Pain and gain

China’s world economy role in transition

Kerry Knudsen

IT WAS NOT MY FIRST TRIP TO CHINA, but likely my second or third, when I came back from dinner to find my room had been searched. It was very obvious. The carry-on had been moved from a shelf to the bed, a drawer was left open and some items from the bottom of the suitcase were now on top. Nothing was taken and nothing was damaged. It was just a very firm, “You aren’t in Canada anymore,” courtesy of the People’s Republic.

It was a few years earlier that I ran into Thomas Baert, president of ChinaFloor and co-owner and co-founder of Domotex Asia/Chinafloor (DACF) as I was patrolling the halls at Domotex in Hanover, Germany. Baert was a breath of fresh air — very frank about business in China and its pitfalls. “You don’t get what you EXpect in business in China,” he said. “You get what you INspect.”

It was at Baert’s invitation that I attended my first edition of DACF, but it was not long before I began incorporating another show, Interzum Guangzhou, into my trips, as traditionally took place the week after DACF and served the readership of Coverings’ sister magazine for furniture and millwork manufacturers.

I have always had mixed feelings about China. On the one hand, I have the Canadian affection for rooting for the underdog, and China in the ‘90s was trying to break into an industrialized and sometimes politically antagonistic world market. On the other hand, China had a reputation for not playing by the rules and being very arbitrary in its acquisition of other people’s property.

I had first witnessed this characteristic in Hanover at Ligna, a wood-products machinery show, as I watched groups of Chinese attendees walk around in tight groups, like a school of fish. I was curious and watched to see if any members of the group ever wandered off by themselves. If they did, I didn’t see it.

One day, I was following the group and witnessed it approach a booth in Hall 24. A few of the leaders engaged they staff on the booth, most of the group formed a wall between the booth staffers and the machines and two individuals got on their backs under the machines and started taking pictures. You can draw your own conclusions, but those days were the infancy of taking digital images and reverse-engineering specs and parts from images instead of samples.

I was pleased to observe U.S. President Donald Trump three years ago start holding China to account, and he quickly ramped up trade and tariff pressures to the point that it appeared for a while that there would be a total break in relationships.

That did not happen, but just when it appeared that there would be a final agreement and cooperation on trade, along came the coronavirus. This appears to be something for which China is simply not prepared.

As usual, there is controversy about China’s role in its own misfortune, and a few British publications are alleging that the coronavirus was the result of a biological warfare accident in Wuhan. Other pubs say that story has been “thoroughly debunked,” and the Russians are saying the U.S. did it to discredit China. I don’t know anything about it, other than we can expect this type of fingers-pointing-in-a-circle on every controversy from now on.

What does this mean for Canada? Unfortunately, it may be another wave of fiscal pressures we did not foresee. Trump may have calculated his hand under the then-existing circumstances, but vast areas of the U.S. economy are dependent on Chinese products — particularly in the areas of components and perishables. And don’t forget electronics.

The U.S. and Canada were lured through the ‘90s and beyond to jump on the Just-in-Time/Kaizen models of efficient supply. That means all those production lines are in jeopardy if supplies are curtailed. We have discussed this before in terms of labour actions, but this is bigger.

DACF and Interzum Guangzhou have been postponed indefinitely in the face of the coronavirus threat. These two represent hundreds of millions of dollars in lost revenues, just for the venues, alone, not to mention every other Chinese show in every other sector.

In my view, this is going to get worse before it gets better, and if you are anticipating a good selling season in light of our positive building permits and other reports, be sure you have a grip on your prospective inventory. The trade picture may be dimmer than you think.

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