Tuesday, June 26, 2007

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China Inc. is developing a bad brand image

The growth of health and safety concerns about Chinese imports is not fading away into the night.

The Wall Street Journal's Timothy Aeppel reports that tires are the latest product to raise concerns:

A fatal auto accident in Pennsylvania has stirred concerns about another potentially hazardous Chinese product in wide use in the U.S.: tires.

About 450,000 Chinese-made tires sold in the U.S. -- and possibly many more -- may lack an important safety feature, according to federal regulators and the U.S. distributor that helped design them. But the task of identifying who bought the defective tires and getting them off the road has been complicated by litigation and holes in the nation's product-recall system.

The tire defect comes in the wake of several other high-profile safety problems involving Chinese products, including the discovery of lead paint on children's toys and hazardous materials in Chinese-made toothpaste and in wheat gluten used in pet food.

"As imports grow -- and China is the largest exporter to the U.S. -- it's essential" that all manufacturers comply with U.S. safety regulations, said Daniel Zielinski, a spokesman for the Rubber Manufacturers Association, the tire industry's main trade group....

The fatal wreck occurred last August, when the tread allegedly separated on a steel-belted radial on a cargo van carrying four passengers. The driver lost control and crashed, killing two passengers and injuring the other two -- one severely. The driver was also hurt.

Tread separations are particularly hazardous when they involve vans and SUVs, which have a higher center of gravity and are more prone to tip over than passenger cars. Tread-separation problems sparked a massive nationwide recall of Firestone tires in 2000.

An official at NHTSA said the agency is aware of the defect and that the U.S. distributor is ultimately responsible for a recall. The agency generally doesn't test tires independently, unless a manufacturer or distributor fights NHTSA's conclusion that its tires are defective....

In its lawsuit, filed after FTS itself was sued in the wake of the fatal accident, the company accuses the tire maker of removing the safety feature -- a 0.6-millimeter layer of rubber, known as a "gum strip," which is added between the steel belts to give the tires added durability -- without notifying the distributor.

Shi Xinbo, an official at Hangzhou Zhongce, said, "We are confident in our quality. Our products certainly meet the safety standards of foreign countries. This is just a commercial dispute. We are not aware of any official investigation by the U.S. government." He declined to comment on the gum-strip issue.

As a country develops and moves up the consumer supply chain, they generally acquire a reputation for making high-quality goods (think Japan and South Korea). What's interesting is that China seems to be moving in the opposite direction.

I have no doubt that U.S. industry associations will hype consumer health and safety fears to serve their own interests. This doesn't mean they're wrong, however.

posted by Dan on 06.26.07 at 09:14 AM


Correlation vs. Causation, etc.

At this point, all of this is anecdotal. As you said, it is most likely being brought to the forefront out of the self-interest of industry leaders. China is our largest exporter, and the vast majority of those exports being products that are very price sensitive. Would low-quality, low-price Chinese goods be any less safe than their low-quality, low price American counterparts? I'm not too sure. Obviously, empirical data is needed. But right now, these anecdotes scream of protectionist thinking.

posted by: Chris Thomas on 06.26.07 at 09:14 AM [permalink]

I tend to agree with those who argue that it's simply protectionism.

Nevertheless, it appears to me that we're in that transition period where the appropriate public or private regulatory/legal system in China is weak enough that there is profit to be made in being dishonest or shoddy. My guess is that it will last no more than 10 years, but that's cold comfort to someone whose tires came apart on the interstate.

To be nativist for a paragraph, I have to be irritated at the doubtless American MBA-planned relabeling of Chinese products with English names like "Westlake, Telluride, Compass and YKS". More episodes like this will encourage mandatory labeling laws that will be bad for China and bad for the US, in the long run.

posted by: Klug on 06.26.07 at 09:14 AM [permalink]

Ford Motor estimates the Chinese counterfeit $1B a year of "Ford brand" parts.

Worse yet, Ford gets the consumer flack when the poor quality parts fail.

Combine poor quality with phony labeling and we have a major consumer problem.

posted by: save_the_rustbelt on 06.26.07 at 09:14 AM [permalink]

I do not think China is moving backwards in terms of quality, I just think the timing of our imports means many of the problems are coming to roost now. In most of the cases I have seen, the US company is at least partially to blame and it APPEARS to be the case here as well. Did the importer check the construction of the tires before they left the plant in China? How many tires did it check?

posted by: Dan on 06.26.07 at 09:14 AM [permalink]

Bad brand name? Wait till you read the response from Hangzhou Zhongee Rubber Co.

posted by: Aruna Urs on 06.26.07 at 09:14 AM [permalink]

Unlike China, Japan since the beginning of the 20th century, has lots of experience in competing with western economies, taking advantage of western technologies and techniques and in developing its own.

Officials of Hangzhou Zhongce Rubber Company are already denying any wrongdoing or faulty product manufacturing. But then other Chinese manufacturers had denied product contamination of gluten used in pet food, toothpaste, medicines.

China has been retaliating by rejecting food imports from France, Canada and the US citing failure to meet Chinese product safety standards.

The latest is that China closed 180 food factories because of the use of formaldehyde, illegal dyes, and industrial wax found being used to make candy, pickles, crackers and seafood.

Gee, what could all this mean?

posted by: bluhawkk on 06.26.07 at 09:14 AM [permalink]

Also, I can't help but notice that the text on the chopstick wrappers could use a good copy editor.

posted by: MH on 06.26.07 at 09:14 AM [permalink]

I think China IS moving backwards, because of the lowering barriers-to-entry...

With China being a cheap, unregulated place, the barrier to entry for creating a factory/company is far lower than everywhere else in the world.

With the ability to cheaply create a manufacturing company identity, it becomes far less costly to cut corners as your "reputation cost" for being a bad supplier is low.

EG, the tire company in china which cut corners is now probably "out of business" and back under a new name, perhaps at a new location, and probably doing the same corner cutting and spec-cutting all over again.

posted by: Nicholas Weaver on 06.26.07 at 09:14 AM [permalink]

The biggest potential for long-term and perhaps irreversable damage to the "Made in China" brand (in the US anyway) is any suspicion of harmful pet products, namely food but also toys.

That Americans love their pets is the greatest of understatements. If China wanted to secure brand loyalty for generations, they should make every effort to lead the world in quality pet food and products. Everything else will be forgiven...

posted by: James on 06.26.07 at 09:14 AM [permalink]

Use of the words "protectionist" and "protectionism" is code for "I make money in a field which ships jobs to/argues-on- behalf-of-shipping-jobs-to China/India; don't mess with my gravy train".

If mandatory country-of-origin labeling laws get in the way of the Predator Class' profits, then too damn bad. What? The consumer doesn't deserve to know the truth about where a product was manufactured? Good grief.

posted by: Glogger on 06.26.07 at 09:14 AM [permalink]

(reposting because I got dropped)...

In THIS case, the tire comany was and is actually well established, and is still around and contesting the charges...

In retrospect, I think this case is actually a greater symptom of the "wal*Mart" race to the bottom (where because margins are squeezed so much, there comes a point where just improving efficiency is not enough and one needs to cut corners to maintain profit), rather than China Inc in particular.

posted by: Nicholas Weaver on 06.26.07 at 09:14 AM [permalink]

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