
The China Conundrum – are we headed for a supply chain meltdown? - Sequenza
https://diginomica.com/2019/01/25/the-china-conundrum-are-we-headed-for-a-supply-chain-meltdown/
======
rrggrr
We are in process moving a product line from China to Canada as result of the
25% tariff. Fact is, the product was migrating to North America anyway as
prices from China increased, and product innovation has not kept pace. It
difficult to fully state how the lack of foreign competition, protection, and
subsidy has created inefficiencies and other problems across large sections of
Chinese goods. Youtube bloggers ADVChina and serpentza are good places to
start in understanding the scope of difficulty.

I have one former Chinese partner in China, now far too successful to care
anymore, who described it to me this way... You have farmers and one
generation down from farmers managing the largest and arguably most complex
political-economic situation in the world. The expertise is simply not there
at the highest provincial and central levels, where its desperately needed.
The political will isn't there to rebalance.

The meltdown won't just be the supply chain. China's military will impact the
nature and breadth of the decline.

~~~
baybal2
My previous employer tried the same in 2015 with both BC and Washington with
Oregon. We scrapped the plan after 6 month of the pilot plant keeping failing.

Finding cadres was really tough even for the simplest things. Finding a guy
who can program a particular brand of chipshooters took 2.5 months. We found a
single guy in all BC/Washington/Oregon area, and he demanded 100k+ for
something that I can teach a highschooler to do. In Shenzhen, I'm 100% sure
that I will get few solid applicants on day one for just any machinery brand.

Simple assembly line workers. 50k+ undergrad students were horrid workers,
with terrible discipline. 70k+ masters students, just a bit better. People
with years of work experience and 80k+ expectations finally did that, but they
were still spending more time wiring simple electric bikes than Chinese
highschoolers do. At that stage, we decided to stop.

~~~
sithadmin
>Finding a guy who can program a particular brand of chipshooters took 2.5
months. We found a single guy in all BC/Washington/Oregon area, and he
demanded 100k+ for something that I can teach a highschooler to do.

So why did you waste 10 weeks searching for a candidate, when you could have
so easily trained an entry-level employee?

It seems like your firm either failed to engage suffiently talented
recruiters, or possibly failed to set the compensation offered appropriately.

~~~
baybal2
We did not hire him, and I kept doing it myself.

Before, in my whole life, I only touched high end chipshooters less than 10
times.

~~~
onion2k
Most people who need that sort of work done can't do it themselves, and people
who can do it are rare in the US. It sounds like the one guy you found knows
his value and charges accordingly. I admire him for that. What you charge for
your time should be based on the value you return, not how hard your work is.

~~~
ddorian43
Good luck paying cleaners then. They provide a lot of value (keep the office
1+ month without cleaning)

~~~
tw04
And if you've got an office full of sensitive material, you will and do pay a
significant premium over what you'd pay to clean an office full of of help-
desk employees.

~~~
ddorian43
Damn cleaners with security clearance.

------
evenequator
> That’s why global CEOs and business leaders need to deal with the China
> Conundrum now.

They are. They are:

\- 37 percent have moved production out of China in the past 12 months, while
33 percent plan to move in the next 6-12 months.

[https://money.usnews.com/investing/news/articles/2019-01-17/...](https://money.usnews.com/investing/news/articles/2019-01-17/job-
jitters-mount-as-chinas-factories-sputter-ahead-of-lunar-new-year)

\- Apple Is Moving Some High-End iPhone Production to India

[https://www.fool.com/investing/2018/12/27/apple-is-moving-
so...](https://www.fool.com/investing/2018/12/27/apple-is-moving-some-high-
end-iphone-production-to.aspx)

\- China’s Xi Jinping 'most dangerous' to free societies, says George Soros

[https://www.bbc.com/news/business-46996116](https://www.bbc.com/news/business-46996116)

~~~
seanmcdirmid
They moved production to India (and Brazil likewise) because THOSE countries
have huge import duties, not because of a rebalancing away from China.

~~~
nyolfen
i don't see why one precludes the other

~~~
seanmcdirmid
They aren’t producing for export outside of those countries.

------
forkLding
I believe the article is wrong. It uses Foxconn as an example despite the fact
that Foxconn is a Taiwanese company that suffers all the conditions that the
author mentions: Chinese spying, Chinese sanctions against Taiwan and vice
versa, etc. for years. China and Taiwan are even still technically at war.
However, Foxconn has been in China since 1988 and is very big in China.

In my mind the real killer has been increasing costs, China's manufacturing
decline has been showing signs since 2016, and is more related to increased
labour costs and increased pollution regulations. The trade war is just
another final nail in the coffin. The "China conundrum" or manufacturing
moving out of China has been happening for a while, its just people haven't
paid much attention to it until now. The decline would have happened even
without the trade war.

~~~
janekm
I'm also very sceptical that Foxconn would be setting up that factory for any
reason other than avoiding Indian tariffs on mobile phones. India is not
really the first place one would think of to build a supply chain.

------
ajross
> _In the late 1970s and 1980s, Americans fretted a lot about something called
> “The China Syndrome.” The idea was that in the case of a nuclear reactor
> meltdown, the fiery radioactive core would burn a hole through the earth and
> come out somewhere north of Peking_

Good grief, no. It was a colorful metaphor in the industry for explaining the
self-sustaining problem with meltdowns: the fuel was very dense and would
naturally flow and pool together, remaining a cohesive blob even as it escaped
its containiment. Other runaway reactions naturally disperse and explode,
meltdowns don't. So the failure mode analysis needs to worry about what
happens long after it leaves the building and hits bedrock.

It was also the title of a pretty good movie, FWIW.

------
sanxiyn
By 2015, Samsung already moved more than half of smartphone manufacturing from
China to Vietnam. All others are late to the party.

~~~
mooreds
What's after Vietnam?--is my question.

~~~
latchkey
Cambodia... I was just in Sihanouk last week and the entire city is under
_massive_ development by the Chinese. You have 4-5 star hotels built with
potholed dirt roads out front. Giant apartment buildings are going up in
marshland. There is also a massive port built there where China can now move
goods through. There is zero care for the environment and the entire city is a
mess. Tons of gambling, prostitution and drugs... it is literally like the
wild wild west there. All in the last couple of years. [1] [2]

Vietnam doesn't work so well with the Chinese because of their history and
because the US has already been giving Vietnam a bunch of free boats [3] [4]
and money.

[1] [https://www.theguardian.com/cities/2018/jul/31/no-
cambodia-l...](https://www.theguardian.com/cities/2018/jul/31/no-cambodia-
left-chinese-money-changing-sihanoukville)

[2] [https://www.washingtonpost.com/world/asia_pacific/this-
cambo...](https://www.washingtonpost.com/world/asia_pacific/this-cambodian-
city-is-turning-into-a-chinese-enclave-and-not-everyone-is-
happy/2018/03/28/6c8963b0-2d8e-11e8-911f-ca7f68bff0fc_story.html)

[3] [https://thedefensepost.com/2018/03/29/us-gives-
vietnam-6-pat...](https://thedefensepost.com/2018/03/29/us-gives-
vietnam-6-patrol-boats/)

[4] [https://www.reuters.com/article/us-vietnam-usa/u-s-
delivers-...](https://www.reuters.com/article/us-vietnam-usa/u-s-delivers-
patrol-boats-to-vietnam-to-deepen-security-ties-idUSKBN18J0FU)

~~~
onion2k
Won't the collapse of China's economy take their investments in Cambodia with
it? The point of moving your supply chain away from China is to avoid that.

~~~
latchkey
Maybe, but if anything I'd think this investment would help protect them since
it allows the occupation of a major shipping hub.

------
baybal2
Lets dispel those claims

> 1\. China has attracted many billions of dollars in investment and outright
> purchases from Western companies

Not Western, the West and US in particular never were the no.1 investors in
China. China was at all times bad at soliciting foreign money. Claiming
foreign capital as a reason for China's past growth is like claiming that
electric trains are running on gasoline. Most of that growth was from internal
sources. That's beyond any dispute.

> 2\. Tariffs and Trade Wars – President Trump and President Xi Jinping have
> pushed their trade war to the brink of disaster.

China and USA can mutually embargo each other tomorrow, and it will be a just
a needle prick for both. USA and China have really little economic
interdependence, completely contrary to the popular opinion. Though China will
fare a little bit better, as it trades in more elastic goods, and will find
markets to replace the US faster.

> 3\. In terms of psychological advantage, US has the upper hand (my
> rephrasing)

And that, the only thing that's true. Despite all of above being relatively
insignificant, the US side managed to make it sound like the end of the world
was coming, and even convince many people in _China_ of that. In fact, the
prime majority of recent deflationary wave in China was due to people who were
closing down and panic selling businesses that were perfectly fine.

> 4\. “These China-U.S. tensions are real, and it’s a long-term problem I
> don’t want to deal with. I want to find other suppliers in other countries
> and even completely move to another country for manufacturing. It’s just not
> worth the long-term risk anymore.”

The prime majority of China's problems are fully internal, and completely
orthogonal to the trade disputes. If something will sink China, it will be its
own baggage of troubles.

------
stupidcar
I think what we're seeing is the culmination of a breakdown in the decades old
neoliberal political consensus that Chinese nationalism could be gradually
dispelled through a policy of opening up Western economies to integration with
China's. In practice, at the highest level, the Chinese government has kept
the market subservient to nationalist goals, and remains stubbornly
autocratic, repressive and hegemonistic.

The populist leanings of the Trump administration perhaps may make them more
receptive to this argument, because they understand these kind of nationalist
and hegemonistic instincts better than neoliberal technocrats, but I think
this has been a dawning realisation throughout Western policymakers over the
past decade. Even the Obama administration, which was strongly neoliberal,
worked hard to isolate China economically through the TPP. Trump's disdain for
trade deals killed that, but his confrontation of China is really just a
noisier continuation of a pre-existing US foreign policy.

Big business might have put a restraint on Western policymakers' wishes to
oppose China if they'd had more success in penetrating the Chinese market. But
here the Chinese government has been too defensive, and Western business
leaders have realised that they simply won't be allowed to be dominate in
China in any meaningful way. Meanwhile, they have watched their infrastructure
get attacked and their IP stolen, and have decided enough is enough.

------
resouer
> China’s goal, simply put, is to replace the U.S. as the world’s leading
> superpower, and they’re using illegal methods to get there. China’s state-
> sponsored actors are the most active perpetrators of state-sponsored
> espionage against us.

The goal is absolutely true, thanks for pointing out, as China has to raise
its huge population.

But ... illegal? WTF ... China has been ranked as the 2nd country after US by
Nature Index [1] for years, which presents research outputs by institution and
country. Is it illegal??

I believe there're tons of engineers in HN. I do think that if a private
enterprise in China can inject a spy program on the chip without being
discovered by the most developed countries in the world for years, that should
be the concern.

But the question is, why do a country with such ability still want to spy
United States? That ability should be more advanced than the current US
technology for decades ...

[1] [https://www.natureindex.com/annual-
tables/2018/country/all](https://www.natureindex.com/annual-
tables/2018/country/all)

~~~
ridgeguy
>But the question is, why do a country with such ability still want to spy
United States? That ability should be more advanced than the current US
technology for decades ...

Mainly because it's cheaper to let somebody else do the research and find the
problems.

If you were interested in stealth aircraft technology, you might be glad to
read about another country's research into Schiff base salts for paint. Or
somebody else's modeling for multistatic radar aircraft detection.

It costs tons to do these sorts of things. If by spying, you could just
eliminate half of the tech dev blind alleys, you've saved a lot of money and
maybe time as well.

~~~
resouer
My point is, developing such spy tech, cost tons tons more, which is almost
impossible. This is not some kind of movie, it’s about software and chip!

~~~
hyeonwho4
Spying is cheap: software and hardware cadets in a military academy learning
to exploit specific systems. The main cost is wages, which are lower in China.
For military tech, you need materials and engineering specialists. Often
multimillion dollar prototypes just to find out where the problems with the
techniques are. Specialized facilities for testing prototypes. De novo
techniques for testing those facilities. Compare spywork, where it might be
enough to bribe a single person in a chip fab to add a backdoor circuit.

~~~
resouer
Spying is not cheap, and the main cost is technology & science, not wages.
Even in WWII the technology spies are definitely top tier geniuses with
brilliant minds, not to mention now it's 2019 already.

------
paradoxparalax
My TAke on this all is that, yes, Mister Xi is bad...

But Hackernews is probably being spread with "Guided-Stampede" , you know, It
is like a stampede when all the bison run following the one before him without
knowing where is heading...........

Happened in the old wester movies with the cows. If you shoot a rifle at the
bovines, for example.

Or if you let a napkin fall in the ground, sometimes, and this is true.

But this Stampede is "guided" , is not spontaneous, It must be whatsapp or
facebook Religious groups "Reinforced Opinion Formation" Spammed messages, if
you know what I mean, Reinforced , yes.

The kinds of The Brexit, Hungary, Yellow Jacket, Brazil, you know
whoever......

This is to make people believe Chinas economy is collapsing?????????
!!!!!!!!!!!

Did I miss Any headline here, really???????

~~~
naiveai
The goal is not to convince people "China's economy is collapsing 25 question
marks". The goal varies from article to article. This article is only trying
to convince people that some companies are moving away from China for various
reasons and trying to explain the reasons why. Whether you think it's correct
is a different story.

~~~
paradoxparalax
This article is perfectly OK, and this headline "Conundrum" is perfectly OK. I
was talking generally about some of the comments made , really, they sound
like people has fever and are in Delirium state.

So it cannot be a coincidence when many people have the same coincidental
completely mistaken perception, "It" All Has a Commom Source. Humans are
smarter then this...

They are being lead into that......

------
karmakaze
> In fact, the U.S. and other countries are barring the use of Chinese-built
> 5G equipment from Huawei and ZTE thanks to allegations...

This doesn't seem like it should be legal either but the article has no issue
with it, rather touts it as being good. I'm sure if the US lost economically
due to allegations it would be a different story altogether.

~~~
creato
> I'm sure if the US lost economically due to allegations it would be a
> different story altogether.

Are you joking? China has many more restrictions on foreign competition in far
less sensitive areas than their communications networks.

Setting that aside, it seems reasonable for any country to decide for any
reason what they allow to be used in such core infrastructure. Any country
that can afford not to depend on someone they might not completely trust now
or decades in the future is foolish to do so.

~~~
headsupftw
I don't really follow your thinking. When you said "Any country that can
afford not to depend on someone they might not completely trust now or decades
in the future is foolish to do so." I believe by "any country" you were
referring to the U.S. But when you said "China has many more restrictions on
foreign competition in far less sensitive areas than their communications
networks.", you seemed to completely ignore your rhetoric that "any country"
(say China?) would be foolish to not put restrictions on foreign competition
if they don't trust them. I guess you like to have your cake and eat it too.

