Having read these books multiple times, I have found them instructional and deep in trying to understand the intent of Chinese factory owners and Chinese manufacturing in general. China’s manufacturing tactics heavily borrow from Chinese culture, which is much different in philosophy from the West.

Poorly Made in China

– Paul Midler, Jan 2011
The author goes through stories of North American traders and their dealings with Chinese factory owners. While his trials and tribulations are interesting, some of his overall observations are enlightening.

Quality cannot always be guaranteed
A store will set out specifications for a product, but if the factory makes minor or even major changes the product is already being shipped and no modifications can be done. Quality cannot be checked because on most products it is too expensive for the manufacturer or importer. The responsibility and cost then lies with the retailer, which by then is too late.

There are Chinese cultural attributes that make quality control and management in china problematic:
-savings: a single minded pursuit for savings can compromize quality
-factory causes the quality problem, wants the agent to pay to fix it
-quality fade over time: substitute of inputs, slowly over time, so no one notices, until they do
-counterfeit is part of culture
-short-term vs long-term thinking: take small steps forward, then reassess, vs thinking long-term

Trade Theory: China’s Two worlds of IP and non-IP
An interesting trade theory is presented in the last chapter of the book. The author says that China trades within two worlds: the IP regulated world of the First World, and the non-IP world of everyone else. This includes South America, Africa and most of Asia. The IP world is much smaller than the non-IP world.

China and the non-IP world cannot and do not do much original design work, but of course, appreciate new designs. China will make a product for the IP world at cost or even a loss, if they can get access to the IP world’s design. Chinese manufacturers can then display these designs in their showrooms during trade shows. This shows off the capability and experience of the manufacturers. China can sell the initial excess overruns (order was for 100, factory makes 150) or copies of these designs to the non-IP world, who they charge a premium. China, therefore makes a handsome profit from the non-IP world, which is much larger than the IP world. This is where Chinese factories makes their money.

The trick for the IP world to get a very cheap price from Chinese manufacturers, is their original designs, or their IP. Repeat orders do not benefit the Chinese manfacturer, as they are usually smaller than the non-IP orders. More importantly IP world repeat orders do not allow the Chinese factory to expand their capability, and therefore sales, to the non-IP world. Once the IP world’s product is initially produced and the design is learned by the Chinese factory, the initially near-cost price goes up to match the price sold in the non-IP world.

This IP and non-IP world view is supported by the Chinese government and banks, because Chinese factory owners can obtain loans on zero profit, on the expectation that they will make much more money in the future by selling to the non-IP world. Western banks, looking for a business plan, would never lend to a company with such a plan, but in China the government backs the banks and takes the risk.

What’s Wrong With China

– Paul Midler, Nov 2017
wo shangle zeichuan
-optimize profits, economically optimal point -> morally agnostic
-low trust culture > social weakness, chaos > totalitarian rule
-intermediaries
-support both sides more beneficial
-symbols of modernization
-exceptionalism / collective narcissizm: China is smartest, superior in methods and practices
-one-on-one relationships, not what they did in the past
-no tradition of philanthropy, suspicious of aid
-flexible partnerships, evaluate along the way
-paochia system of shared responsibility
-autonomous, self-regulating systems
-informalizm: flexible but uncoordinated: less written down, more people oriented, but quite a lot of coverup for informalizm errors
-rule of man, not rule of law: loose rules -> flexibility
-severe penalty, lax enforcement
-social harmony: partial blame to both parties, less loss of face
-quick penalties even for minor offences
-witness accounts mistrusted -> biased
-rely on confessions -. torture
-cycles of wealth
-wealthy factories have less to worry about, go supernova
-nibbling as a negotiating tactic
-cat’s paw approach: getting others to intercede
-reach tech goals before the cycle collapses, then bask in the history of accomplishment

Both books are a good read for China buffs trying to learn some of the philosophies that affect Chinese manufacturing and companies. The first book has more stories and is more anecdotal. The second book has more theory backed by behaviors and is more scientific.

It is clear that the West, or the IP world, is trading short-term profit and losing to China’s tactics long-term.

Addendum 2018 Apr 03

A recent book published by Paul Midler entitled “What’s wrong with China?” suggests that in the deep national psyche of the Chinese, everyone including the rulers “have internalized the dynastic cycle” and have “no faith in the permanence of their political arrangements.”…

According to the book, from this mindset towards political authority stem several noticeable traits including; “the passion to get while the getting is good, the gambling instinct, and the leaders’ determination to put off the inevitable day of dissolution as long as possible.” As discussed above, the recent proposal to enthrone Xi does seem to echo that last point, and it may be that there is a kind of moribund resignation shared among China’s leadership about the potential future straits of the party’s governance. source