Page last updated at 16:25 GMT, Monday, 27 July 2009 17:25 UK

Why do Western firms buy Chinese?

By Chris Hogg
BBC Shanghai correspondent

Staff at Chinese firm Etron
Chinese salaries have increased strongly in recent years

Senior Chinese officials will hold meetings with their opposite numbers from the Obama administration this week.

They will take place in Washington at the first meeting of the new Strategic and Economic Dialogue scheme between the two countries.

Trade will take centre stage. Voices in each country have accused the other of protectionism in recent months.

American manufacturers complain that China keeps its currency undervalued to help make its exports seem cheaper.

But is that really why customers buy Chinese?

Etron is a small company in the city of Suzhou, in eastern China, that exports 95% of its products.

It is not doing badly in the downturn. Far from it in fact.

Sales of the electronic components it manufactures for firms around the world were up 70% year-on-year in the first half of 2009.

There are too many factories in the world, making too many products, and at the moment customers don't want to buy so much
Etron managing director James Qian

The premises are small, but this is no sweatshop. The machinery on the shop floor is second hand, but advanced. It does the job.

To get to the production line you pass through a high tech decontamination chamber. It feels like Japan. Spotless floors. Brightly coloured uniforms for the workers.

The managing director, James Qian, is a new type of Chinese businessman. He speaks English well.

He has ambitions for his daughter to go to an English university. Clearly he sees the value of good public relations, he's generous with his time and patient as we film with him.

'Produce better products'

Mr Qian says the company is doing well because small and medium-sized firms from Europe and North America are now confident they can get the products they want from him at a good price, but matching the quality of those produced in their markets.

Wang Feng Lian
They don't outsource work to us because we're cheap. It's because Chinese workers know more these days and produce better products
Factory worker Wang Feng Lian

He acknowledges that many foreigners find it hard to do business here.

He's well aware of their complaints that contracts are not always as water-tight as they should be, and negotiations are often re-opened long after a deal has been signed and sealed.

He says in his business, as a small factory, dealing with other small companies from around the world, he can't afford to behave like that.

As we tour the factory floor, it is clear he is proud of his workers. They are part of a new generation who are more skilled than their parents.

Wang Feng Lian is 24. She's from a neighbouring province, about three hours drive from the factory.

She's sitting at a bench, examining a newly printed circuit board for errors in a huge magnifying glass. She's a migrant worker with a college degree.

She says she's heard of the problems American workers face as manufacturers close their factories, but she doesn't think it's because China's undercutting them on price.

"They don't outsource work to us because we're cheap," she says. "It's because Chinese workers know more these days and produce better products."

'Global manufacturing glut'

Here they reject the charge made by some in the US that China cheats when it comes to trade by undervaluing its currency.

Worker checking circuitboard
Chinese factories have increased their technological knowhow

So why then do US firms find it so hard to compete with them? The managing director, Mr Qian, blames a global glut in manufacturing caused by shrinking demand.

"To me it's quite simple. There are too many factories in the world, making too many products, and at the moment customers don't want to buy so much," he says.

China itself is not immune to the economic pressure that has had such a devastating impact in the States.

The Etron factory employs 190 workers on the production lines. Their average salary is 1,600 yuan ($235; £142). Five years ago the factory paid just 600 yuan.

One big concern for Mr Qian is how to keep his workers, without increasing his wage bill even further.

Back in February, March and April, when China's economy appeared to be slowing, it was easier to recruit new staff. Now it's getting harder again.

He pays more than some other factories in the area, but he says the key is to keep his workers happy.

That means visits to the cinema on a weekend every few weeks, a barbeque for them every two months.

Last year he took his administrative staff on a holiday to Phuket. "It cost 6,000 yuan," he says, "but if I gave them that money they would just put it in the bank.

"They all, had fun, they all came back and told their friends all about it. That's the best way to keep your employees - keep them happy," he says, smiling.

No safe jobs

America's losing large numbers of manufacturing jobs now. China fears it too may soon face the same problem.

One of the firm's competitors in Suzhou lost half its business recently, when a big multinational television manufacturer decided to stop using the Chinese supplier and switched the business to Malaysia, where it was cheaper.

No job is secure in today's global supply chain.

Over lunch, the managing director introduces me to one of his customers, an engineer from a big German company.

We discuss why the German firm use a Chinese manufacturer rather than a European or a North American one.

"Customer service," he says. "These days firms like this one really understand what we need from them. If there is a problem with a product or a process they come up with a solution fast."

His company recently moved production from Canada to China. I ask him whether the company could get the same quality product in China that it could before.

"Put it this way," he says, "moving was the right choice".

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