Years of Poems and Spirits

As I was reading the recent toy recall story, I was struck by a brief mention of how price pressure played a role in product safety.

(Although I remember clearly reading about it on WSJ and when searched by “price pressure china toy suicide” on Google, the results confirmed my impression, when I followed the link to the actual articles, all the references were gone. I have sent an inquiry to the WSJ reporter who bylined those articles)

If a guy would rather kill himself than facing the consequence, one scenario is that he was so desperate that he chose a path that he knew could cost his life. If this is the case, and his case is not an isolated one, I can’t help but to ask: Are we getting close to the upper limit of productivity squeeze that has fanned the spectacular growth since 2001?

The fear is always inflation–or, Will productivity growth keep up with demand growth?

First of all, it is hard to argue that the toy recall is an isolated incident. Recently, there have been so many recalls of Chinese-made products: from pet food, to tires and toothpaste and now toys–and they all happen around the same time–that the “random” events start to suggest a pattern.

Secondly, I wonder why this pattern, if it does exist, emerges now? In other words, why didn’t they happen earlier or in random intervals? Why now? One explanation is that Chinese import has just achieved such a critical mass that, given the loose regulatory infrastructure in China and in trade, things like these are bound to happen. It is a probable explanation but I doubt it is the exclusive answer.

If both the timing and the scale of the problem suggest that more and more Chinese suppliers start to cheat, the suicide of the toy factory owner may tell us that they may be doing so more out of desperation than out of greed.

This may not be such a stretched conclusion if we look at other factors:
1. NYT (or Economist too?) reported last year that there are signs of labor shortages (i.e. upward wage pressure) in manufacturing hubs in Guangdong.
2. The wage of skilled white-collar workers in big cities like Beijing and Shanghai has been appreciating fast (based on personal observation and anecdotal evidence)
3. In order to slow down growth, Chinese government has been trying to limit capital input–particularly land
4. RMB Yuan has appreciated 9% in one year against U.S. dollar
5. There is widespread evidence of inflation in China (e.g. the recent pork price hike, and this article about higher wages and retail prices …)

The next set of questions are:
1. Will the inflationary pressure translate into general wage increase?
2. If Chinese labor cost do rise, how much it will impact foreign company’s profit outlook?
3. When U.S. company’s profit growth slows, will Greenspan’s recent warnings come to pass?