Email of the day (1)
Comment of the Day

December 05 2012

Commentary by Eoin Treacy

Email of the day (1)

on the quality of Chinese manufactured capital goods:
“My comment on capital goods was a reference to train rolling stock. Both suburban passenger and freight cars for iron ore and coal. Australia buys a lot of this equipment. China builds this transport equipment for about half the cost of local Australian sourced product. Despite putting Aussie quality control engineers on the ground in China all this rolling stock has to be reworked before it can be commissioned in Australia. The engineers comment as soon as your back is turned Chinese workmanship deteriorates very fast.

“On the positive side I also met a businessman from NZ that acted as an agent for a Chinese SOE. Among its many businesses this SOE manufactured stainless steel products for the oil and gas industry. This chap was insistent the stainless steel tanks and equipment are of the highest quality. That he sold the equipment to all the big US drilling companies. He would bring the equipment buyers to China to inspect the quality of the product. He was salesman but he was very convincing.

“There does seem to be expertise in key area of the economy but how widely these skills exist across the Chinese economy is difficult to judge.

“As you say buyers need to be careful.”

Eoin Treacy's view Thank you for this enlightening email which I'm sure will be appreciated by the Collective. There are still a substantial number of Chinese companies that seek to compete on price rather than quality. This is a well-known fact among those who deal with Chinese manufacturers regardless of the product they wish to have manufactured.

Mrs. Treacy has certainly experienced the situation where she has negotiated hard for a product run only to find later that the materials used were substandard and contrary to the agreement. This is generally how low margin businesses shave an additional profit from a deal they agreed to but are unhappy with. Unfortunately, this is also a risk even when one is prepared to pay a premium for quality.

There is an issue with reliability and production quality but we really should question the merits of always choosing the lowest cost producer in a bidding process. China's efforts to rationalise excess capacity, particularly in the steel sector, are aimed at removing shoddy workmanship from the market but this is likely to be a lengthy process

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