• Panasonic, Canon shutter China factories amid violent anti-Japan protests

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    An anti-Japanese protester throws a gas canister during a demonstration over the disputed Diaoyu Islands in Shenzhen, China, on Sunday.

    By NBC News staff and wire reports

    Major electronics firms Panasonic and Canon have temporarily suspended production at factories in China after a territorial dispute over a group of uninhabited islets in the East China Sea triggered violent anti-Japanese protests.

    Sites linked to auto manufacturers Toyota and Honda have also been attacked in the unrest, which has forced frightened expatriates into hiding and sent relations between Asia's two biggest economies into crisis.

    Ratcheting up tensions further on Monday, Chinese state media warned Japan it could suffer another "lost decade" if trade ties soured. Japan counted China as its top trade partner last year, with total two-way trade of more than $340 billion.

    Tyrone Siu / Reuters

    A demonstrator kicks a glass window of the Japanese Seibu department store during a protest in Shenzhen, China, on Sunday.

    A report in the Japan Times on Monday, posted on Twitter, said 1,000 fishing boats were sailing towards the disputed islands - a move likely to further inflame tensions.

    "I'm not going out today and I've asked my Chinese boyfriend to be with me all day tomorrow," said Sayo Morimoto, a 29-year-old Japanese graduate student at a university in Shenzhen.

    Protests broke out across dozens of Chinese cities at the weekend, some violent, in response to the Japanese government's decision last week to buy some of the disputed islands from a private Japanese owner. The move incensed Beijing.

    Much at stake for US as tensions rise in troubled China Seas

    In Tokyo, electronics giant Panasonic Corp said Monday it has suspended production at two electronics components factories in China and closed another, telling workers to stay at home after the facilities were attacked by anti-Japan protesters.

    Atsushi Hinoki, a Tokyo-based Panasonic spokesman, said another plant in China has been closed after several workers "sabotaged" operations in the factory. The plant will also remain closed until Tuesday - a memorial day in China when it marks the anniversary of Japan's 1931 occupation of parts of mainland China.

    Afp / AFP - Getty Images

    Chinese demonstrators set fire to a Japanese national flag during a protest over the Diaoyu islands issue, known as the Senkaku islands in Japan, in Wuhan, China, on Sunday.

    Meanwhile, Canon Inc is set to suspend operations at three of its four plants in China on Monday and Tuesday. It will halt production lines at its laser printer factory in Guangdong, a digital camera factory in Guangdong, and a copier plant in Jiangsu, Japanese media reported.

    The protests focused mainly on Japanese diplomatic missions but also targeted shops, restaurants and car dealerships in at least five cities. Toyota and Honda reported arson attacks had badly damaged their stores in Qingdao.

    Japan protests after man seizes flag from ambassador's car in Beijing


    Many Japanese schools across China, including in Beijing and Shanghai, have cancelled classes this week.

     Japanese Prime Minister Yoshihiko Noda, who met visiting U.S. Defense Secretary Leon Panetta on Monday, urged Beijing to ensure Japan's people and property were protected.

    "It is in everybody's interest ... for Japan and China to maintain good relations and to find a way to avoid further escalation," he told reporters In Tokyo.

    Panetta said Sunday he is concerned the territorial disputes in the Asia-Pacific region could spark provocations and result in violence that could involve other nations, such as the United States.

    'Conflict'
    Speaking to reporters on his plane en route to a weeklong trip in the region, Panetta said he will urge countries here to find a way to peacefully resolve their problems. He arrived Sunday in Tokyo, the first stop of his trip.

    "I am concerned that when these countries engage in provocations of one kind or another over these various islands that it raises the possibility that a misjudgment on one side or the other could result in violence and could result in conflict and that conflict would then, you know, have the potential of expanding," Panetta said.

    The defense chief said his conversations with the Japanese and Chinese would echo what Secretary of State Hillary Rodham Clinton told them earlier this month — that they must find a process for settling the disputes. The U.S., he said, does not take a position with regard to the disputed lands.

    Protesters in China attack Japanese factories in a show of anger over a territorial dispute between the two countries. NBCNews.com's Dara Brown reports.

    More China coverage from our Behind the Wall blog

    The dispute over the islands -- called the Senkaku by Japan and the Diaoyu by China -- intensified last week when China sent six surveillance ships to the area, which contains potentially large gas reserves, in response to Japan's purchase.

    The overseas edition of the People's Daily, the main newspaper of the Chinese Communist Party, warned that Beijing could resort to economic retaliation if the dispute festers.

    "How could be it be that Japan wants another lost decade, and could even be prepared to go back by two decades," said a front-page editorial in the newspaper. China "has always been extremely cautious about playing the economic card," it said.

    A Chinese man holds up a piece of paper with the words "Diaoyu island belongs to China, Japanese get out" outside the Japanese embassy in Beijing, China, Sept 11.

    "But in struggles concerning territorial sovereignty, if Japan continues its provocations, then China will take up the battle," the paper said.

    China is Japan's biggest trade partner and Japan is China's third largest. Any harm to business and investment ties would be bad for both economies at a time when China faces a slowdown.

    Qingdao police announced on the Internet on Monday they had arrested a number of people suspected of "disrupting social order" during the protests, apparently referring to the attacks on Japanese-operated factories and shops there.

    China's 7.6 percent growth rate is the lowest in three years – but the country's economic problems appear more dire than the latest numbers indicate. Some believe the government will counter the downturn with a massive stimulus package, a strategy that has left China's local banks saddled with bad debt in the past. NBC's Ian Williams reports from Beijing.

    In Shanghai, home to China's biggest Japanese expatriate population of 56,000, one expat said his family as well as other Japanese customers had been chased out of a Japanese restaurant on Sunday by protesters near the Japanese consulate.

    Guangzhou police said on Monday, on an official microblog, that they had detained 11 people for smashing up a Japanese-brand car, shop windows and billboards on Sunday.

    The Associated Press and Reuters contributed to this report.

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  • Chinese media: 'Many Chinese people dislike Hillary'

    Mark Ralston / AFP - Getty Images, file

    Treasury Secretary Timothy Geithner, U.S. Secretary of State Hillary Clinton and Chinese Vice-Premier Wang Qishan attend the joint statment reading for the closing of the U.S.-China Strategic and Economic Dialogue in Beijing on May 4.

    By Ed Flanagan, NBC News

    BEIJING – It may be Hillary Clinton’s final trip to China in her current role as Secretary of State, but China’s state media has not held back in saying what they really feel about the former first lady and, by extension, the United States.

    In an editorial entitled, “Secretary Clinton: the person who deeply reinforces US-China mutual suspicion,” in Tuesday's edition of noted nationalist newspaper, Global Times, the paper took Clinton to task for her “meddling” in the South China Seas and Diaoyu/Senakku disputes.

    “Many Chinese people do not like Hillary Clinton,” the editorial stated. "She makes the Chinese public dislike and be wary of the United States, which does not necessarily serve U.S. foreign policy interests.”

    Other Chinese state media avoided blaming Clinton for the current heightened tensions in the Asia-Pacific region, but nevertheless took issue with America’s recent “pivot” in the region.

    Nearly two weeks after fleeing his country, Chinese dissident Chen Guangcheng on Thursday spoke out saying his family has been the target of retaliation from Chinese officials. The NOW w/ Alex Wagner discuss what's next for Guangcheng and his family.

    Clinton has pledged to take a strong message to Beijing on the need to calm regional tensions over maritime disputes that have raised broader fears of military friction between the two major Pacific powers.

    The last time Clinton visited Beijing, plans to highlight improving U.S.-China ties were derailed by a blind Chinese dissident whose dramatic flight to the U.S. embassy exposed the deeply uneasy relationship between Beijing and Washington.

    This time, the irritants are disputes over tiny islets and craggy outcrops in oil- and gas-rich areas of the South and East China Seas that have set China against U.S. regional allies.

    As Clinton preps for Asia-Pacific tour, is North Korea capable of reform?

    As Clinton prepares to travel back to Beijing on Tuesday, U.S. officials say the message is once again one of cooperation and partnership -- and an important chance to compare notes during a tricky year of political transition.

    But the unease remains, sharpened by disputes in the South and East China Seas that have rattled nerves across the region and led to testy exchanges with Washington just as the Obama administration "pivots" to the Asia-Pacific region following years of military engagement in Iraq and Afghanistan.

    Pacific micro-nations cash in on US-China aid rivalry

    Both governments, too, are preoccupied with politics at home, with the Obama administration fighting for re-election in November and China's ruling Communist Party preparing for a once-in-a-decade leadership change. 

    Mistrust
    The general sense of mistrust over American involvement in these issues which China adamantly claims are regional territorial disputes was apparent in many users, perhaps most succinctly put by one user who wrote, “The Diaoyu Islands belong to Asian people, we don’t need American help on this issue.”

    Much at stake for US as tensions rise in troubled China Seas

    That position has dominated state media coverage of Clinton's visit to the region this week, manifesting itself in a consensus that the United States was behind much of the recent emboldened confrontations between other Asian powers – most notably the Philippines and Japan -- and China.

    Blind social activist Chen Guangcheng is starting a new life of freedom in the U.S. NBC's Michelle Franzen reports.

    In yesterday’s edition of China Business News, an article noted that “The U.S. is the origin of all issues,” in the region and that Clinton’s visit to the region “delivers a message that Japan and the Philippines are just two sidekicks on the stage while the U.S. is the “boss” at the backstage.”

    Whether state media's depiction of the U.S. Secretary of State accurately reflected the opinions of China's population was unclear, however.

    Activist: I want to leave China 'on Clinton’s plane'

    On China’s popular twitter-like service, Weibo, reaction to the editorial was mixed.

    “The Global Times shouldn’t use their attitude towards Hilary to represent our collective opinion,” wrote one irate user. “I think she’s good, please don’t make fools of us.”

    “History will prove that she [Clinton] is the real peacemaker," another user wrote. 

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  • Asian carp scourge, no problem: sell them to China

    Nerissa Michaels / AP

    This early Dec. 2009 photo provided by the Illinois River Biological Station via the Detroit Free Press shows Illinois River silver carp jumping out of the water. Many fear that the Asian carp, which can reach 4 feet long and weigh up to 100 pounds, will wreak havoc, not by attacking native fish, but starving them out by gobbling up plankton.

    By Adrienne Mong, NBC News

    BEIJING –They are a feared species, threatening to invade America’s Midwest and cause the collapse of an ecosystem and a $7 billion industry.

    They prompted one U.S. lawmaker to say, “We are not in a go-slow mode. We are in a full attack, full-speed-ahead mode.”

    “They” are Asian carp.

    The fish were imported from Southeast Asia in the 1970s to help clean ponds at wastewater treatment facilities and fish farms in the American South. 

    But they escaped into the Missouri and Illinois rivers during flooding of the Mississippi River. A twenty-pound Asian carp measuring three feet long was found just six miles south of Lake Michigan in July 2010.

    Biologists worry that the invasive fish will starve native ones to death. A hardy creature that breeds easily and with no natural predators in the U.S., the Asian carp can eat up to 40 percent of its body weight in plankton every day.

    Concern is so great that Asian carp have been “the subject of state lawsuits, EPA and Congressional hearings, and U.S. Supreme Court motions,” according to a U.S.-based environment magazine.

    A task force comprising more than 20 state, regional, and federal officials monitors the fish’s every move.

    There’s even a carp czar, appointed by the White House, to oversee the $80 million federal effort to keep the Asian carp from getting into the Great Lakes. 

    But the state of Illinois has a simpler solution.

    Send them to China.


    ‘If you can’t beat ‘em, you eat ‘em’
    A few years ago, Chinese-American businessman David Shu was on a trip to China, where he met some clients who had heard about attempts to poison the Asian carp in Illinois rivers and asked, “Why are they killing the Asian carp?”

    Shu teamed up with Ross Harano, who had just stepped down as Illinois trade director, to find a way to persuade Chinese to buy Asian carp from the state.

    The problem was one that anyone who’s ever set foot in a Chinese restaurant knows: the Chinese like their seafood fresh. That’s what the restaurant aquariums are for – to keep fish and shellfish alive until the very last minute.

    The Asian carp from Illinois were going to be sold frozen; moreover, they were too pricey for local Chinese consumers.

    So Harano, who is now Director for International Marketing at Big River Fish, found himself mapping out a marketing strategy that ultimately made more economic sense than simply just trying to pit their frozen product against local varieties sold live in China.

    Coining the term “wild-caught” to market the Illinois carp, Big River Fish try to emphasize its freshness. 

    “There are no pollutants,” said Harano in a conversation with NBC News. “The fish feed on algae in Illinois rivers. They have a very non-muddy taste.”

    “We sell it as a high-end fish to high-end restaurants, so the cost is not an issue,” he said. In particular, Big River Fish is ringing up sales mostly in northern China. “There’s a better market for fish like this in northern China than down south,” he added.

    In July 2010, the Beijing Zuochen Animal Husbandry Co. agreed to buy Asian carp from Big River Fish. The aim was to ship at least 30 million pounds of fish by the end of this year. The small start-up from Illinois could make $20 million a year exporting the carp to China.

    “If you can’t beat ‘em, you eat ‘em,” said Illinois Gov. Pat Quinn at a much heralded signing ceremony.

    The deal seems an elegant solution to a worrying ecological problem. 

    But it also appears to address, in a more modest way, another issue: unemployment. 

    With a state grant of $2 million, Big River Fish is in the final stages of acquiring a new 10,000-square foot plant in Pike County, to which it will add another 30,000-square feet, enabling it to reach its export target.

    The new plant is not the 80,000-square foot facility Big River Fish had hoped to purchase back in March, owing to a paperwork glitch. The hiccup put the company “behind track” on its timetable, CEO Lisa McKee acknowledged to NBC News.

    Once the new plant is secured – hopefully by Nov. 1, according to McKee and President Rick Smith – Big River Fish will increase its plant work force from 12 to 61.  An additional 120 jobs will come from hiring more fishermen to harvest more carp.  Not insignificant, says Harano, for a county of 17,000 people that in 2010 registered more than 10 percent unemployment.

    Slowly creating jobs via China
    The Big River Fish deal exemplifies the kind of salesmanship Quinn wants for his state. He continued to tout the culinary advantages of Illinois carp even last month during a rare trip to China.

    “We have wonderful rivers in our state,” he told NBC News just before dashing off to attend a special carp luncheon. “Some of the freshest waters in the country, and the Asian carp we have are big and meaty. We catch them wild, and we ship them to China.”

    Quinn peddled other Illinois specialties during his eight-day trip through China – with the aim of drumming up business, jobs creation, and investments in his home state.

    In a major coup, he persuaded Xinjiang Goldwind Science & Technology Co., a top wind turbine manufacturer in northwestern China, to build a $200-million wind farm in Lee County, which will provide electricity to some 25,000 homes. 

    It’s the largest U.S. project to date for Goldwind, and the Illinois governor stressed that it will create a dozen permanent jobs and more than 100 construction jobs.

    Another deal announced on Quinn’s trip was for Archer Daniels Midland (ADM) to sell 180,000 tons of soybeans to China by the end of next year – a deal worth about $50 million. China already buys a quarter of all U.S. soybeans and is Illinois’ third largest exports destination.

    Chinese trade & economic reforms critical
    But there are skeptics about just how much Quinn and others can recoup his state’s job losses and whether these minute steps towards creating jobs by boosting exports will be enough.

    There seems to be consensus among most pundits in Washington that selling more American goods to growing economies, like China, will mean more jobs. 

    But getting more U.S. goods into China requires a few substantive reforms on the part of Beijing, skeptics say. 

    One of those measures is currency reform, and the Chinese central government is balking at Washington’s efforts to get it to move more aggressively to strengthen the yuan against the U.S. dollar.  A weak yuan makes Chinese exports cheaper and imports from the U.S. and other countries more expensive.

    More specifically, for Illinois, a survey from the Economic Policy Institute found that the Land of Lincoln lost 118,200 jobs in the past decade as a result of the U.S. trade deficit with China. 

    In particular, traditional manufacturing industries took the brunt of the job losses: auto parts production, fabricated metal products, electronics, and specialty steel – areas in which the Chinese have sought to compete.

    “Increases in the bilateral trade deficit with China will lead to growing trade-related job displacement in Illinois for some time to come,” said Robert Scott of the Economic Policy Institute survey, unless Beijing reforms its trade and economic policies – particularly on the Chinese currency. 

    “Until those policies are reformed,” he wrote in an email to NBC News.  “The growth of imports and job displacement will vastly exceed the growth of export-supporting jobs for Illinois, and all other U.S. states.”

  • US envoy to China's top priority: jobs back home

    U.S. Ambassador to China Gary Locke's top priority is creating more jobs back home. Locke discusses the effort to increase trade between the U.S. and China with NBC's Adrienne Mong.

    By NBC News' Adrienne Mong and Ed Flanagan

    BEIJING—It’s been often said that the Chinese are stealing American jobs.

    Now it sounds like they’re creating them.

    At least this week it has seemed so.

    First off, the new U.S. Ambassador to China Gary Locke announced a blueprint for Sino-American economic and trade relations.  Chief among the former commerce secretary's goals is jobs creation back home. 

    “[M]y top priority here is to work with the American business community in China to support President Obama’s job-creating efforts,” said Locke in a speech before a joint American Chamber of Commerce and U.S.-China Business Council luncheon.

    In order to achieve that, Locke will strive to double American exports to China by 2015 and boost Chinese investments in the U.S.  The latter is, again, part of a larger initiative under the Obama administration called Select USA.

    “Instead of making it in China – [make] it in America and employ American workers,” Locke told NBC News this week.  Foreign direct investment in the United States, according to the ambassador, is responsible for the employment of 4 to 5 million Americans in America.

    The new emphasis on foreign direct investment echoes Obama’s jobs speech earlier this month, which noted, “And we’re going to make sure the next generation of manufacturing takes root not in China or Europe, but right here, in the United States of America.”

    That trend is already taking root, though driven more by other factors, as our colleague Ian Williams reported this week.  A tightening labor pool and rising costs (thanks to the strengthening Chinese currency and inflation) mean that for some American businesses, it makes more sense to move some of their manufacturing back home.

    Courting Chinese investment
    Locke intends to make his sales pitch to invest in America during five trade and investment missions across China in the coming year. The tours are also designed to help U.S. companies get “better access to provincial and local governments [and] introduce them to potential buyers and customers” in order to keep increasing U.S. exports to China.

    Also this week, the state of Illinois signed a $200 million deal with China’s second-largest wind turbine manufacturer, Xinjiang Goldwind Science & Technology.  (We profiled the company in a documentary about the race for renewable energy that aired on CNBC last year.) 

    The deal means a dozen permanent jobs and 100-plus construction jobs will be created, according to the office of Illinois Governor Pat Quinn.

    We launch a new series
    Quinn is one of several governors who’ve been trooping through town trying to drum up trade and investment.  And it got us thinking that it might be worthwhile taking a look at every U.S. state that has a representative office in China. These folks are on the frontline of selling to the Chinese, and we wondered how they pitch their state and how effective they can be. 

    After all, the impact of China on employment in the United States is a bit murky.  Economists and statisticians argue all the time over whether globalization – or more specifically, the growth of the Chinese economy – is good for American workers. 

    We know U.S. exports to China, in the decade 2000-2010, soared 468 percent to $91.9 billion, according to the U.S.-China Business Council.  China is the third largest market for American goods and services, well behind Canada ($248.2 billion) and Mexico ($163.3 billion).  But considering that the other two are contiguous to the U.S. and share a trade agreement, it's not surprising that they would be the two largest trade partners. But, their growth rates were in the low double digits for the same decade.

    And then there are the individual states themselves, which saw phenomenal growth in the same period.  Oregon, for one, clocked 1,227 percent growth in its exports to China.  South Carolina, which has a very busy trade office in Shanghai, saw 1,596 percent growth in exports.

    Chinese foreign direct investment in the U.S. has seen less spectacular results. But as its foreign exchange reserves continue to grow – and concentrating on U.S. treasury bills seems so much less appealing – China is under pressure to diversify its investments.

    Between 2005 and 2010, Chinese foreign direct investment in America outpaced that of any other source, now totaling almost $6 billion dollars.  It's still meagre compared to direct investments from Europe or Japan, but the rate of growth is noteworthy; in two years, Chinese direct investment in the U.S. jumped 400 percent.

    So starting next Friday, Behind The Wall will profile different states and their trade and investment track records with China. 

    Along the way, we’ve learned that green technology is a key growth sector for both the Americans and Chinese.  Virtually every state we’ve talked to is looking to woo the Chinese in green tech – whether it be helping to upgrade renewable energy technology or develop environmentally efficient production chains –so distinguishing one state from another will be critical to winning those investments.

    And then there are the other, more quirky or unexpected industries: carp, gambling, coal.

    Up next week: Nevada.

    Their exports to China rose nearly 5,000 percent from 2000 to 2010.

    And it’s not just casinos they’re selling.

  • Betting on the tortoise or the hare: China's machinery market

    Getty Images

    Caterpillar Inc. enjoyed boosts in total revenue in 2010 of 31% to $42.59 billion. This was spurred on by a 43% increase in sales in the Asia/Pacific region.

    By Ed Flanagan, NBC News

    BEIJING – Politicians and pundits in China and the U.S. have long espoused an idea of win-win scenarios, whereby both countries and their respected companies can coexist and thrive.

    In China’s heavy machinery market though, all signs point to a pitched battle for market supremacy.

    U.S. heavy machinery giant, Caterpillar, released its fourth quarter profits for 2010 last week, reporting a 62% increase in revenue to $12.8 billion on the back of renewed demand in emerging markets.

    One market in particular that has been the focus of American construction and machinery companies is China. In the case of Caterpillar, the company deems this market so important that it listed “Win in China” as one of its “Big 8 Imperatives” for 2011-2015.

    In the eyes of Caterpillar though, nothing short of being number one in China will do. At a trade fair for its suppliers in Tucson, Ariz., in 2006, Caterpillar executives effectively declared that if they weren’t number one in China by 2020, their status as a major world player should be called into question.

    It was a bold claim to make and one that will pit Caterpillar against an entire Chinese machinery industry that has undergone dramatic growth in the last decade. A Morgan Stanley report that came out earlier this year forecasted that Chinese original equipment manufacturers (OEMs) could possibly increase their capacity to build large tonnage excavators by 2012 by 300% to 130,000 units – the anticipated total need for the entire market.

    To put that in perspective, China’s OEMs did not even make excavators 10 years ago.

    Chris Edwards, Chief Representative for Ritchie Bros. Auctioneers in China – the largest heavy machinery auction company in the world – has spent the better part of six years trying to open the Chinese market for its first auction run by a wholly-owned foreign auctioneer company.

    In the process, he has gained a unique perspective on the machinery market in China, the problems foreign companies face trying to compete here and Chinese manufacturers’ global ambitions.  

    Q. China has garnered this reputation as being a difficult place to invest into for American companies. In the case of heavy machinery, that seems to start with the way Chinese construction companies view and value their investments in equipment. How is the Chinese machinery market different than the American?

    A: It’s different in maturity of the marketplace. China as we all know is only thirty years into its economic reforms. In the construction machinery business, the rapid development and changes have only come in the last decade or so and started at a very low baseline. So the maturity of the construction/machinery market has rapidly changed, but it started at a low end where price was the number one issue for anyone investing in a construction machine.

    Americans value efficiency. In an underdeveloped growing marketplace, there are a lot of inefficiencies. Whereas in a highly competitive, mature economy market…To compete you need to be sure your machine is working, is of top quality and that the service chain of that manufacturer can also be there to fix that machine quickly so you can get it back to work. Those are the demands of a highly mature market.

    In the case of a market like China, companies are not looking for high quality as much as they just want to keep their capital costs low and try to maximize their profits. They aren’t necessarily concerned about factors like efficiency, because there are other factors that create advantage for them other than efficiency and competition.

    Ed Flanagan/ NBC News

    Chris Edwards, Chief Representative for Ritchie Brothers Auctioneers in China has been working for the company in Asia since 1996.

    Q: Taking into account the over-capacity issues and this completely different value system towards machinery, where is all of this optimism towards the Chinese market coming from?

    A: Well, the overcapacity is in production of product. Why Cat and any high-end foreign company think they can break into the market is because there is a lack of capacity in good service and that’s where they hope to succeed and that’s where they compete all around the world. They compete in value-added on top of the high-level product they have.

    It’s like the story of the tortoise and the hare: Chinese machinery companies have shot ahead, ramping up production and sales in the China market while foreign companies are playing the waiting game – waiting for the market to evolve to match their level while planting the seeds and developing the business.

    Q: The Morgan Stanley report noted that companies like Caterpillar, John Deere and Komatsu have competitive advantages over Chinese machinery companies in higher tonnage equipment. Can you explain what exactly higher tonnage vehicles are compared to what China dominates?

    A: Like anything, the bigger the size of the machine, the more complex it is and the more technical advantage you need to create a quality machine. So what you can see from that report is that in excavators, the Chinese market is dominated by locals because in the low tonnage, excavator machines are less complex and it’s simpler for them to compete. As you get into the higher tonnage, it takes more technical expertise and experience and currently the foreign manufacturers have that advantage.

    In China, the two workhorses in the market are wheel loaders and excavators. Everybody uses them: mining, infrastructure, there are multiple applications. So when we are talking about thirty ton excavators that’s where the foreigner manufacturers have their advantage because of their technical know-how in building them.

    With wheel loaders, the other workhorse, it’s a pretty simple machine. It’s four wheels, two axles and an engine, it’s not that technical. So that’s dominated by the Chinese manufacturers, it’s very hard for foreigners to break into that market, because it’s so simple and the value-add that foreigners put on their wheel loaders, there is no need for it in this marketplace. So you can buy four or five Chinese wheel loaders for the price of a new foreign one, so there is no price advantage.

    Q. Caterpillar has famously said that if it isn't number one in China by 2020, its position as a global leader should be called into question. Is there concern that the maturity many foreign machinery companies are relying on may not happen and they will simply be surpassed by the current Chinese model of machinery production?

    A: No, I don’t think there is concern that the maturity won’t happen, but just the estimated time. Will it be quick? Will it be slow? That’s the big question. But certainly the maturity will happen, it has to happen, its evolutionary it’s out of the control of anyone’s hands.

    Q: At the same time that American companies are trying to take a larger part of the market here, Chinese manufacturing companies are branching out into the international market. Inversely to what Caterpillar declared, one Chinese manufacturer, Sany, has that by 2015 it wants to have 50% of their sales originate from outside of China. Is somebody making the wrong bet? A: Only time will tell who made the right bet.… Caterpillar is investing in China, but not only in China, all the BRIC (Brazil, Russia, India, China) counties as well. They see most of their growth coming from the developing market over the next twenty years, China probably being the strongest of those emerging markets. The domestic companies see the China market is building more and more capacity that this market can’t handle, so they have to diversify and that’s where Caterpillar’s strength is: They have global diversity so if one economy goes down, they can manage in another economy that is going up.

    These domestic manufacturers are all just riding China right now and they realize they have to diversify and they are trying to find out where their strengths are. Well, they are going to expand overseas for sure, but it’s not going to come from the mature high-end economies like North America and Europe, it’s going to come from regions like Africa, the Middle East and South America.

    Courtesy Ritchie Bros.

    Despite being the largest machinery auctioneer company in the world, Ritchie Bros. has yet to have held an auction in China.

    Q: Why not the North American market?

    A: The challenge for them entering the U.S. market is that a highly competitive, high-level service market is the baseline there. High-level product quality is already expected by American customers, that’s a given for them. So to enter the U.S. market, Chinese businesses will have to learn how to compete on service level and the supply chain side, which they currently cannot do yet.

    It’s easier for them to enter a maturing or developing market and provide those kinds of services where the expectations aren’t as great and you can compete on machine price, because in most developing countries, everybody is price first, services later and that’s their competitive edge.

    Q: We’ve established that the next logical step for Chinese companies is to get into emerging markets. Is there concern for both Ritchie Bros. and American machinery companies that if these markets become heavily influenced by current Chinese machine consumption patterns, it’ll keep your companies out of those markets?

    A: For us, it’s a good thing the Chinese are breaking into those markets. That means there are more people owning machines and more people needing a channel to resell them and we can provide our services to them.

    From the manufacturers’ point of view, they know already that they get a niche market there, like here, for high-end, high-service machines. But the Chinese will certainly put pressure on those guys in those markets. But as those markets mature over time, they will gravitate to the high-end that American companies provide.

    But that’s not to say the Chinese will always be low-end, they will always mature overtime. And just like the Japanese in the 70s and the Koreans in the 80s, when they entered into the market they were perceived to be lower-end quality. Since then, they have come right up to the high-end to the same level as their top-end western competitors. So you can very well see Chinese manufacturers competing at the highest levels in 15-20 years.

    Q: Let’s turn to your company, Ritchie Bros. You are the biggest machinery auctioneer company in the world, but you haven’t done any auctions in China.

    A: China only introduced auction laws in 1996 and they only opened up the market to wholly-opened foreign auction companies of any type – art, antique, etc. – at the WTO ascension in 2001. To this date, there is no wholly-owned foreign auction company running auctions due to a couple technical reasons. I believe the auction laws are a bit too rigid compared to international auction practices, even for arts and antiques.

    The other side is just waiting for the market to mature. There is a certain time in the marketplace where used equipment becomes an important part market and that moment is just cresting now in China. It’s just emerging as Chinese manufacturers realize they have saturated the market with new machines over the last dozen years and now they need to go back and sell another machine or they want to increase their market share against other manufacturers.

    They realize that used equipment is a starting point because every new equipment sale starts with a guy who already has a machine. So, that guy’s first question is, ‘What can you do for me with my old machine? I’ll buy your machine when you can help me get rid of this one.’ It’s just like cars. So these guys realize they have to get into the used equipment business to get those trade-ins out of the market and their new machines in there.

    But then, the problem is that they still don’t have a viable used-equipment channel in China.  It’s very parochial, very immature, but the momentum is building and we believe we can get into that at the right time now as these manufacturers and dealers start realizing, ‘All right, I can take in a used machine, but it’s not easy just to sell it again.’ Our value-add is to give them a supply chain where it gets it out of their hands, it gets sold and they get that cash to sell again while also creating certainty of sale and certainty of disposal.

     

  • A closer look at China's rare earth industry

    BEIJING – Many have written in recent months about China’s iron-grip on the market for rare earth – the minerals used for a host of commercial and military goods – but few have looked beyond the global economic repercussions of the mainland’s dominance to the conditions that allowed for China to rise to the top of the industry worldwide.

    Enter Steve Dickinson of China Law Blog. In a well researched entry this week, Dickinson delved deeper and found an industry that was able to drive the legendary “China price” down to a quarter of previously recorded prices by ignoring environmental laws, pursuing egregious labor practices and relying on heavy government subsidies.

    That last point is what has allowed a loose collection of mining companies both large and small to survive and operate independently of one another during an era defined by Chinese government induced corporate mergers in critical industries ranging from car manufacturing to the airline industry.

    What has resulted is a brutal market where companies constantly undercut each other for contracts and, in the process, drive the price of rare earth lower and lower – essentially crushing the rare earth mining industry worldwide:

    “These operations ruthlessly bid against each other on price terms. This “ruinous competition” results in a price that barely covers the cost of production. Though China has recently pushed to consolidate the mining in fewer and larger companies, there are still a sufficient number of players so that the intense price completion [sic] continues.”

    On the face of things, Dickinson suggests that this has created an advantageous workflow for western companies who have so far managed to avoid transferring technology for processing these rare earth minerals into the finished materials they need.

    However, this heavily subsidized China price has allowed instead a variety of “green” industries like hybrid cars and wind power vanes to bloom around what is an inaccurate representation of the true cost needed to safely and fairly mine rare earth.

    What happens next if China’s capacity is not reigned in or if government subsidies continue is clear:

    “By 2011, capacity is expected to increase to 100,000 metric tons. This amount is about double the entire projected world demand for 2011. The result will be predictable: the Chinese manufacturers will engage in ruinous price competition. The price will fall dramatically. Worldwide, competitors to the Chinese will be driven out of business. Within China, none of the Chinese manufacturers will make any money. However, the process will continue even though no money is made, because the manufacturers are not private enterprises. They are owned and controlled by provincial and local governments, each of which jealously guards these precious investments and none are permitted to go bankrupt. Thus, the normal market correction resulting from falling prices does not occur in China. Instead, overcapacity is maintained, prices are reduced, and pollution, waste and worker conditions are simply ignored.”

    Such conditions would cast a dark shadow over American plans to kick start its own rare earth mining industry at locations like Mountain Pass. On the flipside, new government mandated quotas for rare earth in China likely spells the end to the China price western companies have enjoyed over the years.

    Should the price of Chinese rare earth minerals ever reach its true cost – estimated by some to be as much as four times higher than current prices – it would place enormous pressure on budding new green industries in the US that are reliant on this artificial cost.

    It’s a tricky situation that bears watching, for the conditions are set for another big showdown between the West and China in the near future.