Monday, November 30, 2009

Kicking America while it's down?

More than a year after the product scandals that shook China's international brand image, Beijing has paid for a TV advertisement intended to put the record straight. The 30-second ad, now playing on CNN and commissioned by the Ministry of Commerce with "participation" (=money) from four industry groups, is already stirring up debate in China. International debate, I'm sure, is not long behind.

Created by DDB Guoan and hailed by unnamed experts in the China Daily as "a PR breakthrough", the ad shows how widespread Chinese-made goods are in everyday Western life. An Ipod is "Made in China with software from Silicon Valley"; a pink dress is "Made in China with French designers", an airplane is "Made in China with engineers from all over the world", running shoes are "Made in China with American Sports Technology".

The ad is fascinating on multiple levels. For one, it's the first attempt I've seen by a Chinese government ministry to defend Chinese products to the English-speaking world using a TV advertisement. I remember covering CNOOC's bid for Unocal and seeing how the Chinese failed to make their case to the Americans. So at first glance, this ad might suggest China had learned its lesson.

But the timing and message of the ad could well be unfortunate. While it's absolutely accurate to say that the world is bringing more of its design and manufacturing to China, I wonder if viewers in America will feel like China is kicking America while it's down. Americans are understandably anxious about our economic prospects right now, and to me at least, this ad seems to touch that nerve. Made in China with American technology? Factually, totally accurate. But to the average American, could it be a reminder of what America no longer does, of the fading of our own industrial glory. And could it even bring to mind some of the less savory ways that China was able to win this business? Its poor track record on the protecting the environment, labor and intellectual property rights and its management of its currency to keep its exports competitively priced, to name a few?

The most disturbing part might well turn out to be the airplane - given the national significance and economic importance of companies like Boeing and Airbus, the obvious military carryovers from the aircraft industry, and China's recent product safety scandals, I'm not sure how comfortable ordinary Americans would be with the idea that China wants to dominate airplane manufacturing the same way it has shoe making. Again, what the ad says is right: China is playing a larger role in airplane manufacturing, and it is doing it with help from foreign engineers.

Still, the commercial demonstrates the challenge China faces in crafting an intelligent message about its products, and the inherent mutual suspicions that lurk within China's relations with its major trading partners. China can speak the truth, as it does in this ad, and it can still strike the wrong chord with some people. China should be able to promote its own products without seeming to do so at the West's expense.

The ad is here and here. What do you think?

China Quality Issues

The University of Southern California's US-China Today has a piece out yesterday on product safety issues in China quoting me and a range of other non-Chinese people. I wish the reporter had talked to an actual factory manager or an actual Chinese person involved in global supply chains to get their perspective. Anyway, the piece is here.

Tuesday, November 24, 2009

Coming to a neighborhood near you

What do the Chinese want? This simple question has roiled global commodity and equity markets for years. The macro answer is found in places like Newcastle, Australia, where China’s appetite for coal created a port-side traffic jam. The micro answer can be found in Causeway Bay, my neighborhood and one of Hong Kong’s busiest shopping districts.

As one of the most popular spots for visitors from mainland China, hosting some 15 million tourists in 2007, Causeway Bay is a leading indicator of what Times Square in New York, Paris’s Champs Elysees or Leicester Square in London might look like in 10 years’ time.

If my neighborhood is anything to go by, mainland Chinese want luxury watches, branded cosmetics, and skin creams. Maybe a little jewelry, and of course medicine and baby milk powder. Almost every day, shops that sell anything else are being replaced by those that cater to the mainlanders. And it's not just my neighborhood: IFC, a big shopping mall in central Hong Kong connected to two office buildings filled with investment banks, is gradually converting its tenants to stores that absorb the maximum amount of mainland money. It wouldn't surprise me one bit if the reason Pret a Manger, the UK sandwich chain that filled each day with suited financial drones, closed its convenient IFC branch recently was because a jewelry store that catered to mainland visitors could pay a higher rent.

Mainland shoppers are here to stay in Hong Kong, and they are heading overseas. As increasingly wealthy Chinese tourists fan out around the world, they will have a similar impact on the shopping landscape of big cities, just as the Japanese did before them. Already, there are lines most days outside the Louis Vuitton shop in Causeway Bay. And it's a safe bet the big luxury groups all now design with Chinese shoppers in mind.

As the Chinese shoppers head your way, here are a few things I've noticed that have changed in Causeway Bay that you might observe eventually in New York or London: signs have cropped up on cosmetics saying "fixed price" (no bargaining!), stores have started to promote payment in renminbi, stores install ropes outside to give the impression of exclusivity, and of course, every possible store gets turned into a watch or cosmetics shop.

By 2020, the World Tourism Organization is predicting 100 million Chinese will travel overseas. When they come, the Chinese will leave their mark. While they may be shy about spending at home, the Chinese are shopaholics overseas, spending $6,000 per trip to the US, more than visitors from any other country.

Tell that to the economists and politicians who complain about the Chinese not spending enough. They'd just rather shop overseas.