Made in China: trade and investment, protection and globalisation

19 October 2007

Li Yuanping, Director-General of Inspection and Quarantine Clearance, Central Administration of Quality Supervision, China, said that as part of its economic strategy of “winning with quality”, the Chinese government paid great attention to product quality and food safety.

It is “perfecting the regulation and standards system”, and has introduced 11 laws and 22 regulations on product quality and food safety. It has also established a certification system to cover all stages of production from “farm to dinner table”, so that only manufacturers who fulfil hygiene requirements are allowed to produce food for export.

It is also strengthening China’s quality and safety management system, and “tough inspection rules” ensure that only quality-assured goods can be exported. China’s “one model” system means that food exports must come from a “qualified” source, which uses standardised methods, and is subject to strict supervision and inspection.

The main measures taken include: tightening up the supervision on planting and breeding sources, improving the supervision of food producers and strengthening the pre-export inspection and quarantine of food products (including the use of a anti-counterfeiting CIQ mark to ensure that only genuine goods get through), and establishing a “List of Excellent Enterprises”.

Additional measures help strengthen law enforcement on product quality and food safety, and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) is charged with all aspects of food safety. Its work in certifying exports has won global attention, and exports to the US, Japan and the EU now receive an approval rating of over 99%.

Mr Li said this showed that the “Made in China” brand can be trusted and Chinese products are reliable, and this summer the government had invited the foreign media and diplomats to visit factories to see this for themselves.

The government also works with overseas agencies, like the US Food and Drug Administration to improve the safety and quality of exports, and ensure they meet importing country standards. For example, following an FDA tip-off, Beijing recently prosecuted enterprises which knowingly exported contaminated pet food.

At the same time, Mr Li was scathing about “unfounded reports” criticising Chinese exports, particularly as safety and quality faults were often the responsibility of the foreign brands: in the case of Mattel, the world’s largest toy retailer, 18.15 million toys were recalled because of safety issues stemming from design flaws originating in the US, he said.

The government is continuing with measures to improve the quality of its products for both domestic and foreign consumption, and has formed two “supervision chains” to inspect the whole production chain, establishing a system to trace product quality and a network to supervise all aspects of production. More than 300,000 people involved in law enforcement have inspected 124,000 production units, and as a result 1,114 firms making illegal products have been closed down.

Mr Li pointed out that the World Health Organisation has said that the certification of the quality of Chinese food (approximately 99%) is similar to that of advanced producers such as Japan, the EU and the US, so questions about food safety are not restricted to China.

International cooperation essential

“Mutual accusations do not resolve the problem”, he said. The only way forward is for the international community to “shake hands and work together”. Mr Li then described the measures needed:

· providing objective, accurate and timely information to the media;

· improving communication and exchange activities between countries to help overcome disputes as different countries have their own domestic standards.

· strengthening international cooperation: quality and safety problems can be solved through negotiation, based on World Trade Organisation and other international standards, and through bilateral and multilateral cooperation.

The EU is China’s largest trading partner, he said, and by 2006, China-EU trade amounted to 15% of China’s total trade volume, having grown faster than with any other country. China appreciates its cooperation with the EU on maintaining high standards, and is working to improve its food safety management.

David O’Sullivan, Director-General for Trade, European Commission, focused on product safety, saying that it was inevitable that things “would always go wrong” sometimes in modern industrial production, whether in the EU, China or anywhere else in the world. He reminded the audience that while there might be problems with Chinese toy exports, this was partly because China produced 80% of the world’s toys.

The EU tries to apply the highest production standards in food and on-food products, although these might seem excessive to outsiders. It has to tread a delicate line between consumer protection and maintaining open markets: it is important to get the balance right in protecting consumers, while avoiding accusations of protectionism.

One has to be “vigilant” in ensuring that products from other countries meet EU standards, said Mr O’Sullivan, as consumer confidence and transparency are crucial. However, he accepted that in a globalised trading system with its complex system of subcontracting, it is difficult to know who is responsible for product quality.

Turning to the issue of counterfeit goods, of which China is now the source of 83% of the world total, he said a system has been set up to ensure maximum international cooperation on the issue and a rapid alert system is being established.

He believed that setting up internationally recognised quality standards would lessen the scope for accusations of economic nationalism. Exporting countries need to know what the standards are, and China and the EU have a joint interest in managing these situations properly

Finally, he cautioned against mixing up issues about the quality of Chinese imports with wider concerns about China’s role in world trade, its trade surplus or its exchange rates.

China ‘catching up’ in an extraordinary fashion

Professor Peter Nolan, Director of the Chinese Big Business Programme, Judge Business School, Cambridge University, said China was the workshop of the world. This was not a new phenomenon - 500 years ago, it had produced one-third of the world’s goods and had been at the core of the world’s technology.

China has caught up the world in an extraordinary fashion, he said. It has absorbed huge amounts of foreign direct investment, and successfully integrated itself into world trade. However, the situation is very unfair - it does not have any global companies or global brands, and half of its foreign exports are produced for foreign firms based in China, while the rest are for overseas companies.

Everything the population needs - from planes, cars, telecoms and elevators to medical equipment - is produced by multinational firms, as China is only responsible for the low-technology parts that go into more sophisticated products. From the Chinese viewpoint, the world is very unequal.

Only five of China’s firms make into the top 1,250 firms, and all of these are highly-protected state-owned enterprises. This is because the world is dominated by global firms, with a massive level of market integration, making it difficult for China to break into. Of these top 1,250, 110 companies come from five European countries with a joint population of 43 million, while only 12 come from the BRIC countries (Brazil, Russia, India and China) with a joint population of 2.4 billion.

“The world is not flat,” stressed Professor Nolan. China is still a poor country, and if it wants to nurture and build competitive firms, it has to do this through its industrial policy. “The global level playing field is phenomenally uneven,” he concluded.