation whose reliability is questionable.

Poorly Made in China manages to be both instructive and entertaining, with lessons not only for businesspeople looking to China for profits, but also for our politicians seeking to promote honest trade and U.S. national interests. I wish I could believe that the latter, some of them at least, might pay attention. On past experience, though, that is too much to hope for.

[WVKayaker]

If you can’t find it made in USA new, go to ebay and buy it made in USA 50 years ago, it’s still better than new from China...

...There are sites that will tell you where to find American products. - This message brought to you courtesy of AFL-CIO and ASFCME!

Did you know that WalMart has more "Made in USA" products than any other retailer in the United States. Fact!

Did you know that EVERY store in America sells stuff from China, or uses it! Also a fact. Look around you.

Hate to rain on your party. It ain't WalMart, nor China, that is the problem. I have bought German pumps that were crap. I have gotten sick from Mexican greens.

I, too, blame unions for their greed, more than anything! Combine that with the industrial help TO OUR ENEMIES of the Marshall Plan, and we shot ourselves in the foot.

[1010RD]

We seem to have become incredibly foolish, and lazy.

A century of government schooling will do that to a people, not to mention driving God out of the lives of children and replacing him with Utopianism.

Squandering history’s most incredible manufacturing base - for short term gain.

Again, this is a domestic problem that happens at the local and state level and is abetted at the national level. Manufacturing was a golden goose and the statists tapped it hard to fund their political ambitions. It cost us dearly, but I do not blame the owners for trying to make a living or a profit. Look at the Rustbelt. It was not inevitable, just because other countries with lower wage rates were opening up to trade. By law we allowed unions a dominant position and monopoly power. Add in a tax, regulatory and judicial regime that is anti-wealth and anti-producer and why would you take the risk of staying?

At first they moved west and south and many stayed, but eventually you break the back and get what we have today.

I won't pick a party, but I will pick a person who would roll us back to government's proper size and role in America.

I don't know your definition of America First, but as an American I want all my liberties back and I don't want to lose anymore. That to me is America First.

[raybbr]

I would rather buy cheap Chinese junk than expensive union made junk..

Outside of defense contractors, the auto industry, some printing and some various other manufacturers there is very little unionization left in manufacturing. It's down to about 12 percent now. Your screed is pointless.

[rhombus]

Reverend... you missed my point but thanks for the ping.

[bert]

Sounds like Koreans

Koreans are as bad when not within the great conglomerates that follow Japanese rules

[WVKayaker]

Outside of defense contractors, the auto industry, some printing and some various other manufacturers there is very little unionization left in manufacturing.

Outside of defense contractors, the auto industry, some printing and some various other manufacturers there is very little manufacturing left to unionize. Hence, AFSCME, SEUI, etal.

[raybbr]

Outside of defense contractors, the auto industry, some printing and some various other manufacturers there is very little manufacturing left to unionize. Hence, AFSCME, SEUI, etal.

I agree. That's why I don't understand why some FReepers still insist on blaming unions in manufacturing for all of the problems that have caused the free flow of manufacturing overseas.

[raybbr]

Also, now that I think of it the financial crisis we are in is more directly attributable to public sector unions than just about anyone else. All the states in trouble are pointing to unfunded pension liabilities as the prime reason they will be broke in five years and are having problems now. Yet, the old “I hate unions” screed never seems to include them. Police and firefighter unions are just as bad as those that used to exist in manufacturing.

[WVKayaker]

...some FReepers still insist on blaming unions in manufacturing for all of the problems that have caused the free flow of manufacturing overseas.

If I were making cars,and I needed to make a profit, I would need to control my costs. With the unions strikes and srongarming, they raised wages/benefits/pensions to the detriment of their products. The company was forced to seek low cost parts. Hence, the beginning of the end.

When Frigidaire, Maytag, etal went to Mexico, and Taiwan was making electronics to compete with... Sony! We excelled at computers and technology, but gave away the store!

Zero will make it better, though. There will not be ANY manufacturing left in his utopia...

[WVKayaker]

...more directly attributable to public sector unions...

But wait! It get's better:

Union Facts

...The American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) is the voluntary federation of America's unions, representing 11 million members, including 2.5 million members in Working America, its new community affiliate.

click for info

[kellynla]

Are you in Mao-Mart management or just related to the Waltons? LMAO

I shop where they pay their employees enough so they don't have to go on Food Stamps to be able to afford to get groceries where they work, thank you...and yes I have personal knowledge that when people are hired at Mao-Mart they also show them how to sign up for Food Stamps. “FACT”

“This message brought to you courtesy of AFL-CIO and ASFCME!”

FYI, genius, I have owned my own business for 30 years and am not a member of a union. “FACT”

And as others have correctly pointed out, China is the largest labor union in the world. “FACT”

Class Dismissed!

[WVKayaker]

Yes, your lack of class is dismissed!

[raybbr]

I’ve never seen a car (even made by the UAW) that had this level of crash test performance.

I am really curious. What did the UAW have to do with any car design?

[GingisK]

I guess we were wrong.

We were wrong on so many levels. WalMart and ilk had stuff manufactured in China in order to increase the profit margin, not to give lower prices at the register.

Still, this was done by Americans to Americans. All of those CEOs made conscious decisions to screw the American people.

[GingisK]

Was Wallyworld your only customer?

I guess you haven't noticed that there are many alternative retail outlets these days.

For some peculiar reason, a French company bought ours out and laid everybody off. We had designed a wonderful product that our clever management killed, but the French now market in Europe. We think our management just wanted to bail out.

[GingisK]

Many things that are made in China don’t HAVE an American-made alternative.

That is simply because the tax situation and the WalMart-like pricing pressures made it impractical to manufacture in this country. Basically, we engineered the stuff and then gave it all away. The profits go to the middle man in great big globs. You know, the ones who neither designed or manufactured the stuff. You are paying a higher price for junk. The difference between the manufacturing cost and the sales cost goes to the middle man.

Let me give you a real world example. Sears power hand tools used to be manufactured by the Singer Company. (Until the price pressure drove them under.) Singer made a 1 HP router for $7.28, which was too much according to Sears. Sears sold the router to the public for $78.00. (This is back in 1980)

Retailers killed our Nation far more than any taxation. The taxes merely killed off whatever tiny margin was left to the manufacturers.

[GingisK]

Our manufacturing base left this country because of tax and enviromental laws and lawsuits...

That depends entirely upon your retail outlet. Chances are good that your margin was already too low because of retailer pricing pressure. Most of the time, taxation and other government interventions were merely the straw that broke the camel's back.

[GingisK]

Did you know that WalMart has more "Made in USA" products than any other retailer in the United States.

Both of them?

WalMart almost single-handedly drove American manufacturers out of business. Fact.

[GingisK]

I agree. That's why I don't understand why some FReepers still insist on blaming unions in manufacturing

You misread WVKayaker's posts. He does blame the unions.

If you did your research, you would realize that WalMart and the other mass retailers are almost the sole cause of the demise of domestic manufacturing.

[WVKayaker]

I guess ignorance is bliss...

WalMart was late to the party, but caught on quickly. Look at the actual history of trade with modern China. It is companies that wanted to sell products to Americans through a smart retailer.

You can't blame WalMart, FRiend, for plain old bizness sense!

My brother is a RadioShack Franchisee. Look at their shelves sometimes! He is USAF retired!