China Takes Steps to Stem Trading Partners' Product Safety Concerns

It's roughly since the mid-2007 when China began to face mounting pressure of product safety concerns from its trading partners, which, as market observers commented, is a major obstacle for China to move toward being a dominant power on the international market.

Though the spate of product recalls and bans in the U.S. over the past few months were mostly about toys, toothpaste, seafood, and pet's feed, it has aroused suspicions of quality on all China-made products especially at a time when Chinese exporters are attempting to expand into the fields of automobiles and other high-end products.

Product safety, along with the value of Chinese yuan, has become a central issue in the conflicting territory of bilateral trade between China and its major trading partners. Earlier, the European Union (EU) also required the Chinese government to strengthen enforcement of product safety regulations, from production at the manufacturing sites of private companies to inspections at customs.

The EU made the comment based on a survey of non-edible products that China had the most serious product safety problem while supplying to the EU market where "around 48%of the products shipped from China in 2006 were found to have safety problems, compared to 5% from Germany." According to official information posted on the Chinese government's Website, the EU first raised product safety concerns in March 2006, several months earlier than the spate of products recalled and banned in the U.S.

Last September, the EU issued a warning to China, saying that it would ban a range of China-made products including toys, food, auto parts, and others if they fail to comply with the health and safety standards of the bloc.

"That's the last warning," EU Consumer Protection Commissioner Meglena Kuneva told a European Parliament Committee. "If Chinese exporters don't make satisfactory improvements on this issue, we will execute the next layer of restrictions, among which is a ban on products." The EU, however, would like to offer quality control assistance to help Chinese companies meet such standards and requirements of the bloc, said Kuneva.

Similar problems occurred in the Philippines, which in October found harmful formaldehyde in China-made food such as noodle, meat, candy, among others and has banned imports of these categories of food from China.

Cross-border Cooperation

Regarding the serious impact of this issue on its current export-driven economy, China has expressed sincerely to solve this problem and has taken several measures of improvement. In a public speech last September, Chinese President Hu Jintao defended the safety and quality of China's exports and offered to work with other countries to solve any problems with the country's inspection procedures.

"China has put in place rigorous quality controls for manufacturing and is improving monitoring systems to detect contamination of food products," Hu was quoted by mass media as saying. "Around 99% of Chinese food exports to the United States, Japan and the European Union complied with safety standards," he added.

China promised not to use lead paint on consumer goods again in an agreement signed with the U.S. during a joint summit on product safety last winter, in addition to both stepped-up inspections and more stringent enforcement of regulations. Meanwhile, it follows stricter standards for goods inspections at customs office and suspends the export licenses of those manufacturers that ship products with harmful materials. Moreover, it requires exporters to obtain inspection approvals before shipping goods abroad, which is commonly seen as a move to add to the cost for shipping.

In addition, China and the U.S. are expected to sign another agreement as a means to assure safety of the goods shipped from China to the U.S where in 2006 around 40%, or US$288 billion or so, of such imported goods are made in China. "It's a means for the two sides to cooperate in seeking an effective way for China to follow the U.S. goods safety standards," said U.S. Secretary of Health and Human Service Michael Leavitt.

"We would seek a rational means to solve this problem," said U.S. Trade Representative Susan Schwab. She recognized that China has taken measures to improve and the U.S. is willing to cooperate with China in taking effective means to restore American consumer confidence.

Earlier, U.S. President George Bush asked Leavitt to form an ad hoc committee to ensure the safety of imported goods. The Committee, under an imported goods safety plan it announced last September, "will dispatch experts to make inspection on the manufacturing sites of importers, authorize food and drug administration to recall unqualified products, strengthen safety inspections at customs office, and require safety certificates of goods, and raise fines on unqualified products."

China's Defense

While offering sincerity to upgrade product safety, Beijing in fact takes a tough stance in some aspects. It claimed the issue has been overblown by certain international mass media on the one hand, and tried to defend its safety record and reassure consumers by highlighting similar problems with the products from other countries on the other hand. "Food and product safety problems occur in every country, even in Japan and the western countries which impose very strict safety requirements," said Vice Commerce Minister Gao Hu-cheng.

China even defensively banned imports of American soybeans, which as China's General Administration of Quality Supervision, Inspection and Quarantine claimed, contained pesticides, poisonous weeds, and dirt.

Meanwhile, Chinese exporters defended themselves as saying that they use low-quality materials due to foreign buyers' offering very low prices and flawed product design. "We actually follow their instructions in product design and materials selection," they said. "If buyers offer higher prices, we can use better materials," they added, implying that foreign buyers risk getting shoddy products if they demand excessively low prices from Chinese manufacturers.

Foreign Automakers in China

The trade dispute, if not properly solved, would not only compromise the operations of Chinese businesses but also joint ventures between foreign companies and their local Chinese partners. According to a survey conducted in October by Zogby International, a U.S.-based survey institute, around 78% of American residents have become worried about the safety of China-made products and 16% said they would no longer buy products labeled "Made-in-China," whereas 36% say that they would continue to use China-made regardless.

About 15 years ago China opened its market to foreign participants, with a flood of foreign companies filling the emerging economy aiming to take advantage of lower labor costs and industrial materials.

The mounting trade tension between China and its trading partners has somehow impacted the operations of multinational corporations which in some industries have to partner with Chinese companies to be licensed. "The approach helps Chinese manufacturers win a reputation for reasonably well-made and inexpensive low-tech exports," said Robert Kapp, a business consultant who headed the U.S.-China Business Council from 1994 through 2004.

The sector of auto parts and automobiles is among those which most relied on foreign capital and technology initially. Even today, foreign investment is a major engine behind the growth and exports in this sector. While China has successfully grasped the lion's share of the U.S. auto parts market, it's driving on a bumpy road to move its cars stateside and other Western countries as well amid the escalating product safety concern.

"It's too early for China to think of exporting cars to these countries," commented an industrial analyst at Guotai Junan Securities. Regardless, China has been planning to sell cars abroad through a two-pronged strategy. While exploring independently the lower-end markets in Africa and the Middle East, Chinese automakers are teaming up with leading international automakers such as the Chrysler Group to explore the higher-end market in their home countries.

The stricter safety requirement may not deter China's determination to build auto exports. Instead, it may end up making improvements similar to a "quality revolution" that Japan embarked on in the 1960s. As Vice Commerce Minister Gao Hu-cheng commented, what concerns China most is not to expand market share, but promote the reputation of Chinese brands globally.