China’s massive increase in logistics investment

We’ve talked about China’s rising logistics costs, related to the developed world, and their need to improve logistics infrastructure before. China Logistics News has a new post today outlining the massive investment China has made to the logistics infrastructure:

China’s fixed-asset investments in logistics-related sectors hit US$126 billion in the first three quarters of the year, up 18.8%. All of the figures are up and all of them are somewhat mind-boggling. Indeed, some are so large it is difficult to get a handle on them.

Read the whole thing.

Are Chinese products as bad as they seem?

I couldn’t agree more:

Bashing on China goods has gotten out of hand. I am reading countless articles where so-called experts are saying China’s quality problems are going to cause foreign companies to start looking at Vietnam and Cambodia for their production. Now I am actually a huge fan of both of those countries, but I cannot resist wondering what these people are smoking if they think Western companies are just going to be able to waltz into Vietnam and Cambodia and walk out with quality product. Very roughly, Vietnam is about ten years behind China in both production standards and corruption and I would put Cambodia another ten years behind Vietnam.

I’d venture to say those “so-called experts” aren’t experts at all. China does have quality issue problems, but they are years ahead of the game compared to such countries as Vietnam and Cambodia. I’d feel safer importing from China, quality-wise, then Vietnam or Cambodia, even after all the bad press. People forget that countries like Korea and Japan also had quality issues during their early industrialization periods.

China trip quick recap (I’m back – sorry for the long absence)

While Splatty has been dealing with a new baby and some rather time consuming projects at his day job, I’ve been off in China and Hong Kong for over 3 weeks. It’s taken me about a week to catch up with all my work, but I’m back and Splatty’s big projects should be completed soon so you’ll be hearing from us regularly again soon.

I hadn’t been back to China in over ten years (and Hong Kong in five) so it was very interesting to see the incredibly rapid changes and developments that have been there. I won’t bore you with all my travel details (or perhaps I will at a later point when I have more time) but here’s some quick observations off the top of my head that I took away from my trip (I only traveled to Southern China, namely Shenzhen, Dongguan, Guangzhou, Huizhou, and Chaozhou, so I can’t speak for the country as a whole):

1. Pollution is a huge issue. As bad as the air in Hong Kong has become, it’s nothing compared to the smog and haze I experienced in Southern China. For the first week I was there, I didn’t see the blue sky or the sun, and the weather forecast was sunny, no clouds. The entire sky is a greyish, yellowish haze and the sun a distant blur. While riding on the expressways, visibility was maybe 1/4-1/2 mile at best – after that buildings and hills disappeared in the smog. Front page news showed pictures of the Olympic stadium in Beijing shrouded in thick particulate air pollution and worries that the Olympic committee was going to adjust or cancel schedules because of the pollution. A gentleman I met who was stationed in Shanghai said he loved being there but was glad he didn’t have kids because he wouldn’t want to raise a family there.

2. All the factories I visited and people I spoke to in Southern China complained about labor shortages and rising labor costs. There was a sense that things have sort of peaked, with too many factories competing for too little labor. Experienced workers are becoming ever difficult to hold onto as they seek higher pay, better benefits, and, equally important, what they perceive as higher status factory positions. Why work at a factory making cheap Christmas ornaments when you can make more money and prestige working at an electronics factory?

3. The central government is cracking down on all sorts of regulations. The way it was explained to me, the laws and regulations have been around for some time, but rarely, if ever, enforced, particularly at the local level where corrupt or lazy bureaucrats simply never bothered to enforce anything. With the Mattel toy recalls and other product quality problems from China, in addition to the always present pressure from Western clients’ social compliance regulations, the central government is now pushing enforcement on a wide range of regulations. Some of you may have seen this already – I know I have – where orders have been delayed due to random quality inspections and tests by Chinese Customs.

4. I was pleasantly surprised by most of the factories I saw in China, in terms of security, shipping procedures, and overall processes. Having never visited factories in China before I wasn’t sure what to expect but almost all the factories I saw were pretty well developed and professional.

5. Infrastructure in Southern China seemed pretty good. Lots of multi-lane expressways, plenty of ever-expanding port facilities, etc. The biggest problems seem to be a lack of equipment (containers) on the carrier side and a shortage of trucks on the road, at least from what I heard and saw.

6. Shenzhen and Guangzhou are completely different from when I saw them 10 years ago. I went to some of the same streets and neighborhoods I went to before and I recognized none of them. Lots of development, particularly in Shenzhen – the downtown area of Shenzhen near Futian/Lok Ma Chau is just as modern and developed as any part of Hong Kong or – dare I say it? – Singapore. (But you don’t have to venture too far before things change). Huadu District of Guangzhou was also very impressive, although not as developed and modern. The Baiyun Airport of Guangzhou is more modern than most of our U.S. airports.

7. Theft and petty crime are also serious issues plaguing the well developed cities of Southern China. As migrants from ever further provinces continue to pour into the urban regions of China looking for work, muggings, burglary, etc will continue to rise. I felt perfectly safe during the day, but my Chinese colleagues warned me about venturing out too late at night.

8. All the factories I visited seemed very eager to learn about any method or process that can be perceived as saving them money or improving productivity (ed. – hey, aren’t those kind of the same thing?). Whether it’s ways to cut back on power usage by upgrading to compact fluorescent bulbs and higher efficiency machinery or processes that reduce loss and waste, they seemed very eager to learn and adapt.

9. Chinese are nuts about mobile phones. Don’t look down on the common factory worker – he or she may be a common worker, but they could be sporting the latest in mobile phone technology. It is not uncommon for a factory worker to spend several months salary on the latest model of mobile phone.

10. As always, being polite, respecting another’s culture, and showing a willingness to try something new go a long ways to breaking the ice and making the other party feel comfortable. “When in Rome….” is a good adage to live by when traveling overseas. If asked I always insisted we eat locally and always Chinese food – upon hearing this my contacts would generally brighten up and relax, and the conversation seemed easier. Smile, hand out business cards – with two hands! – like they were candy, and enjoy the local food.

I’m sure I’ll have more items to share about my trip to China, but these are some quick takeaways. You can share your comments, disagreements, etc in the comments section. You’ll be hearing more from us soon.

Logistics Performance Index – Where Does Your Country Rank?

The World Bank has released their 2007 Logistics Performance Index. The report ranks each country on their overall trade logistics performance by looking at key indicators including the following:

1. Customs
2. Infrastructure
3. International Shipments
4. Logistics Competence
5. Tracking and Tracing
6. Domestic Logistics Costs
7. Timeliness

Each category was given a ranking based on a 1 – 5 scale with 5 being the best. Data was gathered based on a survey of operators on the ground worldwide (global freight forwarders and express carriers). I won’t get into to any of the details here because the report simply has too much to cover, but here is a quick look at countries ranked one through five.

1. Singapore
2. Netherlands
3. Germany
4. Sweden
5. Austria

The U.S. placed 14th on the list and China 30th. Last place at 150th is Afghanistan.

You can access the LPI rankings here and the complete report in PDF format here.

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