An interesting article pertaining to our discussion.
http://www.msnbc.msn.com/id/19650857/site/newsweek/
By Melinda Liu
Newsweek International
July 16, 2007 issue - Wang Hai's mobile phone keeps buzzing with calls from clients. He's China's most famous crusader against fraudulent, shoddy and dangerous goods. The business consultant targets counterfeiters, helps duped consumers and protects whistle-blowers, many of whom face harassment or worse. "A good system for guaranteeing quality control simply doesn't exist in China," says Wang, who's been on the consumer-rights warpath for more than a decade. "Even confidential informants who report to authorities about someone selling fraudulent goods can wind up dead, under suspicious circumstances."
All of that ensures Wang is extremely busy these days. Over the past few months, a number of dramatic product-safety scandals have rocked China—and horrified the world. The U.S. media have exposed one badly made Chinese export after another, from poisonous pet food to toxic toothpaste to tires so poorly made they litter American highways with shredded treads. These revelations have raised serious questions about China's rise as factory to the world. It may seem hard to remember now, but just a few years ago, pundits and the global press were marveling at how quickly China had come on as a major manufacturing export power able, or so the thinking went, to build just about anything fast, cheap and well.
Now the true picture is emerging, and it isn't pretty. Far from the disciplined and tightly controlled economy China was thought to have, the ongoing scandals have revealed an often chaotic system with lax standards, where the government's economic authority has been weakened by rapid reforms. This sorry state is not unprecedented—other economies, such as South Korea's and Japan's, experienced similar growing pains decades ago. The difference, and the danger, is one of scale, since Chinese goods now dominate the world in so many sectors. Unless Beijing can improve its image fast and turn "Made in China" into a prestigious—or at least reliable—brand, consumers will remain at risk and the country's export-driven economic miracle could face serious trouble.
China today resembles nothing so much as the United States a century ago, when robber barons, gangsterism and raw capitalism held sway. Now as then, powerful vested interests are profiting from murky regulations, shoddy enforcement, rampant corruption and a lack of consumer awareness. In the United States during the early 20th century, public outrage over bogus drugs and contaminated foodstuffs, fueled by graphic accounts such as Upton Sinclair's "The Jungle," finally prompted passage of the landmark Pure Food and Drug Act. China needs a similar revolution today if it is to protect its competitiveness and its consumers.
The problem is especially pressing at home. Bad as the export scandals have been, conditions are even worse inside China. Factories that produce domestic goods often have far lower standards than those that produce and export clothes, consumer electronics or microchips. Zhou Qing is the author of "What Kind of God," an exposé whose sense of social mission could easily be compared to Sinclair's epic. In it, Zhou spins one hair-raising tale after another. There's seafood laced with additives that lower men's sperm counts, soy sauce bulked up with arsenic-tainted human hair swept up from the barbershop floor and hormone-infused fast food that prompts 6-year-old boys to sprout facial hair and 7-year-old girls to grow breasts.
In writing his book, Zhou had plenty of material to choose from. While the export scandals are new, Chinese consumers have had it so bad for so long that their casualty count is staggering. Bogus antibiotics produced in Anhui were blamed for six deaths and 80 people falling ill in 2006. In 2004, unsafe infant formula killed at least 50 babies and left another 200 severely malnourished, according to media reports. Virtually every product category is affected, from candy that has choked children to killer fireworks to toxic face cream. At least 300 million Chinese citizens—roughly the same number as the entire U.S. population—suffer from food-borne diseases annually, according to a recent report by the Asian Development Bank and World Health Organization.
To be fair, Beijing has made some attempts to limit the damage. Officials implicated in consumer-product scandals are starting to face severe punishment. In May, a court sentenced to death Zheng Xiaoyu, first leader of China's State Food and Drug Administration, for approving fake medicines in exchange for bribes. Officials from the factory that produced the melamine linked to at least 16 U.S. pet deaths have been detained. Last week, as U.S. media reported on pesticide runoff and drugs affecting farm-raised catfish bound for U.S. markets, Chinese authorities released a survey taken earlier this year that showed that less than 1 percent of food sold for export—and 20 percent of the products made for the domestic market—was substandard or tainted.
Yet it's far too soon to conclude that China is starting to clean up its act the way the United States once did. In part that's because politics here remains a different and dangerous game. When "What Kind of God" was released in China at the beginning of this year, its state-owned publisher edited the text heavily and distributed few copies with scant publicity, ensuring that the public reaction would be minor compared with that which greeted Sinclair's book. Although Politburo members initially praised Zhou's work, Zhou contends his status as an '80s dissident led to subsequent efforts to downplay its importance. Zhou spent almost three years in prison following the 1989 Tiananmen democracy protests.
Indeed, in China, muckrakers like Zhou must still tread carefully, especially if their work negatively affects the bottom line of provincial czars. That's a lesson Zheng Qi, a whistle-blower in Jiangsu and one of Wang Hai's clients, learned the hard way. Trained as a quality-control technician at a military hospital, he reported to authorities in 2004 that the Peng Yao Pharmaceutical Factory near Wuxi was exporting bogus pills to Africa. (Zheng had once worked at the plant, but was fired after trying to expose a similar case in the '90s; he asked to use a pseudonym because he fears for his safety.) According to Zheng, the factory claimed the pills would fight insect-borne diseases such as malaria. But he says this wasn't true, and that Africans may have died as a result.
No sooner had he made his claim than Zheng began to suffer harassment, and in a recent unsolved accident, he was hit by a car with fake license plates. "I believe I'm followed and monitored everywhere. The traffic accident was done on purpose," he says. Zheng blames factory head Zhang Guoqing for his persecution, alleging Zhang's connections to local party and government officials have shielded his plant, which continues to operate. (Zhang declined to respond to allegations.)
Fortunately, Beijing will find it harder to resist international economic pressure than it has domestic critics. The embarrassment and controversy over shoddy exports—including diethylene glycol added to cough syrup, which has killed at least 93 Panamanians since July 2006—are being used by some Beijing authorities to prod other bureaucrats into action. "Just as the Chinese leadership used WTO entry as leverage to push domestic reform agendas, it will use [this] international pressure to improve public-health and food-safety issues," says Wenran Jiang, a Sinologist at the University of Alberta. Zhou, the author, notes that China's former FDA head Zheng Xiaoyu was sentenced to death in May "because of America's dogs and Panama's cough syrup."
Yet Beijing is finding it harder to wield the kind of power over the provinces that it once did, making the cleanup that much more difficult. "There are clear indications that Beijing cannot effectively control the rest of the country," says Jiang. "The regime is particularly weak at regulating a cutthroat market economy with millions of private enterprises." Three decades ago, all of China's big manufacturers were state-owned enterprises, and the government could guarantee quality control. Now, however, many manufacturing companies, including formerly state-owned enterprises, have slipped into the loosely regulated private sector. These big businesses often get preferential treatment from local officials who are supposed to monitor them. And companies commonly bribe local police forces, even paying cops' individual salaries. Then there's the problem of regulations themselves. Experts say China should adopt an EU-style Basic Food Law and streamline its overlapping rules and jurisdictions. For the time being, different agencies still issue and follow different guidelines.
China also lacks a system for properly recording quality complaints, which makes it easy for authorities to later deny knowledge of a transgression. And according to Zhang Bing of the consulting firm AT Kearney, China has little means for tracking defective goods back to the source after they are distributed.
As a result of such gaps, China's many lapses are undermining the country's reputation as a juggernaut that will soon compete head-to-head with the likes of Germany and Japan in the most sophisticated sectors of industrial manufacturing. China's high-end exports are more comparable with those of South Korea and Taiwan, says Oded Shenkar, a professor at Ohio State University's Fisher College of Business. In other words, they rank somewhere between Mexico's and Japan's. And the Chinese government must figure out how to improve quality if it hopes to keep the economy humming. The recent U.S. recall of defective Chinese-made car tires suggests more such discoveries may be forthcoming, which would further tarnish mainland brands and dent their overseas ambitions. For example, the Chinese manufacturer Chery Automobile, in cooperation with Chrysler, plans to start exporting small and subcompact vehicles to the United States in less than a year. But a scandal there could prove crippling. Other Chinese automakers, such as Geely, have already postponed plans to export to the West because ensuring safety and performance standards has proved so difficult. The Chinese-made Landwind SUV recently received the worst crash rating a German auto club had awarded in two decades.
The real problem may be that some parts of the Chinese bureaucracy have become so used to quality problems at home that they are waking up too slowly to the damage these lapses do to their reputation in Europe, the United States and Japan. The mind-set of the demanding consumer society has not yet taken hold. When U.S. officials tried to raise the product-safety issue during a recent session of the Sino-U.S. strategic dialogue, held in Washington, D.C., in late June, Chinese delegates seemed caught flat-footed and asked to defer discussion until the next round.
Fortunately, history suggests that once Beijing gets serious it will make rapid progress. Many other Asian economies experienced similar teething problems at parallel stages in their development. Tech analyst Dan Heyler of Merrill Lynch in Hong Kong recalls that Taiwan used to have a reputation for slipshod products, before figuring out how to turn things around. "The learning curve begins with reverse engineering to kick-start a lucrative export trade," Heyler explains. The next stage is, "Let's cut corners so we can make more money," he says. "But that doesn't work. China is in the next part of the learning curve, which is [guaranteeing] quality." Like other Asian forerunners, Chinese firms will face a powerful imperative: raise safety and quality standards or get shut out of foreign markets. Still, it may take them longer to adapt than did companies in countries with stronger laws and regulations.
This is worrisome, since China is already so big and globalized. The mainland's mushrooming road system, for example, makes it easier for Chinese eels and wheels to travel from East to West. "All of those farmers at the end of all those brand-new highways are suddenly connected to the rest of China—which is now connected to all of us," says Drew Thompson, China studies director at the Nixon Center in Washington, D.C. "But getting all those farmers up to international standards is a Herculean task." To accomplish it will require a clear-eyed recognition of the problem, not a stifling of Chinese critics following in the footsteps of Upton Sinclair.
With Jonathan Adams and Jonathan Ansfield in Beijing
© 2007 Newsweek, Inc.
