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Made (badly) in China

By Oliver August.

20 July 2007
Los Angeles Times

What allows it to produce shoddy or dangerous goods? Simple: Corruption.

ONE CHINESE-made product after another has been taken off U.S. shelves in the last four months. Lethal pet food. Toxic toothpaste. Contaminated seafood. The list is likely to grow longer still. But forcing Beijing to adopt stringent safety regulations, as Washington is trying to do, will make little difference.

The reason so many Chinese products sold in American malls are faulty is not a lack of regulation (who would accuse a communist regime of not being bureaucratic enough?) but corruption. I learned as much on a trip to southern China last year when I was detained by who I initially thought were the local police.

Four men bundled me into an unmarked van as I was walking in a busy town center near Xiamen. None of them were wearing uniforms. People on a nearby street did not protest or even inquire why I was being carted off. Most looked the other way, as one might expect in a police state where plainclothes cops have unquestioned powers.

What surprised me was that my captors took me to an office complex owned by a private company rather than to a police station. For eight hours, I was held in a secretary's office by security guards. A middle manager wanted to know why I had been asking townspeople questions about a recent scandal involving the company.

He admitted that he had no jurisdiction. He told me that his company was the biggest employer and taxpayer in the region, giving him a free hand to dispense justice. Calling the government would be no help. "They leave it to us to take care of things," he said.

The scandal I was investigating was typical for modern China. The company was a subsidiary of Simag Industrial Corp. in Fujian province that had manufactured and sold faulty lightbulbs. When found out, the company bribed a court official. In exchange for $1,200, the official dismissed a suit by homeowners whose lightbulbs had exploded.

None of this should have been possible. China has rules covering product safety and liability as well as court procedures. These rules may not be perfect, but there is no shortage of them. The real problem is that rules are often bent and broken with impunity. Thanks to growing wealth, many businesses are laws unto themselves. They dictate to municipal authorities, rather than the other way around.

Over the last 20 years, rule-bending has become an integral, if contradictory, part of China's economy. China has chosen a style of reform that lets laws wither in a twilight zone. Though still on the books, the statutes are rarely applied. Hoping to avoid acrimonious debates about ideology, the government routinely turns a blind eye, sometimes in exchange for cash, sometimes simply to boost economic growth and foreign trade.

Take the case of Lai Changxing. The illiterate peasant from Fujian province amassed a fortune worth several billion dollars by running an illegal trading business that bypassed China's regulatory thickets. He was a smuggler. With the full knowledge of the minister for borders and the head of military intelligence and several hundred other government officials, he turned himself into China's biggest private trader of oil, cars and cigarettes during the 1990s. He was a criminal, but he was useful. He boosted China's trade figures and hence was allowed to operate.

Off the record, some officials will attempt to justify such a policy. Mao Tse-tung engineered social change overnight, they say. The result was famine and strife. By contrast, current leaders are pursuing a slower pace of change. Flushing out the poisons of the past will take time, they say, especially in a country the size of China. Neighboring South Korea and Taiwan may have been able to reform in just a few years, but China is no mere peninsula or island. The country's new infrastructure will span a quasi-continent; its civil society encompasses a fifth of humanity.

Rather than impose a new system from above, they say, it is preferable for old ways to be corrupted in the margins. Where there are ports, the flow of trade is allowed to flourish with new goods and ideas. And where there are proven business leaders, they are given free rein as long as they do not threaten Beijing.

This is a convenient stance. Scarcely impeded by rules, officials get to preside over a freewheeling boom and the creation of millions of new jobs. And whenever their position comes under threat, they are able to pull back and blame individual business owners.

The government did just that in the case of Lai, the smuggler. When he became too powerful and politically independent, having established a virtual fiefdom in the southern city of Xiamen, he was indicted. The state news agency branded him "China's most wanted man." Outraged ministers listed payoffs Lai had made. Yet government records show they had known for years what Lai was up to and looked the other way.

The current scandal about product safety is a mirror image. Beijing has long ignored reports from domestic consumer groups about shoddy products. Only now that it has been embarrassed by the export of the problem is it taking note. A crackdown is underway, aimed at individuals directly responsible, in this case factory managers and regulators. Last week, Zheng Xiaoyu, a former food and drug safety watchdog, was executed after being found guilty of corruption and dereliction of duty.

Yet the system of governance that has allowed people like Zheng and Lai to break the rules until they become a nuisance will stay in place. It has worked well for Beijing. And it has worked well for American consumers who have enjoyed low-cost Chinese products. Until now.

(c) Los Angeles Times

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