Train defects reveal deeper problems doing business with PRCs

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By: 永久浪客/Forever Vagabond

It has earlier been reported that the defective trains being shipped back secretly to China for repairs were found to have impurities in their aluminum train car bodies, a very likely cause of the cracks found in the trains (http://theindependent.sg/smrt-secretly-shipping-35-prc-made-trains-back-to-china-for-repairs).

One might ask, why would there be impurities in the aluminum used in making the train car bodies? Actually, pure aluminum is relatively soft and is not suitable to be used for structural applications. As such, other elements such as copper, magnesium, manganese, silicon, tin and zinc are typically added to form aluminum alloys. Most of the aluminum reaching the marketplace has been alloyed with at least one other element (http://www.sapagroup.com/en/sapa-profily-as/aluminium/aluminium-alloys).

There are various grades of aluminum alloys created suitable for different kind of applications in the industry (https://www.metalsupermarkets.com/7-things-consider-choosing-aluminum-grade). And there lies the most important point – different grades of aluminum alloys would command different prices. This loophole can easily be exploited by an unscrupulous manufacturer. To explain this better, imagine you want to buy a “Mao Shan Wang” durian but the unscrupulous durian seller decides to sell you a D24 durian at “Mao Shan Wang” prices. You would have been taken for a ride by the durian seller in this case.

Coming back to the SMRT trains, it’s not known what is the actual cause of the cracks found in the train bodies and from the way things look, LTA doesn’t seem like a transparent agency willing to inform the public about anything amiss voluntarily. Perhaps our good opposition MPs can try their luck in Parliament to get some answers from our Transport Minister Khaw Boon Wan instead.

Corruptions and culture in China

In any case, most people will agree that doing business in China is not easy. There are cultural differences to deal with as well as potential corruptions.

For example, experts in food safety and plant operations would say that plants operating in China even with the most rigorous protocols and standards can be undermined by some of the Chinese culture (http://www.chinalawblog.com/2014/08/china-bad-meat-cultural-differences-and-anti-corruption-compliance.html).

Andy Tsay, a professor of operations management at Santa Clara University made an interesting observation at a food plant, “The average Chinese factory worker comes from someplace where food has likely been scarce and picking up a piece of meat that has dropped on the floor and eating would not be unusual.”

Steve Gruler, chief executive of Global Quality Consultants, a firm that provides risk management advice to a variety of companies, recalled visiting a grain elevator in China where workers were unloading grain onto trucks. “A plume of dust comes from under the door of the elevator and rises up over the truck,” Mr. Gruler said. “Our eyes got about as big as saucers.”

Grain dust is highly combustible and such explosions have been deadly. Mr. Gruler and a colleague asked the engineer at the facility whether it had a dust collection system. “Oh, yes, he said, but it had been shut off to conserve electricity,” Mr. Gruler said. “He didn’t understand that dust could cause an explosion that would blow the place apart.”

Stefan Chen, SVP and GM for OSI China, the company which supplies meat to McDonald’s and KFC in China, recalled in an interview, “When we began building modern broiler houses, we found that the workers often took shortcuts even though every detail was spelled out in the plans.”

“For instance, they would change the size of a window to save material. This seems like a small thing, but it affects the ventilation, which affects the production efficiency,” Chen added.

Bribery ‘an unspoken rule’ in China

Then, there is the endemic corruptions in China.

Forbes reported last year that a startling 35% of companies in China pay bribes or give gifts in order to operate. One CFO went to so far as to describe the practice as “an unspoken rule.” (http://www.forbes.com/sites/richardlevick/2015/01/21/new-data-bribery-is-often-an-unspoken-rule-in-china)

Companies reported that the leading reason for corrupt payments are offered as “competitive pressure”. In an around Beijing, 43% of companies report the need to bribe or give gifts. In the southeast regions of Guangdong, Chonqing, and Shanghai, those figures are slightly less at 43%, 39%, and 38%, respectively.

Among the industry sectors, the highest incidence of graft is in real estate and construction, where corruption rates sit at 44% for residential realty, 42% for transport infrastructure building, and 39% for commercial realty and home building.

In the manufacturing sector, payments to officials were most common among metal producers at 46%, followed by auto makers and chemical firms at 33%. The services, retail, and transportation industries round out the top five.

Drug and food safety watchdog chief executed

In fact, not long ago, corruption was so bad that China had to execute a former drug and food safety watchdog chief, Zheng Xiaoyu (http://www.chinadaily.com.cn/china/2007-07/10/content_5424937.htm). He was convicted of taking bribes worth some 6.5 million yuan ($850,000) from eight companies.

His execution marks the first time China has imposed a death sentence on an official of his rank since 2000.

“Zheng Xiaoyu’s grave irresponsibility in pharmaceutical safety inspection and failure to conscientiously carry out his duties seriously damaged the interests of the state and people,” the Chinese court stated. “The social impact has been utterly malign.”

Zheng was found to have taken bribes so as to approve an antibiotic blamed for at least 10 deaths and other substandard medicines. Investigators also found Zheng and his subordinates abused new rules in renewing drug production licences to squeeze kickbacks from companies.

His misdeeds led to approval of many medicines that should have been blocked or taken from the market, including certain fake drugs.

In any case, our LTA Chief, RADM (NS) Chew Men Leong and SMRT Chief, LG (NS) Desmond Kuek should be made aware of the culture and practices in China. That is to say, corruptions may be happening among the different layers of management inside a Chinese company. Where there is corruption, something else will give way, like the quality of products. Such knowledge cannot be learnt from Harvard nor the SAF. It comes from experience dealing with Chinese companies.

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