I’ve quoted before from the often-amusing weekly newsletter of the Access Asia people in Shanghai. They write with attitude, which leavens the sometimes dull market research topics that are their bread and butter.
And I will quote against, because this time the topic is of great consequence. That is, the continuing fallout of China’s crackdown on visas for foreigners.
This is beginning to pinch. Imagine what will happen if China loses a significant share of the toy trade to neighboring countries because foreign quality assurance managers couldn’t get into Chinese factories right now, in July, to assure delivery by October and sales by December.
I appeal to anyone with first-hand information about this to get in touch with me because I plan to write a news article if the facts warrant.
Here are excerpts from Access Asia’s take:
The China visa issue is now becoming more unpleasant than a stroll on a Qingdao beach (who said it wouldn't be a 'Green Olympics'?). We're not that bothered about the clear out of wannabe freelance hacks dodging tax, or the legion of Eurotrash and American trustafarians who've been slumming it in Shanghai and Beijing for years on dad's money…
The real adverse effects of the visa crackdown will be felt and suffered by Chinese people and businesses. Consider the following problems we've encountered in the last couple of weeks:
A number of brands manufacturing in China need to place Xmas orders. They have policies that independent factory inspections must occur to ensure working conditions, etc., as part of their CSR. They don't use local inspectors given the problems with those and formula box ticking scams. However, their inspectors cannot get a visa, and so cannot approve the factory and so the contract cannot be awarded. While Beijing may think the Olympics is worth all this, the fact is that the West cannot move Xmas to late February. Even if (and there are no guarantees) things return to normal in September, it will be too late for these firms who need to get gear on boats in October for the holidays. Now many are scrambling to find capacity in Vietnam, Bangladesh, etc., while any number of Chinese garment manufacturers (two thirds of whom operate on margins of less than 1.5% already) will go under.
A number of companies with production runs already underway are having to stall or delay work as they cannot get visas for their Quality Assurance (QA) staff to enter China. Few are willing to let 500,000 leather jackets be produced without getting someone to do some QA, so delays are occurring, meaning factories will get paid late or have orders cancelled. In Hong Kong last week, Access Asia was offered US$1,000 for every referral of a qualified, experienced China-based QA person we could find as desperation sets in.
A major fall out will be that people who have talked about moving production to other countries for some time are now actually having to do it to meet deadlines. Smart manufacturers in those countries are offering keen prices and will go all out to do a good job - they know this is their moment in the sun, and a chance to win serious business away from China. For many brands (once they have made the move, and if a good job is done) the inclination will be not to bother to go through the process of moving production back to China all over again. Whether China wins the Olympics or not, the long lasting fall out from these silly Games will be serious and terminal for a lot of business people as a significant percentage of business moves elsewhere and doesn't come back once the Olympics are over.
The fact is that many good manufacturers have survived and absorbed energy costs, rising transport costs, high input and commodity costs, soaring freight costs, rising wage bills and new labour laws (not to mention tough western companies looking for cheap, cheap prices). But they may not be able to survive the actions of the visa issuing department. Stupid and sad.