May 09 2008
food exports to japan drop and china has no one to blame
CNN World Business ran an article this past week that states that food exports have dropped by 30% to Japan, which is a key market for Chinese food products. I am not sure that I actually feel too badly for China in this case, but let me explain after the article:
China’s food exports to Japan, a key market, plunged 30 percent in February, hurt by a scare over poisoned Chinese-made dumplings, according to data reported Friday.
Japan is the third-largest market for Chinese exporters of fish, dumplings and other processed food, and the drop in sales is a severe blow to the fast-growing industry.
China’s food exports to Japan in February totaled 186,000 tons, down 30 percent from the same month in 2007, the General Administration of Customs reported.
Exports from Shandong, the eastern province that is the base for food processors serving Japan, fell 60 percent, the official Xinhua News Agency said.
“Influenced by such things as the `poisoned dumpling incident,’ our country’s food exports to Japan fell one after the other,” said a customs agency statement.
Chinese-made dumplings were pulled from Japanese supermarkets in December after traces of a banned insecticide were found in the dumplings and in the vomit of people who fell ill after eating them.
Bad Chinese products are nothing new. And it is not all too surprising considering that China is become the world’s manufacturer, not just America’s sourcing base. And as expected, there are issues of quality fade, lack of quality control, and lack of repeat due diligence. So sometimes I actually think its a miracle that there aren’t more Chinese products issues on a regular basis. Thankfully, most issues are not lethal, like the glycerin that Panama bought some time back for cough syrup.
But why do I say that China has no one to blame but itself? Because it often takes the stance that it’s importing country’s responsibility to check out product issues, not the exporter’s. The Chinese SFDA did that when it came with pharmaceuticals here (and I covered this topic in this post):
But the SFDA said that based on international practice, “safeguarding the legality, safety and quality of raw materials imported for use in pharmaceuticals is the responsibility of the importing country.”
This was the official policy regarding pharmaceuticals, so I know it’s not quite the same thing. But it is my belief that this has been China’s stance toward food and other exported products as well. Here was China’s response:
Chinese authorities say their investigation has found the poisoning probably was an isolated, deliberate case. They say there is little chance it happened in China and have accused Japanese police of failing to cooperate with them.
Sure, but if China is trying to implement domestic food safety standards, then it must know that there are food export issues as well. As long as the government refuses to tackle this issue head on, and expend some serious capital and resources to deal with it, then China really has no one to blame if Japan or other countries decide to start consuming less food products from China. That’s pretty logical actually. And I am not trying to be cruel. In the end, China can only blame itself if the market for Chinese exports, particularly food exports, drops.
This is a good opportunity for the government to get involved in regulating its exports. It doesn’t need to massively regulate. But more regulation, though costly, will be welcome. And ultimately, it may cost China less if other countries can learn to trust Chinese exports again.
It seems that part of the Chinese culture is that it is OK to try to deceive somone and that the person who is being deceived is responsible for the pain and suffering caused. I recently was in China and met a schoolteacher who spoke good English when I was in a small tourist town. We exchanged email addresses and exchanged emails. He said he was using my respones as part of his lessons with his students. This week he sent me a ‘my Mother needs an operation and we cannot afford it letter and could you send money’ email. It was disappointing. I was about to send hm some DVDs that would have been useful for his school. Manipulation using guilt , fear and obligation seems a fair thing to do with some of the Chinese. This does not create an environment where people can feel safe when doing business with others, this trust is essential for a free flowing booming sustainable economy in my opinion.
Marc
Caveat emptor is always the rule for trade. But that also include the trust of the supplier by the purchaser. If the purchaser cannot trust the supplier, and has to spend money and time to do extraordinary amount of QA, the supplier would trust somebody else.
I think China is still not familiar with the concept of free market, especially the “many knowledgeable buyers and many knowledgeable sellers”. The Chinese stance works very well when it is a monopoly, and doesn’t when the buyer can walk down the street to buy from someone else.
“Down the street”? And where would that be? India? Vietnam? As if you are less likely to get poison food, lead paint, etc sourcing from other places without due diligence.
It’s fun to generalized the evil Chinese culture for bringing about the bad products, but fact of the matter is, the product quality assurance experts and the know-hows, are sitting in United States, Japan, Europe, etc. That’s the global division of labor, China provides the labor and the developed country with the knowledge do the rest and gets to take in obscene profit margins. That responsibility clearly comes with quality assurance.
Chinese government is not responsible for QA. They are not going to sit ad the end of your assembly line doing the job of the manufacturer. Why didn’t the manufacturer of the tainted blood thinner find out about contamination? Governments are responsible for setting some minimum standards and manufacturers should have their own standards that exceed that. Where’s the manufacturers in all this? If they missed it in China they would have missed it elsewhere as well.
And with the onset of inflation on food price, countries are tripping over themselves limiting food export, I am not sure anybody is very sorry that export to Japan is down 30%.
I agree that the government isn’t responsible ultimately. But what I am saying is that until there are some more forms of regulations upon manufacturers (like regular and random inspections) that the Chinese government does, then China may risk losing some part of its export/sourcing business when other countries finally get fed up with dealing with all of the mistakes. So my argument is that if the government became more involved, then it would (hopefully) build some more trust into the system. I think the government could build more credibility into the system then just saying “caveat emptor” each time things go wrong. Caveat emptor is indeed the rule, but it’s just a matter of China shooting itself in the foot.
And yes, I agree, I don’t think anyone crying with the food crisis. I am speculating that it was just dumb luck and not incredible planning by the government that exports just h happened to drop at an opportune time.
There’s more to the poisoned dumplings case than the typical ‘crappy Chinese quality control’ story. The third quote mentions it but doesn’t give it much weight – there’s some reasonably convincing evidence that the dumplings weren’t accidentally contaminated but actually deliberately poisoned. This is why there’s been a big drop in volume, compared with the lead toys or dodgy toothpaste scandals which (as far as I know) didn’t really have that much long-term effect.
I like the old saying that people do not always remember what you said but always remember how they felt in their dealings with you. I think that in business one does not remember what someone said but how you felt about the experience. If you feel that you got a fair deal then you feel good (unless you are a masochist). As B F Skinner said (something like) every action that is rewarded is more likely to be repeated.
Turtlewind,
I agree with you. I noticed that part of the quote, but because I wanted to talk about general policy issues, I did not expound on that point.
Marc,
Unfortunately, I think that is very true and it will be hard for China to rebuild some of the lost trust and reclaim good will instead of fear and doubt.
In my opinion caveat emptor is fine in a auction context where there are many vendors who are not associated with the auctioneers but it is not appropriate for person to person dealing. Person to person dealing gives the opportunity for trust to grow. In Australia over the years, sheep stations, factories, farms were sold on the nod i. e. when the person nodded their agreement to buy then the sale was made and no one rescinded on the deal and the property that was for sale was found to be as advertised. Australian people in the 20th Century up until the nineties ( and even now really) most people prided themselves on their honesty, their ability to be honest was a huge part of their self esteem/self respect. they slept well. Not only this but the economy of the country grew because of peoples’ ability to trust others. Business could be done with certainty. Wealth and honest are inseparable unless you own a monopoly on something. In that case your time will come. Sandstorms
I’ll be the first to admit that I’m not the most knowledgeable person when it comes to importing and exporting, but I did see a remark made in Falen’s comment that I disagree with (please, correct me if I’m wrong).
“That’s the global division of labor, China provides the labor and the developed country with the knowledge do the rest and gets to take in obscene profit margins.”
If the developed countries are taking in all of these “obscene profit margins,” then why do most/all of the developed countries have huge national debts while the “labor countries” are rolling in huge surpluses?
Tom,
Perhaps its more accurate to say the corporations that are based in the developed countries take in obscene profit margins. I do agree that this is changing, both because China is becoming more developed, and also because this economy is taking away those “obscene” profit margins as shoppers in a down economy are looking to not spend at all or looking for goods on the cheap. (a la Walmart)
I will probably be stoned by an economist, but the more I think about national debt/surplus, the more I feel like we’re only talking about funny money and not real cash…
HI there I found your blog when doing some research for food standards in Japan and China. I am looking into the various standards in the two countries and comparisons of government regulation in these standards. I also need some data to try and compare the two. Could you suggest any reliable journals or sources of data that cover these issues for either country or a comparison of both??
Great blog by the way
thanks
Marcello
Marcello,
Thanks for dropping by. Unfortunately, I dont have any good resources to suggest since I dont know many people who deal with food safety standards in either of the countries. While many China bloggers comment here and there, I dont know if I would consider anyone a reliable source of this kind of data. I would probably start by with the FDA equivalent of each country and look from there.
Tom