Advertisement

Blog

The Real Truth About ‘Made in China’

If you were a Chinese citizen visiting the United States for the first time, you would be extremely proud of your country's manufacturing prowess. In fact, you might return home believing almost everything sold in the US is made in China. You would wonder which nation needs the other more, and you would be convinced the time of the Han has come again.

Conversely, if you were an American citizen shopping for the holidays, you might return home both happy and sad. You would find notebook PCs for as low as $300, sub-$500 LCD TVs, jeans for $19.99, and children's toys so cheap you could buy for the entire neighborhood without bursting a $1,000 budget. You would also find that more than 90 percent of the stuff you bought had labels saying, “Made in China,” and that could set your heart racing. Your likely questions (and this was my experience): What exactly does my country, the West, and other places outside China make anymore, and have we taken globalization a mile too far?

They would be fair questions, except for the nagging feeling that perhaps there's more to the story than consumers in the West realize. Lately, I have been wondering if the Chinese are as lucky to be the world's manufacturing center as we think, or if Western business and political leaders have important reasons for fostering this dependency situation. What if transferring manufacturing activities to China were the West's way of achieving critical but publicly unstated goals? In other words, has China really won the global manufacturing war, or did it simply gobble up a Western Trojan horse?

OK, that may sound like lunacy. Why should Western nations and businesses collude when enterprises are supposed to be governed only by investor interest? But several nagging questions on the preponderance of manufacturing in China haven't quite gone away, and I've decided to raise them here. Why is so much of what we consume in the West (and now in many developing nations) being made in China? What are the longer-term implications of this for everyone? Who benefits most from this? Will the benefits be fairly spread out among business partners, regardless of location? And shouldn't the Chinese review the total costs of being everyone's manufacturing Mecca?

Each time I am asked to settle for conventional answers related to the efficiencies of a market economy — terms bandied about here include opportunity cost, the law of supply and demand, optimal manufacturing cost, and economies of scale — I come back to another set of worrying questions. What nation gives away its crown jewel without asking for something in return? What is the West getting in return for the large-scale transfer of manufacturing to China? What can derail this arrangement?

OK, you don't like conspiracy stories. Neither do I, but let's take a look at what could have been the alternative had China not been pulled into a tighter economic embrace with the West. We could be locked into another nasty arms race. (Some people think we are, though a less intense one.) Such a race may not have been as dangerous as the one with the Soviet Union, but it would still have been as draining for everyone. Today we have a somewhat friendly relation with China — there's a lot of tension underneath, I bet, but rather than trade punches, we are trading goods with the world's most populous nation.

We know much more about China than we did 20 or 30 years ago. Western business executives, middle managers, and others have been traveling, working, and living in China for more than 20 years. Many of them have become experts on the country and its culture, and many have developed strong personal relationships with the people and government officials. Though many are still concerned that an economically stronger China could pose a military threat to the US and its Western allies, I think the chances of this happening would be much higher if we were not business and economic partners.

Lastly, I believe it is harder now for China to disengage from the rest of the world, because its continuing prosperity and political stability depend more today on the strength of its economic engagement with the West. In some ways, therefore, the West has already achieved a great objective of pulling China in from the cold. Now we have to make the country an even more responsible member of the international community. These are worthy goals. Hopefully, we haven't overpaid.

36 comments on “The Real Truth About ‘Made in China’

  1. Barbara Jorgensen
    December 8, 2011

    I find my self divided on this issue and probably I will continue to be. Let's face it, the stuff from China is inexpensive (some of it is “cheap”–there's a difference) and at this time of year that counts for a lot. Then a company in our neighboring industrial park shuts its doors becuase of competition and/or it is going overseas. But as you say, trading with China beats the alternative

  2. bolaji ojo
    December 8, 2011

    Barbara, I am probably as torn. I certainly hope the impression created by the article is not that I am cheerleading in any direction. The loss of jobs is a heavy price to pay for our shopping craze. It's a thorny subject and one that has major social implications. Let's hope there are benefits on both sides. of the ocean.

  3. Nemos
    December 8, 2011

    Very nice article I was waiting for it long time ago. We have some facts: As a Chinese friend told me “we are the factory of the world” and yes China is the factory of the world and for that reason we can buy a lot of things in a low cost price. And it is not only in the USA the “made in China” phenomenon , also in Europe it is exactly the same situation as you described previously.

    I believe if we want to give a good answer to all of those “why” we must focus in what we called “free” market and business. Today is more than clear, that the “control” and the power of our countries isn't in our politician's hands but in the hand of the people behind the markets.

  4. bolaji ojo
    December 8, 2011

    Rich, You just provided further evidence for the importance of institutional memory. The 1997 article you referenced is significant for more than the story of illegal campaign contribution. I was struck by the idea the US administration pursued, which was that of “engagement” as noted in the article you posted. That wasn't a bad policy and it's no surprise China was trying to influence the US political system even if they denied this. Western interest in China has been secured by a policy of engagement and the manufacturing outsourcing was based on and built on that.

  5. _hm
    December 8, 2011

    Another point to add to this hypothesis is to pass long term pollution to China and other developing countries. This may be more true for Europe.

    But China is smart and soon it will come out of this and will look for value added high margin low pollution product and services. We will wait and watch how story unfolds in near future.

     

     

  6. Daniel
    December 9, 2011

    I think the manufacturing sector is much focusing with china. Most of the big companies have their own operational and manufacturing units in China due to various reasons. Other than labour cost, investors have an assurance of better tax liability and by considering vast Chinese population as consumers. Now a day it becomes like a brand name ‘Made in china’. But I had seen in one of the European country, they are manufacturing the product with label ‘Made in China’. I don’t know, what’s the mileage they are going to get from that label.

  7. Jay_Bond
    December 9, 2011

    This was an excellent article that brought up some good questions. I think that by making China more “mainstream” we have eased a lot of world tension and made great improvements to people’s quality of life. One conspiracy that’s out there is that without China becoming this manufacturing Mecca, we would have the world’s most populous country poor and possibly running under a fascist iron fist that could threaten world peace. I don't buy into that one, but I guess there is some basis for it.

  8. Wale Bakare
    December 9, 2011

    Thanks Bolaji for this article – indeed a food for thought. Am wondering if critical analysis of benefits/effects of manufacturing in China are being monitored for long term purposes.  Well, if i may ask, are the likes of Germany, Norway and Canada part of this 21st century manufacturing trend?

  9. mfbertozzi
    December 9, 2011

    It is an interesting point Jacob, especially if we would like to include in the discussion the dual perspective of “made in china” label, I mean “CE”. That logo put on top of such product, means manufacturing standards are compliant to European standard. Chinese corporations, in such case, are producing using the logo “CE”, but it means “China Export” instead of “European Community” and as consequence mistake done is very critical.

  10. bolaji ojo
    December 9, 2011

    _hm, Countries are always jostling for advantages in the economic and political areas. The trade off between what's ideal and what's possible is important but there should be certain things a nation must see as unacceptable. In the manufacturing area as you said, pollution is a byproduct, but unchecked pollution is unacceptable.

  11. bolaji ojo
    December 9, 2011

    Jacob, The other reason companies invested so much manufacturing in China is because they want to be able to sell directly into the local market. That process is continuing although it is moving up the supply chain now. I will be writing on this in my next blog in which I explore efforts by the Chinese government to attract high end semiconductor production to the country.

  12. Susan Fourtané
    December 9, 2011

    Hi, Bolaji 

    You have left me speechless with this superb blog. Not speechless because I wouldn't have anything to say but because this has been highly thought-provoking, which I appreciate a lot, and it deserves to be read again with a good cup of tea and good time for thinking. 

    -Susan 

  13. bolaji ojo
    December 9, 2011

    Susan, I am looking forward to your second-take. As you said, this subject is very important for us all, employers and employees. I couldn't offer answers to many of the questions I raised and that was quite clear. I believe, though, that they deserve consideration as you'll see soon in my next blog.

  14. TomE
    December 9, 2011

    Bolaji,

    I would add my thanks for a short and succinct article of a very important topic for the first half of the 21st century.   To me, the most thought-provoking part of this article is thinking about a communist political system that has reached a high level of sophistication in manipulating 'free' markets of global economy for Chinese benefit.  Will the 'free' markets prevail over the long term?  Do the weak and ineffectual governments of the rest of the world need to rise up to the task of providing 'fair' markets that effectively counter Chinese manipulation?  ('Weak and ineffectual' being an obviously editorial comment)

    Best Regards,

    Tom 

  15. chipmonk
    December 9, 2011

    PLEASE TAKE EDITORIAL RESPONSIBILITY SERIOUSLY AND DO THE DUE DILLIGENCE WHEN YOU DIGRESS INTO UNFAMILIAR AREAS e,g. TRADE POLICY, TECHNOLOGY XFER / THEFT & CONSEQUENCES

    I am afraid Bolaji is once again dishing out pro – China propaganda in true “Manchurian Candidate” fashion.

    His assertion that the threat of an arms race with China has been diminished by transferring manufacturing, technology and wealth to China is totallly BOGUS. What sort of weapons technology did China have in 1989 when the Communist / neo – Imperalists carried out the Tian an Men sq massacre ? Could they have developed adequate Missiles on their own to threaten  ( even in cahoots with their pit bull the N. Koreans ) the US ?

    With the collapse of the Soviet Union in 1991, with who the Chinese already had a 30 year long feud, the still very much Communist China would have been left high and dry. Chinese Long March rockets ( ICBMs ) used to plummet on a regular basis till Loral Corp; ( Massachusetts ) gave away vital solder joint reliability technology to them in 1996, Since then much more dual use technology has been transferred to China by US businesses who have lusted after the low-cost of the regimented non – union Chinese labor and have thus fallen prey to Chinese manipulation. US universities have become leaking sieves with over 50 % PhDs now being from China, who take results of NSF etc. funded research back home ( where did the developers of the current Chinese Super Computer that runs at teraflops get their education and work experience and might one say a few terabytes of design ideas ? ).  

    The current financial crises in the US and Europe are direct consequences of transferring manufacturing of consumer products to China which has definitely saved 10 – 15 % for the average consumer but in return has created new billionaires among us who have bought the politicians and made them look the other way as they screwed the population & looted the public treasury.

    The cost of oil and commodities have gone up by far more than the savings from buying consumer products Made in China because the Chinese can afford to buy more of everything, thanks to asinine opinion makers who they have bought.

  16. Richbuyer
    December 9, 2011

    Wow, great synopsis of recent history with China! Not quite the polite banter that one generally finds on PC-dominated business forums, but refreshing to hear some unsanitized facts and commentary!

  17. garyk
    December 9, 2011

    Globaliztionis OK, I'm thinking of a NEW WORD, CHINAIZATION. CHINA wants all product made in CHINA or controlledby CHINA, this is NOT GLOBALIZATION.

    Simple, try not to but products made in CHINA. The other day was looking for Floor tile, I found tile made in USA the price was the same.

  18. bolaji ojo
    December 9, 2011

    Chipmonk, China dominates manufacturing today because the West allowed it. I don't disagree with that. China was a rural backwater and had quarreled with the Soviet Union before opening up to the West. Correct, I don't disagree with that. Western businesses have been enriched by the transfer of manufacturing to China, buyers get products cheaply, investors are enjoying a boom in their shareholding interests and Western workers are losing jobs also as a result. True.

    Yes, the West transferred technology to China and is paying a price for that. Many Western engineering and assembly jobs have been lost as outsourcing to China increased. Again, that's correct.Am I happy about that or am I celebrating these negative results? You assume I am. That's incorrect and I am not sure which part of my article gave you that impression.

    You were wrong in several parts of your comment. You mentioned that the current financial crisis in Europe is a direct result of the transfer of manufacturing to China. I disagree but that's not important. I welcome your opinion and so do EBN readers. Thank you for sharing it. As to your name calling, I consider it your preserve. You are welcome to it.

  19. bolaji ojo
    December 9, 2011

    Garyk, Agreed. Consumers can help take back what's lost. It's going to be tough but it can be done.

  20. bolaji ojo
    December 9, 2011

    Tom, China, as you said, is manipulating the system to its advantage and in the West, business executives unfortunately pay less attention to the social impact of their outsourcing and manufacturing transfer activities. For Western workers and the Chinese there are significant implications for all our actions and the business decisions our executives make.

    You asked: do the weak and ineffectual governments of the rest of the world need to rise up to the task of providing 'fair' markets that effectively counter Chinese manipulation? Maybe they eventually will but the difference between China and the West is that businesses here are free to take whatever decisions they believe are in their shareholders' interest. Often, the shareholder interest isn't in line with the national or social interests of the citizens. Yet, Western governments cannot, in most cases, force enterprises to do things against shareholder interest. In China, the government sets the interests, both national and corporate.

    I believe the role of the government in the West is to insist upon a level playing field for its citizens and businesses. This should include finding a way to get China to let its currency float freely so its real value can be reflected in the products made in China and consumed in the West. Governments should also find ways to help Western companies be more competitive by offering subsidies and tax breaks that can foster a strong manufacturing environment. The West can be competitive in manufacturing. Germany is holding on to high level manufacturing jobs and thriving as a result. We can do the same without violating our democratic and free market principles.

  21. Anna Young
    December 10, 2011

    Bolaji, an interesting article. Well-done!  China is not the only one who manipulated the system to its advantage frankly, the West did too ( businesses outsourcing to china in droves to reduce tax contributions, find cheaper labour force and reap huge financial rewards were left unchecked)( is this the spirit of laissez – faire?). Consumers faced with various products options in the market, depending on each financial strength. These are some of the benefits enjoyed so far from made in China products. I think capitalism with all of its benefits and glory have revealed the dark side to it. Its clearly indicated with all good things left uncontrolled, there's bound to be far reaching consequences- hence the current global economic crisis . The  world is reeling from the social, economic and psychological implications as result of laissez – faire activities. I believe the world leaders need to redress the imbalance now. I agree Bolaji, “the role of the government in the west is to insist upon a level playing field for its citizen and businesess”. This should be carefully and urgently done, whichever way it takes to achieve this.

  22. chipmonk
    December 10, 2011

    Bolaji :

      This is not the first time that you have attempted to “enlighten” us with your soft – advocacy of China. So long as you continue to take advantage of your editorial privileges to expound your half baked advocacy of China, I am afraid I will have to counter it with historic evidence.

      From your output it is not apparent to me what is your core competence, but if you have been just keeping your eyes and ears open while traveling overseas then you would have realized that the macroeconomic  problem the world is having to cope with is the tripling of China's GDP  to $ 6 trillion in just 2 decades – at the expense of the developed economies. 

      Despite all the pro – China propaganda put out by the opinion makers in US media & academia in cahoots with the Wall St. cabal, the MNCs they control and mislead, the US has been running a trade deficit of $ 300+ billion per year with China for he padt 12 years ( we are able to export only 20 % of what we import from China ).  The impact of China's asymmetric trade policies are not quite as apparent in Europe as they are here but  the softer “wine-drinking” nations of Europe used to the “la dolce vita” have already suffered. 

      Germany has done well with China so far because they have been exporting to China production machinery ( mechanical & chemical ). But for how long ?

      The Chinese brazenly take credit for the Shanghai MagLev which is actually totally German. The Chinese have also hood – winked Siemens and swallowed technology for the ICE high speed trains and are now manufacturing them in China w/o paying license fees ( they have done the same to Kawasaki for the 300 kmph Nozomi Shinkansen technology but the Japanese have at last seen through the swindle ). Something of interest to Electronic mfg is how China got IGBT technology from Siemens and then pushed them out of the Fab ( much the same thing they did to Motorola Fab 21 in Tianjin ).

      What is your database ? How much do you know about electronics, Fab technology, or whats really been going on with China ?   

  23. bolaji ojo
    December 10, 2011

    Chipmunk, I have enjoyed your comments and appreciate your taking the time to write. EBN readers, I hope, have also benefitted from your comments. After writing a long response I decided to instead post it as a blog. I am starting it with: Perhaps China is to blame for all that ails the global economy, after all . . . “

  24. Ariella
    December 12, 2011

    We'll have to stay tuned for that one, Bolaji.

  25. bolaji ojo
    December 12, 2011

    Ariella, It would be so simple if we could blame one entity or individual for whatever problems we have, wouldn't it? I could blame the dog for the dirty carpet, my current employer for my not being a millionaire, another previous employer for my being downsized when a news agency I once worked for (Bridge News) was acquired by a rival or even my spouse for a dirty shirt collar. Or I could just identify the problem and do something about it on a personal level or at a national level. Blamers don't solve problems. They just gripe. Problem solvers don't sit on their hands or blame providence. They've even been known to make lemonade when given a lemon.

    The China problem is real. We helped create it and it's hurting millions all over the world. We can sit and mope or together find a solution.

    By the way, I started on that blog about blaming China for everything that ails the global economy today but then thought about it again and decided not to stop with the current problems. Chrysler, Ford and GM ran into problems recently because of China. And, please don't let's forget China was responsible too for the Great Depression 🙂

  26. Ariella
    December 12, 2011

    But you know that moping is so much easier than solving. Seriously, though, of course you are right about that.

  27. Ariella
    December 12, 2011

    But you know that moping is so much easier than solving. Seriously, though, of course you are right about that.

  28. chipmonk
    December 12, 2011

    your feeble attempts at humor are weak substitutes for any reasoned defense of your persistent cheerleading for China and merely prove that you have no evidence to speak of – just a desire to position yourself for a BAKSHEESH from China for having played the role of their fifth columnist

  29. Daniel
    December 13, 2011

    Yes, Bolaji you are right. The investors need a direct involvement to the local market for selling their products. However, I think Chinese people or governments are not that much keen in foreign products or any local products from foreign companies. So that options are always ruled out.

  30. Data4PCB
    December 14, 2011

    bolaji: When reading the comments to your article I have the feeling that some people enjoy finger-pointing. But they should remember that when pointing a finger to someone else there are three fingers pointing back to them.

    People – and especially chipmunk – shouldn’t forget that when China opened its doors at the end of the 1970s, it was primarily American companies that immediately flocked into the new huge market – other countries followed fast. They passed on technology for free and the Chinese – sensing an opportunity –took it with both hands and eventually aligned their location policy to “technology for production licences”. In previous centuries the West has screwed Asia – now it is their turn, the other way around.

    The greed to buy cheaper and cheaper and to outsource everything results to the fact that when all jobs are sourced out of the country there is nobody left with an income to buy. The American statistics of unemployment and poverty in God's own country are talking loud and clear. Walmart is buying about 2% of all Chinese exports!
     
    The short-term view to the bottom line at the end of the next quarter (disguised as ‘shareholder value’) doesn’t allow any longer a view to the long term aspect which should be the survival of the company. And for the benefit of chipmunk: China wasn’t the reason for the financial crisis, this have been American banks (sub-prime crisis) which weakened the rest of the world. It is true that some European countries have lived much beyond their means but without the first (American made) crisis they would have been (perhaps) in a better situation to weather this storm.

    The interesting part in the recent events is that American rating companies are judging countries against which – at the same time –they place their bets for their negative performance. And China? They are quite good capitalists –and always were. Looking back in history, the “Middle Kingdom” was the navel of the world at that time – and they are going to be it again. The world – dominating period of America is coming to an end, Europe has lost its predominance already last century and now it is Asia's turn.

    The answers to some of the comments seem to be: “if we do it, it is free trade, if they do it, it is dumping”. We shouldn’t forget: 50 years ago it was Japan, followed by Taiwan and Korea and now it is China. The products we are buying from China have killed a lot of industries, companies and jobs in the West. The reason for this is that for about two decades the only valid argument was price – price-price (but, alas, not cost or even total cost of ownership). All additional charges (duties, customs clearing, quality, inventory, financing, etc.) haven’t been booked at the expense of the procurement account but in various other accounts, so that the real costs never have been known. In Europe (and perhaps as well in America) we slowly now come to the insight that this has to change as consumers are becoming more critical.

     

  31. bolaji ojo
    December 14, 2011

    Data4PCB, I like the way you summed up the outsourcing strategy of the last 20 years (“the only valid argument was price, price, price, but alas, not cost or even total cost of ownership”). The pain the West is experiencing now is partly a result of not weighing well the “total cost of ownership,” when jobs and production are transferred overseas.

    Additionally, your historical references are quite accurate. Many people cite recent only history when discussing China's role in the global economy. In the 18th Century when China (bent on isolation) turned back Western traders it was forced by militarily stronger nations (Britain, for instance) to accept conditions and sign treaties that the Chinese believed undermined their interest. One such “agreement” — the Treaty of Beijing — legalized the sale of opium. The Chinese were very opposed to the sale and consumption of opium in the country.

    While history may serve to help us understand the past, though, it's easy to get mired in it. Right now, China and the West have to figure out a way to co-exist and restore some balance to international trade. We have to find a way out of the current mess. As a nation, China must accept that the current balance of trade with its partners is disruptive socially and economically in the West (as you pointed out clearly) but it is also unrealistic for anyone in the West to believe that we can somehow keep the Chinese out of global commerce.

    What we are trying to do on this forum is come up with solutions? Any practical suggestions welcome. From the detailed analysis you presented, I have a feeling you can contribute to this and I would like to get some ideas from you on how the West-East relationship can proceed.

  32. Ms. Daisy
    December 14, 2011

    Bolaji:

    Great post!

    To answer your question, ” has China really won the global manufacturing war, or did it simply gobble up a Western Trojan horse?” I believe it is the former. China turned the corner and actually came out victorious as winner of global manufacturing. My impression of the West is that of colonialists, either direct or indirect. I am of the opinion that the export of manufacturing to China to take advantage of cheap labor (indirect colonization) has backfired on the West. The Chinese stooped (lowered itself like the descent of a bird on its prey) and conquered the West by allowing the West to foolishly ship its technology and know-how to China for “cheap labor'. Now China has put up policies to keep the manufacturing within China while laughing to the bank!!

  33. William K.
    December 15, 2011

    Manufacturing and assembly moving to China and other countries with even lower labbor costs iss, and has been, a symptom of our problem, not the cause. Of course the loss of jobs certainly is a big deal, and it has made our other problems worse. There is no question about that. But exactly like others have said, it is primarily the drive to maximize the short term profits, and the resulting bonuses to top managers and boards of directors, that has been the worst poison. Management greed and top management complicity, coupled with a lack of laws to impede them, have resulted in a variety of activities that should have been ilegal, and that set our nation up for multiple disasters. This had almost nothing to do with Chinese manufacturing, except that Chinese manufacturing helped provide the funds lent to provide the money for these capers. Successful Chinese manufactureing has been an  enabler, not a cause of our problems. GREED is the real cause.

    FRom what I could see during my visit to Dong Guang City I was able to see that there are a whole lot of people able and eager to learn everything that we know, from us. And of course, one of the best ways to teach people about technology is to have them  building it for you. 

    As for the “made in China” syndrom? Some of the manufacturers are able to meet tight quality specifications and some are not. But all of them are willing to hold to the lowest quality level required by the customers. So ultimately production quality depends on the quality demanded, which often times is set by those who never would use the product.

  34. Anand
    December 26, 2011

    The Chinese stooped (lowered itself like the descent of a bird on its prey) and conquered the West by allowing the West to foolishly ship its technology and know-how to China for “cheap labor'.

    @Ms. Daisy, I completely agree with you. Do you think West will learn lesson from its past mistakes or will continue to outsource its work to China ?

  35. Kunmi
    December 31, 2011

    The day West learnt of the dangers in greed and short cut, the outsourced companies will return home

  36. Kunmi
    December 31, 2011

    Despite all infilteration of chinese into the global market, the greatest concern is the degree of recalls.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.