Railway Reform is Coming to Town

In the Hutong
Managing Chaos
1311 hrs.

In a characteristically articulate editorial last week, Caixin called for an extensive overhaul of China’s Ministry of Railways (MoR) in the wake of the high-speed train crash in Wenzhou on July 23rd. The publication called for an open investigation into the accident conducted by experts from outside the control or influence of the MoR, for the functions of railway development, construction, operation, and regulation to be divided among independent entities, and for the folding of the resulting regulator into a larger ministry with a purview over the wider transport sector.

These changes are not without precedent in China. Aviation went through a similar change in the early 1990s, the telecommunications sector was similarly reformed five years later, and the energy sector has gone through a series of reforms that have separated the regulatory function from the business of generating and distributing energy. There are so many examples of where this has happened, in fact, that not only is the MoR something of a relic of China’s pre-reforming-and-opening past, it is also a matter of suggestive speculation as to why the MoR was left alone for so long.

So this sort of reform is overdue, and it looks like the higher organs of the Chinese government will try to unravel the hairball of conflicts-of-interest and mismanagement that serve as China’s railway industry.

Quis Custodiet Ipsos Custodes?

Unfortunately, even the measures suggested in Ciaxin’s excellent piece will not be enough. The world is replete with examples of industry-specific regulators who have become intertwined with – and co-opted by – the very industries they were created to regulate. One need look no further than the U.S. financial industry and its relationship with the Federal Reserve, the Department of the Treasury, and the Securities and Exchange commission to find proof, and there are ample additional examples.

The lesson of history is that regulators are most effective when they themselves are watched from the outside. While Caixin’s editors would be too modest (or timid) to say so, it is Caixin and all of the others who are watching the regulators from the outside who provide the best guarantee of a better and safer railway system for China.

SPAMming China Old-School

Spam 2
Image via Wikipedia

In the Hutong
Settling back in
0916 hrs.

The San Francisco Chronicle is running a short, amusing piece by Bloomberg‘s Matt Boyle on how Hormel is planning on bringing SPAM, it’s canned pork product, to China. The twist: because of all of the other low-cost meat-product alternatives available in the market, they want to hawk SPAM as a “premium product.”

This is not as impossible as it sounds, but it will demand that Hormel completely rethink the way the product is packaged, priced, distributed, and marketed. To the company’s credit, they appear to understand that, having ostensibly changed the formulation of the product to “match Chinese tastes” and conducting a marketing program focused on in-store promotion and making SPAM part of a dining experience.

(I say “ostensibly” because I have worked with Western food companies in the past who had claimed to have reformulated their product for Chinese tastes, while in fact they did nothing of the kind, unless you count reducing portion size and substituting local ingredients as “reformulation.”)

There are a lot of reasons this might fail, starting with whether Hormel is ready to spend several years in the effort. The article mentioned that Hormel was driven to China by the drop in Japanese demand after the Tohuku earthquake, suggesting something less than the commitment to a long-term effort that this will require. Chinese might also shy from a canned product pitched as a premium, and local competitors could jump into the fray with more credible premium products. Worse, the article noted that marketing funds were limited, never a good sign when you are introducing a product that requires a change in habits if not a change in tastes.

If there is one reason to be optimistic about SPAM in China, however, it is China’s own issues with tainted food. If Hormel can explain to Chinese consumers why SPAM is not only of meaningfully higher quality but is also a safer product less prone to tainting or other issues, it will have a winner. Food safety is the real hot button in the industry today, and if Hormel can prove SPAM’s safety while selling the product experience, it can not only build a market for SPAM, it will also expand the market for its other products.

Otherwise, SPAM will follow a long procession of food brands that never quite made it here.