Tuesday, July 05, 2011

Cost of Low Cost

Labor cost is not the only reason foreign manufactures rushed to China to set up plants. Although China's labor cost is up, foreign companies are not expected to leave.

ConocoPhillips was caught in a situation BP faced after the Mexico Gulf Oil Leak incident, after a micro-blog indicated an oil leak was on-going in the Bohai Gulf on June 20, 2011. The China's State Oceanic Administration responded half months later, with an official Xinhua news release, in which the oil leak was said to be within an area of '20 square meters (about the size of a typical family kitchen room, it is not a typo)', and had been cleaned up. All news agencies were instructed to use the official Xinhua news release, and prohibited from reporting on the incident.

Bohai Gulf is almost encircled by Liaodong Peninsula and Shandong Peninsula. Approximately 78k km2 and blocked by East China Sea and the Yellow Sea, it is almost an inland lake. According to personal blogs and twitters, oil accumulations could be see as far as hundreds of kilometers away from the alleged leaking place by tourists and fishermen.

The State Oceanic Administration declared the clean up had been completed in a news press held on July 4, 2011. Oil trace on water was reported to the agency as early as June 4th, but the origin was not located until sometime after June 17th. The agency stated the leak was 'almost under control' by June 21st. The agency also stated the maximum fine for such incident was CNY 200K ($30k). US based ConocoPhillips was found solely responsible for the oil leak.

ConocoPhillips was awareded Penglai 19-3 Oil Field, the largest off-shore oil field in China with 0.8 billion barrels of known reachable oil reserve. Oil prospecting in Bohai Gulf had been a low hanging fruit with success ratio over 50% in 6 continuous years, however, the area had been contracted to varies foreign companies for development.

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