The great Chinese investment puzzle

JAMES Rand is a genuine ‘Asia Hand,’ having spent over 30 years in the region. Although he’s only worked in Thailand for ten of those years, James calls this country his home, mostly because he has a Thai wife from Chiang Mai and two daughters, but also because he loves it here.

His first ‘work’ experience was with the British Army, which he joined straight from school. After two years’ training at Military Academy (Sandhurst), he was commissioned as a Second Lieutenant in the Infantry and served in Berlin and Cyprus. He was later seconded to the Malaysian Army, where he commanded an Infantry company on counter-insurgency operations, followed by Chinese language training, which led to an intelligence posting as a Chinese language Interrogator with JSIS in Hong Kong. My final rank was Captain.

After leaving the Army, he relocated to Thailand in May 1980. Since then he has spent 20 years working in Mainland China (PRC), and the remainder in Japan, Korea and Taiwan.  He possesses near native proficiency in Chinese (both Mandarin and Cantonese).

What were you doing in China?

My 20 years in China have been mostly in manufacturing, first with Massey-Ferguson (agricultural tractors), where I sold tractors and combines to Chinese State farms and also set-up and ran a factory in Nanchang to manufacture compact tractors. After that I was MD of a joint venture in Shenyang (N.E. China) for seven years, manufacturing mainly automotive and aircraft components. Then I was involved in a project for Faurecia to set-up a factory in Changchun (N.E. China) to manufacture automotive components. After that I was GM of Intermatic’s factory in Qing Xi (Guangdong Province), manufacturing outdoor landscape lighting systems and home automation systems for export to the USA.

When Intermatic collapsed in the US, I moved to become GM of an Australian factory in Zhong Shan (Guangdong Province), manufacturing tool boxes and office cabinets for export, mainly to the USA. Unfortunately they too ran into major difficulties due to the recession in the US. My last formal position was as Project Manager, setting up a factory for a US company manufacturing medical equipment. Some of my manufacturing in China has been machine-intensive low-volume hi-tech capital goods production, and some has been labour-intensive high-volume high-mix consumer products production employing over 3,000 people.

What was it like working in China in the past – and how has it changed over the years?

Since my first trip to China in 1985, colossal changes have taken place, not all of them for the better. My first service in China was on their State farms, which were still living in the “Chairman Mao” era, with honest and incorruptible communist party cadres in charge. But it was all very backward. Since then there has been a quantum leap forward in China’s economy and living standards (in the cities at least), which is good, but it has been accompanied by much corruption at all levels and a great increase in crime. China used to be one of the safest and crime-free countries in the world, but alas not now.

Living for so long in China forces one to adopt a dual personality. In China, in order to succeed, one has to be very direct and forceful, which of course is not acceptable in Thai culture. To begin with it was a great strain working in China, but over a period of time one gets used to it and accepts the negative aspects. Speaking Chinese fluently and being well versed in Chinese history and culture helps a lot, of course - one is accepted by the Chinese.

How is the work ethic in China? Better or worse over the past 20 years?

Before China opened up to the outside world most enterprises were state run and the work ethic was low. However, there was employment for everyone, even though in a typical factory three people were doing the work that would be done by one person in a western capitalist factory. When I set-up the Nanchang factory I wanted to employ only 800 people, but the local communist party vetoed this as socially unacceptable and required me to employ 3,000. Now more and more companies are not state run, and have to work on a genuine profit and loss basis, which entails less personnel with increased efficiency. The “big pot” system is history. Unfortunately, it also means putting people out of a job. Over the past 20 years there has been a very significant increase in the quality of goods manufactured in China.

How is bureaucracy in China? Better or worse than Thailand, for example.

Over the last 20 years the bureaucracy has got much better (less) in China. But it has also improved in Thailand. So, I would say both countries have made advances in this respect.

What are China’s real strengths/weaknesses as far as foreign investors and companies are concerned?

The days of China being a cheap manufacturing base are over. There have been significant labour rate increases throughout China in the last two years. Labour is now less in Thailand than in most Chinese cities, especially if one sets up manufacturing in Rayong (BoI Zone #3). Ease of doing business is much better in Thailand than in China. The encouragement given by the Thai government (tax incentives, etc.) cannot be matched by any city in China. But the cost of factories in Thailand and Vietnam is much higher than in China. Thailand wins as far as government help and ease of doing business is concerned, then comes China, and last of all Vietnam. But Vietnam labour is on average only 35% that of China. So, we can see a move away from China to Thailand, and then from Thailand to Vietnam, but there are big problems doing business in Vietnam, and I would still recommend Thailand to a foreign investor.

Overall, how does Thailand compare to China for foreign investors?

There are pros and cons to each country. China is still attractive if one wants to sell into its domestic market (which, of course, is huge). On the whole, if one is involved in high-tech capital goods manufacture, I would go for China. If a foreign company wanted to set-up in Asia-Pacific, and if they are not previously experienced in Asia, then I would recommend them to invest in Thailand, as it is easier to do business here. Unless one has experience in China, there are many possible pitfalls, and ways the western company can be cheated. One’s technology can be stolen and unless one takes precautions it may be very difficult to get money (one’s share of the profits) out of China.

What about your future?
 
The Australian company I was working with in Zhong Shan (south-China) is now finding manufacturing costs to be high there, but the company has done its “number crunching” and has decided to accept the high labour rates and stay in China.

If the Democratic Party had won the recent election, they stated their intention to raise the minimum labour rates by 25%. The new government has an even higher figure - I have heard mention of 300 baht per day basic (excluding add-ons). This would put Thailand labour higher than China (it is presently slightly lower), and way, way higher than Vietnam. Ease of doing business in Vietnam is not good. The Philippines has shipping problems. Work ethic in Indonesia is low.

Here in Thailand, the Hemaraj and Amata factories in Rayong are beautiful, but expensive compared with China. The cost of steel and aluminium is high in Vietnam compared with China.

It would be nice to find a new position in Thailand, but next month I will start another new job in China. So, back to the “Middle Kingdom” - I cannot complain, as China has been my rice bowl for so many years.