BIG news can sometimes be found in little places. In its November 2003 circular, a dryly written four-page publication, the Chicago Federal Reserve Bank noted complaints from American makers of automotive parts that “automakers had been asking suppliers for the ‘China price’ on their purchases”. The bank’s analysts observed that US suppliers had also been asked by their big customers to move their factories to China, or to find subcontractors there. Over much of the business world, the term “China price” has since become interchangeable with lowest price possible. The China price is part of the new conventional wisdom that companies can move nearly any kind of work to China and find huge savings. It holds that any job transferred there will be done cheaper, and possibly better.
To understand this mentality, it helps to remember that in the world of manufacturing the great bulk of products that roll out of the world’s factories are sold to still other manufacturers as parts or software. Many common everyday objects, such as refrigerators, cameras and cell phones, can have hundreds of parts produced by hundreds of companies. Bigger things, such as automobiles, commercial aircraft and industrial robots, have thousands of parts and thousands of companies supplying them. By the time objects get to their end- users, corporate purchasers have scoured the globe for the best parts and the best prices. For these purchasers, China has become a kind of cut-rate El Dorado, where the lowest prices mean gold.
The constant push to the rock-bottom price has had a profound impact on the way the world makes things. Which means it also has a profound impact on people.
Thus has the Christmas tree, that quintessential German symbol of holiday hopes, become a portentous indicator of the rise of Chinese workshops. On the trees’ boughs, ornament by bright ornament, the companies that created the business of Christmas now hang in the balance. Nowhere is this more true than in Rothenburg ob der Tauber, a three-star destination in the Michelin Green Guide to Germany. The town is one of the highlights on one of the world’s most celebrated tourist routes, the Romantische Strasse, or Romantic Road, the country lane that wends through Bavaria’s postcard- perfect ancient towns and ends down the road from Mad King Ludwig’s famous white fairy castle at Neuschwangau.
From afar, the city looks like a porcelain Christmas village, with its crowded roofline of white-stuccoed Bavarian townhouses, stone cathedral spires, and ancient clock towers. Once inside the gate, the city is a maze of stone streets, shops, centuries-old homes, open churches, halls, and inns. Within these old stone walls, Rothenburg hummed with commercial activity in the late Middle Ages, when its craft guilds were so strong and wealthy that their city was governed as a free state rather than under the thumb of German kings. A hilltop location and a massive fort helped.
Rothenburg may appear virtually unchanged in the last few hundred years, but signs and portents of its future can be divined, especially if one looks across from St Jacob’s Church to the Lotus Hotel, the only inn in Rothenburg where Buddha stands guard over an arched rathskeller-style restaurant. The Lotus Restaurant is the first local restaurant to serve authentic Cantonese food, and demand these days is high.
The must-see sights for tourists in Rothenburg include the Christmas shops. Such shops now proliferate in popular tourist destinations in Europe and North America, such as Colonial Williamsburg, Virginia, or Edinburgh. Rothenburg is the place where the proliferation of Christmas shops began. The first and still premier show in town is Käthe Wohlfahrt’s Christmas shop. In fact, there are several of them, and Wohlfahrt’s today is almost certainly one of the small city’ s biggest businesses, pulling in $22 million a year. The shops are built as scale Christmas villages, up to replicating year-round the holiday markets that spring up around the country. Germans are fanatical about the quality of their toys, and it shows. Inside is a riot of little lights, glitter and frosting, with giant bows and little angels. Model trains and nutcrackers. Santas of all sizes hang everywhere, German craftsmanship on full display.
The success of the Wohlfahrt shops has not gone unchallenged, however. Nor have the high prices of its German-made ornaments. Rothenburg and other Bavarian towns now have rival Christmas shops that sell at considerably lower prices, often by bringing in imported items, including many from China.
Some low-cost imported ornaments fill their expected role as slapdash, perishable merchandise. Wohlfahrt’s shies away from those, but competitors do not. Most worrisome to local German manufacturers with long histories of making finely crafted, durable ornaments is that the Chinese ornaments look better all the time. China’s irreproducible ability to drive prices down can be seen in one of the world’s favourite machines, the humble DVD player, a device now so commonplace it is nearly disposable, Chinese-made DVD players now sell in the US for as little as $30 at electronics chains that once stocked players at thirty times the price. They are also a staple at discount stores. During the Christmas season of 2003, the deep discounts on players caused a post-Thanksgiving rush so frenzied that reports of an in-store stampede made the national news. Giant shipments of no-name but competent DVD players are stacked on the floors of unlikely sellers, such as grocers, pharmacies, and automobile supply stores. DVDs are displayed by cash registers, where, like candy bars and tabloids, shoppers are expected to snatch them up without forethought. If the average car dropped at the rate that DVD players have, a Porsche 911 would now cost $1,500.
How did the Chinese no-name DVD players arrive in America? A year before they began stacking up on the floors of American drugstores, a back channel of distributors had already forged a market on eBay. Brands such as Sampo, Malata, Conia and RJ Tech, hardly household names in North America or Europe, were being advertised to buyers who wanted machines that were low-cost and capable and, perhaps most importantly, could play disks from all over the world. China’s excess capacity in DVD players was also showing up in sundry shops in American Chinese and Indian neighbourhoods that catered both to ethnic locals who wanted to watch foreign films and to others who wanted to copy rented DVDs to videotape.
Then the floodgates to American stores opened. European regulators, frustrated over the failure of many of China’s DVD manufacturers to pay licence fees to the DVD Consortium, drastically restricted the sale of Chinese-made DVD players on the Continent. China’s manufacturers, already building large surplus inventories, shipped players out of their warehouses to American buyers. Players that hit American stores for $30 left China for $20. With chip sets costing between $7 and
$10, and licence fees, when they were paid, costing roughly the same, not much room was left for profit. How aggressive have the Chinese been at slashing prices? On average, profit on a DVD player exported out of Guangdong, where 17 of 20 Chinese machines are made, sunk to a single dollar.
Can the world see what is happening in China? On the face of things, it seems so. After all, the global media now covers developments in China with both an earnest desire to document its rise and bemused awareness of its unabashed consumerism. The daily press reports on the stream of Chinese fads and marvels. The financial papers follow the world’s money to China’s door, and one after another, trade magazines such as Automotive News and Modern Plastics have begun to look like China newsletters. At times it appears that everything that can happen is happening in China. In the space of one month in 2004, China held its first European-style Formula One car race on a new $320 million track, hosted an NBA exhibition game with its new global basketball star Yao Ming and staged its first Spanish bullfight in a stadium converted into a fully-fledged bullring, all in Shanghai, all to enthusiastic crowds. So, too, comes news that Hooters, the restaurant-and-bar chain, will offer its curvy American fantasy to Chinese diners in eight locales; that Starbucks will add hundreds of new outlets in the land of tea; and that an adult- products expo attracted 4,000 manufacturers of sex aids — and huge crowds.
