In my last post I bitch and moan about US politicians and their bitching and moaning. But really, look at China’s pro-active stance on turning the requirement for clean energy into value-added economic activity. On Nov. 20th, the WSJ online posted an article China’s CIC to Invest in 2 Clean-Energy Firms.  Subscription is required (I’m not subscribed) but here’s the teaser:

HONG KONG—Sovereign-wealth fund China Investment Corp. aims to tap rising demand for clean energy in the country by investing as much as $1.21 billion in two companies in the renewable-energy sector, people familiar with the matter say.

The transactions are among the US$300 billion sovereign-wealth fund’s first equity investments in a domestic power producer and underscore China’s support for renewable energy.

Hong Kong-listed GCL-Poly Energy Holdings Ltd. said CIC would buy a 20% stake in the co-generation power-plant operator …

So what did the US do with the trillions it had to spend on stimulus funds? Did it invest in lots and lots of clean energy projects which would spur near immediate demands? Did it invest in encouraging and developing lean energy technologies which would add value to the economy?

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American politicians and pundits should stop complaining about successful Chinese competition for greentech and other “good”  jobs.  Rather than complain, they should get off their soapboxes and work towards incentivizing and encouraging US industry.  They should be asking following question:  ”The Chinese have their plan, what’s ours?”

This article from yesterday’s Industry Week cites a congressional panel which concludes that China’s government is aggressively encouraging the foreign investment in, and development of, key industries– this to the detriment of those industries in the US.  From that article:

China employs a variety of incentives, including subsidized land, energy and water, to foreign companies that relocate their operations there. China uses tax incentives and preferential loans, the report notes, to further reduce the cost of investing in China.

The report says China is selectively targeting industries such as auto parts, machine tools, information technology, optics, photonics and clean renewable energy. This policy, it warns, is contributing to the loss of jobs in the upstate New York area even as the state seeks to become a global leader in the renewable energy field.

The report adds that it is not just manufacturing jobs that are moving to China. “Advanced technology companies in the region that have been moving their manufacturing operations to China are now relocating their research, development and innovation operations there as well,” it finds.

The Chinese have been doing what they should do by building a platform for development by private companies, both local and foreign.  They invest in the development of the industries and they get the jobs associated with those industries.

And here’s an example of the Chinese government’s “can do” approach to clean energy from a report by Reuters posted on November 15th:

China selects 294 solar power plants for subsidy

(Reuters) – China has identified 294 solar power projects with total generating capacity of 642 megawatts (MW) in its first pilot program.

Beijing has said it will subsidies  [sic] at least half of the investment cost.

The capacity will be nearly 30 percent more than the minimum target Beijing set in July when it launched the unprecedented “golden sun” plan, which was part of China’s drive to catch up in a global race to find alternatives to fossil fuels.

One would expect that the Chinese solar panel manufacturer Suntech, or it’s Chinese competitors will get a lot of orders out of this initiative.  Speaking of Suntech,  two days before the above-mentioned article appeared, Reuters ran an article about China’s solar rooftop program:

Suntech to develop 20 pct of China’s Solar rooftop plan

Nov 13 (Reuters) – Chinese Solar panel maker Suntech Power Holdings Co Ltd (STP.N) said it expects to develop about 20 percent of the 91 megawatts of solar projects under China’s solar rooftop program.

The solar rooftop program was launched in March to increase the efficiency of buildings through photovoltaic (PV) solar systems.

Once again it seems that Chinese pols are actually doing something about encouraging clean energy and developing the industries to support it.  (Suntech, by the way, is plowing some of it’s gains into job creation in the USA– t is building a solar power panel factory in Arizona.  Everything’s connected!)

It reminds me of Taiwan in the 90’s. The government targeted computer manufacturing as key industry for development.   They created research institutes devoted to technical and market development, and helped steer local companies into the field.  They gave development loans to the 4 key players and Taiwan’s computer industry developed quite nicely.

Now I know it’s not that simple. There are trade agreements which need to be taken into account, and it might be desirable to establish job-creation metrics which would be tied to government incentives or assistance.

All of which leads me to Charles Schumer and his rant about Shenyang Power Group getting the lion’s share of the jobs associated with a huge wind power project in Texas.  Schumer’s rant fails to mention that:

• Shenyang Power got the lion’s share of the jobs, but it also invested the lion’s share of the money for the project.  (Yes, there is an application for stimulus money made by the American side, but it’s only for a pretty small minority shareholding).
• The turbines which will be made by Shenyang will all use a key component made by GE.  I’m guessing it will use other imported (maybe from the US?) components as well, but I don’t know.

So the Chinese government invested and encouraged the turbine industry, and invested in a project in the States that uses turbines.  They are putting up the money and taking risk, and stand to make money and get jobs out of it.   Also,hundreds of thousands of US homes will get cleaner electric power.  GE will get orders for their components.  See how everything’s connected?

Yes, the Chinese government have  focused on being competitive in key industries.  That’s called leadership and that’s what they should be doing. It’s what the US should have been doing as well.

Stop complaining and start competing!

According to a CNN report,  NAFTA, proximity to the U.S. market, and lower costs (largely the results of inverse currency fluctuations of the peso and yuan)  have tipped the scales in favor of Mexico (and against China) as the new manufacturing destination of choice for U.S.- bound products.

There is talk that the Beijing and and Guangdong governments are starting to play hard-to-get with foreign investors, downplaying their importance in upgrading China’s manufacturing, R&D and local market offerings.

However one report in The Japan Times indicates that Dongguan, at least, is still welcoming foreign investment.

A vice mayor of the Chinese industrial city of Dongguan urged Japanese manufacturers Friday to expand on its turf and exploit its domestic market to help the city recover from the global economic crisis and fall in exports.

“We are looking for more Japanese manufacturers to build R&D (research and development) centers in our city and create domestic brands, securing distribution routes,” Jiang Ling, vice mayor of Dongguan in Guangzhou Province, said at a news conference in a hotel in Minato Ward, Tokyo.

In many ways, what Jiang is saying is in lockstep with what the central and Guangdong governments seem to be promoting– focus on domestic consumption, R&D and high-tech manufacturing.

But what makes Jiang’s comments interesting are that he’s actively courting foreign investment, stating clearly that it essential for the area’s recovery.  Moreover, he’s speaking on behalf of Dongguan’s townships and villages, and these are the organizations which will be interpreting and implementing whatever policies flow down from Beijing and Guangzhou.

While this doesn’t mean that Dongguan is a good place to set up labor-intensive manufacturing, it does indicate that Dongguan, at least, is still Foreign Investment friendly.

This China Daily article quotes Guangdong governor Huang HuaHua and Guangdong Party Chief, Wang Yang making it very clear that the pre-downturn initiatives aimed at moving the province’s manufacturing base up the value chain will continue.

With the outline of the reform plan for the Pearl River Delta formally approved by the central government at the end of last year, the delta scheme has now been adopted as part of the nation’s overall development strategy. This will see the nine cities in southern China’s Guangdong province transformed into advanced manufacturing and modern service centers.

The article doesn’t talk about what they plan to do about the low-value exporting factories currently operating here, but Huang was quoted by People Daily in April saying:

…the province will step up efforts to achieve a change in development pattern by evolving self-innovative industry and upgrading industrial structure, while boosting the transfer of labor-intensive industries in the delta region to less developed regions and transferring labor forces from the agricultural to the manufacturing sector as well as from the rural area to the delta region.  [italics mine]

For me it raises the following questions:

• How will they encourage/force the transfer of labor-intensive industries out of the province?
• How will they define “labor intensive”?
• How fast will they move?
• How will they deal with the most local government and semi government bureaucracies who are still benefiting from those labor-intensive industries operating in their villages and industrial zones?
  

A post on the Financial Times “Dragonbeat” blog helps to rectify the “migrant workers gone wild” media fest of the past few months.  These guys are getting it right.  Anyone interested in this topic should read the FT article. (h/t to Danwei)

My comment on the post:

[There] was never an apparent trend toward violence on the part of unemployed workers in Southern China. There were a few protests, and very little violence, by workers who were abandoned without severance pay. As these few anecdotes echoed between blog and newspaper and back again, it seemed as if the trend toward worker violence was growing. Actually, it was the same few recycled anecdotes over and over again.

Those of us who live and work here in Southern China (I run a factory in Dongguan) could see first hand how distorted and repetitive the media story was.

Yes there are many unemployed. No, they are not threatening anyone and never were. Not news to anyone living here.

The real news here is how so many of the media outlets, new and old alike, have lazily copied and amplified one another’s inaccuracies.

Newspapers complain about free content on the internet pushing them out of business.   Maybe it’s just poor quality ruining their business.

A new article in the Financial Times discusses the new face of migrant labor in Dongguan.  The article basically says that the oft-predicted worker unreast didn’t materialize because those predicting it envisioned the migrant workers of yesteryear (hordes  of rural, unsophisticated “factory  girls”) rather than the migrant workers of today (semi-urbanized, getting more sophisticated,  with more connection to the communities in which they work).

Seems accurate enough.   But what caught my eye were the last two paragraphs,  sharing the stated views of a famous Chinese labor activist:

[The activist]…once incarcerated for his efforts to establish an independent alternative to the government-sanctioned All China Federation of Trade Unions, notes that the last thing the country’s labour movement needs is more martyrs rotting away in Chinese prisons for daring to challenge the Communist party’s authority. Far better, he adds, to focus on factory-floor issues that affect workers’ daily lives. [emphasis mine]

As [he] said in an address to Hong Kong’s Foreign Correspondents’ Club earlier this year: “Why not let workers and employers settle their problems [independently] at factory level? That’s the best way to make a harmonious society.”

What does he mean by “factory-floor issues that affect workers’ daily lives”?   It looks like he’s telling us workers rights will improve not by workers banding together to cause unrest, but by going to the gemba and working together with management to ensure  that their working lives are safer, more comfortable, and more productive (with the assumption that increased productivity means increased compensation for the worker).

Not news to me… I’ve said elsewhere that LEAN, JIT, and related strategies and concepts can do more than just add value for shareholders and customers, but can add value for the workers and for the community as well.   What surprises me is hearing it from labor.

The “lean vs. China” argument presupposes a false dilemma.

In it’s most recent post, Evolving Excellence cites and agrees with a Manufacturer’s Monthly (Australia) article comparing the total costs of outsourcing to China with the total costs of purchasing from a lean local factory. The conclusion from the Manufacturer’s Monthly article is succinctly stated:

Agility is the key to beat Chinese imports and lean manufacturing the most effective tool to achieve that agility.

Lean enables suppliers to offer faster service, better quality, smaller batch sizes and a greater degree of customisation than traditional manufacturing approaches without increasing unit costs. Lean can drive down total costs for customers by reducing inventory holding and handling costs, obsolescence and the cost of poor quality.

Fair enough– lean leads to competitive and strategic  advantages in inventory costs, lead times, quality and overall operations.    But you can’t count on “lean” to be competitive against the Chinese for one simple reason… the Chinese can be as lean as you can!!

Some (corrected) excerpts from my comment on the Evolving Excellence post:

The comparison cited above (and many like it) assume that the only choices are “lean” on one side and “outsourced” on the other. This is a false dilemma. What happens when you compare “lean domestic” sourcing cost with “lean China” sourcing costs?

My experience in China tells me that the China-based factory can be operated in a lean manner, mitigating the costs of longer transportation lead times, and not incurring the prohibitive costs associated with support functions and poor quality. If that’s the case, then the cost savings associated with low-cost production will in many cases (but not always!!)  be enough to ensure profitability, even though long-distance transportation costs and transportation lead times are an offsetting factor.

By all means if you’re  a manufacturer  go lean… it’s good for you, your shareholders, your employees, your vendors and your customers.  And if you are considering outsourcing, do ensure that you are taking into account total cost when you make your decisions.   But don’t assume that going lean (or buying from lean sources) will offer you a competetive advantage against aggressive pricing in the long run, because the competition has access to the same advantages you do.

Now that the media echo chamber has seemingly stopped reverberating stories about demonstrating workers demanding pay from runaway company owners, the South China Morning Post now reports (registration required) on company owners demonstrating for payment from escapee debtors.

About 200 factory suppliers gathered outside the Guangdong government headquarters yesterday to demand assistance in recovering around 100 million yuan (HK$112.7 million) that they said was owed to them by a car-audio company.

According to the article, the car-audio company in question, Hong Kong-owned RedPower Electronics, failed to make payment to about 500 suppliers.   This demonstration in Guangzhou, follows a more violent demonstration in Dongguan:

They sought provincial government assistance after their protest in Dongguan on Wednesday met with a police crackdown.

The clash began when the suppliers tried to rush into the Red Power factory. About a dozen were injured; two are still in hospital.

A new trend?