Chinese Manufacturing: Nobody Can Compete

Chinese-born American Min Luo has had many experiences in his lifetime —from being sent down into the Chinese countryside to be “re-educated” to being sponsored by that same government to study in America. (See Interview Part One, Part Two) He represents the intellectual elite of China—perhaps of the world. Over the past three decades, he’s watched China grow. (See Interview Part Three)
“After the Tiananmen incident, (June 4, 1989), the Chinese government clamped down a bit," said Min. "Fortunately they didn’t entirely close China’s doors. I think Deng Xiao Ping knew that the country needed to change.”
Min explained that in 1993 China began to change and grow a lot. “The government started to allow more than just small restaurants and street vendors. They allowed trade. China is a big market, and even overseas investment—big companies-- started to feel that it’s a good place to go because labor cost is substantially lower. And China established policies to help foreign investment. So it started from there, especially the coastal cities, like Guangdong province. They started to have a lot of factories.”
Min went back to China about 1998 for his first business trip back to China to a company in Shenzhen and nearby Dongguang.
“I remember the company I went into had maybe 15-20,000 people. It was very impressive. There were so many factories. I remember the hotel I stayed at—the only 5-star hotel in Dongguang. Now there are probably fifty 5-star hotels. But at that time there was only one. If you compare 1998 to today it’s a completely different city. It used to be just factories, just not much hotels, not much residential buildings. Now it’s like a real big city, like Shenzhen.
“Shenzhen is a good example. In 1980 it was a small village—maybe 1,000 or 2,000 people. Now it’s more than 10 million people. It’s amazing."
(I witnessed a similar transformation in Shanghai...

In 1987 it was a small fishing village that looked like this:











In 2013, it had transformed into this:)

“I love that city (Shenzhen)," said Min.  "It’s very energetic. People are very motivated and open-minded to new ideas. Let me try to clarify. Number one: Chinese people are very hardworking people. In the past they’ve been very poor. They’ve really tried hard to get a good life. They’re willing to sacrifice themselves. Willing to work very, very hard. As you can tell, when they have 10-20,00 people in the factory, all the workers, they’re young people—17, 18, 20, I don’t know—they come from a very rural area. The area may have no power, no running water. They left their family, their home at a very young age and they’re working very hard. Very disciplined. You don’t have it right here (in the U.S.), just my personal observation.
“I’m always amazed that the workers in China are so disciplined compared to workers in other countries. I feel kind of depressed actually. They don’t talk. They just work on their assignment. Even if I’m walking by they don’t take a peek at you.
“On the other hand, you can tell that they’re very disciplined, very hard-working. That’s one of the big reasons in my mind why China manufacturing grows so fast. Many years ago they didn’t produce anything for export. Right now, if you look at it, they produce almost everything.”
“Meanwhile, the entrepreneurs in China—I don’t know how to express this—but in the U.S. it never happens. In the U.S. when you start a business, you either start with good ideas or you have a connection or, if you’re very good at it, you just build a machine and start something. In China it’s very different. People are just looking for business opportunities. When they see something good, they will imitate. Try to copy.
"I personally think--although it my not be entirely true--the early stage of China's manufacturing started when a lot of foreign company invest in manufacturing. The Chinese people had a chance to see good things, good products, and they looked at it and thought, 'Why can't I make that myself?'
"So copying is a big deal. Some things they copy had not intellectual property. For example, hinges. There's no intellectual property on hinges. I know a few people who just make hinges, and they are billionaires.
“China started to take over. Nobody can compete. How can you compete? Number one is low cost of labor. Number two is the workers. Their mentality. Their understanding of quality may not be good. So quality is still an issue. But meanwhile, for a lot of low-tech products…they just grow so fast.
“In1999 and 2000 there was a lot of economic growth in China. China started building a lot of factories and absorbing foreign investments. Many big companies invested in China, and started to build factories there.
“The Chinese government said, ‘If you invest in China, you get free land, we’ll help you find the workers, you don’t have to pay tax.’ So many foreign companies came to China to invest.”
Min watched with more than a little bit of envy as his childhood friend opened a business, and a lot of people in China started to do trading. He considered moving back to China.
“I really struggled at that time. On the one side, my wife really wanted to stay in the U.S. She likes the peaceful life, the living standard. In my mind, I saw China changing so fast and a lot of opportunities.”
Min decided to stay, but he still pursued his dream of starting a company in China. In 2000 he partnered with a childhood friend and exported Ethernet modules from the U.S. to China. He became the company’s sole China rep as the U.S. company had never sold their product in China before. (Can anyone remember such a time?) Two years later Min’s company had grown into a twenty-million RMB business.
“I remember people started saying, ‘China will become the factory of the world.’ By 2009, this was the case. Today, China uses three times the amount of steel that the U.S. does. This means they are making more products. China consumes more oil than the U.S. It’s crazy, industry-wise. If China doesn’t buy the whole world….
“China’s become a big player. I’m talking about industry. Gradually they started to understand the market, the needs, and to build up their own manufacturing capabilities. Meanwhile there is foreign investment—HP, IBM, you name it. From 2001-2009 China became the manufacturing center of the world. Towards the end of this period China realized they needed to not just be the factory for others. They need to develop their own technology. I think China is starting to do that a lot.”
(…to be continued. Next: China is No Longer a Socialist Country)