Thursday China Ramblings

In the past few days, I've come across some useful tidbits on Chinese supplier quality and pricing. First, I saw in a Forbes article that the defect rate for GM's Shanghai suppliers has dropped to 24 parts per million (PPM). This number is actually better than GM's North American average of 34 PPM! I'd be curious to know if GM's Chinese supplier quality has increased because of GM-directed supplier performance management programs or whether the higher quality levels are representative of a general uptick in Chinese supplier quality levels in the manufacturing sector in general. If anyone has any additional information on this, please chime in.

Next, it looks like the monopolists in the US are going the legal route to try to prevent the "dumping" of Chinese activated carbon. In late January, Calgon Carbon and Norit Americas, two producers of activated carbon, a substance that acts as a filtering agent, filed an anti-dumping case against China. As background, activated carbon is used across a number of industries (including water filtration) but plays an important role in the automotive industry -- specifically as the main product in emission canisters. The complaint states that "the [Chinese] producers have demonstrated their ability to rapidly increase exports to the United States of extremely low-priced activated carbon that undersells domestic producers by substantial margins."

What the complaint does not state is that activated carbon has essentially been a near monopoly product in the United States controlled by the complainants and a few other producers including MeadWestVaco. In the past, these suppliers have been able to dictate pricing to US manufacturers at a level above world market prices (in part because these companies have forced the hand of the OEMs to spec their product in various sub-assemblies). But recently, as global competition has entered the market, the supplier's pricing power has eroded, in part, thanks to the threat of global competitors, hence the reason for this filing. In addition to the philosophical free trade question, the major Spend Management issue that this case raises is whether a country should defend the business interests of the few at the expense of the many. By legally preserving what amounts to fixed pricing for an important commodity, the US government would put domestic manufacturers at a distinct disadvantage in the world market if they choose to slap a new round of tariffs onto the category in question.

Jason Busch

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