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China’s Quality Problems Are Just the Tip of A Global Iceberg

The China products’ quality scandal has continued to snowball, gathering momentum in both the US and China.

In China, Wu Yi, the Chinese government’s main fixer, has been appointed consumer safety head. Wu Yi has had an excellent reputation as a tough negotiator, representing China in the WTO negotiations, and later took over as health minister during the SARS crisis in 2003. Originally trained as an engineer, she is widely seen as a no-nonsense individual who is willing to put politics aside to get things done.

Even though, there are some questions for this new consumer safety head.

  • How many people will be part of this new State Council level commission, and what enforcement powers will they have?
  • Will it have its own budget, and where will this money come from?
  • Will it have the power to enforce quality inspections on the provincial, municipal and village levels?

The last question is particularly important since exports are mainly supported on the local government levels, who derive their tax revenues from local manufacturers. For this reason, local governments would resist any efforts to slow down or hurt exports. How will the Chinese government in Beijing resolve conflicts between the product safety commission and local governments? This decision will affect whether the Chinese government’s new safety commission has teeth or not.

In contrast to the US, Europe and Japan have been less affected by product safety issues from China. The main reason for this is because Japan and the EU have government-funded organizations to test and check new products and imports on a much more frequent basis. Since these organizations are testing and regulatory agencies with no independent sources of revenue, they are funded by citizens’ taxes.

In the US, taxes are generally considered bad, and low taxes and “no new taxes” are a rallying call for those on the right-wing of the political spectrum. Most Americans though, fail to make the connection between taxes, infrastructure investment and development, and regulatory safety and consumer protection.

As America’s infrastructure ages, and less is invested, the inevitable result is more tragedies like the recent Minnesota bridge collapse. On the consumer regulation and protection side, budgets for consumer protection agencies funded by the government have been largely cut back, even while global trade has increased.

Does it make any sense that the American government would cut back the budgets of the regulatory agencies which are there to protect American consumers from defective foods and products, while imports into the US are surging?

These safety and quality problems are very important issues which WTO did not cover, and have fallen between the cracks on national levels. Now these issues are coming back, and with a bite for the US and Chinese governments.

Earlier on, China’s toy industry manufacturers’ association had asked its members to sign a public quality pledge. While the motivation is noble, this can be interpreted as a desperate measure to show change. The overall effectiveness of such a move is dubious, even from a public relations point of view.

This whole episode shows the dangers of increased globalization and trade when governments cut corners, even though the Chinese and US governments have acted for very different reasons. The US government has a very well-developed regulatory and service infrastructure which it has chosen not to invest in and enforce; China has a largely undeveloped regulatory and service infrastructure which it is quickly learning it needs to have. Put simply, the US is dismantling its own regulatory infrastructure; China is learning that it needs to build its own.

If there is a hero in this whole sad episode, it is Cheung Shu-hong, the Foshan factory owner and supplier to Mattel. This article, Death of the Toy King, explores his management style, and overall care for his factory workers. Even though his factory margins were very thin (as are most factory margins in China), he insisted on always paying his workers on time. When he found out that he had been betrayed by his paint supplier, who had supplied him with leaded paint, and that his factory faced shutdown because of the Mattel recall, he chose take his own life.

So the hero in this story is the dead guy.