Energy & Resources

A question of quality

How the latest scandals from Japan could benefit China Inc


We're sorry: Kobe Steel executives apologise for faking data

One of Japan Inc’s greatest admirers was Deng Xiaoping. On visiting a Nissan car plant in 1978, China’s then leader marvelled at the high level of automation, which meant one worker could produce 94 cars, whereas China’s First Auto Works (FAW) could only manage one per worker.

“Now I know what modernisation means,” he said. “I’d like to welcome my friends in Japanese industry to work with us on China’s modernisation.”

Deng was even more impressed when he got to ride a bullet train from Tokyo to Kyoto, presciently suggesting such a train “would really suit us in China” (these off-the-cuff remarks are recounted by Deng’s staffer Li Lanqing in his book Breaking Through: the Birth of China’s Opening-Up Policy).

WiC wonders what Deng would have made of Japan Inc’s current woes, which appear to be escalating fast. At least half-a-dozen corporate mishaps have come to light over the past few weeks, severely denting Japan’s already tarnished reputation for quality and precision at a time when its manufacturers are under intense pressure from Chinese competition.

Where trains are concerned, Hitachi faced embarrassment in the UK when the new intercity trains it supplied for the country’s West Coast line broke down on their first day of operation after the air conditioning units started leaking.

British social media commentators were quick to lampoon the situation.“The seats don’t look very comfortable, but least they’ve thought about an integral shower to freshen up commuters,” wrote one Times reader. A second contributor concluded that Hitachi should stick to washing machines and fridges, before a third suggested the trains were actually “a washing machine on wheels”.

In addition to Hitachi’s woes, Subaru has just acknowledged that it has been forging inspection paperwork for 30 years, while Japan Nuclear Fuels admitted that it has been fabricating safety checks at its Rokkasho-mura plutonium reprocessing plant since it was completed a decade ago.

Japan’s third largest steel manufacturer, Kobe Steel, has been grabbing most of the headlines, however, after it discovered workers had been routinely falsifying data for copper and aluminum parts for at least a decade too. It has also said the problem extends to its steel business: one of its subsidiaries, Shinko Metal, supplied steel tubing lacking the correct quality assurance for the failed Fukushima nuclear plant, for example. Much of the defective metal was sold to Japan’s car and train industry as well (two sectors where China is a competitor).

The problems were uncovered in August and were announced by Japan’s Ministry of Economy, Trade and Industry at a press conference in mid-October.

If that were not enough, the ministry is grappling with its own inadequate oversight. Trade minister Hiroshige Seko has said he plans to return two months salary in penance after a government-backed lender reported Y265 billion ($2.3 billion) of loans had been made based on false documents.

The Japanese press has been trying to work out what has gone so badly wrong and been quick to point out that the latest series of scandals follows a familiar pattern. Last year, Mitsubishi admitted it had been flattering fuel-efficiency tests and it had to be bailed out by Nissan, which took a 34% stake. Less lucky was airbag manufacturer, Takata, which ended up in the bankruptcy courts after its product started exploding in cars (Takata’s main assets have been snapped up by Key Safety Systems, a Chinese-owned Detroit-based firm).

Japan’s Nihon Keizai Shimbun tells its readers that Japan’s embattled corporate sector has become front page news around the world. It notes the BBC is regularly publishing updates about Kobe Steel and says the New York Times made the story its front-page lead.

It cites part of the New York Times article, which says, “The country relies on its reputation for quality manufacturing as a selling point over China and other countries that offer cheaper alternatives. But its reputation has been marred by a series of problems at some of Japan’s biggest manufacturers.”

In its own lead, Asahi Shimbun uses a joke to bemoan what it considers to be the root cause of the problem. Taking the example of a sinking cruise liner, the newspaper demonstrates how the captain might urge men from different nationalities to try and save their families by jumping overboard.

The captain tells the English, “At a time like this a true gentleman would jump.”

He approaches the Germans with, “According to the regulations, all men must jump.”

And he then explains to the Japanese, “Everyone has already jumped.”

Asahi Shimbun suggests that Japan’s culture of collective behaviour is the issue: “I don’t want to believe that this herd mentality – that cheating is no big deal if everyone is doing it – has already taken hold in our society.”

One former Kobe Steel employee also tells the International Business Times the falsification was not really about greed but a silence stemming from “fear and loss of pride”.

Hiroshi Osada, a production quality expert from Bunkyo University has come to a similar conclusion. He tells Reuters that Japanese firms must do more to develop a culture where workers feel able to raise concerns and say no to their bosses.

Shin Ushijima, president of the Japan Corporate Governance Network, also adds that Japanese boards need to become more active.

The Financial Times argues the issue is less about Japan trying to cut corners but relates to its own societal quirks, which do not translate well in a globally connected economy. It says Japan is displaying “symptoms of a hermetically sealed economic system that is reaching its limit”.

In China, newspapers and netizens have been wondering whether the country’s automakers and railway firms can take advantage of the situation.

The share price outperformance of railway rolling stock manufacturer, CRRC, over the past week, which climbed more than 8%, suggests investors believe its leading players can benefit. (Japan is its main rival for selling high-speed trains around the world – having won the tender for an Indian bullet line. Arguments of superior Japanese quality and safety may now be harder to make, boosting CRRC’s sales pitch to national train operators.)

In its usual fashion the Global Times takes a patriotic and anti-Japanese stance. It argues that “Japan’s determination not to be mediocre means it has pushed itself beyond its limits,” causing all manner of problems. It concludes that Japan is attempting to “retain its short-lived glory” as a manufacturing powerhouse – after two decades of little or no growth.

At the other end of the spectrum are the netizens who believe China has nothing to scoff about. One suggests that when it comes to fraud, China really has no equal. Another says that Kobe Steel may have done wrong but in China, “once you’re caught you just need to change your business address and carry on as before”.

This cautionary advice was also proffered by another blogger: “Instead of jeering at the neighbours being caught out by fraud, lets mend our own fences.”

But Beijing Business Today probably typified the mainstream media reaction. Its article was headlined “Collapse of a Myth: What’s wrong with Made-in-Japan?”, which lists Japan’s challenges as a slowing domestic market and increasingly fierce international competition. It says this means the country has had to simultaneously lower its standards and improve efficiency, which has caused morale issues.

Trying to sustain a facade of success has not only caused huge anxiety, but also led the country down the road to fraud, the newspaper concludes. It cites a poll conducted by German magazine Quality Management, where 75% of respondents said the quality of Made-in-China goods will be much better in 20 years.

The broad conclusion: it’s a good opportunity for China’s manufacturing industry. “So long as our brands stand strong, we can play to our best in manufacturing,” wrote one netizen.

This opportunity may appeal to Lei Jun, the boss of tech firm Xiaomi. He made a big deal of the fact that his new rice cooker could compete with the best Japan has to offer, but at a fraction of the price (see WiC378).

To test this claim WiC purchased one late last month. Our verdict: don’t write off the Japanese just yet. The Xiaomi cooker is far inferior to Panasonic’s rival product. A key reason: it’s unable to cope with excess water levels unlike ‘smarter’ Japanese versions we’ve used. Also when opening the lid, water that has condensed on its underside drips straight into the cooked rice…

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