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Thursday, July 5, 2007

Troubles with 'China Inc.'

LOS ANGELES — There's something of an international food fight — and more — occurring over China right now. The alarming issue concerns the quality control — or lack thereof — of the many products the mainland exports to the world.

"China Inc." (let us hypothetically characterize the country as if one big export company) ships us everything from catfish to toys to pet food, and has a staggering trading surplus with the United States to show for its efforts (though negligible or even negative trade balances with many other countries). That stark imbalance has become an inflammatory issue in Washington, where political sharks like New York Democratic Sen. Charles Schumer sense blood in the waters of a rising tide of anti-Chinese sentiment — not to mention votes for the Democratic ticket in 2008.

The anti-China lobby in the U.S. Congress proposes to erect trade barriers or trade penalties to reduce the deficit, and an increasingly weak Bush administration might not have the strength to veto such legislation were it to pass. But it would take time for such a bill to have an impact even if it is not vetoed.

Even so, time is probably not on the side of China Inc. Just the other day the Food and Drug Administration — an under-funded but well-respected U.S. regulatory agency — blocked the import, until further notice, of many types of farm-raised fish from China.

FDA tests found significant defects in imported catfish, eel, shrimp and other pond-produced creatures of the sea. Samples were found to be either contaminated with unwanted substances that might be cancer-triggering, or were too filthy to be edible.

The FDA move is notable for two reasons. It is a rare such action against a food-product line of an entire country. But, then again, think of this country as China Inc., with one big CEO (President Hu Jintao), a board of directors (the Politburo) and an executive panel (the State Council). Certainly, most consumers in the U.S. regard China as more of a monolithic brand than as a myriad collection of Swiss duchies (i.e., small firms).

The second reason is that other product lines from China Inc. have recently been found to be, well, fishy as well. They include Chinese tires (450,000 have had to be recalled by China Inc.), toothpaste, toy trains (containing dangerous levels of lead) and — perhaps most dramatically of all — pet food (containing killer contaminants).

Conspiracy theorists in China might begin to imagine the growing consumer revolt in America as politically inspired, but they would be wrong to think so. Simply put, Western quality-control standards are a product not of anti-Chinese sentiment but of the deeply embedded consumer movement in the U.S. In fact, meeting American consumer standards has sometimes dramatically benefited Asian exporters, rather than undercutting them: Surely the phenomenal growth of Japanese automobile exports, to the direct detriment of Detroit's big-three automakers, was attributable mainly to the obvious superiority of so many Japanese cars in quality and price. And now, of course, Korean automobiles are benefiting from a similar comparison.

Speaking of Japan, there has been a dramatic recall of a Chinese export there as well. Millions of tubes of toothpaste made in China have been found to contain a chemical used in automobile antifreeze. The toothpaste was marketed in small hotel-style sets of tube and toothbrush.

Chinese authorities have been replying to the general uproar by arguing either that the level of contamination is so small as to be only marginally problematic; or that the whole matter is being cleaned up faster than you can say Chairman Mao. But serious people inside China know that this rapidly moving development is a serious threat to China Inc. People will not buy products that become known as potentially defective or even injurious no matter how pro-China they are, or how desperate they are for a bargain; and at the same time the anti-China crowd will do whatever it can to undermine the China brand.

It thus behooves Beijing to get cracking on the quality-control front before Schumer's anti-China trade-barrier bill becomes irrelevant and unnecessary because millions of Americans simply stop buying Chinese products out of fear.

Again, time is not on China's side. Once a brand has been discredited in the marketplace, it takes moving mountains to rebuild the brand's image. Despite the alarms raised last month about the pet-food scandal, this particular recall, as big as it was, now turns out to be just a small part of a large problem.

It has been said by many commentators that China's worst enemy is probably China itself, that it can do more damage to itself — with a serious internal misstep (Cultural Revolution, Great Leap Forward, Tiananmen Square) — than any outside force could possibly inflict. We may now have before us another big reckoning for China Inc. — and thus a major fork in the road of history for the world's most populous nation. China needs to get a grip on its product lines — and fast.

UCLA professor Tom Plate is a veteran journalist. Copyright Tom Plate 2007

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