Aus der Praxis für die Praxis Introduction I would say a vast majority of people reading this were born before 1980 and most of us well before then. I was just about to start High School in Australia. Australia was and still is an industrialized nation, has mature industries, banking institutions, a well educated workforce and for a high school student looking towards the future there was a linear line and choices for a number of careers if I applied myself. And it would have been the case for most if not all of you. A great life in retrospect. The simplest of lives. No struggle for food. Education a right for all citizens. When sick saw a qualified doctor. Slept when tired. Ate when hungy. Drank when thirsty. Schools and resources barely existed in China in 1980. In 1980 China was an exhausted and impoverished nation. From 1840 with the first Opium War against the British China stumbled and fell into the 20 th century as the one kicked around by the then current various masters of the world. World War 2 which began in 1937 with the invasion of Japan this once leading tecnological for the past 2000 years was brought to it knees. Civil war and independence followed after a century of being kicked around. And kicked around is how the Chinese see it. When the communists took over government in 1949 China’s population was 400,000 million. In 2000 1 billion. 50 years. Today it is 1.3 billion. An extraordinary growth and one that has provided the basis of the last 30 years enormous growth via the labor market and also the many headaches for the Chinese government. But in 1980 the education system had just started again after coming to a complete standstill the decade previously. Banking and capital institutions were moribund and weak. No one owned property, no one owned a business, no one had an avenue to capital with the chance to be able to get product to market and for customers to buy. China was weak, fragile and essentially a basket-case. The entrepreneurial spirit extinguished. Perhaps Chinese’s most famous aphorism is that each journey begins with the first step. And China took it. Within our lifetimes China went from peasant farmers, extreme poverty, divided politically, a dilapidated education system to a sophisticated, diverse, multiple institutions in manufacturing, finance, automobiles, education, tourism, and big enough to get the world out of its Financial crisis in 2007-8 . Today it is the world’s second largest economy in and will soon be it’s largest and it won’t stop there not by a long shot. 200-300 million people have a lifestyle equivalent to the West’s middle class. China has a billion to go before it will be satisfied. The Chinese see the last 200 years as a bit of bad luck and it is now time to take its rightful position at the top of the heap of world countries. I am not here to give a generic economic history of China since 1980 but I will try and give some insight into one industry, the lubricant industry that was affected by all of the changes that happened in China in the last 35 years and what the future may hold. That is socially, economically and politically. See table of OECD projections. By 2030 China will be almost double the size of the USA in economic terms. I think everyone in reading this needs to be fully aware the impact this will have on every industry. We have watched China, we have read about it, we have been amazed about it but I am not sure large and middle companies and governments were doing enough about it. It is a behemoth like no other. It is the elephant in the room. Many still believe in Europe and the USA that China cannot be sustainable. That there will somehow come a day when this juggernaut will falter or political turmoil will cease development and it will all come crashing down. I don’t see any evidence for that. If anything the Chinese see it as the reverse to be more likely. That European and other industrialized nations are the ones that are the most fragile. China has no government debt. After all many industries worldwide are being propped up by Chinese capital, Chinese investment and Chinese consumer sales. What would GM be today without its Chinese market I wonder? In 1980 China had two good things going for it. It had an enormous pool of labor and potential. Initial reforms started with farms as they were no longer “communed” which meant that extra produce could be sold. This meant income, savings and capital albeit on a small scale. It was a deliberate policy from Deng Xiao Ping to promote 44 Tribologie + Schmierungstechnik 63. Jahrgang 4/ 2016 * Paul Turner, olmzhoukan@gmail.com, paul.turner@olmzhoukan.com OLM Group, Shanghai, China China: The Road to Lubricant Efficiency P. Turner* T+S_4_16 02.06.16 12: 27 Seite 44 Aus der Praxis für die Praxis farmers first, as they were and still are the largest constituent. Banks were created for various industries and lending capabilities began for state owned businesses to allow them to expand. Urban dwellers had to wait their turn until the nineties and 2000s for reforms that helped them. It came via housing and ownership. There was no such thing as a mortgage in China until 1998. Prior to 1998 urban dwellers were essentially given the houses they lived in and owned by the state via the state owned company they worked for, for a small amount of rent in which they could live forever. They ate together in the same canteens, dressed the same, read the same, and watched the same movies in community centers. They received the more or less the same pay and celebrated the festivals without fuss centered around food which of course remains a vital and important part of Chinese culture. A dull life but better than it was. You were eating well. Your teeth were looked after. Protein via pork and chicken was no longer an issue. These were the good times compared to the 150 years that proceeded it. Colors bloomed and girls grew their hair long and boys wrote poetry. But it then went up a level. It got real interesting. After 1998 China changed direction. From 1998 you could buy the house you lived in, remarkably cheaply and own outright, which set off the housing market, slowly at first as people got used to this peculiar thing called personal ownership. This inadvertently set off divorce rates. It meant the state had to find another unit or house usually unit and in turn you could buy that, essentially setting up a family with two properties. When the government caught up with this little trick (or perhaps encouraged it) the clever ones mostly in Shanghai and Beijing simply remarried and used the houses as basis for credit and mortgages. It set off the housing boom that has gone unabated since but also allowed entrepreneurs to utilize this new capital and in the early 2000s China went boom. Along with the easing of foreign investment regulations, a banking system becoming more dynamic and learning how to make money via lending and investing inclusive and willing to lend as they too sought to profit from deregulation … to a point. Hong Kong and Taiwan played enormous roles in providing capital and setting up property and businesses throughout China mirroring their own mature banking, legal and corporate systems. There were enormous setbacks as China was still embracing change or at least wondering whether change was a good thing. The events in Tiananmen Square in 1989 slowed the government’s process but didn’t stop. The world saw the ugly part of China’s transformation. More a reaction to change than a demand for democracy but I am not sure anyone in the west at the time saw it that way. China was isolated again. Sydney beat Beijing for the 2000 Olympics, companies that were looking at investing in China baulked and waited. But to Deng Xiao Ping’s credit he forced China forward. They kept investing and they kept changing. Eventually the Chinese themselves saw change as normal and importantly embraced it. There was a growing middle class who aspired to grander things, farmers saved and invested in their children’s futures, the slowly building middle class became aspirational and the few rich even started playing golf. When I arrived in Shanghai in 2000 there was one subway line that cut beneath the city west to east. By 2010 there were 16 lines as Shanghai showed itself off to the world by holding the International Expo. But it took effort and it took pain and inconvenience. Inconvenience is something China knows well and knows how to tolerate it. The 2000s Shanghai and Beijing were under construction continually 24 hours a day. Each street had something being pulled down or being built. Every single one it seemed. These now shining metropolises were noisy, dusty and polluted. They are still polluted but getting better and it is now government policy to clean them up. But they pulled it off and by 2008 when Beijing had held the Olympics the rest of the world was screaming towards a financial crisis and a growth paralysis it seemed China would also fall prey to the International financial stresses it was now wholeheartedly a part of. Not China. China saw it and banked for it. It had all the equipment it needed, all the technology it needed or if it didn’t it could invest in it and create it. Trillions of dollars in foreign savings and all of a sudden it was the rest of the world that turned to China for help. That is a turnaround of just 35 years. Tribologie + Schmierungstechnik 63. Jahrgang 4/ 2016 45 It seemed that no one noticed this change in global politics and economics until about 2005. All of a sudden everyone clamored to get on the China bandwagon but it was China that dictated terms on how you could invest in China. For foreign investors the future for China is no longer just its large manufacturing base for making cheaper products but its many varied industries, services, banking, transport, tourism and education. And of course the lubricant industry is one of them. T+S_4_16 02.06.16 12: 27 Seite 45 Aus der Praxis für die Praxis Li Jia In 1980 the lubricant industry consisted of industrial yard productions in woks to produce lubricants. No quality control, no technology, no brands and no market besides keeping whatever machinery there was going. Mainly bicycles! By the nineties large scale manufacturing had arrived, foreign brands poured into China with technology, money and know-how and the world was buying cheap products from China keeping inflation down for nearly two decades for the beneficiaries of these products. The West. components for everything and obviously an area where there is a demand and need for lubricants. Lia Jia’s product was called Monarch and with a financial backer got on the road to sell the product. The dusty roads of north eastern China were unforgiving places in the nineties. Competition was fierce but due to the consistency of the product he was getting popularity and notoriety and more than once escaped knife fights, countless threats and eventually, surely a sign of success, counterfeiters. He said he had to constantly change the branding and packaging of his product because within 13 days of putting a new product or brand out it would be copied and distributed. (WD40 picture) 46 Tribologie + Schmierungstechnik 63. Jahrgang 4/ 2016 The Chinese lapped it up, and kept on growing their own manufacturing plants and brands. Li Jia armed with an architecture degree and a failed venture in the dog food market (The Beijing government banned dogs as pets for a couple of years in the early nineties) saw an opportunity in the lubricants industry and jumped into the market with profound ignorance. But he learned and learned quickly. His first step was to make various lubricants with consistency. In a Beijing factory space he had a series of enormous woks 12 feet across and 3 feet deep (That’s a lot of fried rice) trying to get a consistent heat and getting the right additives with whatever was available. North and eastern China was and still is the heart of heavy industry. Beijing, Tianjin, Shenyang, Changchun, Jinan were ugly cities in the nineties but busy. Steel makers, car makers, fleet manufacturers, car parts, metal T+S_4_16 02.06.16 12: 27 Seite 46 Aus der Praxis für die Praxis Obviously the copies were of inferior quality but it was a constant battle for market share as it still is. Despite the obvious concerns with fake products that are still an issue, it does show that there was a growing market, a demand for quality and a strong entrepreneurial spirit. Something that the Chinese government always had to catch up on as its people ran ahead of them both legislatively and in policy. More often than not the government quickly caught up to open more opportunities and provide better safeguards for brands and quality issues. But it still needs to be policed and fines harsher to make a bigger impact. The main problem with a country the size of China that is developing is that there is so much to do. Not only is this behemoth changing it needs to legislate for those changes without backlash. Back to Li Jia. After 11 years from making lubricants in giant woks, walking through the Dickensian streets of industrial China selling his wares and setting up (most importantly) distribution networks in 2 d and 3 rd tiers cities his brand Monarch via his company Beijing Tongyi Petroleum Chemical Co was turning over 260 million USD per year. In 2006 he sold a 75 % share to Shell that was a major strategic move making Shell the leading foreign brand for market share in China. In every industry and every market there are thousands like Li Jia working their guts out and getting their piece of the pie. Not bad for an architect. Lubricant Market today One of the most frustrating things for lubricant producers such as Mobil, Fuchs and Shell is the inability to get into the Chinese market the latest developments and improvements in lubricants. I hinted at it before. There is strict regulation about what chemicals and additives can be allowed for market. The lag between product ready for distribution and the legislation to be approved and allowed to go into the market can be years. It may be a deliberate policy for the Chinese brands to catch up. The winter of 2012-2013 was a fulcrum for the government. The extraordinary pictures out of Beijing and other northern cities was literally breath taking. The government realized that the best lubricants will play a part in curbing emissions and creating efficiencies. Hence the government is concerned of the quality of lubricants used and who is making them. There are currently about 4,000 lubricant producers throughout China of varying quality and the government wants these to be reduced dramatically and SOEs will need to use premium lubricants and the inferior ones dismantled and banned via legislation and market demand. This is where the foreign brands can get a foothold. All of the majors have joint venture deals with SOEs or private companies but China obviously promotes its own. This is the China method. It learns what it needs to know and then goes ahead and makes it itself. In 2004 BP, Shell, ExxonMobil, Fuchs had 80 % of the market for industrial lubricants. Today they hold about 30 % of the industrial lubricant market albeit a much larger market at approximately 60bnUSD. Joint ventures for Chinese companies mean capital, expertise and knowledge. For foreign companies it means access to the great Chinese market and all that potential so they have to share the spoils. They don’t have a choice. Sinopec via Great Wall lubricants and PetroChina with Kunlun (52 % with these two brands). Both dominate the market as was always Beijing’s intention. Only recently has a foreign brand been able to own gas stations. If you enter a gas station you don’t have to get out of the car. There is always a number of attendants that will do everything. Most do not have a shop and if there is they rarely sell anything besides instant noodles and chocolate. There are no lines of engine oil products, car accessories, food, toys etcetera as is normal in western petrol stations. So there is potential there and there are nearly 200,000 of them. But if the majors want to make money with petroleum at the pump they must do so via exploration and joint ventures with Chinese companies. Oil Analysis The analysis industry is probably the last cab of the rank to start developing. The nineties that roared for China meant that machinery was simply run into the ground until they stopped. The common business practice was simply to buy another machine. Maintenance was not a top priority for most. Profits were high and growth exponential. The machinery bought from the US or Germany, the maintenance brochures were not in Chinese! Tankers transporting diesel the day before would the following day be filled with water and something else the day after. No one was testing or overseeing what was placed in machinery, lubricants were lubricants and would simply be used across multiple machinery components without checking if there is a need for a different type of lubricant. Mechanics would use the same engine oils for cars, motorbikes, scooters and trucks. And the lubricant they used may or may not have been a fake or a copy. The result was inefficiency and waste. Industrial accidents due to poor maintenance were a tragic consequence of the expansion of the Chinese economy in the 1990s and 2000s. I don’t know the actual figure but China due to most living in high rises in their urban centers would have more elevators/ lifts than anywhere else. The cables for lifts need a particular lubricant and the amount of stories that are in the papers about lift shafts collapsing, causing injury and death were numerous and still is the case today albeit on a smaller scale. I have tried on many Tribologie + Schmierungstechnik 63. Jahrgang 4/ 2016 47 T+S_4_16 02.06.16 12: 27 Seite 47 Aus der Praxis für die Praxis occasions to talk to companies that make lifts about maintenance procedures and all are reticent to speak out in case it creates a business backlash. Again regulations and organizations need to be created to oversee these issues and the Chinese are doing just that. We run a website in China www.olmzhoukan.com that sends out weekly tips and a newsletter that concentrate on lubricants, oil analysis and maintenance procedures. I believe we are unique to have articles about oil analysis in China. It is not widespread and most would have no idea what you were talking about. I have yet to hear a taxi driver that knows anything about engine oil analysis. Of course it exists and has done for quite a while. It is an industry that will grow exponentially over the coming years and decades. Certainly ExxonMobil is counting on it as they set up their 60million USD laboratory for oil analysis in Shanghai, their largest in the world. It is enormous. Caterpillar, Fuchs, Shell, Volvo all have inhouse laboratories that over see their industrial aftersales services. There are many private laboratories that are now opening up but the volumes are small for now but the long term goal is that it will grow and grow it must. Samples that do arrive can sometimes be in Coke bottles but this is changing as we ourselves make bottles for laboratories throughout China that is the equivalent of those we produce for western laboratories. But every major analysis player is in China. Bureau Veritas, Inspectorate, Intertek, Analysis Inc, Oelcheck, ALS and others. They of course have their own networks as they have industries from their respective nations and regions that have set up in China and use the same maintenance practices. Again this will simply grow into the future. Media In 2000 there was no such thing as social media in China nor anywhere else for that matter. The iPhone, You Tube, Google, E Bay, Twitter were still to be born and spread. The internet was essentially new, some had mobile phones. By 2014 and China has the most mobile phones in the world, China’s E-Bay equivalent Alibaba is 5 times the size of E-Bay. They have all the equivalent social media that exists in western countries just bigger. Weibo, QQ, Wechat, Baidu, Youku etc. With change being normal the Chinese fell in love with new technology and transformed their businesses. It also meant intense competition between companies via outright fighting on blogs and forums. Chinese love forums. It also the conduit for nationalism and that certainly filters its way into the lubricant industry. There are many lubricant blogs that are employees of SOEs or private lubricant companies that spend their time defending, ridiculing competitors’ products and promoting their company’s products and their nation’s products. It is a daily ritual to find comments like -Only Chinese lubricants work in Chinese machines and that foreign lubricants are not suitable and can damage machinery. The Japanese receive the most invective but the rest cop it as well. Is this a sign of increasing nationalism or just the naivety of a very large but immature market? We at OLM spend a lot of time dispelling myths and putting forward practical information from reputable sources. There is a great deal of respect for certain brands, worldwide brands, many I have mentioned already that are now heavily invested in China. Germany has an unprecedented reputation in China due to its phenomenal industrial and automotive machinery. Almost every factory I visit has a piece of German machinery if not exclusively German. 48 Tribologie + Schmierungstechnik 63. Jahrgang 4/ 2016 Analysis and maintenance has huge potential. Companies are desperate for trained people and the education around maintenance, conferences and training programs will become more and more the norm for companies to keep their employees up to date with practices. Certification from the world’s leading organizations and companies are now offering these. I have spoken over the last couple of years with Ed Salek and Bob Gresham from STLE about their steps getting into China and I know they are very excited about the potential for their organization. And so thry should be. Australian mining companies have made great inroads into mining safety after thousands upon thousands have died over the last 3 decades. Such growth brings with it high risk and cutting corners has brought too much tragedy to this sector. Factories are cleaner and more worker friendly than they were just 5 years ago due to training and being in joint ventures with foreign companies that have standard workplace regulations as we would know them in the west that are now filtering through the Chinese industrial complex. Opportunities galore and many more to come in the maintenance, workplace training and analysis industries. T+S_4_16 02.06.16 12: 27 Seite 48 Aus der Praxis für die Praxis Summary All politics is domestic. I didn’t want to end with a cliché Chinese proverb, aphorism, expression, or whatever you want to call it. There was no need not to. They are wonderful and insightful. I thought. A profound one. A wise one. Perhaps a well known one. I thought maybe the one about the 3 blind men feeling an elephant and asked to describe it. One feels the trunk and thinks it a hose, the other the tail and says it is a whip and third feeling its side and thinking it is a wall and that would describe China quite well. Large, complicated and interesting. But I like change as well and the modern aphorisms are gems. But my favorite is 不容脱裤子放屁 - Bùróng tuō kùzi fàngpì “There is no need take your pants off to fart”. Which essentially means keep it simple. Don’t make things complicated for no reason. I think we need to take that attitude to China. Don’t complicate a relationship with China via the baggage it comes with and the baggage the West brings with it in regards to China. China will do what it wants and will get what it wants to ensure its domestic well being is looked after. Everything else is a distraction and is not priority. Many of you I would suggest would not know the name of the Foreign Minister for China. For a country so large and having to deal with international issues you would think his name would roll trippingly off the tongue. But the foreign minister and international issues are not priority. Wang Yi who is the foreign minister sits in the Central Committee who reports to the Politburo who in turn report to the Politburo Standing Committee where you can be sure when they sit down to discuss policy the top 100 issues to deal with will all be domestic. Clinton Dines who ran BHP Billiton in China during the 2000s recalled the story of Wen Jia Bao, the former Premier, when the European finance ministers bailed him up in Brussels complaining about the strength of the Renmenbi (China’s currency). They nagged him about how it affected trade balances with Europe. He simply turned to them and said uncharateristically vehemently, -we will move the currency when we think we should and not when you tell us to. We have bigger priorities. China will be an engine for growth for the rest of our lifetimes as it will be for future generations. It’s not going anywhere and will be the biggest economy ever known in human history very soon. According to the Kline and Company, global lubricant demand is estimated at 39.5 million tons in 2013, up slightly from 38.8 million tons in 2012, with the Asia-Pacific region accounting for 43 %. What percentage of that is exactly contributed to China is never easy to pin point as figures are rarely released as an overview as companies are very protective of such figures. Lubricants is just one of the many industries that will be on the ride that is the unstoppable force that is China and energy and its dependents like lubricants will be the centrepiece of its future. Tribologie + Schmierungstechnik 63. Jahrgang 4/ 2016 49 Aktuelle Informationen über die Fachbücher zum Thema „Tribologie“ und über das Gesamtprogramm des expert verlags finden Sie im Internet unter www.expertverlag.de Anzeige T+S_4_16 02.06.16 12: 27 Seite 49