Perhaps I am a being a bit overly inquisitive on this, but yesterday while watching CNBC, I was watching an analyst discuss the impact on stock prices that occurred from the announcement that the Chinese government will issue the long awaited 3G licenses.

Given the time it had taken to get to this point, and the speed by which this seemed to surprise everybody, it seems reasonable to ask why they should take such quick measures now.

In short, by doing this now (and let’s assume the licenses are actually given out) the Chinese government has essentially guaranteed that the major operators China Mobile (CHL) and China Unicom (CHU)will invest hundreds of millions in upgrading their networks.

Which will keep people employed, factories open, and achieve a number of macro targets

At the same time, as seen in the video below, it will spur the domestic consumers to go out and purchase a new handset.  Something that handset manufacturers desperately need, and are preparing for

Which will keep people employed, factories open, and achieve a number of macro targets

Taking this one example, it is clear to see how a single policy change can impact the economy on a short and medium term scale.  Keeping factories open, people employed, and  consumers spending are three sweet spots for Chinese policy makers right now, so a quick gain will be logged once the investment begins.

For those looking 12 months down the road, keep an eye out for incentives packages that would spur consumers that are similar to the 2007 rebates for rural residents to buy household items.

Last year, when lead paint Barbie dolls and melamine laced pet food were the headlines, there was a lot of finger pointing going on.

Congress, the media, and American consumers were all enraged by China’s lack of standards, while brands were focused on how they needed to develop systems for dealing with the influx of products that they were now going to be held responsible for.

Well - the other shoe has dropped, and this time it is (ironically enough) an American Dog Food firm who has found themselves in trouble… IN CHINA.

US-made Optima dog food in China may have killed my dog is a post written by Suzhou based Ryan McLaughlin where he chronicles the fact that his dog’s liver had failed from dog food contaminated with aflatoxin:

Apparently since the end of November about 30 dogs have died in the Yangtze Delta (Shanghai, Nanjing, Suzhou, etc.) of liver complications - and they all ate Optima dog food.

According to the pet shop, the food was contaminated with “黄曲霉素”, or aflatoxin, an extremely toxic and carcinogenic fungus that can contaminate grains, spices and nuts.All the dog food was therefore brought in through the hot and humid Guangzhou, where it sat in a non-temperature controlled warehouse long enough for the aflatoxin to develop in the food.

Where this gets interesting and disturbing though is the supply chain of this product is really convoluted, and Optima itself says that it does not distribute to China:

Optima Professional Pet Foods is a brand under the Doane International Pet Products. According to the Optima flyer we had lying around the dog food is imported into China through Taiwanese company Natural Pet and then distributed in Mainland China via 北京裕康园商贸有限公司 (Beijing) and 上海瑞宠商贸有限公司 (Shanghai).

… and as all good companies do in the same position, Optima has essentially stepped back by saying they are not at fault, and that as they are not managing the supply chain to China that it is not their fault.

WRONG

In fact, like Mattel, Optima is in FULL CONTROL of their supply chain, and should be all over themselves to work with the 30 or so affected families whose pets are sick from THEIR product.

Sure - the point can be made that it is actually the Taiwan distributor who is at fault for not throwing the stuff away after the Olympics, but it is STILL THEIR DISTRIBUTOR who THEY HAVE AUTHORIZED to sell THEIR PRODUCT.

What I would be interested in seeing is how the US FDA could at this point get involved as well.  Not that this is a major international issue that needs to be overdone, but as they have just set up their office, and as this incident clearly highlights some short coming in China’s system for cold chain, reporting, and accountability… I think this would be a great opportunity for them to get involved.

In the end, brands who are using distributors in China (or anywhere else) need to take note of this.  It is an issue that will impact Optima (see all the negative press they are getting… in Chinese and English), and it can happen to you. your distributors are YOUR distributors, and at the end of the day they represent your company.

I would never advise a client to simply give distributors free rein over preserving quality control anywhere, but if one of my clients did… I would advise them that should something go wrong, they would own it too.

For the last several months, I have been wrapping up what has been perhaps the most prolonged personal research project I have had, a comprehensive study of the Yangtze River and its ports.

If began as an interest over 3 years ago as I worked to develop a number of second tier cities, peaked through several projects related to the river, and culminated when I began to see the ever increasing importance of the river as a trade medium.

Going back a year to the post,   , the activity on the Yangtze river has in many ways  grown to support China’s growth, but more interestinly to me, it is through the growth of the Yangtze that I blieve true economic balance can be achieved.

That through its 25 major trading ports, the Yangtze’s improving infrastructure will enable and catalyze economic investment in China’s hinterland on a level unseen before.

Areas like Ma’anShan, Yibin, and Yichang will all grow from bulk trading ports to ports that will service growing economic development zones.  Wuhan will regain its status as China’s logistics hub through the convergence of north-south / east-west  transportation modes, and it would help China’s major shipping firms grow in competitive strength as they leveraged their positions along the river and moved boxes to Long Beach through their own systems.

So, stay tuned.  I have 25 profiles coming up, and I hope you will enjoy them.

For those of you who would be interested in sponsoring this report, please feel free to contact me directly at rbrubaker (@) Chinasdp.com.

I still have full page and half page listings available, and with past reports being downloaded/ distributed to more than 5,000+, I offer competitive rates.

There is already a ton of speculation about the role China should play in “saving” the world’s economy, which for me seems a bit over the top.  however, the two and a half minute clip on CNN had loaded up on experts and anecdotal shoppers to put forth their view.

For me, it is pretty simple.
(1) China’s consumption economy is very small in comparison to its overall economy, and it is less than the size of California in gross
(2) a significant number of people I speak with (in my age group) have already cut back on spending and are talking more about hiring freezes than about trips to Thailand
(3) I have had discussions with 3 brands in the last 10 days (2 mid tier global + 1 luxury) who are already seeing fall off - worst was 50% drop- and expecting more

Keep in mind that the same events - plummeting home values and stock values - were occurring here 9 months before they occurred in the US, and that while some would say that the average consumer was not in the market, I know of one study that was a measure of the middle class market that showed nearly 70% having stocks.

Where I think things, short term, are strong for China’s market is simply the fact that its government has taken a page from GW’s 2001 economic team and is focused on driving consumerism through subsidies, incentives, loosen credit, and otherwise make it easier for consumers to spend their money in an effort to provide some measure of catalyst.

Then the remaining question for me is: even if China does consume like their American peers of old… would that really be enough? Or would it prove to simply be another one of those stories that simply didn’t pan out like the policy makers hoped it would?

For me, I just don’t see it, and my suggestion is that rather than believe the rosy pictures of China saving the world’s economy we begin to really work on the core issues.  Something Tom Friedman’s recent article highlights well:

With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” — can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.

One of the firms I have always viewed as a success of China was Hon Hai - a.k.a. Foxconn

I initially profiled it in the post Foxconn: Behind the Scenes following the WSJ article The Forbidden City of Terry Gou , but through other posts like  iPhone: Made In Shenzhen, Assembled by Foxconn and IP Protection in China the Hon Hai Way, it is easy to see how this firm has done so well.

The recent Circuits Assembly piece Foxconn Moving Inland details what Terry Gou is doing to respond to the pressures of the recent global downturn and increased costs on the east coast:

Relocate tens of thousands of employees to lower-costs Chinese cities to take advantage of tax benefits and cut costs, according to published reports.

In order to cut operating costs by 20%, Hon Hai (Foxconn) will move up to 160,000 workers from a campus in Shenzhen farther inland to Wuhan and Jincheng

Perhaps, given his existing plans to spend billions in Vietnam and previous announcements to move to other low cost basis in China,  this was in the planning for a while, but I find it interesting that unlike others who are simply offloading staff he is planning to relocate so many.

Just 6 months ago, we were all discussing how firms were looking at moving inland vs. moving to Vietnam (see how sustainable that market was here) vs moving home, and where this story offers a lesson is others can learn.

Perhaps Hon Hai’s willingness to spend now is at a different appetite than others, but for other firms operating in China who are liquid, then continuing to fully investigate the options China possesses should not end now.

1. Chengdu remaining top among second-tier and third-tier cities which garnered most attention from American companies
The 2008 China Commercial Report published on December 17th by the American Chamber of Commerce in Shanghai, which took a survey on 238 American companies operating in China, shows that among the second-tier and third-tier cities, Chengdu continues to be the most attractive investment destination to American companies, and following it are Dalian, Wuhan, Xi’an, Nanjing, Suzhou, Chongqing, Qingdao, Hangzhou and Wuxi.

2. Xindu became national demonstration zone for food security
On December 16th, Xindu district passed the appraisement of the concerned experts from the State Food and Drug Administration, and became Chengdu’s first national demonstration zone for food security.

3. Chengdu chosen as annual brand city
At the “Sina•2008 Network Grand Ceremony” held in Beijing on December 19th, Chengdu was granted the honor of the “Brand City” of the year 2008.

Continue reading »

While the goal of today was for me to put the laptop down, I had a moment of weakness where I looked to see just how many people visited All Roads in 2008 - and what were the most popular posts for the year.

Perhaps more awe shocking than seeing that more than a half million visitors came to All Roads (200k unique visitors)… 51,000 of which spent more than a half an hour on the site.

Wonder what percentage of those are a result of falling asleep in the middle of a post?

The most popular posts  also had a very interesting array as well:

1. iPhone: Made In Shenzhen, Assembled by Foxconn
2. Who Is To Blame For Fat Chinese Kids? Who Will Be Blamed?
3. World Economic Forum on Youtube
4. Z Visa Update: The Bigger Picture
5. China F Visa Update: I Bring Good News for Some
6. Multiple Entry Chinese Visas Being Canceled at Border.
7. China’s Power Crisis. What is Happening. What the Impact Is/ Could be. And What You Should Do
8. 2nd UPDATE - Earthquakes in China: Plaza 66, CITIC, and Others Evacuating
9. Factory Closing: Why Is Anyone Shocked? This Was Coming…
10. Foxconn: Behind the Scenes

To build on what is in my mind a unexpectedly successful year, I have some changes in store for readers….  More video, reports, and a whole lot more!

so stay tuned.  as always, thanks for coming by, and I wish you all the best in what is sure to be an interesting 2009.

Rich