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China Nearing the Boiling Point

by BILL WADDELL

Things are starting to churn in China at a rate that should have American companies reaching into the files and pulling out the contingencies plans ... hopefully you have one to pull out.

The Chinese city of Chongqing exploded in riots yesterday and things got pretty ugly.  The photos came from http://www.molihua.org/2012/04/30_11.html  Hopefully the site (in Chinese) will keep up the good work, although the censors in the People's Republic are working overtime to keep all of this under the rug.

China Riot 1
The military was brought in to get things under control.  Whether they did so or not remains to be seen.

China Riot 2This is really the starting phase of the Chinese equivalent of our elections slated for September.  Nothing democratic about it, however.  The similarity is limited to the fact that a change in leadership is on tap and the party in power doesn't handle opposition well. 

The rioters were supporters of a guy named Bo Xilai.  Bo is a populist sort of guy who advocates a return to Mao type thinking, even though his actions have actually been pretty capitalistic

The President - Wen Jiabao - and his ruling gang are the open powers behind the Chinese economy over the last few decades.  The problem in China is one Kevin and I have been warning about for years.  They take 'crony capitalism' to heights the Occupy Wall Streeters cannot begin to imagine. The ruling class in China has become staggeringly wealthy, while the working stiffs got, well, stiffed.  At the same time, China's currency manipulation and Obamaesque stimulus efforts have spun inflation out of control,making an already tough life for the workers even tougher.  For the last couple of years the Chinese leaders have been attempting to walk an impossibly fine line trying to raise pay for workers to keep them from pulling an Egypt/Libya style revolt without having manufacturing costs soar so fast that their export economy goes down the drain.  They are failing on both counts.

China Riot 3Bo's message (although he stands no chance of doing any better than the current regime) has been of the 'Power to the People' - 'Hope and Change' type.  As hollow as it is, the message resonates with the workers - especially those in the west where the 'Chinese Miracle' hasn't been so miraculous.  Hope and Mao sound better than the shafting the current model has given them.

Wen did what the Chinese leaders do best when faced with opposition - fired Bo, trumped up charges against him and his wife, and are well on their way to having him mysteriously disappear all together.  That is what set off the riots.

There is a lot more to it, of course, including a lot of weird intrigue - a Brit buddy of Bo's named Neil Heywood died mysteriously in a Chongqing hotel not long ago, and Bo's right hand man ducked into the US consulate looking for asylum back in February, then came back out and was arrested.

Regardless of all of this, between now and the establishment of a new government in September, the prospect of things heating up to the point that violence increases to the point of supply chain disruptions seems to be rapidly increasing.  At the very least, the rate of cost increase is likely to increase.

The whole sordid mess is described pretty well in this necessarily long-winded article from China Worker last month (before the ouster of Bo and before the riots ensued).  Where it ends up, nobody knows, but the heat has most decidedly increased in China.

As I said at the outset, if you are a retailer or a final assembler dependent on a China supply chain, you would do well to make sure you have a plan B in place.  If you are further up the supply chain, making parts and doing work for the OEM's, you are facing a great opportunity - that is to be someone's plan B.  Either way, you should take this very seriously - the world is starting to change.

Original: http://idatix.com/manufacturing-leadership/china-nearing-the-boiling-point/

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3 Responses to "China Nearing the Boiling Point"

  • Kevin
    11 April 2012 - 5:17 am

    I wonder what the plan B is of Tim Cook, supposed supply chain genius…

  • Bruce McDonald
    13 April 2012 - 4:25 am

    This should keep the supply chain people up at night, perhaps it is only the inevitable outcome of an emerging economy trying to evolve. Couple this with a totalitarian regime and such a rapid influx of capital into China from North America and Europe, which caused such chaos in manufacturing and subsequent loss of jobs, maybe it’s time to rethink how best to protect your business?

  • Bill Waddell
    13 April 2012 - 4:33 am

    Those are wise words Bruce. The world is changing fast and I don’t think the old ideas will work too well in light of how quickly places and economies come unglued.