Food Safety in China: Yuck!

This from today's WSJ as more and more awful facts emerge about food "processing" in China:

Also Thursday, state media said Beijing police raided a village where live pigs were force-fed wastewater to boost their weight before slaughter, underscoring the country's chronic food safety problems. Plastic pipes had been forced down the pigs' throats and villagers had pumped each 220-pound pig with 44 pounds of wastewater, the Beijing Morning Post reported. Paperwork showed the pigs were headed for one of Beijing's main slaughterhouses and stamps on their ears indicated that they had already been through quarantine and inspection, the paper said. Suspects escaped during Wednesday's raid and no arrests were made, it said.

Asset allocation: The future will be different

For all those CIOs of pension funds and endowments who continued, over the last two years, to reup for large buyout funds like KKR, TPG, Bain, and Blackstone, you just might be on the verge of learning a lesson about capital markets: a period of recent excellent performance often presages a period of equally dismal performance.

Witness the loose parts beginning to spin off of the mega-buyout machine as one engine (the funding turbine) is out of whack and slowing while at the same time the spending engine has gotten way out ahead.

Yesterday U.S. Foodservice had to pull a $3.6 billion debt offering that was to fund the buyout by KKR and CD&R. Several other deals have been "postponed". Another $250 billion of junk bond buyout funding is scheduled to come to the markets in the next several months.

It was our view that the buyout returns of the last 5-6 years were unlikely to be repeated in the next 5 or so years - simply because the conditions were unlikely to be as favorable as they had been. This is starting to look like a pretty good bet.

The beginning of the end of off-shoring?

This piece in the FT based on research by a UK consultant questions the benefits of offshore call centers (er, centres, mate) in India. Its simple really. With rapidly rising costs and lower quality service (on average, assuming same levels of education and experience for on-shore alternative labor) offshoring is no longer obviously the right thing to do.

It has been my view and continues to be my view that the fears of US industry being annihilated by offshoring (of both services and manufacturing) are way overblown. Anyone who spends time in India and China can see - in addition to the astonishing growth and opportunity of these countries - tremendous scarcity of skilled and semi-skilled labor, soaring wages, and a very long list of very real extra costs for off-shorers which are, nonetheless, very difficult to forecast and put into a budget (and so frequently aren't). Things like the extra time it takes to communicate and co-ordinate across different cultures, languages and locations. The cost of dealing with onerous government bureaucracies. Corruption and theft. The list goes on and on.

Then there are the costs which are easy to measure like property and electricity which are now or will be rising very rapidly. In China, energy is very cheap because of abundant coal - but the government has realized that 1. the cost of destroying the environment is not reflected today in its cost to the user and 2. the low cost encourages its use for industries which may not otherwise be competitive. Beijing is beginning to change its energy policies to somehow ensure that the real cost of energy use is born by its users (not clear exactly how - their first attempts are predictably of the administrative variety - i.e., lower export tax benefits for heavy industrial polluters. But they will eventually find a way to raise energy costs for all users who can pay) . Voila, one of China's big "competitive advantages" goes poof. Use of scare water supplies is another area where users can expect to pay for the real cost.

Appreciating currencies are an immediate hit to the cost/benefit equation. India has become 10% more expensive for US companies in just the last two months.

I don't mean to say that China and India won't be ultra-strong competitors - they are today and they will only get tougher. I am only saying that the easy cost advantages are rapidly disappearing such that it is unimaginable to me that massive additional chunks of US industry can or will or should be shifted to Chindia. Vietnam is another story for another time but my basic view is the same: these markets are not as deep as they may look when measured purely based on sustainable low-cost capacity. The bigger story in Chindia for the next 10 to 100 years are vast domestic markets, the very existence of which uses up cheap capacity for exporters/offshorers.

The off-shoring pendulum is beginning to swing back the other way... (or at least the speed at which it had been swinging one way is slowing). What is the term for when a US company brings operations back on-shore? Reverse off-shoring? How about "reonshoring".

Disabled Chickens and other funnies from China

Just returned from two weeks in China. Lots to report but first... some funny odds and ends from China Daily. Only when stuck in traffic in Beijing (which is most of the time) does one read China Daily cover to cover. But I was rewarded with these choice blurbs:

Stock-crazy parents urged to pay attention to kids

Some parents are so taken with the stock market that they seem to have forgotten their children.

To remind adults of their responsibilities, a middle school in Hangzhou recently asked its students to write letters to their parents to ask them to do a better job of looking after their children. Xiao Yun, a second grade student, wrote that her parents' happiness was tied to the performance of the market. They laugh when the index rises, and they are blue when it drops. She said her mother seldom cooks at home and rarely talks to her. The school urged parents to be a good example for their children.

(Today Morning Post)

'Disabled' chick makes for a meal

(China Daily)
Updated: 2007-06-19 17:19 A restaurant was fined 2,000 yuan ($260) after it was caught giving a short weight to a customer in Wuhan, Hubei, last Thursday.

A local resident surnamed Wang got only one chicken leg in a dish he ordered from Tiansheng Restaurant, which is known for its delicious chicken recipe. Wang had paid 58 yuan ($7) for the specialty dish.

Wang called the local industry and commerce department when the restaurant refused to admit it had given him short weight. The restaurant claimed that the chicken was "disabled".

Law enforcement personnel later visited in the restaurant and fined the restaurant. They also ordered the restaurant to give Wang a refund.

(Chutiian Metropolis News)

Woman's fingers plucked from pets' stomachs

Doctors at a hospital in Suizhong, Liaoning, successfully reattached two of a woman's fingers after she had cut three them off and then her pet dogs ate them. She was rushed to hospital on June 2 after chopping off her fingers. Doctors opened up the dogs' stomachs, picked out the two fingers inside and then reattached them. The woman is already able to move her reattached fingers.

(Chinese Business Morning News)

The School of Hard Knocks

The following is from Bloomberg's review of China market today:

Wang Qihong, 25, a former cosmetic company clerk who quit her job to become a full-time investor, said yesterday she would keep her money in Chinese stocks even after the government's latest cooling measure.

She invested all her savings of 10,000 yuan ($1,300) in Harbin Shirble Electric-Heat Co., which supplies electricity to the city of Harbin in China's northeast, and the stock has tumbled 26 percent since the government announced the increase in stamp duty.

``I started trading stocks because my friend told me it's easy to make money,'' Wang said, speaking outside Guotai Junan Securities Ltd.'s branch in Shenzhen, a city across the border from Hong Kong. ``Right now my biggest concern is to look for a job because I don't think it's as easy to make money in the stock market as my friend said.''

Poor Qihong. Hope her job is still available. Hope that so many other Chinese don't have to lose all their savings before they learn.