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China’s ‘cheap’ syndrome

China’s ‘cheap’ syndrome
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First Published: Tue, Jul 17 2007. 12 24 AM IST
Updated: Tue, Jul 17 2007. 12 24 AM IST
What could be reassuring about killer Chinese toothpaste, toys and tyres? Hard to believe, but there’s a silver lining. The rash of product recalls reveals that China is not the manufacturing juggernaut we fear— and that America has an edge we tend to overlook.
Sure, greed factors into why Chinese suppliers make defective, even harmful products. But often it’s because of plain ineptitude.
If you visited a typical Chinese factory, you’d see why. It lacks capital, technology and know-how. Its workers place obedience over quality. And it sits along an endless chain of middlemen.
On average, it takes China 17 separate parties to produce a product that would take us three. China’s industries are composed of hundreds of thousands of tiny factories and farms—plus traders, brokers, haulers and agents, all of whom take control of the goods and materials but add little value to the product. With every additional player in the chain, the cost, risk and time grow. Effective quality control in this environment is difficult.
Despite cheap labour, making goods in China is often more expensive than in the US. Far from being a bottomless ATM of cheap consumer goods, China is a risky, costly and time-consuming place for business. Yet polls show a majority of Americans believe China has mastered basic manufacturing . That’s false. As the product recalls show, China can barely make low-value goods reliably, much less higher-value ones. The problems are structural, not the result of a few bad apples.
To compete head-to-head with the American economy, China will have to revolutionize the very way its industries are organized. It must shake out the thousands of low-value middlemen and integrate the tiny factories into larger, more competitive companies. It must train a workforce in modern technology and business practices. And, it must instill transparency and a uniform rule of law.
Meanwhile, we’re expected to believe that America will import Chinese passenger cars in just two years. Making products that live up to international standards requires more than simply modern production lines. Your entire corporate culture, along with that of your suppliers and buyers, must be focused on minimizing errors and defects. The US, on the other hand, can efficiently produce a wide variety of goods and services. In most industries, we’re decades ahead of China.
America possesses this competitive edge at the precise moment when Chinese consumers are buying more than ever before.
Chinese consumers want modern homes, schools and hospitals, as well as advanced technologies and infrastructure. Local sources can’t keep up with demand. So China imports most of the higher-value goods, materials and services it needs. As a result, China is increasingly buying American and growing five times faster than any other market for US exports.
Nearly all sectors of the US economy are experiencing unprecedented Chinese demand. And while most Americans fear the flood of cheap Chinese goods, many of these products are, in fact, composed of US raw materials and components. So, as Chinese imports to the US surge, American exports to China surge, too. China is buying from large US companies and small ones, and China is the fastest-growing export market for small business.
We should take another hard look at the “China Century”. China’s rise need not drive America’s fall. By tapping into its expansion and capitalizing on our strengths, America’s companies have a once-in-a-century windfall opportunity to build value, make money and create jobs here at home—not shutter the shop.
Edited excerpts fromThe Wall Street Journal. Jeremy Haft is the author of All the Tea in China: How to Buy, Sell, and Make Money on the Mainland, and founder of BChinaB Inc. Comment at otherviews@livemint.com
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First Published: Tue, Jul 17 2007. 12 24 AM IST
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