China’s export juggernaut hits limits - East Valley Tribune: Business

China’s export juggernaut hits limits

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Posted: Monday, July 30, 2007 3:59 am | Updated: 6:27 pm, Fri Oct 7, 2011.

SHANGHAI, CHINA - Wang Wenlong knew he wasn’t going to get top quality when he plunked down $4,700 for a locally made car. But he didn’t expect so many problems from his Xiali subcompact — from windows that refused to open to windshield wipers that wouldn’t wipe.

“I got what I paid for, and at least it didn’t cost too much to fix those problems,” said Wang, a 30-year-old Beijing resident. “That’s why those cars are still very popular and sell well in the market.”

But will they sell overseas? China clearly has such ambitions. Earlier this month, a major Chinese automaker partnered with the Chrysler Group to export to Western markets.

A recent spate of scandals, though, has exposed a major weakness behind the country’s transformation into a global export power: quality control. As authorities scramble to reassure overseas customers, the stakes are huge. China, following in the footsteps of Japan and South Korea, is banking on a shift to higher-end exports to continue its economic climb and better the lives of its citizens.

Success hinges on lifting quality to international levels. American and European factory workers may fear Chinese competition but, on this front, China still has a ways to go.

“It’s clear that China is going to have to match global standards for quality and safety,” said Gene Grabowski, a senior vice president at Washingtonbased Levick Strategic Communications.

“The question is how fast they can do it,” said Grabowski, who works mainly with bigname food and consumer goods companies.

So far, Beijing’s handling of the complaints over its exports has been mixed. While it has promised both stepped-up inspections and more stringent enforcement of regulations, it has also suggested that the problem is overblown by the foreign media.

The Chinese government said on its Web site Wednesday that the Cabinet had passed a draft food safety regulation that “strengthens the responsibility of local governments and increases the punishment for illegal activities.” No details were given, or a timetable for adopting the regulations.

China doesn’t have a centralized food-safety regulatory system; responsibility is split among at least six agencies overseeing health, agriculture and commerce. The lines of authority are ill-defined, and different bodies oversee different laws. Agencies contacted for comment did not respond.

China also has no equivalent to the U.S. Consumer Product Safety Commission that can alert consumers to recalls or hazardous products, although it does have an official Web site listing automobile recalls.

Over the past 25 years, China has become the workshop for the world, as manufacturers in just about every industry have shifted production offshore to cut costs and expand into overseas markets.

As China supplies an ever growing share of products — exports to the United States last year were $288 billion, nearly triple the level of just five years ago — quality and safety issues are grabbing greater attention.

Most multinational corporations, which in some industries have to partner with Chinese companies to enter the market, invested heavily in quality controls to ensure that their made-in-China products satisfied safety standards and consumer demands in their home markets.

The approach helped Chinese manufacturers win a reputation for reasonably wellmade and inexpensive low-tech exports, said Robert Kapp, a business consultant who headed the U.S.-China Business Council from 1994 through 2004.

But foreign retailers and distributors have begun cutting costs by buying directly from local manufacturers, using Internet-based sourcing and other means to bypass the multinationals. This came partly from market-opening measures agreed to under China’s 2001 entry into the World Trade Organization. Prices fell, but quality has suffered.

A recent China Automobile Consumer Satisfaction survey found that 77 percent of newcar owners reported problems, with 338 problems for every 100 vehicles. The report blamed automakers for using cheaper parts to cut costs as they battle ferocious competition.

“The ‘whatever we can do to get it a few cents cheaper’ attitude has now led to U.S. firms being confronted with major problems,” said Steve Vickers, president of the consultancy International Risk. “We end up doing business with people we shouldn’t be doing business with. Or we end up dumping people and leaving them with the ability to continue to manufacture our product.”

A scandal over contaminated pet food that killed dogs and cats in North America drew public attention to the problem. Then came reports of tainted toothpaste and fish, faulty tires and toy trains covered with lead paint.

The situation is worse inside China, where stores are filled with shoddy goods, whether it’s sandals that fall apart within a week of purchase, electric foot baths that pose an electrocution hazard or zippers that don’t zip. From cough syrup to cars, Chinese manufacturers often compromise on quality in an unceasing bid to undercut the competition on price.

“Multinational companies are very aware of quality standards but local companies are more lax. There’s a very big gap,” said Rich Wong, a sales and marketing director for Thermo Fischer Scientific, which sells equipment to analyze lead, cadmium and other toxins in various products.

As China moves into bigticket items such as cars and even passenger planes, closing that gap remains a major hurdle.

Chrysler and Chery, China’s biggest independent automaker, plan to export cars to Latin America or Eastern Europe within a year and to North America and Western Europe by 2010, Chrysler CEO Tom LaSorda announced this month in Beijing.

Other foreign automakers, such as General Motors Corp., have so far shied away from exporting Chinese cars to major Western markets, aware that earlier attempts to sell cheap cars in the United States, such as the Yugo, were a fiasco.

“It is too early for Chinese automakers to think about exporting to European and US markets,” said Zhang Xin, an industry analyst at Guotai Jun’an Securities.

Some experts believe the recent spate of complaints over the safety of foods, drugs and other products shipped from China could prompt improvements similar to a “quality revolution” that Japan embarked on in the 1960s.

“If the Chinese realize that they are losing business to India and Vietnam, which can beat them on price even if not on quality, then the quality in China will start improving,” Wong said.

Much depends on how seriously the government takes the quality issue. While authorities have publicly expressed determination to address the problems, they’ve also accused the international media of fueling unfounded fears about the safety of Chinese exports..

The telecommunications equipment industry, where Chinese companies already are a major force, offers reason for hope. But analysts say the auto industry, while making great strides, still needs to improve.

Just ask Wang, who got fed up and sold his Xiali. “Small problems can be very annoying if they occur again and again,” he said. “I take the bus now. I don’t want to be bothered anymore.”

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