Chinese Goods.... Safe, good for the local economy? You decide!

*NONE of this is the fault of China! It is the Western companies' ceaseless pressure for lower prices from Chinese suppliers - because YOU the consumer buy the Cheap Chinese goods!





By David J. Lynch, USA TODAY
Killer pet food. Tainted toothpaste. Tires lacking an essential safety component. And now, seafood laced with potentially unhealthy levels of antibiotics.
Suddenly, "Made in China" looks like another way of saying: "Buyer beware."

In recent years, American consumers eagerly snapped up an ever-widening array of Chinese-made products, from Wal-Mart (WMT) T-shirts and Dell (DELL) laptops to Black & Decker (BDK) power drills and Ethan Allen (ETH) cabinets. It's no secret why multinational companies increased their reliance on Chinese factories: lower production costs. The recent spate of suspect Chinese imports, however, is raising troubling questions about the trade-offs involved in the relentless pursuit of rock-bottom prices.


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"Sometimes, it's a shock to discover how poor the quality processes are," says Sebastien Breteau, chief executive of Asia Inspection, a Hong Kong company that audits Chinese factories for 158 U.S. companies. "It's very, very common that the goods you receive are not exactly what you ordered, either because the factory can't deliver or because the definition of the product is not clear enough."

Breteau should know. In the mid-1990s, he started a small trading company in Hong Kong, specializing in inexpensive gifts manufactured in southern China. When word got out that he was personally inspecting his suppliers, other traders asked him to do the same for them.

Now, he has almost 1,000 clients from 58 countries. His inspectors performed about 25,000 one-day factory checks last year, with 23% of the facilities earning failing grades because of poor factory hygiene, inaccurate product manuals, cosmetic blemishes on finished goods, even installation of the wrong electrical plug.

Breteau's clients sometimes overlook minor shortcomings, but they still ultimately reject one of every 12 shipments. *He blames unsatisfactory production on Western companies' ceaseless pressure for lower prices from Chinese suppliers. "It's not that they're dishonest. It's that they don't (always) have the technical level to produce to Western quality standards," he says.

Close oversight discussed

Weak supervision by both the Chinese and U.S. governments is responsible for allowing subpar goods onto American store shelves, says Sen. Charles Schumer, D-N.Y., who called Sunday for creation of a new Commerce Department "import czar" to boost regulatory defenses.

The sudden U.S. focus on flawed Chinese goods threatens to exacerbate already tense Sino-U.S. trade relations. Much is at stake in the furor about Brand China: the low prices that consumers crave, multinationals' border-spanning supply chains and China's ability to produce enough jobs to preserve social stability.

"There's a cost, a huge cost, involved if the companies or the government do not handle this well. This is a very new concept for them — post-sales service, product liability, the notion of a recall — because they are newcomers in the global economy," says Ming-jer Chen, a business professor at the University of Virginia.

U.S. companies, which operate their own factories in China and use Chinese suppliers, say they employ rigorous safeguards to ensure that their goods are sound. Goodyear Tire & Rubber(GT), for example, puts potential suppliers through an intense "process audit" of its production system and quality controls before placing its first order, Goodyear spokesman Ed Markey says.

Goodyear suppliers also must obtain a certification called "ISO 9000," which attests to a company's use of consistent quality procedures and must be periodically renewed.

The tiremaker has a corporate office in Shanghai, which allows it to maintain close oversight of a Chinese tire factory in nearby Hangzhou. That supplier began producing tires for Goodyear in the middle of last year, for sale in the USA under private-label brands, not the Goodyear name, Markey says.

Each tire that comes off the Chinese assembly line is individually balanced and visually inspected. "If it doesn't meet the (Goodyear) standards, it's destroyed," Markey says.

Amid the recent cascade of Chinese import horror stories, some companies aren't eager to talk about their China links. In response to questions about their quality assurance programs in China, Black & Decker, Dell, Wal-Mart and Ford Motor(F) each provided general assurances of their commitment to quality but scant details on how it's achieved.

Black & Decker, for example, makes many of its power tools and locks in a factory it owns in Suzhou, outside Shanghai, and a separate 50/50 joint venture plant in Shenzhen, southern China's manufacturing boomtown. The company won't disclose whether it has accelerated planned plant inspections or made any other changes in response to recent events, says Mark Rothleitner, a company vice president.

In recent years, the company, which has additional Chinese facilities in Xiamen and Qingdao, has increased the share of its total output produced in China, Mexico and the Czech Republic, according to Securities and Exchange Commission filings. "We do have a very rigorous process for qualifying suppliers all over the globe. … The quality coming out of China is very good," Rothleitner says.

Ford Motor, which said last year it planned to buy up to $3 billion worth of auto parts from Chinese suppliers, didn't respond to a specific question about whether it was rethinking that plan. But in an e-mail exchange, spokesman Kenneth Hsu in Beijing wrote: "All the commodities purchased are tested against global specifications, regardless of where they are coming from."

Wal-Mart spokesman Kevin Gardner e-mailed a statement saying that "customer safety is a top priority" for the discount retailer, which spends more than $18 billion annually on products made in China. "Product samples are tested systematically before and during production by third-party testing labs, and our own quality-control staff conducts product inspections, as well," the statement said.

Telephone and e-mail requests for additional details, including the frequency of inspections, were not answered.

Considering alternatives

No one's going to abandon a market of 1.3 billion people because of a few manufacturing stumbles. But some companies, already antsy about rising wages in southern China's export heartland, are undoubtedly rethinking their short-term sourcing plans, says David Powell, a partner in A.T. Kearney's Chicago office.

One of his clients — a Fortune 50 consumer-products company with its own factories in China, plus Chinese suppliers — is considering a shift of some production to nearby countries, Powell says. Fast-growing upstarts such as Vietnam now resemble the China of the 1990s, with their ample low-cost labor boasting adequate skills and a fierce work ethic.

The controversy about Chinese quality practices comes as imports from China are soaring. In 2006, the USA imported $288 billion worth of Chinese products — more than double the 2002 figure and more than 10 times the 1992 amount. Among the largest categories last year were: apparel, $25.6 billion; toys, $22.2 billion; televisions and VCRs, $14.5 billion; and furniture, $13.2 billion.

The USA also imported $28.9 billion worth of computer peripherals and $17.4 billion in computers. But about two-thirds of the value of the high-tech gear that the U.S. government records in its trade accounts as "Chinese" represents products assembled in Chinese factories using parts from other countries, says economist Nicholas Lardy of the Peterson Institute for International Economics.

A quarter century after it began embracing market-oriented reforms, China's exports remain concentrated in comparatively unsophisticated products. To date, the Chinese government's efforts to cultivate national champions in higher-end industries such as autos, aircraft and semiconductors have met with mixed results. Haier has carved out a profitable niche in the USA selling small refrigerators and other appliances. But Chinese automakers have penetrated only less competitive markets such as the Middle East.

A June 28 post on the Autoblog.com website gave a thumbs down to Brilliance China Automotive's hopes of selling its BS6 sedan in Europe following the car's woeful performance in a crash test.

The website published a photo of the Brilliance test vehicle crumpled like a beer can and this blunt appraisal: "Buyers get what they pay for. The BS6, as currently constructed, appears to be a complete piece of crap. The horrifying 40-mph offset frontal crash test video shows damage that can be described as catastrophic, at best."

Brilliance told Reuters that its European distributor still hopes to sell the car, despite it receiving just one out of five stars on the test, conducted by Germany's ADAC auto club.

China still developing

It would be easy to mock Chinese aspirations to climb the value ladder. But Americans of a certain age recall in the 1960s similar doubts about the label "Made in Japan."

Considering the turmoil that enveloped China for most of the 20th century, the mystery isn't why Chinese factories are having some quality problems. The wonder is that they don't have far more. Consider that in 1986, Chinese exports to the USA totaled $4.7 billion. Today, Chinese factories ship more than that to American customers every week.

China is in the midst of an enormous transformation from an isolated, centrally planned, mostly rural nation into a fiercely competitive economic dynamo. Since joining the World Trade Organization in 2001, the country has overhauled thousands of laws and regulations to bring itself into conformance with the global economy's dictates.

But its effervescent economic growth — an annual rate of 10% since 1990 — has outstripped the government's policing ability. Now, as questions mount about the safety and quality of its factories' output, China is under pressure to respond.

The Chinese government has an enormous stake in protecting the "Made in China" brand. Creating the millions of jobs required each year for new college graduates and farmers abandoning their fields for a better life in the cities demands strong export sales.

Even as they struggle to repair China's smudged image, Chinese officials see political overtones in the sudden surge of U.S. complaints about product quality and safety. Last week, the Chinese embassy in Washington distributed a three-page statement defending the country's food exports and suggesting the issue was being exaggerated. "Certain isolated cases," the government document said, "should not be blown out of proportion to mislead the public into thinking that all food from China is unsafe."