Quality Products International

None the less, one of the most dramatic and audible features of Chinese New Year in China are the firecrackers.

Fireworks, Lantern, Prosperity Messages, and Mandarin Tree with Red Envelopes

Micky & Friends Fire Works

Group of local Girls Playing with Fireworks

Crackers before family luncheon

Fireworks in village at CNY Midnight

Aftermath, but no sweeping on New Years Day

First off – Merry Christmas to all our clients, suppliers and followers of our website blog!

Christmas in China is a relatively new concept. Helmut our CEO often jokes that the Chinese celebrate Christmas in August, which is when the factories normally get paid for the Christmas shipments to the west.  Since the 1980’s the government eased on Christian activities and Christmas gained popularity. Of course, it is lucrative – last year, just in one provincial city in China, the three days leading up to Christmas – online sales for presents topped RMB90,000,000!

From a religious perspective, Christmas is less of a religious holiday as compared to western countries. Many youth just see it as a “western foreign” tradition, and have no idea as to the full context of the “Christ” in Christmas.

In Shenzhen, and other main cities, Santa’s are everywhere to be seen – the Crowne Plaza even imported a member of the Fraternal Order of Real Bearded Santas – from Southern California for a bit of extra authenticity!

Again all the staff at QPI wishes you seasons greetings and a prosperous 2011!

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There was a 4.1 scale earth quake in DaLingShan town Dongguan at 14:40 today.

Dongguan is in the centre of the Pearl River Delta, home to most of China’s manufacturing and export business.

The PRD region includes Guangzhou which is currently hosting the Asia Games, Hong Kong and Shenzhen where the QPI offices are located.

The epicenter was some 100km from our offices and some of us here felt a “nudge” and the blogs and instant messaging systems have been a buzz with talk.

Some of our friends in the many factories we have regular contact with in the area talk of their office windows and doors rattling, even the wife one of our colleagues woken from her afternoon nap, but fortunately no reports so far of and injuries or serious damage.

Hopefully it will stay that way, and of course we hope there are no serious aftershocks.

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At 8:10pm on the 31^st Oct, the closing ceremony was held at the Shanghai Expo cultural centre.
It is the first time a developing country has held the comprehensive World Expo.
Nearly seventy-three million visitors visited the China 2010 Shanghai World Expo since opened on 1^st of May.

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In a word NO.

Much has been said in the media lately about how the Chinese have undervalued their currency and that it is causing the extended recession in the U.S. and to a lesser extent in Europe. This is untrue. Yes the low value of the Chinese currency does not help the balance of trade and it stops the U.S. and Europe from exporting to China as their products are too expensive. However up until recently both trade block were only giving this imbalance lip service as the low Yuan allowed large companies in these trade blocs to manufacture products cheaply and sell them for good profits in the U.S. and Europe. It is only when the economies in both areas almost collapsed that the hue and cry about the exchange rate reached the level it has now. One must also realize that the U.S. is going through an election cycle so anything that can be blamed for the unemployment and bad economy is going to be front page news especially if it is something external and not the politicians’ fault.

So let us examine why this imbalance has occurred. China wanted to fast track its economy and traditionally the way to do this for countries outside of Europe and North America was to create an export economy. The best way to do this is to provide a cheap place to manufacture goods. One component of this is a cheap currency. To keep its competitive advantage against its rivals in the area China pegged its currency to the US, its major export market. Thus the exchange rate would be stable and companies could move manufacturing costs to China with confidence in the stability of the exchange rate. This worked fine until the China economy grew to that of a second tier nation and above. At this point the trade imbalances started to bite but were not a huge problem. China then would allow the currency to move in small increments and over time to smooth some of these imbalances out while maintaining a competitive advantage.

When the economic crash hit in 2007 the U.S. and Europe (mainly caused by the financial institutions in those countries anyway) found it difficult to trade out of the recession. Why? Well because the single largest market that was not severely affected was that of China. Since the Yuan was pegged to the dollar, when the dollar dropped in value so did the Yuan making it hard for U.S. businesses to export to China; and also, it did not create a climate where jobs could be brought back to the U.S. as it was still cheaper to use Chinese manufacturing. Thereby the hue and cry about the exchange rate. However one must look at would have happened had the exchange rate been free to float as most U.S. and European politicians have been screaming for.

China rode out the recession by ramping up internal spending on infrastructure. It did not shift its economy to internal markets. China is still primarily and exporter. So if the exchange rate suddenly ballooned to where other wanted it what would have been the result? Well the exports would no longer be cheap and exporters would find it difficult to sell their products. Manufacturing would move to other cheaper countries. The industry would shrink probably alarmingly and the associated unemployment problem would have no real alternative industries to go to. In effect the recession would have been brought to China in a big way. Suddenly ALL major markets would be in recession. There would not be a market for U.S. or European goods as most of these entail some sort of consumer requirement. The Chinese spend less than most industrialized people on themselves, they are superior savers. If suddenly the wealth of jobs and opportunities dries up then they would most likely stop spending and save even more. Thus, no more internal market either.  The Chinese, by allowing their currency to appreciate in a slow and controlled manner, are trying to slowly move their economy off a pure export footing and to a more balance one without destroying the export business first.  It is not something that can be done quickly as it requires a change in mentality from its people as well as its business leaders. They have to want to spend.

So the Chinese are being responsible in their economic policies. Of course mainly to themselves but that is normal for all countries. Still, they do recognize the need to allow the Yuan to appreciate but, they will not be bullied into letting it skyrocket to the detriment of their own people and eventually the global marketplace. The histrionics about them being the boogey men are just that, the wild ramblings of people who do not know better or politicians wanting to blame anyone and anything rather than themselves.

 Author: M. Charlin

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On Thursday,US Department of Commerce announced that in August, the America’s trade deficit with China is $46.3 billion dollars,  an annual growth of 8.8%.

Economists expect this to an average out to $44.5 billion annually. The July trade deficit was $42.6 billion.

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6th Oct, Premier Wen Jiabao speaking at the Central business summit, asked the European economic ministers not to push for the RMB to appreciate.
Instability in the RMB will cause problems for the Chinese economy which is the primary driver of the world economy at this time. If the Chinese economy falters then it would cause another economic disaster for the world.

I just came across this headline from one of the sections of the Washington Post. It got me thinking about a few other things that have been in the news lately about China trying to reduce the price of Real Estate and stop a bubble forming. The article with the above headline basically puts forward that the Chinese government is trying to encourage its citizens to spend. One of the ways it is doing this is to provide pensions, Health insurance and other welfare payments so that the poor or average citizen does not feel that they need to save every penny for future needs or in case of an emergency.

The key reason Chinese save so much and consume so little, experts say, is because without dependable government payments, they need to sock away money for the future — for medical emergencies, for children’s educational expenses, as a guarantee against a job loss or to help elderly parents.

“When a person has no medical insurance, unemployment insurance or endowment insurance, how can that person dare spend all their money?” said Tang Jun, a sociology researcher with the China Academy of Social Sciences. “The Chinese people are a nationality that likes saving money. . . . Ordinary people will only feel relieved about consuming if they don’t have to worry about not having money when they get old and not having money to go to the hospital.”

By Keith B. Richburg, Washington Post Staff Writer, Wednesday, July 14, 2010
Full article can be found here: http://www.washingtonpost.com/wp-dyn/content/article/2010/07/13/AR2010071305773.html?nav=emailpage

The underlying reason for the pensions etc. is not altruism on the part of the Chinese government. It is part of the economic planning process. Officials realize that Europe and the U.S.A. are not going to be able to consume the large output of Chinese manufacturers. In fact the anemic if not actual reversal in Consumer activity in these markets means that China has to look elsewhere for areas to market it’s good if it wants to maintain the current growth rate in its economy. The biggest untapped market at the moment for China’s goods is its own people. However historically the Chinese have been almost pathological savers and rarely will splurge on consumer items. This is changing in the cities and with some of the young but with a large percentage of its population still living in rural areas, away from the centers of new economic activity the consumer lifestyle has not reached the levels needed to sustain the economy. By providing social safety nets the Chinese government hopes to reduce the fears of its people with regards to future hardships and thus encourage them to spend on things now. The age of consumerism will go hand in hand with the social programs designed to alleviate worry and provide for those unable to provide for themselves.

Many in the U.S.A. should perhaps take note of this trend. At this time of economic hardship and recession there has been talk of reducing the social programs designed to help people at the low end of society’s spectrum and those who cannot find jobs. I have seen some journalists opine that the sense of entitlement that these social programs encourage is the cause of many of the problems we see in society today. Maybe they have a point and we have indeed gone too far in that direction. However one must take into account what would happen if those programs went away. People would have to plan for future needs, save their money, become fiscally responsible. No bad thing you might say. Well unfortunately as can be seen in China’s predicament this means that the rampant consumerism that drives the economy now would become a thing of the past. People would become more judicial in how they spent their money and thus the economy would in fact shrink to a new norm and growth would no longer be as fast as it was before. The U.S. economy which is based on consumerism would need to adapt and quickly. Many might see this as the way of the future. If so I wonder if it will be a thought out planned transition or a complete hands off approach. My guess is that it will be a comedy of errors and short term attempts to keep things as they are that will eventually give rise to a new economic paradigm.

What a great headline! All is well in Foxconn and we can all get back to enjoying our little electronic toys and tools without having to worry about poor Chinese workers having to kill themselves in order to make a statement about working conditions.

OK I’ll admit sarcasm is not a good way to make a point but it is funny that this headline popped up a little after I wrote about the factory social audits that need to be done regularly. The problem is that only when you get down to the second half of the article in question is when you see what was done to fix the problem. Foxconn has doubled each workers wage over the past couple of months and at the same time it has reduced the amount of overtime hours from 80 hours per month to 36 hours per month. The funny thing is that previous to this announcement Foxconn professed to treat their workers better than anyone else and they had no cause to complain. Unfortunately 80 hours per month is more than double the international standard and is in fact more than double the amount allowed by Chinese law as well. So it seems that the workers were not being treated as well as they wished us to believe. Considering the problems that the company was having with its workers one might draw the conclusion that overtime was a requirement and not a request as is more common in the west (although one might think that is changing there too). In that case it is no wonder the poor workers were killing themselves. Sure they had all sorts of recreation facilities and activities but, if one is too tired to do anything except show up for work (since you have to work an extra 2 weeks every month just to keep your job), then what use are they?

Considering that the working conditions did not adhere to international standard nor local law, why did everyone say that the factories were fine? Of course there is a certain amount of ass covering in all this but one has to wonder if a proper third party social audit of the company and factories might have uncovered this a bit sooner and maybe headed off the problem to start with. Regular external audits of the factories and conditions should be part of any company’s strategy for doing business in China and the rest of S.E. Asia. QPI Ltd. Is well placed to help with such needs and is in an excellent position to provide independent audits of your manufacturing facilities.

For the full article in the China Daily online click here.

Author: M. Charlin

A recent article on CNN explored the luxury and lucrative industry of premium alcohols in China. One only needs to go into any bar in the main urban areas to see young adults spending large sums of money on brand-name alocohols.

Currently the “flavour of the day” is Brandy, and Whisky is second… These are mostly mixed with red-tea or 7-up. QPI is working with a number of Chinese wine importers/distributors to bring in premium wines and other hard liquor.

Have a read at the well worded article about Tequila in China here…