Can China restore its exports image?

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The quality and safety of products made in China has come into focus after US reports about imported toothpaste and pet food containing harmful chemicals, toys coated with leaded paint and seafood contaminated with carcinogens.

Drew Thompson, director of China studies at the Nixon Center in Washington, argues: “Chinese society lacks several essential components that play a major role in food and drug safety in the western world. In particular, the Chinese government controls media at many levels in an effort to ensure social stability and the continued rule of the Party. Local officials have the power to hush local papers from reporting on crises, such as a food poisoning outbreak, ostensibly to ‘prevent panic.’”

Can Beijing get a handle on the eroding image of ”Made in China” products at home and abroad? Are protectionist interests in the west just using product safety as an issue to target Chinese imports? Mr Thompson answers your questions in a live online debate on Tuesday August 21 from 1-2pm BST.


I am involved with Chinese motor manufacturers wishing to export their products to Europe. They have to go through the same safety and regulatory hoops as any other global vehicle manufacturer. There have already been examples of ill-prepared Chinese automakers with inexperienced European importers making a complete ass of themselves trying to get around type approval. Surely there are also regulations and therefore enforcement agencies in the USA, Europe and New Zealand etc about the constitution of paint in toys and chemicals in nightclothes, toothpaste and food. Isn’t it the fault of the relevant importers and regulatory organisations? Why blame the Chinese?
Paul Evans, London

Drew Thompson: One particular challenge for Chinese manufacturers is the issue of “industry standards” as opposed to regulatory ones. US and European regulations governing virtually all products are very detailed. However, in the US particularly, manufacturers regularly exceed requirements established by law, following “industry standards” that are generally agreed to and facilitated by non-governmental organisations, such as industry associations.

For Chinese manufacturers without experience in destination markets and little knowledge or awareness of industry standards, there are ample incidents of “low-quality” imports that still meet government requirements. For example, the Chinese automobile that gets a one (out of five) star rating in a crash test might still be legal. Cars that exceed the minimum standard set by the government are competitive. The Chinese argument is that their vehicles should not be prevented from entering a market, even if they are not competitive (in terms of safety), as long as they comply with legal requirements.

However, this attitude reflects a fundamental lack of understanding of western legal systems and the potential liabilities that they would face should they enter the market in significant strength.


How are the problems with food and product safety likely to impact the Beijing Olympics 2008? What kind of governmental checks and balances are in place to safeguard Chinese products within China? How effective are the Chinese equivalents of the US FDA and EPA?
Cynthia Murphy (Financial Times), London

Drew Thompson: The Olympics are one year away, and the Chinese government is very concerned about projecting a positive image to the world. The government put forward comprehensive plans to ensure that food safety does not become an issue for athletes at the games. Using high-tech GPS tracking devices and comprehensive registration lists of producers, distributors and suppliers, they will have no problem mobilising the resources and expertise to ensure a safe food supply for the Beijing community in 2008. However, the real question is how effective broader measures will be to ensure food safety throughout the country not just in 2008 but into the future as well.

The Chinese regulatory system faces a number of challenges ensuring that laws are enforced. The Chinese State Food and Drug Administration (SFDA) has been wrecked by a corruption scandal that saw the execution of its founding director over corruption charges. Both the SFDA and the Chinese EPA have a mandate, but their jurisdiction over individual companies responsible for manufacturing and the resulting pollution is diluted by other agencies within the government that also oversee the regulation and management of companies. Even more importantly, the national offices of these agencies in Beijing have little direct control over the provincial FDA and EPA bureaus who answer to provincial and local governments, not Beijing.

The government of China lacks many of the tools that provide for a safe consumer product environment in western countries. While China has many laws and regulations, they lack a strong and enforceable national consumer protection law and independent courts that place consumer protection above local economic and political interests. Additionally, China does not have a strong civil society that collectively represents the interests of consumers as well as manufacturers. These are key checks and balances in western countries that do not exist in China. China has only a few individuals that might be considered “consumer watchdogs” but none approaches the stature of people like Ralph Nader. Without some combination of both incentives and consistent disincentives to ensure safe manufacturing processes are followed by the vast majority of processors, the risks of unsafe products being manufactured in China will continue for the foreseeable future.


Do you think it’s likely that the recent problems could be used as an excuse for forms of trade protectionism, as China claimed on Monday? Or even as just a knee-jerk political response, are we seeing the beginnings of over-zealous restrictions on Chinese imports?
Kate Mackenzie (Financial Times), London

Drew Thompson: There is a very real concern that the product safety issue will be employed as a form of protectionism. Whether it is US Gulf Coast states prompting catfish bans, or Italy stopping canned tomato imports, there is evidence that political, not scientific processes are shaping trade flows. This issue cuts both ways, however. The Chinese government has widely publicised the seizure of several substandard products from the US and EU, in an effort to demonstrate that China is not the only country with this problem. However, the timing and political nature of the Chinese seizures has led some to question the motivation.

The Chinese government is watching this issue very closely, and historically, the Chinese have been very protective of their access to US and EU markets. When countries threaten to curtail imports of Chinese goods, the Chinese government quickly and actively responds with threats to curtail shipments from the offending country. Chinese leaders see this as a necessary response to protect vital national interests. Chinese industries are heavily dependent on exports, which is a major employer. Employment is a vital issue in China as the senior leadership sees job creation as essential for preventing social unrest.


What are the best strategies for dealing with possible quality fade - where suppliers after the second or third shipment use poorer quality materials to save money or time? Do you think the cutting of the quality of goods is solely linked to maximising profits or the pressure of continued low costs pushed on them by western traders?
Simon Laing, Nanjing, China

Drew Thompson: The “quality fade” issue is a serious one in China. Some exporters have been known to ship high-quality products the first few orders, then begin to cut corners and save costs on subsequent ones, once the customer is “secure.” A US tire importer recently announced a recall of 255,000 imported tires that reportedly suffer from defects. The importer claims that the manufacturer in Hangzhou reduced the size or omitted to include one critical tire component that had been included in earlier shipments.

Both the buyer and the seller share responsibility to ensure that the relationship is profitable for both sides. The importer has significant liability in their own country for the actions of the manufacturer or exporter, so the importer has to ensure that price alone does not drive the nature of the relationship. Unfortunately, the global supply chain is often long, with retailers demanding low prices from distributors and agents, who then have to seek savings on the manufacturing end. Retailers, distributors, brand-owners and insurance companies all suffer financial costs from sub-standard products, and they need to ensure that manufacturers are encouraged to follow good manufacturing practices.

There are several strategies that importers can employ to reduce the risk that suppliers will change formulations or intentionally reduce the quality of shipments over time.

■ Clearly stating technical requirements in writing in the purchase contract. Both sides then agree to the requirements and this places the responsibility squarely on the manufacturer to continue to follow the same process.

■ Sending a supervisor to monitor the production for each batch. The importer can send an engineer or technical expert to verify that each production batch is up to standard. Several third party inspection companies have offices in major cities China and will test products prior to export to ensure that they meet the quality criteria set out in the contract.

■ Lastly, establishing long-term relationships and thoroughly “knowing” your supplier is vital. Conducting a background check of the supplier and their supply chain, as well as establishing that the supplier stands to benefit over the long-run, not on a shipment-by-shipment basis will reduce the incentive for a supplier to cut corners or “cheat.”


What brands of children’s clothing/pyjamas are made in China, please? Thank you.
Barbara Inglis, Connecticut

Drew Thompson: Many toy and clothing companies own more than one brand and those companies source their products from factories around the world. Therefore, it can be difficult to determine where clothes come from, simply by the brand name. The vast majority of Chinese clothing is safe. Further complicating matters, clothes are made up of many components from suppliers around the world. For example, the fabric may come from Turkey, the buttons from Malaysia, zippers from Japan and the labels from the US. The cutting and sewing may take place in China or Vietnam, and that is the country that will be listed on the label.

US consumers that are concerned about unsafe products should check with the Consumer Product Safety Commission website (http://www.cpsc.gov) which lists recalls of consumer goods. The EU Commission consumer affairs department has similar information about product safety at http://ec.europa.eu/consumers/index_en.htm.


Given that China has been an export powerhouse for a number of years, why are we seeing a spate of quality and safety cases now and seemingly not before? Has the situation “objectively” deteriorated?
Nathaniel Taylor, London

Drew Thompson: Chinese officials argue that vast majority of Chinese products meets quality standards. They are completely correct in this stance, in my opinion. If you look at the total volume of trade with China, the number of sub-standard goods is quite low. However, there is concern amongst many consumers and politicians in the importing countries that not enough is being done to screen imports and take more samples. For instance, the US FDA only tests about 1 per cent of imported food entering the country. Increasing that sample rate would entail increasing the budget for the US FDA to hire more inspectors and increase their lab capacity. Certainly, if more testing is done, more sub-standard products will be found. That said, it does not mean that the bulk of Chinese exports are below standard.

Chinese food and product safety quality concerns are not new. There have been well reported incidents of unsafe products in the past, both in the US and in China. The most egregious incident in China took place in 2004 when at least 13 children died in Anhui province from counterfeit milk powder. There was widespread reporting of that incident, causing Chinese government officials to launch investigations of the milk-powder manufacturing and distribution industry.

The US pet food recall catalysed the media in the US because the number of brands and consumers affected was so significant. Sixty five per cent of all US households have at least one pet, making this issue very personal with a large number of consumers. That said, the cause of that recall was one rouge ingredient supplier. Subsequent incidents have received widespread media attention, due partly to increased consumer awareness. However, while there have been many changes in industry in both the US and China in the past few years, it is probably not accurate to say that the overall quality of Chinese products has decreased.


Have we given thought to China using these imports as a form of terrorism? After being blind-sighted by the horrific attack on September 11th I think we cannot afford to be so cavalier about the awful things that have come through our country’s border with Made in China stamped on it. Meanwhile, I guess I will need to learn to procure my food in my own back yard.
Teri, Iowa

Drew Thompson: In response to the attacks on September 11, the U.S. instituted “The Bioterrorism Act of 2002” which, among other things, requires food processors, distributors and importers in North America to register with the government in order to improve the ability to track food products. The US government has significantly increased its capacity to identify food-related public health incidents and trace the origin of the contamination back to its source, regardless of whether the contamination was intentional or not. However, many experts have pointed out that the US Food and Drug Administration lacks the capacity to effectively prevent contaminated food from entering the country.

In the case of the Chinese wheat gluten suppliers who spiked their product to increase the apparent protein levels, the contamination was intentional but the motivation was profit, not agro-terrorism. Likewise, there is no evidence that the toy manufacturers or suppliers involved in the recent recall incidents intended to cause harm to consumers or disrupt markets.


What about the safety of paperboard, glass and plastic balls used for bottles, straws, foodwraps and containers that are made in China? Does holding, eating or drinking from such or microwaving such leach out lead and other carcinogens higher than US or EU standards?
Erik, USA

Drew Thompson: It is hard to be sure about the safety of all products, from any country. China has over 30 laws and regulations that deal with packaging standards and pricing. The biggest question is whether those regulations are enforced consistently in such a large country with so many enterprises engaged in light industrial manufacturing. Counterfeiting is an additional problem, where illegitimate manufacturers make a copy-cat product at a low cost then sell their potentially sub-standard goods into the open market.

Good Manufacturing Practices require that food processors and processing managers use inputs that are safe for their intended use, including glues, ink, laminates, papers, foils and plastics. That includes confirming product standards with known suppliers. In addition, manufacturers have an obligation to ensure that the components in their packaging are food-safe, meet relevant regulations and do not pose a danger to consumers. Any exports to the US or EU are required to meet US and EU standards.


Is it true that toy imports to the US are a minor problem because the percentage of Chinese imports is too small?
Blanca Monter

Drew Thompson: Actually, China is the number one manufacturer of toys in the world, making between 70 to 80 per cent of the world’s supply. That said, only a small number of Chinese toys out of the total are defective or do not meet US or EU safety standards. In 2006, China exported an estimated $21bn worth of toys to the US and over $6bn to the EU, accounting for 75 per cent of all toy imports. In response to recent reports of major recalls, the Chinese government is establishing new procedures to check and certify exports before consignments leave China.

Chinese companies have been quick to adjust to changing business requirements set by US and EU buyers, particularly because toys are increasingly created and sold in very short cycles. Chinese companies, many of them managed by Hong Kong and Taiwanese executives, have demonstrated the ability to quickly set up production lines for a particular toy and manufacture it on a very large scale before consumer tastes change and buyers switch to newly designed toys.

Because mainland China-based factories produce the majority of the world’s toys, they also lead in the number of import alerts and notifications. It is also important to note that many of these manufacturers are not actually Chinese owned, but Hong Kong, Taiwan, US and European owned companies.


Background

Drew Thompson is the Director of China Studies and Starr Senior Fellow at The Nixon Center in Washington, DC. He was Assistant Director to the Freeman Chair in China Studies at the Center for Strategic and International Studies in Washington, DC. He was the founder of a Washington, DC company that manufactured snack food and pet food in China. Below are some of his recent articles on China product safety.

Food Safety, Public Health and Information Access in the PRC
China’s Food Safety Crisis: A Challenge to Global Health Governance

Food Fight

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